Bank Foreclosures Information

The high demand for bank homes for sale nationwide pushed up home prices in September, according to a real estate survey conducted by Inside Mortgage Finance.

Home prices increased by 6 percent from price levels in August, reversing the one-percent August price decline from July. According to data gathered, the increase in home prices was driven by the rising demand for bank-owned homes or REO properties.

Nationwide, the average sales price for a damaged bank-owned home increased in September to $124,500, up from the August average of $106,700. The average sales price for a move-in ready bank-owned house, meanwhile, climbed up in September to $199,300, up from the August average of $178,500.

In September, damaged bank-owned houses comprised 15 percent of all house purchase deals and move-in ready properties comprised 16 percent of all home sales.

For non-distressed homes, the average price in August and in September stayed nearly constant. The average price in August was $267,900 while the average price in September was $268,200. Short sales accounted for 14 percent of all home sales in September while non-distressed homes comprised 55 percent.

Analysts said that the strong demand for lower-priced bank homes for sale reduced the time these types of homes remained on the market. During August, the average time damaged bank-owned homes stayed in listings was 9.4 weeks. The average time dropped to 7 weeks in September.

For move-in ready bank-owned homes, the average time they remained on the market in September was 5.9 weeks, a drop from 8 weeks in August. In contrast, non-distressed homes remained on the market longer, remaining in listings in September for 14.2 weeks, an increase from the average time of 13 weeks in August.

Purchases by first-time home buyers in September were again significant in September, comprising 42 percent of all home sales during the month. Before the passage of the law that offered federal tax credits to first time home buyers, their home purchases accounted for 32 percent of all home sales. The survey also found that most of the move-in ready bank-owned homes were bought by first time home buyers.

According to the researchers, the rise in home price levels and number of home buyers resulted from the confluence of favorable factors, including low mortgage rates, increased number of first time homebuyers, lower prices of bank homes for sale and the belief by real estate agents and home buyers that the housing market has started to recover.

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Bank home foreclosures continue to gain strength at a rapid pace. The trend is partly blamed on the rising mortgage delinquencies. Industry experts said that financial companies and consumer demand will continue to suffer and pay for bad loan decisions made during the peak of the housing market.

In November 2005, home sales reached an annual pace of 8.5 million. The following year, home sales dropped by almost 3 million. The rest is history as the housing market continues to spiral downward, pulling everything with it, including the economy, home prices and home values.

And adding to the worsening problem is the rapid rise in the unemployment rate. Last month, the number of people who lost their jobs reached 9.8 percent. According to industry experts, it will take at least one year before many Americans would need more new houses to accommodate increasing demand due to the lag between mortgage delinquency, bank home foreclosures and resale.

Market data showed that one-quarter of subprime mortgages accounted for the total loan delinquency so it is expected that there will be no shortage of housing supply. Industry analysts said that the large inventory of foreclosure properties on the market will forever hinder whatever progress is made towards the recovery of the economy and the housing market.

Statistical reports noted that as many as 5.8 million loans are in danger of defaulting and going into foreclosure. The figures overwhelmed the sales of existing single family homes which reached 5.1 million annually.

Meanwhile, home prices in the country posted marginal gains from April to July. However, industry analysts are not confident that home prices will continue to increase the rest of the year and next year given the large supply of foreclosure houses on the market.

They pointed out that there is a possibility that the current 30 percent drop in home prices is still a carryover from 2006. Analysts said that banks are still facing loan losses, therefore a rise in consumer demand is not yet possible.

Also, the unemployment rate remains unabated and many homeowners have already exhausted their savings and many are turning away from their properties that are worth less than the total mortgage they owed. All these trends are pointing towards more bank home foreclosures in the future, analysts said.

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The number of bank foreclosure properties priced more than the conforming loan limit of $729,750 has been rising, according to a recent survey conducted by the Mortgage Bankers Association and studies by several property research firms.

Based on data from the researchers, default rates on prime jumbo mortgages have been increasing, particularly home loans provided by lenders from 2006 to 2008.

Robert Toll, chief executive of luxury house builder Toll Brothers, admitted that the rise in prime jumbo loan foreclosures is a threatening development for the home building industry.

Additionally, the MBA data showed that out of three recent foreclosures, one was a prime loan, indicating a significant rise from the one-in-five ratio last year.

The percentage of prime mortgages in foreclosure increased by 3 percent, an increase of 51 points from the number in the first quarter and a rise of 158 points from the number during the same period last year. Default rates on prime mortgages have also been rising.

In the past, foreclosure actions are largely filed for homes valued below $100,000 and houses priced between $100,000 and $300,000. In some states like California, the average sales price for bank foreclosure properties in the past was $192,031. But now foreclosures have been happening in high-end communities, where most mortgages are far above $729,750.

One example is the foreclosure of a luxury residential project in Vero Beach, Florida by Regions Bank, with the project developer owing the bank a total of $22 million.

Another is a luxury residential project in Dallas, which was planned to feature a shopping mall. It has been foreclosed by Wachovia Bank, now a unit of Wells Fargo.

Analysts said that the number of high-end foreclosure homes would have been higher if luxury-home owners do not sell their distressed homes through short sales.

To avoid the humiliation of foreclosure, many owners of high-end homes exert all efforts to sell their properties before they are foreclosed. With their business and social networks, they are able to negotiate with their lenders to accept short-sale proceeds as payments for their jumbo loans.

Banks meanwhile prefer short sales when high-end homes are involved because they lose much more in high-end foreclosures compared to what they lose in the foreclosure of lower end homes.

Across the country, bank foreclosure properties continue to impact not only the lives of defaulting homeowners, buyers and investors, but also the financial conditions of banks heavily exposed to the commercial and residential sector.

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Bank foreclosure homes and foreclosed commercial properties clobbered 5 more banks, putting the total number of U.S. banks that collapsed this year as of the first week of September to 89 banks.

The Federal Deposit Insurance Corporation shuttered First Bank of Kansas City in Missouri, which had $31 million in deposits and assets, and approved the takeover of its deposits by Great American Bank, which is based in De Soto, Kansas.

The FDIC also closed two Illinois banks, namely InBank which is based in Oak Forest and Platinum Community Bank which is based in Rolling Meadows.

A major portion of the $199 million deposits in InBank will be taken over by MB Financial Bank while the brokered deposits will be supervised by FDIC. Three branches of InBank will open as MB Financial Bank. InBank also had $212 million in total assets.

Platinum Bank had $305 million in total deposits and $346 million in total assets. Since the FDIC was not able to find a buyer for Platinum, insured deposits will be paid by FDIC at Platinum Bank. Payments for social security and veteran bills enrolled at Platinum Bank will be accepted at the Palatine branch of MB Financial Bank. Just like other banks, Platinum was heavily exposed to the real estate sector, which is currently loaded with bank foreclosure homes and foreclosed commercial properties.

The FDIC also closed First State Bank in Flagstaff, Arizona, which had $105 million in total assets and $95 million in total deposits. The deposits will be taken over by Tustin, California-based Sunwest Bank.

Vantus Bank, which is based in Sioux City, Iowa, had $368 million in total deposits and $458 million in total assets when it closed. Its deposits will be taken over by Springfield, Missouri-based Great Southern Bank.

Because the FDIC insures deposits up to $250,000, the FDIC deposit insurance fund is expected to lose millions to cover the deposits: about $6 million for First Bank of Kansas, about $66 million for InBank, about $168 million for Vantus Bank, about $114 million for Platinum Bank and about $47 million for First State Bank.

Because of the continued rise in bank foreclosure homes and foreclosed commercial properties, more banks are expected to collapse in the next months and years. According to FDIC, the number of problem banks has increased to 416 on June 30, compared to 305 last March 31. The number is also the highest level reached since the collapse of savings and loan institutions in 1994.

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The Federal Home Loan Bank of Boston posted a net loss of $4.2 million in the second quarter largely because of write downs in mortgage-backed securities clobbered by bank repo homes. In the second quarter last year, the bank posted a net income of $71.4 million.

In the second quarter this year, the bank posted $211.1 million in write downs, with approximately $71 million directly affecting the bank’s net income.

Meanwhile, the bank’s average advances dropped to $48.1 billion in the first 6 months of 2009, a decrease of $11.8 billion from the same six-month period in 2008.

According to FHLB, the decline in advances was prompted by the decision of member banks to deleverage their balance sheets in an effort to preserve their capital levels. Member banks also depended less on advances from FHLB as they experienced significant increases in deposits. Investors deposited their funds in banks after experiencing substantial stock market losses.

The June 30 statement by FHLB showed that its capital was $2.6 billion, lower than the $3.4 billion reported 6 months earlier. The decrease has been attributed by bank executives to investments in securities backed by Alt-A home loans.

FHLB said that the biggest risk faced by the bank is its portfolio of $3.22 billion Alt-A mortgage-backed securities. Alt-A mortgage loans are risky because they were provided to borrowers with little financial documentation and weak credit scores. According to the bank’s statement, most of the Alt-A investments, amounting to $2.5 billion, are junk-rated mortgage securities.

The bank also added that because of the continued rise in defaults and foreclosures on Alt-A mortgage and subprime loans, prices for subprime and Alt-A mortgage-backed securities have been trading for lower than 50 cents on the dollar.

Meanwhile, in a letter sent to member banks by FHLB of Boston CEO and president Edward Hjerpe III on August 12, Hjerpe explained that the bank could suffer additional losses in certain investments due to uncertainties in the capital and housing markets. To protect the bank’s capital and retained earnings, he said that the bank is extending its moratorium on quarterly dividend payouts and excess stock repurchases despite its negative impact on members.

However, Hjerpe assured members of the status of FHLB of Boston as a strong low-cost source of funding despite the economic downturn. He reiterated that the bank remains compliant with all regulatory bank capital ratios as of the end of the second quarter.

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The loan refinancing scheme of the Obama administration’s government foreclosure program was assessed by James Lockhart, oversight board chairman and CEO of the Federal Housing Finance Agency, in his speech at the annual conference of the National Association of Real Estate Editors in Washington, D.C. recently.

Lockhart admitted that the 105-percent loan-to-value limit of the government foreclosure prevention program’s loan refinancing scheme may not work in states where home prices have fallen to the lowest levels, putting many mortgages underwater.

Lockhart said federal housing officials are considering increasing the loan-to-value limit to help underwater borrowers. But he also reiterated that much of the progress of the government foreclosure prevention program depends on the determination of troubled homeowners to save their homes.

The FHFA official said many homeowners have not been replying to their mails and others are refusing to take advantage of the lower mortgage rate, such as the 2 percent rate.

In an effort to explain the slow pace of the loan modification scheme of the government foreclosure prevention program, Lockhart said that mortgage servicers have been overwhelmed by large numbers of applications. He explained that the systems of lenders were not originally designed to service sudden large numbers of loan modification applicants.

Nevertheless, Lockhart said, the current government foreclosure prevention program has shown indications of becoming more successful than previous programs because of the incentives given to both lenders and borrowers to modify loans.

He also added that the Obama program should result in fewer repeat defaults than previous programs.

At the conference, Lockhart also discussed the future roles of Freddie Mac and Fannie Mae, which were taken over by the federal government in September 2008. Lockhart and former Treasury Secretary Henry Paulson crafted the move of the two enterprises into conservatorship to help maintain housing market stability.

Lockhart said that Fannie Mae and Freddie Mac have been recapitalized with more than $900 billion and that the federal government is committed to provide more if needed under the Housing and Economic Recovery Act signed by former President George Bush in 2008.

Among all the proposals submitted by various sectors for the future roles of Freddie Mac and Fannie Mae, Lockhart contends that the best is the house insurance role of the enterprises.

Lastly, Lockhart mentioned that the excessively high homeownership goals of the two enterprises pressured them to take too much risk. He hopes that the two enterprises can later focus on insurance after helping the government foreclosure prevention program achieve its goals.

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Despite constantly battling against low foreclosed home for sale prices since the start of the foreclosure crisis, many home builders have been able to endure the battering.

National home builders have been cutting costs, streamlining processes and building smaller-size homes as they cope with losses and stock price declines.

In the West this June, increases in sales of new homes have pushed up home builder confidence and boosted hopes that the effects of foreclosed home for sale prices on new construction are weakening.

The National Association of Home Builders/Wells Fargo HMI or Housing Market Index increased by 2 points in Western states, putting current reading to 14, just one point below the said HMI reading of 15, which represented a drop of one point.

Despite the uptick in home builder confidence in Western states, the confidence level remains low, as any reading lower than 50 represents negative sentiment. Compared to other regions, the West had the lowest confidence level.

NAHB chief Joe Robson explained that the improvement of sales of new homes in recent months has improved home builder confidence levels in many areas. He attributed the increase in sales to the improved home affordability, the first-time buyer federal tax credit and lower mortgage rates.

However, Robson is concerned about the situation of the home building industry in the coming months. He said that the federal tax credit is expiring in November, mortgage rates are increasing and loans for housing construction are still very difficult to find and obtain.

Home builders in Northern Nevada are particularly affected by current developments because of large foreclosed home for sale inventories in the area.

Nevada home builders are hesitant about building new homes because of foreclosed home for sale prices that are falling further and further down to bottom levels.

Gregory Peek, a top executive of Reno-based real estate developer ERGS Properties, said that it is difficult to build a home that can compete with foreclosed home for sale prices. He explained that Northern Nevada is different from other areas in the region where some builders have been making sales.

Peek admitted that Northern Nevada experienced high peaks in home prices during the housing boom, so it is expected that they are now experiencing among the lowest bottoms in prices.

Nevertheless, many Western home builders, including Peek, expect that they will recover once foreclosed home for sale prices stabilize.

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Despite the perception of many critics that the Obama administration‘s government repo prevention program has not made a difference in the nationwide foreclosure situation, the Treasury Department has claimed that over 120,000 home loans were modified in the first few months after the Making Home Affordable program was launched.

The first results are a significant improvement over the negligible results of the Hope for Homeowners program launched in 2008. This government repo prevention program attracted only a few applications because of eligibility requirement problems and lack of lender participation.

President Obama’s government repo prevention program has also not progressed as fast as expected in cutting down and preventing foreclosures, but it has been the most promising government repo prevention scheme so far, according to housing analysts.

Rosa Miro, a counselor working for Consumer Credit Counseling of Central Florida, said she has not helped even one homeowner in previous government repo prevention programs. The current foreclosure prevention program is more effective because it has provided $75 billion to encourage both lenders and borrowers to participate in the program.

In the Hope for Homeowners program launched in 2008, loan modification was voluntary on the part of lenders, who refused to spend more money to modify loans.

In the current program, mortgage lenders and loan servicers are not only given incentives to modify loans, they are also protected from lawsuits that could be filed by investors who purchased mortgage-backed securities investors.

Jeff Purdue, head of brokerage Orlando Home Mortgage, lauded the lender protection law because it changed the attitudes of lenders and servicers previously wary of expensive investor lawsuits.

Meanwhile, there were 3,650 homeowners who were able to refinance their loans through the Obama administration’s Making Home Affordable program. The approval rate however has not been released by the Treasury Department.

Some critics are saying the government repo prevention program has not been effective because they are comparing the number of loan modifications and refinancing to current and expected nationwide foreclosures.

Based on a report from the Center for Responsible Lending, over 2.4 million foreclosures will be added to current foreclosure inventories. This number could increase as 12 percent of 45 million home loan borrowers nationwide had become delinquent, based on data from the Mortgage Bankers Association.

Indeed, in order for the government repo prevention program to make significant progress, officials have to work overtime to evaluate its progress and make adjustments and improvements.

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The more than 321,000 foreclosure filings in May indicate that the Making Home Affordable Program of the Obama administration has not yet made a significant dent on the problem of large numbers of foreclosed properties for sale in the country.

According to Rick Sharga, a vice president at the California-based real estate research firm RealtyTrac which released the foreclosure filing report, nearly 1 million foreclosure notices were filed in a period of just 3 months. Sharga said this is unprecedented.

The May foreclosure total was the third biggest in RealtyTrac’s foreclosure monitoring history and also marked the third consecutive month that the total surpassed the 300,000 level, which is also the first occurrence in the report’s history.

Sharga added that compared to the previous month of April, the number of foreclosure auctions and delinquencies declined, but the number of bank-owned foreclosed properties for sale increased by 2 percent.

The two-percent increase, according to Sharga, was largely caused by increases in foreclosed houses in Arizona, Michigan, Washington, Oregon, Nevada and New York. He said that his research team expects more bank-owned foreclosed properties for sale in the next months as various foreclosure prevention actions implemented by states reach their expiration dates.

The loan modification and refinancing schemes of the Obama administration obviously have not yet made a big impact on foreclosures. Either the implementation of the program is facing various challenges or unemployment and other recessionary factors are derailing the Obama foreclosure prevention program.

The nationwide unemployment rate has reached the 9.4 percent level in May, the highest level in nearly 26 years. Mortgage rates have also jumped by one percentage point to over 5.5 percent.

Sharga explained that one of the remedies to help solve the housing problem is to increase home buying activities to a level that would exhaust all foreclosed properties for sale. He added that mortgage rates should not be allowed to go up because any increase would further discourage those who are planning to buy homes and who keep postponing their home purchases.

RealtyTrac predicted that approximately 4 million foreclosure actions will be filed this year involving around 3.1 million homeowners with home loans. In 2008, a record total of 3.1 million foreclosure filings were made on approximately 2.4 million housing units.

According to RealtyTrac records, only about 800,000 filings are made on about 550,000 households during a normal year.

Sharga explained that the combined pressure of low prices and high number of foreclosed properties for sale drives more properties into foreclosure.

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The nationwide housing inventory took a slight dip last month despite the plentiful supply of bank foreclosure property.

The number of foreclosure homes for sale declined by almost 3.9 percent in May compared to figures a month earlier, according to ZipRealty Inc., an Emeryville, California-based real estate brokerage firm. The ZipRealty figures cover all condominiums, town houses and single-family homes in 28 major metropolitan cities.

Meanwhile, the National Association of Realtors data showed that the May housing inventory in 28 major metropolitan cities dropped by almost 24 percent, compared with the same month the previous year.

The association said that an estimated 4 million houses were placed on the sale list in April, representing a decline of 11 percent from the same month a year earlier.

Despite the decline in housing inventory, supply of bank foreclosure property remains plentiful on the national basis because the figures provided by both Zip and Realtors excluded all foreclosed properties that banks have not yet placed on lists for sale.

Research firm Zelman and Associates noted that historically, inventories on the national level showed little change from April to May.

Meanwhile, housing economist Thomas Lawler said that the drop in home inventories across the country and the lack of activity in the housing construction market may indicate a slow drop in home prices too.

According to the Integrated Asset Services LLC’s U.S. house price index, April data was unchanged compared with a month earlier but dropped by 13 percent from a year-earlier period.

Meanwhile, in New York City, appraisal firm Miller Samuel Inc. reported that about 9,551 condominiums and cooperative apartments are listed for sale in May. The figures indicated an 8 percent drop from April but a 9 percent rise from the May 2008 total.

On the other hand, RealtyTrac’s May 2009 U.S. Foreclosure Market Report showed that 321,480 properties across the country were in danger of becoming bank foreclosure property. The figures represented a 6 percent decline from the April data but an 18 percent increase from a year-ago month.

Foreclosure filings were received by one out of 298 homeowners in the country. Furthermore, the number of bank foreclosure property inched up by 2 percent due to significant increases in several states, including Arizona, Washington, Oregon, Nevada, Michigan and New York.

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