OREGON REAL ESTATE ROUND TABLE

Tag: Bank of America

  • How Ruthless Banks Gutted the Black Middle Class and Got Away With It, by Devona Walker, Truth-out.org


    The real estate and foreclosure crisis has stripped African-American families of more wealth than any single event in history.

    The American middle class has been hammered over the last several decades. The black middle class has suffered to an even greater degree. But the single most crippling blow has been the real estate and foreclosure crisis. It has stripped black families of more wealth than any single event in U.S. history. Due entirely to subprime loans, black borrowers are expected to lose between $71 billion and $92 billion.

    To fully understand why the foreclosure crisis has so disproportionately affected working- and middle-class blacks, it is important to provide a little background. Many of these American families watched on the sidelines as everyone and their dog seemed to jump into the real estate game. The communities they lived in were changing, gentrifying, and many blacks unable to purchase homes were forced out as new homeowners moved in. They were fed daily on the benefits of home ownership. Their communities, churches and social networks were inundated by smooth-talking but shady fly-by-night brokers. With a home, they believed, came stability, wealth and good schools for their children. Home ownership, which accounts for upwards of 80 percent of the average American family’s wealth, was the basis of permanent membership into the American middle class. They were primed to fall for the American Dream con job.

    Black and Latino minorities have been disproportionately targeted and affected by subprime loans. In California, one-eighth of all residences, or 702,000 homes, are in foreclosure. Black and Latino families make up more than half that number. Latino and African-American borrowers in California, according to figures from the Center for Responsible Lending, have foreclosure rates 2.3 and 1.9 times that of non-Hispanic white families.

    There is little indication that things will get much better any time soon.

    The Ripple Effect

    If anything, the foreclosure crisis is likely to produce a ripple effect that will continue to decimate communities of color. Think about the long-term impact of vacant homes on the value of neighborhoods, and about the corresponding increase in crime, vandalism and shrinking tax bases for municipal budgets.

    “The American dream for individuals has now become the nightmare for cities,” said James Mitchell, a councilman in Charlotte, NC who heads the National Black Caucus of Local Elected Officials. In the nearby community of Peachtree Hills, he says roughly 115 out of 123 homes are in foreclosure. In that environment, it’s impossible for the remaining homeowners to sell, as their property values have been severely depressed. Their quality of life, due to increases in vandalism and crime, diminished. The cities then feel the strap of a receding tax base at the same time there is a huge surge in the demand for public services.

    Charlotte, N.C. Baltimore, Detroit, Washington D.C. Memphis, Atlanta, New Orleans, Chicago and Philadelphia have historically been bastions for the black middle class. In 2008, roughly 10 percent of the nation’s 40 million blacks made upwards of $75,000 per year. But now, just two years later, many experts say the foreclosure crisis has virtually erased decades of those slow, hard-fought, economic gains.

    Memphis, where the majority of residents are black, remains a symbol of black prosperity in the new South. There, the median income for black homeowners rose steadily for two decades. In the last five years, income levels for black households have receded to below what they were in 1990, according to analysis by Queens College.

    As of December 2009, median white wealth had dipped 34 percent while median black wealth had dropped 77 percent, according to the Economic Policy Institute’s “State of Working America” report.

    “Emerging” Markets Scam v. Black Credit Crunch

    While the subprime loans were flowing, communities of color had access to a seemingly endless amount of funding. In 1990, one million refinance loans were issued. It was the same for home improvement and refinance loans. By 2003, 15 million refinance loans were issued. That directly contributed to billions in loss equity, especially among minority and elderly homeowners. Also at the same time, banks developed “emerging markets” divisions that specifically targeted under-served communities of color. In 2003, subprime loans were more prevalent among blacks in 98.5 percent of metropolitan areas, according to the National Community Reinvestment Coalition.

    One former Wells Fargo loan officer testifying in a lawsuit filed by the city of Baltimore against the bank says fellow employers routinely referred to subprime loans as “ghetto loans” and black people as “mud people.” He says he was reprimanded for not pushing higher priced loans to black borrowers who qualified for prime or cheaper loans. Another loan officer, Beth Jacobson, says the black community was seen “as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.”

    “We just went right after them,” Jacobson said, according to the New York Times, adding that the black church was frequently targeted as the bank believed church leaders could convince their congregations to take out loans. There are numerous reports throughout the nation of black church leaders being paid incentives for drumming up business.

    Due in part to these aggressive marketing techniques and ballooning emerging market divisions, subprime mortgage activity grew an average of 25 percent per year from 1994 to 2003, drastically outpacing the growth for prime mortgages. In 2003, subprime loans made up 9 percent of all U.S. mortgages, about a $330 billion business; up from $35 billion a decade earlier.

    Now that the subprime market has imploded, banks have all but abandoned those communities. Prime lending in communities of color has decreased 60 percent while prime lending in white areas has fallen 28.4 percent.

    The banks are also denying credit to small-business owners, who account for a huge swath of ethnic minorities. In California ethnic minorities account for 16 percent of all small-business loans. In the mid-2000s roughly 90 percent of businesses reported they received the loans they needed. Only half of small businesses that tried to borrow received all or most of what they needed last year, according to a survey by the National Federation of Independent Business.

    In addition, minority business owners often have less capital, smaller payrolls and shorter histories with traditional lending institutions.

    Further complicating matters is the fact that minority small-business owners often serve minority communities and base their business decisions on things that traditional lenders don’t fully understand. Think about the black barber shop or boutique owner, who knows there is no other “black” barber shop or boutique specializing in urban fashions within a 30-minute drive. While that lender may understand there is such a niche market as “urban fashions,” they likely won’t understand the significance of being “black-owned” in the market as opposed to corporate-owned. Or think of the Hispanic grocer with significant import ties to Mexico who knows he can bring in produce, spices and inventory specific to that community’s needs, things people cannot get at chain grocery stores. That lender might only understand there is a plethora of Wal-Marts in the community where he wants to grow his business.

    Minority business owners are often more dependent upon minority communities for survival, which of course are disproportionately depressed due to subprime lending. Consequently, minority business owners have a lower chance of success. Banks, understanding that, are even less likely to lend. It’s like a self-fulfilling prophecy, and it’s beginning to resemble the traditional “redlining” of the 1980s and 1990s.

    “After inflicting harm on neighborhoods of color through years of problematic subprime and option ARM loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment,” said Geoff Smith, senior vice president of the Woodstock Institute.

    Believe it or not, no one in a position of power to stop all this from unfolding was blindsided. Ben Bernanke was warned years ago about the long-term implications of the real estate bubble and subprime lending. Still, he set idly by. He told the advocates who warned him that the market would work it all out. Perhaps they thought the fallout would be limited to minority communities, or perhaps they just didn’t care.

    Devona Walker has worked for the Associated Press and the New York Times company. Currently she is the senior political and finance reporter for theloop21.com. 

     

  • Rescue from foreclosure? Frustration, anger grow, By Sanjay Bhatt, Seattletimes.com


    When he tried to change the terms of his home loan, Michael Guzman was rejected because the bank didn’t consider his joblessness a long-term hardship.

    Kamie Kahlo’s bank offered her a modified mortgage on her Queen Anne home but later told her the lower payments weren’t permanent.

    And Leslie Oldham was stunned her bank moved to foreclose on her Kent home before it gave her a decision on a loan modification.

    “I tried everything I could to work it out with the bank,” said Oldham, 58, “because the last thing I wanted to do was file a bankruptcy.”

    More than a year since President Obama announced an unprecedented national foreclosure-prevention program, many homeowners’ experiences with the program have left them feeling frustrated and angry at mortgage servicers.

    The program gives servicers financial incentives to permanently lower the monthly payments of homeowners who qualify for and successfully complete a three-month trial period. Servicers can modify a mortgage by lowering the interest rate, extending the loan’s terms or deferring payment of principal.

    Federal auditors say the Treasury Department has failed to hold banks and other servicers accountable for following the loan-modification program’s guidelines, and state regulators say there’s little they can do.

    Some examples from the Government Accountability Office:

    • Delayed decisions: After three months of accepting payments on a modified trial loan, banks are supposed to decide whether to make the new terms permanent. But some banks have a backlog of thousands of homeowners who have been making trial payments for six months or longer.

    • Inconsistent treatment: Fifteen of the 20 largest servicers in the program didn’t follow federal guidelines for evaluating borrowers’ loans and may have treated similarly situated borrowers differently.

    • No meaningful appeals: The Treasury does not independently review borrowers’ application or loan files, nor does it have clear penalties for servicers who violate the program’s rules.

    The program was intended to keep 3 million homeowners from foreclosure, but it had produced only about 435,000 permanent modifications through July.

    Treasury officials say the program’s impact can’t be measured by a single statistic. Many homeowners who were deemed ineligible for the federal program have been offered private loan modifications by their servicer.

    Still, six of every 10 seriously delinquent borrowers are not getting help, according to a new study by the State Foreclosure Prevention Working Group. Struggling homeowners are alienated by the mixed messages and long delays, the group said, and almost three-quarters of modified mortgages leave borrowers owing more, not less.

    “That is not a sustainable solution,” said Roberto Quercia, who consulted on the study and is director of the Center for Community Capital at the University of North Carolina, Chapel Hill. “For people underwater, making the hole deeper is a recipe for disaster.”

    Jumbled paperwork

    In March 2009, Treasury officials launched the federal Home Affordable Modification Program (HAMP), its cornerstone effort to rescue the nation’s housing market, in which property values have fallen at a rate not seen since the Great Depression.

    Homeowners must pass three tests to be considered: First, they must have an eligible hardship, such as unemployment. Second, their mortgage must exceed 31 percent of their gross monthly income.

    Finally, the bank applies a “net present value” test to see if it will lose more money from foreclosing on their home than from modifying the mortgage.

    Through July, homeowners in the program saw a median 36 percent, or more than $500, savings in their monthly payment after permanent modification, according to the Treasury.

    But the number of homeowners making trial payments who were dropped from the program — more than 600,000 — now exceeds the number with permanent modifications.

    “Paperwork has been the No. 1 reason homeowners have not been able to convert to permanent modifications,” Treasury spokeswoman Andrea Risotto said.

    The second most common reason, she said, is that homeowners are unable to keep up with payments during the trial period.

    Housing counselors and lawyers for homeowners say servicers misplace documents or wrongly reject eligible applicants for no good reason — even after they’ve made trial payments for six months or longer.

    “The servicers are claiming that the files are a mess or are incomplete,” said Marc Cote, a housing counselor who coordinates Washington state’s foreclosure-prevention hotline. “We have confirmation the fax was received. Then you call back in two days and there’s no record of it. That’s not uncommon.”

    Regulators at the state Department of Financial Institutions say they’ve been flooded with consumer complaints about mortgage issues — such as banks failing to properly credit homeowners for payments.

    Department director Scott Jarvis says a series of federal court decisions since 2002 has made it nearly impossible for regulators to force national banks and thrifts to comply with state consumer-protection laws.

    “It’s a massive shell game,” Jarvis said. “The pea is the consumer, and the consumer ends up getting shuffled around the shells and rarely gets anything resolved.”

    For their part, big banks and other servicers say they’re helping distressed borrowers, while being fair to the majority of homeowners who pay their mortgages on time.

    This year, Chase opened a loan-modification office in Tukwila that focuses on screening homeowners with Chase mortgages in Washington and Oregon.

    And a coalition of big banks recently announced support for a Web portal called HOPE LoanPort that housing counselors can use to submit complete applications, verify their receipt and get status updates.

    “In the end I think we all share a common goal, which is to help as many customers as possible stay in their homes,” said Rebecca Mairone, Bank of America’s national default-servicing executive.

    Left in limbo

    Cote, the housing counselor, recounts this story: On Aug. 6, a national bank told an elderly owner of an Issaquah house that her application for loan assistance — submitted March 3 — was still under review.

    A week later, a trustee let the bank repossess the woman’s house. The bank had denied the woman’s application but never notified her in writing, as required.

    “They’re violating the guidelines,” said Cote, whose agency doesn’t allow him to identify the national bank.

    Some Seattle-area homeowners echo Cote.

    Guzman, of Lake Stevens, has been unemployed for more than two years and was told — incorrectly — by Chase last year that his joblessness did not count as a permanent hardship.

    “Servicers continue to evolve their implementation of HAMP,” Chase said in a statement.

    Moreover, Chase said, it asked Guzman to reapply for loan assistance, but he has refused.

    Guzman said he’s already submitted paperwork three times.

    “Millions of people have gone through this wringer like I have,” he said.

    Kahlo, who bought her Queen Anne home in 1999, said she did everything Bank of America asked her to do to qualify for relief under the federal program.

    After the bank told her it wasn’t permanently modifying her mortgage, she sued, alleging it had violated the federal program’s rules.

    Bank of America sought to dismiss the suit, saying the lower monthly payment it offered her was an alternative to the federal program.

    “A participating servicer is not required to modify every HAMP-eligible loan,” the bank stated in court.

    Without a permanent modification, Kahlo says, she’s in limbo. “I don’t know if I’m sleeping in their home or my home,” she said.

    Declaring bankruptcy was a last resort for Oldham, a widow in Kent who manages payroll for a small construction company.

    But she believed she had no recourse because Bank of America foreclosed on the manufactured home she’s lived in for 15 years.

    Oldham said she got behind on her mortgage because of medical bills.

    She applied for a modification last year, but the bank tacked a foreclosure notice on her door before she received an answer.

    Oldham complained to the state Attorney General’s Office, which passed her on to the state Department of Financial Institutions. That department routinely forwards such complaints — about 540 so far this year — to federal regulators.

    With Oldham, though, the state department lost track of her complaint, finally sending it along last month.

    Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com

  • 66% of homeowners who seek foreclosure counseling cite job losses for trouble, Craig Wolf, Poughkeepsiejournal.com


    Two-thirds of the people seeking foreclosure -prevention counseling in the major local program say it was their loss of jobs or income that got them in trouble.

    And the majority of people counseled did not have subprime mortgages, but conventional, fixed-rate mortgages, according to Hudson River Housing Inc., a Poughkeepsie-based nonprofit.

    The group said its count of counseled homeowners has exceeded 1,500 since beginning the program in 2008.

    Mary Linge, director of home ownership and education, said that 66 percent of homeowners currently cite loss of jobs and reduced income as primary reasons they face foreclosure.

    In foreclosure, a lender who isn’t being paid takes possession of the property.

    Of those who have recently sought services, 79 percent have conventional loans, compared with 43 percent in late 2008 when the program began, Linge said.

    “The foreclosure crisis is now largely being driven by economic pressures, not bad mortgage products,” Linge said.

    Recent research by the Poughkeepsie Journal found that foreclosure filings in state Supreme Court rose in 2009 by nearly 20 percent over 2008. For the first seven months of this year, filings are on course to show a further 10 percent increase.

    Hudson River Housing has received three federal grants totalling $308,602 for counseling people through the Hudson Valley Foreclosure Prevention Services.

    Linge said the National Foreclosure Mitigation Counseling program that has funded her group has done research on results nationally.

    Homeowners who got counseling were 60 percent more likely to avoid losing their homes than people who did not seek help. Clients were more likely to get a loan modification and, on average, saved $454 a month on mortgage payments.

    Reach Craig Wolf at cwolf@poughkeepsiejournal.com or 845-437-4815.

  • New Program for Buyers, With No Money Down, John Leland, Nytimes.com


    MILWAUKEE — When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down.

    But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down.

    Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.

    “I thought I’d be stuck renting for years,” said Mr. Middlebrooke, 26, who earns $32,000 a year as a producer for a Christian television ministry.

    Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government takeover, is creeping back into the market for mortgages with no down payment.

    Mr. Middlebrooke’s mortgage came from a new program called Affordable Advantage, available to first-time home buyers in four states and created in conjunction with the states’ housing finance agencies. The program is expected to stay small, said Janis Smith, a spokeswoman for Fannie Mae.

    Some experts are concerned about the revival of such mortgages.

    “Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — like Mr. Middlebrooke’s — “perform worse than those that do not.”

    But the surprise is the support these loans have received, even from critics of exotic mortgages, who say low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting.

    Moreover, they say, the housing market needs such nontraditional lending, as long as it is done prudently.

    “This is subprime lending done right,” said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. “If they had done subprime this way in the first place, we wouldn’t have these problems.”

    At Harvard’s Joint Center for Housing Studies, Eric Belsky, the director, said the loans might be the type of step necessary to restart the housing market, because down payment requirements are keeping first-time home buyers out.

    “If you look at where the market may get strength from, it may very well be from first-time buyers,” he said. “And a very significant constraint to first-time buyers is the wealth constraint.”

    The loans are the idea of state housing finance agencies, or H.F.A.’s, quasi-government entities created to help moderate-income people buy their first homes.

    Throughout the foreclosure crisis, the state agencies continued to make loans with low down payments, often to borrowers with tarnished credit, with much lower default rates than comparable mortgages from commercial lenders or the Federal Housing Administration. The reason: the agencies did not offer adjustable rates, and they continued to document buyers’ income and assets, which many commercial lenders did not do. In 2009, the agencies’ sources of revenue dried up, and they had to curtail most lending.

    Then they created Affordable Advantage. The loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes.

    All of these requirements ease the risk, said William Fitzpatrick, vice president and senior credit officer of Moody’s Investors Service. “These aren’t the loans that led us into the mortgage crisis,” he said.

    So far Idaho, Massachusetts, Minnesota and Wisconsin are offering the loans. The Wisconsin Housing and Economic Development Authority has issued 500 loans since March, making it the first state to act. After six months, there are no delinquencies so far, said Kate Venne, a spokeswoman for the agency.

    The agencies buy the loans from lenders, then sell them as securities to Fannie Mae. Because the government now owns 80 percent of Fannie Mae, taxpayers are on the hook if the loans go bad.

    The state agencies oversee the servicing of the loans and work with buyers if they fall behind — a mitigating factor, said Mr. Fitzpatrick of Moody’s.

    “They have a mission to put people in homes and keep them in homes,” not to foreclose unless other options are exhausted, he said. The loans have interest rates about one-half of a percentage point above comparable loans that require down payments.

    Ms. Smith, the spokeswoman for Fannie Mae, distinguished the program from loans of the boom years that “layered risk on top of risk.”

    With the new loans, she said, “income is fully documented, monthly payments are fixed, credit score requirements are generally higher, and borrowers must be thoroughly counseled on the home-buying process and managing their mortgage debt.”

    For Porfiria Gonzalez and her son, Eric, the loan allowed them to move out of a rental house in a neighborhood with a high crime rate to a quiet street where her neighbors are retirees and police officers.

    Ms. Gonzalez, 30, processes claims in the foreclosure unit at Wells Fargo Home Mortgage; she has seen the many ways a mortgage holder can fail.

    On a recent afternoon in her three-bedroom ranch house here, Ms. Gonzalez said she did not see herself as repeating the risks of the homeowners whose claims she processed.

    “I learned to stay away from ARM loans,” or adjustable rate mortgages, she said. “That’s the No. 1 thing. And always have some emergency money.”

    When she first started shopping, she looked at houses priced around $140,000. But the homeownership counselor said she should keep the purchase price closer to $100,000.

    “They explained to me that I don’t need a $1,200-a-month payment,” she said.

    The counselor worked with her real estate agent and attended her closing. On May 28, Ms. Gonzalez bought her home for $90,500, with monthly payments of $834. After moving expenses, she has kept her savings close to $5,000 to shield her from emergencies.

    “If I had to make a down payment, it would have wiped out my savings,” she said. “I would have started with nothing.”

    Now, she said, she is in a home she can afford in a neighborhood where her son can play in the yard. A neighbor brought her a metal pink flamingo with a welcome sign to place by her side door.

    “My favorite part is the big backyard,” said Eric, 10. “And that’s pretty much it.”

    “You don’t like it that it’s a quiet, safe neighborhood?” his mother asked.

    “Yeah, I do.”

    “He didn’t go out much with kids in the old neighborhood,” she said.

    “Because they were bad kids,” he said.

    Ms. Gonzalez said that owning a house was much more work than renting, and that when the basement flooded during a heavy rain, her heart sank.

    “But I look at it as an investment,” she said, adding that a similar house in the neighborhood was on the market for $120,000.

    Prentiss Cox, a professor at the University of Minnesota Law School who has been deeply critical of the mortgage industry, said the program met an important need and highlighted the track record of state housing agencies, which never engaged in exotic loans.

    “It’s not a story people want to hear, because it won’t bring back the big profits,” Mr. Cox said. “The H.F.A.’s have shown how the problems of the last 10 years were about having sound and prudent regulation of lending, not just whether the loans were prime or subprime.”

    He added, “One of the great and unsung tragedies of the whole crisis was the end of the subprime market.”

  • Communities Get First Shot at Foreclosed Homes, By Gregory Korte, USA TODAY


    Major mortgage lenders will now give state and local governments the right to buy foreclosed properties before they go on the market, giving them “a leg up” on speculators who have often thwarted local redevelopment efforts, Housing Secretary Shaun Donovan announced Wednesday.

    The First Look program will give communities a 48-hour heads up on foreclosed properties and the ability to buy them at a 1% discount, Donovan said. The effort is intended to help improve the $7 billion Neighborhood Stabilization Program, he said.

    “First Look is good for our housing market because it will bring much-needed speed” to the sale of bank-owned homes, Donovan said. Data show that vacant homes are more than three times more destructive to neighboring home values than those early in the foreclosure process.

    USA TODAY reported in July that more than $1 billion in Neighborhood Stabilization Program funds were unspent two years after Congress authorized the program. Short staffing and confusion over rules were partly to blame, but local governments also said lenders wouldn’t deal their foreclosed properties.

    Often, cities can’t move as quickly as private companies in buying homes especially in highly visible areas or where they’re trying to assemble multiple properties in a land bank.

    “You can’t be successful in neighborhood stabilization unless you control all the pieces on the chess board,” said Craig Nickerson, president of the National Community Stabilization Trust, which runs the clearinghouse.

    The participating mortgage lenders account for 75% of foreclosed homes, Donovan said. They include Bank of America, Chase, Citibank, Wells Fargo and Freddie Mac.

    The banks won’t offer all their foreclosures. “We’re not going to run all our inventory through this engine,” said Steven Nesmith, senior vice president of Ocwen Financial Corp. He said about 20% will be offered to governments and non-profits.

    The plan might come too late to help communities involved in the first round of funding. Many have just days to write contracts or risk losing their federal funding. In all, 143 communities have less than a month to spend their federal money. If they don’t, the Department of Housing and Urban Development will freeze their unused funds as much as $354 million nationally and could take the money back.

    Palm Bay, Fla., has until Friday to spend its $5.2 million, and might fall $200,000 short. “Just with our purchasing requirements, we do not move as quickly as the private sector,” said David Watkins, the city’s growth management director.

    “If First Look had been available from the beginning, he said, “we might be at least three or four months ahead of where we are now.”

  • FHA puts floor on borrower credit eligibility, by CHRISTINE RICCIARDI, Housingwire.com


    Borrowers with credit scores less than 500 are not eligible for Federal Housing Administration-insured mortgage financing, according to the new credit score and loan-to-value (LTV) requirements released today by the U.S. Department of Housing and Urban Development.

    This is the first time the FHA has had a minimum score to determine borrower eligibility.

    Borrowers with a credit score between 500 and 579 can receive up to 90% LTV  from FHA for a single-family mortgage while any borrower with a score 580 or above is eligible for maximum funding. Non-traditional and insufficient credit is accepted provided that borrowers meet the underwriting guidelines.

    100% financing is available to borrowers using Mortgage Insurance for Disaster Victims with no downpayment, as long as their credit score is above 500.

    The FHA said it is providing a special, temporary allowance to permit higher LTV mortgage loans for borrowers with lower decision credit scores, so long as they involve a reduction of existing mortgage indebtedness pursuant to FHA program adjustments.

    The credit standards will take effect on Oct. 4.

  • Federal Housing Stimulus: How Much More?, Diana Olick, CNBC


    New reports are rolling around Wall Street and Washington today that the Obama Administration is considering yet another economic stimulus package; this round would be for small businesses. This comes just one week after increased chatter about more government stimulus for housing.

    Congress returns the week of September 13th, and as Democrats face an uncertain election this November, you know they’re going to be looking to make average Americans feel more secure about their finances.

    But how much has housing stimulus really helped?

    Through July 3, 2010, the IRS reports a bill of $23.5 for the home buyer tax credit, according to a letter dated yesterday (September 2nd) from the Government Accountability Office to Rep. John Lewis, Chairman of the House Ways and Means Committee’s Subcommittee on Oversight. $16.2 billion for the first time and move-up credits and $7.3 billion for interest-free loans which recipients will begin repaying in January.

    The Department of Housing and Urban Development has also already allocated nearly $6 billion for the Neighborhood Stabilization Program, which gives state and local governments and non-profit housing developers funds to acquire property, demolish or rehabilitate foreclosures and offer assistance to low- to middle-income homebuyers for down payments and closing costs. In the coming weeks it will add $1 billion to that. Just this week HUD Secretary Donovan gave NSP grantees a leg up over investors, by providing a first right of refusal for those grantees to buy foreclosed homes.

    The talk around Washington is for yet another home buyer tax credit, this time perhaps for short sale and foreclosure buyers. Unfortunately every time we get a short-term stimulus, we get an inevitable drop off in sales and prices, as we’re experiencing now. Yes, we saw a mini burst of buying from credits last fall and this spring, but the overall numbers are still way down, and inventories are still far too high.

    The one steady in gauging housing is confidence, and until we get that back, sales will remain weak for the foreseeable future.

    Government stimulus, arguably, sells houses, and we need that to bring down our currently record-high inventories.

    But Government stimulus is also temporary, and everyday buyers and sellers recognize that, which doesn’t add to their already faltering confidence.

    Questions?  Comments?  RealtyCheck@cnbc.com

  • When to refinance a mortgage? , Thetruthaboutmortgage.com


    Mortgage Q&A: “When to refinance a mortgage?”

    With mortgage rates at record lows, you may be wondering if now is a good time to refinance.

    The popular 30-year fixed-rate mortgage slipped to 4.32 percent this week, well below the 5.08 percent seen a year ago, and much better than the six-percent range seen years earlier.

    So should you refinance now?

    Well, that answers depends on a number of factors.

    First, what is the current interest rate on your mortgage(s)? And what will the closing costs be on the new mortgage?  They’ve been rising lately…

    Let’s look at a quick example:

    Loan amount: $200,000
    Current mortgage rate: 5.5% 30-year fixed
    Refinance rate: 4.25% 30-year fixed
    Closing costs: $2,500

    The monthly mortgage payment on your current mortgage (including just principal and interest) would be roughly $1,136, while the refinanced rate of 4.25 percent would carry a monthly payment of about $984.

    That equates to savings of $152 a month.

    Now assuming your closing costs were $2,500 to complete the refinance, you’d be looking at about 17 months of payments before you broke even and started saving yourself some money.

    So if you refinanced again or sold your home during that time, refinancing wouldn’t make a lot of sense.

    But if you plan to stay in the home (and with the mortgage) for many years to come, the savings could be substantial.

    Other Considerations

    If you’re currently in an adjustable-rate mortgage, or worse, an option arm, the decision to refinance into a fixed-rate loan could make even more sense.

    Or if you have two loans, consolidating the balance into a single loan (and ridding yourself of that pesky second mortgage) could result in some serious savings.

    Additionally, you might be able to snag a no cost refinance, which would allow you to refinance without any out-of-pocket costs (the rate would be higher to compensate).

    A cash-out refinance could also contribute to your decision to refinance if you were in need of money and had the necessary equity.

    Finally, if you’re already in a 30-year fixed and want to build equity, you might consider taking a look at the 15-year fixed, which is pricing at a record low 3.83 percent, assuming you could handle a higher monthly payment.

  • Refinance Demand Up as Mortgage Interest Rates Maintain Low Levels, by Rosemary Rugnetta, Freerateupdate.com


    September 2, 2010 (FreeRateUpdate.com) – As mortgage interest rates continue to maintain low levels, refinance demand continues to increase across the nation. According to the Mortgage Banker’s Association, refinances have reached a 15 month high, the highest point since May of 2009. Rates are at the lowest point than any other time since Freddie Mac began keeping track in 1971. Mortgage applications rose for the fourth straight week with refinances accounting for the bulk of the demand. This is due to mortgage interest rates that continue to remain low with the 30 year fixed rate at 4.125% and the 15 years fixed rate at 3.625%.

    The current refinance demand is not surprising considering the record low mortgage rates that have continued for the past several weeks. After a slow start, these low mortgage rates are finally spurring home owner interest. Unfortunately, not all home owners can refinance with these historic rates. Those who are underwater due to the depressed housing market and those whose credit has been compromised will not be able to take advantage of the market’s record low interest rates. On the other hand, for others, especially those who have refinanced within the past two years, it is a great time to do it again. In addition, those home owners who currently have adjustable rate mortgages that are about to reset, could benefit from refinancing at this time into a fixed rate mortgage.

    The demand for refinances, which has continued to increase each week, could also be a positive sign for the weak economy. The current low mortgage interest rates have made it possible for home owners to refinance into a better interest rate loan or a shorter length loan. Many with higher interest 30 year loans are finding that, at today’s rates, it is in their best interest to refinance into a 15 year mortgage which is, in many circumstances, cheaper. By putting extra cash in consumers hands, they are able to pay off outstanding debts, money can be saved or just put back into the economy through spending. Although it is not certain if this refinance boom will do anything to stimulate the economy, this just might be the boost that the sluggish economy is in need of.

    It is anyone’s guess at which way mortgage rates will go from here. If mortgage interest rates maintain these low levels or drop even lower, refinance demand should go up with more home owners deciding to refinance during the fall months just in time for the Holiday season. In the meantime, home owners probably should not wait for rates to go much lower since anything can happen with such a volatile market.

    http://www.freerateupdate.com/refinance-demand-up-as-mortgage-interest-rates-maintain-low-levels-6155

  • Foreclosures Heavey Toll on Health, Suzanne Bohan, Contra Costa Times


    Maria Ramirez is one of the fortunate ones. She’s lived for more than 10 years with her family in ZIP code 94621 in Oakland, one the East Bay neighborhoods hardest hit by home foreclosures. But she fought back when Wachovia Bank began foreclosing on her house in 2009, and won an affordable loan modification.

    Her victory doesn’t only secure stable housing for Ramirez and her family. In a little-discussed aspect of the foreclosure crisis gripping the nation, it also protects the Ramirez’s long-term mental and physical health.

    Nearly one in 10 American households with a mortgage are behind on their payments, according the Mortgage Bankers Association. In Oakland, the numbers are even worse: Between 2006 and 2009, one in 4 homeowners with a mortgage entered into foreclosure.

    And a first-of-its kind report released today by the Alameda County Public Health Department and Causa Justa :: Just Cause warns of the looming health consequences of widespread home foreclosures, while also detailing steps to mitigate those harmful effects.

    “We’re trying to get people to understand this is a public health issue,” said Sandra Witt, deputy director of the Alameda County Public Health Department.

    Last year, the health department released a preliminary report on the link between health and foreclosures, and the new report is the most comprehensive yet published on the topic.

    In a door-to-door survey of 388 East Oakland and West Oakland homes

    in the summer of 2009, workers with Causa Justa :: Just Cause, a community action group, conducted an in-depth look at the health effects of home foreclosures on these hard-hit communities. They found that 38 percent of those coping with foreclosure threats reported declining health during the past two years, compared with 24 percent of those unconcerned about foreclosures.

    Mental health also deteriorated.

    Almost a third of those dealing with home foreclosure threats reported that their mental and emotional health had worsened during the past two years, compared with only 16 percent of those in stable housing.

    “This is really about the stress that one feels,” Witt said. The stress also increased the likelihood of developing hypertension and a host of other health conditions, and increases visits to emergency departments.

    The report noted the survey doesn’t establish direct links between foreclosure risk and health outcomes, but “suggests associations.” The report, titled “Rebuilding Neighborhoods, Restoring Health,” is available on the county health department’s website at www.acphd.org.

    These health declines also portend an increasing demand for medical care. “It will absolutely create a demand for more services, both health services and mental health services,” Witt said.

    The new report, however, includes a long list of remedies to mitigate the potential health harms from the stress of facing foreclosure and coping with eviction.

    Those include state and federal policies to promote home loan modifications by banks, as well as foreclosure relief. These remedies are tough to enact, however, as demonstrated by the failure in the state Assembly on Monday of legislation that would protect homeowners from eviction while they’re pursing more lenient loan terms. The bill was supported by consumer groups but opposed by the banking industry.

    But other laws on the books can sometimes help distressed homeowners. And the report urges community groups to join together to educate those facing foreclosures about their rights, as well as strategies for securing loan modifications.

    Homeownership has long been indirectly linked to health and wellness. The federal push to promote home buying began in the early 20th century. And in 1921, then-Commerce Secretary Herbert Hoover, elected President in 1928, held that homeownership “may change the very physical, mental and moral fiber of one’s own children.”

    The new report, conversely, points to marked deterioration in health among homeowners and tenants facing eviction due to foreclosures.

    Suzanne Bohan covers science. Contact her at 510-262-2789. Follow her at Twitter.com/suzbohan.

  • HUD announces new REO purchase program, Hud.gov


    U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan has announced an agreement with the nation’s top mortgage lenders to offer selected state and local governments, and non-profit organizations a “first look” or right of first refusal to purchase foreclosed homes before making these properties available to private investors. The National First Look Program is a first-ever public-private partnership agreement between HUD and the National Community Stabilization Trust (Stabilization Trust). In collaboration with national servicers, Fannie Mae, and Freddie Mac, the First Look program is intended to give communities participating in HUD’s Neighborhood Stabilization Program (NSP) a brief exclusive opportunity to purchase bank-owned properties in certain neighborhoods so these homes can either be rehabilitated, rented, resold or demolished.

    “This groundbreaking agreement will help rebuild neighborhoods that have been struggling with blight and declining home values due to foreclosures,” said HUD Secretary Donovan. “Local communities will now get an exclusive option to buy foreclosed properties in targeted neighborhoods so they can turn the homes into affordable housing or, in some cases, tear them down. This agreement helps us level the playing field to give communities a better chance to stabilize these neighborhoods.”

    “The Stabilization Trust is delighted to be working with HUD Secretary Donovan on the National First Look Program,” said Craig Nickerson, President of the NCST. “By serving as the operations ‘engine’ behind the First Look Program, the Stabilization Trust can facilitate the transfer of more foreclosed property for participating financial institutions to local community buyers, thereby accelerating the road to neighborhood recovery.”

    HUD’s NSP grantees, which include state and local governments and non-profit organizations, often find themselves competing with private investors for real estate-owned (REO) properties, which can hinder their efforts to stabilize neighborhoods with high foreclosure activity. With today’s announcement, HUD and the Stabilization Trust, working with national servicers, Fannie Mae, and Freddie Mac, will standardize the acquisition process for NSP grantees, giving them an exclusive option to purchase foreclosed upon homes in certain targeted neighborhoods.

    The Stabilization Trust pioneered the ‘First Look’ model to create a transparent and streamlined process to facilitate the transfer of foreclosed and abandoned properties from key financial institutions to local government housing providers. First piloted in 2008, the model has gained recognition as a critical tool for positively tipping the scale in neighborhoods hard hit by foreclosures.

    NSP grantees will also be aided by REOMatch, a Web-based mapping and acquisition management tool developed by the Stabilization Trust. REOMatch will assist NSP grantees easily identify REO properties and make more strategic decisions about which properties to acquire, based on real-time data on an interactive mapping platform.

    The nation’s leading financial institutions are participating in the National First Look Program, representing approximately 75 percent of the REO marketplace. Participating institutions include: Bank of America, Chase, Citi, Deutsche Bank, GMAC, Nationstar Mortgage, Ocwen Financial Corporation, Saxon Mortgage Services, U.S. Bank, Wells Fargo, Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA).

    ►The National First Look Program will allow NSP grantees the exclusive opportunity to purchase available REO properties located within the defined boundaries of NSP target areas. NSP grantees will be immediately notified when a property becomes available and will have 24-48 hours to express interest in pursuing a specific property. Furthermore, these institutions will provide NSP purchasers with the opportunity to purchase REO properties at a discount their appraised value, reflecting the cost savings of a quick sale. NSP grantees may acquire these properties with the assistance of NSP funds for any eligible use.

    ►After expressing interest in a property, the First Look Period will last approximately five to 12 business days during which the NSP Grantee will conduct inspections and establish costs to repair in anticipation of the financial institution’s price offer. In the event that no NSP grantee exercises its preference to purchase an REO property during the First Look period, the financial institution will follow its normal process to sell the home on the open market.

    ►Currently, the Federal Housing Administration (FHA) offers a complementary pilot program in which NSP grantees receive an exclusive option to purchase so-called ‘HUD Homes’ at a discount prior to those homes being made available to the investor community. The FHA pilot, alongside today’s agreement expands the opportunity for NSP grantees to gain access to REO properties through a national first-look standard option.

    HUD’s Neighborhood Stabilization Program was created to address the housing crisis, create jobs, and grow local economies by providing communities with the resources to purchase and rehabilitate vacant homes. NSP grants are helping state and local governments, as well as non-profit developers, acquire land and property; demolish or rehabilitate abandoned properties; and/or offer downpayment and closing cost assistance to low- to middle-income homebuyers. Grantees can also stabilize neighborhoods by creating “land banks” to assemble, temporarily manage, and dispose of foreclosed homes. To date, HUD has allocated nearly $6 billion in funding to state and local governments and non-profit housing developments. In the coming weeks, HUD will allocate an additional $1 billion in NSP funding, which was provided through the Dodd-Frank Wall Street Reform and Consumer Protection Act.

    For more information, visit www.hud.gov.

  • FHA LAUNCHES SHORT REFI OPPORTUNITY FOR UNDERWATER HOMEOWNERS, Hud.gov


    WASHINGTON – In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

    The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth – or ‘underwater’ – because their local markets saw large declines in home values. Originally announced in March, these changes and other programs that have been put in place will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.

    “We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

    Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA’s refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner’s primary residence. And the borrower’s existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower’s combined loan-to-value ratio to no greater than 115%.

    In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent. Interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees the write down a portion of the unpaid principal.

    To facilitate the refinancing of new FHA-insured loans under this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, in its capacity as financial agent for the United States, on or before October 3, 2010.

    For more information on FHA Short Refinance option, read FHA’s mortgagee letter.

  • Tax Credit Uncertainty Not Benefiting Housing Market, by CJ Moore, Technorati.com


    Could the home buyer tax credit be returning?

    That’s the hot topic right now in housing, as secretary of Housing and Urban Development Shaun Donovan wouldn’t squash the idea when he was asked about it Sunday on CNN’s “State of the Union.”

    “I think it’s too early to say after one month of numbers whether the tax credit will be revived or not,” Donovan said. “All I can tell you is that we are watching very carefully. … We are going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”
    If Donovan were to follow his own advice – making sure the market stabilizes – he would be smart to provide some certainty to housing. By leaving the possibility open, Donovan could be postponing any chance of a recovery.

    The housing market certainly needs a boost after the news last week that new home sales and existing home sales in July dropped to record low levels.

    The tax credit certainly influenced these numbers. Many prospective homebuyers rushed to meet the April 31 deadline so they could receive the tax credit, and that undoubtedly interrupted the month-to-month flow of housing. By leaving the possibility open for another tax credit, it could have the opposite effect. Prospective buyers might hold out and wait to see if the credit returns.

    With Donovan’s wishy-washy response on Sunday, the Obama administration had a chance to give a clearer answer on Monday, and White Press Secretary Robert Gibbs failed to do so, saying that bringing back the tax credit “is not as high on the list as many other things are,” but still leaving the possibility open.
    Another tax credit could provide a boost, but it’s debatable whether that boost would really be beneficial in the long term. It could be best to sit back for a while and see what happens and focus on other areas that could benefit housing, such as unemployment.

    Read more: http://technorati.com/business/finance/article/tax-credit-uncertainty-not-benefiting-housing/#ixzz0yIHYvbvn

  • Borrowers Take Advantage of FHA-Refinance After Inability to Sell Homes, by Vanessa Rodriguez, Freerateupdate.com


    August 31, 2010 (FreeRateUpdate.com) – Homeowners are finding it particularly difficult these days to sell their homes. According to the National Association of Realtors, demand for single family residences has dropped to a 15-year low. Home purchases fell 12 percent in June. In July, they more than doubled the previous month by plunging 27 percent. It is reported that 1 in 5 homeowners is behind in his or her payment. As if the news weren’t bad enough, foreclosures are expected to rise severely this year and next. With these disheartening statistics, homeowners are not left with many options. Fortunately, however, refinancing current mortgage loans is one option, and a viable one at that. Moreover, various government programs are making refinances possible, even for underwater mortgages, and borrowers do not have to have an FHA-insured loan to qualify. Low mortgage rates are definitely strong factors that fuel the refinancing boom. Conforming rates, as of this writing, are 4.125 percent, which is slightly higher than last week’s record low of 4.00 percent, with 0.7 to 1 point origination. As mortgage loan officer Jason Paul from AmCap Mortgage observed, “[We are] absolutely seeing a significant rise in applications for refinances because mortgage rates are so low.” The Mortgage Banks Association reported that refinance applications increased by 17 percent and caused a surge of 13 percent in overall mortgage applications. Last year, the Obama Administration released a new program, the Home Affordable Refinance Program (HARP,) to help homeowners refinance their mortgage loans. This program allows homeowners who owe more on their house than its current value to refinance into better loan terms. The program does not reduce principal amount owed. However, it does permit homeowners to take advantage of ultra low mortgage rates. HARP is also beneficial for interest-only borrowers, adjustable rate mortgage borrowers, and balloon payment borrowers because it allows them to reduce the amount of interest they would pay over the life of the loan.

    To be eligible, the residence must be owner-occupied and the homeowner must be current on his or her mortgage payments. This means that he or she has not missed any payments, does not have more than one 30-day late in the past 12 months. If the loan was originated in less than 12 months, then the homeowner should have never missed a payment. The amounts owed on the mortgage should not exceed 125 percent of the current market value of the property. For example, if a home appraises for $200,000 but the homeowner owes $275,000, then he would not qualify for HARP. However, if he owes less than $250,000, he does qualify. The loan must be owned or guaranteed by one of the GSEs, Fannie Mae or Freddie Mac. The homeowner must also have the reasonable means to afford the new mortgage payment (i.e. steady income.) The program is set to expire June 10, 2011.

    The U.S. Department of Housing and Urban Development (HUD) just announced that it is expanding its refinance program. Starting September 7th, 2010, the Federal Housing Administration, which is regulated by HUD, will offer non-FHA borrowers who are underwater on their loans and current on payments the opportunity to refinance into an FHA Short Refinance option. In order for prospective borrowers to qualify, lenders must agree to write off at least 10 percent of the unpaid principal of the mortgage, which should bring the borrower’s combined loan-to-value ratio less than 115 percent. Borrowers must meet standard FHA underwriting requirements, occupy the property as a primary residence, and their credit score must be equal to or better than 500. This is exciting news especially for homeowners who are denied a loan modification through their banks. Interested borrowers typically foresee financial hardship, primarily due to loss of income, and would greatly benefit from an FHA Short Refinance.

    FHA Commissioner, David Stevens, believes the new program is a much needed “lifeline” for American families. Although the success of the FHA Short Refinance has yet to materialize, many have high hopes because it gives borrowers and lenders another weapon to battle negative equity in the current flagging housing market.

  • Mortgage Comparison Shopping May Get Easier, thetruthaboutmortgage.com


    The Federal Reserve has proposed a new rule that may make it easier for prospective homeowners and those looking to refinance shop around before making a commitment.

    The proposal, which was part of a 930-page document published mid-month in the Federal Register, would allow consumers to cancel mortgage applications within three days and get refunded for certain costs.

    Things like application fees and appraisal fees would be refundable, while credit report fees would not.

    Mortgage shoppers would be entitled to refunds if they canceled an application within three business days of receiving key disclosures, including the Good Faith Estimate and Truth in Lending Act statement.

    The Fed believes such a rule would help consumers shop for the best deal, instead of being locked in with one mortgage lender for fear of losing any up-front costs.

    But many lenders believe the rule will have little effect, as most already wait several days before charging any fees.

    Others are concerned it could delay an already backed-up process, as there will be a waiting period before anything is acted upon or ordered.

    Although, it’s not uncommon for a loan to be “on hold” until it makes it through underwriting and receives a formal decision.

    It’s unclear how the rule would affect mortgage brokers, those who work on behalf of banks directly with consumers.

    A recent Bankrate.com study found that mortgage closing costs rose more than 36 percent this year, with loan origination fees rising nearly 25 percent and third-party fees jumping almost 50 percent.

  • Them Be Fightin’ Words: The Fight Over Foreclosure Fees, by PAUL JACKSON, Stopforeclosurefraud.com


    For the law firms that manage and process foreclosures on behalf of investors and banking institutions, what’s a fair legal fee? What’s a fair filing fee? Should fees to outsourcers be prohibited? And just how much money should it really cost to process a foreclosure?

    As I write this, the answer to these and other questions are being fought out in the trenches, in an out-of-sight but increasingly heated battle involving Fannie Mae and Freddie Mac, the law firms that specialize in creditor’s rights, default industry service providers, and various private equity interests.

    It’s a complex fight that many say will ultimately shape the way U.S. mortgages are serviced over the course of the next decade — and perhaps beyond. It’s also a debate that promises to spill over into how loans are originated and priced.

    “No aspect of the U.S. mortgage business will go untouched by the outcome of this current debate,” said one attorney I spoke with, on condition of anonymity. “This is the single most important issue facing mortgage markets today, and will even determine how securities are structured in the future.”

    How foreclosures are managed

    Typically, a foreclosure involves legal and court filing fees — it is, after all, a legal process involving the forced transfer of a property from a non-paying borrower to secured lender. But the foreclosure process also typically involves a host of other associated fees, including necessary title searches, potential property insurance, homeowner’s association dues, property maintenance and repair, and much more.

    Many of these fees are ultimately tacked onto the “past due” amounts tied to a delinquent borrower — and done so legally. Much like when a credit card becomes past due and the interest rate kicks into high oblivion, consumers looking to catch up on their delinquent mortgage payments must also make up the difference in additional fees in order to successfully do so.

    Legal fees in the foreclosure business, however, aren’t what you might think. Instead of billing hourly for most work, as most attorneys in other fields would do, attorneys that specialize in processing foreclosures are paid on a flat-fee basis, using pre-determined fee schedules.

    Thanks to the market-making power of the GSEs, Fannie Mae and Freddie Mac — both of whom publish allowable fee schedules for every imaginable legal filing and process in the foreclosure repertoire — the entire foreclosure process has been reduced to a set of flat fees.

    And not even negotiated fees, at that. For firms that operate in the field of foreclosure management, the GSE allowable fees amount to a take-it-or-leave-it menu of prices.

    “For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” said one attorney I spoke with, under condition of anonymity. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”

    Fannie and Freddie as housing HMOs? In the foreclosure business, that’s pretty much what it amounts to.

    But beyond determining the legal fee schedule for much of the multi-billion dollar default services market, the GSEs also largely determine who gets their own foreclosure work. Both Fannie and Freddie maintain networks of law firms called “designated counsel” or “approved counsel” in key states marked with significant foreclosure volume — and they either strongly suggest or require that any servicers managing a Fannie or Freddie loan in foreclosure refer any needed legal work to their approved legal counsel.

    Each state will have numerous designated counsel — sometimes as many as five law firms — but in practice, attorneys say, two to three firms end up with the lion’s share of each state’s foreclosure work. In states hit hard by the housing downturn and foreclosure surge, like Florida, the amount of work can be substantial.

    “The GSEs can force a servicer to use their designated counsel, especially if timeline performance in foreclosure management is out of some set boundary,” said one servicing executive at a large bank, who asked to remain anonymous. “It’s usually easiest to simply use their counsel on their loans, even if we don’t see that firm as best-in-class.”

    With the vast majority of the mortgage market now running through the GSEs, and much of what’s left of the private market following the guidelines Fannie and Freddie establish, it should come as no surprise to find that a few law firms in each state end up with the majority of the foreclosure work, sources say.

    The rise of the ‘foreclosure mills’

    Being designated as approved counsel by Fannie Mae and/or Freddie Mac does carry risk. Just ask Florida’s David Stern, who has seen his burgeoning operation pejoratively branded a ‘foreclosure mill’ by consumer groups, dragged through the press for both alleged and real consumer misdeeds, and facing numerous investor lawsuits surrounding the operation of DJSP Enterprises, Inc. (DJSP: 3.22 -1.23%) — the publicly-traded processing company tied to the law firm.

    While Stern’s operation may win the award for ‘most susceptible to negative publicity,’ how the law firm operates is far from unique in the foreclosure industry.

  • Another Home Buyer Tax Credit?, by Diana Olick, CNBC


    Just when I thought the housing market was finally being left to correct on its own, I’m starting to hear talk regarding yet another home buyer tax credit. From HUD to the hedge funds, it sounds as if it is gaining steam yet again. This one could involve not just first time/move-up buyers, but a credit for buyers purchasing foreclosed properties or short sales (when the bank allows you to buy a home for less than the value of the outstanding mortgage).

    HUD Secretary Shaun Donovan, appearing on CNN’s State of the Union this weekend, didn’t rule out another tax credit. He did say it’s “too early to say,” but then added that “we’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

    After that several Congressional candidates in Florida threw their voices behind the possibility, and Florida Gov. Charlie Crist then chimed in on the same show, saying that another tax credit, “would stimulate the economy. It would increase home sales in Florida.” He finished with: “I would absolutely encourage the president to support that because it would certainly help my fellow Floridians.”

    So of course then I went the official route and followed up with a HUD spokesperson who responded:  “No news here…there are no discussions underway to revive the credit.”

    Is it all political? And is another tax credit the answer?  “I don’t think it’s all political,” says housing consultant Howard Glaser. “I think they are panicked that the economy/housing got away from them.” Glaser doesn’t sound convinced the tax credit is really on the table.  “They can do a lot off budget with the GSE’s and FHA with no Congress.”

    I know a lot of you out there would argue that a housing market correction, as painful as it is, is necessary for housing to truly find its footing again and recover for the long term. Another artificial stimulus could just prolong the agony and set us up for the same drop off in sales and prices that we’re seeing right now.  

    But it could also move some inventory quickly. With inventories of new and existing homes dangerously high, and the shadow supply of foreclosures pushing that volume even higher, more stimulus could be a necessary evil. I liken it to what I’m doing with my lawn this week. All summer I fought the weeds, pulling them, using the organic sprays and repellents, spreading mulch to deprive them of any air.  And then I gave up.  I called the lawn service and told them to bring every chemical in their arsenal.  Shock the overgrown mess into submission once and for all, so that I can start fresh again and reseed this fall.

  • Obama Plans Refinancing Aid, Loans for Jobless Homeowners, HUD Chief Says, by Holly Rosenkrantz, Bloomberg


    The Obama administration plans to set up an emergency loan program for the unemployed and a government mortgage refinancing effort in the next few weeks to help homeowners after home sales dropped in July, Housing and Urban Development Secretary Shaun Donovan said.

    “The July numbers were worse than we expected, worse than the general market expected, and we are concerned,” Donovan said on CNN’s “State of the Union” program yesterday. “That’s why we are taking additional steps to move forward.”

    The administration will begin a Federal Housing Authority refinancing effort to help borrowers who are struggling to pay their mortgages, and will start an emergency homeowners’ loan program for unemployed borrowers so they can stay in their homes, Donovan said.

    “We’re going to continue to make sure folks have access to home ownership,” he said.

    Sales of U.S. new homes unexpectedly dropped in July to the lowest level on record, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Purchases fell 12 percent from June to an annual pace of 276,000, the weakest since the data began in 1963.

    Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery.

    House Sales Plummet

    Purchases plummeted to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed last week. Demand for single-family houses dropped to a 15-year low and the number of homes on the market swelled.

    U.S. home prices fell 1.6 percent in the second quarter from a year earlier as record foreclosures added to the inventory of properties for sale. The annual drop followed a 3.2 percent decline in the first quarter, the Federal Housing Finance Agency said last week in a report.

    Donovan said on CNN yesterday that it is too soon to say whether the administration’s $8,000 first-time homebuyer credit tax credit, which expired April 30, will be revived.

    “All I can tell you is that we are watching very carefully,” Donovan said. “We’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

    Reviving the tax credit would “help enormously” in the effort to fight foreclosures and revive the economy, Florida Governor Charlie Crist said on the same CNN program. Florida has the third-highest home foreclosure rate in the country, with one in every 171 housing units receiving a foreclosure filing this year.

    To contact the reporter on this story: Holly Rosenkrantz in Washington athrosenkrantz@bloomberg.net.

  • Lenders won’t have to run a second full credit check before closing on mortgage, by Kenneth R. Harney, Washington Post


    Despite earlier reports to the contrary, it turns out that your mortgage lender will not have to pull a second full credit report on you hours before closing on your home purchase or refinancing.

    In a clarification of a policy announced earlier this year, mortgage giant Fannie Mae now says that applicants will need to come clean about any debts they have incurred since they submitted their mortgage application — or debts they never disclosed on the application. But a formal pre-closing credit report will not be mandatory to confirm creditworthiness.

    Instead, loan officers can use other techniques to verify that you haven’t financed a new car, taken out a personal loan or even applied for new credit in any amount that might make it more difficult for you to afford your monthly mortgage payments.

    Among the techniques Fannie expects lenders to use on all applicants: commercial or in-house fraud-detection systems are capable of tracking applicants’ credit files from the day their loan request is approved to closing.

    Although Fannie made no reference to specific services in its recent clarification letter to lenders, some commercially available programs claim to be able to monitor mortgage borrowers’ credit activities on a 24/7 basis, flagging such things as inquiries, new credit accounts and previous accounts that did not show up on the credit report that was pulled at the time of initial application.

    One of those services is marketed by national credit bureau Equifax and dubbed “Undisclosed Debt Monitoring.” Aimed at what Equifax calls “the quiet period” between application and closing — often one month to three months — the system is “always on,” the company says in marketing pitches to mortgage lenders.

    Home loan applicants failed to mention — or loan officers failed to detect — “up to $142 million in auto loan payments” during mortgage underwriting in first mortgage files reviewed by Equifax last year alone, according to the credit bureau. Those loan accounts had average balances of $361 per month — more than enough to disqualify many borrowers on maximum debt-to-income ratio standards required by Fannie Mae, Freddie Mac and major lenders.

    Why the sudden concern about new debts incurred after mortgage applications? It’s mainly because Fannie and others have picked up on a key type of consumer behavior that has helped trigger big losses for the mortgage industry in recent years: Some buyers and refinancers hold off on creating new credit accounts until they have cleared strict underwriting tests on the debt-to-income ratios and have been approved for a loan. Then they splurge.

    Additional debt loads can run into the tens of thousands of dollars, executives in the credit industry say. Had those new accounts been in their credit files during the application process, borrowers might have been turned down for the mortgage, required to make a larger down payment or charged a higher interest rate.

    Fannie’s new policy puts the burden of detecting these debts squarely on lenders or loan officers. Whether they pull additional credit reports — still an option allowed under the revised policy — or use some form of monitoring service, lenders must guarantee that the debt loads stated in any mortgage package submitted for purchase by Fannie Mae are scrupulously accurate as of the moment of closing. If not, the lender probably will be forced to endure the most painful form of punishment in the financial industry: a forced “buyback” of the entire mortgage from Fannie Mae.

    Billions of dollars in buybacks have been demanded by Fannie Mae and Freddie Mac this year alone — a fact that is likely to make lenders even more eager to conduct some type of refresher credit check or continuous monitoring of all new loan applicants.

    What does this mean if you’re planning to finance a home purchase or refinance your existing mortgage into a new loan with a lower interest rate? Tops on the list: Be aware that sophisticated credit surveillance systems are now being used in the mortgage industry.

    Next, try not to inquire about, shop for or take on new credit obligations during the period between your application and the scheduled closing. If you seriously want that new loan, keep your credit picture simple — no significant changes, no additions — until you settle on the mortgage.

    During the heady days of the housing boom, nobody was looking for debt add-ons before closings. Now they are scanning for them all the time.

  • Redefault Rates Improve for Recent Loan Modifications, Conference of State Bank Supervisors, csbs.org


     

    State Foreclosure Prevention Working Group August 2010

    Memorandum on Loan Modification Performance

    Introduction and Summary of Key Findings For over two years, the State Foreclosure Prevention Working Group,

    Our data indicate that some recent loan modifications are performing better than loan modifications made earlier in the mortgage crisis. Loans modified in 2009 are 40 to 50 percent (40% – 50%) less likely to be seriously delinquent six months after modification than loans modified at the same time in 2008. This improvement in loan modification performance suggests that dire predictions of high redefault rates may not come true. This positive trend suggests that increased use of modifications resulting in significant payment reduction has succeeded in creating more sustainable loan modifications.

    In addition, recent modifications that significantly reduce the principal balance of the loan have a lower rate of redefault compared to loan modifications overall. The State Working Group believes that servicers should strategically increase their use of principal reduction modifications to maximize prospects for success. Only one in five loan modifications reduce the loan amount; in fact, the vast majority of loan modifications actually increase the loan amount by adding servicing charges and late payments to the loan balance.

    Finally, while loan modifications have consistently increased over time, the numbers of foreclosures continue to outpace loan modifications. Nearly three years into the foreclosure crisis, we find that more than 60% of homeowners with serious delinquent loans are still not involved in any loss mitigation activity. Furthermore, with the significant overhang of seriously delinquent loans, the State Working Group anticipates hundreds of thousands of foreclosures will occur later this year absent additional improvements in foreclosure prevention efforts.

    1 has collected delinquency and loss mitigation data from most of the largest servicers of subprime mortgages in the country. This memorandum looks at trends in loan modifications of nine non-bank mortgage companies servicing 4.6 million loans across the country as of March 2010. 

    Overview

    This memorandum analyzes data submitted by nine servicers providing longitudinal data on loan modification performance. Since the inception of monthly data collection in October 2007, these nine servicers have completed over 2.3 million foreclosures as compared to 760,000 loan modifications. As of March 31, 2010, these servicers report 778,000 borrowers seriously delinquent (60+ days late on mortgage payments).

    Impact of HAMP Program on Loss Mitigation Pipeline

    As shown in Chart 1, permanent loan modifications dipped in the Spring and Summer of 2009 as servicers transitioned to the federal Home Affordable Modification Program (HAMP). The HAMP program requires a three month trial period. Accordingly, loans that would have been modified immediately in the middle of last year were instead placed into trial repayment plans, which should have become permanent after three months of successful payments from homeowners. For a variety of reasons, servicers have struggled to transition trial plans into permanent loan modifications. As shown in Chart 2 below, it appears that servicers have begun to work through the backlog of trial plans needing conversion to permanent modifications, but servicers’ conversion ratio is still far short of pre-HAMP levels.

    Despite the increase in trial modifications, more than six out of ten (62.5%) seriously delinquent borrowers were not involved in any form of loss mitigation efforts. The biggest failure of foreclosure prevention efforts continues to be the inability to engage homeowners in meaningful loss mitigation efforts in the first instance. Beyond the usual factors driving borrower non-response, some reasons for the low involvement of struggling homeowners include mixed messages communicated to struggling homeowners regarding foreclosure and loss mitigation opportunities, a lack of transparency in loss mitigation options and process, inconsistent and confusing information provided to homeowners during the process, poor customer service delivery, and long delays in the modification process.

    Type of Modification

    The vast majority of loan modifications now involve some reduction in the homeowner’s monthly payment. Of loan modifications tracked by the State Foreclosure Prevention Working Group in the first quarter of 2010, 89.3% involved some reduction in payments, including 77.6% that significantly decreased payments (i.e. decreased by more than 10%). This data is consistent with data for the large national banks covered by the OCC and OTS mortgage metrics report.

    While payment reduction is now commonplace, the State Working Group remains concerned over the absence of loan modifications significantly reducing outstanding loan balances. In the first quarter of 2010, only 13.7% of all modifications reported to the State Foreclosure Prevention Working Group involved principal reductions greater than 10%; in fact, 70.4% of loan modifications

    increased the unpaid principal balance.3 With home price declines of 30% since 20064 and almost 25% of all homeowners with a mortgage owing more than their home is worth,5 the failure to meaningfully reduce principal limits the success of current foreclosure prevention efforts. The HAMP program has recently introduced a principal reduction alternative to its standard waterfall to give servicers the option of prioritizing the reduction of principal; however, we believe the optional nature of this alternative and its inapplicability to GSE loans will likely significantly limit its impact in the HAMP program.

    Redefault

    A loan modification does not guarantee that a borrower will be able to remain current on the mortgage. Even the best-designed loan modification has some risk of redefault; however, a loan modification that fails to address the borrower’s repayment ability and the factors underlying the default may set the homeowner up for failure. Redefault expectations are incorporated into the servicer’s decision whether or not to even offer a loan modification to a struggling homeowner. Therefore, loan modification performance is very important both for the long-run efficacy of the program as well as a factor in determining the universe of eligible borrowers. Some analysts have predicted redefault rates of 65% to 75%.

     

    6 The State Working Group is more optimistic. The reason for our optimism is that loans modified in 2009 are performing substantially better than those modified in 2008, as shown by Chart 4 on the next page.

     

    7 For example, 30.8% of loans modified between August and September in 2008 were seriously delinquent after 6 months, but only 15.3% of loans modified in August and September of 2009 were seriously delinquent after 6 months.8 That amounts to a 50% reduction in the redefault rate.9 The OTS and OCC report a similar reduction. In recent mortgage metrics reports, the OCC and OTS report that 48.1% of loans modified in the third quarter of 2008 were 60 or more days delinquent 6 months after modification,10 but that redefault rate fell by more than 40 percent (to 27.7%) for loans modified in the third quarter of 2009.11

    A comparison of five reporting servicers

     

    12 demonstrates how the improvement in redefault rate is evident even when controlling for the type of loan modification. For instance, the redefault rate at six months for loans with significant payment reductions fell from almost 31.4% for loans modified in August to September of 2008 to just 11.8% for loans modified in August to September of 2009, a more than 62% reduction. Similarly, the redefault rate for loans with significant principal reductions fell from 35.4% to 12.9%, over a 63% reduction. While there is understandable fear that loan modification programs may be overused and that they may become less effective in the effort to reach the maximum number of borrowers, our research suggest that servicers’ loss mitigation offers are becoming more successful for those borrowers that are able to secure a loan modification.

    Conclusion

    While servicer performance is still short of what is needed and the HAMP program has not been a silver bullet, we find that there has been some improvement in foreclosure prevention efforts.

    Loan modifications have increased, significant payment reduction is the norm, and loan modification performance is improving. The improved performance of recent vintages of loan modifications validates the policy of offering sustainable loan modifications. We encourage servicers and the Treasury Department to monitor this trend and to adjust redefault expectations in their models as evidence permits. If experience reflects lower redefaults than anticipated, revised adjustments will enable the HAMP and non-HAMP loan modification programs to reach more struggling homeowners.

    Despite the progress noted in this memorandum, the number of seriously delinquent loans moving toward foreclosure remains at near all-time highs. As servicers pass through the initial wave of successful HAMP-eligible borrowers, the State Working Group is concerned that many of the currently delinquent loans will accelerate into foreclosure in the second half of the year. The State Working Group believes that unnecessary foreclosures will occur without further efforts and resources of servicers to reach homeowners, and, where appropriate, to offer loan modifications with significant principal reduction. These unnecessary foreclosures will be a needless drag on the recovery of the housing market and will continue to delay a broader economic recovery.

     

     

     1. The State Working Group is more fully described in our first report from February 2008, available at: http://www.csbs.org/regulatory/Documents/SFPWG/DataReportFeb2008.pdf. The State Working Group currently consists of representatives of the Attorneys General of 12 states (Arizona, California, Colorado, Florida, Illinois, Iowa, Massachusetts, Nevada, North Carolina, Ohio, Texas, and Washington), three state bank regulators (Maryland, New York and North Carolina), and the Conference of State Bank Supervisors. Data analysis and graphs for this memorandum were prepared by Center for Community Capital, University of North Carolina at Chapel Hill.

    2. For the first quarter of 2010, the OCC/OTS reports that over 87% of all loan modifications involve a payment reduction, with 72% reducing payment by more than 10%.

     

    See OCC and OTS Mortgage Metrics Report, First Quarter 2010 (Jun 2010) at p. 33, available at: http://www.occ.treas.gov/ftp/release/2010-69a.pdf.

     

    3

     

    This is generally consistent with results from the OCC/OTS metrics report. The OCC and OTS report that only 2% of modifications in the fourth quarter of 2009 involved principal reduction, while 82% included the capitalization of missed payments and fees, thereby increasing the amount owed. See OCC and OTS Mortgage Metric Report, infra note 2, at p. 26. The State Working Group notes with some surprise the decline in the percentage of loan modifications with principal reduction for the large national banks and thrifts between 4th quarter 2009 and 1st quarter 2010 (from 7% in 4Q 2009 to 2% 1Q 2010).

    4

     

    The S&P/Case-Shiller National House Price Index fell 32% from its peak in the second quarter of 2006. See S&P/Case-Shiller Home Price Indices: 2009, A Year In Review (January 2010).

    5

     

    First American CoreLogic estimates that more than 11.3 million, or 24%, of all residential properties with mortgages, were underwater at the end of 2009. See Media Alert: Underwater Mortgages On the Rise According to First American CoreLogic Q4 2009 Negative Equity Data (February 2010), available at: http://www.loanperformance.com/infocenter/library/Q4_2009_Negative_Equity_Final.pdf

    6

    U.S. RMBS Servicers’ Loss Mitigation and Modification Efforts Update II, Fitch Ratings (Jun 16, 2010)

    7 For purposes of this memorandum, redefault is defined as 60+ days late or foreclosed.

    8 Due to limited data availability, August and September are the only months for which we have overlapping redefault rates specifically for 6 months after origination; however, a decline is evident with other cohorts. For example, the redefault rate at 9 months for loans modified in May and June fell from 37.4% in 2008 to 26.7% in 2009, a 29% reduction.

    9 The decline in default rate has been broadly consistent across all nine servicers. The range of redefault rates six month after modification was 17-46% for loans modified in August and September of 2008 and only 10-25% for those modified at the same time in 2009.

    10

    OCC and OTS Mortgage Metrics Report, Fourth Quarter 2009 (Mar 2010) at p. 34, available at: http://www.occ.treas.gov/ftp/release/2010-36a.pdf.

    11

    OCC and OTS Mortgage Metrics Report, infra note 2 at p. 36. 12 Note that the redefault rates of loan modifications with payment and principal reductions are based on the 5 (out of the 9 total) servicers who provided performance data on all types of modifications. The overall redefault rate for loans modified in August and September by these 5 servicers was 32.3% in 2008 and 15.2% in 2009.

     

    Conference of State Bank Supervisors

     

    http://www.csbs.org