People are going to get bailed out after all

[ibjames]

This just sickens me.

http://www.msnbc.msn.com/id/17949352/

Lenders have long modified loans for homeowners facing job loss, illness, divorce or a death in the family. But with many borrowers across the country struggling to keep up with mortgage payments, mortgage companies increasingly are prodding anyone who’s having trouble making payments for any reason to give them a call.

Critics say lenders made loans to borrowers who weren’t creditworthy with terms that would be impossible for them to meet. Whether the current wave of workouts will merely postpone foreclosures — and delay bad loans hitting lenders’ books — is an open question.

Regulators will be watching to see how many are successful, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business.

The scant public information on modifications makes evaluation tricky, said Thomas Lawler. The former chief economist at Fannie Mae now runs his own consulting business, Lawler Economic & Housing Consulting, in Vienna, Va.

Subprime meltdown
• Lenders willing to help struggling homeowners
• Six-month moratorium on foreclosures urged
• Regulators testify on subprime meltdown
• BusinessWeek: Making sense of the mess
• Blacks suffer most in U.S. foreclosure surge
• Q&A: Will woes ripple through economy?

Loose lending standards followed by lax modifications can merely delay a problem, Lawler said. He pointed to the raft of modifications done in the manufactured housing business in the mid 1990’s, when easy credit led to a wave of defaults and reposessions.

“If people had known what the servicers were doing, red flags would have been raised; but by the time people knew what was going on, it was too late,” he said.

Advocates say that half the people in foreclosure never talk to their banker before losing their house, and many could rework their loans if they only got help.

“It’s tragic,” said Colleen Hernandez, president of the nonprofit Home Ownership Preservation Foundation. “We have the capacity to help a whole lot more people.”

Calls to her group have picked up markedly. Its 24-hour hotline, (888) 995-4673, is getting 300 calls a day, from 75 daily in the first quarter of 2006.

MORE ON THIS STORY
Six-month moratorium on foreclosures urged
Tell us your mortgage story

A modification helped Ana Rodriguez, 41, keep her family’s home.

Rodriguez and her husband, Ricardo, bought a house in Chicago’s Jefferson Park neighborhood in 1998. Their mortgage was $1,200 a month. After he lost his job as a machinist, the couple refinanced the home in 2004 with an adjustable rate mortgage. The new payment was $1,500 a month.

He found a new job, but a year later, he was out of work again.

Rodriguez, a secretary, called Chicago’s department of housing, which referred her to a nonprofit. It worked with her mortgage company, Homecomings Financial, part of GMAC Financial Services.

“I did emphasize that if there was nothing they could do before we would lose our home, we wanted to sell it before losing,” she said. “They said they were going to try to work everything out.”

Her husband found a job soon after and the couple made three payments that included penalties and fees for the installments they’d missed. He quickly found a better job and the couple was able to refinance with a 30-year mortgage at 6.62 percent interest last October. The monthly payments are $1,600.

“We really got ahead of this one,” said James Leyba, the community relations specialist at Homecomings who worked with the Rodriguez family.

New foreclosures hit their highest ever level in the fourth quarter of 2006, according to the Mortgage Bankers Association. Home owners are the obvious losers, but all the financial services companies involved lose. The lender loses the steady stream of payments it counted on. If it sold the loan as part of a securitization, a package of mortgage-backed securities, that investor loses. Loan servicers, who are usually paid a fraction of the interest on a loan, lose too.

With home values falling in some parts of the country, none of the finance companies want to be stuck owning a house that has depreciated, or, worse, a house surrounded by other homes in foreclosure. EMC says it loses, on average, 40 percent of the value of a loan in foreclosure and also has to pay taxes and other expenses on the property.

“The larger the loss of value and the greater the likely loss will be, the more flexible we are,” said Larry B. Litton, Jr., president and chief executive of Litton Loan Servicing in Houston, which services $60 billion in mortgages. “We may waive past-due amounts. In extreme situations, we may even waive principal, if need be.”

Subprime meltdown
• Lenders willing to help struggling homeowners
• Six-month moratorium on foreclosures urged
• Regulators testify on subprime meltdown
• BusinessWeek: Making sense of the mess
• Blacks suffer most in U.S. foreclosure surge
• Q&A: Will woes ripple through economy?

Litton said his company is modifying about 1,000 loans a month; up from 300 to 400 about six months ago. Vella said he hopes the Mod Squad will be able to modify up to 2,000 loans a month; six months ago EMC only modified about 400 loans a month.

EMC has hired an increasing number of contractors over the last three months to knock on the doors of shaky borrowers and drop off fliers asking the home owners to call the company. Last month, the contractors visited 3,000 properties.

The Mod Squad is planning a six-city tour; it hopes to attract struggling homeowners to information and counseling sessions with offers of $100 gift cards to Home Depot Inc. The number is (877) 362-6631.

Companies with older programs are trying to stand out. The Hope program sponsored by GMAC ResCap and Homecomings Financial, which has a team of 20 loan workout experts, may change its name to differentiate itself from newer Hope programs.

The investor in securitized loans often dictates how much a loan can be modified, and Litton said his company has demanded more flexible terms from securitizers, which lets it modify problem loans with lower interest rates or extended terms. For instance, a home owner whose adjustable rate mortgage “resets” to a higher interest rate on May 1, 2007 might get a 24-month extension, putting the adjustment off until May 1, 2009.

“That may give the borrower breathing room,” Litton said.

“It’s really up to servicers in this climate, he said. “If the servicers aren’t flexible, then we’re going to see credit losses like we’ve never seen before.”

[CAwireman]

Please see my 2 cents here:

http://piggington.com/emc_refinancing_subprime_fbs

[hipmatt]

I’m kinda ok with the lenders bailing them out, cause I know it can’t really work and the losses will still be felt, but I have a huge problem with a taxpayer based bail out, or any sort of gov. bailout. This is a lender/lendee issue an that is it. It is mainly the lendee’s responsibility to know the terms of their loan before they sign.

We need to stop the f’n pitty party for these people. As said before, no one who used one of these loans for profit is complaining.

say NO to a gov. sponsored FDIC type insurance policy for homeowners or lenders though!

[cr]

My intitial thoughts on a bail out are quite colorful, but if you think about it…

– How many people can lenders really afford to bail out? It’s certainly limited.
– Then, how many people in foreclosure can actually qualify for a refi under the new restrictions? AKA traditional standards.
– Since mortgages are so heavily traded, how much bailing out are the investors going to allow? The article mentioned forgiving the principal. That won’t last long.

As the article says:
“It’s really up to servicers in this climate, he said. “If the servicers aren’t flexible, then we’re going to see credit losses like we’ve never seen before.”

The other thing, is this is by no means limited to sub-prime lenders. People won’t want to touch the housing market with a ten foot pole once the reality of the situation sets in.

[kewp]

“The other thing, is this is by no means limited to sub-prime lenders. People won’t want to touch the housing market with a ten foot pole once the reality of the situation sets in.”

That’s my opinion as well. Real estate will be about as fashionable an investment as a dotcom in 2001.

[Wiley]

You cannot change the direction a market wants to go…it can only be manipulated briefly against that direction. Fundamentals always win out.

[davelj]

“Briefly” is relative. And while fundamentals always win out eventually, as Keynes once noted, “Markets often remain irrational for longer than one can remain liquid.”

[Author]

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