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Houses look more affordable than ever. But prices will have to fall further before many Americans can actually afford to buy one.

Despite a recent spate of bad news coming out of the housing industry, home prices show signs of stabilizing.

Obama’s Loan Modification programs have been criticized for their lack of results. But what are these results? The March Servicer Performance Report is fresh off the press, so let us have a quick look at what it has to say.

The highlights for HAMP are that more than 230,000 mortgages have been permanently modified. 108,000 loans have been approved by the lender and are simply waiting for the borrower to sign the final papers. That gives us a total 338,000 loans with permanent modifications. The other big newsbyte is that over 1.1 million trial loan modifications are active under the HAMP program. As you all know these trial loan modifications last for three months. If at the end of this period the borrower has provided all the relevant documentation and is up-to-date with his mortgage payments he is given a permanent loan modification. That is, of course, the theory.

According to MHA these loan modifications represent over $3 billion dollars in savings for monthly mortgage payments. The bad news on the report is the number of trial modifications added in the March has dropped to 57,000 from 72,000 in February. The reason for this, according to HAMP’s spin, is that servicers and lenders are requiring upfront documentation before trial modifications start. This has been a bone of contention with critics of the program that see the trial loan modification (without prequalifying the necessary documents) as a way of getting troubled borrowers to pay for three extra months and then deny them the loan modification on the basis of pending paperwork .

The flip side on the reduction of new trial modifications is there has been an increase of 15% in the number of permanent loan modifications approved in March. The story MHA is spinning is that numbers are dropping because of prequalifying filters servicers are introducing. The biggest issue with the Making Home Affordable Program is it doesn’t tackle the real issues of the housing crisis. Interest rate reductions of loans can substantially reduce the cost of a mortgage. A drop of 1% translates into savings $1,500 in most cases. The problem is that high interest mortgages are not the biggest problem any longer. Unemployment is.

MHA understands this and is providing alternatives programs to HAMP that provide specific aid to unemployed homeowners. The latest program for unemployed started this month. It provides loan modifications of mortgage payments to 31% of the unemployed worker’s income for a 3 to 6-month period. The question is will these measures provide real aid to those that need it and not just throw good money at lenders and servicers with little long term benefits for borrowers.

Related posts:

1. Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories
2. Loan Modifications Update: The Spin and the Truth
3. Treasury Moves The Goal Posts of HAMP and Lowers Expectations for the Loan Modification Program.

Related posts:

1. Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories
2. Loan Modifications Update: The Spin and the Truth
3. Treasury Moves The Goal Posts of HAMP and Lowers Expectations for the Loan Modification Program.

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.

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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.

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.

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.

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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.

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

The news is full of loan modification horror stories describing how homeowners have struggled for months with lost documents, changing standards, unreasonable loan modification agents and the slow tides of bureaucracy. Bad news does always seem to travel faster and further so you don’t hear half as much about the hundreds of thousands of loans that have been successfully modified.

However the question still remains why loan modifications are moving so slowly if the government is willing to pay the bill for the expenses mortgage servicers and investors have to incur when modifying a loan. Recent studies seem to indicate the reason is that the incentives and handouts the government is making through HAMP and TARP just don’t cover the real cost of modifying the fast increasing volume of loan modification applications.

How can this be so when TARP and HOPE have deep pockets of over 75 billion dollars? The answer seems to lay in the mortgage servicers, the companies that collect monthly mortgage payments and then distribute them to the investors that lent the money in the first place. Mortgage servicers have found it is often cheaper to foreclose on homes than to offer a loan modification even though a loan modification would benefit both the borrower and the investor.

The key is not only the rate of return when managing loans and loan modifications but the expenses related to the operations. The assumptions we generally have as consumers is that foreclosures are a bad deal for everyone. Numbers that are thrown around for example are losses of 10 to 20 percent for lenders on short sales while lenders have to face 20 to 30 cents to the dollar when dealing with foreclosures.

These figures only tell part of the story, mortgage servicers have other ways of measuring profit and often have different priorities. A recent report examined foreclosures between 1995 and 2009 and found that loan servicers made more money by offering forbearance (a period of time where the borrower does not have to make payments so he can consolidate his finances) than by cutting principal or reducing rates of interest, which is what loan modifications do.

This means that when deciding between foreclosure and loan modification loan servicers have to choose between certain loss with loan modifications and potential profit if they foreclose the loan. What would you do? Exactly. This is why loan servicers have been dragging their proverbial feet with loan modifications. Of course there are also other issues to consider like public opinion and bad publicity. The government has tried to use this weapon by publishing loan modification leagues that encourage banks to reorganize their systems to increase loan modifications.

So what is the solution? No easy fixes obviously or they would have already been implemented. However the administration could enforce stricter rules that regulate foreclosure and make loan modifications more attractive like regulating loan originations, mandate loan modifications before foreclosure or have third party loan modification mediation programs that control what mortgage providers do.
The best thing you can do now if you are at risk of foreclosure or behind in your payments is to contact the HOPE program by visiting their website or calling 1-888-995-HOPE.

Related posts:

1. Credit Crisis: Are Loan Modifications The Answer
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

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1. Credit Crisis: Are Loan Modifications The Answer
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

Debt consolidation and debt settlement adverts are all over the media lately. This is quite predictable when millions upon millions of Americans are behind in their payments and risking foreclosure on their mortgages besides being maxed out on their credit cards. Understanding what each debt management system will do for you and which is the right one for you is vital if you are in serious debt and are struggling to make payments.

Debt Consolidation.

You have no doubt seen many adverts promising to consolidate your debts into one large loan that will charge you a lower interest rate and cheaper monthly payments. These debt consolidation loans do exist and can work for you if you choose the right loan. Of course they can also be the biggest financial mistake you make.

Understanding how debt consolidation loans work is the key to making the right choice.
Debt consolidation generally works as a secondary or even a primary mortgage loan. A debt consolidation company will buy off your other debts and  put them together into a mortgage-like loan. This makes your interest rate drop as the loan is secured by your home. The bad news is that the security for the loan is your home. If you don’t make payments your loan is at risk. However if your debts are on your credit cards or car loan and you do not make payments your debtors cannot force you to sell your home. However if your lender provides you with a debt consolidation secured by your home you could be forced to sell to pay the loan.
Another risk related to debt consolidation loans is that they can be expensive and incur in high setup fees which increase the principal on your debt and the interest you pay throughout the lifetime of the loan.

Debt Settlement.

Debt settlement works on a different premise. You settle directly with your lender and doesn’t involve a third party that buys your debt, reducing expenses significantly.
In order to settle your loan you must contact the debt settlement department of your bank and explain that although you would love to pay your loan you currently cannot afford to do so. They will ask for a load of information on your income and expenses and see what modifications they can make on your loan.

Modifications can include reducing the principal amount of your loan, increase the length of your loan and even reduce the interest rate.
The problem with debt settlement is that it destroys your credit rating as you are basically telling your lender you can’t pay your debts and that you need their help. That is not going to make you very popular with lenders.

A soft form of debt settlement is being encouraged by the government through the loan modification program.  It is well worth contacting the H.U.D (Housing and Urban Development department) to see if you can qualify for mortgage aid.

Which is the right debt management for you? Doing your own research is the key to find out. Neither of these options are without its disadvantages which is why planning and research are vital.

Related posts:

1. So What Is A Debt Consolidation And Is It A Good Idea For You?
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We live in the age of information. That is good and it is bad. It is good because you can get information from a great variety of sources and have the choice of seeing the world from a number of perspectives. The bad news is that you really need to get your information from a variety of sources because it is hard to know who to trust or who got the story right.

An example of this occurred last Wednesday when we received conflicting reports. The Mortgage Bankers Association said mortgage loan applications were up 16.1% for the week ending August 7 in relation to the same week last year. This news item seemed feasible because there has been an increase in the home sales in the second quarter in 39 states.  Other figures also seemed to support this with mortgage refinancing accounting for 52.3% OF mortgage applications and adjustable rate mortgage applications also rose by 0.4%.

On the other hand, Reuters saw the situation in a completely different light by focusing on a different perspective of the situation.  Reuters looked at  a week over week seasonally adjusted  decline of 3.5% which is not exactly the good news the Mortgage Bankers Association reported.  Reuters cites the increase in interest rates as the reason for the drop coupled with the current 9.4% unemployment rate which is keeping homebuyers shy and cautions because of the economic climate.

So who is right? Are mortgage rates rising or dropping? The answer is that both are right, they just are focusing on different data to express their opinion. It is left to you to decide what argument is more compelling.

The Mortgage Bankers Association chose to compare this last week with the same week last year while Reuters analyzed the behavior of the market week over week.

To illustrate how this can affect our view of the situation look at these mortgage figures. The Mortgage Bankers Association reported that the cost to borrow on a 30 year fixed rate at 5.38% a rise of 0.21 percentage from the previous week. The lowest interest rate or cost to purchase a mortgage hit an all time low of 4.61% in the end  of March. If you look at these figures it does seem like things are going rather badly and that the Mortgage Market is falling.
However if you compare this week’s interest rate with last year’s in the same week you see that last year the 30 year fixed rate mortgage was a the hair rising rate of 6.57%! A far cry from the 5.38% we now have.

So are we rising or falling? We are both it just depends what point of reference you choose.

Related posts:

1. Mortgage Applications Fall as Interest Rates Rise
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