Real Estate: Nothing to fear from zombie houses

Zombie houses are what RealtyTrac is calling properties vacated by owners who have moved out and moved on with their lives after getting tired of waiting for their lenders to foreclose.

In a new report, the first-ever “foreclosure inventory ” found 301,874 “zombie” properties have been abandoned by their owners.

Last year at this time some 7.73 percent of all mortgages were more than 90 days delinquent, a function of the backlog of foreclosures in many states following Robogate. The entire foreclosure process, including filing notices of foreclosure on mortgages in default, has yet to return to its pre-Robogate pace, especially in judicial states.

The real news is that serious delinquencies have fallen to 6.78 percent of mortgages in the fourth quarter, the lowest rate since 2008, according to the Mortgage Bankers Association. There probably were 12 percent more zombie houses a year ago than there are today, except no one counted them all nor gave them a catchy name. There will certainly be a lot fewer next year as mortgage servicers speed up foreclosure processing as foreclosures are selling at record prices. New processing standards resulting from the signing of the AG agreement a year ago take effect are facilitating processing judicial states as well as elsewhere. States with the highest levels of non-current loans are Florida, Mississippi, New Jersey, Nevada and New York.

While zombie houses will decline, they won’t disappear everywhere anytime soon. At today’s rate of foreclosure sales, it will take 62 months to clear the inventory in judicial states as compared to 32 months in non-judicial states. A few judicial states - New York and New Jersey in particular - have such extreme backlogs that their problem-loan pipelines would take decades to clear if nothing were to change.

More recently, certain non-judicial states, such as Massachusetts and Nevada, have enacted ‘judicial-like’ legislative and/or legal actions which have greatly extended their pipeline ratios. Nevada’s ‘time to clear’ has extended from 27 months in January 2012 to 57 months as of January 2013. The change in Massachusetts has been even more pronounced. Since June of last year, its pipeline ratio has gone from 75 to 171 months. As California’s recently enacted Homeowner’s Bill of Rights is closely modeled on the Nevada legislation, may have a similar impact.

Another alleged source of zombie houses, “strategic defaults,” is much less of a concern. These are voluntary defaults where borrowers decide the financial consequences of defaulting on their mortgages are less than the costing of continuing to make payments. Negative equity, the major cause of strategic defaults, is easing; some 1.9 million homeowners no longer owe more on their homes than they are worth since home values began to appreciate last year. Improving employment, positive consumer confidence and forecasts of continued improvements in home values suggest that homeowners who are facing difficulties making mortgage payments today will be in better shape in the months to come.