Muddled Modifications
Homeowners express
frustration with MHA

Editor’s note: C & G Newspapers recently ran a two-part series on the federal Making Home Affordable program, highlighting some of the problems homeowners have faced in seeking mortgage modification. This is the first story of a second two-part series on the subject.

By Christa Buchanan
C & G Staff Writer

The federal Making Home Affordable program hasn’t played out quite as intended.

“Looking at the numbers, the amount of foreclosures is certainly not slowing down — last year was a record year for foreclosures, and the numbers are on track to be even more this year. Whatever they’ve been doing, it’s not working,” said Jeff Marsack, a loan officer with Great Lakes Mortgage Funding in Sterling Heights, of MHA as it stood prior to the March 26 announcement of improvements to the program.

Implemented as part of the Homeowner Stability Initiative of 2009, the $75 billion dollar MHA program is intended to help “as many as 7 (million) to 9 million homeowners making a good-faith effort to make their mortgage payments, while attempting to prevent the destructive impact of the housing crisis on families and communities,” according to the U.S. Department of Treasury’s Financial Stability Plan Oversight Board, www.financialstability.gov.

MHA has two main components: the Home Affordable Refinance Program, which sunsets June 10; and the Home Affordable Modification Program, which helps clients who do not qualify under the Home Affordable Refinance Program — it ends Dec. 31, 2012, and as the more controversial of the two, has been enhanced to help more people.

Through HARP, homeowners who have a Federal Housing Administration Fannie Mae or Freddie Mac secured mortgage and are current on their mortgage — meaning payments haven’t been more than 30 days late in the last 12 months — can refinance their home even when they owe more than what their home is worth, up to 125 percent of current market value; however, it’s all dependent on the mortgage’s current rate and terms.

“HARP is a little simpler — there’s nothing earth-shattering about it; pretty much, you can drop the interest rate, say from 6.5 to 5.5, but that’s not a big change,” said Marsack, noting that he’s helped many clients successfully refinance under HARP.

Meanwhile, HAMP allows homeowners who have experienced financial hardship — job loss, medical expenses, divorce, etc. — and are struggling with or behind on their mortgage payments to modify their mortgage via such measures as lowering the interest rate to as low as 2 percent and extending the length of the mortgage up to 40 years so that the mortgage payment doesn’t exceed 31 percent of the homeowner’s gross income. Among other requirements, homeowners must make all their mortgage payments on time over a three-month trial period to be eligible for HAMP.

The problem is, said attorney Kevin Green of Bashore Green Law Group, being offered a trial modification doesn’t necessarily mean a permanent modification will be extended, even if the homeowner successfully completes the three-month trial period.

The changes to HAMP — allowing unemployed homeowners to enter the program and refinancing upside-down loans, among other tweaks — are intended to improve those problems with the program.

“Participating banks are contractually obligated to comply with these changes. Our compliance agent Freddie Mac works closely with servicer banks to ensure that they are implementing these changes and compliant with all program guidelines,” said U.S. Treasury Department spokesperson Meg Reilly, via e-mail, of how they are working toward ensuring lenders are following through with program guidelines.

“They should call (888) 995-HOPE and ask for their complaint to be escalated if they are having trouble receiving help from their servicer,” Reilly advised.

Green, who is representing local homeowners trying to get MHA modifications, doesn’t think the changes, especially opening up the program to the unemployed, are going to help much, if at all.

“I just think it’s amazing they did that, really,” he said. “They’re not even helping the employed, and now they want to help unemployed homeowners. I think they’re just trying to appease the public, to make people believe that they’re actually willing to help — that they’re actually putting our tax dollars to good use,” Green said.

Marsack, meanwhile, is more optimistic, especially about the prospect of writing down the mortgage principle — lowering the balance of the loan — for homeowners with upside down home values.

“The key there is the write-downs. That’s going to help more people than ever before; it’s going to get people on the bandwagon that they’re finally doing something with the bailout money that’s really going to help — all the little bits, lowering the interest rate, extending the length of the loan, help, but it’s nothing major,” said Marsack. “The write-downs have the potential to make a major impact.”

For more information on MHA, visit www.makinghomeaffordable.gov. For a free consultation and more help, contact a housing counselor via the Federal Housing Administration’s Department of Housing and Urban Development HOPE for Homeowners program, at www.hud.gov/hopeforhomeowners or at (888) 995-HOPE (4673). See next week’s paper or visit our website, www.candgnews.com, for more details on the MHA changes.

Great Lakes Mortgage Funding can be reached at (586) 421-1639. To make an appointment for a free consultation at Bashore Green Law Group, call (586) 803-0500.

You can reach Staff Writer Christa Buchanan at cbuchanan@candgnews.com or at (586) 498-1061.

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Loan Modification Can Mean Lower Credit Scores

Some homeowners who sign up for the government’s mortgage assistance program are getting a nasty surprise: Lower credit scores.

For borrowers who are making their payments on time but are on the verge of default, the Obama administration’s loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.

Housing counselors say it’s unfair, especially because the news often comes as a surprise to homeowners.

“Why should people’s credit be hurt even worse when they’re trying to do the right thing?” said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.

And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.

“It’s a feeling of being duped,” she said.

Still, the impact is far less severe than a foreclosure, where borrowers typically find their credit is in tatters for years. That’s due to the cumulative impact of many months of missed payments and the foreclosure itself, which drags down a homeowner’s’ credit by 150 points or more on a scale of 300 to 850.

To enroll in the Obama administration’s $75 billion “Making Home Affordable” program, borrowers enter a trial period in which they make at least three payments. But some are finding out that their credit score takes a dive during this trial phase. It happens once their mortgage company notifies the three big credit bureaus — Experian, Equifax and TransUnion.

For delinquent borrowers, the damage was done when they fell behind on their loans.

But for homeowners who are having financial troubles but managing to pay their bills, a request for a loan modification is the first sign of difficulty. And that means a sharp drop in the borrower’s credit score.

The credit rating industry defends the practice. People who sign up for loan modifications would not be asking for help unless they were having severe money troubles, said Norm Magnuson, spokesman for the Consumer Data Industry Association, a trade group in Washington that represents the credit bureaus.

“The consumer is going into the program because they’re in a financial bind,” he said. “Other lenders would need to be aware of that.”

The Obama administration acknowledges that enrolling in the program can hurt credit scores. But Meg Reilly, a Treasury Department spokeswoman, said that foreclosure “brings far more serious financial consequences for borrowers and their families.”

The credit score issue is an unexpected consequence of the program that has been plagued with problems and disappointing results since its launch last year. Only about 170,000 homeowners had completed the process as of February. Hundreds of thousands more are still in limbo.

Jim Owens, 46, of Harrisburg, Ore., was accepted on a trial basis for the Obama plan last year.

He and his family were in bad financial shape. They were barely able to pay the mortgage and utility bills.

The main reason: After being laid off and unemployed for six months, he took a job as maintenance director at a retirement home. But it paid only around $25,000 year, about $10,000 less than his former job in a city public works department.

He and his wife were also struggling with debt, after taking out a second mortgage four years ago to pay off debt and medical bills.

Late last year, he was searching for a used sport-utility vehicle. He got a 30-day approval for $2,000 car loan.

But that time ran out before he found a car, so he had to reapply for the loan. He was shocked to learn that, after signing up for the Obama plan, he was denied.

“I should have been told,” that this might happen, Owens said. “Without credit, you can’t do a whole lot in life.”

A Citi spokesman, Mark Rodgers, said the company follows the Treasury Department’s guidelines for reporting to credit bureaus. “We do not determine credit scores,” said Rodgers, who declined to comment on Owens’ case.

The impact is worse for borrowers who enroll in the Obama program and are then ruled ineligible.

If homeowners do manage to get accepted into the Obama program and have their loans permanently modified, lenders update the credit bureaus. The new status neither hurts nor helps the borrower’s credit score. Over time, they can see their score increase.

“The best way to build credit back is to continue to pay bills as agreed, to use credit wisely,” said Tom Quinn, vice president of scoring solutions at Fair Issac Corp., which designed the well-known FICO score system. “As time goes on, the score gradually increases.

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Jan. 19 (Bloomberg) — The U.S. Treasury Department has failed to win agreements to get struggling borrowers’ home- equity debt reworked, among the biggest roadblocks to reducing foreclosures that may reach a record 3 million this year.

None of the lenders holding a combined $1.05 trillion in the debt has signed contracts requiring participation in the second-mortgage modification plan announced eight months ago. The largest banks remain “committed” to joining, Meg Reilly, a department spokeswoman, said in an e-mail.

President Barack Obama in February announced a $75 billion program to cut first-mortgage payments. The Treasury detailed a plan on April 28 in which second-mortgage owners modify or retire debt when the first lien is changed, saying it would be running in a month. The near-record level of home-equity debt held by lenders including Bank of America Corp. and Wells Fargo & Co. may lead to foreclosures that threaten housing stability after the worst slump since the 1930s.

“The issue of the second liens has to be escalated,” said Richard Neiman, New York’s banking superintendent and a member the Troubled Asset Relief Program’s Congressional oversight panel. The government should consider forcing banks to participate and to recognize the “true value” of second liens, he said.

Bank of America, Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. carry such mortgages at about $150 billion more than their value, according to estimates by Joshua Rosner, an analyst at Graham Fisher & Co. in New York.

Equity lines and other second mortgages rank junior to typical mortgages, meaning they get wiped out in a foreclosure unless sale proceeds from a seized home exceed the first debt.

Still Struggling

As Obama’s Home Affordable Modification Plan, or HAMP, lowers first-mortgage payments, some borrowers are still left with bills they can’t afford, according to Newport Beach, California-based Pacific Investment Management Co.

“Modifying the first mortgage doesn’t necessarily get the homeowner to good shape,” Scott Simon, head of mortgage-bond investing at Pimco, manager of the world’s biggest fixed-income fund, said in a telephone interview.

About 25 percent of homeowners who received trial loan modifications are failing to keep up with their reduced payments, the Treasury said Jan. 15.

Rosner said overvalued home-equity debt prevents residents from getting the aid likeliest to keep them in their homes: principal forgiveness.

First-mortgage owners usually won’t agree to the deeper principal reductions needed to reduce the loan to at or below the home’s value when home-equity holders aren’t willing to make sizable cuts, said John Taylor, chief executive officer of the Washington-based National Community Reinvestment Coalition.

Considering Changes

Three million U.S. homes will be repossessed this year as high unemployment and depressed values leave borrowers unable or unwilling to make their payments or sell, RealtyTrac Inc. forecast on Jan. 14. Almost 10.7 million, or 23 percent, of residential properties with mortgages were in negative equity as of Sept. 30, according to First American CoreLogic.

Policy makers may be able to reduce re-defaults on modified debt from an average of 57 percent within a year “significantly” more by getting mortgages lowered rather than by spurring larger payment cuts, New York Federal Reserve Bank researchers wrote in a December paper.

The government is considering changes to permanently cut balances on which borrowers owe more than the property is worth, said Michael Barr, the assistant Treasury secretary for financial institutions.

“We are in the process of reviewing that now as we have been continually,” Barr said on a conference call last week. “You have to be very careful not to design a program that would change people’s behavior across the country.”

Banks’ Efforts

Bank of America CEO Brian Moynihan “recommitted” to participating in the Treasury program this month as part of “our aggressive efforts to help customers,” Rick Simon, a company spokesman, said in an e-mail.

“We are waiting for final guidelines,” Simon said.

Citigroup is “actively engaged with the U.S. Treasury in finding a workable solution,” Mark Rodgers, a spokesman, said in an e-mail.

Wells Fargo is working with the government “to understand the program specifics,” Mary Berg, a spokeswoman for the San Francisco-based bank, said in a phone message.

Tom Kelly, a spokesman for New York-based JPMorgan, declined to comment.

Banks’ reluctance to write down second mortgages also hampers short sales, when homeowners sell a house for less than they owe.

Sticking Point

“If I had to name one sticking point, it’s the second mortgage,” said Ethan W. Gregory, an agent with First Coast Realty Associates in Jacksonville, Florida, who specializes in short sales.

Americans tapped home equity as values more than doubled between the start of 2000 and the market’s apex, and took “piggyback” loans in lieu of down payments.

Home prices rose in each of the six months through October, increasing 5.3 percent, after a record 33 percent plunge from the 2006 peak, an S&P/Case-Shiller index for 20 metropolitan areas showed. Gains were driven by a decline in the share of sales involving “distressed” properties that will reverse this year as foreclosures climb, Deutsche Bank AG said Dec. 18.

The government’s Home Affordable program offers subsidies to lenders, bond investors, loan servicers and consumers to rework first mortgages so that payments, insurance and taxes don’t exceed 31 percent of a borrower’s income.

Lender Relief

The Treasury said in April that home-equity lenders would receive a subsidy to reduce interest rates to as low as 1 percent. Lien holders could get as much as 12 cents on the dollar to retire debt. Officials said on a conference call that within about a month its program would start helping borrowers, and that as many as half of “at risk” homeowners had second mortgages.

The Treasury “has been working to create program infrastructure and technology, including a new platform that matches second liens to first liens modified under HAMP,” Reilly said Jan. 7. “Because there has not been a systematic method of notification to second lien holders when a first lien on the same property is modified, ramp up has taken some time.”

BlackRock Inc. CEO Laurence Fink, who oversees the world’s largest asset manager, has called the government’s effort flawed because of its treatment of second mortgages, which he said should be wiped out before first liens are touched.

“There is modification going on protecting our banks, protecting their balance sheets,” Fink said in a September interview. With the right types of changes, he said, “the homeowner is better off, America is better off, and you could say the first lien holder is better off.”

Loss Allowances

The Federal Deposit Insurance Corp. last year urged lenders to consider whether borrowers’ housing debt exceeds the value of their properties and whether first mortgages have been reworked when determining loss allowances.

Bank of America’s allowance for home-equity losses equaled 6.4 percent of its $152 billion portfolio as of Sept. 30, according to a slide from an earnings presentation posted on its Web site. Half the portfolio was tied to borrowers with debt exceeding 90 percent of their property’s value.

Spokesmen for Fannie Mae and Freddie Mac, the largest owners of first-mortgage risk, declined to comment. The companies were seized by the U.S. in September 2008 and are being supported by unlimited taxpayer capital through 2012, after drawing $111 billion so far.

While Home Affordable allows loan servicers to reduce borrowers’ principal instead of just their payments, such steps aren’t required and decisions are designated to the servicers.

The four U.S. largest banks, which own almost $450 billion of home-equity debt, are also the biggest servicers handling payments and collections on loans held by others.

“If they can get the first to eat it, why would they want to on the second?” Simon said.

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net

Last Updated: January 19, 2010 00:01 EST

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During the Christmas and New Year’s Holiday I got a chance to catch up with a lot of my old friends and family and of course we got to talking about the mortgage and lending industry!  Yes, believe it or not, this is still a very popular topic these days!  : )

We got to talking about horrible loans and the dishonest practice that took place in the past and other not so great experiences that they themselves and their co-workers experienced.  I allowed them to vent and express their thoughts and opinions.  After a good 30 minutes or so of people just taking turns of bashing the lending industry, the Obama Administration and all this bailout hooplah, I told them these magical words that caught everyone’s attention:

“In today’s lending environment and the many reforms that have taken place in the industry, I couldn’t give you a bad loan if I even wanted to!”

This statement opened up a great discussion and informing everyone of how mortgages are done today and why people who are thinking of getting a new home or a new mortgage, should not be so scared. 

Here are a few key reasons why getting a mortgage today is not only safe but to your advantage:

• You have a choice of vanilla, vanilla and….vanilla!  Would you like vanilla sprinkles with that?  Mortgage Programs today are pretty straight forward – 30 Year Fixed, 15 Year Fixed and a few other terms in between.  There are still a few ARM Programs hanging around but they’re definitely not the exotic programs of the previous years and are actually a bit tougher to qualify for in some cases.
• Interest Rates are still at all time lows!  I really didn’t want to use this line because it sounds so generic and “salesy” but I’d be lying if it wasn’t true!  Interest rate are still very low.  How long will they last for?  If I knew, I sure as heck wouldn’t be doing this for a living! But take advantage of them while they’re here!
• The NEW FORMAT of Disclosing to Consumers.  Folks, with the new disclosures and rules implemented with them, there are no more surprises at closing (and if there are you will know about it and you will be given time to think about it).  Whatever amount of fees are disclosed to you up front (from the very begining), that amount has to stay the same or if it is different you will be given up to 7 days to think about it!
• Tax Credit for Homebuyers has been extended!  As the media has done a very good job informing everyone of this, the tax credit for homebuyers has been extended – just in time for tax season!!!  Today’s homebuyers will not only enjoy the benefits of buying a home at a very low price, enjoy tax benefits of being a homeowner but also have an additional tax credit of $8,000, too! (ask your tax advisor for further details).
• Implemented Investor and Lender Overlays = Stable, New Generation of Homeowners and Mortgage Industry! Though this can be extremely annoying to the customer and everyone involved in the transaction, the good news in the midst of all the mayhem and scrutiny is that it does 2 things: (1) minimize risk for the lenders and investors which keeps the flow of lending, credit and cash throughout the whole system and (2) If you’re able to get through all the scrutiny of underwriting, approvals, re-approvals and hoops required to jump through to obtain a loan – not only do you deserve to have that loan, YOU DESERVE A MEDAL!!!  You’re a solid and ideal customer to get a home and chances are, everyone else who got their home about the same time as you are solid and ideal JUST LIKE YOU!  This is a start to what we all hope will be a stable, new generation of homeowners in America!  

Again, for more specific information on your situation, please contact your tax advisor and local real estate and mortgage professional.  Not sure who to contact?  I’d be more than happy to refer you to someone in the Metro Detroit region, with expertise in Macomb County, Oakland County and St. Clair County Michigan.

Jeff Marsack, Mortgage Loan Officer

Great Lakes Mortgage Funding

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Obama Home Rescue: 650,000 Get Help

By Tami Luhby

CNN Money

Latest report shows that 20% of eligible borrowers have gotten trial modifications under administration’s $75 billion mortgage relief plan.

Some 650,000troubled borrowers have been put into trial loan modifications under the president’s foreclosure rescue plan, the Treasury Department said Tuesday.

That number represents 20% of eligible homeowners at least 60 days behind in their payments, according to the Treasury report. This is up from 16% a month earlier.

Despite the progress, housing counselors say the number of people falling into foreclosure vastly exceeds the ranks getting assistance. The number of filings hit a record high of 937,840 in the third quarter, according to RealtyTrac, an online marketer of foreclosed homes. That’s a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

The $75 billion Obama plan is “lagging behind the massive number of foreclosures that continue to pile up,” said John Taylor, head of the National Community Reinvestment Coalition.

But administration officials have said that the program, which was projected to help up to 4 million homeowners, is on track.

The rescue tries to keep borrowers in their homes by adjusting monthly payments to no more than 31% of a borrower’s pre-tax income. Servicers, borrowers and investors can get financial incentives to participate.

Administration officials have been pressuring loan servicers to ramp up their modification efforts. Many people have complained that financial institutions lose their paperwork, transfer them repeatedly between departments and require that they fill out applications again and again.

But the rising unemployment rate is prompting more homeowners, even those with strong credit histories, to fall behind on payments. And the president’s plan is not designed to help the jobless.

At Neighborhood Housing Services of Chicago, only about one in four people are getting help from the Obama program, said Michael van Zalingen, director of homeownership services.

About 30% are not being put into trial modifications for reasons including too little income or too much equity in their homes, van Zalingen said. The rest are in limbo, mainly because the banks say their applications are incomplete.

Certainly, banks have quickened the pace of loan modification approvals, van Zalingen said. His group secured 180 modifications for clients in the second quarter, but was able to help 400 in the third quarter. He expects that a total of 1,000 clients will be put into trial modifications by year’s end.

Still, the modifications are not keeping pace, van Zalingen said. NHS-Chicago will see 3,000 to 3,500 distressed borrowers seek help this year. “Loan servicers are offering trial modifications more often, but not anything like the need or demand,” he said.

Just how many modifications are completed depends on the servicer. Performance remains very uneven, as it has since the start of the program.

Through October, Saxon Mortgage Services put 44% of eligible delinquent borrowers in trial modifications — the highest percentage of about two dozen companies. Among the largest banks, Citigroup (C, Fortune 500) came in at 40% and JPMorgan Chase (JPM, Fortune 500) 32%, while Wells Fargo (WFC, Fortune 500) has placed 29% and Bank of America (BAC, Fortune 500), the biggest servicer, 14%.

What’s becoming even more important is how many people in trial modifications receive permanent adjustments. The Treasury in September lengthened the trial period to five months, from three months, to give borrowers more time to send in their paperwork and banks to process it.

Treasury’s monthly updates are expected to start reporting the number of permanent modifications offered within the next few months.

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