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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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Loan Modifications are not providing the help American homeowners need. Of the millions of troubled borrowers only a small percentage qualify for a loan modification trial and most of the lucky ones get stranded in the way.

This article will provide you with a list of simple steps that will increase your chances of getting a permanent loan modification.

The number  one reason why loan modifications don’t work.

Before we get into the practicalities of how to find your way through the maze of loan modifications it is worth spending a few words on the top reason why loan modifications are not working: They Don’t Address the Real Problem.

The real problem is unemployment and the Credit Crisis.

The fastest growing demographic for loan modification are prime mortgages. These are good mortgages, bought by borrowers with high credit scores that can’t pay their mortgage because of the increasing rate in unemployment. Unemployed borrowers struggle to get a loan modification because you can only qualify if you can prove you have nine months of unemployment benefits lined up. Most unemployed borrowers are unlikely to fulfill this requirement.

The other big reason loan modifications might not work for you is that your mortgage might be the least of your credit problems, you might be overstretched on your car loan, credit card loan, and other personal loans. Many commentators feel the government is trying to deal with a Mortgage Crisis when what they should be dealing with is the broader Credit Crisis.

First Step. Get the Information You Need.

Visit the government’s official website at www.makinghomeaffordable.gov . There you can find:

1)      The current sponsored program the Government is touting.

2)      Useful forms to help you compile the information you need to supply to lenders.

3)      Find the closest government paid advisor that can provide you with personalized guidance.

Second Step. Decide what you can pay, and be realistic about it.

There is such a thing as a BAD LOAN MODIFICATION. After months of wasted time and resources some borrowers end up with a loan modification they still can’t pay.

You need to figure out what you can truly afford to pay on your mortgage every month. The government guideline is 31% of your monthly income but that might not work for you. Get some real figures together. How much do you spend on housing costs? What is your income, or average income if you’re self employed or work on commission. Put all this on paper, your lender will want a look at it.

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The big news in town is that the American economy is growing. As Obama reported on Monday “Our economy is growing again for the first time in more than a year”. This is good news for a president that has been hard hit by the economy and whose dream public approval ratings have dropped with the economy. However Obama added: “ We cannot sit back and be satisfied given the extraordinarily high unemployment levels that we have seen”.

The U.S unemployment levels are currently at a 26 year high of 10.2 percent. This percentage reflects a 10.2 percent of people that can and want to work that are currently unemployed. For other industrialized countries like France, Germany, Spain or Norway that level is not good but is far from terrible. For countries like France 10.2 is actually close to business as usual. Of course these countries have a completely different economy that allows for or even creates high unemployment levels. The U.S however is not ready or willing to withstand such levels and needs to change for any lasting improvement to occur with mortgages or the economy as a whole.

The current growth in the economy is according to Obama (and his many economy advisors) a result of cost-cutting across the board that has generated a surge in U.S productivity. Unfortunately this increase has not led to hiring, business seemed to be happy to sit on the rise of productivity for now.

The question is if this surge will continue and help the U.S mortgage crisis. Over 1 in 7 homeowners is foreclosing on his home or over 30 days behind on payments. This number will only increase if unemployment does not start to drop.

The latest demographic to join the fascinating statistics of foreclosures is not the typical subprime borrower with bad credit and worse loans. The demographic that is pushing the foreclosures rates is people with great credit scores and prime mortgages that have lost their unemployment. Tackling this issue will be difference between truly jumpstarting the economy or the dying candle that shines the brightest before fading out.

The mortgage crisis, the larger credit crisis and the economy in recession as a whole have crippled the government’s tax revenue. This makes traditional tax rich popular solutions harder and harder to justify and it may no longer be available for the government in their efforts of re-starting the economy.

Cheaper methods are now being looked at. Tax breaks and other incentives are being considered for companies that increase their payrolls. These might prove effective, however if you are in a position to take advantage of the tax incentives now on offer this might be the time to take advantage while they are still available.

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1. Loan Modifications No Match For Rising US Foreclosures.
2. Loan Modifications No Match For Rising US Foreclosures.
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Big Banks are in trouble as more and more families are unable to pay their mortgages. The problem is that troubled homeowners are no longer the “typical” borrower with subprime loans with high interest rates. High unemployment is creating a whole new demographic of troubled borrower with “good” loans they can simply not afford anymore.

Another problem is the existence of billions of dollars in option-adjustable rate mortgages which are a totally different ball game to subprime mortgages or prime mortgages.

Wells Fargo & Co. the fourth largest U.S bank is a good representative of this situation with over $107 billion in option adjustable mortgages. This loan product is as typical as it gets in housing boom “crazy” products. Option adjustable mortgages allow (or allowed, not many are sold anymore funnily enough) borrowers to make small monthly payments in return for increasing their mortgage balance. This effectively allowed borrowers to choose how much to pay as their monthly mortgage payment. The result was that many of us fell for the belief that the housing boom would never end and that our homes would continue to increase in value offsetting any increase in mortgage balance due to small monthly payments below the cost of interest.

The problem now, of course, is that many Pick-A-Pay borrowers own homes that are worth much less than what they owe in mortgage debt and just about as many can’t afford a monthly payment that will pay off any of the mortgage principal.

What can banks do? Wells Fargo is taking one big gamble by issuing interest only loans in the thousands. These interest only loans will defer borrower’s balances for up to 10 years. The gamble is that housing prices and consumers income will rise, especially in the hardest hit parts of the country, and cover the billions of dollars in underwater debt.

Although borrowers that are struggling to pay their mortgages and fear losing their homes will probably be happy to take anything that will keep them afloat during these hard times it is hard not to see this measure as a very high risk one. One newspaper compared this “solution” as a game of kick the can down the road where the “problem” is kicked into the future hoping it will disappear. However with loan modifications hardly making a dent into the number of homeowners facing foreclosures it is hard to see many better alternatives to these extreme measures.

If you own a Pick-A-Pay mortgage and are struggling to pay enough to reduce your mortgage principal it is paramount that you get good personalized advice. The best advice comes from the government and they have a vested interest in your success. You can call HUD for approved housing counseling at 239 434-2397 or visit www.hud.gov.

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Mortgage foreclosures are increasing steadily as home values plummet and layoffs are becoming ever more common while homeowners crumble under the weight of mortgages they can no longer afford.
The administration is working hard to increase the number of loan modifications to help out struggling homeowners. However higher unemployment rates are making it hard for homeowners to afford even good prime mortgages loan modifications struggle to improve. Also, foreclosures often prove to be a cheaper alternative for mortgage providers when the real cost of loan modifications is calculated.
So what can be done to fix this situation? Although far from total solutions I will put forward five possible measures. Some would be unpopular, others hard to implement but the truth is that easy fixes are just not there to be found.
1)    Mandate Loan Modifications.
Up to now the government has tried to court mortgage providers into making loan modifications. Providing incentives and often footing the entire bill of loan modifications. This could be changed if the administration regulates foreclosures and makes it a legal requirement for banks to offer modifications before they can foreclose a loan or mortgage.
2)    Provide Principal Reductions on Existing Loans.

Unless you actually reduce the principal (amount borrowed) of a loan you are not really helping, just lengthening the loan and making it harder regain equity on the home. Equity is the best incentive for homeowners to pay their mortgage payments. If you feel your home is worth more than you owe on it you see it as an investment worth protecting that you can sell at a profit if things get real bad.

3)    Ease Accounting Rules for Loan Modifications.

Messy accounting procedures and bureaucracy’s red tape is responsible for much of the cost of loan modifications making them hard to enforce and expensive to make. Even the 500,000 plus loan trials the HAMP program has managed to make ahead of schedule will have to undergo further paperwork and potential bureaucracy pits once the three month trials are finished which will probably cause many of the loan trials to fall through.

4)    More Transparent and Uniform Loan Modifications Reports.

Every bank or mortgage provider seems to have their own system to measure eligible borrowers and how they report their loan modifications. This makes it difficult to set uniform procedures, require targets and regulate the efficiency of loan providers.

5)    Limit Fees For Borrowers.

Fees charged to borrowers are so high that even if a homeowner falls in difficult times for brief period he/she can fall into a spiral of debt due to the high fees and penalties he or she incurs. Also, loan modifications tend to include expensive fees for the homeowner just to apply for.

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1. U.S Loan Modifications Hit Obama’s target Early But Nobody’s Impressed
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Last week’s big news in loan modifications was that HAMP, Obama’s administration’s program to get troubled (i.e. 60 days behind their payments) loans back in line with “aggressive” modifications made its first target of 50,000 trial loans before November. That is what the government hoped anyway.

The big news this week could be that foreclosures seem to be slowing down as well as loan delinquencies fall from peak. That is an interesting way of saying that things aren’t as bad as when they were at their worst. But, hey, when you are in a world credit crisis you have to make the most of good news.

Why are things getting better? Is the Government’s program proving its worth?

You will get a whole lot of opinions on that. Let’s try and hang on to a few important facts to get some perspective on the whole issue.

- A target few thought possible was achieved through sweat, blood and tears.

- Foreclosures are no longer only coming from subprime mortgages that need the help of HAMP to lower interest rates but are increasingly coming from prime mortgages with good interest rates. This is because the current crisis is not only a mortgage interest crisis but a credit crisis. People have over borrowed not only on their homes but on their cars, their credit cards and when they lose their high paying jobs they are in trouble and of course mortgage payments are right at the top of the loans they are trying to pay back.

- Banks are starting to work hard to meet the targets set by the administration. One example is the First Federal Bank of California a subsidiary of FirstFed Financial Corp has modified more than 1.4 billion dollars worth of home mortgages, averting 3,000 mortgages from foreclosure. In fact this relatively small local bank is doing very well when compared to banks nationally. The great results in loan modifications at First Federal Bank of California are strongly linked to good results in other related areas like loan delinquencies which have also declined significantly from previous peak levels. For instance loans that were 30 to 59 days behind payments were 55 percent lower than in January.

How did First Federal Bank of California pull this off?

I don’t know. They will happily say it is there interest in their client’s real needs that allow them to provide realistic modifications to their loans which provides sustainable loan payments for borrowers. What can’t be argued is that this bank is meeting and exceeding government’s expectations.

One of the factors that might be contributing towards this is that smaller banks can modify and fine tune their management faster and more efficiently. Smaller can be better in business and banks have complained about the difficulty of changing the cogs of their corporations to provide fast loan modifications.

What is amazing is that after 6 months we know the government is on target (at least their first target) but we’re not sure if it is aiming for the right target, subprime mortgages.

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Today is the day the recovery starts, at least according to those peering into the rosiest-colored crystal balls. The Wall Street Journal dug up these great examples:

Most forecasters seem to expect growth to be weak for a few quarters, but then rebound back to trend in the second half of 2008… –Lehman Brothers research note, Dec. 12, 2007

What is shaping up as the deepest and longest recession since the 1930s will end in the second half of 2009. –Wells Fargo press release, Dec. 19, 2008

And what news did we wake to on this glorious July 1?

First, mortgage application dropped 30% last week. The report from the Mortgage Bankers Association says this is a the lowest the rate has been at in seven months. Biggest reasons for this are people’s concerns about their jobs and mortgage rates. Currently the 30-year fixed is averaging 5.34%.

Second, delinquency rates for the LEAST RISKY MORTGAGES more that doubled in the first quarter compared to the same period in ‘08.

Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.                                                                

(Hat tip to Implode/Explode)

These are just the latest evidence of the new wave of foreclosures. A month ago Mark Hanson of the Field Check Group wrote that the price-collapse we have been seeing in low- to mid-priced homes is now spreading to the mid- to high-priced sectors.

Mid-to-high end [Notice of Disclosure] and foreclosure counts stand between 35% and 40% of total counts but account for only about 20% of total sales. This means that foreclosure-related pipeline supply is 100% greater than demand in this segment. This is a major supply/demand imbalance that will bring serious trouble to this market over the near-term. Especially considering that this particular foreclosure related supply only makes up approx 10% of total mid-to-high end supply with Ma and Pay Organic homeowner once again making up the rest.

(Hat tip to the Financial Armageddon blog.)

Given Mr. Hanson’s impressive track record I am inclined to believe his predictions and wonder why Lehman Bros., Wells Fargo, et al., can’t do as well. Probably has something to do with his lack of a vested interest.

So the much vaunted recovery continues to recede farther into the distance. Surprise, surprise, surprise.

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

 

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