Foreclosures on the loose!

Foreclosures! Foreclosures! Foreclosures! AHHH! The sound of the word makes me cringe! When will the madness end? Will we ever get out of this mess we call the housing crisis? Who really knows? But as always, there are many predictions on the matter.

Even though hundreds of thousands struggling homeowners have been helped by the $26 billion mortgage settlement, it will bring even MORE foreclosures… and the madness continues.

Here’s the problem, folks. As lenders were waiting for the settlement to be determined, they held off on repossessing homes. As a result, there was a backup of troubled loans. Many of these foreclosures should have been filed in 2011. Instead, 2012 will be hit with a crap-load of foreclosures (pardon my French). Now that the settlement has been figured out, banks will start to reach out to delinquent homeowners to figure out which loans can be saved.

Daren Blomquist, vp of RealtyTrac predicts

“new [foreclosure] filings will climb from 1.9 million in 2011 to between 2.2 million and 2.5 million this year”.

Blomquist goes on to say:

"We think what we saw in 2011 was artificially low foreclosure numbers"

This is unfortunate to hear since the foreclosure rate went down 34% last year. Just as you think we are climbing out of the ditch, we fall right back in. Without a doubt, the increase in foreclosures will cause plenty of problems in the short term. I’m hoping this is a minor bump in the road. My optimistic self believes it is all part of the recovery process.

However, foreclosures have a devastating effect on housing markets. A concentration of foreclosed homes can drastically affect the property values of the entire neighborhood and community. Foreclosed homes become vacant and eventually become distressed and blighted. Non-foreclosed homeowners begin to leave the neighborhood as home values begin to spiral down. It creates a vicious cycle. REOs sell for half as much as a non-foreclosed property. A multitude of foreclosed homes leave neighborhoods in shambles.

Let’s take a look at Las Vegas, the poster-child for foreclosures. The entire city has taken a major hit. Las Vegas claims the top 5 hardest hit zip codes in the United States. A neighborhood in North Las Vegas had an astonishing 2,469 foreclosure filings in 2011. Yikes!

Even though the $26 billion mortgage settlement will cause an increase in foreclosures, it could help millions of struggling homeowners get back on track. $17 billion will go to reducing the principle owned by underwater homeowners and homeowners who are behind on their mortgage payments. It is estimated that the principle reduction will affect about 1 million homeowners.

I’m not saying its going save the entire housing market, but I do think it will help the situation. Anything at this point would make a difference! Unfortunately, most people need a greater principle reduction. It is unclear how far the money will actually go.

I guess it’s up to the Housing Gods to decide. Let’s keep our fingers crossed!