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The C.A.R. has put the lenders and their modification plans together in one place:

http://www.car.org/legal/mortgage-workout-programs/?view=Standard

If it wasn’t obvious that they are just throwing these plans together, seeing them in one place will clinch it.  Not that they need to all use the same criteria, but it sure would be helpful for the consumers to identify clearly whether or not they qualify.  Instead, they’ll be inclined to hire a “consultant” and pay for help they probably wouldn’t need if it were a clear, concise, one-size-fits-all modification plan for all lenders to use.

Here is the summary of the differences in plans:

Hope for Homeowners

• Primary residence, can’t own other properties
• Made at least six payments
• Not able to make payment now without help
• Loan modified to 31% housing debt-to-income ratio, as of March, 2008
• Share new equity with FHA created by modification
• 4.5% funding fee to FHA
• Existing lender must participate
• Homeowner has not been convicted of fraud in the last ten years, and did not knowingly or willingly provide false information to obtain existing mortgage.

Countrywide

• Primary residence only, subprime or option-arm only
• More than 60 days late on payments
• Current on payments, but “reasonably likely” to become 60 days late as a result of rate reset or payment recast.
• 34% housing debt-to-income ratio to figure new loan amount

Citigroup

• Primary residence only, must be current on payments.
• 35% housing debt-to-income ratio on new loan
• Program runs Nov 11 – May, 2009

JPMorgan Chase (WaMu)

• Primary residence only
• Program starts 1/31/09, goes for two years
• Goal is to “achieve sustainable payments” at 31% to 40% housing debt-to-income ratio

IndyMac (FDIC)

• Primary residence only
• Adjustable-rate loans, including subprime and neg-am
• Borrower must already be ‘seriously delinquent’, or at risk of default due to payment resets
• Loan modification based on 38% housing debt-to-income ratio

FHFA (Fannie/Freddie, FHA, WFB)

• Primary residence only
• Starts Dec 15th
• Must have missed three payments, and not declared bankruptcy
• Modified to 38% housing debt-to-income ratio

The lower the DTI, the better for the borrower when calculating the new loan amount. 

Here are some examples, based on 6.25% fixed-rate on new loan, and 34% DTI:

$400,000 old loan

$80,000 gross annual income

$1,500 consumer debt monthly (car pmts., credit cards, etc.)

$295,000 new mortgage

$1,816 PITI + $1,500 = 50% DTI ratio

********************************************************

$500,000 old loan

$100,000 gross annual income ($8,333/mo.)

$2,000/month in consumer debt

$365,000 new mortgage

$2,247 + $2,000 = 51% DTI ratio

********************************************************

$600,000 old loan

$150,000 gross annual income ($12,500/mo.)

$3,000/month in consumer debt

$575,000 new mortgage

$3,540 + $3,000 = 52% DTI ratio

I just changed the data above (12:41pm Monday) to correct the loan amounts – the lenders are going to re-calculate the new loans based on housing debt-to-income only.  If they are going to disregard the consumer debts of the borrower, I’m not sure how much good it will do in the long run.  Still no mention about what happens to the second mortgages, I guess they have to be willing to go away too.

Having ‘back-end’ ratios that exceed 50% is dangerous territory in a state where the combined fed and state income taxes are 25% to 40% – what money is left to eat with, let alone put in savings?

While we’re talking about FHA, check out Business Week’s article:

http://www.businessweek.com/magazine/content/08_48/b4110036448352.htm?chan=magazine+channel_top+stories

The former subprime-mortgage brokers are now selling FHA loans in much the same fashion.  Unlike the subprime loans, borrowers have to qualify for FHA financing, so hopefully only the worthy will get a loan.

But when you look at the characters, you may have some doubts…..from the article:

The resilient entrepreneurs who populate this dubious field are often obscure, but not puny. Jerry Cugno started Premier Mortgage Funding in Clearwater, on the Gulf Coast of Florida, in 2002. Over the next four years, it became one of the country’s largest subprime lenders, with 750 branches and 5,000 brokers across the U.S. Cugno, now 59, took home millions of dollars and rewarded top salesmen with Caribbean cruises and shiny Hummers, according to court records and interviews with former employees. But along the way, Premier accumulated a dismal regulatory record. Five states—Florida, Georgia, North Carolina, Ohio, and Wisconsin—revoked its license for various abuses; four others disciplined the company for using unlicensed brokers or similar violations. The crash of the subprime market and a barrage of lawsuits prompted Premier to file for U.S. bankruptcy court protection in Tampa in July 2007. Then, in March, a Premier unit in Cleveland and its manager pleaded guilty to felony charges related to fraudulent mortgage schemes.

But Premier didn’t just close down. Since it declared bankruptcy, federal records show, it has issued more than 2,000 taxpayer-insured mortgages—worth a total of $250 million. According to the FHA, Premier failed to notify the agency of its Chapter 11 filing, as required by law. In late October, an FHA spokesman admitted it was unaware of Premier’s situation and welcomed any information Business Week could provide.

You’d think the government would have had Premier on a watch list. According to data compiled by the FHA’s parent, the U.S. Housing & Urban Development Dept. (HUD), the firm’s borrowers have a 9.2% default rate, the second highest among large-volume FHA lenders nationally.

Now, members of the Cugno family have started a brand new company called Paramount Mortgage Funding. It operates a floor below Premier’s headquarters in a three-story black-glass office building Jerry Cugno owns in Clearwater. In August 2007, only weeks after Premier sought bankruptcy court protection, the FHA granted Paramount a license to issue government-backed mortgages. “I am the only person in the country who really understands FHA,” Cugno says with characteristic bravado.

Are the government officials going to take the time to monitor the incoming loans for quality?  Or are they in such a hurry to spend the money that they’ll worry about future defaults later?

The foreclosure process is grinding to a halt.

First it was the new state law that gave homeowners 30 days of relief to see if they could get counseling and a loan modification.  But apparently that wasn’t enough.

Fannie and Freddie jumped on the bandwagon yesterday, suspending foreclosures from November 26th to January 9th, in order to try their hand at loan modifications.  Under their program, the new primary mortgage payments—including taxes and insurance—shouldn’t total more than 38 percent of homeowners’ pretax monthly income.

They join IndyMac, JPMorgan Chase, and a host of others who have stopped foreclosure proceedings.  Their stated intent is to offer loan modifications to as many borrowers as possible, but it sure seems like lenders wanting to be seen as playing nice, in order to get their share of TARP money.

From this week’s Marketwatch article on IndyMac’s efforts:

For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment and more than half end up delinquent after several post-modification payments, Lender Processing Services told the analysts.

The FDIC’s broader modification proposal assumes a re-default rate of roughly 33% — about 2.22 million mortgages would be altered to avoid 1.5 million foreclosures, according to the plan. The government would share up to half of the losses from re-defaults with lenders and investors.

To qualify for the plan, borrowers would need to make six consecutive payments. This eliminates early-payment defaults – a trend that has inflated industry-wide default data, FDIC spokesman Andrew Gray noted.

Bair said on Tuesday that the FDIC’s IndyMac efforts have already prevented “many foreclosures that would have been costly to the FDIC and to investors.”

Under the FDIC, IndyMac has mailed more than 23,000 loan modification proposals to borrowers, and will mail over 7,000 more soon, Bair added. That’s in addition to more than 5,000 mortgages that have already been modified.

On average, the modifications have cut each borrower’s monthly payment by more than $380, or 23% of the monthly payment on principal and interest, she reported.

It appears that the loan modification march may help a few folks, but foreclosures should get back on track next year.  There are asset managers at Countrywide working weekends to try and catch up with the existing bank-owned inventory – giving homeowners a foreclosure vacation will at least allow for the REO departments to hopefully catch up.

But it might also give BofA and others a chance to create a national platform to centralize their REO liquidations (it’s been bandied about).  Doing so would create a(nother) middleman, and further de-sensitize the sales of REOs. 

It would probably mean that Robot Realty would gain more traction, and only the big REO realtor teams will be listing the bank-owneds.

Here are the stats from the four larger REO realtor-teams that we’ve been following:

2007

Jun 11 – 328 Actives/98 Pendings = 3.35

Aug 21 – 382 Actives/111 Pendings = 3.44

Sep 20 – 425 Actives/97 Pendings = 4.38

Nov 9 -  486 Actives/128 Pendings = 3.80

Nov 25 – 484 Actives/138 Pendings = 3.51

Dec 14 – 446 Actives/147 Pendings = 3.03

2008

Jan 15 – 474 Actives/149 Pendings = 3.18

Feb 7 -   482 Actives/187 Pendings = 2.57

Mar 13 – 477 Actives/205 Pendings = 2.33

Apr 18 – 467 Actives/247 Pendings = 1.89

May 13 – 418 Actives/298 Pendings = 1.40

June 10 – 344 Actives/288 Pendings = 1.19

June 27 – 261 Actives/261 Pendings = 1.00

July 30 – 169 Actives/195 Pendings = 0.87

August 21 – 121 Actives/147 Pendings = 0.82

November 21 – 48 Actives/40 Pendings = 1.20

Their inventory says it all – the foreclosures have dwindled, and been spread around to many agents.  Having more agents handle the REOs should mean that the properties get more attention, and sell quicker – and for more money. 

A national platform that used just the big teams could result in less attention and a tougher process to buy them, but it might mean the prices would have to reflect it – and be lower.

It could be a glimpse of the future of real estate too.

I’m not looking to be a big REO realtor-team.  We are properly staffed and can handle our share, but my primary focus to help assist buyers who come from reading the blog.

We’re going to keep working the REOs though, for as long as they last.  I received my first Carlsbad property from Countrywide (a condo), and I also got my first REO assigned from WFB!

I agree with the buy-and-bail premise, that it’s not right to go buy a new house and then let your old house be foreclosed.  But the new Fannie/Freddie rules (and VA) makes it tough on those who would like to build a portfolio of real estate by keeping their old house for a rental. 

The three requirements:

• 30% equity in the residence you’re leaving
• 6 months’ worth of PITI payments of both houses in the bank at closing
• Must qualify to buy new one without using rental income on the old one

FHA is easier.

FHA requires that you have 25% equity in your old house, but they base your equity position on THE ORIGINAL PURCHASE PRICE, not today’s value.  While that doesn’t help those who have owned their old house for years, it’s a real break for people who bought at the peak.

FHA sticks with their regular guideline - NO RESERVES REQUIRED at all.

If you have trouble qualifying for both houses without the rental income on the old one, FHA allows for you to move into a third residence (in with parents, rent an apartment, etc.) for six months.  They’ll call the old house an investment property, and use the rental income towards qualifying.

DO NOT BUY-AND-BAIL!  But if you would like to legitimately keep your old home as a rental and can find a new home that’ll be in the FHA range, it can work.

If the government has a game plan, it would be to push more buyers towards FHA financing.  Beginning next year, the FHA will be collecting at least 1.75% on every loan (up from 1.50%).  It’s their self-insurance, and hopefully the extra bump in 2009 will be enough.  They also add a monthly MI (see below)

But they haven’t tightened up much – here are FHA benefits:

• No minimum credit scores required (a history of cell-phone-bill payments will work)
• Down payment to be 3.5% in 2009 (up from 3%).
• Buyer’s entire cash needed can be gifted from family, employer, etc. (but no more DAP)
• Sellers can pay up to 6% towards closing costs and repairs
• No reserves required
• No cap on debt ratios – compensating factors considered (55% is about as high as they go)
• No impact from declining-market conditions
• Loans are assumable
• Not limited to first-time homebuyers
• Sellers are no longer required to make most repairs (before they had to repair anything the appraiser found unacceptable)

The FHA loan amount has been $697,000, but it is expected to match Fannie/Freddie’s new San Diego amount, $546,250.  Here’s a sample qualification:

$565,000   sales price

$  19,775   down payment

$545,225   loan amount at 6%

$3,268.90  P & I

$   565.00  Prop. Tax

$     75.00  Fire Ins.

$   249.89  Mortgage Insurance

$4,158.75  Total Housing Cost

$    600.00  Car Payments (guess)

$4,758.75    Total debt (divide by 55%) = $103,824 annual gross income to qualify

You can keep adding non-occupying related people until you qualify.  As long as your parents aren’t maxed out on credit cards, they can co-sign and their income and expenses are added to the qualification, even though they won’t be living there. 

VA

It used to be that VA loans were 100% LTV up to $417,000, and 25% of everything higher than that.

But now VA is financing 100%, up to $729,000!

There is also plans to raise the max loan amount to $1,050,000 with no down payment.

Of the 33 houses on Monica Circle, ten have been foreclosed this year, or in foreclosure now. Investors have purchased six of the seven sold, and are active throughout the neighborhood (near the Camp Pendleton back gate in Oceanside, CA 92057). The first house in the video sold by Downey closed for $150,000, the next house (blue-gray) closed for $143,175, and the house next door to that one is still pending, listed for $167,900.

Here’s a 2:02 min youtube video tour:

Just when 3,000+ sales close in San Diego County last month……

The government’s injection of capital into Fannie Mae and Freddie Mac probably came with some caveats, like “You better do something to stem the defaults!”

From Freddie’s latest bulletin: http://www.freddiemac.com/singlefamily/20081017_advisory.html

• No more stated-income/stated-asset loans
• Debt-to-income ratio reduced to 45%  (currently 60%)
• Minimum 620 FICO for down payments of 25% and more
• Minimum 660 FICO for down payments less than 25%
• Maximum 90% LTV  (10% down payments, primarily due to MI companies backing off)

Plus a couple of other notes:

We will require that the Seller consider derogatory information significant if there is a short payoff related to a delinquent Mortgage obligation within the last seven years.      (We had been thinking that you’d be eligible for a new loan 4-5 years after a short-sale)

Buy-and-bail requirements: We will require that both the housing payment on the Borrower’s current residence and the amount of the payment on the subject mortgage be included in calculating the monthly debt payment-to-income ratio, and additional reserves will be required, based on the LTV ratio of the current residence as evidenced by a current appraisal. (Buyer must qualify without using rental income to offset the previous home’s payment, have 30% equity in old home, plus have 6 months PITI reserves on both homes)

Another difference that has evolved is that the agency loans between $417,000 and $546,250 will still be called ‘super-conforming’ loans, and come with a slightly higher cost, unlike I reported last week.  The difference yesterday was only an 1/8% to 1/4% extra fee to get the same conforming interest rate, but it’ll be interesting to see if that holds.

These can be seen as make-sense changes, and for those who don’t quite cut it, there is always FHA/VA.  A review of those coming next.

D Max posed these thoughts:

I don’t have a guess but I do have a few questions:

When is the last time in history when October sales were higher than June sales? The sales trend, as far back as I have been able to research, is fairly predictable. Do you have any theories what is causing this unusual sales pattern? Are the banks in SoCal starting to lend money again? Are foreigners purchasing these properties? Where are these buyers coming from and is this pool of buyers bottomless or is it drying up?

Let’s compare the sales history between June and October:

Normally there is drop-off in sales in the fourth quarter, and almost all of these October counts are substantially less than June (1997 was unusual). Add into this mix that the interest-only loans started being pushed in 2001, and the neg-ams really got going in 2003, and you’ll see that by 2003 we hit warp speed; even though prices were going up substantially, sales were still smoking.

Typically there had been some price drop in the fourth quarter too, but between 2000-2005 the prices kept going up, even though sales declined.

In 2008, with the price trend in a steep descent, the October sales has bucked the normal trend of fewer sales – normally a double-digit decline turned into a 14% increase!

To answer D Max’s questions, I think it’s purely a result of buyers finding some homes priced well enough that they are buying. The lending has gotten tighter, but I wouldn’t call it tight – yet. More to come on that later.

The purpose for running contests here is to shine the spotlight on specific market checkpoints.  Recent sales have been spectacular, given the economic environment.

No one is suggesting a ‘bottom’, there will be plenty of squishdown ahead.  But I’ve said in the past that if we can make it through a fourth quarter without a 10% drop in sales and price, it would be a good sign.

I think we’re still going to see the 10% price decline in 4Q08, compared to last year, but sales are much improved.  We had almost as many sales last month as we had in October AND November of 2007 combined, and, as of this morning, there have already been 944 closings this month!

The way that the 2008 market wraps up should give us a good read on momentum going into 2009 and the Obama era – let’s keep an eye on sales the rest of the year.

Today’s contest:

Guess the number of closed sales for November and December combined.

I’ll lay out some evidence below, but first the prize for closest guess:

A. Four tickets to a Padres game. (OK, OK, not much of a prize)

B. Six tickets to the Buick Invitational, Feb 3-8 (good for any day)

C. Invitations to the “Birthday Bowl” party - the Super Bowl is on my 50th birthday (2/1/09), so plans are in the works for a combo event (probably at my house, not Tampa). 

Consider the following positive evidence:

1. October’s sales total is usually one of the lowest of the year, in 2008 it was the highest:

2. Those with hefty down payments are buying.  A review of the first 21 Carlsbad closings in November showed that only two buyers used less than 20% down, and 13 of 21, or 62% used at least a 40% down payment.  Four paid all-cash.

3. The ‘Close-Enough’ syndrome – from today’s L.A. Times, and though it talks about Santa Ana, the same mindset is happening here.  Includes a quote from Chris Thornberg, “Getting to the bottom is different than getting off the bottom.”

http://www.latimes.com/news/local/orange/la-fi-santaana18-2008nov18,0,619872.story

4. There are lots of “bank deals” in the county, but there are areas where there are few or no houses for sale.  For example, the Centex neighborhood in La Costa Valley doesn’t have an active listing, and the Santander neighborhood in SW Carlsbad has had two listings all year (both sold).  Sonata, Santa Fe Trails, the Ranch, and Starboard in SE Carlsbad have all been relatively quiet lately too.

5. The “Obama Effect” could get buyers to “feel better” and improve consumer confidence.

The again, consider the negative evidence:

1. Unemployment could be the final nail in the coffin.

2. Government intervention does nothing but enrich Wall Street bankers.

3. The roughly 11,000 SD properties that have received default notices are joined by probably at least as many who are delinquent 1-6 months, but haven’t received a notice yet. With 22,000 or so bank-involved properties to digest in the coming months, sales could stall just purely based on processing overload.

4. The coming 90-day foreclosure freeze is going to further slow REO inventory, we could see a shrinking sales.  Today’s inventory is 16,862, and according to BMIT the November counts in the last two years were 22,239 (2007) and 19,831 (2006).  With fewer well-priced homes, will buyers keep buying, even if they have to pay a little more?  Maybe, but only for the superior homes, which there are very few for sale.

5.  The “Obama Effect” could have dire consequences if taxes are raised, and the economy tanks.

Here are the combined November/December sales the last few years:

2007 – 3,254

2006 – 4,726

2005 – 5,603

2004 – 6,464

2003 – 6,988

2002 – 6,202

2001 – 5,096

2000 – 5,661

1999 – 5,651

1998 – 5,242

1997 – 4,757

1996 – 3,831

There are currently 5,877 pendings, and 944 have already closed this month – how many more will close before year-end? 

Leave your guess of the total November and December closings in the comments section, and extra credit for justifying your number!