>Foreclosed Homes Increases
June 4, 2008
The Wall Street Journal reports that the number of foreclosed homes owned by lenders continues to rise despite signs that they are increasingly willing to slash prices to sell those properties.
There were about 660,000 foreclosed homes in April, up from 493,000 in January and 231,000 in January 2007, according to First American CoreLogic, a research firm based in Santa Ana, California. They collect data from lenders and county clerks. The April total means one in seven previously occupied homes for sale are now in foreclosure! Wow!
There has been a surge in defaults that has increased the inventory of bank-owned homes, known in the trade as REO, for “real estate owned.”
Yes, if you’re on notice regarding a pending foreclosure the smart thing is to go to the bank and negotiate the amounts downward. There is evidence that banks are eager to work out the problems. It doesn’t help them to foreclose on someone, then turn around and get 50 cents on the dollar when they dump these properties.
By cutting prices, lenders have managed to increase sales of such homes sharply in recent months in some cities hit hard by foreclosures, including Las Vegas, Detroit and Sacramento, Calif., local real-estate brokers say.
With home prices falling, “holding the assets means further losses,” said Mark Fleming, chief economist for First American CoreLogic. Some lenders now are cutting prices as often as every 20 days on homes that aren’t selling, said David McCarthy, chief executive officer of Integrated Asset Services LLC, a Denver-based company that helps banks value and sell REO homes.
But lenders haven’t yet managed to catch up with the inflow of foreclosed homes. Mark Zandi, chief economist at Moody’s Economy.com, forecasts that the inventory of REO homes won’t peak before the end of 2009.
In dollar terms, foreclosed one- to four-family homes owned by lenders whose deposits are insured by the Federal Deposit Insurance Corp. more than doubled to $8.56 billion at the end of the first quarter from $3.59 billion a year earlier.
The Wall Street Journal said the REO glut is weighing on house prices in many areas, as banks tend to cut prices faster than other sellers. A new set of local home-price indexes, to be introduced this week by Integrated Asset Services, shows that the median price of homes sold in Riverside County, Calif., in April was down about 29% from a year earlier. The median price fell about 13% in Clark County, Nev., and 12% in Arizona’s Maricopa and Pima counties. Median-price comparisons can be skewed by shifts in the proportions of high- and lower-priced homes sold from one year to the next but provide a broad indication of market trends.
To avoid or at least delay losses, many lenders are trying to avert foreclosures by easing loan terms or giving struggling borrowers more time to catch up. We hope they cut some “slack” for TV star Ed McMahon who is in jeopardy of losing his Berverly Hills mansion. Mortgage companies completed loan workouts for 183,000 households in April, up from 160,000 in March.
Meanwhile, long-term interest rates rose last week, marking another potential drag on the housing market. The average rate on 30-year fixed rate loans eligible for sale to government-sponsored investors Fannie Mae and Freddie Mac was 6.17%, up from 6.02% a week earlier, according to HSH Associates, a financial publisher in Pompton Plains, N.J.