Homeowners burdened by bureaucracy when trying to get out
They still own a hillside rancher in the Ponderosa area of Spokane Valley, but lender MetLife Home Loans wants $8,000 cash by Monday, or will sell the house in 90 days. Lanae said they have little hope of keeping the property, which the couple purchased in March 2007 for $265,000.
Jason, an attorney with a degree in electrical engineering, lost his job with a Spokane patent law firm last May. Their income tumbled from a salary of $145,000 a year to $585 a week in unemployment.
Lanae said she immediately called every one of their creditors. Their undergraduate student loan payments were deferred, or put in forbearance. Northwest Preferred Federal Credit Union cut their monthly payments on a landscaping loan to $50 from $232.
Only MetLife would not budge, she said.
The insurance company’s instructions were to keep making their $1,860 mortgage payments for three months, Lanae said – and don’t call.
Within three weeks, the Lindhs had the home listed for sale at the original purchase price, one that real estate agent Deb Moore of Coldwell Banker Tomlinson South told them was unrealistic, Lanae said, but one that would keep the Lindhs and their creditors whole.
But by the end August, with Jason still unemployed and the house unsold despite price reductions, the Lindhs again contacted MetLife. They received a “workout package” for a short sale.
Almost unheard-of until home prices began retreating in 2008, the short sale has become an alternative to foreclosure for many owners with more mortgage than their homes are worth.
Avoiding foreclosure minimizes damage to the homeowner’s credit history. Lenders, who must give their consent, avoid costs associated with foreclosure and marketing the property. And, with home prices still declining, they risk getting less than the owner when it goes back on the market.
But “distress sales” stress not just those directly involved, but the broader real estate market as well.
According to the Spokane Association of Realtors, foreclosures and short sales constitute almost 28 percent of all home sales in the county. That’s almost twice the level of last June – 16 percent – when the association started reporting those sales separately.
Meanwhile, the average closing price for homes has fallen from $190,308 to $178,903, and the median price from $171,295 to $155,000.
Homes taken over by lenders or subject to a notice of trustee’s sale increased 84 percent from 2009 to 2010 in Spokane. In Kootenai County, the increase was only 15 percent year over year, but since 2007 the numbers are up almost five-fold.
“They’re going to put some downward pressure on the market,” said Glenn Crellin, director of the Real Estate Research Institute at Washington State University.
Banks do not want to hold properties once they take possession, and they do not want to be landlords, he said.
Crellin said there are so many foreclosures and pre-foreclosures in the pipeline, a turnaround in home values in the second half of 2011 would be a gift.
Rising interest rates work against buyers waiting for a market bottom, Crellin said. A 1 percent increase in rates equals a 10 percent decrease in home prices, which he said is not in the cards.
Bob Tomlinson, owner of Coldwell Banker Tomlinson, said short sales and foreclosures have hindered the recovery of home prices all over the country.
Home sales are not reducing inventory in markets like Spokane, he said, and regulators who are encouraging banks to clean up their balance sheets by disposing of foreclosed homes do not help.
“They’re forcing product onto the market,” said Tomlinson, although he added that Spokane-area banks are not guilty of dumping homes.
Tomlinson said the increase in distressed property sales in Spokane is nothing compared to that in Boise, where more than one-half of homes sold in January were short sales or real estate owned by banks.
Fritz Nichols of Windermere Manito sells nothing but properties foreclosed by Fannie Mae and Freddie Mac, the two agencies that guaranteed millions of mortgages.
He said he receives a steady stream of listings from the two agencies, which want them priced to sell. Most go for $100,000 to $175,000, he said, but a few are priced more than $500,000, a few for one-tenth that amount.
“We’re just going through a cycle,” said Nichols, who recalls a four-year period in the late 1980s and early 1990s when the Spokane market was so strong Fannie and Freddie did not have a single foreclosure.
He said the factor that most often snags a sale is the would-be buyer’s inability to sell the home they’re in.
At SNAP, housing counselors Peggy Burrell and Aaron Mallo said they get a constant flow of referrals from banks as well as individuals coming forward on their own. Among its housing counseling services, SNAP provides information to help owners prevent foreclosure and arrange repayment plans with lenders.
SNAP assisted 566 homeowners last year, Burrell said, and at least 157 kept their homes. Most of the others are still being counseled.
Burrell said many will not be able to stay in their homes, however, because there is no combination of debt forgiveness, interest rate reduction or extended terms that will get their monthly payments low enough to satisfy debt-to-income requirements.
Mallo said there are “shadow buyers” looking for homes, but holding back because they do not want to get “upside-down” with a mortgage on a property losing value.
For the Lindhs, the filing of their completed workout package began months of frustration over faxes MetLife misplaced, Lanae said.
“In November, I finally called and started yelling,” she said. Their asking price had fallen to $219,000. They finally got an offer: $209,000.
MetLife accepted. The mortgage insurer, Radian, did not.
Lanae said Radian wanted the Lindhs to buy a $25,000 promissory note before it would consent.
Moore, the family’s real estate agent, complained to the Washington Insurance Commissioner’s Office, which is seeking clarification of Radian’s explanation of its insurance practices.
Radian spokeswoman Emily Riley said the company’s contract with lenders allows it to reject a short sale based on a determination of the borrower’s ability to repay the loan.
MetLife, asked for comment, said it “strives to assist all qualified troubled borrowers with an opportunity to stay in their homes if that is what the borrower wants.
“We follow all appropriate laws and regulations in doing so.”
Lanae Lindh said buying a promissory note, or producing the cash sought by MetLife, makes no sense on a home that has lost more than 20 percent of its value. It is their fourth home, the first on which they will take a loss, she said.
The couple knew prices were weakening when they bought their house, but figured they were in it for the long haul, she said, adding “I thought we were going to be anchored to the community.”
Even after Jason’s layoff, she said they thought lenders would work with people to keep them in their home, which has been rented temporarily.
“The home did not have to go into foreclosure,” she said.