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California Earmarks $2 Billion For Anti-Foreclosure Effort
By Michael Kling on March 9, 2011

The state of California is giving out nearly $2 billion through its “Keep Your Home California” initiative to help homeowners avoid foreclosure.

The program, offered through the California Housing Finance Agency, is open to low- and moderate-income homeowners. To be eligible, the property must be owner-occupied, and the current principal balance must be under $729,750. There’s another catch. Your mortgage servicer must agree to participate in the program. At least the CalHFA website has a clear description of eligibility requirements and income limits for counties and a list of participating services.

The funds are left over federal Troubled Asset Relief Program funds that the state must use or give back to the federal government. Other states, including Arizona, Oregon and Florida, have rolled out similar programs.

State officials have said the initiative might help over 100,000 homeowners including up to 25,000 with negative equity. Some may argue that even $2 billion is not enough to solve the problem. Others will probably object to using taxpayer money to help homeowners who have made bad financial decisions. Continue Reading…

Category: foreclosures
Buying A Home Is A Great Investment, Buffett Says
By Michael Kling on March 9, 2011

Warren Buffett, renown as the smartest investor around, says buying his home was one of the best investments he ever made.

Specifically, it was the third best investment after wedding rings. “For the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come,” writes Buffet, chairman of Berkshire Hathaway, in his 2010 letter to shareholders.

Buffett concedes that he could have made more money if he had rented instead and used the extra money to purchase stocks, but most of us are not Buffett and don’t do a job picking stocks.

“Homeownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates,” he writes in the shareholder letter. “But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.”

Buffett remarked about homeownership while commenting on financial performance of Clayton Homes, a producer and financier of manufactured homes, that Berkshire Hathaway owns. Continue Reading…

Category: First Time Home Buyer, Purchase
Banks Consider Wide-Ranging Settlement On Foreclosures And Loan Modifications
By Michael Kling on March 8, 2011

Major banks are considering how to respond to demands from state and federal officials to revamp their foreclosure and mortgage servicing practices.

The 27-page plan from state attorneys general and federal regulators covers the details of how the largest banks, including Bank of America, Wells Fargo and Citigroup, should handle loan modifications and foreclosures.

Under the code of conduct, banks would have to follow strict time lines for considering loan modifications, provide a single point of contact for borrowers seeking help, and write-down mortgage principal balances in some circumstances. The proposal would also forbid banks from starting foreclosure proceedings while considering a mortgage loan modifications. The proposal would also encourage banks to complete more loan modifications through the federal government’s Home Affordable Modification Program.

The idea is to have one settlement between all the states, federal regulators and major banks rather than a plethora of agreements that would create confusion. Iowa Attorney General Tom Miller told reporters at a press conference yesterday that a settlement could be reached in a couple months. The states and federal agencies are also considering penalties against the banks for shoddy foreclosure practices that emerged in the robo-signing scandal last year.

In the proposal, regulators get into the details of mortgage servicing. The New York Times noted that the attorneys general and the new federal Consumer Financial Protection Bureau would have to review training documents and videos for mortgage servicing employees. An article in The Wall Street Journal said bank executives and attorneys complained that the government is trying to mico-manage industry practices.

Banks could argue that the attorneys general and federal agencies have no right to set down standards without new legislation or regulations. They could protest that it is unfair to set new rules for them and not all banks and servicers, although the top five banks service 80 percent of home loans. Yet protesting could be difficult when goodwill to banks is zero and they’re being blamed for everything but bad weather.

Actions against banks could prolong economic doldrums, driving down their stock values and postponing a housing market recovery. If history is a guide, providing more loan modifications will usually only postpone foreclosures.

Yet many will probably argue that the settlement does not go far enough.

Category: foreclosures
Nationwide Foreclosure Settlement In The Works Involves Loan Modifications
By Michael Kling on February 24, 2011

Federal agencies and state attorneys general are reportedly working on a comprehensive deal to force banks to write down principal balances and resolve foreclosure problems.

If an agreement is reached, the results could be huge. Banks would reduce billions of dollars worth of principal balances, and states would end their investigations of bank foreclosure practices, possibly allowing foreclosures to go ahead.

Both The Wall Street Journal and The Washington Post had articles on the possible deal in the works today. In additional to mortgage principal write downs, a settlement could cover fines for improper foreclosure proceedings being investigated by state attorneys general.

Reaching a settlement and getting the banks, federal agencies, and state attorneys general to agree would be difficult. The large number of people and the complex issues involved make the talks especially difficult.

Still, the Post said negotiations are getting closer to reaching an agreement.

The Wall Street Journal postulated that an agreement could help clear the backlog of foreclosures and help the housing market eventually recover. Continue Reading…

Category: foreclosures
Buying a Home May Be More Affordable Than Ever
1 By Michael Kling on February 9, 2011

Buying a home may be more affordable than ever in many areas. That’s the conclusion of Moody’s Analytics, according to an article in The Wall Street Journal.

Homes are many areas were just as affordable or more affordable at the end of September as they were between 1989 and 2003 in 47 markets, says Moody’s Analytics. It based its conclusion on the ratio of median home prices to annual household incomes in 74 markets.

In a recent blog, we reported that Trulia.com concluded that owning a home is more affordable than renting in most major cities. The online home-shopping service said it’s more affordable to buy a two-bedroom home in 72 percent of America’s 50 largest cities than it is to rent a similar home.

The ratio of home prices to annual household income was at its highest point in late 2005 when it reached 2.3, noted the Journal article. It had fallen to 1.6 last September. That was the lowest its been in at least 35 years, or since the data have been collected, and well below the historical average of 1.9 between 1989 and 2003. Continue Reading…

Category: Housing Market
Military Families With VA Home Loans Offered Help To Avoid Foreclosures
6 By Michael Kling on February 7, 2011

Military personnel and their families with VA home loans are not immune to the housing crisis, but efforts are underway to help them avoid foreclosure and stay in their homes.

The Department of Defense Homeowners Assistance Program was formed to help servicemen and women sell their homes if their home values decline due to base closings or realignments. In 2009, it expanded to help military personal and their families if DOD employees are killed or injured while deployed.

The program covers the difference between 95 percent of the home’s appraised before a base closure announcement and the appraised value or sales price after the announcement. The government can also purchase the property for 75 percent of the original price or payoff the mortgage.

The Department of Defense can also help members of the Armed Forces who had a permanent change of station and whose homes lost values during the mortgage crisis, with certain qualifications. Thanks to Cindy Jones, one of our readers, for pointing that out.

About 12,000 families asked for help through the program, according to an article in USA Today. Over 20,000 veterans, active-duty military personnel and reservists with VA home loans lost their homes through foreclosures last year, the largest number since 2003. Continue Reading…

Category: foreclosures
Automatic Foreclosure Mediation Pushed As Solution To Mortgage Mayhem
By Michael Kling on February 2, 2011

Requiring banks to hold mediation sessions with homeowners facing foreclosure could be the solution to the foreclosure crises, argues the Center for American Progress, a liberal think tank.

Banks should be mandated to hold mediation sessions with homeowners before any foreclosure for mortgages guaranteed or owned by the government. That would include mortgages backed by Fannie Mae, Freddie Mac, the VA and FHA.

What’s more, mediation sessions should be scheduled automatically, instead of waiting for a request from the homeowner. In mediation sessions, the homeowner and bank meet in the presence of a neutral third-party in an attempt to reach a loan modification agreement. Learn about foreclosure alternatives.

“Even though none of the parties are under any obligation to settle in mediation, in practice they settle more than half the time,” wrote Alon Cohen, a consultant on housing issues for the group, in the study just released. “It does not mean all foreclosures will end or that all homeowners will receive a modification.”

Banks and mortgage services, in addition to homeowners, would benefit. For every mortgage modified in mediation, the mortgage servicer cuts its losses by 60 percent, according to Cohen. Fannie Mae and Freddie Mac alone would save over $6 billion and over 177,000 homeowners would stay in their homes.

Continue Reading…

Category: foreclosures
Follow New York State’s Example For Offering Foreclosure Alternatives, Urges NY Banking Chief
By Michael Kling on January 25, 2011

The rest of the country should follow the example of New York State to help homeowners avoid foreclosures. New York State probably has the best laws for offering foreclosure alternatives, said New York Superintendent of Banks Richard Neiman.

“The mortgage market is in disarray once again, due to the continuing foreclosure documentation irregularities, with the possibility for illegal behavior,” Neiman said at the Mortgage Bankers Association conference last week, according to his prepared remarks posted on his agency’s website. Cutting corners has creating problems, he said. “The uncertainty is creating a crisis of confidence in the foreclosure process, the modification process, and in the housing market more broadly.”

New York put into place the toughest, most comprehensive mortgage servicing rules last year, according to Neiman. Those rules spell out what mortgage services, companies that administer mortgages, have to do to try to avoid foreclosures.

The laws give specific time frames for trying short sales and loan modifications, require servicers to provide written explanations of costs, terms, and risks of foreclosure alternatives, require servicers to give specific reasons for denying foreclosure alternatives, and prohibit servicers from pursuing a foreclosure while the borrower has a trial loan modification.

Neiman isn’t the only one talking about preventing foreclosures. Continue Reading…

Category: foreclosures, Mortgage Regulations
Fannie Mae and Freddie Mac Own $24B Worth of Foreclosed Homes
By Michael Kraus on January 24, 2011

I didn’t get to this on Friday, but last week a Bloomberg Businessweek report showed that Fannie and Freddie currently own a whopping $24 billion worth of distressed property ($24,000,000,000!). The amount of foreclosed property owned by the GSEs has quintupled in the last three years to 242,000 properties. According to the article, this accounts for a third of the total amount of repossessed homes in the United States. Michael Feder, CEO of Radar Logic, commented:

“The concern we have is less what Fannie and Freddie are showing at the moment as defaulted loans and more what’s in the shadow.”

Currently, the GSEs have attempted to sell repossessed properties at market value so as not to hurt community property values, not to mention devalue their own portfolio. This is causing REO property to build up more quickly than it can be sold. While not willing to get rid of their portfolio at cut-rate prices, Jane Severn, director of REO disposition at Fannie says they are not keeping any homes they own off the market:

“We don’t hold anything back that is available to be sold. We’re doing the opposite pushing our homes out to the market as soon as we can. We don’t have a shadow inventory.”

Foreclosures hit an all-time high in 2010 (despite a late-year foreclosure moratorium from some lenders over the robo-signing scandal), and are expected to eclipse those numbers in 2011. This will likely lead to even more REO in the hands of the GSEs. The trouble is that home prices are also expected to decline in 2011 as a result of the glut of unsold homes, the relative lack of demand for them, and continuing high unemployment. This means that the GSEs will continue to amass assets that are almost certain to continue to lose value. Since Fannie and Freddie are wards of the state, the taxpayers will be stuck with the equity losses (once again). Who knows, maybe we can take those 242,000 homes and create some sort of tax-payer time share program, with everybody who paid taxes in the last three years eligible to reserve a foreclosed property for a weekend sometime in the next fifty years.

Thusfar, Fannie and Freddie have been the recipients of $150 billion in bailout funds from the Treasury, and estimates of the total cost to bailout the housing behemoths range from $200-$400+ billion.

Category: Mortgage Rates
Distressed Property Sales Spike in December
By Michael Kraus on January 24, 2011

A Tracking Survey from Campbell/Inside Mortgage Finance Housing Pulse released this morning indicated that sales of foreclosed and distressed property was up sharply in December:

“Sales of distressed property surged in December as many banks resumed foreclosures following stoppages in late fall. At the same time, first-time homebuyer activity remained strong as purchased rushed to close transactions before interest rates rise further.”

Housing Pulse’s Distressed Property Index measures the percentage of real estate transactions that involve distressed property. The index was at 47.2 percent in December, up from 44.5 percent in November. The December figures nearly eclipsed September 2010′s all-time high of 47.5 percent.

Sales of distressed property hit a temporary lull as banks backed off of foreclosures in response to the robo-signing foreclosure scandal. Despite this temporary moratorium, there were over 1 million repossessed homes in 2010, and more are expected in 2011 as banks once again ramp up foreclosures. Despite this, Thomas Popik, research director for Campbell Surveys noted that the surge in sales will likely ebb in the coming months:

“January and February are typically the slowest months of the year for home buying, and we’ll still have a backlog of foreclosed homes coming on the market during the winter, so prices may come under pressure too.”

It will be interesting to see what impact, if any, recent foreclosure litigation will have on the distressed property market. There has been a spate of cancelled and withdrawn foreclosures as the result of lawsuits and court decisions, and an upcoming Massachusetts lawsuit could potentially invalidate many foreclosure sales in that state. It is very possible lawsuits such as these could cast doubt over the rightful ownership of foreclosed property, which would really hurt the market for these types of homes. To illustrate just how important distressed property sales are to the market as a whole, sales of distressed homes constituted over 60 percent of all sales in California, Nevada, and Arizona in December. Even in states that weren’t hit as hard by the housing bubble, such as Texas, Oklahoma, and Louisiana, distressed property accounts for 30 percent of home sales.

Category: Mortgage Rates