Another sign that modifications aren’t working…..

Let’s take a look at these statistics:

• 29 out of every 100 modified loans didn’t make the required payments on time.
• Only 14% of the modifications that Chase has done have resulted in a “permanent status.”
• Only 2% of the modifications done through the government’s highly touted Home Affordable Modification Program have reached permanent status.

Putting a band-aid on someone who needs a heart transplant isn’t going to solve the problems…..

Tom Vanderwell

Chase Converts 2% of Offered HAMP Trials into Permanency : HousingWire || financial news for the mortgage market

Executives and analysts testified before the House Committee on Financial Services Tuesday outlining the struggles servicers are having converting trial modifications into permanent status under the Home Affordable Modification Program (HAMP).

Through HAMP, the US Treasury Department provides allocated capped incentives to servicers for the modification of loans on the verge of foreclosure.

For every 100 HAMP trial plans initiated by Chase Home Finance from April to through September, 29 borrowers did not make the required payments and failed to reach a permanent status, according to testimony from Molly Sheehan, senior vice president at Chase Home Finance.

Chase has offered more than 560,000 modifications under HAMP, its own program and programs made available by the government-sponsored enterprises (GSEs), the Federal Housing Administration (FHA) and VA programs. Of these, a little more than 83,000 modifications have become permanent. Under HAMP alone, Chase has converted 4,302 of the 199,033 HAMP trials offered into permanent modifications.

Technorati Tags: LOan Modifications

Modifications are Failing…. (More on the Acronym Soup)

There’s a couple of interesting and yet disturbing points to this report from CNBC:

• over 2/3rds of the people who are currently in the trial period of loan modifications are not going to qualify for the permanent modifications.   Why?   A couple of likely possibilities:  1) They are too far upside down and are looking at it and saying, “I’m out of here.”   2) They aren’t willing to provide documentation of what their financial position is because it would make it evident that they had lied on their loan application and that’s a federal offense last time I checked.
• I had a past customer call me on Friday and said that he was never told that his short sale paperwork had an expiration date (which has now past).   He said it took too much work and he’s not going to do the paperwork again.    I didn’t ask him what his plan is from here, but I think it illustrates the pain and frustration that so many people are feeling in the process.   They just throw their hands up in the air and say, “I give up.”
• If 2/3rds of the loan mods don’t go to permanent status, what do you think that’s going to do to the number of foreclosures?   Yeah, that’s right, it’s going to increase them.

The entire way that the banking industry is handling foreclosures, short sales and loan modifications isn’t designed to encourage participation (or perhaps mandate participation?)   Until we get an organized and systematic way to deal with the facts that:

1. We have many people who took out loans that they never had a chance of paying on time.
2. We have many people who took out loans that are worth way more than their houses are.
3. We have many people who took out responsible loans and have had bad things happen to them and now aren’t able to make their payments.

All three of these require different responses and a different way to effectively resolve the challenges that we’re facing.

If you ask me, the government and the banking industry haven’t figured out the way to deal with them that really works yet.

Tom Vanderwell

P.S. You’re probably asking, “So what should we do?”    That’s a topic for a much longer post and I’m working on some thoughts on that.    They will probably be up on my new site, All Markets Considered, as soon as I’ve got them worked through……

Bank of America: 2/3 of Borrowers May Lose Government Mods – CNBC

Tomorrow the House Financial Services Committee, under the leadership of Chmn. Barney Frank, will grill mortgage servicers as members examine the “response to the mortgage foreclosure crisis.” This is all about how banks are converting all those trial modifications under the government’s Home Affordable Modification Program into permanent modifications……

Mr. Schakett told me that of the 65 thousand trial modifications set to expire Dec. 31st with B of A, a full two thirds of the borrowers, while current on their payments, have not submitted the full documentation required to turn a trial mod permanent under the HAMP guidelines. The trial modification process only requires oral verification of income to begin, but to go permanent, you need to prove your income, submit your tax returns, and basically come clean with all your finances. I’m guessing a lot of folks who took out their initial loans with false or non-existent documentation, aren’t eager to let the government know that…….

Let me just say that I get a lot of email from borrowers, telling me that the banks are holding up their paperwork, losing faxes, messing up modifications and leaving those borrowers in the lurch. I don’t dispute that, but I can’t fully dismiss the banks when they tell me that 2/3 of the borrowers won’t submit the paperwork. I also happen to know that a huge percentage of borrowers being offered modifications are rejecting them. They don’t want to pay. Many are already gone.

Technorati Tags: HAMP, Loan Modifications

Loan Modifications Aren’t Working…..

The New York Times has an article outlining some of what the government is doing and is thinking of doing in an effort to stem the growing losses in the mortgage world and stop the rising foreclosures.

A couple of reactions to it:

• A lot of people (present company included) felt that the incentives that the government was offering to lenders weren’t strong enough to make lenders interested in a significant effort to modify loans.
• It’s frankly a strictly financial decision for the banks.    Do they make a loan modification, accept less in payments and still run the risk that they’ll end up taking the house back?  
• I’ve heard a number of reputable economic analysts, the only modifications that will have any type of long term impact in terms of what a borrower can afford are modifications that have an impact on the principal balance.  Let me explain that in a bit more detail:   1) The “typical” modification will lower the interest rate or defer the principal payments for a period of time (18 to 60 months usually).   2)  The “typical” modification doesn’t address the balance of the mortgage in relation to the value of the house.  3) As the economic mess continues, borrowers are continuing to struggle and many of those who are in the temporary modification phase are continuing to struggle and realizing that they just aren’t going to be able to make it.
• The government is attempting to “shame” lenders into doing more.    I don’t expect that will work at all.   The main thing that appears to motivate banks and financial institutions at this time is money, profit, or the bottom line (take your pick).

So what would it take to make loan modifications more effective?   A couple of thoughts:

• Substantial principal reducations – if prices in some areas have fallen by 40%, then there are a lot of struggling homeowners who are so far upside down on their house that they can’t see the light at the end of the tunnel and correspondingly a relatively moderate and temporary reduction in payments aren’t enough to make a difference.
• I’ve seen a lot of people who inquired about refinancing and while it would save them money, it didn’t save them “enough” to make what they felt would be a difference.   In other words, “Yeah, the $100 a month would be good, but if I lose my job, my wife loses her job, or something like that, it won’t be enough to keep us from having big problems.”

I’ve said it before and I’ll say it again.    The answer to our economic problems is systemic and substantial deleveraging and until we collectively accomplish that, we’re going to continue to struggle and limp along.

I’m working on a new website where, in collaboration with Jeff Brown and Max Whitmore, we’re going to tackle the bigger issues in real estate, finance and the stock markets.    We’ve decided to call it All Markets Considered and it should be live in a matter of days.

I hope you’ll stay tuned.   It’s going to be an interesting ride…..

Tom Vanderwell
Treasury to Pressure Mortgage Companies to Cut Payments – NYTimes.com

The Obama administration on Monday plans to announce a campaign to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence mounts that a $75 billion taxpayer-financed effort aimed at stemming foreclosures is foundering.

“The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview Friday. “Some of the firms ought to be embarrassed, and they will be.”

Even as lenders have in recent months accelerated the pace at which they are reducing mortgage payments for borrowers, a vast majority of loans modified through the program remain in a trial stage lasting up to five months, and only a tiny fraction have been made permanent.

Mr. Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.

Technorati Tags: Mortgages, Loan Modifications, AllMarketsConsidered.com

This explains a lot about loan modifications…. (maybe)

After hearing a LOT of anecdotal evidence suggesting that mortgage servicers are making decisions that seem to run contrary to the “desire” to keep people in their homes, we now have a more “structured” glimpse into why that seems to be so:

• Because it’s true.
• The report by the National Consumer Law Center said that their study shows that servicers make more money (or lose less money) if they foreclose rather than modify mortgages.

How did they figure that out?   Follow the money.

But also, ask yourself is there an agenda behind the National Consumer Law Center to manipulate the data?

It does “mesh” with what I’ve heard, but that doesn’t mean it’s a fact yet…..

Tom Vanderwell

Servicers Prefer Foreclosure, Says NCLC : HousingWire || financial news for the mortgage market

Mortgage servicers have found it cheaper to foreclose on homeowners than offer loan modifications, according to a new report from the National Consumer Law Center.

The report points out servicers in charge of modifying distressed loans are separate from the lenders, who have packaged the loans and sold them in pieces or pools to other banks and investors.

“In the majority of cases, servicers have nothing to do with what’s in the best interest of those investors,” said Diane Thompson, the author of the report and attorney at the NCLC. “We figured this out by following the money, by following who plays what role in all of these business transactions and who gets paid what for doing what.”

Technorati Tags: Foreclosures, Loan Modifications

Interest Only Loan Modifications? How about Rent to Own?

Okay, this is kind of scary.   The “large banks” want to set up a proposal where borrowers who need a loan modification are given the option of making interest only payments.   Let’s look at this a moment:

• Due to either poor financial planning or bad things happening to good people, these borrowers are the true definition of struggling borrowers.   I’m not going to get into a discussion of the reasons now.
• They aren’t able to make the payments on their mortgage.
• The value of the property has dropped, in many cases, substantially.

So what do the banks want to do?   Let them make interest only payments for 5 years and then what?

Let’s call it what it is, it’s a rent to own scam and it has one true purpose:

Kick the can down the road and put off having to deal with a likely foreclosure.

If a borrower can’t afford to make a payment that includes principal and interest on a 30 year term, then they really can’t afford the house and other alternatives should be looked at and they should be looked at sooner rather than later.

It’s a tough situation but doing an interest only payment for 5 years will help very few people out of the whole scheme of things.   It will help the banks in the near future though, because they won’t have to put the foreclosures on the books.

Tom Vanderwell

Investor Coalition Says No to Interest-Only Mods : HousingWire || financial news for the mortgage market

The Mortgage Investors Coalition called on the Treasury Department to reject a proposal to offer distressed borrowers interest-only payments for a certain length of time as part of the terms of a Making Home Affordable Modification Program (HAMP) workout.

The coalition said a proposal being formed by large banks to allow borrowers the option to make interest-only payments as part of a new HAMP workout plan fails to address the issue of negative equity. Such a proposal is not in the best interest of the housing industry and consumers, said the coalition, a recently formed trade group of asset managers holding more than $100bn in residential mortgage-backed securitizations (RMBS) on behalf of pension funds, college endowments and other investors.

Obama Plan for Foreclosure Prevention Falls Short….

In my opinion, the Congressional Oversight Panel hit a home run with this one.   They said that while the Obama administration is praising their own efforts to stem foreclosures, they aren’t working because:

• They don’t address joblessness.   That’s becoming the main reason for the rising delinquencies and foreclosures.   If we don’t address the joblessness and do something to help people start earning enough to pay their bills again, we’re going to see them continue.
• Most of the people with the “exotic” mortgages aren’t eligible for the administration’s modification plans because those mortgages aren’t within the Fannie Mae/Freddie Mac parameters.

I’ll add a third thing on to it.    The track record of loan modifications and re-delinquencies is significantly higher than most proponents would like you to believe.   I’ve seen studies that have shown that they are experiencing upwards of 50% delinquencies after as little as 6 months.   Why?   Because if you have no job, it’s hard to afford any mortgage and  because the modifications in many situations don’t offer enough of a drop in payment to be truly helpful.

I’d love to say that the plans are working, but they aren’t doing enough to make a substantial difference.

Tom Vanderwell

Panel Says Obama Plan Won’t Slow Foreclosures – NYTimes.com

A day after the Obama administration proclaimed significant progress in its effort to spare troubled homeowners from foreclosure, an oversight panel on Friday sharply criticized the program and declared it would leave millions of Americans vulnerable to losing their homes.

In a report mild in language but pointed in substance, the Congressional Oversight Panel — a watchdog created last year to keep tabs on taxpayer bailout funds — said the administration’s program would, “in the best case,” prevent “fewer than half of the predicted foreclosures.”

The report rebuked the administration for failing to shape a program that addressed the most significant engines of the foreclosure crisis — soaring joblessness and exotic mortgages with low introductory interest rates that give way to sharply higher payments over the next three years. Many of those mortgages are too large to qualify for modification under the administration’s plan. People who lose their jobs often lack enough income to qualify for relief.

Are Fannie and Freddie finally getting serious about loan modifications?

A couple of interesting points about this article:

• The number of loan modifications in the first quarter of 2009 is 57% higher than it was in the 4th quarter of 2008.
• 52% of all loan modifications resulted in a payment drop of more than 20%.
• Foreclosure starts in the first quarter jumped by more than 30% for non-prime and by more than 74% for prime loans.

So, on the one hand, they are doing loan modifications more aggressively and on the other hand, foreclosures are going up.   Oh, and they initiated foreclosures on 6.5 times as many homeowners as they did loan modifications.

Interesting…..

Tom Vanderwell

Modifications up 57% at GSEs : HousingWire || financial news for the mortgage market

Government-sponsored enterprises Fannie Mae (FNM: 0.64 +3.23%) and Freddie Mac (FRE: 0.71 +9.23%) reported more than 37,000 mortgage modifications in the first quarter of 2009, 57% more than the volume of modifications seen in the previous quarter.

The modification data, supplied by the enterprises’ conservator, the Federal Housing Finance Agency (FHFA), include modifications conducted through the streamlined modification program, but not the Making Home Affordable Program, as it was still in development at the end of Q109.

“The use of serious loan modifications by Fannie Mae and Freddie Mac has risen dramatically,” says FHFA director James Lockhart in a statement today. “As a result, more homeowners are seeing payments significantly reduced and fewer people will lose their homes.”

Loan Modifications

70%? So much for loan modifications…..

Granted, this is only one program, but to have 70% of the modified loans be delinquent again doesn’t speak well for the prospects of this program.

Anyone who tells you that loan modifications are the answer to the problems in the mortgage world needs to take a closer look at the details on how modified loans have performed…..

Tom

Fannie Program Sees 70% Recidivism : HousingWire || financial news for the mortgage market

“HSA is showing high redefault rates on the early offerings,” FHFA director James Lockhart noted in a Congressional report this week. “Performance on the February through April offerings shows a redefault [or recidivism] rate of almost 70%, which calls into question the program’s assumptions that borrowers have the capacity to make payments going forward.”

Technorati Tags: Loan Modification

Evidence that the housing market isn’t out of the woods yet……

Paul Jackson has the complete story over at HousingWire.com, but there are two signs in the mortgage world that show we aren’t out of the woods……

• The delinquency rates on prime mortgages have more than doubled in the last year.  As jobless rates continue to climb it’s going to continue to be harder for people to make their payments.
• The “re delinquency” rates for modified loans continues to be very high.  41% of the loans modified in the 2nd quarter are already behind “again.”   That does bode well for President Obama’s big push to turn the housing market around by modifying mortgages.

It ain’t over yet folks.  Far from it.

Tom Vanderwell

Prime Mortgage Delinquencies Spike: Report

Less than 90 percent of all mortgages were considered “performing” at the end of 2008, compared with 93 percent at the end of September 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision announced Friday in a joint quarterly mortgage performance report. Although subprime mortgages (unsurprisingly) showed the highest level of serious delinquencies, prime mortgages posted the largest percentage jump — more than double — from 1.1 percent recorded at the end of March 2008, to 2.4 percent at year-end. Prime mortgages, considered the lowest risk bucket due to inherent high credit score distribution, account for two-thirds of the mortgages examined for the study.

Recidivism — or re-default rates — among modified mortgages continues to represent a problem for the industry. The agencies reported that 41 percent of loans modified in the second quarter had fallen at least 60 days behind payments after eight months, a trend that “appeared to continue for loans modified during the third quarter.”

Loan Delinquencies, Mortgage Modifications

Redefault Rate on Mortgage Mods 55% Within Six Months

Proponents of mortgage modifications contend that the cost of even a deep principal reduction still puts the lender ahead of foreclosure, and experience in past real estate downturns would bear that contention out.

So why is this time different? Data from the Office of the Comptroller of the Currency show that 55% of mortgage mods redefault within six months. Even more discouraging, the three month re-default rate was higher for loans modified in the second quarter of 2008 than the first.

It is hard to know for certain without digging further into the data. With housing prices down nearly 30% nationwide, and foreclosure costs averaging $50,000, banks could afford significant principal reductions and still come out ahead. However, borrower advocates contend that many mods in fact reduce interest, but unless the principal is cut, the reduction in payments is insufficient to make enough difference with many borrowers. Without mining the data further, it is hard to know where the truth lies.

naked capitalism: Redefault Rate on Mortgage Mods 55% Within Six Months.

In the history of loan payments, 6 months is not very long.   However, the data does suggest that putting too much faith in loan modifications is not going to pan out unless:

1. The modifications are done on a case by case basis and truly reflect the needs of that particular case.
2. They are steep and significant enough to make a difference.

I had a potential customer contact me once who wanted me to refinance her house.   She had an “option arm” that had ballooned to an 11% rate (we were currently at 6%.   She wanted to keep her house, get a better rate and get a fixed rate.

I couldn’t do anything because she owes more than the house is worth.   However, she was going to go back to the existing bank and attempt to persuade them to do a loan modification to drop her rate, not down to current market rates, but even just down to 8%.   We figured it out and that would be more than enough for her to live comfortably and make her payments.

Why did I tell you her story?  Because if a loan modification is steep enough and custom tailored enough to the individual means, it could work.   If it’s a one size fits all, it won’t.

Tom Vanderwell

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