More Free Cheese

max cheese

More foreclosure-avoidance incentives were announced this week:


An excerpt:

“While the housing sector has strengthened in recent years, there are still many homeowners struggling to make their mortgage payments,” said Secretary of the Treasury Jacob J. Lew. “The changes we are announcing today offer meaningful incentives for borrowers to stay current in their modifications, increase their opportunity to build equity in their homes, and provide vital safety nets for those facing greater financial strains.”

The Home Affordable Modification Program (HAMP), established in 2009, offers homeowners loan modifications with lower monthly payments achieved through lowered interest rates and modified loan terms.  Many homeowners with HAMP modifications have been eligible to earn up to $5,000 if they adhere to modification terms for five years.  The amount is applied to their outstanding principal balance.

Under the revisions an additional $5,000 will be available to homeowners after a sixth year of on-time payments and they will then have the opportunity to re-amortize the reduced mortgage balance, thus further lowering their monthly payment.   HUD/Treasury estimate some one million borrowers with HAMP modifications may be eligible for the new incentive.

HAMP Tier 2 was developed as an alternative for homeowners who can’t qualify or are unable to sustain a HAMP Tier 1 modifications.  It provides modifications with a low fixed rate for the life of the loan.  The revision announced this week will include reducing the interest rate for these modified loans by 50 basis points which will also make more borrowers eligible for the program.  It also extends the sixth year $5,000 pay-for-performance incentive to Tier Two borrowers.

QE3 To Facilitate Next Bubble?

From David D. at FDL:

Analysts have tried to parcel out whether QE3 will really help the economy.

The way almost everyone looks at this is about the impact on housing, specifically mortgage prices. But mortgage rates haven’t changed at all since the announcement of QE3, and if the Fed was trying to influence the expectations channel, the impact really should have been that immediate.

Then again, rates didn’t rise, either. It could be that QE3 arrested a trend toward increasing mortgage financing costs. But more likely, banks are taking the profits out of the eased cost of mortgage financing for themselves:

The banks are choosing not to reduce mortgage rates further. One reason: By keeping the rates elevated, they are able to earn much larger profits when they sell the mortgages into the bond market. If the level of profits on those sales stayed at recent average levels, borrowers might, for instance, pay $30,000 less in interest payments on a $300,000 mortgage, according to a recent New York Times analysis.

The fact that banks haven’t prepped for a backlog of mortgage applications, meaning that the benefits of QE3 cannot possibly get to customers in a reasonable amount of time, leads us more toward this conclusion. Banks have no problem securing cheap backstopping of mortgages, but they don’t have to channel those savings into the mortgages they sell. It’s a form of collusion, because nobody else has dropped their rates to gather the lion’s share of the business. And nobody can actually get a loan to move, either, because that would require hiring staff. This way, banks can benefit from lower rates for themselves on one side and higher rates for customers on the other. The arbitrage between those two prices equals massive profits.

Let me add another postulate to all this. When you have this delay in financing, the beneficiaries are those who have the working capital to purchase in cash. Furthermore, the cheap market for foreclosures invites groups who can accumulate capital to come in and scoop up the housing stock. This is what we’re seeing all over the country – institutional investors buying up foreclosed properties to rent out in the short term and sell at a profit in the longer term. They are securing very large amounts of capital to pull this off.

This is the next bubble, happening right here, and QE3 facilitates it.

Investment firms can scoop up cheap housing stock and flip it into rentals. There’s also talk of securitizing the rental income streams, which really reinflates the bubble machine. Meanwhile the character of neighborhoods completely changes, homeowners get nudged out for properties by the investors, the phenomenon of absentee slumlord-ism takes hold, and power relationships change when one company owns a substantial amount of the housing stock in a city.

What’s happening in housing right now should absolutely terrify people. The forces that are being coordinated to show positive statistics at the macro level are also creating a dangerous environment for the future.

BofA Not Foreclosing

Hat tip to HW for publishing this story, but I’m not sure that they or Barclays grasp the full meaning – that banks are deliberately letting defaulters live for free…..for years.

Loans serviced by Bank of America tend to remain in the 90-plus-delinquency state for significantly longer than loans serviced by other big banks, analysts at Barclays Capital find. The length of time that a loan is in the 90-plus delinquency bucket, they say, is driven by the credit quality of the borrower, its geographic location, and especially, by the servicer processing the loan.

A disproportionate share of BofA mortgages in the 90+ days delinquent bucket — 62% — are there for more than three years. That’s biggest among Too Big to Fails.

“We believe that this is partly driven by the more intense media scrutiny and government pressure being applied to BofA with respect to its foreclosure practices, given its history of servicing lapses,” Barclays says.

Over the past few years, BofA has likely exhausted all other avenues of resolution (loan modifications, short sales, deeds-in-lieu of foreclosure, etc.) before proceeding with moving a borrower into foreclosure. The bank implemented a temporary foreclosure moratorium across the country in late 2010.

QE3 Impact on Housing?

In January, 2009 the Fed didn’t hold any mortgage-backed securities.

Today they have $843 billion, and yesterday they “agreed to increase policy accommodation by purchasing additional agency  mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to  extend the average maturity of its holdings of securities as announced in June,  and it is maintaining its existing policy of reinvesting principal payments from  its holdings of agency debt and agency mortgage-backed securities in agency  mortgage-backed securities.”

 “These actions, which together will increase the  Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term  interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

(seen at CR, HT josap)

Will the Fed’s buying more MBS make a difference in housing?

Everybody I know was happy at the thought of getting a 3.875% rate.  Freddie Mac’s 30-year rate was 3.55% this week.  If the Fed’s actions push them lower, what is the effect on monthly payments?

They are only buying agency paper, so let’s look at the conforming $417,000 loan amount:

$417,000 @ 3.55% = $1,884.17

$417,000 @ 3.00% = $1,758.09

If 30-year conforming rates got all the way down to 3.00%, buyers would either save $126/mo., or be able to afford a $30,000 higher mortgage and pay the same $1,884.

But JimG nailed it – this MBS buying spree will allow banks to offload stinky paper to the Fed, rather than foreclosing.  Banks can predict when a mortgage is going bad – because borrowers people typically slow-pay before defaulting.  Servicers would be able to dump any suspected about-to-default mortgages, and keep the short-sale desk open for the borrowers who want to cooperate over the next few years.

The Fed would probably be more accomodating of the folks who don’t pay, so defaulters would enjoy an extended free-rent period.  Foreclosures will dry up further (causing banks to appear solvent), the real-estate market will have fewer distressed sales giving people the idea that prices will improve soon, and the Fed will look like a hero.

In the meantime, we’ll have tight inventory and more OPTs.

House Passes FHA Bill

From dsnews.com:

House lawmakers overcame election-year gridlock on Tuesday to punt their version of a bill that would shore up the Federal Housing Administration, whose embattled Mutual Mortgage Insurance Fund falls short of the capital required by law.

The lower chamber passed the Federal Housing Administration Fiscal Solvency Act by a sweeping vote of 402 -7.

If it becomes law, the bill would strengthen HUD’s ability to do away with lenders that fail important lending criteria and allow the federal agency to avoid losses on defaulted loans underwritten by non-compliant lenders.

The law would allow HUD to charge up to 2.05 percent in annual insurance premiums, establish an annual fee for lenders at 0.55 percent, and deepen repayment requirements for lenders that commit fraud or violate other FHA criteria.


No Cheese For You

From desmoinesregister.com:

Financial help is moving to embattled homeowners under the $25 billion national mortgage settlement that resulted from abusive foreclosure practices by some of the nation’s largest banks.

Mortgage servicers spent $10.6 billion on principal reductions, short-sales, refinancing and other borrower relief efforts from March 1 to June 30, according to a  report Wednesday by settlement monitor Joseph Smith. The help was directed at 137,846 U.S. homeowners, who received an average benefit of $76,616 each.

The spending includes $6.7 million in settlement-related relief for 260 Iowa homeowners, which averaged $25,781 each, according to the office of Iowa Attorney General Thomas Miller. The disparity is partly due to the state’s lower home prices. Iowa residents are eligible for $18 million in direct relief in all.

Wells Fargo, Bank of America, JPMorgan Chase, Citigroup and Ally Financial reached the deal in March, while admitting no wrongdoing. Their alleged misdeeds included the falsification of documents via so-called “robo-signing” operations. They have three years to fulfill their mortgage-relief obligations.

“It’s good news that here in Iowa and across the country we’re starting to see the banks moving generally in the right direction,” said Miller, who was the lead state attorney general in the joint state-federal investigation which resulted in the landmark civil settlement. The probe began in October of 2010 amid widespread reports of servicer misconduct.

The servicers spent $8.67 billion on short sales, which occur when an underwater borrower sells their home for less than they owe on it, according to the monitor. Idled workers saddled with an underwater mortgage generally are more likely to restrict their job searches to the area around their home. Short sales are important because they make it easier for the unemployed to pursue jobs that require relocation.

Bank of America has the largest financial obligation under the settlement, at $11.8 billion and has committed to writing down the principal owed on 200,000 homes whose owners are now underwater on their mortgages.

The five mortgage servicers also committed to new rules under the deal, which include making foreclosure a last resort.

Debt-Tax Relief Goes to Full Senate

From NMN:

The Senate Finance Committee approved a bipartisan bill before summer recess that would extend the Mortgage Forgiveness Debt Relief Act through 2013.

The debt relief law spares homeowners who receive principal reductions on their mortgages from being hit with federal income taxes on the amounts forgiven. Without it, millions of owners who go through foreclosure or leave their homes following short sales would experience even more financial stress by being taxed on the amount of debt that the lender forgave in the short sale or that was not recovered in the foreclosure sale. The law has provided relief to thousands of people who have debt balances written off as part of loan-modification agreements is set to expire at the end of December 2012.

The bill now moves to the full Senate for possible action next month, also would extend tax write-offs for mortgage insurance premiums for 2012 and through 2013, and continue some energy-efficiency tax credits for remodelings and new home construction.

The mortgage debt relief extension affect millions of families who are underwater on their loans, delinquent on their payments and heading for foreclosure, short sales or deeds-in-lieu of foreclosure settlements. Under the federal tax code, all types of forgiven debt are treated as ordinary income, subject to regular tax rates. When an underwater homeowner who owes $300,000 has $100,000 of that forgiven as part of a modification or other arrangement with the bank, the unpaid $100,000 balance would normally be taxable.

In 2007 the Mortgage Debt Relief Act agreed to temporarily exempt certain mortgage balances that are forgiven by lenders. The limit is $2 million in debt cancellation for married individuals filing jointly, $1 million for single filers. This special exemption, however, came with a time restriction. The current deadline is Dec. 31, 2012. Without a formal extension by Congress, starting on Jan. 1 all mortgage balances written off by banks would be fully taxable.

There are five bills in Congress, so hopefully one of them will make it through for the homeowner.

Almost Done With Cheese?

Hopefully this will signal the winding down of the government’s bailout attempts – maybe just another year or two of flailing?  From HW:

Mortgage servicers started just 16,321 three-month Home Affordable Modification Program trials in June, the fewest since the program launched in March 2009, according to an analysis of Treasury Department data.

Over the more than three years of operation, participating servicers started nearly 1.9 million trials under HAMP, of which 818,000 permanently modified mortgages were active in June.

When the program began, servicers swept many borrowers into trials without verifying income or employment. In October 2009 alone, more than 158,000 trials began. By the end of 2009, servicers had started more than 900,000 trials.

The Treasury had to adjust and wrote new rules to require documentation before entering a trial. The backlog of more than 190,000 trials aged six months or longer counted in May 2010 shrank to roughly 11,400 by June.

Just $9 billion of the nearly $30 billion Congress allocated to Treasury housing programs has been spent as of June 30.

The Treasury estimates roughly 731,211 borrowers remain eligible for HAMP, but recent changes may expand that somewhat.

In January, the Treasury announced relaxed rules meant to expand the program. Debt-to-income requirements were eased and investors would get paid triple for allowing principal write-downs under the program. Real estate investors who own five or fewer homes will be allowed to modify underlying mortgages as well, which could add to the numbers.

HAMP was also extended to the end of 2013. It was originally set to expire at the end of this year.

But some servicers were slow to implement the changes. The Federal Housing Finance Agency this week refused to allow Fannie Mae and Freddie Mac to participate in the principal reduction alternative as well.

Roughly 89,000 permanent HAMP modifications included a write-down as of June.

Treasury officials said the program provided the blueprint servicers used to design their own programs. Re-default rates remain below industry averages. According to Treasury data released Friday, more than two-thirds of the mortgages modified in the first year of operation are still current today.


From NMN:

It has been mind-blowing to find out that lenders and servicers have been offering defaulted borrowers up to $45,000 to work with them in a variation on the old Cash for Keys program.

But sessions at the recent SourceMedia Loss Mitigation Conference in Dallas made this development more understandable.

It used to be that lenders might pay a borrower to leave the property. This was called Cash for Keys and generally involved a payment of $2,000 or $2,500, something to allow the borrower to get a lease on an apartment to move into.

Nowadays, with people staying in homes for years after defaulting, it takes a lot more than $2,500 to get borrowers to leave. But the much higher payments aren’t wholly the result of calculation on the borrowers’ part.

Nowadays such programs are called Cash for Cooperation. The idea is to get the borrower’s cooperation in disposing of the property as quickly as possible, such as through a short sale. The borrower lists the property promptly and acts as a kind of property manager through the process. When the sale is made, she gets her check from the lender and moves on with her life (hopefully not using it as a downpayment on another mortgage!).

It’s good, though, that the lender and the borrower are cooperating to dispose of the property quickly and with the minimum amount of disruption. Lenders benefit by having their costs lowered. Attendees of the meeting heard that recoveries are at least $25,000 more on a short sale and in some cases over $50,000. Obviously these are properties that are still worth a fair amount despite their default status.

Attendees heard from Daren Blomquist, vice president at RealtyTrac, that short sales have nearly overtaken REO. In the first quarter of 2012, he said, there were 123,778 REO sales and 109,521 short sales, a boost of 25%. Short sales outnumbered REO sales in 12 states.

Prices, however, dropped 10% to the lowest since 2005. Short sales closed an average of 319 days after the foreclosure start, he said (that was as of the second quarter of this year).

Some of the states with the biggest percentage jumps in short sales include Kentucky, Delaware, Connecticut and Rhode Island.

Of the 8.5 million foreclosure starts since the beginning of the housing crisis, REO still commanded 49% of the market, to 20% for short sales, RealtyTrac data show.

It’s clear, though, that the preforeclosure solution is the one lenders and borrowers prefer.

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