More Seattle-area homeowners are facing foreclosures this month, but the region remains far below the national rate, according to new statistics released Tuesday.

The Seattle area, defined as King and Snohomish counties, had 760 foreclosure filings in April, up 16.7 percent from March, but down 2.2 percent from April 2006, according to RealtyTrac, an Irvine, Calif., company that tracks foreclosure filings. The April rate of one foreclosure per 1,287 households — better than the national rate of one for every 783 households — ranked the region 128th out of 229 U.S. metro areas.

“Washington has really not followed into what is happening nationwide,” said Marc Gaspard, administrative director of the Washington Mortgage Lenders Association. “Certainly if you look at the Puget Sound region, our housing market may have slowed a little bit, but it’s still a very strong market.”

King County alone had a much worse month, with foreclosures up 37 percent from a month ago and 1.7 percent from April 2006. Its rate, however, still was lower than the national rate, one foreclosure for every 1,347 households. State foreclosures were up 1.15 percent from March and 7.2 percent from a year ago, with one per 1,396 households — good for 23rd among states.

But although Seattle may be better off than most places, it still has plenty of people in trouble, according to Erin Rearden, a mortgage default counselor with the Seattle non-profit Solid Ground.

“We’re definitely seeing an increase in the number of people who are contacting us,” Rearden said, although she attributed the increase largely to increased public awareness about problems with subprime loans, which serve people with poor credit.

“People are getting the information and realizing they’re in a situation that they should be contacting someone about,” she said.

For those in trouble, they’re in much deeper than a few years or even months ago, Rearden said.

“We’re seeing people in much, much worse situations than we ever saw before — people in loans where the interest rate is 9, 10, 11 percent, the payments are more than their income, just scary loans.”

Nationwide, foreclosures were down nearly 1 percent from March’s two-year high, but still up 62 percent from a year earlier.

“Last year, foreclosure activity subsided somewhat during the spring and summer months, thanks in part to increased interest from buyers,” James Saccacio, RealtyTrac’s chief executive, said in a news release.

“Whether the decrease in April is the beginning of a similar trend this year remains to be seen, but we expect foreclosure activity to at least stay above last year’s levels for the remainder of 2007, fueled by a combustible mix of risky loans taken out in the last few years — many in the subprime market — and slowing home price appreciation.”

Slowing appreciation makes it harder for those who cannot afford their home payments to sell for at least the amount of their mortgage. Washington has a lower rate of subprime mortgages than the national average, the U.S. Mortgage Bankers Association said, and its home prices continue to go up, helping some people get out of trouble.

But many others facing foreclosure already have refinanced at higher values, Rearden said. “People seem to be moving pretty quickly to take the equity out of their homes.”

Nevada reported the highest foreclosure rate of any state for the fourth month in a row, with one for every 232 households. The number of foreclosures was up more than 200 percent from April 2006.

For the second month in a row, six of the 10 metro areas with the nation’s highest metro foreclosure rates were in California. Stockton, Calif., had the nation’s highest rate — one for every 131 households.

http://www.TheHomeBuyingCenter.com

“It’s usually a win-win situation,” says Lon Parmelly. “I had a client who walked away with a $600,000 debt forgiven.”

What? Your mother forgets you owe her $60. But who forgives you for a debt of $600,000?

Usually, when something sounds too good to be true, it is. But as more people are facing the possibility of foreclosure — losing both their house and their credit in a process fraught with humiliation — a little-known transaction known as a short sale may seem like a dream come true. Short sales occur when a lender allows a homeowner in default to sell a house for less than the total value of the loan. In most cases, the lender then forgives the remaining portion of the debt.

Parmelly, author of “Success in Short Sales” and a Dallas consultant, knows that most lending institutions don’t want foreclosures to go through. For 16 years, she worked with lenders to develop alternatives to foreclosure. “There are a barrage of options,” she says. “There’s loan modification — changing the terms of the loan, usually by adding the missed payments to the balance of the loan, then stretching the loan to 30 or 40 years. There’s also the possibility of adjusting the interest rate down.”

But when it becomes clear that the homeowner can’t afford the house under any circumstances, short sales become the best option. Admittedly, this win-win situation involves parties who have already resigned themselves to being losers. Lenders know that repossessing the home (probably with a declining value) will cost them tens of thousands of dollars to maintain, refurbish, market and sell, with no guarantees that it will recoup the same amount as short sale. By the same token, homeowners understand that foreclosure will not only take away their home but also give them a seven-year black mark on their credit.

Even the community at large may benefit from homeowners opting for short sales in advance of foreclosure. Because houses sold in short sales tend to be less heavily discounted than those sold at foreclosure auctions, such sales may help mitigate drastic decreases in the values of nearby properties.

Indeed, the acknowledgment of the desire to avoid widespread foreclosures was tacit in Freddie Mac and Fannie Mae’s plans to buy tens of billions of dollars of subprime mortgage loans over the next few years. The programs would allow lenders to refinance homes into 30- and 40-year loans without borrowers first resolving their credit problems.

How prevalent are short sales? It’s difficult to say. In the Bay Area, the multiple listing service, for instance, has no box to check divulging whether a sale is a short one or not, though many agents write it into the comments.

Parmelly says she has noticed that lenders have been adding people to their loss-mitigation departments, but they are still extremely understaffed. Indeed, according to real estate agent Damion Matthews of Prudential San Francisco, the increase in short sales has led to a problem. Many lenders are so busy that they don’t respond to short-sale offers.

Last month, Matthews put an offer on the short sale of a Rincon Hill condo on behalf of a client and waited three weeks for an answer. “I called the lender over and over,” he says. “There was no way to get ahold of a human being. Later, I heard that they never got around to looking at the offer. The condo went into foreclosure and was auctioned off.”

Some agents say that short sales are increasing in communities with rising foreclosure rates. Indeed, rising foreclosure rates may indicate that a rash of short sales will hit the market soon. Last month, Realty Trac reported that foreclosures had increased 35 percent nationwide compared with the first quarter of 2006, with California’s foreclosures more than doubling in the past year.

Although San Francisco and many other parts of the Bay Area haven’t been hit hard, some cities and counties are seeing dangerously high foreclosure rates. According to Realty Trac, Oakland has the 22nd-highest foreclosure rate in the nation, with 1 foreclosure for every 146 households — almost double the national average.

Other smaller cities also report escalating problems for many homeowners. Realty Trac has 1,902 foreclosures, default notices and bank-owned sales listed in Antioch — amounting to 1 in 15 of its 29,466 households. By comparison, San Francisco has 882 similar listings, only 1 in 373 of the city’s 329,700 households.

Where exactly did short sales come from? According to Parmelly, the idea grew out of the down market of the early 1990s, when lenders were eager to find new loss-mitigation tools to extricate themselves from becoming real estate investors instead of banks. “Lenders are financial institutions,” says Parmelly. “They are not in the business of real estate.”

Once the boom began and foreclosure rates dropped, few people needed short sales, because loans almost never were more than the value of the home. Now, with more people taking out adjustable loans, many real estate markets in decline and 100 percent financing more difficult to obtain, the number of short sales is increasing.

Last year, as the markets softened, short sales developed into a micro-industry: In addition to consultants like Parmelly, who trains agents as well as working with sellers and buyers, there are Web sites, seminars and businesses dedicated to teaching the art of the short sale. Short sales even have their own celebrity: Last year, the personification of an over-leveraged real estate market, Casey “Iamfacingforeclosure.com” Serin, promoted them as an escape route for anyone (like him) who was drowning in housing debt.

So what’s the catch? Short sales do have one downside for sellers: Lenders claim whatever debt they’ve forgiven as a loss on their taxes and issue a 1099 form to the seller for the amount. “It’s taxed as earned income,” says Parmelly, adding that, depending on the loss and the seller’s tax bracket, it could amount to a significant increase in taxes.

Serin’s story illustrates a different downside of short sales — they don’t always work out. Although he initially managed to sell some of his homes through short sales, in the end he did face foreclosure on a couple of homes where the lenders had approved the concept of the short sale but in the end either rejected all the offers or neglected to respond.

As Serin points out, his lenders lost more money because the homes sold at auction for less than his short-sale offers. But negotiating with a large institution doesn’t always make sense. Parmelly has noticed that the behavior of lenders varies widely, with some lenders behaving just horribly — “basically they want the house to go into foreclosure” — and others offering polite, well-informed staff who work with homeowners to avoid losing the house.

I accept that whatever banks, regulators and homeowners can do to stave off foreclosure is probably for the good of all — but forgiving a $600,000 loan? Whatever happened to personal responsibility?

It’s a weird facet of American society, which better rewards those who try to live the American dream and fail miserably than those who live within their means. In the end, those left carrying a fat debt, bad credit scores and lingering regrets are as much a mirror of our system as all the happy homeowners who make their mortgage payments month after month.

http://www.TheHomeBuyingCenter.com

May 5, 2007

WASHINGTON – Homeowners facing foreclosure may soon be feeling some relief as Congress attempts to deal with the housing market downturn and the associated problems with subprime mortgage defaults and foreclosures.  Senator Charles Schumer (D) of New York, Chairman of the Joint Economic Committee and Chairman of the Senate Housing Subcommittee was joined by two other senators and community group representatives in proposing legislation to help people avoid foreclosure.

Senator Schumer’s bill includes up to $300 million in federal money to help troubled homeowners and includes new standards that mortgage brokers and lenders would have to follow when making home loans.

Joining Schumer in proposing the legislation were Senators Sherrod Brown (D) of Ohio and Bob Casey (D) of Pennsylvania.  The senators indicated that their goal was to help homeowners understand the complex challenges and landscape they face as they seek to prevent losing their homes in foreclosure.

Last month a Joint Economic Committee report, “Sheltering Neighborhoods from the Subprime Foreclosure Storm,” found that, based on tracking late mortgage payments in early 2007, there will most likely be more foreclosures in coming months.

To deal with this the proposed legislation first directs that up to $300 million in new federal dollars be given to community-based non-for-profit groups to help homeowners refinance their loans.  The legislators are also requesting that lenders provide 2 to 1 matching funds to help communities especially at risk of harm from increased vacancies and blighted homes that result when foreclosure rates are high.

Also in the proposed legislation are requirements that banks and other mortgage lenders scrutinize the ability of those who apply for loans to actually pay back the mortgage.  Many people who purchased subprime mortgage loans in recent years did so without even providing proof of income using so-called “stated income” and “low-documentation” and “no-documentation” loans.

“When foreclosures occur because of systematic business practices such as allowing people with very poor credit to state, not prove, their income in order to qualify for a mortgage loan then it is no surprise that we will see the kinds of results that we do today.  We do not necessarily need more regulation and new laws, but our nation certainly needs more effective regulation that is enforced evenly,” said foreclosure expert Patrick McGilvray, J.D., CFP®.

Mr. McGilvray is the president of http://www.TheHomeBuyingCenter.com, an internet-based company that pairs people looking to sell a house with first-time homeowners and real estate investors across the nation.

Communities of Color, Low-Income, Elderly, Immigrants
Particularly at Risk From Unscrupulous Mortgage Brokers

MANHATTAN — A hearing to discuss what has been described as a foreclosure epidemic hurting entire communities, particularly in Brooklyn, took place at City Hall in Manhattan yesterday.

Conducting the hearing were Council Member Leroy Comrie (D-Queens), chair of the Committee on Consumer Affairs, and Council Member Larry Seabrook (D-Bronx), chair of the Committee on Civil Rights. Also participating was Council Member Lewis Fidler (D-Brooklyn).

“Communities of color, low-income earners, the elderly and immigrants are among vulnerable populations increasingly facing mortgage default and foreclosure due to loans that may be predatory, sub-prime or both, said Comrie, who added that the council held this hearing to better understand the crisis and to discuss possible legislative solutions for the council to review.

Testimony was received from representatives of the city’s Department of Consumer Affairs and the New York State Banking Department, as well as from members of the academic community, and housing and financial empowerment advocates — such as the Neighborhood Economic Development Advocacy Project (NEDAP), Neighborhood Housing Services, Brooklyn Law School, Legal Aid Society and South Brooklyn Legal Services.

Describing the crisis, Comrie said, “Lenders creep into our communities, financed by the banks that won’t even set up shop in those same communities, and they make loans with no regard as to whether borrowers can actually pay them off.

“These brokers cast themselves as friends of the neighborhood, but they’re actually out to destroy our communities — pressuring the uninformed and the vulnerable into dead-end mortgages that are increasingly ending in foreclosure. Some of these brokers are so unscrupulous that they are holding foreclosure prevention classes in the community, under the guise of helping people, when they are actually just suckering them in for another scam.”

Added Seabrook, “When you overlay maps of where the sub-prime loans are going and where foreclosures are happening, you see that this is completely concentrated in minority neighborhoods. When you factor in immigrants’ cultural and language barriers … you’ve got a breeding ground for financial ruin.”

Adjustable Rate Mortgages
Part of the problem for many New Yorkers is the danger of adjustable rate mortgages (ARMs), which appear attractive to low-income families because they initially offer low fixed interest rates and affordable monthly payments, Comrie said.

But once the fixed term expires, the interest rate turns variable, the monthly payment becomes subject to market conditions and the significant change in the ARM’s terms can have a staggering impact on the monthly payment.

Homeowners who can no longer afford these monthly payments are then forced into default and foreclosure.

“In addition, unscrupulous lenders may search county records for pending foreclosures and contact desperate homeowners with attractive sounding refinancing proposals,” said Comrie. “However, these offers often contain perilous terms that frequently leave the borrower in the same circumstance he or she was in before entering into the refinancing agreement.”

The council committees recognize that the city’s ability to regulate banking practices is limited due to prevailing state and federal legislation.

New Office of Financial Empowerment
Department of Consumer Affairs Assistant Commissioner Cathie Mohan testified that the city is committed to helping local consumers and announced that the mayor’s new Office of Financial Empowerment, which will soon launch a multi-pronged approach to these problems.

“We are designing a large-scale public awareness campaign aimed at helping consumers identify the difference between a smart loan and a trap, and then point them to alternatives,” she said. Comrie pointed out that legislation is being drafted to empower the new office to investigate complaints of predatory lending and create a public database for the listing of lenders who have been cited by the federal and state government for criminal practices.

Additionally, he is calling for a “Borrowers Bill of Rights,” which would mandate that the Department of Consumer Affairs conduct lien searches on transactions for first-time home buyers and assure that homeowners have a right to counsel in foreclosure actions.

Other Recommendations
Other recommendations made during the hearing included the following, made by housing and financial empowerment advocates:

• Funding by city and state government for responsible pre-purchase and post-purchase educational programs, as well as funding for the Emergency Foreclosure Prevention Program.

• Active intervention by city and state governments to break the cycle of default scams by creating comprehensive home ownership preservation programs.

• Focus by district attorneys on prosecuting foreclosure bailout schemes.

Comrie noted that Brooklyn Council Member Fidler is also currently sponsoring a Mortgage Foreclosure Prevention Initiative.

http://www.TheHomeBuyingCenter.com

Median home values in the Sacramento area dropped 7.4 percent in the first quarter from a year ago, the latest evidence the housing market slowdown continues in the region.

Yolo County endured the region’s largest decline in value, at 13.2 percent to $394,990, according to Zillow, an online real estate tracking company in Seattle.

The company tracks the value of homes — those that have recently sold, are available to purchase, and houses not on the market, said company spokeswoman Amanda Hoffman.

Sacramento County had the region’s second-largest drop at 8.1 percent to $354,681. Existing home prices in El Dorado and Placer counties fell 6.4 percent and 3.5 percent, respectively.

Placer County had the region’s highest-valued homes at $461,698, almost $86,000 more than Sacramento County, the most affordable market.

All 35 communities in the four-county region — from Antelope to Woodland — reported declines in price.

Woodland and Winters had the largest percentage drops, followed by Fair Oaks.

Woodland’s first-quarter home prices dropped 14.1 percent to $364,900, compared to the same three-month period last year. Winters’ home values fell 13.8 percent to $399,700. Homeowners in Fair Oaks also struggled, losing 10.4 percent of the value to $411,627.

Zillow also tracks the value of homes in 46 neighborhoods in the region. Greenhaven — basically the Greenhaven Drive and Florin Road neighborhood — suffered the largest percentage drop at 11.9 percent to $408,863.

http://www.TheHomeBuyingCenter.com

May 1, 2007

SACRAMENTO – Subprime mortgage lending companies helped fuel the record surge in home loan defaults because they were too focused on getting a share of new mortgage loan business in recent years according to industry analysts.

Engaging in a practice known as “exceptions” was a common pattern among lenders according to Michael Youngblood, an executive at FBR Investment Management Inc.  Mr. Youngblood made his comments recently at an Information Management Network conference in Miami, FL.

Youngblood added, “the amount of loan exceptions made in 2006 must be historically the highest.”  Late payments on mortgages rose as high as 11.4 percent.  Part of the problem, he added, was that lenders used insufficient data to gauge the creditworthiness of borrowers.

Another panelist, Mark Milner, a risk officer for PMI Mortgage Insurance Company, said that his company chose not to insure many of the subprime mortgages originated recently because of faulty underwriting standards.  His company’s skepticism proved to be prescient as much of the country is struggling to regain footing in the single family home market amidst a tidal wave of foreclosure activity.

Foreclosure expert Patrick McGilvray, J.D., CFP®, President of http://www.TheHomeBuyingCenter.com had this to say about the underwriting standards, “clearly, many of the subprime lenders got greedy and disregarded their own policies and common sense.  The sad thing is that many people, especially first-time homebuyers, were sold inappropriate products by lenders and their representatives and independent brokers who cared only about short-term gains.”

Despite the fact that many bonds were sold to investors that were backed by subprime mortgages some analysts do not foresee serious damages to the value of these bonds.  “I don’t think the problems will be as widespread as some of the forecasts out there” commented Allan Berliant,  portfolio manager with Grantham, Mayo, Van Otterloo & Co.

Mr. Youngblood forecasted a 5 to 7 percent drop in values of the bonds back by subprime mortgages issued in recent years.