ForeclosureRadar’s report for May, 2009:
https://s3.amazonaws.com/CA_Foreclosure_Report/May+2009+CA+Foreclosure+Report.pdf
An excerpt:
Foreclosures sales jumped 31.9 percent in May, following a 35 percent increase the prior month. Notices of Trustee Sale, which set the auction date and time, also rose a significant 42 percent from April, indicating that foreclosure sales are likely to continue to rise in the weeks and months ahead. Despite these increases, and a record number of foreclosures scheduled for auction, lenders continue to voluntarily postpone the majority of foreclosure sales.
“While many complain that lenders are foreclosing too aggressively, and others claim a wave of foreclosures sales is imminent, the data actually shows that lenders are doing everything possible to delay foreclosure,” says Sean O’Toole, founder and CEO of ForeclosureRadar. “The reality is that we have very few homeowners being foreclosed on when viewed as a percentage of those scheduled to be foreclosed on, in default, delinquent, or upside down in their mortgage.”
Of those foreclosures currently scheduled, 40 percent are being postponed to a future date at the lenders request, and another 33 percent are being postponed based on the mutual agreement of lender and borrower, clearly demonstrating that lenders are indeed delaying foreclosure in the majority of cases on their own accord. Specifically note that lenders were under no obligation in May to offer a loan modification program, short sale, or other resolution, and that these efforts would have resulted in a cancellation of the sale rather than a postponement. May saw just 6 percent of scheduled foreclosures cancelled, the lowest percentage of cancellations we have on record.
This makes sense. Let’s just take principal reduction. If a house purchased for $500,000 with $400,000 left on the mortgage now is worth $250,000, it makes sense for the lender to reduce the principal to $300,000 instead of foreclosing on the house and only getting $250,000, especially considering that foreclosing on a house and selling adds a whole slew of other costs to the bank (repairs, 6% realtor commision, inspections, possible eviction costs, utitilies, gardener, back taxes and/or HOA fees-the list is nearly endless).
Geotpf,
I agree… It completely makes sense to keep borrowers in houses that have proven they can’t pay for.
Principal reductions are like magic fairy dust that should be sprinkled on the housing market. After all who cares! It’s not that banks money they’re writing off it’s the taxpayers.
How about reducing everyones principals?Not just the people who are unresponsible and careless with their money.Hey lets former a bitter homeowners union and force the lenders to their knees.
There is a reason why many servicers first put a borrower on a three month forbearance plan before modifying them. The borrower has to make all three payments on time for those three months before the loan is modified. This allows the servicer to more quickly finalize the foreclosure if the borrower does not pay.
Could this be, in fact, the ultimate nut shot?
You do the responsible thing, and are either priced out or otherwise don’t enter an insane market. You work hard, and save up a nice down payment.
Those who do not do the responsible thing get to live in a house you’d like to occupy for a few years at a teaser rate. At the end of said term, when they can clearly not afford the mortgage they get to live there for a year with no payments. Once the free rent term ends, they work into a loan mod program.
With a year of free rent in their pocket, their new modified mortgage, and their nice house they are in good shape. Once the modification process is complete, they drive over to your small cramped rental and just for good measure kick you right in the nuts.
Pow!
These banks sure have a dilemma on their hands. They have a sinking ship, but they can’t bail water because it would spook investors and politicians.
Smell the billions of dollars being burned because of this inconvenience. Empty homes sitting in limbo due to paperwork. It’s like dumping food into the ocean when there are hungry people are at port.
sdnerd, I tend to see this as one among a series of nut shots. Get used to it, pow!
Where do I get in line to have my principal reduced? Oh wait. I bought within my means, how could I have forgotten? People like me are worthless scum when it comes to bailouts.
Either reduce everyone’s principal or none of them.
Where’s my $100,000?
Chuck
sdnerd,
Thats why I want to know what are and how to minimize any repercussions of squatting in “shadow inventory” 😛
If I’m paying for other people’s free rent, I want free rent too!!!
sdnerd,
Excellent, well thought out post. Too bad it’s soooooooooooooo damn true!
Now that rents are decreasing across San Diego, at least tax paying renters are getting some relief and not through any bailout. I’m in UTC and because I sign 6 month leases my landlord is about to give me a second rent decrease this year. =)
Sdnerd, well put, that sums it up nicely. Signed, a responsible homeowner.
It is my understanding that very few loan modifications involve principal reduction. It mostly involves deferral of paying down the principal, low interest rates for a period of time or adding unpaid portions of interest payments to the end of the loan. Basically some way to keep the homedebtor in the house and paying, without having to write down the loan on their books.
Still a kick to the nuts, but not quite as much a direct hit. More of a graze.
I anecdotally became aware of this after coming home after a hard day’s work to a Notice of Trustee sale tacked to the front door of my rental. After having some heated conversations with my landlord, I learned that my landlord was in the middle of a mortgage modification with the bank. Although making absolutely no sense to me, the bank apparently told him to stop paying the mortgage so that the modification would go through. He didn’t realize the bank would post a NOT.
The modification eventually went through. My landlord told me that the modification consisted of reducing the interest payments and deferring payments of the principal. This kept the payments low enough so that my rent covered the mortgage payment of the rental. The reduced rate is in effect for two years. After then, the payment increases each year up to the full interest and principal amount.
I’ve read other articles posted on CR and elsewhere that seem to confirm this type of tactic. It makes sense, because this way the banks can keep up the appearance that their loans are all current without losing any value. If the banks reduced the principal on the loan, then I would think they would need to write down the loan a corresponding amount on their books.
Of course, this is just another delay of the inevitable.
alles_klar,
Not just that loan, but all the other similar loans. What will that do to their books? Where would investor confidence be then?
I concur with alles_klar. Both the Making Home Affordable plan guidelines,
http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf
and FDIC guidelines,
http://www.fdic.gov/consumers/loans/loanmod/FDICLoanMod.pdf
are oriented towards allowing the borrower relief from short term pain, payments to begin to increase after a few years, with the rest put onto the back end of the loan. Principal reductions are very rare unless there is a legitimate legal issue the borrower can assert such as rescission under the Truth in Lending act. The Bankruptcy Bill to permit Chapter 13 principal cramdowns appears indefinately stalled. The strategy of the Feds seems to be to give the problem enough time to heal itself, and allow the banks to eventually fix their balance sheets.
I am beginning to think that this will continue to go on until the stock prices of the banks fall below their recent secondary offering prices, private capital flees, and financial panic ensues again. At that point, I think inventory would then begin to be disgorged by the banks in massive quantities.
In my initial comment, I should have said it makes sense to the BANK. Do it too much, though, and you end up with a moral hazard of everybody wanting to play.
Geotpf – If we reduce loans and keep people in their houses, the limited stock will recreate a fictitious sellers market yet again due to the limited listings (like we have now).
Arizonadude – if there is a bitter homeowners union, we will need a Potential buyer-bitter renters union.
Maybe this is the answer – Maybe the government should bail out all of us renters that have wisely waited this thing out by giving us 50-100K (tax free) for paying taxes while waiting for things to normalize. They could use this to buy a home. They could also bail out the homeowners and reducing principle for all. Then you account for all the owners or potential owners. Unfortunately this will not bring prices back to normal and wont resolve the limited listings, which would continue this state of denial for homeowners that prices are overpriced.
“Maybe the government should bail out all of us renters that have wisely waited this thing out by giving us 50-100K (tax free) for paying taxes while waiting for things to normalize. They could use this to buy a home.”
Or… And keep up with me on this one… Deadbeats get foreclosed on. Banks take the loss. Properties are sold at the market price.
Echo…echo…echo…
The foreclosure moratorium, combined with unemployment extension to up to a year and a half, are simply riot control. Unless you’re a Lakers fan, that is.