UDATE1: Fannie Mae has released the details to a program that will turn struggling homeowners into renters. The “Deed for Lease Program” (DLP) allows delinquent homeowners to rent their home for up to a year instead of being foreclosed upon.
Wells Fargo is betting that improving home prices and an increase in consumer income will make their new loan modification strategy a success. The nation’s fourth-largest bank (in terms of assets) has introduced a new, and frankly quite interesting, strategy to modify their large portion of Payment Option adjustable-rate mortgages (ARMs).
If you recall the latest mortgage metrics report, Payment Option ARMs are failing at a rate of three times more than the other products in the marketplace, causing trouble to lender and borrower alike.
UPDATE1: We thought so, and said just as much last Friday…we just had no idea it would happen this quickly. A short bulletin from National Mortgage News (NMN) this morning reported that the Treasury Department’s Office of Homeownership Preservation (OHP) announced at the Mortgage Banker’s Association’s annual conference that a new wrinkle to the Federal loan modification program is coming soon. Laurie Maggiano of the OHP said the new loan mod effort will be designed to assist borrowers who don’t fit into the current modification mold.
Looking through the latest numbers, we speculated on Friday that it may be time to alter the current structure of loan modifications; according to statistical reports, loan mod issuance has slowed (see original story below), redefault rates are high, and ‘foreclosures in process’ continue to grow.
Touted as a “milestone” by the Treasury, President Obama’s loan modification program has reportedly helped 500,000 borrowers avoid foreclosure. According to the New York Times, the White House set out to reach the 500,000 mark by the end of this month, and is quite encouraged that the goal was met a few weeks ahead of schedule.
While the number is certainly encouraging, we have to wonder how many of these modified loans will wind up growing delinquent or failing. Our friend Alan Zibel at the Associated Press wrote last month that:
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It seems as though some lenders may be ready to cut their losses and move on, as the number of lenders who have offered struggling borrowers a principal reduction has begun to increase. The majority of modifications so far have come in the form of interest rate reductions and/or loan term extensions. Until recently, flat out principal reductions were rarely a consideration:
The portion of loan modifications in the second quarter that involved reducing the principal jumped to 10% from 3.1% in the first quarter, according to the report released Wednesday by the Office of the Comptroller of the Currency, or OCC, which regulates national banks.
Update1: What started out as a last-ditch effort to save her home from foreclosure, has grown into a full-time job for one New Jersey woman. Back in July we wrote about Angela Logan, mother of three and self-taught baker, who baked and sold her own cakes to help pay for her mortgage:
Logan recently trademarked the name of her signature cake and signed a two-year licensing agreement with Bake Me A Wish, an online seller of special-event cakes.
This Washington Post article, which highlights a key element of why the government-sponsored loan mod programs aren’t as successful as they could be, has received a lot of attention. However, it doesn’t tell the whole story:
Policymakers often say it’s a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable.
Yesterday’s meeting regarding the government-sponsored loan mod program we wrote about yesterday went pretty much as expected:
After a series of meetings with top banking executives, Treasury Department officials said they want lenders to modify 500,0000 mortgages by Nov. 1. Since the program, known as Making Home Affordable, began in March, it has recorded about 200,000 loan modifications. [...]
The Obama administration is growing impatient with the slow pace of loan modifications and wants to know why:
An Obama administration effort to reduce home foreclosures by lowering the mortgage payments of struggling borrowers before they fall behind is failing to help as many people as expected.
Among the problems: Some homeowners are being told they must be behind on their payments to receive help, which runs counter to the aim of the program. In other cases, delays are so long that borrowers who are current on their payments when they ask for a loan modification are delinquent by the time they receive one. There is also confusion about who qualifies.
Which one? You know, the one where a government program is announced and with it comes an astronomical number of the amount of people it could help.
National Mortgage News reports that research conducted at Amherst Securities Group (ASG) reveals that the July 1 expansion of the Home Affordable Refinance program could help as many as 2.25 million borrowers reduce their mortgage payments. The administration claimed that under the program’s original structure — in which only borrowers who had a loan to value of between 80-105% could participate — over 4 million homeowners were expected to benefit. Does this mean that, with the expansion, ASG expects the program to impact over 6 million homeowners?
On Friday the Washington Post reported that Federal officials “scolded” many of the nation’s largest lending institutions, pressing them for increased participation in the Making Home Affordable program. The program’s success rate is far below what administration officials had predicted:
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