Short Sale & Loan Modification 951-324-6874

More than four years into the housing crisis, and after millions of Americans have lost their homes, Federal Reserve Chairman Ben Bernanke is finally taking a stand. Bernanke sent a Federal Reserve paper to the leaders of the House of Representatives’ Committee on Financial Services arguing that relying heavily on foreclosures to deal with mortgage borrowers that can’t meet their obligations is “costly and inefficient” for the housing market because they can lead to deteriorating homes and weigh on the property values in the surrounding community.

Instead, the paper encourages lenders to “aggressively” pursue loan modifications and for servicers to be given more incentives to seek alternatives to foreclosure. Foreclosures “can result in ‘deadweight losses,’ or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods,” the paper said. “These deadweight losses compound the losses that households and creditors already bear and can result in further downward pressure on house prices.”

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Over the past year, short sales and foreclosures, key indicators of the health of the housing market, have dramatically increased in Southern California. Originally, foreclosures and short sales were occurring in the Inland Empire, Lancaster and northern Los Angeles County, but now they’re creeping south.

From Jan. 1 to Dec. 1, 2010, 59 short sales were recorded in Sherman Oaks. This year during the same period, 92 homes sold in short sales with another 36 pending sales and 22 actively listed, for a total of 150 properties, a 154% increase. Meanwhile, foreclosures sold during the same months last year totaled 48, compared to 51 foreclosure sales closed, four pending and another nine on the market, for a total of 64 homes, a 33% increase.

About a third of the short sales and the majority of foreclosures occurred in pricey neighborhoods north of Ventura Boulevard. Although home prices in the southern San Fernando Valley, including Sherman Oaks, slid down about 26% to 35% during the economic downturn, they were still less than the 40% to 60% price declines recorded in other locales.

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Foreclosures are increasing dramatically and the overall housing market is showing clear signs of a significant slow down.

So much so that leading housing economists are expecting the next few months to be ‘grim’ for home sales. One thing is clear. Investors ARE buying. Specifically they are buying short sale and foreclosure homes priced less than $200,000 nation wide. Expect this trend to continue throughout the next 12-18 months.

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According to RealtyTrac, short sales are increasing as a percentage of home sales in many states, helping some neighborhoods and homeowners avoid the more devastating impacts of foreclosures. The increases were sharper in some states, including California, Nevada, Michigan, Georgia and Colorado, the data show.

In California, they made up 25% of sales, vs. 18%. Bank of America, the largest home mortgage servicer, expects to complete more than 100,000 short sales this year — more than double what it did in 2009, the bank says. Wells Fargo Senior Vice President J.K. Huey says short sales have been “steady to slightly” up in recent months, partly because there are fewer bank-owned houses for sale in some markets, and that has forced buyers to pursue more short-sale properties.

In the second quarter, short-sale homes sold at a 21% discount to non-foreclosure homes, while bank-owned homes went at a 40% discount, RealtyTrac says. Short sales may also reduce losses for loan owners because they avoid full foreclosure costs.
Borrowers may qualify for new mortgages sooner after a short sale than after a foreclosure.

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Banks dealing with lengthy, complicated and frequently messy foreclosures are starting to see “short sales” as a quicker and cheaper way of getting bad loans off their books. The nation’s biggest mortgage servicers- Bank of America, JPMorgan Chase and Wells Fargo - are beginning to step up their efforts to ease the short sale process for borrowers who are unsuccessful in getting loan modifications and face the threat of foreclosure. Servicers are attempting to reach out to borrowers and are paying out more incentives to those suffering financial hardship to help proceed with a short sale. They are also cutting down the time taken to approve short sales.

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