Banks Now Prefer Short Sales To Foreclosures

Banks dealing with lengthy, complicated and frequently messy foreclosures are starting to see "short sales" as a quicker and cheaper way of getting bad loans off their books.  The nation’s biggest mortgage servicers- Bank of America, JPMorgan Chase and Wells Fargo – are beginning to step up their efforts to ease the short sale process for borrowers who are unsuccessful in getting loan modifications and face the threat of foreclosures.  Servicers are attempting to reach out to borrowers and are paying out more incentives to those suffering financial hardship to help proceed with a short sale. They are also cutting down the time taken to approve short sales, although realtors still complain that the process takes too long. 

JPMorgan has processed 120,000 short sales through its proprietary program since June 2009 and now averages 5,000 short sales a month. The bank says its average response time to approve a short sales transaction is 30 days.  "We think the short sale is a good solution for many struggling homeowners and we let them know that it’s an option," said Christine Holevas, spokesperson for JPMorgan in an email. "Our outreach efforts have increased in the past year or so. Foreclosures can be an expensive and lengthy process for all parties. It’s a good deal for the homeowner and a good deal for us (a cheaper way to get a bad loan off the books.)"

The average time for the foreclosure process- from the time of notice to the completed foreclosures- is now 318 days in the U.S., according to RealtyTrac.  The foreclosure process in the state of New York, which follows a judicial process, took 966 days on average for properties foreclosed in the second quarter. New Jersey and Florida followed with an average processing time of 944 days and 676 days respectively.  The longer it takes for a foreclosures to be approved, the longer bad loans stay on banks’ books. Foreclosures are also more expensive than short sales, because of the legal expenses involved as well as the expenses for maintenance and upkeep while the property is in foreclosure.

Wells Fargo, for instance, incurred expenses on repossessed homes to the tune of $305 million in the second quarter and $408 million in the first quarter, according to data from SNL. Data for the other big banks wasn’t available.  According to real estate analytics firm CoreLogic, the number of short sales in the market have tripled in the last two years and transactions are anticipated to grow by 25% in 2011. The markets with the largest short sale volume are California, Arizona, Colorado and Florida.

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Interest rates continue to set all-time lows, as Zillow reported its Mortgage Marketplace showed the average rate for a 30-year, fixed mortgage is currently 4.25%. The real estate information firm said the rate if down seven basis points from 4.32% the week earlier and at the lowest level since the report launched in April 2008. Zillow said the rate was as high as 4.35% on Saturday and hovered near 4.33% before falling to the current level Monday. The firm bases its rates on thousands of quotes submitted daily to anonymous borrowers through its website.

Rates in many large states fell, including double-digit drops in basis points in some states led by New Jersey’s decline to 4.13% from 4.28% previously. The rates for a 30-year, fixed mortgage in Florida, New York and Pennsylvania each fell 12 bps to 4.24%, 4.31% and 4.27% respectively. Meanwhile, rates in Colorado (to 4.35% from 4.29%) and Washington (to 4.36% from 4.29%) rose from the prior week. For 15-year fixed-rate mortgages, Zillow’s data showed a current interest rate of 3.73%, and five-year adjustable-rate mortgages are available at 3.13%, according to Zillow.

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Mortgage Rates Hit Another Record Low

The national, 30-year fixed-mortgage rate (FRM) slightly decreased from a week earlier, setting a new record low average of 4.26%, according to the Zillow Mortgage Marketplace weekly update. This is down 0.03% from last week and 0.02% below the previous record low. Regionally, 30-year rates vary, but the majority of states witnessed a deflation. Most large states saw a decline in rates: California’s current rate of 4.28% is down from 4.3% last week; Texas’ at 4.23% is down from 4.28%, and Massachusetts’ at 4.26% is down from 4.27%.

Rates substantially decreased in New York to 4.24% from 4.31% and New Jersey to 4.19% from 4.27%. Rates increased in Washington to 4.33% from 4.29% as well as Colorado, up to 4.3% from 4.17%. Rates remained flat in Florida and Pennsylvania at 4.2% and 4.37%, respectively. Zillow reported the national average rate for 15-year fixed home loans remained flat at 3.82%, while the rate for a 5-1 adjustable-rate mortgage (ARM) is 3.29%. Zillow’s rates are based on real-time mortgage quotes from lenders registered with, but not exclusively bound to the company. The national average comes from thousands of daily quotes given to anonymous borrowers through their website. State averages are also available.

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MBA – refinances increase

The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, increased 4.9% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 4.5% compared with the previous week. The Refinance Index increased 5.7% from the previous week and is at its highest level since May 1, 2009. The seasonally adjusted Purchase Index increased 0.6% from one week earlier. The unadjusted Purchase Index decreased 1.1% compared with the previous week and was 38.8% lower than the same week one year ago. “The volume of refi applications last week was up 26% over their level four weeks ago. Mortgage rates dropped to their lowest level in the survey, going back to 1990, as incoming data continue to indicate that economic growth has slowed,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.

“We are at a new 15 month high for the Refinance index. With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity.” The four week moving average for the seasonally adjusted Market Index is up 5.0%. The four week moving average is down 0.3% for the seasonally adjusted Purchase Index, while this average is up 6.2% for the Refinance Index. The refinance share of mortgage activity increased to 82.4% of total applications from 81.4% the previous week, which is the highest share observed since January 2009. The adjustable-rate mortgage (ARM) share of activity increased to 5.8% from 5.7% of total applications from the previous week.

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The madness continues. Bank of America (BoA) is considering a special program for unemployed borrowers that would offer as many as nine months of no mortgage payments while they hunt for a new job. A spokesperson for BoA says that the program is still pending regulatory approval. Whether or not the payments are forgiven or just deferred has not been solidified yet, but according to the spokesperson, a likely option would be to capitalize the past due payments into the new permanent modification. If the borrower finds employment during the nine-month period, BoA would structure a loan modification using its own programs or the Home Affordable Modification Program (HAMP). BoA completed almost 32,900 HAMP permanent modifications through March, up from 20,666 in February.

BoA was the first to commit to the HAMP second-lien program from the Treasury and the first to offer principal write-downs as part of the servicing process. If the borrower cannot find a job after nine months, the borrower would enter into a previously agreed upon deed-in-lieu of foreclosure arrangement. BoA would offer a minimum $2,000 “cash-for-keys” check to the homeowner. “Sustained recessionary impacts and their effect on the unemployed, in particular, demand we consider creative solutions above and beyond what is currently available to put these customers in the best possible position to sustain homeownership,” the BoA spokesperson said. This month, 15 million people held no job, and the overall unemployment rate stayed at 9.7% in March – the same as February, according to the US Department of Labor.

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U.S. mortgage applications fell for the first time in four weeks, reflecting a dramatic drop in demand for home refinancing loans, data from an industry group showed today. The Mortgage Bankers Association’s (MBA) Market Composite Index for the week ending January 22, 2010 decreased 10.9 percent on a seasonally adjusted basis from one week earlier and, on an unadjusted basis, decreased 10.1 percent compared with the previous week and decreased 19.8 percent compared with the same week one year earlier. The Refinance Index decreased 15.1 percent from the previous week and the seasonally adjusted Purchase Index decreased 3.3 percent from one week earlier. The unadjusted Purchase Index increased 2.8 percent compared with the previous week and was 4.5 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 2.6 percent. The four week moving average is up 1.3 percent for the seasonally adjusted Purchase Index, while this average is up 2.8 percent for the Refinance Index. The refinance share of mortgage activity decreased to 67.6 percent of total applications from 71.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4.7 percent from 4.1 percent of total applications from the previous week. “Refinance activity fell substantially last week,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today’s rates.”

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The weekly average rate borrowers were quoted on Zillow Mortgage Marketplace for 30-year fixed mortgages increased twelve basis points last week to 5.05 percent, up from 4.93 percent the week prior, according to the Zillow Mortgage Rate Monitor, compiled by leading real estate Web site Zillow.com®.

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The weekly average rate borrowers were quoted on Zillow Mortgage Marketplace for 30-year fixed mortgages increased sixteen basis points last week to 4.93 percent, up from 4.77 percent the week prior, according to the Zillow Mortgage Rate Monitor, compiled by leading real estate Web site Zillow.com®.

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Mortgage rescue can kill your credit rating

Most troubled homeowners don’t realize that President Obama’s entering a trial mortgage modification can actually hurt their credit. It’s true that many people who apply for the president’s plan are already delinquent in their mortgage payments, but being in a months-long trial period may only add to the pain. Under the president’s plan, troubled borrowers can have their monthly mortgage payments reduced to 31% of their pre-tax income. Homeowners are first put in a trial modification for several months to prove they can handle the new commitment and to give the bank time to collect the necessary income and hardship verification documents. During this period, industry guidelines call for loan servicing companies to report borrowers to the credit bureaus according to their status before they entered the modification – either current or the number of days delinquent. However, borrowers’ accounts are also designated with a code indicating they are in a partial payment plan.

The coding alone can impact credit scores, which measure a consumer’s financial health and range from 300 to 850 under the FICO system. The severity depends on how many payments the borrower missed before entering the program. Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department.

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Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate, and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

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