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HomeCaroline Herron’s Lawsuit Targets Fannie Mae’s Mismanagement of Mortgage Modification Program
Posted by Larry Doyle on August 11th, 2010 7:17 AM |
Have executives at Fannie Mae worked to benefit their own financial interests versus promoting the well being of American taxpayers and homeowners looking to permanently modify their mortgages? Is Fannie Mae merely a perpetual train wreck or has something even more nefarious gone on inside the halls of our national stepchild?
In recently reviewing The Center for Public Integrity, I was not shocked — but certainly dismayed — to read Whistleblower: Fannie Mae Bungled HAMP Anti-Foreclosure Program,
Fannie Mae executives bungled their stewardship of the federal government’s massive foreclosure-prevention campaign, creating a bureaucratic muddle characterized by “mismanagement and gross waste of public funds,” according to a whistleblower lawsuit by a former Fannie Mae executive and consultant. (more…)
Uncle Sam’s New Mousetrap to Stem Foreclosures
Posted by Larry Doyle on October 13th, 2009 2:40 PM |
Despite hundreds of billions of dollars in support of Freddie Mac, Fannie Mae, the Federal Housing Association, and mortgage modifications, our housing market continues to be swamped with an ever increasing wave of foreclosures. The shadow supply of homes overhanging the market is estimated to be in the realm of 15 month’s worth. Last week, I wrote that Washington needed to address this issue in my post “Washington Needs a New Housing Model.”
Thanks to our friends at 12th Street Capital, we learn today that Treasury will release a new plan next week to stem the wave of foreclosures. How might this work? Let’s navigate a release which came from the Mortgage Banker’s Association convention currently ongoing in San Diego. Housing Wire reports, Treasury to Announce New Program to Avoid Foreclosure:
The United States Department of the Treasury is launching, with an official announcement expected next week, a new program to help ailing borrowers escape foreclosure.
The Chief of the Homeowner Preservation Office at the Treasury, Laurie Maggiano, released information on the Home Affordable Foreclosure Alternatives (HAFA) while speaking at the MBA’s 96th Annual Convention going on in San Diego. The official launch is expected in the next week or so.
HAFA already holds the support of Fannie, according to a VP at the agency, Eric Schuppenhauer, who believes the new program allows borrowers in imminent default to “make a graceful exit” from their home. HAFA will keep the stigma associated with foreclosure away from the borrowers, he added, and help keep communities intact.
Maggiano adds that HAFA will offer financial incentives to both servicers and borrowers, and associated secondary investors, in order to facilitate a short sale or deed in lieu of the property.
Borrowers will need to be Home Affordable Modification Program (HAMP)-eligible and Maggiano released some stats for the crowd’s consumption. 2,484,783 homeowners have requested information on HAMP. 757,955 HAMP plans were offered. 487,081 trials are underway.
Other additional [1] incentives to the short sale industry are nearly developed. The IRS will soon offer a 4506EZ form that will enable servicers to pre-fill out the information so that it only requires a borrower’s signature. It also will include softer language so as not put potential participants off.
For those unaware, a “short sale” entails a home being sold for less than the balance of the mortgage. The homeowner is not held responsible or liable for making up the difference between the proceeds generated by the sale and the mortgage balance. That difference is eaten by whomever ‘owns’ or is holding the mortgage. The owner or holder could be the originator if that entity never sold the mortgage. The owner or holder could be a trust on behalf of investors if the loan had been securitized.
What is the motivation to promote short sales rather than allowing the foreclosure process to run its course? Short sales may be short in terms of proceeds although they are not necessarily short in terms of time. That said, short sales typically do expedite the sale of a home. Short sales have typically occurred at a 10-20% discount to the market. Why? The homes have not been prepared for sale, meaning ‘dressed up.’
The monetary incentive provided to mortgage servicers to promote short sales will likely have a similar impact as the monetary incentive provided to modify mortgages. What has that impact been? Not much.
While many of Uncle Sam’s programs have been designed to buy time and allow the market and economy to recover, that approach has proven not to work so far in housing. Will this short sale program work to support housing? I doubt it.
I think what this program will look to achieve is to actually lessen the negative stigma associated with the term foreclosure. If Uncle Sam can say foreclosures are declining, he can then wave the flag as making progress on housing. What he will be doing, however, is merely ‘redefining’ foreclosure or in other words, ‘putting perfume on a pig.’
This program theoretically will negatively impact bank capital as banks will be forced to take a loss sooner rather than later on those mortgages they hold which are involved in short sales.
Aside from that development, real integrity in this process would include:
>> Add short sales to foreclosures as a more robust measure of housing supply stemming from delinquent mortgages.
>> Assess home prices along with rental rates to measure overall cost of housing.
LD
Housing’s Catch-22
Posted by Larry Doyle on October 12th, 2009 9:28 AM |
What is the optimal policy to deal with our ongoing housing crisis? Should Uncle Sam continue to throw more money at mortgage modifications? Should banks be compelled to implement a principal reduction program? Should Uncle Sam step in and subsidize the principal writedown involved in a principal reduction program? Would that be the mother of all socialized housing programs? Let’s navigate and address these topics knowing full well that none of these questions have any easy answers.
I witness further evidence again this morning of a continued increase in home foreclosures amidst the prime mortgage space. The Wall Street Journal highlights this ongoing development in writing, Foreclosures Grow in Housing Market’s Top Tiers:
The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.
Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.
The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.
Default rates are particularly high and expected to rise on option adjustable-rate mortgages, which allow borrowers to make minimum payments that may not cover the interest due. Monthly payments can increase to sharply higher levels after five years or when the outstanding balance reaches a certain level. A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.
Zillow estimated that nearly one in four homes with mortgages was worth less than the value of the property at the end of June. Mr. Humphries said he didn’t expect to see foreclosure volumes level off until later in 2010. (LD’s emphasis)
![[Moving Up chart]](http://s.wsj.net/public/resources/images/NA-BB100_TOPTIE_NS_20091011211658.gif)
With the waves of foreclosures not abating, Uncle Sam’s plans to merely modify mortgages is proving largely insignificant in supporting the overall housing market. Homeowners are clearly showing a strong inclination to default on their mortgages when they are ‘underwater.’ Thus, how does Uncle Sam help people get ‘above water?’ Compel banks to reduce the principal balance of the mortgage. Will they do it? Not quickly, as a principal reduction would imply an immediate hit to the banks’ capital. (more…)
NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on August 8th, 2009 4:33 PM |
UPDATE: The show has concluded, but you can listen to a recording in its entirety by clicking the Play button on the audio player below. Once the playback has started, you can forward or rewind to any portion of the show by clicking at any point along the play bar.
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As the markets rebound and the economy seems to recover, please join me this Sunday evening August 9th on NQR’s Sense on Cents with Larry Doyle as we dig deeper and work harder in navigating the economic landscape. Is the market and economy truly rebounding as quickly as it may appear? Is Wall Street back to ‘business as usual?’ What is the true nature of Goldman Sachs? Is the banking system properly portraying its overall health? What about Freddie and Fannie?
I am thrilled to have a longstanding veteran within the financial markets as my guest on this week’s show. Smriti Popenoe has extensive financial experience and is uniquely qualified to comment on all these topics and more.
Ms. Popenoe held senior positions within the Mortgage Portfolio Management group at Freddie Mac from 1994-2003. She was involved in the successful launch of a mortgage REIT, Sunset Financial (2004-2006). Ms. Popenoe then moved to Wachovia Bank where until this past April, she held a senior position within the Portfolio and Balance Sheet Management group.
Throughout her career, Ms. Popenoe has honed skills and insights which are at the core of our current economic debate. I have no doubt my conversation with her this Sunday evening will be nothing short of riveting. Call the show to share your thoughts or ask questions at (347) 677-0792.
Don’t miss it. Please share with friends and colleagues.
LD
Housing Index Revisited
Posted by Larry Doyle on March 18th, 2009 1:11 PM |
A week or so ago, I introduced two indexes that track the outlook for housing in our country. The S&P/Case-Shiller Index is released on a monthly basis. The ABX is an index that can be traded daily by institutional money managers and thus allows them to reflect their opinions on the outlook for housing. The ABX is a very broadly defined index that tracks housing by the underlying year of origination of the mortgage.
Yesterday, the monthly housing starts number surprisingly jumped 22%. The government program TALF (Term Asset-Backed Lending Facility) to restart the consumer finance markets is set to launch next week. Hopefully that program will bring added liquidity to our consumer finance markets and support housing as well. The mortgage modification program to support housing is underway. (more…)
Mortgage Modification Guidance
Posted by Larry Doyle on March 14th, 2009 12:00 PM |
There is little doubt that there was massive fraud perpetrated by unsavory and unethical mortgage brokers during the housing boom. I do not mean to paint all mortgage brokers with the same brush. As with any industry, there are a tremendous number of highly ethical people working hard to make an honest living. Regrettably, not everybody falls into that camp.
Our economy would be well served if both local and federal authorities worked harder to expose the criminals in the system, indict them, prosecute them aggressively, and make them pay a very stiff price for their actions.
Not too surprisingly, some of the same ilk that wrote fraudulent mortgages are now populating the mortgage modification industry. People need to be exceedingly careful in engaging those who seem to want to help them modify their mortgage. (more…)
