Foreclosures made up 26% of U.S. home sales in first quarter

NEW YORK (CNNMoney) -- Homes in some stage of foreclosure accounted for more than one in four home sales during the first three months of the year, according to a report released Thursday.
Distressed properties that were either in default, scheduled for auction or bank-owned accounted for 26% of all residential sales during the first quarter, up from 22% in the previous quarter and 25% a year earlier, RealtyTrac said.
Altogether, 233,299 distressed properties were purchased during the quarter, an 8% increase from the previous quarter. Those homes sold for an average of $161,214, 27% below the average price of a home not in foreclosure.
"Foreclosure-related sales picked up in the first quarter, particularly pre-foreclosure sales where a distressed homeowner is selling to avoid foreclosure -- typically via a short sale," Brandon Moore, chief executive of RealtyTrac said in a statement.
Pre-foreclosure sales, which are often sold as short sales, hit a three-year high during the quarter "even as the average pre-foreclosure sales price dropped to a record low," Moore said.
There were nearly 110,000 short sales in the quarter, up 25% from a year earlier and comprising 12% of all homes sold during the first quarter, according to RealtyTrac.
In short sales, borrowers who owe more on their mortgages than their homes are worth, agree with their bank to sell their homes at the lower market value. In return, the bank agrees to absorb the loss.
During the quarter, homes sold in short sales went for an average price of $175,461, the lowest level since RealtyTrac began tracking foreclosures in 2005.
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Short sales are becoming the preferred method for banks to unload properties in default.
Banks typically get about 20% more for a short sale than they would for a foreclosed home. In addition, short sale deals get done much more quickly than foreclosures, which can take years to unload, during which expenses, like property taxes and insurance, mount up.
During the first quarter, it took an average of 306 days to complete a short sale, compared to 370 days for a foreclosure.
"Lenders are approving more aggressively priced short sales, which in turn is resulting in more successful short sale transactions," Moore said.
Meanwhile, sales of properties repossessed by the banks, called REOs, fell 15% year-over-year to 123,778, comprising 14% of all sales during the quarter.
Nevada, where housing bubbled during the boom and sank during the bust, had more distressed property sales than any other state, followed by California and Georgia, RealtyTrac said. 

Housing: The one bailout America could really use

(MONEY magazine) -- Laurie Goodman is an apolitical number cruncher who has spent most of her 28-year career out of the public view, studying the minutiae of mortgage-backed securities (MBS) for big investment banks. She's long been a star among Wall Street insiders, however. She holds the record for the most top rankings for fixed-in-come research from the trade bible Institutional Investor.

While Goodman concedes she underestimated the impact of the housing bubble's bursting early on, by mid-2007 she was warning investors to prepare for a deep downturn. She prepared herself as well.

After her employer at the time, UBS, shut down its mortgage trading desk in 2008, she jumped to Amherst Securities, a small company that serves as an MBS broker-dealer for big investors. From there she's published research that has raised her profile and made her an oft-cited source by would-be housing reformers in both the private and public sectors. If she is underestimating the problems the housing market has now, we're all in trouble.

Goodman often pauses several seconds before speaking, choosing her words deliberately. So it is especially distressing to hear her warn of a potential housing "death spiral."

On top of the 2.5 million homes that have already fallen to foreclosuresince the bubble burst, another 4.5 million mortgage holders have given up paying and are likely to lose their homes, she calculates.

'Shareholders of the world unite'

Millions more are underwater -- owing more than their home is worth -- and may give up if things don't improve soon. All told, Goodman warns that more than 10 million of the nation's 55 million mortgage holders could default by 2018. If home prices fall much more than the 6% or so she's projecting over the next 12 to 18 months, the picture worsens, as more foreclosures drive prices down further, in turn causing more sheriffs' sales.

Goodman's research into who defaults shows that many governmental and private efforts at saving borrowers -- and reducing investors' losses -- by modifying mortgages weren't helping because they only extended payments or reduced interest rates. They didn't fix the fundamental problem of unsupportable debt loads.

Bailout concerns mounting for federal housing agency

Goodman found that investors lose as much as 70% when the homes underlying their subprime MBS are foreclosed upon. Lenders that tried to rehabilitate delinquent borrowers by reducing the principal (or total amount owed) by an average of 26% were far less likely to have to foreclose, and they actually provided MBS investors higher returns. "If you save a borrower, you save an investor," Goodman says.

To avoid the "moral hazard" of rewarding foolish borrowers, Goodman recommends that lenders swap immediate principal reductions for shares of any gains on the mortgaged house when it is sold.

Many mortgage holders, including giants Fannie Mae and Freddie Mac, are refusing any kind of principal-reduction deals, however. Some don't want to have to take the immediate write-downs that would be required, preferring to delay the financial pain and hope for a rebound.

'One bailout = endless bailouts'

Many servicers refuse to consider them because their fees are tied to the amount of principal rather than to the ultimate payback to investors. And banks often hold second mortgages for the loans that they service. Principal reductions typically require them to take total losses on those notes.

In short, banks "are ridden with conflicts of interest" that pit them against the interests of borrowers and investors, Goodman says. "Many of the rules in place now are extremely large-bank-friendly, but borrower- and investor-unfriendly."

Goodman's firm, of course, is decidedly on the side of the MBS investor in this fight. Nevertheless, ideas she's been advocating since 2008 are catching on.

The Treasury Department and several state attorneys general are encouraging lenders to offer principal-reduction options. And "shared appreciation mortgage" (SAM) modifications have won support from big thinkers such as Nouriel Roubini, the New York University economist who warned of a housing bubble in 2005. Roubini, who cites Goodman's work in his own, recently co-wrote a report suggesting that SAMS could help "unclog the real estate and financial arteries and restore healthy circulation."

Revolt of Wall Street insider blogger and research head Barry Ritholtz

At least one private servicer, Atlanta-based Ocwen Financial Corp., has started to try this "share the pain and gain" option. "Progress is slow," Goodman says, "but I feel like I am getting some traction."

Her investment outlook:

For taxable accounts, Goodman likes municipal bonds. In an IRA, she says, mortgage securities backed by Fannie or Freddie (now propped up by taxpayers) are more attractive than corporate bonds. 

7 Questions For Your Next Real Estate Agent

(MONEY Magazine) -- After four years of sleepy sales during the traditionally busy spring and summer homebuying seasons, real estate experts are forecasting a pickup.
Record home affordability combined with a stronger economy may bring out bargain-hunting buyers and lure sellers who have been sitting on the sidelines. Already sales this winter were the highest since 2007.
If you're tempted to host or frequent an open house this year, keep in mind that navigating this market is not for the faint of heart. Sellers still face tepid demand in many areas and competition from banks unloading foreclosures and other distressed properties; buyers must grapple with tight credit.
Pairing up with the right real estate agent can help you close the deal at the price you want. To make a good match, gather referrals, check reviews on sites like Zillow, Yelp, and Angie's List, and pose these questions:

For buyers and sellers

How long was your drive over here?
The less time the better. The crash has slimmed the ranks of agents (National Association of Realtors membership is down 26% from 2006); those who are left have more years on the job (a median of 12, up from seven). But not all experience is equal -- you want a realtor with hyperlocal knowledge, if not a home nearby.
"If the agent hasn't closed deals on homes in your neighborhood recently, that could be a red flag," says Ginger Wilcox, head of industry marketing at Trulia.
6 ways to get a great mortgage deal
Your ideal agent should be able to say off the top of her head how long homes in the area have been listed and why they have or haven't sold. If you haven't seen the agent's name on local FOR SALE signs, keep looking.
Can you tell me about your last three deals?
The description of the people and places should sound like you and what you're selling or buying. The marketing approach varies for a million-dollar listing and a fixer-upper. Investors and first-time buyers have different criteria. And when you're scooping up a short sale or foreclosure -- or buying with all cash -- you need an agent who has negotiated with a bank or cleared the legal hurdles before.

For sellers

What's your URL?
Almost 90% of buyers shop online for a home, says the NAR. You want a realtor with his own homepage, as well as detailed and photo-filled listings on major real estate sites (Zillow, Trulia, Realtor.com).
"Photos are really important to buyers," says Dorchester, Mass., realtor Julie Simmons, "and as a seller you want to have as many as you can."
While you're vetting the site, dig deeper. Lots of homes with multiple price cuts could be a sign that the realtor isn't pricing them properly. What you want to see are homes that have been for sale for less than the norm in your area (ask other realtors what's typical).
What's your batting average?
Make sure a realtor is making sales, not just scooping up listings. Ask how many of his homes he closed on last year. There's no one right answer, especially in a slow market, but it's another data point for comparing agents.
Am I crazy to ask this much?
Probably. "In some cases sellers are not going to like what they hear," says Denise Riordan, an agent in Montclair, N.J.
Why it's safe to sell your home again
Don't jump at the highest asking price. Better to get a frank assessment of changes you need to make and a price that would make buyers bite. Then verify by asking to see stats on comparable sales and the methodology behind the estimate.
What is this going to cost me?

The commission, paid by the seller and split by the buyer's and seller's agents, is traditionally 6% of the sale price. With homes sitting on the market for nearly 16 weeks, a listing agent who has to put in four months or more of work may not want to budge. But even now you can get it down to about 5% (your agent will typically still split it fifty-fifty and specify that on the listing). One way to bargain: Use the agent to buy your next home.

For buyers

Can you let me in on any secrets?
The home you'd really like may not be listed -- sellers take homes off the market when buyers are scarce; others don't want to advertise for privacy reasons. The most connected agents know the homes that aren't officially on the market but whose owners would sell, says Steven Berkowitz, CEO of Move Inc. For the most options, find an agent who has the scoop.

Going solo

You'll save plenty, but only 10% of sellers bypassed an agent last year.
The costs of going it on your own include:

• MLS listing for six months -- $300
• Appraisal for pricing help -- $450
• Consultation with stager -- $350
• Lawyer to draw up contract -- $550

Versus a 5% commission on a $300,000 home - $7,500
Net savings -- $5,850
Notes: Based on 5% commission; assumes seller pays 2.5% commission to buyer's agent. Sources: NAR, FSBO.com, Stagedhomes.com, MONEY research

Mortgage Rates Hit Record Lows

NEW YORK (CNNMoney) -- Average rates for both 15-year and 30-year fixed mortgages fell to new all-time record lows this week, according to a report released by Freddie Mac Thursday.

Borrowers of 30-year loans were charged an average rate of just 3.84%, down from its previous low of 3.87% set in early February, according to Freddie Mac's weekly survey.

The average 15-year rate was 3.07%, down from the record of 3.11% set three weeks ago.

"Signs of slowing economic growth and inflation remaining subdued allowed yields on Treasury bonds to ease somewhat and brought most mortgage rates to new all-time record lows this week," said Freddie's chief economist, Frank Nothaft.

Homeownership falls to lowest rate in 15 years

NEW YORK (CNNMoney) -- Homeownership in the U.S. fell to its lowest rate in 15 years during the first quarter as more delinquent borrowers lost their homes to foreclosure, forcing many to rent.

The percentage of Americans who own their homes dropped a full percentage point over the past 12 months to 65.4% during the first three months of 2012, according to the latest Census Bureau data. That's the lowest rate since 1997 and down from the peak of 69.2% reached in 2004.

"As foreclosures grew over the last six years, many homeowners became renters," said Alex Villacorte, director of analytics for Clear Capital, a real estate valuation company.

The rental vacancy rate dropped to 8.8% during the first quarter, down from 9.7% a year earlier and from 9.4% in the last quarter of 2011, according to Census.