Good news: Lenders are ramping up their attempts to help troubled home borrowers.
Now for the bad: Most of the mortgage fixes being deployed are destined to fail.
Hope Now, the coalition put together to fight foreclosures, boasts that it has helped 3 million families stay in their homes since the housing crisis began in July 2007.
But a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again. The report covered 60% of the outstanding primary mortgages.
Your loan and what's being done:
Lenders and servicers take two approaches to working out mortgage problems: repayment plans and mortgage modifications. Repayment plans allow borrowers some time to make up missed payments. Modifications actually rewrite the terms of loans by freezing or lowering interest rates, extending the life of the loan, or reducing the amount owed.
Mortgage modifications are meant to be more effective. The problem, Van Zalingen said, is that they too often fail to reduce a borrower's monthly house payment.
The lenders often don't change the interest rates but merely freeze them at a high, unaffordable level, and then add missed payments into the balance, which increases it, according to Van Zalingen.
The better approach?
Modifications that include interest rate reductions that result in lower payments perform much better. A recent Credit Suisse study reported redefault rates of only 15% for this kind of modification.
Insanity:
Chris and Cherita Barnes got a mortgage modification from their servicer, Ocwen Financial Corp., in March 2008.
But they're already behind again. The loan workout froze the 8.75% interest rate on their adjustable rate loan, but added their missed payments, interest and late fees back into the mortgage balance, raising it to $354,000 from $329,000.
The Barnes' new monthly bill came to $3,167, up from $2,890. That was better than it would have been had their interest rate continued to reset higher but it still pushed their mortgage payments, including taxes and insurance, to about 53% of their income.
You think!
Modifications that don't involve some kind of principal reduction or somehow lower payments substantially "just don't work very well," said Mark Zandi, chief economist for Moody's Economy.com. But, he added, many lenders have recently gotten much more aggressive when it comes to loan modifications.
This, like seemingly every other other economic issue right now is insane. The incompetence is insane. The logic is insane. Whether or not you agree with loan modifications, they're being done. If they're going to be done, what in the world is everyone wasting their time doing them for if the monthly payment is not going to be made substantially more affordable for the distressed owner? Isn't it obvious that if they're struggling now, odds are, in these difficult economic times, that they're going to continue to face hardships for the foreseeable future? According to the article, the nickels and dimes being saved on the front-end are merely being balled up on the back. Perhaps they should change the name of this process from loan modifications to loan reorganizations.
Principle reductions, rate reductions, that's a loan modification that has a chance to work. Again, whether you agree with these types of "bailout" programs or not, they're going to be done and if they're going to be done it seems to me that it would make sense to do it right instead of peddling false hopes and prolonging the inevitable.
The streamlined modification program (SMP) announced Nov. 11 has now rolled out and will allow government-sponsored entities Freddie Mac (FRE: 0.69 -2.82%) and Fannie Mae (FNM: 0.69 0.00%) to modify large numbers of delinquent mortgage loans in an effort to prevent foreclosures, the GSEs - along with the Federal Housing Finance Agency - announced Thursday.
The SMP officially went into effect Monday and will replace several time-consuming steps in the traditional modification process with faster procedures and standard eligibility requirements, Freddie said in a press statement. The program will allow mortgage and escrow payments to be cut to 38 percent or less of an eligible borrower’s gross monthly income by either reducing mortgage rates, extending the mortgage term up to 40 years, or forbearing on a part of the principal amount until the loan matures or is paid off, at which time the borrower will be required to make a balloon payment.
Looks like a few people are being helped:
Fannie Mae said in a separate statement that it has been working with FHFA and 27 lenders and servicers in the HOPE NOW alliance to implement the SMP. "Along with other recently announced initiatives by Fannie Mae to reach and help financially troubled borrowers earlier, including our Early Workout program, the SMP is a critical component of our company's foreclosure prevention efforts," president and CEO Herb Allison said. "These efforts are helping more than 10,000 delinquent borrowers every month get back on track."
It continues to appear that many banks feel that loan modifications are the path to housing salvation and subdivisions without foreclosures. Rate reductions, principle reductions, and neither rolled onto the back-end. Perhaps, with these types of provisions, a significant dent could be made as these loans would become affordable again to a much larger group of distressed homeowners. Until then, current efforts are better than nothing but still a very sloooow uphill battle.
November foreclosure filings fell to 259,085, or one for every 488 households in the nation, according to the latest report from RealtyTrac, the online marketer of foreclosure properties. That was down from October, but up 28% from November of 2007.
A total of 78,179 families lost their homes during the month, down 8% from October when 84,868 homes were repossessed by lenders. A total of 1,014,618 homes have been lost to foreclosure since the housing crisis hit back in August 2007.
Loan modifications not getting the job done:
Meanwhile, evidence is mounting that current foreclosure-prevention efforts are falling well short of the mark.
A Dec. 8 report from the Office of Comptroller of the Currency stated that more than half of the borrowers who had their mortgages modified in the first half of 2008 are already delinquent again. Many of these delinquencies will turn into foreclosures in the coming months.
"A lot of those modifications are simply pushing back principal payments," said Sam Khater, senior economist for First American CoreLogic, a financial data and analytics company. "They're not reducing the level of debt. Many homeowners are in such bad shape that only much more drastic or radical modifications will help them."
Simply put, it looks like more foreclosures are coming since many loan modification efforts are failing. The end result, Christmas break for foreclosures and back to reality for what will be a not so happy New Year for many.
More than half of delinquent homeowners whose mortgages were modified earlier this year ended up redefaulting within six months, a top bank regulator said Monday.
Some 53% of borrowers with loans modified in the first three months of 2008 and 51% of those with loans modified in the second quarter could not keep up with payments within six months, according to U.S. Comptroller John Dugan, who spoke at a housing conference.
You think?
The high redefault rate raises concerns about the long-term effectiveness of loan modifications, which many are pushing as a key solution to the nation's financial crisis.
Falling further and further behind ...
A record 1.35 million homes are in foreclosure, while the number of borrowers who have fallen behind on their payments soared to a record 6.99%, the Mortgage Bankers Association said last week.
I guess we shouldn't be too concerned with these numbers. After all, nearly half of the loan modifications seem to be working. With all of the incompetence to this point, should we expect anything less or shall I say expect anything more?
I hope someone is planning on early Christmas bonuses for those responsible for this successful effort. No money you say, perhaps more tax dollars would be fitting to support this purpose. That's the way it works. Right?
The nation's top banking regulator warned Tuesday that help for troubled homeowners is failing to keep pace with the foreclosure crisis.
"We're definitely behind the curve, and we fall further behind the curve every day," FDIC Chairwoman Sheila Bair told an audience at the Fortune 500 Forum in Washington, D.C.
According to Bair, the nation's financial system would be in much better condition today if earlier warnings she made about mortgage modification had been heeded.
Bair began sounding the alarm more than two years ago, warning that lenders had to shore up capital reserves to offset non-performing loans. In October 2007, she told lenders that they should start modifying more at-risk mortgages so borrowers could afford to stay in their homes.
Meanwhile the mortgage mess has ballooned, expanding beyond the housing market into the entire financial sector and the overall economy.
Foreclosures still growing in large numbers:
... Nearly 280,000 struggling homeowners received some kind of foreclosure notice during October, according to RealtyTrac, a 25% increase over October 2007. And nearly 85,000 families actually lost their homes, up 59% year-over-year.
Those increases illustrate the difficulties in getting foreclosures under control, including resistance from the investor community - the individuals and organizations that purchased many of these at-risk loans as mortgage-backed securities.
"The legal authority is there to modify loans, but there are conflicting economic interests on the part of investors [in mortgage-backed securities]," Bair said at the Fortune 500 Forum.
These mortgages have been broken up into classes or tranches, as they are called in the industry. The senior tranches have first claim on assets should the loan fail. Other tranches have a secondary claim on assets.
In a modification that reduces the value of an investment, "The senior claim may be okay but the lower tranches could get wiped out," said Bair.
In concluding:
She (Bair) told the Fortune 500 Forum that it's not too late to step up foreclosure prevention initiatives.
"The sooner we do it the better," she replied. "I see higher delinquencies growing through 2010."
Acting now would help many families who would otherwise lose their homes. And that would benefit everyone.
"Attacking the financial problem at its roots is the fiscally responsible and smart thing to do," she said.
We don't know about you, but we're not holding our breath. Our government has been disgustingly inept in handling these housing and economic problems and there is absolutely no reason to believe that anything is going to change now. We're at the point where it's every wo(man) for themselves. This is what we get when no-one is paying attention - the majority of the American people included!
Just think, give all this a few years and we'll be breaking out the champagne cheering the beginning of doing this all over again.
Real Estate and cycles. They can't exist without each other, without us either!
Bailouts, loan modifications, program after program ... does ANYONE know what they're doing? The unbelievable turn of events gets even more unbelievable every minute. When you have incompetence of this magnitude, it's no wonder we have an economic crisis of this magnitude.
Not to worry, this can all be solved by printing a few more bills. Gotta go, the CEO's of the "Big Three" just landed in their private jets. Wow, they look nice. Where can I get one?
If mortgage lending was the Wild West during the boom years, foreclosure-prevention counseling is the lucrative new frontier of the bust.
Nearly 1.6 million borrowers are in jeopardy of losing their homes this year, according to economist Mark Zandi of Moody's Economy.com, and thousands of new foreclosure-rescue companies are rushing in to offer the troubled homeowners loan work-out assistance. For a price.
They're looking for you:
Usually homeowners seeking mortgage modifications call their lenders directly or work with non-profit community groups. But many borrowers are now turning to for-profit companies as their mailboxes are flooded with work-out offers.
Each day private firms go online or visit courthouses across the country to pore over foreclosure filings, which are public records. "By 10 or 11 o'clock, they've mailed out solicitations to anyone with a foreclosure filing that day, promising to save their homes," says Jeff Hart, a prosecutor with the Ohio attorney general's office.
Once a borrower contacts a foreclosure-prevention company, the counselor takes their financial information, analyzes how much the client can afford, and then contacts the lender and negotiates new mortgage terms.
Look out, here comes the fraud:
"Folks need to be really careful," said Chris Kukla, a spokesman for the Center for Responsible Lending. "In many cases, these are no better than scams. You should look at all your low-price or free options before signing on with a for-profit company."
One of the main criticisms of for-profit foreclosure counselors is that they are not regulated, with oversight laws varying state by state. As a result, some marginal characters are drawn to the industry, ones who use high-pressure sales tactics and play on fear.
Many firms demand hefty up-front fees, which they keep even if a loan is not successfully modified. Only a dozen states, including Minnesota, New Jersey, New York, Nevada, Massachusetts and Maryland, prohibit that tactic.
As usual the markets are at work. Unfortunately, there's always an angle to be played when it comes to scam artists. As far as we're concerned, this housing market crisis is an endless playground that will enable these scam artists to take advantage of the most desperate individuals in their greatest time of need.
Guaranteed, people will be taken for a ride. Don't be one of them. It's always a few that make a bad name for the rest. Do your homework. Contact multiple experts. Get in the know.
Citigroup said that under the Citi Homeowner Assistance program, it would preemptively contact 500,000 mortgage holders -- involving $20 billion of mortgage balances -- to try to ensure that they can pay their loans. It said it is focusing on borrowers who live in areas that are likely to face "extreme economic distress." Read MarketWatch First Take commentary.
Citi also extended its moratorium on foreclosures, saying it won't begin or complete a foreclosure sale on a home on which it owns the mortgage if the borrower wants to stay in the home, which is his or her principal residence. Citi said it will also need to be sure the borrower is working in good faith with the bank and has enough income for affordable mortgage payments.
"Under our new program we will preemptively reach out to help homeowners before they become delinquent, which is critical to avoiding the loss of a home and protecting their credit score and future borrowing potential," said Sanjiv Das, chief executive officer of CitiMortgage.
The broken record continues to skip along. Same script, just another bank. We're beginning to sound like a broken record too ... until the next loan modification announcement!
Need an additional fix of loan modification news? Find our growing list of links below regarding, you guessed it, more loan modification posts:
Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, will accelerate anti- foreclosure efforts with a new loan modification program designed to cut monthly payments for struggling homeowners.
Fannie and Freddie, operating under a government conservatorship, will target loans in which borrowers are at least 90 days delinquent and have high loan-to-income ratios, officials from the Treasury and the Federal Housing Finance Agency said today at a press conference in Washington. The companies may offer reduced interest rates and longer terms of as much as 40 years to trim monthly payments.
The loan modification plan:
Under the proposal, mortgage servicers will work with borrowers to reduce monthly payments to 38 percent of their gross income, a level considered a threshold for affordability, using a combination of lower principals, interest-rate reductions and extensions, the people said. The plan doesn't include money from the Treasury's $700 billion bank rescue.
Homeowners will have to apply for the program, and their loan modifications won't become final until they have made three consecutive payments. Their new monthly payment will include all of their monthly housing costs, such as taxes and even condominium payments, one person said.
With increasing regularity, these loan modification programs are becoming commonplace in the industry. In fact, Citigroup is joining the party as well. We've allowed our blog to be hijacked by the relentless news of late regarding the loan modification mania. If you find yourself similarly obsessed, you can find links to our previous loan modification articles below with most certainly more loan modification articles to follow. The housing market bust has created the loan modification boom.
As reported by the FDIC (bank failures of 2008). 19 and counting. Looking to modify your loan? Wondering who owns your loan? Wondering where you should make your next mortgage loan payment? Follow the links below to learn more about each failed bank and their plight.
Bank failure after bank failure! When will they stop? How many more will fall victim? The economic crisis is ugly. Is it getting uglier? The money trees continue to shake into oblivion.
What are you waiting for, you can get your piece of the pie too. Everyone's doing it, why not you? Did you really think the lending industry was dead? It always takes a few minutes to get back on track. There's money to be made. Stop reading this blog and get out there. Short memories - history does repeat itself!
Loan modifications, loan modifications, loan modifications ... the next boom. (Click on image to enlarge in a new window)
