Forclosure Moratoria Muerte

Loan owners have been squatting in the houses they cannot afford for the past year. The HAMP program and various threats from the govt that the banks should "do more" to keep loan owners in their houses has produced a backlog in the foreclosure process.

Instead of being evicted for not paying their mortgages, loan owners have been squatting rent free living in a house they could not otherwise afford. This has kept the number of distressed properties on the market down to a minimum, and in turn, helps artificially support housing prices. Why? Foreclosures drive down housing prices 1st by soaking up buyers that might have otherwise purchased more expensive homes (more expensive, but not higher quality) and 2nd by lowing the "comps" for houses. Comps are important in setting the appraised value of a property; a bank will only loan 80% of the appraised value, not of the listing value. If someone wants to buy a house at 110% of its appraised price, they have to put down a larger sum... eventually, houses sell for what they are worth.

So: we had three programs directed at keeping housing prices high. 1) The home buyer's tax credit (which expires in 12 days). 2) the Fed's $1.25 Trillion MBS purchasing program to lower interest rates (which expired in March) and 3) the HAMP program designed to keep deadbeat loan owners in their homes and those homes off the market.

The third program seems to have done all it can. Now banks are beginning to foreclose.

IrvineRenter has been doing some spectacular reporting. First, a guest post from CalculatedRisk's haiku writer, Soylent Green Is People, about the end of HAMPs efficiacy: The Debt Star has cleared the planet. Then a quote from Bank of America's OREO department: BoA will increase its foreclosures this year by 600% over last year. (NOTE: this is really a 500% increase; 2010's rate will be 6x that of 2009's.) This tidbit was picked up by patrick.net and CalculatedRisk


Then March foreclosure data is released: RealtyTrac: March Foreclosure Activity Highest on Record

It's finally happening.

How does this relate to Chapel Hill?

Let's take a look at two google maps (both at the same zoom level). Homes in default/REO/foreclosure status in Chapel Hill, and Homes in default/REO/foreclosure status in Durham.



Above: distressed properties in Chapel Hill.



Above: distressed properties in Durham

When I first started looking at Google Map's foreclosure listings, I noticed right away that there were many more. From there I made the prediction that Durham prices would erode quickly, and that Chapel Hill prices would erode, too, but more slowly. That prediction was half right. What I wasn't counting on was the moratoria to keep all of Durham's delinquent loan owners in their homes for so long. I'm not following Durham very closely, so I can't say for certain that the distressed properties today are the same distressed properties from last year.

But I have been following the distressed properties in Chapel Hill. If you look at the properties in Chapel Hill that are distressed, you'll notice 19 of them are the the same properties from last year. (There are ~25 total; so there have not been very many more properties that have become distressed either). The loan owners have been squatting. Their homes have not been foreclosed and their properties have not come to market.