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Fannie Mae Sales: 3.5 Percent Back
February 01, 2010
Fannie Mae on January 28, 2010 announced a new program through which owner occupant buyers of any of its owned real estate (REO) will receive a 3.5 percent rebate on the final sales price. The rebate can be used either for closing costs or as a credit for purchase of appliances. The offer is available for any purchase of one of Fannie Mae’s HomePath properties until May 1, 2010. These properties are listed on Fannie Mae’s HomePath website.
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Show Me the Money?
January 28, 2010
Jon Stewart absolutely nails it in this clip about bankers after their fall.
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| Obama Takes On Bankers | ||||
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Time to Modify HAMP?
January 22, 2010
The New York Times reports on Jan. 21 that the Obama Administration is expected to announce significant changes to its Making Home Affordable loan modification program as early as next week.
Likely changes include altering the formula used by lenders to determine whether a modification is the best economic option for borrowers by giving more weight to modifications that include a write down of principal. As I have written earlier, principal modifications are emerging as the key variable in creating lasting, stable mortgage modifications.
Another area for possible change would be how to treat borrowers who are currently unemployed. This could include a period of forebearance to give borrowers more breathing room to get back on their feet. More radical proposals to provide direct loans to such households seem unlikely to emerge from the current deliberations.
The loan mod program has been plagued by long start up times, confusion and lost paperwork as lenders try to scale up parallel underwriting practices in their servicing shops. One contributor to these delays have been documentation requirements that were adopted to prevent fraud, but seem to have been more effective in preventing legitimate modifications. Streamlining of required documents and quicker acceptance of initial qualifying material would be a big help in reducing the paper chase that has frustrated so many borrowers.
In addition, many borrowers have been confronted with foreclosure filings and even evictions while waiting for their applications to clear or while they are in the 3-month trial modifications that are the first step under the plan. Consumers who are in bankruptcy are another area of concern for advocates. Clarifying their eligibility for loan mods would also be a significant advance in the program.
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Lien On Me
January 19, 2010
Second liens are a big obstacle to any attempt to reduce outstanding principal on first mortgages as part of a modification. When the second lien holder will not agree to take a haircut on their loan, there's scant incentive for the first lien holder to do so. After all, the second lien holder's payoff in a loan failure comes behind the first one. Why would a first lien holder agree to take less and have the second, whose risks of loss is supposed to be higher and who is charging a premium rate of interest to cover that higher risk, walk away whole?
A recent article on Bloomberg sums up the problem very well. It also contains this provocative passage:
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." (I noted some of these "moral hazards" in earlier posts.)
Treasury crafted a modification program for second lien holders, but according to the Bloomberg article, none of the lenders holding $1.05 TRILLION of this debt has actually signed up to participate in it.
A program through which the government acquired these mortgages and restructured them, including through the use of "friendly" foreclosures, could break the logjam described in this article.
So could bankruptcy. But bankruptcy judges do not have the right to modify first mortgages through bankruptcy -- authority the Obama Administration sought but failed to get Congress to grant -- and forcing a bankruptcy just to clear the seconds seems a poor policy choice.