Apr 27, 2011
Foreclosures: Bringing Clarity to the Confusion
Headlines created by the numerous foreclosure reports often contradict each other. One headline announces foreclosures are rising while the next talks about the decrease in foreclosure numbers. This has led to tremendous confusion regarding the issue. Let’s bring some clarity to the data. There are five individual stages of the foreclosure process that are reported:
1.) 90+ Day Delinquencies
Once a homeowner falls three months behind on their payments, most financial institutions count them in their foreclosure numbers. Why? Less than 2% of those who fall that far behind ever catch up in their payments. The other 98% will end up as a distressed property (foreclosure or short sale). Homeowners in this category don’t always receive a foreclosure notice immediately. In some cases, homeowners who have not paid their mortgage in 12 months have not yet received a notice of foreclosure.
2.) Homes in the foreclosure process
These homes have received a formal notice which officially starts the foreclosure process. In different states, because of court procedures, it takes varying time frames to complete this process.
3.) Homes repossessed by the bank
These homes have finished the foreclosure process and are now owned by the bank. These homes are known as REOs (Real Estate Owned).
4.) REOs placed on the market
These are the REOs that banks bring to market. Many come to market quickly. Others must be refurbished before being put up for sale.
5.) REOs Sold
Obviously, these are the REOs that actually sell.
This seems very straight forward. Why is there so much confusion?
Here’s an example. Just a few weeks ago the major daily newspaper on Long Island, NY had a headline that announced delinquencies were up to over 10% of all homes. One-in-ten homes on Long Island were 90+ days delinquent. That was a major increase from the year before. Exactly seven days later, the same newspaper headlined a story that foreclosures on Long Island were down dramatically. That seems a contradiction. Though both headlines were accurate, they led to confusion.
Let’s dig a little deeper into the data. Yes, the percentage of homes being foreclosed on has decreased. Why? The court systems in NY are now taking almost a year to process a foreclosure. There are not less homes eligible for foreclosure. They are just caught in a slow moving pipeline. Likewise, there are not a growing number of delinquencies. These homes are just not working their way through the process. The delinquency numbers would be much lower if there wasn’t a logjam in the court systems.
To truly understand the distressed property situation in your market and what impact it may have on prices, contact a local real estate professional. They should be able to simply and effectively explain with the use of strong visuals (charts & graphs) what is happening in your area and how it impacts you.
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