Colorado loan modifications rises 68%

The number of Colorado homeowners who have received permanent loan modifications remain small,  but the percentage increase is huge.

The  U.S. Department of the Treasury and the  Department of Housing and Urban Development  today released January data for the Obama Administration’s Home Affordable Modification Program (HAMP), which showed that a total of 1,797 homeowners in Colorado so far have received permanent loan modifications. Colorado ranked No. 20 in the nation for the number of permanent loan modifications, which the government hopes will keep homeowners out of foreclosure.

Huge percentage jump

The January figures marks almost  a 68 percent jump from the 1,072 permanent loan modifications that had been made in Colorado by  the end of December.On a national basis, 116,297 permanent loan modifications have made made, nearly doubling the December tally, according to the government. In total, almost 1.3 million offers have been made for trial plan offers, which are required before the loans can be made permanent. In Colorado, there have been 11,708 trial modifications.

Earlier, when I blogged that there had been 1,072 loan made through December, Shannon Peer, the director of counseling at the non-profit Brothers Redevelopment in Edgewater, predicted that the numbers would grow quickly, as servicers and lenders geared up to better handle the large number of homeowners with distressed properties that are seeking help. Servicers typically collect the monthly interest and principal payments on mortgages, but in most cases are not the investors in the mortgage securities.

The exponential increase in people being helped likely will continue, he said.

Counselor saw it coming

“This is what I anticipated happening,” Peer said. “The numbers should continue to grow. It will help. The numbers are moving in the right direction.”

He said he recently met with Bank of America officials, and they are “putting in place steps,” to have servicers send documents using computers, rather than faxes, which should largely mitigate the lost documents that so often delay the process. A frequent complaint of homeowners is that loan packaged and documents they send to their lenders are lost, delaying and sometimes scuttling, any hope of locking in a low mortgage rate and longer amortization terms that would allow them to keep their homes.

But the numbers are still too low in Colorado to make a real dent in the foreclosure crisis, said Byron Koste, director of the Colorado Real Estate Center at the University of Colorado Boulder.

Numbers still too low

“It’s easy to have high percentage increases when you start with low numbers,” Koste said. “You have to be careful not to mislead people. I am glad that the number of people being helped is going up, but it is still not nearly enough.”

Koste noted that Kiernan Conway, of the Federal Reserve Board in Atlanta, who will be the keynote speaker at a Colorado Real Estate Center-sponsored conference in downtown on March 2, noted that at least 10 percent of the troubled loans must be modified to make a difference. In a recent speech, Conway pointed out that despite loan modifications, the number of foreclosures continue to rise.

Koste said probably around 1 percent of the troubled loans in Colorado and across the nation have been modified.

“Nationally, if instead of 100,000 we had 700,000, it would start to do some real good,” Koste said. “But what we really need is 20 percent or 30 percent of the loans being modified. If we could do 20 percent a year, we could work our way out in five years. But that’s not going to happen. Loan modifications are not the answer.”

Banks lack incentives

For one thing, banks have disincentives, but few incentives, to modify loans. Koste noted that in 1933 Congress adopted the Home Owners’ Loan Act, which awarded $770 million to the thrift industry to help deal with borrowers who could not repay their loans. He said that worked much better than many people anticipated. It wasn’t until the de-regulation of the thrift regulation in the 1980s, which led to irresponsible lending by savings and loans, that led to demise of much of the once mighty S&L industry. Colorado was one of the hardest states hit by the S&L debacle, as it included the former Silverado Savings and Loan, which ended up costing taxpayers more than $1 billion.

“I don’t know if something like that is the answer, but I do know that we can’t just keep putting Band-Aides on the problem – it’s too deep for that,” Koste said.

He said that creating more high-paying jobs will help a great deal, but he said higher interest rates also are needed.

“I know it is heresy to say that,” Koste said. “You and I like low interest rates. But that is not the solution.” Indeed, unrealistically low mortgage rates were  a large part of the problem that created the housing bubble that created the first nationwide housing collapse in the U.S. since the Great Depression, he said.

Risk-reward ratio out of whack

“Basically, we had unreasonably low interest rates, where people were being promised unreasonably high returns, based on what we thought was the underlying value of the asset,” Koste said. “That is just not sustainable.”

But he said the cost of the money has to correlate with the expected return.

“We made it very easy for everyone to get a loan to buy a house, which we thought just would keep appreciating,” Koste said. “But what we teach here and what we know to be true, is that the cost of the money needs to reflect the cost of the expected return. If you want basically zero-percent money, go live in Japan. They’ve had money at basically zero now,” and has one of the worst economies, as measured by investment returns, in the world.

Levine: More questions than answers

Mark Lee Levine, director of the Burns School of Real Estate and Construction Management, Daniels College of Business, University of Denver, said there are many unanswered questions.

“It’s not enough to just know the statistics as far as the number of workouts, but what do they mean by loan modifcations? Are they reducing the principal in addition to the interest rate? Are they demanding more collateral? The number of years of amortization? What is the size of the loans being modified?”

Also, Levine said that he hopes banks are doing their due diligence to make sure the homeowners receiving modifications will not lose their homes even after they get better terms

“In broad terms, people tend to face foreclosure either because they have lost their jobs and do no longer have the required income, or some outside event, such as a large medical expense occurred,” Levine said. “If a person doesn’t have a job that pays enough to cover even the lower mortgage, why bother spend all the time and effort modifying it, if the home is likely to go into foreclosure anyway. But there may be some people whose spouse still works or their job prospect brightens, or they no longer have the expense of a one-time occurrence, who can be helped.”

In any case, something needs to be done, both for homeowners and on the commercial real estate side, he said. “I just came back from a think tank discussion on that topic,” Levine said. “If something isn’t available, a lot of commercial real estate owners are just going to mail their keys back to the lenders and say, “Now it’s your problem.” The same is true for homeowners.”

Still, overall, the government is pleased with the growth of HAMP.

“With nearly one million homeowners paying less each month and the number of permanent modifications steadily rising, HAMP is doing the job it was designed to do,” said Phyllis Caldwell, Chief of Treasury’s Homeownership Preservation Office, said in a statement.”Struggling families are receiving payment relief and the housing market is showing signs of stabilization.”

Mortgage modifications are one piece of the Obama Administration’s broader housing market stabilization plan. Other efforts include support for lower mortgage rates and access to credit, state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, and support for mortgage refinancing. One year since President Obama announced the Homeownership Affordability and Stability Plan, more than 4 million homeowners have refinanced their mortgages to more affordable levels, interest rates are at record lows, home prices and home sales are rising again and the economy is growing, the government said.

Obama Administration remains hopeful

“As the number of permanent modifications grows, HUD will continue to work with our Administration partners and utilize our broad network of housing counseling agencies to increase those numbers still further,  said William Apgar, HUD’s senior advisor for mortgage finance.

HAMP is the most ambitious government program of its kind – reaching far more homeowners than any previous program has ever attempted. Less than a year after its launch, the program is providing significant relief to struggling families, according to the govenment.More than 940,000 homeowners currently have reduced monthly mortgage payments with a median savings of more than $500. That is an aggregate savings of more than $2.2 billion.

With nearly 1.3 million trial modifications offered already, the program is on pace to meet its overall program goal of providing 3 to 4million homeowners the opportunity to stay in their homes, according to government projections.

John Rebchook can be reached at JRCHOOK@gmail.com or 303-945-6865.

Share this:

Related Posts:

• Only 1,072 permanent loan modifications in Colorado
• Loan modifications could help thousands in Colorado
• HAMP activity continues to fall
• Loan mods fall 23%
• Loan-help pipeline drying up