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Foreclosure wave averted as housing doomsayers defied: Mortgages

When banks pulled back on foreclosures two years ago following a government investigation into allegations of faulty practices, market researchers, academics and Wall Street analysts said that a surge of delinquent homes would deluge the U.S. market once lenders resolved the claims and worked through backlog, driving down prices for years to come. RealtyTrac Inc., a seller of property data, warned a year ago of a “new set of incoming foreclosure waves.” Susan Wachter, professor at the University of Pennsylvania’s Wharton School, said in February that a logjam may be “unleashed” and destabilize the market.

In fact, the flood failed to materialize, even after the five biggest U.S. mortgage servicers reached a $25 billion settlement with federal and state regulators in February. Instead, the number of properties for sale shrank to the fewest in a decade, prices appreciated at the fastest pace since 2005, and the gradual healing of the housing market helped boost consumer confidence and the economy.

“We don’t have enough homes now to meet the needs of the market,” Paul Jacobson, a Stockton native and real estate broker for 22 years, said as he cruised the city’s northern fringe, where suburbia meets farmland. “People see a foreclosed home for sale in this area and they’re going to jump on it.”

Bank Deals

Banks have stepped up foreclosure alternatives to avoid legal challenges. They’re forgiving debt, modifying payment plans and approving short sales that allow homeowners to sell for less than they owe.

The federal government, criticized by consumer activists for failing to prevent more than 4.7 million homes from being lost to foreclosure or short sales since President Barack Obama took office in January 2009, is also helping to stem the crisis. Expanded loan-modification programs have gained traction, and the Federal Reserve has kept bank interest rates near zero. Investors including Blackstone Group LP and Colony Capital LLC are purchasing thousands of foreclosed homes in bulk before they even hit the market, further limiting new supply.

With the unemployment rate also coming down, concerns are fading that a deluge in foreclosures will destabilize the housing market as it recovers from a six-year slump.

‘Wrong’

“Many of us, myself included, feared a wave of foreclosures when the settlement came,” Wachter, professor of real estate and finance at Wharton in Philadelphia, said in a telephone interview. “I was wrong.”

Slowing the foreclosure process has allowed banks to avoid booking losses on non-performing loans, said Joshua Rosner, an analyst with Graham Fisher Co. in New York. U.S. banks reduced their net charge-off rate on mortgages to 0.77 percent in the second quarter, the most recent available, from a high of 1.81 percent at the end of 2009, according to data Rosner compiled. That drop occurred as the rate of non-current loans declined to 9.77 percent from 10.15 percent in late 2009.

Article source: http://www.washingtonpost.com/business/foreclosure-wave-averted-as-housing-doomsayers-defied-mortgages/2012/11/29/e5f5063a-39e4-11e2-9258-ac7c78d5c680_story.html

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