NOD Upswing

N-O-Default notices rise

A report by RealtyTrac says first-time default notices were
filed on 78,880 homes last month, marking a nine-month high and
up 33 percent from July. It was the biggest increase since
August 2007. Even so, notices were down 18 percent from the same
month last year and were down 44 percent from the monthly peak
reached in April 2009 during the tail end of the recession. The
rise in default filings did not suggest that a new foreclosure
problem was on the horizon, but that some of the backlog related
to documentation problems was being worked out of the system,
said Mr. Sharga, senior vice president at RealtyTrac.
Foreclosure activity was halted temporarily late last year due
to claims that lenders relied on "robo-signing," where documents
were signed without reviewing the case files.

Total foreclosure filings—which include default notices,
scheduled auctions and repossessions—were sent to 228,098 homes,
a 7 percent increase from July but down 33 percent from August
2010. Bank repossessions fell 4 percent to a six-month low of
64,813 homes. Repossessions have come down 37 percent from the
peak of 102,134 hit in September 2010. Nevada once again had the
highest state foreclosure rate with one in every 118 homes
receiving a foreclosure filing in August. Nevada has held the
top spot for over four years. Even so, Nevada saw a 3 percent
decrease in filings as scheduled auctions and bank seizures
eased.

Foreclosure Freeze

Housing market faces long, cold winter: Altos

Low interest rates and a glut of inventory failed to
substantially stimulate a weak housing market this summer,
according to Altos Research. Based on summer statistics and shaky
economic indicators, Altos is predicting a "long, cold winter"
with nothing on the horizon to suggest improved housing market
activity through the fall and winter. Home prices in July rose in
14 of the 20 metro areas surveyed for the Altos Research
Mid-Cities Report and inventory increased in 12 of the markets.
"The housing market in the United States is in a constant state
of flux. Volatility is the norm and the rules of yesterday's
market no longer apply," Altos said. Eight of the 20 markets saw
their housing inventory levels decline, while six of 20 markets
noted a drop in median prices. The Federal Reserve Bank of Dallas
recently said it expects home prices to bottom out by early 2012,
with market volatility somewhat limited to certain hard-hit
areas, such as Arizona, California and Nevada. The Fed said
markets like Texas, where jobs have been created during the
recession, could see the tide shift by the early part of 2012.

Finally Some Good news

S&P: Mortgage default rate drops below 2% in July

The default rate on first mortgages dropped to 1.93% in July,
according to Standard & Poor's. S&P, in conjunction with the
consumer rating firm Experian, monitors the rate of defaults
within asset-backed securities. First mortgage defaults declined
from 2.02% in June and 3.24% one year ago. Second mortgage
defaults showed a steeper drop to a rate of 1.25% in July, down
from 1.4% the month before and 2.77% last year. Defaults actually
dropped across the entire ABS spectrum covered by the two firms,
reaching a composite default rate of 2.06% in July. It's down
more than a full percentage point from one year ago. While
defaults were down, delinquencies remained elevated. According to
Lender Processing Services, the delinquency rate on mortgages
went up by 2.4% in July. More than 4.4 million loans are
considered 30 days late or worse. Erkan Erturk, a credit analyst
at S&P, said "The firming of these rates suggests that consumers
continue to bolster their financial positions by paying down debt
and not incurring excessive charges despite elevated unemployment
and economic weakness, which we consider a positive for auto,
credit card, and other types of consumer ABS credit."

More Short Sales

*****************************************************

Short Sales on the INcrease!! :(

According to RealtyTrac, short sales are increasing as a
percentage of home sales in many states, helping some
neighborhoods and homeowners avoid the more devastating impacts
of foreclosures. The increases were sharper in some states,
including California, Nevada, Michigan, Georgia and Colorado,
the data show. In Colorado, short sales were 17% of all sales in
the second quarter, up from 10% a year earlier. In California,
they made up 25% of sales, vs. 18%. Bank of America, the largest
home mortgage servicer, expects to complete more than 100,000
short sales this year — more than double what it did in 2009,
the bank says. Wells Fargo Senior Vice President J.K. Huey says
short sales have been "steady to slightly" up in recent months,
partly because there are fewer bank-owned houses for sale in
some markets, and that has forced buyers to pursue more
short-sale properties.

In the second quarter, short-sale homes sold at a 21% discount
to non-foreclosure homes, while bank-owned homes went at a 40%
discount, RealtyTrac says. Short sales may also reduce losses
for loan owners because they avoid full foreclosure costs.
Borrowers may qualify for new mortgages sooner after a short
sale than after a foreclosure. peaked at 16% of the
market in early 2009, RealtyTrac says. Realtors say there should
be more short sales and that they should get done faster.

RealtyTrac

Second-quarter pre-foreclosure sales jumped 19% from the previous
quarter, suggesting more banks and distressed borrowers are
searching for efficient ways to offload properties that are near
foreclosure, RealtyTrac said. Third parties acquired 102,407
pre-foreclosures in the second quarter, while 162,680 bank-owned
homes were sold in the same period. Pre-foreclosure sales are
generally short sales and properties sold within the foreclosure
process. As for who is nabbing up distressed and bank-owned
properties, RealtyTrac said third parties acquired 265,087 homes
classified as in foreclosure or bank-owned in the second quarter.
That is up 6% from the revised first quarter figure and down 11%
from the second quarter of last year. The average sales price for
foreclosures or bank-owned properties hit $164,217 in 2Q, down
less than one percent from 1Q and 5% from the second quarter of
2010. The sales price for distressed real estate was 32% below
the average sales price of homes not in foreclosure. States with
the largest quarterly increase in pre-foreclosure home sales
included Nevada, which experienced a 43% increase; Washington
(39%), California (38%); and Texas (34%). The states with the
highest number of foreclosure sales included Nevada, Arizona and
California.

Freddie MAC dumps record #'s REO

Freddie Mac sold roughly 31,000 previously foreclosed and
repossessed homes in the first quarter, a new record for the
company as both government-sponsored enterprises shed inventory
from the end of last year. Combined, both Fannie Mae and Freddie
hold 218,000 REO properties as of the end of the first quarter,
down from roughly 234,000 at the end of 2010, according to their
filings. In the first quarter of 2011, Freddie holds roughly
65,000, compared to its larger sibling Fannie, which holds
153,000 REO in its inventory. While both GSEs made progress in
cutting down this portion of the nation's inventory of foreclosed
homes, which continues to drag down home prices, inventory has
elevated since one year ago. Both Fannie and Freddie held
163,000 properties in the first quarter of 2010, almost what
Fannie holds currently by itself. Repossessions at Freddie
increased by nearly 1,000 in the first quarter, and the holding
period for these homes averaged 191 days before being resold.
This varies significantly from state to state, especially as
servicers restart foreclosure processes in different areas of the
country. Servicers paused the process late last year to correct
procedural problems. "We expect the pace of our REO acquisitions
to increase in the remainder of 2011, in part due to the
resumption of foreclosure activity by servicers, as well as the
transition of many seriously delinquent loans to REO," Freddie
said in its financial supplement.

Cash is still King

For existing homes in March, the bulk of the market, 35% of all transactions were all-cash (that's a new record), and 22% were sales to investors; investors don't necessarily want to hold on to these properties for very long, so they may come back on the market again soon. But back to the distressed properties. While the National Association of Realtors says 40% of March sales were distressed properties (up from 39% in February and 35% a year ago), another survey from Campbell/Inside Mortgage Finance finds nearly half of all homes on the market are distressed. Short sales are 'booming' according to the same report up to nearly 20% of sales. But short sales are a double-edged sword. Yes, they're better for the banks and the sellers because there is less of a financial loss to the bank and less of a credit loss to the seller, but they make comps and appraisals even murkier than they already are.

From the Campbell/IMF report: 'Home values continue to decline, making normal sale homes worth much less than they should be. Appraisers continue to use foreclosed or distressed property sales to establish value on non-distressed listings. Further, these same appraisers will not make any adjustments for amenities, (pools, spas, solar, etc.), when compiling a normal sale vs. distressed comps. I have had at least one appraiser tell me that his firm has been given marching orders to calculate the current value based on all properties sold within the last 3 to 6 months and only use the average square footage minus 10% to establish neighborhood value comps. If this is indeed standard practice, it will take a mighty long time to realize any increases in property values,' complained an agent in Arizona. It's not just in Arizona either.

Just 25% get Foreclosure Relief

25% get mortgage relief

Just one in four of the 2.7 million homeowners who sought to participate in the Obama administration's signature mortgage assistance program have succeeded in getting their monthly payments reduced. The rest failed to qualify for the program or were disqualified after they were initially accepted into the program, according to an analysis by the Wall Street Journal of data on applicants to the program newly released by the Treasury Department. In all, about 680,000 homeowners who applied for the Home Affordable Modification Program, or HAMP, had received permanent modifications of their loans and were making timely payments or were still in the trial phase as of December. Almost 6.7 million U.S. homes were lost to foreclosure, short sales or turned back to lenders between 2000 and 2010, according to Moody's Analytics. Another 3.6 million could meet the same fate through 2013. The White House launched the HAMP program in 2009 as a broad attempt to reverse the rising number
of home foreclosures relieved by reducing families' mortgage payments, typically by lowering the interest rate and extending the term of a loan.

But the administration's strict eligibility criteria resulted in far lower participation than expected. Almost half of the applicants to the program, or about 1.3 million homeowners, were declared ineligible from the start. Applicants were most often rejected because they didn't submit the necessary paperwork, or it was lost by their mortgage company. Nearly 266,000 applicants were denied for this reason. Another 255,000 were ineligible because they were considered to have affordable mortgages, defined as less than 31% of pretax income. Borrowers also were turned down because they had loans for more than $730,000 or were not considered in danger of defaulting soon. Another 770,000 homeowners started the program but were later disqualified, most for the same paperwork and eligibility problems as the applicants turned away at the outset. Only a small number were rejected for failing to make trial payments. Homeowners in southern states had the hardest time getting into the
program and staying there. In the four-state region of Arkansas, Louisiana, Oklahoma and Texas, about 83% of applying homeowners failed to complete the loan-modification process. That proportion was 80% in the four-state region of Alabama, Kentucky, Mississippi and Tennessee.

Homeowners had the least trouble getting into the program in New England, where the rejection rate was 72%, and in western states, including Alaska, California, Hawaii, Oregon and Washington. The program has faced sharp criticism. Neil B., the departing special inspector general overseeing the program, has faulted the administration for launching it with inadequate analysis and only partially developed guidelines. This led to delays and confusion, and the program "continues to fall short of any meaningful standard of success," he said a report released in January. House Republicans have called the program a waste of money and are considering a bill this week to end the program. "In an era of record-breaking deficits, it's time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners," Rep. Spencer B. (R., Ala.) said last week.

Just 25% get Foreclosure Relief

25% get mortgage relief

Just one in four of the 2.7 million homeowners who sought to participate in the Obama administration's signature mortgage assistance program have succeeded in getting their monthly payments reduced. The rest failed to qualify for the program or were disqualified after they were initially accepted into the program, according to an analysis by the Wall Street Journal of data on applicants to the program newly released by the Treasury Department. In all, about 680,000 homeowners who applied for the Home Affordable Modification Program, or HAMP, had received permanent modifications of their loans and were making timely payments or were still in the trial phase as of December. Almost 6.7 million U.S. homes were lost to foreclosure, short sales or turned back to lenders between 2000 and 2010, according to Moody's Analytics. Another 3.6 million could meet the same fate through 2013. The White House launched the HAMP program in 2009 as a broad attempt to reverse the rising number
of home foreclosures relived by reducing families' mortgage payments, typically by lowering the interest rate and extending the term of a loan.

But the administration's strict eligibility criteria resulted in far lower participation than expected. Almost half of the applicants to the program, or about 1.3 million homeowners, were declared ineligible from the start. Applicants were most often rejected because they didn't submit the necessary paperwork, or it was lost by their mortgage company. Nearly 266,000 applicants were denied for this reason. Another 255,000 were ineligible because they were considered to have affordable mortgages, defined as less than 31% of pretax income. Borrowers also were turned down because they had loans for more than $730,000 or were not considered in danger of defaulting soon. Another 770,000 homeowners started the program but were later disqualified, most for the same paperwork and eligibility problems as the applicants turned away at the outset. Only a small number were rejected for failing to make trial payments. Homeowners in southern states had the hardest time getting into the
program and staying there. In the four-state region of Arkansas, Louisiana, Oklahoma and Texas, about 83% of applying homeowners failed to complete the loan-modification process. That proportion was 80% in the four-state region of Alabama, Kentucky, Mississippi and Tennessee.

Homeowners had the least trouble getting into the program in New England, where the rejection rate was 72%, and in western states, including Alaska, California, Hawaii, Oregon and Washington. The program has faced sharp criticism. Neil B., the departing special inspector general overseeing the program, has faulted the administration for launching it with inadequate analysis and only partially developed guidelines. This led to delays and confusion, and the program "continues to fall short of any meaningful standard of success," he said a report released in January. House Republicans have called the program a waste of money and are considering a bill this week to end the program. "In an era of record-breaking deficits, it's time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners," Rep. Spencer B. (R., Ala.) said last week.

foreclosures Up ** delinquencies Down

************************************************************
MBA - foreclosures up delinquencies down

The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 8.22% of all loans outstanding as of the end of the fourth quarter of 2010, a decrease of 91 basis points from the third quarter of 2010, and a decrease of 125 basis points from one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate decreased 46 basis points to 8.93% this quarter from 9.39% last quarter. The percentage of loans on which foreclosure actions were started during the fourth quarter was 1.27%, down seven basis points from last quarter and up seven basis points from one year ago. The foreclosure delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure.

The percentage of loans in the foreclosure process at the end of the fourth quarter was 4.63%, up 24 basis points from the third quarter of 2010 and up five basis points from one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.57%, a decrease of 13 basis points from last quarter, and a decrease of 110 basis points from the fourth quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 13.56% on a non-seasonally adjusted basis, a 22 basis point decline from 13.78% last quarter.

J. Brinkman, MBA's chief economist said "These latest delinquency numbers represent significant, across the board decreases in mortgage delinquency rates in the US. Total delinquencies, which exclude loans in the process of foreclosure, are now at their lowest level since the end of 2008. Mortgages only one payment past due are now at the lowest level since the end of 2007, the very beginning of the recession. Perhaps most importantly, loans three payments (90 days) or more past due have fallen from an all-time high delinquency rate of 5.02% at the end of the first quarter of 2010 to 3.63% at the end of the fourth quarter of 2010, a drop of 139 basis points or almost 28% over the course of the year. Every state but two saw a drop in the 90-plus day delinquency rate and the two increases were negligible."

"While delinquency and foreclosure rates are still well above historical norms, we have clearly turned the corner. Despite continued high levels of unemployment, the economy did add over 1.2 million private sector jobs during 2010 and, after remaining stubbornly high during the first half of 2010, first time claims for unemployment insurance fell during the second half of the year. Absent a significant economic reversal, the delinquency picture should continue to improve during 2011, Brinkmann said.

M. Fratatoni, MBA's vice president for single family research said "While the foreclosure starts rate fell during the fourth quarter, the percentage of loans in foreclosure rose to equal the all-time high. The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale. As we predicted last quarter, the percentage of loans in the foreclosure process increased in the fourth quarter, largely due to the foreclosure paperwork issues that were being addressed in September and October. These issues caused a temporary halt in foreclosure sales, particularly in states with judicial foreclosure regimes, such as New Jersey, Florida, and Illinois.

With fewer loans exiting the foreclosure process through sales, the foreclosure inventory rate naturally increased, even as fewer foreclosure starts meant that fewer loans entered the foreclosure process in the fourth quarter." "The share of loans in foreclosure in California and Florida combined was 36.0%, a decrease from 37.3% in the third quarter, and 39.3% a year ago. Over 24% of the loans in Florida are one payment or more past due or in the process of foreclosure, the highest rate in the nation, followed by Nevada at over 22%, compared to an average of 13.6% for the nation. Only eleven states saw an increase in their foreclosure start rate with Maryland seeing the largest increase."

On a seasonally adjusted basis, the overall delinquency rate decreased for all loan types. The seasonally adjusted delinquency rate stood at 4.51% for prime fixed loans, 11.23% for prime ARM loans, 21.26% for subprime fixed loans, 25.32% for subprime ARM loans, 12.26% for FHA loans, and 6.67% for VA loans. The% of loans in foreclosure, also known as the foreclosure inventory rate, increased 24 basis points to 4.63%, which ties the survey's record high, last reached in the first quarter of 2010. All loan types saw an increase in the% of loans in foreclosure. The foreclosure inventory rate for prime fixed loans, which, make up the largest portion of the survey (accounting for 63% of the loans), increased 22 basis points to 2.67%.

This was the highest rate recorded for prime fixed in the history of the survey. The rate for prime ARM loans increased 17 basis points from last quarter to 10.22%. Subprime fixed loans saw an increase of 104 basis points to 9.92%, which is a new record high in the survey. The rate for subprime ARM loans increased 26 basis points to 22.04%, while the rate for FHA loans increased eight basis points to 3.30% and the rate for VA loans increased 21 basis points to 2.35%.

The foreclosure starts rate decreased nine basis points for prime fixed loans to 0.84%, five basis points for subprime fixed loans to 2.73%, and 22 basis points for FHA loans to 1.02%. The foreclosure starts rate increased two basis points for prime ARM loans to 2.38%, 15 basis points for subprime ARM loans to 4.24%, and two basis points for VA loans to 0.88%. Given the challenges in interpreting the true seasonal effects in these data when comparing quarter to quarter changes, it is important to highlight the year over year changes of the non-seasonally adjusted results. The non-seasonally adjusted delinquency rate decreased for all loan types since the fourth quarter of 2009. The delinquency rate decreased 135 basis points for prime fixed loans, 124 basis points for prime ARM loans, 284 basis points for subprime fixed loans, 152 basis points for subprime ARM loans, 154 basis points for FHA loans, and 91 basis points for VA loans.

The non-seasonally adjusted foreclosure starts rate increased 21 basis points for prime fixed loans, 26 basis points for prime ARM loans, and seven basis points for VA loans, but is down 47 basis points for subprime ARM loans, 26 basis points for FHA loans, and remains unchanged for subprime fixed loans on a year over year basis. Forty five states saw increases in the rate of foreclosure starts on a year over year basis, with the largest increases coming in Washington, Rhode Island and the District of Columbia. The largest decreases were in Florida, Connecticut, and Maryland. Nevada and Arizona top the rankings in terms of foreclosure starts and loans in foreclosure across most loan types.

Overage of Foreclosures

26% of home sales are foreclosures and short sales

According to a RealtyTrac report released yesterday, 26% of all homes sold last
year were foreclosures and short sales. Homes already foreclosed on and
repossessed by banks, called REOs (real estate owned), sold for an average of
36% less than normal sales, RealtyTrac reported. Meanwhile, the discount for
homes sold while they were still in the foreclosure process (short sales) was
15%. "It's like the post-holiday sales at Sear's where they're trying to clear
out unwanted inventory," said Tony Sanders, a real estate professor at George
Mason University.

Nevada had the highest percentage of distressed sales of any state at 57%. That
was, however, less than 2009, when 67% of sales there were foreclosures. In
Arizona, 49% of sales were distressed properties; in California, 44%; and in
Florida, 36%. Foreclosed properties sold for the biggest discount -- 50% off --
in New Jersey. These investment opportunities are not going away. Nearly 30% of
mortgage borrowers are underwater on their loans, owing more than their homes
are worth, according to Stan Humphries, chief economist for Zillow, the real
estate web site. These owners are very vulnerable to foreclosure so the number
of distressed properties that will go on sale only the next year or two will
probably remained high.

Rising Foreclosures

A rise in foreclosures

Foreclosures in some markets are on the rise, according to one survey of courthouse auctions. However, the numbers do not indicate a peak in foreclosure sales has been reached. "Despite months of slow sales, we've simply returned to prior levels, which to me indicates banks remain reluctant to aggressively foreclose despite the time it takes to foreclose being at or near record levels," said S. O'Toole, founder and CEO of ForeclosureRadar. "And large inventories of properties [are] still scheduled for foreclosure sale." Foreclosure auction sales grew as much as 50% in some states during January as foreclosure moratoriums came to an end, sending hundreds of distressed properties back to the auction block, foreclosure data firm said Tuesday. "While the increase is significant, we've seen larger surges after moratoriums or delays have played out in the past," said O'Toole in an email. "For example in California after the delays caused by Senate Bill 1137 we saw a surge in N
otice of Default filings that far eclipsed any prior period.

That is not the case here." In Arizona, notice of trustee filings jumped 10.9% between December and January, the first increase recorded in six months. Foreclosure sales in Arizona also spiked with ForeclosureRadar recording a 56.2% rise in the number of homes sold back to the bank. The southwestern state also experienced a 52.7% increase in foreclosure sales to third-parties on a month-over-month basis in January. California — one of the state's hit the hardest by unemployment and falling real estate prices during the recession — saw its back-to-bank foreclosure sales jump 51.1% between December and January. Sales of foreclosed homes to third parties in California also rose 52.8%.

Only 30% of Foreclosures on the Market

Only 30% of foreclosures on market

RealtyTrac Senior Vice President Rick Sharga said major banks currently hold
roughly 1 million REO, or homes repossessed through foreclosure, but only 30%
have actually made it onto the market. According to its year-end report,
foreclosure filings reached a new high in 2010 and should climb even higher this
year, possibly surpassing 4 million filings. And that's not counting the more
than 5 million delinquent loans that have yet to enter the initial stages of the
foreclosure process, Sharga said.

The major kink in the housing market's recovery, and for the macro economy
overall, is the work left to be done on homes currently in the foreclosure
process, those about to enter it and the amount of repossessed homes the banks
must shed. Striking a proper balance on how to mange this shadow inventory of
foreclosures is vital for the banks to show a healthy balance sheet while not
dumping too many distressed properties onto the market, further dragging down
home prices and values.

A recent study from Morgan Stanley showed the shadow inventory, those properties
facing imminent default, evolving from mostly subprime and Alt-A loans to
containing more prime loans as elevated unemployment levels have pushed more
homeowners behind on their mortgage. Analysts said that some 8 million
repossessions would need to be liquidated over the next five years before the
market stabilizes. Adding to the problem are recent issues the banks are having
processing the paperwork. In October, the banks had to hold up foreclosures to
refile affidavits signed improperly in many states, pushing more than 250,000
foreclosure cases into 2011.

Reports recently showed that the problem may have spread to the notices of
default as well. And in the 23 states where lenders must foreclose on a
homeowner through the court system, backlogs of cases have formed month-long
delays. A court clerk in Florida, one of the states with the longest
traffic jams, told him between 500,000 and 600,000 cases are yet to be heard.
Sharga said he's encouraged by the uptick in demand for REO's. "We've seen more
traffic on our site, and even more buyers raising their hand asking for help
from a Realtor," he said. "This means they're getting serious about buying
again." He also said that the most traffic comes from Southwestern states and
Florida.

Olick - what the MA court ruling means

"Now that the Massachusetts Supreme Court has upheld a lower court's ruling that
Wells Fargo and U.S. Bancorp did not have the proper paperwork to foreclose on
two homes, the question is what that means for the broader mortgage market and
the future of millions of foreclosures in or about to be in process? Not only
does this decision affect individual foreclosures, but it throws into question
the entire mortgage securitization process. We've spent a lot of time on this
blog discussing the process of how loans were divided, mixed, bundled and sold
over and over during the heat and height of the housing boom. The issue in
contest over foreclosures now lies with the 'note,' or the IOU on the mortgage.
The mortgage is the security that says the house is the collateral. Ownership of
the note is critical because that note must be transferred when the mortgage is
traded around.

During securitization a process called 'endorsements in blank' are used, so that
mortgages can be transferred quickly. But you still need that note when you
foreclose. 'This is really about endorsed/assigned in blank,' says JT Smith of
Aristar Funding. 'Judges didn’t understand and transfer taxes were not paid.
This is going to get very ugly. The mortgages became like bearer bonds in that
whoever had possession of original wet copy was the owner, and if you didn’t
have that you could not foreclose. Then if you did why didn’t you pay transfer
taxes?' It's exactly what Prof. Adam Levitin told me way back in October: 'The
mortgage is still owed, but there's going to be a problem figuring out who
actually holds the mortgage, and they would be the ones bringing the
foreclosure.

You have a trust that has been getting payments from borrowers for years that it
has no right to receive. So you might see borrowers suing the trusts saying give
me my money back, you're stealing my money. You're going to then have trusts
that don't have any assets that have been issuing securities that say they're
backed by a whole bunch of assets, and you're going to have investors suing the
trustees for failing to inspect the collateral files, which the trustees say
they're going to do, and you're going to have trustees suing the securitization
sponsors for violating their representations and warrantees about what they were
transferring.'"

So now what? 95% of troubled borrowers currently do not contest their
foreclosures, Paul Miller of FBR tells me. He sees this less about the specific
case as the perception of this case: 'If you see more and more of these
headlines, many people might look at this and say 'I can get my house free and
clear if I just contest the foreclosure and get a favorable judge that sides on
my side. All of the sudden I have a free mortgage.' That’s not what’s going to
happen in this case,' Miller said in an interview. He believes these two homes
will eventually go to foreclosure. In fact, this Massachusetts case may not be
exactly as the headlines are screaming. The American Securitization Forum,
immediately after the ruling, put out a statement saying, 'The ASF is pleased
the Court validated the use of the conveyance language in securitization
documents as being sufficient to prove transfers of mortgages under unique
aspects of Massachusetts law. Importantly, unlike the lower co
urt, tithe Court also said assignments of mortgage can be executed in blank, as
long as a complete chain of transfers can be shown through the applicable deal
documents.'

ASF says those documents were not introduced in the lower court and that the
lower court would have ruled otherwise if they had. 'The ASF is confident
securitization transfers are valid and fully enforceable,' concludes the ASF's
Executive Director, Tom Deutsch. That remains to be seen, as lawsuits abound
over this very issue all over the country. Clearly investors didn't like the
ruling, as they sent shares of bank stocks into a despair spiral. This may be
the final Massachusetts court ruling, but it will not be the final word in this
chapter of the foreclosure mess."

Wells Fargo Mod's 15k

Wells Fargo, in a settlement with California's attorney general announced Monday, agreed to provide $2 billion worth of loan modifications to nearly 15,000 homeowners. Under the deal, the bank is also paying a total of $32 million to borrowers who lost their homes to foreclosure, according to the AG. Attorney General Jerry Brown said Wells Fargo will offer modifications to 14,900 homeowners, who have so-called "pick-a-pay" loans. "Customers were offered adjustable-rate loans, with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford," said Brown, who takes over as California's governor next month. "Recognizing the harm caused by these loans -- Wells Fargo accepted responsibility and entered in this settlement with my office." Pick-a-pay loans, where the rate changes throughout the life of the loan, became notorious during the housing market crisis.

According to the AG's office, payments often started low -- at levels that were "insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance." The loans would ultimately increase "dramatically," soaring to unaffordable heights for the homeowner and creating the risk of foreclosure. In addition to the loan modifications, Wells Fargo will pay $32 million in restitution to more than 12,000 pick-a-pay borrowers who lost their homes through foreclosure in California. The attorney general noted that the loans were not made by Wells Fargo, but by banks that it acquired: World Savings and Wachovia. Wells Fargo stated that so far it has already extended significant home payment relief options to more than 50,000 at-risk, pick-a-payment homeowners in California -- through interest rate reductions, term extensions, tax forgiveness, insurance advances and principal forgiveness. This adds to the list of pick-a-pay settlements that Wells Fargo has previously signed with attorney generals in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.

Force Short Sales

What could force more short sales?

"Despite a government program designed to streamline and incentivize the process, short sales have not even come close to keeping up with foreclosure sales. That may be about to change. If banks see higher losses from foreclosures than from short sales, they may put more resources into approving these deals, where the borrower is allowed to sell the home for less than the value of the loan. 'Loss severities on distressed U.S. residential mortgage loans are likely to increase an additional 5-10 percent from current levels due to higher loss mitigation and foreclosure expenses and weakening home values,' according to a report from Fitch Ratings. Fitch: The anticipated increases for each sector’s average loss severities are expected to be as follows:

- Prime loans: currently 44%, increasing to 49%-54%
- Alt-A loans: currently 59%, increasing to 64%-69%
- Subprime loans: currently 75%, increasing to 80%-85%.

We are already seeing home prices double dip in many markets, and that is expected to continue at least through the first half of 2011. One way to mitigate the losses is through short sales. 'Short sales generally experience recovery rates about 10 percent higher than foreclosure sales,' according to Fitch. Will this be enough to push the banks? Unclear. Servicers actually rake in a lot of money from fees surrounding foreclosures, and so far the government's 'Home Affordable Foreclosure Alternative,' program, which pays servicers cash incentives for doing short sales, has had pretty poor results, really still in the hundreds of loans. Second liens pose a big problem, but many big bank servicers also hold the second liens. It's all about where the math comes out. If home prices fall far enough, the equation may tip from foreclosure to short sale."

Foreclosure's Froze By Banks

Foreclosure On Temporary Freeze

Like last year, Freddie Mac and Fannie Mae, the two government-controlled mortgage giants, are freezing all foreclosure evictions on mortgage loans they own or back from Dec. 20 through Jan.3. For some of the big private banks, who also usually observe a freeze during the holidays, the situation is a little different this year, thanks to moratoriums they already have in place because of the robo-signing scandal. That freeze was initiated to give the banks time to examine whether they violated any legal procedures in processing foreclosures and to correct and refile questionable documents they uncover. A spokesman for Bank of America, Rick Simon, said that made addressing this year's situation a little awkward but it would still observe its usual holiday policy.

"Bank of America's practice in recent years [is to hold off on] foreclosure sales or evictions from late December through New Year's Day on loans held in our investment portfolio or that are owned by investors who give the bank delegated authority," he said. A spokesman for Chase Mortgage, a division of J.P. Morgan Chase, said its robo-signing-connected moratorium makes an additional holiday freeze moot; it will still be several weeks before it starts to evict borrowers again. Wells Fargo's holiday freeze will run the same two week period as Fannie's and Freddie's and will, like Bank of America's, include all loans it holds in its portfolio. For the other loans it services, it will follow guidelines from investors and from the states where the properties are located. With the number of bank repossessions amounting to around 100,000 a month recently, the temporary reprieve could affect tens of thousands of borrowers in default.

Fannie and Freddie lift Ban

Freddie Mac and Fannie Mae lift ban

Freddie Mac and Fannie Mae have lifted the ban on the sale of foreclosed homes, frozen since the document handling fiasco that started nearly two months ago. Freddie Mac sent a memo to agents instructing them to “resume all normal sales activity” while Fannie Mae issued a memo telling agents to “proceed with scheduling and holding the closings” of foreclosed sales. Fannie Mae also instructed agents to coordinate with appropriate personnel “if a title issue arises with respect to the potential defect of an affidavit used in the underlying foreclosure.” Fannie and Freddie owned nearly 240,000 properties at the end of September, valued at nearly $24 billion. Analysts claim difficulty selling those homes could lead to higher carrying costs for the mortgage titans. Further delays also could prompt buyers that had been under contract to lower their asking prices or to walk away from deals altogether which could cause the mortgage giants to incur heavier losses.

In August, Fannie Mae told mortgage servicers that they would face fines if foreclosures became unreasonably prolonged in a bid to avoid costly delays. The Federal Housing Finance Agency (FHFA) worked with Fannie Mae to make the decision after a thorough examination of foreclosed properties which the mortgage company has acquired. “Our decision was motivated by several factors including the protection of buyers with title insurance, the negative impact lingering foreclosed properties has on neighborhoods and the cost burden that is placed on taxpayers when [bank-owned] sales are suspended,” a Fannie spokesperson said in a statement. Fannie Mae said it would resume sales for properties with loans that had been serviced by units of Ally Financial Inc., Bank of America Corp., PNC Financial Services Group Inc., J.P. Morgan Chase & Co., OneWest Bank, and Sovereign Bank.

Foreclosure Options

Mess scares off Homebuyers:

The ongoing controversy surrounding foreclosures is taking its toll as homebuyers refused to look at distressed properties in October, and foreclosure sales suffered from delays, according to the latest Campbell/Inside Mortgage Finance Monthly Survey. Both the share of home purchases involving distressed properties and average prices for foreclosed properties fell last month, the survey found. News reports that major servicers were pulling REOs off the market, including some already under contract, spooked would-be homebuyers. The monthly survey found that 14% of owner-occupant homebuyers and 6% of investors refused to view foreclosed properties in October. Homebuyer fear was worse for short-sale properties where 30% of owner-occupant buyers, and 20% of investors refused to view these homes.

Servicing problems disrupted both short sales and REO sales. Survey results show that 24% of closings scheduled for October were delayed or canceled due to issues with short sales, while 12% were delayed or canceled due to REO title issues. Although distressed properties have dominated home sales for much of 2010, recent foreclosure problems helped trigger a dip in their share of the market last month, according to the survey. In October, distressed properties accounted for 44.3% of transactions tracked in the latest survey — down from 47.5% in September. "It's clear that decreased homebuyer demand for distressed properties has resulted in lower prices," said Thomas Popik, research director for Campbell Surveys. "With the foreclosure 'fraud' issue still out there, buyers are skeptical to purchase a REO. Until the fraud mess gets cleared up, most of our clients are second guessing their interest in REO properties," reported a Florida real estate agent responding in the la
test survey.

Short Sale Options

Short Sale Resolution

The availability of raw land and other forms of undeveloped property are becoming extremely attractive as prices continue to plunge and returns on water, minerals, gas rights, agricultural products and other materials rise. While raw land or undeveloped property may not be the right fit for every real estate investor, it's a good idea to remain alert to the possibility. Use this quick checklist to evaluate a potential property:

1. Is the zoning approved for the desired use? While it is possible to petition for a zoning change, don't count on approval. Instead, search for properties that provide a safe bet especially when first starting out.

2. Are there any environmental limitations? The EPA is probably not an organization you are used to doing business with but that doesn't mean they can't impact your property values. Protected wetlands, pollution zones and even required "buffer zones" are just a few considerations to keep in mind.

3. Do deed restrictions limit use? In addition to use restrictions, it's a good idea to review deed restrictions and land use limits. Certain forms of business endeavors, pollution or other concerns may preclude the use of the land for a desired endeavor.

4. Are there ancillary or additional incentives? Some parcels may present especially attractive investments due to location, agricultural exemptions, tax credits or other desirable aspects. Mineral and water rights, the ability to lease to other concerns or the promise of future expansion can enhance or limit almost any listing.

5. Multi-use property appraisals? Finding a multi-use property is one way to maximize gains and minimize risk but it can also present a unique set of challenges when obtaining an appraisal. Comparables can be difficult to come by so it's essential to work with a reputable entity capable of seeing the 'big picture".

6. Do you have staying power? Investing in raw or undeveloped land can be costly so make sure you have the cash reserves and/or connections to make it work. Even for those who simply intend to flip the property...remember that it can take more time due to a smaller pool of potential investors. Have a contingency plan in place to avoid unpleasant surprises down the line.

7. Last but not least...start small and grow from there. Don't bite off more than you are able to chew especially the first few times out. If you find a deal that is beyond your expertise, use the same techniques covered in our shortsale investing seminars to work with a "bigger fish" that is able to provide the stability and experience needed to make the deal work.

See you at the top!