We are likely to witness a jump in foreclosures across the country in the coming months despite the hope for the market that the new year brings. Even though the number of foreclosed homes actually declined over last year, a recent moratorium for processing new foreclosures, which was put into effect December 19, has now ended and lenders are left with the tremendous job of processing the backlog of delinquent mortgages.
The harbinger to the problems the housing market will inevitably face is the third quarter numbers from 2011 when foreclosures across the nation increased by nearly 21 percent from the previous quarter, according to a federal survey of lenders. Fannie Mae and Freddie Mac agreed to the moratorium on new foreclosures after learning that thousands were processed improperly by some major banks.
The timing couldn’t have been better because it allowed distressed Americans to stay in their homes during the holidays and gave processors a few weeks respite from dealing with evictions. However, banks now have to manage the persisting backlog of delinquencies.
As the lenders process these foreclosures, the market will have to absorb even more homes which will not only affect the distressed homeowners; anyone looking to sell feels the results because foreclosed homes in the area will sell for below average and drag down median home prices. The suppression of the fair market value also stymies an estimated 10 million homeowners considered “under water,” which means they owe more on their mortgage than their home is worth.
There are more than a few cases of bad news and disgruntled homeowners fed up with the poor housing market.
In the Bay Area of California homes have lost more than a third of a trillion dollars in value in the past four years according to Mercury News. Homeowners borrowed against the inflated value of their homes and everything came crashing down, and when all is said and done the U.S. housing market harbors approximately 5 million distressed properties. According to RealtyTrac there are 1.5 million in the foreclosure process and 3.5 million delinquent with mortgage payments.
But homeowners under foreclosure and under water have received a lot more attention than the overall loss of home value. Home equity loans reflect this tremendous drop; they run at about one-tenth of the level four years ago.
Furthermore, according to the Los Angeles Times, home prices in 19 of 20 of the largest U.S. cities fell in September and October and show no signs of improving. The Case-Shiller index, largely considered the most accurate depiction of the housing market, reported that the price index dipped 3.4 percent year over year.
Weight of Foreclosure Hampers Prices
This trend will surely follow us into this coming year with renewed vigor, especially because of the lifted moratorium, causing the market to shed more distressed properties during at least the beginning months of 2012.
The scrutiny over the foreclosure system varies in intensity depending on reports from the media. It was slowed when reports emerged that lenders and banks were speeding up the process through unfair practices like the robo-signing that threw the whole market into a frenzy.
After the market sorts through the effects of the moratorium, it just remains to be seen whether we’ll need another one next year, or sooner.