New Home Sales Plunge Despite Price Drop

Experts say this is the best year to buy a home, but new data suggests most of us would rather hang on to our money. The U.S. Department of Commerce reported that sales of new homes fell lower than expected last month, although the median price has dropped by over $20,000.Home sales for January hit a low of 309,000, a drop of over 10% from December’s reading. This largely exceeded economists’ expectations of about 2.1%. Meanwhile, inventories increased in pace to a record 13.3 months, moving up from the revised reading of 12.2 months last December.The plunge is felt across most of the country, although some regions were hit harder than others. Western states saw new home sales drop by 23,000 from December to January, while the Midwest and Northeast experienced a milder drop of about 3,000. New homes now go for just above $200,000, whereas the prices in December averaged $223,000. The annual average has fallen by 13.5%, a sign that fewer people are willing to part with their savings, even for a seemingly good deal.Real estate experts say it’s still a good year to take out new mortgages, especially with the government’s plan to support increased lending activity. Borrowers with good credit and a stable job can take advantage of lower rates from major banks. Those struggling with high mortgage, on the other hand, can avail of loan modification and other assistance programs lined up in the new housing reform plan.

New hope over last month’s unexpected rise in home sales may be a bit premature, even with aggressive intervention from the government. Studies show that progress from new programs may be undermined by “shadow foreclosures”—foreclosed properties that remain unlisted and unsold, causing potential delays in market recovery.
RealtyTrac, an Irvine, CA-based foreclosure listing firm, reports that up to 700,000 foreclosed homes are not included in the multiple listing service (MLS). The housing inventory is currently pegged at 3.8 million properties, or close to 10 months of waiting at the present sales pace. With this shadow supply, however, selling is expected to take a lot longer, causing a further drop in prices.
Meanwhile, the number of delinquent mortgages has continued to rise in the past few months, although foreclosure rates have largely stabilized. Loss Mitigation experts believe that most of these homes will eventually be foreclosed, and that lenders may be unaware of how shadow foreclosures can affect their balance sheets.
Richman & Associates, a Glendale mortgage restructuring firm, believes that lenders should be more proactive in mortgage assistance. According to Jim Richman, the company’s president and founder, lenders are simply waiting for government bailout rather than actively helping homeowners and organizing foreclosures.
Loss Mitigation

Loss Mitigation and Foreclosure Options

Loss Mitigation is one of several processes designed to minimize the damage caused by defaulting mortgage loans. Often backed by an attorney or firm, it involves negotiations between the lender and the borrower that binds them to new, more manageable terms. These terms are aimed at preventing foreclosure and lessen the damage incurred by both parties.

Although mortgage loss mitigation has been around for decades, the real estate slowdown has created a larger demand in recent years. Loss mitigation companies now offer a variety of solutions for troubled homeowners. This article discusses two of the most common methods: home loan modification and short sales.

Short sale

A short sale is a common alternative for people who don’t qualify for a bank loan modification. Typically, a loan modification company will offer a short sale foreclosure in case the modification doesn’t work out.

A bank short sale allows the borrower to sell the home, usually to a third-party investor, and pay the proceeds to the lender. The lender may accept it as full payment for the loan, even if the selling price falls short of the mortgage balance or the home’s fair market value. In some cases, however, the lender can still file a deficiency suit against the borrower to recover the remaining balance.

Lenders usually allow a preforeclosure short sale if the discount is less than the expected costs of foreclosure. To get a better picture of the situation, most of them also require a hardship letter and standard financial documents.

The obvious drawback to a mortgage short sale is that it doesn’t keep borrowers in their homes. Short sale foreclosures are usually meant to minimize credit damage when the only other alternative is foreclosure. While it still adversely affects the borrower’s credit, it’s a less damaging form of foreclosure loss mitigation. Short sales easier to clean up on the record and the borrower can usually take out another loan after one to three years.

Bankruptcy and loss mitigation

Declaring bankruptcy can open up new options and increase one’s chances of getting back on track. Because of the large demand for loan loss mitigation, many banks are starting to tighten their policies. Some are offering mortgage loan modifications only to those already in foreclosure, or more commonly, to those who have filed or are about to file for bankruptcy.

This does not mean that bankruptcy is a surefire way to stop foreclosure, nor will it qualify homeowners for mortgage loan modifications. In fact, studies show that 96% of people who file for bankruptcy still end up with a foreclosure, which just doubles the damage.

For borrowers with relatively small debt (typically less than $75,000), a good alternative is to make a consumer proposal. This is an offer to pay the lender a percentage of the debt over a specific period. The process generally takes one to two months, which makes it ideal for borrowers who are already in foreclosure and cannot afford to wait for loan modification help.

The circumstances vary for each borrower, and what may work for one may not be so effective for another. To see if bankruptcy is a viable option, it’s best to consult companies or law firms offering loan modification services. Find a good attorney who can listen to your situation and discuss the effects of bankruptcy on your mortgage.