Depending on what news you follow and what topics interest you, CNBC announced that Bank of America is increasing its foreclosure activity. The release indicated that Bank of America is delivering more notices of default to borrowers in August, well over 200 percent more than in previous months. (A notice of default is the first stage of the foreclosure process in non-judicial foreclosure states, that is, where foreclosures do not go before a judge. The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the so-called "robo-signing" processing scandal and the sheer volume of troubled loans, as noted in the CNBC article.)
Many things have contributed to this change in policy by Bank of America, but nonetheless, given this shift, the near-term future holds the likely prospect of further downward pressure on housing prices in already challenged markets as new foreclosures come raining down. As those new foreclosures come raining on markets already saturated with distressed properties (short sales, foreclosures, bank-owned houses) and little to no change in the demand side of the equation...aka, there is no corresponding increase in buyers, the impact is on price. So, while this is BAD news in the short term, it is exactly the medicine a doctor would order to cure a disease. Namely, pass the proverbial kidney stone so you can get back to some sort of normal life.
What does that mean? Well, it definitely means no recovery in 2012 and possibly (and maybe even likely) continued price erosion for the next couple years, which further translates into more homeowners being underwater. The cycle goes on...much like the voluminous flooding we've seen ravage parts of our country this past summer.
The foreclosure rain is coming, might be time to take cover.
Michael Hobbs, PahRoo Appraisal & Consultancy