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.
You don’t hear much about the Federal refinancing effort these days. In what started out as the focal point of the Treasury’s two-pronged attack on the housing crisis, soon became dwarfed by the rescue’s other facet: modification.
So why haven’t we heard much about the Making Home Affordable refinancing program lately? Perhaps it’s because the program isn’t doing well, or perhaps because the audience that it was designed for is opting for other solutions besides refinancing.
In the days ahead, will the private Mortgage-Backed Securities (MBS) market cease to exist? Will loan modifications wind up destroying the long-standing playing field between lenders and second lien holders? Will the Fed ever be able to exit the mortgage market?
These questions have all come to mind because of unintended consequences brought on by the Making Home Affordable Modifications program. The program that was structured to assist failing homeowners has managed to create a host of uncertainties in its wake. A recent editorial in the Wall Street Journal wonders if the MBS market will be next.
One of our regular readers emailed in this morning and asked us for some information on how lenders can go about participating in the Federal loan modification program:
Will you please discuss how a small lender can get into the home modification process. I have one mortgage loan, and the man is more than 3 months behind. Foreclosing is a losing proposition.
Lenders and servicers interested in participating in the Federal loan mod program should visit this website for more information. The “Administrative Website for Servicers” provides information on enrollment — including the proper registration form — as well as the program’s guidelines. For additional technical resources, click here.
A big problem lenders face when foreclosing on houses is that sometimes the former owners will trash the place on their way out. This isn’t a new problem, as this 2008 Wall Street Journal article noted:
These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. Real-estate agents estimate that about half of foreclosed properties to be sold by mortgage companies nationwide have “substantial” damage, according to a new survey by Campbell Communications, a marketing and research firm based in Washington, D.C.
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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As Federal officials plead with the nation’s top banks to increase their participation in President Obama’s Making Home Affordable program, smaller and more localized efforts are reporting their own success.
The Rainy Day Foundation, “a non-profit organization whose mission is to assist individuals in maintaining homeownership,” has teamed up with participating lenders, real estate firms, and home builders to fund their Homeowner Education and Loan Protection (HELP) program. Rainy Day established HELP 19 months ago “to create and maintain responsible homeownership.”
The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) released the Mortgage Metrics Report for the first quarter of 2009 (1Q09) . Despite some discouraging numbers, the OCC and the OTS say they will “continue to drill deeper into the mechanics of foreclosure prevention actions.”
As the number of foreclosures and delinquencies increased in the first quarter (Jan-March), so did the number of modifications. Loan mods increased by 55% in the quarter, up 172% from the same time last year.
Washington’s public push to solve the problems of the housing market could wind up revealing just how bad their solutions are. According to a Fitch Ratings report released today, up to 75% of modified loans could fall 60 days delinquent within just 12 months. The report, which studied mortgages issued between 2005 and 2007, said poor economic conditions were the main reason why loan modification isn’t working as well as hoped.
“While U.S. [residential mortgage-backed securities] RMBS servicers are ramping up loan workouts to aid distressed mortgage borrowers, they are in for a lofty battle to mitigate the effects of recession, shrinking disposable income, escalating job losses and possibly some deceptive practices on the part of the borrowers themselves,” according to FitchRatings.com.
Cashing in on historically-low mortgage rates and government-structured programs, thousands of homeowners are flooding lenders’ offices across the country looking to lower their monthly mortgage payments. “Refi fever” has gotten so high that it has overwhelmed lenders, disrupting the program’s forward progress. Even long hours and thousands of new employees hasn’t been enough for lenders to allow programs like Making Home Affordable to reach their full potential:
However, even with extra workers, brokers are struggling. “It’s amazing how much paperwork is involved for each application,” said Sandy Wagner, a mortgage broker with Preferred Empire. “It’s hard for the brokers to keep up.”
