Government and lender solutions focus on loan modifications and short sales

  33 Responses to “Government and lender solutions focus on loan modifications and short sales”

1. el O says:

   November 13, 2012 at 6:25 am

   With regard to refi-land and ponzi’s, once the point is reached where declining marginal utility turns to negative utility, it truly is the beginning of the end. And, it looks like that point could be nearing….

   The great majority of ‘in the money’ mortgages are not being refinanced

   despite record low mortgage rates, borrowers are refinancing at a rate of just 20-30% per year…

   http://www.zerohedge.com/news/2012-11-11/visualizing-impotence-bernankes-wealth-transmission-channel

   • Irvine Renter says:

     November 13, 2012 at 7:17 am

     If that’s an accurate analysis, I expect to hear false rumors and rumblings about a potential rise in interest rates to give people a false sense of urgency to refinance.

     • Mike says:

       November 13, 2012 at 7:32 am

       Funny you say that. Mortgage rates have taken a little dive in the last 7 business days.
2. James says:

   November 13, 2012 at 7:08 am

   Why would you think squatters will miss out on the price rally? What if they build up savings from squatting? Once they lose their home, during a potential price implosion from banks finally foreclosing, then they can take advantage of the low prices (post bubble 2.0) with a largely cash buy or with a partner/spouse that wasn’t on the record of the old house.

   • Irvine Renter says:

     November 13, 2012 at 7:15 am

     If you assume lenders do finally foreclose and push prices lower, when they finish, prices will go back up. The squatters who get pushed out last will miss the steepest ascent of the recovery rally while their credit recovers.

     Most squatters are also Ponzis, so they aren’t saving up money to pay cash. Also, most couples purchased as couples, and their credit is equally trashed.

     • newbie008 says:

       November 13, 2012 at 9:44 am

       “The track record of loan modification programs is one of proven failure.”
       I would say the modification programs are near 100% success rate. All the liability for a default has been transferred from the bank to the taxpayers. The cost of squatting and FC can also be charged to the taxpayers. When will the new bankster bonus’ be giving out? Once enough bad loans are rewritten to have the taxpayers liabilable, the non-judicial FC race will begining and the banksters will be there to buy the houses with personnal money. Your tax dollars at work. Thank you Mr. Obama and Mr. Bush.

       Some of the more crafty CA squatters saved the free rent, free property tax , free HOA, and most of the HELOC money. They are sitting on a large cash nest egg and know that the odds of a judical FC is very low. Even if the bank does a JFC, the odds are low for the bank recoverying the money. The cash can be used to make 100% cash purchase home in homestead law states (FL like OJ), moving the money to the Carribians.

       • Irvine Renter says:

         November 13, 2012 at 11:06 am

         You are correct. If you recognize that the true purpose of loan modifications was to transfer liabilities and kick the can, then loan modfications were 100% successful. For those that believe these programs were intended to help borrowers, they were a failure.
       • Mellow Ruse says:

         November 13, 2012 at 11:47 am

         I don’t understand this theory that liability now belongs to taxpayers. The mortgage hasn’t been assigned to the government and as soon as the modification fails the MHA incentives stop. The bank is still suffering a major loss, probably a bigger one than if no mod were granted in the first place. I have a feeling that some fringe blogs are printing erroneous information that is now being accepted as truth.
       • Mike says:

         November 13, 2012 at 1:04 pm

         “I don’t understand this theory that liability now belongs to taxpayers”

         New mortgages are 90% to 97% back by Feds one way or another. I can’t take that as a sign of a real healthy market. You can purchase a house under rent parity if can get the house. But it’s due to Federal Reserve also purchasing all the MBS. Right now the feds guarantee the loans and are the investors. Really the bank is the servicer, in my opinion.

         But on the existing loans (your comment my question), does HAMP and HARP refinance non-agency loans? Or do you does your loan need to be currently backed by Fannie or Freddie? Basically, are the feds now guaranteeing loans in the refinance process that where federally backed in the beginning?

         I’m also watching FHA go under. Watch they will get a bailout in the form of a federal loan and fees will increase to 1.5% for a 30 year loan. FHA will sell you their bad loans, sort of an interesting system.
       • Irvine Renter says:

         November 13, 2012 at 2:22 pm

         “I don’t understand this theory that liability now belongs to taxpayers.”

         All loan modifications are backed by the GSEs which are backed by the US taxpayer. Once they are deemed “permanent” the originator is off the hook, and the government picks up any future default losses.
       • Mellow Ruse says:

         November 13, 2012 at 4:42 pm

         That’s just not true. HARP refis are backed by Fannie/Freddie but loan mods are not unless the loan was GSE to begin with.
       • Irvine Renter says:

         November 13, 2012 at 7:45 pm

         Doesn’t the HAMP program allow anyone to refinance or obtain a loan modification? And don’t people who qualify for the HAMP program become backed by the government?
       • Mellow Ruse says:

         November 14, 2012 at 10:39 am

         HAMP is strictly for mods. There isn’t a refi component. For permanent mods that successfully complete the trial plan, the Treasury pays incentives to investors, servicers, and borrowers as long as the mod does not redefault. The government doesn’t assume any liability or ownership of the loan. If the mod fails, the original investor will still suffer the loss.
   • newbie008 says:

     November 13, 2012 at 9:57 am

     The credit rating history of husband and wife may be separated or attenuated by divorce. Good excuse is to say while married we were deep in debt with no saving. Look after 3 years of separation, I have over $100,000 in cash (if 36 month x $4000 free housing per month is saved). That $100,000 will buy a lot of house in most of the non-costal portions of the USA. Will be great for those retiring from CA.

     However, once the divorce lawyers get involved the money soon is used up on legal fees. For those planning a strategic divorce and default, they know the goals (keep legal expense down) and know how to work the system.

     Once again, the paying taxpayer is asked/forced to bend over.
3. Irvine Renter says:

   November 13, 2012 at 7:20 am

   NAr makes large practical joke on public: a forecast

   The National Association of Realtors (NAR) offered market projections into 2014 during a forum at the 2012 Realtors Conference and Expo.

   NAR chief economist Lawrence Yun says he expects the market share of distressed sales to fall from about 25 percent in 2012 to 8 percent in 2014, according to a release on the forum.

   Mark Vitner, managing director and senior economist at Wells Fargo, was one of the speakers at the NAR forum. Vitner compared distressed homes to an after-Christmas sale stating, “most of the best stuff has been picked over, but make no mistake they’ll be with us for a while.”

   The housing recovery was expected to continue so long as credit does not further tighten and a fiscal cliff is avoided.

   The rise in home prices should also stay. Yun predicted a 6 percent rise in the median existing-home price in 2012, with another 5.1 percent increase next year and comparable gains in 2014.

   Existing-home sales were projected to move higher year-after-year: a 9 percent increase this year to 4.64 million, 5.05 million in 2013, and 5.3 million in 2014.

   Mortgage interest rates were expected to eventually increase to an average of 4 percent next year, and inflationary pressure should cause rates to go up to 4.6 percent in 2014, the NAR said in the release.

   Yun projected a higher Gross Domestic Product (GDP) in the coming years, with GDP expected to be 2.1 percent this year and rise to 2.5 percent in 2013. The unemployment rate should also fall to about 7.6 percent in 2013.

   Yun stressed that the “projections assume Congress will largely avoid the ‘fiscal cliff’ scenario.”

   “While we’re hopeful that something can be accomplished, the alternative would be a likely recession, so automatic spending cuts and tax increases need to be addressed quickly,” Yun added.

   • Mellow Ruse says:

     November 13, 2012 at 12:44 pm

     Not withstanding the source, I would say this forecast is pretty safe. The gains for 2012 are already in the bag, so all he’s really predicting is less than 5% appreciation for the next two years. I think the real joke is that the MSM treats these forecasts as some kind of gospel.

     • Irvine Renter says:

       November 13, 2012 at 2:24 pm

       Unfortunately, Yun is probably right this time. But like the boy who cried wolf, he no longer has any credibility, so his prognostications are merely a joke.
4. Irvine Renter says:

   November 13, 2012 at 7:22 am

   Banks not prepared to report reality in accounting statements

   The implementation of the Basel III capital rules may be postponed beyond the start of 2013, according to a joint statement released by the Office of the Comptroller of the Currency, the FDIC, and the Federal Reserve.

   The announcement follows a comment period during which many trade organizations and institutions expressed apprehension about the new requirements.

   “Many industry participants have expressed concern that they may be subject to a final regulatory capital rule on January 1, 2013, without sufficient time to understand the rule or to make necessary systems changes,” the release reads. “In light of the volume of comments received and the wide range of views expressed during the comment period, the agencies do not expect that any of the proposed rules would become effective on January 1, 2013.”

   David Stevens, president and CEO of the Mortgage Bankers Association, said the extension should give more time to regulators to retool the requirements and protect mortgage lending.

   “This is a positive development, and hopefully signals that the regulators are rethinking their problematic Basel III rule and are going back to the drawing board for a new proposed rule,” Stevens said in a public response. “The rules, as proposed this summer, would have had serious negative repercussions across the lending landscape, with the impact felt most acutely by residential, commercial and multifamily real estate borrowers, investors and lenders in the form of tighter credit and higher costs.

   • octal77 says:

     November 13, 2012 at 11:53 am

     Isn’t it quite remarkable that rules that *favor* banks (i.e FASB 157) are implemented without delay, but rules that *dis-favor* banks (i.e Basel III rule) take ‘more time to understand’.

     I am sure that these events are pure !00% coincidence.

     • Mellow Ruse says:

       November 13, 2012 at 12:50 pm

       It’s undeniable that Basel III favors the European banking system over the US. A lot of the rules are especially unfavorable to smaller banks and credit unions. I think regulators need to recognize that TBTF banks are in their own class and need to be treated as such. They are the banks that brought the US financial system to its knees, not the small mom & pop banks.

       • Irvine Renter says:

         November 13, 2012 at 2:26 pm

         Yes, the too-big-to-fail banks should be broken up so there is no need to treat them any differently. All banks should be treated the same way, and regulators should have a careful eye on them to prevent a repeat of 2008. Unfortunately, that isn’t were we are headed.
5. Irvine Renter says:

   November 13, 2012 at 7:27 am

   Mortgage insurance issuance declines as first-time homebuyers exit the market

   New private mortgage insurance hit a roadblock in September, according to Mortgage Insurance Companies of America’s (MICA) monthly statistical report.

   MICA’s member companies (Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, and Radian Guaranty Inc.) reported more than $398.6 billion in primary insurance in force for the month. That volume is up from August’s $397.5 billion.

   While insurance in force increased, new insurance slowed down. According to the report, dollar volume of primary new insurance written on newly originated conventional mortgages totaled $10.1 billion in September, with 37,554 borrowers using private insurance to buy or refinance homes.

   Both numbers were down from August, when an estimated 43,949 borrowers took out approximately $11.3 billion in new insurance.

   There was also a monthly decrease in applications. MICA members reported receiving 40,353 private mortgage insurance applications, down from 46,891 in August.

   While September’s decline in activity may mark a slowdown, 2012 has still been a year of marked recovery for the industry. New insurance and applications were both elevated year-over-year: MICA members wrote about $4.9 billion in insurance in September 2011 and received 27,939 applications.

   Defaults increased slightly, with MICA members reporting 25,049—about 300 more than in August. Cures fell, meanwhile, dropping to 18,968 from 20,612 in August.
6. Irvine Renter says:

   November 13, 2012 at 7:28 am

   Pollyannas in Obama administration tout housing improvement

   The state of the housing market continues to improve though recovery remains “fragile,” according to the October Housing Scorecard released Friday by the Obama administration. Along with the scorecard, the administration released special instructions for those administering the Making Home Affordable Program in areas affected by Hurricane Sandy.

   Signs of improvement include rising home prices, rising home sales, and ongoing efforts through the Making Home Affordable Program.

   About 1.3 million previously underwater homeowners are now above water due to rising prices.

   “As the October housing scorecard indicates, our housing market is continuing to show important signs of recovery—with the FHFA housing price index posting its largest annual gain in five years and new home sales at its

   fastest pace since April 2010,” said Erika Poethig, acting assistant secretary for policy development and research at the Department of Housing and Urban Development.

   So far, the administration’s Making Home Affordable Program has helped almost 1.3 million homeowners. More than 1 million of these homeowners have received loan modifications through the Home Affordable Modification Program (HAMP).

   Of those who start the program, about 86 percent have received permanent modifications over the past two years.

   • Mellow Ruse says:

     November 13, 2012 at 1:04 pm

     “Of those who start the program, about 86 percent have received permanent modifications over the past two years.”

     That is one nice piece of spin.

     Two years ago was when the Obama administration began requiring fully documented income (June 2010 to be exact). Prior to that, not only did they allow stated income, but they required the large banks to jam borrowers into the program using over-the-phone stated income. (Timmy Geithner wanted 500,000 trial mods started by November 2009 to win over the critics. The vast majority of those were eventually disqualified.). I’m betting no more than 20-30% of applicants from that era actually went on to receive a permanent modification. By the time full documentation was implemented most delinquent borrowers had already been disqualified from the program.
7. Leviathan says:

   November 13, 2012 at 12:22 pm

   I keep looking for clarity on housing policy and find only murkiness. I would not trust a vague promise to put a note on your credit report to the effect that, blah, blah, blah. It would be meaningless. FICO doesn’t listen to FHFA or necessarily the banks and lenders don’t really care about notes, just numbers.

   If you save money to get a new place it sounds like it can be taken away to placate the lenders in case of short sale. No one will save.

   What people need to understand is that most people forget a lifetime of bill-paying habits in a matter of months. It is very hard to go from free housing to paying for it–and when renting you usually pay more for less. I only “squatted” for a few months while waiting for a mod offer that never came and it took nearly a year to get our debts and budget back in alignment. I shudder to think of the bad habits that would accumulate after years of simply ignoring bills. This, I suspect, is why most people with trashed credit never go back to homeownership.

   The iron-discipline that is needed to save enough to pay cash for a property is, as IR points out, incompatible with the loose fiscal habits of most people who lose their house. I differ from IR only in believing that the loose fiscal habits often come after the distress, while you think they are there all along. This late in the game it amounts to arguing over how many angels you can fit on a pin. Totally moot.

   I am pleased that FHFA is offering a way out for distressed homeowners and that you do not have to kill or divorce your spouse to take it. Alas, I don’t believe the other players will meet them halfway. And Obama may “rethink” housing and change the equation altogether. There are simply too many unknowns.

   In the meantime, everyone is still busy being angry at the better deal that everyone else seems to have gotten (where’s my bailout/free housing/pony). Tomorrow we move into a very modest house that we got for a fair price–not a steal, it needs a lot of work. It was an estate sale. Well, I just learned the family is ticked off because they didn’t get enough for it. They’re clearly angry at the oldest sibling for “giving it away.” We were the only offer they got in over 6 months, and their tenant was a slob whose rent barely covered taxes. But whatever, everyone is angry.

   This is what it’s like living in a world where the pie is shrinking for all but the upper crust. Bitterness and recriminations. Oh well, for the moment, I am happy and will enjoy fixing up my “grandma” house. I like to think this is what it’s all about. Moments of hope in the bitter stew of life. Peace.

   • Irvine Renter says:

     November 13, 2012 at 2:32 pm

     “I shudder to think of the bad habits that would accumulate after years of simply ignoring bills. This, I suspect, is why most people with trashed credit never go back to homeownership.”

     Your idea that these habits form after the fact is a phenomenon I never really considered. You’re probably right. People are generally slow to change — unless the changes is overwhelmingly in their favor, such as the advantages of squatting. I could see where this could breed really bad habits that could become entrenched very quickly. Its the same phenomenon that caused most Option ARM holders to only make the minimum payment. Once they tasted the advantages of the minimum payment, they never went back.

     I will ponder this further. That idea will make its way into future posts. Thank you.
8. Mike says:

   November 13, 2012 at 2:00 pm

   Hmmmm….

   Bill Gross buying Treasuries again

   By Chris Isidore @CNNMoneyInvest November 13, 2012: 3:45 PM ET

   NEW YORK (CNNMoney) — Bill Gross is jumping back into U.S. Treasuries.

   The Pimco founder increased Treasury holdings in his flagship fund for the first time time since May, according to statistics on the firm’s website Tuesday.

   U.S. Treasuries now make up 12% of the $281 billion Pimco’s Total Return Fund (PTTRX) as of Oct. 31, up from 9% in September and August.

   Meanwhile, Gross trimmed Pimco’s holdings in mortgage bonds to 47% from 49%.

   The moves follow the Federal Reserve’s announcement in September that it would buy $40 billion of mortgage bonds every month in an effort to drive down mortgage rates and spur greater economic activity.

   Gross, Pimco’s founder and co-chief investment officer, has been a vocal critical of the central bank’s third round of quantitative easing, also known as QE3. He argued in his most recent letter to investors that the Fed’s policy of driving down interest rates via quantitative easing is causing “financial repression” by punishing savers and encouraging spending that does not help the economy.
9. Mike says:

   November 13, 2012 at 2:44 pm

   I’m checking the accuracy of this one, but wow it’s true. It’s only proposal to introduce legislation or an amendment. Also, this article is a little pro-squatter.

   Poison pill in mortgage refinance bill

   11:13 PM, Nov 12, 2012

   Walk around the East Price Hill or College Hill neighborhoods, and you can see the devastating impact of foreclosures caused by the kind of risky mortgage lending that brought our economy to the brink of disaster. That lending was fueled by lax regulation and a frenzied drive for profit. Each of those empty homes represents a family that lost its savings, security and community.

   They are among the 5 million families nationwide who have lost their homes to foreclosure since 2006. In Hamilton County alone, 25,777 families received foreclosure notices between 2008 and 2011, according to Policy Matters Ohio. Collectively, Americans have lost $7 trillion in wealth as a result of the foreclosure crisis and the resulting plummeting of home values.

   Congress can do many things to help, and one option that could offer relief is a bill introduced by Sens. Barbara Boxer, D-Calif., and Robert Menendez, D-N.J., that would make it easier for homeowners to refinance mortgages at today’s historically low interest rates. That would put dollars in homeowners’ pockets and boost Ohio’s economy.

   It’s a good idea, but Sen. Bob Corker, R-Tenn., plans to offer an amendment that would reopen the door to unaffordable mortgages just like those that hurt so many homeowners in the Cincinnati area and across the state. Corker’s amendment would provide a so-called safe harbor, legal immunity for banks that make loans that borrowers can’t afford to repay. It’s a poison pill in an otherwise helpful bill.

   Foreclosures have harmed a great many communities, but communities of color, targeted for toxic subprime mortgages, have been particularly hard hit. According to the Federal Reserve, in the peak subprime lending years of 2005 and 2006, African-American and Latino borrowers were, respectively, three times and 21/2 times more likely than white borrowers to be given a subprime home purchase loan.

   Many borrowers of color were steered into these loans even when they qualified for safer and less costly prime mortgages. Subprime loans have much higher foreclosure rates, and an estimated 25 percent of African-American and Latino homeowners have lost their homes to foreclosure or are seriously delinquent – a rate more than twice that of white homeowners.

   We have learned the hard way, through millions of foreclosures and trillions of dollars in lost wealth, how important it is to have strong, comprehensive rules for mortgage lending and effective oversight for mortgage lenders. The new Consumer Financial Protection Bureau is drafting rules to prevent another foreclosure crisis by prohibiting lenders from making the kind of loans the Corker amendment would allow. His amendment would undermine those rules before they’re even enacted.

   We can’t afford to have more communities go through the kind of suffering caused by the foreclosure crisis. We need to hold banks accountable for their lending practices, not grant them legal immunity.

   • Irvine Renter says:

     November 13, 2012 at 4:19 pm

     I would have to know the details of what he is proposing to make an informed comment. The article was obviously biased. I rather doubt Bob Corker would propose to allow lenders to make dodgy loans, but if he is acting as a tool for banks, this is at least plausible.
   • Mike says:

     November 13, 2012 at 8:48 pm

     This article is a little more detailed. It suggest that only qualified mortgages will be affected by this Safe Harbor. This is still not a lot of details.

     Mortgage industry pushes for broad legal protections for high-cost loans

     Chicago, IL – November 12, 2012 – (RealEstateRama) — A mortgage industry-backed legislative push to weaken an effort to encourage lenders to make safe and sustainable loans is likely to kick off in the weeks following the election.

     In the lame duck session, Sen. Bob Corker (R-TN) is expected to introduce an amendment to a bill that was originally intended to expand access to safe refinance lending for millions of families. This amendment would provide a “safe harbor” to mortgage lenders from litigation claiming that loans are improperly originated, significantly limiting legal recourse for borrowers with poorly underwritten loans.

     “The Corker amendment would turn a bill that helps homeowners and boosts the economy into one that gives unprecedented legal protections to lenders who make high-cost loans,” says Dory Rand, President of Woodstock Institute. “Industry-backed legislation should not hamstring the regulatory agencies working to craft appropriate protections for consumers.”

     The Corker amendment would impact mortgages that meet the definition of a Qualified Mortgage (QM). The QM designation was introduced by the Dodd-Frank Act as a way to provide an incentive to lenders to make loans that borrowers can afford and that lack risky features that spurred the housing crisis, such as balloon payments and exorbitant fees.

     Qualified mortgages may include subprime loans with higher interest rates than prime loans. The high cost raises significant concerns about granting broad legal protections to subprime loans, given the history of predatory lending practices in the subprime market and the fact that subprime loans are typically taken out by lower-income borrowers and borrowers with damaged credit. Lenders should not be granted unnecessary, overly broad legal protections on these riskier, high-cost loans.

     The Consumer Financial Protection Bureau is in the process of writing rules to define the terms of a Qualified Mortgage. The agency is carefully considering all viewpoints and is working diligently to release the rules in January. The CFPB should be allowed to do its job and design the strongest protections for the riskiest loans, not be constrained by legislation that would give lenders a “get-out-of-jail-free” card for high-cost mortgages.
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