foreclosure homes

RealtyTrac, as reported on Housing Wire, gave a gloomy update on the US housing market. RealtyTrac does granular collection of data on foreclosures, capturing every filing. One of the shortcomings of this approach is that processes vary by state (as in some state require more court filings over the course of a foreclosure than others). In addition, homes can go in and out of foreclosure (an owner gets the first notice, contacts the servicer and works out a catch-up plan, and later falls behind again). So the commentary of RealtyTrac and other market participants is essential in interpreting the data.

The key takeaway:

James Saccacio, CEO of RealtyTrac, said at the current pace, more than 3m properties will receive a foreclosure filing by the end of the year, and lenders will repossess more than 1m of them. According to a report from the Toronto-based Capital Economics, the weight of the shadow inventory may contribute to a double dip in the housing market. The report found that for every home currently on the market, two homes are waiting to be sold.

“The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market,” Saccacio said.

Yves here. The scary part here is this estimate of market overhang refers only to foreclosed and distressed property. There is another category of hidden inventory, people who would like to sell but aren’t even listing their houses. These would include people who want to relocate, aging individuals who’d like to downsize and had hoped to be able to liberate some equity.

More detail from HousingWire:

Foreclosure filings decreased 3% in June after another 3% drop in April. It’s the third straight month of declines. Foreclosure filings were down 7% from June 2009. Despite the recent downward swing, June marked the 16th straight month of more than 300,000 filings.

For the second quarter of 2010, foreclosures dropped 4% from Q110 and remained 1% above Q209. As default and auction notices fell, REOs increased 5% from the last quarter and 38% from Q209. It’s the most REOs measured in a quarter since RealtyTrac began publishing the reports in January 2005.

“The second quarter was a tale of two trends,” Saccacio said. “The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.”

Energy-efficient homes
have significantly lower default and delinquency rates than typical homes, according
to an internal analysis conducted for a major financial institution last
year. Here's yet another reason why it
makes no sense that Fannie Mae and Freddie Mac have effectively killed Property
Assessed Clean Energy (PACE), a financing tool that has helped make
efficiency improvements affordable for thousands of American homeowners.

Homes built to federal Energy Star
standards for efficiency had default and delinquency rates 11 percent lower
than other homes, the 2009 analysis found, according to two people familiar
with the document. The analysis accounted for variables including income and
location, since many new homes are built in sprawling areas (where high transportation costs
contribute to foreclosure rates).

"It was a robust
statistical analysis that found, with a 99-percent confidence interval, that
energy-efficient homes had significantly lower default and delinquency rates," said
one person. Both sources asked to remain anonymous to protect relationships
with finance institutions.

Fannie Mae and Freddie
Mac have effectively
shut down PACE programs around the nation.
The programs let homeowners tack the cost of insulation, furnaces, and
other efficiency improvements onto their property tax bills, letting them gradually
pay off the cost over 10 to 20 years. The tax assessments are "senior" to
mortgages, meaning they get paid off first in a foreclosure, which concerns Fannie
and Freddie, the government-sponsored mortgage-finance corporations that
guarantee more than half of the nation's mortgages.

A letter from the Federal
Housing Finance Agency (FHFA), which regulates Fannie and Freddie, claims PACE
programs "pose unusual and difficult risk management challenges" for lenders. But
the internal analysis supports what PACE defenders have been claiming -- that
energy-efficiency improvements, when done correctly, make borrowers more financially stable, not less.

"If you're Fannie or
Freddie, in many ways PACE should be the best tax or assessment you've ever
seen, because it improves cash flow," said Cisco
DeVries, president of Renewable Funding, a company that sets up PACE
programs for cities and counties. "Homeowners are reducing their energy bills.
No other assessment does that. For a sewer system [a common use of tax
assessments], you have access to sewers, which is great, but it's not like your
cash flow improves."

The research in the
internal analysis does not focus on PACE or other financing methods, but it
addresses the core focus of PACE: the energy use of buildings. Most PACE
programs require an energy audit and efficiency improvements before funding
rooftop solar or wind (since it's a waste to put solar panels on a leaky
building). Buildings account for 38
percent of the nation's carbon dioxide emissions, so retrofitting them is a
crucial near-term step in addressing climate change -- with the added bonuses
of creating local jobs and cutting utility bills for property owners.

The nation's largest
PACE program, in Sonoma County, Calif., has also found that energy-saving
improvements tend to make homeowners more financially secure. The property-tax
delinquency rate for the county's 900-some PACE participants was 1.2 percent,
compared with 3.5 percent for the county as a whole, according to deputy county
counsel Kathy Larocque.

"The people in our
program are better taxpayers than the general public," she said.

Sonoma County residents
have jumped at the chance to make home improvements through the program since
it launched last spring. The county expected investments to reach $7 million or
so in the first year; instead they reached $30 million as of last month,
according to county Treasurer/Tax Collector Rod Dole.

Another year-old
program in Boulder County, Colo., proved popular with residents, helping them
make more than $10 million in home and business energy improvements. Middle-school
teacher Kayla Thomason wanted to join in; she applied for $11,000 in
funding to fix up her leaky house, had a home-energy audit performed, and had
contractors bidding on the work -- and then Fannie and Freddie forced
the program to shut down.

Boulder County
commissioner Will Toor says local residents are anxious for the program to get
back up and running. "The reactions that we're getting from people are
primarily anger at Fannie and Freddie, as opposed to people feeling like
there's something wrong with the program," he said. "If we can get the federal
issues resolved and clearly state to people that we're able to move forward, I
think that we will see people still participate. I don't think it will be a
long-term blow to the program, once we get the issue resolved."

Dozens of members of
Congress, governors, and mayors have spoken up in support of PACE. Rep. Steve
Israel (D-N.Y.) said he plans to introduce legislation addressing Fannie and
Freddie's concerns, but there's no sign that the bill would move quickly
through Congress. The Department of Energy, which invested $150 million in stimulus
money in PACE programs, urged
Fannie and Freddie to let the programs proceed, without success. It even
offered FHFA a two-year reserve fund to guarantee against losses, an
offer that was refused, according to The
New York Times.

"Every single issue
raised by FHFA was raised previously and resolved, from almost everybody's
perspective, with excellent answers," said DeVries of Renewable Funding. "It's
clear they didn't want to take 'yes' for an answer."

Spokespersons for
Fannie Mae and FHFA did not respond to requests for comment.

Do you have more information on Fannie, Freddie, and the PACE dispute? If
so, we'd like to hear from you (jhiskes grist org).

hormones

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