Foreclosure notices rise in 3Q, but down from a year ago

LOS ANGELES – More U.S. homes are entering the foreclosure process, but they're taking longer to be sold or repossessed by lenders.

The number of U.S. homes that received a first-time default notice during the July to September quarter increased 14% from the second quarter, RealtyTrac said Thursday.

That increase signals banks are moving more aggressively now against borrowers who have fallen behind on their mortgage payments than they have since industrywide foreclosure processing problems emerged last fall. Those problems resulted in a sharp drop in foreclosure activity.

The surge in default notices means homeowners who haven't kept up their mortgage payments could now end up on the foreclosure path sooner. Initial default notices are first step in the process that can lead to a home being taken back by a lender.

In all, 195,878 properties received a default notice in the third quarter. Despite the sharp increase from the second quarter, the total was still down 27% from the third quarter last year, RealtyTrac said.

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Lenders took back 196,530 homes during the quarter, down 4% from the second quarter and down 32% from the quarter last year.

Banks remain on track to repossess some 800,000 homes this year, down from more than 1 million last year, Saccacio said.

RealtyTrac had originally anticipated some 1.2 million homes would be repossessed by lenders this year.

A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn't likely to occur as long as there remains a glut of potential foreclosures hanging over the market.

The third-quarter increase in initial default notices was largely a product of a spike in August. In September, default notices were off 10% from August, RealtyTrac said.

Still, the jump in initial defaults during the July to September period is significant because it is the first increase after five quarterly declines, suggesting banks are gradually addressing their backlog of homes in foreclosure and are now beginning to move on more recent home loan defaults, said RealtyTrac CEO James Saccacio.

"While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up," Saccacio said.

Foreclosure activity began to slow last fall after problems surfaced with the way many lenders were handling foreclosure paperwork, namely shoddy mortgage paperwork comprising several shortcuts known collectively as robo-signing.

Many of the nation's largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.

Other factors have also worked to stall the pace of new foreclosures this year. The process has been held up by court delays in states where judges play a role in the foreclosure process, lenders' reluctance to take back properties at a time of slow home sales and a possible settlement of government probes into the industry's mortgage-lending practices.

Those settlement talks, led by a group of state attorneys general, have been undermined in recent weeks after state officials in some states, including California and Massachusetts, have broken with the rest of the states.

While banks appear more willing to start the foreclosure countdown on borrowers, they haven't put a dent in the overall length of the foreclosure process.

In the third quarter, it took an average of 336 days, or 11.2 months, for a home to go from an initial notice of default to being foreclosed by a lender, RealtyTrac said.

That's up from 318 days, or 10.6 months, in the second quarter and represents the longest span of time for the foreclosure process since the first quarter 2007, the firm said.

In some states, it's even longer.

It took an average of 986 days, almost three years, for the foreclosure process to play out in New York in the third quarter — longest time of any state, RealtyTrac said.

New Jersey was a close second at 974 days; Florida was third at 749 days, or just over two years.

Not all states are seeing an increase in the time it takes for homes to move through the foreclosure process.

In Texas, homes made it through the foreclosure process in an average of 86 days during the third quarter, down from 92 days in the second quarter, RealtyTrac said.

Fixed Mortgage Rates Up Sharply Following Jobs Report

MCLEAN, Va., -- Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates up sharply from the previous week's record-setting lows following a better than expected employment report. Despite the sharp increase, mortgage rates remain near their 60-year lows.



30-year fixed-rate mortgage (FRM) averaged 4.12 percent with an average 0.8 point for the week ending October 13, 2011, up from last week when it averaged 3.94 percent. Last year at this time, the 30-year FRM averaged 4.19 percent.

15-year FRM this week averaged 3.37 percent with an average 0.8 point, up from last week when it averaged 3.26 percent. A year ago at this time, the 15-year FRM averaged 3.62 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.06 percent this week, with an average 0.6 point, up from last week when it also averaged 2.96 percent. A year ago, the 5-year ARM averaged 3.47 percent.

1-year Treasury-indexed ARM averaged 2.90 percent this week with an average 0.6 point, down from last week when it averaged 2.95 percent. At this time last year, the 1-year ARM averaged 3.43 percent.

Frank Nothaft, vice president and chief economist at Freddie Mac, reports, "An employment report that was better than market expectations helped to lift long-term Treasury bond yields and mortgage rates as well. The economy added 103,000 workers in September, aided by the return of striking Verizon workers. In addition, revisions to July and August figures added a total of 99,000 jobs to payrolls. However, these job gains are still not large enough to bring down the current unemployment rate of 9.1 percent."

Ask the HOA Expert

Question: Our board is considering replacing our cedar siding with vinyl. The reasons stated for doing this are the high costs of painting and maintaining the cedar as compared to the low cost of maintaining lifetime vinyl siding. Our buildings were built in 1985.



Answer: Unless there is a widespread installation or material defect, I highly recommend against replacing it. Properly installed and maintained cedar siding has a 50-75 year life. The cedar siding you have should last at least 25 more years.

Vinyl siding is often not what it is represented to be (lifetime, no maintenance). While vinyl can carry warranties (usually prorated) up to 50 years, experience shows significant failure within 15-25 years. It fades, cracks and warps and you’re stuck with the color for a very long time. Because of fading, replacing vinyl pieces inevitably creates a color mismatch. Vinyl siding is considered by many buyers to be a low-end product while cedar is considered high end. This means that buyers are willing to pay more for wood sided housing. Stick with cedar.

Question: We recently got a professional reserve study done. Our budget committee took the information and plugged it into a spreadsheet that will allow us to postpone the need for a professional study revision. The substitute study changes some of the assumptions, like reducing the recommended reserve contribution and the inflation rate. By doing this, we can lower our annual contributions significantly.

Our reserve study provider has recommended annual updates. What are the pros and cons of updating the reserve study? How would we update our substitute study and how long could we use it and still be confident that it was fairly accurate?

Answer: Artificially manipulating the reserve study numbers to reduce contributions for current members is a violation of the fiduciary duty the board has to all members, current and future. When it comes to paying for major repairs and replacements (the main purpose of a reserve study), there is no free lunch. Shorting reserves today will require making up the shortfall later, usually by special assessment. Special assessments are always unfair to some because they are being required to pay for something that should have been paid for by owners that sold and are long gone.

The other mistake frequently made with reserves is failing to fund each component fully. An example of full funding is a $10,000 component with a 10 year useful life should have $1000 per year reserved to be fully funded. Reserving less than $1000 a year will create a shortfall which must be made up later. But since reserves often include money for long life components like roofing, there is an illusion that there is more money than needed to pay for things in the short term. Boards that fall into the trap convince themselves that reducing reserves by a third, or a half, or two thirds is just as good as full funding. Huh? New math?

In fairness to all members, current and future, and to eliminate special assessments which are unfair to those that have to pay them, full funding of reserves is the only reasonable approach.
Annual updates are critical to keeping a reserve study accurate. The cost of an annual no site inspection update is usually nominal. A site inspection update is highly recommended at least every three years to verify the condition and useful lives of the components.

You should stay out of manipulating the reserve study yourselves. It has obviously been a self-serving exercise so far that is bound to result in a significant short fall. You paid for an objective and professional reserve study and you should follow the recommendations.

Question: We have a president who solicits co-owner involvement when the board is discussing business at a board meeting. Should co-owners be allowed to participate in board discussion as if they were a board member? Should a board meeting be conducted like a town hall meeting where everyone can speak? It is my contention that a board meeting is for the board to conduct its business without co-owner input.

Answer: Your interpretation is correct. Board meetings are designed for the directors to discuss and make decisions about HOA business. There are occasions when co-owner input is appropriate but not as a general rule. A member forum should be held prior to the start of the board meeting to allow input and questions. But once the board meeting is called to order, guests are there to listen, not participate. There are a number articles about meetings and how to run them that can be found at www.Regenesis.net in the Article Archive>Meetings section.

Choosing a Condo

Not all home buyers have dreams of spacious lawns, rambling rooms, and secluded properties. Many buyers, rather, are on the search for a home that will be easy to care for and will give them plenty of chances to be active and social.



From first-time buyers to down-sizing retirees, condos offer a wealth of opportunity. Many come equipped with clubhouses, gamerooms, gyms, and common outdoor meeting areas. Others go above and beyond with organized mixers, dances, movie nights, and more!

Condos can be a great choice for single homeowners looking to socialize. They can be a wonderful choice for older adults who are fully capable of caring for themselves, but wish to cut back on home maintenance.

Typically, owning a condo means you no longer have to worry about mowing your yard, maintaining landscaping, cleaning or scooping sidewalks, or making large-scale repairs. You pay a small fee each month that pays for your portion of this upkeep. Your condo association should also have a reserve fund that is held for large repairs, such as roof replacement, when the time comes.
The operative word is "should." Not all condo associations are the same. Before you buy, be sure to check into how diligent the association is. Are they up-to-date on reserve studies? How often in the last 10 years have they raised fees? Do they have an lawsuits pending?

Additionally, not all condo communities are equal when it comes to amenities. When you set up a showing, be sure to visit all that will be available.

This next upside has a catch. Condos generally come with an extensive set of rules. This means the condo government says what you can do to your home and what you can't. They can prohibit improvements, pets, home-based businesses, and subletting. The positive side of these rules is that your condo community should stay uniform, updated, and in good order. If you have an issue with a neighbor, you can easily lodge a complaint, for they are liable to the condo rules.

As every up has it downs, there are some drawbacks to owning a condo. One primary negative is the overall lack of storage. Generally, you have no garage, attic, basement, or backyard storage shed to house those Christmas decorations and other treasures.

Another hefty downside is the monthly HOA fees. For the entire time you own the condo, you will be expected to pay fees. While these go towards upkeep and amenities, it is an added financial burden that one must consider on top of purchase prices. Additionally, you are still responsible to pay your monthly fees even if your condo is entirely paid off.

Finally, while owning a condo means you have many comparable homes on hand for pricing comparison, it also means you have lots of competition on hand for units that are just like yours.
Condos can make ideal and happy homes. Be sure to do your due diligence when researching what community is right for you!