States Provide Mortgage Foreclosure Modification Programs

While the government’s mortgage modification and foreclosure prevention program has not been gaining as much traction as many in the administration may have wished, other states have found a different solution.  Connecticut and New Jersey unveiled their own mortgage foreclosure modification programs, and have found them to be increasingly successful.   In Connecticut, over 2,500 people have participated in the program since its introduction in July of 2008, with a 60% success rate at avoiding foreclosure. Another small number were able to negotiate stays on the foreclosures until they could find another housing option. In New Jersey, 614 borrowers have qualified for mediation, with a little over a third of them negotiating to keep their homes.

In both states, borrowers who receive foreclosure notices are sent letter by the judicial branch informing them of their eligibility for the programs, so why are the numbers so different?  40% of those eligible participate in Connecticut, but only 5% participate in New Jersey. The difference between the two programs is that in New Jersey, borrowers must go through financial counseling before proceeding to mediation.  In Connecticut, the borrowers go directly to a mediation.  Connecticut borrowers still do generally receive counseling, but it generally occurs after the first mediation.

We have spoken at length about the ways in which counseling is able to help borrowers at risk for foreclosure (as well as those considering a reverse mortgage).  However, the more hoops a borrower must jump through, the less likely they are to participate in a program. If it turns out to be true that the 35% difference in borrowers who are participating in these programs is primarily due to whether or not counseling is required, it would be an interesting case for reducing the emphasis on counseling in order to increase participation and results. Yet it would be surprising if this was the only reason for the change in participation rates.

 

Foreclosure Prevention Case Study: Premier Reverse Closings Helps to Save Borrower from Foreclosure in a Record Seven Days

To follow up on today’s earlier post about foreclosure prevention, the press release below shows an example of a reverse mortgage helping save a borrower from foreclosure.  While this story focuses on one case, this scenario has become more and more common, and is a reminder of one of the most important ways in which reverse mortgages can dramatically benefit borrowers.

ROCKLIN, California (July 8, 2009) – Premier Reverse Closings (PRC), divisions of National Closing Solutions and Placer Title, along with Lend America and Generation Mortgage, recently saved a borrower from the brink of foreclosure with a reverse mortgage that closed in a record seven days from the opening of the title and settlement order.

PRC worked closely with the broker, Lend America, and the lender, Generation Mortgage, to fund the reverse mortgage just one day prior to James Atkins’ June 25th sale date.

In order to close the loan in such a short time, PRC spent extra time addressing his existing liens and clearing his title report, verifying insurance and hiring an experienced notary to verify and witness Atkins’ signing of his loan documents. Since the terms of Home Equity Conversion Mortgages (HECM) mandate a three-day right of rescission period, PRC had to obtain and review all proper documentation in just three days, leaving one day to fund the loan after the rescission period expired.

Atkins, a pastor at a church in Missouri, was thrilled with the entire process from beginning to end. “I did all I could, but I couldn’t do anything more. I prayed with all of my heart that things would work out for the best,” Atkins said. “Lend America and [PRC] worked so hard to close my reverse mortgage, and I am so grateful they saved my home.”

Atkins’ loan officer, Ed Sanchez with Lend America, knew that this could be done in a short amount of time, but is still so grateful for how quickly it could come together. “The teamwork between my processing team, the lender and PRC was absolutely outstanding,” said Sanchez. “It was truly a team effort for this hour-by-hour deadline that we faced.”

PRC’s Senior Vice President of Operations, Tina Meilinger, acknowledged this closing was an anomaly.

“Our PRC team has experience in closing more than 115,000 reverse mortgage loans, but none in just seven days,” said Meilinger. “This is definitely a first, and has raised the bar, with hopefully more transactions to follow.”

Meilinger knows that PRC plays an integral role within the reverse mortgage process, saving many borrowers from financial hardships daily.

“PRC is proud to have helped in the process of saving Mr. Atkins from foreclosure,” said Meilinger. “There is nothing better than knowing Mr. Atkins can have his family over to his home after church on Sunday, or that he will never have to worry about making monthly mortgage payments.”

 

Number of Delinquent Mortgages Rises in May. Prime Mortgages Disproportionately Affected.

The housing crisis is not over for many borrowers. According to an article in the Wall Street Journal, the percentage of mortgages 60 days or more late rose to 5.65% in May, up from 5.48% in April. It is the highest level on record.  In addition, the number of homes in the foreclosure process jumped, after remaining stagnant for a few months due to several moratoria. Around 257,000 homes entered the foreclosure process in May, up 5.7% from April, and 34% from a year ago.

What is perhaps most interesting about these statistics is that the number of subprime mortgages going into foreclosure has decreased 16% from a year ago. Yet the number of prime mortgages going into foreclosure is up 83%.  This change may reflect the effect the recession has had on middle and upper-middle class borrowers. While many of these borrowers may have had the salaries and credit scores to qualify for a prime mortgage in the past, the market has shed many white collar jobs in recent months, affecting these borrowers, many of whom had money invested in the stock market and did not see this coming.  Even so, these statistics are quite sobering.

It is important to remember that reverse mortgages can be one way for senior borrowers in these situations avoid foreclosure. For more information, see Foreclosure Prevention.

And let’s hope that next month’s numbers are better than these!

 

NAR Raises Concerns About Appraisals and Proposes Expanding Tax Credits

In a report published on Wednesday, the National Association of Realtors (NAR) proposed that Obama’s tax credit for first time buyers should be expanded across the market to all buyers. Concerns were also raised about appraisals.  Lawrence Yun, the NAR’s cheif economist, cited the appraisal problem as “serious,” and characterized by buyers using appraisers who are not from their neighborhood or who are comparing their property to distresed or damaged homes.  These appraisal problems are allegedly pulling down home values, and hurting the industry.

Complaints about appraisals are nothing new. However, the importance of a good appraisal is especially crucial in this economy, where there are so many distressed properties on the market that a home could be compared to. It is nonetheless true that, as we reported, have a foreclosed home within 500 ft. of a property decreases its value significantly.  As the number of foreclosures increase, more properties will be affected. Nonetheless, it is also true that a home that is not in foreclosure should probably not be valued the same as a home in foreclosure.  One is a distressed property, the other is not.

In terms of expanding Obama’s tax credits, the NAR proposes an interesting idea. It is true that an expanded tax credit would probably drive more buyers into the market. However, the influx of buyers would not necessarily cause the market to rebound. We have already seen an increase in home buyers, but property values still remain low and there still remains a lot of properties on the market.  Introducing more potential buyers would likely not change these facts when there are still so many foreclosures dragging down property values in many areas.

 

Existing Home Sales Rise As Prices Fall

Existing home sales rose in May according to a report released to day by the National Association of Realtors. The level of 4.77 million homes is a 2.4% increase from an adjusted 4.66 million homes in April.  However, it remains 3.6% below last year’s levels.  The increase in homes sold is attributed this time to many returning buyers, who are gravitating towards existing home sales rather than distressed properties. Distressed sales fell to 33% of the sales in May, versus 45% of the sales in April. Yet the median home price, of $173,000 is still down 16.8% from a year earlier.

In other words, first time home buyers tend to gravitate towards homes in foreclosure, due to the lower prices. Yet these sales drag down the home values in the neighborhood, as we have discussed before. Return buyers, on the other hand, are less likely to buy a home in foreclosure. Their increasing market share appears to be good for the housing market as a whole, yet the steady decline of housing prices continues to have the real estate industry concerned.

 

The Difficulties of Mortgage Modifications on the Front Page of the WSJ

The front page of today’s Wall Street Journal featured a touching article about the difficulty of getting a mortgage modification.  We have stated the facts in this piece many times, including the crucial fact that 9% of 45 million American homeowners were delinquent on mortgage payments in the first quarter of 2009. Yet, only about 500,000 loans have been modified thus far, leaving at least 3.5 million people without a much needed modification. It has also been stated often that a modification is hard to come by.  While the article goes into more specifics, the stories of piles of paperwork and miles of red tape are already widespread.

Given what is clearly a problem, I wonder if there is not some solution that would do a better job of solving these issues. If a customer has applied for a mortgage modification, is getting stuck in red tape, and there is already a glut of houses on the market, why not order a temporary halt to the foreclosure until the situation can be resolved? It is hard to believe that it is a best practice to penalize a customer for the bureacracy surrounding the new programs that Obama has created (as well as existing ones that are seeing a surge of interest).

As the article pointed out, there are many parties with stakes in a foreclosure. The lenders and investors care about the outcome of an overdue loan as well. However, harried bankers and servicers need to be given the time to adequately resolve these claims. Unfortunately, as more and more homeowners head into foreclosure, time appears to be sorely lacking.

 

A Neighbor's Foreclosure Affects Home Value

Many prospective reverse mortgage borrowers have questions about appraisals, and while statistics show that consumers’ valuations of their homes are beginning to fall more in line with the reality, there is still generally a gap between what a borrower thinks their home is worth and what an apparaiser thinks it is worth.

The NYTimes wrote an article on Friday highlighting how a neighbor’s foreclosure can dramatically affect home values.  The article cites a report from the Center for Responsible Lending in Durham, NC, stating that about 69.5 million homes will have their home values decline this year due to the foreclosure of a neighbor.  These homes will lose an average of $7,200, leading to a suspected loss of over $500 billion nationwide.  Meanwhile, Credit Suisse projected that about 9 million homes will go into foreclosure from 2009-2011, leading to a ripple effect of declining prices on neighboring homes.

As Bill Tennant pointed out two weeks ago in his blog post on appraisals, one of the leading factors in an appariser’s valuation of a home is the recent sales of comparable homes in the vicinity. As the Center for Responsible Lending’s report shows, many borrowers are likely to take a greater hit due to the foreclosure crisis than they expected on the value of their homes. The Center for Responsible Lending predicted that borrowers will face a drop of 1.3% of their home’s value if they live within 300 ft. of a foreclosed home, and 0.6% of its value if they live between 300 and 500 ft.

 

Wells Fargo Accused of Systematically Selling Subprime Mortgages To Minority Homeowners

 

The city of Baltimore is suing Wells Fargo for systematically singling out African Americans as targets for subprime loans.

The city of Baltimore is suing Wells Fargo for systematically singling out African Americans as targets for subprime loans.

Wells Fargo was accused of systematically selling subprime mortgages to minorities in a federal lawsuit filed by the city of Baltimore.  A lawsuit is also being filed by the NAACP, and Illinois and New York are among the states looking into more filings. In Baltimore, more than half the Wells Fargo properties that went into foreclosure currently stand vacant, and 71% are in African American neighborhoods. In New York City, black households making over $68,000 with a Wells Fargo mortgage were 8 times more likely to have a subprime mortgage as white households in the same bracket.  

Filings in the suit include affadavits by two former loan officers attesting that they were offered bonuses to sell subprime mortgages to candidates who would have otherwise qualified for a conventional mortgage and that they targeted minority homeowners for the mortgages. Some of the more egregious claims include that some loan officers withheld client’s employment information so that they would not qualify for a conventional loan or cut and pasted credit reports from one customer into another’s application.  Another loan officer talks about the teams set up to market the mortgages to African American churches. 

While the judge is still waiting on more information from the city of Baltimore to determine if the lawsuit should proceed, it nonetheless remains disconcerting that a company such as Wells Fargo could engage in this kind of behavior for so long withoout anyone noticing it until now.  It sounds like these practices were engaged in at a widespread level for long periods of time. Why didn’t anyone say anything until so many years later?  

It is hard to conceive of anything that could be done to make up for the level of discrimination that took place and the harm done, should the lawsuit be allowed to proceed and Wells Fargo found guilty.  Cases like this one are nonetheless a good reminder of the importance of educating consumers on financial products– hopefully if people learn about mortgages, insurance products, and/or reverse mortgages, for example, they will be less likely to fall victim to scams or unfair deals.

 

Obama's Homeowner Relief Program Still Excludes Many

While the Obama Administration’s Home Loan Modification Program was supposed to help homeowners who have lost their jobs and are having trouble making their mortgage payments, the NYTimes wrote an article today highlighting the many people whom the banks have been unwilling to help because they have never been late on a mortgage payment before.  Some of these homeowners are upside down on their mortgages–others are having trouble simply due to the circumstances of the recession. 

Although it is often dangerous to make generalizations solely based on the case highlighted in the story, it is extremely plausible that banks are unsure how to handle customers with good payment histories who are now running into financial difficulties. The banks and government programs seem to be waiting for people to get into a lot of trouble before bailing them out, rather than helping prevent those problems in the first place.  

Furthermore, the number of subprime and Alt-A mortgages refinanced in May fell 11 percent from April, according to research by Alan White at the Valparaiso School of Law. Given the record number of homeowners behind on their mortgage payments or facing foreclosure, this statistic is problematic and disturbing. 

Many of those affected include seniors.  The woman profiled in the article, Eileen Ulery, is 63, old enough to qualify for a reverse mortgage.  However, her property is upside down, meaning she would be likely to face a shortfall.  

While I agree that on a scale of priorities we should be helping those whose circumstances are most dire first, it does not seem to correlate that homeowners who have been responsible are being penalized. Bank of America Home Loans is quoted in the article as saying they are still putting the programs in place for those not facing a severe threat of foreclosure.  I would hope that those programs are as inclusive as possible, and put together soon so that these individuals do not end up in a dire situation before they can get help.

 

Financial Counseling May Help Homeowners Avoid Foreclosure

A recent New York Times article focuses on Fannie Mae’s HomeSaver Advance Program, a now-deemphasized program that gave borrowers up to 15,000 in unsecured personal loans to cover missed mortgage payments. However, 70% of the borrowers who took out these loans defaulted.  This instance helps highlight the importance of financial counseling.  The article closes with the example of a New York City program that makes foreclosure avoidance loans available to borrowers who have undergone counseling.  This program has given out 15 loans so far, none of which have defaulted.

Reverse mortgage counseling has come under fire recently, and several states have been debating whether to  pass legislation requiring counseling before all reverse mortgage transactions.  It is often argued that counseling is necessary in order to ensure that the senior borrower understands the reverse mortgage transaction, but if one looks closely, it appears that counseling has the potential to do a lot more than that.  As counselors at the NRMLA Orlando Road Show explained, the purpose of counseling is partly to make sure that the borrower will still have enough money to live on after the reverse mortgage.  The financial counseling portion of the reverse mortgage counseling process is perhaps underestimated, but it articles such as the one referenced above help show that financial counseling may be another way to help homeowners avoid foreclosure–and ensure that the steps they take in the short term will not penalize them in the long run.