On August 12^th in the post Could This Be The End of Short Sales? we wrote about how On August 17^th  the Treasury was going to be holding a hearing regarding the future plans for Fannie Mae and Freddie Mac.  It was rumored that the Obama administration was about to order the government-controlled lenders to forgive a portion of the mortgage debt for Americans who are underwater.

Unfortunately, the flurry of buying activity Stockton real estate experienced this past spring has flittered away along with the federal homebuyer tax credits over the summer. Meanwhile the Stockton housing inventory has continued to grow as we head into the traditionally slow fall and winter months. As the number of potential buyers continue to diminish and housing inventory continues to increase, it is inevitable that prices will need to drop.  

A “buy and bail,” is when a buyer buys a new house before their credit rating is ruined by walking away from their old house. It’s an attempt to escape payments on a property that is already “underwater”, and move into a new home with a more affordable loan. The practice is fraud and usually used by people who have a job and low debt. It is still a problem even though Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, have taken serious moves to prevent it.

Keep your eyes on the news August 17th when the Treasury will be holding a hearing regarding the future plans for Fannie Mae and Freddie Mac.  It is rumored that the Obama administration is about to order the government-controlled lenders to forgive a portion of the mortgage debt for Americans who are underwater.  If this were to happen, assumedly the short sale market would dry up and foreclosures would slow to a near stop. In theory, this would force the real estate market to regulate to a new normal. This could have a tremendous local impact considering the large percentage of short sales and foreclosures flooding the greater Stockton real estate market.

HR 5872, which passed the House of Representatives last week, increases FHA’s commitment authority for its multifamily insurance programs by $5 billion for the remainder of the fiscal year. While HR 5891, which passed the House of Representatives July 30, will permit FHA to increase its single family annual premiums, raising the statutory cap from 0.55 percent to 1.55 percent. Essentially, HR 5872 saved the ability for FHA to issue commitments for the remainder of the current fiscal year. Although HR5891 will cost more money to the single family consumer, it is believed this increase will perpetuate FHAs ability to become self sustaining and help to stabilize the housing market. At this time it is unclear what specific impact these changes will have on the Stockton real estate market and the number of future Stockton short sales.

According to a recent report on CNBC, Stockton’s luck may be changing. More properties that would have previously been lost to foreclosure are instead becoming short sales. According to the report, San Joaquin County foreclosures have fallen from 85 to 68 percent and defaults fell 43 percent in the second quarter of 2010.  However due to the tax breaks expiring, the number of perspective buyers has dwindled.  With an unemployment rate hovering around 25 percent, Stockton could take a long time to permanently recover

There are many homeowners who would like to sell but aren’t financially required to do so. Many of these people are waiting in the wings for the opportune moment to jump back into the housing market. In fact,  Zillow.com reported about 7% of homeowners surveyed said they were very likely to put their home on the market this year if they believed the housing market was improving. In addition to this already existing group, the number of homes with equity has grown this year, from 52% last year to 63% this May. This could pose a problem since many of these sellers will have unrealistic views about how much their homes are worth which in turn could influence the housing market.

About 4.5 % of mortgages in the greater San Francisco Bay area are at least 3 months behind in mortgage payments and not yet in foreclosure. This default limbo is different from other real estate crashes because previously there were fewer troubled loans which meant the banks moved quickly on those who fell behind on payments. Today with so many homeowners underwater, lenders just can’t keep up or are purposely avoiding foreclosures in fear of flooding the market with homes. Some underwater homeowners have used the lender default limbo to their advantage deciding to simply stop making payments on their mortgage. Instead using the foreclosure limbo time to save money rather than pour it into a property that may never gain equity. It is all bad news for homeowners causing market instability that could last for years.