There is enough information floating out there for everyone to know that foreclosure can be devastating with many negative repercussions in our lives.  Most who are in this situation will have to endure numerous adversities:

1. Having your foreclosure show up on public records for 10 years
2. Having to declare your foreclosures on all future loan applications
3. Deficiency claim exposure to the lenders for their loss
4. Dramatic decrease in your credit score
5. Being unable to qualify for a new home purchase for a minimum of 5 years

Besides these misfortunes, there is now another very troubling consequence which is especially onerous in these difficult times when people are looking for jobs.  In California where the unemployment rate is still above 11%, people seeking jobs need any advantage they can muster up to gain an edge over other job seekers.  If they had to endure foreclosures, it seems now the cards are further stacked against them.  It’s bad enough that a person would have lost their home to foreclosure, now that unfortunate circumstance may prevent them from getting a job.  Here is another reason to choose Short Sales over Foreclosure for homeowner who are having trouble paying their mortgages.

We’ve been told by our researchers at CDPE for a couple of years now that employers were using foreclosure records to eliminate candidates, but the attached video and article puts some hard data behind the warning.   According to the video, it seems 60% of employers are now pulling credit reports on all employment candidates and using the information in their screening and hiring decisions.

Can Bad Credit Keep You From Getting a Job_ – CBS News
In California, Governor Brown just recently signed AB 22 which prohibits employers from using credit reports in their decisions to hire employees, with some exceptions as mentioned in the video.   It states:

“New Labor Code section 1024.5 limits when private and public sector employers, except for financial institutions, lawfully can use consumer credit reports in connection with hiring and personnel decisions. Specifically, employers are permitted to use consumer credit reports only if the individual is applying for or works (or will work) in the following positions:

• a managerial position (as the term elsewhere is defined by California law);
• a position in the State Department of Justice;
• a sworn peace officer or law enforcement position;
• a position for which the employer is required by law to consider credit history information;
• a position that affords regular access to bank or credit card account information, Social Security numbers, or dates of birth, provided, however, that the access to this information does not merely involve routine solicitation and processing of credit card applications in a retail establishment;
• a position where the individual is or will be a named signatory on the bank or credit card account of the employer and/or authorized to transfer money or authorized to enter into financial contracts on the employer’s behalf;
• a position that affords access to confidential or proprietary information; or
• a position that affords regular access during the workday to the employer’s, a customer’s or a client’s cash totaling at least $10,000.”

It  seems there are a lot of  jobs that fall into these exception categories, as any type of customer service or  financial institution jobs or law enforcement jobs or any managerial positions  would seem to fall within the scope.  During these difficult economic times, interviewing prospects would probably would want to eliminate  any obstacle which would prevent them from getting on the short lists of candidates being considered for positions.  Having a foreclosure show up on your credit report and the employer questioning your integrity or reliability would certainly not be helpful in getting on that short list.

Finally, some news that paints a true picture of how the Financial Crisis has made many decent homeowners unfairly portrayed as dead-beats.  As a San Jose Short Sale Agent, I see many many people who through circumstances outside of their control, fall into economic catastrophes from which they are unable to recover.  The  ones I see most are unemployment or reduction in income,  negative equity preventing homeowners from getting better interest rates when their ARMs reset,  and unforeseen medical bills.

People who fell so far behind and are facing foreclosure or seeking short sale to avoid foreclosure are generally not bad people (of course there are those who try to work the system), they just suffered some tragic economic hardships.   Most of  these clients struggle for a long time before coming to the conclusion they cannot pay their mortgages.   And I believe the TransUnion finding is finally vindicating many of  them from being incorrectly labled as dead-beats.

Foreclosure Victims

Foreclosures share of California sales inches down in April « HousingWire

According to Dataquick,  in April 2011, distressed properties accounted for 54% of all sales. Mind you that your local neighborhood numbers will differ, but this gives an insight into where the market is headed.   Because California still has a higher than the National average in unemployment rate of 12.3%, versus 9.0% for the nation,   people who are having trouble meeting their mortgage obligations will continue to present itself as a serious problem.  Silicon Valley’s unemployment rate was 10.3% in Santa Clara County and 8.4% in San Mateo County.

The direct correlation between unemployment rate vs. foreclosure is quite obvious.   Until we can address this issue of 12.3% of our fellow Californians who want to work but cannot find a job, we cannot resolve the housing crisis and start discussing the prospect of  increase in housing prices.

A company called Local Market Monitor (LMM) tracked home sales activities in cities with populations over 500,000 and then “analyzed key economic factors that directly affect housing markets: unemployment and job growth rates, as reported by the Bureau of Labor Statistics.”  They made predictions about which would be top 10 cities where home values would increase in 2011 and which would be the bottom 10 cities where home values would decrease in 2011.

Well with Facebook and Google going on a hiring rampage, it seems not very surprising that the largest city in Silicon Valley would come out performing well on this survey, but what was surprising was that San Jose came out in the number one position. California performed very well by placing top three cities, while Florida performed very poorly by placing 7 cities in the bottom 10.

See the list of cities in the link below.

http://finance.yahoo.com/real-estate/article/111915/the-best-and-worst-cities-for-home-values-in-2011?mod=realestate-buy

Once again, with poor economic forecast and what I consider to be the twin pillars of  real estate distress (unemployment and negative equity) continuing to remain problematic in most of the country; and the Federal Government’s HAFA program being encouraged for those who cannot qualify for loan modifications or were victims of dual track foreclosures, we should hardly be surprised that Short Sales are increasing in popularity in California and the rest of the country.   It simply makes financial sense for a lot of homeowners, lenders and investors at the moment.

What we have learned from the article below is that short sale transactions have tripled since 2008 and California accounts for about 25% of all short sales in the nation. Until we eliminate these distressed properties from competing in the marketplace with normal, non-distressed properties, we cannot expect the housing sector to come out of its current funk.

We all wait with hopeful anticipation of positive long term housing news which seem to elude us in favor of uncertain or often times confusing short terms trends.   Depending on the day of the week, we can get information that we are heading in the right direction or in the wrong direction. No one can predict with any amount of certainty whether we are out of the housing slump or not.

As I have said over and over, like a broken record, until and unless we can address the unemployment issue, the housing sector will not come out its current mess. Those people who are out of a job are more willing to give up their homes and those who have jobs are afraid of being laid off and will not consider buying a new home or moving up to larger homes.  So we have a situation where the unemployed are unloading properties, but the employed who can afford to buy are too afraid to buy.   It’s a sticky mess we are in.   Unfortunately, add to that the issue of  what many call the shadow inventory, and we are looking at many years out into the future where distressed properties will continue to affect the real estate space in a negative manner.

Yes, Short Sales will continue to soar in California, but that is not necessarily good news.

http://www.latimes.com/business/la-fi-short-sales-20100811,0,7193924.story

“But don’t cheer about the slight gains in the past three months. Most of the improvement comes because so many people lost their homes to foreclosure “

The twin pillars of destruction in the real estate market still remain: high unemployment and negative equity.  As long as the homeowners do not see the light at the end of the tunnel, they will be more inclined to walk away from their homes.

http://money.cnn.com/2010/08/09/real_estate/fewer_underwater_borrowers/index.htm

“California’s WARN law requires certain companies with more than 75 employees to provide 60 days advance notice of a plant closing or mass layoff involving 50 or more employees.”

Go to the link above and type in your company’s name and city to see if there is a planned layoff.  I think it is better to have a bit of advance notice rather than be  taken by surprise.

Unfortunately, foreclosures are no longer reserved for the sub prime borrowers.  Now it has spread to the mainstream.  All too often, it takes a few of bad months before the borrower falls so far behind, they are unable to catch up.

Besides job loss, catastrophic medical expenses is another common reason why homeowners are unable to make their mortgage payments.  This is a why we should have health care overhaul to make sure people are not forced into foreclosures or bankruptcies because of medical expenses.  The saga this family is living is being repeated by many other families here in Silicon Valley.

From Jeff Geoghan MBA – Lancaster PA Real Estate Expert (The Jeff Geoghan Realty Group, Coldwell Banker Lancaster PA):

This is one of those posts where I wish I didn’t have to write it, but felt it was so important to my readers that I would be remiss not to at least talk about it.

Everyone out there probably knows somebody who is behind on their mortgage payments, looking for alternatives and likely also just finding out that their home’s value has dipped below what their loan amount is.  I know some within my own personal circles.  It’s a tough situation for me to advise them as a professional because it’s such a personal challenge to their pride and self-worth, not to mention their plans and dreams for the family. The question we’re asking is “when is this going to stop and where are we heading?”

I’m going to put up a few graphs that show the trends nationally with regards to mortgage delinquincies:

This chart is by quarter – Single-family mortgages set a new record delinquency rate in the second quarter of 2009, according to a quarterly survey by the Mortgage Bankers Association. Those of us in the real estate business see the foreclosure process (just visit the local Sheriff Sale docket to see the current numbers) but the looming delinqency-to-foreclosure issue is far, far larger.

The Wall Street Journal on 8/3/09 reported the following quote: “While subprime mortgages sparked the first round of housing problems two years ago, now “troubles are lurking further up the food chain,” says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. ‘You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,’ he says.”

The first objection someone may have would be to say “yes, but historically those who are delinqent usually get their act together and come current on the mortgage after a while”.  That WAS true, but not anymore!  We call that the “Cure Rate”, that is the rate of delinquencies that go back to current.  The Wall Street Journal reported on 8/24/09 about a Fitch analysis that found that the Cure Rate from 2000-2006 was 45% (which means about half of people fix their delinquency).  However, as of July 2009 the rate had dropped to just 6.6%!  That means that over 90% of delinquent customers are going to foreclosure.  Take a look again at the above chart…

The next thing someone will say is “well, that’s the ‘sand states’ and not my area”.  Here’s the chart for all 50 states showing the same breakdown of delinquencies and foreclosures.  Guess what – most states have a significant problem, especially compared to historical figures.

Now the next thing someone may say is “aren’t those loans going to get ‘fixed’ by a loan modification?” I know several people right now who are applying for a Lancaster County loan modification but are waiting and waiting.  I hope it works out for them…

In reality, loan modifications are hardly making a dent. To me, that’s a burning question.  Why arent banks being more aggressive in giving customers the option to extend their loan and/or reset to a lower rate?  Why are they being SO difficult? The people I know don’t want to be foreclosed.  They CAN make payments.  They just need the terms redrawn to allow them to catch & keep up.  Loan modifications are not helping us get this crisis under control.

What are the causes of all these delinquencies?  Here’s a chart that is enlightening:

We hear a lot about adjustable rate mortgages being the culprit, but the reality is that it’s the loss of jobs and the tanking real estate market that’s the perfect storm.  See my previous post on unemployment in the nation, the state and Lancaster County.

Keep in mind, this post is not intended to give us “good news”.  You may be experiencing good things in your market and that’s great.  My intent is to get us thinking about the challenges that aren’t going away and how we’re going to address them as homeowners, agents and professionals.  I’d love to hear your ideas!

I first pulled all of the particular types of property (either Single Family Residences or Condo/Townhomes) which were in active status  today in Santa Clara County.  Then I pulled from all of the same properties the ones that were identified by the listing agents as Short Sale and as REO (bank owned properties) to get the results.

The numbers were significant, but a bit less than I had anticipated.

Single Family Residences – Total Distressed Properties represented 26% of the properties for sale.

Condo/Townhomes - total distressed  properties represented 33% of the properties for sale.

Given the high rate of unemployment in California and the current status of the Alt-A and Option ARM loans resetting in the coming months, I believe, unfortunately,  this number will steadily increase.