Distressed Homeowners Helping Banks?
I was reading an article from the Mortgage News Daily, reporting on a survey that the University of Michigan conducted about homeowners. Of the homeowners, 75% viewed home buying conditions favorably due to low interest rates and attractive home prices. The survey also showed that 9 out of 10 home owners viewed conditions for the sale of their own home as unfavorable, not because of a lack of buyers, but because of home price declines. I didn’t need the survey (and I doubt anyone else did) to figure that out. With so many homeowners underwater on their mortgage, and those that want to hold on to their home price from 2005, there are not that many homeowners willing to take the plunge, even with all the buyers looking. This is one of the reasons, here in Folsom, we have a low inventory. And I believe, as do others, that this will continue for a while because it will be some time before pricing rises enough for those homeowners underwater to at least break even.
What was even more interesting in the article, was a comment from Adam Quinones “To reduce the cost of maintaining the condition of the foreclosed properties, banks have delayed the liquidation process and allowed delinquent borrowers to remain in their home. By delaying the liquidation of foreclosed properties, banks have avoided large asset value write-downs.”
This (in my opinion) makes some sense as to what I am seeing. I know that when a borrower stops making their mortgage payments, the bank is sending someone by to take a look at the property and determining whether it is being lived in or abandoned. If no one is living in the home, the bank sends a letter to the borrower stating that they will have someone take care of the property and charge the borrower for it. (I think that is the blood from turnip program).
This is probably why, even after almost three years of significant distressed properties, (and the banks should have streamlined the process by now) the banks are not churning through the foreclosure process with borrowers. I think this is one more reason we will probably never see a wave from the ‘shadow inventory”.