From HW:
Thirteen of the 20 largest mortgage servicers participating in the Home Affordable Modification Program have begun principal write-downs, according to Laurie Maggiano, director of policy at the homeowner preservation office inside the Treasury Department.
While outlining changes to HAMP at the Mortgage Bankers Association servicing conference last week, Maggiano said several thousand modifications have had the principal written down by an average between $50,000 and $100,000. That number was confirmed by the Treasury late Friday.
The Treasury announced the initiative in March 2010. The Treasury said then that the write-downs would apply only to borrowers with 115% or higher loan-to-value (LTV) ratios. Servicers initially forbear some or all of the balance exceeding 100% of the home’s value, down to a 31% debt-to-income ratio. Then, the servicer forgives the forborne amount in three equal installments over three years, contingent on the borrower’s ability to remain current on payments.
A spokesperson for the Treasury told HousingWire that the program is still very new and that it will begin reporting on the write-downs in March.
“Additionally, each servicer has a plan in place for implementation of the program – so principal reduction is on those loans they have targeted in their portfolio,” the spokesperson said.
Despite an increase in existing home sales, analysts at FNC, said home prices continued to decline in December because so many of those sales were foreclosures.
“Driven in part by rising sales of distressed properties and higher foreclosure-sales discounts, home prices declined for the seventh straight month in December and suffered their largest one-month drop during the year,” according to FNC.
Of the 30 major metro areas tracked by FNC, 23 had price declines in December by an average of 2.2%.
FNC’s dim view of house prices is not theirs alone. CoreLogic Chief Economist Mark Fleming expects home prices to decline between 5% and 10% through 2011. Fleming added that stabilization should occur by the end of the year, but the damage has been extensive and the road to recovery will be a long one.
“The flooding may have finally stopped,” Fleming said. “But the living room is half underwater.”
Ok, I am a skeptic, so I am looking at these two statements as code for what may be actually occuring:
1. “each servicer has a plan in place for implementation of the program – so principal reduction is on those loans they have targeted in their portfolio,” and
2. “several thousand modifications have had the principal written down by an average between $50,000 and $100,000”
Sounds like servicers may be focusing on neg-am loans where they are writing down the principal balance that has occured through delinquent payments and increase in balance through neg am minumum payments.
Say a loan was originally $400,000, but after several years of the minumum payment and several months of delinquent payments is up to $475,000.
If they modify the loan back to $400K, they can claim a principal reduction of $75K.
I know that this is the approach that Wells has been taking with the pick a pay portfolio they acquired from Wachovia.
I tend to agree with Kingside, the banks will be doing this in their favor only. I’d also suspect it will only happen in very specific markets where the banks want to support pricing that is expected to hold even for a while (like So. Cal coastal).
Arizona, Florida and Nevada need not apply.
I’ve always made the argument for this as follows: Imagine a house has a $400k loan against it, but is now only worth $150k. (This is exactly the situation for the house I now live in; last guy paid $400k, I paid $150k as an REO.) It is therefore in the bank’s best interest to do a loan mod lowering the principal to, say, $250k, as opposed to a short sale or foreclosure where the bank only gets $150k (and pays significant costs on top of that). The only worry is moral hazard (everybody will then want their principal reduced by that much), although that door has been blown open long ago.
I am confident that any “principal reduction” would include a clawback provision that places a lien on the house that must be cleared on the next sale to prevent homeowners from unfairly benefiting from that reduction. No lawyer in their right mind would allow otherwise.
It’s a pipe dream to believe otherwise. I never heard of a bank handing out free lunches.
chuck
Remember, there is huge lawsuit settlement looming over these companies regarding their foreclosure behavior. Would you rather give cash (settlement) to the government or promise for the hundreth time to help homeowners.