Short Sales less painful to banks than Foreclosures

If you’re underwater on your home here’s some guidance on leveraging your bargaining position.  Whatever you do the ostrich approach of putting your head in a hole in the ground hoping the problem goes away doesn’t work.  Be proactive – get educated and take ACTION.

If your an investor maybe SS’s are a source of properties you should consider.  Yes, they are much more work and can be gruelingly slow and frustrating but if they were easy I guess everyone would be doing them, right?

Here’s the article from MSNBC

Increase in short sales give market a little breathing room

J Pat Carter / AP file

Short sales up, foreclosures down.  That’s because in many cases a short sale may be the lesser of two evils for banks and homeowners versus a foreclosure.
By Martha C. White

It’s a tarnished silver lining for people at risk of losing their houses and homeowners in neighborhoods blighted by bank-owned properties, but the robosigning scandal that slowed the foreclosure process to a crawl appears to have increased lender interest in short sales.

“Foreclosure sales are pretty devastating,” said Faith Schwartz, executive director of Hope Now, a resource for homeowners facing foreclosure. “We’d much prefer a modification, but if [homeowners] don’t quality, then the next best alternative is deed-in-lieu or short sales.”

Short sales, in which the lender agrees to let the owner sell the home for less than the amount owed on the mortgage, and foreclosures both climbed in 2010, but while short sales rose by 26,000 this year, the number of foreclosures fell by 255,000, according to Hope Now. (This is a stupid statement and example of how people manipulate facts with statistics.  Foreclosures fell because banks stopped doing them as they all got caught doing illegal robo-signing.  Hence a temporary and mostly voluntary moratorium on Foreclosures in 2011 but that is ending and banks are getting back to work on the growing shadow inventory.  Given our economic malaise the number of homeowners behind on their mortgages has grown.)  Short sales, along with deed-in-lieu of foreclosure deals in which the lender takes the deed essentially as payment for the mortgage, still upend families, torch credit ratings and hurt neighboring property values, but they’re far less toxic than foreclosures.

Short sales are better for homeowners. They can stay in their homes (what? no they can’t.  They sell it and move out.  They may possibly stay in a bit longer while they negotiate with the buyer and the lender(s) but they can not stay and this is typically a stipulation in the sales agreement.  If banks won’t modify your loan they certainly don’t want to be taken advantage of and let you stay in a home they are selling for a loss.)  and the quicker process means they can begin rebuilding their credit sooner.  Credit scoring firm Fair Isaac Co., which developed the FICO score, says foreclosures and short sales slash the same number of points from a homeowner’s credit score.  Homeowners with short sales may be able to obtain a loan sooner than foreclosed homeowners, though, which can improve their credit.

In some states, mortgage lenders can pursue a delinquency judgement against homeowners for the difference between the amount due on the mortgage and the purchase price at a foreclosure auction.  A delinquent homeowner engaging in a short sale has an opportunity to negotiate away the bank’s right to sue for that judgement. (You must do this & you must work with a realtor who knows and understands this.  Otherwise most of the economic benefits of a SS are lost, why go thru all the pain to still have to pay?  In this case you’d be better off  just offering a deed in lieu and be done with it)

The biggest plus for banks is that they stand to make more from a short sale than a foreclosure. According to foreclosure specialists RealtyTrac.com, the average price of a foreclosed home in the second quarter of 2011 was $164,217, while the average price of a short sale was $192,129.

Besides yielding less, foreclosures also cost lenders more in legal and administrative resources. “The incentives against foreclosing are even larger now,” Karen Dynan, co-director of the Economic Studies program at the Brookings Institution, said via email. “Servicers are facing enormous staffing constraints because they are trying to deal with so many distressed properties, so it is probably even harder now to find the staff to do the paperwork for the foreclosure.”

Lenders are also spending more on due diligence, she said. “Servicers and lenders are being heavily scrutinized right now so they probably are more worried than ever about making a mistake in a foreclosure that could subject them to legal liability in the future.”

Neighborhoods also benefit from short sales rather than foreclosures. “Short sales typically sell at less of a discount than foreclosure sales do,” Jed Kolko, chief economist at real estate website Trulia.com, said via email. “Also, foreclosed homes often sit vacant while short sales are re-occupied more quickly. For both these reasons, short sales tend to depress neighboring property values less than foreclosures do.

Another issue that plagues foreclosures is vandalism, either from opportunistic criminals preying on vacant homes or from disgruntled homeowners. “It’s often not a friendly process so you frequently have cases where people deliberately vandalize homes,” Dean Baker, co-director of the Center for Economic and Policy Research, said.

Some economists worry that the drop in foreclosures is less an indication of lenders’ willingness to compromise and more a function of a huge backlog of foreclosures that haven’t been processed. “Foreclosures are going to be a drag on the market for along period of time,” Baker said. Until these distressed homes are resold and assimilated back into the market, real estate prices can’t stabilize.

Baker added, though, that lenders facing years’ worth of legal wrangling and costs to execute a foreclosure may be more willing to accept a buyer’s offer in a short sale.

The other caveat is that short sales aren’t an option for all distressed homeowners. Short sales are contingent on the ability of sometimes multiple lenders to agree on a price that a buyer is also willing to pay. For people who took out multiple mortgages or have other liens, this presents a challenge. “It’s just a little more complicated when you have more parties involved,” Schwartz said.

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Zillow: US home values to drop about $681B in 2011

Annual loss is 35% less than in 2010

By Inman News, Thursday, December 22, 2011.

The value of overall homes nationwide has likely dropped just over $681 billion this year, according to property search and valuation site Zillow.

That drop, to a total estimated value of $21.9 trillion for U.S. homes, is 35 percent less than the drop experienced last year, when the nation’s homes lost $1.1 trillion in value.

Most of the decrease in 2011 occurred during the first half of the year, when the market lost $454 billion in value, Zillow said. The site projects values dropped a further $227 billion in the second half of 2011.

“While homeowners suffered through another year of steep losses, the good news is that homes are losing value at a substantially slower pace as the market works its way towards the bottom,” said Stan Humphries, Zillow’s chief economist, in a statement.

“Unfortunately, when we look ahead to next year, the unabsorbed pool of housing supply, dragging levels of consumer confidence, high unemployment and negative equity will continue to put downward pressure on the housing market, pushing our expectation for a potential recovery into late 2012 or early 2013,” Humphries added.

Only nine out of 128 markets tracked by Zillow (7 percent) saw an increase in home values this year. The New Orleans metro area experienced the largest gain (up $3.5 billion), followed by the Pittsburgh metro (up $2.7 billion), Zillow said.

The largest value losses occurred in the three largest metro areas tracked by Zillow: Los Angeles (down $75.5 billion), New York (down $44.8 billion), and Chicago (down $41.7 billion).

FHA will keep funding flips through 2012

Good news for efficient markets & real estate investors too!  Inman news reports FHA will in effect keep funding flips by extending it’s 90-day resale waiver program through 2012.

FHA will keep funding flips

Waiver for 90-day resales extended through 2012

By Inman News, Wednesday, December 28, 2011.

For the second year in a row, the Federal Housing Administration is extending a temporary waiver of its “anti-flipping” rule, meaning homebuyers relying on FHA-insured financing will continue to be able to buy homes that have changed hands in the last 90 days.

The waiver is a boon for investors seeking to rehab and flip properties, because it expands the pool of eligible borrowers to include those relying on FHA-backed loans, popular with first-time homebuyers and others who lack the cash to make large down payments.

In extending the waiver through 2012, FHA said all transactions must continue to be arms-length. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender can document the justification for the increase in value, FHA said.

FHA instituted the anti-flipping rule in 2003 to protect its mutual mortgage insurance program from losses on homes that were merely flipped, rather than rehabbed. Homes repossessed by Fannie Mae, Freddie Mac, and state- and federally chartered financial institutions were exempt from the rule.

In February 2010, the Obama administration waived the waiting period for resales — including homes purchased and rehabbed by private investors — in the hopes of stabilizing home prices and revitalizing communities hit by foreclosures.

It often takes less than 90 days to acquire, rehabilitate and sell properties, the Department of Housing and Urban Development said at the time. Some sellers of rehabbed properties had been reluctant to enter into contracts with FHA buyers because of the cost of holding a property for 90 days, HUD said.

In extending the waiver through 2011, FHA said it insured 21,000 90-day property flip loans worth more than $3.6 billion in 2010 that would otherwise not have qualified for financing.

That number has since grown to nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.

-via Inman News

Shadow Inventory still an Iceberg

Here’s a very informative article by/via Dr. Housing Bubble about the massive, off the popular news radar, shadow inventory looming on lenders balance sheets.

Shadow Inventory Armageddon

The biggest problem facing the housing market is still the large amount of stubborn shadow inventory.  The fact that this figure remains elevated is a sign that the banking system after all these years and trillions of dollars in bailouts has yet to figure out a streamlined way to unload properties.  The Federal Reserve is trying to grease the wheels with historically low mortgage rates but that has done very little since this does not address the weak economy.  At the latest count there are 6.54 million loans that are either delinquent or in the foreclosure process.  This figure hasn’t really moved much for the entire year.  Properties have been sold from the REO (bank owned) pile but this is the tiny chunk of properties that is covered by the mainstream news and also that appear in public listing services.  As we will show in charts later in this article, only examining this piece of the real estate pool is like seeing the tip of an iceberg and thinking there is nothing underneath it submerged in the water.

To break down the figures even further you have 2.48 million loans that are less than 90 days delinquent (3 missed payments), 1.9 million loans that are 90+ days delinquent (more than 3 missed payments), and 2.16 million loans already in the foreclosure process.  In total, this adds up to over 6.54 million loans in the distressed pipeline and this is what I would categorize as the shadow inventory.  As the chart above highlights, only about 500,000 properties are actually real estate owned and show up for sale in local MLS data (and not all REO show up but a lot do).  The cure rates are abysmal on many of the loans and many are underwater to levels that will never cure on these properties.  In fact, the latest data shows that the typical foreclosure process timeline is now up to a stunning 599 days!

– Click the Link above to read the complete article –

 

American Land Title Association says title insurance premiums are down 4.6%

FHA – Could it be here we go again?

Well, we will have to see how this one plays out. 

Congress Worries FHA Could Be ‘Fannie, Freddie, the Sequel’

Housing and Urban Development Secretary Shaun Donovan’s appearance before the House Financial Services Committee on Thursday came after an independent audit warned last month that the agency could soon run out of money and require a taxpayer bailout.

Mr. Donovan said the agency’s finances are of concern, but highlighted the study’s finding that the agency’s reserves are likely to recover and reach the 2% threshold in 2014, earlier than projected a year ago.

 

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