Thursday, December 17, 2009

Loan Mods Are Slow to Convert

Late last week, the Obama Administration released the latest monthly report for the Making Home Affordable (MHA) loan modification program. The report includes for the first time the number of loan modifications that have transitioned from the trial to permanent phase.

For many a loan modification is the only way to stay in home as loans reset with new interest rates. The government reports that more than 728,000 modifications are under way across the country. However, the report shows that servicers have only converted 31,382 modifications to the permanent phase. This is roughly a four percent conversion of loans to permanent change status.

Not much progress from my view. Servicers have been moving very slow to help borrowers complete the process. Top Administration officials met with servicers in Washington DC this week to urge a faster pace in converting borrowers to permanent modifications.

Keeping borrowers out of foreclosure is important to stable housing market. Of Alameda’s 468 this year, 106 of them were distressed sales. Fifteen percent of the sales in Alameda (71) were a foreclosure.

Borrowers who receive modifications are saving an average of over $550 per month. According to servicer reports, most borrowers in modifications are meeting their responsibilities to make their payments.

This is not the only thing that the Treasury Department is doing to assist in stabilizing the housing market.

Today the Department released new rules regarding “Short Sales” to help financially troubled homeowners who need to sell but can't cover the mortgage. This is to assist homeowners who don't have the income or debt levels to qualify for a loan modification.

About one in 10 home sales this year was a short sale, or an estimated 500,000 sales, according to the National Association of Realtors. In California, the ratio is far higher. Alameda had 35 short sales this year; seven percent of the sales.

To qualify under the new guidelines:

-- The property must be the homeowner's principal residence
-- The homeowner is delinquent on the mortgage or default looks likely
-- The loan was made before Jan. 1 this year and is less than $729,750
-- The borrowers' total monthly mortgage payment exceeds 31 percent of their before-tax income

The plan is designed to accelerate the complex arrangements that need to be made to come to agreement between lenders, real estate agents, buyers and sellers. Secondary debt holders can receive up to $3,000 to release their claims on the property.

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