NSDCC Distressed-Sales Gap

The gap between SD distressed and non-distressed pricing appeared to be widening yesterday.

Can we get a glimpse of what to expect for the rest of the year by analyzing the current pendings and contingents? How do they look around North SD County’s Coastal region?

We only have the list prices to consider, but you can see that the gap is substantial.

Detached-Home Pendings and Contingents in NSDCC

Town or Area # of Non-Dist. LP Avg. $/sf # of Distressed LP Avg $/sf
LJ/DM/SB/CV/RSF
165
$565/sf
62
$347/sf
CDF/ENC/CSBD
237
$328/sf
118
$262/sf

Will lenders ramp up their short-sale approvals to close out the books for the year?

It would make sense, especially with the California Homeowners Bill of Rights taking effect on January 1st, which will give homeowners (and their attorneys) more tools to fight.  If you are selling, it would be a great time to lower your price to sell now, before nearby distressed-sales start closing around you.

For those who have specific concerns about where these properties are located, here are the lists of detached short sale and REO listings that are pending or contingent. Note that the days-on-market meter does not stop running until a contingent listing is put into pending:

List of Pending and Contingent REOs and Short Sales
List of Pending and Contingent REOs and Short Sales – CDF-ENC-CSBD

32% Justify Strategic Default

Here’s another ivory-tower type who doesn’t look hard enough to see that what’s needed is market cleansing.  

The housing crises seems to have led Americans to take a less critical view of strategic default.

According to a recent survey that polled 1,026 U.S. adults, 32 percent stated they believe homeowners should be able to strategically default without facing consequences. The online survey was conducted by JZ Analytics on behalf of ID Analytics.

ID Analytics also reported 13 percent of the surveyed Americans said they are likely to strategically default on a mortgage, and 17 percent said they know someone who has strategically defaulted.

The statistics were revealed Wednesday at ID Analytics’ Advance 2012 conference.  John Zogby, senior analyst at JZ Analytics and creator of the Zogby Poll, presented the results at the event.

“Our research into the consumer opinion of the economic crisis of 2008 found alarming results,” Zogby said. “What jumped out is how many Americans feel it is acceptable for homeowners to walk away from a mortgage and go into foreclosure. If Americans carry on with that mindset, it will continue to cause problems as the economy undergoes a slow recovery.”

Some of the survey respondents justified their position on strategic default because they believe the “mortgage market has been a scam for many years, built on false promises that took advantage of people that didn’t understand what was happening,” according to a release.

Low credit scores don’t appear to bother people very much as well, with 36 percent of those surveyed stating they believe it’s socially acceptable to have a poor credit score.  In addition to those findings, 17 percent said they would exaggerate personal information to obtain credit.

http://www.dsnews.com/articles/survey-finds-32-of-americans-believe-strategic-defaulters-should-not-face-consequences-2012-10-04

REO/Short Sale Notes

BofA conducted a realtor seminar today on REOs and short sales.

Some of the highlights:

1.  Short sales average three buyers per closing (average two fallouts before the third one sticks).

2.  18% of short sales have some elements of fraud.

3.  They forgive deficiencies on all first mortgages in California, and most second mortgages.

4.  Of those foreclosed, 30% never attempt a loan-mod or short sale (strategic defaults).

5.  Nationally, REOs sell for 12% less than short sales.

More commentary on REO sales:

Easy on the Cheese

From HW:

Few, if any, borrowers strategically defaulted to take advantage of mortgage servicer relief under the $25 billion settlement struck in March, according to Fitch Ratings.

In fact, the percentage of current underwater borrowers moving to delinquent status, or the roll rate, shrank to 2.8% in June from 3.1% in February, a trend consistent since before a deal was reached with mortgage servicers to settle past foreclosure abuses and provide roughly $10 billion in principal reduction.

More than 11 million borrowers owe more on their mortgage than the home is worth. Some of the largest servicers began reaching out to borrowers in the spring.

“Fitch views strategic defaults as an ongoing concern,” the credit ratings agency said in a report Monday. “That said, there does not appear to be any sign yet of a material change in the behavior of underwater borrowers attempting to strategically default to qualify for a reduction.”

Roughly 30% of all modifications granted in June included principal reduction, Fitch found, up from 10% at the beginning of the year. Analysts also found no evidence so far that servicers are writing down principal on mortgages securitized into private pools. The settlement credits servicers more for reducing principal on loans held in their own portfolios.

“Although practice varies materially by individual servicer, the combined activity of servicers included in the settlement is consistent with that of servicers not in the settlement,” Fitch said. “Thus, it appears some of the increased principal reduction activity in 2012 is likely a continuation of an earlier trend rather than a direct result of the settlement.”

The Federal Housing Finance Agency continues to analyze how much a national principal reduction program would cost Fannie Mae and Freddie Mac. Home loans guaranteed by both are excluded from the settlement.

The agency fears underwater borrowers would default on their mortgage even if they were still able to make the payments in order take advantage of the program. According to its preliminary results, only a small percentage of borrowers would need to strategically default in order to wipe out savings Fannie and Freddie would see.

The FHFA recently said updated analysis would be announced “in the near future.”

Average 16 Months of Free Rent

Hat tip to T&W for sending this along, from dsnews.com:

After conducting a survey with current and former clients, YouWalkAway.com reported that lenders are taking longer before beginning the foreclosure process. The agency surveyed underwater homeowners it has or is working with and found that from January to June of this year, respondents who received a foreclosure start notice were 11 months behind on their payment.

Last year, it took an average of 9 months of nonpayment before the foreclosure process started.

Receipt of a Notice of Default, Foreclosure Complaint, and Notice of Trustee’s Sale all counted as foreclosure starts for the survey.

In 2010 and 2009, the average number of months before foreclosure began was 7, and in 2008, it was 4 months.

According to the foreclosure agency, the data indicates lenders are now only beginning to attend to delinquencies from the first and second quarter of 2011. This means strategic defaulters have been given a longer time period in which they could reside in their home rent free before the foreclosure process begins.

In the first and second quarter of 2012, properties averaged 16 months of delinquency before getting foreclosed on. Based on the survey results and other data, YouWalkAway.com said this reflects an increase in the number of months a borrower is delinquent before foreclosure starts are filed and foreclosures are completed. This implies lenders and servicers are processing older foreclosures and homes that have been in default for over a year.

Jon Maddux, CEO of YouWalkAway.com, questions if this delay on the lender’s part is intentional.

“Waiting so long to even begin the foreclosure process is detrimental on a personal, local, and national level. It affects the borrower, their credit and financials, their neighborhoods, the housing market and economy in general,” said Maddux.

With the lengthening not only at the start of the foreclosure process, but also at the end, Maddux said it could suggest lenders are beginning to address the backlog that was created during the robo-signing debacle, but it may be too soon to tell the actual rate of of foreclosure filings in 2012.

“Once this shadow inventory hits the market, housing prices may lower and create a new wave of strategic defaults and foreclosures,” said Maddux.

47% Would Strategic Default

From dsnews.com:

An alarming number of homeowners see strategic default as a viable option should their home continue to depreciate. Almost half of the homeowners participating in an online poll from Housing Predictor say they will walk away from their mortgage obligation if falling home values persist.

Five years into the housing downturn, and Housing Predictor found that 47 percent of those surveyed would intentionally stop making their mortgage payments even if they could afford to in order to get out from under the sinking investment of home-sweet-home.

The number of mortgage borrowers open to strategic default has risen sharply since Housing Predictor last surveyed public opinion on the issue roughly a year-and-a-half ago. In October 2010, 36 percent of homeowners participating in the poll said they would throw in the towel should housing prices continue to drop.

Housing Predictor says the foreclosure crisis, falling home prices, and lingering doubts that the value of homes will increase over most homeowners’ lifetimes are contributing to the increase in mortgage holders who say they will walk away.

FICO estimates strategic defaults to be more than a $20 billion problem annually.

Place to Whine

From the U-T:

A San Diego real estate agent has launched an awareness website that aims to stop strategic defaults, when underwater borrowers choose to walk away from their homes even though they are able to afford their mortgages.

Tuba Gokcek, who is based in Clairemont, recently launched stopstrategicdefaults.com for homeowners and others to express their thoughts on this type of defaulting, which has become more accepted in recent years as home equity fell across the country and anger against banks increased. A 2011 Fannie Mae study shows 27 percent of homeowners who owe more than their homes are worth are open to a strategic default. That’s up from 15 percent in 2010.

“Legislators should stop this from happening,” Gokcek said. “It’s not ethical to borrow money from someone and then say they’re not paying it. It’s a practice that hurts others.”

How does it hurt others?

Gokcek said strategic defaults lead to short sales and foreclosure deals, which bring down the value of neighboring homes. More than half of county home resales last month were either foreclosures or short sales, as cash buyers and investors continued to chase lower-priced properties.

Gokcek, whose website outlines a case against strategic defaults in several sections, also includes a petition that reads: “We, the ethical and responsible People of the United States of America, urge the Congress to pass and enforce effective laws without loopholes to stop strategic defaults immediately.”

It’s unclear exactly how many defaults in the country are strategic. But a June 2011 study by Northwestern University shows defaults that appear so are on the rise, increasing from 26.4 percent in March 2009 to 35.1 percent in September, 2010.

Other findings:

  • Black, Hispanic and older homeowners are more willing to be strategic defaulters. Women are less likely.
  • Eighty-two percent of people surveyed said a strategic default is morally wrong.
  • Homeowners who know someone who has strategically defaulted are more likely to say they will follow suit.
  • Borrowers who are angrier about the economic climate and trust banks less are more likely to default strategically.

FHA & Strategic Defaults

I haven’t seen any defaulters buying again, but they better hurry – from NMN:

A House Financial Services subcommittee is slated to mark up an FHA reform bill Tuesday that establishes a minimum annual mortgage insurance premium and extends the agency’s indemnification requirements to all approved lenders.

The bill has the support of several industry trade groups. Housing subcommittee chairman Judy Biggert, R-Ill., may line up a Democratic member to co-sponsor the bill, according to one source. 

However, the bill may attract amendments that could be controversial.

The National Association of Federal Credit Unions wants the subcommittee to adopt an amendment that would discourage strategic defaults.   

NAFCU president Fred Becker contends FHA’s three-year lockout is too short, allowing a borrower to default on a GSE loan, but then obtain one from FHA after three years. NAFCU wants lawmakers to extend the lockout period to seven years – equal to what Fannie Mae and Freddie have on their books. 

The amendment would “ensure the FHA is not propped up to be a safe haven for those who strategically default on previous mortgages,” Becker says in a letter to subcommittee members.

The Federal Housing Administration currently charges a 115 basis point annual premium on FHA loans with a loan-to-value ratio greater than 95% — but there is no statutory requirement to charge an annual premium.

Under the “FHA Emergency Fiscal Solvency Act,” the Federal Housing Administration must charge a minimal annual premium of 55 bps.  The bill caps the annual premium at 205 bps.

The bill also requires the agency to “review the cause of every loan” that becomes 90-days delinquent within 24 months of origination and seek indemnification when losses to the FHA insurance fund are due to “material violations” of the agency’s underwriting standards.

More on Walkaways

From msnbc.com:

When David Martin and his wife bought their north Seattle condo five years ago, they figured they had plenty of time to downsize if they needed to before they retired.

Now, with the property worth roughly $60,000 less than the balance of their mortgage, Martin, 68, has been giving serious thought to just walking away, a process lenders call “strategic default.”

“Guilt and morality are one side, and objective financial analysis are on the other side,” Martin said. “They’re coming to two opposite conclusions. I wonder how many other people are struggling with the same question.”

For now, Martin is electing to stay in his home and continue paying the mortgage.

“We intend to continue as we are on the basis that we gain nothing from acting at this point,” he said in a note. “We think that the real estate market in Seattle will rise by 2013 enough to offer better alternatives. There is a small chance that the federal government will act to offer more rational choices. The real possibility is that the debt might be refinanced in 2013 at a level that might offer enough reduction in payments to allow us to hang on long enough to shore up our financial position.”

another excerpt:

“We’re finding that people are much more willing to walk away when the other party is unknown or what you might call a ‘bad bank,'” said Seiler. “Those are the ones that received a lot of bailout funds or were active in the subprime market, giving loans to people who couldn’t afford them and they knew that.”

The mortgage lending industry’s widespread reluctance to modify loan terms has also changed homeowner attitudes about walking away, according to Ruyle.

“They feel much better about doing it if they’ve tried to contact the lender and the lender won’t budge,” he said. “They feel justified about it because they’ve tried to do their best to work it out.”

http://bottomline.msnbc.msn.com/_news/2012/01/09/9614305-as-home-prices-fall-more-borrowers-walk-away#.TwsF5d52o2c.email

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JtR:  At the end of the article they are running a poll, with 18,335 responses so far to this question: 

Would you consider a ‘strategic default’ if your home was worth less than your mortgage?

60.7% of the respondents said Yes.

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