Answers to questions about new mortgage aid plan

WASHINGTON (AP) — The Obama administration on Friday announced a major reworking of its troubled $75 billion plan to prevent foreclosures. The revamped program is now designed to aid jobless homeowners and people who owe more on their mortgages than their homes are worth.

Here’s a look at the details:

Q. How many homeowners will this help?

A. The effort is designed to enable the government to reach its original goal of helping 3 million to 4 million homeowners avoid foreclosure by the end of 2012. That benchmark has so far proved impossible to approach. Only 170,000 homeowners have completed loan modifications, out of 1.1 million who began the government’s Home Affordable Modification Program since it started last year.

Q. How many borrowers are in trouble?

A. About 6 million homeowners have missed at least two months of payments. And experts warn that 10 million to 12 million borrowers are in danger of foreclosure over the next three years. A growing risk is among homeowners who are “under water”: They owe more on their loans than their homes are worth.

Q. How does the new plan work?

A. Borrowers will get help in three ways: Jobless homeowners can get a three-to-six-month break on their mortgage payments. Banks will get financial incentives to reduce mortgage balances for under-water borrowers. And lenders can offer refinanced loans backed by the Federal Housing Administration to these borrowers.

Q. When will all these programs be available?

A. Government officials didn’t specify but said they should become available in the coming months.

Q. I’m unemployed. How do I get help?

A. That piece of the program is designed to give homeowners more time to find a job. Borrowers will have three to six months in which they’ll have to spend no more than 31 percent of their monthly income on their mortgages. If you do find a job during that time, you will be evaluated for a loan modification that could permanently reduce your payments. To qualify, you need to live in your home, have a mortgage of below $729,750 and receive unemployment benefits.

Q. What happens if I don’t get a job after the time is up?

A. Lenders will encourage you to consider a short sale, in which you sell your home for less than the mortgage amount. Another option is a deed-in-lieu of foreclosure, in which you agree to hand back the property to your lender.

Q. I owe more on my mortgage than my house is worth. Will this help me?

A. Maybe. The program depends on the willingness of mortgage companies to participate. Their track record has been shaky at best.

Q. How does it work?

A. Mortgage companies that already participate in the government’s foreclosure prevention program will have to consider reducing the mortgage amount for borrowers who owe at least 15 percent more than their home’s current value. Those reductions will happen gradually over three years and apply only if you miss no payments. Those companies will receive expanded incentives to do so.

Q. What kind of incentives?

A. For every dollar of principal the lender reduces, they will receive a subsidy of 10 to 21 cents. The larger subsidies will help reduce principal of borrowers who are less under water.

Q. How do I qualify?

A: You must have a mortgage of less than $729,750. You also must show that you are in financial trouble. And you have to be spending at least 31 percent of your pretax income on your mortgage payment.

Q. So how do I apply?

A. Call the company that sends your mortgage bill, also known as your mortgage servicer, to see if you qualify. If you can’t get hold of someone, try a nonprofit housing counselor. NeighborWorks America runs a national network of foreclosure counseling agencies. Try: http://www.findaforeclosurecounselor.org/

Q. How does the refinancing program work?

A. Some borrowers will be able to refinance into loans backed by the Federal Housing Administration, which insures loans against default. The FHA will get $14 billion in incentive money from the federal bailout fund to make this happen. Lenders will have to reduce the homeowners’ primary mortgages by at least 10 percent.

Q. How do I qualify?

A. Homeowners must not have missed any payments on their home loans, must live in their home as a primary residence and must provide proof of income.

Q. How do I apply for the FHA plan?

A. You don’t. It’s voluntary for mortgage companies. They’ll evaluate whether they want to offer this option to homeowners.

Las Vegas Weakest Real Estate Market in Country

Once home to soaring prices in the midst of the housing boom, Las Vegas has now had declines for three straight years, and is by far the weakest market in the country according to an article in the New York Times.

Twelve of the cities in the index went up in January from December. Los Angeles was the biggest gainer, up 1.7 percent. Chicago was the biggest loser, dropping 0.8 percent.

With the January 2010 data now published, it is possible to track the best and worst cities to have owned real estate over the century’s first decade.

The three best cities are no surprise: Los Angeles, New York and Washington. All are more than 70 percent above their level in January 2000.

Anyone who bought in Las Vegas would have lost a few dollars after paying their agent’s commission. But the worst-performing city in the index was Detroit, which ended the decade 28 percent below where it began.

Positive Equity Won’t Return For Las Vegas Homeowners Until 2020

First American CoreLogic estimates that the typical Las Vegas homeowner who is in negative equity will not experience positive equity until 2020 according to an article in Housing Wire.

Las Vegas is estimated to recover in 2020. The projections are based on a 3% annual home price appreciation.

Studies Show HAMP Promotes Strategic Default on Mortgages

The current state of the mortgage market is promoting owner-occupants to default, according to research released today, in an indication of the growing moral hazard behind government-led homeowner rescue programs claims an article in Housing Wire.

The changes will encourage servicers to write-down a portion of mortgage debt as part of a HAMP modification, allow more borrowers to qualify for modification and help borrowers move into more affordable housing when modification is not possible, according to a fact sheet on the improvements provided to HousingWire.

Most notable among the new initiatives is the requirement that servicers consider “principal relief” including write-downs.

“This alternative modification approach will include incentive payments for each dollar of principal write-down by servicers and investors,” Treasury said in a statement today. “The principal reduction and the incentives will be earned by the borrower and lender based on a pay-for-success structure.”

The principal reduction initiative is geared toward borrowers with excessive negative equity.

The write-downs will apply only to borrowers with 115% or higher loan-to-value (LTV) ratios. Servicers will initially forbear some or all of the balance exceeding 100% of the home’s value, down to a 31% debt-to-income ratio. Then, the servicer will forgive the forborne amount in three equal installments over three years, contingent on the borrower’s ability to remain current on payments.

Borrowers faced with unemployment – therefore, a lack of income to calculate the debt-to-income ratio targeted under HAMP – will be able to have payments temporarily reduced to an affordable level for three to six months.Treasury is also clarifying borrower outreach and communication requirements, increasing incentives available to servicers and extending those incentives to borrowers with mortgages insured by the Federal Housing Administration (FHA)

Underemployed, underwater, under fire

Under fire to do more to stop the foreclosure crisis, the Obama administration announced new steps on Friday to help the unemployed and those who are “underwater” with a bigger mortgage than their home is worth.

For some unemployed borrowers, the effort would require servicers to reduce or suspend monthly mortgage payments for up to six months, an administration official said.

Also, the initiative calls for reducing the mortgage balances of some underwater homeowners to reflect current property values and refinancing them into Federal Housing Administration (FHA) loans. Loan servicers, who have been reluctant to cut mortgage principals, would receive financial incentives to do so.

“These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own,” an administration official said.

The plan would be paid for with funds from the Troubled Asset Relief Program, known as TARP.

The expansion of President Obama’s signature $75 billion loan modification effort comes on the heels of two blistering government watchdog reports, which slammed the administration for poor implementation of the program, and raised doubts that it would reach the initial goal of helping 3 to 4 million troubled borrowers stay in their homes.

The program, which calls for reducing borrowers’ monthly payments to 31% of their pre-tax income, has led to only about 170,000 long-term modifications so far.

The low figure has prompted consumer advocates and industry experts to call the program — which focuses on adjusting interest rates and loan terms to bring monthly payments to affordable levels — a failure.

Meanwhile, the nation is sinking deeper into the mortgage crisis. The share of seriously delinquent loans in the fourth quarter jumped 21% over the previous quarter, regulators said Thursday.

Lawmakers Thursday ripped into the administration, saying it had done little to stop the foreclosure avalanche because it was not addressing the current sources of defaults: unemployment and property value declines.

“Over three years after I’ve held my first hearing about foreclosure, we really haven’t seen any bold, new initiatives coming out of Treasury to address the underlying problem of underwater mortgages,” said Rep. Dennis Kucinich, D-Ohio, at the congressional hearing. “What are we doing to help those people who owe more on their homes than the home is worth?”

Nearly 25% underwater
Nearly one in four borrowers in America are underwater, according to First American CoreLogic. Many experts have said the only way to stem the foreclosure tide is to reduce the loan balances of these borrowers, who are more likely to walk away.

“The solution to this must be a principal write-down program,” said John Taylor, head of the National Community Reinvestment Coalition, who testified Thursday. “That’s what’s going to put people in a position — those who are still working — to be able to continue to pay on their mortgage.”

While banks have steadfastly avoided reducing mortgage principal, Bank of America has taken the first tentative step to cutting balances. It announced Wednesday it would lower the mortgage principal of a limited number of borrowers if they remained current for five years.

0:00 /3:10Homeowners walking away
The new Obama administration initiative follows a smaller effort announced last month that would provide $1.5 billion to housing finance agencies in five states to develop programs to assist the unemployed and underwater.

Reducing loan balances, however, is very controversial. Some experts fear the benefit will go to those who don’t truly need or deserve it, the so-called “moral hazard” argument. And it’s likely to anger those who continue to make timely mortgage payments every month.

“In this effort to examine the principal reduction problem, we’ve been mindful, first of all, of the potential cost of such a program; secondly, of the fairness of doing principal reduction for some people; and thirdly, of the moral hazard issue,” Assistant Treasury Secretary Herbert Allison told lawmakers Thursday.

VEGAS SUCKS DRY THREE GENERATIONS OF WEALTH

Survey: 4 of 10 residents looking to leave Las Vegas
During Las Vegas’ boom years, plentiful jobs were enough to keep the masses moving here says the Las Vegas Sun.

Now that the boom has gone bust, a new survey by UNLV researchers suggests a large share of valley residents see little reason to stay. The Las Vegas Metropolitan Area Social Survey found 40 percent of locals want to leave the state.

THE GULIANO FAMILY BITES THE DUST

One family’s story illustrates the pain. The Guliano family purchased farm land in Ohio in 1896 and began the laborious process of building a Farm from scratch. They borrowed money and created a profitable Farm which upon their death passed to their Children in 1945.

The Guliano Children continued building up of the Farm and upon their death passed the farm to their kids, the Guliano Grandchildren in 1988.

In 2004, the Guliano Grandchildren sold the three generation Farm, now worth a small fortune, and moved to Vegas and purchased real estate with dreams of making it big. Instead, the Vegas real estate market crashed soon thereafter, and the Guliano Grandchildren lost it all.

The Guliano Grandchildren, now broke, have since returned back to Ohio to begin the laborious process of building up yet another farm from scratch so that their children and grandchildren can have something to live on.

The Great Strategic Default Walk Away Day

Treasury admits federal home loan rescue plans extended the suffering

HAMP WAS DESIGNED POORLY AND IMPLEMENTED TERRIBLY
The HAMP program merely spread out the foreclosure crisis over the course of several years, at significant taxpayer and homeowner expense.

The Special Inspector General for the Troubled Asset Relief Program said the Treasury Department set targets that weren’t “meaningful,” mismanaged the implementation of the program, and now risks a substantial number of “re-defaults,” with many participants ultimately losing their homes anyway.

The administration’s $75 billion loan modification program may help as little as 1.5 to 2 million people, about half the number Obama said it would when he first unveiled the program in February 2009, the inspector general, Neil Barofsky, wrote in a report.