New Research Finds That Problem Mortgages Now Account for Significant Number of Home Listings

The ongoing mortgage crisis is rapidly reshaping home sale activity nationwide. According to a new Inside Mortgage Finance-sponsored study, a significant number of home sale listings are being triggered by problem or troubled mortgages.

The study, based on a national survey of real estate agents, found that 11 percent of property listings were tied to defaulted mortgages and foreclosures pending. A sizeable 12 percent of the listings were potential short sales due to property values dropping below the outstanding mortgage balances. And 6 percent of the home listings were directly attributable to mortgage borrowers facing resets on adjustable-rate loans.

More than 2,400 real estate agents responded to the survey conducted by Campbell Communications in early December. The survey asked respondents a number of questions related to the impact mortgage market problems – particularly rising delinquencies and defaults – were having on the listing and sale of homes.

Aside from highlighting the big influence problem loans are having on home listings and sales, the new research found real estate agents were quite critical of the way many mortgage servicers dealt with problem loans. Specifically, respondents charged that the inability of mortgage servicers to act quickly prevented the sale of many distressed properties prior to foreclosure.

Much of the criticism leveled at mortgage servicers related to the response time needed by lenders to approve pre-foreclosure sales, particularly those involving home sales where the purchase amount is not enough to pay off the outstanding mortgage balance. Real estate agents reported not only having trouble locating the decision makers at servicing operations but also getting approval in less than a month or two.

“It is very difficult to achieve sensible negotiations with banks. They spend so long making decisions or refusing to accept even modest short sales that they wind up making far less in the end than they could had they been more cooperative from the outset,’ complained one survey respondent. “Streamline the process so we can get a response in less than four weeks,” suggested another respondent.

Not surprisingly, more than half of the real estate agents responding in the new survey reported spending much more time in handling short sales than regular transactions. They also reported receiving smaller commissions with short sales. The story was much the same in the handling of real estate owned or REO sales.

In terms of short sale transactions, real estate agents reported that the average home sale price was on average 16 percent below the outstanding mortgage balance. And in a somewhat disturbing finding, two-thirds of respondents reported that property values in their area were falling compared with a year earlier.

Much of the new study, “How Agents View Lender Relationships in Stressed Markets,” examines the relationships between real estate agents and mortgage lenders. Included in the new analysis are ratings of individual lenders based on a number of mortgage-related factors.

For information on how to obtain the full survey results, contact John Campbell at Campbell Communications at john@campbellsurveys.com or (202) 363-2069.