No-Doc Loan Mod

fhfaIn late March, HousingWire reported the Federal Housing Finance Agency would expand its suite of mortgage modification tools for Fannie Mae and Freddie Mac servicers.

As of July 1st, the Streamlined Modification Initiative is in effect, in order to encourage servicers to handle delinquencies earlier, minimizing losses to the GSEs and taxpayers, while cutting back some of the red tape that slows down the traditional approval process.

Borrowers who are 90-days late on their Fannie/Freddie first mortgage will receive a 4% fixed-rate payment (as long as it is lower than the current payment and the LTV is above 80%).

All eligible borrowers must make three on-time trial payments, the FHFA said. Once those payments are made, the loan modification takes permanent effect.

No documentation is required. The program expires Aug. 1, 2015.

Not-Foreclosing As A Strategy

Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined.

The loans are monitored as part of February’s $25 billion settlement between the top five U.S. lenders and state attorneys general over allegations of abusive foreclosure practices. Bank of America’s stockpile of deteriorating debt is mostly from its 2008 acquisition of Countrywide Financial Corp., once the nation’s largest mortgage provider. Wells Fargo & Co., the biggest U.S. servicer, has $15.3 billion of such unpaid loans.

The data, published last month by the monitor of the settlement, highlight Bank of America’s vast backlog of delinquencies, and the years it will take to work through them as borrowers fall further behind and losses mount for investors in mortgage-backed securities. While the Charlotte, North Carolina-based bank has begun modifications for many of its 275,000 homeowners at least 180 days behind as of Sept. 30, some will join the already clogged U.S. foreclosure pipeline.

“There’s just a long tail to work out all of these loans, which are severely delinquent at this point,” said Marty Mosby, an analyst with Guggenheim Securities LLC in Memphis, Tennessee.“It just shows the amount of work that’s still left to do.”

Delays in processing the loans add to the expenses borne by investors because maintenance, property taxes and other costs add up. While rising prices may make the mortgage-backed securities more valuable, servicers can be forced to come up with cash to cover interest payments from the delinquent loans and modifications become more difficult to accomplish as the borrower’s unpaid debt grows.

Bank of America’s portfolio of loans that are at least six months old and not in foreclosure accounts for 3.3 percent of all of the mortgages it services. Citigroup Inc. has 1.1 percent of its loans in that category and Ally Financial Inc., Wells Fargo and JPMorgan Chase & Co. each have less than 1 percent.

Bank of America has about 930,000 loans that are at least 60 days delinquent, down from 1.5 million from the peak in January 2010, Chief Executive Officer Brian Moynihan, 53, said during a Dec. 14 event at the Brookings Institution in Washington.


Principal Reduction & Re-default

From HW:

Borrowers will likely stay current on their mortgage after a principal write-down whether they share future equity returns with the bank or not, according to new shared appreciation program data.

Select borrowers can receive a principal reduction from Ocwen Financial Corp., but those back above water over three years but must agree to share 25% of the appreciated value after that time through a program the subprime servicer launched last summer.

Roughly 12.6% of the roughly 20,000 borrowers who took advantage of the program redefaulted within 12 months according to a report Morningstar Credit Ratings released this week.

That is above the 10% redefault rate for Home Affordable Modification Program workouts, but below the nearly 16% rate on private modifications.

A report this summer from Laurie Goodman at Amherst Securities showed borrowers who received a principal reduction in 2011 redefaulted at a 12% rate within in the first 12 months.

That’s right on par with Ocwen’s program, and the bank or investor gets some of the equity back.

Ocwen has faced much criticism from community groups and borrowers after the foreclosure crisis struck. Just 853 of its more than 5,000 employees live in the U.S. with the rest in India and Uruguay, and many borrowers complain of paperwork labyrinths and call center runarounds.

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.

Sign Here for Principal Reduction

An excerpt from this article in HW:

To provide relief more quickly under the settlement, Chase executives are addressing the borrower fatigue with a letter sent to borrowers notifying them that their loan was refinanced into a new mortgage with a lower interest rate. No documentation was needed. Chase owned the loan.

Borrowers receiving these letters saved an average of $300 per month on their payments, according to a statement from the bank sent to HousingWire.

Chase is sending different letters to other underwater borrowers. All that is required in order for a principal reduction on their loan is a signature sent back with the included self-addressed stamped envelope the bank provides.

Roughly half of the borrowers targeted by most major servicers for principal write-down consideration agree to the deal. But nearly all of the borrowers who received a letter from Chase, sent it back with a signature, according to the bank.

“Chase is taking a proactive approach to helping homeowners. We are automatically reducing interest rates for eligible customers who are current on their mortgage payment, saving them hundreds of dollars each month,” a Chase spokeswoman said. “For many individuals and families who are struggling with their mortgage, we are lowering their payments by sending them pre-qualified modification offers, which may include principal forgiveness.”

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.

Guts, No Glory

From the latimes.com:

WASHINGTON — After a lengthy review, a key federal regulator said Tuesday he would not allow Fannie Mae and Freddie Mac to lower the amount some underwater homeowners owe on their mortgages despite new financial incentives from the Obama administration.

Detailed analysis has determined that principal reductions would cost taxpayers money and would not clearly improve the ability of homeowners to avoid foreclosure, said Edward DeMarco, acting director of the Federal Housing Finance Agency. The agency oversees Fannie Mae and Freddie Mac, the housing finance giants that were seized by the government in 2008 as they teetered on the brink of failure.

The Obama administration, Democratic officials and housing advocates have been pressuring DeMarco to allow Fannie and Freddie to lower the principal for underwater homeowners as a way of reducing foreclosures. Fannie and Freddie own or back about 60% of all mortgages. Some, including California Atty. Gen. Kamala Harris, have called for Obama to fire DeMarco because of his refusal to allow Fannie and Freddie to reduce principal.

But DeMarco has steadfastly refused out of concern that it would increase the cost of the taxpayer bailouts of Fannie and Freddie. As of June 20, taxpayers have pumped $188 billion into the two companies to keep them afloat. The companies have paid about $46 billion in dividends back to the Treasury Department in exchange for that assistance, leaving taxpayers on the hook for about $42 billion.

The FHFA has been reconsidering the position because of new Treasury incentives tripling the amount of money offered to owners of mortgages to do principal reductions.

But DeMarco said those incentives were still taxpayer money and did not offset the potential harm from a principal reduction program. He said such a program could encourage underwater homeowners who are making their payments to stop so they could qualify for a principal reduction. The FHFA analysis found that it would take just 3,000 to 19,000 borrowers out of 1.4 million underwater borrowers to offset any potential positives to the bottom-line of Fannie and Freddie from principal reductions.

“We weighed these potential benefits and costs, recognizing the inherent uncertainties associated with these estimates … and we concluded that the potential benefit was too small and uncertain relative to known and unknown costs and risks to warrant Fannie and Freddie” offering principal reductions, DeMarco told reporters.

He stressed that Fannie and Freddie offer an array of programs to help struggling homeowners, including those that lower monthly payments.

Treasury Secretary Timothy F. Geithner wrote to DeMarco on Tuesday asking him to reconsider his position.

“Five years into the housing crisis, millions of homeowners are still struggling to stay in their homes and the legacy of the crisis continues to weigh on the market,” Geithner said. “You have the power to help more struggling homeowners and help heal the remaining damage from the housing crisis.”

Eminent-Domain Profits

This is excerpted from the wsj.com and includes the paragraphs on how profits are determined.  The homeowner is left at 100% LTV, old investors lose their shorts, new investors make 20% to 30%, and the guy who thought of it rakes in 4-5 points per deal:

Tapping the power of eminent domain to repair underwater mortgages could generate investor returns of up to 30% and billions of dollars in fees for bankers behind the proposal, according to people with knowledge of the plan.

Under the plan, loans that are current and underwater—that is, their balances are greater than the home’s value—would be seized from mortgage bonds at prices up to 25% below appraised home values, then refinanced through a federal loan program.

It isn’t clear whether the eminent domain plan will get off the ground. The proposal has disturbed financial trade groups who say it violates mortgage contracts and isn’t a public use as required under eminent domain. The groups assert that Mortgage Resolution Partners will encourage municipalities to deeply undercut market value when buying the loans, doling out losses to mortgage bondholders and handing big gains to itself and its investors.

Mortgage Resolution has estimated that it would take a fixed fee of $4,500 per loan as the operational manager, according to people who attended investor meetings. That is about what loan servicers get when modifying loans under a government program. Such fees could exceed $2 billion if the program caught on nationwide, and would grow if the plan goes beyond private-label loans, based on Amherst’s loan count.

Steven Gluckstern, chairman of Mortgage Resolution, declined to elaborate on how profits might be split. While he said the group’s main interest is to help homeowners and stabilize communities, he added: “We want to make money with the solution.”

As a manager, Mortgage Resolution would work with governments to identify and buy loans at 75% to 85% of current property values, said people in investor meetings. For a home worth $100,000, the program may pay $75,000 despite a principal balance that might be tens of thousands of dollars more.

The homeowner would apply to refinance into a $97,750 loan through a federal program. That leaves $22,750, plus a lender’s profit of $5,000 or more to cover MRP’s fee, valuation and legal costs, a reserve for the municipality, and investor profit. MRP has told investors they could see a return of 20% to 30%, said one investor who met with the firm.


Loan Mods Working In California

From MND:

California’s proposed Homeowner Bill of Rights, originally proposed by the state’s attorney general Kamala Harris and covered here has been modified extensively following what the Center for Responsible Lending (CRL) calls six weeks of intense negotiation with banks, legislators, the attorney general and consumer groups.

Among the changes reported by CRL is a narrowed scope for both the loans and servicers covered by the bill.  The only loans to which the bill will now apply are first mortgages on owner occupied one-to-four family houses and only servicers who process more than 175 foreclosures per year will be subject to many of its requirements.

Earlier versions of the bill required the lender or servicer to record and provide evidence of all assignments as part of the chain of title to foreclose.  The current version requires that only evidence of the last assignment be available to the borrower.  The current bill also includes an express and comprehensive right to cure until the notice of trustee sale is filed.  A servicer can avoid liability by curing a violation before the foreclosure sale.

Originally the bill provided post-sale minimum statutory damages of the greater of actual damages or $10,000; the new version allows only actual damages with triple damages or a minimum of $50,000 available only in cases of intentional reckless violations or willful misconduct.

Unlike the National Mortgage Settlement the California bill allows for multiple contact persons as long as they have the access and authority of a single point of contact.  Prohibitions against dual tracking and false documents remain as in the original law, however the enforcement provisions sunset after five years.

CRL says that this Homeowner Bill of Rights remains critical for large number of borrowers, their communities, and the California housing market.  It ensures that borrowers in owner-occupied homes applying for loan modifications get full and fair consideration for those modifications before the foreclosure process begins.  This will allow the foreclosure process to move more quickly for those who do not qualify for home retention alternatives while preventing unnecessary foreclosures on borrowers who do.

CRL released a new study of California delinquencies with three principal findings.

First, loan modifications work well to keep borrowers in their homes.  More than 80 percent of California homeowners who received modifications in 2010 stayed current and avoided re-default despite the continued recession.  Only 2 percent of those modified loans ended in foreclosure.

Second, large numbers of borrowers remain at risk with nearly 700,000 California mortgages in some state of delinquency or foreclosures.  This is one out of nine borrowers.

Third, middle class, African Americans, and Latinos are the hardest hit.  The delinquency rates for African Americans and Latinos are 11.1 and 10.7 percent respectively while for Asians and whites the rates are 7 and 7.3 percent.  Delinquencies are concentrated among middle class borrowers, those making between $42,000 and $120,000 annually.

“California policymakers will soon have the chance to extend key servicing reforms from the National Mortgage Settlement to all California borrowers, said Paul Leonard, CRL’s California Director.  “Our legislators have an historic opportunity to overcome intense opposition from the big banks and ensure that all Californians get a fair shot at loan modifications.”

HARP Refinances Double in 1Q12

Are government programs finally starting to solve the housing crisis? From HW:

The number of refinanced Fannie Mae and Freddie Mac mortgages nearly doubled in the first quarter as the largest banks launched the expanded Home Affordable Refinance Program.

Servicers refinanced roughly 180,000 GSE loans in the first three months of 2012, nearly double the 93,000 completed in the fourth quarter, according to Federal Housing Finance Agency data. In March alone, servicers refinanced 80,000 borrowers under the program.

HARP launched in April 2009 to allow more borrowers who owe more on their mortgage than their home is worth to refinance. But few severely underwater borrowers could take advantage of historically low rates. The FHFA expanded the program last fall to remove the loan-to-value ceiling of 125% — the so-called HARP 2.0 — and to reduce upfront fees and eliminate repurchase risk if the original servicer on the loan completes the workout.

With the surge in the first quarter, total HARP refinancing now totals more than 1.2 million loans.

And more severely underwater borrowers are finally being included.  More than 4,400 borrowers with LTVs above 125% refinanced through HARP in the first quarter. More than half of them were located in California, Florida and Arizona, states hardest hit by the foreclosure crisis.

Borrowers in the 105% to 125% range were often shut out as well, but that changed under the expanded program as well. In the first quarter, nearly 37,000 of these underwater borrowers refinanced, nearly triple the 13,000 in the previous quarter.

Lawmakers are considering another expansion of the program. Most of the HARP business is going to the largest banks because of the reduced repurchase risk, which is generating higher profits for these firms. Smaller lenders want in on the action and are busy lobbying Congress for more competition, specifically asking to remove repurchase risk for all lenders.

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