Well – after some time away from commenting here, just to watch and observe — the mortgage industry is still in chaos, yet the mainstream media, amidst all the other challenges facing the economy, has not given this much coverage. There is a HUGE pent-up inventory of foreclosures ready to hit the market – and they ARE. Banks and their investors are concluding that they must take the hit to their balance sheets. Despite the problems facing homeowners and the politicians toothless pretentions to “keep people in their homes”, there are many profiting from the downward spiral of real estate values and the foreclosure activities: realtors, asset managers, investors, flippers, note buyers (mostly hedge funds), etc. Lenders and Loan Servicers are also putting the politically correct and compassionate loan modification programs on the back burner as the Treasury and the Obama Administration have initiated the HAFA program – guidelines and processes designed to promote short sales. This is essentially a less expensive and faster way for them to get rid of non-performing assets compared to foreclosing. So the “line” goes: “We’re so sorry Mr. & Mrs. Homeowner, but you don’t qualify for a loan modification that will allow you to stay in your home, but you can sell it at the market and we’ll give you a few bucks to move your family.” It’s mostly self-serving for the banks, meanwhile the government’s HAMP program (home mortgage modification program) continues to wallow in failure. Only about 1/3 of the qualified loans have been given a permanant loan modification — this after 1-1/2 years. The industry is frought with incompetence and paper. Watch for the flood of short sales to further depress the market coupled with a lot of people moving out of their homes! 25% of homeowners are underwater — that is their home is worth less than their mortgage — strategic defaults on the rise!

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The Wave of 2010 is “short-sales”, that is selling one’s home for less than the outstanding mortgage loan. Under the publicized pretense of “keeping people in their homes”, the government plans and incentives to lenders to modify the mortgage loans for borrowers with hardships and whose value was under water, the process has been a complete disaster under anyone’s measure of success. Now, the government is actually giving lenders a bigger motivation and incentive to encourage and successfully entice homeowners to agree to short sale their home. Threatening foreclosure (the easy way out instead of modifying the homeowner’s mortgage under government guidelines) lenders hope that borrowers will cooperate. Of course one of the pretenses is that the credit record will be less damaged than if the borrower goes through a foreclosure process; then there is the moving expense incentive that the lender may offer. And this is “keeping people in their homes”? Obviously a ruse. This is just a way to get the “toxic” assets out of the system. Again, flippers and investment buyers of low-priced real estate beware! Values are likely to be further depressed…

It has been well-documented that the Fed’s commitment and implementation of purchasing $1.25 TRILLION o f mortgage-backed securities (more than the National Debt!) and non-performing mortgage loans under TARP has been a been a “false” support for the bond market, hence low rates.  Pundits and Fed representatives have suggested that this commitment may end soon.  This would cause an almost immediate increase in mortgage rates – some suggest up to the 6% area for FNMA 30 year conforming mortgage loans, whereas this rate has been holding at 5% or less for several months.  But will the Fed actually pull their mbs buying commitment?  If so, or even if there is a gradual pull back, some suggest that by March we will see the effects of higher rates.   In any case the low mortgage rate environment that the market and homeowners have enjoyed recently appears to have come to an end.  We may have seen the end of sub 5% rates.  Meanwhile, the Loan Modification “Industry” is a mess – mostly due to overwhelmed and imcompetent lenders/loan servicers.  Real-world examples of mortgage loan modification “nightmares” will be disclosed in future posts.

Research Dept.