Friday, November 21st, 2008 at 7:21 AM
Foreclosure Paralysis
The foreclosure process is grinding to a halt.
First it was the new state law that gave homeowners 30 days of relief to see if they could get counseling and a loan modification. But apparently that wasn’t enough.
Fannie and Freddie jumped on the bandwagon yesterday, suspending foreclosures from November 26th to January 9th, in order to try their hand at loan modifications. Under their program, the new primary mortgage payments—including taxes and insurance—shouldn’t total more than 38 percent of homeowners’ pretax monthly income.
They join IndyMac, JPMorgan Chase, and a host of others who have stopped foreclosure proceedings. Their stated intent is to offer loan modifications to as many borrowers as possible, but it sure seems like lenders wanting to be seen as playing nice, in order to get their share of TARP money.
From this week’s Marketwatch article on IndyMac’s efforts:
For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment and more than half end up delinquent after several post-modification payments, Lender Processing Services told the analysts.
The FDIC’s broader modification proposal assumes a re-default rate of roughly 33% — about 2.22 million mortgages would be altered to avoid 1.5 million foreclosures, according to the plan. The government would share up to half of the losses from re-defaults with lenders and investors.
To qualify for the plan, borrowers would need to make six consecutive payments. This eliminates early-payment defaults – a trend that has inflated industry-wide default data, FDIC spokesman Andrew Gray noted.
Bair said on Tuesday that the FDIC’s IndyMac efforts have already prevented “many foreclosures that would have been costly to the FDIC and to investors.”
Under the FDIC, IndyMac has mailed more than 23,000 loan modification proposals to borrowers, and will mail over 7,000 more soon, Bair added. That’s in addition to more than 5,000 mortgages that have already been modified.
On average, the modifications have cut each borrower’s monthly payment by more than $380, or 23% of the monthly payment on principal and interest, she reported.
It appears that the loan modification march may help a few folks, but foreclosures should get back on track next year. There are asset managers at Countrywide working weekends to try and catch up with the existing bank-owned inventory – giving homeowners a foreclosure vacation will at least allow for the REO departments to hopefully catch up.
But it might also give BofA and others a chance to create a national platform to centralize their REO liquidations (it’s been bandied about). Doing so would create a(nother) middleman, and further de-sensitize the sales of REOs.
It would probably mean that Robot Realty would gain more traction, and only the big REO realtor teams will be listing the bank-owneds.
Here are the stats from the four larger REO realtor-teams that we’ve been following:
2007
Jun 11 – 328 Actives/98 Pendings = 3.35
Aug 21 – 382 Actives/111 Pendings = 3.44
Sep 20 – 425 Actives/97 Pendings = 4.38
Nov 9 - 486 Actives/128 Pendings = 3.80
Nov 25 – 484 Actives/138 Pendings = 3.51
Dec 14 – 446 Actives/147 Pendings = 3.03
2008
Jan 15 – 474 Actives/149 Pendings = 3.18
Feb 7 - 482 Actives/187 Pendings = 2.57
Mar 13 – 477 Actives/205 Pendings = 2.33
Apr 18 – 467 Actives/247 Pendings = 1.89
May 13 – 418 Actives/298 Pendings = 1.40
June 10 – 344 Actives/288 Pendings = 1.19
June 27 – 261 Actives/261 Pendings = 1.00
July 30 – 169 Actives/195 Pendings = 0.87
August 21 – 121 Actives/147 Pendings = 0.82
November 21 – 48 Actives/40 Pendings = 1.20
Their inventory says it all – the foreclosures have dwindled, and been spread around to many agents. Having more agents handle the REOs should mean that the properties get more attention, and sell quicker – and for more money.
A national platform that used just the big teams could result in less attention and a tougher process to buy them, but it might mean the prices would have to reflect it – and be lower.
It could be a glimpse of the future of real estate too.
I’m not looking to be a big REO realtor-team. We are properly staffed and can handle our share, but my primary focus to help assist buyers who come from reading the blog.
We’re going to keep working the REOs though, for as long as they last. I received my first Carlsbad property from Countrywide (a condo), and I also got my first REO assigned from WFB!
Posted on Friday, November 21st, 2008 at 7:21 AM in Foreclosures/REOs | 16 Comments » | 
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More delays by the banks while Congress hands my tax dollars out. The whole thing makes me sick.
shadash | November 21st, 2008 at 9:51 amSo people can stay in their houses for the holidays. All it does postpone the inevitable.
ToadB | November 21st, 2008 at 10:23 amMaybe Congress can “turn off the stock market” while they are at it until 1/9/09 too! Fix housing and financial woes in one move!
doughboy | November 21st, 2008 at 10:48 amThe longer they hold out the more they will lose. By they I mean the taxpayers.
Anyone see the Dow? I guess I’ll wait for mid 1990′s prices. Nominal, of course.
Genius | November 21st, 2008 at 10:48 amIf you haven’t paid your mortgage for 14 months, let’s give you a 15th month and see if it’s the miracle cure. Many workouts simply default again after the first payment – it’s called free rent. If my landlord said I could have another 6 months of free rent if I just paid up for 1, I’d take him up for sure.
BDiego | November 21st, 2008 at 11:33 amAnd so those of us who have been waiting for the housing market to re-align will wait a lot longer. I ain’t gettin’ any younger! What a conundrum this is becoming.
Joe Renter | November 21st, 2008 at 12:03 pmWhat’s amazing is that RENTERS are paying a larger percent of their paycheck to taxes. Yet they’re the one’s getting screwed by the bailout.
Talk about a “protected” class
shadash | November 21st, 2008 at 12:23 pmI see. Throwing 10 falling knives a day wasn’t working so they’ll be saving up and dropping 1000 knives all at once.
Rob Dawg | November 21st, 2008 at 12:23 pmNow that foreclosures are taking so much longer (i.e. costing an extra $10K-$15K each), I’m surprised banks are still willing to lend. The whole concept of lending is you either pay us back or we take collateral. When you remove or depreciate the collateral, the lender ought to stop writing new loans, have you put up higher collateral, or make you pay upfront for the premium.
BDiego | November 21st, 2008 at 5:29 pmLenders are tightening standards on new loans but loosening them on old ones? Seems a bit counter-productive, no? Why lend more, in effect, to people who have shown that they should not have received money in the first place, while, of necessity further restricting the supply of mortgages to relatively well qualified (new) borrowers? Won’t the pressure from Congress, etc. to “bail out” existing borrowers just tend to further harm the housing market? In the extreme, if everyone with a loan can get better terms, but no one without a loan can get one, then we have no housing market.
Rational expectations | November 21st, 2008 at 6:39 pmHow fast real estate returns to normal in California is directly related to whether I end up staying in the state or not.
Delaying the declines is only going to push more people out of bubble states, which will make the market even worse.
Carnap | November 23rd, 2008 at 3:34 amLoan modification is a process whereby a home owner’s mortgage is modified and both the lender and homeowner are bound by the new terms of the new mortgage. The most common loan modifications are listed below:
lowering the mortgage interest rate
reducing the mortgage principal balance
fixing adjustable interest rates within the mortgage
increasing the loan term throughout the mortgage
forgiveness of payment defaults and fees
or any combination of the above
A loan modification is a permanent change in one or more of the terms of a mortgagor’s loan, it allows the mortgage loan to be reinstated and results in a payment the mortgagor can afford.
Check out our Public site at http://LOANMODIFICATIONMORTGAGE.ORG
beachdude | November 23rd, 2008 at 10:04 ambeachdude,
Thank you for your informative post. One thing we’ve been hearing a lot about from the PTB is the “re-worked” mortgages that will have a reduced payment (usually via lower interest rate)…but it’s only temporary. IOW, they are trying to use the very same loans that got us into this mess in the first place (ARMs and hybrid ARMs, etc.).
At what point will they finally stop pushing foreclosures into the future, so we can finally bottom and rebuild from scratch? Until we are rid of ALL the excesses, we cannot build a healthy, efficient economy that sustains real growth over the long run.
CA renter | November 23rd, 2008 at 3:07 pmI think he’s a spammer?
Jim the Realtor | November 23rd, 2008 at 5:45 pmLOL! You’re right, Jim. My bad.
CA renter | November 24th, 2008 at 2:09 amJim, I do agree with you. It must happen to rebuild. It seems like the current generation does not want to upset anyone and they want to take care of everyone. What ever happen to the hard work and hard knocks. There are cycles to everything especially markets. Maybe more people need to go to business school.
beachdude | February 18th, 2009 at 6:36 pm