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Streamlined Loan Modifications - FHFA Announces Successful Implementation but in the end will it be enough???

Fannie Mae and Freddie Mac are touting their streamlined loan modification implementation with the hopes of keeping more people in their homes and bringing more loans to performing status. Is it enough? Is it going to work? With more and more homes losing value and homeowners being upside down in their homes, I believe without principal reductions, this effort is lukewarm at best. It is already stated that 50% of modified loans end up in default a couple of months later. Any thoughts?
- Kathleen

FHFA Announces Successful Implementation of Streamlined Modification Program
Carrie Bay | 12.18.08

Representatives of the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, and HOPE NOW announced today that the Streamlined Modification Program (SMP) was successfully launched December 15th as planned – three days after Fannie and Freddie sent detailed implementation instructions to their servicers. The SMP, which was developed by the four organizations in conjunction with mortgage servicers from the industry, is already making progress in preventing foreclosures, FHFA said in a press statement.

“Foreclosure prevention is critical for individuals and families, their communities, and the overall housing market,” said FHFA Director James B. Lockhart. “I am pleased that our program is being rolled out right on schedule and that servicers are already working at modifying delinquent loans with the goal of keeping people in their homes.”The SMP is designed to be a streamlined process for modifying the loans of a large number of borrowers who are seriously delinquent on their mortgage payment and are threatened by foreclosure. The new program replaces several time-consuming steps in a traditional loan modification with a uniform process that uses standard eligibility requirements and documents.

To be considered for the program, borrowers are instructed to contact their servicer, who will try to arrange an affordable monthly mortgage payment. If the servicer is unable to create an affordable payment with this streamlined program, it will further evaluate the borrower’s situation through a customized process. The key to success is the borrower’s ongoing cooperation and communication with the servicer, FHFA stressed. At the same time, servicers have been charged with proactively identifying distressed borrowers as early as possible to determine their eligibility for a workout or other foreclosure alternative, and reaching out to them by mail.

At a background briefing held earlier today, representatives of FHFA, Fannie Mae, Freddie Mac, and HOPE NOW outlined the guidelines and demonstrated the qualification tools being used to expedite the loan modification process.“This initiative builds on Freddie Mac's current loss mitigation efforts, which are on track to provide three out of five of our seriously delinquent borrowers with a workout this year,” said David M. Moffett, Freddie Mac's CEO. “Our alliance with FHFA, Fannie Mae, and the HOPE NOW Alliance will help our industry bring relief to thousands of distressed homeowners.”

According to Herb Allison, Fannie Mae's president and CEO, more than 10,000 delinquent borrowers every month will be able to get back on track under the new SMP and Fannie's recently announced Early Workout program, which allows servicers to modify troubled loans before they turn delinquent.Under the two mortgage financiers' new SMP, mortgage and escrow payments can be cut to 38 percent or less of an eligible borrower's gross monthly income by one or more of the following steps: reducing mortgage rates, extending the mortgage term up to 40 years, or forbearing part of the principal. Eligible borrowers must own and occupy the property as a primary residence, have missed at least three mortgage payments, and not filed for bankruptcy.

“FHFA has been working with program participants to get the program up and running as quickly as possible,” said Lockhart. “The SMP is on track and is fast becoming the industry standard for other loan modification programs also being developed. Together these efforts are expected to prevent hundreds of thousands of foreclosures, which will help homeowners, the housing market and ultimately, the economy overall,” Lockhart said.As FHFA indicated when the program was first unveiled in November, SMP is intended to help set standards in the mortgage servicing industry for conducting loan modification programs on a large scale as a foreclosure prevention measure.

For Freddie Mac's bulletin regarding the SMP guidelines, click here. For Fannie Mae's, click here.

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Tags: loanmodification, mortgage, fannie mae, freddie mac, default, servicer, real estate, subprime, delinquent, home, homeowner, wall street, market

IRS Tax Lien Stopping your Refinance or Sale? No More!

The IRS's willingness to subordinate or even release Tax Liens is monumental and will provide relief to those homeowners trying to refinance or sell their properties to get out from under their often bone-crushing debt.  I cannot tell you how many closings have been postponed or adjourned indefinitely because of an IRS Tax Lien popping up in title. 
- Kathleen

IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell
Carrie Bay | 12.17.08
The Internal Revenue Service (IRS) yesterday announced an expedited process that will help prevent a federal tax lien block on the refinancing of mortgages or the sale of a home by financially distressed homeowners.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options, the IRS said in a press statement. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien subordinate to the claim by the lending institution that is refinancing or restructuring a loan. Or, under certain circumstances, taxpayers or their lender representatives can petition the IRS to fully dismiss its claim if the home is being sold for less than the amount of the mortgage lien, the IRS explained.

Mortgage holders are marks: Loan modification specialists take money, do little in return

I have been advising everyone in the real estate industry, that New York's Foreclosure Prevention and Lender Responsibility Act went into effect September 1, 2008 and includes, among other items, strict requirements for those who seek to perform loss mitigation on behalf of distressed home owners.  These requirements include written, notarized contracts with a right to cancel and a prohibition against collecting fees upfront except for attorneys and non-profits. It seems to me that these loan modification companies are ignoring the law at their peril. - Kathleen A. Scanlon, Esq.

Daniel Massey November 30, 2008

Shelly Ann Bell was only a month behind on her mortgage in August, but with the interest rate scheduled to adjust upward and $4,000-a-month payments staring her in the face, she knew it would soon be impossible to keep up.

So when the 28-year-old nurse manager got a call from a man promising to help modify the mortgage on her single-family home in Springfield Gardens, Queens, it sounded like a way out of her troubles. She says she paid $2,150 to the Loan Modification Group, a Florida-based company, and was told to cease making monthly mortgage payments. She's now five months behind, and in danger of losing the home she bought in 2007 so her 3-year-old son could grow up with a backyard.“I haven't gotten a loan modification,” she says. “I haven't gotten anything from them.” The company could not be reached for comment.

With citywide foreclosures up 50% over a year ago, some of the same bankers and brokers who sold unaffordable, subprime loan officers are now joining the rapidly growing ranks of mortgage modification consultants. While some members of what an online ad called one of the “fastest-growing job markets in the country” run legitimate businesses, housing advocates say many are taking people's money and doing little or nothing in return.

FDIC Proposes to Streamline Loan Modifications - "Loan Mod in a Box"

The FDIC has created a plan to streamline loan modifications in an effort to stem the tide of foreclosures and REOS.  This plan, which is effective December 15, 2008, encourages the mortgage companies to modify certain nonperforming loans by the FDIC sharing up to 50% in any future losses incurred by those mortgage companies on defaulting modified loans.

The program would be applied to the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009. Of this total of approximately 4.4 million problem loans, we can expect that about 50% can be modified, resulting in some 2.2 million loan modifications under the plan.

Fed chairman Ben Bernake spoke at the Federal Reserve System Conference on Housing and Mortgage Markets on December 4, 2008 and had this to say about the FDIC Proposal:

"Under the FDIC plan, servicers would restructure delinquent mortgages using a streamlined process, modeled on the IndyMac protocol, and would aim to reduce monthly payments to 31 percent of the borrower's income.  As an inducement to lenders and servicers to undertake these modifications, the government would offer to share in any losses sustained in the event of redefaults on the modified mortgages and would also pay $1,000 to the servicer for each modification completed.¹³  The strengths of this plan include the standardization of the restructuring process and the fact that the restructured loans remain with the servicer, with the government being involved only when a redefault occurs. As noted, the FDIC plan would induce lenders and servicers to modify loans by offering a form of insurance against downside house price risk."

MBS Investors Sue Countrywide for Loan Modifications

Carrie Bay 12/02/08

Investors of securities backed by Countrywide mortgages filed a lawsuit against the lender on Monday, alleging that Countrywide has no right to modify under-performing loans that were packaged and sold as securities.

In early October, Countrywide's parent company, Bank of America, reached an agreement with 15 state attorneys general to settle claims against Countrywide regarding predatory lending practices. Under the deal, Bank of America agreed to modify as many as 400,000 Countrywide loans, reducing payments due on mortgages it services by as much as $8.4 billion.

Investors who now hold those loans are demanding that Countrywide buy back every mortgage it plans to modify under the multi-state settlement agreement. The lawsuit was filed by the law firm of Grais & Ellsworth LLP in the New York State Supreme Court, on behalf of Connecticut-based Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC, which purchased the mortgage-backed securities (MBS).

The complaint claims that Countrywide is shifting the $8.4 billion modification cost to 374 mortgage trusts, related to two series of securitizations known as CWL and CWALT. The plaintiffs say they do not oppose the settlement reached between the attorneys general and Countrywide, but are seeking resolution from the court that the lender "is required to purchase any loan on which it agrees to reduce the payments.

"The complaint also said that if the trusts involved "are forced to absorb the reduction in payments occasioned by Countrywide's settlement of the allegations against it, then the value of the securities that those trusts sold to investors will decline," causing damages to the bond investors.

According to lawyers for the plaintiffs in the complaint, Countrywide and Bank of America would be liable to pay hundreds of trusts a total of about 80 billion dollars for loans it has promised to modify, a Reuters report said. Countrywide has denied it is required to repurchase the loans it intends to modify, and said it was considering the interests of investors when it agreed to the October settlement. Bank of America said it was "disappointed in this attack on a program intended to keep at-risk families in their homes" and help stabilize the spiraling housing market.

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Tags: subprime, loan modification, Countrywide, Bank of America, wall street, mortgage backed securities, real estate, mortgage