Monday, June 25, 2012

Will 2012 Spell The End of The Slide?

Economists and Experts Projecting Housing Market Continued Recovery

Supply down, demand and prices up

Year over year, home sales are up — due to a combination of increased investor activity and low mortgage rates — while the available inventory of houses for sale has decreased significantly. Fewer houses available for buyers to choose from has allowed sellers to raise prices. (via The Wall Street Journal)

Recovery is happening regionally

David Crowe, the chief economist at the National Association of Home Builders, feels that there appears to be a steady trend of market recovery, but he is not so sure that there will be a startling rebound within the next 12 months — “the recovery we are seeing is mild and meek and doesn't show up well on national numbers.”

Or, to put it another way, Zillow’s chief economist Stan Humphries likened the creeping improvement to “bacteria attacking a bad virus,” happening zip code by zip code rather than in sweeping changes across large areas. Philadelphia and Detroit are just two examples of areas where recovery is happening and steady, albeit not pervasively. (via Housing Wire)

Beware the bubble

Zillow’s Humphries cautioned that the current fad of investing in single family homes as rental properties may in fact turn out to be the next housing market bubble. Rental rates are continuing to trend up, making home ownership more and more appealing to a wider market. (via Inman)

Monday, June 18, 2012

Annual Foreclosure Rate Still Falling

20th Month In a Row That Foreclosures Decline Year-Over-Year 


Foreclosure activity down from last year, but up from last month
There were more than 200,000 foreclosures in May, a nine percent increase from foreclosures in April. May saw 1 in every 639 housing units receive some type of foreclosure filing — 205,990 properties in all. Foreclosure activity continues, however, to show a steady decline in year-over-year comparisons — dropping four percent from May 2011 to May 2012. (via Mortgage News Daily)
New foreclosures on the rise
Lenders filed “default or scheduled-home-auction notices… for the first time” against nearly 110,000 homes in May — up 12 percent from the previous month, and 16 percent from the same month last year. This May is the first time that new foreclosures rose year-over-year since January 2010. (via The Huffington Post)

Sales of previously-owned homes at two-year high In April of this year, more previously-owned homes were sold than in any month in the last two years — while home prices rose slightly for two months in a row, March and then April. More and more completed short sales — which hit a three-year high in the first three months of this year — will most likely keep a lid on home prices until more of the “shadow inventory” is flushed through the market. (via Reuters)

Monday, June 11, 2012

FHA Moves To Forestall Foreclosures

As many as 5,000 distressed loans to be sold each quarter

The Federal Housing Administration (FHA) announced last week that they are implementing a bulk sale program to liquidate some of the distressed loans they hold. Currently the agency holds more than 700,000 mortgages that are in severe delinquency, representing nearly 10 percent of the loans that it insures.

Beginning this September, the FHA will sell loan pools of 5,000 distressed loans to investors “for market-determined prices, which are usually less than the outstanding balance on the loan. The servicer will agree not to foreclose on the family for six months as they work to stay in the home,” stated HUD Secretary Shaun Donovan. (via Housing Wire)

Expanding last year’s test of the Distressed Asset Stabilization Program

In a pilot program last year, the FHA sold about 2,200 distressed loans. The agency has yet to gather enough information on the status of those loans to determine how many of those loans were modified to allow borrowers to resume payments or how many of those borrowers were still living in the homes in question. (via The Wall Street Journal)

For loans to be eligible for the loan pool they must be a minimum of six months delinquent, the borrower cannot be in bankruptcy, the servicer must have exhausted all FHA-allowed loss mitigation steps and foreclosure proceedings must have begun. (via The New York Times)

Goal is to help reduce actual foreclosures…

The FHA is bound by certain regulations that limit the scope of loan modification and mitigation that servicers can offer on FHA backed loans. Once the loan has been sold and is no longer subject to FHA guidelines, more options can be made available to the borrower — such as principal reduction, short sale or a rent-to-own plan for the borrower, with the option to buy the home again in three years.

The loan pools are not intended for “vulture” investors. In fact, the program poses certain restrictions on the purchaser — 

a) the investor is not allowed to foreclose on any loan in the pool for six months after buying the FHA-backed loans;

b) the investor is required to modify at least half of the loans in the pool and hold them for at least three years without reselling them. (via Reuters)

…and to support neighborhood stabilization

The FHA plans to create pools that will encourage investment in areas that have been most impacted by the foreclosure crisis. Eight communities have already been selected by the FHA, although not specified in last week’s announcement — except for identifying Chicago as a possibility. The FHA will also work with local non-profits and governments to allow them to use Neighborhood Stabilization Fund money to buy non-performing loans. (via DS News)

Monday, June 4, 2012

Just 7 Months Until Short Sales Have Ugly Tax Implications

Mortgage Debt Relief Act set to expire at the end of the year

Homeowners who experience principal reductions on their mortgages — through mortgage restructuring, foreclosures or short sales — have relied on The Mortgage Debt Relief  Act of 2007 to keep their tax bill from ballooning to alarming heights. The same Debt Relief act is scheduled to expire at the end of 2012.

From owing the bank to owing the IRS?

The Mortgage Relief Act means that as a homeowner, you are not required to include the amount of forgiven debt in your income when calculating taxes. That can mean a substantial savings on your tax bill — for instance, if your mortgage principal currently stands at $300,000 and you modify that loan or execute a short sale such that your principal is reduced to $200,000, that is $100,000 of debt forgiveness that would ordinarily be taxable as income — adding about $30,000 to your tax bill based on an average tax rate of 30 percent.

As Firedog Lake contributor David Dayen points out

“It will probably put you in a higher tax bracket. And because of the fact that, if you had that kind of money to throw around, you wouldn’t be a struggling borrower in the first place, you’re in no position to pay that tax bill. Even the insulting $2,000 given under the settlement to those foreclosed upon would get taxes, if the Mortgage Forgiveness Debt Relief Act expires. And the same goes for a short sale; the difference between the sale price of the house and the “true value” would be considered income, and taxed accordingly.

This is a total nightmare scenario for homeowners, the final indignity of the whole mortgage crisis.

No wonder short sales are so popular

Short sales have been on the rise, outpacing foreclosures in some states last year. RealtyTrac reported that short sales were up 25 percent in the first quarter of 2012 compared to the first quarter of 2011, while foreclosure sales were down by 15 percent in the same period. As a vice-president from RealtyTrac put it, for banks, “a short sale is a safer alternative to avoid any potential problems that they face because of the way they’re processing foreclosures.” (via The Washington Post)

Now’s the time

It’s unclear if the Mortgage Relief Act will be extended by Congress this year, so if you’re thinking of a loan modification or short sale, you have seven months to complete the transaction before it expires.