About Government Refinance and Home Purchase Programs

There is a foreclosure prevention plan on the table in California that has the government matching principal write-downs offered by banks. Here are some details from a recent WSJ piece on the subject:

California’s proposal would limit aid to low-to-moderate income borrowers and those with loans of less than $730,000. The initiative offers homeowners up to $50,000 in assistance through four different programs:

* Principal write-downs for underwater borrowers, or those that owe more than their properties are worth. Lenders would be required to match write-downs on a dollar-for-dollar basis and loan balances would be reduced over three years. Borrowers would have to prove that they faced hardship and that they could afford modified loan payments after a write-down. The California Housing Finance Agency estimates that around 5,500 households would be able to participate. (Around $427 million would be used for this program.)
* Up to $15,000 for borrowers who are able to make their mortgage payments but who had temporarily fallen behind on their payments and are facing foreclosure as a result of late payments. The state would spend around $130 million on that program, and officials estimate that it could reach 17,000 borrowers.
* Subsidize mortgage payments for borrowers who are temporarily unemployed and therefore unable to make their mortgage payments. Funds would be limited 50% of monthly mortgage payments up to $1,500 and would be provided for up to six months. The state estimates that around 9,000 borrowers would be eligible for that program. Some $65 million would fund this effort.
* Provide up to $5,000 in relocation assistance to homeowners who hand in their keys voluntarily under a “deed-in-lieu” of foreclosure or a short sale, where a home is sold for less than the amount due. Officials estimate that around 6,500 borrowers could participate at a cost of around $33 million.

As industry insiders have known for a long time, when it comes to getting a loan modification working with a bank tends to be easier than working with a loan servicing company. This is partially because loan servicing companies have less authority to make decisions about modifications. But it is also partially due to laziness and/or ineptitude in other cases. Treasury Secretary Timothy Geithner promised to do more to crack down on loan servicers that aren’t doing enough to help people avoid foreclosure. Here is a bit from a recent Reuters article on the topic:

U.S. Treasury Secretary Timothy Geithner on Thursday slammed mortgage service companies for failing to do enough to help Americans avoid losing their homes and promised to crack down on shoddy practices.

“We do not believe servicers are doing enough to help homeowners — not doing enough to help them navigate the difficult and frightening process of avoiding foreclosure,” Geithner said in prepared remarks for delivery to a Senate appropriations subcommittee.

He said Treasury was “troubled” by reports that servicers had done things like foreclose on homeowners who were potentially eligible for relief under the government’s Home Affordable Mortgage Program, lost documents or claimed to have done so and even steered troubled homeowners away from available assistance.

“None of this is acceptable,” Geithner said, adding that Treasury was doing “targeted, in-depth compliance reviews” to make sure that servicers were acting in good faith.

There was an informative report over at Housing Wire on the recommendations that recently came out of a House finance committee regarding FHA mortgages. Here are some excerpts:

The House Financial Services Committee approved a bill to increase capital reserves in the Federal Housing Administration (FHA) and reduce risks to its insurance fund. The bill will now move to the House floor for debate.

The bill would amend the National Housing Act by increasing the cap of annual premium payments collected by the FHA from 0.50% to 1.5%. It would also hold approved lenders accountable for the FHA loans they write. Under the new bill, if the FHA pays out a claim on a mortgage it finds did not meet its underwriting standards or detects fraud involved with the origination of the loan, it could require that lender to pay reparations for the loss to the insurance fund.

The bill also widens the authority of the FHA to terminate its approval of lenders to write its insured mortgages. If the FHA finds a lender has an excessive rate of early defaults and claims, it could remove the lender approval for any area in the country not just within its region.

Basically they are talking about tripling the monthly PMI fees for FHA loans going forward. I doubt the bill will get much traction if the goal is to keep FHA loans popular. Tripling FHA PMI fees would make FHA loans a very undesirable option for borrowers — especially when combined with the other fee increases that have been implemented recently.

Nevertheless, if you are interested in an FHA loan it may be wise to contact us sooner rather than later because even if this bill does not become law FHA loan could become more expensive this year one way or another.

There was a lot of concern that when the Fed stopped purchasing mortgage backed securities on March 31, 2010 that it would spell the end of the low mortgage interest rates we have enjoyed for more than a year. To the surprise of many, rates have remained relatively low through most of April with rates on 30 year fixed loans still available as low as 5% in some cases. That is terrific news for anyone looking to refinance from an ARM that is about to reset to a fixed rate loan. In addition, folks who need to lower payments in the short run but plan to sell their home in the next few years can look at ARM’s with rates in the 3’s and 4’s right now.

Contact us in the sidebar to learn more about the conventional and government-backed refinance options available.

The number of homeowners in default (more than 30 days late) on their mortgage payments dipped in California in the first quarter of this year. Here are some bits from the AP story on the subject:

Mortgage default notices for California homeowners fell 4 percent in the first quarter of the year, another sign that foreclosures could be easing in lower-cost areas, a research firm said Tuesday.

County officials recorded 81,054 notices of default — the first step in the formal foreclosure process — during the January-to-March period, according to San Diego-based MDA DataQuick.

The number is down from 84,568 default notices in the fourth quarter of 2009 and 135,431 in the first quarter of 2009, when the filings peaked. …

Though fewer homes are entering the formal foreclosure process, financial distress among California homeowners remained high. However, more lenders are modifying home loans or allowing short sales in which lenders agree to accept less than what a homeowner owes on the mortgage

There was an interesting piece in the NY Times recently on the future of interest rates in the US. Here’s the short version: They’re going up. In fact the article predicts the lowest mortgage interest rates available by the end of 2010 will be about 6%. That means anyone with an ARM is going to find their payments going way up soon. If you are in an ARM loan that you are worried will shoot up soon contact us in the sidebar to look at refinancing into a low fixed rate mortgage. Here are some excerpts from that article:

Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.

That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

A government watchdog group released a report yesterday saying that the new changes to government foreclosure prevention plans open cracks for consumers to be scammed and for the government to be scammed by banks. Here are some excerpts from the recent AP article on the topic:

Last month, the Treasury Department revised the $75 billion mortgage assistance program it first rolled out last year. It is intended to prevent 3 million to 4 million home foreclosures by encouraging mortgage lenders to lower monthly payments.

So far only about 170,000 homeowners have qualified for mortgage modifications and critics charge the effort isn’t making much headway. In a report last month, Barofsky’s office said that a lack of planning and shifting rules on who qualifies has slowed the program’s progress.

In response to the criticisms, the administration made several changes. Mortgage lenders will receive incentive payments if they reduce the amount borrowers owe. That would help homeowners with mortgages larger than their homes are worth — a situation known as being “underwater.”

In addition, unemployed homeowners can get their mortgage payments cut to 31 percent of their income for three to six months.

In his report, Barofsky called the changes “a potentially important step forward for homeowner relief.”

But, while the changes were announced “with great fanfare, little was done at the time to warn borrowers” about potential fraud, the report said.

A recent article over at the New York Times reported that the number of homeowners who default on their mortgages after receiving a loan modification has been increasing. Here are some highlights from that piece:

The number of homeowners who defaulted on their mortgages even after securing cheaper terms through the government’s modification program nearly doubled in March, continuing a trend that could undermine the entire program.

Data released Wednesday by the Treasury Department and the Housing and Urban Development Department showed that 2,879 modified loans had been ended since the program’s inception in the fall, up from 1,499 in February and 1,005 in January.

The Treasury Department said it could not explain the growing number of what it called cancellations, almost all of which were apparently prompted by the borrower’s being unable to make the new payment. A scant number — 37 — were because the loan had been paid off, presumably because the borrower sold the house.

About seven million households are behind on their mortgage payments.

As predicted, the exit of the Fed from the mortgage backed securities market has resulted in higher mortgage interest rates. In the last week or so rates on 30 year fixed mortgages have increased about a quarter of a point (from around 5% to around 5.25% for premiere borrowers). Still, rates in the mid to low 5’s are extremely low historically and rates will inevitably be rising much further at some point in the future so if you have an adjustable rate mortgage it might be wise to consider refinancing to a fixed rate mortgage now while you can still get a 30 year fixed loan in the mid to low 5’s.

Further, if you need a loan modification or if you have substantial credit card or medical bills or other unsecured debts contact us in the sidebar for advice on how to ease some of those burdens.

Several executive from some of the big banks were on Capitol Hill today and among the things they revealed is that banks are not at all anxious to start giving money away and forgiving mortgage debts for consumers. We get this from the AP article on the topic:

Top banking industry executives are skeptical about helping troubled borrowers by forgiving a portion of their debt.

The executives told lawmakers on Tuesday they are reducing the amount that troubled borrowers owe on their home loans only in limited cases. That’s because consumers who are paying their mortgages on time are likely to see such reductions as unfair, the executives said.

Such programs “could raise issues of fairness,” agreed Sanjiv Das, Citigroup’s top mortgage executive, who appeared in front of the House Financial Services committee with top executives from Bank of America, Wells Fargo & Co. and JPMorgan Chase.

David Lowman, chief executive of Chase’s mortgage business, told lawmakers that large-scale mortgage principal reduction “could be harmful to consumers, investors and future mortgage market conditions.”

Basically it is going to be business as usual. Banks are going to do what their shareholders require them to do — make as much money as possible. That means that borrowers who want to sell short or get a loan modification or a principal reduction need to demonstrate to the banks why that is a win-win proposal. In other words, if there is nothing in it financially for the bank they probably won’t be interested. In cases where borrowers are underwater there sometimes is something in it for banks though. Foreclosing on homes is expensive for banks to begin with so when the borrower is upside down it gets even more expensive. In those cases borrowers who show they aren’t bluffing about walking away tend to have a lot more leverage at the negotiating table.

Contact us in the sidebar to learn about the programs that are available that might help you.

It is hard to tell if these sorts of things are only for show, but Chase is holding foreclosure prevention events that presumably deal with their loan modification programs. We get this from a recent HousingWire article:

JPMorgan Chase will host borrower outreach programs at 51 Chase Homeownership Centers in an effort to help struggling homeowners current on payments and avoid foreclosure.

Yesterday, Chase announced the opening of its 11th Homeownership Center in Florida. The firm published a list today of multi-day outreach events to be conducted in eight major US markets in 2010. Up to 40 Chase counselors will work with homeowners for up to 12 hours a day for four to five days at each event, many based in the centers.

Borrowers applying for a mortgage modification also receive short-sale assistance at the events. Those already in the modification process can drop off documents and sign final modification papers.

The multi-day events began in Florida, where counselors met with 3,200 borrowers. Chase said half of the homeowners spoke with counselors after less than 10 minutes. According to Chase, 75% of them said the experience was “excellent,” while another 12% said it was “very good.”

The Obama administration today announced a new plan that would pay people to sell their homes for less than they owe, a process known as selling short, rather than foreclose. In addition, lenders will need to follow rules that expedite the whole process. Here are some excerpts from the AP story on the announcement:

The government launched a new effort on Monday to speed up the time-consuming, often-frustrating process of selling your home if you owe more than it’s worth.

The Obama administration will give $3,000 for moving expenses to homeowners who complete such a sale — known as a short sale — or agree to turn over the deed of the property to the lender. It’s designed for homeowners who are in financial trouble but don’t qualify for the administration’s $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure doesn’t hurt a borrower’s credit score for as much time as a foreclosure. For lenders, a home usually fetches more money in a short sale than a foreclosure. And the bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure. …