Moody’s Investors Service reported this week a decrease in successful loan mods and a high failure rate for successful modifications in the third quarter of 2011.
Ocwen had the highest “cure rate” for modifications of subprime loans, at 44 percent, Moody’s reported. But those statistics include “a significant number of re-modifications” for borrowers who defaulted on a previous modification.
More than 54 percent of Ocwen’s modifications on subprime loans failed.
Bank of America reported defaults on 50.5 percent of subprime modifications, 42.3 percent of Alt-A mods and 35 percent of jumbo mods, according to Moody’s.
Citi, GMAC and Chase had the largest reported decreases in successful modifications.
Meanwhile, short sales continue to dominate the Inland Empire real estate market.
As of this week, there were 15,909 single-family homes listed for sale in Riverside and San Bernardino counties, according to the California Regional Multiple Listing Service. Of those listings, 5,874 are short sales or already in foreclosure, 1,473 (9.9 percent) are bank-owned, and 4,608 (29 percent) are standard equity sales.
Short sales and standard sales are on the increase while bank-owned homes are on the decrease, according to CRMLS data. Short sale listings have increased to 36.9 percent of available inventory from 32.5 percent a year earlier. Standard sales have increased to 29 percent this month from 27.7 percent in 2011. And REOs have decreased to 9.9 percent today from 13.9 percent a year ago.
In 2011, short sales accounted for 35 percent of the 84,561 homes sold, and standard sales registered 28.3 percent. REOs made up 25.7 percent of total sales.
WHY THE INCREASE?
Short sales have become more socially tolerable and economically acceptable as consumers choose it as the best remedy to their economic woes.
Short sales have a less-severe impact on credit history and allow a consumer to re-enter the housing market sooner than if they had a foreclosure in their past. A short sale also gives a homeowner the sense of control to handle their problems on their own terms.
More and more agents have gained experience and are better equipped to help guide their clients through the often-frustrating and sometimes treacherous short-sale process. Though the majority of agents still have little or no actual experience, more and more who have successfully completed more than 50 short sales can be counted on to help protect homeowners from the liability and tax consequences of such a transaction.
Legislators have created laws to protect homeowners impacted by the current recession from deficiency judgments and hefty tax bills. For example, California’s CCP 580emakes it unlawful for a bank to pursue a homeowner for the balance of a loan after a short sale, regardless of whether the owner lived in the property or refinanced.
And banks have created entire departments to handle the rising tide because short sales most often represent the solution that nets banks the most money. Foreclosed properties bring 12 percent to 20 percent less money to the bank than a short sale because of legal fees, holding costs and repairs
Meanwhile, half of all loan modifications re-default within the first nine months.
WHAT LIES AHEAD?
Distressed properties will continue to dominate the housing market for years to come. Some experts predict a recovery starting in 2016 to 2020. Others think it could take longer for prices to begin to increase again. Last week, studies released by industry experts indicated banks have turned up the heat on delinquent home loans and expect to more aggressively foreclose for nonpayment.
“We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010,” said Brandon Moore, CEO of industry tracker RealtyTrac.
Though short sales are on the increase and can be a viable solution for a homeowner in trouble, there still can be pitfalls for a homeowner. To find out if you qualify for a short sale or loan modification, contact us today at 951-778-9700.
(Brian Bean is a real estate broker and ambassador for Helping A Million Homeowners, a nationwide organization that is committed to helping alleviate the financial stress that so many homeowners face today. He can be reached directly at Brian@DreamBigRealEstate.com.)