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75% of modified home loans will redefault
Most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months, according to a report released Wednesday. Between 65% and 75% of loans that are modified through the Home Affordable Modification Program(HAMP) but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency. The main reason these borrowers continue to struggle is that HAMP does nothing to solve the rest of their debt problems, the report added. “Many of these borrowers still have very heavy levels of other debt,” said Diane Pendley, a Fitch managing director, “auto loans, credit cards and other expenses.
The HAMP modifications reduce housing expenses down to 31% of income but do not touch these other obligations.” Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure. The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance. The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales.. Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.
US Housing Market Slows as Buyers Get Picky
Against a backdrop of misery, buyers are empowered — and are taking full advantage. Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual. It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.
Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided. Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.
The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller. But the optimists, and real estate remains full of them, say the trough is temporary. The stimulus might have stolen sales from May but by July, they argue, people will need to buy again.
Unemployment benefits, ‘doc fix’ scaled back in Senate bill
Seeking to appease deficit hawks, the Senate scaled back unemployment benefits and Medicare physician reimbursement measures on Wednesday. The revised jobs bill eliminates a $25 weekly supplement for the jobless that had been part of the last year’s stimulus act. Those currently receiving the supplement in their unemployment benefits check will continue to do so until they exhaust their extended benefits, or until the week of Dec. 7, whichever comes first.
That cut will reduce the bill’s cost by $5.8 billion over the next decade. The new version of the bill would also freeze a 21% cut to Medicare physician reimbursement rates only through November, instead of through 2011. This will reduce the bill’s size by $16.4 billion over 10 years. Senate lawmakers also voted Wednesday to include a measure in the bill that would push back the deadline to close on home purchases and still qualify for a federal tax credit of up to $8,000. Homebuyers would have until September 30, instead of June 30, to complete the transaction. The provision will cost $140 million over 10 years
Diana Olick – Oil May Be the Nail in Florida Housing’s Coffin
“I’ve been in beastly hot Pensacola, Florida, preparing stories on mortgage mediation, and, of course, oil. President Obama dropped by the beach of Pensacola, Florida yesterday to talk to some local folks, while I spent the day in empty beach front mansions and empty ocean-view condos. The oil isn’t really here yet, just a few tar balls, but the apprehension is everywhere. This is a housing market that saw prices drop 50 percent in the housing crash. I’m talking beautiful, grand, beachfront properties, where the sand is positively Caribbean white, and values just plummeted. Last year, as investors started to dip their toes back into the warm water here, it all started to pick up, and condos and homes alike were selling again, albeit at bargain prices.
Now just the perception, the fear that oil is coming, changed all that in an instant. It’s not just buyers putting the breaks on, but renters as well, and that will not bode well for condo owners who rely on renters to offset their mortgages. Rothfeder, a self-proclaimed optimist, says he’s hoping BP will start writing checks to all sorts of people in Pensacola Beach, including condo owners. But how much and for how long? What strikes me, though, in driving around here for the last few days is not the growing fear among the locals, but the sheer number of “For Sale” signs down the beach. They’re literally almost every third house. That kind of inventory isn’t healthy for any market, forget a beach-front community staring down the face of an oil slick.”
Economic Weakness Continues to Weigh on Commercial Mortgage Performance: MBA Report
Delinquency rates continued to increase in the first quarter for all commercial / multifamily mortgage investor groups, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. The delinquency rate for loans held in CMBS is the highest since the series began in 1997. Delinquency rates for other groups remain below levels seen in the early 1990’s, some by large margins. Between the fourth quarter 2009 and first quarter 2010, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 1.54 percentage points to 7.24 percent. “Weakness in the economy has continued to weigh on commercial properties, which in turn weighs on the mortgages they back,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research.
“Economic growth, specifically in areas of jobs and consumer spending, will be key to stabilizing the commercial property and mortgage markets going forward.” The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding
Senate Backs Extending Deadline for Housing Tax Credit
The Senate voted Wednesday to give homebuyers another three months to settle on their contracts and take advantage of a popular tax credit that sparked a rush of activity in the housing market. The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers. Existing homeowners buying a new primary residence are eligible for a $6,500 credit. Buyers are offered the measure as an amendment to a bill that would extend some popular business tax breaks and extend unemployment insurance benefits for jobless workers. The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30. The popularity of the tax credit has caused some anxiety because settlement offices are inundated with buyers trying to close on transactions by the end of this month to get the tax break.
Now on to our real estate education section…
Mid-Year Review: Progress or Problems?
Half the year is now over – how is your short sale career going? Have you made progress or are you plagued by problems? It’s time to take inventory, make any necessary changes and chart a course for action with these telling signals. Answer each question honestly then make it a priority to revise any situation in need of additional attention:
1. Have you met your profit goals? If not, are you able to identify a specific reason such as a deal gone bad, failure to correctly calculate costs or some unavoidable setback? What about your profits per sale…are they stagnating or growing? Work less and earn more by integrating the 80/20 rule.
2. Is your customer service impeccable? If not, it should be. People demand multiple ways to make contact and the sooner the better. Social media is moving into the mainstream as professionals compete for the best clients.
3. Are you actively networking and investing in marketing? It’s essential to maintain a market presence and actively network with others. Yes, the economy might be bad but history has taught that those who thrive during tough times rise to the top…the others merely fade away. Use tough times to your advantage by looking for opportunity and adding value to the relationship. Not sure how to measure your network activities? Hers’ a simple tip…review the number of new contacts added to your database since January 1st of this year. Remember, each year the bottom 10% should be eliminated while focusing efforts on the top 10%. At this point in the year, your database should have grown by at least 5% (minimally).
4. Have you expanded your professional referral sources? Similar to the contacts and networks, review the number of referrals you make and receive. Both should indicates at least a 5% increase at this point in the year.
See you at the top!
Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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