By Nick Timiraos

Housing analysts are drawing more attention to one big problem that’s making loan modifications less successful and drawing out efforts to pursue short sales and other foreclosure alternatives: The presence of second mortgages such as home equity loans and lines of credit.

Today’s Heard on the Street in the WSJ concisely explains why there’s a problem: Second mortgages stand behind the first lien and are supposed to take the first loss in a modification or short sale, and in the event of a foreclosure, they’re likely to be worthless, particularly if the home is underwater. Karen Shaw Petrou, an analyst at Federal Financial Analytics, concludes that most second mortgages “are nothing but air” because of big home price declines.

Second mortgages are held primarily by banks, and writing down seconds en masse would cause substantial losses at a time when banks are trying to boost their weakened balance sheets. Of some $1.05 trillion in second mortgages, $963 billion are on the balance sheets of commercial banks, savings institutions and credit unions, according to Amherst Securities, and around $442 billion sits with the nation’s four big banks. (For more on individual banks’ exposure to second mortgages, see this December article–subscription required–from American Banker.)

But most modification activity centers on first mortgages, which are held by both banks and other mortgage investors, including government-owned mortgage-finance giants Fannie Mae and Freddie Mac. Today’s Heard notes:

If a borrower with a first mortgage and a home-equity line gets a modification on the senior loan, he or she has more money to pay the junior debt. The first-mortgage holders suffer, while the junior-mortgage holder, nearly always a bank, benefits.

Around half of all first mortgages in private-label pools of mortgage-backed securities have a second mortgage, according to research from Laurie Goodman, a mortgage analyst for Amherst Securities. Modifications would likely see lower rates of re-default, she notes, if second mortgages were modified along with the first. And while there hasn’t yet been a major push to modify loans by reducing principal, the second-lien hurdle will loom even larger if principal writedowns become more commonly adopted.  It’s hard to envision investors who hold first mortgages surrendering to principal writedowns if the second mortgage holder doesn’t also have to bite the bullet.

Second mortgages are also a big stumbling block on short sales, where the borrower sells the home for less than the value of the amount owed. Real-estate agents have complained for months that many of these deals fall through because the second-lien holder isn’t willing to approve the deal, or is requiring more money from the transaction.

If you’ve got a short sale or modification that’s been tied up by a second mortgage, drop us a note: nick.timiraos@wsj.com.

Check out what the Wall Street Journal says about the year of the short sale….Give me a call to evaluate your position with a short sale, the consult takes about an hour and you will have a ton of information.   -Michelle

By Nick Timiraos

If 2009 was the year of the foreclosure (and loan modification), then 2010 may be shaping up as the year of the short sale.

In the Phoenix metro area, the number of completed short sales, where lenders allow a home to sell for less than the value of the mortgage, increased by 60% in the last three months of 2009, according to Fidelity National Title Insurance Co. In December and January, sales of bank-owned homes fell by 25% from one year ago, while short sales increased by 16% and traditional sales rose by 9%.

For years, real-estate agents have groaned about the difficulty of pulling off a short sale, which can involve a handful of third parties—the first and second mortgage holders, the mortgage insurance company, or Fannie Mae and Freddie Mac. Locking up all the approvals for a short sale can take months, leading potential buyers to walk away from the deal or a lower appraisal to scuttle the deal.

That’s especially frustrated agents because short sales let banks avoid having to foreclose and manage the property themselves, and it often results in a better price than the bank would receive if the property went to foreclosure. According to Fidelity, sales of bank-owned homes in the Phoenix region often result in $38,000 less per transaction than short sales.

A another quarterly report on loan metrics from bank regulators, which includes data on around two-thirds of all first mortgages, found that around 31,000 short sales were completed in the third quarter of 2009, more than double the level from one year earlier. (By comparison, there were 118,000 foreclosures during that quarter, a 7% decrease from one year earlier).

Housing economist Thomas Lawler has predicted that an uptick in short sales as a share of total sales could also provide an unexpected lift to home prices this year. He estimates that short sales accounted for around one in five distressed sales last year, up from around 9% in 2008.

“Given recent lender behavior, increased staffing in the loss mitigation area of mortgage servicers, and the administration’s recent “push” … to encourage more short sales,” he writes, “it is extremely likely that the recent uptrend in short sales relative to foreclosure sales will continue this year.”

One of my clients sent this article from the New York Times to post. A totally must read for anyone interested in preserving their assets. Call me for the latest information on short sales and be safe -Michelle

John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

The moral suasion has continued under President Obama, who has urged that homeowners follow the “responsible” course. Indeed, HUD-approved housing counselors are supposed to counsel people against foreclosure. In many cases, this means counseling people to throw away money. Brent White, a University of Arizona law professor, notes that a family who bought a three-bedroom home in Salinas, Calif., at the market top in 2006, with no down payment (then a common-enough occurrence), could theoretically have to wait 60 years to recover their equity. On the other hand, if they walked, they could rent a similar house for a pittance of their monthly mortgage.

There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.

The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.

Think of private-equity firms that close a factory — essentially deciding that the company is worth more dead than alive. Or the New York Yankees and their World Series M.V.P. Hideki Matsui, who parted company as soon as the cheering stopped. Or money-losing hedge-fund managers: rather than try to earn back their investors’ lost capital, they start new funds so they can rake in fresh incentives. Sam Zell, a billionaire, let the Tribune Company, which he had previously acquired, file for bankruptcy. Indeed, the owners of any company that defaults on bonds and chooses to let the company fail rather than invest more capital in it are practicing “strategic default.” Banks signal their complicity with this ethos when they send new credit cards to people who failed to stay current on old ones.

Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.

In some states, lenders also have recourse to the borrowers’ unmortgaged assets, like their car and savings accounts. A study by the Federal Reserve Bank of Richmond found that defaults are lower in such states, apparently because lenders threaten the borrowers with judgments against their assets. But actual lawsuits are rare.

And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.

No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth.

The angst for Sacramentans wrestling with the decision of Short Sale VS. Foreclosure is becoming more widespread by the day. Sacramento which is one of the cities near the top of the list nationwide for foreclosures has become ground zero for what is happening around the country.

Sacramentans are meeting with professionals who are suppose to be knowledgeable about foreclosures and they still are not sure whether to let their home go to foreclosure or expend the mental energy to attempt a short sale on their property. Here are some very important points for homeowners in Sacramento in considering making their final decision on whether to short sale or foreclose.

Impact On Their Credit Score

Keep in mind that there are too many variables outstanding to make a blanket assertion as to the affect on their credit score because everybody’s circumstances are different. That being said, it is possible for their score to be lowered anywhere from 250 to over 300 points if you let their house just go into foreclosure and can typically affect their score for over 3 years. With a short sale only late payments on the mortgage will show and after the sale the mortgage is typically reported as paid, negotiated, less than full payment, etc. Providing all other payments have been made on time this could potentially lower their score as little as 50 points. This does however depend on other facts like, length of credit history, amount of credit, balance to credit ratios, etc.

Impact On Sacramentans Credit History
A foreclosure will be reported on their credit history for at least 7 years. At the time of this writing there is no reporting for a short sale. The loan is typically reported as paid, negotiated, less than full payment, etc.

Ability To Obtain Future Fanniemae Financing On A Primary Residence In Sacramento

Letting a home go to foreclosure renders you ineligible for another Fanniemae backed mortgage for a period of 5 years. If their are successful closing a short sale you will be eligible for a Fanniemae backed mortgage after 2 years.

Ability To Obtain Future Fanniemae Financing On A Non Primary Residence In Sacramento:

If you are an investor and you let the home go to foreclosure that would render you ineligible for a Fanniemae backed mortgage for a period of 7 years. If you are an investor and you are successful at closing short sale you will be eligible for a Fanniemae backed mortgage after only 2 years.

Ability To Obtain Future Financing With Any Mortgage Company In Sacramento:

On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” this will affect future rates. There are no similar declarations or question regarding a short sale.

The Affect on Security Clearances:

A Foreclosure on their record can make obtaining a security clearance impossible. It can rate just below a felony conviction or a serious misdemeanor. If you have a foreclosure and are a police officer, in the military, in the CIA, Security, or any other position that requires a security clearance in almost all cases clearance will be revoked and position will be terminated. A Short Sale on its own does not challenge most security clearances.

The Affect On Their Current Employment In Sacramento:

Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground for immediate reassignment or termination. Because a short sale is not reported on a credit report there are usually no employment issues.

The Affect On Future Employment In Sacramento:

A lot of employers in Sacramento are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment. A short sale is not reported on a credit report and as a result there are usually no future employment issues.

Deficiency Judgment in Sacramento:
Lenders in Sacramento have the right pursue a deficiency judgment. With a short sale it is possible to negotiate with the lender to not pursue a deficiency judgment against the homeowner.
The author Leon C. Williams is a Financial Strategist in Sacramento California. He specializes in Total Asset Optimization. His Real Estate website is http://sacramentoshortsaleguru.com. Email is leon@williamslandmark.com and phone number is 916-470-5004.

December 6, 2009 by  

Now fueled to a growing degree by prime borrowers, the foreclosure crisis is not abating, and U.S. Treasury officials are hoping new incentives will accelerate short sales and other alternatives to rescue homeowners.

Starting on April 30, amendments to the government’s Home Affordable Modification Program (HAMP) will offer new incentives to lenders to accelerate short sales or DILs.

New Treasury guidelines for foreclosure alternatives will require lenders to consider borrowers for a short sale on their primary residence 30 days after missing two consecutive payments on a modified loan or after the borrower requests a short sale.

U.S. officials are also offering incentives. It will pay up to $1,500 for a homeowner to relocate; $1,000 to lenders that accept a sale to cover processing expenses, and a maximum of $1,000 to help settle a second mortgage or subordinate lien. The Treasury plan requires that borrowers be fully released from future liability for the debt.

This year, lenders are increasingly resorting to the foreclosure alternative, with figures showing a tripling of short sales in the first half of 2009, compared to last year. But U.S. Treasury and bank regulatory officials say foreclosures are still greatly outpacing the alternative of short sales or DILs, deeds-in-lieu of foreclosure. For every short sale or DIL as of the first half of 2009, there were 23 foreclosures, according to the Office of the Comptroller of the Currency.

In a short sale, the lender allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the mortgage.

In the much less common, deed-in-lieu of foreclosure, the borrower voluntarily transfers ownership of the mortgaged property to the lender to fully satisfy the total amount due on the first mortgage. The lender’s approval is contingent upon the borrower’s ability to provide marketable title, free and clear of mortgages, liens and encumbrances.

According to the Treasury, the new incentives simplify and streamline the use of short sales and DIL options by incorporating the following features:

• Complements HAMP Program by providing viable alternatives for borrowers who are eligible.
• Utilizes borrower financial and hardship information collected from HAMP program, eliminating the need for additional eligibility analysis.
• Allows the borrower to receive pre-approved short sale terms prior to the property listing.
• Prohibits the lender from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
• Uses standard processes, documents and timeframes.
• Provides financial incentives to borrowers, servicers and investors.

Daily Real Estate News  |  November 24, 2009  |  

More than 23 percent of people with mortgages owe more on their properties than they are worth, according to a report released Tuesday by research firm First American CoreLogic.

Another 2.3 million homeowners are within 5 percent of being underwater, bringing the total of those who are upside down or close to it to about 28 percent.

About 5.3 million U.S. households have mortgages that are at least 20 percent higher than their home’s value, the First American report says. Borrowers owing more than 120 percent of their home’s value are the most likely to default, First American calculates.

The majority of underwater mortgages are in the following states:

1. Nevada: 65 percent of home owners are underwater
2. Arizona: 48 percent
3. Florida: 45 percent
4. Michigan: 37 percent
5. California: 35 percent

The report also notes that most U.S. homeowners have home equity, and nearly 24 million owner-occupied homes don’t have any mortgage at all, according to the U.S. Census Bureau.

Source: The Wall Street Journal, Ruth Simon and James R. Hagerty (11/24/2009)

Yesterday, I was fortunate to witness first hand the mediation process with a client of mine. The 2009 Nevada Foreclosure Mediation Program is the first in the nation which forces the banks to communicate with the home owners about how they can retain possession via a loan modification  or other types of instruments that are also available such as a forbearance agreement, extension agreements, repayment plans, etc.

What most people do not know is that this program also allows the home owner another option which is to negotiate a return of the property to the bank. The variety of swaps include a Principal Forbearance agreement, Deed in Lieu of Foreclosure, Voluntary Surrender, Cash for Keys or my personal favorite, Short Sale.

The good news is that if you apply within 30 days of the Notice of Default, you are guaranteed a meeting with the bank or their representative to discuss these two levels of options. Beware however, that the banks are bringing attorneys to the table so you probably need to be prepared to have legal assistance if you want to come out of the mediation unscathed.

If you don’t have the money for private counsel keep your discussions brief, answer the questions simply and avoid discussing anything that you are not certain will advance your position. The attorney’s for the banks are on a hunting mission and are looking for details such as hidden assets.

There will be resolution for you at the mediation and if you decide to walk away since your home is so under water, it’s a choice that is perhaps the wisest one you can make.

Do give me a call so that I can school you on the process. Being knowledgeable is fair armed. Best of all, you can get an immediate approval to short sell your home, stay in the home until close of escrow and some banks will even give you a bonus if you deliver the property in good condition. It’s an equitable solution. Don’t be afraid to learn your rights.

It’s a wonderful to live in Nevada.    Happy Thanksgiving       -Michelle

 P.S. The client that I was with was unable to negotiate a significantly reduced mortgage payment with the lender. Although we encouraged the lender to allow a principal reduction which would have easily made the payment affordable and avoid the short sale, the lender did not agree. Thus we have listed the home.

 It’s getting pretty obvious now that the Law Schools are writing papers on the “Social Management” of how the banking systems are still controlling the decisions people are making about maintaining massive mortgage debt vs bailing on the debt. This is a very insightful article  and paper written by Brent T. White. Lots to think about.

If you decide to short sale after you read this doo-sey do call me.       Michelle Plevel

This is a very good research paper from the University of Arizona entitled “Underwater and Not Walking Away:  Shame, Fear and the Social Management of the Housing Crisis.  Warning the .pdf is 54 pages long, but worth reading in its entirety. The paper’s assertion is that there is a huge asymmetry between lenders and borrows in terms of financial, moral, and social responsibility when it comes to home mortgages.    The playing field is not level and biased towards lenders which keeps people tied to paying mortgages on properties which are so severely underwater that it will take 18-20 years or more to recover, yet people with a solid financial understanding  will continue to pay despite the financial  logic of walking away. ( I am in that boat, I suspect many others here are also) The paper’s conclusion is it is time to put to rest the assumption that a borrower who exercises the option to default is somehow immoral or irresponsible. To the contrary, walking away may be the most financially responsible choice if it allows one to meet one’s unsecured credit obligations or provide for the future economic stability of one’s family.Individuals should not be artificially discouraged on the basis of “morality” from making financially prudent decisions, particularly when the party on the other side is amorally operating according to market norms and could have acted to protect itself by following prudent underwriting practices.The current housing bust should be viewed for what it is: a failure in government policies to promote housing in conjunction with loose monetary policies at the Fed – not a moral failure on the part of American homeowners. That being the case, it is time to take morality out of the picture and search for an equitable solution to the negative equity problem.  Other interesting tidbits: As of June 2009, more than 32% of all mortgaged properties in the U.S. were “underwater,” meaning that the homeowner owed more on their mortgage than their home was worth. This percentage is expected to increase to 48% by the first quarter of 2011, by which time housing prices in the largest 100 metropolitan areas are predicted to have dropped 42% from their peak. The national numbers hide the full extent of the problem, however, as the percentage of underwater mortgages is much higher in the regions suffering the worst price declines. For example, as of June 30, 2009, 66 percent of mortgage borrowers were already underwater in Nevada.  47% percent of homeowners in Nevada had negative equity exceeding 25% of their home’s value. The Financial Logic of Walking Away Before examining why more underwater homeowners are not strategically defaulting, it might be helpful to explore why they should. A textbook premise of economics is that the value of a home, even an owner occupied one, is “the current value of the rent payments that could be earned from renting the property at In other words, when the net cost of buying a home exceeds the net cost of renting, one is better off renting. The equation is not as simple, however, as comparing total mortgage payments to rent payments because home ownership carries certain benefits including tax breaks and the potential for appreciation. Additionally, assuming a non-depreciating market, the portion of the mortgage payment that goes to principle rather than interest will eventually inure to the homeowner at the time of sale. On the flip side, homeownership carries significant costs that renting does not, including maintenance, homeowner’s insurance and substantial transaction costs upon selling In calculating whether to buy or rent, a potential homebuyer should compare the net cost of owning to the net cost of renting a similar home over the expected period of occupancy. The costs of owning include the interest-only portion of the loan payment, property taxes, maintenance, homeowners insurance, and transaction costs upon selling, minus the expected appreciation and cumulative tax savings over the planned period of ownership. As a rule of thumb, a potential homebuyer is generally better off renting when the home price exceeds 15 or 16 times the annual rent for comparable homes The calculation for a rational homeowner in deciding whether to strategically default on a home mortgage is similar to that for buying in that base calculation is still the cost of renting verses the cost of continuing to own. However, the underwater homeowner has additional considerations, including existing negative equity on the one hand and the costs of foreclosure on the other.  Even leaving aside these foreclosure costs, the calculation as to whether one is financially better off defaulting requires one to consider several additional variables for which one may not have good information. These variables include a reasonable estimate of the current value of one’s home, the cost to rent a similar home, an idea of how long one intends to stay in the home, and an estimate of the average appreciation or depreciation one’s home is likely to experience over that period of time. While each variable requires some guessing, there is a wealth of information available to assist homeowners in making rational estimates – should they endeavor to do so With these estimates in hand, a homeowner also needs to know the current principle balance on their mortgage(s), the monthly interest-only portion of the mortgage(s), monthly mortgage insurance, if any, the amount monthly taxes, insurance, and homeowners association dues, if any, and their annual tax savings from owning verses renting. A rational homeowner can then make relatively simple calculations as to how much money they would save or lose by walking away, both on a monthly basis and over time. They can also predict out how long it will take to recover their equity Homeowners should be walking away in droves. But they aren’t. And it’s not because the financial costs of foreclosure outweigh the benefits. To be sure, foreclosure comes with costs, including a significant negative impact on one’s credit rating.43 But assuming one had otherwise good credit, and continues to meet other credit obligations, one can have a good credit rating again – meaning above 660 – within two years after a foreclosure  Additionally, in as little as three years, one can qualify for a federally-insured FHA loan to purchase another home While the actual financial cost of having a poor credit score for a few years may be hard to quantify, it is not likely to be significant for most individuals – especially not when compared to the savings from walking away from a seriously underwater mortgage. While a good credit score might save an average person ten of thousands of dollars over the course of a lifetime, a few years of poor credit shouldn’t cost more than few thousand dollars. Moreover, one who plans to strategically default can take steps to minimize even this marginal cost. For example, one could purchase a new vehicle, secure a new home to rent, or even purchase a new house before beginning the process of defaulting on one’s mortgage. Most individuals should be able to plan in advance for a few years of limited credit There are, of course, costs to foreclosure other than temporarily poor credit. These include moving costs and possible transportation costs if one is required to live further from work or school. But again, these costs are minimal when compared to the savings of shedding a home that is hundreds of thousands of dollars underwater. The most significant financial risk from a foreclosure is the risk of a deficiency judgment or, in the alternative, tax liability for the unsatisfied portion of one’s loan upon foreclosure. But even these potential costs are significantly less than one might expect. First, a number of states – including many with the biggest declines in home values – are non-recourse states, meaning that lenders may not pursue homeowners for a deficiency judgment if the home was their primary residence. Second, even in recourse states, lenders rarely pursue borrowers for deficiency judgments unless they have special reason to suspect  the borrower has means to pay it. This is particularly true to the extent that the home is in a state where lenders are overwhelmed with foreclosures.47 Third, tax regulations have recently changed to waive taxes on the unpaid portion of a mortgage upon foreclosure, which was previously classified as income to the borrower if the lender reported it as such.

Daily Real Estate News  |  November 2, 2009  | 

Pending home sales rose again, marking eight consecutive monthly gains – the longest streak since measurement began in 2001, according to the National Association of REALTORS®.

The Pending Home Sales Index,^* a forward-looking indicator based on contracts signed in September, rose 6.1 percent to 110.1 from a reading of 103.8 in August, and is 21.2 percent higher than September 2008 when it stood at 90.9.

The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8.

Lawrence Yun, NAR chief economist, said the momentum is understandable.
“What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”

Watch a video interview of Yun as he talks about these latest pending-home sales trends.

NAR estimates approximately 3 million renters are now financially well-qualified to buy a median-priced home. “As long as buyers do not overstretch and stay well within their budget, a sizable pent-up demand can be tapped among financially qualified potential buyers,” Yun said. “Although the tax credit is greatly reviving the existing home market, new-home sales may continue to struggle as home builders hold back production to drive down inventory. In addition, there remains an ongoing credit crunch for construction loans.”

The Pending Home Sales Index in the Northeast slipped 2.0 percent to 83.6 in September but remains 16.9 percent above September 2008. In the Midwest the index rose 8.1 percent to 98.2 in September and is 17.8 percent higher than a year ago. In the South, pending home sales increased 4.9 percent to an index of 109.7 and is 22.8 percent above September 2008. In the West the index jumped 10.2 percent to 143.8 and is 23.7 percent above a year ago.

Yun added that strong near-term reports should not be overstated. “We’re clearly not out of the woods because an excess of homes remains on the market despite recent improvements,” he said. “Although current inventory is getting closer to price equilibrium, foreclosures will continue to enter the pipeline. An extended and expanded tax credit would help absorb this incoming inventory.”

— NAR

Daily Real Estate News  |  October 29, 2009  |  

 Key lawmakers in the Senate have tentatively agreed to extend the existing $8,000 tax credit for first-time home buyers and also offer a new $6,500 credit for existing homeowners who have lived in their current residence for a consecutive five-year period in the past eight years.

Home buyers must be under contract by April 30, 2010, and close before July 1. House Democrats have expressed concern about the cost of the tax credit for the government, and allegations of abuse have resulted in an IRS probe of the program.

Source: Wall Street Journal, Corey Boles and John D. McKinnon (10/29/09)