I've heard almost weekly discussion about how the market is finally turning around. I don't believe it.
Some are more pessimistic of course, and they have every reason to be.
In the last 2-3 years, over 3 million foreclosures have occured. More than 2 million more are expected by the end of this year, and that accounts for the efforts of government intervention through the Obama administrations housing plans.
One of the cornerstones of the Obama plans has banks moving borrowers to an interest-only payment with a course of 5 years. After that, it is business as usual and rates will begin to increase. Average homes purchased in the last few years are under water by 40% or so, and still headed south. I do not believe the market will recover enough in 5 years time, in terms of equity, for most borrowers to be able to refinance. Banks, burned by their own mistakes THIS time around, will be far less likely to deal in 5 years. Anyway, who of those borrowers will have leverage in terms of savings and/or good credit scores in that amount of time? Probably not many.
Those foreclosures I mentioned earlier play a key factor in this. As many as 45% of the foreclosures that have already occurred have not yet been placed back into the open market by banks. This is called "shadow inventory" and it is a frightening spectacle to just about anyone connected to real estate through ownership, debt, or who is part of the business. No one knows for sure, but industry trade groups believe the number is as high as 1.4million properties. These are being held off the market to influence the short term economy, propping up housing prices, if only slightly. It smacks of pure manipulation to benefit the banks, but that's not surprising, I suppose.
One day all of those properties will HAVE to return to the market.
Imagine what would occur if the banks are taken over by government and these properties are suddenly dumped onto the open market. Or if the banks were forced to offer them for sale for any number of other reasons. The market, already decimated, would freefall even further, though that seems impossible. Of course, very few predicted our current ongoing disaster.
Now, on top of all this, there is another more telling sign that all is not nearly as well as even the pessimists believe. Foreclosures are taking longer. Much longer in some areas.
I visited a mortgage broker's board earlier today that discussed the reasons for this. When a bank forecloses or does a DiL or anything else to take over a home, they become responsible for fees associated with that property. In the past, there were relatively few homes that were a major concern and they moved into the hands of private investors or were resold to consumers pretty quickly. Not so anymore.
The fees from all those homes add up dramatically. In previous years, the neighbors might complain if a place got overgrown or a little rundown between owners, but generally not much was done. In the end we all knew it would be okay.
These days, HOA's and municipalities are levying fines and suits against the foreclosing lender. And they are winning. Lots. So, a wise lender would pay to maintain these properties and pay the HOA fees, right? Maybe they did at first, but not anymore.
Now, it appears lenders are simply letting residents stay in those homes longer and longer rent-free. The brokers board pointed to a few conversations their members took part in with lender representatives that indicated this is a growing trend. I do not believe it is widespread yet, but it probably will become more common each passing month. In this fashion, the homeownner, unforeclosed, remains on the hook for everything from lawn mowing to insurance, HOA fees, and repairs. Of course we all have heard horror stories of wrecked foreclosure homes, but that seemingly is occurring less often, or it affects a small enough percentage of homes that this is a more profitable way for lenders to proceed.
At some point, the banks WILL have to act on foreclosure for these properties too, and they will only add weight to the dread zeppelin that hangs over all of our heads.
So:
5 years interest-free for many modified loans that mostly won't be in position for another mod. (And how sick will the taxpayers be THEN of housing problems and bailouts? Don't hold your breath for more "solutions" if the problem hasn't been solved already)
Probably 3-4 years of unsold inventory in our CURRENT real estate market.
As many as 1.7 million homes in "shadow inventory" by the end of this year, representing further years of inventory for the open market.
Homeowners who are not paying now, but may not have foreclosure proceedings instituted for years.
I think the biggest part of this flight to doom is ahead of us, not by months, but by years.
For example, I have not paid on my mortgage for 7 months now. The lender has made no move to foreclose. Acceleration letter was send on time, but that is a legal requirement. I know it could happen at any moment, and have plans for that eventuality, but this is a theme that seems more and more prevalent, even here on the BK Forum.
Best wishes, and good luck to all of us!
We are going to need it.
Some are more pessimistic of course, and they have every reason to be.
In the last 2-3 years, over 3 million foreclosures have occured. More than 2 million more are expected by the end of this year, and that accounts for the efforts of government intervention through the Obama administrations housing plans.
One of the cornerstones of the Obama plans has banks moving borrowers to an interest-only payment with a course of 5 years. After that, it is business as usual and rates will begin to increase. Average homes purchased in the last few years are under water by 40% or so, and still headed south. I do not believe the market will recover enough in 5 years time, in terms of equity, for most borrowers to be able to refinance. Banks, burned by their own mistakes THIS time around, will be far less likely to deal in 5 years. Anyway, who of those borrowers will have leverage in terms of savings and/or good credit scores in that amount of time? Probably not many.
Those foreclosures I mentioned earlier play a key factor in this. As many as 45% of the foreclosures that have already occurred have not yet been placed back into the open market by banks. This is called "shadow inventory" and it is a frightening spectacle to just about anyone connected to real estate through ownership, debt, or who is part of the business. No one knows for sure, but industry trade groups believe the number is as high as 1.4million properties. These are being held off the market to influence the short term economy, propping up housing prices, if only slightly. It smacks of pure manipulation to benefit the banks, but that's not surprising, I suppose.
One day all of those properties will HAVE to return to the market.
Imagine what would occur if the banks are taken over by government and these properties are suddenly dumped onto the open market. Or if the banks were forced to offer them for sale for any number of other reasons. The market, already decimated, would freefall even further, though that seems impossible. Of course, very few predicted our current ongoing disaster.
Now, on top of all this, there is another more telling sign that all is not nearly as well as even the pessimists believe. Foreclosures are taking longer. Much longer in some areas.
I visited a mortgage broker's board earlier today that discussed the reasons for this. When a bank forecloses or does a DiL or anything else to take over a home, they become responsible for fees associated with that property. In the past, there were relatively few homes that were a major concern and they moved into the hands of private investors or were resold to consumers pretty quickly. Not so anymore.
The fees from all those homes add up dramatically. In previous years, the neighbors might complain if a place got overgrown or a little rundown between owners, but generally not much was done. In the end we all knew it would be okay.
These days, HOA's and municipalities are levying fines and suits against the foreclosing lender. And they are winning. Lots. So, a wise lender would pay to maintain these properties and pay the HOA fees, right? Maybe they did at first, but not anymore.
Now, it appears lenders are simply letting residents stay in those homes longer and longer rent-free. The brokers board pointed to a few conversations their members took part in with lender representatives that indicated this is a growing trend. I do not believe it is widespread yet, but it probably will become more common each passing month. In this fashion, the homeownner, unforeclosed, remains on the hook for everything from lawn mowing to insurance, HOA fees, and repairs. Of course we all have heard horror stories of wrecked foreclosure homes, but that seemingly is occurring less often, or it affects a small enough percentage of homes that this is a more profitable way for lenders to proceed.
At some point, the banks WILL have to act on foreclosure for these properties too, and they will only add weight to the dread zeppelin that hangs over all of our heads.
So:
5 years interest-free for many modified loans that mostly won't be in position for another mod. (And how sick will the taxpayers be THEN of housing problems and bailouts? Don't hold your breath for more "solutions" if the problem hasn't been solved already)
Probably 3-4 years of unsold inventory in our CURRENT real estate market.
As many as 1.7 million homes in "shadow inventory" by the end of this year, representing further years of inventory for the open market.
Homeowners who are not paying now, but may not have foreclosure proceedings instituted for years.
I think the biggest part of this flight to doom is ahead of us, not by months, but by years.
For example, I have not paid on my mortgage for 7 months now. The lender has made no move to foreclose. Acceleration letter was send on time, but that is a legal requirement. I know it could happen at any moment, and have plans for that eventuality, but this is a theme that seems more and more prevalent, even here on the BK Forum.
Best wishes, and good luck to all of us!
We are going to need it.
)
Bankruptcy Wizard
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