Troubled Asset Relief Program

Treasury Done ‘Very Little’ to Fix Gov’t Foreclosure Prevention Program, Says Watchdog, by Marian Wang, Propublica.org

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Making the argument that the Treasury Department has done “very little” to improve a foreclosure prevention program that has failed to meet its goals, the government’s TARP watchdog testified at a hearing on Wednesday that the case for keeping the program alive has worn thin and is “all but exhausted” .

We’ve documented many of the major weaknesses in the government’s loan modification program—not least of which is its failure to hold banks accountable for withholding permanent loan modifications from struggling homeowners that the program was intended to help.

House Republicans are now considering a bill to end the troubled program. As the Washington Post reports, consumer advocacy groups have argued for fixing the program rather than ending it at a time when so many homeowners still need housing help.

That’s also what the program’s watchdogs have advocated—though they’re now voicing doubts that Treasury will make any meaningful fixes.

“Treasury, it seems, stands alone in defending the status quo,” testified Neil Barofsky, the special inspector general for the TARP program. Barofsky noted that last month, a Treasury official attended a Mortgage Bankers Association conference to discuss enhancements to the loan modification program and said there would be no “major new programs coming out.”

“We may tweak around the edges,” HousingWire reported the official as saying.

The Treasury Department has continued to defend the program, arguing that while the program has fallen short of its goals, it has still helped modify about 600,000 mortgages. Ending the program, Treasury has argued, would hurt the housing market.

“It would cause a huge amount of damage to a very fragile housing market and leave hundreds and hundreds of thousands, if not millions, of Americans without the chance to take advantage of a mortgage modification that would allow them to stay in a home they can afford,” Treasury Secretary Tim Geithner said yesterday.

Geithner may be right about one thing. As our data shows, by the end of last year, the program had given nearly 1.5 million households “a chance” of a mortgage modification through a trial modification. For most, that chance never turned developed into permanent help.

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The Obama Foreclosure Relief Package What it Contains and How to Determine If You Qualify, Expertforeclosurehelper.com

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On Wednesday, February 18, President Obama unveiled his administration’s latest attempt to stabilize prices in the housing market and help stop the rising tide of foreclosures. Will this plan be any better than the half-dozen that the Bush administration passed? With a $275 billion price tag, we should expect the foreclosure problem to be resolved, but this latest bailout act seems to be just another way to avoid helping homeowners.
As with the FHA Hope for Homeowners Act, Obama’s newest plan is simply out of the financial reach of many homeowners. The requirements are quite strict, which should have been no surprise when the president announced a longer list of people who would not be helped by the plan than who would receive assistance. But taking hundreds of billions of dollars away from homeowners, employers, and everyone else to avoid helping people will not promote economic recovery.
As the government spreads pain and misery around the economy, redistributing poverty from the banks to the rest of us, homeowners may not want to put too much hope in this latest plan. But for those interested in having another government-sponsored program to stop foreclosure, the following is a list some of the requirements to qualify for the plan.
To qualify for a foreclosure refinance loan from the government at a fixed rate of around 4-5% for 15-30 years fixed, all of the following requirements must be met:
  • The loan must be a conforming loan under Fannie Mae and Freddie mac guidelines.
  • The mortgage must be owned by either of the Government Sponsored Enterprises, Fannie Mae or Freddie Mac.
  • Alternatively, the loan may have been sold by Fannie Mae or Freddie Mac in a mortgage security.
  • The homeowners are not currently behind on payments or have a history of on-time payments.
  • The homeowners must continue to pay any second mortgage on the property even after the refinance.
  • The first mortgage on the house must not be more than 5% of the fair market value of the property, or it must be written down to that amount. For example, if the house is worth $100,000, the first mortgage may not be more than $105,000.
Looking at this list of requirements, it will become apparent that many, many homeowners will not qualify for this program with current housing market declines. Borrowers with 80/20 loans whose home values have fallen under the amount due on the first mortgage will have to keep paying on the second mortgage, as well as either pay down the first or have the bank agree to reduce the balance due.
And this program is voluntary for banks who have not received federal bailout money from the Troubled Assets Relief Program (TARP). While most of the big banks have received funds, many smaller regional banks have not — and these banks may not be willing to write down the value of their loans by 10-20%. Writing down the value of bad mortgage securities is what has caused so many paper losses on bank balance sheets already; it is inconceivable that many struggling banks will want to admit to even more.
There is also a second part of the bailout plan that may allow homeowners to qualify for a government-guaranteed mortgage modification program. This involves the bank modifying the loan to be within 38% of the borrowers’ gross income and the government stepping in with money to help reduce the payment to 31%. The requirements for this part of the plan are the following:
  • The mortgage must be conforming under Fannie and Freddie guidelines — jumbo loans are not permitted.
  • This program must be done on a principal residence — investment homes, second homes, or vacation properties do not qualify.
  • The homeowners must be in danger of default on the loan or have already defaulted. In danger of default can be a mortgage where the payment is more than 31% of the borrowers’ gross (before tax) income.
  • The lender must be willing to modify the mortgage to reduce the homeowners’ monthly payment to 38% of their gross income or less.
While the new bailout program gives banks more incentives to negotiate with borrowers, it may not give enough to convince banks to change their normal business practices and dedicate more resources to helping homeowners. As mentioned above, participation is voluntary, except for banks that have received TARP money and Fannie Mae and Freddie Mac, which are under government conservatorship.
Does the plan go too far? Some critics point out that using taxpayer money to bail out failing banks or failing individual borrowers will only create more moral hazard in the future. Once debts are paid back or discharged and banks loosen up lending, there will be a strong incentive to reinflate a housing bubble, especially in the presence of low interest rate targets set by the government. A new bubble and collapse will send all of the same players back for more government bailouts.
Or does the plan not go far enough? Other critics point out that this is not nearly enough money that the government is taking away from taxpayers to bail out the housing market. Property values fall for everyone in areas hard hit by foreclosure, so it is in everyone’s best interest to do whatever it takes to prevent more foreclosures, or so the argument goes.
In either case, the full details of the plan will be released on March 4th, which gives all of us a week to contemplate how the government’s latest bailout plan will save the housing market. Unfortunately, previous plans have failed to assist many borrowers, and this plan seems to offer little in the way of really novel proposals. For most homeowners facing foreclosure, it will probably be best to keep looking at other options, in addition to considering receiving mortgage assistance from the federal government.
The ForeclosureFish website has been created to provide homeowners in danger of losing their properties with relevant and importantforeclosure help and advice. The site describes various methods that may be used to save a home, such as foreclosure loans, mortgage modification, filing bankruptcy (Chapter 7 or 13), and more. Visit the site to read more about how to save a home, what options may be applicable in your situation, and how to recover afterwards:http://www.foreclosurefish.com/
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U.S. Justice Dept. probing foreclosure processes, Yahoo.com

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WASHINGTON (Reuters) – The U.S. Justice Department said on Wednesday it was probing reports the nation’s top mortgage lenders improperly evicted struggling borrowers from their homes as part of the devastating wave of foreclosures unleashed by the financial crisis.

Amid mounting political outrage over the U.S. mortgage mess, key members of U.S. congressional banking committees joined calls for probes into the foreclosure activities of banks accused of tossing homeowners out without proper review.

At least three banks have already halted eviction proceedings, and various lawmakers have called for an industry-wide moratorium on home repossessions until the problems are fixed. Attorney General Eric Holder said the Justice Department would look into media reports that loan servicers improperly have used “robo-signers” to push through thousands of foreclosure orders.

Holder’s move, and the rising chorus of fury among lawmakers, comes ahead of November congressional elections and takes aim at one of the most visible signs of the U.S. economic crisis as hundreds of thousands of families have lost their homes as unemployment surged.

The moves on foreclosures risk further slowing the U.S. economic recovery, leaving banks unsure whether they will ever claw back losses and the housing market overshadowed by a mounting inventory of homes still likely to face foreclosure in future.

U.S. House of Representatives Speaker Nancy Pelosi and fellow Democrats wrote to Holder earlier this week asking the Justice Department to look into banks’ actions after receiving reports from thousands of homeowners about their foreclosure woes.

On Wednesday, the lead Republican on the Senate Banking Committee, Senator Richard Shelby, called on federal regulators to review the foreclosure practices of JPMorgan Chase and Co (JPM.N), Bank of America Corp (BAC.N) and Ally Financial Inc, formerly known as GMAC, and said a congressional investigation should also be started.

Two senior Democratic members of the House Financial Services Committee also said it was time to examine whether the banks broke the law based on their participation in the law that governed the Troubled Asset Relief Program, the $700 billion bailout of financial firm.

“The American people helped out these companies and the least they deserve is a guarantee of due process and fairness,” Representatives Luis Gutierrez and Dennis Moore said.

Banks are expected to take over a record 1.2 million homes this year, up from about 1 million last year, according to real estate data company RealtyTrac Inc.

Federal and state officials have pushed to suspend foreclosures after reports that banks signed large numbers of foreclosure affidavits without conducting proper reviews.

Banks and loan servicers, companies that collect monthly mortgage payments, reportedly have used “robo-signers” — middle-ranking executives who signed thousands of affidavits a month claiming they were knowledgeable of the cases.

Separately on Wednesday, Wells Fargo & Co (WFC.N) agreed to pay eight states $24 million after allegations of deceptive marketing practices at its home loan unit. The firm said it would also alter its foreclosure prevention practices that could benefit struggling homeowners by more than $700 million.

Wells Fargo Home Mortgage‘s chief financial officer, Franklin Codel, told Reuters that his unit did not cut corners to speed the foreclosure process. He said he was “confident that the paperwork is being properly produced.”

STATES TAKE ACTION

The issue on improper handling of foreclosures came to the fore last month when Ally Financial said officials had signed thousands of affidavits without having personal knowledge of borrowers’ situations.

Ally suspended evictions and post-foreclosure proceedings in 23 states last month, followed by similar moves by JPMorgan Chase & Co and Bank of America.

The foreclosure issue and the battered state of the U.S. housing market have weighed on the Obama administration ahead of the November congressional elections in which the Democrats already face the possibility of big losses.

Any broader push to solve the foreclosure crisis, such as the wholesale forgiveness of principal debt of struggling homeowners, is unlikely to find support among lawmakers because of the cost and the potential for political backlash from any move seen as rewarding reckless behavior by banks or borrowers.

The focus on bank procedures has thrown a new twist into the saga.

North Carolina Attorney General Roy Cooper on Wednesday became the latest state official to ask lenders to suspend home repossessions as he probes foreclosure practices.

Democratic Senator Robert Menendez earlier this week raised the idea of a national foreclosure moratorium.

Ally Financial and its GMAC Mortgage unit also were targeted by Ohio’s attorney general, Richard Cordray, on Wednesday, who announced a lawsuit alleging fraud and violations of Ohio’s consumer law.

Cordray also said he has sought meetings with Citibank (C.N), Bank of America, JPMorgan Chase and Wells Fargo to try to ascertain whether their foreclosure processes include any of the “mass” signing of official papers that are the subject of the suit against GMAC Mortgage.

Gina Proia, a spokeswoman for Ally Financial, said there was nothing fraudulent or deceitful about GMAC Mortgage’s practices. She said the company will “vigorously defend” itself, and expects to be fully vindicated by the Ohio courts.

GMAC Mortgage said in a statement it “believes there was nothing fraudulent or deceitful about its foreclosure practices. If procedural mistakes were made in the completion of certain legal documents, GMAC Mortgage reacted proactively to the issue and immediately undertook steps to remedy the situation.”

(Writing by Corbett B. Daly and Andrew Quinn; Editing by Leslie Adler)

 

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