Archive for the ‘Bank Programs’ Category

Some Coffee To Go With the Modification Report

Thursday, July 22nd, 2010

Time to sober up!  The headlines blare the possible triumph of the Home Affordable Modification Program yesterday claiming the redault rate is much lower than anybody projected.  According to the US Treaury’s housing scorecard, the re-default rate (90 or more days past due) for homeowners for at least six months is just 1.7%.  Wow!  This news will make HAMP the greatest loan modification program in history! 

Under the program, homeowners who qualify can have their mortgage payments cut to 31% of their monthly income by extending their loan term to 40 years or slashing their interest rate to as low as 2% for five years. Participants must make three monthly payments during a trial period before they receive a permanent modification.

As much as we all wish this news to be true, as it would surely lead us back to housing stability as we quickly modify home loans and fix the housing crisis…it just is not accurate.  We return to the central point of many of my posts.  Numbers can be presented in many ways and statistics can be used to make many different, and often conflicting points. 

In what I will propose is a lack of research in our media or understanding of this economic situation, combined with just the right words utilized through the Treasury Department, renewed optimism now exists that loan modifications may be a very successful part of our economic recovery.  Oh, I hate being the person to throw cold water on this whole idea but here goes.

  •  According to research from Barclays Capital, in a July 21 intra-day commentary on residential credit, Barclays analysts Sandeep Bordia and Jasraj Vaidya write that while they believe overall redefaults from HAMP will be better than those from prior modifications, “we find that the data as reported…are misleading and fail to capture the full magnitude of redefaults from these modifications.”   The federal report showed that almost 6% of permanent modifications were 60+ days delinquent at the six-month mark, while fewer than 2% of permanent modifications were 90+ days delinquent. A caveat, as pointed out by Bordia and Vaidya, can be located in a footnote in the report, which states, “a HAMP permanent modification is canceled for nonpayment if it is more than 90 days delinquent.” The analysts interpret the footnote to mean that 90+ day delinquent loans are removed from the percentage of delinquent numbers reported. “Removing 90+ [day delinquent] permanent mods from the delinquency calculation and basing the calculation only on successful modifications makes the redefault rates look too low,” Bordia and Vaidya write. The analysts additionally say that their base case expectation of approximately a 60% lifetime redefault rate on HAMP modifications is still adequate. 
  • The number of homeowners leaving the program exceeded those who received new loan modifications for the second straight month. More than 91,000 homeowners cancelled their government loan modifications in June, while just 38,728 received new modifications, according to data released Tuesday.
  • Almost 530,000 of the nearly 1.3 million government modifications have been cancelled since the program began last March. Dropouts climbed as homeowners missed payments on their modified loans or failed to turn in required paperwork.

I for one look forward to the day we see stabilization in housing.  The debate continues as to what is the best way to accomplish stability.  Nothing is going to stop the train that is long ago out of the station that is pursuing every possible action to keep homeowners in their homes.  It serves the government to send out this type of news to work on the optimism factor that is very much in a deficit today.As I look across my own neighborhood, not knowing what the circumstances some of my neighbors carry, but seeing their inability to maintain their homes to community standards, I am again reminded that just because a method is offered to reduce a mortgage payment, the likelihood that suddenly a homeowner can pay for replacing windows, maintaining landscaping, and trimming overgrown tree branches hanging over their homes, is only solved through an orderly sale and relief of their debt through liquidation, or prosperity.  The prosperity thing seems to not be a likely option as most states are now seeing an actual increase in unemployment rates and many people have left the job market entirely. 

What do modifications really provide in the big picture and why do so many press organizations trumpet success when there are hard questions that really need to be asked about those results?

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Short Sales-The Biggest Challenge

Wednesday, July 14th, 2010

For almost two years now, the buzz in the real estate community is the new answer for staying in business (if you are a Realtor) and more importantly, saving American housing, has been the short sale.  Briefly, short sales are when a homeowner is able to get their mortgage company to accept less than the balance of the loan in order to complete a sale of the home. 

For years we have struggled with short sales and I feel that experience gave me some insight others may not.  For a long time, I have been skeptical that short sales will be a big part of the housing solution.  Primarily because there are so many stakeholders in the game that have to agree, it is basically selling a home by committee..and a large committee at that.  

Earlier this year the federal HAFA program began and with it I believe we have the most significant step in creating a process to assist people who need to sell with a short sale.  Unfortunately, simply identifying who NEEDS to use a short sale for a sale of their home is not as easily done as said.  HAFA goes a long way toward placing some boundaries on identifying these parties.  The primary one is the owner must have tried first for a government loan modification and failed to qualify.  While this parameter had to be built in, many homeowners are barking because they simply DO NOT want to stay in their home and DO NOT want a modification.  Yet..they are underwater on their mortgage and few think they should be required to use any of their own cash in order to settle on their debt.  There are also many innocent people who HAFA can assist because they do not have any resources so they are not going to qualify for the HAMP modification, clearing their path to a HAFA short sale. 

It is the group of people that have the resources to settle some part of their unpaid mortgage balance that are now seeking creative ways to complete a short sale.  Besides the attempts to hide assets, a new game is playing itself out where the short sale is orchestrated by several parties, outside the lender’s awareness.  Simply, sales are being created that are not arms length.  For the players in this scene, the banks are eventually finding out and prosecuting.  The most comon scheme is known as “Home Flopping”.    Federal agents say these schemes are on the rise. 

“Home Flopping” involves the listing agent for a home convincing a bank to complete a short sale for an amount the listing agent recognizes will allow a second sale to a third party for an increased amount.  In other words, the increased amount is what the bank should have accepted and received in the short sale.  The parties to the transaction (Seller, Realtor, Buyer #1, and the Broker Price Opinion agent) all split the profits.  The FBI is prosecuting one of these right now where the Realtors have pled guilty of convincing Regions Bank to accept a short sale of $102,375 and two month later selling the property for $132,500.  Profits were likely distributed to all parties.

The biggest challenge for short sales?  Greed!  All the parties to the transaction, and I can think of about eight possible ones, all have their motivations and the committee rarely can totally agree.  Throw in a few of the parties who have additional profit schemes in mind and you can see why I remain skeptical about the success of short sales ever really being a large part of the solution to the housing crisis.

The best solution-a revived economy.  Next to that, modification or a controlled Deed In Liew of Foreclosure.  Modifications allow people to stay in their home with a new payment plan, orwith a Deed In Lieu they may leave their home  and the bank avoids the laws that cause homes to deteriorate sitting vacant for months to years awaiting foreclosure.  Two simple solutions that take the greed factor out of the equation.   Time will tell..but this is a message I have been putting out there for two years now and so far, little has happened to prove me wrong.

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Better Late Than Never?

Friday, June 25th, 2010

Fannie Mae announced yesterday  that homeowners, who in good faith do not try and find an alternative to foreclosure, will be denied the ability to get another Fannie backed loan for seven years.  What I think has a little more bite is the fact that Fannie also plans to pursue legal actions (default judgements) where the law allows it against these same homeowners.  The message to troubled property owners..you better not hide from your problems!

The take away:

With the options available to sub prime borrowers in the last boom period, I doubt that not being able to borrow (insured by Fannie Mae) in order to buy another home, is going to have much affect on so-called “strategic defaulters”.

I think the target for the default judgement announcement is the investors who so loosely utilized funds to buy properties and never spent a dime because they figured they could flip the property.  This is not a stab at investors in our free-market system…just also asking them to take the responsible steps of honoring their obligations. 

The carrot of  encouraging borrowers to work with their lender to resolve their problem has appeal.  I hope that this effort will be more geared to short sales than modifications.  I fear to much emphasis on modifications in order to help a homeowner keep a home they can’t afford and still can’t afford after the modifciation.

Orderly liquidations of these homes should be the goal.  Why did it take so long for Fannie to say “no mas” to the strategic defaulters?  Where is Freddie Mac on this topic?  How about all of the direct lenders?

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Government Requirements For Modification Program Holding Back Progress?

Wednesday, May 19th, 2010

In a foreshadowing of life under a government roof to protect us all, news that the HAMP loan modification program is making progress toward its goals by now having created modifications at 10% of target…after 15 months!  With the speed this program is taking hold, I do have high hopes for implementation of health care exchanges…don’t you?

So, as I wondered why so few modifications are really taking place, I searched for new ideas (other than my worn out thoughts that there is so much more going on with a defaulting homeowner than just a modification can fix).  Well, what a surprize to so easily find an alternative explanation!

It appears mortgage servicers are balking at participating in the HAMP modifications due to a requirement that they will certify that they are in compliance with the more than 800 requirements of the initiative!  Most significantly, the servicer must certify that they acknowledge that the submittal of false or misleading information may constitute a federal crime!  Anybody ever work with the complexities of a borrower having problems making payments?  Want to trust everything they are willing to tell you? 

Even more interesting  when you read about all the servicers participating in the Administration’s modification program, keep in mind that they agreed to participate prior to the government creating these 800 rules!  In fact, this certification is part of the renewal process for their participation due June 1.  According to this article most servicers are now balking at continuing in the program. 

Who knows how this will turn out but I think it tells us all a thing or two about the difficulties of mixing private enterprise with federal government programs and incentives.  I am not sure what difference it would make if the government in power was liberal or conservative.   What you need to know is when a government employs bureaucrats to make rules, most of those bureaucrats are lifers.  They love to make rules, policies, and procedures and most of the time, they do not mix well with the growth we should be expecting from our private companies. 

Maybe that is what they have in mind?  Government worker job protection plans!  Somebody has to interpret and understand those 800 requirements!  Oh, and if you are working on a modification, I wonder how many of those 800 new rules will somehow become a part of your documents?

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Good Intentions or Slacker Nation?

Thursday, April 22nd, 2010

In what I increasingly feel is potentially the makings of a B-rated movie to be called “Slacker Nation” (Michael Moore-I have a tip for you….naw never mind..) Bank of America is on the cusp of making a significant announcement for a new foreclosure prevention program.

According to DS News, the program is awaiting regulatory approval but will provide nine months of mortgage payment recess to unemployed borrowers.  The catch in this is at the end of nine months the borrower agrees to turn in the deed to the bank and receive an additional minimum of  $2000 in relocation assistance.

I say this cynically but in the unlikely event the borrower should get a job during this nine month period, the bank will provide a mortgage modification to ease the borrower back into the world of making payments.

Look, I am all for compassion towards those who are not able to find employment.  The issue for me is how this all gets defined.  It is a well documented fact that there are thousands and thousands of Americans who are never going to return to jobs that equal the income they previously earned.  A program like this allows them a longer time to seek the job that does not exist.  Better yet, if you really don’t want to keep making the large payment that seemed acceptable a few years ago, just live for free for nine months and move at the conclusion with an additional $2,000 in the bank.

Am I really this lacking in compassion?  Or does anybody else see that the more this country extends unemployment benefits, offers opportunities for people to live for free, provides free health care, etc. that the principals this country was founded on..the ones that also pulled us out of recession as recent as 2000 when the internet bubble burst… will not kick in with our population.  Why a company like Bank of America would encourage this through a program essentially providing free housing can only be attributed to a need to self control the volume of foreclsoures they are facing, or incredible political pressure in light of increasing financial regulations.

In case you think all of these Federal governement backed actions are the right way to handle today’s world, lets visit again in a year.  I am willing to bet that in one year we are still having the same discussions.

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