San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

There has been quite a bit about mortgage modifications in the news lately as we are discovering that the conversion rates for loan modification are dismal and those homeowners who have gotten modifications are re-defaulting at astonishing rates. The unfortunate aspect to these stories is that many distressed homeowners peg high hopes on “Obama’s Loan Modification” or “Home Affordable Modification Program” HAMP, yet only to have their hopes destroyed upon learning about the actual facts relating to this hopeful program.  A lot of this is due to incomplete or simply wrong information floating about out there in cyberspace on the various fora or websites.   And when you add emotional and mental stress on top of  the misinformation, it can become a recipe for huge disappointment

We are simply living  in unprecedented times where 14% of all mortgages are delinquent and some sub-categories are approaching 50% delinquency rates.

I am including here a report called The Truth about Mortgage Modification which has information which should help dispel some misinformation and point people in the right direction if they require help.

As more and more economic data is released, more and more, we are beginning to realize how severe our current foreclosure situation truly seems to be.   The news media seems to want us to believe that the worst is behind is in the foreclosure crisis, but the reality paints a picture which is quite different.

The Mortgage Bankers Association (MBAA) recently released the Q3 2009 statistics about mortgage delinquency which revealed some truly alarming statistics which blew a lot of minds.

14.32% of all mortgages in the nation are in default (at least 30 days behind in payment)  and of those, 4.38% are actually in foreclosure process where they have been served a Notice of Default.  These numbers are the highest they have ever been since this organization kept track of these types of numbers.  I REPEAT:  14.32% OF ALL MORTGAGES IN THE NATION IS IN DEFAULT!

And we all know what is causing these historic default activities: unemployment.  Unemployment was at 10.2% while underemployment was at 17.5% for October.   Unemployment is up while housing  values are dropping, creating the perfect  storm for foreclosures.  Look at all of the categories listed above, in every single loan category MBAA tracked, 10% or more of said  loans are in default.  These are astronomical statistics, they had never seen numbers like  that before.

The numbers for states like California will be even worse that these because we were at 12.3%.  We must address the unemployment issue if we are to get out from underneath this 800 lb. gorilla sitting on our shoulders.

Here is a fantastic blog entry from Jeff Georghan, which goes into detail as to why the foreclosure mess will be WORSE before it get better.  I felt deserved to be re-posted.  Jeff is obviously correct, but remember, he is speaking primarily of Prime Loans and mentions in passing negative equity as a cause without explaining why;  his analysis does not delve into the coming option ARMs (negative equity loans) crisis which is the reason why many homeowners have negative equity.

From Jeff Geoghan MBA – Lancaster PA Real Estate Expert (The Jeff Geoghan Realty Group, Coldwell Banker Lancaster PA):

This is one of those posts where I wish I didn’t have to write it, but felt it was so important to my readers that I would be remiss not to at least talk about it.

Everyone out there probably knows somebody who is behind on their mortgage payments, looking for alternatives and likely also just finding out that their home’s value has dipped below what their loan amount is.  I know some within my own personal circles.  It’s a tough situation for me to advise them as a professional because it’s such a personal challenge to their pride and self-worth, not to mention their plans and dreams for the family. The question we’re asking is “when is this going to stop and where are we heading?”

I’m going to put up a few graphs that show the trends nationally with regards to mortgage delinquincies:

This chart is by quarter – Single-family mortgages set a new record delinquency rate in the second quarter of 2009, according to a quarterly survey by the Mortgage Bankers Association. Those of us in the real estate business see the foreclosure process (just visit the local Sheriff Sale docket to see the current numbers) but the looming delinqency-to-foreclosure issue is far, far larger.

The Wall Street Journal on 8/3/09 reported the following quote: “While subprime mortgages sparked the first round of housing problems two years ago, now “troubles are lurking further up the food chain,” says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. ‘You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,’ he says.”

The first objection someone may have would be to say “yes, but historically those who are delinqent usually get their act together and come current on the mortgage after a while”.  That WAS true, but not anymore!  We call that the “Cure Rate”, that is the rate of delinquencies that go back to current.  The Wall Street Journal reported on 8/24/09 about a Fitch analysis that found that the Cure Rate from 2000-2006 was 45% (which means about half of people fix their delinquency).  However, as of July 2009 the rate had dropped to just 6.6%!  That means that over 90% of delinquent customers are going to foreclosure.  Take a look again at the above chart…

The next thing someone will say is “well, that’s the ‘sand states’ and not my area”.  Here’s the chart for all 50 states showing the same breakdown of delinquencies and foreclosures.  Guess what – most states have a significant problem, especially compared to historical figures.

Now the next thing someone may say is “aren’t those loans going to get ‘fixed’ by a loan modification?” I know several people right now who are applying for a Lancaster County loan modification but are waiting and waiting.  I hope it works out for them…

In reality, loan modifications are hardly making a dent. To me, that’s a burning question.  Why arent banks being more aggressive in giving customers the option to extend their loan and/or reset to a lower rate?  Why are they being SO difficult? The people I know don’t want to be foreclosed.  They CAN make payments.  They just need the terms redrawn to allow them to catch & keep up.  Loan modifications are not helping us get this crisis under control.

What are the causes of all these delinquencies?  Here’s a chart that is enlightening:

We hear a lot about adjustable rate mortgages being the culprit, but the reality is that it’s the loss of jobs and the tanking real estate market that’s the perfect storm.  See my previous post on unemployment in the nation, the state and Lancaster County.

Keep in mind, this post is not intended to give us “good news”.  You may be experiencing good things in your market and that’s great.  My intent is to get us thinking about the challenges that aren’t going away and how we’re going to address them as homeowners, agents and professionals.  I’d love to hear your ideas!

Here are some fantastic data from the CDPE organization which closely tracks national industry numbers.

As of Q2 2009, here are some numbers for you to digest

Type of  Mortgage            In Foreclosure                      In Default (30+ Days late) Total

All Mortgages                               4.3%                                                      8.86%                                                             13.16%

Sub Prime Mortgages               15.05%                                                25.35%                                                           40.40%

Prime                                                 3.00%                                                  6.41%                                                                 9.41%

It’s not surprising to see that sub-prime loans represents over 40% of distressed properties out there.  As of the end of Q2  2009, however, distress in prime mortgages (or the Mercedes of mortgages) represent roughly 1/4 of the volume of sub-primes mortgages. This may surprise some people, as we have been repeatedly told by the media, that sub-prime market is what brought our economy down.   However, with National Unemployment at 9.4% (as of July 09 when these stats were released) , it is no longer those who gambled on high risk mortgages, but the regular people who were doing the responsible things, who are being forced into default.

I believe the sector of mortgages to look out for in the coming months is the prime market.  I argue they will rise dramatically in numbers, relative to sub-prime mortgages.

Additional statistic I want to point out are marked in red above.  4,760,000 represents the total volume of home sales NAR predicted for 2009.  9,550,000 represents the total distressed properties in the nation as of Q2.  This means if these distressed properties have to be sold to get homeowners out of their situation (either as a short sale or foreclosure), it will take over two years to  unload the current inventory of distressed properties!

Some food for thought………

Article.

We’ve been hearing about banks shutting down HELOCs (Home Equity Line of Credit) without just cause.  But the practice seems to be not so random but purposefully calculated using more computer models rather than actual appraisals to cut off people who are otherwise, not candidates for such measures.   But, as described in the article, homeowners who were doing the right things are now suddenly finding themselves being cut off (sound familiar?): i.e. being fraudulently turned off. Just when homeowners who have built up equity and may need to tap in during some financial difficulty, they are being told their lines are suspended for unknown reasons.

These supposed fraudulent practices have occurred so frequently, there is, as described in the article, a class action lawsuit developing in the wings involving the major banks like Wells Fargo, Chase and other banks.   Yes, there are people whose lines of credit should be turned off if they are not doing the right thing and trying to play games with the system.  But remember, these individuals were are discussing are not that category;  these are people who are paying on time and not necessarily over-extending themselves.  These are the people who are and have been doing the right things.   It seems the little people who have been pushed down and trampled on have had enough and are now willing to fight back for their rights.   Good for them!