In December 2009, the number of California foreclosure cancellations increased 26.5% to 13,243 mainly due to increased loan modifications. For the first time ever, the number of foreclosure cancellations surpassed actual bank REO (Real Estate Owned) foreclosure sales in which the properties revert back to their respective banks if no third (3rd) party bidders purchase them at the final Trustee's Sale on the courthouse steps.
In 2009, lenders had to discount the opening bids at the final Trustee's Auction Sale by almost 40% in order to potentially attract investors as the existing mortgage debt typically exceeded the true market value in many cases. I saw many properties go to final Trustee's Sales recently in which the existing mortgage debt was over $ 1 million, but the current market value price ranges were closer to $600,000 so these discounted opening bid numbers do seem realistic to me.
Yet, the vast majority of Trustee's Sales across the state had very few true buyers who actually showed up to purchase the properties. In almost 97% of the foreclosure auctions last year alone, there were no bidders who purchased these properties with all cash (or 3rd party private financing). As a result, the foreclosured properties typically ended up back with their respective bank or mortgage loan servicer.
Over 80% of all scheduled Trustee's Sales were postponed at least one time last year as well as lenders were trying to delay the huge "wave" of non-performing and foreclosure properties from hitting their "books" in too short of a time period. I have seen many properties scheduled for final Trustee's Sale be postponed for up to one or two plus years as well.
Under the new HAMP (Home Affordable Modification Program), the U.S. Treasury provided financial incentives to mortgage loan servicers to provided new modified work-out loans for their existing borrowers. In the last few months of 2009, there were approximately 30,000 permanent loan modifications which were completed primarily due to the HAMP program.
The increase in loan modifications by way of the HAMP program is a major reason why there was such a big increase in foreclosure sale cancellations (as opposed to just "postponements") in recent months due to the loan modification work-outs with lower interest rate, payment, and reduced principal amounts in some cases.
As I have noted several times in the past, many banks must set aside up to $8 dollars for every $1 dollar loss tied to foreclosure losses. Many banks are currently low on their own cash reserves just as most borrowers are today as well. In many cases, banks maintain close to 1% of their bank deposit funds in actual cash reserves which typically equates to ATM money and minimal bank vault cash.
Partly due to how banks leverage their customer's bank deposits via the U.S. banking system's "Fractional Reserve System" which allows them to leverage their investments up to 10 to 50+ times their actual bank deposits, the continued financial problems in the U.S. banking system make it challenging for many banks to either take back more foreclosed properties, or to make new loans to their customers.
As the Credit Crisis continues onward, there are some incredible investment opportunities if you know where to look, and if you know how to find the cash to get in and to get out of the property as soon as possible so you may realize your gains sooner rather than later.
We continue to provide our clients both the targeted investment data which finds the best discounted foreclosure properties as well as we may provide them with a large portion of the capital (debt and equity money) to buy the foreclosed residential or commercial properties.
For more information, please send me an email or call me today.