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Foreclosures and existing home sales data

Posted by WARREN MOSLER on November 16th, 2009


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this is telling:

From a contact in Texas:

When I went to the bankruptcy / foreclosure auctions here a few weeks ago I found out that the whole thing is a charade. Bank of America (for instance) auctions off houses that have gone into foreclosure for the amount owed plus any carrying costs which usually makes the auction price higher than what was owed. A pre-bid was submitted by Bank of America Home Loan Servicing (the rename for Countrywide) in the exact amount of the auction minimum (mortgage owed plus carrying costs). No one else bids so the house is “sold” by Bank of America to Bank of America Home Loan Servicing. In essence, the property is simply transferred from one division to another so that clear title is established. But this is counted as an existing home sale which artificially inflates existing home sales numbers. This is what was happening for most of the 102 BAC mortgages and the 130 Wells Fargo mortgages. For the house I “rent” where the original mortgage was with Countrywide (and then transferred to B of A when B of A bought the property) this is simply a process for getting the house off of B of A’s books and back on Countrywide’s books (now BAC Home Loan Servicing). As I said, it is all charade or smoke-and-mirrors or a shell game.

Later Bank of America Home Loan Servicing will contact a realtor who will eventually put the house on the market for sale. Let’s say that the auction price was $200,000 but the house is now worth only $150,000. The house hopefully gets sold for $150,000 so that the “loss” is reduced from $200,000 to only $50,000 and the property is disposed of. Of course when this house is sold by the realtor it is again counted as an existing home sale.

Staggering 22 % of The State Of Florida are in Some Stage Of Forclosure

A staggering 22 percent of all mortgages in the state of Florida are non-current, according to a new report from Lender Processing Services.

By non-current, they mean loans that are either delinquent or in some stage of foreclosure; perhaps more troubling is the fact that 10.4 percent of home loans in Florida are in foreclosure.

The LPS October Mortgage Monitor also revealed that the nation’s foreclosure rate was 3.12 percent as of September 30, up 2.6 percent from a month earlier and 88.9 percent year-over-year.

And remember that’s with all the government intervention, foreclosure moratoria, loan modifications, and the like; the national mortgagedelinquency rate was 9.37 percent as of September 30.

The report also highlights the large shadow inventory of foreclosed properties that could wreak havoc on home prices and a possible housing recovery.

“The number of loans deteriorating further into delinquent status is now more than twice the number of foreclosure starts, indicating another major wave of troubled loans in an already clogged loan pipeline,” the company said.


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7 Responses to “Foreclosures and existing home sales data”

  1. Jim Baird Says:

    Isn’t this how things are done normally, though? The foreclosure auction is a function of the court, not the mortgage holder. The bank doesn’t just take possession – the court sells the property at auction and divides the proceeds among the leinholders. The mortgage holder always puts in a minimum bid of their mortgage value, just to prevent someone from walking in getting the house for pennies. They then have clear title to the house and can sell it through a normal process.

    That’s how I got my house – it was foreclosed, and then I bought it from the Bank’s realtor.

    Reply

  2. Jill K Says:

    Jim is correct. It’s called “shadow inventory” and it’s all routine. In this magnitude however, there’s no question the paper shuffle is skewing numbers being reported for existing home sales.

    Awareness of this development (shadow inventory) is growing. Some imagine these properties will eventually flood the market and cause values to decline even further. This is laughable. Foreclose, title transfer – poof – the lien is gone. All that remains is property taxes and maintenance. Maintaining a vacant residence that is owned free and clear is far from the burden Peter Schiff sums it up to be.

    Any and all shadow inventory will trickle back into the market as demand comes back and not a minute before.

    Reply

    zanon Reply:

    Jill K: That’s a very smart comment.

    So what price will draw out the supply (to stabilize it)?

    Reply

  3. Jill K Says:

    I’m looking at the ROI on a house down the street from me that has been bank owned and vacant for 11 months. Conservatively speaking, short of a plague wiping out our population, Peter Schiff is either mentally challenged or a closet real estate investor.

    Reply

  4. warren mosler Says:

    thanks!

    Reply

  5. Nikhel Says:

    Hi, I should really thank you for this post, because what I have noticed is that it’s simple to read and easy to understand and this is what generally I look for. Thank you very much.

    Reply

  6. Jill K Says:

    posting this comment to share ‘Bank of America to release homes’ as it pertains to shadow inventory

    “Throughout the country, estimates of homes being taken back by Bank of America range from 11,000 to 14,000 a month in the early part of this year to 29,000 to 35,000 by November and December, said John Ciresi, vice president and portfolio manager for Bank of America in Towson, Md.”

    Complete article can be found here
    http://www.lvrj.com/business/bank-of-america-to-release-homes-81453352.html

    Reply

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