Is a Next Wave of Foreclosure on the Horizon?

Industry experts have been closely monitoring and trying to predict if and when the next wave of foreclosure will hit. Many fear that a second wave of foreclosures is poised to hit the market and potentially undermine much of the housing recovery efforts as more homes add to the glut of inventory and drive down prices.

Many of the housing recovery efforts by the Obama administration have targeted homeowners in financial distress. The Making Home Affordable program was intended to have hundreds of thousands of financially devastated homeowners stay in their homes via a mortgage modification or avoid foreclosure by doing a short sale. These housing recovery efforts have delayed thousands of foreclosures.

It is estimated that  about 7 million properties are destined to go into foreclosure in 2010 compared to 1.27 million properties in early 2005, according to a September study by Amherst Securities Group.

There is a significant lag time between a borrower going deliquent and the bank taking the home via foreclosure. Here’s why:

1. Moratoriums. New state laws imposing short-term moratoriums have slowed the timeline from delinquency to foreclosure.

2. Overwhelmed lenders. Banks dealing with a surge in refinancing, mortgage modifications and defaults are overwhelmed with demand, so it can take longer to initiate a foreclosure sale.

3. Modifications. Many loans now are first examined to see if they might qualify for a modification. This drags out the timeline and means it is taking longer for homes to go into foreclosure.

4. Asset write-downs. Banks may in part be waiting to liquidate homes through foreclosure because they don’t want to write down the value of the asset. Lenders can keep homes on the books at a higher value until they are sold at foreclosure.

If the projections are correct this could have a significant impact on home prices across the country. We will keep an eye on how this will impact Walton, Okaloosa and Bay Counties.

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