Loan Modification News: As defaults in California rose during the second quarter, foreclosures dropped by 28% when compared to the year earlier quarter, according to San Diego-based MDA DataQuick. Industry analysts consider growing defaults as a leading indicator for future foreclosures and were quick to label the quarter as the eye of the foreclosure storm. Part of the drop in foreclosures was attributed to foreclosure moratoriums which were either mandated by the state or voluntarily self imposed by private lenders. Many of the self imposed moratoriums were put in while lenders and servicers waited for the details of the Obama Administration’s Home Affordability and Stability Plan (HASP). The moratoriums were pulled once the guidelines were published in early March. Another aspect of the decline in foreclosures is that lenders currently have no sense of urgency toward repossessing homes and have been lengthening the time they allow before taking action. The slow movement on foreclosure filings is probably due to a steep supply of already foreclosed homes versus the very limited level of demand.
The decline in foreclosures is building a backlog that will need to be dealt with at some point. Banks “need to get serious about processing the backlog of delinquencies, either with workouts or foreclosure,” DataQuick President John Walsh said. “We’re hearing that some lenders and servicers are doing just that, hiring more people to do the necessary paperwork. That means the foreclosure numbers will probably shoot back up during the third quarter.”
A worsening employment picture is also expected to drive foreclosures at a pace much faster than seen during the first half of the year. On a national level, there were 1.5 million foreclosure filings during the first six months of 2009. Estimates are for another 2 million foreclosures during the second half. Bank of America, the largest servicer of mortgages in the country, is estimating that its foreclosure sales could rise as much as 30%, but that number could dependent on a big jump in demand for foreclosed homes.
While unemployment is currently the biggest driver for foreclosures, another issue is causing increased concerns among industry watchers; the consistent deterioration of housing prices is increasing the amount of homes that are under water on a monthly basis. Zillow.com, a real estate pricing and information site has estimates that put 57% of Los Angeles County homes purchased since 2004 under water. First American CoreLogic estimates nearly one in ten of Los Angeles County homeowners were in default as of May. When negative equity is combined with monthly struggles to make the mortgage the chances of default are much higher. In fact, homeowners are now walking away from homes even when the payments are affordable because they realize they may never get back to the price at which they bought the house. The more the home goes under water the more it becomes a burden in the owner’s mind. “The negative equity makes the homeowner vulnerable. The second trigger is some kind of household balance sheet problem, like a job loss or large medical expense,” said Sam Khater, senior economist for First American CoreLogic.
As to whether the rate of foreclosures is being held back by lenders, there appears to be two lines of thought; the official and the unofficial. The official line from banking officials was recently given by Bank of America’s Jumana Bauwens who said, “We do not hold foreclosed properties off the market.” Unofficial statements tend to lean more toward pacing sales rather than flooding the market with homes when there is slack demand. It could be that both are telling the truth. Technically, if Bank of America can’t process the flood of foreclosures on the books due to lack manpower, they can’t foreclose on the properties. That would synchronize with the opinion of USC economist Richard Green, who heads the university’s Lusk Center for Real Estate, who expressed skepticism that banks would have the wherewithal to control the pace of foreclosure saying, “That would require a cleverness among lenders we’re not seeing in any other dimension. If they could coordinate on that they could coordinate better on loan modifications.”
Regardless of what is being said about how and when the pace of foreclosures will increase, homeowners should not get complacent about their struggles with their payments. Being proactive in seeking help to modify the terms on a mortgage is the best way to stay ahead of a possible foreclosure filing. If you are struggling with your mortgage payment, call the Feldman Law Center today at (800) 527 8497 or visit www.feldmanlawcenter.com – Loan Modification Company