Source The KCM Crew

Our blog a few days ago discussed the challenge that banks are facing in their attempt to complete foreclosures. Some courts are attempting to void the foreclosure if the bank did not properly transfer the mortgage from one bank to another. The courts are claiming that, if you didn’t ‘legally’ transfer ownership of the loan documents, then you don’t ‘legally’ own it. If you don’t own the debt instruments, you can’t foreclose on them. What does this mean to banks when they handle future foreclosures?

One possibility is that banks may start favoring ‘short sales’ over foreclosures in more cases. The ‘short sale’ option has already been gaining momentum. The OCC and OTS Mortgage Metrics Report shows foreclosures are up 57.5 % year over year; ‘short sales’ are up 82.9%.

Now, with courts scrutinizing the foreclosure process, it may make more sense for banks to work with the current homeowner to sell the home even if it is at a price less than the amount owed on the mortgage. Adding to this possibility is that banks could lose less in a ‘short sale’ than a foreclosure. A ‘short sale’ sells for 81% of what a similar, non-distressed property would sell. A foreclosure sells for 59% of full value.

In the past, banks weren’t concerned with the difference because mortgage insurance companies had the legal requirement to cover the majority of the additional loss. However, insurance companies are now fighting these payments claiming that the original mortgage application might have been fraduantly written. This all adds up to the liklihood that banks will look more favorably at the ‘short sale’ process.

To this point, an article in Housing Wire quoted John Vella, the chief operating officer at technology provider Equator:

“Investors usually see a 20% to 30% better execution on a short sale versus an REO sale when it comes to loss severity. With the foreclosure volume, current and pending REO inventories, servicers will be pressed to do more short sales in 2011…they could see an increase of at least 25% over 2010 in completed short sales.”

Bottom Line

For the reasons mentioned above, the banks will probably lean more toward ‘short sales’. If you are a homeowner not able to pay your mortgage, this may be a much better option then allowing the home to go to foreclosure.

Oswald Acted Alone and We Did Land on the Moon

by The KCM Crew

We believe that things are usually as they seem. We are not the type of organization that believes in conspiracies. However, there is something interesting in some of the housing price studies we are seeing in our research. It seems that some of the groups making the predictions are the same ones that have the greatest power to affect the prices they are projecting.

Most housing analysts warn that the heaviest downward pressure on prices will be created by distressed properties and the speed at which they will be released to the market. Research shows that ‘short sales’ sell at a 20% discount and foreclosures sell at a whopping 40% discount. Obviously, when and how much discounted real estate enters the market will have a major impact on prices of surrounding properties.

Back to our research

We are now seeing that a certain segment of those projecting future pricing have two things in common:

1. They believe prices will fall rather dramatically in the first half of 2011
2. They have control of the flow of discounted properties to the market

Predictions for the first half of 2011 by firms that fall in the above category:

• Bank of America projects that prices will fall 3.7%

• Fannie Mae predicts that median prices will drop $12,500

• Wells Fargo reported that they feel home prices will drop 8%

Not a coincidence

We are beginning to realize this is not a coincidence. The organizations which should best know when the surge of foreclosures will be released are saying house prices will be hit the hardest in the first half of the year. We are not asserting that there is anything devious in what we have found. We are just reporting that those who have control over the flow of distressed properties must think/know that inventory is about to be released. Why else would so many of them be predicting a sharp decline in home values in the next 120 days?

Bottom Line

If you currently have your house on the market and are hoping that you will see a better price after the snow melts or the temperature warms up (aka Spring), BE CAREFUL! Those in the know are warning you the best price might be attained TODAY!