With the foreclosure rate averaging approx 7.200 properties per day and steadily rising, another week has passed and lenders in general are still sitting on their hands waiting on direction to implement the Obama housing plan.
Some lenders have experimented with online data forms to input homeowner financials for modification and here are the results of that test. Several of the files submitted by our underwriters and by homeowners resulted in lenders never receiving the financial package. Beside the time delay to find out the package was never received, the entire package had to be submitted again by fax, which further delayed the process.
This experience is still unfortunately the daily reality of mortgage modifications with most lenders. With no clear direction from Washington, lenders are still doing modifications under a system that is severely backlogged, inefficient and bursting at the seams.
Our experience has been that lenders are still taking up to 60 days just to assign a negotiator, once a full modification package has been received.
The general consensus is Freddie and Fannie loans will potentially be the beneficiaries of the govt plan, approx. 58% of all home loans. This leaves out the other 42%. And of those in foreclosure the government refinance plan won’t help.
It also won’t help those upside down more than 105% of their property value. If your home is worth $100,000 and you owe $106,000 you don’t qualify.
The Geithner “toxic asset” plan still has no clear indication of what will actually be bought (paper, loans, REO’s) by the public/private “partnership”.
And there is no clear indication of what will be done with whatever they buy. Will they be modified, principal balances reduced, foreclosed and sold in wholesale lots (like the RTC of early 90′s) ?
One thing is for sure. With the govt (i.e. taxpayers) providing 94% of funding and private investors the other 6%, there will huge upside and little downside for the private sector. The prediction is that lenders and investors will collude to cover their risk, so we’ll be watching this one very closely.
HUD is considering a proposal for 30% principal balance reduction on FHA loans that are grossly upside down. The proposal is designed to provide incentive for owners to stay put and stabilize neighborhoods.
FHA would pay a partial claim to the lender for the loss. In return, the borrower will probably be on the hook for the forgivemess. If Hope 4 Homeowners is an indication (an abysmal failure) this proposal probably won’t go anywhere.
Wells Fargo indicated in Feb that it would start including principal balance reductions to stabilize mortgages but the reality is that only around 5% of loans are in this group.
This is one of the best indicators to watch with lenders because homeowners are getting wiser every day. They’re asking “..why should I stay in my home worth $300,000 when I owe $450,000 ? It could take years to just get even again after the years it takes for the market to recover….”
That’s a great question, and in the wake of more financial scandals, government corruption scandals (follow money trail to Chris Dodd) and lost jobs, homeowners are collectively asking that question more frequently.
Two final events that we will watch that may give an indication of where lenders are going with regard to modifications.
The sale of IndyMac to One West is the first sale of a government owned entity sold to a private investor. Watch them closely because it could give an indication of how other private investors approach the current market reality and how they deal with capital issues, toxic assets, foreclosure and modification policies.
The second lender to watch is Countrywide. Just yesterday they approved a principal balance reduction on a file from $425k to approx. $220k.
Keep an eye on these two lenders as movement from the private sector is the best indicator of how the coming chapters in the housing crisis will unfold.
Only time will tell how effective the Obama plan is in helping homeowners keep their homes. In the interim a house goes into foreclosure every 12 seconds.
Until next week….
capitalagreement.info…
Here are the plaintiffs, along with the number of foreclosures that were tossed out of court[ by Judge O'Malley yesterday] . Deutsche Bank National Trust, 24; Wells Fargo Bank NA, 3; KMO Liquidation Properties Inc. , 2; LaSalle Bank Nat’ l Assn, 1; …
It’ll be interesting to see where all of these governmental actions take us as a nation… My concern is that we may be getting temporary relief from the gov’t, but will pay for it somehow in 10-20 years… We reap what we sow.