by Jim the Realtor | Apr 5, 2011 | Foreclosure Count, Mortgage News, Strategic Defaults |
From Lily Leung, the new real estate reporter for the Union-Tribune – we’re rooting for you Lily!
Fewer San Diego homeowners defaulted on their mortgages in February, and foreclosures have decreased year-over-year for the fifth consecutive time.
Could this signal meaningful progress in the county’s distressed market?
Yes and no.
“It’s hard to tell,” said Norm Miller, real estate professor at University of San Diego. “We don’t know how overwhelmed the lenders still are … or if in fact we have less (distressed) inventory … I think there’s truth in some of each.”
In February, the county recorded 1,373 mortgage defaults, the first step in the foreclosure process. That’s down 11.3 percent from January and 36.6 percent one year ago.
There were 896 foreclosures in February, down 6.6 percent from January and 7.9 percent the same time last year.
Real estate experts are mixed on what those figures mean for the county because so many factors are involved, including the “robo-signing” fiasco among banks, processing back-ups and slight job growth within the region. Another factor: Government programs that are artificially stimulating the economy and normal changes in the market.
Andrew LePage, a DataQuick analyst, said it’s too early to say if San Diego County is seeing a “downward trendline” in defaults and foreclosures. But he noted that the number of mortgage delinquencies, though historically high, have been decreasing and are starting to flatten.
“The big picture is, we’re through the worst of it,” LePage said. “If delinquencies are any indication, and that continues through next year, we may see filings go down.”
Miller, with the University of San Diego, said February’s numbers could be indicative of a slightly improving economy, but more realistically, he said, it could mean lenders are contracting less with outside companies to process documents after the robo-signing issue was revealed.
“They may be afraid to contract out services and have to do them themselves and are slower at it,” Miller said.
Others are more optimistic.
Craig Bramlett — a district manager and loan consultant at W.J. Bradley in San Diego — says he’s noticed both foreclosures and notices decrease and attributes that to a stabilizing local economy.
If both continue to fall, it could have two effects: Buyers who are looking for bargains will be driven away, or consumers who have been waiting for confirmation “that we’ve hit bottom” will jump into the market, Bramlett said.
by Jim the Realtor | Mar 30, 2011 | Bailout, Psycho-babble, Short Sales, Strategic Defaults |
From Alejandro Laso at the latimes.com:
Major banks may be forced to let severely delinquent homeowners sell their houses for less than the loan amounts owed as part of a broad settlement of federal and state investigations into botched foreclosure paperwork, according to government officials involved in the negotiations.
The requirement to allow so-called short sales would be in addition to forcing mortgage servicers to reduce the amount some homeowners owe on their loans, said two officials, who spoke on the condition of anonymity because negotiations are ongoing.
The goal of short sales would be twofold: provide a quicker and more economical way for banks to dispose of distressed real estate and to help stabilize the real estate market by clearing out a backlog of defaulted mortgages that are poised for foreclosure.
They would be used in situations in which borrowers were so underwater that the more costly and time-consuming process of foreclosure would seem to be the only option.
“Short sales just command a better premium than foreclosures,” said Glenn Kelman, chief executive for online brokerage Redfin. “It’s like day-old bagels. They never sell for the same price. If they sit there for a while, nobody wants them because houses just break down when they are left alone.”
Foreclosures continue to drive down housing values, with prices in 20 major U.S. cities down an average of 3.1% in January compared with the same month a year ago, according to new data from a Standard & Poor’s/Case-Shiller index. Prices in Los Angeles were down 1.8%.
The latest proposal is among those to be discussed when executives from the top five mortgage servicers meet Wednesday in Washington with state and federal officials working on a settlement that could range from $5 billion to $25 billion.
Short sales would help accelerate the turnover of homes from borrowers who are months behind on their mortgage payments, Kelman said.
Some sellers are not eager to complete a short sale because it would force them out of their home. And lenders can withhold approval of a short sale if they don’t like the price.
Banks often resist such sales because they are difficult to execute, particularly when multiple creditors and other parties are involved. In addition, short sales lock in losses for the lender that might be reduced if the sale is delayed until the market improves.
Requiring banks to allow short sales could fuel further opposition from some Republican attorneys general and members of Congress who already have criticized the broad scope of the proposed settlement.
Some House Republicans have derided possible payments of $20,000 to encourage distressed homeowners — dubbed by some as “cash for keys” — as a bailout for irresponsible behavior.
Seven Republican attorneys general recently wrote to Iowa Atty. Gen. Tom Miller, a Democrat who is leading the negotiations for the states, saying the proposals go beyond resolving damages from foreclosure paperwork problems. Those problems include robo-signing, the practice of bank employees’ signing sworn documents without reading or understanding them.
“I think it’s morphed into something that’s bigger and different than what we talked about in the beginning,” said Oklahoma Atty. Gen. E. Scott Pruitt, a Republican who organized the signing of one of the letters.
by Jim the Realtor | Mar 24, 2011 | Bailout, Loan Mods, Strategic Defaults |
From HW:
Four Republican attorneys general participating in the investigation into mortgage servicing practices wrote a letter to Iowa AG Tom Miller stating that the proposed settlement is too strict.
Florida AG Pam Bondi, Texas AG Greg Abbott, Virginia AG Kenneth Cuccinelli and South Carolina AG Alan Wilson sent the letter Tuesday explaining among other claims that homeowners would strategically default on the mortgage in order to take advantage of the consumer-friendly terms.
The 50 state AG investigation came after the largest mortgage servicers were found last fall to be foreclosing on homeowners improperly through faulty affidavits. Lenders conducted reviews of their processes and have begun to correct the affidavits, but in February, Miller and several core offices participating in the investigation sent a proposal to the banks outlining a possible settlement.
The terms included an end to pursuing a foreclosure while borrower was being evaluated for a modification. Considering a borrower for a workout, including a principal reduction, would be mandatory before foreclosure as well, and a decision on modification must be made within 30 days of receiving documentation.
But not a consensus among the AGs has been elusive. The four signing the letter this week complained Miller and the other offices overstep their bounds.
“Because of the term sheet’s vague principal reduction standards, some homeowners may simply default on their loan and use the States’ agreement to obtain a principal reduction— whether or not they actually made an effort to maintain their mortgage,” according to the letter.
The four AGs go further, saying the terms do not address the nature of the investigation. Modification proposals would not remedy the violations banks made, and while they admit the terms, many of which they do agree with, act as a starting point, some proposals should be scaled back, according to the letter.
“In our view, the fifty-state working group has a unique opportunity to address the mortgage servicers’ legal and financial malfeasance on a national scale—but we are concerned that expanding beyond the scope of our already expansive charge may ultimately undermine the effectiveness of our law enforcement efforts,” the letter reads.
by Jim the Realtor | Mar 14, 2011 | Loan Mods, Principal Reductions, Strategic Defaults |
From Businessweek.com:
More than one in five borrowers in the U.S. are underwater; collectively the shortfall is about $751 billion. Nationally, homeowners whose mortgages have been modified without a principal reduction are up to twice as likely to re-default as those with some forgiveness, according to Atlanta-based Ocwen Financial, a subprime servicer that reduced principal in almost 20 percent of its loan modifications in the last year. “The reason so many homeowners give up is because there is absolutely no hope,” says Brent T. White, a law professor at the University of Arizona who studies underwater borrowers. “They want someone to meet them halfway.”
Banks worry that if they reduce principal, the losses they’d have to take would erode capital cushions. Mortgage servicers don’t like principal reductions because they lower the fees they collect and cut into profits. Some Republican lawmakers call the idea a bailout that will encourage more borrowers to default. Mike Trailor, the director of Arizona’s housing finance agency, says that as he tried to get a write-down program going, most banks and servicers told him it would only encourage more defaults. “I learned a new word for ‘no,’ and it’s ‘moral hazard,'” Trailor says.
While House Republicans are moving to end the Home Affordable Modification Program, the Obama Administration’s flagship loan modification effort, the year-old Hardest Hit Fund would not be defunded under the GOP plan. So far the smaller program has awarded $7.6 billion to 18 states.
About 20 percent of the money is going to principal write-downs in nine states, with California, Nevada, and Arizona getting the bulk of it. Nevada and Arizona have signed up Bank of America, and California is in talks to do so.
Brian T. Moynihan, the BofA chief executive officer, told investors at a Mar. 8 conference that the bank resists calls by federal and state officials for nationwide principal write-downs, preferring more targeted efforts. “Our duty is to have a fair modification process,” Moynihan said. The bank was set to announce Mar. 10 a principal forgiveness program for military service members leaving active duty and behind on their mortgages. To have an impact, though, the states must attract other large mortgage servicers.
The three states are trying to avoid helping owners who used their homes as ATMs during the housing boom. All three held focus groups or public hearings to help them define what is a deserving borrower. The programs will only help lower- and middle-class homeowners who can document financial difficulties. They will not trim a loan’s balance all at once. Instead, they forgive some of the principal over three to five years, depending on the state.
Trailor says it took the better part of a year to address BofA’s procedural issues to win its participation. Lisa Joyce, policy and communications manager at Oregon Housing and Communication Services, which is starting one of the nine principal-reduction programs, says the states must take care to design plans so that participants pass “the front-page test.”
by Jim the Realtor | Mar 9, 2011 | Double Dip, Market Conditions, Strategic Defaults, Thinking of Buying?, Thinking of Selling? |
From sddt.com (SDCo. homes that have no mortgage = 20%):
Nearly one in three mortgage holders in San Diego owe more than the value of their home, according to a CoreLogic report.
Of residential properties with a mortgage in San Diego County, 29.2 percent, or 173,139, were in negative equity at the end of the fourth quarter of 2010, the report said.
Negative equity in the county fell from 29.5 percent at the end of the third quarter. An additional 5 percent, or 29,450 homes, were in near-negative equity, defined as 5 percent equity or less.
Together, mortgages with 5 percent equity or less accounted for 34.5 percent of all homes with a mortgage in the county.
While the percent of San Diego mortgages in negative equity declined on a quarter-to-quarter basis, the percent of homes in near-negative equity increased from 4.8 percent to 5 percent during the same period.
This suggests that the decrease in negative equity came from the foreclosure of underwater mortgages, rather than price increases pushing borrowers above water.
Nationally, negative equity increased in the fourth quarter to 11.1 million, or 23.1 percent of all homes with a mortgage, from 22.5 percent in the third quarter.
Prices declined in the last quarter of the year, leading to lower home values and an increase in the rate of negative equity.
An additional 2.4 million borrowers had less than 5 percent equity nationwide, bringing the total of negative equity and near-negative equity mortgages across the country to 27.9 percent of all residential properties with a mortgage.
“Negative equity holds millions of borrowers captive in their homes, unable to move or sell their properties,” said Mark Fleming, CoreLogic chief economist. “Until the high level of negative equity begins to recede, the housing and mortgage finance markets will remain very sluggish.”
Of those mortgages in near-negative equity or negative equity nationwide, nearly 10 percent had negative equity of 25 percent or more; California had the third largest share of these severe negative-equity mortgages, with nearly 20 percent of all residential properties with a mortgage.
CoreLogic used public record data to calculate its mortgage debt outstanding, which includes first mortgage liens and junior mortgage liens and is adjusted for amortization and home equity utilization.
The Santa Ana-based company estimated the current value of homes using its proprietary automated valuation models.
by Jim the Realtor | Feb 24, 2011 | Bailout, Short Sales, Strategic Defaults |
From HW:
Servicers are moving toward a proactive approach in pursuing short sales as an alternative to foreclosure, servicers on a Mortgage Bankers Association panel said Wednesday.
A component and specialty servicer, meanwhile, predicted that short sales could increase 50% industrywide this year. Buffalo, N.Y.-based AMS Servicing told HousingWire that the projected increase is due largely to changes in the Obama administration’s Home Affordable Foreclosure Alternatives, or HAFA, program that opens up eligibility to a larger group of homeowners. AMS has determined through analysis of its 2010 short sale metrics that as many as 91% of previously ineligible borrowers might now be eligible for the HAFA short sale program.
“Power of denial is very sharp for someone losing their home,” said David Sunlin, senior vice president at Bank of America. Borrowers want to do the right thing, Sunlin said, and it’s important for servicers to guide the borrower through to the end, whether it’s a short sale or a deed in lieu.
“We need to get these short sales done in a timely fashion. A short sale today is a lot better than it was six months ago,” said Abel Fregoso, vice president and national field short sale manager for Wells Fargo.
The Treasury Department took action in December eliminating some rules it said have held back short sales through the HAFA program. HAFA no longer asks for income verification, unless the borrower is less than 60 days overdue on the mortgage. This means that borrowers who previously were deemed ineligible because their income was too high, may now qualify for a HAFA short sale, said Jim DePalma, executive vice president, default management at AMS Servicing, in an interview after the panel concluded.
David Sunlin said changes to the program are seen as positive by servicers. It works best, he said, when used pro-actively, by helping the borrower market the property instead of having the borrower come to the servicer with a buyer in hand.
Servicers on the panel said they expect the changes in HAFA to encourage more participation in the program.
But the incentive for borrowers to short sell their home can be challenging when it can take up to two years or more to complete a foreclosure. The ability to stay in the home without paying the mortgage may lessen the incentive to participate, panelists said.
As for deeds in lieu of foreclosure, Fannie Mae has looked at them with some sort of incentive at the end of it, such as a few months with reduced rent or no rent, said Beverly Wilbourn, vice president of preferred loss mitigation strategies for Fannie Mae. The key is to engage the borrower earlier and keep them engaged in order to avoid a foreclosure, she said.
“Offer them a way to transition from a very difficult financial circumstance,” she said. “Get to the homeowner and talk them through to life after this horrific situation.”
But, Wilbourn added, “You don’t want to go out and tell everyone to go do a short sale or do a deed in lieu.” The GSE wants to be sure that it is a viable option and the right alternative to foreclosure.
Short sales that have either second liens or mortgage insurance can be more challenging, said Leo Esposito, first vice president of loss mitigation and asset disposition services at ServiceLink, a unit of Fidelity National Financial. But that’s not to say they can’t be done, he said.
The seller may have to make a contribution or sign a note for a short sale with a second lien or with mortgage insurance for the sale to go through, said Wells’ Fregoso.
by Jim the Realtor | Feb 8, 2011 | Market Conditions, Shadow Inventory, Speaker Panel, Strategic Defaults, Thinking of Buying?, Thinking of Selling? |
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.”
by Jim the Realtor | Feb 4, 2011 | Loan Mods, Short Sales, Strategic Defaults |
Hat tip to KK for sending this along, from the Huffington Post – a story that follows people through the loan-mod maze, and highlights how the servicers are making the walk-away problem worse:
While walking away is a frightening and dangerous step into the unknown, millions have beaten the path in the past few years. To find out what it’s like to walk away, The Huffington Post asked readers who were considering making the move, or who had already done so, to write in and share their stories. That was in January 2010. A year later, we followed up with them to see how they reflected on the experience.
We initially heard from 58 people from all over the country who fit the criteria. Ten of them have become unreachable over the past year, but the remaining 48 were eager to share their stories. A year later, only eight of them are still paying their mortgage. Almost universally, the homeowners we spoke with took personal responsibility for their situations, declining to blame the banks or politicians. Yet nearly all of them faced similar struggles in their attempts to work with their banks: lost paperwork and little interest in finding a financial compromise.
The story is four pages, here are the best quotes:
1. “There should be support groups for people who have to deal with these banks,” said Richmond Burton, 50, a soon-to-be-former resident of Long Island’s East Hampton. “It can drive you crazy. I’m very good at dealing with pressure, and they made it feel like you’re at their mercy.”
2. “We get daily calls from creditors and banks that threaten this and that, and I just laugh knowing I am helping to bring down the system that has brought us all down and continues to reap giant profits at the expense of the little guy,” said one.
3. Burton went more than a year without paying his mortgage before persuading the bank to accept a short sale. “The mortgage company was not wiling to work with me. The businesses that we have created to serve us are enslaving us. They’re not listening to us, they don’t even pretend to care about us. Really, our only option is to do what I’m doing, which is to fire them all. I’m doing everything I can to remove them from my life,” he said.
4. Soto, a conservative Republican, said he has come to terms with his choice. “It was a tough decision. We thought about it and thought about it. I want to do the honorable thing, but wait a minute here — I didn’t get respect from the mortgage companies when I was asking for help. Now here we are, we bailed everybody out,” he said. “Am I just supposed to be the good Samaritan and just stay there? I asked the mortgage company, ‘What’s gonna keep me from giving you the keys?'”
5. In July 2009, on the informal advice of a bank representative, the Kluzes stopped paying their mortgage to encourage their bank to approve a short sale. The bank initially accepted a short sale offer, but the couple was told that investors had later rejected it. The bank suggested Shelley Kluz apply for a modification, apparently unaware she’d been trying for the past year. She did so anyway and was rejected. “We are in a weird limbo state of waiting. So, long story short, we are walking away. We are so fed up with this whole process,” she wrote at the time.
Six months later, she and her family moved out, a year after they stopped paying. For $1,550, she said, they now rent a three-bedroom, two-bath home with a yard in the front and back — a feature their first home, with a monthly mortgage payment of $2,250, did not have. The new home is twice the size of the old one with twice as many bathrooms. Their old home was foreclosed upon a month after they left and, Shelley Kluz said, is still on the market for $142,000 (they paid $325,000 in 2004 for the house in Vacaville, CA). They only moved five minutes away, and she still drives by it occasionally. Her 7-year-old has taken it the hardest, having known no other home, she said.
“It was the best thing we could have done. Since we walked away, our house has only dropped further and we had no hope of getting out from under it,” she said. Now, “We actually have available spending money to do fun things with our family, we pay less money for a completely finished house, my kids have a backyard with grass, and best of all, we can breathe.”
6. “I feel like we have a stigma on things like bankruptcy, but those people shouldn’t feel ashamed,” Phillips said. “Yes, some people abuse, like Teresa on ‘Real Housewives,’ but I’m hoping everyday people who are going through this can find some strength in what I’ve done and ask, ‘Why should I care about the bank if the bank doesn’t care about me?'” Despite his bankruptcy, he said, he has more offers for credit cards than he can handle.
7. Having worked as a loan assistant, Andrea told HuffPost she initially thought she’d be able to navigate the system. “I figured I would be well-equipped in my knowledge from my previous job about how to figure it out,” she said, “and I was shocked honestly at their level of disinterest — it was either disinterest on their part in working it out, or lack a of just being organized. But to me, them not being organized to work it out was a symptom of there not being a financial incentive for them to work it out.”
Terence Edwards, a Fannie executive, said in a June statement. Edwards said homeowners who strategically default or fail to work “in good faith” to avert foreclosure would be ineligible for new Fannie Mae-backed mortgages for seven years. Freddie Mac, Fannie’s government-owned counterpart, has adopted the same policy.
Fannie, in its statement, also warned it would pursue “deficiency judgments” in court that would allow it to recoup from borrowers the difference between the value of a home in foreclosure and the outstanding loan a bank still has on its books. After inflating the bubble until it burst, banks essentially now want to be insulated from their mistakes by dunning borrowers for every last penny. Deficiency judgments are allowed in 39 states and were a nagging concern to many of the homeowners we spoke to.
The IRS may also loom over homeowners who walk away. Under current law, thanks to a measure spearheaded by Rep. Brad Miller (D-N.C.) in 2007, the IRS cannot come after homeowners after they walk away. Before that law took effect, if a bank took, say, a $200,000 hit on a foreclosed home and “forgave” the debt, that forgiveness would be counted as taxable income for the former homeowner. A note to the fence-sitters: Miller’s law expires at the end of 2012.
by Jim the Realtor | Feb 1, 2011 | Local Flavor, North County Coastal, Strategic Defaults |
Hat tip to Stormin Norm for sending this CBS video along – here is the printed version, which includes a bump in drama. In the video the homeowner says that his La Jolla home is worth $500,000 to $600,000 less, and in the printed version they call it “6 to $700,000 less”:
by Jim the Realtor | Jan 5, 2011 | Loan Mods, Market Conditions, Shadow Inventory, Strategic Defaults |
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.
