foreclosure

Does a shred of good news have an impact amid a forest of disastrous reports? The Mortgage Bankers Association reported that the number of loans in the foreclosure process declined in the second quarter of 2010 for the first time since 2006. The question remains whether this figure matters in light of the recent 27 percent decline in existing home sales. The answer is probably yes and no. The good news is that most of the subprime loans that contributed to the housing crash have worked their way through the system. The bad news is that many homeowners with conventional loans are now sliding toward foreclosure due to the persistently high unemployment rate. While nobody really knows whether home sales will recover in the coming months, it's nice to know that not every every market indicator is pointing toward the cellar.

Not long after University of Chicago systems administrator Vanessa Matthews, 49, separated from her husband, she experienced grave economic hardship. Not only did she lose her estranged husband's income, which had helped pay the $2,539 mortgage payment on the couple's duplex in the Bronzeville neighborhood of Chicago, but her mother -- who was renting the first-floor unit from her -- lost her job and couldn't pay the rent.

"Things had gotten pretty bad," says Matthews, who purchased her home seven years ago with a mortgage amount of about $250,000. "It was unbelievable to me that the banks weren't willing to work with me. I had never been late on my mortgage."

If she lost the house, not only would she have to find a new home -- but her mother and three teenage foster children would have to find a new place to live, too.

Matthews, who is African-American, is not alone. African-American and Latino homeowners have a disproportionate share of foreclosures nationwide compared with their percentage of homeownership, according to a new study conducted by the Center for Responsible Lending.

"Even though African Americans are 9 percent of the nation's homeowners, they make up 26 percent of the clients in the program," says Erin M. Angell Collins, a spokesperson for NeighborWorks America, the Congressionally created nonprofit that runs the National Foreclosure Mitigation Counseling Program. Latinos make up 8 percent of the nation's homeowners, a decrease from 11 percent in 2009, but 21 percent of the NFMCP program clients are Hispanic homeowners, Collins says. "They are in all stages of foreclosure or about to enter into foreclosure."

Why is housing discrimination of any kind still happening, and what can be done to prevent it?

While experts predict that the rate of foreclosures in 2010 will exceed those in 2009, there is some good news. RealtyTrac, an Irvine, Calif.-based data company, reported that the foreclosure rate dropped by about 5 percent during the first half of 2010.

Still, in the first quarter of the year, one in seven mortgages was delinquent or in foreclosure. That's the highest rate since 1979, when the Mortgage Bankers Association began keeping records. Foreclosures remain high in several states, including Florida, California and Arizona. In Michigan, one in every 237 homes is in some stage of foreclosure, a number that is expected to grow.

On the upside, that means a lot of deals are out there for homebuyers who have the patience and energy to tackle buying a foreclosed home.

You might think a vulture is the least likely creature to help you save your home. But there's a group of vultures who are doing just that -- in fact, they're being more of a friend, to many homeowners in trouble, than banks are.

One of them, mortgage-bond trader Lewis Ranieri, has developed a method to keep troubled borrowers in their homes by buying up mortgages at distressed prices, lowering principal balances and helping people make payments on time.

His firm, the Selene Residential Mortgage Opportunity Fund, is one of several working in the distressed market arena that are actually having great success helping homeowners stay out of foreclosure. Three others are in the same game: hedge fund Fortress Investment Group; Wilbur Ross, a well-known buyer of distressed assets; and Jeff Kaplan of National Asset Direct. All four buy mortgages on the cheap and write down principal to give underwater homeowners a reason to want to stay in their houses.

The head of the Philadelphia Housing Authority can relate better than most housing officials to the mortgage default problems facing many Americans. That's because Wells Fargo Bank has foreclosed on his $615,035 condominium in the upscale Naval Square development in Philadelphia. The amount in dispute is $386,685.22, according to Wells Fargo. As the PHA's executive director, Carl R. Greene is in charge of the country's fourth-largest public housing agency and is one of the city's highest-paid public officials. His salary is $306,370, and he received a $44,188 bonus last year. A spokesman for Greene said that he is involved in a dispute with his mortgage company. Greene, 53, has earned respect and praise for his efforts in reviving Philadelphia neighborhoods.

Confessed Times Square bomber Faisal Shahzad may be infamous for an attempt to detonate a car bomb in Manhattan's busiest plaza, but the foreclosure sale of his former Connecticut home ended like most auctions these days -- back in the hands of the bank.

At this past weekend's foreclosure auction, no one countered the $227,400 bid by Shahzad's lender, Chase Home Finance LLC, for the three-bedroom Shelton, Conn. residence, reports Bloomberg.

The home went into foreclosure after Shahzad, who is in jail with five felony charges, failed to repay the $213,000 owed by July 31.The confessed bomber stopped making his mortgage payments in June of last year, around the time federal authorities say he traveled to Pakistan to visit a terrorism training camp.

But the interested bidders said the fact a terrorist once lived in the house didn't dissuade them.

In the winter of 2009, Linda Powers was ready to retire and move with her husband from her bucolic community in the Colorado resort area of Crested Butte to Denver, closer to her children and grandchildren. But her retirement plan was based on her selling her 8-year-old home, once assessed for $1.2 million. She wanted to sell her house, but she ended up renting it to vacationers.

"It was the right time to let it go, but the timing was bad," Powers says. Because she considered her home her retirement fund, she said, she needed to sell it for close to that $1 million mark. But in this market, she expects she could only get about $800,000. After selling her business, she couldn't afford to keep paying the $3,000 mortgage. Unwilling to sell for less than she wanted, Powers turned to a solution that is becoming more popular with homeowners who find themselves in a tough housing market: She turned her home into a vacation rental that would generate enough income to help her make mortgage payments and allow her to continue on her retirement path.

Powers is now charging up to $400 a night for the three-bedroom, 2.5-bath home, through VRBO.com, a division of vacation rental site HomeAway Inc. She and her husband are now able to cover 75 percent of the mortgage.

"I got a lot less than I had hoped when I sold my business," said Powers, who had owned a toy store in Crested Butte for 31 years. "I needed to sell the house, but I didn't want to give it away at the wrong time."

Powers is just one example of those who have discovered a way to avoid financial straits as they navigate through the tricky waters of the real estate market.

If you're a cash-strapped homeowner, an offer to modify your mortgage or help you avoid foreclosure no doubt sounds tempting. After all, you may be behind on your home loan. Credit card bills could be past due, as well. And you're likely struggling just to make ends meet.

But when someone comes along promising to help you save your home, how do you know whom to trust?

Fortunately, there are reputable organizations available to help financially troubled homeowners – as well as some telltale signs that can tip you to a foreclosure rescue scam.

Is New York City in for another drop in real estate prices? That's one interpretation of the most recent Case-Shiller numbers, which analyze the health of residential real estate.

The prediction, by hedge fund manager Bruce Krasting, claims a drop in consumer spending will be the outcome of the stalled housing market.

It's not all that surprising a prediction, given that a double-dip in the housing market, as well as a double-dip recession was discussed by uber-prognosticator Meredith Whitney in an appearance on CNBC's Squawk Box two weeks ago.

Both Krasting and Whitney have pointed to the fact that a good number of the people whose homes have defaulted on their mortgage are waiting out the foreclosure process, which, in New York, can go on for up to two years. In the meantime, they have not been paying a mortgage.

"There is substantial evidence," Krasting writes, "that these people are buying iPhones and going on vacation with the money they are saving by not paying the debt."

In vacation home meccas such as California, Florida and Las Vegas -- where foreclosure numbers soared during the housing meltdown -- real estate agents have been employing a new sales tactic: foreclosure bus tours.

Next stop? Cincinnati.

According to The Cincinnati Enquirer, the trend -- in which Realtors organize groups of prospective buyers to view short sales and foreclosures -- also is catching fire in more traditionally stable markets in the Midwest.

And for one local agency in Cincinnati, the tours actually are helping to sell homes.

At Exit Realty West, foreclosure outings are an integral part of their sales efforts, and foreclosures and short sales generate about half of the company's business. In the county, foreclosure sales make up about 32 percent of all home sales in 2010.

Is it just that the sales technique is working or are the home buyers really getting a bargain?

"Operation Stolen Dreams" lands another alleged mortgage fraud conspirator this week. Nationwide, the feds have stepped up prosecution of mortgage and bank loan fraud.

This time, it's a builder in Chico, Calif., who has been indicted for allegedly selling unsold new homes to non-existent or straw buyers, thereby scamming loan funds from banks and other duped lenders. Per the FBI and U.S. Department of Justice, almost 500 people have been indicted nationwide since March 1, in a coordinated effort to address the problem of crime in the housing and mortgage industries. Losses from fraud schemes are estimated in excess of $2 billion.

In the Chico case, builder William T. Baker is now facing charges for mortgage fraud for allegedly setting up fake buyers for unsold homes, creating fraudulent loan applications and applying for loans for more than the homes were worth at the time in 2007 and 2008. Foreclosure was the end result, while Baker and accomplices allegedly pocketed the proceeds from the inflated home sales.

Anyone who has ever applied for a mortgage knows that extensive tax and financial information must be produced and that reams of documents must be signed, initialed and often notarized.

How could scammers be able to perpetuate such kinds of fraud?

If you never thought you'd read news about rapper Chamillionaire, political pundit George Stephanopoulos, and architect Frank Lloyd Wright all in a single article, today's your lucky day. It was all here on HousingWatch this week -- see what else our readers were interested in:

1. Rapper Chamillionaire Loses Houston Home to Foreclosure
Best known as a 1-hit wonder for "Ridin' Dirty" (inspiration for Weird Al's brilliant riff, "White 'n Nerdy"), the Houston-based rapper / businessman has decided to "give [his house] back to the bank" instead of continuing to make payments on a property he's "never at". Groan. Read more.

2. San Francisco Condo: Short Hop to Giants' Ballpark, $1.8M
Peep this stunning Bay Area condo that's within foul-ball range of San Francisco's AT&T park, home to MLB's Giants. The gorgeous 2-bedroom, 2-bathroom home features several hard-to-find features (in city-center San Franciso, anyway) such as two private rooftop decks, a solar spa, and a 1-car garage. Play ball! Read more.

The recession has taken a bite out of the McMansion, and experts don't expect homeowners will be supersizing their homes again anytime soon.

The U.S. Census Bureau released new figures, based on homes completed in 2009, which show that the average square footage of a new, single-family home completed in 2009 was 2,438; that is down from the peak of 2,521 square feet in 2007.

While the decision by many purchasers of new homes to build smaller mirrors trends from previous recessions, many say the difference this time is that they don't expect to see homes gaining in size in the foreseeable future.

"Buyers are remaining cautious," said Stephen Melman, director of economic services at the National Association of Home Builders. "If there's any way to save money, they will. Smaller homes equal smaller costs, including energy bills. The job market is still shaky, we don't know what will happen with energy prices. You want to protect yourself a bit, and all these factors are going to come into play when you think about how much house you need."

Who needs two stories, for example, when you can make do with one?

If all the stories in recent months about walking away from your mortgage are to be believed, the practice of not paying this once-sacred obligation has become, if not quite acceptable, then at least understandable. Whether a person is underwater on his or her mortgage, is unemployed, or both, when you listen to the reasons why they decide to give the house to the bank, it actually starts to make sense.

But the costs aren't always apparent.

If you paid $250,000 at the top of the market three years ago, with a 5 percent down payment on a home that is now worth $150,000, why would you continue paying a mortgage that is more than the home is worth? Why not walk away, find a nice rental, and wait out the downturn while you do everything you can to repair your credit rating?

"We've seen an increase in the number of people contacting us about it," said Jon Maddux, CEO of YouWalkAway.com. His company, for a fee, counsels people on how to implement a strategic default (a voluntarily walk-away) from their mortgage. "People have tried other options -- whether it was a loan modification, a short sale -- and it didn't work. This is the next phase."

Still, says Maddox, "We know it's not for everyone. We prefer they try other options if they can before simply walking away. There's more strategy to it than just not paying the mortgage and waiting for the bank to foreclose."

Indeed, there are several reasons, say experts, to continue paying your mortgage. The consequences, they say, can go beyond the ignominy of not honoring your obligations and the hit to your wallet.