Housing-Rescue Plan to Make Short Sales Easier

Obama unveils the first part of his housing rescue plan in February.

The additions to Obama’s housing plan that were laid out on Thursday are designed to make it easier for homeowners to sell houses that are worth less than their mortgages. The initiative will help incentivize short sales as well as “deed in lieu” transactions. These proposals will hopefully help assist borrowers who cannot be helped by a loan modification.

“The government will pay mortgage-servicing companies up to $1,000 and borrowers up to $1,500 for successful short sales or “deeds in lieu” transactions.”(WSJ) The government will also spend up to $1,000 to help get the holders of second mortgages to release their liens so the short sales or “deeds in lieu” transaction can be completed. In addition, additional payments will be provided to lenders, servicers, and investors in areas where home prices have been dropping to assist with loan modifications. These funds will hopefully help make investors feel more comfortable modifying loans, rather than being overly concerned that they will face additional losses if the modified loans redefault.

So far 75% of loans are currently being covered by the plan, including those by Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo. Other companies are evaluating whether they wish to participate.

Given that short sales have accounted for 15-20% of existing home sales this year according to the National Association of Realtors, this new program should provide benefits to investors, lenders, servicers and borrowers looking to sell homes or find other ways out of underwater mortgages and tough financial situations. Hopefully it will help make short sales easier to complete and make foreclosure easier to avoid.

If the popularity of the loan modification plan unveiled by the administration nearly three months ago is any indication, this program should be a huge success.

The plan also has positive ramifications for the reverse mortgage industry due to the new HECM for Purchase program. Negotiating a short sale is often part of the process of a reverse mortgage when the borrower is trying to avoid a foreclosure or underwater on their previous mortgage. Hopefully, this plan will make reverse mortgages that fall into this category easier to obtain as well.

Over 20% Of Homeowners Owe More Than Home Is Worth

A new study released by Zillow late last week indicates that about 21.9% of all homeowners, 20.4 million people, owe more than their home is worth. This is known as being “upside-down” on a mortgage. And although a reverse mortgage can never go upside-down, an upside-down forward mortgage generally prevents the borrower from qualifying for a reverse mortgage.

Partly in order to combat this issue, the federal government is considering raising the limit at which homeowners with loans owned or guaranteed by Freddie Mac and Fannie Mae can refinance their mortgages. Currently the limit is a mortgage that is 105% of the property’s value. However, more than 1 in 10 homeowners have a mortgage that is more than 110% of the property’s value. Thomas Lawler, an independent housing consultant, is quoted as saying that when a borrower owes 30% more than their home is worth, borrowers are more likely to walk away than refinance. Increasingly, this seems to be the case more and more often.

I wish I could come up with a positive spin on this article, but my hope is simply that the statistics will help spur the state and federal governments to change modification policies and increase the pressure on the banks to grant the short pays and loan modifications necessary to help both keep people in their homes and ensure that they have options while they’re there.

Is the Housing Market Getting Better or Worse?

The WSJ featured this photo of a bulldozer tearing down houses in Southern California.

Today has been filled with mixed messages in regards to the housing market. Is it performing well or poorly? The Wall Street Journal published images of bulldozers tearing down half-finished homes in Southern California because the lender determined the cost of completing the homes would be more than they could be sold for. On the other hand, the New York Times published a front page story about how the market in Sacramento is rebounding– a potentially good sign. Sales are up 45% since last year. Sales in Las Vegas, another market hit hard when the housing bubble burst, are up 35%.

So which is it? It seems hard to tell. It is easy and addictive to follow all the housing articles published recently, but, after writing on several of them, it appears that the bottom line keeps remaining the same:

- Yes, there are a lot of foreclosures, permeating classes where they’ve never been felt before.

- Yes, many markets have been extremely hard hit by the housing crisis. Las Vegas, Phoenix, California, and Miami are four of the worst. Very few, if any, areas have emerged unscathed.

- Yes, the new $8,000 tax credit has helped buyers, leading many first-time homeowners to enter the market. Perhaps as a result, many areas have seen sales increase this past year and in the past few months.

It therefore seems safe to draw the following conclusions:

1. The nation was hit hard by the housing crisis.

2. Foreclosures still abound, as neither the economic nor the housing crisis have lifted yet. This is especially true amongst the middle-class, who in many cases took longer to feel the effects of the crisis.

3. However, foreclosures mean that prices have been pushed down in many markets, leading to a glut of new buyers who, in addition to pursuing the tax credit, can pay less in a mortgage payment than they can in their monthly rent, saving money by buying a home. This situation is especially profound in the depressed market, but leads many analysts to think that there are signs of life in the market.

What do you think? Is the housing market getting better or worse?