AOL Real Estate - Blog http://realestate.aol.com/blog AOL Real Estate - Blog http://realestate.aol.com/blog/media/feedlogo.gif AOL Real Estate - Blog http://realestate.aol.com/blog en-us Copyright 2013 Weblogs, Inc. The contents of this feed are available for non-commercial use only. Blogsmith http://www.blogsmith.com/The Rise and Fall of Fannie Mae: A Timelinehttp://realestate.aol.com/blog/2010/12/24/the-rise-and-fall-of-fannie-mae-a-timeline/http://realestate.aol.com/blog/2010/12/24/the-rise-and-fall-of-fannie-mae-a-timeline/http://realestate.aol.com/blog/2010/12/24/the-rise-and-fall-of-fannie-mae-a-timeline/#commentsFannie Mae and Freddie Mac were in the news a lot this year. For starters, there was the presidential summit in August, to solicit ideas for what to do with the ailing government-sponsored enterprises (GSEs for short). That was followed by midterm-election wrangling over whether to replace the struggling mortgage giants with another form of federal insurance or kill them off all together, effectively getting the feds out of the business of guaranteeing mortgages.

Fannie and Freddie's fate could be sealed as early as January 2011, when the White House is due to present a comprehensive reform proposal to Congress. In honor of the occasion, we thought we'd take a look back at the history of these once-august institutions.
Fannie Mae and Freddie Mac: A History


1938: Fannie Mae founded as part of post-Depression New Deal
Back before the government got into the mortgage business, borrowers couldn't count on banks having money to lend where and when the funds were needed. President Franklin Delano Roosevelt created Fannie Mae to pool together a national fund for mortgage lending, making home ownership an affordable dream for cash-strapped Americans.

1968: Fannie goes private to relieve burden on Feds, gains status as a government-sponsored enterprise
As the Vietnam war piled debt onto the federal budget, President Lyndon B. Johnson looked for places to cut - and decided to sell off Fannie Mae to private investors. The new company, while private, was still federally regulated and benefited from discounted interest rates.

1968: Ginnie Mae takes over Fannie's government loans
The federal government kept a hand in mortgage financing through Ginnie Mae, founded to finance mortgages insured by the Federal Housing Administration and housed at the new U.S. Department of Housing and Urban Development. FHA soon becomes embroiled in fraud schemes that scar urban neighborhoods with foreclosures.


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1970: Freddie Mac formed to break Fannie's monopoly on the secondary mortgage market
A decade before the deregulation (and eventual implosion) of savings & loan institutions, Freddie Mac emerged as a third "government-sponsored enterprise" exclusively to finance mortgages for S&Ls.

1970: Fannie Mae listed on NYSE
With the nation's leading financer of home mortgages now in investors' hands, executives had to seek rapid growth and big returns.

1974: Wall Street banks win permission to trade in Ginnie Mae bonds
With regulators' permission, private bankers start trading in Americans' mortgages--and realize they're sitting on a gold mine.

1981: Fannie starts buying ARMs and selling mortgage-backed securities
By 1988, Fannie, Freddie and Ginnie had built a $140 billion business--so big that Wall Street busted its way in.

1988: Fannie Mae joins the S&P 500
Deregulation and new tax laws aimed to encourage the creation of more mortgage-backed securities give Fannie and Freddie an unprecedented boost.

1989: Freddie Mac goes public

1992: Congress requires Fannie and Freddie to set "affordable housing goals"
The S&L bailout includes a new rule: Fannie and Freddie must aim a certain amount of business to borrowers with modest incomes.

1994: Fannie opens "Partnership" offices nationwide
Its reach and political power now extend into cities all over the country.

1996: Fannie marks 10 consecutive years of earnings
The company sees record-setting growth, accelerating under CEO James A. Johnson's "trillion-dollar commitment" to bring homeownership to more Americans.

1998: Freddie Mac enters the subprime market
In a quest for market growth, Freddie reclassifies certain subprime loans to qualify them to be purchased by the agency.

2000: Wall Street gets HUD to limit Fannie and Freddie's business
Under pressure from banking lobbyists, HUD turns up the heat on Fannie Mae and Freddie Mac, requiring them to make more than half of their loans to lower-income households. That same year, Wall Street wins a green light to trade secretly in complex credit securities and gets ready to pump trillions into the mortgage business.

2003: Black Swan author Nicholas Nassim Taleb says FNMA "seems to be sitting on a barrel of dynamite"

2004: Bush administration regulators begin investigation of Fannie Mae's finances
Fannie is forced to restate $9 billion in earnings. CEO Franklin Raines resigns.

2005: Flush with funds from investors, Wall Street builds a subprime securities machine
In just two years, private bankers devour Fannie and Freddie's market share with subprime loans that look more affordable to many borrowers. Fannie and Freddie loosen their standards to compete.

2007: Subprime mortgage crisis begins
Wall Street lenders, overleveraged on extremely risky and often fraudulent subprime loans, begin to suffer drastic losses. Fannie and Freddie lose big too, on their substantial holdings of Wall Street mortgage-backed securities.

2008: Fannie and Freddie seized by Treasury
After shares of Fannie and Freddie tumble, federal regulators take them into conservatorship. Following collapse of Lehman Brothers, federal bailout relies on Fannie, Freddie and Ginnie as only viable remaining markets for mortgages.

August 17, 2010: The Obama administration holds conference on the future of the housing finance system. The big question: How to reform Fannie and Freddie without completely destabilizing an already shaky housing market?

November 12, 2010: Joseph A. Smith nominated director of the Federal Housing Finance Agency
If approved, he'll become the man in charge of directing the process that will seal Fannie and Freddie's fate. As for his own fate, at press time it was uncertain, with Republicans pressing to delay his confirmation. Stay tuned.

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]]>aol originalAolOriginalfannie maeFannieMaefate+of+fannie+maefateoffanniemaefreddie macFreddieMacGinnie MaeGinnieMaeGSEshousing financehousing finance reformHousingFinanceHousingFinanceReformmortgagessubprime mortgagesSubprimeMortgagesAlyssa Katz2010-12-24T09:00:00 00:00Mortgage Refinancing: Why Borrowers Aren't Playing HARPhttp://realestate.aol.com/blog/2010/08/24/why-borrowers-arent-playing-harp/http://realestate.aol.com/blog/2010/08/24/why-borrowers-arent-playing-harp/http://realestate.aol.com/blog/2010/08/24/why-borrowers-arent-playing-harp/#commentsIt's not every day that a successful investor takes the national stage to suggest that he should lose billions of dollars for the greater good. But that's what Bill Gross of the bond giant PIMCO did last week at the Treasury and HUD conference on the future of the housing finance system.

Gross unleashed a bold proposal to turn Fannie and Freddie back into one big government agency, which is what they had been until the 1970s. In the meantime, Gross added, they should "quickly re-engineer a refinancing opportunity for all mortgagees that are current on payments" and are part of Fannie or Freddie investment pools.

Gross described this plan as a stimulus program that wouldn't add to the deficit. It would clearly help consumers, by lowering their monthly payments or even reducing principal. Investors in Fannie and Freddie securities, though - including PIMCO and its clients - could stand to take a big financial hit. As Gross told the Huffington Post's Shahien Nasiripour, "I'm here as a public advocate, not as a private [investor]."
Wait a second. Déjà vu here. Isn't the Home Affordable Refinance Program, or HARP, already offering affordable refinancing for Fannie and Freddie mortgages? Well, yes and no. Yes, HARP helps borrowers refinance at low interest rates, even if they owe more than their homes are worth. But a look at the numbers shows that HARP has reached only a handful of those who need help the most.

In the first six months of this year, Freddie Mac refinanced more than 198,000 mortgages under HARP, and Fannie Mae another 100,000. Not bad on the face of it. But now let's dig into who exactly is getting these refis. Few are going to borrowers who would otherwise not be able to refinance. At Freddie Mac, only about 5,700 of the refis, or 1 percent, went to borrowers who owed 105 percent or more of what their homes were worth -- even though, officially, HARP allows refinancing up to 125 percent of a home's value. Another 82,000 owed at least 80 percent. Many of them would likely have been able to refinance anyway, but HARP lets these borrowers reduce the amount of mortgage insurance that they have to buy in order to close the deal.

Fannie doesn't give a breakdown of who is getting its HARP help. But a new report from Amherst Securities Group suggests that Fannie's numbers are no better than Freddie's. Looking at Fannie and Freddie borrowers who took out mortgages between 2006 and 2008 under the very best-case scenario (the borrower has a stellar credit rating and stands to shave more than 1 percent off the interest rate), and who still owed at least 80 percent of their home's value -- only 30 percent went for a HARP refi. It's all downhill from there. Fewer than 15 percent of borrowers with credit scores under 700 refinanced. And only 5 percent of those deep underwater, owing more than 120 percent of the home's value, got a refinance.

Why is HARP strumming so dismally? Amherst offers a long list of reasons, but the most glaring problem is that the help doesn't come for free. Borrowers with low credit scores or high debt loads have to pay an up-front fee, usually between 1 and 2 percent of the loan, because they're considered bigger risks. Right there, that takes away much of the financial benefit of refinancing. And that's on top of roughly $5,200 in other closing costs. Borrowers can pay that up front, or pay it in the form of a higher rate -- but they'll have to pay it. And clearly, very few are.

No wonder borrowers, and investors like Gross, are hungry for a refinance program that delivers a bigger bang. Last month, the internet buzzed with talk of an "August surprise," after a Reuters columnist suggested that Fannie Mae and Freddie Mac were preparing to roll out a massive program to cut the principal owed by millions of mortgage borrowers who owe more than their homes are worth. Alas, that was just a rumor. The one glimmer on the horizon is the new Federal Housing Administration short sale refinance, in which a borrower whose lender is willing to let go of 10 percent of the principal owed can qualify for a new FHA loan. But haven't we learned by now that lenders and investors -- Bill Gross excepted -- are not going to volunteer to lose money?


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]]>Bill GrossFannie MaeFreddie MachampHARPhome affordable refinance programhome financehome financinghouse paymentshousing finance systemPIMCOrefinanceAlyssa Katz2010-08-24T16:31:00 00:00LIVE: Mortgage Markets Face 'Fundamental Change,' Geithner Sayshttp://realestate.aol.com/blog/2010/08/17/live-mortgage-markets-to-face-fundamental-change-says-geithn/http://realestate.aol.com/blog/2010/08/17/live-mortgage-markets-to-face-fundamental-change-says-geithn/http://realestate.aol.com/blog/2010/08/17/live-mortgage-markets-to-face-fundamental-change-says-geithn/#commentsFiled under: ,

The big takeaway from today's "Future of Housing Finance" conference at the U.S. Department of Treasury was that everybody agreed to agree - more or less. It was a given that Fannie Mae and Freddie Mac will be put into retirement, eventually.

As Treasury Secretary Timothy Geithner said in his introductory remarks, "This administration will side with those who want fundamental change."
And all dozen panelists clearly bought into Geithner and HUD Secretary Shaun Donovan's not-so-secret agenda: making mortgage credit widely available and supporting affordable housing, including rentals. Of course, this was no coincidence.

The dozen panelists were handpicked by Treasury and HUD, and the ultimate purpose of this summit was to get a broad spectrum of opinion-makers on record in support of the Obama administration's reform plans. Geithner and Donovan will need a big crowd of united supporters behind them when they take this show to Congress in the next session, and what until now has been a mostly technical policy discussion turns into full-blown circus.

But still, it isn't every day that you have agreement on anything from a group that includes executives from Wells Fargo and Bank of America; the head of the National Urban League; bond guru Bill Gross of PIMCO; economist Mark Zandi; mortgage-backed securities pioneer Lewis Ranieri; and a stellar cast of housing experts from academia, think tanks and foundations. What they all said in their own very distinctive ways was that there is no way that low-interest, long-term mortgages are going to be available to a large number of Americans without the federal government making sure, in some way, that it happens.

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Much of the discussion centered on the exact nature and deployment of credit guarantees, and I'll spare you the nerdy details. But a few panelists dropped bombshells worthy of broader attention:


Mortgage rates could jump by 3 to 4 percent in a solely private market

Bill Gross of PIMCO, one of the country's biggest bond investors, says his firm is staying far away from private mortgage-backed securities because of enduring uncertainty about their performance, and will only consider investing in mortgages where borrowers make 30 percent down payments. He estimated that if privately backed mortgages were the only game in town, mortgages would cost three to four points more than they do now. Gross advocated for a complete government takeover of the mortgage markets by a single agency. Said Gross: "To suggest that there's a large place for private financing in the future of American housing finance is unrealistic."



Renters must be reckoned with

Lots of panelists spoke of the need to better support renters and affordable rentals - though not about the big question, which is how to shift resources from owners to renters without undercutting the support that homeowners have come to expect. Still, it was good to hear economist Mark Zandi, who ususally clocks in about the latest foreclosure numbers, saying things like "we have to provide access to affordable housing, particularly for lower-income households... they will not have access to housing, which is not a luxury but a necessity, without government help." Ellen Seidman from ShoreBank, who early in her career worked on policy at Fannie Mae, shared some alarming statistics reminding us how poorly renters are now served by the billions government now puts into the housing market: One in four renters spends more than half of income on shelter, yet only a fraction of those eligible for housing aid currently receives it.

Second mortgages remain a time bomb

When Secretary Donovan asked Lewis Ranieri if it was OK to call him "the father of the mortgage-backed security," Ranieri cracked back: "Do I have a choice?" Ranieri zeroed in on one of the big issues left untouched by the recent Dodd-Frank financial reform legislation: second mortgages, including home equity loans. Second mortgages can take a safe and sound mortgage and, by piling more debt on a home and household, turn it into a ticking time bomb. "If we don't resolve the second-mortgage problem, we don't deal with the risk issue," Ranieri warned. "This whole [mortgage market system] is based on home as shelter, not home as a credit account."


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]]>Fannie MaeFreddie Macgovernment-sponsored enterprisesGSEhome financehome financinghousing financemortgage marketmortgage marketsTimothy GeithnerAlyssa Katz2010-08-17T15:17:00 00:00Why the Feds Want to Stay in the Mortgage Gamehttp://realestate.aol.com/blog/2010/08/16/why-the-feds-want-to-stay-in-the-mortgage-game/http://realestate.aol.com/blog/2010/08/16/why-the-feds-want-to-stay-in-the-mortgage-game/http://realestate.aol.com/blog/2010/08/16/why-the-feds-want-to-stay-in-the-mortgage-game/#commentsFiled under: ,

Shuan Donovan will moderate the Future of Housing Finance ConferenceThe future is here, and not a moment too soon. Tomorrow, Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan, pictured left, will host a conference on the future of housing finance. Before you click away or fall asleep -- pay attention. What's at stake is nothing less than whether or not you -- or the buyer to whom you'll sell your house to one day -- will be able to get an affordable, long-term mortgage, no matter what the state of the economy.

Fannie Mae has been guaranteeing this since 1938, Freddie Mac since 1970. Their original mission was to level out the ups and downs of mortgage lending by creating giant pools of money for home loans that banks could dip into whenever they needed it, whether those banks were flush with deposits or had hit a dry spell.

Of course, the Fannie and Freddie story has had a much-less-tidy ending, as deregulation led private competitors to undercut them with subprime lending - and Fannie and Freddie made a fatally bad decision: "If you can't beat 'em, join 'em." They're now both under government conservatorship.

Some critics, like former Federal Reserve Bank of St. Louis chief William Poole, have suggested that the United States doesn't need institutions like Fannie and Freddie anymore, because the private sector has now figured out how to turn mortgages into securities and sell those to investors.

We all know how well that worked out last time around.
But let's say that the Dodd-Frank financial reform bill will rein in the worst abuses of borrowers and investors, and will keep the mortgage banking of the future from imploding. Let's also assume that a healthy level of market discipline will prod investors in mortgage securities to make rational choices about their risks. Even then, what we're looking at with a purely private mortgage market would likely be big cycles of feast or famine for consumers seeking mortgages. Sometimes, too few funds would be available to borrowers, or on terms that were so conservative - big down payments, short duration of loans - that they'd put big financial burdens on borrowers. Then at other times, at the other extreme, plenty of funds might be available but mostly for the wrong kinds of loans - the very riskiest.

Think about how investors do business. Sometimes they panic, and keep all their money on the sidelines - like they've been doing in the last couple of years as the credit markets collapsed. But when the market surges back, as it must do eventually, investors are going to want to chase the highest returns - and you can bet that the highest returns will come on the mortgage products that are the least consumer-friendly. Mortgage products that borrowers now take for granted as an affordable way to buy a home - like the 30-year, fixed-rate home loan - could become a thing of the past.

If widespread homeownership is going to be part of the American landscape, some force needs to be out there making sure that it is, while minimizing the risk to taxpayers that they'll get stuck holding a big bill. That's the agenda that Geithner and HUD Secretary Donovan have already put out there, testifying to Congress this spring. Now the secretaries are putting on their own show to air different points of view on that idea.


Tomorrow's conference features a top-flight crew of housing and finance experts, and not just from academia - among them will be Lewis Ranieri, who at Salomon Brothers not only, essentially, invented the private mortgage-backed security, but who lobbied Congress and the White House to make it legal for Wall Street to trade in mortgages with next-to-no government oversight. While Ranieri defends his invention as vital to a healthy mortgage market, even he acknowledged in comments recently submitted to Treasury that "federal government support of housing is essential."

What the Obama administration is really trying to do tomorrow is come out strong in support of a sustained government role, and have the debate become about how, exactly, to best make that role effective - not about whether or not the feds should be in the mortgage business at all. Because once it gets to Congress, the fight over what to do with Fannie and Freddie is going to get ugly. And if the administration isn't careful, the drama could make health-care reform, "death panels" and all, look like an easy win.

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]]>Fannie MaeFreddie Machome financehousing financeLewis Ranierimortgage-backed securitiesmortgagesObama Administrationobama administration housingShaun DonovanTimothy GeithnerAlyssa Katz2010-08-16T15:36:00 00:00New York Creates Borrowers' Bill of Rightshttp://realestate.aol.com/blog/2010/08/13/ny-creates-borrowers-bill-of-rights/http://realestate.aol.com/blog/2010/08/13/ny-creates-borrowers-bill-of-rights/http://realestate.aol.com/blog/2010/08/13/ny-creates-borrowers-bill-of-rights/#commentsJust how much trouble are mortgage borrowers having with their loan servicers? These are the companies that send the monthly bills, foreclose when the payments don't come, and too often make it really hard for many borrowers to get loan modifications when they can't afford to keep up.

According to New York State Banking Superintendent Richard H. Neiman, borrowers are having a lot of trouble -- so much, indeed, that this week he issued a borrowers' bill of rights to make sure that servicers are dealing fairly and responsibly with customers. Neiman serves on the Elizabeth Warren-chaired Congressional Oversight Panel on TARP, where he heard an earful from homeowner advocates about consumers' problems with their servicers, especially about long delays in processing loan modifications while the foreclosure clock is ticking.

So what else will consumers be protected against?
There are many, many more ways that servicers can and do make borrowers miserable even when they're not seeking a modification, from arbitrary fees to misplaced checks (which then lead to more fees, when consumers get billed for late payments). Sometimes servicers neglect to forward property taxes they're responsible for. Servicers get paid through a teeny percent of the interest on your mortgage. When they want more money, that's where the fees come in.

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Neiman appears to be the first state regulator to actually do something to make sure servicers, well, serve borrowers as well as themselves and the mortgage investors they funnel money to. He used his power under state banking laws to introduce some pretty strong and legally binding rules. For one thing, servicers operating in New York State now have a "duty of fair dealing," meaning that they have to have enough staff to answer the phones, produce a loan statement promptly on demand, and wherever possible try to be helpful to the customers they're dealing with. (I know, it's absurd that this stuff has to be put into regulations.) Fees borrowers might incur have to be clearly disclosed, including on the servicers' websites.

Then there are Neiman's new rules for loan modifications. In New York, servicers now must talk to all borrowers who are 60 days or more late on their payments, and who request help, about their loan modification options, then negotiate a modification with that borrower in good faith. And get this: "Loan modifications should be structured to result in payments that are affordable and sustainable for the borrower." Most permanent modifications so far have been done outside of the federal Home Affordable Modification (HAMP) program, and more and more often these are just delaying debt payments - which increases overall debt over time - without lowering interest rates. Now, if a servicer tries to stick a borrower with a raw-deal modification, lawyers will have leverage to force a better deal.

As for what this means for homeowners who don't live in New York: more than you might think. Now that servicers have to start posting standardized fees on their websites and hiring enough phone help, those resources will help borrowers across the country. And Neiman hopes other states - and federal regulators - will be inspired to draw strict lines with servicers. He issued a brief statement along with the new rules: "We would like for the regulation of mortgage servicers in New York State to serve, not only as a model for other states, but also as a model for national minimum standards that can be enforced across the country."



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]]>Congressional Oversight PanelHAMPloan modificationsRichard NeimanservicersAlyssa Katz2010-08-13T10:30:00 00:00Foreclosure Aid: States Fall Short on Short Saleshttp://realestate.aol.com/blog/2010/08/06/new-state-foreclosure-aid-falls-short-on-short-sales/http://realestate.aol.com/blog/2010/08/06/new-state-foreclosure-aid-falls-short-on-short-sales/http://realestate.aol.com/blog/2010/08/06/new-state-foreclosure-aid-falls-short-on-short-sales/#commentsFiled under: ,

HAMP will not be effective until short sales are addressedA couple of weeks ago, I wrote about the $1.5 billion in new Home Affordable Modification Program funds exclusively for states with the biggest home price drops: California, Florida, Nevada, and Arizona (Michigan somehow made it in, too). Now the Treasury Department has announced Part 2 of that project - another $600 million for states with super-high unemployment: Rhode Island, North and South Carolina, Ohio and Oregon. Unfortunately, it misses its mark.

Let's be clear: The cash aid to the unemployed will bring badly needed relief to a lot of families. (As the Huffington Post reports this week, most are not seeing great results from HAMP.) But until short sales and deeds-in-lieu go from the last option to the first, the system will continue to be rigged in lenders' favor.
Treasury projects that about 50,000 homeowners will receive aid. But remember, it also projected that HAMP would give permanent help to 4 million mortgage borrowers; just 10 percent of that number have received permanent modifications so far.

Washington encouraged states to come up with their own solutions, tailored to their unique local circumstances, and to use the additional funds to help out in situations in which the standard federal programs don't provide enough help. Unfortunately those circumstances appear to include getting results before next Election Day.

Take a look at the states' new programs: All of them focus in one way or another on providing temporary cash aid to unemployed homeowners to help them make their mortgage payments, or to help them qualify for a loan modification. The assumption is that these borrowers will eventually get jobs again and be able to stand on their own two feet.

In many cases, that's a big assumption. Long-term unemployment is reaching higher and higher levels, and what many workers actually need now is not to stay in their homes - it's to have the freedom to unshackle themselves from a house so they can move to where the jobs are. Homeowners with negative equity in their homes are 50 percent less likely to move than others, which isn't surprising but gives a sense of just how many people out there are under "house arrest," unable to sell or move.

Last year, about one in four Portland-area homeowners had negative equity in their homes, and one in three in Cleveland. The unemployment rate is currently 10.4 percent in both Ohio and Oregon. So say you're an unemployed homeowner who wants to move to a state with better job prospects. What are your options?

Depends on which state you live in. Ohio plans to pay lenders an average of $4,000 to encourage "short sales," in which the lender permits a sale for less than the debt owned on the property. "Homeowners who must relocate to gain meaningful employment" are eligible. On top of that, borrowers can get up to $3,000 in relocation assistance under the federal Home Affordable Foreclosure Alternatives program.

But in Oregon, it's a totally different story. There, homeowners will first have to sign up for a cash-aid program, and only after that money is exhausted, after six months, can they sign up for short sale aid. Even then, this "transitional assistance" is supposed to go to just 3,000 families, and guess what? They'll get $3,000 to move to new housing - exactly what HAFA already pays for.

The other states offer much the same menu: Financial aid to ease short sales, or deeds-in-lieu of foreclosure, is either not part of the program or a very small piece of it, usually after other options have been exhausted. Ohio's aims to help fewer than 3,000 families.

Now there are very good reasons for this - for the states, not the homeowners. If they were to hand out checks to help large numbers of homeowners ditch their property and move out of state, it could look very bad for governors, most of whom are running for reelection this year.


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]]>HAMPloan modificationsNorth CarolinaOhioOregonRhode Islandshort salesSouth CarolinaAlyssa Katz2010-08-06T11:17:00 00:00HAMP Program Success Rate Much Lower Than First Reportedhttp://realestate.aol.com/blog/2010/08/03/hamp-program-success-rate-much-lower-than-first-reported/http://realestate.aol.com/blog/2010/08/03/hamp-program-success-rate-much-lower-than-first-reported/http://realestate.aol.com/blog/2010/08/03/hamp-program-success-rate-much-lower-than-first-reported/#commentsFiled under: ,

If you've been following the ups and downs - mostly downs - of the federal Home Affordable Modification Program, you know that the HAMP has been one big bottleneck, with just a fraction of homeowners who apply succeeding in getting permanent modifications to their mortgages.

Then two weeks ago the federal Department of Treasury trumpeted some great news about those lucky few who did make it through the process: as of June a tiny number of them, fewer than 6 percent, were ending up seriously behind on their mortgage payments after six months, with payments 60 days late or more.

Mission accomplished? Not quite.
As Shahien Nasiripour reported in the Huffington Post last week, the numbers immediately caught the attention of experts who wondered why HAMP had a single-digit failure rate when studies had shown that 40 percent or more of all modifications ended up failing within six months.

What could possibly account for the difference? Well, it turns out that the tiny failure rate was just what it looked like -- too good to be true. Fannie Mae, which supplied the data, wasn't counting borrowers who were more than 90 days late and therefore had to be cut from the program for noncompliance. In other words, the worst failures simply didn't get counted at all.

Treasury has since revised its June HAMP report to delete the erroneous figure, promising an independent review and, eventually, accurate data. Analysts at Barclays Capital, who first called attention to the dubious numbers, project that ultimately the HAMP default rate will be somewhere between 60 percent and 65 percent

Luckily, we don't have to wait to get a more accurate snapshot of how well HAMP participants - and other borrowers who've worked out loan modifications with their lenders -- are actually doing. A recent report from federal banking regulators offers scads of data, and while it doesn't name a source, these numbers look more realistic than Treasury's. It finds that in the last three months of 2009, 7.7 percent of HAMP loans were more than 60 days late on payments after just three months, and 16.7 percent were at least 30 days late.

The report also confirms what should be common sense: Loans whose modifications reduce monthly payments have the lowest rate of failure, and the more those payments are reduced, the lower that failure rate is. Many loan modifications done before HAMP, which launched in Spring 2009, or done for borrowers who didn't qualify for HAMP, actually increased payments. Overall among the million-plus modifications in 2008 and 2009, more than half of borrowers whose payments increased were more than 60 days behind after six months, compared with fewer than one in four who saw their payments reduced by 20 percent or more.

But six months may be too little time to tell, judging from the regulators' report. At the one-year mark, 58 percent of loans modified in 2008 and 55 percent of those in early 2009 had failed.

Will HAMP shrink those dismal numbers for the 400,000 borrowers who've received permanent modifications so far? Unless the job market comes roaring back, it's doubtful.

Meantime, we desperately need the accurate numbers and to come to grips with reality. The illusion that HAMP is helping most troubled borrowers while preventing big losses among banks and investors in mortgage-backed securities is part of what's stopping Treasury from taking the kind of aggressive action it needs to - namely, reducing principal owed. (The other is fear that if some borrowers get principal reductions and others don't, mass revolt will ensue - and that's not unfounded.) If it turns out that HAMP failure rates are as high as analysts project, then banks will have less to lose and more to gain by just cutting straight to principal reduction, and avoiding unnecessary (and expensive, for the banks) foreclosures.

What are we afraid of? Success, apparently.


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]]>HAMPHome Affordable Modification ProgramHuffingtonPostloan modificationsmortgage modificationstreasury departmentAlyssa Katz2010-08-03T11:33:00 00:00Michigan Foreclosure Aid Program Overwhelmed by Callshttp://realestate.aol.com/blog/2010/07/19/michigan-foreclosure-aid-program-overwhelmed-by-calls/http://realestate.aol.com/blog/2010/07/19/michigan-foreclosure-aid-program-overwhelmed-by-calls/http://realestate.aol.com/blog/2010/07/19/michigan-foreclosure-aid-program-overwhelmed-by-calls/#commentsFiled under: ,

Last week, with the help of a special $1.5 billion Obama administration fund for the states most devastated by property price declines and foreclosures, the state of Michigan launched its own program for unemployed borrowers who are having trouble paying their mortgages.

Unlike the federal Home Affordable Mortgage Program, Michigan is hoping to offer the one thing proven to help borrowers avoid foreclosure: cash payments, combined with principal reductions. Unemployed borrowers can get up to $750 month cash to help make mortgage payments, and up to $15,000 in principal reductions on mortgage debt.

There's just one problem: According to the Detroit Free Press, the nation's biggest lenders are not yet on board.
Indeed, a look at Michigan's list of participating mortgage servicing companies does not include a single major player in the business. So while the state mortgage help hotline got so many calls that it crashed last Monday, the program's launch day, most callers aren't going to be able to get the help the new program promises. The Free Press reported that the big lenders have the new program "under review."

Meanwhile Arizona, Florida, Nevada and California are launching their own "hardest hit" funds to provide cash aid and/or principal reductions to borrowers in dire straits. California's program won't be up and running until fall, but it already has an advantage over Michigan's: According to the California Housing Finance Agency, borrowers will be able to qualify regardless of whom their lender or servicer is. The aid depends on their exact situation and needs. Unemployed homeowners will be able to get $1,500 a month, up to $9,000 total, to stay current on their payments. Those who are already behind on their payments can get financial aid of up to $15,000 to get current. The state is prepared to pay for principal-balance reductions of up to $50,000, matched by lenders, to get out from negative equity. And if no other options work, the state will pay $5,000 to a household for relocation expenses.

Nevada is moving ahead with a combination to aid unemployed borrowers: principal reduction, help paying off second mortgages, and cash incentives for lenders to do short sales. Florida plans to make up to nine months of mortgage payments for unemployed borrowers, as long as their lenders are willing to do the same. And the Save My Home AZ program offers a menu of principal reduction of up to $50,000 (matched by the lender), mortgage payment aid and wipe-outs of second mortgages (so they don't stand in the way of primary-mortgage modifications).

Will all that spending be worth it? Most of the programs ask lenders to pay their share by matching the federal funds, which is a good place to start. And one idea behind the Hardest Hit Fund was to free each state to innovate its own solutions to the foreclosure crisis, which can be copied elsewhere if they prove successful.

But with Michigan stumbling badly out of the gate, we'll have to wonder for now how many homeowners this federal fund is really going to help. And if home prices dip again, it will take a whole lot more cash to keep troubled homeowners above water -- billions in taxpayer money that ultimately aids lenders more than anyone. As the feds and states slash their budgets in hard times, such massive spending may be more than anyone is ready to swallow.


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]]>HAMPMichigan StateObamaAdministrationunemployed homeownersAlyssa Katz2010-07-19T16:30:00 00:00Energy Efficiency Loans Lose the Backing of Fannie Mae and Freddie Machttp://realestate.aol.com/blog/2010/07/09/energy-efficiency-loans-lose-the-backing-of-fannie-mae-and-fredd/http://realestate.aol.com/blog/2010/07/09/energy-efficiency-loans-lose-the-backing-of-fannie-mae-and-fredd/http://realestate.aol.com/blog/2010/07/09/energy-efficiency-loans-lose-the-backing-of-fannie-mae-and-fredd/#commentsFiled under: ,,

PACE loans are being opposed by Fannie Mae and Freddie MacHomeowners looking for a hand with energy efficiency just got dealt a big blow - and the fallout could affect everyone looking to take out a mortgage.

As the Wall Street Journal reports, the federal regulator that oversees Fannie Mae and Freddie Mac announced this week that it will not permit homeowners with mortgages owned by those agencies to participate in property-assessed clean energy (PACE) programs.

PACE, which has been approved by legislatures in 23 states, lets homeowners finance weatherization projects by getting loans from their local government. Those loans then get paid back over time via property tax bills, much like a sewer assessment. In order to raise money for the loans, local governments sell bonds to investors.

That's not acceptable to the feds, who object to having other creditors in front of Fannie Mae and Freddie Mac's investors, when it's time to get paid back.
In a statement issued on Tuesday, the Federal Housing Finance Agency (FHFA) declared that PACE loans "represent a significant risk to lenders," and ordered Fannie Mae and Freddie Mac to take special measures to protect themselves.

Specifically, in areas with active PACE programs, lenders who want to sell their mortgages to Fannie and Freddie must assume that all applicants will use PACE and therefore have additional debts to deal with. Borrowers are limited to smaller mortgages than they could otherwise get, compared to their income and the value of the home. Even then, Fannie and Freddie will still have to approve each PACE loan. The good news, if there is any here, is that the FHFA is now telling Fannie and Freddie that they have to accept any PACE loans that have been made so far.

The message is clear: Any city that dares to dive into PACE is going to penalize all of its borrowers and hurt its property values. San Francisco and Boulder have already suspended their existing programs, and many other cities have had to cancel plans that are now under development.U.S. Reps. Barney Frank and Henry Waxman sent a letter to the heads of the FHFA, and the departments of Energy and Treasury to demand that they find a solution.

Ironically, the Obama administration has been a big booster of PACE and has used stimulus funds to support it. What we have here, ultimately, is tragically bad timing. A gushing oil well and record-high temperatures scream that Americans need to move fast to fix up their homes for energy efficiency. But with every penny going into Fannie and Freddie under scrutiny, that's a responsibility they won't tackle -- just when the world needs them to.



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]]>energy efficientenergy efficient homesFannieMaeFreddieMacPACEAlyssa Katz2010-07-09T12:58:00 00:00Urban Real Estate Gets a Boost Over 'Burbs With New Obama Programhttp://realestate.aol.com/blog/2010/06/24/urban-real-estate-gets-a-boost-over-burbs-with-new-obama-progra/http://realestate.aol.com/blog/2010/06/24/urban-real-estate-gets-a-boost-over-burbs-with-new-obama-progra/http://realestate.aol.com/blog/2010/06/24/urban-real-estate-gets-a-boost-over-burbs-with-new-obama-progra/#commentsFiled under: ,,

Are you trying to decide between buying a cozy house in town or a big place in a new subdivision? Today the Obama administration went public with a program that will help make the first choice the much better bet to hold its value over the long term.

It's called the Partnership for Sustainable Communities, and the idea behind it is to encourage real estate investment near mass transit. The U.S. Department of Housing and Urban Development and Department of Transportation are teaming up for the first time to make it happen. Altogether, they'll be giving local governments around the country $175 million this year to make the necessary preparations.

That's not a lot of money, but it could be the beginning of a sea change in how the government influences the real estate market.
Since as far back as the 1930s, trillions in federal investment created the nation's suburbs, by building interstate highways and financing mortgages for homes in new subdivisions outside cities. It was all part of a deliberate plan.

Now, Washington is looking to throw that process into reverse, in order to stop suburban sprawl and the oil dependency, greenhouse gas emissions, obesity and other ills that have resulted from a total dependence on cars in much of the nation. Of course, officials are being careful about how they say that. Americans love their cars and the easy lifestyle they make possible, at least when the traffic isn't unbearable. The idea here is to give people more options outside of driving, and especially to create more housing in places where it's possible to walk or take a light rail train, too. (If you want all the wonky details, they're here in an article I wrote for The American Prospect magazine.)

As anyone who's looked for real estate in New York or San Francisco knows, finding an affordable and comfortable place to live in a place like that doesn't come cheap. But the hope here is that by increasing supply of real estate within walking distance of transit, shopping, schools and so on, an urban lifestyle won't be for just the very rich or very poor.

It will take years to see results from the new sprawl-busting program. But in a sense, the government is just going where the market is already moving. Let's start with foreclosure trends: As HousingWatch has reported, homeowners who have access to public transportation are much less likely to go into default on their mortgages than those whose only choice is to get in the car. Not only are their property values less likely to have plummeted, but they don't have the financial burden of keeping multiple vehicles insured, financed and full of gas. Another study found that property values in areas with high rankings on walkscore.com, which rates how easy it is to get to shopping and other services on foot, have declined much less than those in areas with low walk scores.

Choose the home of your dreams. But if it's in a new subdivision far from transit, do it for love. As a financial decision, it's going to be a gamble.

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]]>housing marketHUDobamaPartnership for Sustainable Communitiesproperty valuessprawlsuburbssustainabilitywalkscoreAlyssa Katz2010-06-24T17:02:00 00:00Federal Mortgage Mods: Fannie and Freddie Bail Out More Borrowershttp://realestate.aol.com/blog/2010/06/15/federal-mortgage-mods-fannie-and-freddie-bail-out-more-borrower/http://realestate.aol.com/blog/2010/06/15/federal-mortgage-mods-fannie-and-freddie-bail-out-more-borrower/http://realestate.aol.com/blog/2010/06/15/federal-mortgage-mods-fannie-and-freddie-bail-out-more-borrower/#commentsFiled under: ,

Are you one of the millions who didn't make the cut for the federal loan modification program, because you weren't in bad enough trouble? If your loan is held by Fannie Mae or Freddie Mac, you may be in luck.

Worried that home prices will continue to decline, Fannie and Freddie are offering a hand to borrowers looking to shrink their mortgage payments. American Banker reports that Fannie Mae and Freddie Mac have begun offering loan modifications to borrowers who tried but couldn't qualify for the Home Affordable Modification Program because their housing costs are less than 31 percent of their income.

Why would the Feds do that?
The official line from the government's overseer of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), is that it's "still in the enterprises' best interest to do a mod." Changing a loan might lead to losses of 10 percent, an official there said. A foreclosure would be more like 50 percent.

The math on that doesn't make much sense - unless FHFA actually thinks that most of those homeowners seeking breaks on their loans are at a real risk of foreclosure, even though their monthly housing costs are affordable by almost anyone's standard.

That should make all of us nervous. Fannie and Freddie appear to be reacting to the wave of walkaways: Homeowners who look at their mortgage bills and decide that they're paying too much for homes that have declined greatly in value. Economists call this "strategic default," and by some calculations they account for more than one in five foreclosures.

Research on strategic defaulters suggests homeowners who are likeliest to take the plunge are those in markets where prices have dropped dramatically. After all, assuming housing prices return to their historic rates of increase, it could take decades to get back to a net-positive situation. And meanwhile alternative real estate is available to rent or eventually buy at much lower cost. Many borrowers take a cold look at the numbers and decide to bail.

We know Fannie and Freddie are scared of walkaways. Last month, Freddie Mac Executive Vice President Don Bisenius scolded strategic defaulters on the company's website, noting that they not only hurt their own neighborhoods by lowering property values but also make it harder for everyone to get mortgages:
"Should strategic defaults become more common, mortgage guarantors and investors, including Freddie Mac, would need to factor this risk more prominently into their credit policies and prices. The likely impact on future homebuyers: The cost of a mortgage will go up and credit terms will be less flexible. Thus, the impact of strategic defaulters on still more families might be more expensive mortgages and loans that are more difficult to obtain."
Since Fannie and Freddie are just now starting to offer loan mods to borrowers who ought to be able to pay, they most likely expect housing prices to continue to decline in many markets, pushing more borrowers to strategically default.

The loan modifications that Fannie and Freddie now are offering to borrowers who didn't make the cut for HAMP won't help those getting aid escape negative-equity territory. The mods typically will offer reduced interest payments and deferred fees, not cuts in principal owed, so borrowers will owe piles of payments for years to come.

But what the loan mods will do is lower the size of the checks that borrowers have to write each month - and Fannie and Freddie seem to hope that this little bit of pain relief will be enough to make homeowners think twice about defaulting on mortgages.

 

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]]>fannie maefreddie machome affordable modification programhousing marketloan modificationmortgagesAlyssa Katz2010-06-15T11:00:00 00:00Mortgage Brokers and Borrowers: Congress Weighs Their Rightshttp://realestate.aol.com/blog/2010/05/28/congress-weighs-the-rights-of-real-estate-lenders-and-borrowers/http://realestate.aol.com/blog/2010/05/28/congress-weighs-the-rights-of-real-estate-lenders-and-borrowers/http://realestate.aol.com/blog/2010/05/28/congress-weighs-the-rights-of-real-estate-lenders-and-borrowers/#commentsFiled under: ,

Just because versions of financial reform have passed the House and Senate doesn't mean the mortgage lobbyists' job is over yet. The Senate bill put limits on how much money a mortgage broker or banker can make when they sell you a mortgage. Now mortgage industry associations are fighting to protect their right to profit without any restrictions.

Congress still has to work out the differences between the House and Senate bills before handing over to President Obama to sign. And while Wall Street is focusing its firepower to protect its lucrative business in derivatives - the explosive financial technology that brought down AIG -- the folks who make and sell mortgages have a different agenda.

Lenders would like to scratch an amendment to the financial regulation bill that tells mortgage retailers that they can't have their cake and eat it, too. The amendment would give lenders a choice of getting paid directly by the consumer through upfront fees, or by a higher interest rate for the customer -- getting what is essentially an advance from the lender against that extra future income from the loan.

They can't get both.
Oregon Sen. Jeff Merkley (D), pictured above, introduced the amendment, which passed the Senate on May 12 by a 63-36 vote. It strikes at the heart of how mortgage brokers and loan officers make a living by targeting the "yield spread premium," a form of compensation to mortgage brokers. Loan officers employed directly by lenders get similar compensation for pushing higher interest rates, called an "overage."

Yield spread premiums give mortgage brokers a powerful incentive to push borrowers into loans that are more expensive than they otherwise qualify for. Researchers analyzing subprime and other high-interest and high-risk loans made during the real estate bubble have found a lot of evidence that yield spread premiums led many borrowers to take out loans that would become difficult or impossible to pay, and pushed many who qualified for prime loans into taking out subprime mortgages instead.

The Merkley amendment keeps the one arguable benefit of yield spread premiums - they give consumers the ability to pay the broker's fees over time, instead of upfront - but makes it much more difficult for brokers to collect excessive payments from consumers. It also requires lenders to make sure borrowers have reasonable ability to pay back their loans.

Great and necessary steps, right? Not according to the Mortgage Bankers Association and National Association of Mortgage Brokers. The industry groups mobilized their members to fight the amendment and are still looking to get it pushed out of the bill. "I have serious concerns with the amendment and fear it will harm small business and consumers nationwide," reads the text of the sample letter for mortgage brokers to send to their senators. "I urge you to ask that the amendment be removed from the bill or fixed so that consumers will continue to have choices at the closing table."

Along the same lines, the Mortgage Bankers Association said in an analysis of the amendment: "MBA is extremely concerned that the YSP provisions will markedly lessen the range of mortgage financing options available to consumers." With a lot of chutzpah, the MBA also attacks the rule that says consumers must have the ability to pay their mortgage: "The new underwriting provisions will markedly tighten credit so that only the lowest risk borrowers will qualify, and they will increase the rate and costs to consumers of mortgage loans."

Given the strong majority vote in support of Merkley's amendment, it's unlikely to drop out of the final financial reform bill. But in Washington, you can never be too sure.

 

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]]>Jeff Merkleymortgage bankers associationmortgage brokersyield spread premiumAlyssa Katz2010-05-28T16:00:00 00:00FHA Mortgages: Get a Good Deal While You Canhttp://realestate.aol.com/blog/2010/05/26/fha-mortgages-get-a-good-deal-while-you-still-can/http://realestate.aol.com/blog/2010/05/26/fha-mortgages-get-a-good-deal-while-you-still-can/http://realestate.aol.com/blog/2010/05/26/fha-mortgages-get-a-good-deal-while-you-still-can/#commentsFiled under: ,

Next time you're inclined to complain about the bankers' bailout, remember that homebuyers are now on government life support as much as anyone.

This week, Federal Housing Administration chief David Stevens announced that his agency is now the largest source of home-purchase mortgages in the nation. According to the firm Potomac Partners, FHA insured $52.5 billion in purchase loans in the first three months of 2010. The government-controlled Fannie Mae and Freddie Mac purchased just $46 billion.

This is the first time in memory that FHA is the dominant player in the mortgage business, a role it hasn't really had since era of "Father Knows Best" in the 1950s.

What does FHA's new dominance mean for home buyers?

Stevens told a Mortgage Bankers Association conference that FHA's bigger role was bad news. "This is a market purely on life support, sustained by the federal government," Bloomberg News quoted him saying. "Having FHA do this much volume is a sign of a very sick system."

By contrast, as recently as 2006 FHA handled less than 4 percent of the homebuying market, and in the 15 years before the crisis it never got above about 14 percent.

Fannie Mae and Freddie Mac, along with subprime lenders, siphoned off almost the entire business of FHA by selling loans that were easier to get and usually had (at least initially) lower interest rates.

But the bad news for FHA is actually good news for home buyers.

Stevens is worried because his agency's responsibilities are just getting too big for a strapped federal government to manage. But you can still get a home for just 3.5 percent down, far less than is possible without the insurance fund's backing.

Private mortgage insurance continues to be difficult to find, and expensive, making FHA and its insurance fund -- which assures lenders of getting paid back in case you can't pay your loan -- the best way to get a low down-payment mortgage.

A big low-down-payment mortgage, I might add.

In order to provide mortgage credit during the crisis (as other options disappeared), Congress temporarily raised an FHA maximum loan size to as high as $729,750, up from just $290,319 in 2004. (It was just $160,176 for areas outside the most expensive real estate markets). Sooner or later, Congress will shrink FHA's maximum loan size once again, meaning that those low-down-payment loans will once again only be available for relatively affordable real estate -- starter homes, small houses, and so on. That was always what FHA was supposed to be for, ever since it started in 1935 - to make mortgages available for people of modest means who couldn't otherwise get them.

The right-sizing of FHA won't come a moment too soon. FHA currently has to dig itself out of a mess. In 2007 and 2008, poorly regulated lenders who signed up with the program had backed a big volume of sketchy loans. Sometimes that was done in connection with organized fraud -- that lenders pursued to generate business as the real estate market collapsed. The insurance fund now has to deal with resulting defaults.

About 12 percent of all FHA loans are currently past due, according to the Mortgage Bankers Association, second only to the rate for subprime loans and exactly double that of prime loans.

FHA recently increased the upfront fee you'll have to pay in order to get one of its insured loans, to 2.25 percent of your total loan amount. That comes in addition to annual premiums, and it's a step to make sure that foreclosures don't kill the FHA insurance fund.

But if you're looking to buy a home with a low down payment, FHA is worth every penny. That's why so many buyers are stampeding there - and why the overwhelmed head of the FHA was pleading with mortgage bankers to get the private market moving again.

 

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]]>Fannie MaeFHA mortgagesFreddie Maclow down paymentmortgage insuranceAlyssa Katz2010-05-26T17:00:00 00:00Foreclosure Aid Is More Than Some States Needhttp://realestate.aol.com/blog/2010/05/20/foreclosure-aid-is-more-than-some-states-need/http://realestate.aol.com/blog/2010/05/20/foreclosure-aid-is-more-than-some-states-need/http://realestate.aol.com/blog/2010/05/20/foreclosure-aid-is-more-than-some-states-need/#commentsFiled under: ,,

In 2008, Vermont had 137 foreclosures, the fewest of any state in the nation. It had precisely zero foreclosures in the first quarter of this year, according to RealtyTrac.

So why did Congress give it nearly $20 million in 2008 to deal with empty homes from the mortgage crisis? The same amounts went to Nebraska, Wyoming, West Virginia, Utah, and each of the Dakotas, which also have extremely low foreclosure rates. Will this affect home values in your neck of the woods?

Those are the kinds of questions the Obama Administration is now asking about the Neighborhood Stabilization Program, which has distributed $5.9 billion across the country to help states and cities board up, repair, sell or tear down empty, foreclosed houses.

Congress' first round of grants gave states a total of $3.9 billion to spend to stop vacant homes from blighting their streets. Every state got something, with a minimum of $19.6 million, no matter how few foreclosures they had. Hundreds of cities received grants as well.

They got 18 months to decide what to do with the money, and until 2013 to actually spend it.

Now the U.S. Department of Housing and Urban Development projects that nearly $1 billion of that money won't be committed by the first round of deadlines, coming up this September and October - and it wants it back.




"We want to put grantees on notice," says HUD spokesperson Melanie Roussell, "If you don't spend your NSP funds they will be reallocated."

By taking back cash from cities and states that failed to spend their money, HUD is hoping to make more money available for the worst-hit parts of the country - like Detroit, which is midway through demolishing 10,000 abandoned houses (like the one pictured above) and needs more money to finish the job.

Vermont, for one, isn't giving up a penny. It's dedicating its $19.6 million to: repairing an apartment building for low-income tenants along the Connecticut River in Bellows Falls; building a senior residence and affordable homes for sale; tearing down old buildings in downtown Barre; and rebuilding a movie theater in Springfield.

Vermont is on track to fix and sell fewer than 60 vacant single-family homes, but it's finding plenty of productive uses for its federal funding.

By contrast North Dakota, which had just 145 foreclosed properties go back into the hands of banks in the first three months of this year, has committed to plans for only $5.6 million out of its $19.6 million grant. It is spending most of it building housing for the elderly, mentally ill and other low-income residents.

The handful of times it has tried to fix and sell foreclosed homes, the results are sometimes absurdly expensive: for instance, $104,000 in NSP funds, plus another $70,000 from another federal program, to rebuild just one house for one family in Fargo -- and this was in a neighborhood where perfectly nice homes are on the market for less than that.

Time's up. Other states need the money more.

 

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]]>foreclosure assistanceNeighborhood Stabilization ProgramNorth Dakota homesVermont housingAlyssa Katz2010-05-20T14:00:00 00:00Refinancing Bias: Does Race Play a Role?http://realestate.aol.com/blog/2010/05/13/refinancing-bias-does-race-play-a-factor/http://realestate.aol.com/blog/2010/05/13/refinancing-bias-does-race-play-a-factor/http://realestate.aol.com/blog/2010/05/13/refinancing-bias-does-race-play-a-factor/#commentsLooking to get a mortgage to refinance your home at a low rate? Better check not only your bank account and credit score but your neighborhood's racial profile.

According to a new report that surveyed loans in seven major cities across the country: among the big four bank holding companies that now dominate the mortgage market -- Chase, Bank of America, Citigroup, and Wells Fargo -- the number of prime refinances jumped by nearly one-third in predominantly white neighborhoods in seven cities between 2006 and 2008, while they declined by the same amount in neighborhoods where most residents are members of minority groups.

Overall, for both purchase and refinance mortgages, prime lending plummeted by 60 percent in minority neighborhoods, compared with just 28 percent in areas where most borrowers are white.

The report from seven research and advocacy groups analyzes Home Mortgage Disclosure Act data for Boston, New York City, Charlotte, Chicago, Cleveland, Los Angeles, and Rochester, looking at loans that cost no more than 3 percent higher than the Treasury rate.

The new numbers suggest that the benefits of those expensive interventions are going to some neighborhoods much more than others - with race as a dividing line. Has racial profiling poisoned the mortgage application process?
It's impossible to know exactly why this alarming gap between lending in minority neighborhoods and white neighborhoods is growing. But other research suggests that fewer black and Latino buyers have even been attempting to buy homes than white buyers.

The Pew Hispanic Center found that between 2006 and 2007, as the mortgage market started to tank, applications from black and Latino buyers fell by more than one-third while those from whites fell just 19 percent. Those minority borrowers were less likely to have their applications approved. And black and Latino borrowers have been much more heavily represented than whites in the high-priced loan market.

Credit scores, often damaged by subprime lending, likely have something to do with the racial gap in mortgages. During the bubble, minority borrowers were much likelier than white borrowers to end up with high-priced subprime mortgages, even when their incomes and credit scores were similar. Such loans often set those borrowers up to fail.

The National Community Reinvestment Coalition recently found that in Washinington, D.C., minority homeowners were far more likely to go into foreclosure than white owners with similar credit scores and loan sizes.

Remember, it was during this period -- when big bank lending to white neighborhoods surged -- that it sank in minority areas.

The federal government was doing everything in its power to keep mortgages available at low rates and encourage Americans to buy homes. The Fed bought billions and billions in mortgage-backed securities from Fannie Mae and Freddie Mac, whose shares Treasury purchased to keep the companies solvent.

The Fed kept interest rates low, and once Freddie and Fanny came under government control, those lenders marketed low-rate refinances as a way to help struggling homeowners keep their mortgage bills down. Meanwhile those four big banks received bailouts via TARP, without which they would not have stayed in business.

It's an eerie echo of the old days when many minority borrowers could not get mortgages, in a practice known as "redlining." Banks and the federal government used maps like the one pictured above to decide where they would back home loans.

As credit gets tighter, the race gap is widening again. Whether or not racial profiling is to blame, the trend is a distressing -- and one that hopefully can be addressed as housing markets recover.

 

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]]>Home Mortgage Disclosure Actmortgage discriminationracial profilingWells FargoAlyssa Katz2010-05-13T11:00:00 00:00Fannie and Freddie's Federal Shakedown: A $19-Billion Bargain?http://realestate.aol.com/blog/2010/05/10/fannie-and-freddie-federal-shakedown-a-19-billion-bargain/http://realestate.aol.com/blog/2010/05/10/fannie-and-freddie-federal-shakedown-a-19-billion-bargain/http://realestate.aol.com/blog/2010/05/10/fannie-and-freddie-federal-shakedown-a-19-billion-bargain/#commentsIs $19 billion a lot of money -- or a small price to pay for keeping mortgages available to you at a reasonable price during the ongoing financial crisis and into the future? Ask yourself that as you take in the heated reaction to this news: The government overseer of Fannie Mae and Freddie Mac wants the U.S. Treasury to use that pile of treasure to keep them from collapse.

The latest take comes from Gretchen Morgenson at The New York Times, who asks a provocative question: Why aren't Fannie Mae and Freddie Mac part of the financial reform package going through Congress right now? That's the same question Senate Republicans have been asking. Last week, Sens. Richard Shelby, John McCain and Judd Gregg introduced an amendment to the reform bill that would eliminate Fannie and Freddie over the next few years.

Morgenson brings to her case the liberal economist Dean Baker, who suggests that Freddie Mac is somehow overvaluing new mortgages in order to prop up the mortgage markets. It would seem that we have a consensus across the political spectrum: Fannie Mae and Freddie Mac are a menace to the American taxpayer, vampirically sucking our hard-earned wealth.

Pretty awful, right? Not if you compare it to the garbage loans that Fannie and Freddie's virtually unregulated private competitors were dealing in.
Morgenson brings out some ugly numbers from Freddie Mac's latest financial report: a delinquency rate of 4.13 percent on its mortgages overall. (Fannie and Freddie define delinquent payments as more than 90 days late.) Fannie's numbers, which just came out today, are even worse, at 5.47 percent delinquent. When it has to sell foreclosures, Freddie Mac takes an average 39 percent loss. All those borrowers failing to pay their mortgages led to net losses in the quarter of $6.7 billion for Freddie and $11.5 billion for Fannie. And much scarier stuff is to come: Fannie and Freddie combined have more than $338 billion in "nonperforming assets" that will lead to future losses.

Now let's look at unregulated mortgages in the private sector: According to the latest numbers from First American LoanPerformance, as analyzed by Amherst Securities, 12 percent of the total balances of 2006 prime, fixed-rate mortgages securitized by Wall Street are currently 60 days or more past due. That's the good news. Subprime adjustable-rate mortgages? A terrifying 61 percent of dollars lent to borrowers are late, and 49 percent for Option ARMs. When investment banks' servicers resell their foreclosures on the real estate market, they'd love to get Fannie and Freddie's prices. Instead, on a house tied to a 2006 subprime loan, they're looking at average losses of 74 percent.

These are the scary, ugly losses that forced the feds to step in with the Troubled Asset Relief Program to prevent the whole banking system from falling apart. Now, TARP is making sure that banks are paying back the billions they borrowed from taxpayers to stay solvent -- Treasury even reports that it's making a profit.

That does seem to be a better financial situation than the vortex Fannie and Freddie have created, voraciously devouring funds to stem their losses.

But think for a minute about what the two sets of numbers represent. Fannie and Freddie may be suffering big losses. But despite the current pressures of unemployment and the bubble's bursting, most of the borrowers whose loans met Fannie and Freddie's relatively strict standards are doing OK. They're living in homes that they own, and hopefully will continue to do so.

And those sub-prime borrowers financed by Wall Street? Anyone who is still holding onto their home, perhaps with the help of the Home Affordable Mortgage Program, is likely drowning in debt.

Yes, it's completely nuts to keep pouring billions down the volcano hole of the home-ownership gods. Fannie and Freddie need to be torn down and rebuilt as much leaner and more flexible machines, designed to maximize access to credit for consumers and minimize risk to taxpayers or investors. (Plus someone has to help finance the development of rentals, since that's where more people are going to be living.)

But we're kidding ourselves if we think we can just get rid of the agencies and live happily ever after as a nation of homeowners. If McCain, Shelby and Co. get their way, agencies with a mission of looking out for borrowers -- getting them longterm mortgages at low rates -- will be a thing of the past. And every homeowner and home buyer will pay a high price for that.

 

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]]>Fannie MaeFreddie MacGretchen MorgensonAlyssa Katz2010-05-10T16:00:00 00:00Chase Sued by HAMP Rejectshttp://realestate.aol.com/blog/2010/05/06/oan-mod-program-rejects-sue-chase/http://realestate.aol.com/blog/2010/05/06/oan-mod-program-rejects-sue-chase/http://realestate.aol.com/blog/2010/05/06/oan-mod-program-rejects-sue-chase/#commentsFiled under: ,,

Homeowners seeking help reducing their mortgage payments are fed up with banks, and they're not taking it anymore. Borrowers allege that some lenders have been giving temporary "trial" modifications under the Home Affordable Mortgage Program (HAMP), only to later refuse permanent modifications -- leaving the borrowers worse off than they started, and often in foreclosure.

A federal lawsuit in New York City is the latest legal pushback from homeowners, who are saying enough is enough.

Three New York City homeowners represented by the Urban Justice Center charge JPMorgan Chase and two of its divisions, Chase Home Finance and Washington Mutual, of violating agreements with borrowers and with Fannie Mae, which administers HAMP.

Do they have a case?

  • Shanaz Begum of Queens Village, N.Y. was told her income was too low -- even though it hadn't changed since the trial period. Chase allegedly just changed its mind about whether to count her taxi-driver husband's cash income.
  • The bank ultimately told Alex Lam of Fresh Meadows, N.Y. that Chase had decided it would be better off foreclosing than offering a modification -- after Washington Mutual (which subsequently became part of Chase) allegedly told him to stop making mortgage payments in order to become eligible for HAMP.
  • And Tamara Williams of Jamaica, N.Y. got no answer at all on her request for a permanent modification.

All three borrowers made all of their payments during their trial-modification periods.

The Urban Justice Center, a nonprofit advocacy group, is seeking a stop to foreclosure proceedings, loan modifications for the clients, and financial damages. The group alleges that Queens, the New York City borough that is home to all three litigants and one of the most diverse places in the country, is being unfairly targeted.

The suit shows many facets of how loan servicers like Chase are throwing roadblocks in the way of loan modifications--from lost paperwork to arbitrary decisions. According to the latest Treasury report on HAMP, out of 1.16 million trials, just 231,000 have moved to permanent modifications.

But no piece of the HAMP puzzle is more frustrating for borrowers than the "net present value" (NPV) calculation, which lets lenders decide -- based on calculations they make themselves and do not have to disclose -- whether a loan modification should proceed.

The U.S. Department of the Treasury has told lenders participating in the loan modification program that they are obligated to modify mortgages only when that gets the bank better financial results than it would if it foreclosed on the home. If foreclosure will reap the lender more money than modification, then it is simply required to suggest alternative foreclosure prevention measures.

In plain English, that means "good luck."

"It's certainly a big issue for many of the clients that we deal with," says Ted De Barbieri, an attorney with the Urban Justice Center. He frequently represents homeowners as they meet with lenders at settlement conferences that New York State requires prior to foreclosure filings.

A lender, for example, might be using a "broker price opinion," or BPO, to determine a home's value, even though that's often less reliable than an appraisal. At the settlement conference, De Barbieri can request the appraisal.

"But in many cases, we don't even know what the input is," he notes. In calculating NPV, the lender might be looking at anything from real estate taxes and homeowner association fees to the next reset date on the borrower's adjustable-rate mortgage.

What we do know is that the NPV test penalizes homeowners who have built up a lot of equity in their houses already, and favors those who have borrowed to the hilt.

After all, the lender gets to count all that equity as money it will gain if the property goes into foreclosure. It also means that borrowers who took out most or all of a home's value are the ones most likely to get government help to hold onto their homes.

That's right, it's not fair. NPV exposes the truth: Loan modifications ultimately help banks more than they help most homeowners.

 

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]]>HAMPloan modificationsNew YorkQueensUrban Justice CenterAlyssa Katz2010-05-06T13:00:00 00:00Obama to Mortgage Biz and Banks: We're in This Togetherhttp://realestate.aol.com/blog/2010/04/23/obama-to-mortgage-biz-and-banks-were-in-this-together/http://realestate.aol.com/blog/2010/04/23/obama-to-mortgage-biz-and-banks-were-in-this-together/http://realestate.aol.com/blog/2010/04/23/obama-to-mortgage-biz-and-banks-were-in-this-together/#commentsFiled under: ,

It's becoming a standard play for President Obama. Just as he gave a high-profile speech to seal the deal on the health care overhaul earlier this year, he came to New York City on Thursday to set up the winning shot for financial reform. With Goldman Sachs' Lloyd Blankfein seated in the third row, President Obama could have scored easy points in his big speech at Cooper Union by making the titans of Wall Street squirm, and suffer for their greed and recklessness. The headlines even said the president "scolded" bankers.

Not really. What he did do was tell them that their fortunes would ebb and flow along with those of the nation's consumers, and that it's therefore in Wall Street's interest to support the Democrats' financial reform bill that it has so loudly opposed. As the president put it: "Ultimately, there is no dividing line between Main Street and Wall Street. We will rise or we will fall together as one nation."

I'd like to think this is true.
Yet one only has to look at the Goldman Sachs scandal to see how the story looks from Blankfein's seat in the third row. While it did take a hit on its notorious failed Abacus derivatives deal, Goldman has done extremely well for itself under the present, broken system. And make no mistake, it will suffer under the proposed new regulations, including curbs on executive pay and regulations on derivatives trading. Banking, Wall Street-style, is a brutal, Darwinian business where gains are mostly made not through productive investment in the nation's economy but through bets and "arbitrage," anticipating and exploiting wiggles in the values of various indexes and instruments. Combine those with leverage, heavy borrowing by those bankers, and the brew can get dangerously potent. But for every Lehman and Bear Stearns that went down on bad bets, we have a Goldman for whom such chaos is the best business opportunity in a generation.

What does that mean for you, the homeowner? I'm convinced the president is on your side in pushing for things like the Consumer Financial Protection Agency; that he's trying to do the right thing for the nation as a whole, to keep its economy strong, stable and globally competitive; and that he's attempting to speak to whatever scraps of conscience Wall Street may have left. But don't think for a minute that Blankfein and Co. actually believe it --or that the president even does. Instead, Obama is making the same smart play he did on health care reform. He speaks to the opposition as if it is responsible and ready to do the right thing for the greater good. That puts the ball in their court. They can play that role. Or they can become the wall standing between you and some basic sense of safety and security in the banking and home mortgage system.

That was never more clear than when the president voiced his support on Thursday for a consumer financial protection agency. "Unless your business model depends on bilking people," he jabbed, "there is nothing to fear from these new rules."

Anyone in the mortgage business care to disagree?

 

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]]>Barack ObamaCooper Unionfinancial reformLloyd BlankfeinObamaPresident ObamaAlyssa Katz2010-04-23T18:15:00 00:00Goldman Fraud Victims? Homeowners, Not Investorshttp://realestate.aol.com/blog/2010/04/21/goldman-frauds-victims-homeowners-not-investors/http://realestate.aol.com/blog/2010/04/21/goldman-frauds-victims-homeowners-not-investors/http://realestate.aol.com/blog/2010/04/21/goldman-frauds-victims-homeowners-not-investors/#commentsFiled under: ,

You probably already know that the Securities and Exchange Commission alleges that hedge fund Paulson & Co handpicked stinker mortgage-backed securities to put into an investment pool, then bet that the pool would fail. Goldman didn't even buy the securities themselves - it just took investors' money based on other bankers' securities. Like theater impresario Max Bialystock said in "The Producers," "It's a surefire flop!"

But what exactly were those securities? Paulson & Co worked with the investment pool's official picker, a company called ACA Management, to agree on 90 mortgage-backed securities pools. Goldman then combined their riskiest pieces and sold them to investors around the world. Here's the pitch they received.

And, boy, were these mortgage-backed securities some of the stinkiest. Of course, any educated investor should have known that. After all, the warnings went on for page after page in the offering documents. Too bad the average individual mortgage-holder didn't have the same information.All of these mortgage-backed securities were either subprime or "midprime," which isn't saying much - midprime just means that the average credit score of borrowers was over 625. Let's take a look at one of the midprime mortgage-backed securities pools, JPMAC 2006-FRE1. "JPM" stands for JP Morgan. "FRE" stands for Fremont Investment and Loan, a big subprime lender. The Abacus pool bet on the performance of $14 million in "BBB" securities, second-to-last in line to be paid, and therefore among the first to take losses if mortgage borrowers got into trouble.

Looking at the mortgages in the pool, that trouble was almost inevitable. Of the 4,956 loans in the billion-dollar pool, about half were to borrowers who also took out a second mortgage, so they owed close to the entire appraised value of their homes. Only 1,400 were fixed rate; the rest had adjustable rates. More than one-third didn't document their income. Almost all the borrowers who weren't buying a home got a "cash-out" refinance borrowing against their home equity. And nearly 40 percent of the pool's value was backed by real estate in California and Florida.

According to the SEC, that's exactly what Paulson & Co. were looking for. "Paulson's selection criteria favored RMBS that included a high percentage of adjustable rate mortgages, relatively low borrower FICO scores, and a high concentration of mortgages in states like Arizona, California, Florida and Nevada that had recently experienced high rates of home price appreciation," the suit charges. The list of mortgage companies whose loans Paulson bet against is like a who's who of failed subprime lenders, including New Century, Option One and Argent.

What's amazing is that Goldman found ready buyers for their collateralized debt obligations. There was so much demand for these high-yielding investments that they were essentially selling photocopies of them. As Roger Lowenstein wrote in the New York Times, the dollars Goldman pooled together didn't actually end up going to help people buy homes. They were merely bets at a casino. But the reason these crazy mortgages got made in the first place is that JPMorgan and the other investment banks who put together the securities knew they could easily find buyers for the garbage, those BBB securities.

With all due respect to the SEC, which is charging that Goldman misled investors to believe its bonds were safe enough to invest in, the risks of those underlying securities were spelled out with crystal clarity in the offering documents. Here's more from JPMAC 2006-FRE1:

"The mortgage loans in the mortgage group are likely to experience rates of delinquency, foreclosure and bankruptcy that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more traditional manner." Investors could lose money if there was "an overall decline in the residential real estate market in the areas in which the mortgaged properties are located."

Who didn't have fair warning of the risks of borrowing all of their home's value at an adjustable rate? The borrowers who took out the mortgages and are now going into foreclosure.

 

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]]>Goldman SachsJP MorganPaulson Co.SECSecurities and Exchange CommissionAlyssa Katz2010-04-21T08:30:00 00:00SEC Sues Goldman Sachshttp://realestate.aol.com/blog/2010/04/16/sec-sues-goldman-sachs/http://realestate.aol.com/blog/2010/04/16/sec-sues-goldman-sachs/http://realestate.aol.com/blog/2010/04/16/sec-sues-goldman-sachs/#commentsWe at Housing Watch had to do a double take when the news came in. The Securities and Exchange Commission is suing Goldman Sachs, and demanding that it return money that the SEC charges was obtained through fraud.

The SEC? The same SEC that stood by as securities traders saddled teachers' pension funds with toxic products they didn't understand? The same SEC that let Bear Stearns, Lehman Brothers, and Merrill Lynch pile on debt like diners at an infinite all-you-can-eat buffet?

Welcome to the newly ferocious SEC, which is also investigating which investment firms used tricks to hide debt from regulators, the way that Lehman Brothers did.

But what's remarkable is that the SEC is taking on Goldman Sachs, an institution that almost alone has emerged from the financial crisis wealthier and stronger than ever. Goldman did so well in part because it bet early on that the housing bubble would implode, and it could collect on that bet with the help of the $80 billion Treasury bailout of insurer AIG. Now we're learning another secret to Goldman's success: It colluded, according to the SEC's allegations, in a scheme to bet against failing mortgage- securities derivatives, known as collateralized debt obligations (CDOs).According to the SEC's lawsuit, a Goldman trader named Fabrice Tourre, who helped control a CDO investment fund called ABACUS 2007-AC1, based on low-rated, high risk slices of mortgage-backed securities, colluded with a hedge fund to set up ABACUS to fail - and then collect on bets that it would do so. At the same time, Tourre was selling the CDOs to investors who had no idea that the fund was programmed to fail.

The SEC charges that the hedge fund, Paulson & Co., helped hand pick which securities would go into the CDO pool, and then bet against the pool using credit default swaps - essentially, an insurance policy that pays off in the event the CDO fails.
Paulson & Co. allegedly made sure that would happen by packing the pool with extremely risky securities. It also paid Goldman $15 million for its work putting the pool together and marketing it to investors (Goldman also reportedly helped arrange Paulson's credit default swap trades). Investors lost $1 billion. Paulson reportedly made $1 billion.

Just to get a sense of Goldman's hubris in the scheme, check out Tourre's emailed comments to a friend in early 2007, just as it became clear to Wall Street insiders that the mortgage market all their bets and borrowing were based on was about to implode.
"More and more leverage in the system, The whole building is about to collapse anytime now...Only potential survivor, the fabulous Fab[rice Tourre]...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!"
Now Tourre and his employer stand charged with fraud, and may have to pay back everything they've earned, plus interest. Yes, that's a lot of money.

Goldman's scheme isn't the only one like this. Last week, ProPublica and NPR's This American Life ran a fantastic investigation of Magnetar, a hedge fund that ran a similar scheme with a number of investment banks, including UBS, Merrill Lynch and Citigroup.

Think about what it would have meant to have the SEC taking on cases like these, even just a few, as securities frauds like this proliferated over the last decade. Wall Street would have known that Washington was watching, and that it had better be careful about how it does business. Instead federal regulators effectively sanctioned fraud by the companies they were , and we're all living with the consequences. Let's hope this is the beginning of a new way of doing business.

 

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]]>Fabrice TourreGoldman SachsSECSecurities and Exchange CommissionAlyssa Katz2010-04-16T17:00:00 00:00