There are plenty of reasons to be happy with the updated HAMP rules if you are borrower. It seems that Treasury has listened to a lot of the problems with HAMP. Borrowers that need a modification should feel that things are getting better.

So should any investor that has a position in a mortgage-backed security made up of second-lien loans.

In a typical foreclosure, the bank does not recover enough through an REO sale to satisfy all of the debts on the first lien holder’s position. If there is a second on the home, the investor loses everything.

One of the key features in this new plan is an incentive to encourage lenders to refinance borrowers into an FHA-guaranteed loan at no more than 97.75 percent of the market value of the home.  In many cases, lenders are going to accept principal reduction in order to meet that criterion.  If the LTV was 125 percent prior to the reduction, then the lender is out 27.25 percent of the current market value of that home. In a traditional loan modification, the outcome would have been different. In most instances, the lender might have been able to retain a higher principal balance. For them, it is a marginal difference.

Dean Baker at the Center for Economic and Policy Research put it this way:

By substantially reducing the required payment on the first mortgage, the program will be creating a situation in which the second mortgage — which would be worth little or nothing in foreclosure — will suddenly again hold considerable value. This will be a huge windfall for second mortgage holders. It is worth noting that the major banks have vast portfolios of second mortgages.

For the second-lien holder, it is a huge difference. Remember that they would have been wiped out in an REO sale.  The value of those loans, if put up for sale, would reflect that situation. With the new HAMP rules, everything is different. Now those loans remain intact and suddenly viable.  It is certainly possible that a refinanced borrower will even have a better chance of being able to service their debt on the second.

It is also good news for the servicers that take care of these second positions.  Ocwen‘s share price has bounced back from lows below $9 to almost $11.15 in the last week.  Just a week ago, Barney Frank was working to make second lien holders take write downs on their positions.

We have reached a turning point in the foreclosure crisis. People are saying that foreclosures are now being driven as much by unemployment as by dangerous mortgage products. Unemployment is almost 10 percent across the country.  It is as high as 14.2 percent in Michigan. The problem is not going away, even as its underlying forces change. The OCC and the OTS, in a joint report published last week, confirmed the troubling expansion of the foreclosure crisis. Fewer mortgages are performing than ever before (just 86.4 percent) and the share of delinquincies has now risen for the seventh straight quarter.

What can we do about it?

Principal reduction is suddenly in vogue.  Bank of America has come to the conclusion that a lower principal balance is still better than the expected return from a foreclosure or a short sale.  For the borrowers that are lucky enough to get their balance reduced, it will be a significant opportunity.   B of A says that they will offer a forbearance on as much as 30 percent of outstanding principal balances if that is what it takes to reduce debt service to 31 percent of borrower income.  There are still some significant collars on the depth and breadth of this effort. For one, it only applies to option-ARM mortgages. Second, it is only a five year forbearance.

Since last spring, tenants have been given more protections when their landlord loses his or her property to foreclosure. Unless the new buyer intends to reside in the foreclosed home, tenants with on-time rental payment histories get 90 days before they have to vacate their home.

On the ground, plenty of the buyers of formerly foreclosed rental properties are not extending new leases to former tenants. This is hard for tenants, because it is very hard to prove your rent payment history to a new landlord if the old landlord (s) is a servicer.

We don’t have to wait on the banks. There are other ways to make sure that foreclosure is avoided.  Remember, no one wins in a (more…)

Perhaps the difficulty that African-American borrowers experience when they apply for a loan is not merely about race, as many have suggested, but also about the economic differences between men and women.

Advocates often compare how capital is allocated within communities.  Who is getting loans, and who is not? The income status of a borrower is very relevant, as is the income status of the surrounding neighborhood.  HMDA data is set up to allow for those kinds of questions.  We also look at borrower race.  HMDA data can provide answers for many of these questions, too.

I decided to use one of the lesser-utilized data points in HMDA to do some initial descriptive research about how race and sex interact in the mortgage marketplace. HMDA allows applicants to indicate their sex and the sex of their co-applicant. Most borrowers fill out the data. I looked at a set of originated loans made in Charlotte, North Carolina in 2008.

This is just an initial take and the findings are only descriptive. I can’t draw any inferences for policy with these numbers because there are so many other variables that aren’t captured here.

In loans originated by African-American borrowers, women are almost as likely as men to be listed as the lead applicant. Women applied for 3,306 of the 6,713 mortgage loans taken out by African-Americans in Charlotte in 2008.  That is about half of all new loans. In instances where white borrowers made loans, women made only 30.4 percent of the applications. In most of the instances when an African-American woman took out a loan, there was no male co-borrower.  Only 605 of those 3,306 loans listed a male co-borrower (18 percent), and in 2,612 instances there was no other applicant at all.  The rest are instances when the other borrower was also female, or when the application was taken over the phone and the sex status of the co-borrower was not known.  White woman are more likely to have the support (29.1 percent) of a male co-borrower, although the numbers show that it is still an exception rather than the rule for both.

African-American women are more likely to apply as single heads of households, and minority neighborhoods have a greater share of single head of household families.

It is even true that the share of African-American women seeking a loan that are single grows higher in higher-minority neighborhoods.  The discrepancy grows in minority neighborhoods.  In communities where more than half of all residents are African-American, women 52.8 percent of all approved applications.  The prevalence of women as lead household financial decision-makers is more prominent in minority neighborhoods, regardless of borrower race.  White women were more likely to file for a mortgage without a co-applicant when they lived in a majority-minority neighborhood as well.

Women-only borrowers are taking out modest loans.  The average loan amount was much less – just $154,000, compared to almost $190,000 – in African-American households.

I don’t have the numbers, but I believe that there is a lot of data out there to suggest that women are paid less than men, after controlling for job type.

The data includes first-lien loans on owner-occupant single-family homes purchased with a conventional prime loan in 2008.

Fifth Third has reported another security breach of its cards.  In this instance, it is the Fifth Third debit card.

Pacific Capital CEO George Leis has been given a $15,000 raise.  His contract has been renewed through 2012.  This is in spite of the fact that the share price is at less than $2 today, off from more than $20 a share.    Pacific Capital lost $431 million in 2009. He is going to earn $600,000 a year, plus options.

Does anyone do a double-take when Bank of America is lauded for its new mortgage modification policy? That shift seems to have less merit when you realize that Bank of America’s failure to modify mortgages has provoked a lawsuit in Massachusetts.  B of A is doing what it has to, no more.

It is tax time for American citizens.  The bottom third of earners are likely to have no federal tax liability.  The same goes for Wells Fargo and Bank of America.  No tax liability. In fact, Bank of America may get $2.3 billion back from the federal government.  In other news, new Bank of America CEO Brian Moynihan will be paid $6 million per year.

The health care bill included some student loan fixes that attempt to address the high rate of defaults. I understand the imperatives for what they are doing. Defaults raise concern about fiscal cost-efficiency for the federal loan program (s), and they also point to ongoing weakness in employment and income security. I don’t think that these “fixes” are going to be enough, though, and they might only be a band-aid that fails to solve the underlying problems with how we prepare our students to be workers.

Consider three separate but interlocking items that we’ve seen in the news lately:

• The Bureau of Labor Statistics reported that unemployment stood at 9.7 percent in February. Civil labor force participation is only 64.8 percent.
• reading scores are flat.  Student proficiency is higher than it was in 1970 for younger students, but it has not improved at all among 17-year olds. Only 32 percent of students are proficient at reading in the 8th grade.
• Four years later, more of our students enter college than they ever have before.

The stated goal of our new student loan policy is to lower default rates. This is a very good idea. Unfortunately, until the economy improves it will be hard to get much traction on repayment rates. Until students come out of school with better skills, fewer will have the tools they need to graduate from college.

Inflation-adjusted earnings, 2000 to 2009, by level of educational attainment. Source - Bureau of Labor Statistics.

This combination spells trouble. More students are going to leave school before they graduate, and they will be chasing fewer jobs when they arrive on the labor market.  One odd outcome of this recession is that our work force is actually getting older: fewer older workers are leaving jobs and fewer young people are entering the workforce as soon as they have in the past.

This chart should get the point across that we haven’t had much wage growth in the United States in the last decade.  That is in spite of the fact that for much of the decade, the economy was fueled by an explosive housing sector.

This was also a time when the cost of attending college soared.  North Carolina is lucky to have a generous tuition policy. We are the exception. Even state universities are raising their tuition rates. The decision made this year in the University of California system was merely a sparking point for a larger anxiety among students and their parents about paying for (more…)