Bank Foreclosures Information

The National Foreclosure Mitigation Counseling Program is successful in helping 373,169 homeowners avoid repossession properties, according to the NeighborWorks America, a group that helps financially strapped homeowners.

A report released by the NeighborWorks America stated that only 2 percent of homeowners who sought counseling to avoid repossession properties have lost their homes. Data covers the period from March 2008 to February 2009.

According to the group, the program which it administers, was able to help about 25 percent homeowners remain in their homes and avoid repossession properties. Those who remained in their homes do so by working out repayment plans with mortgage lenders. Some continue to stay in their homes while negotiating with their lenders.

The report signifies good news to the housing market being battered with surging foreclosures. RealtyTrac reported that 342,000 homeowners received notices of foreclosure in April. The surge in April foreclosures is being blamed on the lifting of foreclosure moratoriums in some states.

Meanwhile, home market prices continue to drop precipitously, prompting some homeowners to abandon their distressed properties because they believed that it is not worth to continue paying mortgages on a property that has less value.

Doug Robinson of NeighborWorks in Washington said that the report showed that troubled homeowners who seek counseling immediately have a greater chance of avoiding repossession properties.

He added that those who seek early counseling also have a better opportunity of availing a loan modification and affordable payment plan. Meanwhile, the report also showed the depth and extent of the foreclosure problem.

According to NeighborWorks, 53 percent who sought the counseling are minorities. The sad news is, minorities accounted for only 24 percent of the nationwide homeowners. And while mortgage interest rates were only about 5 percent, 18 percent of Hispanic homeowners and 35 percent of African-American borrowers have mortgage loans with interest rates higher than 8 percent.

On a positive note, many homeowners who are financially strapped have immediately heeded the advice to seek early counseling. Also, more than 50 percent of homeowners who sought help were less than two months delayed on their mortgage payments. In fact, 30 percent of homeowners who sought help were current in their accounts.

The report also noted that many homeowners who are at risk of repossession properties are having difficulty meeting their mortgage obligations, with 39 percent paying over half of their earnings to housing costs and 20 percent paying 75 percent of earnings on mortgage.

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Detroit will not only be the city affected by General Motors’ bankruptcy filing. In the next year and a half, 14 plants and 3 warehouse facilities around the country will be closed, putting over 20,000 auto workers out of work and causing more foreclosed new homes.

In Detroit, the scheduled closure of the Orion assembly plant with 3,405 employees and the Pontiac truck plant with 2,671 employees will put more than 6,000 families without a stable source of income.

The Michigan property market, which has been showing some signs of recovery, may again reverse its direction because of the plant closures.

Bill Martin, chief executive of the Michigan Association of Realtors, said there has been a significant increase in sales but home prices continue to go down. The plant closures could push house prices further down.

In Detroit, sales of foreclosed new homes and non-foreclosed homes had increased by 23 percent for the first quarter this year, compared to last year’s first quarter. For the houses sold in April, the average price was only $20,514.

Martin added that the additional 40,000 unemployed auto workers will surely increase the number of foreclosed new homes and worsen foreclosure-related problems.

For many years, Detroit has been clobbered by foreclosures. In April, 6,259 houses were hit with foreclosure filings, based on RealtyTrac data.

Even so, Bob Curran, a broker for Century 21 based in Dearborn, is hopeful. He said Dearborn, where Ford Motor is based, and other Michigan cities have gone through downturns before.

He said that the decline in home prices have been increasing sales of foreclosed new homes and non-foreclosures as first-time buyers took advantage of the tax credit and low mortgage rates. He also observed that Australians and Canadians have been buying distressed properties and that Californian investors have been snapping up foreclosed new homes and non-foreclosures several units at a time.

Bank-repossessed homes are being sold in bulk below $10,000 each while foreclosed new homes located in well-maintained neighborhoods are being sold for approximately $45,000.

In other Midwest cities, such as Mansfield, Ohio, increasing home affordability is the only good news. According to the Wells Fargo Bank and the National Association of Homebuilders, the median price in Mansfield declined in the first quarter to $70,000 from the 2005 median price of $95,000 in 2005.

Unlike smaller cities, the city of Indianapolis, where 670 GM workers will become jobless, is expected to survive GM plant closures and the consequent foreclosed new homes because of other large employers based in the city, such as drug maker Eli Lily, insurer Conseco and major medical manufacturers.

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As the number of repossessed houses increased nationwide, the credit scores of American consumers continued to fall, based on studies of first quarter credit scores.

The glut of repossessed houses across the nation devastated the housing sector and related industries and ultimately the whole economy. The recession that resulted made millions of American consumers struggle to pay their bills and mortgage loans, causing more repossessed houses.

According to credit bureau TransUnion, its average credit score dropped in the first quarter to 651, a decline of 6 points compared to last year’s third quarter. Credit scores declined more steeply in states battered by repossessed houses like California and Arizona. Scores dropped by 10 points in California while scores dropped by 11 points in Arizona.

Ezra Becker, director of financial services for TransUnion, said delinquencies arising from the recession are appearing in credit records, so the average credit score is declining.

Becker expects credit scores to decline further until the second half of 2010.

Economists said that a seemingly negligible change in the average credit score is significant because there are over 200 million American consumers who have credit scores.

Although the credit score analysis was based on the TransRisk credit score of TransUnion rather than the more popular FICO credit score, the data is still significant because TransUnion also uses the same factors as what FICO uses in calculating credit scores. Credit analyst John Ulzheimer, who worked with Equifax credit agency and with Fair Isaac which developed the FICO score, said TransRisk also uses debt levels and payment history in computing credit scores.

For the period January to March, delinquencies in credit card payments reached a record level of 6.5 percent while charge-offs hit the near-record level of 7.5 percent, based on Federal Reserve data.

Banks have also been tightening credit, closing record numbers of credit cards and cutting down credit lines by millions of dollars. The credit line reduction increases the credit percentage used by consumers, worsening their credit scores.

Large numbers of repossessed houses have also hurt credit scores. But according to Moody’s Economy.com chief economist Mark Zandi, credit card troubles have greater impact on overall credit scores than mortgage problems because there are only about 50.6 million families with first mortgages while almost all of the country’s 114 million families have at least 1 credit card.

Lastly, consumer advocates are concerned that declining credit scores and increased effects of repossessed houses are making it more difficult for American consumers to obtain credit during the time they need it most.

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Six counts of indictments were filed against an official and some employees of MTC Real Estate Inc. for fraudulent mortgage and Bank Owned Foreclosure Listings rescue activity. Indicted are Lavette M. Bills, chief executive officer of MTC and employees Omar Henry, Kirk Lacey and Peter Chevere.

The indictment were filed by Acting U.S. Attorney (Southern District of New York) Lev L. Dassin, Federal Bureau of Investigation’s Assistant Director-in-Charge (New York Field Division) Joseph M. Demarest Jr. and Special Agent-in-Charge of the New York Field Office of the U.S. Secret Service Brian G. Parr.

The four were charged with perpetrating a mortgage fraud activity involving more than $3 million loans on six different homes. Criminal complaints were previously filed on Bills and Lacey before a federal court in Manhattan. Meanwhile, both Henry and Chevere surrendered voluntarily to authorities in relation to the alleged fraudulent mortgage and foreclosure prevention activity.

Based on the case filed with a federal court in Manhattan, Lacey, Chevere and Henry were all employees at MTC from 2008 to March 2009. Bills reportedly targeted delinquent homeowners who are facing the possibility of foreclosures. Through radio advertisements and programs, Bills would represent herself as a foreclosure prevention specialist who has the knowledge and capability to help troubled borrowers remain in their properties and save their homes from foreclosures.

Once distressed homeowners made contact with Bills and Lacey, the two would convince unsuspecting borrowers to transfer or sell their at risk foreclosed homes to them or to NNI LLC, the company that Bills control. The deal of selling or transferring the delinquent repo properties would be done through short sale.

Short sale involves selling distressed properties, usually with the agreement of the lender, for less than the total amount owed by homeowners on their loans. Bills would convince the homeowner to place her name on the equity and title of the property by making a promise that she would return and transfer the house to the homeowner.

What the homeowner did not know was that Bills and her co-conspirators would sell the distressed property themselves at a higher price. As a result of their Bank Foreclosure Listings fraudulent activity, Bills and her group earned huge profits, homeowners lost the titles to their properties and lending institutions suffered losses.

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Just as expected, the lifting of foreclosure moratoriums last March resulted to a surge in the number of house repossession across the United States the following month. According to data released by RealtyTrac, foreclosure activity in the country last month rose by 32 percent compared with the same period the previous year.

According to RealtyTrac, which tracks the foreclosure market since January 2005, one per 374 homeowners with mortgages received notices of default in April, representing a total of 342,038 properties.

The flood of distressed foreclosure properties in the market has severely affected home prices and hinders the recovery of the housing market which is deemed important to the country’s economic rehabilitation.

Majority of foreclosure filings in April were still in early stages and included notice of default and auctions. Actual bank foreclosure dropped its monthly and annual rates, the lowest since March 2008.

According to James J. Saccacio, chief executive officer of RealtyTrac, the decline in bank owned foreclosures indicated that lenders and loan servicers are starting foreclosure proceedings on troubled loans that were delayed due to legislative and industry moratoriums.

Banks and government-sponsored home funding companies Federal Home Loan Mortgage Corp. and Federal National Mortgage Corp. lifted the moratoriums before the housing recovery program of President Barack Obama could take off.

Saccacio predicted that bank foreclosure properties will increase as troubled loans progress to complete foreclosure.

In its report, RealtyTrac noted that the number of house repossesion increased not more than 1 percent in April from the previous month. The firm added that the moratorium created temporary delays in foreclosure as the typical trend would have been a decrease in April’s foreclosure rate following an increase in March.

When the foreclosure crisis started, subprime lending was blamed for its rapid spread in the country. Now, unemployment is the major factor being blamed for driving the foreclosure rate to a new high. The massive layoffs have left many borrowers in huge debts and loan delinquency despite the availability of federal housing relief programs.

On the other hand, home affordability is still the prevailing trend in the real estate market, with foreclosure properties taking over 50 percent of home sales revenue. Based on indexes of Standard and Poor’s Case-Shiller, property prices declined over 30 percent from the market’s peak in 2006, influenced by the increase in house repossesion activity.

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It is a common assumption among potential homebuyers that it is not a smart move to purchase bank forclosed home during an economic downturn and that most banks will not provide a loan to an individual who has less than perfect credit score. These misconceptions are just some that the banking industry wants to resolve.

The current economic downturn and foreclosure crisis have made many Americans cautious about how to spend their money. Furthest from their minds is purchasing a bank owned foreclosed home because they believed that banks would not approve a loan to an individual with less than perfect credit score.

These are just some misconceptions that representatives of the First National Banking Company (FNBC) and Liberty Bank of Arkansas Community Bank President Bob Evins want to resolve. Evins said that now is a good time to refinance, build or buy a house because the interest rates are historically low. FNBC reiterated Evins’s statement that now is the right time to refinance or purchase existing, new or repossessed properties.

According to Evins, it is difficult to determine the exact percentage an individual should borrow to prevent potential mortgage overload and foreclosure. He suggested that 43 percent is a safe enough estimate, adding that the percentage could fluctuate depending on the individual’s credit history.

Evins explained that usually, both the interest payment and monthly principal should not be over 31 percent of the borrower’s gross monthly income. But, he emphasized that the actual amount that could be borrowed by a potential homebuyer is greatly influenced by his credit history.

On its part, FNBC said that it has standards it follows with regard to a borrower’s income debt ratios.

Meanwhile, both FNBC representative and Evins agreed that it is still early to tell the impact of the tax credit for first time homebuyers provided under the Obama Administration’s stimulus package. Evins said that the number of home loans processed by his bank in 2009 is greater than in 2008. He attributed this increase to consumers taking advantage of low interest rates.

The 2009 tax credit, with a maximum of $8,000, is different from the tax credit in 2008 because it is not provided as a loan and there is no need for the homebuyer to repay it. The tax credit applies only to first time buyers of new, existing and bank foreclosed home.

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Banks and other mortgage lenders have been contributing to the continued rise in foreclosures, including forclosed VA homes, because of their inability to process short sale applications in time to prevent foreclosures.

Short selling is the only option left for many owners of homes distressed because of job losses, medical problems or other recessionary conditions. Homeowners who can dispose of their distressed mortgages in short sales lose their houses, but they are able to preserve their credit scores at favorable levels. They also prevent themselves from going through the harsh emotional effects of foreclosure. In the future, when their financial conditions improve, they can apply again to buy their own homes

In addition, many banks and lenders also prefer short sales to real estate foreclosed houses, including forclosed VA homes, because they have found out that they lose only about 19 percent when undertaking short sales. They lose an average of 40 percent when units become foreclosed homes or forclosed VA homes.

So why are banks and other lenders not facilitating more short sales? The key answer to this question is the practice of securitization. In the past years, banks and lenders have been packaging mortgage loans into mortgage-backed securities and then selling them to investors. This practice lessens lenders’ risks and at the same time enables investors to earn from higher property prices in the housing market.

But while securitization has benefited banks and other lenders and has protected them from much of the losses that arose from foreclosed homes and forclosed VA homes, securitization has been blocking the completion of short sales.

Banks, which are not prepared for the consequences of repo properties and forclosed VA homes, have no financial incentive to pay additional staff to trace securitization documents and find the investors who hold the mortgages of properties being processed for short sales.

Dave Liniger, head of international real estate firm Re/Max, said banks have not been replying to the short sale requests of realtors simply because they do not have the staff to untangle securitization documents.

Based on research by Campbell Communications, only around 23 percent of applications for short sales are carried out. Three out of 4 short sale applications are not completed because the buyers can not wait for a very long time as the banks delay their responses.

Real estate analysts argue that the inability of lenders to complete short sale applications lead to more foreclosed homes and forclosed VA homes.

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The Standard & Poor’s/Case-Shiller 20-city home price index released in 2009 may have overestimated declines in home prices because it included the prices of distressed foreclosure properties, according to Stan Humphries, data and analytics vice president for Seattle-based real estate research firm Zillow.

Standard & Poor’s home price index indicated that the value of homes in the Washington counties of Pierce, King and Snohomish fell in January by 15 percent from January 2008 and fell by 3.6 percent from the previous month. The composite home value in 20 cities declined by 19 percent from January 2008 and fell by 2.8 percent from the previous month.

Humphries contended that S&P measured home values in a particular market by examining repeat sales of same houses rather than focusing on home sales within a certain period. He observed that the S&P index considered foreclosure properties sales that have been bought back by lenders from foreclosures.

In California’s Bay Area, the median price for foreclosure properties was 47 percent of non-foreclosed properties in December 2008. Since sales of foreclosure properties accounted for 60 percent of sales in the area, Humphries argued, foreclosure properties had a significant impact on the S&P home price index.

While the S&P price index indicated a 31 percent decline in Bay Area home prices, the Zillow home price index showed a decline of only 17 percent, a difference of 14 percentage points compared to the S&P index.

Zillow further explained that the difference between S&P and Zillow’s indexes for the Seattle area was just a little over 1 percentage point because foreclosure properties accounted for only 17 percent of home sales in December 2008 while representing 73 percent of sales of non-foreclosure properties. Zillow asserted the S&P report does not show the true picture of the housing market.

David Guarino, spokesperson for S&P, rejected Humphries’ contentions, saying foreclosure properties make up part of the housing market. He argued that the homes in foreclosures now were the same homes that caused home price increases during the housing boom.

In support of the foreclosure inclusion argument, Glenn Crellin, head of Washington State University’s Washington Center for Real Estate Research, said the determination of housing market values and median home prices traditionally excluded prices of home sales influenced by factors such as state foreclosures, but foreclosure properties have become the norm in many housing markets, so the decision to include foreclosure properties has logical basis.

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The 6-percent increase in foreclosure filings nationwide in February from the previous month is so unexpected that Rick Sharga, vice-president for marketing at RealtyTrac, has called the increase shocking. Sharga and other analysts expected that foreclosure figures would decrease because of the foreclosure moratoriums given by mortgage banks and government lenders.

More than 290,000 housing units had a foreclosure notice in February, an increase of nearly 30 percent from total filings in February 2008. Included in the data are more than 74,000 mortgage bank repossessions, an increase of more than 10 percent from the 67,000 total in January. If data on tax foreclosure properties are included in RealtyTrac’s report, they surely also reflect increases, since the high jobless rate has affected everyone, including former owners of tax foreclosure distressed properties.

Sharga is concerned about the February increase since foreclosure moratoriums from major mortgage lenders Freddie Mac and Fannie Mae should have covered thousands of troubled mortgages. Anyone analyzing the data would be bothered about how high the increase would be if the mortgage loans are finally uncovered when the foreclosure moratoriums are lifted.

RealtyTrac’s report also highlighted the difficulty of homeowners in default to get out of their distressed situation, which is similar to the situations of people troubled by tax foreclosure properties. Most borrowers in default have gone on into foreclosure even with the moratoriums given. In February, bank repossessions increased by 11 percent, almost twice the 6 percent increase in foreclosure filings.

Housing analysts said many defaulting loan accounts moved on into foreclosure partially because of their underwater conditions. In many areas where there are lots of lender and tax foreclosure properties, home prices have fallen so low that troubled borrowers no longer have the incentive to continue with the payments.

As the foreclosure crisis spreads its claws, many states that previously had very low foreclosure numbers are now feeling the effects of lender and tax foreclosure properties.

In South Carolina, where the unemployment rate hit the second highest level nationwide in January, foreclosure filings increased by 254 percent from February 2008 total filings. It had one foreclosure notice for every 818 houses, putting South Carolina 20th in RealtyTrac’s foreclosure chart for February.

Bruce Marks of the Neighborhood Assistance Corp. of America insisted however that faulty mortgage underwriting is the main cause of foreclosures in South Carolina. The loans were not affordable from the start. Unemployment worsened the situation, causing the rise in lender and tax foreclosure properties.

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Florida foreclosures rate was the second highest in the United States in 2008. About 4.52 percent or one in every 22 homeowners has filed for Florida foreclosures.

Data released showed that Florida foreclosures remained unabated last year. Following is a breakdown of Florida foreclosure rates by cities:

• Orlando – 5.48 percent or 1 in every 18 housing units
• Fort Lauderdale – 5.95 percent or 1 in every 17 housing units
• Tampa Bay – 4.14 percent affecting 53,630 housing units
• Miami – 5.21 percent or 1 in every 19 households has received foreclosure filings
• Sarasota-Bradenton-Venice – 4.5 percent up by 153.58 percent from 2007
• Palm Beach – 3.71 percent, a rise of 96.33 percent from 2007
• Jacksonville – 2.99 percent up by 78.46 from 2007

As Florida foreclosures continue to increase, it is no wonder then that scammers will take advantage of owners of distressed properties who want to avoid foreclosures. Since last year, thousands of distressed homeowners have been defrauded by individuals or companies of their hard earned money or been made to sign over their properties to scammers who guise themselves as foreclosure rescuers.

Data of Florida foreclosures fraud released by the state attorney general’s office indicated an abnormal growth of complaints from 9 in November of last year to 227 in February of 2009.

Federal Bureau of Investigation (FBI) chief financial investigator Sharon Ormsby noted that a percentage of federal relief funds usually fell on the hands of scammers.

About 35 regional offices have been established by the FBI nationwide to fight mortgage fraud and help desperate homeowners who would do anything to keep their properties.

However Consumer Warning Network’s Angie Moreschi said that if foreclosures would remain unabated for long, the number of Americans who would fall prey to scammers will soon reach an exorbitant number which would be difficult for any agency to handle.

Moreschi is expecting that President Barack Obama’s $75 billion foreclosure prevention program would entice lenders to modify loans and at the same time, attract scam artists who also want to illegally get a slice of the aid intended for homeowners facing foreclosure threat.

She warned that in some cases, mortgage brokers who offered to modify distressed homeowners’ loans are also the ones who will defraud them.

RealtyTrac, a company that monitors the foreclosures market, predicted that homeowners facing foreclosures could grow to 3 million.

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