Which Way Did That Foreclosed Home Go?

Over the last few months there has been talk about the low inventory of homes for sale in many markets. There have even been suggestions that the government and banks were deliberately holding back inventory and waiting for home prices to increase.  A recent disclosure by Fannie Mae, the government-backed mortgage finance giant, indicated that there might be a reason why more foreclosed properties are not readily available in the market . Reports show that only 23% of Fannie Mae’s foreclosed homes were up for sale in the second quarter which was a decline of 5% from December last year. The Mortgage finance company said that it was not able to market 47% of its inventory as it was in various stages of the foreclosure process.

Fannie Mae is however not alone in this,Bank-owned foreclosures which had peaked at 700,000 in 2008 and around 600,000 in 2010, have considerably slowed down. This started after the “robo-signing” scandal which prompted many states to take action that would protect consumers from unfair foreclosure practices by banks. Since then, banks have been very slow to process foreclosures, particularly in judicial states, where courts are overwhelmed by the volume cases and banks have struggled to properly document their ownership of mortgages. The Wall Street Journal reported that listings of foreclosed properties have fallen in 17 of the last 19 months through July, according to research by Zelman & Associates. Listings are down 47% from their October 2009 peak and by 23% in the last year. Banks are now seeing to sell more homes to investors before going into foreclosure, rather than taking them back themselves. They’re also approving more short sales, where the property is sold for less than the amount owed.

Groups like the National Association of Realtors, NAR, are pushing for government agencies to release their REO properties in areas where there is a short supply of inventories. Fannie has piloted the Tenant in Place or Deed for Lease programs, where the home is rented back to the borrower in order to deal with the foreclosure process problem. As a result, Fannie Mae is taking fewer losses on its REO sales. This is good news not only for Fannie Mae but also the American citizen who will have less of tax burden in the future.  The Government Sponsored Enterprise increased it rate of recovery of unpaid principal balance by 6% since the beginning of last year.

Michael Hobbs, PahRoo Appraisal & Consultancy

Twitter @Pahroo

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