HUD Housing Counselors Continue Assisting Negative Equity Homeowners

Housing counselors continue to assist negative equity homeowners who need help staying put in homes while working on initiative to assist those having trouble reentering the housing market because of foreclosure code wrongly applied to past mortgage credit

HUD approved housing counselors can still assist homeowners struggling to stay put in negative equity homes. But a new effort will check credit of those who have had a past short sale, modification, deed in lieu or excessive mortgage late’s where foreclosure code is applied and causes a mortgage denial for past homeowners eligible for a new mortgage.

Current funding still exists to help homeowners with negative equity who are struggling to stay in their home, but not for long. National Foreclosure Mitigation Counseling funding will expire on September 30, 2017 so here’s a shout out to loan originators and realtors: Refer clients that you know are in need to HUD approved housing counselors that can be located in each state at HUD.gov.

As we turn the corner from the housing recession, problems continue to linger. In 2011, it was found that short sale credit was often coded as a foreclosure and is easily spotted where mortgage delinquency over 120 days occurs. In 2013, Senator Bill Nelson of Florida demanded that this problem be corrected and a workaround was done in the Fannie Mae automated system. But there was never a workaround done in the Freddie Mac system and due to the popularity of the Freddie Mac Home Possible program, past short-sellers with the foreclosure code issue are now being denied through the Freddie Mac Loan Product Advisor automated system. Further, all were stunned when an initiative started by the housing counseling industry for affected past short-sellers resulted in finding that the foreclosure code was also being applied to those with a modification and often a deed in lieu.

The root cause of this problem is not the Fannie Mae or Freddie Mac automated underwriting systems. Recently, a past homeowner who did not have a short sale, modification or deed in lieu but did have excessive mortgage late’s before she sold her home applied for a car loan at a credit union. She was denied the loan because her past mortgage credit showed up as a foreclosure and the loan was never run through the Fannie Mae or Freddie Mac automated systems.

The root of this problem appears to be that foreclosure code is applied to a mortgage when delinquency over 120 days occurs. The verbiage “settled for less than full balance” or that a loan is classified as a modification or deed in lieu does not appear to be superior to a payment history that is 120 days or more delinquent.

There is no specific credit code for a short sale or modification and there needs to be. And we need specific clarification to use credit code “89” for a completed deed in lieu. We need this now so that past homeowners who did the right thing and worked with their lender or a housing counselor to stay in their homes for as long as they could do not have their credit wrongly coded, causing future turmoil when they try to purchase a home again. We haven’t even scratched what this problem is doing to their other consumer credit.

Credit…. Having good credit…. Is what every American is taught about at an early age and what they strive for. Credit is what makes the economy run and better credit leads to better reward. It is frustrating that we are still dealing with a problem that the masses have known about for years, but that is adversely affecting the credit for millions and stalling many from reentering the housing market.

Last week, the offices of two Senators and three Congressman who get this problem were visited. The problem and a way that the housing counseling industry can help were shown to mortgage industry stakeholders at the HOPE NOW Fly-In. Presently, the housing counseling industry is fine tuning a process that will provide affected consumers with a correction to this problem…. before they purchase a home again. Our hope is to promote this service to loan originators and realtors and to have them refer potentially affected consumers to housing counselors who will take care of this problem before consumers purchase again. All of this is being done while we work on a bi-partisan effort with legislators to get a specific credit code for both short sales and modifications.

Stay tuned.


Underwater homes on the decline nationwide – but that’s not the whole story

HomeNews

by Ryan Smith, 08 May 2017

There were nearly 5.5 million seriously underwater properties in the US during the first quarter, according to new data from ATTOM Data Solutions. That’s an increase from Q4 of 2016 but still down by more than 1.2 million from the first quarter of last year.

Seriously underwater properties – property where the loan amount was at least 25% higher than the estimated market value – accounted for 9.7% of all US properties with a mortgage in the first quarter, according to ATTOM.

But those numbers don’t tell the whole story, according to Darren Blomquist, senior vice president at ATTOM. While negative equity is on a mostly downward trend nationwide, there are still swathes of the country where underwater property is almost the norm.

“While negative equity continued to trend steadily downward in the first quarter, it remains stubbornly high in often-overlooked pockets of the housing market,” Blomquist said. “For example, we continue to see one in five properties seriously underwater in several Rust Belt cities, along with Las Vegas and central Florida. Additionally, close to one third of homes valued below $100,000 are still seriously underwater.”

And those underwater properties can pull down surrounding home values, Blomquist said.

“Several of the cities with the biggest quarterly increases in underwater properties saw a corresponding increase in share of distressed sales in the first quarter, creating a drag on overall home values…” Blomquist said.

Baltimore, Md. Saw the biggest quarterly increase in underwater homes, up 26,974. It was followed by Philadelphia (up 8,919), McAllen, Texas (up 7,746), Cleveland, Ohio (up 7,631), and St. Louis, Mo. (up 6,844). All of those markets still had fewer underwater properties in the first quarter than during the same period in 2016, ATTOM said.

reprinted from Mortgage Professional America: http://www.mpamag.com/news/underwater-homes-on-the-decline-nationwide–but-thats-not-the-whole-story-66996.aspx

 


Pre-purchase help coming from HUD approved housing counselors to assist clients who still have credit issues with a past short sale or modification

By Pamela Marron | National Mortgage Professional Magazine | May 2017

HUD approved housing counselors are being trained to provide assistance for clients who continue to have problems with short sale and modification credit that appears as a foreclosure. The goal is to correct problems prior to a new purchase.

A collaborative initiative has begun that connects loan originators who have clients with a past short sale or a modification with HUD approved housing counselors who can make sure that common credit issues are resolved before clients sign a home purchase agreement. The goal is to provide correction to a continued problem of foreclosure credit code that incorrectly shows up on short sale and modification credit and often results in a loan denial and loss of contract. Worse yet, a foreclosure coding delays a new conventional mortgage for seven years rather than the four year wait required after a short sale. And recently, it has been found that modification credit is being affected with the same foreclosure code.

 

Over 1 million past short-sellers are now beyond the four year time frame and are eligible to purchase a home again. Another 950,000 will become eligible over the next three years. For those with modifications, no wait timeframe is required and over 1 million have been put in place from March 2009 to March 2017.

 

Correcting continued credit issues ahead of signing a contract for eligible past short-sellers is the focus of a small group of loan originators and housing counselors who are preparing this initiative. “Too many times, past short-sellers are told within the processing time and during a live contract that their short sale shows up as a foreclosure, and that they need to go get it fixed and come back.” states loan originator Pam Marron. “A service is needed for affected clients to get this credit issue permanently resolved ahead of time so that these clients are mortgage – ready.”

 

Fannie Mae developed a workaround in August 2014 but not all lenders know about it. There is no workaround in Freddie Mac. And though both Fannie Mae and Freddie Mac note there may be exceptions when inaccurate credit exists, lenders are reluctant to address this.

 

Marron cites that additional credit issues commonly grow out of the inaccurate foreclosure code for most of these clients when they either attempt to remedy the problem themselves or go to credit repair companies. A “dispute”, the most common fix, temporarily masks the short sale credit and appears to work when credit scores go up. However, when the consumer applies for a mortgage, either the underwriter, Fannie Mae or Freddie Mac automated system findings require that the dispute be taken off. The result is that credit scores plummet, a conventional mortgage denial is received and a delay to fix often occurs and can be a serious problem if a contract deadline is looming. If the consumer is in a contract, the quickest remedy is a Rapid Rescore that must be paid for by the lender. Often, the resulting credit scores are lower and the consequence is a higher interest rate.

 

A second problem is a more recent “date reported” when the short sale credit is reopened in order to get it corrected. The more recent date reported often falls within the four year wait timeframe causing the Fannie Mae and Freddie Mac automated systems to issue a denial due to the wait timeframe not being met.

 

Marron thinks this service coming from third party HUD approved housing counselors is a perfect fit. “Loan originators are driven by contract deadlines. Housing counselors are not.”

 

Solutions for correcting the credit issues discussed are already available but assisting those who have had a past short sale or modification is the best way to find more ways for correction. Ms. Marron and Jim McMahan, a loan originator in Georgia, will begin taking calls for consumers with a past short sale or a modification this month. The National Foundation for Credit Counseling (NFCC.org) will start this effort and utilize HUD approved housing counselors to work with affected consumers to ensure the credit issues of a past short sale will not hamper their ability to get a new conventional mortgage.

 

There will be a fee for the one on one counseling and a credit towards closing costs on a home purchase can be provided. Contact Pam Marron at 727-375-8986 or email pam.m.marron@gmail.com or Jim McMahan at 404-808-0945 or email jim@mcmahanmortgage.com.

 

Stay tuned.


Morning Briefing: HELOC owners face sharp payment increases in 2017

by Steve Randall

Challenging times are ahead for thousands of homeowners with HELOCs as their lines of credit reset with higher monthly payments while some may struggle to refinance.

Analysis by Black Knight Financial shows that 1.5 million HELOCs will see interest-only draw periods end this year with just under $100 billion in outstanding unpaid principal balances; an average of $62,500 per HELOC.

The data reveals that average borrowers whose lines of credit reset will face an additional cost of $250 per month, more than double the current average payment.

“In 2017, 19 percent of active HELOCs are facing reset,” said Ben Graboske, Black Knight Data & Analytics EVP. “This is the largest share of active HELOCs facing reset of any single year on record, although the approximate 1.5 million borrowers slated to see their HELOC payments increase this year is about 100,000 fewer borrowers than in 2016.”

Graboske explained that the lines resetting this year and early in 2018 are the last of the pre-crisis-era HELOCs that the industry has been focusing on since early 2014.

A third of those with HELOCs resetting this year will find refinancing challenging as they have less than 20 per cent equity in their homes. A fifth have less than 10 per cent and 1 in 10 are underwater.

While that is a concern, it reveals a large improvement from 2016 when 45 per cent of HELOC owners were below 20 per cent and a fifth were underwater.

For most borrowers though, recent conditions have enabled them to avoid the addition monthly cost of a reset.

“One thing that’s working in the 2007 vintage HELOCs’ favor has been the equity and interest rate environment of the last year. Rising home prices and low interest rates throughout 2016 have allowed borrowers to be much more proactive than in years past in terms of paying off or refinancing their lines to avoid increased monthly payments,” Graboske explained.

*originally published on Mortgage Professional America’s website.


National Real Estate Post is Off the Mark – Here are the Facts!

3/15/17

Dear National Real Estate Post;

With all due respect, you are totally off the mark in today’s video: http://thenationalrealestatepost.com/treasury-giving-away-50k-to-lower-your-mortgage/?utm_source=feedburner&utm_medium=email&tm_campaign=Feed%3A+TheNationalRealEstatePost+%28The+National+Real+Estate+Post%29

 

The I-Refi program in Illinois is one of three principal reduction programs throughout the United States. Florida https://www.principalreductionflhhf.org/<https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.principalreductionflhhf.org%2F&h=ATO1fWZjNP8A32GMRnUmkN6naeG4Dz4BmkIbMUe5hdCx36xXo6DxrBc4BJzxt0bxbJpKEzhXkzGW7c6xnQA2pP7Zl2uG-IMYvA7oSGS_1F6HbAeNr1Dfqpl2BcLU7NyNBQs> and California https://www.treasury.gov/…/Changes-to-California%E2%80…<https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.treasury.gov%2Fconnect%2Fblog%2FPages%2FChanges-to-California%25E2%2580%2599s-Principal-Reduction-Program-Attract-More-Mortgage-Servicers.aspx&h=ATMSD1J7t67l3Fj34SmuLQZ-V2HZYFvMjiXFcqgGvNBr6GqdmiiN-UhlqFmbwq4pumGNn7bXbvlGLPZs3ubEZctb_Aj4Rped9Hnn8EGX-Zcsc5vQK80Cn1IGuQmLlOziY6Y> have this program as well. There is income criteria developed not too much different than MSA income used for Home Ready, Home Possible and USDA standards for targeted areas, and an appraisal must provide proof of minimum negative equity.

 

HOW does I-REFI program help?

The key here is that over 5.4 MILLION homeowners who still have negative equity, are trying to stay put in their home and are current on their mortgage have NO REFINANCE OPTION. If you have a negative equity NON-Fannie Mae or NON-Freddie Mac conventional first mortgage, or a negative equity second mortgage or HELOC, THERE IS NO REFINANCE OPTION AVAILABLE! The only option for better payments for these negative equity loans is a modification from the lender that requires proof of hardship and mortgage delinquency first!

 

How Many Homeowners are STILL Underwater As of December 2016, there are still 5.4 million homeowners seriously underwater where combined first and second mortgage exceeds 125% per RealtyTrac, (now ATTOM Data Solutions) See chart below and article:http://www.realtytrac.com/…/2016-home-equity-and…/<http://l.facebook.com/l.php?u=http%3A%2F%2Fwww.realtytrac.com%2Fnews%2Fhome-prices-and-sales%2F2016-home-equity-and-underwater-report%2F&h=ATOc2jybWm5plCAanfVNAU490qOjH__LpF5_FqNbyRbudoXeGZM2ovtMsoPvXQ4So4A9sr6cQV9yLlU0tqIGyaT8ksz-Sq1mNYb4Q66x-zRIJdiKSNVM8mMFUnP0e27vuvQ>.

 

PLEASE stop assuming those with negative equity homes are deadbeats that can’t afford to make their payments. Most of the 5.4 million homeowners who are still underwater struggle while waiting for equity to return, and are paying higher interest rates from 8 to 10 years ago. Many of them have resetting interest only first and second mortgages that cannot be refinanced and these underwater homeowners pay higher payments simply because there is no option for a refinance. And a great number of them are elderly who took out funds from their home to help children years ago.

 

The Principal Reduction Program (with strict criteria) allows those who have managed to stay current to receive up to a $50,000 reduction that puts them into an acceptable LTV to be able to refinance and stay in their home. The goal here is to keep those in negative equity areas in their homes rather than experience another wave of short sales and foreclosures. These Hardest Hit Funds are not new. The Hardest Hit Funds of 7.6 billion allocated in 2010 were provided to 18 states who suffered the most during the housing crisis. These funds were tailored by each state to meet the needs of struggling homeowners.

 

As of December 2016, Florida is at the top of the list with 807,607 STILL negative equity properties with a combined loan to value over 125%. California is 2nd and Illinois is 3rd.

  Q4 2016Q4 2016
StateTotal Seriously Underwater (LTV 125+)% of Seriously Underwater
1Florida807,60714.30%
2California489,4676.00%
3Illinois444,25716.60%
4Ohio395,01016.30%
5Michigan230,76814.10%
6Texas228,9355.40%
7New Jersey221,36811.90%
8Pennsylvania217,9579.80%
9Arizona202,45410.90%
10Georgia188,96711.70%
11Maryland171,39911.10%
12New York171,1287.60%
13North Carolina153,3408.90%
14Nevada151,87719.50%
15Missouri141,48914.60%
16Tennessee132,8029.40%
17Connecticut99,69110.90%
18Washington89,7705.10%
19South Carolina83,1669.60%
20Virginia78,0206.10%
21Massachusetts70,5344.60%
22Wisconsin68,2468.80%
23Colorado63,3524.70%
24Indiana50,18412.10%
25Oklahoma48,7458.80%
26Louisiana43,68314.50%
27Oregon38,3094.30%
28Minnesota35,7134.70%
29Alabama33,7739.00%
30Delaware28,75913.10%
31Arkansas26,83411.30%
32Iowa23,3628.10%
33Rhode Island21,7038.40%
34Kentucky19,7827.10%
35Nebraska18,8397.00%
36Maine17,2207.30%
37New Hampshire16,9776.20%
38New Mexico16,4756.80%
39Hawaii15,7385.70%
40Utah15,2134.80%
41District of Columbia11,3348.70%
42Idaho8,2604.90%
43West Virginia4,0169.60%
44Montana2,5194.60%
45Mississippi1,4874.70%
46North Dakota1,3184.20%
47Wyoming1,3045.00%
48Vermont1,0263.40%
49Alaska8842.90%
50Kansas5045.60%
United States5,405,5658.60%

Also, here is the link to the Illinois I-REFI program to check out program criteria: https://www.ihda.org/…/uploads/2016/03/7-12-16_I-Refi.pdf<https://l.facebook.com/l.php?u=https%3A%2F%2Fwww.ihda.org%2Fwp-content%2Fuploads%2F2016%2F03%2F7-12-16_I-Refi.pdf&h=ATOhEN8qHEO6vJWuVPUDfDv88soW83Xuy9ADCEQdkLu08FRINTLO-4euGIrh-nBCe1kGHiKsedwW7ulaWBPd3oFHoFQ6VBNVUSw0ctfSfIccocHFR7XUvQMZvr47prm-JzM>


Even if Refinancing Looks Like a No-Brainer…

from MortgageNewsDaily.com, Sep 28 2016, 12:27PM

Why are so many people holding on to mortgages with high interest rates?  Sentiment? Inertia?

Apparently not.  In the current issue of CoreLogic’s MarketPulse, Principal Economist Molly Boesel drills down into the universe of borrowers who are standing fast with their old loans, even though it looks on paper like a refinance would be a smart move.  She finds that many of these borrowers haven’t refinanced either because they can’t or it really isn’t worth it.

Looking at the mortgages that were outstanding at the end of May, Boesel found that 41 percent of them representing 31 percent of unpaid principal balance (UPB) had mortgage rates greater than 4.38 percent, roughly 100 basis points higher than the current rates at that juncture and a point at which refinancing makes financial sense.  Eighteen percent of all mortgages (representing 17 percent of UPB) have rates between 4.38 and 5.0 percent, and 23 percent have rates over 5 percent.  Why wouldn’t these borrowers refinance?

First she found that a lot of them are currently seriously delinquent on their existing loans. While only about 2 percent of low interest rate mortgages (under 5 percent) are seriously delinquent, 12 percent of those with rates above 7 percent are 90 or more days past due and would be unlikely to qualify for a new mortgage.

 

Even current mortgages with high rates present a difficult credit profile.  Between 30 and 50 percent of loans with rates over 5 percent have at some point had a 30-day delinquency.  The incidence rises with the rate.  Only about 11 percent of those with rates below 5 percent have at some point been 30 days overdue.  Those “ever late” borrowers may not be able to qualify for a low enough rate to make refinancing attractive.

 

 

Boesel also removed mortgages in private-label securities from the list of refinancable borrowers because they would not be eligible for HARP loans that are reserved for refinancing Fannie Mae and Freddie Mac loans.

After taking the currently delinquent, ever delinquent, and private label loans out of the mix she found that the share of loans with interest rates greater than 5 percent had fallen to 13 percent of those outstanding and to 7 percent of UPB.  And that latter number is the final piece of the puzzle.

 

 

Small outstanding balances may not be worth refinancing as the resulting savings would be low. The figure above shows the average UPB of outstanding mortgages that have never been delinquent and are not in private pools by their interest rate.  Those borrowers with rates above 5% have very low UPB; those above 7 percent have average balances of $53,000.

While mortgages rates are near historic loans, Boesel concludes, there may not be many borrowers left who have the incentive or are eligible to refinance.



FHFA Announces New Streamlined Refinance Offering for High LTV Borrowers: HARP Extended through September 2017

8/25/2016

Washington, D.C. – The Federal Housing Finance Agency (FHFA) today announced that Fannie Mae and Freddie Mac (the Enterprises), at FHFA’s direction, will implement a new refinance offering aimed at borrowers with high loan-to-value (LTV) ratios.  The new refinance offering will provide much-needed liquidity for borrowers who are current on their mortgage but are unable to refinance through traditional programs because their LTV ratio exceeds the Enterprises’ maximum limits.

“Providing a sustainable refinance opportunity for high LTV borrowers who have demonstrated responsibility by remaining current on their mortgage makes financial sense both for borrowers and for the Enterprises,” said FHFA Director Melvin L. Watt.  “This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac.”

Eligibility

In order to qualify for the new offering, borrowers: (1) must not have missed any mortgage payments in the previous six months; (2) must not have missed more than one payment in the previous 12 months; (3) must have a source of income; and (4) must receive a benefit from the refinance such as a reduction in their monthly mortgage payment.  Full details will be available in the coming months through the Enterprises, but the offering will make use of the lessons learned from the Home Affordable Refinance Program (HARP) and its streamlined approach to refinancing.

Read more


HARP to Form ‘Bridge’ to New Refi Option in ’17, FHFA Says

By
from National Mortgage News

The Federal Housing Finance Agency said Thursday the Home Affordable Refinancing Program will be extended an additional year, and also announced a new refinancing opportunity specifically for borrowers with high loan-to-value ratios.

FHFA, which regulates Fannie Mae and Freddie Mac, said the two government-sponsored enterprises will roll out the new refinancing program in October 2017. It will be more targeted than HARP, the agency said, and will focus on borrowers whose LTV ratios are higher than the GSEs’ allowable limits. Standard Fannie and Freddie refinancing programs don’t allow refinancing for LTVs above 97%.

“Providing a sustainable refinance opportunity for high LTV borrowers who have demonstrated responsibility by remaining current on their mortgage makes financial sense both for borrowers and for the enterprises,” said FHFA director Mel Watt in a press release.

But the agency added that extending HARP through Sept. 30, 2017 will provide a “bridge” for high LTV borrowers to seek a refinancing option before the new program is fully implemented.

The HARP program has allowed 3.4 million borrowers to refinance their loans, taking advantage of lower mortgage rates and reducing their monthly payments. HARP was first introduced in April 2009 by former acting FHFA Director Edward DeMarco.

Once the HARP program expires, the new high LTV program will continue to provide underwater homeowners who are current on their payments a refinancing option. To qualify for the new program, the FHFA said, borrowers cannot have missed a mortgage payment in the previous six months or more than one payment in the previous year. They must have a source of income and the refinancing must result in a benefit such as a reduced monthly payment. FHFA will provide more details about the new refinancing option in the coming months, according to the press release.

“This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac,” Watt said.

Only 38,300 borrowers refinanced through HARP in the first half of 2016. In 2015, HARP refis totaled 110,111, down from 212,489 in 2014.

 


Prevent the next Housing Crisis

How to Prevent the Next Housing Crisis

By Staff KnowledgeWharton – from The Fiscal Times

Democratic Platform Shifts from Post-Crisis Recovery to Housing Access

By Bonnie Sinnock, from National Mortgage News
July 25, 2016

Democrats will adopt a party platform this week that omits most references to a need for continued post-housing crisis reforms, and instead focuses on expanding access to mortgage credit and support for industry regulation.

Continue reading…


Urgent Attention Needed. Two Problems and Solutions That Exist for Negative Equity Homeowners

Let’s Work Together to Fix the Problems Now

Restructured and Refinanced: There is a way to use government entity funds as a new 2nd mortgage and combine these funds with six existing refinance programs to provide a refinance where none exists for millions of responsible, currently paying homeowners who have negative equity mortgages. The benefit? Credit stays intact, homeowners “stay put” in homes while equity escalates and communities recover.

There are over four million homeowners across the U.S. who are still trapped in their current location because they have no refinance option for a first mortgage, a second mortgage, or a Home Equity Line of Credit (HELOC). Over 454,000 of them live in Florida alone!

These are often people who are hanging on by a thread, but through no fault of their own, have no option for a refinance. Currently the only option available requires mortgage delinquency and proof of hardship to achieve a loan modification. We must provide solutions that do not destroy the credit of those with negative equity.

Unless we provide a solution, there will be another wave of defaulted mortgages. These are not people looking for a handout. They desperately want to keep their credit intact, but no option currently exists to let them do so. The solutions presented in this report simply restructure current debt with available programs to allow the homeowners to stay in their home while staying current on their mortgage.

Solutions to lift these homeowners out of negative equity are already available. We need to get our legislators and leaders on-board now because three of the options will expire in December, 2016.

Read the entire report! Click the button below to download it and start reading now. Comments are welcome.


Underwater Homeowners are Still Looking for a Lifeline

(from the Scotsman Guide)

The housing crisis seemed to start overnight in many parts of the country, going from good sales in December 2006 to no sales abruptly a few months later, when the bottom started to fall out.

Many of those most affected by the crisis were elderly underwater homeowners who got into trouble after pursuing refinances that were often done for the purpose of helping their kids. Although the elderly are commonly more cautious when it comes to home financing, a large number mortgaged their homes with risky interest-only first and second loans — convinced by their lenders or their own children that these loans would be paid back with escalating equity fueled by rising home appreciation.

Read More Here


Defaulting HELOCs: A growing concern

Defaulting HELOCs: A growing concern

June 10, 2016 – In 2004, millions of homeowners tapped into the equity of their homes through low-interest – or no interest – home equity lines of credit (HELOC). Their 10-year grace periods are now done and they’ve had to start paying. And that’s why HELOC delinquencies are now suddenly soaring.

In March, second-lien HELOC delinquencies – the number of homeowners who are behind on this second mortgage – climbed 87 percent compared to a year ago, Black Knight Financial Services’ reports.

Delinquencies may continue to climb, and those homeowners who cannot make the increased HELOC payments or refinance could find themselves facing foreclosure.

HELOCs taken out in 2005, 2006 and 2007 comprise 52 percent of all active lines of credit. In 2005, there were about 850,000 home equity lines; in 2006 and 2007, it was 1.25 million. The grand financial total from just those three years: $192 billion.

The recent increase in HELOC delinquencies is the first annual increase since June 2012, Black Knight notes. An 87 percent spike in delinquencies among 2005 HELOCs over the past 12 months has been attributed to most of the recent spike.

Source: Black Knight Financial Services and “A Decade After the Bubble, Home-Equity Line Delinquencies Jump,” MarketWatch (June 6, 2016)

© Copyright 2016 INFORMATION, INC. Bethesda, MD (301) 215-4688


Chicago Among Cities with Largest Share of Underwater Homeowners

By

Stuck in a home you can’t sell for enough to get out from underneath the mortgage? You are not alone.

More homeowners in the Chicago area are trapped in underwater mortgages than in almost any other major metropolitan area in the country, according to two new studies released this week.

One report, released Thursday by housing research data firm CoreLogic, found Chicago slightly better off than Las Vegas and Miami. But a separate study released Wednesday by real estate website Zillow places Chicago homeowners in the worst position in the nation, with a larger portion of homes underwater than in either Las Vegas or Miami.

When homeowners are underwater, they have unpleasant choices. Their homes are worth less than they owe their lender. So if they decide to sell, they won’t make enough on the sale to repay the lender. Somehow they have to Read more…


Good Credit Doesn’t Help Those with Negative Equity

Policy still exists today that requires mortgage delinquency first before any help on lower payments for underwater homeowners is considered. There are still 6.7 million underwater homeowners “staying put” awaiting equity to return and who are paying their mortgage on time. A great majority of them have no refinance option except a modification…. which requires mortgage delinquency and a hardship first.

Homeowners who have negative equity, who are staying put, and who are current on their mortgage… need to be given a refinance option just like those with equity available to them… a refinance that does not require mortgage delinquency first and allows continued, on time mortgage payments.

Many have asked why I am obsessed with keeping problems that surround underwater homeowners at the forefront. It is because of continued policy applied to those who have negative equity that requires mortgage delinquency first just to be considered for a better finance option when no refinance is available, or when an underwater homeowner must short sale their home.

For those with a non-Fannie Mae, non-Freddie Mac conventional first mortgage, a second mortgage or a home equity line of credit that has negative equity, mortgage delinquency is still required first just to be considered for a modification, their only option.

This delinquent mortgage requirement results in a denial of a new secondary market mortgage and a prolonged period of time to get a new mortgage. This directly affects mortgage and real estate industries and the U.S. economy.

Resetting [1]Interest Only First Mortgages, Second Mortgages and Home Equity Line of Credit (HELOC)

A large number of loans originated as interest only first, second mortgages and HELOCs are now resetting to fully amortized payments. Interest only loans have a set period of time when interest is paid only. It is common to see a three, five, seven or ten year reset time frame where full principal and interest payments on the outstanding balance including principal that is unpaid start to be paid back. In areas across the nation where home values have not come back yet, homeowners are stuck with initial higher interest rates simply because they have negative equity. Fully amortized payment increases have been seen as high as 400%. The only option available for negative equity non-Fannie Mae, non-Freddie Mac conventional first mortgages, second mortgage or home equity line of credit (HELOC) is a modification that.… you guessed it… requires mortgage delinquency and a hardship first in order to get help.

An alarming number of elderly homeowners who have refused to go delinquent on their mortgage but have negative equity interest only loans are now coming forward. It is especially heartbreaking to see homeowners in their 70s and 80s demoralized by the fact that they have to destroy their credit just to be qualified for a lower interest rate.

And, if these underwater homeowners ultimately short sale, the negative credit from the required mortgage delinquency results in a higher rent payment.

A great deal of early press educated our nation about “strategic defaulters”, claiming that many who walked away voluntarily were able to make payments but chose not to. However, a 2015 study entitled [2]“Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default” cites that though unemployment was the single biggest financial shock, most financially distressed households didn’t default and underwater homeowners tapped into retirement resources and friends or relatives to stay afloat. Even among unemployed households lacking enough savings to make even one monthly mortgage payment, more than 80% stayed current.

Another issue centered around families who could afford to keep paying their mortgage but chose not to do so. Despite media attention to strategic defaulters, the study shows that these were rare. Fewer than 1% of households with the financial means to pay instead chose to walk away.

The study largely confirmed that personal economic events led to mortgage defaults without citing negative housing equity as the overriding factor. It also showed that many underwater homeowners struggle to hang on to their homes perhaps longer than they should, wiping out retirement assets awaiting positive equity to return.

Many who are in the mortgage business in areas still affected by negative equity are acutely aware of how the required mortgage delinquency results in a downward spiral of credit that prompts other negative consequences for underwater home owners just trying to stay put.

This country can’t afford to turn a blind eye to what we all saw coming in 2007-08. Good credit is still the benchmark of the mortgage and real estate industries and the driver of a good economy. Solutions are available right now.

[1] The I-O payment period is typically between 3 and 10 years. https://www.fdic.gov/consumers/consumer/interest-only/

[2] Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default


Rising Prices Should Take 1M More Owners Out of Negative Equity

by Jacob Passy (National Mortgage News)

There were more than a million homeowners whose properties exited negative equity status over the past year, with the potential for another million to do so if home prices continue to rise, according to CoreLogic.

CoreLogic reported Thursday that the number of underwater properties at the end of the first quarter totaled 4 million, which equates to 8% of all homes with a mortgage. That figure was down 6.2% from the fourth quarter and 21.5% from a year ago.

read more…


Negative Equity Falls Nationally, Finds Foothold in Midwest

(by Jacob Passy – National Mortgage News)

While negative equity rates continue to drop nationally from their 2012 peak, the share of homeowners underwater in the Rust Belt remains elevated, according to data from Zillow.

The negative equity rate, which measures the share of all homeowners with a mortgage who owe more than their home is worth, was 12.7% during the first quarter, down from 13.1% in the fourth quarter and 15.4% in the first quarter of 2015. The negative equity rate hit its peak in the first quarter of 2012 at 31.4% and has either fallen or held steady every quarter since then, Zillow said Wednesday.

read more…


FHFA makes it official: Principal reduction is coming

Plan is ‘final crisis-era’ modification program (April 14, 2016)

Eligible borrowers should expect a letter from their mortgage servicer about a principal reduction no later than Oct. 15, 2016, the FHFA said.

A day that many in the housing industry thought would never come is finally and actually here, as the Federal Housing Finance Agency is making official what was first reported several weeks ago – widespread principal reduction is coming.

In what it is calling a “final crisis-era modification program,” the FHFA announced Thursday that it will be launching a principal reduction program for some borrowers whose loans are owned or guaranteed by Fannie Mae or Freddie Mac.

But the program is not quite as widespread as was first reported.

Initial reports in the Wall Street Journal suggested that the FHFA’s principal reduction program may make fewer than 50,000 “underwater” borrowers eligible for principal reduction, but what wasn’t known until Thursday was the exact number of borrowers the FHFA’s program could affect.

Read more here: http://www.housingwire.com/articles/36799-fhfa-makes-it-official-principal-reduction-is-coming


Combining Hardest Hit Funds with Existing Refinance Programs Can Help Millions of Underwater Homeowners

There are five existing refinance loans available for underwater homeowners that allow for:

  • new secondary refinancing
  • no maximum combined loan to value (CLTV) of the 1st and 2nd mortgage
  • mortgage payments to stay current

This could enable Hardest Hit Funds to be used as a new second mortgage to refinance underwater higher 2nd mortgages and reset interest only home equity lines of credit unable to be refinanced.

One of these mortgages, the FHA Short Refinance, can even provide a refinance where none is available for conventional 1st mortgages that are not Fannie Mae or Freddie Mac, therefore not eligible for the Home Affordable Refinance Program (HARP).

The five refinances are:

  1. Fannie Mae DU Refi Plus Home Affordable Refinance Program (HARP) for existing Fannie Mae conventional 1st mortgages
  2. Freddie Mac Relief Refinance (HARP) for existing Freddie Mac conventional 1st mortgages
  3. FHA Short Refinance for negative equity non-FHA 1st mortgages
  4. FHA Streamline for existing FHA mortgage
  5. VA Interest Rate Reduction Refinance Loan (IRRRL)

Written Guidelines for Five Refinances

[1]Fannie Mae DU Refi Plus (HARP): B5-5.2-01: DU Refi Plus and Refi Plus Eligibility (03/29/2016)B5-5.2-01: DU Refi Plus and Refi Plus Eligibility (03/29/2016)

  • No Maximum Loan to Value (LTV) ratio for fixed rates and No Maximum Combined Loan to Value (CLTV) and Home Equity Combined Loan to Value (HCLTV) ratio. (pg. 2)
  • Eligible Subordinate Financing
    New subordinate financing is only permitted if it replaces existing subordinate financing. (pg. 2)
  • Using Hardest Hit Fund Programs for Principal Reduction or Closing Cost Assistance
    Housing Finance Agencies (HFAs) have established programs utilizing Hardest Hit Fund (HHF) programs, which provide funding for various purposes, including funds for principal curtailment, to help homeowners obtain more affordable mortgages or to help homeowners retain their homes. (pg. 3)
  • [2]Existing mortgage must be current for last 12 months. (pg. 3)

The Home Affordable Refinance Program (HARP) will expire on Dec. 31, 2016.

[3]Freddie Mac Relief Refinance Mortgages (HARP) – Same Servicer and Open Access: 2016

  • No maximum Loan to Value (LTV) ratio for fixed-rate mortgages and maximum LTV ratio for ARMs is 105 percent. There are no maximum Total Loan to Value (TLTV) or Home Equity Total Loan to Value (HTLTV) ratios. (pg. 2)
  • Secondary Financing

Existing junior liens may be refinanced simultaneously with the first mortgage provided the junior lien is being refinanced for one of the following purposes:

  • A reduction in the interest rate of the junior lien, to replace an ARM, a balloon or call option with a fixed-rate, fully amortizing junior lien.
  • A reduction in the amortization term or the monthly payment of the junior lien. (pg. 4)
  • [4]Evaluating Borrower’s Credit Reputation

If an Accept is received through Loan Prospector, the credit reputation is acceptable. Otherwise, the homeowner must show they have been making payments on time for the last 12 months. (pg. 1-2)

 

The Home Affordable Refinance Program (HARP) will expire on Dec. 31, 2016.

[5]FHA Short Refinance

Allows refinance of a non-FHA-insured Mortgage in which the Borrower is in a negative equity position. (Pg. 416)

  • The new loan’s maximum LTV ratio is 97.75% of the current property value.
  • There is no maximum CLTV ratio for second liens held by government entities or instrumentalities of government. (pg. 416)
  • Borrower must be current on the existing mortgage, or have successfully completed a qualifying three-month trial payment plan. (pg. 416)

 The FHA Short Refinance program expires on Dec. 31, 2016.

 [6]FHA Streamline Refinance

  • Proceeds are used to extinguish an existing FHA-insured first mortgage lien. (pg. 407)
  • There is no maximum CLTV with subordinate financing. (pg. 414)
  • New subordinate financing is permitted only where the proceeds of the subordinate financing are used to:
    • Reduce the principal amount of the existing FHA-insured Mortgage, or finance the origination fees, other closing costs, or discount points associated with the refinance. (pgs. 413-414)
  • No more than 1 x 30 day late on mortgage in last 12 months. (pg. 409)

[7]VA Interest Rate Reduction Refinance Loan (IRRRL)

  • VA is not concerned about the 2nd mortgage being refinanced, other than it must be assumable.

VA Loan Center: FL/homeloan@va.gov. 4/4/16: per Nancy, 727-319-7500.

  • The IRRRL must replace the existing VA loan as the first lien on the same property. Any second lien-holder would have to agree to a subordinate to the first lien holder. (pg. 6-7)
  • The prior loan is current (not 30 days or more past due) at the time of loan closing. (pg. 6-12)

[1]

[2] B5-5.2-02: DU Refi Plus and Refi Plus Underwriting Considerations (09/29/2015): https://www.fanniemae.com/content/guide/selling/b5/5.2/02.html and Fannie Mae Mortgage Delinquencies: https://www.fanniemae.com/content/guide/selling/b3/5.3/09.html

[3] Freddie Mac Relief Refinance Mortgage -Open Access: http://www.freddiemac.com/singlefamily/factsheets/sell/relief_refi_open_access.html

[4]Freddie Mac Seller/Servicer Guide, Chapt. 5201.1: Credit Assessment with Loan Prospector, (b)Evaluating borrower’s credit reputation and (d)significant inaccurate credit information: http://www.allregs.com/tpl/main.aspx

[5]HUD Handbook 4000.1: http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

[6]HUD Handbook 4000.1: http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

[7]Benefits.VA.gov, Ch 6: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjpy4TvwPTLAhUCRSYKHXu9AEEQFgg0MAE&url=http%3A%2F%2Fwww.benefits.va.gov%2Fwarms%2Fdocs%2Fadmin26%2Fpamphlet%2Fpam26_7%2Fch06.doc&usg=AFQjCNEf3ujFlgh6GVKHIZXGiJkKfYaBXg&sig2=aC5d5K1lPKZWRLOkL6u-wQ

 

[1]Freddie Mac Seller/Servicer Guide, Chapt. 5201.1: Credit Assessment with Loan Prospector, (b)Evaluating borrower’s credit reputation and (d)significant inaccurate credit information: http://www.allregs.com/tpl/main.aspx

[1]HUD Handbook 4000.1: http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

[1]HUD Handbook 4000.1: http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

[1]Benefits.VA.gov, Ch 6: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjpy4TvwPTLAhUCRSYKHXu9AEEQFgg0MAE&url=http%3A%2F%2Fwww.benefits.va.gov%2Fwarms%2Fdocs%2Fadmin26%2Fpamphlet%2Fpam26_7%2Fch06.doc&usg=AFQjCNEf3ujFlgh6GVKHIZXGiJkKfYaBXg&sig2=aC5d5K1lPKZWRLOkL6u-wQ


FHFA Director Watt: Expect Decision on Principal Reduction within 30 Days

In remarks delivered at a luncheon sponsored by Women in Housing and Finance last week, FHFA Director Mel Watt acknowledged that the “FHFA has received substantial criticism, both before and since I became the Director” for not allowing the GSEs to offer principal reduction as a part of their loss mitigation strategy.  However, Watt was quick to point out that the FHFA staff has been “methodically studying” the issue since he became Director two years ago seeking a “win-win” strategy – one that “would benefit both borrowers and the Enterprises” and that he “expect[s] to announce a decision within the next 30 days about whether we have been able to find a ‘win-win’ principal reduction strategy or whether, on the other hand, we will take principal reduction off the table entirely.”  He added: “stay tuned for more on this in the near future.”

The complete text of Watt’s prepared remarks are available at:

http://www.fhfa.gov/Media/PublicAffairs/Pages/Mel-Watt-Prepared-Remarks-WHF-Public-Policy-Luncheon-3-22-16.aspx


6.2 million Underwater Homeowners in Crisis

The housing crash might seem like old news, but for families left behind by the recovery it remains a defining economic reality, with negative equity preventing moves and limiting choices in life.

 Seven years after the Great Recession, some Chicago suburbs may never recover

Chicago Tribune   By Kim Janssen    March 26, 2016

Highlights below:

Cook County’s top 10 towns for foreclosures are all in the south suburbs, according to data compiled by the Institute for Housing Studies at DePaul University. Residents on a typical block in middle-class towns like Matteson, Country Club Hills and Richton Park can expect one of their neighbors to be in foreclosure, because about one in 30 homes was in foreclosure as recently as 2014.

In a handful of the poorest towns — Harvey, Ford Heights, Phoenix, Riverdale, Robbins and Sauk Village — more homeowners are foreclosed upon than obtain new mortgages, a surefire recipe for vacant homes, declining tax bases and blight.

“Everybody seems to think we’ve recovered from the housing crisis, but for many communities of color that’s not the case,” Petruszak said.

The number of lender-mediated sales in the Chicago area — short sales and foreclosures — accounted for 26 percent of existing home sales in February, compared with more than 50 percent just two years ago, according to Midwest Real Estate Data, the local multiple listing provider. But the long-term snowball effect of so many vacant, foreclosed properties in mainly black neighborhoods was exacerbated because banks took less care of the properties they owned there than they did in largely white communities, said Petruszak, who has helped bring national discrimination cases against six lenders.

The couple have friends who walked away from mortgages that no longer made sense, but Mitchell Versher said that wasn’t his style, and that if his wife hadn’t suffered a couple of layoffs, or if they were able to renegotiate their debt again, he’d have liked to stay put.

“I come from the old school,” he said. “My grandchildren visited me in this house. It was supposed to be our home for the rest of our lives.”

Still, he and his wife expect ultimately to be forced from their home. And any hope Mitchell Versher had of retiring is gone.

“I’m gonna have to work till I die,” he said. “Don’t get me wrong, Vietnam taught me that I’m blessed for every moment that I have. But the majority of us who are living paycheck to paycheck are being held hostage by an indifferent political class.”

He’s looking online, for a rental, he said.

kjanssen@tribpub.com

Twitter @kimjnews

Copyright © 2016, Chicago Tribune

 It is time to get changes made for underwater homeowners; Still 6.4 million underwater nationally, and most are desperately trying to stay put!


Credit is Central to WHY Help Network Started

History: WHY Help Network Started

The housing recession since 2007 has resulted in real estate and mortgage problems never experienced before in U.S. history. One of those newer problems was a massive number of short sales, where homes are sold for less than the mortgage balance on the loan.

In order to short sale, a common practice of nearly every lender in the U.S. was to require that the distressed homeowner go delinquent on their mortgage before the short sale approval could be given. The short sale process was lengthy and the required delinquency almost always exceeded 4 months. After 120 days of mortgage delinquency, a foreclosure code was placed on the credit of unsuspecting short sellers. The foreclosure code was not apparent to those of us in the mortgage industry until years later when the past short seller, eligible for a new conventional mortgage, received a “Refer with Caution” denial for a new loan. Lender underwriters unaware of the erroneous credit code would tell past short sellers to go back to their short sale lender and get the problem fixed. The short sale lenders would claim they had coded the short sale correctly, and point to credit reporting agencies to make the fix. The credit reporting agencies, now seeing this problem throughout the U.S., started drilling down to where the problem was in the code. This is when it was discovered that there was multiple credit code being used for a short sale, but borrowed from the Metro 2 foreclosure code. Additionally, foreclosure payment history codes of “8”(repossession) and “9”(collection) were adding to the mix. And when fixes were applied, “dates reported” were pulling forward, suggesting the credit problem was more recent than the short sale closing.

Why was this a problem for the mortgage and housing industry? A foreclosure code meant a 7 year wait to get a new mortgage, rather than the 2 year wait after a short sale in effect at the time. At that point, there were over 9 million past short sellers. That equated to over 16% of total U.S. mortgages! The slowdown of the housing comeback was critical, and stalling the reentry of 9 million past homeowners back into the housing market would affect the housing market. It was imperative for this problem to be solved.

The road to a solution started with a loan officer in Florida and a credit reporting agency, Acranet Credit, in California. The loan officer saw the seller credit was being coded as a foreclosure over and over again in the Fannie Mae and Freddie Mac automated systems and went to Acranet credit reporting agency. The Acranet credit manager was a board member of the National Consumer Reporting Association (NCRAinc.org) and brought the problem to the NCRA. The Florida loan officer attended the 2012 NCRA Conference with proof and met a representative with the Consumer Financial Protection Bureau (CFPB) at the conference.

In April of 2013, the Florida Loan officer and the executive director of the NCRA went to Washington, D.C. and, thanks to U.S Congressman Gus Bilirakis’s office, met with staff of the Senate Banking and Finance Committee. On this first meeting, multiple problems were presented and it was quickly determined that pinpointing the critical credit code problem was paramount. Offices of representatives for “Hardest Hit” states, where it was thought that the credit code problem would be most apparent, were visited. The offices of the U.S. Treasury, the Consumer Financial Protection Bureau and U.S. Senator Bill Nelson’s (D-FL) office were also visited.

U.S. Senator Nelson’s office took a special interest in this problem along with the CFPB. Senator Nelson is from Florida, a state that was 3rd from the top where housing had been hit hardest. In 2012, Florida’s average of homes sold as short sales was tipping 30%, and 48% of homes owned in the state had negative equity. This problem threatened a real housing recovery for Florida.

On May 7, 2013, U.S. Senator Bill Nelson required that the CFPB and the FTC get a solution to the credit code problem within 90 days. There was much talk about a “specific, universal short sale credit code” just like there was for a foreclosure or repossession, or judgment.

In June 2013, the Florida loan Officer, the NCRA executive director and 30 NCRA board members met in Washington, D.C. again and met with CFPB Director Richard Cordray and 4 CFPB directors.

Later that afternoon, the Florida loan officer and the Acranet credit agency manager met again with the CFPB and were stunned to learn that, though affected consumers were consistently stating they were told by their short sale lender that a delinquency of their mortgage was a requirement to get the short sale approved, in fact the lenders were telling another story…. that underwater homeowners were ceasing to make payments, waiting to be served foreclosure by their short sale lender.

To hear this was shocking. All of the press seemed to be about strategic defaulters, who are able to make mortgage payments but chose not to. Yet, we were finding little evidence of underwater homeowners who wanted to stop paying their mortgage. Instead, homeowners who called for help were bewildered that they had to destroy their credit to exit an underwater home. They wanted to make their payments but were told no help was available until they went delinquent!

While in Washington, D.C., it was also learned that the credit code change all of us were fighting for would not happen. Instead, lenders would be allowed to make a change in the Fannie Mae system when the erroneous foreclosure code showed up on past short seller credit. This would take effect on Nov. 16, 2013.

The Nov. 16, 2013 change did not work…. but 2 fixes found by accident were working! The CFPB Complaint Letter worked the most and seemed to trigger an immediate “change” in the credit that resulted in an “Approve” upon a new credit pull and resubmission to Fannie Mae. The same change occurred if a Lender Letter could be obtained from the lender stating the loan closed as a short sale and not as a foreclosure. The critical key here was that lenders were able to make a change of the code internally.

And, on August 16, 2014, Fannie Mae again made a change to their automated systems Desktop Underwriter/Originator that finally allowed lenders to go into the system and make a change when a foreclosure showed up on credit code for a past short seller.

So WHY Help Network?

Because so many lenders, loan originators, credit reporting agencies and governmental agencies are now aware of the credit code problem of past short sellers, it was decided to switch gears. Instead of using efforts to find more solutions (though this is an ongoing process!), emphasis is now on the network of help available to past short sellers.

The Help Network is a growing resource center that includes lenders, loan officers, realtors, credit reporting agencies, HUD Approved Counseling Agencies and governmental agencies and representative offices that are aware of this problem and can help.

And if you are not sure who can help in your state, email Pam Marron at pmarron@tampabay.rr.com and ask for help with resources.