The onset of the housing crisis paved the way for foreclosures to run rampant throughout the United States. Too many homeowners were saddled with loans that they simply couldn’t afford. When their homes went underwater, there was no choice but to enter into foreclosure. The sheer number of foreclosed homes damaged the entire housing sector. Something had to be done – immediately. As a result, lending institutions began to implement strict underwriting practices to prevent further defaults from occurring. Loans became increasingly hard to come by, as the criteria were much more difficult to meet. For all intents and purposes, stricter loan practices have aided in the current recovery. For while, foreclosures were just a fraction of what they were during the worst years of the recession.
However, as the recovery trudges on, foreclosures appear to be making a comeback. The number of borrowers losing their homes is increasing once again. Unlike five years ago, most of the defaulting loans are not new. In fact, the recent uptick is a result of the foreclosure process starting to move more quickly. Banks are realizing the advantage of repossessing homes with the current rate of appreciation. There was, however, a slight uptick in foreclosures on loans made in 2013 and 2014, a troubling turn.
Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, were reported on 123,109 properties in October, according to RealtyTrac. That is a 15 percent increase from September, and the largest monthly increase since the peak of the crisis in March of 2010. The numbers are still down 8 percent from a year ago.
It is important to note that foreclosure activity typically experiences increases as the new year approaches, as lending institutions strive to execute as many foreclosures as they can prior to the slow holiday months. In fact, it is not uncommon for foreclosures to increase by as much as 8 percent in the months leading up to January.
“But the sheer magnitude of the increase this year demonstrates there is more than just a seasonal pattern at work,” said RealtyTrac vice president Daren Blomquist. “Distressed properties that have been in a holding pattern for years are finally being cleared for landing at the foreclosure auction.”
From the beginning, the foreclosure process has taken significantly longer in states where judges regulate the hearings as opposed to those that don’t. Accordingly, foreclosure auctions in judicial states rose 21 percent month-to-month, while those in non-judicial states rose 27 percent.
“There is still strong demand from the large institutional investors at the foreclosure auction in some markets, but even in markets with decreasing demand at the foreclosure auction, banks can be confident in selling REO [repossessed] properties quickly and at a good price,” Blomquist added. “That’s because there is still strong demand from buyers, particularly in the lower price ranges, combined with a dearth of distressed homes listed for sale.”
Foreclosure auctions continue to draw a lot of investor and buyer intrigue. In fact, it is their participation that has prevented banks from foreclosing on more properties than they already have.
“We see far more opportunity to buy than we have capital,” said Laurie Hawkes, president and COO of American Residential Properties, a Scottsdale, Arizona-based, single-family rental REIT in a September interview. “The fallacy is that the buying is over. It’s not.”
Now is perhaps one of the better times for individual investment companies to take note of the increasing foreclosures. However, institutional investors may be more reserved. Home prices are on the rise, making bulk buys more difficult. With large investors removing themselves from the picture, banks are becoming more aggressive in their acquiring strategies. They know they can get more for the home with the current rate of appreciation. In other words, banks would rather reposes the homes than let investors buy them at auction.
According to RealtyTrac, the following cities had the highest foreclosure rates among the nation’s top 20 metros:
These cities have taken the place of previous foreclosure hotbeds like Phoenix and Las Vegas.
A majority of the loans that are currently undergoing foreclosure have been delinquent for several years. However, on a less encouraging note, 56,452 new foreclosures were filed last month. At that rate, foreclosures increased 12 percent from September
“Many of the mediation programs, loan modification programs and even short sale programs have run their course. Distressed properties that could not be saved by those programs are being placed back on the foreclosure track,” noted Blomquist.