I have been asking myself this question for some time now and still cannot think of any reason, why banks can not let people who are underwater with their mortgage refinance their loan. I don’t mean the people who cannot pay or are not paying their mortgage, I am talking about people who pay their mortgage every month, but would dearly love to refinance into today’s low rates. According to a CNBC report currently 23% of all mortgages are underwater, so the potential for refinancing is quite considerable.

Now obviously there would have to be some restrictions, and rules.

1. The borrower must refinance with the same mortgage company where they currently have their loan. After all banks are unlikely to want to take on other banks underwater loans, and I can’t blame them for that.
2. The borrower cannot refinance for more than their current loan amount.
3. The bank must offer the same interest rates regardless of if the customer is underwater or not (obviously credit score etc still comes into play).

If we did let people refinance, what would be the benefits? As far I can see it would have two major benefits.

1. Free up extra money for the consumer, which would be an immediate stimulus for the U.S. economy.
2. Provide more incentive/make it easier for people to stay in their homes, reducing the number of short sales and foreclosures.

On the down side (if there is one), the extra stimulus could potentially be too much, driving up inflation too fast, and overheating the economy (although somehow I doubt it).

Now obviously this idea will not be popular with banks, but after all that has happened maybe the banks need to give a little bit back to society.

You can find the original post Allowing Underwater Mortgages to Refinance on my Salt Lake Real Estate Blog.

The number of foreclosed homes being bought and sold in Utah is falling significantly, a new RealtyTrac report indicated.

In Utah, foreclosed homes accounted for just over 20 percent homes sold during the third quarter, with the avarage sales prices of properties that sold while in some stage of foreclosure was 3 percent below the average home sales price. This compares to 25% of homes at a national level, sold at a 32% discounted price.

The relativly low discounted price of foreclosed homes is a sign of the stabilizing Utah housing market.

The number of Utah homes in some stage of forcloser fell 30% from the previous quarter and 21% from the same time last year.

At the end of this year’s third quarter, the percent of Utah loans that had been foreclosed (bank-owned) fell to 3.23 percent, down from 3.35 percent in the second quarter.

Foreclosures had been climbing in Utah for the past three years — since the third quarter of 2007 when the rate was at 0.66 percent. Utah’s foreclosure rate peaked in the first quarter of 2010 at 3.43 percent, according to the MBA report. Since then, Utah’s foreclosure rate has steadily fallen over the past two quarters.

You can read this post about Utah Home Foreclosures and other posts on my real estate blog.

The Salt Lake Board of Realtors has questioned a recent report by RealtyTrac, which reported the home foreclosure rate in Utah increasing 294% in July 2008 (compared to July 2007). The report ranked Utah as the 9th largest foreclosure rate in the U.S. However, it is believed that the methodology used to calculate the figures might include loan payment defaults (30 days or more late), inflating the actual count.

In comparison, the Mortgage Bankers Association released data that said 99% of loans were not in foreclosure (although it should be noted that this data was for the first quarter not July).

All I can say is ‘Lies, Dam Lies and Statistics’, it just goes to show that you can make statistics says whatever you want.

These are not my words, they are from a recent article in Forbes Magazine. According to the magazine article, Salt Lake is the sixth most recession proof city in the U.S. This is based on the fact that the city’s unemployment rate is low, that we are still creating jobs and that the housing market remains strong (well at least compared to other cities).

This economic strength may well explain why the Salt Lake housing market is not seeing the large declines like other major cities and that the foreclosure rate, while increasing is relatively small. Even with the number of homes sold decreasing by 40% and days on market increasing by a similar margin, the median sales price still went up in the last quarter. The reason prices have not declined, is that most people don’t have to sell. They have a good job, and are reluctant to lower their price, so their home just sits on the market. This results in a stalmate, with buyers wanting a bargain, and unwilling to pay full price for a home.

A good example of this was an offer recently made for one of our listings. The buyer offered 20% below asking price. The reason for the low-ball offer was that they had relocated here, and had to take a 20% hit on the sale of their home. Because of this, they assume that the Salt Lake Market is going to go down by 20%.

Home foreclosures were up 4 basis points from the same time last year. While this is obviously not good news it does need to be put in perspective. Foreclosure rates actually fell in 24 states, and the overall foreclosure rate is still below the 10 year average.

All in all the increase in foreclosures is being driven by just a few states. Florida, Nevada, California and Arizona have seen large increases in foreclosures largely driven by speculators who are seeing home prices stagnate and their ARM rates increase and so they are walking away from the loan.

The other problem states are Ohio, Indiana and Michigan who combined account for nearly 20% of all loans in foreclosure. The problems in these states are due to job losses in the manufacturing sector.