In the recent past, the Obama administration has attempted to help the struggling housing market but most of mortgage relief initiatives have failed. Refinancing underwater mortgage loans has certainly become a common challenge that thousands of homeowners appear to be ready to embrace.  This new FHA program which started last week is often referred to as the FHA short refinance because the 1^st mortgage balance is written down to the present market value, thus “short refinance.“

The government has placed aside $14 billion in TARP funds to help support this new program. But the question of the foreclosure day is, “Will lenders and mortgage servicers cooperate?”  Qualifying for the Emergency Homeowner Loan Program or FHA short refinance may be difficult but the financial rewards are significant so we recommend that you attempt to get qualified.  Getting your mortgage balance reduced and your monthly payment lowered are two amazing feats worth striving for.

According to the LA Times, Many mortgage lenders are “overwhelmed and disorganized but they continue to foreclose on borrowers who are actually in the process of finalizing a home loan modification that would ensure more affordable monthly payments. At a time when the housing market is flooded with foreclosed homes, this doesn’t help anyone. The federal government rolled their attempt to stem the foreclosure crisis with the Home Affordable Modification Program that was created to stop lenders from foreclosing while a modification is pending, but other initiatives don’t.  

California Senators Mark Leno and Darrell Steinberg are proposing to extend the same protection to all Californians seeking loan modifications. The California loan modification bill (SB 1275) would stop a home loan lender or mortgage service company from initiating the foreclosure process until after a mortgage loan modification application was denied. It’s a modest change that wouldn’t require mortgage lenders to change the terms of any loan modification program. Nor would it require lenders to do more to reach borrowers before foreclosing than state law already requires or to slow down foreclosures on borrowers who are beyond help.  The law would require mortgage lenders to notify borrowers who get behind on their home loan payments about the foreclosure process and the availability of home refinancing or loan modification options, if any. And if borrowers applied unsuccessfully for a loan workout, the mortgage company would have to send them a letter explaining why they were denied and how they can appeal the decision before filing a notice that the mortgage was in default.  The purpose of the bill was not just another attempt to help homeowners avoid making their mortgage payments; but it was created to help protect lenders from themselves.  A recent report revealed that Housing counselors say the No. 1 problem is poor communication between mortgage companies and distressed borrowers.

Are You Eligible for a Government Loan Modification Plan?

Are You Eligible for Obama’s Loan Modification Program?   To be eligible for mortgage loan modification options under the federal initiative, borrowers should be able to meet the following basic requirements:

o    The home for which the loan being modified must be the primary residence of the applicant.

o    The value of the present home mortgage cannot exceed $ 729,250 for a 1-unit property.

o    The existing home loan should have been approved before 1st January, 2009.

Is HAMP helping second mortgage lenders? New home loan modification statistics released by Treasury provide additional insight into just how well servicers are doing in converting trial mortgage modifications to permanent status.  The six servicers who verified borrowers’ income before placing them in trials have transferred more than half to long-term adjustments, with HomEq Servicing and Ocwen Financial Corp leading the way with 83% converted.   Those lending companies using stated income or no limited documentation approach, however, have yet to hit the halfway mark.

According to the State Department, the California loan modification program has not had much success either because borrowers still can’t afford their mortgage loan, even after the lender modifies the loan to a reduced monthly payment.  The largest mortgage loan servicers are behind most of the top lending banks like, with Bank of America 25%, Wells Fargo at 25%, JPMorgan Chase at 22% and Citigroup at 21%.  Homeowners also languished in trial loan modifications at certain servicers. Some 76% of those in the trial phase at Saxon Mortgage Services and 72% at JPMorgan Chase have remained at that stage for at least six months. Servicers, who met with Treasury and Housing Department officials last week, told the administration they would clear the bottle-necked process by the end of June. 

According to industry insiders, major changes to the federal loan modification program are coming soon in the wake of criticism that the Obama administration must offer federal mortgage relief to struggling borrowers.   Starting June 1st, homeowners will have to provide all their income verification documents before they are put into trial modifications. This will make it harder for troubled homeowners to start the process, but it should make it easier for them to qualify for permanent assistance.   Refinance loans have been difficult for most homeowners to qualify for because of depleted equity and slumping credit scores, so the loan modification has become an important part of the foreclosure prevention equation.

DataQuick reported that home foreclosures totaled 1,515 in December, up 41.9% from November and up 20.9% from a year earlier. It was the biggest stack of foreclosures since June’s 1,630.  Meanwhile, notices of default, the first legal action on the road to foreclosure, dipped 11.5 % from November’s 2,122 to December’s 1,878, the smallest figure since November 2008. It was down 38.5 % year over year.  To real estate agents hungry for inventory of low-cost foreclosures to sell to bargain hunters, the upsurge in foreclosures promises to refill empty lists of homes for sale, although agents have complained in recent months that banks aren’t moving quickly to list those properties as a California short sales possibly increasing their bottom line..

On the default side, the continuing decline reflects the pressure being placed on lenders to work with troubled owners by modifying loans to make them more affordable, at least on a short-term basis, or allow properties to be sold as short sales — sold for less than the outstanding mortgage balance.  “Clearly, many lenders and (loan) servicers have concluded that the traditional foreclosure process isn’t necessarily the best way to process market distress,” DataQuick President John Walsh said.

DataQuick analyst Andrew LePage said San Diego had the state’s highest large-county foreclosure spike in December.  “It’s a mystery,” he said of the increase. Home foreclosures were up only 19 % in the six-county Southern California region.  Many analysts warned against extrapolating from the latest data to assume that widespread distress on the wane. “Because the economy is no better and values have not come back significantly, there’s pressure on banks to postpone notices of default in an effort to seek alternatives,” said Mark Goldman, an adjunct professor of real estate at San Diego State University. He said San Diego might be nearing a “rough landing” and some price increases in certain areas. But the high-end part of the market still appears weak.

The number of homes entering the first stage of foreclosure, or receiving notices of default, declined 24.3% during the fourth quarter from the prior three months, according to county data collected by DataQuick, a San Diego research firm. The decline in the default number is significant because any new wave of foreclosures will first be detected by that measure, according to the firm.  Meanwhile, the number of homes taken back by lenders through trustee sales ticked up 2.1% in the fourth quarter over the third. The trustee sale is the final stage of California’s foreclosure process.  “Clearly, many mortgage lenders and servicers have concluded that the traditional foreclosure process isn’t necessarily the best way to process market distress,” MDA DataQuick President John Walsh said. He said banks have been negotiating with distressed borrowers to keep them in their homes and increasingly turning to “short sales” in which the banks accept an offer that is less than the value of the outstanding mortgage; banks end up taking a loss on such deals.  At the same time, big banks are feeling intense pressure in Washington to work with troubled borrowers through the Obama administration’s Making Home Affordable program. Much of that relief has been temporary.

Through December, banks had lowered mortgage payments for 172,288 California borrowers, but only 7.8% of those modifications were permanent, according to government data.  Many experts consider that record a failure and fear that if the government doesn’t improve its performance those mortgage loans eventually will go into foreclosure and put pressure anew on the state’s housing market. 

While the number of California mortgage delinquencies declined to 8.71% at the end of the fourth quarter from 8.87% at the end of the third, according to data from Equifax and Moody’s Economy.com, the percentage loans that were 120 days or more past due increased to 4.7% from 4.51%.  Those figures indicate that the Obama administration’s efforts to help troubled homeowners have allowed some borrowers to stay out of default but kept many in a kind of late stage of delinquency limbo, said Celia Chen, senior director of Moody’s Economy.com. If the majority of borrowers who have received temporary loan modifications under Obama’s program are unable to get permanent changes to their bad credit mortgages, another wave of foreclosures could follow, she said.  “Given what we see in terms of the number of distressed properties that are in the pipeline, we do expect that home foreclosures will mount as borrowers are not able to make it from a trial modification to a permanent modification,” Chen said. “This will cause home prices to start falling again.” A total of 84,568 notices of default were recorded at county recorders offices during the fourth quarter, an increase of 12.4% from the fourth quarter of 2008. Trustees deeds recorded, or the actual loss of a home to foreclosure, totaled 51,060 during the fourth quarter, up 10.6% from 46,183 for fourth-quarter 2008.  An all-time high for notices of default was reached in the first quarter of 2009 at 135,431.

The governor signed AB 260 which will take effect January 1, 2010 and will tighten restrictions on mortgage brokers so they will be unable to steer borrowers towards riskier, higher-interest loans when they qualify for safer, more affordable home mortgages. 

The mortgage relief law will also prohibit negative-amortization home loans, which offer monthly payments that do not include any principal or even all of the monthly accrued interest, which can cause the amount of a home loan to increase over time.

The law also limits prepayment penalties to no more than 2% of the home loan balance and gives state regulators the power to enforce federal lending laws.  The governor vetoed similar legislation last year at the urging of some groups in the mortgage and real estate industries. The California Association of Mortgage Brokers, the California Mortgage Association and the California Association of Realtors opposed this year’s version of the bill to no prevail.

Sam Khater, senior economist, First American CoreLogic. “To say there is a second wave implies the existing wave has receded,” Khater told me. “I don’t see that the wave has receded.”  Khater shared his historical data of 90-day delinquency rates for Orange County, as well as the foreclosure-in-process rates and rates of REOs, or foreclosures on banks’ books. The 90-day rate includes all outstanding 1st mortgages at least three months late but not yet foreclosed. The foreclosure rate is just 1st mortgages with a notice of default or trustee’s sale filing.

If you look at the 90-day rate it has been heading straight up it has not scaled back. Khater also said the California foreclosure rate and REO rates have been impacted by government tinkering in the market. He said federal and state efforts have mostly delayed foreclosures, preventing few.

In Khater’s view it shows “one giant wave.”  Local State and Federal loan modification programs have helped thousands of borrowers keep their homes, but in some cases the mortgage relief was simply delaying the inevitable loan default that will push the homeowners out with a legal foreclosure.

Mathew Padilla elaborated more the 2nd-wave of foreclosures looming for so-Cal neighborhoods. He said it’s based on the idea that there has been a lull in home “foreclosures and the big second and maybe third or fourth waves will come as low introductory payments end on various types of adjustable-rate loans.” Credit Suisse released reports with graphs highlighting significant of resets and interest rate recasts in 2010, 2011 and 2012. 

Industry insiders have already discussed that defaults remain high for negative amortization option ARMs.  The report reminds us that we need not wait for the adjustable rate loans to adjust, because many of them are already defaulting.  If you are a homeowner seeking a loan workout make sure that you contract with a reputable law firm or loan modification company.  Ask about their refund policy, in case the lender rejects your request for a loan modification.

Adrian Sainz wrote an article a few days ago, that I wanted to share with you. Homeowners worried about missing mortgage payments and entering foreclosure may have another option: a loan modification. Despite some signs of stability in the housing market, foreclosures remain a major obstacle to a meaningful recovery. And more borrowers in good standing are likely to miss their mortgage payments as the recession claims more jobs.  That’s why some people have gone for a loan modification — a permanent change in a mortgage that results in more affordable payments for the borrower.

Efforts to modify home loans have been easily outpaced by the number of new delinquencies, according to a Treasury Department report released in late June. In the first quarter, loan companies modified 185,156 mortgages, up 55 percent from the previous quarter, while the number of foreclosures in process increased to 844,389, up 22 percent.  Still, modification has been an option for many troubled homeowners. Lenders have been overwhelmed by calls from people seeking to modify their home loan, leading to reports of frustration and delays, according to mortgage finance giant Freddie Mac, which recently released an Internet video discussing this topic.  In the face of these delays, it’s important to start the loan modification process fully prepared. That means having the correct paperwork handy before calling or meeting with a loan servicer or housing counselor.  Here are some questions and answers about what you should have on hand.

Question: What are some basic documents to gather ahead of a loan modification meeting?

Answer: First, the servicer will want to quickly find the file in question, so have the monthly mortgage statement in hand.  Next, find the most recent statement for any homeowners’ or condominium association fees. Some borrowers have seen association fees increase in light of more home vacancies brought on by foreclosures, stressing monthly budgets — so you’ll want evidence of what you’ve been paying each month.  Also, borrowers who took out home equity lines of credit, and second or third mortgages, should have paperwork for those loans handy.  All of these documents go a long way in displaying a troubled borrower’s financial situation and determining their eligibility for a loan modification. Borrowers should also enter the process with a budget plan that includes how much they can actually afford to pay in monthly housing expenses, including insurance and taxes.

Question: Are there any documents not specifically related to the home that should be nearby during the meeting with the loan servicer?

Answer: Yes. Bring along statements showing balances and minimum monthly payments on active credit cards, car loans, student loans and other debts or obligations, Freddie Mac says.  These documents give the servicer a sense of the borrower’s monthly expenses outside of housing-related expenditures, to come up with a manageable monthly mortgage payment that will be sustainable.

Question: Is that all?

Answer: Actually, no. Freddie Mac recommends that homeowners write a statement that discusses the financial problems that are or could be leading to foreclosure.  This should be an honest account — the writer should set pride aside and give the servicer a sense of how bad the situation really is.

Loss mitigation and mortgage relief can be a complex decision for some mortgage lender, so remeber that you have the opportunity to make another 1st impression, so don’t blow it…process. In most cases, homeowners should have an attorney guide them through the loan modification process to work through any technicalities and make sure the lender is taking the correct steps.

U.S. mortgage fraud reports jumped 36% last year as desperate homeowners and industry professionals tried to maintain their standard of living from the boom years, the U.S. Federal Bureau of Investigation said last week, calling fraud rampant and growing.  Leibowitz said that many who offer loan modification schemes deceive homeowners by posing as quasi-governmental agencies or implying that they are working with federal agencies and cautioned consumers to be aware of the scams.

According to Real Estate News Publication, Housing Crisis Under Fire, California loan modification scams lead the nation in loss mitigation fraud.  California Attorney General Jerry Brown said his office had sued 21 individuals and 14 companies accused of scamming homeowners, saying that many of the operations were based in Orange County, south of Los Angeles. Also Brown said that bogus loan modification scams had proliferated widely following the subprime meltdown and housing crash, to the point where authorities with limited resources were unable to effectively pursue all of them.  “We’re going to do everything we can to stop it, realizing that there are more of these rats that come out of their holes than we can stomp on,” Brown said. “This is one of the more egregious wrongs we see committed in society and we are going to fight it.”