Mortgage modification future

CoreLogic’s (corlogic.com) latest monthly foreclosure report indicated a continued downward trend.  In fact, July’s national foreclosure inventory rate of 0.91% was the 57th consecutive month (almost 5 years) with a lower number of foreclosures nationwide.  Even the current 2.9% national rate of home owners considered “seriously delinquent” is also lower from last July.  (Maryland’s foreclosure inventory and seriously delinquent rates are higher than the national average at 1.2% and 4.1% respectively.) All thanks to mortgage modification and foreclosure alternatives.

Frank Nothaft, chief economist at CoreLogic, contributed the decline of foreclosure inventory to a combination of loan modification, foreclosures, and a strong housing market.  Additionally, he stated that “The U.S. Treasury’s making home affordable program has contributed to the decline through permanent modifications, forbearance and foreclosure alternatives which have assisted 2.5 million home owners with first mortgages at risk since 2009.”

In the immediate aftershock of the foreclosure and subsequent financial crises, which began almost nine years ago, the government stepped in to help out at risk home owners.  The rollout of HAFA, HARP, and HAMP was bumpy and it took time for the programs to work efficiently.  Of course, these programs were not intended to continue on forever, and in fact were supposed to end several years ago.  Fortunately, Congress, the Treasury and the FHFA have recognized the need for continued assistance and extended the programs.  Providing foreclosure alternatives and mortgage modification reduces vacant homes, bolsters communities, and helps maintain a healthy housing market.

Although these mortgage assistance programs were intended to be temporary, it’s clear that a permanent solution is necessary.  The notion that a foreclosure crisis won’t or can’t happen again is naïve.  Historically, housing downturns and recessions are cyclical.  And when an economic decline occurs, a home owner assistance program should be available to provide borrowers with alternatives to foreclosure.

The Federal Housing Finance Agency (FHFA.gov) announced in an August 25th press release that HARP will be extended through September 2017.  But that will be the end of Home Affordable Refinance Program (HARP) as we know it, because a new program is slated to begin October 2017.  The new program is to be a streamlined version that will also allow those whose mortgages exceed Fannie and Freddie’s loan limits to refinance.

FHFA stated that specifics for the HARP replacement will be released as the rollout date approaches.  However, it is anticipated that the program will not require a minimum credit score; will not place limits on the borrower’s debt-to-income ratio; nor will it limit the mortgage to a maximum loan-to-value.  And unlike many refinance programs, an appraisal may not be required.  And improving from the HARP program, there won’t be cut off dates, and borrowers can use the program multiple times.

The Home Affordable Modification Program (HAMP) unfortunately is slated to conclude at the end of the year without a viable replacement.  However, the Mortgage Bankers Association have stepped in to create a streamlined solution to fill the gap.  A September 23rd press release (MBA.org) announced its successor to HAMP: “One Mod: Principles for Post-HAMP Loan Modifications.”

J. David Motley, CMB Vice-Chairman of the Mortgage Bankers Association, stated, “With Treasury’s HAMP program soon coming to an end, we all recognized that investors, borrowers, and servicers need a replacement program that provides clarity and simplicity to homeowners experiencing difficulty maintaining their mortgage paymentsOne Mod could meet that challenge by providing affordable and sustainable payment structures that improve the likelihood of success for participating borrowers.

Original published at https://dankrell.com/blog/2016/09/30/mortgage-modification-future/

By Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Has the housing market improved in the last four years

Dan Krell, Realtor®
DanKrell.com
© 2012

HousingIn retrospect, the beginning of the global recession in late 2007 was the end of the housing boom and may have spawned the foreclosures crisis and the financial crisis of 2008.  And although this period of time will undoubtedly become the basis of many future dissertations examining the “Great Recession;” you might ask “how much has the state of housing improved since 2008?”

If you recall, the Housing and Economic Recovery Act of 2008 (HERA) was anticipated to have wide reaching changes in the mortgage and housing industries as well as supposed to have assisted struggling home owners.  This multifaceted piece of legislation consolidated many individual bills addressing issues that were thought to either be the cause or the result of the financial crisis.  Besides raising mortgage loan limits to increase home buyer activity, the historic legislation was the beginning of changes meant to “fix” Fannie Mae and Freddie Mac, as well as “modernizing” FHA to make the mortgage process easier for home buyers and refinancing easier for struggling home owners. Additionally, this law was the origination of the Hope for Homeowners program to assist home owners facing foreclosure (www.govtrack.us/congress/bills/110/hr3221).

The Federal Housing Finance Agency (FHFA), originated from HERA, has been the “conservator” of the then sinking Fannie Mae and Freddie Mac. Since the FHFA took control, there has been conjecture as to what would become of the mortgage giants: some talked about closing their doors, while some talked about changing their role in the mortgage industry. Since FHFA became the oversight agency, Fannie Mae and Freddie Mac has strengthened their role in maintaining liquidity in the housing market by helping struggling home owners with their mortgages as well as freeing up lender capital by the continued purchases of loans (fhfa.gov)

The inception of Hope for Homeowners was the beginning of a string of government programs designed to assist home owners facing foreclosure, or assist underwater home owners refinance their mortgage.  Although there have been individual success stories, there has been criticism that these programs did not assist the expected numbers of home owners.  A January 24th CNNMoney article by Tami Luhby (money.cnn.com) reported that “…the HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners — a far cry from the promised 4 million…” and “HARP, which was intended to reach 5 million borrowers, has yielded about the same results. Through October, when it was revamped and expanded, the program had assisted 962,000…” (money.cnn.com/2012/01/24/news/economy/Obama_housing/index.htm).

HousingDespite the recent slowdown in foreclosure activity, there is disagreement about the projected number of foreclosures going into 2013.  A March 29th Corelogic news release (www.corelogic.com/about-us/news/corelogic-reports-almost-65,000-completed-foreclosures-nationally-in-february.aspx) reported that there have been about 3.4 million completed foreclosures since 2008 (corelogic.com).  And although an August 9th RealtyTrac® (www.realtytrac.com/content/foreclosure-market-report/july-2012-us-foreclosure-market-report-7332) report indicated a 3% decrease from June to July and a 10% decrease from the previous year in foreclosure filings; July’s 6% year over year increase in foreclosure starts (initial foreclosure filings) was the third straight month of increases in foreclosure starts.

So, if you’re wondering if housing is better off today than it was four years ago, the answer may be a resounding “maybe;” It all depends on your situation.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 3 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

President Signs Historic Housing Legislation

by Dan Krell

The lack of fanfare over the signing of The Housing and Economic Recovery Act of 2008 on July 30th by President Bush was the anticlimax of the long Congressional battle of proposed housing legislation. The long awaited and highly anticipated legislation is historic for its wide reaching changes in the mortgage and housing industries as well as foreclosure assistance.

For the mortgage industry, the Housing and Economic Recovery Act of 2008 changes how the Government Sponsored Entities (GSE’s), FHA and VA will conduct their mortgage businesses. In addition to the recent loan limit increases ($625,000 for conforming mortgages and $625,000 for FHA loans in high cost areas) becoming permanent for Fannie Mae, Freddie Mac, and FHA, the new law will increase oversight and offer more options and protections to home buyers.

For the GSEs (which include Fannie Mae, Freddie Mac, and Federal Home Loan Banks), the new law provides temporary assistance to the financially beleaguered Fannie Mae and Freddie Mac from the United States Treasury in the form of discount loans to help stabilize the mortgage giants. Additionally, a new and “independent” regulator to oversee the GSEs will act like a federal regulator to ensure that the GSEs are financially stable.

The new law includes the FHA Modernization Act of 2008, which gives the venerable government insured mortgage a face lift. There have not been such significant changes to FHA since its inception in 1934. Among the many changes, FHA will have a more streamlined process, increase the down payment to 3.5% of the purchase price, bar down payment assistance programs, and require home ownership counseling for home buyers.

The new law seeks to prevent mortgage fraud by launching efforts to license all mortgage originators. Although many states now require mortgage originators to be licensed, the new law will focus on those originators who are exempt from current laws (which typically include mortgage originators who are employed by federally chartered banks).

New mortgage disclosure requirements expand the Truth In Lending Act (TILA) to require lenders to provide meaningful information to consumers about their loans. The time frame will be three days from application and seven days before settlement. This is meant to allow consumers to compare mortgage rates and terms within a reasonable time frame.

Home buyers who purchase a home between April 9, 2008 and June 30, 2009 will have the opportunity to qualify for a tax credit which is repayable over fifteen years. However, the credit is limited to ten percent (up to $7,500) of the purchase price of a principal residence, and only for first time home buyers who meet income restrictions. Other restrictions apply, so you should consult your accountant for additional information.

For home owners facing foreclosure, the new legislation includes the HOPE for Homeowners Act of 2008. The program will allow the home owner’s present mortgage be refinanced through FHA. However among other qualifications, the program requires the home owner’s present lender to agree to accept losses to 85% of appraised value of home.

To the average person, these sweeping changes may seem dull and unimportant; many remain critical of the new legislation. However, because the Housing and Economic Recovery Act of 2008 is so wide reaching, it is truly historic.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 4, 2008. Copyright © 2008 Dan Krell.

Mortgage workout or workover?

by Dan Krell

Earlier in December, a new mortgage relief program was announced as the Bush-Paulson Mortgage Plan. The plan, although not yet approved nor agreed to by all parties involved, is intended to help those home owners who have sub-prime mortgages with interest rates that will adjust significantly higher. Proposed details, as revealed in a December 5th, 2007 Financial Times article, include a five year interest rate freeze for sub-prime adjustable rate mortgages that were dated between 2005-2007 and whose rates are to increase between 2008-2010. Lender participation will be voluntary. Additional borrower qualifications include having less than three percent equity in their home, not being more than sixty days behind on their mortgage payment, as well as demonstrating an inability to afford any mortgage increase (www.ft.com/cms/s/0/c4b23f82-a37c-11dc-b229-0000779fd2ac.html).

Many Wall Street investors have criticized any workout plan as excessive government intervention in a market that is already correcting itself. Some in the industry have described such intervention as delaying the inevitable for those in foreclosure, explaining that many home owners who can not afford a rate increase now would possibly not be able to afford a delayed (five year) rate increase. Other critics include self described “responsible“ home owners who feel they work hard to maintain their credit and pay their mortgage timely; they claim that any government intervention to help those in foreclosure sends the wrong message.

Others, including Presidential candidates, have criticized the President for not doing enough to help those home owners already in foreclosure. For example, Senator Hillary Clinton (as posted on her website HillaryClinton.com) criticized President Bush’s plan and proposed an alternative plan that includes immediate foreclosure moratoriums and across the board rate freezes. Although well intentioned, many proposed alternatives also have market and socio-economic consequences.

Unfortunately, many home owners who are facing foreclosure don’t know that a workout plan (know as a “loan modification”) may already be possible with their present lender. Of course the home owner must request it. Additionally, the proposed workout must make sense and the home owner must demonstrate a need as well as the ability to afford the modified payments. In many cases, lenders would rather work with financially troubled borrowers than foreclose; the foreclosure process is costly – for both the lender as well as the borrower.

The key to initiating a workout plan is for the home owner to communicate with their lender. Among the many reasons why home owners facing foreclosure do not communicate with their lender include lack of information of their options, misinformed of their options, and psychological stress (including apathy and feelings of hopelessness). The latter being the most prevalent because of the psycho-social complexity, which include the events that brought the home owner to their present financial problem as well as the time and effort involved in attempting to resolve any mortgage issues.

In an effort to assist home owners who are presently facing or at risk for foreclosure, Treasury Secretary Paulson and Housing Secretary Jackson created the Hope Now Alliance as a step in President Bush’s initiative to help American families keep their home. The Hope Now Alliance was created to facilitate communication between borrowers, lenders and housing counselors. For more information on loan work outs you can visit HUD.gov or HOPENOW.com.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 24, 2007. Copyright © 2007 Dan Krell.