Mortgage modification nation: a failure to step up

The federal Hope for Homeowners program launched at the beginning of last month to help struggling borrowers refinance into more affordable mortgages appears to be practically a nonstarter.

Reports the Associated Press in today's San Francisco Chronicle:

The government expects only 20,000 troubled borrowers will be able to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over the summer.

The $300 billion Hope for Homeowners program began Oct. 1. Designed by lawmakers eager to respond to the mortgage crisis, the Congressional Budget Office had projected it would let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed rate loans with lower rates.

But the early results are discouraging: The government received only 42 applications in the program's first two weeks, according to the Federal Housing Administration. Since the applications take about 60 days to process, no loans have been approved.

The program relies on borrowers trying to persuade their lenders to volunteer and is limited to those who spend more than 31% of their incomes on their mortgages.

Housingwire.com, which first reported the low turnout, doesn't place the blame on lenders:

The problem, however, may not be lenders, who say they're more than willing to begin processing the loans. Instead, the problem sits with third-party investors that have thus far proven unwilling to take the minimum 10% haircut required to put borrowers into the program, plus an upfront premium payment. ...

-- Lauren Beale

Thoughts? Comments?

Photo: A Moreno Valley foreclosure. Credit: Reed Saxon  / Associated Press

Comments

[mike]

these people need to lose the houses that they never really owned. they had little or no financial skin in the game in most cases and they are really not losing much by giving back a home that they borrowed from the banks anyway. besides if you really pick it apart they are ahead of the game. they got to use someone elses home like an a.t.m. machine for 2-3 years and then give it back. these are NOT the type of people who would put in the necessary leg work to get a loan modification.

[Doug in Toronto]

I'm not at all surprised. Here's another group with its hands out, expecting federal funds to drop from the sky, and threatening to hold their collective breath until they turn blue if they don't get their piece of the pie. Worst part is that most of the folks seeking reworked terms have no idea who even owns their mortgage anymore, so they can't even tell who they're mad at.

[dafox]

I really wish every loan mod came with a mandatory fraud investigation. If any loan was done with inflated income numbers, not only should the loan mod not be done, but the person should be prosecuted for felony loan fraud (since many of these loans are now being backed by the government).

[TC]

Why would they want to refi on a home that is worth ~60% of the principal they borrowed on?? They got their cash or cheap rent for a while, maybe even bought a nice SUV or went on a vacation with the refi cash. I too would grab my flat screen and look for a nice rental home. Maybe submit the application and get 3 more months of free rent before bailing.

Here's a good example:

My neighbor bought his home (in our older neighborhood) a year or so before the peak. He's easily into it for 2x what it's worth now. There is no possible way he's gonna strap himself like that when homes will likely not recover to that point for another decade. Not to mention the house is neglected and could use 30k just to fix it up.

[anonymous]

Of course third party investors aren't interested. I find it shocking the government actually has a program that discourages their participation. Fraud fueled the bubble. Let them tank.

[Cal]

Anyone doing that math on this could see why it wouldn't work. The fact that it would require principal writedown and a low (ish) Debt to Income ratio (relative to 38% for FDIC plan and 34% for the BofA plan) means the investor is maximizing their loss up front and they just aren't ready to do that yet. Add in the fees (Up front mortgage insurance premium of 3% and then all the associated costs to mod) and there are just going to be few borrowers that fit in the box out of the gate and fewer still lenders willing to take significant haircuts to make this plan happen.

With all the bailout talks with things like TARP or even note sales on the secondary market, it is far better for the investor to leave principal alone and forego some interest cost.

[TrojanDLA]

Aaaah, the stupidity of government and it's shortsightedness. How is it possible they could have passed such a law without first seeking the counsel of the banks and investors involved?

These bureaucrats truly are disconnected with reality. All the more shocking considering that Paulson used to be one of "them"

[tew]

Clearly we need a program to monitor this program. Non-profit groups must be paid to monitor the monitoring of the program and assist people in working with the program. Given the complexity of the system, an overall program should be established to coordinate the various programs and outside groups.

[Laker]

There are two issues that nobody is talking about.
1) The difference between upside down homeowner in California and one in Kansas, Dallas, etc for example.
The California house is under water of 25% or about $150,000 on average. The Kansas or Dallas house is under water 5-10% or about $10,000-20,000 on average.
The government, FDIC, sheila the bear, can fix the Kansas house problem. There is NO way to fix the California over inflated bubble. It is just way to much to cover. Mass scale modifications in bubble areas are just no possible.

2) There should be clear separation between mortgages that are for purchase money vs. cash out refinance mortgages. It is very hard for me and many others to justify reducing the principal amount on purchase mortgages - but it is possible.
It is HOWEVER, impossible to justify reducing the principal amount on cash-out refinance mortgages. Doing that is like daylight robbery of the tax payers!
If you want to reduce the principal amount as a bank policy, this bank should not get one red penny of a tax payer money to do that. Also, the bank needs to take all the toys that were purchased with the cash out refinance and liquidate it for cash to cover their loses.
WHERE IS THE CASH???

[Dr. Victor Vargaz]

The ONLY collective entity responsible for further eroding local economies by their sheer negligence and irresponsible acts of not offering low-rate, same-balance, 30 year fixed loans for any homeowner threatened by the loss of their home, are your local community banks who have a portfolio, government-backed money to lend, and who can easily create a program exempting current values and/or recent credit problems, but refuse to do so. By not assisting homeowners, local banks are exasperating defualts and foreclosures, further eroding community confidence and forcing many familes onto the streets. Local banks have simply spit in the faces of their communities when the very people that made them what they are and now suffer from their collective abandonment, need them most. A truly shameful and despicable performance by our local banks.

[Anthony Robins]

I think private industry will step up before government will.

[Chris Schreiber]

The good news is that we are going to end up with a whole bunch of additional civil servants, highly educated and on government salaries to help us out! Just think it will be as enjoyable as going to the DMV! Yeah, let's create more beaurcrats! LOL

[Timmothy Suarez]

people keep talking about how loan mods are bad, and theyre fraud, and not fair, and bad for the economy...its all a bunch of jealous people who tried doing the mod on thier own...fact is you need an attorney and you need someone who knows how to manipulate the lending system...i mean, why not? they manipulated us into getting these ARM's and 1% loans...i did mine 3 months ago with www.creditmodamerica.com and got a 3% fixed for 40 years. i know they manipulated countrywide by fudging numbers but i dont care...i was told by the loan officer that my payment would be fixed for the life of my old loan and then never chage but one more time and it did change SEVERAL times. I hope one day that people get thrown in jail for this crap.

[Robert]

I am a lender on the Hope 4 homeowners list, lenders will not participated in the program because their investors won't let them, I take issue with some of the comments , we get 200 calls a day for the program, at least 100 of those people had real paying jobs they lost or had some family hardship. Some do fit the guy who wants a free ride.

What none of you are talking about is the obvious, those investors or banks you say should let the homeowner fall are taking huge losses and when they do eventually sell the property their taking another 20% hit to the new buyer and his real estate agent and of course the offer won't be at market price will it. so this hurts everyone and the only way to slow it down is to keep the people in their homes. Investors are taking a much bigger loss with the foreclosures already on the market.

What we started doing was asking banks for short payoffs at 90%. This allows us to help those who are only 30 days behind or know their going to go delinquent. We have had good success with this voluntary version instead of the red tape the hope program is creating. Any mod programs that don't have principal reduction attached to it will fail, that's why the 11 state Attorney generals demanded it be part of the settlement agreement with Countrywide.

When your $100k underwater on your Mortgage it's a lot less stress for you and your family to walk away and rent. Otherwise your looking at 5-10 years to get even. Who thinks that will work? This is America Delayed gratification is not in our vocabulary. At a minimum we should require all the banks that took bailout money to participate in some sort of mandatory program, it's our tax dollars we shelled out for them to take some losses why isn't there any outrage that they will use $50 billion for bonuses and not to mod their own loans???

[PaulMolinaroEsq]

Words from a Very Outspoken and Opinionated California Litigation Attorney (like there’s any other kind)

Here in California, our Department of Real Estate website (dub dub dub dot dre dot gov) lists the companies that have DRE "permission" to modify loans... add to this list any licensed California attorney, and that is where you should begin your due diligence search when you seek help in California. Other states probably have similar laws, so check with your own state DRE and state bar.

My law firm has been getting more and more calls recently from homeowners that were victims of predatory lenders who put them into an unaffordable loan and now fell into the hands of those same people who sold the toxic loans but profess to be saviors... DON’T BE A VICTIM TWICE! What’s that they say, “Fool me once, shame on you, but fool me twice, and I’ll sue your butt!”

Do your homework and THOROUGHLY investigate any firm before hiring them to save your biggest asset and the place you call “home.” Scammers are popping up like dandelions on a freshly mowed lawn in April. They advertise on the Internet, freeway billboards, radio, television, and print media everywhere, not to mention spamming your email box with those third-world widows needing someone to receive three million dollars for them. Make no mistake, in many cases, these “loan modification experts” are the exact same loan officers and mortgage brokers who fleeced homeowners the first time around. After losing their jobs with the crash of the mortgage industry, they have found a new way to make ill-gotten profits from hard-working homeowners through loan modifications.

In California, with very few exceptions (and attorneys are one exception… no coincidence there… attorneys make the laws), it is against the law for anyone to take money up front for helping a homeowner who is in default. Don’t trust a company that begins its relationship with you by breaking the law.

HERE’S THE BOTTOM LINE!

Hire an attorney – and not just any attorney either - one with experience in mortgage law, not just one with real estate law experience but one with experience in both FEDERAL and STATE litigation against mortgage companies, one who doesn’t also do family law, criminal law, admiralty law, and immigration law as well, one who limits the practice to mortgage law (or at least a great majority of it), one who has the experienced staff, training, and know how to take on the big lenders and their top notch lawyers (lenders have attorneys – and darn good ones – check out their counsel on the web – big names top schools, shouldn’t you have a lawyer too?).

We are not talking about a refund on your broken television here, we are talking about hundreds of thousands of dollars and your HOME – if you don’t think this is the time to hire a highly educated and experienced professional instead of a weekend schooled, almost out of work, broker slash loan officer slash “expensive water in a wine bottle with alleged magical curative powers” salesperson, I don’t know what would make you take things seriously.

Of course, this is one obnoxious lawyer's totally biased opinion, but one based on many many distressing calls to my office every day. And, yes, my firm loves taking cases against loan modification companies who have violated laws. This field is quickly becoming one of the fastest growing sections for our mortgage law firm.

- Paul J. Molinaro, Esq.