Mortgage Modification Update - Banks Response to Administration Program

The banking industry privately knocked the Obama administration's nascent proposal to force banks to modify mortgage loans, saying the plan won't help solve problems facing troubled borrowers.

The nation's largest banks haven't yet seen a proposal that is designed to help resolve mortgage-servicing errors that affected troubled borrowers. But industry executives are bristling at the administration's new approach, disagreeing that principal reductions will help borrowers and, in turn, the broader housing market.

Though a unified settlement is uncertain and would have to appease regulators, banks and state attorneys general, some officials are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers.

The proposal "would bring with it enormous costs that would far outweigh any potential benefits," Chris Flanagan, a Bank of America Corp. mortgage strategist, said in a research note Thursday.

Even an amount of $20 billion "would accomplish little" in addressing borrowers who currently owe $744 billion more on their mortgages than their homes are worth, Mr. Flanagan added.

Weitz - What Mr. Flanagan is trying to say is 'if we have to write down principle, we won't be able to continue our accounting fraud that Congress has so graciously made legal in 2008. If we can't continue our accounting fraud, we won't be able to pay record bonuses, and I may not be able to vacation in Belize next Spring'.

Asking servicers to assume the costs of all write-downs is unfair unless the administration can pinpoint the "source of harm," said Bob Davis, executive vice president of the American Bankers Association. If the loans are going bad because of economic conditions and job loss, "it's not clear why servicers would bear the brunt because it's outside their control."

Weitz - Well Bob, perhaps because the taxpayers bailed you out in historic fashion, and then you proceed to kick folks out of their homes without a single bit of aid or assistance.

The pushback is the latest symptom of the warring interests in the housing market and the difficulty fixing problems that existed long before the foreclosure-paperwork crisis erupted last fall. Economists have said that the U.S. economy's recovery is threatened the longer the foreclosure process is delayed.
The proposal is the Obama administration's latest effort to revamp the way mortgage companies help troubled borrowers and address concerns that past initiatives didn't go far enough to help troubled borrowers.

The administration's signature Home Affordable Modification Program, or HAMP, helped more than 500,000 borrowers lower their monthly payments through interest-rate reductions. But it has fallen short of ambitious goals to modify millions of loans since its introduction two years ago. Last year, the White House unveiled new measures to encourage banks to write down loan balances, but they haven't been widely used.

Given the banks' track record in reworking loans, some attorneys who represent borrowers in foreclosure question whether the administration's proposal could work. "Requiring banks to eat the loss, and at the same time allowing them to administer the program, is a recipe for a program that will not do anything except raise people's expectations and frustrate them," said Gloria Einstein, an attorney at Jacksonville Legal Aid Inc. She said an independent third party should administer the program.

Banks have resisted reducing loan balances in part because of concerns that it could encourage more borrowers to stop making payments in order to receive a smaller loan.

Weitz - I can buy that argument as it does create a slippery slope. The problem is that these folks are going to stop paying anyways and allow their home into foreclosure. Modifications would cease the seemingly endless supply of foreclosures on the market.

The plan also may face some resistance on Capitol Hill. House Republicans on Thursday said they would prepare bills next week to terminate HAMP and similar programs. The administration's proposal appeared to be a ploy to "revamp" the HAMP program, said U.S. Rep. Patrick McHenry (R., N.C.). "If this is their attempt to create HAMP 2, then I find it deeply troubling."

The White House declined to comment.

"The administration's ongoing review is focused on getting to the bottom of the problems in the foreclosure process and holding appropriate parties accountable," said a spokeswoman for the Department of Housing and Urban Development. "Doing so will help homeowners, the housing market and our economy, and any suggestions to the contrary are simply wrong."

Any settlement that includes loan write-downs would require banks such as Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. to complete modifications within one year from the settlement's date, said people familiar with the matter. Banks could face additional fines if they don't comply with the terms of the settlement, and they would have to hire independent auditors to provide monthly updates on their progress and compliance with the terms.

Penalties could be assessed depending on the volume of loans that are 90 days or more delinquent in each bank's servicing portfolio, and by the extent of any deficiencies uncovered by bank examiners, these people said.

Any settlement that includes loan write-downs would require banks such as Bank of America, Wells Fargo and J.P. Morgan Chase to complete modifications within one year from the settlement's date, said people familiar with the matter.

The push for write-downs likely would focus on loans that banks service on behalf of other parties, and not for loans that they hold on their books. The settlement would require servicers to comply with existing investor contracts, and some of those contracts could complicate efforts because they give investors authority to reject reductions of loan balances.

Banks consider their mortgage-servicing problems as technical matters, such as the filing of foreclosure documents that were never verified by so-called robo-signers, say people familiar with the situation. Bank executives also want any penalties to reflect the fact that few borrowers have been improperly ejected from homes, these people say.

But some state attorneys' general and federal regulators are pushing for as high a figure as possible, arguing that mortgage servicers have chronically underinvested in their operations, making it difficult for borrowers to get timely, effective help before falling further behind on their mortgages.

Susan Wachter, a real-estate finance professor at the University of Pennsylvania, said the proposed settlement would provide "disincentives for wrongful behavior" by mortgage servicers.

Weitz - For more information, see the Principle Reduction Alternative.

For more options on your rights in Modification, Foreclosure, or Short Sale, consider contacting a Seattle Foreclosure Attorney.

Our Firm:
Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033

(425) 889-9300

weitzlawfirm.com

Principle Reduction Modifications

An Overview of the Principal Reduction Alternative (PRA) program:

PRA was designed to help homeowners whose homes are worth significantly less than they owe by encouraging servicers and investors to reduce the amount you owe on your home.

Eligibility

You may be eligible for PRA if:
• Your mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac.

Weitz - Ha!...nice work govrnment. "We'll reduce your principle as long as the loan is not insured by Fannie or Freddie which owns or guarantees a huge majority of mortgages in the country"...thanks for another worthless program! Nevertheless, if you're loan is not in this category - continue reading.

• You owe more than your home is worth.
• You live in the home carrying the mortgage you want to modify.
• You obtained your mortgage on or before January 1, 2009.
• Your mortgage payment is more than 31 percent of your gross (pre-tax) monthly income.
• You owe up to $729,750 on your 1st mortgage.
• You have a financial hardship and are either delinquent or in danger of falling behind.
• You have sufficient, documented income to support the modified payment.
• You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
Program Availability

More than 100 HAMP-participating servicers are required to evaluate homeowners for principal reduction. Participating servicers are required to develop written standards for PRA application. The largest servicers include Bank of America, CitiMortgage, JP Morgan Chase, and Wells Fargo.

1. AgFirstFarm Credit Bank
2. Allstate Mortgage Loans & Investments, Inc.
3. American Eagle Federal Credit Union
4. American Finance House LARIBA
5. American Home Mortgage Servicing, Inc
6. AMS Servicing, LLC
7. Aurora Loan Services, LLC
8. Bank of America, N.A.1
9. Bank United
10. Bay Federal Credit Union
11. BayviewLoan Servicing, LLC
12. Bramble Savings Bank
13. Carrington Mortgage Services, LLC
14. CCO Mortgage
15. Central Florida Educators Federal Credit Union
16. CentrueBank
17. CitiMortgage, Inc.
18. Citizens 1st National Bank
19. Citizens Community Bank
20. Citizens First Wholesale Mortgage Company
21. Community Bank & Trust Company
22. Community Credit Union of Florida
23. CUC Mortgage Corporation
24. DuPageCredit Union
25. Eaton National Bank & Trust Co
26. Farmers State Bank
27. Fay Servicing, LLC
28. Fidelity Homestead Savings Bank
29. First Bank
30. First Financial Bank, N.A.
31. First Keystone Bank
32. First National Bank of Grant Park
33. First Safety Bank
34. Franklin Credit Management Corporation
35. Franklin Savings
36. Fresno County Federal Credit Union
37. GFA Federal Credit Union
38. Glass City Federal Credit Union
39. GMAC Mortgage, LLC
40. Golden Plains Credit Union
41. Grafton Suburban Credit Union
42. Great Lakes Credit Union
43. Greater Nevada Mortgage Services
44. Green Tree Servicing LLC
45. Hartford Savings Bank
46. Hillsdale County National Bank
47. HomEqServicing
48. HomeStarBank & Financial Services
49. Horicon Bank
50. Horizon Bank, NA
51. Iberiabank
52. IBM Southeast Employees' Federal Credit Union
53. IC Federal Credit Union
54. Idaho Housing and Finance Association
55. iServeResidential Lending LLC
56. iServeServicing Inc.
57. J.P.MorganChase Bank, NA2
58. Lake City Bank
59. Lake National Bank
60. Liberty Bank and Trust Co.
61. Litton Loan Servicing
62. Los Alamos National Bank
63. Magna Bank
64. MainstreetCredit Union
65. MarixServicing, LLC
66. Metropolitan National Bank
67. Midland Mortgage Company
68. Midwest Bank & Trust Co.
69. Midwest Community Bank
70. Mission Federal Credit Union
71. MorEquity, Inc.
72. Mortgage Center, LLC
73. Mortgage Clearing Corporation
74. NationstarMortgage LLC
75. Navy Federal Credit Union
76. Oakland Municipal Credit Union
77. OcwenFinancial Corporation, Inc.
78. OneWest Bank
79. ORNL Federal Credit Union
80. Park View Federal Savings Bank
81. Pathfinder Bank
82. PennyMacLoan Services, LLC
83. PNC Bank, National Association
84. PNC Mortgage3
85. Purdue Employees Federal Credit Union
86. QLending, Inc.
87. Quantum Servicing Corporation
88. Residential Credit Solutions
89. RG Mortgage Corporation
90. Roebling Bank
91. RoundPointMortgage Servicing Corporation
92. Saxon Mortgage Services, Inc.
93. Schools Financial Credit Union
94. SEFCU
95. Select Portfolio Servicing
96. ServisOne Inc., dbaBSI Financial Services, Inc.
97. ShoreBank
98. Silver State Schools Credit Union
99. Specialized Loan Servicing, LLC
100. Spirit of Alaska Federal Credit Union
101. Stanford Federal Credit Union
102. Sterling Savings Bank
103. Suburban Mortgage Company of New Mexico
104. Technology Credit Union
105. The Golden 1 Credit Union
106. U.S. Bank National Association
107. United Bank
108. United Bank Mortgage Corporation
109. University First Federal Credit Union
110. VantiumCapital, Inc.
111. Verity Credit Union
112. VistFinancial Corp.
113. WealthbridgeMortgage Corp.
114. Wells Fargo Bank, NA4
115. WescomCentral Credit Union
116. Yadkin Valley Bank

Effective Oct. 1, 2010 – Dec. 31, 2012.

Future of Fannie of Freddie - your governement at work

A recent article in the WSJ regarding White House Proposal on Fannie, Freddie:

AP - The Obama administration outlined on Friday its plans to begin shrinking the government's broad support of the nation's crippled mortgage market, a process that officials said could take several years and would include phasing out Fannie Mae and Freddie Mac.

Officials portrayed a housing-finance system that would include a role for both the public and private sectors, but would be different from the current system in that the government's role would be smaller, underwriting standards would be tighter, and borrowers would be required to hold larger amounts of equity in their homes.

Weitz – allow me to translate – housing financing would be darn near impossible to obtain unless you are able to put down a significant down payment, strong income, and strong credit.

Rep. Randy Neugebauer, R-Texas, chairman of a key House oversight subcommittee, is encouraged by the Obama administration's proposal to restructure Fannie Mae and Freddie Mac. But he's disappointed there's no clear long-term reform plan.

The proposal offered a series of short-term steps that would help attract private capital into the mortgage market, including a reduction in the maximum loan sizes that Fannie and Freddie can purchase and gradual increases in the fees the mortgage companies charge lenders. Both of those steps could make it more attractive for lenders and investors to buy loans without government backing, but they could also raise borrowing costs for millions of Americans and weigh on the nation's home-building industry.

Weitz – How could is possibly encourage private capital if the government pulls its guarantees?! This will KILL financing of Real Estate in America – especially at the high end range (above $625,000) and make all loans more expensive.

"The cost of mortgages is probably going to go up, and home ownership is probably going to go down," said Daniel Mudd, the former chief executive of Fannie Mae who is now CEO of Fortress Investment Group. "Both of those things arguably could be a good thing."

Weitz - What?! costs of mortgages is going to go up, and home ownership is going down and that a GOOD THING?! For who?...That's some delusional rationale.

The administration said it would support allowing maximum loan limits to fall to $625,500 from $729,750 as scheduled on Oct 1. It also said it would push to increase minimum down payments to 10% on loans eligible for purchase by Fannie and Freddie. Insurance premiums charged on new loans backed by the Federal Housing Administration could also go up.

Administration officials said the process of transitioning to a post-Fannie and Freddie world would take at least five to seven years, in part because the housing market remains too fragile. Many analysts say the process, which includes dismantling, moving, or reassembling the firms' infrastructure, could take even longer.

The long-awaited proposal was thin on specifics about what would replace Fannie and Freddie, which the government took over in 2008, and which have racked up $134 billion in taxpayer losses. Instead, it outlined three options that were designed to frame what promises to be a prolonged and heated political debate over how to structure the nation's $10.6 trillion mortgage market.

Option 1:
The first of those would put the vast majority of the mortgage market in the hands of the private sector, where lenders would originate mortgages and securitize them without any government backing. The middleman role currently played by Fannie and Freddie would no longer exist.

The government's role would be limited to the FHA and a few other smaller housing agencies, and their reach would be sharply reduced from current levels. The FHA backed 20% of all new mortgages last year. Some conservatives have called for such a private market.

Weitz – this would hurt; Fannie and Freddie back an overwhelming majority of new real estate loan issuance's right now. For the private sector to get comfortable making loans, interest rates would have to go up dramatically as the risk tolerance for the private sector would be far less and they would expect a premium in return.

Option 2:

The second option, championed by a handful of economists, would also create a mostly private market with a limited government backstop that would primarily become active buying or guaranteeing loans in periods when private lenders retreated during financial shocks.

Weitz - great...but this 'period of financial shock' could last a long time

Option 3:

The third option would create new privately owned companies to buy mortgages from banks and sell them as securities. Those securities would be explicitly guaranteed by the government as long as they meet certain criteria. The government would collect fees for that backing, just as the Federal Deposit Insurance Corp. insures bank deposits and regulates banks.

These new companies would essentially replace some of the functions filled by Fannie and Freddie. An array of academics and industry groups have backed such a proposal, and senior Obama administration officials, such as Treasury Secretary Timothy Geithner, have publicly discussed its merits.

Weitz - the problem with this is that no private company is stupid enough to back these loans as the interest rates Fannie and Freddie are doing it. Quite simply, this would never work.

The housing industry greeted the proposal coolly, and some mortgage industry officials criticized the administration for not providing more detail. "It was a political football that they punted back onto Congress's side of the field," said Joseph J. Murin, the former president of Ginnie Mae, a government-owned corporation that guarantees payments on mortgages backed by federal agencies.

Republicans face their own divisions over what kind of role the government should play in the market, while Democrats have generally said a federal backstop function is needed to ensure broad access to homeownership and the 30-year fixed-rate mortgage, in particular.

Weitz – this is the problem – we need to government to prevent a further collapse of Real Estate, yet the economy won’t be truly corrected until we let it collapse; it’s a catch 22 that no one wants to talk about. Thus, the democrats admittedly want the government involved, and the republicans implicitly know the government needs to be involved (or the crash would occur). The problem is they are both trying to prop up a broken system, but politically feel that is necessary.

Many industrialized nations don't have institutions like Fannie and Freddie, and instead rely more heavily on their banking systems to fund mortgages.
But some economists have noted that the mistakes in the U.S. private sector were far greater than the mistakes made by Fannie and Freddie. For example, private-label mortgage securities, which are not government-backed, have performed more poorly than those backed by the mortgage giants. Nearly 45% of private-label loans originated in 2006 had been 90 days past due at least once, compared with 13% for Fannie and Freddie, according to a report from the firms' federal regulator published in September 2010.

"The part of the market that was the most private was also the worst," said Michael Barr, a former assistant Treasury secretary who left the Obama administration in December. He said the report should help remind lawmakers that the government has long had a role backstopping mortgages. "People seem to think there's a nostalgic world that we never had," he said.

Weitz – this is true, but there is a catch – Wall Street screwed up badly, and we didn’t hold them accountable. In order for true capitalism to work in the future, you have to allow the risk of failure as a self-controlling tool to lessen the risk taking. Without the risk of failure, we are destined for bubbles and subsequent busts.

The Obama administration outlined plans to begin shrinking the government's broad support of the nation's crippled mortgage market.

The proposals are likely to set off a furious effort by the financial-services industry to protect generous subsidies and seek out new revenue sources. Investors haven't been willing to buy mortgages that don't have government backing primarily because there haven't been enough steps taken to overhaul the market for private-label securities, said Joshua Rosner, of investment-research firm Graham Fisher & Co. "Investors are on strike," he said.

Weitz – What Josh is trying to say is that there is no support for mortgages from the private sector because 1) interest rates are not indicative of the risk involved (higher risk loans require higher interests); and 2) housing is still overpriced so the private side would rather trade commodities than invest tons of money for a 5% return in Real Estate.

His clients would buy securities without government backing "hand over fist" if the industry had adopted clear and transparent standards, said Mr. Rosner. "The industry isn't doing that, because it's playing for a guarantee."

Weitz – the real story here is that the real estate market is not even close to a point which would allow the government to not be involved. Some would argue that a further collapse would actually be a good thing so the prices get to a point where the typical consumer can buy a house without spending half his/ her paycheck on interest payments to the bank. That said, politicians see falling real estate as a negative and my guess is they continue to use the government (taxpayers) to prop it up with the FHA, Fannie, Freddie guarantees....the saga continues.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033

(425) 889-9300

Fed Up with the Fed

Ben Bernanake (Head of the Federal Reserve) comes out today and defends printing money policy in front of Congress. To sum up - we print money, we send to Wall Street who gambles with it, and pays themselves huge bonuses while the rest of America continues to deteriorate as the job and housing situation continue fall apart. Meanwhile, interest rates remain are un-naturely low which deprives any folks looking for risk free investment, and the value of the dollar continues to fall so we can all get squeezed by the rising cost of commodities like food and gas. Great plan if you work on Wall Street....not so great for everyone else.

Thanks Dylan for getting this out to the masses!

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Foreclosure Inventory - the elephant in the room

A Post from one of our favorites: Diane Olick of CNBC Realty Check outlining the giant elephant in the room - phantom inventory.

AP - You can talk all you want of renewed interest in housing, slowly increasing sales and supposed stabilization in prices, but the elephant in the room is slowly growing, and banks, Fannie, Freddie and the government know it. I'm talking about foreclosures.

Economist Mark Zandi, often quoted by lawmakers on both sides of the aisle, told the Senate Budget Committee this morning that while he's "optimistic" with regard to the economy's prospects, "At the top of my list of concerns, at least in the near term (6 to 12 months), is the ongoing problem in the housing market and the foreclosure crisis."

REO inventory is rising, he proved through some slides. Four million seriously delinquent loans, out of 50 million first mortgage loans, "so that's a lot." And while he noted that the problems appear to have peaked, there are still over 600,000 properties in REO, which will only put more pressure on prices when they come to market.

Weitz - eventually, they banks have to sell these properties - this will lead to increased supply of homes and likely push prices further down. I'm not sure why the banks hold these foreclosed properities for so long. I suppose they're expecting some miracle in the form of a robust economic recovery to save them...I think they'll be dissapointed.

Zandi called modification efforts "inadequate," despite the 1.5 to 2 million modifications a year. "In the context of all the problems that we've got, it's still quite small," he noted. Zandi's biggest concern is that 14 million homeowners, according to his calculations, are underwater (owe more on their mortgages than their homes are worth), and 4 million of those are underwater by more than 50 percent. "That's deeply underwater," he elaborated.

This testimony just happened to coincide with a few blurbs of information I've noted over the

1. Chase announced yesterday that it has plans to add 25 new Chase Homeownership Centers in 19 states this year. "The best way to help borrowers find ways to stay in their homes is to sit down face-to-face and discuss their individual circumstances," writes Chase Home Lending CEO David Lowman in the press release.

2. Wells Fargo is holding 20 mediation events across the country this year, inviting more than 150,000 borrowers who are behind on payments. These will be held at hotels and convention centers, much like the non-profit Boston-based NACA has been doing for years.

3. Fannie Mae is expanding its loss mitigation efforts, trying to modify more borrowers, and if not, trying to find foreclosure alternatives, like short sales or deeds in lieu. They are also testing a program in Florida to negotiate modifications before going to court.

4. Earlier this week, the Hope Now coalition of servicers and investors reported it had done well more than twice the number of loan mods in 2010 than the government's Home Affordable Modification Program.

Bottom line: banks, Fannie, Freddie...they really get it now. Foreclosures are ramping up again and are endangering today's fragile housing recovery. Rick Sharga at RealtyTrac claims we have yet to see the foreclosure peak. Regardless, even if 2011's number is slightly lower than the peak, it is more critical now than ever before to stem the tide because housing is struggling to recover on it's own without government intervention (other than incredibly low mortgage rates, which don't appear to help much). Last year various government incentives helped mitigate the foreclosure losses to the overall market; the market doesn't have that benefit now.

Weitz - I would say rephrase to say the housing is 'failing' to recover despite enormous government intervention.

Zandi says one answer is for Fannie and Freddie to stop charging higher refi rates for borrowers with low credit scores and higher LTV's (loan to value ratios) in order to facilitate more refinancing, even when borrowers are underwater. These are loans the GSE's likely already own or back. "It will cost Fannie and Freddie in interest income, but they will benefit in the form of fewer foreclosures," argues Zandi.

Weitz - this is an interesting comment - I have client all the time ask me about the long term credit concerns of foreclosure/ short sale. While there is no magical ball to turn to, my personal belief is that the government is going to continue to 'lower lending standards' to prop up housing.

For more information on your rights with an underwater loan, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300

weitzlawfirm.com

Walking away from mortgage - Washington

A great clip from the Dylan Ratigan show regarding 'strategic default' or 'walking away from mortgages':

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Remember, all States have different laws regarding the foreclosure process, and deficiency rights of the banks. Further, many homeowners can get out from under their mortgages without actually having to have a foreclosure on their credit score.

For more information, consider contacting a Seattle Short Sale Facilitation or Foreclosure Attorney.


Our Firm:
Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300
weitzlawfirm.com

Foreclosure Update in Seattle

A CNBC Report on Foreclosure updates:



Of note is that Seattle has had the biggest turn up in Foreclosures in the nation (up 23%) - not a big surprise if you follow this blog.

Wall Street pay continues to soar

A great clip with Dylan Ratigan and Michael Lewis (author of Liar's Poker).

What can you say about this?...other than it stinks. The guys that caused the problem walk away as the big winners while the general public gets fleeced via a dollar collapse, tax payer abuse, and the continued fall of their real estate.

Visit msnbc.com for breaking news, world news, and news about the economy

The Highlights:

1) 2010 Pay up 5.7% to 135 Billion
2) Wall Street Revenue of $417 Billion – How? It’s obviously not from lending proceeds as lending as fallen off a cliff (see M3). Thus, it can only be 1) government handouts, and 2) trading profits (with taxpayer funds).

So I ask – what positive role do these institutions play in the economy? aside from giant leaches of capital? Anyone? Anyone?