Archive for the 'Mortgage' Category

Members of the Independent Mortgage Servicers Coalition are asking the Federal Reserve, the Treasury and Congress for financial assistance in their efforts to help contain bank repo homes.

Independent mortgage servicers are the firms collecting and distributing payments on over $700 billion in home loans taken out during the boom years. The coalition, led by California-based Carrington Mortgage Services, includes Ocwen Financial Corporation and the Nationstar Mortgage unit of Fortress Investment Group.

These mortgage firms are following up on their request for federal help after the Treasury Department obtained a pledge from the country’s 25 mortgage banks to modify at least 500,000 troubled home loans by November 1 to help contain bank repo homes.

The independent servicers explained that if delinquent borrowers are given more time to have their loans modified, the servicers carry the increased costs of paying bond investors according to investment contracts.

According to Bruce Rose, general partner and CEO of Carrington Mortgage’s parent company Carrington Capital Management LLC, the Treasury mandate of loan modifications to contain bank repo homes is largely an unfunded federal government mandate.

Rose explained that the $1,000 cash incentive given to servicers for every loan modification done and another $1,000 per year for 3 years if the homeowner keeps up with payments are not enough to cover the costs of financing payments to investors.

The Term Asset-Backed Securities Loan Facility, which was launched by the Fed to help servicers, has failed and has even increased financing costs, according to Rose.

This month, according to Rose, Standard & Poor’s worsened the situation of servicers when it reduced the value of assets involved in TALF-eligible bonds.

As explained by Rose, to reduce borrowing costs, servicers need to foreclose faster and not more slowly as demanded by the Obama administration’s program to contain bank repo homes.

Rose warned that unless independent mortgage servicers are helped by the federal government to improve their liquidity, they could not help achieve the objective of modifying 500,000 troubled home loans by November 1.

Nonetheless, Rose said that Carrington has already modified around 45 percent of its loan servicing portfolio of subprime home loans taken out from 2005 through 2007.

At the meeting between Treasury Department officials and top bank executives, at least 4 executives of independent mortgage servicers attended, including Carrington general partner Rose. Rose reiterated that the federal government needs to help them solve their liquidity problem so they can help curb the rising number of bank repo homes.

No one can argue that the current mortgage crisis that flooded the housing market with millions of bank repo homes is serious. But all throughout the battle to fight the foreclosure mess, one solution is particularly favored — mortgage modification.

Generally, this solution promises to be a win-win situation for everyone involved. Distressed homeowners get to keep their properties; lenders end up saving a lot of their money considering the cost of foreclosing homes and even the cost of keeping tabs on their bank repo homes; and neighborhoods do not suffer from declining real property values. Perhaps, this is the reason why both the past and the present administration encouraged mortgage modification.

Unfortunately, the number of successful loan modification has yet to catch up with the number of bank repo homes. For the first four months since Obama’s Home Affordable Modification Program was launched, only 350,000 homeowners were able to enjoy new loans while foreclosure cases filed for the months of March to June 2009 reached almost 1.2 million.

Of course, one cannot discount the effects of the rising joblessness rate on the housing crisis. It has actually made it almost impossible for millions of struggling Americans to pay their current mortgage debt, or any other affordable housing loan for that matter. Even if industry experts believe that mortgage servicers should employ more staff and train them well in order to complete more loan modifications, it is simply not enough.

A new study done by economists of the Federal Reserve Bank of Boston showed that loan modification can only work if lenders ignore the two strongest foreclosure incentives: that 30 percent of their troubled borrowers can pay their housing debt without the benefit of a loan modification and the huge probability that borrowers who get approved for a loan modification will re-default.

Considering these two factors, it is not surprising that a lot of lenders are still hesitant about offering loan modification to their borrowers. Not only are they exposing themselves to more risk but they could also end up losing more than what they initially expected.

If this is the case, then the federal government should re-calculate the number of preventable foreclosures via loan modification if they are really serious bout containing the number of bank repo homes.

Last February, just as repo homes filings in the country reached more than 290,000, representing a 30 percent increase from a year ago, the Obama Administration launched its Homeowner Affordability and Stability Plan to help distressed homeowners reduce their mortgage payments through refinancing or loan modification.

The rapid spread of repo homes has been blamed by economists and lawmakers on reckless borrowing and irresponsible lending. Since August 2007, about 1.2 million repo homes were reported while 11 percent of mortgages were on the brink of foreclosures.

An estimated 12 million homeowners have mortgages that surpassed the fair market value of their properties, while about 4 million were behind on their mortgage payments. And to top it all, both home prices and sales plummeted to an all-time low.

The $75 billion repo homes prevention plan is expected to help distressed homeowners protect their properties from foreclosures and stabilize the housing market.

Under the refinancing component of the plan, troubled borrowers whose mortgages are owned or backed by Federal Home Loan Mortgage Corp. and Federal National Mortgage Association may be eligible to change their mortgages into 15-year or 30-year fixed-rate loans.

The refinancing plan is expected to help nearly 5 million distressed homeowners whose loans are owned and backed by the two government-sponsored enterprises. To quality, homeowners must not be behind on their mortgage payments for over 30 days in the past year and they must owe not more than 105 percent of the fair market value of their properties.

Meanwhile, the loan modification component allows mortgage servicers to voluntarily lower interest rates to allow troubled borrowers to save their properties from being added to the growing list of repo homes. The federal government would subsidize a portion of the amount needed to reduce borrowers’ mortgage payments.

For the almost 4 million distressed homeowners targeted by the loan modification plan, they must not be behind on their loan payments or on the verge of defaulting to qualify for this component of the repo homes prevention plan.

Qualified homeowners may take advantage of reduce monthly payments to 31 percent of gross income.

Another program aimed at reducing the number of foreclosure properties is aimed at first-time homebuyers. They will be given tax credits of almost $8,000 for every foreclosed home they will purchase from January 1 to November 30, 2009.

The affordability plan is part of the $275 billion foreclosure prevention plan of the Obama Administration.

According to the Mortgage Bankers Association, the volume of mortgage applications for the week that ended May 16 fell by 7.8 percent to 621.6. The week before, volume was pegged at 674.4.
Breaking down the report; the refinance volume dropped by 8.7 percent for the week. Meanwhile, mortgage application for new purchases declined by 6.9 percent. [...]