U.S. Plans Big Expansion in Effort to Aid Homeowners

March 25, 2010

U.S. Plans Big Expansion in Effort to Aid Homeowners

By DAVID STREITFELD

The Obama administration on Friday will announce broad new initiatives to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

Another element of the new program is meant to temporarily reduce the payments of borrowers who are unemployed and seeking a job. Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs.

The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.

The administration’s earlier efforts to stem foreclosures have largely been directed at borrowers who were experiencing financial hardship. But the biggest new initiative, which is also likely to be the most controversial, will involve the government, through the Federal Housing Administration, refinancing loans for borrowers who simply owe more than their houses are worth.

About 11 million households, or a fifth of those with mortgages, are in this position, known as being underwater. Some of these borrowers refinanced their houses during the boom and took cash out, leaving them vulnerable when prices declined. Others simply had the misfortune to buy at the peak.

Many of these loans have been bundled together and sold to investors. Under the new program, the investors would have to swallow losses, but would probably be assured of getting more in the long run than if the borrowers went into foreclosure. The F.H.A. would insure the new loans against the risk of default. The borrower would once again have a reason to make payments instead of walking away from a property.

Many details of the administration’s plan remained unclear Thursday night, including the precise scope of the new program and the number of homeowners who might be likely to qualify.

One administration official cautioned that the investors might not be willing to volunteer any loans from borrowers that seemed solvent. That could set up a battle between borrowers and investors.

This much was clear, however: the plan, if successful, could put taxpayers at increased risk. If many additional borrowers move into F.H.A. loans, a renewed downturn in the housing market could send that government agency into the red.

The F.H.A. has already expanded its mortgage-guarantee program substantially in the last three years as the housing crisis deepened. It now insures more than six million borrowers, many of whom made minimal down payments and are now underwater.

Sources said the agency would use $14 billion in funds from the Troubled Asset Relief Program, some of which it could dangle in front of financial institutions as incentives to participate.

Another major element of the program, according to several people who described it, will be to encourage lenders to write down the value of loans for borrowers in modification programs. Until now, the government’s modification efforts have focused on lowering interest rates.

Lenders began offering principal forgiveness last year on loans they held in their own portfolios. In the fourth quarter, however, this process abruptly reversed itself, for reasons that are unclear. The number of modifications that included principal reduction fell by half.

Bank of America, the country’s biggest bank, announced this week that it would forgive principal balances over a period of years on an initial 45,000 troubled loans.

Another element of the White House’s housing program will require lenders to offer unemployed borrowers a reduction in their payments for a minimum of three months.

An administration official declined to speak on the record about the new programs but said they would “better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.”

The new initiatives would expand the government’s current mortgage modification plan, announced a year ago with great fanfare. It has resulted in fewer than 200,000 people getting permanent new loans. As many as seven million borrowers are seriously delinquent on their loans and at risk of foreclosure.

13 Responses

  1. never mind folks, I found it.

  2. Has anyone seen a document dealing with loan modification payments or trial payments that set the initial payment at 2/3 or 3/4 or something like that, plus 1/12 of any escrow amounts, of the original loan payment? I had the doc but my computer did a re-boot and I lost it.

  3. to Neil and Brad- as you and everyone on this site get closer to the truth, I am thinking that there should be an alternate site set up in case someone or some entity disables this site or somehow renders it inaccessible. Keep up the good work Also last week regarding the Lehman bk proceedings, and the use of REPO 105 loans used to move the on balance sheet debts out of view, it was mentioned in the article that the groups working on the bk cleanup are currently working to “unwind the 1.1 million derivatives trades on Lehman’s books at the time they ceased operations”. Although there was not a dollar value assigned to the derivatives, it is the first time i have seen a quantity given. The total amount of derivatives outstanding is somewhere around $760 trillion. A good site with great analytical skills regarding banks, investment banks, etc,. mostly doubtful about the numbers being put forth, is ZeroHedge. They go strictly by the numbers, and put forth pointed analyses, questions, remarks and opinions.

  4. If ANYONE here truly believes the “government” is going to step in and do ANYTHING to help out homeowners in ANY manner … I have a bridge I’d love to sell you. Keep right on drinking the Koolaid, America.

    Steve
    99Libra@gmail.com

  5. This is who you will, often, really be dealing with under the “expansion”. The (ahem) “lender.”

    Old article – but still stands and is ongoing.

    From article from MSNBC – associated press – July 30, 2008. See below:

    “Hedge funds investing in delinquent mortgages
    Many claim that they can alter terms of loans much easier than banks”

    Guess who holds your mortgage now? It’s your friendly neighborhood hedge fund.

    Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted

    They are buying them from Wall Street investment banks eager to rid themselves of bad assets. Merrill Lynch & Co., for example, said this week it would sell mortgage-linked investments once valued at $30.6 billion for just $6.7 billion to Lone Star Funds, a distressed-debt investor in Dallas.
    Story continues below ↓advertisement | your ad here

    Many of the hedge funds, run by former Wall Street and lending industry executives, claim they can do a better job than banks or other investors of modifying mortgages at terms that consumers can afford.

    “We’re much easier to deal with than a bank,” said Jacob Benaroya, managing partner of New Jersey-based Biltmore Capital Group, a hedge fund that’s buying up to $100 million in mortgage debt per year. “We’ve bought (the loan) at enough of a discount that we can make special arrangements with the borrower.”

    However, the hedge funds acknowledge that the loans they purchase are often in such trouble that as many as two-thirds to one-half can’t be salvaged. In that case, the fund obtains the property through foreclosure and tries to sell it off, or allows the borrower turn over the house keys in return for forgiving the outstanding mortgage balance.

    Edelmira Sayo, a real estate agent in Northern California, wound up turning over a rental property to investment firm G8 Capital this month after falling into financial trouble as her business slowed down and her income dropped.

    The investor had offered to cut the value of the $410,000 loan by $50,000, but she still couldn’t qualify for a new loan because the value of her property had plummeted by nearly $100,000.

    “If I could have just had it modified, I could have kept it,” she said. “I didn’t want to tarnish my credit report…It’s just so sad.”

    Evan Gentry, chief executive of G8 Capital, said the company worked with Sayo for months to help her find a way to refinance the mortgage, but he said it couldn’t be done because of falling property values, tighter credit standards and Sayo’s lower income.

    For many such borrowers, he said, “the best move for them is to simply do a deed in lieu of foreclosure and simply start over,” adding that many borrowers “feel a great relief when we tell them it’s OK” to do so.

    So far, housing advocates say they haven’t yet seen the impact of such hedge funds among the borrowers they counsel. But they hope these new investors will be more amenable to borrowers interests’ than the current mortgage holders, which have been widely criticized for being sluggish to modify loans amid an unprecedented volume of defaulting loans.”

    From me – have you ever seen anyone tell the judge that a “hedge fund” now owns the mortgage??? Does not happen – why ? because hedge funds are private – they do not have to report to SEC. They are protected. While a hedge fund currently owning the rights may not be the case for everyone – it is the case for many. And the judge will never know – simply not in the courts’ system.

  6. This is getting interesting

  7. Foreclosure Fraud

    I agree with you. At first, I thought that finally they were going to doing something. Reading through – the “expansion” – as you say – “it has no teeth.” All left up to the lender – and who the heck even knows who their “lender” is. Further, we have the president of the National Economic Council coming out and saying – “this is not for people who bought too much house” – “they should not get help.”

    We are no better off.

  8. Well, the democrats did have cramdown legislation passed in the house, but it stalled in the Senate. You can thank the blue dogs dems for that one as well as every republican in the Senate. Even though it would be a boon to bankruptcy attys, a cramdown ability would lessen the burden placed on the state courts.

  9. a MORATORIUM ON INTEREST IS THE ONLY FAIR
    SOLUTION TO USURY!

  10. here… for a laugh [ really tears of a clown ..me] or
    DYING TRUTH- spot ont! “YRANNICAL, FASCIST DICTATOR ALERT!!!!”

    http://thomas.loc.gov/cgi-bin/query/Z?r110:H24SE8-0030:

    CONSOLIDATED SECURITY, DISASTER ASSISTANCE, AND CONTINUING APPROPRIATIONS ACT, 2009 — (House of Representatives – September 24, 2008)

  11. Amen. If all they did is make the banks follow the law it would help a substantial number of homeowners. number one make them prove proper standing in court, EVERY TIME!

  12. This new expansion to aid homeowners has no teeth.

    From the Hamp Update Report:

    These changes will provide temporary mortgage assistance to some unemployed homeowners, “encourage” servicers to write-down mortgage debt as part of a HAMP modification

    Encourage them? Like they “shamed” them last year? That worked…

    Or how about

    To expand the use of principal write-downs, servicers will be “required to consider” an alternative modification approach that emphasizes principal relief.”…

    That will intimidate them to do a principle write-down.

    How about required period.

    I wouldn’t expect much success out of these new enhancements with the way the report is worded.

    4closureFraud

  13. oh that’s great, the obamanation minstration can force congress to pass health care reform that violates our privliges and immunities by penalty fines who don’t comply with the mandate, but can’t force congress to pass legislation that puts families back in thier homes prevents any more from losing thier’s and penalizes lenders and servicers for making no effort to fix the problem that they created? can you say TYRANNICAL, FASCIST DICTATOR ALERT!!!!

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