Mortgage plan helps only 12% of borrowers reduce payments

By Stephanie Armour, USA TODAY

A year after the federal government announced a $75 billion plan to slow the rate of foreclosures, more than 1 million homeowners have gotten temporary reductions in their mortgage payments.

But only 12% — about 116,000 — have received permanent modifications after a three-month trial period. Some economists say that's too few to make a meaningful impact when millions of homeowners are in foreclosure or delinquent on their mortgages.

The success of the government program also may be tempered by homeowners who become delinquent even after getting permanent modifications with lower monthly payments.

"The modifications reduce monthly payments, but I think redefaults will be in the 20% to 30% rate," says Mark Zandi, chief economist at Moody's Economy.com. "There is no principal write-down. (Borrowers) will take the reduced payments, but if there is an interruption in income, they'll redefault, because they're underwater."

Homeowners are considered underwater if they owe more on their homes than they are worth. An estimated 10.7 million Americans— or 25% of homeowners — have negative equity in their homes, according to First American CoreLogic.

Under the government's program, CitiMortgage and GMAC were the best performers in getting homeowners whose mortgages they service into modifications: Half of eligible homeowners were in either a trial or permanent modification at the end of January. Eligible homeowners are 60 or more days delinquent on their home loans.

GMAC also converted a third of the trial modifications it started into permanent ones, which was one of the best conversion records among the large mortgage servicers whose performances are tracked in Treasury's monthly report.

In contrast, servicers handling much larger mortgage portfolios were less successful in producing permanent modifications. JPMorgan Chase Bank's rate was 7%, and Bank of America's rate was 5%.

The modifications lower monthly payments for homeowners through reduced interest rates, extended loan repayment schedules and delaying payment of principal. Mortgage payments for those in permanent modifications have been cut by a median of about $522 a month, according to Treasury.

The goal of the federal program is to offer up to 4 million homeowners lower payments through mortgage modifications through 2012.

Starting June 1, the government will try to speed up the conversion rate by requiring homeowners to provide all necessary documents, such as proof of income, when they apply for trial modifications. Homeowners have to stay current on their modified mortgage for about three months to qualify for a permanent adjustment. Some servicers haven't requested all documents until homeowners complete the trial period, which has delayed moving them into permanent modifications.

Bernard Baumohl, of the Economic Outlook Group, says that despite the government program's problems, it has helped homeowners.

The program "was really never meant to solve the housing crisis but to slow down the foreclosure crisis."

Fewer falling behind on home loans

By ALAN ZIBEL AP Real Estate Writer

Posted: 02/19/2010 02:43:52 PM PST

Updated: 02/19/2010 05:22:28 PM PST

WASHINGTON — The end of the foreclosure crisis is finally in sight. For the first time in almost three years, the number of homeowners falling behind on their loans is declining.

The drop means the number of people losing their homes will start to fall. But some pain from the crisis is sure to persist. Because millions of people are already in foreclosure, deeply discounted houses will put pressure on home prices for years.

"Housing is on a path to recovery," said Mike Larson, a real estate analyst with Weiss Research. "It's going to be a very long, gradual process."

In high-foreclosure cities like Las Vegas, Phoenix and Miami, homes have lost roughly half their values from their peaks. But a report Friday from the Mortgage Bankers Association showed Nevada, Arizona and Florida had some of the biggest declines in new delinquencies.

The figures probably mark "the beginning of the end" of the crisis, said Jay Brinkmann, the trade group's chief economist.

However, more than 15 percent of homeowners with a mortgage have missed at least one payment or are in foreclosure, a record. Worse, nearly half of all delinquent borrowers were at least three months behind on their payments, up from a typical level of less than 20 percent.

"The bad news is that we still have a big problem," Brinkmann said. "The good news is it looks like it may not get much bigger."

That's because the percentage of borrowers who missed just one payment on their home loans fell to 3.6 percent in the October-to-December quarter from 3.8 percent in the third quarter, according to the Mortgage Bankers Association. That decline was even more surprising because delinquencies usually rise at that time of year due to higher heating bills and holiday spending.

In another encouraging sign, the number of borrowers who had missed at least one payment but were not yet in foreclosure also fell for the first time since the beginning of 2007.

Banks are delaying the foreclosure process, traditionally between four and six months, as they evaluate borrowers for help under the Obama administration's $75 billion mortgage-relief effort. It lowers borrowers payments to as low as 2 percent for five years and extends loan terms to as long as 40 years.

But experts warn that hundreds of thousands of borrowers will not be eligible or will not complete the process.

So far, only 116,300 borrowers out of 1 million who enrolled have had the terms of their mortgages changed permanently.

Despite the government's efforts, there may be 6 million foreclosed homes that are put on the market over the next three years, according to Barclays Capital.

Timing is key. If banks unload them suddenly, "it will be much more detrimental to the housing recovery than if it's a slow, gradual bleed," said Michelle Meyer, a Barclays economist.

On Friday, Obama announced that housing agencies in the five hardest-hit states of Arizona, California, Florida, Michigan and Nevada will receive $1.5 billion in financial rescue money.

It will go to local programs to help unemployed homeowners, "under water" borrowers who owe more than their home is worth, or to give lenders incentives to assist borrowers with second mortgages.

The programs will need to be approved by the Treasury Department.

"Government alone can't solve this problem," Obama said. "But government can make a difference."

In a briefing with reporters, administration officials acknowledged that the effort was just a small one. But they said it could help develop broader national solutions. "What we're trying to do here is foster innovation," said Herbert Allison, an assistant Treasury secretary.

10 percent reportedly late on mortgages

County figure up from 6.2 percent year earlier

By Roger Showley, UNION-TRIBUNE STAFF WRITER

Thursday, February 18, 2010 at 12:04 a.m.Nearly 10 percent of San Diego County homeowners with mortgages are at least two months late on their payments and are likely to default and fall into foreclosure, a sampling of area credit records shows.

According to Chicago-based Trans-Union, a credit and information management company, a record 9.9 percent of mortgage holders in the county were 60 days or more delinquent in the fourth quarter of last year. That’s up from 6.2 percent a year earlier and 1.5 percent, the historic average, at the beginning of 2007.

California’s delinquency was even higher, 11 percent, while the nation as a whole was at 6.9 percent — both record levels. TransUnion used a sample of 27 million consumers’ credit records, about one-tenth of the total available, to calculate the delinquency rate.

TransUnion said the average mortgage debt for San Diego households at the end of 2009 was $379,271, about $10,000 less than at the beginning of 2007. With the median home price at $325,000 in the fourth quarter, that suggests the typical homeowner owes more than his or her mortgage.

A monthly mortgage payment on a $379,000, 30-year fixed loan currently runs about $2,034, so someone two months in arrears would owe about $6,000, including the current payment.

Norm Miller, a real estate professor at the University of San Diego and vice president of CoStar Group, said the distress is not as widespread as the numbers suggest. About 60 percent of homes carry a mortgage — roughly 600,000 countywide — and about one-third of those were bought at the peak of the real estate boom, 2004 through 2007.

“A point to remember is that 80 percent of foreclosures are in 20 percent of the submarkets,” Miller said — such as in parts of Oceanside, Escondido, East County and South Bay. “I’m not saying Rancho Santa Fe, La Jolla and Cardiff don’t have any foreclosures — they do — but there’s not so much that it creates a tipping point in falling values.”

In lower-priced areas where most foreclosures have occurred, many homeowners have lost value because of their neighbors’ plight. That doesn’t mean they will go delinquent and end up in foreclosure.

“Hopefully, they’ll ride this thing out,” Miller said.

That’s because many owners, while underwater on their loans, are still employed, can afford the payments and know they could suffer severe financial setbacks if they walk away from their obligations.

“These are people that don’t pay attention to the lawyers on TV, are stressed out by the threat of foreclosure and feel they should be responsible and make their payments,” Miller said. “So even though they don’t have any equity in their homes, they understand they’d lose a lot if they walked away.”

He estimated that about 60,000 properties might be delinquent and headed to foreclosure or short-sale — a lender-approved sale for less than the mortgage balance.

“The good news is this — in the last couple of months, if you wanted to do a short-sale, it didn’t take as long,” Miller said, one month instead of six.

Miller and other economists say short-sales and foreclosures will clear the housing distress better than the Obama administration’s loan-modification program, which the Treasury said yesterday had helped only 116,000, or 12 percent of homeowners, out of more than 1 million who have started the process.

“I would say it’s a complete failure at this point,” said Alan White, law professor at Valparaiso University in Indiana.

Phyllis Caldwell, Treasury’s chief of homeownership preservation, said the program was working as intended.

“Struggling families are receiving payment relief and the housing market is showing signs of stabilization,” Caldwell said.

Other observers say many owners soon redefault after their loans are modified. Miller said the program does not work in high-priced California markets where values are far below mortgage balances.

FJ Guarrera, TransUnion vice president of financial services, predicted delinquencies in California would rise to 13 percent by the second quarter of next year, while the national rate may peak at 8 percent.

Guarrera did not estimate a peak for San Diego.

“It got bad over a two-year period and we’re suggesting into the foreseeable future, delinquency rates are going to hang around where they are,” Guarrera said. “I would not be surprised if it would take several years for things to improve in terms of mortgage delinquency.”

Miller said California’s rate is likely to peak at 12 percent, San Diego’s at 11 percent, and distress to start to easing in 1½ to two years as the economy stabilizes and unemployment starts to fall. He noted that unemployment and delinquency go hand in hand — as one falls, the other does, too.

“I think we are about at the peak of unemployment and probably close to a peak in the percentage of delinquency,” Miller said.

Nevertheless, Guarrera said history shows that anyone who is 60 days behind on the mortgage has a tough time making up the difference and becoming current.

“Many if not most of the (delinquent) homes are going to end up in foreclosure,” Guarrera said.

The Associated Press contributed to this report.

Roger Showley: (619) 293-1286; roger.showley@uniontrib.com

Obama unveils mortgage plan to help California...

Obama unveils mortgage plan to help California, 4 other states

In Nevada, the president touts a $1.5-billion program designed to help people in danger of foreclosure. He also talks up beleaguered Sen. Harry Reid.

President Obama speaks to Las Vegas Chamber of Commerce. His steps to prevent home foreclosures were aimed especially at Nevada. (Isaac Brekken, Associated Press / February 19, 2010)

Reporting from Henderson, Nev. - Standing in the heart of the nation's hard-hit foreclosure country, President Obama on Friday rolled out a $1.5-billion mortgage program meant for a handful of states, including California and Nevada, that have endured waves of home foreclosures during the recession.

The president also used the moment to give a needed boost to Senate Majority Leader Harry Reid's reelection chances, crediting him with helping stave off a depression over the last year

Obama spoke to 1,800 people at a town hall-style event as part of a two-day Western swing in which he raised money for Democrats and campaigned for two senators facing tough campaigns: Reid and Michael Bennet of Colorado.

The announcement of new steps to prevent home foreclosures was aimed especially at Nevada, which has ranked first in foreclosures for 37 consecutive months. Although the administration has already put forward programs to reduce monthly mortgage payments, officials acknowledged that more relief is needed.

Under the new policy, $1.5 billion that had been reserved for the bank bailout will be rerouted to five states that have seen housing prices drop more than 20% since 2006: Nevada, California, Michigan, Florida and Arizona.

The money will go toward homeowners who have lost their jobs, owe more than their houses are worth or cannot afford to make monthly payments.

After announcing the program, Obama got a standing ovation.

"Government alone can't solve this problem," the president said. "And it shouldn't. But government can make a difference. It can't stop every foreclosure. . . . But what we can do is help families who have done everything right stay in their homes whenever possible."

Polls indicate voters are unnerved by the economy and impatient with incumbents, and both Reid and the president seemed intent on showing they grasp the public mood.

Reid got straight to the point in introducing Obama. Speaking in hushed tones, he opened with: "Mr. President, people in Nevada are really hurting. We have people out of work, people that are afraid they're going to lose their jobs."

Nevada's 13% unemployment rate is the nation's second-highest, behind Michigan.

Obama portrayed Reid as a vital partner in passing recovery programs that averted an even worse economic downturn.

Like himself, he said, Reid has been scarred by the prolonged and bruising debate over healthcare. Obama said his political advisors warned him last year not to attempt a healthcare overhaul. He said he ultimately decided it was worth it, but that his advisors had a point.

"The people who were giving me advice at the beginning of the year were right," Obama said. "Healthcare has been knocking me around pretty good. It's been knocking Harry Reid around pretty good."

Rescuing Reid won't be easy. A January poll for the Las Vegas Review-Journal newspaper showed that more than half the voters surveyed disliked Reid.

Championing Obama's call to revamp healthcare has hurt Reid at home, the survey showed. More than half the people polled said they opposed the plan, even though more than 450,000 state residents are uninsured.

Obama said Reid shared credit for the foreclosure plan unveiled Friday and other economic programs.

"I can personally attest that Harry Reid is one of the toughest people I know. He does not give up," Obama said. "He knows what he cares about. He knows what he believes in, and he's willing to fight for it."

The president also sought to rally support for his healthcare overhaul. Next week he will meet with congressional leaders from both parties in a bid to revive the plan, which has been stalled in Congress.

Obama said he was open to Republican ideas, but he made it plain that he would arrive at the meeting with a plan reflecting Democratic priorities. That approach doesn't sit well with Republicans, who say they would prefer to start from scratch.

"We're going to move forward the Democratic proposal," Obama said. "We hope the Republicans have one too. And we'll sit down and let's hammer it out. We'll go section by section."

He urged Americans to watch the session, which will be televised. "Pay attention to what this debate is about," he said.

By visiting Nevada, the president also hoped to make amends for past statements suggesting that Las Vegas was a place budget-conscious Americans should avoid.

This month, Obama angered Nevada officials, Reid included, when he told a New Hampshire audience: "When times are tough, you tighten your belts. . . . You don't blow a bunch of cash in Vegas when you're trying to save for college."

Las Vegas Mayor Oscar Goodman told reporters this week that he wouldn't meet with Obama unless he stopped "derogatory" references to his city.

One man at the town hall meeting gave Obama a chance to patch things up. He introduced himself by saying he was from Arkansas. When the president asked why he was in town, the man replied, "Everybody comes to Vegas."

Obama said: "That's what I'm talking about! There you go. Everybody comes to Vegas! . . . Here's my question: 'Have you spent some money here in Vegas?'"

"Yes, sir," the man said.

"That's good. We like to see that," Obama said.

Reinforcing the message, he spoke later in the day to the Las Vegas Chamber of Commerce and told the audience: "Before I go any further, let me set the record straight. I love Vegas! Always have."

peter.nicholas@

latimes.com

ashley.powers@

latimes.com

Orange County foreclosure notices spike in January

REAL ESTATE INDUSTRY NEWS
Orange County foreclosure notices spike in January
The figure is up slightly from December but down from the same month last year.
By Carol StarcevicPublished: February 16, 2010 09:55 AM www.OCmetro.com

Foreclosure notifications in Orange County rose slightly in January from the previous month, but the number still remains significantly lower than January of 2009’s figure. A report by ForeclosureRadar.com shows 1,629 notices of default were recorded last month, compared to 1,613 from December and 2,282 from the same period the year before. In addition, 523 properties were returned to banks, up 86 from December but down 193 from January 2009. And 303 homes were sold to a third party, up 81 from December and 183 from the same time last year, according to the report. The increase in third-party sales signals a growing trend in the distressed real estate market. The report indicates that investors are reporting increased competition and higher bids at auctions, bringing the average discount to 17.5 percent last month, which is down from 18.6 percent in December.Of all California regions, the biggest figures come out of Los Angeles County, which recorded 5,297 foreclosure notices last month, down from 5,519 in December. However, the report cautions against taking the decrease at face value, noting there were only 19 recording days in January versus 22 in December. But it’s still a dramatic drop from the 8,457 notices that were recorded during January 2009.“With delinquent payments rising, foreclosures slowing and foreclosure alternatives failing, it appears the foreclosure crisis will be with us for many years to come,” says Sean O’Toole, founder and CEO of ForeclosureRadar.com, which tracks foreclosure activity in California by county.The region with the fewest filings: Modoc County, a region in the northeastern corner of California with a population of less than 3,000, which recorded 4 notices of default in January. That’s down 2 from December and up 2 from January 2009.last year, according to the report. The increase in third-party sales signals a growing trend in the distressed real estate market. The report indicates that investors are reporting increased competition and higher bids at auctions, bringing the average discount to 17.5 percent last month, which is down from 18.6 percent in December.Of all California regions, the biggest figures come out of Los Angeles County, which recorded 5,297 foreclosure notices last month, down from 5,519 in December. However, the report cautions against taking the decrease at face value, noting there were only 19 recording days in January versus 22 in December. But it’s still a dramatic drop from the 8,457 notices that were recorded during January 2009.“With delinquent payments rising, foreclosures slowing and foreclosure alternatives failing, it appears the foreclosure crisis will be with us for many years to come,” says Sean O’Toole, founder and CEO of ForeclosureRadar.com, which tracks foreclosure activity in California by county.The region with the fewest filings: Modoc County, a region in the northeastern corner of California with a population of less than 3,000, which recorded 4 notices of default in January. That’s down 2 from December and up 2 from January 2009.

FHA eases rule on quick turnarounds

WASHINGTON- Call it three birds with one stone: The federal government hopes simultaneously to help low-down-payment homebuyers, investors who fix up foreclosures, and local communities burdened with too many bank-owned and foreclosed homes -- all with one potentially far-reaching policy change.

The Federal Housing Administration is revising its long-standing "anti-flipping" rules starting Monday, and it just might score a hit with all three target groups.

For years the FHA has had a strict prohibition: It wouldn't insure a mortgage on a house where the seller had owned it for less than 90 days. The ban was a reaction to fraudulent quick flips of houses that inflated their values far beyond true market worth.

The flips often were pure cons: Buyer A would acquire a low-cost house in bad repair, do minor cosmetic changes and resell within days to Buyer B, who was also part of the scheme, at a significantly higher price.

The sequence could involve a string of serial flippers within a month or two, and trumped-up prices spiraling into the thousands.

The end game usually went like this: Find a hapless purchaser for the flipped house who would apply for a low-down-payment FHA loan. Typically that buyer defaulted quickly -- leaving FHA with a foreclosed house on its books, and a loss to its insurance funds.

FHA maintained its 90-day anti-flipping rule through much of the past decade. But now it's suspending the policy, at least for the next year.

In an advisory to lenders, FHA Commissioner David H. Stevens said the agency once again will provide mortgage insurance for some purchases where the seller had closed on the property less than 90 days earlier.

The objective, Stevens said, will be to speed up sales of renovated houses to first-time and other purchasers. With foreclosures at record levels -- an estimated 2.8 million filings last year alone -- many communities are faced with excesses of bank-owned properties sitting unsold, often in poor repair.

By waiving the 90-day rule, private investors will be more likely to bid on these houses, fix them up and sell them to buyers who will now be able to gain early access to FHA financing, which offers 3.5 percent down payments.

What's the significance of the 90-day timeline? It's huge, say investors who specialize in acquiring and renovating foreclosures and bank-owned properties.

Paul Wylie, an investor active in the Los Angeles area, says his group generally can acquire and rehab a house and list it for resale within 60 days.

But under FHA's previous policy, large numbers of potential purchasers couldn't bid on Wylie's properties as soon as they had hit the market.

Barred from using low-down-payment loans until after 90 days, these buyers were forced to look to conventional mortgage sources, which often required 10 percent down plus private mortgage insurance.

"A lot of the people who want to buy our houses just don't have 10 percent," Wylie said. "But they can afford a 3.5 percent FHA down payment."

Bobby Taylor, a broker with Coldwell Banker Mountain West Real Estate in Salem, Ore., said FHA's change of heart "is going to be absolutely terrific" for anyone looking to bid on a moderately priced post-foreclosure house in good physical condition.

Some lucky buyers even will be able to combine the $8,000 federal tax credit with 3.5 percent FHA financing -- provided their contracts are signed by April 30 and closed by June 30, when the credit program expires.

FHA's revised policy does not throw open the floodgates to all post-foreclosure renovations, however. Stevens laid down two key restrictions designed to protect end buyers and FHA alike:

•There can't be game-playing or conflicts of interest among buyers, sellers, realty agents or others involved in the deal. "All transactions must be arm's-length, with no identity of interest" among any of the participants. •Price run-ups must be relatively modest and justifiable from the time of the investor's acquisition to what's paid by the applicant seeking FHA financing. Generally the limit will be 20 percent. When the price jump exceeds 20 percent, FHA expects participating lenders to require extensive documentation of the renovation expenditures made by the investors to justify the hefty price increase.

Lenders also are required to order an independent property inspection so the purchaser can understand the house's physical condition and the improvements made.

The takeaway for buyers and investors: Check out FHA financing early in the game on foreclosure turnarounds. It's now available, and it just might work for you.