Are We in for More of the Same in 2009?

The foreclosure database RealtyTrac® recently released its market report for November 2008. The report stated that foreclosure filings (defined by RealtyTrac as bank repossessions, default notices, and auction sale notices) totaled 259,085 properties for the entire USA. 393 of these foreclosures were reported for the state of Hawaii.

Of the 393 foreclosures reported for Hawaii, 214 were on Oahu, 86 on the Big Island, 74 on Maui, and19 on Kauai. The Big Island total consisted of 34 in Kailua-Kona, 13 in Hilo, 12 in Pahoa, 10 in Waikoloa, 7 in Keaau, 5 in Waimea, and just 1 in Volcano. 

These statistics are quite similar to October, 2008 when RealtyTrac reported 197 foreclosures on Oahu, 103 on the Big Island, 71 on Maui, and 24. 

Breaking down the Big Island foreclosure data further, 44 were in Kailua-Kona, 25 in Pahoa, 15 in Hilo, 6 in Waikoloa, 1 in Holualoa, 1 in Honokaa, 3 in Waimea, 1 in Keaau, and 1 in Kapaau. 

These numbers are significantly larger than a year ago, when there were just 113 foreclosures for all of Hawaii, including 41 on the Big Island, in November 2007. 

"Foreclosure activity in November hit the lowest level we've seen since June, thanks in part to recently enacted laws that have extended the foreclosure process in some states, along with more aggressive loan modification programs and self-imposed holiday foreclosure moratoriums introduced by some lenders," said James J. Saccacio, chief executive officer of RealtyTrac. 

"There are several indications, however, that this lower activity is simply a temporary lull before another foreclosure storm hits in the coming months."
Saccacio stated that delinquencies on loans not yet in foreclosure jumped to almost 7% in the third quarter of 2008, which, according to the Mortgage Bankers Association, is a record high.

"More than half of the homeowners who received loan modifications to reduce monthly mortgage payments in the first half of 2008 are already delinquent on their loans again, according to the U.S. Office of Thrift Supervision," Saccacio said. "Many of these delinquencies could turn into foreclosures next year."

Banks typically do not want to go to foreclosure, because it is expensive for them. Foreclosure is usually a last resort, and most lenders are engaged in various types of loan modification programs to try to keep the borrower in the home. Loan modification can consist of things like having payments postponed, reducing the principal owed, or making adjustments to the loan (i.e. lower interest rates or a longer term for the loan).

Hawaii lenders, such as Bank of Hawaii, typically experiences a lower number of foreclosures due to policies which avoided many of the "sub-prime" mortgage issues.

Hawaii real estate agents are limited in the amount of help they can offer someone facing foreclosure, due to the Mortgage Rescue Fraud Prevention Act (Act 137), which passed in June. The law is intended to protect homeowners in financial difficulty from people wanting to steal their equity.

Due to the new Hawaii law, local real estate agents are reluctant to speak with lenders on their Seller clients' behalf (because if they do, they may incur significant risk and liability). Before Act 137 was passed, a bank was likely to put off foreclosure if they know the property is being marketed for sale. Now the home's owner must speak with the lender directly. It is possible that Act 137 will be revised in early 2009 to remove language regarding real estate agents, which will allow agents to assist homeowners without fear of being sued based on language in Act 137.

One positive outcome of this foreclosure activity, is that first-time home buyers are getting into homes that they wouldn't have been able to afford before. There is an increase in buyer activity on Hawaii Island compared to three months ago, and a portion is due to "short sale" and foreclosure sales.

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