Fannie cracking down on walkaways- ‘Strategic defaults’ can lock buyers out of market for 7 years

Fannie Mae says it will get tough on borrowers who engage in “strategic defaults,” or walk away from a home that’s worth less than what’s owed on the mortgage even if they can afford to keep making their payments.
Economist Mark Zandi of Moody’s Analytics has estimated that 9 million homeowners are “underwater” by more than 20 percent, making them more likely to consider a strategic default.
Fannie Mae said Wednesday that it will not only refuse to guarantee another loan for seven years if it has evidence that a borrower chose to default on their loan, and will seek to recoup losses in court through deficiency judgements in states that allow lenders such recourse.
There’s a carrot-and-stick aspect to the new policy. Troubled borrowers who work with their servicer on foreclosure alternatives such as loan modifications, short sales, or deeds in lieu of foreclosure can be eligible for a new loan in two to three years if they can show extenuating circumstances such as job loss, illness or divorce.
“Walking away from a mortgage is bad for borrowers and bad for communities, and our approach is meant to deter the disturbing trend toward strategic defaulting,” said Terence Edwards, Fannie Mae’s executive vice president for credit portfolio management, in a press release (
“On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”
Under policy changes announced in April, borrowers may be eligible for a loan guaranteed by Fannie Mae within two years of a short sale or deed in lieu of foreclosure.
Those who can demonstrate extenuating circumstances such as a job loss will be required to make down payments of at least 10 percent, and those who cannot must make 20 percent down payments.
Fannie Mae usually requires five years for borrowers who have been foreclosed on to reestablish credit, but those who can demonstrate extenuating circumstances may qualify in as soon as three years.
Next month, Fannie Mae says it will instruct its servicers to begin monitoring delinquent loans facing foreclosure and issuing recommendations for cases that warrant the pursuit of deficiency judgments.
While Fannie Mae won’t be able to obtain deficiency judgements against borrowers who default on their first loans in “non-recourse” lending states, in some of those states it might have recourse to seek deficiency judgements on refinance and home-equity loans.
In the 1930s, many states including California passed laws that barred lenders from suing homeowners who defaulted on their mortgages for losses above and beyond what lenders were able to recover when foreclosing on and reselling the borrower’s home.
California lawmakers are considering a bill that would extend some protection from deficiency judgments for borrowers who refinanced their mortgages.

By Inman News, Thursday, June 24, 2010.

Altos Index Shows Rise in Home Prices, First in Nine Months

Analysis by Altos Research shows that home prices in most major U.S. cities have broken free of the downward spiral. The company’s 10-city composite index was up 0.2 percent in May – the first monthly increase recorded by Altos in nine months.

Another positive, Altos says readings of weekly price changes have continued to show modest seasonal increases for the past seven weeks, indicating that traditional home price metrics will soon show increases as well.

Altos’ 10-city composite is based on prices of single family homes in Boston, Chicago, New York, Los Angeles, San Diego, San Francisco, Miami, Las Vegas, Washington D.C, and Denver. But the company analyzes pricing trends across a larger pool of 26 major markets.

Asking prices last month rose in 18 of those 26 markets, Altos reports. San Francisco experienced the sharpest increase, with prices rising 2.4 percent, followed by Dallas and Washington, D.C. with increases of 1.4 percent and 1.2 percent respectively. The Washington, D.C. market also saw the largest jump over the most recent three-month period, with an increase of 6.2 percent.
The largest single-month and three-month declines occurred in Miami with prices falling 1.7 percent during May and 4.4 percent during the past three months. Prices were also down last month in Phoenix, Los Angeles, Detroit, Las Vegas, New York, Salt Lake City, and San Diego.

During May, the inventory of properties listed for sale rose by 2.6 percent across Altos’ 10-city composite markets. The increase was more pronounced over the past three months, which produced a 12.4 percent rise in inventory.

For-sale property counts increased in 22 of the 26 markets studied and declined in just four: Detroit, Miami, Dallas, and Minneapolis.

Altos says nationally, inventory is 10 percent lower than this time in 2009, but has been growing rapidly through the spring months. The housing supply increased at the fastest rate in Boston and San Francisco, up 5.9 percent and 5.5 percent respectively during May.

Inventory fell most sharply in the weak Detroit market, with listed properties dropping 3.7 percent in May.

The company notes in its report that market dynamics have been heavily influenced by the Federal Reserve’s mortgage-backed securities (MBS) purchase program which kept mortgage rates historically low and by the federal government’s home buyer tax credit.

The Federal Reserve program officially ended on March 31 and the tax credit will only apply to homes purchased through the end of April.

“The big question is the extent to which these programs may have pulled forward housing demand and how sharply demand could fall off with their expiration,” Altos said.

Homebuyer Tax-credit Deadline May Extend

WASHINGTON – Homebuyers may get an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring.

Senate Majority Leader Harry Reid, D-Nev., said Thursday that he wants to give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.

The proposal would allow only people who already have signed contracts to finish at the later date. The National Association of Realtors estimates that about 180,000 homebuyers who already signed purchase agreements are likely to miss the deadline.

Reid introduced the proposal as an amendment to a bill that would extend jobless benefits through the end of November. Joining him were Sens. Johnny Isakson, R-Ga., and Chris Dodd, D-Conn.

The Senate is expected to take up the amendment next week. Senate Democratic leaders hope to finish work on the jobless-benefits bill next week, but they have yet to secure enough votes.

Reid, who faces perhaps the toughest re-election campaign of his political career, represents a state that has the nation’s highest foreclosure rate.

The Realtors group has been pushing hard in Congress for the extension. Mortgage lenders, the trade group says, have been swamped with borrowers trying to get approved by the end of the month. Many potential borrowers are unlikely to make the deadline.

“Time is of the essence,” said Lucien Salvant, a spokesman for the group. “It’s important for Congress to get this done because there’s whole bunch of loans that aren’t’ going to close on time.”

First-time buyers were eligible for a tax credit of up to $8,000.

Current owners who bought and moved into another home could qualify for a credit of up to $6,500.
Read more:

Foreclosures fell in Valley for May

A new Arizona State University real-estate report shows home foreclosures may be leveling off, but the author says it’s unclear if the trend will continue because of the number of defaults and late payments still plaguing the market.

Foreclosures were 33 percent of the market’s recorded activity in May, down from 40 percent in March, according to the latest realty-studies report.

The question remains whether the drop is a simply a blip, said Jay Butler, an associate professor of real estate who authors the study.

“We’re sort of at a break point,” Butler said. “Are we now going to see foreclosures decline, or is it simply for other reasons this is just a respite and we’re going to see an increase? Because we’ve not been here before, it’s hard to say which fork in the road we’re going to take.”

A number of issues will continue to affect the real-estate market, he said. Defaults and late payments remain at record levels, and they could be a precursor to additional foreclosures. Income may not increase enough for people to hold on to their current homes, especially if they are confronted with a change in an adjustable-rate mortgage that could reset in coming months, Butler said.

And he worries that this time of year may cause many people with high debt to walk away from homes with declining neighborhood values.

“A lot of people are looking at the end of school for their kids as a key point,” Butler said. “If they had gotten foreclosed on a few months ago, they would have had to leave and take the kids to another school. Now, they can easily move the kids, maybe without losing face or explaining everything, and move to another area.”

Arizona’s pending immigration law may also hurt the market, Butler said.

Still, there are some bright spots.

The number of new foreclosure filings against Phoenix-area homeowners fell in May to the lowest level since July 2008, according to the Information Market. Foreclosures also dropped last month to 4,090, their lowest since November 2009, the report said.

Butler’s research shows that, as a total, foreclosures added together with the sales of previously foreclosed-on properties still represented 60 percent of the recorded activity in the Valley housing market in May.

For the past year, about 42 percent of the traditional sales were foreclosure homes sold again with a median markdown of 15 percent from the foreclosure price, he said.

More than 3,200 single-family homes in the Valley were foreclosed on during May of this year. That’s down from almost 3,500 foreclosures in April but up from slightly more than 3,000 in May of last year.

The market is less busy but higher-priced this spring than last spring, the report shows. The number of homes resold was more than 6,400 in May. That’s down from almost 6,800 in April and almost 7,000 the previous May. The median single-family home price for resold homes $144,000 in both April and May, significantly up from $130,000 May 2009.

Mortgage Fraud Risk Index Reaches Highest Level Since 2004: Interthinx

The risk of mortgage fraud is on the rise. According the quarterly Mortgage Fraud Risk Report released Tuesday by Agoura Hills, California-based Interthinx, overall mortgage fraud risk in the first quarter of 2010 jumped 4 percent from the previous quarter and was 11 percent higher than the same quarter a year ago.



The quarter-to-quarter surge brought the fraud risk index to a value of 151. This, Interthinx said, is the first time since 2004 that the index has exceeded 150.

On state-by-state basis, the report found that Arizona, with an index value of 246, had the highest mortgage fraud risk in the first quarter, surpassing California which was ranked No. 1 the previous quarter. Interthinx said the rise in fraud risk in Arizona was likely due to a migration from neighboring Nevada, similar to that which occurred in 2004 to 2006.

Nevada remained in second place with an index value of 237, and California dropped down to the No. 3 spot with an index value of 216. Florida stayed in fourth place with an index value of 202, and Michigan was again ranked fifth with an index value of 178.

The Mortgage Fraud Risk Report also included indices for the four most common types of mortgage fraud risk, including property valuation fraud, employment/income fraud, identity fraud, and occupancy fraud. The findings showed an increase in all indices, except for the occupancy fraud index.

After a brief dip in the last quarter, property valuation fraud risk resumed its upward trend that began in fourth quarter of 2007 and rose 4 percent in the first quarter of this year. Interthinx said this type of fraud remains the primary driver of the overall mortgage fraud index and is perpetrated by manipulating property value to create “equity,” which is then extracted from loan proceeds by various means.

Identity fraud, which is frequently used in mortgage fraud schemes in order to hide the identity of the perpetrators and/or to obtain a credit profile that will meet lender guidelines, soared nearly 10 percent in the first quarter. This notable increase followed a small decline in the identify fraud risk index during the previous quarter.

In addition, employment/income fraud, which occurs when an applicant’s income is misrepresented in order to qualify for a loan, surged 11 percent. Interthinx said the rise in employment/income fraud risk seems to strengthen evidence that this type of fraud is starting an upward trend after a long period of decline. However, the company said it is still unclear whether this uptick portends a rebound in employment/income fraud risk or whether it reflects a temporary “blip” associated with schemes involving the federal homebuyer tax credit that expired on April 30, 2010.

The only type of mortgage fraud that showed no increase in the quarterly report was occupancy fraud, which is perpetrated by investors who falsely claim the intent to occupy the purchases property in order to obtain a mortgage with a lower downpayments and/or interest rates.

According to Interthinx, the occupancy fraud risk index actually plummeted 11 percent in the first quarter, erasing much of the 16 percent increase seen the prior quarter. Still, the company said, it is likely that this index will trend upward in the near future, fueled by plentiful inventories and the expected release of “shadow” foreclosure inventory.

Going forward, Interthinx projects that while interest rates remain low, the predominant fraud type will continue to be related to property valuation as speculative investors return to the market and as consumers attempt to refinance their mortgages under the Federal Making Home Affordable program despite reduced equity in their properties. The company also expects that the overall fraud risk index will continue to rise through 2011 as a wave of adjustable-rate mortgages, the majority of which contain negative amortization features, recast for the first time.