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Foreclosure pain lingers in pockets of the country

The foreclosure crisis has largely disappeared, a new market study from CoreLogic suggests, but pockets of the country are still struggling from the lingering effects of the housing crash.

Although fewer people are losing their homes to foreclosure or missing mortgage payments than at any stage since the downturn, nearly 500,000 homes remained seriously delinquent in June and could face foreclosure, the company said.

The foreclosure rate and seriously delinquent rate hit new seven-year lows in the month, but are still roughly twice as high as during a normal housing market. 

“It is real positive news that we have made so much progress from where we were at the trough of the cycle,” CoreLogic’s Chief Economist Frank Nothaft told Scotsman Guide News.

“But still, we are not back to any normal level [or] normal statistics when it comes to seriously delinquent rates or foreclosure rates. Many markets have returned to a normal level, but there are many that are still far from it.” 

Nothaft said that another good year of home-price appreciation and job gains could return the housing market close to normal, but the foreclosure picture varies tremendously by market. In areas with thriving housing markets, such as Denver and San Francisco, the foreclosure rate has fallen below 0.3 percent, whereas in Tampa Bay it is 3.5 percent and reached 4.8 percent in some Long Island counties. 

Also, in some of the struggling markets where there aren't as many buyers, large inventories of foreclosed property sits unsold. Nothaft said markets with a lot of distressed properties tend to be in judicial-foreclosure states, where it takes longer to move a property through the pipeline.

“Other markets are actually doing quite well,” he said. “It is really a very mixed bag.”

Foreclosures to rentals

During the height of the downturn, investment firms and hedge funds scooped up thousands of distressed properties and converted them into rentals. As the inventories have shrunk, so have the opportunities for the large institutional investors and also smaller investors that typically get financing from hard-money lenders. Not all the opportunity has disappeared from the market, however, said George Ratiu, an analyst with the National Association of Realtors.

He said a greater number of investors are chasing a smaller pool of distressed properties to convert them to rentals.

“We are seeing a broadening of the players who are entering this type of market,” Ratiu said.“It makes up ... maybe a little more than 11 percent of the residential market, much lower than its peak when it was over 35 percent right after the recession. I think some investment firms still see potential in that.”

CoreLogic estimated that 43,000 foreclosures were completed in June, down 63 percent from the peak of 117,119 in September 2010. Completed foreclosures are down by 14.8 percent in one year. The foreclosure rate is the lowest since December 2007 and the seriously delinquent rate has dropped to the level of January 2008, the company said.  

The inventory of seriously delinquent properties stands at roughly 472,000, or 1.2 percent, of all homes with a mortgage. 

Nothaft said that most of the delinquencies are throwbacks to the era of loosely underwritten loans originated prior to 2009.

“The loans originated from 2009 to current have excellent performance,” he said. “It is some of the lowest default rates that we have seen. Some of that reflects the tighter underwriting conditions in the mortgage market.” 


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