Foreclosure Freeze May Expand to More Lenders - Effects of the Foreclosure Freeze

Foreclosure Freeze May Expand to More Lenders

10/12/10

Up to 40 states may begin investigating the foreclosure practices of many banks.  This will add pressure to many more banks to follow Bank of America's lead on declaring a foreclosure moratorium.  JP Morgan Chase and Ally Bank have also suspended foreclosures. There is no timetable currently for the bank to resume foreclosures.  Wells Fargo reportedly will not suspend foreclosures.  

The moratorium on foreclosures will give many distressed homeowners an opportunity to sell their homes via short sale as they may be allowed more time to market the home.  Also, banks like BoA may be more willing to deal as they, temporarily, will have no option to foreclose.  This may help make it easier for homeowners to get short sales approved.  

If the foreclosure freeze extends for a prolonged period of time, it will cause the current supply of foreclosed homes to diminish.  This should result in home prices increasing slightly.  However, the pool of homes headed for foreclosure will continue to grow and when the freeze is over there could be a new tidal wave of foreclosure auctions as banks try to move homes that were scheduled to be foreclosed during the moratorium.  This will extend the housing market's recovery as it only pushes foreclosure sales to a future date.  Just like the tax credit pulled sales forward, this will push sales back, lengthening the recovery.  

Foreclosures will continue for the foreseable future.  Unemployment remains high at 9.5% for August 2010.  This is more than 1.3% higher than the highest point in the last 20 years and almost triple the rate at the end of 2000 (3.6% in October 2000).  Consumer confidence in September 2010 reached a 7 month low of 48.5.  An index of 90 indicates a stable economy.  The combination of high unemployment and low consumer confidence indicates that consumers are still wary of spending money.  

Another troubling indicator is that many adjustable rate mortgages (ARM) are about to reset in 2011.  80% of the $300 billion in ARM's and 60% of Interest only loans($820 billion) are expected to have 'reset shock'.  This could send billions of dollars in mortgages toward default.  More mortages entering foreclosure plus foreclosures held over from the moratorium could mean a record number of foreclosure sales in 2011.  

Clearly, the housing  recovery is going to take a lot longer than many thought.  The foreclosure freeze is only going to add to the length of time needed for the housing market to recover.  





Steve Roake, ABR, SFR is a Real Estate Broker for McColly Real Estate in Shorewood, IL.  Steve focuses on helping homeowners avoid foreclosure and has completed short sale training and has short sale experience.  If you need help in Shorewood, Joliet, Plainfield, New Lenox, Minooka, Oswego or other nearby communities, please contact Steve for a free analysis of your situation.  Foreclosure can be avoided.  Do something before it is too late.