|Another wave of foreclosures looms|
By Stephanie Armour, USA TODAY
A second wave of foreclosures is poised to hit the market, potentially undermining housing recovery efforts as more homes add to the glut of inventory and drive down prices. These homes largely represent loans that are delinquent but have not yet resulted in foreclosure sales.
About 7 million properties are destined to go into foreclosure, according to a September study by Amherst Securities Group, compared with 1.27 million properties in early 2005.
"There's a huge supply out there," says Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. "The foreclosure process can take a long time. When it comes to (the housing recovery), we're not home free."
There is often a long lag time between a borrower going delinquent and the bank taking the home. Here's why:
•Moratoriums. New state laws imposing short-term moratoriums have slowed the timeline from delinquency to foreclosure.
•Overwhelmed lenders. Banks dealing with a surge in refinancing, mortgage modifications and defaults are overwhelmed with demand, so it can take longer to initiate a foreclosure sale.
•Modifications. Many loans now are first examined to see if they might qualify for a modification. This drags out the timeline and means it is taking longer for homes to go into foreclosure.
•Asset write-downs. Banks may in part be waiting to liquidate homes through foreclosure because they don't want to write down the value of the asset. Lenders can keep homes on the books at a higher value until they are sold at foreclosure.
"There is a lot of foreclosed property in the pipeline that will hit the market and depress prices," says Mark Zandi at Moody's Economy.com. Foreclosed homes often sell at prices below those on the market and can therefore drag down overall home values.
The shadow market of foreclosed homes eclipses the number of homes lost this year. Zandi anticipates there will be about 2.4 million homes lost next year through foreclosure, short sales and deeds in lieu of foreclosure. That compares with 2 million homes lost in 2009.
Jumana Bauwens, a spokeswoman at Bank of America, says the bank is projecting an increase in foreclosures in part because customers will not be qualifying for existing loan-modification programs.
Banks rule government (see 2008-09 bank bailouts) and they rule us (see above). Banks own us all.