From Trial Modifications to Permanent Solutions – A Washingtonian’s View on the Road to Recovery
Having a staffer on the House Committee on Financial Services for a best friend and growing up here in our nation’s capital it’s almost impossible for us to avoid long conversations about financial recovery, the foreclosure crisis, and the steps that various legislators and government organizations are or should be taking to help homeowners. I enjoy our conversations and it’s always great to get the inside scoop on what’s happening in Washington from a good friend.
The work day’s ended, and we’re sitting down for a Guinness at 18th St. Lounge talking shop; new appraisal guidelines, the pros and cons of the Nationwide Mortgage Licensing System (NLMS), the movie The Hangover (I loved it he hated it), and of course, HAMP – the loan modification side of Obama’s Making Home Affordable Program – and the disturbing number of homeowners that have been placed in Trial Modifications only to never receive a Permanent Loan Modification.
From an outsider’s perspective it’s very difficult to grasp exactly what is going on at the major servicers, and why the majority of homeowners aren’t being placed in permanent modifications. Let’s take Bank of America for example; as far as I recall last month, B of A had 43,000 homeowners in Trial Loan Modifications, yet has only approved 98 for Permanent Modifications?
Are Bank of America and the other major servicers not committed to helping homeowners? Are their loss mitigation departments simply too swamped? Are banks truly just putting homeowners into Trial Modifications to get a couple of payments from them prior to foreclosure? Here’s where talking with my buddy helps to understand what exactly is going on:
There has been a gargantuan amount of pressure on lenders to put more homeowners into Trial Loan Modifications coming from pretty much all sides; in addition to pressure from HUD and the Treasury Department on lenders to modify more mortgages, recently, President Obama called the CEO’s of most of the major lenders to the White House to explain why more hasn’t been done to help struggling homeowners. I can’t even begin to imagine how stressful that was for Ken Lewis.
As such, lenders are placing homeowners into Trial Loan Modifications just as quickly as they can to appease Washington. Here’s the problem – rolling over from a Trial Modification to a Permanent Modification is not just contingent on the homeowner making three consecutive affordable payments on time. The big hold up is the fact that lenders have the option to perform a NPV (Net-Present-Value) test to determine whether it is fiscally in their best interest to modify the loan, weighing the cost of foreclosure versus the cost of modifying the mortgage, factoring in the likelihood the homeowner will re-default.
Here’s the insider information you’ve been looking for: the exact process your lender is using when performing the NPV test can be found here. Additionally, a NPV Worksheet was created for FDIC’s Mod-in-a-Box Program, which can be found here: http://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html. Merely enter the pertinent information and viola you’ve performed an NPV test!
If financially it doesn’t make sense for the lenders to modify the mortgages in question, no amount of hemming and hawing in Washington will force them to set themselves up for a larger loss than merely foreclosing. So for right now the only sure-fire way for a homeowner to know that they will get a permanent loan modification under HAMP is for the homeowner to perform a NPV test on their own? When lenders are unwilling to disclose crucial factors for the test, such as what percentage the lender is using to account for re-default rate?
Rather than blathering on about how I think lenders or Washington can solve the problem of getting more homeowners into Permanent Mods, I’d rather hear your opinions! Comment freely and let’s get some plausible solutions together that we can suggest a solution (no, not in a crazy NACA way but through proper channels). Maybe it’s time to put together a lobbyist group; as I understand Washington is getting a lot of calls from irritated homeowners.
Photo Credit: Pete Souza – Whitehouse
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FHA Announces Important Policy Changes
A number of important changes were announced today by the FHA to reduce risk and improve its finances:
- The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25 percent
- The minimum down payment will climb from 3.5% to 10% if your Fico score is below 580
- Allowable seller concessions will be reduced from 6% to 3%
The FHA also plans to request legislative authority to increase the maximum annual mortgage insurance premium so it can reduce upfront costs for prospective home buyers.
The proposed changes, which apply to all FHA loans, are expected to go into effect in either spring or summer, so you may want to get that FHA loan application in sooner rather than later.
Additionally, the agency will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.
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Welcome Justin Bartlett To Mortgages Unzipped
I am pleased to welcome the latest contributor to Mortgages Unzipped, Justin Bartlett. Justin currently serves as President of Operations for Modification Zoom and has worked extensively both in the residential and commercial real property lending arenas. Justin is a loss mitigation expert that writes extensively on the foreclosure and credit Crisis, pending and current government programs and initiatives, mortgage news, loan modification requirements and more.
Justin brings a great deal of experience to Mortgages Unzipped and we are proud to have him on board.
Mike Price
Mortgages Unzipped Blog Editor
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The Clock is Ticking for First Time Homebuyers
Every year during the holiday season, some news items are released, analyzed, and quickly lost in the shuffle.
With so much attention placed on the housing market – and talk of an upcoming rebound, I wanted to take a moment and remind everyone of some important components within the government’s first-time home buyer tax credit, which was extended last fall by both the House and Senate.
Qualified buyers: you still have time to find your dream home and take advantage of this gift from Uncle Sam! Here’s the rundown:
Are more people eligible?
Yes. First time home buyers (buyers who haven’t owned a home in the past three years) are still eligible for a credit of up to $8,000. The bill created a new buyer category that allows existing homeowners or “repeat buyers” who have lived in their principal homes for five consecutive years (out of the past eight years) and are purchasing a new principal residence to apply for a credit of up to $6,500.
What are the income limits?
Buyers filing as single or head-of-household taxpayers can claim the full credit if their modified adjusted gross income is less than $125,000. Married couples filing joint returns are eligible if their combined income is less than $225,000. Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000, are eligible to receive a partial credit.
What are the new dates?
Last November, many news outlets referred to the credit as being extended through May, others are referencing June as the deadline. Specifically: to be eligible, binding purchase agreements must be signed by April 30, 2010 and deals must be closed by June 30, 2010.
What homes qualify?
All homes with a purchase price of less than $800,000 qualify. Vacation homes and rental property purchases are not eligible.
Is the credit refundable?
If the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference. For example: a first-time buyer qualifying for the full $8,000 credit who owes $5,000 in federal income taxes would receive a $3,000 refund. Qualified home buyers can take the tax credit on their 2009 or 2010 income tax return.
Does the credit have to be repaid?
Not unless the owner sells the home or stops using the home as a principal residence within 3 years after the date of purchase.
Looking Ahead…
We know that interest rates will always fluctuate and that the market will swing – but for the next few months, the tax credit will remain static. It’s one of the few “sure things” today – and if you qualify, take advantage of this free gift, because it won’t last forever.
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Title Seasoning on FHA loans Temporarirly Waived!
Starting 2/1/2010 Hud is issuing a waiver to the 90 day flipping rule!
One of the hurdles for folks that are buying and renovating distressed properties are the end buyers have not been eligible for FHA Financing. The lifting of this rule will increase the buying pool for these properties…
If you want to take a look at some reaction to the change check out this thread on Zillow!
More to follow but I thought this was worth a quick shout!
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Renovation Financing: What I need to do to make sure my loan closes smoothly!
I almost insist that anyone who is getting 203K Renovation Loan, full blown 203K loan or a streamline 203K loan, hire a hud consultant to prepare the work write up.
Why would I pay a hud consultant when I am doing less than $35,000 in renovation?
Although HUD did away with the old VC sheet on appraisals…FHA appraisers can and still do call for repairs to be made prior to closing. Most consumers, Realtors and loan officers don’t know what the appraiser will call for until after the appraisal is complete. By having the hud consultant walk through the property prior to the appraisal, any repairs that will be called for by the appraiser are addressed in the work write up and can be completed as part of the project. By doing this upfront it will eliminate the scramble after the appraisal comes in.
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New Appraisal Requirements Stir Controvery, Criticism
People considering purchasing a home with an FHA loan in the coming months would do well to check out today’s USA Today. The newspaper takes a look at the controversy surrounding new home appraisal regulations that are getting ready to take effect in mid-February.
Beginning Feb. 15, mortgage brokers, Realtors and anyone else who might earn money on your transaction must have a third-party appraisal management company (AMC) conduct an appraisal of the home in question. The days of brokers ordering their own appraisals are dwindling.
Legislators have argued the new process will curb appraisal inflation and fraud. But organizations that represent Realtors, brokers and other stakeholders claim the change will lead to delays, shaky appraisals conducted by people unfamiliar with the market and, ultimately, considerably lower home valuations.
AMCs and others in their industry defend their practices, claiming that low home values are a direct result of the market.
For many prospective homeowners, this will likely play out somewhere in the middle. Appraisal times will probably rise. Home values probably won’t. The reality is, it’s just more difficult to navigate the process in some parts of the country. Establishing a value is taking longer in places where the market continues to lag.
Borrowers should check with their loan officer early and often. Ask for constant updates. Poke and prod when necessary. But don’t abandon all hope.
FHA loans remain one of the most flexible and productive loans on the market, especially for first-time buyers and those with lower and middle incomes. Borrowers might want to keep that idea of flexibility at the forefront of their minds in the coming months, as the industry continues to adjust to these new requirements.
Image: Neubie
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Chicago First Time Home Buyer: Three Often Overlooked Home Down Payment Sources
A look at three different down payment sources that the Chicago first time home buyer often overlooks.
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Mortgage Rates Move Lower. Favor Locking over Floating
After making noticeable improvements toward the end of last week, mortgage rates failed to extend positive progress yesterday. After a weak open, mortgage backed securities prices traded in a narrow range for most of the day. Despite MBS prices moving lower at the open, lenders were still able to offer aggressive mortgage rates, they were actually at their most aggressive levels since early December. Economic data picked up today… First out was the Mortgage Bankers Association Mortgage Application Activity report. This MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase…(read more)
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Mortgage Rates Steady at Aggressive Levels
Mortgage rates improved last week after the Treasury Deparment completed debt auctions totaling $84 billion. On Friday, lenders improved rate sheets to their best levels all week (best in about a month really!). All US markets were closed yesterday in honor of Martin Luther King Jr. day. A few lenders issued rate sheets, they were unchanged from Friday. We had no major economic data releases this morning; however, Citigroup announced third quarter results matching expectations of a 0.33 cent loss per share but missing on total revenue. In total, Citigroup lost $7.6 billion mainly due to a pre-tax charge of $8 billion which repaid TARP bailout funds. At 1pm today the National Association of Home Builders will release their Housing Market Index. This survey gives the market a view into the sentiment…(read more)
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