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Recently in Loan Modification Category
Firm commentary:
The Congress missed the opportunity to avert a prolonged housing recession when it failed to pass Bankruptcy "Cram down" provisions that would have allowed bankruptcy judges to modify first mortgages.
This office joined NACBA, the National Association of Consumer Bankruptcy Attorneys, to lobby members of Congress to pass the legislation in 2009. The well funded lobbying efforts of the lending industry prevailed over the best interest of the consumers and the national economy. The proposed law passed the House but failed to pass in the Senate by 5 votes.
NACBA is now promoting a new proposal, the "Principal Paydown Plan" that is said to be gaining momentum in Washington DC including the support of 19 members of Congress and Edward DeMArco, Acting Director of the Federal Housing Finance Agency (FHFA). FHFA is the entity that manages defaulted FANNIE MAE and FREDDIE MAC.
The Plan would allow homeowners in Chapter 13 bankruptcy to pay down loan principal and reduce negative equity during a five-year period with no interest. In exchange, homeowners would agree to settle claims against servicers, thereby avoiding litigation and reducing taxpayer liability.
See Press release below:
UNITED STATES CONGRESS
For Immediate Release
October 26, 2011
FHFA Director Praises Principal Paydown Plan as "Promising" and "Credible"
Pledges to Provide Members an Assessment in Two Weeks
Washington, DC (Oct. 26, 2011)--During a meeting today with 19 Members of Congress, Edward DeMarco, the Acting Director of the Federal Housing Finance Agency (FHFA), praised a principal reduction proposal by Rep. Zoe Lofgren and pledged to provide an assessment within two weeks of how it could be implemented.
Rep. Elijah E. Cummings, the Ranking Member of the House Committee on Oversight and Government Reform, hosted the meeting with Rep. Dennis Cardoza, Co-Chair of the Housing Stabilization Task Force, to discuss additional measures to address the foreclosure crisis.
Members lauded the latest move by FHFA. In response to DeMarco's comments, Cummings said, "If Mr. DeMarco actually works with us to implement this proposal, it would be an important step to address this crisis, especially on the heels of his announcement Monday that he will implement the President's plan to help responsible American homeowners refinance at today's historically low rates."
Rep. Lofgren stated, "I am encouraged that the Federal Housing Finance Agency is considering a plan similar to the one I've long advocated. Allowing homeowners to pay down the principal balances on their mortgages more rapidly in conjunction with Chapter 13 filings is a sensible solution. Linking this to the bankruptcy process will help those who truly need it and avoid the administrative failures that have plagued other modification initiatives. I believe this plan is entirely consistent with FHFA's obligation to minimize taxpayer losses in Fannie Mae and Freddie Mac, and I look forward to Director DeMarco's answer two weeks from now."
Rep. Lofgren's proposal would allow homeowners in Chapter 13 bankruptcy to pay down loan principal and reduce negative equity during a five-year period with no interest. In exchange, homeowners would agree to settle claims against servicers, thereby avoiding litigation and reducing taxpayer liability.
During today's meeting, Mr. DeMarco said his legal team had already begun reviewing the proposal. "Based on initial feedback," he said, the proposal "has a lot of promise," "strikes me as being responsible," and appears to be a "credible way" to address the crisis while recognizing various interests in mortgaged properties. He committed to Members that he would provide a more detailed assessment of the proposal within two weeks.
Today's meeting was a follow-up to a previous meeting Cummings and Cardoza hosted on October 6, 2011, during which Members pressed DeMarco to implement the President's recent proposal to eliminate barriers faced by underwater homeowners seeking to refinance their mortgages at current market interest rates. DeMarco announced on Monday that FHFA would be taking several steps to reduce these barriers.
Cummings issued a release on Monday stating, "I commend the President for proposing this idea in his speech to Congress, and I thank Mr. DeMarco for listening to the concerns of Members and their constituents. The changes announced today will provide additional relief for middle-class Americans and an important boost for our economy. But we must not stop here. Economists warn that the housing crisis is 'ground zero' for the economy and jobs, and this is only one modest step towards addressing it."
Borrowers who executed "Pick-A-Payment" Mortgages with Wachovia Corporation and other Wells Fargo subsidiaries now must choose between participating in the class action settlement or pursuing their own litigation. Case No. M:09-CV-2015-JF. https://pickapaysettlement.com/LinkClick.aspx?fileticket=CmmRlLH9Lmw%3d&tabid=149&mid=669
A San Jose Federal Judge has preliminarily approved a $50Million class action settlement against Defendants World Savings, Inc., World Savings
Bank, FSB, Wachovia Mortgage, FSB, now known as Wachovia Mortgage, a
division of Wells Fargo Bank, N.A, Wachovia Corporation, Golden West Financial
Corporation, Wachovia Bank, FSB, f/k/a World Savings Bank, FSB-TX, Wachovia
Mortgage Corporation, Wells Fargo Home Mortgage, and Wells Fargo Bank, N.A.
("Defendants"). Up to $25 Million will be paid to the Plaintiffs' lawyers.
The settlement sets up a loan modification program that has questionable value and leaves the lenders in the position of deciding who gets loan mods and who doesn't.
Borrowers must be evaluated for a HAMP loan modification first. If they do not qualify, borrower's can apply for a "
MAP2R Modification", as defined in the settlement agreement. If the borrower is ineligle for a mod, the borrower can do a short sale through the HAFA program.
The problem is that the loan modification process remains in the hands of the banks and are subject to the same non-transparent Net Present Value tests that are manipulated by the lenders. Potentially, borrowers who partake in the settlement will be subjected to the same loan modification nightmare that is currently playing out under HAMP.
The Firm suggests that borrowers consider opting out of the litigation and pursuing individual claims under the same legal theories raised in this case.
Borrowers must "opt out" before March 11, 2011.
Commentary:
The facts asserted in the article below come as no shock to this law office: the Fox is watching the chickens. Since the inception of the HAMP program in April of 2009, this office has studied the HAMP guidelines in an effort to maximize the chances of our clients to receive loan modifications. From the beginning, we discovered that loan servicers often ignored the terms of the HAMP guidelines.
It has become increasingly apparent that Fannie Mae, as agent to our own Treasury Department, has done and will do nothing to enforce the terms of the HAMP contract. In response, this office has turned to the Courts. In four lawsuits, the Firm has initiated lawsuits under a "third party beneficiary" theory. Surprisingly, most Courts have shot down the theory, ruling that homeowners are NOT the intended beneficiary to the HAMP program. Despite this precedent, 3 out of the 4 of our plaintiff's that sued received loan mods.
The article below validates what we already know: Our federal government is too heavily influenced by mega-banks and their army of lobbyists to serve the needs of the American people. The government is supposed to be an extension of the people; instead our federal government is a partner to only the rich and powerful. Cruel capitalism applies to Main Street, but not Wall Street. Our federal representatives had a chance to avert this mess: had the Senate passed "judicial cram down" amendments to the Bankruptcy Code, we would have a fair and structured system in place to deal with individual home loan modifications. Instead, we watch as the same entities that created this mess continue to milk profits through loan servicing companies that continue to bleed the wealth out of the nation.
Home-loan program hobbled by lax oversight
http://www.msnbc.msn.com/id/41299299/ns/business-real_estate/from/toolbar
With millions of homeowners still struggling to stay in their homes, the Obama administration's $75 billion foreclosure prevention program has been weakened, perhaps fatally, by lax oversight and a posture of cooperation--rather than enforcement--with the nation's biggest banks. Those banks, Bank of America, Wells Fargo, JPMorgan Chase, and Citibank, service the majority of mortgages.
Despite a dismal showing for the program, rising complaints from homeowners, and repeated threats from officials, the government has levied no penalties against even the most error-prone banks and mortgage servicers. In fact, despite issuing public warnings for more than a year about imposing penalties, the Treasury Department told ProPublica this week they don't even have the power to punish servicers for wrongfully denying help to homeowners. Instead of toughening the program, Treasury has actually loosened it in the face of industry lobbying.
Over the past year, ProPublica has been exploring why the government's program has helped so few homeowners. Over the coming weeks, we will be detailing how the administration quietly retreated from a plan to get tough on banks, why the mortgage servicing industry lacks incentives to invest in helping homeowners, how the industry succeeded in thwarting oversight, and what reforms could lead to more help for homeowners.
The stories are based on newly disclosed data, lobbying disclosures, dozens of interviews with insiders, members of Congress, and others. Today's story looks at the timidity of Treasury's oversight, a conclusion echoed in a government report Wednesday.
"At some point, Treasury needs to ask itself what value there is in a program under which not only participation, but also compliance with the rules, is voluntary," says the new report, from the special inspector general for the TARP. "Treasury needs to recognize the failings of [the program] and be willing to risk offending servicers. And if getting tough means risking servicer flight, so be it; the results could hardly be much worse."
The administration launched the program nearly two years ago, in early 2009, promising it would help three million to four million troubled American borrowers rework the terms of their mortgages. Amid widespread reports that servicers have been wrongly rejecting homeowners, losing paperwork, and otherwise breaking the program's rules, it appears the program will fall far short. The Congressional Oversight Panel now estimates fewer than 800,000 homeowners will ultimately get lasting mortgage modifications.
An early problem for the program was that banks and other mortgage servicing companies were quickly letting homeowners into the program on a trial basis, but failing to make decisions regarding hundreds of thousands of homeowners while multiple government deadlines passed.
To push banks to solve the problem, senior Treasury official Michael Barr, who has since left the department, warned in a November 2009 conference call with journalists that if the banks didn't clear their backlogs, the firms would "suffer consequences." Treasury issued a press release the same day saying banks could face "monetary penalties and sanctions."
It turns out Treasury had already taken most penalties off the table.
The program rests on contracts that Treasury drafted and banks signed onto. To participate in the program and receive potentially billions in government incentives, banks and mortgage servicers agreed to offer homeowners modifications under guidelines subsequently drawn up by the government. In exchange, they would receive $1,000 for a completed modification and up to $4,000 if the loan continued to perform.
The contracts say Treasury can withhold or claw back incentive payments to servicers when they violate the contract. Members of Congress and homeowner advocates have long pushed Treasury to issue such penalties. There have also been calls within Treasury itself.
Around the same time that Barr and other officials were making public threats, Treasury staffers were looking at reports showing that some banks were modifying virtually no loans. Frustrated, they called at an internal meeting for withholding payments to the worst offenders or imposing fines, according to a person familiar with those discussions. But the staffers were walked back by Treasury lawyers, who said the government was only party to a commercial contract with servicers and not acting as their regulator.
Despite Treasury officials appearing before Congress and elsewhere warning of potential penalties, the department told ProPublica after months of questioning that its hands are tied. Treasury now says it has a very narrow authority to withhold incentives under the contracts. Only in cases where the servicer incorrectly granted a modification and claimed a payment can Treasury withhold or claw back a payment as a punishment.
That interpretation of the contracts means that if a homeowner was wrongfully denied help through the program, there is no possible financial penalty.
"There is no provision in the contract that permits Treasury to assess punitive fines or penalties for a servicer's failure to modify a loan, for an improper modification of a loan, or for failure to adhere to any other program requirements," said a Treasury spokeswoman.
Experts say Treasury is handcuffing itself. Alan White, a law professor at Valparaiso University, called Treasury's interpretation of its own contracts "extremely crabbed." Treasury does have the power to punish servicers for broad violations by withholding incentive payments, he said, and it could also sue servicers for not fulfilling the contract.
Additionally, Treasury has the power to change the contracts, said Julia Gordon from the Center for Responsible Lending. (The Sandler Foundation is a major funder of both the Center and ProPublica, which operate independently of each other.) The reason Treasury hasn't changed them, Gordon said, is that Treasury is afraid servicers would drop out of the voluntary program, known as the Home Affordable Modification Program (HAMP), in the face of real penalties.
"If servicers don't get paid for future modification activity, there is a risk that they will be less inclined to continue completing HAMP modifications or to follow HAMP guidelines to evaluate homeowners for all loss mitigation options before referring them to foreclosure," said a Treasury spokeswoman.
Instead of getting tough with servicers, Treasury says they work with banks to make sure problems are fixed.
When government audits of banks' modification practices revealed they were frequently breaking the rules, Treasury officials worked through a process they call "remediation."
One audit, conducted on Treasury's behalf by the government-supported mortgage company Freddie Mac, found that 200,000 struggling homeowners had not been told they were eligible for the program, as servicers are required to do. Auditors also found 15 of the largest 20 participating servicers were incorrectly using the Treasury formula that determines if homeowners qualify for the program.
Rather than imposing penalties, Treasury simply asked the servicers to contact the homeowners that had been missed and rerun the numbers for those who had been wrongfully denied because of the formula error.
"The servicer says, 'you've caught me this time,' but it doesn't improve widespread non-compliance because there's no real penalty," said Alys Cohen of the National Consumer Law Center.
Dawn Patterson, Treasury's chief of compliance for the program, explained that the idea was to allow servicers time to get "their programs built, their processes more shored up." Patterson says Treasury is continuing to use that approach.
Treasury's own records call into question the impact of those efforts. Documents obtained by ProPublica via a Freedom of Information Act request show homeowner complaints to a Treasury-sponsored hotline have actually increased during the past year. The most common complaint is that the servicer has violated the program's guidelines.
Servicers have also at times been uncooperative with the government's own auditors. Even getting the right documents from servicers has "been a cumbersome process," the head of the government's audit team, Paul Heran, said last year at an industry conference. It seemed, he added, the task was often relegated to low-level staff who didn't understand the requests. Another manager in the unit, Vic O'Laughlen, said servicers tended to respond with "at best fifty percent of what we're expecting to see."
A Treasury spokeswoman said that "servicer operations, especially in larger organizations, are complex," and producing the documents can be difficult.
The government's oversight has also been hampered by a lack of transparency by Treasury itself. The department has kept its audits of servicers secret. It also does not have a written policy for how it would address rule violations by banks, an omission criticized in a Government Accountability Office report last year and not yet addressed. Treasury says it does have a process for dealing with banks' noncompliance, just not a written one.
The lack of oversight has been particularly damaging, since mortgage servicers have little incentive to do modifications on their own.
Servicers handle homeowner payments for investors who own the loans. Since servicers don't own the vast majority of the loans they service, they don't take the loss if a home goes to foreclosure, making them reluctant to make the investments necessary to fulfill their obligations to help homeowners.
"By every metric, the failure of the largest servicers to carry out the program is obvious," said Prof. White. The noncompliance has gone unpunished, he said, because "Treasury staff are preoccupied with friendly relations with the banks. Sometimes it seems the banks own Treasury."
Meanwhile, the industry has continued to lobby for changes in the program.
Last summer, Treasury significantly weakened a tool that would have helped keep servicers accountable after officials met with industry lobbyists, documents show.
When banks entered the program, they agreed to certify annually that they've followed the rules of the program. But lobbyists from the Financial Services Roundtable and the Mortgage Bankers Association suggested adding exemptions.
Instead of certifying that banks had followed all the rules, the industry proposed that they could ignore problems affecting less than five percent of homeowners eligible for the program. In the case of Bank of America, which handles more mortgages than any other bank, that meant the bank would not have to report an error that occurred nearly 20,000 times.
The industry also suggested that no matter how widespread a problem, servicers could assert they were complying with the law as long as they pledged to fix problems "to the extent practicable." The previously unreported proposal was disclosed through an administration policy of releasing lobbying contacts related to the TARP.
Later that month, the Treasury revised its certification requirements, making them similar to those the industry sought. Under the new rules, servicers can define for themselves what violations were significant enough to disclose.
The new policy is "not only like putting the fox in charge of the hen house," said Cohen of the National Consumer Law Center, "but asking the fox to fine itself for each chicken eaten."
A Treasury Department spokeswoman said the industry's lobbying did not affect the final guidance, because Treasury was already going to make several of the servicers' suggested changes. It was never the department's intention that "a servicer submit a list of every individual instance of non-compliance." If servicers give themselves inappropriate leeway, she said, Treasury would work with them to address the problem.
Unless servicers fear real penalties, the troubled program is unlikely to improve, said Richard Neiman, New York state's chief bank regulator. "There needs to be a greater effort on enforcement, on assigning sanction and fines where there has been noncompliance. We cannot rely solely on servicers to police themselves."
© Copyright 2011 ProPublica Inc. All rights reserved.
Under the Dodd-Frank Act, in circumstances when servicers reject borrowers for loan modification because a failure of the "Net Present Value Test" ["NPV"], servicers must now provide additional information regarding the ASSUMPTIONS made in the evaluation process.
The NPV test is financial modeling tool that compares the relative economic benefit to the INVESTOR of offering a loan modification versus immediate liquidation of the property through foreclosure sale. The NPV test details are not available to the public. The test is a black box based on assumptions regarding property value, FICO scores, income, other debts and a variety of 33 inputs.
Starting February 1, 2011, servicers must provide more detail and the opportunity to dispute the inputs including the property value. If property value is in dispute, borrower's can demand an appraisal if they pay a $200 deposit. Furthermore, the Treasury Department will issue a public version of the NPV financial model which will soon be available for public use.
The hope is that this new law will shed additional light on the decision making process of HAMP loan servicers and lead to more accountability.
If you have a loan owned or serviced by Bank of America and are 60 days late or more, you MAY for its new "earned principal forgiveness." About 95% of the loans that Bank of America services for private investors in which the investor has delegated authority to the bank may qualify. The types of loans that may qualify include pay option ARMs, prime two-year hybrid mortgages and subprime loans initially offered by Countrywide. Fannie Mae and Freddie Mac loans will not be eligible.
B of A estimates that only 45,000 customers will ultimately qualify for this program and about $3 billion dollars of principal will be reduced provided all the customers accept and complete the program over a 5 year tern and the value of the home does not rise after the third year.
This "earned principal forgiveness" program will be offered as part of Bank of America's National Homeownership Retention Program, which is available in 44 states and the District of Columbia. To qualify for this principal forgiveness, homeowners will need to meet all the other qualifications of HAMP. They will need to prove that they have a hardship and cannot afford their current mortgage.
Details:
- If you have a pay option ARM the bank will first look at your negative amortization account. With these loans borrowers were able to defer interest payments and these payments are held in negative amortization accounts. As part of the HAMP modification, the bank will eliminate this feature and forgive all or part of the negative amortization to reduce principal to as low as 95% loan to value (LTV).
- Also, pay option ARMs will be recast to eliminate the negative amortization and converted to fully amortizing loans.
- Next if the principal balance of the loan is greater than 120% LTV the bank will consider a set-aside of up to 30% of the principal as an "interest-free forbearance of principal." The amount set aside interest-free will be eligible for possible forgiveness.
- In addition to pay option ARMs, some prime two-year hybrids and Countrywide mortgages will be included in this program.
- As long as you pay your loan on time during a five year period, it's possible all the interest-free principal that was set aside will be forgiven. Whether or not all is forgiven will depend on the value of your home in the fourth and fifth year.
- http://webmedia.bankofamerica.com/corporateresponsibility/NHRP%20Enhancements%20Fact%20Sheet.pdf
Take the example of a home now worth $200,000 but with a mortgage of $250,000. In this scenario $50,000 would be set aside as an "interest-free forbearance of principal." In determining the HAMP payment the bank would use a $200,000 loan-to-value to set the new mortgage payments.
As long as homeowners continue to pay the loan on time over a five-year period, each year one fifth of the "interest-free" principal set aside would be forgiven. So, for example, at the end of the first year $10,000 would be forgiven. This will continue each year as long as the forgiven amount does not reduce the principal below 100% of the current market value.
But in years four and five, if the market value has recovered, some of the principal may not be forgiven. For example, suppose in year 4 the house price has appreciated $20,000 and now the house is worth $220,000, the remaining $20,000 sitting in the "interest-free" account would not be forgiven.
On a side note: Bank of America Corporation on April 16, 2010 reported first-quarter 2010 net income of $3.2 billion compared with a net loss of $194 million in the fourth quarter and net income of $4.2 billion a year earlier. After preferred dividends, the company earned $0.28 per diluted share in the first quarter, up from a loss of $0.60 per share in the fourth quarter and earnings of $0.44 per share in the first quarter of 2009.
Sources: Lita Epstein, Bank of America
Pulled off of Bloomberg today, this article relates to loan mods given prior to the implementation of the Home Affordable Mortgage Program or HAMP.
March 25 (Bloomberg) -- More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.
The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.
U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.
Modifications are "clearly not working well and it's not a surprise," said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. "It's pointless to rewrite these loans because they're underwater."
The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.
Obama Program
President Barack Obama's administration is pressuring lenders to alter loans to reduce the number of properties lost to foreclosure. About 4.5 million foreclosures filings are expected in 2010, according to RealtyTrac Inc., an Irvine, California-based seller of default data.
A government watchdog report released today criticized the government's main foreclosure prevention effort, the Home Affordable Modification Program, or HAMP, for "spreading out the foreclosure crisis" over several years by failing to help enough troubled borrowers.
"The program will not be a long-term success if large amounts of borrowers simply re-default and end up facing foreclosure anyway," said the report by the Special Inspector General for the Troubled Asset Relief Program, prepared for a Congressional hearing today.
Assistant Treasury Secretary Herb Allison defended the program at the Congressional hearing, saying it has shown signs of stabilizing the housing market.
Before HAMP
The Mortgage Metrics data are based mostly on modifications made before HAMP, Joe Evers, deputy for large bank supervision at the Comptroller of the Currency, said in a phone interview today. Permanent loan changes under the government program accounted for only 21,000 of the total 594,000 modification plans initiated during the fourth quarter of 2009, making it too soon to evaluate the effectiveness of that plan, Evers said.
There were 168,708 delinquent loans permanently modified under HAMP as of the end of February, according to a Treasury Department report March 12.
Borrowers were more likely to default when their monthly payments aren't reduced enough in modifications to make staying in a home affordable, Evers said.
"Our data show that when you reduce payments by 20 percent or more you have a tendency for lower re-default rates," he said from Washington.
Bank Modifications
The Mortgage Metrics report tracks 34 million mortgages with an outstanding balance of $6 trillion and is based on data from nine national banks and three thrifts. The data represent more than 64 percent of all first-lien mortgages.
Modified loans in the portfolio of banks -- as opposed to loans owned by investors or government-sponsored enterprises such as Fannie Mae and Freddie Mac -- had the best record of avoiding re-default, the Mortgage Metrics report said.
The banks are free to design modification plans for individual borrowers, Bruce Krueger, a mortgage banking expert with the Office of the Comptroller, said in a phone interview. The HAMP program requires lenders to follow a path of concessions to modify loans, beginning with interest rate reductions, extended loan terms and principal forebearance.
"It's a very rigid process," Krueger said of the HAMP program. "If the loan is on the bank's books itself, the servicer can do whatever the bank might allow."
To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.
Commentary from the frontlines: Follow the money! There is inherent conflict of interest between what is good for a loan servicer and what is good for the loan's owner or investor (typically a mortgage backed security trust). Loan servicer's usually only make .25-.50 percent of the revenue that they process on behalf of an investor when a loan is performing. However, when a loan goes into default, servicer's make a killing. Loan servicers profit from the late fees, BPOs, foreclosure costs, attorney fees, forced placed insurance and all the other excessive fees.
Payments received from borrowers during a trial mod or forbearance plan are put in a "suspense account". Suspense funds earn interest for the loan servicers. Those funds are used to pay off the accrued servicer fees first and foremost. Generally, investors get paid after the loan servicer. So as not to disturb the cash flow to the servicers, MBA proposes that the government make special loans to servicers so they can pay themselves and also let their investor's share in the foreclosure crisis gravy train. The proposal would effectively double the time that servicer's can milk a property in foreclosure, in addition to the HAMP plan, and allows investor's to further delay recognizing the true losses on their books.
Of course, as with the HAMP plan, evaluation of borrowers would be under the supervision of the loan servicers.
the fox is watchin' the unemployed chickens too?
Proposal details: http://www.mortgagebankers.org/files/News/InternalResource/71954_BridgetoHAMP.pdf
"The Mortgage Bankers Association (MBA) has put forth a concept for a new forbearance program that would allow borrowers who've lost their jobs to remain in their homes while they seek new employment. According to the proposed program, loan servicers would reduce the borrower's mortgage payment for up to nine months while the homeowner looks for employment."
"Under MBA's proposal, borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months and earning 75 percent of their previous salary. The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once new employment is secured, the program would serve as a "bridge" for the borrower to be considered for a modification under the administration's Home Affordable Modification Program (HAMP)."
"MBA suggests that some participating servicers would need access to special loans through Treasury so they could continue to advance payments to investors during the extended forbearance period. The trade group also noted that the program would need to be voluntary and flexible due to financial accounting considerations, in particular whether or not lenders would have to classify the forbearance as a troubled debt restructuring (TDR). MBA created this program through a special task force of its members, and consulted with Fannie Mae and Freddie Mac on the design. Last week, MBA representatives met with officials from the White House, the Treasury Department, and HUD to present the proposal."
"Last Friday, President Obama announced a new initiative to provide $1.5 billion to housing finance agencies in especially hard-hit states for them to develop their own loss mitigation programs, with one particular area of focus being assistance for unemployed homeowners. MBA's proposal though, puts the unemployment issue on the national stage, and although participation by servicers would be voluntary, the program would be coupled with federal HAMP efforts. Nationwide, MBA said in a letter to Treasury Secretary Timothy Geithner, "Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent."
I can tell you from the frontlines of the foreclosure crisis, that the Obama administration's Home Affordable Modification Plan or HAMP is a large scale failure. Consider these facts from the ACORN and the Center for Responsible Lending:
-A family loses their home to foreclosure every 13 seconds.
-15 million homeowners owe more than their mortgages are worth.
-9 million foreclosures by the end of 2012 resulting in a $2 trillion loss in home property values in the United States. With millions of option ARMs and Alt-A loans scheduled to reset in the next few years, coupled with rising unemployment, the projected numbers are likely to only get worse.
"Mortgage servicing companies are key to addressing the foreclosure crisis because they occupy the unique niche of collecting payments and making decisions about foreclosures on behalf of investors who own pools of mortgage backed securites. Unfortunately, most workouts offered by servicers are not aff ordable to the homeowner, and many even fail to lower the monthly payment that led to the delinquency, thereby resulting in high re-default rates."
If you are reading this Blog, then chances are you have already failed in your attempts to get a loan modification. Consider the reasons why the HAMP program is not working:
Mortgage servicers remain severely understaffed and are not complying with the HAMP contracts they signed.
HAMP requires servicers to suspend all foreclosure activity until it canbe determined if a homeowner is eligible for a modification; instead, servicers are proceedingwith foreclosures before such determinations are made. In direct violation of the guidelines, some servicers also continue to
1) require homeowners to make large, up-front cash payments as a condition for being considered for a modification;
2) fail to apply the HAMP rules to all portfolios being serviced;
3) refuse to evaluate for HAMP modification those distressed homeowners currently paying on time;
4) base the affordability calculations on interest-only or option-arm minimum payments, when HAMP requires affordability to be based on the loan's principal interest, taxes and insurance; and
5) neglect to offer principal forbearance when interest rate reductions are not enough to make the loan affordable.
Source:
http://www.acorn.org/fileadmin/Fair_Housing/Reports/HAMP_WhitePaper3.pdf
Does this sound familiar? The HAMP contract is an agreement between the Treasury Department and the individual loan servicers. Currently, a borrower has no clear private cause of action or right to sue a servicer if they fail to play by the rules. Only the Treasury is in a contractual position to pressure the servicers into compliance and so far, that pressure has been quite mild. Its a classic case of the Fox watching the Chickens.
The HAMP program will never succeed unless the Obama administration creates a strong disincentive for the servicers that ignore the HAMP guidelines. The obvious solution is to create a private cause of action and enable borrowers who have been denied due process under the HAMP, to sue, to have their day in court, to seek justice. Let the law dawgs out, Mr. President!
Source: http://www.acorn.org/fileadmin/Fair_Housing/Reports/HAMP_WhitePaper3.pdf
Through December 2009, out of the 1,164,507 trial mods offered to date, only 6% or 66,465 homeowners received permanent loan mods under the HAMP plan. However, the government claims that an additional 46,000 permanent offers are awaiting borrower acceptance as a result of the the Treasury departments increased pressure on servicers.
Source: http://financialstability.gov/docs/report.pdf
Approximately 89% of eligible mortgage debt outstanding is covered by HAMP participating servicers. During the 4th quarter of 2009, the number of servicers who have signed servicer participation agreements to modify loans under HAMP rose from 63 to 102.
WARNING: Keep in mind that not every investor or loan pool within a servicer's portfolio necessarily signs up for the HAMP plan. Investors can opt out on an individual basis.
National HAMP results:
Number of Trial Period Plan Offers Extended to Borrowers (Cumulative): 1,164,507
All HAMP Trials Started Since Program Inception: 902,620
All Active Modifications (Trial and Permanent): 853,696
Active Trial Modifications: 787,231
PermanentModifications: 66,465
Permanent Modifications Pending Borrower Acceptance: 46,056
Total Permanent Modifications Approved by Servicers: 112,521
California HAMP results:
Active trial mods: 158,935 [20% of national total]
Permanent loan mods: 13,353 [20% of national total]
Los Angeles-Long Beach-Santa Ana HAMP results:
Active trial mods: 45,945 [29% of state total]
Permanent loan mods: 3,469 [26% of state total]
Riverside-San Bernadino-Ontario HAMP results:
Active trial mods: 36,671 [23% of state total]
Permanent loan mods: 3,383 [25% of state total]
From the front lines: This is a timely and informative article on the likelihood of principal reduction for borowers in distress. Wells Fargo and its subsidiary Wachovia remain the most willing, having cut $2billion of principal in 2009. While permanent loan modifications results are weak, principal reduction remains extremely rare. Principal deferment may help but doesn't solve the long term problem. 2009 total principal adjustments were only 21,000 out of nearly 7 million families that are behind on their mortgages. The conflict between first and second mortgage holders willingness to share the losses remains a stumbling block. Further incentivizing lenders with tax payer subsidies is not the answer. It will be a long slow slog to the bottom of the housing market unless Congress provides homeowners the leverage they could gain over lenders by reforming the bankruptcy cram down rules.
Principal Cuts on Lender Menus as Foreclosures Rise (Update1)
By John Gittelsohn and Prashant Gopal
Jan. 7 (Bloomberg) -- Efforts by U.S. banks to help distressed homeowners have focused mainly on temporary fixes such as interest-rate reductions that may only put off the day of reckoning, despite policy makers wanting them to do more.
Banks may be forced to resort to a remedy they've been trying to avoid -- principal reductions -- as another wave of foreclosures looms and payments on risky loans rise, Bloomberg BusinessWeek magazine reports in the Jan. 18 issue.
While interest-rate reductions or extending loan terms reduce homeowners' monthly payments, they don't give much comfort to borrowers who owe more on their homes than their properties are worth. Borrowers who don't have equity in their homes are more likely to hand over the keys when they run into trouble. "The evidence is irrefutable," Laurie Goodman, senior managing director of Amherst Securities Group in New York, testified before the U.S. House Financial Services Committee on Dec. 8. "Negative equity is the most important predictor of default."
The 25 percent plunge in residential real estate prices from their 2006 peak has left homeowners underwater by $745 billion, according to research firm First American CoreLogic -- a number that tops the government's $700 billion bailout for banks. That's why Federal Deposit Insurance Corp. Chairman Sheila Bair is considering incentives for lenders to cut the principal on as much as $45 billion of mortgages acquired from seized banks. "We're looking now at whether we should provide some further loss-sharing for principal writedowns," says Bair. "Now you're in a situation where even the good mortgages are going bad because people are losing their jobs."
Deepening Crisis
The foreclosure crisis is likely to deepen this year in part because payments on many adjustable-rate mortgages are set to balloon. Unless there's a sharp recovery in property values or a change in lenders' willingness to cut principal, at least 7 million borrowers currently behind on their payments will lose their homes, Goodman estimates.
Some lenders may be coming around to the idea of principal reduction. "If you can right-size the mortgage and return to an equity situation, the incentive is to stay," says Micah Green, an attorney at Patton Boggs in Washington and a lobbyist for a coalition of mortgage bond investors. Banks can either forgive principal outright or defer it. In deferrals the borrower must pay back the full amount on the original mortgage when he sells the property; if the ultimate sales price doesn't cover the principal, the homeowner has to pay the difference, making it a less effective tool.
Deferring Principal
A principal deferral helped Marcus Beckett stave off foreclosure. The 42-year-old small-business owner couldn't afford his $2,413 monthly mortgage bill after his income dropped and his son, Riley, was born. In October, OneWest Bank agreed to defer $66,000 of the $423,000 debt on his two-bedroom condominium, which he'll have to pay back if he sells his Aliso Viejo, California, home. The monthly tab on the house he bought in 2006 is now $1,314. "It's like I got a second chance on life," Beckett says. "I feel, mentally, I'm able to keep making payments."
While principal reductions remain rare, banks are doing them more often. In the third quarter of 2009, some 21,000 home loans -- 3 percent of the total modified mortgages -- included a principal reduction or deferral, according to Mortgage Metrics, a government publication. That's up from 6,245 in the first quarter of 2009, the first time the U.S. reported the data.
Positive Results
Banks that negotiate principal reductions have seen positive results. Last year, Wells Fargo & Co. cut $2 billion of principal on delinquent loans. After the modifications, the six- month re-default rate on those loans was roughly 15 percent to 20 percent. That's less than half the industry average. "We are very comfortable with what we've been doing," says Franklin Codel, chief financial officer of the bank's home-lending unit. "We offer a principal reduction if that makes sense for that individual borrower's situation."
When principal reductions were granted for pay-option adjustable-rate mortgages -- loans with high default rates because they enabled borrowers to pay less than the cost of interest as the principal increased -- the re-default rate after 60 days fell to 6 percent, according to Mortgage Metrics.
"In terms of incentive, you have more skin in the game or less negative equity to deal with," said Fred Phillips-Patrick, director of credit policy for the Office of Thrift Supervision.
Demand Better Deals
Many banks don't want word to get around that they reduce principal. They fear that homeowners who can afford their payments will demand better deals. John Lashley, a 44-year-old salesman in Huntersville, North Carolina, is making his payments. But he is thinking about walking away from his four- bedroom home unless his lender, Sun Trust Mortgage, agrees to cut the principal on his $345,000 loan.
The house next door recently sold for $260,000, and Lashley doesn't see the point of pouring money into his house when he may never recoup the investment he made in 2007. "Why should I stay in my house?" he says. "It's not a moral decision. It's a financial decision."
The conflicting interests of mortgage lenders and home- equity lenders is a roadblock to doing principal reductions. Banks, credit unions and thrifts held $951.6 billion in home- equity loans as of Sept. 30, according to Federal Reserve data.
Dueling Interests
Mortgage lenders don't want to cut principal unless the home-equity lenders agree to take a hit. Typically, though, the home-equity lenders are reluctant; much of the value of their loans would be wiped out. That could drive more banks into insolvency, says Joshua Rosner, an analyst at investment research firm Graham Fisher in New York.
The threat of lawsuits is also hampering principal reductions. In December 2008 money manager Greenwich Financial Services sued lender Countrywide Financial in New York State Supreme Court. Greenwich, which owns mortgage-backed securities, demanded 100 cents on the dollar for some Countrywide investments. The securities included loans on which Countrywide had agreed to cut $8.4 billion in principal and interest to settle allegations of predatory lending.
Greenwich Financial's case is pending. Bank of America Corp., which bought Countrywide in 2008, says: "We are confident any attempt to stop this program will be legally unsupportable." Greenwich says it's willing to accept loan changes that benefit borrowers.
No Pressure
So far the feds haven't put pressure on banks to forgive debt. President Barack Obama's $75 billion program to spur banks to alter loan terms doesn't require them to do so. But the FDIC and other regulators are looking at measures to promote the writedowns. Mark Zandi, the chief economist for Moody's Economy.com, who has testified before Congress on housing issues, proposes that banks receive a federal match of $1 for every $2 in principal reductions they offer to homeowners who were victims of predatory lending practices. "You're not going to wipe out all the borrowers' negative equity," he says. "This just gives them enough hope to get them committed again."
To contact the reporters on this story: Prashant Gopal in New York at pgopal2@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net.
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