Currently one trend is for the foreclosed homes to be sold in bulk to investors with $20M or more and selected by the FHFSA. (Smell of corruption? It does to me as they refuse to disclose to the California Association of Realtors, which homes were included in these bulk sale and who bought them- in violation of the Freedom of Information Act...still under contest).
Another trend is for large investors to buy homes both from the general market and on the courthouse steps to convert them to rentals. Under our current tax laws, holding the homes for 3 years or more reduces their tax expense putting them only responsible for the capital gain tax, rather than ordinary income tax. They are also betting on an appreciating market providing them profits related to an improved market valuation of the properties.
And a third trend is for lenders to start doing 'trial modifications' again with their homeowners. I have consulted with many homeowners and discussed their ratio with them. Following the calculations used with the government's Making Home Affordable program, the homeowner needs to have their personal expenses at 40% of their gross income in order to qualify for a REAL loan modification whereby they reduce their housing expense to 31% of gross income. The lenders have offered loan mods to people living on disability where their income is $1200 a month. The offer was to pay $2700 a month for two months, then $1100/mo on a trial program. Despite understanding that this is not sustainable, the homeowner is opting for this (having saved their payments for many months rather than pay the lender the mortgage). The homeowner is hoping for some additional program to save them. The lender is retrieving much of their back payments. In the end, the lender will deny their loan mod but for now they're recovering much of their back payments.
So there's plenty of games being played, homes abandoned, and if we don't get the PARTICIPATION RATE in the job market significantly higher the problem will continue. Don't believe the new calculation for the unemployment rates. We still have a problem with people being unemployed or underemployed. And with that the foreclosure and short sales will continue....just with some other variations of the game being played.
Now back to your question. The foreclosures will not come out as they did in the past. These other options are being used, they will continue to trickle out some number of foreclosed homes to the market with no plan to release a large amount of 'shadow inventory' , which is most likely a myth.
Most important, I don't think any of the investors will release all at once. So I wouldn't expect a wave of inventory to be released and have a sudden dip in prices.
Those of us that have been in the REO market see the amount of homes that are being sold to Hedge Funds behind the scenes and the reality is this has contributed to the rise in prices and the "real estate recovery"...rising interest rates should put at least a temporary stunt to 20/30/40 offers on every property. It's not healthy for Buyers mentality to be forced to buy in a frenzy, a balanced market is a good thing. We are seeing marketing times increase a little although I don't believe we are seeing a downturn.
Ocwen and Nationstar acquired a great deal of non performing loans and are selling them in "pools" to hedge funds who either are turning them into rentals (probably not a long term viable option since several hedge funds have pulled back some purchases), modifying the loans they are acquiring and making them performing loans or reselling them to internal investment networks.
And the reality is a discount is rare these days, even the hedge funds when I go back and see what they purchased them for are paying market prices in most cases.
Then you have the NSP program where lenders like CHASE will opt to sell the home to a non profit (even though that has it's fraud that I won't rant about) who in turn resells the property to a homeowner (and profits from the NSP funds and the eventual sale)
Then the other reality is the well intentioned CA Homeowner Bills of Rights which like almost all "help" programs actually doesn't first seek to understand the process, they shoot from the hip and usually are activist driven and create rules without clear direction. Like the homeowner who has lived in their home for 2-3 years without paying, do not seek a short sale, disregard the 50+ notices and calls and then 2 days before the trustees sale calls and says 'I want to do a modification", then act surprised when their home is sold 3 days later and play the victim and seek to sue. Once one of these "suits" gets to court and a determination is found, then the lenders will follow the ruling and either step up foreclosure or adapt. We should see hopefully some re start of foreclosures in the 4th quarter and then I think we'll see more of a normal process once lenders issue denial letters to habitual loan modification homeowners and the word will spread and people will seek out short sales.
But we really do not have 1000's of foreclosures out there and vacant, that's a myth.
Realty World eCurb REALTORS
When you say that there are "thousands" of homes being foreclosed, I believe you may be referring to stats which refer to "closed transactions". And yes, you are correct, thousands of homes have foreclosed. However, those numbers have dropped significantly over the past year.
Coincidentally, I just wrote an article about it here: http://www.trulia.com/blog/keisha_mathews/2013/07/market_upd
It contains stats to help you understand how much those foreclosures have dropped and are drying up. A property which may be foreclosed upon is called a pre-foreclosure. Homes in that position have borrowers who have missed two or more payments and the bank may exercise its option to foreclose at that point. In addition, previous market conditions were also a factor in homeowners defaulting on their loans. The property values were way down and the borrowers now owed more than what the property was worth (upside down).
However, legislation has prompted most lenders to employ additional tactics to help homeowners avoid forecloure mainly via loan modifications and short sales.
In addition, the market has seen a significant increase in property value, due to low inventory and low interest rates, and a surplus of buyers. So some of those upside down home owners who were border line on what they owed are now right side up and out of the red. They could perhaps feasibly refinance and prevent themselves from facing foreclosure.
So between loan mods, short sales, and the market turn, REOs are drying up.
Hope that helps!
Keisha Mathews, REALTORÂ®
CDPEÂ®, HRCÂ®, HAFAÂ® Certified
SAR Masters Club Member 2012
SAR Masters Club Steering Committee
Mathews & Co. Realty Group
@ Century 21 Landmark Network
(916) 370-1803 cell