Will the bank deal lead to a spike in foreclosures?

posted at 9:50 am on February 10, 2012 by Jazz Shaw

The recently announced, 49 state bank settlement deal is going to be a subject of discussion for some time to come as we sort out all the details. Roughly three quarter of a million homeowners will receive payments for damages suffered in the “robo-signing” foreclosure process. Millions more will apparently have the opportunity to refinance their loans or make other adjustments to ease their financial situation. But according to one analysis from Bloomberg, before the relief arrives there will likely be a massive spike in foreclosures.

The $25 billion settlement with banks over foreclosure abuses may result in a wave of home seizures, inflicting short-term pain on delinquent U.S. borrowers while making a long-term housing recovery more likely.

Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes. With yesterday’s agreement, banks are likely to resume property seizures…

A surge of home seizures may drive down values, at least for a while, in a fragile market. The number of new foreclosure filings fell 34 percent last year, according to RealtyTrac, resulting in a backlog that now may flood the market with low- cost properties. About 1 million foreclosures will be completed this year, up 25 percent from 2011, according to the firm.

So help is on the way, but not quite yet. Apparently there were a large number of mortgages which were facing foreclosure, but banks were holding off on acting while they waited for the results of these negotiations. With the uncertainty removed, they will now move to close the books on the majority of those while shuffling the details on millions of others to hopefully make them less likely to fail.

The other, secondary effect predicted by Bloomberg is that a new round of foreclosures and homes sitting vacant will drive housing values down even further in the short term, which seems fairly obvious. The real question is, has the market finally found its bottom and reached a realistic level, or are we still riding the remnants of a bubble?


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

All I know is every time the govt messes with housing, the value of my house drops another $10k. There’s a glut of foreclosed homes that will keep prices artificially low for at least another 5 years.

Paul-Cincy on February 10, 2012 at 9:54 AM

The banks will be free to glut the market with already foreclosed houses which will bring down the value of your house even more. Oh, and don’t look for property taxes to go down commensurately. The regime will hand out nickles and dimes to those foreclosed on and funnel the rest of this payback from the banks to dear leader’s campaign.

Kissmygrits on February 10, 2012 at 9:55 AM

This helps absolutely no one. Period.

Tim Zank on February 10, 2012 at 9:56 AM

The real question is, has the market finally found its bottom and reached a realistic level, or are we still riding the remnants of a bubble?

The market will find bottom when people stop trying to prop the damn thing up.

They’ve been desperately trying to re-inflate that bubble since 2007 and all it’s done is drawn out the problems.

teke184 on February 10, 2012 at 9:57 AM

The real question is, has the market finally found its bottom and reached a realistic level, or are we still riding the remnants of a bubble?

You said it yourself Jazz, there will be another wave of foreclosures to clear the shadow inventory. Banks will want to dump these houses and therefore, prices will continue to fall even though all the headlines will be “Housing sales up. Hurray!!!”.

WisRich on February 10, 2012 at 9:57 AM

No. No government action ever has unintended consequences…/sarc

thedevilinside on February 10, 2012 at 9:59 AM

Will the bank deal lead to a spike in foreclosures?

The question is a bit misleading, but the direct answer is no. The bank deal will lift a “moratorium” on foreclosure enforcement by the banks.

Will there be a rash of foreclosures to report very soon? Yes.

Are these foreclosures a result of new policy or regulation? No. These foreclosures have been waiting, some for years, while the banks and AGs litigated a lawsuit.

By the way, the GOP won’t use this in the general to attack Obama even though its a perfectly legitimate headline:

Obamanomics: Foreclosures quadruple from 2011 to 2012

BobMbx on February 10, 2012 at 9:59 AM

This will be seen to be a lose-lose proposition in reality.

It will be spun as an Obamic victory for the 99%.

Ragspierre on February 10, 2012 at 10:01 AM

The market will find bottom when people stop trying to prop the damn thing up.

They’ve been desperately trying to re-inflate that bubble since 2007 and all it’s done is drawn out the problems.

teke184 on February 10, 2012 at 9:57 AM

Agreed. These gimmicks aren’t gonna fix anything. This latest bailout is yet another waste of time and money. The problem is not that people’s homes are underwater. It’s that they’re unemployed or underemployed and can’t afford to make the damn payments in the first place. Fix the economy. THEN the housing market will recover.

Doughboy on February 10, 2012 at 10:01 AM

Well call me an optimist but this sounds like good news for people who saved their money and have good credit.
Houses are getting cheaper.

You can get a raise.
The price of gas can drop $1 dollar.
The price of food can go down but all that combined will never compare to buying a house for $50,000 less and having a smaller mortgage.

Why are a lot of these home owners under water…?
Many bought a house they should not have qualified for be with a variable interest rate loan with no money down.
They figured on sucking out some cash and then selling before the rate went up but caught in the down turn.
The value went down.
Their mortgage went up and now they can’t make the payments.

That is a lot different from the people who actually saved up 20% for a down payment and locked into a fixed rate thirty year loan.
Their value can rise and fall but if they do not plan on moving their situation does not change.

NeoKong on February 10, 2012 at 10:04 AM

All I know is every time the govt messes with housing, the value of my house drops another $10k. There’s a glut of foreclosed homes that will keep prices artificially low for at least another 5 years.

Paul-Cincy on February 10, 2012 at 9:54 AM

Seems to me you want it both ways. If there are a bunch of foreclosed houses on the market, they aren’t keeping prices “artificially low.” They’re a realistic indication of what houses in your area are actually worth.

And maybe when the market finally reaches its true valuation, a lot of people who were first priced out of the market by bubbles and now by government attempting to prop up the values of people who bought in an overinflated market just might be able to buy homes.

Typhoon on February 10, 2012 at 10:04 AM

Should help the banks start to clear the backlog. As long as the threat of lawsuits was hanging overhead, nothing was happening. Government had to accept this deal to get the lending industry moving again. It breaks the logjam.

TouchdownBuddha on February 10, 2012 at 10:10 AM

has the market finally found its bottom and reached a realistic level, or are we still riding the remnants of a bubble?

If not riding the remnants of a bubble, we are in the hangover stage.

I recently went on line and looked up the address for the California house I lived in back in 2002. The house sold for $450K in 2005. It is currently on the market for $180K. I’m sorry but the homeowner, even if not in default, is hard pressed to absorb that kind of a loss.

Happy Nomad on February 10, 2012 at 10:10 AM

My next door neighbors’ house is still on the market. For the past 18 months. This is a sham settlement, something designed to make it look like the government is doing something right, while not doing something right and in fact doing something wrong.

Purely an Obama reelection scheme.

rbj on February 10, 2012 at 10:12 AM

So between Obamacare adding more taxes to the home-buying experience and now the property values dropping even MORE who is really going to rush out there and buy a new house? *crickets*

search4truth on February 10, 2012 at 10:12 AM

I think this is a good thing, provided it is allowed to go through without (additional) government interference. Let the market find the bottom by itself. Once it hits bottom, it will start to recover.

Mohonri on February 10, 2012 at 10:15 AM

This causes nothing but pain coupled with the fact that nobody is willing to admit what is really wrong with the RE market — Demographics.

The Boomers are (me included) headed for the grave. The leading edge is already in the empty nester phase with consequent downsizing. The bulk of them are within 5 years of that phase. The days of the mass market McMansion are nearly over.

But the next generation will pick up the slack. How? First the Gen X,Y crowd are a smaller population compared to the boomers. Second they are not forming households in large numbers which is a bell whether of house buying trends. Third with what money? The current economy is hurting this very group of adults economically when they should be amassing the capital for that house purchase, but can’t do so.

The reality is, the RE market has 20 years before it will recover and will not see anything like the boom days of the 70′s – 90′s.

Dr. Dog on February 10, 2012 at 10:15 AM

So there will be a spike in foreclosures?

We know what the MSM and other Democrats would do with this if an R were in office.

forest on February 10, 2012 at 10:17 AM

Great time to buy a house (or two or three) and rent it out, as we are doing, though you do have to produce the 20% PMI up front.

Bishop on February 10, 2012 at 10:19 AM

Stop “helping”!

Cindy Munford on February 10, 2012 at 10:19 AM

“…and rent it out…”
Bishop on February 10, 2012 at 10:19 AM

Been there, won’t do that again.

albill on February 10, 2012 at 10:25 AM

I predict that you will see a lot of Real Estate companies and private Investors and even banks buying up these homes and then renting them out.

They will use the inevitability of tax reform and doing away with the mortgage deduction to rent the properties.

Wouldn’t you rather rent a house than an apartment? Have the renter responsible for the upkeep, mowing the lawn etc… and allowance for gardens etc… for a lower rent. Mjor upkeep would be done by a property manager.

I wish I had the money to bid on these properties.

Vince on February 10, 2012 at 10:25 AM

Am I mistaken, or did the 2% tax “cut” include a permanent fee on all existing mortgages? If so, this money from the banks’ customers to the banks to the home owners eventually ends up in the hands of the Government. But everybody feels good.

FirelandsO3 on February 10, 2012 at 10:25 AM

Seemed as though we were rebounding more than just a little.
I am in the business and we have had appraisals recently that seemed to be very good news.
Everyone at the office feeling better, then wham!
Here come the Feds. :-/

Anton on February 10, 2012 at 10:25 AM

Great time to buy a house (or two or three) and rent it out, as we are doing, though you do have to produce the 20% PMI up front.

Bishop on February 10, 2012 at 10:19 AM

Great minds and all that.

Vince on February 10, 2012 at 10:26 AM

Bishop on February 10, 2012 at 10:19 AM

Damn skippy.
In the next six months people with money are going to be swooping down on these deals like seagulls on a french fry.

NeoKong on February 10, 2012 at 10:27 AM

All this is is the most bank-hating President in history beating them up a bit more. It’s all show. But in the end, folks who played by the rules and didn’t overextend themselves will of course be given the bill.
That’s how these guys play.

Sugar Land on February 10, 2012 at 10:29 AM

Great time to buy a house (or two or three) and rent it out, as we are doing, though you do have to produce the 20% PMI up front.

Bishop on February 10, 2012 at 10:19 AM

In the heady days of 2001, I put very little down and the 20% was covered in a month, so I never had to pay PMI.

But that’s what happens when you buy a property less than a mile from the Pentagon after 9/11. Those opportunities don’t come often.

NoDonkey on February 10, 2012 at 10:29 AM

Rent with option to buy. Dang, I’m getting myself all exited. Now to find a source for money.

Vince on February 10, 2012 at 10:29 AM

Yahoo! Finance calls this a stealth bank bailout since the mortgage “forgiveness” is backed by Fannie/Freddie, so the banks won’t pay a dime of this — the taxpayers will!! Not to mention the banks will be able to get debt off the books and also boost their bottom line.

EasyEight on February 10, 2012 at 10:33 AM

Stop “helping”!

Cindy Munford on February 10, 2012 at 10:19 AM

P L E A S E !

KOOLAID2 on February 10, 2012 at 10:34 AM

All I know is every time the govt messes with housing, the value of my house drops another $10k. There’s a glut of foreclosed homes that will keep prices artificially low for at least another 5 years.

Paul-Cincy on February 10, 2012 at 9:54 AM

We own 2 houses out in the Phoenix metro. One my wife bought at a high point in the bubble, it’s worth less than 30% what she bought it for. The other we bought after prices had been dropping for a couple years and it was an absolute steal at the price we got it. It’s worth 1/2 what we paid.

There are 10 year old houses in our old neighborhood selling for $30k in good condition out there. If I could stand all the traffic and crowds, I’d move back and just invest in housing. I could buyout my whole development in a few years.

Maybe then I could convince the HOA to stop jacking our rates up every year.

Kelligan on February 10, 2012 at 10:36 AM

Obamanomics: Foreclosures quadruple from 2011 to 2012

BobMbx on February 10, 2012 at 9:59 AM

And since the settlement money will most likely have to go through a government program and then be administered to the individual home owner, the pace of these disbursements will be slower than a tortoise, leaving more people disgruntled and not very excited to vote for the current King. Obama will of course propose that Congress take immediate action when the crisis hits, shifting the responsibility again away from his administration—a classic Potomac two-step.

Rovin on February 10, 2012 at 10:37 AM

The real question is, has the market finally found its bottom and reached a realistic level, or are we still riding the remnants of a bubble?

I don’t think the bottom is in sight yet. Even if the administration actually enacted policy truly favorable to housing, so much of what they do in other areas will continue to hurt the housing market.

High gas and energy prices force households to devote portions of their monthly income into their gas tanks and electric bills that might otherwise go to paying a new mortgage.

Capricious and ever changing regulatory burdens make entrepreneurs hesitant to open new businesses and reduce unemployment, so there are fewer people able to buy a home.

The willingness of the current administration to simply ignore the rule of law by issuing an executive order or by failing to enforce the law when a statute or precedent gets in their way breeds uncertainty in everyone who might otherwise be willing to take a risk and make long term plans for the future.

Until we get a business friendly government dedicated to providing certainty, I don’t see a bottom to the housing market, no matter what housing fix of the day Washington whips up

MessesWithTexas on February 10, 2012 at 10:37 AM

NoDonkey on February 10, 2012 at 10:29 AM

It’s goodness right now for investors, rates at 4.7% or lower on 20% down and short sales all over the place. Short sales suck of course because the banks have to approve it, but when it works…boy howdy it works. Houses in almost mint condition selling for a pittance, and renters crowding craigslist and Postlets begging for a place to live.

Bishop on February 10, 2012 at 10:42 AM

Every time the government designs another clever tweak for the real estate market, I go long food, ammo, and Vaseline. So far, I only needed Vaseline.

Archivarix on February 10, 2012 at 10:44 AM

and don’t look for property taxes to go down commensurately.

Kissmygrits on February 10, 2012 at 9:55 AM

Most states/counties have a mechanism to appeal property tax rates that are based on property valuations. Start organizing the home owners in your area and begin the process. In my area once the Property tax unit saw that home/land owners all over the country were organizing and preparing appeals they cancelled an increase and lowered rates.

chemman on February 10, 2012 at 10:44 AM

All I know is every time the govt messes with housing, the value of my house drops another $10k. There’s a glut of foreclosed homes that will keep prices artificially low for at least another 5 years.

Paul-Cincy on February 10, 2012 at 9:54 AM

Actually, the government’s actions have artificially supported the price of your house by forcing the banks to hold onto the delinquent borrower’s mortgages, reducing the number of homes on the market. The government’s actions also effect the physiology of the buyers in the market.

Now that the market will finally have a chance to absorb the excess, your house will reach its correct value.

JeffVader on February 10, 2012 at 10:46 AM

Bishop on February 10, 2012 at 10:42 AM

Since my property turned into an “investment” property (and I stupidly started off with an ARM), I had to refinance at a point higher to lock into a 5.5% rate.

Still I’m making a few hundred bucks a month overall and that will only go up.

The property is right across from the Marine Corps Memorial and Arlington Cemetery so it’s a choice location.

NoDonkey on February 10, 2012 at 10:49 AM

Maybe then I could convince the HOA to stop jacking our rates up every year.

Kelligan on February 10, 2012 at 10:36 AM

HOA’s the bane of a property owners existence. There are a couple of these in the rural Arizona area I live in. They are insisting that land owners use a certain color t-pole when they fence their properties. Good thing this type of HOA doesn’t exist in the land development I bought in they would have gotten their arses capped for that kind of behavior.

chemman on February 10, 2012 at 10:51 AM

The $25 billion settlement with banks over foreclosure abuses may result in a wave of home seizures, inflicting short-term pain on delinquent U.S. borrowers while making a long-term housing recovery more likely.

So the Obama administration managed to legally extort 25 billion from the banks. One has to wonder how many of these financial institutions will be eager to send a campaign check along with the “fines”. Or was the settlement chump change and negotiated months ago…….??? And don’t forget all the fat cat attorneys that got “their fair share” of the pie—who will definitely be sending their tithes to Obama.

Rovin on February 10, 2012 at 10:51 AM

FirelandsO3 on February 10, 2012 at 10:25 AM

For new mortgages.

chemman on February 10, 2012 at 10:55 AM

HOA’s the bane of a property owners existence.

I disagree, HOAs came into existence because local government are impotent and uninterested in enforcing ANYTHING.

Have a dog next to you that barks all night, neighbors who park five cars on their lawn or who blare music all night?

Local government could care less. That’s where the HOA comes in.

NoDonkey on February 10, 2012 at 11:00 AM

Although I must say it does wonders for the need of mortgage brokers. Here in Florida they are hiring at a decent starting rate and you don’t need a degree. Granted you have to take a million tests but then you can take it anywhere.

Cindy Munford on February 10, 2012 at 11:04 AM

Everything this man child does turns into a loss. Wonder what Team Obama has on their drawing board to garner votes from the Takers.

democratsarefools on February 10, 2012 at 11:06 AM

I’m sceptical that a new rash of foreclosures will lead to depressed prices and increased sales.

The vast majority of the foreclosures I’ve seen were delayed for well over a year. Guess what happens when the typical homeowner has a foreclosure hanging over their head? They not only stop paying the bank, they stop doing *anything* to maintain the home and thereby render it a steaming pile of c*ap in short order.

So couple the fact that you’re dumping crappy houses that need substantial work into a market where lending parameters are extremely tight for buyers and developers and what’s the result? SNAFU.

CorporatePiggy on February 10, 2012 at 11:07 AM

Recessions have a natural function. The correct malinvestments and reallocated related resources. Preventing that process either extends the recession or extends the inefficiencies that existed in the economy. Either the recovery is delayed or corrupted.

All this intervention in the real estate market, though well intended and structured to help people who are hurting, in fact hurts the economy. The foreclosures need to happen because they do that reallocation of resources. The correct the errors.

Dale Wyckoff on February 10, 2012 at 11:23 AM

The government needds to get out of housing and lett free market principles, that used to exist I think, take over.
Until this happens this mess will continue.
A neighbor is walking away from their house, which is in complete disrepair because they see no other way and they can rent a mansion (comparatively) for the same amt of monthly expense.
There is a bubble creating a bubble here. The next thing these banks are going to do is turn into rental agents.
Everyone profits except the individual. Which is apparently the goal.

ORconservative on February 10, 2012 at 11:28 AM

HOA’s the bane of a property owners existence.

I disagree, HOAs came into existence because local government are impotent and uninterested in enforcing ANYTHING.

Have a dog next to you that barks all night, neighbors who park five cars on their lawn or who blare music all night?

Local government could care less. That’s where the HOA comes in.

NoDonkey on February 10, 2012 at 11:00 AM

Which simply illustrates that every good thing morphs into self-serving tyranny over time.
Entropy happens.

AesopFan on February 10, 2012 at 11:44 AM

You know, as someone who is currently looking for a home to purchase in VA or in NC, I can tell you that my experience has been that while values of homes have dropped; most sellers have not lowered their prices, preferring instead to rent the homes out instead of selling them at a loss in the hopes that the bubble will re-inflate.

Book on February 10, 2012 at 11:47 AM

Maybe I’m missing something, but the lawsuit being settled was filed by 49 states. Does the Administration have something to do with it?

oconp88 on February 10, 2012 at 11:48 AM

Do I have this right-the banks pay $26 bil for bad practices and then get $17 bil of that $26 bil back to help homeowners.

marinetbryant on February 10, 2012 at 12:15 PM

The real question is, has the market finally found its bottom and reached a realistic level, or are we still riding the remnants of a bubble?

As one looking for a home myself right now, my view is that there’s a split market. The fixer-upper and foreclosures are pushing hard to the bottom, but the fully appointed properties are still riding a bubble of delusion.

HitNRun on February 10, 2012 at 12:31 PM

Of course. The banks don’t pay those fees. Their customers do.

We now have a bank commisar. I woke up in Soviet Amerika.

tom daschle concerned on February 10, 2012 at 12:45 PM

All I know is every time the govt messes with housing, the value of my house drops another $10k. There’s a glut of foreclosed homes that will keep prices artificially low for at least another 5 years.

Paul-Cincy on February 10, 2012 at 9:54 AM

Nothing artificial about the prices dude. Prices were TOO HIGH during the boom. Prices today are normal.

angryed on February 10, 2012 at 12:53 PM

The vast majority of the foreclosures I’ve seen were delayed for well over a year. Guess what happens when the typical homeowner has a foreclosure hanging over their head? They not only stop paying the bank, they stop doing *anything* to maintain the home and thereby render it a steaming pile of c*ap in short order.

CorporatePiggy on February 10, 2012 at 11:07 AM

Yep and that steaming pile of crap is bought for pennies on the dollars, renovated and sold for a profit or rented. I bought a house last year for $38K. Yes you read that right, $38K, cash. I put about $30K into it and now rent it out for $725 a month. My ROI including ongoing maintenance and taxes is about 11%. Show me another investment product out there with an 11% all cash ROI. I could sell the house tomorrow for $110K. I could have made an even better ROI had I borrowed money at 3.5% for a mortgage. But I couldn’t find anyone willing to lend me money on such a cheap property.

This is what the free market allows for. And all these foreclosures would be bought up in a second if the prices were allowed to find their natural bottom. Instead the govt puts band aid solution after band aid solution on and just delays the inevitable for years and years.

angryed on February 10, 2012 at 12:59 PM

Book,

Sometimes these forclosure homes are not the ones listed with MLS anymore, you have to seek them out, it is not as easy to find. Before that point they are obligated to advertise a price that pays the bank what they owe. You cannot advertise a short sale on MLS, although maybe that is state by state. Those people cannot advertise their home for less than they owe to the mortgage company unless they have the money in the bank to pay the rest off.

Homeowners in general, have no obligation to sell their home at the New New low foreclosure prices. Depending on where you are looking in VA you can have a wide range of prices, regional prices. (Location location location, and 150K new Obama federal jobs in the D.C. area have maintained housing costs there.)

Prices cannot go much lower than a certain point in your area, based on the value of a build -able lot to a developer, basically.
(This is somewhat affected by the median income, plus “wealth factor” in some towns…does everyone who buys there have a trust fun; are they moving from another million dollar house?)

Sometimes we call those Teardowns. The new house on that lot might be out of range for you now, because they have to pay carpenters a set fee and pay for materials at today’s cost. So, the developer already got at the lowest sale price for the lot, you missed it. They often go around the MSL listings to avoid R.E. sales fees. You can try that.

I hope you are not waiting to buy until the value is at the bottom, you should more realistically, buy what you can afford with the caveat today, afford with your families most dependable job. I would suggest one income, and then, when kiddoes are in sight, let mom hand raise her babies.

Fleuries on February 10, 2012 at 1:50 PM

Sorry, post above, freudian slip: Trust fun…oops.

Fleuries on February 10, 2012 at 1:52 PM

This helps absolutely no one. Period.

Tim Zank on February 10, 2012 at 9:56 AM

Exactly. This is just another O’Bonehead circle-jerk, sucking $25 billion out of the major lenders’ pockets and giving to trial attorneys, lefty attorney generals and deadbeats, none of whom gets enough money to buy a good lunch with it.

And while we’re at it – Fu*k you, Bret Baier, who asks during his report on the settlement “Is this is good deal for consumers?”

Mimicking the idiot talking points of the fringe left isn’t smart or clever; it’s just stupid. Who cares if it’s a “good deal for consumers”…it’s an out of control government making capitalism criminal and trumping up nonsense into a major national assault on banks again. Idiot.

Jaibones on February 10, 2012 at 7:54 PM

It will be spun as an Obamic victory for the 99%.

sucking $25 billion out of the major lenders’ pockets and giving to trial attorneys

So the Obama administration managed to legally extort 25 billion from the banks

you have all fell for it. What the banks did with robosigning and Mers was fraud, people should be in jail, instead they are probably going to pay about 1 billion each with no chance of prosecution. The large banks have market caps that put their “fine” at about five percent which can be handled with ease. It was nothing but a token “fine” and in the end it will do nothing but forcing the people who lived within their means to fund others who didnt. If this was a republican in office, liberals would have been all over them for the slap on the wrist that it is. I understand the arguement of the govt getting involved with the loaning but that is a seperate situation than someone being payed 11 dollars an hour signing papers with someone elses names then sent to a notary from a dead person. The two situations are totally exclusive.

CaptainObvious on February 11, 2012 at 11:12 AM