An article in today’s Wall Street Journal lays out some of the problems with the Home Affordable Refinance Program. “Borrowers Miss Out on Refinance,” reads a headline.  According to WSJ, HARP is not reaching scale because it doesn’t address the needs of people who are under water in their mortgage.

HARP is struggling for several reasons. For one, the program still isn’t designed to meet the needs of borrowers. Second, banks don’t appear to feel compelled to act with integrity in their efforts to make HARP loans. Last, Fannie and Freddie are imposing new charges on loans that make it harder for cash-strapped consumers to make refinances.

This is a shame, of course.  Refinance rates are very low.  Even for borrowers with the best prime mortgages, refinance rates are at historical lows.  The refinance market should be booming.  While last year was a busy year for refinances, it was not nearly as high as it should have been in the context of these low interest rates.

In 2003, when refi rates were roughly the same as those available to prime borrowers now, (more…)

The Mortgage Banker’s Association of America, unable to make good on its mortgage, has entered into a short sale on its commercial loan outstanding on its Washington, DC headquarters.  The MBAA is selling to CoStar for $41.3 million, a sum far short of the $75 million in debt that they took out in 2007.

The MBAA announced their intentions back in October to sell 1331 L. St. because they couldn’t make payments on their $79 million headquarters. The MBA had a whopper of a mortgage – a variable-rate loan mortgaged at 94.9 percent (more…)

CRA-NC has prepared a video documenting the efforts of North Carolina housing counselors seeking to prompt changes in the Home Affordable Modification Program (HAMP).

Our motivation was simple:  we wanted to get the word out to the leaders in DC that loan modifications have been slow.  We wanted to let people hear the voices of housing counselors.

Housing counselors are the foot soldiers in the battle against foreclosures.  Housing counselors meet with families that are in trouble.  Housing counseling is mainly funded by the Department of Housing and Urban Development.  Unfortunately, funding pays for operational costs but not for the sunk costs of office space and utility bills. Counseling agencies are constantly strapped.  They cannot charge their clients, and they must outfit their operations to meet HUD standards. Most housing counselors are paid very little, even thought they can make a big difference in keeping a family in their home.

The work is tireless.  The work is ground zero for the foreclosure crisis. Housing counselors negotiate with servicers. Housing counselors know what is working, and what is not working.

If you click on the movie below, you’ll be able to see a short documentary highlighting the Modify This Tour.

[vimeo

Modify This! from Tyra Dixon on Vimeo.

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Housing counselors from non-profits across North Carolina rolled out to the Capitol to talk about loan modifications.  More than 50 counselors were there, along with staff from CRA-NC and NCHFA.  We were joined by ChangeMakers, a community organizing group from Brooklyn, New York.  The counselor led the show. They asked the questions and made their opinions known to our invited guest:

• Congressmen Bob Etheridge (D-NC) and David Price (D-NC).
• The Department of the Treasury
• Department of Housing and Urban Development
• Office of the Comptroller of the Currency

We look forward to continuing this fight. Change is not instant, but incremental. More foreclosures are expected. HAMP is not working.  Our national leadership now acknowledging that the servicers are dragging their feet. They are “not doing a good job,” according to Assistant Secretary for Financial Institutions Michael Barr.

No other situation prompts a greater chance of foreclosure than when borrowers find themselves with negative equity.  Being “under water,” as it is known, refers to the instance when a borrower has more mortgage debt out against their home than the underlying appraised value of that home.  Negative equity is always an estimate, because appraisals are an inexact science.  Nonetheless, even a back-of-the-envelope calculation with a modest degree of error still yields a reliable gauge on the nominal status.  A borrower is either in the money, or in the red.  it doesn’t make a huge difference if you are down by 30 percent or 20 percent – the negative equity is still hanging over your head and the implications, from a behavioral economics point of view, are still stark.

FirstAmerican Core Logic publishes its own estimates of negative equity.  The state-by-state data is free.  They make their money selling the data on a more narrow basis.  Even the state-level data is informative, though. Here are some interesting findings:

• Average outstanding loan-to-value in Nevada: 114 percent! That means that it is the exception to the rule when a borrower with a mortgage in Nevada is not “under water.” Indeed, FACL reports that 65 percent of all mortgages are in negative equity.
• The Northeast and the Upper Plains are the least likely places for this problem.  In New York, Washington, DC, Rhode Island, Connecticut, Nebraska, and Montana, average outstanding loan-to-value is less than 57 percent. In New York, the figure is less than 50 percent. There is no data on South Dakota, although it seems possible that this is another state that would the lowest ratios.
• More than 47 percent of homeowners in Arizona are in negative equity.
• In Michigan, more than 37 percent are in negative equity.
• Nationwide, more than 10.5 million borrowers owe more on their home than it is worth today.
• Markets with the highest loan-to-value ratios for outstanding mortgages: Las Vegas-Paradise (122 percent), Riverside-San Bernardino-Ontario (103 percent), Orlando-Kissimmee (96 percent) and Phoenix (96 percent).
• High LTVs are in areas with lots of subprime mortgage origination, but also in areas where home prices are depressed by long term job loss: Detroit (89 percent) and Warren-Troy (86 percent).

This data only includes homes with mortgages.

While the Home Affordable Mortgage Program (HAMP) has triggered servicers to make hundreds of thousands of loan modifications, it would be a mistake to think that this program has effectively salvaged the housing market.

HAMP makes temporary modifications on first lien conventional home purchase loans that are delinquent.  In most instances, HAMP only covers agency loans, although servicers of non-agency debt can seek to use the HAMP guidelines for modifications.  The terms of HAMP stipulates that for at least a short time, that a borrower’s payments should not exceed 31 percent of their income.  HAMP’s latest report shows that the program has provoked more than 650,000 loan modifications.  More than 134,000 of those mods are in California alone.

Questioning the Lasting Impact of these Mods

The short-term nature of these mods means that it is very possible that all HAMP is doing is spreading out the pace of new foreclosures (more…)