At the beginning of this year, Senate Bill 931, which stated that lenders who have agreed to a short sale would not have the ability to obtain a deficiency judgment against the seller after theshort sale was completed. The law…
Nearly 10.9 million, or 22.5 percent, of all residential mortgages had negative equity at the end of the second quarter of the year, according to a report released Tuesday by the analytics firm CoreLogic.
An additional 2.4 million borrowers had less than 5 percent equity in the second quarter, according to the report, which also shows that nearly three-quarters of homeowners in negative equity situations are also paying higher, above-market interest on their mortgages.
Nevada held the top position in terms of negative equity with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent), and California (30 percent).
“High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” said Mark Fleming, chief economist with CoreLogic in releasing the data.
Fleming added, “The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices.”
According to CoreLogic, 8 million borrowers with negative equity, or nearly 75 percent of all underwater borrowers, have above market rates.
Since the 2005 sales peak, non-distressed sales in ZIP codes with low negative equity have fallen 61 percent, compared to an 83 percent sales decline in high negative equity zip codes.
Short sales are being used more frequently by homeowners, lenders, and investors to avert a foreclosure, and industry data released by RealtyTrac this week shows that these pre-foreclosure transactions are being pushed through at a faster pace.
Freddie Mac says its short sales have risen from about 4 percent of completed workouts in 2000 to nearly 14 percent in 2010. The GSE warns that with the increase in short sale transactions comes an increase in fraud.
Short sale fraud has become the top priority for Freddie Mac’s fraud investigation unit, according to Shelley Poland, single-family chief credit officer. She says the GSE is working with agents and others in the field to identify real estate professionals who rig sales and hide higher offers from Freddie Mac and the seller in order to turn around and flip the property for a profit.
Freddie Mac has begun reaching out to Realtor associations in target markets to educate them about the latest trends in short sale fraud, the red flags to watch for, and what actions they can take to stop it, Poland said.
In addition to flipping schemes, the GSE is seeing trends in which agents manipulate the short sale price and obtain a low broker price opinion (BPO) by inflating repair estimates or making the house look more distressed than it really is, something called reverse staging.
Freddie Mac prohibits the buyer, buyer’s agent, buyer’s attorney, or a third-party short sale negotiator to be the contact point for the agents preparing the BPO.
The company says fraudsters are falsifying title and loan documents to obtain mortgages to buy short sale properties that can be flipped, and manipulating the HUD-1 settlement statement to skim net proceeds from the sale.
As a result of the uptick in short sale issues, Freddie Mac now requires all of the parties involved to sign an affidavit attesting that it is a true arms-length transaction, Poland said.
Known perpetrators are added to the GSE’s “Exclusionary List” – firms and individuals barred from conducting business with Freddie Mac – and face prosecution from law enforcement agencies.
By: Carrie Bay / DSNews.com