Five years ago, if your application for a mortgage included a 20 percent downpayment, your bank would have approved your loan by sundown and sponsored a parade in your honor.
But in this new era of tight credit, having a big downpayment no longer guarantees you’ll qualify for a mortgage. Starting this week, mortgage finance giant Fannie Mae will require borrowers with a 20 percent downpayment to have a credit score of at least 620. Previously, the cutoff was 580.
Fannie Mae buys loans, providing an important source of financing for lenders. For that reason, its guidelines are considered the gold standard for mortgage loans. Most banks are expected to adopt the new standards, if they haven’t already.
“Credit scores have never mattered quite as much as they do now,” says Bob Walters, chief economist for Quicken Loans.
In addition, Fannie Mae won’t approve loans for borrowers with a 20 percent downpayment if more than 45 percent of their gross monthly income goes toward debt. Fannie Mae didn’t disclose the previous debt limit, but it was higher than 45 percent, says Fannie Mae spokesman Brian Faith.
The higher standards could frustrate buyers hoping to take advantage of low interest rates, depressed home prices and generous tax breaks that were recently extended until next spring. Even buyers who qualify for a mortgage may find that they’re ineligible for the best rates because lenders have tightened their standards across the board, says Gerri Detweiler, credit adviser for Credit.com.
If you’ve already found a home you’d like to buy, there’s not much you can do to raise your score before you apply for a loan. But if you’re just starting to tour open houses, there are steps you can take to improve your credit profile, including:
• Review your credit reports for errors. Go to AnnualCreditReport.com and order your credit reports from the three main credit-reporting bureaus: Experian, TransUnion and Equifax. You’re entitled to a free credit report once a year from all three of the bureaus, but only if you go through this website.
Once you receive your credit reports, go through them and look for inaccurate information, such as accounts you never opened. All of the credit bureaus provide a process to dispute errors, says Craig Watts, spokesman for Fair Isaac, which created the widely used FICO score.
• Pay off credit cards and other debts. One of the factors used to calculate your credit score is your “credit utilization ratio,” which measures the amount of credit you have outstanding vs. your total available credit. This ratio accounts for 30 percent of your score. Paying off balances will increase the amount of unused credit you have available, which will help your score.
But even if you’ve decided never to use credit cards again, don’t close your accounts. Closing a credit card account won’t help your credit score and could hurt it, Watts says. When you close an account, you reduce the amount of your available credit, which could hurt your credit utilization ratio.
• Avoid opening any new accounts. “Every new account you open is likely to drop your credit score, at least a little,” Watts says.
Checking your score
When you order your free credit reports from AnnualCreditReport.com, your credit scores aren’t included; you’ll have to pay a fee to get them.
In recent months, though, several services, such as Quizzle, Credit Karma and Credit.com have launched programs that provide free credit profiles. These websites can provide a useful snapshot of your credit standing and provide tips on how to improve it, Detweiler says.
If you’re planning to buy a home a year from now, she adds, it doesn’t make sense to spend a lot of money to buy scores that could change by the time you apply for a loan.
But house hunters who plan to apply for a loan in the next few weeks should know their actual FICO scores, because that’s the score most potential lenders use, Detweiler says.
You can buy your FICO score and credit report from TransUnion and Equifax at www.myfico.com for $15.95 each.
Earlier this year, Experian stopped selling to consumers the FICO scores it provides lenders, Watts says. You can buy a credit score based on Experian’s own scoring model for $15 at www.experian.com. Experian’s website also promotes a “free credit report and score,” but to get this deal, you must enroll in a credit-monitoring service that costs $14.95 a month.
Copyright © 2009 USA TODAY
Tuesday, December 15, 2009
Monday, December 14, 2009
Good: Floridians continue to get sales and property tax breaks. Bad: a tax on fund managers could hurt REIT investing.
The House voted Wednesday to extend $31 billion in popular tax breaks, including an income tax deduction for sales and property taxes, to be financed with a tax increase on investment fund managers and a crackdown on international tax cheats.
The 45 tax deductions and credits for businesses and individuals are scheduled to expire at year’s end. The House voted 241-181 to extend them for a year, with only two Republicans voting in favor. The bill now goes to the Senate, which has rejected the tax increase on investment managers in the past.
The tax breaks include a sales tax deduction that mainly helps people in the nine states without local income taxes, a property tax deduction for people who don’t itemize and lucrative credits that help businesses finance research and development. The nine states without a state income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming.
The tax breaks are supported by Democrats and Republicans alike and are routinely extended each year, but there are big disagreements over the tax increases that would pay for them. The dispute, combined with the Senate’s prolonged debate on health care, makes it unclear whether the tax package will be enacted this year.
Lawmakers could retroactively pass the package early next year, but that would make tax planning difficult.
The House bill would raise $24.6 billion over the next decade from the tax increase on investment fund managers. It would affect hedge fund and private equity managers, as well as the more than 1.2 million real estate investment partnerships, according to the Real Estate Roundtable.
The House bill would raise an additional $7.7 billion from a crackdown on international tax cheats, an issue the Internal Revenue Service and the Obama administration have embraced.
Investment managers typically get a fee to manage funds or assets. They also get a share of the profits earned for investors above a certain level. Under current law, the profit-sharing fees, called carried interest, are taxed as capital gains, with a top rate of 15 percent. The House bill would tax the fees as regular income, with a top tax rate of 35 percent, scheduled to rise to 39.6 percent in 2011.
President Barack Obama supports the tax package, including the tax increase on investment managers and the crackdown on international tax havens.
Democrats argued in favor of the tax increase, saying Wall Street financiers shouldn’t be taxed at a lower rate than workers making less money.
“Those who invest their own money will continue to receive capital gains tax treatment,” said Rep. Sander Levin, D-Mich. “Those who manage other people’s money will have to pay ordinary income tax, like everybody else who performs services.”
The two Republicans who voted in favor of the bill were Rep. Anh “Joseph” Cao of Louisiana and Rep. Walter Jones of North Carolina.
Most Republicans argued that the tax increase would reach far beyond Wall Street, hitting real estate investment funds across the country. Instead, Republicans said, the tax breaks should be financed by federal borrowing, increasing the budget deficit.
“It is nothing short of a new tax on the very investments needed to start a new business and create economic growth in this country,” said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.
Investment groups argued that the tax on fund managers would discourage investment.
“Raising taxes on growth investments by private equity, real estate and many other partnerships just doesn’t make sense, particularly in this time of fragile economic recovery and continuing joblessness,” said Douglas Lowenstein, president of the Private Equity Council.
A coalition of real estate organizations argued that the tax increase would hurt real estate partnerships, further eroding property values just as they are starting to rebound.
“Why would you want to put a $24.6 billion tax increase on this industry now, especially when it is having all these problems?” said David Pearce, vice president and counsel of the Real Estate Roundtable.
The crackdown on tax havens would impose new reporting requirements on foreign financial institutions doing business in the United States and on American advisers who help U.S. residents make investments overseas. Foreign firms that don’t comply would be hit with a 30 percent withholding tax on income from their U.S. assets.
Lawmakers have been working for years on proposals to stop tax cheats from hiding assets overseas, and the Obama administration has pushed the issue as well.
Rep. Richard Neal, D-Mass., said tax cheats have a patriotic duty to come clean.
“I think that asking tax evaders to pay their fair share for the national defense is not an unreasonable request,” said Neal, a top Democrat on the Ways and Means Committee. The bill is H.R. 4213.
Copyright © 2009 The Associated Press,
The 45 tax deductions and credits for businesses and individuals are scheduled to expire at year’s end. The House voted 241-181 to extend them for a year, with only two Republicans voting in favor. The bill now goes to the Senate, which has rejected the tax increase on investment managers in the past.
The tax breaks include a sales tax deduction that mainly helps people in the nine states without local income taxes, a property tax deduction for people who don’t itemize and lucrative credits that help businesses finance research and development. The nine states without a state income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming.
The tax breaks are supported by Democrats and Republicans alike and are routinely extended each year, but there are big disagreements over the tax increases that would pay for them. The dispute, combined with the Senate’s prolonged debate on health care, makes it unclear whether the tax package will be enacted this year.
Lawmakers could retroactively pass the package early next year, but that would make tax planning difficult.
The House bill would raise $24.6 billion over the next decade from the tax increase on investment fund managers. It would affect hedge fund and private equity managers, as well as the more than 1.2 million real estate investment partnerships, according to the Real Estate Roundtable.
The House bill would raise an additional $7.7 billion from a crackdown on international tax cheats, an issue the Internal Revenue Service and the Obama administration have embraced.
Investment managers typically get a fee to manage funds or assets. They also get a share of the profits earned for investors above a certain level. Under current law, the profit-sharing fees, called carried interest, are taxed as capital gains, with a top rate of 15 percent. The House bill would tax the fees as regular income, with a top tax rate of 35 percent, scheduled to rise to 39.6 percent in 2011.
President Barack Obama supports the tax package, including the tax increase on investment managers and the crackdown on international tax havens.
Democrats argued in favor of the tax increase, saying Wall Street financiers shouldn’t be taxed at a lower rate than workers making less money.
“Those who invest their own money will continue to receive capital gains tax treatment,” said Rep. Sander Levin, D-Mich. “Those who manage other people’s money will have to pay ordinary income tax, like everybody else who performs services.”
The two Republicans who voted in favor of the bill were Rep. Anh “Joseph” Cao of Louisiana and Rep. Walter Jones of North Carolina.
Most Republicans argued that the tax increase would reach far beyond Wall Street, hitting real estate investment funds across the country. Instead, Republicans said, the tax breaks should be financed by federal borrowing, increasing the budget deficit.
“It is nothing short of a new tax on the very investments needed to start a new business and create economic growth in this country,” said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.
Investment groups argued that the tax on fund managers would discourage investment.
“Raising taxes on growth investments by private equity, real estate and many other partnerships just doesn’t make sense, particularly in this time of fragile economic recovery and continuing joblessness,” said Douglas Lowenstein, president of the Private Equity Council.
A coalition of real estate organizations argued that the tax increase would hurt real estate partnerships, further eroding property values just as they are starting to rebound.
“Why would you want to put a $24.6 billion tax increase on this industry now, especially when it is having all these problems?” said David Pearce, vice president and counsel of the Real Estate Roundtable.
The crackdown on tax havens would impose new reporting requirements on foreign financial institutions doing business in the United States and on American advisers who help U.S. residents make investments overseas. Foreign firms that don’t comply would be hit with a 30 percent withholding tax on income from their U.S. assets.
Lawmakers have been working for years on proposals to stop tax cheats from hiding assets overseas, and the Obama administration has pushed the issue as well.
Rep. Richard Neal, D-Mass., said tax cheats have a patriotic duty to come clean.
“I think that asking tax evaders to pay their fair share for the national defense is not an unreasonable request,” said Neal, a top Democrat on the Ways and Means Committee. The bill is H.R. 4213.
Copyright © 2009 The Associated Press,
Thursday, December 10, 2009
Using the 203k program to purchase ‘dream homes’
With more and more distressed properties hitting the market, mortgage lenders, including Wells Fargo, increasingly offer FHA Section 203k mortgages. The loans finance both home purchases and residential improvements, allowing buyers to purchase dwellings with possibilities and transform them into dream homes. At Wells Fargo, a mortgage consultant works with borrowers to select a home improvement vendor.
Lori Kramer, who purchased a home in Jacksonville, Fla., with a 203k mortgage, says, “In this market, where so many homes have been vacant for so long or gutted in some cases, this program could really change the way people are buying real estate.”
In many instances, homes are in prime locales but need some work; and experts say the 203k mortgage program lets average buyers snap them up.
Source: RISMedia (12/09/09)
© Copyright 2009 INFORMATION, INC.
Lori Kramer, who purchased a home in Jacksonville, Fla., with a 203k mortgage, says, “In this market, where so many homes have been vacant for so long or gutted in some cases, this program could really change the way people are buying real estate.”
In many instances, homes are in prime locales but need some work; and experts say the 203k mortgage program lets average buyers snap them up.
Source: RISMedia (12/09/09)
© Copyright 2009 INFORMATION, INC.
Tuesday, December 8, 2009
Short sales: Playing by the new rules
The U.S. Treasury hopes to speed transactions under its new short sale rules, but details count, and Realtors should understand the process if they hope to avoid delays. While the new rules become effective no later than April 5, 2010, lenders have been encouraged to make them official as soon as possible.
The new rules, released Nov. 30, 2009, as the Home Affordable Foreclosure Alternatives Program (HAFA), provide financial incentives to spark short sale or deed-in-lieu (DIL) closings. The change was made to grease the wheels of a short sale transaction, giving potential buyers a shorter wait time from contract signing to lender approval of the contract. It also should make a short sale more attractive to buyers by reducing the number of problems.
The rules do not necessarily simplify the amount or complexity of short sale paperwork, however. The oversight doc, Supplemental Directive 09-09, devotes four pages out of 43 to the new short sale requirements. Real estate professionals working with short sales should review the Short Sale section of the Supplemental Directive (pages 5-9) and review the forms and letters in Exhibits A and B.
Supplemental Direction 09-09: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf
© 2009 Florida Realtors®
The new rules, released Nov. 30, 2009, as the Home Affordable Foreclosure Alternatives Program (HAFA), provide financial incentives to spark short sale or deed-in-lieu (DIL) closings. The change was made to grease the wheels of a short sale transaction, giving potential buyers a shorter wait time from contract signing to lender approval of the contract. It also should make a short sale more attractive to buyers by reducing the number of problems.
The rules do not necessarily simplify the amount or complexity of short sale paperwork, however. The oversight doc, Supplemental Directive 09-09, devotes four pages out of 43 to the new short sale requirements. Real estate professionals working with short sales should review the Short Sale section of the Supplemental Directive (pages 5-9) and review the forms and letters in Exhibits A and B.
Supplemental Direction 09-09: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf
© 2009 Florida Realtors®
Monday, December 7, 2009
Banks start to embrace short sales
Even before the government put pressure on them to embrace short sales, more banks were starting to take their lumps, do the short-sale deals and move on.
Three years into the housing meltdown, short sales have tripled to 40,000 in the first six months of 2009 compared to the same time period a year ago, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
Wells Fargo, Bank of America Corp. and JPMorgan Chase & Co. this year have hired and trained more staff to handle short sales and also developed software for expediting them.
“It’s really finally dawning on banks that they’re better off with a short sale,” says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “I think banks were in denial.”
Source: Bloomberg, John Gittelsohn and Margaret Collins (12/4/2009)
© Copyright 2009 INFORMATION, INC.
Three years into the housing meltdown, short sales have tripled to 40,000 in the first six months of 2009 compared to the same time period a year ago, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency.
Wells Fargo, Bank of America Corp. and JPMorgan Chase & Co. this year have hired and trained more staff to handle short sales and also developed software for expediting them.
“It’s really finally dawning on banks that they’re better off with a short sale,” says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “I think banks were in denial.”
Source: Bloomberg, John Gittelsohn and Margaret Collins (12/4/2009)
© Copyright 2009 INFORMATION, INC.
Buyer tax credit effective but not available
With President Obama’s signature on Nov. 6, 2009, the first-time homebuyer tax credit was extended, and some move-up buyers became eligible for up to $6,500 starting on Dec. 1, 2009.
However, the new law changed the way a home sale must be documented to the Internal Revenue Service (IRS), including additional back-up information to minimize the chance of fraud. And that documentation change became effective immediately when the bill was signed.
But that new form is not yet available.
The homebuyer tax credit is claimed using IRS Form 5405, and that won’t change under the new program; however, Form 5405 must be revised to adhere to rules in the law signed Nov. 6.
Currently, the IRS has only the old version of Form 5405 on its website – the one that applies to sales that took place Nov 6, 2009, or earlier. The revised Form 5405 applicable to sales on Nov. 7, 2009, and later, will not be on the IRS website, according to IRS officials, until late December.
Buyers who close after Nov. 6 and use the old claim form may have trouble collecting their tax credit quickly.
For more information on the tax credit and Form 5405, visit the IRS website.
© 2009 Florida Realtors®
However, the new law changed the way a home sale must be documented to the Internal Revenue Service (IRS), including additional back-up information to minimize the chance of fraud. And that documentation change became effective immediately when the bill was signed.
But that new form is not yet available.
The homebuyer tax credit is claimed using IRS Form 5405, and that won’t change under the new program; however, Form 5405 must be revised to adhere to rules in the law signed Nov. 6.
Currently, the IRS has only the old version of Form 5405 on its website – the one that applies to sales that took place Nov 6, 2009, or earlier. The revised Form 5405 applicable to sales on Nov. 7, 2009, and later, will not be on the IRS website, according to IRS officials, until late December.
Buyers who close after Nov. 6 and use the old claim form may have trouble collecting their tax credit quickly.
For more information on the tax credit and Form 5405, visit the IRS website.
© 2009 Florida Realtors®
Thursday, December 3, 2009
Commercial loan defaults highest since 1993
The default rate on commercial real estate loans held by banks hit 3.4 percent in the third quarter, up 0.52 percentage points from the second quarter, according to research firm Real Estate Econometrics.
• At 3.4 percent, the default rate is the highest it has been since 1993 when it hit 4.1 percent.
• The default rate on apartment buildings is even higher, reaching 3.58 percent, up from 3.14 in the second quarter.
Real Point Chief Economist Sam Chandan says not all banks’ books of commercial business are in trouble because some with large exposure to commercial real estate managed their investments well, including conservatively analyzing loans and holding the borrower accountable for payment.
Source: Reuters News (11/30/2009)
© Copyright 2009 INFORMATION, INC.
• At 3.4 percent, the default rate is the highest it has been since 1993 when it hit 4.1 percent.
• The default rate on apartment buildings is even higher, reaching 3.58 percent, up from 3.14 in the second quarter.
Real Point Chief Economist Sam Chandan says not all banks’ books of commercial business are in trouble because some with large exposure to commercial real estate managed their investments well, including conservatively analyzing loans and holding the borrower accountable for payment.
Source: Reuters News (11/30/2009)
© Copyright 2009 INFORMATION, INC.
Wednesday, December 2, 2009
Government increases pressure on mortgage industry
Faced with sluggish progress in its foreclosure-prevention effort, the Obama administration will spend the coming weeks cracking down on mortgage companies that aren’t doing enough to help borrowers at risk of losing their homes.
Treasury Department officials said Monday they will step up pressure on the 71 companies participating in the government’s $75 billion effort to stem the foreclosure crisis. They will start this week by sending three person “SWAT teams” to monitor the eight largest companies’ work and request twice-daily reports on their progress.
The mortgage companies, also known as loan servicers, have had a hard time getting borrowers to complete the needed paperwork for the administration’s loan modification program. Nearly 60 percent of the 375,000 borrowers who qualify to have their loan modifications completed by year-end have either submitted incomplete paperwork or none at all.
“Borrowers must understand the urgency of getting their completed paperwork in so they do not miss out on the opportunity for more affordable mortgage payments,” said Phyllis Caldwell, who recently was named to lead the Treasury Department’s homeownership preservation office.
The program, announced by President Barack Obama in February, allows homeowners to have their mortgage interest rate reduced to as low as 2 percent for five years.
The administration is feeling intense pressure from lawmakers and consumer advocates to speed up progress. As of early September, only about 1,700 homeowners had finished all the paperwork and received a new permanent loan. About one-third of borrowers who have submitted complete applications are still waiting for a decision.
In an effort to shame the companies into doing a better job, Treasury will publish a list next week of the mortgage companies that are lagging. While big lenders like Citigroup and Wells Fargo have made double-digit gains in the percentage of eligible borrowers they have signed up for trial modifications, other companies like Ocwen Financial and American Home Mortgage Servicing have only increased their borrower participation by 6 percentage points or less since July.
Paul Koches, executive vice president of Ocwen, said his company had already saved 90,000 of its roughly 370,000 distressed homeowners from foreclosure before the government program began. As of October, Ocwen had started trial modifications for 11 percent of its borrowers, up from 5 percent in July.
At American Home, spokeswoman Christine Sullivan said the company has a “large, dedicated team” working on the Obama plan, but also noted that the company modified more than 60,000 loans outside the Obama plan over the past year.
“We are addressing the needs of distressed borrowers and are confident that we are doing all that we can reasonably do to avoid foreclosure,” she said in an e-mail.
Some companies have barely made any inroads. HomEq Servicing, a division of Barclays Capital, only signed up in August. As of October, it had only started 91 trial modifications out of a pool of nearly 41,000 eligible homeowners.
“We have solicited thousands of borrowers for the financial information and documentation necessary ... and expect the number of trial modifications to increase substantially in the coming weeks,” company spokesman Brandon Ashcraft said, noting that the company has modified 45,000 loans outside the government program over the past two years.
The participating mortgage companies signed contracts earlier this year that give the government the right to withhold incentive payments or end their contracts with Treasury. But mortgage companies don’t receive those payments until they make a modification permanent, so there is little leverage over companies that aren’t performing well.
That difficulty, consumer advocates say, highlights the program’s key flaw: Since participation was voluntary, the government has little it can do besides shaming the industry into doing better.
“There’s no meaningful accountability,” said Diane Thompson, counsel at the National Consumer Law Center. “If you just aren’t doing the loan mods, so what?”
And then there’s lender limbo. About one-third of borrowers have submitted complete applications but haven’t received a decision.
“In our judgment, servicers to date have not done a good enough job” of making the modifications permanent, said Michael Barr, an assistant Treasury secretary. Companies, he said, “that don’t meet their obligations under the program are going to suffer consequences.”
Industry executives acknowledge there have been problems.
“The documents were confusing. Borrowers did not understand the process wasn’t closed until the documents came in,” Sanjiv Das, chief executive of Citigroup’s mortgage unit, said earlier this month. “Even when the documents came in, they were not always complete.”
Mortgage finance company Freddie Mac has hired an outside company, Titanium Solutions Inc., to send real estate agents around the country to knock on borrowers’ doors and help them complete the paperwork.
“It can be a little bit intimidating,” said Patrick Carey, Titanium’s chief executive. “They don’t, in many cases, understand exactly what is being asked of them.”
Analysts, meanwhile, say the foreclosure crisis is likely to persist well into next year as rising unemployment pushes more people out of their homes.
About 14 percent of homeowners with mortgages were either behind on payments or in foreclosure at the end of September, a record level for the ninth straight quarter, according to the Mortgage Bankers Association.
Homeowners who may be eligible for assistance can call 888-995-HOPE, or visit http://www.makinghomeaffordable.gov.
Copyright © 2009 The Associated Press
Treasury Department officials said Monday they will step up pressure on the 71 companies participating in the government’s $75 billion effort to stem the foreclosure crisis. They will start this week by sending three person “SWAT teams” to monitor the eight largest companies’ work and request twice-daily reports on their progress.
The mortgage companies, also known as loan servicers, have had a hard time getting borrowers to complete the needed paperwork for the administration’s loan modification program. Nearly 60 percent of the 375,000 borrowers who qualify to have their loan modifications completed by year-end have either submitted incomplete paperwork or none at all.
“Borrowers must understand the urgency of getting their completed paperwork in so they do not miss out on the opportunity for more affordable mortgage payments,” said Phyllis Caldwell, who recently was named to lead the Treasury Department’s homeownership preservation office.
The program, announced by President Barack Obama in February, allows homeowners to have their mortgage interest rate reduced to as low as 2 percent for five years.
The administration is feeling intense pressure from lawmakers and consumer advocates to speed up progress. As of early September, only about 1,700 homeowners had finished all the paperwork and received a new permanent loan. About one-third of borrowers who have submitted complete applications are still waiting for a decision.
In an effort to shame the companies into doing a better job, Treasury will publish a list next week of the mortgage companies that are lagging. While big lenders like Citigroup and Wells Fargo have made double-digit gains in the percentage of eligible borrowers they have signed up for trial modifications, other companies like Ocwen Financial and American Home Mortgage Servicing have only increased their borrower participation by 6 percentage points or less since July.
Paul Koches, executive vice president of Ocwen, said his company had already saved 90,000 of its roughly 370,000 distressed homeowners from foreclosure before the government program began. As of October, Ocwen had started trial modifications for 11 percent of its borrowers, up from 5 percent in July.
At American Home, spokeswoman Christine Sullivan said the company has a “large, dedicated team” working on the Obama plan, but also noted that the company modified more than 60,000 loans outside the Obama plan over the past year.
“We are addressing the needs of distressed borrowers and are confident that we are doing all that we can reasonably do to avoid foreclosure,” she said in an e-mail.
Some companies have barely made any inroads. HomEq Servicing, a division of Barclays Capital, only signed up in August. As of October, it had only started 91 trial modifications out of a pool of nearly 41,000 eligible homeowners.
“We have solicited thousands of borrowers for the financial information and documentation necessary ... and expect the number of trial modifications to increase substantially in the coming weeks,” company spokesman Brandon Ashcraft said, noting that the company has modified 45,000 loans outside the government program over the past two years.
The participating mortgage companies signed contracts earlier this year that give the government the right to withhold incentive payments or end their contracts with Treasury. But mortgage companies don’t receive those payments until they make a modification permanent, so there is little leverage over companies that aren’t performing well.
That difficulty, consumer advocates say, highlights the program’s key flaw: Since participation was voluntary, the government has little it can do besides shaming the industry into doing better.
“There’s no meaningful accountability,” said Diane Thompson, counsel at the National Consumer Law Center. “If you just aren’t doing the loan mods, so what?”
And then there’s lender limbo. About one-third of borrowers have submitted complete applications but haven’t received a decision.
“In our judgment, servicers to date have not done a good enough job” of making the modifications permanent, said Michael Barr, an assistant Treasury secretary. Companies, he said, “that don’t meet their obligations under the program are going to suffer consequences.”
Industry executives acknowledge there have been problems.
“The documents were confusing. Borrowers did not understand the process wasn’t closed until the documents came in,” Sanjiv Das, chief executive of Citigroup’s mortgage unit, said earlier this month. “Even when the documents came in, they were not always complete.”
Mortgage finance company Freddie Mac has hired an outside company, Titanium Solutions Inc., to send real estate agents around the country to knock on borrowers’ doors and help them complete the paperwork.
“It can be a little bit intimidating,” said Patrick Carey, Titanium’s chief executive. “They don’t, in many cases, understand exactly what is being asked of them.”
Analysts, meanwhile, say the foreclosure crisis is likely to persist well into next year as rising unemployment pushes more people out of their homes.
About 14 percent of homeowners with mortgages were either behind on payments or in foreclosure at the end of September, a record level for the ninth straight quarter, according to the Mortgage Bankers Association.
Homeowners who may be eligible for assistance can call 888-995-HOPE, or visit http://www.makinghomeaffordable.gov.
Copyright © 2009 The Associated Press
Nine consecutive gains for pending home sales
Pending home sales have risen for nine months in a row, a first for the series of the index since its inception in 2001, according to the National Association of Realtors® (NAR).
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, increased 3.7 percent to 114.1 from 110.0 in September, and is 31.8 percent above October 2008 when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006 when it was 115.2.
Lawrence Yun, NAR chief economist, said home sales are experiencing a pendulum swing. “Keep in mind that housing had been underperforming over most of the past year. Based on the demographics of our growing population, existing-home sales should be in the range of 5.5 million to 6.0 million annually, but we were well below the 5-million mark before the homebuyer tax credit stimulus,” he said. “This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.”
The PHSI in the Northeast surged 19.9 percent to 100.2 in October and is 44.2 percent above a year ago. In the Midwest the index rose 11.6 percent to 109.6 and is 36.6 percent higher than October 2008. Pending home sales in the South increased 5.4 percent to an index of 115.4, which is 31.6 percent above a year ago. In the West the index fell 11.2 percent to 127.7 but is 21.9 percent above October 2008.
Yun cautioned that home sales could dip in the months ahead.
“The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months. Given the lag time, we could see a temporary decline in closed existing-home sales from December until early spring when we get another surge, but the weak job market remains a major concern and could slow the recovery process.
“Still, as inventories continue to decline and balance is gradually restored between buyers and sellers, we should reach self-sustaining housing conditions and firming home prices in most areas around the middle of 2010. That would mean broad wealth stabilization for the vast number of middle-class families,” Yun said.
© 2009 Florida Realtors®
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, increased 3.7 percent to 114.1 from 110.0 in September, and is 31.8 percent above October 2008 when it was 86.6. The rise from a year ago is the biggest annual increase ever recorded for the index, which is at the highest level since March 2006 when it was 115.2.
Lawrence Yun, NAR chief economist, said home sales are experiencing a pendulum swing. “Keep in mind that housing had been underperforming over most of the past year. Based on the demographics of our growing population, existing-home sales should be in the range of 5.5 million to 6.0 million annually, but we were well below the 5-million mark before the homebuyer tax credit stimulus,” he said. “This means the tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future.”
The PHSI in the Northeast surged 19.9 percent to 100.2 in October and is 44.2 percent above a year ago. In the Midwest the index rose 11.6 percent to 109.6 and is 36.6 percent higher than October 2008. Pending home sales in the South increased 5.4 percent to an index of 115.4, which is 31.6 percent above a year ago. In the West the index fell 11.2 percent to 127.7 but is 21.9 percent above October 2008.
Yun cautioned that home sales could dip in the months ahead.
“The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months. Given the lag time, we could see a temporary decline in closed existing-home sales from December until early spring when we get another surge, but the weak job market remains a major concern and could slow the recovery process.
“Still, as inventories continue to decline and balance is gradually restored between buyers and sellers, we should reach self-sustaining housing conditions and firming home prices in most areas around the middle of 2010. That would mean broad wealth stabilization for the vast number of middle-class families,” Yun said.
© 2009 Florida Realtors®
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