More than 100,000 struggling homeowners could get help from a $2-billion program that California is launching, including about 25,000 borrowers who owe more than their properties are worth and could see their mortgages shrink.
The Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system, has the potential to make a sizable dent in California’s foreclosure crisis and help the general housing market. State officials hope to fend off foreclosure for about 95,000 borrowers and provide moving assistance to about 6,500 people who do lose their homes.
Consumer advocates have criticized other attempts at foreclosure prevention as falling short, particularly the Obama administration’s $75-billion program to help troubled borrowers. They were heartened by the scope of California’s effort but concerned it would be hampered if the state can’t get major banks on board.
Out of the five major mortgage servicers — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Ally Financial and Citigroup Inc. — only Ally has formally signed on to a key part of the plan: reducing mortgage principal on homes that are “underwater,” or worth less than the size of the mortgage. A Bank of America spokesman said the bank intends to participate but hasn’t yet reached a formal agreement with the California Housing Finance Agency, which designed the program.
“If they can actually stave off foreclosures and the people stay in the homes, then that is a great thing for the market,” said Stan Humphries, chief economist at Zillow.com. “It would be great because the continuing flow of foreclosures on the marketplace exerts downward pressure on home prices, and it also creates more supply of inventory on the marketplace, so foreclosures are really a double whammy.”
The biggest of the plan’s four parts allocates $875 million as temporary financial help to people who have seen their paychecks cut or have lost their jobs, providing as much as $3,000 a month for six months to cover home payments and associated costs. The second-largest chunk of money, $790 million, is slated for a principal reduction program that would write down the value of an estimated 25,135 underwater mortgages.
Another piece would use $129 million to provide as much as $15,000 apiece to help homeowners get current on their mortgages, and another would take $32 million to provide moving assistance for people who can’t afford to remain in their homes.
The program is aimed at helping low- and moderate-income people who own only one property. To qualify in Los Angeles County, for instance, a family couldn’t earn more than $75,600 a year. The maximum benefit for any household participating in the program is $50,000. Homeowners who refinanced their homes to take cash out of their properties won’t be allowed to participate.
The principal-reduction component would pay lenders $1 for every dollar of mortgage debt forgiven. Many experts have said reducing principal on such underwater loans would go far toward reducing foreclosures because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.
But banks have been reluctant to significantly reduce principal on loans other than on certain kinds of risky mortgages that are now seen as having been highly imprudent.
From HW, remarks from today’s pow-wow on the hill:
The House subcommittee on capital markets and the government-sponsored enterprises heard testimony Wednesday on plans to revamp the housing finance system, with most proposing to disassemble Fannie Mae and Freddie Mac.
Loan Limits
Mark Calbria, director of financial regulation studies at the Cato Institute, suggested lowering the loan limit from the $729,750 currently to $500,000 by reducing it $50,000 each year with some flexibility for reversals. This, he said as did others in the hearing, would increase the size of the jumbo loan market and ease the private market back into the system.
Anthony Randazzo,director of economic research at the Reason Foundation, argued it should be lowered by 20% by the end of September, when the current loan limit is set to expire.
“This would be a small step towards creating more room for the private sector to engage the mortgage market, and it could be test case to see how far the jumbo market is able to expand in this economic climate,” Randazzo said.
Alex Pollock, resident fellow at the American Enterprise Institute, suggested reducing the loan limits by 3% or 5% per quarter with a review of the results in two years.
Will the 30-year FRM survive without GSEs?
The question came up during the hearing, asked pointedly by Rep. Maxine Waters (D-Calif.). Wartell made the argument that without the government backing of these securities, low- to middle-income borrowers would essentially be priced out of the market as the 30-year fixed-rate mortgage became harder to get.
Randazzo suggested in his testimony that the down payment requirement for mortgage bought by whatever replaces the GSEs be gradually increased to 20% by 2014. Pollock said he couldn’t know if the 30-year FRM would disappear “until this economic experiment is conducted.”
Calabria said that the qualified residential mortgage standard regulators are currently working on should be applied to the GSEs or their replacements, requiring a minimum down payment of 10%.
Rep. Jeb Hensarling (R-TX) pointed out that 30-year FRMs did exist in markets where Fannie and Freddie did not do business, but several lawmakers addressed concerns that investors would not be willing to take the risk without government backing.PIMCO’s Will Gross recently said that without this backstop, he would not invest in securities containing mortgages where the borrower did not put at least 30% down.
Will they stay or will they go?
Members of the panel touched a variety of different issues from Federal Housing Administration reform to a proposal for a Government Accountability Office review of the mortgage representation and warranties settlements.
Rep. Barney Frank (D-Mass.) told Bloomberg Television after the hearing “by the end of the year, we should have an agreement” on the future of Fannie and Freddie. All panelists conceded that a smaller government role in the mortgage market is inevitable and needed.
Brian O’Reilly, president of the financial advisory firm Collingwood Group, and former director at Fannie Mae, told HousingWire in reaction to the hearing that both of the GSEs need to go.
“Any additional time, money or energy spent on reforming Fannie or Freddie is wasted time, money and energy. They are failed institutions and should be resolved (meaning liquidated) in an orderly manner,” O’Reilly said.
Anthony Sanders, a scholar at the Mercatus Center at George Mason University and a real estate finance professor, said the GSE’s did not help borrowers save that much on their mortgage, and their continued presence in the market is doing more harm than good.
“Fannie and Freddie lowered mortgage rates by about 30 basis points at most. And they tried increasing homeownership rates to unsustainable levels while costing taxpayers hundreds of billions of dollars,” Sanders told HousingWire. “So, will we miss Fannie and Freddie? No, in the same way that we don’t miss gas rationing.”
Here’s my 2-part MERS settlement. 1. Have the banks fund Sheila’s “foreclosure claims commission” to dole out settlements to those who were harmed, and 2. Have the servicers pay all the back recording fees owed (or settlement). MERS is then allowed to continue operations and be required to record all transfers/pay the fees.
If local governments succeed in the fight against how banks have recorded the transfer of mortgage notes through the Mortgage Electronic Registration Systems, home loans could become as expensive as credit cards,K&L Gates Partner Laurence Platt said Wednesday.
At the last panel of the Mortgage Bankers Association summit on the future of mortgage servicing, Platt and Adam Levitin, an associate professor at Georgetown University Law Center, discussed the validity of MERS. The company was created by major lenders to become the single title holder of a mortgage as the owners of the note made transfers back and forth through securitization.
This, Platt said, was a solution to “antiquated filing systems” at the local level. In Chicago’s Cook County, for example, it can take up to a year for a lender to receive a recorded mortgage back at the time of foreclosure, prepayments and other actions.
But local jurisdictions such as the states of California and Virginia are fighting to void foreclosures completed where the lender lays claim to the enforceability of the credit – meaning if the lender can use MERS to prove it has the right to foreclose – on two basis, Platt said.
One, MERS replaces the fees lenders used to pay to local governments for recording these notes, and these governments are claiming the banks still have to pay fees for the transfers. Second, Platt said, they are trying to score political points, which will only end up hurting borrowers in the future.
“My biggest concern is that local jurisdictions are enacting laws that change the centuries old law on recorded assignments in their locales, and that would void all mortgages in their jurisdiction,” Platt said. “But Virginia didn’t require assignments in the past. So, if that law passes, you will not be able to foreclose in the commonwealth in Virginia. It’s turning real property law on its head.”
But Levitin pointed out the inaccuracies and full-out holes in the MERS system. In cases he looked up, often the investor or the servicer on the MERS system did not match what was on the note.
“MERS ceases to track transfers once the loan is moved into another system,” Levitin explained.
Platt admitted there were issues with the system, but he warned that scoring short-term political points could be the end of affordable housing.
“They are making secured credit unenforceable,” Platt said. “If you think you’re going to get 4% mortgages on unsecured loans, you’re wrong. You’re going to get credit card rates. MERS was designed to make it easy to transfer assignments in modern economics.”
I CAN TELL BY THE NATURAL EVOLUTION OF THIS BLOG FROM REAL ESTATE CHAOS AND DROPPING PRICES TO FLOORING SAMPLES THAT STRONGLY SUGGEST THAT THIS REAL ESTATE MESS IS WINDING DOWN.
THE BLOG USED TO FOCUS ON REAL PROBLEMS AND THE MESS OUT THERE BUT NOW IT HAS SHIFTED TO MUNDANE NEWS. TO ME THIS HINTS THAT THE END OF THE BUBBLE IS OVER.
JUST MY CASUAL OBSERVATION.
It might have been the all-caps that got me, but let’s address his observation. Transparency is a good thing, and if all observers were weighing the most critical factors every time they made a decision, we’d all be better off for it.
Is the Housing Bubble over?
The inflating of the housing bubble appears over. Not only do buyers have to qualify, they must have skin in the game. And they’re bringing the dough – of the 2,448 detached sales in NSDCC last year, 525 were all-cash purchases, or 21.4% of the total. We saw all year that another 30% to 40% more of the homebuyers were using at least a 30% down payment:
If we figure that at least half of the buyers are in for the long-haul, it’ll help bring stability to the marketplace by not adding many new defaulters to the environment. But we still have over-hang, the rest of the underwater/underemployed folks to work through the system.
Could the rest of the clean-up cause more double-dip?
Everyone has to decide for themselves about how they think the future will unfold/unravel. We’ll review here every piece of relevant news, and encourage those reading to offer their opinions – that way, we all learn. It’s been working great so far, let’s keep examining!
Here’s something that could play a role in how it turns out:
A recent report from the folks who oversee the TARP (the Congressional Oversight Panel) said that the Treasury has spent just $4.3 million on HAFA for 661 short sales. So Treasury, last week, decided to change the rules a bit:
HAFA no longer requires that servicers verify the borrowers finances
HAFA no longer requires servicers to determine if the borrowers monthly payment is higher than a 31 percent debt-to-income ratio.
HAFA no longer requires second-lien holders to agree to accept 6 percent of the unpaid principal balance owed them, up to $6,000. Servicers now decide who gets paid how much, with a cap still at $6000.
HAFA now requires borrowers seeking a short sale get an answer/agreement within 30 days.
The last one is a no-brainer, as delays have scuttled far too many deals that could have benefited both borrowers and lenders.
I’m less thrilled with the verification of borrowers’ finances and DTI ratio. If you don’t have to verify anything about the borrower, other than a so-called, “hardship affidavit,” then that opens the program up to all kinds of scams by borrowers who don’t need to sell their home but just want to get out from under a bad investment. They may be delinquent on their loans by choice, not by necessity.
I’m sure the folks who had no problem lying on their mortgage applications would also have no problem fabricating some kind of “hardship.”
As for the second lien issue, that’s just a big bad can o’ worms that needs far stricter guidance, not more lenient guidance.
Second lien-holders, many of whom are the major banks/servicers themselves, have been the fundamental roadblock to short sales so far.
Here they go again, letting borrowers off the hook. If the sellers don’t have to provide their financials, it could help the short-sale market – some of the biggest delays are from the sellers not supplying their paperwork, or being over-qualified to short-sell. But if it’s easier to get a short sale, could it cause a run of additional takers? Probably, and it would clog deadbeat-alley even further.
Diana is right though, the second-lien issues are a big hurdle – if you think that short-sales will be a pivot point to how the bubble deflates, keep an eye on how the second-lien issues get resolved. My opinion? Short sales are still long and arduous, there’s no improvement yet in getting them closed – and likely to stay that way. Short sales are a great can-kicking device for servicers.
PHOENIX – Francisco and Pam Cruz maneuvered around boxes of new flooring and open cans of paint as they surveyed the foreclosed Phoenix house they would soon call their own.
This house wasn’t typical of the thousands in foreclosure-battered Arizona that banks have auctioned for cheap — often to investors who make just enough repairs to satisfy a potential renter.
The Cruzes will become first-time homeowners, helped by one of many nonprofit groups that can snag foreclosures at a discount — and sometimes for free — before banks make them available to speculators.
Ally Financial’s mortgage unit, Residential Capital, and certain ResCap subsidiaries reached a $462 million settlement with Fannie Mae on potential mortgage repurchases.
The agreement covers loans serviced by ResCap subsidiary GMAC Mortgage on behalf of Fannie Mae prior to June 30 and all mortgaged-backed securities that Fannie Mae purchased at various times prior to the settlement, including private-label securities, Ally said Monday.
The settlement releases ResCap and its subsidiaries from about $292 billion in potential repurchases, Ally said.
“At the start of 2010, we set a goal to substantially reduce risk in our mortgage operation and, during the last 12 months, we have successfully completed a series of steps toward that objective and are largely complete,” said Ally CEO Michael A. Carpenter. “This agreement, along with prior repurchase settlements with Freddie Mac and others and the sale of legacy assets and operations, has significantly reduced Ally’s risk related to the legacy mortgage business going forward,” he said in a press statement.
ResCap CEO Thomas Marano said the firm will “focus predominantly on the origination and servicing of conforming mortgages” going forward. ResCap’s subsidiary, GMAC Mortgage, originates and services residential mortgages under the GMAC Mortgage and ‘ditech’ brand names.
Ally said the settlement “was modestly in excess of reserves previously taken.”
Hat tip to both SM and RE for sending along the Wells Fargo announcement of neg-am bailouts. If principal reductions gain momentum (which is doubtful), the moral hazard would be hard to imagine – and it could start a revolution in the streets. From Eric at nctimes.com:
Wells Fargo & Co. agreed to modify $2 billion of mortgage loans and to pay $33 million to foreclosed California borrowers, the California Attorney General’s office said Monday.
The deal applies to borrowers with “pick-a-pay” loans, which typically included “teaser” periods of two to five years during which borrowers could make monthly payments for less than the monthly interest costs. At the end of the teaser period, interest rates could skyrocket, and outstanding balances were rolled into large fixed payments. This loan type became one of the hallmarks of the housing bubble because it allowed homebuyers to take out mortgages that far exceeded borrowers’ long-term ability to repay them.
“Customers were offered adjustable-rate loans with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford,” Brown said in a written statement. “Recognizing the harm caused by these loans, Wells Fargo accepted responsibility and entered into this settlement with my office.”
The settlement includes loans made by World Savings Bank and Wachovia Bank, both of which were acquired by Wells Fargo when they failed. No loans made by Wells Fargo were covered by this deal.
Under the agreement, 14,900 former World Savings and Wachovia customers will be eligible for $2 billion in loan forgiveness, much of which will include principal forgiveness, the statement said. A separate statement from Wells Fargo said they’d be working with customers between Monday and June 30, 2013, and the loan modifications could be worth $2.4 billion.
Roughly 12,000 borrowers will be eligible for the $32 million settlement worth an average of $2,650 each, the statement said.
The company will contact customers eligible for modifications or settlement cash, and maintain a help line for customers at 888-565-1422.
The Wells Fargo statement said the bank anticipated making payments for roughly these amounts when they bought Wachovia in 2008.
“The majority of Wachovia’s Pick-a-Payment customers reside in California,” Mike Heid, co-president of Wells Fargo Home Mortgage, said in a separate written statement. “We’re pleased that going forward the attorney general’s office will assist with outreach, so that we can continue to work with as many customers as possible on the options available to them to prevent foreclosures.”
Wells Fargo came to similar agreements with nine other states, including Florida, Arizona and Nevada.
Excerpts regarding the fed/state plan for principal reductions, fromlatimes.com:
The most controversial part of the program, and the one most difficult for banks and investors to sign on to, dedicates $790 million to principal reduction. This would write down the value of an estimated 25,135 “underwater” mortgages, which are loans in which homeowners owe more on their properties than what they are worth.
The California plan — as well as programs created by Nevada and Arizona — would pay lenders $1 for every dollar of mortgage debt forgiven. Experts say reducing principal on such underwater loans would go far to reducing foreclosures in the three states because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.
But the financial industry has been reluctant to participate in government-administered programs that would require them to reduce the amount that borrowers owe them.
“If you can’t do the principal write-down, you are limited in what you can do,” said Dan Immergluck, an associate professor at the Georgia Institute of Technology, who studied the different state plans developed with the federal bailout money.
“It is one thing for them to agree not to write down principal when they are being asked to foot the whole bill,” he said, “but when the states are agreeing to match this 50-50, it seems rather ridiculous of the servicers and the investors not to agree to this.”
Struggling California homeowners will have to wait longer before starting the $1.83 billion government aid program that will pay down loan balances and provide monthly cash assistance.
The “Keep Your Home California” program was supposed to begin Monday. But it’s been delayed because of logistical issues, according to officials with the California Housing Finance Agency.
The agency said the program will start on a limited basis in a few weeks and expand from there.
Funded with federal dollars, the program offers four different types of cash assistance for an estimated 100,000 low- to moderate-income California homeowners. Richardson said eligible borrowers had to have endured some sort of “loss of income issue.”
The two main forms of aid: $875 million for unemployed Californians who need help making their monthly payments, plus$790 millionto directly reduce mortgage loan balances.
Smaller amounts will be made available for helping homeowners who have temporarily fallen behind on their payments. In addition, there will be cash for borrowers who are going to lose their homes to foreclosure or short sale and need help finding a new place to live.
The maximum amount of aid per household is $50,000.
News of the delay was a disappointment to Vicky Miller, a struggling homeowner in Fair Oaks, who said she thinks the state could have moved more quickly.
More than 100,000 struggling homeowners could get help from a $2-billion program that California is launching, including about 25,000 borrowers who owe more than their properties are worth and could see their mortgages shrink.
