By: Jon Prior

Nearly 11 million properties, roughly 22.5% of all U.S. homes, were worth less than the underlying mortgage in the second quarter, according to CoreLogic (CLGX: 11.63 +1.93%).

The percentage of properties in negative equity declined slightly from 22.7% the previous quarter and down from 24% one year ago. Another 2.4 million borrowers held less than 5% equity in their home, what analysts call near-negative equity. CoreLogic also showed nearly three-quarters of all underwater borrowers are paying above-market interest on their home loans.

“High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” said Mark Fleming, CoreLogic chief  economist.

More borrowers could be in danger of falling underwater. JPMorgan Chase (JPM: 32.89 +1.45%) analysts expect home prices to drop another 5% by the beginning of 2012, pushing the amount of underwater borrowers to 15 million, according to a research note released earlier in the month. If prices drop more, possibly 10% further, the number of borrowers in negative equity would approach 20 million.

The Obama administration continues working on a proposal to boost refinancings, which many include eliminating some negative equity restrictions on Fannie Mae and Freddie Mac loans. Some analysts believe such a program would have only modest impact, but CoreLogic showed nearly 28 million outstanding mortgages hold above-market rates and, in theory, should be able to refinance.

Of these, 8 million borrowers are in negative equity.

Some believe the new plan from the administration will be a revamp of the Home Affordable Refinance Program, which allows Fannie and Freddie borrowers with up to 125% LTV to refinance.

But more than 40% of borrowers with LTVs above that limit are trapped with mortgage rates above 6%. Only 17% of borrowers with positive equity have rates at that level.

Negative equity also affects sales. Traditional home sales in areas with low negative equity numbers dropped 61% since the peak in 2005, compared with an 83% drop in areas with more underwater borrowers.

Roughly 60% if borrowers in Nevada were underwater in the second quarter, the highest percentage of any state but down from 68% one year ago. It was followed by Arizona at 49% and Florida at 45%.

“The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices,” CoreLogic said.

- Get an extension on the acceptance letter

- Get a new BPO ordered

- Get changes to the HUD approved in time

- Prove their counter offer is way too high

…the list goes on and on.

Loss mitigation managers get hundreds of calls from impatient agents. You need to differentiate yourself by being organized so you can help them help you.  And keep in mind, the higher up you go at the bank, generally the more ‘sanity’ you’ll find.  This is where Short Sale Commander really helps.

Short Sale Tips for escalating a file to a supervisor:

#1) Give them what they want (HINT: Documentation)

#2) You need to know who to call

#3) Have your ducks in a row

#1) BREAKDOWN:  Give them what they want (HINT: Documentation)

Managers need the simple facts in front of them for them to take action.  For many agents, getting this info to them quickly is where the problem is, which is why they only escalate a file at the last minute, or just give up on the file at the first ‘NO’.  With Commander, you have every document, every conversation, the listing history and all the emails complete with dates & times.  Email them this while you’re on the call, and you’d be surprised at how simple it is to get what you need.

#2) BREAKDOWN:  You need to know who to call

Agents that have closed short sales, have talked to managers before.  The problem is a few months later, they don’t where that contact info is. Also, you should get managers names every time you call, so if and when you DO need it, you’ll already have two or three supervisors you can email.  (Yes – you’ll get at least a name and email 80% of the time you ask).  In the Mortgages Tab, the ‘Level 1 Contacts’ are the setup people and the loss mitigators.  The ‘Level 2 Contacts’ is where you put managers names, numbers & emails. THIS IS IMPORTANT!   These emails even auto-populate into our emailer so it’s easy to copy everyone with that bank with your documentation.  If that manager was helpful, copy it into your Mortgage Company Manager and then it will auto-populate right into the file the next time you have a short sale with that lender.

#3) BREAKDOWN:  Have your ducks in a row

Top short sale agents have everything they need, right at their fingertips.  Most importantly, set tasks so every file gets constant attention and nothing gets lost.  You need to be on top of things, because the banks usually aren’t.  This means you’ve got every conversation, every email, the HUD-1 details, every offer, the listing history, loan numbers and (especially if you’re in a deficiency state) all the seller hardship documentation.   You can even export the activity log for only that mortgage and email it to them.

The moral of the story is this: Stay on top of the file and don’t be scared to escalate it. Do the simple things mentioned above and have a system with the necessary tools to easily escalate a file and you’ll be well on your way to becoming a top short sale agent.  This will help you avoid 11^th hour issues and help you get more deals closed.

By: Jon Prior

The Treasury Department will withhold payments once again to Bank of America (BAC: 7.41 -6.32%) and JPMorgan Chase (JPM: 34.94 -3.75%) for their poor performance modifying mortgages in the second quarter.

Both banks need substantial improvement to their operations within the Home Affordable Modification Program, according to the compliance review conducted by the Treasury.

In the first quarter, the federal agency elected to withhold payments from these two banks and Wells Fargo (WFC: 24.21 -4.04%). Since then, Wells made the mandated improvements. Though some moderate work is still needed from the bank, the Treasury will return previously withheld funds.

If BofA and Chase continually fail to make the corrections, the Treasury could permanently reduce payments to the banking giants.

The Treasury compliance team looked at how each participating servicer performed when contacting homeowners, evaluating them for the program and how they assisted with any questions or document submissions. Including these judgments, the Treasury also looks at HAMP data gathered by Fannie Mae to determine which servicers need improvement.

Since HAMP launched in March 2009, servicers started more than 791,000 permanent modifications with roughly 28,000 reported in July, according to the latest Treasury data. Roughly 1.6 million trials have been extended, and more than 763,000 canceled due to a redefault or not enough information was submitted.

“While tens of thousands of additional homeowners benefit from the administration’s programs each month, we need to keep the pressure on servicers to effectively assist those homeowners who are still struggling and eligible for assistance,” said Treasury Assistant Secretary for Financial Stability Tim Massad.

“We continue to make significant improvements to our processes and controls. We expect future scorecards will reflect that,” a Chase spokesman said.

A Bank of America spokesman said ratings did improve for the bank in nearly all ratings and metrics. One in four of all HAMP modifications belong to BofA, and the spokesman said the bank is committed to preventing foreclosures for unemployed, underemployed and other troubled borrowers.

“We are working to achieve the ratings necessary to reinstate incentives, but we are not driven by that goal,” the spokesman said.

The Treasury uses Troubled Asset Relief Program funds to pay servicers $1,000 for every permanent modification and another $1,000 every year the new loan is current.

Including BofA, Chase, and Wells, 10 servicers still show a need for some improvement, unchanged from the previous review. The Treasury determined American Home Mortgage Servicing, Citigroup‘s (C: 28.87 -3.77%) CitiMortgage, Ocwen Financial Corp. (OCN: 12.91 -2.79%) and Select Portfolio Servicing each need to make moderate improvements.

Ally Financial‘s (GJM: 21.87 -0.14%) GMAC Mortgage, Goldman Sachs‘ (GS: 106.72 -4.85%) now sold Litton Loan Servicing and OneWest Bank were revised to need only minor improvements.

“These assessments provide an unprecedented level of information about servicer performance and are designed to help more eligible homeowners walk away from this process with better results,” Massad said.

By Shelley Poland and Fraud Investigations Assoc. Dir. Robert Hagberg

In a short sale, Freddie Mac agrees to accept less than a full payoff of a mortgage when the borrower is unable to sell their home for enough to pay off their entire loan. Freddie Mac short sales have risen from about 4 percent of completed workouts in 2000 to nearly 14 percent in 2010.

Short sale fraud, also on the rise, enters the picture when real estate professionals fail to disclose affiliations with other parties involved in the transaction to rig sales at a low price and hide better offers from Freddie Mac and the distressed home seller. Then, after the house is sold, the fraudster can flip it a few hours later for the better price and walk away with the profitable difference.

By concealing the higher offer, short sale fraud worsens losses to home sellers, Freddie Mac, and taxpayers. It also throws another wrench into the housing recovery by undermining the trust and transparency at the core of any real estate transaction.

Today, short sale fraud is the top priority for our fraud investigation unit. By working closely with real estate professionals and law enforcement agencies, our fraud unit has identified and stopped a number of fraudulent deals before closing. They have also added the perpetrators to our Exclusionary List – firms and individuals barred from conducting business with Freddie Mac – and worked with law enforcement agencies to prosecute them.

Since short sale fraud requires the cooperation of one or more real estate professionals involved in the transactions, we have begun reaching out to Realtor associations in target markets to educate them about the latest trends in short sale fraud, the red flags to watch for, and what actions they can take to stop it. We strongly believe responsible Realtors are America’s natural first line of defense against such scams.

Trends we have been alerting Realtors about include:

• Falsely indicating on a new short sale listing that there is an offer on a property in order to discourage legitimate offers and protect an accomplice’s planned low bid.
• Manipulating the short sale listing price by making the house look more distressed than it really is (“reverse staging”), inflating repair estimates, or using similar tactics designed to obtain an artificially low home value on the Broker Price Opinion. (Our requirements prohibit the buyer, buyer’s agent, buyer’s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.)
• “Flipping” schemes where the fraudster “buys” a house at a short sale without putting down any of his own money and then sells it a few hours (or days) later to a legitimate buyer at a much higher price. These are complex multi-step schemes that use falsified title and/or loan documents to fool a lender into approving the ultimate buyer’s mortgage, which the fraudster uses to settle the earlier closing on the house he “acquired” at the short sale for a much lower price.
• Manipulating the HUD-1 settlement statement so the fraudster can skim away net proceeds from the sale for himself or other parties in the transaction without the seller’s or investor’s knowledge. (The HUD-1 is the document that itemizes all fees, charges, and other funds involved in a home sale.)

As a result of the uptick in short sale issues, Freddie Mac now requires all of the parties involved to sign an affidavit attesting that it is a true arms-length transaction. These affidavits not only deter individual participation but also give us a stronger legal path to enforce our rights.

Fortunately, we have allies in this fight. There are many conscientious real estate professionals who want to do the right thing. We often receive calls in our servicing, quality control, fraud investigation, outreach, and HomeSteps divisions from real estate agents who know they’ve seen something inappropriate and won’t look the other way. They understand that real estate fraud turns a shortsighted profit at the cost of the public’s long-term confidence in homeownership and the housing industry.

That’s why we are reaching out to educate real estate associations through special seminars and Freddie Mac’s web site, where we post the latest fraud prevention information and best practices. If you see fraud being committed – or aren’t sure and want clarification – we encourage you to call the Freddie Mac Fraud Hotline at 1-800-4FRAUD-8 or 1-800-437-2838, as well as your local FBI office, state attorney general, and Real Estate Board.

By: Mary Ellen Podmolik

Are short sales getting easier?

It’s something that’s hard to quantify because there are still plenty of horror stories in which a mortgage servicer took months longer than expected to decide on an offer, and the prospective buyers wouldn’t wait or couldn’t agree on a price.

But there is some numerical and anecdotal evidence that some servicers have grown more interested in approving short sales.

Through June, 10,438 homes nationally were sold under the government’s Home Affordable Foreclosure Alternatives program by servicers, and another 316 were returned to lenders in a deed-in-lieu-of-foreclosure arrangement, according to the Treasury Department. That’s a 25 percent increase over the previous month. Meanwhile, the number of Home Affordable Foreclosure Alternatives agreements begun increased 20 percent.

Through their own programs as of May, the 10 largest mortgage servicers had completed or were processing more than 30,000 short sales and deeds in lieu of foreclosure for homeowners whose government-backed mortgage loan trial modifications were canceled and almost 82,000 other short sales and deeds in lieu of foreclosure for homeowners who weren’t accepted for trial modifications.

Individuals whose bread and butter is short sales say they’ve noticed the improvement.

Ever since the beginning of the year, banks have worked to streamline the process, and offers are getting responses in 60 to 90 days in some cases, said Nicole Fabiano, founder of Home Solutions Inc., a company that works with buyers and sellers in short-sale negotiations. Of the last 100 short sales Fabiano’s worked on, only three were through the government program; the rest were in-house deals.

In a short sale, a homeowner, with a lender’s consent, sells a property for less than the amount owed on the mortgage. While the process has been around for years, its use has taken off in recent years as a way for delinquent borrowers to avoid foreclosure. Other sellers seeking short sales are those “upside down,” meaning their mortgages are higher than the value of the underlying real estate.

A property that sells in a short sale is likely to net a better recovery for the bank, and the bank is not subjected to the drawn-out expenses associated with a foreclosure. That’s certainly an issue in Illinois, where courts handle foreclosures, and the process can take an average of 300 days.

But short sales take time, as well, particularly if the property is listed at a price unrealistically below market value that the lender is unlikely to approve.

Kimberly Wirtz-Prince, a Century 21 Pro-Team agent, said she thinks all parties involved in short sales are getting the knack of how to do them. But she still tells prospective buyers to not expect to hear back from a mortgage servicer for three to four months.

One of Wirtz-Prince’s listings, a short sale in Tinley Park, returned to the market this month, and it was the second time the town home had to be relisted since it was put up for sale in March 2010. The first time around, a prospective buyer walked away from an offer, and the property was relisted. More recently, the town home came back on the market after a prospective buyer had not heard back from the bank in four months.

“The ones that get approved before 90 days, they do happen, but you have to have buyers locked into a worst-case scenario,” said Theresa Panzica, a Chicago lawyer who works with sellers and buyers in short sales. “The reason deals fall apart is because of buyers, not the banks. Banks are approving these things. (The issue is,) are the buyers going to wait?”

Expectations lowered: Low interest rates may be causing existing homeowners to call their mortgage bankers, but demand among homebuyers remains soft, and the lending industry’s trade group doesn’t see that changing next year.

The Mortgage Bankers Association estimates that mortgage originations in 2012 will total about $931 billion, the lowest volume since 1997 and a $30 billion drop from its previous estimate. This year, the trade group said, mortgage originations will reach $1.1 trillion, about $100 billion more than its earlier forecasts and largely because of refinancing demand.