Real Estate Focus

The level of foreclosure activity will probably be higher than the predictions of many because an important part of the equation has not yet been taken into full account.  We look at foreclosure activity and have focused on the Adjustable Rate Mortgages scheduled to re-pricing, the delinquencies in both the sub-prime and Alt-A mortgage loans and we see stormy seas ahead.  The lenders have also confirmed what many of us expected, namely, the credit issues are not confined to only these loan categories and the prime loans are also subject to increasing levels of delinquencies.  These too will add to the foreclosure pool.  However there is one last item that we need to reckon with—and that is the slowdown in sales activity.  

With home prices falling and properties remaining on the market for ever-longer periods of time, the ability to avert foreclosure through a sale has been reduced.  The falling prices also mean that sellers have a limited ability to negotiate price in a very price sensitive market, especially those that bought or refinanced during the height of the market.  House values can be equal or even less than the mortgages owed.  That creates a very difficult situation.  Even if the lender is willing to accept a “short sale” and forgive any delinquency, the then former homeowner faces a nasty surprise in the form of a tax bill for the shortfall.