Paperwork Issues Delaying Foreclosures — Loan Mods and Short Sales Filling Part of the Gap
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USA Today reports that delays in paperwork are holding up potential foreclosures on 1.7 million homes according to CoreLogic. As a result, 178 of the largest 211 metropolitan areas showed reduced foreclosure activity. The Chicago Tribune noted that foreclosure activity in the first half of 2011 was down 84 percent from the same period in 2010 in metropolitan areas with 200,000 or more residents.
In states where the court plays a large role in the foreclosure process saw the largest declines in activity. The top 20 markets with the largest declines (all judicial foreclosure states) were:
• New York
• New Jersey
The 10 cities with the highest foreclosure rates were all located in California, Arizona and Nevada.
In Las Vegas-Paradise, Nevada, more than 5 percent of all households had received a foreclosure notice in the first half of 2011—the highest rate in the country. Second was Phoenix-Scottsdale, Arizona, with 3.6 percent of the households having received a foreclosure notice in the first six months of 2011—even though foreclosure activity levels were down almost 17 percent from the same period in 2010. Modesto, California, had one in 30 homes receiving a foreclosure notice.
Job losses are significantly impacting foreclosure rates as homeowners struggle in this challenging economy.
The Street reports that as lenders work their way through this logjam, they have turned to an increasing use of loan modifications and short sales. Many lenders are now offering homeowners in default and underwater incentives to extract themselves from the financial nightmare. JPMorgan is now running 5,000 defaulted per month through a fast-tracked process resulting in just 30 days to approve the short sale. Citigroup has increased incentives to defaulted owners from $3,000 to $5,000 a year ago to $12,000 today.
Although the time varies significantly from state-to-state, RealtyTrac reports that it now takes 318 days from the time of notice to completion of the foreclosure. New York averages 966 days, New Jersey 944 days and Florida 676 days. This explains the tilt towards short sales and loan modifications with CoreLogic reporting a tripling of shore sales in the past two years and an anticipated 25 percent increase in 2011. Greatest short sales volumes are seen in California, Arizona, Colorado and Florida.
The bottom line is that we are looking at several additional years of short-sales, loan modifications and foreclosures.