Foreclosure Moratoriums Could Hurt U.S. Home Sales
The recent moratoriums on foreclosures announced by several major US home lenders may sideline buyers concerned over legal issues, further slowing home sales a a time when distressed properties account for nearly one-fourth of all US home sales.
Reports have surfaced that a number of lenders across the nation have been employing questionable tactics in processing foreclosures, causing potential buyers to develop misgivings about property titles and the right of home possession. These concerns could harm sales figures more than will a reduction in available inventory because the market is already inundated with distressed properties.
The nation's largest lender, Bank of America(BoA), extended their self-imposed moratorium on Friday to include all 50 states, as pressure mounts from federal and state officials over concerns that homeowners are being evicted based on erroneous documents. JPMorgan Chase(JPMC) and Ally Financial's GMAC Mortgage branch have halted foreclosures in the 23 US states that require a judge's to process foreclosures, after the revelation that some of their employees may have submitted false or unverified documents to speed up the foreclosure process.
Nationwide, foreclosure sales accounted for almost 25 percent of all home sales during the second quarter, according to a recent report from the real estate research firm RealtyTrac. In the states hit hardest by the foreclosure crisis, the share was even greater, with foreclosure sales representing a staggering 56 percent of sales in Nevada, 47 percent in Arizona, and 43 percent in California.
A number of indicators recently showed that the US housing market may have turned a corner in August. Purchase contracts for existing homes increased 4.3 percent in the month, the second consecutive monthly gain in the data, according to an October 4th report from the National Association of Real Estate. Sales of existing homes, meanwhile, rose 7.6 percent from July's record-low pace, prompting some analysts to proclaim the market had reached a bottom. September sales are not expected to be affected by the recent legality issues over foreclosure procedures.
In addition to the self-imposed foreclosure halts from BoA, JPMC, and GMAC, PNC Financial also called for a one-month halt to foreclosure sales as they review documents in their mortgage servicing department. Goldman Sachs' Litton Loan Servicing announced last week it's stopping some foreclosures to review the way in which they're handled. Wells Fargo and Citigroup are still processing foreclosures at this point.
A reduction in the number of foreclosure sales could conceivably result in a boost to the nation's median home price for the short term, as buyers steer clear of distressed properties amid concerns over the legality of the process. Distressed homes sold at an average discount of 26 percent in the second quarter, compared to more traditional home sales.
Any short-term increase in prices would eventually be reversed when a stash of foreclosed properties are returned to the market after the documentation issues are sorted out.
According to RealtyTrac, US home seizures reached record-high levels in three of the last five months. Bnaks seized more than 95,000 homes in August and issued foreclosure filings to nearly 340,000 homeowners, or one out of every 381 households.
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