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500,000 Trial Loan Modifications – Oct 2009 Report

admin — Fri, 09 Oct 2009 22:11:32 +0000

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500,000 trial loan modifications completed under the Making Home Affordable program

As of Sept. 1, the report says, only 1,711 homeowners have completed the three month trial period and been approved

In mid May, Treasury announced that more than 55,000 homeowners had begun trial modifications

Overall, servicers had started trial modifications for only about 487,000 homeowners, about 16 percent of those eligible

1 in 8 homeowners in default or foreclosure

10-12 million more foreclosures expected in near future

HAMP was designed around the housing crisis 6 months ago, and doesn’t take into account conditions that impact foreclosures today – unemployment

via propublica.org

Every month, the Treasury Department gives an update on its $50 billion mortgage modification program. We’ve posted the latest breakdown of how the largest servicers are doing.

Treasury used the occasion of the report’s release yesterday to trumpet a “milestone”: More than 500,000 homeowners have begun a trial modification under the program. This was a goal set by the administration itself back in July, and, as we observed at the time, there was little doubt they’d meet it.

But it’s an accomplishment rife with caveats, as a report released this morning by the bailout’s Congressional Oversight Panel makes clear. The plan’s success will ultimately depend on how many of these modifications actually prevent foreclosures, the report stresses, and the number of trial modifications doesn’t answer that question.

Under the program, homeowners approved for a modification undergo a three-month trial. If they succeed in making their adjusted payments throughout, then the modification becomes permanent. If they don’t, then they’re back to square one. As of Sept. 1, the report says, only 1,711 homeowners had run that gantlet.

It’s unclear why the number is so low. In mid May, Treasury announced that more than 55,000 homeowners had begun trial modifications. The report stresses that the number is “preliminary” and says the low number may in part be because mortgage servicers are slow in assembling the final documentation or getting the data to Treasury. But another possibility may be that borrowers are re-defaulting in large numbers. The panel is “hopeful” that’s not the case, the report says, but adds that if the number of permanent modifications doesn’t rise fast, the program “will come nowhere close to keeping up with foreclosures.”

Of course, the program’s first six months has been chiefly marked by homeowners’ frustration in even getting to the trial stage. Treasury’s results show that servicers’ performance hasn’t accelerated over the past three months: each month, servicers have begun about 125,000 trial modifications.

As you can see from our breakdown by servicer, Bank of America, the biggest participant in the program, continues to lag behind others in its pace. As of Sept. 30, it had started trial modifications for about 11 percent of customers eligible for the program. Overall, servicers had started trial modifications for only about 487,000 homeowners, about 16 percent of those eligible.

Last month, NPR broadcast a report from Bank of America’s home retention department. During the visit, a reporter looking over the shoulder of a company employee thought she had incorrectly rejected a customer from the Making Home Affordable program. The employee stuck to her position, but when NPR inquired with her supervisors, they realized that the reporter was correct and offered the homeowner a modification.

The company said it would have caught the mistake eventually. Another homeowner who had been repeatedly denied a modification on the phone was also offered one after NPR questioned the company about the basis for that denial.

Last month, we wrote about Ian and Megan Bearce of Glendale, Calif., who had been asking Bank of America for a loan modification for months They finally got one on Sept. 8, but Megan says they began making progress only after ProPublica got involved and Bank of America plucked them out of the obscurity of the home retention department.

“From the sounds of it, several people have been told of our case, and we’re a priority,” she said on Sept. 1. She said it was “quite a difference” from the long hold times, missing faxes, delayed deadlines and unreturned phone calls they had endured before.

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On Oct. 9, 2009, the Treasury Department released data showing how the largest mortgage servicers participating in the administration’s $75 billion foreclosure prevention program have been performing. You can see that breakdown below.

To give an indication of each servicer’s performance as a percentage of its loans eligible for modification, the Treasury listed the number of eligible loans that are more than 60 days delinquent. While that number is useful to compare servicers, it underestimates the total number of loans that are eligible for the program. Treasury only released data for servicers with over 1,000 eligible loans.

The “incentive cap” listed is the amount of money allotted to each participating servicer based on its estimate of how many loans are eligible for the program, but some of that money will also go to lenders and borrowers.

click on images to enlarge

CLICK HERE TO DOWNLOAD PDF DOCUMENTS

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Peter Schiff Blasts Chris Dodd and His Plan to Create Super Regulatory Agency

admin — Thu, 24 Sep 2009 18:12:52 +0000

It hasn’t taken long for Peter Schiff, who recently announced he’s running against Chris Dodd and others for his Connecticut Senate seat, to attack Dodd over his recent proposal to create a super regulatory agency by combining four existing regulatory agencies into one.

The four agencies Dodd would want to make into one include the Federal Reserve, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the Comptroller of the Currency.

Dodd’s point of view is that the reason there was a economic crisis last year was in a large part because banks were allowed to choose which of the above four agencies they wanted to regulate them. He also asserts these agencies weakened regulations so the banks would choose them as their regulator of choice.

Schiff responded to the proposal of Dodd in a press release, saying this:

“Existing regulators had all the powers they needed, and more, and they failed miserably to foresee and prevent this crisis. Chris Dodd is now asking us to put all our eggs in one basket and trust a ’super regulatory agency.’ He should know better than to centralize power in the hands of Washington bureaucrats – it’s precisely the arrangement that caused our current problems. I think most Connecticut voters know that we need fewer czars in Washington, not more. As long as Fannie and Freddie and Congress are meddling with the economy, changing the structure of the regulators is basically rearranging deck chairs on the Titanic.

“Dodd’s proposal takes regulatory authority away from one unaccountable institution and gives it to another even bigger one. This will not solve our problems.”

Dodd wants to see his plan become law by the end of 2009, but it’s highly unlikely it will, if it’s even brought to a vote.

As far as other problems Dodd faces in the election is his financial credibility, as he asserted almost up to the time the housing market fell apart that it was foundationally healthy and strong, while Schiff rightly predicted the economic and housing crisis we’re still going through.

No matter, Schiff is right in what he says concerning the creation of an agency that would be more powerful than even the Federal Reserve is at this time; it would recreate and exacerbate the problems, not deal with them.

It doesn’t make sense to respond to the need of reining in the Federal Reserve by merging it with other agencies under a much larger power umbrella, and think that’s going to take care of the situation. This is extraordinary shortsightedness by Dodd, who is only looking at it from the point of view of regulatory agencies fighting to see who gets to regulate who, while abandoning or compromising their regulatory responsibilities.

He mentions nothing of the Federal Reserve, other than simply reducing their power while creating an even larger regulatory power. We need less of that and not more, and Schiff is right in opposing this for that reason alone. The Federal Reserve at its current level of power is completely out of control, picture what a super regulatory agency would be like and do if actually created.

It is very interesting to see some truly interesting and knowledgeable political candidates like Rand Paul and Peter Schiff not only enter politics, but have some really good ideas, economic understanding and ideas to effect some real changes the American economy and markets need. It’ll be a hoot to see them covered from their insights and comments while their detractors helplessly and haplessly attempt to undermine them. How about three Dr. No’s in the House and Senate? Sounds good to me.

Source: American Banking News

Peter Schiff formally announced that he is running for the U.S. Senate in Connecticut:

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2008 Financial Crisis Explained For Kids

admin — Sun, 13 Sep 2009 22:16:49 +0000

At some point we are going to have a conversation about the 2008 Financial Crisis with our kids.

The embedded video may help set the scene for why our government continues to throw hundreds of billions of dollars at a multi-trillion dollar problem which was caused by over-leveraged investment models, deregulation of banking and insurance practices and non-existent mortgage borrowing guidelines.

Quick Outline:

The Financial Services Modernization Act of 1999 repealed certain aspects of a 100 year-old law which was established to prevent another Great Depression.

By enabling the co-mingling of Depository Banking and Investment Banking institutions, an overwhelming amount of free money became available to financial institutions who were able to package up mortgages (Collateralized Debt Obligations), insure for AAA investment grade ratings (Credit Default Swaps), and sell to institutional investors (Pension Fund Managers, Municipalities, Low-Risk Mutual Funds).

This entire 10 year investment / mortgage backed securities cycle was leveraged on one very important factor – property values increasing.

As long as property values continued to increase, banks thought that homeowners would keep making mortgage payments.

If people did not make their mortgage payments, then banks were able to foreclose, sell the home, and make a profit.

However, the bubble popped, equity disappeared and banks were sitting on worthless collateral.

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Credit Default Swaps Explained

admin — Mon, 13 Jul 2009 22:28:04 +0000

Called the Financial Weapons of Mass Destruction by Warren Buffett, a Credit Default Swap is simply an over the counter credit derivative (bet) between two parties about the financial solvency or outcome of something else.

Even though politicians and the media try and blame the housing bubble on speculative home investors and sub-prime borrowers, the United States Government’s approval of legalized gambling on Wall Street is in fact the cause of a much larger $60 trillion financial crisis.

Companies who issued Credit Default Swaps are very similar to the homeowners with good credit who purchased properties that they could never really afford, with zero money down, and without having to prove income or assets.

Everything from major companies, financial markets, to mortgage backed securities were “Insured” or bet against. For example, investors could purchase a derivative on whether or not sub-prime mortgage borrowers would default on their mortgages.

While a CDS sounds like an actual insurance product, it technically was called a “Swap” so that the banking and investment firms selling them wouldn’t fall under insurance or SEC regulations.

Actually, a little bill called the Commodity Futures Modernization Act of 2000 on the heals of the Financial Services Modernization Act of 1999 reversed a 67 year-old law that made it illegal for banks, investment firms, and insurance companies to participate in this form of gambling.

Unfortunately, CDS’s were too complex for many CEOs to understand, which is why AIG could rack up $440 Billion in debt before anyone knew what hit them.

Here are the key components and history of the Credit Default Swap:

Invented in 1997 by a few physics and math wizards at JP Morgan Chase
Sellers of CDS aren’t regulated
Transactions are conducted by two entities in an over the counter environment
Sellers are not required to have cash reserves to cover the losses they are insuring
Purchasers of CDS don’t have to own the securities being insured

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How Credit Default Swaps Destroyed US

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Geithner’s Plan for Regulation – Too Big To Fail

admin — Mon, 13 Jul 2009 22:13:53 +0000

Interview with Rep. Ed Royce (R) of California: We Need More “Smart” Regulation (Bloomberg News)

Too much of the wrong type of regulation may give an unfair advantage to the same financial institutions that contributed to this massive foreclosure crisis.

It would be nice if every homeowner in need of a loan modification were guaranteed their survival just as some of the banks on Wall Street have been granted “Too Big to Fail” status.

Foreclosure Victims Trashing Homes – The Bank Took My Credit, So I’m Taking the Kitchen Sink!

admin — Mon, 13 Jul 2009 21:57:54 +0000

Neighborhoods hit hardest by the foreclosure crisis are experiencing far greater damage to property values as a result of displaced homeowners and tenants taking their frustrations and anger out on properties as they leave.

“I tried to work with my bank when I had perfect credit, money, and a job that paid the bills. But, my lender made me ruin my credit by going 90 days late for a possible shot at negotiating a new payment when my ARM started to adjust, and then after I paid them a bunch of money, they told me I wouldn’t qualify for a loan workout. So, I took all of the upgrades that I personally put into my house and moved down the street to a larger home for half the payment. Why should I let that lender have a livable home when they ruined my life?”

This seems to be the standard from homeowners who were unsuccessful in negotiating a loan modification with their lenders.

We’re dealing with several cases where lenders drain a home owner’s reserves with unsuccessful forbearance or trial periods while they “consider” a potential modification. This generally leaves people with bad credit and no money left to move when they finally get offered a new payment that is still to high too help the situation.

It is even more tragic when a renter gets a surprise notice that their home is up for auction. At least the homeowner had time to prepare for the move.

While most people in this situation could make a justifiable case for trashing their home on the way out, it is causing a significant depreciation in home values and adding fuel to the fire. When there are vacant homes in a neighborhood for an extended period of time, everyone suffers.

Signing Over The Deed – Freddie Mac Video – Loan Modification Scams

admin — Mon, 13 Jul 2009 21:55:56 +0000

I’ve written a few articles about mortgage modification scams and foreclosure fraud on this blog, but I just found this video produced by Freddie Mac that specifically talks about the scam that involves signing over a deed.

Basically, don’t sign over your deed or deal with an “Investor” that wants to rent your house back to you while they work on your credit or loan modification.

Even though this is a common loan modification / foreclosure scam that has been well publicized in the media, our office is still hearing from people who have been forced out of a home that they thought they owned.

Mortgage Backed Securities Explained

admin — Mon, 13 Jul 2009 21:51:56 +0000

What are Mortgage Backed Securities, and why do I need to learn all of these complicated terms just to get a loan modification?

Before the foreclosure / credit crisis, homeowners never had to concern themselves with complicated mortgage fundamentals such as mortgage backed securities, credit default swaps, and Net Present Value.

With a booming economy, low unemployment, and an abundance of home equity, very few borrowers were faced with the nightmare of navigating the foreclosure process.

Unfortunately, the Making Home Affordable Loan Modification Program is just one of the many foreclosure terms that has become the topic of everyday conversations.

Among the most frequently asked loan modification questions that we hear on a daily basis, confusion about who actually owns the mortgage note is generally at the top of the list.

It seems that most lenders would be willing to negotiate with a distressed homeowner who had a reasonable hardship and properly packaged loan modification application.

However, understanding the basics of how mortgage money is created and traded on the secondary market will help explain some of the obstacles borrowers are facing when they call the number on their mortgage payment coupon in search of help.

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What is a Mortgage Backed Security (MBS)?

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According to Wikipedia –

A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property.

First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities. Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools.

Translated -

A Mortgage Backed Security is piece of a large pool of mortgages that an investor can purchase in the form of a bond.

Without getting too detailed about how these bonds are given their value or credit rating, the main purpose of pooling mortgages together and re-selling them in groups is primarily to keep the originating banks liquid so that they can continue lending mortgage money to borrowers.

Basically, a homeowner goes to their bank to get a mortgage. The bank will then combine a bunch of their mortgages together and sell them to an investment bank on Wall Street. From that point, the mortgages are sliced up and sold to different types of investors based on a historic model of expected return for that particular type of loan.

Obviously, this process is too complex to articulate in a few sentences, but the main point is that one borrower’s single home loan may pass through several hands before it ends up as a small piece of another person’s investment portfolio.

So, whom am I making my mortgage payment to?

In most cases, a third-party loan servicing company handles the collection of monthly payments and distribution of principal, interest, taxes, and insurance.

The servicer will purchase the mortgage servicing rights to essentially handle the basic bill collecting duties in exchange for a small fee.

With a sudden boom in foreclosures over the past few years, servicers simply weren’t prepared, properly staffed or experienced to handle the overwhelming loan modification or foreclosure prevention requests from homeowners.

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Videos – What is a Mortgage Backed Security (MBS)?

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Credit Crisis Explained

admin — Sat, 13 Jun 2009 22:30:07 +0000

What caused this credit and housing crisis? Is there really one person to blame, or did we all play a part?

The embedded video was produced by Jonathan Jarvis to help define the relationships between homeowners (Main Street), bankers and brokers (Wall Street), and institutional investors.

This video easily explains how Sub Prime Mortgages, Collateralized Debt Obligations, Frozen Credit and Credit Default Swaps created the perfect storm.

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Credits: The Crisis of Credit Visualized from Jonathan Jarvis

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It is certainly amazing how a couple of recent changes to a law passed in 1933 could have such a significant impact on the destruction of the world’s economy.

Regardless of what the media or politicians try to say, this credit crisis it is NOT the original fault of sub-prime borrowers. In fact, there are many strong debates that put government policy and corruption as the root cause for the current pain being felt by Americans and others around the world.

On one side, the Financial Services Modernization Act of 1999 created an opportunity for banks and affiliated insurance companies to participate in a form of legalized gambling where they could manipulate the credit rating of a risky investment product and sell it to institutional investors such as pension fund managers and municipalities.

The opposing team believes that a government mandate in the Community Reinvestment Act of 1977 by Carter and amendments in 1995 by Clinton encouraged banks to find creative ways of lending to borrowers who did not have sufficient credit, income, employment, down payments, or assets to obtain FHA or Conventional financing.

The fact that Fanie Mae made a commitment to purchase sub-prime mortgages helped fuel the fire as well.

Either way, leverage, lack of transparency, and limited regulation are all to blame for this crisis of credit.

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“Produce The Note” Stalls Foreclosures

admin — Sat, 13 Jun 2009 22:03:00 +0000

“Produce The Note” Stalls Foreclosures

A recent report on Good Morning America and CNN shows how homeowners are fighting back against mortgage companies that won’t work with borrowers by requesting the bank to produce the original note.