By Robert Freedman, Senior Editor, REALTOR® Magazine
Analysts and practitioners are trying to sort out the impact on markets from bank-imposed foreclosure reviews after their discovery in September of improperly processed foreclosures. NAR Chief Economist Lawrence Yun says inventories could be eased in the short-term as distressed properties are held off the market, which could help prices temporarily, but eventually the properties will return, dragging out the recovery.
On the plus side, Yun says buyers have shown an appetite for deeply discounted homes, so homes whose mortgages are undergoing review won’t necessarily linger once they come back onto the market. “What we’ve seen recently is that buyers are comfortable buying foreclosed properties, so if houses trickle in because of the moratorium, there will be buyers for them but at a later stage,” he says.
Yet, conditions are changing quickly, so it’s too soon to know what the impact on households’ ability to buy these properties will be. It will be hard to quantify, for example, what impact the foreclosure reviews will have on household confidence.
In a positive sign, some households don’t appear to be too discouraged by the reviews, although that could change if the reviews take a long time to complete.
Joe Kendall, associate broker of Sandals Realty in Fort Myers, Fla., where distressed sales are a large part of the market, says he’s aware of buyers’ concerns about buying foreclosed homes now. But at least as of last week, he personally hadn’t had a deal hit a snag because of that reason. “Price is driving everything today,” he says. “Regardless of what they’re hearing in the media about the problem, people who’ve been waiting on the sidelines for prices to come down are willing to risk a delayed closing to pay $60,000 for a house that a few years ago went for $225,000.” Even so, he says things can change quickly, and the foreclosure issues could hurt despite households’ appetite for deeply discounted properties.
In another positive sign, he says, banks have gotten much more efficient at processing short sales and now he’s seeing owners of homes that might have gone into foreclosure two years ago getting the green light from the lender to sell their house as a short sale. “I now have banks e-mailing me to see if I’ve got a contract yet on these short-sale listings,” he says. “A year ago you wouldn’t have seen anything like that.”
The improprieties found in foreclosure processing include the signing off of documents by processors without verifying the information on them and processors not signing documents in the presence of a notary. As of early October, GMAC Mortgage, JPMorgan Chase, and Bank of America Home Mortgages had instituted reviews of tens of thousands of foreclosures and imposed moratoria on new foreclosures, and others were expected to follow suit. Federal regulators and about two dozen state attorneys general have also called for a halt on foreclosure processing by some banks, and courts are starting to see lawsuits as households who lost their home to foreclosure seek reviews to see if they can get redress for an improperly handled foreclosure.
Note: The National Association of REALTORS® has released talking points for practitioners who get questions from consumers about how foreclosure freezes may affect real estate transactions.