by Jim the Realtor | Oct 2, 2011 | Local Government, Principal Reductions |
Hat tip to Susie for sending this along from the latimes.com:
California Atty. Gen. Kamala Harris is attracting increasing pressure from powerful Golden State players to reject a major settlement with U.S. banks accused of wrongful foreclosures.
Lt. Gov. Gavin Newsom has joined a group of California union leaders, activists and politicians in calling the direction of negotiations “a deeply flawed settlement proposal with the banks at the heart of the nation’s mortgage crisis.”
Harris has emerged as a key player in pursuing the nationwide settlement with major U.S. banks accused of wrongfully foreclosing on homeowners. She has been urged to take a hard line by consumer groups seeking help for homeowners devastated by the mortgage crisis.
A spokesman for Harris, Shum Preston, declined to comment Thursday on a letter by the newly formed group Californians for a Fair Settlement. But last week he said the attorney general is “listening keenly to what the California public has to say on this issue and rigorously evaluating any settlement proposals.”
Harris has been negotiating with the five largest mortgage servicers for months as part of a coalition of attorneys general and federal agencies seeking to hammer out a deal surrounding allegations that banks committed widespread foreclosure errors. Those involved in the talks see Harris’ participation in any settlement as crucial because of California’s size and because so many home repossessions are concentrated in the state.
The letter by Californians for a Fair Settlement, which The Times obtained Thursday, calls on Harris to reject a settlement that lacks significant principal reduction for troubled California homeowners, has overly broad liability release language that would hamper future investigations into bank practices and would require banks to pay about $20 billion.
The group, in its letter, called that amount “outrageous” and “a figure which might not even be enough to cover damages for the state of California, let alone the entire country.”
Other signatures included those of Rep. Maxine Waters (D-Los Angeles); Joshua Pechthalt, president of the California Federation of Teachers; Zenei Cortez, president of the California Nurses Assn.; Richard Hopson, chairman of the Alliance of Californians for Community Empowerment; and Steve Matthews, executive director of Service Employees International Union Local 721.
The pressure comes as foreclosures in California and other parts of the West have begun to surge anew. Significantly more properties entered the foreclosure process during August in the nation’s hardest-hit markets, including battered parts of inland California and other areas in the West, as Bank of America Corp. stepped up its activity in states where a court order is not needed to take back a home.
by Jim the Realtor | Jul 26, 2011 | Principal Reductions |
From HW:
Ocwen Financial Corp. launched a new modification program to reduce the principal on a mortgage for delinquent borrowers, while compelling them to share in the future appreciation of the home’s value with the investor.
Mortgage modifications will only be available for homeowners in negative equity.
Atlanta-based Ocwen holds a $74 billion servicing portfolio after acquiring Litton Loan Servicing and HomEq. Ocwen launched the Shared Appreciation Modification program as a pilot in August 2010, a program the company believes will make a major dent in the roughly 14 million mortgages currently in negative equity, according to Moody’s Analytics.
Through the program, Ocwen will write down qualified loans to 95% of the underlying property’s market value. The amount written down is forgiven in one-third increments over three years as long as the homeowner remains current. When the house is later sold or refinanced, the borrower will be required to share 25% of the appreciated value with the investor.
“Like all modifications, SAMs help homeowners avoid foreclosure. But they also restore equity. That’s a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it’s important too,” said Ocwen CEO Ronald Faris. “Our analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.”
SAM is one of the first principal reduction programs initiated by a private company without the prodding of a government agency. Other servicers have sporadically used Hardest Hit Fund and Home Affordable Modification Program dollars to write down principal, but only in select states.
Since August, Ocwen said 79% of the borrowers accepted the offer with a redefault rate of 2.6%. Ocwen said it has regulatory clearance to push the program into 33 states.
J.T. Smith, the chief investment officer for the boutique investment bank Aristar Funding Group said there are many still unknown parts of how Ocwen will structure the modifications such as tax liens and future title issues, but granting the borrower 75% of the appreciation is “very generous.”
“This program is a win for the borrower and very, very generous of Ocwen and investors,” Smith said. “Silent seconds are a more equitable solution, so Ocwen borrowers should take these modifications and run with it.”
by Jim the Realtor | Jul 11, 2011 | Principal Reductions |
From cnbc.com:
As home values continue to fall and more borrowers fall into a negative equity position on their home loans, those who stand to lose, banks and investors, are working to keep borrowers current.
To date, they have focused on delinquent borrowers, offering loan modifications and foreclosure alternatives, like short sales and deeds in lieu of foreclosure.
Last fall, New Jersey-based Loan Value Group launched a new business model, offering lenders and mortgage investors a way to keep their current, but underwater, borrowers current through cash incentives.
It’s called Responsible Homeowner Reward, and today, one of the nation’s largest mortgage insurers, PMI Mortgage Insurance, joined in.
Here’s how it works. Borrowers pay nothing. They sign up with the program, promising to keep current on their mortgages for a certain period, generally 36 to 60 months (LVG has worked out the contract with the participating lender/investor).
After that period, the borrower will be paid anywhere from 10 to 30 percent of the loan principal, depending on the contract, in cash. The lenders/investors pay LVG, which receives a servicing fee, and LVG pays the borrowers. Again, the borrowers pay nothing for this bonus.
The PMI deal works the same, with PMI paying a scaled reward for select borrowers over a five-year period. If the borrowers stay current, they earn the payoff over the five years and receive the cash at the end. PMI created its own subsidiary, Homeowner Reward, but that subsidiary will work with LVG, and PMI will pay LVG an administration fee.
To date, 38 states have borrowers enrolled in the LVG program, totaling approximately 10,000, according to LVG. The largest number of borrowers are from the hardest hit states, California, Florida, Arizona, Nevada and Michigan.
So far, RH Rewards has offered, but not paid out, $107,393,922, according to the company’s website.
“All of those states have achieved greater than 50 percent reduction in default rates than respective control group,” said an LVG spokesperson.
Okay, so now that we get it, we have to ask what exactly are we getting here? From a purely business perspective, it makes sense. By targeting borrowers with the most negative equity and therefore at the greatest risk of strategic default, lenders and investors are cutting their losses by keeping the borrowers current. They stand to lose more in a foreclosure.
But does it sound slightly ironic to anyone else that a mortgage insurance company, whose business is to insure loans by charging borrowers premium fees, is now paying those very same borrowers back to stay current on the loans they’re insuring??
“For borrowers in our pilot program, Responsible Homeowner Reward (SM) provides an incentive to stay current on their mortgage by helping them earn an offset to the decline in home values. Such programs, if successful, could reduce the incidence of foreclosure, which could help stabilize house prices and stabilize communities,” said Chris Hovey, PMI’s SVP of Servicing Operations and Loss Management.
It’s business, a numbers game where companies have now figured out how much they need to pay to avert a larger loss. Apparently we have hit that tipping point where strategic default is now so pervasive and so acceptable that companies are forced to pay borrowers to stop.
So what exactly is the difference between that and principal write-down, which the big lenders seem to abhor as a bigger moral hazard even for borrowers facing foreclosure?
In an interview with HousingWire back in April of this year, the managing partner of LVG, Frank Palotta, said, “There is little focus on loss-mitigation efforts for current loans, as these homeowners typically pay. As a result, the vast majority of these homeowners are left with no other option than to become ‘the squeaky wheel’ by becoming delinquent in order to receive a call from their servicer.”
a) why do we need loss-mitigation on current loans? These loans are current, and until they go 30 days delinquent, we need to focus our loss-mitigation on the huge volume of borrowers who are in trouble. And b) why do current borrowers have “no other option that to become….delinquent” to receive a call from a servicer? Why does a servicer need to be holding the borrower’s hand at every step, cajoling and coddling him/her into fulfilling a contractual obligation?
by Jim the Realtor | Jul 5, 2011 | Principal Reductions, Revolution, Shadow Inventory |
Four posts back was the article about principal reductions – below is the response from Irvine Renter, or click here to his blog:
To give the hopeless a reason not to strategically default, several banks have singled out a few deeply underwater loan owners for principal forgiveness. By spreading news of their magnanimous deeds, they hope the remainder will keep paying.
Banks have a problem, a riddle they must solve. Twenty-five percent of their borrowers are underwater, and when you factor in second mortgages and sales commissions, more than half can’t sell their homes without writing a check for the shortfall. And house prices are still going down. When homeowners have no equity, they are no longer homeowners, they are loan owners. If a loan owner’s payments are less than the cost of a comparable rental, they have an incentive to stay and pay, but when the payment exceeds a comparable rental — and the huge mortgage balances of the bubble make this common — loan owners have an incentive to keep their money and strategically default on their mortgage.
Underwater loan owners have their names on title, and if they keep making payments long enough, amortization may catch them up, and prices may come back, so they may have equity again someday. The more their payments exceed the cost of rental, the further a loan owner is underwater, and the longer they perceive they will have to wait to have equity again, the more likely they are to give up and strategically default. If a loan owner strategically defaults, the lender is forced to make a choice; foreclose on the property when the resale value is worth less than the loan, or allow the loan owner to squat in the property.
Neither choice is palatable to the lender.
Lenders have responded to these circumstances — conditions the lenders created through irresponsible lending which inflated the housing bubble — by using both a carrot and a stick to keep borrowers paying when it is in the best interest of the borrower to strategically default. The stick is the threat of foreclosure, debt collection, reduced access to credit in the future, and an appeal to morality. The specter of consequences to borrowers has been wildly exaggerated, and these circumstances are lessening by the day.
The appeal to morality has been steadily eroding, as borrowers are coming to realize they have a greater moral responsibility to their families, than they have to their lenders.
Lenders’ threats of foreclosure have been neutralized by reports of delinquent mortgage squatters obtaining years of free rent. In fact, instead of being a deterrent to strategic default, the long foreclosure timelines have actually become an inducement. Lenders combat this perception with the use of terrorist tactics. Each month, lenders will randomly select a small number of fresh delinquencies to push through the system as quickly as possible. If some of the herd are executed quickly while others are allowed to squat indefinitely, it creates uncertainty. This uncertainty keeps some paying rather than play Russian roulette.
The carrot lenders dangle in front of loan owners comes through rumors of principal reduction windfalls. Like the random executions of freshly delinquent borrowers, a very small number of principal reductions given to loan owners who are doing what lenders want — making all payments — provides the lottery-style false hope to motivate the masses. Today’s featured article is part of the public relations campaign lenders use to get the word out concerning the principal reduction lottery windfall ostensibly available to loan owners who dutifully make their payments.
If someone somewhere got a principal reduction, it could happen to anyone. I hope nobody is holding their breath.
by Jim the Realtor | Apr 11, 2011 | Mortgage News, Principal Reductions |
From Jacksonville.com:
Perry Laspina was in the middle of foreclosure with the possibility of losing the house he owned in Jacksonville. Then the mail came one day in late January telling him that the house was his.
Despite the $72,000 mortgage that he barely paid anything on, despite the foreclosure … the house was his. Despite the fact that he didn’t have an attorney in the foreclosure proceedings, the mortgage holder simply gave up and walked away.
It’s a tale populated with many of the major players in the national foreclosure drama: The law firm of David Stern, the Mortgage Electronic Registration Systems (better known as MERS) and a mortgage packaged with others and sold into a securitized trust.
Here’s how it happened.
Back in 2006, Laspina, a used-car dealer based in South Florida, had some extra money and decided to buy some real estate that he could resell quickly at a profit. It was, after all, the height of the housing boom with prices skyrocketing and mortgage money easily available.
“Since everyone else was making money flipping houses, I figured I would, too,” he said.
He wasn’t familiar with Jacksonville, but his brother owned a house in Fernandina Beach and found the house on Oakwood Street in the Panama Gardens neighborhood of Jacksonville off North Main Street.
It’s an old neighborhood where most of the houses are still well-maintained.
Laspina bought the house for $80,000, putting $8,000 down and taking out an adjustable rate mortgage with EquiFirst for the remaining $72,000 with an interest rate of 9.5 percent.
(more…)
by Jim the Realtor | Mar 28, 2011 | Bailout, Principal Reductions |
From HW:
Bank of America will begin a new pilot program in the next few weeks, allowing some California homeowners to receive a principal writedown on their mortgage.
The program will be funded from the $699.6 million the California Housing Finance Agency received from Treasury Department’s Hardest Hit Fund last year. A spokesperson for the CalHFA said there is no set amount of loans BofA is targeting, but the bank will be soliciting eligible homeowners soon. CalHFA has not given BofA a limit to the funding “unless they blow us out of the water,” the spokesperson said.
CalHFA is in talks with other lenders and servicers, but they did confirm that Guild Mortgage Company will also participate in the program.
“We’re really excited to get the program going,” the CalHFA spokesperson said.
Rebecca Mairone, the new national mortgage outreach executive at BofA, said in an interview with HousingWire Monday that it would soon begin the California initiative as well as several other states that received Hardest Hit Funds.
Earlier in March, BofA announced it was sending letters to Arizona homeowners regarding possible principal writedowns under Hardest Hit Fund programs. Through that program, BofA said it was targeting 8,000 households.
Ally Financial agreed last week to participate in another principal-writedown program in Michigan, again using the Hardest Hit Fund.
by Jim the Realtor | Mar 14, 2011 | Loan Mods, Principal Reductions, Strategic Defaults |
From Businessweek.com:
More than one in five borrowers in the U.S. are underwater; collectively the shortfall is about $751 billion. Nationally, homeowners whose mortgages have been modified without a principal reduction are up to twice as likely to re-default as those with some forgiveness, according to Atlanta-based Ocwen Financial, a subprime servicer that reduced principal in almost 20 percent of its loan modifications in the last year. “The reason so many homeowners give up is because there is absolutely no hope,” says Brent T. White, a law professor at the University of Arizona who studies underwater borrowers. “They want someone to meet them halfway.”
Banks worry that if they reduce principal, the losses they’d have to take would erode capital cushions. Mortgage servicers don’t like principal reductions because they lower the fees they collect and cut into profits. Some Republican lawmakers call the idea a bailout that will encourage more borrowers to default. Mike Trailor, the director of Arizona’s housing finance agency, says that as he tried to get a write-down program going, most banks and servicers told him it would only encourage more defaults. “I learned a new word for ‘no,’ and it’s ‘moral hazard,'” Trailor says.
While House Republicans are moving to end the Home Affordable Modification Program, the Obama Administration’s flagship loan modification effort, the year-old Hardest Hit Fund would not be defunded under the GOP plan. So far the smaller program has awarded $7.6 billion to 18 states.
About 20 percent of the money is going to principal write-downs in nine states, with California, Nevada, and Arizona getting the bulk of it. Nevada and Arizona have signed up Bank of America, and California is in talks to do so.
Brian T. Moynihan, the BofA chief executive officer, told investors at a Mar. 8 conference that the bank resists calls by federal and state officials for nationwide principal write-downs, preferring more targeted efforts. “Our duty is to have a fair modification process,” Moynihan said. The bank was set to announce Mar. 10 a principal forgiveness program for military service members leaving active duty and behind on their mortgages. To have an impact, though, the states must attract other large mortgage servicers.
The three states are trying to avoid helping owners who used their homes as ATMs during the housing boom. All three held focus groups or public hearings to help them define what is a deserving borrower. The programs will only help lower- and middle-class homeowners who can document financial difficulties. They will not trim a loan’s balance all at once. Instead, they forgive some of the principal over three to five years, depending on the state.
Trailor says it took the better part of a year to address BofA’s procedural issues to win its participation. Lisa Joyce, policy and communications manager at Oregon Housing and Communication Services, which is starting one of the nine principal-reduction programs, says the states must take care to design plans so that participants pass “the front-page test.”
California Atty. Gen. Kamala Harris is attracting increasing pressure from powerful Golden State players to reject a major settlement with U.S. banks accused of wrongful foreclosures.
