A few of the highlights of this video interview:
1) FHA is not going broke. (how can it when it always go to Congress for more money)
2) They are ‘reviewing’ lending requirements…credit scoring etc.
3) FHA mortgages are now 30% of the mortgage market. That makes the FHA the largest home lender…by far.
4) FHA is hiring a new ‘Risk Officer’…translated, they are bringing on a new guy to evaluate the risk factors in their lending standards. This is the guy who will carry the weight of having to raise lending standards.

From yesterday’s Wall St Journal article on housing…3-4 million foreclosed homes could come on the market nationwide. Locally, in the last few months, we have seen a pretty significant decrease in the number of foreclosed homes on the market below $300,000. It looks like that may change soon…

Debra and Arthur Scriven were served notice in June 2008 that their mortgage lender, a unit of Citigroup Inc., was preparing to foreclose on their home. Fifteen months later, the Scrivens are still in their home near Columbia, S.C., and battling to stay there, even though a dispute with the lender over how much they owe prompted them to stop making regular payments last year.

Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing “shadow” inventory of pent-up supply that will eventually hit the market.

The size of this shadow inventory is a source of concern and debate among real-estate agents and analysts who worry that when the supply is unleashed, it could interrupt the budding housing recovery and ignite a new wave of stress in the housing market.

“There’s going to be a flood [of bank-owned homes] listed for sale at some point,” says John Burns, a real-estate consultant based in Irvine, Calif. When that happens, Mr. Burns believes, home prices will fall further, particularly in markets with large numbers of foreclosures. Overall, he expects home prices to decline 6% next year.

Ivy Zelman, chief executive of Zelman & Associates, a research firm based in Cleveland, believes three million to four million foreclosed homes will be put up for sale in the next few years. The question is whether the flow of these homes onto the market will resemble “a fire hose or a garden hose or a drip,” she says.

Analysts who track the shadow market have focused primarily on the gap between the number of seriously delinquent loans and the number of foreclosed homes for sale by mortgage companies. A loan is considered seriously delinquent, which typically means it is headed to foreclosure, if it is 90 days or more past due.

As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages

Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.

Some borrowers may be able to catch up on their payments or receive a loan modification that helps them keep their home. There has also been an increase in short-sales, transactions in which at-risk borrowers sell their homes for less than the loan amount, with the lender’s approval. In some cases, lenders have decided not to foreclose because the home’s value is so low. These factors could mean fewer foreclosures.

Foreclosed homes are partly responsible for the recent increase in home sales. But foreclosures also push down home values. According to Collateral Analytics, a housing research firm, homes that have been foreclosed on typically sell at a 10% to 50% discount.

For now, the delays have led to what is probably a temporary drop in the supply of bank-owned homes in California and other places where investors and first-time home buyers have been competing for bargains. In Orange County, Calif., the number of bank-owned homes listed for sale dropped to 322 in early September from 1,404 in November 2008, according to Altera Real Estate.

But the number of foreclosures is expected to increase in the fourth quarter as mortgage-servicing companies determine who is eligible for a loan modification and who isn’t. “We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running” for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to “abnormally low” levels in response to government efforts to stem foreclosures, she adds.

For the Scrivens, legal battles have complicated the process. Ms. Scrivens says Citigroup recently offered to modify their loan, but she and her husband rejected the offer because they objected to some of the conditions. A hearing on the foreclosure case is scheduled for Wednesday in a Kershaw County, S.C., court.

Citing customer privacy, a Citigroup spokesman declined to comment specifically on the Scrivens situation. “Our priority goal is to keep distressed borrowers in their homes and out of foreclosure, when possible,” he said.

This successful short sale for $198,000 was one of the easier ones. The seller’s were ultra cooperative with paperwork and showings and were very excited to sell their property.  The home was kept clutter free and showed well to potential buyers.

When seller’s take the time to educate themselves about what a short sale is all about, it makes the whole process smoother.  The major hiccup we experienced in this deal was the timing of the closing in conjunction with the buyer’s move from Texas.  Banks can be tricky on a closing timeline since they don’t really follow any but their own.  After going through the whole process of a short sale, closing times can really be difficult to match up when the buyer is selling another property or moving from another state.

This home was purchased in 2005 for $202,000.  The seller had two loans to negotiate, with the 2nd proving to be a bit of a sticking point.  After losing 2 potential buyers to time constraints, the 3rd lucky buyer ended up purchasing the home for $150,000 with 4% seller concessions thrown in.  Many times in short sales we are seeing the 2nd loans become the sticking points for closing deals.  Typically, the 1st offer (buyer) on a short sale needs to have quite a bit of patience if there is more than one lender involved (or if that lender’s name is Countrywide).

Families that make over $250,000 may lose a portion of the mortgage interest deductible from their taxes if the new Obama budget proposal passes.  The National Association of Realtors is 100% opposed to this and is cranking up their lobby group to fight against the proposal.

The proposed change in interest deduction will cause additional pressure on home prices at a bad time in the economic cycle and the housing market.  Short Sales and Foreclosures in Palm Beach County may be here to stay for awhile as the balance sheets of banks are further eroded.

More then half of homeowners fell behind on their morgage payments within 6 months after a mortgage modification was completed by the lender. Data from the Office ot the Comptroller revealed that high default rates are still prevelant after an attempt at modifying the homeowners existing mortgage to make it more affordable to the borrower. 

With job decreases and the incredible loss of equity in homes, today’s attempts at loan modifcations are failing frequently.  What is a solution: three words ‘more short sales’.

• Encourage more short sales which bring in buyers at today’s prices and allow seller’s to move on with their lives
• Discourage banks from penalizing homeowners who need to sell short - such as less of a credit hit on the FICO scores (even though its not that bad now) - or stating upfront that the bank will not ask the seller for more money to make up the short payment if the seller meets certain criteria
• Encourage lenders to streamline the short sale process - help the banks help themselves by pre approving criteria and timelines for short sales.  Foreclosures are killing banks balance sheets…or what’s left of them, and killing newer neighborhoods with blight and significant price drops.

I have been writing a monthly article for the Palm Beach Post in their Saturday Home Section: You can view it here: post-article-2 or below…

The latest Mortgage Bankers Association Survey stated that 10% of homes with mortgages on them are late on payments or in foreclosure.  This is the highest recorded level of distressed homeowners in the history of the survey.

Throw in increasing job losses next year and things could get worse.  If you have to sell your home, the sooner you sell it the better because it could take a while before things get back to normal around Palm Beach County. I wish I had better news, but even if you need to short sale your property, the sooner the better as things are shaping up poorly for 2009.

A survey showed that one in 10 American households with mortgages is overdue on payments or in foreclosure, adding pressure on Washington to provide more relief to distressed borrowers.