The latest federal report on loan modifications shows that loan modifications carried out from January to April 2009 had a re-default rate of 51.5%. Re-default is defined by the report as any modified mortgage that has pending payment that is 30 days or more late. The same report highlights that re-default rates of modified loans in the last 12 months is 57.9%. This means that loan modifications are a) not doing what they are meant to; help people keep up with their monthly mortgage payments. And b) are getting worse at it.
Homeowners that have qualified for loan modifications are still struggling to make payments for a variety of reasons. Some have since lost their jobs, or their income has been reduced. Others simply do not see the sense in continuing to pay for a mortgage that is completely underwater. There are a lot people in that last category; around 24% of all homes with a mortgage on them were underwater in the last quarter of the 2009. The median price of a house in the United States has dropped by 28% since July 2006. It does not take a degree in Economics to see that loan modifications are just not working.
The question is why bother spending money on loan modifications that do not help homeowners keep their homes? A growing number of analysts are saying there is simply no rational reason to rewrite all these underwater loans. The number of homes facing a foreclosure is huge. The last quarter of 2009 had 2.39 million borrowers that were 60 days late on their mortgage payments, which is nearly a 50% rise from the previous year.
The pressure is on for the Obama administration to provide real solutions to the oncoming wave of foreclosures. Projections expect over 4.5 million foreclosure filings just this year. Some critics say the government’s current loan modification program is a disservice to the public, because it has extended the problem over years by helping homeowners, but not enough to make a real difference.
Of the 594,000 loan modifications that have started the application process from September to December process only 21,000 have received a permanent modification. In the entire lifetime of the HAMP program only 168,708 have received a loan modification, according to the Treasury’s own analysis.
Not surprisingly, owners whose mortgage monthly payments were reduced the most had the least chances of re-defaulting on their homes. The magic number of loan modifications seems to be 20%. When a loan modification reduces monthly payments by over 20% re-default rates dropped considerably.
One of the big issues that feed on this scenario is that many homeowners are underwater on their homes and are not interested in keeping their homes. They prefer to simply let them go back to the mortgage owner. Treasury has responded to this issue by creating HAFA, a mortgage aid for designed to get people to short sale their home. HAFA helps to fast track the short sale process by paying servicers, junior lien holders and borrowers to complete a short sale.
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Loan Modifications do not seem to be the solution Government hoped it to be. It is having some success, over 650,000 trial loan modifications, but the floodgates of foreclosure risk homes are not even close to being closed. Of the 650,000 trial loans only 1,711 borrowers got a permanent loan modification. Many experts predict that few of the trial loan modification will work long term and that most troubled borrowers will ultimately foreclose on their homes.
This bleak outlook has made Government and Federal Agencies look elsewhere to provide alternative options to loan modifications. One of these options, Deed for Lease, we mentioned last week and we are going to take a second look at it.
This option which has been kicked around in the nationwide housing crisis debate was finally taken on by Fannie Mae which has started to offer leases of up to 12 months when other avenues to keeping families in their homes, like loan modifications are unsuccessful. Some like Dean Baker, co-director of the Center for Economic and Policy Research see it as a great step forward in Government policy.
So will Dead for Lease, renting your own home be a viable option for struggling homeowners?
It is certainly an interesting idea. On one level it could be seen as a win-win option for pretty much everybody, at least in certain circumstances.
Win-win, because struggling homeowners get a chance to stay in their home when it has been settled that they can’t afford their mortgage but can afford the market rent of their home. It would also be good news for the neighborhoods struggling homeowners live in as it would avoid the drop in house prices foreclosed ridden neighborhoods are characterized by.
Even lenders may find this option appealing as an alternative to selling properties at cut rate prices. Lenders could turn landlords for as long as the market takes to turn around when they could sell the properties.
However few are predicting an avalanche of copy cat programs following Fannie Mae’s Deed for Lease program. Why? Two main reasons stand out.
1) Legal liability. Once a bank turns landlord he acquires responsibilities towards his tenants, the previous homeowners. The tenants could demand work being carried out on their home if there are cases of mold, Chinese drywall or other hazards in the home.
2) Banks are lenders not landlords. Most business like to stick to what they do best and not get into others types of business. As Chase spokesman Tom Kelly is reported to have said: “We’re not really equipped to be landlords”. Lenders in the U.S are sitting on nearly half a million repossessed homes. The operation required to manage leases on such a volume of homes does not seem attractive to many lenders at this moment. Most prefer to dump the properties on the market even if it is a buyer’s market and prices are very low.
Fannie Mae has subcontracted landlord management duties to another country but it is doubtful other companies will follow suit.
3) Leasing properties is often not as profitable as selling, especially when your business is not geared to managing a rental operation.
These reasons would indicate that Deed for Lease will not be a big deal in the mortgage market, at least for now. However there is no reason it won’t take off later on. There are many examples of housing policies starting small with federal housing agencies (like Fannie Mae) and then exploding to take nation and industry wide importance. A good example of this are loan modifications.
Many economists predict that loan modifications will not stop the avalanche of foreclosures caused by an ever increasing rate of unemployment and a nationwide drop in home prices. This might provide a chance for more attention to the idea of renting homes back to previous owners if the market is so saturated selling is no longer a viable option.
Related posts:
Loan Modifications do not seem to be the solution Government hoped it to be. It is having some success, over 650,000 trial loan modifications, but the floodgates of foreclosure risk homes are not even close to being closed. Of the 650,000 trial loans only 1,711 borrowers got a permanent loan modification. Many experts predict that few of the trial loan modification will work long term and that most troubled borrowers will ultimately foreclose on their homes.
This bleak outlook has made Government and Federal Agencies look elsewhere to provide alternative options to loan modifications. One of these options, Deed for Lease, we mentioned last week and we are going to take a second look at it.
This option which has been kicked around in the nationwide housing crisis debate was finally taken on by Fannie Mae which has started to offer leases of up to 12 months when other avenues to keeping families in their homes, like loan modifications are unsuccessful. Some like Dean Baker, co-director of the Center for Economic and Policy Research see it as a great step forward in Government policy.
So will Dead for Lease, renting your own home be a viable option for struggling homeowners?
It is certainly an interesting idea. On one level it could be seen as a win-win option for pretty much everybody, at least in certain circumstances.
Win-win, because struggling homeowners get a chance to stay in their home when it has been settled that they can’t afford their mortgage but can afford the market rent of their home. It would also be good news for the neighborhoods struggling homeowners live in as it would avoid the drop in house prices foreclosed ridden neighborhoods are characterized by.
Even lenders may find this option appealing as an alternative to selling properties at cut rate prices. Lenders could turn landlords for as long as the market takes to turn around when they could sell the properties.
However few are predicting an avalanche of copy cat programs following Fannie Mae’s Deed for Lease program. Why? Two main reasons stand out.
1) Legal liability. Once a bank turns landlord he acquires responsibilities towards his tenants, the previous homeowners. The tenants could demand work being carried out on their home if there are cases of mold, Chinese drywall or other hazards in the home.
2) Banks are lenders not landlords. Most business like to stick to what they do best and not get into others types of business. As Chase spokesman Tom Kelly is reported to have said: “We’re not really equipped to be landlords”. Lenders in the U.S are sitting on nearly half a million repossessed homes. The operation required to manage leases on such a volume of homes does not seem attractive to many lenders at this moment. Most prefer to dump the properties on the market even if it is a buyer’s market and prices are very low.
Fannie Mae has subcontracted landlord management duties to another country but it is doubtful other companies will follow suit.
3) Leasing properties is often not as profitable as selling, especially when your business is not geared to managing a rental operation.
These reasons would indicate that Deed for Lease will not be a big deal in the mortgage market, at least for now. However there is no reason it won’t take off later on. There are many examples of housing policies starting small with federal housing agencies (like Fannie Mae) and then exploding to take nation and industry wide importance. A good example of this are loan modifications.
Many economists predict that loan modifications will not stop the avalanche of foreclosures caused by an ever increasing rate of unemployment and a nationwide drop in home prices. This might provide a chance for more attention to the idea of renting homes back to previous owners if the market is so saturated selling is no longer a viable option.
Related posts:
HARP, the government Home Affordable Refinance Program has consistently grown and expanded the help provided as more power and finances are invested in this program.
If you are in danger of losing your home or are struggling to make payments HARP could provide you with the break you need to get back on your feet.
If you are in that situation you probably have many questions you would like answering. How can I know if I am eligible for aid under HARP? How do I know if I will actually benefit from a HARP loan refinance? Or probably the scariest, I owe more on my property that it is worth, do I still qualify for a refinance with HARP?
What are the requirements to qualify for HARP?
1.) Your loan must be owned or guaranteed by Fannie Mae or Freddie Mac. Most people don’t actually know if this is the case and unfortunately in many of the hardest hit areas by the economy in the United Sates Freddie and Fannie don’t guarantee a large percentage of the loans. For you to find out if your loan is guaranteed or owned by Freddie and Fannie you can either contact your mortgage provider or find out at their respective websites.
For Fannie Mae 1-800-7FANNIE (8am to 8pm EST). www.fanniemae.com/loanlookup . For Freddie Mac contact -800-FREDDIE (8am to 8pm EST)
o www.freddiemac.com/mymortgage
2.) The amount you owe on your FIRST mortgage cannot exceed 125% of the value of your home. This figure has been increased a few times in an effort to include those that really need the HARP program.
3.) You must be current on your mortgage payments. Current means not having being later than 30 days on your payment in the last months or never having missed a payment if you have had the loan for less than 12 months. It seems strange that a mortgage aid program will only allow people that are “current” on their payments to participate, however the idea of the program is to provide long term help allowing homeowners that can reasonably rearrange their finances to pay their mortgage not provide emergency help to people who simply cannot meet their mortgage payments.
4.) The loan modification must improve the overall long term affordability of the loan. This can me an different things depending on the mortgage. For instance if you switch from a variable interest or ARM mortgage to a fixed interest mortgage your initial payments might rise a little but your long term stability and ability to pay for your mortgage may increase.
How can you know if you a HARP loan modification will benefit you? The key is to understand the cost and benefits of your loan and to get that information you need to documents, a “Good Faith Estimate” and a Truth in Lending Statement”. The two disclosures will spell out for your new interest rate, mortgage payments, fees and other expenses. You can then compare the “new deal” with your current mortgage to assess if it is actually beneficial for you.
I hope this article has answered some of your questions on HARP. However if you are thinking of applying for help you have probably got many more questions, the best thing you can do is visit HARP’s website at www.makinghomeaffordable.gov where you will find these and other questions answered.
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It looks like it going to be a busy year for do-it-yourselfers. A new poll from Consumer Reports reveals that 54 percent of homeowners participating in the poll plan some type of remodeling project during the next 12 months. Sixty-five percent of them plan to do the work themselves.
Now, remodeling is not unknown among homeowners, even during boom times. The recent economic downturn, however, has forced 67 percent of homeowners to rethink their plans. The biggest changes to remodeling plans include:
According to the Consumer Reports poll, the most popular types of work include painting (56 percent), designing (39 percent) and flooring (34 percent). The most popular remodeling projects are kitchens (19 percent) and bathrooms (17 percent).
“Whether homeowners are venturing into a project themselves or plan to hire a professional, you need to lay out a budget, decide what you want most at the end of the project — and decide what you can live without,” advises Bob Markovich, senior home editor at Consumer Reports. “The more homeowners know what they’re getting into, the more money they’ll save.”
Remodeling funds come from a variety of places. Most homeowners, 66 percent, support their projects with their savings. Others, 29 percent, plan to cut back on travel and entertainment while another 21 percent are using a home equity or other loan.
The biggest reason consumers are cutting back on remodeling is that they simply do not have the money, according to 42 percent of respondents. Many homeowners, right now, are focused on paying, modifying or refinancing their mortgage rather than remodeling. There are homebuyers out there, like Chad and Brittany Johnson in Ohio, who purchase a foreclosure home for far less than market price and immediately remodel it.
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