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Home loan applications fell 1.5 percent on a seasonally adjusted basis for the week ending May 14, the Mortgage Bankers Association said today.

The refinance index actually jumped 14.5 percent from one week earlier thanks to the low interest rates on offer, but home purchase applications plummeted 27.1 percent to their lowest point since May 1997.

It’s pretty clear the expiration of the homebuyer tax credit in late April led to this extreme drop-off, and it makes you wonder if home prices will be able to sustain, even with the near record-low mortgage rates on offer.

The decline in purchase apps pushed the refinance share of mortgage activity from 57.7 percent to 68.1 percent of total applications.

Meanwhile, the popular 30-year fixed-rate mortgage slipped further to 4.83 percent from 4.96 percent, and the 15-year fixed averaged 4.19 percent, down from 4.32 percent.

The one-year adjustable-rate mortgage dipped to 6.81 percent from 6.86 percent.

Mortgage points increased on all loan types, somewhat eliminating any benefit tied to the interest rate improvement.

The interest rates above are good for mortgages at 80 percent loan-to-value.

The MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out duplicate or rejected apps, which have surely risen since the mortgage crisis began.

Of the estimated 211,154 residential units foreclosed on in California during 2009, roughly 77,145 were rental units, according to a new report focused on tenant rights.

The foreclosures resulted in the displacement of an estimated 208,795 tenants who were living in single-family homes, condos, and multi-family apartments, despite likely making on-time payments every month.

From 2008 to 2009, there was a 70 percent increase in the foreclosure rate of apartment buildings of five units or more – single-family foreclosures fell 3.1 percent year-to-year.

An overwhelming 85 percent of the foreclosed properties went back to banks in 2009, while private investors took the rest.

During the year, banks forfeited more than $776 million in rental income, focusing on booting tenants by hiring lawyers to litigate eviction cases and having real estate agents carry out cash-for-keys deals.

“Once the properties are vacated, they become prime targets for vandalism, further contributing to plunging property values, and creating legal liability for banks as the owners of blighted vacant property,” the Tenants Together report said.

“Furthermore, banks continue to tarnish their standing in local communities by maintaining their policies to evict rent- paying tenants.”

Fannie Mae and Freddie Mac have implemented post-foreclosure programs to assist renters, but many banks apparently continue to see tenants as obstacles to future profits.

Tenants Together is calling for better tenant protections, including making the “Protecting Tenants at Foreclosure Act” (PTFA) permanent, passing local “just cause for eviction” laws, providing tenant notification when a landlord receives a foreclosure filing, and boosting legal funding for tenants in foreclosure situations.

Currently, PTFA provides tenants with the right to a 90-day notice to vacate after foreclosure and requires new owners to allow tenants with leases to continue occupying properties until the end of the lease term, unless sold to a buyer who intends to occupy the property as their primary residence.

In sunny California, mortgage delinquencies vary widely by county, as evidenced by a Fitch Ratings study.

Fitch took a look at all securitized, non-agency mortgage loans in the state and discovered that “delinquencies are highly correlated with the level of negative equity.”

And while mortgage performance in California is not substantially different than that of the remainder of the country, certain parts of the state are underperforming or outperforming the rest of the nation.

In the hard-hit Riverside-San Bernardino-Ontario MSA, 23 percent of prime loans are 60+ days delinquent, making it the worst performing region in the nation.

Meanwhile, the San Francisco-San Mateo-Redwood City MSA is the best performing region in the country, with just four percent of prime loans 60+ days delinquent.

Additionally, high-risk option arms and subprime loans in San Francisco outperform less risky Alt-A mortgages in Riverside.

“From 2000-2006, nominal home prices in San Francisco increased by 81% and have since declined 22% from their peak. Over the same period, prices in Riverside have declined 55% from their peak after jumping 193%,” Fitch said in a release.

As a result, 90 percent of Riverside mortgages are now underwater, with nearly 60 percent of mortgage holders owing more than 150 percent of the value of their home.

“Fitch estimates the weighed average current loan-to-value ratio (LTV) in Riverside to be 164%. By comparison, less than 1% of San Francisco mortgages are more than 50% underwater, with a weighted average current LTV of 81%.”

Over the past year, San Francisco home prices have increased by 12 percent, while residences in Riverside have appreciated by just one percent.

An amendment introduced by Oregon Senator Jeff Merkley and Minnesota Senator Amy Klobuchar aimed at protecting homeowners from deceptive lending practices passed the Senate by a vote of 63-36 today.

As a result, mortgage lenders and loan originators will be banned from accepting payments based on the interest rate and other terms of the loan, which effectively wipes out loan steering.

The legislation also seemingly kills off yield spread premium, which was one of the main ways mortgage brokers were compensated (how mortgage brokers make money).

“Deceptive mortgage practices like hidden steering payments directly led to the Wall Street meltdown and resulted in millions of families losing their homes,” said Senator Merkley in a release.

“We took a huge stride forward today in the fight to restore fairness for homeowners and strengthen the financial foundations of our families. I look forward to seeing this amendment become law so that never again will hidden steering payments put millions of homeowners on the fast track to foreclosure.”

Current rules allow loan originators and mortgage lenders to place borrowers into higher-cost and riskier loans, even when they qualify for more affordable loans.

Merkley cited a WSJ study, which found that 61 percent of subprime loans originated in 2006 went to borrowers who qualified for prime loans.

The bill will also require lenders to document income and “other underwriting standards” to ensure borrowers can actually repay their loans, putting an end to no doc loans and so-called “liar loans,” otherwise known as stated income loans.

These are huge changes and the implications may be great for the mortgage industry.

The amendment was also co-sponsored by Senators Chuck Schumer (D-NY), Olympia Snowe (R-ME), Scott Brown (R-MA), Mark Begich (D-AK), Barbara Boxer (D-CA), Chris Dodd (D-CT), Carl Levin (D-MI), Al Franken (D-MN) and John Kerry (D-MA).

Refinance demand surged last week as mortgage rates benefited from economic uncertainty, but purchase activity cooled following the expiration of the homebuyer tax credit, according to data from the Mortgage Bankers Association.

“The recent plunge in rates on US Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefitted US mortgage borrowers last week,” said Michael Fratantoni, MBA Vice President of Research and Economics.

“Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks.”

The refinance index increased 14.8 percent during the week ending May 7, pushing its share of mortgage activity to 57.7 percent of total applications from 51.9 percent the previous week.

“In contrast, purchase applications fell almost 10 percent in the first week following the expiration of the homebuyer tax credit, as the tax credit likely pulled some sales into April that would otherwise have occurred in May or later.”

The seasonally adjusted purchase index fell 9.5 percent week-to-week; the unadjusted purchase index was off 8.9 percent from the previous week and 0.6 percent lower than the same week a year ago.

Meanwhile, the average contract rate for a 30-year fixed-rate mortgage fell to 4.96 percent from 5.02 percent, and the 15-year fixed slipped to 4.32 percent from 4.34 percent.

The one-year adjustable-rate mortgage averaged 6.86 percent, down from 7.03 percent – the ARM share of activity remained unchanged at 6.3 percent of total applications.

The rates above are good for mortgages at 80 percent loan-to-value.

The MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out duplicate or rejected apps, which have surely risen since the mortgage crisis began.

(photo: qmnonic)

Black Eyed Peas frontman will.i.am has taken on the foreclosure crisis, creating the i.am home fund to help those in jeopardy of losing their homes as a result of the economic downturn.

Yesterday, he unveiled the program on Oprah, surprising two struggling families facing foreclosure by paying off their mortgages.

Sure beats the other freebies Oprah has been known to throw out to guests on the show…

One family with eight children owed $250,000 on their mortgage and had already exhausted their 401k and savings account after the breadwinner lost his job.

The other lucky victim was a single mom who had been laid off after her company downsized, leaving her eight months behind on the mortgage and owing about $100,000.

Both families are now free-and-clear, let’s just hope they don’t try to pull cash-out anytime soon.

“Growing up I dreamt that one day I’d be able to buy my mom a house and take care of my family,” said will.i.am on his website. “I realized that dream and experienced the positive effect giving back had on my family.”

“Now I am compelled to help others who are in jeopardy of losing their homes and inspire others to join the movement.”

The i.am home fund is collecting donations to help other families in similar situations, though it’s unclear how the money will be allocated.

A number of struggling homeowners have already written in on the website in hopes of receiving assistance.

(photo: nicogenin)

Barclays Capital expects 1.6 million distressed sales of homes this year, according to a report in the WSJ.

These “distressed sales” will mainly be in the form of foreclosures and short sales, and will make up roughly 30 percent of all home sales this year and next.

In 2011, the same number of distressed sales is expected, followed by a slight decline to 1.5 million in 2012.

Last year, the bank said such sales totaled 1.5 million.

Barclays currently estimates that banks and mortgage investors such as Fannie Mae and Freddie Mac own 480,000 homes – that number is expected to rise over the next 20 months and peak at 536,000 in January 2012.

However, there’s also the so-called shadow inventory, which they measure by tallying homeowners 90 days or more overdue on mortgage payments or already in the process of foreclosure.

As of the end of February, a startling 4.6 million households were in that category, though not all of them will lose their homes thanks to loan modifications and other loss mitigation efforts.

At the same time, you need to factor in strategic default, which includes borrowers that may be current but thinking about walking away.

Barclays estimates that home prices will fall another three to five percent on average over the next couple years.

There’s a better chance you’ll experience foreclosure if your math isn’t up to snuff, according to a new research paper from the Atlanta Fed.

Three researchers studied the effect of borrower’s financial literacy and cognitive ability to see what type of role, if any, they played in the mortgage crisis.

They surveyed subprime borrowers who took out mortgages between 2006 and 2007, and found foreclosure starts were approximately two-thirds lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured ability.

Additionally, borrowers in the lowest numerical ability group spent, on average, about 25 percent of the time in delinquency, while borrowers in the highest group were only late on average 12 percent of the time.

The lowest group also missed nearly 15 percent of mortgage payments on average, while the highest group only missed six percent of payments.

Here’s a sample of some of the questions asked:

1. In a sale, a shop is selling all items at half price. Before the sale, a sofa costs $300. How much will it cost in the sale?

2. If the chance of getting a disease is 10 per cent, how many people out of 1,000 would be expected to get the disease?

3. A second hand car dealer is selling a car for $6,000. This is two-thirds of what it cost new. How much did the car cost new?

The researchers said a borrower’s inability to perform simple mathematical calculations likely impacts their ability to manage a budget and may lead to the selection of an unsuitable loan type.

Of course, socioeconomic issues could also be at play; for example, a borrower with poor numerical ability may experience less success in the labor market, and subsequently make less money and be more susceptible to default.

There’s also the thought that borrowers with poor numerical ability may be burdened with debt before even applying for a mortgage.

(photo: lrargerich)

Mortgage demand decreased 2.9 percent during the week ending April 23 compared with one week earlier, the Mortgage Bankers Association said today.

The weekly decline was led by an 8.8 percent drop in refinance applications, while purchase applications picked up the slack with a 7.4 percent week-to-week gain, thanks in part to the expiration of the homebuyer tax credit on April 30.

“Purchase activity continues to increase as we approach the end of the homebuyer tax credit program,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in a release.

“Purchase applications were up almost 9 percent from a month ago, with a disproportionate share of the increase due to government purchase applications. Government applications for purchasing a home accounted for almost 49 percent of all purchase applications last week.”

FHA loans seem to be the only game in town; I suppose it’s lucky the down payment requirement didn’t rise to five percent.

The refinance share of mortgage activity plummeted to 55.7 percent of total applications from 60 percent the previous week as mortgage rates crept up.

The ever-popular 30-year fixed rate mortgage averaged 5.08 percent, up from 5.04 percent, while the 15-year fixed increased to 4.38 percent from 4.34 percent.

And the one-year adjustable-rate mortgage rose to 7.03 percent from 6.95 percent.

The rates are good for mortgages at 80 percent loan-to-value.

The MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out duplicate or rejected apps, which have surely risen since the mortgage crisis got underway.

ISGN Corp. and EquityRock have teamed up to offer the “industry’s first equity sharing, loan modification service.”

The program, coined RESET (Real Estate Shared Equity Transaction), allows borrowers eligible for a loan modification to receive a principal reduction in exchange for a share of their home equity.

The bank or mortgage lender will write down the borrower’s principal balance so the homeowner is no longer underwater, while gaining a stake in the future appreciation of the property should it be sold or refinanced.

“RESET provides lenders and borrowers with a much needed win-win solution to negative equity,” said Niraj Patel, group president of ISGN, in a press release.

“Borrowers get to stay in their homes and have pride of ownership. And lenders have an alternative to the losses associated with short sales and foreclosures—they finally have a way to recoup at least some of the deficit that results from addressing the seriously delinquent or underwater loans in their portfolios.”

The program also supports public policy, as it’s focused on home retention, while other alternatives may result in home abandonment and degeneration of neighborhoods.

It’s unclear what the debt-to-equity trade would be, and how such an event might impact a credit score. There’s still plenty of uncertainty regarding loan modifications and credit scores.

Last month, Bank of America introduced a novel concept known as earned principal forgiveness, where underwater borrowers earn equity by simply continuing to make on-time payments.

Going forward, borrowers who previously experienced a deed-in-lieu of foreclosure won’t have to wait as long to get approved for a subsequent mortgage.

Last week, mortgage financier Fannie Mae changed its required waiting period (the amount of time that must elapse after a pre-foreclosure event) to reflect current market conditions.

In the past, borrowers had to wait four years after a deed-in-lieu of foreclosure to get approved for a mortgage with Fannie Mae.

That time period has been slashed to just two years, though the maximum loan-to-value is limited to 80 percent. After four years, the maximum LTV climbs to 90 percent.

Pre-foreclosure sales and short sales, which Fannie categorizes as the same event, a property sold in lieu of foreclosure for less than the total amount owed, will also have a two year waiting period with the same LTV requirements.

Additionally, certain extenuating circumstances will allow borrowers to get loans after just two years at up to 90 percent LTV.

In all cases, borrowers must re-establish their credit, meaning they must meet minimum credit score requirements and eligibility requirements.

Fannie Mae and Freddie Mac currently require a five-year waiting period after foreclosure to re-establish credit; the waiting period is only three years for an FHA loan and two years for a VA loan.

Bank of America plans to waive mortgage payments for up to nine months for those jobless and collecting unemployment benefits, according to the Charlotte Observer.

There’s a bit of a catch though: borrowers must agree to hand over the house if they’re unable to find a job within those nine months.

Of course, BofA would give soon-to-be former homeowners $2,000 for relocation costs if they failed to get back on their feet during that time.

For those lucky enough to snag a job, the unpaid mortgage payments would be tacked onto the existing mortgage and paid back over time.

If the new job was lower paying than the original, BofA would consider a loan modification to make mortgage payments more sustainable.

The proposed program must still meet accounting and regulatory guidelines, as lenders are required to write down the value of a loan if the modified payment plan lasts beyond three months.

But BofA doesn’t see it as a “modification.” Will federal regulators see it that way too? Stay tuned…

Bank of America, which acquired under-fire Countrywide back when, hasn’t exactly starred under the Making Home Affordable effort.

Before turning things around recently, the banking giant had only completed 98 permanent loan modifications under the program, so image is clearly at stake.

The company also recently launched an earned principal forgiveness program for underwater borrowers, whereby homeowners will earn principal reductions by making on-time payments over time.

Two of the largest mortgage companies in the nation are hiring new sales staff to originate more home loans.

Chase announced today it plans to take on another 300 mortgage loan officers in the Tri-State area over the next six months in its bid to close more purchase and refinance loans.

I wonder if their home retention and loss mitigation departments are adequately staffed? Hmm.

The new hiring at bank branches in New York, New Jersey, and Connecticut will bring its local sales team to 700 employees.

Chase was the third largest home loan lender in the first quarter on $37.1 billion in loan origination volume.

It continues to pitch its paltry 1% Mortgage Cash Back offer to entice customers.

Meanwhile, GMAC, which shut down its wholesale lending channel Homecomings and shuttered many GMAC Mortgage retail branches, plans to go virtual.

The company is rolling out a direct-to-consumer virtual sales network to boost its home loan business, while keeping costs down.

A few weeks ago, GMAC also revealed it was adjusting the loan officer pay structure at its ResCap unit to focus on attracting qualified loan applicants, instead of simply compensating based on volume.

Yeah, the originate-to-distribute model didn’t pan out as expected…

Its retail brand Ditech is set to roll out a huge advertising campaign in the next few weeks as well.

GMAC saw loan origination volume climb to $66.2 billion in 2009 from $59.4 billion in 2008.

Interesting little tidbit from the Florida Realtors regarding foreclosures and income levels released today.

A new research study on foreclosures in the state over a three year period (March 2006 – February 2009) found that 20 percent undergoing foreclosure have annual income of $100,000 or more.

Another 20 percent have annual income between $50,000 to $75,000, while just 27 percent have income of $35,000 or less.

The big question is how many of these high-income foreclosures are strategic?

After all, 48 percent of Florida mortgage properties are underwater, the third worst rate in the country behind just Arizona and hard-hit Nevada.

Foreclosures Also Hurting Long Time Homeowners

Critics and economists often speculate that many of the recent foreclosures were the result of borrowers moving into homes they couldn’t afford and quickly defaulting.

The data from the Florida Realtors says otherwise: 35 percent of all matched foreclosure records represent homeowners who have lived in the home for more than 10 years!

Looks like a few cash out refinances went down in the state, because it’d be pretty hard to lose 10+ years of equity…

Another near 20 percent have lived in the home for 11-15 years, while more than 40 percent just 1-5 years.

As with most other areas, there has been a growing gap between foreclosure starts and homes actually lost to foreclosure, so many of these people who have received foreclosure notices may not actually be going anywhere…

A shock poll from mortgage financier Fannie Mae revealed nearly nine in 10 Americans believe it’s unacceptable to stop making payments on an underwater mortgage.

That includes seven in 10 who are currently delinquent on their own mortgages.

However, 15 percent said financial distress would make stopping payments on an underwater mortgage acceptable.

And both delinquent and current borrowers are more than twice as likely to seriously consider stopping their payments if they know someone else who has defaulted.

So it sounds like a lot of respondents may be dodging the truth, or at least giving the standard “I wouldn’t do it” survey response.

But it seems as if everyone would consider strategic default if the proverbial seal was broken, whether that’s their neighbor defaulting first or another trusted party endorsing it.

After all, it is believed that more than a quarter of mortgage defaults are strategic, especially when negative equity exceeds 15 percent.

The survey, conducted between December 12 and January 12, was based on responses from 3,451 Americans aged 18 and older.

Respondents included current homeowners, mortgage borrowers, renters, and hundreds of underwater borrowers.

It included questions related to housing, the economy, renting, challenges facing homeowners, and more.

Nearly two-thirds think it’s a good time to buy a house, and 31 percent think it’s a very good time to buy, matching sentiment seen in 2003 before the bubble grew out of control.

Two more lenders fell victim to the FHA’s ongoing campaign to remove bad players from the mortgage market.

Last week, it permanently withdrew approval for Atlanta-based RSA Financial and 1st Alliance Mortgage LLC of Houston, Texas.

FHA lending seems to be the only game in town these days, so the move could lead to their eventual demise.

RSA Financial was cited for providing misleading information to the HUD regarding its licensing; there was also the matter of criminal history tied to one of its executives.

1st Alliance was cited for participation in prohibited branch arrangements, providing false certifications, failing to implement a Quality Control Plan, and a bevy of other violations of HUD/FHA standards.

“If lenders want to do business with the FHA, it’s critical that they provide complete and truthful information so that we can properly determine who we’re dealing with,” said FHA Commissioner David Stevens, in a statement.

“If any lender can’t operate within FHA’s guidelines, they can’t do business with us.”

Over the past year, FHA has suspended a number of high-volume FHA lenders, including Taylor, Bean and Whitaker and has withdrawn FHA-approval for 354 others, including heavy-hitter Lend America.

In 2008, only 28 lenders lost their FHA-approval, but recent capital woes and rising defaults have forced HUD to take a stronger look at those they do business with.

The FHA has also announced a number of policy changes, including higher credit score requirements and mortgage insurance premiums, along with reduced seller concessions to prevent appraisal-related fraud.

A new initiative spearheaded by mayor Michael Bloomberg aims to provide free legal aid to New York City residents facing foreclosure.

The so-called “NYC Service Legal Outreach” will support homeowners with free legal assistance during the mandatory settlement conference stage, which is a meeting between the bank and homeowner where foreclosure alternatives are negotiated.

Such conferences give homeowners an opportunity to avoid foreclosure, and the presence of legal representatives will likely improve a homeowner’s chances.

The NYC Service Legal Outreach program intends to recruit 300 volunteer attorneys over the next three months – 100 will be stationed at courthouses to screen homeowners and provide counsel.

An additional 200 attorneys will be directly matched with individual homeowners and will advocate for the homeowners throughout the foreclosure settlement process.

“The City’s legal community has a long, proud history of pro bono work, and we are tapping into that tradition to bolster our comprehensive effort to prevent foreclosures,” said NYC Mayor Michael Bloomberg, in a release.

“The City has not been hit as hard as some other areas by the foreclosure crisis, in part due to our efforts, but we are seeing a serious impact. No family facing the loss of their home should be without representation.”

Last year, there were 20,773 foreclosure filings in New York City, up from roughly 14,000 in 2007 and 2008.

That compares to less than 7,000 foreclosure filings in the City in 2004.

The NYC neighborhoods most impacted by foreclosure filings include Jamaica, Bellrose/Rosedale, Flatlands/Canarsie, East New York and the North Shore of Staten Island.

Homeowners facing foreclosure who are interested in retaining free legal services should go to www.nyc.gov or call 311.

We already know negative equity is plaguing millions of Americans nationwide, but perhaps worse is the fact that many won’t see any positive equity for many years to come, according to First American CoreLogic.

In fact, the typical homeowner who is currently underwater on their mortgage won’t see positive equity until 2015.

In the hardest-hit markets, homeowners won’t get back in the black until 2020, and even then, if they were to sell, they’d probably still take a loss thanks to associated fees and commissions.

So where is it going to take a while?

Well, in Detroit, Michigan, 2020 equity for current underwater borrowers will still be -$7,156…yep, it’ll still be in the red into the next decade.

It’s a little better in Las Vegas, but still pretty dismal – Sin City underwater homeowners can expect 2020 equity to be $1,039.

That’s probably not the best news, but I suppose it’s better than owing money on your home.

There are some winners out there though, in places like Boston, where 2009 equity of -$130,452 is expected to be $77,158 in 2020; Washington D.C. is displaying similar numbers.

More than 11.3 million, or 24 percent, of all residential properties with mortgages were in a negative equity position as of the end of 2009.

In Las Vegas, 70 percent were underwater, followed by 51 percent in Arizona and 48 percent in Florida.

A new option that should be available by fall of this year will allow borrowers current on their mortgages to execute short refinances into FHA loans, whether the original loan was FHA-insured or not.

The new FHA loan must have a balance no greater than 97.75 percent of the value of the home, and the total loan-to-value (including any second mortgages) cannot exceed 115 percent after the refinancing.

At the same time, the minimum write-down by the lender must be 10 percent of the unpaid balance of the original loan.

The total monthly payment, including any second mortgages, must not be greater than approximately 31 percent debt-to-income, though the borrower should benefit from both a reduced balance and a reduced interest rate thanks to the current low-rate environment.

Homeowner eligibility for the FHA short refinance program is as follows:

- Homeowners must be current on existing mortgage payment
- Homeowner must occupy the home as primary residence
- Homeowner must fully document income
- Homeowner must have Fico score of at least 500
- Existing lenders/investors must agree to principal write-down

Borrowers who execute an FHA short refinance should expect to see their credit score negatively impacted as with any other loan forgiveness.

And the standard FHA mortgage insurance premium structure will apply to the new FHA loans.

To increase lender participation, incentives for immediate write-downs of underwater second mortgages will be offered, based on the loan-to-value.

To fund the program, up to $14 billion in TARP funds will be used – FHA will publish data on the number of short refinance loans, the average percentage written down, and the quantity of principal reduced quarterly.

A number of changes are expected to be announced regarding the Home Affordable Modification Program (HAMP), which should slow the pace of foreclosures, for better or worse.

Herbert M. Allison, Assistant Secretary for Financial Stability, testified before the House Committee on Oversight and Government Reform today, detailing the added “borrower protections.”

The guidance will force loan servicers to consider borrowers in active bankruptcy if a request for a loan modification under HAMP is received.

Additionally, servicers will be prohibited from referring a loan to foreclosure unless the borrower does not respond to solicitation, was not approved for HAMP, or failed to make trial modification payments.

Servicers will also be required to provide homeowners with clear, written communication regarding the foreclosure/modification processes and state that a foreclosure sale will not take place during a trial loan modification period.

Even if a borrower turns out to be ineligible for a loan modification under HAMP, a foreclosure sale cannot be scheduled sooner than 30 days after the date of the Non-Approval Notice so borrowers have a chance to respond.

Loan servicers must also certify to their foreclosure attorneys that a homeowner is not eligible for a HAMP modification before a sale may be executed.

Of the roughly 5.6 million homeowners that are 60-days or more delinquent, about 1.7 million are eligible for HAMP.

As of last month, 170,000 homeowners received permanent loan modifications and an additional 91,800 permanent modifications have been approved by servicers, pending only borrower acceptance.

A number of changes have been made to the program since its inception – for all HAMP trial period plans with effective dates on or after June 1, borrowers will have to provide income documentation upfront in order to take part, which should ideally reduce the number of failed trial mods.

Update: HAMP will now offer temporary assistance to unemployed homeowners looking for new jobs. Mortgage payments will be reduced for a minimum of three months and up to six months for others.

Additionally, loan servicers will have to consider an alternative principal write-down approach for borrowers who owe more than 115 percent of the current value of their home, and will be incentivized to do so.

Similar to Bank of America’s earned principal forgiveness, the principal will be forgiven over the course of three years so long as the borrower keeps up on payments.

Finally, incentive payments will be increased for servicers who facilitate short sales and deeds-in-lieu of foreclosure, while relocation assistance payments for borrowers will be doubled to $3,000.

The big question remains whether HAMP is actually providing any value or simply delaying the inevitable.

A number of changes are expected to be announced regarding the Home Affordable Modification Program (HAMP), which should slow the pace of foreclosures, for better or worse.

Herbert M. Allison, Assistant Secretary for Financial Stability, testified before the House Committee on Oversight and Government Reform today, detailing the added “borrower protections.”

The guidance will force loan servicers to consider borrowers in active bankruptcy if a request for a loan modification under HAMP is received.

Additionally, servicers will be prohibited from referring a loan to foreclosure unless the borrower does not respond to solicitation, was not approved for HAMP, or failed to make trial modification payments.

Servicers will also be required to provide homeowners with clear, written communication regarding the foreclosure/modification processes and state that a foreclosure sale will not take place during a trial loan modification period.

Even if a borrower turns out to be ineligible for a loan modification under HAMP, a foreclosure sale cannot be scheduled sooner than 30 days after the date of the Non-Approval Notice so borrowers have a chance to respond.

Loan servicers must also certify to their foreclosure attorneys that a homeowner is not eligible for a HAMP modification before a sale may be executed.

Of the roughly 5.6 million homeowners that are 60-days or more delinquent, about 1.7 million are eligible for HAMP.

As of last month, 170,000 homeowners received permanent loan modifications and an additional 91,800 permanent modifications have been approved by servicers, pending only borrower acceptance.

A number of changes have been made to the program since its inception – for all HAMP trial period plans with effective dates on or after June 1, borrowers will have to provide income documentation upfront in order to take part, which should ideally reduce the number of failed trial mods.

The big question remains whether HAMP is actually providing any value or simply delaying the inevitable.

Mortgage rates inched up a bit this week, but remain near historic lows, according to mortgage financier Freddie Mac.

The popular 30-year fixed averaged 4.99 percent during the week ending March 25, up from 4.96 percent last week and 4.85 percent a year ago.

The less popular 15-year fixed climbed a single basis point to 4.34 percent, but is still below the 4.58 percent average seen a year earlier.

“Mortgage rates inched up slightly this week as bond yields rose even further,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.  (Why mortgage rates move)

“Interest rates on 30-year fixed mortgages, however, were still below 5 percent for the fourth consecutive week.

Adjustable-rate mortgages displayed similar movement, with the five-year ARM rising to 4.14 percent from 4.09 percent and the one-year climbing to 4.20 percent from 4.12 percent.

A year ago, the five-year averaged 4.96 percent and the one-year stood at 4.85 percent.

The mortgage rates above are good for conforming loans at 80 percent loan to value; pricing adjustments for things such as credit score may raise or lower your actual rate.

Jumbo loans continue to price a percentage point or so higher than conforming loans.

Bank of America announced a new strategy today to tackle the pesky underwater mortgages on its books, many acquired via its merger with Countrywide.

The so-called “earned principal forgiveness” initiative will target borrowers with subprime loans, option ARMs, and prime two-year hybrid ARMs.

For loans at least 60 days delinquent with current loan-to-value ratios of 120 percent or higher, the bank will offer an interest-free forbearance of principal that the homeowner can turn into reduced principal over five years if they stay current on payments.

“In our experience with Home Affordable Modification Program and National Homeownership Retention Program modifications, Bank of America has found that many homeowners who owe considerably more on their mortgages than their homes are worth are reluctant to accept a solution that addresses only the amount of the payment without an accompanying reduction in the balance due on the loan,” said Barbara Desoer, president of Bank of America Home Loans.

Bank of America said it will make principal reduction the initial consideration toward reaching HAMP’s 31 percent debt-to-income ratio target when modifying the aforementioned loan types.

Certain holders of option arms may also receive a HAMP modification that eliminates the negative amortization feature and results in the forgiveness of all or part of the negative amortization amount to reduce principal to as low as 95 percent loan to value.

Of course that means the borrower will no longer have the ability to make ultra-low monthly mortgage payments, but BofA hopes the equity reward will be enough to avoid strategic default and foreclosure.

The bank estimates it will be able to offer principal reduction solutions to 45,000 borrowers, representing $3 billion in total reduced principal.

Bank of America is also extending its National Homeownership Retention Program (its own loan modification program) for an additional six months to December 31, 2012.

Mortgage demand slipped week-to-week thanks to lackluster refinance activity, the Mortgage Bankers Association said today.

The home loan application index fell 4.2 percent on a seasonally adjusted basis (-3.9% unadjusted) for the week ending March 19.

Refinances were off 7.1 percent compared with the previous week, while the seasonally adjusted purchase index climbed 2.7 percent.

The unadjusted purchase index rose 2.8 percent, but was still 15 percent lower than the same period a year ago.

Meanwhile, the refinance share of applications fell to 65 percent from 67.3 percent, the lowest point since October 2009, despite interest rates hovering near record lows.

The uber-popular 30-year fixed-rate mortgage jumped up to 5.01 percent from 4.91 percent during the week, while the 15-year fixed increased to 4.33 percent from 4.24 percent.

The one-year adjustable-rate mortgage stood unchanged at 6.75 percent, while the ARM-share of total applications increased to 4.8 percent from 4.6 percent.

The rates are good for loans at 80 percent loan to value with a loan origination fee of around 0.75 percent for the fixed loans and 0.32 percent for ARMs.

The MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out multiple or declined apps, which have surely risen since the mortgage crisis got underway.

An unfinished condotel complex in Ft. Lauderdale associated with Donald Trump is facing foreclosure, according to the Sun Sentinel.

Developers reportedly defaulted on the $139 million loan tied to the 298-unit project, known as the Trump International Hotel & Tower.

A foreclosure has been filed against SB Associates LLC, which signed the sizable construction loan back in December 2006, as the mortgage wave was cresting.

It wasn’t long before South Florida became one of the hardest-hit areas in the nation, thanks to massive investor speculation and ridiculous appraised values.

Interestingly, the original lender, Corus Bankshares of Chicago, failed last year, which led to a government-arranged buyout led by Starwood Capital.

The group’s Corus Construction Venture now holds the loan on the 24-story Trump property.

The foreclosure suit, which was filed on March 11 in Broward County Circuit Court (the same one where ex-Countrywide boss Angelo Mozilo faces a civil suit), names more than 80 people who put deposits on the unfinished condos.

There are also a number of related lawsuits from disgruntled buyers who want refunds for their 20 percent deposits – studios and one to two bedroom units were originally priced from about $500,000 to more than $3 million each!

Then there’s Trump, who looked to be a developer and partner before things turned south, but now claims his group only licensed its name to the venture.

Notices of default, the first step of the foreclosure process, increased 19.69 percent in California from January to February, according to ForeclosureRadar.com.

The company, which claims to track every California foreclosure, said NODs increased to 31,004 during the month after declining for four straight months.

However, such filings were 37.74 percent lower than levels seen a year earlier, likely thanks to a number of loss mitigation programs currently in place.

Filings of Notices of Trustee Sales, which set the date and time of a foreclosure auction, also increased month-to-month, rising 3.6 percent to 28,195.

However, foreclosure sales, which are the actual loss of a property to foreclosure, fell 11.9 percent in February.

“The disconnect between delinquencies, and foreclosure sales continues to widen,” says Sean O’Toole, Founder and CEO of ForeclosureRadar.com, in the report.

“While efforts to slow foreclosures are clearly working, it remains unclear that anything has yet addressed the core problem of excess household mortgage debt.”

Foreclosure inventory (shadow inventory) remained relatively flat month-to-month because the number of properties exiting the foreclosure process nearly matched the number of new Notice of Trustee Sale filings, though scheduled sales are up 126.34 percent from a year ago.

The hope is that the many loan modifications being offered to scores of borrowers actually stave off foreclosure, instead of simply delaying the inevitable and exacerbating matters.

There’s been a lot of talk about short sales lately, and considerable concern about related fraud.

Up in the hard-hit northern San Joaquin Valley region of California, the “hottest fraud” reportedly involves short sales, per an article in the Merced Sun Star.

The way it works is pretty simple:

A homeowner falls behind on mortgage payments, or simply tells the bank they can no longer keep up with payments.

They inform the lender that they’d like to execute a short sale because the current mortgage balance exceeds the value of the property; this is also known as being underwater or upside down.

This is pretty common, as nearly 25 percent of the nation is currently underwater, and 2.4 million mortgages in California alone are in negative equity positions.

Oh, and apparently 67 percent of California homeowners sold their homes last year because they couldn’t afford to pay the mortgage.

Anyways, the lender agrees to a short sale (assuming they receive an offer they deem acceptable), and hires a real estate agent to resell the property.

The real estate agent creates a limited liability corporation that offers to buy the property, but for a lowball price.

Meanwhile, legitimate offers from real buyers are kept a secret, and the real estate agent returns to the lender with just the one offer from the aforementioned LLC.

The lender (possibly reluctantly) accepts the short sale offer, and the property is sold to the LLC, which in turn flips the property to one of the real buyers (whose offers were never reported to the lender) for a much higher price.

There are probably many variations of the same scheme, and it’s very troubling considering the new streamlined short sale program has been setup to rely on real estate broker price opinions instead of appraisals.

San Francisco-based bank Wells Fargo grabbed the title of top mortgage lender in 2009, according to MortgageDaily.com.

Wells Fargo saw loan origination volume increase a whopping 83 percent compared with numbers in 2008, thanks largely to the record low mortgage rates on offer.

It was the second year in a row Wells Fargo held the top spot; the prior four years were dominated by a certain Countrywide Home Loans, which you may recall was acquired by Bank of America.

Speaking of, Bank of America was the second largest home loan lender last year, with volume up 116 percent compared to 2008.

JPMorgan Chase grabbed the third spot despite seeing YoY lending volume fall 17 percent, and bested Citigroup and GMAC, which rounded out the top five.

Citi saw annual loan origination volume fall 22 percent, while GMAC saw originations climb 17 percent, though the company remains on life support.

Smaller mortgage lenders that experienced explosive growth included Fremont Bank, where originations jumped 264 percent, Lenders One Mortgage Cooperative, where volume climbed 110 percent higher, and retail lender Quicken Loans Inc., which saw a 108 percent increase.

Overall, home loan production increased roughly 40 percent in 2009 compared with one year earlier.

However, it’s due to fall sharply this year, as both refinancing and home purchase activity look to be flat.

FHA commissioner David Stevens testified to Congress Thursday, arguing that a blanket minimum down payment increase for FHA loans would “adversely impact the housing market recovery.”

He noted in his testimony that requiring a five percent minimum down payment on FHA loans for all borrowers (up from the current 3.5%) would reduce endorsements by a staggering 40 percent.

That translates to 300,000 fewer first-time homebuyers, while only contributing $500 million in additional budget receipts to bolster their depleted capital reserve ratio.

Stevens added that down payment alone is not the only factor that determines loan performance, pointing to credit score as a major indicator as well.

He highlighted an example where loans with a loan-to-value ratio above 95 percent and a Fico score above 580 perform better than loans with a loan-to-value below 95 percent and a Fico score below 580.

“In particular, we have proposed to permit loans to borrowers with FICO scores above 580 with a minimum 3.5% downpayment and loans to borrowers with FICO scores between 500 to 579 with a minimum 10% downpayment,” he said.

“It is also worth noting that these downpayment guidelines are minimums and many borrowers do in fact have significantly lower LTVs – in the fourth quarter of FY 2009, more than 21% of endorsed loans had a LTV lower than 90%.”

In early October of last year, New Jersey Republican Scott Garrett introduced a bill requiring all FHA borrowers to come in with at least five percent down, though such a proposal seems unlikely.

If all the proposed changes are implemented, including increased mortgage insurance premiums, the FHA should reap $5.8 billion in offsetting receipts.

Let’s look at pictures now!

The first graphic illustrates the effects of credit score and LTV on loan quality:

The second details what percent of borrowers would be shut out as a result of the FHA’s proposed Fico/min down payment changes slated for spring and summer of this year:

Due to the improved quality of recent FHA loans, only 1.5 percent of loans endorsed in FY2009 would be excluded under the proposed guidelines.

Good news folks: Foreclosure activity fell two percent last month compared with January, and was up only six percent compared with February 2009, according to RealtyTrac.

Default notices, scheduled foreclosure auctions and bank repossessions were reported on 308,524 properties during the month, representing one in every 418 U.S. housing units.

“The 6 percent year-over-year increase we saw in February was the smallest annual increase we’ve seen since January 2006, when we began calculating year-over-year increases, but it still marked the 50th consecutive month of year-over-year increases in foreclosure activity,” said James J. Saccacio, chief executive officer of RealtyTrac, in a press release.

Now the bad news:

“This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity — albeit at a historically high level that will likely continue for an extended period.”

Oh, and severe weather may also have slowed the processing of foreclosures in the Northeast and Mid-Atlantic states…

Default notices and Lis Pendens, the first step of the foreclosure process, were up three percent from January, but down three percent from a year ago.

Bank repossessions (REOs), or the actual loss of a home to foreclosure, were reported on a total of 78,683 U.S. properties during the month, down 10 percent from the previous month but up six percent from February 2009.

REOs were off nearly 15 percent from their peak of more than 92,000 in December 2009, but nearly twice the level reported in February 2006.

Six states, including California, Florida, Michigan, Illinois, Arizona, and Texas, accounted for more than 60 percent of the nation’s foreclosure activity.

Nevada continued to lead the nation in rate of foreclosure, with one in every 102 households receiving a foreclosure notice during the month, though activity was down seven percent from January and 30 percent from February 2009.

Mortgage rates fell for a second consecutive week, albeit by very little, according to mortgage financier Freddie Mac.

The popular 30-year fixed averaged 4.95 percent during the week ending March 11, down from 4.97 percent a week ago and 5.03 percent last year.

The 15-year fixed fell a single basis point to 4.32 percent, and is still lower than the 4.64 percent seen a year earlier.

The five-year adjustable-rate mortgage averaged 4.05 percent, down from 4.11 percent last week and 4.99 percent last year.

Finally, the one-year ARM slipped to 4.22 percent from 4.27 percent, and is well below the 4.80 percent average seen in early March 2009.

“During a light week of mixed economic reports, mortgage rates eased somewhat,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.  (Why mortgage rates are going down)

“Pending existing home sales fell 7.6 percent in January, well below the market consensus of a 1 percent gain.  Meanwhile, the economy lost only 36,000 jobs in February, fewer than market forecasts, and the unemployment rate held steady at 9.7 percent.”

The interest rates above are good for conforming loan amounts at a loan to value of 80 percent; pricing adjustments may raise or lower your actual rate.

Jumbo loans continue to price one percent or higher than conforming loans.

Just days after details of the Treasury’s streamlined short sale program were revealed, several leading appraiser groups have criticized the proposal.

The issue involves how short sale properties would be valued under the program, relying on broker price opinions (BPOs) carried out by real estate agents rather than standard appraisals completed by licensed appraisers.

Essentially, a BPO is more associated with what a home would sell for, while an appraisal uses a more thorough valuation approach.

Banks and mortgage lenders would use the BPOs to determine the value of a home and the corresponding minimum offer to accept.

The homeowner supposedly won’t know the value, but if an offer comes in that meets or exceeds it, the bank or lender must take it.

Of course, this setup is ripe for fraud, and law enforcement officials have already highlighted fraud involving short sales as a new form of mortgage fraud.

A new trend referred to as “property flopping” has emerged, where a property is artificially appraised below its actual market value (using a BPO) and sold to a related party of the real estate agent, who then sells the property at its real market value for a quick profit.

“We strongly believe continuing to allow ‘broker price opinions’ (BPOs) in the property valuation component will not adequately protect the public interest (consumer, borrowers, etc.) or the interests of the various parties to the loan (lenders, loan servicers, etc.) and is likely to exacerbate mortgage fraud,” the appraiser organizations wrote in a letter to Treasury Secretary Tim Geithner.

“We urge the Department to reestablish independence in the valuation process to protect the safety and soundness of financial institutions, improve transparency, and safeguard the public trust.”

The appraisers have urged the Treasury to revise the Home Affordable Foreclosure Alternatives guidelines to prohibit the use of BPOs when short sales are involved.

But BPOs tend to be cheaper than full scale appraisals, and less time consuming, which seems to be the aim of the program.

The letter was signed by the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers, representing more than 35,000 real estate appraisers.

Another week, more weak mortgage demand, according to the Mortgage Bankers Association.

The group’s market composite index climbed just 0.5 percent on a seasonally adjusted basis, or 1.2 percent unadjusted, compared with one week earlier.

The refinance index fell 1.5 percent, while purchase activity finally got some legs – seasonally adjusted purchase applications were up 5.7 percent.

The unadjusted purchase index increased 7.2 percent from one week earlier, but was still off 10.7 percent compared to a year ago.

The refinance share of mortgage activity fell to 67.2 percent of total applications from 69.1 percent as a result.

It now sits at its lowest level since October 2009, when it held a 66.1 percent share.

That may have something to do with higher interest rates, as the popular 30-year fixed averaged 5.01 percent last week, up from 4.95 percent.

The 15-year fixed increased to 4.32 percent from 4.27 percent, and the one-year adjustable-rate mortgage climbed three basis points to 6.80 percent.

Despite out-pricing fixed-rate options, the ARM-share of applications increased to 5.1 percent from 4.8 percent, its highest level since November 2009.

The MBA’s weekly survey covers more than half of all retail, residential mortgage applications, but does not factor out duplicate or declined apps.

(photo: photocapy)

California’s Napa Valley is the latest victim of the ongoing foreclosure crisis, according to a piece in BusinessWeek.

Land values in the area have fallen by roughly 15 percent from the 2007 peak, and demand for the costly wines produced in the region has slumped.

DataQuick said loan defaults have increased fourfold in the region, and an estimated 10 wineries and vineyards are expected to change hands via distressed sales and/or foreclosures in 2010 and 2011, according to Silicon Valley Bank.

Meanwhile, U.S. retail wine sales fell 3.3 percent to $29 billion in 2009 after rising every year since 1991, though consumption was still up 1.9 percent to 323 million cases last year.

But consumers are targeting cheaper brands, as sales of super-premium bottles, those priced more than $15, fell 10 percent last year, and ultra-premium bottles ($30+) fell at least 15 percent.

Imports from places like Argentina, Chile, and Australia are also cutting into profits, as are lower-end sales, with the 5-liter boxed wine product from Franzia that retails for eight bucks the top seller.

Napa land values are the most expensive among wine regions in the United States, with average prices $150,000 to $200,000 per acre for a red grape vineyard and $115,000 an acre for white grapes such as chardonnay.

California produces 90 percent of all wine in the United States, according to the U.S. Tax and Trade Bureau.

It appears 2010 will indeed be the year of the short sale, according to a report from the New York Times.

Apparently the Treasury is planning to add another weapon to its growing foreclosure prevention arsenal, though this latest one involves the loss of the home.

Come April 5, a streamlined and standardized short sale process will emerge – lenders will rely on real estate agents to determine the value of a home and the corresponding minimum offer to accept (hmm).

The homeowner won’t know the figure, but if an offer comes in that meets or exceeds it, the bank or lender must take it.

Similar to programs already in place, participants will receive incentive payments; the servicing bank will get $1,000, and another $1,000 will go towards a second mortgage if one exists.

Additionally, the homeowner would receive $1,500 for relocation costs if they participated.

The aim of the program is to reduce the large number of vacant homes and minimize losses for banks that would otherwise face costly foreclosure-related expenses.

And former homeowners wouldn’t have to worry about the bank coming after them for the unpaid mortgage balance.

However, skeptics are concerned that short sales have a high propensity for fraud and could lead to intentional default and shady dealings.

Short sales continue to be used sparingly, as they are time consuming and complicated, though government mortgage financier Fannie Mae saw them triple in 2009.

There’s always the option of a short refinance as well, but those come with the risk of re-default, which could end up extending the crisis.

The popular 30-year fixed continued to yo-yo, this week slipping back below five percent, according to mortgage financier Freddie Mac.

It averaged 4.97 percent during the week ending March 4, down from 5.05 percent last week and 5.15 percent a year ago.

“30-year fixed mortgages fell below 5 percent to match levels seen two weeks ago and are helping to maintain affordable home-purchase conditions,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a statement.

“In fact, monthly principal and interest mortgage payments for a typical family buying a median-priced home of $163,800 were just $709 in January, the lowest amount since February 1998, according to the National Association of Realtors®. For first-time homebuyers, the fourth quarter of 2009 was the third most affordable quarter since 1981 behind the first and second quarter of 2009.”

Yet home sales are still off from a year ago, and no one seems interested in buying…perhaps because home prices are still too inflated?

The 15-year fixed slipped to 4.33 percent from 4.40 percent, and remains well below the 4.72 percent seen a year ago.

The five-year adjustable-rate mortgage fell to 4.11 percent from 4.16 percent, and the one-year ARM climbed to 4.27 percent from 4.15 percent.

A year ago, the five-year averaged 5.08 percent and the one-year stood at 4.86 percent.

These rates are good for conforming mortgages with a loan to value of 80 percent; pricing adjustments may raise or lower your actual rate.

Jumbo loans continue to price about a percentage point higher.