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Most aid from mortgage settlement in California going to short sales-LA Times

November 19, 2012

11/19/12, “LA Times: “Most aid from mortgage settlement in California going to short sales”,Calculated Risk blog, McBride

“Update: Here is the national report: Continued Progress: A Report from the National Mortgage Settlement

“From Alejandro Lazo and Scott Reckard at the LA Times: Most aid from mortgage settlement in [California] going to short sales

Short sales, which allow underwater borrowers to sell their homes for less than they owe, have become the dominant type of relief offered in California by the big banks, according to a report on the settlement expected to be made public Monday.

Under the settlement, banks were required to give homeowners aid in the form of principal reduction, short sales and other modifications. Banks get credit for both principal reductions and short sales under the agreement, but must give 60% of the relief nationally through principal reduction to families who keep their homes. …

Through Sept. 30, the three banks had provided $8.4 billion, according to data from [UC Irvine law professor Katherine Porter’s] office, putting them well on track to fulfill their obligations. About 68% of that money went toward providing short sales for homeowners. Principal reductions on first and second mortgages made up the rest of the California aid.

Short sales were becoming more frequent prior to the mortgagesettlement, but this is probably why short sales now out number foreclosures in many areas.”

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11/19/12, “The Anti-Due Process Bias of Housing Reporters and Analysts,” Fire Dog Lake, David Dayen

Existing-home sales rose 2.1% in October, with the number coming in slightly above expectations, although the previous month’s numbers were revised down. Inventory has decreased 21% year-over-year (in no small part due to structural factors like trapped borrowers not putting their houses on the market, as well as artificial constraints on supply from banks keeping homes off the market).

These are relatively positive numbers for housing. But I want to highlight how analysis of trends in the market completely discount due process as a legitimate activity for borrowers.

Consider this report on mortgage delinquencies. It starts out by saying the delinquency rate has fallen. However, it immediately explains that those judicial foreclosure states are ruining everything with their double-check on the true ownership of the loan and all that nonsense:

The Mortgage Bankers Association said Thursday that 4.1% of mortgage loans on one-to-four-unit homes—about 1.9 million households—were in the foreclosure process at the end of the third quarter, down from 4.4% a year earlier and the lowest level in 3½ years.

The national average, however, masks big differences between the states. Among the 12 states with foreclosure rates that exceed the national average, 11 of them require banks to take back properties by going to court.

Foreclosure rates stood at 6.6% in those “judicial” states in September, while they have dropped sharply to 2.4% in the “nonjudicial” states where banks face fewer hurdles to foreclosure….

The only reason the rates are lower in those states is because banks can fast-track borrowers through the foreclosure process. In states where banks have to, you know, prove that they own the loan, they increasingly have trouble doing it….

Somehow this is spun as a problem of the judicial foreclosure process instead of a problem of banks who have no way to prove ownership. The WSJ article is peppered with analysts claiming that the judicial foreclosure states “mute” the housing recovery, rather than saying the banks’ inability to prove ownership of the loans is the culprit. This line about Arizona and California is indicative of the sentiment:

“Arizona and California, meanwhile, served as the epicenter of the housing bust. But their nonjudicial foreclosure process has allowed banks to take back properties from delinquent homeowners and resell them more quickly to investors and first-time home buyers.””…

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11/19/12, “Existing Home Sales: A Solid Report,” Calculated Risk blog, McBride

First, this report is a reminder that we have to be careful with the NAR data. The NAR revised down inventory for September from 2.32 million to 2.17 million (a downward revision of 6.5%). And the months-of-supply for September was revised down to 5.6 months from 5.9 months. These are very large revisions.

The percent distressed share (foreclosures and short sales) is also questionable. The NAR reported:

Distressed homes – foreclosures and short sales sold at deep discounts – accounted for 24 percent of October sales (12 percent were foreclosures and 12 percent were short sales), unchanged from September; they were 28 percent in October 2011.

However this percentage is from an unscientific survey of Realtors, and other data suggests a larger decline in the share of distressed sales.”…

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