9.7 Million Homeowners Underwater

Author: Tory Barringer May 20, 2014

The number of underwater borrowers continues to fall, but that was about the only good news Zillow had to report in its latest look at negative equity.

The company released Tuesday its Negative Equity Report for the first quarter, revealing an estimated 9.7 million homeowners continue to owe more on their mortgage than their home is worth. That number, down from about 9.8 million in Q4 2013, represents about 18.8 percent of mortgage-paying Americans, according to Zillow.

Conservative estimates from the company call for a negative equity rate of 17 percent by this time next year as home value growth moderates.

While the continuing downward trend in underwater rates is a welcome sign of improvement in the housing sector, the company notes that the “effective” negative equity rate, which includes homeowners with 20 percent or less equity in their homes, remains elevated at more than one in three.

“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow’s chief economist, Dr. Stan Humphries.

With so many borrowers lacking enough equity to comfortably sell their homes and afford a down payment on a new one, Humphries expects inventory to remain choked, driving home values higher and making affordability a greater concern.

What’s more, Zillow found that homes priced in the bottom third of home values nationwide have a greater negative equity rate, with 30.2 percent of that population currently underwater compared to 18.1 percent of those in the middle tier and just 10.7 percent in the top tier.

For those underwater borrowers who happen to be in the lower tier of home values, listing their home will remain difficult without engaging in a short sale or bringing cash to the closing table—another contributor to the supply shortage and a major obstacle for buyers in search of starter homes.

“It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers,” Humphries said.


3 Signs Foreclosures Are Still Festering in California

California foreclosure activity in the fourth quarter of 2013 dropped to the lowest level since the third quarter of 2006. Foreclosure activity has been steadily declining in the state on an annual basis since the first quarter of 2010.

But there are three signs there are still some old, rotten and fermented foreclosures festering in the California foreclosure pipeline that eventually will be completing the foreclosure process and hitting the market — in 2014 if the market is lucky. If they linger any longer these old foreclosures could really stink things up.

1. Foreclosure starts rebounding

First, California foreclosure starts increased 10 percent on a year-over-year basis in the first quarter of 2014. That might not sound serious, but it stands out because it’s the first annual increase in the state’s foreclosure starts since first quarter of 2012, and even then foreclosure starts increased less than 1 percent from the previous year. The last double-digit percentage annual increase in California foreclosure starts was way back in the first quarter of 2009.

California foreclosure starts increased 10 percent from a year ago in the first quarter of 2014, the first double-digit percentage annual increase in the state’s foreclosure starts since the fourth quarter of 2009.

RealtyTrac predicted this rebound about six months ago after foreclosure starts dropped precipitously in the beginning of January 2013, when a new law called the Homeowner Bill of Rights took effect. That legislation codified in California for all lenders some of the principles of the National Mortgage Settlement for the nation’s five major lenders. Those principles include no dual-tracking (where a foreclosure progresses concurrently while a homeowner is pursuing a foreclosure alternative); and a single point of contact at the mortgage servicer for delinquent homeowners. The law also allows for a fine of $7,500 per loan foreclosed improperly in addition to additional damages that can be pursued by the homeowner for material violations of the law.

The law only applies to California foreclosures pursued using the typical non-judicial process in the state, but interestingly part of the rise in foreclosure starts in the first quarter comes as a result of skyrocketing judicial foreclosures. This indicates lenders in some cases are willing to use the often lengthier judicial process to avoid some of the potential minefields in the re-invented non-judicial foreclosure process.  Out of the 20,228 California foreclosure starts in the first quarter, 1,396 were filed judicially — up from just one judicially filed foreclosure start in the first quarter of 2013.

2. Average default amounts rising

The rise in foreclosure starts is clearly not the result of a new wave of distress hitting the California housing market, but old distress finally entering the foreclosure pipeline. That’s clear because the average default amount on the first quarter batch of foreclosure starts is the highest average default amount RealtyTrac has documented in a single quarter since it began tracking this metric in the first quarter of 2011.

The default amount is the amount a homeowner is behind on payments when the mortgage servicer files a public notice starting the foreclosure process. The average default amount on California foreclosure starts in the first quarter of 2014 was $56,415, up 53 percent from the average default amount of $36,839 in the first quarter of 2013. Assuming a monthly mortgage payment of roughly $3,000 — which is likely on the high side — that average default amount represents homeowners who have been missing their mortgage payments an average of 18 months before the bank starts the foreclosure process. On top of that, the average time to complete a foreclosure once it starts in California is now at 429 days.

The average amount California homeowners are behind on payments was more than $56,000 for properties that started the foreclosure process in the first quarter of 2014.

3. Bank-owned homes lingering

That leaves the California foreclosure process at an average of 993 days — more than two and a half years — from the first missed mortgage payment to bank repossession. But the process to completely resolve that distressed property situation takes even longer because it’s taking longer for banks to sell foreclosed properties even after the foreclosure process is complete.

Bank-owned properties that sold in the first quarter of 2014 had been foreclosed an average of 220 days when they were sold, up from an average of 172 days an year earlier.

Bank-owned properties sold in the first quarter of 2014 took an average of 220 days to sell from the time they completed the foreclosure process. That’s actually down from 247 days in the fourth quarter of 2013, but it’s up 28 percent from an average of 172 days in the first quarter of 2013.

That now puts the entire distressed property disposition process at an average of 1,213 days from delinquency to REO sale — well over three years.

The average time it takes to complete the entire foreclosure process, from delinquency to disposition of the REO, is now more than 1,200 days in California.

Real-life example of a sleeper foreclosure

I recently encountered one of these well-aged foreclosures in my neighborhood. I knew it was in foreclosure several years ago, but I assumed the situation had been resolved because the homeowner continued to occupy the home.

But then one day I was walking by and noticed furniture strewn about the lawn and several signs posted in the front window. One of those signs announced the property owner had been evicted by the Orange County Sheriff. Another announced the property was not yet listed for sale, but provided the name and phone number of a real estate agent who will be listing the property for sale eventually.

My curiosity pricked, I looked the property up on RealtyTrac — which I should have been doing anyway as a responsible neighbor — and discovered it had started the foreclosure process in September 2010, but did not complete the foreclosure process and become bank-owned until January 2013. Then it took more than a year before the bank evicted the homeowner, and it will likely be at least another couple months before the property is listed for sale.

This property started the foreclosure process for the most recent owner in September 2010, was foreclosed in January 2013, and the homeowner was evicted in January 2014. The property is still not listed for sale.

I’d call a property like this a sleeper foreclosure. For the last few years it showed no visible signs of being in distress, but now it certainly is, and the longer it sits vacant the more it could negatively impact the values of surrounding homes in the neighborhood — including mine. As more sleeper foreclosures like this across the state are re-awakened it could become a bit of a reality check for the California housing market in 2014.

source: http://www.forbes.com/sites/darenblomquist/2014/04/24/3-signs-foreclosures-are-still-festering-in-california/

Foreclosure Prevention Attorney in California Sues Lender in Lawsuit and Obtains Court Order to Stop Wrongful Foreclosure

For background, see article “Homeowners Obtain Restraining Order Against Foreclosure Sale Under Homeowners’ Bill of Rights” at wesuethebanks.com

A borrower filed a complaint and request for a restraining order, attended a hearing, and obtained a Court order restraining the bank from selling the home as required under the Homeowners’ Bill of Rights.

The Court set the matter out for an actual injunction and gave the bank the opportunity to respond. The bank opposed the request but the Court disagreed with their argument and issued a preliminary injunction, the bank is now barred from selling the home until they comply with the new laws and review the borrower for a loan modification.

For more information, contact the Law Offices of Ted A. Greene, Inc., attorneys for the borrower.

Consumer Advocates

(916) 442-6400
Sacramento,  California 95811

“Helping Homeowners sue the banks is what we do”

Mortgage Resets Are Beginning, and Things Could Get Ugly

The Home Affordable Modification Program was a godsend to many troubled homeowners after the financial crisis, allowing tens of thousands of mortgage holders to reduce their monthly payments to no more than 31% of their gross monthly income, often through interest rate reductions.

But, all good things must end, and HAMP – which helped many avoid foreclosure – was only a five-year, temporary fix. Now, modifications that began in February 2009 are maturing out of the program, and into a gradual increase in interest rates. For most, this means a final monthly payment increase of $196; for some, it could be as high as $1,724, depending upon where the average rate for a 30-year loan sat at the time of the modification.

Almost 90% of HAMP loans will see increases
According to the latest report from the Special Inspector General for the Troubled Asset Relief Program, 88% of the nearly 900,000 active HAMP loans will see their payments rise between now and 2021. With many borrowers having their rate reduced to as little as 2%, a 1% per year rise will likely be painful. Some will see their rates reset up to 5.4% over the next few years — more painful still.

Obviously, the redefault risk is pretty high. As SIGTARP notes, those in the HAMP program the longest default at the highest rate – nearly 50%. Almost half of homeowners with HAMP modifications received them from 2009 to 2010. The overall default rate at the end of last year was 28%.

Which institutions hold these loans? Of the 10 major servicers involved with HAMP, Bank of America Corp. (NYSE: BAC  ) , JPMorgan Chase & Co. (NYSE: JPM  ) and Wells Fargo (NYSE: WFC  ) are in the top five. At the end of 2013, redefaults for each bank associated with HAMP loans was 31% for B of A, 23% for JPMorgan, and 24% for Wells.Ocwen Loan Servicing and Nationstar Mortgage, the other two servicers in the top five, each had redefault rates of 30% and 26%, respectively. Can they expect a whole lot more in the next few years? It certainly seems like it.

The other reset problem: Helocs
In addition to new default risks for HAMP loans, banks are also facing issues with home equity lines of credit made right before the crash, some of which began maturing last year. Once the loan turns 10 years old, these so-called Helocs begin to add principal to the interest-only payments homeowners have been accustomed to paying. For some, those reset payments will be in the neighborhood of $500 to $600 more each month.

The usual suspects mentioned above are the biggest players here, as well. Together, Bank of America, JPMorgan Chase, and Wells Fargo hold big hunks of the total $529 billion in Helocs, with B of A having the biggest portion, $81.4 billion. JPMorgan and Wells hold about $70 billion and $80 billion apiece. Since these loans are usually second liens, banks face bigger losses.

Banks are facing these threats with less of a cushion these days, as well. As their troubled loan portfolios have waned, banks have cut back by billions of dollars on their loan loss reserves. Both Bank of America and Wells, for instance, put aside approximately $5 billion less in 2013 than they did in 2012.

Things could get rough for the big banks again very soon, as defaults start to add up. As far as they’ve come from the dark days of the financial crisis, the legacy of banking’s pre-crisis lending spree never really seems to fade

source:  http://www.fool.com/investing/general/2014/04/05/mortgage-resets-are-beginning-and-things-could-get.aspx

Duped Homeowners At Risk Of Losing Home Due To Adjusting Payments.

In the years leading up to the recent mortgage crisis, the behavior and activities of mortgage lenders changed dramatically. Lenders offered more and more loans to higher-risk borrowers, including undocumented immigrants. Sub-prime mortgages amounted to thirty-five billion dollars ($35,000,000,000) (5% of total originations) in 1994 and increased dramatically to six-hundred billion dollars ($600,000,000,000) (20%) in 2006.

In addition to considering higher-risk borrowers, lenders offered increasingly risky loan options and borrowing incentives, such as “yield spread premiums.” The American Dream of home-ownership could not have been easier to obtain. However, with an ever-growing “cash-cow” providing limitless income to mortgage brokers and lenders, greed inevitably took over.

Mortgage qualification guidelines began to drastically morph. At first, the “stated income, verified assets” loans were introduced. Proof of income was no longer needed, borrowers just needed to “state” income and show that they had money in the bank (which in many circumstances, the brokers would transfer their own or company funds into the borrowers account to ensure approval). Then, the “no income, verified assets” loans were introduced. The lender no longer required proof of employment. Borrowers just needed to show proof of money in their bank accounts. The qualification guidelines kept getting looser in order to produce more mortgages and more securities. This led to the creation of “No Income, No Assets” (“NINA”) loans. Basically, NINA loans are official loan products and let you borrow money without having to prove or even state any owned assets. All that was required for a mortgage was a credit score. This program solely based the funding on the value of the collateral (the home), which often led to over-inflated appraisals to ensure approval.

Due to the risky nature of these types of loans, they frequently held extremely predatory features that were in no way of any benefit to the borrower. One example of a predatory mortgage sold during this time was the interest-only adjustable-rate mortgage (ARM), which allows the homeowner to pay just the interest (not principal) during an initial period. Nearly one (1) in ten (10) mortgage borrowers in 2005 and 2006 were sold these “option ARM” loans, unbeknownst to some, including Plaintiffs.

As a result of the enormous amounts of profit made on sub-prime mortgages, lenders began paying extreme commissions and “kickbacks” outside of closing to ensure that mortgage brokers sold borrowers the most profitable option.

These incentives led to the financial interest of the borrower being thrown to the wind as the commissions and bonuses paid to mortgage brokers were substantially larger when they would place a “prime” borrower into a “sub-prime” mortgage. Mortgage brokers, who owe a common law and statutory fiduciary duty to borrowers, would fail to mention that; 1) the loan is considered “sub-prime,” and 2) the borrower could qualify for a traditional “prime” mortgages holding a fixed interest rate and payment that would fully amortize.

This lending scheme, coupled with the ever falling home values due to inflated appraisals, is the reason for the State of California’s economy being crippled as it resulted in the millions of foreclosures of these “designed-to-fail” mortgages. Borrowers are being faced with adjusted payments that are substantially larger than the original payment amount resulting in default.

If you’ve experienced first-hand the hardship of these adjusting payments and want to learn more about your remedies visit  the wrongful foreclosure attorney Ted A. Greene can help you. You can email Ted at tgreene@tedgreenelaw.com or call (916) 442-6400 and your information will remain private and confidential.