Making Home Affordable

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The Treasury today unveiled guidelines for its new “Making Home Affordable” loan modification plan, which aims to help seven to nine million homeowners get their hands on more sustainable home loans.

Aside from the bad name choices, there are a few items of note that I’ve listed below.

The “Home Affordable Refinance Program” (HARP) will be available to roughly four to five million homeowners with “solid payment history” on existing Fannie Mae or Freddie Mac loans.

However, borrowers must also provide a letter of hardship, explaining that a change in circumstances or a rise in mortgage payments will lead to default.

Meanwhile, the “Home Affordable Modification Program” (HAMP) will strive to help three to four million at-risk homeowners and those already in foreclosure by reducing monthly mortgage payments to as low as two percent.

Aside from all the guidelines and incentives previously mentioned, here are the biggies:

– There is no minimum or maximum loan-to-value ratio for eligibility purposes.
– Loans can be refinanced or modified up to the current high-cost jumbo loan limit
– Loans originated on or before January 1, 2009 are eligible
– Borrowers must fully document income, sign an IRS 4506-T, provide two most recent pay stubs, most recent tax return, and sign affidavit of financial hardship
– Mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac
– Must be one to four unit primary residence

The Home Affordable Refinance program ends in June 2010, while the loan modification program will run from now until December 31, 2012 (loans can only be modified once).

“Treasury announced today that the Making Home Affordable program will also include additional incentives for efforts made to extinguish second liens on loans modified under this program.”

“Extinguishing second liens will make mortgages more affordable, improve loan performance, and help prevent foreclosures.”

Second mortgages will not be included in the front-end debt-to-income ratio, making it a whole lot easier to get the housing payment down to the desired target of 31 percent.

It’s a bit unclear how high the loan-to-value will go on the Fannie/Freddie refinances, though as I previously reported, the 105 percent cap may be lifted.

Update: The max loan-to-value for the Home Affordable Refinance program is now 125 percent LTV and the program has been extended until June 30, 2012.

Update II: There is now no max LTV for HARP refinances, meaning just about anyone can take advantage of the program regardless of their underwater position.

(photo: nertzy)

Source: thetruthaboutmortgage.com

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Fannie Mae and Freddie Mac saw an increase in loan modifications during the fourth quarter, but inferior repayment plans continue to dominate loss mitigation efforts, according to the latest report from the Federal Housing Finance Agency.

A total of 23,777 loan modifications were carried out during the fourth quarter, up from 13,488 in the third quarter, but still rather dismal numbers for the Enterprises’ stable of 30.7 million residential mortgage loans.

Meanwhile, formal repayment plans totaled 84,876, accounting for more than 78 percent of borrower workout plans during the quarter.

And you wonder why delinquencies and foreclosures continue to rise; short sales and deeds-in-lieu of foreclosure were also at their highest volumes of the year in December.

I suppose the only positive is that loan modifications as a percent of total workouts increased from lower levels seen through most of 2008, when their share stood in the mere teens.

The problem, of course, is that the situation is growing more severe, and simple repayment plans that often increase monthly mortgage payments just aren’t good enough anymore.

However, the FHFA seems to think they’re getting the job done.

“These data reflect that the post-conservatorship programs are starting to work to prevent foreclosures, even before the implementation of the streamlined modification program (SMP) in January,” said FHFA director James Lockhart, in a release.

“I believe that the Making Home Affordable loan modification and refinance programs, building upon Fannie Mae and Freddie Mac’s SMP should cause loan modifications to accelerate. These more aggressive modifications should help lessen redefaults and better stabilize the housing market and neighborhoods.”

Let’s hope so…

Foreclosure sales dropped to just 3,430 in December, well below their 2008 monthly average of 12,672, thanks to a recent moratorium put in place.

Ideally, these borrowers can take advantage of the newly launched programs.

Source: thetruthaboutmortgage.com

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Mortgage financier Freddie Mac finished up a stellar 2008, dropping another $23.9 billion in the fourth quarter thanks to mark-to-market declines and credit-related expenses.

For the entire year, the GSE lost a whopping $50.1 billion, or $34.60 per diluted common share, compared with a net loss of $3.1 billion, or $5.37 per share, in 2007.

Freddie set aside $7.2 billion for credit losses and real estate owned operation expenses during the quarter, up from $6 billion in the third quarter, and expects its provision for credit losses to remain high in 2009.

The increase was tied to a rise in delinquencies, increases in the average unpaid principal balance of delinquent loans, and lower estimated recoveries through repurchase by seller/servicers of defaulted loans.

As a result, the company has requested an additional $30.8 billion in funding from the Treasury via senior preferred stock purchases.

“Freddie Mac is working hard to serve our expanded mission in this historic crisis, by doing all we can to help stabilize the financial markets and hasten the recovery in housing,” said David Moffett, Freddie Mac’s chief executive officer, in a statement (Oh yeah, he’s quitting).

Moffett noted that Freddie purchased or guaranteed more than $460 billion in mortgage loans and mortgage-backed securities in 2008, helping finance more than 1.7 million single-family homes and 620,000 rental housing units.

Freddie Mac’s foreclosure prevention efforts allowed roughly 88,000 borrowers to stay put or sell their properties in 2008, though their role will widen greatly this year as a result of the Making Home Affordable program.

The company, along with Fannie Mae, is expected to refinance millions of borrowers who have little or no home equity so they can take advantage of the artificially low mortgage rates currently on offer.

“Going forward, Freddie Mac has an essential role to play in ensuring the Administration’s new Making Home Affordable program is a success. We are committed to taking a leadership role in this important initiative and to doing everything we can to keep millions of families in their homes,” said Freddie Mac Chairman John Koskinen.

Perhaps analyst Paul Miller over at FBR put it best to Bloomberg:

“They want these guys to refi mortgages without new appraisals and to keep mortgage rates very low,” Miller said. “Those are not sound business decisions. They are being used as a public policy tool to save the housing market. That is just going to make it more difficult for them to be floated out as public companies down the road.”

(photo: psd)

Source: thetruthaboutmortgage.com

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In recent weeks, so-called “money gurus” like Jim Cramer and Suze Orman have called for four percent rates on all new mortgages to solve the ongoing housing crisis.

The pair has proposed separately that both new and existing mortgages be offered or refinanced at four percent to protect at-risk borrowers and promote homeownership.

And while the government has since stepped in with a different plan, its “Making Home Affordable” program aimed at incentivizing low-rate refinances and loan modifications, the approach carries similar pitfalls.

Tinkering with mortgage rates so borrowers can obtain more affordable mortgages carries with it serious dangers, as does lending to new borrowers at these below-market rates.

If anything, it’s setting us all up for a huge repetition of history, by pushing up home prices artificially.

A big part of the problem were facing is oversupply and associated housing values that just don’t make sense, hence the huge slide in price.

But prices must continue to fall or we’ll just get ourselves into a similar mess down the road, especially when these ultra-low mortgage rates disappear.

Face it, we can’t manipulate mortgage rates forever, so there will come a time when interest rates jump back to six or seven percent or higher, making it that much more difficult to qualify for financing later down the line.

Especially since home prices aimed to be propped up by these low rates; so how will the new crop of borrowers purchase homes in say, five years?

If home prices are still inflated and interest rates climb back up to historical levels, will we need to come up with a new breed of affordable mortgage programs like interest only loans and option arms so new homeowners can qualify?

I think we need to look at the big picture here, because it’s questionable if lower rates are even the answer.

Most foreclosure victims are deep in negative equity, as noted by a recent report from ForeclosureRadar, which said the average foreclosed property at auction in California last month was worth $200,000 less than the balance of the associated mortgage.

So really, does an interest rate reduction that lowers the monthly mortgage payment a few hundred bucks really save us here or just complicate matters?

(photo: kaibara87)

Source: thetruthaboutmortgage.com

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Nearly a quarter-of-a-million loan workouts were carried out by foreclosure prevention alliance Hope Now last month as modifications finally accounted for more than half.

Completed loan workouts totaled 244,000 in February, down ever so slightly from January, but more favorable loan modifications increased nine percent.

The combination of 134,000 loan mods and 110,000 repayment plans made February the sixth straight month where workouts surpassed the 200,000 mark, a 30 percent increase over the previous six months.

“We expect the trend to continue as many companies expand their offerings to include the administration’s Making Home Affordable refinance and modification programs,” said Faith Schwartz, Hope Now’s executive director, in a release.

“The mortgage lending industry is responding to the needs of its customers and offering solutions that are appropriate to the current market and economic conditions.”

Unfortunately, Hope Now’s efforts are being tested by rising foreclosure sales, which totaled 87,000 in February, up from 68,000 a month earlier.

Nearly two-thirds were tied to prime loans, a huge swing from last month, marking the first time such loans have outnumbered subprime-related foreclosures (could it be a lack of home equity thing?).

However, workout plans for subprime loans continued to outpace those directed towards prime borrowers.

“Currently 5.5 percent of the total mortgage market is 60 days or more delinquent,” Schwartz added.

“Because of this, HOPE NOW members are working hard to help the administration implement its recently-announced foreclosure prevention initiative as well as working on additional ways we can be more efficient in helping at-risk homeowners.”

Perhaps a greater reliance on more sustainable loan modifications will lead to a lower re-default rate, which ranged between 30 and 40 percent in 2008.

Source: thetruthaboutmortgage.com

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The Treasury today announced details of the so-called “Second Lien Program,” which will work in tandem with the existing Home Affordable Modification Program to ensure more borrowers receive the assistance they need.

“Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien,” the Treasury said in a statement.

“Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol.”

Alternatively, loan servicers can extinguish the second mortgage in return for a lump sum payment under a pre-set formula determined by the Treasury, which could be as little as three cents on the dollar.

For fully amortizing loans, Treasury will share the cost of reducing the mortgage rate on the second mortgage to one percent (down to 2 percent for interest-only loans) and extend the term to match the modified first mortgage.

Participating servicers will also forbear principal in the same proportion as any principal forbearance on the first mortgage, and after five years, the interest rate on the second mortgage will rise to the rate on the modified first.

The Second Lien Program will have a pay-for-success structure similar to the first lien modification program, offering $500 in upfront payments to servicers, and $250 per year for three years if borrowers stay current.

Borrowers will also receive “success payments” of up to $250 per year for as many as five years, which will go towards the principal balance on the first mortgage so long as they stay on top of payments.

In an effort to help more underwater borrowers, the Hope for Homeowners program will now be included in the Making Home Affordable Program.

Loan servicers will be required to evaluate if a borrower qualifies for a Hope for Homeowners refinance and must extend the option at the same time a borrower is offered a trial loan modification.

In return, servicers can receive up to $2,500 as an upfront incentive payment for a successful refinance and $1,000 per year for up to three years if the loan remains current.

The Hope for Homeowners program has allegedly only helped a single borrower to date, prompting officials to make big changes to entice servicers to get onboard.

(photo: rightee)

Source: thetruthaboutmortgage.com

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Since the Making Home Affordable Program was launched in early March, more than one million borrowers have refinanced and 55,000 loan modification offers have been extended to qualifying borrowers.

Of course, most are simply refinancing due to the low mortgage rates on offer, helped on by Treasury buying of Fannie Mae and Freddie Mac mortgage-backed securities, which was part of the original Homeowner Affordability and Stability Plan.

Additionally, Fannie Mae has more than 233,000 eligible Home Affordable Refinance applications, with 51,000 having loan-to-value ratios between 80 percent and 105 percent.

“In just over two months, the Make Home Affordable program is up and running, helping our economy recover and making a difference in the lives and livelihoods of thousands of American homeowners,” said Treasury Secretary Tim Geithner, in a statement.

“Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from home price declines.  If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future.”

In other words, qualifying borrowers unable to complete a MHA modification will be able to pursue a short sale or deed-in-lieu of foreclosure via a streamlined process.

Meanwhile, mortgage lenders will receive so-called “home price decline protection incentives,” compensation payments based on recent home price declines intended to facilitate more modifications in hard-hit areas of the country.

“Together the incentive payments on all modified homes will help cover the incremental collateral loss on those modifications that do not succeed.  HPD P payments will be linked to the rate of recent home price decline in a local housing market, as well as the average cost of a home in that market.”

The Home Affordable Refinance program ends in June 2010, while the loan modification program will run from now until December 31, 2012 (loans can only be modified once).

“Fourteen servicers, including the five largest, have now signed contracts and begun modifications under the program.  Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, Home Affordable Modification participants now account for more than 75 percent of all loans in the country.”

Source: thetruthaboutmortgage.com

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The Making Home Affordable program may be further expanded to help more underwater homeowners refinance their mortgages.

Though mortgage rates have crept up in recent weeks, current mortgage rates are more favorable than they have been in the past few years.

However, many homeowners have been unable to take advantage of the low rates thanks to loan-to-value (LTV) constraints, among other things.

The Home Affordable Refinance program currently has a LTV ceiling of 105 percent, meaning even those with no equity or private mortgage insurance can take advantage of the program.

But many borrowers have lost so much equity over the past few years that the FHFA is considering raising that ceiling to as much as 125 percent LTV, according to a Bloomberg report.

Originally, FHFA director James B. Lockhart noted that the line was drawn at 105 percent so loans could be securitized, and also due to capacity constraints.

However, the Obama Administration seems keen to boost participation in the program by easing eligibility, though some argue that it’s too little, too late, as mortgage rates have increased about a point in the past month.

One “mortgage strategist” who spoke with Bloomberg said the enhanced LTV limits could reach another 10 percent of borrowers with Fannie Mae and Freddie Mac loans, but another four percent are even deeper underwater.

Then there are the jumbo loan holders, who still seem to be out of luck, and the private-label mortgages, which tend to carry the highest default rate.

A month ago, Fannie Mae said it received more than 233,000 eligible Home Affordable Refinance applications, with 51,000 having LTV ratios between 80 percent and 105 percent.

Related: How to refinance with negative equity.

Source: thetruthaboutmortgage.com

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Defaults on prime mortgages increased 20 percent during the first quarter of the year, according to the latest Mortgage Metrics Report released today by the OCC and OTS.

Prime mortgages, which represent about two-thirds of all mortgages covered by the agencies, saw their 60 day plus delinquency rate climb to 2.9 percent.

At the same time, loan modifications increased 55 percent from the previous quarter and 172 percent from the same period a year ago, with servicers implementing 185,156 new mods.

“While I’m very concerned about the rise in delinquent mortgages and foreclosure actions, the shift in emphasis by servicers to more sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,” said Comptroller of the Currency John C. Dugan, in a statement.

“In addition, as the Administration’s Making Home Affordable program gains traction and helps offset the impact of this very difficult economic cycle, we should continue to see progress in future reports.”

More than half of loan modifications executed during the first quarter resulted in lower principal and interest payments; mods that reduced monthly mortgage payments by more than 20 percent increased 19 percent to 29 percent of all modifications.

Loan mods that increased payments made up 19 percent of modifications, a 25 percent drop from the previous quarter.

And it seems to be paying off somewhat; only 24 percent of mortgages that had monthly payments reduced by more than 20 percent were 60 days or more past due after six months.

That compares to a re-default rate of more than 50 percent on loan mods where the payment didn’t change or was increased.

Unfortunately, foreclosures also increased, climbing 22 percent from the previous quarter and 73 percent from a year ago, with 844,389 in process during the first quarter as various moratoria expired.

Source: thetruthaboutmortgage.com

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Loan servicers participating in the Making Home Affordable program (HAMP) will face possible monetary penalties and sanctions if they fail to meet performance obligations, according to a joint release from the Treasury and HUD.

The warning is part of a nationwide campaign to help more borrowers convert from trial to permanent loan modifications, a crucial step to ensuring homeowners actually receive meaningful assistance.

Since HAMP began earlier this year, roughly 650,000 borrowers have received trial modifications, with 375,000 scheduled to become permanent by year-end.

However, in order for a loan modification to become permanent, borrowers must provide documentation and prove that the new loan is sustainable.

To facilitate this complicated conversion process, the Obama Administration has extended the trial period for modifications started on or before September 1 so borrowers have more time to submit required information.

Additionally, the application process will be streamlined to minimize the paperwork burden, and loan servicers will be held accountable for their actions.

“We are encouraged by the pace at which trial modifications are now being made to provide immediate savings to struggling homeowners,” said the new Chief of Treasury’s Homeownership Preservation Office (HPO), Phyllis Caldwell.

“We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones.”

Loan servicers will be required to report the status of each loan modification in order to provide more information regarding possible obstacles facing borrowers moving to the permanent phase.

“Top servicers will be required to submit a schedule demonstrating their plans to reach a decision on each loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers.”

Treasury/Fannie Mae “account liaisons” will also be assigned to these servicers, following up daily as necessary to track progress against the servicer’s plan.

The December MHA Servicer Performance Report will include the number of permanent modifications as well as the number of active trial period modifications that may convert by year-end if all necessary conditions are met.

Source: thetruthaboutmortgage.com