According to Fitch Ratings, a global rating agency dedicated to providing ratings through independent and prospective credit opinions, research and data, reported severe delinquencies for U.S.  RMBS has shown improvement in all sectors in the fourth quarter 2012. The agent also predicts RMBS delinquencies to continue to decrease in 2013.

Fitch reported the 60-plus day delinquency index of 28.6 percent at the end of Q4 2012, down from 29.1 in Q2 and a decrease from 30.6 percent in Q4 2011.

Fitch stated, the improvement “reflects positive selection in the remaining pools, loan modification efforts by servicers, and positive home price trends.”

Liquidation rates for subprime and Alt-A loans reported a decline in the fourth quarter because of modifications in foreclosure procedures from servicers following stipulation and guidelines from the $25 billion national mortgage settlement.

The amount of losses on liquidated prime, subprime, and Alt-A loans improved with the increase in home prices as well as the increased use of short sales. Fitch predicts the amount of losses to continue to reduce in 2013.

“Short sales typically provide better recoveries on distressed loans since the time to resolution is much faster than a full foreclosure and the sale does not suffer from the market stigma of being a bank-owned property,” Fitch explained.

The increasing use of short sales also aided in reducing foreclosure completion rates to near historical lows. The report noted close to 60 percent of distressed loan resolutions were short sales and not foreclosures in fourth quarter.

Another excellent news, according to Fitch, liquidation timelines saw the first decline since the start of the financial crises with the help of short sales as well.

On the other hand, timelines for loans in the foreclosure process increased as servicers face the challenge of implementing new procedural requirements from the national mortgage settlement, Fitch noted.

The balance of unsettled loans in RMBS mortgage pools slips below $1 trillion in Q4 2012 for the first time since 2004.

From the start of 2012 to the beginning of the fourth quarter, national home prices have risen by 5 percent, with California seeing a more than 7 percent increase, according to Fitch.

“Helping the price increase was low mortgage rates and a lower percentage of distressed property liquidations,” Fitch stated.

Even though the prices appear to be getting better, Fitch believes the prices might still be somewhat above sustainable levels and certain areas are still at risk of declines.

“The Northeast in particular has not yet seen the significant declines seen in the rest of the country and as such is vulnerable to further home price declines,” said Grant Bailey, managing director at Fitch.

Eartha Wang

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According to (LPS) Lender Processing Services, foreclosure inventory in November 2012 dwindles as mandates from the national mortgage settlement slowed down the pace of foreclosure filings.

Foreclosure inventory decrease to 3.51 percent in November 2012, an almost 10 percent drop from September.  In February, state and federal official agreed on a settlement with five of the nation’s largest servicers—Ally, Bank of America, Citi, JPMorgan Chase, and Wells Fargo—over allegations of abusive foreclosure practices.

This settlement mandates servicers to give a 14 day notice before referring homeowners to foreclosure, and these notices were sent starting in September.

Foreclosure filing totaled 130,053 in November 2012, a 4.6 percent month-over month increase and a 27.6 percent yearly decrease.

As servicers get up to speed on settlement mandates, LPS stated it “expects foreclosure starts to rebound as mortgage servicers incorporate the new procedural requirements into their operations in the coming months.”

LPS also reported delinquencies have risen about 15 percent in areas impacted by Hurricane Sandy.  Since August 2012, the delinquency rate in New Jersey has increased by 15.2 percent to 8.41 percent, while Connecticut and New York have reported increases of 15.4 percent and 14.8 percent, respectively, during the same time period. Overall, the national delinquency rate stood at 7.12 percent in November and increased just 3.7 percent since August 2012.

As the number of foreclosures ramps up, the number of short sales should also increase due to the fact that short sale is best alternative to foreclosure for people who don’t qualify for loan modification. Short sale is being predicted to be sought by homeowners to avoid foreclosure for many reasons. These reasons include no deficiency judgments from the lender, no foreclosure on credit history, less time required to purchase the next house, able to meet security clearance requirements for employment purposed, etc.

Judicial states continue to have a larger portion of delinquent loans. Out of the top 10 states with the highest rate of non-current loans, seven required a judicial process.

The seven states were Florida, New Jersey, New York, Illinois, Maryland, Louisiana, and Connecticut.

Eartha Wang

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Florida, the state with the highest foreclosure rate in the country possibly will see a modification in its foreclosure laws that will facilitate the process. This bill attempts to reduce the backlog of foreclosure properties.

Florida has had the highest foreclosure rate for three straight months and has been one of the top-ranked states for a long time, based on the latest foreclosure report from RealtyTrac.  RealtyTrac also reported that 2 of the 5 top cities with the highest cases of foreclosures are in Florida – Miami and Jacksonville.

Florida Republican State Representative  Kathleen Passidomo (R-Naples) presented H.B. 87 last week to accelerate Florida’s prolonged foreclosure process through a number of modification to  the existing  law.

Under the newly introduced law, in order to seek foreclosure, a  lender must provide all the required documents that shows they have the right to foreclose.

If and when the homeowner sues a mortgage company for

When a discrepancy occurs and a homeowner sues a lender for unlawful foreclosure, the new bill allows the borrower to receive monetary damages but cannot reclaim their home.

This new bill also gives certain authorities to condo associations. If the bank moves too slow on the foreclosure proceeding, the condo association is allowed to pursue foreclosure. The association can take actions to facilitate the foreclosure close so it can reduce its loss.

This is a good indicator that the Congress is attempting to address the Foreclosure crisis in Florida. The hope is that the same bill can propagate to the rest of the country and not just Florida alone. In addition to reducing the time frame of Foreclosure, more laws should be passed to reduce the lengthy interval of short sale in order to help to nip the housing crisis in the bud.

Eartha Wang

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A foreclosure agency, YouWalkAway.com ,released a survey obtained from its clients and showed 78% of those who answered claimed  they were walking away from their primary residence.  As a minimum, 74% of all respondents would be qualified for tax break through the Mortgage Debt Relief Act of 2007.

The Mortgage Debt Relief Act allows forgiven debt through a short sale, loan modification, or foreclosure to be excluded as taxable income.

This Mortgage Debt Relief Act of 2007 was due to expired on December 31, 2012, however, Congress extended the act for another year to 12/31/2013.

“This extension hasn’t been well publicized but it is important to homeowners and realtors nationwide. Had this law not been extended, it could have brought a drastic halt to short sales and had a devastating effect on underwater homeowners,” said Chad Ruyle, YouWalkAway.com co-founder.

The one-year extension is not likely to encourage a new wave of foreclosures in early 2013.

Instead, the prediction is that the 12-month extension will encourage people who are behind on payments to find alternative options other than foreclosure such as a Short Sale or loan modification. This is because options such as Short Sale and loan modifications are much better alternatives than Foreclosures due to the fact that the lender can still come back with a deficiency judgment in the case of the Foreclosure but not Short Sale nor loan modifications. However, if the homeowner can no longer afford the mortgage and seemed hopeless of ever catching up, loan modification is no longer an option and leaving Short Sale as the only option. This is what leads to the prediction of the rise of Short Sale in 2013 as a result of the extension of the Mortgage Debt Relief Act for another year.

Eartha Wang

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