Month: June 2010

Study: Nearly One in Five Mortgage Defaults Are ‘Strategic’

June 28, 2010, Wall Street Journal

By Nick Timiraos

A new report estimates that nearly one in five mortgage defaults through the first half of 2009 were “strategic,” where borrowers who appeared to have the capacity to pay their mortgages stopped doing so.

The research follows on an earlier report by Experian and Oliver Wyman that first aimed to quantify the share of mortgage defaults that are “strategic.” Strategic defaulters are defined as those who miss six straight mortgage payments without missing multiple payments on auto loans and other consumer debts for the six months after they first fell behind on mortgage payments.

The report finds that the share of borrowers who strategically defaulted through the first half of 2009 is unchanged from the end of 2008. Still, the absolute number of strategic defaults in the first half of 2009 increased 53% from the year ago period.

Researchers suggest that the share of strategic defaults may have hit a plateau as total mortgage delinquencies and may have also peaked in the fourth quarter of 2008. “We’re seeing this encouraging break in the quarterly data,” said Charles Chung, general manager of decision sciences at Experian.

But those results are “heavily contingent” on the stabilization in home prices that materialized one year ago, as government stimulus aimed to set a floor for home prices.

One big question going forward: do strategic defaulters begin to account for a growing share of defaults, especially if the total pool of mortgage defaults shrinks as unemployment subsides. While a better job market would slow the pace of traditional mortgage defaults, many potential strategic defaults—those who owe far more than their homes are worth—would need home prices to appreciate to change their calculus.

Indeed, the report finds that strategic default remains heavily concentrated in California, Florida, and western states that have seen the biggest run-up and decline in home prices. Strategic defaulters in California were nearly 80 times higher in the first two quarters of 2009 versus 2005.

While those states had higher concentrations of investor-owned properties that are particularly vulnerable to walkaways, the report finds that 68% of all strategic defaulters had just one first mortgage, up from 64% in 2008.

The report comes as Fannie Mae last week stepped up a public-relations campaign to warn of the possible repercussions of strategic default. The government-owned mortgage-finance titan said it would begin to pursue legal actions against borrowers who walked away from mortgages when they had the capacity to pay.

It also said it would lengthen to seven years, from five, the amount of time that borrowers must wait before receiving a new loan after a foreclosure unless those borrowers could show that they had defaulted due to hardship and after seeking a workout from their lender.

Readers, are you thinking about walking away from a loan you could afford to pay? Would tougher sanctions change your mind? Email us: nick.timiraos@wsj.com.

Follow for more mortgages and housing news on Twitter: @NickTimiraos

A new report estimates that nearly one in five mortgage defaults through the first half of 2009 were “strategic,” where borrowers who appeared to have the capacity to pay their mortgages stopped doing so.

The research follows on an earlier report by Experian and Oliver Wyman that first aimed to quantify the share of mortgage defaults that are “strategic.” Strategic defaulters are defined as those who miss six straight mortgage payments without missing multiple payments on auto loans and other consumer debts for the six months after they first fell behind on mortgage payments.

The report finds that the share of borrowers who strategically defaulted through the first half of 2009 is unchanged from the end of 2008. Still, the absolute number of strategic defaults in the first half of 2009 increased 53% from the year ago period.

Researchers suggest that the share of strategic defaults may have hit a plateau as total mortgage delinquencies and may have also peaked in the fourth quarter of 2008. “We’re seeing this encouraging break in the quarterly data,” said Charles Chung, general manager of decision sciences at Experian.

But those results are “heavily contingent” on the stabilization in home prices that materialized one year ago, as government stimulus aimed to set a floor for home prices.

One big question going forward: do strategic defaulters begin to account for a growing share of defaults, especially if the total pool of mortgage defaults shrinks as unemployment subsides. While a better job market would slow the pace of traditional mortgage defaults, many potential strategic defaults—those who owe far more than their homes are worth—would need home prices to appreciate to change their calculus.

Indeed, the report finds that strategic default remains heavily concentrated in California, Florida, and western states that have seen the biggest run-up and decline in home prices. Strategic defaulters in California were nearly 80 times higher in the first two quarters of 2009 versus 2005.

While those states had higher concentrations of investor-owned properties that are particularly vulnerable to walkaways, the report finds that 68% of all strategic defaulters had just one first mortgage, up from 64% in 2008.

The report comes as Fannie Mae last week stepped up a public-relations campaign to warn of the possible repercussions of strategic default. The government-owned mortgage-finance titan said it would begin to pursue legal actions against borrowers who walked away from mortgages when they had the capacity to pay.

It also said it would lengthen to seven years, from five, the amount of time that borrowers must wait before receiving a new loan after a foreclosure unless those borrowers could show that they had defaulted due to hardship and after seeking a workout from their lender.

How Far Underwater Do Borrowers Sink Before Walking Away?

At what point do borrowers who owe more than their homes are worth decide to stop paying the mortgage?

A new study from economists at the Federal Reserve Board aims to answer that question. The research found that the median borrower who “strategically” defaults doesn’t walk away from the mortgage until the amount owed exceeds the value of the home by 62%.

The study is bad news for the mortgage industry in that it backs up the idea that a growing share of borrowers are walking away from loans. Concerns are mounting among lenders and investors that some borrowers who owe far more than their homes are worth are now choosing not to pay mortgages that they can afford.

But the silver lining here is that it suggests a rather high threshold for borrowers to walk away.

“The fact that many borrowers continue paying a substantial premium over market rents to keep their homes challenges traditional models of hyper-informed borrowers” choosing to simply walk away, the authors write. The results suggest “that borrowers face high default and transaction costs” that make strategic defaults less widespread than they might otherwise be.

The study examined borrowers in Arizona, California, Florida and Nevada who bought homes in 2006 with no money down. Nearly 80% of those borrowers had defaulted by September 2009. The authors then attempt to estimate and separate out defaults caused by job loss and other income shocks from those that had been spurred simply by negative equity.

Nearly 80% of all defaults in the sample resulted from the traditional combination of income shocks and negative equity. But for borrowers that had a loan-to-value ratio of 150%, half of all defaults were strategic defaults, driven purely by negative equity.

Most defaults are typically driven by a combination of income shock and negative equity, or what’s known as the “double-trigger” hypothesis. While borrowers who lose their jobs but have equity in their homes can sell and avoid default, those without any equity are left with fewer options.

“Borrowers do not ruthlessly exercise the default option at relatively low levels of negative equity, broadly consistent with the ‘double-trigger’ hypothesis,” the authors write. “But by the time equity falls below -50%, [half] of defaults appear to be strategic.”

(Read about a separate study released on Monday that finds that around one in five mortgage defaults could be considered “strategic.”)

Empirical evidence suggests that more borrowers may be walking away from their primary residences, but this is a much bigger problem in housing markets that saw stunning home-price gains followed by a free fall. Look to the desert suburbs of Phoenix and Las Vegas, the southwestern coast of Florida, and the far-flung exurbs of California’s San Joaquin Valley and Inland Empire.

The Fed study finds, as have others before, that borrowers are more likely to walk away from homes in states where lenders can’t sue them for a deficiency judgment. The median borrower in a state where lenders have recourse to borrowers’ assets, such as Florida or Nevada, defaults when he or she is 20 to 30 percentage points further underwater than the same borrower in a non-recourse state, such as Arizona or California.

Borrowers with higher credit scores also find it more costly to default. The median borrower with a credit score between 620 and 680 walks away when their loan-to-value ratio hits 151%, while the median borrowers with a credit score above 720 walks away with a loan-to-value ratio of 168%.

Fannie Mae seeks to punish ‘walk-away’ homeowners

 

June 23, 2010 LA Times

Mortgage-finance giant Fannie Mae on Wednesday took aim at homeowners who are walking away from loans they’re capable of paying.

 The company, which has been under government control since September 2008, said it would refuse to back new loans for such walk-away borrowers for seven years after they abandon their homes, and would seek to go after those borrowers in court in states where laws allow such pursuit.

 From the news release:

 Defaulting borrowers who walk away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for a new loan in a shorter time frame.

 “We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

 Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

 Fannie and its sister company, Freddie Mac, are the main sources of U.S. mortgage financing. They buy loans from lenders, guarantee them and resell them to investors via mortgage-backed securities.

 One key issue, of course, will be how Fannie and its loan servicers decide whether someone had the ability to pay their loan but decided not to.

 Freddie Mac hasn’t announced a similar program targeting walk-aways, but given that both companies are under government control, it would seem odd if Freddie didn’t follow suit.

 A Freddie Mac spokesman had no immediate comment.

 [Updated at 4:30 p.m.: A Freddie Mac spokesman said the company currently bans walk-aways from getting new Freddie Mac-backed loans for five years. He said the company was “studying the latest change from Fannie and will consider additional changes to our policies as needed to responsibly manage risk in the current market.”]

Senate approves home tax credit extension

 

By ANDREW TAYLOR
The Associated Press

WASHINGTON – The Senate on Wednesday approved a plan to give homebuyers an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring.

The move by Senate Majority Leader Harry Reid would give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.

The proposal, approved by a 60-37 vote, would only allow people who already have signed contracts to finish at the later date. About 180,000 homebuyers who already signed purchase agreements would otherwise miss the deadline.

Reid, D-Nev., added the proposal to a bill extending jobless benefits through the end of November. Nevada has the nation’s highest foreclosure rate, and Reid is facing a tough re-election campaign.

The Realtors group has been pushing hard in Congress for the extension. Mortgage lenders, the trade group says, have been swamped with borrowers trying to get approved by the end of the month. Many potential borrowers are unlikely to make the deadline.

“If Congress fails to act promptly, then prospective homebuyers might not get the benefit of the homebuyer tax credit, even though they have completed contracts,” the Realtors said a a letter to lawmakers.

First-time buyers were eligible for a tax credit of up to $8,000. Current owners who bought and moved into another home could qualify for a credit of up to $6,500.

The $140 million cost of the measure would be financed by denying businesses the ability to deduct from their taxes punitive damages paid when losing lawsuits or judgments.

http://www.msnbc.msn.com/id/37737409

Southland median sale price back over $300K; sales at 4-year high

June 15, 2010 DQNews.com

La Jolla, CA—Southern California home sales rose last month in all but the lowest price categories as buyers took advantage of tax credits and low mortgage rates. The median price paid topped $300,000 for the first time in 20 months, largely because the ultra bargains have been drying up in the low-cost inland areas while sales have increased in the pricier coastal neighborhoods, a real estate information service reported.

A total of 22,270 new and resale houses and condos closed escrow in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 9.7 percent from 20,299 in April, and up 7.2 percent from 20,775 in May 2009, according to MDA DataQuick of San Diego.

May sales were the highest for that month since May 2006, but they still fell 15.0 percent short of the average number sold in May since 1988, when DataQuick’s statistics begin. The 9.7 percent increase in sales between April and May compares with an average change of 6 percent since 1988.

The combination of tax incentives and low mortgage rates helped stoke sales in mid- to high-end areas, where distress has increased over the last year and sellers have become more motivated and realistic.

Last month 21.6 percent of all sales were for $500,000 or more, compared with 19.3 percent in April and 17.4 percent a year ago. Zip codes in the top one-third of the Southland housing market, based on historical prices, accounted for 30.9 percent of existing single-family house sales last month, up from 28.6 percent in April and 25.3 percent a year ago. Over the past decade, those high-end areas have contributed a monthly average of 34.1 percent of total regional sales. Their contribution to overall sales hit a low of 21.0 percent in January 2009.

Meantime, sales have fallen in many affordable inland communities. In May, zip codes in the bottom one-third of the market, based on their historical prices, saw resales of single-family houses drop 3.9 percent from April and drop 16.2 percent from a year earlier. Part of the decline reflects the dwindling foreclosure inventory, which had been the major draw for first-time buyers and investors. In the upper one-third of the market by price, May resales climbed 10.8 percent from April and rose 21.7 percent from last year.

This shift toward more high-end sales helped the Southland median jump $20,000 between April and May and $56,000 between this May and May 2009.

The median paid for a Southland home rose to $305,000 last month, up 7.0 percent from $285,000 in April, and up 22.5 percent from $249,000 in May 2009. The May 2009 median was just $2,000 higher than the median’s post-housing-boom low of $247,000 in April 2009.

Last month was the sixth in a row in which the median rose on a year-over-year basis. However, the May median was still 39.6 percent below the $505,000 peak, reached multiple times in spring and summer 2007.

The median’s steep fall from its mid-2007 peak to its spring 2009 trough was the result of two factors: a widespread decline in home values, and a huge run-up in sales of lower-cost inland homes, especially foreclosures, at the same time high-end sales plummeted.

Over the past year, however, that situation has been reversing itself.

“Last month’s jump in the regional median sale price is the flipside of what we saw a year ago, when low-cost inland foreclosures dominated and sales in the costlier coastal towns struggled for a pulse. Today the bargains on foreclosures are fewer and farther between, and the high-end is approaching a normal sales rate,” said John Walsh, MDA DataQuick president.

“The important thing to remember, though, is that what we saw in May was partly driven by government stimulus,” he continued. “In the second half of the year the market will have to stand on its own again, barring new forms of government involvement. Prices will be tested if there’s any sudden move by lenders to release a flood of distressed properties.”

Foreclosure resales accounted for 33.9 percent of the resale market last month, down from 36.4 percent in April and 49.8 percent a year earlier. The all-time high for foreclosure resales – homes that had been foreclosed on in the prior 12 months – was 56.7 percent in February 2009. Foreclosure resales have waned over the last year as lenders have channeled more distress into loan modifications and short sales.

On the lending front, May saw modest gains in the use of “jumbo” and adjustable-rate mortgages (ARMs). Historically both helped drive high-end sales, but they became far more difficult to obtain after the August 2007 credit crunch.

In May 6.6 percent of all home purchase loans were ARMs, up from 5.8 percent in April and up from 1.9 percent in May last year. However, the monthly ARM average since 2000 is 39.2 percent.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 17.2 percent of last month’s purchase lending, up from 16.1 percent in April and 12.9 percent in May 2009. But before the credit crisis, such jumbos accounted for 40 percent of the market.

While financing restraints have hampered the market’s high end, the federal government has kept the spigot wide open for loans used to buy low- to mid-priced abodes. Government-insured FHA loans, popular among first-time buyers, accounted for 37.1 percent of all mortgages used to purchase homes in May, down from 38.4 percent in April and 40.3 percent in May 2009.

Absentee buyers – mostly investors and some second-home purchasers – bought 19.4 percent of the homes sold in May, paying a median $220,000. That compares with 22.9 percent absentee buyers in April who paid a median $205,000, and 19.6 percent absentee buyers paying a median $170,000 in May 2009.

Buyers who appear to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 24.5 percent of May sales, paying a median $220,000. In April cash sales were 28.6 percent and a year ago it was 26.1 percent. The 23-year monthly average for Southland homes purchased with cash is 14.1 percent.

The “flipping” of homes has trended higher over the past year. Last month 3.4 percent of the Southland homes that sold had been flipped – bought and re-sold within a six-month period. That’s the same flipping rate as in April, but it’s up from 1.5 percent a year ago. Last month flipping varied from as little as 2.8 percent of sales in Orange and Riverside counties to as much as 4.4 percent in Ventura County.

MDA DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,293 last month, up from $1,238 in April, and up from $1,052 in May a year ago. Adjusted for inflation, that typical payment was 42.3 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 52.7 percent below the current cycle’s peak in July 2007.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is low, down payment sizes are stable, and non-owner occupied buying is above-average, MDA DataQuick reported.

http://dqnews.com/Articles/2010/News/California/Southern-CA/RRSCA100615.aspx

Banks Face Short-Sale Fraud as Home ‘Flopping’ Rises

 

By John Gittelsohn, Bloomberg.com

June 10 (Bloomberg) — Two Connecticut real estate agents found a way to profit in the U.S. housing bust: Buy low, sell fast. Their tactic was also illegal.

Sergio Natera and Anna McElaney are scheduled to be sentenced in Hartford’s federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed –known as a short sale — without disclosing that there were better offers. They then flipped the houses for a profit.

The Federal Bureau of Investigation, the California Department of Real Estate and mortgage finance company Freddie Mac have warned that such schemes may be spreading after a plunge in values left homeowners owing more than their properties are worth. The scams threaten to deepen losses for lenders that are increasingly agreeing to short sales as an alternative to more costly foreclosures.

“Short sales are an important tool that can help both the bank and the borrower,” said Morgan McCarty, executive vice president for mortgage servicing at Birmingham, Alabama-based Regions Bank, which lost money in the Connecticut case. “It’s just that criminals are always trying to find ways of profiting.”

Barofsky Report

An Obama administration effort to boost short sales may increase incentives for fraud, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, wrote in an April 20 report to Congress. The government, through its Home Affordable Foreclosure Alternatives Program, that month began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who close short sales.

“It appears that the program may lack necessary antifraud protections,” Barofsky wrote.

A prevalent scam involves a practice called “flopping,” Barofsky said. In that scheme, investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit, as in the Connecticut case.

“Flopping” occurs in more than 1 percent of short sales and may cost lenders $50 million this year, according to estimates from CoreLogic Inc., a real estate data and research company in Santa Ana, California. About 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April, data from the National Association of Realtors show.

Quick Profit

“A majority of the short-selling fraud is related to LLCs and investment companies trying to make a quick profit,” said Tim Grace, vice president of fraud analytics at CoreLogic. LLCs refer to limited liability corporations.

The Treasury has “put reasonable protections in place” to prevent short-sale fraud, requiring that the buyer and seller have no hidden relationship and banning most resales within 90 days, said Laurie Maggiano, policy director of the department’s Homeownership Preservation Office in Washington.

Suspected property-valuation fraud almost doubled from the end of 2007 through the first quarter of this year, according to a June 8 report by Interthinx Inc., an Agoura Hills, California- based company that sells mortgage fraud detection software.

In addition to banks losing money, “flopping” may hurt homeowners who complete a short sale and face higher deficiency judgments as lenders seek to recover unpaid mortgage balances, Ann Fulmer, vice president of Interthinx, said in an interview today on Bloomberg Television.

‘On the Hook’

Borrowers are “on the hook for larger deficiencies,” she said. “And there are indications that banks are increasingly turning to collection agencies and to civil lawsuits.”

Investors often use real estate broker opinions, which may rely on drive-by inspections instead of full appraisals, to persuade lenders to sell at a low price, Fulmer said in a separate interview. She suggested an Internet search of “How to influence a broker price opinion,” which yielded 74,800 results.

Near the top of the list is a video hosted by Mark Walters of CashFlowInstitute.com in Glendale, Arizona. It shows Walters feeding carrots to a pot-bellied pig while advising how to influence brokers to reduce their valuation. Among his tips: provide prices of comparable short sales to make the broker’s job easier, and be clear you want a low price.

Swaying Favor

“See if you might be able to sway what they do in your favor,” Walters says on the video.

Walters didn’t respond to e-mails, a fax and phone messages requesting comment. In the video, Walters says he learned about influencing broker price opinions from Dean Edelson, owner of Elysium Investment Group Inc. in Sedona, Arizona.

Edelson said efforts to influence broker price opinions, or BPOs, are needed to counterbalance lender pressure to inflate values. Brokers often form an opinion based on a street view of a home, unaware of hidden flaws, he said. Attempting to influence their opinion is legal as long as there is no pressure or payment to get a desired outcome, according to Edelson, who says he has completed “a few hundred” short sales since 2003.

“How is influencing a BPO fraud?” Edelson, 53, a former producer of promotional trailers for television shows including “Seinfeld” and “Frasier,” said in a telephone interview. “What’s fair market value? It’s determined by what a buyer is willing to pay for the property.”

Investors can help the real estate market by paying cash to lenders, preserving property prices by reducing vacancies and helping homeowners avoid foreclosure, Edelson said.

“Investors move inventory and help prevent market values from declining,” he said.

Taxpayer Losses

By allowing broker price opinions, the Treasury exposes taxpayers to short-sale fraud after $49 billion of government bailouts for housing, Barofsky wrote to Congress.

“As constituted now, the program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal,” he wrote. “No program of this type and scale can be considered well designed without robust protections of taxpayer funds against the predation of criminals, particularly given the inconsistent treatment of home valuation.”

Requiring a full appraisal instead of a broker opinion doesn’t guarantee getting the accurate value, the Treasury Department’s Maggiano said.

“It’s all in the integrity of the person doing the valuation,” she said. “Clearly there are poor quality appraisers, licensed or not, and there are poor quality real estate agents, licensed or not.”

Smaller Losses

Lenders usually lose less from short sales than foreclosures, because there’s less property deterioration and repossession cost, Maggiano said. In April, the average loss in principal for prime loans that went into foreclosure was 42 percent, compared with a 33 percent loss for short sales, according to Amherst Securities Group LP, an Austin, Texas-based company that analyzes home-loan assets.

At Bank of America Corp., the largest U.S. mortgage servicer, completed short sales are on pace to more than double this year from 2009, Jumana Bauwens, a spokeswoman for the Charlotte, North Carolina-based bank, wrote in an e-mail. She declined to provide more specific data.

“We have language in our short sale approval letter that prohibits the flipping of a property and after closing we will audit transactions to identify ‘flips’ or ‘flops,’ ” Bauwens wrote. “It’s not in the best interest of our investors or communities at large to encourage or allow flipping.”

Regions Bank, a unit of Regions Financial Corp., completed 498 short sales with $175 million in unpaid principal balances in 2009, double the value of its 2008 transactions, McCarty said. The lender completed 303 short sales worth $93 million this year through May.

Short Sale Requirements

The company requires a full appraisal before a resale, McCarty said. It also demands short-sale buyers sign statements affirming the transactions are arms length, with no hidden buyer-seller relationships, and that there are no agreements to resell the property.

In the Connecticut case, Regions Bank in April 2008 agreed to a short sale of a Bridgeport house for $102,375, unaware that Natera and McElaney had a bidder willing to pay $132,500, according to the plea agreements. Eight weeks after the bank sold for a loss, the pair resold the house for a $30,125 gain.

Natera’s phone has been disconnected and he couldn’t be reached for comment. Arnold Kriss, his defense attorney in New York, declined to discuss the case before sentencing.

McElaney declined to comment when reached by phone. Her New York-based attorney, Mark Bederow, said he couldn’t discuss specifics of the case.

“The mere act of a buyer in a short sale selling again quickly isn’t per se fraudulent,” he said. “That’s business.”

 http://www.bloomberg.com/apps/news?pid=20601109&sid=avevHVg0VvHs&pos=10

Foreclosure filings decline 3% in May

The number of U.S. homes in some stage of the process drops to 322,920, with California accounting for 22% of them, RealtyTrac says. Bank seizures hit a record high for the second consecutive month.

By Alejandro Lazo, Los Angeles Times

June 10, 2010

Foreclosure activity in the U.S. continued to level off in May with the number of homes caught up in some stage of the process falling 3% from April, a real estate firm said.

A total of 322,920 properties received some kind of foreclosure filing last month — either default notices, scheduled auctions or bank repossessions — a 3% drop from April and an increase of less than 1% from May 2009, according to RealtyTrac in Irvine.

One in every 400 properties in the country received a filing last month.

While the overall number of U.S. filings was down, and the number of households entering the first stage of the process fell 7% from April, the pace of homes exiting foreclosure and being seized by banks hit a record high in May for the second consecutive month, RealtyTrac said.

The increase in repossessions suggests that lenders are beginning to work through a backlog of properties that developed after many foreclosures were frozen last year by national and regional moratoriums. In addition, the Obama administration pressured lenders to work with defaulting homeowners.

“Lenders appear to be ramping up the pace of completing those forestalled foreclosures,” RealtyTrac Chief Executive James J. Saccacio said.

The Golden State continued to be a hotbed of foreclosure activity, accounting for 22% of the national tally with 72,030 properties receiving a filing in May. That was an increase of 3% in May from April but a drop of 22% from May 2009.

California had the fourth highest rate after Nevada, Arizona and Florida. Just 10 states accounted for 70% of the nation’s foreclosure activity, RealtyTrac said, with Georgia, Idaho, Illinois, Utah and Maryland also in the top 10.

Among metropolitan areas, Las Vegas had the highest foreclosure rate, followed by the Northern California cities of Merced and Modesto, though all three cities posted declines in their foreclosure rates last month, RealtyTrac said

SB 1178 Passes Senate!

06/04/2010, California Association of Realtors

Victory for REALTORS® and Their Clients!
SB 1178 was just approved by the Senate, over lender opposition, with a vote of 30 to 4.

C.A.R. is sponsoring SB 1178 (Corbett) to extend anti-deficiency protections to homeowners who have refinanced “purchase money” loans and are now facing foreclosure. Most homeowners didn’t even know that when they refinanced they lost their legal protections, and now may be personally liable for the difference between the value of the foreclosed property and the amount owed to the lender.

SB 1178 (Corbett)
Real property: deficiency judgments.
LEGISLATIVE COUNSEL’S DIGEST

SB 1178, as amended, Corbett. Real property: deficiency judgments.

Existing law provides that no deficiency judgment lies in any
event after a sale of real property or an estate for years for
failure of the purchaser to complete the contract of sale, or under a
mortgage or trust deed given to the vendor to secure payment of the
balance of the purchase price of real property, or under a mortgage
or trust deed on a dwelling, as specified, given to a lender to
secure repayment of a loan which was in fact used to pay all or part
of the purchase price of the dwelling.
This bill would provide that a loan used to pay all or part of the
purchase price of real property or an estate for years includes
subsequent loans, mortgages, or deeds of trust that refinance or
modify the original loan, but only to the extent that the subsequent
loan was used to pay debt incurred to acquire or construct
purchase the real property. The bill would
become operative on June 1, 2011, and would apply only to actions
filed after its operative date.