December 6, 2010

Hatteras Island Real Estate:  Making sense of foreclosure moratoriums


With recent headlines like “More Bad News in Robo-Signing Scandal,”  “The States Take on Foreclosures” and “Bank of America to Freeze Foreclosure Cases,” it is often a challenge to place current events in a meaningful context. 

To foster an understanding of the issues, here are some of the realities concerning foreclosure moratoriums.

  • Moratoriums on foreclosures are not new.  They have been occurring periodically since at least the fourth quarter of 2008 when Fannie Mae and Freddie Mac declared a freeze on foreclosures to give the government time to develop a response to problems in the housing market.
  • Foreclosure freezes have a cyclical pattern. Usually, foreclosures will slow down in the fourth quarter of the year. Banks don’t like to have families losing their homes during the holiday season, and they try to avoid the bad publicity associated with such actions. You can anticipate that foreclosure activity will once again pick up after the start of the New Year.
  • Moratoriums are almost always followed by periods of increased foreclosure activity. Freezes do very little, if anything, to solve the foreclosure problem – they simply delay it. I often think the historical stop/start pattern of foreclosure activity is like being in a traffic jam on the freeway.  You come to a complete stop. Then you speed up, only to slow down or stop again.
  • Lenders and states sometimes initiate moratoriums themselves. A good example is the current “robo-signing” scandal where hundreds of foreclosure documents were being signed each day by untrained employees without proper review. This particular freeze was further motivated by pressure from the attorneys general in 50 states for lenders to investigate their foreclosure records.
  • The major positive impact of moratoriums is that they give homeowners in distress some extra time to work out their problems. For example, a homeowner facing foreclosure may have more time during a moratorium to acquire a buyer for their property.
  • Foreclosures can be expected to impact the housing market for a long time. The shortest estimate that I have heard is two years, and the longest is eight years.  My personal opinion is that foreclosures will be a prominent factor affecting the real estate market for about five years.

Another important aspect of understanding foreclosure moratoriums is to identify and to dispel common myths.

  • A foreclosure freeze is not a “get out of my mortgage free card” as some homeowners believe. There may be individual cases where this occurs because of flagrant errors by the lender, but they will not be widespread.
  • “I will own my house free and clear.”  In simple terms, this is not going to happen. Mortgage debts are not going to be wiped away as a result of the current investigations.
  • “Because of the moratorium, I don’t have to do anything about a pending foreclosure. I have plenty of time.” While it is true that a freeze on foreclosure activity does grant a temporary reprieve, the moratoriums can end very quickly as we are seeing in the case of the robo-signing debacle.
  • “The moratorium is a sign that the government will step in soon to help pay or take over my mortgage.” Again, this is not going to happen.

With this national perspective as background, let’s take a look at the patterns that we are seeing in the Hatteras Island real estate market.  The following chart shows the level of foreclosure filings between the first quarter of 2008 and the third quarter of this year.

As you can see, our local trends mirror the national patterns fairly closely.

I also think it is interesting to note that the robo-signing scandal that has been featured so prominently in press reports and newscasts has had very little, if any, effect so far in Dare County. That may change in the future if the North Carolina Attorney General decides to pursue some of the technical aspects of exactly who has the legal right to foreclose on a property – the mortgage servicing company or the actual owner of the debt.

In summary, there is currently a record level of distressed properties across the country.  The number of homeowners who are in the foreclosure process or 90 days past due on their mortgage payments is almost equal to the number of new sales projected for the year. Moratoriums, whatever their motivation or justification, do not solve the foreclosure problem. They simply push it into the future, slowing down the prospects for recovery in the real estate market. They do, however, provide owners in distress with a little more time to resolve their problems.

(Tom Hranicka is an associate broker with Outer Beaches Realty. Questions, comments, or suggestions for future articles may be sent to Tom Hranicka at P.O. Box 237, Avon, NC  27915, or e-mail to [email protected] )
Copyrightę2010 Tom & Louise Hranicka.  All rights reserved.

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