Loan Modification

Congressman Dennis Cardoza (D-Merced) believes that the new proposal from the Obama administration will end the American dream of home ownership for the middle class. The plan points to the eventual end of Fannie Mae and Freddie Mac. Now this initiative does not go into effect tomorrow. The changes have to pass through Congress. Actually, it could take several years for certain modifications to be in place.

Proposed Reform

Cardoza admits that there are problems with both government-sponsored enterprises (GSEs). He would agree to reforming them but opposes eliminating the GSEs. Cordoza insists that Fannie Mae and Freddie Mac have helped a huge percentage of middle class homeowners to buy homes. In fact, he mentions his own state of California, its high housing costs, and the fact that almost every mortgage is backed by the GSEs.

A former realtor, Cardoza points to the pre-Fannie and Freddie days. At that time, homeowners needed a 50% down payment and repayment time was five years on average. Presently, he is seeking support for his own legislation - the Housing Opportunity and Mortgage Equity (HOME) Act, H.R. 363 – a bill capitalizing on market-based solutions to keep people in their homes.

Cardoza is not shy about expressing his opposition to getting rid of Fannie Mae and Freddie Mac. He was invited to speak at a think tank panel discussion - Underwater Housing and Recovery - sponsored by the Third Way. Cardoza'a Congressional district in California's Central Valley is in the midst of a serious housing crisis. Modesto, Stockton, and Merced have some of the highest rates of foreclosures in the country. Three out of five homeowners are 'underwater' carrying loans more than the value of their house.

"In America, homeownership is at the core of middle class prosperity. In fact, it is the American dream. If the government withdraws assistance to the GSEs that make this dream accessible, average working Americans - teacher, plumbers, and journalists - will no longer be able to get a mortgage to buy a home. We will become a rental society, instead of an ownership society." ~ Congressman Dennis Cardoza

Cardoza: President's Plan the "Most Irresponsible Housing Proposal Yet"

Private Sector

More representatives than Cardoza see problems with the GSEs. A few people even hoped that the administration would abolish the GSEs. Yet Obama's latest proposals were still a shock to many individuals and groups. Part of the new proposal plans a housing-finance system that would rely almost exclusively on the private sector.

Currently, Fannie Mae and Freddie Mac back private mortgages. Consumer advocates worry about the proposed changes. If the government does not get behind these mortgages, maybe more lenders could back away, and consumers will have fewer options. Of course, it is not advisable to help people get into houses if they cannot afford a home.

Balanced Approach

The past housing crisis is evidence that a situation can get out of control. Yet government must provide a balanced approach. Often people need a helping hand. There is a promise, however, that this new proposal will not eliminate all help for low-income families. Apparently, there will be programs to help with housing even if they are not the familiar Fannie Mae and Freddie Mac.

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Many potential home owners in Canada are reeling from recent mortgage changes introduced by their federal government. Yet the Canadian administration believes that the modifications will make a positive difference in people's financial health. The regulatory changes are meant to save consumers from themselves in terms of debt load. The government is hoping to discourage potential home owners from taking on debt that they cannot handle in reality. As well, the regulations aim to discourage unwise use of home equity lines of credit.

Helpful Advice

Now many people will argue that consumers should not be prompted in one way or another; they should make their own decisions and live with the consequences. Of course, too little regulation can also cause financial woe. Consider the recent U.S. dilemma. Mortgage approval might have been too easy in some instances; many consumers became homeowners but lacked the financial means to handle the commitment.

Mortgage Changes

(Canada)

According to Canadian Finance Minister Jim Flaherty, effective March 18, 2011, the term of government-backed mortgages has been lowered to 30 years from 35 years. As well, the maximum amount of equity for refinancing will drop to 85% from the previous 90 per cent.

Many hopeful first-time home buyers are not pleased with this recent development. Yet the government insists that they are helping consumers. Eventually, homeowners will be faced with a rise in interest rates. This latest intervention is designed to discourage buyers who will not be up to the challenge.

Massive Debt

According to recent statistics, Canadian household debt has soared to 148% of disposable income. Of course, shopping trips and house sales fuel the economy but there is an 'elephant in the room' with such a high percentage of debt. The Canadian government has chosen not to ignore the massive amount of debt carried by many home owners.

Beginning April 18, the Canadian government will stop insuring newly issued home equity lines of credit (HELOCs). An ever-increasing number of home owners in Canada are using these lines of credit. In fact, HELOCs account for 12% of consumer debt.

Home Equity Lines of Credit

Actually, 50% half of these variable-rate loans are spent on consumer goods including new cars and boats. Only one third of the loans go towards paying down other debt. Therefore, the Canadian Mortgage and Housing Corporation has reconsidered its practice of insuring home equity lines of credit.

Government Regulations

With recent mortgage changes, the Canadian government claims to have considered the best interests of consumers. Of course, distancing themselves from the inevitable future rise in interest rates might be a wise move for this government – especially with a possible election in the near future. As well, in 2006, this government allowed the Canada Mortgage and Housing Corp. to lift its 25-year limit on mortgages and insure up to 40 years.

In 2008, Flaherty rewound the 40-year term back to 35 years. Maybe this latest move is an attempt to distance themselves further from that original rash decision of extending limits to 40 years. The Canadian government, however, has to be prepared for their new regulations to have a few undesirable effects on the economy. Almost one third of Canadian mortgages in 2010 were for 35-year terms.

Mortgage changes sensible

Do You Think The Canadian Government Made Sensible Mortgage Changes?

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While Fannie Mae announced that mortgage rates had increased this week to 4.46%, refinancing rates experienced a drop. Signs of an improving economy, however, are inspiring people to buy homes. Yet with an increase in interest rates, home refinancing falls out of favor.

Refinances Fall

Last week, applications for refinancing dropped below 75% of all mortgage applications. During the late summer of 2010, refinancing seemed to be the choice of many home owners. In early August, loan applications for refinancing accounted for more than 80% of all applications.

Only once before in recent years had applications for refinancing come in above 80 per cent. Micheal Fratantoni of the Mortgage Bankers Association points to the 80-plus percentage "in 2003, for one week, when the rate on 30-year mortgages fell below 5% for the first time since the 1950s." In 2003, the total amount of mortgages issued was almost $4 trillion – with $2.5 trillion (60%) in refinancing.

Refinancing numbers fell temporarily for a single week during October 2010. Yet afterwards, refinancing statistics stayed the same until November 19. Since June, there has not been a fall in refinancing numbers that compares with the recent drop.

Mortgages Rates Rise

According to a survey (including higher-interest jumbo loans) released by the Mortgage Bankers Association, the average 30-year contract rate tops 4.5%. Increased mortgage rates (especially above 4.5%) will bring about a decrease in refinancing numbers. Indeed, there would be less refinancing except some homeowners wanted to act now before the next increase in mortgage rates.

Anxious Homeowners

Of course, rising rates are not the only factor responsible for low refinancing numbers. Many homeowners would like to choose a refinance. Yet they cannot go that route because of reduced home equity or a decrease in income. Both circumstances result from the economic downturn.

Indeed even if people have home equity, they are less likely to use it in a recovering economy. Most homeowners have to be confident about the economy before they will use their home equity to take out cash. Chris George, president of CMG Mortgage in San Ramon, explains how homeowners think about refinancing in uncertain times compared to booming periods.

"In '04, '05 and '06 it was all about leveraging your home equity.… I would say back then three-quarters or better of the people refinancing were pulling out cash. Now it's the opposite — people are de-leveraging, saving for a rainy day," says Chris George, president of CMG Mortgage in San Ramon.

Home refinancing applications drop as interest rates rise

Reasons to Refinance

Home owners refinance for varied reasons from tapping into equity to shortening term to maturity. Yet the main reason is to save money. If refinancing is to make sense for home owners, they have to save on payments. If homeowners can see only minimal savings, the industry cannot expect to see maximum numbers in refinancing.

Of course, some homeowners are choosing a refinance. The Mortgage Bankers Association suggests that refinancing will account for almost $1 trillion of the entire mortgage market in 2010. Michael Fratantoni detailed the predictions of the Mortgage Bankers Assn. for refinancing numbers in 2011.

"Purchase loans are expected to increase a bit, to $600 billion of the total, with loan refinancing at $400 billion, or 40%, as rates rise above 5% by the end of the year, " says Micheal Fratantoni of the Mortgage Bankers Association.

Will You Be Applying For A Refinance?

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Usually, the most effective way to deal with a flaw is to fix it. Yet Ohio's Attorney General is suggesting that banks and lenders take a different approach – at least in one instance. In two letters, one to Wells Fargo and one to Ohio judges, Attorney General Richard Cordray states that he does not want banks and lenders to fix flawed foreclosures.

Flawed Foreclosures

The scandal and fiasco of flawed foreclosures erupted in recent weeks. It came to light that lending officials appeared to be guilty of "robo-signing" (signing without knowledge of details) foreclosure documents. Fifty US states asked for an investigation into the lenders' use of flawed documents.

The assumption was that banks and lenders would be required to fix the flaws. In fact, a few observers had considered the whole scenario to be a deliberate action to mislead home owners. Yet even though it may seem an odd request, Ohio's Attorney General doesn't want them to fix the 'flaw' (or the 'fraud' depending on your point of view).

No Temporary Fixes

Actually, the Attorney General should not be seen as condoning the lenders' actions with his request for no fixes. He believes that the lenders should not offer a 'temporary fix' to a serious issue in a flawed system. The Attorney General does not think that it is sufficient to have another look at the documents and fix any mistakes. He feels that the banks should vacate any court order or motion based on improper paperwork. He believes that lenders should modify loans and work out settlement with borrowers.

Of course, banks and lenders do not share Mr. Cordray's opinion. Indeed, some lenders say that they are finished reviewing documents and are resuming foreclosures. If Ohio's Attorney General makes headway with his demand, it would cause total upheaval to their plans.

Generally, lenders express confidence in their policies and controls. They appear comfortable with their approach to the issue. On October 20, 2010, Wells Fargo Chief Financial Officer Howard Atkins stated that he was confident with his company's policies and controls related to foreclosures. 

"The person at Wells who signs a foreclosure file is the same person as the person who reviews the file, and it is not always done that way in the industry," explains Wells Fargo Chief Financial Officer Howard Atkins.

Confusing Story

Yet the entire situation can be confusing because there can be discrepancies between lenders' words and their actions. For example, despite the insistence of Wells Fargo Chief Financial Officer about their perfect system, they announced on October 28, 2010, that they were resubmitting affidavits for 55,000 pending foreclosures.

It remains to be seen if other attorney generals feel the same way as Mr. Cordray. More than one attorney general, however, has referred to a 2008 settlement. At that time, the Bank of America agreed to an $8.4 billion loan-modification program following a probe of its Countrywide Financial unit. The issue revolved around predatory lending practices.

The probe into the foreclosure fiasco is still being played out at the moment. Of course, the issue of flawed foreclosures is no game or no slight error, and flawed foreclosures are having huge consequences for US home owners.

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Often consumers feel overloaded with debt. In reality, many people try to handle too much debt for their available resources. Credit repair is possible but borrowers must be willing to admit that they are in trouble.

Addressing Debt

When it comes to debt, burying your head in the sand will just add to your burden. It does no good to avoid bankers' phone calls. Definitely, it does no good to buy 'more' to try to make yourself feel better about everything. As odd a solution as that may sound, more than one person chooses that route. When you find yourself overloaded with debt, you have to address the situation in a realistic manner.

No Instant Cure

Firstly, do not look for an instant cure. Debt settlement takes time. It makes perfect sense that settlement involves a step-by-step process. Bad credit did not happen overnight but many borrowers expect to escape from its wrath overnight –and with little pain. Credit repair does not work in that way. It takes time and effort.

Not only does bad credit build up over time but the credit can also arise from various sources. When you have major credit cards, department store cards, and maybe a loan agreement or two in your pocket, you have a disorganized mess. That tangle does not just refer to an untidy wallet. A ton of credit can add up to a ton of problems.

Debt Settlement

Yet borrowers can settle their debt. They need not expect it to be an easy process but negotiation is possible with lenders. Debt settlement is an agreement between a borrower and lender that settles the borrower’s debt. The arrangement involves a one-time payment and a lender accepts less than the original loan. The payment can be just 40%-60% of the loan.

Debt settlement can be used to settle varied types of debts - unsecured loans, personal loans, credit card debt, merchant loans, and medical bills. The earlier you request debt settlement, the best chance of the most favourable solution. The process can work better if you employ the services of a credit specialist.

They know how to negotiate with lenders. Credit experts understand the process. It is wise to have a knowledgeable professional in your corner.

Credit Specialists

Don't expect to phone your bank, request settlement, and get immediate agreement. Settling a debt is a complicated business. In fact, most banks refuse the first request.

Keep in mind that you are not the only one looking for debt settlement. A credit expert will be prepared for that initial rejection. They are familiar with the lender's approach and they know how to work within the system.

Lenders are willing to work with buyers – especially with buyers' representatives. As well, the consumer has to be prepared to work with lenders and their credit specialist. All parties must act in good faith. Lenders will put forth certain conditions. In addition, they want borrowers to bring something to the table.

Your credit specialists will work for you. Using a credit expert, you will probably settle for far less than the original debt. Credit experts can help you get maximum savings.

Consumer Proposals

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The FHA (Federal Housing Administration) Short Refinance Program, an initiative to help qualifying underwater US home owners, came into effect on September 7, 2010, and is set to run until December 31, 2012. The program will help home owners who owe more on their mortgage than the worth of their home. To qualify, borrowers must be current with their monthly payments.

Low Demand

Many home owners find themselves 'underwater' as sale prices in some areas have fallen more than fifty per cent. Within some US counties, more than half of home owners find themselves 'underwater' and in danger of losing their homes. Yet despite the number of financially-strapped families, lenders are not noticing a huge demand for this program. Of course, the FHA Short Refinance Program is a voluntary program but still a greater response was expected to the initiative.

Big Benefits

Taking part in this program can result in a considerable drop in one's monthly mortgage payment. Participating lieu holders must write down a borrower's mortgage – at least by ten per cent. Yet to date, there are few takers for the FHA Short Refinance Program – at least compared to the number of home owners who owe more than their home value.

Borrowers

Maybe all home owners are not aware of the benefits. The program has just gone into effect in recent weeks. As well, it targets a specific group – not all 'underwater' home owners.

The lack of response may also be attributed to the specific guidelines of the program. Many home owners are, however, eligible for help. Yet if individuals are delinquent on their mortgages, they do not qualify for assistance.

"…This group is in a "less serious" situation than borrowers who are already delinquent on their loans. But there's no question eligible homeowners would benefit from assistance," says Jill Perry, Northern Nevada director of Consumer Credit Affiliates.

Eligibility

To be eligible for the FHA Short Refinance Program, homeowners must be able to refinance under FHA. They must be current on their existing non-FHA-insured loan payments, use the home as their primary residence, and have a FICO credit score of 500 or above, as well as meet standard FHA underwriting requirements.

Lenders

In addition to hesitant home owners, not all lenders are embracing the program. Keep in mind that this initiative is also voluntary for lenders. Banks may not be ready for a while to refinance loans through this program.

Yet it makes sense for lenders to be participants. The hope behind the initiative is to stop foreclosures and help home owners stay in their homes. Obviously, this program will cost lenders but the expense is insignificant compared to the cost of foreclosures.

"…Servicers ought to be motivated by their best interest," says Bob Ryan, chief risk officer for the Federal Housing Administration.

Goal 

There is divided opinion about the level of assistance that this program will provide to US home owners. The government hoped that 500,000-1.5 million homeowners could be helped by the FHA Short Refinance Program. Yet industry analysts think that the program will assist only 200,000-300,000 home owners. Since the program is not yet even a month in operation, it is difficult to make an accurate prediction about the end result. Hopefully, all eligible home owners become aware of this new plan and are able to receive relief from it.

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Decreased Demand

Commercial real estate has not been doing much business during the economic downturn. When businesses are closing and joblessness is rampant throughout the country, the demand for commercial space decreases except in a few big cities that weather the economic storm. Start-up businesses (except in specific categories) are few and far between during poor economic times.

Scarcity of Start-Up

Home businesses tend to be on the rise in dismal economic climates. Often unemployed workers try their hand at starting their own venture. Yet home businesses do not require extra commercial space. As well, more lenders set up during economic turmoil to take advantage of the financially-strapped individual's need for cash. Yet this type of lender may run a temporary operation.

Dealing with the Aftermath

Commercial real estate does not thrive in a recession. In fact, commercial space is not in big demand during the aftermath of economic upheaval. Things are still tight, joblessness remains an issue, and people are wary of their financial future.

Attracting New Tenants

Yet commercial real estate is still in business because the sector has no place to go only 'up' in terms of performance and profit. During difficult times, business brings out all the stops to attract new customers. Landlords are now lowering rents and making more concessions to tenants.

"...This is very much a tenant's market, which is quite favorable for businesses that are considering expansion...," says NAR chief economist, Lawrence Yun.

New Development

Development is expected to bounce back in this buyer's market. In a survey conducted by the Society of Industrial and Office Realtors, 57% of the participating 600 market experts predicted improvements in the office and industrial sectors in the coming months.

Commercial real estate remains soft but favors expansion

Office Space

Vacancy rates in office space are starting to level off and should improve dramatically by the end of 2011. Certain cities including New York City, Long Island, N.Y., and Honolulu had low vacancy rates in the office sector during April-June 2010.

Business in the Big Apple

It is no surprise that New York City, a global centre, fared so well in the findings. Studies have shown that more corporate travelers are visiting this thriving metropolis. In fact, a recent report about the NYC hotel industry indicates that Manhattan hotels had more than 90% occupancy rate in May 2010. Business is booming in the Big Apple.

Manhattan Hotel Industry in NYC - Manhattan Report 2010 - Second Edition

Rent Reduction

Of course, office space looks more appealing these days - especially with the offers of reduced rent. The cost of rent for office space is expected to fall 2.7% throughout 2010 and an additional 2.1% in 2011. Based on 57 markets, the vacant 13.6 million square feet of office space in 2010 will be replaced by 22.6 million square feet of occupied office space during 2011. This positive projection focuses on existing office spaces as well as new spaces coming on the market.

Industrial Space

Industrial spaces are expected to follow a similar trend as office space. During the coming year, industry leaders predict a .4% drop in vacancy rates for industrial space. That trend will continue throughout 2011. Industrial rent will decrease by 5.4% in 2010 and experience another drop of 4.7% in 2011.

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Obama's Home Affordable Modification Program was supposed to make things better for financially-strapped homeowners. The idea was to modify the terms of their original mortgages so that they could keep their homes. They could look forward to more favorable arrangements such as lower monthly payments – maybe even more than 50% of the original amount.

Yet it seems that the Home Affordable Modification Program (HAMP) needed its own modification. Current lawsuits against the Bank of America, JPMorgan Chase, and Wells Fargo suggest that everything did not work out as hoped for some home owners. One couple claims that they kept up their end of the bargain and made regular payments according to the revised plan. Yet they still ended up thousands of dollars behind in payments and facing the threat of foreclosure.

Apparently, numerous home owners have made similar complaints about HAMP. The lawsuits focus on dissatisfaction with the treatment of home owners under HAMP and the overall performance of the program. Many home owners point to less-than-outstanding results from the Obama initiative.

The main point of contention is that permanent modifications were given to only about one third of the borrowers in trial plans. Obviously, home owners in distress prefer 'permanent' changes. They lower mortgage payments to 31% of a borrower's pretax monthly income for a five-year period.

The lawsuits allege that the lenders should have given permanent modifications to home owners on a three or four-month trial payment plan. Yet the servicers claim that the trial plans did not constitute contracts and lenders can grant permanent modifications at their discretion. The lawsuit suggests that borrowers would have been better served to find options other than HAMP to save their homes.

Actually, it isn't just home owners who are railing against HAMP.

The Congressional Oversight Panel says, "We are deeply concerned about the unacceptable quality of the denial and cancellation reasons and strongly urge Treasury to take swift action."

Why were so many home owners denied permanent modifications?

A Government Accountability Office report discovered that servicers were applying a formula inaccurately to determine if the value of modification was greater than the proceeds from foreclosure. The use of this formula would disqualify many home owners who needed assistance. Treasury claims that it has required servicers to go back and fix any errors.

Yet Treasury officials say that HAMP home owners are not promised permanent modifications. It appears that there was confusion about HAMP from the beginning. The program was brought out in haste and the guidelines changed during the life of the initiative.

Originally, servicers enrolled borrowers in trial modifications without verifying income or financial hardship. It was not until much later in the program that officials asked for verification. This lack of foresight caused some of the problems that cropped up later down the line. Now the lawyers and officials will argue about the details of the program. Meanwhile, some homeowners are now without a home.

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