Pipeline

Return to Sender

In another tale from the annals of foreclosure gaffes, Bank of America Corp. sent nearly 5,000 Oregon residents letters wrongly claiming they were behind on their property taxes and at risk of foreclosure.

According to a story in The Oregonian last week, BAC Tax Services Corp., part of the bank's home loan servicing division, erroneously issued the letters to customers in 14 counties in the state.

Bank spokeswoman Jumana Bauwens told the paper that the letters went to customers who pay taxes in installments. The last installment was due May 15 and some customers wait until the very last minute to pay. The bank mistakenly counted customers whose payments were outstanding at the end of April as delinquent, the article said.

Apparently, this wasn't the first time BAC Tax Services has made such an error. In December, about 1,100 residents of Clark County, Wash., received erroneous delinquency notices, according to The Columbian.

Fading Shadow

New data from CoreLogic shows that the country's so-called shadow inventory, or distressed real estate that is not yet listed for sale, has declined, dropping to 1.7 million units as of April from 1.9 million units a year ago.

"It shows that pipeline distress is improving," said CoreLogic senior economist Sam Khater. "And the reason that is important is that distressed sales are currently what are driving price declines."

At the current rate of sales, the shadow inventory represents a five-month supply, CoreLogic said. Of the 1.7 million units, 790,000 are seriously delinquent, 440,000 are in some stage of foreclosure, and 440,000 are real-estate owned properties, or owned by lenders.

Not included in the shadow inventory are 2 million seriously underwater loans that are more than 50% or $150,000 upside down, making it extremely difficult to sell those homes.

"This is another layer that is sitting behind the shadow," said Khater. "It is hard to quantify how many of those will default, but if you are upside down by 50% or more, the prospect of that homeowner being right side up anytime soon is very low."

But Khater sees reason for some optimism. "Two years ago what was driving price declines was a combination of a heavy flow of distressed sales and economic distress," says Khater. "But the economy is not in freefall the way it was in 2008 or 2009, so it is good news."

Hands-On Candidate

A mayoral candidate in Tucson, Az., is taking the housing crisis into his own hands, seizing foreclosed homes owned by Fannie Mae and Freddie Mac in an effort to help homeowners get their property back.

The aptly-named Marshall Home of fringe political group Independent Rights Political Party Trust has been running around changing locks, booting real estate agents and posting "Do Not Trespass" signs on more than a dozen homes in the metro Phoenix area, The Arizona Republic reported Friday.

The 80-year-old candidate has filed what are known as special-warranty deeds with the Maricopa County Recorder's Office, but experts contend the documents aren't valid, the article said.

A Fannie Mae spokesman was quoted as saying that the government-sponsored enterprise has not authorized the transfer of any of the properties in question.

Registered as a Democrat, Home is considered a long-shot candidate. His opponents are trying to get him expelled from the race due to a criminal record, the paper reported. But Home told the paper he will continue to seize homes even if he is not elected.

Necessary Raise

Failure to raise the debt ceiling could have devastating effects on the housing market, wrote David Min of the think-tank The Center for American Progress, in a report released earlier this week.

The impact of a government shut-down would fall most significantly on first-time, moderate income and minority homebuyers who depend upon the Federal Housing Administration for help in buying a home, he wrote. Because it is deemed a "non-essential" government service, in the event of an extended federal budget stalemate, the FHA would be forced to freeze its lending activities.

With private mortgage financing almost non-existent, struggling borrowers have become much more dependent on the FHA in the loan approval process. Currently, the FHA is the only major source of financing that accepts loans with down payments of less than 20%. The FHA accounted for about 40% of all purchase mortgages through the third quarter of 2010.

Minorities stand to get hit the hardest. The FHA accounted for nearly 60% of African American home purchases and 61% of Latino home purchases in 2009, the last year for which such data was readily available.

An FHA shutdown would be felt most significantly in certain geographic areas. Neighborhoods trying to climb out of the foreclosure crisis would get clobbered, Min wrote in his report, which was released Monday.

Sun Belt states — California, Nevada, Arizona, and Florida — could suffer disproportionately if the tap is turned off at the FHA, he said.