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.

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The ranking is a marked improvement from just a few years ago, when Colorado’s foreclosure rate was leading the nation, according to RealtyTrac, the Irvine, Calif.-based company that released the report. In 2006, Colorado was No. 1 for the most of the year. In 2007, it was usually ranked in the top three.  Even as foreclosure rates soared in other states, surpassing Colorado’s rate, the state was typically on RealtyTrac’s top 10 list.

1 out of 428 households in foreclosure

For January, one out of every 428 households in Colorado was in some stage of foreclosure, compared with the overall U.S. average of one out of every 409 households. And while the national foreclosure rate dropped 9.67 percent from December, Colorado’s dropped by 16.31 percent.   Some 5,029 homes were in some stage of foreclosure from the first Notice of Default to REO (Real Estate Owned) when the bank takes over the property following a public trustee auction, according to RealtyTrac, which collects and sells real estate data.

Colorado holding its own

Ryan McMaken, spokesman for the Colorado Division of Housing, which is last week released its own foreclosure report, using a different methodology, said it makes sense that Colorado has a lower foreclosure rate than the national average, ” given the unprecedented growth in foreclosures in places like Florida, California, Arizona and Michigan.  Colorado simply wasn’t able to keep up with those places when it came to new foreclosures.”

Also, Colorado’s unemployment rate is lower than the national average of just below 10 percent.

“Now employment is the driving factor, and since Colorado has a better unemployment rate than the national average, I expect to see foreclosures here continue to fall behind the national rate,” McMaken said.

Still, “we shouldn’t be smug, of course,” he added. “There’s still no positive job growth in Colorado and we have yet to see what will happen when the home buyer tax credits finally expire,” later this year.

For the entire nation, there were 315,716 properties in January in some stage of the foreclosure process, according to RealtyTrac. REO activity nationwide was down 5 percent from the previous month, but up 31 percent from January 2009; default notices were down 12 percent from the previous month, but up 4 percent from January 2009; and scheduled foreclosure auctions were down 11 percent from the previous month, but up 15 percent from January 2009.

Foreclosure surge may be coming

“January foreclosure numbers are exhibiting a pattern very similar to a year ago: a double-digit percentage jump in December foreclosure activity followed by a 10 percent drop in January,” said James J. Saccacio, chief executive officer of RealtyTrac “If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose onsdelinquent loans where neither the existing loan modification programs or the new short saleand deed-in-lieu of foreclosure alternatives works.”

Nevada was ranked No. 1, with one out of every 95 homes in some stage of foreclosure. Nevada has had that dubious honor for 37 consecutive months. California, Florida and Arizona posted the three highest state totals in terms of properties receiving foreclosure filings in January, and together those states accounted for more than 44 percent of the national total.

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

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The statewide hotline on Tuesday, which was launched in October 2006, broke the 100,000 barrier on Tuesday. It has been averaging 180 calls per day. Hotline staff members have seen call volume rise exponentially. It really took off in late 2007.

“Our calls have increased by more than 60 percent in the past two years,” said program manager Stephanie Riggi. “And with new programs in place that promote the hotline, like last year’s house bill 1276, we continue to see high call volume each month.”

The hotline receives between 3,500 and 4,000 calls each month, a pattern that began and held in August 2008 after the implementation of HB 1276, the foreclosure deferment bill. Homeowners who may be eligible for the program are notified via posting on their property. The posting directs homeowners to the Hotline in both English and Spanish.

Riggi and hotline staff use call volume numbers to measure public awareness of the Hotline.

“One hundred thousands calls doesn’t mean 100,000 people have utilized our services,” she explained. “About 20 percent of people who call the hotline come in for a counseling session. But it does mean that we’re continuing to reach a larger population.”

Despite continual rises in call volume, the Hotline and its 26 non-profit HUD-approved partner agencies have handled the increase. Of those callers who choose to meet face-to-face with a Hotline counselor and complete the counseling process, 80 percent reach a positive resolution. Positive resolutions include but are not limited to loan modifications, refinancing, and selling the property.

“Homeowners should not be ashamed to reach out for help,” Riggi said. “Our services are free and confidential. Concerned homeowners are calling us, they’re meeting with housing counselors, and they’re finding those options that work best for them.”

To schedule an appointment with a housing counselor, call 1-877-601-HOPE (4673). For more information, visit this link.

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

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

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Nationally, about 650,000 people have been given trial loan modifications, as part of the administrations’ $75 billion foreclosure-prevention plan, but few of those have been converted into the permanent loan reductions.

“I do not think Colorado is driving this debate – it is being driven by bigger states with even bigger problems with this issue,” said Ryan McMaken, spokesman for the Colorado Division of Housing.

“But the reality is that it would have to help thousands of people in Colorado,” McMaken added. He noted about 12,000 new foreclosure filings in the third quarter state-wide, and “at any given time, there are probably in the neighborhood of at least 15,000 people in the process.”

Still, it is hard to get an estimate on a more precise number.

“I have no idea,” said Shannon Peer, director of housing counseling at the non-profit Brothers Redevelopment in Edgewater.

Peer said he is in favor of anything that allows people to keep their homes, “as long as it is a long-term fix, and not a short-term fix.”

He noted that the “original plan was to get homeowners approved so if they could make three payments at the lower interest rate, they would then do the modification on a permanent basis,” Peer said. “There has just been some problems getting those temporaries into permanents.  Getting people into the temporary loan modifications took longer than we would have liked to see, and now getting them into the permanent loans is taking longer than we would like.”

If Michael Gunstanson and his wife, Dru, can get a permanent loan modification, they could see their monthly loan payment on their Lakewood home drop almost 44 percent to $950 from $1,690. They have been making monthly payments of $1,090 under the trial program, but J.P. Morgan Chase has not yet converted it to a permanent reduction. And the permanent program would carry an initial rate even lower than what they were paying under the temporary program.

“We’re kind of between a rock and a hard place,” said Gunstanson, an out-of-work journalist, who picks up the  freelance work whenever he can.

He said he is dealing with both “loan modification people and foreclosure people,” at  Chase, and he’s not sure the two sides talk to each other.  He’s already had to re-submit all of his documentation, such as two years of W-2 forms, because the lender can’t find the original documents, he said.

“Because we were 90 days past due, they put us on this modification program, which is supposed to stop the foreclosure,” he said. The loan modification side wants him to stop making payments until February, while he worries if he does that, the other side of the bank may foreclose.

But he supports the efforts to speed the process, which could include fines for loan servicers that do not make enough permanent modifications quickly.

“It would do two things for me,” he said. “First, it would make it easier for me to afford the monthly payments while I look for work here and until the economy improves. Second, if I’m able to find a job in Florida, for example, it would allow me to rent my house out and not lose it.”

Still, it is questionable if people with no jobs will be helped by loan modifications, said McMaken of the housing division.

The first round of foreclosures were caused by bad loans, but the current wave of distressed homeowners is being driven by people losing their jobs, he siad.

McMaken said he has seen statistics that the “recidivism rate” – the number of people who get their loans modified, but still end up in foreclosure – is extremely high.

“In some cases it is 50 percent or higher,” he said. “That is seldom discussed, but it is important to watch. If you don’t have a job a loan modification might not be for you.”

Both he and Peer strongly urge anyone fearing or facing foreclosure, should speak with a HUD-approved housing counselor for advice on whether a loan modification will help.

“Counselors have worked on hundreds and hundreds of cases,” McMaken said. “And when you first received your loan, the lender did all the work for you. They just said, “Skim this and initial here.” Now, everything is in the homeoner’s lap and it is complicated.”

McMaken said lenders and loan servicers complain that homeowners don’t fill out the forms properly, which does not allow them to process the modifications. A counselor can help people make sure they cross their t’s and dot their i’s.

Along the same lines, Peer noted that there are often “communication breakdowns between the borrowers and the loan servicers. A counselor can step between them and straighten out the issues.”

Homeowners seeking free advice from a counselor can call the Colorado Foreclosure Hotline at 1-877-601-HOPE.  For more on the loan modification drive, go to this link.

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

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And while the number of foreclosure closings – those that have completed the entire process and have been sold by public trustees – is down 7.9 percent from a year earlier, the rise in filings concerns experts that another wave of foreclosures could hit next year.

“New foreclosure filings are at a peak again,” said Ryan McMaken, spokesman for the Colorado Division of Housing, which released the report.

“That question is, what does this mean for the future? All of these filings…at some point might continue down the foreclosure path all the way to auctions,” held by public trustees, he continued.

He noted that the number of foreclosure sales “are muted now,” but that may not be a trend that is sustainable.

Ron Woodcock, a broker with RE/MAX Southeast, and an expert on short sales, said that recently banks have been faster and better at accepting approvals for the transactions, in which they agree to accept less than the full amount of the mortgage at the sale.

But he advises all of his clients to try to modify their loans before they entertain the notion of a short sale. Lenders will look at lowering interest rates, sometimes extending the lenght of the mortgage to as much as 40 years, which lowers monthly payments. Sometimes they’ll even lower the principal amount.

He said many lenders have beefed up their loan-mitigation departments to deal with increased demand.

“My personal experience is that is not as much of an ordeal as early this year,” Woodcock said. “It was bad. But this may be short-lived. I’m expecting we may be right back where we were earlier this year at the beginning of next year,” because of the influx of new foreclosure filings.

Shannon Peer, of the non-profit Brothers Redevelopment in Edgewater, said that what he is hearing from people who are in danger of losing their homes, that lenders are becoming more aggressive in helping distressed homeowners with loan modifications on a trial basis, but are not as quick as making them permanent.

“If you go back to June, when there were all these stories about no trial modifications in effect, and the banks were just in the process of implementing them and getting them ramped up,” he said. “Now, they have the manpower and the technical ability to do it, but they are not going from the trial programs to the permanent loan modifications as fast as we would like.”

And Stephanie Riggi, manager of the Colorado Foreclosure Hotline’s call center, said that calls to the hotline have increased about 40 percent from where they were a year earlier.  She said that four out of five people who complete counseling with their HUD-approved counselors, avoid foreclosures. She also is seeing a surge in people calling who are current on their mortgage payments, but want to take preventative measures to keep their homes.

“I think people are much more sophisticated and aware of programs available to them than they were in the past,” Riggi said.

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

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RE/MAX, based in the Denver Tech Center, is working with HEART Financial Services of Northbrook, Ill. to create a pre-foreclosure or short-sale strategy that they hope will make it easier for families to sell their homes and avoid the trauma of a foreclosure.

“It’s unfortunate that the short s\ale process has been so difficult to navigate in this marketplace,” said Dave Liniger, Chairman and Co-Founder of RE/MAX International. “We’ve been working hard to promote streamlined short sales to provide both significant benefits to lenders, and a welcomed opportunity for homeowners to get a fresh start.”

At-risk homeowners who do not qualify for a loan modification will now have a viable alternative, and will not be forced into foreclosure.. Lenders that offer loan modifications to their at-risk borrowers will be invited to participate in this new short sale program.

Trained customer service representatives will provide detailed short sale information to all homeowners who cannot obtain a loan modification or do not wish to retain their property.

If a homeowner believes that a short sale might be appropriate, they are directed to a secure Internet Website where they can obtain more information, and select a real estate agent in their community who has received comprehensive training on the shortsale process. RE/MAX has designed this online database to assist homeowners with short sale information and easy agent referrals, and will use the closing management services Integrated Asset Services of Denver.

“It’s been our experience that many homeowners aren’t even aware that Short Sales are a reasonable alternative to foreclosure,” says Jerry Alt, President and Chief Executive Officer of HEART Financial Services. “Each month we speak with thousands of homeowners who can’t qualify for or don’t want a loan modification. For the most part, when we refer them back to the servicer for a potential short sale, we lose the opportunity to help the borrower while we have them on the phone. Now, we can offer these homeowners some hope and a more efficient process to list and sell their home.”

The number of homeowners who could rely upon a short sale may be in the millions. According to RealtyTrac.com, July, August and September had the highest foreclosure numbers on record and some analysts  say there is a “shadow” inventory of foreclosed properties as high as 7 million, which could start hitting the market in a few months. Earlier, InsideRealEstateNews.com reported that the shadow market could increase the Denver-area supply of unsold homes by 78 percent.

Out of all the applications reviewed for a loan modification, less than 50% are successful. And a high percentage of successful loan modifications eventually re-default.

“We have been talking to numerous industry leaders, legislators and Administration officials trying to draw attention to the Short Sale situation,” says Liniger. “It’s just not possible for the housing market to recover fully until the inventory of foreclosed properties is significantly reduced, and short sales offers one practical way to help do this.”

There are over 11,000 real estate agents in the United States who have received the Certified Distressed Property Expert professional designation. More than  60% of those are affiliated with RE/MAX. In addition, the National Association of REALTORS  also offers a similar Short Sale, Foreclosure and REO (SFR) designation. Agents who have received special Short Sale training like these designations could be selected to participate in this new short sale program.

Short sales can occur when a lender agrees to accept a sales price for a home that is lower than what the homeowner owes on the mortgage. The short sale transaction is more complicated than the average real estate sale and consumers are urged to deal with agents who have specific training in the process.

HEART Financial Services will begin offering the newly developed short sale process to the loan modification applicants of their clients within the next few weeks.

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

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And as I had written about when I was at the Rocky Mountain News, the Times reports that these would-be home foreclosure saviors often take upfront fees and do nothing to lower the monthly mortgage payment. Indeed, they are preying on people when they at their weakest and most desperate. When talking to distressed homeowners they’ll say things such as:  “Isn’t worth $1,000 to save your home?”

Of course, it is. But too often, the home ends up in foreclosure anyway, despite the implicit promise of the loan modifiers.

“My personal opinion is that most of this is a scam,” said Peter Lansing, president of Universal Lending (the co-sponsor of InsideRealEstateNews.com.) He said he can understand why homeowners are turning to them, because they are frustrated with dealing with red tape at lenders. The over-worked lenders are trying to triage the cases to determine who simply wants lower payments, i.e., everybody, and who actually needs help to keep from losing their homes, Lansing notes.

Lansing said the loan modifiers want to get paid upfront because they know they won’t make any money at the closing, if they are successful.

Asking for a a payment upfront, especially with no guarantee of lowering the rate or payment, is a red flag, Lansing notes.

“I don’t pay anybody  upfront for any service,” he said. “I won’t pay upfront to have my lawn mowed.”

He noted that Erin Toll, the head of the Colorado Division of Real Estate, “is violently opposed” to consumers paying upfront for loan modifications.

Colorado has launched investigations or sent cease and desist orders to about 20 companies doing loan modifications in Colorado, Zachary Urban, spokesman for the real estate division told me.

Urban said he has even received phone calls at home from apparently shady loan modification companies, even though he is current on his mortgage.

He said it is hard to tell if former subprime brokers in Colorado are now promising to unravel the loans they made.  But that is an unsavory practice, he said.

“It’s like they’re making sure they screw you one more time before you lose your house,” Urban said.

One thing Urban wants to make clear, however. He said that people who knowingly took high fees to make toxic loans that they knew borrowers weren’t qualified for, and are now offering people saddled with these loans phony help, are not representative of the mortgage industry.

“They’re a cancer on the industry,”  Urban said.

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