Dropouts Rise In Gov't Loan Modification Program
The Treasury Department’s latest report reads like a dashboard of the problems in the Obama administration’s $75 billion program. While officials summarize it as a helping hand that can help the housing market turn around, critics see that as something that merely delays an inevitable surge of foreclosures. The critics seem to be right, as there is growing evidence that the number of homeowners dropping out of main mortgage assistance program is almost equal to the number who have received permanent relief. And the drop outs are on the rise. More than 299,000 homeowners had received permanent loan modifications as of last month, Treasury said. That's about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month. However, the number of people who started the process but failed to get their mortgages permanently modified rose dramatically in April.
To complete the program, borrowers must make at least three payments on time. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during this trial phase. That's up from about 155,000 a month earlier, or a 79 percent increase. The many reasons for the failure include, borrowers’ inability to complete the process and tough bureaucracy. Treasury officials acknowledge that long delays have been a problem. "Homeowners are waiting. We want them to get answers as rapidly as possible," said Herbert Allison, an assistant Treasury secretary. Treasury officials have now directed lenders to shift to a new system. Starting with loan modifications that go into effect June 1, they are required to collect two recent pay stubs at the start of the process. Many borrowers who don't get help will end up losing their homes. That can happen through foreclosure or short sales. Mortgage companies will now have to set their minimum bid before the house is listed for sale.
If the offer is above that, the lender must accept it.
But, generally, lenders calculate the money only after they have an offer on hand, which can lead to more delays. The new program is expected to boost short sales this year, but 80 percent of distressed sales this year are still likely to be foreclosures, estimates Celia Chen, senior director of Moody's Economy.com.
Wall Street reform finale expected this week
The Senate is entering the final stretch of its work on the Wall Street reform bill, which aims to stop bailouts, shine a light on complex financial products and strengthen consumer protection. The legislation, which has been through numerous ups and downs over many months, remains a moving target. But many lobbyists and veteran congressional watchers say they expect it to pass the Senate by Friday. If that happens, leaders of the Senate and House -- which passed its own bill in December -- would likely hole up behind closed doors to negotiate differences between the two bills next week. A couple hundred amendments have been filed to the already massive Senate bill.
On Monday night, lawmakers approved an amendment mandating that credit bureaus provide free credit scores to consumers in some cases. Later in the week, the Senate will likely vote to strip the bill of a provision that would bar banks from trading derivatives if they want access to cheap emergency loans that the Federal Reserve makes available. The Senate is also expected to vote on a controversial amendment that would exempt auto loans from tougher rules governing other consumer financial products. It would also create a council of regulators that would sound an alarm before companies are in position to trigger a financial crisis. Finally, the bill would establish new procedures for shutting down giant financial firms that are collapsing.
Diana Olick - Mortgage Mods Doomed by Back End Debt
Much like America's waistlines, the Treasury Department's monthly report on the Home Affordable Modification Program continues to grow. What started as a four-page report has now reached ten pages, with the latest addition to the "lender accountability" category: Conversion Rate and Aged Trials as Share of Active Trials. These provide a lot of insight into why so many borrowers are not getting permanent modifications. The top four lenders (Bank of America, JP Morgan Chase, Wells Fargo and CitiMortgage) take up the bulk of the bottom slots on the Conversion Rate chart. All four convert less than 26 percent of trial mods to permanent mods. Bank of America's Rick Simon says initially, "All the major banks, at Treasury's suggestion, went to non-verified income for verification."
That seems to be the crux of the problem. Imagine that: Folks who didn't have to show any proof of anything to get a trial modification, weren't able to sustain that modification. The big guys have now changed that, requiring full documentation. So big surprise the report now shows a drop in the number of new modifications, because if you have to get all that documentation up front, then it's likely going to take longer. So now we get the delay, but why are the permanent mods failing at all if they've barely begun, and if the front-end debt to income formula is supposedly so perfect? I asked the banking folks and expected to hear "unemployment" as the answer. I was wrong. They cite the back-end DTI, which is your mortgage debt in addition to all your other debt, like car, credit cards, etc. P. 5 of the HAMP report puts that at 64.3 percent, meaning you've got 35.7 percent of your income to spend once you've paid all debt-related bills—not to mention your income taxes! Last
month it was 61.3 percent, the month before, 59.8 percent, so it's getting progressively worse. In the fine print, it says "Borrowers who have a back-end debt-to-income ratio of greater than 55 percent are required to seek housing counseling under program guidelines."
So how is it that the "Median Characteristics of Permanent Modifications", shows the back end DTI (64.3 percent) at a level that would require counseling? i.e. risky?? And that's the "Median", which by definition means half the permanent mod borrowers have and even HIGHER back end DTI. I have to wonder if any mortgage originator today would even offer a new loan to anyone with those kinds of stats. My guess is no.
FHA Set to Reduce Closing Cost Assistance This Summer
The real estate industry is still waiting to see how the market will adjust after the expiration of the first-time homebuyer tax credit, but more consumer incentives are about to be cut, this time from the Federal Housing Administration (FHA). The FHA will reduce allowable seller concessions — the percentage sellers can take from the sales price of a home to fund closing costs — from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set.
The closing costs include fees for origination, attorneys, appraisal and inspections, title search, title insurance, credit reports, and more. Down payment assistance is not included as a closing cost. Anthony Askowitz, broker and owner of RE/MAX Advance Realty II in Miami, Florida, said the FHA 6% level was also a big incentive to homebuyers looking for reasons to buy a home after the tax credit expired. Askowitz said on a $100,000 house, 6% is $6,000, which is one way of overcoming the tax credit expiration going forward. He said he is seeing some sellers offering an $8,000 credit to new homebuyers, especially for homes that have been on the market for an extended period of time. “I think the seller is going to be much more apt to agree to a seller contribution in order to get it sold. Being creative, there are other ways to do it, other than the government doing it,” Askowitz said.
NAR Proposes Solutions to Congress to Combat Commercial Real Estate Crisis
The commercial real estate market is experiencing its worst liquidity challenge in almost 20 years, and it is vital that Congress take action to prevent a deepening crisis, the National Association of Realtors® said in testimony to the U.S. House of Representatives Subcommittee on Oversight and Investigations, yesterday. Cosenza said the crisis is driven by a confluence of high unemployment, a slow economy, weakening commercial property fundamentals, and an increase in commercial loan delinquencies. Cosenza outlined a number of proposals urging the congressional panel to consider. First, NAR supports changes that will boost lending to the commercial real estate and small business markets, he said. Currently, due to the slumping economy and falling commercial real estate values, many commercial banks have tightened their credit standards and reduced their loan volumes. NAR strongly supports H.R. 3380, “Promoting Lending to America’s Small Businesses Act,” which would i
ncrease the cap on credit union lending to 25 percent of total assets, from its current business lending cap of 12.25 percent of total assets.
Cosenza also pointed out that commercial loans are often short term, and property owners must refinance frequently. In addition, lenders should be encouraged to extend the term of current loans, he said, but they have been wary of offering extensions because of oversight and regulatory concerns. He said incentives like generous depreciation allowances, and improved cash flow for investors of commercial property would help fend off some of the challenges the market faces and soften some of the commercial liquidity crisis. NAR also supports developing a mortgage insurance program for commercial debt and an extension of the Term Asset-Backed Securities Loan Facility (TALF) program. NAR believes an extension of TALF will help stimulate the commercial mortgage-backed securities market and that the program requirements should be less burdensome for investors, and urged Congress to act quickly on these crucial issues.
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