Foreclosed Home Owners Find a Way to Buy Again

Once-foreclosed home owners are slowly making a comeback in the housing market as some lenders give them a second chance at home ownership.

After defaulting on their home loans or doing a short sale on their previous homes in recent years, some home owners have found a way to buy again, Reuters News reports.

The Federal Housing Agency is the main way paving a comeback for these former home owners to buy again, according to Reuters’ interviews with lenders and real estate professionals. FHA loans can be an option for some who defaulted on their mortgage or did a short sale. FHA borrowers usually need a credit score of at least 620 and a 3.5 percent down payment, which are lower requirements than most conventional mortgages.

"These are not mainstream programs geared for mainstream borrowers," Greg McBride, senior financial analyst at Bankrate.com, told Reuters about former home owners using FHA-backed loans to get back into home ownership.

Still, home owners with mortgage defaults on their records often find its a long way to crawl back into the housing market. They must make big strides in boosting their credit scores after a foreclosure, short sale, or bankruptcy.

"Most of the loans that are getting done are for people who have really rebuilt their credit," rank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington, D.C., told Reuters. "They have to prove (to the lender that) it was something like a job loss that caused this and not chronic delinquency."

Lenders will take into consideration why the person lost their home previously, and they’re much more likely to try again on a borrower who lost their home due to a job loss than a borrower who walked away on their prior home even though they could still afford the mortgage payments.

Source: “Back from Foreclosure to Homeownership,” Reuters News (May 16, 2012)

REALTORS(R): Home Ownership Bigger Than Politics

REALTORS® heading up to Capitol Hill this week will be telling their members of Congress not to let real estate issues get caught up in election-year politics.

A case in point is long-term reauthorization of the National Flood Insurance Program, which expires in just two weeks. The bill is popular on a broad, bipartisan basis, with some three-quarters of the House passing the bill and most of the Senate passing a previous version of it. But because the bill is noncontroversial, it’s become a magnet for add-on provisions that could derail its consideration...

Consequently, REALTORS® will be asking their members to call for a vote on a "clean" bill on the Senate floor without delay. "This is something so simple that lawmakers can get done," said NAR Chief Lobbyist Jerry Giovaniello, who spoke before a packed room of REALTORS® Wednesday morning prior to their Hill visits at the 2012 NAR Midyear Legislative Meetings & Trade Expo.

Key real estate priorities, including the mortgage interest deduction, could come under the spotlight towards the end of the year as the Congressional session comes to a close and national elections are held. Lawmakers will be faced with expiration of the tax cuts enacted during the George W. Bush administration. The price tag for extending these cuts is some $4 trillion, which would put pressure on lawmakers to find offsets elsewhere. That would make cuts to real estate tax benefits — chief among them the MID — attractive, because they are among the biggest sources of cuts available to the government.

NAR Director of Tax Policy Linda Goold advised REALTORS® to resist calls by their members of Congress to find alternative cuts to the MID, because trading off the MID for cuts elsewhere is a false choice. "The MID has been in the tax code for as long as deductions have been in it," said Goold. "Home ownership is not a special interest."

One of NAR's consumer priorities, extending mortgage cancellation relief, also expires at the end of the year, so REALTORS® will be asking lawmakers to co-sponsor legislation to keep that benefit going. It exempts households that have had their mortgage modified or sold their home in a short sale from having to pay tax on any debt forgiven by the lender.

Other priorities during this week's Hill visits include getting more liquidity into commercial markets by raising a lending cap on some credit unions and creating a covered bond market, passing reforms to keep the FHA financially healthy, and getting lawmakers to write letters to prevent regulators from making it harder for creditworthy households to get reasonably priced mortgage financing.

— Robert Freedman, REALTOR® Magazine

Shadow Inventory: 46 Months to Clear Distressed Housing Supply

It will take 46 months to clear the market’s supply of distressed homes, or the shadow inventory, according to estimates from Standard & Poor’s Rating Services based on first-quarter 2012 data.

 The agency’s latest estimate came in one month shy of the liquidation timeline determined in the fourth quarter of 2011.

While national residential mortgage liquidation rates appeared stable over the first three months of this year, these rates varied widely between local markets, which prevented any significant reduction in S&P’s months-to-clear estimate, the agency explained in its report.
Regional variations in how quickly servicers can clear the backlog of nonperforming loans are primarily due to differences in foreclosure procedures, judicial vs. non-judicial.
As of first-quarter 2012, S&P says its months-to-clear estimate in judicial states was almost 2.5x as long as non-judicial states.
S&P includes in the shadow inventory all outstanding properties on which the mortgage payments are 90 or more days delinquent, properties in foreclosure, and properties that are REO. The agency also includes 70 percent of the loans that became current, or “cured,” from 90-day delinquency within the past 12 months because S&P says these loans are more likely to re-default.
S&P’s calculation of the months to clear the shadow inventory is the ratio of the total volume of distressed loans to the six-month moving average of liquidations. Although S&P’s analysis of the shadow inventory uses only non-agency loan data, the agency’s analysts believe the months-to-clear is similarly high for the market as a whole.
The volume of these distressed U.S. non-agency residential mortgages—which excludes loans from government sponsored entities, such as Fannie Mae and Freddie Mac—remained extremely high at $354 billion in the first quarter, according to S&P. The agency does note, however, that the industry’s distress volume has declined in each quarter since mid-2010.
To put the shadows into perspective, S&P says this latest number, which is based on the original balances of the loans, represents slightly less than one-third of the outstanding non-agency residential mortgage-backed securities (RMBS) market in the United States.
The New York City metropolitan statistical area (MSA) has the highest months-to-clear in the nation, at 202 months.
S&P also reported that the U.S. monthly first default rate fell to 0.67 percent in March 2012, the lowest level since May 2007. The first default rate is the percentage of loans that became 90-plus-days delinquent in that month for the first time, as a percent of all loans that have never before been at least 90 days or more past due.
This means that properties are entering the shadow inventory at a slower rate. S&P says with this improvement, the speed at which servicers can liquidate or cure nonperforming loans will determine the size of the shadow inventory going forward.
Default rates have been falling since first-quarter 2009 and the average national liquidation rate has stabilized, according to S&P—both factors that bode well for getting a handle on the magnitude of the industry’s shadow inventory and its inevitable impact.

Double-Digit Price Increases Coming Soon?

Home buyers and sellers need to get ready to pounce. Hard-hit housing markets are on the road to recovery and expected to see major price gains soon.

Some of the hardest-hit markets during the housing crisis — plagued by soaring foreclosures and plummeting home prices — are expected to post some of the biggest gains through 2013, according to a report released this week by Fiserv.

"Some markets may have overshot to the downside, and people are jumping in to try to catch the bottom," says David Stiff, Fiserv’s chief economist. Fiserv recently projected that nationwide housing prices will gain 4 percent a year over the next five years.

San Jose-Sunnyvale-Santa Clara, CA Metropolitan Statistical Area
Forecast change: second quarter, 2011 – second quarter, 2012 -1.2%
Forecast change: second quarter, 2012 – second quarter, 2013 +1.2%

Market fundamentals
Median Family Income
(Fourth quarter 2011) $99,500
Median Home Price
(Fourth quarter 2011) $514,000
Change in Home Prices
(From fourth quarter 2010 thru fourth quarter 2011) -2.6%
Worst 1-Year Home Price Change
(1980-2011) -31.2%

Home Prices to Rise 4% Per Year?

Have home prices finally hit bottom? Many analysts think so. According to the latest forecast by Fiserv, the market watcher sees a big boost to home prices on the horizon, projecting that home prices will rise nearly 4 percent per year for the next five years.

The real estate markets expected to see the biggest increases in home prices will likely be those hardest hit the last few years by foreclosures, such as in Phoenix and Las Vegas, and areas where prices have fallen the most, according to Fiserv’s forecast.

Housings rising affordability mixed with falling inventories of for-sale homes are the main factors driving the expected price increases, according to Fiserv.

Initially, investors are expected to help drive most of this price increase, and then followed by first-time and trade-up buyers as they re-emerge in bigger numbers to the market.

Source: “U.S. Home Prices Could Rise 4% a Year, Forecast Says,” USA Today (May 8. 2012

What Foreclosure Wave? False Alarm?

Many housing experts for months have been warning a foreclosure wave would soon flood several markets throughout the country. But was it all a false alarm?

Recent surveys have shown that foreclosure sales have dropped to their lowest point in more than two years. And while according to March data, 8 percent more homes did enter the foreclosure process from the previous month, that number is down more than 30 percent from a year ago, according to Lender Processing Services.

CNBC real estate reporter Diana Olick notes that it could be another delay in the foreclosure system “as banks try to modify more loans to meet some of the terms of the [$25 billion] servicing settlement. The foreclosure sales decline also appears to be exclusively in private and portfolio loans, which again points to the settlement.”

Meanwhile, banks are increasing their number of short-sale transactions, and some surveys have shown that short sales are actually now outpacing foreclosure sales — the first time that's ever occurred.

“Lenders are increasingly recognizing that short sales may be a better alternative for them than foreclosure,” RealtyTrac’s Daren Blomquist told CNBC. “This trend began in markets with stronger demand and where the distressed inventory tends to be newer homes (Phoenix, Los Angeles, Las Vegas), but the trend appears to be spreading to other markets like Atlanta and Detroit.”

Source: “Flood of Foreclosures Still Fails to Materialize,” CNBC (May 2, 2012)