Mortgage delinquency rate to fall 20 percent in 2011

New data from HOPE NOW shows that the industry completed more than 1.5 million loan modifications for at-risk homeowners from January through October of this year. That translates to an average of 154,000 homeowners per month who have been able to remain in their homes with an affordable loan modification solution.

It’s a notable accomplishment, but the report makes it clear that there’s far more work to be done. HOPE NOWsays there are currently 3.4 million homeowners 60 or more days behind on their mortgage payments.

Is it better to rent a Coto de Caza home, or to buy one? The answer may not be as clear-cut as you think. In this balanced, 3-minute joint interview from NBC’s The Today Show, you’ll hear the case for both sides.

From the pro-renting part of the talk, there’s valid points about the economic impact of low credit scores and/or no cash for downpayment, and the ongoing, annual cost of home maintenance — estimated at 2% of a home’s value.  Plus, renters have the ability to “follow a job” to a new town or region whereas a homeowner may be restricted, somewhat.

From the pro-purchase part, however, there’s excellent points that were made, too:

• Mortgage rates are low and each 1% drop to rates equates to a 9% drop to home price
• Buyers can zero in on a particular area with particular schools or walkability, for example, better than renters
• A home can a piggybank over the long-term; a place for “forced savings” for families that want it

The segment then closes with 5 of the best cities in which to rent, and 5 of the best cities in which to buy.

Whether buying or renting, don’t try to go at it alone. There’s lot of resources online, and an email to a local real estate or mortgage pro can set you in the right direction.

The nation’s overall delinquency rate dropped to 9.85% in the second quarter, down from 10.06% of all loans outstanding three months earlier.

Even better, the percentage of seriously delinquent loans — ones 90+ days late or already repossessed by lenders — dropped to 9.11% from 9.54% in the first quarter.

The drop in loans 90 days or more late was the biggest the MBA has ever recorded, according to the MBA’s chief economist, Jay Brinkmann. “That shows we’re making headway,” he said.

He cited three reasons for the improvement:

• Fewer loans are coming into the default process;
• The homebuyers tax credit, which increased demand for homes, generated many pre-foreclosure sales, removing the attached delinquent loans from the statistics;
• The government- and lender-led mortgage modifications “cured” some payment problems.

However, even with those bright spots, there was one troubling finding: First-time delinquencies increased after four quarters of decline. It inched up to 3.51% in the second quarter from 3.45% in the first quarter. According to Brinkmann, the reversal reflects the weakness in both the housing market and the overall economy.

“It’s a question of jobs,” he said. “It takes a paycheck to make a mortgage payment.”

Underscoring the trend is the foreclosure trend among borrowers with conventional loans, like 30-year, fixed rate mortgages. They accounted for nearly 36% of foreclosure starts during the quarter. And these safe loans rarely get into trouble unless they lose employment or income.

The four worst hit states — California, Florida, Arizona and Nevada — still account for nearly 60% of national delinquencies, but California’s numbers dropped dramatically this year. At the end of 2009, California foreclosure starts made up nearly 20% of the nation’s total. That dropped to 14.7% during the second quarter.

Another positive trend is the gradual downturn in the number of borrowers who are underwater on their mortgages, owing more than their homes are worth. 

CoreLogic reported today that the rate of borrowers underwater dropped to 23% in the second quarter from 24% in the first.

When borrowers fall underwater, it increases the chance that they’ll lose the homes. Brinkmann calls it one of the two “triggers” that lead to foreclosure.

If homeowners have positive equity, they can use it as a source of cash to pay bills, including mortgages. But if their cash reserves are gone and they can’t afford to make payments because their income has dropped, foreclosure is almost inevitable.

CoreLogic found that negative equity is worst in five states: Nevada (68%), Arizona (50%), Florida (46%), Michigan (38%) and California (33%).

By Les Christie, staff writer, CNNMoney.com

In an exclusive interview with REO Insider, Vernon said the bank pre-screened these borrowers who have been considered for a modification under the Home Affordable Modification Program (HAMP) and a short sale under the Home Affordable Foreclosure Alternatives (HAFA) program. They have either fallen out of both programs or failed to qualify. 

“The big question we’re looking to answer is customer responsiveness,” Vernon said. “These are not customers who are seeking short sales but rather distressed customers who are on the road to foreclosure, and we want to provide them an alternative. Our goal is to provide a tailored program with incentives that are attractive to homeowners experiencing a true hardship.” 

Under this “test umbrella” for future programs, no new documents are needed from the seller since they already submitted their financial information to the bank. B of A is waiving deficiencies, or the difference between what the home sells for and how much is left on the mortgage. Vernon said his department will assign a short sale specialist to work with the real estate agent and the homeowner to market the property for 120 days. 

Letters have already gone out to the homeowners, and they have 120 days to list the property. Vernon said they are looking at a six month program. The bank will be working with the homeowners’ real estate agents, meaning the bank will not be selecting agents to work with the homeowners. 

Once sold, the former homeowner receives a $3,000 relocation fee, and the real estate agent gets a 6% commission. If it doesn’t sell, B of A will accept a deed-in-lieu of foreclosure in order to satisfy the mortgage. 

Vernon said the homeowners targeted are heavily concentrated in the sand states, California, Florida, Nevada and Arizona. 

“It’s a small test of customers who have been pre-screened,” Vernon said. “We’ve also worked with an investor to get their approval in the program before hand. This allows us to test and learn. Our hope and desire of this is that this pilot and others will help us design expansion of these programs in the future.” 

That investor held a stake in the original mortgage that is now in default. Lenders need approval from these investors for a short a sale to go through. It has been one of the major hurdles in the short sale process. 

The industry is beginning to recognize short sales as a serious alternative to foreclosure. According to the real estate data and service provider Core Logic, short sales in the US have tripled since 2008. Freddie Mac recently reported that its short sale figures were up 600% from two years ago and said in its Q210 financial statement that it completed 22,117 short sales in the first half of 2010, up nearly 180% from 7,914 in the first half of 2009. 

In Q210, B of A completed more than 25,000 short sales, almost three times the amount done in the same quarter last year. Roughly 90% of the short sales are performed on the Equator platform, and Vernon said by the end of the year, the entire short sale business will be. 

“Bank of America is committed to constantly improving the short sale process for our customers and our real estate business partners,” Vernon said. “We continue to test new ways of completing short sales to provide customers with a dignified exit and help avoid foreclosure.”

If you are approached by Bank of America for this program, please know that I have a long-term, successful relationship with them, in both distressed and non-distressed properties.  I am thoroughly qualified to be your chosen local Realtor, for this program.

As the economy continues to falter and the unemployment rate remains high many homeowners continue to struggle with their house payments. There are government mandates on banks to assist borrowers whenever possible. One such mandate is for banks to offer loan modifications allowing homeowners to remain in their homes and to help them avoid a short sale or foreclosure. 

Unfortunately, getting a loan modification can be a very time consuming and an arduous task for many homeowners seeking help. Massive delays, lost paperwork and redundant efforts can cause homeowners to give up and not succeed with their modification. However, for Bank of America customers in Southern California, there is now a better process in place. 

Bank of America has established a modification department in Brea, California. Any borrower whose loan is with Bank of America can now call in and have someone answer the phone, listen to their issues and instruct them as to the process in order to proceed to receive a modification. The borrower is instructed as to what documentation is needed and an appointment is set to meet face-to-face with a Bank of America representative within one week. The results have been extremely helpful. 

If you know of such an individual who needs help please instruct them to have their loan number ready when placing the call. The homeowner is the only person who may place the call. Please make a note of this phone number and feel free to furnish it to anyone who needs help. 714-987-5050.

Let me know if you need more information -  Call me at 949-643-2100, or shoot me an email at Bob@BobPhillips.net    I hope this is helpful to someone.

Foreclosure filings rose 4 percent nationwide last month versus June, according to foreclosure-tracking firm RealtyTrac.com. For the 17th straight month, total filings topped 300,000.

A foreclosure filing is defined as default notice, scheduled auction, or bank repossession.

As with most months, just a handful of states dominated foreclosure activity nationwide.

• California : 14.9 percent of all activity
• Florida : 11.6 percent of all activity
• Arizona : 6.4 percent of all activity
• Michigan : 6.2 percent of all activity
• Georgia : 6.1 percent of all activity
• Texas : 4.9 percent of all activity

Together, these 6 states represent just 30 percent of the overall U.S. population.

The other 44 states (and Washington D.C.) were home to the remaining 49.0%.

Despite this imbalance, though, in all markets, foreclosures and REO are making a profound impact on pricing and product. “Distressed” homes now represent 32 percent of the overall resale market nationwide, according to the National Association of Realtors®.

Buying a foreclosed home can make for a terrific “deal”, but buying in the REO market is decidedly different from buying a non-foreclosed property.

As 3 examples:

1. Buying bank-owned homes can take 120 days to close.
2. Foreclosures aren’t always listed for sale publicly. Some inventory is privately-held.
3. Bank-owned homes are often sold “as is”. There may be defects that render the homes mortgage-ineligible.

If you have an interest in buying REO, consider talking with a distressed properties experienced real estate agent first. Even the negotiation process is different as compared to a non-distressed sale. It helps to have an experienced professional representing your interests.  As a local Realtor with over 33 year’s experience, I would be a qualified choice.

If lenders really had all this stockpile of “shadow inventory”, waiting for prices to rebound higher, why didn’t ANY of them take advantage of the market that existed in Orange County between January of 09, and April 30th of 2010, when, largely due to tax credits and low inventory, there were multiple offers – sometimes as many as 20 to 50 – on practically every listing in the lower price ranges? ( Under $350k, for condos, and under $500k for detached houses.) 

That was a well known, more than a year’s worth of time, when it would have been an IDEAL time to unload excess inventory, getting prices bid up to higher than market value, in many cases, while the median price in Orange County rose more than 10%. 

If all those lenders were holding all that alleged inventory, their agents would have been imploring them to take advantage of such conditions. 

The reason that DIDN’T happen is because that stockpile really only exists in the minds of conspiracy theorists, who can only offer their opinions or theories on the idea of shadow inventory, with charts, graphs, and stories concocted from still more theories. 

Here’s MY theory.  There is no shadow inventory - at least not as promoted by doom & gloom bloggers - where lenders have huge stockpiles of properties that they’ve already foreclosed on, and are “holding”, waiting for prices to come back. 

What there is, is a lot of properties wending their way through each lender’s labyrinth of systems with loan mods, short sales, and even cancellations, all preferable to eventual foreclosure.  That pile of properties is probably going to take 2 or 3 more years to work their way through these systems, and will likely do so in an extremely manageable fashion, a little bit at a time. 

As such, there’s very little likelihood of anything much more than a trickle of such properties hitting the market at any given time – pretty much as it has been for the past year and a half.  Those on the lookout for a Tsunami of distressed properties to arrive, over this next few years are in for quite a disappointment.   

Of course, this is just my opinion.

The tax credit brought a lot of buyers out last fall and again this spring, which gave a real shot in the arm to real estate. While that heightened volume cannot be sustained, home sales and prices still remain higher than last year due tointerest rates at historically low levels and the lowest home prices seen in years. A monthly survey of 54 metropolitan areas reveals that closed transactions in June 2010 were 5.6% higher and prices 3.5% higher than during June 2009.

“There’s no question, the tax credit has had a significant impact on this market,” said RE/MAX CEO Margaret Kelly. “No one can predict the future, and we may still see a slight pull back, but for right now it appears that housing is holding its own, hopefully on the road to a sustainable recovery.”

 Transactions – Year-Over-Year Change
Buyers trying to make the closing deadline for the tax credit may have pushed sales higher for June with a 7.2% rise from May in addition to the 5.6% gain over last year. Sales were especially strong in the Northeast—Boston and Hartford saw 23% more sales than last year, Providence was up 21% and Philadelphia was higher by 27%. An equal number of metro areas, 27, had increases and decreases in closed transactions year over year.

 Median Sales Price – Year-Over-Year Change
Responding to demand, home prices appear to be stabilizing and slowly inching higher. In the survey’s 54 metro areas, the year-over-year change in median sales price was 3.5%, with 27 metros headed up, 25 lower and 2 unchanged. The weighted average of all median sales prices for June was $211, 530.

 California experienced the most dramatic increase in prices—median prices in San Francisco rose almost 18% higher than June 2009 levels, Los Angeles prices were 10% higher and San Diego prices were 9% above the same time last year.

 Days on Market – Average of 54 Metro Areas
Besides price, most home owners are concerned about how long it will take to sell their home. For the homes that sold in the survey’s 54 metro areas, the average number of days it took from listing to signed contract was 81, slightly lower than the 83 day average in May and the 89 day average in June 2009.

 Months Supply of Inventory – Average of 54 Metro Areas
The inventory of homes on the market in June rose slightly from May, up only 1.2%, but down 5.8% from June 2009. In the survey’s 54 cities, the average months supply of Inventory was 8.5 months, which remains unchanged from May. This means that at the current rate of sales, the average metro would eliminate its inventory of homes for sale in eight and a half months. However, a six month supply is considered a market balanced equally between buyers and sellers.

The Slippery Slope of Short Sales by PAUL JACKSON     June 28th, 2010,     ( From HousingWire.com )

This past week, I received an email from one of my dearest friends that has really stuck with me. It illuminates perhaps one of the single largest shifts in borrower psychology likely to come from a push to short sales:

My neighbors are being foreclosed on. He is an civil engineer, and she is a retired banker. They are the most wonderful people I have ever met, and have been such sweet giving neighbors. She basically designed and built the house from scratch.

The house and land (1.3 acres) was valued at $1.8m a few years ago. Now, they are behind on payments and the bank wants to force a short sale for only $700k. She told me that she tried to modify the mortgage twice already, and has been turned down. She is willing and able to make payments on the $700k amount, but the bank is refusing and would rather sell to someone else.

The message paints an interesting picture of a potentially hidden angle to the recent short sale push by the Administration, banks, and Realtors: a renewed call for broad principal forgiveness.

It’s not too hard to see this sort of thinking quickly becoming the norm among many distressed homeowners, as a push for short sales grows ever stronger and many ask themselves why someone else is getting the better deal. More than 11 million borrowers currently owe more on their mortgage than it is worth, according to CoreLogic (CLGX: 18.09 +0.17%)—and this group of borrowers would love nothing more than to replace their current underwater mortgage with whatever the accepted “short sale price” is deemed to be.

I don’t know that such a response on the part of borrowers could be deemed irrational, either. Many will ask themselves why they have a mortgage at a higher amount, especially if the bank is willing to sell the house to another buyer for less money. Why does someone else get the lower purchase price? Isn’t easier for the bank to just give me that loan instead? I already live here.

It’s clearly a slippery slope, and not even a steep one, from a short sale push towards an outright push for the write down of mortgage principal to “short sale levels.” I suspect, in fact, that this is part of the reason some large commercial banks—Bank of America (BAC: 15.24 -1.17%) among them as of late—are working feverishly to get in front of this end game, announcing principal reduction programs that are great press exposure, and yet also protect their financial interests as much as possible.

Because the truth is that the bank and/or investor may not always have the luxury of defining their terms on principal write downs, especially not with elections looming this coming November. It’s only late June, after all.

Of course, reality is much more complicated. Generally speaking, the mortgage world can best be divided up into three sub-worlds: the GSEs, private-label securities, and whole loans. Depending on what class of mortgage asset you tend to hold, your viewpoints can differ dramatically; and if you hold all three, as most commercial banks tend to do, you’re facing more than a mild case of financial schizophrenia.

While the truth is many investors are in favor of principal write-downs, at least to a point—and many investors buying distressed whole loans are already forgiving significant amounts of principal, because they can—many commercial banks are hamstrung by such a maneuver. What’s more, plenty of consumers (rightfully) roil at the notion that financial rewards would ever accrue to the worst performers.

For most major commercial banks, for example, their whole loan portfolios present a distinct set of challenges apart from any securitized servicing they do—especially in the case of second liens (which I’ve written about before). Wide-scale principal reduction for these banks means recognizing massive losses on their second lien portfolios, losses that would blow a hole in their balance sheets so large that even the coziest of regulators wouldn’t be able to ignore it.

I’m pretty sure that right now, there isn’t the political will to fund another banking sector bailout. But the will to reduce principal is already embedded in our government’s short sale push—from there, it’s only a hop, skip and a jump into the broader use of principal reductions.

Editor’s note: The author held no relevant investment positions at the time this story was published.

Paul Jackson is the publisher of HousingWire.com and HousingWire Magazine. Follow him on Twitter: @pjackson