California Defaults Slow in Q409: Data Quick

The flow of California homes entering the foreclosure pipeline slowed in Q409, another sign that the troubles in hard-hit areas are dissipating into more expensive and previously insulated areas, according the MDA DataQuick.

The San Diego-based real estate information service reported 84,568 Notices of Default (NODs) in California in Q409, down 24.3% from 111,689 in the previous quarter. It’s still a 12.4% increase from 75,230 in Q408.

California NODs reached an all-time high in the first quarter of 2009 when MDA DataQuick reported 135,431 filings. That number was inflated because of activity put off from the previous four months. The low came in Q304 at 12,417 filings.

“Clearly, many lenders and servicers have concluded that the traditional foreclosure process isn’t necessarily the best way to process market distress, and that losses may be mitigated with so-called short sales or when loan terms are renegotiated with homeowners,” said John Walsh, DataQuick president.

Ari Afshar of Housing Assist of America, a short sale company in Los Angeles, told HousingWire that short sales are, indeed, picking up.

“We are seeing a huge increase in short sales and this is mainly due to the fact that so many potential modification candidates have been turned down. Being that they would do most anything to avoid a foreclosure, they naturally have been turning to short sales as the next best option,” Afshar said.

Most of the loans that fell into default in Q409 originated in early 2007, but the median origination month was July 2006, the same month for the previous three quarters and even the last quarter of 2008. It means the foreclosure process moved through one month of bad loans in the last year.

“Mid 2006 was clearly the worst of the ‘loans gone wild’ period and it’s taking a long time to work through them. We’re also watching foreclosure activity start to move into more established mid-level and high-end neighborhoods,” Walsh said. “Homeowners there were able to make their payments longer than homeowners in entry-level neighborhoods, but because of the recession and job losses, that’s changing. Foreclosure activity is a lagging indicator of distress.”

The foreclosure tracker RealtyTrac came to the same conclusion in its 2009 in its year-end 2009 Metropolitan Foreclosure Market Report. Although the sand states California, Florida, Nevada and Arizona continue to lead in foreclosure activity, cities like Seattle, Washington and others in Oregon are creeping up the list.

In California, the amount of Trustee Deeds recorded, which reflects how many homes and condos foreclosed, reached 51,060 in Q409, a 2.1% from the previous quarter, according to DataQuick. But despite the uptick in both defaults and foreclosures, foreclosure resales declined to a 40.7% share of the real-estate market, from 42.7% in the previous quarter. It peaked in the first quarter of 2008 with a 57.8% market share.

The top originators of the defaulted loans in Q409 were Countrywide with 5,588 loans; Wells Fargo (WFC: 28.43 -0.07%) at 3,482 loans; and Washington Mutual at 3,460 loans.

450,000 at Risk in Foreclosure

450,000 at risk in foreclosure-prevention program

By Tami Luhby, senior writerJanuary 23, 2010: 7:25 AM ET

Companies that service the mortgages have until Jan. 31 to review all trial modifications that have been underway for several months under the Home Affordable Modification Program (HAMP), according to a Treasury Department guideline issued late last month. The Treasury Dept. said it would issue new guidelines next week, but wouldn’t give details.

The goal is to clear up the backlog of borrowers stuck in trial modifications, in which a homeowner’s monthly payments are lowered to no more than 31% of pre-tax income.

Some homeowners have spent seven or eight months waiting to hear if they qualify for a permanent adjustment to their mortgages.

This directive, however, has some bank regulators concerned.

“About 450,000 homeowners currently have HAMP trial modifications and have demonstrated a willingness and ability to make timely payments for at least three months,” said Richard Neiman, superintendent of the New York State Banking Department.

“Now, unfortunately and very alarmingly, these same homeowners face the prospect of foreclosure strictly on account of documentation issues,” he said.

Paperwork has proved a major stumbling block for the president’s foreclosure-prevention program. Homeowners complain that their servicers continuously lose the documents they send in, while financial institutions argue that borrowers have not been sending in their paperwork.

Aware of the problem, Treasury officials said they plan to issue new guidance to servicers next week that will help expedite the conversion of borrowers in the trial period to permanent modification. It may also lighten the documentation requirements.

Under fire for the low number of people receiving long-term help, the Treasury Department in late November ramped up pressure on servicers to convert borrowers to permanent modifications.

Some 66,500 people have received permanent adjustments, with another 787,200 homeowners in trial modifications.

Under the president’s plan, delinquent borrowers are put into trial modifications for several months to make sure they can handle the new payments and to give them time to submit their financial paperwork.

Once the modification becomes permanent, servicers, investors and homeowners are eligible to receive thousands of dollars in incentive payments.

Overall, about three-quarters of people are making their payments on time, according to the Treasury Department.

Treasury officials already lightened the documentation requirements in the fall in hopes of speeding up the conversion process. But more needs to be done, Neiman said.

For instance, Treasury should accelerate its implementation of a standardized documentation form and the creation of a Web portal that will allow homeowners to track the receipt of the paperwork, he said. Also, it should allow servicers more flexibility in accepting alternative documents.

If this isn’t done, a lot of homeowners could soon face foreclosure, he said.

“This is a real concern to borrowers, particularly borrowers who’ve continued to make payments for three, four, five, even seven months,” Neiman said. 

Home Sales Tank

Existing home sales plunged in December, falling nearly 17 percent from November in their largest month-over-month drop since record-keeping began. Meanwhile, December’s inventory represented a 7.2-month supply of unsold homes, notably higher than the 6.5-month supply recorded in November, the National Association of Realtors reported Monday. Although the monthly decline was larger than expected, the figures are much less jarring when compared with December 2008. Existing home sales remain 15 percent higher than a year earlier, while raw unsold inventory fell 11 percent from December 2008 to its lowest level since March 2006.

Although the monthly drop-off was steep, it had been expected for some time. Buyers scrambled to close transactions by November to qualify for the $8,000 first-time home buyers’ tax credit, which was originally set to expire at the end of November. The credit–which was later extended through June–worked to juice home sales figures in November at the expense of December. “The collapse in sales simply reflects the bringing forward of transactions to beat the originally planned expiration of the first-time buyer tax credit,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report. Here’s a look at what the December existing home sales report means for homeowners, home sellers, and home buyers:

[See Getting a Mortgage in 2010: 10 Things to Know.]

For homeowners: Property owners who have watched home values at the national level drop roughly 30 percent from their 2006 peaks will see some optimistic-looking data in the report. First, the national median existing home price increased 1.5 percent, to $178,000, from a year earlier. That’s the first time median home prices have posted an annual gain since August 2007. Home values began stabilizing in the back half of 2009, thanks to increasing demand linked to cheap mortgage rates, more affordable prices, and Uncle Sam’s tax credit. However, the increase in median home prices is also tied the tax credit’s original expiration, which resulted in a larger percentage of sales to higher-end buyers in December, said Patrick Newport, an economist with IHS Global Insight, in a report. “Going forward, prices are likely to fall from December’s level because of rising foreclosures,” Newport said.

How much further will home prices fall? Mark Zandi, chief economist at Moody’s Economy.com, argues that home prices have another 10 percent or so to fall before they hit bottom in the third quarter of 2010.

[Also see Expanded First-Time Home Buyer Tax Credit Becomes Law.]

For home buyers: Those looking to purchase a home this year should be encouraged by the report, which signals that buyers will at least retain leverage in the real estate market through the spring season. Buyers already have a number of things going for them. The tax credit has been extended and expanded to include even current homeowners who close a transaction by the end of June. Thirty-year, fixed mortgage rates fell below 5 percent for the week ending January 21. And the housing bust has dragged home prices down to more affordable levels and reduced the risk of another crash. “You never know 100 percent whether you are at the bottom in prices, but prices are very stable right now,” said Zach Pandl, an economist at Nomura Securities. “Low prices, low mortgage rates, and stable price expectations are major positives and probably more important fundamentally than the first-time home buyers tax credit.”

But would-be home buyers should keep their eyes on mortgage rates, which are likely to head higher as the year progresses. The Fed was able to pull rates on 30-year fixed mortgages to historic lows by launching a program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac. The program, however, is slated to expire at the end of the first quarter. And if private buyers don’t step in, mortgage rates could increase significantly, perhaps by a half a percentage point, to 5.50 percent. But Pandl isn’t overly worried about this potential to drive rates higher because the Fed could always decide to buy more securities if need be. “[The Fed is] exiting the market but they also have been hinting that they can return if mortgage rates rise too high,” Pandl said. “And that’s a very credible [possibility] because they have bought so many [mortgage backed securities].”

For home sellers: Although home sales should rise from December’s depressed levels, those looking to sell property this spring will still have to have to work for it, said Guy Cecala, the publisher of Inside Mortgage Finance. “[Home sellers] should feel probably better than last year, but it was so bad last year that that’s not a real fair comparison,” Cecala said. “Anything is going to look better probably in the first half of this year than it did last year.” That means home sellers will have to price their home aggressively, ensure the property is in tip-top condition, and be willing to entertain offers that aren’t quite as strong as they would like. “I don’t think anybody is going to be raising their prices,” Cecala sad.

The Rich Can’t Get Loans

$8 million in assets - and can’t get a mortgage

By Les Christie, staff writerJanuary 20, 2010: 9:45 AM ET

Even refinancing a mortgage for their fancy digs or getting a new loan can be near impossible these days thanks to skittish lenders. And the higher the loan value, the more they worry.

“It’s amazing really,” said Susan Bruno, a financial planner with Beacon Wealth Consulting in Rowayton, Conn., “but it makes sense when you think about it.”

For one thing, many rich folks have fallen behind on their loans. About 12% of U.S. mortgages of $1 million and larger were late this fall, twice the rate for loans under $250,000 and nearly triple the default rate on million dollar mortgages 12 months earlier, according to First American CoreLogic Inc., a California-based research firm.

It was so simple to get jumbo loans just a few years ago. The wealthy barely had to pay a 0.2 percentage point premium over a conforming loan, according to Keith Gumbinger of HSH Associates, a publisher of mortgage information.

Lenders made the loans more expensive because they are too large to be bought or backed by the government through Fannie Mae and Freddie Mac. Today the increased risk is worth about 0.8 percentage points, although that is down from the high of about 1.8 points in late 2008.

“The pendulum has swung from one extreme to the other. Banks are going overboard,” said Lyle Benson, a financial planner and member of the executive board of the American Institute of Certified Public Accountants.

That includes asking the affluent for down payments well in excess of the traditional 20%, according to Bruno. Some lenders want loan-to-value ratios to be closer to 60%, even 50%, which means putting 40% or 50% down. Or, on a million-dollar home, having $500,000 ready to hand over.

And all the other underwriting aspects of the loan have to be in place as well, something that can be difficult to demonstrate with some wealthy clients, whose income and assets can be complicated.

One client of Benson’s, with $8 million in assets, wanted to refinance the mortgage on his primary residence.

A self-made man, he had sold a business and put much of the proceeds in a charitable remainder unitrust that paid him $150,000 a year. He took paper losses in his stock portfolio against that income, however, which lowered his taxable income. The cash flow stayed intact but the income he showed was much lower.

“The loan officer didn’t understand it,” said Benson, “and the bank declined the loan.”

Susan Bruno has a client who was turned down for a mortgage twice — despite an 800 credit score, more than adequate down payment and plenty of income.

The problem was that the client wanted to buy a second home. And because the client would not, could not, swear that he would occupy the home at least 75% of the time, lenders weren’t interested.

“Mortgages for second homes have been tough to get the past couple of years,” said Gumbinger. “A lot of second-home areas, like in Florida and Arizona, are among the most challenging markets.”

Plus, defaults on second-home mortgages are often handled differently than those of primary homes. The mortgage balances, for instance, can be reduced in bankruptcy court — “crammed down” in industry parlance — to their market values. That can wipe out a good portion of what borrowers owe, which banks hate. As a result, they often require a 50% down payment for second homes.

All in all, the wealthy simply have financial problems that we ordinary mortals can only dream of. Take the doctor client of Bruno’s with a home on 19 expensive acres of Connecticut countryside. He had more land than he needed and some time ago toyed with the idea of subdividing and selling it off.

Well, the market changed and he shelved the idea — but only after taking some preliminary steps. Last year, when he tried to refinance his mortgage, this rose up to bite him. His bank wouldn’t count the sub-dividable land, worth $8 million, as collateral because it was now a separate parcel.

“[His bank] only counted the house and a small piece of land,” said Bruno. “His lenders limited him to a loan of $1.3 million.”

For Bruno, that’s part of a trend of lenders falling back on rules and guidelines that make little sense sometimes when dealing with the individual cases presented by some high net-worth individuals.

“There’s no appropriate business judgment these days,” she said.

Aren’t you glad you’re not rich? 

Harder to Get Loans

NEW YORK (CNNMoney.com) — It’s going to be harder to get a government-backed mortgage from now on.

Looking to shore up its weakening finances, the Federal Housing Administration is set to announce stricter standards on Wednesday.

The FHA will also reduce the amount of money a seller can provide a homebuyer for closing costs, as well as tighten its enforcement of lenders.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” FHA Commissioner David Stevens said in a statement. “Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”

FHA loans have skyrocketed in popularity during the mortgage crisis since the agency backstops banks if borrowers stop paying. But housing experts are growing increasingly concerned about the agency’s ability to handle rising numbers of defaults. (Cash cushion shrivels for FHA.)

In November, the agency reported that its reserve fund has dropped to .53% of its insurance guarantees, well below the 2% ratio mandated by Congress and the 3% ratio it had last fall. The fund covers losses on the mortgages the agency insures.

Federal housing officials, who took several steps to shore up the agency’s finances last year, promised to do more at a congressional hearing in December. The new announcement is the latest set of changes to FHA policies.

FHA is making these changes in order to bring its reserve fund up back up to the 2% ratio, Stevens said in a conference call with reporters. However, the agency also wants to make sure that the new rules don’t disrupt the housing market and don’t hurt FHA’s ability to assist the underserved.

The agency will increase its up-front mortgage insurance premium to 2.25%, from 1.75%. It will also ask Congress for the right to hike its ongoing premium, currently as much as .55% monthly. The agency will then shift some of the increase in the up-front premium to the ongoing charge.

Raising the premium is the best way to add to the reserve fund, Stevens said.

The move isn’t likely to hurt borrowers much, said Thomas Lawler, founder of Lawler Economic & Housing Consulting. Most homebuyers will likely finance it so it will only bump up their monthly payments by a little.

“This doesn’t increase the amount they need to bring to the closing table,” Lawler said.

The FHA will also require borrowers to have at least a credit score of 580 to qualify for the agency’s 3.5% downpayment program. Those with lower scores will have to pay at least 10%. However, this rule may have little practical effect since Stevens recently said the average borrower score is 693.

The new policy also will reduce the amount of money sellers can provide to homebuyers at closing to 3%, down from 6%, of the home’s price. That change will bring the agency in line with industry standards and remove the incentive to inflate appraisals.

Finally, officials plan to clamp down on lenders offering FHA mortgages. The agency will more closely monitor their performance, as well as seek legislative authority to require mortgage firms to assume liability for all loans they originate and underwrite. It will also publicly report lender performance data.

One thing the agency did not do is to broadly increase the downpayment requirement. Many industry observers said such a step is necessary to reduce FHA loans’ high delinquency rates. Borrowers with little equity in their homes are more likely to default or walk away.

The agency has seen a spike in delinquencies amid the mortgage meltdown. Some 14.36% of FHA loans were past due in the third quarter, according to the Mortgage Bankers Association. This compares to 9.64% of all loans.

“They are not addressing the fundamental issue — that FHA loans are too risky,” said real estate finance consultant Edward Pinto, former chief credit officer for Fannie Mae (FNM, Fortune 500) in the late 1980s. Borrowers “need more skin in the game.”

FHA did not increase minimum downpayments more broadly because its borrowers with credit scores above 580 were generally timely with their payments.

“The reason why we drew the line at 580 is that there are clear performance drop offs as you drop down credit score tiers,” Stevens said.

As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home.

Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores.

As a result, demand for FHA loans has exploded. The agency guaranteed more than $360 billion in single-family mortgages in fiscal 2009, which ended Sept. 30, more than four times the volume in 2007.

The agency insured about 30% of home purchases and 20% of refinanced mortgages in 2009. Nearly 50% of first-time homebuyers go through the agency. 

States Urge Foreclosure Action

NEW YORK (CNNMoney.com) — Cut loan principal for borrowers whose homes are worth much less than their mortgages. Attack the problem of option adjustable rate mortgages. Cut down on red tape.

Those are some of the ideas in a plan issued Wednesday by a group of state officials who have been working for more than two years to stem the foreclosure tide.

“Potential foreclosures are being built up in the system, said Tom Miller, Iowa’s attorney general. “The efforts really need to be more efficient more effective more timely on behalf of the servicers.”

Under the administration’s program, eligible borrowers can see their monthly mortgage payments reduced to no more than 31% of pre-tax income. So far, the effort has helped about 66,500 people, with another 787,200 homeowners in trial modifications.

Reduce loan principal: State officials say that servicers should cut the loan balances of homeowners, in addition to reducing interest rates and extending the terms of the loan. This is especially true in places where property values have plummeted. Reducing principal will make it less likely that homeowners will default on their modified loans.

Pay attention to option ARMs: More than 40% of these complex mortgages are delinquent. Even worse, over the next two years, many will adjust, driving up borrowers’ monthly payments. Servicers need to address these loans before they fall into foreclosure.

Limit required paperwork: Many homeowners are not receiving permanent modifications under the president’s plan because they haven’t submitted all their documents. Treasury Department officials should reduce the amount of paperwork borrowers are required to file and speed up the debut of a central portal where homeowners can submit the forms. The portal is currently set to launch at the end of March.

Expand counseling and mediation efforts: State should expand their housing counseling and mediation programs, which require homeowners and servicers to meet before the completion of the foreclosure process.

Suspend foreclosure proceedings: Treasury officials should amend the president’s program so that the entire foreclosure process is halted when a borrower applies for the president’s program. Currently, only the sale is stopped.

Help the unemployed: Treasury officials and servicers should do more to assist the unemployed so they do not fall into foreclosure. A growing number of borrowers with good credit backgrounds are behind in their payments because of the weak economy. 

Short Sale in Real Estate

Short Sale in Real Estate With Housing Assist of America Short Sale Experts

LOS ANGELES, Jan. 12 /PRNewswire/ — The Obama administration has worked long and hard to find a solution for troubled homeowners facing foreclosure. The reality of the situation is that “only about 4% get long-term mortgage help” reports CNN. Citigroup experts say government’s current solutions so far have been ineffective at keeping people in their homes. They anticipate that “lenders could foreclose on another 8 million loans as the economy worsens.” For this reason Housing Assist of America (www.HousingAssist.com) has created a short sale in real estate program that will help all homeowners who are having trouble making their mortgage payments. The short sale program consists of 6 steps which begins with the short sale process and ends with the final goal of stable home ownership.

The 6 step road to economic recovery program helps homeowners at no cost. Among the six steps are free short sale, free credit repair, and a plan to purchase a property within a year. The 6 step short sale program has proven to help homeowners who are facing foreclosure or are in the midst of being delinquent on payments. Homeowner Delores May states, “The 6 step program has helped get me out of the red and on to a better future. There is finally a company that has stepped up and helped me out.”

The road to economic recovery is made to help homeowners in all situations. With the amount of foreclosures on the rise, homeowners are looking for a viable solution to their problems, and when comparing short sale vs. foreclosure, there is clearly no comparison what the better route is anymore. The 6 step road to economic recovery program has already helped hundreds of homeowners get rid of negative debt. Analysts from CNN are stating that 2010 is the “year of short sales.”

According to RealtyTrac, nearly 2 million housing units in the U.S. are in foreclosure or bank-owned, and millions more are likely to join them. Metro areas such as Los Angeles are anticipated to drop another 19.41% in the year 2010, according to Economy.com . The advice that many experts are giving homeowners is to get out while you can; this is a time to capitalize on the opportunity to short sale. Homeowners can take advantage of the 6 step program offered by www.HousingAssist.com .