December 8, 2008 Real Estate Market and Foreclosure Outlook for 2009
Unfortunately the prognosis for relief from the foreclosure
crises doesn't look very good for 2009, Charles Nate, President of American
Data Providers said today.
The Re-foreclosure Problem:
"The new moratoriums on foreclosure filings and auctions by
Freddie Mac, Fannie Mae and other lenders and servicers are only going to
prolong the foreclosure problem by delaying the timely filing and processing of
new foreclosures. While it is great that
lenders are now modifying the loans of people in foreclosure at record rates to
get them out of foreclosure, the newest statistics are showing that over 50% of
these modified loans are delinquent again within 90 to 180 days and will be
back in foreclosure.
Additionally, because lenders are almost never reducing
principle balances when they modify loans, most of the other 50% of the
modified loans are trapping the homeowners in upside down properties. Unless the real estate market experiences
significant appreciation in the next few years, which is very unlikely, the
only way for borrowers out of these modified loans secured by underwater
properties will be by a foreclosure sometime in the future. These
re-foreclosures on hundreds of thousands of modified but upside down loans could
have the effect of dragging out the foreclosure crises by several more years."
Increasing Loan Delinquencies:
"It has just been reported by Transunion LLC that the number
of severe delinquencies among
mortgage holders has increased more than 50% over year ago levels. Additionally,
according to the most recent statistics from the Mortgage Bankers Association
almost one in ten homeowners nationwide is either behind on payments or is
already in foreclosure. Lenders are
delaying filing foreclosures on most of these new delinquencies in the hope
they can either modify the loan or have the seller short sale it before risking
foreclosure and taking back another REO property."
Mortgage Resets and Declining Property Values:
"Mortgage resets on the 5 year ARMs (adjustable rare
mortgages) will be steeply accelerating in 2009 and will exceed the total number
of subprime ARMs that have reset over the past two years. Combine these resets
with nationwide declining property values that are putting millions of more
homeowners underwater will make it impossible for these more credit worthy
borrowers to refinance out of these bad loans and force them into foreclosure."
"The loss of 533,000 jobs in November was the highest in 34
years, causing the overall unemployment rate to rise to decade long highs. Job losses
are increasing the delinquency and foreclosure rates of what were previously
the strongest borrowers. These job losses will result in hundreds of thousands
of new foreclosures unrelated to the bad mortgages upon which the previous
foreclosure forecasts have been based."
"Despite significant prodding and efforts from the
government, new stringent credit requirements for new loans are still creating
a road block for most new buyers trying to purchase a property and for existing
borrowers to refinance out of their bad loans.
Until it becomes possible for more people to qualify for loans, housing
inventory will remain at record levels and continue to increase."
The Foreclosure Toilet:
"The record shattering volume of new foreclosures combined
with the lack of new buyers, whether because of fear to step into the housing
market or inability to obtain loans, is keeping the housing inventory at record
levels. The lenders trying to dispose of their problem loans and foreclosed properties
will continue to approve short sales and sell their REO properties at well below
market values to compete for the few buyers that are in the market and can
currently qualify for new home loans under the new stringent lending rules."
Lance Churchill, a nationally known speaker and expert on
foreclosures and short sales, explained the effect of this flood of below
market value lender properties on the real estate market and property values:
types of properties that are marketed and sold at below market value prices now
constitute a significant portion of the properties on the market in most areas of
the country today. Average homeowners who are not in distress and want to sell
their properties will have to lower their asking prices to compete with the
distressed properties. This results in establishing new but lower market values
for properties in these markets and starts a decline in local real estate
values. Then as new short sales and REOs
reach the market, the distressed sellers and the lenders will again drop their
prices below the new market price resulting in a repeating downward spiral in
prices. As long as new delinquent loans and foreclosures continue to flood the
market, this process will repeat itself over and over again. This is just like
someone flushed a toilet containing home prices and they are spiraling down
into the sewer with no way to stop the process once the handle has been pushed. It takes a market experiencing this
phenomenon a very long time to slow down and reverse the direction of the flow."
"The scary thing about most of the new statistics that
have been released and are cited in this release is that they reflect data from
several months ago. The problems are probably already much worse than even
those numbers indicate. Unfortunately, until the foreclosure problem is
resolved whether through new government programs or it works itself out through
the passage of time, real estate market prices will continue to decline. Thus,
it appears that new foreclosure filings will not be slowing down for a long
time to come and the outlook for any improvement in the housing marker remains
extremely dim for 2009."