One of the reasons banks favor short sales over foreclosures is that lenders are taking too long to repossess a home.
According to RealtyTrac, a firm that monitors the foreclosure market, homes in the U.S. spent an average of 318 days in some stage of foreclosure before a bank formally regained ownership during the second quarter of 2011. This marks an increase over last year when foreclosures were processed on average in 277 days.
To put this in context, RealtyTrac’s data from the second quarter of 2007—the year preceding the housing crisis—indicate that back then, a foreclosure was completed 154 days after the initial notice was filed by a lender.
So what has doubled the time it takes for a foreclosure to be processed?
The sheer volume of properties entering foreclosure is a huge factor, according to Daren Blomquist, marketing communications manager at RealtyTrac. But the process is also impeded by changes to many states’ laws.
“There are many programs being instituted by state and local governments that help the homeowner prevent foreclosure,” Blomquist says. He explains that many municipalities require lenders to provide mediation before they can repossess the home, which “adds 30, 60, even 90 days to the process.”
Also throwing a wrench into the procedure is the Home Affordability Modification Program, which doesn’t require lenders to let a homeowner refinance his or her mortgage on a distressed property, but gives financial institutions monetary incentives to do so. Such incentives lead many banks and lenders to try to work out a loan modification for the home before it’s repossessed, Blomquist says.
Finally, you can’t talk about the foreclosure market without addressing the robo-signing controversy which led to a temporary halt to foreclosures in October 2010, when lawmakers asserted banks were not following proper protocol before signing off on a foreclosed home. While proceedings resumed about a month after the initial outcry, the scrutiny did not die down. Just this month, county officials in three states called for for hearings and further investigation after alleging lenders were still illegally signing off on homes they did not legally have claim to.
Blomquist explains that while the controversy did not significantly change the legal proceedings involved in the foreclosure process, it did make banks slam the brakes.
“They’re scrambling to make sure that the paperwork is completed correctly because they are under such scrutiny,” he says.
Fewer than 5,000 homeowners have taken advantage of an Obama administration program that aids “underwater” homeowners, reflecting banks’ resistance to offer such principal write-downs.
The administration in March 2010 unveiled a multi-part effort designed to encourage banks to slash principal balances for borrowers whose homes have plunged in value due to the housing bust. It attracted lots of attention at the time. But the program has failed to gain traction.
About 10.9 million U.S. households, or nearly 23% of those with a mortgage, are “underwater” – meaning they owe more on their properties than their homes are worth, according to CoreLogic Inc. Treasury Department statistics released recently show that only 4,911 homeowners are participating in the principal-reduction program, which aids borrowers who owe at least 15% more than their properties are worth.
But those homeowners who managed to get their loan balances reduced are seeing substantial principal reductions: The median write-down was about $69,500, or a reduction of more than 32%.
This program and others are part of Treasury’s Home Affordable Modification Program, or HAMP, which was announced in early 2009, but has fallen far short of initial expectations. As of May, it has helped about 633,500 U.S. homeowners avoid losing their homes through permanent loan modifications, compared with an initial goal of helping 3 million to 4 million borrowers.
Banks have largely resisted slicing homeowners’ loan balances. Only 2.8% of loan modifications – including government and private-sector programs – made in the first quarter involved a reduction in the total principal amount owed, according to a report by bank regulators.
Free online software for the creation of personalized mortgage modification applications under the federal Home Affordable Modification Program (HAMP) and other lender programs is now available from FreeMortgageFix.com. Borrowers can complete an application to modify existing home loans via the site’s user dashboard.
According to Jonathan Ende, CEO of FreeMortgageFix.com, “by using our free online program, homeowners now have a quick and dependable option for dealing with unaffordable monthly payments and the threat of foreclosure. As this concern continues to escalate nationwide, we wanted to provide an equally affordable and helpful solution that can help turn families’ lives around in less than 15 minutes.”
Based on the borrower’s specific financial situation and lender, FreeMortgageFix.com software completes more than 100 different calculations and analyses to compile a customized report.
After the site confirms the homeowner’s debt-to-income ratio, net present value, and general eligibility, the appropriate lender forms are automatically populated and printed for submission with a customized cover sheet addressed to the lender.
Homeowners are also provided with tips, solutions, and warnings, as well as an online resource center, custom document checklists, a conversation log for maintaining notes on all discussions with the lender, and a to-do list manager.
External financial and legal assistance is also available if users require them, including a network of approved attorneys.