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Mortgage Industry Rethinks Expected Flood of Foreclosuresn
| Market statusnnIt's not that foreclosures ever stopped, really. But there hasn't been a massive onslaught like Kern County saw the previous year when foreclosures nearly doubled between January and August.nnForeclosures in the first nine months of this year are down about 14 percent from the same period the previous year, from 6,827 to 5,858, according to the Kern County Assessor Recorder's Office.nnThis, aside several landmines buried in the real estate landscape that could spur another hefty round.nnThere is, of course, Kern County's 14.3 percent unemployment rate.nnAnd there's the resetting of option adjustable rate mortgages, one of the more exotic financing models that flowed freely while performing the property boom.nnOption ARMs, as they're known in the industry, give borrowers a low preliminary home loan payment that loses ground on the principal balance, however over time the minimum payment increases, sometimes to two or three times its original amount. California carries a uneven share of those loans.nnThe the previous year discretion ARMs were made in large numbers was 2007, and typically they reset after three or five years, so a bunch of borrowers with such loans could start defaulting next year and continue into 2012, said Dan Granillo, an agent with Grassroots Realty in Bakersfield.nnOn the other hand, banks may work with those borrowers to ignore another foreclosure flood. "A lot of them seem to be open to short sales," Granillo said, describing agreements with a lender to sell a property for decreasing than the homeowner owes.nnMoratoriums on foreclosuresnnAnother achievable foreclosure trigger is the expiration of some key moratoriums.nnA hint of what could be coming occurred seven months ago, when mortgage giants Fannie Mae and Freddie Mac lifted their moratoriums. There were 1,750 defaults filed in Kern County in March, the most on record. Three months later in June, the county had 1,045 foreclosures, another record.nnIt could have been worse.nnLast year, California lawmakers passed SB 1137, which prevents lenders from filing a observe of default on definite loans until 30 days after contacting the borrower to assess their financial case and explore alternatives to foreclosure. The law applies to loans designed from 2003 to 2007, and expires in January 2013.nnThis year another law added 90 days to the foreclosure process for lenders and servicers that don't have a state-approved loan modification program in place. That law, which applies to loans taken out between 2003 and 2008, will sunset in 2011.nnDefaulting with impunity?nnMeanwhile, banks seem to be taking their time foreclosing on homeowners who default. Many have remained in their homes aside going months apart from making payments.nn"For whatever reason, banks seem awfully reluctant to take that step," said Kern County Assistant Assessor Tony Ansolabehere. "I view them delay the trustee sale over and over again, and I don't understand why they're doing it."nnIf there's a delay, it's because the industry is trying to work with troubled homeowners to modify their loans, said Beth Mills, a spokeswoman for the California Bankers Association.nn"Some lenders are doing loan modifications or imposing voluntary moratoriums to discern if people qualify for any of the programs that are out there," she said.nnEither way, the impact is to artificially depress supply and boost sale prices, said appraiser Gary Crabtree, producer of the closely watched monthly Crabtree Report.nn"The free market forces that would normally be at work have been stunted by meddling, so this is an eccentric market," he said. "You drive around and abandoned homes with brown yards are all over the place, but they're not on the market."nnBanks are sitting on some 3,000 lender-owned properties in Kern County, according to the Assessor-Recorder's Office.nnBank of America insists banks are not hoarding inventory.nn"We do not hold foreclosed properties off the market," said spokeswoman Jumana Bauwens. "The vast majority of mortgages serviced by Bank of America are owned by third-party investors. We have an debt to them to prepare foreclosed properties for market and sell them as efficiently as possible."nnMotivation to move housesnnAt the same time that lender-owned properties are piling up, tax incentives and the lowest prices and interest rates in years are driving up demand.nn"There's not enough inventory, so you're seeing bidding wars again," said Abel Ramos, an agent with A&A Realty in Bakersfield. "In the last three days, I've submitted a bunch of offers above list price, and still didn't acquire the houses."nnBanks surely accomplish that won't continue if they dump everything at once in a dragon sale, so they'll likely keep on releasing property slowly, Ramos said.nn"The strategy is working for them," he said. "Why change it?"nnBanks also have an incentive to sit on defaults for a while rather than complete the foreclosure process. When they have foreclosures on their books, regulators insist they bulk up reserve funds to cover toxic assets.nn"That's really failing for them, because it takes money out of operating funds," said John Emery, dean of Cal State Bakersfield's School of Business and Public Administration. "They'd rather just leave it in a non-performing assets category."nnBanks say they're just trying to keep borrowers in their homes.nn"Until a foreclosure is completed, Bank of America continues to exhaust every possible option to qualify clients for modification or other solutions," Bauwens said.nnIn spite of those efforts, the economy and high unemployment make additional foreclosures inevitable, but they won't be drastic, said Mills of the California Bankers Association.nn"There will be more small waves in the future," she said. "But generally banks will attempt to lucid those as quickly as possible.nn"They don't want to be in the company of owning homes."n |
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