Program helping owners fix up homes

 

One wouldn’t know by looking at the modest house on Chipman Road in south Phoenix that often there are angels inside.

Since 2000, Stardust Building Supplies, a Valley non-profit that promotes reuse and recycling of building materials, has operated its Angels on Call program. Stardust has three thrift stores where it collects donated building materials that it then sells to the public to raise money for programs like Angels on Call.

Stardust supplies the materials for worthy renovation projects while volunteers and other non-profits provide the labor.

Read more...Program helping owners fix up homes

Arizona’s lost homeownership

 
The Phoenix area, Maricopa County and Arizona posted the biggest estimated declines in U.S. homeownership rates in their categories in recent years, confirming that metro Phoenix was in important ways the national epicenter of the housing crash.

Newly released Census Bureau data shows the metro area, the county and the state swung from slightly above-average homeownership from 2007-09 to slightly below-average rates in the 2010-12 period.

Read more...Arizona’s lost homeownership

Feds rip Arizona for mortgage relief failures

A new audit by the federal bailout watchdog confirmed Arizona has one of the worst records in handing out federal housing aid to struggling homeowners.

The quarterly audit of the Troubled Asset Relief Program, or TARP, released late Monday found that Arizona distributed the second-lowest percentage of federal Hardest Hit mortgage aid directly to homeowners despite being one of the states hardest hit by the housing bust. The audit covered a period of roughly three years.

The Arizona Department of Housing disputed the audit’s findings, calling them “flawed and misleading.”

Read more...Feds rip Arizona for mortgage relief failures

Housing Improves in Key Areas, but Homeowners Still Need Assistance

In the Obama administration's overall assessment on housing, the market was described as showing "important progress across many key indicators" but the millions of underwater homeowners still call for a need to provide homeowner assistance, according to the May housing scorecard released jointly by Treasury and HUD. For example, homeowners' equity grew by more than $815 billion in the first quarter of 2013. "Despite the positive news, we have important work ahead since there are so many families and individuals still 'underwater' with mortgage balances higher than their home's value," said Kurt Usowski, HUD deputy assistant secretary for economic affairs.

Read more...  http://www.dsnews.com/articles/housing-improves-in-key-areas-but-homeowners-still-need-assistance-2013-06-07

Assembly OKs adding bank settlement into Calif law

SACRAMENTO - California will become the first state to write into law much of the national mortgage settlement negotiated this year with the nation's top five banks, and expand it to all mortgages, under wide-ranging legislation approved by state lawmakers on Monday.

Majority Democrats sent the homeowner protection package to Gov. Jerry Brown despite opposition from business and lending organizations and most Republican legislators.

The Assembly approved the legislation on a 53-25 vote, and the Senate followed quickly on a 25-13 vote.

The legislation would require large lenders to provide a single point of contact for homeowners who want to discuss loan modifications. It would prohibit lenders from foreclosing while the lenders consider homeowners' request for alternatives to foreclosure. And it would let California homeowners sue lenders to stop foreclosures or seek monetary damages if the lender violates state law.

The protections would benefit all California homeowners, not just those whose mortgages are with the five banks that signed the national settlement in February. And many of the restrictions would become permanent, while those in the nationwide agreement will end after five years.

It applies to all owner-occupied residences, but not commercial or rental properties

Jose Vega drove 70 miles to Sacramento with his two young children to lobby lawmakers to pass the legislation after he spent three years battling to keep his home in the San Francisco-area city of Pittsburg.

In November 2009, he said he found a trustee sale notice posted on his door 16 days after he was placed in a loan modification program. He was put into another modification program in the spring of 2010, only to have the bank again begin foreclosure proceedings.

Vega, 52, eventually kept his home after filing for bankruptcy and getting help from the office of Democratic U.S. Sen. Dianne Feinstein. Now he and his family owe $466,000 -- including the bank's legal fees -- on a home he said is worth about $200,000.

"I'm not asking for a handout. All I'm saying is, you created this mess, let's work something out," said Vega a member of the Alliance of Californians for Community Empowerment. "Hopefully, California will lead the way so other states will follow."

Attorney General Kamala Harris said the compromise legislation negotiated with lawmakers "is going to bring transparency and fairness to California homeowners in a way they've never had before."

She helped negotiate the February settlement that requires Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. to pay $18 billion in penalties to California homeowners.

Key portions of her original proposal to write the settlement into state law were stalled by opposition from some of her fellow Democrats in the Legislature, until the right to sue banks and other measures were significantly narrowed.

"This legislation can be the catalyst not only for a recovery of California's real estate market, but a catalyst across the nation as borrowers everywhere will demand the same protections given to California borrowers, the same protections given to our families," said Assemblyman Mike Feuer, D-Los Angeles, a member of the conference committee that negotiated the bill. "And those protections boil down to this: They ought to be treated fairly, they ought to be treated consistently."

Lenders' organizations joined by the California Chamber of Commerce said in a letter to lawmakers on Friday that the final legislation is an improvement, though they still fear it will "encourage frivolous litigation" by borrowers who cannot realistically afford to stay in their homes.

The lending industry cited a study it commissioned by Beacon Economics, a Los Angeles-based research firm. It echoes industry arguments that letting homeowners sue their lenders, even in limited circumstances, will delay foreclosures and increase lenders' costs, potentially harming the shaky housing recovery and making it more difficult and costly to obtain mortgages.

The legislation can't address what lenders say is the underlying problem: too many borrowers can't afford their payments.

"It's a mistake that will hurt this economy for years to come," said Sen. Sam Blakeslee, R-San Luis Obispo, a member of the conference committee.

Supporters of the bill say it still takes important steps.

"The point is ... not to launch an avalanche of lawsuits. What it's really about is having some meaningful accountability to ensure that servicers follow the rules," said Paul Leonard, director of the California office of the Center for Responsible Lending, a consumer group.

Previous efforts have repeatedly failed to clear the Legislature. Leonard said the national mortgage settlement and Harris' involvement are likely to make the difference this year.

Sen. Noreen Evans, D-Santa Rosa, who co-chaired the conference committee that negotiated the bill, said Brown's administration worked with Democrats on the legislation and has given every indication he would sign it into law. However, Brown declined to comment as he left the office of Senate President Pro Tem Darrell Steinberg, D-Sacramento, moments before the vote.

The law would not take effect until Jan. 1, though Evans and Harris said they expect lenders would begin following the new rules immediately even if the penalties don't yet apply.

by Don Thompson - Jul. 2, 2012 04:44 PM Associated Press



Assembly OKs adding bank settlement into Calif law

Scottsdale renovation program gets own makeover

A Scottsdale program that teams volunteers and businesses to restore distressed properties is undergoing a makeover.

Since June 2009, the program, formerly known as Code Cares, has restored 135 houses in need of maintenance, city officials said.

Volunteers do everything from tidy up yards to trim trees, paint houses and mend fences. Businesses donate the materials so public funding is not needed.

Scottsdale Mayor Jim Lane said he wants to make the 3-year-old program, now called Operation Fix It, a larger community effort involving more local businesses.

The goal is to refurbish at least 130 homes in the next year, he said.

"It's been a good program," Lane said. "It's just one that needed new life."

Recipients are often referred to the city by social workers, neighbors or code-enforcement officers, said Michelle Bruce, a program coordinator who co-founded the program.

Eligibility is based on guidelines for low-income housing.

"I work together with volunteers to point them to the projects," Bruce said.

A tiered donation program is designed to encourage more businesses to participate. Annual sponsorships range from $250 to $2,500, which would bankroll community efforts.

Bruce said materials such as rock landscaping, plants and paint are needed.

In 2010, volunteers painted the house, replaced a door, trimmed trees and fixed the walkway for Scottsdale mother and daughter Beverly and Edna Deardoff.

The Scottsdale Area Association of Realtors, which works with the city, selected the Deardoffs for a community project.

Scottsdale code enforcement had issued a citation to the Deardoffs, who were on the city's wait list for assistance.

"I woke up to see tons of cars up and down the street in front of my house. People are coming up to my door, asking 'What do you want us to do?'" Edna Deardoff said. "I thought I was on the home makeover show."

Volunteers noticed the Deardoffs had scorpions and a faulty air-conditioner, said Realtor Lee McGhee.

McGhee, who owns 480-Termite LLC, provided pest-control services. Scottsdale-based Mountain AC repaired the air-conditioner.

"They did a lot of work for us out there," Edna Deardoff said. "It brought tears to my eyes."

J.P. Twist, Lane's chief of staff, said residents can apply without having a code violation.

To prevent misuse, Lane asked the city to develop "fair and appropriate" testing of applicants' means.

Future efforts could include roofing, air-conditioning and handyman assistance.

Nancy Cantor, a south Scottsdale resident and former member of Scottsdale's Housing Board, questioned why the program makeover was never discussed with board members, who make recommendations on housing programs in Scottsdale.

MORE ON THIS TOPIC
How to participate

Scottsdale's Operation Fix It program provides assistance to needy homeowners with distressed properties. It teams volunteers with businesses that donate materials.

Items needed most are rock landscaping, plants and paint. Information is available on the city's website at scottsdaleaz.gov, by searching for "Operation Fix It."

Businesses can donate supplies and residents can apply for assistance on the website, which lists the program criteria for annual income.

The city has a goal to clean every blighted alley by June 30, 2014.

For more information, call program coordinator Michelle Bruce at 480-312-8703.





by Beth Duckett - Jun. 13, 2012 09:28 PM The Republic | azcentral.com




Scottsdale renovation program gets own makeover

Phoenix-area homeowners getting relief through federal plan

After more than $500 million in federal allotments to Arizona to try to slow foreclosures, the latest federal housing-assistance program seems to be the first one to provide widespread help.

A growing number of metro Phoenix homeowners who owe more than their homes are worth are lowering their interest rates and monthly payments with the federal government's second version of its Home Affordable Refinancing Plan.

Facts on programs

While the federal government has yet to release figures on the number of homeowners in the program, mortgage brokers, homeowners and housing counselors are both surprised and encouraged by its early success.

The program allows homeowners with loans held by the federal government's biggest mortgage entities to refinance to current interest rates without meeting the typical appraisal requirement. These borrowers often had been stymied in past attempts to refinance because their homes were no longer worth enough to cover the value of a new loan.

When the program was announced in October, Cathy Lucero of Glendale was ready to apply. She called a mortgage broker, and he told her to get her credit report and mortgage paperwork in order and call him back in February when more details of the plan were to be released.

"We are seriously underwater with our home," said Lucero, who works for Maricopa County. "But we have never missed a payment. It seems right to help the homeowners who are trying to do the right thing."

Her HARP refinance was approved earlier this month. The interest rate on Lucero's loan will drop to 4.5 percent from 6.5 percent, and she will save almost $350 a month on her payment -- about $4,200 a year she can instead put toward other bills.

The goal of the expanded refinancing plan is to help homeowners save money and fend off foreclosures by lowering payments.

A raft of programs with similar goals have found moderate success at best in Arizona since the housing crash: federal funds to speed the process of modifying loans, assist homeowners struggling to make their payments, and help cities and local groups deal with swaths of abandoned houses.

Many of those programs haven't been able to quickly spend the funds allotted to them, either because the federal government was slow to approve them, the qualifications were too stringent for homeowners, or because banks were reluctant to cooperate.

The latest refinance program, brokers and borrowers say, seems to be the best yet.

"We ran into a few problems when the new HARP was launched in March and were concerned the program was going to be another disappointment," said Jay Luber, president of Phoenix-based Galaxy Lending. "But now we are seeing homeowners approved every day."

Home-refinance program

The original HARP program, which began in summer 2009, allowed homeowners to refinance, but only if the new loan needed was no more than 125 percent of the home's value. This so-called loan-to-value ratio meant the program didn't help many in metro Phoenix, where a home bought during the boom might have a loan balance twice as big as the home's current value because home prices have plunged so far from the 2006 peak.

The new refinancing program has no loan-to-value limit.

Luber said he recently helped a homeowner whose loan-to-value ratio is 170 percent refinance under the federal plan.

To be eligible, homeowners must have mortgages backed by Fannie Mae or Freddie Mac. The two government agencies own more than half of the loans in Arizona.

Freddie Mac has been slow to implement HARP 2, say mortgage brokers. One Phoenix homeowner with a mortgage backed by Freddie was even told by her lender that she was ineligible because only Fannie was participating in the revamped refinancing plan.

But Freddie Mac is now approving HARP 2 loans in metro Phoenix.

Eligible homeowners can have missed only one payment or been late on one payment in the past year and must still bring in enough monthly income to afford their lower payment. Most borrowers are being required to show proof of income to qualify, a provision that wasn't in early drafts of the plan.

Also, early versions of HARP 2 called for using automated appraisals for all applications, but some metro Phoenix applicants are being required to pay for appraisals because the federal mortgage backers have asked for them.

"On a few HARP 2 applications, the lender has required the borrower to get an appraisal," said Mike Metz of Sun State Home Loans. "That typically costs the homeowner $400, but so far we have only seen appraisals required for homes in communities on the edge of the Valley like Queen Creek."

He said the expanded refinancing plan is helping most homeowners who apply.

"About 80 percent of our applications for homeowners trying to refinance with HARP 2 have been approved," Metz said.

Frustrations remain

As with all the government housing plans, the big lenders continue to frustrate some homeowners.

Rob Myers, a Phoenix public-relations executive, contacted a lender in February about HARP 2. He was told to gather all of his paperwork and call back in mid-March when the program was scheduled to launch.

Myers called back and was told he couldn't refinance because he had a second mortgage. So, "frustrated beyond belief," Myers contacted several other lenders who turned him down because they didn't want to work with the bank servicing his loan or were still using old HARP guideline.

"I had researched the program and believed we would qualify," Myers said. "We owe $274,000 on our house, and I have been told it's valued at $210,000. I have never missed a payment or made a late one in the 81/2 years we have been in the home."

On April 5, after many calls and efforts to refinance with another lender, Myers accepted an offer from Bank of America for a loan with a 5.1 percent interest rate. His current rate is 6 percent.

"It looks like we will be saving about $270 a month, he said. "That's not great, but at least it's something."

Not all lenders are offering the same deals. Some homeowners are working with mortgage brokers to shop around for lower interest rates. Under the federal program, borrowers who qualify can seek a new loan from any participating lender, not just the one that currently holds their loan.

Other programs

Since 2008, Arizona has been allotted more than half a billion dollars in federal funds to help homeowners and slow foreclosures.

But municipalities, the Arizona Housing Department and housing non-profits have found it difficult to actually spend the money because of tough federal guidelines; too-stringent qualifications for many homeowners; and the requirement in most of the plans that lenders cooperate. Less than half of the state's federal housing funds have been used to help homeowners, and deadlines are looming for some of the money to be spent.

The Neighborhood Stabilization Program was the first federal program to help states fight foreclosures. Much of the money in Arizona was originally going to be used to help homeowners buy foreclosure homes and fix them up. But when the federal money became available in mid-2009, investors had begun buying inexpensive foreclosure homes and turning them into rentals, outbidding many potential homeowners who had sought NSP help.

Regular buyers trying to use NSP funds had trouble competing with the investors.

"We had to jump through a lot of hoops to buy this home, but Phoenix has a great NSP program," said Jim Hansen. He and his wife, Rosalva, are buying a three-bedroom former foreclosure home in west Phoenix for less than $78,000. The home originally cost $92,000, but NSP provided $15,000 for the couple's down payment and funded a renovation of the house that includes a new air-conditioner and appliances.

The couple became the 300th homebuyer for Phoenix's NSP program, which started three years ago. Housing advocates say the program had a slow start but is helping first-time buyers like the Hansens and neighborhoods with too many empty foreclosure homes.

Recipients of the federal funds in Arizona, including the cities of Avondale, Mesa and Phoenix, tried to revamp their plans and spend the money in other ways to help neighborhoods, including renovating run-down apartments for low-income residents. But all plans had to be approved by the U.S. Department of Housing and Urban Development, and city officials said that became an arduous process.

"Municipalities tried to customize their programs, but it was slow," said Patricia Garcia Duarte, CEO of the housing non-profit Neighborhood Housing Services of Phoenix. "The many variations on the program created confusion. But overall, the funds weren't available to do what the program really intended to do."

The federal Home Affordable Modification Program was announced by President Barack Obama during a February 2009 speech in Mesa. Many metro Phoenix residents were hopeful they would be able to lower their payments and keep their homes through the program called HAMP. The goal was to push lenders to simply alter the terms of mortgages -- reducing payments, changing interest rates or forgiving principal.

But lenders took several months to implement the program, and homeowners trying to hold on waited months before receiving responses from their lenders. Paperwork was lost. Homeowners were granted "trial modifications," then foreclosed on. And most of those trials were not made permanent.

Few of the loan modifications included principal reductions, yet lenders have made the program costly for the federal government.

The federal government responded to the problems with HAMP by creating the Hardest Hit Housing fund with unused money from the federal banking bailout in early 2010. Arizona was one of five states to receive the funding.

The Arizona Housing Department spent months working on a plan that would help struggling homeowners who had not been helped by a loan modification. The main component of the state's plan called for enticing lenders to reduce principal by offering matching funds.

A homeowner could see his outstanding loan balance cut by $100,000, with $50,000 from the housing agency and the other $50,000 forgiven by the lender.

Housing advocates and homeowners were optimistic. The applications for the program poured in. But the approval process was tough, and few lenders seemed willing to cooperate -- housing officials could offer the money as an enticement but couldn't force banks to go along. So far, only a handful of homeowners have had principal forgiven.

"The Treasury Department called the Hardest Hit program an innovation fund," said Mike Trailor, director of the state's Housing Department. "But what I have found is you can't innovate the lending industry when it won't work with you."

He said the state agency has had better luck with its unemployment/underemployment program that helps homeowners pay their mortgages for up to two years. The state has until 2017 to use the remaining funds, more than $200 million.

Now, the Housing Department is looking at ways it can expand on the HARP 2 program and use its Hardest Hit money to help arrange refinancing for people who don't have loans owned by Fannie or Freddie.

Arizona isn't alone in having problems spending these federal funds.

Nationally, a report from the inspector general for the Troubled Asset Relief Program, TARP, released a report showing that less than 5 percent of the Hardest Hit funds have been spent.

What's next

Metro Phoenix's home prices have begun to climb again, and foreclosures are half of what they were two years ago.

Now, it might be too late to help many homeowners. Experts think foreclosures are on the decline because most homeowners who were going to lose their houses already have, and rising prices indicate a recovering market.

Much of the federal funds set aside to slow foreclosures and help the housing market recover faster could go unspent.

"I have told Congress HARP 2 would have helped a lot more people and the housing market two years ago," said Anthony Sanders, a professor of real-estate finance with George Mason University. He was previously with Arizona State University.

"The federal housing programs were poorly designed and didn't help the people who needed it," he said. "We will still have to see if it's not too late for HARP 2."

by Catherine Reagor - May. 26, 2012 10:36 PM The Republic | azcentral.com



Phoenix-area homeowners getting relief through federal plan

More Arizonans can refinance for underwater mortgages under new plan

Many homeowners will be able to find out next week how to seek refinancing, no matter how underwater they are on their mortgages.

A federal mortgage program announced by President Barack Obama three weeks ago will smooth the refinancing process and overcome hurdles that so far have blocked many in Arizona and elsewhere from lowering their interest rates and mortgage payments.

In an interview with The Arizona Republic on Thursday, Department of Housing and Urban Development Secretary Shaun Donovan said full details of the program will be released Tuesday.

Donovan said officials are working to cut fees associated with refinancing by half or more and creating much less stringent requirements for qualifying, including eliminating credit checks.

The program's main intent is to assist homeowners who want to refinance to current mortgage rates. On a $250,000 mortgage, a switch from a 6 percent rate to the current rate of about 4 percent would cut the monthly payment by $300.

But many metro Phoenix homeowners have been unable to refinance because of plunging home values. In a typical deal, a bank would not issue a new loan unless the home's current value was enough to cover at least the amount of the loan. Since 2009, a federal program has allowed some homeowners to refinance for as much as 125 percent of their home's value.

But in metro Phoenix, where values have dropped more than 60 percent since 2007, many homeowners still couldn't qualify.

Estimates show nearly half of Arizona's mortgage holders are underwater.

The new program, as laid out by the president, would be open only to homeowners who are current on their payments or have missed no more than one in the past year.

It applies only to those with mortgages backed by government-owned mortgage giants Fannie Mae and Freddie Mac, but the two entities back more than half of all mortgages, meaning many homeowners are likely eligible.

Refinancing to lower payments could prevent more homeowners underwater on their mortgages from walking away and adding to the foreclosure crisis.

"We continue to work on the foreclosures problem, but we want to make sure to help those people paying their mortgages, even when they owe so much more than their is home is valued at," Donovan said.

Donovan was in Phoenix, just two days after Treasury Secretary Timothy Geithner visited the region, to talk to government and housing leaders about programs within Obama's American Jobs Act, which was voted down in the Senate.

The HUD secretary spent part of the morning touring a south Phoenix neigborhood that received federal Neighborhood Stabilization funds. Donovan was promoting Project Rebuild, which was part of the job bill.

He said Project Rebuild could create thousands of jobs and rehab almost 9,000 homes statewide.

U.S. Rep. Ed Pastor, D-Phoenix, said neighborhood assistance is key in the area.

"When you have foreclosures, what happens is it not only hurts families, but it has an effect on the neighborhood, on the schools, on the businesses around it," Pastor said.

After the tour, Phoenix Mayor Phil Gordon noted the region needs as much as anywhere in mitigating the effects of the housing crash.

"Phoenix got hit as hard or harder than anyone," he said.

The refinancing plan is an expansion of the Home Affordable Refinancing Program, which previously allowed refinancing up to only 125 percent of a home's value.

On Thursday, Donovan laid out five hurdles the government had to overcome to expand HARP.

1. Find a market for mortgages with loan-to-value ratios above 125 percent, the old limit on the program.

Currently, most loans are bundled together as securities and resold to investors, who make money off homeowners' interest payments.

But the market doesn't currently deal with loans that are underwater from the beginning. Donovan said the federal government will either create new securities to sell to investors or add a portfolio to hold the loans in.

2. Cut the cost of refinancing.

Donovan said federal officials will approve automated appraisals so they don't cost homeowners. They also are negotiating with title firms to cut their fees by at least half.

3. Prevent second mortgages from stalling the process.

Currently, banks that issue second mortgages can object to a refinancing deal on the original loan. Donovan said many second-lien holders have held up refinancings by trying to gain some leverage or cash in the deal.

Federal officials negotiated with lenders, Donovan said, persuading the top five U.S. lenders, which hold 60 percent of the nation's second mortgages, to allow the deals on first loans so the refinancing program will work.

"In some cases, lenders agreed purely out of self-interest," he said. "If borrowers have smaller payments on their first mortgage, they have more funds to pay their second mortgages."

4. Reduce the risk for lenders.

Fannie Mae and Freddie Mac help lenders issue more mortgages by buying up those mortgages after they are written. But recently, the mortgage giants have attempted to force banks to buy back problematic loans. Under the new program, Fannie Mae and Freddie Mac will agree not to force such buybacks except in cases of fraud. This will also make the refinancing program more competitive. Lenders can seek new business through refinancing without taking on a new liability.

5. Reduce the risk for mortgage insurers.

The program will allow for mortgage insurers to transfer a policy from the borrower's old loan to the newly refinanced loan easily and with little or no fee.

The final guidelines for the program will be out next week, which will tell homeowners how to apply.

While much government mortgage aid has intentionally tried to exclude investors and landlords, the new program also will be open, in some cases, to people who have a mortgage but don't live in the home.

People who now rent out their homes because they couldn't afford the payments or had to move for a job will also be eligible, Donovan said.

Still, he made it clear that investors, who bought homes solely to use them for rental or investment income, won't qualify.

Homeowners can check to see if their loan is backed by Fannie Mae or Freddie Mac by going to www.makinghomeaffordable.gov.

The program is available to borrowers with loans backed by Fannie Mae or Freddie Mac in 2009 or earlier.

Borrowers don't have to refinance through their original lender and could likely get offers from others.

Donovan made clear it doesn't matter if a homeowner is 100 percent underwater or 200 percent underwater because Fannie and Freddie are already carrying that risk on their books. He said what is important is that the borrower has been paying and deserves to be rewarded for it.

Full credit checks won't be run on eligible borrowers because they have been making their payments, another move that will save costs. In some cases, lenders might call a borrower's employer to see if he or she still has a job, he said.

"We want this program to spread beyond Fannie and Freddie loans," he said "Now, we are talking to lenders about refinancing underwater borrowers on loans the federal government isn't involved in."

by Catherine Reagor and Maria Polletta The Arizona Republic Nov. 11, 2011 12:00 AM




More Arizonans can refinance for underwater mortgages under new plan

Realtors decry potential loss of mortgage deduction

Eliminating the mortgage-interest deduction is a looming option for cutting the nation's budget deficit. Realtors are taking to the road to fight against that and other issues they believe will hurt the already ailing housing market.

Thursday morning, the National Association of Realtors homeownership bus, painted red, white and blue, rolled into Phoenix and parked in front of the wine bar and restaurant Postino on Phoenix's Central Avenue. Local and regional NAR leaders, as well as several agents, were there to protest the potential loss of the tax deduction as well as lower loan limits on government-backed mortgages.

"The mortgage deduction is a hot button for not only Realtors but homeowners," said Holly Mabery, of the Keller Williams Heartland Group, at the event.

According to NAR data, the average mortgage deduction for Arizona homeowners was about $14,000 last year. That's only a few thousand dollars more than the standard tax deduction. The deduction essentially drops the taxable income of homeowners because they can deduct the interest they pay on their mortgage in a year.

Susan Ramsey of Re/Max Integrity of Glendale said the tax deduction gives hundreds of thousands of Arizona homeowners an extra $2,000 to $5,000 from their tax refund.

Ramsey, president of the Phoenix Association of Realtors, said that's money that goes back into the economy, and metro Phoenix's economy needs it.

Much of the debate over the mortgage deduction is because it benefits the wealthy more than middle-class homeowners. The pricier the home and higher the mortgage, the bigger the deduction is for the tax filer.

According to the Internal Revenue Service, about 75 percent of U.S. homeowners who claimed the tax deduction in 2009 earned at least $100,000. Fewer than 25 percent of homeowners earning about $50,000 benefited from the mortgage-interest deduction.

A lot of figures on how much the mortgage deduction costs the U.S. government have been bandied about in this debate, ranging from $800 million to $130 billion a year.

And no one disputes that wealthier taxpayers save much more with the deduction than the middle class, which has been hard hit by the recent economic downturn.

One concern in metro Phoenix involves people who continue to pay on a mortgage larger than their house is worth. If they lose the tax deduction, will that be the final incentive to walk away from their home and loan?

Realtors are also concerned about the psychological impact of losing the deduction.

Christopher Paris, an agent with HomeSmart Elite in north central Phoenix and the incoming Phoenix Realtors president, said too many potential buyers are hesitant to purchase now because of the economy, and the loss of the tax deduction will make things worse for the housing market.

Realtors are also fighting for conforming mortgage limits to climb back to 125 percent of an area's local median price. Congress recently lowered the loan limit to 115 percent.

The Realtors' bus was in Tucson on Friday night and is making its way to Anaheim, Calif., for the group's annual meeting.

by Catherine Reagor The Arizona Republic Oct. 21, 2011 04:28 PM




Realtors decry potential loss of mortgage deduction

Middle-class homeownership dream may be slipping away

One thing most middle-class families have always had in common is a belief in the American dream: homeownership.

But the housing crash and Great Recession dashed that dream for many, and shook to its core the idea that homeownership is a defining element of the middle-class lifestyle.

For generations, the financial stability of middle-class families has been intertwined with the financial benefits of owning a home.

Homes have long served as an automatic savings plan - pay the mortgage every month and see the savings grow as equity. They have been a tax haven - the interest is deductible. And they have been a retirement plan for many - pay down a 30-year mortgage and retire free and clear, or sell the house and live off the accrued wealth.

The American dream of homeownership has been evolving since just after World War II, when the middle class started to grow and mortgages became more available. Families typically lived in homes and paid them off. But in the 1970s, as home values began to steadily climb, the dream evolved. Families sold their first homes, made a profit and moved up to nicer ones, sometimes time and again. Always, steady growth in home values helped pave the way to financial security.

For many people, the housing crash unraveled that idea. Risky mortgages or job losses led to foreclosure for some. Plummeting home values left many more with a mortgage to pay but no equity.

"This housing crash is different than any one the country has experienced before," said Arizona economist Lee McPheters. "Some people who would be considered the middle of the middle class have lost homes to foreclosure."

One other thing that has changed, he said, is the way the crash changed the middle-class view of the future.

"Younger people who have the potential to become the next wave of homebuyers and middle class are seeing this," he said, "and rethinking what homeownership means."

Arizona dream

In Arizona, affordable home prices and decades of steady housing appreciation from the 1950s until the beginning of the area's housing boom in 2004 made the American dream easily attainable for many households.

People moved from California, the East and the more-expensive parts of the Midwest to metro Phoenix. The American dream meant homeownership; the Arizona dream meant a home that was easy to afford, a new home, one with a swimming pool near new shopping centers and jobs.

"The ability for people earning a regular income to afford a home of their own was long a big draw for people moving to Arizona," said Ioanna Morfessis, founding chief executive of the Greater Phoenix Economic Council and an economic-development consultant.

In 2000, the median price of a metro Phoenix existing home was $129,000. Borrowers earning the area's median household income of $46,000 could easily afford the payment, even with interest rates around 7 percent.

Arizona State University annually calculates the region's housing "affordability index." In 2000, the index was 117 percent, meaning a household earning the region's typical income made 17 percent more than what was needed to afford a median-priced home.

In cities like New York, San Francisco and Los Angeles, the affordability index was well below 50 percent in 2000 and rapidly falling.

Affordability was the key to the Arizona dream, Morfessis said.

"Affordable homes drew both workers and companies," she said, "and helped build the state's middle class."

But it all fell apart when housing prices began to far outpace income gains, she said.

The affordability index for an existing Phoenix home fell to an all-time low of 74 at the height of the boom in 2006.

Not long afterward, buyers began falling into foreclosure.

"Now, due to the housing crash, we have a group of disgruntled homeowners who were once the backbone of Phoenix's middle class," Morfessis said. "And a growing group of renters who no longer believe owning a home is part of the American dream."

Census data shows the percentage of occupied homes in Arizona owned by the people living in them declined from 74.7 percent in 2000 to 66 percent in 2010.

The U.S. homeownership rate declined 1.1 percentage points from 2000 to 2010, to 65.1 percent. That's the biggest national decline in homeownership since the Great Depression.

Stuck in the middle

John Kaminsky said the decision to buy a home in Arizona ruined the American dream for him. The 44-year-old and his family moved from New York to north Phoenix in 2005, near the height of the boom.

He and his wife bought a house, counting on its appreciation to pay for their children's education.

He said he regrets that decision every day.

"I bought a home we could afford, but now it's worth 50 percent less," he said. "My neighbors have all walked away or leased their homes out to renters. My kids are grown, and we are stuck."

He and his wife both work and can afford their mortgage but are concerned about college costs for the children as well as what the rising number of foreclosures in his neighborhood will continue to do to his home's value.

The middle class, particularly in metro Phoenix, took a big hit with the housing crash.

Many homeowners who had conservative mortgages lost jobs and couldn't afford their homes anymore. In some cases, if one income of a two-income household declined or went away, it was enough to put the family behind on their payments.

And like many other homeowners, they couldn't sell to pay off those mortgages. Home values have plummeted more than 60 percent since 2006, so many borrowers owe far more than their homes are worth.

A federal housing program, announced by President Barack Obama in Mesa in 2009, was supposed to help many middle-class borrowers refinance or modify their mortgages. But lenders were reluctant to participate, and the program is now winding down after helping about 30,000 metro Phoenix homeowners avoid foreclosure.

In the same time period, banks have foreclosed on almost 100,000 homes.

Heather Pierce, a managing partner with a marketing group, paid a law firm to negotiate with her lender in hopes of avoiding foreclosure.

"I very much regret buying my house in Phoenix. I owe $150,000 more than it is worth," she said.

She and her husband are in their mid-30s and moved to Flagstaff a few months ago because he found a job there. He had lost a job as a foreman for a contractor in Phoenix. She lost her job in the marketing department of a large health-care firm last March.

"We are done with it and are going to walk," she said.

She said their lender won't work with them on a modification and has not foreclosed, which is not allowing them to move on.

Nationally, adults ages 35 to 64 are at their lowest levels of homeownership in 15 years. About 72.5 percent of this group own homes now, compared with 75 percent a few years ago.

Bad decisions

For some, the homeownership dream came into reach because of the same ill-fated moves that helped cause the crash.

During the housing boom, subprime loans and mortgages requiring very small down payments allowed too many people to reach well beyond their means to buy homes - they believed the middle-class dream was closer than it really was.

Many of those borrowers were the first to lose their houses to foreclosure in the Phoenix area.

Other metro Phoenix homeowners refinanced or took out home-equity loans to buy new cars or boats or to take vacations, believing their homes' prices would keep rising - as if the middle-class dream had become an upper-class reality.

"It's now all too obvious that not everyone who bought homes during the boom should have bought," said Arizona Housing Department Director Michael Trailor. "It's also clear too many people used their home as a credit card."

The Housing Department and most Arizona non-profit housing agencies used to work mainly with low-income residents trying to find housing they can afford, but now most of their efforts are going into helping middle-class homeowners keep their houses or find affordable rentals if they are foreclosed on.

Lifetime renters

As the housing slump drags on, homeownership itself has become less common.

The number of renters in Arizona is growing, fueled by people who lose homes to foreclosure. And even many people who can afford to buy are opting to rent.

Elizabeth Rehner moved to Tempe after graduating from college in California a few years ago. She sees the great deals for homes but has no intention of buying.

"Like a lot of my friends, owning a home does not appeal to me. I may never buy," said Rehner, who is 28. "It's not just because I might move around for my job. I just don't trust the housing market. My parents are facing foreclosure, and they paid their mortgage every month for years. They can't sell."

Rehner said she doesn't want to be in a position like her parents, ever, and she doesn't trust lenders. She rents a three-bedroom house in Tempe for less than $1,000 a month.

Before the boom, the region's affordability rating was already considered high at 115 percent. Now, the rating is a record 163, because of lower home prices and interest rates, but that's still not enough to draw many buyers.

"Homeownership used to be the goal. Now it's keeping people in decent rentals or from being homeless," said Rebecca Flanagan, the longtime Arizona director of the U.S. Department of Housing and Urban Development, who retired last month. "We all hope the cycle will turn around and more people will want to own again."

No regrets

Despite metro Phoenix's housing crash, there are still many middle-class families happy to own homes.

"The merits of homeownership are taking a hit now, but ultimately I think people will come back around to the benefits of having a safe and stable place of their own," said Fred Karnas, former director of the Arizona Housing Department, who most recently was a senior adviser with HUD in Washington, D.C.

Dennis Sanderson purchased his Queen Creek home in 2006. He and his wife chose the lot, the amenities and watched with "glee" during the eight months it took to build. The couple moved from a condominium in Scottsdale to the four-bedroom, 1,900-square-foot home.

"The housing bubble burst a year after we moved in, and suddenly the $220,000 house we bought was worth half that much," he said. "While we are not thrilled with that huge loss of value, we can live with it and plan to be here at least 10 years or more."

Most homeowners who bought during the boom will likely have to wait at least 10 years to see their values rebound. But housing advocates say for people to be happy and own a home, they must stop focusing so much on the values.

"Almost everyone has lost money on a house," Karnas said. "We have to move on."

by Catherine Reagor The Arizona Republic Oct. 16, 2011 12:00 AM




Middle-class homeownership dream may be slipping away

'Strategic defaulters' tend to be affluent, savvy homeowners

Many of the people who have been walking away from mortgages over the past few years don't fit the standard profile.

Cash-strapped? Unemployed? Financially unsophisticated? Low-income?

None of those descriptions seem to apply to most "strategic defaulters" - homeowners who have chosen to cut their losses on properties that dropped in value, just as they might sell an old car with mounting repair bills or dump stock in a company that just reported a loss.

"Many are financially savvy people with higher credit scores and higher income," said Tracy Bremmer, director of decision analytics at credit-bureau Experian, which has studied the issue to help lenders identify people who might be default candidates. "They often own multiple properties, with larger original loan amounts."

Strategic defaulters, in other words, seem to know what they're doing. In fact, they're often angling to buy the foreclosed home across the street at a bargain price before abandoning their own property, Bremmer said.

"They'll open a new mortgage before defaulting on the existing loan," she said.

Experian cites data, gleaned from consumer-credit reports, that point to the upscale nature of strategic defaulters.

- Of defaulting homeowners with original loan balances below $50,000, only 6 percent were strategic defaulters. Yet they constituted one-third of defaulters on loans with balances above $1 million.

- Only 9 percent of defaulters earning less than $40,000 a year were strategic defaulters, compared with 30 percent of those making more than $150,000.

- In the six months prior to defaulting, nearly half of the people who became strategic defaulters obtained a new mortgage.

Strategic defaults have helped to prolong the real-estate slump. If there's a silver lining, it's that the worst of this trend might be over.

At the end of 2008, a record 20 percent of the homeowners who were 60 days or more delinquent were strategic defaulters, Experian reports. That has eased to 17 percent.

Defaulting on a loan - that is, missing payments - will hurt your credit score. But many strategic defaulters apparently don't worry about this or consider it a lesser evil.

"They probably already have their credit relationships in place, with cash in the bank," Bremmer said.

Still, strategic defaulters tend to keep current on other obligations such as credit cards and auto loans. In fact, this tendency to keep making other payments is how Experian sorts out strategic defaulters from more distressed borrowers.

"They're skipping out on their mortgages but paying everything else," she said.

How big is the credit-score damage from a default? It depends on several factors, including a person's initial score and the scoring system used.

Someone with a high starting score of 780 on the FICO scale (which ranges from 300 to 850) could lose roughly 100 points if falling 30 days or more late on a mortgage payment. The score might drop further, into the 620-640 range, if things proceed to the point where the property is given up in a short sale and the lender isn't fully repaid, or in the case of a foreclosure.

On the VantageScore system, where scores range from 501 to 990, a defaulter with otherwise good credit might suffer a drop of 100 to 140 points from a mortgage default, plus a 50-point ding when the property slips into foreclosure, Bremmer said.

The score-repair time also varies, depending on the severity of the problem and later borrower behavior. Those with a mediocre initial credit score who miss a mortgage payment could recover in perhaps three months, reports FICO, while those hit with a foreclosure might need three years. By contrast, for borrowers with initially strong credit, recovery would take roughly three to seven years.

By walking away from mortgages, strategic defaulters have raised difficult ethical questions.

Is it prudent to stop paying on a bad loan and treat it like any other business decision, especially if you would be sticking it to a bank that might be guilty of its own misdeeds?

Or should you continue making payments if you can afford them, especially since walking away would hurt your former neighbors, homeowner association and community?

In a survey by the Pew Research Center last year, 59 percent of nearly 3,000 respondents found strategic defaults unacceptable. But 36 percent said they could be justified, in at least some cases.

While Experian's data indicate the proportion of strategic defaults has peaked, it will be a while before they're no longer hurting the real-estate market.

"Until we see home prices improve, I don't think we'll see this going away," Bremmer said.

by Russ Wiles The Arizona Republic Jul. 10, 2011 12:00 AM




'Strategic defaulters' tend to be affluent, savvy homeowners

Census: Arizona homeownership rate shrinks to 13-year low

Arizona's homeownership rate dropped to its lowest level in more than a decade, according to newly released census data, even when based on figures that don't factor in the record number of vacant homes in the state.

With the decline in homeownership, more than one-third of all homes in parts of metro Phoenix are rentals.

Results from the 2010 census, which were to be officially released today, show 66 percent of all homes occupied in Arizona are owned by the people living in them, down from previous highs well above 70 percent.

The last time the ownership rate was that low was in 1997.

But the measurement accounts only for occupied homes.

Calculate owner-occupied homes as a portion of all homes - including vacant ones - and the actual homeownership rate would be far lower.

The number of vacant homes in the Valley - those that are not second homes or vacation properties - has climbed by nearly 200,000 since the last census in 2000. Those empty homes aren't included in the usual homeownership rate.

Since the end of 2007, more than 150,000 metro Phoenix homes have been foreclosed on, so the drop in the state's number of homeowners and rise in vacant homes was expected. But the actual shift couldn't be calculated before the census results.

"It's clear now that a 70 percent homeownership rate for Arizona isn't sustainable," said Michael Trailor, director of the Arizona Housing Department. "When the rate was that high, too many homeowners weren't ready or financially equipped to keep their houses."

He said the state's homeownership rate is likely to decline more, and the rental market will continue to grow because many people can't obtain mortgages to buy now or just don't want to own a house because they aren't ready for a long-term commitment.

Renters

Most of the foreclosure homes have been purchased by investors, and many are now rentals.

Many Arizona homeowners who lost houses to foreclosure are now renters. Some moved into rentals in the same neighborhood where they once owned and are now paying half as much a month to live there.

With a 66 percent homeownership rate, the remaining 34 percent of occupied homes are rentals. That rate again doesn't include vacant homes.

Of the state's vacant residences, not including vacation homes, nearly half are categorized as rentals, according to the census.

Some cities, particularly suburbs at the edges of metro Phoenix, have nearly as many rental households as owner-occupied households.

More than half, 51.8 percent, of the homes occupied in Tolleson are rentals. Avondale's rental-housing rate is about 39 percent. Eloy, in Pinal County, also was at 39 percent.

About 42 percent of the lived-in houses in the city of Phoenix are rentals. Chandler's rate is 34 percent.

Tempe actually has the highest rate of rental homes, 55 percent, most likely because of high demand for student rentals around Arizona State University.

In some cities with higher-end homes, rental rates remain lower. In Scottsdale, about 31 percent of the homes occupied are rentals. In Carefree, another city with high-end homes, only 13 percent of the homes with residents are rentals.

Figuring the rate

The census' homeownership rate is used by most federal, state and local government agencies for planning and budgeting.

The homeownership rate has long been calculated by dividing the number of homes lived in by the owner, or owner-occupied, by the total number of occupied houses. Vacant homes are excluded from the total.

Arizona's homeownership rate was 74.7 percent in 2000, according to the last decennial census. The state's rate remained above 70 percent until the housing crash started in 2007. The rate has steadily been falling since then, and the number of vacant homes climbing.

What has remained more steady in the past decade is the number of vacant second and vacation homes.

About 184,000 of Arizona's vacant homes are considered recreational or occasional-use properties, according to the census, compared with 142,000 in 2000.

In 2000, there were about 146,000 vacant homes in Arizona, not including seasonal and vacation properties. The 2010 census tracked just over 279,000 vacant homes, not including second homes.

"It all goes back to population," said Jim Rounds, an economist with Scottsdale-based Elliott D. Pollack & Co. "We haven't seen a noticeable increase in people moving here during the past few years, and we still have a lot of speculative homes built during the boom empty."

by Catherine Reagor, Ronald J. Hansen and Matt Dempsey The Arizona Republic May. 12, 2011 12:00 AM



Census: Arizona homeownership rate shrinks to 13-year low

Struggling Arizona homeowners can apply for federal aid next week

The standards to qualify for a new round of government foreclosure aid are high, and most homeowners probably won't meet them. But state officials hope the program will spur changes that help more people in the long run.

Starting next week, struggling Arizona homeowners will be able to apply for a piece of the $125 million in federal funds that the state Housing Department is administering. Most of the money is intended to help borrowers reduce their mortgage principal and stave off foreclosure.

With stringent rules on who gets aid and a small pot of money to spend, officials don't expect the program to fix the state's foreclosure crisis. The Housing Department plans to help 3,500 to 4,000 homeowners.

"We can't help everyone with this funding. Actually, we will only be able to help a small percentage, considering there are more than 4,000 foreclosures in the Valley alone each month," said Michael Trailor, director of the Housing Department.

But housing advocates hope the plan will have a broader effect, persuading lenders to change the way they're handling loan modifications, which currently don't help enough eligible homeowners in need.

Economic factors have driven many Arizona borrowers to seek loan modifications. Some were overextended to begin with, with expensive houses bought during the boom and large monthly payments. The downturn brought other problems as home values plummeted 50 percent and people lost jobs.

The result: Many people who couldn't afford their mortgage payments and couldn't refinance or sell because their homes were worth less than what they owed.

Loan modifications are supposed to help. If lenders agree to lower a payment by changing the interest rate, changing other terms or simply forgiving part of the mortgages, owners can hang on to their homes.

But although lenders are sometimes willing to cut interest rates - a separate federal program launched in April 2009 rewards them for doing so - many haven't been as willing to forgive principal.

That's where the new federal program comes in. Arizona officials plan to use the money from the "Help for the Hardest Hit Housing Markets" program to entice lenders to forgive portions of borrowers' loans. Borrowers who qualify will get money to pay off as much as $50,000 of their mortgage balance - so long as the lender agrees to write off a matching amount. Housing counselors will organize all the paperwork to cut through the red tape and make the deals less time-consuming for lenders.

"By reducing the principal and not just the interest rate on borrowers' loans, we are making their payments affordable for the long term and incentivizing them to keep paying," Trailor said. "This is a pilot program that could be expanded if we can show it works."

Eligibility

Tens of thousands of homeowners are expected to seek aid when the Housing Department starts taking applications Thursday. But the state program comes with set guidelines that many borrowers won't meet:

• Anyone who took out a second mortgage that wasn't used to buy their home isn't eligible.

• Borrowers must be able to show their income was cut through unemployment, underemployment, illness, death or divorce, but must still have some income.

• A homeowner's income must be enough to support a mortgage for the current market value of the house.

• Borrowers must owe at least 20 percent more than their home is worth.

• A homeowner must already have sought help through the federal Home Affordable Modification Program and been rejected.

• Borrowers must live in the home for which they are trying to obtain a modification.

• Monthly payments after a loan modification can't exceed 31 percent of homeowners' after-tax income.

A smaller portion of Arizona's money will go to as many as 1,000 underemployed homeowners who apply for help in paying their mortgage for up to 24 months until they can find higher-paying jobs.

Trailor said the guidelines for Arizona's loan-modification program are strict because they want to ensure that people who receive one stay in their homes for the long term. Recent numbers show that about 50 percent of all U.S. homeowners who received permanent loan modifications during the past 18 months still lost their homes to foreclosure. Government officials say Arizona's loan-modification retention rate - the number of people who keep making their mortgage payments for at least six months after it is lowered - is even worse, although exact figures aren't available yet.

Since the new Hardest Hit aid was announced in February, Trailor has made it clear that his priority would be to help "responsible" Arizona homeowners and that the funding would not be used to help people facing foreclosure because of "self-inflicted wounds," such as taking large sums of cash out through refinancing, home-equity lines of credit or risky loans.

Maria Purcell was denied a loan modification by her lender early this year but was hopeful after hearing about Arizona's funding for loan modifications. Now, after hearing about the tougher guidelines, she is less hopeful. "I am going to apply, but I don't think I'll get it," said Purcell, who refinanced and tapped some of her Scottsdale home's equity during the boom to help her daughter with college tuition and pay off some credit-card bills.

The "personal responsibility" limitation on the aid has raised the most concern from Arizona housing counselors. Many are working with homeowners who took out subprime and second loans without fully understanding the repercussions.

Karen Scates, a former deputy director of the Housing Department, is concerned that homeowners who were taken advantage of and placed in high-risk or subprime loans, when they qualified for safer, less-expensive mortgages, are being unfairly excluded from the state's loan-modification program.

Trailor explained his reasoning. "We could have said, 'OK, first come, first served' and helped the first 4,000 people who applied," he said. "That would have been easy but unsuccessful. We want to help the people who have a chance of successful modification that keeps them in their home for years."

He said loan modifications, even with principal reductions, aren't enough to save some homeowners from foreclosure.

Difficulties

The federal government created the Hardest Hit program because it was clear by February that the first modification program, known as HAMP, wasn't helping enough homeowners in the states with the biggest declines in home values.

When Arizona along with California, Nevada, Florida and Michigan were awarded a combined $1.5 billion from the Hardest Hit fund, the states' housing agencies were told to find "innovative ways" to spend it to help homeowners. All agreed a matching principal-reduction program that encouraged lenders to forgive principal would provide aid that HAMP couldn't.

Lenders say the record number of foreclosures and complex rules in the federal-aid programs have made it difficult for them to modify loans quickly.

Earlier this summer, Arizona began working with California and Nevada on one principal-reduction plan they could sell to lenders with sizable foreclosure portfolios in the West. The states' strategy is to pay half of the principal reduction and do all the legwork, including checking applications and documentation, so more lenders will agree to the loan modifications.

The states will pre-screen all loan-modification applications for eligibility and work with housing counselors to compile all the needed documentation. "Our goal is to do all the up-front work, put money in the deal and submit a loan-modification file to the banks that makes sense and is easy for them to agree to," said Reginald Givens, Hardest Hit coordinator for the Arizona Housing Department.

The three states have been working closely with Bank of America and hope it will participate in their principal-reduction loan modifications. Trailor flies to Washington, D.C., on Monday to meet with the Treasury Department, BofA and the other states' housing directors to finalize a deal. National Bank of Arizona has already committed itself to the program.

The Treasury Department recently agreed to compensate lenders for loan modifications made through the Hardest Hit program, just as they are for HAMP. Lenders typically receive $1,000 to $5,000 for each loan modification.

"Convincing lenders to reduce homeowners' mortgage balances has been a challenge," Trailor said. "Homeowners must know that, ultimately, it's up to their lender whether they receive a loan modification."

MORE ON THIS TOPIC

The loan-modification program

On Monday, Arizona homeowners 60 days behind on their mortgages can start applying for a loan modification under a plan funded by the federal "Help for the Hardest Hit Housing Markets" program.

1. Homeowners need to go to azhousing.gov and answer 13 questions. Anyone without Internet access can call 877-448-1211 to work with a housing counselor. Borrowers need all documentation, including mortgage bills, tax returns and W-2 income statements.

2. The Housing Department will examine applications and mortgage information to see if homeowners are eligible.

3. If it appears a homeowner is eligible, the department will hand the application over to a housing counselor who will check the documentation and work with the homeowner.

4. If a homeowner's loan, income and debt documentation meet the program's guidelines, the department will begin working on a plan to back a loan modification based on the current value of the home and what the borrower owes. The agency will determine how much principal needs to be paid off on the loan to make the payment affordable and send it to the lender.

5. The lender must decide whether to match the amount of principal the Housing Department is willing to pay off and then sign off on the loan modification. The borrower doesn't qualify for the modification until the lender agrees to the terms.

by Catherine Reagor The Arizona Republic September 18, 2010




Struggling Arizona homeowners can apply for federal aid next week

Loan modification program in Phoenix helps fewer than expected

A year and a half after it began, the federal government's loan-modification program is helping fewer homeowners facing foreclosure than hoped.

Of the Phoenix-area borrowers who sought lower monthly payments through the Home Affordable Mortgage Program in April, more than half, about 10,000, left the program by the end of July without having had their payments permanently lowered. April is the first month for which complete data is available.

Some of those borrowers did receive help from other programs, including federal incentives for short sales, in which lenders agree to let owners sell their homes for less than they owe, avoiding foreclosure. But many other homeowners were denied permanent modifications after making several months of "trial" payments and have lost their homes to foreclosure or may soon.

Some housing advocates say too many homeowners were strung along with trial loan modifications under the government's program, known as HAMP, when the lender knew a foreclosure was inevitable.

Lenders defend their trial modifications, saying they didn't know all of the rules for the new federal program when it was announced, so they placed many homeowners in temporary modifications to help them avoid imminent foreclosure.

It is also possible some of those borrowers simply didn't meet the program's complex requirements, even though they were approved for a trial modification.

Lenders won't comment on specific borrowers' cases, and the Treasury Department hasn't released a list of borrowers who had their trial modifications canceled. So it is impossible to know why homeowners are being denied permanent mortgage adjustments.

"It's disappointing we haven't been able to keep more people in their homes with HAMP loan modifications," said Patricia Garcia Duarte, president of the non-profit Neighborhood Housing Services of Phoenix. "We need to find out the reasons behind the canceled trial loan modifications."

She said there are homeowners denied modifications through the Home Affordable Mortgage Program who are being approved for other foreclosure-prevention alternatives from lenders, including short sales and other types of loan modifications.

Modification program

The Obama administration rolled out the loan-modification program in April 2009.

The idea was to encourage lenders to reduce monthly payment amounts for overextended borrowers. The lenders could reduce interest rates to push down the monthly cost. They could lengthen the terms of the loan, stretching the amount owed over more years and therefore making each payment smaller. They also could simply forgive some of the principal, helping borrowers lower their payments because they would owe less.

The program allowed lenders to give borrowers a modified payment on a trial basis for three to six months while they finalized the applications. For each successful modification, the government would pay lenders $1,500 to $3,500.

The government's plan called for reducing payments to no more than 31 percent of the incomes of homeowners in need.

Thousands of homeowners in metro Phoenix rushed to apply.

To tackle the huge first wave of applicants, lenders gathered basic financial information from homeowners and put many on temporary payments. On average, the new payments nationwide were $500 lower than borrowers' old payments. Homeowners were told if they made their trial payments and submitted all the necessary paperwork, their loan modifications would be made permanent.

But there were catches to the new federal program that weren't initially clear to many who applied. Borrowers had to prove to lenders they had lost income - from a job loss, for example - but still earned enough to afford the reduced payment. All trial payments had to be made on time.

Principal rarely cut

Also, though lenders were encouraged by the federal government to cut borrowers' loan amounts, that practice isn't common. So far, most lenders offer only reduced interest rates or longer-term mortgages.

Progress in making permanent modifications proved slow.

The Treasury Department began releasing complete data on applicants for loan modifications after the program's first year.

At the end of April 2010, almost 25,000 homeowners had been given trial modifications, pending their applications for permanent help.

In June, the Treasury Department urged lenders to catch up on processing those applications.

But by the end of July, about 10,000 of those applicants had left the system without a modification, presumably rejected by their lenders, though federal officials have not released details of the cancellations for the Phoenix area.

Nationwide, cancellations far outpaced new permanent loan modifications in July. Nearly 150,000 U.S. trial modifications were canceled while 37,000 modifications were made permanent.

One woman's story

Ramona Aceves had made four months of trial payments when her lender told her she didn't qualify and canceled her temporary modification in May.

Her lender then required her to make up the difference between her lower payment and her regular payment during the time she was in the trial period, about $1,500. Aceves said she has been able to keep her Phoenix home only by borrowing money from her family to repay her lender the lump sum and keep up with her monthly payments.

Aceves said she wouldn't have accepted the trial loan modification if she had known how it was going to end.

Homeowner advocates are critical of how banks handle cases such as Aceves'.

"A lender knows fairly quickly through the HAMP formula whether a client will qualify. But the lender is getting paid and doesn't have to start spending legal fees yet to go through the foreclosure process," said John Smith, president of Housing Our Communities, an Arizona non-profit that provides foreclosure-prevention counseling.

"So a lot of people are in trial mods for months not knowing," he said. "The lender knows they are just postponing the inevitable."

The Treasury Department says lenders attribute most of the cancellations to borrowers missing payments or not providing enough documentation to support their appeal for lower payments.

Joe Rodriguez applied to modify the mortgage on his Phoenix home in June 2009.

"I have been making my modified payment for several months, but I keep receiving requests from my lender for more documentation," said Rodriguez, who lost his job of 13 years in 2009. "They wanted my divorce decree, and I have never been married. Then they wanted proof I am a resident, and I was born here."

Rodriguez said his lender called last week and told him the modification was canceled because he hadn't submitted his divorce papers. He made his modified payment anyway and is working on his fourth letter explaining to his lender he has never been married.

Feds' apply pressure

Recognizing that the payment-modification program isn't helping as many homeowners as expected, the federal government is pressuring lenders to enroll more struggling homeowners.

At the end of July, 3.1 million homeowners were eligible, according to Treasury estimates, and 435,000 permanent loan modifications had been made by lenders.

But cancellations are expected to outpace permanent modifications in August as well, the Treasury reports.

"Currently, servicers are working through their pending modifications," said Treasury assistant secretary for financial stability Herb Allison in the July report on HAMP. "While Making Home Affordable works for a number of homeowners, many others are offered other means of avoiding foreclosure."

New effort launched

To help homeowners who haven't been able to obtain a loan modification, the federal government launched another program in March called Help for the Hardest Hit Housing Market.

Arizona is receiving $125 million, and most of the money will go toward loan modifications.

The program is different from HAMP. It specifically calls for lenders to reduce the amount borrowers owe, by giving homeowners cash to pay down principal if the lender agrees to forgive an equal amount.

State officials say the help is crucial.

"We are on track for 50,000 foreclosures in the Valley this year," said Michael Trailor, director of the Arizona Housing Department, which is administering the funds.

But even if it works, the aid will reach far fewer borrowers than those who sought loan modifications through the earlier federal program. Trailor said the agency hopes to help 4,000 homeowners.

The Housing Department is expected to start taking applications for its new loan-modification program this month.

by Catherine Reagor The Arizona Republic Sept. 5, 2010 12:00 AM




Loan modification program in Phoenix helps fewer than expected

Valley mortgage delinquencies drop

Valley homeowners are doing a better job keeping up with their mortgage payments, according to a new reading of credit-bureau data.

For the second straight quarter, Phoenix-area mortgage delinquencies dipped in the April to June period, reported TransUnion.

As of midyear, 12.3 percent of Valley homeowners were 60 days or more late on payments, down from 12.71 percent in the first quarter and a cyclical peak late last year of 13.16 percent.

Delinquencies also have eased nationally, with 6.67 percent of borrowers two months or more past due in the second quarter, down from 6.77 percent in the first quarter and 6.89 percent late last year.

"We do think we're seeing a trend of improvement," said FJ Guarrera, a vice president in TransUnion's financial-services group.

Some of the most cash-strapped borrowers already have been forced out of their homes, but those who remain are doing a better job saving money, spending less and managing payments, he said.

The TransUnion mortgage study, based on a sampling of thousands of credit reports, coincides with a couple of other promising local statistics.

For example, Valley bankruptcy filings have declined for the past four months.

Also, Arizona's jobless rate has stabilized in the 9.5 percent to 9.6 percent range this year after climbing sharply over the past 2 1/2 years.

Home values and employment are two of the biggest factors influencing mortgage delinquencies, Guarrera said.

Still, the Valley's mortgage-delinquency ratio ranks as the 22nd highest of more than 360 metro areas examined.

by Russ Wiles The Arizona Republic Aug. 20, 2010 12:00 AM




Valley mortgage delinquencies drop

Housing prices are likely to go lower

by Alan Zibel Associated Press Jul. 27, 2010 12:00 AM

WASHINGTON - Thought the housing crisis was over? Not quite.

Despite four years of falling prices and recent signs that they were finally bottoming out, homes are expected to lose still more value in many metro areas over the next year.

Parts of the country already pummeled by the housing crisis, like Phoenix, Las Vegas and Miami, will be hit hardest. Even some places that have rebounded or held up relatively well - including New York, Los Angeles and Washington, D.C. - will suffer, too.

That's the conclusion of economists who have been reducing their estimates for home prices as the outlook for the economic recovery has darkened. The number of homes for sale or headed for foreclosure is so high that they think prices will be even lower by next July.

Because housing is such an important engine of the economy, lower prices could dim the recovery. When home values fall and people have less equity, they tend to cut back on spending. And as prices decline, potential homebuyers stay on the sidelines, slowing sales even more.

Although new-home sales jumped in June nearly 24 percent from a month earlier to an annual sales pace of 330,000, it was still the second-weakest month on record, the Commerce Department said Monday. More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble popped, sales plunged to 375,000 last year.

Earlier this year, analysts said they thought home prices had finally reached their low point and were ready to start rising slowly in most areas of the country. Now, they think the bottom could be nearly a year away.

The average home price in the Standard & Poor's Case-Shiller index of 20 big U.S. cities is forecast to drop nearly 2 percent this year from a year ago, according to the average estimate of more than 100 economists polled this month by MacroMarkets LLC.

That's more pessimistic than in May, when the consensus was for prices to be nearly flat. Analysts who are more bearish think prices will sink 10 percent or more.

Price drops of more than 10 percent are expected in the Phoenix, Miami and Las Vegas areas over the next year, according to Moody's Analytics. Those areas have already been scorched by 50 percent declines in home values.

Home prices in the Valley have dipped 4 percent in the past month. Until the recent decline, the region's home prices had been inching up since spring 2009.

Based on pending sales prices, Phoenix housing analyst Mike Orr has forecast that home prices will continue to fall in August.

Moody's predicts that other areas - New York, Los Angeles, San Diego, San Francisco, Denver, Detroit, Cleveland, Minneapolis, Tampa and Washington, D.C. - will see declines of 2 to 8 percent by next July.

Many analysts expect home prices to rise for a few months because a tax credit offered to homebuyers through April increased demand. But the gains probably won't last. By this time next year, Moody's expects prices in 17 of the 20 cities to have fallen.

Why further price drops for already hard-hit areas, as well as in healthier markets like New York and Los Angeles?

There already is a glut of homes left in each area by the real-estate bust, and more foreclosures are expected as Americans fall behind on mortgage payments. Foreclosures add to the supply of homes for sale, bringing down prices.

In Miami, nearly a quarter of mortgage borrowers have missed at least three months of mortgage payments or are already in foreclosure, according to Moody's. That's the highest level in the country.

On top of that, so-called short sales, which happen when lenders let homeowners sell their houses for less than what they owe on their mortgages, are rising. They can drive down the value of neighboring homes, too.

Short sales account for about 28 percent of all Phoenix home sales now, compared with 21 percent in June. In Sacramento, short sales made up about 26 percent of homes sold in June, up from about 17 percent a year earlier.

Contributing to the problem is an economy grappling with high unemployment, relatively flat pay and tightened credit, all working to limit the number of people buying homes.

It could be a decade before the average price nationally reaches the peak it hit four summers ago, said Celia Chen, chief housing economist at Moody's. Even when they do resume rising, prices may not outpace inflation.

The median price peaked at $230,300 in July 2006 before tumbling 28 percent to a low of $164,700 in January 2009, according to the National Association of Realtors. The median has since risen to $183,700.

Nationally, about 7.1 million homeowners - more than 13 percent of households with a mortgage - have either missed at least one payment or are in foreclosure, according to data provider Lender Processing Services Inc.


Housing prices are likely to go lower

Details of HAMP Improvements and New FHA Refinance Program

Details of HAMP Improvements and New FHA Refinance Program

by Adam Quinones Mortgage News Daily March 26, 2010

Today, as part of its ongoing commitment to continuously improve housing relief efforts, the Obama Administration announced adjustments to the Home Affordable Modification Program (HAMP) and created a new Federal Housing Administration (FHA) principal write down program.

Here is a rundown of the details....

HAMP Improvements

1. Temporary assistance for unemployed homeowners while they search for re-employment

Mortgage payments reduced to affordable level for a minimum of three months, and up to 6 months for some borrowers, while eligible homeowner looks for new job. Via forbearance, month housing payment is set at 31% of monthly income while borrower is unemployed. A temporary assistance plan to be offered to unemployed borrowers. Servicers required to offer assistance to unemployed borrowers who meet specific criteria. Treasury says forbearance will not cost taxpayers anything.

2. Requirement to consider alternative principal write-down approach and increased principal write-down incentives

All servicers required to consider alternative modification approach that emphasizes principal write-down for HAMP eligible borrowers who own more than 115% of current appraised home value.
Pay for Success Structure: Alternative principal reduction allows some underwater homeowners to reduce principal balance of their mortgage in steps over three years, if they remain current on payments.
Servicers will initially treat the write-down amount as forbearance and will forgive the forborne amount in three equal steps over three years, as long as the homeowner remains current on payments
For borrowers who have already received a permanent modification, or who are in a trial modification, and are still current on payments at the time the alternative modification approach is operational (later in 2010), servicers will be required to retroactively consider extinguishing an amount of principal balance in the same amount that would have been forgiven under the new alternative approach.
Increased incentives to servicers and lenders, including increased incentives for extinguishment of subordinate liens, to encourage more short sales and other alternatives to foreclosure
3. Improvements to reach more borrowers with HAMP modifications

Improvements to borrower solicitation requirements including clear performance time frames for both servicers and borrowers
Borrowers in active bankruptcy must be considered for HAMP upon request. Allows use of bankruptcy documents to verify income.
Requires servicers to stop foreclosure actions after a borrower enters into a trial plan based on verified income.
Allows waiver of the trial period in some cases were a borrower is already performing under a bankruptcy plan.
Expansion of HAMP to include homeowners with FHA loans
4. Helping homeowners move to more affordable housing

Double relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000
Help homeowners who use a short sale or deed-in-lieu to transition more quickly to housing they can afford.
Q: When will homeowners begin to receive help under the new HAMP enhancements?
It will take time to get these new program enhancements up and running. Some pieces, such as increased payments for alternatives to foreclosures, will be put in place in the coming weeks. We anticipate the full set of programs to be available by the fall.

Consumers: HERE are Frequently Asked Questions

New FHA Refinance Option for Underwater Loans

Here are the essentials of the program:

Voluntary for Lenders and Borrowers. Because lenders MUST AGREE to principal write-downs, not all underwater borrowers who meet criteria below will receive an FHA refinance loan.
Mandatory Principal Write Down: Lenders must write down at least 10% of the principal of the original first mortgage. FHA expects the average principal write-down to be significantly more than that.
New appraisal must be obtained. After principal write down, the new loan to value can be no higher than 97.75%.

2nd Mortgage holders must agree to resubordinate and write off any principal amount over 115% of current LTV
Option is available to homeowners with mortgages not currently insured by the FHA. Existing FHA-insured borrowers are NOT eligible.

As with any loan forgiveness, this short refinancing should be reflected as a negative feature on a borrower’s credit score.
Homeowner Eligibility

Must be current on existing mortgage.
Must occupy the home as their primary residence
Must qualify under current FHA underwriting regs (after principal write down). FICO score cannot be below 500. Front Ratio 31%/Back Ratio 50%
Existing lender must agree to principal write down
To incentivize lenders and servicers to cooperate with principal write downs TARP funds will be made available up to a total of $14 billion. TARP funds will be used to provide coverage for a share of losses on loans up to a specified amount. The FHA will provide remaining loss coverage up to the maximum insurance coverage. Thus, the new lender will have a loan that is backed by the United States for up to 97.75 percent of the home value, as with other FHA refinance loans

HERE is the FHA Refinance Fact Sheet

Q: When will the FHA Refinance loan be available to underwater borrowers?
FHA will move to implement this as quickly as possible and expect that lenders can begin making decisions by the fall. Specific guidelines will be posted in a FHA Mortgagee Letter in the near future.

Treasury estimates these changes will help 3 to 4 million more struggling homeowners through the end of 2012 (FHA estimates might be a bit high). Costs will be shared between the private sector and the Federal Government. The Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP). Banks, the private sector, will be forced to write down principal losses (with help from the government).

Plain and Simple: the updates made to HAMP are a big step in the right direction. The FHA Refinance program looks to be geared toward high-credit quality borrowers who happen to live an area decimated by high unemployment and an above-average amount of foreclosures. It's tailored for a very specific category of distrssed borrowers.

CONSUMER FREQUENTLY ASKED QUESTIONS

EXAMPLES OF HOW PROGRAMS WORKS

Bank of America to lower mortgage principal

Bank of America to lower mortgage principal

by J. Craig Anderson The Arizona Republic Mar. 25, 2010 12:00 AM

A decision by Bank of America's home-loan subsidiary to begin systematically lowering the principal balance on an estimated 45,000 customers' onerous mortgage loans has left some wondering if it's the start of a broader trend.

Less than 1 percent of the country's estimated 11.3 million underwater mortgage borrowers are eligible for the program, announced Wednesday, but it could spark other lenders to do likewise, one Arizona State University finance professor said.

"I think this is going to spread - that's the big news," ASU professor Herb Kaufman said.

Kaufman's former employer, government-sponsored mortgage guarantor Fannie Mae, told the Wall Street Journal on Wednesday that it was considering a similar move to cut loan balances for the most deeply troubled homeowners.

Charlotte, N.C.-based Bank of America's program would apply only to borrowers who owe more than 120 percent of their home's current market value and would be limited to those customers with certain adjustable-rate and high-interest mortgages.

Nationwide, about 25 percent of all homeowners are "underwater," meaning that they owe more than the home is worth, according to recent figures from First American CoreLogic, a real-estate data firm in Santa Ana, Calif.

In Arizona, that figure is closer to 50 percent, according to the firm's analysis.

Still, that doesn't mean Arizona homeowners should wait by the phone for their lender to call with the good news, said Tanya Wheeless, president and CEO of the Arizona Bankers Association.

"The Bank of America program is not going to help everyone, nor is it a program that is likely to be replicated," Wheeless said. "There is no groundswell."

Wheeless said the specter of mass mortgage default probably would prevent most lenders from slashing loan balances, the logic being that the promise of a principal reduction would encourage more borrowers to stop paying.

Even in the housing slump's darkest hours, the nation's overall default rate for home mortgages has remained in the single digits.

The national default rate was only 7 percent in the fourth quarter of 2009 despite much financial hardship and widespread anger toward lenders, according to a recent study by real-estate services firm TransUnion, based in Chicago.

The incidence of borrowers voluntarily leaving their mortgaged homes in the fourth quarter was about 24 percent, according to CoreLogic; it was almost 50 percent in Arizona.

Even with that many people walking away, either voluntarily or by force, lenders have made few changes to their loan-modification programs, Wheeless said.

Most loan modifications focus on lowering monthly mortgage payments by lowering the interest rate or stretching the repayment term over 40 or even 50 years. Bank of America acquired leading subprime lender Countrywide Financial Corp.

In many cases, the bank servicing a mortgage lacks the authority to lower its principal balance, Wheeless said, because the loan itself is backed by a private investor or another bank.

But more than anything, she said, lowering a past-due borrower's loan principal just doesn't feel right to most lenders.

"It's not something that would be accepted wholesale by the lending industry," she said.

Kaufman said he would not be surprised if the mounting political pressure to help struggling homeowners forced banks out of that comfort zone.

"There is clearly a political gain to be gotten from implementing a program like this," he said.

New short-sale advisory can help homeowners

New short-sale advisory can help homeowners

by Catherine Reagor The Arizona Republic Mar. 17, 2010 12:00 AM

Short sales are many homeowners best option to avoid foreclosure, which is why these lender-approved deals are at record levels in metropolitan Phoenix.

But sellers considering short sales should know all their options and the credit and tax ramifications from the deals first. That's why the Arizona Department of Real Estate worked with industry experts across the state to produce the new Short Sale Seller Advisory.

Besides defining what a short sale is, the advisory provides a check list of what homeowners should consider and do before proceeding.

Through a short sale, a borrower can avoid foreclosure by selling a home for less than what is owed. But the lender must approve the deal, and a buyer has to be found. The seller must also be able to prove he is facing foreclosure.

The advisory provides a check list for homeowners considering short sales. Here are a few of the important points for homeowners from the advisory:

• Be aware of predatory rescue scams and short-sale fraud.

• Contact a free U.S. Housing and Urban Development-approved counselor or your lenders.

• Call Arizona's foreclosure hotline at 877-448-1211.

• Get legal and tax advice.

Michelle Lind, general counsel of the Arizona Association of Realtors, worked with the task force to create the advisory. She said all homeowners considering short sales should check out the advisory first at www.aaronline.com/documents/ssseller_advisory.aspx.

In other news, Steve Betts, a real-estate leader in Arizona, is leaving SunCor Development.

His departure is called a retirement, but Betts definitely isn't leaving a leadership role in the state's growth. The land-use and government-affairs attorney plans to take over as chairman of Urban Land Institute Arizona and become co-president of the Interstate 11 Coalition, the partnership working on a freeway corridor between Phoenix and Las Vegas.