Archive for the ‘government programs’ Category
Wednesday, October 26th, 2011
Recently the Obama administration announced changes to the Home Affordable Refinance Program (HARP) that are aimed at helping homeowners refinance mortgages, even when there is no equity in their homes. Their goal is to help the millions of homeowners and prevent more foreclosures, but what is involved and will it really work?
Some of the changes to HARP include the following:
1. Fee reduction. Many of the fees associated with refinancing will be reduced.
2. Current loan to value cap on fixed rate home loans will disappear. This was the reason many homeowners could not take advantage of HARP initially, since the value of their homes had decreased significantly.
3. Reduced underwriting guidelines. Some of the changes almost hint at a stated income situation, with a verbal income verification…but we will have to wait and see the specifics when they are announced.
4. Appraisal changes. The new plan will have a valuation system for appraisals, called “automated valuation,” which will do away with the need for new appraisals, and hopefully avoid appraisal issues that have plagued refinancing in the past.
There are a few caveats, most importantly that the homeowner has to be current on their mortgage. The home also must be a primary residence, and borrowers will be able to shop rates with other lenders, not just the lender who currently holds their loan. More details will be revealed next month. Some of these changes sound promising, and I do believe that more homeowners will get to take advantage of the lower rates without these restrictions, but the big question is:
Will the new HARP really help the housing market?
I have to say no to this. While this is a nice plan to help some more people get into lower mortgages, the fact is that it does not shine the light on the bigger problem in real estate – homeowners who have fallen behind on their mortgages. The new HARP offers no help to these people, and their homes will likely turn into a big future foreclosure wave. The negative equity in these homes is so great that neighborhoods will continue to be effected by their foreclosures, with comparables continuing to drop.
The other big problem I see with the new program is that it has to be implemented by the banks. Although some banks, like Bank of America, claim to embrace the new program, chances are we will still face many hurdles from the banks with implementation. Banks are simply too scared to refinance many mortgages, and the re-default rate is high, making them risky.
While I think the new HARP plan can help some homeowners, I think it is just the beginning. I stand by my opinion that housing must be fixed if we ever want to see the economy improve. We need MUCH more than what HARP can do. We need to help the millions of people who are unable to pay their mortgages, prevent the wave of foreclosures down the road, and find ways to deal with the heavy inventory currently owned by the lenders that is not yet on the market. To do this, we need the cooperation of the major lenders in formulating plans to help these people.
What do you think?
Tuesday, September 13th, 2011
After many real estate industry complaints that the new Obama administration recovery plans did nothing for housing (aside from refinancing assistance plans, which as we all know still require lender cooperation), out comes a plan with that goal in mind. But will this new plan really help distressed inventory and jobs, or is it merely another attempt that will eventually fall apart and leave the housing market no better off?
The new plan, called Project Rebuild, is actually not a completely new concept. Based on the already somewhat successful Neighborhood Stabilization Program (NSP), which in two parts provided grants to states and local governments (and later to non-profit agencies) to rebuild blighted neighborhoods, Project Rebuild focuses on jobs. The $15 billion program will connect out of work Americans with jobs to rebuild distressed neighborhoods, including both residential and commercial properties.
There are several problems with this approach.
1. How will neighborhoods be identified to participate? The program states that it will focus on the most distressed neighborhoods, yet there are so many areas that have these types of neighborhoods. While $15 billion seems like a lot of money, when you are talking about rebuilding homes and buildings it can go pretty quickly. Many states, like California, don’t have the money to fix all the broken neighborhoods, so while some may be helped this obviously will not make the problem substantially better.
2. How will states decide who gets these jobs? Many states have big unemployment numbers, and while the program states it will give jobs to people in the distressed areas again – this means the rest of those in other distressed areas will receive no jobs. It cannot cover everyone, and may not even be able to make a dent in jobless numbers. Also, there will likely be many people who cannot work in construction, for various physical reasons. What, specifically, are these jobs going to be, and how will they choose who gets them? What if people need training – is that part of the budget?
3. Will fixing some distressed areas really make that much of a difference in the distressed housing market? Should the feds even be involved in this? Some say that the feds need to leave the distressed markets alone, with perhaps the only exception being the need to get lenders to be more cooperative in working with distressed homeowners in avoiding foreclosure. (It is important to note there are federal programs with this goal in mind, but the fact is that the lenders still can do whatever they like, for the most part, and cooperation is not where it should be). Distressed markets can actually be good for housing, as they bring prices down so that more people can afford to buy. This can really be a blessing or it can be a problem, depending on your thinking.
I think it is fantastic to try and clean up some of those areas that have suffered the worst, and make these neighborhoods liveable once again…while at the same time providing jobs that meet that goal. We all know that there are so many people out there who are ready and able to work, and providing more jobs is a great goal. I am just not sure that this is the best way to do it, and even with private sector involvement I question whether there will be enough money to go around.
We could look at some other options. One that comes to mind is to pour some of that money into our public schools so that we can hire more teachers and reduce class sizes, bring back art and music and P.E. to many schools. Bolstering up schools is a win-win for everyone, including neighborhoods. This is just one idea, and I do think we need to do something about the lenders and the difficulties with them refusing to help people avoid foreclosure. In time, this will help heal neighborhoods as well. The fact is that we still do not have a strong program to help the housing market and homeowners.
What do you think? This is a tough call, and I would love to hear your thoughts – I invite you to comment below (if you do not see the comment box, simply click on the title of this post and then scroll down to the end).
Monday, July 25th, 2011
The government has played an integral role in the real estate market for a very long time. But lately there have been two diametrically opposed views – and many in between – as to whether it should continue to do so. I posed this question to agents and the responses were very interesting.
The pro-government view is that the government has contributed to making the market a better place, mostly for consumers. Programs to help people avoid foreclosure, get better rates on loans and be able to buy homes with little money down (buyers who otherwise would not be able to purchase), keeping buyers, sellers and homeowners safe from scams (like mortgage fraud – although the past has not proven this is 100% possible), and enforcing local and federal laws (zoning, anti-discrimination in housing) to help people and our neighborhoods.
Just as vocal are those who feel that the government has intervened too much (anti-government intervention views), causing the market to be in such a horrible state. They site programs that have failed to do much but cost taxpayers lots of money, bank scams due to lack of regulation, problems within the foreclosure market, as well as the looming possibility of a loan limit reduction, which many believe will decimate the market even further.
One respondent pointed out that the government has to be involved to some extent, as many laws designed to protect us are entwined with the real estate market – zoning laws, building codes and federal anti-discrimination in housing laws come to mind. I agree. The government needs to jump in here to enforce rules that will keep our neighborhoods strong and ownership protected. So maybe the question should be “how much should the government intervene?”
Mark Zandi, the Chief Economist for Moody’s Analytics, recently stated in a post that it may be time for the government to get more involved in housing. He sites three areas that would benefit: “(1) facilitating more refinancing, (2) delaying the impending reduction in conforming loan limits, and (3) supporting principal-reducing loan modifications more aggressively.” He believes the government should require Fannie Mae and Freddie Mac to provide more refinancings through the Home Affordable Refinancing Program (HARP).
The flip side of the coin is that the government, instead of enforcing oversight on government agencies like Fannie and Freddie, needs to back off and let the chips fall as they may. They say that if Fannie and Freddie fail, it could open the doors to privatization – new types of funding where corporations and private parties become lenders in the primary market. These folks believe housing will not recover until such a time. Of course, there are many viewpoints in between as well.
No matter where you stand on government intervention in real estate, there are valid arguments on both sides. The key is getting people in the know to get together and have dialogues, sharing ideas that could reasonably be implemented to make a difference in the market. I love posting heated questions like this to Realtors, because the ideas that spark from them are often good ones, smart ones, and show that a group of people really can come together and find ways to solve problems for the common good – maybe a lesson the federal government can take to heart. What do you think?
Monday, April 18th, 2011
In what I personally think is a big mistake, Congress announced that it is eliminating $88 million in funds for housing counseling programs. These are the programs that allow struggling homeowners and others with questions to call in and get counseling advice. It is often the first step in pre-foreclosure, or even in avoiding foreclosure altogether.
One of my favorite counseling hotlines, HopeNow, stated that it is not being shut down, but will be effected by the cuts. I have referred people to HopeNow for years. It is approved by the Department of Housing and Urban Development (HUD) and the people who work the phone lines actually know what they are talking about. The biggest complaint I have heard is that sometimes one has to hold for help for some time, but the advice is real and they really do go over specific situations and crunch numbers with callers.
Why would the government want to cut these programs? Well, I think that the government is busy trying to come up with ways to prevent foreclosures and help the housing mess by implementing new programs (of course, we have not seen these as of yet, but the most promising seem to be on the way, stemming from the robo-signing lender punishment saga). At the same time they are trying to trim our exorbitant budget, so these goals may conflict.
Many states are creating their own programs to cover the slack the federal programs have left behind after being canceled, but there are only a handful that have such programs in operation already.
So what is a troubled homeowner to do now? Some federal programs have been eliminated, not all states have yet implemented programs to help, and the mandated lender reforms (currently in the works as punishment for the robo-signing scandal) are not yet finalized. People need to know their options.
Basically there are three options, and some of them have multiple sub-options:
1. Stay in your home. To do so you may need to look into a loan modification, change of job, or a complete reevaluation of your finances so that you can eliminate or lower other expenses. You may need to get creative, consider getting a second job, renting a room or putting your young children to work (just a hint of black humor/sarcasm–of course I don’t recommend this).
2. Sell your home. If you cannot make number one work and you need to sell it will either be a traditional sale or a short sale. Either way, make sure to work with a Realtor who is experienced in your area, and if you are doing a short sale make sure that person is experienced in this regard. You also should look into the HAFA program if you are considering a short sale–at least you can get money to help with moving expenses (up to $3000–see previous posts. To find them go to the categories list to the right of my blog and click on short sales).
3. Foreclosure. This is the last resort, or course. But many times there may be no other option if you are in over your head financially, have a job loss, illness, changed circumstances, divorce, etc. Just make sure you speak with your financial planner, attorney or accountant (or all 3, in my opinion) before doing so. You need to understand all options so you can make the right choice.
As we continue to see cuts to vital programs options may dwindle, at least for a while. I have discussed multiple times how I feel states will start to jump in to help residents with their own programs, much like California has done with Keep Your Home California. If you do not yet have a program in your state I would still advise contacting HopeNow or La Raza. Your lender may have counselors available to help you as well. But do not wait until it is too late. If you are not yet delinquent on your payments you need to start researching now. Best of luck.
Friday, April 15th, 2011
Much has been going on lately in the distressed property market. Here is the week’s news.
Regulators say lender punishment agreement is getting closer: While we have been hearing for weeks, maybe months (I lost count) about lender punishment in the robo-signing scandal and what form it will take, apparently an agreement is close. Keep in mind that a few weeks ago the Attorneys General and Federal Regulators, who were not seeing eye to eye on punishment options, parted ways. The Feds have been working with the lenders to come up with a solution.
The latest news is that the lenders will be ordered to fix foreclosure procedures and pay back homeowners who wrongly had their homes foreclosed upon (no dollar amount has been determined). Hmmm. Let’s see: lenders erroneously took your home from you and now they want to give you money to apologize. The money is nice, but the fact is these people still lost their homes! Not to mention their credit is decimated. Furthermore, who is going to foot the bill for hiring third-party companies to evaluate all foreclosures completed in 2009 and 2010? We assume the lender will do so. If they are paying these likely very high fees for review, how much will be allocated to pay the homeowners, the true victims in all this? Can banks actually survive this?
Finally, what of the Attorneys General, who did not agree to the punishments being discussed? Are they going to get together and come after these lenders, or will they sign off on whatever agreement the lenders and Feds concoct? It is all a bit confusing.
Legislation Proposed to speed lender response to short sales: On another note, there is a bipartisan effort by lawmakers to introduce a new bill that will curtain short sale timelines. The bill will mandate that a lender responds in 45 days or less to a short sale offer–either accepting, declining, or providing status on the decision. The National Association of Realtors is behind this bill, as it would help with home sales across the country. Note that this is the second time a bill such as this has been introduced, so hopefully the second time will be a charm.
Foreclosure numbers have dropped: The latest reports indicate that yes, foreclosure activity is the lowest in three years. Don’t get excited though, as RealtyTrac says that this is due to processing delays. Still, there were much lower numbers reported in the foreclosure arena. Also important to note is that reports have stated that states using non-judicial foreclosure (like California) have shown quicker movement through the foreclosure process.
Bank reposessions: These have ncreased in non-judicial foreclosure states 9% from the last quarter, making more REO (lender owned) properties available. The good news here is that if they are Fannie Mae properties and you are a buyer you could qualify for receiving money toward your closing costs…see my last post before this one. REO properties that are listed on the market tend to have lower prices and negotiating power for buyers. Also, many lenders will go in and spruce up these homes a bit (like painting, new carpet, appliances, etc.) before listing them, making the situation even better for buyers.
The bottom line is that there are changes being made in the distressed property market. Some will be for the good, some may not pan out. But the fact that the government is making strides here is important. My hope is that by continuing to focus on this enormous problem and the even bigger repercussions it has on not only housing but the economy, will eventually help both.
Friday, February 25th, 2011
Four federal programs that were created to help troubled homeowners escape the foreclosure ax are on the endangered list this week. Included are HAMP, the FHA’s short refinance program, HUD’s Neighborhood Stabilization Program and the Emergency Homeowner Relief Fund.
While created with good intentions of helping millions of borrowers, these programs in reality have all failed to make a dent in the plight of the distressed borrower on a grand scale. Reports show that many borrowers no longer even contact counseling services set up to assist with help under these programs. One member of the House Financial Services Committee, which has called a hearing for March 2 to review these programs, opined that the programs have actually done more harm than good.
The main argument against the above programs is their cost, which is translated to the tax payers. The cost of helping just one homeowner can be so astronomical that it just doesn’t make sense. Often things created in haste that are not well thought-out can have this result, and unfortunately in this case the backlash is that the housing market cannot recover in such circumstances.
In lieu of federal programs to help underwater and troubled borrowers, the slack will be left to individual lenders and states to come up with programs that will realistically aid borrowers. California has jumped into the proverbial boat first with Keep Your Home California, a program that packs a lot of punch and sounds promising. Pennsylvania has a successful program that provides assistance to unemployed homeowners. The proof will be in the pudding, and lenders will need to cooperate in order to help with recovery efforts. Inevitably other states will need to formulate programs as well, so eyes will be on the California guinea pig.
The bottom line is that the market cannot recover unless there is cooperation from the lenders. Short sales need to be streamlined and loan modifications need to be considered for those who qualify, and with time restraints. It does justice for no one–the borrower, the lender, the housing market, the neighbors of the homes in question–to draw out these processes. We need to help those who need it, and provide them with alternatives. We don’t just need band aids folks, we need hard labor to build back our markets.
Thursday, February 24th, 2011
The Obama administration has announced a new plan to get loan servicers to pay for loan principal reductions worth billions of dollars. If mortgage providers commit to this new plan it could prevent a staggering number of future foreclosures. No new government program will be created; instead, participating lenders will be able to utilize existing programs or their own programs to accomplish the goals set forth in the plan.
In order for the housing market to recover we need to get all the foreclosure inventory out there…lenders sitting on foreclosed homes does nothing to help our economy. While this desperate plan is a great idea in theory, it still requires the cooperation from some of the nation’s larges providers, such as Bank of America, Wells Fargo and J.P. Morgan Chase. This has always been the most difficult thing for the government when trying to institute a new plan to help homeowners. The plan would require the banks to pay more than $20 billion in civil fines OR fund a comparable amount of loan modifications.
The difference in this new plan is that it is not solely focused on reducing monthly payments, but instead aims at actual principal reduction. For example, under past and current programs an underwater homeowner who owes $200,000 in principal more on his home than it is worth (say he purchased it for $500,000 and it is now worth $300,000) gets his monthly payments reduced in a loan modification, but the additional amount is usually tacked onto the end of the mortgage. Over time he is still responsible for paying the entire amount even though his monthly burden has been reduced.
Under the new plan, the same homeowner would have his principal balance reduced, thus in fact giving him a new mortgage on his house worth $300,000, and wiping out the $200,000 debt. The problem is that the lender has to agree to eat the difference.
The plan also calls for lenders to reduce second lien mortgages when they modify the first liens. There is still a lot to be worked out and banks will have to agree to follow the plan. If this does not happen there could be a rise in lawsuits against the lenders from attorneys general. It will be interesting to see how this one plays out.
Sunday, December 26th, 2010
Could it be that loan modifications are actually raising debt? I read a short article today by Dean Calbreath in the San Diego Union Tribune that stated yes, they are. Mr.Calbreath points out that more foreclosures could be prevented if, instead of increasing the debt on the principal of troubled mortgages, the lenders reduced the principal. This makes sense, right?
A study released last week by a Federal Reserve branch points out that principal reductions over time have a lower chance of loan redefaults than do those with mere payment changes. But this scenario is not the case in the majority of modifications. The norm is for the lender to reduce payments only, rolling any missed payments into the loan balance. This is obviously a problem, especially for those living in homes where the value has dropped substantially. It’s simple logic: if you are given a loan modification based on current market value, meaning not only your payments but your principal balance is reduced, you may be more motivated to keep making payments.
This refusal to follow logic will not only limit the effectiveness of loan modifications, but will lead to more foreclosures down the road. According to the recent study the current loan modification practice tacks on between $7400 and $8160 to the balance of the loan. So, you ask, why are the lenders not following this logic? That seems to be another million dollar question in the sea of million dollar questions when referring to lender behavior over the last several years.
The potentially good news is that the current investigation into how banks handle loan modifications and foreclosures may have some bearing on future cases. Currently less than 40% of the potential foreclosures in San Diego county have been prevented through permanent loan modifications this year under the federal HAFA program. Maybe reducing the principal on troubled mortgages will be the new foreclosure prevention method that helps get that number up. I sure hope so.
Thursday, November 18th, 2010
The Department of Housing and Urban Development (HUD) recently announced that it has initiated a program that could help you pay for home energy improvements. This program will grant loans, called FHA PowerSaver Loans, to credit-worthy borrowers up to $25,000 to make energy efficient improvements of their choice.
PowerSaver loans will be backed by the FHA, and up to 90% of the loan amount will be insured by FHA mortgage insurance. Lenders will be chosen to participate in the program based on commitment and ability to provide energy saving loans. Interest rates will be low and borrowers must have at least some equity in their homes, but it is not yet clear exactly how much and whether it will be a case-by-case basis.
Examples of energy efficient improvements include duct sealing, new doors and windows, water heaters, HVAC systems, solar panels, insulation and georthermal systems. It is not clear whether energy efficient appliances–such as washers and dishwashers–are included but most states have programs that provide rebates for these appliances.