Short Sale Statistics

Statistics

The economy, job losses and a record number of foreclosures and short sales have resulted in homes under contract for the month of November 2008 falling 4.0 percent to 82.3 from 85.7 in October 2008. This is 5.3 percent below November 2007 pending contracts which were 86.9 according to the National Association of Realtors national pending home sales index (“PHSI”). The NAR index is the lowest since 2001 when they started reporting the PHSI. The index is a pretty good measurement of home sales and the real estate market for the next couple months, since pending home sales typically close 30 -60 days after signing. So don’t except the numbers to dramatically increase.

Lawrence Yun, the NAR’s chief economist said “…December’s housing market activity could be comparably lower due to ongoing problems in the economy, so a real estate-focused stimulus plan is urgently needed.” … With a proper real-estate focused stimulus measure, home sales could rise more than expected, by more than 10 percent to 5.5 million in 2009, and easily begin to stabilize home prices in many parts of the country. Stable home prices will, in turn, lessen foreclosure pressures and lay the foundations for a solid economic recovery as the nation’s 75 million homeowners regain confidence….”. December’s number will be released on January 26, 2009.

The near 50 year lows in mortgage rates are not reflected in the above statistics and should help the December numbers a bit because more buyers are being able to afford low interest mortgages, helping to stimulate the economy and reduce the foreclosure numbers as well.
4th Quarter 2008 Foreclosure Activity
First American Corporation, a provider of advanced property and ownership information, statistics and services released their latest issue of Core Mortgage Risk Monitor (CMRM). CMRM forecasts delinquency risk for the real estate and mortgage industry, providing information on areas where homeowners are mostly likely and less likely to face foreclosures due to mortgage default.
The results of the study revealed that the likelihood that homeowners will default on their mortgages increased by 12 percent from a year ago and is up 54 percent from early 2002. According to the report, the rate of home prices declining has stabilized at around 11 percent, with almost zero acceleration. Mark Fleming, chief economist with First American CoreLogic said “… Because this rate is not increasing, home price declines are not raising the national risk index further at this time, but they’re not reducing the risk either. While the risk index has been driven upward throughout 2007 and 2008 primarily by the acceleration of declines in home prices, there is now a geographic expansion of risk driven by fundamental economic conditions. Flat or declining wages and increasing job losses are beginning to affect the index more heavily in many markets.”
The report reflects that California is at the top of the list with seven of the eight riskiest markets. The top three markets in California being Riverside/San Bernardino, Los Angeles and Sacramento. Florida is number two on the list, with Miami in the top 10 and Fort Myers and Port St. Lucie having high risk foreclosure factors. In November, California had 60,500 foreclosures, and Florida had 49,190 foreclosures.
Dayton, Ohio was the least risky market, with Austin, Texas, Omaha, Nebraska and Wichita, Kansas are included among the five least risky markets.
For California, there is a little bit of good news though. Pre-foreclosure activity slowed in the fourth quarter, from 130,658 in the third quarter to 108,284 in the final three months of the year. For the region, the totals during those periods fell from 22,636 to 20,567. The decline may largely be a result of a procedural change in California’s foreclosure process that took effect in September 2008, which requires lenders to contact homeowners 30 days before filing a notice of default.
However, nationwide, many industry observers are expecting another wave of foreclosures in 2009 as a result of rising job losses, continued declining home values and higher monthly mortgages that had interest rates re-adjust.
Unemployment Rates at All Time High

The nation lost 524,000 jobs in December 2008. It appears that employers are afraid that if they don’t lay off workers, their companies may go under in a recession which is being compared as the worst since the 1930’s.

According to the Bureau of Labor figures released on Friday January 9, 2009, the unemployment rate jumped to a 16-year-high of 7.2 percent. 11.1 million are out of work, which is nearly 50 percent higher than at the start of the recession a year ago. The total number of jobs lost in the recession now totals 2.59 million. Hundreds of thousands more people were looking for full-time work in December, but many could not get more than just part-time jobs if they were luck. Employers in nearly every industry have cut payrolls. Only health care and education added a combined 45,000 jobs as reported by the Bureau of Labor Statistics.

Economists agree that this recession is going to be a long hard one, and the Blue Chip Economic Indicators reflect that the economy will continue to contract until July 2009, with a slowing pace during the second quarter. This would make it the longest recession since the 1930s, outlasting the mid-1970s and early 1980s downturns, which each lasted 16 months. The current recession started in December 2007 and would reach the 16 month milestone in April 2009.

The Bureau of Labor reported that the average number of hours that Americans worked fell to 33.3 a week in December, which was down two-tenths of an hour, to the lowest level since records first were kept in 1964. During the course of this recession, average weekly hours worked are down 4 percent. Economists predict that even with the help of a government stimulus, the unemployment rate will keep rising. Bleak reports for our nation.

Government Help

In addition to the government bailout of the financial industry, there is also currently pending legislation that would allow bankruptcy judges to adjust mortgages for at-risk borrowers. Other proposed changes include: only existing mortgages will be eligible; homeowners will have to certify they tried to contact their mortgage holder lenders regarding loan modifications before filing for bankruptcy; and only major violations of the Truth in Lending Act will cause lenders to forfeit their claims in a bankruptcy. Those who support the legislation such as Citigroup, Bank of America and Wells Fargo believe this will help homeowners. Opponents, including The American Bankers Association have expressed concerns that the proposal to give bankruptcy judges broader authority to modify mortgage terms could end up making home loans more expensive and less available.
The Treasury Department, Federal Reserve and the FDIC jointly expressed that they expect all banking and lending organizations to work with their existing borrowers to avoid preventable foreclosures. They said “Given escalating mortgage foreclosures, the agencies urge all lenders and servicers to adopt systematic, proactive, and streamlined mortgage loan modification protocols and to review troubled loans,” “… Systematic efforts to address delinquent mortgages should seek to achieve modifications that result in mortgages that borrowers will be able to sustain over the remaining maturity of their loan.” This continued effort by lenders to help stop foreclosures through short sales and mortgage modifications should reduce the number of foreclosures in 2009.

The President has also asked for the remaining $350 billion in bailout funds from the $700 billion Troubled Asset Relief Program (TARP) passed in October 2008, to be released. However, congressional sources on both sides have been unhappy that none of the first $350 billion has been used to prevent foreclosures. Lawmakers are working on ways to make sure that the money is only released if some of it goes toward aiding those homeowners at risk of losing their homes to foreclosure and helping consumers obtain automobile and home loans. Treasury Secretary nominee Timothy Geithner is working on plans to revise the way TARP is used to help foreclosure prevention. Under the bailout legislation approved by Congress in October, the administration must formally notify Congress that it wants to access the second installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, the Treasury department can begin tapping the funds.
If Congress rejects the request, the President could veto the resolution, allowing the Treasury to proceed. Congress would have to override the veto to stop, which requires a two-thirds majority in both the House and Senate.
Short Sales – Viable Option for Homeowners

So in these difficult financial times, more and more homeowners are finding the need to sell their homes through the short sell process because they are upside down on their mortgages as a result of declining home prices and the present state of the economy.
For all the homeowners who are upside down and can no longer make their mortgage payment (due to a job loss, divorce, or a resetting option ARM), foreclosure seemed like the only alternative. Foreclosure is not a good option for borrowers or banks. A foreclosure sticks on your credit record for at least 10 years. A foreclosure costs the lender fees for attorneys and maintaining the property. Now that the government has put pressure on lenders to avoid preventable foreclosures with their borrowers, and the fact that the lenders already have numerous foreclosures on their books, lenders are finally waking up and realizing that they need to work with their borrowers on resolving these issues. Short sales and mortgage modifications are the most popular solutions for many upside down homeowners right now.
A “short sale “occurs when the homeowner owes more on their mortgage than their property is worth at current market value. In a short sale, the lender agrees to accept a payoff on a home mortgage that is less than what the owner of the property actually owes on the mortgage. For example: A homeowner, who is facing foreclosure, has an existing first mortgage of $300,000, yet the house is only worth $220,000. You submit your accepted buyer’s offer to the lender for $220,000. If the lender agrees to the offer, then the lender accepts the offer as full payment for the loan. The transaction is now referred to as a short sale.
From the lender’s perspective, a short sale saves many of the costs associated with the foreclosure process – attorney fees, the eviction process, delays from borrower bankruptcy, damage to the property, costs associated with resale, etc. In a short sale scenario, the lender gets the property back faster, so it is able to cut its losses. No court approval is necessary. If the lender has instituted foreclosure proceedings, they will withdraw them.
A short sale can be a long and drawn out process, that can take anywhere from 30 days to 6 months or more. Once your loan is in default, normally you will have at least 6 months to short sell the home with the lender. A lender generally waits three months before filing a notice of default (beginning the foreclosure). Then it usually takes another three months (or more) for the foreclosure process to run its course before an actual auction sale of the property takes place. Considering the complexity of the short sale process, you should be educated on the process beforehand. If you are considering a short sale, make sure that you discuss your situation with a foreclosure defense lawyer, an accountant and your Realtor. The more educated you are on the process, the easier the transaction will be, and the better the impression you will make on the lender.