While the housing sector has shown significant signs of improvement, thousands of weary homeowners continue to struggle in the wake of one of the worst financial collapses the U.S. has ever seen. Despite a decline in the rate of delinquent homeowners, those unable to pay their mortgage are being subjected to a longer foreclosure process. These homeowners are currently at risk of having their houses seized by the institutional lenders that previously approved them for their loan. As the recovery appears sustainable and lenders have begun to clear their books, they have simultaneously been moving a larger volume of properties at auctions and similar selling platforms. Moreover, the housing recovery has increased the amount of home seizures that are taking place.
Now that institutional lenders have been able to remove a great deal of the backlogged inventory from their books, they have the ability to seize homes that have already been declared delinquent. In the past, banks ignored owners that were late on their payments because they simply didn’t have the manpower to keep up with the rate in which homes were foreclosing during the worst part of the recession. Now that the load has lightened, they are looking to take back what they think is theirs. According to Daren Bloomquist, “Lenders know there’s now a much better chance they can get those properties sold, so they’re moving to do that.”
While the amount of foreclosures entering the foreclosure process appear to be slowing down, the pace of cases proceeding to auction has increased in 19 states.
The housing sector decline directly impacted the amount of unsold homes on the books of institutional lenders. Accordingly, with buyers unwilling to actively participate in the market and prices falling, lenders’ inventories grew significantly. These conditions offered little incentive for banks to speed up the foreclosure process. Therefore, respective lenders were forced to spend large amounts of money just to maintain the homes on their books.
”In some cities, there are fines against the lenders if the foreclosed property is not taken care of… that can add up very quickly,” Bloomquist said. “If the lender can’t take on that property and maintain it properly, it may benefit them to allow the homeowner to live there and not foreclose until they’re ready.”
In lieu of recovering home prices, however, the number of foreclosed homes on the books of lenders has dropped significantly. In 2010, bank inventories housed more than a million properties. As we enter the New Year, that number has been more than cut in half. Most lenders are becoming increasingly confident about moving seized houses into the marketplace.
While lenders are encouraged by the recent trend, they are unaware of how long conditions will favor their endeavor. The strength of both price improvements and demand remains unclear. Moreover, record low mortgage rates appear to have bottomed out, making the prospects of owning a home that much more difficult for buyers.
Aside from unpredictable market conditions, some foreclosed homes simply do not appeal to anyone and may never sell. In that scenario, the homes are typically given back to the respective municipality and demolished.
According to Mark Flemming, chief economist at CoreLogic, “There are lien issues, or mold or asbestos, or all kinds of things that make it a challenge to sell it – that may be part of the reason they ended up in foreclosure in the first place.”