The Battle Over Principal Reduction Rages On

States, including NY and CA, push to include assistance for underwater loans

The latest settlement proposal between the states’ coalition and five major banks after 11 months of talks includes financing support for underwater loans, including refinancing, principal write downs and other forms of assistance. According to CoreLogic, about 22.5 percent of all residential mortgages are underwater.

Multistate talks to craft a settlement with the major banks stalled a few weeks ago when California State Attorney General Kamala Harris withdrew. Harris pointed to the combination of the banks’ demands for broader immunity from litigation and penalty for their earlier “abuses” along with the inadequate relief proposed for homeowners whose loans are underwater as unacceptable to protect the interests of California and California homeowners.

Earlier this month, Harris stated that she thinks the head of Fannie Mae and Freddie Mac should “step aside” if he will not approve principal reduction for underwater loans. PICO, a California community organizing network, pointed out in a press release that Fannie and Freddie “continue to keep more than one million California families trapped in unsustainable debt.”

The talks, led by Iowa State Attorney General Tom Miller and supported by the Obama administration, had recently increased the suggested penalties from $20 billion to $25 billion. The additional $5 billion, paid directly to state and federal governments, is intended for eligible victims of the five participating banks’ foreclosure processes — restitution payments are estimated to be between $1,500 and $2,000.

In addition to Harris, attorneys general from several other states including New York, Massachusetts, Nevada, Minnesota, Kentucky and Delaware have stated that they don’t feel that the proposed $25 billion settlement is adequate to protect their states’ homeowners.

Gathered from the following sources:

• California Pulls Out of Foreclosure Talks (WSJ)
• States near foreclosure deal with banks (Reuters)
• Kamala Harris, California Attorney General, To Fannie And Freddie Head: 'Step Aside' Over Mortgage Crisis (Huffington Post)
• Should Fannie, Freddie Write Down ‘Underwater’ Mortgages? (WSJ Blogs)

Obama Announces Expanded HARP Program

Two years later after its debut, how has the Home Affordable Refinance Program changed?

Last month, President Obama announced that the Home Affordable Refinance Program (HARP) was being revised and expanded.

HARP was introduced in 2009 as a measure intended, according to a statement by the President, to “make it possible for an estimated four to five million currently ineligible homeowners who receive their mortgages through Fannie Mae or Freddie Mac to refinance their mortgages at lower rates.” In the two years since HARP’s debut, not quite one million homeowners — or 20 to 25 percent of the intended beneficiaries — have received HARP assistance.

As reported on HSH.com, there are two notable changes in the HARP guidelines, impacting borrower qualifications and lender obligations.

Elimination of LTV caps — The original guidelines for qualifying borrowers capped the loan-to-value (LTV) ration at 125 percent. The revised guidelines eliminate this cap, which is good news for borrowers in hard hit states including Nevada and Arizona, where some LTVs exceed 200 percent.

Elimination of Reps and Warranties — The other significant change is the elimination of some representations and warranties for HARP-participating lenders. By transferring certain lender obligations in the case of a loan going bad from the lender to the government, the government is encouraging more banks to participate in HARP, offering homeowners more options and access to loan modification choices.

Tim Manni, managing editor at HSH.com, comments in his post that he anticipates these changes helping Fannie Mae and Freddie Mac (as only mortgages through either of these institutions are eligible for HARP) as well as the loan orginators, who are now able to take on more debt with less risk. Manni does not, however, see these revisions having a noticeable impact on the housing market’s biggest problem: distressed borrowers and shadow inventory. Borrowers who are behind or seriously delinquent are not eligible and REO held out of the market will not be impacted by the expanded guidelines.

Unexpected Results in Home Sales

New home sales slightly up, while pending home sales are slightly down

The annual pace of new home sales increased a bit more than expected in September, rising 5.7 percent from the previous month. At the same time, although economists had forecast a 0.4 percent gain, contracts for pending home sales declined in September by 4.6 percent.

First time buyers are behind the slight rise in new home sales, as evidenced by the proportion of lower-priced, entry-level homes under contract. Bob Nielsen, chairman of the National Association of Home Builders (NAHB), notes “these consumers are very dependent upon federal policies and programs that support homeownership, such as the mortgage interest deduction and low-down payment mortgage options.”

The number of home buyers able to take advantage of historic low mortgage rates and pricing on existing homes is limited by the combination of low consumer confidence, high unemployment and limited access to credit. Nonetheless, although pending home sales declined from the previous month in the largest month-to-month change since April of this year, the National Association of Realtors (NAR) monthly index shows a year-over-year increase of 6.4 percent.

For more details, read these articles:

• Bloomberg.com: Sales of New U.S. Homes Hits Five-Month High
• NAHB: New-Home Sales Rise 5.7 Percent in September
• Business Week: Purchases of New U.S. Homes Increase More Than Forecast and Pending Sales of U.S. Existing Homes Unexpectedly Decrease 4.6%
• Inman: Pending home sales index rises from one year ago

DISTRESSED HOMEOWNERS - CONSIDER CHANGING COURSE

Foreclosure fears foster true grief.

Reports of foreclosures by the millions have been in the news so much over the past few years that to some, it might seem like the new normal. As a real estate professional, in the trenches with financially stressed homeowners every day, it never feels like business-as-usual.

The prospect of losing ones home is a major source of grief, and often, goes hand in hand with other tragic setbacks like; job loss, divorce, death of a loved one, mounting medical bills or skyrocketing mortgage payments.

Unfortunately, the first stage of grief is denial. That’s even more the case when the threat of foreclosure is looming.

No one wants to talk about financial trouble—even when millions of others are in the same position. It’s completely understandable. But for homeowners who are behind on mortgage payments, decisive action is often the most critical step toward ensuring the best possible solution.

As a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, I help homeowners everyday deal with the grief and uncertainty that accompanies the prospect of losing a home. In the process, I can help homeowners get on a path toward financial solvency.

If you or someone you care about would like to change the course of a life that’s facing foreclosure, I can help. Please contact me today at 503-371-5209 or www.amymcleod.net.

A LESSON FOR EVERY CLASSROOM

A lesson that should be taught in all schools . . And colleges....

Back in September of 2005, on the first day of school, Martha Cothren, a social studies school teacher at Robinson High School in Little Rock , did something not to be forgotten. On the first day of school, with the permission of the school superintendent, the principal and the building supervisor, she removed all of the desks out of her classroom.

When the first period kids entered the room they discovered that there were no desks.

'Ms. Cothren, where're our desks?'

She replied, 'You can't have a desk until you tell me how you earn the right to sit at a desk.'

They thought, 'Well, maybe it's our grades.'

'No,' she said.

'Maybe it's our behavior.'

She told them, 'No, it's not even your behavior.'

And so, they came and went, the first period, second period, third period. Still no desks in the classroom.

By early afternoon television news crews had started gathering in Ms.Cothren's classroom to report about this crazy teacher who had taken all the desks out of her room.

The final period of the day came and as the puzzled students found seats on the floor of the deskless classroom, Martha Cothren said, 'Throughout the day no one has been able to tell me just what he/she has done to earn the right to sit at the desks that are ordinarily found in this classroom. Now I am going to tell you.'

At this point, Martha Cothren went over to the door of her classroom and opened it.

Twenty-seven (27) U.S. Veterans, all in uniforms, walked into that classroom, each one carrying a school desk. The Vets began placing the school desks in rows, and then they would walk over and stand alongside the wall. By the time the last soldier had set the final desk in place those kids started to understand, perhaps for the first time in their lives, just how the right to sit at those desks had been earned..

Martha said, 'You didn't earn the right to sit at these desks. These heroes did it for you. They placed the desks here for you. Now, it's up to you to sit in them. It is your responsibility to learn, to be good students, to be good citizens. They paid the price so that you could have the freedom to get an education. Don't ever forget it.'

By the way, this is a true story. And this teacher was awarded Teacher of the Year for the state of Arkansas in 2006.

Please consider passing this along so others won't forget that the freedoms we have in this great country were earned by U. S. Veterans.

Senate Votes to Raise Loan Limit

Hoping that higher conforming loan limits will help housing market

Last week, the Senate voted to approve the high-balance conforming loan limit to $729,750 in wealthier neighborhoods, as part of a larger spending bill.

As of October 1, 2011, the largest conforming loan (loans that are eligible to be purchased or guaranteed by Fannie Mae and Freddie Mac) limit returned to $625,500 after several years of a temporary extension to $729,750.

There is a ways to go yet before the higher limit becomes an actuality. The approved measure is attached to a spending bill brought to the Senate by Robert Menendez, D-NJ. If that larger bill is approved by the Senate, it then has to pass through the House of Representatives. The Republicans, who control the House, have decidedly different ideas as to how to stir up the housing market and economy, including eliminating Fannie Mae and Freddie Mac not expanding their eligible loan pool.

In a post in the Wall Street Journal, Edward Mills, an analyst for FBR Capital Markets, is reported as saying that “given the strong bipartisan support in the Senate, the chances of the re-raise are well above 50%.”

Foreclosure Activity Brings Both Good News and Bad

What more foreclosures and longer processing times may mean for the housing market

(map from RealtyTrac.com)

RealtyTrac® reported that foreclosure activity in the third quarter was up slightly (less than 1 percent) from Q2, and down 34 percent from the same period last year. September activity was down 6 percent from August, marking the 12^th month in a row that foreclosure activity has decreased from the previous month.

An Associated Press article (found on NPR.org) notes that “A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn't likely to occur as long as there remains a glut of potential foreclosures hovering over the market.”

Although foreclosure filings may be on an upward trend, the foreclosure timeline seems only to be lengthening. According to RealtyTrac, foreclosures were completed in an average of 318 days in Q2, while the process took 336 days on average to complete in Q3. New York state’s average for completing a foreclosure was the highest in the country at 986 days. Compare that to Tennessee, where a foreclosure process averages about 94 days from beginning to end.