According to J.D. Power and Associates, mortgage servicers often fail to deliver on certain best practices during the loan modification process, “including providing and meeting a time frame for approval; not asking for information more than once; explaining the entire process during application; and providing proactive status updates during the process.”

“While the loan origination process is already a milestone event for most homeowners, the stakes are even higher for those going through the modification process,” said David Lo, director of financial services at J.D. Power and Associates. “Homeowners navigating the loan modification process may be fearful of losing their home, and that can add significant fear and anxiety to an already stressful experience. As a result, it’s especially important that servicers make every effort to deliver on key best practices and make the experience as painless for customers as possible.”

The company reports, for example, that “only 28 percent of customers were asked to provide information more than once during the mortgage origination process, compared with nearly 80 percent of customers during the loan modification process.”

Context

One has to wonder if there are any conditions under which mortgage servicers — the folks who collect monthly loan payments and process foreclosures when payments are not made — can satisfy borrower expectations. After all, when a loan is originated that’s a happy experience because the borrowers are getting a home. In the case of a loan modification borrowers are in deep trouble and likely facing foreclosure, bankruptcy or both. In such an environment you can pretty much understand that borrowers may not be too thrilled with anything done by a loan servicer.

Service Practices

Power says there are several key service practices that can have a particularly strong positive impact on customer satisfaction:

Fee transparency: Communicating all fees in a concise way to ensure complete understanding and no surprises.

Informative account statements: Providing account statements to ensure that the most important information customers need is easily found.

Billing and payment by preferred method: Ensuring that customers are able to receive account statements and make payments through their preferred method.

Problem resolution: Ensuring that once a problem is identified, it is resolved quickly and efficiently.

You can easily understand that clarity is required with the first three items, it’s the fourth which is a problem. “Resolution” may not possible and in cases where a borrower has lost a job there’s nothing the servicer can do to help the homeowner short of offering them employment.

On a scale of 1,000, Powers says that “BB&T (Branch Banking & Trust) ranks highest in customer satisfaction among primary mortgage servicers with a score of 795 and performs particularly well in fees and billing and payment process. SunTrust Mortgage follows with a score of 767, and U.S. Bank ranks third with 755.”

Given the terrible circumstances involved, it’s amazing that any servicer can satisfy distressed borrowers.

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The reality is that the Obama loan modification program has saved roughly 100 times as many homes from foreclosure as the programs started under President Bush. That doesn’t mean the Obama plan is perfect or wonderful, but it’s surely better than many commentators suggest.

For it’s part the Bush Administration had two important foreclosure programs.

Hope For Homeowners

First, there was the Hope for Homeowners plan, a program which set aside $300 billion to refinance toxic loans made no later than January 1, 2008.

No doubt $300 billion is a lot of money but just how many loans were refinanced under H4H? Let’s see, there were 0 in fiscal 2008, 23 in fiscal 2009 and 48 so far in fiscal 2010. That’s a total of 71 loans. Over three years. A little more than one per state.

Why did Hope for Homeowners fail? Lender participation was voluntary, new loans were limited to 90 percent of appraised value and appraised values had gone down so lenders were being asked to take a loss for every loan refinanced under the program.

FHASecure

Second, there was the FHASecure program.

“In the coming days,” said President Bush in 2007, “the FHA will launch a new program called FHA-Secure. This program will allow American homeowners who have got good credit history but cannot afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes. In other words, we’re going to start reaching out and making sure people know that this option is available to them so they can stay in their homes.”

Sounds great. So what happened?

To follow the program you have to look at the number of delinquent conventional loans refinanced with FHA-insured mortgages. There were no such loans in fiscal 2007, 3,794 such loans in fiscal 2008 and 316 mortgages in fiscal 2009. That’s a total of 4,110.

But according to then-HUD Secretary Alphonso Jackson the story was different.

“FHASecure,” he said, “has helped more than 100,000 families stay in their homes. Homeowners are cutting their monthly mortgage payments by an average of $400 a month compared to their exotic subprime loans. They no longer have anxiety about finding foreclosure notices in their mailboxes, thanks to the safe mortgage alternative that FHASecure offers.”

So did the program help 4,100 delinquent conventional borrowers or more than 100,000?

The original purpose of the FHASecure program was to help delinquent conventional borrowers get FHA financing. Jackson himself had testified before Congress in 2007 that the FHASecure program was for “borrowers who are otherwise creditworthy, but have recently become delinquent on their mortgages as their teaser rates reset.”

But since the program wasn’t working the solution was to redefine the program.

HUD did this by simply changing its FHASecure Frequently Asked Questions page to say “these FAQs have been modified to reflect that the term FHASecure applies to all conventional to FHA refinance transactions. The previous edition of FAQs indicated that only those borrowers who were delinquent due to reset of their non-FHA ARMs were eligible for FHASecure, causing confusion.”

And just like that the FHASecure program was a “success” — unless you were one of the millions of borrowers with a toxic loan that needed to be refinanced.

Making Home Affordable

In March 2009, a few weeks after entering office, the Obama Administration started the Making Home Affordable program. In basic terms, the program today has four elements:

1. The Home Affordable Refinancing is for those making payments who want to refinance but lack equity.
2. The Home Affordable Modification is for borrowers who face foreclosure as a result of higher mortgage payments, reduced income or hardship (think medical bills).
3. The Second Lien Modification Program (2MP) is for borrowers with second liens of more than $5,000. May result in lower interest rate or an extended loan term.
4. The Home Affordable Foreclosure Alternatives Program (HAFA) is for borrowers who have been unable to get help under Making Home Affordable. It provides as much as $3,000 to borrowers who participate in a short sale or deed-in-lieu of foreclosure.

So how is the program doing?

The July 2010 results look like this:

• The government has identified 1,623,584 delinquent borrowers who qualify for program help.
• Some 1,528,563 have been asked to participate in the program. Amazingly, 245,651 refused, meaning that 1,282,912 borrowers started loan modification trials.
• Of those who started loan modifications, 520,814 could not complete the three-month trial period and will likely lose their homes. In addition, 8,823 who passed the trial modification period and obtained a “permanent” loan modification actually re-defaulted. In total, 529,637 borrowers have washed out of the program to date.
• Roughly 364,077 borrowers are still in trials.
• There have been 389,198 permanent modifications to this point. These are people who otherwise would have lost their homes.

The bottom line: The Obama program has so far saved 389,000 borrowers from foreclosure, a number which will increase in the coming months and a number which is now nearly 100 times greater than the foreclosure prevention results under the Bush Administration.

Is it good that more than nearly 530,000 borrowers have so far dropped out of the program? Of course not, it’s a terrible thing to face foreclosure. But ask yourself: How come we suddenly have so many distressed buyers in the first place? When did the foreclosure mess begin? Why weren’t distressed borrowers helped before, when the foreclosure crisis first began to unfold? How much help and enthusiasm have lenders given the Administration? What better alternative has anyone been able to offer the 530,000 borrowers who did not succeed with Making Home Affordable?

Blaming the Obama program for failing to save more distressed homeowners is like a guy in a life raft who drills a hole in the bottom and then complains that everyone else isn’t bailing fast enough. It just isn’t right.

———————————

Published originally on the Huffington Post.

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“Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009.

“Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales — accounting for the bulk of transactions — are at the lowest level since May of 1995.”

If there’s an iota of good news from NAR — and there isn’t much more than an iota — it concerns home prices. Nationally they seem to have leveled out, though individual markets can present an entirely different story:

“The median existing single-family home price was $183,400 in July, which is 0.9 percent above a year ago.

“Single-family median existing-home prices were higher in 11 out of 19 metropolitan statistical areas reported in July in comparison with July 2009 (the price in one of 20 tracked markets was not available). However, existing single-family home sales fell in all 20 areas from a year ago.”

None of the news from NAR is especially surprising. The end of the first-time buyer tax credit in April inevitably meant that sales would drop, the only question was by how much. Now we have an answer.

What’s not understood, I don’t think, is the importance of the first-time buyer market.

It’s usually said that first-time buyers make up 40 percent of all existing home purchasers. That’s a fairly-impressive number, but as the expression goes that ain’t all folks.

You have to think through the logic of the first-time buying process because there’s a multiplier effect at work.

When a first-time buyer purchases a home they buy either a newly-constructed home or an existing property. When they buy an existing property what happens to the owners? They have to live somewhere and probably prefer an indoor location. So they take the money from their sales and traditionally move-up to a better property or move-over to a new location in another community. Some, of course, rent but largely that is not the case.

So now our seller — the party who sold that existing home to a first-time buyer — becomes a buyer and in most cases turns around and purchases from someone else. This second transaction would not be possible without the first-timer in the marketplace. You can see the process repeated to create a third transaction and perhaps a fourth.

The opposition to the first-time tax credit was largely based on the idea that it cost the government money and a philosophical objection to the government getting involved in the private sector.

But if you think about it the government does nothing but spend money. That’s how the streets get paved, crimes are stopped and medical research is funded. Given the hideous condition of the economy, it surely makes sense to spend government money to maintain the job base and help local communities. Nothing is more local than real estate and so the first-time tax credit was an intelligent, targeted, rational response to a very difficult problem, certainly no less worthwhile than giving money to Wall Street banks and brokerages.

Note to Washington: Bring back the first-time homebuyer tax credit. Now. And make it permanent so there’s certainty in the marketplace.

Bring Back The First-Time Homebuyer Tax Credit is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Big deal. After all, reverse mortgage borrowers are already required to get independent counseling. The sale of products that raise conflicts of interest — insurance annuity policies — were banned under the FHA Reform Act of 2008. That would be two years ago.

Moreover, reputational risk is a relative matter. Just how great are the reputations of the federal financial regulators who allowed national banks and their mortgage subsidiaries to offer toxic loans to millions of borrowers, a major cause of today’s financial meltdown?

No Suitability

Now you might think that a document entitled “Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risks” would have a few goodies in there for borrowers.

How silly. Allow me to quote page 7:

“Some consumer organization and government commenters urged a strong role for lenders in determining the suitability of the loan for the borrower. In particular, these commenters suggested that it should be the duty of any lender or broker to articulate and match the consumer’s needs, objectives, and circumstances to the terms of the loan and to reveal any interest that the lender or broker has in arranging the loan.”

“This reverse mortgage guidance does not, and is not intended to, impose suitability obligations on lenders.”

It’s just a guess, but don’t you think that a lender’s reputation — to say nothing of a regulator’s obligations — would be enhanced by some sense of duty to the basic needs of a borrower?

Why would anyone knowingly do business with a lender who was NOT going to “match the consumer’s needs, objectives, and circumstances to the terms of the loan and to reveal any interest that the lender or broker has in arranging the loan.”

“We urgently need stronger protections for reverse mortgage borrowers, especially a suitability standard that obligates those who arrange and profit from reverse mortgage deals to seek to avoid harming the financial interests of elderly clients,” says attorney Sara Twomey, author of Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk.

Standards & Benchmarks

The standards proposed by consumer groups should be welcomed by reverse mortgage lenders and their alleged regulators. Such benchmarks would rid the industry of the sharks who prey on the unwary — and that would be better for borrowers, better for the lenders who act honorably and better for reverse mortgage programs.

There shouldn’t be a need for reputational “guidance” which merely re-asserts the failed and discredited idea that lenders have no obligation to borrowers — other than to sell, sell, sell.

Regulators Offer “Reputation Risk” Advice To Reverse Mortgage Lenders is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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“The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments are listed at $820,000 to $3 million,” says Bloomberg. (See: Manhattan Luxury Condos Try FHA Backing in `Game Changer’, August 13, 2010)

Alas, the Bloomberg report seems to have set off some concern.

“Yes, ladies and gentlemen,” says Tyler Durden at ZeroHedge.com, “the FHA is now insuring purchases of ultra luxury appartment by the ultra rich, affording what is essentially a no money down ‘NINJA/subprime-like’ creep up into the most expensive properties in the world, entirely on the backs of the US middle class. If that ‘uber-wealthy’ don’t blow up the FHA, and the $7 trillion in GSE debt, nothing will.” (See: Rick Santelli Goes Nuts In A “Top 3″ Rant Protesting (What Else) Endless Subsidies And Fed Meddling, August 13, 2010)

The New York Post tells us “the development features an outdoor movie theater, panoramic city views, apartments valued between $820,000 and $3 million — and, thanks to the government, the ability to land a mortgage with less than a $100,000 deposit.” (See: Luxury ‘$uite’ deals, Feds back condo mortgages for wealthy, August 14, 2010)

Golly, FHA loans for the super-rich sure sound like a horrid bit of financing. Unless, after all, you consider the entire story.

Cash Up Front

It turns out that for 2010 the FHA higher cost loan limit in the continental United States is $729,750. That means if you have property in what is defined as a “higher cost” area of the contiguous 48 states you can get an FHA mortgage for the aforementioned $729,750.

For most of us $729,750 is a big number. For a property that sold for $729,750 a purchaser would need $25,541.25 at closing just for the 3.5 percent FHA down payment. Closing costs are extra.

But, you’ll notice that Bloomberg did not say any of the luxury units actually sell for $729,750. They sell for more, from $820,000 to $3 million.

This is where the FHA gets sticky. You see the FHA has a thing about real estate purchases which are above the loan limit. The deal is this: when you buy with FHA financing you’re not allowed to have a simultaneous second loan unless it comes from a governmental agency. You have to pay any additional value above the mortgage in cash.

One of the caveats here is that after the property has been settled the FHA buyer/borrower can then get a second loan such as a home equity line of credit (HELOC). This is usually not a consideration with a property where someone put down 3.5%, but it’s a real possibility when the cash down is significant. Of course, when there’s a second loan the FHA mortgage remains in first place which means if there’s a foreclosure the proceeds from the sale of the property must be used to completely satisfy the first loan holder before the second lender gets a dime.

Bundles of Money Down

So, let’s take a look at those luxury units in Manhattan — or anywhere else. Buy one for $820,000 with 3.5 percent down and you’ll need $28,700 at settlement plus closing costs. Oh, but wait, the FHA loan limit is $729,750 so you’ll actually need $90,250 in cash for the closing down payment. That’s 11 percent down — more than three times the usual FHA down payment requirement.

As to the $3,000,000 unit the math looks like this: $729,750 in financing means the buyer will need an additional $2,270,250 in cash at settlement — plus closing costs. That’s a deal with 76 percent down and virtually no risk for the lender.

Or the FHA.

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RealtyTrac reports for July that foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 325,229 properties in July, a nearly 4 percent increase from the previous month but a nearly 10 percent decrease from July 2009.

“July marked the 17th consecutive month with a foreclosure activity total exceeding 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac. “Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July, have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month.”

Foreclosure Activity by Type

A total of 97,123 U.S. properties received default notices (NOD, LIS) in July, a 1 percent increase from the previous month but a 28 percent decrease from July 2009. Default notices in July were down 32 percent from their peak of 142,064 in April 2009.

Foreclosure auctions (NTS, NFS) were scheduled for the first time on a total of 135,248 U.S. properties in July, an increase of 2 percent from the previous month but a decrease of 2 percent from July 2009. Scheduled auctions in July were down 14 percent from their peak of 158,105 in March 2010.

Lenders foreclosed on 92,858 U.S. properties in July, a 9 percent increase from the previous month and a 6 percent increase from July 2009. July’s bank repossession (REO) total was the second highest monthly total since RealtyTrac began tracking REO activity in April 2005 and was 1 percent below the monthly REO activity peak of 93,777 in May 2010.

Nevada, Arizona, Florida post top state foreclosure rates in July

With one in every 82 housing units receiving a foreclosure filing in July, Nevada continued to document the nation’s highest foreclosure rate for the 43rd straight month. A total of 13,727 Nevada properties received a foreclosure filing in July, a nearly 7 percent increase from the previous month but a nearly 30 percent decrease from July 2009. July was the 10th straight month where overall Nevada foreclosure activity decreased on a year-over-year basis.

Arizona foreclosure activity decreased on a year-over-year basis for the sixth straight month, but the state still posted the nation’s second-highest state foreclosure rate. One in every 167 Arizona housing units received a foreclosure filing during the month — more than twice the national average.

One in every 171 Florida housing units received a foreclosure filing in July, the nation’s third-highest foreclosure rate, and one in every 200 California housing units received a foreclosure filing in July, the fourth-highest state foreclosure rate.

Foreclosure activity in Idaho increased nearly 19 percent from the previous month, boosting the state’s foreclosure rate to fifth highest among all the states. One in every 240 Idaho housing units received a foreclosure filing in July.

Other states with foreclosure rates ranking among the top 10 in July were Michigan, Utah, Illinois, Georgia and Maryland.

Five states account for more than 50 percent of national total

California alone accounted for 21 percent of the national total in July, with 66,910 properties receiving a foreclosure filing during the month — down 3 percent from the previous month and down 38 percent from July 2009.

With 51,557 properties receiving a foreclosure filing during the month, Florida accounted for 16 percent of the national total in July despite a nearly 9 percent decrease in foreclosure activity from July 2009.

Illinois foreclosure activity increased 33 percent from the previous month — the biggest monthly increase among states with top 10 foreclosure rates. A total of 19,602 Illinois properties received a foreclosure filing in July, the third highest state total and accounting for 6 percent of the national total.

Michigan accounted for just under 6 percent of the national total, with 18,833 properties receiving a foreclosure filing in July, and Arizona accounted for 5 percent of the national total, with 16,298 properties receiving a foreclosure filing in July.

Other states with foreclosure activity totals among the nation’s 10 highest in July were Nevada (13,727), Ohio (13,511), Georgia (12,577), Texas (11,727) and Maryland (6,961).

Metro foreclosure hot spots show bumpy downward trend

All 10 metro areas with the nation’s highest foreclosure rates in July posted year-over-year decreases in foreclosure activity, but five of the top 10 posted increases from the previous month. The two biggest monthly increases were in No. 2 Cape Coral-Fort Myers, Fla., where foreclosure activity was up 21 percent from the previous month, and in No. 9 Phoenix-Mesa-Scottsdale, Ariz., where foreclosure activity was up 19 percent from the previous month.

Foreclosure activity increased nearly 9 percent from the previous month in the Las Vegas-Paradise, Nev., metro area, which registered the highest foreclosure rate among metropolitan areas with a population of 200,000 or more. One in every 71 Las Vegas housing units received a foreclosure filing in July, more than five times the national average.

Other metro foreclosure rates in the top 10 were Modesto, CA (one in every 102 housing units receiving a foreclosure filing); Merced, CA (one in every 111); Riverside-San Bernardino-Ontario, CA (one in 112); Stockton, CA, (one in 115); Bakersfield, CA, (one in 118); Orlando-Kissimmee, FL.(one in 129); and Vallejo-Fairfield, CA(one in 136).

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The government is now trying to address this scenario, something which is common across the country, especially for those who bought during the past few years with little or nothing down, have toxic mortgages or who live in communities which are in the eye of the foreclosure storm.

The basic idea of a so-called FHA short refinance is to replace current loans with new and shiny FHA mortgages. The government’s plan is great news for homeowners, if it will work. But will it work? And if the plan does work will the government get stuck with a lot of FHA mortgages that will soon default?

New Twist

The government established the Making Home Affordable plan in March 2009 with the intent of refinancing as many distressed borrowers as possible. As of June about 1.3 million homeowners had started three-month trial periods with lower monthly costs and nearly 390,000 borrowers now have permanent loan modifciations.

This is good news for a lot of people because the average monthly loan payment for those in the program fell from $1,422 to $838. This is a big savings, but the Making Home Affordable program cannot save all homeowners. There are borrowers who simply do not have the income to make even smaller monthly payments. Some 520,000 homeowners have started the trials and then washed out. For them, foreclosure almost certainly looms ahead.

But what if the program was changed so that more borrowers could be eligible?

The Treasury Department and HUD have now come out with a new program to extend FHA loans to borrowers with negative equity. Such “enhancements” are scheduled to begin in September.

How It Works

The new program says if you’re a homeowner and owe more than the house is worth the government has a deal for you: Refinance into a sane and solid FHA loan. Here’s what you need to qualify:

1. You must be a homeowner (no investors allowed).
2. You must be current on your existing mortgage and it cannot be an FHA loan.
3. You must have a credit score above 500.
4. The existing first lien holder must write off at least 10 percent of the unpaid principal balance.
5. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of not more than 97.75 percent of the property’s current value.
6. If there’s a second mortgage, then the combined balance of the first and second mortgage cannot be greater than 115 percent of the combined loan-to-value ratio.

7. You don’t qualify if you’ve been convicted of mortgage or real estate crime during the past 10 years (think of felony larceny, theft, fraud, or forgery; money laundering; or tax evasion).

Conflicts

Since the foreclosure crisis first began in 2007 the biggest question for lenders has been what to do with upside-down mortgages, situations where the property is worth less than the loan balance. Under the “enhancement” program, lenders would have to write off 10 percent of the existing mortgage balance to dump their loans.

In the case of the new government effort you’re just not going to see too many distressed homeowners getting new FHA loans. Two huge reasons stand out:

First, the borrower must be current on the loan. If the borrower has been making full and timely payments then the lender has no incentive to write-off a portion of the mortgage. The loan is performing, not distressed. To lenders, there’s no problem to “cure” and no reason to accept a loss. Since lender participation is voluntary you have to wonder why a lender would volunteer.

Second, in situations where there are two loans the junior lender under the program must allow the first loan to be refinanced and not move up to first place. But ask yourself: Why would a second lender agree to such an arrangement without compensation?

End Game

At this time the FHA program insures about 30 percent of all purchase money mortgages and 20 percent of all refinances. Given the rickety state of the housing market, and given common sense, nobody wants to do anything which would undermine the FHA program.

The enhancements announced by the government are unlikely to help many people because the requirements are self-contradicting and nobody wants the FHA to take on a bunch of high-risk loans. While the intention is good, the practical applications are remote and unlikely.

FHA “Short Refinance” — Is This The Way To Reduce Foreclosures? is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The FHA has two insurance premiums. There’s an up-front mortgage insurance premium (MIP) paid at closing (or added to the loan amount) which is now equal to 2.25 percent of the mortgage amount. There is also an annual mortgage insurance premium which is currently .55 percent of the unpaid mortgage balance.

Under the new schedule the up-front fee will be reduced to 1.00 percent. This means FHA borrowers will need considerably less cash at closing.

However, what the FHA losses up-front will be made up over time. The annual MIP will be increased from .85 percent to .90 percent of the outstanding loan amount.

To see how the fees compare, consider someone who wants 30-year FHA loan for $150,000.

• Under the current system the borrower would have a $3.375 fee up from. For borrowers after September the fee would drop to $1,500.
• Under the current system the borrower would have an annual MIP equal to .55 percent of the loan amount. In this case the monthly cost would be $68.75 ($150,000 x .55/12), but decline gradually as the outstanding mortgage balance falls.

Who Wins, Who Loses

The FHA has been criticized because it exists (some pundits dislike the program because it is, after all, a government insurance plan) and because it faces big claims against its reserves (as if other mortgage insurance plans do not). The new insurance fees deftly deal with a number of issues.

First, the new fees will reduce the cash required for closing, meaning that more buyers can get into the marketplace, precisely what’s needed at this time.

Second, the new fees are expected to generate an additional $300 million a month, or $3.6 billion per year.

Third, the new premium system is hardly a surprise — we wrote about it in May!

Fourth, the new measures come at a time when the FHA is actually doing quite well.

How well? HUD reports the following recent results:

• The quality of loans made in 2009 and 2010 — the years FHA has done the most significant volume –is much improved.
• The average credit score on current insurance endorsements has risen from 634 in 2007 to nearly 700.
• Actual claim payments to-date are $3.7 billion lower than projected by the independent actuary.
• Loan performance, as measured by serious delinquency and early period delinquency rates, has improved significantly, with the first year-over-year decline in new 90-day delinquencies in years.
• Cash flow is positive, with the most recent quarter having a net increase of $446 million.

The Need For New Fees

While the FHA reserve (the Mutual Mortgage Insurance Fund) is doing well now, the economy remains troubled. Unemployment officially remains near 10 percent — unofficially it’s higher. And foreclosures remain a stubborn problem. RealtyTrac reports that among major metro areas, 154 of 206 saw foreclosure increases during the past year.

In effect, the FHA is bulking up its reserves while at the same time making the program more attractive to borrowers.

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Active duty service members and veterans in some parts of the country are getting pushed out of the foreclosure market, hampered by a combination of cash buyers and the VA’s appraisal and property requirements.

Lenders love to sell distressed real estate to cash buyers. There’s no underwriting, no lender-required appraisal and no repairs. Negotiations and paperwork hassles disappear. Banks and investors will often accept huge discounts below the full price for a cash offer, especially in local areas with steep foreclosure levels.

An August 2009 analysis by the San Francisco Chronicle found that cash purchases represented more than 40 percent of home sales in some markets flooded with foreclosures. Most veterans simply aren’t in a financial position to pay cash for a home.

What can make matters worse is the VA’s requirement that homes must be “move-in ready,” a standard which can prove a tall order for foreclosures and real-estate owned (REO) homes. The Veterans Administration requires specific minimum property requirements be met, part of its unique appraisal process that puts a premium on health and safety.

But scores of REOs and other distressed market properties fall short of those requirements. Given that backdrop, real estate agents in some of these areas continue to nudge sellers away from VA borrowers.

Veterans are also finding that some banks — typically the larger national outfits — actually require prospective borrowers to seek loan prequalification from them before entertaining offers on foreclosures. That’s a waste of time for military borrowers who already secured loan prequalification before going home shopping.

Competition

Competition for homes in these markets is already fierce.

The bottom line is that veterans in distressed markets should latch on to a real estate agent and lender they trust. They should also prepare themselves for disappointment and delays. Many will see their “dream home” turned over to an investor with a wad of cash. Patience and preparation are the keys to success — or at least survival.

____________________
About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

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The site, Know Your Options.com, has the usual bells and whistles for a modern site and includes sections devoted to refinancing, repayment plans, forebearance, modification, short sales, deed in lieu of foreclosure and a deed-and-lease back plan.

The site also has some useful and nicely-laid out forms such as a financial checklist and a contact log. There is, of course, lots of advice against walking away from your home, a so-called strategic default.

“Through foreclosure prevention programs, borrower outreach, underwriting guidelines and servicer engagement, Fannie Mae is taking a comprehensive approach to helping struggling borrowers,” says Jeff Hayward, a Fannie Mae senior vice president. “Identifying accurate resources and finding the right answers can be a difficult challenge for borrowers facing hardship and a flurry of disparate, incomplete and sometimes fraudulent information. Know Your Options is the company’s newest effort to reach distressed homeowners and is designed to bring the best information and guidance together in one place so that struggling borrowers can focus on finding solutions that work for their particular circumstances.”

What’s Missing

The new Fannie Mae site has some valuable information and the site itself is certainly well-designed. That said, where is the parallel site for would-be borrowers who have yet to have an encounter with lenders? Why wait until someone faces foreclosure before providing valued consumer information? Why not have warnings and red flags in place to help borrowers at the beginning of the mortgage process?

The new Wall Street Reform Act provides a perfect platform for Fannie Mae and other major players in the mortgage arena to openly tell the public that we now have such a thing as a qualified residential mortgage. In basic terms that’s a conventional, FHA or VA mortgage underwritten with a fully-documented loan application, a mortgage where prepayment penalties are limited to the first three years of a fixed-rate mortgage and banned for ARMs. A qualified residential mortgage is also a loan with fewer than 3 points and where the lender has an obligation to assure that the borrower is receiving a net tangible benefit.

Why Foreclosure Prevention Is Not Enough is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Technorati Tags: deed in lieu of foreclosure, deed-and-lease back, Fannie Mae, forebearance, foreclosure, modification, qualified residential mortgage, refinancing, repayment plans, short sale, strategic default, walkaway, Wall Street Reform Act