MORE BAD NEWS FOR HOMEOWNERS

by Leslie Richards

Just when you thought it was safe to go into the water ------ Banks 200 - People 0

The bad news:  The economic recovery has stalled and housing prices are expected to continue to drop

And even worse:

In case you are not aware of the process, most Lenders sell mortgages on the secondary market.  This means that the lender collecting the monthly mortgage payments is really servicing the loan on behalf of the new owner.  Mortgages are bundled together and sold in pooling agreements often several times over the life of the loan.

As many of you know, Fannie Mae and Freddie Mac insure mortgages.  So when mortgages are in default, Fannie or Freddie have to pay up.  How does that affect you, the borrower?  A little more explanation is necessary to get to the point of this article.

Well, now, Fannie Mae wants out of defaulted residential mortgage holdings and it wants out quickly!  Fannie Mae has warned servicers that it will begin monitoring them to determine why there are long delays in moving delinquent loans into foreclosures.  If the services can’t satisfactorily account to Fannie Mae for the hold-ups, Fannie Mae will perform on-site reviews and assess fees to give services “a financial incentive to comply with Fannie Mae policies and to improve the overall performance”.

Fannie Mae has said that legitimate efforts to work out arrangements to avoid foreclose and unavoidable delays will not be “punished”, it is going to hold the servicers accountable for just “throwing the loans into a program and collecting the fees”.  Many lenders also hold the second liens and have been unwilling to take losses on the second liens regardless that a significant percentage of the borrowers are so under water that the second liens are basically worthless – the banks don’t want to write the liens down.

Despite the federal government’s program Making Home Affordable which is supposed to help the distressed homeowner by incentivizing banks to make mortgage modifications, to date over 3 million homes have been either foreclosed or are in various stages of foreclosure, and almost 4.5 million homeowners are at least 30 days behind in their mortgages.

Having set the stage for the topic at hand…………and why this is such a disaster for homeowners!

We have been talking to representatives of various banks to determine this is going to affect homeowners who are behind in their mortgages.   And the answer we received was unanimous: In response to Fannie Mae, if at the date of the foreclosure sale, the modification process has not reached the stage where the homeowner has paid at least one payment under a trial modification, the banks intend to foreclose! 

It has been our experience that if the modification is in review, we have been successful in getting the lender to postpone the sale date until the review is complete and the modification is denied – obviously if it is approved, there will be no foreclosure if the payments during the trial modification period are paid on time.

This is going to be a disaster for homeowners!

 After all, it is the banks for the most part that are causing the modification process to take and unreasonable amount of time.   They don’t hire enough people; and if you are lucky enough to actually speak to someone familiar with your modification, you will not speak to that person again….one almost never speaks to the same bank employee twice during and after the submission of documents; denial letters are sent because documents are missing regardless that the homeowner has furnished them numerous times; denial letters are sent for reasons most home owners can’t fathom because very often the denial has nothing to do with the loan at issue!  I have read many denial letters sent by banks to homeowners citing the reason for denying the modification(s) as being that the homeowners didn’t accept the modifications offered when, in fact, they were NEVER offered any modification by their lenders!  The letters were just wrong – and unfortunately, the results are that the homeowners have to re-start the process again and again!

So while it is obvious that the servicers have been dragging their feet, and while there are so many loans in workout and in limbo, the result of the move by Fannie Mae is likely to be an increase in notices of default and notices of sale to the very homeowners who are trying to work out a solution with their lenders!

Gov't launches plan to help "underwater" borrowers

http://news.yahoo.com/s/ap/20100907/ap_on_bi_ge/us_housing_aid

By ALAN ZIBEL, AP Real Estate Writer – Tue Sep 7, 4:41 pm ET

WASHINGTON – The Obama administration is trying to jump-start its sputtering attempts to tackle the foreclosure crisis with an effort to assist homeowners who owe more on their properties than their homes are worth.

Starting Tuesday, the Federal Housing Administration will permit lenders to give these borrowers refinanced loans backed by the government. The lenders will be required to forgive at least 10 percent of the original mortgage amount. Investors who have control over the mortgages as part of their large portfolios will select which borrowers are invited to participate.

The plan was first announced in March. Its rollout represents the latest of numerous efforts by the administration to address the housing bust. So far, the government has only nibbled around the edges of the crisis, as its programs have run into numerous problems.

The lending industry was ill-prepared for a crush of distressed homeowners, the economy worsened and millions of homeowners had taken on so much debt that their financial woes have been nearly impossible to resolve.

Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration's main mortgage-relief program — overseen by the Treasury Department — have already fallen out over the past year.

Many borrowers say the government program is a bureaucratic nightmare, with banks often losing their documents and then claiming borrowers did not send back the necessary paperwork. Banks say borrowers often didn't return the required documents.

The new refinancing program takes a different approach. It allows investors in mortgage-backed securities to evaluate their holdings and select borrowers that will be offered refinanced mortgages guaranteed by the FHA.

The theory is that there are some loans that investors simply want to unload because they have a high risk of default.

However, when faced with the choice between slashing the amount borrowers owe on their home loans and foreclosing, lenders have generally chosen to foreclose on borrowers. Many experts doubt the new program will persuade investors to change their minds.

Government officials acknowledge that getting the plan going will be complicated. FHA Commissioner David Stevens said in a statement that it "requires significant coordination and operational execution by several parties to be successful."

The government estimates that between 500,000 and 1.5 million homeowners could be helped. But Stevens said the number of borrowers who actually benefit will likely be toward the low end of that range.

Even so, Keefe, Bruyette & Woods Inc. analyst Bose George called the government's estimates "extremely optimistic." George said investors are likely to only offer refinances to borrowers who have seen their homevalues plunge to the point where they owe 40 percent more than their home's current value. Those homeowners, he said, are in danger of walking away from their mortgages.

"We're assuming that the impact is minimal," he said.

The program is funded with $14 billion from the Obama administration's existing $75 billion mortgage assistance program. That money will be used to cover incentive payments to lenders and losses from borrowers who fall back into foreclosure.

To qualify, borrowers must be up-to-date on their mortgages, though many people who have already receivedloan modifications through other programs are still eligible. The plan is limited to loans in which homeowners owe at least 15 percent more than their home's current value.

Analysts at Barclays Capital estimated last month that the refinancing program would only aid between 200,000 and 300,000 homeowners. If it reaches that many, it would be a small share of the number of Americans with so-called underwater mortgages.

As of the end of June, about 11 million U.S. homes, or 23 percent of those with a mortgage, were in this position, according to real estate data provider CoreLogic.