I think this shows the ineffectiveness of loan modifications. Since last November the government has enacted the biggest loan-mod program in the history of the world, and yet there were only 51 additional cancellations Y-O-Y?
Foreclosure sales have been canceled at an increasing rate as loan modifications take hold, according to ForeclosureRadar, a Stockton-area data company that monitors California’s distressed housing market.
For San Diego County, the daily cancellation count increased nearly a third, from 34 in October to 45 last month. There were 741 cancellations in October and 824 in November. In November 2008, there were 773 cancellations.
Meanwhile, 1,283 foreclosures became final last month, down from 1,346 in October and up from 1,115 in November last year.
“We’re probably going to see a wave of cancellations rather than a wave of foreclosures as some have been predicting,” said Sean O’Toole, founder and CEO of ForeclosureRadar.
Statewide, the daily cancellation rate rose 40 percent, based on a total of 8,741 in October and 10,469 last month. November 2008’s figure was 8,302. The daily rate is pegged to the varying number of business days in each month.
Peter Dennehy, senior vice president of Sullivan Group Real Estate Advisors in San Diego, said fewer foreclosures would improve the housing market, at least in the short term.
“We’d have a healthier housing market if we had a better economy and better job prospects and if people are actually able to pay their mortgages,” he said. “It’s not one thing or the other.”
While foreclosures typically carry low prices, Dennehy said first-time buyers often cannot compete against investors or get loans for as-is properties that banks will not pay to repair.
“What we really want to see is normal people buying and selling homes at all levels of the market,” he said.
Under pressure from the Obama administration, banks have been delaying or canceling foreclosures while they work with borrowers to modify their loans or arrange for short sales — selling homes for less than the outstanding mortgage balance. The latest effort, called the Home Affordable Modification Program, offers a cash incentive to lenders and borrowers to come to an agreement that results in a lower monthly payment, tied to borrowers’ income, for five years. At the end of the period, the monthly payment rises to amortize the mortgage over the remaining life of the loan.
A foreclosure moratorium imposed by the Legislature last year caused a spike in cancellations, as well, O’Toole said.
O’Toole, who sells foreclosure data to investors, government agencies and lenders, said that in the short term, fewer foreclosures could help stabilize the housing market and prompt nondistressed property owners to sell and buy another home.
“I think that very well is something that we’ll see unfold in the first couple quarters (of 2010),” O’Toole said.
But he believes many owners are holding back because of continued distress by other owners. If too many of those homes are lost to foreclosure, prices overall might tumble and generate less money to nondistressed sellers.
“That’s faulty logic on the move-up-buyer side,” O’Toole said. “For move-up buyers, if that happens, the value of their home falls further, but that doesn’t really matter” because they would presumably make up the loss by getting a lower price on the new home they buy.
In the long term, O’Toole said, delaying foreclosures through loan modification is likely to postpone the day of reckoning for many owners. That’s because their home values may not bounce back sufficiently by the time their modified loans reset. At that point, they will face higher payments on mortgages that still exceed the market value.
“So, actually, I think in many cases, like bankruptcy, it’s not a fun process to go through, but (foreclosure) cleans out the problems and gives people a chance to come back and start over,” he said.
Speaking of San Diego’s prospects, O’Toole said the area may be relatively strong in terms of the economy and stabilizing home values.
According to MDA DataQuick, San Diego County foreclosures by all lenders totaled 11,393 from January through October, down from 15,414 for the same period last year.