The lack of equity with many home owners is chiefly responsible for the increasing default rates and financing problems. The cash strapped individual doesn’t get the refinancing loan so vital for survival and cannot sell the house still under the mortgage loan. This double impact compounds the already muddled situation.
However, the percentage of homeowners with negative equity has reduced over the quarter; the value stood at 21 percent, from 23 percent earlier, for the families owning single homes. This can also be connected to the fact that those who were defaulting on their mortgage payments had to bequeath the home ownership back to the lenders and were foreclosed.
The home value index calculated by Zillow, primarily measuring the entire value of homes and not just the sold ones, remained fairly stable. The index reduced by just 0.4 percent over the last quarter. This should be some relief to sellers who were expecting the foreclosure rates to go up and the prices to roll down to new lows.
The sales in September comprised of 21.4 percent foreclosure re-sales, compared to 14.7 percent a year back. The value of homes showed a decline for the 11th quarter on the trot; the values slipped by 6.9 percent in the third quarter of this year. However, the rate of decline for home values was not very sharp.
There was an 11 percent increase in existing homes sales; it was the highest in the last two years. This was primarily due to the tax credit by the federal government, according to the National Association of Realtors. Pete Flint, who is the chief executive officer of Trulia, commented that the sales of homes have definitely increased, adding that many homes were priced too high. In addition, he also pointed out that the sellers need to reduce the rate of the homes to get the sales up, though it would be a really tough call to make.
This real estate situation may be ripe for many who have saved enough and are in a comfortable situation in terms of finances. With the houses now available at amazing prices and the additional option of resale homes, the choices have become wider and interesting. In fact, the sales of resale homes have really picked up in the last three months and most states are reporting reduced inventory every month.
However, the inventory is going to rise once the banks impose the foreclosures on many homes they have been holding back. The reluctance in enforcing foreclosure was due to the mortgage modification or assistance programs. Since the economy has not revived in terms of employment, most programs have not had the desired effect, which has lead to even more foreclosures. In fact, some of the modification programs have acted as nothing more than stopgap measures.
Once the foreclosed properties hit the market nationwide, one can see another spate of price decrease, especially in the resale segment, which will have its bearing on the new constructions as well. What this would also mean is the buyer will have more choices and greater bargaining powers. The bargaining power could also be exercised to negotiate the interest rates and the total price of the house. Individuals with a good FICO score should ask lenders to give them the best interest rates, since the interest rates are falling every month.
In addition, there are more people defaulting due to the current economic slowdown and loss of jobs. Therefore, one has to sit pretty and make the bankers and sellers work for you. Sellers are also keen on getting the properties sold quickly since the forecast is further decrease in prices. There is also a segment of distressed sellers who are now not able to afford the home loan repayment and want out. This further increases the competition amongst the sellers; however, the need for cash will overcome most resistance and many would settle for less. If there are some who are ready to shell out good money in a shorter span, then the sellers can also look at much better (lower) deals. The key, therefore ,is money in hand and future payments.
The Neighborhood Assistance Corporation of America (NACA), the brainchild of Bruce Marks, has been reaching out to troubled homeowners with its Save The Dream presentations.Based on the theory that bad things happen to good people, Save The Dream conferences provide homeowners the opportunity to meet with many of the nation’s lenders to attempt on-the-spot modification programs instead of foreclosure.
NACA has already hosted more than 400,000 homeowners at a dozen conferences.The organization has entered into agreements with many of the country’s lenders whereby the lenders would offer 2% mortgages over the life of the modified loan.
At its most recent conference in New York City, NACA posted its best results yet.Steve and Elena Servi of California received a 2% loan modification from Wells Fargo.Their previous loan was at 6.75%.Approval was issued the same day.
In a similar case, Rodney Wynn of North Carolinas received another on-the-spot modification.Wynn had a 13.4% mortgage that he can no longer afford.His previous monthly payment was $1800 per month.His new 2% mortgage payment is $970 per month.Wynn avoided foreclosure and the bank avoided repossessing the home.
Banks have come to realize this is an extraordinary market.In the past, banks would foreclose based on the market conditions.In today’s flooded market, banks are finding that they must hold properties longer than usual.As a result these lenders are leaning toward attempting more and more modifications.
When loans are made affordable, homeowners are less likely to re-default.Reports from RealtyTrac suggest that after one year, only 34% of modified loans whose payments had been reduced by 20% or more actually ended in foreclosure.This is a significant improvement.Loans with modifications that created payments with less than 20% reductions failed at a 63% rate.Perhaps banks are finally coming to understand that giving up a little can save them a lot.
