Principal Reduction in Loan Modifications

Well, it seems there is a bit of hypocrisy coming out of Washington for a little change of pace. President Obama announced his nomination of congressman Mel Watt (D-NC) for director of the Federal Housing Finance Agency (FHFA).  Many homeowners around the country were delighted by this selection because Congressman Watt has a history of supporting principal reduction in loan modification programs.

The hope is that he will continue this position during his tenure as head of the FHFA. Current acting director of the FHFA, Edward DeMarco, has refused to allow Fannie Mae and Freddie Mac to include principal write-downs in their loan modification arsenals. Demarco argues that the practice not only jeopardizes the American taxpayers, but also rewards poor payment history and sets a bad example. Now Watt could be causing problems in this area himself. During his confirmation hearing in the Senate last week, Watt said that while he would not preemptively refuse to engage in write-downs, he also would not endorse the policy. Instead, he promised to “study carefully how that decision [to not do write-downs] was reached, what it was based on, and then I would build on that new information…and make a responsible decision.”

Not surprisingly, Watt’s apparent reluctance has upset many home owners who believed that he would definitely approve the controversial measure to engage in principal reductions as part of a loan modification program. He has been accused of backtracking and failing his constituents. This is particularly alarming since Watt was a vocal critic of DeMarco’s policies as a congressman. Watt responded that while it was his responsibility to support write-downs as a congressman because he had many underwater borrowers in his district, as director of the FHFA he would have to be “a strong advocate for taxpayers”. Watt is likely treading lightly around this issue because one presidential nominee to replace DeMarco has already been blocked.

As my Mother was known to say, “We will see what we shall see”

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro

There has Been NO Better Time than NOW to Seek Loan Modification

Everything in real estate seems to be cyclical. Housing markets go up and down; interest rates go up and down and so on. The real challenge is knowing when a market will change. Loan modifications all but disappeared in the Summer of 2010 because servicers were not processing and owners of notes were not modifying them. In February of 2012, the well-publicized “Attorney General” lawsuit against major lenders and servicers was settled. The settlement took full effect in July of 2012 and as a result, loan modifications are back. For one thing, you no longer have to be behind on your obligation. Owners who are current and who otherwise qualify for modification can receive relief. Another positive aspect of this wave of modification is that banks are required to modify the principle balance down to a point of neutral equity (reduce the principle balance down to the market value). The banks DO receive financial incentive to do this. They are doing this to receive money from the government and to satisfy charges of fraud and abuse. The banks will behave as long as the attorney generals of 49 states are watching them and so long as the pool of funds is available for them. Last week, there was another settlement of additional charges brought by the government against the same lenders and servicers. This placed another $10 billion at the disposal of the lenders and servicers if they modify loans. There has been no better time to modify loans. The guidelines to receive modification have not changed much but the motivation of the lenders has never been higher. However, this wave of modification will not last forever. It has been very cyclical and it is likely that another period of modification resistance will return. It makes sense to seek modification NOW and not to wait. If you or your clients have mentioned a modification, it makes sense to get started now as the process does take time (I typically quote 4-8 months). Paddy Deighan, J.D. Ph.D http://www.homesavsers.pro

Loan Modifications Statistics are Beginning to RISE!!

Many people evaluate the housing market by foreclosure statistics. I have previously blogged that this methodology is fraught with inconsistent variables that alter the findings (such as lenders purposely holding back foreclosure filings). Foreclosure activity remained elevated in the third quarter of 2012, but homeowners are fighting to stay in their homes. According to a report by the Office of the Comptroller of the Currency (OCC), servicers initiated 252,604 new foreclosure actions during the third quarter of 2012. Office of the Comptroller of the Currency Report Homeowners responded with 382,899 home retention attempts. Home retention actions include modifications and shorter-term payment plans. Of course, some of those home retention attempts address foreclosure actions initiated prior to 2012. The OCC reports that home retention efforts appear to be finally starting to work. Home Affordable Modification Program (HAMP) modifications rose 10 percent over Q2, and other forms of modifications increased by 54.2 percent. The Home Affordable Refinance Program (HARP) is also gaining ground, providing more than 80,000 refinanced mortgages in October 2012 alone. HARP article. On the basis of HARP II’s success, many lawmakers are hoping that a new version, HARP III, could continue to expand refinancing options to sub-prime borrowers who have remained current on their mortgages. It is likely (in my opinion) that the loan modification increase is due to the settlement with Attorney Generals in 49 states (Oklahoma did not join the litigation). Thanks to myriad factors like robo-signing, the foreclosure fraud settlement, seasonal trends, and foreclosure moratoria, many analysts claim it is impossible to actually get a clear idea about where the housing market is going. I believe that it is not practical to have a clear idea of where the housing market is…let alone predict where it will be in the short or long term. When you factor in the looming fiscal cliff, the uncertainty becomes overwhelming (even though I believe that the national media has grossly exaggerated the ramifications of the fiscal cliff. The name implies more danger than is really present). Paddy Deighan J.D. Ph.D http://www.homesavers.pro