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Loan workouts decline as fewer homeowners struggle

The number of loan workouts designed to help borrowers avoid foreclosure since 2007 reached 24 million in the second quarter, market data suggests, a milestone that reveals how devastating the Great Recession was on homeowners.

But the bigger story, analysts say, is that the number of foreclosures and loan workout plans dropped steeply in yet another quarter, pointing clearly to the return of an almost normal housing market.

Permanent loan modifications declined by 9 percent year over year in the quarter to 113,369, according to a report last week from the HOPE NOW Alliance, a nonprofit that was founded after the housing crash to help coordinate foreclosure-alternative programs.

Overall workout plans, which also include such alternatives as short sales, repayment plans and principal reduction and interest programs, totaled 411,000, down 7 percent from the previous quarter.

Completed foreclosures dropped to 89,000 in the quarter, down 24 percent from a year earlier,  HOPE NOW reported.  

“I am not an economist, so I wouldn’t want to say that the market has recovered,” said Brad Dwin, spokesman for HOPE NOW. “What I will say is that, by and large, on a national level, the market has recovered somewhat to what it was pre-2007." 

The housing data tracking company RealtyTrac reported last week that the number of homes that were sold while in some stage of foreclosure declined in the second quarter to the lowest level since January 2000. 

Meanwhile, housing sales are on a prerecession pace, RealtyTrac reported. Also, all-cash sales have also dropped below historical levels, an indication that more traditional buyers are purchasing homes than investors.

Lagging problems in some markets

The overall housing market on a national basis is near normal, but not fully recovered, said Daren Blomquist, vice president of RealtyTrac.

“There are a few lagging, nagging problems lingering from the housing crisis, but aside from those, we are really back in a normal, healthy housing market,” Blomquist said.

He said that roughly 7 million homeowners are still underwater owning more on their property than the home values,  He also said that several markets are not affordable, and some markets are still struggling with higher-than-normal foreclosure rates. 

"It definitely is uneven," Blomquist said, "but when you look at it from the national level, the majority of markets, I would say, we are back to normal with a few nagging issues.”

Loan workout plans have outnumbered foreclosures by a factor of four-to-one since the downturn, HOPE NOW reported. Dwin said that indicates federal programs and private options have been effective in reducing the 60-day delinquency rate, an indicator that a home might be on the verge of foreclosure.

In May, the Federal Housing Finance Administration extended through 2016 the Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP), which are designed to help struggling and underwater homeowners. 

Dwin said he couldn’t predict how long the federal programs would be needed, but said they set a benchmark for the industry to follow and established “a waterfall of options” for borrowers.

“Since it started, the servicer first looked at the HAMP option to see if it is available to a delinquent borrower, then they go through this waterfall of other options,” Dwin said. “So, they find one that is the most viable. Also, you will see that the mods have been a lot more sustainable and viable since the HAMP program was introduced.”  


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