24% of FHA Loans written in 2007 in Default.  20% of FHA loans written in 2008 are in default.

Recap of findings of the latest RealtyTrac report:

* The foreclosures surged 15% as compared to one year ago.
* For Every 409 U.S. homes – 1 is now facing default.
*Over 87,000 homes were repossessed just in January 2010 alone. That’s a 31% increase over January of 2009.
*The  number of pending foreclosures will increase by nearly 40% to a record  high of 3.5 million as compared to the old record of 2.8 million in 2009.
*Home values plunged even further by 17% in December 2009.
*Fannie Mae  conventional loan delinquency rates have  more than doubled from 2008 year end to 5.3% by the close of 2009.

The pace at which homeowners are falling behind on their mortgages is declining, however, the overall delinquency rate hit another record.

Shadow Inventory is a term that refers to unsold foreclosures.  These are homes being held back from the foreclosing bank and not yet placed on the market for sale.  No one really knows how large the problem is the banks and the public are facing.

There are various statistics available from DataQuick, RealtyTrac and also ForeclosureRadar.   In the San Francisco Bay Area 9 Counties it is estimated approx. 35% or more of foreclosed homes  have not been listed for sale yet – representing approx. 20,000 homes and possibly as high as 100,000 homes.   It is possible  that a similar trend is happening in the Vancouver – Portland area.  Perhaps not quite as severe, however.

There are several speculative reasons for this “shadow inventory of unsold bank owned homes”.    The system may be overwhelmed by the amount of homes on the books that need to be processed for resale.  The banks may be holding bank on listing too many for sale – preventing a free fall of home prices.  The banks may be holding back to create an illusion that their balance sheets aren’t as bad as they really are.

In addition to this shadow inventory there is another huge wave of foreclosures to hit the market.  These are homes that have been placed under a moratorium which halted the foreclosure process in order to try work out’s with the homeowners via loan modifications of various types.   In essense this will be a wave upon another wave.. or 2 waves back to back.. whichever way you want to look at it.

Here is a quote by Patrick Newport, a U.S. Economist with Global Insight – a Mass. research firm:

“The problem is that no one knows how extensive (the shadow inventory) is,” “It’s a wild card. If it’s a really big number, you’ll see prices drop a lot more and deeper problems for the financial system.”

Case Shiller Home Price Index is a leading information source for what is going on in the housing market.  The January report shows that sales prices across the nation continue to decline.

While the low interest rates and low prices are  bringing many buyers to the market in search of bargain prices there appears to still be more downside for home sellers.

What does that mean to real estate agents?  I means they will need to price their listings below the current market value. Since it could take 2 -3 months for a short sale approval it would be wise to determine the month over month decline percentage in your area and multiply that by let’s say 3 months..So, if your area is declining at 12% a year you may want to reduce your list price by 3% from recent comps.

This, of course, is not an exact science but it is a start in the right direction.

Today the term “loan modification” is highly searched on the internet.
For good reason.  As we all know the rate of foreclosures is at an all
time high and getting worse.  Homeowners who are not able to make
their house payments on time are trying to figure out what their options
are so they don’t loose their home to foreclosures.

All over the news we hear the term “loan modification” being bandied about
with ever increasing frequency.  What is a loan modification?  How does
it work?  Do I qualify?  Will my lender participate?   What if my home is
worth less than the current liens?  What if I am currently late on my mortgage
payments?

My objective is to help homeowners who are behind or having a hard time
making their payments, facing foreclosure or notice of default to understand
their workout options and whether a loan modification would be right
for their situation.    If they don’t qualify or their lender won’t participate
than other workouts would need to be considered.

A typical loan modification plan may include lowering the interest rate,
adding the payments which are behind to the end of the loan – thus, increasing
the payoff balance or even extending the term of the loan.  This solution would
generally be for a borrower whose income has changed permanently (lowered)
and they do not expect it to go back up anytime soon.  It would be best
to show your lender that you have changed your habits and are spending less, paid
down debts, etc.. to show them good financial management as they consider
your request.

There are many other terms that fall under the concept of a loan workout, however,
they do not modify the home loan.   Such terms you may have heard of include:
foreclosure, forbearance, deed in lieu of foreclosure, NOD, Notice of Default,
Cash for Keys, Short Sale, Listing home for sale, Repayment plan, Reinstatement
and Bankruptcy.

A brief definition of each follows:

Foreclosure:   Due to non-payment of note the trustee sells home on courthouse steps
in an auction format.

Notice of Default (NOD):  this notice is delivered to the borrower and states that the
payments have not been paid as agreed and that if the amount owed plus certain
expenses is not paid in full by a certain date that the home will be sold at auction.

Cash for Keys:  The lender agrees to pay the defaulted homeowner a set amount
of cash when they leave the property in good condition.  Clean and undamaged.

Deed in lieu of Foreclosure:  This option is where the owner gives the deed of the home
back to the lender in order to avoid foreclosure proceedings.

Forbearance:  The lender can “stay” the foreclosure process with a forbearance agreement
between the lender and homeowner.  When the homeowner faces a temporary financial hardship the lender may approve this option and allow the homeowner time to get back on their feet (so to speak) and resume payments at a later date and catch up on payments in arrears within a certain time frame. This would be used with “temporary hardship” conditions rather than a long term financial problem.

Short Sale:  The lender accepts a ’short payoff’ meaning that the proceeds to the lender upon the sale of the home is less than the current mortgage value.  If there is a 2nd or 3rd mortgage those lenders would also have to accept a short payoff or complete write off of their loan(s).

Listing Home for Sale:  Selling home on the open market usually thru a local real estate
agent and using the MLS (multiple listing service).

Repayment Plan:  The amount you are behind can be broken up into smaller chunks and
repaid over several months with your normal mortgage payment till you are ‘current’ on your mortgage.

Reinstatement: Once you have paid the lender the entire amount of past due payments plus any late fees than your mortgage is reinstated.

Chapter 13 Bankruptcy:   This can give a homeowner time to reorganize their debts and enter into a repayment plan
that incorporates all of their monthly obligations.

A word of caution:  Always seek the advice of your attorney, financial planner and accountant before proceeding with any type of loan workout or modification program of your exiting mortgage or selling your home.   Don’t delay when behind on payments – seek legal advise immediately and be in constant communication with your lender till your situation is resolved.

Hope for Homeowners – H4H

FHA – the Federal Housing Association – is offering the Hope for Homeowners Mortgage Lending Program. It is a solid step to help homeowners who are in distress by having a difficult time making their mortgage payments.
The program will allow borrowers who qualify to refinance into an FHA insured mortgage. Borrowers who are in a loan workout or some type of loan modification program because of having a hard time making their mortgage payments will be given consideration under the H4H program.

Not everyone will qualify for this program. If you have stopped making your mortgage payments you will want to re-establish monthly mortgage payments with your lender – get back on track – and do this for at least 3 months.

It could be that some lenders might not participate in this program and if that is the case you will need to consider other loan workout options.   Simply call your lender and ask if they are participating at this time. If they say “no” than ask if they plan on participating in the near future.

If you are facing foreclosure or considering a short sale the Hope for Homeowners refinance program is something you might want to take a look at and consider for your own situation.

1 out of 6 Homes are in Foreclosure!

Can you imagine?  If the statistics are correct that would mean on average walking up and down any street in America that 1 out of each 6 homes you see are in foreclosure.  That would mean that 1 out of 6 families would be looking for a rental home soon.     Of course, you must realize that some states are far worse off than others – so the idea of 1 in 6 homes in foreclosure in every neighborhood is not true.

For example Foreclosures in Vancouver Washington are much much lower than they are in Sacramento California.  Vancouver Washington Foreclosures are a problem and getting higher but not nearly so many of the formerly “hot spots” like Florida, Colorado, California and other areas.

The root of the problem is that too many homeowners are “under the water” on their home mortgages. They simply owe more than the home is currently worth.  According to Mark Zandi, chief economist at Moody’s Economy.com  at the end of 2006 there were 3 million homes in foreclosure.  By the end of 2006 there were 6.6 million and right now there are 12 million homes in foreclosure.

According to Zillow.com nearly every homeowner who purchased a home in 2006 in Stockton California is now under water.

Statistics show that on a nationwide basis out of every home purchased since early 2003 1/3 of them now have negative equity.

Almost 1/2 of home purchases from 2006 are under water (negative equity).

Even though underwriting guidelines were more stringent in 2008 mortgage originated this year are either on par or worse than those originated in 2007 and 2006.  Their equity is not as you would expect.

According to Zillow.com in some areas or neighborhoods of the country foreclosed homes are upwards of 50% of the homes for sale on the market.

Folks we’re not out of the woods yet.

But, what does this mean?  Is it a good time to buy a home?  In my opinion: Yes.  You just have to buy it at the right price.

In Detroit, Michigan a home sold for $1.00.    According to the news report the home was purchased for $65,000 in 2006 and foreclosed on last year.

The bank was so desparate to sell the property that they lowered the price to $1.00 and it took 14 days to sell.  The home had been stripped of it’s copper plumbing, light fixtures, fencing, siding and kitchen sink.  At one point the home was boarded up and those boards were stolen to board up a home down the street.

You think you got it bad?

The Local Contractor Website which has articles related to home improvements, a forum for home improvements, and a blog post that they buy ugly trashy homes.

The are also active members of the Active Rain Community which I encourage Vancouver Real Estate Agents to join as it is a wonderful resourceful site.

 The foreclosure rate in this country is staggering. Many homebuyers are struggling to meet their payment obligations especially on sub-prime or alternative types of loans with ARM’s. They usually have a low teaser rate and than a 3 year or 5 year fixed time frame before adjusting.

The basic problem is that during the rapid equity increases homeowners would spend like crazy and rack up the credit cards than refinance their mortgage and use up the new equity. Now that their payment has become an adjustable rate and the fixed portion has expired than they face a huge mortgage payment. They can no longer refinance as they spent the equity and prices are now falling. Also, they did not prepare themselves for the shock and reality of these higher payments. Thus, for many, foreclosure is looming over their heads.

Many homeowners are in what is referred to as the “pre-foreclosure” period. This is either on the brink of being in default or outright default and the clock is ticking till the courthouse sale.

To learn more about pre-foreclosures there is a wonderful article on our site at:
prospecting for pre-foreclosures