With the Robo Signing fiasco, banks have been on high alert not to exacerbate the already “questionable” processing of foreclosures.  What that means is that banks are much more willing to work with sellers that want to short sale the home.

We’ve been listing and selling short sales for more than 3 years.  Banks used to fight tooth and nail to hold onto the property and threaten foreclosure if the seller did not pay up.  Now…we see banks sitting on their hands because so many homeowner’s have decided to take them up on that foreclosure offer!  Needless to say, “Houston…we have a problem”.

Homeowners are in a state of confusion, the kind of confusion that makes you so paralyzed it’s difficult to make important decisions.

It’s unfortunate, but true, there is a lot of “bad” information being given by so called short sale specialists and attorneys.  We always suggest that our clients speak to an attorney prior to selling their home on short sale, I wish we could say that our clients always get solid “knowledge” from the attorney they consult.

With that said, all banks are different in their terms of settlement when accepting a short sale.  The fact that you have a second lien on the property also adds another element to the approval conditions because both lien holders have to approve and agree on the settlement terms.

Not to get too complicated…but the fact that you did or did not ever refinance the home also has a lot to do with the lender being able to pursue you for the original loan amount.  If you purchased the home,and did not refinance or take out a second, even if it was an 80/20 loan it is considered “purchase money loan” and the bank has no recourse against you in the state of California. You need to work with a licensed real estate agent that understands your states foreclosure laws.

****Something to keep in mind, a foreclosure in most cases is your primary loan taking action to regain possession of the property.  If you have taken out a second lien, a home equity line of credit, or any other liens on the home these loans will remain collectible against you and are going to be actively pursued by the debtor/s.  Walking away does not relieve you of the home mortgage debt.

Here are some key elements that you should be aware of when you decide to short sale your home.

1. If you have more than one loan on the property your real estate agent must negotiate with all lien holders to get approval to sell the property.
2. Depending on the investor of your loan/s you may be asked to contribute to the release of these liens.  If you have the means it may be requested that funds be brought to close of escrow.  In most cases, 2nd lien holders have been known to request on average 10% of the balance due them.
3. In most cases your real estate agent can negotiate terms to pay this small balance back to the lender over 5 plus years with no interest.  This is referred to as a promissory note.  Keep in mind, you are going to be resolving your debt for pennies on the dollar.  Example-you borrowed $200,000 on a second.  They want you to pay $20,000 to release you from $180,000 debt…no recourse.
4. HAFA is a Government program that you can apply for if you meet the guidelines of the program.

If you or someone you know is considering a short sale, please contact us for a confidential consultation.  One thing that we want to make sure you are aware of is that the real estate commissions are paid by your lender.  There is no charge to you for our services.

Family, friends and neighbors all experiencing the hardships of the housing market and loss of income to some degree.

When I was a young girl, I loved this time of year.  It was a “Happy Time” watching the changing colors of the leaves and jumping into the piles of leaves we raked…then blackening marshmallow’s as the leaves burned.  Yes, that was quite a few years ago, and times have changed.

Now I watch my grown children as they raise their own kids, blessed that both of my daughters are able to be stay at home moms with the kids.  It was not planned to be long term, but with the scarcity of jobs it was a choice that was made for them…thanks to our economy.  Our girls were not raised with riches, they grew up enjoying the things we were able to provide them.  Entertainment for us was picking out a few board games to play and spending the evening laughing and talking and of course competing for the most “hotels” if we were playing monopoly…

No one chooses to be in difficult situations, but, I do believe we all have choices how we deal with those situations.  Look for and find things to rejoice about this holiday season.  Remember, you can’t control others…the one thing you do have complete control over is YOU, and how you react to situations.  Be the leader with your family and among your friends; your going to find that your positive outlook will wear off on them.

Maybe it’s the weather today, or the fact that Kris and I are real estate agents working predominately with homeowners that are in financial hardships and need to sell their homes using a short sale and we see the adversity that so many families are dealing with everyday.

Whatever the reason, I’m feeling thankful and hope to share some ideas to get you through the adversities of the day, week, maybe the year your having…

• Keep in mind that your not alone, and that there is most certainly others dealing with similar circumstances.

I like this, it keeps me on track when feelings of  hopelessness try to sneak in.

Serenity Prayer

Living one day at a time;
Enjoying one moment at a time;
Accepting hardships as the pathway to peace;
Taking, as He did, this sinful world
as it is, not as I would have it;
Trusting that He will make all things right
if I surrender to His Will;
That I may be reasonably happy in this life
and supremely happy with Him
Forever in the next.
Amen.

Kris and I look forward to non stop laughs while we relax and enjoy the seemingly wacky and chaotic lives of three separate households that are intertwined.

If your not a Modern Family fan, let me give you a little background of Phil Dunphy…

Phil is a real estate agent, and is married to Claire…they live in a nice neighborhood in a nice home. They have 3 kids, and all of the costs that go along with owning a home and raising a family.

Last weeks episode has “Phil” offering to take on the tasks of the day that his wife “Claire” would typically handle, as a stay at home mom…”Claire” woke up sick with a nasty cold.  Phil was able to offer his time due to the fact he had several appointments cancel on him that day. His appointments were with “prospective home buyers”…

At one point Phil calls his client and leaves a very lengthy message about “price reductions” on the homes along with a near desperate plea to call him back and talk about the great opportunities in todays housing market…Shortly after this, Phil get’s a return call from that client.

By Phil’s response to the caller, one could only imagine the conversation was something like… “Don’t call me again, not buying anything right now” Phil’s facial expression said volumes…from encouragement to despair, as he flips the cell phone to close it…

One of Phil’s children, Luke, an empty headed but lovable little guy…probably around 10 years old picked up on what was going on and asked his dad if he was going to have to get a “real job“? Throughout the rest of the show there was a genuine concern between Claire and Phil about the drop in Phil’s real estate business.

As Kris and I watched this episode, we didn’t laugh as much as we usually do.  This one hit home in a big way, there is no doubt that as real estate agents we have experienced the same alarming feeling’s the “Dunphy family” was experiencing.

Ironic in it’s own way is the question from Phil’s son, Luke, about will you have to get a “real job”?…

Television has an advantage, it’s a make believe world and jobs can be plentiful if the writers are so inclined, you can be an overnight millionaire running your own company.

But, as we all know, America is in a world of hurt.   Last Friday the latest unemployment numbers were released. Finding a “real job” is on many Americans To Do List!

Bank of America also released on Thursday in a report that they originated $73 billion in first mortgages in the third quarter, down 24.7% from a year ago, according to this  report.

According to its financial statement in the third quarter of 2009, BofA, the largest bank in the U.S. reported $95.7 billion in first mortgages for 450,000 borrowers to purchase a new home or refinance. A year later, the bank funded mortgages for 322,000 borrowers, this is a 28% + DECLINE.

The Mortgage Bankers Association recently estimated originations industry-wide to fall below $1 trillion in 2011. In 2010, MBA officials expect $1.4 trillion in mortgage loans.

“Homeownership rates are falling,” Sambucci said. “The homebuyer tax credit in 2009 and 2010 pushed whatever demand there was forward, plus structurally, there are fewer people that want or can buy a home.”

“Households remain cautious given the weak job market,” said Jay Brinkmann, MBA chief economist. “On top of that, uncertainty regarding tax rates for next year, and the potential for tax withholding to increase at the beginning of the year, lead us to forecast that consumer spending will remain weak, particularly in the first half of 2011.”

The homeownership rate as measured by the Census Bureau, fell to 66.9% in the third quarter the lowest rate since 1999.

So, there it is…more reality, but not necessarily doom and gloom in my opinion.  If you’ve recently purchase a home, you don’t have the worries of negative equity.  But for those American’s suffering the hardships of unemployment, and homes that have negative equity, have faith.

Things will get better, for Kris and I the past several years have been some of the most financially devastating we’ve experienced in our lives.  But from that has come some of the best years, we’ve learned what is truly valuable.  Yes, it does take money to survive in this world…but…when the amount your able to spend is limited you find other ways to enjoy life.

Spending more time with family, renting movies, playing board games when we all get together has been the most wonderful experience!  We’ve had so much fun, serious…it’s almost Free entertainment and I believe the best things in life are Free!

For the record, Kris and I love our “real jobs” helping others and being of service is not going to make us millionaires in this economy, but we measure our wealth in other ways.  We are truly blessed and give thanks to God for everyday.

A total of 102,134 bank repos, where borrowers actually lose their homes to foreclosure, were reported in September, up from 95,364 in August.

“Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months,” said James J. Saccacio, chief executive officer of RealtyTrac, in a release.

“We expect to see a dip in those bank repossessions — and possibly earlier stages of the foreclosure process — in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks.”

Overall foreclosure filings, which include default notices and auctions, totaled 347,420 last month, up less than three percent from the previous month and just one percent higher than a year earlier.

Bank Repossessions and Scheduled Auctions Set Quarterly Records

However, both bank repos and foreclosure auctions hit new quarterly highs during the third quarter.

And overall foreclosure activity increased nearly four percent from the second quarter, but was down one percent from a year ago.

One in every 139 housing units in the nation received a foreclosure filing during the quarter, with California alone accounting for more than 21 percent of all foreclosure activity during the third quarter.

I think we are getting a glimpse of things to come…new buzz word for sure!  Foreclosure Roulette. This article was front page of Huffington Post earlier today.

Bea Garwood has been bracing for foreclosure since May, but she says she’s been told three times to expect a sheriff’s sale in the next month and it still hasn’t happened.

“We really at this point do not know where we are in the process,” said Garwood, who lives in Pinckney, Mich. with her husband. “We have no clue. We haven’t even heard from Chase bank in three weeks.”

The Garwoods may have had a lucky spin in the game that industry analyst Sean O’Toole calls “Foreclosure Roulette.”

Banks don’t want to recognize losses by having to put homes on the market at foreclosure-sale prices, but they don’t want to encourage borrowers to quit making payments either, so, O’Toole believes, they randomly foreclose on some people to prevent widespread “moral hazard.” The rest are left hanging with the help of the government’s “extend and pretend” approach to the collapse of the housing bubble.

“We just don’t have the political appetite to bail homeowners out,” said O’Toole, CEO of ForeclosureRadar.com. “On the other hand, we don’t have the political appetite to kick them out.”

Last year the Garwoods tried to modify the mortgage on their Pinckney, Mich. home under the Obama administration’s Home Affordable Modification Program, which is supposed to put eligible borrowers into a three-month trial period before making the modification “permanent” for five years. The Garwoods’ trial period dragged on for nine months before they received a letter of rejection in March. They’ve been waiting anxiously since then for the day they will finally lose their house.

It may be a while. The average foreclosure now takes 469 days, according to Lender Processing Services, whereas it took 319 days at the beginning of 2009. Many industry analysts say that is due to the Troubled Asset Relief Program, HAMP, and federal accounting-rule changes.

“We weakened accounting standards to allow banks to keep non-paying mortgages in their books at full value,” wrote economist Dean Baker, co-director of the progressive Center for Economic and Policy Research. “Banks also know that they are looking at glutted markets right now, so they have little incentive to take possession of a home and then try to sell it. And, the HAMP and other programs mostly delay foreclosures and hand money to banks, instead of keeping people in their homes.”

American Banker reported last week that the procrastination on foreclosures could backfire: “With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults.”

Of the 1.5 million trial offers made by servicers participating in HAMP, 616,839 have resulted in cancellations, while only 434,716 have resulted in permanent modifications, according to government data released in August. But Treasury officials have said even if a person isn’t able to stay in his or her home, HAMP is a success if assists that person in “transitioning with dignity to more suitable housing.”

Borrowers rejected from HAMP are sometimes confused, as the Garwoods are, about the reason for their rejection. (Chase has declined to comment on the Garwoods’ situation.)

“There’s still a lot of uncertainty about why certain homeowners are receiving help in HAMP and others are not,” said Diane Standaert, legislative counsel with the Center for Responsible Lending. Standaert said policymakers should consider allowing bankruptcy judges to write down mortgage principal (a process sometimes known as “cramdown”). “I think this new game of casino that lenders and servicers are playing with homeowners…is not going to cut it.”

This is just brilliant…in my opinion.  As a Realtor in Southern California I have to agree with the writer!  One of my favorite excerpts in bold …Read the entire story and enjoy…it’s an interesting perspective!

An acronym soup of programs followed, which were promoted as providing help for America’s homeowners: HAMP, HAFA, HARP, 2MP and more. But the reality is that, to date, these programs have resulted in little more than delays.

The government and lenders say that these failures are due to complexities of implementation, difficulty reaching homeowners, and a sundry other things. But what if these programs were never intended to succeed?

What if they were simply intended to create delays, provide false hope, and maybe get the banks a bit more cash out of homeowners in the form of trial loan-modification payments?

I spoke last week at a real estate investment club and shared with the audience my belief that foreclosures will trickle out over a very long time rather than come as a wave of foreclosures as others continue to inaccurately predict.

I do, however, understand the nature of those predictions. Given the number of households that aren’t paying their mortgage (delinquencies), we should be seeing a massive wave of foreclosure notices and ultimately foreclosure sales. It’s a logical conclusion.

But this has become a political problem in a world of financial fantasy, so I don’t believe that simple logic applies.

The reality is that through financial engineering (interest-only, subprime, swaps, option adjustable-rate mortgages, negative equity, stated-income loans, etc.) we created trillions in excess mortgage debt that has left millions of homeowners underwater, financial institutions on the brink of collapse, and the Federal Deposit Insurance Corp. nearly insolvent.

Back in September 2008 it became clear that financial collapse was imminent, and the federal government did what it does best: bailed out those who caused the crisis while leaving taxpayers holding the bag for the losses.

Pulling this hat trick off required one simple ruse — getting everyone to believe that those losses ultimately wouldn’t be very big.

To do this, the government changed the rules. The FDIC, which previously forced banks to get bad assets off their books, became a leading proponent of saving homeowners with loan modifications that likely just delay the inevitable.

With a little government pressure, the supposedly independent Federal Accounting Standards Board allowed banks to account for loans at theoretical values that were based on computer models rather than current market value.

An acronym soup of programs followed, which were promoted as providing help for America’s homeowners: HAMP, HAFA, HARP, 2MP and more. But the reality is that, to date, these programs have resulted in little more than delays.

The government and lenders say that these failures are due to complexities of implementation, difficulty reaching homeowners, and a sundry other things. But what if these programs were never intended to succeed?

What if they were simply intended to create delays, provide false hope, and maybe get the banks a bit more cash out of homeowners in the form of trial loan-modification payments?

Sounds like a crazy conspiracy theory, I know, but hear me out.

The problem faced by both lenders and the government is that they can neither afford to kick homeowners out nor bail them out.

For lenders, either scenario forces losses to be recognized, while — thanks to mark-to-model accounting rules, and little or no pressure to foreclose from the FDIC — they can instead leave nonpaying homeowners in place and push those losses into the future.

Many believe that most major corporations manage earnings — what could be more perfect than getting to choose when, and if, they recognize mortgage-related losses?

For the U.S. government, either scenario is political death. Politicians have no appetite for allowing banks to put families on the street en masse through foreclosure, or for forcing banks to deal with the problem through bankruptcy “cramdowns” or other means.

At the same time, they realize their constituents who do pay their mortgage (or rent) simply won’t stand for a taxpayer-funded bailout of their upside-down neighbor. Instead, it seems they believe bailouts should be saved for the truly deserving, like the executives and corporate shareholders of banks, AIG, GM, etc.

If we aren’t willing to either kick nonpaying homeowners out of their homes, or bail them out, what other option is there? The answer is clear. It’s the same thing we’ve done with national deficits for years. Trade tomorrow for today, with a policy of “extend and pretend.”

I have no doubt this is the present policy, and that this will be the policy for years to come as we work through wiping out the trillions in excess negative equity that was created during the bubble.

A member of the audience during my talk asked if this policy was really possible. After all, we can’t just let nonpaying homeowners stay in their homes forever. If paying homeowners figured that out, everyone would stop paying, and then our financial system would crumble.

I agree, and it’s clear the banks realize this, too. But it is a problem that is easily solved by the diabolical game of Russian roulette.

So long as lenders continue to foreclose on at least a handful of homeowners each month, in what from all appearances is a completely random game of chance, they’ll keep those willing and able to pay their mortgage doing so.

Those who decide not to pay their mortgage will find themselves playing today’s update on the Russian game – Foreclosure roulette – wondering each month whether they’ll get another free month in their prison of debt, or finally be shot down and forced to move.

This past week was an emotional one, an unexpected passing of a family member took us to a place where no one wants to be…

I have to say, at the end of the services most everyone had shared “stories” of the memories of their dearly loved friend, husband and father.  There was no doubt that the man that left this earth touched everyone he met with his laughter, it was infectious!

One of the messages that the Pastor left us with will be my new “mantra”!

“Do you know anyone that’s taking up Prime Real Estate that needs to be evicted”?   Without a breath, he continued on to say that what most people consider “Urgent” is usually not what is “Important” and that we all have to realize what’s important and do more of it!

Having experienced some of our own extremely challenging situations, I have to say that I’ve already taken the first steps in “evicting” some people that are hanging around for free using up space in my prime real estate…

Funny way to put it, but really…I can’t be the only one that let’s “issues of others” take up space that should be used for thinking about how blessed I am for my wonderful husband and children and the beautiful grandchildren…friends that are so special…I could go on and on!

It’s sad that it takes a tragedy to STOP and take a minute to really SEE what we have in our lives.  We’re usually so busy focused on what we don’t have we miss the “Important” things.

I hope that you read this and can remember to take time for what’s really important, today and always.  It’s so easy to get caught up in the world around us…especially when “our world” is effected by unemployment or loosing a home.

You’ll get through this, we all will.  It’s how we get through it that is going to make us better and stronger.

Start the Eviction Process!

Kim

P.S. John I. Moyer…Rest in Peace: 31 August 2010

Enjoy!

Home sales are hitting new lows, the number of homeowners behind on their mortgages is again climbing, as is the number of foreclosures. Housing market misery is widespread—but particularly intense for the troubled homeowners relying on the Home Affordable Modification Program (HAMP), the federal foreclosure relief program.

Criticized both by those who argue for more aid and those who think the lackluster program only delays a needed bank reckoning, HAMP stumbles along, more often simply prolonging the pain of foreclosure than providing a solution.

The dismal new housing numbers—sales of existing homes are 27% lower than a year ago, new-home sales have fallen even more—underline just how little demand there is for all the properties that banks are foreclosing on.

Real Estate Mortuary’s Waiting Room

In extending the process, foreclosure relief in many cases simply stretches out borrowers’ slow bleed of resources. By keeping borrowers in limbo while letting lenders delay repossessing houses they can’t sell, foreclosure aid is now benefiting borrowers less than the lenders who created the mortgage mess. For lenders, mortgage modification is the waiting room in the mortuary, a convenient place to hold borrowers while the banks deal with the overflow of houses already repossessed.

Of some 3 million homeowners behind on their mortgages, only about half are eligible for HAMP. Most of the rest, ironically, don’t qualify because their income is too low to handle even a modified mortgage. For those that do qualify, HAMP offers little immediate respite: Homeowners have to immediately start making payments on a trial modification plan.

Some 1.3 million borrowers have gotten the trial modifications, which last for at least three or four months (though many banks have stretched this out for longer). But 600,000 of those have already dropped out, unable to make payments in the trial stage. Another quarter-million are in modification limbo, sending checks to the bank as they wait to know if they’ll get permanent adjustments. (Detailed numbers are available in the modification program’s monthly reports, here.)

What Happens After Gaining Relief Is Worse

If the wait for a modification is trying, though, what happens to homeowners who do manage to get relief is worse. Most borrowers behind on their mortgages are already overburdened with other debts. After the mortgage reduction, the typical modification recipient, despite an average $513 drop in monthly payments, has to devote 63.5% of his or her income to mortgage payments, other debt, and taxes.

It’s not clear how many will default a second time. Treasury officials recently had to withdraw the government’s numbers on mortgage modification success rates after they were shown to seriously understate re-defaults. One independent estimate from Barclay’s Bank is that 60% of homeowners granted loan modifications will eventually default again.

So does HAMP really benefit anyone but the few borrowers who are able to run the foreclosure aid gauntlet, climb out from under their debts against tough odds and get back to making regular payments on their (still-underwater) mortgages? It does. If HAMP fails to make much of a dent in homeowners’ troubles, it does mitigate a real problem for the banks: There are many more houses in foreclosure than today’s market can absorb.

“Strategic Non-Foreclosure”

One of the foreclosure cascade’s not-so-hidden secrets is that the banks and investors who hold millions of busted mortgages are in no hurry to kick debtors out of their homes. The markets hardest hit by the foreclosure crisis are already stuck with an enormous and growing inventory of repossessed houses, now estimated by Lender Processing Services, which tracks foreclosures, at 1 million to 1.2 million bank-owned homes nationwide.

Banks have steadily slowed down the foreclosure process: The average homeowner in foreclosure now is an amazing 461 days behind in his payments.(You can see that last stat in this report, on page 13). Barry Ritholtz of financial blog The Big Picture calls banks’ reluctance to take over houses “strategic non-foreclosure.” Taking a leisurely path to repossession lets lenders avoid the costs of maintaining properties they can’t sell in a market that remains in free fall in much of the country.

However, there’s a limit: Lenders must eventually make good on the threat of repossession or face an epidemic of homeowners who stay in their houses without making payments. Many houses have been in foreclosure for so long that the banks have little choice but to act, and repossessions are rising.

Mortgage modification lets banks put a brake on the process, keeping up the pressure on borrowers (most of whom will eventually be foreclosed on anyway) without adding to the banks’ inventory of foreclosed properties. As they sit in this antechamber, instead of simply writing off their mortgages, the strapped borrowers, given the gift of reduced payments, are likely to squeeze out whatever they can manage in a last effort to keep their homes. It’s a study in what Rortybomb’s Mike Konczal trenchantly calls the credit “sweatbox” — under the guise of foreclosure aid.

Another Cudgel in the Hands of Lenders

The last insult added to this mess comes from Fannie Mae, which has promulgated new rules that lock those who don’t make the effort to modify their mortgages out of the Fannie-backed mortgage market for seven years. So ultimately this comes full circle, and what started as an effort to help borrowers has become another cudgel in the hands of lenders.

If we were to conceive a program to persuade borrowers to stick to their obligations and make every effort, no matter how unrealistic, to avoid foreclosure, we could hardly do better than HAMP. The program probably increases what lenders collect before they eventually foreclose — and may let those lenders slow the process enough to prop up prices as they sell off their inventory.

In this way, it may lead to a more orderly unwinding of the busted housing market. If so, HAMP might accomplish some part of its goal—just not the part that has to do with helping homeowners.

Enjoy!

Home sales are hitting new lows, the number of homeowners behind on their mortgages is again climbing, as is the number of foreclosures. Housing market misery is widespread—but particularly intense for the troubled homeowners relying on the Home Affordable Modification Program (HAMP), the federal foreclosure relief program.

Criticized both by those who argue for more aid and those who think the lackluster program only delays a needed bank reckoning, HAMP stumbles along, more often simply prolonging the pain of foreclosure than providing a solution.

The dismal new housing numbers—sales of existing homes are 27% lower than a year ago, new-home sales have fallen even more—underline just how little demand there is for all the properties that banks are foreclosing on.

Real Estate Mortuary’s Waiting Room

In extending the process, foreclosure relief in many cases simply stretches out borrowers’ slow bleed of resources. By keeping borrowers in limbo while letting lenders delay repossessing houses they can’t sell, foreclosure aid is now benefiting borrowers less than the lenders who created the mortgage mess. For lenders, mortgage loan modification is the waiting room in the mortuary, a convenient place to hold borrowers while the banks deal with the overflow of houses already repossessed.

Of some 3 million homeowners behind on their mortgages, only about half are eligible for HAMP. Most of the rest, ironically, don’t qualify because their income is too low to handle even a modified mortgage. For those that do qualify, HAMP offers little immediate respite: Homeowners have to immediately start making payments on a trial modification plan.

Some 1.3 million borrowers have gotten the trial modifications, which last for at least three or four months (though many banks have stretched this out for longer). But 600,000 of those have already dropped out, unable to make payments in the trial stage. Another quarter-million are in modification limbo, sending checks to the bank as they wait to know if they’ll get permanent adjustments. (Detailed numbers are available in the modification program’s monthly reports, here.)

What Happens After Gaining Relief Is Worse

If the wait for a loan modification is trying, though, what happens to homeowners who do manage to get relief is worse. Most borrowers behind on their mortgages are already overburdened with other debts. After the mortgage reduction, the typical modification recipient, despite an average $513 drop in monthly payments, has to devote 63.5% of his or her income to mortgage payments, other debt, and taxes.

It’s not clear how many will default a second time. Treasury officials recently had to withdraw the government’s numbers on mortgage modification success rates after they were shown to seriously understate re-defaults. One independent estimate from Barclay’s Bank is that 60% of homeowners granted loan modifications will eventually default again.

So does HAMP really benefit anyone but the few borrowers who are able to run the foreclosure aid gauntlet, climb out from under their debts against tough odds and get back to making regular payments on their (still-underwater) mortgages? It does. If HAMP fails to make much of a dent in homeowners’ troubles, it does mitigate a real problem for the banks: There are many more houses in foreclosure than today’s market can absorb.

“Strategic Non-Foreclosure”

One of the foreclosure cascade’s not-so-hidden secrets is that the banks and investors who hold millions of busted mortgages are in no hurry to kick debtors out of their homes. The markets hardest hit by the foreclosure crisis are already stuck with an enormous and growing inventory of repossessed houses, now estimated by Lender Processing Services, which tracks foreclosures, at 1 million to 1.2 million bank-owned homes nationwide.

Banks have steadily slowed down the foreclosure process: The average homeowner in foreclosure now is an amazing 461 days behind in his payments.(You can see that last stat in this report, on page 13). Barry Ritholtz of financial blog The Big Picture calls banks’ reluctance to take over houses “strategic non-foreclosure.” Taking a leisurely path to repossession lets lenders avoid the costs of maintaining properties they can’t sell in a market that remains in free fall in much of the country.

However, there’s a limit: Lenders must eventually make good on the threat of repossession or face an epidemic of homeowners who stay in their houses without making payments. Many houses have been in foreclosure for so long that the banks have little choice but to act, and repossessions are rising.

Mortgage modification lets banks put a brake on the process, keeping up the pressure on borrowers (most of whom will eventually be foreclosed on anyway) without adding to the banks’ inventory of foreclosed properties. As they sit in this antechamber, instead of simply writing off their mortgages, the strapped borrowers, given the gift of reduced payments, are likely to squeeze out whatever they can manage in a last effort to keep their homes. It’s a study in what Rortybomb’s Mike Konczal trenchantly calls the credit “sweatbox” — under the guise of foreclosure aid.

Another Cudgel in the Hands of Lenders

The last insult added to this mess comes from Fannie Mae, which has promulgated new rules that lock those who don’t make the effort to modify their mortgages out of the Fannie-backed mortgage market for seven years. So ultimately this comes full circle, and what started as an effort to help borrowers has become another cudgel in the hands of lenders.

If we were to conceive a program to persuade borrowers to stick to their obligations and make every effort, no matter how unrealistic, to avoid foreclosure, we could hardly do better than HAMP. The program probably increases what lenders collect before they eventually foreclose — and may let those lenders slow the process enough to prop up prices as they sell off their inventory.

In this way, it may lead to a more orderly unwinding of the busted housing market. If so, HAMP might accomplish some part of its goal—just not the part that has to do with helping homeowners.