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

The housing department hasn’t set a deadline for a decision, said Lemar Wooley, a spokesman.  According to Anthony Hsieh, CEO of LoanDepot.com, an online mortgage originator based in Irvine, California, the process costs $3,000 to $6,000 to train and pay the fees for each new employee to comply with the mortgage-licensing system. “The mortgage reform law is supposed to make sure we kick the bad ones out,” said Hsieh. “It could be the opposite, keeping the good loan officers out.”

The Nevada Supreme Court recently said that the mortgage loan modification law is governed for the lawmakers’ intent. Nevada Supreme Court officials said that the administrative rules are adjusted to make a solution if any problems arise between the homeowner and the lender.  The State further noted that there have already been three changes in rules for administering the mortgage loan modification law from the previous year.  In addition, Ron Titus, director of the Administrative Office of the Courts said, “We have 270 mediators, and the vast majority operate very comfortably within the rules of the program and work very hard to help the parties find common ground and reach a resolution.” Titus further states that the mediators can assure a reliable process and there will be unprejudiced treatment between the lender and the homeowner. 

The mortgage loan modification law only has one sanction and it can only be applied to the lenders. If a particular lender won’t show up for the mediation meeting, he will be given a sanction. This has only occurred once when Clark County District Judge Donald M. Mosley ordered a $50,000 sanction against Flagstar Bank FSB. The lender failed to appear in a hearing and was not able to pass any legal documentations of foreclosure in a particular mediation meeting. This loan modification article was written by Jason Blackmore.

What else could you call it when almost 1 in 7 of South and Central Floridians who jumped into the Obama administration’s Making Home Affordable Program in January in hopes of getting a loan modification had dropped out by May?  The borrowers who have dropped out have joined an exodus of more than 215,000 borrowers nationwide in the past five months. They went through the trouble of applying, only to leave with nothing to show for it.

The answer, according to representatives of Chase and Wells Fargo/Wachovia among the largest banks operating in Florida is: Those borrowers did not meet the loan modification qualifications. Many of the mortgage relief prospects were not able to send in the documentation or their loan modification application was not completed correctly.

Using the May report from the Treasury Department, it’s clear that Miami-Fort Lauderdale and Orlando-Kissimmee are the largest metro markets in the nation for loan modifications. The two regions account for 6.8% of all Making Home Affordable loans nationwide, topping Los Angeles 6.4% and New York 6.1%.  Here, even those borrowers who do get a loan modification say the process is too vexing. Even if they comply with all the lender’s rules, borrowers say they get the runaround and often, contradictory answers from one day to the next.  Read the original article online Thousands giving up on home loan modification hopes.

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

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.”