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Recent projections estimate that by June, over 5 million homeowners will be heavily underwater. Let us define that a little more precisely. You are heavily underwater if the current market value of your home is only 75% of the balance on your mortgage. Between you and me, this means you are pretty screwed. The scary part is that if this projection proves true 10% of all US homeowners will be in this pickle; not the place you want an economy to be if you are trying to dig yourself out of a recession.

This is why the Obama Administration is running about like headless chickens trying to find solutions to this problem, quick, mid-term, and long term solutions; any kind of solution that will get us out of this.

It was this kind of panic that caused the government to put all their weight behind HAMP, the government’s loan modification program. Loan modifications were and always have been procedures designed to help homeowners stuck with sub-premium loans. Sub-premium loans as you all know is a kind way of talking of usury, loans with interest rates so high they give you vertigo if just to think about them. However loan modifications are not, and never have been a fix for homeowners with great loans that are unemployed and cannot afford their mortgage.

What alternative solutions are there?

One proposal is to buy time by simply banning foreclosures until other options have been looked into by the homeowner and lender. You have to love that proposal, if you cannot stop homes foreclosing by economics just make it illegal. As crazy as this measure seems it is designed to buy time and allow homeowners to find ways of keeping their home. This would take the current guideline of asking lenders to evaluate defaulting homeowners for a loan modification to the next level by making it compulsory.

The Mortgage Bankers Association says its members are already following this principle, and that foreclosure is always a last resort when all other options have been exhausted.

Another plan sponsored by the Mortgage Bankers Association is to not modify permanently the loans of troubled homeowners that have lost their jobs but simply to reduce their mortgage payments substantially for up to nine months to give homeowners a chance of looking for a new job.

As you probably guessed the Banker’s Association is requesting Treasury to pay for the program. Nevertheless, it does seem like a good idea to provide a homeowners with a break until he finds a new job than taking forever to marginally reduce the mortgage payments of an unemployed borrower.

However, many are analysts are saying that the real strategy to follow is to find a way to improve the economy. A strong job market would pull out the housing market from the fix it is in. On this theme, there were some good news last week. The number of homeowners starting to default unexpectedly dropped in the fourth quarter of 2009. However, the government also reported that home prices dropped by 1.6% in December; making it clear that the economy still has a long way to go before it gets a clean bill of health.

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1. Foreclosure Re-default Drops by 26.5 When Loan Modifications Reduce Loan Balance
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1. Foreclosure Re-default Drops by 26.5 When Loan Modifications Reduce Loan Balance
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3. Credit Crisis: Are Loan Modifications The Answer

Few subjects have created as much debate as the issue of walking away from of your home when there does not seem to be any financial sense in staying. Walking away from your home when it is worth less than the balance on your mortgage seems like the sensible thing to do for many. Research shows that when homes drop in value by over 25% owners start to think seriously about letting their homes go.

Many ask themselves, “why not let the home go in default and rent a better place for less?

It is worth noting that we are talking about people who can afford their mortgages but simply decide to let their home go as a financial strategic calculation. The difference between truly troubled homeowners that would like to keep their homes and those that are defaulting on a mortgage to save money can be separated by a very thin line. But the evidence points to a growing number of borrowers that simply do not want to live under what many are calling “house arrest”.

Some experts are pointing out that around 17% of those that defaulted in 2008, over half a million homeowners, did so because of a strategic calculation and not due to a lack of income to pay the loan.

It does seem like we are at the turning point in society’s psyche, a kind of revolution. People are not as attached to their property. Mortgage brokers are advising many to walk way, and a lot of them are listening. Something that has become common again is for homeowners to simply mail their house keys to the lender as a way of setting off a foreclosure, what is also called jingle mail.

There is nothing new to this reaction; previous recessions and crisis were also characterized by homeowners walking away from their homes. However what is different is the scale of the number of foreclosures. Four years ago, a handful of people had negative equity on their mortgage, now there are over 4.5 million homeowners whose house is worth less than 75% of the balance of their mortgage. The Real Estate is not doing any favors to the economy and is stalling again; causing experts to estimate that by June the number will climb to 5.1 million in June. That is simply a huge figure, it will mean that 1 out of every 10 homes in the United States will be going through a foreclosure.

Still many believe that this so called jingle mail revolution is the product of the media’s imagination. Something that is talked about but not actually carried out. The figures seem to say otherwise, but it is true that people generally do not want to move. They do not enjoying moving neighborhood, or their children’s school, which is what keeps so many underwater homeowners in their homes.

The eternal question is what the government should do about the whole matter. According to one estimate it would cost around $745 billion to bail out all underwater borrowers in the US. This is a little more than what it cost to bail out the banks in 2008. Most of us think it would be silly and wrong to bail out every troubled homeowner, but if the government does nothing it could cause even more homeowners to walk away, further crippling an already fragile economy.

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1. Loan Modifications, NPV Test the Key to Loan Modification Success
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3. Loan Modifications, What Is The Situation 3 Years After The Housing Bubble Burst

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Battered by the housing crisis, mortgage finance company Fannie Mae said Friday that it needs another $15.3 billion in bailout money from the federal government.

Sales of existing homes unexpectedly fell in January, according to an industry report published Friday.

There is a proposal for new guidelines in the way lenders and servicers deal with borrowers throughout the foreclosure process. These new guidelines are designed to improve communication between lenders and borrowers to improve the rate of troubled borrowers receive a loan modification for their mortgage.

One of the issues that leave many homeowners without a home is time and awareness. Troubled homeowners that are behind on their mortgage often do not realize the details of what will happen to their home and when.

This proposal suggests that lender and loan servicers, which are the companies that actually manage mortgage payments, should be required to provide homeowners with at least 30 days to reply when their loan modification has been denied under the HAMP program. These 30 days would give the borrower time to appeal, time during which the lender would not be allowed to continue with the foreclosure procedure.

The new guidelines would also put the responsibility on lenders and servicers to contact borrowers that are 60 days or more behind on their mortgage payments and fill the basic requirements for a HAMP loan modification. The guidelines are very specific in the nature of the notifications lenders must make before a foreclosure can proceed. There must be at least 4 telephone calls, two notices in writing, one of them which must be by certified mail. If these guidelines are approved it will mean a drastic increase in the work required for lenders to carry out a foreclosure. Extra staff will have to be brought in to fulfill these requirements.

However, these guidelines would also provide lenders with the right of denying a loan modification application that was filed within 6 days of a foreclosure sale. Loan Modifications can be lengthy processes and include a large investment in time and resources for lenders and servicers. Nevertheless, lenders will have to inform borrowers of the foreclosure schedule, and the deadline they must meet so that their application can be considered.

These are part of a list of requirements and guidelines the US Treasury is considering in their efforts of improving the rate of loan modification trial conversion and the number of troubled homeowners that apply for a loan modification. The idea is to screen those that actually qualify for the HAMP program and would benefit from the aid it provides.

Unfortunately the HAMP program is only designed to help troubled homeowners that still have a regular income and whose home has not dropped in value too drastically. For instance, if your mortgage is worth over 150% of your current home value, you might struggle to pass the NPV test required for a loan modification.

These proposals are working in line with others that are also being prepared for California and four other states that have suffered from a severe drop in house prices. The Obama Administration announced last week that these states will receive 1.5 billion dollar to be used at the discretion of each state to provide flexibility when considering borrowers for aid and loan modifications.

Related posts:

1. Loan Modification Low Numbers, Why?
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3. The Obama Loan Modification Plan, An Overview

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1. Loan Modification Low Numbers, Why?
2. Loan Modifications Are Going To Be Simpler, What Do You Need Now?
3. The Obama Loan Modification Plan, An Overview

The Mortgage Bankers Association proposed a forbearance program Wednesday aimed at helping the unemployed pay their mortgages for up to nine months.

Despite signs that the real estate market might be lurching forward, prices are expected to fall further this year.

It is hard to believe that three years have gone by since the housing market took a dive drowning with it millions of American homeowners. So what is the situation now? Have we hit rock bottom? Are the Administration’s measures starting to work?

Let us start with the good news. There are now over one million homeowners benefiting from temporary or final loan modifications. Admittedly, most of them are still in the trial period, but nevertheless, the Administration has made an effort to ‘encourage’ lenders and servicers to make an effort, sometimes by using a carrot and other times by brandishing a big stick. Another good newsbyte is that the rate of troubled homeowners, people behind on their payments, is dropping.

Also, new measures are being carried out as we speak. Just a few days ago Obama announced another program to avoid foreclosures. The program included offering $1.5 billion to housing agencies in California and four other states. These states have been especially hit by a fall in house prices making loan modifications harder to qualify for. This new program aims to provide these hard hit states with extra flexibility that will allow them to provide the help troubled homeowners need.

Unfortunately the good news is over. The bad news is that nearly 3 million homes are going through foreclosure and 4.5 million will do so this year according to conservative estimates. Another problem is that the figures we have may not even be telling the full story. Experts say that lenders have an estimate of 1.7 to 7 million homes in a shadow list of foreclosed home they are yet to put for sale. This fudges our foreclosure figures.

High foreclosure rates do not only affect the owners, it also lowers the price of homes in the neighborhood and cripples the economy as a whole. The question many are asking and we have discussed widely in this blog is how much should the government help. It is a fact that many borrowers overstretched their budgets to breaking point; these cannot and should not be bailed out. However, the fact remains that loan modification trial and completed number should be higher.

Another problem is the high re-default rates. These rates show some of the inadequacies of the current loan modification system. Studies show that re-defaulting rates are lower when the principal balance of the loan is trimmed or reduced. Unfortunately most loan modifications simply extend the term of the loan or reduce the interest rate.

What can the government do? Extra incentives for lenders and servicers might just make them weight for the next best deal, instead of focusing on providing fast loan modifications now. An idea that has been thrown around that seems promising is to give bankruptcy judges the power to write down mortgages like they can write down other kinds of debt. It is very likely that this would increase the interest rates of new loans to reflect the increased risk of loan balance reduction. However, it would provide a good incentive for lenders to negotiate reasonable loan modifications before a judge tells them to.

Related posts:

1. Loan Modifications Are Going To Be Simpler, What Do You Need Now?
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

Related posts:

1. Loan Modifications Are Going To Be Simpler, What Do You Need Now?
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

Sales of new homes plunged in January to the lowest level on record, government figures showed Wednesday.

More bad news on the housing bust front: Nearly 25% of all mortgage borrowers were underwater, meaning they more on their loans than their homes are worth.