HOPE NOW report: Lending industry modified 134,000 mortgages in February – NMP Skip to main content

HOPE NOW report: Lending industry modified 134,000 mortgages in February

National Mortgage Professional
Mar 29, 2009

Short sale resolutions at Fannie, Freddie are increasing rapidly, new reports showMortgagePress.comshort sales, Fannie Mae, Freddie Mac, loan modifications, Federal Housing Finance Agency, GSEs Short sale resolutions at Fannie Mae and Freddie Mac for troubled borrowers grew by a factor of four over the course of 2008, while loan modifications doubled and completed foreclosures grew by 60 percent through October, according to statistics recently released by the Federal Housing Finance Agency. The GSEs processed 516 short sales in January 2008; by December 2008 short sales numbered 2,261. Separately, a recent nationwide survey of real estate agents and brokers conducted by Campbell Communications found that 19 percent of home sales during January and February 2009 were short sales, with foreclosed properties accounting for another 37 percent of sales. On average in the U.S. residential real estate market, there is one short sale for every two foreclosed property sales. For the GSEs, there is approximately one short sale for every 7.5 foreclosed property sales--but at current growth rates, the number of short sales for the GSEs might exceed the number of foreclosure sales sometime this year. "In many cases, a short sale is a more cost-effective resolution than a foreclosure, with the loss severity for a short sale typically being one-half the severity for a foreclosure," noted Tom Popik, principal author of the Campbell Communications study. "Short sales avoid the legal expense of the foreclosure process, maintenance expenses on foreclosed properties, and interest costs. Additionally, because a short sale can be completed several months earlier than remarketing of a foreclosed property, there is less exposure to rapidly declining prices in real estate markets." In recent months, Fannie Mae and Freddie Mac have attempted to forestall foreclosures as they search for alternatives that do not increase the inventory of vacant properties. Loan modifications numbered 4,228 in January 2008 and had grown to 8,688 by December. Completed foreclosure sales at the GSEs were 10,571 in January 2008; by October 2008, completed foreclosures numbered 17,008. In November and December, foreclosure sales dropped precipitously as Fannie Mae and Freddie Mac implemented temporary foreclosure moratoriums. In November 2008, the GSEs completed 14,408 foreclosure sales; in December this number dropped to only 3,430. While the number of short sales at the GSEs has been growing rapidly, a recent initiative at Fannie Mae could accelerate short sales even more. Fannie is currently operating a pilot program in the cities of Orlando and Phoenix to "pre-approve" short sales. Surveys by Campbell Communications have found that short sales that lack approval in advance of the first offer often fail because frustrated homebuyers move on to other properties while waiting for a response to their offers. As a result, for every completed short sale, three transactions fail due to slow responses to offers, according to survey respondents. The surveys also have found that frustrated homeowners often trash their houses when a short sale fails and they are forced into foreclosure. A November 2008 survey conducted by Campbell Communications found one-third of foreclosed properties are so damaged that they cannot qualify for standard mortgage financing; these properties sell for an average discount of 37 percent. In the current survey, a majority of respondents indicated that "cannot get financing for damaged REO (foreclosure) properties" is a major impediment to first-time homebuyers. The increasing number of Fannie Mae and Freddie Mac short sales is in contrast to the overall real estate market. A March 2008 survey conducted by Campbell Communications found 18 percent of residential real estate transactions were short sales--the most recent Campbell survey in February 2009 found this proportion essentially unchanged at 19 percent. "The problem with long response times for short sale offers is longstanding and getting worse, not better," Popik said. "Rising mortgage defaults are resulting in even longer delay times for homeowners seeking to sell their homes in short sales. This means more angry homeowners, more foreclosures, more damaged properties, and lower property values for the neighbors." The survey conducted in March 2008 by Campbell Communications found that the average time for a mortgage servicer to provide a "yes" or "no" response to an offer to buy a short sale property was 4.5 weeks. The survey conducted in February 2009 found that the average response time for short sale offers is now nine weeks, double the time of a year ago. For more information, visit www.campbellsurveys.com.
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