A recent report released by Moody’s show the average loan in foreclosure has been in process for 571 days.  Foreclosures in judicial states have averages of 652 days, while foreclosures in a non-judicial state have averaged 297 days.

Kessler’s Take:
So, why does it take so long?  The most simplistic answer is manpower.  Roughly four million families lost their homes to foreclosure between the beginning of 2007 and early 2012.  Our system was not made for this onslaught of foreclosures and has tried playing the catch up game since it has started.  Looking back to 2007 most banks had loss mitigation and foreclosure departments that comprised of a couple of people.  Fast forward to the current time and the staffs have been increased to hundreds if not thousands by the big banks to try and meet the volume.

If you think about it the huge difference in timeline between judicial states and non judicial states makes sense; for a foreclosure to happen in a judicial state a motion must be made to a court in which it has to be put on a court docket.  In most if not all areas around the country the municipal budgets are just not there to be adding more manpower to the court system to alleviate these additional filings so the backlog piles up.  Once a date is established for a court to hear the case any number of reasons can create the matter to be adjourned; the case can be simply moved to another judge or the respondent (homeowner) can seek bankruptcy protection.

In my opinion the biggest reason the process takes as long as it does is due to the homeowner.  Okay that was not an “ah ha” statement but think about it, if the average timeline for processing a foreclosure is 571 days not including the 90 days or more the homeowner was behind on their payments prior to action being taken, 2 years worth of mortgage payments are not being made.  Roughly the average mortgage balance in the United States is $175,000 if I used an average interest rate of 5% (which might be considerably low since those affected by a foreclosure would not be able to refinance) the monthly payment would be just under $1000.  Now if you add in the real estate taxes and homeowner’s insurance which would be paid by the lender throughout this process, the total monthly cost would be around $1400.  If you multiply the monthly payment not being made by 24, the amount of months on average from start to finish, the homeowner who is losing his/her home has saved close to $35,000.

That is just crazy!  Please know on a personal level I feel for anybody who has to go through this process. My hope is good intentions were had when the homeowner took on the mortgage, but the fact of the matter is when they closed on the mortgage that is now being foreclosed on they signed an agreement putting them on the hook for their obligation.  So, not only are they breaking their obligation they are recouping any money laid out for down payment and closing costs.

From the banks perspective they know the losses on a foreclosure will be about 40 percent of the pre-foreclosure value or about $80,000 between the loss in payments, loss in value and the fees to complete the procedure, so they would love to find a way to avoid the process through modification or refinance.  While the banks and many homeowners would like to find a way to make it work it has been proven that no matter what is done the homeowner can not make the payments due to loss of income or never having the ability to pay to start with.

In the end it is only getting harder for a bank to complete the foreclosure process as both state and local laws have tightened in order to make the process more difficult to protect homeowners and prevent foreclosures.  State governments have introduced 550 bills related to mortgage servicing since 2009 according to Alfred M. Pollard, General Counsel for the Federal Housing Finance Agency (FHFA).  Unfortunately, law makers do not always see the big picture and realize sometimes you have to cut your losses, clear out the issues and start over for balance to be restored.

Kessler’s Forecast:
This issue is not going away anytime soon.  There are currently 1,345,645 homes in the foreclosure process according to ReatlyTrac.  There will continue to be less municipal budgets to handle these requests and local municipalities who rely on real estate taxes know a bank is a much better payer than a homeowner struggling with their bills.

For those using the foreclosure as a savings plan 40 percent of loans in the process are 2 years past due, so you will not be seeing any of those homeowners trying to rectify the issue.

In the end, which will be a couple of years down the road, a valuable lesson will have been learned and what got us to this point will never happen again.  If a potential borrower can not demonstrate how they will repay the loan they will not be eligible for financing.

What a novel concept….

RATES

Kessler’s Take:
The 30 year fixed decreased to 3.88% from 3.90% nationally according to Freddie Mac’s Weekly Survey.  Last week I forecasted the rates would increase to 3.93%.  This week upcoming should see the 30 year fixed decrease slightly to 3.86% nationally creating the lowest rate in recordable history.  In the coming month rates should stay around the 4.00% mark.

Kessler’s Forecast:
Last week (4/26/2012) – 3.93%;
1 week (5/3/2012) – 3.86%;
1 month (5/31/2012) – 4.05%;
3 months (8/7/2012) – 4.15%;
6 months (11/21/2012) – 4.25%;
12 months (5/6/2013) – 4.55%

Reports

Previous Week:

Monday, April 23rd
Kessler Housing Report
KMG Mortgage Consulting

Tuesday, April 24^th
March New Home Sales
U.S.Census Bureau

Tuesday, April 24^th
S&P/Case-Shiller Home Price Index Released
Standard & Poor’s Financial Services LLC

Thursday, April 26^th
March Pending Home Sales
National Association of Realtors

Upcoming Week:

None

The Federal Housing Finance Agency (FHFA) which is the conservator for Fannie Mae and Freddie Mac announced last week that they issued new guidelines for servicers of Fannie or Freddie loans to speed responses to short sale requests.

Kessler’s Take:
One thing is for sure, the “short” in “Short Sale” has not referred to the length of time it takes to close on a property.  Since 2006 when the housing market started its correction the concept of a short sale hit the main stream with millions of homeowners trying to apply for approval.  A “short sale” occurs when a homeowner owes more on a property than it could be sold for creating a shortage that needs to be addressed.  Prior to 2006 when this situation came up (which was not very often) the homeowner would be expected to come up with the difference to make the bank whole.  Once home values fell and homeowners tried to sell their properties only to realize they were going to be in a negative situation, they reached out to the banks for debt forgiveness.  What made this different than any other time in the past was that it was not a handful of homeowners doing this but rather millions of homeowners looking for this relief.  In most cases if the approval was not granted the homeowner would just walk away from the property leaving the bank on the hook.

When a bank receives the request for a “Short Sale” approval they must contact the investor of the loan to ensure the investor will accept less than full value of the note.  Over the past couple of years most investors welcome this if the current mortgage has not been paid on time or there is a possibility of a foreclosure which would leave a bigger debt owed.  The timing issues come into play for a couple of reasons.  First, the servicers were not and only have recently become staffed properly to accept these requests.  Second, contacting the investor and getting a response back in a timely manner is difficult.  Third, the investor is not always one entity.  It could be multiple investors that need to approve the request.

Until now there has not been any regulations regarding this procedure but that has changed for loans owned by Fannie or Freddie.  The new guidelines would require servicers to acknowledge receipt of short sale offers with 3 business days, respond to short sale requests within 30 days (with a possible 30-day extension) and make a final decision within 60 days of receiving purchase offers.

While everybody knows we are in a “buyers” market, homes that are short sales have become non-desirable as potential buyers know the process can take an extremely long time and have the possibility of being rejected deep into the process.  So, if you are a homeowner who needs a short sale to be able to sell your property you are competing with other resellers that do not need their mortgage holder’s approval making their properties more sought after.

With the new guidelines in place the servicers have a directive from FHFA to get these requests responded to in a set period of time which will only help the real estate market going forward.  For the first time ever, short sales outpaced foreclosure sales in a month which is great news for everyone involved as a short sale reflects better on a homeowner’s credit report, it is less harmful to the neighborhood values and condition and costs the bank less than foreclosure proceedings.

In a perfect world we would not have to deal with such issues as short sales or foreclosures, but the world is not always perfect and we have to deal with the cards that are dealt.

Kessler’s Forecast:
As the word gets out that the process for a short sale approval improves more buyers and Realtors will feel comfortable entering into an agreement with a seller who needs one.  Once this happens a home with the need of a short sale will not have the stigma it currently does making it as attractive as a home without.

In the coming years short sales will not be going away as values will not be rebounding enough to cover the losses felt since the height of the market.

RATES

Kessler’s Take:
The 30 year fixed increased to 3.90% from 3.88% nationally according to Freddie Mac’s Weekly Survey.  Last week I forecasted the rates would increase to 3.90%.  This week upcoming should see the 30 year fixed increase slightly again to 3.93% nationally.  In the coming month rates should stay around the 4.00% mark.

Kessler’s Forecast:
Last week (4/19/2012) – 3.90%;
1 week (4/26/2012) – 3.93%;
1 month (5/24/2012) – 4.05%;
3 months (7/31/2012) – 4.15%;
6 months (11/14/2012) – 4.25%;
12 months (4/29/2013) – 4.55%

Reports

Previous Week:

Monday, April 16th
Kessler Housing Report
KMG Mortgage Consulting

Tuesday, April 17^th
March Housing StartsU.S.Census Bureau

Thursday, April 19th
March Existing Home Sales
National Association of Realtors

Upcoming Week:

Tuesday, April 24^th
March New Home Sales
U.S.Census Bureau

Tuesday, April 24^th
S&P/Case-Shiller Home Price Index Released
Standard & Poor’s Financial Services LLC

Thursday, April 26^th
March Pending Home Sales
National Association of Realtors

 

A reverse mortgage is a mortgage that allows homeowners 62 years of age or older to borrow against the equity of their homes and continue to live in them without having to make payments, so long as the home remains their primary residence.

Kessler’s Take:
If there was ever a product that TV commercials have killed, this product should be the poster child.  I will preface this with this:  I am in the mortgage industry and have been for over a decade and even I was turned off to the product by the commercials I have seen.  Usually it is a retired actor standing in front of some mansion touting the benefits of a reverse mortgage.  This to me felt like a sleazy way to bleed unsuspecting seniors out of their wealth.  Good thing I do not like staying ignorant on a subject and engrossed myself on what this government backed program is all about.

The most common misnomer about the program is that once you close on a reverse mortgage the bank forever owns the property, you get to live in the residence until you pass and the bank holds the asset thereafter.  WRONG!!  The whole concept of reverse is it is the opposite of a forward mortgage.  A forward mortgage is a loan that is taken and paid back with interest until the principal balance is at $0, a reverse is the opposite in that you start off with a principal balance but rather than paying it down the interest gets added to the loan eating away at your equity.  At any point including after the death the loan can be paid in full and the ownership stays with either the homeowner or their estate.

Now that we have the concept all straightened away, how is the amount a homeowner receives determined?  It all depends on the current value of the property and the borrower’s age.  The longer the life expectancy the fewer funds are available, the shorter the more money is available.  The reason for this is the equity has to last to pay the accruing interest.  If a homeowner at the age of 62 plans on taking this loan and has a life expectancy of 90, the equity has to cover 28 years of payments.  In turn if the borrower was 85 the equity would only have to cover 5 years of payments.  Please note I am using 90 as the age of expectancy but it is just for illustration and not the actual age used for calculation.

So, the next question is what happens if at the time the loan needs to be settled the value is worth less than the amount owed on the property?  This is where good ol’ Uncle Sam comes in as the loan is guaranteed by the Federal Housing Administration (FHA) which provides insurance to the lender and the borrower for just this thing.  When the loan is originated an upfront insurance premium is paid (or added to the balance) to protect against just this event.

An important note for someone looking into a reverse mortgage is while the homeowner would not have a mortgage payment they still need to keep up with the real estate taxes, homeowner’s insurance and general upkeep costs of the property.  All a reverse mortgage covers is the actual mortgage payment.

What can a reverse mortgage be used for?  The short answer is anything; a potential homeowner can purchase a home with a reverse mortgage and never have a mortgage payment.  A homeowner can refinance their home with a reverse and never have a payment again or they can cash out their home and use the funds for anything they want.  They could pay off existing debt, put the money away in a savings account or fly toLas Vegasand put it all on black.

Once I personally got educated on the product I decided I was for it fundamentally.  The product has many valuable applications and can help out immensely.  For some it works for others it does not based on their personal situations.  What I have determined is that the television advertising has only hurt the perception not helped it.  I just hope if someone is eligible for the product they or their family does the due diligence to see if it works for their personal situation.

Kessler’s Forecast:
As more and more baby boomers begin to retire and focus their energies on how their finances will carry them through their golden years this product will become more prevalent.

I feel we have only witnessed a small amount of volume being directed to this product which will significantly change in the coming years.

RATES

Kessler’s Take:
The 30 year fixed decreased to 3.88% from 3.98% nationally according to Freddie Mac’s Weekly Survey.  Last week I forecasted the rates would decrease to 3.93%.  This week upcoming should see the 30 year fixed increase slightly to 3.90% nationally.  In the coming month rates should stay around the 4.00% mark.

Kessler’s Forecast:
Last week (4/12/2012) – 3.93%;
1 week (4/19/2012) – 3.90%;
1 month (5/17/2012) – 4.05%;
3 months (7/24/2012) – 4.15%;
6 months (11/7/2012) – 4.25%;
12 months (4/22/2013) – 4.55%

Reports

Previous Week:

Monday, April 9th
Kessler Housing Report
KMG Mortgage Consulting

Upcoming Week:

Tuesday, April 17^th
March Housing Starts
U.S.Census Bureau

Thursday, April 19th
March Existing Home Sales
National Association of Realtors