Why are Loan Modifications FAILING?

Define ‘modified’! $111 Billion in your Stimulus funds has gone to the Humongous Banks. Recently the $400 Billion cap was lifted. Our Major Banks now have an open ended blank check to draw upon!

Now get this: The HAMP and MHA guidelines apply primarily to Freddie Mac and Fannie Mae loans. Less than 50% of mortgages being funded today are Fannie or Freddie loans. So in effect, most VA, FHA, USDA and Portfolio Loans through non-TARP funded Banks, Savings & Loans and Credit Unions are not subject to the Making Home Affordable guidelines. How can this be? Loopholes, folks. It’s their money and they make the rules. Since we are NOT funding them to help borrowers–unless they have very enlightened management (some do of course) then borrowers will lose their homes or be forced to sell, Meanwhile their neighbor with a Fannie or Freddie loan gets their payment cut in half. Is this fair? Of course not. I suspect this is one big reason the biggest banks are paying back their TARP funds as fast as they can so they can stop modifying loans.

What about the news of loan mod failures? We get releases from HUD and other media generated by official sources. These official sources are pretty much paid mouthpieces of the very companies taking our tax dollars. Now stop and think: why would Fannie/Freddie and our media want to point out that people are failing to meet their modified status? My guess is they are presenting numbers to hide their losses from their investors. They also have their own criteria: that is to FAIL the consumer. Meanwhile they get to appear blameless. If your mortgage was cut in half chances are you would do anything including move heaven and earth to pay it and keep your home. I doubt what we hear as ’statistics’ on the news and so should every person in our industry.

So what can be done? I heard someone say he was hoping that Obama had shamed his bank into helping him. That will be the day. People who succeed at loan modification are able to present a water-tight case for hardship and recovery. Period. You absolutely have the right to request your loan be restructured. The HAMP guidelines are designed to give homeowners breathing room: lenders will work hard to insure they get their original terms back within five years. Not all lenders use HAMP guidelines. In fact, there are many kinds of agreements depending on the loan type and your situation. A professional negotiator will work hard to get longer fixed terms. Especially for folks with sub prime ARMS or negative amortization loans.

Emotion needs to be removed from your negotiation. Banks are not social services. They are businesses. I read about a loan modification expert who is selling a CD relating the “6 secrets of hardship letters”. Actually writing your hardhip letter is the easy part. Backing up your letter with solid financials is what really matters. Making sense of the situation is why loan modification is so difficult for individuals. By the time a person has experienced sincere hardship and struggled for perhaps a year or more, most are too worn down to make a sensible business case and stick by it. That is why we recommend an advocate who can make the case for you and be a neutral reality check. Ask around and find a legitimate source in your state. Some bankruptcy attorneys handle modifications as part of their settlement plans. The State Bar Association would be a good starting place.

Endless Workouts? Unfortunately a very high percentage of the loan modifications started up to a year ago are still in their trial workout period five and six months later. The reasons vary bank to bank. Unless their loan is converted to a permanent modification or terms a homeowner can live with, then we have all failed. What transpires during that forbearance (or workout) period is a constant harassment for MORE paperwork proving they are still working, etc.

Endless Paperwork? Since when do you have to prove you are still making the same money you did as when you applied for a loan six months later? If the person is PAYING their mortgage as per the workout agreement I say they are meeting their obligations. There are many possible reasons Banks are NOT converting their temporary modifications to permanent status: #1 might be they don’t want to show their actual loss (of higher interest projected) on their books. The workouts are a sham and should be investigated. The few sucessful modifications which have converted to permanent status are a tiny fraction of those still in limbo.

Please tell anyone you know who is experiencing extended workout issues to contact their congressional representatives for help. http://www.congress.org They may also make a complaint directly to their State Attorney General. most states have online complaint forms. They will investigate. In Washington, our State Attorney has successfully sued several large banks including Countrywide (now defunct) for predatory lending.

Thanks to Susan Templeton for this post.

The Skinny

A housing market insight.

Click on the link below for good Real Estate information.

http://mplsrealtor.typepad.com/theskinny/

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Extension of Tax Credit Looks Likely

A Realty Times Feature Article by Kenneth R. Harney

Quick passage by the House last week of a bill extending the $8,000 home buyer tax credit next year for military, diplomatic and intelligence personnel serving overseas increases the odds that Congress will agree to an extension, maybe even an expansion, of the entire credit program well into 2010.

The White House is also signaling that it sees the overall tax credit program – currently set to expire November 30 – as an important element in cutting the unemployment rolls and stimulating new jobs next year.

After an economic policy strategy meeting last week in the Oval Office involving President Obama, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, congressional aides said Democrats generally support an extension of the housing credit.

Reid already has made clear he wants an extension. He is co-sponsoring a Senate bill that would do so for six months.

Congressman Charles Rangel, chairman of the tax-writing House Ways and Means Committee, sponsored the one-year extension of the credit for military and other personnel serving overseas, and is reported by aides as favoring an extension for the entire program.

The White House has not publicly committed to an extension, but has confirmed that the President is seriously examining that option.

An unexpected development that emerged following last week’s White House meeting was the possibility of opening up the credit to a broader group of buyers next year – people who sell their current homes and buy a replacement home.

Though details were scanty, Capitol Hill sources said one option on the table would be to provide a tax credit – most likely at the $8,000 level – to replacement home buyers whose incomes do not exceed some limit.

The current credit phases out for single taxpayers with incomes above $75,000, and married purchasers earning $150,000.

A politically sensitive issue hovering over the entire debate on extending the housing tax credit is its cost – what it would add to the federal budgetary deficit. Mark Zandi, chief economist of Moody’s Economy.com, estimates that widening the credit to all buyers through next August could cost the government upwards of $30 billion.

Rangel’s 12-month extension of the credit for service personnel is estimated to cost more than $300 million, but it’s mainly being paid for through an increase in penalties levied by the IRS on taxpayers who fail to file corporate or partnership returns.

The New York Times reported that one possible solution to the cost problem would be to divert money not yet spent out of 2009’s $800 billion stimulus legislation.

Weekly Market Activity Report

Fall is officially on in the Twin Cities, but it hasn’t slowed the housing
market as much as usual. After the school year begins, we typically
see a drop in buyer activity, but the 2009 fall market is remaining
robust due in large part to the final weeks of the tax credit for first-time
home buyers. There were 1,056 pending sales for the week ending
September 26, up 41 percent from the same week last year.
As a direct result, inventory is dropping like a stone. There are
approximately 24,500 homes for sale in the 13-county metro area,
down more than 20 percent from a year ago.
The October 2009 Supply-Demand Ratio (SDR) comes in at 6.88
houses per buyer, down 22.5 percent from last year. The SDR has
shown year-over-year drops of 30 percent or more for the past few
months, but we’re projecting that the year-over-year decline for
October will be smaller because pending sales are likely to be
significantly lower if the federal tax credit for first-time buyers is not
extended. If the credit goes *poof*, it will remove buyers from the
market.

The Monthly Skinny On Minnesota Real Estate.

Great Current Minnesota Real Estate Info.

The birth of the lending crisis

Do you ever wish you could go back in time and see what started this great credit crunch?  Well here is a great read from 1999 that I thought I would share with all of you.  Please take a few minutes to read the NY Times article.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewa

 

 

 

 

Congress weighs reprieve for seller-funded gifts

STOCKTON, Calif. — A last-ditch effort to head off an Oct. 1 ban on the use of seller-funded down-payment assistance with FHA-backed loans is picking up steam as a compromise bill that would mend rather than end the practice gains momentum.

This would be a huge help to our market. Many home buyers do not have the 3,5,10 or 20% down required for down payment in this market. This could help more homes sell.

Have a good night.

Dave

Freddie/Fannie & Gov’t News Update

Below is an excerpt from a report I received this morning.   I wanted to share this with you, I think it does a good job in giving a simple explanation of the “Credit Crisis”  in the housing industry and why the government announced it will step in.  Here are 2 good links to get more in depth information.  

Full statement is at: http://www.ofheo.gov/newsroom.aspx?ID=456&q1=1&q2=None
Fact Sheet on Conservatorship is at: www.ofheo.gov/media/pdf/FHFACONSERVQA.pdf

 

From TRUSTED ADVISOR UPDATE:

“…….Mortgage Bonds are soaring higher on yesterday’s announcement that Fannie Mae and Freddie Mac will come under control of the government.  This announcement came as the government felt both these institutions will no longer be able to meet their mission statement which is to provide liquidity, stability and affordability in the housing markets.  Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds.  The way they raise capital to pay these maturing Bonds is to issue new Bonds.  This happens every month.  And as long as Fannie and Freddie can sell new Bonds this system works well.  But the problems in the mortgage industry have reduced investor appetite to purchase these Bonds…and that’s where the trouble begins.  Without the ability to sell new Bonds, Fannie and Freddie are less able to meet the capital requirements to pay off the maturing Bonds.  And that’s the big fear.  If Fannie and Freddie were to default and become insolvent, it would throw the beleaguered mortgage and housing markets even deeper into the abyss.  Additionally, the recent lack of appetite for Fannie Mae and Freddie Mac Bonds caused the two mortgage giants to have to do something to make their Bonds more attractive…so they offered their Bonds at higher yields to gain more investor interest.  However, since they couldn’t go back and raise rates on loans that had already been closed, it sucked even more profits out of Fannie and Freddie, reducing capital even further, and exacerbating the problem.  That’s why the Treasury has stepped in and said that they will back the payments on these Bonds.  This action has given investors a lot of confidence to step in and now buy Mortgage Bonds.  Think about it.  For a higher rate of return, investors can now buy Mortgage Bonds with the same guarantee as lower yielding Treasury Bonds.  This is causing a nice rally in pricing this morning – which ……………..leads to attractive rates………..”

 

Open Houses Today 9/7/2008

We will be hosting three open houses today.

1:) 713 Ashley Drive, Chaska. Open 1 – 3 PM: http://matrix.northstarmls.com/Matrix/Public/Email.aspx?ID=5218642224

2:) 6407 Oxbow Bend, Chanhassen. Open 1 – 3 PM: http://matrix.northstarmls.com/Matrix/Public/Email.aspx?ID=5218644892

3:) Forestview Lane, Plymouth. Open 12 – 6 PM: http://matrix.northstarmls.com/Matrix/Public/Email.aspx?ID=5218646862

Government assumes control over mortgage giants Fannie Mae and Freddie Mac

AP
Officials announce takeover of mortgage giants
Sunday September 7, 12:34 pm ET
By Alan Zibel and Martin Crutsinger, AP Business Writers

Government assumes control over mortgage giants Fannie Mae and Freddie Mac

 

WASHINGTON (AP) — The Bush administration, acting to avert the potential for major financial turmoil, announced Sunday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.

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Officials announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Treasury Secretary Henry Paulson says the historic actions were being taken because “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.”

The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

“A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,” Paulson said.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that “a limited number of smaller institutions” have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were “prepared to work with these institutions to develop capital-restoration plans.”

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Paulson said that it would be up to Congress and the next president to figure out the two companies’ ultimate structure.

“There is a consensus today … that they cannot continue in their current form,” he said.

Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation’s housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.

The companies own or guarantee about $5 trillion in home loans, about half the nation’s total.

Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.

Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.

Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies’ current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.

This was posted in the Yahoo finance section 9/7/08