Loan modifications

Occupying Homes As A Solution?

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Seriously..I am torn.  I just don’t believe this is the right way to deal with a lender when you can’t make your previously AGREED TO payments.

I recently became aware of the website  The site is full of heart tugging stories of people who can’t make their mortgage payments and the issues they have had with the banks in attempting to get a modification or stop an eviction.

I have to start with a basic idea here.  All of these people signed mortgage contracts under lawful circumstances.  If it could be ruled they were not of a right mind, or capable of understanding what they executed, then by now the attorneys would be attempting to void out mortgages based on the incompetence of the borrowers.  Not heard that case being made.

As I wander through this site, I see that the one thread that ties all of these people together is that they can’t make the payments they agreed to make, and getting to live in their homes at a lower cost (or even no cost) is a right extended to them by living in America.  Or under God..or some other deity.   The theme, as we now have heard it from the media so many times, is the 99% will have their voices heard.

The reasons I am torn?  A bunch really.

1. I do feel bad for people who are able to enter agreements (contracts) and really not understand the possible repercussions.  On a different scale..I assume most of these folks purchased cars on credit and signed notes for the cars.  If they can’t make the payments, the car gets repossessed.  No modification programs are being advocated by the government for car buyers.  I have heard talk of them for student loan borrowers.  I suppose cars are next..and I guess has already been acquired.

2. Admitadely, the banks have not shown a lot of excitement to provide modifications.  They have done it under the strong arm-twisting of the federal government..but the reality is they are complicated beasts with a VERY high rate of failure.  As I have witnessed so many times, the people who are unable to make their house payment also often choose to not spend money on maintenance.  The longer the situation exists, the more the value of the home drops (as do the ones around it).  Modifications, due to the high rate of failure, don’t stop this cycle..only prolong it.

3.  As I review the website, it appears there is a lot of good money being spent on this cause.  It in fact troubles me as to where the funds are coming from.  Yesterday, a press release found on AOL Real Estate brought me to my tipping point on this issue:

NEW YORK – Aug. 22, 2012 – The “Occupy Our Homes” movement is taking its anti-foreclosure message to the airwaves. The protesting group, part of the Occupy Wall Street movement that has a network of participants across the country, announced it has launched a national television ad campaign to speak out against foreclosures and show struggling homeowners how they can fight against evictions.

In recent months, the group has staged “sit-in” protests at properties of homeowners facing foreclosure.

The TV ads direct viewers to the (Link: website for a field manual on how to “start an occupation,” which details how homeowners can protest a foreclosure using sit-in strategies.

The ads are set to appear on networks like CNN, FOX and MSNBC.

This is not inexpensive advertising!

The great thing about America and our system is there is plenty of room for groups like this to exist.  We do have laws and at some point those laws will need to be enforced.  There are thousands and thousands of people involved in the housing business who have all kinds of empathy for people who made bad decisions.  Nobody really wants people to be put out on the street.  Don’t worry..they won’t be.  There are so many options for renting and public assistance today.  What I have on my mind is who is funding this anti-capitalism, anti-law, protest movement?  And why?

That is what we all should start to be concerned about.   If you have information on this please comment and share so we can all draw our own conclusions.

How Meaningless Are Foreclosure Statistics?

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Apparently quite meaningless.  All the ways that defaulting borrowers can stall the process seem to be working.  Working to basically juice the statistics to not really provide an indicator of free-market defaults, but often a whole lot of borrowers who finally just give up from trying the latest modification program offered. 

Interesting that when the day is over, the market actually seems to win out.  I am not a cheerleader for people going into default and eventually having a foreclosure on their home, but the sad reality is getting clearer every day.  We can’t change these situations with homeowners who are treading water.  No matter how hard somebody comes up with a new twist for modifications, in the end I wonder if significant principal reductions would even matter.  People do not get into these problems overnight and artificial mechanics won’t fix the problems any faster.  At best.  More likely, as this story points out, we are just postponing the inevitable.

National Mortgage News

Repeat Defaults Boosting Foreclosure Sales

Friday, March 4, 2011

The January Lender Processing Services Monitor report shows frequent moves in and out of loan delinquency and foreclosure traffic is one of the reasons why apparent improvements in the nation’s distressed mortgage market are relative, if not meaningless, when seen as part of the overall picture.

LPS reports that repeat foreclosures or loans that had cured in one way or another but have fallen back into foreclosure now account for over 35% of foreclosure starts.

It means the fact that foreclosure starts decreased 11.4% in the first month of 2011 compared to December and 20.1% annually does not call for rejoicing even though the good news is that there is some stability in the number of those who are adding up to the existing number of distressed borrowers. (Similarly, new seriously delinquent loan rates also improved as all states reported significant annual declines in new seriously delinquent loan inventory.)

The bad news is that despite government/private sector efforts to help keep these distressed borrowers in their homes the assistance given to many of those who repeatedly go into foreclosure may be futile and just postponing the inevitable.

Since ultimately foreclosure starts still outnumber foreclosure sales by almost three-to-one—plus it is equal to 25 times January 2011’s level of foreclosure sales—the current foreclosure inventory is poised for faster growth.

This trend appears to be consistent in the long term. In January the total U.S. foreclosure inventory rate was 4.16%. It increased 0.2% on a monthly basis and 7.9% compared to January 2010. By the end of January foreclosure inventories were at nearly eight times the historical average while delinquencies more than doubled historical norms.

At 8.9% the total U.S. loan delinquency rate increased 0.8% on a monthly basis but decreased 18.8% on an annual basis bringing the total U.S. noncurrent loan rate to 13.1%.

Whether the primary driver of loan performance change is borrowers’ unemployment, other financial distress, or foreclosure moratoria, what appears to be adding to that list is longer foreclosure timelines that consistently continue to extend.

LPS data show the average loan in foreclosure has not made a payment in over 500 days. It finds the foreclosure process “continues to drag out as the timelines for foreclosure starts, days in inventory and sales all continue to extend.”

It means that along with the increase in the number of serious delinquencies, or loans that were 90 days or more delinquent, the number of future foreclosure prospects is growing. According to LPS, a large number of loans were transitioned out of foreclosure back into the seriously delinquent category.

Data show deterioration in the seriously delinquent category “increased last month, for the first time since May 2010” marking overall growth with the largest increase in the over 12-month delinquent category as more loans were removed from foreclosure.

As of Jan. 31, 2011 over 2.2 million loans were 90 days or more delinquent but not yet in foreclosure bringing the total number of loans in some stage of delinquency or foreclosure to over 6.9 million.

Furthermore, refinance activity—which could help reverse the status of some delinquent loans into current—has declined significantly due to increasing rates and the fact that the market seems to have exhausted these opportunities during several months of strong refinance volume.

As to where the most problematic areas are, the story has not changed.

The state with the highest number of noncurrent loans, including foreclosures and delinquencies as a percent of active loans, is Florida, followed by Nevada, Mississippi, Georgia and New Jersey.

Some Coffee To Go With the Modification Report

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

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

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

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

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

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

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

Short Sales-The Biggest Challenge

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

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

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

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

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

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

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

Better Late Than Never?

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

The take away:

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

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

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

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