Relaxation Sought for Loan Mod Doc Guidelines

Mortgage servicers are urging the Treasury Department to relax some of the requirements of the Obama administration's loan-modification program, claiming the time-consuming process of gathering documents and collecting signatures has become a major impediment.

In meetings last week with Treasury officials, servicers requested that they be allowed to use just a borrower's last two pay stubs to verify their incomes, rather than having to get written confirmation from the Internal Revenue Service. The servicers also said they should not have to obtain signatures from borrowers who filed their tax returns electronically.

"Borrowers are quite confused," said Sanjiv Das, the chief executive of CitiMortgage, (whose parent company, Citigroup Inc., is 36%-owned by the government). "You have a lot of people who had lost a job or lost hours and are now faced with the prospect of not being able to pay their mortgages. They are not even sure what questions to ask with respect to the options they have on their mortgage."

In that context, "they are either forgetting to send in their tax-return documents or are sending them without signatures," Das said.

A Treasury spokeswoman, Meg Reilly, confirmed that servicers had made the request and said the department "is considering it."

Of course, servicers may be making excuses as they brace for the government's release today of company-by-company data on loan modification efforts under the Obama program.

Tom Booker, a senior vice president in the default information unit at First American Corp. in Santa Ana, Calif., agreed that the complexity of the government's program had created roadblocks.

"The obligation to take a tax return and interpret it and support that was an additional step," said Booker, a former Fannie Mae executive.

However, there is also the question of whether simplifying the document-gathering process amounts to a further relaxation of underwriting standards — the kind of thing that led to the crisis in the first place.

Since April, lenders have extended roughly 370,000 modification offers through the program. To qualify for a three-month trial, borrowers must send back a signed hardship affidavit, documents verifying their incomes and a first payment.

Jason Nadeau, the president of Home Retention Services Inc., a unit of Stewart Information Services Corp. of Houston, said 80% of the financial packages his company receives from borrowers are incomplete. Home Retention, which Freddie Mac hired last week to help servicers contact and gather documents from borrowers, receives 3,000 to 5,000 FedEx packages a day. "Verification of income and signing forms are two huge problems causing a bottleneck," Nadeau

said.

Many of the borrowers requesting loan mods received low documentation or "no doc" mortgages during the boom and now are hesitant to return information that would verify their income, he said.

The Obama loan mod plan goes a step further than previous programs by requiring verification of "other" forms of income such as child support payments, alimony and commissions. It even requires a signed letter from an employer specifying that any tips or commissions received by the borrowers will continue for the life of the loan mod, typically three to five years.

"It's an extraordinary amount of work," Nadeau said, referring to the back-and-forth necessary to collect documents for final approval from servicers.

source: American Banker

Taxing Times: Lien Taxes on Foreclosed Properties

The National Tax Lien Association in Pensacola, Fla., estimates that 28 states will auction off more than $20 billion of unpaid property tax bills this year to raise cash — which would be a fourfold increase since 2004.

For the first time ever, mortgage servicers and lenders are falling behind in fronting overdue tax payments, and now some investors are ending up with properties, said Howard Liggett, the group's executive director.

"There were so many mortgage failures and there's so much chaos, that some tax liens are falling through the cracks," he said. "There's still another massive round of foreclosures coming, and anytime you see foreclosures, you see more tax liens as well."

If the taxes on a property are not paid, the lender can lose the property to a tax bill, though it does not happen very often, he said.

Investors have been eagerly snapping up tax liens because interest charged can range from 12% to 18%, he said.

In Florida alone, the number of delinquent tax certificates offered for purchase by third-party investors spiked 30% last year and is expected to jump 20% this year, Liggett said.

There also is a huge demand from states to collect every dollar from delinquent property taxes.

"States are starved for cash, the cutbacks have been Draconian and the reliance on local property taxes hasn't subsided," Liggett said.

source: American Banker

Jump In Home Sales Signals Rebound

Purchases of new homes jumped more than forecast in July, adding to signs that the market is rebounding.

Sales rose 9.6%, the most since February 2005, to a 433,000 annual pace, the Commerce Department said Wednesday.


"We're seeing a clear pickup in housing activity," said Michael Moran, the chief economist at Daiwa Securities America Inc. in New York. "The correction phase is essentially over, and we expect continued improvement, though not a vigorous pickup."

Economists had forecast that new-home sales would rise to a 390,000 rate. Last month's pace was the highest in 10 months.

The median price of a new home fell 11%, to $210,100, from $237,300 in July 2008. Sales of new homes were down 13% from a year earlier.

Builders had 271,000 houses on the market last month, down 35% from July 2008. It would take 7.5 months to sell all the homes in inventory at the current sales pace, the shortest time since April 2007.

source: American Banker

Home Sales Hit 23 Month High!

Sales of existing U.S. homes jumped more than forecast in July, to the highest level in almost two years, signaling that the housing crisis which has crippled the world's largest economy is easing.

Purchases climbed 7.2%, to a 5.24 million annual rate, the most since August 2007, the National Association of Realtors said on Friday. The gain was the biggest since records began being kept in 1999.

Existing-home sales were forecast to rise to a 5 million annual rate, according to the median of 64 economists' estimates in a Bloomberg News survey.

Sales reached a 4.49 million annual pace in January, their lowest recorded level.

Purchases of existing homes grew 5% compared to a year earlier. The median price dropped 15% during the period, to $178,400.

The number of previously owned, unsold homes on the market jumped 7.3%, to 4.09 million in July, a "notable" increase, according to Lawrence Yun, the Realtors group's chief economist. At the current sales pace, it would take 9.4 months to sell those houses, the same as in June. A seven months' supply is usually consistent with stabilization in prices, Yun said last month.

source: American Banker

Obama's Homeowner Plan: 5 Things You Should Know

At the heart of the President Barack Obama's ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that's a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months. But supporters argue that mortgage modifications need to be properly engineered to work—and many early ones weren't. To that end, the Obama administration on Wednesday unveiled fresh details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are five things you need to know about Obama's loan modification program.

1. Payments, not prices: The plan centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. "Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans)," Buffett wrote. "Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay."

2. Thirty-one percent: To that end, the administration's plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower's gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower's monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that's not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest. The plan does not, however, require servicers to reduce mortgage principal, which Richard Green, the director of the Lusk Center for Real Estate at USC, considers a shortcoming. "For underwater loans, if you don't write down the balance to be less than the value of the house, people still have an incentive to default," Green says. "Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me."

3. Cash incentives: To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.

4. Financial hardship: The Obama administration is pitching its plan as an effort to help responsible homeowners ensnared in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower's credit report. In addition, the program is designed to target homeowners who are undergoing "serious hardships"—such as a loss of income—which have put them at risk of default. To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. "If we would have had such stringent verification over the last four or five years, we probably wouldn't be in as bad a position as we are in," says Richard Moody, the chief economist at Mission Residential. But while Moody has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. "It's going to be a very time-consuming process," he says. Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration's plan is out, lenders are free to begin modifying loans.

5. Net present value: To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn't. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan. Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this component of the plan "clever," arguing that it would work to ensure broad participation. "When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify," Glaser says. "The federal subsidy for the payment on the modification…tips the scale toward modification as a better deal for the investor."

source: US News

Return to Normal...No Time Soon

Despite some encouraging economic signs, a clear majority of bankers surveyed by the Federal Reserve Board do not expect underwriting standards for residential real estate, commercial mortgages or credit cards to normalize before 2011.

In the central bank's survey of 55 senior loan officers at domestic institutions, some said it could take even longer for standards to return to the levels that prevailed before the crisis hit. Four in 10 bankers told the Fed that underwriting standards for even investment-grade commercial mortgages would not normalize for "the foreseeable future." Another 20% said that such a recovery would not happen for at least two years.

Such pessimism was evident across loan categories. A little more than 41% of respondents could not predict when standards for prime borrowers seeking residential mortgages would return to normal, and 32% said the same for credit card borrowers. More than 12% of officers said it would take until 2011 for residential mortgage standards to normalize; 25% said the same about credit card loans.

Despite talk of a recovery already underway on Wall Street, Monday's survey results crystallized warnings from Fed Chairman Ben Bernanke that a return to normal levels of growth will take several years to achieve.

source: American Banker

Troubled Homeowners and Borrowers Deserve More Time

Robert Strupp, a consumer advocate at Community Law Center in Baltimore, said he has no problem giving mortgage servicers more time to "ramp up" loan modification efforts — as long as they extend that courtesy to troubled homeowners.

"If you stop foreclosures while you ramp up, everybody wins," Strupp, the law center's director of research and policy, said last week at the American Association of Residential Mortgage Regulators' conference in Savannah, Ga. "Everybody should get the same amount of time."


He was responding to an industry lawyer who said servicers are still in the process of hiring and training staff to handle the onslaught of requests for loan modifications.

Another consumer advocate, Kerry Smith of Community Legal Services in Philadelphia, told the conference that borrowers seeking loan modifications are "frustrated by a completely broken system."

Though the Obama administration has contracts with servicers that administer 75% of all loans, she said, "We hear from consumers" that their pleas to have their loans modified "are being turned down without any further explanation."

source: American Banker