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Huge Foreclosure Flood Feared

By Steve Cook, Real Estate Economy Watch   |   May 30, 2012 at 9:37 AM   |   Comments

More than half of all Americans are concerned that a huge wave of backlogged foreclosures to be released by major lenders in the wake of the Robo-signing scandal ─ approximately twice the size of annual foreclosure sales─will lower home values in their markets.

A new survey by Realtor.com found that the 55.7 percent of consumers fear that the backlogged foreclosure inventory that built up during the two year period following the Robo-signing scandal when lenders slowed down processing, especially in the 26 judicial states where a court order is required to foreclose. Homeowners and non-homeowners are equally concerned.

April data released today by CoreLogic found that foreclosure inventories today are at about the same level they were at the first of the year, when the backlog was at its peak and before 49 state Attorneys General Agreement with major lenders was signed in March. Approximately 1.4 million homes, or 3.4 percent of all homes with a mortgage, were in the national foreclosure inventory as of April 2012 compared to 1.5 million, or 3.5 percent, in April 2011 and 1.4 million, or 3.4 percent, in March 2012, according to CoreLogic. The backlogged inventory at its current level represents about 39 percent of the approximately 3.6 million foreclosures completed across the country since the start of the financial crisis in September 2008, there have been.

Participants in the Realtor.com survey want lenders to take action to keep the 'shadow inventory' of foreclosures from lowering home values. One in four (28.3 percent) Americans prefer the lease-purchase option instead of: Selling them slowly to preserve home values (12.8 percent); Selling them to investors to fix up and rent out (11 percent); Continuing business as usual (10.8 percent); Selling them quickly to eliminate the backlog even if home values suffer (10.6 percent); And renting them out until prices improve (8.7 percent).

"As lenders begin processing their distressed inventories and releasing them for sale at the local level, we look to them to move carefully and monitor conditions so recently gained home values aren't diminished," said Steve Berkowitz, chief executive officer of Realtor.com operator Move, Inc.

"The inventory of homes in foreclosure in judicial foreclosure states is growing, but this increase is being more than offset by declining inventories in non-judicial states where the processing timelines to clear a foreclosure are shorter," said Anand Nallathambi, chief executive officer of CoreLogic. "Nationally the inventory of homes in foreclosure decreased 0.1 percent from what it was a year ago at this time, and has leveled off over the first four months of 2012."

Four of the five states with the highest foreclosure inventory as a percentage of all mortgaged homes were judicial states: Florida (12.0 percent), New Jersey (6.7 percent), Illinois (5.3 percent), and New York (5.0 percent). The five states with the highest number of completed foreclosures for the 12 months ending in April 2012 were: California (142,000), Florida (92,000), Michigan (60,000), Texas (58,000) and Georgia (57,000). These five states account for 48.8 percent of all completed foreclosures nationally.

The Realtor.com survey found that Interest in buying foreclosures has almost tripled among potential home buyers in the past two and half years, and 92.1 percent of those buyers plan to live in them rather than use them as investments, according to a new national survey released today by Realtor.com. This suggests the stigma once associated with buying a foreclosure as a home has faded.

Homebuyer interest in foreclosures jumped 159 percent since October 2009 when foreclosures accounted for 29 percent of all home sales. In fact, more than two-thirds (64.9 percent) of today's homebuyers said they're likely to buy a foreclosure compared to 25.3 percent two and a half years ago. Only 6.9 percent of today's potential home buyers are interested in buying a foreclosure as an investment, down from 13.2 percent in October 2009, the survey found.

Fear of losing a home to foreclosure has declined in recent years. Today, approximately one third of Americans (34.9 percent) fear they or someone they know will face foreclosure in the next year, down -33.5 percent from March 2009 levels when 52.5 percent expressed this concern. Fear of facing foreclosure today is greatest among those earning less than $30,000 a year and slightly higher among non-homeowners than homeowners.

Most Americans say they haven't seen improvement in the foreclosure situation where they live. The Realtor.com survey found most Americans (49 percent) think the foreclosure situation is about the same as it was last year, while close to one in six (17.6 percent) say the foreclosure situation is worse. Only 21.3 percent think the foreclosure situation in their market is better. Foreclosures have in fact declined by 34 percent in the past 12 months.

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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