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Is a new Bubble Forming

Will a new bubble form with interest rates finally on the rise?  Leave your comments below.

Will foreclosure rates rise in 2012?

Several reports are indicating that foreclosure rates were artificially low during 2011 because of lenders and banks dealing with their own lawsuits with the Attorneys General across the United States.  Now that has been settled, foreclosures may be back on the rise.  So the question really has to do with the economy as a whole.  Has the economy strengthened?

Indianapolis Star: “Mortgage lenders — who had put the brakes on many foreclosures in Louisville and elsewhere while they fought a nationwide legal battle over their practices — are expected to increase foreclosure filings again this year after reaching a $25billion settlement with attorneys general from 49 states, including Kentucky and Indiana.

. . . Experts say a slowdown in foreclosures last year was related to the legal issues, rather than an improvement in borrowers’ ability to afford their mortgages or sell their homes.  Last year, 3,458 Jefferson County properties were scheduled for foreclosure auction, a 35 percent decrease from 2010, according to Edith Halbleib, master commissioner of Jefferson Circuit Court.

Properties that were actually sold at auction dipped 20 percent to 2,061. And 4,338 foreclosures were filed last year in Jefferson County, a 16 percent drop from 2010.”

So while the economy continues to look better as each week goes by, it may be that we are not out of the woods yet.

Foreclosures filings down, for now . . .

Cincinnati.com: New foreclosures have slowed dramatically in Greater Cincinnati and Northern Kentucky, dropping 27.7 percent to 5,840 cases in the first six months of this year.

Records also show that Ohio and Kentucky each had its lowest new caseload in at least five years, according to the Ohio Supreme Court and the Kentucky Administrative Office of the Courts.

Ohio saw 34,330 foreclosures through June 30, down 25.3 percent from the same period a year ago. Kentucky saw a 40.4 percent drop to 6,277 new foreclosures.

But experts say the foreclosure crisis is far from over. Foreclosures are expected to escalate in coming months as major banks and loan servicers increase foreclosures after tightening their procedures following the robo-signing scandal that emerged late last year.

“It’s an artificial drop – a statistical anomaly,” said Michael Van Buskirk, president of the Ohio Bankers League. He said major financial institutions under scrutiny from federal regulators and state attorneys general slowed down their foreclosures to improve their procedures.

What is a short sale?

Loansafe.org has an excellent article on short sales:

What is a short sale?

Short sales are an increasingly common real estate practice with a somewhat confusing name. It doesn’t refer to the time the sale takes but that the selling price of the home falls short of paying off the existing loan. In fact, short sales rarely take a short time.

“Short sales take quite a bit longer than regular transactions,” said Heagy’s real estate agent, Brandi Mahon, a certified default resolution specialist with Keller Williams Realty Alternative Foreclosure Solutions.

The added time comes because lenders are involved in the process and must approve a sale after they have determined that the homeowners have a proven hardship and won’t be able to pay the bills.

“Because it takes so long, the home’s buyer may not want to wait that long, and it causes a lot of frustration,” said Mahon, who has handled short sales since 2007. She moved here last year after working in Texas. “I have had some short sales that have taken over a year.”

The concept has “moved to the forefront” over the past three years, as the country seeks to deal with a housing market in pain, said Rookard Real Estate Consultants’ Jack Rookard, who has handled short sales in Lexington. For lenders, he said, a short sale is easier than dealing with the time involved in proceeding to foreclosure and the various fees associated with it.

In short sales, lenders sometimes forgive the difference between the home’s sale price and the loan amount, but others require that borrowers repay the difference.

There are two other common options for homeowners in distress. The first, called deed in lieu, sees property owners sign the property’s deed back to the lenders in exchange for the loan being canceled. The downside for the lender is that it must market the property for sale without assistance from the former owner.

The third option, which has received the most notoriety in recent years, is foreclosure, in which the property is sold to the highest bidder in an attempt to satisfy the debt.

The rest of the article is excellent as well.

Kentucky borrowers having harder time getting financing

Chris Otts from the Courier-Journal has a good roundup:  Yesterday I linked to a new Wall Street Journal analysis showing that Kentucky borrowers had more trouble, on average, getting new or refinanced mortgages in 2010.

I asked Louisville mortgage loan officer Adam Hall, president of the Mortgage Bankers Association of Kentucky, what he makes of the report.

Hall cited several factors, including vacant properties in Louisville, manufactured homes in rural areas of the state and a significant percentage of the population without bank accounts or credit histories.

Here are his full comments:

Adam Hall

In the urban areas of the state, like Louisville, we have a significant issue with foreclosure and vacant property since 2005.  Since this has been so prolonged and predominantly concreted in the West and Southwest, you have pockets in the community where lending is very challenging.  Freddie and Fannie and FHA  both require appraisers to complete, and underwriters to review, a market conditions report.  This report provides context to the nature of the sales in the market (i.e. how many foreclosures, how many vacant homes, based on current sales trends how much supply is there? etc).

When you look at an neighborhood like Portland or Russell where 20-25% of the properties are vacant, and values even from the PVA, have declined 15%  for two consecutive years, making that loan is a challenge.

 

When you look at more rural parts of the state, a good portion of those properties are going to be manufactured homes.  The lending standards over the last several years have become  much stricter for this property type.

There are a lot of reasons for this but the biggest is that these property types typically depreciate over time.  From a legacy perspective, lenders did not always make sure the vehicle title was properly retired and so that calls into question lien enforcement.  And finally, frequently people will build on or move a manufactured home.  If this occurs, it  is not longer eligible for mortgage financing.

 

Finally, in more rural areas, the value of property is more the value of the land and less the value of the structure.  For traditional mortgage financing, if the value of the land exceeds 1/3 the overall value of the property, it is not eligible for financing.

 

From the borrower perspective, in the urban areas, you have a lot of folks who have suffered through foreclosure.  20-25% of our population is unbanked or under banked so they lack the credit histories to qualify for financing.  And our unemployment rate is among the top 20 in the country and has held at around 10% for a very extended period of time.

 

With all those factors, we are a more challenging market to lend in with the current, more restrictive requirements.

Foreclosure affecting home prices

WPSD Local 6: Imagine trying to sell your home and realizing it just isn’t worth what you thought it was.

That’s what lots of families are discovering and a local realtor said foreclosure is to blame.

If two homes are for sale, one for sale by owner and the other by a bank that desperately needs to get rid of foreclosed property, then a buyer will likely choose the foreclosed home because of the deep discounts offered. That’s good for the buyer but bad for the seller.

Now imagine other foreclosed properties pop up in the neighborhood. If they all sell for less than what they’re worth, a realtor said that brings down the value of similar houses in that neighborhood.

. . . A look at foreclosure numbers by state as of last month: in Kentucky one in every 1879 housing units received a foreclosure notice; in Missouri, one in every 1051; in Tennessee, one in every 949, and in Illinois one in every 480 housing units received a foreclosure notice last month.

Kentucky Financial institutions remain stable

Kentucky.gov:   The 2010 Annual Report of the Kentucky Department of Financial Institutions (DFI), released today, shows state financial institutions continue to remain stable despite economic hardships, thanks to strong capital positions coupled with sound risk management practices.

“This annual report indicates that Kentucky’s financial services industry has weathered the storm and remains committed to helping our communities and residents deal with economic uncertainty,” said DFI Commissioner Charles Vice.

Kentucky’s 156 state-chartered banks increased total assets to more than $45 billion, and the state’s 26 state-chartered credit unions increased assets to more than $1.7 billion in 2010. Both also increased total loans last year. While profitability measures are below historical levels, the return on average assets for banks and credit unions in Kentucky improved during the past 12 months.

Read the entire report.

Unemployment down slightly

Kentucky.gov:  Kentucky’s seasonally adjusted preliminary unemployment rate continued to fall going from 9.6 percent in June 2011 to 9.5 percent in July 2011, according to the Office of Employment and Training (OET), an agency of the Kentucky Education and Workforce Development Cabinet.

The preliminary July 2011 jobless rate dropped .7 percentage point below the 10.2 percent rate recorded in July 2010 for the state. The state’s July 2011 rate is the lowest since the January 2009 rate of 9.2 percent.

“Kentucky’s economy continued to show signs of improvement in July 2011 as the unemployment rate dropped to 9.5 percent and nonfarm employment reached its highest level since December 2008. However, a decline in the civilian labor force compounded the decrease in the unemployment rate. Individuals who have faced long-term unemployment are becoming discouraged and dropping out of the labor force,” said Dr. Justine Detzel, OET chief labor market analyst.

The U.S. seasonally adjusted jobless rate decreased from 9.2 percent in June 2011 to 9.1 percent in July 2011, according to the U.S. Department of Labor.

Unemployment statistics are based on estimates and are compiled to measure trends rather than actually to count people working.

Foreclosure filings nationwide loaw

Bizjournals.com:  The nationwide rate of foreclosure filings fell to a 44-month low in July, according to RealtyTrac .

The Irvine, Calif.-based RealtyTrac firm reported that U.S. foreclosure filings — including default notices, scheduled auctions and bank repossessions — fell to 212,764 in July, a 4 percent decline from June. Filing were 35 percent lower that July 2010.

Nationwide, the rate of foreclosures was one in every 611 housing units.

In Kentucky, the rate was one in every 2,312 households, and Indiana’s rate was one in every 962 units.

John Schnatter backed development owes back taxes

Courier-Journal:  A real estate development group involving Papa John’s International founder John Schnatter owes more than $68,000 in unpaid property taxes, interest and fees, according to records from the Jefferson County Clerk’s office.

In June, Republic Bank filed a foreclosure action against the Vinings of Hurstbourne LLC I, which plans to reconstruct the Williamsburg Plaza Office Park in Hurstbourne.

Records filed with the Kentucky Secretary of State’s office do not list Schnatter as a person involved in that particular limited liability company. But in court filings, Schnatter acknowledges he personally guaranteed a portion of a $7.6 million construction loan Republic gave the development company in 2007.