The following article in CNN Money has an interesting premise about housing inventory….which will also affect housing pricing.

Check it out below…..

http://money.cnn.com/2010/06/15/real_estate/new_housing_bubble/index.htm?hpt=T2

Fannie Mae announced earlier this week a 7 year lock out for new mortgages for those who strategically default. The following link will take you to their official press release…http://www.fanniemae.com/newsreleases/2010/5071.jhtml

This is another example why options such as short sales are the better way to go. Fannie Mae only has a 2 year lock out for new mortgages on Short Sales. Plus there is less of a hit on the credit and non of the stigma associated with a Foreclosure. Plus it publicly records as a normal sale, unlike a foreclosure.

More owners opt to walk and leave mortgages behind

by Catherine Reagor - Mar. 17, 2010 12:00 AM
The Arizona Republic

More Phoenix-area homeowners are walking away from their mortgage payments, and many more are likely considering it.
These are not people losing homes due to severe financial problems. “Walking away” now also describes people who can make their payments but don’t want to because they owe much more than their home is worth.
Metro Phoenix’s 50 percent drop in home values has left tens of thousands of homeowners here underwater, owing more than the market value of their house. Many people who bought houses during the market peak are paying mortgages double their home’s current worth. Most can’t sell now and will have to wait years before values rise enough for them to sell without taking a loss.
So, many walk away. Many of them are angry about federal bailouts for lenders who seem reluctant to work with homeowners on loan modifications. Frustration and anger increasingly outweighs the social stigma of foreclosure. In a populist twist, some homeowners are even proud of stiffing lenders.
Circumstances are also on their side. Lenders are overwhelmed and slow to foreclose, allowing mortgage defaulters to stay in their homes for months without paying anything. Many homeowners who walk away can rent comparable houses for half their current mortgage payment. And laws in Arizona prevent lenders from going after the personal assets of those who default on a mortgage.
There are no hard figures on the number of Phoenix homeowners who have walked away from their mortgages. Nationally, one recent study found at least 25 percent of all foreclosures are driven by “strategy,” not necessity. And there are fewer penalties for walking away in Arizona than most other states. Foreclosures in the Valley continue to hover around record levels.
What worries housing-market experts is that if more people walk away, then even more foreclosure properties will continue to depress the market and delay any recovery.

By the numbers

Joe Giovale paid $390,000 for a north Phoenix home in 2006. He knew home prices wouldn’t keep climbing at the same brisk pace, but he expected steady appreciation of about 2 percent a year.
Giovale’s home is surrounded by foreclosure properties. He owes at least 50 percent more than his house is worth. Giovale can rent a similar house in his neighborhood for $1,000 less a month than his mortgage payment.
“My lender won’t cut my principal, despite the federal help it’s getting,” Giovale said. “I can afford the payments. But I have done the calculations. It’s going to take 18 years until the value of my home rebounds to what I paid for it. Why shouldn’t I walk away and rent? I can probably buy again in a few years.”

Strategic default

Walking away is almost as easy as it sounds.
Homeowners stop paying their mortgages and wait for the notice that their lender has started to foreclose. Lenders call this a strategic default.
Lenders used to foreclose on a home after three missed mortgage payments. But the record number of foreclosures in Phoenix has significantly slowed that process. Now, some lenders do not get around to filing to foreclose until the homeowner misses six or more payments, which can mean half a year of free housing for someone who plans to walk away.
Once homeowners receive a notice of a foreclosure, they usually have three months until their home is sold through a foreclosure auction or trustee sale. But, again, because of the backlog of foreclosures, auctions are often delayed by several more months.
Many homeowners who plan to walk away will try to find a rental home before the black mark of a foreclosure is on their credit report.
Given the housing-market crisis, some landlords care less about a foreclosure on a credit record than proof of steady income.

Angry at lenders

Patrick Brennan thinks about walking away from his Laveen home. Not because he is underwater but because he’s so angry at lenders.
“I’m in a unique position of wanting to walk away from my mortgage based on principle, not principal,” Brennan said.
But he is going to stay put and continue paying his mortgage because he says his family does not stand to gain much from walking away. Brennan has become a prolific blogger on the topic, frustrated with lenders blaming homeowners and making them pay the price for the housing crash. He advises people to feel no remorse for walking away and not to worry about what their friends and family will think.
“Why should we insist that there be a false moral obligation on the part of the downtrodden homeowner to help the bank that refuses to renegotiate a bad loan?” he said. “Whether to walk away or not is a conversation we must have in society now, mainly so that the average consumer can become better armed with information and make the best choice.”

Penalties and credit

The impact on personal credit histories varies when it comes to homeowners and their mortgages.
Currently, homeowners who walk away from a mortgage receive a black mark on their credit that stays there for at least seven years. Brent White, a University of Arizona associate law professor, believes the nation’s credit-reporting system should be changed in the wake of the housing crash. He doesn’t think foreclosures should be a black mark on people’s credit records when many can’t avoid the financial catastrophe due to the weak economy and depressed home values.
He wrote a controversial paper about his views that continues to draw national attention. White believes more homeowners should walk away until a fairer situation is created between lenders and borrowers.
“It is time to put to rest the assumption that a borrower who exercises the option to default is somehow immoral or irresponsible,” White said. “Lenders walk away from bad deals all the time, and they don’t have to pay a price as heavy as a homeowner with a foreclosure on their credit score.”
Critics say homeowners who walk away should face bigger credit penalties than homeowners who cannot obtain a loan modification and lose their home to foreclosure.
People who walk away, critics say, further damage the market by depressing prices and creating more foreclosures, and they should not be rewarded.
“If people walk away, they should not be able to do so without a cost,” homeowner Pete Taggatz said. “No chance should exist for them to obtain any home loan until a mandatory waiting period has passed, seven to 10 years. Anyone that obtains a home loan and subsequently walks away from their loan should be charged with mortgage fraud.”
The nation’s biggest mortgage lenders, Fannie Mae and Freddie Mac, won’t fund a mortgage for five years for any borrower who walks away.
More lenders are trying to track down homeowners who walk away, even in Arizona. But Arizona is a so-called anti-deficiency state, which means that, in most cases, lenders that take back a borrower’s primary residence through foreclosure can’t go after that borrower’s other assets.
State legislation passed last year would have allowed lenders to go after assets of homeowners who lost houses to foreclosure and couldn’t show they lived in a home for six months straight. The law was aimed at housing speculators but would have affected many retirees and second-home owners.
The law was repealed in December, but its backers, including the state’s banking industry, have been looking at ways to help lenders recoup their losses from borrowers who purposefully default on mortgages.
Not every Arizona homeowner is protected when it comes to personal assets. When people refinance in Arizona, some new loan documents don’t offer anti-deficiency cover for the difference between the sale price and outstanding mortgage balance.
There could be tax implications for people who walk away, particularly on second homes. The money a lender loses on a foreclosure home can usually be considered income for the former homeowner, according to the Internal Revenue Service. But because of the national foreclosure crisis, some home-loan debt canceled through loan modifications, short sales or foreclosures are exempt from being treated as income by the IRS until 2012.
Homeowners lose hefty tax deductions from the interest on their mortgage when they stop paying.
Marcel Thierot is an investor who would rather take a tax hit than keep paying on his Scottsdale winter home. He bought a new home in 2005 for more than $500,000 and estimates the current value at about $200,000.
“I am not paying for this housing bubble,” he said. “The bank won’t do anything to cut my payments, but I know they will very happily sell my home at a foreclosure auction as soon as they take it.”

From CNN.COM on 3/29/2010

Don’t foreclose! Do a short sale

By Les Christie, staff writerMarch 29, 2010: 3:46 AM ET

NEW YORK (CNNMoney.com) — Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.

“Banks have ramped up short sale approvals,” said Duane Legate of House Buyer Network, which connects short sellers with buyers. “They’re hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales.”

These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.

And Bank of America (BAC, Fortune 500), the country’s largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.

Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. “Bank of America approved it in 24 days,” she said. “That flipped me out.”

This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.

Beware: You lost your house but still have to pay
“In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete,” said Chris Saitta, CEO of Equator, which produces short sale software.

“Things would just fall into a black hole and not come out again,” added Weintraub.

And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.

In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there’s usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.

But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. “The lenders lose 50% on a foreclosure and only 30% on a short sale,” said Glenn Kelman, founder of the real estate Web site Redfin. “And short sales offer a way to get distressed properties off their books quickly.”

And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.

Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 “relocation incentive” and servicers will get $1,500 for handling a short sale.

The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.

Equator’s Saiita anticipates a short sale explosion in response to the new program. “The challenge will be handling all the volume,” he said.

The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.

The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.

Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.

http://money.cnn.com/2010/03/29/real_estate/short_sale_explosion/index.htm?hpt=T2

This is a great article originally from the New York Times discussing the administrations latest attempt to push short sales.

http://www.msnbc.msn.com/id/35756755/ns/business-the_new_york_times//

Most people do not realize (nor does the media talk about), how Short Sales are part of the Obama Administrations loan modification initiative.

A “Short Sale” is when a lender agrees to release a property that is held in trust for a note by accepting less than that note, original loan, was for.

You may ask yourselves… Why would a bank allow me to pay a loan off in full, but with a partial payment? Well, lets look at it from their point of view. First, lets assume that you are behind on your loan payment and the odds of the bank having to foreclose on your property or having begun the foreclosure process are pretty good.

From the banks end, they have to worry about the following things. First, are you going to move and trash the house before they foreclose? If you don’t move before they foreclose, they are going to have to foreclosure, then get a court order to get you evicted. Both are going to cost them time, money and attorneys fees. Then, if they do foreclose, they have the trustee and attorney fees plus they have to make principal and interest advances until the loans liquidation. So in short term, foreclosing on a house is going to cost them big $$$. Plus, once they get the house back, they are going to only be able to sale it at the current market rate. What they loaned on it is irrelevant.

Now, form the banks end on a short sale… First, you the homeowner are probably not going to trash the house as you have a contracted buyer who expects the house they way you showed it to them. And you will more than likely move on or before the close of escrow date, so no worrying about having to evict you. Plus, no having to spend the thousands of dollars on trustees and attorneys to go through the foreclosure process. Plus they have a nice tax right off in the form of the loss on that loan. And oh yah, the government will pitch in $ to them as well as part of the foreclosure and prevention measures. So form the Banks point of view…. not all of the cost of foreclosure, better odds of the house being in good shape, Government pay off, tax rights off and the house sold at the same market rate they would have been able to sale it at if they had foreclosed.

So there are incentives for the lenders to do a short sale, but what’s in it for the homeowner. First, more than likely a less of a hit on your credit and credit score, plus you will not have the black mark and stigma that comes with a foreclosure. Second, Fannie Mae underwriting guidelines state that new loans cannot be issued until 2 years after a short sale and 5 years after a foreclosure. So the odds of you owning a home again are faster with a short sale are much better. Third, you get out from under a home that has lost significant value and a loan that would not only take years to pay off, but probably take as many years to get to the same value. Fourth, there are tax issues that you should research with your tax accountant. But also see how the Federal Government is helping you via the IRS debt relief act of 2007 at…http://www.irs.gov/individuals/article/0,id=179414,00.html.

As you can see, a Short Sale may be a win/win option between a home owner and their lender…. allowing the homeowner to get out from under a crushing mortgage and having the opportunity to start fresh without going through the cost and credit crushing of a bankruptcy.

Short sales are complicated and you need a professional and licensed real estate agent who has had successful negotiation and closing experiences with short sales.

If this is an option you would like to explore further, please contact Jason Kush with J.P. Kush and associates at (480) 522-1073.

I thought this chart was a great way to show the differences in the old vs the new tax credit for first time buyers as well as the new move up buyer tax credit.