All of this data comes from
RealtyTrac.
Founded in 1996, RealtyTrac publishes the
largest and most comprehensive national database of
pre-foreclosure, foreclosure, For Sale By Owner, resale
and new homes, with more than 1 million properties
across the country, property reports, productivity tools
and extensive professional resources. |
RealtyTrac does an excellent job of aggregating and analyzing
the data. However, if you look closely at the methodology they
use to compile the statistics... there is something missing.
Report methodology
The RealtyTrac Monthly U.S. Foreclosure Market Report
provides a count of the total number of properties with
at least one foreclosure filing reported during
the quarter — broken out by type of filing at the state
and national level. Data is also available at the
individual county level. RealtyTrac’s report
incorporates documents filed in all three phases of
foreclosure: Default — Notice of Default (NOD)
and Lis Pendens (LIS); Auction — Notice of
Trustee Sale and Notice of Foreclosure Sale (NTS and NFS);
and Real Estate Owned, or REO properties (that
have been foreclosed on and repurchased by a bank).
If more than one foreclosure document is filed against a
property during the quarter only the most recent filing
is counted in the report. The report also checks if the
same type of document was filed against a property in a
previous quarter. If so, and if that previous filing
occurred within the estimated foreclosure timeframe for
the state the property is in, the report does not count
the property in the current month. |
This certainly seem like a very comprehensive system that
takes full advantage of the available information. However,
there are other transactions, equally devastating, that are not
reflected by the foreclosure filings... deeds in lieu of
foreclosure and cancelled mortgages - those that should go into
foreclosure, but... the bank doesn't want the property back.
I have seen many more of these types of transactions lately.
I have even talked to a few people who have been negotiating
with their lender to try to get out from under over-burdening
mortgage payments.
"I have already talk to the bank," said one homeowner.
"They have agreed to take back my home in lieu of
foreclosure. I just can't afford it anymore."
Lenders often prefer to take the home back in this manner
because they can avoid a lot of the expense involved in
foreclosure. They are able to get the property back sooner and,
hopefully, sell it to get the debt off their books. This more
efficient process can help the banks bottom line.
Take
First Place Financial, for example:
|
First Place works with borrowers to
avoid
foreclosure if at all possible. Furthermore, if it becomes
inevitable that a borrower will not be able to retain
ownership of their property, First Place often seeks a
deed in lieu of foreclosure in order to gain control of
the property earlier in the recovery process. First
Place has been very successful in obtaining deeds in lieu
of foreclosure in the current quarter. As a result, the
balance of real estate owned grew 79.3% during the current
quarter while nonperforming loans have declined 11.8%.
Over the long term, this should result in a significant
reduction in the holding period for nonperforming assets
and reduce economic losses. |
The effect of foreclosure and deed in lieu are roughly the
same in terms of what it does to the homeowner and our economy.
In both, the homeowner loses the home and it goes into the
lender's REO (Real Estate Owned) inventory. Though the deed in
lieu may be quicker, and perhaps less emotionally draining on
the homeowner, it still has a serious impact on the borrower's
credit score.
|
"The FICO scoring algorithm regards
foreclosed and deed-in-lieu accounts as serious
derogatories," said Craig Watts, spokesman for Fair
Isaac Corp., which created the FICO credit score. "And
a serious derogatory is the single worst thing a person
can do to her FICO score." |
This can even impact the borrower's ability to rent a home,
as
Forbes.com reported in
Foreclosure Stigma Haunts Would-be Renters.
As foreclosures rise across the country and skyrocket in
economically depressed areas and once-hot housing markets,
more apartment owners are seeing an increase in the number of
rental applicants with blemished mortgage histories. That
includes foreclosures, short sales - when a house is sold for
less than the amount owed on the mortgage - and deed-in-lieu
of foreclosure, when a homeowner gives up a house to the
lender to end the foreclosure process.
One Virginia couple ended up living in a hotel after their
foreclosure, according to Trish Lynch, a trainer and former
credit counselor at ClearPoint Financial Solutions, who worked
with them.
"No one would rent to them. And the hotel is costing
them $3,000 a month to stay there," she said.
Lynch recommended they try to rent from a private owner or
individual who might be more lenient on credit checks, but who
could also ask for higher rents to cover their risk. So
far, the couple's still stuck at the hotel.
Renters who found that their credit was at least good
enough to purchase a home are now returning to the rental market
with serious credit problems. Owners of rental property
still need to be assured that they will be able to collect their
rents; and, one of their tools is a credit check on would-be
tenants. Some landlords may refuse to rent to those with a poor
credit history, others may require extra security deposits.
Renting has become much more risky for the landlord which means
higher rent for those in need of housing... if they can find a
landlord willing to rent to them.
And what about the other category I mentioned? I have
seen several properties that appear to be headed into
foreclosure that the banks just don't want to take back. These
have typically been run-down rental units in desperate need of
repairs. The banks know that they will have a very tough time
trying to sell them and they could wind up with fines from the
city for failing to maintain them. Or worse yet, face a
condemnation order. So, rather than foreclose, or take them
back by deed in lieu, the lender simply releases the mortgage
and writes the loan off. Most of these homes are not worth
much and the debt on each is rather low, but they are often one
of many homes secured by a larger loan.
What effect does this have? The homes are usually already in
a blighted area but since the owner could not afford the
payments, he likely cannot afford the upkeep on the homes
either. This causes a further deterioration of inner-city
neighborhoods which drags down the value of surrounding
properties. This adds further to the problem of people owing
more than their home worth, which has a domino effect on
foreclosures.
So, as bad as the foreclosure outlook is, it is only a part
of the big picture. The tragic problem is worse than the
numbers show. And, I still don't think that we have seen the
bottom yet. Foreclosure filings, and alternatives like
deeds in lieu, will continue to become more grim through the end
of this year. Congress has a "housing rescue plan" that they
expect to implement in October, but how much it will really help
remains to be seen. It may be too little, too late.
Millions of homeowners have already suffered the consequences of
losing their homes and have had their credit score marred -
millions more are teetering on the edge.
Easy access to credit has spurred our economy for the past
couple of decades. With so many people unable to continue to
"borrow and spend," whether on credit cards or a home equity
line of credit, our economy will feel the pinch. Without a
strong economy, the housing market will continue to suffer. We
are beyond a "mortgage bailout," we need an expansive economic
recovery act. I don't mean a $600 tax refund - we need to
rebuild our economy to provide good jobs and security to our
citizens. A housing rescue plan is merely a band-aid.
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