Marc's Mortgage Matter's

A co-worker recently asked me about "instant messaging". I told him that the only instant messaging that I do is with my middle finger. (Illustration not necessary.)

When speaking to realtors in many parts of the nation, they admit that foreclosures and short sales continue to be a key part of the housing activity in their area (not necessarily certain NYC neighborhoods). Many analysts feel that the pace of short sales is likely to increase, especially given market conditions and the opinion that short sales are an alternative to foreclosure that can benefit the borrower and the lender. The lender sees potentially lower losses on the loan, and the borrower avoids the stigma of having a foreclosure on their credit history. The government continues to use various tools, such as modifications or foreclosure moratoria (moratoriums?) to prevent more loans from entering the REO market.

The short sale option is mostly offered to borrowers who are ineligible for or have failed to succeed in loan modifications, or just choose not to be modified and are certain to enter foreclosure (or are already there). The program can be economically beneficial to both parties involved. For the servicer, the four main costs involved in selling the house are possible further depreciation in a declining market, a discount to the overall market when sold, the cost of principal and interest advanced to the trust until the house is sold, and repair and maintenance costs. Foreclosures which turn into REO situations typically take longer than a short sale, exposing the parties to more possible depreciation, and few banks & institutions are in the business of owning real estate. And in a foreclosure, servicers find that the expenses associated with the liquidation and repair costs are significant, given that foreclosed upon borrowers are unlikely to maintain the property. Most of the benefits of a short sale are due to the shortened timeline and cooperation from the resident. The house would also potentially attract better bids, as it is being actively maintained and lived in.

From the troubled borrower’s viewpoint, they have to decide among a foreclosure or short sale, staying in the house for free until evicted, staying in the house until it is sold in a short sale. A short sale will have a lesser hit on their credit history, and probably be able, if they really want, to buy a house after a few years. Of course there are emotional differences between a foreclosure and a short sale, potential deficiency judgment issues, the stigma of having been foreclosed upon, and tax implications of forgiven debt. The lender typically reports a successful short sale differently from a foreclosure to the credit bureaus although if the loan had gone deeply delinquent prior to completion of a short sale, the hit to credit history would already be significant and, thus, not much different from foreclosure. The biggest advantage to a borrower when opting for a short sale is the timeframe within which a new mortgage loan can be taken out: two years versus (I believe) five for a foreclosure.

Right now, companies all over the US are talking about next Friday. Either the companies are closed, and the employees have the day off to go spur the economy, or companies are open. Those that are open may have low seniority people at the desks, or people who don't care about taking the day off and would rather "bite the bullet" and come in for the day after Thanksgiving. US Postal service is in effect, and therefore it counts as a mortgage rescission day. 

Bottom Line: -- Although one might have thought that everyone knew that a sluggish economic recovery is on tap, a reiteration of this by Federal Reserve Chairman Ben Bernanke on Monday seemed to push some investors out of equities and back into bonds, driving yields and mortgage rates downward. 

Conforming 30-year fixed slipped to the 5% mark, the 5th time they've done so this year, and have now matched 2009 lows. This is occurring despite an improving economy, which usually brings somewhat firmer interest rates.

Certainly, the economic news out this week didn't suggest that Mr. Bernanke's assessment was incorrect. Growth seems to be weakly inching forward in a still-fragile way, no matter what the last GDP report had to say.
The key to the recovery is housing, which remains in poor shape. According to the Mortgage Bankers Association of America, mortgage delinquencies are again at record highs for the third quarter as generation-high joblessness continues to pressure homeowners.

All this is coming despite unprecedented levels of support for housing. The MBAA also noted that the level of applications for mortgages to buy homes has declined for the past six weeks. This may be because the tax credit for "first time" homebuyers expired; if so, the resumption and expansion of the credit into next year may revive some demand, but that probably won't occur until we get past the holiday season.

Like most of America I’ve gained a little weight lately, so I decided that I needed to figure out an exercise routine. I happened upon this one:

“Begin by standing on a comfortable surface, where you have plenty of room at each side. With a 5-LB potato sack in each hand, extend your arms straight out from your sides and hold them there as long as you can. Try to reach a full minute, and then relax. Each day you'll find that you can hold this position for just a bit longer.
After a couple of weeks, move up to 10-LB potato sacks. Then try 50-LB potato sacks and then eventually try to get to where you can lift a 100-LB potato sack in each hand and hold your arms straight for more than a full minute.
After you feel confident at that level, put a potato in each sack.