Free Cheese Not Eaten

Hat tip to SM for sending this along from

When Bank of America Corp. sent letters to 60,000 struggling homeowners offering to slice an average $150,000 off their loans, the lender got an unusual response from most of them: silence.

Homeowners who fell behind on their payments began receiving the mailings in May, part of the bank’s effort to meet terms of the $25 billion industry settlement over foreclosure abuses. More than half haven’t responded as “borrower fatigue” causes them to tune out the offers, said Dan Frahm, a spokesman for the Charlotte, North Carolina-based bank.

“The number of customers responding is lower than we expected, given the significant assistance available,” Frahm said in an interview. “We are working very hard to determine why response rates are lower than expectations.”

Bank of America, which pledged almost half of the fines and assistance in the February settlement with state and federal officials, is critical to determining how many U.S. homeowners are helped by the landmark deal. Housing advocates say that relying on the same companies that committed loan servicing abuses to avert foreclosures may result in yet another program that helps fewer people than intended.

Easy on the Cheese

From HW:

Few, if any, borrowers strategically defaulted to take advantage of mortgage servicer relief under the $25 billion settlement struck in March, according to Fitch Ratings.

In fact, the percentage of current underwater borrowers moving to delinquent status, or the roll rate, shrank to 2.8% in June from 3.1% in February, a trend consistent since before a deal was reached with mortgage servicers to settle past foreclosure abuses and provide roughly $10 billion in principal reduction.

More than 11 million borrowers owe more on their mortgage than the home is worth. Some of the largest servicers began reaching out to borrowers in the spring.

“Fitch views strategic defaults as an ongoing concern,” the credit ratings agency said in a report Monday. “That said, there does not appear to be any sign yet of a material change in the behavior of underwater borrowers attempting to strategically default to qualify for a reduction.”

Roughly 30% of all modifications granted in June included principal reduction, Fitch found, up from 10% at the beginning of the year. Analysts also found no evidence so far that servicers are writing down principal on mortgages securitized into private pools. The settlement credits servicers more for reducing principal on loans held in their own portfolios.

“Although practice varies materially by individual servicer, the combined activity of servicers included in the settlement is consistent with that of servicers not in the settlement,” Fitch said. “Thus, it appears some of the increased principal reduction activity in 2012 is likely a continuation of an earlier trend rather than a direct result of the settlement.”

The Federal Housing Finance Agency continues to analyze how much a national principal reduction program would cost Fannie Mae and Freddie Mac. Home loans guaranteed by both are excluded from the settlement.

The agency fears underwater borrowers would default on their mortgage even if they were still able to make the payments in order take advantage of the program. According to its preliminary results, only a small percentage of borrowers would need to strategically default in order to wipe out savings Fannie and Freddie would see.

The FHFA recently said updated analysis would be announced “in the near future.”

Shiller’s Eminent Domain

Excerpted from Robert Shiller’s editorial in the

Traditionally, we think of eminent domain law as applying to land and buildings. For example, a government can use eminent domain to seize real estate along a proposed new highway route so the highway can be built in a nice straight line. It would be absurd to expect the government to bargain with each property owner to buy a strip of land along the proposed highway route and to have to redirect the highway around a farm whose owner refused to sell. That is common sense.

But eminent domain law needn’t be restricted to real estate.

It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.

Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners. Taxpayers are not involved, and no government deficit is incurred. Since homeowners are no longer underwater and have good credit, they are unlikely to default, so the new investors can expect to be repaid.

The original mortgage holders, the investors in the new mortgages, the homeowners and the nation as a whole will generally be better off. There will surely be some who may not agree, like the holdout farmer opposing the highway, but eminent domain ought to be able to push ahead anyway.

San Bernardino County in California is working with a private company, Mortgage Resolution Partners, on the possibility of putting such a plan into action. We must hope this effort succeeds. If it works, it can be replicated all over the country.

But first we have to realize that much of our economic suffering takes the form of a collective action problem. We have to stop the wishful thinking that the problem will solve itself through a spontaneous rally in home prices. We need to summon our resources to exercise the authority that allows collective action.

Professor Koniak says the solution to this problem has been so slow in coming for a simple reason: “It’s the will that’s lacking! The will!”

Throwing Money At Underwaters


A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.

“If people get these things and toss them, they won’t be eligible,” says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.

But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called “robo-signing”).

Bank of America, in a deal with state attorneys general and the U.S. Department of Justice, committed $11 billion to mortgage principal reduction, but executives say they will go beyond that if enough borrowers respond to their offer. Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation. The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender. 

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being “underwater” on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.

In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be  more than 25 percent of gross income, and the borrower must show they are unable to afford that.

“If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,” says Sturzenegger.

If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25 percent of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.

“Yes, we have the capability to go well beyond the $11 billion,” adds Sturzenegger.

Thank You Taxpayers!

The last holdout, Edward DeMarco, caved today on forbidding principal reductions, from HW:

Federal Housing Finance Agency Acting Director Edward DeMarco said principal reductions done under larger incentive payments from the Treasury Department would save Fannie Mae and Freddie Mac enough money to begin an umbrella write-down program.
DeMarco released preliminary findings from an FHFA analysis in a speech at the Brookings Institute Tuesday.

According to the early results of a potential pool of nearly 700,000 borrowers, Fannie and Freddie are expected to lose $63.7 billion on those loans if they are not modified. With the tripled incentive payments to reduce principal under the Home Affordable Modification Program, the losses would be $53.7 billion if some principal is forgiven, compared to $55.7 billion through forbearance.

The Treasury could potentially send $3.8 billion in incentive payments to Fannie and Freddie after redefaults are factored in. Based on net-present-value models, reducing the principal on significantly underwater mortgages would save the GSEs $1.7 billion, resulting in a $2.1 billion cost to taxpayers for the program.
“Because the Enterprises would receive the tripled incentive payments for principal forgiveness, PRA is better for the Enterprises [and] reduces Enterprise losses by $1.7 billion,” DeMarco said.

More Talk of Principal Reductions

Principal reductions are the government’s next bailout device, and they are getting pushed hard.  Excerpts from an article at

NEW YORK – Fannie Mae and Freddie Mac continue to face pressure to reduce principal for homeowners underwater on motgages, but the debate still rages on who will end up paying for it.The FHFA has said it will review its analysis on principal reductions over the next few weeks, taking the incentives into account.

The Federal Housing Finance Agency Acting Director Edward DeMarco remains fundamentally opposed to the idea of principal reductions, arguing that any large-scale reduction would only benefit banks.

Last week, ProPublica reported that the housing giants are likely to tell the FHFA that principal reductions will likely save taxpayers money. And Freddie Mac’s CEO Edward Hadelman hinted at a conference organized by Housing Wire on Friday that the agencies might be more receptive to the idea following new incentives from the Treasury.

“I have to say recently the Treasury sweetened the program and tremendously increased the incentive payments in their offer to us,” Haldeman said, according to a HousingWire report. “We will reevaluate that to see what may be in our economic best interest. If there are very large incentive payments — which could be 50 percent of what you could write down — it may be in our economic self-interest to participate in that.”


Principal Reductions Help Banks

From Rueters:

Mortgage giants Fannie Mae and Freddie Mac are being pushed to reduce borrowers’ mortgage balances in order to shield U.S. banks from taking losses on distressed housing debt, the companies’ regulator said in a Financial Times interview published on Sunday. “If you do principal forgiveness, who is it benefiting? … Doing principal forgiveness is what would protect the big banks,” said Edward DeMarco, the acting director of the Federal Housing Finance Agency.

DeMarco argued that writing down the principal on first mortgages would amount to a transfer of taxpayer wealth to the biggest U.S. lenders, whose “second mortgages” are normally subordinate to the primary mortgages backed by Fannie Mae or Freddie Mac.

Some officials in the Obama administration, the Federal Reserve and Congress have called on Fannie Mae and Freddie Mac to write down the value of mortgages they own or guarantee as part of an effort to help the U.S. housing market recover from a deep slump that saw one third of property values wiped out since 2006.

DeMarco has previously resisted those calls, citing concerns it would increase losses at the two companies and undermine his mission of keeping a lid on the costs of their taxpayer-funded bailout. “Certainly the environment of the last number of months have shown substantial attempt to influence or direct an independent regulator,” he told the business newspaper.

Fannie and Freddie provide funding for the bulk of U.S. home loans by buying mortgages from banks and repackaging them as securities for investors, which they then guarantee. The Obama administration has proposed using TARP funds to lessen the cost to Fannie and Freddie of doing writedowns. DeMarco is now considering whether the new money the Obama administration is laying on the table changes the equation.

Freddie Mac and Fannie Mae were taken over by the government in 2008 after massive mortgage losses at the housing giants threatened the global financial system. Since then, the U.S. government has funneled more than $150 billion in taxpayer funds into Freddie and Fannie, in part to ensure that credit remains available for homebuyers.

B of A’s Free Lunch

From the latimes:

Reporting from Washington—

Bank of America said Friday it would reduce by about $100,000 the amount owed by as many as 200,000 underwater homeowners as part of the recently announced government foreclosure settlement with top mortgage servicers.

BofA made the commitment as part of a $1-billion side deal to the $25-billion foreclosure settlement, said bank spokesman Richard Simon.

The principal reductions could eliminate the entire underwater portion of some mortgages that the bank services, with the average reduction expected to be more than $100,000, he said.

By cutting the amount owed on the mortgages, Bank of America could reduce the $3.25 billion in penalties it faces from the foreclosure settlement by $850 million. The details of the principal-reduction agreement were first reported by the Wall Street Journal.

Underwater homeowners are eligible if they have a loan serviced by Bank of America and were at least 60 days delinquent on their mortgages as of Jan. 31.

Only loans owned by Bank of America or private investors are eligible, and those include mortgages originated by Countrywide Financial Corp. The Calabasas, Calif.-based subprime lender was acquired by Bank of America in 2008.

Loans owned or backed by Fannie Mae, Freddie Mac, the Federal Housing Administration or the Veterans Administration are not eligible, Simon said.

Bank of America estimated about 200,000 homeowners will be eligible, though it does not anticipate all will take part in the program, Simon said.

The bank will begin reaching out to homeowners next month. It has three years to complete the principal reductions, but the settlement offers incentives for them to be completed within a year of the settlement’s completion, so Simon anticipated the process would move “fairly quickly.”

Bank of America mortgage customers can call 877-488-7814 to see if they’re eligible and for more information.

On-line Therapy for Underwaters?

From the U-T:

Would you share with online strangers a photo of yourself with how underwater you are on your mortgage?

Three advocacy groups hope you will in order to prove a point to the Edward DeMarco, the regulator of Fannie Mae and Freddie Mac.

DeMarco has frustrated state and federal leaders on his stance against writing down the principal balances of Fannie and Freddie borrowers who owe more than their homes are worth. Among those leaders is California Attorney Kamala Harris.

The grassroots groups, who have called for the firing of DeMarco, have created a Tumblr called “America Underwater.” The blog, which officially launched Tuesday, features photos of homeowners who self-report that they have negative equity.

The entries show a photo of the borrower holding a placard with a negative figure, indicating how underwater they are. There’s also a spot under the image where you can disclose as much or as little as you want.

The latest entry, posted Tuesday, shows a woman holding a sign that says -$53,000 and the message:

“I am still $53K underwater AFTER a loan modification. My loan servicer won’t even consider writing down/wiping out my 2nd mortgage balance of $17K, which is just common sense!!”

The Tumblr states the idea is from community groups the New Bottom Line, Rebuild the Dream and National People’s Action.

Here’s a description of the project:

11 million homeowners are underwater. This Tumblr blog is for homeowners throughout the country to share how their dreams are drowning, to show that none of us is alone in our struggles, and to show how even one underwater mortgage is more than America can afford.

What do you think? Will you post your story on “American Underwater”?

Cushy Mortgage Settlement

Excerpts from the

The federal government’s response to the home mortgage crisis always has been an exercise in living down to one’s lowest expectations.

The $25-billion settlement with five big banks over foreclosure abuses that U.S. housing officials and 49 state attorneys general announced last month was supposed to be an exception. Here, at last, was real compensation from those who played key roles in the disaster.

But with every passing day, the shortcomings of this deal appear to proliferate. That is, as far as we know, because the specific terms of the settlement are still not public, nearly one month after it was unveiled in Washington with the sort of fanfare formerly associated with the splashdown of a space capsule.


Pin It on Pinterest