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

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

March 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
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.