By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.
Here's some news from the past week that could potentially impact thousands of
homeowners:
Fannie Mae and Freddie Mac's regulator last week said they would begin offering
lower payments to borrowers
without
having to prove hardship – an obstacle that previously kept a lot of
borrowers from modifying their loans.
Starting in July, borrowers who are 90 days or more past due on mortgages
backed by Fannie Mae and Freddie Mac may be eligible to reduce their monthly
payments by about 30% on average. Eligible borrowers would receive an
explanation of the offer and then enter a trial modification period in which
they make three monthly payments under the new loan terms before they become
permanent.
The news here is that borrowers would be able to do this without having to
document their financial situations. It gives delinquent borrowers a means to
avoid foreclosure.
And although the new program doesn't call for documentation, officials said
they would still encourage borrowers to submit paperwork as it could help get
them even better modification terms.
The question begs: Will this encourage and lead to an increase in strategic
defaults – the decision to intentionally fall behind on payments when the
mortgage is underwater and the borrower can still afford the payments?
Freddie and Fannie's regulator, the Federal Housing Finance Agency, says no. In
announcing the program, officials said that they have screening mechanisms in
place to detect strategic defaulters, but failed to give much detail beyond
that.
State of foreclosures
Speaking of foreclosures, we got a fresh look at what's happening with this
portion of the market this past week too. Close to 1.2 million properties were
in some stage of foreclosure in February, according to data firm CoreLogic.
That was 21% lower than the same time last year.
RealtyTrac also released foreclosure numbers last week showing a higher number
(1.5 million), but noting that their number includes homes that have already
been repossessed by banks.
In addition, Inman News points out an interesting nugget of info from
RealtyTrac's report: When broken down by listed and unlisted status, the number
of homes in foreclosure or bank-owned that were listed for sale has fallen 43%
this quarter compared to a year ago.
That of course suggests that there may be some shadow inventory coming down the
pike. Shadow inventory – homes that have started the foreclosure process but
have not been listed for sale – may be just what inventory-starved markets
need. In some cases, the buyers are there but the homes are not.
CoreLogic estimates that about 2.2 million distressed and bank-owned properties
will hit the market this year.
This will get interesting. In some markets, you may even feel a kick into high
gear.
