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Boom-Era Property Speculators to Get Foreclosure Aid
By Prashant Gopal – Mar 5, 2012 12:00 AM ET
The Obama administration will extend mortgage assistance for the first time to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble.
Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal.
Investors are central to the federal government’s strategy for reviving real estate with home prices down 34 percent since July 2006 and as foreclosures deplete the pool of buyers who can qualify for a mortgage. Photo: Tim Rue/Bloomberg
The government’s need to protect neighborhoods from blight and renters from eviction by keeping the current owners in place is outweighing concern that taxpayers will end up bailing out real-estate investors. The program is being enlarged after less than 1 million borrowers modified loans through HAMP, compared with the administration’s stated goal in 2009 of helping 3 million to 4 million homeowners.
“When we started the program we focused on owner-occupied houses because the need was so great and we wanted to target the efforts to that group,” said Massad. “Given where we are today, more and more people recognize that vacant properties are a problem no matter how they became vacant.”
Homeownership Rate
Investors are central to the federal government’s strategy for reviving real estate with home prices down 34 percent since July 2006 and as foreclosures deplete the pool of buyers who can qualify for a mortgage. Federal Reserve Chairman Ben S. Bernanke told homebuilders in Orlando, Florida last month that the U.S. economic recovery has been “frustratingly slow,” in part because weak housing markets are holding back consumer spending.
The homeownership rate, which peaked at 69.2 percent in June 2004, fell to 66 percent in the fourth quarter of 2011, according to the U.S. Census Bureau. A new Fannie Mae program designed to reduce the overhang of foreclosed homes is encouraging potential buyers, including private-equity firms, to purchase properties in bulk and convert them to rentals. Almost one in four home purchases in January was made by an investor, according to the National Association of Realtors. And investment and vacation properties made up 21 percent of houses in the foreclosure process in January, according to Irvine, California-based RealtyTrac Inc.
‘Huge Change’
The Obama administration announced last month that it would triple incentives to owners of mortgages that reduce home-loan debt and expand eligibility to borrowers struggling under the weight of other liabilities, such as medical bills
Obama Housing Plans vs Reality
by Cora Currier
ProPublica, Feb. 14, 2012, 2:36 p.m.
The Obama administration recently unveiled a string of proposals to help struggling homeowners and get the housing market back on its feet — part of the administration’s “We Can’t Wait” election year to-do list. Of course, the White House has made big promises before about helping homeowners, only to see them disappoint time and again.
Here are the latest proposals, whether they are anything new and whether they stand a chance of going anywhere.
President Obama wants to allow homeowners whose mortgages are backed by private-sector companies to refinance at lower rates through the Federal Housing Administration. (The FHA insures many mortgages, and it is not the same as the FHFA, the regulatory agency in charge of Fannie Mae and Freddie Mac.) The president stressed that the proposal would help only “responsible” homeowners who were current on their payments — to counter Republican complaints that his housing policies reward foolhardy borrowers.
Déjà vu: This is only the latest in a long series of attempts by Obama to help homeowners refinance. There have been a few, minor attempts to push refinancing through the FHA. Via a separate program launched in 2009 that used Freddie and Fannie, more than 900,000 homeowners have refinanced, substantially fewer than the goal of 4 million homeowners.
Will it happen? Unlikely. This plan needs to get through a Congress that is staunchly opposed. “How many times have we done this?” said House Speaker John Boehner, R-Ohio.
Republicans have a number of objections. First, Obama wants the plan to be paid for with a fee on the banks in repayment for the bailout, a tactic that’s raised Wall Street hackles in previous budgets. Secondly, some Republicans balk at passing more risk on to the FHA, which is in danger of having to ask the Treasury for a subsidy for the first time in its nearly 70-year history. Even if the plan passes, its impact would likely be limited. For the Obama administration to instigate mass refinancing without Congress’ help, many say it would need to get Fannie and Freddie on board, a move the companies’ regulator has so far been reluctant to endorse.
Bill of rights
A so-called “homeowner’s bill of rights” aims to make things clearer for borrowers, requiring a standard set of forms and disclosure of fees and conflicts of interests. It also calls for help for those very close to foreclosure, including a right of appeal on the decision to foreclose. (Homeowners have claimed wrongful foreclosure for a wide variety of reasons, and have had little recourse to appeal mortgage servicers’ decisions.)
Déjà vu: This may be just a branding of efforts already under way across different agencies. The new Consumer Financial Protection Bureau says it is already developing a set of standard disclosure forms and rules aimed at preventing misleading or fraudulent practices by mortgage servicers. As for an appeal process, Treasury already has a system for complaints about foreclosures, and is reportedly expanding its review process for those denied eligibility for government loan modification programs. Advocates have criticized Treasury’s current review efforts as ineffective. And, separately, federal bank regulators are developing new standards for mortgage servicers.
Will it happen? According the White House’s announcement, a host of agencies that deal with housing will work to enact new rules in keeping with the bill of rights. But right now the bill of rights itself is simply a set of guiding principles that don’t yet have any teeth. (We’ve documented problems with enforcement on similar guidelines.) The Department of Housing and Urban Development and the CFPB did not respond to our queries on exactly how the bill of rights relates to existing efforts.
Loan modification
The administration’s plan to make it easier for homeowners to restructure their loans has two key elements. First, it lays out yet another push on principal reductions, which it argues are central to slowing the rate of foreclosures and stabilizing the market. The move triples the incentive for mortgage insurers, including Fannie and Freddie, to write down the amount owed by struggling borrowers. Secondly, it makes more borrowers eligible for HAMP, the administration’s loan modification program, and also will give some homeowners who were previously denied access to the program a chance to reapply.
Déjà vu: Like refinancing, incentives for principal reduction have been proffered again and again, with mixed success. As we’ve noted, a key obstacle is Fannie and Freddie, which guarantee mortgages and haven’t been willing to take the hit that lowering the amount a borrower owes entails even if doing so would ultimately prevent foreclosures. Meanwhile, HAMP has been beset with a host of enforcement and logistical problems.
Will it happen? As a tweak to an existing program, these changes don’t need to go through Congress. And as we explained last week, the mortgage settlement and these changes may actually breathe life into the disappointing HAMP program. But for principal reduction, the question remains: Will Fannie and Freddie give their OK? Without that, only a portion of homes in the U.S. could qualify.
Foreclosures to rentals
This plan takes foreclosed homes where mortgages were backed by Fannie and Freddie and sells them to investors who will put them on the market as rentals. Obama claims this will help heal neighborhoods blighted by empty buildings and evictions, and give a boost to real-estate sales.
Something new: This has been in the works since August 2011, and the Federal Reserve touted it recently as an important process, though Chairman Ben Bernanke cautioned it was no “silver bullet” for the housing market.
Will it happen? It’s already started, though it’s just an experiment for now. It will go through the FHFA, so it doesn’t need congressional approval. The FHFA has already put out its first call for investors for the pilot phase.
Why Millions Won’t Get Help From Big Mortgage Settlement
Image via Wikipedia
ProPublica, Feb. 9, 2012, 5:25 p.m.
The Obama administration is billing today’s $25 billion agreement between most states and five banks that engaged in flawed or deceptive practices as a big win for struggling homeowners.
Most of the money in the settlement isn’t a penalty, or a fine levied on the banks. Instead, the biggest slice of the settlement will be money banks put toward principal reduction — reducing the amount owed by struggling or underwater borrowers. (Banks will also put smaller amounts toward refinancing and other ways of helping people get back in control of spiraling debt.)
Getting a break on their mortgages could help the millions of homeowners who owe more on their home than it is worth. But many of them won’t qualify — thanks to government-owned Fannie Mae and Freddie Mac.
The two mortgage companies, who were bailed out by the government in 2008, were described by former Obama economic advisor Jared Bernstein as “the boulder” in the way of principal reduction. Their federal regulator, the Federal Housing Finance Agency, is tasked with maximizing profits from the companies — and thus minimizing taxpayer losses. The head of the agency, Edward DeMarco, argues that allowing principal reductions would result in a big loss for Fannie and Freddie and ultimately taxpayers.
The two companies aren’t directly part of the settlement. They don’t service mortgages, or deal directly with borrowers. But Fannie and Freddie do guarantee or own roughly half of the mortgages in the U.S. They also hold more than 3 million of the nation’s nearly 11 million underwater mortgages. Since Fannie and Freddie are backing the loans — and are the ones who will take a loss if the mortgage isn’t paid back in full — they often have a veto on whether homeowners get a break.
Even if Bank of America, for example, services your mortgage, you would not be eligible for principal reduction if Freddie or Fannie back it.
Principal reduction is being pushed heavily by the Obama administration as a way to lower the rate of foreclosures. The administration recently tried to encourage Fannie and Freddie by offering to triple incentives for principal reduction. So far, the companies and their federal overseer, DeMarco, have declined to do so. An FHFA spokesperson said that the agency is “not a party to the agreement. We await a copy of the agreement to determine its implications.”
Lowering the amount of money owed on a loan would result in at least short-term losses for Fannie and Freddie, as well as to any other investors in mortgages that are reduced. But many economists and analysts argue that Fannie and Freddie would ultimately benefit since such moves could help restore the health of the housing market as a whole.
The reluctance by Fannie, Freddie and others to take on principal reduction is partly why the administration’s mortgage modification programs have been so ineffective.
The settlement does have potential benefits for future borrowers, including new protections and disclosures to prevent what Attorney General Eric Holder called “abusive practices” by the mortgage industry.
A small portion of the overall settlement — about $5 billion — will amount to penalties for past abuses by the banks. Some of it will go to state governments that were afflicted by banks’ shoddy practices, and some of it will go directly to about 750,000 homeowners who were foreclosed upon. If you lost your home, you could get up to $2,000.
Related articles
- Mortgage Settlement: Do the Big Banks Owe You Money? (usnews.com)
- Treasury Investigates Freddie Mac Investment – New York Times (nytimes.com)
- New Twist in Democrats’ Push for Mortgage Debt Relief (blogs.wsj.com)
- Administration Revamps HAMP to Reach More Borrowers (mainstreetresolutions.com)
- Freddie Mac betting against some homeowners (bottomline.msnbc.msn.com)
- What settlement will and won’t do for homeowners (seattletimes.nwsource.com)
Administration Revamps HAMP to Reach More Borrowers
The Obama administration has announced changes to its flagship foreclosure prevention initiative – the Home Affordable Modification Program (HAMP) – which officials say will expand its reach to more distressed homeowners.
Among the changes, borrowers who are struggling because of debt beyond their mortgage will be eligible for a secondary evaluation with more flexible debt-to-income criteria, and eligibility will be extended to investor-owned homes that are used as rental properties.
The administration is also giving principal reductions a bigger role within the program, tripling incentives for investors that agree to write down an underwater borrower’s principal and offering these same incentives to the nation’s two biggest mortgage investors – Fannie Mae and Freddie Mac.
The deadline for HAMP will be extended for an additional year through December 31, 2013.
(developing story)
*Additional details have been provided in a blog post by Tim Massad, assistant secretary for financial stability.
Related articles
- Reduce amount due on mortgage, or grant a short sale? (besthouses2go.wordpress.com)
- Secret Docs Show Foreclosure Watchdog Doesn’t Bark or Bite (mainstreetresolutions.com)
- What went wrong with mortgage aid? (georgegmiller.wordpress.com)
- Fixing the Housing Market: The Principal of the Matter (avidlawblog.wordpress.com)
- Obama loan modification program moving slowly (marketwatch.com)
BofA Halts Cash-out Refinancing; Letters From the Trenches; Mortgage Hiring Continues
Hey, if you can’t beat ‘em, join ‘em. I bet many wouldn’t mind making nearly a quarter million a year being a “cutting edge” CFPB regulator – link. Compare that to a story last week in the Wall Street Journal noting, “Government regulators will cut sharply the pay of the executives they hire to succeed the departing heads of Fannie Mae and Freddie Mac, said regulators, which may make it difficult for the struggling mortgage-finance giants to attract and keep qualified chief executives. Some officials even have floated the idea of paying a salary of $1. Whatever ultimate pay arrangement is approved by regulators for Freddie could set a precedent that would be adopted by Fannie.” MBA President David Stevens warns that the pool of CEO candidates will shrink as compensation for the post (which can be difficult to fill given the limitations of being under government control) declines.
In the private job market, Florida Capital Bank Mortgage is expanding its national mortgage operations with the opening of an Operations Center in Northern California. FLCBM is looking for underwriters, processors and closers for this location. In addition, they are looking for AE’s across the country to support its growing broker, mini-correspondent, correspondent and Early Purchase Funding Program allowing brokers to become mortgage bankers. Interested operational candidates can contact Gerhard Naude at gnaude@flcb.co and AE’s can contact Tommy Adkins at tadkins@flcb.com.
In addition, Prospect Mortgage is hiring Loan Officers and Sales Managers who leverage relationships with business referral partners for sales growth. Prospect Mortgage offers nationwide lending and has branches from coast to coast. For rankings, “Prospect is one of the largest independent residential retail mortgage lenders in the US: it is the second largest 203K lender, a top-10 FHA lender and a top-five Fannie Mae HomePath Renovation lender.” So if you know of anyone interested in the retail side of things with Prospect, they should contact Chief Talent Officer Daniel Nieto at Daniel.Nieto@prospectmtg.com.
In other corporate news, SunTrust Bank’s 16% decline in earnings for the fourth quarter highlighted a problem many originators are having: setting aside higher mortgage repurchase provisions. Earnings were down from a year ago, as were revenues. “SunTrust’s mortgage repurchase reserves rose to $320 million from $282 million in the third quarter. The bank received $636 million in repurchase demands, up sharply from $440 million a quarter earlier and $233 million in the fourth quarter 2010.” Management saw it coming, as it warned the industry that repurchases would increase significantly in the fourth quarter. Putting some numbers on the problem, SunTrust holds $120 billion in unpaid balances from loans done between 2006 and 2008, and about $21 billion have gone 120 days or more past due. Of those unpaid legacy mortgages, SunTrust has received repurchase demands on $4.4 billion, with $3.9 billion of those resolved. Repurchase issues were a factor in the mortgage production side of SunTrust swinging to a $62 million loss from a $41 million profit a quarter earlier.
As we move toward having more regulators than originators, in Utah, Primary Residential Mortgage created of a new Enterprise Risk Management (ERM) group that will “manage risk through the entire loan origination process and ensures that the company has the appropriate monitoring and evaluation policies.” Dave Zitting, president and CEO, observed, “While the larger banks all have ERM departments, it’s uncommon for a company of our size to have one but we wanted to take aggressive steps to demonstrate to our customers, partners and employees our commitment to providing a safe and compliant mortgage experience.” The leader of the group noted, “In today’s mortgage environment, lenders must manage compliance and quality issues more closely than ever before. By establishing this new group we are implementing a solution that will sharpen our focus on complying with all mortgage banking laws and regulations, improve on our overall loan quality and help us to better manage risk across all areas of our company.”
Bank of America certainly turned some heads last week when it told its retail loan officers nationwide that the lender will halt, for now, originations of cash-out refinancings, citing what it calls a “surge of refinancing activity” and capacity problems. A memo written by B of A home loans sales executive Matt Vernon notes that “while we regret the inconvenience this will cause to some of our customers in the short term, we are making the responsible choice that is in the best interest of our long-term capabilities to provide a predictable customer experience.” In spite of arguments that this is some of the cleanest product ever to be originated, and profit margins being solid for many in the business, BofA continued to de-emphasize residential loans in the fourth quarter, producing just over $22 billion in mortgages, a stunning 75% decline from 4Q 2010.
At least Bank of America is not expecting to have the FDIC come through its doors on a Friday afternoon…but others had that happen (for the first time in over a month). In PA American Eagle Savings Bank was closed and became part of MD’s Capital Bank, National Association. Down the coast in Florida, Central Florida State Bank became part of CenterState Bank of Florida, National Association. And in neighboring Georgia, the depositors of The First State Bank will soon have the name of Hamilton State Bank on their checks.
Mortgage company transition is expected to continue in 2012. Industry vet Larry Charbonneau, owner of Charbonneau & Associates, wrote to me, saying, “Rob, I’ve been in this business over thirty years, and 2011 was one of my busiest ever. Your readers should know that merger and acquisition activity is picking up. There are some commercial banks looking to acquire well managed mortgage bankers, and the warehouse industry is very liquid now and credit is readily available to those who have the required net worth.” If you want to reach Larry, shoot him an e-mail at larry@charbonneauinc.com.
Regarding recent legal events, David Oldenberg writes, “Attorneys are going to do the same thing to themselves that we did to the mortgage industry. We created better and better loans programs to get people into homes and it back-fired when there were no more buyers left and the bottom dropped out. Attorneys are going to keep creating more and more ways to sue lenders and eventually they will all stop lending, leaving no one left to sue. They will destroy their industry based on greed, the same way the mortgage industry has destroyed itself. When I used to play stock broker and financial advisor on my radio show, I always said, ‘the trend is your friend until the end!’”
Barry S. from Illinois wrote, “I just had another two week fight with one of the top 4 investors. They underwrote the loan – it has MI, is a condo, and an 800 credit score. They have some overlay that says HO6 insurance must be escrowed, we never heard of such a thing, none of our other lenders force you to escrow HO6 insurance. Anyway, loan was cleared to close and the underwriter never said anything about HO6 being escrowed. We closed it and they wouldn’t purchase the loan because the HO6 was not being escrowed on the HUD. So the borrower signed new docs escrowing the HO6 since they had to pay it themselves so they really didn’t care if it was escrowed. Then the original investor refused to purchase the loan because it’s a TILA violation: they say you need to reopen the recession period because the total payment has changed! I asked, ‘What happens each year when escrow analysis are done and servicers increase a borrowers total payment when their taxes or insurance increase, TILA violation? What happens when a borrower calls a bank to add escrows to their mortgage payment TILA violation? What happens when a title company or lender puts the wrong info for the taxes and insurance escrows and has to fix the mistake on the HUD-1, TILA violation?’ These are the same guys who three weeks ago gave me the same song and dance when a digit was reversed on an address in the closing package, fun thing was the borrowers were both big time attorneys in Chicago and couldn’t believe they had missed the mistake while signing. (An investor finally bought that loan after a month of saying you can’t fix a typographical error on a closing package!) But now we have to take the loan elsewhere.”
(For the uninitiated, HO6 insurance is designed for condo owners. The HO6 condo insurance will cover losses to any of your persona property and any structure you own. This policy also covers damages to any fixtures of upgrades you added on since the move-in date. A lot of people have HO6 insurance because they are required to if they have a mortgage on the condo. A regular condo insurance policy does not cover your actual unit or any of your belongings. HO6 does provide liability protection.)
Sometimes it is tough for compliance and QA personnel to stay up on the changes in the market. They should check out the next monthly conference call (free!) of the California Mortgage Bankers Association’s Mortgage Quality and Compliance Committee (MQAC) – you don’t even have to live in California. Call in this Thursday (26th) at 11AM PST (free!). The topic is “Regulatory Forecast for 2012: How Should You Be Prepared?” Let your fingers do the walking: 1-800-351-6802, passcode 43784. For more questions contact Dustin Hobbs with the CMBA at dustin@cmba.com.
Turning to interest rates, which are still pretty low on the radar screen of concerns of originators, they slid higher last week. In fact, Treasuries had their biggest weekly loss in a month with the 10-yr moving to 2.02% and MBS prices (on Friday) worse by about .125. Is the economy really picking up? The current administration sure hopes so, although the president comes in a distant third to stimulating the economy compared to the Federal Reserve and Congress. Existing Home Sales increased 5% in December to an annual rate of 4.61 million units, and were up 3.6% versus a year ago. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”
For scheduled economic news in the United States this week doesn’t commence until Wednesday with Pending Home Sales, the FHFA Housing Price Index, and the FOMC’s rate decision. Thursday is Jobless Claims, Durable Goods, New Home Sales, and Leading Economic Indicators; on Friday are GDP and a Michigan Consumer Sentiment number. With things continuing quiet in Europe, and no news here, we find the 10-yr’s yield up to 2.08% and MBS prices worse.
I pointed to two old drunks sitting across the bar from us and told my friend, “That’s us in 10 years”.
He said “That’s a mirror, dummy!”
Related articles
- SunTrust Can’t Shake Pesky Mortgage Repurchases (blogs.wsj.com)
- Who Should You Choose? Mortgage Broker Or Bank? (choiceofhomes.com)
