One in 10 American homeowners fell behind on mortgage payments or were in foreclosure

Mortgage Delinquencies, Foreclosures Rise to Record (Update3)
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By Kathleen M. Howley

Dec. 5 (Bloomberg) -- One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.

“Until we see a turnaround in the job situation, we’re not going to see these numbers improve,” said Jay Brinkmann, chief economist of the Washington-based bankers group, in an interview. “We’re seeing more loans build up in the 90-days bucket as lenders work to modify loans and states put in place programs that delay foreclosures.”

The U.S. economy has shed 1.91 million jobs this year, while falling home prices have made it difficult for people who can’t pay their mortgages to sell their property. Payrolls declined in each month of 2008 through November, the Labor Department said today in Washington.

New foreclosures fell to 1.07 percent from 1.08 percent in the second quarter as some states enacted laws to temporarily stop home repossessions and lenders increased efforts to modify the terms of loans, Brinkmann said.

Home Sales Sink

“Some servicers keep a loan in a delinquent state until they see customers carrying through on their agreements, and then they’ll switch it to performing,” Brinkmann said.

U.S. home sales and prices began to tumble in 2006 after a five-year boom, dragging the economy into a recession that began in December 2007, according to the National Bureau of Economic Research.

The median home price in the fourth quarter probably will be $190,300, down 19 percent from the record $226,800 in 2006’s second quarter, according to a Nov. 24 forecast by Fannie Mae, the world’s largest mortgage buyer.

Purchases of existing homes in October slid to an annual rate of 4.98 million, lower than forecast, the National Association of Realtors said in a Nov. 24 report. The median price fell 11.3 percent from a year earlier, the most since the group began collecting data in 1968.

Federal Reserve Chairman Ben S. Bernanke yesterday urged using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own.

Bernanke’s Plans

The Fed chief outlined four possible options, including buying delinquent mortgages and providing bigger incentives for refinancing loans. He called for addressing the “apparent market failure” where lenders aren’t modifying mortgages even in cases where it’s in their own economic interest to do so.

Bernanke’s proposed changes would go beyond those announced last month by Housing and Urban Development Secretary Steve Preston, who oversees the FHA. The agency will change the amount of the loan a lender must forgive and allow banks to extend the payback time of a mortgage.

There were 111.7 million occupied housing units in the U.S. in the third quarter, 68 percent used by owners and the remainder leased by renters, according to the Census Bureau. One in three U.S. homes has no mortgage, the bureau said.

The bankers’ report cites percentages without providing the number of mortgages. The U.S. had $11.3 trillion of outstanding home loans at the end of June, according to Federal Reserve data. Mortgage lending fell to $80.8 billion in the second quarter, down from $764 billion a year earlier, the Fed said.

The Mortgage Bankers report is based on a survey of 45.5 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.

A break for some Mortgage Crisis Humor...

I thought this was funny.

Delinquency Rates Soar According to Bloomberg...

Bloomberg U.S. Mortgage Delinquency, Foreclosure Rates (Table)

2008-11-17 12:33:09.850 GMT

By Alex Tanzi

Nov. 17 (Bloomberg) -- The following table shows residential mortgage delinquency rates for U.S. loans as reported by the Bloomberg non-agency database comprised of over 45 million securitized loans.

*T

=========================================================================

10/31/08 09/30/08 08/31/08 10/31/07 10/31/06 =========================================================================

Bankruptcy 1.35% 1.28% 1.23% 0.77% 0.85%

of which Prime 0.60% 0.53% 0.50% 0.18% 0.13%

of which Alt-A 1.06% 0.93% 0.87% 0.35% 0.02%

of which Subprime 2.52% 2.44% 2.38% 1.60% 2.08%

Foreclosure 7.20% 7.10% 6.83% 3.37% 1.34%

of which Prime 3.34% 3.25% 3.03% 0.87% 0.22%

of which Alt-A 6.04% 5.82% 5.56% 1.73% 0.37%

of which Subprime 12.54% 12.39% 12.03% 6.66% 2.80%

Real Estate Owned 4.20% 4.13% 3.96% 1.64% 0.49%

of which Prime 1.66% 1.54% 1.42% 0.37% 0.07%

of which Alt-A 2.89% 2.76% 2.52% 0.70% 0.13%

of which Subprime 7.96% 7.90% 7.67% 3.37% 1.03%

=========================================================================

10/31/08 09/30/08 08/31/08 10/31/07 10/31/06 =========================================================================

Delinq. (30,60,90,REO&Fore) 20.87% 20.22% 19.27% 11.48% 6.09%

of which Prime 10.12% 9.57% 8.80% 3.96% 1.78%

of which Alt-A 18.96% 18.10% 16.74% 7.95% 3.48%

of which Subprime 35.14% 34.23% 33.16% 20.37% 10.85%

Delinquency (30 days) 3.59% 3.56% 3.28% 3.09% 1.97%

of which Prime 2.02% 2.04% 1.81% 1.48% 0.85%

of which Alt-A 4.09% 4.06% 3.64% 3.22% 1.93%

of which Subprime 5.31% 5.18% 4.91% 4.73% 3.15%

Delinquency (60 days) 2.07% 1.99% 1.86% 1.50% 0.73%

of which Prime 1.15% 1.09% 1.01% 0.56% 0.21%

of which Alt-A 2.22% 2.14% 1.93% 1.24% 0.45%

of which Subprime 3.15% 3.02% 2.85% 2.58% 1.37%

Delinquency (60+ days) 17.28% 16.66% 15.99% 8.05% 3.53%

of which Prime 8.09% 7.53% 6.98% 2.26% 0.70%

of which Alt-A 14.87% 14.04% 13.10% 4.68% 1.32%

of which Subprime 29.81% 29.03% 28.23% 15.47% 7.18%

-------------------------------------------------------------------------

=========================================================================

10/31/08 09/30/08 08/31/08 10/31/07 10/31/06 =========================================================================

Delinquency (90 days) 3.80% 3.44% 3.34% 1.50% 0.97%

of which Prime 1.95% 1.64% 1.52% 0.44% 0.19%

of which Alt-A 3.72% 3.32% 3.08% 1.00% 0.36%

of which Subprime 6.12% 5.68% 5.64% 2.80% 1.97%

Delinquency (90+ days) 15.20% 14.67% 14.13% 6.55% 2.80%

of which Prime 6.94% 6.44% 5.98% 1.70% 0.49%

of which Alt-A 12.65% 11.90% 11.16% 3.44% 0.86%

of which Subprime 26.64% 25.99% 25.36% 12.88% 5.81%

=========================================================================

SOURCE: Bloomberg non-agency database of 45 million securitized loans.

--Editors: Alex Tanzi

Homeowners Find Loan Modifications Slow, Difficult

SAN FRANCISCO (CBS 5) ― Ask anyone who has tried a loan modification, and chances are the process took months or wasn't successful.

The numbers say it all. HUD's loan modification program was supposed to help 400,000 borrowers. So far it's helped only 42. Countrywide's program was so ineffective the bank was sued.

Greg Jewell, a loan negotiator has figured out the only way to get heard is to go right to the top. He's bombarding bank executives. "That's the person I got a hold of Saturday," he explained to his client, Toni Dalrymple.

Dalrymple bought in Mountain House -- a town southwest of Stockton -- where the majority of homes are underwater. She paid $800,000 and it's now worth less than half that.

The clock is ticking. If she doesn't get payments reduced fast, she'll have to walk away. The delay is caused by a common problem for Bay Area residents. Many have big loans that were sliced up and sold to investors here and overseas.

"My mortgage loan was sold to another investor and there's a problem getting another investor to jump on board," said Dalrymple.

Glen Brown faces similar obstacles. The car salesman lost a third of his income, and went to his bank, Wells Fargo, to adjust his loan payments. The bank told him he wasn't eligible until he went late on payments. So he skipped two payments on purpose to get attention.

Five months later, "It was like a cat chasing his tail. There was always a roadblock. You never talk to the same person," said Brown.

Brown said that's because banks don't want to talk to the homeowner. The call centers are often filled with inexperienced operators. It's a complicated game that has taken him over a year to figure out.

FDIC lays out broad home loan modification plan

By Karey Wutkowski

WASHINGTON (Reuters) - The federal agency that insures most U.S. bank deposits unveiled a plan to prevent about 1.5 million home mortgage foreclosures by promising to share any losses with mortgage companies that agree to refinance certain home loans.

The agency, the Federal Deposit Insurance Corp, said on Friday the plan would cost the government about $24.4 billion, which could be paid from the U.S. Treasury's $700 billion bailout program for the financial industry.

So far, most of the money in the bailout program, the Troubled Asset Relief Program, or TARP, has been injected as capital into banks.

FDIC Chairman Sheila Bair, who spent weeks unsuccessfully lobbying Bush administration officials for the foreclosure prevention plan, unveiled her agency's proposal two days after Treasury Secretary Henry Paulson dismissed the idea of the government underwriting failing home loans.

Paulson told reporters on Wednesday, "That (foreclosure plan) is a subsidy, or spending, program. The TARP was investment, not spending."

The FDIC pushed forward with its plan, posting it on its website Friday morning (http://www.fdic.gov/consumers/loans/loanmod/index.html).

"Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow," the FDIC said. "It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures."

The FDIC said its plan would modify about 2.2 million mortgage loans by offering financial incentives to mortgage servicers. It would pay servicers $1,000 to cover expenses for each loan modified to the required standards, and would promise to share up to 50 percent of losses incurred if a modified loan defaults.

Eligible borrowers would include those who have missed at least two monthly payments on loans for homes they live in. Servicers would be expected to lower those borrowers' monthly payments to about 31 percent of the borrowers' monthly income.

The Treasury Department said on Friday that it was aggressively looking at ways to reduce skyrocketing home foreclosures under the TARP.

"We continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications, which are a key part of working through the necessary housing correction and maintaining the strength of our communities," Treasury Interim Assistant Secretary Neel Kashkari said in testimony prepared for delivery to a U.S. House of Representatives committee.

Upside Down? Go Short!

http://www.sandiegoreader.com/news/2008/oct/08/city-light-1/

In San Diego’s hemorrhaging real estate industry, it’s better to be upside-down and rich than upside-down and poor. That may sound axiomatic — it’s always nicer to be rich than poor — but carriage-trade folks whose homes are underwater can work the system more easily than poor folks in the same sorry situation.
The key is the short sale, in which a lender agrees to discount a loan balance when a house is upside-down — that is, the home is worth less than the balance on the mortgage. In a short sale, the homeowner sells the asset for less than the outstanding balance of the mortgage on the property, and the bank is willing to accept the lower figure, often to avoid the expense and hassle of foreclosing and dumping the property on a glutted market.
A short sale can be a good deal for the seller because, generally speaking, one’s credit record is less damaged from a short sale than a foreclosure.
I checked HouseRebate.com for information on short sale and foreclosure homes that are currently for sale. I got information on average single-family home prices from DQNews.com. Generally, there are more short sales and foreclosures in the poorer areas than the richer ones. For example, in Encanto, there are 101 foreclosures and 191 short sales on the market. In the 92067 zip code of Rancho Santa Fe, there are zero foreclosures and 7 short sales. The ratio of short sales to foreclosures is higher in the affluent areas. On a relative basis, wealthier people are taking advantage of short sales more than poor and moderate-income people are.
On the surface, this would seem to be an anomaly. “Banks check out clients to be sure they need a short sale,” says John Smith of Old Mission Mortgage. “They are not going to let Donald Trump do a short sale. They do due diligence on the client. Possibly we [have had] some very unqualified borrowers in some big homes — people buying on speculation that they could flip [sell] the house in a year.” These flippers may or may not qualify for a short sale.
Here are some examples: listed are the name of the market, the median price of a single-family home there, and the ratio of short sales to foreclosures. Coronado, $1.3 million, 5 to 1; La Jolla, $1.8 million, 5.6 to 1; Scripps Ranch, $620,000, 4.4 to 1; Tierrasanta, $499,000, 9.3 to 1; Del Mar, $1.5 million, 2.8 to 1; and Carmel Valley, $865,000, 9 to 1.
By contrast, here are prices and ratios from representative lower-scale areas: National City, $212,000, 1.8 to 1; City Heights, $221,000, 2.25 to 1; Encanto, $245,000, 1.9 to 1; Logan Heights, $147,000, 2 to 1; Golden Hill, $178,000, 2.5 to 1; Paradise Hills, $260,000, 2.4 to 1; and Lemon Grove, $263,000, 2.1 to 1.
So why do the poorer people less often take advantage of the short sale? “Look at the socioeconomic base,” says Brian Yui, whose company runs the HouseRebate.com website. “People haven’t been informed about the short sale process.” Also, the foreclosure proceeding has its advantages. The family lives in the house for three or four months essentially rent-free. Then, before seizing the property, the bank pays the household $500 to $1000 to move out.
Banks take a long time to approve a short sale. “Most real estate agents steer away from short sales,” says Smith of Old Mission. “Banks are so hard to work with. However, agents get a bigger payday on a $1.5 million property than a $250,000 one.” So there is less aversion to a short sale in the upscale areas.
The affluent “have time to make a short sale,” says Sharon Hanley, market analyst for Oceanside’s New Housing Monitor. “They realize they are upside-down. Why sit here with a million-dollar loan when their house is worth $700,000? They are in a position where they can continue to make the payments” until the bank approves the deal. The opposite is true with people in poorer markets. “They were put into these crazy loans where payments are doubling and tripling.” There is urgency. Foreclosure is the easier route, and they can’t afford to worry about their credit rating.
Those blessed with prosperity “have more access to real estate attorneys or have better lender relationships,” says Peter Reeb, president of Reeb Development Consulting. “They are better able to negotiate on their own behalf.” The home may be the third or fourth or fifth they have bought through the years. “These people know how to better protect their assets, minimize losses,” while protecting their credit rating.
Agrees Peter Q. Davis, retired San Diego banker, “I would think…that those with higher home prices may have a better understanding of the tools available to them and a stronger desire to protect their credit ratings. A lot of times the high-end folks deal with friends or associates for their loans, and this could also affect their actions.”
“One reason short sales are more successful in upscale areas is that demand is higher,” says Stan Sexton of La Mesa’s New Horizons Realty. Sophisticated buyers “can afford a more expensive home and get 30 to 40 percent off.” Both buyers and sellers “are very sophisticated people with higher incomes; they know how to play the short sale game. People at the lower end are very strapped, unemployed or underemployed. Mexicans are leaving California for Mexico. They can’t get jobs here.”
Short sales can be complicated — one reason it takes banks so long to approve them. Sexton has one client with a $1.06 million mortgage. There is one offer on the property for $790,000, one for $810,000 and two for $800,000. But the bank is holding up the deal; there is a second mortgage on the property that must be unraveled. Sexton was showing property in EastLake on which the loan is $1.2 million and the bid is $639,000. “Can you imagine the amount of money these banks are eating in short sales? And they usually lose even more on a foreclosure.”
It may take eight weeks for a bank to approve a short sale, says Sexton. But the foreclosure “is approved very quickly,” he says. One reason the bank takes a long time on short sales is it doesn’t want to foster a sweetheart deal. The homeowner may sell the house to his brother-in-law at an excessively low price. Understandably, the bank wants to get all it can out of the transaction.
“Many people try the short sale first, then go into foreclosure,” says Yui. “The bank may decide [the offer] won’t qualify.”
However, a loan in the $1.5 million range “will get attention right away,” says Smith. “It’s in the bank’s interest to work with those [affluent] people” — as long as they are playing it straight.

40% Upside Down in Miami who bought in Last 5 Years

WSJ: 1 in 6 homeowners upside down, and growing
posted at 3:00 pm on October 8, 2008 by Ed Morrissey Send to a Friend printer-friendly
The Wall Street Journal paints a grim picture of the housing market today in its analysis of debt-to-equity ratios in the residential market. The rate of homeowners who owe more than their equity has increased to 16% after a 30% decline in housing values. That’s almost three times the rate in 2007 and four times the rate in 2006, and it’s likely to keep going higher:
About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody’s Economy.com.
The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm’s chief economist, Mark Zandi, who adds that “it is very possible that there will ultimately be more homeowners under water in this period than any time in our history.”
Among people who bought within the past five years, it’s worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.
The majority of homeowners still have equity, and even among those who don’t, many continue to make their mortgage payments on time. The financial-bailout legislation could at least “keep things from getting much worse” by helping banks avoid the need to tighten credit further, says Celia Chen, director of housing economics at Economy.com. Still, she expects housing credit to remain tight and home prices to decline in much of the country for another year or so.
The problem is more regional than national, at least at the extremes. Texas and North Carolina are experiencing a slight increase in home values, at least at the moment. The hardest-hit areas are Florida, Los Angeles, Las Vegas, and San Diego. Percentages of under-water homeowners who bought in the last 5 years go over 50% in San Diego and Las Vegas, and above 40% in Miami and Phoenix.
What will this mean? The WSJ warns that a consumer-spending freeze is coming that will slam the economy. Right now, lenders aren’t interested in selling car loans or credit on other big-ticket items, and people aren’t likely to buy them anyway. The decline in sales will result in plenty of lost jobs, which will in turn hit the residential housing market all over again. Ad sales will drop as consumer spending declines, meaning that many who rely on that for revenue will find themselves gasping for resources. And of course, as foreclosures mount, they will deepen the decline on home values.
On a brighter note, the decline has brought home prices much closer to their historical relationship to income. As that point approaches, housing prices should hit bottom and start rebounding, assuming that a massive load of foreclosures doesn’t create its own revaluation.
In looking at the WSJ’s map, in fact, the problem appears mostly concentrated in Florida and California, with hot spots in Green Bay, up the West Coast, and to a less intense extent on the northern East Coast. What does that mean politically? Does it mean that the fallout from the housing bubble can be quarantined to these regions? Interesting questions, with no real answers at the moment.

Is Washington Mutual The Next one to Fail?

Washington Mutual tumbles 30 percent to 17-year low

By Jonathan Stempel and Dena Aubin Wed Sep 10, 4:37 PM ET
NEW YORK (Reuters) - Washington Mutual Inc (WM.N) shares sank 30 percent to a 17-year low and the perceived risk of its debt soared on worries the largest U.S. savings and loan will not find a buyer or raise enough capital to combat soaring mortgage losses.
The stock closed down 98 cents at $2.32 on the New York Stock Exchange, and are down 44 percent in the last two days. It fell earlier to $2.30, the lowest since January 1991, according to Reuters data.
Analysts attributed the decline in part to anxiety that potential buyers might walk away because of a pending accounting rule requiring they value the assets of targets at market prices, and perhaps the need to raise capital.
They also pointed to Lehman Brothers Holdings Inc (LEH.N), which said earlier on Wednesday it plans to sell a majority stake in its asset management unit and spin off commercial real estate, and posted a $3.93 billion quarterly loss. The shares of Lehman, Wall Street's fourth-largest investment bank, fell 7 percent.
"Lehman failed to find anyone to invest capital. With Washington Mutual potentially needing some in the future, the market is taking the opportunity to punish that company," said Jaime Peters, a banking analyst at Morningstar Inc in Chicago.
Washington Mutual did not immediately return a call seeking comment.
Earlier this year, it raised $7.2 billion from investors, including private equity firm TPG Inc (TPG.UL).
On Monday, the thrift ousted the longtime chief executive, Kerry Killinger, and replaced him with Alan Fishman, the former chief of Brooklyn, New York's Independence Community Bank Corp.
Washington Mutual lost $3.33 billion in the second quarter, and said cumulative losses from subprime mortgages and other home loans could reach $19 billion through 2011. The thrift's shares have fallen 93 percent in the last year.
SHAKE-OUT
It costs $4.3 million up front plus $500,000 annually to protect $10 million of Washington Mutual debt against default for five years, Phoenix Partners Group said on Wednesday. The up-front payment increased from $3.2 million on Tuesday.
Wednesday's level suggests that investors see an 85 percent chance of default within five years, according to Tim Backshall, chief analyst at Credit Derivatives Research in Walnut Creek, California.
"The market's shaking out who's going to be able to survive over the next year, and this is just part of the shake out," said Mirko Mikelic, portfolio manager for Fifth Third Asset Management in Grand Rapids, Michigan.
On Tuesday, Standard & Poor's lowered its outlook to "negative" for its "BBB-minus" credit rating, which is one notch above "junk" status.
Washington Mutual this week announced an agreement with its chief U.S. regulator, the Office of Thrift Supervision (OTS), requiring improved risk management and compliance. It said the agreement doesn't require it to raise capital.
An OTS spokesman did not immediately return a call seeking comment. A Federal Deposit Insurance Corp spokesman said the agency does not comment on banks that are open and operating.
Morningstar's Peters said a falling stock price complicates Fishman's task to nurse Washington Mutual back to health.
"Fundamentally, nothing has changed at Washington Mutual since he was named CEO," Peters said. "He already has a very difficult task ahead of him. His primary task is to stabilize loan losses, and keep capital at a level that makes regulators happy."
(Additional reporting by Herbert Lash and Phil Wahba in New York, and John Poirier in Washington, D.C.)

U.S. Mortgage Foreclosures, Delinquencies Reach Highs

More Bad News:

Sept. 5 (Bloomberg) -- Foreclosures accelerated to the fastest pace in almost three decades during the second quarter as interest rates increased and home values fell, prompting more Americans to walk away from homes they couldn't refinance or sell.

New foreclosures increased to 1.19 percent, rising above 1 percent for the first time in the survey's 29 years, the Mortgage Bankers Association said in a report today. The total inventory of homes in foreclosure reached 2.75 percent, almost tripling since the five-year housing boom ended in 2005. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41 percent of all mortgages, an all-time high, from 6.35 percent in the first quarter.

Tumbling home prices are making it difficult for even the most creditworthy owners with adjustable-rate mortgages to sell or get a new loan as their financing costs rise, said Jay Brinkmann, MBA's chief economist. Prime ARMs accounted for 23 percent of new foreclosures and subprime ARMs were 36 percent, he said.

``People chose the lowest payment option to get into some of the very expensive housing markets and now that prices are coming way down, they can't sell and they can't afford the higher payments,'' Brinkmann said in an interview. The unadjusted rate for new foreclosures was 1.08 percent, also a record, he said.

The three-year-old housing slump has slowed growth of the world's largest economy, caused more than half a trillion dollars of losses at banks such as Citigroup Inc. and UBS AG, and crimped earnings for companies such as Home Depot Inc. and Lowe's Cos. that rely on home purchases to fuel demand.

Economic Growth

The drop in home sales and values, along with tighter credit conditions and higher energy costs, probably will ``weigh on economic growth over the next few quarters,'' Federal Reserve policy makers said Aug. 5 when they decided to hold their benchmark rate at 2 percent. The central bankers cut the rate seven times in the last year in an attempt to avert a U.S. recession.

The Fed probably will keep the rate level for the next few months, according to the price of Fed funds futures. There's an 81 percent chance of no change at the Sept. 16 meeting and a 75 percent chance of no action at the Oct. 29 meeting, they indicate.

Foreclosures started on prime mortgages rose to 0.67 percent from 0.54 percent and the foreclosure inventory increased to 1.42 percent from 1.22 percent, the report said. The share of seriously delinquent prime mortgages was 2.35 percent, up from 1.99 percent.

Prime Mortgages

The share of new foreclosures on prime ARMs was 1.82 percent, triple the 0.58 percent in the year-earlier quarter, and the total foreclosure inventory was 4.33 percent, up from 1.29 percent, the report said. The share of seriously delinquent prime ARMs was 6.78 percent, rising from 2.02 percent a year ago.

New foreclosures on subprime loans rose to 4.7 percent from 4.06 percent in the first quarter, according to the report. The total foreclosure inventory increased to 11.81 percent from 10.74 percent and the so-called seriously delinquent share of loans that are 90 days or more overdue rose to 17.85 from 16.42 percent.

The bankers' report cites percentages without providing the number of mortgages. The U.S. had $10.6 trillion of outstanding home loans at the end of March, according to a June 5 report by the Federal Reserve. Mortgage lending fell to $320.9 billion in the first quarter, down from $782.6 billion a year earlier, the Fed report said.

Existing home sales fell to a 10-year low in the second quarter and the median price for a single-family house dropped 7.6 percent, according to the National Association of Realtors in Chicago.

Market Bottom

Tumbling prices and foreclosure sales by banks may be helping to form a bottom for the housing market, said Brian Bethune, chief U.S. financial economist at Global Insight Inc. in Lexington, Massachusetts.

``People who have been waiting on the sidelines -- and there have been quite a number of them -- are starting to see prices come down to the point where they perceive good value,'' Bethune said in an interview. ``Foreclosures do provide opportunities and induce some people to come back into the market.''

Sales of previously owned homes rose 3.1 percent in July to an annualized pace of 5 million, boosted by foreclosures that accounted for about a third of all transactions, the National Association of Realtors said in an Aug. 25 report.

The Mortgage Bankers report is based on a survey of 45.4 million loans by mortgage companies, commercial banks, thrifts, credit unions and other financial institutions.

Pay Option Arm- A Time Bomb

An increasing number of our client that are upside down on their homes are Pay Option Arms. In Previous Blog Articles I have covered how those loans work. For those who need a refresher you can see the old posts here. While discussing the Mortgage Implosion on a sports message board another poster found an article that I thought I would share. We are at the VERY

Ticking time bomb

Aug 14th 2008
From The Economist print edition

A nasty mortgage product promises yet more misery

OPTIMISTS, look away now. Prices in America’s housing market may have slumped, but the pain for a significant subset of homeowners has barely begun. Even at Barclays Capital, which spotted some of the improvements mentioned in the previous story, there is still concern. The bank’s Nicholas Strand says that roughly 1.4m households, most of them in California, hold a particularly nasty type of adjustable-rate mortgage called the “option ARM”. Although the overall value of option ARMs is lower than that of subprime loans—some $500 billion, according to Mr Strand, compared with about $1 trillion in subprime loans—their sting is more venomous.

The option ARM allows borrowers to pay less interest than the formal rate for a limited period (the vast majority of customers choose this option). In return, the unpaid interest is added to the original loan, a process soothingly called “negative amortisation”. While house prices are rising, the product just about makes sense. If borrowers do get into trouble when they start paying off the loan in full, higher property values offer some wiggle-room. But when house prices are falling and refinancing is difficult, as is now the case, the option ARM is the financial equivalent of a bikini in winter. Homeowners end up owing more on a property that is worth less.

Delinquencies are already rising fast. Write-offs for option ARMs at Washington Mutual, a stumbling thrift, have zoomed from 0.49% in the last quarter of 2007 to 3.91% in the second quarter. But the real crunch will come when the mortgages “recast”, forcing borrowers to start making full payments. The loans recast after a set period (typically some five years after origination) or when the principal hits a predetermined ceiling. The biggest wave of recasts is due to happen in 2010 and 2011. By some estimates, borrowers’ monthly payments will then surge by 60-80% (see chart), at a time when property values may still be at, or close to, their trough.

Rating agencies were unusually alive to the dangers of option ARMs: they demanded more collateral to protect holders of securitised-mortgage bonds. Banks were slower to wake up to the danger. An option-ARM product called Pick-a-Pay (a name that gave fair warning it could lead to trouble) accounts for 45% of consumer lending at Wachovia, a large bank. Wachovia stopped originating loans that allow negative amortisation in June, and is setting aside heftier reserves to cope with expected losses. It has also waived prepayment penalties for existing product-holders and is marshalling its employees to help move these customers on to conventional mortgages. Such efforts are welcome. But they also signal just how protracted America’s housing woes are likely to be.

http://www.economist.com/finance/displaystory.cfm?story_id=11921871

More Details on the New FHA Bill Passed

Good Article from the Sun-Sentinel:

New housing law full of trapdoors for borrowers and lenders.

Took a hard look at the new federal housing law and I had trouble seeing past all the strings attached to its offers of help for troubled homeowners.

Such as: If you use its provisions to refinance your mortgage and then sell your home at a gain, you'll have to share that gain with the government.

And this new program won't help anyone who can't pay off a home equity loan, either.

But — and this isn't easy for many who are in mortgage trouble — if you're a qualified borrower and could have gotten a mortgage before the lenders went crazy and stopped checking anything, then there may be something in this law to help you.

For now, I'm only going to focus on the question of how to refinance a mortgage using the Hope for Homeowners Act of 2008, to take effect Oct. 1. The Congressional Budget Office has estimated this new program will help as many as 400,000 struggling homeowners to avoid foreclosure.

From what I see, they'll be the lucky few, if there are that many who succeed in saving their homes. Here's what I learned:

Who can refinance?

The Hope for Homeowners Act won't work for an investor. You can only refinance a mortgage on your primary residence, not an investment property.

So much of South Florida's property sales were to speculators, but the law is designed to prevent them from being bailed out.

It won't work for someone who has a second lien on their home, such as a home equity loan. That has to be satisfied before this refinancing can take place.

It will work for borrowers who are a bit more heavily in debt than lenders generally recommend. The homeowner must be spending 31 percent of gross monthly income on housing (usually the definition includes the monthly money set aside for property taxes and insurance, as well).

How Will refinancing work?

Lawmakers expect borrowers will essentially have to meet the same guidelines as for a Federal Housing Administration mortgage. If you bought more house than you could afford, then you won't qualify.

Borrowers' income will be verified, something that wasn't done for some of the strange lending practices during the housing boom.

The trouble is that people who couldn't qualify for a traditional loan during the boom may not qualify today.

"That's where a lot of borrowers are banging their heads against the wall," says Ritch Workman, a Melbourne mortgage broker who is president of the Florida Association of Mortgage Brokers.

The lender side of the deal is even trickier.

The lender has to agree to accept a payoff that is less than the full value of the current mortgage. This is a voluntary program.

The payoff, according to the House Financial Services Committee, will be 85 percent of the home's current value.

Who profits?

Banks are expected to save billions of dollars by reducing their mortgage loan losses.

Here's how it would work: If you had a $200,000 mortgage on a property that is now worth $100,000, the lender would have to agree to accept $85,000. The lender would be taking a huge cut, "but they would get out. If they let the house go into foreclosure, they'd be lucky to get 35 to 40 cents on the dollar," said Steven Adamske, a spokesman for Rep. Barney Frank, D-Mass., who is chairman of the Financial Services Committee. The borrower gets a new mortgage that is guaranteed by the FHA.

If the homeowner then quickly sells the refinanced home in the first year for more than $100,000, the homeowner has to pay 100 percent of that gain to the FHA. This equity-sharing arrangement continues, but the percentage going to the FHA goes down over the next few years. After five years, it is 50 percent, for the next 25 years.
http://www.sun-sentinel.com/business/sfl-flhlpharriet0810sbaug10,0,4273919.column

Ask UpsideDownFlorida- Can You Get a Loan Modification if I am behind?

Recently I came across this article and found it disturbing because it is NOT what we are experiencing at UpsideDownFlorida.com:

Q: I'm four months behind in my house payment. Can I still go to the lender and ask for a loan modification?

A: You certainly have the right to ask, but the odds are overwhelming that you will be foreclosed.

Like many borrowers you likely have an impossible situation. If you were current on your mortgage you would have no grounds to ask for a modification. Having missed four payments your credit may be so damaged that you no longer qualify for either a loan modification or a new loan with another lender.

Borrowers hit with rising payments or who cannot otherwise pay their mortgage should not wait for months to resolve the problem. Instead, try to refinance or modify the loan while you still have good credit, the time when you have the most leverage in the marketplace. The moment you see that a payment will be missed contact an attorney, legal clinic, your state attorney general or a community housing group and ask for help. Don't be embarrassed and don't delay.

As to national programs designed to "help" those with exploding ARMs and other toxic loan products, the odds are against you. As an example, in May HUD issued a news release that said that the "FHASecure product has helped 200,000 homeowners refinance their mortgages and avoid foreclosure." However, as of the end of April, HUD reported that only 2,276 delinquent conventional borrowers refinanced with an FHA loan. In other words, the sentence in the news release means that about 198,000 borrowers with good credit refinanced – and only about 2,300 borrowers were saved from foreclosure.

If you have a toxic loan, one which will surely lead to higher costs in a few months or in a year, think about refinancing now, before your credit is damaged. Gather your paperwork and be prepared to fully document your income, assets and debts. Also, be aware that many refinancing programs require little or no cash at closing - instead the new lender will pay the closing costs in exchange for a larger loan amount or a somewhat higher interest rate. This "higher" interest rate is not a problem if the new interest level is less than the rate you're now paying or will shortly pay.

A caution: Many toxic loans have stiff prepayment penalties that assure that borrowers must either pay higher monthly costs or face grossly unjustified penalties. Beat the system by planning ahead. Start saving now for higher payments -- and then refinance as soon as the prepayment penalty period ends.

http://www.nydailynews.com/real_estate/2008/07/08/2008-07-08_is_it_too_late_for_a_home_loan_modificat.html

I feel for all the people struggling with Mortgage problems that read this and give up.

Ask UpsideDownFlorida.com-What is a Short Sale?

Recently I have gotten several emails asking:

What is a Short Sale?

Now one of the most popular topics in real estate we at UpsideDownFlorida.com are happy to now have some of our videos on our main site to explain short sales. These videos give great information on all the advantages of a short sale over foreclosure. They also explore the effects of a short sale on your credit and how long a short sale takes.

After doing some research I came across this Blog entry on John Barker's Web blog. I found it very helpful and knowledgeable and wanted to share it with you:

Friday, June 01, 2007

What is a short sale?

With the increase in foreclosures lately you may have heard the term “short sale” and wondered what it was. A short sale is when the lender will accept less than the full amount due on a mortgage when a property is sold. Usually, the lender will accept the short sale to avoid the time and expense of a foreclosure.

When a borrower is in default on a mortgage they not only owe the back payments but also may owe late fees, property inspection fees, attorney fees, etc. This can add up quickly to eat up all the equity the borrower had in the property. If the borrower is unable to bring the account current the lender will then foreclose on the property. With a foreclosure, the lender can lose up to 40% of the mortgage amount because of the extra costs involved with foreclosing on a property: attorney fees, court costs, lost interest, eviction costs, property maintenance costs, and selling costs. Foreclosing on a property can also take up to two years in some states. Therefore, it is sometimes in the best interest of the lender to accept the short sale.

It also can be in the best interest of the borrower. They will not have to endure the time and stress of a foreclosure and their credit may not be as adversely affected as it would with a foreclosure. It is quicker and easier and does not subject the borrower to the embarrassment of a foreclosure.

How does it work?

The first thing the borrower should do when they can no longer afford a property is to contact the lender immediately. The last thing a lender wants to do is foreclose on the property. Lenders typically have departments that work with people who are behind on their payments to resolve the situation. If you cannot resolve the default with the lender, and you want to see if they will accept a short sale, they will direct you to the department that handles short sales.

The lender will usually require the borrower to submit a lot of information to the lender in order to consider the short sale. The information required may include:
• Income documentation such as W-2s and pay check stubs to verify the borrowers’ income.
• Bank statements to verify the borrowers’ assets
• Hardship letter – this letter will describe for the lender the reasons the borrowers are in the financial position they are in and will ask the lender to accept the short sale. Borrowers should make this letter sound as sad as possible and back up the story with any documentation you may have such as medical bills, etc.
• Fair market value for the property – depending on the lender they may require an appraisal or may accept an opinion from a local Realtor know as a Comparative Market Analysis (CMA).
• Preliminary proceeds sheet from the sale of the property. This will show the proceeds of the sale of the property after the mortgage is paid off and all other closing costs and fees are paid. This will be negative in the case of the short sale and this negative amount is the amount of the shortage.
• Listing agreement and purchase agreement when they are available.

When the lender reviews all of this they may or may not approve the short sale. If they do not approve the short sale they will proceed with the foreclosure. If they do agree to the short sale you will close on the sale of your property and the lender will take the loss.

So, is the borrower off the hook?

Not necessarily. The lender still has options to try to collect this shortage. As a condition of the short sale the lender may require the borrower to sign a note to repay the shortage. They may also file a collection or a judgment for the amount of the shortage. This is something that an attorney with expertise in this area of real estate needs to be consulted.

Also, the IRS may come after the borrowers for income taxes on the amount of the shortage. If the shortage was forgiven, the lender will report the shortage as income to the IRS and the IRS will collect taxes on this amount. Again, for the specifics on this please consult a tax professional.

http://www.barkerblog.com/2007/06/what-is-short-sale.html


With the complexity of a short sale we STRONGLY suggest the use of a mitigation firm to assist you in negotiating with your lender. Like any negotiation there is no substitution for experience and having a professional negotiator on your side. Furthermore, a mitigation company can negotiate the terms of the short sale as to limit the effect on your credit, and pesuade the lender not to pursue a deficiency judgment after the short sale and to consider the account settled and PAID in FULL.

10 Things to Understand About the Housing Bubble

I came across the article while doing some research today and thought it was very good. Below is the beginning. The rest can be found here.

In Westwood’s view, the following ten factors most significantly contributed to the housing bubble and mortgage crisis:

1. Residential mortgage and consumer credit more than doubled in the first six years of this decade. From the founding of the nation through 1999, our citizens amassed some $5.1 trillion of home mortgage debt and $1.4 trillion of installment and credit card debt. By the end of 2006, these numbers stood at outstanding amounts of $11.0 trillion and $2.4 trillion, respectively. In total, American individuals became indebted by an additional $6.9 trillion in six short years (the bulk of which was in the three-year period from 2004 through 2006) more than doubling the debt outstanding at the beginning of the decade. Apologists often cite increases in wealth and in home equity value as offsetting this unprecedented and crippling increase in our citizens’ indebtedness. But the truth is we live in a nation with one of the lowest savings rates in the world (it was actually negative in 2005 and was likely negative in the year just ended) and, as detailed below, a significant portion of the perceived growth in home values has been specious at best.
2. Cheap mortgage loans offered on lax lending terms were responsible for much of the ballooning of home prices. Let’s say that in 2000, you had $100,000 to put down on the purchase of a home. In the same year, with residential mortgage rates at 6% for adjustable rate mortgages, you were offered a mortgage for 80% of the purchase price of the home you were seeking to buy. The $100,000 you had available meant that you could afford a $500,000 home (80% of $500,000 = $400,000 in mortgage) and, interest only, your monthly payment would have been approximately $2,000 per month. Now, zoom ahead to 2006. With the same $100,000 in your pocket, and an adjustable teaser interest rate of 3%, mortgage companies nationwide were knocking down your door offering you mortgages at 90% of your purchase price (and more – often over 95% in some cases). With your same $100,000 and for the same $2,000 per month interest payment – voila – you could now afford to pay $1,000,000 for the same house for which you would have been able to pay $500,000 six years before. And of course, that is pretty close to what happened during this period – residential home prices increased by over 74% from 2000 through 2006. Does that mean the homes themselves were actually worth more? Of course not.
3. The growth in home prices during the first six years of this decade has been unprecedented and should have had our mortgage bankers, investment bankers, regulators and the Fed raising at least an eyebrow or two. As prices more than doubled in some markets and increased over 74% nationwide from 2000 through their peak in 2006, the stewards of our banking sector and their overseers in government apparently neglected to consider why. Pointing to “global reserves of excess savings” and “more efficient capital markets” as the new paradigms rendering previous market fundamentals obsolete, the best and the brightest ignored the fact that debt driven home prices had totally disconnected from median household income which has increased by a mere 15% during the same period, before adjusting for inflation (median income actually decreased after adjusting for inflation). If there had been a global glut of savings, we would have experienced a boom in the production of all capital goods – not just limited to housing – which would be fully sustainable by those real savings (in contrast to what was actually a debt driven spate of asset inflation in housing). More importantly, the purchase price of homes actually rendered it more expensive, even on an after-tax basis, to own rather than rent a residence – in some markets by more than 30%. This phenomenon is not only historically unprecedented, but any student of finance and economics can tell you that it is as unsustainable as any market that is based on pure speculation. And pure speculation is what ultimately developed in residential real estate market – the notion of ever rising value, so similar to the dot com boom.
4. Mortgage lenders, seeking to maximize lending, relied on aggressive appraisals to justify outsized loans – and appraisers cooperated by ignoring their own established methodologies. The Chicago-based Appraisal Institute, the gold standard in real estate appraisals with 22,000 members, maintains guidelines known as the Uniform Standards of Professional Appraisal Practice (USPAP). Among other requirements, the USPAP directs, generally, that appraisers consider multiple indicia of the value of any form of property being appraised, with value defined as the most probable price at which a willing buyer and a willing seller would agree to transact a fair sale, assuming (among other things) that “both parties are well informed, or well advised” and “the price [is] unaffected by special or creative financing…..granted by anyone associated with the sale.” In addition to considering recent sales of real estate, generally, Appraisers are regularly required to consider the value of properties based on the income they would produce if rented and based on the cost of replacing any improvements (buildings) to the property. They are then required to reconcile any differences among these three classic valuation methods. As it turns out, however, during the housing bubble, home prices completely disconnected from both rental values and from replacement costs. From 1960 through 1996, the ratio of average home rents to average home prices hovered in a band of 5% to 6% per annum. From 1996 to 2000, it declined to 4.6% and then, in a stunning drop this decade, the ratio fell to 3.5% by the end of 2006. Although common wisdom may have it otherwise, the fact is that construction costs barely moved at all during this decade, on an inflation adjusted basis, while home prices increased by 74%. If construction costs were constant and home prices ballooned, the only explanation – according to established valuation methodologies – could be that land was very suddenly worth dramatically more. But that much more, and that quickly? Appraisers couldn’t possibly reconcile these dramatically divergent indications of fair market value, so what did they do? Well, as it turns out – Fannie Mae, Freddie Mac, and pretty much all other mortgage originators, guarantors and investors, don’t consider income value as relevant to the appraisal of non-rental, residential real estate. Instead, appraisers merely conclude that recent sales are, for all intents and purposes, the only valid indication of fair market value. In doing so they enabled the entire market to ignore the impact of comparisons to rental properties and “special and creative” financing that – although it didn’t come from sellers – was demonstrably, and has now proven to be, uneconomic.

http://www.rgemonitor.com/us-monitor/253126/10_things_to_understand_about_the_housing_bubble_and_the_debt_crisis

NEW FHA BILL DOES VERY LITTLE FOR MOST HOMEOWNERS!

Before everyone goes and pops the cork on the new FHA Housing bill as a savior to the housing Market Lets see who's eligible:

Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 31% of their gross monthly income on mortgage debt to be eligible for the program.

They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.

Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.

To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.

Well It looks like others agree according to the Seattle Times:

"This is not the end of the housing crunch," said Jared Bernstein, a senior economist at the Economic Policy Institute. "Housing prices have already fallen 15 percent and they need to fall 10 percent more. This bill isn't going to change that equation."

1 in 171 in US in Foreclosure: U.S. Foreclosures Double as House Prices Decline

Well the news is not any better today as sales of existing homes has fallen below expectations as well as sales of new homes. Below is a Bloomberg Article detailing the malaise.

July 25 (Bloomberg) -- U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

``Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages,'' said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. ``That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages.''

About 25 million U.S. homeowners risk owing more than the value of the their homes, according to Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. That would make it impossible for them to negotiate better loan terms or sell their property without contributing cash to the transaction.

Falling home values, led by states such as Nevada and California that have the biggest default rate, have prompted RealtyTrac to almost double the projected number of foreclosures this year to about 2.5 million, said Rick Sharga, executive vice president for marketing.

Advantages of a Loan Modifications over a Refinance

Today we will explore the many advantages to a loan modification over a refinance. With it nearly impossible to qualify for financing these days a refinance is not an option anymore for many struggling homeowners.

What is a Loan Modification? (video)

I am pleased to announce our most recent set of videos discussing Loan Modifications. Hopefully these Videos will help you understand how they work and how we at UpsideDownFlorida can help you. We appreciate all the feedback and look forward to helping you!

1 in 10 Upside Down- You Are Not Alone!

Well the news on the housing front has not gotten any better. Now over 11% of ALL homeowners are upside down on their mortgage. In states like Florida, Arizona and California the numbers are far worse. Below is a map of the country showing what parts of the country are struggling with foreclosures:

As you can see the areas that saw the greatest boom are now seeing the biggest bust.

INDYMAC Assets Siezed!

Well we told you the other day that INDYMAC was facing major problems and it got worse over the weekend. The government sieze the bank in what is now the 2nd largest bank failure ever. Below is what you find now posted on Indymac's website...

FDIC Information for IndyMac Bank, F.S.B., Pasadena, CA

On July 11, 2008, IndyMac Bank, F.S.B., Pasadena, CA was closed by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) was named Conservator. All non-brokered insured deposit accounts have been transferred to IndyMac Federal Bank, F.S.B., Pasadena, CA ("assuming institution") a new FDIC-insured Federal Mutual Savings Bank. No advance notice is given to the public when a financial institution is closed. The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a business checking account, a Social Security direct deposit, and other relationships with the institution. Please select the link below to read more about this event: FDIC Bank Closing Information for IndyMac The IndyMac websites are expected to be available Monday, July 14, 2008. If the balance in your account(s) (this includes any accounts in which you have an ownership) is less than $100,000, no action is required on your part at this time. Your entire insured account(s) will be transferred to IndyMac Federal Bank and will be available for business as usual during regular business hours. FDIC CALL CENTER 866-806-5919 CALL CENTER HOURS OF OPERATION: Friday, 7/11/08, 3:00 p.m. - 9:00 p.m. Pacific Saturday, 7/12/08, 8:00 a.m. – 8:00 p.m. Pacific Sunday, 7/13/08, 8:00 a.m. – 6:00 p.m. Pacific THEREAFTER Monday through Friday, 8:00 a.m. – 8:00 p.m. Pacific

For ALL depositors under 100,000 there is very little risk that you will not have access to your funds, however accounts with deposits greater than 100,000 may face problems. Lastly, for all you INDYMAC mortgage holders....unfortunately...this doesn't mean you don't have to pay anymore.

The Effects of a Short Sale on Your Credit (part 3)

Yesterday we saw a video on the definition of a short sale. Today we are going to look at the effects of a short sale on your credit and compare this to a foreclosure. Let us know if you like the videos.