The No Foreclosure movement

Foreclosures
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The No Foreclosure movement

Jack Bobeck
Rental Property Investor · Jacksonville, FL · Member since 2008 · 784 posts · 528 votes

Happy New Year! 

I found this great article on Foreclosures. I have a Google Search on the topic, because i believe we will see more as the economy and rates rise. However, in some Metro areas we have seen Foreclosures rising, but, the banks are NOT taking them back the same way they did during the last Financial Crisis. 

Some of this might be stronger Consumer Policies in more Consumer friendly states. But what long term effect does this have for banks and then those that have to report earnings with more and more dead beat properties on their books? I did not know, living in Florida, about the  California Foreclosure Prevention Laws which have increased the time and the monetary cost of foreclosing on property in California. Same goes in New York with their New York State's pre-foreclosure notice requirement. 

So where does the wheel stop? If its more expensive to foreclose on properties, do banks stop, let the properties sit or do they send the properties to Vulcher Capitalists that go after the owners? Is it healthy to have all these consumer friendly laws that upset the balance of a natural foreclosure market?

Your thoughts? 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    as it relates to SFR owner occ homes I dont see a big default thing coming soon.. so many people locked in 3 and 4 % money for 30 years.. and even adjustables are going to be around 5 when they reset.

    I dont see that causing a big up tick in defaults. plus the buyers were much more qualified.

    I can see it on teh commerical side though .. with those that bought cash flow that only works at X and now they go to refi and its Y .. as they had 20 due in 5 loans.. i can see saw pain there. 

    did not read the article but I will .. but wanted to comment on why i dont see a big spike in defaults being tied to interest rates.. i see sales slowing.. and such.. but not a direct line to defaults.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    Ok read article. i would never loan money in NY thats for starters..  and people mis mortgage payments this does not mean they are goign to lose the house in a full blown foreclosure.

    the notice's to warn the borrowers became federal law about 2011.. I know i am a NMLS licensed mortgage banker so i got the bullitins.. so nothing new there. and there are other laws.

    Like you have to be allowed a face to face with a decision maker from the bank or servicer.. IE meeting with foreclsoure consultant.. but I can tell U from a practical standpoint this is highly regional.

    my buddies who do foreclosures in Oregon have almost all gone out of business becasue the defaults are a trickle of what they were.. and there will always be defaults. as some folks have upsets in their life that they cant control or htey are just poor money managers.

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  • Chris MasonPro Member
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    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y

    The below is pure speculation; I don't work in "loss mitigation" or have any insider scoop on it.

    With interest rates as low as they have been since 2012 or so, and given where appreciation has been, and the fact that when/if a home sells the title company will require that the lender (plus back interest) be paid off, it's possible that the 'rational' thing to do is let the interest accrue on the assumption/hope that there will still be equity in it at that point when someone dies/divorces/etc and sells. 

    Expressed in other words, when 6% is a normal interest rate and 3% is normal annual appreciation, letting a home sit while the mortgage balance goes up is going to eventually put that home underwater. Foreclosing ASAP is a way to get in front of that mathematical "certainty" and cut my losses.

    By contrast if 4% is a normal interest rate and 8% is "normal" annual appreciation, equity (ie, the safety of my position) is actually still going up each year. No rush to foreclose if we're thinking big picture... as long as appreciation rate outpaces the interest rate, I'll be made whole at some point (including all my back interest, which also compounds on the amount of back interest already tacked onto the loan balance).  If a $100k home is now worth $108k, and a $80k loan balance becomes $83,200, my buffer actually went from $20k to $24,800! (Due to amortization the numbers wouldn't actually be exactly that round) Over time that gap will get ever-bigger and my eventual payoff will get higher and higher too, so if I'm a big dumb bureaucratic institution that doesn't realize real estate is cyclical when making my models and choices, why would I rush to foreclose? Since interest compounds on an ever-increasing balance (meaning you add 4% to $83,200, not to $80k, in the following year), I overall might actually stand to make MORE profit when it sells in 7 years due to death/divorce/whatever. 

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