One hundred percent of those who lost homes in foreclosure suffered from excessive debt — 100%. The total amount of debt is important, but the terms of repayment are far more critical. The monthly payment (plus taxes, insurance and other costs) must be a manageable percentage of the borrower’s income, otherwise the borrower is likely to default. Historically, this value was 28% or less, then it was expanded to 30%, and now the GSEs underwrite to 31%. Debt-to-income ratios higher than this are proven to have accelerating default rates absent Ponzi borrowing.
Thirty-one percent doesn’t sound like an onerous percentage of income. But most people forget this is gross income, not net. A 31% debt-to-income ratio is 50% or more of a borrowers take-home pay. How long do you think you could afford to pay half your take-home pay for housing? It’s a stretch, but it can be done. But what about 50% of gross pay. That’s 70% or more of a borrower’s take-home pay. How can anyone sustain that very long?
They can’t.
High housing payments the new ‘American nightmare’
Millions of Californians are paying close to half their income for housing – a level once considered foolish. Even as home prices have tumbled, the cost of homeownership has continued to rise.
By RONALD CAMPBELL / THE ORANGE COUNTY REGISTER — July 26, 2012 Updated: July 31, 2012 10:57 a.m.
In 2006, Ernie and Edith Garcia began building their dream home on a Fountain Valley lot his grandparents had purchased decades earlier.
Six years, one recession and one layoff later, the mortgage on their home has become an anvil around their necks.
“The American dream?” Ernie Garcia asks. “This has turned out to be the American nightmare.”
The writer makes it sound like these were circumstances beyond their control, but were they? When these people built their “dream home,” do you think they were concerned about the cost and their ability to pay for it, or did they get the largest Option ARM an irresponsible lender would give them? They had choices to make, and they made the wrong ones.
The Garcias have a lot of company. Unnoticed amid the housing boom and bust, millions of California families entered risky territory, paying once unthinkable shares of their income for housing.
Today, some 2.7 million California households – homeowners and renters – pay at least half their income for housing. That includes the Garcias and about 200,000 other Orange County households. The numbers have nearly doubled in the past decade, according to the Census Bureau. A much bigger group – 4.6 million California households – is paying 35 percent or more, above the traditional 30 percent norm, up by 1.7 million in a decade.
Of the 200,000 OC Households paying more than 50% of their income toward housing, how many of them are loanowners who will ultimately succumb to the financial pressures? Will lenders get prices to go back up and resupply the housing ATM in time to enable these loanowners to continue their Ponzi borrowing?
They have little money available for savings, retirement or the unexpected. Mortgage or the rent takes most of their cash. They are caught in a housing crunch.
As their ranks have grown, lenders have redefined upward how much is too much to pay for housing.
Lenders are slavers. By continually raising the percentage of income people put toward debt service, borrowers will never get out of debt, and lenders earn the rewards of their slave’s labor through never-ending interest payments. Most sheeple are too stupid to see what’s happening. What’s worse, this money going to lenders comes straight out of disposable income further crippling the economy. Oh wait, lenders have a solution to that problem — more consumer debt to make up for the lack of disposable income. Then they can profit from that too.
REDEFINING THE LIMIT
The 30 percent benchmark stood for decades after World War II.
But “30 percent doesn’t seem to click with reality in Orange County,” said Glenn Hayes, president of Neighborhood Housing Services of Orange County, which counsels prospective homeowners and people in trouble on their mortgages. “Historically, we used to try to do 28 or 30 percent, but you couldn’t buy in Orange County for that.”
With inflated house prices, you could still buy, but the property would be inferior to a comparable rental.
Mortgage giant Fannie Mae sets standards for conventional lenders through its rules for purchasing loans. Earlier in the decade, it said borrowers should pay no more than 36 percent of their income for housing, though lenders could go higher. In December 2008, Fannie Mae changed the rules to let borrowers take on more debt.
Under the new rules, lenders qualifying borrowers by hand could go as high as 45 percent for strong borrowers, such as those with excellent credit or big cash reserves. Lenders with automated underwriting could start at 45 percent and go, in exceptional cases, to 50 percent, Fannie Mae spokesman Andrew Wilson said.
The evolving loan standards recognize a reality: Income has not kept pace with housing.
Wrong! The constantly rising loan standards is partially responsible for continually inflating home prices. If lenders did not allow borrowers to borrow beyond income levels borrowers can repay, house prices would not go up beyond affordable levels.
Think about it. Contrary to popular belief, affordability is not obtained by increasing a potential buyer’s borrowing power. It merely allows them to bid higher which pushes prices higher. The new higher prices become a barrier for the next wave of buyers who must borrow even more. Lenders cannot continually raise the debt-to-income ratios of borrowers because at some point (about 30% of gross income) borrowers simply cannot consistently make the payments. Once borrowers are pushed beyond, they default, a credit crunch ensues, and prices come crashing back down to levels of affordability. This isn’t theoretical. We all just witnessed this over the last decade.
From 2000 to 2010, median household income – the broadest measure of income – rose by 21 percent in California while rent and monthly owner costs rose by more than 50 percent, according to the Census Bureau’s 2010 American Community Survey.
Only a dramatic drop in interest rates have made this possible. At some point, incomes must catch up. Based on where we are in the credit cycle, it’s likely the federal reserve will keep interest rates near zero until wages finally begin rising — along with inflation.
While lenders adapt to this new reality, others warn of dire consequences right around the corner.
“When you’re paying 50 percent of your income for housing, you’re primed and ready to fall,” said Ginna Green of the Center for Responsible Lending in Oakland, a nonprofit advocacy group that fights predatory lending. “You are one illness, you are one car emergency, you are two overtime shifts away from a default.”
It’s not uncommon for people to live paycheck to paycheck, but the safety margins get pretty thin when so much is going toward housing.
… “The property is our legacy that we can’t ever sell,” he said. “This is the last of our family’s property. I’m not going to roll over on it.”Ernie and Edith Garcia, 50 and 49, … took … three years to build their dream house. Unexpected cost overruns boosted the price tag by $100,000 more than they had budgeted. Final tab: $647,000. They moved in September 2009.
Unexpected cost overruns? Notice how the writer is making this sound like circumstances outside their control again? Perhaps they could have cut back on the interior finishes or changed the design when the first bids came in.
Instead, they built their “dream home” and ignored the consequences of their decisions. Are we supposed to feel sorry for them because they lacked the wisdom to exercise a modicum of financial restraint?
UNHEEDED ADVICE
This section is better titled, “Stupid is as stupid does.”
Cheryl Knight was in love.
She loved a townhouse across the street from her Fullerton condo in a garden complex lined with small lakes. And the price in mid-2006 just before the market peaked, $480,000, was within her reach, barely.
“I fell in love with it,” the editor and writer said,
Do people really fall in love with townhomes? I suspect she fell in love with the extra money she thought she get once she owned her own ATM machine.
“which was why I went against my Realtor’s advice and bought it when she said it was overpriced.”
I would like to meet that realtor. Perhaps one in a thousand ever advise someone not to buy a house.
Knight, 43, also ignored the implicit advice of her lender, who rejected her first two loan applications.
The loan she finally got was a five-year, interest-only adjustable for $390,000. She borrowed the remaining $90,000 on a line of credit. The seller refused to wait for Knight to sell her condo. It would take Knight nearly a year to sell the condo.
Her monthly payments, including taxes, insurance and homeowner association fees, came to $2,510 – about 60 percent of her income at the time.
A few months after moving in, the company where she worked as an editor sent her to a conference in Omaha, Neb. She attended a session on financial planning and heard the speaker say that no one should spend more than 30 percent of his or her income on housing.
“And I was paying double that,” Knight said. “I almost started laughing. It was a shock.”
Now we are all laughing at how foolish she was.
… She spent months trying to get a loan modification on her own. In early summer 2010, the bank rejected her request but said she could do a short sale, keeping a foreclosure off her credit record. Relieved, she went out of town in August.
Knight returned to find her home had been foreclosed. Within two weeks, she was out, living in a 1,000-square-foot apartment. She’s paying $1,450 a month in rent – more than half her now-reduced income.
Notice how the reporter made it sound like this woman was foreclosed on in a very short period of time. The fastest this could have happened was 112 days after receiving a notice of default, but we all know the banks have not been in any hurry. She had plenty of time to complete a short sale, but instead she chose to squat until the foreclosure. She knew the auction was scheduled — these dates are not a mystery. 
What did she expect? Did she think the bank would postpone the foreclosure because she was out of town and they must have magically known she was going to come back and quickly complete a short sale? Give me a break.
“In the process of losing my property and my life savings,” Knight said, “I’m trying to become more positive that someday I’ll be a homeowner again.“
After her experience, why would she want to?
… With Edith still unemployed, it amounts to about 45 percent of their income. But they are determined to stick it out.”A short sale doesn’t work – not with this house,” Ernie said. “We can’t fail. All of our savings have been drained into this house.”
Despite the setbacks, Ernie is still optimistic about his dream home.
“I’ve waited my entire life to be a homeowner,” he said. “It’s still an exciting place for me.”
Real exciting. I can’t wait to sign up for one… not.
Build it, and they will walk.
Today’s featured property was purchased as a vacant lot on 5/4/2006. The owners put $231,250 down when they purchased the lot. Later Washington Mutual gave them $2,980,000 to build this property. Ordinarily, the bank would make sure their was equity still in the deal, but this was WAMU in 2007, so the $2,980,000 loan likely represents 100% of the lot and construction costs.
This property was built by the CEO of RINO Corporation, and apparently used some shady accounting through the corporation to get the house. It’s not clear why the owner stopped making the payments, but he gave the house back to WAMU who is sitting on a $3,000,000 loan on a house worth who-knows-what. These are the kind of high-end loans littering shadow inventory. Lenders are bringing these to market slowly because they know absorption at these price points is near zero, and if they have to discount these properties to sell the, they will lose billions.
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Proprietary OC Housing News home purchase analysis
31232 VIA COLINAS Coto de Caza, CA 92679
$2,900,000 …….. Asking Price
$2,980,000 ………. Purchase Price
11/9/2007 ………. Purchase Date
($80,000) ………. Gross Gain (Loss)
($238,400) ………… Commissions and Costs at 8%
============================================
($318,400) ………. Net Gain (Loss)
============================================
-2.7% ………. Gross Percent Change
-10.7% ………. Net Percent Change
-0.6% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$2,900,000 …….. Asking Price
$580,000 ………… 20% Down Conventional
4.05% …………. Mortgage Interest Rate
30 ……………… Number of Years
$2,320,000 …….. Mortgage
$565,059 ………. Income Requirement
$11,143 ………… Monthly Mortgage Payment
$2,513 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$725 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$216 ………… Homeowners Association Fees
============================================
$14,597 ………. Monthly Cash Outlays
($1,649) ………. Tax Savings
($3,313) ………. Equity Hidden in Payment
$822 ………….. Lost Income to Down Payment
$383 ………….. Maintenance and Replacement Reserves
============================================
$10,840 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$30,500 ………… Furnishing and Move In at 1% + $1,500
$30,500 ………… Closing Costs at 1% + $1,500
$23,200 ………… Interest Points
$580,000 ………… Down Payment
============================================
$664,200 ………. Total Cash Costs
$166,100 ………. Emergency Cash Reserves
============================================
$830,300 ………. Total Savings Needed
The property above is available for sale on the MLS.
Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."  |
$3,249,000 31152 VIA COLINAS |
0.13 miles 5 bd / 7 ba 9,631 Sq. Ft. |
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$5,999,000 48 CAMBRIDGE Ct |
0.75 miles 6 bd / 8 ba 11,733 Sq. Ft. |
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$7,495,000 34 CAMBRIDGE Ct |
0.88 miles 6 bd / 8.5 ba 11,618 Sq. Ft. |
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$6,250,000 23201 PRADERA Rd |
0.89 miles 6 bd / 8 ba 10,000 Sq. Ft. |
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$4,900,000 6 PALMA Vly |
0.96 miles 8 bd / 10.25 ba 16,505 Sq. Ft. |
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$5,995,000 31381 TRIGO Trl |
1.04 miles 5 bd / 7 ba 9,000 Sq. Ft. |
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$7,900,000 31801 VIOLETA Ln |
1.07 miles 6 bd / 5.5 ba 9,000 Sq. Ft. |
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$6,995,000 31361 TRIGO Trl |
1.12 miles 8 bd / 9.5 ba 10,394 Sq. Ft. |
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$3,500,000 12 SHIRE |
1.23 miles 7 bd / 5.25 ba 8,200 Sq. Ft. |
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$8,900,000 31951 VIOLETA Ln |
1.42 miles 7 bd / 11 ba 15,000 Sq. Ft. |
27 Responses to “2.7 million California households pay at least half their income for housing”
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Since the fed has pledged to cut the real value of peoples incomes and savings while making everything you pay for more expensive, go ahead and buy a home now to live-in …. just don’t call it an investment.
How about a hedge?
How about shelter?
Right now, I think it’s both an excellent shelter and a hedge against the future inflation we all know is coming.
Problem is, it’s 2012, not the 1970′s, and just about everyone is on that same side of the boat.
1) Current price model is based on the continuance of ultra-low rates/negative real rates.
2) US wages are not indexed to inflation.
When future inflation that ”we all know is coming” ultimately materializes (perhaps it wont, ie., see Japan), rates will rise and the incremental cost of debt capital is going to ‘whack’ prices going forward.
Best to call a home (lived-in) for what it is… shelter. Nothing more.
To any of loan of the brokers out there, what is the highest a potential buyer can go with housing DTI?
Assume 20% down conventional loan, W-2 wages, no credit card, student loan, and auto loans. Basically no debt. Is it 36% DTI?
To Rent or Own: How Consumers Decide Between the Two
In a study to examine what factors would drive a person to rent or own in their next move, Fannie Mae found that a mix of demographics and attitudinal drivers were key, while negative housing events appears to do little to thwart would-be buyers.
The study categorized respondents into three groups: renters, those with a mortgage, and outright homeowners.
After gathering demographics for the three groups, the study found that renters tended to be younger and fall into the low income category. For the survey, 46 percent of renters were in the 18 to 34 age group, and 43 percent of renters had an annual income under $25,000. Renters also tended to be single (41 percent) and employed part-time (47 percent).
Homeowners with a mortgage, on the other hand, were more likely to be in the 35-49 age group (41 percent), married (77 percent), and employed full-time (64 percent). They also tended to have a higher income, with 23 percent earning more than $100,000 and 39 percent earning between $50,000 to $100,000 thousand.
Those who were outright owners of their home tended to be 65 and older (46 percent) and retired (49 percent).
The study explained that traditionally, research has focused almost exclusively on demographic factors when trying to dissect the own-rent decision process.
But, based on the survey, attitudes toward housing and finances also had a significant influence on individual decisions to rent or own. The groups most affected by attitudinal drivers were renters and those with a mortgage.
The housing attitude that was found to be the most influential is the belief that “owning or renting makes more sense financially over the long term.” This is what drove all three groups to behave accordingly, depending on their situation.
One attitude that affected renters and discouraged them from buying was concern with affordability and housing maintenance.
An individual’s existing homeownership experience, whether it was positive or negative, was a primary driver of the own-rent intention for a mortgage owner, but not for those who owned their home outright. According to Fannie Mae, the results suggest that once consumers buy a home and have a positive ownership experience, they want to continue being a homeowner rather than consider renting.
For renters and those with a mortgage, the belief in homeownership and aspirations to own a home one day was important in determining whether one expected to own or rent in the future.
For outright owners, demographics, rather than attitudes, determined housing choice preference. According to the study, this is probably due to the fact that the upside financial possibilities are less likely, considering most outright owners are retired and past their income peak.
The study also found that troubles in the housing market over the years did not prevent people from aspiring to buy. Even factors such as exposure to mortgage default, perceived home value appreciation/depreciation, and self-reported underwater status were not significant in predicting intentions to own or rent.
The study analyzed full year 2011 data from the Fannie Mae National Housing Survey and incorporated 12,014 individuals.
Renting v. Buying: New Evidence Emerges…
**Using data from 1979 to 2009, the authors demonstrate that renting was the superior investment strategy for most of the past 30 years.
At the end of the analysis, the much-touted economic gains from homeownership really come from the forced savings of an amortizing mortgage. And this benefit only accrues to myopic households that would not otherwise save.
http://economics21.org/commentary/renting-v-buying-new-evidence-emerges-informs-housing-policy
The forced savings of an amortizing mortgages was eliminated as a benefit of home ownership by lenders eager to “liberate” everyone’s equity with HELOCs and cash-out refinances. The only real economic benefit of home ownership was rendered worthless by lenders.
Lenny: Homer, use your head, just buy a new car!
Homer: Great idea Lenny, but I don’t have any money!
Carl: You can take out a loan with your house as collateral
Homer: I wouldn’t have to pay it back for three more years! What are the odds of that much time happening?
Lenny: Pretty close to zero, I’d say.
Homer: Problem solved, generation awesome does it again!
(All three chest bump)
Amen! A study that finally tells the truth. Owning property is a liability folks. Not an asset. Its the ugliest investment vehicle, built upon a ponzi scheme,, debt, and interest rates (manipilated). Its the only commodity that is increases in value (artificially) a it deteriorates over time.
And hence the net worths of renters are on average 40x that of home owners.
I think renters have come out ahead over the last 6 years.
The Onion says it best: http://www.theonion.com/articles/nations-lower-class-at-least-grateful-it-not-part,28999/
Nation’s Lower Class At Least Grateful It Not Part Of Nation’s Middle Class
CHAPEL HILL, NC—A survey released Wednesday by researchers at the University of North Carolina found that despite the many challenges they face, the nation’s lowest-income individuals are nonetheless thankful they don’t have to endure the unique hardships of the nation’s long-suffering middle class.
According to the report, the 46 million Americans who fall below the federal poverty line, though struggling mightily, are at least glad they don’t have to live up to some rapidly vanishing American dream of advancing in their career, making more money, and improving their lifestyle, the way their middle-income counterparts do.
“The unrealistic expectations and false hope they experience must be unbearable,” Camden, NJ hotel clerk Allison Jacobsen told researchers, noting that while her $22,000 annual salary barely covers her rent and groceries each month, at least she doesn’t operate under the flawed assumption that her situation will ever improve. “A life spent constantly stressing out over a dead-end job or struggling to pay off a fixed 30-year mortgage on a continuously depreciating three-bedroom townhouse? It’s horrific.”
“Can you believe people actually have to live like that?” Jacobsen added. “I feel just awful for them.”
he survey found nearly 87 percent of the nation’s lowest earners take comfort knowing they are far enough down the economic chain that their children and grandchildren won’t possibly be able to live in circumstances any worse than their own, while 65 percent noted they have enough bills to worry about without the additional middle-class burden of making student loan payments or contributions toward a retirement plan that will probably go bust in the next market crash, anyway.
In addition, half of all destitute Americans said that while they lack medical coverage, at least they aren’t stuck paying increasingly high premiums for an increasingly terrible health insurance plan. And nearly all survey participants agreed they are grateful not to be trapped chasing “some sort of fantasy dream life” of middle-class American prosperity that no one in the year 2012 can ever possibly attain.
“I can’t even fathom what it would be like to drag yourself to work every morning actually believing that someday it will all pay off,” said Bronx, NY substitute teacher David McGrath, who along with his wife and 2-year-old son survives on food stamps. “Or to practically kill yourself for a job promotion or meager raise while under the delusion that you can work your way to the top. People waste the best years of their life doing that, and it’s a goddamn tragedy.”
Americans who live paycheck to paycheck and struggle to make ends meet told researchers they feel humbled by the travails of the middle class, and take solace knowing that however bad things seem, “some people out there have it a whole lot worse.”
“Imagine how traumatic it is to grow up feeling like a failure because you think you have some kind of control over what you achieve in life,” said Dana Joerger, a 31-year-old waitress and single mother of three in Stockton, CA. “I just hope and pray my family never falls into the endless cycle of disappointment that plagues our middle class.”
Researchers also found that people who were once part of the nation’s middle class experience a profound sense of relief upon moving down the country’s socioeconomic ladder and finding themselves on the bottom rung.
“Honestly, I can’t tell you how much better I feel these days,” said 42-year-old former IT technician Ryan Tunnicliffe, who last April lost his job and, subsequently, his house. “Just knowing I no longer have to strive for something completely and utterly out of reach is such a load off my mind.”
“I’m poor, and I’m going to stay poor,” Tunnicliffe continued while staring at his $320 weekly unemployment check. “It’s been very liberating.”
Reached for comment, several members of the nation’s upper class said they are “equally grateful” to have been spared the hardships of the middle class.
http://o.onionstatic.com/images/17/17655/original/600.jpg?1175
Amend-extend-pretend is a complete and total failure by any reasonable measure.
6% of HAMP modifications fail in the first 6 months
Though the skies above the housing market appear to be clearing, the July edition of the Obama administration’s Housing Scorecard warns of another storm to come.
HUD and Treasury Department released the latest scorecard Friday, providing a look at a market in recovery but threatened by an expected increase in foreclosure activity.
According to the report, foreclosure starts and completions both declined in June, painting a picture of continued recovery. However, officials expect foreclosure activity to pick up in coming months as firms lift delays in foreclosure processing.
In addition, the inventory of houses for sale remained low. The current supply of existing homes on the market is 6.6 months, while the supply of new homes is 4.9 months. Experts consider six months to be a balanced market between buyers and sellers.
While the market is still in a fragile state, the situation is looking up for struggling homeowners. According to the scorecard, more than 1.2 million homeowner assistance actions have taken place through the administration’s Making Home Affordable Program. For its part, FHFA has also contributed by offering more than 1.4 million loss mitigation and early delinquency interventions.
“This month’s indicators show momentum not seen since before the housing crisis as refinances through our enhanced Home Affordable Refinance Program continue to surge-HARP loans represented 20 percent of total refinance volume in May, the largest increase since the program was launched in 2009,” said Erika Poethig, acting assistant secretary at HUD.
“But with so many households still struggling to make ends meet, it’s clear that we have more work ahead,” she said. “That is why we are asking the Congress to approve the President’s refinancing proposal so that more homeowners can receive assistance.”
Homeowners involved in the Home Affordable Modification Program (HAMP) also fared well, with more than one million homeowners saving an estimated 13.9 billion on mortgage payments through permanent HAMP modifications. In June, 75 percent of homeowners with non-GSE mortgages benefitted from principal reduction with HAMP modifications, while 86 percent who started the program in the last two years received a permanent modification.
The scorecard showed that HAMP modifications continued to exhibit lower delinquency and re-default rates than private industry mods, with 94 percent of homeowners still current on modified payments after half a year.
The Housing Scorecard also put a focus on market strength in Miami and surrounding communities. The Miami metro was hit particularly hard in the housing downturn.
While economic conditions have improved in the metro, the housing market is still dealing with high concentrations of distressed mortgages, large numbers of vacancies, and nearly half of home mortgages underwater.
Administration programs have helped more than 147,500 Miami households receive mortgage modifications. The number of times assistance has been offered in the MSA is nearly 50 percent higher than the number of completed foreclosures since April 2009.
“The fragile signs of stability that the national data show for the broader housing market are even more delicate in the Miami market,” said Poethig. “The Administration is working hard to help all homeowners who have been hit hard during the crisis and, as this Regional Spotlight shows, our efforts have helped more than 147,000 Miami households to avoid foreclosure. A modest local economic recovery is underway, but we have much more to do to reach the many households who still face trouble and to help the Miami market recover.”
Uh, doesn’t that mean 94% succeed? What are you expecting, perfection?
What is the profit margin? It’s probably not greater than 6%? Are we are just talking about the first 6 months. It’s not going to get much better.
HAMP: U.S. Boasts of 1M Mortgage Mods, But Real Number is Lower
07.08.2012 by Staff
The Obama Administration’s latest update to its foreclosure prevention program, which lawmakers and consumer advocates have said is falling short of its goal, has hit one million permanent mortgage modifications.
That’s one million borrowers whose mortgages have been permanently reduced by an average of $536 a month.
However, the problem with the administration’s number is quite clear to anyone who downloads the May update to the Home Affordable Modification Program (HAMP), which was released Friday.
The actual number of permanent modifications through May 2012 is 810,443.
U.S. Treasury and Housing officials are referring to the 1,026,279 permanent mortgage reductions initiated. But 215,836 of those borrowers have re-defaulted. A permanent modification is cancelled after a borrower has failed to make three consecutive monthly payments.
The news released posted by federal officials fails to make that distinction.
“As of May, more than one million homeowners have received a permanent HAMP modification, saving approximately $536 on their mortgage payments each month, and an estimated $13.3 billion to date,” the statement said.
Launched in the spring of 2009, the legacy of the HAMP is that it has grown very slowly – with poor cooperation from lenders along the way – and that it has failed to assist the 3 million to 4 million distressed homeowners initially targeted.
The program was extended for another year, now set to expire at the end of next year. It is funded by the same bailout program that propped up the biggest banks during the financial crisis.
HAMP started expanding eligibility last month to include: borrowers whose debt-to-income ratio is below 31 percent, properties occupied by a tenant and vacant properties that the borrower intends to rent.
But many of the biggest lenders have been slow to fully implement the upgrade, known as HAMP Tier 2, and many missed the June 1 deadline set by Treasury officials.
“The scorecard showed that HAMP modifications continued to exhibit lower delinquency and re-default rates than private industry mods, with 94 percent of homeowners still current on modified payments after half a year.”
Wasn’t the historical default rate for all mortgages (prior to the meltdown) around 5%? Now, the most successful program has 6% re-defaulting in just 6 months. Wow….
Yes, a 6% default rate in just six months is remarkably bad. If people can’t’ even make the first 6 payments, what are the chances of them making the next 354?
These are loans that were somewhere between 50-100% in default prior to being modified. (HAMP allows ‘current’ borrowers to modify with a hardship affidavit so we don’t know exactly what percentage were in true default.). Most analysts expected redefaults to reach 50-60% (including Irvine Renter), yet after 18 months only about 33% will redefault. Comparing HAMP performance rates to historical rates of 5% is silly. These are the most poorly underwritten loans of all time, yet HAMP has gotten 2/3 of them paying again.
MR still defending the status-quo…. ends up chasing his own tail.
Despite all of the various ‘extend and pretend’ charades attempting to paper-over the fact that underlying assets are not worth their stated values, the bottom line is……..
without growth, the debt CAN’T be repaid.
I think the 30% standard has NEVER worked in the OC, especially in areas like Irvine/Newport. People have always wanted to live on or near the ocean. As far back as the early 80′s I remember hearing how people were gaming the system to buy a house here. There used to be a statement on mortgage applications (maybe there still is) where the applicant verified that no part of the down payment was borrowed – that it was all his/her money. People borrowed money from family/friends, etc. and then signed that statement saying that it was all “their” money.
It certainly never worked in the beach communities. I just completed a rental parity study of most of Orange County, and during the 90s, most communities traded at rental parity assuming a 31% DTI.
I’ve had contact with a buyer who HAS TO BUY – the problem though are those pesky ratios. We’ve hit 45% with a Conforming Conventional loan and can’t do the deal because at that ratio level, the best they could do is a $200k Condo or a $275k SFD in Apple Valley The buyer has since hit several websites says “is there anyone who can help me with a $350k purchase”. Every response so far is “you are foolish for pushing ratios that high” (I’m summarizing….) yet they continue to look for someone to finance them.
It’s the irresistable force restrained by the immovable object. I wish the Agencies would lower their ratio tolerances back into the 20′s to get some sense back into the market, but the push is for even dumber lending by all.
My .02c
Right now, only the threat of a forced buyback keeps some lender from giving these people a loan. They are a certain default, unless of course, we inflate another bubble and give them HELOC money to make the payments.
The high monthly payments are essentially a tax to breath.