FHA may waive 3-year waiting period and prompt millions of strategic defaults

  26 Responses to “FHA may waive 3-year waiting period and prompt millions of strategic defaults”

1. Irvine Renter says:

   September 17, 2012 at 6:03 am

   High-end foreclosures are rare, but growing

   Elvira Grau, a party planner who appeared on The Real Housewives of New Jersey, has lost her $3 million home in Cresskill, Bergen County, to foreclosure.

   It’s one of a growing number of high-end foreclosures – a sign that housing distress is not limited to lower-income neighborhoods.

   Grau and her husband, James, own Space Odyssey, a former warehouse in Englewood they bought in 2005 and turned into a 26,000-square-foot entertainment venue. Elvira Grau appeared on The Real Housewives in 2010, planning a party for one of the show’s stars, Teresa Giudice. But the Graus were apparently not able to keep up the $17,500 monthly payments.

   Million-dollar-plus foreclosures like the Graus’ are rare, but are on the rise, according to RealtyTrac, a California company that follows the foreclosure market. Although the numbers of foreclosures on properties with mortgages over $1 million are still tiny – less than 2 percent of all foreclosures nationwide – they have more than doubled since 2007, RealtyTrac said.

   For buyers of luxury homes, the rising number of foreclosures in this price range offers the potential for better deals, since such dwellings generally sell at discounts that could total hundreds of thousands of dollars.

   As in the case of the Graus, several observers said, high-end foreclosures often involve business owners.

   But whether it’s a $200,000 house or a $2 million house, the basic story is the same. During the housing boom, households took on too much debt, in the form of mortgages or home-equity loans. Often, the mortgages were exotic loans with low initial payments that were followed by higher costs later.

   When families faced job losses or other setbacks as the economy fell into recession, many couldn’t keep up with the mortgage payments, said Daren Blomquist, a RealtyTrac vice president.

   High-end homeowners in trouble have taken longer to fall into foreclosure because they typically had more of “a financial cushion to fall back on to keep making their mortgage payments,” Blomquist said. “They’ve been able to hold out longer.”
2. Irvine Renter says:

   September 17, 2012 at 6:07 am

   HAMP is proving a dismal failure

   The 1 millionth Home Affordable Modification Program trial or permanent workout failed in July, according to the latest Treasury Department data released Thursday.

   A total of 770,834 borrowers failed to finish either a three-month trial or were determined to not qualify for the program from June 2010 through July 2012.

   Another 229,185 permanent modifications redefaulted after making the first three monthly payments during the trial process, according to the report.

   Since it launched in March 2009, a total of more than 1 million mortgages made it through the trial stage, but just over 825,000 active permanent modifications remain active today. And the monthly amount of newly reported workouts dropped to just 16,767 in July since average roughly 25,000 per month at the end of last year.

   Even with a recent expansion, for which there is no official estimate yet, the amount of total modifications will fall well short of the original 3 million to 4 million originally promised.

   More than one-third of the HAMP failed trials and permanent mods end up being modified through another proprietary program. But roughly 16% of the trials end up going through foreclosure, according to the Treasury.

   The Special Inspector General for the Troubled Asset Relief Program said less than $3 billion of the $29.9 billion set aside for HAMP was actually spent as of June 30.

   Treasury Assistant Secretary for Financial Stability Tim Massad continued to say Thursday that the program established guidelines around which servicers built their own programs. But Mitt Romney has challenged them as part of his presidential campaign and vowed to end “the alphabet soup” when he takes office.

   The Treasury also found that more servicers were improving their performance under HAMP. It gave back witheld incentive payments last year to Bank of America , JPMorgan Chase, and Wells Fargo.

   In the second quarter, the Treasury disagreed with less than 2% of all participating servicer decisions in HAMP. At the start of last year, some servicers such as Ocwen Financial Corp. and One West Bank had disagreement rates near 7%.

   “By shining a spotlight on individual servicer performance in key areas, and requiring improvements through our compliance process, the nation’s largest mortgage servicers are fixing their processes while being held publicly accountable,” Massad said.

   • Mike says:

     September 17, 2012 at 8:10 am

     I can’t think of a business model that has a 33% failure rate.

     • Irvine Renter says:

       September 17, 2012 at 9:37 am

       There certainly isn’t a lending model that survives with that kind of track record. Even the payday loan lenders have better performance than that.
3. Irvine Renter says:

   September 17, 2012 at 6:18 am

   Fewer home buyers are first-timers

   Despite low interest rates, low prices and slowly rising sales, first-time homeowners accounted for just 34% of all buyers in July, according to data released Wednesday by the National Association of Realtors. While that figure has inched up slightly from the month and year prior, the association says first-time home buyers account for 40% of purchasers under normal conditions.

   The reluctance of newcomers to enter the market may be further adding to housing’s woes. After all, first-time buyers are vital to boosting sales, especially during downturns, since when they buy a home, they aren’t also selling a previous home to finance the purchase.

   Their recent absence is largely due to the current challenges of saving up enough for a down payment: In a survey released in June by Trulia, an online real estate marketplace, 47% of all adults who aren’t homeowners and who wish to buy a home said that the down payment is the biggest obstacle to entering the housing market. Most mortgages require at least a 10% down payment, and in some pricey markets, like New York and San Francisco, coming up with that cash can take years, says Jed Kolko, chief economist at Trulia. A poor credit history, which makes it difficult to qualify for a mortgage, was the second most common issue holding back would-be first timers, according to Trulia’s survey.

   Many potential buyers are also facing higher unemployment rates than other groups. The unemployment rate among 25- to 34-year-olds stood at 8.2% in July, compared with 6.9% for 35- to 44-year-olds and 6.5% for 45- to 54-year-olds, according to the Bureau of Labor Statistics.

   Separately, first-time buyers are competing against investors—who tend to have all-cash offers and who go after the same, lower-price homes, says Leonard Baron, real estate lecturer at San Diego State University. Sellers who are eager to unload their homes are more willing to work with investors, since the sale doesn’t hinge on a bank’s decision to approve them for a mortgage. More recently, experts say, tight inventory has made it even harder for first timers to compete.
4. el O says:

   September 17, 2012 at 6:31 am

   Still trapped in the ‘fiat money + fiasco’ delusion, post y2k OC slumlords get royally ‘whacked’ (asset values flat to tanked + purchasing power of the income streams continue to decrease, NOT increase)… while those who chose to liquidate their rental portfolios and bought gold are literally live’n the dream’.

   http://4.bp.blogspot.com/-Qb3MKFv6FtQ/UFX__bVMudI/AAAAAAAAY9s/beyYk-85G8I/s1600/purchasing_power_us_gold_etc.png

   • Irvine Renter says:

     September 17, 2012 at 7:21 am

     Interesting chart. Of course, I wouldn’t have enjoyed the ride in gold from 1980 to 2000…

     • awgee says:

       September 17, 2012 at 10:25 am

       True. You do have to be able to time the market. But what does the movement in gold from 1980 to 2000 have anything to do with investing in gold now? I would not have enjoyed the ride in re from 2006 to 2012. Does that mean I would never buy a house, or I think that re will not once again be a good investment. Well, I don’t, but that’s besides the point.

       • Mellow Ruse says:

         September 20, 2012 at 9:31 am

         I think the point is that the historical performance of gold has been piss poor, worse than even real estate.
5. Perspective says:

   September 17, 2012 at 8:22 am

   If the waiting period is eliminated, the only question for prospective strategic defaulters is, “How quickly will my credit score return to the minimum necessary?”

   • Irvine Renter says:

     September 17, 2012 at 9:36 am

     Yep. Plus, since FICO doesn’t concern themselves with policy or morality, they will evaluate people based on their performance. By and large, strategic defaulters are good credit risks. The FICO score recovery on the cohort identified as strategic defaulters will recover quickly as they will not be delinquent on other debt service payments. The waiting period was the only real punishment for a true strategic defaulter, and with that eliminated, many more will be encouraged to do the same.
6. Here we go again says:

   September 17, 2012 at 11:48 am

   Beware acting on what the GSEs or FHA are “thinking about” doing. They think about things (out loud) all the time. But the banks don’t have to listen to them (that is to say, they don’t have to be as generous as the GSEs say they should be). And the banks are still the originators, aren’t they?

   No. This is not about opening the floodgates to underwater homeowners looking to escape their predicament. It is about big investors that are hungry (right now!) for bargain properties, and (down the road) long-term renters who can (someday in the distant future) buy the rentals at a tidy profit for the patient investor.

   Caveat emptor. This smells of a trap.

   • Irvine Renter says:

     September 17, 2012 at 11:57 am

     This may be one of those idea balloons they float every once in a while. Perhaps someone will read a post like this and point out the unintended consequences of what they are considering. The waiting period should be maintained.

     Do you think the banks may put overlays on FHA qualification and impose their own waiting period? They might. Some probably will, but some lender somewhere won’t, and that lender will grow their business. If there are buyback provisions on those originations, lenders will remain cautious.
7. el O says:

   September 17, 2012 at 12:34 pm

   Uh-oh… notable sell-off still underway—-last weeks QE3 launch bounce just about wiped-out across the board thus far in MBS price-land + the 10yr yld now sits @1.83 and the 30@3.04. LOL

   • Mike says:

     September 17, 2012 at 1:48 pm

     My father-in-law just asked me to help him purchase silver.
   • Irvine Renter says:

     September 17, 2012 at 2:12 pm

     So QE3 prompted a bond selloff? I would have expected the opposite. Perhaps sellers are taking this as a signal to unload their positions as a last chance to dump them on the government.
8. Soylent Green Is People says:

   September 17, 2012 at 1:23 pm

   If FHA does away with a waiting period, why not strategically default. There isn’t a consequence of significance other than perhaps 6 months or so waiting for the legal issues to play out. Heck, put a deposit on a new home 12 months out, lock in that lower price, squat, default, then re-buy FHA a brand new home. We’re living in times of zero responsibility for ones actions. Jump on in, the water’s fine!

   • Irvine Renter says:

     September 17, 2012 at 2:10 pm

     I wouldn’t be surprised to see a resurgence of the buy-and-bail gambit. As you pointed out, if you lock in the price on a new home, you have 12 months to save for the down payment and recover your FICO score.

     The only factor the borrower doesn’t have control of is how quickly the strategic default is processed by the lender. If the lender goes into amend-extend-pretend mode, the delinquent payments will persist, and the FICO score may be slow to recover.
9. Bob says:

   September 17, 2012 at 2:25 pm

   Well, it looks like QE3 will keep blowing air back into the bubble which never fully deflated here in Oakland, CA, pricing me out of the market. I’m so flabbergasted at what’s going on in the housing market that it’s hard to read the news – or even this great blog – anymore. The banks, the Fed, the government, and loan-owners who got into this mess are apparently willing to do anything to avoid taking responsibility for the mess they caused.

   Oh, and by the way, I find that ‘American Banker’ cover to be insulting – to pigs, which from everything I’ve read are sociable, friendly, and intelligent. Too bad they’re a symbol of greed. (In the NY Times 7/31/08, Nick Kristof, who grew up on a farm, wrote “Our cattle, sheep, chickens and goats certainly had individual personalities, but not such interesting ones that it bothered me that they might end up in a stew. Pigs were more troubling because of their unforgettable characters and obvious intelligence. To this day, when tucking into a pork chop, I always feel as if it is my intellectual equal.”)

   • Irvine Renter says:

     September 17, 2012 at 2:38 pm

     Your comments on the pig were amusing.

     “The banks, the Fed, the government, and loan-owners who got into this mess are apparently willing to do anything to avoid taking responsibility for the mess they caused.”

     This galls me too. What’s worse is that they are taking our money through bailouts and interest rate subsidies to keep us priced out of homes they could never afford.
10. alli says:

    September 17, 2012 at 5:30 pm

    Where is this information coming from? As a person who had to foreclose on our home because my daughter got cancer and we had tons of medical debt (i had to file a BK) in the process, I hope it is lifted! the strategic defaulters will not qualify anyways due to bad credit and no down payment.
11. Kalushkin says:

    September 20, 2012 at 7:55 am

    And the same story just keeps repeating. This is getting to the point of the absurd.

    I have a feeling that it is worse here on the east coast, because we got all that bailout money flowing through all of us that work or are tied to the NYC Finance Industry, that has kept the prices from dropping like they did in CA to start with.

    I am looking for a house in one of the suburbs in NJ and the asking prices are outrageous, even for houses in borderline neighberhoods.
12. My 1st Million At 33 – yes, you can do it too » Blog Archive » California real estate markets are RED HOT!! says:

    September 21, 2012 at 8:28 am

    [...] treasury bonds and mortgage bonds, it is possible that mortgage rates may go even further down. FHA also may waive the 3-year waiting period after short sale/foreclosure. If that happens, in conjunction with even lower mortgage rate, the housing markets can easily go up [...]
13. Jake says:

    September 25, 2012 at 3:29 pm

    You make everybody who is foreclosed on seem guilty. Many of us were wrongfully foreclosed on while following programs by the banks, given no notice, no chance to reinstate the loan, nothing, so that the banks can get a GSE payoff on the whole loan balance on a foreclosure judgment, rather than work with the homeowners through programs in place. Then the banks spend that time falsely reporting those of us as having defaulted when we did not. You have no idea the harm that is to have a fraudulent foreclosure hitting your credit. This blacklists you from homes due to these waiting periods put in place, supposedly to keep homeowners from purposefully not paying their loans. You don’t mention the banks who purposefully trick homeowners into programs with the intent to not work with them, and to slam them with a foreclosure suit, that if they had the money to hire a lawyer, would show them victims of the bank and innocent of payment defaults, like my lawyer has done.

    For people in my position it is mandatory FHA waive these waiting periods so we can recover from the wrongful foreclosures and get housing. Stop dreaming that one can rent somewhere; the same credit harm you get from wrong foreclosures, also keeps you from renting anywhere. Not everyone is trying to take advantage of the system, except it seems almost every bank is trying to take advantage of the GSE payoff on houses through judgment and wrongfully hitting hundreds or more with wrongful foreclosures.
14. Fred says:

    September 25, 2012 at 10:44 pm

    wave the 3 year waiting period? awesome! It’s like section 8 housing for the middle class!! you just have to move a bit more often.
15. FHA & Strategic Defaults, Credit Scores, Single Family Renters, Exponential Charts, Another Cliff, FHFA Punishes States, Banks 1 Homeowners 0, Inverse Floaters, Bair Says Cut Leverage, QE Dead Money, Fed Buys Everything, Leon Cooperman and Housing | M says:

    October 2, 2012 at 3:22 am

    [...] FHA may waive 3-year waiting period and prompt millions of strategic defaults – OC Housing News [...]

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