The new buzz phrase in distressed real estate is “strategic default”, or purposely walking away from an upside down mortgage. Apparently, wealthy homeowners are handing the keys back to the bank at a higher rate than their middle-class counterparts.

The NY Times reports that homeowners with mortgages in excess of $1 million are defaulting at a 1 out of 7 pace.

From the NY Times article:

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

Read more at the NY Times.

Photo courtesy of Corvair Owner, used under Creative Commons license.

I had not heard locally of a backlog, but I suppose homes that are short sales that are still awaiting lender approval could be affected.

More info at CNBC.

From the Making Home Affordable Program:

A homeownership preservation workshop, sponsored by the Obama Administration’s Making Home Affordable Program, HOPE NOW Alliance and NeighborWorks® America, will be held in Portland for all homeowners who may be at risk of foreclosure. The workshop is free, open to the public, and provides a chance for homeowners to meet face-to-face with their mortgage company and a HUD-approved counseling agency to work on a solution to help them stay in their home.

WHO: Portland homeowners who are in default on their mortgage or may be at risk of foreclosure
WHAT: Free Homeownership Preservation Workshop
WHEN: Tuesday, March 23, 2010, 1:00 pm -7:30 pm
WHERE: Doubletree Hotel Portland, 1000 NE Multnomah Street, Portland, OR 97232

The Obama Administration’s Making Home Affordable Program was created to help millions of homeowners refinance or modify their mortgage payments to a level that is more affordable.

More information at www.MakingHomeAffordable.gov and a link to the flyer (in Spanish, too).

From the New York Times comes:

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave. This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

The full article at the New York Times.

First, the Federal Reserve will discontinue its purchase of mortgage-backed securities, which has artificially kept mortgage rates down. Then, the homebuyer tax credits will expire at mid-year, leaving the housing market to fend for itself.

How will it do?

The New York Times hit that subject today, and while Portland is no Elkhart, Indiana, I do worry about the second half of the year here.

…it is uncertain whether the government can really pull back without sending housing markets into another tailspin. “A rise in rates would kill us all by itself,” Ms. Swartley (Elkhart Realtor) said.

The Obama administration has offered few ideas about reforming the housing market. Proposals for the future of Fannie Mae and Freddie Mac, the mortgage holding companies taken over by the government at the height of the crisis, were supposed to be introduced with the president’s budget this month. They were not.

The government programs, however crucial, are distorting the market. The tax credit produced sales last fall, but some lenders here say it has troubling implications.

Troubling, indeed. Read the full NYT article here.

Photo by pfala, used under Creative Commons license.

Here’s a 4-minute video showing why (some) banks aren’t really interested in HARP refinances or modification:

Click here to view the embedded video.

Hat tip to Ralph Olson at Pacific West Appraisal.

In a move to minimize its own insolvency and avoid a bailout, the FHA is refining its lending guidelines and raising fees to borrowers.

In changes expected to occur in the first half of 2010, FHA-insured loans will require:

• Up-front mortgage insurance premiums to be 2.25% (up from 1.75% currently).
• Minimum FICO credit score of 580. Lower credit scores will require a 10% downpayment.
• Sellers limiting credits toward buyer’s closing costs and prepaid expenses to 3% (currently 6%).

From USA Today:

The changes, aimed at strengthening the FHA’s reserves in the face of rising foreclosures, shouldn’t hurt too many borrowers, officials say.

“We don’t expect this to have a significant impact on the housing market,” says FHA Commissioner David Stevens, adding that “the moves are designed to get the reserves back up.”

The FHA is playing a greater role in the mortgage market, insuring about 30% of new loans, up from 3% in 2007. Growing defaults have cut its reserves below the level mandated by Congress, leading to fears that it might need a taxpayer bailout.

The rule had been in place to reduce the practice of speculators flipping properties for quick profit, but large inventories of foreclosures prompted the administration to suspend the rule in hopes of accelerating the sale of vacant properties.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The ruling will be in effect for one year. I don’t know if the ruling will have a significant effect on the Portland market in particular. Full text of the HUD announcement here.

[Photo courtesy of Lazurite, published under Creative Commons license.]

A long-time RMLS employee, Kurt has worked his way through the ranks at RMLS and, according to the RMLS Board of Directors Executive Search Committee, clearly distinguished himself from the other candidates interviewed for the position.

This is good news for the Realtors in the Portland/Vancouver metro area because Kurt’s appointment offers leadership continuity and also a firm grasp of the challenges ahead for the MLS — issues like declining membership due to housing market conditions, rapid technology advances, and sea change in the MLS industry in general.

Kurt succeeds Beth Murphy, who retired in December.

Data through September 2009, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index improved in the third quarter of 2009, posting its second consecutive quarterly increase and further improvement in its annual rate of return.

Portland registers 14th out of 20 cities monitored by the Case-Shiller index for 1-year home price performance. A half-point dip in September vs. August home prices puts the Portland metro area at a 12% decline in home prices over the past 12 months. The 20-city index registered an average 8.9% drop.

More from the report:

As of the 3rd quarter of 2009, average home prices across the United States are at similar levels to what they were in autumn 2003. The 3rd quarter values show improvement over the previous two quarters of 2009 and have risen well off their recent bottom. The 10-City and 20-City Composites continue to show monthly improvement in their annual return figures. Both composites emerged from double-digit annual declines with September’s report, the first time in 21 months. In addition, 19 of the 20 metro areas saw improvement in their annual returns compared to the previous month, Cleveland being the only exception.

Here are the September Case-Shiller numbers, with metropolitan areas sorted by 1-year change.

Vegas, Phoenix and Detroit continue to drag behind the rest of the country with -28%, -22%, and -19% year-over-year declines. Denver and Dallas home values have held up quite well in the past 12 months.