The Truth About Zombie Mortgages And Foreclosures

Todd Moses
May 22, 2024

Before the 2008 financial crisis, housing prices and the mortgage bond market continued to rise.

Inputs that matter: ATTOM, a leading curator of land, property, and real estate data, recently released its fourth-quarter 2023 Vacant Property and Zombie Foreclosure Report, showing that 1.3 million (1,294,505) residential properties in the United States are vacant.

  • The report also reveals that 320,765 residential properties in the U.S. are in foreclosure in the fourth quarter of this year, up 1.7 percent from the third quarter of 2023 and up 12.8 percent from the fourth quarter of 2022.
  • Among those pre-foreclosure properties, about 8,900 sit vacant as zombie foreclosures (pre-foreclosure properties abandoned by owners) in the fourth quarter of 2023.

The opportunity: "The ongoing strength of the U.S. housing market continues to benefit neighborhoods around the country in so many ways, with the near-total lack of zombie foreclosures standing out as one striking example," said Rob Barber, CEO of ATTOM.

  • "Rising equity flowing from rising home values has not only kept foreclosure cases from spiking since the moratorium was lifted."
  • "It also keeps giving delinquent homeowners a valuable resource they can use to either stave off eviction or sell their homes and move on."
  • "As a result, we continue to see none of the widespread abandonment that followed the housing market crash after the Great Recession of the late 2000s."

Zoom in: In the fourth quarter of 2023, 8,903 residential properties facing possible foreclosure were vacated by their owners nationwide, up from 8,782 in the third quarter of 2023 and 7,722 in the fourth quarter of 2022.

  • "U.S. single-family rent growth strengthened overall in March, though some weaknesses are revealed in the latest numbers," Molly Boesel, principal economist for CoreLogic, said in a statement.
  • "For the first time in 14 years, single-family, attached properties posted a year-over-year decline,” Boesel added. “The continued strength in single-family detached rents indicates that potential homebuyers priced out of the home-purchase market are choosing to rent similar alternatives."

Between the lines: Secondary mortgages are significantly smaller than the primary mortgage used to buy a house as they usually cover the down payment (10% to 20% of the home’s value).

  • They were subordinate to the primary mortgages, where the primary mortgages had the first claim on everything, and the secondary mortgages got whatever scraps were left over.
  • Once home prices crashed after the Great Financial Crisis, these secondary mortgages traded at pennies or fractions of a penny on the dollar.
  • They were believed to be worthless with zero probability of ever being paid back.
  • However, as home prices increased, the investors buying these second mortgages could profit from forcing foreclosures, creating Zombie mortgages.

Follow the money: Meanwhile, the percentage of parents with children under 18 who felt OK financially fell to 64% last year, compared to 69% in 2022, the Federal Reserve reported on Tuesday. This is the lowest level since data collection began in 2015.

  • Meanwhile, the Federal Reserve reported on Tuesday that the percentage of parents with children under 18 who felt OK financially fell to 64% last year, compared to 69% in 2022, the lowest level since data collection began in 2015.

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Read More

  1. https://medium.com/alpha-beta-blog/zombie-mortgages-are-causing-people-to-lose-their-homes-ec2f56092733
  2. https://www.npr.org/transcripts/1197959049
  3. https://www.attomdata.com/news/market-trends/foreclosures/attom-q4-2023-vacant-property-and-zombie-foreclosure-report/
  4. https://www.housingwire.com/articles/single-family-rental-market-continues-to-display-strength/
  5. https://nypost.com/2024/05/21/business/inflation-still-causing-pain-for-americans-especially-parents-fed-survey/