Are the Foreclosure Floodgates About to Open?

At the end of last year, many banks and financial institutions including Fannie Mae adopted some sort of “foreclosure moratorium” and they did the same thing again this year at the request of the Obama administration. The moratorium halted foreclosure proceedings on many who were facing foreclosure or in the process of getting foreclosed on.

Fast forward to April 1, 2009…

The moratoriums have pretty much all been lifted and the banks are back at it - foreclosing and eventually putting those properties on the market. Based on how long foreclosure proceedings take in Virginia and how long banks take to process everything before listing the property, we should start seeing many of these recently foreclosed properties hitting the market sometime this summer to the end of the year.

I’ve also heard rumors and talk about Fannie Mae and other banks thinking about taking an “let’s get rid of it all as fast as we can” approach to their foreclosure inventory (anyone else hear/know anything about this?). If Fannie and other banks release their inventory onto the market all at once, I think we’ll be in trouble. Yes, they’re only rumors and I hope that they stay stay only rumors. But what if there is a flood of foreclosures hitting the market?

These moratoriums have artificially deflated real estate inventory across America. In the Northern Virginia/Washington, DC metro area, housing inventory is down to 2003/2004 boom-market levels. In fact, the housing supply numbers in Loudoun County are indicative of a seller’s market.  We’re seeing multiple offer situations on many almost every property on the market priced below market value (feel free to ask any buyer or agent in my area to confirm that).

It was inevitable that the foreclosure moratoriums would just delay the foreclosure proceedings and eventual bank-owned market inventory. The question is when and how all those bank-owned properties will hit the open market and how great of an impact that influx of inventory will have. If all of these foreclosure properties hit the market at relatively the same time, inventory will go up and we’ll see downward pressure on prices. That would not be good.

Do I think all these foreclosures will hit the market at the same time? Personally, I doubt it - especially if the government has anything to do with it.

LoudounForeclosures.com Update

You may have noticed that there are some issues with the Category section of the blog, as well as some of the widgets on the very right hand column. I am currently working with Typepad and the makers of the widgets to resolve the problem.

Sorry for any inconvenience this may have caused you and I hope to resolve the issues shortly.

On a related note…look for some changes coming to LoudounForeclosures.com and LoudounScene.com in the near future. The changes are being made in order to make your experience on the blogs more efficient, rewarding and pleasurable.

-Danilo

Loudoun Foreclosure Article in Washington Post Features Danilo Bogdanovic

Yes, this is shameless self-promotion so cover your ears or click "back" if you'd like…

The Washington Post ran an article entitled "2008 Foreclosures Mostly in Sterling, Leesburg" both, online and in last Sunday's Loudoun Extra print edition. The article talks about how most of the foreclosures and bank-owned properties in Loudoun County are in Sterling and Leesburg.

The piece features myself as well as data and a foreclosure map discussed at the Dulles Area Association of Realtors Economic and Housing Forecast Summit, which took place last month. 

If you haven't seen it, here's the online version of the article over at Living in LoCo/LoudounExtra.com.

Is there Another Wave of Foreclosures Coming to Loudoun in 2009?

An unprecedented wave of foreclosures has hit Loudoun County as well as the rest of the nation over the past few years. The primary source? "Subprime" loans and their high rate of default.

But there may be a second wave of foreclosures coming to Loudoun County thanks to "Alt-A" and "Option ARM" loans. Though previously thought of as less risky than "subprime" loans, many are saying that they will have the same, if not higher, rate of default as "subprime" loans. Most of these "Alt-A" and "Option ARM" loans have not yet "reset", but will begin doing so early next year.

Note: "Alt-A" and "Option ARM" loans don't fall into the category of "subprime" loans and have been virtually unaccounted for nor talked about until recently.

Consider this…

If you put a "heat" map of the US showing the number of "subprime" loans next to a "heat" map of the US showing the number of foreclosures and/or bank-owned properties, they look almost identical. The higher the number of "subprime" loans, the higher the foreclosure rate and number of bank-owned properties.

Assuming that "Alt-A" and "Option ARM" loans have the same, if not higher, rate of default, I can't imagine we'd get anything but the same result when comparing "heat" maps of these types of loans with future Loudoun foreclosure rates.

That being said, let's look at a "heat" map of "Alt-A" and "Option ARM" loans in Virginia (click to enlarge):

 

As you can see, there is a high concentration of "Alt-A" and "Option ARM" loans in the Northern Virginia area, including Loudoun County.

According to a recent 60 Minute special about "Alt-A" and "Option ARM" loans (check out the video), they are just now starting to reset with the worse to come in the next year to three years. If this hypothesis holds true and no real help becomes available for troubled borrowers, according to the map above, Loudoun will see another wave of foreclosures coming on the market over the next few years.

At this point, the data is limited though it's on economist's radar screens and there should be more coming out soon. As more becomes available, I'll keep you posted.

Where Are All the Foreclosures in Loudoun County?

If you're curious as to where all the foreclosures in Loudoun County are located or which areas of Loudoun are most affected by foreclosures, check out the map below (click on map to enlarge)…

     

As you can see by the where most of the red dots are, the areas of Sterling and SE Leesburg are where most of the foreclosures are located. Incidentally, that's where some of the biggest drops in home values in Loudoun County have occurred.

Another thing the map shows is the total number of foreclosures in Loudoun County for the first, second and third quarters of 2008. Notice the increase in foreclosures as the year has progressed though the rate of increase has decreased.

Source: Presentation by Jack Brown, Economist for Loudoun County - DAAR Economic and Housing Forecast Summit

Loudoun Foreclosure Property Auctions Not a Hit With Buyers

Though Loudoun foreclosure/bank-owned properties are selling like hot cakes on the open market, foreclosure auctions are like ghost-towns. Few attend foreclosure auctions and the ones that do attend rarely make a bid.

Why? For the same reason regular properties that are up for sale just sit on the market…they're overpriced. And even if the price seems right, people are skeptical about bidding because they can't always inspect the property in person prior to bidding.

There's a great article in the Washington Business Journal that helps explain the situation in more detail. Here's an excerpt:

Many investors, who make up the bulk of active bidders at auctions, say the banks are asking too much for the homes. So far this year, 748,381 homes—or 46% of the foreclosures—have gone into the possession of the banks as real-estate owned, or REOs, because no bidders were interested in them at auction.

Individual buyers looking for deals at auctions will likely not find one, says Foreclosures.com President Alexis McGee. Making it harder for individuals: it is generally not possible to examine the properties in person before buying them and buyers must have money with them to make a down payment on the home.

Back in April, ABC7 News (WJLA) interviewed me for a story on this very subject. Funny thing is, the same is true now as it was then.

The only good thing is that banks are starting to "get it" when it comes to how they price their bank-owned properties on the open market, which is evident by the increasingly high number of bank-owned property sales in Loudoun County and the DC metro area in general.

Loudoun Foreclosure Assistance Barely Makes a Dent

In July, Congress approved $4 billion to be distributed to the nation's hardest-hit communities when it comes to foreclosures. Of that $4 billion, $46 million is being sent to Virginia. Of that $46 million,  $38.7 million will be channeled through housing officials in Richmond with $4.1 million going to Prince William County and $2.8 million going to Fairfax County. 

It seems that Loudoun County has not yet applied for any of that money so the amount being sent Loudoun's way has not been set. But people are estimating that Loudoun County should be receiving an amount somewhere in between that of Prince William and Fairfax.

The extra money is great in theory. But if you consider the average price of a foreclosure property in Loudoun County and the number of foreclosures in the county, three or four million dollars won't get Loudoun very far. It'll barely make a dent.

With Northern VA being hit so hard and contibuting the overwhelming majority of tax revenue for Virginia, I'm wondering why more of that $46 million isn't coming our way.

Housing officials in Northern Virginia and Richmond met this week to talk more about how to allocate $46 million of that emergency federal aid. Hopefully, the amounts will go up for this area and Loudoun will apply for some of that aid in the process.

Loudoun County To Help Employees Buy Foreclosed Homes

Loudoun County officials are currently working on a program that will help Loudoun employees buy foreclosed homes. The program would provide $5000 in grants to county and school system employees in order to purchase foreclosed property in Loudoun County.

Loudoun County officials are currently working on the proposal which will go before the Board of Supervisors next month.

This comes after the Loudoun County board last month approved a program that would low-interest loans to those making up to $99K per year.

Loudoun has been hit hard by foreclosures and the county is trying to be a part of the solution as well as make it more affordable for county employees to actually live in the county they work in. This is definitely a step in the right direction.

Related Articles

Loudoun County Considering Foreclosure Program For County Employees

Source: WUSA9.com and The Washington Post

US Foreclosure Filings Up 121 Percent

The numbers aren’t great - U.S. foreclosure filings are up 121 percent over last year. They rose 14 percent in the second quarter, the eighth consecutive quarterly climb. These numbers are according to RealtyTrac and the figure is a total of default notices, auction sale notices and bank repossessions between April and June.

The government is trying to help by passing a mortgage rescue plan, which includes $4 billion in grants to local communities to buy up foreclosed properties that may be negatively affecting the communities. Fairfax County recently approved such a program, but Loudoun County is yet to do so though they’ve been discussing it for a while now.

The good news for us in Loudoun County is that most of the activity is coming from a small number of states such as Nevada, California, Florida, Ohio, Arizona and Michigan. Yes, the DC metro area including Loudoun County has been hit hard. But there are lots of investors and traditional home buyers buying up foreclosure/bank-owned properties, which is helping to keep the inventory down and softening the blow a bit around here as compared to other areas of the country.

Graph courtesy of RealtyTrac

New Virginia Law Aims At Easing Foreclosures

A law that took affect on July 1 requires that lenders and mortgage-servicing companies send delinquent borrowers with high-interest loans the names of housing counselors who can provide foreclosure-prevention guidance.

"The new law requires that lenders and companies that collect mortgage payments make available a 30-day grace period to borrowers who ask for help.

By slowing down the foreclosure process, the new regulations could buy time for homeowners seeking to work out arrangements with their lenders."

Though the law requires a list of housing counselors to be sent and a 30-day grace period, there’s nothing that says that the lenders have to work out an arrangement with borrowers. Unless banks are more willing to work out arrangements with borrowers, this law may only delay the inevitable.

Source: PilotOnline.com

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