Foreclosures Continue To Mount: Opportunity or Anxiety?

July 20th, 2010

Information in the Midyear 2010 U.S. Foreclosure Market Report released by RealtyTrac gives some mixed news on foreclosures across the country. New filings decreased from the prior period, but are higher than the same period in 2009. As you use a free mortgage calculator to evaluate a potential home purchase or refinance, you may experience a sense of opportunity, anxiety–or both.

Foreclosures Up…And Down

Almost 2 million homes received foreclosure filings in the first half of 2010. The current pace of filings and repossessions could result in more than 3 million filings for the year and over 1 million bank repossessions. The data released by RealtyTrac suggest that filings peaked in the last half of 2009. But even though filings are down since then, the actual number of repossessions are up 5% from the previous quarter and up 38% from the same period in 2009.

“The second quarter was a tale of two trends,” said James J. Saccacio, chief executive officer of RealtyTrac. “The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.”

Purchase Opportunity

With the increase in repossessions, banks’ REO (real estate owned) inventories are increasing. How they collectively treat their REO assets will have a tremendous impact on a slowing housing market. If the market is flooded with bank owned properties, home values drop–creating opportunity for those who have used a free mortgage prequalification calculator and are ready to enter the home buying market.

A key factor in how the bank owned properties hit the market will be the Federal government. The Feds will determine in their audits how much of a bank’s assets on their balance sheets can be comprised of real estate. If auditors allow the banks to use a slow release process of their REOs, banks can limit the negative impact of potentially flooding the market with inventory–which would drive prices down further. The challenge for the banks will be to manage their balance sheets and liquidity without damaging the value of their own portfolios–further hurting their balance sheets.

In spite of declining home sales, the game of cat and mouse between bank asset managers, Federal regulators, and the open market continues. This creates potential opportunities for those looking to purchase a new home in the coming months.

Refinance Anxiety?

With median home values rising in many markets across the country through May, many homeowners have seen equity that had disappeared begin to come back. Awaiting opportunities to refinance out of higher rate mortgages taken in prior years, homeowners have been watching market values and historically low mortgage rates to time a potential mortgage refinance. With home sales slowing and bank-owned inventories building, many of those waiting for their equity to increase enough to allow a conventional mortgage refinance without mortgage insurance are anxiously watching values and rates.

Using a free mortgage payment calculator can relieve anxiety if you establish that, even with mortgage insurance on a conventional or FHA mortgage, your payment will decrease due to the low mortgage rates. Looking at your total monthly mortgage payment instead of just the interest rate can help you with your decision and allow you to start saving money sooner on your mortgage.

Silver Lining

The silver lining in the foreclosure numbers from RealtyTrac is the reduction in the number of foreclosure filings month-over-month since early 2010.

By more aggressively pursuing and approving short sales and loan modifications, banks are keeping properties from going through the prolonged foreclosure and re-sale process which tends to draw out the pain of reduced values and hurting neighborhoods. If lenders are able to continue this trend of increased pre-foreclosure work-outs on troubled mortgages, housing markets across the country will benefit.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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