In a soon to be released research publication by economists from MIT and Harvard, foreclosures appear to have the greatest negative impact on the value of a home, as compared to other forced sales. The article, entitled “Forced Sales and House Prices” is to be published in the American Economic Review and was written by MIT researcher Parag Pathak and Harvard researchers John Cambell and Stefano Giglio.
Based on data of 1.8 million home sales in Massachusetts from 1987 to 2009, the research found that the value of a home dropped by 27 percent when sold in foreclosure, as compared to 5 to 7 percent when sold due to death of the owner and 3 percent when sold due to bankruptcy of the owner. In addition, the research found that sellers of non-distressed occupied properties took a hit in their price if sold in a neighborhood that had a foreclosed home on the market. It was found that the value of a home dropped by 1 percent, on average, if it was within approximately 250 feet of a foreclosed home. And I would assume that in certain areas, like Detroit, the “blight” factor increases that percentage significantly.
So, what does this mean to the securitization investor. That once again, foreclosure is not in the best interest of the investor. Not only is the investor put in the back of the line for cash on the liquidation of the loan, with the trustee and servicer placed ahead of the investor for reimbursement of fees, expenses and advances, but the amount to be collected will be significantly discounted. Therefore, a modification would serve the investor better. However, the servicer does not have the economic interest in having the modification work. Based upon the rate of re-default, cost of modification, necessity to advance and the servicers general inability to act as a mortgage underwriter, servicers would rather hand over the loan to a foreclosure attorney for a fast turn of the underlying property.
More proof that the investor is the once taking the hit. And they don’t even know it.
Showing posts with label Modification. Show all posts
Showing posts with label Modification. Show all posts
Wednesday, September 15, 2010
Monday, April 26, 2010
FNMA THROWS THE UNDERWATER BORROWERS A LIFE SAVER
Think about it - if you're underwater, what is a life saver going to do but float above you out of your reach . . it is not going to help you stay afloat. That is what FNMA is proposing with its bulletin to lenders on April 14 providing that borrowers that take a short sale in following with Obama administration's Home Affordable Foreclosure Alternatives program (HAFA) could be eligible for a new FNMA loan in two years, rather than the four years currently in place.
By relaxing the rules that would otherwise prevented loan applicants who have participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for four years (five if the home actually goes to foreclosure), FNMA thinks that this will entice troubled borrowers to work out solutions that avoid the heavy costs of foreclosure.
But that qualification is with strings attached. Beyond the issue of not being able to qualify because of damaged credit from a short sale or deed in lieu, which will be on the borrower's credit well beyond two years (foreclosures and short sales generally have the same effect on a borrower's credit), the two year qualification provides that the "resurrected" borrower be able to put down 20% for the new loan - unless there are "extenuating" circumstances.
Now, we are dealing with people that cannot make current monthly mortgage payments, yet FNMA thinks that in two years, there people will somehow be able to make a 20% down-payment, after they lost any equity they had in the home they just lost. From where????
Actually, the only benefit I see is that these people that can make the 20% down will be able to do so by re-adjusting their finances to purchasing a house that they actually can afford. But something tells me most of these people will not be able to make this adjustment, or the required down payment.
Now, there is the "extenuating" circumstances provision that allows for only a 10% down payment if the borrower entered into the short sale or deed in lieu because of a significant financial occurance like a lost job, medical expenses or divorce. But just how large is that population of borrowers, and it still doesn't get past the credit damage issue (which would probably be worse in these situations anyhow). And again, these borrwers have suffered some major financial occurance, yet FNMA thinks that they will be able to pull together a 10% down payment in two years??? Bless them if they can.
So, who wins? Well, the servicers (and their parent organizations), not the borrower. By getting a borrower to agree to a deed in lieu, the servicer gets the borrower out of the home quickly, allowing for fast turnaround for a sale of the property. It also directs a borrower away from a possible loan modification (even a temporary one) with a promise that the borrower MAY be able to qualify for a new home loan in two years. This means no more advancing on the loan by the servicer. And the servicer avoids those costly foreclosure expenses (and any litigation that arises from it).
Well, lets hope that this life saver is wintery mint and not cinnamon, so the borrower's breath won't stink when he screams.
By relaxing the rules that would otherwise prevented loan applicants who have participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for four years (five if the home actually goes to foreclosure), FNMA thinks that this will entice troubled borrowers to work out solutions that avoid the heavy costs of foreclosure.
But that qualification is with strings attached. Beyond the issue of not being able to qualify because of damaged credit from a short sale or deed in lieu, which will be on the borrower's credit well beyond two years (foreclosures and short sales generally have the same effect on a borrower's credit), the two year qualification provides that the "resurrected" borrower be able to put down 20% for the new loan - unless there are "extenuating" circumstances.
Now, we are dealing with people that cannot make current monthly mortgage payments, yet FNMA thinks that in two years, there people will somehow be able to make a 20% down-payment, after they lost any equity they had in the home they just lost. From where????
Actually, the only benefit I see is that these people that can make the 20% down will be able to do so by re-adjusting their finances to purchasing a house that they actually can afford. But something tells me most of these people will not be able to make this adjustment, or the required down payment.
Now, there is the "extenuating" circumstances provision that allows for only a 10% down payment if the borrower entered into the short sale or deed in lieu because of a significant financial occurance like a lost job, medical expenses or divorce. But just how large is that population of borrowers, and it still doesn't get past the credit damage issue (which would probably be worse in these situations anyhow). And again, these borrwers have suffered some major financial occurance, yet FNMA thinks that they will be able to pull together a 10% down payment in two years??? Bless them if they can.
So, who wins? Well, the servicers (and their parent organizations), not the borrower. By getting a borrower to agree to a deed in lieu, the servicer gets the borrower out of the home quickly, allowing for fast turnaround for a sale of the property. It also directs a borrower away from a possible loan modification (even a temporary one) with a promise that the borrower MAY be able to qualify for a new home loan in two years. This means no more advancing on the loan by the servicer. And the servicer avoids those costly foreclosure expenses (and any litigation that arises from it).
Well, lets hope that this life saver is wintery mint and not cinnamon, so the borrower's breath won't stink when he screams.
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