The continued increase in lender foreclosure properties, possibly including a number of tax foreclosure properties, has increased home sales nationwide by seven percent in 2008, according to a foreclosure sales research by Radar Logic. Home buyers were enticed by bargain home prices and low mortgage loan rates.
While conventional real estate sales decreased by 17 percent in 2008, sales of foreclosed properties at auctions increased by 177 percent. It is not known if sales of tax foreclosure properties are included in the data. Michael Feder, head of Radar Logic, said sales of foreclosed properties, sometimes known as motivated sales or distressed transactions, accounted for about one third of all real estate sales in 2008.
In all the top 25 metro areas, home prices decreased, pulling down Radar Logic's composite index to 22 percent in 2008. In states with the highest foreclosure rates, Nevada, California, Arizona and Florida, home prices had the largest declines, making them the states with the largest home sales gains. Sales of lender foreclosure properties, possibly including tax foreclosure properties, in California, accounted for forty-seven percent of total home sales in the U.S. in December 2008.
The other factor pushing homes sales up are low mortgage rates. The 5.1 percent rate for a 30-year mortgage loan in December 2008 was Freddie Mac's lowest since it started recording rates in 1971.
Since 2006, the housing sector has been overwhelmed by unsold houses, including lender and tax foreclosure properties and unsold newly-built homes. Feder is pleased that the price level attractive to buyers has been reached in some areas. A slight increase in home sales is a positive development in a market devastated by lender foreclosure properties, and possibly tax foreclosure properties.
Feder asserts that there are three major issues that must be addressed before the housing market stabilizes: the surplus of unsold homes, the refusal of mortgage firms to grant higher loan amounts and the hesitation of non-distressed house sellers to reduce their asking prices. Mortgage lenders should be motivated to offer loans equal to about 85 percent of home values.
Finally, according to Feder, if President Obama's stimulus program addresses the three major issues, signs of recovery will begin to appear in the housing market. Market recovery will also mitigate factors that lead to tax foreclosure properties.
There is an oddity in the current bankruptcy law. Bankruptcy judges can reduce or modify the principal for bankrupt properties like a vacation home, a car or a boat. However, these same judges are helpless and cannot do anything to modify the principal to a mortgage for a primary residence. This is the main reason why people with tax foreclosure properties end up losing their homes to banks without even filing for bankruptcy.
One reason is because of this oddity, and the other is that filing for Chapter 13 is a long, unpleasant and agonizing task that will stain your credit record for a minimum of 7 years, as well as ending up in higher mortgage payments as skipped payments and resulting fees will be added to the principal. Homeowners are still responsible for paying this under a repayment plan.
Legislation is underway to remedy this, and it has the backing of President Barack Obama. The new proposed law would amend this oddity in the bankruptcy laws and would give more power to judges to modify primary home mortgages and finally stop the increase of tax foreclosure properties. Democrats and advocates have been pushing for this legislation for two years, only to be opposed by Republicans and the mortgage industry.
Proponents of the new law are not concerned that people with tax foreclosure properties would start rushing and filing for Chapter 13. The requirements of the procedure plus the stain on their credit records will be an effective deterrent. What the law is trying to achieve is to provide an incentive for banks and mortgage providers to stop and reconsider filing for foreclosures and work out a voluntary loan modification program with the homeowner, instead of heading to a bankruptcy court.
Understandably, the bill would face stiff opposition from the mortgage industry. Their argument is that if judges are allowed to modify the principal of primary residential tax foreclosed properties, consumers would end up having higher loan costs as lenders would need to increase to compensate for the added risks. However, this opposition is losing strength as foreclosures continue to cause dramatic declines in home prices that mortgage providers would have no choice but to comply to stem this tide.
The bill met strong opposition last year from Republicans and the veto threat from former President George W. Bush. Now, more Democrats are seated and Obama is in the driver's seat.
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