August Report/8-20-09
In Riverside County:
Notice of Defaults-July=4776 / Over the last 120 days=15838
Notice of Trustee Sale-July=4681 / Over the last 120 days=13790
Actual Trustee Sale-July=2297 / Over the last 120 days=7642
In San Bernardino County:
Notice of Defaults-July=3927 / Over the last 120 days=12420
Notice of Trustee Sale-July=3643 / Over the last 120 days=11297
Actual Trustee Sale-July=1691 / Over the last 120 days=6415
Commercial, Apartments, Industrial, Agriculture & Land/ last 120 days
Riv. NOD=488 NOS=231 Sale=289 (The largest number is land)
SB. NOD=399 NOS=170 Sale=270 (The largest number is land)
Why Are Modifications Not Working?
While I do not have enough space to cover all of the facts and opinions necessary to cover this topic in its entirety, there are some interesting pieces of information I believe is worth discussing.
In the 3Q of 2008 there were approximately 2.5 million homes in which the borrower was over 60 day’s delinquent on their mortgage. By the 1Q of 2009, that number had jumped to 3.4 million. In the 3Q of 2008 there were approximately 300,000 modifications started and by the 1Q of 2009 that number had only increased to approximately 490,000. The people who are defaulting are out pacing the modification starts by a large margin.
More and more stories are coming out, discussing the point that servicers, those who were never trained to underwrite, are not incentivized by the governments promised 1k. Nor do regulators or Servicers seem to be bothered by Timothy Giethner’s rant. The Servicers seem to have figured out a way to line their pockets while the consumer and investor get shortchanged. Peter Goodman’s article in The New York Times seems to have allowed others in the industry to begin talking openly about a subject that until this article seemed to be off limits.
(http://www.nytimes.com/2009/06/29/business/29loanmod.html?_r=1&ref=business&pagewanted=all)
Servicers make more money if they delay. It turns out, a lot more.
Note holders argue that the loans with unusually high servicing fees incentivize Servicers to keep borrowers current as long as possible, even if that borrower has no real shot at avoiding foreclosure.
For a performing loan, servicer usually retains .25 to .5 annually of the collected interest. However, per their contracts, some of the large Servicers handling WaMu and Countrywide’s Option–Arm portfolios, can charge fees of 2% to 3% once they become delinquent! They continue to collect these funds as long as they keep the home from going to sale. Is it any wonder why 72% of all loans scheduled for sale in California are being voluntarily postponed by the servicer?
“These are the highest servicing fees I’ve ever seen in any mortgage securitizations,” said one portfolio manager, who requested anonymity because of relationships with JPMorgan.-
Here is a cited example;
“ In other words, the servicer collected USD 1,175.75 of the borrower’s USD 1,867.44 monthly payment. Of the USD 1,282.64 in monthly interest, just USD 106.89 is passing through the interest waterfall.
When compared to the USD 1175.75 monthly collection on this loan, the one-time USD 1,000 incentive to modify via the government’s Home Affordable Modification Program (HAMP) seems insignificant. “
I have to ask, “Why would a Servicer agree to put someone into the HAMP program?”
HUD continues to do their best in this area, by providing funds to their group of non-profit counselors, who are obviously caring. Encouraging people to try to “save their home” is inching towards discussing “soft landing solutions.”
We may be discovering that it is necessary to look at this issue from what is in the collective best interest for our State, our County and our Cities. The elected leaders at a local level are doing the best they can, but the deck is stacked against them. Can we save everyone? Should we set this expectation?
Another reason modifications are not going through is the fact that despite all of the lenders/servicers who agreed to modify loans under the HAMP program, charge no fees, stop requiring borrowers to be late and set up comprehensive modification programs, far too often, the public is encountering the exact opposite. Here is the link to the list: http://www.hopenow.com/mortgage-directory.php
When we teach our classes and ask the question; “How many of you are being told that because you are not behind, there is nothing they can do?” Another question we ask is; “How many of you are being asked to pay a fee, by your own lender, in order to be considered for a modification?” In both instances, the number of raised hands far exceeds 50%. We are being told that they are being coerced into signing away their rights in order to be considered for a modification. Barney Frank recently advised BofA to stop doing this, after BofA’s representatives were caught in an awkward public circumstance;
“In a dramatic confrontation last July, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, told representatives of Bank of America to get rid of waivers in their agreements. His pronouncement came after Bank of America representatives denied they were using the waivers – and Julia Gordon, senior policy counsel at the Center for Responsible Lending, produced one from her briefcase!” OUCH!
Re-Defaults are yet another reason why servicers and lenders are not excited about modifications. With recidivism still at record highs, their logic is that even though the losses seem to be more with a foreclosure, they’re not by the time you factor in those who will become current on their own (Approx 30%) and those who will re-default and increase the overall cost. All seem to agree we’re actually still in a declining market and when you couple this with a home that typically will now have additional repairs, it doesn’t always make sense to try to keep someone in their home. Please read article:
http://blogs.tnr.com/tnr/blogs/the_stash/archive/2009/07/06/why-there-ve-been-so-few-modifications.aspx
Another problem, which can be addressed at the local level, to a certain degree, is the simple fact that too many people are now conditioned to believe that a fool and his money will soon be parted and only a fool wouldn’t ask for a modification right now. Never mind the fact that one signed a promise to pay, regardless of market conditions and regardless of what happens to you in the future. The lender made the loan based on your ability (Supposed ability) and your willingness to repay debt (Based on historical credit).
Local leaders must do a better job of utilizing their bully pulpits to encourage those who can, to keep their promise to pay. Those who cannot should try to modify and then attempt a short sale, assuming this is in your best interest after considering your individual tax circumstances. Local leaders must encourage our representatives in Washington to assist in a comprehensive program that allows for a quicker short sale process and subsequent foreclosure. If the servicer/investor wish to rent this home to the previous homeowner for fair market value and avoid taking the hit today based on current market conditions that is fine with this consumer and civic advocate.
The following are some noteworthy news items for your review:
The Treasury Department has unveiled its loan modification insurance program to protect investors from declines in house prices. The $10 billion Home Price Decline Protection program will “offset any incremental collateral loss on modifications that do not succeed” during the first two years, Treasury said. The new program is aimed at giving investors and servicers participating in the administration’s Home Affordable Modification Program an incentive to modify loans in markets with declining house values.
Fannie Mae posted a heavy Q2 loss of $14.8B, its eighth quarterly loss in a row, prompting the mortgage lender to ask the government for a $10.7B capital injection. Fannie’s cumulative losses over the last two years now stand at $101.6B, and the company has drawn $44.9B from the Treasury since April. The company said “we do not expect to operate profitably in the foreseeable future. We expect that we will experience adverse financial effects” during the fight against foreclosures.
See, It’s Not Just Me!;
The Comptroller of the Currency is urging national banks to take a look at the Federal Housing Administration loan program that can be used to restore foreclosed homes and help stabilize neighborhoods. The FHA 203(k) program provides government insured financing for the purchase and renovation of a property in a single loan transaction. OCC is promoting the benefits of FHA 203(k) loans in its “Community Development Insights” magazine. “This product can be used by banks to develop new business, mitigate risk, enhance profitability, as well as assist in the revitalization and stabilization of neighborhoods negatively impacted by the current foreclosure crisis,” OCC says in the magazine.
This loan, coupled with the EEM is a must for the IE. The average consumer can compete with an investor and have a home that has been completely re-done and energy efficient.
I believe this is newsworthy if only to demonstrate a need for reform and more state control:
Banks are entering another controversial arena: payday loans, whose interest rates can run as high as 400%. Historically the market has been dominated by small nonbank lenders, which mainly operate in poor urban centers and offer customers an advance on their paychecks. But big lenders Fifth Third and U.S. Bancorp started offering the loans, while Wells Fargo continues to boost its payday-loan program.
More big banks are getting into the market just as a recent flurry of usury laws has crippled smaller players. In the past two years lawmakers in 15 states have capped interest rates on short-term loans or kicked out payday lenders altogether. But thanks to interstate commerce rules, nationally chartered banks don’t have to follow local rules. Cincinnati-based Fifth Third, which has 400 branches in the state but also operates in 11 others, introduced its Early Access Loan, with an annual interest rate of 120%. “These banks are skirting state laws,” says Kathleen Day of advocacy group Center for Responsible Lending.
Affordability At Its Highest Levels
The affordability is now reported to be at 79% in the Inland Empire and at the highest levels in recent history for other areas. While there is still pressure on the IE due to over 13% unemployment and a higher than average number of borrowers who are still facing the upcoming Option Arm pressures, now is the time to buy. The exception I would make is if one believes there is a high chance they may have to sell in the next two years.
Thank God For FHA!
While I have always been a fan, especially of their make sense underwriting criteria, I am now a bit fanatical! We need FHA and we need to utilize the programs they have available for the consumer. Environmentalist? Then you must push the Energy Efficient Mortgage! Believe in helping those less fortunate? Then you need to push the 203K Streamline! Here is a great quote:
“FHA was 5% of the market, and overnight it became 30%, and it didn’t have one dime more for staff or IT systems. Everybody said FHA couldn’t handle the volume, and guess what? We did. Can you imagine what would happen right now if we didn’t have FHA?” -Brian Montgomery, the former FHA commissioner, who left the agency in July.
Just the facts;
Banks have extended only 400,000 offers to 2.7 million eligible borrowers who are more than two months behind on their payments. More than 235,000, or 9%, of the total eligible borrowers have enrolled in three-month trials in which their monthly payments are reduced.
Half of American Homes Upside Down?;
The percentage of “underwater” loans may rise to 48%, or 25 million homes, as prices drop through the first quarter of 2011, Karen Weaver Ying Shen, analysts in New York at Deutsche Bank, wrote in a recent report.
In closing, fragmentation of effort remains the biggest road block to effective communication to the public. A clear, unified message must be presented on a consistent basis. A partnership with the service groups, Church’s non-profits and government agencies, advising the public of a very basic message, is needed and timely.
This concludes this month’s report. If you would like detailed information on a given city or zip code, please let me know.
Chris Sorensen
President
USA HELP, Inc
info [at] freehomeownershiphelp [dot] org
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