Short Sale Blog

Today, Lender Processing Services (LPS) issued their latest report on foreclosure and short sale statistics, across both the United States, and here in Washington State. Overall, the trends are not positive. The total percentage of borrowers in the United States that are delinquent (excluding Foreclosures) is at 9.2%. This is a year-over-year increase of 7.9%. Foreclosure inventories increased by 13.5% during the same period.

The one bright spot is that completed short sales are on the rise. The increase in the last quarter was 9.2%. Over the last year, the number of completed short sales rose from 18,619 to 41,030 - an increase of 120%.

In Washington State, the number of non-current borrowers has stayed roughly the same in the last year, at 8.7% (excluding foreclosures). In regards to short sales, here at Seattle Short Sales, Inc. we have seen a tremendous increase in homeowner awareness concerning short sales. Many homeowners have taken the time to educate themselves on the benefits of a short sale on their credit score and future borrowing capabilities.

If you are a homeowner, please contact us today for assistance.

Freddie Mac CEO, Ed Haldeman released a statement today on "Why Foreclosure Prevention is a National Priority." He states that while the overwhelming majority of borrowers are current on their mortgages, that since the start of the recession that over three million homeowners have lost their homes to foreclosure, and that over five million are still currently at risk.

While Freddie Mac would like to find ways to help homeowners stay in their homes, they recognize that in many cases it is not financially feasible to make that happen. The typical reasons why a homeowner doesn't qualify for a workout plan is when they are struggling with a job loss, curtailment of income, a health issue, or simply bought more house than they can afford.

In those situations, Freddie Mac has found that the best scenario for the homeowner is to find a graceful exit from homeownership. Solutions such as short sales are recommended by Freddie Mac as they help homeowners avoid the stigma of foreclosure, shorten the waiting period before they can buy another home, and may inflict less damage on the individual's credit report. Freddie Mac reports that short sales are up by 600% from 2008.

Fannie Mae, in an effort to reduce the amount of 'strategic defaults' has issued new underwriting guidelines meant to punish those homeowners who walk away from a mortgage, even when they have the ability to pay it.

Researchers have stated that the main motivation to walk away from a mortgage is when there is negative equity. According to real estate research firm CoreLogic, about 11.3 million homeowners are underwater on their mortgages. Around 2.3 million additional homeowners are very close to being underwater. All told, almost one-third of all U.S. homeowners are either underwater or are close to it. CoreLogic projects that the typical underwater homeowner will not return to a position of positive equity until 2015 or 2016 at the earliest.

Fannie Mae is targeting homeowners who let their house go to foreclosure without evidence of a hardship or a good-faith attempt at a workout alternative. The penalty that Fannie Mae is implementing is two-fold. First, they have declared that strategic defaulters will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Secondly, they are vowing to aggressively pursue deficiencies in states that allow them to do so.

In order to encourage workouts, Fannie Mae, in April 2010, issued a revised underwriting bulletin, found here, that encourages homeowners to seek foreclosure alternatives such as short sales, by making the homeowner eligible for a new Fannie Mae backed loan in as little as two years. Compared to the waiting period of seven years post-foreclosure, it is clearly an advantage to pursue alternatives to foreclosure.

Let's take an example of a borrower who is underwater. Here at Seattle Short Sales, Inc. we work with hundreds of local homeowners, and can draw on a mountain of recent statistics. You can see all of the short sale approval letters here. On average, when the home is sold, the debt discounted is over $100,000 on an average property.

In our example, the homeowner previously purchased the property for $350,000 four years ago. The homeowner has a mortgage payment that is over $1,000 more than a rental payment would be for a suitable, alternative dwelling. If it takes until 2016 to regain their lost equity, that would mean they are making 84 housing payments for a $1,000 more than necessary, with nothing to show for it in the end. $84,000 put into the pocket of a homeowner in only six years is the reason why people voluntarily default.

Now, in Washington State, if the house goes to a Trustee Sale, the foreclosing senior lien holder, in most cases will not have a right to pursue the borrower for a deficiency. The junior non-foreclosing lien holder does retain the right. So, if the homeowner only has one mortgage, then there is a good chance that they could completely walk away unscathed, except for the restriction in using Fannie Mae money for the next seven years. If they have a junior lien, then the situation is more complicated.

In all cases, the homeowner will want to consult with a real estate and bankruptcy attorney to assess their options and compare the pros and cons of the situation.

In the month of April, 2010 - Seattle Short Sales, Inc. received 22 short sale approval letters. The total discounted debt totaled $2,244,000. Since Feb 15, 2010 - Seattle Short Sales, Inc. has received 56 short sale approval letters.

Of the 22 short sale approval letters received in April, 15 banks were represented. BAC Home Loans (Bank of America's servicing arm) and Wells Fargo each had three, while Chase, CMS Carrington and Indymac had two each.

The fastest company was Specialized Portfolio Servicing, generating an approval letter in only 15 days. Hot on their heels was HSBC at 16 days. The majority fell in the 30-90 day range, measured from the day we submitted the file to receiving the approval letter.

The longest was Bank of America Home Loans with an approval letter that took 290 days, with Chase, not far behind at 221 days. These two weren't surprising. The Bank of America loan was a former Countrwide Loan, and the Chase loan was a former WAMU/Long Beach loan. Historically, those two loan portfolios have taken the longest to negotiate.

If you are a homeowner, and have any questions about short sales, and how to get started, please fill out this form.

Best,

Ross Kilburn

In Washington State, by the last day of February 2010, 9.1% of loans were delinquent. This figure was provided by a new report issued by Lender Processing Services. LPS states that of those delinquent loans, 7.8% were already in default and starting the foreclosure process.

Nationally, the total non-current loan figure, including both delinquencies and foreclosures is at 13.5%. This includes 1.1 million loans that were current at the beginning of January and became delinquent or entered foreclosure as of February month end.

In February, nationwide, 4.56% of loans rolled into 'worse' status vs 2.22% that improved. Total delinquencies nationwide increased 21.3% since February 2009.

These numbers are staggering. The one bright spot is that HAMP loan modifications seem to be picking up speed. In addition, the new HAFA (Home Affordable Foreclosure Alternatives) is just starting to roll out, and should help homeowners pursuing short sales.

Seattle Short Sales, Inc. has seen a dramatic increase in homeowners pursuing short sales in the Seattle area. For help with your situation, please contact us today.

If you have negative equity in your house, First American CoreLogic estimates that you will not have positive equity until late 2015 to early 2016. In some severely depressed markets, the typical borrower may not experience positive equity until 2020 or later.

CoreLogic, based on it's calculations, is stating that 11.3 million - or 24% - of all U.S. residential properties had negative equity in the last quarter of 2009.

They are making their recovery projections based on a 3% annual home price increase. If calculated at a 5% annual appreciation, the first markets would recover by 2013, but CoreLogic states that 5% appreciation is much higher than the historical average.

While it might be assumed that price appreciation would be the main factor in reducing negative equity, it turns out that the amortization of the loan, and paying down principal actually accounts for the majority of the reduction in negative equity.

It is the negative equity problem that is making many homeowners choose the short sale route. The short sale route allows the homeowner to both reduce their monthly housing payment by moving into a more affordable living situation, and avoids spending 5-7 years making mortgage payments on an asset that isn't valuable. Many homeowners are choosing to cut their losses, and move themselves and their money into a more affordable, more rewarding situation.

The percentage of U.S. homeowners who owe more on their mortgages than the value of their properties has increased to 23%, according to First American CoreLogic, in a recent update.

It is estimated that 10.7 million households had negative equity, or were 'upside-down' with their mortgages in the third quarter of 2009.

It is widely seen that these underwater mortgages are going to slow down any housing recovery, as the owners of the home can't easily sell their homes, without an approved short sale from their lender. In addition, homeowners are unable to refinance and cushion any economic blows they may have sustained through job losses or reduction in income or hours of employment.

These statistics have led economists from Chase to push their estimate of a bottom in U.S. home prices out to early 2011.

Washington state, following a long-held trend where the economy's expansion and contraction lag the rest of the U.S., as of September 2009, has the fifth worst price decline, year-over-year at -10.3 percent. If this trend continues, expect at least a couple more rough years for our local housing market.

Contrary to the rebound in the stock market and declarations of the end of the recession, homeowners across the U.S. are still having a tremendously hard time paying their mortgages. TransUnion, reported today that the national default rate (borrowers 60 days or more behind in mortgage payments) has hit an all-time national high of 6.25%. One year ago, the rate was at 3.96%.




In the Seattle metropolitan area, the mortgage delinquencies continue to push down the median price of housing. The National Association of Realtors 3rd Quarter Report Metropolitan Report on Median Prices shows the Seattle-Tacoma-Bellevue area median home price dropping by 8.1% from the 3rd quarter of 2008 to the 3rd quarter of 2009.

The one positive spin on this newest round of grim statistics is that the rate of the growth in delinquencies is slowing. That said, that is little comfort for homeowners who are facing difficult times. If you would like to explore your mortgage options, please contact our office today.

In my experience, working with hundreds of Seattle area pre-foreclosure homeowners since 2004, the homeowner is best served when they find closure as soon as possible.

Loan modifications, for the vast majority of homeowners, only postpones the inevitable.

Consider this reality: Out of 3.1 million delinquent mortgages in September of 2009, only 16% have been successfully modified. The average homeowner has roughly a one in six chance of getting their bank to agree to a loan modification.

To even get to that point, the homeowner usually has to suffer through months of agony, as they fax and re-fax the same documents to the lender, are given conflicting information, and struggle to come up with the funds necessary for entering trial forbearance programs.

But what happens to a homeowner who successfully achieves a loan modification? The majority of homeowners (56%) re-default within 12 months. After just three months, 28% are already in default.

That takes the odds of success down to one homeowner in twelve. But even that sole survivor is not in great shape.

Only 10% of the loan modifications involve a principal reduction. The loan modification is usually achieved by lengthening the term of the loan, or making the loan into an interest-only loan, with the principal payback postponed until the future sale of the house. What this means is that the borrower continues on the hook for a property that is underwater, for an additional ten years, without paying down the principal for the entire time. That is not the recipe for success. It is that kind of creative lending that caused the bust in the first place.

Here are the specific track records for a few select lenders:

Bank of America: 11 percent of eligible loans have been modified under the Making Home Affordable program.

JPMorgan Chase: It has offered modifications to 27 percent of eligible borrowers through the federal program.

Wells Fargo/Wachovia: They have modified 17 percent of eligible loans.

All of the above numbers come from the September 2009 report of the Office of the Comptroller of the Currency, or OCC, which regulates national banks. The OCC is a division of the U.S. Treasury, the entity that oversees the Making Home Affordable program.

The bottom line is that if a homeowner wants complete, guaranteed finality to their situation, there is usually just one answer. Find a new housing payment that they can afford and lock it in. For many homeowners, that means ditching their $2,500/mo mortgage payments and renting a $900/mo studio apartment. I understand, that might sound horrific to homeowners who have never missed a payment in their lives and feel like they are just going through a rough patch.

However, in my experience homeowners will choose to drain their retirement accounts in an attempt to save their house, yet in the end, completely run out of money and be forced to move anyway. In contrast, I have seen great results from homeowners who make a clean break from a bad situation and as a result, preserve their precious resources.

Another significant result of taking charge of the situation, is the added benefit of freeing up mental space to pursue new income opportunities. By not spending all the waking moments focused on the past, amazing amounts of creative energies are released.

Perhaps someday, the Making Home Affordable loan modification program will work for the vast majority of homeowners. In the meantime, carefully analyze the existing program, and make sure it works for your situation, before committing precious time and money to getting a loan modification.

Click here to learn more about the Seattle Short Sale Advantage program, and how it has helped hundreds of other local homeowners.

The Federal Housing Administration (FHA) is currently on Capitol Hill defending the notion that it is soon to collapse under the weight of bad loans. The FHA commissioner, David H. Stevens, proclaims that they won't need a bailout and that they are adequately managing risks.

The most telling statistic of their impending collapse is that of the loans they backed in 2008, a full 20% are in default. It is not surprising that the default rate is so high. The biggest draw is that a buyer can purchase a home with only 3.5% down, and have all their closing costs covered by the seller, or in many cases, the foreclosing lender.

It is hard to imagine that in good conscience the federal government would knowingly subject 20% of their clients to the pain of default and foreclosure. However, it appears they do know, and they have a reason why they are doing it.

Barney Frank, the chairman of the House Financial Services Committee, said in an interview that the defaults were worth it. “I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

The policy is to stabilize the banks, via propping up the housing market with another round of unqualified buyers. In other words, they are propping up a deflating bubble with another artificial bubble. When will the madness end?