Rick Garcia

By Rick Garcia

During the early 1980s as many families lost their homes and jobs, state and local governments were forced to dramatically cut the assistance they could offer.

As a result, we saw a dramatic spike in the number of homeless men, women, and families. Today we are emerging from an even more severe recession and once again local governments face hard fiscal times.

And the Obama Administration is building on that progress for Colorado families. That’s why today, HUD Secretary Shaun Donovan announced $18.9 million in funding to help Colorado fight homelessness, part of nearly $1.5 billion to help more than 7,000 homelessness programs across the country.

These grants support a broad range of housing and services—what we call the “continuum of care”—from street outreach to the transitional and permanent homes that Individuals and families need to start rebuilding their lives.

While these funds will help us to speed the progress we’ve made, we already know the tools the Obama Administration is using to prevent and end homelessness are making a difference.

With the Recovery Act’s Homelessness Prevention and Rapid Re-housing Program—or HPRP—we have saved more than 1.2 million people from living on our nation’s streets – “fundamentally changing” the way communities respond to homelessness, according to the U.S. Conference of Mayors.

With innovative tools like HUD-VASH, which combines HUD’s Housing Choice Voucher rental assistance with VA’s case management and clinical services, we’ve housed more than 25,000 veterans – including more than 20 times as many veterans in the last two years as we had before President Obama took office.

And with the HEARTH Act President Obama signed into law, going forward Colorado communities will have increased flexibility to determine how best to use HUD funding to respond to homelessness – incorporating the successes and lessons of the last two years into this fight.

Most important of all is that for the first time, these funds aren’t just helping fight homelessness – but are actually part of a larger strategy to prevent and end homelessness.

Last year, the Obama Administration released Opening Doors – the first comprehensive federal strategic plan to prevent and end homelessness in our history. The culmination of a decade of bipartisan progress, the plan commits our country to ending chronic homelessness and homelessness among veterans in five years, while ending homelessness for families, youth, and children within a decade, and setting us on a path to end all homelessness.

And in today’s tight budget environment, that commitment is all the more critical. Indeed, over the last decade, we’ve seen that when localities combine housing with supportive services the results are fewer ambulance and police calls, fewer visits to the emergency room, and—just as importantly—real savings for taxpayers.

With these funds, President Obama’s commitment, and the partnership of local leaders, we can bring this proven model not just to Colorado, but to every community in the country – and put us on a path to ending the tragedy of homelessness once and for all.

Rick Garcia is a HUD Administrator for Region VIII, which includes Colorado.

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A number of Denver lending experts are skeptical that the Obama Administration’s latest effort to combat foreclosures will be a big help to the local market.

On Monday,  the Obama Administration announced it is revamping the Home Affordable Refinance Program, or HARP, to allow some consumers current on their home mortgage to refinance, no matter how much they are underwater on their loans. The streamlines mortgage process typically will not  require an appraisal and the underwriting is not as strict as for a typical refinance.

Obama outlines plan

Speaking in Las Vegas, President Obama outlined how the new program will work.

“Number one, the barrier will be lifted that prohibits responsible homeowners from refinancing if their home values have fallen so low that what they owe on their mortgage is 25 percent higher than the current value of their home. And this is critically important for a place like Las Vegas, where home values have fallen by more than 50 percent over the past five years,” Obama said.

“So let me just give you an example,” the President continued. I”f you’ve got a $250,000 mortgage at 6 percent interest rates, but the value of your home has fallen below $200,000, right now you can’t refinance. You’re ineligible. But that’s going to change. If you meet certain requirements, you will have the chance to refinance at lower rates, which could save you hundreds of dollars a month, and thousands of dollars a year on mortgage payments.

“Second, there are going to be lower closing costs, and certain refinancing fees will be eliminated — fees that can sometimes cancel out the benefits of refinancing altogether, so people don’t bother to refinance because they’ve got all these fees that they have to pay. Well, we’re going to try to knock away some of those fees.

“Third, there’s going to be more competition so that consumers can shop around for the best rates. Right now, some underwater homeowners have no choice but to refinance with their original lender — and some lenders, frankly, just refuse to refinance. So these changes are going to encourage other lenders to compete for that business by offering better terms and rates, and eligible homeowners are going to be able to shop around for the best rates and the best terms.

“So you take these things together, this is going to help a lot more homeowners refinance at lower rates, which means consumers save money, those families save money, it gets those families spending again. And it also makes it easier for them to make their mortgage payments, so that they don’t lose their home and bring down home values in the neighborhood.

“And I’m going to keep on doing everything in my power to help to stabilize the housing market, grow the economy, accelerate job growth, and restore some of the security that middle-class families have felt slipping away for more than a decade.”

Refinancing restrictions

However, there are restrictions. The borrower’s loan must be backed by Fannie Mae or Freddie Mac. And the borrower must have made at least the last six mortgage payments and can have no more than one missed payment during the past 12 months, according to the Wall Street Journal. The borrower also must have a job or a regular source of income.

It sounds good in theory, but these programs seldom have the desired impact, said Jim Lewis, a managing director of America’s Mortgage, based in Wheat Ridge. The Federal Housing Finance Agency estimates that the program could help 800,000 to 1 million borrowers nationwide. HARP, created in 2009, is part of the government’s Making Home Affordable program. Colorado consistently has represented 1.4 percent of Making Home Affordable. If that trend continued and HARP met its targets nationally, conceivably about 11,200 to 14,000 homeowners in Colorado could be helped by HARP.

“My experience with the government trying to social-engineer these programs is less than favorable,” said Lewis, who works out America’s Mortgage Tech Center office. “The government intervention into private industry typically breeds ineptitude. I do not think, generally speaking, the government doesn’t do anything to assist homeowners.”

In any case, he said a revamped HARP doesn’t address the real problem, which is boosting home sales. Increasing home sales is far more important than increasing refinancing, as far as the housing market and the overall economy, he said. Even historically low mortgage rates – currently at 4.11 percent for a 30-year mortgage, and briefly below 4 percent a few weeks ago – haven’t done much to get people to sign on the dotted line, he said.

Dan Brown, principal of Spire Financial, said it is no accident that President Obama made the announcement of what he hopes is a new and improved version of HARP in Las Vegas, one of the cities hardest hit by foreclosures.

“He is unrolling it out in Las Vegas, where it is a big issue, as far as how far home values having fallen, as it is in Florida, and places like Michigan,” Brown said. Lenders already can refinance mortgages up to 125 percent of the loan-to-value of the home. So if the mortgage is $125,000 and the home is only worth $100,000, they could still potentially get a lower rate.

“I could see (the revamped HARP) offering some relief in really terrible real estate markets,” Brown said. “In some places, you might have a $200,000 loan and the home is only worth $100,000. That is just not the case in Denver. This is a Band-Aid for a gaping wound.”

Peter Lansing, president of Universal Lending, said that if the program can help people refinance who could not before that is great, because a high mortgage has been one of the factors, in some cases, that has resulted in foreclosure. Also, the extra monthly savings could put more money in their pockets, which could give the economy a boost. (Universal Lending is a sponsor of InsideRealEstateNews.)

One improvement is that homeowners with no equity in their homes can shop around with other lenders to get the best rate, he said. In the past, borrowers seeking HARP loans were basically forced to deal with their servicers – typically big banks such as Bank of America, Wells Fargo, or Citigroup that process the monthly mortgage payments – and they were so inundated that they didn’t have the ability to deal with everyone who needed help.

“They already are so strapped, that to ask them to spend more money to help more people, just doesn’t make any sense,” Lansing said.

Devil in the details

Still, the question remains will lenders be compensated enough that it is worth it to them to help consumers get a lower rate, he said. “The problem is that whenever any Administration – not just this one – unveils something new, they don’t give you the guidelines or the details. And is always the case, the devil is in the details.”

Also, Lansing noted that the vast majority of borrowers use their equity in their homes to pay for the cost of refinancing. It’s unclear whether they will be allowed to do that when they have no equity in their homes.

That may not be a good idea, said Shannon Peer, director of housing counseling at Brothers Redevelopment, the non-profit group that runs the Colorado Foreclosure Hotline. Peer agreed with Lansing that a key to the program’s success will be the details and guidelines that are expected to be released in the coming weeks and months. Fannie and Freddie hope to release technical details by Nov. 15, and banks are expected to start taking applications around Dec. 1.

“Let’s say you’ve got a $125,000 mortgage and that is more than what your house is worth,” Peer said. “All of a sudden if you add $5,000 to the mortgage in closing cost, the borrower just may have made the situation worse.”

He said if he took a “snapshot” of people who seek free counseling from Brothers Redevelopment, the revamped HARP would help a relatively small number of people in distress.

“We do see some people who have 6.5 percent to 7 percent mortgages,” Peer said. “Refinancing for some people could save them $400 or more per month. But I would say the vast majority of people we see currently have loans in the 5 percent to 6 percent range. Dropping it down to 4 percent or 4.25 percent would help a bit. And of course, this will not help the unemployed at all.”

He said the government might even want to ease its restrictions a bit more, as it is not unusual for people to have missed more than one payment in the past year, if they are struggling to keep their home, which adds late fees to the mortgage payment. “If you’re paying an extra $100 or $200 a month, it can really bust a budget for a lot of people,” Peer said.

Still, the program already has sparked some interest.

“We had one borrower who heard about it and called us first thing in the morning,” Peer said. “So we’re putting him in touch with a counselor to talk it over to see if it can help him.”

Liniger a fan

David Liniger, the co-founder of Denver-based RE/MAX International,  applauded the administration’s move through executive means calling it “the right action at the right time.”

“The problems in the housing market have to be addressed to further economic recovery and it means taking aggressive action. We can’t wait,” said Liniger, who has met with government and industry officials throughout the year, and has been an outspoken proponent of housing initiatives coming out of Washington, D.C.  “This type of reform is crucial in getting help for diligent borrowers, giving homeowners who have a chance to reduce their payments and save their homes the means to do so. We can’t afford a higher inventory of homes on the market right now. Something needs to be done and this will certainly help.”

Ron Woodcock, a broker with RE/MAX Southeast Inc., couldn’t disagree more.

“I think is a disaster,” Woodcock said. “I think it is insane. I think everything the government does is a dismal failure. I think all of these programs just bog down the system. The system is already broken, so does it make sense to thrown another wrench into it? These programs are continuing to destroy our real estate market.”

While a homeowner with no equity in his home with a 6 percent loan might be able to save hundreds of dollars each month by refinancing into a 4 percent loan, Woodock said if the government is seen as basically “doing cram-downs,” that is, forcing investors to accept lower yields, it will have dire consequences on the availability of money for making home loans. “This is going to discourage investors from investing in real estate loans, if the government can step in and say, “screw you,” and force you to lower the mortgage rate.”

Not a silver bullet

David H. Stevens, president and CEO of the Mortgage Bankers Association, said the changes to HARP are welcome.

“The mortgage industry welcomes these changes designed to help more underwater borrowers who are current on their mortgages refinance at today’s historically low interest rates,” said Stevens, the former director of the FHA, who began his lending career in Denver, after graduating from the University of Colorado Boulder. “Not only will these changes allow more borrowers to qualify, but they will streamline the process and reduce the cost to borrowers and should lessen risk for Fannie Mae and Freddie Mac. Lenders are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans.  These changes alone should encourage lenders to more actively participate in HARP.”

Still, Stevens said borrowers need to be patient, as even after the operational details are released, it will take some time for lenders to understand and implement the new rules.

“While ultimately helpful, these changes are not going to be a silver bullet to solve all the issues facing our housing market and borrowers who owe more on their mortgages than their homes are worth,” Steven said. “But they will offer lenders another tool to help borrowers and hopefully help bring some stability to housing markets, particularly those most impacted by home value declines.”

Obama said he understands this will not solve the nation’s housing crisis and more needs to be done.

Now, let me just say this in closing. These steps that I’ve highlighted today, they’re not going to solve all the problems in the housing market here in Nevada or across the country. “Given the magnitude of the housing bubble and the huge inventory of unsold homes in places like Nevada, it’s going to take time to solve these challenges,” Obama said. “We still need Congress to pass the jobs bill. We still need them to move forward on Project Rebuild so we can have more homes like this, and wonderful families having an opportunity to live out the American Dream.

“But even if we do all those things, the housing market is not going to be fully healed until the unemployment rate comes down and the inventory of homes on the market also comes down,” the President said.” But that’s no excuse for inaction. That’s no excuse for just saying “no” to Americans who need help right now. It’s no excuse for all the games and the gridlock that we’ve been seeing in Washington.”

Contact John Rebchook at JRCHOOK@gmail.com

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“The Obama Administration has made significant strides in promoting stability for the housing market and the nation’s homeowners,” said HUD Assistant Secretary Raphael Bostic. “Through a range of swift actions since we took office, we’ve seen millions more families able to stay in their homes and a steady rise in responsible borrowers refinancing their loans or becoming homeowners. But, while we cannot stop every foreclosure, we know that more has to be done to reach homeowners in distress and to help unemployed borrowers. That’s why we’re continuing to focus on successfully implementing the programs we’ve put in place – such as neighborhood stabilization funding, additional assistance on refinancing and emergency loans to help unemployed homeowners – and ensuring that help is available to homeowners as early as possible.”

The report touched on many of the points that Lawrence Yun did when he spoke to almost 800 Denver-area Realtors on Wednesday, in an event sponsored by the Denver Board of Realtors, the Jefferson County Association of Realtors, and the North Metro Denver Realtor Association. Other groups that helped sponsor Yun included Land Title Guarantee, Metrolist and Bank of America.

Pain of foreclosures

“The recent reports of problems in the foreclosure process underscore the importance of helping responsible homeowners avoid the pain of foreclosure,” said acting Assistant Secretary for Financial Stability Timothy Massad. “As we implement additional program enhancements to reach more homeowners, we continue to stress to mortgage servicers the importance of making every effort to enroll eligible homeowners in HAMP and provide meaningful alternatives to avoidable foreclosures.”

The November Housing Scorecard features key data on the health of the housing market including:

• An additional one million families refinanced their mortgages in the last quarter, taking advantage of the lowest rates in history on 30-year fixed mortgages. Since April 2009, record low interest rates have helped more than 8.3 million homeowners to refinance, resulting in more stable home prices and $15.2 billion in annual borrower savings.
• As expected with the expiration of the Homebuyer Tax Credit, new and existing home sales have remained below levels seen in the first half of 2010. At the same time, home prices remained level in the past year after 33 straight months of decline and homeowners added $95 billion in home equity in the second quarter.

More than 3.73 million modification arrangements were started between April 2009 and the end of August 2010 –more than double the number of foreclosure completions during that time.  These modification arrangements included nearly 1.4 million trial Home Affordable Modification Program modification starts, more than 600,000 Federal Housing Administration  loss mitigation and early delinquency interventions, and nearly 1.8 million proprietary modifications under HOPE Now. While some homeowners may have received help from more than one program, the 1.6 million  agreements offered were more than double the number of foreclosure completions for the same period last year.

Recovery fragile

Data in the scorecard also show that the recovery in the housing market continues to remain fragile. While the recovery will take place over time, the administration emphasized that it remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market.

Each month, the Housing Scorecard incorporates key housing market indicators and highlights the impact of the Administration’s unprecedented housing recovery efforts, including assistance to homeowners through the FHA and HAMP. The Obama Administration’s complete Housing Scorecard is available at: www.hud.gov/scorecard.

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Today , the Obama Administration is kicking off  a $14 billion program to help consumers whose homes are “under water.”

In Colorado, an estimated 7,000 to 21,000 homeowners could have not only their mortgage rates lowered, but the principal amount of their mortgages reduced under the program, InsideRealEstateNews calculates. Nationally, 500,000 to 1.5 million homeowners current on their loans could be helped under the program. A home is considered under water when the house is worth less than the loan amount.

This is the first initiative targeting homeowners who are current on their mortgages, but have no equity in their homes. Basically, the program, which banks could choose to participate in, would take the loans off their books, after they write down the principal by at least 10 percent, and pass the risk of the default to the federal government. The loans would not only be lower, but would be refinanced into FHA-insured loans, allowing qualified buyers to take advantage of record-low rates. Borrowers would not only need to be current on their mortgage payments on their owner-occupied home, but would need to have a FICO credit score of at least 500.

Second mortgages reduced

The program also would require that second liens against homes be written down so that the total mortgage debt is less than 115 percent of the home’s current value. The government, under the program, would make partial payments to banks to help write down the loans. Second mortgages have been a huge obstacle is refinancing mortgages in the past, as the second-lien holder often has been reluctant to play ball and modify its loans, as it had little to gain.

The new “short refinance” program is being launched at time when the Home Affordable Modification, or HAMP, is not coming close to helping three million people, as originally hopes. Since HAMP began, Colorado has consistently accounted for 1.4 percent of the total – 9,453 in either the active trial or permanent modification portion of it in July. If that ratio holds true for the new program, it could conceivably help just under 21,000 people in Colorado, if the 1.5 million homeowner goal is met. Increasingly, homeowners who find themselves under water on their loans, are debating whether to do a “strategic default,” in which they unload their home through a foreclosure or a short sale, rather than paying on a home that could be purchased today at a much lower price.

Experts divided on its merits

Colorado experts are divided on its merits.

“Well, I think for the short-term it will have some positive impact,” said Byron Koste, executive director emeritus for the University of Colorado Real Estate Center. “Long-term, it is not my favorite thing. It is just an artificial balancing act, rather than a natural balancing act. Some good people are currently hurting and it will help them. And I do not like that the banks will be getting a break. There are consequences for making bad loans, and so this is really another way of bailing them out. But the economy is struggling, and the Obama administration is trying to find a way to get the economy to feel better and this is one of the things they’ve come up with.”

Mike Rinner, of the Genesis Group, which tracks housing along the Front Range, said that wile the “housing market certainly could use all the help it can get, in principle, I think it is a bad idea.” The government is setting aside up to $14 billion from the Troubled Asset Relief Program, or TARP, for the latest program. But it is time to rein in spending,  Rinner said. He said the government needs to show fiscal constraint, as throwing money at problems does not solve them. “The government needs to learn that it must spend less tax-payer money, not more of it,” he said.

“I don’t even think this is going to help,” Rinner said. “It’s not going to give the housing market a boost. What is going to give the housing market a boost is some sound economic policies coming out of Washington, D.C. What this is another Band-Aid on a gusher.”

Homeowners gain

But Jeff Bernard, a long-time Realtor who now is primarily a real estate and business consultant, said this program sounds like the best one yet.

“This program sounds very logical to me,” said Bernard, principal of Bernard Real Estate Analytics and a WSI Internet Marketing Consultant. “What I like about this program is that it seems that it will directly benefit the homeowner. What I didn’t like about the earlier TARP bail-out of the banks, is that it did not help the homeowner, but the money just flowed to the bank’s bottom line.  Banks can opt-in or opt-out out of this latest program, but it seems they may have more of an incentive to participate this time. And it seems the closest thing yet for something that will be user-friendly to homeowners, so to speak.”

Gwen Jasper, a broker with 8Z Real Estate, one of the sponsors of InsideRealEstateNews, also said that the program sounds as if it has merit, and she would like to learn more about it.

“I think the Denver market is quite narrowly being impacted by the downturn, compared to coastal areas, where homes have fallen by half,” Jasper said. “If we had some kind of program to keep people in their homes, instead of more foreclosures, I think the housing market and the economy would come out ahead. This program definitely sounds like it would kind of help to motivate people to stick around in their homes, until they gradually see some increase in value – but not the craziness we saw when the market previously to levels that were just unrealistic and unsustainable.”

Key: Cut the red-tape

Still, she hopes the latest program does not become bogged down in a bureaucracy.

“Honestly, I am not completely aware of all of the guidelines that come into this latest loan modification program,” Jasper said. “But with previous programs, some of the biggest problems were there were so many hoops to go through that people just kind of gave up on the banks, and the banks kind of gave up, because they were so over-whelmed. This sounds like a step in the right direction. I just hope that is is not bogged down in red-tape.”

Contact John Rebchook at JRCHOOK@gmail.com

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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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I was on Channel 9 news this morning to talk about the story I wrote earlier that only about 1,000 people in Colorado have so far received permanent loan modifications. To check out the video, please visit this link. To read the original story, please visit this link.

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

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“That is the proverbial drop in the ocean,” said Byron Koste, director of the Colorado Real Estate Center at the University of Colorado in Boulder. “That will have no impact at all. The only impact it has is that 1,000 families are better off.”

The latest report from the  federal government shows that as of the end of December, there were 11,170 homeowners in “active trials,”  for loan modifications. The trial modifications are required before the loan can be made permanent. Colorado ranked No. 19 in the nation for the number of active trials and permanent loan modifications. The 1,072 permanent loan modifications represents 8.8 percent of the trials, which is slightly better than the 8.4 percent ratio nationally. Nationwide, at the end of December there were 787,221 trial modifications and 66,465 permanent modifications. The goal of the program is to provide 3 to 4 million homeowners with lower mortgage payments through 2012.

Banks have no incentives to modify loans

Koste said he is surprised that there were even 1,072 permanent loan modifications in the state. Even though a focal point of the Obama Administration’s year-old $75 billion war on foreclosure is modifying loans to keep people in their homes, banks have no incentive to play along, Koste said.

“There is no bank in a hurry to write down a loan,” Koste said.

For example, if a bank writes down a loan so the borrower saves $700 a month for two years, the bank needs to write off $16,800 – 24 times $700. Arguably, the bank is not taking a loss – it’s just making less interest on the loan.

It actually typically hurts a bank less to let the home go into foreclosure, and become what is known as a REO, or Real-Estate Owned, Koste said. “Banks have a formula where a certain percentage of their loans can be REOs,” Koste said. “But write-downs go straight to earnings.”

Even though bank foreclosure are expensive, most banks would rather put off the cost to the future, than take an immediate hit to the bottom line, he said.

Koste said banks need incentives to make loan modifications.

“We need to spread the pain, and spread the gain,” Koste said. “The pain is to the banks, and the gain is to the homeowner. There’s a disconnect. Things are misaligned. It’s a mess.”

He said everywhere he goes, he hears horror stories from homeowners who try to work with banks to modify their loans.

“Extend and pretend is alive and well,” Koste said. “When people talk to their banks, their conversations just  seem to disappear into the ether. Sometimes, months later, someone will respond. Everyone is dragging their feet. For the people who process the loans payments, this is new to them and they are not even sure what the rules are. They don’t know what their bosses, the people who actually invested in the loan, will or will not accept or what they can offer.” Another complication can be in the loan had been folded into a financial instrument such as a mortgage-backed security. Modifying individual loans in the security can reduce the monthly cash stream to investors.

Modification activity poised to rise

But a surge in permanent loan modifications may be coming in the next few months, said Shannon Peer, director of Housing Counseling at the non-profit Brothers Redevelopment Inc. in Edgewater.

“The big wave of temporary modifications did not start until June, July and August of last year,” Peer said. “What I have heard from several loan servicers is the end of three-month trial periods they were not ready to provide permanent loan modifications, because of the sheer volume.”

He said a lot of modifications were only made permanent last December and January.

“I expect more permanent loan modifications will be offered,” Peer said. “It will be interesting to see what happens over the next couple of months.”

He said some of the frustrations with distressed borrowers is that the loan servicer requires them to fax the same information more than once. And some homeowners mistakenly think that loan servicers will call them to remind them of what documents they need to provide at a future date. But he said they should not expect any follow-up calls and should be responsible for providing all the necessary information by deadlines.

“Because these companies are such large entities, something we have noticed is a communications break down between the borrower and the servicer,” Peer said.  ”One of the things our counselors are educating the homeowner about is regarding providing all the necessary documents. We don’t want our homeowner clients to be denied because they did not provide the proper documentation at time. Our counselors, at the first meeting, tell the homeowners to bring documentation – including pay stubs and bank statements – which helps. It does take a lot of persistence on the part of the homeowner.

Modification a lifeline for one homeowner

Michael Gunstanson was extremely persistent with his lender, and his hard work and determination paid off. He was one of the lucky ones who received a permanent loan modification.

“It was a godsend,” said Gunstanson.

His new permanent loan from JP Morgan Chase dropped his interest rate to 2.25 percent from 5.75 percent. That cut his monthly payment to about $950 from about $1,700.  In the sixth year of the loan, which will be amortized over 40 years, the rate will rise to 4.5 percent, where it will stay for the next 34 years, unless he pays it off sooner. He also will need to make a $30,000 lump sum payment when he pays off the loan.

The monthly savings is more than $600 payment on their 2005 Dodge Durango.

“So for us, it’s like losing a second car payment,” said Gunstanson. “Not only can we afford to stay in our home now, but if I get a high-paying job out of state, we could rent our home.” He said homes in his Lakewood neighborhood are renting between $1,400 and $1,600 a month.

The loan modification sounds like a good one, both for the homeowner and the lender, said Jeff Bernard, principal of Bernard Real Estate Analytics.

“A real key point is that now he can rent it,” Bernard said. “Whether he rents it or owns it, he will still retain significant cash deductions.”

Bernard said it sounds like the lender will recoup much of the money it lent at the back-end of the loan. And it may very well take all of the appreciation, when the home is finally sold, with the $30,000 payment, he said.

Indeed, one of the concerns for banks, the Obama Administration, and society, is the number of people who have had their loan modified, and still do not make payments based on the lower amounts. “I seem to recall one estimate was that 42 percent of the people who had their loans modified, still didn’t make their payments,” Bernard said. In some cases, it was because the payments were still not low enough, and other types it was because the home was so under water – that is, the mortgage is worth more than the home – they believed doesn’t make economic sense to throw good money after bad. Bernard said some people may even try to buy another home at today’s discounted prices, and let their current home go back to the lender. He said in many of those cases, the homes are expensive and are held in one spouse’s name.

“There is a lot of game-ship going on right now, and I think some homeowners are looking for ways to game the system,” which they think has treated them unfairly, Bernard said. He said some people feel like they are throwing their money away for at least the next five years, by continuing to make mortgage payments on their homes, so they choose to walk away, even if they can afford the payments.

“I do think loan modifications can be a great thing for a certain portion of the population,” Bernard said. “But what I think what we have learned is that for a certain portion of the population, they just should not own a house. A few years ago, we believed it was the American Dream and everyone should own their own home. But I think a large percentage of the population is better off renting.”

Another homeowner considers “strategic default”

One homeowner who lost a well-paying job about a year ago, is seriously thinking about renting a two-bedroom apartment for $600 a month, and returning his home just south of Washington Park on two lots to his lender in a “strategic default.” His home is underwater – that is, his mortgage his worth far more than his home.

He currently is working two jobs for about $3,550 a month, and his interest-only mortgage payment on his $384,000 loan is about $2,130.

“Obviously, the math does not add up,” said the homeowner, who asked that his name not be used.  Efforts to modify the loan with the lender have been fruitless, and just last Friday he talked to a counselor for the Obama administration’s Hope for Homeowners program, who was not optimistic he would be able to get his loan modified.

A few years ago, he could have sold his home for $500,000 to an infill developer that would have scraped his bungalow. He said he has had one nibble from a developer that indicated he might be willing to shell out $389,000, but the prospects do not look good because of the glut of expensive homes on the market.

He said his lender, U.S. Bank, said it might consider a short sale, in which it accepts less than the mortgage amount, but it would expect him to pay the difference.

“Uh, hello… If I’m going to screw my credit, I figured I might as well just walk away owing the whole amount and paying nothing,” he said. “But, to be honest with you, if the developer doesn’t come through, I really think my best option is a “strategic default.”

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

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The money is earmarked to keep 79 homeless assistance programs throughout the state operating.

The funding is part of nearly $1.4 billion that will help 6,400 existing programs nationwide to continue offering critically needed housing and services to homeless persons and families, HUD said.

The grants announced today are being awarded through HUD’s Continuum of Care programs.

For the first time,  HUD is quickly providing renewal grants to local programs to prevent any interruption in federal assistance and will announce funding to new projects in early 2010.

“As we move into the coldest time of the year, it’s critical that no program risk running out of money to keep their doors open,” said HUD Secretary Shaun Donovan. “These grants will make certain that those programs on the front lines of helping the homeless have the resources they need to house and serve persons who might otherwise be forced to turn to the streets.

“HUD’s Continuum of Care Grants provide permanent and transitional housing to homeless persons. In addition, continuum grants fund important services including job training, health care, mental health counseling, substance abuse treatment and child care.”

Continuum of Care grants are awarded competitively to local programs to meet the needs of their homeless clients.

These grants fund a wide- variety of programs from street outreach and assessment programs to transitional and permanent housing for homeless persons and families.

HUD’s homelessness grants are reducing long-term or chronic homelessness in America.

Based on the department’s latest homeless assessment, chronic homelessness has declined since 2005. This decline is directly attributed to HUD’s homeless grants helping to create significantly more permanent housing for those who might otherwise be living on the streets. owever, data also indicates that family homelessness may be on the rise, particularly in suburban and rural areas.

Earlier this year, HUD allocated an additional $1.5 billion through its new Homeless Prevention and Rapid Re-Housing program, made possible through the American Recovery and Reinvestment Act of 2009. HPRP is intended to prevent persons from falling into homelessness or to rapidly “re-house” them if they do.

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

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Earlier, InsideRealEstateNews.com was one of the few media outlets to write about the October numbers, in which Colorado ranked 20th. (For the earlier blog, go to this link.) California was No. 1, with 148,350 loans, through November.

Meanwhile,  on a national basis, only 31,382 modifications have transitioned to the permanent phase, out of the more than 780,000 trial modifications under way across the country. Of those, more than 10 percent – 3,622 – are from Aurora Loan Services, based in Douglas County.

However, the government said the  program is on track to meet its goals over the next several years, the administration said.

” Modifications are providing real benefits to homeowners – borrowers in modifications are saving an average of over $550 per month,” the report notes.

Today’s report from the Obama Administration also noted that Aurora Loan  is the seventh-largest loan service in the nation, as far as its HAMP, or Home Affordable Modification Program portfolio. Aurora Loan, a division of bankrupt  Lehman Bros., had a portfolio of 35,608 loans. Of those, 19,413 are GSE loans, such as those backed by Fannie Mae and Freddie Mac, 13,013 were private loans, and 368 are portfolio loans.

Aurora Loan holds 75,829 loans that are at least 60 days delinquent, which may be eligible to participate in the loan-modification program. Thirty three percent of its eligible loans are either in trial or permanent programs, ranking it fourth on a percentage basis. It is bested only by Saxon Mortgage Services Inc. at 44 percent; CitiMortgage Inc., 43%; and GMAC Mortgage Inc., 39%. The national average is 24%.

Almost 3.3 millions are at least 60-days delinquent and could be eligible. Services so far have extended the loan-modification plans to 1.03 borrowers, and 759,058 are enrolled. Bank of America, which bought Countrywide Financial, has more than 1 million borrowers at least 60 days delinquent, the largest in the country. Wells Fargo, which has a large presence in Colorado, holds 334,949 loans that may be eligible And Wachovia Mortgage, now owned by Wells Fargo, has 82,457.

The Obama Administration, in its monthly Making Home Affordable (MHA) report, for the first time included the number of modifications  modifications that have transitioned from the trial to permanent phase as well as a break-out of the 15 metropolitan areas with the highest program activity.  Denver is not one of those areas.

According to servicer reports, most borrowers in modifications are meeting their responsibilities to make their payments.

“Servicers need to do their part to help borrowers complete the process and get to the finish line,” the report says. Top administration officials met with servicers in Washington, DC this week to urge a faster pace in converting borrowers to permanent modifications.

“As this report illustrates, struggling homeowners across the country continue to receive immediate relief in the form of reduced monthly payments and a second chance to stay in their homes,” said Chief of Treasury’s Homeownership Preservation Office ) Phyllis Caldwell. “Our focus now is on working with servicers, borrowers and organizations to get as many of those eligible homeowners as possible into permanent modifications.”

“Our challenge now is to keep the pressure on,” added HUD Senior Advisor for Mortgage Finance William Apgar. “HUD approved counselors are working with borrowers to ensure they are doing their part to transition into sustainable permanent modifications and we will ensure that servicers convert as many of those modifications by the end of the year as scheduled as they are scheduled to.”

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

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The U.S. Treasury report shows that Colorado, at the end of October, ranked No. 20th in the nation for the number of homeowners participating. (For the November report, go to this link.)

California is No. 1, with 134,609 people in the  Making Home Affordable Program . Other states with a large number of participants include: Florida, 62,614; Arizona, 34,424;  Illinois, 33,514; New York, 28,773; Michigan, 22,031; and Nevada, 17,566. At the other end of the spectrum,  North Dakota only has 17o modifications in the works.

Nationally, about 650,000 homeowners are in the trial program, but only a small percentage of them have had their loans modified permanently, which is something the Obama Administration wants to remedy.

“That is really interesting,” said Ryan McMaken, spokesman for the Colorado Division of Housing, when contacted with the Colorado data by InsideRealEstateNews.com.

“My initial reaction is that states with higher unemployment, which have seen a greater decline in home values, the loan modification programs are more necessary,” McMaken said. “Homeowners in Colorado clearly have more options than people in many other states. In Colorado, there are still a lot of people willing to buy homes and a lot of investors willing to pay for them.”

He said it is possible that fewer modifications are being done in Colorado, “but they are sticking better,” than in other states.

Still, loan modifications are not for everyone, especially with the recent wave of distressed homeowners who have lost their jobs, he said.

“If  you have no income, and you cannot repay your loans at any rate, you might have to do a short sale,” McMaken said. “And as a note of caution, housing counselors will tell you that not all loan-modification programs are created equal.  Counselors have told some homeowners not to accept the loan-modification program offered.  Some loan mods are inappropriate for some individuals, while other loan-mods are very appropriate. You have to look at them on an individual basis. Can you imagine the psychological damage to someone who can’t make their payments, even after jumping through all the hoops to get their loan modified.”

Peter Garvin, of Borrowers First Choice, a division of Cherry Creek Mortgage, said given Colorado’s foreclosure rate, he would have expected the number of people to be in loan modification programs to be higher.

“I think we’re No. 9 in the foreclosure rate, according to the last numbers I recall, so I guess my take is given our foreclosure rate, you would think we would be some place around No. 9 for loan modifications,” Garvin said.

“I don’t know what the answer,” why more homeowners in Colorado aren’t enrolled in loan-modification program, he said.

However,  it can often take  as long as nine months for a homeowner to get enrolled into a program, he said.  “So maybe we have a boat-load of modifications that have not been showing up yet,” Garvin said.

Although there have been criticisms by some political and industry leaders that the program is not helping enough Americans, Treasury Assistant Sec. Michael S.  Barr today said the program is working.

“Struggling homeowners in every state now benefit from reduced monthly mortgage payments and have an opportunity to stay in their homes,” Barr said.  “The program is having a pronounced impact in areas particularly hard hit by the housing crisis. We’re reaching borrowers at a larger scale than any other modification program to date, but there is still much more work to be done.”

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

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