As Foreclosures Plateau, Repossessions Soar
Despite foreclosures hitting an all-time-high plateau in April 2010, delinquency statistics are not expected to plummet anytime soon, according to data released Thursday by RealtyTrac, the online marketer of foreclosed properties. The number of homes repossessed during April is at an all-time high of 92,432. That is a 45% increase over April 2009. If repossessions continue at this pace, more than 1.1 million homes will be lost in 2010. “There were two important milestones in the April numbers that show foreclosure activity has begun to plateau, but at a very high level that will not drop off in the near future,” said RealtyTrac CEO James Saccacio. Saccacio said he expects the pattern to become the norm for many months, with the overall numbers of filings staying high, but not increasing, and repossessions remaining at record levels.
The reason that repossessions can rise while filings hold steady is that lenders are working through a backlog of delinquent properties, taking more of them through the entire process to repossession, rather than letting them linger in limbo. The numbers of repossessed properties, also called real-estate owned or REOs, have been boosted by a spike in the number of homeowners voluntarily giving up their homes because their the value has dropped so precipitously. Some homeowners walk away when they are “underwater,” owing far more than the value of their home, because they realize that they will never recoup the losses. Nearly 5 million of those borrowers owe mortgage debt that amounts to a total of negative equity to the tune of a whopping $655 billion.
Jump in Home Price Reductions
Marking a 10 percent increase from April, 22 percent of listings on the market as of May 1, 2010 experienced at least one price reduction, reported San Francisco-based Trulia. According to Trulia, the total dollar amount slashed from home prices was $25 billion, and the average discount for price-reduced homes continued to hold steady at 10 percent off the original listing price. “With more than a year of the federal government’s involvement, we are now re-entering the free market system. As we readjust to the free market, we expect to hit turbulence in some markets,” said Pete Flint, Trulia co-founder and CEO.
“We won’t know the true severity of the tax credit expiration until the conclusion of the peak home buying season in the summer months. Only then will we have a better sense if the U.S. housing market can stand on its own two feet.” Trulia said many metro areas experienced major increases in reductions. The most significant was seen in Omaha where price reductions surged 62 percent. In addition, Trulia said 12 of the top 50 cities across the U.S. saw price reduction levels at 30 percent or more. Price reductions were the highest in Minneapolis, where 40 percent of home listings experienced at least one price cut. Price reduction levels for luxury homes—those listed at $2 million or above—continued to hold steady from last month with an average discount of 14 percent, Trulia said.
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The government is giving away money to do Short Sales!
By Ruth Simon, The Wall Street Journal
The Obama administration laid out final guidelines on Monday that should make it easier for some financially troubled borrowers to sell their homes.
The guidelines are designed to encourage the use of short sales, transactions in which the borrower with lender approval sells the home for less than what is owed on the loan. The program also makes it easier for borrowers to voluntarily transfer ownership of properties through a “deed in lieu of foreclosure.”
Short sales can result in higher prices than foreclosures and can be less damaging to local neighborhoods, in part because homes aren’t left vacant and exposed to vandalism. But these transactions are often difficult to complete.
Under the plan, borrowers will receive $1,500 from the government if they sell their homes for less than the amount of their mortgages. Mortgage-servicing companies will also receive $1,000 for each completed short sale.
The program is open to borrowers who may be eligible for the government’s loan-modification program, but don’t end up qualifying, or are delinquent on their modification, or request a short sale or deed-in-lieu transaction.
The short-sale program is the latest addition to the Obama administration’s $75 billion foreclosure-prevention plan, which includes incentives for mortgage companies and investors to rework troubled loans. The government first said in May that it would include short sales in the program, but it has taken months to finalize the details.
Under the new guidelines, second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgages, meanwhile, can collect up to $1,000 from the government for allowing such payments.
Borrowers who complete a short sale under the program must be “fully released” from future liability for the debt, according to the guidelines.
Mortgage Market Continued to Falter in 3rd Quarter
By MICHAEL R. CRITTENDEN
WASHINGTON — The U.S. housing market continued to deteriorate in the third quarter as even the most credit-worthy borrowers increasingly fell behind on their mortgages, highlighting the problems policy makers have faced in trying to address the problem.
A new report from the Office of Thrift Supervision and Office of the Comptroller of the Currency found that the percentage of current and performing mortgages dropped for the sixth consecutive quarter, as foreclosures in process topped 1 million mortgages at the end of September. The report covers roughly 34 million loans totaling $6 trillion in principal balances, or approximately 65% of the U.S. mortgage market.
The regulators said that serious delinquencies, loans that are at least 60 days past due, increased across all loan categories and climbed to 6.2% of the loans in the portfolio during the third quarter. The report said that just 67.7% of option adjustable-rate mortgages were considered current at the end of the third quarter, while 27.9% were either seriously delinquent or in the process of foreclosure.
The most troubling finding was that even borrowers considered “prime,” or the least risky, increasingly can’t pay their loans. The report said that 3.6% of prime mortgages were more than two months behind on payments, more than double from a year ago.
The regulators noted that banks and thrifts have increased their efforts to help some borrowers, implementing more than 680,000 loan modifications, trial period plans or payment plans during the third quarter. That includes roughly 274,000 plans initiated through the Obama administration’s Home Affordable Modification Program, which provides borrowers with a three-month trial period to successfully pay for their modified loans. Borrowers who meet the requirements then have their loans permanently modified.
But even attempts to modify loans are yielding a low rate of success, a problem that policy makers have been unable to deal with successfully over the last several years as they seek to right the housing market. The report said that more than half of all modified loans were more than 60 days past due or in foreclosure within six months of modification, and less than 1% of loans modified under the administration’s plan had been permanently modified through the end of September.
Additionally, banks and thrifts remain unable to keep the pace of modifications anywhere close to the number of struggling borrowers who need help. The report said that only one in six borrowers who were seriously delinquent or facing foreclosure at the end of the third quarter received a load modification or trial payment plan. There were more than 369,000 new foreclosure actions during the third quarter.
Luxury homeowners default at twice US rate
Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers. Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier. Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn’t break out short sales by size of mortgage. There are 114,000 home loans of more than $1 million, according to First American, and about a quarter of all mortgaged homes in the U.S. have loan balances bigger than their curre
nt value, known as being upside down or underwater, the data company said. Luxury home prices probably will drop another 5 percent before reaching a bottom in September 2010, according to Sam Khater, senior economist at First American.