Obama readies steps to fight foreclosures, particularly for unemployed

The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower's income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.

The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying.

The administration's new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, offering financial incentives for the first time to lenders to cut the loan balances of such distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the Federal Housing Administration.

The problem of "underwater" borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.

Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.

The measures have been in the works for weeks, but President Obama is finally to release the details days after his watershed victory on health-care legislation. Following that bruising battle on Capitol Hill, his administration is now welcoming a chance to change the subject and turn its attention to the economy and, in particular, the plight of the unemployed -- concerns that are paramount for many Americans.

The administration has been facing increasing pressure from lawmakers and housing advocates to overhaul its foreclosure prevention efforts. So far, fewer than 200,000 borrowers have received permanent loan modifications under its $75 billion marquee program, known as Making Home Affordable. In the meantime, there is a growing backlog of distressed borrowers awaiting help from their lenders, which threatens to undercut efforts to stabilize the housing market.

Challenges unmet

Assistant Treasury Secretary Herbert M. Allison Jr. told a House panel Thursday that "we did not fully envision the challenges that we would encounter" when the earlier program was launched.

The efforts have been hampered by the difficulty of helping unemployed homeowners, who struggled to qualify for the government's mortgage relief plan. In requiring temporary relief for jobless borrowers, known as forbearance, officials are hoping to give them time to find a new job. Some will still need more assistance after the six-month period while others will ultimately lose their homes, administration officials said.

"We certainly support a forbearance opportunity for unemployed borrowers," said John A. Courson, chief executive of the Mortgage Bankers Association. He said he had not seen full details of the program.

Four measures

In addition to mortgage relief for unemployed borrowers, the program features four other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth, according to officials who spoke on the condition of anonymity because the official announcement had not been made. Underwater borrowers now make up about a quarter of all homeowners, according to First American CoreLogic. Economists consider these homeowners at higher risk of default because they cannot sell or refinance their home when they run into financial troubles.

The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower's mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.

Until recently, administration officials had been reluctant to encourage lenders to cut the principal balance, worrying that this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.

"We would prefer to see a required principal forgiveness program. But this is helpful," said David Berenbaum, chief program officer for the National Community Reinvestment Coalition, a nonprofit housing group. "This is another tool that will help consumers weather the crisis."

Second, the government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled home buyers to put little or no money down, and home equity lines of credit.

These second mortgages are an added burden on struggling homeowners, especially when their total debt, as a result, is greater than their home value.

Federal officials have estimated that about half of all troubled homeowners have a second mortgage and last year launched a program to encourage lenders to restructure them. That effort has struggled to get off the ground.

Third, the new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can't qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.

Fourth, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan. The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.

For those borrowers who have more than one mortgage on their house, the FHA will allow refinancing of the first loan only. The new loan and any second mortgage could not exceed 15 percent of the home's value. This approach is meant to benefit not only borrowers but also lenders by allowing them to offload mortgages that might otherwise fail.

Only homeowners who are refinancing their main residence, have a credit score above 500 and can document their income are eligible.

Administration official say this refinancing program should not strain the FHA's already weakened finances because the effort will be financed with up to $14 billion out of the federal bailout program.

article source: washingtonpost

Gov’t to unveil plan to shrink some home loans

The Obama administration will announce Friday a plan to reduce the amount some troubled borrowers owe on their home loans, three people briefed on the matter said.

The people declined to be identified because the program had not yet been announced. Earlier in the day, Herbert Allison, an assistant Treasury secretary, told reporters officials are close to expanding the administration’s $75 billion foreclosure relief effort.

The plan to be unveiled Friday at the White House is expected to include at least three months of temporary assistance for borrowers who have lost their jobs. It also is expected to include an expanded effort to allow borrowers refinance into Federal Housing Administration loans.

The plan would expand the administration’s foreclosure-prevention program, which has been a disappointment to date. Critics have complained the program does little to encourage banks to cut borrowers’ principal balances on their primary loans. Nearly one in every three homeowners with a mortgage are “under water” — they owe more than their property is worth — according to Moody’s Economy.com.

Allison cautioned that any new plan is “not going to mean that all underwater mortgages are suddenly in the program.”

Obama administration officials have been studying such issues for months. An expansion of its foreclosure-prevention program has long been expected because only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year.

And lawmakers have been frustrated by the lack of results.

“It has failed,” said Rep. Jackie Speier, D-Calif., at hearing of the House oversight committee on Thursday. “It has failed miserably and unfortunately we are incapable of saying: OK, this was an experiment, it didn’t work, let’s try something else.”

The program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.

Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.

AP Business Writer Daniel Wagner in Washington contributed to this report.

article source: taragana

Half of U.S. Home Loan Modifications Default Again

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.”

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

article source: democraticunderground

BofA Forgives Home-Loan Principals

According to the agreement with state attorneys general to help homeowners who got high-risk home loans from Countrywide Financial, Bank of America Corp. (BAC - Analyst Report) said on Wednesday that it would forgive about $3 billion in principal loan amount to about 45,000 troubled borrowers.

The borrowers had taken those loans before BofA acquired Countrywide Financial in mid-2008. However, following the acquisition, BofA has stopped such loans.

BofA will offer up to 30% of total loan balances for homeowners who owe more than 20% of the value of their home and missed at least two months of mortgage payments.

BofA is expected to start the process in May 2010. Following the execution, BofA will be the first U.S. mortgage lender to take such a systematic approach to reducing mortgage principal to help distressed borrowers by preventing foreclosures.

Wells Fargo & Co. (WFC - Analyst Report) said that it has modified more than 52,000 mortgage loans it absorbed when it acquired Wachovia Corp. In addition, Wells Fargo had reduced the principal on those loans by more than $2.6 billion.

BofA had already completed modifications for about 22,000 homeowners as of Feb 2010. This equals about 8% of its total list, compared to about 11% for JPMorgan Chase & Co. (JPM - Analyst Report).

Earlier this month, the Treasury received net proceeds of $1.5 billion from the sale of warrants entitling it to purchase BofA common stock.

The amount received from the auction of BofA warrants exceeds $1.1 billion raised from the sale of Goldman Sachs (GS - Analyst Report) warrants earlier.

The market turmoil was more harmful to BofA than its peers. However, the company has concluded acquisitions of Merrill Lynch and Countrywide Financial almost during the height of the financial crisis last year.

The CEO views these deals as beneficial for stakeholders of the company. Furthermore, this will allow the bank to focus on rebuilding customer relationships.

article source: zacks

Bank Launches Big Plan to Cut Mortgage Debt

Under pressure by Massachusetts prosecutors, Bank of America Corp. said Wednesday it would reduce mortgage-loan balances as much as 30% for thousands of troubled borrowers, in what could presage a wider government effort to encourage banks to offer debt reduction to ease the mortgage crisis.

The plan is one of the boldest moves yet to address the plight of millions of U.S. homeowners who are "under water," owing more on their homes than they're worth. It could make it easier for the Obama administration to move in a similar direction with its existing loan-modification program, although senior government officials and many bankers remain very wary of offering to cut loan balances as the main way of helping distressed borrowers.

So far, most modifications, including those under the government-subsidized Home Affordable Modification Program, involve reducing interest rates. Some also extend terms to 40 years, to shrink monthly payments.

But banks are finding that some borrowers aren't willing to keep making even reduced payments, believing they have little hope of ever having equity in their homes and might be better off renting, and perhaps buying a less-expensive home later.

"Severely under-water homeowners are reluctant to accept a solution that does not offer some reduction in principal," said Barbara Desoer, president of Bank of America Home Loans. "The whole purpose of the program is to get more customers to return phone calls" and make payments for trial modifications so workouts can be made permanent, she added.

The Obama administration is discussing with banks how to adjust its existing loan-modification program to encourage forgiveness of principal, people familiar with the matter say. An official declined to discuss such efforts but said the administration was encouraged by Bank of America's initiative, calling it "consistent with our own housing policy principles."

Howard Glaser, a housing-industry consultant, said, "The fact that private institutions are moving in this direction makes it more palatable for the Obama administration to face criticism from homeowners who think there's unfairness" in reducing principal for only some people.

The action by Bank of America is notable because it is the largest mortgage servicer, collecting loan payments on one of every five home loans in the U.S. At the end of last year, 14.76% of them were at least 30 days past due or in foreclosure, versus an industry average of 12.31%, according to Inside Mortgage Finance.

Some housing advocates were skeptical. Kevin Stein, associate director of the California Reinvestment Coalition, which works on access to credit, said "Everyone, including us, is looking for something positive to point to, but we are concerned this is going to be more P.R. than substance."

The bank's program is limited to Countrywide borrowers whose loan balance is at least 120% of the estimated home value, who are at least 60 days overdue, and who can show that financial hardship makes them unable to meet current payments. The bank estimated that 45,000 customers will qualify for principal reductions averaging more than $60,000.

Only the riskiest loans will be eligible. They include subprime loans; "option adjustable-rate" mortgages entailing minimal payments now but big increases later; and certain loans that have a fixed rate for two years and then adjust annually.

The bank's move is part of an agreement to settle claims over certain high-risk loans made by Countrywide Financial, which the bank acquired in mid-2008. The Massachusetts Attorney General's office, which was negotiating with the bank, said it was prepared to file suit had the agreement not included principal reductions.

Other banks have selectively reduced balances on certain loans. Wells Fargo & Co. said it modified loans for 52,600 borrowers with "option-ARM" loans last year, totaling $2.6 billion in principal write-downs.

Citigroup Inc. reduces principal on a case-by-case basis after other options to address affordability are exhausted, a spokesman said.

Banks and policy makers have long worried that reducing loan balances for some could spur others to default in hopes of a similar deal. Bank of America said it believed it would limit that risk by requiring borrowers to "earn" the lower balances in stages over five years by keeping up on their new, lowered payments. After the third year, the bank could halt principal forgiveness if home values have stabilized enough to provide borrowers with equity.

Last fall, Bank of America slashed more than $200,000 in principal on an option-ARM that Precy Padua used in 2007 to buy a nearly $1 million four-bedroom home in Fairfield, Calif. That modification, which stemmed from a 2008 multi-state Countrywide settlement, lowered her principal balance to $635,000 and provided a 5.5% fixed rate over 40 years.

Ms. Padua said she had stopped making her payments in late 2008, even though the loan wasn't set to adjust to higher payments for years, because the home's value had fallen to around half of the $850,000 she owed.

"We made a mistake," said Ms. Padua, a 61-year-old clinical lab technician. The lower principal balance is a "big help," she said, even though her monthly payments have increased by nearly 40% from the initial low teaser payments, to $3,275. She estimates her home is still under water by $100,000.

Bank of America has come under fire for not doing enough to rework troubled loans. Through February, it had 240,550 borrowers—or 24% of potentially eligible homeowners—in trial or permanent modifications, according to the Treasury Department, lower than most competitors. The bank had completed modifications for 20,666 borrowers, with 22,303 pending.

A bank spokesman said the government's numbers don't accurately reflect the firm's performance.

article source: onlinewsj

Reverse Mortgage For Senior Citizens Can Pay Off Home Loan

Senior citizens that qualify for a reverse mortgage may be able to pay off their home loan and rid themselves of mortgage debt. A reverse mortgage is only available to senior citizens, so if money is needed later in life, a reverse mortgage is a great way to use the equity in your home to make payments, home improvements, or simply have access to cash.

A reverse mortgage must first be put toward the balance of a home loan. If you owe money on your home and get a reverse mortgage than any or all of the reverse mortgage funds must go toward paying off the mortgage balance.

Obviously, if you have no mortgage balance you keep the money, but using the money to pay off your home loan is a great way to alleviate the financial strain associated with a mortgage payment. If the money you get from a reverse mortgage is less than what you owe on the home, you can still use your own funds to pay off your mortgage, but in such a case as that, you’ll have to look closely at your personal financial situation to see if a reverse mortgage is right for you.

If you have more equity in your home and can get enough from a reverse mortgage to pay off your home loan, then it could benefit you financially. A reverse mortgage never has to be paid back as long as the borrower is alive or remains in the home. Again, if you are interested in a reverse mortgage, you will want to look at your personal financial situation, make sure you understand what a reverse mortgage requires, then decide if it is the right choice for you.

This entry was posted on 03/25/2010 at 7:00 am and is filed under Banking/Finance, Loan Modification, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed.

article source: rwbpress

Wells Fargo Home Mortgage Loan—Financial Help Can Come From Refinancing

Wells Fargo homeowners that may be in need of financial help in their mortgage may be able to get a lower monthly mortgage payment by refinancing their home loan. Wells Fargo, along with other big mortgage lenders, is offering low mortgage rates on homes and refinancing, and dropping your interest rate on a mortgage can go a long way in helping you afford your monthly mortgage payment.

Many homeowners are getting mortgage rates for around or under 5%. Some homeowners have seen refinancing rates on a 30-year fixed rate mortgage for 4.75%. Even if you are not able to get a rate below 5% you still may get a cheaper interest rate, which is going to help you when it comes to making your mortgage payment.

By refinancing to a 30-year fixed rate mortgage, for instance, you can possibly lower your monthly mortgage payment, in most cases, and for those with equity built up in their home, you can get money back.

Many people that have refinanced and got money back have either kept or spent the money in some other way, but homeowners that do get money back from refinancing a mortgage would do well to apply that money to the principal amount on the mortgage. While refinancing can be beneficial there are costs associated with the refinancing process, so do your research, look at lenders outside of Wells Fargo too, and make sure that refinancing is the best option for you before proceeding.

This entry was posted on 03/25/2010 at 7:00 am and is filed under Banking/Finance, Loan Modification. You can follow any responses to this entry through the RSS 2.0 feed.

article source: rwbpress