Monday, October 25, 2010

After The Foreclosure Debacle

After The Foreclosure Debacle

One of premier housing analysts for Moody's Dismal Scientist, Celia Chen recently co-authored these projections for the housing industry:

"Prices could decline more than anticipated next year, once the processing issues are resolved. The number of loans affected by recent servicer-imposed moratoriums and the length of those freezes will determine their effect on the housing market and the broader economy."

"...self-imposed moratoriums affect approximately 27% of all properties in foreclosure."

"About 38% of foreclosure filings and 41% of foreclosure inventory are in judicial states, according to RealtyTrac."

"...Fannie Mae has suspended sales of properties purchased from their servicers."

"Since, according to RealtyTrac, foreclosure sales represent 31% of combined US new– and existing-home sales in September, the foreclosure suspensions could depress home sales by 84% until they are lifted. This would lower the foreclosure share of home sold to 25%, a substantial reduction that would tend to cause house prices to rise rather than fall."

"Once the [foreclosure] issues are resolved and foreclosures are completed, distress sales will cause house prices to dive again."

"The foreclosure freeze means that it will take longer to work through the huge backlog of distresses homes."

"Uncertainty…will hold banks back from lending to both businesses and households. Despite being flush with cash, banks will remain reluctant to lend more aggressively without clarity about the impact on their capital positions and profitability."

"Servicers are optimistic that few loans have been improperly processed…Further, the whiff of improperly foreclosure filings may embolden borrowers and their lawyers to tie up foreclosures in the legal system."

"Higher borrowing costs could weigh on housing demand…Servicers will pass along the costs of the current delays - for property preservation, taxes and insurance, additional court filings, attorney fees. And labor - to consumers in higher mortgage interest rates."

"Constrained credit will constrain housing demand…Buyers who were planning to buy non-distressed homes may put off purchases until the situation is resolved, fearing another wave of foreclosure sales that could drive down values. Additional, buyers might be wary of purchasing foreclosed homes from any servicer, knowing the potential for litigation. The consequence of this deterioration in confidence will be some combination of fewer home sales and lower prices."