The Year in Foreclosures

Tuesday, February 16th, 2010 | Uncategorized

From The NY Times:

Last week offered some sobering news on the housing market: Even with broad government support for housing, data from the National Association of Realtors showed that the median price of single-family homes continued to decline in 2009. RealtyTrac, an online marketer of foreclosed properties, said foreclosure filings rose by 15 percent in January compared with a year ago.

Foreclosure is generally a long process, with multiple filings as delinquent borrowers fall ever further behind. What is most ominous about the latest RealtyTrac numbers is that nearly 88,000 people had their homes repossessed in January, a 31 percent increase from a year ago. The big jump indicates that many foreclosures that were in process in 2009 are now beginning to move to repossession and, eventually, auction. With more than four million homes in that pipeline, the foreclosure crisis shows no sign of abating.

Worse, as The Times’s Peter Goodman recently reported, the Obama administration’s antiforeclosure plan (which pays cash incentives to mortgage companies that lower monthly payments for troubled borrowers) may be doing more harm than good for some borrowers.

Before a lender will permanently modify a loan under the plan, eligible borrowers must go through a trial period — several months in which they keep current on reduced monthly payments. For some borrowers, even a reduced payment is too onerous, leading to redefault. Others reported being denied a permanent modification even after keeping up the trial payments. In both cases, the borrowers do not avoid foreclosure, and are out the money they have paid during the trial period. That is money they could have spent moving to a rental home or for other purposes.

There is an emerging consensus among financial experts and policy makers that the key to successful modifications is to reduce the amount of the borrower’s loan balance, rather than merely reducing the monthly payment. The goal is to lower the payment while restoring equity, thus giving borrowers both the means and the incentive to keep up with their payments.

Administration officials have resisted that approach, in part because they believe it would be too expensive. Another obstacle is the lenders themselves. In general, a lender is unwilling to take losses by reducing principal unless the owners of the second mortgage on a home also take a hit. For banks that own the second mortgages, such losses would be huge — something they clearly would prefer not to face up to.

Banks’ unwillingness to take losses on second mortgages may also be holding up so-called short sales, in which a lender agrees to retire a first-mortgage debt by taking the proceeds from the sale of the home, even when the amount is less than the mortgage balance.

Last April, the Treasury detailed a plan to get second-mortgage owners to write down their debt once the first mortgage is modified. But until recently, when Bank of America signed on, no banks had cooperated.

Unless the banks can be compelled to get on board — allowing principal reductions to become the norm — the antiforeclosure effort may have more success in letting banks postpone their losses than in helping Americans keep their homes.

6 Comments to The Year in Foreclosures

James
February 17, 2010

Great information. But I personally have great concern with Lenders writing down mortgages. Where does it end? Also, what incentive will anyone that actually pays their mortgage, have to keep up their payments?

Thanks!

Fre'Dom
February 18, 2010

Love your insight! Thanks for sharing your expertise and thoughts on the foreclosure crisis. As a professional that help homeowners negotiate loan modifications with their banks, I’ve found it very challenging getting the banks to forgive the negative equity and/or reduce the principle. They are extremely resistant to sharing the wealth of their bailout with the American people facing the threat of foreclosure.

I’ve questioned the real purpose of Home Affordability Act when there are no mandates or policing in place seeing to it that the lenders comply with the criteria of the Act. One of the requirements is a reduction in principle. Lately, I often question whether I’m living in the Twilite Zone when we as a People passively watch and fall victim to the exploitation of the Corporate GIANTS of our country. Where is the voice of the people to take action and bring these Giants and all their bedfellows to their knees??

Yves Baggi
February 23, 2010

Jeff,

I’m sure you get a lot of requests to comment
AND could you comment on this article?

http://www.examiner.com/x-28218-Mortgage-Examiner~y2010m2d22-Real-Estate-Agent-Pleads-Guilty-in-Short-Sale-Mortgage-Fraud-Scheme

Is it simply lack of disclosure that got these agents
in trouble or is there any indication that higher offers must be presented to the lender?

thanks

Yves Baggi

Jeff
February 27, 2010

Yves, I have commented on the actual indictment many times. Both on this blog and on SREC webinars. My opinion remains that it was the misrepresentation to the lender as the listing agent while also being the buyer. Conflict of interest and Front running must be avoid.

Dave Klingensmith
February 27, 2010

Hi Jeff,

I was on one of your webinars and am a recent gold member.
I have the copy of the “vanilla” option contract.
I noticed during your presentation that you displayed a “vanilla” notice of option contract.
My question is this: Can you tell what I need to change on the standard notice of option?
Would it work if I just remove the word “option” from the standard notice of option?

thanks Jeff as I know your time is valuable.

Dave Klingensmith
Dannyboy Properties LLC

jwatson
March 4, 2010

The document you need should be available on the SREC members site. If not follow up with the customer support people via email.

Leave a comment