Although long-term mortgage lending rates continue to hit new lows, foreclosures keep heading in the other direction – and there are no signs that it will slow down anytime soon.
In the first half of 2012, over a million homes had foreclosure filings, according to RealtyTrac, which is an online marketer of foreclosed properties. This increase in filings – which include default notices, bank repossessions, and auction notices – was up 2 percent from the preceding six months.
Compared to the first half of 2011, the number of filings for the first half of this year was actually down 11 percent. Yet, 20 states still endured a significant year-to-year increase in foreclosure filings. In six states – Illiniois, Connecticut, Pennsylvania, Indiana, South Carolina, and Florida – filings increased by 20 percent or more.
What troubles real estate experts is the spike in the start of foreclosure proceedings during the second quarter of 2012, which ended recently. The number of new homes with new filings for foreclosure was up 9 percent from the first quarter and even 6 percent higher than the second quarter last year. This was the first year-over-year increase since the 4th quarter of 2009.
Analysts point to the recent $26 billion settlement regarding foreclosure abuse that was reached between the five major banks and 50 attorneys general from 49 states and Washington, D.C. as a major reason for the foreclosure increases. The settlement forced banks to agree to $17 billion in reduced principals for borrowers, making it almost instantly possible for hard-hit borrowers to see a sizeable reduction in their mortgage payments.
In addition to making banks lower the principals on loans that are underwater, the settlement delineates clear guidelines for how banks can properly close on delinquent borrowers, and how they can refinance certain mortgages at today’s lower interest rates. The settlement also stipulates how much banks should compensate homeowners who lost homes or properties because of improper foreclosure procedures, which included losing important paperwork, cutting corners, and enlisting robo-signers to attest to false facts that literally had no knowledge of.
The settlement, reached in April, resulted in an immediate increase in foreclosure starts the following month, the first such increase since the end of 2009.
Foreclosure rates in California jumped 18 percent year-over-year in June, boosting its foreclosure rates to tops in the country for the first time since RealtyTrac started reporting in 2005. California was fourth in the country – behind Nevada, Arizona, and Georgia – for the quarter. The likely result of these foreclosure starts will be a rise in short sales and bank repossessions for the rest of the year and into next year.
However, there are some efforts being made by the government that might prevent even more repossessions. In some areas around the nation, stabilizing and rebounding home prices could help underwater borrowers avoid foreclosure because their home values will have increased to a point where they no longer owe more than the home is worth. This might also help reduce strategic defaults, so called when borrowers stop paying their loans even when they can still afford to pay.
Rising prices means rising home values, and homeowners are usually less likely to walk out on their mortgages when it’s possible that their home will resume being valuable assets. Let’s see how this all plays out.