Administration Weighs More Foreclosure Aid

Homes Could Be Rented Under Proposal

July 17, 2009 - By Renae Merle - Washington Post Staff Writer

A top Treasury Department official told a Senate panel yesterday that the government is considering a proposal to allow homeowners to stay in their home as renters after a foreclosure. If enacted, the plan would attempt to address the glut of vacant properties in neighborhoods across the country, helping drag down home values. It would be yet another acknowledgment by the Obama administration that some borrowers cannot be saved from foreclosure despite government and industry efforts. more ...

An editorial and two responses to Gretchen Morgenson’s column

An editorial in this past Sunday's New York Times urges the Obama administration to do more to address the foreclosure crisis. Also, here are links to two interesting responses to Gretchen Morgenson’s column asking why there have been so few modifications:

Why So Few Mortgage Modifications? by Zubin Jelveh, The New Republic
Making Home Affordable Is … Not by Tim Fernholz, The American Prospect

So Many Foreclosures, So Little Logic

An article in today's New York Times reports that foreclosures are picking up speed. That's not a surprise. But what is surprising is that many lenders are apparently neglecting less expensive alternatives to foreclosure, alternatives such as loan modificaitons. When it seems to make greater economic sense to keep borrowers in their homes paying a reduced amount, than it does to toss them out and wind up loosing tens of thousands of dollars more, why aren't lenders selecting the less expensive alternative?

The article reports on a recent study of 3.5 million subprime loans in securitization pools overseen by Wells Fargo. The analysis showed that, among recent foreclosures from that pool, the average loss was 64.7 percent of the original loan balance; a staggering $144,000 loss on the average $223,000 mortgage.

This is much higher than the roughly $60,000 loss per foreclosure that others have estimated (see previous post). One explanation for the difference might be the recent study's focus solely on subprime loans. Another explanation could be the rapid decline in home values since the earlier estimates were calculated, a decline which means greater losses when homes are foreclosed.

Regardless of whether the loss per foreclosure is $60,000 or $144,000, the basic premise is that lenders have a lot of room to restructure loans and reduce borrowers' monthly mortgage payments -- and still end up in a better economic position than they would at the end of a long and costly foreclosure process. Why aren't more loans being modified?

The full artcile is available here.

A typical foreclosure costs the lender $60,000

A policy paper released last year by the Mortgage Bankers Association, an industry trade group, provides a useful summary of the significant costs borne by participants in the foreclosure process--with a focus on the lenders. While costs for individual loans vary widely, the paper cites research estimating that foreclosing a loan costs the lender nearly $60,000, on average. Other research estimates the cost to the lender somewhere between 30 and 60 percent of the outstanding loan balance.

Further reading:

Mortgage Bankers Association, Lenders’ Cost of Foreclosure, a policy paper prepared for the Congressional Education Series Briefing (May 28, 2008).

Darryl E. Getter, Understanding Mortgage Foreclosure: Recent Events, the Process, and Costs, Congressional Research Service Report for Congress (November 5, 2007).

Desiree Hatcher, Foreclosure Alternatives: A Case for Preserving Homeownership, Profitwise News and Views, published by the Federal Reserve Bank of Chicago (February 2006)

Karen M. Pence, Foreclosing on Opportunity: State Laws and Mortgage Credit, Board of Governors of the Federal Reserve System (May 13, 2003)

Amy Crews Cutts and Richard K. Green, Innovative Servicing Technology: Smart Enough to Keep People in Their Houses?, Freddie Mac Working Paper #04-03 (July 2004).

Obama Administration Expands Home Refinancing Program

July 1, 2009 - By Renae Merle - Washington Post Staff Writer

The Obama administration announced today an expansion of a key part of its foreclosure prevention program to allow more homeowners who owe more than their home is worth to refinance into lower-cost mortgages.

The effort is an acknowledgment by the administration that falling home prices limited the impact of its housing program, Making Home Affordable. Under the program, homeowners could refinance if their mortgage did not exceed the value of their home by more than 105 percent. Now, the administration is expanding the program to homeowners who are up to 125 percent underwater on their loan. more ...

Community banks involved in relatively few foreclosures

An investigative report by the Green Bay Press-Gazette shows that, of all foreclosures filed in Brown County, community banks are involved in only a handful. The paper’s research found that Wells Fargo was involved with 69 of 498 foreclosure filings in 2008 (13.9%), the highest of any single financial institution. The financial institution with the next highest number was Deutsche Bank with 38 filings (7.6%). US Bank was third on the list, with 33 filings (6.6%). The report makes no mention of the volume of loans made or serviced by national banks as compared to community banks.

The full report is available here.

The findings are similar to those in a report commissioned by Community Bankers of Wisconsin, an industry trade group, released in August of last year. The Community Bankers’ report found that, of the top dozen financial institutions commencing foreclosure actions in Wisconsin--accounting for 67% of all actions filed--all were headquartered outside the state. During the first half of 2008, the top five were Wells Fargo, US Bank, Deutsche Bank, Countrywide Home Loans and JP Morgan Chase Bank.

The full release is available here.

Marion: Former judge and PSC official now working to ease foreclosure mess

June 19, 2009 - by Brian E. Clark - For WisBusiness.com

Ed Marion, former state Public Service Commission general counsel and administrative law judge, lauds Iowa County Judge (and former Madison mayor) Bill Dyke for instituting a mediation program in his county.

“Judge Dyke is the first and I believe the only Wisconsin judge who has instituted a mandatory form of foreclosure mediation program that requires people who are faced with foreclosure and lenders to sit down with an attorney mediator and try to mediate a resolution,” he says.

Marion, who's helping with the effort, says the first foreclosure mediations started in June. He notes Milwaukee and Dane County judges are considering similar programs. more ...

9% of all Wisconsin borrowers are in trouble

A quarterly report issued by the Mortgage Bankers Association earlier this year revealed that nearly 9% of Wisconsin borrowers are in trouble: 5.75% of residential mortgage loans in the state were delinquent (at least 30 days past due) as of March 31 and an additional 3.11% were in foreclosure. Nationwide figures showed a record number of borrowers in distress: the delinquency rate was 8.22% and the foreclosure rate was 3.85%, a total of more than 12%. The situation is not likely to improve until unemployment stops rising, the report concludes. With unemployment not expected to peak until mid 2010, the performance of mortgages is unlikely to improve much until after that.

Press release from Mortgage Bankers Association
Milwaukee Journal Sentinel Report

Local Bank, Sheriff's Office Work To Cut Down Foreclosures

June 19, 2009 -- WFMZ

MONTGOMERY COUNTY, PA--It's a partnership that could give a lot of homeowners some peace of mind: Chase Bank and several county sheriffs are working together to cut down on foreclosures. As WFMZ's Stephanie Esposito reports, those sheriffs are now delivering good news, instead of delinquency notices.

more ...