Here’s a story from one of our readers…

“Seller listed home as a short sale for 240k  and buyer offered 240k cash second lien of 30k was in agreement of short sale, first lien holder was not.   Home was foreclosed.   Listed for 240k sold for 232k. seller is now in collection from 2^nd lien.   Shouldn’t the foreclosure wipe out 2^nd lien?”

Sound familiar?  It should.  At least, it sounds familiar to us.

The banking industry is still in complete disaray.  One hand often doesn’t know what the opther is doing.  We’ve seen Banks foreclose on themselves – or on an REO buyer of a 2nd DT, when the Bank foreclosed on an undisclosed 1st DT.  It truly is the Wild Wild West out there.

Buy and bail – where a homeowner buys a new house before his credit is trashed by walking away from the old one – is on the rise, according to a recent Bloomberg report.

According to the article, those most likely to “buy and bail” have a large income and low debt, enabling them to qualify for a mortgage – now at historic lows – on another home. Once they purchase that home, they then walk away from the old home that likely carries a much larger mortgage payment at a much higher interest rate on a property that is worth considerably less than they paid for it.

A Morgan Stanley report noted that those most likely to walk away are debtors with the best credit scores and jumbo loans that exceed the Fannie and Freddie cap limits for mortgages. They have typically lost more than $100,000 in property value.

Both GSEs put protections in place two years ago to thwart buy and bailers, but a Freddie Mac spokesman quoted in the Bloomberg piece said, “it still seems to be going on.”

Of course, if buy and bailers use false information to qualify for a loan on that next house, that’s called fraud. And the FBI is working with local housing agencies to conduct investigations.

An analyst from Lender Processing Services, a default services analytics group, is predicting that foreclosure and REO issues could continue to plague the housing market recovery until late 2013.

During the LPS annual conference in Denver last week, LPS Applied Analytics managing director Kyle Lundstedt said that well-intended programs designed to keep borrowers in their homes were having unintended consequences, and that those in the default industry need to be prepared for troubled loan inventory to continue to rise.

“If current trends persist, it will take about 12 months before foreclosure proceedings are initiated,” once borrowers become delinquent, Lundstedt said in an REO Insider report. “It takes a heck of a long time to get into foreclosure at this point. When you are in foreclosure, it doesn’t get much better. Today, if you entered foreclosure, it would be 16 months before you got out. How many people think that is a good thing? It’s tragic.”

The Center for Responsible Lending, a nonprofit research center and borrower advocacy group, reports that Latinos account for almost half of the foreclosures in California.

The CRL says that Latino borrowers make up 48.2 percent of the over 700,000 California homes currently in the foreclosure process, based on their analysis of data from ForeclosureRadar and Catalist. According to the U.S. Census Bureau, Latinos make up 37 percent of California’s total population.

White/Non-Hispanic homeowners accounted for 34.6 percent of foreclosures in California, and African-Americans were 7.6 percent. Asians accounted for only 6.4 percent of California foreclosures.

According to a REO Insider article, lenders and servicers have taken notice of this trend, and some are targeting minority-owned brokerages for their REO listings. In addition, a Fannie Mae executive said that hiring real estate agents and brokerages that serve minority communities is one of its key strategies.

A new University of Texas-Virginia Tech study says that while foreclosures may “destabilize and disorganize” communities, they do not directly affect the neighborhood crime rate.

Researchers said that instead of affecting crime, foreclosures are — like crime — symptomatic of a community’s lack of political clout, poverty and segregation.

The study used data on foreclosures and crime in Chicago during an eight-year period, from 2000 to 2008. During that time, foreclosures tripled in the study area. Researchers examined the consequences of the rising foreclosure rates, and the effects on crime and the structure of the study area.

Many housing experts had thought that foreclosures increased property crime since abandoned homes were easy targets for vandalism and burglary. David Kirk, assistant professor in the UT Department of Sociology and lead researcher on the study, said, “We suggest that our results provide a more informed depiction of the complex relationship between community conditions, foreclosures and crime in Chicago. We were able to statistically adjust for confounding influences such as segregation, the political hierarchy of communities and other unobserved factors predictive of both foreclosures and crime.”

ForeclosureRadar reports that California foreclosure activity was “mixed” in July, with foreclosure filings and cancellations dropping from June and foreclosure sales rising.

California foreclosures moving to REO status were up 13.46 percent in July from the previous month, but down over 18 percent from July of 2009. Notice of default filings were down 4.8 percent from June, and down 47 percent from July of 2009.

ForeclosureRadar CEO Sean O’Toole said that despite a “tsunami of mortgage delinquencies, we continue to see no signs of a foreclosure wave.” He said that government and lender intervention programs are continuing to delay foreclosures.

The report also said that in July, it took an average of 226 days to foreclose in California, down slightly from a 2010 peak of 239 days in April.

To read ForeclosureRadar’s July 2010 California Foreclosure Report, go here.

KnowYourOptions.com is the new Fannie Mae website launched last week to help distressed borrowers understand more about mortgage financing and prepare them for dealing with lenders in the foreclosure process.

Available in both English and Spanish, the new site aims to help struggling homeowners find alternatives to foreclosure. According to a Fannie Mae press release, key features of the site include:

• Interactive Options Finder to help homeowners identify options that might be right for their situation;
• Calculators to help borrowers understand how many of the options work, including refinance, repayment, forbearance, and modification;
• Videos featuring real homeowners discussing how they received help and housing counselors providing advice;
• A virtual assistant to walk homeowners through key areas of the site; and
• Next steps and helpful forms, including a financial checklist and contact log to help borrowers be prepared when contacting their mortgage company or housing counselor.

The site also provides details about Fannie Mae’s Deed-for Lease program, which gives borrowers the option to remain in their home by becoming renters.

In early July, ForeclosureRadar, the online service that provides market information on foreclosures in California, Arizona, Nevada, Oregon and Washington state, released an iPhone app to make all its information available to subscribers in a mobile format.

Now Foreclosure Radar has released another technology tool: an alert service that sends an email or text to update subscribers on the status of foreclosure proceedings or auction sales in each of the five states it covers.

Subscribers can customize the alerts to get as much or as little information as they want. It also allows them to save and receive updates on the status of individual properties. Users can search by foreclosure stage, zip code, property type and a number of different parameters.

The alert service is free for monthly subscribers, and an “advanced alert” service that provides real-time alerts, auction bid monitoring and other premium features not included in the free service is available for $79.95/month.

Foreclosure is worse than death – at least when it comes to home values, according to a new MIT study.

The study done by an MIT economist and researchers from Harvard says that foreclosures reduce home values by an average of 27 percent. Comparatively, a home sold because of an owner’s death only reduces the value by 5-7 percent and a home sold as the result of bankruptcy only drops the value by about 3 percent.

The researchers used data garnered from homes sales in Massachusetts over the past two decades. Their study also showed that the value of homes within 250 feet of a foreclosure sale also drop by about one percent. And, not surprisingly, lower priced neighborhoods experience greater discounts for foreclosure properties – primarily because, researchers said, lenders are incentivized by higher fixed costs of owning the property due to vandalism.

RealtyTrac reports that with 528,000 foreclosures in the first half of 2010, it is likely that more than one million American homeowners will lose their homes to foreclosure by the end of the year.

If true, that number will be 10 percent above the number of foreclosures in 2009, a number that a RealtyTrac executive Rick Sharga called “unprecedented.”

Although foreclosure notices have declined in the past three months, Sharga said that this is due to lenders managing the rate of how fast foreclosures are processed so they can better manage their inventories of foreclosed properties.

According to Lender Processing Services, it takes approximately 15 months for a home loan to go from one month late to that property being foreclosed and sold.

With that rate it mind, Sharga says it could take lenders as long as three years just to deal with their current inventory of foreclosures.

For the full report, go here.