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Posts Tagged ‘foreclosure’
Friday, November 6th, 2009
 Fannie Mae announced a plan on Thursday that will allow borrowers facing foreclosure to lease their homes. The program, called Deed for Lease or D4L for short, allows borrowers facing foreclosure to hand their deed to the lender in exchange for paying the market rate rent on the home for at least 12 months.
To qualify for the program, borrowers have to have mortgages insured by Fannie Mae, be unable to qualify for President Obama’s mortgage modification program, and be unsuccessful renegotiating with their lenders. While eligible borrowers would have to voluntarily give up the deeds to their homes, they would be able to stay for at least a year, providing that they paid the market rate rent. Rents would then be renewable on a month-to-month basis. Eligible borrowers must document that the new market rate rent is no greater than 31% of their gross income to qualify for Deed for Lease.
The Deed for Lease program is an extremely interesting and valuable way to keep delinquent borrowers in their homes, or merely to allow time for a transition. The program may be especially valuable for families with children, whom they do not want to remove from their schools in the middle of the year. It will help give families more time to come up with options. It will also help underwater homeowners– especially in areas that have seen property values drop significantly.
Furthermore, since tenants of qualifying borrowers are also eligible for the program, Deed for Lease will help tenants whose landlords face foreclosure. As a result, it appears that, though Fannie Mae provided no estimates for how many borrowers will be eligible for the program, Deed Lease looks to be a promising alternative to severely delinquent borrowers with Fannie Mae loans facing foreclosure–and for their tenants.
More information about the program can be found at www.efanniemae.com.
Tags: borrower, borrowers, D4L, Deed for Lease, fannie mae, foreclosure, homeowner, homeowners, landlord, landlords, lease, Mortgage, mortgage modification, mortgages, tenants
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Friday, October 23rd, 2009
 The government’s $8,000 tax credit to new homebuyers has been under a lot of scrutiny in recent months. The tax credit was designed to help stimulate the housing market and lead to increased home ownership. To that end, it has been extremely successful. However, abuses within the system appear to have also been quite high. While the reverse mortgage industry found itself under scrutiny for what appear to be under about a dozen complaints, the federal government has started 167 criminal investigations and 107,000 civil investigations into possible fraud. Of the 1.4 million people who claimed the over 10 billion dollars in tax credits in 2008-2009, 60% had incomes under $50,000– leading to questions as to whether they could even afford a home.
The new homebuyer tax credit has certainly had many positive effects. Of the 1.4 million home sales, 350,000 to 400,000 were estimated to be a direct result of the credit’s availability. That accounts for 25-30% of the eligible home sales. In some areas, real estate agents have reported that up to 70% of their clients were considering buying a home as a direct result of the tax credit. With sales of existing homes at their highest level in two years, many are attributing the strong numbers to the tax credit, which expires November 30. Sales increased 9.4% in September according to the National Association of Realtors.
So which is it? It seems that the tax credit likely has had a positive effect on the market. However, the rock-bottom prices and increased inventory have also likely contributed to many first-time buyers choosing to enter the market. The increase in first-time homebuyers is a good sign for the real estate industry, but it is still a disconcerting one. If 60% of the 1.4 million people who claimed the tax credit from 2008-2009 had incomes of under $50,000, could they really afford to own a home? Will we see another foreclosure crisis within the mortgage industry down the line as these homebuyers are faced with rising rates or declining incomes? The answer to these questions remains to be seen.
While the pros of the tax credit may outweigh the cons, with the damage to the real estate industry wiping out the savings of many throughout the country, if the credit is extended, it should be done so with caution. While the image of every American owning a home is a promising one, the government has an obligation to ensure that those owning homes can actually afford to do so. Otherwise, history is at risk of repeating itself.
Sources: The New York Times: Home Tax Credit Audit Shows Abuses
The New York Times: Tax Credit Lifts Home Sales to Two-Year High
The Associated Press: Northeast Home Resales Post 11 Pct Annual Increase
Tags: first-time homebuyers tax credit, foreclosure, fraud, government, home sales, homebuyer, housing market, Mortgage, mortgages, new homebuyers, real estate, reverse mortgage, reverse mortgage industry, reverse mortgages, tax credit
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Wednesday, October 21st, 2009
 Today’s Wall Street Journal featured a very interesting article on how Bank of America is using reverse mortgages to save senior borrowers. The cases include situations where Bank of America has taken a significant write down to allow the borrowers to stay in their homes. But not all borrowers may receive the same treatment as the borrowers highlighted in the article. As the story notes, most borrowers who received the modified reverse mortgage had taken out option ARMs.
Option ARMs (Option Adjustable Rate Mortgages) have become “the new subprime mortgages,” leading many borrowers into foreclosure. 32% of option ARM borrowers were delinquent or in foreclosure last month, compared with 48% of subprime mortgage borrowers. Unlike subprime mortgages, option ARM mortgages generally went to borrowers with good credit, including seniors with significant equity in their homes looking to refinance. The option ARMs have also proved difficult to modify, since the low interest rates on the loan often cannot be lowered any further. Lawsuits have been filed by borrowers claiming they were misinformed of the loan’s complicated structure, which in many cases can lead payments to balloon after a few years.
As a result of the lawsuits, as well as the settlement of a suit against Countrywide, which was since acquired by Bank of America, Bank of America has agreed to modify option ARMs and subprime mortgages where possible. While it appears that Bank of America has so far only issued about 20 reverse mortgages to borrowers with option ARMs, it looks like a good start to fixing a significant problem. Borrowers with option ARMs from Bank of America may want to talk to their servicer or the bank about a modification, perhaps with a reverse mortgage.
Tags: ARM, Bank of America, borrower, borrowers, Countrywide, foreclosure, lawsuits, Mortgage, mortgages, option ARM, refinance, reverse mortgage, reverse mortgages, senior, subprime, subprime mortgage, Wall Street Journal
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Friday, October 16th, 2009
 A report by a bipartisan Congressional oversight panel ruled today that the Home Affordable Modification Program (HAMP) is not doing enough to help the current drivers of the foreclosure crisis – borrowers with good credit who have lost their jobs and those with complex mortgages. While the administration has lauded HAMP as it reached the crucial mark of 500,000 mortgages given trial modifications, the report counters. Many of those with modified mortgages will see their payments rise significantly after 5 years, leading some to argue that foreclosure is being postponed, not avoided.
It is true that the problem in the foreclosure crisis now is no longer sub-prime mortgages. Alt-A mortgages, and other products with ballooning rates, have hit many hard. Many borrowers with good credit have also been hit, especially those that have lost their jobs or have seen their home values plummet in recent months. Finally, as we have reported, foreclosures in high value areas have increased as well. As a result, modifying sub-prime mortgages or mortgages with high interest rates will not help many of the borrowers at risk or already in foreclosure. A new solution will be necessary to allay the losses of the recession.
Tags: foreclosure, HAMP, Home Affordable Modification Program, Mortgage, mortgages, recession, sub-prime mortgages
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Friday, September 4th, 2009
 The media has recently been full of stories about homeowners losing their homes to foreclosure, but there is a side that has received relatively less exposure: the effects foreclosure has had on many pets.
While a story in the Chicago Tribune several months ago discussed a pet food pantry that was helping homeowners who could no longer afford to look after their pets, a sadder tale is emerging in Arizona. As the two co-owners of Robin Hood Animal Rescue face foreclosure, 70 cats and dogs are at risk of being euthanized. Some of the animals have special needs (as is the case in most animal shelters), and the shelter has housed some of the animals for four or five years.
There is a lot of irony in an animal rescue shelter needing rescuing itself, but after so many years of speaking out against euthanizing unwanted animals, the shelter is now the one in need of rescuing. The heartbreaking story can be found at abc15.com. Those wishing to help can also visit Robin Hood Animal Rescue’s website.
Tags: abc15, animal rescue, animals, Arizona, foreclosure, foreclosures, robin hood animal rescue
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Tuesday, September 1st, 2009
 An article on Forbes revealed today that even within the Forbes list of America’s 500 Most Expensive Zip Codes, home prices have taken a large hit in the past year. The top 3 zip codes on the list experienced declines of 23%, 23% and 24% respectively. The list as a whole saw a 7% drop on average.
But one of the things that is interesting about the list is that prices were not necessarily being pulled down by foreclosures. Several zip codes (in Atherton, CA, Hastings-on-Hudson, NY and East Hampton, NY) were used as examples of places where prices have dropped significantly without homes being in foreclosure. No homes are in foreclosure in Hastings-on-Hudson, yet prices have dropped 9%. In Atherton, only 10 homes are in foreclosure with prices dropping 23%. Rather, it appears the glut of homes on the market has helped to drive prices down. In East Hampton, at the current rate, it would take 25 years before all the homes currently on the market are sold. This cannot help but have an affect on home prices.
The five most expensive zip codes in America:
1. Alpine, NJ ($4,139,041)
2. Atherton, CA ($3,849,133)
3. New York, NY ($3,521,514)
4. Duarte, CA ($3,444,773)
5. Beverly Hills, CA ($3,367,167)
Tags: Alpine, America, Atherton, East Hampton, Forbes, foreclosure, foreclosures, Hastings-on-Hudson, home price, home prices, Most Expensive Zip Codes, zip codes
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Monday, August 10th, 2009
 An article in the New York Times today focused on a new phenomenon: The absolute auctions of multi-million dollar mansions. In an absolute auction, there is no minimum price, and the buyer agrees to accept the winning bid. The home chronicled in the auction was appraised at 14 million only two years ago, but sold in auction for 2.5 million last week, sending the home owner into personal bankruptcy.
The article was a sad story, as it highlighted the increasing interest in selling mansions at auctions–often pushed by creditors to do so or on the brink of foreclosure. The day before the home was auctioned, its belongings were auctioned. And still in the case of this homeowner, it was not enough to stave off financial disaster. In a way, it seems that selling homes at absolute auction, while a way to get something for the home, doesn’t give always give the homeowners all the money they need. But it depends on the situation: another man was able to sell his home in an absolute auction, still cover the cost of his mortgage, and only take a $200,000 loss. Nonetheless, the auctions are a sad phenomena of the weak market for luxury homes and the recession itself.
Tags: absolute auction, auction, auctions, foreclosure, luxury homes, mansion, mansions, multi-million dollar, New York Times, recession
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Thursday, August 6th, 2009
 At the end of June, 24% of homeowners were upside down on their mortgages. In other words, 24% of homeowners owed more on their mortgages then their homes were worth. When added to those with no equity remaining in their homes, the percentage climbs to 32%. Nevada, Arizona, California, and Colorado are the biggest offenders with rates of 40%, 37%, 33%, and 31% respectively of homeowners whose homes are worth less than their mortgages. In some of these markets, homeowners are walking away from homes where they may owe twice as much as the home is worth or more. And when the home is worth less than the mortgage, borrowers no longer qualify for some of the programs that might be able to help them, such as a reverse mortgage.
In response, some are urging the government to begin reducing loan balances to help borrowers cope with the problem. Lowering loan payments or rates will only make the mortgages drag out interminably, and still not recoup the home’s equity (unless it appreciates again over time back to levels that are higher than during the time of the boom). If the government reduces the loan balances, borrowers will be inclined to continue to invest in their homes and stay in their residences, rather than walk away. This will reduce foreclosures, hopefully, as well as abandoned properties.
What do you think?
Tags: Arizona, California, Colorado, foreclosure, foreclosures, government, homeowner, homeowners, loan, loans, Mortgage, mortgages, Nevada, reverse mortgage, reverse mortgages
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Wednesday, July 29th, 2009
 Representatives from many of the mortgage industry’s leading mortgage servicing companies met with members of the Obama administration in Washington on Tuesday. The meeting was called to discuss ways to improve the administration’s housing rescue plan and loan modification program. It was called in light of the fact that the program, while launched in February to great fanfare, has only completed trial modifications on over 200,000 loans so far. The administration’s goal remains 500,000 trial mortgage loan modifications by November 1st. In what is perhaps an effort to increase the pressure on mortgage servicers to modify more loans, the Obama administration also announced that it remained on track to release a report on the individual mortgage servicing companies by August 4th. The report will contain the number of trial modifications offered to eligible borrowers and the number of trial modifications currently under way.
Some seem to fear that adding additional pressures to the mortgage servicers will cause banks to take additional losses on the loans. However, it is commendable for the administration to push for the loan modifications–especially in a program that has had so many complaints over the past few months. I’d argue that while the losses taken by the banks will in aggregate certainly be larger than that taken by the homeowner whose loan was not modified and gets foreclosed upon, the significance of the foreclosure is greater for the homeowner than for the bank. Furthermore, it is perhaps easier for the administration to then aid the bank, rather than aid each of the millions of homeowners whose homes have been pushed towards the brink of foreclosure as a result of the economy-the people who this program was designed to help.
Tags: administration, FHA, foreclosure, homeowner, loan, loans, Mortgage, mortgage loan, mortgage loan modification, mortgage loans, mortgage servicer, mortgage servicers, mortgages, Obama administration, Washington
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Wednesday, July 15th, 2009
 A new study by Northwestern’s Kellogg School of Management and the University of Chicago’s Booth School of Business revealed that 26% of borrowers who defaulted on their mortgage payments did so strategically. The study pointed out that one in six borrowers would choose to walk away if their shortfall was over 50% of their home’s equity. This finding is especially intriguing due to the falling housing prices in areas like California and South Florida, where many borrowers have found themselves incredibly upside down on their mortgages. These borrowers generally do not qualify for reverse mortgages even if they are old enough to be eligible, since they do not have enough equity in their homes.
However, it is logical that borrowers would not want to remain in a situation where the amount they owe on their mortgage is becoming increasingly more than their house is worth. And especially given the current state of the economy, some of these borrowers have found their situations change such that they can no longer afford the payments in the first place. With so many homes available at bargain basement prices, it is unsurprising that borrowers might choose to try to walk away to a better situation, regardless of the negative effect it may have on their credit.
Yet this is exactly the situation the government should be remedying. Many programs to help borrowers during the recession have left out those homeowners who are dramatically underwater on their mortgages, but these borrowers (who appear to often come in larger groups as neighborhoods fall dramatically in value) are some of the ones who need the help the most and whose mortgages, through no fault of their own, no longer make financial sense. Rather than simply becoming content to let homeowners walk away and take the hits to their credit or entrap them in their home, the government should work with lenders to establish a solution that helps bail out and reevaluate those whose mortgages are worth far more than their homes. Both sides should be able to win from the situation, rather than the current reality in which the banks, the borrowers, and the communities lose.
Tags: borrowers, California, foreclosure, government, government programs, Mortgage, mortgages, reverse mortgage, reverse mortgages, shortfall, South Florida
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