loan modification

Coming Soon: More Foreclosures

More than 1.7 million homeowners were verging on foreclosure this fall, making it likely that these houses will soon end up on the market one way or the other, driving down overall housing values.

“We’re going to be dealing with high levels of distressed (sales) in the marketplace for at least a couple of years,” says Mark Fleming, chief economist of researcher First American CoreLogic, which has been studying the problem.

Some real estate practitioners say they fear that this onslaught is coming.

“We’ve been in recovery mode for most of the year. How many foreclosures do they have to dump on the market to affect that? I don’t know,” says Deborah Farmer, owner of StarLight Realty in Tampa, Fla. “Any house priced under $225,000 will be affected by a large increase in foreclosures in this market.”

Source: Associated Press, Alan Zibel (12/17/2009)

loan modification

Are Loan Mods Actually Helping Anyone?

Current data shows that 10% of borrowers in California are in default and that 73% of borrowers have negative equity. Ouch.

If you are a homeowner facing foreclosure, you have a number of options available to you. Of them, the first that most borrows try is for a loan modification. On the surface of it, a loan mod seems like a good deal, but the more I think about it, the more I wonder if that is truly the case.

Getting your loan modified is no easy task. The lender is going to be very difficult to deal with and this is going to add to the your already high level of stress. If you are successful, you can expect that the lender will likely reduce the interest rate and the payment. They may also set aside some of the principle on the “back end” and not charge you interest for this balance for some time.

Make no mistake about it though, you will still owe this (extra) money.

At first glance, getting a lower payment and being able to stay in your home (for now) may seem like a very good idea. The reality, however, is often much less appealing.

Why?

Well, there are a number of reasons.

First, you still likely owe far more than your house is worth. This is probably the biggest reason that most loan modifications eventually end up back in foreclosure. Initially, the borrower is very happy to have been able to stay in the home, however, as time passes, the reality of the size of the debt versus the value of the home sets in, and the motivation to keep making those payments eventually weakens.

Remember, in your neighborhood, the vast majority of homes in default do not get their loan modified (if you don’t have a job, you CANNOT get a loan mod). When a loan is not modified, the home is either sold via short sale, or sold at the trustee sale, or taken back by the bank and sold as an REO. In all cases, the sales price(s) of the houses that surround yours are going to be lower than a home that was not sold “in distress”.

What does this mean for you? In means that “comparable sales” are going to keep going down for a while yet, and each time that happens, your house is going to be worth less. The amount you owe, even after a loan mod, is still going to be the same. Bummer.

Making matters worse, in some neighborhoods, homeowners who are capable of making their payments simple stop doing so because they no longer see the point. Their house value is far less than the loan, none of the neighbors are making a payment, and no one has yet been evicted.

This is what we call a “strategic default”.

Regardless of what you call it, the result is still the same; foreclosure takes place and the house is eventually resold at a much lower price – which in turn results in much lower sales comparables.

Fannie-Mae is not ignorant to this problem and that is why they recently introduced their deed for lease program. In this program, the qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

For many homeowners, this will allow them to stay in their homes, get debt relief, and cut their monthly cost of shelter in half. Not a bad deal for most people.

What has not yet been announced, but what I think is highly likely, is that in a year or two after you deed your home to the lender, you will then be offered a option to buy it back. If that plays out, that is absolutely wonderful for the homeowner.

Think about it; you deed it back to the lender, you get to stay in your house, your debt is eliminated, and eventually you get to buy it back at its now current (lower) market value!

There’s just one problem with this. What about the other 90% of homeowners who aren’t in default but are under water? Don’t you think they are going to want their discount, too?

I’m guessing they will, and if I’m right, that is going to mean a whole lot more strategic defaults.

Very clearly, we are not out of the woods by any stretch of the imagination – despite what you may be reading in today’s news.

loan modification

Foreclosures Spread to Middle Class

The foreclosure crisis may be coming to a middle-class neighborhood near you. As joblessness continues to rise and as a person’sunemployment lasts on average 6.5 months, roughly 3.4 million homes are expected to go into foreclosure by the end of 2009. That’s up from 1.2 million homes in 2007, according to RealtyTrac, a subscription-based site that tracks foreclosures nationwide. “We’re not out of the woods yet,” says Rick Sharga, RealtyTrac’s senior vice president.

Sharga recently spoke to NEWSWEEK’s Nancy Cook about the various waves of the foreclosure crisis, the future of homeownership and why the Obama administration’s loan-modification program won’t stem this latest crop of foreclosures. Excerpts:

What’s this new “wave” in the foreclosure crisis?
The first wave was caused by bad loan products, while the second will be driven by unemployment. Right now, we’re at the beginning of wave two. There are virtually no more foreclosures that are the result of subprime lending. The demographics of the foreclosure crisis are changing and affecting people who were blue collar and entry to midlevel white collar. We’re now seeing foreclosures on properties with higher loan values. Probably the single best predictor of the areas hardest hit in next wave will be where you will see rising unemployment rates. The third wave is going to involve borrowers who had adjustable rate loans, in which they had the option of deciding what payment to make including interest-only payments. These loans are going to default at ridiculous rates, and that wave will go from the middle of next year until 2011.

If more middle-class people are expected to lose their homes, is the geography of the foreclosure crisis also expected to change?
We’re already seeing some shifts. Four or five states—California, Nevada, Florida, and Arizona—will always be among the top in the foreclosure parade. They overbuilt and overpriced those homes and sold them with horrific loans. What’s happening now is that you’re seeing places like Michigan and Ohio that were devastated by unemployment have an increase. Those foreclosures are much harder to salvage because those people have no income.

But even as the numbers of foreclosures rise, the housing market seems to be stabilizing.
We will see a L-shaped recovery in the housing market if this scenario plays out until 2013 and if the financial institutions meticulously manage the disposition of these properties. We won’t see a huge dip in home prices, but you also won’t have a huge run-up in the building part of the industry that contributed a fair number of jobs to the economy. The housing market will not feel healthy for a few years. This is not a short-lived recession.

What will this mean for the future of homeownership?
We had sort of gotten to an illogical point with the high levels of homeownership. In practice, it turns out that not everyone can afford a house. I think there is more of a realization among potential homeowners that they won’t do it until they can afford it.

If more people will rent, what will this mean for the rental market?
People assume that apartment rentals rates will go up, but in many markets in the country, the rental rates are the lowest they’ve been in years. In Las Vegas, Arizona, Florida, and California, people now rent a whole house instead of an apartment, so these cycles have an affect of lowering apartment rental prices and increasing vacancy rates.

Do you think the Obama administration has done enough to prevent foreclosures?
By sheer volume, the Obama administration’s plan is really having a minimal effect. The administration’s loan-modification program won’t have any success with the types of foreclosure you see now. If you’re unemployed, you don’t qualify for a loan modification.

Find this article at http://www.newsweek.com/id/220080

loan modification

How to Qualify for a Loan Modification

(Online-Artikel.de) – Qualifying For Loan Modification Plan Newly Announced

The final aim of loan modification program is to modify mortgage terms. One should fulfill the eligibility criteria and qualify to avail the loan modification program. Obama’s home loan modification plan is like the twilight at the end of the tunnel. One has to qualify to avail the facilities of this plan. Some of the terms and conditions to qualify for this mortgage loan modification plan are as follows:

• The current mortgage should be insured by either Fannie Mae or Freddie Mac.
• The home for which the home loan modification plan is being sought should be the primary residence of the applicant. If the house is being used for some other purpose, the application for the loan modification plan is going to be rejected.
• The applicant should have received the current loan or mortgage before the 1st of January, 2009
• The amount of the first mortgage or loan should be equal to or less than $729,750.
• The monthly payment required to service the first mortgage should be more than 31% of the annual income.
• One should be regular at filing the income tax returns. If the applicant is found to be irregular at filing the income tax returns the probability of the application getting rejected is very high.
• If one has been late at paying the recent monthly payments, then again the chances of the mortgage modification approval are very bleak.
• If one wants to avail the loan modification services one should be able to demonstrate and convince the authorities that the future monthly payments of the mortgage will not be possible unless and until the loan modification program is approved.
• Most of the people want to modify mortgage just because they are not able to pay the monthly payments. If one fulfills the above-mentioned terms and conditions most of the loan modification companies will volunteer to offer professional loan modification services.

First things first, to qualify for Obama’s home loan modification plan, your mortgage must be insured by either Freddie Mac or Fannie Mae. Currently, only these types of loans are eligible for the MHA plan. Also, the home must be your primary residence. Once you’ve met these two requirements, Obama’s home loan modification plan gives you choices. You may either refinance or modify your current mortgage. Homeowner’s who are current on their mortgage payments and have a loan balance less than 105% of the current value of the home are eligible for a refinance. If you have fallen behind on any payments, refinancing is not the route for you.

Do not lose hope. Obama’s home loan modification plan also provides for those who are experiencing financial difficulties and have fallen behind on their mortgage payments. A loan modification under the MHA plan is open to both those who are current on their payments and those who have missed a few payments. You must own the home as your primary residence and have a monthly payment, which is greater than 31% of your gross monthly income. Obama’s home loan modification plan is geared towards at-risk borrowers in danger of losing their homes. Help is given by adjusting various loan terms to make the monthly mortgage payment more affordable. What is considered affordable? By using a debt-to-income ratio, or DTI, lenders can compute a new monthly mortgage payment that does not exceed 31% of a borrower’s gross monthly income. Once the new payment is determined, the lender must then adjust various loan terms to arrive at that payment. A lender will first reduce the interest rate of the loan to as low as 2% to try to arrive at a 38% DTI threshold. If 38% cannot be reached by the interest rate alone, the lender can extend the term of the loan up to 40 years, or they can forbear principal on the loan. Once the 38% is reached, the lender and the Treasury will institute a dollar per dollar matching program to adjust the rate even more and bring the new monthly payment to the 31% DTI limit.

Once a loan modification is achieved, borrowers have a “trial run” of three months to ensure that the new payment and loan terms are realistic. After three months of on-time payments, the new mortgage terms will be fixed for five years. Obama’s home loan modification plan and the MHA plan is intended to stop the tide of foreclosures affecting the US economy and keep millions of American homeowners in their home. Loan modification program means the applicant applies to modify mortgage terms.

loan modification

Loan Modification and Fighting Foreclosure

I recently went through nine months of trying to get my loan modified ["Why Obama's Housing Rescue Hasn't Prevented Record Foreclosures," usnews.com]. All I asked for was a reduction in the interest rate. Then, after approving the modification, Wells Fargo decided not to give it to me after all! I’m still waiting on the letter that is supposed to tell me why. The modification department personnel didn’t even have the decency to call me back after I left several messages over the course of a month. Wouldn’t it make more sense to keep me in my home (I have a good job) by just reducing the interest rate than to take my home and sell it for one third of what I purchased it for?

Comment by Carol of NV

It takes an irresponsible lender to create an irresponsible borrower. It does little good to modify someone’s mortgage if they no longer have a job. The time for write-downs, as opposed to write-offs, has largely passed. Foreclosure rates aren’t coming down anytime soon. Regarding “toxic assets,” if it’s toxic, it’s a liability, not an asset.

Comment by Rich of MO

Anyone who thinks that the government regulating more of this sector will provide for sustained improvement and long-lasting stability is not paying attention. If banks and lending institutions were willing to “bet their dollars” on a government-backed system of support and regulation, then why are the “successful” banks in such a hurry to pay off their bailout money? The free market will weed out the irresponsible; people will be taken advantage of, and people will get hurt; the lenders that “force” through these “bad” loans will be exposed and their prosperity as a business will suffer. Owning homes/property is not a right; it is a privilege, a privilege that most of us believe that you must work very hard to achieve and sustain. Government has as much business in lending regulation as they have in regulating what light bulbs I use in my home.

Comment by Conor of WA

Banks are also contributing to the foreclosure rate. Yes, they grant the loan modification trial period; after that some clients just cannot get a solid commitment nor even written communication from these banks. From personal experience—when I asked where should I go from here? They told me that my file was now in limbo, and I should return to paying the original mortgage premium. All the money I paid during the trial period has not been applied toward the mortgage account but deposited to a special account on which, I am sure, the bank accrues interest. My home is therefore in jeopardy of foreclosure through no fault of mine. My conclusion: Banks are sabotaging the loan modification program.

Comment by F. Wood of NY

I went through the loan modification program with my mortgage company and was denied based on lack of income. On a certain level, I see their point about me having no income as a guarantee of future payments, despite not being behind and living off my savings. Be that as it may, the program needs to allow people without income for a reasonable amount of time to modify their loans. Moreover, the rate of foreclosure will only really slow down once Congress allows homeowners to force banks into lowering the principle owed. In my area of West Atlanta, the landscape is littered with homes that sold for $400K-$600K. Since all of these homes have lost so much of their value, who exactly is going to buy them, and why should a short sell be the only option? Everyone (banks, buyers, sellers, builders, RE agents, et al.) is to blame.

Comment by Jay of GA

loan modification

Foreclosures are More Profitable Than Loan Mods, According to New Report

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

“Servicers may even make money on a foreclosure,” she writes. “And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed.”

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they’re obligated to do what’s best for the ultimate owners of the mortgage — the investors — servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that’s been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn’t necessarily recoverable.

“Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous,” she said.

That’s part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Thompson’s report outlines eight specific steps to reverse this trend. They include mandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

loan modification

Do Loan Servicers Really Prefer Foreclosures?

By Mark Huffman
ConsumerAffairs.com

October 20, 2009

Foreclosure • FDIC Launches Foreclosure Prevention Initiative • Foreclosure: Losing the American Dream • Buying a Home in Foreclosure: What You Need to Know • Mortgage Crisis? Act Now to Avoid Foreclosure • Foreclosure Not Inevitable, Fast Action Needed • Avoiding Foreclosure Takes More Than Hope — News • Do Loan Servicers Really Prefer Foreclosures? • New North Carolina Law Tries To Slow Foreclosures • August Foreclosures Up 18 Percent Over 2008 • Foreclosures Still Rising Along With Unemployment • Prevention Needed to Curb Foreclosure Rescue Scams • How Can You Benefit From The Obama Mortgage Plan? • Devil Is In the Details of Foreclosure ‘Bargains’ • Foreclosures Rise 28 Percent in November • At Last: Bailout Trickling Down to Struggling Homeowners • Mortgagees Who Live In Home Less Likely To Default • Foreclosure Activity Increases At Double-Digit Pace • Lenders See Foreclosure Situation Worsening • One-Third Of Recent Home Buyers “Underwater” • Worst Foreclosure Activity Limited To Four States — • More …

At the start of the foreclosure crises, personal finance experts urged struggling homeowners to contact their lenders if they started to fall behind on their mortgages. The lenders want to do everything they can, homeowners were told, to avoid a foreclosure.

Now, the experts aren’t so sure that’s the case.

Consumers who have jumped through a frustrating series of hoops to achieve a mortgage modification – a lower interest rates or more manageable payments – are convinced that old conventional wisdom is flawed.

Jason, of San Diego, says he’s become frustrated trying to complete a loan modification.

“I have gone through the modification process but have been denied, although no clear explanation was provided,” Jason told ConsumerAffairs.com. “I have been seeking assistance and guidance from quite a few bank representatives and have only received rude, misguided information.”

In the last year ConsumerAffairs.com has received hundreds of complaints from consumers who said they followed loan modification instructions, faxing requested documents repeatedly, only to have their applications disappear into a black hole.

“I faxed papers repeated times and was told that I need to fax more or that they never received them so they can start a modification,” Maria, of Sussex, N.J., told ConsumerAffairs.com. “I made payments and they never credited my account. Now they calls in October 2009 and they tell me that they stopped the modification because I never faxed out the papers. Is this a joke!”

The same story

Regardless of the loan servicer, the story seems to be the same. Consumers start down a road they think will lead to a modified mortgage, only to meet a wall of incompetence and indifference at the mortgage company.

“We sent all information requested by certified mail,” Regina, of Whitefish Bay, Wisc., told ConsumerAffairs.com. “As the others have described, we have had to make contact. They do not respond. The usual answer is ‘Whoever told you that is wrong.’ I actually have a tape of one of their agents stating ‘I can’t be responsible for what someone else told you.’ Should not they be required to respond in writing? Is this not a government funded program?”

The Treasury Department did, in fact, begin a loan modification program in March 2009 to encourage loan servicers to modify troubled loans to prevent foreclosures. But the process has proved slow, and for many, frustrating. Meanwhile, foreclosures continue unabated.

A new report by the National Consumer Law Center says its no mystery why loan servicers seem to be dragging their feet in modifying troubled mortgages. The report suggests these companies actually stand to profit if the troubled property goes to foreclosure.

The report, “Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior,” reveals that servicers, unlike investors or homeowners, generally don’t risk losing money on foreclosures.

“One common sense solution to the foreclosure crisis is to modify the loan terms in more instances,” said Diane Thompson, a NCLC attorney and author of the report. “Foreclosures are a costly ordeal for the homeowner, the lender, and the community. Yet they continue to outstrip loan modifications because servicers have no incentive to help borrowers stay in their homes.”

Doesn’t own loan

In almost every case, the loan servicer doesn’t own the loan. It’s simply a company — usually a bank — hired to collect the money from the homeowner and deliver the funds to the investors who own the mortgage. The investors lose money if the property goes to foreclosure, but the servicer doesn’t.

Homeowners seeking to save their homes by modifying unaffordable loans typically deal with servicers. That is why the financial interests of servicers have the potential to hurt homeowners, the report says.

And too many of those financial incentives encourage servicers to ignore the interests of homeowners. For example, the report suggests that servicers often deny homeowners principal and interest rate reductions because as servicers they find it profitable to offer repayment plans or forbearance agreements that do little to reduce homeowners’ debt burdens.

“Loan modifications inevitably cost the servicer something,” the report says. “A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed.”

The NCLC report also found that the lack of third-party oversight allows servicers to pursue foreclosure instead of effective loan modifications that would benefit homeowners as well as investors. While credit rating agencies and bond insurers do monitor servicers, their oversight too often encourages servicers to foreclose.

The NCLC report includes a detailed examination of loans in foreclosure from 1995-2009 and how components of servicer compensation affected the likelihood and speed of foreclosure. It also looks at the rise of the servicer industry as a by-product of securitization; and the limited, but only effective oversight of servicers by credit rating agencies and bond insurers.

No incentives

“The people who could change the way servicers are doing business — Congress, the Administration, and the Securities and Exchange Commission — and the market participants who set the terms of engagement — credit rating agencies and bond insurers — have failed to provide servicers with the necessary incentives to reduce foreclosures and increase loan modifications,” Thompson said.

The report suggests that rule changes remove the financial incentives for servicers to block modifications and mandate loan modifications before a foreclosure as a matter of law. Until it does, the report says, the foreclosure crisis will continue.

“I feel that I have been set up to lose my house,” Alesea of Kinston, N.C., told ConsumerAffairs.com. “Where is the justice in this?”
Read more: http://www.consumeraffairs.com/news04/2009/10/foreclosures_preferred.html#ixzz0UWlc9DGe