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Loan Modification Help Center
As the real estate crisis deepened, homeowners began to search for help wherever it was available. As a result, loan modification companies went from a niche industry with little visibility to the national spotlight in a heartbeat. Now, however, people and governments are recognizing that not all loan modification companies are created equal.
For example, some California loan modification companies are being investigated by state and federal authorities for allegedly scandalous activities, which include taking thousands of dollars from desperate homeowners while providing little or no help with their lenders. In fact, many crooked loan modification companies have stationary and letter head which makes them look as if they are somehow affiliated with the government and/or a government loan modification program. The Federal Trade Commission (FTC) came down hard on these organizations, filing civil charges which effectively shut the companies down completely.
Experienced, qualified California loan modification attorneys have had their industry and their reputations soiled by loan modification scam artists such as these. For years, many California loan modification attorneys have helped homeowners avoid foreclosure, stay in their homes and get a lower monthly mortgage payment. However, once the real estate crisis hit and homeowners were looking for help, many scam artists came out of the woodwork to try and steal as much money as possible before getting caught. In fact, in one instance, the individual who ran the loan modification scam had been convicted for fraud in a giant San Diego Ponzi scheme in 2003. Individuals who have a history of white collar crime are the ones soiling the loan modification industry.
So, Who Can You Trust?
After seeing these troubling circumstances following loan modification companies, you might be asking yourself “just who can in trust?” This is a legitimate concern, especially with lots of news stories going out which are hammering the entire industry because the conduct of a few individuals. Here are some important guidelines to keep in mind while measuring the potential of the loan modification companies you may be looking at:
1. Make sure you find a loan modification company with a loan modification attorney. Without a qualified, experienced loan modification attorney the loan modification company won’t be able to handle the intense negotiations. In fact, without a loan modification attorney they really can’t do very much at all.
2. Find a loan modification company with a long history of successful loan modification achievements. If the company in question has been around for six months, then they probably are not legitimate. In fact, if they have only been around as long as the current real estate crisis, then they are most likely not a trustworthy institution.
3. Ask for references from the loan modification attorney. Without references, you may be looking at a potentially shady loan modification company. Overall, you need to take steps to protect yourself, your family and your future. This involves research, asking awkward questions and making sure you know as much as possible about the loan modification company that you are about to trust to keep you from losing your house. Visit us at http://www.loanmodificationhelpcenter.org/.
Legal Disclaimer The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter. Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.
Loan Modification Help Center
One of the key factors in determining the overall health of the United States economy is the level of sales of new and old homes. In Los Angeles, more than 1,000 fewer homes were sold in August of 2009 than in July of 2009. While the numbers are up from August of 2008, it is still a telling sign that the overall economic health of the state is difficult to predict. Part of the reason for the dip in home sales is the rise in price; the median home price in August was roughly $8,500 more than in July, although down 13% from August of 2008. Almost 40% of the home resales were due to foreclosure, although that’s down from July.
As confusing as some of these numbers are, however, they are much improved from a year ago when the real estate market spun out of control. Many California counties reported improvements in home sale numbers over the last 12 months, including Los Angeles, Orange, Riverside and San Bernardino counties. The only southern California county reporting negative homes sales was Ventura, which was down 6.4% from last year. Median home prices are also down from last year, ranging from 2.8% to 32.6%.
These numbers are obviously confusing, and point to a jumbled housing market. Many homeowners—both those in trouble and those who are not—are looking for answers and for any trends they can find. People often want to know their situation, and not knowing can be worse than knowing you are in a bad spot. This “unknown factor” has led to hysteria at times, and is partially the reason many banks and consumers reacted strongly to all the potential economic challenges. What people feel that they need is leadership, and that leadership might just come from a California loan modification attorney.
A California loan modification attorney can help anyone who is fearful that their home is going to go into foreclosure. At a time when housing prices rise and fall, when homeowner confidence fluctuates, and at a time when no one can predict the next ten months (let alone the next ten years), a loan modification attorney might be the answer to many people’s prayers.
What a Loan Modification Attorney Does
A California loan modification attorney will act on your behalf to help you choose the best options available to save your home. A loan modification itself is a renegotiation of the terms of your loan, often lowering the interest rate, adjusting length of the loan, targeting a principal reduction or some other option. An experienced California loan modification attorney can work on your behalf to lower monthly mortgage payments by negotiating effectively with banks, lenders or other mortgage servicers.
A loan modification attorney will invest the necessary time and effort into keeping you in your home, and out of foreclosure proceedings. A skilled loan modification company with a qualified California loan modification attorney can keep the banks at bay and make sure that you and your family can stay in your home for the long term.
Visit us at http://www.loanmodificationhelpcenter.org/ or call 800-359-6941.
Legal Disclaimer
The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter. Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.
Loan Modification Help Center – The real estate crisis has slowed some over the last six months, but the news has not gotten any better. Statistics show that many homeowners, including those who have prime mortgages, are facing harsh financial problems. The crisis has spread from the most “at risk” borrowers to people who have more run of the mill loans. As a result, banks such as Bank of America and Wells Fargo now have to scramble to keep their investments safe and sound. What many banks are doing is stepping up their loan modification efforts in order to get people to stay in their homes and continue to make payments on their mortgages. Oddly enough, Bank of America and Wells Fargo are two of the worst performing banks in terms of the government’s main foreclosure prevention plan; however, they have stepped up their loan modification pace by at least 60 percent in the month of August. Bank of America more than doubled the number of loan modifications it made through the Making Home Affordable Program between July and August. Wells Fargo improved dramatically as well. One interesting bit of information came from one of Bank of America’s loan modification executives. He made the following observation: “A lot of our [Bank of America’s] momentum pickup is working with those customers we had already made offers on, making sure they were aware of the offer and converting those offers into trial starts.” What is so interesting about this quote is its suggestion that people are so bogged down by their financial challenges that banks have to remind them that they have options. It also suggests that many people are trying to change their financial situation without the assistance of a qualified loan modification company. Both of these are mistakes. A loan modification attorney can make a huge difference in the life of someone who is facing foreclosure by providing them with an insider’s perspective on how banks operate. An experienced loan modification attorney will know who to call, when to call and what to say when someone is on the line. An attorney can also stay in touch with a bank when you are too busy to make ten or fifteen phone calls per day to get information. Banks are seeing loan modifications as an opportunity to make money, or to recoup their investment. A loan modification attorney will pursue the opportunity to your benefit, looking out for you interests and not a bank’s bottom line. Without the assistance of a loan modification attorney, many homeowners find it incredibly difficult to deal with banks for their loan modifications. Negotiating with bankers, preparing paperwork, filing claims and managing the entire process is usually more than most homeowners can bear. However, with a qualified loan modification attorney working on your case, you can be assured that a trained professional will help get you the best results possible. The banks are looking to make money, and you can’t afford to be taken advantage of; a California loan modification attorney can help protect your interests and help you avoid foreclosure. Visit us at http://www.loanmodificationhelpcenter.org/ or call 800-359-6941. Legal Disclaimer The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter. Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.
Resources:
LOAN MODIFICATION PROGRAMS
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LOAN MODIFICATION ADVICE
In The News:
The FDIC’s loan-mod plan
FHA Raises Its Premiums to Insure Repayment of Mortgages
Top 10 Questions About Loan Modifications
FHFA Announces Loan Modification Program for Fannie, Freddie
Fed stiffens restrictions on mortgage lenders
Loan Modification Help Center
If you are interested in getting a loan modification then there is a good chance you are suffering from some serious financial problems. Most likely, there are a number of options available to you, including foreclosure, a short sale and other mortgage defaults. What many people are unaware of are the implications each of these will have on their credit rating. Pretty much any financial transaction you make will have some impact on your credit, either good or bad, and so people who are homeowners or looking to take out or adjust a loan, must pay special attention to these impacts.
Foreclosures
According to some analysts, foreclosure activity jumped 7 percent from June 2009 to July 2009 and is up 32 percent from just one year ago. Basically, the national statistics suggest that one in every 355 households with a loan got a foreclosure filing in July 2009. Those numbers are not just historic; they are frightening and make loan modifications an absolute necessity for anyone in danger. A foreclosure will have a terrible impact on your credit score; and, depending upon how long it takes to get the situation straightened out, that negative impact could last quite a while.
Short Sale
A short sale is when the homeowner sells the property, but the proceeds from the sale fall short of the balance owed on a loan. People who own homes that have lost equity often fall into this category. A short sale can have a major negative impact on your credit rating, and it can still leave you in debt. If the lender decides not to accept the officer, it could cause all sorts of problems.
What many people do not understand however, is that it is not necessarily the foreclosure or even a short sale that negatively affects your credit. The actual number of months that the borrower has been delinquent on their payments is going to cause your credit score to drop. Simply walking away from your home will have an even harder impact because you made no attempt to talk to a lender to try and solve the problem. TransUnion, one of the major credit reporting agencies, published some figures stating that in August of 2009, the number of mortgage holders who are 60 days past due on their payments increased for the tenth straight quarter.
Loan Modification
People suffering from serious debt problems and facing potential foreclosure should contact a California loan modification attorney for answers. A loan modification attorney can help you work with your bank or lender to get the best loan modification possible, or just to see if you are indeed eligible for a loan modification. With a loan modification, you can stay in your home and avoid a foreclosure, as well as protect your credit rating. During such harsh economic times as these, your loan modification attorney could be your best friend because he or she can help protect you against the economic factors damaging other people’s lives. If you have an experienced California loan modification attorney, you are on the right track to protect your home and your future.
Visit us at http://www.loanmodificationhelpcenter.org/ or call 800-359-6941.
Legal Disclaimer
The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter. Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.
Loan Modification Help Center
If you are hoping to get a loan modification, or are in the process of getting a loan modification, you are most likely facing some major challenges. Working with banks is difficult, and people who are choosing to handle their own loan modifications are encountering how slow banks work and how hard they are to negotiate with.
The media and others have noticed that many banks are giving mixed signals in terms of their attitude and approach to loan modifications. The president, his administration and even Congress are working hard to help people stay in their homes and avoid foreclosures, going so far as to hold banks accountable for homes which are foreclosed on. Banks however seem to be saying one thing, but often doing another.
It comes as no surprise that banks are focused on their own bottom line, but what is important to note for anyone seeking a California loan modification is that it is going to take some serious negotiation to get a quality loan modification.
For example, some of the homeowners who need loan modifications the most are ones who are in the riskiest mortgage situations. Banks are saying that they are giving out home loan modifications, but these riskiest mortgages are still being left untouched. Paul Willen, an economist at Boston Federal Reserve said “If the borrower is really in trouble, [the lenders] probably don’t want to do the modification because they think there’s a good chance the borrower will default.” In such a situation, negotiating with the lender on your own can be fruitless, because, in essence, the lender has already made up its mind.
Some outlets have reported that foreclosure sales are slowing down since the Obama administration started the Making Homes Affordable program. Banks claimed that they delayed foreclosure proceedings on a number of at-risk and delinquent borrowers and that the low foreclosure sales are a sign of that. However, lenders, analysts and even government officials are having a hard time putting those two bits of information together.
Ultimately, borrowers are having a hard time negotiating with lenders, because lenders are using preconceived reports and notions to decide on who gets a loan modification and who does not. However, loan modification attorneys are able to help people get better options from lenders, and are fighting hard on behalf of borrowers.
California loan modification attorneys work on behalf of their clients to get the best loan modification possible. These loan modification attorneys understand the loan modification industry, understand real estate and understand how banks operate. Banks are always focused primarily on their bottom line, and only a skilled loan modification attorney who can negotiate will get the results you need.
If you are having a difficult time with your loan modification application, or if banks are giving you the “run around” during the process, contact a qualified California loan modification attorney. The skill, experience and understanding they bring to the table could be exactly what you need to stay in your home and avoid foreclosure.
Visit us at http://www.loanmodificationhelpcenter.org/ or call 800-359-6941.
Legal Disclaimer
The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter. Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.
With the economy and real estate continuing through their agonizing corrections, millions of homeowners find themselves in financial distress due to the purchase of their home combined with excess consumer debt as a result of slowing work environment. There are as many different circumstances as there are families that are causing millions of people to go to bed each night worrying that they could lose their homes to foreclosure. The most common problems that homeowners are facing currently are upward resets in their interest rates, declining home values, and unemployment. While unemployment presents a tough predicament in terms of a loan modification, the people subject to resets and declining values are those that a modification can help by stopping a foreclosure and providing a framework to families in their homes.
Homeowners finding themselves behind on mortgage payments are commonly called by their lenders to discuss the current situation. If, after this discussion, the lender feels that the homeowner will be able to make payments in the future they will often propose a short term modification solution. Homeowners should never enter these conversations without professional representation as the initial offers are usually some sort of brief respite from payments followed by a balloon payment or a payment plan which actually raises monthly payments until the missed payments are caught up.
An attorney driven loan modification, on the other hand, will force the lenders loss mitigation department to analyze your situation in order to modify your loan into something that the bank and yourself can agree upon. There are many factors in the formula to reduce the monthly payments for a homeowner. They include lowering and freezing your interest for the life of the loan, extending the maturity of the loan, and/or reducing the principle owed on the mortgage – especially when the property is significantly under water. Another factor might be the deferral of missed the payments and interest to the back side of the loan so that the homeowner is no longer months behind. During the process a loan modification attorney will also analyze your loan documents and your financial situation. Should they find predatory lending practices; further savings can be realized due to the banks’ reluctance toward lawsuits and negative public relations surrounding problem loans.
It’s one of major differences between an attorney driven loan modification and one done via any other avenue. An attorney versed in mortgage law will be able to sort out predatory lending violations in your loan documents and use them for leverage in the negotiation of terms in the modification. Where that leverage is applied depends on where the violations occurred. If an appraisal was overstated an attorney might demand a principle balance reduction if you are upside down, an interest rate reduction if there was a misrepresentation on interest rate disclosure, or a combination of remedies if there were multiple violations.
Additionally, an attorney who has operated in the modification field for an extended time will be well- versed with what each lender or servicer wants and what they’re willing to give during the process. The familiarity with the team on the other side of the table can greatly reduce surprises and smooth the process considerably.
What many homeowners don’t realize when they decide to take on a loan modification without professional assistance is that they’re literally betting their homes that they can execute a loan modification with terms that they can sustain over the long term. As many homeowners have found, what many lenders offer as a loan modification provides little or no relief at all. For those in the position to contemplate a loan modification, the cost of hiring an attorney is negligible relative to what’s at stake and the savings which can be realized when an experienced attorney takes the wheel.
Carrington Mortgage Services is following orders given by the Obama Administration to speed up the processing time for home loan modifications. In fact, they’re processing modifications at double the speed of some other loan servicers. The caveat for homeowners, however, can be summed up by the saying, “Be careful what you wish for.” According to recent quotes and articles from the Wall Street Journal and Forbes the company may be doing loan modifications, just not the kind that were envisioned by government officials or that work for their intended recipients; the homeowners.
According to Amherst Securities Group, a small broker-dealer specializing in the trading of mortgage-backed securities, “In most Carrington modifications, the firm tacks the unpaid amount onto the loan balance and makes little or no change in the interest rate paid by the homeowner. Carrington has used the same approach to modify hundreds of loans for the second or third time after the borrower has fallen behind on the first modification.”
While the benefits of loan modifications to homeowners are being questioned, the benefits to both Carrington and its parent company, Carrington Capital Management LLC, are undeniable. According to Forbes, “Unlike most servicers and lenders, which risk losing money on modifications, Carrington Mortgage Chief Executive Bruce Rose makes money every time the firm reworks a loan. This is because his Greenwich, Conn.-based hedge fund, Carrington Capital, owns many of the risky “first-loss” pieces of the mortgage securities his servicer collects on. These subordinate investments are designed in such a way that Rose continues to collect interest payments as long as a mortgage is considered current, even through a modification, and is cut off when a home is sold.”
Carrington also tacked on attorney’s fees and other charges to their modifications while adding unpaid balances to the modified loans. According to Robert Hart, Ohio assistant attorney general, it wasn’t unusual for the servicer to “…increase loan balances by $15,000 or more as part of a loan modification, basically setting the consumer up for a future default.” Last month, Ohio Attorney General Richard Cordray filed a lawsuit in common pleas court in Franklin County, Ohio, alleging that Carrington Mortgage Services failed to offer reasonable loan modifications to borrowers, it takes advantage of borrowers, forcing them to sign loan modifications without letting them see a copy first, and charges “unearned and unwarranted” fees for bogus workouts.
According to counselors at ACORN Housing, a nonprofit that tries to prevent foreclosures, Carrington regularly processed loan modifications with terms which were much more onerous that what was available. Citing a case involving a Brooklyn homeowner, Carrington executed a loan modification which reduced the monthly payment to $2,800. Had the servicer given the homeowner the loan they qualified for under the Obama administration’s Home Affordable Modification program, they could have been set up with a fixed payment of $1,600 a month for 30 years.
So far, Carrington has put 597 of its borrowers into loan modifications along administration supported guidelines on a trial basis, out of 14,000 mortgages which are eligible, according to a recent Treasury report. Meanwhile, the subprime servicer has been processing their own version of loan modifications, like the one it gave to the Brooklyn homeowner at a speed that would make anyone pressing for faster modifications proud.
At issue is the fact that the vast majority of the loan modifications that Carrington does benefit the borrower to a small degree while Carrington rakes in fees and charges while putting homeowners in a position where they will need to modify their loan again, generating a new batch of fees. By having a role in both the front end of a mortgage as a servicer and the back end as an investor through its hedge fund, Carrington can play each mortgage modification to maximum benefit with their borrowers coming in a distant third. They have accomplished all this while receiving $195 million in taxpayer backed incentives for their participation in Making Home Affordable.
While what is going on at Carrington may be much more involved than what is going on with other servicers, Bruce Dorpalen, director of ACORN Housing, says many of the four million borrowers, 12% of all Americans with mortgages, who modified loans during last two years received modifications which were not designed to work out in the long run. In a recent study by the Federal Reserve Bank of Boston, well over 90% of the modifications in the study did not lower payments and, in many cases actually raised them.
It’s for these reasons that homeowners in need of home loan modifications are going to be much better served by retaining an experienced attorney to negotiate on their behalf. The issue for many borrowers is that they are unfamiliar with the nuances of what can and cannot be negotiated while also being unaware of the modification terms for which they can qualify. While trying to save money negotiating their own modifications they end up with unsatisfactory terms, exorbitant fees from the servicer, and a loan that is designed to fail because the new payments are too high to be sustainable.
Instead of just accepting these sub-standard conditions an experienced loan modification attorney will have a clear picture on attainable objectives in the negotiation with a servicer or lender. Getting the most out of a loan modification the first around is not only the most efficient use of everyone’s time, by removing the threat of foreclosure the quality of life for struggling homeowners can improve dramatically. Add in the savings in fees, lowered payments, possible principle reductions and the combination of peace of mind with a solid investment is a tough one to beat.
According to MDA Dataquick, Southern California housing prices fell 23 percent in July from a year earlier as foreclosures dominated sales for the month. The median price dropped to $268,000 from $348,000 a year earlier, the San Diego-based research company said recently in a statement. Homes sales were up almost 19 percent from a year earlier to 24,104 for the six counties; Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange. “There’s still quite a bit of distress out there,” John Walsh, Dataquick’s president, said in a statement. “Even if we are at or near bottom, history suggests we could bounce along that bottom for quite a while.”
Foreclosures, which were down significantly from monthly totals in the first half of the year, still accounted for 43 percent of sales and weighed on the overall price average. The July foreclosure sales as a percentage of total sales registered its lowest number since June of 2008, MDA DataQuick said.
The July median price rose 1 percent from June making it the third consecutive monthly increase, according to the report. That was due in part to a larger share of home purchases financed with loans of more than $417,000. About 15 percent of transactions involved such loans, the highest in 11 months. Additionally, homes priced at $500,000 and above were 20 percent of transactions, compared with 15 percent in March.
Similar to foreclosure trends being seen across the country, housing prices are looking vulnerable and are likely to fall more in expensive coastal areas as employers cut jobs in the recession and homeowners are forced to reduce asking prices, said MDA Dataquick analyst Andrew LePage. “Sellers are getting more realistic,” LePage said in an interview. “It looks like prices are coming down.” Another factor could be that increasing foreclosures in high end neighborhoods could drag down prices as well. Sales at high end of the market, regardless of how much their prices are down in percentage terms, can still lift the median price average because the statistic is calculated strictly on dollar price.
Investors and absentee buyers played a significant role in home sales, buying 19% homes across the region through foreclosure auctions during the month. That number was up 3 points from July 2008’s total of 16%. MDA Dataquick defines absentee buyers as those whose property tax bills are sent to an address different from the one being purchased. Sales increased in five of the six counties, led by San Bernardino’s 41% gain. Sales rose 23% in Los Angeles, 14% in Riverside, 12% in Orange and 11% in San Diego. Sales fell 4% in Ventura. Purchases financed through the Federal Housing Administration (FHA) accounted for 37 percent of July home sales, up from 20 percent a year earlier, MDA DataQuick said. FHA purchases are generally assumed to be made by first time buyers.
Prices decreases were recorded in all six counties in the region, led by a year on year drop of 39% in San Bernardino to a median of $140,000. The median fell 29% to $185,000 in Riverside; 20% to $321,000 in Los Angeles; 12% to $320,000 in San Diego; 11% to $375,000 in Ventura; and 9% to $420,000 in Orange. The July median price was 47 percent below the market peak of $505,000 which held through the spring and summer of 2007, MDA DataQuick said.
Loan Modification Help Center
The release of the Mortgage Bankers Association’s National Delinquency Survey showing that defaults were reaching record levels did not surprise anyone, in or out of the industry. The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.24% of all loans outstanding as of the end of the second quarter of 2009, up slightly from the first quarter of 2009, and up 30% from one year ago. The delinquency rate for the second quarter was the highest since the Mortgage Bankers Association began keeping records in 1972.
What is a shock is the extent at which prime mortgages are starting to act like subprimes. Jay Brinkmann, MBA’s Chief Economist said, “While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime option ARM mortgages. The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase.”
That the well to do are having trouble making their house payments is indicative that the crisis has a new engine, one unforeseen when the consensus opinion was that the foreclosures would be contained to only the riskiest of the mortgage categories. The new foreclosure dynamic has executives at banks and mortgage loan firms scrambling after the brief respite from the subprime mortgage fiasco. The numbers coming from the prime mortgage sector are particularly troubling as delinquencies register a performance level many times worse than historic averages. Prime 60+ delinquencies have more than tripled in the past year, from $9.5 billion to $28 billion total, or roughly $1.6 billion a month.
Further trouble sits out on the horizon in form of the jumbo prime category, which is also beginning to unravel. The rate of 60-day delinquencies on jumbo prime mortgages jumped to 7.4% in May, from 4.5% in November, according to First American CoreLogic. By comparison, 60-day delinquencies on prime-conforming loans reached 4.9% in May, from 3.6% in November. Much of the jumbo prime category operates without the safety nets provided by government programs and the financial benefits of lower priced housing. At the low end, homes are being bought in bulk for cash when rents can justify the purchase. At the higher end of the real estate market those equations simply don’t work out.
There are probably several reasons for prime and jumbo prime mortgages hitting a troubled patch. Unemployment has ravaged all income classes. The requirements of high mortgage payments make them a very difficult master, especially in the face of losing one’s job. As tight as the job market is, finding employment which can pay for a $1,500 monthly mortgage payment is much easier than replacing a job which was covering a $5,000 monthly payment. The thin air at the top of the income brackets provides just one obstacle for the high end market. Shrinking liquidity is playing a major factor as well. Just coming up with the 20% to 30% required for a down payment eliminates buyers who might otherwise have sold a residence to come up with the initial payment. Allowable income multiples have also been reduced by about half, meaning that buyers can spend about half of what they were spending on a home during the boom.
Added to that is the fact that many prime and jumbo prime borrowers had significant amounts of equity which was tapped using seconds and home equity lines of credit. With property values down anywhere from 25% to 50% across the country, these subordinated loans have to equity to secure them and are considered unsecured debt by bankruptcy courts. If bankers weren’t sleeping well before, the fact that second liens can dismissed in bankruptcy court as unsecured debt could prove to be a waking nightmare.
The holders of prime mortgages have probably joined the exodus of people who believe that their homes will never be worth as much as the banks loans that financed their purchases. That causes a certain amount of financial hopelessness which is likely to give a perverse incentive for more people to simple hand in their keys and walk away. That desperation is evidenced by the percentage of homeowners that fall behind in their mortgage but then remedy the situation, catch up on their payments, and then resume paying consistently. Historically the percentage of those that can “self cure” after going delinquent has run at about 45%. The cure rate for prime mortgages since 2006 is now down to less than seven percent, a testament to just how difficult the job market is and how unattached borrowers have become to their homes, especially when those homes are under water.
The one answer keeping borrowers in their homes is loan modification. When payments are reduced back to a level which is compatible with the homeowners’ current financial condition, they tend to stay in their homes. Adding in a reduction in the amount of principle owed magnifies the chances for a successful modification. Many of the reports which have come out recently covering the inability of loan modifications to make a material difference in the foreclosure crisis have not represented loan modifications, and the dynamics surrounding them, in the context of what is going on currently. A report released by the Boston Fed quoted assumptions on homeowners being able to self cure after becoming delinquent at 33%. Their conclusion was that banks wouldn’t modify loans where the borrower will ultimately get current without changes in the terms of the current mortgage. Another assumption in that report and others was that the re-default rate was too high to warrant modifying loans but over ninety percent of the modifications in the study did not lower payments.
Loan modifications, particularly when attorney driven toward lower payments and principle reductions when possible, are working in today’s environment. With lenders’ REO departments full and foreclosure auctions doing little to move inventory, they’re more willing to grant the concessions necessary for successful loan modifications.
Loan Modification Help Center
Anyone that watches CNBC knows that Jim Cramer isn’t afraid to express an opinion or make a market call. One of his recent prognostications was that the housing market bottomed on June 30th and that recovery, or at least stability, will reign from that date forward. While the forecast may have provided some relief for homeowners, commentary from industry watchers suggests that his market bottom call should have been made for June 30th 2010 or, quite possibly, 2011. Here are some of the reasons Cramer is likely to be wrong
1) Home prices – Prices on homes are still over priced by at least 15%. While way off their highs, prices still have a ways to go before they get to fair value. Part of the problem is momentum. Prices are falling and, without something to put the brakes on, will keep falling. At this moment, the only thing that has changed for the market is that the driving force behind foreclosures and liquidity is the change from the devastation being led by subprimes to the devastation being led by unemployment.
2) Unemployment – Unemployment is feeding foreclosures and vice versa. With the unemployment rate headed toward 10%, foreclosures are now being seen in the mortgage categories that include borrowers with (formerly) solid credit scores. Default rates on prime mortgages are now running at a higher clip than subprimes with jumbo prime mortgages seen as the next category to take the plunge. Even employed workers are seeing their wages decrease as indicated by the shrinkage in average work hours per week.
3) Foreclosures – With foreclosure filings approaching 1.5 million for the first half of the year, current estimates are for a total of 3.5 million for the full year. The Center for Responsible Lending is calling for a total of 12 million foreclosures by the end of 2012. These are not the kind of stats that portend an increase in prices.
4) Unoccupied Homes, the Foreclosure Backlog, and Shadow Inventory – Recent studies revealed that there are approximately 2.1 million unoccupied homes in the U.S. The foreclosure backlog, even with the restraint shown recently by lenders continues to grow. Additionally, there are hundreds of thousands of houses owned by speculators that are being kept off of the market in hopes that prices show some recovery. These are all homes waiting to come to market if prices tick up, which would mute any kind of sustained recovery.
5) Regression to the mean – Bubble markets almost always come back to their historical mean price average and often overshoot it to the downside. There is no indication that real estate will be any different or that there are any factors that can stop price declines at the mean average.
6) Once burned… – Foreclosed homeowners will be reluctant to purchase real estate again after the trauma they’ve just gone through. The same goes for the next generation of potential home buyers that no longer see home ownership as the fulfillment of the American dream. Many are calling for this echo baby boom generation to resurrect home prices based on its sheer size but there is little desire there to make the required sacrifices to purchase something that, in their adult life experience has caused so much pain.
7) Liquidity – Even for those with the desire to buy a home, the means to do it are not there. The reaction (some will call it over reaction) to the permissiveness of the real estate bubble has been the tightening of lending standards across the board. Yet to play out fully at the top end of the real estate market, banks are only allowing real estate purchases at three to four times household income versus the bubble standard of seven to eight times income. That means that a couple earning $200,000 per year will only qualify for a home in the range of $700,000 to $800,000 as opposed to the bubble standard of a $1.5 million home. Without incredible wage growth, the demand for high end housing could wither. Generally speaking, unless a buyer has an impeccable credit record, a 20% down payment, and a minimal debt to income ratio a mortgage approval isn’t going to happen.
 Aversion to credit – Stung by over leveraging, consumers will act much like they did after depression; increasing their savings rates, moderating consumption, and avoiding heavy loads of debt. In that environment spending will slow dramatically, muting economic recovery for years.
In summation, the supply of housing and the demand for it will head in opposite directions until prices drop enough to become affordable for the millions of people currently suffering through the biggest economic contraction since the depression. In that light it’s impossible to believe Jim Cramer’s forecast that those conditions were reached less than three weeks ago.
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