Skip to comments.Second-lien holders put drag on short sales
Posted on 07/29/2012 8:14:06 AM PDT by Cincinatus' Wife
........Facing an onslaught of pending foreclosures, banks increasingly are turning to short sales. They lose about 15 percent less on short sales than they do on repossessions, which can take years to complete while taxes accumulate along with legal, maintenance and other costs, according to Moody's Investors Service. To encourage short sales, banks are streamlining the closing process, forgoing their right to pursue unpaid debt, and giving some homeowners cash incentives of as much as $35,000 for relocation expenses.
Roadblocks involving second liens are standing in the way of even more short sales, which reached the highest number in three years in the first quarter-133,192 total transactions, said Daren Blomquist, vicepresident at RealtyTrac. While about 39 percent of homes that have entered the foreclosure process have more than one lien, just 4.2 percent of short sales completed in the second quarter-5,658 transactions-were on homes with second mortgages, according to an analysis RealtyTrac performed for Bloomberg.
"It appears that short sales with multiple liens aren't happening as frequently and are taking longer to complete," said Blomquist, adding that when a short sale doesn't go through, the home often ends up in foreclosure.
...The four largest U.S. banks-JPMorgan Chase, Bank of America, Citigroup and Wells Fargo-held 48 percent of the $849.5 billion in second liens as of March 31, according to the newsletter Inside Mortgage Finance. Some banks sell second mortgages to outside investors such as Franklin Credit Management for anywhere from a quarter of a cent to 60 cents on the dollar...
....While Franklin's Axon declines to say how much his company collects on the loans it buys, he said it averages more than the industry standard of 6 percent of the unpaid balance. His company focuses collection efforts on younger, more educated borrowers, he said....
(Excerpt) Read more at sfgate.com ...
How rude of 2nd position lienholders to want to get paid. Who do they think they are.
Everyone’s playing a waiting game. The banks are sitting on TRILLIONS in near-worthless real estate holdings that known about for at least 6 years. The FED is keeping the banks alive by pumping them money.
...and the waiting continues, and continues, and continues. They are waiting for the next boom in real estate prices, to unload all of their garbage. The problem is that every time they see an uptick and try to unload, they cap-off the uptick...due to increasing the supply.
There are still millions of properties doing nothing today, and it will be a decade (at least) before the demand catches up to them...unless there’s mass Amnesty or something like that.
I’ve been house-hunting for the last few months, and have avoided short sales like the plague on the advice of my realtor. Once the “home owner” accepts your offer, you’re still faced with the probability of several months of delays waiting for the lien holders to decide, and they’ll often make you wait 6-12 months before making up their minds.
I don’t have that kind of patience.
I am stunned at the communist infection in our thinking. Pay your mortgage or get out. I paid mine years ago . I didn’t buy a home that I couldn’t afford. Our entire economy has beed ruibed by government policy to guaranty bad loans to people who had no chance to pay for them. The guaranty was to use YOUR money to do that. Abd use they did!!! The banks pressured to make these ctapy loans knew they were crappy but were forced by government regulators enforcing the “Community Reinvestment Act” (look it up). So the banks sold the mortgages in bungles to both forien and domestic institutions who bought the sub prime loans BECAUSE THEY WERE INSURED BY THE TAXPAYERS!!! Disaster struck so the government blamed the banks? I guess if you tell a lie loud enough some weak intellects will believe.
By the way, Government Motors is failing real bad. To move their inferior cars they now are financing with”sub prime’ lending to people with credit scores of 300!! They have a money printing company called GM Credit. My Dog has a score of 350. Now you don’t think you will pick that tab too? In short we are going to give people a “piece of the pie”!! Your Pie. It has ruined our great country. Cris Dodd and Representative Frank are directly responsible.
And if all this isn't enough to destroy the U.S. economy, and its backbone the middle class, they're going to forgive student loans to finish the job and shove capitalism over the cliff.
There are also, from what I've seen, equal or better pricing with short sales compared to foreclosures.
Bernanke thought he could get the economy going by goosing the housing market with an easy money policy. The result has been laughable. As a result of the feds and Obama's economic policies, prices have increased on everything except housing.
In contrast to Bernanke and Obama and Congress, the banks have acted fairly heroically in refusing to reinflate the housing bubble. Otherwise, if they had done want the politicians wanted them to do, we would be in a recession accompanied by raging inflation.
Put simply, the Banks have learned their lesson and are acting like adults by refusing to loan out money they know cannot be paid back. The children running Washington D.C., however, cannot seem to learn the lesson that it is a bad idea to go into debt when you know you cannot pay it back.
In a scenario where the primary mortgage holder is willing to approve a short sale, however, the second lien holder apparently has a lot of power to kill the sale or demand substantial concessions. In effect, the second lien holder is acting like the first lien holder!
It's a little more complicated than that. The Fed basically lends money to banks for nearly 0%, and then offers to sell them U.S. Treasury bills paying 2% to 3% rates. These rates are all being kept artificially low by the Fed. The banks prop up their balance sheets by buying all these Treasuries that help them maintain their cash flow and don't come with a risk of default from the "borrower" the way a home mortgage does.
Banks aren't acting so much "acting responsibly" in the lending process as they are recognizing that they don't make any money in the mortgage lending business anymore.
I should add that Canadians are coming in with cash and winning all the bidding wars. Strange market though.
NEVER again will we buy a short sale. Our offer was excepted in 24 hours, took nine months to close. BofA held both 1st&2nd, the sale price covered all but 5k. The bank after four months demanded the owner pay them (BofA) 6k out of pocket.
The owner refused, bank then started really jerking everyone around, the owner personally talked to BofA after two more months they caved closed the next day.
Regardless never again.
A co-worker of mine filed for bankruptsy due to living it up on borrowed money. They had taken a $150K home equity loan and the lawyer had it completely forgiven (they kept the home). She said he told her that the loan was illegal and they are written off all the time. Makes me feel stupid sometimes for paying my bills.
That's nonsense. In a short sale, the first needs to get approval from junior lienholders because they are either going to take a haircut or they are going to get wiped out entirely. That is as it should be because the juniors have a legal interest in real property that cannot just be made to go away by waiving a magic wand.
Of course, if the first thinks the juniors are being unreasonable, the first has a remedy. The first can foreclose. Then the juniors either have to bring the seniors current or they lose their interest in the property.
Our real estate market has operated this way for quite and there is no reason why it should operate differently now.
That's enough to collapse any economy, but it's even worse. The Fed is artificially keeping interest rates below the cost of capital to reinflate the housing market and let zombie banks make free money by parking it with the Fed, or leverage with derivatives.
Banks are foreclosing as a legal process (when they don't get tripped by the MERS title fiasco or second liens) but they're not evicting because there are still not enough buyers and entire communities would quickly fall into disrepair.
It gets worse, the top global banks cooked the books on LIBOR, calling into question the pricing of $365 TRILLION in interbank loans, business, adjustable rate, and student loans, and an incalculable mountain of exotic derivatives.
I could go on and on. This coming global collapse will make all previous depressions during modern industrial times look mild and short.
I've never seen any analysis on how many of the failed mortgages were CRA loans. Someone with essentially no income buying a $100,000 house because of the CRA was a problem. However someone with a $50,000 income buying a $500,000 home anticipating that it will be up to $700,000 soon was also a problem but had nothing to do with the CRA. Which was the more common loan? I really don't know and have never seen any numbers on it.
The biggest problem seems to have been the disappearing down payment. I you needed 10% down, then you could only afford a $300,000 mortgage if you had $30,000 available. Eliminated the down payment requirement with 80%/20% loans or even 100% on the first and suddenly you can "afford" any price of house.
By the way, whatever happened to the private mortgage insurers? I remember that I had to pay PMI because I could only put down 10% instead of 20% when I bought a house in 1990. Why aren't they paying anything? Or were they just set up to pay for an occasional individual being unable to pay instead of a wholesale collapse and they quickly went bankrupt in 2008?
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth (such as Australia, Canada and India), and the United States. It is also experiencing gradual change because of the UK's membership of the European Union and international organisations like Unidroit. Any agreement that is enforceable in court is a contract. Because a contract is a voluntary obligation, in contrast to paying compensation for a tort and restitution to reverse unjust enrichment, English law places a high value on ensuring people have truly consented to the deals that bind them in court.".....
True, in the world before ObaMao. The recent settlement with the AG forced the 1st lien holders to write down their mortgages without regard to 2nds. Hundreds of years of settled contract law has been upended with the union pension bailout (GM's VEBA), Fannie/Freddie/AGI and bank bailouts - the list it too long for me to type.
Another factor is proving a free-and-clear title after all of the securitization, illegal title assignment to MERS (or is it mears), the Fed, Fannie, etc. It's fubar on steroids and there is no case law to unravel it. It'll take a collective do-over to reset the market.
Well we know what Obama thinks about contract law from the GM bailout deal.
The private mortgage insurer was AIG and the government stepped in (bush) and bailed them out in TARP one. It was the sole cause of AIG Failure.
Noe , I think you are correct on the 300,000 homes. FHA changed its rules to actually go to $750,000 with government purchase or guaranty. These big loans wer put into Tranches with other crappy loans. FHA. Fannie and Freddie required+ no down payment and had lower requirements for women and minorities ( even to the point of waiving closing costs!! . Mortgage brokers will tell you that a warm body could get a huge loan on stated and not even verified income. Many were coached to lie, Appraisals were rigged to meet FHA rules. FHA and Fannie Mae and freddie mac were all politically trying to get poor people in houses at any cost for votes, If you had that guaranty you could sell that loan WITHOUT RECOURSE for about 109% of its face value because the total cash stream was much larger than that with ARM interest,
Now we see the bad old banks used robo signature to foreclose?? Give me a break!
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