Foreclosures and Bank Repossessions Continue to Affect Home Values

July 16, 2010

Foreclosures and Bank Repossessions Continue to Affect Home Values

Homes lost to foreclosure on track for 1million 2010

According to information provided by RealtyTrac, nearly 528,000 homes were taken over by lenders in the first six months of the year, a rate that is on track to eclipse the more than 900,000 homes repossessed in 2009.

More than 1 million American households are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind on their loans.

By comparison, lenders have historically taken over about 100,000 homes a year.

The number of households facing foreclosure in the first half of the year climbed 8% versus the same period last year, but dropped 5% from the last six months of 2009.

In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to one in 78 U.S. homes.  And there are more than 7.3 million home loans in some stage of delinquency, according to Lender Processing Services.

In a related report from CondoVultures.com, banks repossessed an average of 4,000 South Florida properties per month in the first half of 2010, representing an 83% year-over-year increase for the tricounty region of Miami-Dade, Broward, and Palm Beach.

Miami-Dade led the surge, experiencing a 125% spike in repossessions on a year-over-year basis. Palm Beach experienced a 112% jump while Broward’s repossessions increased 42%.  The report was based on Circuit Court records from Miami-Dade, Broward, and Palm Beach.

At the current pace, nearly 50,000 properties would be repossessed in South Florida in 2010, which would significantly outpace the high of 30,400 repossessions that lenders took control of in 2009. Lenders repossessed nearly 26,250 properties in 2008 after taking title to 10,100 properties in 2007, according to the report.

Besides market conditions, another key reason the number of bank repossessions has increased this year is the implementation of a new online auction technology being used by the South Florida circuit courts to clear the backlog. The online auction technology now allows hundreds of properties to be auctioned off more efficiently.

At the start of the housing crash in 2007, lenders estimated the typical foreclosure would take about six months to repossess a property at a cost of about $40,000 in the loss of debt service, damage, court courts, and attorney’s fees. By 2009 as the foreclosure filings were spiking, the process extended out to an average of 18 months with an estimated cost of at least $100,000 per repossession, according to CondoVultures.

According to some industry professionals and assuming the U.S. economy doesn’t worsen, aggravating the foreclosure crisis, it will take lenders through 2013 to resolve the backlog of distressed properties that have on their books right now.

A new wave of foreclosures could be coming in the second half of the year, especially if the unemployment rate remains high, mortgage-assistance programs fail, and the economy doesn’t improve fast enough to lift home sales.

One of the most alarming results of lenders taking over more than a million homes this year is the effect on home values.

Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties.

According to Moody’s Economy.com, the downward pressure from foreclosures will persist and prices will be very weak well into 2012.  Moody’s predicts home prices will fall as much as 6% over the next 12 months from where they were in the first-quarter.

Economic woes, such as unemployment or reduced income, continue to be the main catalysts for foreclosures this year. Initially, lax lending standards were the culprit. Now, homeowners with good credit who took out conventional, fixed-rate loans are the fastest growing group of foreclosures.

Among states, Nevada posted the highest foreclosure rate in the first half of the year. One in every 17 households there received a foreclosure notice. Overall, however foreclosures in Nevada are down 6% from a year earlier.

Arizona, Florida, California and Utah were next among states with the highest foreclosure rates. Rounding out the top 10 were Georgia, Michigan, Idaho, Illinois and Colorado.

Posted by Scott R. Lodde

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