************************************************************
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.
Saturday, March 26, 2011
Monday, March 7, 2011
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.
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.
Wednesday, February 16, 2011
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%.
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%.
Tuesday, February 8, 2011
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.
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.
Friday, January 21, 2011
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 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."
Tuesday, December 28, 2010
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.
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.
Monday, December 20, 2010
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."
"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."
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