Second mortgages can be a significant stumbling block for loan modifications and short sales. Consider the following from the Washington Post:

Government officials have estimated that about 50 percent of troubled borrowers have a second mortgage. But a year after federal officials launched an initial program to lower payments on these second loans, not a single homeowner has been helped.

Yesterday, the Obama administration announced some significant changes to the HAFA (Home Affordable Foreclosure Alternatives) program. From The New York Times:

The new measures, announced by financial policy makers at the White House on Friday, are among the boldest to date. They are aimed not only at the seven million households that are behind on their mortgages but, in a significant expansion of aid that proved immediately controversial, the 11 million that simply owe more on their homes than they are worth.

As homeowner advocates, Nest is in favor of any sensible policy that offers legitimate relief for homeowners in distress. One of the HAFA changes doubles the amount 2nd lien holders receive in a short sale. This can only help.

More on the fed plan from The Washington Post

Sellers will be allowed at least 120 days to market the home and possibly as long as one year.

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And here’s an eye-opening stat:

Nationally, 38 percent of all sales in January were distressed sales

Some of the frustrations expressed later in the article help illustrate exactly why we have so many happy clients (and agents )

HAFA (Home Affordable Foreclosure Alternatives) is due to launch on April 5.We’ve talked about this before and have seen it coming for some time. While it will be interesting to see how things play out, the most exciting part from our point of view is this:

for short sales and deeds in lieu under HAFA, lenders will have to give up the right to go after borrowers if there’s a deficiency on the mortgages.

Borrowers won’t be on the hook if the home is sold for less than the value of the first mortgage. If the holder of the second mortgage gets an incentive payment from HAFA, the borrower is also not responsible for any shortfall on that loan too, according to the National Association of Realtors.

Plenty has been done for the banks; it’s refreshing to see legislation that stands a good chance of actually making a difference for underwater homeowners.

Very interesting post over at Calculated Risk on the relationship between delinquent mortgages and the unemployment rate.

This quote in particular struck me as very insightful:

Imagine if there were no unemployment benefits

The sortable table showing delinquency rates vs. unemployment rates is also fascinating.

Today is the only day of the year that is also an imperative: March 4th!

Here’s an extremely thorough report on “shadow inventory.”

From the introduction:

The current “shadow inventory” (including all delinquent loans, not only those that are real estate owned [REO]) of troubled mortgages will likely take about 33 months (or nearly three years) to clear at the current rate of liquidations. Moreover, we believe this estimate is conservative

And from the conclusion:

Our estimate of $473.4 billion in loans that will eventually need to be liquidated corresponds to approximately 1.75 million individual properties. This number represents almost 50% of the existing homes available for sale as of December 2009, and moreover, only accounts for expected defaults for mortgages outstanding in the private securitization market which makes up less than a third of the total securitization market and less than 5% of the total mortgage market. While we do not expect all of these distressed properties to liquidate at the same time, the significant percentage of the current supply that these distressed loans represent does reveal the potential future increase in housing supply. An influx of liquidated properties is likely to prompt a decline in prices if unaccompanied by a comparable increase in demand

Wow.

This is not the kind of record we need to be setting. December’s home-loan delinquency rate hit 10%, according to Lender Processing Services.

Accounting for foreclosures in the pipeline, the total non-current rate stands at 13.3%, according to the data in the LPS database. When extrapolated for the entire mortgage industry, 7.2m mortgage loans are behind on their payments

There are certain to be more foreclosures and short sales coming.

Original article here.

It’s rare for me to steer anyone in the direction of Fox, but this is a worthy read. Yet another account of conscientious folks attempting to warn the people whose job it was to keep a weather eye on this stuff.

As it pleaded with bank regulators to stop subprime lending abuses, the Mortgage Insurance Companies of America [MICA] pointed out the red flags in analysis from the bank regulators’ own staffers as well as the likes of Bear Stearns and Lehman Brothers, three years before these two Wall Street giants collapsed under the weight of bad mortgage bets.

We’re also reminded that loan-to-value ratios actually matter:

Despite the fact that a chorus of economists around the world began raising the alarms in the mid-’90s that U.S. housing leverage on both the business and borrower level would lead to economic collapse, no moves stateside were made to enact common sense measures such as tougher loan to value ratios.
For example, Germany’s legal limit on loan to value ratios is 60%; France is 75% and Denmark pegs it at 80%. In the U.S., no-money-down loans were rampant.

Hard to believe what happened in only six years:

Subprime loans were historically given only to rich borrowers who could afford them. In 2000, just 1% of borrowers got subprime loans.
But by May 2006, about a third of all borrowers had one, according to First American LoanPerformance, which tracks mortgage lending statistics.