Utah County Foreclosures - Then and Now - Part 2 of 3

That was a bit of a lengthy break in our discussion and one for which I am personally grateful.  This time away has given me some time to really review the previous climate of the market and put together a much briefer synopsis of the market from 2009 to 2010.  So, brace yourself for some whirlwind statistical dissemination and then the wrap-up.

As we know from part 1, things began to appear dismal in 2008 as Utah rose up the foreclosure chart rankings like the Beatles climbed the record charts in the 1960's.  Utah "gained" rank on the other states as we often do, following a bit behind the national trends.  From 2008 to 2009 we experienced another 83% rise in foreclosures year-over-year, totaling 27,140 foreclosures.  So, 2008 brought a 52% increase over 2007's foreclosure figures, and 2009 brought an 83% increase over 2008, leaving everyone wondering how it could possibly get any worse...  

Now, as the foreclosure rates began to rise we started to see some very interesting changes to the overall market climate.  As you remember from the "Crisis of Credit" video we were beginning to see the "strategic foreclosure" rates rise as upside down homeowners began to walk away from the properties they had committed to paying for as agreed based on the market climate in which they originally purchased their property.  Concurrently with the rise in "strategic foreclosures" the TARP money from the bailout hit the market and by June 2009 a whopping 9 banks, including JP Morgan Chase, had paid back the money they had taken for bailouts.  Other banks and lending institutions still saw record breaking gains as some of the highest payouts for private corporation salary bonuses were awarded to many of the top executives that pioneered the policies and procedures that led to the market bust to begin with.

Now, rather than taking the money received from the TARP funds to keep homeowners in their homes, the banks began another round of "creative financing" and invested the TARP money into high yield stocks and other investment vehicles, thus yielding the record breaking bonuses mentioned already.  This is where it begins to get really sticky.  Unlike with property, the gains the banks and bankers saw on these investments would be subject to huge amounts of federal taxes as capital gains increase.  In order to offset these gains they had to show considerable losses and had to figure out how to make the foreclosures they were pursuing pay off for them, yet again.

So, the banks began reporting the fair market value (FMV) of the properties they had foreclosed on as being far below the face value of the note they had just foreclosed upon.  EX:  My mortgage is for $245,000 and I fell behind on my mortgage.  The bank proceeds with foreclosure and successfully forecloses and resumes ownership of the property.  They then report the FMV of the property as $165000, a loss of $80k, and then actually sell the property for $155,000, a total loss of $90,000.  The bank was then able to use this $90k loss to offset the gains they had received on the investments from the TARP funds, washing their tax liability clean yet again.  Think about it... 27,140 foreclosures in Utah in 2009.  If the average loss claimed was even only $100,000 that would be $2.7billion in gains the banks could begin to offset.

This doesn't even take into account deficiency judgments and other remedies the lending institutions still have available to come after the defaulted homeowner down the road.  This is just the immediate offset.  So, we have a situation where banks are actually intentionally driving the prices of homes lower than they needed to be and tightened their purse strings on new loans to ensure that the market dips to the point where their capital gains issues go away, all at the cost of the taxpayers and homeowners whose TARP funds from our tax dollars were paid to "save" them in the first place.  I hope you're beginning to see the forest for the trees here.

So, again, an 83% increase in 2009 foreclosure activity and another increase in 2010!!!  Utah maintained it's position as the 5th leading state in foreclosures in the US in 2010 boasting an additional 20% increase in total foreclosures over 2009.  In 36 short months Utah home prices fell a full 30%.  A home previously worth $300,000 had lost $100,000 in market value and that is where we find ourselves today...

Enjoy this entertaining clip of one home owning couple that decided to take on the banks and won... and stay tuned for part 3!



Written by Brian C. Andersen - Realtor, Property Manager - www.UtahHomes4me.com - (801)687-1812