Permanent loan modifications up 45% in Colorado

At the end of February, some 2,613 households in Colorado have been granted  permanent loan modifications, a 45.4 percent increase from the 1,797 at the end of January, shows government data. That is consistent with the total increase in the Obama Administration’s $50 billion Home Affordable Modification Program, or HAMP, which lowers mortgage rates as low as 2 percent in an effort to keep people out of foreclosure.

Last month’s  percentage increase in Colorado is smaller than the 68 percentage increase from December to January, when 1,072 households had received permanent loan modifications. 

In Colorado, the homeowners in the Denver-Aurora Metropolitan Statistical Area have received 1,660 permanent loan modifications so far. And 7,200 of the 11,700 households in Colorado who are participating in the trial program are from the Denver-Aurora MSA.  The Denver-Aurora  MSA accounts for 0.88 percent of the total HAMP activity. The Denver-Aurora area accounts for almost 70 percent of all of the permanent loans in Colorado.  Pueblo had the fewest number of homes in the program, with 312 in active trials and only 51  permanent loans.

Loan mods help housing heal

There are now enough homeowners in the Denver area with permanent loan modifications to help heal the local housing market, said Tom Cryer, a broker with the Kentwood Co.

“I am a free-market guy,” Cryer said. “And I do hate that this rewards bad behavior,” of borrowers not making the payments they promised when they took out the loan.

But Cryer said he thinks the vast majority of people who are trying to keep their homes today are doing their best  to be responsible and do the right thing under extraordinarily difficult circumstances. Many buyers took out loans they did not understand a few years ago, and have not been bailed out by rising housing prices, as they expected, he said. Instead, the $250,000 they paid for the home might only be worth $210,000 or less, at a time when they have lost their jobs or have otherwise suffered financially, he said.

“I think if you can do anything to keep people in their homes and encourage them to be productive and stable human beings, is well worth it,” Cryer said. “I think the unintended consequences of programs like this are less painful than some other ones. I think socially, politically and economically, it makes a lot of sense to keep people in their homes.”

Lowering foreclosure rates boosts neighborhoods

Cryer said if you have a neighborhood where 10 homes are facing foreclosure, and they owners can remain in their homes, the benefit goes far beyond those 10 families. It also means that if a neighbor is trying to sell a house, a foreclosed home is not being used as a comparable, which would drive down the prices of all the homes in the neighborhood. And that, in turn, will help local municipalities and local school districts preserve their property tax bases, he said.

The loan modifications will help stabilize housing prices, he said. And buyers in stabilized markets across the country will be willing to buy houses, while buyers will continue to stay away from markets still plagued by falling prices, Cryer said.

Lansing thrilled

Peter Lansing, president of Universal Lending, said he is “thrilled” by the number of loan modifications in the Denver area in Colorado. Overall, Colorado ranks No. 19 in the nation for loan modifications. (Universal Lending is a sponsor of InsideRealEstateNews.com.)

“I think it is great that more than 1,600 people in the Denver area have been probably saved from foreclosure, and we have another 11,000-plus in the system, who can potentially benefit.” Lansing said.

Lansing said one difficulty is loan servicers – banks and others whose traditional job has been to collect monthly mortgage payments and usually insurance and property taxes – now have the responsibility to determine who qualified for loan modifications.

“It’s very difficult for the servicers to triage the people who truly deserve help,” Lansing said. “Everyone, of course, would like to have a 2 percent mortgage payment. But just wanting to lower your payment is not a reason to qualify for programs like these.”

And both Lansing and Cryer worry that some people who have lost their jobs may not benefit from a loan modification, no matter how low their rates are dropped.

“Are you really doing anyone a favor if this is just delaying them losing their homes, anyway? I don’t think so,” Lansing said.

And Cryer said some homeowners are so deep underwater – that is, their loan is worth far more than their house – that they see no point in paying even a lower mortgage.

“Here is the anecdotal part,” Cryer said. “Suppose you have got a $200,000 mortgage and the home is now worth $170,000,” Cryer said. “Who cares if you are paying $1,500 a month or $1,000 a month? You are still paying on something that is totally upside down.”

Tough choices when you’re underwater

Also, because so many people are mobile, they have to weigh whether it is better to sell a home for a loss, or try to rent it out (for a loss) until the market improves. “I was just talking to a transferee who has been given a promotion by his company that requires him to move to Pittsburgh. Even though his company is paying his closing costs, he still will lose money on the house if he sells it. He’s trying to decide what to do.”

HUD counselors help

Shannon Peer, head of housing counseling at Brothers Redevelopment in Edgewater, has seen his earlier prediction that a huge percentage increase of conversions to permanent loans take place, even though the month-to-month percentage increase has slowed.

“Of course, we’d always like to see more permanent loan modifications, but 45 percent is still a big number,” said Peer, whose group runs the Colorado Foreclosure Hotline, 1-877-601-HOPE.

The number Peer said he will be watching closely is the number of households entering the trial program, which has not been growing as rapidly as the conversion to permanent loans.   “And as of June 1, there are going to be some new guidelines in place -people in the trial program are going to be basically have to be pre-qualified for the permanent loan modifications,” Peer said. “So it will be interesting to see what change that has on the numbers of people entering the process. I anticipate that we will continue to see big percentage increases from active trials to permanent loan modifications, especially now that there is a pretty big pool of people in active trials.”

Peer said that some critics have said that the number of loan modifications “is only a drop in the bucket”, and there are not enough of them to be helped. But I think more and more lenders are willing to do some kind of workout that is good for the borrower and the mortgage company.”

He said that many distressed homeowners who call the foreclosure hotline think that a loan modification is the only option. But he said a HUD-approved counselor can walk them through a variety of options, some that may be more realistic and be more appropriate for some individuals. And if a person has tried to get a loan modification on their own with no luck, he said counselors can often help them maneuver around “road blocks” with their lenders. “They can tell them about potential pitfalls and make sure they have all of the needed documents,” Peer said. There is no charge for HUD-approved counselors, such as those who respond to hotline calls.

“Every situation is unique,” Peer said. “That is why our counselors approach it one homeowner at a time.”

National snapshot

Nationally, 168,708 households have received permanent loan modifications, and another 91,843 have permanent modifications pending. At the end of February, 835,194 households were in trial modifications. So far, 88,663 modifications have been canceled. The median savings for those receiving a permanent modification is $518.88 a month, or 36 percent of the median before-modification payment.  So far, the more than 1 million households in either the active trial stage or who have received permanent modifications have saved more than $2.7 billion.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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