About Government Refinance and Home Purchase Programs

A gaping hole in most of the mortgage assistance programs to date has been the problem of second mortgages. While the current programs deal with first mortgages in a number of ways none of them dealt specifically with second mortgages — particularly in cases when the homeowner is underwater/upside-down (owes more than the home is worth) or late on the mortgage already. The Obama administration announced the first attempted remedy of that problem today.

Here are some quotes from a WSJ blog on the announcement:

The Obama administration unveiled a fresh set of incentives Tuesday for mortgage servicers to help strapped U.S. homeowners.

Under a new program, the government will pay mortgage servicers $500 up front and $250 a year for three years for successfully modifying a second mortgage, such as a home equity loan.

Second mortgages have complicated government efforts to help borrowers avoid foreclosure. According to the U.S. Treasury Department, up to 50% of at-risk mortgages have second liens and many properties in foreclosure have more than one lien.

Editorial:

Apparently the Countrywide brand has been so damaged the folks at BofA decided to rename it so America will forget how much the company contributed to screwing up the world economy. See an article on it here.

The strategy will probably work

There was a useful AP article published a few days ago that included some questions and answers. This seemed especially pertinent to this site:

Q: Should I wait to see if mortgage interest rates come down in a couple of months before applying?

A: Probably not, since mortgage rates are at historic lows.

Last week, rates on 30-year mortgages inched upward to 4.87 percent, but that’s still close to the lowest level in decades. Waiting for the rate to go any lower might backfire, said Ken Inadomi, director of the New York Mortgage Coalition.

Even introductory rates shouldn’t be that much lower than fixed rates these days — in some cases, they may even be higher. So it’s probably in your best interest to apply for refinancing now.

In case you decide to wait: The Making Home Affordable program expires on June 10, 2010.

We get this from HousingWire:

Bank of America, Countrywide Home Loans Servicing, Home Loan Services and Wilshire Credit became the eighth, ninth, tenth and eleventh firm to be pre-approved for TARP funds, under the Making Home Affordable loan modification system.

Simi Valley, Calif.-based Bank of America, will be allowed to draw up to $798.9m of government funds. Countrywide Home Loans has been promised a maximum of $1.86bn. Home Loan Services and Wilshire Credit can draw up to $319m and $366m, respectively.

The other seven servicers on tap to receive funds include Chase Home Finance (which was allotted the largest share thus far — up to $3.55bn), Wells Fargo Bank ($2.87bn), CitiMortgage ($2.07bn), GMAC Mortgage ($633m), Saxon Mortgage Services ($407m), Select Portfolio Servicing ($376m) and Ocwen Financial ($659m).

This growing list is good news for borrowers in serious trouble.

There was an interesting article in the LA Times recently noting that while more and more people in California are falling behind on their mortgages banks have not been foreclosing on people and evicting them for a long time in some cases. Here are some quotes:

More Californians are failing to make their mortgage payments than at any time in the last 20 years, but fewer of them are losing their homes, according to new figures. …

A default notice is the first step in the foreclosure process, and California homeowners received 135,431 of them in the three months ended March 31, MDA DataQuick of San Diego said Wednesday.

That’s an 80% increase over the previous three-month period and a 19% jump over the same period last year.

Meanwhile, the number of actual foreclosures, in which the home was repossessed by the lender, fell to 43,620 in the first quarter, a 6% drop from the last three months of 2008 and a 7.6% decline from the year-earlier quarter. Foreclosures peaked in the third quarter of 2008 at 79,511.

Much of the drop stems from a change in state law that made it more cumbersome for lenders to foreclose, DataQuick analysts said. That also led to procedural delays for banks and other lenders, which in many cases were not prepared to handle the additional paperwork.

The good news is that in most cases banks would very much prefer to work something out with struggling borrowers than foreclose. This is especially true in cases where the loan is greater than the current value of the home. The backlog of requests generally means that distressed borrowers may have more time than they expected to work something out with their lender.

There was an interesting and somewhat story over at Forbes.com recently. The gist of the story was that in may parts of the country home prices have a long way to fall still. Here are some quotes:

Based on historical balances of employment, housing sales, income, lending availability, foreclosures and vacancy rates, all dating back to 1982, home prices in the Los Angeles metro area still have 29% further to fall, according to Moody’s Economy.com.

If you still have any equity in your home and have an interest rate of more than 6% you may want to contact us now to see about refinancing to the current historic low rates while you still can.

We get these quotes from a recent Reuters article:

The Treasury Department is considering giving banks and investors billions of dollars in fresh incentives to modify troubled mortgages and save homeowners from foreclosure, sources familiar with official deliberations said.

Under one scenario, investors in second liens would receive a cash payment if they agree to ease the terms of troubled loans and accept a smaller return on their mortgage investment, the sources said. …

Officials also envision giving fresh subsidies to encourage ‘short sales’ in which the lender accepts a payment that does not cover the entire loan amount, according to the sources, who requested anonymity because they are not authorized to disclose details.

Fannie Mae and Freddie Mac, the mortgage finance companies, would administer the new program to resolve problems with second-liens under one plan being considered, they said.

A senior administration official declined to comment on Tuesday, but said the Treasury expected to unveil further details of its homeowner-aid program “soon.” …

In testimony before a congressional bailout oversight panel on Tuesday, U.S. Treasury Secretary Timothy Geithner said the Treasury was working on additional measures to keep struggling borrowers in their homes or provide them with “less damaging ‘exit strategies’ from homes they are clearly unable to afford, even under favorable mortgage terms.”

See an article on the subject over at HousingWire.

If Ocwen services your Fannie/Freddie loan and you are in need of a loan modification your chances of obtaining it from them just went up.

There was some pretty good advice in the advice section of CNNmoney.com recently. Here is the excerpt:

Question 1. My husband went to company who claims they work with the mortgage company and negotiate on your behalf “for a fee.” They claim we as homeowners cannot do this on our own. Now I am beginning to think we made a very big mistake. — Worried in Florida

Unfortunately, it sounds like you’ve been conned.

First of all, if you need to modify your mortgage or you’re having trouble making your monthly payments, your first phone call should be to your lender. These days lenders are instituting their own modification programs for troubled borrowers. You should not pay a “fee” to any company that says it can negotiate with your mortgage company.

My advice: call your lender and explain your situation.

The government also has its own mortgage modification program that lenders are signing onto. For information go to makinghomeaffordable.gov. In the meantime, report the company that you’ve been using to your local Better Business Bureau and give a call to your local state Attorney General.

Any loan modification company that tells you that you must pay just to seek a loan modification is lying. Our advice regarding loan modifications is always the same: Contact your lender yourself and seek a loan modification. That is free and it has worked for many people.

The problem is that too often lenders reject such requests after repeated attempts. People who have been turned down in their loan modifications often come to us asking what they can do next. While there are too many shady loan modification companies popping up these days, there are legitimate loan modification companies out there as well that might be worth talking to in such situations. The legitimate companies we are aware of give free evaluations to people and offer money back guarantees to clients for whom they cannot secure a loan modification. Further, many of these companies also have divisions or partners that help people repair damaged credit and repaired credit can often qualify the client for a refinance rather than a loan modification.

If you need are in trouble and need a loan modification and have contacted your lender and have made no progress, you can contact us and we can refer you to a reputable loan modification or credit enhancement company.

The Obama loan modification program is making progress. Yesterday six lenders/servicers were officially announced as participants. The lenders are:

— Chase Home Finance (a unit of J.P. Morgan Chase), which could receive up to $3.5 billion.

— CitiMortgage (a unit of Citigroup), which could receive up to $2 billion.

— Wells Fargo, which could receive up to $2.9 billion.

— GMAC Mortgage, which could receive up to $633 million.

— Saxon Mortgage Services, which could receive up to $407 million.

— Select Portfolio Servicing, which could receive up to $376 million.

Here are some further quotes from a Washington Post article on the subject:

Together, the lenders could be eligible for up to nearly $10 billion in incentive payments for helping troubled borrowers save their homes by agreeing to lower the payments to affordable levels. The administration has said the program, launched last month, could help as many as 4 million homeowners stay out of foreclosure.

The six firms are the first of what government officials expect to be many lenders to join the program.

There was an insightful column over in The Detroit News recently. Here are some highlights:

Good things come to those who wait, and if you’ve been waiting to refinance your mortgage, this is about as good as things are going to get.

Thanks to the Federal Reserve acting to push down rates on consumer loans, the 30-year fixed mortgage rate has dropped to historic lows. Two weeks ago, according to Fannie Mae, the rate bottomed at 4.78 percent, the lowest in the history of Freddie Mac’s survey, which dates back to 1971.

By Thursday, mortgage rates nudged up a bit, to 4.87 percent, nationwide and in Metro Detroit.

There’s been some loose talk about 30-year mortgages falling to 4 percent, but this seems to be as far as home loans are going to drop, says Greg McBride, senior financial analyst at the consumer finance site Bankrate.com.

“If record low rates aren’t good enough for you,” he says, “I don’t know what is.”

The new head of HUD recently said that banks that receive government bailout money will be required modify more loans for troubled homeowners. Loan modifications have heretofore been entirely voluntary but it appears the federal government is further turning the heat up on banks to do more to help struggling homeowners. Here is an excerpt from a recent Bloomberg article on the subject:

April 9 (Bloomberg) — Banks receiving federal aid through the U.S. Troubled Asset Relief Program must also take part in the government’s mortgage modification initiatives, Housing and Urban Development Secretary Shaun Donovan said.

The U.S. is “going to require as a condition of participation in TARP going forward that banks do participate in” the Obama administration’s Making Home Affordable plan, Donovan said in an interview on Bloomberg television today. The requirements would apply only to banks taking new TARP money in the future, not those that have previously taken aid, Melanie Roussell, a HUD spokeswoman, said in an interview.