Suspended Foreclosures

Mortgage giants Fannie Mae and Freddie Mac have directed their network of servicers to halt all foreclosure and eviction proceedings between Nov. 26 2008 and Jan. 9, 2009, meant to give a recently announced rescue plan time to work. The Streamlined Modification Program, set to launch Dec. 15, enables delinquent borrowers to get a modified mortgage that lowers payments to no more than 38% of their gross incomes. By delaying these foreclosure sales, the nation's servicers will have the opportunity to work with more borrowers who could qualify for a modification under the new program. Freddie has told its servicers to immediately contact the 6,000 borrowers who already have auction sales or evictions scheduled for between the specified dates to tell them the sales are postponed. Fannie estimated that 10,000 of its borrowers will be affected. Borrowers facing eviction between Nov. 20 and Nov. 26 were not expected to get relief. The foreclosure suspension affects only a small percentage of homeowners facing foreclosure over the next two months. Although Fannie and Freddie mortgages account for more than half of all mortgages, they have relatively few of the most risky subprime loans at the center of the foreclosure crisis. The vast majority of what's going into foreclosure are not Fannie Freddie loans. The Fannie, Freddie plan was unveiled on Nov. 11. Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home's current value, live in the home on which the mortgage was taken and have not filed for bankruptcy. The mortgage rate could be lowered to as little as 3% for five years. After that, it would increase by 1 percentage point a year until it hits either the market rate or the original interest rate, whichever is lower. Unlike previous federal efforts, participation by servicers is not voluntary. Several major servicers,including Bank of America, JPMorgan Chase and Citigroup, have recently announced expansions of their foreclosure prevention efforts, which could aid nearly a million more borrowers

Housing Fix

Mortgage giants Fannie Mae or Freddie Mac may back 30 million mortgages. But that doesn't mean that the new foreclosure prevention program announced this week by the Bush administration will rescue every troubled borrower on their books. The Federal Housing Finance Agency (FHFA), which took control of Fannie and Freddie in September, together with Hope Now, the coalition of lenders, servicers, investors and community groups, designed the plan to help some of the most at-risk homeowners. The plan, which begins on Dec. 15, is open to borrowers with loans owned or backed by Fannie and Freddie who are at least 90 days behind with their mortgage payments. But in reality, qualifying for the program will probably be a lot more complicated than meeting these two requirements. In the end, it's probable that only a relatively narrow swath of people will benefit from the initiative. About 1.22% of Freddie's 12 million loans are 90 days or more late, while 1.7% of Fannie's 18 million loans are that far past due. That's a total of more than 450,000 borrowers, however it's unlikely that all or even most of them will get help. Fannie and Freddie are only targeting homeowners who are more than three months past due on their loans in order to ensure that the most troubled borrowers get help immediately. Beyond that, borrowers will have to write what's called a "hardship letter" to illustrate that they fell behind for a good reason - whether it's a a job loss, divorce or a medical problem. If they can't show that, they don't get a fix. Another condition: Borrowers cannot have too much equity in their homes. If their home's current market value exceeds their mortgage balance by more than 10%, they're considered too well off to participate. Instead, these borrowers have the option to tap that home equity, either by refinancing or taking out a home equity loan, to get current with their payments. And some borrowers are simply too far gone to help according to Brad German, a spokesman for Freddie Mac. Those with a mountain of debt and little income may need a much more drastic modification than any lender would be prepared to issue.Even borrowers in very bad shape should contact their lenders. They may not qualify for a loan workout, but a bank may be willing to do a short sale or a deed in lieu of foreclosure. In a short sale the lender agrees to let the borrower sell the property for less than what the mortgage is worth and forgive the difference. In a deed in lieu of foreclosure the borrower essentially gives the house back to the bank. Either of these options will do a lot less damage to a borrower's credit score. Finally, not everyone who could benefit from the program will chose to participate. Surprisingly, many borrowers who are in trouble just don't do anything; they don't contact their banks and they ignore their lender's phone calls and letters. Although the program may not have a massive impact, it's still a welcome supplement for the many other plans - FHA Secure, Hope for Homeowners and programs from individual lenders - already in place. And officials hope that it will provide an easy-to-apply template for other modification programs. It's an important step forward for the industry to establish clear-cut guidelines, that make it easier for servicers to act on modifications and for borrowers to understand what is involved. Lenders will look at their portfolios for borrowers who qualify, and then send out letters informing them that help is available and asking the borrowers for financial information, such as pay stubs and bills, as well as hardship letters. Then the banks will use that information to determine if they can keep a borrower in their home by reducing their monthly payment to no more than 38% of their gross income. To do that, they can lower interest rates to as little as 3%, extend the length of the loan or defer some of the loan principal. After borrowers complete their workout and make three payments at the lower level, the fix becomes permanent. At-risk borrowers need to call their lenders as soon as possible rather than waiting for the Dec. 15 start date. The longer borrowers wait, the more they fall behind on their payments, the harder it is to help them.

Homeowners Bailout

The governement administration is set to unveil on today a potentially extensive new program to modify mortgages and help at-risk homeowners and stabilize the battered real estate market.The plan centers on Fannie Mae and Freddie Mac, which between them own or back about $5 trillion in loans. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages. While a number of major banks, including Citigroup, JPMorgan, Chase and Bank of America,have announced loan modifications programs in recent weeks, they hold only a fraction of the nation's mortgages compared with Fannie and Freddie.The government will establish standards for loan modifications and provide guarantees for loans meeting those standards so that unaffordable loans could be converted into loans that are sustainable over the long term. Most of the mortgage modification programs announced by banks so far try to cap the payments of homeowners at risk of losing their homes at a level they can afford, typically about 34% to 40% of their income, through lower interest rates, longer repayment schedules or reductions in loan balances. There are reports that the Fannie-Freddie plan will cap payment at the 38% level. It is clearly in the interest of the mortgage finance firms as well as banks to take steps to halt foreclosures. The market is already flooded with far more new and existing homes for sale than there are buyers, and foreclosures will only further drive down home prices and lead to more foreclosures in the future. Forecasts are saying that even with loan modification programs, 1.6 million Americans will lose their homes this year either in a foreclosure or distressed sale, and another 1.9 million are projected to lose their homes in 2009. On Monday, Fannie reported a $29 billion loss in the third quarter. The company also reported sharp increases in loan default rates and the amount it is setting aside for future loan losses.

Job Loss vs Foreclosure

In addition to defaults due to bad mortgages these days banks are seeing more foreclosure filings due to job losses. For years, bad loans and their aftershocks have been sending homeowners into foreclosure. Now it's lost jobs that are putting troubled borrowers over the edge. As the economy tanks, unemployment is the major factor driving a much larger proportion of foreclosures now than in the earlier stages of the mortgage meltdown. In June, 45.5% of all delinquencies reported by Freddie Mac were due to unemployment or the loss of income, according to the company. That's an increase from 36.3% in 2006.And that's a situation that more and more people are finding themselves in. Nearly one million Americans have lost their jobs in 2008. 159,000 private sector jobs were lost in September. The rise in job losses will increase and extend the delinquency trend. Of course the housing crisis is driving unemployment, which in turn has exacerbated the housing crisis - particularly in bubble states like Florida, Nevada and Arizona. Like Florida, California has seen its economy devastated by the housing meltdown. Foreclosure prevention counselors now have far more clients seeking help because their jobs disappeared, rather than because their adjustable-rate mortgages are resetting.

As our economy continues to tank we are going to see more and more foreclosure fillings. I can guarantee that none of those people would like to loose their homes, but if you have a job that doesn’t pay enough you have no other choice. People have countless bills and the money that they make is not even enough to cover those much less to cover their mortgage, the only option they have is to stop paying for their mortgage. I heard rumors about the companies that negotiate with lenders to modify the existing mortgages to new terms, I could bet that every single homeowner facing financial hardship would be more than willing to accept the modified deal where it would become affordable for hima to have a mortgage in today’s economy. Let’s hope that we see more of these deals for the people that really need it.

Housing Prices

Hurting home prices were big rises in foreclosures over the past 12 months, which may be getting even worse. Delinquencies more than doubled over that time and more than 155,000 lost their homes in bank repossessions during the first three months of the year. With many adjustable rate mortgages (ARMs) poised to reset this year to higher interest rates, defaults could go even higher. All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale.The big inventory has led to aggressive price slashing and increased incentives by builders looking to sell homes. They've also cut way back on housing starts, which are at a 17-year low.Condo prices fared a bit better than single-family homes. The median price fell just 3% since early 2007. The price declines in falling markets may not have run their course. Some analysts point to low home prices in many Midwestern cities and assert there's not much room for prices to fall but Youngblood disagrees.As for the bubble markets that have already lost 30% of their values. Buble markets are expected to drop another 20% or so through February 2009.
So if the home prices keep plumetting in the bubble markets that means we are ending upside down on our mortgages. Ability and willingness to pay is going to lack which will as a result have more homes on the market. How long is it going to take for the economy to recover and stabilize housing prices, we can't tell. Our focus should remain in the areas that were not affected by housing bubble and consequently are not suffering decline in home values. Banks would be more willing to loan money in such areas and our life could be easier.

Lending Market Update

Banks tightened the guidelines further on all sorts of lending, from home mortgages to credit cards and business loans, as the worst financial crisis in seven decades took a bigger toll on the economy. The Federal Reserve said Monday that its latest quarterly survey of bank lending practices found high numbers of banks reporting tighter credit standards across a broad range of loan products. Nearly 60% of banks responding to the survey said they had tightened lending standards on credit-card debt The unprecedented government moves are designed to bolster banks' balance sheets and break the jam in bank lending to get the credit system moving again -- and prevent the country sinking into a deep and prolonged recession. The Fed found 85% of the domestic banks responding to the survey reported that they had tightened their lending standards for a major type of business loans known as "commercial and industrial" loans, up from 60% in the June survey. Nearly all banks -- 95% -- reported tighter standards for the lines of credit they extend to large and medium-sized businesses. A large number of banks also reported they were tightening standards for both credit cards and other types of consumer loans. Besides the nearly 60% of banks tightening standards on credit-card debt, 65% said they had tightened lending standards for other types of consumer loans over the past three months. Amid the souring economy and rising job losses, defaults on credit-card debt have mounted, and banks already staggering from the mortgage and credit crises are losing billions more from unpaid credit-card bills. Credit-card lenders have been reducing customers' credit lines, raising interest rates or even closing accounts as they tighten the reins to reduce their risk. Continuing a pattern seen since the housing bubble burst, large majorities of banks reported tighter lending standards on prime mortgage loans, as well as nontraditional mortgage loans and subprime mortgages extended to borrowers with weak credit histories. The Fed survey found 70% of the banks responding said they had tightened lending standards further for prime mortgages. That was on top of 75% who were tightening such standards in the previous survey. The latest results for that area covered 52 institutions that account for about 78% of residential real estate loans as of June. Record defaults that began in the area of subprime mortgages have resulted in billions of dollars in losses for financial institutions and triggered the most severe financial crisis to hit this country.
How is all this going to play out affects, every one of us. The loss of credit availability will definitely affect our plans for success as well as our ability to reach our financial goals. Instead of kicking back and “enjoying the ride” we should get up and grab every opportunity while we still have it.