Fannie Offers Mortgage Forbearance to Real Estate Investors

Mortgage giant Fannie Mae said this week that it will retire its HomeSaver Forbearance (HSF) program and replace it with a new Payment Reduction Plan (PRP), which will extend the benefit to investors and owners of second homes.

Under HSF, which was introduced by the GSE in February of last year, mortgage payments can be reduced for up to six months for owner-occupants having trouble meeting their financial obligation. The PRP would make the same kind of mortgage relief available to property owners who do not live in the home.

The purpose of a PRP is to provide a borrower with temporary payment relief while the servicer and the borrower work together to find the appropriate permanent foreclosure prevention solution, Fannie said.

The GSE said servicers should first determine if a troubled borrower is eligible for the Home Affordable Modification Program (HAMP), but since property investors and second-home owners off-the-bat do not qualify for the government program, Fannie is hoping to offer them “new options of support” through the new PRP initiative.

Besides opening the benefit up to investors, the one significant difference between the two programs is that under HSF, the homeowner’s payments could be reduced by 50 percent. With PRP, however, the break is only 30 percent.

Servicers will be paid $200 for employing the new forbearance program upon the mortgage loan being brought to a permanent foreclosure prevention solution. This amount is in addition to the fee paid for the solution reached.

The HomeSaver Forbearance program will be officially terminated October 31, 2009.

GSEs' Regulator Reports Drop in Home Prices

U.S. home prices fell 0.3 percent from July to August, the Federal Housing Finance Agency (FHFA) said Thursday. The decline breaks a three-month streak of gains in the agency’s measurement of national housing prices.

For the 12 months ending in August, FHFA says home prices are down 3.6 percent, compared to the 12 months prior. Based on the agency’s market data, the U.S. index currently sits 10.7 percent below its April 2007 peak.

Only four of the nine census divisions in the regulator’s survey saw price increases in August. Home prices gained 1.2 percent in the Pacific, 0.8 percent in the Mountain region, 0.4 percent in the East South Central part of the country, and 0.2 percent in the West North Central.

Prices were flat in the West South Central, while falling 0.6 percent in both the Middle Atlantic and East North Central regions, 1.1 percent in New England, and 1.6 percent in the South Atlantic.

The FHFA’s monthly House Price Index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

MBA Conference Attendees Blame Unemployment for Slow Mods, Slow Recovery

Whether they were put on the defensive by charges of inaction or whether they were simply telling it as it is, executives at the Mortgage Bankers Association annual conference in San Diego this week spoke with one voice when explaining why loan modifications weren’t happening faster – and weren’t helping the economy all that much.

It’s the unemployment, stupid.

Since before the federal government instituted its own plan with lenders and servicers to modify loans for troubled homeowners, the servicers have been under fire for not doing enough to keep struggling borrowers in their homes. But now the servicers are fighting back, saying that all of their best efforts can’t speed the recovery if the U.S. continues to flirt with double-digit unemployment rates.

“We will be dealing with a different kind of borrower,” MBA president John Courson said at his group’s conference. In effect, he was saying that a borrower’s mortgage terms mattered far less than his or her ability to stay employed, married and healthy.

But the government’s Home Affordable Modification Program “just doesn’t work for these people,” Courson told reporters. “You can’t go to 31 percent if there is no income,” he said, referring to a HAMP rule that requires a borrower’s mortgage debt not exceed 31 percent of his or her wages.

Also at the conference Tuesday, the MBA’s chief economist Jay Brinkman said unemployment likely would continue to rise above 10 percent through next summer, and delinquencies would continue to rocket through the end of 2010.

“The recession is behind us but the effects of the recession will linger for some time in the form of higher unemployment and lower levels of business investment and home construction,” he said.

“Even when unemployment comes down,” he continued, “it will come down very slowly.”

That pessimism was echoed at the conference by Freddie Mac CEO Charles Haldeman. Haldeman said even rehiring businesses were slow to add personnel, and unemployment was the key reason homes were still being lost to foreclosure.

He and Brinkmann predicted that all this would spell a longer, harder recovery for the housing industry than many market observers were now expecting. Brinkmann said median home prices likely would continue to decline through the beginning of next year.

FHA Commissioner David Stevens acknowledged as much at the conference on Monday. “We’re forecasting about another 10 percent, roughly, price decline between now and the first quarter next year,” he said.

Foreclosure Activity Sets New Record in Third Quarter: Report

Foreclosure activity in the United States set a new quarterly record in the three months ended September 30, increasing 5 percent from the previous quarter and 23 percent from the third quarter of 2008, according to new data released by RealtyTrac Thursday.

The online marketplace for foreclosure properties said that foreclosure filings – default notices, scheduled auctions, and bank repossessions – were reported on 937,840 properties in the third quarter. One in every 136 U.S. housing units received a foreclosure filing during the three-month period – the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.

For the month of September, foreclosure filings were reported on 343,638 properties in September, down 4 percent from August but up 29 percent from September 2008. Even with the decrease, however, September’s total was still the third-highest monthly total since the RealtyTrac reports began, behind only July and August of this year.

“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” said James Saccacio, chief executive of RealtyTrac. “REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts, and high volumes of distressed properties.”

Nevada continued to lead the states’ foreclosure rates in the third quarter, with one in 23 housing units receiving a foreclosure filing – nearly six times the national average. Foreclosure filings were reported on 47,925 Nevada properties during the period, up nearly 10 percent from the previous quarter and up nearly 59 percent from the year-ago period.

Arizona posted the second-highest state foreclosure rate in the period, with one in every 53 housing units receiving a foreclosure filing. California was third, also with one in every 53 units receiving a filing. Other states in the top 10 were Florida, Idaho, Utah, Georgia, Michigan, Colorado, and Illinois.

Just six states – California, Florida, Arizona, Nevada, Illinois, and Michigan – accounted for 62 percent of the nation’s total foreclosure activity in the third quarter, with a combined 579,541 properties.

With 250,054 properties receiving foreclosure filings during the quarter, California alone accounted for nearly 27 percent of the nation’s total. Florida was second in number of foreclosure filings, with 156,924. Arizona was third with 50,342 properties, and Nevada, with 47,925 properties, was fourth.

Rules to Protect Borrowers May Keep Many Out of the Market

As new rules to protect borrowers come into effect, some prospective homeowners may find themselves protected out of the market.

On October 1, new Federal Reserve rules went into effect, requiring greater diligence on the part of mortgage lenders and brokers who make high-cost loans – those at least 1.5 percentage points above the average prime mortgage rate – for borrowers with weak credit.

“We’re going to have some consumers who are not able to purchase a home because of this, since most lenders don’t want to do high-cost loans,” Jim Pair, the president of the National Association of Mortgage Brokers (NAMB), told the New York Times. “There’s too much potential liability for them.”

Pair told the newspaper he was concerned that the rules would greatly curtail loan alternatives, especially for those who might qualify only for subprime mortgages.

The regulations, which were adopted last year but are only now coming into effect, prohibit lenders from making a high-cost mortgage without verifying that a borrower could repay the loan, the Times reported.

During the boom from 2003 to 2006, subprime borrowers could get loans without proving that they could make the monthly payments. In stated-income loans – the famous “liar loans” – borrowers could just make up income figures.

Such lies were mortgage fraud, but brokers and lenders often overlooked them in the interest of generating loan fees, the newspaper said.

Stated-income loans continued into 2007, but the volume had tailed off sharply. After the onset of the subprime crisis, borrowers who could not document their income, such as waiters or others paid in cash, were largely rejected by lenders.

While states such as Connecticut and New York had enacted laws requiring more due diligence in subprime lending, these applied only to state-chartered institutions and not to the national banks doing most of the mortgage lending.

For this reason, Uriah King of the Center for Responsible Lending told the Times, the new federal rules are “important, and they are good.” But, said King, the new regulations are “five years too late” to prevent the damage done in the foreclosure crisis.

TARP Watchdogs Say Government's Not Doing Enough to Stop Foreclosures

The Congressional Oversight Panel, set up to police the U.S. $700 billion bailout of financial markets, said in a report last week that the federal government isn’t doing enough to help homeowners who face foreclosure.

A majority of the panel’s members signed on to the Oct. 9 report, titled “An Assessment of Foreclosure Mitigation Efforts after Six Months.” The panel’s two Republican members distanced themselves from the findings.

The report expressed doubts that the “scale, scope, and permanence” of the Treasury Department’s Making Home Affordable Modification Program would adequately protect U.S. homeowners. The Treasury had previously said HAMP would help prevent as many as 4 million foreclosures with loan modifications through approved servicers and lenders.

“Rising unemployment, weak home prices, and impending mortgage rate resets still threaten to cast millions of Americans out of their homes, with devastating effects on families, local communities, and the broader economy,” the report said, noting that one in eight U.S. mortgages was currently in foreclosure or default, ultimately producing “10 to 12 million foreclosures.”
But panel member Jeb Hensarling – a Republican Texas Congressman who calls himself a “lifelong conservative” on the COP Web site – disagreed with the report. “Instead of focusing its attention on taxpayer protection and oversight,” he wrote in his dissent, “the panel’s majority report implies that the administration should commit additional taxpayer funds in hopes of helping distressed homeowners — both deserving and undeserving — with a taxpayer subsidized rescue.”

The report was the latest in a series of monthly opinions issued by the panel, which is charged with finding ways to improve the $700 billion Troubled Asset Relief Program. Its blistering critique came this week on the heels of an Oct. 6 announcement by officials from the Treasury and the Department of Housing and Urban Development that HAMP had resulted in 500,000 trial modifications for home loans, a month ahead of its self-imposed target date.

The Treasury took that milestone moment as an opportunity to argue for HAMP’s effectiveness, noting that the pace of loan modifications was now greater that the pace of new foreclosures.
But Treasury Secretary Timothy Geithner still acknowledged “a large number of families” were still at risk of foreclosure.

Treasury Officials Deceived Public on TARP Bailout: Inspector General

An inspector general tasked with overseeing the government’s bank bailout program says the Treasury Department misled the public last year and raised doubts about the fairness of its payouts to the nation’s biggest banks.

In a report released Monday, Special Inspector General Neil M. Barofsky alleged that federal officials made bad statements about the health of major institutions that received the first round of massive funding under the government’s $700 billion Troubled Asset Relief Program, the New York Times reported.

The report singled out a statement last Oct. 14 by former Treasury Secretary Henry M. Paulson Jr., who said the big banks were “healthy” and accepted the bailout funds for “the good of the U.S. economy,” so they could continue to extend consumer and business lending even as credit markets tightened.

But the fact was that Paulson and his fellow regulators were gravely concerned that some of those banks would not survive the downturn, Barofsky wrote.

The Federal Reserve and the Treasury were given the opportunity to include their reactions to Barofsky’s conclusions in the report. While the Fed generally agreed with the inspector general’s concern over the public statements, the Treasury criticized his judgment. The official’s public pronouncements “must be considered in light of the unprecedented circumstances in which they were made,” the Treasury said.

The report also suggested that TARP regulators were inconsistent in how they distributed the money, especially in the already-controversial merger of Merrill Lynch and Bank of America.

Under the bailout rules, all institutions were eligible for a capital infusion of as much as $25billion. Yet Bank of America and Merrill were counted as a single institution – BoA was given only $15 billion initially, since Merrill was already set to receive $10 billion. That arrangement was set by regulators even before the companies’ boards and shareholders had approved a full merger.

BoA had to wait until the following January to receive Merrill’s more modest share of the bailout dollars.

Adding to the perceived inconsistency was the fact that when Wells Fargo merged with Wachovia, Wells received both banks’ combined funds at the outset.

But Barofsky reserved the lion’s share of his anger for the Treasury’s glossing statements about the bailout recipients’ health.

“Statements that are less than careful or forthright – like those made in this case – may ultimately undermine the public’s understanding and support,” his report said. “This loss of public support could damage the government’s credibility and have long-term unintended consequences that actually hamper the government’s ability to respond to crises.”

HOPE NOW Data Shows Increase in Workouts, Drop in Foreclosures

An industry report released by the HOPE NOW Alliance this week reveals more promising news for the housing sector. The organization says both foreclosure starts and foreclosure sales are waning, and at the same time, workouts for troubled home loans are rising. If such imbalanced stats continue, it could mean the industry is finally beginning to put a dent in the dark cloud of foreclosures hanging so heavily overhead.

Based on HOPE NOW’s market data, lenders initiated 224,000 foreclosures during the month of August, a drop of 21 percent compared to July’s numbers. Foreclosure sales – 75,000 recorded in August – also fell 16 percent from July.

Lenders and servicers completed 325,000 mortgage workouts during August, an overall increase from the month prior of 28 percent. Repayment plans rose 38 percent and loan modifications were up 7 percent.

The Treasury Department reported last month that 360,000 trial modifications had been started under the administration’s Making Home Affordable Program.

“Our data suggests a correlation between the drop in foreclosures and the increase in workout solutions to help at-risk borrowers,” said Faith Schwartz, executive director of HOPE NOW.
“This shift suggests progress is being made using all of the tools available, such as HAMP – the government backed modification program – and other workout solutions, to slow the pace of foreclosures.”

HOPE NOW’s survey data, though, shows a 6 percent increase in homeowners who are 60 or more days behind on their mortgage payments – bringing that number to 3.3 million borrowers in August. The alliance explained that this jump may include the significant number of trial modifications under the government’s mod program that are not yet permanent.

“Mortgage servicers and non-profit housing counselors are working hard to help homeowners who are facing hardship in these tough economic times,” said Schwartz. “We see firsthand the commitment to offer consumers the best solution that meets their individual needs.”

HOPE NOW and the mortgage industry have helped an estimated 2.1 million homeowners since January 2009. In August and September, alone, HOPE NOW and partners have brought together more than 4,000 homeowners with servicers and non-profit housing counselors through outreach forums that offer face-to-face counseling. Outreach events in southern California and Atlanta are scheduled for October.