Are We Facing Another Foreclosure Crisis?
Photo Credit: Flickr
Almost nine years have passed since the onset of the foreclosure crises back in 2006. More than five million houses were foreclosed on during the economic recession, but most of us naturally believe that the housing market has rebounded and the path to home ownership has become appealing and attainable again. At the peak of the recession many looked for foreclosure options in 2010, 2.9 million foreclosures had been filed , with 1.4 million foreclosures filed in 2010. In recent years, the foreclosure rate has continuously declined, year after year, with foreclosure sales sustaining at their lowest level since 2008 and the rate of foreclosure filings at their lowest since 2006. Due to recent data, deferred foreclosures, shorter foreclosure timeliness and expiring moratoriums, the signs are recognizable of a looming crises.
All Data Points In The Direction Of A Recession
But contrary to popular belief, data shows that we may be facing yet another foreclosure crises. With 123,000 foreclosed homes being injected into the market in just the last three months of 2015 alone, and during that time, a 66 percent increase of bank repossessions reported. That increase in bank repossessions is higher than the increase during the worst of the recession, becoming the largest annual increase in American history. With the statistics pointing in the direction of another recession looming, analysis are concerned, and rightfully so.
Deferred Foreclosure are still Looming From The First Crises
The first housing crises was caused by the loan products that were offered prior to the recession. Interest only loans, adjustable rate mortgages and loans containing balloon riders all contributed to the affordability of the loans. Many mortgage rates increased mortgage payment amounts beyond affordability, and millions of homes values went underwater. The loans themselves were predatory, so the government and banks worked to eradicate the market of these loan products and other temporary measures were established in order to restore order in the market.
This time around, the loan products are not the concerning problem, the remedies that were put in place to address the issues are the detriments. The shortage of foreclosures on the market in recent years was not due to lack of inventory. In fact, the decline of foreclosed properties was a result of legislative and legal interventions that delayed the foreclosure process, deferring the inevitable instead of preventing it. The loan modification process operated on a broken system that delivered unsustainable terms, resulting in homeowners who re still facing foreclosure, and are in more danger now than they were during the recession. As much as 80 percent of the modified loans have re-defaulted in recent years, amounting to millions of homes on the verge of foreclosure for a second time.
Additionally, foreclosures filed during the recession clogged the system, and laws were put into effect that created a backlog of pending foreclosures that have been further deferred over the years. The backlog has begun to move through the system again, crating a flooding effect of foreclosed properties on the market. As many of those homes have increasing needs for maintenance, the resell value of these properties will be deeply discount, threatening to drag down property values across the board. This may impact those who have little to no equity in their home, as well as those looking to sell their home. This compounds the threat of a crises and
The Foreclosure Time Line is Shorter Than Before
Depending on the state laws that dictate the process of foreclosures, the foreclosure time line can stretch out to be longer than 42 months. In addition, homeowner advocates that have been assisting distressed owners and have managed to further delay the process, extending the time for as much as an additional year.
Lenders have streamlined the process of filing and facilitating foreclosures and decreased the time and effort required to push the cases through the system. After abiding by law and regulations enforced against them in order to decrease the number of REO properties that enter the market, lenders can now process foreclosures in half the time it used to take. So not only will we see more foreclosed homes enter the market, they will hit the market faster than before.
The Moratorium on Purchased Non-Performing Notes is About to Expire
Daren Blomquist, vice president at RealtyTrac, says “Additionally, more non-bank lenders who purchased nonperforming loans over the past couple years are moving forward with foreclosure, having passed the foreclosure moratorium of six to 12 months required by many of these purchase agreements.” This means that not only will foreclosure enter the market due to defaulting loans, even more foreclosures will come as a result of the bad loans that were sold to note purchasers. These purchased notes came from the first recession. They were not performing then, and they are not performing now. No assistance or permanent remedy was awarded to these borrowers to improve their situation, so their foreclosure status was only delayed and expected to be completed once the moratorium expired. This expiration will cause a significant influx of foreclosure filings, in addition to those filed by bank lenders, which makes another housing crises inevitable.
It is obvious to see that all of the evidence points to a looming foreclosure crises ahead. With recent confirming data, upcoming deferred foreclosures, more efficient foreclosure timeliness and foreclosure moratoriums expiring, the indicators are in place. The problems are derived from the failure of our government, but unlike the last recession, there was ample opportunities to prevent it. We only hope this one is not as damaging as the last.