Bank Foreclosures Information

Many cities across the country posted a decline in their inventory of homes for sale last month as bargain-hunting buyers and investors continue to search for distressed properties.

As of July 31, the number of homes for sale on the market in 28 major cities across the country dropped by 2.5 percent compared with figures the previous month. Homes for sale include condominiums, single-family houses and town houses.

Since 1984, July inventories on the national basis have dropped by an average of 1 percent compared with the June level. Last month’s inventory rate in 28 major metropolitan areas in the country dropped by 27 percent compared with June figures the previous year.

According to industry experts, the exact inventory rate could not be determined because the numbers do not include all bank owned foreclosed house that are due for release on the market for sale by lenders.

They said that almost 50 percent of foreclosed properties are not listed for sale by banks, adding that many of these repossessed homes are being used as rentals. Also, some foreclosed houses that are not listed need major repairs and are subject to delays or litigation.

Some industry analysts are expecting a resurgence of foreclosure properties on the market before the year ends. They explained that the resurgence would be driven by the increasing unemployment rate which left many financially-struggling homeowners unable to pay their monthly mortgages.

Other factors that would contribute to the anticipated surge of foreclosures this year are the resetting of adjustable-rate mortgages and the decision by lenders to pursue foreclosure actions that have been delayed due to moratoriums in several states that aimed to help distressed homeowners remain in their homes.

Furthermore, industry analysts are expecting that some major metropolitan areas that were spared from the foreclosure crisis will experience the next wave of foreclosures.

In the first six months of this year, cities with over one million population experienced a rapid rise in foreclosure rates. Las Vegas, Nevada posted the most number of foreclosure filings for the period, with one out of 13 properties on the brink of foreclosure.

Another city that has been spared from the crisis last year is Chicago, Illinois which now posted a 30 percent increase in its foreclosure activity.

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If industry analysts will just look at recently released data, it showed that the real estate market is on its way to recovery. In June, new home sales rose by 11 percent, the highest in eight years. The number of unsold houses dwindled while housing starts rose in the two consecutive months of May and June.

Furthermore, the monthly home prices in 20 major metropolitan areas in the country are showing some stabilization based on the Standard & Poor’s Case-Shiller Index.

However, data did not impress some industry analysts as they looked at the overall scene in the housing market.

They said that the overall housing market is still soft, noting the long time it takes to sell a property, the difficulty of many borrowers to obtain financing and challenges facing lenders and appraisers.

The only silver lining in the current grim scene is the flood of first-time buyers and speculators who were enticed by discounted prices and the $8,000 tax credit.

Industry analysts who do not seem to see any turnaround in the housing market explained that declining property prices is not yet over. Center for Economic and Policy Research co-director Dean Baker said that it is wrong to assume that the housing market has reach a turning point, noting the oversupply of houses, including bank owned foreclosure homes, which means property prices will continue their downward movement.

Industry analysts noted that many potential buyers are taking their time making a purchase because they are not sure if they still have jobs in the coming months. Added to that is the lackluster results of government efforts to prevent foreclosures, including mortgage modification programs and foreclosure moratoriums.

Yardeni Research economist Ed Yardeni said that a solid recovery in the housing market should start with controlling the rise of unemployment which has now a national average of 9.5 percent and is expected to jump to 10 percent by the end of 2009.

Assistant professor and Oregon Economic Forum director at the University of Oregon Timothy Duy said that a fast recovery for the housing market means a return to the 2006 mortgage market wherein lenders did not give attention to the growing household debt levels and not so good credit histories.

He said that there will be no housing recovery unless conditions return to the period wherein loans are provided to almost everyone.

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In five U.S. states, banking regulators closed 5 banks downed by record numbers of defaults and foreclosures, increasing the number of failed federally insured banks this year to 69.

Mutual Bank, the biggest of the shuttered banks, with $1.6 billion total deposits and $1.6 billion in total assets, was shut down by the banking division of the Illinois Department of Financial Professional Regulation.

The banking division made FDIC as receiver and approved the assumption of deposits and assets of the failed bank by Texas-based United Central Bank of Garland. The FDIC signed a loss-sharing deal with First United Central Bank covering Mutual Bank’s $1.3 billion assets. The 12 branches of the failed bank will reopen as units of United Central Bank.

First State Bank of Altus, which had $98.2 million in total deposits and $103.4 million in total assets, was shut down by the Oklahoma State Banking Department and will be taken over by Herring Bank of Amarillo, Texas. Herring will acquire the failed bank’s deposits and around $64.4 million of its assets. The remaining assets will be acquired by the FDIC, which was appointed as receiver, for subsequent sale. First State’s branches will reopen as units of Herring Bank.

FDIC closed Integrity Bank in Jupiter, Florida and approved the assumption of the failed bank’s deposits and around $52 million of assets by Fort Lauderdale-based Stonegate Bank.

Integrity had $102 million in total deposits and $119 million in total assets. The FDIC will sell the remaining assets.
Another bank closed by FDIC was First BankAmericano in Elizabeth, New Jersey, which had $157 million in total deposits and $166 million in total assets. Another New Jersey bank, Crown Bank, will assume the First BankAmericano’s deposits and assets, including its six branches.

Peoples Community Bank of West Chester, Ohio will be taken over by Hamilton-based First National Bank, which will acquire $657.8 million of the failed bank’s assets in an agreement with the FDIC. Peoples had $598.2 million in total assets and $705.8 million in total deposits, including 19 branches.

The total of 69 bank failures so far this year represents big jumps from the 25 failures last year and the 3 failures in 2007.

According to analysts, residential loan defaults and foreclosures have been the main causes of the failures. Although residential foreclosures are slowing down, regional banks are expected to suffer from commercial real estate defaults. The FDIC expects to spend around $70 billion to cover bank failures through 2013.

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The pace of repo homes in Houston increased in June compared to the foreclosure rate during the same month in 2008, based on real estate data in the area covered by Houston, Baytown and Sugar Land.

In June, 1.1 percent of all outstanding mortgage loans in Houston had been foreclosed, a jump from the 0.8 percent rate in June 2008. But the June rate was lower than the nationwide foreclosure rate of 2.6 percent.

The city’s mortgage default rate also increased in June to 4.9 percent of all outstanding home loans. Loans are considered in default if three monthly payments or more have remained unpaid. The home loan delinquency rate in June last year was 3.4 percent.

For the one-year period from July 2008 through June 2009, nearly 52,000 foreclosure cases were filed, equivalent to approximately 142 foreclosure filings per day and representing an increase from total filings in the previous one-year period.

For the 12-month period from July 2007 through June 2008, more than 48,000 foreclosure cases were filed, equivalent to about 132 foreclosure filings per day.

In a study of foreclosures in 203 metro areas across the country for the first 6 months of 2009, the metro area covered by Houston, Baytown and Sugar Land had 14,213 households receiving a default or foreclosure notice.

One household out of 153 housing units in the metro area was hit with a foreclosure filing, putting the Houston metro area in 109th place among metro areas with the highest rates of foreclosure in the first 6 months of the year.

During the same period, the metro area covered by Dallas, Fort Worth and Arlington posted more foreclosure filings than the Houston area. A total of 18,037 households were given default or foreclosure notices, representing 0.76 percent of all housing units in the area, higher than the 0.65 percent rate in Houston.

The other two Texas metro areas with higher foreclosure rates than Houston in the first 6 months of the year were the Browsville and Harlingen metro area and the San Antonio metro area. The Browsville area had 1,021 foreclosure filings, representing 0.71 percent of all area housing units. San Antonio posted more than 5,000 foreclosure filings, representing 0.68 percent of all its housing units.

Across Texas, more than 49,000 households received default or foreclosure notices in the first half of the year. In June, more than 12,000 received foreclosure filings, with more than 4,000 units already counted as foreclosure homes for sale.

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In the first six months of this year, the highest number of bank owned foreclosed home was found in the cities of Arizona, Nevada, Florida and California. But other cities are starting to climb up the list as unemployment spread unabated across the country.

Metropolitan areas with populations of about 200,000 in the four states dominated the list of cities with high foreclosure rates. The four states accounted for 35 of the top 50 cities with the most number of foreclosed home.

According to industry expert, mortgage defaults were enormous in cities with overbuilding, greatest purchases by speculators and dependency on riskier mortgage loans to improve affordability.

But experts noted that in the past months, the source of the mortgage crisis has made a shift from faulty lending policies to unemployment.

Recent market data showed that some major metropolitan areas in the country with the most number of bank foreclosed home are given life again by improving home sales brought about by the flood of first-time buyers enticed by price reductions.

But in areas where the unemployment rate reached a 26-year record high and wage cuts are common, many homeowners who were spared in previous foreclosure crisis are now finding themselves defaulting on their mortgage payments.

From January to June 2009, over 20 percent of cities with above-average foreclosure rate were in Idaho, Oregon, Arkansas, South Carolina, Utah and Illinois. Industry experts said that the shift of foreclosure activity on these cities is driven by the increasing unemployment rate. Notable among the cities with large foreclosure rate increases are Boise, Idaho and Provo, Utah.

Meanwhile, Standard & Poor’s/Case-Shiller Indexes showed over 32 percent decline in home prices in May. Experts said that an increase in the number of bank foreclosed home causes home prices to plummet.

Consumer Credit Counseling Service of Greater Atlanta President Suzanne Boas said that as the unemployment rate continues to rise, more people from the different financial strata are seeking help.

She said that her agency has been seeing a rise in the number of clients who worked in skilled trades and professional services. She added that these people have worked all their lives, are creditworthy but are now struggling financially and seeking counseling to protect their properties from turning into bank foreclosed home.

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Distressed homeowners across Florida will receive free legal advice and free counseling under a program to be financed with money given to the state of Florida by Countrywide Financial Corporation under a settlement agreement so they can prevent their houses from becoming bank owned homes.

Countrywide Financial Corporation, now owned by Bank of America, has settled with 40 states which sued Countrywide for its predatory lending practices. It has given an initial amount of $2 million to Florida as restitution for the allegations.

Florida Attorney General Bill McCollum in turn presented the check of $2 million to the Florida Bar Association for the funding of a program to help homeowners save their homes from getting into lists of bank foreclosure homes.

During the presentation of the check, representatives of the Florida Legal Services Inc. and Cuban American Bar Association were also present, in addition to representatives of the Florida Bar Foundation.

The Florida Bar will use the money to help nonprofits hire lawyers and paralegal professionals to help homeowners in their efforts to save their houses from becoming bank foreclosure homes for sale.

McCollum said that because of the large numbers of foreclosure cases in Florida, many homeowners have become desperate for help, oftentimes victimized by people who have different intentions. The free legal help to be provided to them under the program will make a difference in their fight against foreclosure.

The $2 million is the first part of the $4 million allotted to Florida, with the second $2 million to be made available in 2010. The amount of money to be given to nonprofits will depend on the number of foreclosure homes in the areas that they serve.

Lawyers who work for foreclosure cases ensure that lenders follow state laws on foreclosures and follow foreclosure procedures.

Before Countrywide was acquired by Bank of America in 2008, Countrywide was sued by attorneys general across the country for its role in the foreclosure crisis. Being the country’s biggest home loan originator, the large number of Countrywide mortgages that later went into foreclosure contributed a lot to the collapse of the housing market.

Countrywide was accused of originating risky and high-cost home loans for borrowers who did not fully understand the kinds of loans they were taking out and who did not have the capacity to pay the loans.

It is hoped that with the money from Countrywide, more homeowners in Florida can save their houses from becoming bank foreclosure homes.

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The average monthly foreclosure in Lee County, Florida is 2,000, earning the county a consistent place among the top five major areas in the country with high number of bank foreclosures for sale.

The foreclosure crisis may bring anxiety and displacement to some homeowners, but it opens a door of homeownership opportunity for others. The housing market in Lee County has become interesting to potential homebuyers, particularly with its low median price for existing single-family houses. Last month, the median single-family home price was $87,900, a substantial decline from $172,400 the same month a year ago.

Industry experts suggest that because Lee received about $18.2 million federal grant to buy and sell bank foreclosure for sales, county officials should focus on making smart choices and decisions.

The funding is made possible by the Neighborhood Stabilization Program (NSP) under the U.S. Department of Housing and Urban Development (HUD). The program requires quick action on recipients, requiring the designation of funds by July 2010 and subsequent spending within four years.

Florida Housing Coalition director Gladys Schneider pointed out that the NSP is an economic stimulus initiative and not a housing program. She added that the purpose of the program is to boost the financial market and uplift the local economy.

To be able to purchase NSP properties, potential homebuyers should belong in the low-income level. This means that a family of four should earn an annual household income of $30,350 to be able to qualify for the NSP. Moderate income buyers or those who have an annual income of $72,850 are also eligible for the program.

Under the program, 25 percent of funds are allotted for low-income buyers. All potential buyers are required to undergo an eight-hour ownership course.

The NSP is designed in such a way that it will allow the government to collaborate with real estate professionals, the banking community and contractors who will handle the rehabilitation of bank foreclosures for sale.

The purchase price of a property under NSP should not be more than 15 percent of the appraised value.

Meanwhile, Lee County has bought four bank foreclosures for sale and two have been rehabilitated. Housing manager Shawn Tan said that buying 115 homes, rehabilitating and selling them is on the plan of Lee County.

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As shown in banking financial reports for the second quarter, the big commercial banks showed their belief in an economic improvement in the second half of 2009 and on the declining effects of bad loans and bank owned foreclosed homes by not increasing significantly their loan-loss reserves for the second quarter.

Financial reports released by the seven biggest commercial banks in the U.S., including Bank of America and Wells Fargo, showed that the banks only slightly built up their loan-loss reserves.

According to analysts, these loan-loss moves help boost bank profits.

Analysts also said that if unemployment rate does not soar in the second half of this year and foreclosed homes stops clobbering the housing market, banks would have been right on the dot in their loan-loss reserve decisions and in their strategies to boost their second quarter profits.

Some analysts say that the banks’ decision to boost their profits by not building up their loan-loss reserves at a time of record loan losses due to distressed foreclosure homes and commercial foreclosures can go either way. Banks could be wagering on recovery too early or they could be right on time.

Economists had predicted that the nationwide unemployment rate will surpass the 10 percent level in the coming months. They also predicted that bank foreclosed homes and other foreclosures will persist despite the rise in sales of existing homes in June because the slow recovery of home prices.

Additionally, the commercial real estate sector is showing signs of difficulties. Commercial real estate prices have dropped by 35 percent from their peak.

Losses due to bad loans continue to hit banks. JPMorgan Chase increased its charge-offs for bad loans to $6 billion, an increase from $4.4 billion in the first quarter of this year.

Wells Fargo also needs to increase its loan loss reserves, according to Paul Miller of FBR Capital Markets, because its losses due to bad loans, including losses due to bank foreclosed homes, have also been rising.

Based on analysis of data, the percentage of loan-loss reserves compared to assets for all the seven largest banks, except Citigroup, decreased. Citigroup’s loan-loss reserves rose to 128 percent compared to the first quarter.

According to analysts, the markets are allowing the slow buildups of loan-loss reserves. Along with the banks, market participants are also hoping that the effects of bank foreclosed homes and other foreclosures will slow down in the second half of the year.

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Foreclosure home sales in the Midwest region added some notch last month, driven by the abundance of bank owned foreclosed home on the market and the drop in market prices. For the first time since September last year, home sales in the Midwest region rose by 3 percent.

Federal Reserve Bank of Kansas City senior economist Kelly Edmiston said that current developments are indications that home sales are starting to move off the bottom.

Industry experts said that the volume of bank foreclosed home in the market has pressured market prices to go down to their all time low levels. This makes home prices so much affordable compared with previous years that buyers sense that the market is at a bottom. This motivated them to make home purchases thinking that now is the right time.

The 12-state Midwest region posted a 9 percent drop in the median sales price on a year-to-year basis. The $157,000 median price was further influenced by sellers becoming more aware of the real state of the market and the large backlog of distressed properties.

According to market data, home sales gains were reported on all 12 cities in the Midwest region for three consecutive months. On a year-to-date basis, existing home sales were still dropping in eight out of the 12 metropolitan statistical areas in the region last month. However, only Omaha, Nebraska and Cleveland, Ohio posted double-digit losses whereas in May, nine cities reported double-digit decline.

Data also showed that median home prices drop across the region as buyers continue to sift through the large inventories of bank foreclosed home. The biggest home sales gains were still happening in Detroit, Michigan and Minneapolis, Minnesota where buyers continue to grab foreclosed properties in a market that showed dramatic decline in median home sales prices.

In Detroit, home resales increased by almost 21 percent on a year-to-year basis last month. But the median home sale price outperformed home sales gains by dropping almost 45 percent to $50,500, the biggest decline nationwide.

In Minneapolis, home sales rose by 8 percent while the city’s median price dropped by 11 percent to almost $174,000.
The volume of bank foreclosed home and low median sale price failed to buoy up home sales in Cleveland and Chicago, posting 14 percent and 8 percent drops, respectively.

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Last October, the Bank of America agreed to provide its foreclosure relief services to troubled borrowers, whose houses is now included in a bank foreclosure list, in an agreement entered with several Attorney Generals. Holding up its end of the bargain, the financial giant has started to mail letters to the homeowners whose mortgage originated from Countrywide Financial Corp, which it purchased in July of 2008.

The said foreclosure relief program is said to be funded by as much as $150 million and participated by 40 states. Borrowers who have gone through a foreclosure, deed in lieu of foreclosure or a short sale will be informed if they qualified to receive a certain amount as settlement payment.

In addition, the program is just the first component of the agreement with the Attorney Generals. The second part of the deal, which is called the National Homeownership Retention Program, will involve providing sustainable and affordable loan payments for as many as 400,000 mortgage borrowers. The borrowers should have an adjustable rate housing loan with payment-option that was serviced previously by Countrywide.

The last part of the agreement will involve the providing of a relocation assistance or aid to homeowners who suffered through a foreclosure sale but agree to move out of the home, which is already in a bank owned foreclosure home, voluntarily. They will receive cash that they could use to somehow ease the transfer to their new home.

Settlement payments are said to start by the first quarter of next year. Both the notifications and payments are managed by Rust Consulting. Any inquiries should be directed to them.

Countrywide was believed to be the “ground zero” of the housing and mortgage crisis that resulted to millions of homes in bank foreclosure list. Aside from this, it also caused the financial industry losses amounting to billions. Last month, Angelo Mozillo, co-founder of the said financial institution was charged with insider trading and securities fraud by the SEC.

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