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Archive for the 'Bailout Buzz' Category

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Ways to bulk up housing’s lifeline, FHA

November 23rd, 2009, 12:29 pm by Mathew Padilla

The San Francisco Chronicle recently outlined some ways to pump up the reserves of the Federal Housing Administration, which runs a now critical mortgage insurance program.

FHA has given a big boost to Orange County’s housing market, accounting for roughly 25% of home-purchase loans here in recent months.

However, FHA’s reserves have fallen below the amount required by Congress, and some fear a taxpayer-funded bailout may be needed in the future.

Here are two logical alternatives by the Chronicle’s Kenneth Harney:

Higher down payments. FHA accepts down payments as low as 3.5% — that’s just too low, some say. Harney writes: “Rep. Scott Garrett, R-N.J., introduced legislation last month requiring a minimum 5 percent down payment for all future FHA loans. Ed Pinto, who served as Fannie Mae’s chief credit officer in the 1980s and is now a mortgage industry consultant, says FHA needs to move to a 10 percent minimum.”

Of course, lenders and brokers who do FHA loans argue that anything more than 3.5% would stop some deserving folks from buying a home.

Higher mortgage insurance premiums. Borrowers pay a 1.75% premium and that money is used to pay for losses on loan defaults. Most borrowers simply roll the amount into the loan and thus pay it off monthly. FHA also charges an annual premium of around 0.5%, and that is also paid monthly. FHA could raise these premiums up to the maximum allowed by Congress: 2.25% for the upfront one and 3% for the annual fee.

Read the full article on boosting FHA’s reserves.

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Posted in: Bailout Buzz • FHA | 5 Comments »

Fed to continue supporting mortgage market

November 16th, 2009, 11:50 am by Mathew Padilla

Ben Bernanke, head of the Federal Reserve, said Monday the central bank will continue to support the mortgage market while bank lending remains constrained, reports National Mortgage News. Here’s more:

“We continue to encourage banks to raise additional capital to support their lending. And we continue to facilitate securitizing through our Term Asset-Backed Securities Loan Facility (TALF) and to support home lending through our purchases of mortgage-backed securities,” the Fed chief told the Economic Club of New York. The Fed has purchased more than $800 billion in agency MBS and it recently extended its MBS purchase program through March 31. (The effort was originally slated to expire at yearend 2009.) The Fed chairman noted that banks have tightened their lending standards more than the central bank had expected. “Unfortunately, reduced bank lending may well slow the recovery,” Mr. Bernanke said. A Fed survey of senior loan officers in October found that 25% of banks had tightened their underwriting standards on prime single-family loans, a slightly higher percentage than reported in the July survey.

Bernanke seems to be saying the Fed is prepared to do more to support home lending.

Maybe it will extend purchases of mortgage securities beyond March 31 — if the Fed does stop buying MBS, mortgage rates are expected to rise at least 25 to 50 basis points (Note: there are 100 basis points in a percentage point).

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Posted in: Bailout Buzz • Fed • Meltdown | 6 Comments »

Many trial, few permanent loan deals

November 11th, 2009, 5:43 pm by Mathew Padilla

The Obama administration reported this week that 1-in-5 borrowers who are two months late on their mortgage and are eligible for aid are getting a deal from their lender. That’s an improvement from earlier in the year and works out to 650,000 borrowers getting help.

However, many of those modifications are still in the trial phase, reports the Wall Street Journal. The paper says the administration won’t release figures on completed modifications until December, “but so far it appears that very few trial modifications are becoming permanent, often because of a lack of documentation.”

click to enlarge

click to enlarge

Treasury’s chart (click for larger version)  shows Saxon Mortgage, a unit of Morgan Stanley, leads the pack with 44% of eligible loans 60-days late in some type of modification. But according to the Journal, 26,000 of the 39,000 borrowers in the program have made more than three trial payments, and only 500 have received completed modifications.

In another example, the Journal reports J.P. Morgan Chase & Co. said last week more than 92,000 of its customers have made at least three trial payments, but just 26% of them had submitted all the required documents for a permanent fix.

There’s a lot riding on this program. My previous post showed a huge backlog of delinquent loans in Orange County alone.

You can download Treasury’s report on Making Home Affordable.

I end with this quote from the Journal:

“It’s a fiasco in the making,” said Alan White, an assistant professor at Valparaiso University in Indiana, citing preliminary information about low numbers of permanent modifications and complaints from attorneys and housing counselors.

“The good news is you’ve gotten all these homeowners in from the cold and on these temporary modifications,” Mr. White said. “The bad news is we are stumbling in getting all these people…all the way” to keeping their homes.

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Posted in: Bailout Buzz • Defaults & Foreclosures • loan mods | 2 Comments »

FHA’s finances are still a mystery

November 5th, 2009, 8:23 am by Mathew Padilla

Federal Housing Administration insured loans have accounted for about 25% of purchase home loans in Orange County over much of this year, after the loan limit was raised to nearly $730,000 in high-cost areas like this county. FHA’s market share has also grown nationwide.

With FHA’s insurance pool covering many more loans and much bigger loans, some critics are worried a taxpayer bailout may be necessary someday soon.

The release of an independent audit by Integrated Financial Engineering (IFE) was supposed to end the speculation. But the Washington Post reported yesterday that FHA abruptly delayed the audit’s release, citing “problems with the accuracy of some of the study’s economic models.”

FHA Commissioner David H. Stevens said the delay was related to economic scenario tests that the agency requested “above and beyond” what was originally to be included in the audit so that the FHA could “better understand a broader range of risk scenarios.”

“Based on these results, we raised questions about the accuracy of IFE’s modeling, and IFE therefore advised us that we should not treat the report as final,” Stevens said. “IFE is now running additional tests to ensure that the final report is accurate.”

Delaying the report right before it was supposed to be released is bad timing. And I wonder what the auditor thought of FHA’s ability to withstand those “risk scenarios” Stevens is talking about.

IFE  said it will address the issues and finish the report as soon as possible.

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Posted in: Bailout Buzz • FHA | 16 Comments »

How about a tax credit for ‘responsible’ homeowners?

November 4th, 2009, 3:50 pm by Mathew Padilla

The Federal Reserve today left a key short-term interest rate unchanged at near zero percent and said again it will wind down purchases of mortgage securities through March. Here’s how some market watchers reacted to the statement:

Jeff Atlman, partner with WestCal Mortgage Corp. in Tustin
“I think it was the right move on the Fed’s part. With inflation being benign and the economy at a crossroad where we are not sure if it can sustain a long-term recovery, they really have limited options. They will continue to purchase mortgage-backed securities and at some point the economy has to show a lifeline of its own. I personally have always said that Washington must realize that our economy will not turn around until jobs return and the housing market turns around. The brains in Washington D.C. are placing laws into effect that are actually hurting consumers (HVCC law, MDIA law etc.). Extending the homebuyer credit would be a positive, but they need to add an incentive to the people who are responsible homeowners and offer them a fixed tax credit as well, such as $6,000 or $6,500.”

Jack Kyser, founding economist of The Kyser Center for Economic Research, LAEDC
“This decision wasn’t unexpected. Our reading of the local economy is that it has hit bottom, but there isn’t much upward momentum yet. Small-to-medium sized businesses complain that they can’t get bank loans. They are also concerned about potential costs imposed by healthcare reform. So it is still tough out there, and keeping rates low is a good decision.”

Jeff Lazerson, a mortgage broker and founder of Mortgage Grader in Laguna Niguel
“We should consider ourselves lucky if inflation pressures force the Fed to raise rates by 4th quarter of 2010. Banksters are being scrooges when it comes to small business lending as well as commercial and residential property lending. We will be stuck in double digit unemployment for some time. The good news here is that Federal Reserve Chairman Ben Bernanke is learning the game of posturing. He didn’t say anything to upset the markets.”

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Posted in: Bailout Buzz • Fed | 37 Comments »

Real estate groups call for extension of bigger loans

October 26th, 2009, 6:18 pm by Mathew Padilla

In Orange County, banks can make loans up to nearly $730,000 and sell them to government-controlled mortgage giants Fannie Mae and Freddie Mac or get the loans insured by the Federal Housing Administration.

But the bigger limits expire on Dec. 31. The Fannie/Freddie limit used to be $417,000 and the FHA limit was lower than that.

The Mortgage Bankers Association, the National Association of Home Builders and the National Association of Realtors sent congressional leaders a letter asking for extensions. Here’s the letter:

The undersigned organizations strongly urge Congress to enact legislation as soon as possible to extend the current higher loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). The higher limits are a key component of the economic recovery efforts because they help make affordable loans available for a broader spectrum of consumers who want to purchase a home or refinance an existing mortgage. Even though the temporary limits do not expire until the end of this year, obtaining financing is already becoming more difficult and expensive for many borrowers. Therefore, we request Congress extend the limits as soon as possible so as not to jeopardize the fragile recovery.
The impending expiration of the higher loan limits is already having an impact on borrowers’ ability to obtain affordable financing in the following ways:

  • Some lenders have stopped underwriting certain loans at the current interest rate because lenders are uncertain whether they will be able to sell the loans, and are unable or unwilling to retain them in their own portfolios. The result is that borrowers are being unnecessarily denied financing because of uncertainty about expiring loan limits.
  • Consumers cannot lock in current interest rates beyond 60 days for loans over $625,500. As a result, loans that do not close before year-end will need to be re-underwritten and possibly then declined because of the higher interest rate and resulting mortgage payment.
  • Routine activities like mortgage pre-approvals or home purchase contracts are being complicated by the loan limit uncertainty, making shopping difficult for would-be homebuyers.

We also note that an immediate extension of the loan limits is necessary in order to provide sufficient time for FHA, the Federal Housing Finance Agency, and the GSEs to conduct market assessments, provide guidance and implement them. For example, the current loan limits, set by the American Recovery and Reinvestment Act of 2009 (ARRA), did not become fully operational until four months after the law was enacted.

We believe these temporary limits have benefited the mortgage industry and consumers during what has been a turbulent period for our nation’s economy. In light of the continuing weakness in the secondary market, we urge Congress to take action so that the GSEs and FHA can be permitted to continue providing capital to support loans to families across America.

The market for jumbo loans, which are above the limits, is pretty dead, or so I hear. Although some lenders are making jumbo loans and holding them on their books.

However, bigger loans mean putting more taxpayer dollars at risk. At some point, these programs must end or at least be scaled back.

Industry groups are also pleading for an extension of the first-time home buyer tax credit that ends in Nov. 30. The tax is wasteful, since some folks who would have bought anyway get the credit.

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Posted in: Bailout Buzz • FHA • Fannie & Freddie | 17 Comments »

Are banker pay cuts justified?

October 22nd, 2009, 7:20 am by Mathew Padilla

The Obama administration has ordered executive pay cuts of an average of 50 percent at financial companies owing the government billions of dollars from taxpayer-funded bailouts.

“I don’t think there will be any charity cases on Wall Street,” said Representative Barney Frank, 69, a Democrat from Massachusetts and chairman of the House Financial Services Committee in a telephone interview with Bloomberg News. “This is a very good thing.”

But to critics, the cuts represent further government intervention in private enterprise.

What do you think?

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Posted in: Bailout Buzz • Polls | 23 Comments »

What’s next if Obama’s loan mod plan fails?

October 21st, 2009, 11:35 am by Mathew Padilla

Kate Berry, a reporter for American Banker, writes:

At the mortgage industry’s biggest gathering of the year, servicers went out of their way to lower expectations for the government’s loan modification program.

A common refrain was that many of the 500,000 borrowers who have begun trial modifications may not make the cut for a permanent modification because they have not submitted all of the required paperwork.

“Ninety-nine percent of the loan mod packages that get returned to servicers are either missing some of the documentation necessary or have errors in them,” Michael W. Young, the chairman of Cenlar, a Ewing, N.J., subservicer, and the vice chairman of the Mortgage Bankers Association, said at trade group’s convention in San Diego last week.

Similarly, Jerry McCoy, the vice president of business development for national servicing at Fannie Mae, called “borrower engagement” a major challenge for the Home Affordable Modification Program.

“There are still a great many borrowers that would qualify if they would just call back,” he said. “How do we improve pull-through rates?”

Much is at stake in the next two months. The Treasury Department is expected to report the results of the first trial modifications in early November and early December. If the pull-through rate is low, the industry may face another backlash. That may help explain why servicers are talking down expectations for the program now.

“The servicers are very concerned about performing under HAMP, but nobody knows what’s going to happen if the mods fail,” said Chris Sabbe, an executive vice president at Sterling Home Retention Services, a provider of loss-mitigation services in Altamonte Springs, Fla.

For example, though the mortgage industry defeated bankruptcy cramdown legislation in April, there is a sense it would be revived if modification efforts fail.

“I think there is still a concern that bankruptcy cramdown is going to be revisited,” said Michael Waldron, a partner at the law firm Patton Boggs LLP. “No one takes comfort that it won’t be raised again and will be attached to the failure of these efforts.”

I took the above from National Mortgage News.

In this case, cramdown refers to giving a bankruptcy judge power to change the terms of a mortgage, such as by lowering the debt owed to current market value. Cramdowns could help eliminate the risk of another credit fiasco and keep some homeowners in their homes.

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Posted in: Bailout Buzz • Cramdowns • Defaults & Foreclosures • loan mods | 26 Comments »

Obama program mostly delays foreclosures, firm says

October 15th, 2009, 7:50 am by Mathew Padilla

Amherst Securities Group said it expects relatively few trial loan modifications to be successful under the Obama administration’s Making Home Affordable Modification Program, reports real estate news Web site Housing Wire. Here’s more:

Additionally, it’s taking longer for bad mortgages to move from last payment to liquidation, and the pace varies by servicer: “The trial modification period essentially holds the loan in a suspended state for 90 days, making it difficult to assess what is happening with modifications,” the report said, resulting in relatively little cash reaching investors.

Nationwide there are roughly 500,000 loans in trial modifications — it’s unknown how many are in Orange County.

Since HAMP was announced in spring, loans at least 90-days late in the county have been increasing, while the ratio of REOs — loans foreclosed but still held by the lender or original investors — has been declining. Here’s a chart courtesy of First American CoreLogic showing the categories as ratios of all outstanding first mortgages in Orange County.  (Foreclosure filings are loans with a notice of default and some also with an auction notice.)

Defaults and REOs
click to enlarge

If the 90-day rise is due to banks and servicers getting folks into trial mods or seeing if they qualify for trial mods, we could see a spike in foreclosures in coming months.

I recently read the trial period has been extended to five months from three months.

Regular blog reader Liar Loan posted this comment on a previous post:

Essentially, Obama’s mods are no income, no documentation during the trial phase. They don’t require documentation until right before the mod is finalized, so the borrower could be in the program for 3-5 months before they have to prove anything. That’s why even though 500,000 trial plans have been started, don’t expect that many mods to close. The fallout rate will be very high for banks that qualified borrowers on stated income. BofA has gotten a lot of heat for not getting more borrowers on trial plans, but they were being smart by requiring full income documentation before a borrower could start a plan with them.

My view is that HAMP is putting a floor on home prices now, but will drag out the time it takes for the market to recover.

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Posted in: Bad debt • Bailout Buzz • Defaults & Foreclosures | 9 Comments »

No income, no loan modification

October 14th, 2009, 7:08 am by Mathew Padilla

Here’s a quote from John Courson, president of the Mortgage Bankers Association:

“You can’t modify someone if they don’t have income or a job. We have to be realistic going forward. If we are going to play a numbers game, we are going to see a smaller percentage of borrowers in default able to be modified. It’s an unfortunate and difficult fact we are going to have to face.”

The quote comes from the Denver Business Journal, and I first saw it on economics blog Calculated Risk, which points out maybe the industry should not have made NINJA loans — or loans to folks who did not verify income, job or assets.

Anyway, Courson says the complexity of the paperwork required to modify a loan, rising unemployment and depressed home prices all mean many folks will lose their homes in coming months.

The MBA wants to create a think tank of folks working on the dud-loan problem. But Courson may also be preparing the public for more foreclosures.

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Posted in: Bad debt • Bailout Buzz • Defaults & Foreclosures | 42 Comments »

Do we want shadow banking back?

October 8th, 2009, 1:00 am by Mathew Padilla

The Mortgage Bankers Association yesterday released a statement to a Senate subcommittee saying the system of turning loans into securities needs to be fixed and returned to its former glory. Securitization provides liquidity and disperses risk, according to the association. (Download the MBA Statement)

When it comes to home loans, government-controlled Fannie Mae and Freddie Mac are the only ones still churning out mortgage securities in significant numbers.

Paul Krugman, a Nobel-winner in economics, wonders why anyone wants securitization — he calls it shadow banking — to return.

“The banks don’t need to sell securitized debt to make loans — they could start lending out of all those excess reserves they currently hold,” Krugman writes on his blog.

What do you think?
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Posted in: Bailout Buzz • Bank woes • Mortgage securities | 11 Comments »

County pushes its own housing stimulus

October 7th, 2009, 1:00 am by Mathew Padilla

Officials with the County of Orange want to expand a home-buyer tax credit that they had refused to give out when home loans turned wacky during the housing boom.

Now that first-time home buyers are again using fixed-rate loans — which county officials see as viable long-term financing — the county is eager to dole out certificates used to get a federal tax break.

Also check out these recent headlines from this blog:
Where are the mortgage takers?
Foreclosures stuck in limbo
How low will rates go?
These homes are about to be foreclosed
Fed chief calls for council of regulators

First-time home buyers who meet income and home valuation requirements, can get a credit for up to 15 percent of their mortgage interest. That’s in addition to a nationwide $8,000 first-time buyer credit that expires on December 1, and the regular mortgage interest deduction.

The county distributed hundreds of mortgage credit certificates up until the market shifted to adjustable-rate loans, especially those with low fixed teaser rates, in 2004. Such loans were seen as too risky for first-time buyers, said Laurie Sachar, an administrative manager in the county’s public finance department.

The county has just $300,000 remaining of the $1.5 million allocation it got from the state in July, Sachar said. The $1.5 million allocation translates to certificates based on a calculation that incorporates borrowers’ loan amounts and income-tax credit used.

Sachar said the county is applying to the state for an additional $14 million allocation to be awarded in December.

Amid fixed-rates under 5 percent, the county is reminding current holders of such certificates that they can refinance and keep their tax credit. However, they must apply for it.

So far 20 cities are participating in the program with the county, according to Anita McCarty, a vice president with Orange-based Urban Futures, which distributes the certificates.

Since the program was reactivated her company has issued five new certificates and re-issued six certificates to folks who refinanced, she said.

With 2,000 to 3,000 homes changing hands each month here, the county’s program impacts less than 1 percent of sales.

Home buyers pay $300 to apply for a new certificate and $275 to keep one they have when refinancing. For more information, contact John McCarty at Urban Futures at 714-283-9334.

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Posted in: Bailout Buzz • Regulation | 1 Comment »

Here come the short sales

October 3rd, 2009, 1:00 am by Mathew Padilla
Burns

Burns

More troubled homeowners will do short sales as the Obama administration pushes a previously announced incentive plan, says the latest newsletter of John Burns Real Estate Consulting in Irvine.

Back in May, the U.S. Treasury said if borrowers met the minimum requirements for the Making Home Affordable plan but didn’t get a loan modification or couldn’t sustain payments under a trial period then they could get a $1,500 incentive payment to pay moving expenses after doing a short sale or died-in-lieu. The lender or servicer can get $1,000.

Burns expects an update announcement from Treasury sometime  soon.

A short sale occurs when an owner sells a property for less than debt owed. The bank must approve the deal. A deed-in-lieu refers to when a borrower turns ownership over to the bank without going through foreclosure.

I’ve heard both short sales and deeds-in-lieu are bad for one’s credit but not quite as bad as foreclosure.

It’s never been clear to me why government officials would use taxpayer dollars to facilitate outcomes that are only marginally better than foreclosure. Burns’ newsletter explains (bold added):

The fees are designed to help compensate the servicer for the extra effort, and to incent the seller to be cooperative and leave the home in good condition. Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure.
To date, short sales haven’t been particularly effective for a variety of reasons, including:
1. Banks have been slow to approve the high bid, particularly when it is below the last appraisal in the banks’ file.
2. Realtors typically don’t want to deal with all the extra work involved in a short sale.
3. Buyers typically don’t want to deal with the length of time involved in a short sale, which can take 4 to 5 months because of the bank bureaucracy.
Nonetheless, we expect short sales to increase if the Treasury department is offering incentives to encourage them, and as banks and realtors figure out how to work together.

Burns expects some increase but remains skeptical of widespread acceptance.

By the way, the government’s August report on Making Home Affordable said just 12% of eligible borrowers at least two months late on their mortgage were in a trial modification. So, theoretically, those that didn’t qualify are moving into short sales, deeds-in-lieu or foreclosure.

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Posted in: Bad debt • Bailout Buzz • loan mods • short sales | 22 Comments »

Lenders ‘forgive’ homeowner debt more often

September 30th, 2009, 1:54 pm by Mathew Padilla

Lenders modifying a home loan to make it more affordable reduced the amount owed 10 percent of the time in the three months ended in June. While that may not sound like much, it’s more than triple the 3 percent rate in the first quarter, according to a report released today by bank regulators the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Debt forgiveness has been rare. Experts say that’s because a bank that forgives debt loses money, is forced to record that loss on its books, and runs the risk the borrower will miss payments again.

Banks have also been worried borrowers who can afford to pay might default if they learn others are getting their loan balances reduced.

The increase may result from the Obama administration’s loan modification plan which offers cash payments to companies that successfully modify loans, generally by lowering the interest rate, but if that isn’t enough then by reducing debt.

Overall, loan workouts increased 22 percent during the second quarter. However, a previous report on the Obama loan mod plan showed only a small fraction of loans 60 days or more past due are getting a trial modification.

And today’s report showed borrowers are in foreclosure or otherwise missing payments on 11.4 percent of 34 million loans being tracked by the regulators — the $6 trillion in loans represent about 64 percent of all first mortgages.

I plan to blog more on the report but wanted to get the basic numbers out first.

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Posted in: Bad debt • Bailout Buzz • Defaults & Foreclosures • loan mods | 11 Comments »

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