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.

Loan Mods Slow and Unproductive

Just a quick post today, I am off to Real Estate Connect in San Francisco a tech based real estate conference at the Palace Hotel. I will update any interesting items from the conference over at Twitter. To follow go to: http://twitter.com/johnoldham .

So on to the post . . .

So how is the Government’s loan modification program going?

In a nutshell slow and not very productive. The banks have been servicing very few of the eligible clients that could benefit from a change and according to government data released Wednesday, only 9 percent of an eligible 2.7 million borrowers had seen their mortgages modified under the new program as of the end of July.

The pace of loan modifications varies widely among lenders and servicers. The best results among large loan servicers came from Saxon Mortgage Servicers Inc. One in four of Saxon's 84,000 eligible borrowers has received a trial loan modification with a lower monthly payment. Aurora Loan Services, GMAC Mortgage and JPMorgan Chase all had one in five qualified borrowers in a trial loan.

Bank of America Corp and Wells Fargo & Co. — which have received billions in federal bailout money — were below average. BofA has modified just 4 percent of eligible loans under the program. Wells Fargo has modified 6 percent of eligible loans. Wachovia Corp., which was taken over by Wells Fargo last December, has modified just 2 percent. American Home Mortgage Servicing, with 153,000 eligible borrowers, was among the servicers that has not yet reported a single loan modification.

This could have a big impact on the Alameda Shadow inventory, those that are being threatened with foreclosure may not have the time need to modify their loans to save their homes. It seems that banks just do not know what to do, and in some case would rather have the property go into foreclosure than modify.

MSNBC had a great report on the lack of loan modifications.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Moratorium Begins Today For Troubled Alameda Homeowners

Starting today, Alameda and California homeowners who are behind on their mortgages, will benefit from a 90-day moratorium being imposed by the State.

The law was enacted to make lenders/banks work harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.

Many experts and supporters of the legislation do not believe this will help the vast majority of homeowners currently behind on payments. The California Foreclosure Prevention Act is trying to stop thousands of foreclosures already in the system and the couple hundred here on the Island. There have been more than 365,000 foreclosures in California since early 2007.

For us locally, Alameda has seen just a small portion of the meltdown. According to RealtyTrac, 106 Alameda properties are in Pre-foreclosure, 57 are in Trustee Sale, and 71 are Banked owned. The Act is focused on those in pre-foreclosure.

The California bill passed in February is similar to the Obama administration's “Making Home Affordable Program” that began in March and has now just expired. The programs are to encourage lenders to cut interest rates or rewrite loans to affordable levels. Under the Act, Banks in California cannot foreclose a mortgage without either renegotiating the loan or giving the homeowner three months notice.

According to State Assemblyman Ted Lieu, the Torrance Democrat who authored the bill, “California is ground zero for foreclosures. We’re getting about 80 to 90,000 foreclosure filings every month. That’s one every 30 seconds, so until we start mitigating the number of foreclosures, our economic recovery is going to be hampered.”

California is second in the Nation for foreclosures.

The Alameda Inventory report is below.

Video from Mortgage Brokers Association






KCBS Radio Report



Link to chart

. . Alameda Residential Inventory . Total 164 . 94501 125 . 94502 39 . SFR 103 . Condo 36 . Multi-Family 23 . Short Sale 11 . Foreclosure 13 . Price Reductions 56 . High List $2345000 . Low List $265000 . . June Sales through June 12 . Sales Date Address Type Beds Baths Sq Feet List Price Sales Price . 6/2/2009 14 REDONDO CT CONDO 2 3 1631 $540000 $510000 . 6/3/2009 1025 ISLAND DRIVE SFR 4 2 1720 $533610 $585000 . 6/5/2009 248 CHESWICK COURT SFR 3 2 1891 $624900 $625000 . 6/5/2009 632 SANDALWOOD SFR 3 2 1690 $750000 $735000 . 6/5/2009 1810 HIBBARD STREET SFR 2 1 $469000 $436000 . 6/9/2009 807 SANTA CLARA AVE SFR 2 1 1275 $445000 $471000 . 6/10/2009 35 MCDONNEL ROAD SFR 3 2 $609000 $589000 . 6/11/2009 1902 CHESTNUT ST MFR 0 0 $658000 $703000 . 6/12/2009 17 TIPPERARY CT SFR 4 2 2205 $838000 $800000 . . Alameda New Listings . List Date Address Zip Beds Baths Sq Feet Type List Price . 6/12/2009 1233 BROADWAY #A 94501 3 2 1268 CONDO $399000 . 6/12/2009 1808 WALNUT ST 94501 2 1 1594 SFR $389000 . 6/11/2009 2104 EAGLE AVE 94501 0 0 MFR $599000 . 6/11/2009 1420 SAINT CHARLES 94501 2 1 1218 SFR $459900 . 6/11/2009 3 NAKAYAMA CT 94502 5 3 2969 SFR $1200000 . 6/11/2009 311 CENTRE CT 94502 2 2 1720 CONDO $549900 . 6/11/2009 125 BAY PARK TER 94502 2 2 1534 CONDO $499000 . 6/10/2009 3210 LIBERTY AVE 94501 2 1 1142 SFR $549500 . 6/10/2009 228 DIAPIAN BAY 94502 3 3 2083 SFR $759000 . 6/9/2009 217 STANBRIDGE CT 94502 3 2 1817 SFR $724900 . 6/8/2009 2025 OTIS DRIVE #D 94501 2 2 1129 CONDO $314275 . 6/8/2009 412 TIDEWAY DR 94501 3 2 1835 CONDO $665000 . 6/8/2009 3 COHEN COURT 94501 4 2 2171 SFR $679950 . 6/8/2009 514 WESTLINE DR 94501 4 4 4011 SFR $1250000 . 6/8/2009 3007 ADAMS STREET 94501 2 1 911 SFR $525000 . 6/8/2009 280 BEACH RD 94502 3 2 1413 SFR $550000 . 6/8/2009 7 CASTLEBAR PL 94502 4 4 4958 SFR $1899000 . 6/7/2009 1291 CAROLINE ST 94501 3 1 1471 SFR $789000 .

Details on Fed Home Plan

Last week, the Federal Government discussed its “Homeowner Affordability and Stability Plan,” and I wrote about how Alameda residents would not see much relief from this plan because of loan limits. It appears that the government saw the flaw in the plan and increased the dollar amount; now home owners with mortgages as high as $729,750 could qualify for help.

The other key element there is no income ceiling homeowner just needs to be in danger of losing their homes. The program is open only to borrowers who live in the homes at issue, and not to investors or people with mortgages on second or third homes. It is open to people who obtained a mortgage before Jan. 1, 2009. Borrowers can apply for loan modifications until the end of 2012.

The plan that was unveiled yesterday, allows for interest rates on loans to drop as low as 2 percent and many homeowners could see their mortgage payments drop by several hundred dollars a month or in some specific case up to a $1,000 a month.

Struggling homeowners also will have to leap several hurdles to be eligible to a new loan under the “Making Home Affordable” initiative. The program runs through 2012.

Borrowers are only allowed to have their loans modified once, and the program only applies to first-lien loans made Jan. 1, 2009, or earlier. Up to 4 million borrowers are expected to qualify.  Another 5 million borrowers who have mortgages held by government-controlled mortgage finance giants Fannie Mae and Freddie Mac should be eligible to refinance through June 2010. 

The Treasury still has several key details to work out with the banks. The biggest involves how to handle the millions of homeowners with second mortgages or home equity loans are handled during modification. Because a holder of second liens typically incurs bigger losses when primary mortgages are modified and winning their approval has to be negotiated.

The enthusiasm with which lenders agree to modify loans is likely to be affected by a bill that would give bankruptcy judges the power to order changes in mortgages on primary residences and would protect loan-servicing companies from lawsuits by investors.

The nation’s biggest mortgage-servicing companies, overseeing two-thirds of all home loans in the country — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo & Co. are expected to participate in the plan.

This plan will not help every homeowner in trouble and according to several articles will do little to help families where one or more breadwinners have lost their jobs. People flooded with debt beyond their mortgages will also see little relief from this plan and those homeowners who are current on their loans but “upside down” — owing more than their houses are worth.

A person will receive help based on so-called net present value calculation by the mortgage company. A lender will calculate how much it would cost to reduce a person’s monthly payments to 31 to 38 percent of the borrower’s monthly income. If the calculation shows that the lender’s cost in modifying the loan, after receiving the taxpayer subsidy, would be lower than the cost of foreclosing, the lender would be required to offer a borrower the new deal. If the estimated cost of the concessions appeared to be higher than the cost of foreclosure, the decision would be voluntary.

So the simple explanation is if it will cost the Bank more to foreclose than modify you will see the lenders move this direction. I still think that with all the exclusions it will be difficult for Alameda homeowners to qualify. Most Americans have a second or line of equity and we will see how much latitude will be given with these type of loans.

 

SF Gate has a great Q&A to see if you qualify

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/03/05/MN2P169L4H.DTL