Realty Check

Watch Foreclosures, Seriously

While the Realtors and Home Builders and Mortgage Bankersall bask in the glow of the home buyer tax credit extension/expansion, we all need to turn our attention to the real drag on a housing recovery: Foreclosures.

Yeah, I know, everyone seems kind of tired of talking about them; we've got the government modification program in place. Big banks are all ramped up with the program, Fannie Mae is letting folks who don't qualify for mods stay in their homes and rent, and foreclosure inventories in the big bad hardest hit states are actually drying up as investors get in and grab up the bargain basement properties.

Clear Capital, a "provider of data and solutions for real estate asset valuation," notes that home prices are improving thanks to fewer foreclosure sales. "The continued decline in REO saturation rates, as well as an increase in the proportion of cash buyers in both distressed and fair market sales, are an encouraging sign of investor optimism coming into the traditionally slow months," says Clear Capital's Sr. Statistician, Alex Villacorta.

That's because banks and Fannie and Freddie are slowing the process, trying to jam as many borrowers into mods as possible. They're also overwhelmed by the sheer numbers, leaving many many delinquent borrowers still sitting in their houses scott free without hearing word one from their lenders. But that's going to change.

I'm hearing things. Things "on background" and things right there in black and white, like the latest quarterly earnings statement from Fannie Mae.

"We expect that our credit losses and credit loss ratio will continue to increase for the remainder of 2009 and during 2010."

"will likely have a material adverse effect on our business, results of operations, and financial condition, including our net worth."

"We recently provided guidance to servicers that, beginning December 1, 2009, a Home Affordable Modification should not be offered on a Fannie Mae loan without our consent if the estimated value of not modifying the loan would exceed the estimated value of modifying the loan by more than $5,000."

Now for the background part. This is concerning the government's Home Affordable Modification Program, which requires a three month trial period before the mod is converted to permanent status . Treasury officials last month claimed that "almost everyone that entered [HAMP] is still paying on time," but I'm beginning to hear rumblings to the contrary. So far Treasury has given us no data on conversion rates, claiming its too early, but they did promise they would this month. Now I'm told that conversion rate will not be part of the monthly HAMP status report coming out on Tuesday, but that Treasury will give numbers "this month."

According to Treasury's August 4th release on HAMP, 230,000 trial modifications were begun under the HAMP program through the end of July. So by November, i.e. now, we should have a good idea of what percentage are working, right? A delay doesn't mean doom, but two very good sources are telling me that "the numbers are low," that is, the number of permanent conversions. Granted, there have been extensions to the trial period, as lenders try to streamline all the paperwork. But I have to wonder: Treasury could hold up reporting the conversion numbers, claiming that some borrowers have been extended in order to get the paperwork in order; but by now, with over half a million borrowers in the trial mods, they must have a number of how many have fallen out because they missed payments after one or two months.

Why don't we have those numbers?

Questions?  Comments?