The rate of foreclosures spanning July through September has increased nationwide by an average of 2 percent according to three of the major real estate data reporting companies. However, in the Sunshine State both the Notice of Default (NOD) filings and actual auctions of FL foreclosures fell 6 percent.
Foreclosures Fall In Recent Months
The month of September in particular has shown a drop in foreclosure activity across all states but new filings for Florida were down more than any other for the month.
“That would be the first step toward a shift in a trend,” said Daren Blomquist, market analyst for RealtyTrac Inc., one of the companies that released the report. “As those numbers go down, you’ll see fewer properties going through the entire foreclosure process.”
Unfortunately though, Mr. Blomquist admitted that it’s difficult to know what is behind the decrease, factors contributing to the recent decline in FL foreclosures could include federal incentives to increase “short sales” of troubled properties and mortgage modifications of problem loans. If these government influences are the main catalyst for the slow down of defaults in Florida and other states, then these short-term, positive developments could easily be erased if these Federal programs do not bring about the desired results or achieve those results at a pace fast enough to sustain recovery.
While Florida ranked fourth in the nation during the third quarter in terms of the proportion of households in foreclosure, for the majority of the past year the state has ranked in the top five foreclosure states nationwide and keeping FL foreclosures down enough to spark a market turnaround will prove a difficult thing to achieve.
Florida still has a long way to go, Blomquist said, because property values continue to decline and the state still has plenty of homes in the foreclosure pipeline. The facts are pretty indicative at this point that removal of Federal support of both short sales and loan modifications could cause another wave of FL foreclosures to wash across the Sunshine State.
Upon closer examination of the information provided, it comes to light that metropolitan areas across the state are not following a standard pattern in the rate of their FL foreclosure filings. Orlando seemed to reflect the nationwide trend of a slight gain in new foreclosures during the July-to-September months but saw a month-to-month decline in filings during the month of September.
Other areas that saw a drop in defaults were places like Naples-Marco Island where there were 2,997 filings last quarter, down fully 15.65 percent from the second quarter and down 4.49 percent from a year ago. Foreclosure rates in Sarasota are down just under 12 percent in September, according to RealtyTrac, when compared to the year before. That follows a nearly 18 percent drop in August for Sarasota.
Hillsborough County’s foreclosure rates also dropped for the first time in recent memory, falling nearly 40 percent compared to a year ago and at the same time, Manatee County was down nearly 10 percent from a year ago, and 13 percent from the previous month.
Another area that fared surprisingly well was hard-hit Osceola County which reported a decline in new filings for both the month and the quarter. Overall, the metro area comprised of Orange, Seminole, Osceola and Lake counties had 7,618 homes — or just under one percent of households in — in some stage of foreclosure during September, with about half of those being new filings. In August, by comparison, the region had 10,196 homes in foreclosure, and two-thirds of those were new that month. But even if FL foreclosures are on the decline at the moment in the metro area, they are still up about 24 percent when compared against the same period a year ago.
The True Face of Florida Loan Modifications
Some Florida residents like George Simmons feel that the slowdown is not due to the pressure from the Obama administration to modify loans, but rather that the number of people falling behind stands at such a record pace that it’s slowing the ability of the big banks to initiate the foreclosure process.
The Clermont resident purchased his first home in 2004 in south Lake County with a loan through Countrywide Financial Corp. Over time his adjustable-rate mortgage and his property taxes both swelled out of control, nearly doubling from the original $1,700 a month payment to more than $3,000 a month! The retired worker from NY looked at the facts and felt like he was staring down the tracks as the FL Foreclosure Train headed right for him.
After Bank of America assumed the portfolio of Countrywide, they moved to modify his loan by creating a 40-year, fixed-rate mortgage that would have lowered his payment to $1,175 per month. Unfortunately, in the midst of all the chaos occurring behind the scenes at BofA, the final approval of the loan modification got snagged somewhere and now the lender says Mr. Simmons is delinquent on his payments. The back-and-forth messages of hope and despair being fed to him over the phone finally pushed him to hire a lawyer.
Simmons, who is 62 said,
“They had me late by four months. Then you come to find out they lied to you. One lady told me they didn’t know what they were telling people, and then one company took over another. … I was so angry.”
On average, lenders have proven to be so ineffective at dealing with properties such as his that it would come as no surprise they were themselves slowing down the loan modification process. Even as banks hire more workers to relieve their overwhelmed processors, they find that they cannot train the new staff fast enough. Once fully trained, the processors still lack the experience of a seasoned negotiator which causes them to be able to complete fewer modification reviews each month than their senior counterparts. Such inefficiency can only cause more Florida families to lose their homes and increase the number of FL foreclosures that sit vacant and empty, awaiting someone to buy them sometimes months down the road.
Another major influence today is the large number of short sales says David Welch, a Realtor with Re/MAX 200 Realty. Short sales — a process by which a lender gives the delinquent homeowner permission to sell a property for less than the amount owed on the mortgage — is a process designed to reduce the number of FL foreclosures. The process for a bank to process a a short sale is similar in fashion to a loan modification. A major issue though, is that short sales have additional paperwork and other time-sucking elements like a combination of one, two, or even three property appraisals or broker’s price opinions (BPO).
The bank needs to receive these value checks before they can make a decision on whether they’ll take more of a loss by approving the short sale or if they’ll lose more if they take the home back and sell it alongside the other Florida foreclosure properties. Scheduling and reviewing these appraisals can often add weeks to the short sale process.
Fully 10,000 short sale properties are listed for sale or have a pending contract in the Orlando area alone, says Welch.
“A short sale is a great way to keep the banks at bay for a while. I believe the banks are suspending their foreclosure proceedings if they know you’re going to short sale.”
Whether it’s a loan modification or a short sale, the banks and mortgage companies are making it clear that they are doing everything in their power to avoid more FL foreclosures.
Banks Struggle to Survive Under Weight of Florida’s Foreclosures
It’s a good thing they are taking such drastic foreclosure avoidance actions too. Federal bank examiners are keeping a close eye on Florida banks, as the number of institutions seen as being dangerously close to insolvency grows. Florida has always had a large real estate market, and this has presented a problem for many banks whose portfolios of assets were not diversified enough as home loans defaulted during the recent economic slump.
In 2007, Florida had the highest number of mortgage loans in the United States, second only to California. However, according to USA today, at that time the number of loans that were past due was higher than in California, at 6.47%, as opposed to 4.42% past due loans in California. Of those loans that were subprime Adjustable Rate Mortgage (ARM) loans, 11.54% were in foreclosure.
By 2009, these numbers had jumped significantly and had reached almost 60% of loans that were past due, according to a report by the Mortgage Bankers Association this year. Such statistics is why more and more banks are being placed on the “watch” list, and Floridians are getting worried that their bank might be next. On the Bauer Financial website, fewer than 100 of the 301 Florida banks rated were given above a 3 star rating, meaning that 69% of banks in Florida were considered only adequate, problematic, or troubled. Figures like this are a telling tale as to why Florida has had 6 bank failures in 2009, setting it firmly in fourth place for the highest number of failures after Georgia, Illinois and California.
There is no certain way to tell if your bank is going to fail; but as long as it is FDIC insured, your deposits will be safe no matter what happens. However, having your bank fail can certainly be a hassle, and so it is important to be prepared. If you see your bank on a list of banks to watch then make sure to keep a sharp eye on the news for any reports concerning your bank. If you feel uncomfortable with the financial position you feel your bank is in then it might be a good idea to move to another institution.
Another good thing to remember if your home is financed through your own bank instead of a national mortgage company is that when a bank fails, your own mortgage is not affected. There has been a rumor going around that when a bank fails, all of it’s home loans are called due and those homeowners which are unable to come up with the funds to pay off their loan are herded into a mass foreclosure proceeding.
This is untrue! Just because the FDIC may arrange to take over an insolvent bank and merge it with another that has a stronger balance sheet does not mean that your mortgage can canceled. Such actions would flood the market with far more FL foreclosures than we see today. Observing such a policy would be equivalent to financial suicide for the FDIC…not to mention that it would be illegal.
Finally, while the majority of the news concerning the market trends FL foreclosures are following these days tends to be positive in nature, it’s wise not to get overly excited as of yet. The housing market recovery is poised on the launch pad, but as many at Cape Canaveral will attest to…it only takes a small storm to delay the actual take off.