In his recent posting on HousingWire.com, publisher Paul Jackson scrutinizes current data from Lender Processing Services – which showed that a record 7.5 million loans are non-current – and posits that the real key to resolving the housing market problems yet-to-come is REO property sales.

And here’s why:

For all loans at 90+ days delinquent, the average days delinquent is 272. For loans in foreclosure, the average days delinquent is 410. Which means that severely delinquent borrowers have gone almost 10 months without making a loan payment – and foreclosure hasn’t started yet for them. Those in the foreclosure process have not made a payment for over a year.

Clearly, short sales will not cover all this distressed property. Jackson says the key indicator that the housing market is on the road to recovery will be an increase in REO volume; here’s a forecast from JPMorgan Chase:

To read the full story (good stuff), go here.

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Last week Bank of America said that it would forgive some mortgage debt to help keep distressed borrowers from losing their homes.

The by-invitation-only program announcement came the same week as the news that BoA had settled a suit brought by the state of Massachusetts for predatory lending.

From the BoA press release announcing its new Earned Principal Forgiveness program:

Bank of America announced it will look first at principal forgiveness – ahead of an interest rate reduction – when modifying certain subprime, Pay-Option and prime two-year hybrid mortgages qualifying for its National Homeownership Retention Program (NHRP). Several enhancements are being made to the program, including the introduction of an earned principal forgiveness approach to modifying mortgages that are severely underwater.

Basically, the program parks a maximum of 30% of the value of the loan in a special interest-free account. As long as the homeowner continues to make payments, a percentage of the principal held in the special interest account will be forgiven each year – either until the balance is zero, or the housing market recovers and the borrower no longer has negative equity.

BoA is targeting delinquent homeowners whose mortgage balance is at least 20% greater than the value of their home.

Read the New York Times coverage of the announcement here.

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The Obama administration announced new modifications to the HAMP and FHA programs late last week to “better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.”

So who benefits from the modifications? The program expands flexibility for mortgage companies and banks to assist unemployed homeowners as well as those who are underwater on their mortgages because of where they live – markets hardest hit by declines in home values.

And who doesn’t? Further into the Treasury press release, this elaboration:

The President has said: “We can’t stop every foreclosure.” And in fact, we can’t maintain the balance described above if we assist every borrower. For example, investors and speculators should not be protected under our efforts, nor should Americans living in million dollar homes or defaulters on vacation homes.

See the AP coverage of the story here.

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Two Florida men were sentenced in federal court last week to prison terms for mortgage fraud and four more were added to another federal mortgage fraud indictment, including a banker and an attorney.

From the Orlando Sentinel on those already sentenced:

Richard Nanan, a former loss-mitigation negotiator with Taylor, Bean & Whitaker, was sentenced to one year imprisonment for his role in a short-sale scheme, the U.S. Attorney’s Office said.

He pleaded guilty in December to a conspiracy charge.

Also sentenced Wednesday was Mark J. Moncher, owner of Dream Home Management, who had earlier pleaded guilty to a count of conspiracy to commit mail and wire fraud.

He was sentenced to nearly five years imprisonment.

Federal prosecutors have said Nanan was part of a short-sale scheme with fellow Taylor, Bean & Whitaker employee Victor Cedeno.

Nanan and Cedeno worked with real-estate agents, homebuyers, lenders and title agents during sales financed by Taylor, Bean & Whitaker.

Nanan negotiated and approved short sales of foreclosed homes with mortgages for about 90 percent of the mortgage value of the properties. Then, prosecutors said, they falsely reported they approved the sales at about 80 percent of the mortgaged value.

And from the Palm Beach Post on the new indictees:

Included in the superseding indictment this week was Joseph Miller, 63, a Palm Beach Gardens attorney, Peter Hartofilis, 33, of New York, Robert Hofler, 52, a former vice president of First Southern Bank in Boca Raton and resident of Pembroke Pines, and Steve Vento, 41. Vento, formerly of Jupiter, is currently in prison on unrelated charges.

According to the indictment, Vitulano and Hartofilis were branch managers of the TopDot Mortgage office in Boca Raton.

Vento is alleged to have submitted two false loan applications to buy two houses worth more than $1 million each. Miller is alleged to have acted as closing agent and title agent on several of the transactions. The indictment says Hofler signed false verification of deposit forms.

More than $5 million for homes in Palm Beach and Broward counties was obtained with the false information between 2006 and 2007.

Russell Jay Williams, a Fort Lauderdale attorney representing Vitulano, said charges also should be filed against underwriters and banks that approved the loans.

“Bottom line is, everybody’s dirty in this,” he said. “It was like the wild, wild west out there.”

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The median price for California homes rose for the fourth consecutive month in February, according to a report released March 18 by MDA Dataquick.

The report noted that the 11% increase in the year-over-year median price was due to a dip in foreclosures and an increase in sales of high-end properties.

From the AP story on the report:

DataQuick President John Walsh attributed the ongoing difficulty obtaining financing, as well as job security fears among potential buyers and a decrease in the number of low-priced homes on the market that are affordable to most buyers.

“The sales and price data remain choppy, with more ups and downs than we’d typically see,” Walsh said.
In the nine-county region of Northern California, sales dropped about 1 percent to 4,990 in February from a year earlier. That figure crept up about a percent to more than 15,000 in a six-county region of Southern California.

The median home price in Northern California increased 20 percent to $354,000 last month from $295,000 in February 2009, its fifth consecutive year-to-year increase.

In Southern California, the median price rose 10 percent to $275,000, up from $250,000 in the year-ago period. It was the median’s third consecutive year-to-year increase.

Foreclosures comprised 44.3 percent of statewide resales last month, up from 43.8 last month but down from the all-time high of 58.8 percent reached in February 2009.

Walsh said the volume of homes in various stages of the foreclosure process suggested that the housing market’s outlook would remain murky for some time to come.

“The key question is how much more distressed inventory is coming, and when,” he said.

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In an interview with CNBC this week, Meredith Whitney of the NY-based financial services advisory firm Meredith Whitney Advisory Group predicted that the housing market would face another downturn once government-backed programs fade away, causing a double-dip for the U.S. housing market:

Government programs to support housing have been “murky” and when the modifications caused by them come to an end, a lot of supply may come to the market and that’s when the real-estate market is likely to go down, she explained.

Hopes that an improvement in liquidity and continuing investment from China in US assets will prop up mortgage-backed securities (MBS) and Treasurys are exaggerated, Whitney also said.

“The asset classes of MBS and Treasurys are priced for a material correction in my opinion,” she said. “The only buyers of agency MBS are the Fed and banks so you see how precarious that market is.”

“If the Fed pulls back, that’s a really big deal… because there’s no substitute buyer.”

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Appraisers — who have seen their fees cut in half in recent years as a result of a mandated clearing house approach to appraisal assignments which was a knee jerk reaction by the Legislature resulting from lender fraud cases where the Bank insisted appraisers keep values inflated — are now protecting what is left of their disappearing turf.

According to an article this week at Inman.com:

Industry groups representing appraisers are pushing for a ban on the use of BPOs to value short-sale properties in the Home Affordable Foreclosure Alternatives (HAFA) program, saying they open the door to mortgage fraud.

NAR says the appraiser groups have provided “misinformation” to the Treasury Department about the role of BPOs in mortgage fraud and the application of state laws governing BPOs.

In a letter to Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan, NAR president Vicki Cox Golder said :

“NAR is concerned about misinformation that has been provided to the Treasury Department by the Appraisal Institute with regards to the use of BPOs and the real estate agents who provide this service…

There is no evidence to support the assertion that appraisers are more or less likely to engage in mortgage fraud than real estate agents…

While misconceptions in the industry persist, there is no evidence that a BPO exacerbates mortgage fraud or abuse.”

With transaction counts way low, and with Banks resorting to BPOs for REO and Short Sale decisions (which also represent the vast majority of real estate transactions), this dust-up seemed predestined.

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Californians who received mortgage modifications or participated in a short sale or foreclosure could be getting the short end of the stick again in the form of a huge tax bill.

That’s because legislation preventing their canceled debt from being treated as taxable income is caught up in a budget squabble between the Governator and the California state legislature.

According to an AP story out of Sacramento:

Schwarzenegger, a Republican, said this week that he would veto a tax bill passed by majority Democrats. Among other things, the legislation would have mirrored federal tax relief given to those who had mortgage debt forgiven in 2009. In previous years, the state conformed with federal law.

Business groups have objected to an unrelated provision in the bill dealing with penalties for tax fraud, and that prompted Schwarzenegger’s veto threat.

The governor has asked the Legislature to pass a separate bill dealing solely with the mortgage issue so he can sign it before April 15. Democrats, the majority in both houses of the Legislature, appear to be in no hurry…

Depending on the type of loan, the government can consider the forgiven debt as income and tax it. In California, most first mortgages to buy a home aren’t affected, but homeowners can face big tax bills if they default on some types of refinance loans and second mortgages that let them cash out equity.

Congress responded to the growing problem by passing the Mortgage Forgiveness Debt Relief Act of 2007, which prevented homeowners from being liable for their canceled debt. The act prohibits such federal taxes through 2012.

California matched its state tax laws to the federal act in 2007 and 2008. It has not passed an extension for 2009, which has left many short sellers in limbo.

Conforming California to the federal standard would help an estimated 16,000 people who have mortgage debt forgiven between 2009 and 2012, according to the California Franchise Tax Board.”

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The Obama administration has announced a new program taking effect April 5 that will pay homeowners in danger of foreclosure cash to walk away. Lenders will also get a cash payment for agreeing to a short sale.

The New York Times piece on the new program reported:

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure…

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

$1,000 to banks for a short sale? Are they nuts?

$1,500 to a seller to ‘relocate?’ Sellers can save five times that by staying in through the foreclosure process, without the potential of a deficiency judgment later.

Who makes this stuff up?

Just one more example to illustrate that walking away 8 times out of 10 makes more sense (maybe 9.5 times out of 10). Period.

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Hey American taxpayers, get your wallets ready…a group of economists from the NY Federal Reserve and NYU say the FHA is understating how much risk it’s taken on, which may make it a candidate for a taxpayer bailout.

The FHA currently backs more than 25% of all home loans – up from less than 2% just three years ago.

According to a recent article in the Wall Street Journal:

The economists warn that the Federal Housing Administration—which has jumped to fill the void left by the collapse of the private mortgage market—is overlooking factors that signal higher losses, according to a working paper released Thursday.

The agency has traditionally turned a profit for the U.S. government. But the economists warn that by underestimating the risks it faces, the FHA has increased the likelihood that it will have to ask Congress for money for the first time in its 75-year history.

The study doesn’t say how likely that now is, but “it’s hard to imagine that they won’t be returning to Congress several times,” said Andrew Caplin, one of the authors and an economics professor at NYU. “It’s just inconceivable that the loans … will not cause very large losses.”

The FHA says it would need taxpayer money only in a worst-case housing-market scenario.

Hmmm….and what would that “worst-case housing market scenario” look like? Something like what we’re in right now??

Read the entire article here.

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