Hot Mortgage Deals

Starting Jan. 1, new rules go into effect that simplify and clarify exactly what mortgage lenders will charge for a loan.

The Obama administration and all the agencies at its disposal are working around the clock to save troubled loans but it is simply not good or fast enough.

In the third quarter there was a 6.2% rise of all seriously delinquent (i.e. 60 days or more past due) and 3.2% increase of all loans in the process of foreclosure.

What is even scarier is that even prime mortgages, those loans with the best interest rates and conditions also rose heavily.

However banks and loan servicers do seem to have stepped on the gas a little and supported the government’s efforts through the HAMP program, or Home Affordable Modification Program. Out of every 6 troubled homeowner one received a permanent or trial loan modification. Unfortunately the homeowners that get a trial but don’t get a permanent modification make up most of that figure. The bad news is that even those who do get a permanent loan modification (31,000 out of 750,000 in the last count) half tend to re-default with 6 months. The good news is that that loan mods done in the second quarter show a lower initial re-default rate. This could be because lenders are making more generous loan modification and reducing monthly payments more aggressively to make payments more likely.

So how are mortgages performing? Badly seems to be the sad consensus. 87 percent of all US home loans are listed as performing, which obviously means 13% aren’t. Government backed mortgages are not faring much better, in some cases worse. Only 83% of the Veterans Benefits Administration loans are “performing”. Fannie and Freddie mortgages (with government backing) are not celebrating with 8% of their mortgages “not performing.

It is not all bad news. The housing market with low interest rates and a large portfolio of “cheap” homes is attracting buyers. This large inventory is likely to stay with us for a while as banks continue to try to unload their distressed properties and troubled homeowners continue to agree to “short sales”.

According to First American CoreLogic one in four home loans is still “under water” or has a mortgage that is worth more than its current value.

What is the government doing to fight this situation?

Two main strategies: 1) Keep the housing market stable by keeping the interest rates low.

2) Loan Modifications.

The first strategy does seem to be helping by encouraging buyers to invest in a new home. Loan modifications are not meeting with the expectations but the latest figures do show that re-defaulting has dropped with the latest more generous mods.

Related posts:

1. Despite Loan Modifications, Foreclosures Will Continue To Rise Through 2010
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

Related posts:

1. Despite Loan Modifications, Foreclosures Will Continue To Rise Through 2010
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

The home-equity line of credit fueled thousands of extreme kitchen makeovers during the real estate boom. But the housing bust and the credit crisis stopped the HELOC party with a vengeance: Tens of thousands of homeowners had their lines cut or frozen, and most lenders stopped issuing new ones altogether.

Home price gains of the past few months flattened out in October, according to a closely watched market report issued Tuesday.

Most troubled homeowners view President Obama's foreclosure rescue plan as a way out of their financial troubles.

This is the question administration consultants and officials are asking themselves. After using every trick in the book and more to “encourage”, “bribe” and “bully” servicers in providing loan modifications, loan modification conversion rates are still terribly low.

Ineligible Applicants.

Some have reasoned that the reason loan modification conversion rates are so slow is that many borrowers are simply ineligible under the current loan modification program, also called Home Affordable Modification Program (HAMP). HAMP does condition acceptance into the program, homeowners must be able to afford the modified payments, the cost of housing must not exceed 31% of the households income and the NPV test (Net Present Value) must be passed among other requirements before a loan modification is granted permanently.

Wrong Crisis.

A parallel argument is that the HAMP program is simply targeting the wrong problem. The issue, in the opinion of those that voice this argument, not a mortgage crisis, but a credit or unemployment crisis.  It must be granted that with many homeowners their mortgage is the least of their worries or at least only one of many.

This argument seems to be validated by the fact that more and more troubled homeowners have prime loans with excellent interest rates and conditions but are struggling with their mortgages because they are unemployed. Modifying the mortgage payments will not help these homeowners which in most cases aren’t eligible for a modification anyway.

Greedy Servicers.

Some have pointed out that in many cases loan modifications simply don’t make sense for servicers because they cost more than they are worth, at least for servicers. Servicers, often banks, manage mortgages for lenders. They don’t supply the cash but deal with customer service, collect payments and pass them on to the lender or lenders of the mortgage.

Loan Modifications are too expensive.

A similar line of reasoning points to high cost of modifying a loan. Lowering the interest of a loan or reducing the principal can cost lenders tens of thousands of dollars with the added risk that borrowers can re-default despite the money invested in the loan modification. From a business standpoint if can seem logical for banks to say no thanks to government incentives which are often inadequate and cash in on a foreclosure.

If any of these explanations are true of if they all contribute to the program is hard to say. What does seem clear is that we are dealing with a complex crisis that will not be defeated with any one silver bullet. A combination of economic and social measures will be required to fight the housing, credit and unemployment crisis the U.S and world as a whole faces.

Related posts:

1. Obamas Loan Modification Success Explained
2. Rogue Loan Modification Servicers, What Are The Signs?
3. TARP, Loan Modification And Other Disaster stories.

Related posts:

1. Obamas Loan Modification Success Explained
2. Rogue Loan Modification Servicers, What Are The Signs?
3. TARP, Loan Modification And Other Disaster stories.

Top executives at mortgage finance giants Fannie Mae and Freddie Mac, both of which have been under government control since last year, received millions of dollars in pay this year, according to documents filed by the company Thursday.

What is a NPV test?

If you are trying to work your way through a loan modification you know what it is, if you are planning to get a loan modification you should find out soon.

NPV stands for Net Present Value. It is a financial concept that allows lenders to work out if it is profitable to make a certain financial choice. In the case we are currently considering banks and lenders use the NPV test to decide if it makes sound financial sense to approve a loan modification or not.

Passing the NPV test is paramount if you want to get a loan modification. Put simply if you fail this particular test there is no loan modification for you. The bank will simply foreclose your home and bite the bullet on any losses they have to deal with, you are not worth the risk of a loan modification.

Understanding how the NPV test works is therefore a priority for borrowers. The only problem is that many of the variables in the NPV formula are secret so that homeowners can’t rig the test. However there are some steps a homeowner can take to at least tip the scales in his favor.

The Net Present Value provides a way for lenders to quantify the current value of a property taking certain factors into account. These factors include the cost of foreclosing the property, the chances of the borrower defaulting in the future despite the loan modification, this is called the loan modification re-default rate, which unfortunately for borrowers is rather high.

What can you do to improve your chances of passing the NPV test?

As we mentioned above the exact formula and values of variables are secret to make it harder for delinquent borrowers to influence the test. The test calculates / guesses on various factors:

a)      How many months you are likely to pay before re-defaulting.

b)      What are the chances you can fix your own finances without the help of a loan modification.

c)      The value of your home.

d)     The estimated value of your home next year.

e)      The cost of foreclosing your home.

f)       What the house is likely to go for if it is foreclosed.

However there are three steps a borrower can make to improve his/her chances.

1)      Make it clear that you really want to stay in your house. If you can prove that staying in your house is very important for you despite the financial investment you have vested in your home this will give added strength to your claim. You might want to stay in your home because you live near to your aging parents, or you don’t want to change your children’s school or it would be a huge embarrassment for you to go through a foreclosure. If you prove that you will do anything to avoid a foreclosure the lender might rate your risk of re-defaulting more positively.

2)      The value of your home is critical for your NPV test. Banks expect homeowners that own underwater properties to default. After all why would someone keep paying for a house that is worth less than the mortgage? It is hard to influence the valuation of your home but the federal government’s home value projections change at the beginning of every quarter. Even if you were turned down one quarter there is a chance you could be accepted the next quarter.

3)      Make a good case of your current inability to pay the mortgage but how you are very willing to pay if the monthly payments are reduced. Be prepared to back these claims with evidence. Prepare a budget and provide bills and other proof of your income and expenses.

Related posts:

1. NPV Test, Your Personal Loan Modification Sword of Damocles
2. Loan Modifications Short Guide To Success Part 1 – The Problems
3. Loan Modification Success Report, The Truth Is Far Worse

Related posts:

1. NPV Test, Your Personal Loan Modification Sword of Damocles
2. Loan Modifications Short Guide To Success Part 1 – The Problems
3. Loan Modification Success Report, The Truth Is Far Worse

Loan Modifications have been touted as the solution to all evils brought about by the latest economic crises and as the worst idea an administration has ever had.

The administration shouts out that the whole point of Loan Modifications is to help the middle class by giving them a break on their underwater mortgages while many commentators claim that it is just one more ploy to funnel money to big bank corporations that have already received billions in bailout money.

How is it that such an apparently simple idea as modifying the interest rates, loan tenure, and if the borrower is really lucky, the loan principal, is received with such opposite feelings?

The reason is that it is a loose, loose program where neither lenders nor borrowers get what they really want. The intention was good when designing the Home Affordable Modification Program (HAMP) but just as the Communist Manifesto sounded great on paper, the reality is that in practice it simply doesn’t work.

As nobody gets what they want everybody suspects it is a ploy to steal their money so nobody makes the effort needed to make it happen. Another way to see it is that the government is not creating the incentives that would make the ploy work.

Borrowers Loose:

The whole Loan Modification Program is based on a three month trial period that must be “passed” before the loan mod is permanent. In order to qualify borrowers must provide proof of income, pay their monthly payments on time every month, after which they must supply more paperwork. This creates a bottleneck where a lot of applications come in, 750,000 seems to be the last count, but only a very few actually make it to permanent loan modification, around 31,000. And of the few that make it even fewer are that much better off. The reason being that when a loan is underwater, or put another way, when a borrower owes more than his house is worth, the only real long term solution is to reduce the principal. If you don’t the borrower still owes more than his house is worth and there is little incentive to pay for an investment that is upside down when the borrower could simply walk away from a sour deal and put his money elsewhere.

Lenders lose:

Many feel that the only winners in the loan modification (a.ka. HAMP) program are corporate banks. One argument explains that the whole program is designed to squeeze three extra months out of underwater borrowers that would otherwise not think about paying another month. Others feel that it is only another way to get money to banks through the incentives the program offers.

The three month trial scam does carry some credibility because it costs the bank little to reduce payments for three months and carry on with foreclosure proceedings. The cost of manning the loan modification and running the paperwork would probably be covered by receiving payments from the three month trial.

However it seems silly to think that the whole program is designed to give bonuses to banks. The government only pays a “bonus” to banks when they complete a permanent loan modification and there has only been 31,000 of them up-to-date. The maximum incentive a bank can receive for a loan modification is around $4,000 over a period of three to four years, which means that in total the government will pay in the next three to four years around $124,000,000. Compare $4,000 with the loss a bank incurs when they reduce the interest rate of a loan which climbs into the tens of thousands plus whatever principal reduction might be involved. Although it is true that foreclosures are also expensive it is not as if the government’s measly incentive is going to make a loan modification a great deal. This is why banks are not in a hurry to carry out loan modifications, in most cases it is bad business, and even when there is a small margin to be made the rate of re-default with modified loans is high and banks might just be kicking the can down the road a few blocks.

Related posts:

1. Loan Modifications, Story Of Struggle For Banks And Borrowers Alike
2. Foreclosure Re-default Drops by 26.5 When Loan Modifications Reduce Loan Balance
3. U.S Loan Modifications Hit Obama’s target Early But Nobody’s Impressed

Related posts:

1. Loan Modifications, Story Of Struggle For Banks And Borrowers Alike
2. Foreclosure Re-default Drops by 26.5 When Loan Modifications Reduce Loan Balance
3. U.S Loan Modifications Hit Obama’s target Early But Nobody’s Impressed

New home sales unexpectedly plunged in November, according to a dismal government report.