Mortgage Servicers Have Incentives Not to Modify Loans, Not to Approve Short Sales and Not to Foreclose (At Least for Quite a While)

According to this New York Times article, Lucrative Fees May Deter Efforts to Alter Loans, mortgage servicers make more money by charging late fees, legal fees, insurance fees, etc. than they would by offering the home owner a loan modification (i.e such as Making Home Affordable), approving a short sale or even foreclosing. Therefore, many homes will sit in limbo for many months even when the current owner is several months behind in their mortgage payments, but could pay a lower payment, or even if there is a buyer willing to buy the home. Apparently, the longer the loan is delinquent the more the mortgage servicer stands to profit. Of course, during this time the home is likely being neglected, which will ultimately result in the home being worth less when it ultimately sells. Since the mortgage servicer does not own the loan they are not losing any money and do not really care. According to the article, in June 2009 nearly 3,000,000 homeowners were 90+ days delinquent on their home loans (up from 1,800,000 in June 2008), but the number of homes taken back by the banks decreased to 245,000 (from 333,000 in June 2008). This goes hand in hand with what I wrote in earlier blog posts, More Evidence Banks Are Holding Back Foreclosures and Government Meddling and Banks' Incompetence Will Cause More Home Price Declines, where I stated that banks are not openly selling anywhere near number of true foreclosures. The number of seriously delinquent loans continues to grow. These loans should be modified or the properties should be sold via short sale or foreclosure. Instead, the mortgage servicers are just letting them fester. Of course, they will eventually have to be dealt with on way or the other. Most likely this will be via foreclosure after the owners just give up and move on.

Middle Tennessee - Rutherford County TN - Residential Home Sales Market Statistics: A Comparison of Normal Sales versus Short Sales and Foreclosures in July 2009

According to the data I researched in the Middle Tennessee MLS (RealTracs) as of 7/29/2009, the following Market Statistics paint a troubling picture for the 3 main cities/towns in Rutherford County Tennessee:

Active Listings

• Murfreesboro TN -110 out of 1,324 Active Listings (or 8.31%) are shown as Short Sale or Foreclosure listings.
  
• Smyrna TN - 50 out of 406 Active Listings (or 12.32%) are shown as Short Sale or Foreclosure listings.
• LaVergne (or La Vergne) TN - 61 out of 297 Active Listings (or 20.54%) are shown as Short Sale or Foreclosure listings.

Pending Sales

• Murfreesboro TN -31 out of 231 Pending Sales (or 13.42%) are shown as Short Sale or Foreclosure listings.
  
• Smyrna TN - 10 out of 52 Pending Sales (or 19.23%) are shown as Short Sale or Foreclosure listings.
• LaVergne (or La Vergne) TN - 17 out of 50 Pending Sales (or 34.00%) are shown as Short Sale or Foreclosure listings.

As you can see in all the towns above the % of Short Sales and Foreclosures is high for both Active Listings and Pending Sales. However, the worst part is that when looked at as a percentage of Pending Sales the Short Sale and Foreclosure share of Pending Sales is relatively high when compared to percentage of Active Listings to the tune of 50%+. This means that regular (i.e. non Short Sale and Foreclosure) listings will have a difficult time selling as a large share of Pending Sales are lower priced distressed properties.

Delinquencies on home-equity loans hit record

According to this Los Angeles Times article, Delinquencies on home-equity loans hit record, the number of delinquent home equity loans reached 3.52% in the 1st quarter of 2009. The article cites mounting job losses as the primary culprit. The article also mentions that credit card delinquencies reached a record of 6.06% during the same period.

Per my previous posts, it is "only going to get worse". If you cannot afford your home loan payments (mortgage(s) and/or home equity loan(s)), your best option is to request a loan modification in order get your monthly payments reduced. If that does not work and/or your home is worth less than the debt than a short sale is your next best solution. Simply defaulting is not a good answer. If you need assistance in stopping foreclosure proceedings feel free to contact HaltingForeclosures.com.

Lenders More Open to Short Sales

According to this New York Times article, Lenders More Open to Short Sales, mortgage lenders are trying to make the short sale approval process faster and easier. Short sales are real estate sales where the sale price of the property is less than the mortgage balance(s). According to the article, short sales became more difficult to get approved as the credit crisis deepened since the 2nd mortgage holders were typically unwilling to accept a large enough loss to make the sale go through. Now, it appears, that the 2nd lenders are willing to accept 5 to 10 cents on the dollar in order to satisfy their debt. According to a representative of Bank of America, they are willing to accept 5% for their 2nd mortgages and they expect 2nd mortgage holders to accept the same when Bank of America is the 1st mortgage holder. The Treasury Department has announced that it will increase incentives to mortgage lenders to work out short sales, but declined to comment on the details of those incentives.

All this means that short sales will become more common. However, this is not really new news since they were going to increase anyway due to the declining real estate values and worsening unemployment, which will increase the number of mortgage delinquencies.

More Evidence Banks are Holding Back Foreclosures

According to this Foreclosures.com blog article, More on Stress Tests, due to 10 of 19 big banks needing to raise funds as a result of the "stress tests" the big banks, and other banks, will start selling shares and begin to dump their increasing pool of foreclosures very soon. Foreclosures (non-performing assets/real estate owned/REO's) have been piling up since 70% are not showing up in MLS's as being for sale. That means there is a large pool of foreclosed homes coming on the market soon. I discussed this "hidden foreclosure" problem in a previous blog post. Clearly, this dump of foreclosed homes is going to hurt the real estate market. I see no reason to believe that foreclosures will decline any time soon as the jobless rate hits 10% by the end of the year combined with the fact that too many homeowners have no savings to get them through a period of unemployment (see my previous blog post on this topic).