Fannie Mae to allow troubled homeowners to rent back homes

Mortgage titan Fannie Mae said it will begin allowing homeowners facing foreclosure to rent back their homes for up to one year in a move aimed at keeping a stack of foreclosures on its books from hitting the market, which is just beginning to show signs of recovery.

The new program is meant for troubled borrowers who don't qualify for or haven't been able to get a loan work-out, such as a modification, according to Fannie's news release.

Under the Deed for Lease program, the borrower would transfer title to the property to the lender by completing a deed in lieu of foreclosure and then rent back the house at market rates -- which in many markets have fallen over the last year and probably would be cheaper than a mortgage payment on a loan made during the boom years.

-- Alejandro Lazo

Photo: Rows of homes in Las Vegas. Credit: Bloomberg

Campaign against loan modification scams launches in L.A.

A national housing nonprofit has launched an education campaign in Southern California to combat fraud targeting homeowners in peril of foreclosure.

Loan modification scams are on the rise, charging troubled homeowners thousands of dollars up front for mediation and counseling services that are provided free of charge by federally approved nonprofits, Eileen Fitzgerald, chief operating officer of Washington-based NeighborWorks America, said at a news conference this morning at Los Angeles City Hall. The nonprofit is starting its yearlong national education effort in Southern California because the region has been hit particularly hard by the foreclosure crisis, she said.

Troubled borrowers often pay fees ranging from $1,500 to $3,000 to loan modification companies, Fitzgerald said. The companies, in turn, promise to negotiate with lenders on the homeowner's behalf. In some cases the companies promise that loan amounts will be modified, a result that is difficult and rare, she said.

Aside from the money spent on unscrupulous companies, those facing foreclosure can also lose precious months that could be better spent with federally approved nonprofit counselors who do not charge for their services, Fitzgerald said.

Poorly informed homeowners desperate for help turn to loan modification consultants -- who are often attorneys, mortgage brokers or real estate agents -- who advertise on radio, television and in print.

“They are very good marketers,” Fitzgerald said.

This month, California Atty. Gen. Jerry Brown's office reported having received more than 2,500 complaints against loan modification consultants and their businesses this year, up from fewer than 200 in 2008.

Seniors, Latinos, African Americans and Asian Americans have been particularly victimized and will be a focus of the education campaign, Fitzgerald said.

For the next three weeks, community organizers and volunteers working with NeighborWorks and its local affiliate, Los Angeles Neighborhood Housing Services, will be distributing marketing materials to people and warning companies about loan modification fraud. The first stop today was the Sun Valley Workforce Center in Sun Valley.

“Many of these families believe they have nowhere to turn, nowhere to go for help or assistance,” Los Angeles Mayor Antonio Villaraigosa said at the news conference.

In April, the Los Angeles City Council passed an ordinance imposing penalties on companies that charge for such services.

Zulma Navarrete said that over the last year she had bad experiences with two different loan modification companies.

The 36-year-old native of Guatemala, speaking in Spanish at the news conference, said the first company charged her about $2,000 and the second, a law firm, charged her $3,495. Neither has gotten the lender to reduce the $2,900 monthly payment on her three-bedroom Huntington Park home. Navarrete said she got her money back from the first company but not from the law firm.

“I was robbed,” she said. “And I want my money returned.”

-- Alejandro Lazo

Gloomy outlook from top mortgage pros

Despite sub-5% loan rates and signs that home prices have bottomed out in some places, mortgage industry leaders at a conference in San Diego seemed decidedly downbeat when asked to get out their crystal balls for the economy and the industry’s prospects over the next year.

Charles E. Haldeman Jr., two months into his new job as chief executive of Freddie Mac, said he saw no signs that businesses – even those on solid ground – were going to start rehiring employees any time soon.

On the consumer spending front, the big driver of the U.S. economy, Haldeman sees a "permanent dislocation in consumption patterns." It was unclear exactly what he meant, but there was no doubt that it wasn’t good for home sales.

Fannie Mae CEO Michael J. Williams said lenders and loan investors would have to be judged on how effectively they dealt over the coming year with the messes they created through loose lending during the boom years. The focus will continue to be on limiting losses by trying to keep borrowers in their homes.

"We’ll all be rightfully focused on modifications and refinances," Williams said. "But to get the housing market moving again, it’s all about getting people to buy homes."

Dean Schultz, chief executive of the Federal Home Loan Bank of San Francisco, said he hoped things would look better in a year, but he wasn’t optimistic about that.

"I think we’re at the midpoint of a difficult period," he said, " which will stress all organizations."

The comments Monday came at the Mortgage Bankers Assn. annual meeting in San Diego, which continues today with speakers including Barbara Desoer, president of Bank of America’s home lending and insurance operations.

In an interview, Desoer said more than 40% of Bank of America’s new mortgages are for home purchases. But that doesn’t mean a universal recovery in housing, only that prices have been beaten down so far that in some markets – particularly lower-priced areas where values have fallen the most – first-time buyers and investors are stepping in to buy perceived bargains.

Those areas include inland areas of California, but not certain other battered areas, Desoer said. In Florida, for example, another big boom and bust state, there’s no sign that the bottom has been reached anywhere.

Economists at Charlotte, N.C.-based Bank of America, which collects payments on more mortgages than any other lender, think prices nationally have another 5% or so to fall before bottoming out – perhaps – in the second quarter next year.

And then, Desoer said, a slow and uncertain recovery may unfold. She said the bank would be on guard for a double-dip recession or what could be a replay of the "stagflation" of the 1970s – a stalled economy with inflation.

-- E. Scott Reckard

　

Feds say simplified paperwork should increase successful loan modifications

Successfully modifying loans has proved elusive at times because of multiple factors, including under-trained negotiators, lost paperwork and foreclosure proceedings inadvertently begun before trial loan modifications are complete, panelists at a Mortgage Bankers Assn. conference acknowledged today.

One of the most frustrating common problems is troubled borrowers who accept a trial modification, send in their lowered payments, but then fail to complete the paperwork that enables lenders and loan investors to OK a final loan modification.

The three-month trial period is a key part of the Home Affordable Mortgage Program developed by the Obama administration, which is using bank bailout funds to pay loan customer service firms to modify loans and pay borrowers to make regular payments.

Troubled borrowers who accept modification offers from lenders are supposed to use that time to completely document their financial situations so the restructured loans can be finalized.

Laurie Maggiano, policy director at the U.S. Treasury Department 's Office of Homeownership Protection, said the government is introducing a new, streamlined application with just two documents to be signed, acknowledging the original paperwork was onerous. 

Speaking at a session of the conference in San Diego, Maggiano said the government also intends to have the Internal Revenue Service use its formidable computer system to process these applications and get a "yes" or "no" answer back to servicers in two days.

Borrowers already in the three-month trial modification process will be given an extra two months so the lenders can get them the simplified paperwork and have them fill it out, Maggiano said.

Missing, incomplete or improperly filled-out paperwork has been a major problem in implementing the Making Home Affordable program, now more than six months old, said Douglas Potolsky, a senior vice president with Chase Home Loans.

"Getting those loans to the finish line is tough," Potolsky said. "I think the streamlining will help dramatically."

He also suggested that the Treasury Department add an option for borrowers to pay interest only on their modified loans, say for five years -- something that the government has resisted because the loan balance doesn't go down.

An interest-only option could make for larger "payment shocks" when the interest-only period runs out, but Potolsky said including the option would increase significantly the number of borrowers who could be helped. He said it's something Chase has offered to certain borrowers who don't qualify for the regular Home Affordable modifications.

-- E. Scott Reckard

Feds say early goals met on loan modifications

The Obama administration and lenders are saying that the federal Make Home Affordable loan modification plan is finally getting some traction.

The $75-billion program pays lenders to reduce loan payments for troubled homeowners and pays bonuses to borrowers who stay current on the modified loans.

First off, my colleague Jim Puzzanghera in Washington reports this morning that the administration says it has already reached its Nov. 1 goal of 500,000 trial restructurings.

Meanwhile, Wells Fargo, the second largest mortgage-servicing company, joined No. 1 servicer Bank of America in touting its progress on the modification front.

In a news release, San Francisco-based Wells said it has “done 62,989 trial and completed Home Affordable modifications through Sept. 30; nearly double what the U.S. Treasury reported last month.”

Stand by for more details in the short term and for answers to the big question: whether these modified loans will hold up or whether “underwater” homeowners will stumble back into default after hitting new bumps along their financial roads.

Economist Mark Zandi of Moody's Economy.com says the federal program "is kicking to a higher gear, but not high enough to forestall a continued increase in foreclosures and more house price declines.”

The trial modifications “are simply offers,” Zandi notes. “Many won't turn into actual mods, and those mods that occur will have a high redefault rate.”

In an e-mail to me this morning, he estimated that of 4.5 million home loans that are in the foreclosure process or 90 days or more delinquent, 1.5 million will be modified and only 1 million will avoid a redefault.

-- E. Scott Reckard

BofA says it will meet goals under Obama foreclosure plan

The big banks that provide customer service on most U.S. home loans had egg on their faces in August, when the U.S. Treasury reported that they had made little progress toward modifying mortgages under President Obama’s then-newly implemented anti-foreclosure program.

The No. 1 servicer, Bank of America Corp., was the slowest of all to generate what the administration called Making Home Affordable modifications. Bank of America had offered three-month trial modifications to just 4% of the customers deemed likely to qualify, compared with 9% for all servicers combined, the Treasury announced.

The Treasury is set to release its third monthly report on the program Thursday. And this time, Bank of America says that it has gotten up to speed and will meet an Obama-set goal of starting 125,000 trial mortgage modifications by Nov. 1. (In all, the company services 14 million home loans.)

Bank of America, including the Countrywide Home Loans operations it acquired last year, had started more than 27,000 Obama-style trial modifications as of the end of July. That number reached 59,000 by the end of August, about 95,000 as of Sept. 30, and is now well above 100,000, said Steve Bailey, the bank’s home-retention strategies executive.

"Obviously, we’re feeling pretty good about the program," Bailey said.

Before the federal foreclosure-prevention plan emerged, Bank of America already was doing loan modifications to comply with its settlement of lawsuits brought against Countrywide by state regulators.

That program involved lowering and suspending interest payments, as well as extending the payback time on certain subprime and exotic loans. The goal was to get first-mortgage payments down to 34% of borrowers’ incomes.

The Obama program introduced some twists, including bonuses for borrowers who stay current on loans and paying servicers to reduce the first-mortgage payments (including taxes and interest) down to just 31% of borrowers’ gross earnings.

It also mandated the three-month trial modifications, during which time borrowers would prove they could make the lower payments and provide additional documentation before qualifying for long-term loan restructurings.

Bailey said Bank of America had done hundreds of thousands of modifications outside the Making Home Affordable plan, although the federal program is its first alternative these days.

It wasn’t possible to obtain details Wednesday on how modifications are going at mortgage rivals Wells Fargo & Co. and JPMorgan Chase & Co.

But there should be a lot more information Thursday in the Treasury report, which presumably will be posted on the department’s press release site.

-- E. Scott Reckard

District attorney warns of loan modification scams

Los Angeles County Dist. Atty. Steve Cooley warned homeowners today to be careful to avoid foreclosure rescue scams.

Some companies offering to negotiate home loan modifications are instead opportunists who “promise quick results for a fee but actually provide nothing,” Cooley said in a news release.

Read more at California Consumer.

-- Stuart Pfeifer

Regulators report more aggressive mortgage mods

A quarterly mortgage report out this week from U.S. Treasury regulators contained  bits of encouragement for struggling borrowers along with the unsurprising finding that delinquencies and foreclosures rose in the second quarter.

A first-quarter report from the regulators had found that only 54% of what lenders described as loan modifications involved actually reducing borrowers’ payments.

 

That number rose to 78% in the second quarter as mortgage servicers increasingly cut payments due on principal and interest, rather than just adding missed payments back into the reworked loans.

The joint report from the Office of the Comptroller of the Currency, which regulates national banks, and the Office of Thrift Supervision, the federal overseer for savings and loans, surveyed 64% of all U.S. home loans.

The OCC and OTS said they had seen “a significant shift from earlier practices, in which the vast majority of loan modifications either did not change or increased monthly payments.”

The agencies also said “modifications that reduce borrowers’ monthly payments continue to show lower levels of redefaults and longer term sustainability than modifications in which payments are either increased or unchanged.”

 

Uh, could have guessed that one.

The 46-page OCC and OTS Mortgage Metrics Report report, which you can read here, said home retention actions by lenders rose nearly 22% from the first quarter and were up 75% from a year earlier.

Driving the increase were three-month trial loan modifications made under President Obama’s Making Home Affordable program to assist troubled homeowners.

-- E. Scott Reckard

Knock knock. Who's there? Freddie....

It's not quite "Hi, I'm from the government and I'm here to help." 

But it's along those lines. 

Freddie Mac, the government-controlled mortgage giant, plans to send people out to knock on the doors of borrowers who might qualify for a loan modification under President Obama's Making Home Affordable program but haven't completed the paperwork. 

The plan, which you can read about here, is to work one-on-one with people who didn't respond to letters or phone calls from their mortgage servicers, or who need to provide more information to launch their three-month trial periods under the federal loan-mod scheme. 

The door-knockers will be supplied by Titanium Solutions Inc., a specialist in contacting and working with troubled borrowers. They will try to contact people whose mortgages are owned by Freddie Mac, the second-largest buyer of home loans. The borrowers must be at least 31 days late in paying their loans, and they can't be in bankruptcy. 

Titanium "can help them overcome the roadblocks keeping them from starting their Home Affordable Modification trial periods," Ingrid Beckles, Freddie Mac's senior vice president of default asset management, said in a statement. The idea, she said, is to "give borrowers ... the same type of personalized guidance they may have had when they were buying their home or applying for their mortgage." 

To minimize potential fraud by impostors, Titanium representatives will not accept mortgage payments or any other money from borrowers, Freddie Mac said. 

The announcement left unanswered certain questions about the program, such as exactly how many borrowers are likely to be contacted and how much it will cost. Freddie Mac spokesman Brad German said he didn't have those details, and Titanium officials couldn't be reached for comment. 

At last report, Freddie Mac had 340,000 seriously delinquent single family mortgages -- loans in foreclosure or behind in payments by at least 90 days, German said. That worked out to 3.14% of its mortgages, up from 1.11% a year earlier. 

Fannie Mae, the largest buyer of U.S. mortgages, said in a news release today that its serious delinquency rate hit 4.17% at the end of July, a record and up from 1.45% percent a year earlier. Like Freddie Mac, Fannie Mae was taken over by the government when defaults threatened its solvency. 

It would be interesting to know how many Freddie Mac borrowers will welcome the help, and how many have just given up on reworking their loans because they are so far under water. No word on whether Freddie Mac will report along those lines, but don't hold your breath. 

In any case, plenty of people will be watching this and similar efforts. 

"It is my understanding that a number of loan servicers/loan modification specialists have started going door-to-door trying to get home owners to engage in the loan modification process," banking consultant Bert Ely said in an e-mail to The Times. 

"However," Ely added, "many people do not want to play, usually for financial reasons. Consequently, Freddie's outreach is hardly unique. How successful it will be, though, is questionable." 

-- E. Scott Reckard

Los Angeles mortgage modification event begins Thursday

More than 50,000 homeowners are expected to begin streaming through the Los Angeles Convention Center on Thursday, hoping for a hand in restructuring their mortgages or avoiding foreclosure.

The free five-day event, running through Monday, is organized by Boston-based Neighborhood Assistance Corp. of America. NACA hosted similar meetings nationwide this summer that attracted more than 180,000 participants.

Counselors at 360 computer stations will scan homeowners’ mortgage documents and send electronic files to nearly 2,000 on-site servicers and lenders, including representatives from Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp., who will negotiate more affordable loans.

“People usually call up the servicers and get the runaround,” NACA Chief Executive Bruce Marks said. “But here, there’s nothing to lose and everything to gain.”

The event will cost about $1 million, funded by federal grants. Boston-based nonprofit National Consumer Law Center released a study today of 25 foreclosure mediation programs from 14 states, including California, and concluded that most were inefficient.

The law center said that procedural barriers often kept homeowners from participating in those programs, and that mortgage servicers were rarely required to provide documentation or more affordable alternatives.

Rafael Mayo, 41, said NACA helped save his home from foreclosure by pushing both his 5% and 11% interest-only mortgages down to two 2% fixed-rate loans, saving him $850 a month.

“We were one foot inside the safety line, one foot outside,” he said.

The Save the Dream tour launched in Cleveland with 35,000 participants before moving to Chicago and St. Louis. Other stops will include Phoenix, Las Vegas and San Francisco.

Participants can register for appointments at www.naca.com or toll-free at (888) 499-6222.

-- Tiffany Hsu