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  1. HAMP, FHA Short Refi, Numerous Other Housing Programs Could be Eliminated

    By on February 10, 2011

    Financial austerity, eliminating the defici, and eliminating the federal debt has suddenly become very popular in Washington, D.C.  The House Financial Services Committee is going to meet later today to discuss upcoming proposals for the Federal Budget.  Among other areas up for review, a large number of public housing programs would be reviewed for inefficiencies and redundancies and potentially eliminated.

    Among the programs to be reviewed or eliminated:

    • Fannie Mae and Freddie Mac will be reviewed and the committee will entertain proposals to “modify or eliminate” Fannie and Freddie’s statutory charters.
    • The committee will consider what role, if any, the government should play in the secondary mortgage market.
    • Fannie and Freddie’s participation in mortgage modification programs will be examined.
    • The Community Reinvestment Act – may be updated or eliminated entirely.
    • The National Flood Insurance Program will be reviewed.
    • The committee will look into appraisal fraud and the need for appraisal regulatory reform.
    • HUD, Rural Housing Service, National Reinvestment Corporation – the committee will review HUD programs with an eye toward eliminating inefficient or duplicative programs.
    • FHA Single Family program – will be examined to ensure losses will not expose taxpayers to risk.
    • FHA multi-family program – will also be examined to ensure losses will not expose taxpayers to risk.
    • The Home Affordable Modification Program (HAMP) – the government’s “flagship” loan modification program, which has by most accounts been a dismal failure, would be eliminated.
    • Section 8 Housing Choice Voucher Program, which provides rental assistance for low income families would be “reformed”.
    • NeighborWorks America, a government chartered non-profit program that focuses on mediation and community reinvestment would be eliminated.
    • HOPE VI – a program that provides grants that allow public housing authorities to demolish and refurb distressed buildings would be eliminated.
    • HUD’s public housing programs would be reviewed.
    • The new mortgage broker compensation rules will be reviewed.
    • Rural Housing and Economic Development Program would be eliminated.
    • The Neighborhood Stablization Program would be eliminated.
    • The Sustainable Communities Program would be eliminated.
    • The Public Housing Capital fund would be eliminated.
    • The Federal Housing Administration’s Refinance Program for underwater borrowers (aka the FHA Short Refi Program) would be eliminated.

    Undoubtedly, there is a lot of waste in the federal government, and many housing programs should be reviewed.  That said, it seems to me that the amount of money that would be saved by eliminating or reducing these programs pales in comparison to the truly gigantic amount of money that we have dumped into wars in Iraq and Afghanistan (three trillion dollars!).  I find much of this talk of cutting the budget and the deficit (from both sides of the aisle) to be disingenuous political grandstanding to say the least.

    Category: Mortgage Rates

  2. Principal Reductions More Effective Than Loan Modifications in Preventing Re-Default

    By on February 8, 2011

    New data from S&P Ratings Services (via this Housingwire article) states that a shocking 80% of loans that were modified between 2007 and 2010 re-defaulted within 24 months of the modification.  According to the report, 7.8 mortgage payments are made on a modified loan before the borrower starts to fall behind again.

    The report contends that loan modifications only provide a short term solution to delinquency because they encourage borrowers to make at least a few more payments in the short-term.  S&P found that principal reductions (which make up only 3% of loan modifications) are far more successful longer term solutions.

    That principal reductions are more effective than modifications without principal reductions seems to me to be patently obvious if you look at the root causes of delinquency and foreclosure: loss of income (due to unemployment) and negative home equity.

    Lets take the example of someone who has lost their job and income.  This person likely has some amount of savings, and can probably cut costs in order to make payments for some period of time, but if this person does not find a job, they will obviously run out of money at some time.  Reducing their monthly payments may simply extend how long they can survive on their savings (principal reductions won’t really help this person in the long term either).  Borrowers in this situation need jobs more than anything, and unemployment is still stubbornly high.  Although the unemployment rate fell from 9.4 to 9.0 percent in January, the economy only added 36,000 jobs, the labor force participation rate is falling rapidly and hit levels not seen since 1984.  This means that frustrated job-seekers are simply falling off the BLS’ radar and are not even looking for jobs – the decline in the unemployment rate is largely illusory.

    Continue Reading…

    Category: Mortgage Rates

  3. Widespread Mortgage Modification Aim of Attorney General Foreclosure Investigation

    1 By on November 1, 2010

    Another robo-signing/securitiztaion/foreclosure fiasco update here:

    Iowa Attorney General Tom Miller, who is heading up the probe into alleged foreclosure fraud.

    As I am sure you are aware, the foreclosure processes of many major lenders and mortgage servicers are under investigation for alleged fraud and other process-related defects (for further background, here is an excellent series of articles by Mike Konczal that describes what is going on).  A few weeks ago, I wrote about how the attorneys general of all 50 states joined together to investigate the foreclosure and securitization processes of major lenders.  This weekend there were a couple of articles that came out that shed some light on what the goals of these investigations may be.

    First, an article (“The States Take on Foreclosures“) in Friday’s New York Times by Joe Nocera discusses the AG investigation.  Nocera says that the thrust of the states’ investigation will be to force the banks to undertake mortgage modifications:

    “And best of all, [the attorneys general] have a very clear idea of what they are trying to accomplish. They don’t want to merely reform the foreclosure system (though that would be nice, wouldn’t it?). Nor do they particularly want a big financial settlement, which would be meaningless for a giant like Bank of America.

    “Rather they hope to use their investigation as a cudgel to force the big banks and servicers to do something they’ve long resisted: institute widespread, systemic loan modifications.“

    Continue Reading…

    Category: Mortgage Rates

  4. SIGTARP: HAMP Fails to Preserve Homeownership, Offers “False Hope”

    1 By on October 26, 2010

    This morning, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released its quarterly report to congress.  The report is incredibly blunt and candid about the failures of TARP (which are myriad).  Neil Barofsky, the inspector general, blasted TARP for being opaque, misleading, and lacking goals, among other things.  There was a lot to say (the report runs 338 pages), but I would like to focus on what SIGTARP had to say about the Home Affordable Modification Program (HAMP).  If you have time, though, I highly recommend reading through the report.  The allegations about TARP and AIG are particularly damning.

    Lets start with this choice quote:

    “The most specific of TARP’s Main Street goals, “preserving homeownership,” has so far fallen woefully short, with TARP’s portion of the Administration’s mortgage modification program yielding only 207,000 (out of a total of 467,000) ongoing permanent modifications since TARP’s inception, a number that stands in stark contrast to the 5.5 million homes receiving foreclosure filings and more than 1.7 million homes that have been lost to foreclosure since January 2009.”

    SIGTARP does not mince words.  Here’s another good one:

    Continue Reading…

    Category: Mortgage Rates

  5. 400,000 Short Sales Could Occur in U.S. in 2010

    2 By on September 27, 2010

    There was an excellent article in this Sunday’s Washington Post by Dina ElBoghdady and Dan Keating about the rapid growth of short sales in 2010.  A short sale occurs when a lender allows an underwater homeowner to sell their house for less money than they owe on the mortgage.  I highly recommend reading the article which contains plenty of good information.

    According to the article, short sales have tripled since 2008.  Fannie Mae has allowed three times as many short sales in 2010 than it allowed in 2007 and 2008 combined.  We are currently on pace to see 400,000 short sales this year.  The increase in short sales can be attributed to a variety of factors (and obviously the bad economy), but chief among them is the failure of loan modification programs such as HAMP and HARP.

    Short sales have a variety of benefits for both lenders and borrowers.  For borrowers, short sales are less harmful to credit scores than foreclosures are.  For lenders short sales are less costly than foreclosures.

    Continue Reading…

    Category: Mortgage Rates

  6. More Assistance Coming For Unemployed Homeowners

    By on July 26, 2010

    Just replace "bank failure" with "declining equity".

    “Cessation of work is not accompanied by cessation of expenses”

    -Cato the Elder

    Information continues to trickle out about a new program designed to help the unemployed keep their homes.  The Home Affordable Unemployment Program (HAUP) is a new program from the federal government (the same people that brought you HAMP!).

    We are still awaiting word on exactly how the funds will be disbursed, but the HUD program will start by October 1st.  At least $1 billion is in the legislation for redeveloping distressed property.  Another of the main thrusts of the program is to allow unemployed homeowners who are current on their mortgage to get a forbearance for at least three months.  During the forbearance, monthly mortgage payments would be reduced or eliminated entirely.

    The plan is based on a similar Pennsylvania program that effectively does the same thing.  The program has been going strong since 1983, so it may prove to be viable on a larger scale.

    Loss of income due to unemployment is (unsurprisingly) the chief reason for foreclosures.  Unemployment continues to run close to 10%, and broader measures of unemployment are running close to 17%, so barring an unforseen turnaround, the foreclosure problem will likely be with us for some time.

    Thus far, other government programs meant to reduce foreclosures have met with limited success.  The Home Affordable Modification Program (HAMP) has had more borrowers withdraw from it than have had their mortgages modified by it, and re-default rates are very high.  Again, this is unsurprising as those that have been out of work long term and don’t have much money are unlikely to be able pay even a modified mortgage.

    Many who could save money by refinancing into all-time low mortgage rates have been unable to do so, either because of credit reasons or because their home lost value and they do not have enough equity to qualify for refinancing.

    I will post more as more details about the program emerge.

    Category: Mortgage Rates

  7. Bank of America Implements Principal Reduction Program to Help Stem Mortgage Defaults

    By on June 2, 2010

    bank_of_america1

    With the number of borrowers who are walking away from mortgages on the rise, Bank of America unveiled a principal forgiveness plan aimed at modifying some home loans eligible for its National Homeownership Retention Program.

    The plan is being offered to home owners who are considerably underwater on their mortgage (meaning they owe significantly more than their homes are actually worth), and whose loan is under consideration for modification through the government’s Home Affordable Modification Program (HAMP). Although the plan operates in conjunction with HAMP, the government’s principal reduction plan isn’t in place yet, but is slated to be running later this year.

    The Bank of America program employs principal reduction as the first step toward reaching HAMP’s affordable payment target of 31 percent of household income when modifying certain NHRP-eligible mortgages – ahead of lowering the interest rate and extending the term. The reduced principal balance will be a non-interest bearing forbearance amount, and the homeowner may earn forgiveness of the forborne amount by remaining in good standing on payments.

    The NHRP enhancement was implemented in mid-May. Customers are required to submit required documentation of financial information for consideration in determining eligibility and underwriting the modification plan. Upon completion of these review processes, the first trial modification offers under the program may be ready in the second half of June.

    NHRP-eligible loans include subprime, Pay-Option ARM and prime-quality two-year hybrid ARM loans originated by Countrywide on or prior to January 1, 2009, if the amount of principal owed exceeds the current property value by at least 20 percent and the loan is 60 days or more past due.

    “Our tests have shown that many homeowners who are severely underwater on their mortgages will respond positively to a modification offer that includes reduction of their principal balance, increasing the rates of acceptance of HAMP trial modification offers, conversion to permanent modifications and long-term success of the homeowner,” said Jack Schakett, credit loss mitigation executive for Bank of America Home Loans.

    Schaket also said the number of strategic defaulters – people who can afford to make their mortgage payments but are choosing not to do so – is at a number higher than “we have ever experienced before.”

    By some estimates, roughly 30 percent of all foreclosures in recent months have been strategic defaults, and the average person in default is now staying in their homes for 438 days before being evicted.

    Category: Mortgage Rates

  8. Mortgage Rates, Delinquencies Fall

    By on April 19, 2010
    Delinquencies are down for the second straight month.

    Delinquencies are down for the second straight month.

    Two pieces of auspicious news for the housing market emerged today.  Mortgage delinquencies appear to be on the downswing, and mortgage rates fell for the first time in more than a month.

    A study published by LPS Applied Analytics, a group that studies mortgages, showed that mortgage delinquencies fell in March, marking the second straight monthly decline.  The number of home loans that were more than thirty days past due or in foreclosure declined 8.6 percent.  The biggest decline was among loans that were seriously delinquent (more than thirty days past due).  Seriously delinquent loans fell to the lowest level since the Spring of 2008.

    Although the number of real estate owned homes increased, the total number of loans that are in foreclosure or delinquent is down almost 650,000 since January.  Part of the decrease in foreclosures can be attributed to government efforts to modify mortgages, such as the Home Affordable Modification Program (HAMP).  230,000 borrowers have received permanent modifications.  Many consider this number disappointing because government efforts were projected to help many more borrowers.  There are over a million mortgages that have been temporarily modified or are waiting for modification.  The government has enacted several changes to HAMP that are intended to broaden the impact of the program.

    The average mortgage rate on a 30 year fixed-rate mortgage was 5.07 percent last week, down from 5.21 percent the previous week. This is still significantly higher than the historical low of 4.71 percent in December 2009.    While I still believe that mortgage rates are headed higher by the end of the year, this drop is a temporary respite and represents a good opportunity to lock in a low rate.  Mortgage rates will be volatile for the near future as the bond market fluctuates and the market deals with the withdrawal of support from the Fed.

    Although unemployment remains high, most indicators show that the economy is improving and the worst of the recession should be behind us.  Most economists and analysts agree that mortgage rates will increase through the end of the year.  Do not squander this opportunity to lock a low rate and save yourself thousands of dollars.  Call us today at 877-868-2509.

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    Category: Mortgage Rates

  9. JP Morgan Chase, Wells-Fargo Express Reservations About Principal Reduction

    By on April 15, 2010

    Mortgage principal reduction is one of the keystones in the Obama Adminstration’s plan to alleviate the foreclosure crisis and aid beleaguered American homeowners.  Executives from JP Morgan Chase, Wells-Fargo, Citigroup, and Bank of America testified in front of the House Financial Services Committee today.  They were not enthused at the idea of principal reduction.

    David Lowman, chief executive for home lending at JP Morgan Chase said We are concerned about large-scale broad-based principal reduction programs. Mike Heid, co-president of Well Fargo Home Mortgage said Principal forgiveness is not an across the board solution.  Officials from CitiGroup and Bank of America did not address the topic directly.

    Lowman also noted that any write-down costs will ultimately be passed along to borrowers, and this may result in increased borrowing costs in the form of higher mortgage rates.

    Governmental efforts to promote loan modification and principal reduction have been criticized by many for being ineffective. Thusfar only 230,000 borrowers have had their mortgages permanently modified.  As many as 20 percent of homes with mortgages are underwater.  Recent trends suggest that foreclosures are on the rise. RealtyTrac.com predicts there could be a staggering 4 million foreclosures in 2010.

    Participation in loan modification programs is not compulsory, and many banks are demonstrating resistance to the various programs.  Reasons for resistance include the possibility of moral hazard in reducing principal, unfairness to borrowers who are able to pay their mortgages, and harm to the banks bottom lines.

    Additional hurdles to loan modification include junior liens, which often must extinguished before the original mortgage can be modified, and contractual agreements between the banks and investors who purchased mortgages on the secondary market.

    One of the key issues at play is what happens to junior lien-holders (JP Morgan Chase alone has over $130 billion worth of secondary loans in its portfolio) in the event of modifications.  Banks are the primary holders of second loans, and understandably do not want to take massive losses by writing them down.  Secondary lien holders can effectively block any modification efforts.  This conflict is a huge reason for the ineffectiveness of modification efforts.  It is worth noting that many of the secondary loans are of dubious value, banks are unlikely to recoup any of the loan if the property in question goes into default.

    Until the conflict between first and second lien holders is resolved, loan modification efforts and mortgage write-down programs will likely be met with very limited success.

    What is your take on loan modification?  Will the efforts be successful, or should we concentrate our efforts in other places?  Let us know in the comments section, we would like to hear from you.

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    Category: Mortgage Rates

  10. Foreclosures Rise Suddenly in First Quarter

    By on April 15, 2010

    foreclosureNew reports from RealtyTrac.com show that foreclosures jumped 16 percent from the first quarter of 2009 to the first quarter of 2010.  Bank seizures hit a record high as banks work through the slow foreclosure process and as some borrowers whose loans were modified fall back into foreclosure.  RealtyTrac predicts that there will be 1 million bank seizures and 4 million foreclosure filings in 2010.

    Over 930,000 borrowers defaulted, received an auction notice, or had their homes seized this quarter.  Foreclosure notices, which were down slightly in February, rose 8 percent in March.  It is worth noting that just six states account for 60 percent of the country’s foreclosures.  Unsurprisingly, areas such as Nevada, California, Florida, Michigan, and Arizona, which experienced some of the most drastic price inflation prior to the recession are suffering the most foreclosures.

    Unemployment and declining home values are the chief factors driving the foreclosure rate.  Joblessness remains at 9.7 percent.  Estimates of the true unemployment rate (which includes frustrated job seekers and the underemployed) range from 12-20 percent depending upon the source.  Although the country experienced job creation for the first time in three years last month, most estimate that it will take years to replace the jobs that were lost during the recession.

    These revelations dovetail with the increasing criticism leveled at the Obama Administration’s efforts to forestall future foreclosures.  Only 230,000 borrowers have had their mortgages permanently modified through government housing relief attempts such as the Home Affordable Modification Program (HAMP).

    Many critics of the foreclosure prevention efforts say that the programs only prolong the foreclosure process, and that without principal reduction (to help underwater homeowners), many of those whose mortgages are modified will end up going into foreclosure anyway.  A Zillow report from the fourth quarter of 2009 indicates that 20 percent of homes with mortgages had negative equity.

    Critics of the modification programs assert that government intervention is also delaying the housing market from truly bottoming out, which just prolongs the drop in home values.  Some warn that modifying mortgages while prices continue to fall is a futile effort.  These critics say that many of those who are underwater will eventually default and trying to bail them out is just throwing good money after bad.

    What do you think about the mortgage modification programs in light of the new numbers?  Share your opinion in the comments section below.

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    Category: Mortgage Rates

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