Dean Graziosi | Dean Graziosi Real Estate | Dean Graziosi Investment

What a difference a year can make! Lending service companies have reversed last year’s mortgage modification resistance in a resounding way.  According to a HOPE NOW survey, more than 159,00 mortgage modifications were completed in May 2010.

That brings the number of modifications in the first five months of 2010 to 800,536.  With new government incentives, lenders are finding it less expensive to attempt workout programs and modifications rather than foreclose.  Typically, lenders are not in the real estate ownership business.  The cost of maintenance, real estate management and real estate commissions makes owning and selling real estate an expensive proposition for banks.

HOPE NOW includes counseling organizations approved by the agency and mandated to work with troubled homeowners.  These counselors are equipped to work with homeowners in credit counseling and debt management as well as short sale tutoring and foreclosure instruction.

Faith Schwartz, a senior adviser for HOPE NOW, said, “The latest results continue to support the industry’s unprecedented efforts to assist borrowers across the country using myriad foreclosure prevention programs.  The industry has made great strides and is organized around significant efforts.  It is incumbent that the industry, government and non-profit segments continue to collaborate until the housing market has stabilized.”

The Treasury Department reports that 49 percent of homeowners who do not qualify for permanent Home Affordable Mortgage Programs (HAMP) have been placed in alternative modification plans with comparable payment reduction benefits. In addition to the 159,000 mortgage modifications processed in May, another 213,000 trial alternative workouts such as forbearance and repayment through short sales were initiated.

These figures are definitely encouraging.  However, there remains some pretty discouraging news relating to then success of modification loans.  Almost 206,000 foreclosure actions were commenced in May.  Almost 100,000 foreclosures were finalized during the month.

HOPE NOW reports that 9.50 million mortgage workouts have been offered to distressed homeowners since July of 2007.  Nearly 3.2 million of these workouts are loan modifications.   

The Homebuyer Tax Credit Bill that provided qualified first time homebuyers an $8,000 credit and other qualified homebuyers as much as a $6500 tax credit carried two major criteria.  The first was that the homebuyer had to go to contract on or before April 30^th 2010.  The second clause required the homebuyer to close the transaction on or before June 30^th 2010.

As the closing date deadline drew near, real estate agents and lenders notified the purchasers that many of the closings would not be completed within the required timeframe.  Unforeseen delays, especially when third parties were involved, were causing closings to be delayed by as much as 30-60 days.

Senator Harry Reid, the Senate majority leader, attempted to gain an extension until September 30th for homebuyers who expected the credit and who were compliant with the April 30^th purchase date.  Reid tied the extension request to a bill extending unemployment insurance to workers whose benefits were due to expire.  Unexpectedly the larger bill did not pass so the homebuyer’s request was also denied.

On Tuesday, June 29^th, the House of Representatives passed by an overwhelming majority 409-5, a version of the Reid amendment.  Reid, a Senator from housing-troubled Nevada, must now find a way to bring the measure to a vote on Wednesday so that President Obama can finalize the extension until September 30^th.

While it appears that the bill will move forward and that the nearly 200,000 homes that could not meet the closing deadline will receive the extension. Reluctant homebuyers may technically have a way out of their contracts.  Most homebuyers put a contingency in the contracts reserving them the right to cancel contract if the closing date was not met.  Technically 180,000 contracts will be in non-compliance.

As long as the extension occurs, the majority of homes will most likely proceed as expected.  However, the frustration of Congress delaying the extension amendment illustrates the danger of relying upon government to deliver on their promises.  When dealing with Washington today, the best plan is to expect the unexpected.  There is so much political infighting that positive results are difficult to attain.

In order for first time homebuyers to realize the significant $8,000 tax credit, eligible transactions must close on or before June 30, 2010.  Those homebuyers who were engaged in short sales or in foreclosure acquisitions and who planned on receiving the tax credit stand to forfeit the credit if they do not close on time.  In turn, this stands to jeopardize some 200,000 residential sales.

Unfortunately, lenders are still slow in closing short sales.  While procedures are more uniform than in the past, unexpected delays continue to take place.  The delays in decisions by lenders are likely to cause more than 200,000 buyers to lose their tax credits.

Foreclosures still take too long to close.  The main reason is that home inspections required by lenders bog down the closings.  Very often foreclosed properties need repairs before the new lender will close.  With either short sales or foreclosures, delays can set the closing process back as long as six months.

Short sales generally close two to three months after an acceptable offer is made.  For those buyers that expected to close earlier and capture the tax credit, the sellers will lose their contracts.  Reversals of these contracts will cause many sales to fall through.  The distressed housing market can hardly afford to lose 200,000 existing sales.

As a result, Congress is considering extending the closing date on contracts signed on or before April 30, 2010. The new closing date would be extended from June 30^th until September 30, 2010.  If Congress fails to act in time, most of these residences will end up back on the market.

Unexpected delays in the appraisal process have also slowed finalization of the eligible tax credit transactions.  As it is, the Obama Administration is already under pressure to resume the tax credit or similar legislation to give homebuyers another tax incentive. 

The vote on a possible extension does not appear to be a sure thing.  As usual, the political atmosphere in Washington is mired in infighting.  The biggest loser stands to be the housing market, which hardly needs another 200,000 homes back on the market.