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Archive for August, 2010

Do you think it is immoral or unethical for homeowners to walk away from their mortgages?

Friday, August 27th, 2010

The results from a recent survey through the Phoenix Business Journal on whether or not you think it is immoral or unethical for homeowners to walk away from their mortgages (votes cast 1037)

53% of the poll takers said yes they think it’s immoral

37% of the poll takers said no they do not think it’s immoral

And 10% are unsure.

Here are some of the comments:

  • When one or more enter into a “contract” pure and simple it is unethical to voluntarily breach the terms – that’s why there are so many yellow pages filled with attorneys in the Phx phone book! Just because the financial and credit industries in our country are rife with corruption does not justify a single person to turn their back on their word. It is THEIR name executed on the signed contract! Ignorance and fantasizing are not considered goal planning strategies. We as a people and our Feds haven’t learned an extremely opportunistic and valuable lesson during this economic downturn that incidentally is due for a really good high colonic: Honesty and ethics begin at home!
  • unethical, maybe, if you could still make payments. immoral, of course not. simply put, the mortgage is a contract, with remedies for both parties if there is default. why is there an implied pressure for individuals to act/react differently than a business? walk away or stay, just know the consequences, and don’t let someone else decide for you, especially if they try to use some religious values garbage, as noted below.
  • I hate to split hairs with you, but one definition of immoral is unscrupulous or unethical. Websters even lists immoral and unethical as synonyms. But to me your answer is very disturbing. It shows the breakdown of society and the belief that because something is legal it is not immoral, unethical, or inappropriate.
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  • I have a feeling this story is not unique: My con artist neighbors stopped making payments for 2 YEARS and then worked with their lender on a refinancing plan. They refinanced the loan for a lower amount, at a lower interest, no back payments due, AND their new payments do not begin for one year due to their ‘hardship’. The house they ‘own’ is now a rental. They promptly moved out into a rental home and are collecting $1300 in rent each month for one year without any home loan obligations to their bank. Very convenient for them and downright criminal for the rest of us.
  • Its “just business”. Do the bug guys feel any moral compunction in the ways they conduct business? Then it wouldn’t be business. If all the homeowners, and credit card holders who are in debt, because they emulated what was being held up to them as ” good business” were able to organize, then “they” would become “too big too fail”. And then maybe “we’d” get somewhere; and then the “economy” would get moving again. IMHO
  • Strategic default is a business decision. There is no difference when the Mortgage Bankers Assoc walks from their underwater office building and a homeowner walking from their underwater home. The note and deed of trust outlines the obligations of each party, it is a contract that outlines the agreed upon consequences in the event the note is not paid.
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  • The housing market will not turn around until people have jobs. Some will end up renting forever. The banks used to have lending guidelines, I know I was a lending officer in the late 80’s early 90’s when you had to have a proof of income to qualify. They played fast and loose because they had the “insurance” that they would get paid regardless and profited from selling that insurance by bundling blocks of good and bad loans together. Who would not gamble if you knew you couldn’t lose, (banks) and who would not dip into a piggy bank if they thought they could get away with it. (consumers) I always had a a 20 something with a part time job wanting a fully loaded brand new truck. Where were the regulators? Joseph is right. These shenangians and many others happened during king George’s reign of terror.
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  • I may be one of those forever renters. I don’t see myself buying anytime in the near future, if at all. I put a HUGE chuck of money down on my house and the lender could have cared less to work with me when I needed help, and I had a very valid reason for needing help. I never want to end up at the mercy of a lender again and I sure as hell will never put down that kind of money again.
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  • And don’t forget the Fannie Mae & Freddie Mac gold rush all started with your Arkansas scum bag “used car salesmen” Clintons! Not saying your King George was a genius but not saying Hillary was/is not the slimiest, whitest female snake on the planet. As long as the socialists (Dems) try to turn our Federal Gov. into tax paid free entitlement administrators (Social Security, Titles 18 & 19), and demand our hospitals treat ALL indigents (citizens or not) then let me here you sing your praises for your Obama from your internment camp bunk! By the way, my high school football is better than yours! Grow up Dem Wits!
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  • For two reasons which I am insanely furious over. First – the bonus money to the executives. Second, they were given ’stimulous” money which they have NOT passed down to home owners here in Az, They used it to keep going so they dont HAVE to renegotiate the loans. I am ABSOLUTLY willing to pay the principle, it is the interest that they were given money to work with, so it is ther SPECULATION future “profit” money I have issue with NOT their out of pocket actual cash on the line money!
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  • I think it’s wrong for someone to walk away from an obligation. However, it was also wrong for the banks and mortgage companies to approve loans for unqualified buyers, and wrong for the government to push the banks and mortgage companies to approve bad loans. So, there’s plenty of blame to go around. What makes me mad is the fact that all these entities made the bad decisions, but we’re the ones who end up paying for it.
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  • I think it’s unethical for banker’s to allow people to sign a loan for way over what the homeowner’s can afford.
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  • I simply do not understand when the morality and total lack of “right from wrong” changed and it became acceptable to: not read the fine print on a very important legal document like a loan; sign up for something as stupid as a “interest only” mortgage with a five year change over just so you can purchase a home completely beyond the value of which you can actually and really afford; then in your complete victimized ignorance blame someone else and just walk away from your obligation. Yes it is completely immoral and unethical and yet another sign of the continued decay of America. “Tried in good faith” is such a ridiculous statement. Perhaps this is just a generational thing. I am quite sure the younger “me-me” self indulgent generation can simply justify walking away… but for myself… obviously an older generation… an obligation is something you repay. You can write all kinds of stupid and baseless rants to the “Presidential” level but they didn’t hold a gun to your head forcing you to do something as idiotic as purchase something you couldn’t afford or raise you to be so self centered that you don’t have the ethics, morals, or maturity to do what’s right. Stand up… be real men and women… accept the wrongs you have done… work through it… and grow up!!!!!!!
  • Most people didn’t plan to bite off more than they could chew. The housing market was rapidly increasing and many people didn’t think that housing values would depreciate so rapidly and so completely. This hasn’t happened in either our lifetimes nor our parents. I think it’s an extremely simple-minded and short-sighted statement say that if “you bite off more than you can chew, you go down with the sinking ship.” We are ALL going down with the ship, and some people are taking advantage of the situation. Some other people are truly suffering, and then there are the ignorant folks standing idly by making simpleton judgments…
  • A simpleton viewpoint would be the viewpoint in which one believes that being unprepared and uninformed is a reasonable excuse for making not only bad, but overly indulgent financial decisions. This was greed plain and simple and now we all have to pay for it. What is the thought process that justifies taking out a $400k loan at 0% interest or an adjustable rate without the income to sustain it? Since when is your primary residence considered a source of income and a piggy bank instead of a long-term investment? I remember all of the McMansions and middle class cubicle jockeys driving their over priced luxury cars financed with this “fake money” during the boom. I’ve got your number Joseph D. Tax payers like me will keep you afloat but we’d really rather have you walk the plank.
  • This is not a subjective approach but rather an objective in that you bite off more than you can chew, you go down with the sinking ship.

    Read more: Phoenix Business Pulse Surveys: Do you think it is immoral or unethical for homeowners to walk away from their mortgages? – Phoenix Business Journal

  • Read more: Phoenix Business Pulse Surveys: Do you think it is immoral or unethical for homeowners to walk away from their mortgages? – Phoenix Business Journal

    Read more: Phoenix Business Pulse Surveys: Do you think it is immoral or unethical for homeowners to walk away from their mortgages? – Phoenix Business Journal

    Read more: Phoenix Business Pulse Surveys: Do you think it is immoral or unethical for homeowners to walk away from their mortgages? – Phoenix Business Journal

    Read more: Phoenix Business Pulse Surveys: Do you think it is immoral or unethical for homeowners to walk away from their mortgages? – Phoenix Business Journal

    Read more: Phoenix Business Pulse Surveys: Do you think it is immoral or unethical for homeowners to walk away from their mortgages? – Phoenix Business Journal

    Read more: Phoenix Business Pulse Surveys: Do you think it is immoral or unethical for homeowners to walk away from their mortgages? – Phoenix Business Journal

    Nearly 1m More Mortgages Go From Current to Delinquent: LPS

    Thursday, August 26th, 2010

    Almost 900,000 loans that were current at the beginning of the year are at least 60 days delinquent or in foreclosure as of July, according to the July 2010 month-end report released by Lender Processing Services’(LPS).

    Although delinquency volume fell 2.3% month-over-month in July to 9.3%, it remains near historically elevated levels and record high numbers of delinquent loans are still entering the system, according to LPS. The volume of delinquencies increased 1.4% year-over-year.

    The volume of cured loans, those going from six months delinquent to current, declined to about 10%, down from this year’s peak of 14% in March, sparking an increase in foreclosure starts to the fourth highest level every recorded by LPS.

    Mortgage servicers moved more than 280,000 loans into the foreclosure process in July, the fourth highest month on record, according to Lender Processing Services’ (LPS) mortgage monitor report.

    LPS monitors data on 53.9 million mortgages in the U.S. In July, 0.52% were rolled into the foreclosure process. These foreclosure starts were spurred mostly by private government-sponsored enterprise (GSE) investors, according to LPS. GSE foreclosure starts are “accelerating” with cancellations in the Home Affordable Modification Program (HAMP).

    In July, the Treasury Department reported 616,839 canceled HAMP trial modifications, which surpassed the 434,716 converted into permanent status. In order to be moved into a permanent modification, borrowers must make three monthly payments in the trial. Trials can be canceled due to insufficient documentation or if it’s determined the borrower is ineligible.

    “Foreclosure starts increased to the fourth highest level on record with rebounds in the portfolio and private markets compounding the recent acceleration in agency foreclosure starts leading to a significant jump in rates,” according to LPS.

    How long these loans are staying in the foreclosure process is stretching out as well. The average number of days a loan spends delinquent before it is finally forecloses reached 469 days in July, about a year and three months. In July of last year, the average was 351, more than three months shorter.

    The total amount of loans in the foreclosure inventory passed 2 million in July, a 3.5% increase from a year ago, and 2.1% more than the previous month. The amount of foreclosures making it to REO status is picking up after diving earlier in the year. LPS reported nearly 100,000 REO properties in July.

    Short-sale team singles out lenders

    Monday, August 23rd, 2010
    By Matt Carter, Monday, August 23, 2010.Inman News

    A team of Arizona-based agents specializing in short sales has ruffled feathers in the lending industry by posting videos that they hoped would expose ways in which decisions by lenders can derail short-sale transactions.

    The agents — Kevin Kauffman and Fred Weaver, who do business as Group 46:10 — say they agreed to pull several videos in which they discussed their dealings with JPMorgan Chase when their franchise, Keller Williams Realty, was threatened with a lawsuit.

    Kauffman said it’s his understanding, based on communications with Keller Williams management, that Chase was also threatening to pull its real estate-owned (REO) listings from Keller Williams if the videos in question were not removed. A Chase spokesman declined to comment on the allegation that Chase threatened to pull its REO business from Keller Williams.

    He said U.S. Bank actually stopped working with Keller Williams agents around the country on short-sale transactions for one week, allegedly in retaliation for another Group 46:10 video that discussed the bank. Kauffman said he pulled that video too, after hearing from Keller Williams management and short-sale agents around the country about the alleged boycott. U.S. Bank did not respond to a request for comment.

    In a statement, Keller Williams acknowledged requesting that Kauffman and Weaver remove videos mentioning Chase that were embedded on a website they host for agents, ShortSalePowerHour.com.

    “In order to protect all of our agents, their businesses and their livelihoods, we did respectfully request that Kevin and Fred remove the videos. They agreed,” said Mary Tenant, Keller Williams’ president and chief operating officer, in a statement.

    “While we absolutely believe in the rights of each person to express their opinions, we are always mindful that that each of us is part of the large and connected Keller Williams family,” Tenant said. “We know that Keller Williams Realty associates will continue to service both Chase Bank and US Bank REO properties at the highest levels.”

    Kauffman, who’s based in Tempe, Ariz., said he remains committed to Keller Williams and admires its business model.

    “I love this company, I truly believe in everything Gary Keller set out to do, and I don’t want to go anywhere,” he said.

    But Kauffman also said he was disappointed in how the franchise handled the incident.

    What’s most troubling, he said, is that while the videos may have rubbed some Chase employees the wrong way, they were fact-based discussions about specific transactions that were made in the spirit of addressing perceived shortcomings in banks’ handling of short sales.

    Kauffman said that much of the team’s success — Group 46:10 has closed 350 short-sale transactions in the last 2 1/2 years, he said — stems from its willingness to go up the chain of command when lower-level employees reject deals for reasons that don’t seem to make sense.

    One of the videos that was removed, for example, detailed an exchange with Douglas Whittemore, senior vice president for securitized liquidations at JPMorgan Chase. As Kauffman tells it, Whittemore acknowledged that a short-sale offer Group 46:10 was trying to get Chase to approve would cost the bank less than foreclosing on the property.

    In the video, “We quoted (Whittemore) as saying, ‘Yes, it’s mitigating loss, but not to my satisfaction,’ ” Kauffman recalled. A Chase spokesman who was told of Kauffman’s version of the exchange with Whittemore said the bank would not comment.

    The video, he said, then went on to question what it would require to satisfy Whittemore, and whether Chase was acting in its own best interests and the interests of investors whose loans it services.

    Bank of America, on the other hand, “has embraced us, asking our opinion and feedback on the things they’ve done,” he said. While Bank of America and other loan servicers have gotten better at handling short sales in recent months, he singled out Chase as becoming harder to deal with, in his opinion.

    “Our delivery is very brash, if you will,” Kauffman said. “I can understand people not liking the delivery, but it’s truthful information.”

    Keller Williams “had an opportunity to stand up to (Chase) and protect their agents,” Kauffman said, and claimed that the company “probably did more harm than good.” He said Keller Williams agreed with Chase’s demands that the short-sale team refrain from posting videos mentioning Chase and Chase employees by name.

    After Kauffman and Weaver had pulled several videos identified by Chase and Keller Williams, they received an e-mail from Keller Williams’ general counsel, Julie Lane, relaying Chase’s concerns about another video that mentioned the bank and its employees.

    Lane said Keller Williams was “dismayed” to have learned from Chase that despite “our numerous requests,” Kauffman and Weaver had continued to post videos referencing Chase and specific company employees.

    “While Chase has continued to act in a professional and cordial basis to resolve these issues, (company representatives) did indicate this morning that they are within hours of filing a lawsuit, which would be an expensive proposition for all concerned,” Lane told the short-sale team.

    Kauffman said the status of the videos in question, which were hosted on YouTube, has been changed to “private,” meaning they can no longer be viewed online by the general public.

    Although Kauffman and Weaver provide short-sale training to agents at seminars they conduct around the country, their videos have a relatively small audience. Only a few of the more than 200 videos they’ve posted on YouTube have more than 300 views, with an average of about 220 views for each video.

    The team uses the ShortSalePowerHour.com site to market their $946 “Short Sale CRUSH IT!” package to agents. The “CRUSH IT!” package details their short-sale workflow process and provides forms, five hours of video, and a month of group coaching calls.

    The incident has generated publicity, including an Aug. 19 post on the AgentGenius blog site by broker Russell Shaw that accuses Chase of having a “Bully and Threats Division.” 

    Back to work

    Kauffman says the team continues to negotiate short sales with Chase and U.S. Bank on behalf of clients.

    The pair have even posted a new video, in which they sit on the sidewalk leaning against a Chase branch office, warning homeowners who are considering a short sale not to keep money in a checking or savings account with the same bank that holds their mortgage.

    In the video, Kauffman describes being approached by clients who claim banks have taken money directly out of their checking or savings accounts when they missed payments on other debts.

    Throughout the video, Kauffman and Weaver refrain from mentioning Chase by name, but point at a large Chase logo above their heads.

    Weaver urges viewers to leave a comment if they know of banks engaging in such practices. He did not respond to requests for comment for this story.

    Banks routinely obtain a “right of offset” in agreements with depositors, which allows them to take money from one account to settle a debt in another account with the same bank.

    And although it’s not unusual for banks to exercise that right when borrowers miss payments on credit cards and auto loans, several U.S. Housing and Urban Development Department-approved housing counselors contacted by Inman News said they hadn’t heard of banks taking such actions against delinquent homeowners.

    “I have never heard of a bank doing this,” said Elroy, Ariz.-based housing counselor Amy Evans of Community Action Human Resources Agency. “I have advised clients, however, that if the bank is not working with you to prevent the foreclosure, you should take your money out and close the account simply on principal.”

    But Rosemary Ybarra, lead foreclosure intervention counselor, Neighborhood Housing Services of Phoenix, said she was aware of instances in which banks have exercised their right of offset against delinquent mortgage borrowers.

    Although Ybarra could not say how common the practice is, when clients seeking loan modifications are unable to cure their loans, “we let them know that the servicers will exercise their right (of offset), and that if they have an account open with them, to liquidate it.”

    Is the Short Sale End in Sight?

    Thursday, August 19th, 2010

    Now is the time to build your short sale business more than ever.  Why?  Short Sales are NOT going anywhere for a long time to come. As agents, over 50% of your potential closings will likely include a short sale transaction.  As investors, a short sale offers more control of the discount process than an REO buy.  As investors and agents who have also optimized your business with added income streams through loss mitigation for real estate professionals, the next two years will be the catalyst for immense growth.

    According to recent reports, there are nearly 2.4 million prime loan Borrowers across the U.S. that are seriously delinquent on their mortgages.  According to the Center for Responsible Lending, there are 9 million homeowners predicted to go to foreclosure between the start of 2009 and the end of 2012. Realtytrac predicts 3 million foreclosure filings by the end of 2010 and over 1 million bank repossessions.

    RealtyTrac just reported that residential foreclosures fell in the first half of 2010 by 5% from the last half of 2009, but only because the percentage of lender APPROVED short sales and loan modification applications went up during the same time period.  Despite this perceived decrease in foreclosures, the total number of properties up for foreclosure for the first half of 2010 is 8% higher than the first half of 2009.

    Last month, June 2010, was the 16th straight month that foreclosure filings exceeded 300,000.  Since the beginning of the year there have been over 1.9 million foreclosure filings.

    The 10 states with the highest rates of housing units receiving at least one foreclosure filing in 12 months:  Nevada at nearly 6% of housing units, Arizona at 3.36% of housing units, Florida at 3.15%, California at 2.54%, Utah at 1.91%, Georgia at 1.79%, Michigan at 1.73%, Idaho at 1.68%, Illinois at 1.61%, and Colorado at 1.4%.

    California, Florida, and Arizona top the country in the highest number of foreclosure filings.  However, each has seen reductions depending on how you measure.

    With unemployment still hovering in a bad place and consumer and business confidence still on shaky legs, housing prices will not regain and more and more borrowers will remain with few options should they ‘must’ sell.

    Borrowers who do not qualify for a loan modification or other repayment option when in default should always weigh the benefits of a short sale before allowing foreclosure.

    As real estate professionals, it is your job and advantageous for your business to educate consumers in our area about their options.  The more consumers deem you a credible authority the more homeowners will turn to you when they need to sell.

    Agents, Investors, or those interested in building your own business NOW IS THE TIME!  

    To Your Short Sale Success!

    (short sale daily news archive)

    Study Shows Foreclosure Lowers a Property’s Value by 27%

    Tuesday, August 17th, 2010

    By: Carrie Bay

    Foreclosed homes permeate the American landscape. According to data from the Massachusetts Institute of Technology (MIT), they make up about one in 12 houses with under $1 million left on the mortgage.

    These foreclosures drive down home prices, and MIT gives two reasons for their depreciating effect – because foreclosed homes add to the housing supply and because the financial firms that acquire the houses want to unload them promptly.

    However, since foreclosures often occur in economically struggling areas, it is hard to determine how much of the drop in a home’s value is due to its foreclosure, and how much can be blamed on the economy in general.

    MIT economist Parag Pathak and two Harvard researchers, John Y. Campbell and Stefano Giglio, have conducted a study to put a price tag on foreclosures.

    Specifically, they’ve determined how much a foreclosure affects a home’s value, as opposed to a home going on the market because the owner has died or declared bankruptcy.

    The three academia colleagues examined 1.8 million home sales in Massachusetts from 1987 to 2009. By looking in granular detail at real estate prices, they concluded that a

    foreclosure reduces the value of a house by 27 percent, on average.

    “It’s not surprising that there is a discount due to foreclosure,” said Pathak. “But it is surprising that it’s so large.”

    By contrast, other types of forced sales lower home prices by smaller amounts. When a house is sold after the death of an owner, the researchers found the price drops 5 to 7 percent on average. When an owner declares bankruptcy, the value sinks 3 percent.

    The researchers believe that their discovery of the gaps between these various price reductions is a key to isolating the effects of foreclosures. They suggest that a central cause of the larger foreclosure discount is that the condition of foreclosed houses often deteriorates much more than it does for other kinds of houses whose ownership changes hands.

    This tendency of foreclosed homes to fall into disrepair lies behind the other main finding of Pathak and his colleagues – the presence of a foreclosed house in a neighborhood reduces the value of the homes around it.

    In their estimation, the value of a home drops by 1 percent, on average, if it is within roughly 250 feet of a foreclosed home, namely because the vacant home may not be properly maintained and because foreclosures are typically resold quickly for a discount, their sale price can affect valuation comparables.

    The study is a “very valuable and important paper,” according to Christopher Mayer PhD, a professor and dean at Columbia Business School in New York, who thinks it will open up more research on whether foreclosures cause other foreclosures, a process he calls “contagion.”

    Even though Pathak, Campbell, and Giglio found that foreclosures only dent the values of neighboring homes, Mayer questions whether there may be a tipping point “at which a neighborhood starts to fall apart.”

    Benefits of Attorney-Managed Short Sale

    Wednesday, August 11th, 2010

    Attorney / Client Privliege: Interactions between clietn and attorney are legally protected and “privileged” by law thereby offering a high level of confidentiality and professionalism.

    Managing Potential Lawsuit Eventualities:  As the case evolves through time, should it be necessary that other legal remedies and defenses be required, an attorney, intimately involved with the specific case, will be available to take on these challenges.

    Legal Advisements: Attorney case management affords the client immediate access to a licensed attorney with a full range of legal expertise and specific knowledge of the case details should it be required.  Advie for bankruptcy, debt negotiations, and tax implications are immediately accessible.

    Attorney Oversight for On-Going Negotiations: Attorney representation on behalf of the client may be afforded a higher priority with lenders given the various legal options available to a licensed attorney.

    Attorney “Code of Ethics’ Benefit: While many “boiler room” third party short sale negotiators may have dubious origins, capabilities and ethics, an attorney is bound by strict rules of legal conduct that offer the client a higher level of confidence in this critially important matter.

    Legal Risk for Non-Attorney Short Sale Practitioners: Realtors undertaking short sale processing and negotiating without the benefit of legal counsel face significant litigation risks.  Realtors have specific skills and experience in negotiating the purchase and sale of real estate.  However, the myriad of additional client and property specific factors creates an unwarranted litigation risk for non-attorney practitioners as has been illustrated in recent legal case law.

    FHA Rolls Out Principal Reducing Refis for Underwater Borrowers

    Monday, August 9th, 2010

    Nearly a quarter of U.S. homeowners with a mortgage owe more on the loan than their home is worth, and home prices are threatening to fall further and push even more borrowers underwater. The Federal Housing Administration (FHA), though, is throwing out a lifeline.

    Starting September 7, the federal agency will offer new FHA-insured mortgages to certain underwater, non-FHA borrowers who are current on their mortgage payments and whose lenders agree to write off at least 10 percent of the unpaid principal balance.

    This last part could prove to be the caveat that leads the new FHA refi program down the same road as the federal government’s other housing programs – a road of below par results and public criticism.

    Lenders are fantastically reluctant to write down mortgage principals. It would mean either they or their mortgage investors would have to eat the amount of debt that’s forgiven, and it could set a precedent that a loan contract is not a contract at all if the terms spelled out in black and white can be changed based on market nuances, such as a slump in real estate values.

    The FHA refi program for underwater borrowers was originally announced in March as part of the administra-

    tion’s expanded foreclosure prevention strategy. On Friday, FHA and HUD published a mortgagee letter explaining to lenders the details of the new negative equity refinancing program.

    To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, and occupy the property as their primary residence. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal of at least 500.

    Participation in the program is voluntary and requires the consent of all lien holders. The borrower’s existing first lien holder must agree to write off at least 10 percent of their unpaid principal balance to bring the borrower’s combined loan-to-value ratio to no more than 115 percent.

    In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.

    To facilitate the refinancing of new FHA-insured loans under this program, the Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens.

    Servicers planning to take part in the new program must execute a Servicer Participation Agreement (SPA) with Fannie Mae by October 3, 2010.

    HUD says interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees to write down a portion of the unpaid principal.

    FHA Commissioner David H. Stevens, said, “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

    An August Surprise from Obama?

    Friday, August 6th, 2010
    by: James Pethokoukis
    Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

    The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

    1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

    2) Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:

    GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2001.

    And this from Mizuho Securities:

    As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping  up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.

    Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.

    3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.

    But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

    4) And don’t think the White House is worried about financial market reaction. If they thought it would pass Congress, they would be submitting a $200 billion Stimulus  2.0  (3.0?, 4.0?) right now.

    August is supposed to be a slow month for Washington politics. But maybe not this one.

    BofA Agrees to Largest Shareholder Settlement of Subprime Meltdown

    Wednesday, August 4th, 2010

    By: Carrie Bay

    Bank of America has agreed to another hefty lawsuit settlement to smooth over charges brought against Countrywide, the subprime mortgage lender it acquired in July 2008.

    On Monday, a U.S. district judge in Los Angeles approved BofA’s payout of $600 million to Countrywide investors who claim the lender wasn’t forthcoming with disclosures about its business of making low-quality, high-risk loans.

    In addition, Countrywide’s third-party auditor, KPMG LLP, agreed to pay $24 million as part of the settlement, since it backed up the subprime lender’s alleged misleading financial statements at the time.

    It’s the largest shareholder settlement awarded out of the subprime mortgage meltdown, and the latest in a myriad of legal wranglings BofA inherited with Countrywide’s troubled mortgage portfolio.

    According to a report by the Los Angeles Times, the settlement doesn’t cover investments in mortgage-backed securities (MBS) sold by Countrywide.

    It does, however, clear several former Countrywide executives, including CEO Angelo Mozilo, who were also named as defendants in the case.

    Countrywide and Mozilo, though, are still under criminal investigation by the U.S. Justice Department and the California attorney general, and face civil investigations from the Securities and Exchange Commission (SEC) and a number of other state attorneys general.

    BofA says Tuesday’s settlement is not a concession of any wrongdoing on the part of Countrywide, but was agreed to in order to avoid the cost of ongoing litigation

    As Housing Programs Falter, Administration Weighs New Refinance Plan

    Monday, August 2nd, 2010

    By: Carrie Bay 

    Rumors of a new government-led mortgage refinancing program have begun to surface. DS News has received word from sources inside the administration and from high-ranking executives at some of the largest banks,

    confirming that the White House is indeed considering a refi push that would allow homeowners to lower their monthly mortgage obligations by locking in today’s rock-bottom interest rates.

    Some industry insiders are viewing the move as a concession by the federal government that its existing housing programs aren’t doing enough. The latest figures from the U.S. Treasury show that 16 months in, the Home Affordable Modification Program (HAMP) has yielded just 389,198 permanent loan restructurings – results that even the government’s own special inspector general has assailed as “anemic” and not even close to putting “an appreciable dent in foreclosure filings.”

    The administration has already initiated several refinancing programs in hopes of stemming the nation’s foreclosure crisis, but they too have generated tepid outcomes at best. As of the end of March, the Home Affordable Refinance Program (HARP) had allowed 291,600 homeowners to obtain new mortgages with lower rates – a mere drop in the bucket considering the program’s end-goal is 4-5 million refinancings.

    And then there’s the Federal Housing Administration’s (FHA) Hope for Homeowners (H4H) effort, which was initiated under the Bush administration. Even after a program revamp in March of last year to increase flexibility for lenders and allow a broader scope of borrowers to qualify, H4H has seen virtually no pick-up in volume. In June, for example, FHA insured just seven new mortgages under its H4H program.

    One target where the administration has seen tremendous success, however, is its efforts to lower mortgage rates, which are currently sitting at historic lows. The hope of translating this success into tangible savings for homeowners has ignited discussions among government officials for a new refinance program.

    While the specific details of such a program have yet to be made official, sources tell DS News that it would again be implemented through FHA, and could take shape as early as mid-August.

    A position statement from one of the nation’s four largest lenders obtained by DS News points out that while the benefits provided to homeowners under a new refinance program would certainly appeal to policymakers, those benefits would come at a cost.

    Namely, a large portion of such efforts would be negated with high redefault rates expected on the refinanced loans, the bank said. Secondly, while a government-sponsored refi wave may help existing borrowers, it could penalize prospective new borrowers, as investors price in the potentiality of another government-driven refi wave in the future. And thirdly, refis would result in large losses for mortgage investors.

    “Ironically, the worse the economy gets, the more likely there will be a ‘heroic’ attempt to get refis going….we must face the possibility – no matter how remote – that a 2003 style refi wave materializes,” the bank said, but noted that implementation of a government-mandated refinance rate, say 4 percent for example, would face significant logistical hurdles such as we’ve already seen with the administration’s earlier housing programs.

    Another well-known name among Wall Street banks described the idea of a new refi wave as a “slam dunk stimulus.”

    “The bottom line is that market conditions have created a potential costless windfall that is not being used,” the institution said in its own position paper, noting that a potential average rate reduction of 125 basis points on 50 percent of the GSEs’ 37 million mortgages outstanding could result in a savings of $46 billion per year for homeowners, in aggregate.

    The analysts at Barclays Capital have voiced their own doubts that a new government-spurred refi wave will actually come about.

    “We do not expect a refi wave unless mortgage rates rally at least another 25 basis points, to 4.50 percent,” the research firm said.

    Barclays also pointed out that, “One of the central elements would involve the GSEs waiving the ‘put-back option’ (when agency MBS loans go bad, the GSEs can put them back if there are defects in the underwriting). Waiving this right (albeit for a fee) could open policymakers up to charges that big banks that made bad loans are being bailed out, again.”