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default servicing in print and online @ dsnews.com 09.2012
Everyone
wants a housing
recovery and
some even say
it's happening,
but can the
recovery
last under
a house
divided?
STATE OF THE INDUSTRY
As we pull out of the depths of
the crisis, it's time to face the
inevitable changes and bring
to light the new 'normal' for
housing in America.
SAVE IT OR SCRAP IT?
Time may be up for the age-old
(and oft-maligned) mortgage
interest deduction as the ticktock of impending tax reform
grows louder.
STORM CHASERS
Real estate agents are
committed to advancing
the housing recovery and
shrinking the industry's
ominous inventory of
distressed properties.
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PRO TECK EXAMINES
RELATIONSHIP BETWEEN LTV
RATIOS AND FORECLOSURE
Pro Teck Valuation
Services released the
results of a preliminary
study in late November
examining distressed
real estate for three ZIP
codes in Connecticut,
New Jersey, and New
York. The company observed 5,021 properties
that entered what Pro
Teck labeled "Stage 1 of
distress" between April 2005 and July 2012.
Pro Teck defines Stage 1 of distress as any
property with a value equal to less than 95 percent
of its outstanding loan balance.
According to Pro Teck's analysis, the median
amount of time properties spent in distress was
three years. However, more than 20 percent of
properties remained distressed for more than
five years.
The situation for many
distressed properties
Pro Teck observed was
exacerbated by declining
home prices. The average
home value among the
properties included in the
study was $270,000, as estimated by an automated
valuation model.
After becoming
distressed, a property's
value fell more than 25 percent on average, Pro
Teck found. The company also concluded that the
probability of foreclosure peaked during either the
second or third year of distress.
Loan-to-value (LTV) ratio is "a key driver"
in the transition to foreclosure, with higher
LTVs aligning with higher probabilities of
foreclosure, according to Pro Teck. Based on
its distressed real estate study, the company
says in the first year of negative equity,
properties with an LTV of 125 percent had
just under a 15 percent chance of going into
foreclosure. Properties with an LTV of 200
percent had just over a 40 percent chance of
falling into foreclosure.
Pro Teck also found that while probabilities
varied between the three ZIP codes, the relationship between time spent in distress and probability of foreclosure remained relatively constant in
all three observed locations.
When Pro Teck examined the probability of
foreclosure based on LTV ratio, results suggested
a much stronger relationship between the two
variables in the Connecticut and New Jersey
ZIP codes versus New York. Pro Teck explained
variations in foreclosure laws could impact the
relationship, as well as "the years and the circumstances in which these various properties entered
the inventory."
The overall outcome of the 5,000-plus properties studied as of July 2012 was 4 percent ended
in foreclosure, 5 percent exited as a short sale
or regular sale, and 89 percent still remained in
inventory as a property in negative equity.
Pro Teck intends to continue to study the
transition from negative equity to REO status in
more depth and across more markets.
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