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From cnbc.com: http://www.cnbc.com/id/39873678/

A new survey by Pew Research says 36 percent of Americans believe walking away from their mortgage is perfectly acceptable. We want to know if you would ever simply leave your mortgage and your home behind.

Tell us what you think. Share your opinion:

Total Votes: 2267

From Diana at cnbc.com:

(S)everal speakers at the forum said several scary things about housing and foreclosures. Mark Zandi of Moody’s Economy.com is looking for a hybrid version of Fannie and Freddie, or a mortgage market more privatized but with government backing. He said that if the mortgage market were fully privatized, mortgage rates would go up at least one percentage point and home prices would drop ten percent.

Laurie Goodman of Amherst Mortgage Securities put up some truly scary charts about non-performing loans and, with a flurry of numbers I couldn’t follow, said that without government intervention about 11 million more borrowers could lose their homes.

“Equity is the single most important determinant of default, not unemployment,” declared Goodman. This as a new report from CoreLogic this morning showed home prices dipping over 5 percent nationally in December, year-over-year.

“The key thing for investors to look at right now is what’s going to open up for them, what part of the playing field is going to open up where they can actually step in and be part of the mortgage market again,” said Armando Falcon, chairman and CEO of Falcon Capital Advisors, on a bit of a brighter note. “And that’s clearly going to be for the jumbo prime mortgage sector.”

From HW:

Whether they like it or not, the nation’s banks control most of the country’s shadow inventory, according to a report Friday from Morgan Stanley.

Even more, properties in imminent default are typically cheaper homes with prime mortgages. The analyst adds that their findings buck conventional wisdom that these homes are either concentrated in the slums of Detroit, or prevalent amongst cardboard cutter McMansion neighborhoods.

The shadow inventory, they say, is the biggest problem for average Americans living in the nation’s major cities.

And, what’s more, the homes are more and more being controlled by the banks, as opposed to Fannie Mae, Freddie Mac or private securitization trusts.

“While agencies certainly maintain control over a large portion of the shadow inventory at just over a third, we can see that the majority of the control over delinquencies is in the hands of the banks, and their share has increased over the past year,” reported Oliver Chang, James Egan and Vishwanath Tirupattur (see chart below):

“This may be because borrowers are becoming delinquent at a faster rate for bank-held loans, but checking transition rates for each controlling party, we do not see a significantly larger change in transitions into delinquency for bank-held loans,” they added.

Of the shadow inventory, 75% are valued below $250,000, showing that McMansions have a small share of delinquencies (see below chart):

Further, the shadow inventory is growing across all of the United States. The analyst expect that more than 8 million liquidations are in order over the next five years before housing stabilizes.

“While hard-hit cities represent a more than fair share of shadow inventory, its distribution broadly encompasses all corners of the country,” said the analysts.

The liquidation of subprime early on in the recession is now being replaced by later delinquencies in prime collateral. The shift in collateral is making the supply imbalance worse for the best part of the credit spectrum.

CoreLogic said in September that based on the shear number of prime mortgages in the market, that foreclosure and delinquency rates would steadily tick upward. Compared to the less than 3.5 million subprime, there are about 40 million prime loans in the marketplace, 6.2% of which were 60 days delinquent in June 2010 and 3% of which were 90 days delinquent.

“We do see a slowdown in liquidation rates of bankheld loans, suggesting that the increasing share of shadow inventory is due to banks holding onto their delinquent loans longer than agencies or private securitization trusts,” they said.

From HW:

Notices of default, the first step in the California foreclosure process, dropped 17.5% in the fourth from the year before, but the decline may not have come from borrowers improving their financial situation, real estate data provider DataQuick said.

Lenders recorded 69,799 NODs at California county offices in the fourth quarter, down from more than 84,000 in the fourth quarter of 2009 and the lowest level since the second quarter of 2007.

“We don’t know how much of the decline is due to less household financial distress, and how much is due to shifts in lender and servicer foreclosure policies,” DataQuick President John Walsh said. “The level of default activity would certainly be higher if it weren’t for alternative strategies such as short sales, or even lengthening grace periods.”

More than half of the homes in California that received an NOD in the last 18 months have been foreclosed on or sold through a short sale. The status of the other half isn’t clear, DataQuick said, but they should be in the modification or short sale process.

“The institutions that hold these loans in their portfolios will do whatever it takes to lessen their losses, including waiting,” Walsh said. “An additional factor is all the turbulence when it comes to the formalities of the foreclosure process.”

From Diana Olick at cnbc.com:

I have argued many times that just because a loan is underwater (value of loan is higher than value of home) it doesn’t necessarily mean that the borrower will stop making timely payments.

Yes, the incentive to abandon the home is there, but for most homeowners, their home is their community, their daily life, and not just an investment. Most probably think the value will come back over time, and unless they desperately need to move, they have no reason to stop paying.

Amherst analysts disagree with me. “Borrower equity status is the single most important predictor of success,” they claim. To explain their premise, they use two definitions of performing loans: A “successful” loan is one that is always performing, re-performing or voluntarily prepaid. A “clean success” takes out the re-performing loans. Here’s what they found:

For loans with equity, 88.9% were successful after 2 years, and 84.4% represented a clean success.

For loans with CLTV >120, only 53.6% of loans were successful and only 40.9% represented a clean success.

We talk a lot about the shadow inventory of foreclosed properties overhanging the market and weighing down inventories, but the inventory of potential new defaults is clearly high; that potential, even with steady economic recovery, exists and must be factored into the equation.

The latest home price reports are not good, and even though sales appear to be bottoming in some markets, prices always lag. Also, many of the sales are foreclosures (around 30 percent), so that knocks the price recovery premise on its head as well.

I checked the tax rolls by owner name to find the detached properties currently owned by lenders – there were only 1,991 of them, which is about how many detached properties sell every month.

Don’t be alarmed, the pushpins are the size of a city block until you zoom in – and you can select ‘satellite’ or ‘hybrid’ versions in the top-right corner.  Scroll around and notice how few are in the North SD County Coastal region:

An excerpt and graph from Calculated Risk, click here for the full article:

This graph from CoreLogic shows the breakdown of “shadow inventory” by category.

For this report, they estimate the number of 90+ day delinquencies, foreclosures and REOs not currently listed for sale.  CoreLogic estimates the “shadow inventory” (by this method) at about 2.1 million units, and when combined with the visible 4.2 million, the total national inventory is about 200,000 higher than last October’s 6.1 million properties:

JtR: The plague has spread thanks to the servicers telling borrowers that they have to be delinquent to be considered for a loan mod – they are pushing people into default.  

Even borrowers with good intentions may come to enjoy not making payments, and the inevitable delays and frustrations cause them to give up altogether – once a borrower with any hardship goes six to twelve months without making payments, it has to be addicting.  I’m surprised the group (in red above) has been shrinking lately!