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No doubt you’ve heard the news recently that a number of major banks have volunteered to temporarily suspend foreclosures in 23 states and Bank of America is temporarily suspending foreclosures nationwide.
While this situation is changing daily, I want to tell you what we currently know to answer any questions you may have.
•In late September and early October some lenders and servicers began voluntarily halting foreclosures in select states while they reviewed their foreclosure processes.
•So far, only Bank of America has extended its foreclosure moratorium to California, where the vast majority of foreclosures are conducted without a court order. Foreclosures in the other 23 states are processed through the court system.
•Non-judicial foreclosures in California, however, do have legal requirements that lenders must follow. For example, California law requires that lenders for certain mortgage loans made between Jan. 1, 2003, and Dec. 31, 2007, attempt to make contact with borrowers to discuss options for avoiding foreclosure at least 30 days before filing a notice of default. Lenders also must sign a declaration in the notice of default stating that they tried to contact the borrower, made contact with the borrower, or fall within an exception (such as a bankruptcy filing).
•The lenders and servicers that have placed their foreclosure moratorium on properties in the 23 states where courts are involved in the foreclosure process include: Goldman Sachs Group Inc’s Litton Loan Servicing, Ally Financial Inc.’s GMAC Mortgage unit, JPMorgan Chase, and PNC Financial.
•These lenders/servicers have only temporarily halted their foreclosures while they review their foreclosure process. This is in response to findings that questioned whether some lenders/servicers were following the correct procedures to foreclose on a property.
•This halting of foreclosures is a voluntary action taken on the part of these lenders/servicers and has not been mandated by either the states or the federal government.
•Some members of the National Association of Realtors have begun to report the immediate impact of this moratorium on transactions that involve foreclosed properties. Delays in escrow and the removal of listed foreclosures are temporary results of this moratorium.
•The immediate impact on the market will be the slowing of home sales, which could put upward pressure on home prices in the short term. The long-term effect on the market is uncertain at this point as it depends how long the moratorium remains in place.
•Assuming the moratorium is lifted in the next month, the flow of REOs to the market should resume, but the uncertainty created by the moratorium may cause hesitation on the part of buyers.
•Federal agencies, including the Office of the Comptroller of the Currency, the Federal Housing Administration, and the conservator of Fannie Mae and Freddie Mac, have asked lenders and servicers to review their foreclosure processes. This review would apply to all states including those like California where the vast majority of foreclosures are non-judicial.
•The participating lenders and servicers believe their internal review processes should take anywhere from a few weeks to 30 days to comple
Sales of foreclosed and distressed homes made up 16.2% of all home sales last year, up from 14.5% in 2012, according to RealtyTrac. Overall, U.S. home sales were up 10% year-over-year.
And many deals were done in cold, hard cash. All-cash deals accounted for 29.1% of all home purchases last year, up significantly from 19.4% the year before, RealtyTrac said.
The surge in sales of distressed properties comes despite the fact that far fewer Americans lost their homes to foreclosure last year.
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"It may surprise some to see distressed sales rising in 2013 given that foreclosure starts dropped to a seven-year low for the year," said Daren Blomquist, spokesman for RealtyTrac. "[But] there are still more than 1.2 million properties in the foreclosure process or bank-owned, providing a sizable pool of inventory that the housing market is in the process of absorbing."
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Distressed properties are attractive to buyers because they tend to be significantly cheaper. The median home price of a foreclosed or bank-owned property was $108,500 in December compared with $174,400 for non-distressed properties.
Institutional investors, including hedge funds and private equity groups, were buying up homes of all types last year including foreclosures. During the year, 7.3% of all home sales were to investors, up from 5.1% the year before.
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Major markets where investors claimed the largest percentage of sales in December included Jacksonville, Fla., at 38.7%, Knoxville, Tenn., (31.9%), Atlanta (25.2%), Cape Coral, Fla. (24.9%), Cincinnati (19.3%), and Las Vegas (18.2%).
As home prices continue to recover, Blomquist believes there will be even fewer short sales, when a borrower agrees with their lender to sell the home even though they owe more on their mortgage than the home is worth.
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As home prices rise, he said more lenders will be able to afford to take the time to foreclose on a borrower because the value of the home will be higher by the time the process is over. Plus, struggling homeowners could try to hold off on a short sale until they're no longer underwater.
"Sellers may be able to do an equity sale and avoid damage to their credit score if they wait," said Blomquist. lchristie