Follow Up- Fannie and Freddie

Posted by kevin on October 22, 2014 under Foreclosure Blog | Comments are off for this article

Well, on Tuesday (10/21), most newspapers indicated that the FHFA and major mortgage lenders had entered into an agreement in principal to loosen lending requirements. The announcement was made by FHFA boss, Mel Watt, at a speech before mortgage bankers in Las Vegas.

Las Vegas, that is precious. John Stewart’s writers could not have come up with a funnier story line.

To increase access to credit for lower income borrowers, Watt called for loan to value ratios of 95-97%. With only 3-5% down, borrowers have little skin in the game. If housing prices decline, they will be underwater. How is that different from 2008? One way it will not be different is Fannie and Freddie will insure the loans, therefore, the taxpayer will be bailing out lenders on defaulted loans.

The devil is in the detail as they say. So, we will see in the next few months what safe harbors are given to lenders.

When Dodd-Frank was promulgated, it included a specific provision that stated, in general terms, that a lender must grant a mortgage loan based primarily on the ability of the borrower to repay and not on the value of the collateral. The analysts railed on that such an onerous standard would kill the housing market. Well, my research indicates that the Dodd Frank standard is the fundamental definition of predatory lending, and has been around in Interagency guidelines, regulations, and OCC Advisory Letters since the mid 1990’s.

History has a tendency to repeat itself. I just did not think that it would happen so soon.

New Bill in NJ- Mortgage Assistance Pilot Program

Posted by kevin on April 25, 2013 under Foreclosure Blog | Comments are off for this article

New Jersey has not done too well during the mortgage crisis. Unemployment has been higher than the national average. Foreclosures have topped 150,000 since 2008 with a backup of probably another 100,000. The courts have been reluctant to find problems with issues like predatory lending, consumer fraud and the like. The NJ Home Ownership Security Act, a supposed strong consumer protection act, turned out to be a paper tiger because basically, it does not apply to 99.9999% of mortgages. The mediation program has run out of money. At the same time, NJ has the second highest foreclosure inventory in the country and NJ is one of only 4 states where foreclosures were up in the last year.

Amid all this less than sterling news, I came across something positive. Assemblyman Troy Singleton from Mount Laurel proposed a bill (A3915) to create the Mortgage Assistance Pilot Program to be run by the New Jersey Housing and Mortgage Finance Agency (HMFA). The purpose of the program is to allow homeowners who are in default of a mortgage owned by HMFA to lower the prinicpal owed on the mortgage if the property is underwater (more is owed than the property is worth).

The specifics: Principal could be reduced up to 30% and interest could be reset to current market rates. For example, you owe $500,000 at 8% on a property worth $300,000. Under this bill , the principal could be reduced to $300,000 and interest (30 years fixed fully amortized) could come down to the low to mid 3’s. That could be a huge savings.

In return, the homeowner is required to retain ownership the property for 5 years, and upon sale, must share any appreciation with HMFA to the extent of the reduction (If the mortgage principal is reduced by 30%, HMFA gets 30% of the appreciation upon sale.) If the owner sells before the 5 year holding period, another 5% is tacked on HMFA’s share.

Back in 2009, I routinely included equity sharing as part of any settlement proposal that I made to a lender/servicer. It was routinely rejected. Now, it appears that the environment may be ready for such a concept. Besides the usual problems involved in turning a bill into law, my chief concern with A3915 is the scope of the legislation. Since the program only applies to mortgages owned by HMFA, how many homeowners will be able to get relief. If HMFA is going to go out and buy New Jersey mortgages to supplement its inventory, where is the money coming from? My concern is that A3915 will become another NJ HOSA- great on paper but of limited utility. Notwithstanding I commend Assemblyman Singleton for attempting to address a big problem here in NJ.

Foreclosure Settlement- Yeah Right

Posted by kevin on February 14, 2012 under Foreclosure Blog | Comments are off for this article

Last week, with incredible fanfare, the media and the Administration announced a $25 Billion settlement between and among the Federal government, all states except OK, and major banks (Ally, BOA, WF, JP Morgan-Chase, Citi). Clients have been calling or emailing me all week from north in Bergen and Passaic Counties to south (at least for me) in Monmouth and Ocean counties. Is it a good deal? Can they get a reduction in principal to bring the amount due down to what the property is worth? Will the bank/servicers finally deal straight?

Don’t hold your breath. First, the 25B translates to only 5B cash from the banks. 17B is earmarked for a reduction in amount due which will go to about 1,000,000 households that are underwater. Of course, the statistics show that there are over 11 million households underwater to the tune of about $700B. So, about 2.5% of the underwater households will be helped, and most of those households are current on their mortgages. 3B goes to homeowners who are underwater but current with the intended purpose that they will be able to re-finance when they get a reduction in principal. However, the reduction in principal is only about 20K per household. So, who really is going to be helped?

If you have been foreclosed on, then you can get a cash payment of up to $2000. In Northern New Jersey, that will pay for about one month rent or maybe your moving expenses.

Who is going to enforce this deal? Joe Smith, the banking commissioner of North Carolina, is in charge. But, we do not know what staff he has and what type of enforcement powers he has.

Finally, and similar to Obamacare, the deal has been announced and praised but no one has seen the final draft of the agreement. Why? Because my understanding is that it has yet to be finalized and drafted. Once you see the final written copy, you and I will be in a better position to see what’s what. I am afraid, however, that what we are going to find is another deal that is good for the banks and bad for the consumer.