Foreclosures at All-Time High, Buyers Are Bargain Hunting

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Foreclosure rate dropped by about 5 percent in first half of 2010While experts predict that the rate of foreclosures in 2010 will exceed those in 2009, there is some good news. RealtyTrac, an Irvine, Calif.-based data company, reported that the foreclosure rate dropped by about 5 percent during the first half of 2010.

Still, in the first quarter of the year, one in seven mortgages was delinquent or in foreclosure. That's the highest rate since 1979, when the Mortgage Bankers Association began keeping records. Foreclosures remain high in several states, including Florida, California and Arizona. In Michigan, one in every 237 homes is in some stage of foreclosure, a number that is expected to grow.

On the upside, that means a lot of deals are out there for homebuyers who have the patience and energy to tackle buying a foreclosed home.
Foreclosure prevention programs are not working as well as the Obama administration had hoped. The Making Home Affordable Program had 96,000 trial modifications canceled by lenders in July, bringing the total number of canceled modifications to 616,000 since the program was started in February 2009. The total number of modifications that have been made permanent is 422,000.

The government isn't giving up on trying to help people stay in their homes, although it is looking for borrowers who will be most likely to continue paying a renegotiated mortgage. It will kick off another program for homeowners in September. Dubbed the "FHA Short Refinance" option, it will allow those who are underwater on their mortgages to refinance into an FHA-backed loan, as long as they are current on their mortgage and their lender agrees to write off at least 10 percent on the loan. Those who apply must have a credit score of 500 or better.

Even with these efforts by the government, as well as by individual banks to get borrowers to pay on their loans, there are still a lot of foreclosed properties just waiting to be bought. The shadow inventory of homes -- those that have been repossessed by banks or are in default and will be offered for sale -- was 7.3 million in the first quarter of 2010.

Which means that between the rock-bottom prices of some homes in foreclosure and today's low mortgage rates -- right now, the average rate for a 30-year fixed-rate mortgage is about 4.5 percent -- people with steady jobs, good credit and a 20 percent down payment will find some bargains.

Among those who are taking advantage of low prices are professional investors, who are snapping up properties at public auctions, to refurbish and resell the homes, or for use as rental properties.

But individuals, especially first-time buyers who don't have to sell a home in order to purchase a new one, are finding foreclosures to be a good deal. Josh and Amanda Brandt found their dream home when they made an offer of $129,000 on a short-sale for a home in Fuquay-Varina, N.C.

Others believe that home prices will continue to slide as the number of foreclosures stall the housing market. They are looking, but they are not in a hurry to buy. "We're still watching prices drop," Marion Lasswell, who lives near Raleigh, N.C., told Bloomberg News. "[We won't buy] until there is an awesome deal."


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