In a tumultuous real estate market, more strapped homeowners, lenders are striking ’short sale’ deals

Ellen Yan / Newsday.com

A growing number of homeowners who can’t pay their mortgages are ditching their homes in a way that damages their credit and forces almost all involved to take a loss.

It’s called a “short sale” - a house sale in which lenders, creditors and often real estate agents agree to take hits on what they’re owed, with homeowners asked to prove they are destitute and that the property’s market value is less than the mortgage. Some lenders figure they are better off getting some money now rather than risk ending with less under the more expensive and time-consuming foreclosure process.

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Los Angeles Times, David Streitfeld / Realtor.org

The housing downturn and tighter lending criteria are catapulting the foreclosure rate in California to unprecedented levels, according to new statistics.

The numbers released by La Jolla-based DataQuick Information Services show that 17,408 properties went into foreclosure during the second quarter, a staggering increase of 799 percent from the year-earlier period.

“The economy will bend further under the weight of the mounting housing and mortgage problems, but it will not break,” says Mark Zandi, chief economist at Moody’s Economy.com.

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Bob Willis/Bloomberg

July 31 (Bloomberg) — Home prices in 20 U.S. cities fell the most in at least six years, suggesting the housing recession has yet to touch bottom.

The S&P/Case-Shiller index of home prices in 20 metropolitan areas dropped 2.8 percent in May from a year ago, led by declines in Detroit and San Diego, according to the report issued today by Standard & Poor’s and MacroMarkets LLC. The drop was less than the median forecast of four economists surveyed by Bloomberg News.

The declines indicate that housing will continue to hamstring the world’s largest economy, economists say. A glut of unsold properties and mounting defaults are forcing builders to scale back construction and hindering consumer spending as homeowners are less able to borrow against home equity.

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Kathleen M. Howley/Bloomberg

July 30 (Bloomberg) — U.S. foreclosures rose 58 percent in the first half of 2007 from a year earlier, led by California and Florida, as more homeowners fell behind on their monthly mortgage payments, RealtyTrac Inc. said.

Lenders sent notices of default, scheduled auctions or repossessions to 573,397 properties in the January to June period, the Irvine, California-based seller of foreclosure data said in a report today. California foreclosures surged 170 percent to 104,572, the highest in the nation, and Florida gained 77 percent to 64,250.

Homeowners with adjustable-rate loans who are seeing their payments jump are finding it harder to avoid foreclosure by selling or refinancing their properties as the U.S. housing slump worsens. The inventory of homes for sale, measured in the time it would take to sell them all, was 8.8 months in June, matching the prior month as the highest since 1992, the National Association of Realtors said last week.

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California Association of Realtors

LOS ANGELES – Home sales decreased 24.7 percent in June in California compared with the same period a year ago, while the median price of an existing home increased 3.2 percent, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.

“The focus on foreclosures and subprime lending is ongoing and, coupled with higher inventories of homes for sale, is prompting many would-be buyers to play a ‘wait-and-see’ role,” said C.A.R. President Colleen Badagliacco. “However, well-maintained homes with curb appeal that are priced for today’s market continue to sell. It’s often a matter of counseling buyers and sellers to set realistic expectations on both sides of the transaction.”

“First-time buyers continue to be impacted by tighter mortgage underwriting standards and the affordability challenge, which has not improved significantly despite price declines in most regions of the state,” she said.

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Benny L. Kass / Realty Times

Mortgage foreclosures are up — and so are the scams.

You have just received a letter from your mortgage lender advising that if you do not bring your mortgage payments current, the lender will have no alternative but to begin the foreclosure process.

Within days after receiving this notice, you get a telephone call: “Hi, my name is I.B. Scammer,and I understand that you are delinquent on your mortgage payments. You don’t want to lose your beautiful home, and my company can assist you. When can I come over to explain how we operate and how we can help you?”

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TIME.COM / SONJA STEPTOE / LOS ANGELES

If Wall Street wants to get even more worried about the real estate market, it need look no further than southern California. There, the culprits aren’t just the bad-credit borrowers whom banks and lenders loaded up with ballooning debt to purchase their dream homes. The well-to-do have partaken of those treacherous loans as well. And now everyone is hard-pressed to pay as interest rates rise.

To view all of this article, please visit this link at Time.com

Moody’s Economy.com forecasts that defaults won’t peak until 2008 due to ARM resets and falling home prices.

Les Christie, CNNMoney.com
NEW YORK (CNNMoney.com) — The already poor performance of many mortgage loans will worsen substantially through the rest of the year, according to an analysis released Thursday by Moody’s Economy.com.

The company predicts that 2.5 million first mortgages will default this year, with little chance for improvement soon - Economy.com expects delinquencies to peak in the summer of 2008 at 3.6 percent of all outstanding mortgage debt, up from 2.9 percent during the first three months of 2007.

The worst-hit loan category will be subprime adjustable-rate mortgages (ARMs). Economy.com expects foreclosures for those loans to hit 10 percent of that group by mid-2008. The foreclosure rate for that group is currently 4 percent and was as low as 2.5 percent in 2005.
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Maya Roney / Yahoo Finance
First, it was the second half of 2007. Then it was 2008. Now analysts are saying the national housing market may not rebound until 2009.
On July 25, the National Association of Realtors reported that sales of existing homes fell 3.8% in June to a seasonally adjusted annual rate of 5.75 million units, contributing to the bleak-and-getting-bleaker outlook.

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CNBC.com / Moody’s

The credit quality of U.S. mortgages is set to weaken substantially through the remainder of 2007 and well into next year, with delinquencies peaking in mid-2008, Moody’s Economy.com said on Thursday.

Delinquencies will peak at 3.6 percent of all mortgage debt outstanding in the summer of 2008, up from 2.9 percent in this year’s first quarter, according to the study.

“This will result in substantial financial damage,” Mark Zandi, chief economist of Moody’s Economy.com, said during a teleconference after the release of the study.

To view all of this article, please visit this link at CNBC