Foreclosure Levels and the announcement of the possible closing of Fannie Mae & Freddie Mac.
As investors we need to be aware of the Real Estate market around us so that we make the right decisions. There have been several interesting trends in the RE market here in the U.S.
We discussed that the foreclosures have not dropped down to levels as they were back in 2005, but there is an issue with properties that are considered “zombie foreclosures.”
As per CNNMoney: RealtyTrac reported Thursday that foreclosure filings fell 27% year-over-year in February to a new seven-year low, indicating that the pace of filings have returned to normal levels since the foreclosure crisis. However, lingering problems loom.
Vacated by the owner and left unattended, nearly 152,000 “zombie foreclosures” are weighing on home values in states like Florida, Illinois and New York, RealtyTrac said. That’s roughly 21% of all homes in the foreclosure process.
On average, these homes have been going through the foreclosure process for 1,031 days — or nearly three years.
“The biggest threat from foreclosures going forward is properties that have been lingering in the foreclosure process for years, many of them vacant with neither the distressed homeowners nor the foreclosing lenders staking responsibility for maintenance and upkeep of the homes,” said Daren Blomquist, RealtyTrac’s spokesman.
In some cities, every one in three foreclosed homes has been vacated, according to Blomquist.
“That drags down home values in the surrounding neighborhood and contributes to a climate of uncertainty in local housing markets,” he said.
In Rust-Belt cities like Cleveland and Detroit, many of the zombie foreclosures are old homes in poor condition that would cost more to rehab than they would be worth and will likely be razed. Cleveland has already knocked down more than 1,000 vacant homes.
Las Vegas and other Sun-Belt cities also have a high percentage of vacant foreclosed homes. However, these homes tend to be newer and in much better shape and more likely to be bought by real estate investors, said Blomquist.
Overall, the foreclosure picture will likely continue to improve: Foreclosure starts — when lenders begin the proceedings to take possession of the homes — have fallen to their lowest level since late 2005.
That should translate into fewer bank repossessions down the road since about half of all starts end in evictions of borrowers.
Florida, where one of every 372 properties was hit with a filing in February, had the highest filing rate of any state. Other hard hit states included Maryland, Nevada, New Jersey and Illinois.
The details of the Fannie Mae & Freddie Mac possible closing creates more uneasiness in the market too.
CNNMoney reports: Shares of Fannie (FNMA, Fortune 500) dropped 30% and Freddie (FMCC, Fortune 500) shed 26% at day’s end.
Investors appeared to react to news first reported by Politico of a bi-partisan deal on Capitol Hill to phase-out the nation’s top two mortgage lenders.
An announcement of the deal, crafted by the Senate Budget Committee’s top Democrat and Republican, did not disclose a timeline for the proposed closure but said a draft of the legislation would be released soon. To take effect, the bill would need to pass both houses and be signed into law. A House committee has considered similar legislation.
The objection to Fannie and Freddie is rooted in federal government moves to stem the housing market collapse in 2008.The federal government took over Fannie and Freddie after propping them up with a $187 billion bailout. Since the bailout the Treasury department has turned a profit from its investment in the lenders.
Despite turning a profit, lawmakers say the government is taking unnecessary risk by backing Fannie and Freddie. The lenders buy mortgages from other lenders, bundle them and sell the bundles to investors with a guarantee the loans will be repaid.
The agreement would create a new body with regulatory power similar to the one that insures bank deposits. The Federal Mortgage Insurance Corporation would build “a mortgage insurance fund for the system to protect taxpayers against future bailouts,” according to an announcement of the deal.
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