The “shadow inventory” that no one seems to be talking about anymore is still out there with an estimated 4.5 million homeowners that are over 60 days in default on their mortgages. So, why haven’t these homes come on the market as REO’s and reversed the current signs of recovery?
The simple answer for right now is loan modifications (where a bank changes or renegotiates
the terms and conditions of an existing loan to the borrowers advantage). In fact thanks to a
recently enacted law in the state of California the “Banksters” cannot foreclose on delinquent
homeowners (owner occupants) at this time without first attempting to negotiate a loan
modification with them. Effective January 1, 2013, the Home Owner’s Bill Of Rights became law
in California. Part of this new law prohibits “dual tracking” of the foreclosure. This means that
as long as the bank and homeowner are engaged in negotiations for a “loan modification”, the
banks cannot begin the foreclosure process. This is why some headlines today read,
“Foreclosure Numbers Down!” And it is true! This law has effectively stopped or postponed
the majority of foreclosures in California over the last 3 ½ months.
Other factors affecting loan modifications include the current administration’s “Home Affordable Modification Program” (HAMP) which has created strong incentives for banks to pursue loan modifications in an attempt to keep as many delinquent homeowners in their homes as possible; and as additional incentive, in February 2012 the big 5 banks (Bank of America, Ally/GMC, Citi, JP Morgan Chase, and Wells Fargo) agreed to a historic joint state-federal settlement (for their illegal practice of “robo” signing) in the amount of $25 billion of which up to $17 billion is to be used to charge off principal reductions made as part of individual loan modifications.
So basically a combination of state and federal laws and incentives combined with a settlement agreement have for the moment stopped or at least stalled the banks from foreclosing on delinquent homeowners and instead have them feverishly working with homeowners on loan modifications that will allow them to stay in their homes. The lack of REO’s coming on the market has substantially reduced the inventory of homes available for sale and with the demand being greater than the supply; the prices of homes are going up.
The real take-away here is that if you are in trouble on your loan, behind on your payments, can’t make your payments, or even if you haven’t made a payment in 2 or 3 years… call your mortgage company NOW! Begin discussions on a loan modification. Recently I have seen huge principal reductions (forgiven debt), lowered interest rates, 40 year re-amortization, and even “silent seconds” for a portion of the principal debt. There is a very good chance that you will be able to keep your home at a payment that you can afford. But what happens if you cannot negotiate a successful loan modification? We’ll discuss the short sale option in next week’s article.
Bruce Cathcart is the Broker/Co-Owner of La Quinta Palms Realty, “The Friendly Professionals” and can be reached by email at laquintapalms@dc.rr.com or visit his website at www.laquintapalmsrealty.com.
