by Nancy Osborne, COO of ERATE®
June 24, 2008 - It is estimated that almost 6.5 million homes may go into foreclosure in the next five years. This would comprise nearly 8% of all U.S. homes. Across the country, 25% of all home sales occurring in the first quarter of 2008 were the result of a distress sale. Weak sales and declining home prices along with the new, stricter lending guidelines, have produced market conditions where foreclosure is the only viable option for many distressed homeowners. Foreclosure filings are now up almost 50% from the same time a year ago as nearly 50%-60% of homeowners who go into default and see foreclosure proceedings begin, will ultimately lose their homes. The remaining numbers of distressed homeowners are ultimately able to refinance their mortgage or to sell the property.
Lenders who are left with these properties as real estate owned (or REOs) on their books are motivated to reduce the sales price on these units substantially until a willing buyer can be found to take it off their hands. As these homes add to the swelling inventory within a neighborhood, and continue to sell at fire sale prices, they accelerate the decline in prices for all homeowners, distressed or otherwise. Government efforts to curtail the foreclosure problem by encouraging loan modifications and postponing foreclosure proceedings as long as possible so a loan workout can be initiated, have met with mixed results. Assisting a homeowner can prove to be a complex process, as complicated as the origin of the credit crisis itself, with so many players to consider it is a daunting and very time consuming task coordinate. Left up to the pertinent players, to reach a resolution on a voluntary basis, this effort has scarcely made a measurable difference. Criticism continues to be waged that the efforts of the mortgage industry coalition (which was initiated by the Bush Administration and is known as HOPE NOW) is unable to achieve results quickly enough to stem the growing tide of distressed homeowners heading into foreclosure, as only a little under 3% of delinquent mortgages had been modified by the close of the first quarter of 2008.
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
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