Oversight Panel for Tarp
Releases Report / Highlights
Future Challenges for Housing
Administration Criticized for Loan Modifications
The full Report with loads of information concerning foreclosures is available by reading the link below:
Congressional Oversight Report on Foreclosures
Foreclosures Accelerating in Activity
Very interesting charts on page 9. Page 10 starts with the different waves of foreclosures and then finishes up with the next potential wave of foreclosures in the form of Option Arms, Negative Equity and Unemployment.
A Chart on negative equity by state can be found on Page 16. Nevada leads the way with over 50% of the homes estimated to be worth less then what is owed on the home.
Redefault Rates Loan Modifications
Of particular interest was a chart on page 63 that gives the statistics of home loans that have been modified and their re-default rates.
Is Money Being Wasted on Loan Modifications?
Statistical numbers right now don’t look too good for loan modifications. I don’t know how well they are working out because when home sellers come to me… they already tried a loan modification and were denied and then we do the short sale.
However.. the comment on page 73 of the report concerning JP Morgan Chase just reducing interest to a really low level and keeping the principle the same coincides with some of the loan modifications that I’ve come across that were simply smoke and mirror programs. (Reduced payments with negative amortization, temporary reduced payments, etc..) For the non savvy consumer, they may not realize that they are delaying the inevitable when you consider reports such as the one I highlighted concerning When Home Values will Return in Las Vegas done by Moody’s.
And… I’ve also come across potential short sale sellers who have no intention of keeping their home after the loan modification ends. The only reason why they are sticking with it is because it’s currently cheaper than rent but when their temporary reduced payments end (all the meanwhile the principle of what they owe is growing) they have every intention of doing a short sale or walking away if that does not work.
Is the Inevitable being delayed?
Looking over this report, you have to wonder if the billions of dollars being used are just delaying the inevitable and/or prolonging the correction. There are several suggestions on how to spend even more money along with several charts including the big Option-A reset charts showing all of the loans due to reset and go to higher payments. This is where you wonder if the over analytical with no actual experience of what is taking place in the trenches really knows what is going on out there.
Home Price Decline Protection Program
Starting on page 77 is an interesting suggestion on what appears to be a pay off for lenders to do loan modifications in hard hit areas to take on the risk in home values declining further and homeowners then walking away with the loss in equity. As I’ve seen in Las Vegas… loan modifications performed in 2008 just delayed the homeowners from making a move by doing a short sale or going to foreclosure later on as their equity declined. I’m not sure how payoffs to delay the inevitable are going to help in the long run.
Foreclosure Alternatives Program (FAP)
Page 78 goes into the incentives for lenders to work with homeowners when a loan modification cannot be performed and deals with short sales and deeds in lieu of foreclosure in order to avoid foreclosure since foreclosures tend to cost everybody (including neighbors) more. The program was announced on May 14th and included incentives for lenders to do the short sale, and even provides a payoff to encourage homeowners to pursue a short sale along with a standardized procedure for the short sale process. This program still has yet to be finalized. In my opinion… it’s the part of the report for suggestions that makes the most sense considering the big picture of what is taking place.
Unemployment Crisis Impact on Future Foreclosures
Page 106 — This is interesting how the report basically just comes out and states the Making Home Affordable (MHA) program was looking at past results and not future indicators. (Such as the charts provided earlier concerning all of the future Option Arms that are going to be resetting.) While the program might have worked in other areas.. I highlighted the Help for Homeowners Program for Las Vegas back when it was announced in February and questioned if it would work for Las Vegas. Obviously… I think I was right that it would do little to help Las Vegas Home sellers due to what was taking shape.
From the Report:
The Result is that MHA programs may not be adequate for the present and coming phases of the foreclosure crisis.
Is this an admission that real estate values are not getting better and the billions already spent have been a failure?
Here is an interesting quote from the article on page 107 where it appears that paying for mortgages of the unemployed is being suggested / proposed:
Unemployed Homeowners to have their Mortgages paid?
Dr. Willen certainly touches on something here. While much of the blame for the foreclosure crisis has been put on sub prime mortgages and exotic loan products.. the fact of the matter is that when High home values created by lax lending standards and easy credit…. job relocations, illness and loss of income can have a huge impact when people are mortgaged to the hilt and do not have a backup savings account. In other words.. it comes down to being debted out.
“Married to your Mortgage”is something that I learned long ago and basically this means telling clients you don’t want to be strapped out on your mortgage in case something happens. Worst case scenario… buy something with your means that can be rented out to cover your mortgage if something does happen and you don’t have enough equity to sell. Certainly something you could not do in Las Vegas mid 2004 through 2008 unless you put down a huge down payment.
This is an interesting suggestion for the benefit of lenders to pay the mortgages of people who have been laid off which I’ll assume is going to get really, really pricey for taxpayers. It may also just be delaying the inevitable since the promise of high paying jobs coming back anytime soon appears to be pretty slim in these days of bargain hunting.
Who is this Really Benefitting?
Perhaps my interpretation of who all of this really benefits is wrong but it appears that lenders and investors are the primary concern in this report. While it is extremely noble to come up with programs to keep homeowners in homes with loans they can’t afford… in the long run… it’s draining capital that could probably be better served elsewhere then what statistics are showing as just delaying the inevitable.
And honestly… I have yet to have a Las Vegas short sale seller contact me after doing a short sale regretting that they got out of a home to move forward in life. It’s been a long time since May 14th when the Foreclosure Alternatives Program (FAP) was announced and it’s not that difficult to come up with a program so people can move on in life.
However boring you found the report… it is a fascinating insight into what our elected officials are hopefully reading… and thinking as they spend the next trillion or two..
Paul Francis, CRS
Prudential Americana Group – Realtors®
Las Vegas Real Estate
702.592.3058
