Mortgage Modifications

Many homeowners will receive foreclosure-prevention help this year, according to an industry report issued Monday, with the number expected to rise to more than 3 million in 2009.But fear is that a great number of these workouts will fail and many families will lose their homes anyway.Hope Now, the private-sector coalition of major lenders, servicers and consumer advocates, said that it completed 208,000 loan adjustments in November, and that the number of such adjustments would rise to more than 300,000 a month next year.The workouts being offered borrowers were of two types.First, there are simple repayment plans, which allow borrowers time to make up missed payments. Second, there are mortgage modifications, the more comprehensive and effective of the two types, which involve reducing or freezing interest rates, expanding the time given to repay loans or lowering mortgage balances. Many more of the workouts being issued by Hope Now members are mortgage modifications than in the past. These increased by 29% during the three months ended Nov. 30, while repayment plans increased by just 6%.

The goal is to make these mortgages more affordable, more sustainable.

Hope Now's critics claim, however, that even a lot of the mortgage modifications being done will prove unsuccessful because they do little to actually lower mortgage payments. They may merely freeze rates -- at unaffordable levels -- but add missed payments to mortgage balances. Some of the borrowers are getting put into modifications that are built to fail. Data released in early December, revealed that 51% of those with loans modified in the second quarter were already delinquent with their payments within just six months of the workouts. The number of modifications completed in November fell to 99,823, a 4% decrease compared with October. The good news was a decline in the number of actual completed foreclosures. There were 69,075 foreclosure sales during the month, a 14% drop from October. Industry insiders attribute some of the foreclosure sale drop to state and local initiatives that have instituted moratoriums or delays on foreclosure actions. For example, in Massachusetts, every at-risk homeowner now has to be notified of their lender's intention to file a notice of default against them, and they get a 90 day window during which they can attempt to bring their payments up to date.

And in November, Fannie Mae and Freddie Mac both announced moratoriums on foreclosures, and other major lenders also cut back on foreclosure proceedings.

Will this help etop tyhe flood remains to be seen.

Mortgage Rates

Mortgage rates fell this week, with the 30-year fixed mortgage sinking to its lowest rate in 37 years as the Federal Reserve cut interest rates to historic lows. Government-sponsored mortgage lender Freddie Mac said Thursday that fixed rates on 30-year mortgages averaged 5.19% for the week ending Dec. 18. That's down from 5.47% last week and below the year-ago rate of 6.14%. Interest rates for 30-year fixed-rate mortgage rates fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971. The decline was supported by the Federal Reserve announcement on December 16th, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant. In a bid to reduce interest rates and to stabilize the housing market, the government in late November announced a plan to buy $500 billion worth of mortgage-backed securities and $100 billion of debt issued by government-sponsored mortgage financiers Fannie Mae and Freddie Mac. The 15-year fixed rate mortgage this week fell to its lowest rate in four and a half years. It averaged 4.92%, down from 5.20% last week. A year ago at this time, a 15-year fixed rate loan averaged 5.79%.

Foreclosure rates are down

Foreclosure filings dropped 7% from October to November, according a report released Thursday. But don't break out the bubbly. The tide of foreclosures may be slow  now, but the flood isn't over yet. November foreclosure filings fell to 259,085, or one for every 488 households in the nation, according to the latest report from RealtyTrac, the online marketer of foreclosure properties. That was down from October, but up 28% from November of 2007. A total of 78,179 families lost their homes during the month, down 8% from October when 84,868 homes were repossessed by lenders. A total of 1,014,618 homes have been lost to foreclosure since the housing crisis hit back in August 2007. November's decline in foreclosure filings is deceiving, according to Rick Sharga, RealtyTrac's vice president of marketing, because much of it is attributable to temporary foreclosure prevention efforts. The reduction is because Fannie Mae and Freddie Mac both announced moratoriums on foreclosures, while major lenders also put the brakes on foreclosure proceedings. The economic climate is rapidly deteriorating and job losses are soaring - factors that are sure to exacerbate the housing crisis. And various forward-looking indicators show more trouble ahead. For instance, the number of homeowners who fell behind on their mortgages hit a record 6.99% in the third quarter, up from 5.59% a year ago, according to the Mortgage Bankers Association. Last week, Credit Suisse issued a report forecasting 8.1 million foreclosures by the end of 2012, accounting for 16% of all U.S. mortgages. Meanwhile, evidence is mounting that current foreclosure-prevention efforts are falling well short of the mark. A Dec. 8 report from the Office of Comptroller of the Currency stated that more than half of the borrowers who had their mortgages modified in the first half of 2008 are already delinquent again. Many of these delinquencies will turn into foreclosures in the coming months. To be viable, most modifications will require lenders to make a significant principal reduction. And for the most part, that's not happening. The former boom states mostly in the Sun Belt, as well as Midwestern industrial states hit hard by job losses, continue to bear the brunt of the foreclosure crisis. Nevada had the highest rate of foreclosures. One of every 76 homes there received some kind of foreclosure filing - notice of default, notice of foreclosure sale, bank repossession, etc. - during November. Florida was second with one filing for every 173 homes and Arizona had one for every 198. California had the highest total number of filings with 60,491, and the fourth highest rate; one for every 218 households. Michigan was the hardest-hit state outside of the Sun Belt, with one filing for every 309 households. Among cities, Cape Coral-Ft. Myers, Fla., posted the highest rate of foreclosure filings with one for every 59 households. Las Vegas had the second highest rate with one for every 61 homes. 

 

Feds to Lower Interest Rate to 4.5%

Lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%. Similar to an effort unveiled last week by the Federal Reserve, the proposal calls for Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac. Details on the plan remain sketchy, but an announcement could come as early as next week. The increased demand for mortgage-backed securities would prompt mortgage rates to drop. That, in turn, would enable homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market. Last week's Fed move drove mortgage rates down to 5.5%, from 6.06% a week earlier. The Fed said on Nov. 26 that it would purchase up to $500 billion in mortgage-backed securities from Fannie, Freddie and Ginnie Mae, and that it would buy another $100 billion in direct debt issued by those firms. Mortgage applications more than doubled as a result, the Mortgage Bankers Association said Wednesday. Much of the activity stemmed from homeowners looking to refinance. Industry groups have been pressuring President-elect Barack Obama and lawmakers to lend a helping hand to the housing market. The National Association of Realtors, for instance, has called for Treasury to buy mortgage-backed securities. Meanwhile, a coalition of industry groups have banded together under the "Fix Housing First" banner to call for measures including tax credits of up to $22,000 and the creation of a 30-year mortgage, carrying rates as low as 2.99%.
Experts see both pros and cons
Experts, however, had mixed views on how much a new Treasury initiative would help homeowners and the economy. Some felt lower rates would help stabilize the housing market by bringing in new buyers and would give those who refinance more money to spend. This program is clearly designed to bring buyers into the marketplace and soak the inventory of unsold homes. But others questioned whether rates would remain low and, even if they did, only a narrow slice of credit-worthy borrowers would benefit. Rates are already inching up, hitting 5.75% on Wednesday. Several government attempts to lower mortgage rates this year have failed to have a lasting effect. Also, the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. With credit standards still high, these homeowners would not be able to refinance and take advantage of the lower rates.Finally, super-low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments. Rates have not fallen below 5.37% in more than 45 years.

Mortageg Market News

Mortgage lenders helped save a record 225,000 at-risk mortgage borrowers from losing their homes during October. The coalition, Hope Now, said the number was up from 212,000 in September. It claimed its members have helped 2.7 million homeowners have keep their homes since July 2007, with 1.7 million of those coming in the past 10 months alone. Workouts offered at-risk mortgages fall into two general categories.
In the first, called repayment plans, lenders grant delinquent borrowers extra time to make up missed bill. Borrowers may be allowed to pay more each month for a set number of months, for example, or payments can be added to the end of the loan's term. Of the 225,000 workouts arranged in October, 122,000 were of this type.
The second kind of workout is called a mortgage modification because the actual terms of the contract have to be rewritten. Changes can include freezing or lowering interest rates, extending the life of the loan - say from 30 years to 40 years - or even forgiving some of the balance owed.
Critics say this is a much more viable solution to payment problems because it can lower payments enough to make them affordable. The number of modifications accomplished over the past three months through October increased 24% over the previous three months while repayment plans were up only 9.8%. The U.S. economy is still troubled and that means that changing the terms of a loan is an increasingly appropriate way to keep more homeowners in their homes. Hope Now members are likely to continue to consider them as long as the broader economy continues to struggle. One sign that these efforts may be starting to pay off came in the data for the number of people who lost their homes during the month. That totaled a bit more than 77,000, an approximately 10% improvement over September when nearly 86,000 people had their homes repossessed. Many lenders have expanded their mortgage modification efforts over the past few months. In August, the Federal Deposit Insurance Corp. announced it would modify many of the loans it is administrated since its takeover of IndyMac Bank. The FDIC said it would lower payments to no more than 38% of gross income for at-risk borrowers by lowering mortgage rates, extending terms or deferring some of the principal. That was followed by similar announcements of added help for, among others, Countrywide-Bank of America , Chase Mortgage and Citibank borrowers, as well as a new mortgage rescue plan for borrowers of Fannie Mae and Freddie Mac backed loans.