N.J. foreclosure inventoryspikes; 2nd most in nation

New Jersey’s percentage of home mortgage loans in foreclosure continues to rise, even as rates nationally have fallen to the lowest level since 2008, a report released Wednesday showed.

New Jersey now has the second-highest percentage of mortgage loans in foreclosure — at 8.4 percent — behind only Florida, at 14.3 percent, according to the report by the Mortgage Bankers Association.

The results come even as other states that were hard-hit victims of the mortgage meltdown that began in 2008 have moved off excessive inventory.

In Michigan, for example, only 3 percent of all home loans are in foreclosure, and in California, that rate is down to 3.29 percent. Both states had been among the leaders during the housing bust.

Jeffrey Otteau, an appraiser and New Jersey real estate market analyst from East Brunswick, said the problem for the Garden State is only going to get worse.

A 2010 court-ordered moratorium on foreclosure filings — issued because banks and mortgage companies often did not have proper documentation — helped build New Jersey’s backlog, Otteau said in an interview.

Meanwhile, New Jersey has a lengthy court process that stretches out the foreclosure process for more than a year.

“The housing market had benefited from it. It lowered the tide, and reduced the number of short sales,” Otteau said. “But now is the time to deal with it, to clear this out at a point where the market can digest it and get to the other side.”

More foreclosures are on the way, Otteau said, but banks just haven’t bothered to file for them yet, even though the moratorium was lifted last August.

“The number is really larger,” Otteau said. “We’re just not clearing the backlog. All the results are putting New Jersey at or near the top.”

North Jersey foreclosures haunt neighbors

Maywood homeowner Joe Leichtnam spent some time recently trimming the shrubs, mowing the lawn and fixing the siding.

Not at his house; at the empty house next door. It’s a small effort to contain the chaos at the property, which is in foreclosure and has been vacant for several years. The house has a blue tarp covering a hole in the roof and overgrown bushes that threaten to engulf the deck.

The house on Edel Avenue is just one of thousands of vacant homes left by the housing bust all across North Jersey. Neighbors say they’re discouraged and disheartened by the sight of these neglected homes, which can remain empty for years while the foreclosure process grinds slowly forward.

If a neighboring house is empty and in disrepair because of a foreclosure, homeowners can complain to their town’s code enforcement officer. The town then has the power to contact the foreclosing lender, which by law is supposed to correct violations of the property tax code. If that doesn’t work, the town can send in workers to clean up the property and then place a lien on it to pay for the work. That way, the town is repaid either when the lien is purchased by an investor or when the house is sold at sheriff’s auction.

“It just detracts from the whole neighborhood,” said Leichtnam, a retired telecommunications professional. “It definitely has an impact on the value of the homes in the area.”

These homes are orphans of the real estate storm. The homeowners are gone. Foreclosing lenders don’t own the property, and generally do the minimum — mow the lawn or board up windows. Towns can step in, but their workforces are already stretched, and they don’t know when they’ll be reimbursed for the work. Without the level of care that homeowners typically give, the properties can fall into neglect and disrepair. So neighbors like Leichtnam, who see the value and appeal of their own homes threatened, take matters into their own hands.

The blight has not hit just lower- and middle-income areas. On McCain Court in Closter, for example, an empty McMansion sits in a cul-de-sac of half a dozen similar houses. The owner paid $929,000 for the home in 2000, but lender Keystone Nazareth Bank and Trust filed to foreclose in July 2008, according to public records.

Today, the house sits with expensive but overgrown landscaping, a knocked-over mailbox and signs of damage in a high corner where the side wall meets the roof. There’s a notice on the door from United Water, dating to December, warning that the water’s about to be turned off because of an unpaid bill of $1,367.
…
Mortgage companies will often turn off the water in a house to prevent burst pipes. But they don’t always act in time. Theresa Rolaf says an empty house on her street, Terrace Street in Bergenfield, was flooded when an upstairs pipe broke.

“I called the police and they came to shut the water off,” said Rolaf. “I’m sure there is a lot of damage inside.” The house is now owned by JPMorgan Chase, according to property records. A note on the door from the bank’s lawyers indicates that the homeowners gave the bank the deed, to head off a foreclosure.
…
The homes can stay vacant for years. It now takes, on average, more than 2½ years for lenders to go through the legal process to evict New Jersey homeowners who can’t pay their mortgages. The New Jersey foreclosure pipeline came to a near-halt in 2011 over sloppy paperwork by lenders — called “robo-signing” because lender representatives allegedly signed documents without checking them, in the rush to evict homeowners. The foreclosure machine has shown recent signs of starting up again in New Jersey, but with the backlog of properties in the system, distressed properties are likely to linger for years.

Because vacant homes can be a “calamity” in a neighborhood, Affuso, of the bankers’ group, said the state should try to streamline the foreclosure process on empty properties, since the homeowners obviously aren’t contesting the foreclosure. A recent bill proposed in the Legislature to turn foreclosed homes into affordable housing would help, because it sets out a way to identify vacant homes and allow banks to repossess them more quickly, he said.

Short Sales Higher, Prices Lower

Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical “norms” compute, not to mention that the type of supply available is largely distressed.

Foreclosures and short sales (when the home is sold for less than the value of the mortgage) accounted for 47.7 percent of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40 percent of the market.

“With nearly half of the market being distressed, we’re a long way from a return to a normal market,” said Thomas Popik, research director at Campbell Surveys. “Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low—and also why forced REO and short sales are such a big proportion of the remaining market.”

Home prices for non-distressed properties fell 5.7 percent in March year-over-year, according to the survey. Prices for “damaged” REO (bank-owned properties) fell 5.7 percent and for move-in ready REO fell 2.5 percent during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3 percent from March of 2011.
…
That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to “develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.” It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.
…
“This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,” writes Jaret Seiberg, analyst at Guggenheim Partners. “That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.”

On the plus side, short sales tend to sell at higher prices than foreclosures. It appear, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise. The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.

North Jersey banks repossessed more properties

In banking, OREO is not a cookie, and there’s no sugary frosting in the middle.

It’s an acronym for one of the industry’s most unpleasant statistics, Other Real Estate Owned, which means repossessed homes and commercial properties. And it has been on the rise in North Jersey.

Repossessed homes and commercial properties held by the 10 largest commercial banks based in Bergen and Passaic counties nearly doubled to $53.3 million from $27.3 million in the past year, according to The Record’s analysis of financial reports filed quarterly with the government.

These include properties that banks acquired in sheriff’s auctions because the bids made were too low to cover the loans. They also included properties where distressed owners voluntarily signed over the deeds.

An increase of that size is “certainly not good,” said Rick Weiss, an analyst with Janney Capital Markets. “I think the rate [of bad loans] going in is probably slowing, but things aren’t being cleared out fast enough.”
…
Bauer said recently that 12.7 percent of New Jersey banks were “troubled or problematic” as of the end of 2011, up from 7.8 percent at the end of 2010. The ratio of troubled or problematic banks declined nationwide during that time to 11.1 percent from 13.2 percent.

John McWeeney, president of the New Jersey Bankers Association, said New Jersey-based banks “are still relatively strong compared to other areas of the country” and their capital levels are “solid.”
…
Wayne-based Valley National Bank’s holding company said in a filing with securities regulators that its increase in OREO last year was largely due to one commercial property with a value of $3.5 million, which the bank acquired in the third quarter. The dollar value of Valley’s OREO rose to $21.7 million last year from $18.3 million.

At Edgewater-based Mariner’s Bank, OREO increased to $8.7 million from $1.5 million, attributed entirely to repossessed commercial properties.

Community Bank of Bergen County’s OREO increased more than tenfold to $6.4 million from $604,000, with residential mortgages accounting for more than $5 million of the year-end total at the Maywood bank.

“A lot of what you are seeing now is loans that went bad in 2008 and 2009,” said Nicholas Ketcha, a managing director of FinPro in Liberty Corner. “It’s taken that long to get the properties to where they can take control.”

Jersey Rejuvenation Story

About six years ago, Newark, N.J., seemed to be winning its long struggle to emerge from decades of urban decay, and one of the symbols of that was the opening of Eleven80, a market-rate rental property in a converted Art Deco office building.

The developer, Cogswell Realty, spent about $110 million to develop the 317-unit apartment tower with luxury finishes and a bowling alley in the building that originally opened in 1929. Most significantly, Cogswell was charging market rates of more than $2,000 a month for some units, prices unheard of in downtown Newark.
…
But now the project has also taken on new symbolism as its defaulted mortgage has been sold. While sales of distressed real-estate debt are commonplace these days, this deal was significant because the seller was the Federal Reserve Bank of New York.

The Fed wound up owning the debt on Eleven80, along with about $6.4 billion in commercial real-estate loans, when it made a $28.8 billion loan to bail out Bear Stearns Cos. in 2008.

Since then, the Fed has been slowly and quietly reducing that stockpile, partly through loan sales. As of Dec. 31, the value of the commercial real-estate loan portfolio had been whittled down to $2.9 billion, according to public documents.

What is less clear is how well taxpayers have made out from the Fed’s efforts to sell off commercial real-estate loans. A spokeswoman for the Fed declined to comment on the disposal of toxic real-estate loans by Maiden Lane LLC, the Fed-controlled company that was established in 2008 to handle all of the Bear Stearns assets taken over by the Fed.

In the case of Eleven80, taxpayers didn’t make out well. Bear Stearns originally made a $54 million loan on the project, which Maiden Lane inherited. In the recent deal, Maiden Lane sold the debt for $35 million to KBS Strategic Opportunity REIT, a nontraded real-estate investment trust managed by KBS Capital Advisors LLC, of Newport Beach, Calif.

The Fed also moved slowly. A trustee began foreclosure proceedings in 2009, but three years later Cogswell still owns the asset. The foreclosure has been complicated in part by litigation related to a construction company seeking payments.

The Fed’s loss could have been worse. Investors’ demand for distressed commercial real-estate loans is rising, and buyers are now paying an average of 50 cents on the dollar, topping the 25 cents on the dollar that soured commercial real-estate debt was selling for when real-estate values hit their troughs, according to Harris Trifon, global head of commercial real-estate research at Deutsche Bank Securities Inc.

Consumers’ Quiet Helper: The Fruits of Foreclosure

Imagine living at home and paying no mortgage, interest or taxes. That may sound like some late-night TV commercial, but millions of people are doing just that—the silver lining to having their homes in the foreclosure process.

It’s not easy to estimate exactly how much money these folks are not spending on housing, but a good guess is $42 billion a year. Assuming they’re spending it on other things, they’re chipping in about 10% of the nation’s total retail sales. In other words, they’re a surprisingly important force for the economy.

Nearly 1.9 million homes had some form of foreclosure filing upon them at the end of last year, according to RealtyTrac. Because of bottlenecks caused by the Robo-signing mess and legal battles, people in foreclosure have been able to stay put for long stretches. The foreclosure process rose from 281 days in the third quarter of 2010, to 348 days by the end of 2011. In Florida it’s 806 days. In New York, the average stay is a stunning 1,019 days. Until actually foreclosed, people stay in their homes for free.

You get to roughly $42 billion in savings by multiplying the portion of mortgages in foreclosure (4.38% of all homes) by total annual payments of mortgage and taxes (about $970 million).

Americans brace for next foreclosure wave

Half a decade into the deepest U.S. housing crisis since the 1930s, many Americans are hoping the crisis is finally nearing its end. House sales are picking up across most of the country, the plunge in prices is slowing and attempts by lenders to claim back properties from struggling borrowers dropped by more than a third in 2011, hitting a four-year low.

But a painful part two of the slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.
…
Housing experts say localized warning signs of a new wave of foreclosure are likely to be replicated across much of the United States.

Online foreclosure marketplace RealtyTrac estimated that while foreclosures dropped slightly nationwide in February from January and from February 2011, they rose in 21 states and jumped sharply in cities like Tampa (64 percent), Chicago (43 percent) and Miami (53 percent).

RealtyTrac CEO Brandon Moore said the “numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed.”
…
Zillow expects the resurgence in foreclosures this year, combined with excess inventory of unsold, bank-owned homes will contribute to a 3.7 percent national decline in prices before the market hits bottom in 2013 and stays there until 2016.

“The hangover from this crisis will far outlast the party of the boom years,” said Zillow chief economist Stan Humphries.

Getting through the remaining foreclosures and dealing with the resulting flood of homes on the market in the wake of the bank settlement is a necessary part of the healing process for the U.S. housing market, he added.

According to leading broker dealer Amherst Securities, some 9.5 million homes are still at risk of default and in February it said it expected to see the uptick in foreclosures start to hit in March and April.

N.J. housing market recovering, appraiser says

New Jersey’s housing market is recovering, and this spring’s home-selling season will be the liveliest in four years, appraiser Jeffrey Otteau said Monday.

“We are at a turning point in the housing market and the economy,” said Otteau, who tracks the statewide market from his office in East Brunswick and whose forecasts are widely followed. “The bounce in home sales [in January and February] is nothing short of astounding.” He said sales are up about 30 percent in the first two months of the year, compared with last year.

But that doesn’t mean sellers can hike their asking prices, Otteau said. With incomes flat and banks cautious about lending, buyers will be unwilling or unable to pay inflated prices, he said.

“Homes that are overpriced will not sell,” he said.

Otteau predicts that home prices will be flat this year, after falling almost 5 percent statewide last year, and will not return to their 2006 peaks until 2020.
…
Otteau said that Garden State home buying will be fueled this year by an energized job market, as well as more affordable home prices and mortgage rates below 4 percent. Average New Jersey home prices have fallen 26 percent from the market peak in 2006, and are back to 2003 levels, he said.

There’s pent-up demand among potential buyers, who have waited four or five years because they were insecure about their jobs or worried that home prices would fall further, Otteau said. And rising rents mean that many households will soon decide it’s better to buy than rent.

But he warned: “This improvement is not a return to the market frenzy we saw back in 2005.”

And more than 16 percent of New Jersey homeowners are either in foreclosure or late on their mortgage payments, according to the Mortgage Bankers Association. That represents “a deep, dark hole” for the housing market, especially in rural and inner-city areas, Otteau said.
…
Foreclosures tend to sell at a steep discount – 20 percent to 30 percent less than similar properties, according to research. That tends to pull down values of neighboring properties.

“Areas with large concentrations of foreclosures will see prices decline,” Otteau warned.

Housing, banking advocates hail measure to speed foreclosures of abandoned homes

A piece of state legislation that looks to turn foreclosed homes into affordable housing also contains a little-noted provision that banking and housing experts say would provide an important step to unclogging the bottleneck holding back the state’s housing recovery.

A bill introduced last month by Sens. Raymond Lesniak (D-Union) and Barbara Buono (D-Middlesex), along with a parallel measure in the Assembly, would create a legal mechanism to move abandoned properties more quickly through New Jersey’s enormously bogged-down foreclosure pipeline.

This process would allow mortgage lenders such as banks to petition Superior Court to expedite a foreclosure on properties they have reason to believe are abandoned and vacant. If the court agrees, it would then direct a sheriff, county agency or trustee to sell the property within 45 days.

While this expedited process would be used ostensibly to create a pool of homes that municipalities and community groups can purchase for affordable housing, supporters say its purpose goes beyond that mandate, in that the abandoned properties could be resold at market rates, too.

On top of that, shunting a segment of properties out of the state’s judicial foreclosure process would help alleviate some of the backlog weighing down the state.

“What’s happening right now is not the best way,” said Michael Affuso, director of government relations for the New Jersey Bankers Association.

As of the end of 2011, it took the courts on average 964 days to complete a home foreclosure in the state, the second-longest in the country, according to RealtyTrac. More than 30,000 homes in the state were in the process of being foreclosed upon at the end of last month, the real estate data firm found. But all told, there are 118,000 foreclosure filings in the state, according to data cited by the bankers association and Housing & Community Development Network of New Jersey.
…
At the current rate, it would take the courts 49 years to work through the current backlog of foreclosures, the bankers association has found.

CoreLogic: Clogged foreclosure pipeline in Northeast slowing recovery

Real estate data firm CoreLogic says recent employment growth, low mortgage rates and home affordability are signs of a breakthrough in the American economy.

CoreLogic released its latest MarketPulse report, showing new mortgage originations rose to $108 billion in October compared to $60 billion in May. Refinancings rose, as well, and represented 74% of all mortgage origination activity.

The Northeast provided the fewest regions to the list of top 50 housing markets. According to study co-author Sam Khater, this is due to the backlog of distressed properties on the market, adding that recovery will be slow until this “foreclosure clogging” is rectified.

CoreLogic listed the number of foreclosures per REO in 10 housing markets in the Northeast.

Foreclosure starts jump 28 percent in January : LPS

Starts on U.S. home foreclosures shot up 28 percent in January, data provider Lender Processing Services (LPS.N) said on Tuesday in a report that suggested paper backlogs that had clogged the system were rapidly clearing.

U.S. lenders had cut back on foreclosure after accusations of faulty foreclosure practices had surfaced in late 2010.

Last month, five big U.S. banks reached a $25 billion settlement with the federal government to end a national investigation into claims of flaws in their foreclosure process, including allegations of so-called “robo-signing” of documents.

“One-month anomalies do occur, but make no mistake about it, this is a larger move than we’ve seen since the late 2010 period when the process reviews and moratoria really took hold,” said Herb Blecher, senior vice president at LPS Applied Analytics, a unit of the Jacksonville, Florida-based company.
…
LPS also said foreclosure sales, which it defined as a bank repossession of a home from the borrower or in some cases the completion of a short sale, surged 29 percent in January from the previous month.

Mortgage delinquencies were down more than 25 percent from their January 2010 peak, according to the report. The delinquency rate stood at 7.97 percent in January, down 10.5 percent from a year earlier.

Home price declines resilient against REO saturation: Clear Capital

National home prices fell by the smallest margin in 10 months in light of REO saturation increases, a trend that Clear Capital calls “unusual and encouraging.”

Prices declined 1.9% year-over-year, according to the firm’s Home Data Index market report. Short-term prices remained stable, falling only 0.6% quarter-over-quarter, highlighting short-term stability over the last few months.

All regions showed improvements in yearly and quarterly price drops, while three out of four saw upticks in real estate-owned properties for sale.

Clear Capital found that the nation’s top 15 peforming metropolitan statistical areas were resilient against higher REO saturation, with six of them showing quartely price appreciation greater than 2%. Quarterly losses among the lowest MSAs eased in February, averaging 4.1% against an average loss of 4.7% in January.

“With this uptick in REO activity, we’ll be keeping a very close eye on the effects of the attorneys general settlement with servicers, as it could dramatically change the flow of REO properties moving through the foreclosure process and significantly impact values in the near future,” Alex Villacorta, Clear Capital’s director of research and analytics, said.
…
Villacorta cited improvements in the job market, stronger consumer confidence and the heightened activity of investors with cash as putting upward pressure on prices and adding to the resiliency in prices against the nation’s REO bulk.

Why Renters Rule U.S. Housing Market (Part 1): A. Gary Shilling

The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.

Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can’t afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.

Why Renters Rule U.S. Housing Market (Part 2): A. Gary Shilling

In making my case for continued housing weakness, I’ve emphasized the negative effect of excess inventories on house sales, prices, new construction and just about every other aspect of residential real estate.

In housing, as in every goods-producing sector, excess inventories are the mortal enemy of prices. Lower prices are needed to unload surplus inventory, yet they also lead to the creation of more inventory by anxious sellers. The plight of house sellers and the reluctance of buyers are made worse by the realization that house prices can fall, and are falling for the first time in 70 years.

There are about 2 million excess housing units in the U.S., over and above normal inventory working levels. Before the housing collapse began in 2006, housing starts and completions were volatile but averaged about 1.5 million per year. So a 2 million excess is much more than the previous annual average build.

Furthermore, that excess is rising as homeownership declines as a result of foreclosures, unemployment, inability to meet mortgage standards or reluctance to own a depreciating asset.

NJ Senate panel OKs bill turning foreclosed property into affordable housing

A Senate panel unanimously approved a measure Thursday that would let municipalities and a new state corporation buy foreclosed homes and offer them to low- and moderate-income residents.

The bill creates the New Jersey Foreclosure Relief Corp, which would buy foreclosed homes, or allow municipalities to acquire them while getting a two-for-one credit against their affordable housing obligations, according to the bill. Funding would come from the state’s million affordable housing trust fund, municipal affordable housing trust funds, bonds from New Jersey Housing and Mortgage Finance Agency, and the Realty Transfer Fee.

There were 58,000 foreclosure actions filed in New Jersey in 2010 and 66,000 in 2009, according to the bill.

“One foreclosed property can have a negative impact on the value of the rest of the homes on the block,” said Sen. Barbara Buono (D-Middlesex), who co-sponsored the bill with Sen. Raymond Lesniak, (D-Union). “This isn’t just about foreclosed properties or affordable homes – it’s about communities in economic crisis, and it affects all New Jersey residents, whether they qualify for affordable housing, are living in foreclosed home, or not.”

The Senate Economic Growth Committee unanimously approved the bill, (S1566), which heads to the Senate Budget and Appropriations Committee next before going to the full Senate for consideration.

RealtyTrac: Foreclosure Filings Fall 19% In January

The number of U.S. properties with foreclosure filings fell 19% in January from a year earlier, though several states reported increased foreclosure activity for the first time in more than a year, according to market researcher RealtyTrac.

There were 219,941 properties with default notices, scheduled auctions or bank repossessions on U.S. properties in January, a 3% increase from December. One in every 624 U.S. housing units had a foreclosure filing during the month, RealtyTrac said.

First-time default notices were filed on 58,362 U.S. properties last month, down 22% from a year-ago and unchanged from December. Default notices rose more than 20% from a year earlier in several states, including Connecticut, Massachusetts and Florida. Pennsylvania default notices reached a 15-month high in January, more than doubling from a year earlier.

“Although overall foreclosure activity was down from a year ago for the 16th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw,” said Chief Executive Brandon Moore. “Foreclosure activity increased on a year-over-year basis for the first time in more than 12 months in Florida, Illinois, Indiana and Pennsylvania, following a pattern we saw in late 2011 in states such as California, Arizona and Massachusetts.”

Moore said foreclosure activity is expected to increase in the coming months, noting a settlement earlier this month between 49 state attorneys general and five of the nation’s largest lenders sets clear foreclosure guidelines and allows lenders to push through some of the delayed foreclosures from last year.