Rising interest rates, home prices at never-before-seen levels, and inflation all play into the recent jump in foreclosures. Foreclosures happen when a homeowner stops making payments toward a property, and the institution (such as a bank) that financed the property steps in through legal action to take over the property and then sell it to recover all or a portion of its investment.
Some foreclosures are known as Real Estate Owned (REO) properties. They have gone into foreclosure, didn’t sell at auction, and are now owned by the original banker or lender. Other foreclosures come from government agencies. HUD homes, which are owned by the US Department of Housing and Urban Development (HUD), result from mortgages insured by the Federal Housing Administration (FHA) that go into default.
According to SoFi, which published Foreclosure Rates For All 50 States in August 2023, Indiana ranked ninth in the US for foreclosures. According to their data, Indiana’s foreclosure rate was one in every 3,084 homes. The Greater Fort Wayne Business Weekly also published a report in late September that stated, “Foreclosure activity in the US is on the rise. In the first six months of the year, default notices, scheduled auctions, or bank repossessions, increased by 13% compared to the first half of last year, and by 185% compared to the first six months of 2021, according to land, property, and real estate data provider ATTOM.” The Midwest was represented in the top-ten list of metropolitan areas (Elkhart-Goshen, Chicago, and Cleveland) with the highest foreclosure ratios.
In Northeast Indiana, however, prices have climbed so much that the area has few foreclosures at this time. Rachel Blakeman, Director of Purdue Fort Wayne’s Community Research Institute, said: “The job market is strong, so people who want to work can work. We are much more stringent in getting mortgages approved now than we were 15 years ago. Also, the (Allen County) housing market may not be white-hot anymore, but it is red-hot, and so if you can sense that you’re starting to get behind on your mortgage and you need to get out of the house, you can probably sell the house relatively quickly. Depending on how long you’ve owned the house, you’re probably not underwater.”
Blakeman said the 2008 housing crisis has changed the way mortgages are managed. “I think what people are concerned about is that we’re being set up for a repeat of the last problem that we had. We’ve put in measures that will help us not have that problem, but we don’t know what our next problem is so we don’t have the measures to keep that from happening. We were very concerned about foreclosures and having surplus inventory, and now we’re in a situation where we have not enough inventory and an affordability problem that we’ve never had before. People are very concerned about the housing market, and justifiably so, but the data just aren’t telling us that we’re in any sort of crisis.”
What Help is Available for Those Who Face Foreclosure?
Resources for homeowners facing foreclosure vary according to location, and HUD provides information organized by state. Hoosiers can refer to the Attorney General’s office and the Indiana HUD resources if they face foreclosure and need assistance. In addition, some Realtors, such as Mike Childs of South Carolina, provide information and instructions about how to handle foreclosures on their websites.
Nonprofits can help, too, although their resources may not stretch as far after Covid funding runs out. For instance, the Indiana Homeowner Assistance Fund (IHAF) just announced that applications are being placed on a waiting list after October 20, 2023. Stephen Enz, the Director of Real Estate Data and Policy for the IHAF, said: “Applications submitted… will be processed when sufficient additional funds are available. Because the assistance is made in the form of a forgivable loan with a forgiveness period of five years, some funds will be returned to the program and will allow additional awards to be made. As the program draws to a close, IHCDA (Indiana Housing and Community Development Authority) will increase its support and facilitation of the counseling activities provided by the Indiana Foreclosure Prevention Network. The network’s member agencies have been active throughout this program and a similar previous program called the Hardest Hit Fund. Whereas financial assistance for households is available for a limited time, the counseling provided by the agencies will continue to be accessible across the state for years to come.”
How (and How Not) to Find Foreclosures
Data from the St. Louis Fed showed that the average US home price grew from $315,600 in the second quarter of 2018 to $416,100 in the second quarter of 2023, a 32% increase. In addition, the 30-year fixed rate mortgage average, which dictated the price of borrowing, increased from 4.55% to 6.71% in that same time period. These circumstances have created an estimated 80% of Americans that cannot afford to buy a home. To work around the high costs, they may consider buying a foreclosured property. However, veering away from the traditional market and the Multiple Listing Service (MLS) that real estate professionals use has its challenges.
For example, as of October 2023, the HUDHomesUSA.com website listed over 1,100 properties in or near Fort Wayne. Listings included foreclosures, pre-foreclosures, or simply properties at a “Hot Bargain Price.” Asking prices ranged from Still Unreasonable to Pre-Pandemic to Cheap.
Distressed properties like these may not show up in a regular internet search. Specialized websites fill this vacuum and allow real estate shoppers to see what isn’t listed on the traditional market or the MLS. But to obtain access, users have to provide their personal data, set up a login, and pay a membership fee on a monthly or weekly basis. These costs tend to run from $40 to $50 per month. Sites may offer a free or discounted trial for new users, but can be difficult to cancel.
After users set up memberships and access, these websites prompt users to connect their credit scores to their profiles for financing purposes. This requires entering a Social Security Number online, for an unknown lender or lenders.
With all these paywalls, charges, and data-grabs in place, potential users may not wish to compromise their privacy to find a home, and with good reason. According to Broker in Charge Mike Childs, who runs Childs Real Estate out of Myrtle Beach, SC, “The site (HUDHomesUSA.org) is a lead generation site. It is not affiliated with the government or HUD in any way. Its primary function is to collect contact information from visitors looking for a potential ‘bargain’ home.”
To access the data directly, he referred his Quora followers (and everyone else on the internet) to HUD Homes for Sale at hudhomestore.gov. After a user sets up a profile and agrees to the terms and conditions, they have access to articles and resources to help would-be homeowners learn more about the process of searching for and buying a HUD home. The HUD website also includes resources for real estate brokers and lenders.
Childs also recommended hiring a Realtor, who “can provide you with a list of what’s already been foreclosed on, and that the bank has put back on the market for sale.” In addition, reviewing civil proceedings and filings on a county website, such as Allen County’s Sheriff Sales page, could provide a better picture of what foreclosure properties are available.
Real estate and financing professionals must apply for and become part of the HUD program to be involved in the sale of HUD properties. Users can protect their data by applying for financing through the approved lenders directly instead of taking a chance on pop-ups from for-profit websites.
What Happens Next?
As pandemic-era funding ends and market forces collide with reality, Americans may face rising foreclosure rates for a while. Industry news is starting to report on the possible changes ahead for real estate. Typing “residential real estate” into a search engine delivers videos like this warning by Warren Buffet on MHFIN’s YouTube channel about an impending housing crash and Fortune’s article about a turbulent housing market. A recent discussion between Sachs Realty’s Todd Sachs and Mortgage Analyst Melody Wright covered mortgage defaults, which lead to foreclosures; they are expected to increase in the near future. Wright said, “In many ways, I think what’s happening is we’re going to play out GFC (Great Financial Crisis) all the way out.” She noted that one factor was, “anywhere between six and 15 million vacant homes, essentially, that are mainly second homes… The Philly Fed did a great paper on non-owner occupancy fraud, and what I’m hearing—and I hate to even say this—but a lot of FHA and VA borrowers, especially in places like Hawaii, were using those programs to buy short-term rentals. And they signed those occupancy affadavits. But the Philly Fed kind of looked at when you’re looking at loans that are bought, for speculation, for investment, that 30% of that activity is fraud. And that’s been persistent since the last crisis.”
In a recent article, The Real Deal Real Estate News estimated the number of vacant housing units in the 50 largest metropolitan areas in the US to be about 5.5 million. This is slightly lower than Melody’s estimate, and would equal an 8% housing vacancy rate. If property owners can’t lease them or afford to keep up with expenses, these vacant or rarely-used properties could be sold, thus increasing the housing supply. However, unless prices fall to affordable levels that a typical earner could afford, this would not benefit most potential homeowners. Many could be sold at the market rate; only properties with mortgage defaults would end up in foreclosure.
Most real estate brokers and agents have little to say about foreclosures in the current housing market. Many have said that the area where they work is (still) a seller’s market; that they only originate loans and have no experience with foreclosures; and that they’re unfamiliar with the foreclosure process. Due to the foreclosure moratorium for USDA loans that ran from 2021 through 2022, and because foreclosure rates are much lower than what they were during the Great Financial Crisis, this may be true for the moment. However, if current trends continue, foreclosures could become a bigger part of the housing market in the coming years.
Gabi Lorino is a writer, editor, and organizer of people and words. Her feature articles and short stories have been published in newspapers, newsletters, magazines, websites, and books. She has self-published one book, A Magical Time Called Later, in addition to a journal series, and has edited short story anthologies.