As the government and the mortgage industry continue to work together to curb foreclosures, RE/MAX agents are doing their part to help facilitate short sale transactions, using their certified training and a new customized version of Michigan-based Elk Software’s flagship technology platform, Short Sale Commander.

Short Sale Commander RE/MAX Edition was designed specifically for RE/MAX brokers and agents to help streamline their short sale business.

“Short Sale Commander RE/MAX Edition helps make short sales a lot easier with customized tools such as our BPO Builder, Auto-Comp & AVM Valuations, and the powerful Short Sale Package Generator,” explained Lee Moraitis with ELK Software. “We are excited to work with RE/MAX, arming their agent network with a unique platform full of helpful videos, streaming short sale news, and a powerful system that will allow RE/MAX agents to help more homeowners and dominate their local short sale market.”

According to the National Association of Realtors, distressed homes accounted for 33 percent of sales in April 2010 and short sales will continue to increase as more homeowners take advantage of this foreclosure alternative.

“RE/MAX agents have the training and education to assist in short sales, REOs, and foreclosure transactions, but now they have sophisticated technology to simplify the process and help close transactions faster,” said Marnie Blanco, RE/MAX VP of eBusiness.

RE/MAX now has more than 15,000 agents trained in short sales and foreclosures with the Five Star Professional (FSP) designation, a Certified Distressed Property Expert (CDPE) designation, or Short Sales and Foreclosure Resource (SFR) certification.

According to RE/MAX, the Short Sale Commander RE/MAX Edition helps agents close more listings and get their short sales approved faster by giving them online access to documents, instant property analysis, lender data, and short sale forms.

The agency says brokers can set up their entire office, access broker reporting tools, and integrate with title companies, while giving agents individual, permission-based access to the software.

“Finding Short Sale Commander is the single most important thing we’ve done this year,” said Gayle Henderson, a sales associate with RE/MAX Excalibur Realty in Scottsdale, Arizona. “With a couple of clicks I have all the information on my listing, including an accurate valuation of what the bank may accept.”

DETROIT, June 5 (UPI) — Hoping to slow an increase in foreclosures, Michigan lenders have tripled “short sales,” when a home sells for less than is owed on the mortgage, analysts said.

The move is seen as a sign the real estate market in southeast Michigan, including Detroit, could fall back into a crisis, The Detroit News reported Saturday.

In a short sale, a family might owe $180,000 in mortgage on a home in a neighborhood where houses are selling for $140,000. They can ask the lender for permission to sell the home for $140,000 and be forgiven the $40,000 still owed.

Real estate data agency Realcomp II says the practice of “short sales” is on a record pace in the region’s 10 counties, the News reported.

Between January and April 2,284 home sales were short sales, a 171 percent increase from the same period last year, data shows.

Short sales drive down the price of homes, though not as much as foreclosures do, resulting in bargains for buyers but depressed prices for home sellers, the News said.

Adding to the Detroit area’s woes is a growing backlog of bank-owned homes that have yet to hit the market, the News said.

Bottom Line: If monthly Foreclosures double (hypothetically) to 180k from April’s record 92.5k and stay at that level — based upon the 1) monthly average Notice-of-Default (NOD) 2) HAMP and private mortgage mod volume 3) and conservative cures and redefault rates — it will take 42 months to clear the portion of the 8mm loans presently in the distressed pipeline that will ultimately be liquidated. If Foreclosures remain at April’s record high of 92.5k, it will take 101 months.

With 900k record foreclosures in 2009 (but only 2.3mm since Jan 2007), 2.16mm (180k*12) needed every year for the next four years to purge the distress inventory plaguing and overhanging the market, and potentially fewer existing sales in 2010 than the 5.15 million in stimulus-driven 2009, it is easy to understand the challenge facing the housing market ex-stimulus.

I am a firm believer that the only way the housing market stands a chance of maintaining momentum post-tax credit is for Foreclosures to surge because they are what are in demand. In fact, over the past few months investor demand has waned due to the lack of Foreclosures and competition from swarms of first-timers waiving Obama coupons who they refuse to bid against. First timers, who are notorious for turning it off and on overnight, now make up some 50% of all sales according to the most recent Existing Home Sales report. That is a shaky foundation.

But surging Foreclosures — plus surging short sales in recent months — will significantly increase the distressed-to-organic sales ratio negatively impacting reported median and average house prices., which have benefited from a falling ratio over the past several months with distress sales as a percentage of total sales dropping every month in 2010.

But even at April’s 92.5k record Foreclosure pace — at a time when stimulus is ending, with sales volume set to fall and servicer’s assigning more Foreclosure resales to real estate brokers in April than in all of Q1 combined — prices stand to fall under considerable mix-shift pressure in the near-to-mid term.

At April’s Record Foreclosure Pace the Distressed Bubble Keeps Blowing

Massive-scale home retention (mortgage mod) programs have truly helped only a small slice but primarily served to slow up the pace at which foreclosures have occurred over the past year. This has created a giant bubble of distressed homeowners in the pipeline that over time will be liquidated. But in order to get through it the bubble has to quit expanding. Herein lies the challenge.

Based upon the past year’s average monthly Notices-of-Default, house retention and redefault figures taken from the MBA and OTS quarterly reports, and the Making Home Affordable monthly HAMP report, the number of loans being permanently modified each month is only 30% greater than receive an NOD each month. But after a conservative 50% redefault rate is applied to the retention actions and a 90% liquidation rate to the NOD’s, the number of NOD’s headed for liquidation outpaces retentions by 38%.

This means that the sum of all loan mod programs on the market today is not letting any air out of the massive distress loan (shadow inventory) bubble.

Findings

For the purposes of this report I assume that new permanent loan mods and new NODs stay flat going forward, despite over the past few months mods have been sharply declining and NODs rising.

In addition, I do not give the surge in short sales or the new Home Affordable Foreclosure Alternatives (HAFA) program any weighting because both are so new the results are unknowable. In addition, short sales are the ultimate in shadow inventory because they do not necessarily have to originate from the distress mortgage pipeline, therefore, do not subtract from it. Every homeowner with a first and/or second mortgage balance of 95% LTV (due to 6% Realtor fee) is a potential short-sale candidate. As short sales become the first-line liquidation method across all servicers, they will increase in volume from both current and non-current borrowers, perhaps keeping the shadow inventory liquidation time-line estimate in this report intact.

However, I am a big HAFA proponent and think it will be an overwhelming success. If I am correct, then the years of shadow inventory referred to in this report will be cleared somewhat quicker, but absolutely at the expense of the distress-to-organic sales ratio and reported median and average house prices. In fact, if prices get weak enough this actually could lead to increased delinquencies, defaults, and foreclosures none of which I account for either.

1) There are 8 million in the delinquent, default and foreclosure pipe per the most recent MBA report (14.01% of 57 million mortgages). Of these, 80%, or 6.4 million, should end up in liquidation.

2) On average over the past year 118k borrowers monthly have received an NOD. Ultimately, at least 90% of all NODs will end up with the borrower losing the house. (I use NODs in this report vs 30 or 60 day lates because once an NOD is filed few will cure naturally and a mod, Foreclosure or short sale is the most likely outcome).

3) Each month there are roughly 153.5k borrowers put into a home retention plan per the most recent OTS and Making Home Affordable reports. They consist of 53.5k HAMP Perm Mods, 46k Non-GSE Mods, and 54k Payment Plans, the latter of which are not technically a mod but I counted them anyway to be conservative. And remember two key points a) not every Mod or Payment plan has to involve a borrower in official default so the potential shadow universe is that much larger b) at least half of all mods will ultimately fail due to the average mod allowing too much DTI leverage, which I have covered on numerous occasions.

4) New monthly trial modifications are on a significant down slope — down about 50% from mid-year 2009 peak levels. For HAMP, April brought the fewest number of ‘mods offered’ and ‘trial mods started’ since the program rolled out, as some servicers began gearing up early for HAMP 2.0 beginning on June 1st for which borrowers have to qualify up-front vs. on stated income under which HAMP 1.0 has been operating since July 2009. Trial mods feed future perm mods. Without stated income mods, half qualify – what a surprise.

There is no evidence that mod starts will meaningfully increase unless the programs are made much easier, because servicers are running out of eligible victims, as evidenced by the ever-increasing perm mod back-end debt-to-income ratios allowed (64.3% median for HAMP in April), which I have also covered on numerous occasions. This increasing DTI will also lead to increased redefaults regardless of equity (or negative-equity) position.

Lastly, it is my opinion that the HAMP 2.0, which ushers in pseudo principal balance reductions earned over a three-year period down to 115% LTV, will not change the outcome much. Most analysis agrees that this will be a panacea. But based upon my years front-line mortgage experience and research, with the median debt-to-income ratio at 64.3%, the borrower at 115% or 150% are in the same boat…both are underwater, over-levered renters who can’t sell, re-buy, refi, spend, save, or vacation.

More than likely HAMP 2.0 will have the effect of forcing borderline borrowers, who would have otherwise found a way to make their payment, into default in order to take advantage of the program. If this is the case, these strategic defaulters — who will have a better redefault rate — in theory could raise the performance level of the program.

5) If the 8 million distress pool is filing at an average pace of 118k per month, of which 106.2k will ultimately be liquidated, and these are being mitigated through perm mods with an average pace 153.5k per month, or 76.8k per month after re-defaults, then the pool of 8mm distressed homeowners is a growing by 29.4k NOD’s per month. The 29.4k monthly increase is only reduced through Foreclosures, HAFA solutions, or traditional short sales or deeds-in-lieu.

Summary

6) When factoring in April’s 92.5k record Foreclosures (not including short sales), the distressed pool shrank by only 63.1k units (92.5k Foreclosures less 29.4k remaining NOD). At this pace, it will take 101 months to clear the pool of 6.4 million loans headed for liquidation. At a pace of 180k Foreclosures per month, twice April’s record high, it will take 42 months to clear the existing distressed inventory.

On the bright side, based upon the default and Foreclosure pipe action, which I track in real-time daily in aggregate and on an originator and servicer-specific basis, it seems that over the past few months the banks have regained a mind of their own. Unlike action I tracked as early as January 10 when all the big servicer’s NOD through Foreclosure charts looked the same, most have diverged.

In fact, two of the nation’s top four servicers, which I have highlighted in many client reports over the past few months, have opened the flood gates beginning in March. And the GSE’s, who led the Foreclosure charge higher beginning in Feb, are in property liquidation mode, which could force all the big GSE servicers to quickly follow suit on their own portfolios — none expected the GSE’s to blink first and do not want to get left in the liquidation dust.

Perhaps this is the first sign in almost two years of an efficient default and Foreclosure process poking its head out. Time will tell.

(This post originally appeared at the author’s blog, MHanson.com)

Distressed Real Estate

Read more: http://www.businessinsider.com/mark-hanson-mortgage-foreclosure-2010-6#ixzz0pi1B13Ss

With distressed borrowers increasingly turning to short sales as an alternative to foreclosure, the proportion of

damaged foreclosure properties, otherwise known as REO, sold during April plunged, according to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions.

The survey found that short sales represented the largest portion of the distressed property housing market in April, accounting for 17.9 percent of all transactions. And as short sales surged, the portion of damaged REO transactions fell to 12.8 percent in April from 15.4 percent in March.

In addition, the survey found that first-time homebuyers started to desert the housing market in April, ahead of expectations. While first-time buyer participation grew

at a rapid rate from January to March, April’s data represented a clear reversal in that trend.

According to the survey, first-time buyers accounted for 43.4 percent of April’s home purchase transactions, a significant drop from March’s figure of 48.2 percent. This early departure was unexpected, as these buyers had until the end of April to sign a home purchase contract to qualify for an $8,000 tax credit.

“We were surprised to see the early decline in first-time homebuyer participation,” said Thomas Popik, research director for Campbell Surveys. “When the tax credit was expected to expire last November, we saw a peak of first-time homebuyers in October. Now, the first-time homebuyer peak appears to have occurred not one month, but two months early.”

As first-time buyers began their departure from the housing market in April, existing homeowners picked up the slack. The survey results revealed that these buyers expanded their share of the home purchase market from 33.5 percent in March to 38.7 percent in April.

But a National Association of Realtors practitioner survey showed a different story. According to this survey, first-time buyers purchased 49 percent of homes in April, up from 44 percent in March. The survey also found that investors accounted for 15 percent of transactions in April, down from 19 percent in March, and the remaining sales (36 percent) were to repeat buyers.

Four out of every 10 homes sold in Baltimore City during the first four months of the year were distress deals — foreclosures or short sales.

That’s a lot of distress working its way through the housing market.

The numbers come from an analysis of Metropolitan Regional Information Systems data by the Greater Baltimore Board of Realtors, a slice of which appeared in my mortgage delinquency story last week. I thought you might be interested to see more of these stats.

Foreclosures were significantly more popular among buyers than short sales, which isn’t surprising given the uncertainty about how long banks will take to respond to short-sale offers. (The “short” in “short sale” refers to selling for less than the mortgage balance, not a nod to the time involved.) Across the Baltimore metro area, 23 percent of homes sold in the first four months of the year were foreclosures, compared with short sales at 8 percent.

It’s an even bigger difference in the city. Foreclosures accounted for 35 percent of sales; short sales were 6 percent. (I’m assuming that interest in city foreclosures as real estate investments is driving those numbers.)

Here’s a really interesting finding:

Foreclosures made up a much smaller part of the market that was for sale at the end of April than their share of the solds in the first four months of the year. Fewer available at the height of the spring market than beforehand? Or are buyers snapping up foreclosures while non-distress sales languish?

Whichever, foreclosures were 5 percent of the Baltimore region’s active listings at the end of April, vs. 23 percent of the sales from January through April. (Short sales, by contrast, were 10 percent of the active listings and 8 percent of sales — pretty close.)

Here’s the breakdown of foreclosure sales as a percentage of the total market in 2009 vs. the first four months of 2010, which shows an unmistakable trend:

Anne Arundel County: 10 percent // 19 percent

Baltimore City: 22 percent // 35 percent

Baltimore County: 11 percent // 19 percent

Carroll County: 10 percent // 17 percent

Harford County: 10 percent // 23 percent

Howard County: 8 percent // 15 percent

The Greater Baltimore Board of Realtors also looked at Prince George’s County, just for perspective. That’s one of the state’s foreclosure hot spots. In 2009, foreclosures accounted for 34 percent of home sales. In the first four months of this year? Up to 54 percent.

Ouch.

There’s a great deal of debate about what will happen to the homeowners currently trying to avoid foreclosure. John Burns Real Estate Consulting, a housing-market research firm, expects that most loan modifications won’t succeed long-term.

With that in mind, the company has estimated the “shadow inventory” — currently struggling borrowers whose homes will become future foreclosures — at 53,000 in the Baltimore metro area. That’s 14 months of supply, assuming a sales pace that matches the 10-year average, said Wayne Yamano, a vice president at the company.

When Noemi Rodriguez bought a two-bedroom, 830-square-foot condo in the San Fernando Valley of LA, for $307,000, she had good credit and a steady job as a data processor.

Then came the recession. Home values started tanking.She lost her job. The bills stacked up, and she was falling behind on her single largest expense: her mortgage payment, which was $1,680 a month.

Cash-strapped and desperate for relief, but looking to avoid foreclosure or bankruptcy (and the more detrimental effects these other options would have on her credit score), Rodriguez looked into doing a short sale.

These complicated transactions — which allow homeowners to sell their home for less than what is owed on the mortgage, often with the bank forgiving the remaining debt — are now one of the hottest things around in real estate.

In the first quarter of 2010, they accounted for about 12% of pre-foreclosure transactions, according to RealtyTrac, the nation’s leading online foreclosure marketplace. That’s up from less than 1% in 2006. “The new government program has streamlined the process, making it easier for consumers, and from a bank’s perspective, it’s typically less costly for them to do a short sale than it is to go through a foreclosure,” says Rick Sharga, senior VP of RealtyTrac.

Interested in doing a short sale? Here’s how 33-year old Rodriguez got started — and made the process as painless as possible:

Talk to Your Lender
The first thing Rodriguez did was appeal to her lender, and ask for help. Was there a loan modification she qualified for? How about a refinancing program? Anything at all that might help alleviate the burden? There wasn’t. Rodriguez’s finances were just too shaky. “My bank basically said it was my fault for getting into this predicament, so after nearly two years of this constant struggle, I made the decision I was just not going to pay my mortgage anymore.”

Find An Experienced Agent
Rodriguez stopped talking to her lender altogether, and after getting all her paperwork together — a handwritten hardship letter and all the relevant financial documents, from pay stubs to tax returns, bank statements and more — she found an experienced agent who had done numerous short sales in the area, and gave him power of attorney. “Taking myself out of the equation and having him talk directly to the lender saved me a lot of time and frustration,” she says. A critical element in a successful short sale transaction, the agent “moved the deal along.”

Stage It
In an area like Tarzana, where prices have fallen drastically, some homes can’t even sell when offered as a short sale! Other properties are in such bad shape that if there are any offers, they’re well below the bank’s bottom line price. The sale never happens, and the transaction goes bust.To avoid that situation, once Rodriguez was approved for a short sale (a process that took several months), she spruced the place up a bit, per the agent’s suggestion.She cleaned, painted, and moved much of the the clutter into storage.

Price Realistically
The home was appraised for $180,000. That’s what the bank wanted for it. That’s what it was listed for. And that’s what it sold for. The buyer, with $160,000 in cash, and pre-approved for the remaining $20,000, was financially sound.” He was the real deal so it went through, and I was able to move on,” says Rodriguez.

Delinquency rates causing mass foreclosures, billions in charge-offs

Whether one calls it a second mortgage, second lien or home equity loan, the lenders who occupy the subordinate position in the debt stack on your home mortgage are finding out that being No. 2, quite frankly, sucks big time.

Back in the day, before 2007, when money was so cheap that even a grizzly bear wandering around the forest could get a mortgage for his cave, banks also were happy to extend home equity loans and lines of credit to single-family homeowners.

“Hey, Mr. Grizzly Bear, want to fix up that cave and make it a crib? Well, here’s some Benjamins.”

What’s that old joke: You walk in one door of a bank empty-handed and out another with a toaster and home equity loan.

Since credit flowed like water, banks were equally happy to do an 80-20 loan, which was basically a first mortgage for 80 percent of the value of a home plus a home equity or second mortgage for the remaining 20 percent. Whoopee, no money down for the borrower.

Now it’s time for banks to pay the piper. Here’s the big problem: If the home value is underwater or the homeowners are having trouble paying bills, the holder of the second mortgage or home equity loan doesn’t get paid back until after the holder of the first loan, which in those two scenarios almost never happens.

Those 80-20 loans by definition meant the loan-to-value was high, high, high, and now that home values have declined, collecting any money for the second-lien holder is slim at best.

If there is a HAMP (Home Affordable Modification Program) procedure or a short sale, the second-lien holder also gets wiped out. Needless to say, second-lien holders are in no rush to see loan modifications completed or jump into short sales, both of which would mean writing down the loans as full losses.

At most banks, home equity loans, no matter how precarious, for as long as possible are carried on the books at full value — a bit of a fiction, but it does make the banks look better.

In March, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, openly called for the major banks to start writing down second mortgages. His point being, reported the Wall Street Journal, was “the banks’ reluctance to write down second mortgages is hurting efforts to reduce the first-lien mortgage balances of many borrowers who owe far more on their loans than the current value of their homes.”

Indeed, one new change for the Obama administration’s HAMP is that borrowers who get reduced payments on the first mortgage through HAMP would automatically get a break on the second lien as well.

Underneath all the politics, however, are some serious problems in regard to home equity loans: Delinquencies are rising very rapidly.

Shelley Leonard, a senior vice president of Consumer Lending Strategy at Lender Processing Services Inc. in Jacksonville, Fla., has been reading the home equity numbers as if they were tea leaves, and she doesn’t like what she sees.

Historically, she said, delinquencies on home equity loans have been very low, but all that changed last year.

In 2005 and 2006, delinquency rates for home equity loans and home equity lines of credit remained under 1 percent. By the end of 2008, the delinquency rate for home equity loans crept above 2 percent. Then, over the course of 2009 those numbers vaulted to 5 percent, a major leap in percentage.

“Most of the gain was in a one-year period,” Leonard reiterates. “That’s a huge pick-up in delinquency.”

The curve of home equity loan delinquencies mirrors that of the unemployment rate. Leonard suspects delinquencies will stay high as long as unemployment rates hover around 10 percent or climb higher.

As a result of home equity loan delinquencies, banks have taken some very large charge-offs. Net charge-off rates increased by 50 percent among the top five banks in 2009. Without naming names, Leonard said she knows one of the largest lenders of home equity loans took a $4 billion charge-off last year.

Behind the teller windows there’s a lot of confusion. The home equity product more often than not is considered a consumer loan and not a mortgage, which means it falls into a different section of the bank.
“The challenge,” Leonard said, “is that home equity is typically owned and managed in a different part of the bank from the mortgage loan silo. That means different systems, reporting, management, processes — in short, different everything. It’s become an ongoing challenge how the banks deal with home equity loans that are delinquent.”

Even the consumer is confused.

It would be assumed that borrowers would come to the logical conclusion that if they could pay only one of two home loans, they should pay the first mortgage because that would maintain the home. However, the trend is exactly the opposite: Homeowners with cash-flow problems opt to not pay the first mortgage and continue to pay the second.

The only rationale for such behavior is that the payment on the second is lower because the balance is smaller and the homeowner can afford only to stay current with that loan. Unfortunately, it’s the first mortgage that keeps you in the house. It doesn’t matter if you remain current on the home equity loan; if you don’t pay the first mortgage you will be staring into the heart of foreclosure.

The only good news in all of this, from the consumer standpoint anyway, is that origination volume has declined significantly, down 25 percent through the first three quarters of last year. That’s mostly because rates are higher and criteria much more stringent.

Back in the day, banks would underwrite a home equity loan with no documentation, no appraisals, no nothing except an ability to sign on the dotted line. (Mr. Grizzly Bear had to leave a paw print.)

Today, the pendulum has swung fully to the other side. Now, the process and documentation to get a home equity loan is about as long and thorough as getting a mortgage. Perhaps, that’s the way it should always have been.