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
Showing posts with label refinance activity. Show all posts
Showing posts with label refinance activity. Show all posts
Monday, May 28, 2012
FHA program streamlines refinance procedure
Many homeowners with mortgages backed by the Federal Housing Administration soon will be able to lower their monthly payment.
FHA's streamlined refinancing program officially will launch June 11, and borrowers can start submitting applications now. No appraisal is required as long as the borrower reduces their payment by 5 percent, so if a homeowner is underwater it's not an issue. To be eligible, a borrower has to have taken out an FHA loan before 2009.
A new FHA loan has a 1.75 percent upfront premium on the total loan amount, and a 1.25 percent annual premium. The refinancing program lowers the premium to .01 percent of the loan amount and carries an annual premium of about half a percentage point.
The federal government's revamped refinancing program, known as HARP 2.0, was introduced a few months ago, and already thousands of metro-Phoenix residents have been able to refinance to lower interest rates, no matter how upside down they are on their mortgage. But only borrowers with loans held by Fannie Mae and Freddie Mac are eligible.
"This is a program the government has made the right decision on," said Jay Luber, president of Galaxy Lending in Phoenix.
He said borrowers are not being penalized by having to pay duplicate premiums on loans they have had for years, reducing the fees dramatically.
Still missing is a refinancing program to help underwater borrowers with loans held by investors. The federal government is trying to find a way to encourage or even require investors to agree to lower interest rates for those borrowers. But the government doesn't hold those loans and can't make investors participate, even if it would prevent more foreclosures.
To find out more about HARP 2.0 and the success of other federal housing programs in Arizona, read my front-page story in Sunday's Arizona Republic.
Homebuilding recovery?
New-home permits in metro Phoenix climbed again in April. There were 1,184 single-family permits issued last month, compared with 1,036 in March, the "Phoenix Housing Market Letter" reports.
If these figures don't impress, remember that a year ago, permits were hovering about 600 a month.
The report's publishers, RL Brown and Greg Burger, say that last month's home-building activity "confirms the early stages of a house recovery in metro Phoenix."
by Catherine Reagor - May. 25, 2012 04:29 PM The Republic | azcentral.com
FHA program streamlines refinance procedure
FHA's streamlined refinancing program officially will launch June 11, and borrowers can start submitting applications now. No appraisal is required as long as the borrower reduces their payment by 5 percent, so if a homeowner is underwater it's not an issue. To be eligible, a borrower has to have taken out an FHA loan before 2009.
A new FHA loan has a 1.75 percent upfront premium on the total loan amount, and a 1.25 percent annual premium. The refinancing program lowers the premium to .01 percent of the loan amount and carries an annual premium of about half a percentage point.
The federal government's revamped refinancing program, known as HARP 2.0, was introduced a few months ago, and already thousands of metro-Phoenix residents have been able to refinance to lower interest rates, no matter how upside down they are on their mortgage. But only borrowers with loans held by Fannie Mae and Freddie Mac are eligible.
"This is a program the government has made the right decision on," said Jay Luber, president of Galaxy Lending in Phoenix.
He said borrowers are not being penalized by having to pay duplicate premiums on loans they have had for years, reducing the fees dramatically.
Still missing is a refinancing program to help underwater borrowers with loans held by investors. The federal government is trying to find a way to encourage or even require investors to agree to lower interest rates for those borrowers. But the government doesn't hold those loans and can't make investors participate, even if it would prevent more foreclosures.
To find out more about HARP 2.0 and the success of other federal housing programs in Arizona, read my front-page story in Sunday's Arizona Republic.
Homebuilding recovery?
New-home permits in metro Phoenix climbed again in April. There were 1,184 single-family permits issued last month, compared with 1,036 in March, the "Phoenix Housing Market Letter" reports.
If these figures don't impress, remember that a year ago, permits were hovering about 600 a month.
The report's publishers, RL Brown and Greg Burger, say that last month's home-building activity "confirms the early stages of a house recovery in metro Phoenix."
by Catherine Reagor - May. 25, 2012 04:29 PM The Republic | azcentral.com
FHA program streamlines refinance procedure
Tuesday, May 1, 2012
Reagor: Lenders settlement spurs scams
Scams to try to cash in on the $25 billion settlement with the nation's largest lenders have already begun, and the deal was finalized just last month.
The Arizona attorney general is warning consumers to watch out for companies contacting them about the settlement. People who are eligible for part of the settlement will be contacted directly by one of the five major lenders involved -- BofA, Citigroup, the former GMAC (now known as Ally Financial), JPMorgan Chase and Wells Fargo.
Arizona's portion of the settlement is $1.6 billion. About $1.3 billion of that amount will go toward principal reduction on mortgages and won't be cash paid directly to the state or consumers.
Only borrowers with loans owned by the five lenders involved are eligible for aid from the national settlement, and those lenders are responsible for contacting eligible homeowners in the coming month to offer assistance.
"Consumers should be aware that scammers are already using the media coverage of the settlement to exploit homeowners by promising quicker assistance in obtaining the refinancing, principal reduction or cash payments available to eligible consumers under the settlement," Arizona Attorney General Tom Horne said in the consumer alert issued earlier this week. He warns consumers to be wary of any unsolicited contact about the settlement.
Here are tips from the Attorney General's Office to help consumers eligible for the settlement avoid scams.
Beware of anyone calling and asking for your routing number, checking-account number or other financial information over the phone. Lenders will not do that.
You may receive legitimate mail from your servicer regarding the settlement if your mortgage loan is serviced by one of the lenders in the settlement. If you do receive a call or mail regarding the settlement, examine it closely to make sure it's the same entity handling your mortgage payments.
If you are unsure whether a caller is legitimate, ask for the person's name and title and say you are going to call your bank to confirm.
Here are numbers for the lenders involved in the settlement: Bank of America: 877-488-7814; JPMorgan Chase: 866-372-6901; Wells Fargo: 800-288-3212; CitiBank: 866-272-4749; GMAC/Ally: 800-766-4622.
Lenders also agreed to use part of the funds to reduce borrowers' interest payments and will issue $2,000 payments to people who lost homes in improperly managed foreclosures.
The national settlement does not extend to borrowers with loans backed by federal mortgage giants Fannie Mae and Freddie Mac, who make up more than half of all mortgage holders.
Federal officials estimate that 60,000 Arizona borrowers could see assistance with their principal or interest rates, and the national average for a principal reduction is $20,000 per mortgage.
Horne said homeowners whose mortgage balances are 175 percent or more of their current home values and who are current on their payments probably will be the first to receive principal reductions.
by Catherine Reagor, columnist - Apr. 27, 2012 03:07 PM The Republic | azcentral.com
Reagor: Lenders settlement spurs scams
The Arizona attorney general is warning consumers to watch out for companies contacting them about the settlement. People who are eligible for part of the settlement will be contacted directly by one of the five major lenders involved -- BofA, Citigroup, the former GMAC (now known as Ally Financial), JPMorgan Chase and Wells Fargo.
Arizona's portion of the settlement is $1.6 billion. About $1.3 billion of that amount will go toward principal reduction on mortgages and won't be cash paid directly to the state or consumers.
Only borrowers with loans owned by the five lenders involved are eligible for aid from the national settlement, and those lenders are responsible for contacting eligible homeowners in the coming month to offer assistance.
"Consumers should be aware that scammers are already using the media coverage of the settlement to exploit homeowners by promising quicker assistance in obtaining the refinancing, principal reduction or cash payments available to eligible consumers under the settlement," Arizona Attorney General Tom Horne said in the consumer alert issued earlier this week. He warns consumers to be wary of any unsolicited contact about the settlement.
Here are tips from the Attorney General's Office to help consumers eligible for the settlement avoid scams.
Beware of anyone calling and asking for your routing number, checking-account number or other financial information over the phone. Lenders will not do that.
You may receive legitimate mail from your servicer regarding the settlement if your mortgage loan is serviced by one of the lenders in the settlement. If you do receive a call or mail regarding the settlement, examine it closely to make sure it's the same entity handling your mortgage payments.
If you are unsure whether a caller is legitimate, ask for the person's name and title and say you are going to call your bank to confirm.
Here are numbers for the lenders involved in the settlement: Bank of America: 877-488-7814; JPMorgan Chase: 866-372-6901; Wells Fargo: 800-288-3212; CitiBank: 866-272-4749; GMAC/Ally: 800-766-4622.
Lenders also agreed to use part of the funds to reduce borrowers' interest payments and will issue $2,000 payments to people who lost homes in improperly managed foreclosures.
The national settlement does not extend to borrowers with loans backed by federal mortgage giants Fannie Mae and Freddie Mac, who make up more than half of all mortgage holders.
Federal officials estimate that 60,000 Arizona borrowers could see assistance with their principal or interest rates, and the national average for a principal reduction is $20,000 per mortgage.
Horne said homeowners whose mortgage balances are 175 percent or more of their current home values and who are current on their payments probably will be the first to receive principal reductions.
by Catherine Reagor, columnist - Apr. 27, 2012 03:07 PM The Republic | azcentral.com
Reagor: Lenders settlement spurs scams
Thursday, March 8, 2012
Market Strengthening: Obama Administration Releases February Housing Scorecard | RISMedia
The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury today released the February edition of the Obama Administration’s Housing Scorecard—a comprehensive report on the nation’s housing market. Data continues to show signs that the housing market is strengthening, although the recovery remains fragile. The supply of new and existing homes on the market continued to decline last month. However, home prices dipped again as seasonal lows continued for the fourth month in a row. The continued fragility of the housing market underscores the need for recently-announced expansions of assistance to help prevent foreclosures and strengthen hard hit communities. The full Housing Scorecard is available online at www.hud.gov/scorecard.
“Since April 2009, more than 13 million homeowners have taken advantage of our refinance programs. Following enhancements to the Home Affordable Refinance Program, another 300,000 families have already started the process of refinancing and stand to save on average $2,500 per year—the equivalent of a good-sized tax cut. So the Administration’s efforts have produced significant positive benefits,” says HUD Assistant Secretary Raphael Bostic. “But 1 in 5 Americans still owes more than their home is worth. This lasting scar of the Great Recession driven by housing’s collapse is a clear sign that we are not yet out of the woods. That is why we are asking the Congress to approve the President’s housing proposals so that more homeowners can receive assistance.”
Included in this month’s Making Home Affordable Program Report are detailed assessments for the largest mortgage servicers participating in the program with results from the fourth quarter of 2011. The Servicer Assessments—first introduced in June 2011 and published quarterly—have set a benchmark for disclosure around servicer efforts to assist struggling homeowners.
“The Making Home Affordable Program has established critical standards that have changed the mortgage industry for the better, and the assessments have been a principal tool for measuring that progress,” says Treasury Assistant Secretary for Financial Stability Tim Massad. “By shining the spotlight on key practices, we have prompted servicers to improve their implementation of the Making Home Affordable Program. However, there is still more work to be done to ensure that the industry treats all borrowers properly. The implementation of the broader standards required by the settlement, together with our continued compliance efforts, will help bring this about.”
The standards established by the Making Home Affordable Program were also a guide for many of the servicing standards included in the historic $25 billion settlement recently announced between the federal government, 49 state Attorneys General and the five largest mortgage servicers regarding mortgage servicing and foreclosure deficiencies.
Since inception of the Making Home Affordable Program, Treasury has required participating servicers to take specific actions to improve their processes through ongoing program reviews. The latest Servicer Assessments summarize performance on metrics in three categories of program implementation: identifying and contacting homeowners; homeowner evaluation and assistance; and program reporting, management and governance. Results for the fourth quarter of 2011 show that servicers are focusing attention on areas identified in previous program reviews and, as a result, are demonstrating considerable improvement in program implementation:
• Mortgage servicers show continued improvement in calculating homeowner income, which is used to determine a homeowner’s eligibility and modified payment amount under the program.
• Servicers are more effectively evaluating homeowners under program eligibility criteria as performance in the “second look disagree” category, which reflects the rate at which Treasury’s program reviews disagree with the servicers’ decision not to assist a homeowner, remains consistently below the established benchmark.
As the Administration continues to push servicers to provide more effective assistance to struggling homeowners, the ongoing recovery of the housing market demonstrates the need for the Administration’s efforts. The February Housing Scorecard features key data on the health of the housing market and the impact of the Administration’s foreclosure prevention programs, including:
• Market data show progress on housing overhang and sales but continued fragility in home prices. The supply of homes on the market continued to decline last month. At the current rate, it would take 6.1 months to turn over the supply of existing homes currently on the market – and just 5.6 months to turn over the stock of new homes for sale – the lowest inventory of homes for sale since 2006. Existing home sales continued to improve this month, reaching their highest pace since May 2010. However, home prices dipped again in December, as measured by the Case-Shiller index, as seasonal lows continued for the fourth month.
• The Administration’s foreclosure programs are providing relief for millions of homeowners as we continue to recover from an unprecedented housing crisis. More than 5.7 million modification arrangements were started between April 2009 and the end of January 2012 – including nearly 1.8 million trial modification starts through the Home Affordable Modification Program (HAMP) and more than 1.2 million FHA loss mitigation and early delinquency interventions. The Administration’s programs continue to encourage improved standards and processes in the industry, with HOPE Now lenders offering families and individuals more than 2.7 million proprietary mortgage modifications through January.
• Homeowners entering HAMP demonstrate a high likelihood of long-term success in the program. As of January, more than 950,000 homeowners received a permanent HAMP modification, saving more than $530 on their mortgage payments each month. Eighty-five percent of homeowners entering the program in the last 19 months have received a permanent modification, with an average trial period of 3.5 months. Homeowners in HAMP permanent modifications have saved an estimated $11 billion to date. View the January Making Home Affordable Program Performance Report .
For more information, visit www.treasury.gov .
By RISMedia Mar 7, 2012
Market Strengthening: Obama Administration Releases February Housing Scorecard | RISMedia
Monday, February 13, 2012
Arizona gets $1.6 billion in mortgage fraud settlement
Marking a watershed day in the aftermath of the national housing crash, Arizona officials announced a pair of settlements with large banks over allegations of improper lending and foreclosure practices that will result in more than a billion dollars of aid for struggling homeowners.
Arizona's portion of a nationwide, $26 billion settlement with the country's five biggest lenders will be $1.6 billion, the third-largest share after hard-hit California and Florida.
Most of the money in that deal, announced Thursday after negotiations by attorneys general across the country, will be paid out by lenders in the form of principal reductions -- cutting the amount of money that certain borrowers are responsible for repaying on their home loans. Lenders will also dedicate part of the funds to reducing other borrowers' interest payments and will issue $2,000 payments to people who lost homes in improperly managed foreclosures.
A second, smaller settlement with Bank of America ends a state lawsuit over the bank's lending practices and will fund consumer protection and future investigation of mortgage lending.
The national settlement will not deliver assistance to every struggling homeowner. It applies only to mortgages held by the five large lenders and does not extend to borrowers with loans backed by federal mortgage giants Fannie Mae and Freddie Mac, who make up more than half of all mortgage-holders.
Still, federal officials estimate that 60,000 Arizona borrowers could see assistance with their principal or interest rates. And the settlement marks the first time lenders have agreed, on any large scale, to forgive money owed by underwater borrowers.
"These settlements will help Arizona homeowners and the state's economy that is so tied to housing," Arizona Attorney General Tom Horne said. "I think we are holding banks accountable."
Who benefits
Only borrowers with loans owned by BofA, Citigroup, the former GMAC (now known as Ally Financial), JPMorgan Chase and Wells Fargo are eligible for aid from the national settlement. The five lenders are responsible for contacting eligible homeowners in the coming month to offer assistance.
The deal requires the banks to reduce loans for about 1 million households that are at risk of foreclosure. The lenders will also send $2,000 each to about 750,000 Americans who were improperly foreclosed upon from 2008 through 2011. The banks will have three years to fulfill terms of the deal.
Borrowers who had loans originally issued by the five participating lenders but then had their mortgages sold to another bank aren't eligible.
About $1.3 billion of Arizona's $1.6 billion will go toward principal reductions. Federal officials estimate the national average for principal reductions will be $20,000 per loan. In Arizona, where home prices have fallen 60 percent, many homeowners are likely to be underwater by far more than $20,000.
Horne said homeowners whose mortgage balances are 175 percent or more of their current home values and who are current on their payments will probably be the first to receive principal reductions.
Nationally, at least $17 billion of the settlement is to go directly to reducing principal. Details on how much lenders will reduce the amount borrowers owe aren't available yet.
About $86 million of Arizona's share of the deal will go toward offers to modify borrowers' loans by lowering interest rates. An additional $110.4 million has been set aside to compensate Arizona borrowers who lost their homes to foreclosure from 2008 to 2011 and believe they suffered unfair treatment by lender servicers. Each borrower is eligible for $2,000.
Horne said that any former homeowner who thinks he or she qualifies for the $2,000 should contact the lender and that little documentation will be required to receive this compensation.
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said 55,000 former Arizona homeowners will qualify for the $2,000 payments. During the housing crash, more than 175,000 borrowers have had Arizona homes taken back by lenders, though that figure includes loans held by Fannie and Freddie.
Arizona will receive $102.5 million to be used for mortgage-fraud investigations and consumer counseling.
Arizona State University's real-estate analyst Mike Orr said reducing mortgage principal for underwater homeowners will "significantly bolster the housing market" if it entices more people to stay in their homes and keep making payments.
Almost 50 percent of the state's homeowners are underwater, meaning homeowners owe more than their homes are now worth because values have plunged by more than half since the market's peak in 2006.
Patricia Garcia Duarte, president of the Phoenix-based housing non-profit Neighborhood Housing Services, said the settlement looks like a lot of money to help both former and current homeowners. However, she said the damage done to Arizona families and communities has been extreme.
"The funds will definitely help," Garcia Duarte said. "But how the funds are spent in Arizona will determine the success in our housing recovery."
BofA lawsuit
Arizona is also receiving $10 million through the settlement of a lawsuit with BofA over allegations of mortgage fraud and deceiving borrowers trying to obtain loan modifications.
The money will go toward funding criminal loan investigation and consumer education. Horne said it's not clear yet whether the BofA borrowers who served as plaintiffs will be compensated from the $10 million or the state's $1.6 billion from the national settlement.
The suit, filed in December 2010 by the state's attorney general, had to be reconciled for Arizona to participate in the national settlement.
"If we had continued to litigate the BofA lawsuit, we might have recovered more money," Horne said. "But the lawsuit could have taken another five to six years. By settling now and joining the national settlement, more homeowners will receive help sooner."
Enforcement
The deal establishes a regulatory group of local and federal government agencies. It calls for North Carolina's banking regulator Joseph Smith to monitor lenders for compliance.
Horne said lenders will be subject to hefty fines if they don't follow through with the actions to help homeowners laid out in the settlement.
Federal officials said states could receive more funding if more mortgage firms sign onto the agreement. One estimate is for the national settlement to grow to $40 billion if the next nine large lenders join in. The only state not part of the national settlement is Oklahoma. Arizona, California, Florida, New York and Nevada were the last states to join. Arizona's negotiations with BofA over the mortgage-fraud lawsuit went on until almost 11 p.m. Wednesday night.
President Barack Obama said in a speech Thursday that the $26 billion settlement will allow the nation's biggest banks, "banks rescued by taxpayer dollars," to right wrongs committed in making loans and foreclosing on homeowners during the past several years.
"These banks will put billions of dollars towards relief for families across the nation. They'll provide refinancing for borrowers that are stuck in high interest-rate mortgages," Obama said. "They'll reduce loans for families who owe more on their homes than they're worth. And they will deliver some measure of justice for families that have already been victims of abusive practices."
12 News reporter Melissa Blasius contributed to this article.
by Catherine Reagor - Feb. 9, 2012 09:28 AM The Republic | azcentral.com
Arizona gets $1.6 billion in mortgage fraud settlement
Arizona's portion of a nationwide, $26 billion settlement with the country's five biggest lenders will be $1.6 billion, the third-largest share after hard-hit California and Florida.
Most of the money in that deal, announced Thursday after negotiations by attorneys general across the country, will be paid out by lenders in the form of principal reductions -- cutting the amount of money that certain borrowers are responsible for repaying on their home loans. Lenders will also dedicate part of the funds to reducing other borrowers' interest payments and will issue $2,000 payments to people who lost homes in improperly managed foreclosures.
A second, smaller settlement with Bank of America ends a state lawsuit over the bank's lending practices and will fund consumer protection and future investigation of mortgage lending.
The national settlement will not deliver assistance to every struggling homeowner. It applies only to mortgages held by the five large lenders and does not extend to borrowers with loans backed by federal mortgage giants Fannie Mae and Freddie Mac, who make up more than half of all mortgage-holders.
Still, federal officials estimate that 60,000 Arizona borrowers could see assistance with their principal or interest rates. And the settlement marks the first time lenders have agreed, on any large scale, to forgive money owed by underwater borrowers.
"These settlements will help Arizona homeowners and the state's economy that is so tied to housing," Arizona Attorney General Tom Horne said. "I think we are holding banks accountable."
Who benefits
Only borrowers with loans owned by BofA, Citigroup, the former GMAC (now known as Ally Financial), JPMorgan Chase and Wells Fargo are eligible for aid from the national settlement. The five lenders are responsible for contacting eligible homeowners in the coming month to offer assistance.
The deal requires the banks to reduce loans for about 1 million households that are at risk of foreclosure. The lenders will also send $2,000 each to about 750,000 Americans who were improperly foreclosed upon from 2008 through 2011. The banks will have three years to fulfill terms of the deal.
Borrowers who had loans originally issued by the five participating lenders but then had their mortgages sold to another bank aren't eligible.
About $1.3 billion of Arizona's $1.6 billion will go toward principal reductions. Federal officials estimate the national average for principal reductions will be $20,000 per loan. In Arizona, where home prices have fallen 60 percent, many homeowners are likely to be underwater by far more than $20,000.
Horne said homeowners whose mortgage balances are 175 percent or more of their current home values and who are current on their payments will probably be the first to receive principal reductions.
Nationally, at least $17 billion of the settlement is to go directly to reducing principal. Details on how much lenders will reduce the amount borrowers owe aren't available yet.
About $86 million of Arizona's share of the deal will go toward offers to modify borrowers' loans by lowering interest rates. An additional $110.4 million has been set aside to compensate Arizona borrowers who lost their homes to foreclosure from 2008 to 2011 and believe they suffered unfair treatment by lender servicers. Each borrower is eligible for $2,000.
Horne said that any former homeowner who thinks he or she qualifies for the $2,000 should contact the lender and that little documentation will be required to receive this compensation.
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said 55,000 former Arizona homeowners will qualify for the $2,000 payments. During the housing crash, more than 175,000 borrowers have had Arizona homes taken back by lenders, though that figure includes loans held by Fannie and Freddie.
Arizona will receive $102.5 million to be used for mortgage-fraud investigations and consumer counseling.
Arizona State University's real-estate analyst Mike Orr said reducing mortgage principal for underwater homeowners will "significantly bolster the housing market" if it entices more people to stay in their homes and keep making payments.
Almost 50 percent of the state's homeowners are underwater, meaning homeowners owe more than their homes are now worth because values have plunged by more than half since the market's peak in 2006.
Patricia Garcia Duarte, president of the Phoenix-based housing non-profit Neighborhood Housing Services, said the settlement looks like a lot of money to help both former and current homeowners. However, she said the damage done to Arizona families and communities has been extreme.
"The funds will definitely help," Garcia Duarte said. "But how the funds are spent in Arizona will determine the success in our housing recovery."
BofA lawsuit
Arizona is also receiving $10 million through the settlement of a lawsuit with BofA over allegations of mortgage fraud and deceiving borrowers trying to obtain loan modifications.
The money will go toward funding criminal loan investigation and consumer education. Horne said it's not clear yet whether the BofA borrowers who served as plaintiffs will be compensated from the $10 million or the state's $1.6 billion from the national settlement.
The suit, filed in December 2010 by the state's attorney general, had to be reconciled for Arizona to participate in the national settlement.
"If we had continued to litigate the BofA lawsuit, we might have recovered more money," Horne said. "But the lawsuit could have taken another five to six years. By settling now and joining the national settlement, more homeowners will receive help sooner."
Enforcement
The deal establishes a regulatory group of local and federal government agencies. It calls for North Carolina's banking regulator Joseph Smith to monitor lenders for compliance.
Horne said lenders will be subject to hefty fines if they don't follow through with the actions to help homeowners laid out in the settlement.
Federal officials said states could receive more funding if more mortgage firms sign onto the agreement. One estimate is for the national settlement to grow to $40 billion if the next nine large lenders join in. The only state not part of the national settlement is Oklahoma. Arizona, California, Florida, New York and Nevada were the last states to join. Arizona's negotiations with BofA over the mortgage-fraud lawsuit went on until almost 11 p.m. Wednesday night.
President Barack Obama said in a speech Thursday that the $26 billion settlement will allow the nation's biggest banks, "banks rescued by taxpayer dollars," to right wrongs committed in making loans and foreclosing on homeowners during the past several years.
"These banks will put billions of dollars towards relief for families across the nation. They'll provide refinancing for borrowers that are stuck in high interest-rate mortgages," Obama said. "They'll reduce loans for families who owe more on their homes than they're worth. And they will deliver some measure of justice for families that have already been victims of abusive practices."
12 News reporter Melissa Blasius contributed to this article.
by Catherine Reagor - Feb. 9, 2012 09:28 AM The Republic | azcentral.com
Arizona gets $1.6 billion in mortgage fraud settlement
Thursday, February 2, 2012
Obama unveils plan on housing
President Barack Obama is proposing new legislation that would change the way houses are bought, sold and refinanced as an effort to stabilize the nation's ailing housing system.
One immediate goal of the so-called Homeowner Bill of Rights is to enable more borrowers to refinance, reduce their monthly payments or pay off their loans sooner, rebuilding equity lost in the housing crash.
The legislation announced Wednesday also would create a standardized system for mortgage applications and would expand bulk sales of government-owned foreclosure homes to investors, with the goal of decreasing the number of empty homes.
The bill would expand on a refinancing plan announced in October. That plan directed federal mortgage giants Fannie Mae and Freddie Mac to allow refinancing for mortgage-holders even if their homes are underwater by any amount. But the plan could not be offered to homeowners with mortgages privately held by banks. The new legislation would allow those homeowners to refinance as well, with the associated costs covered by a fee on major lenders.
Nearly 3.5 million U.S. homeowners with private mortgages, who owe more than their houses are now worth, could be eligible if the legislation passes.
However, the proposal is expected to meet strong opposition from Republicans. The program would cost between $5 billion and $10 billion.
"Millions of families who did the right and responsible thing, folks who shopped for a home that they could afford, secured a mortgage, made their payments each month -- they were hurt badly by the irresponsible actions of other people who weren't playing by the same rules," Obama said Wednesday.
"It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom," he said.
Political analysts see the new Obama plan as a direct response to Republican presidential candidate Mitt Romney's recent comments in Las Vegas.
Romney said the government shouldn't try to help homeowners by stopping foreclosures, instead suggesting letting the market hit bottom so investors buy the houses and rent them out until the housing turns around.
"This plan is a win-win for the president. He is clearly responding to the Romney statement that the best way to handle the housing crisis is ride it out," said Bruce Merrill, political-science analyst and pollster with the Phoenix-based Morrison Institute. "The battleground for the presidential race is the middle class, and there is clearly nothing more important to that group than homeownership."
Merrill said the housing issues shouldn't be a political one because helping homeowners is clearly what is good for the country.
House Speaker Republican John Boehner was critical of the plan Wednesday, saying none of the president's previous proposals to help the housing market has worked.
Many metro Phoenix homeowners have already started to apply for the refinancing program available for loans backed by Fannie and Freddie. Those refinanced loans are expected to be available in March. The program allows homeowners, no matter how underwater they are, to refinance to current low interest rates, as long as they haven't missed more than one payment in the past six months.
In the Phoenix area, where home values have plummeted 60 percent since the boom of 2006, almost half of all homeowners owe more than their homes are worth.
Details of Obama's proposed legislation include:
Allowing eligible, underwater homeowners with private mortgages to refinance.
Banks would potentially pay to finance part of the program.
Standardizing the loan application and borrowing process.
This is a move to cut down on mortgage fraud and protect borrowers from being overcharged or placed in risky loans they don't understand. The federal government's new consumer-protection group would oversee this process.
Allowing Fannie and Freddie to sell foreclosure homes in bulk.
The sales would run through a new auction process instead of happening one at a time. This would draw more big investors to buy the houses and turn them into rentals. The goal is for fewer foreclosure homes to sit vacant for long periods of time. However, such bulk purchases could drive down an area's home prices.
Separately, Obama said Wednesday that the Home Affordable Modification Program he announced in Mesa three years ago hasn't been nearly as successful as he hoped. That program encouraged lenders to modify loans, decreasing interest rates or extending the repayment terms to help struggling borrowers lower their payments.
But banks have made far fewer modifications than expected. So, the president said, the loan-modification program is being extended by a year -- it will expire at the end of 2013 -- and expanded to help more borrowers who didn't meet the income requirements before.
But most importantly, Fannie and Freddie will be given more incentives to begin reducing the principal on loans they own through loan modifications.
Fannie and Freddie have had a policy of not allowing principal reductions.
"I have no idea whether the legislation has a chance to pass," said Mike Orr, director of the Center for Real Estate Theory and Practice at Arizona State University's W.P. Carey School and publisher of the Cromford Report.
"However, I would say that helping underwater homeowners, who are still current on their payments, refinance into lower interest-rate loans is the best thing the government could do for the market."
by Catherine Reagor - Feb. 1, 2012 11:20 PM The Republic | azcentral.com
Obama unveils plan on housing
One immediate goal of the so-called Homeowner Bill of Rights is to enable more borrowers to refinance, reduce their monthly payments or pay off their loans sooner, rebuilding equity lost in the housing crash.
The legislation announced Wednesday also would create a standardized system for mortgage applications and would expand bulk sales of government-owned foreclosure homes to investors, with the goal of decreasing the number of empty homes.
The bill would expand on a refinancing plan announced in October. That plan directed federal mortgage giants Fannie Mae and Freddie Mac to allow refinancing for mortgage-holders even if their homes are underwater by any amount. But the plan could not be offered to homeowners with mortgages privately held by banks. The new legislation would allow those homeowners to refinance as well, with the associated costs covered by a fee on major lenders.
Nearly 3.5 million U.S. homeowners with private mortgages, who owe more than their houses are now worth, could be eligible if the legislation passes.
However, the proposal is expected to meet strong opposition from Republicans. The program would cost between $5 billion and $10 billion.
"Millions of families who did the right and responsible thing, folks who shopped for a home that they could afford, secured a mortgage, made their payments each month -- they were hurt badly by the irresponsible actions of other people who weren't playing by the same rules," Obama said Wednesday.
"It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom," he said.
Political analysts see the new Obama plan as a direct response to Republican presidential candidate Mitt Romney's recent comments in Las Vegas.
Romney said the government shouldn't try to help homeowners by stopping foreclosures, instead suggesting letting the market hit bottom so investors buy the houses and rent them out until the housing turns around.
"This plan is a win-win for the president. He is clearly responding to the Romney statement that the best way to handle the housing crisis is ride it out," said Bruce Merrill, political-science analyst and pollster with the Phoenix-based Morrison Institute. "The battleground for the presidential race is the middle class, and there is clearly nothing more important to that group than homeownership."
Merrill said the housing issues shouldn't be a political one because helping homeowners is clearly what is good for the country.
House Speaker Republican John Boehner was critical of the plan Wednesday, saying none of the president's previous proposals to help the housing market has worked.
Many metro Phoenix homeowners have already started to apply for the refinancing program available for loans backed by Fannie and Freddie. Those refinanced loans are expected to be available in March. The program allows homeowners, no matter how underwater they are, to refinance to current low interest rates, as long as they haven't missed more than one payment in the past six months.
In the Phoenix area, where home values have plummeted 60 percent since the boom of 2006, almost half of all homeowners owe more than their homes are worth.
Details of Obama's proposed legislation include:
Allowing eligible, underwater homeowners with private mortgages to refinance.
Banks would potentially pay to finance part of the program.
Standardizing the loan application and borrowing process.
This is a move to cut down on mortgage fraud and protect borrowers from being overcharged or placed in risky loans they don't understand. The federal government's new consumer-protection group would oversee this process.
Allowing Fannie and Freddie to sell foreclosure homes in bulk.
The sales would run through a new auction process instead of happening one at a time. This would draw more big investors to buy the houses and turn them into rentals. The goal is for fewer foreclosure homes to sit vacant for long periods of time. However, such bulk purchases could drive down an area's home prices.
Separately, Obama said Wednesday that the Home Affordable Modification Program he announced in Mesa three years ago hasn't been nearly as successful as he hoped. That program encouraged lenders to modify loans, decreasing interest rates or extending the repayment terms to help struggling borrowers lower their payments.
But banks have made far fewer modifications than expected. So, the president said, the loan-modification program is being extended by a year -- it will expire at the end of 2013 -- and expanded to help more borrowers who didn't meet the income requirements before.
But most importantly, Fannie and Freddie will be given more incentives to begin reducing the principal on loans they own through loan modifications.
Fannie and Freddie have had a policy of not allowing principal reductions.
"I have no idea whether the legislation has a chance to pass," said Mike Orr, director of the Center for Real Estate Theory and Practice at Arizona State University's W.P. Carey School and publisher of the Cromford Report.
"However, I would say that helping underwater homeowners, who are still current on their payments, refinance into lower interest-rate loans is the best thing the government could do for the market."
by Catherine Reagor - Feb. 1, 2012 11:20 PM The Republic | azcentral.com
Obama unveils plan on housing
Sunday, November 13, 2011
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
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
Tuesday, October 25, 2011
Arizona underwater homeowners to get refinance help
More Arizona homeowners may soon be able to refinance to current low mortgage-interest rates, no matter how far underwater they are in their homes.
The Obama administration on Monday announced long-awaited details of an expansion of a program that helps homeowners refinance to reduce their payments.
Mortgage rates have fallen to record lows, and many homeowners would save hundreds of dollars a month if they could reduce the amount of interest they pay. But the housing crash has created a huge barrier.
A refinanced loan typically requires the home have enough value to cover the entire amount of the new loan. But plunging home values means many owners owe far more on their loans than their homes are worth. An estimated 40 percent of metro Phoenix homeowners are currently underwater.
The federal Home Affordable Refinancing Program has allowed certain loans to be refinanced if the borrower owed up to 125 percent of the home's value. But many underwater borrowers in Arizona owe more.
The plan announced Monday would lift the value requirement completely, allowing some borrowers to refinance no matter how much their home's value has dropped, if their mortgage is backed by one of the two largest federal mortgage agencies and they meet other requirements.
Borrowers can start to apply as soon as December, according to the few details released Monday, and the program would run through the end of 2013.
Speaking on a temporary stage in a Las Vegas neighborhood, Obama touted the plan as a way to allow struggling homeowners to save money.
"Probably the single greatest cause of the financial crisis and this brutal recession has been the housing bubble that burst four years ago," he said. "And as long as this goes on, our recovery can't take off as quickly as it would after a normal recession."
The plan
The HARP program has helped about 900,000 homeowners nationally to refinance. Arizona figures aren't available.
The plan described by Obama and the Federal Housing Finance Agency on Monday would expand HARP by changing the rules and costs associated and extending the time period in which borrowers can apply.
Among the key elements:
- Refinancing will be available to homeowners with loans backed by Fannie Mae or Freddie Mac in 2009 or earlier.
As with the current refinancing program, the option would be open only to borrowers with mortgages backed by the two largest federal mortgage agencies. Borrowers whose banks hold their loans privately would not qualify. Still, federally backed loans make up a majority of the existing mortgages in the state and the country.
The federal government did not give an official count of how many people will be able to refinance, but U.S. Housing and Urban Development head Shaun Donovan estimated 4 million families could be eligible.
Current federal programs have encouraged lenders to refinance such loans or modify loan-payment amounts for borrowers in financial trouble, but the banks that handle the payments in many cases have been slow to respond. Obama said the new program will allow other lenders to compete to make the new loans.
"Some lenders, frankly, just refuse to refinance," he said Monday. "So, these changes are going to encourage other lenders to compete for that business by offering better terms and rates, and eligible homeowners are going to be able to shop around."
The program is designed to help borrowers who took loans before the housing crash, and only applies to loans backed by the federal agencies on or before May 31, 2009.
Market-watchers say the key will be to see whether banks and the mortgage giants actually follow through.
"The new refinancing program sounds like a good idea, but it has to have teeth," said John Smith, president of the Mesa-based non-profit Housing Our Communities, which counsels homeowners on avoiding foreclosure. "The government has to make Fannie and Freddie go through with these deals."
- Refinancing will be available to homeowners who are current on their mortgage payments.
To qualify, homeowners must not have missed more than one payment in the past year.
The plan differs from other programs that were meant to help borrowers who could no longer afford their mortgages. The federal loan-modification program was open only to borrowers who were already late on making their payments.
Instead, the refinancing is open to borrowers who have made their payments.
Although it could help some people who have struggled to make those payments avoid foreclosure, it also could simply help other homeowners free up more money each month.
- Refinancing will be available no matter how much the home is currently worth.
The loan simply must be backed by Fannie or Freddie and be within standard sizes - for example, oversize "jumbo" loans will not qualify.
Borrowers who meet the financial requirements could refinance no matter how much the amount of the loan exceeds the home's current value, known as the loan-to-value ratio.
The previous HARP plan called for a 105 percent loan-to-value ratio, meaning homeowners who owed 5 percent more than their houses were worth could refinance under the plan. That ratio was quickly criticized for helping few in the hardest-hit housing markets of Arizona, California, Nevada, Florida and Michigan. It was raised to 125 percent but still wasn't enough for many homeowners who bought during the past decade in metro Phoenix.
"If the limit is lifted completely, then that will make a big difference for Arizona," said housing analyst Michael Orr, who publishes an online daily analysis of metro Phoenix's housing market called the "Cromford Report." "Many people have a loan-to-value of over 200 percent."
- Refinancing will cost less.
The changes announced Monday would also limit fees associated with refinancing, in hopes of making the move more affordable. Homeowners who qualify don't have to pay additional excessive fees for an appraisal or processing.
Jay Luber, president of Phoenix-based Galaxy Lending, knows many homeowners who will qualify for this program.
He believes it could "accelerate the stabilization of values in metro Phoenix by decreasing foreclosures and short sales."
The doubts
Housing advocates point to past programs that have garnered bad reputations.
The Housing Affordable Modification Program, HAMP, was announced in conjunction with the original refinancing program two years ago.
Tens of thousands of homeowners in Arizona alone were promised loan modifications and put in trial programs. These borrowers made the trial payments for more than a year in some cases only later to be denied a permanent modification.
Overall, the federal housing plan called for helping 7 million to 9 million homeowners. Fewer than 2.5 million have been helped with all of the plan's programs.
Phoenix real-estate agent Kevin Kaufman is skeptical of the new plan.
"I'm honestly very, very pessimistic about any government program actually helping people," he said. "Having been in the trenches for four years now and seen so many empty promises. I don't believe the government will actually help."
Too late?
When Obama unveiled federal efforts to stem foreclosures two years ago, he traveled to Mesa to make the announcement. At the time, foreclosures were surging.
Today, foreclosures have been steadily slowing in metro Phoenix. So the latest move has been criticized as coming too late.
Also, many market observers note that for many homeowners, the real problem is not just their monthly payment but the fact that they will still owe so much more than their houses are worth, making them unable to sell or move.
The Obama administration is hinting about more aid for people who have lost homes to foreclosure and neighborhoods with many empty foreclosure homes.
But this expansion of HARP does help the homeowners who continued to pay as others walked away.
Tom Schroder was turned down for a refinance last year because he owes at least 40 percent more than his Scottsdale home is worth. He said he is angry because he feels like he's being penalized for other people's foreclosures and bad decisions.
"I keep paying my mortgage on time and watching others buy homes at 5 or now even 4 percent (interest rates)," he said. "The changes to the refinancing program sound good. I just want to see some action on it from lenders and fast."
Patricia Garcia Duarte, president of the Phoenix-based non-profit homeownership counseling service Neighborhood Housing Services, said the new refinancing plan rewards homeowners with good credit who have not missed many payments.
"Owing more on a property than it is worth is still problematic for many in Arizona," she said. "Revamping HARP is a good thing, not the entire solution."
by Catherine Reagor The Arizona Republic Oct. 25, 2011 12:00 AM
Arizona underwater homeowners to get refinance help
Sunday, October 2, 2011
Reagor: Few details on plan for refinancing
Few details have emerged about an expanded federal refinancing plan for homeowners who are underwater. President Barack Obama mentioned the plan in a speech a few weeks ago. He said it would allow many borrowers who owe more than their house is worth to refinance into a loan with 4 percent interest.
Since then, there hasn't been any information on the program, which could be an extension of the Home Affordable Refinance Plan known as HARP. Currently under that federal plan, homeowners with mortgages owned by Fannie Mae, Freddie Mac and some of the other big lenders can apply to refinance to the current lower interest rates if they don't owe more than 125 percent of what their house is worth.
In metro Phoenix, that ratio would have to be upped to at least 150 percent to really help homeowners since home values have dropped at least 50 percent in most of the region's neighborhoods. Most of the government and private housing counselors who attended the Arizona Housing Department's annual conference last week are waiting for more details on the expansion of the federal refinancing plan.
Housing heroes
Every year since 2003, the Arizona Housing Department has honored the state's top housing advocates and affordable-home projects. Here are this year's heroes:
- Elected official: Phoenix City Councilman Tom Simplot for his efforts to find permanent housing for the homeless; affordable housing for lower-income, senior and special needs families; and stabilizing neighborhoods.
- Outstanding affordable-housing initiative: The Devine Legacy on Central affordable-housing project in downtown Phoenix for its energy efficiency and high-density design. Devine Legacy was developed to be a transit-oriented live and work project for people of different incomes. Its developer is Native American Connections.
- Innovative supportive-housing program: A project called 51 Homes Tucson for combating homelessness and providing needed services to people living on the streets.
- Exemplary rural multifamily project: The Foundation for Senior Living's Yuma Senior Terraces project was recognized for providing an innovative and healthy living environment for that city's seniors.
- Exemplary urban multifamily project: Tucson's Depot Plaza/Martin Luther King Revitalization Project for its transformation of a decaying neighborhood.
- Tribal initiatives award: The Pascua Yaqui Tribe for helping its members to find affordable and more livable housing.
- Arthur Crozier partner in housing award: Olga Osterhage of Tucson for her years of working to provide better public housing.
by Catherine Reagor The Arizona Republic Sept. 28, 2011 12:00 AM
Reagor: Few details on plan for refinancing
Since then, there hasn't been any information on the program, which could be an extension of the Home Affordable Refinance Plan known as HARP. Currently under that federal plan, homeowners with mortgages owned by Fannie Mae, Freddie Mac and some of the other big lenders can apply to refinance to the current lower interest rates if they don't owe more than 125 percent of what their house is worth.
In metro Phoenix, that ratio would have to be upped to at least 150 percent to really help homeowners since home values have dropped at least 50 percent in most of the region's neighborhoods. Most of the government and private housing counselors who attended the Arizona Housing Department's annual conference last week are waiting for more details on the expansion of the federal refinancing plan.
Housing heroes
Every year since 2003, the Arizona Housing Department has honored the state's top housing advocates and affordable-home projects. Here are this year's heroes:
- Elected official: Phoenix City Councilman Tom Simplot for his efforts to find permanent housing for the homeless; affordable housing for lower-income, senior and special needs families; and stabilizing neighborhoods.
- Outstanding affordable-housing initiative: The Devine Legacy on Central affordable-housing project in downtown Phoenix for its energy efficiency and high-density design. Devine Legacy was developed to be a transit-oriented live and work project for people of different incomes. Its developer is Native American Connections.
- Innovative supportive-housing program: A project called 51 Homes Tucson for combating homelessness and providing needed services to people living on the streets.
- Exemplary rural multifamily project: The Foundation for Senior Living's Yuma Senior Terraces project was recognized for providing an innovative and healthy living environment for that city's seniors.
- Exemplary urban multifamily project: Tucson's Depot Plaza/Martin Luther King Revitalization Project for its transformation of a decaying neighborhood.
- Tribal initiatives award: The Pascua Yaqui Tribe for helping its members to find affordable and more livable housing.
- Arthur Crozier partner in housing award: Olga Osterhage of Tucson for her years of working to provide better public housing.
by Catherine Reagor The Arizona Republic Sept. 28, 2011 12:00 AM
Reagor: Few details on plan for refinancing
Saturday, January 29, 2011
Mortgage refinances may drop 77% by 2012 « HousingWire
Residential mortgage refinances are expected to deteriorate over the next two years due to factors not limited to rising interest rates. Some are predicting that mortgage refinancings, in fact, will fall by 77% by 2012 and drag down the overall market for originations.
Total refinances hit about $1 trillion in 2010 and accounted for 69% of the market share for originations, according to the Mortgage Bankers Association. The trade association is predicting that will drop more than two-thirds to just $352 billion and comprise of 36% market share in 2011.
MBA anticipates only $236 billion worth of refinances to take place in 2012.
Mortgage purchases will not make up for the losses in the refinance sector, according to the firm's numbers. Purchase originations are expected to increase to $614 billion from $473 billion in 2011 (up 30%), bringing the total originations for the year to $966 billion.
In 2010, origination transactions summed $1.5 trillion, which means a nearly 36% drop in overall residential lending activity.
MBA Senior Vice President and Chief Economist Jay Brinkmann said rising mortgage rates will filter the market for refinances, and that repurchase requests from Fannie Mae, Freddie Mac and mortgage insurers will also impact the market.
"This will continue to hold down originations," he said.
The MBA forecasts new home sales will rise and existing home sales will fall, up to 351,000 and down to 4.8 million, respectively.
Financial services firm KBW reported a 17.5% increase in new home sales from November to December, putting the 2010 year-end total at 329,000. December new home sales, which totaled about 22,000, were down 7.6% compared to a year earlier.
KBW said the average monthly sale volume for 2010 was between 20,000 and 26,000.
"Assuming the absolute level of monthly sales remains near current levels in the near term, the annualized new home sales numbers should continue to improve on seasonal factors in coming months," the firm said.
by Christine Ricciardi HousingWire January 27, 2010
Wednesday, August 18, 2010
Refi Boom Could Bust Smaller Banks - CNBC
I realize it's August, and that's not exactly the hot season for home buying and selling, but I found today's weekly mortgage application report from the Mortgage Bankers Association particularly troubling for a few reasons.
To summarize, refinance applications are way up, up 17 percent, while purchase applications are on life support, down 3.4 percent from the previous week and down nearly 39 percent from a year ago. Refis now make up a full 81.4 percent of all mortgage applications, up from 78.1 percent the previous week, and at their highest level since January of 2009.
With home prices way down and mortgage interest rates hovering near record lows, you would think more buyers would get off the fence and sign a contract, but continued weak consumer sentiment is hold them back. You would also think that the bright side to all this is that all this refinancing is putting more money in the average, struggling American's pocket.
But then I read this note from FBR's Bob Ramsey, who believes the rate on the 30-year fixed could go as low as 4 percent, with the following implications:
If rates continue to fall, a refi boom could swamp banks and thrifts with cash flows with no obvious place to invest. With newly issued agency MBS yielding approximately 3.5%, banks and thrifts face considerable reinvestment risk.
Thrifts, he says, are better positioned to handle the risk than regional banks, because, "better efficiency provides a significant buffer to weaker revenues."
The less efficient regionals, he says, are most at risk and adds:
Further, if rates remain low for an extended period, we would expect an increase in bank M&A activity as challenging prospects convince some to sell, and others choose to consolidate and grow earnings by cutting duplicative costs.
I had thought that most borrowers who could had already refinanced by now, but he says that, for some unknown reason, is not the case. "We believe approximately half of conforming borrowers have both the economic incentive and equity to refinance."
It seems that in today's housing finance market, for every upside, there is a downside.
By: Diana Olick CNBC Real Estate August 18, 2010
Refi Boom Could Bust Smaller Banks - CNBC
To summarize, refinance applications are way up, up 17 percent, while purchase applications are on life support, down 3.4 percent from the previous week and down nearly 39 percent from a year ago. Refis now make up a full 81.4 percent of all mortgage applications, up from 78.1 percent the previous week, and at their highest level since January of 2009.
With home prices way down and mortgage interest rates hovering near record lows, you would think more buyers would get off the fence and sign a contract, but continued weak consumer sentiment is hold them back. You would also think that the bright side to all this is that all this refinancing is putting more money in the average, struggling American's pocket.
But then I read this note from FBR's Bob Ramsey, who believes the rate on the 30-year fixed could go as low as 4 percent, with the following implications:
If rates continue to fall, a refi boom could swamp banks and thrifts with cash flows with no obvious place to invest. With newly issued agency MBS yielding approximately 3.5%, banks and thrifts face considerable reinvestment risk.
Thrifts, he says, are better positioned to handle the risk than regional banks, because, "better efficiency provides a significant buffer to weaker revenues."
The less efficient regionals, he says, are most at risk and adds:
Further, if rates remain low for an extended period, we would expect an increase in bank M&A activity as challenging prospects convince some to sell, and others choose to consolidate and grow earnings by cutting duplicative costs.
I had thought that most borrowers who could had already refinanced by now, but he says that, for some unknown reason, is not the case. "We believe approximately half of conforming borrowers have both the economic incentive and equity to refinance."
It seems that in today's housing finance market, for every upside, there is a downside.
By: Diana Olick CNBC Real Estate August 18, 2010
Refi Boom Could Bust Smaller Banks - CNBC
Saturday, January 9, 2010
GSE Portfolio Update: Delinquencies Up, Refinances Down, Loan Mods a Function of Labor Market
The FHFA today released the Foreclosure Prevention & Refinance Report for the Third Quarter 2009. This report is intended to provide disclosure and analysis of Fannie Mae and Freddie Mac loan data. It discusses the GSE's loan portfolio size and composition, the performance of the portfolio, and provides an update of foreclosure prevention objectives.
Mortgage Portfolio Size and Composition
The Enterprises’ aggregate mortgage portfolio increased by approximately 218,000 loans or 0.7 percent during the third quarter of 2009 as new purchases and issuances outpaced loan liquidations.
The number of first-lien residential mortgages with credit score at origination of 660 or higher increased by 1.2 percent, while mortgages with less than 660 credit score at origination decreased 2.2 percent during the quarter. The current weighted average loan-tovalue (LTV) ratio of Enterprises’ mortgage portfolio increased to 75 percent as of September 30, 2009, from 71 percent as of December 31, 2008. The increase in the estimated weighted average current LTV ratio reflects the impact of prolonged and severe decline in home prices.
Here is a table from the report summarizing the data:
Refinance Activity
Fannie Mae and Freddie Mac have refinanced nearly 4 million loans year-to-date through November 2009. The total refinance volume dropped in 3Q09 and October after the rate for a 30-year mortgage rose in June and remained above 5 percent throughout the third quarter.
Total refinance volume then rose in November in response to a sustained decline in rates. Refinance volumes are strongly influenced by mortgage rates with the effect most visible after a lag.
Mortgage Performance
The number of loans in all stages of delinquency increased nearly 100 basis points to 7.6 percent of the combined portfolio
The serious delinquency rate (90 days or more delinquent, or in the process of foreclosure) increased 70 basis points to 4.2 percent while the 30-59 days delinquent rate rose 20 basis points to 2.4 percent during the third quarter.
The 60-plus-days delinquent rate (60 days or more delinquent, or in the process of foreclosure) rose 80 basis points to 5.2 percent as of September 2009, from 4.4 percent at the end of second quarter.
Nearly 1.6 million of the Enterprises’ mortgages were 60-plus days delinquent as of September 30, 2009, an increase of 260,300 mortgages during the third quarter.
Delinquency rates for borrowers with original credit scores of less than 660 continued to increase faster than for borrowers with credit scores of 660 or higher. The 60-plus days delinquency rate of loans with credit scores at origination of less than 660 increased 240 basis points during the third quarter. The 60-plus days delinquency rate of higher original credit score loans increased 60 basis points during the third quarter.
The increase in the 60-plus-days delinquency rate is attributable in part to continued deterioration in the Enterprises’ books of business as home price and economic conditions remain challenging. However, also contributing to the increase is the fact that many loans are remaining delinquent for a longer period of time before proceeding to a foreclosure sale or other liquidation. New HAMP trial modifications and other relief measures entered into by the Enterprises result in loans staying in a delinquent status until the execution of a permanent HAMP modification or successful completion of a repayment or forbearance plan.
Additionally, the Enterprises have issued specific instructions to mortgage servicers to refrain from completion of a foreclosure sale or other form of liquidation until a borrower has been sufficiently considered for a home retention solution, such as a modification, repayment or forbearance plan.
Foreclosure Prevention Actions
Freddie Mac and Fannie Mae continued to increase their foreclosure prevention activities during the third quarter of 2009, which in the case of the two government sponsored enterprises (GSEs) ended November 30. The two increased the number of completed workouts by 22 percent over Q2 results and reported a lower rescission rate from their more recent loan modification efforts than had been documented earlier.
During the third quarter the GSEs completed a combined total of 105,500 foreclosure prevention workouts compared to 86,800 during the second quarter. There were an additional 278,100 trial modifications entered into under the Treasury Department's Home Affordable Mortgage Program (HAMP), but the majority of these must complete a three month trial period before being counted as complete. HAMP modifications are now the primary modification type used by the GSEs because they offer immediate payment relief to borrowers. Borrowers ineligible for this program, primarily because their housing costs are already below 31 percent of income, are referred to other prevention programs. During the 11 months of 2009 reported, the GSEs have entered into over 574,000 foreclosure prevention activities.
Only 22,000 loans that entered HAMP trial modifications with the GSEs had been completed by the end of November; with Fannie Mae finalizing about 1,500 more than Freddie Mac. This performance is consistent with that of other agencies involved in the program and the GSEs report similar reasons for the lack of volume; missing documentation from lenders and disqualifications on the basis of income found after the trial period began. Like FHA and other HAMP agencies, Freddie Mac and Fannie Mae say that they are aggressively addressing the documentation problems and are referring disqualified borrowers to other programs.
The two Enterprises differed in their modification methods. Fannie Mae both extended the term of the loan and lowered the interest rate in 72 percent of the mortgages it modified. Freddie Mac followed this course in only 41 percent of the cases and only extended the term in 43 percent.
Approximately 87 percent of all completed loan modifications resulted in a lower monthly payment. Modifications that increased this payment by up to 20 percent represented 37 percent of all modified loans, an increase from 32 percent in the second quarter but those that increased payments by more than 20 percent decreased from 54 to 40 percent.
Loans modified in recent months are performing better six months after modification than did earlier modifications, but the numbers are still dismal. Six months after completing the modification, 34 percent of loans modified during the first quarter of 2009 were still current compared to 39 percent of those modified during 2008. This is the second consecutive quarter that loans have shown improvement, but the success of foreclosure prevention is as much dependent on the job market and other improvements in the economy as on any changes made by the GSEs.
Foreclosures
Foreclosure starts decreased during the quarter from 299,000 to 254,200. Completed foreclosures and third party sales rose from 57,800 to 71,000 over the quarter but the proportion of foreclosure starts transitioning to completed foreclosures declined, primarily reflecting activities under the HAMP program.
Short Sales and Deeds in Lieu
The volume of short sales and deeds in lieu approved by the GSEs increased during the third quarter to a total of 17,400, an increase of 39 percent over the second quarter. Home forfeiture actions such as short sales and deeds in lieu of foreclosure continued to increase during the third quarter. This reflects the increasing number of borrowers that no longer have the capacity or desire to retain their homes, due to unemployment, underemployment, negative equity, or other factors affecting the household’s financial situation.
In a short sale, the borrower sells the homes for less than the full payoff amount due on the mortgage and lenders accept such amounts. Alternatively borrowers may convey title to the home to the servicer through a deed-in-lieu of foreclosure. Short sales help to keep REO inventories down and both short sales and deeds in lieu help to minimize the impact of foreclosure on borrowers and neighborhoods.
The next reports coming from the Federal Housing Administration and the GSEs will include data collected more than six months after the implementation of HAMP. While there was a start-up period and few loans entered the program before mid-summer, these upcoming reports should contain the first really useful data on the program. Hopefully they will show that the first of the thousands of homeowners who started the process have successfully completed their trial periods, moving into permanent modifications rather than forming the front edge of a new wave of foreclosures.
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