Mortgage Rates Set Fresh 2011 Low After Jobs Report

Fixed rate home mortgage loans dropped for the eighth straight week to a new low for 2011 amid concerns of another economic slowdown this year, according to data from Freddie Mac and a report by The Wall Street Journal.

The 30-year fixed-rate mortgage averaged 4.49%, down from 4.55% last week and 2010’s  4.72% average. Rates on 15-year fixed-rate mortgages fell from 3.74% to 3.68%.  15-year fixed-rate mortgages averaged 4.17% in 2010.

Lawyers Get More Time to Finish Foreclosures

Florida foreclosure defense is translating into more time for plantiff bank attorneys to complete a foreclosure, according to an article in the Palm Beach Post.

Due to the reality of Florida’s overloaded court system and swirling questions surrounding the validity of foreclosure paperwork, Fannie Mae is now allowing bank attorneys up to 450 days (about 15 months) for lawyers to complete a foreclosure before fines are levied.  The previous time limit was 185 days, or about six months.

The increased time needed to complete a foreclosure legally and correctly against a homeowner is due in large part to Florida foreclosure defense attorneys working to protect the rights of South Florida homeowners, according to Roy Oppenheim.

Obama Blames Wells Fargo, Bank of America, Chase for Modification Failures

The three largest U.S. mortgage lenders are getting some heat from the Obama administration for the failures of the federal foreclosure-prevention program, according to The Associated Press.

The lackluster performance of Wells Fargo, Bank of America and Chase with helping homeowners lower their mortgage payments has led the Obama administration to remove financial incentives it had given these lenders.

Only about one-third of the 1.4 million people who applied for mortgage modifications through the federal program have had their payments lowered permanently.

Angry Homeowners ‘Foreclose’ on Lenders

Owners of a house in Florida have engineered a “reverse foreclosure” against a Bank of America branch in Naples, according to The New York Times.

The homeowners paid $165,000 in cash to buy their home from the bank and never borrowed against it. But last February, the bank began foreclosure proceedings against them.  The homeowners hired a Florida foreclosure defense attorney and the case against them was dropped, however they were able to recover a judgment for $2,500 in attorney’s fees against the bank.

When the bank didn’t pay, the homeowners’ lawyer showed up at the bank with sheriff deputies and a moving truck to clean out the building.

The bank eventually settled with the homeowners for more than $5,700 to cover the fees and additional costs.

Small wonder that HAMP has turned into an embarrassing failure for the Obama administration.

This past weekend, I was in our Nation’s capital. It is always interesting to see things from the inside looking out, as opposed to from the outside looking in. It is like being in a house of mirrors.

One thing is apparent: the Beltway economy is not suffering like places such as Florida, Nevada, and Detroit. As a result, our elected representatives and the administration may not truly understand the depth of the housing crisis. I think they still blame the greed of “over ambitious” homeowners and speculators as opposed to the real driving force: Wall Street, the over-sized “too big to fail” banks and themselves. The buzz, of course, was the fact that Fannie Mae may have been playing its own political three card “monty” with homeowners over the past year. Simply put: whistleblower Caroline Herron, a former Fannie Mae executive and consultant, is suggesting the administration pushed for temporary modifications knowing full well that many of the loan modifications would fail prior to becoming permanent. In fact, Congress is now pushing for hearings.

Fannie Mae executives bungled their responsibilities of the federal government’s massive foreclosure-prevention campaign, creating a bureaucratic muddle characterized by “mismanagement and gross waste of public funds,” according to the suit Herron filed. The suit alleges that the homeowner-relief effort was marred by delays, missteps and executives’ preoccupation with their institution’s short-term financial interests. “It appeared that Fannie Mae officers were focused on maximizing incentive payments available to Fannie Mae under various federal programs – even if this meant wasting taxpayer money and delaying the implementation of high-priority Treasury programs,” Herron claims in the lawsuit.

The problem started with a skewed financial incentive at the heart of HAMP. The government paid Fannie bonuses for trial modifications that lasted three months, but apparently provided no incentive to move those homeowners into permanent modifications. Under pressure to show that they could turn a profit after the massive bailouts of 2008 and continuing bailouts in 2009, Fannie Mae executives apparently focused on earning those bonus payments.

The result: very few permanent modifications.

Herron charges that Fannie Mae continued in headlong pursuit of “trial mods” knowing many had little chance of becoming permanent. As late as September 2009, barely one percent of trial modifications had converted to permanent modifications by the end of their three-month trial, a Congressional oversight panel found. Nevertheless, Fannie Mae preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications booked before the end of 2009.

As of February 2010, 83 percent of the one million active modifications being handled by HAMP were trials rather than permanent arrangements. The allegations suggest that the modifications resemble the sub-prime loan market prior to 2008. Government incentives pushed Fannie not only to prioritize trial mods over permanent settlements, but also to pull borrowers with no hope of rescue into the program in order to profit off of them.

Herron’s lawsuit accuses Fannie executives of “actively working against” the borrower. In fact, she alleges that Fannie was reluctant to move quickly in processing the modifications.
Small wonder that HAMP has turned into an embarrassing failure for the Obama administration. Although the President promised 3 million modifications, only now approximately 300,000 have been successful.

Roy Oppenheim
From the Trenches

First Time Homebuyer Tax Credit Extended Into 2010!
Plus…A New Tax Credit for Certain Existing Home Owners!

It’s official. President Obama has signed a bill that extends the tax credit for first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.

In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.

So Who Gets What?
The program that has existed for FTHBs remains intact with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.

Additionally, the program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Deadlines
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Higher Income Caps in Effect
The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.

First-Time Homebuyer Tax Credit – Frequently Asked Questions
Here are answers to some commonly asked questions about the tax credit.

What is a tax credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

What is the tax credit for first-time homebuyers (FTHBs)?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is eligible for the FTHB tax credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How do I claim the credit?
For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).

Can you claim the tax credit in advance of purchasing a property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

Are there other restrictions to taking the credit?
Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.

• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
• You do not use the home as your principal residence.
• You sell your home before the end of the year.
• You are a nonresident alien.
• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.

Can you buy a home from a step-relative and be eligible for the credit?
Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.

Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit?
Yes.

Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years?
No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.

]]> http://southfloridalawblog.com/2009/11/09/first-time-homebuyer-tax-credit-extended-into-2010-plusa-new-tax-credit-for-certain-existing-home-owners/feed/ 2 http://southfloridalawblog.com/2009/10/09/the-new-normal%e2%80%a6-nyt-reports-expect-four-million-more-foreclosures-despite-obama%e2%80%99s-mortgage-modification-policy/ http://southfloridalawblog.com/2009/10/09/the-new-normal%e2%80%a6-nyt-reports-expect-four-million-more-foreclosures-despite-obama%e2%80%99s-mortgage-modification-policy/#comments Fri, 09 Oct 2009 13:58:44 +0000 RoyOppenheim http://southfloridalawblog.com/?p=505

In today’s New York Times (10/9/09) the lead story in the Business section is: “In Trial Phase, Mortgage Bills Fall for 500,000. Is that supposed to be good news or news at all? I am not sure. I guess it depends on whether you think the glass is half full or half empty.

The reality is that by now the Obama administration had anticipated (or promised) about 5 million modifications: not 10 percent of that number!

So the real news is that Mark Zandi, chief economist at Moody’s and one of the top real estate prognosticators in the US is fully anticipating another 4 million foreclosures, as reported in the article today. Now I call that News. That’s right four million! Thus, one can expect at least 35% of those foreclosures to occur right here in Florida.

Further Peter Goodman, the NYT’s reporter failed to actually discuss the percentage decrease that occurs s in modifications or whether there was material principal reduction to date. Well I will tell you: the average successful mortgage modification is between 20%-22%. Little if any principal is reduced. Thus we can anticipate that many of these half million modifications will become part of the 4 million in foreclosure. In fact, based on prior studies, modifications without principal reduction lead to foreclosure half the time.

So don’t expect real estate values to start increasing any time soon as long as folks keep losing their homes. Yes, the economy is no longer in free fall and things are better than last fall: Stock market is rising, retail sales have stopped falling and job losses are decreasing. However, until people are employed and can afford their houses payments again and there are meaningful principal reduction or forbearance of underwater equity nothing much will change. The folks who brought us this mess: the politicians and regulators in Washington, the “bright minds” on Wall Street and the banks, will have to first realize that keeping people in their homes is better for them and for the rest of us too. Welcome to the New Normal.

From Deep in the Trenches,

Roy Oppenheim

Wall Street, One Year Later

The Times’s Andrew Ross Sorkin, Gretchen Morgenson and Joe Nocera recount the events of the weekend that Lehman Brothers failed and discuss the lessons learned from the financial crisis…

Borrowers stay in default … Regardless of Obama Modification Programs New Study Shows

As we have previously discussed about Florida real estate, the whole premise of the Obama Administration’s housing bail out response was to provide, Florida real estate borrowers, the opportunity to modify their loans and get back on track.  Based on prior studies, folks that fell behind typically self corrected or played catch up with their lenders about 25 percent of the time. And that was without any modifications. Thus, the Obama policy was simple: hope and pray that 25 percent of homeowners that fell behind would self correct and provide modifications to those who qualify thus eliminating the number of foreclosures clogging the courts.

Well the verdict is now in once again. According to the Wall Street Journal a study conducted by the well-known Fitch Rating Services concludes that the cure rate on loans is only about six percent! That is almost 75 percent less than expected. Oops… I guess the policy works minus a slight miscalculation. But it is simple to understand, prior research was conducted during a time when real estate prices fell at most 10-20 percent… not 30-60 percent.

What does this mean to Florida real estate? The prior studies never factored in what we call “strategic defaults” where homeowners decide to just stop paying because it no longer makes sense to keep paying. Plain and simple.

The Fitch study is compelling enough since it covers $1.7 trillion of mortgages. That is a sum that exceeds the amount of numerals on all my calculators in the house (except the I-Phone). But it says something else. It provides an insight into the fact that in all likelihood we will see many more banks fail and that the FDIC will soon need its own infusion of funds.

So, it will be back to the drawing boards for the government and Florida real estate buyers and sellers. Probably, we will see the many first-time home buyer credit programs extended since it has helped stabilize pricing in some areas.  Stable pricing is at the end of the day is one of the key ingredients to resolving the crisis along with folks having the jobs and income to pay their mortgages. This is just what Florida’s real estate market needs.

As for Florida loan modifications, I still believe it is better to do a “short refinance” or “short modification” and keep folks in their homes rather than allowing another house to go on the block.  It is illogical to understand why the Bank is willing to take the loss on a short sale or foreclosure, yet not willing to take the loss by keeping someone in their home at a lower principal amount. The systemic impact on the community is obviously more severe when a family is kicked out of their own home.

Clearly, only once modifications include meaningful principal reduction, will the cure rates improve. And guess what, you don’t need a new fancy study or high powered calculator to figure that one out.

Roy Oppenheim

From The Trenches

<–>

“We are writing to you as a participant in the Administration’s Making Home Affordable (MHA) program. As you are aware, the Home Affordable Modification Program (HAMP) under MHA is designed to help responsible but at-risk homeowners modify their mortgages in order to lower their monthly payments to sustainable levels and avoid foreclosure. This program is a critical part of our collective effort to stabilize the housing market and promote economic recovery.

Since we published our detailed guidance, we have started to see a significant ramp-up in the number of trial modification offers and trial modifications underway. However, much more progress is needed. There appears to be substantial variation among servicers in performance and borrower experience, as well as inconsistent results in converting trial modification offers into actual trial modifications. We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share.

In order to assess our progress under the program and improve the speed of implementation, we request that you designate a senior liaison, with whom you have regular contact and who is authorized to make decisions on behalf of you as CEO, to work directly with us on all aspects of MHA. We will invite this person to meet with senior Treasury and HUD officials on July 28 to discuss full implementation of the program. To prepare for that meeting, we ask that your liaison send us a letter by July 23, detailing specific steps that your organization will take towards effective implementation and compliance. Similarly, we invite you or your liaison to provide suggestions on ways that we can improve program design.

In conjunction with this meeting, we plan to take three important steps to improve the program’s performance. First, we will begin publicly reporting results under the program. By August 4, we will begin issuing monthly reports with servicer-specific performance measures, including the number of trial modification offers each servicer has extended to eligible borrowers, the number of trial plans that are underway; the number of final modifications, and eventually, the long term success of those modifications. The purpose of these reports is to provide a transparent and public accounting of individual servicer performance as well as overall program performance. We will discuss with you the content of these reports at the July 28 meeting.

Second, we will work with servicers such as you to set more exacting operational metrics to measure the performance of the program, such as average borrower wait time for inbound

borrower inquiries, the completeness and accuracy of information provided applicants, document handling, and response time for completed applications.

Third, in order to minimize the likelihood that borrower applications are overlooked or that applicants are inadvertently denied a modification, Treasury has also asked Freddie Mac, in its role as compliance agent, to develop a “second look” process pursuant to which Freddie Mac will audit a sample of MHA modification applications that have been declined. Freddie Mac will coordinate with servicers such as you to address specific cases that arise and to address general operational weaknesses where errors prove more systematic.

We are asking that all servicers expand servicing capacity and improve the execution quality of loan modifications in order to help the sizable number of homeowners at risk of foreclosure and eligible for the program. This will require adding more staff than previously planned, expanding call centers beyond their current size, providing an escalation path for borrowers dissatisfied with the service they have received, bolstering training of representatives, developing extra on-line tools, and sending additional mailings to borrowers who may be eligible for the program.

We are confident that together we can improve the speed and efficacy of the MHA program in a manner that is consistent with your aims as a leading financial institution.

Our shared goal must be to make the program as successful as possible in keeping Americans in their homes and providing stability to the housing market. With your continued help, we believe that we can achieve this goal.

Sincerely,

Timothy F. Geithner Shaun Donovan”

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/09/AR2009070902928.html

With about 6 million folks going to lose their homes to foreclosure this year, I have been repeatedly asked what kind of grade I give the Obama administration in addressing the foreclosure crisis during the first 100 days. I would say a B or B-. Let me explain.

On the one hand, there has been some improvement in the overall credit markets and we are seeing a lot more refinances at historically low interest rates. However, only about 2 in ten families will qualify to refinance this year. That means a whopping 80% will have to proceed on a different course.

The so called “mortgage modifications” so far have been a failure. 50% of all modifications end up in foreclosure. That is the current number. Because the servicers have little control over their obligations to their investors, it is cheaper and safer for them to foreclose.

Short sales have gone way up and it seems that the servicers are more likely to agree to a short sale than a modification where the investor takes a crew cut!

I have always described the “Obama plan” as a three legged stool:

1. Refis;
2. Modifications; and
3. the threat of bankruptcy judge telling the lender that the principal amount of the loan is being reduced or “crammed down” their throats due to the decrease in the property values.

Of course, to date the third leg of the stool does not exist since it got hung up in the Senate. That will not likely change due to the lobbying done by the banking industry. Ironically, it appears that some of the very tax payer bailout money is now being used to pay expensive Washington lobbyists to keep this bill from coming to the Senate Floor. How ironic! Thus it appears that the long sort after weapon that foreclosure defense attorneys were awaiting is remaining elusive and will continue to hinder our ability to get better results in our loan modification negotiations.

So, would I have given the President an A if the bankruptcy laws had actually been changed in these first 100 days???  You bet ya!!!

But enough of that… lets get back to the issues at hand. On March 4, the Obama Administration will release its details concerning how folks will be able to modify or refinance their mortgages. According to the Sun-Sentinel and Zillow.com, only about 17 percent of South Florida will have enough equity in their homes to refinance. Of course, those won’t be the people facing foreclosure.

You can’t be more than 5 percent underwater. In other words, if your outstanding mortgage principal balance substantially exceeds the value of your home, you will either have to hold on for dear life, do a short sale, or hope that your bank comes to its senses and realizes that a foreclosure is not the answer and will modify your loan by taking a principal reduction haircut.

In fact, we are seeing an entire new industry emerging. Former mortgage brokers, bankers, realtors, real estate attorneys, and appraisers are beginning to organize to assist homeowners with their loan modification needs, especially once the government’s program is announced on March 4, 2009.

In fact on March 5, 2009 we will be conducting one of our monthly free Florida Foreclosure Defense Workshops.
In the mean time, it appears the new government program will be of no use to you if you fall into one of the following categories:

• Investor Property
• Second Mortgages, Equity Lines
• Second Homes
• Jumbo Mortgages
• Too Little Income
• Too Much Income

So… continue to stay tuned! In the interim, continue to enjoy events like the Oscars as they provide a good escape.