(MoneyWatch) So-called short-sales of homes are rising, according to HOPE NOW, a private-sector alliance of mortgage investors, servicers, insurers and non-profit counselors.
The number of short-sales -- when banks accept less money for a home than is currently owed on the mortgage -- crept up in August from the previous month. In theory, that's good news because an uptick in short-sales should fewer homes going into foreclosure.
But that's not the case yet. August foreclosure sales increased 12 percent from July, and foreclosure starts grew 14 percent. Faith Schwartz, executive director of HOPE NOW, attributed the rise to lenders clearing their foreclosure backlog, noting that many of the foreclosures have been in process for at least a year.
"The incentives for short-sales continue to increase," she said. "The $25 billion foreclosure settlement, and the fact that many servicers aren't used to holding on to foreclosures or [real-estate owned properties] means incentive is increasing."
The goal is to resolve foreclosures before homes end up sitting abandoned and blighting the surrounding community, Schwartz added.
The data also suggest that more homeowners are making mortgage payments on time. The number of homeowners delinquent 60 days or more on their mortgage fell 2 percent in August, down to 2.42 million. In July, 2.47 million homeowners were seriously delinquent on their mortgages. Fewer borrowers are falling behind at least 60 days on their mortgages, and there are fewer current (30 day) defaults.
"While this is almost 40 percent lower than the all-time high of 4 million homeowners seriously past-due on their mortgage, we cannot forget there are many more who remain at risk of foreclosure," Schwartz said, noting that short-sales are an integral part of helping homeowners. Yet many borrowers don't know a short-sale is an option.
While short-sales, foreclosure starts and foreclosure sales rose in August, the number of homeowners who got mortgage relief in the form of loan modifications fell. Roughly 76,000 homeowners got permanent loan modifications under both both lender programs and the federal government's Home Affordable Modification Program (HAMP). That's down from July, when more than 82,000 homeowners received modifications from both HAMP and private companies.
Most loan mods start as HAMP modifications. If the borrower does not meet HAMP standards, they may be considered for alternative, proprietary modifications.
In total, 5.75 million homeowners have received permanent loan modifications since 2007, with more than 543,000 of those modifications occurring since January. Most homeowners who have had loans modified since the beginning of the year have done so through a lender or loan servicer.
Only 143,420 homeowners have received loan mods this year under HAMP which has very rigid documentation and debt-to-income standards. Since 2007, most of the loan mods -- nearly 4.7 million -- have been completed via proprietary loan modifications. Comparatively, the government's HAMP program has modified roughly 1.1 million loans since it began reporting in 2009.
Nearly all (93 percent) of the proprietary loan modifications in August included fixed interest rates of five years or more, and 82 percent of mods had reduced principal and interest monthly payments. Proprietary loan modifications with reduced principal and interest payments of more than 10 percent accounted for 71 percent of completed modifications.
If you need help with your mortgage, go to MakingHomeAffordable.gov, HOPENOW.com or call the Homeowner's HOPE hotline (1-888-995-HOPE) for more information on the HAMP and Home Affordable Refinance Program. And if you feel that you were wrongly foreclosed upon or received a foreclosure notice in error, go to IndependentForeclosureReview.com.