Record Levels of Foreclosures Causing Worry

Posted in Foreclosures, October 31st, 2008 |

Even at the end of October record levels of foreclosures are causing grave worries. It seems that worse days are ahead. In the third quarter the number of foreclosures increased by 71%. It calculated to 8,500 houses going into foreclosure per day!

The foreclosure is a judicial process that consists of many stages. By it the lender seeks the permission of the court to realize unpaid dues from the borrower by foreclosing on the property that has been kept as security.

It is feared that before the year draws to an end over three million houses will be gobbled up by foreclosures – it is a million more than the previous worst predictions. Lenders are repossessing units at double the rate than the normal pace as per the findings of RealtyTrac. It calculates to about a quarter of all the houses that are in the housing market waiting to be sold. This will lead to a one third increase of the houses to be sold resulting in a further drop of prices.

For the investors the situation is tricky with the banks not be fully relied on as yet. The banks are staggering by the sheer number of foreclosed houses. They do not have the infrastructure to deal with so many modifications that would involve reduction of interest as well as the principal so that the people can continue to stay in their homes.

The situation is complicated because one house may have more then two or even three mortgages tagged to it. This will require negotiations with other parties.

The primary problem is the grouping together of the mortgages as securities that have been sliced and sold to investors across the world. The terms of these securities strictly limit the ability of the borrower to negotiate a new deal. The banks that service the mortgages by collecting the dues, fear that they might be sued if they go ahead with loan modifications so as to avoid foreclosure. These banks do not have any incentive to go ahead with workouts with borrowers.

The net result is that foreclosed houses are flooding the market causing further slump in the real estate market. There seems to be no way out of this cycle. The prices of most of the houses are less than the loan amount causing many borrowers to just walk away leaving behind foreclosed empty houses – not caring for the consequences.