Mortgage Rate Forecast: Esko Kiuru

Home Affordable Modification Program, or more commonly HAMP, was rolled out to allow mortgage lenders and servicers to make available trial modifications to an estimated 3 to 4 million homeowners.When Treasury announced its birth it raised hopes among not only mortgage borrowers in trouble but also government officials who frantically tried to bring the collapsing housing market back to its feet and with that give the badly-mauled banking sector something more concrete to lean on. But things haven't turned out all that well with HAMP.

At least that's what SIGTARP says. SIGTARP is another wonderful acronym - among so many - that has risen to fame on the heels of the memorable finance and real estate crash and stands for Special Inspector General for Troubled Asset Relief Program. That's a long one. In short, he is - could be a she too - tasked to monitor the government's massive struggle to bring reasonable order to the shaky national banking system and the besieged housing realm.

SIGTARP refers to the 389,198 permanent mortgage modifications HAMP has thus far managed to generate, as was recently reported by Treasury.This of course is far less than what the original plan of at least doing 3 million of them called for. One thing is that HAMP is an ongoing process and perhaps when it's all said and done that plateau can be reached. But, frankly, it probably won't happen.

For one, due to high mortgage redefaultrates under HAMP underwriting guidelines have been tightened leading to scores of cancelled trial and permanent modifications.It is greatly lowering the potential candidate pool. Short sales are making serious inroads as a viable option for many struggling home loan recipients. Doing a HAMP requires a lot of paperwork and patience and many are willing to take their chances with short sales.

The underwater menace seems to come into play with HAMP, too.Its malicious impact is somehow going to touch all corners of the housing enterprise. When a homeowner is sufficiently underwater he can be essentially convinced that making those lower HAMP payments for years on end still won't pull him out of the negative equity hole anytime soon, so he clearly has little incentive to apply for HAMP. Lower payments are great, but where is the equity? After careful consideration many choose to just simply walk away from their mortgages.

Besides, mortgage lenders generally haven't been all that enthused, for one reason or another, about putting their arms around the program either.HAMP appears to have suffered from clearly-defined goals, as SIGTARP claims, but also from rapidly shifting real estate market conditions. With more assertive administration Treasury could have streamlined its direction and possibly been more efficient in the use of taxpayers' money.  

Real estate market observers have mixed feelings about RealtyTrac's Midyear 2010 Foreclosure Report. It says that 1,654,634 homeowners were sent at least one mortgage foreclosure filing from January through June. That translates to over 3,000,000 by the end of the year and RealtyTrac forecasts that over 1 million of them will eventually become repossessions, or REOs - real estate owned. The number by itself is of course alarming, but the current six month number actually is a drop of 5% from the second half of last year. Ordinarily in any housing enterprise that would be something to feel upbeat about.

On closer look the home loan picture isn't all sweet grapes and chocolate treats after all. Mortgage lenders and servicers have lately changed course to give a short sale a chance to work before filing foreclosure notices. The government has aggressively promoted its mortgage loan modification programs that have had a preventive impact despite the private sector's reluctance to get fully engaged. Yet, these initiatives have been a disappointment when measured by their originally announced goals. Moreover, mortgage lenders often are disorganized and undermanned to handle the torrent of foreclosures and their workforces seem to lack the necessary training to be effective, therefore foreclosure action can be delayed for months.

These factors have shifted the emphasis away from mortgage foreclosure statistics and are obviously responsible for the 5% decrease. In the meantime distressed properties continue to saturate unabated the landscape from Las Vegas to the shores of Florida. A great many are underwater and are hard-pressed to find any meaningful relief in the near future. The job situation is slowly improving at least in some regions but still isn't strong enough to decisively begin lifting struggling homeowners to their feet.

Nevada maintains the dubious top spot on the list of most foreclosure filings with almost 6% of all households receiving one at the midyear mark. In pure numbers that is 64,429 homes, a bunch really. Arizona came in second with 3.36%, followed by Florida at 3.15%. California registered a score of 2.54%, rounding out the four states that have been dominating this difficult statistic from the beginning of this historic real estate collapse.

The underwater problem will likely be a drag on the housing market for longer than anyone can imagine. But, there appears to be one relatively fast cure for it should the decision makers in Washington - like the Fed and Treasury - have the backbone and political support to give it a try. It's called inflation. With a steady dose of that often-ridiculed medicine home prices ought to begin tip-toeing upward, preferably at a controlled pace. In time it would pull homeowners out of the abyss and give them real equity again that would make them feel better about a lot of things. In addition, banks and investors now smelling the offensive odor wafting from their mortgage portfolios would see a gradual change to that downright embarrassment. Just an idea.

Photo of the Fed by stantoncady

The real estate market meltdown has exposed many painful and game-changing weaknesses in how business was conducted in the years past. In the quest to make as much money as possible scores of mortgage files were pushed through with incomplete or doctored information. Now, with foreclosures the topic of the day, mortgage lenders are receiving growing demands from investors like Fannie Mae and Freddie Mac to buy back loans they originated haphazardly. That can be devastating to the bottom line.

To deal with the costly buyback menace many mortgage shops have commenced tinkering with appraisals, of all things. As an appraisal comes in some home loan providers will run an electronic valuation model based on public records - it involves no actual physical inspection - to see how close the two numbers are. They are double checking on the appraiser's work, is what they are doing. If the appraiser's report is higher the underwriter can randomly cut back on the value, so that the lender can't be blamed for using inflated figures should the loan go bad. Of course, many a deal has blown up into many little pieces as a result. This likely happens more in the hard-hit areas - Las Vegas comes to mind, as does Arizona, California and Florida - where values have eroded the most and where all the mortgage foreclosures and short sales can seriously trample with the price structure.

Mortgage brokers, real estate agents and builders are howling injustice at such a practice. Home buyers and sellers whose transactions disintegrate don't know whether to cry or laugh. Part of the housing market has indeed turned into an unpredictable mystery.

But things are about to change for the better. Fannie Mae is tackling the electrifying issue head on. The GSE will not accept mortgages where the appraisal numbers have been altered, the policy going into effect September 1, 2010. It requires home loan providers to get in touch with appraisers to work out any disputes over values. If plan B is needed, a second appraisal should be ordered.

The housing industry is raving about Fannie Mae's decision. Despite having withstood some genuinely tough times during this real estate chaos the GSE can still manufacture sensible policies. It can only strengthen its position as a key element in the mortgage marketplace. It wouldn't be a big surprise if Freddie Mac followed suit in the near future.

As the housing sector kept sucking for more oxygen, Washington announced back in February the Hardest Hit Fund worth $1.5 billion that was designed to help states in serious housing peril and asked them at the time, as a condition to get a slice of the money, to submit creative programs that would lend a hand to homeowners struggling with mortgage payments. The plans from Arizona, California, Florida, Michigan and Nevada have now been okayed by the Treasury and the assigned funds are ready to begin flowing to the states' Housing Finance Agencies, or HFA, tasked to administer their use.

California drew the largest share at $699.6 million, Florida got $418 million, Michigan $154.5 million, Arizona $125.1 million and Nevada $102.8 million. Apparently the split was based largely on population size, which certainly is one way to do it.

A fairer method might have been to look at the current mortgage foreclosure rate in each state, in which case Nevada - with Las Vegas as its much-pummeled real estate meltdown epicenter - would have picked up a bigger portion of the proceeds. Negative equity measure, or being underwater, would be another metric that could have been used here. Again, Nevada would have ranked right up there for more funds than what it now received.

Each state presented its own innovative program for mortgage borrower relief, but a few predictable items appear on everyone's list. The most prevalent one is principal reduction, something that all address in a variety of ways. It clearly is the key in any plan, government or private, to stabilize housing markets from Florida to Nevada and beyond. The Obama Administration is putting increasing emphasis on it, but its actions need more support from mortgage lenders who so far have been reluctant to do much about it.

Unemployed homeowners get help to meet their mortgage obligations while looking for work is another popular feature. As is the assistance to handle the complexities of a second mortgage that may be hindering loan modification or any other real estate transaction, like a short sale.

Hardest Hit Fund will have a second phase later this year, covering the next tier of states lured into the now infamous mortgage and real estate backwater. It will bring some relief to a still festering housing situation, but for a real impact to be achieved the private sector needs to step up to the plate with a hot bat.

Subprime home loans became a noteworthy ingredient in the recent real estate frenzy. Large pools of them were sold on the secondary mortgage market as RMBS, or residential mortgage-backed securities, to supply additional liquidity for more loans. When the air suddenly escaped from the tremendous housing bubble the first mortgage product to absorb its swift and devastating effects was the subprime kind, leaving scores of investors wondering what had whacked them.

Moody's Investors Service details that subprime RMBS issued from 2005 to 2008 reached a delinquency level of 54.4% in January of 2010, an all-time high. From there on, though, the rate has been steadily falling, settling at 51.5% in April, a moderate improvement. But it had been climbing continuously for years since the real estate market's collapse, so a change downward, even if slow, is desirable news. In short, subprime mortgage borrowers are bringing their loans current at an increasing rate. Everybody likes to see that.

According to Moody's research HAMP, or Home Affordable Modification Program, has been a major contributor to this. HAMP has received sometimes loud criticism for its lack of bite, but Moody's numbers appear to show otherwise. In January 117,302 trial modifications were converted into active permanent ones and then in April the same happened to 299,092 of them. That's real progress.

Re-defaults are still a problem, however. Moody's estimates that 50-70% of permanent mortgage loan modifications will do so, thanks to the underwater, or negative equity, dynamic affecting so many states. Worst-mauled areas like Las Vegas and Phoenix are extremely ripe here. The emphasis now from the government is to get home loan lenders and servicers to lower principal for borrowers, a task that has been tough in the past and probably will stay so.

It seems that HAMP needed quite a bit of time to get in gear and now it's cruising along under full power and is showing some encouraging results.

Washington has already come up with some unusual and at times confusing legislation during this enduring housing collapse to correct perceived deficiencies. HVCC – the Home Valuation Code of Conduct – addressing the alleged appraisal problems of the recent past is one. The new RESPA – Real Estate Settlement and Procedures Act – is another that has led to many complaints and questions from the mortgage and real estate industries and puzzles the consumer as well. More of the same could be forthcoming.

House Republicans presented a surprise rider at the end of an FHA-related debate the other day that would prohibit mortgage borrowers who engineer a strategic default while still able to make payments from getting any future government-sponsored loans. Basically meaning FHA, VA, Fannie Mae and Freddie Mac. This proposal passed on a voice vote without any dissent probably because everybody was in a hurry to exit town for the weekend.

What is bothersome about this idea is that it would single out mortgage recipients for supposedly being morally wrong and for that they shouldn’t be allowed to enjoy any government benefits. Businesses, including mortgage lenders, constantly pull off strategic defaults when it’s in their best economic interest and no one waves a red flag saying it’s misguided. Some of the biggest mortgage banks just got bailed out, for starters. They also find tax breaks and other government support very useful. To be fair about this, companies then should face the same restrictions upon strategic default as homeowners do.

Wall Street’s greasy fingerprints appear to be all over this strategic mortgage default provision. They are seemingly becoming more common as the real estate meltdown lingers on and the home loan banking interests want to send a warning signal to homeowners who are toying with the idea. Really bad things will happen should they do it.

But the whole thing reeks of a double standard. What’s good for a company should go for an underwater homeowner as well. Fortunately the idea is just taking its first baby steps and once people read the details and find out what it really means it may not go very far. Enforcement alone would be a chore. Besides, it also needs to pass the Senate.

Homeowners in distress have encountered a myriad of challenges when trying to save their properties from foreclosure. Many have successfully navigated around all the different shoals and rocks strewn along the way. Others, far too many actually, have not. Mortgage lenders and servicers often lack the staff to handle the volume the housing meltdown has thrown at them, industry training of staff is suspect, their systems are in many cases inadequate and it’s also evident that their commitment has been at best lukewarm. The frustration level among struggling mortgage borrowers is understandably high.

California just introduced a fresh mortgage foreclosure protection bill addressing some glaring shortcomings in the state’s current rule book. One provision gives homeowners recourse if they were foreclosed on due to a home loan servicer’s error. They could collect limited damages based on the seriousness of the mistake and in some situations even repeal the foreclosure sale altogether.

The other noteworthy provision prevents mortgage lenders from beginning a foreclose process until the borrower has received a decision on a loan modification application and been properly notified of it.

Las Vegas valley – including communities of Henderson, Canyon Gate, Summerlin, Mountains Edge, Anthem and Silverstone Ranch – homeowners in distress have endured their share of erroneous mortgage foreclosure activity over the last several years. Nevada has taken some steps to strengthen consumer protections in the home loan arena, but more is needed. Here are two good ideas that would add a dose of much needed integrity to the system, giving the mortgage recipient a more level playing field.

The housing and mortgage collapse has been around for a while and somehow it looks as if state governments are rather slow in reacting to consumer complaints that probably have been coming in a steady stream from the very beginning. Nevada, California, Arizona and Florida have the highest foreclosure rates and likely have the most questionable ones as well. These states should be in the forefront of making sure that if a foreclosure is inevitable it’s done fairly and correctly.  

When the housing market began recently unraveling at warp speed and quickly lugged the overextended mortgage industry along with it things looked quite bleak for the U.S. economy. Housing, after all, is one of its major components and should it be hit with a serious medical condition, taking a simple pain killer wouldn't help much. Then if ever, when the fury of the real estate sector's downturn became better understood, drastic action was called for.

The Federal Reserve bravely stepped forward intent on showing how it's done. Right on the heels of the private investor vanishing from the secondary mortgage market the Fed knew that to avoid an utter disaster with global consequences it had to quickly fill the vacuum. It began buying MBS, or mortgage-backed securities, insuring that home loan interest rates wouldn't shoot through the roof. That was essential to keep the housing market on its wobbly feet, giving it something concrete to rely on. There was some early howling against this vast government interference but it soon abated as stark reality set in. Without the Fed's decisive action Stone Age would have been right around the corner.

Congressional Budget Office, or CBO, reports that the Fed's asset collection now exceeds $2 trillion, of which MBS make up well over half. Other holdings include Treasury securities and bank loans. It earns interest on all that paper, as it should. CBO projects that the Fed will haul in about $70 billion in profit this year on its portfolio, money that it'll eventually remit to the Treasury. The central bank assumed far more risk than it usually does by purchasing MBS, but it seems to be paying off. Who says the public sector can't make money?

The government has bailed out scores of mortgage lenders and financial institutions during this notorious housing meltdown, partly with the idea that they would then help distressed homeowners ward off potential foreclosure. To a large extent, the results are disappointing. Their playbook instead often included such selfish tactics like paying absurd bonuses and completing acquisitions, tricky moves that stimulated much of the angry population into voluntary Wall Street watchdogs with a mission.

What if the Obama Administration came up with a new initiative using the $70 billion Fed profit to make a real and lasting difference in the mortgage foreclosure predicament? The current programs addressing it, the HAMPs, RAMPs and STAMPs and such, have principally proved inefficient. Now is the time to try a fresh angle to try to sort this housing and mortgage mess out and here is a nice down payment for it.

Photo by wwarby

The two large GSEs, or government sponsored enterprises, that provide much of the liquidity to the secondary mortgage market are trying to improve their still misbehaving portfolios. Their underwriting guidelines have been steadily getting stricter which will certainly help, but most of the benefits of that will come later. The home loans currently causing such havoc for them were originated around the peak of the real estate bubble and soon after it spectacularly blew up into small particles. Their efforts are now largely focused on putting the breaks on the losses they are presently enduring.

Mortgage lenders requested to repurchase GSE's delinquent paper

When Fannie Mae and Freddie Mac audit distressed mortgage loans in their books and to their utter disbelief discover that their eligibility and underwriting guidelines have not been adhered to they can request the lenders to buy them back. Or they can ask to be compensated for the incurred losses. Fannie Mae's repurchases amounted to $1.8 billion in the first quarter, while at the same time in 2009 the same action brought in $1.1 billion. Freddie Mac, on the other hand, is to rake in $1.3 billion from distressed mortgage loans it sent back in the first quarter, whereas last year in Q1 it took home $789 million. For both the repurchase pace is obviously accelerating, indicating how feeble the housing market remains.

As mortgage lenders and servicers have to take back loans it saps their financial resources, choking in various degrees their channels of originating new ones. It can be especially harmful to mid-size and small banks whose revenue streams are limited, or heavily dependent on the home loan segment. Large lenders can better absorb Fannie Mae's and Freddie Mac's buy-back requests due to their diversification and sheer size. And should they still manage to stumble, as they obviously can with surprising flair, there is always Uncle Sam only a cell phone call away. Basically, that's why the recently-passed Wall Street reform bill was so sorely needed.

The entire mortgage lending platform is still operating under a big caution flag. The two GSEs are desperate to collect on these repurchases to give them some hope of a better future. These requests, however, suck badly needed energy from home loan providers who some time ago sent them carelessly underwritten paper. According to Freddie Mac, at the end of March around 34% of its unsettled buy-back demands were more than 90 days past due. Many mortgage providers simply lack the capacity to honor their contractual obligations. The weak is trying to get the other weak to pay up, making plain how fluid the situation still is.

When a consumer fills out a mortgage application to purchase a home, or do a refinance, it means that obtaining his credit report will follow. It's part of the process and readily accepted. Something else may also happen, though, that can cause bewilderment in the home loan applicant, maybe even anger of various decibels.

This action actually permits credit bureaus - Equifax, Experian, Innovis and TransUnion - to peddle the mortgage borrower's information to third party vendors, among which can be other home loan providers. The phone at the consumer's pad can start ringing with unwanted solicitations that probably were not penciled in on his calendar. If so, the mortgage broker who took the original application likely will receive heated questions about it, giving his otherwise ordinary day a new twist. Sometimes a brief, to-the-point explanation will suffice, sometimes the matter will spiral in a new, unwanted direction from which recovery can take time.

The applicant can avoid this with a couple of quick moves, often advised so by his practical mortgage lending professional. Registering in the Do Not Call list will do it. https://www.donotcall.gov/. To get even more protection against this questionable practice he could also enter his name in the Opt Out Prescreen register that will prevent for five years, or even permanently, the credit bureaus from selling his data further on. https://www.optoutprescreen.com/.

Who said that staying one step ahead of these practices can't be done?