Under-Water Home Mortgages

www.youtube.com/watch?v=VCgKkjNqlm0

Zillow published a recent report that indicated that more than 20% of U.S. mortgage loans are currently underwater.  This is one of the reasons why so many banks are extending loan modification plans in such a great volumes.  The mortgage lenders are focused mostly on modifying mortgages for homes in these distressed states.  Besides, very few of borrowers in Arizona, California, Florida and Nevada qualify for fixed rate mortgage refinancing.

Miami-Fort Lauderdale property values saw a year-over-year decline of 15.2%, while values in Phoenix, Arizona, fell by 11.8 %. Despite the high percentage of negative equity, the 2^nd quarter rate 21.5% is actually lower than from the 1^st quarter figure of underwater home mortgage loan, which was reported at 23.3 %. However, some areas that benefit from both state and federal tax credits have seen home values increase, the report shows. For example, the state of California saw values rise by 27.8 %, marking five consecutive quarterly increases.

Economists continue to examine the devastation that underwater mortgage loans have influenced.  They like this study because it remains a strong indicator of forecasted home foreclosures. In addition to not being able to afford home loan payments, some homeowners who are unable to modify their mortgages are strategically defaulting on their home loans.  This means that they are walking away from their homes and letting the bank repossess their property.  “It is the paramount challenge facing housing markets,” Zillow’s chief economist Stan Humphries told Reuters. “We already have had record levels of foreclosure and, combined with high unemployment, negative equity is very toxic to the market.”

Though fewer Americans are strategically defaulting on their mortgage loans, foreclosure rates continue to increase with RealtyTrac reporting a first-quarter foreclosure rate of 1.65 million. Analysts project that the number of mortgage defaults, repossessions and scheduled auctions are likely to reach 3 million by the end of the year

BofA is working to develop assistance plans and programs to help its borrowers through the crisis, a spokesperson for BofA said. The bank developed similar loan programs following the hurricanes in 2005 and in other disaster situations in the US. Usually, disasters call for an initial 90-day forbearance of payments for BofA borrowers, and, like Freddie Mac, individuals needing more time will be handled on a case-by-case basis.  BofA is currently analyzing its portfolio of mortgages and loan modifications in the region and assessing the situation to determine what other specific needs may need to be addressed in a disaster assistance program for victims of the Gulf of Mexico oil spill.

According to a statement from Wells Fargo, the bank extended its borrowers affected by the Gulf Coast oil spill a 90-day foreclosure moratorium.  “We encourage customers affected by the Gulf events (loss of job or income) to reach out to us to discuss loan workout possibilities.  They suggest working with their with our home loan consultants on to determine available home refinance and loan modification options for their homeownership and financial needs.”

Meanwhile, only 68,000 homeowners were converted from the trial modification phase to a permanent loan modification last month.  Under the program, known as HAMP, eligible troubled borrowers are put into trial home loan modifications to determine whether they can keep up with the reduced mortgage payments and to give loan servicers time to verify income and hardship.  A total of 295,348 people have received permanent long-term help under the loan modification plan, but another 3,744 who were converted to permanent status were later cut from the program anyway.  Mortgage refinancing has not been an option for millions of homeowners who have inadequate credit scores or mortgages that are buried under-water with home values less than the mortgage balance.

The latest modification report does not include home equity loan modification details.  Many industry insiders believe the second mortgage foreclosures and defaults could be stemmed if home equity servicers came up with a good modification plan for home equity credit and second mortgage loans.  Many homeowners have used the loan modification to stop the foreclosure proceedings.

In most cases, loan modification agreements are usually canceled if the borrower fails to make the adjusted payments, or if during the trial period, does not meet the program’s criteria or hand in the required income verification paperwork.  Obama admin officials said they were not surprised to see the number of canceled trial mortgage modifications rise because borrowers had been allowed to enroll in the trial program by simply stating their income. Many homeowners are being dropped from HAMP if they cannot prove the income figures they originally provided.  “As those decisions get made, it’s certainly expected that there would be some that fall out of HAMP,” said Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office.  So far, some 24.6% of trial loan modification options have become permanent, up from 19.8% a month ago.  Some 637,353 troubled borrowers remain in trial mortgage loan modifications, officials said. The pace of people entering the program has slowed as servicers begin implementing new requirements to collect documents at the outset. Read the original article at CNNMoney.com.

However, Bank of America, Wells Fargo, and JP Morgan have done a great many home loan modifications, but there is call for more action and modifications to be moved from a trial phase to a permanent phase. The problems in the program and slowness of the transition in permanent home loan modifications have been traced to both lenders and homeowners.  There are stories from homeowners saying they are ignored and passed over for modifications, while lenders have stories of homeowners not filling out paperwork or following the correct procedure to ensure a permanent loan modification. 

With unemployment the next big issue that must be addressed, big lenders like Bank of America, JP Morgan, and Wells Fargo are in a great position to help homeowners, even if some who are given modifications still fail to make payments down the road.  If multiple modifications are made and even just a handful of homes benefit from the home loan mortgage modification then many people believe it would all have been worth it.  Read the original blog post online

But I think that the so far lackluster results from MHA do point to something important, which is that we don’t have the kind of mortgage crisis we thought we had when we passed the modification.  This represents not only a shift in our thinking about how to fix the housing markets, but a major shift in our national narrative about the housing bubble.  Six to nine months ago, the major story we told in connection with the financial crisis was the homeowner suckered–by either fraud or greed–into a teaser loan with an artificially low interest rate that was going to turn disastrous when it reset.

We have seen some of that, to be sure, particularly with the “Option ARM” or “negative amortization” loans on which homeowners weren’t even making the full interest payment.  But that hasn’t turned out to be our biggest problem, largely because we are in a very low interest rate environment right now, so many people saw their rates reset downward rather than up.  Instead, we are plagued by negative home equity.  Most mortgage lenders have begun shutting down access to home equity credit lines because of depreciating home values and unemployment.  Look for a proven loan modification program designed to make your bad credit home loan payment more affordable.

According to California loan relief guru, Jeff Morris, “Homeowners need to take a deep breath and reevaluate their mortgage relief options, even if they were recently denied by a loan modification company or mortgage lender, because new opportunities have arisen.”  For borrowers with no equity looking to refinance, they should consider the Home Affordable Refinance Program that enables the refinancing of Fannie Mae and Freddie Mac mortgage liens up to 125%.