FOUR CORNERS – RealtyTrac’s report today that the number of foreclosures in the U.S. hit a record high in 2010 could led some to assume the housing market has probably hit bottom, and it’s a safe assumption that the worst of the foreclosure crisis is behind us.
But that might not, unfortunately, be the case.
Pete Howlett is a Realtor in the Four Corners area, where he runs Orlando Vacation Realty.  He said there’s good reason to believe the foreclosure crisis could get worse this year and in 2012, even though Central Florida and the rest of the country have already been through three years of record-breaking foreclosure statistics.
“The distressed sales will be with us for a while,” Howlett said. 

A key reason, he said, is that at the height of the real estate boom in 2005, banks were so eager to sign up new lenders that they came up with attractive mortgage deals for people who couldn’t afford skyrocketing home prices.  That included adjustable loans as low as 3 percent, or in some instances interest only loans, where the buyer paid only the interest on the loan, and made no payments toward the principle.
These deals were attractive because they gave the buyer a low monthly payment they could afford.  But those loans were only for a set number of years, and not for 30 year deals like fixed rate loans are.
“If you got a loan in 2005,” Howlett said, “and if they were five to seven year loans, they haven’t hit the adjustment period yet, where they might go from 3 percent to 9 percent this year,” Howlett said.  “Or they were interest only loans, when they started off at interest only rates.  The banks made a lot of these loans that were five to seven year loans that started off at adjustable rates.”
When the higher rates kick in – and it’s a strong bet that a lot of them will be this year and in 2012 – there’s likely to be another fierce round of foreclosure proceedings, Howlett said, as homeowners find they can no longer keep up with their monthly payments at the higher rate.
“Banks are still proceeding with their inventory of distressed properties,” he said.

On Thursday, RealtyTrac, the online marketplace for foreclosure properties, released its Year-End  2010 U.S. Foreclosure Market Report.  It showed that a total of 3,825,637  foreclosure filings — including default notices, scheduled auctions and bank repossessions — were reported last year on a record 2,871,891 U.S. properties. That represented an increase of nearly 2 percent from 2009 and a 23 percent jump from 2008.
Florida remains one of the hardest hit states, having experienced a huge building boom between 2003 and 2006 as demand for new homes outstripped supply. One of those areas was in Four Corners, which takes in parts of Lake, Orange, Osceola and Polk counties where U.S. 192 and U.S. 27.  Close to Orlando, the theme parks and Orlando International Airport, this area experienced a rapid buildup of new residential subdivisions, but when the housing bubble burst in 2008, it left behind a rising number of vacant, unsold homes and a painfully high foreclosure rate.
Florida had the nation’s third highest foreclosure rate, with 5.51 percent of its housing  units – or one in 18 – getting at least one foreclosure filing during the year.  RealtyTrac reported that in Florida, one in every 343 housing units received a foreclosure filing in December 2010. Orange County had 1,695 foreclosure filings, one in every 272 homes, while in Osceola County, there were 767 foreclosure filings last month, one in every 158 homes.

The high number of foreclosure homes being sold has brought down prices.  In Orange County, the average sales prices for a home is $157,859, RealtyTrac reports – but buyers who look at a foreclosured home will pay an average price of just $112,908. In Osceola County, the average sales price is lower, at $144,732, but the average foreclosed home price is down to just $96,314.
Kevin Jones, manager and loan officer for Professional Mortgage Center in Davenport, agreed that foreclosed homes remain a large part of the Four Corners housing inventory.
“I do see a lot of foreclosures and I do see a lot of short sales,” Jones said.  Short sales are when the owner of a home has fallen behind on their monthly mortgage payments, and, facing the possibility of a foreclosure, try to sell their home for less than what they owe on it.  The seller’s hope is that the bank will write off the remaining debt on the mortgage rather than repossess the home.
“We get a lot of sales from both of those,” Jones said.  “And I see a lot of people buying these properties, especially short sales.”
Foreclosed home are in many ways less attractive, he added. Sellers of short sales tend to keep the property well maintained in order to attract buyers, but in too many cases where a home has been abandoned and repossessed by the bank, the previous owners trashed it before leaving.
“The problem is when people leave their house, they leave them in disrepair,” Jones said.  “That’s the problem that we get from foreclosures. People steal things from the house and take appliances, and it can be a real mess.  then nobody wants to buy it.”
That brings the prices down to levels that traditional sellers can’t compete with, he said.  Jones also agreed with Howlett that many adjustable loans made during the peak of the market haven’t all switched yet to the higher rates — but many will this year.
“There were a lot of three to five year loans made when everyone was buying things in 2004, 2005, and they’re all coming due around this time,” Jones said.  “People wanted to pay them, but couldn’t, so they just left. They were at 2 or 3 percent, and then the loan shot up to 9 percent, and those are all coming due.”
Another reason the situation may get worse, Howlett said, is that some banks may have held back on putting all their distressed properties on the market at once.
“I’ve heard they did kind of hold off on selling all their distressed properties so there isn’t a total collapse,” Howlett said.  “It probably would have been worse if they had been dumping them all at the same time.”
But it also means banks may have more foreclosed properties to put on the market at deeply discounted prices, further bringing down all home prices, he said.
Howlett said he’s also heard some banks are considering requiring buyers to begin putting down 30 percent before they can secure a mortgage – a plan that would help the banks, he said, but could be devastating for the housing market.
“If you required 30 percent down, the number of buyers who could qualify would be abysmal,” he said. 

But there is some good news in the RealtyTrac report, which showed that foreclosure filings were reported on 257,747 U.S. properties in December, which marked a 2 percent decrease from November and a 26 percent drop from  December 2009.  It was, the report indicated, “the biggest annual drop in foreclosure activity since RealtyTrac began publishing its foreclosure report in January 2005, and giving December the lowest monthly total since June 2008.”
Likewise, default notices in December were down 4 percent from November and down 35 percent from December 2009, while scheduled foreclosure auctions decreased 3 percent from the previous month and were down 20 percent from December 2009.
Howlett said it’s also encouraging that prices in Four Corners have started to stabilize, even as inventory remains fairly high.
“Obviously, supply and demand will impact prices,” Howlett said. “But I’ve seen a leveling off on sales prices and that suggest the banks are sitting on these properties rather than making this situation worse.”

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