But the reality is that this situation has its advantages. The families that stay in the home post-foreclosure tend to keep the utilities on and maintain the property. They keep the A/C running which dehumidifies the house inhibiting mold growth and they winterize the pipes preventing costly leaks. In addition an occupied home is less likely to be vandalized (broken windows, copper theft) than a vacant home.

The backlog is one factor contributing the situation, the second is the volume of foreclosed properties on the market already. ForeclosureRadar says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.  In addition releasing more cheap inventory into the market will only further diminish the value of the bank;s asset. It pays for the bank to have a family living in the home until a point when the market stabilizes and they can recoup their investment in a sale.

Although the family’s credit now has a foreclosure on it, living rent free has give some people the opportunity to use their mortgage money to pay off other debts, and in some cases even save a little bit of money so that when they move to an apartment or other living situation they have the ability to restart their lives with a small financial cushion.

What is frustrating to many home owners is that financial institutions are doing everything that they can to prevent Homeowners from foreclosing, while large developers are simply handing the keys back over to the banks when thier properties become too much of a financial liability.

RealtyTrac continues to track the increasing number of short sales and foreclosure and the problem continues to weigh down the housing market. As the economy slowly recovers it is my hope that the unemployment rate will drop and with it, the number of families facing foreclosures. The Federal Government continues to put pressure on lenders to modify mortgages through the Making Homes Affordable program, and the program is slowly helping to relieve pressure on families that qualify.

One unforeseen consequence is that the homeowners benefiting from the program may also be taking a 50 to 100 hit on their credit score. The challenge is that lending institutions and banks are reporting the loan modification differently to the various credit agencies. It is this variation in credit reporting that is difference how credit scores are being impacted.

What is important to keep in mind is that a loan modification’s impact on a credit score will be substantially less damaging than a foreclosure or a short sale. In all three cases lenders report the change in credit, but a modification is not reported as a ‘charge-off’. Charge-offs are typically associated with short sales and foreclosures and stay on credit reports for 7 years.  Modification is much preferable to a foreclosure, just make sure you are aware of the potential impacts on your credit.

However Assistant Treasury Secretary Michael Barr says lenders are taking too long to make those new terms permanent. Currently the government says 375,000 homeowners have cut cheaper temporary deals with their mortgage companies. Borrowers are saving an average $576 a month. The impact on the local market may vary. If homeowners can permanently modify their mortgage and stay in their homes it will reduce the number of foreclosures up for sale and help stabilize the property values. As a Cincinnati Realtor the reduction in foreclosures is a key concern. I want to see families stay in their homes and negotiate affordable rates with their banks.

When banks decided to pool mortgages, slice them and dice them, and sell them off in pieces (mortgage backed securities) they generate a substantial chain of ownership that became more complex with each security sale. The process was so complex that buyers of these securities had little knowledge of what was inside, and more importantly they may lack the documentation to prove they actually own the title to the homes that are backing up these securities.

In White Plains, NY a home owner going through a chapter 13 bankruptcy may have gotten some good news courtesy of these complex securities. PHH Mortgage Bank filed a claim for $461,000 against the home owner, and asked for a foreclosure so they could reposes the home and sell it to recover the money. The judge in the case ask PHH to prove they actually owned the Title and mortgage lien, but PHH could not furnish enough proof.

WHY?!? Because PHH purchased the Mortgage lien in the form of a Mortgage Backed Security and it was not able to show a clean paper trail proving their clear ownership of the debt and rights to reposes the property.

HOWEVER!

The ruling says that PHH dose not have the ownership of the debt or rights to the property … but it also did not say that the homeowner has those rights either. In short the house is in limbo. No bank can legaly take the home away from her, but at the same time she does not have clear title and rights to SELL the property to anyone else. To settle the title dispute there are bound to be more court dates and law suits. The real question is how many more cases like this will we see  in the coming moonths and years.

In this current economic climate the possibility of losing your home to foreclosure can be terrifying. Currently there are con artists using mortgage rescue schemes to take advantage of home owners in distress. . The Federal Trade Commission warns that many of these  foreclosure assistance firms claim they can help you save your home and sometimes offer a money-back guarantee.

If you are having difficulties paying your mortgage contact your bank immediately and inquire about the Making Homes Affordable program. Many major banks such as Countrywide (Bank of America) and Wells Fargo are participating and can help you modify your home loan so you can avoid foreclosure.