October 25, 2011
The Obama Administration is taking another crack at addressing a core problem hindering the economic recovery: underwater homeowners (that is, borrowers who owe more on their mortgages than their homes are worth) and the ripple-effects of that financial hardship. The Federal Housing Finance Agency announced plans Monday to revamp the three-year-old Home Affordable Refinance Program [HARP] to allow more underwater borrowers to refinance. Ideally, qualified homeowners who have been consistently paying their mortgages would be able to refinance their loans at lower rates thereby staving off the threat of default and freeing up spending money for other purposes. Both outcomes would ostensibly help the economy, if the program works exactly as designed. But given HARP’s lackluster results in its first three years of existence, the new initiative has its share of skeptics. Anthony Sanders, a finance professor at George Mason University, said a “fundamental disconnect” exists between HARP’s goal of lowering monthly mortgage payments and the larger economic issues facing many Americans. “There’s no evidence that lowering a mortgage payment a few hundred dollars a month prevents defaults,” he said. “Giving $200 a month to people who already have a job doesn’t really make any sense.” Homeowners aren’t defaulting on their mortgages over a few hundred dollars, he said. They’re defaulting because they’ve lost their job and can’t find another one, or have suffered some other financial catastrophe. To open HARP up to more financially strapped homeowners, the FHFA has removed an earlier cap that disqualified borrowers whose mortgages were valued at 125% or more than the value of their homes. The program is open only to those borrowers whose loans are backed by Fannie Mae and Freddie Mac , the troubled quasi-government entities that provide financing for an estimated 80% of all U.S. mortgages. (The government seized control of Fannie Mae and Freddie Mac in 2008 as they teetered on the verge of collapse.) “This is an appropriate balancing of risk that’s being borne by Fannie and Freddie, and hence the American taxpayer,” FHFA’s acting director, Edward DeMarco, said Monday during a conference call with reporters. “This will make HARP more available.” The Obama Administration claimed the original HARP program would help 5 million borrowers. But the actual number has been less than 900,000. The FHFA predicted Monday that by easing the restrictions on the old program and reducing some refinancing fees and streamlining the process as many as one million underwater homeowners could get help by 2013. Critics say it still barely makes a dent. In August, Corelogic, a housing research firm, said 11 million mortgages, or nearly 25% of all residential home loans, are underwater. The FHFA also hopes the revamped HARP gives banks with substantial mortgage portfolios additional incentives to participate. To that end, FHFA altered the program so that lenders won’t be forced to buy back HARP loans if underwriting problems are later discovered. Under the previous, tougher restrictions, banks had little incentive to refinance mortgages, said Leif Thomsen, CEO of Mortgage Master, a large Massachusetts home lender. Default rates haven’t reached critical mass for the big commercial banks, Thomsen explained, consequently they saw no reason to renegotiate a loan made at 6% interest down to 4%. Banks are, after all, in the business of making money by lending money, he noted. Besides, given the federal guidelines that capped underwater loans at 125% of the value of the property, many struggling homeowners couldn’t refinance anyway. But lifting the cap should create strong competition for refinancing underwater loans, Thomsen predicted, a factor that could spark the big banks to renegotiate and refinance on their own or see all that refinancing business move to independent firms like Thomsen’s. “It’s about time that this program came out,” Thomsen said. “I’ve been calling for something like this for three years.” JPMorganChase (NYSE:JPM) is already on board, issuing a statement Monday in praise of the new HARP and saying it could save consumers as much as $2,500 a year. But Sanders said the program – and its creators – are still missing the point. “I think they’re making the assumption that everyone who saves money on a refinanced mortgage will spend it on consumer durables. But they might put it away in their savings account or put it aside for their kid’s college education, like they should have in the first place,” he said. Sanders said the government is essentially wasting its time on housing programs that he described as chronically “too small in scope” and off the mark in terms of targeting what’s really ailing the U.S. economy. “The government needs to step out of the way and let the housing market heal itself,” he said. “Lack of jobs is what causing the problem right now.” See the original post here: Another Day, Another Housing Program
Read the full article →
June 17, 2011
Before anyone starts talking about a housing recovery, the conversation needs to shift from foreclosures to closings. For months, the only “good news” out of the relentlessly stagnant U.S. housing market has been reports that foreclosures are slowing. On Thursday, for instance, RealtyTrac reported that foreclosure filings in May fell for the eighth straight month and are down 33% from a year ago. But that was inevitable given the fact that there is a finite number of homes in America and record numbers of foreclosures were filed in 2009 and 2010 as homeowners struggled to pay their mortgages during the worst of the recent financial crisis. Simply put, it was almost statistically impossible for the number of foreclosures to keep rising. The numbers eventually had to go down so there’s really nothing positive to glean from these figures. Barry Bramlett, president of Equity Depot LLC, which compiles real estate data in Georgia, compared the steady decline in foreclosures to an army that on each successive day of a battle loses fewer soldiers. “You start out with a large number of soldiers and on the first day of battle a large number are lost. The next day there are fewer soldiers to lose so fewer are lost, and so on and so on,” he said. A battle with lots of casualties seems an apt metaphor for the current housing market. And there doesn’t seem to be any end in sight for this war. Last week Ara Hovnanian , CEO of the giant homebuilder Hovnanian Enterprises (NYSE: HOV), sought during a conference call with analysts to ease concerns that the prolonged housing slump was taking a heavy toll on his business. He said at one point, “We remain confident that we have the liquidity to weather the remainder of this downturn, and will continue to position ourselves in preparation for the inevitable housing recovery.” But when is inevitable? No one seems to know. Jay Butler, an associate professor of real estate at Arizona State University, said it all depends on your definition of recovery. According to Butler, for many Americans recovery will mean that their mortgages are no longer ‘underwater,’ an increasingly common predicament in which homeowners have seen the value of their homes fall so much that they owe more than their home is worth. Underwater mortgages have been cited as a primary reason so many homeowners have defaulted on their loans, forcing foreclosure. The thought being, why continue to make monthly payments on a $400,000 mortgage when the house is now worth only $300,000? Underwater mortgages have also cut into the housing market because homeowners who owe more than their homes are worth can’t sell without incurring significant losses. Butler said that, for others, the key to a recovery will be when “the housing market is driven by owner-occupants, not foreclosed properties.” “Typically, when one thinks of housing the main theme is people wanting to buy a place for their family. Now, foreclosures are the dominant force,” he said. Butler said recovery could be “many years down the line” in hard hit areas of the country such as Phoenix. In less beleaguered regions such as Texas, perhaps not as long, he said. There are many obstacles that need to be overcome, some of them specific to the industry itself as the pendulum has swung sharply from the lax lending standards of a decade ago to a markedly different lending environment today. Now, potential homeowners face increasingly tougher loan-qualification guidelines, lower limits on U.S. Federal Housing Administration-backed mortgages and higher down-payment requirements. While a common-sense approach to lending might have avoided the catastrophic fallout from last decade’s housing bubble, the sharp turn in the other direction is now acting as an impediment to lifting the housing market out of its doldrums. The rest of the economy isn’t helping either. “It’s been two-and-a-half years and we’re still heading down,” said Steve Palm, president of Smart Numbers, an Atlanta-based real estate data firm. That trajectory isn’t expected to change if unemployment continues to hover above 9%. “Housing will not lead us out of this thing,” said Palm. “We’ve got to get businesses to start hiring.” A significantly reduced unemployment rate is widely seen as the lone economic index that could single-handedly affect the housing market. But in lieu of that unlikely scenario it will take jumps in a range of housing-related data points — sale closings, homes under contract, building permits, etc. — before anyone is convinced the housing market is turning around. Bramlett said none of those numbers is likely to move higher while a huge glut of housing inventory remains. “Nothing is going to change while there’s that glut,” he said. “Until that changes I don’t see anything driving any prices upward.” But jobs are the key. High unemployment bleeds across all sectors of the economy and has impacted housing in particular. Said Bramlett: “There is no mobility right now, people aren’t moving for jobs. It used to be that when you got a better job you got a better house. Now no one is getting that better job so they’re not moving into that better house. It’s unchartered territory at the moment.” Excerpt from: Housing Recovery Begins When Foreclosures Turn To Closings
Read the full article →
