With the foreclosure rate averaging approximately 7,200 properties per day and steadily rising, another week has passed and lenders in general are still sitting on their hands waiting on direction to implement the Obama housing plan.
Bank Efforts to Deal with Loan Crisis: A Study In Incompetence
Some lenders have experimented with online data forms to input homeowner financials for modification and here are the results of that test: several of the files submitted by our underwriters and by homeowners resulted in lenders never receiving the financial package. Beside the time delay to find out the package was never received, the entire package had to be submitted again by fax, which further delayed the process.
This experience is still unfortunately the daily reality of mortgage modifications with most lenders. With no clear direction from Washington, lenders are still doing modifications under a system that is severely backlogged, inefficient and bursting at the seams.
At Surefire Loan Modifications, our experience has been that lenders are still taking up to 60 days just to assign a negotiator, once a full modification package has been received.
The general consensus is that Freddie and Fannie loans will potentially be the beneficiaries of the government plan (this covers approximently 58% of all home loans). This leaves out the other 42%. And of those in foreclosur the government refinance plan won't help.
Upside Down On Your Mortgage? No Help For You Under Obama Plan
The Obama plan won't help those who are upside down more than 105% of their property value. In other words, if your home is worth $100,000 and you owe $106,000 you don't qualify.
The Geithner "toxic asset" plan still has no clear indication of what will actually be bought (paper, loans, REO's) by the public/private "partnership".
And there is no clear indication of what will be done with whatever they buy. Will they be modified, principal balances reduced, foreclosed and sold in wholesale lots (like the Resolution Trust Corporation of the early 90's) ?
One thing is for sure. With the government (i.e. taxpayers) providing 94% of funding and private investors the other 6%, there will huge upside and little downside for the private sector. The prediction is that lenders and investors will collude to cover their risk, so we'll be watching this one very closely.
HUD is considering a proposal for 30% principal balance reduction on FHA loans that are grossly upside down. The proposal is designed to provide incentive for owners to stay put and stabilize neighborhoods.
FHA would pay a partial claim to the lender for the loss. In return, the borrower will probably be on the hook for the forgiveness. If Hope 4 Homeowners is any indication (hint: it was abysmal failure) this proposal probably won't go anywhere.
Wells Fargo indicated in Feb that it would start including principal balance reductions to stabilize mortgages but the reality is that only around 5% of loans are in this group.
Principal Balance Reducations: The Key Indicator
Principal balance reductions are one of the best indicators to watch with lenders because homeowners are getting wiser every day. They're asking "..why should I stay in my home worth $300,000 when I owe $450,000 ? It could take years to just get even again after the years it takes for the market to recover...."
That's a smart question, and in the wake of more financial scandals, government corruption scandals (follow money trail to Chris Dodd) and lost jobs, homeowners are collectively asking that question more frequently.
Two final events that we will watch that may give an indication of where lenders are going with regard to modifications.
The sale of IndyMac to One West is the first sale of a government owned entity sold to a private investor. Watch them closely because it could give an indication of how other private investors approach the current market reality and how they deal with capital issues, toxic assets, foreclosure and modification policies.
The second lender to watch is Countrywide. Just yesterday they approved a principal balance reduction on a file at our underwriters from $425k to approximently $220k.
Keep an eye on these two lenders as movement from the private sector is the best indicator of how the coming chapters in the housing crisis will unfold.
Only time will tell how effective the Obama plan is in helping homeowners keep their homes. In the interim a house goes into foreclosure every 12 seconds.
