Prediction: Spike in Foreclosures Coming

Posted January 12, 2012 in by

Prediction: The number of home foreclosures in 2012 will increase compared to last year. Here is just one example of the kinds of foreclosure-related stories you’ll hear in 2012. What else can you expect? Read on for our 2012 foreclosure predictions.

In search of a warmer climate, the Ward family decided to relocate to Birmingham, Ala., from Chicago in 2006. They found a home, made a down payment of more than $28,000 and signed a lease-to-purchase agreement at the suggestion of their local real estate agent, who was managing the property. Two years later, the couple was shocked to learn the real estate agent had pocketed more than $35,000 rather than turning it over to the mortgage company. To compound the problem, the Wards learned this only after the agent died in July 2008.

Now the couple—which has never missed a payment—is facing foreclosure, eviction and the loss of their life savings. They share their story in a poignant YouTube video. But they’ve found advocates in an unlikely place: Occupy Birmingham, an offshoot of the Occupy Wall Street movement. The group is rallying people to the Ward’s support and camping out on the couple’s front yard in an effort to pressure Bank of America, which is planning to sell the house at auction later this month, to let the couple keep the house they call home.

Spike in Foreclosures Coming

Foreclosures fell in 2011 in the wake of the robo-signing scandal. But experts say 2012 will again bring an increase in the number of foreclosures. As evidence, they point to a sharp uptick in the number of default notices mailed to delinquent homeowners in recent months.

A notice of default is the first step in the foreclosure process—which can often drag out months or even years. In August 2011, the number of default notices jumped 33 percent compared to July.

“The big increase in new foreclosure actions may be a signal that lenders are starting to push through some of the foreclosures delayed by robo-signing and other documentation problems,” RealtyTrac’s CEO James Saccacio told CNBC in September. “It also foreshadows more bank repossessions in the coming months as these new foreclosures make their way through the process.”

 

Prediction: Banks will flood the real estate market with newly foreclosed homes, further depressing real estate prices.

A glut of foreclosed homes are expected to go on sale in 2012, which experts predict will keep real estate prices low in many parts of the country.

According to the most recent S&P/Case-Shiller Home Price Indices, as of October 2011, nationwide house prices were, on average, lower than they were a year earlier.

In December, ABC News discussed the latest housing price news with Patrick Newport, economist with IHS Global Insight. Newport said the 2010 robo-signing scandal probably contributed to an uptick in housing prices during the spring and summer of 2011, since fewer foreclosed homes were going on the market. Now that foreclosure activity is on the increase, Newport predicts housing prices will continue to fall in 2012.

 

Prediction: Borrowers with some types of sophisticated mortgages may face increased foreclosure risk.

Attorney David P. Leibowitz of LakeLaw in Waukegan, Ill., says he’s particularly worried about homeowners who took out five-year adjustable rate mortgages in 2007 and will see their rates begin adjusting in 2012. In particular, he says, those who opted for a sophisticated version known as an Option ARM may be at higher risk of default and foreclosure in 2012.

The Option ARM is often pitched to borrowers with a very low introductory teaser rate. At the same time, borrowers may also opt to pay less interest than they actually owe. Every five years, the mortgage is recalculated, that unpaid interest is added to the balance and a new monthly payment is calculated. The end result can come as a shock to homeowners—particularly those who have seen steep drops in the value of their homes. Realizing their property is under water, or worth less than they owe on the mortgage, some homeowners with Option ARMs may opt for strategic default, a type of foreclosure where the homeowner walks away from the home even though they can afford their monthly payments.

 

Prediction: The Occupy movement will expand its presence—by occupying foreclosed homes.

The Occupy Wall Street movement began as a protest against big banks and their executives who enrich themselves at the expense of everyday Americans. Now, Occupy Wall Street, a squatting group known as Organizing for Occupation (O4O) and host of other groups are teaming up to launch a campaign spotlighting the foreclosure crisis in the United States. And you’ll be hearing a lot about it in 2012.

“O4O teams up with Occupy Wall Street and others to launch a campaign called Occupy Our Homes, a public showdown against the big banks and housing authorities,” Josh Harkinson wrote recently in Mother Jones. “They intend to disrupt foreclosure auctions, unveil secret squats, and announce further plans to defend foreclosed-upon homeowners from eviction in some 20 American cities.”

 

Prediction: There will be a drop in the number of homeowners who become delinquent in their mortgages.

For homeowners who are already delinquent on their mortgages, the forecast is pretty grim: Mortgage companies will crack down and demand you make up missing payments or face foreclosure.

But for homeowners who have managed to stay current with their payments, the news is more positive: The economy shows signs of strengthening and unemployment rates are dropping. The bottom line: The average American stands a better chance of being able to afford to make their mortgage payments.

“Delinquencies will go down, but foreclosures will go up,” predicts Trulia Chief Economist Jed Kolko in a December blog post. “Fewer borrowers will fall behind on their payments in [2012], thanks to the strengthening economy and refinancings.”

 

Prediction: Politicians running for office will spend a lot of time talking about foreclosures—and the plight of everyday Americans—in the run up to the election.

But as is often the case, the campaigning will be a lot of talk, but little action. The one exception: State attorneys general will pursue newsworthy settlements against banks and mortgage servicing companies involved in foreclosure abuses.

Take, for example, Nevada Attorney General Catherine Cortez Masto, who’s already gotten a $40 million settlement with Morgan Stanley and a $45 million settlement from Wells Fargo, with other cases still pending. Other state attorneys general—who often want to be seen as consumer advocates—are also working to defend their state’s citizens who were victims of mortgage and foreclosure fraud.

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