More foreclosures to be released in North County?

Interesting article we came across from The North County Times about the possibility for more foreclosures to be released in the near future.

Analysts say foreclosures could rise sharply in coming months as government and lenders tighten the screws on borrowers who can’t make payments.

While the number of homeowners defaulting on their loans declined over the last 18 months in North San Diego and Southwest Riverside counties, an uptick in August could be the first sign of rough waters ahead.

Disclosures last week that some major lenders had suspended foreclosures could delay, but not prevent, a wave of property seizures as lenders review their procedures. If foreclosure rates jump as predicted, the increased supply of lower-cost homes could push down overall prices in the area. Such a dip could endanger the fragile economic recovery.

Government-controlled lenders, which own or guarantee 50 percent of all U.S. home loans, have made changes to some rules, and have sent out pointed reminders to lenders that shorten the leash on homeowners unwilling or unable to pay their mortgages. Already, some housing counselors and economists have seen signs of the new hard-line approach.

“Distressed sales are going to increase to record levels next year,” said Wayne Yamano, an economist with John Burns Real Estate Consulting in Irvine. “What’s really interesting is it’s coming from top down. Fannie (Mae) and Freddie (Mac) are starting to issue a lot more foreclosure starts, and banks typically take their lead.”

The two government-controlled lenders, Fannie Mae and Freddie Mac, have been part of a major effort for the last few years to stem the tide of foreclosures nationally.

After foreclosures skyrocketed in 2007 and 2008, state and federal agencies imposed a moratorium in the fall of 2008. But that only delayed the problem, as the foreclosure rate in North County and Southwest County rebounded to levels almost as high in spring 2009, according to an analysis of data from ForeclosureRadar, a real estate data firm.

In April 2009, the U.S. Department of the Treasury launched a series of programs that paid lenders and borrowers incentives for modifying loans or finding other ways to help borrowers who owed more in loans than their homes were worth —- a condition that became so severe in Riverside and San Bernardino counties that the total value of residential property in 2009 and 2010 was less than the total amount of loans secured by the property, according to data firm CoreLogic.

The federal loan programs allowed more than 1 million homeowners to get into trial modification programs, in which they made reduced mortgage payments while lenders assessed borrowers’ ability to pay.

Rates fall, distress lingers

The programs, combined with a 30 percent rebound in North County home prices and 10 percent in Southwest Riverside County, helped lower foreclosure rates in the region over the last year and a half by 81 percent in Southwest County and 83 percent in North County.

But underlying distress remained: In June, 15.9 percent of Riverside County borrowers and 8.6 percent of San Diego county borrowers were 90 days or more behind on their mortgages, according to CoreLogic.

In August, lenders ratcheted up the pressure on homeowners.

Ali Tarzi, director of Housing Works, a government-licensed counseling agency in San Diego, said lenders have begun warning borrowers of imminent default after 60 days of missed payments, instead of the 90 days they’d waited before.

Tarzi also has noticed that applications for modifications are being rejected more often.

“More decline letters go out, and the reasons are trivial,” he said.

And lenders in August sent more default notices, which initiate the foreclosure process, to 6.5 per 1,000 Southwest Riverside homeowners, up 77 percent from July, and 2.35 defaults per 1,000 North County homeowners, up 36 percent from July, though both figures were well below their 2009 peaks.

Once those default notices go out, borrowers can try to have their loans modified, or they can try to sell their property for less than is owed, called a short sale, or they can allow a foreclosure to occur.

But recent changes in lender and government policy could limit those options and push more homeowners into short sales and foreclosures. In June, Treasury changed the loan modification rules so that lenders have to tell borrowers whether they’ll get a modification before the trial starts, which could reduce the number of trials.

In July, Ed DeMarco, acting director of the Federal Housing Finance Administration, which regulated Fannie Mae and Freddie Mac, told lenders in widely reported remarks, “If you have an abandoned property or a borrower not willing to discuss or work with anything, then get going.”

Fannie says ‘hurry’

On Aug. 31, the government-controlled lender Fannie Mae released a statement ostensibly to announce that lenders working in four states would be allowed less time to complete a foreclosure after a borrower went into default.

But the announcement came with a complete timetable for all states —- in California, a lender has 120 days after sending a notice of default to make a foreclosure final —- and a section saying that Fannie Mae would be monitoring foreclosures, and it could impose fees for delays.

“The remainder of what was in that announcement was restating and reminding of existing policy and the importance of adhering to it,” said Janice Smith, a Fannie Mae spokeswoman.

Although the policy had existed, the announcement was interpreted by many real estate agents, economists and lenders as a new set of deadlines for completing foreclosures or short sales.

As a result, some lenders and loan servicers, who administer mortgages for investors who own them, tightened their own policies. When it comes to loans it owns, Wells Fargo & Co., which took over Wachovia in 2008, will allow foreclosures to be delayed once, and only if a short sale will be complete within 30 days of the scheduled foreclosure sale, said Mary Berg, a Wells Fargo spokeswoman. But some of the investors of loans Wells Fargo services won’t allow any delays at all, Berg said.

Policy changes from these investors and by Fannie Mae and Freddie Mac motivated the new policy, Berg said.

Gary Kishner, a spokesman for J.P. Morgan Chase & Co., said he was not aware of any similar policy changes, and Richard Simon, a spokesman for the nation’s largest loan servicer, Bank of America, declined to comment.

Foreclosures2011 foreclosure peak seen

After analyzing the housing landscape, Yamano and his boss, John Burns, released a report on Monday predicting that distressed sales, which include short sales and sales of foreclosed properties, would peak in 2011, and represent 40 percent of all sales nationally.

That’s up from 29 percent in 2009 and 18 percent in 2008. In a typical market, 7 percent of sales are distressed, the report said.

However, a jump in foreclosures could be delayed after Bank of America, GMAC Mortgage and Chase all suspended foreclosures in 23 states last week due to failures to properly review paperwork. California was not one of the states, but California Attorney General Jerry Brown sent letters to GMAC and Chase asking them to prove that they are complying with consumer protection laws or halt foreclosures in the state, said Jim Finefrock, a spokesman for the attorney general.

Burns didn’t think the reviews would do more than push the wave of foreclosures back a couple of months.

“All they’re doing is they’re making sure they have their paperwork in order,” Burns said.

Another housing economist, Chris Thornberg, agreed.

“You want to play stupid games on technicalities, fine,” he said. “But the reason these people are being foreclosed on is they haven’t been paying their mortgage.”

Burns’ report predicted that the distressed sales will push down housing prices 8 to 11 percent nationally, and the downward pressure could be greater in places such as San Diego and Riverside where foreclosures are likely to be more concentrated.

Michael Lea, director of the Corky McMillin Institute for Real Estate at San Diego State University, said the economy is braced for a modest decline in housing, but a high foreclosure rate could cause problems.

“If you tried to do an accelerated program and push distressed houses through the market, it could lead in parts of the country to a double dip,” he said, or a second recession.

From North County Times: