Real Estate Journal Online

The Obama administration’s flagship foreclosure aid program, HAMP (Home Affordable Modification Program), and HUD’s Neighborhood Stabilization Program (NSP) are both in congressional sites as the House Financial Services committee approved both the HAMP Termination Act (HR 839) and the NSP Termination Act (HR 861) yesterday[1]. The committee believes that ending these programs could save around $30 billion dollars of taxpayer money. Chairman of the committee, Spencer Bacchus (R-AL), hopes that the $30 billion can be used instead in the private sector to create jobs.

Not surprisingly, not everyone on Capitol Hill is pleased with the acts. Maxine Waters (D-CA), who has vocally blasted just about everyone on both sides of the aisle this month, announced that she is “very disappointed in my colleagues on the opposite side of the aisle [and] their mania to achieve fiscal austerity at all costs”[2]. Waters was instrumental in getting the Emergency Homeowners Relief Program – also on the chopping block – included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Of course, all of these negotiations could very well come to nothing, as yesterday the White House repeated that it will veto congressional government funding measures if the “undermine critical priorities or national security through funding levels or restrictions”[3]. The president has said repeatedly over the past few weeks that the termination of HAMP undermines his priorities and long-term economic growth.

Do you think HAMP, NSP and the like should go or stay?

Thank you for reading REJournalOnline!

Let us know how you would solve these issues below.

---

[1] http://www.dsnews.com/articles/house-committee-advances-bills-to-end-two-more-foreclosure-aid-programs-2011-03-09

[2] http://www.loansafe.org/congresswoman-waters-blasts-republicans-for-voting-to-dismantle-programs-that-help-homeowners-avoid-foreclosure

[3] http://voices.washingtonpost.com/2chambers/2011/03/obama_repeats_veto_threat_agai.html

Among the many things that Republican congressmen and women have thrown on the chopping block in their efforts to bring down the national budget and get a handle on the national debt is the Obama administration’s much-maligned Home Affordable Modification Program (HAMP). The program was intended to help “as many as three to four million financially struggling homeowners avoid foreclosure by modifying loans,”[1] but in reality the program has led to only 521,630 permanent loan modifications, with many of these “permanent” modifications lapsing back into default[2]. Despite all this, however, U.S. Treasury Secretary Timothy Geithner came out swinging today in HAMP’s defense, saying that ending the program would “cause a huge amount of damage” and “I would recommend against it”[3].

Geithner also recently warned against “scaling back the federal role [in the housing market] too far”[4]. He claimed that it would make housing more costly and leave taxpayers “on the hook” for losses while handcuffing policymakers, adding that “you would leave the [U.S. government] with a more limited set of tools to protect the economy and innocent victims in the face of the next severe recession,” he said.

It sounds like Geithner does not have any real plans to exit this down economy. He’s already planning for the next disaster. Do you think that this is a good way to approach the housing market in general and the role of the federal government in the housing market in particular?

Thank you for being part of REJournalOnline’s Investor Academy.

Let us know what you think of Secretary Geithner’s comments below.

---

[1] https://www.hmpadmin.com/portal/programs/hamp.jsp

[2] http://www.politico.com/news/stories/0211/50130.html

[3] http://www.reuters.com/article/2011/03/01/usa-housing-geithner-hamp-idUSWEN874220110301

[4] http://www.washingtonpost.com/wp-dyn/content/article/2011/03/01/AR2011030103946.html

According to LPS Applied Analytics, the average borrower in foreclosure spends 17 months in the foreclosure process, up six months from 2009’s 11 months. Furthermore, this is probably not the end of the extension process, said Herb Blecher, senior vice president of LPS, citing “huge volumes of defaulted mortgages,” “time-consuming reviews for loan modifications and additional delays that followed revelations late last year about improperly filed foreclosure documents”[1]. Before the housing crash and subsequent foreclosure crisis, the average foreclosure took about 250 days. Now, says Blecher, “loans are spending longer in the process.”

Interestingly, this constantly-extending delay could artificially inflate prices in some markets as local inventories shrink, removing the massive foreclosure glut from the equation – temporarily. However, emphasize experts, this is nothing but a trade-off for improvement now and more pain later since “ultimately, these units have to be foreclosed” and when they are, they will weigh on the housing market when they become available, says Beacon Economics analyst Christopher Thornberg. Additionally, some lenders may be deliberately slowing foreclosures to keep their books balanced and avoid tanking delicate local markets.

To make matters even more confusing, many experts and analysts – and now government officials as well – fear that the current administration’s strategies for dealing with the foreclosure problem are “broken.” Neil Barofsky, special inspector general for the TARP bailout program, has announced that he will be stepping down from his post in March 2011 at least in part because “many of the people it’s [Home Affordable Modification Program] supposed to be helping are now in a far worse place than they would have been had this program not existed”[2]. While many people have been saying this literally since the inception of the program, if it is eliminated (which seems unlikely) banks will once again have to revisit the entire foreclosure and modification process and homeowners and investors will once again face uncertainty as they wait for the “new rules” of foreclosure.

Do you think longer foreclosure timelines are a good thing for the market? For homeowners? How can lenders appropriately handle this issue?

Thank you for being part of REJournalOnline’s Investor Academy.

Please let us know what you think about the foreclosure crisis and the Home Affordable programs below.

---

[1] http://www.usatoday.com/money/economy/housing/2011-02-21-unpaidmortgages21_ST_N.htm

[2] http://www.npr.org/2011/02/18/133839730/tarp-watchdog-says-foreclosure-plan-is-failing

In an effort to make up for mistakes on military foreclosures, JP Morgan Chase announced yesterday that it is going to “significantly enhance its programs to help military and veteran customers”[1]. In a statement from Jamie Dimon, the company’s chairman and chief executive, the lender expressed regret for “the mistakes we made on military foreclosures,” calling the incidents a “painful aberration on [our] track record [of honoring military and veterans].” The lender admitted before a congressional committee last week that they foreclosed on homes of active-duty personnel who should have been exempt from foreclosure under the Service Members Civil Relief Act (SCRA)[2]. The bank also charged some armed forces personnel interest rates of more than 6 percent, which is in violation of the act also. The violations affected some 4,500 service members, 18 of which lost their homes. $2 million has been dedicated to paying back over-charged military members, and Chase is rescinding sales of foreclosed homes not already sold and forgiving the remaining mortgage debt on those homes.

As part of its initiative to demonstrate commitment to the U.S. military, Chase has also announced new programs to “begin a new way forward with the military and veteran community.” Programs include initiatives to keep rates for military members on active duty low and a special military modification program that will exceed HAMP requirements and could lower rates on second mortgages as low as one percent. Furthermore, Chase will no longer foreclose on “any currently deployed active military personnel.” Lenders are only required by SCRA to forebear from foreclosure if military borrowers took out loans prior to going on active duty. As part of its new military outreach program, JPMorgan Chase will also donate 1,000 homes to military members and veterans over the next five years, host 10 borrower outreach events near large military bases and open five new Chase Homeownership Centers near large military bases.

Officially, Chase blamed internal breakdowns for the problematic foreclosures, but former employees of foreclosure law firms have testified that military checks are sometimes falsified in order to take advantage of active-duty loan perks and privileges. During hearings on the subject, industry leaders suggested that Chase’s problems were not unique to that lender, but likely industry-wide and one employee of a Florida foreclosure law firm claimed to have been fired after refusing to fake military checks.

Our military deserves our support every step of the way and Chase clearly violated existing laws and regulations governing how military families and their mortgages are handled. Do you think that these new programs make up for the transgressions?

Thank you for being part of REJournalOnline’s Investor Academy!

Please leave comments and questions below.

---

[1] http://nationalmortgageprofessional.com/news23648/jpmorgan-chase-announces-new-programs-military-and-veterans

[2] http://www.palmbeachpost.com/money/foreclosures/jpmorgan-chase-vows-to-fix-mistakes-on-military-1257148.html

The normal law of supply and demand does not apply in the current U.S. economic state – whether home prices go up and down, supply remains high and demand remains low. And not for the first (or maybe even last) time, analysts and economists are questioning government intervention in the housing market.

Recent evidence shows that U.S. home prices may continue to slide in the next three years. Even with that prediction, 12 million more properties are expected to hit the market as shadow inventory – or foreclosed homes and homes in default – is expected to be sold. This expected supply, though, is what’s preventing the market from reaching its rock bottom prices after plunging 28% from 2006.

According to Fannie Mae , Moody’s Analytics Inc., Morgan Stanley, and Barclays Plc. Analysts, the expected shadow inventory is only an add up to the vacant houses and houses expected to be sold by their owners as soon as a slight improvement in the market occurs.

“Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand. Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year,” says San Francisco’s Morgan Stanley’s U.S. housing strategist Oliver Chang.

Read the rest of this entry »

The Home Affordable Modification Program (HAMP) was launched by the Obama administration to help the housing market avoid further decline. Since its launch, though, it has left numerous homeowners angry and frustrated – in fact, so angry and frustrated were the homeowners that they are now starting to file lawsuits against mortgage servicers.

Anthony and April Soper is just one of the thousand homeowners that have filed a case against their servicer – in this case the nation’s largest bank, Bank of America. When the couple started experiencing financial trouble in October of last year, they applied for mortgage adjustment with HAMP and were enrolled for a trial plan that reduced their monthly payment from $4,000 to $1,826. The couple claims they paid their reduced mortgage on time (sometimes even early) and even did everything that was required of them, but they still got denied permanent modification and they do not know why.

The Lake Stevens, Washington-couple may or may not keep their home, depending on the result of a class-action lawsuit filed against Bank of America. On September 30, a Nashville federal court will also hear a consideration to consolidate Soper’s case with a dozen or so more cases against the nation’s largest bank. Other major servicers, like JPMorgan Chase and Wells Fargo, are also facing similar pending cases – and if all these cases are taken together, it demonstrates a growing public anger and frustration against HAMP and its mortgage servicers.

Read the rest of this entry »

Home Affordable Modification was launched by the Obama administration in March 2009 to help approximately three million homeowners avoid the dark clouds of foreclosures. More than a year from its launch, though, HAMP has kicked out more than half a million people from the program. And there’s much anger and frustration in the same people who placed their hopes in the administration’s flagship housing program.

In HAMP, mortgage servicers are to receive financial incentives for permanently lowering qualified homeowners’ monthly payments. To qualify, a homeowner will undergo three tests: (1) eligible hardship in paying monthly; (2) mortgages is 31% more than gross monthly income; and (3) banks will not lose more through mortgage modification as compared to foreclosure. After undergoing three months trial, homeowners should then have permanent modification to their mortgages.

Those who have successfully graduated to permanent status – totaling 435,000 – report a median 36% or $500 savings; this is via deferred payment of principal or lowered interest rate or extended loan’s term. Their number, though, is still lower than those who have been failed by the program – 600,000 (or maybe even more).

Aside from servicers misplacing paperwork and trial homeowners falling behind payments, the failure may also be attributed to the fact that the Treasury Department does not check if banks and other servicers are following the guidelines.

The Government Accountability Office cited a few examples:

1) A few homeowners have been making trial payments for six months or more but banks and servicers still haven’t come to a decision whether to make the payments permanent or not;

2) Those who are in similar situations may receive different decisions because 15 of 20 servicers do not follow federal guidelines; and

3) Treasury does not have penalties for violators and does not independently review borrowers’ application so as to make meaningful appeals for rejected homeowners.

Treasury officials come to their own defense, saying that the numbers alone cannot speak for the program. Though there are many who have been denied permanent modification, some of them have been able to acquire of private loan modifications from their servicers.

The State Foreclosure Prevention Working Group, though, that is hardly reason to rejoice. There are 40% delinquent borrowers who are not getting any help at all. And 75% of those with modified mortgages end up owing more than their original debt.

There is a lot of work to be done for HAMP to still work. Whether HAMP is still going to prove successful, only the next few months can tell.

With a reported 616,000 homeowners being bumped from the Obama administration’s flagship Home Affordable Modification Program (HAMP), the supposed mortgage-relief program is said to be doomed for failure. And analysts are trying to dissect where it went wrong.

Brenda Reed, 64, from Lafayette is just one of the many who has pinned her hopes on HAMP. She said that the program only made her go through months of paperwork only to end up with more debt and a possible foreclosure.

HAMP was supposed to renegotiate delinquent mortgages and allow borrowers to hold on to their homes and stave off foreclosure. Those who enrolled in the program, though, said that HAMP only stringed them along for many months and prolonged the inevitable foreclosure.

HAMP, launched by the U.S. Treasury in March 2009, offered incentives to lenders that modify terms of mortgages on homes up for foreclosure. This seemed like a great deal for mortgage lenders as it warrants them safe from costs of foreclosures. This, however, is not always the case.

In July, only 422,000 trial modifications were escalated to permanent status and half as many were rejected from the program. This validates the complaint of most homeowners that HAMP does not resolve the problem but only prolongs the determined outcome of their problem.

General Accountability Office report on the Troubled Asset Relief Program (TARP) stated in July, “The number of trial and permanent modifications that have been cancelled substantially exceeds the number of homeowners helped. One continuing source of frustration is that the Treasury has rejected calls to announce publicly any goals or performance benchmarks for HAMP.”

Read the rest of this entry »

The US Treasury Department released a report on August 20 practically admitting that the government-sponsored Home Affordable Modification Program failed on its mission to avert foreclosures by facilitating loan modifications between lenders and distressed homeowners.

Since the start of the global financial crisis in December 2007, more than 2.3 million American homes have been either foreclosed or repossessed by banks and lenders and if economists were to be believed, an additional one million more would join the ranks of the homeless as the wave of foreclosures continue ravaging the housing market.

The treasury report revealed that HAMP was able to process some 1.3 million homeowners for possible loan modifications but as the Associated Press has reported, only 32 percent from those who initially enrolled for the program were able to obtain permanent loan modification to salvage their homes.

The same report admitted that 48 percent of homeowners who availed of the program were eventually released by July this year without getting any solid benefits from HAMP.

Case in point is Michigan, which is one the hardest hit by the real estate storm, where the state government launched the ‘Helping Hardest Hit Homeowners’ in July to help unemployed homeowners from losing their homes.

Economists said that Detroit bore the brunt of most of the devastation as foreclosures conspired with massive job losses and business bankruptcies in battering the city.

The state program, supported by $282.5 million in federal funds, aimed to help unemployed residents who were in the brink of losing their homes but seemed to fall short as many in the state were now labeled as ‘not unemployed, not because they have jobs but because they gave up looking for one.

And for the targeted and qualified 17,000 unemployed homeowners in the state, the Michigan program proved too difficult for actual implementation as most lending institutions refused to dip their fingers into the rescue program, as admitted by the state government itself.

Reports said that Michigan Governor Jennifer Granholm refused to exercise her executive power in forcing a moratorium on foreclosures or even enjoin banks to play their part in the program and instead made a plea to unemployed homeowners to try out giving their lenders a call.

Foreclosure activists called the governor’s actions as utterly inutile as they stressed that homeowners would never get a relief by merely calling on their lenders.

Jerry Goldberg of ‘Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs’ stressed on his radio address that the federal-sponsored HAMP and Michigan’s own homeowners’ relief program were bound to fail because the government elected not to put the necessary muscle in implementing the programs.

Goldberg insisted that foreclosures were preferred by banks because they make money through every foreclosure subsidized by the federal government, pointing out that majority of mortgages in the US were now controlled by federal surrogates such as Freddie Mac, Fannie Mae and HUD, with most of these loans grossly inflated from pre-foreclosure value.

He said that as much as $145 billion of taxpayers’ money have been remitted to banks via Freddie and Fannie, adding that the amount could easily reach $389 billion soon as the scheme effectively rewarded the predatory practices of banks for not effecting loan modifications.

In the end, Goldberg asserted that the federal and state governments “have the authority to halt foreclosures, to mandate that banks modify loans and allow people to reclaim their homes at real value and based on payments that they can afford,” yet he stressed that instead of providing aid to troubled homeowners, it is the government which implements most of the eviction incidents.

Last year, President Barack Obama launched the Home Affordable Modification Program. Allocated a budget of $75 billion, the program is supposed to help three to four million homeowners stay away from foreclosure. Eighteen months after its launch, though, HAMP is being dubbed by analysts and economists as just ‘extend and pretend’.

Despite Department of Housing and Urban Development assistant secretary Raphael Bostic’s statement in a conference call that the housing crisis is slowly showing improvements, current figures show otherwise. More and more homes are being repossessed by banks and lenders. In July alone, 93,000 were taken over by lenders – nine percent more than June’s numbers.

RealtyTrac, a California-based data provider, started tracking home repossessions in 2005. The company has come to find out that July has the second highest monthly repossessions since tracking started. Ever since HAMP was launched, 300% more homes were repossessed.

With HAMP, participants are promised years of monthly payments. This is achieved through cutting down on mortgage interest rates and extending the mortgage life.

Last month, less than 17,000 homeowners were offered to participate temporarily in HAMP and have their monthly mortgage payments reduced. This is 86% less from last year’s HAMP participants. Of these, only 37,000 transitioned from trial plans to permanent mortgage modification.

July’s figures are the lowest since December of 2009 and are down 28% from June’s. The 100,000 that were bounced out of the program last month were bounced because they failed to provide documentation, fell behind the new reduced payments, or kicked out by mistake by mortgage servicers. The last reason is a common thing, says both homeowners and HAMP advocates; even government auditors say so.

As HAMP moves forward, the number of dropped homeowners is increasing. From June, the number increased 7% in July. Since March 1, an average of 108,000 is being kicked out monthly. Almost half of those who enrolled in HAMP since 2009 are now kicked out of the program.

Even with 422,000 homeowners enjoying the median monthly savings of $500 from HAMP, experts say that the program has only added more confusion and hurt to homeowners. As economists pointed out, HAMP does not prevent foreclosures; it only extends the time it takes for a house to be foreclosed and pretends that all’s well until that time comes. Hence the term “extend and pretend”.

Despite government efforts and HAMP in place, the housing crisis seems to be worsening. Analysts predict that not only will house prices continue dropping in the next four years, but it will also experience zero price appreciation.