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  1. Should Home Prices Be Allowed to Bottom Out?

    By on September 7, 2010

     

    Since the collapse of the housing bubble about three years ago, the federal government has enacted a variety of strategies aimed at supporting home values.  First there was the first time homebuyer and repeat homebuyer tax credits, which have cost taxpayers $16.2 billion thusfar.  The tax credits succeeded in goosing demand for homes in the short term, but since their expiration, home sales have collapsed.  There is strong evidence that home prices have resumed falling in the absence of government support, brining into question the effectiveness of the program.

    Several programs were enacted that would focus on mortgage modification, principal reduction, or short sales, such as Home Afforadble Modification Program (HAMP), Home Affordable Refinance Program (HARP), Home Affordable Foreclosure Alternatives (HAFA), and the new FHA Short Refi Program (which begins today).  These programs have met with varying degrees of success, but given the state of the housing market right now, we can surmise none have been a panacaea for the problems we face. 

    Housing sales have plummeted since the expiration of the first time homebuyer tax credit at the end of April (existing home sales just hit their lowest point in 14 years).  Presently, there is a 12.5 month supply of homes on the market (a normal market has 6 months supply).  These conditions, along with a weak labor market, will likely lead to further declines in home value.       

    Continue Reading…

    Category: Mortgage Rates

  2. More Assistance Coming For Unemployed Homeowners

    By on July 26, 2010

    Just replace "bank failure" with "declining equity".

    “Cessation of work is not accompanied by cessation of expenses”

    -Cato the Elder

    Information continues to trickle out about a new program designed to help the unemployed keep their homes.  The Home Affordable Unemployment Program (HAUP) is a new program from the federal government (the same people that brought you HAMP!).

    We are still awaiting word on exactly how the funds will be disbursed, but the HUD program will start by October 1st.  At least $1 billion is in the legislation for redeveloping distressed property.  Another of the main thrusts of the program is to allow unemployed homeowners who are current on their mortgage to get a forbearance for at least three months.  During the forbearance, monthly mortgage payments would be reduced or eliminated entirely.

    The plan is based on a similar Pennsylvania program that effectively does the same thing.  The program has been going strong since 1983, so it may prove to be viable on a larger scale.

    Loss of income due to unemployment is (unsurprisingly) the chief reason for foreclosures.  Unemployment continues to run close to 10%, and broader measures of unemployment are running close to 17%, so barring an unforseen turnaround, the foreclosure problem will likely be with us for some time.

    Thus far, other government programs meant to reduce foreclosures have met with limited success.  The Home Affordable Modification Program (HAMP) has had more borrowers withdraw from it than have had their mortgages modified by it, and re-default rates are very high.  Again, this is unsurprising as those that have been out of work long term and don’t have much money are unlikely to be able pay even a modified mortgage.

    Many who could save money by refinancing into all-time low mortgage rates have been unable to do so, either because of credit reasons or because their home lost value and they do not have enough equity to qualify for refinancing.

    I will post more as more details about the program emerge.

    Category: Mortgage Rates

  3. HAFA Causes Cancellations of California Foreclosures

    1 By on July 20, 2010

    There was a pretty interesting article last week in REO Insider by Jon Prior that discussed the effect that Home Affordable Foreclosures Alternatives (HAFA) program is having on the foreclosure market in California.

    It seems that an increasing number of foreclosures in California are being cancelled, and the reasons for this spate of cancellations can be attributed largely to programs such as HAFA, which is intended to encourage lenders to allow short sales as opposed to foreclosures.

    HAFA encourages short sales by providing cash incentives to lenders who allow short sales, especially those who hold subordinate mortgages, which can effectively cause the short sale process to grind to a halt.

    According to the article, 22,000 foreclosures sales were cancelled in June in California alone.  Many of these cancellations can be attributed to a rise in short sales.  In southern California alone short sales are up nearly 75 percent in 2010.  It appears that many lenders would prefer a short sale to a foreclosure, especially once the HAFA incentives are taken into consideration.

    It remains to be seen whether this trend will continue, or if this is some sort of temporary aberration, but this could be evidence that the HAFA program is having a net positive effect in some places, which is more than we can say for other foreclosure prevention initiatives.

    Category: General

  4. How Many Foreclosed Houses are There, Anyway?

    By on May 7, 2010

    inconceivableOne of the most crucial metrics in predicting the future of home values and the housing market as a whole is conspicuously absent from the reams of economic data that comes out on a monthly basis.  It is almost inconceivable, but we do not know with any real degree of accuracy how many foreclosed or distressed properties are currently owned by banks, and how many may be in danger of foreclosure in  the coming years.

    This probably comes as no shock to most readers, but real estate owned (REO) houses and short sales pose an enormous threat to the housing market.  Distressed properties depress the values of neighboring homes through a variety of mechanisms, and depress the market in general by adding supply to the marketplace.  Given the massive investment that the U.S. taxpayer has in the housing market through mortgages owned by Freddie Mac and Fannie Mae, and mortgages insured by the FHA, it is even more stunning that there are no official figures regarding foreclosed properties.

    Increasingly large percentages of monthly home sales are comprised by distressed properties.  According to the National Association of Realtors, 35 percent of home sales in February and March were foreclosed properties or short sales.

    New York based investment bank and data provider Barclays Capital is one of the firms that attempts to keep tabs on REO houses.  Barclays estimates that there were 480,000 REO homes at the beginning of March.  In contrast, San Diego data provider RealtyTrac estimates there to be 750,000 REO properties.

    With regard to shadow inventory (homes that are in danger of going into foreclosure), Barclays estimates that 4.6 million households are currently at least 90 days overdue on their mortgages. Barclays estimates 1.6 million distressed properties to be sold in 2010 and 2011, and 1.5 million in 2012.  As a result, Barclays believes that home prices will fall 3 to 5 percent over the next three years. These are truly staggering figures.

    It is worth bearing in mind that the mortgage modification efforts undertaken by the government and lenders, although relatively ineffectual to this point, could help reduce the number of future foreclosures.

    What are your thoughts on the foreclosure situation?  Let us know in the comments section below.

    Category: Mortgage Rates

  5. Foreclosures Increase in 1Q 2010

    By on April 29, 2010

    foreclosureThe latest foreclosure report from RealtyTrac, an Irvine, California firm that reports on distressed properties, delivered mixed news for the housing market.

    The overall foreclosure rate in the first quarter of 2010 increased 7 percent from the previous quarter and 16 percent from the first quarter of 2009. According to the report, one out of every 138 mortgaged homes in the United States received a foreclosure notice last quarter.  Most of the foreclosure activity is limited to a few markets, as ten states account for more than 70 percent of foreclosure activity in 2010.

    Nevada has the dubious distinction of leading the nation in foreclosures, as it has for each of the last thirteen quarters.  One out of every 28 mortgaged houses in Las Vegas received a notice of foreclosure in the past year.

    The positive news is that foreclosures declined in 14 of the top 20 markets surveyed on a year-over-year basis. James Saccacio, chief executive of RealtyTrac commented, “The decreasing foreclosure activity in some of the nation’s top foreclosure hot spots in the first quarter is largely the result of government intervention and other non-market influences, and not a sure signal that those areas are out of the woods yet when it comes to foreclosures”.

    The report also noted that there has been a shift in the type of foreclosure activity that is occurring.  There are an increasing number of foreclosures that are in the final stages of the process.  According to Saccacio the “shift in the numbers pushed REOs to the highest quarterly total we’ve ever seen in our report and may be further evidence that lenders are starting to make a dent in the backlog of distressed inventory that has built up over the last year”.

    Part of the shift in foreclosure activity may be a result of government and lender efforts to forestall foreclosures.  Loan modification programs have achieved some success, and programs like Home Affordable Foreclosure Alternatives (HAFA) are designed to incentivize short sales instead of foreclosures.  Lenders lose twice as much money on foreclosures than on short sales.

    Foreclosures pose the largest threat to the housing market recovery and the economy as a whole.  There exists a potentially huge shadow inventory of distressed homes that could seriously dampen housing prices if they were to hit the market en masse.

    Do the new foreclosure numbers make you feel better about the future of the housing market?  Comment below.

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    Category: Mortgage Rates

  6. Foreclosures Decrease Drastically in California

    By on April 21, 2010

    california-foreclosure

    The California housing market was hit particularly hard by the recession.  The dot-com boom and speculation on real estate drove up home values during the bubble years, and that value was just as quickly erased when the market collapsed.  Millions were left owing more on their mortgage than their house was worth.  Sky-high unemployment caused many more people to fall behind on their mortgages.  Improvement in the California housing market is hugely important to the economic recovery efforts.  Declining property values prevented many homeowners from taking advantage of low current mortgage rates, which caused many others to fall behind on their mortgages.

    According to an article in today’s Los Angeles Times, there are some reasons to be optimistic.  Chief among these is that California foreclosure rates plummeted in the first quarter of 2010.

    According to research from the San Diego firm MDA DataQuick, mortgage defaults fell 40.2 percent from the first quarter of 2009 to the first quarter of 2010.  Sales of foreclosed properties dropped almost 2 percent from the previous year, and 16 percent from the last quarter of 2009.

    This is important because it means it is unlikely that the housing market will not be flooded with distressed properties in the near future.  Shadow inventory of distressed properties represents one of the biggest threats to the housing recovery.  A large supply of distressed properties would drag down property values across the board.  Distressed properties also negatively affects the value of neighboring properties.  Until the excess housing supply is absorbed, any rebound in property values will be unlikely.

    There are many possible reasons for the declining number of  foreclosures in California.  One possibility is that the increased efforts of the government and lenders to modify loans to prevent foreclosures. Programs such as the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives Program (HAFA) have been increasingly emphasized.  Critics of these programs contend that they are ineffective or simply delay foreclosure.  Far fewer mortgages have been permanently modified than were intended by the programs.

    It is also possible that banks are holding back foreclosed properties so the market is not flooded with foreclosed properties.  Doing this would not be in the banks interest because the increase in supply would drive down home prices.  Banks are trying to recoup as much money as possible from foreclosed homes, and it may make more sense for them to slowly release homes on the market.  Nobody is really sure how many distressed properties are owned by banks.

    While the California housing market is not out of the woods, there are reasons to be encouraged by recent developments.  Total Mortgage Services has been lending in California for over a decade.  If you are looking for a mortgage in California, call us today at 877-868-2509.

    twitter9629

    Category: Mortgage Rates

  7. Massive Home Equity Loan Losses Loom Large

    By on April 13, 2010
    Elephant? What Elephant?

    Elephant? What Elephant?

    According to a Bloomberg report, Bank of America, JPMorgan Chase & Co., and Wells Fargo stand to lose $30 billion on home equity loans in the coming year.  The write-offs will likely not be reflected in balance sheets until later this year.  It is estimated that the losses could eliminate nearly all of the banks’ profits this year.

    Bank of America holds $112 billion worth of secondary liens, Well Fargo has $104 billion, and CitiGroup has $49 billion on its books.  There are $1 trillion worth of outstanding junior lien mortgages in the United States, totaling about 10 percent of the mortgage market.

    Barney Frank, chairman of the House Financial Services Committee is holding a hearing this week regarding the troubles that secondary liens pose to mortgage modification efforts.  Secondary liens are very problematic to the Home Affordable Modification Program (HAMP), the government’s effort to alleviate the foreclosure crisis.

    Home equity loans are secondary liens that take place behind the first mortgage.  If a homeowner goes into foreclosure, secondary liens are wiped out and the lien-holder is left with nothing.  Frank wrote in a letter to bank executives that ” large numbers of these second liens have no real economic value” because many of the borrowers who took out home equity loans are seriously delinquent or underwater and the lender is unlikely to recoup their money.

    The hurdle with secondary liens is that lien priority requires that junior liens be paid prior to modifying the first mortgage.  Relatively few banks are participating in programs to write down junior liens.  They are understandably hesitant to take losses if they believe there is even a slight possibility of recovering some of the money, even if the property in question is underwater.

    Additionally, owners of first liens (who are usually investors in mortgage-backed securities) are loathe to modify payment structures unless the junior lien holders (who are usually banks) also take a loss.  Banks, ever mindful of the bottom-line, are finally recovering from the financial crisis, and do not wish to incur huge losses right now (or ever, for that matter).

    A new government program, HAFA,  is aimed toward providing incentives for banks to write down junior loans in order to proceed with loan modifications.  The program is voluntary, and skeptics question whether banks will agree to participate.

    What do you think is the best way to handle the junior lien problem?  Let us know in the comments section below.

    twitter9619

    Category: Mortgage Rates

  8. Short Sales Become Easier Today

    2 By on April 5, 2010
    The HAFA program will help underwater homeowners.

    The HAFA program will help underwater homeowners.

    Starting today, a new government program will provide incentives to lenders in an effort to promote short sales and forestall further foreclosures (click on the link for more information on short sales).

    The program, known as Home Affordable Foreclosure Alternatives (HAFA), will provide $3,000 in moving expenses to homeowners who complete a short sale.  Loan servicers can receive $1,500 for administrative expenses, and lenders can get as much as $2,000 for allowing up to $6,000 of short sale proceeds to be distributed to subordinate lien holders (if they exist).  Participation in the program is voluntary, but the administration is optimistic that lenders will take part.

    Homeowners who complete a short sale are relieved of their debt burden and minimize damage to their credit.  Lenders generally take smaller losses on short sales than foreclosures.  The lenders also save on clean-up or maintenance of foreclosed homes and avoid legal fees incurred in the foreclosure process.  Mark Zandi, chief economist at Moody’s predicts 350,000 underwater borrowers will utilize the program in the next two years.

    Another interesting wrinkle in the HAFA program requires the lender to set a minimum price before the house is put on the market.  If a bid comes in above the minimum, the bank must accept it.  Formerly the bank would evaluate the bids as they came in, slowing the process and frustrating buyers and sellers.

    In order to qualify, borrowers must be delinquent on their mortgage and their home must be their primary residence.  A borrower must also have applied for and been denied HAMP modification.  Banks are able to set their own eligibility requirements under HAFA, so borrowers should check with their bank for more details.

    The number of available foreclosed homes is a serious drag on home prices and new home sales.  What do you think about the HAFA program?  Is it going to make a difference?  Let us know in the comments section below.

    twitter966

    Category: Mortgage Rates

  9. Foreclosure versus Short Sale: The Lesser of Two Evils

    5 By on April 1, 2010

    Foreclosure versus Short Sale: The Lesser of Two Evils

    As home values continue to deteriorate and homes sink deeper and deeper underwater, short sale transactions are quickly becoming the latest trend in the housing market. A short sale is when a mortgage lender permits a homeowner to sell a property for less than the principal balance owed on the mortgage loan. As prevalent as short sales have been on distressed properties recently, they are about to become much more common. The Obama administration is set to implement a new plan that will pay an incentive mortgage lenders and borrowers to complete short-sale transactions. The new program, tabbed Home Affordable Foreclosure Alternatives (HAFA), is scheduled to take effect on Monday, April 5 and will alleviate the unfortunate setback for distressed homeowners.

    Some details surrounding the new HAFA program include:

    •    $3,000 for borrowers to assist in relocation
    •    $1,500 for mortgage services to pay for associated costs of processing the short sale
    •    Up to $2,000 to investors that permit up to $6,000 in proceeds from a short sale to be allocated to subordinate lien holders
    •    Mortgage lenders must inform distressed homeowners of the lowest price they are prepared to accept
    •    Homeowners must present the mortgage lenders with a valid offer, and the mortgage lender must respond within 10 days

    In light of the recent developments on the government’s proposal to encourage a short sale as an alternative to foreclosure, mortgage lenders are in a hiring mode to handle the anticipated influx of business directly related to short sales. It will undoubtedly be a challenge for the mortgage lenders to handle the dramatic anticipated increase in short sale volume in such a short period of time. To put it into perspective, short sales represented nearly 20% of home sales in February, while the percentage was closer to 10% as recently as last November. HAFA certainly expects to generate a significant increase in short sales very quickly.

    One of the nation’s largest mortgage servicers, Bank of America, has more than doubled the number of short sales it has originated since the beginning of the year. This is an extraordinary turn of events since short sales pressure mortgage lenders to accept a discounted portion as payment in full. Previously reluctant to originate a short sale, mortgage lenders are now changing their views for two reasons.

    First, mortgage lenders are making less money on a foreclosed property than they would on a short sale.     While unemployment figures remain high and purchase applications continue to wane, it is far more costly for a mortgage lender to maintain a foreclosed property over time than to allow a homeowner to sell it for less than is owed. The other reason is fairly obvious. If the government is willing to pay a mortgage lender as an incentive to complete a short sale, that payment, however minor, will further cut into any loss the lender incurs.

    It is estimated that mortgage lenders stand to lose approximately 50% on a foreclosure, while they lose approximately 30% on a short sale.     Additionally, short sales are wiped from a mortgage lender’s portfolio, while a foreclosure can remain for an extended period of time. It is the hope that HAFA may facilitate the conclusion to the foreclosure crisis too many homeowners have endured.

    On the surface, HAFA appears to be just what the doctor ordered.

    Robert Hyder

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    Category: Mortgage Rate Trends and Analysis

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