Flood of foreclosures to hit the housing market

NEW YORK (CNNMoney) -- The golden age for foreclosure squatters may soon be coming to an end now that the $26 billion mortgage settlement has been approved.

The settlement, agreed to by the nation's five largest mortgage lenders, is expected to speed up the foreclosure process by providing stricter guidelines for the banks to follow when repossessing homes.

The banks involved include Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citibank (C, Fortune 500), Wells Fargo (WFC, Fortune 500) and Ally Financial.

Many foreclosures have been in limbo since fall 2010 following the so-called robo-signing scandal, when banks allowed employees to sign off on thousands of foreclosure documents a month with little verification.

Lenders hit the pause button on foreclosures because they "were afraid that anything they did would be under a microscope," said Eric Higgins, a professor of business at Kansas State University.

As a result, borrowers who were seriously delinquent on their loans have been able to stay in their homes for months or even years without making a single payment. Nationwide, the average time it takes to foreclose on a home -- from the first missed payment to the final bank repossession -- stretched to 370 days during the first quarter, almost twice as long as it took five years ago, according to Daren Blomquist, the marketing director at RealtyTrac.

Foreclosure free ride: 3 years, no mortgage payment

In some states, delinquent borrowers have been squatting in their homes much longer. In Florida, the average time was 861 days, and in New York it was 1,056 days -- close to three years.

"Perhaps a million foreclosures could have been pursued last year but weren't," said Rick Sharga, executive vice president for real estate investment company, Carrington Holdings.

But that's all about to change, he said. "We're going to see an increase in the speed of foreclosures and a higher number of foreclosure starts."

In fact, there are indications that the pace of foreclosures are already starting to pick up.

While overall foreclosure activity was down during the first quarter, filings were up 10% in the 26 states where foreclosures must undergo court scrutiny, according to RealtyTrac.

It was in these judicial states that the processing of foreclosures slowed the most following news of the robo-signing scandal, said Blomquist.

Many banks in these states stopped filing foreclosures unless they were extremely confident it would pass muster in the court. (In non-judicial states, foreclosures are reviewed by a trustee, which is a third party such as a title company and less likely to parse every legal document).

But now lenders can move more confidently, said Brandon Moore, RealtyTrac's CEO.

In the judicial state of Indiana, for example, foreclosure filings were up 45% year-over year. And in Florida, they were up by almost 26%, according to RealtyTrac.

The $26 billion crapshoot

"The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen -- both in terms of new foreclosure activity and new short sale activity," Moore said in a statement.

The resulting flood could bring home prices down even further -- yet another impetus for the banks to clear out their foreclosure pipeline as quickly as possible, said Kansas State's Higgins.

Then, industry thinking is, the housing market would be able to get back to normal and home prices could eventually find their true value. Some industry analysts, such as the chief economist for listing site Zillow, Stan Humphries, are predicting that could happen as soon as the end of the year.

Zillow estimates that home values nationwide will fall another 3.7% by the end of 2012, and that price will likely bottom out by early 2013.

Foreclosures: America's hardest hit neighborhoods

Should home prices hit a bottom then stabilize, it would push many potential buyers off the fence, according to Mike Fratantoni, a vice president at the Mortgage Bankers Association. House hunters would no longer be afraid of investing in assets that were losing money.

"The market is already on the verge of turning the corner on prices and this will help," said Fratantoni.

Have you tried to qualify for a principal reduction or a modification under the foreclosure settlement? We want to hear from you. Send your story and contact information to Leslie Christie and you could be featured in an upcoming article on CNNMoney. 

FHA to reject borrowers in minor credit disputes

NEW YORK (CNNMoney) -- The Federal Housing Administration is about to make it even tougher to borrow money from Uncle Sam to buy a home.
Starting April 1, borrowers in ongoing disputes with creditors over debts of $1,000 or more may no longer qualify for FHA-insured loans. Even borrowers with perfect credit scores can be denied over a single $1,000 problem charge.
Before this, individual lenders decided whether debt disputes constituted grounds for denial. You could be fighting a charge, say a hospital bill, and your lender might still decide that your credit history merited an approval. Now, a lender will have to justify the approval to the FHA and back its decision with documentation.
The change is part of the agency's effort to reduce its risk as it grapples with a depleted reserve fund that has fallen below legally-mandated levels. The FHA insures mortgages which are originated by private lenders. To help bolster its capital reserves, FHA will also hike the insurance premiums it charges borrowers beginning in April.

Lowball appraisal: Mortgage denied

The requirements are for the homebuyer's own good, said Tiffany Thomas Smith, deputy press secretary for the U.S. Department of Housing and Urban Development, FHA's parent agency.
"It's a way of protecting consumers from getting into loans they ultimately can't afford," she said.
The new rule requires borrowers with loans in collection that add up to at least $1,000 to either pay off the debt, prove they're making payments on the disputed loans or explain why the disputed loan is somehow wrong -- and document their case -- before they can close on a FHA loan.
Disputed accounts going back more than two years, along with those related to fraud or identity theft, will not count against borrowers, according to the FHA, but lenders must get evidence, such as police reports, that document client claims of identity thefts or fraud charges.
Such prohibitions could slow the housing market recovery if fewer borrowers can secure FHA mortgages.
The loans are one of the few products available for homebuyers needing low down payment mortgages at competitive terms. Most FHA borrowers put down only about 3.5% of the purchase price.
Since the housing bust, FHA loans have at times exceeded 20% of all purchase loans and is still running at about 15%.

Housing chief: Why the settlement is a fair deal

Lenders that are underwriting the FHA loans will get final say on whether the loans go through. If the borrower's explanation of an outstanding debt and supporting documentation satisfy the bank, it can decide to issue the loan --but they run the risk of FHA rejecting it.
Lenders likely won't do that very often, however, according to Steve Habetz, a loan officer with Darien Rowayton Bank in Connecticut, unless the documentation strongly supports the borrower's view on the disputed charge.
"Any error made is going to be on the side of caution," he said. "Few lenders will approve the loan. They don't want to hold a 96.5% mortgage held on their own books if the FHA rejects it." 

Home buying much cheaper than renting

NEW YORK (CNNMoney) -- It's the eternal question in real estate: Should I buy or rent?
The answer has never been clearer: Buy.
In 98 of the top 100 housing markets, buying a home is more affordable than renting, according to the online real estate company Trulia. Only Honolulu and San Francisco buck the trend.
There are several reasons. Home prices are falling. Mortgage interest rates are at historically low levels. And rents are on the rise.
Of course, many renters are not in a position to buy. For one, it's hard to get a mortgage these days, despite low rates. And paying rent can push them further away from being able to afford to buy.
"Rising rents make it harder for people to save for a down payment, which is the biggest barrier to buying a home that aspiring homeowners face," Jed Kolko, Trulia's chief economist.

The one number to watch for a housing recovery

The nation's cheapest buyer's market is Detroit, where purchasing is only 3.7 times more expensive than renting.
Other top five metro areas where buying is much better than renting areOklahoma City, Dayton, Ohio,Warren, Mich. and Toledo, Ohio.
Rankings like these, however, can obscure the factors that go into each decision.
Housing markets, even within a single metro area, typically have local submarkets. Take New York City, for example. Renting in Manhattan is more affordable than buying. But in suburban Westchester County just miles to the north, buying is the more affordable option.
The size of the home can also make a difference. In some markets, renting can be a better deal on larger homes, according to Trulia.
In San Francisco, for example, studio and one-bedroom apartments sell for 13.1 times rent, while three bedrooms or larger sell for more than 18 times rent.

Readers on mortgage settlement: This stinks

The Trulia survey does not take into account home price trends, which are another factor for individuals choosing whether to buy or rent.
"People will pay more for a home if they expect prices to rise and give them a better return on their investment," said Kolko.
Those calculations are about to change, according to Ken H. Johnson, a professor of real estate at Florida International who has studied the buy-vs-rent question extensively. He believes home prices nationally have bottomed.
"The ship has turned," he said. "Markets should slowly start to recover. Housing will return to its traditional role of a safety investment."

Foreclosures: A rising tide ahead

If so, that adds an incentive to buy. And investing in many of the most expensive markets may be even safer.
Kolko pointed out that places like Honolulu, San Francisco and Bostonhave strong long-term growth prospects. They also have little physical space to grow, a factor that tends to keep prices strong.
On the other hand, old areas that aren't growing much -- while cheap -- may not return much in the long run.
"Buying is much cheaper than renting in slow-growing places with high vacancy rates and land to spare, like Detroit and Cleveland, where prices are unlikely to improve much in the future," he said. 

Builders ready for home construction rebound

NEW YORK (CNNMoney) -- Home builders are getting ready for a stronger construction season, filing for the most building permits in more than three years, in another sign of recovery in the long-battered housing market.
The government reported builders filed for permits at an seasonally adjusted annual rate of 717,000 in February, the strongest reading since October 2008, which was the month after the meltdown in financial markets. It marked a 5.1% rise from January and a 34.3% increase from year-earlier levels.
Actual starts of new homes slipped slightly from a very strong start to the building season in January, down 1.1% to 698,000. Still, that was 35% ahead of starts in February 2011.
The starts are more affected by weather factors. But the permits are generally seen as an indication of builders' confidence in the market and the demand they are seeing.Mortgage rates near record lows and an improving jobs market both are feeding stronger demand.
The construction and permitting of apartments and condos continue to be particularly strong. Permits for buildings with more than one housing unit rose 61% from prior-year levels, and starts of buildings with five or more units jumped 29% from January and were more than double year-earlier levels.

Watch for a housing recovery

New home construction is still only a fraction of levels during the building boom in the middle of the last decade. But years of low building since the housing bubble burst have left inventories of new homes for sales at a record low, helping to spur more activity by builders.
Stocks of major home builders such as PulteGroup (PHM, Fortune 500), D.R. Horton (DHI, Fortune 500) and Toll Brothers (TOL) have all posted double-digit gains in the last three months. Home supply retailers such as Home Depot (HD, Fortune 500) and Lowe's (LOW,Fortune 500) have also reported strong sales and profits, and their stocks have rallied as a result.

Boost your odds of landing a mortgage

The home construction industry is an important driver of the overall economy, creating demand not only for construction workers but also manufacturers of various goods used in new homes, from major appliances to furniture to general housewares.
That's one of the reasons that housing and home construction have historically helped to lead the U.S. economy out of downturns. So the strong hopes for the building season ahead are seen as good news for the broader economy as well. 

Uncle Sam wants you to rent out its foreclosed homes

NEW YORK (CNNMoney) -- Want to become a landlord in one of the nation's hardest-hit foreclosure neighborhoods? Well, Uncle Sam has a deal for you.
Fannie Mae (FNMA, Fortune 500) will offer up nearly 2,500 distressed properties in eight locations to investors who are willing to buy them in bulk and rent them out for a set number of years.
The properties, which are located in Atlanta, Phoenix, Las Vegas, Los Angeles/Riverside, and three Florida regions, include all types of housing units, from single-family homes to co-op apartment buildings.
"This is another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties, and reduce the supply of REO properties in the marketplace," said Edward J. DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae.
The sales, which will cover a small fraction of the more than 180,000 properties Fannie and Freddie Mac (FMCC, Fortune 500) hold, will be open to qualified buyers under strict guidelines.
Most of the properties already house tenants and buyers will be required to continue to rent out the properties
to them for as long as their leases last. Investors will also be required to rent the properties out for a specified number of years. The exact number of years has yet to be disclosed.

Steal this home! 7 foreclosure deals

Investors must post security deposits in order to bid and also must prove that they are financially stable, have property management experience and have strong ties to the local community, such as a history of working with local development organizations.
FHFA said that bidders must purchase all of the homes that are for sale in a given metro area. In Atlanta, that's as many as 572, while in Chicago it's 99.
Despite the fact that the strict requirements could limit the number of applicants seeking to invest in the properties, the government agencies have said there is strong interest in the program. FHFA said it has received more than 4,000 responses to a request for public input on how best to dispose of the vast number of homes Fannie and Freddie Mac (FMCC,Fortune 500) have acquired from borrowers who defaulted on their loans.
Real estate consultant John Burns said there should be no problem at all finding buyers.
"I've got three or four clients myself, maybe more, who will bid on every one of those portfolios," he said.

Multi-million dollar foreclosures

Burns believes the sales should help bolster the housing market. By taking these distressed properties off the market, it will prevent them from further weighing on home prices in surrounding neighborhoods, said Burns. It will also add to the rental property inventory, which should help offset recent rent hikes.
And, by filling up what otherwise could be vacant homes, it should also reduce blight. Vacant homes attract vandals and criminals, which reduces property values and make it more likely that other nearby homeowners will walk away from their mortgages.
"We believe that this initiative holds promise for providing support to local neighborhoods that were especially hard hit by the housing crisis and will help meet the rising demand for rental housing in many communities," said Michael Stegman, a housing finance advisor at the Treasury Department.
FHFA will not say when the first sale is expected to go to contract. Given that it is a complicated process that includes analyzing and comparing bids, it will probably take a couple of months before any final buyers are selected. 

Home prices fell 4% in 2011, lowest since 2002

NEW YORK (CNNMoney) -- National home prices fell 4% in the fourth quarter of 2011, putting them back at levels last seen in mid-2002.

That's the fifth consecutive annual loss and the biggest decline since 2008, when markets were in free fall and prices plummeted more than 18%.

Prices have been falling since they peaked in 2006, and are down 33.8% from their peak, according to the S&P/Case-Shiller national home price index.

"The housing market ended 2011 on a very disappointing note," said David Blitzer, spokesman for S&P. "While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the 

economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended."

After prices fell sharply in 2007 and 2008, declines over the past three years have been more modest. Many analysts thought markets were bottoming out and would soon stabilize, and even pick up. The last quarter of 2011, when national index prices fell a steep 3.8% from the third quarter, may have dashed those hopes.

"While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended," said Blitzer.

The S&P/Case-Shiller 20- and 10-city indexes recorded similar sharp declines during the quarter. Among individual cities, Atlanta recorded a 12.8% year-over-year fall, the worst of any city.

Other big losers were Las Vegas (-8.8%), Chicago (-6.5%) and Seattle (-5.6%). Detroit, where prices crept up 0.5% for the year was, the only city in the 20-city index to register a gain.

Home prices at lowest point in more than 10 years

NEW YORK (CNNMoney) -- Home prices fell to their lowest point in more than a decade in January, but that helped to lift the pace of home sales, according to a report from an industry trade group.
The National Association of Realtors reported that the median home price in January fell 2% from December to $154,700. That's the lowest price reading since November 2001, before the run-up in home prices that became known as the housing bubble.

The median price is the point at which half of homes are sold for a higher price, and half are sold at a lower price. (Multi-million dollar foreclosures)
Serving as a drag on existing home prices is a large inventory of homes in foreclosure. Distressed home sales, which includes homes in foreclosure and so-called short sales in which the home is sold for less than what is owed on the mortgage, made up 35% of sales in January.
'Prices will continue to fall through the first half of 2012 due to the high share of distressed sales,' said Stuart Hoffman, chief economist with PNC Financial. 'The recent agreement between the big mortgage servicers, state attorneys general and the Obama administration will also result in more homes going to foreclosure over the next few months, adding to downward pressure on prices.'
But the pace of sales increased for the third time in four months, helped by the low prices and rock-bottom mortgage rates. The seasonally-adjusted annual sales pace of 4.57 million homes was up slightly from the revised 4.38 million in December. The latest reading was roughly in line with the expectations of economists surveyed by Briefing.com.
'The uptrend in home sales is in line with all of the underlying fundamentals -- pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents,' said Lawrence Yun, chief economist for the Realtors.
The housing market has been showing signs of recovery in recent months. The combination of low mortgage rates and a decline in home prices means homes are more affordable than they've been in decades. PNC's Hoffman agreed that the report is a further sign of recovery in the market, although he cautioned 'it will remain a long process.'

New home starts by builders have been rising, along with their confidence and customer traffic, according to an industry survey. A large inventory ofhomes in foreclosure still hangs over the market, serving as a drag on the price of existing homes.
The supply of existing homes on the market tightened slightly in the Realtors' latest report, slipping 0.4% to 2.3 million homes, roughly a 6 month supply. That is down 20% from the supply of homes a year ago.