Friday’s report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say.  More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.  “The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications,” said Mark Zandi, chief economist at Moody’s Analytics.  Besides forcing people from their homes, foreclosures and distressed home sales have pushed down on home values and crippled the broader housing industry. They have made it difficult for homebuilders to compete with the depressed prices and discouraged potential sellers from putting their homes on the market.

Obama Mortgage Relief Helps Some Homeowners

Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government loan modification program have been cut loose through July, according to the Treasury report. That’s about 48 % of the those who had enrolled since March 2009. And it is up from more than 40 % through June.  Another 421,804, or roughly 32 % of those who started the program, have received permanent loan modifications and are making their payments on time.

RealtyTrac reported that the number of U.S. homes lost to foreclosure surged in July to 92,858 properties, up 9 % from June. The pace of repossessions has been increasing and the nation is now on track to having more than 1 million homes lost to foreclosure by the end of the year. That would eclipse the more than 900,000 homes repossessed in 2009, the firm says.  Lenders have historically taken over about 100,000 homes a year, according to RealtyTrac.

Zandi said the government effort will likely end up helping only about 500,000 homeowners lower their monthly payments on a permanent basis. That’s a small percentage of the number of people who have already lost their homes to foreclosure or distressed sales like short sales – when lenders let homeowners sell for less than they owe on their mortgages.  Zandi predicts another 1.5 million foreclosures or short sales in 2011.  “We still have a lot more foreclosures to come and further home price declines,” Zandi said. He said home prices, which have already fallen 30 % since the peak of the housing boom, would drop by another 5 % by next spring.  Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork.

The banking industry said borrowers weren’t sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.  Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers’ monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out.

Homeowners who qualify can receive an interest rate as low as 2 % for five years and a longer repayment period. Those who have successfully navigated the program to reach permanent modifications have seen their monthly payments cut on average by about $500.  Homeowners first receive temporary modifications and those are supposed to become permanent after borrowers make three payments on time and complete all the required paperwork. That includes proof of income and a letter explaining the reason for their troubles. But in practice, the process has taken far longer.  The more than 100 participating mortgage companies get taxpayer incentives to reduce payments. As of mid-June only $490 million had been spent out of a potential $75 billion the government has made available to help stem the wave of foreclosures

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

We still recommend that homeowners to talk to their lender and let them know about the a Second Mortgage Modification Program that is available to help distressed homeowners negotiate better second mortgage terms or a buyout. Read the original article > Negotiating Second Mortgage Relief

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

While many of the loans that went into default were originated in early 2007, the median origination month for last quarter’s defaulted home loans was July 2006, the same month as during the prior three quarters. According to DataQuick, the median origination month a year before was June 2006, so the foreclosure process has moved forward through one month of bad loans during the last 12 months.  “Mid-2006 was clearly the worst of the ‘loans gone wild’ period and it’s taking a long time to work through them,” Walsh said. “We’re also watching foreclosure activity start to move into more established mid-level neighborhoods. Homeowners were able to make their payments longer than homeowners in entry-level neighborhoods, but because of the recession and job losses, that’s changing.”  The mortgage lenders that originated the most loans that went into default last quarter were Countrywide with 5,588, Wells Fargo with 3,482 and Washington Mutual with 3,460. Along with Bank of America (1,760 loans) and World Savings (1,869), they were also the most active lenders in the second half of 2006. Last quarter’s default rate on loans originated in the second half of 2006 ranged from 1.5% for Bank of America to 13.1% for World Savings, according to DataQuick.

On mortgage loans from primary residences, California homeowners were a median five months behind on their mortgage payments when lenders filed notice. The borrowers owed a median $13,510 on a median $325,818 mortgage.  On home equity loans and lines of credit in default, borrowers owed a median $3,939 on a median $62,965 credit line. The amount of the credit line that was actually in use can’t be determined from public records.

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%.

Obama’s mortgage relief czar rolled the Home Affordable Modification Program, which pays incentive fees to loan servicing companies that agree to renegotiate home loan terms, includes extra payments to investors that consent to mortgage loan modifications in dropping real estate markets. FHA refinance loans have made an attempt to help struggling homeowners get a lower fixed rate, but not enough people qualify.  These loan payments, for as much as $5,000, are meant to compensate the investor for the risk that the borrower will end up re-defaulting again and the home will be forced into a foreclosure and ultimately sold in an even lower property value market.  Hedge fund company, Magnetar Capital LLC has started lobbying the government to provide much greater downside protection for holders of privately owned mortgage-securities and wholesale home loans. Article was written by Kate Berry.