The economy is on the road to financial recovery. It will be a long and hard road, but we are on our way. There are many obstacles that could cause us to break down on this road. None is more important than the concept of "shadow inventory." What is that? These are homes which the banks are not foreclosing upon because they are trying to work out solutions with present homeowners or frankly they don’t want to flood the markets all at once and depress prices. How many homes are casting a shadow over the markets? Projections vary, but suffice to say that there are several million homes that will be foreclosed upon in the next two years. That is a lot of homes. It is also good news that at least one forecaster says that investor demand is so strong that home prices will not be affected by these homes coming upon the markets.
We keep saying this and it bears repeating. Real estate led us into recession and it must lead us into recovery. There are many factors that can help "soak" up shadow inventory. The weak dollar is increasing demand from foreign investors. The tax credit is bringing more first time buyers into the market and now move-up buyers as well. Low rates are keeping homes affordable, especially when compared to renting in many markets. Government efforts at modifications are also expected to keep many in their homes. Even builders are helping by bringing less homes to the market. Not one of these is by itself enough to absorb several million homes. But if we put all these factors together, it very well may happen as the John Burns Real Estate Consulting Company has indicated. Keep in mind that all the while the population of this Nation is rising. This means that sometime in the future, there will be growth in the real estate market and our economy. In the meantime, we will navigate the long and winding road.
Thursday, March 4, 2010
Monday, December 7, 2009
New Push on Mortgage Relief
In the latest move to bolster its $75 billion foreclosure-prevention plan, the Obama administration on Monday will outline new efforts designed to increase the number of borrowers who receive mortgage relief.
The Treasury Department on Monday will announce plans to appoint officials to monitor the actions of the largest mortgage servicing companies on a daily basis. It also will announce it is requiring mortgage companies to develop and report to the administration their plans to increase the number of completed modifications, a Treasury spokeswoman said.
While more than 650,000 borrowers have been given trial mortgage modifications under the plan, few borrowers have received permanent modifications. Many borrowers complain that it is difficult to get a permanent fix even once they have made trial payments; some have been required to send in duplicate paperwork or even ended up further behind on their mortgage payments.
The Treasury won't release the number of completed modifications until December, but the spokeswoman said it is in the "tens of thousands." It is too early to know what portion of trial modifications will become permanent, she added.
Based on their initial experience, some mortgage executives expect 25% to 35% of borrowers enrolled in the trial program to qualify for final modifications.
The stakes for the economy of a successful modification program are high. To stop further home price declines, some economists argue that the share of home sales that are foreclosures and other distressed properties must remain stable. Foreclosure sales fell this year because of moratoriums and stepped-up modification efforts, helping stabilize home prices.
The Obama administration program provides financial incentives for mortgage companies and investors to reduce loan payments to affordable levels for troubled borrowers. Borrowers first make reduced payments under a trial program. To receive a permanent modification, borrowers must make three payments during the trial period and provide a hardship affidavit and other documents.
For borrowers who do receive a trial modification, few are becoming permanent. Some borrowers can't make the required payments during the trial period, mortgage companies say, often because the reduced payment still isn't low enough or they have suffered another financial setback.
In other cases, borrowers in the trial program aren't providing a hardship affidavit and other necessary documents or the paperwork doesn't match the information provided verbally. In still other cases, the loan may not pass a "net present value test" used to determine whether a modification is less costly to the lender or investor than a foreclosure.
Meanwhile, the number of borrowers falling behind on their loan payments continues to outpace the administration's efforts to help them. Roughly 1.56 million loans that were current in March were at least 60 days past due in October, according to LPS Applied Analytics. That's more than double the number of trial modifications.
Mortgage companies have stepped up efforts to collect documents, but many borrowers say firms are frequently disorganized and ask repeatedly for the same paperwork or offer confusing information.
John Fitzpatrick, a home builder in Ohio, made his first $1,464 trial payment in June. Three months later, Bank of America Corp. sent him a statement indicating he should pay $2,038, his monthly payment before the trial modification. Mr. Fitzpatrick said he has continued to make the lower payment on the advice of his attorney. Mr. Fitzpatrick said he believes he has provided all the required documents; in mid-November, he sent in another set of papers at the mortgage company's request. A Bank of America spokesman said the statement with the higher payments "was sent out in error."
Some borrowers are ending up in worse shape after seeking help under the government program. Jennifer and James Pugliese, of Scranton, Pa., were struggling, but still current on their mortgage when Litton Loan Servicing offered them a trial modification that reduced their loan payments by nearly 50% to $758. But after making successful trial payments, the couple was turned down for a final modification. Because the trial payments are considered partial payments if the modification fails, the Puglieses are now more than $5,000 behind on their mortgage; their credit score dropped after Litton reported to the credit bureau that the couple had entered the Obama program.
"There is no way we can recover at this point," said Ms. Pugliese, who received a foreclosure notice last week. "We are pretty much resolved to losing the house or filing for bankruptcy." When their loan payments were cut, the couple used the extra cash to pay other debts, she says.
A spokeswoman for Litton, a unit of Goldman Sachs Group Inc., said: "Litton is following the program's guidelines for eligibility qualifications, modification trial periods and credit reporting. Loans that do not pass the net present value test are not eligible" for a modification under the Obama program.
-WSJ (Ruth Simon)
Wednesday, September 9, 2009
Behind FHA Strains, a Push to Lift Housing
Interesting article...and it definitely shows that the public's demand is there as in the case of California accounting for 13% of all FHA loans in July! California areas have FHA loans to $729K...people want to buy if we can find a way to get them money! Jumbo money needs to be more available!
Friday, August 28, 2009
Housing Lifts Recovery Hopes
Sales of existing homes in July jumped at the fastest rate in 10 years, sending stock prices up around the globe on hopes that the U.S. housing market -- a driver of the world's largest economy -- is stabilizing after years of decline.
Sales of single-family homes increased 7.2% in July from a month earlier to a seasonally adjusted annual rate of 5.24 million units, the National Association of Realtors said Friday.
The monthly increase was the largest since 1999, when the NAR began collecting data for all types of homes -- its measure includes condominiums and cooperative apartments. It marked the fourth monthly rise in a row. Sales also were up 5% from July 2008, showing the first gain from the year-earlier level since November 2005.
The good news on housing came as Federal Reserve Chairman Ben Bernanke issued a mostly optimistic report Friday on the state of the U.S. economy.
"Fears of financial collapse have receded substantially," Mr. Bernanke said at the Federal Reserve's annual retreat at Jackson Hole, Wyo. "After contracting sharply over the past year, economic activity appears to be leveling out, both in the U.S. and abroad, and the prospects for a return to growth in the next year appear good."
The housing report pushed the Dow Jones Industrial Average up 155.91 points, or 1.7%, to close at 9505.96. The Dow has risen five of the past six weeks.
The increase in home sales came as buyers rushed to lock in bargains on foreclosed homes and tap a federal tax credit for first-time buyers that is set to expire in a few months. Yet home sales remain nearly 20% below the pace of 2006, when the housing boom was peaking. Housing economists and even some real-estate agents caution that the recovery is fragile.Related
* Economists React: 'A Long Way to Go'
* Housing: A 'Wave' of Foreclosure Listings?
* Souring Loans Compound Mortgage Woes
For now, low prices and attractive financing are enticing buyers. Jodi Janiga, 32 years old, is using a loan insured by the Federal Housing Administration to buy a two-bedroom townhouse in Green Valley, a Las Vegas planned neighborhood with golf courses and sidewalk statues. That required her to put about $4,200 down on the $119,000 property. Three years ago, similar townhomes in the area sold for $280,000.
"It was a smoking deal," said Ms. Janiga, a schoolteacher who says she bid on nearly 15 homes.
"The buyers are back, and they're buying," but mainly the lowest-priced homes, said Teresa Boardman, a real-estate broker in St. Paul, Minn. Many potential sellers of higher-quality homes are waiting to put them on the market if prices start to rebound, she said.
The economic outlook is crucial for housing demand, as many potential buyers will hold off as long as they fear job losses.
Most economists say the U.S. economy, which began contracting in December 2007 in what is the deepest and longest recession since World War II, has started growing again. The Fed said manufacturing output rose 1% in July, the strongest increase since December 2006. U.S. exports rose in May and June. Consumers are still dragging on the economy, though, as a high jobless rate, stagnant wages, tight credit and a renewed eagerness to save have restrained spending.
The Realtors said a survey of agents showed that foreclosure-related sales accounted for 31% of July transactions. But foreclosures are a much bigger factor in some markets, particularly in parts of Florida, Nevada, Arizona and California. In the Las Vegas area in July, bank-owned properties accounted for 73% of all sales, according to the Greater Las Vegas Association of Realtors.
Distressed sales continue to push down prices. The median U.S. price in July was $178,400, down 15% from a year earlier.
Sales were also strong in some metro areas that haven't been hit hard by foreclosures, said Tom Lawler, a housing economist in Leesburg, Va. These include Des Moines, Iowa; San Antonio and Roanoke, Va. "I think people who decided to check into the [home-shopping] process were pleasantly surprised by prices and mortgage-credit availability," Mr. Lawler said. The FHA is insuring mortgages for people with down payments of as low as 3.5%.
Housing also has grown more affordable.
On average, a U.S. household with a median income in the second quarter of this year could afford a home costing 71% more than the median price, according to Moody's Economy.com. Three years ago, such a household could have afforded a home only 5% over the median.
Compared with a year earlier, unit sales in July were up 3.3% in the Northeast, 8% in the Midwest, 5.4% in the South and 1.8% in the West, the NAR said.
Sales have been aided by a federal tax credit of as much as $8,000 for first-time home buyers. That stimulus will end Nov. 30 unless Congress extends it.[Housing Recovery Lifts Hopes]
Sens. Christopher Dodd, a Connecticut Democrat, and Johnny Isakson, a Republican from Georgia, have introduced legislation to extend the credit, increase it to as much as $15,000 and make it available to all home buyers, not just first-timers. Senate Majority Leader Harry Reid backs an extension of the credit.
"Congress is not going to endanger the fragile beginnings of a housing recovery by letting the credit lapse," said Howard Glaser, a mortgage-industry consultant in Washington.
Inventories of unsold homes are falling but remain high. And many potential sellers are staying out of the market, waiting for signs of rising prices before trying to sell. That could lead to a bulge in inventory later.
Some 1.8 million homeowners are currently in foreclosure, and the number of future foreclosures could top one million, says Torsten Slok, senior economist at Deutsche Bank. "It's safe to say that we still have a significant amount of foreclosures ahead of us," he said, adding: "It's still not a healthy housing market when you have one third of sales coming from foreclosure sales."—Sara Murray and Corey Boles contributed to this article.
By JAMES R. HAGERTY and NICK TIMIRAOS of the WSJ
Sales of single-family homes increased 7.2% in July from a month earlier to a seasonally adjusted annual rate of 5.24 million units, the National Association of Realtors said Friday.
The monthly increase was the largest since 1999, when the NAR began collecting data for all types of homes -- its measure includes condominiums and cooperative apartments. It marked the fourth monthly rise in a row. Sales also were up 5% from July 2008, showing the first gain from the year-earlier level since November 2005.
The good news on housing came as Federal Reserve Chairman Ben Bernanke issued a mostly optimistic report Friday on the state of the U.S. economy.
"Fears of financial collapse have receded substantially," Mr. Bernanke said at the Federal Reserve's annual retreat at Jackson Hole, Wyo. "After contracting sharply over the past year, economic activity appears to be leveling out, both in the U.S. and abroad, and the prospects for a return to growth in the next year appear good."
The housing report pushed the Dow Jones Industrial Average up 155.91 points, or 1.7%, to close at 9505.96. The Dow has risen five of the past six weeks.
The increase in home sales came as buyers rushed to lock in bargains on foreclosed homes and tap a federal tax credit for first-time buyers that is set to expire in a few months. Yet home sales remain nearly 20% below the pace of 2006, when the housing boom was peaking. Housing economists and even some real-estate agents caution that the recovery is fragile.Related
* Economists React: 'A Long Way to Go'
* Housing: A 'Wave' of Foreclosure Listings?
* Souring Loans Compound Mortgage Woes
For now, low prices and attractive financing are enticing buyers. Jodi Janiga, 32 years old, is using a loan insured by the Federal Housing Administration to buy a two-bedroom townhouse in Green Valley, a Las Vegas planned neighborhood with golf courses and sidewalk statues. That required her to put about $4,200 down on the $119,000 property. Three years ago, similar townhomes in the area sold for $280,000.
"It was a smoking deal," said Ms. Janiga, a schoolteacher who says she bid on nearly 15 homes.
"The buyers are back, and they're buying," but mainly the lowest-priced homes, said Teresa Boardman, a real-estate broker in St. Paul, Minn. Many potential sellers of higher-quality homes are waiting to put them on the market if prices start to rebound, she said.
The economic outlook is crucial for housing demand, as many potential buyers will hold off as long as they fear job losses.
Most economists say the U.S. economy, which began contracting in December 2007 in what is the deepest and longest recession since World War II, has started growing again. The Fed said manufacturing output rose 1% in July, the strongest increase since December 2006. U.S. exports rose in May and June. Consumers are still dragging on the economy, though, as a high jobless rate, stagnant wages, tight credit and a renewed eagerness to save have restrained spending.
The Realtors said a survey of agents showed that foreclosure-related sales accounted for 31% of July transactions. But foreclosures are a much bigger factor in some markets, particularly in parts of Florida, Nevada, Arizona and California. In the Las Vegas area in July, bank-owned properties accounted for 73% of all sales, according to the Greater Las Vegas Association of Realtors.
Distressed sales continue to push down prices. The median U.S. price in July was $178,400, down 15% from a year earlier.
Sales were also strong in some metro areas that haven't been hit hard by foreclosures, said Tom Lawler, a housing economist in Leesburg, Va. These include Des Moines, Iowa; San Antonio and Roanoke, Va. "I think people who decided to check into the [home-shopping] process were pleasantly surprised by prices and mortgage-credit availability," Mr. Lawler said. The FHA is insuring mortgages for people with down payments of as low as 3.5%.
Housing also has grown more affordable.
On average, a U.S. household with a median income in the second quarter of this year could afford a home costing 71% more than the median price, according to Moody's Economy.com. Three years ago, such a household could have afforded a home only 5% over the median.
Compared with a year earlier, unit sales in July were up 3.3% in the Northeast, 8% in the Midwest, 5.4% in the South and 1.8% in the West, the NAR said.
Sales have been aided by a federal tax credit of as much as $8,000 for first-time home buyers. That stimulus will end Nov. 30 unless Congress extends it.[Housing Recovery Lifts Hopes]
Sens. Christopher Dodd, a Connecticut Democrat, and Johnny Isakson, a Republican from Georgia, have introduced legislation to extend the credit, increase it to as much as $15,000 and make it available to all home buyers, not just first-timers. Senate Majority Leader Harry Reid backs an extension of the credit.
"Congress is not going to endanger the fragile beginnings of a housing recovery by letting the credit lapse," said Howard Glaser, a mortgage-industry consultant in Washington.
Inventories of unsold homes are falling but remain high. And many potential sellers are staying out of the market, waiting for signs of rising prices before trying to sell. That could lead to a bulge in inventory later.
Some 1.8 million homeowners are currently in foreclosure, and the number of future foreclosures could top one million, says Torsten Slok, senior economist at Deutsche Bank. "It's safe to say that we still have a significant amount of foreclosures ahead of us," he said, adding: "It's still not a healthy housing market when you have one third of sales coming from foreclosure sales."—Sara Murray and Corey Boles contributed to this article.
By JAMES R. HAGERTY and NICK TIMIRAOS of the WSJ
Thursday, July 16, 2009
Mortgage Firms Struggle to Redo Hard-Hit Loans
This is a very good article that puts some solid detail about the realities of mortgage modifications.The thought behind it makes sense for some...but what about the investors that are losing big time...INTERESTING...big brother is watching!
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Morgan Stanley chief John Mack recently made a new friend, he told shareholders in April -- a Southern woman who had benefited from the big bank's stepped-up efforts to modify loans under a new federal program aimed at keeping borrowers in their homes.
"I'm now invited -- if I ever visit Memphis, Tennessee -- to drive two hours south to have dinner with her and her family," Mr. Mack said.
Steve Applegate of Lake Mary, Fla., has tried without success to modify his $750,000 home loan through Saxon Mortgage Services Inc.
But by some measures, Morgan Stanley's mortgage-loan servicing firm, Saxon Mortgage Services Inc., has a long road to go. An April Credit Suisse Group analysis of how quickly companies have renegotiated loans ranked Saxon last among 18 mortgage-servicing firms. Saxon has modified just 6% of the loans it oversees that originated between 2005 and 2007. By contrast, Litton Loan Servicing, a Goldman Sachs Group Inc. unit, modified 28% of its loans.
Such firms are at the center of a grand government experiment aimed at halting foreclosures and the collateral damage they cause neighboring homes. New foreclosure notices will total 2.4 million this year, which could trigger price drops in 69.5 million nearby homes, estimates the Center for Responsible Lending, a financial-services research and policy firm. At an average decline of $7,200 a house, that translates to a potential drop of $502 billion in total U.S. property values.
The government plan, rolled out in February and called the Home Affordable Modification Program, or HAMP, will pay mortgage-servicing firms to modify mortgages and find other ways to keep people in their homes. But the program's sheer scale and the speed with which it was rolled out has created a new set of problems for some of the 27 firms charged with carrying it out.
A look at Saxon provides a window into the challenges these mortgage servicers now face as they attempt to salvage the loans of three million to four million Americans. Mr. Mack declined to comment through a spokeswoman, but Saxon says that as soon as HAMP launched, it was flooded with requests from borrowers.
The company, based in Irving, Texas, has hired or expanded contracts with four outside companies to help handle the influx, and it recently added a late shift from 4 p.m. to 11 p.m. to manage the extra work. Even the volume of paperwork at one point grew unwieldy -- an internal audit in mid-May found that Saxon's scanning equipment was overloaded with materials sent in by borrowers, leading to delays and lost documents.
Staff lacked the training and experience to modify so many sour loans. During the housing boom, Saxon's mortgage-servicing employees did little more than send monthly statements in the mail and track down delinquent borrowers. Like other mortgage servicers, Saxon was essentially the link between borrowers and the investors who owned pools of mortgages. It handled the day-to-day business of collecting payments on behalf of those investors, and when borrowers fell behind, of covering the payments until it could collect. When borrowers defaulted, Saxon would either modify the loans or foreclose.
Now, firms like Saxon are under pressure to stem foreclosures at all costs. That means many employees need to be trained in an entirely new set of skills. Under HAMP, reworking a single loan can be a time-consuming process with many steps, from calculating a borrower's debt-to-income ratio, to negotiating with investors who own different slices of the loan pool, to figuring out which type of modification works best for each borrower. Loan specialists need to study multiple guidelines, online tutorials and a HAMP data dictionary with terms such as "underlying trust identifier."
In May, shortly after the government program kicked off, Anthony Meola, Saxon's chief executive, gave his employees a call to arms. Standing atop a makeshift stage in the middle of Saxon's call center in Fort Worth, Texas, Mr. Meola barked into a microphone: "You are getting a chance to help preserve the American dream. Think about what you could do -- you can save someone's home!"
Saxon also has a financial incentive: The government is paying servicers $1,000 for each loan they modify, with another $1,000 annually for up to three years if borrowers stay current. In all, the U.S. could provide as much as $18.6 billion to the mortgage industry, investors and borrowers.
Yet there is growing concern among some lawmakers that loan modifications aren't moving fast enough. In late June, 20 Democratic senators wrote to Treasury Secretary Timothy Geithner, whose agency is the architect of the housing program, to ask him to put more pressure on mortgage-servicing firms. The group cited a recent report from a foreclosure program administered by NeighborWorks America, a Washington network of affordable-housing organizations, that found homeowners still were being forced to wait, on average, 45 to 60 days for help.
On July 9, Mr. Geithner sent a message to the mortgage-servicing firms that have signed up for the modification program and told them to ramp up their efforts. "We believe there is a general need for servicers to devote substantially more resources to this program," Mr. Geithner wrote, including adding staff and call centers. He said the agency would begin publicly reporting each firms' results starting in August, and that Freddie Mac, the government-controlled mortgage buyer, would be auditing a sample of declined requests to make sure no borrowers were denied incorrectly.
Saxon so far has completed nearly 17,000 loan modifications where borrowers have submitted income verification and other documentation and made their first payment. In total, it has given initial approval of 28,000 modifications where the borrower has provided spoken information about income, a process that underscores the government's desire to move things along quickly.
Still, some Saxon borrowers have endured long waits. Diana Wiles, a 54-year-old lab technician in Fremont, Mich., was approved in February for a modification on a $113,000 home-equity loan which cut her interest rate to 1.75% from 6.75%.
She says Saxon told her not to make her March loan payment and it would send her documents to sign and return. But the documents didn't arrive -- and Saxon charged her a late fee for missing a payment. Ms. Wiles made another attempt to modify her mortgage, and this time, Saxon screened her to see if she qualified under HAMP. But when the firm requested she put property taxes and insurance in an escrow account, as the U.S. program required, she balked. "I didn't trust them after all we had been through," she says.
Over the next six weeks, she resubmitted her financial information twice and called Saxon weekly, without a clear answer.
After The Wall Street Journal inquired about Ms. Wiles's case, she received a package confirming terms of an approved loan modification, setting her mortgage rate at 1.75% for five years beginning Aug. 1. A Saxon spokeswoman says her financial documentation only recently had been completed.
But more confusion followed. After her loan package was confirmed, Ms. Wiles received a letter dated June 24 from Saxon that said her first new payment was actually due July 1. Ms. Wiles phoned to clarify and then received another letter dated June 25 that told her to disregard the June 24 letter and that in fact her new loan package would begin Aug 1.
Saxon's borrowers' rate of so-called re-defaulting -- or defaulting on a loan after it's been modified -- has also been higher than most. Of the loan modifications made by Saxon in the first quarter of 2008 where monthly payments were decreased by more than 20%, 34% of the amount owed was delinquent by 60 days or more 10 months after the modification, according to Credit Suisse Group. That compares with an average of 27% delinquent for the 18 servicers Credit Suisse analyzed.
Part of the problem at Saxon is that it didn't ramp up its ability to modify loans as early as other servicing companies. A spokeswoman for Saxon says that when Morgan Stanley purchased the company in 2006, it lacked enough employees and systems to undertake massive numbers of modifications. It wasn't until the spring of 2007 -- after its portfolio of subprime loans had already started to sour -- that Saxon began to focus on modifying loans. Not until the fourth quarter of 2008 did Saxon boost its capacity to handle a large flood of requests.
Some Saxon borrowers have gotten swift modification approvals. Lorraine Rodriguez, a hospital worker in Anaheim, Calif., called Saxon in mid-May. Following an hourlong call, she says, Saxon told her she had been approved for a three-month trial modification starting June 1, cutting her mortgage rate to about 5% from 9.5%. Her monthly payment was cut 42%, to just below $1,900. The new rate "is still a high amount and is tough for us," says Ms. Rodriguez, 57.
Charged with beefing up Saxon's operations is Mr. Meola, an accountant who held senior mortgage positions at Citigroup Inc., PNC Bank, Washington Mutual Inc. and New Century Financial Corp.
Mr. Meola, 52, is the author of a how-to management guide, which offers tips on communications and staying positive. At Washington Mutual, the lender that collapsed in 2008, Mr. Meola teamed up with basketball legend Earvin "Magic" Johnson to build homes for needy communities. Mr. Meola, who oversaw loan production, was a showman and comic in front of sales forces, says a person familiar with his time there.
He joined Morgan Stanley in the spring of 2007 as chief operating officer of its residential mortgage business as the firm was in the midst of a massive spurt of loan originations and securitizations. That growth had enabled Morgan Stanley to climb up the rankings of subprime-mortgage sales. Within a few months, Mr. Meola and Morgan Stanley effectively stopped making subprime loans as the industry collapsed.
At the time it was purchased in 2006, Saxon's portfolio totaled 165,000 loans for an unpaid balance of $26 billion. As of June 30, 2008, the portfolio had grown to 342,404 loans, the bulk of which were subprime, with a balance of $56.9 billion.
By the time the Obama administration and Treasury Department launched HAMP, Saxon was having trouble keeping up with requests for modifications, even as it attempted to get up to speed. Mr. Meola says in the fourth quarter of 2008 he had ordered Saxon to upgrade its call-center systems, improve training and make sure callers were routed to the right employees.
The company has retrained 659 employees on how to implement the government program. It has invested in a new, high-speed scanning software system, which can scan up to 125 documents a minute. Before the change, it took 20 minutes to upload the same amount of documents.
Mr. Meola reviews a sample of calls into the Saxon call center, including analyzing wait times. His checklist, which monitors customer dealings in 30-minute intervals, includes counting the number of denials and available agents.
He's been deflecting criticism from some watchdogs. In April, for example, Saxon executives convened at the Fort Worth unit of the Better Business Bureau. The agency, after receiving a spike in complaints from Saxon customers, had given the company an "F" based on the complaints.
Sitting in a small conference room, members of the bureau told Saxon executives of complaints about service, billing and miscommunications during refinancing, according to an agenda for the meeting. More than 300 people had lodged complaints in the year ending early 2009. Mr. Meola says complaints spiked after Saxon took over a portfolio of 80,000 loans from a troubled rival in 2007. The bureau has since upgraded Saxon to a "D."
Among those who had complained was Steve Applegate, owner of a Lake Mary, Fla., building-supplies business. Hurt by the construction downturn, Mr. Applegate last fall asked Saxon to modify his $750,000 home loan.
Mr. Applegate, a 60-year-old father of two, says he was told in January that he'd been approved for a rate cut to 2.08% from 6.5%, which would cut his $4,063 monthly payment by more than half. But the confirming paperwork from Saxon never arrived, he says, and in March, he was notified he was in default. When he phoned Saxon, a different loan negotiator recommended foreclosure.
He tried to resuscitate the earlier modification. At one point in April, he spent nearly two hours on the phone with Saxon, got disconnected twice, and was routed to four individuals, according to a recording of the call.
In May, Mr. Applegate was informed by Saxon that he had approval under HAMP for a modification starting June 1.
The good news didn't last. When he tried to make a second payment on the modified loan, he was told he hadn't qualified after all. When the Journal asked what happened, a Saxon spokeswoman said that the company had erred in sending him paperwork for a HAMP modification because his outstanding loan balance exceeded the program's limit of $729,750.
Earlier this month, Saxon said it would modify his loan outside the federal program. Mr. Applegate is still waiting.
By CARRICK MOLLENKAMP and SERENA NG of the WSJ
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Morgan Stanley chief John Mack recently made a new friend, he told shareholders in April -- a Southern woman who had benefited from the big bank's stepped-up efforts to modify loans under a new federal program aimed at keeping borrowers in their homes.
"I'm now invited -- if I ever visit Memphis, Tennessee -- to drive two hours south to have dinner with her and her family," Mr. Mack said.
Steve Applegate of Lake Mary, Fla., has tried without success to modify his $750,000 home loan through Saxon Mortgage Services Inc.
But by some measures, Morgan Stanley's mortgage-loan servicing firm, Saxon Mortgage Services Inc., has a long road to go. An April Credit Suisse Group analysis of how quickly companies have renegotiated loans ranked Saxon last among 18 mortgage-servicing firms. Saxon has modified just 6% of the loans it oversees that originated between 2005 and 2007. By contrast, Litton Loan Servicing, a Goldman Sachs Group Inc. unit, modified 28% of its loans.
Such firms are at the center of a grand government experiment aimed at halting foreclosures and the collateral damage they cause neighboring homes. New foreclosure notices will total 2.4 million this year, which could trigger price drops in 69.5 million nearby homes, estimates the Center for Responsible Lending, a financial-services research and policy firm. At an average decline of $7,200 a house, that translates to a potential drop of $502 billion in total U.S. property values.
The government plan, rolled out in February and called the Home Affordable Modification Program, or HAMP, will pay mortgage-servicing firms to modify mortgages and find other ways to keep people in their homes. But the program's sheer scale and the speed with which it was rolled out has created a new set of problems for some of the 27 firms charged with carrying it out.
A look at Saxon provides a window into the challenges these mortgage servicers now face as they attempt to salvage the loans of three million to four million Americans. Mr. Mack declined to comment through a spokeswoman, but Saxon says that as soon as HAMP launched, it was flooded with requests from borrowers.
The company, based in Irving, Texas, has hired or expanded contracts with four outside companies to help handle the influx, and it recently added a late shift from 4 p.m. to 11 p.m. to manage the extra work. Even the volume of paperwork at one point grew unwieldy -- an internal audit in mid-May found that Saxon's scanning equipment was overloaded with materials sent in by borrowers, leading to delays and lost documents.
Staff lacked the training and experience to modify so many sour loans. During the housing boom, Saxon's mortgage-servicing employees did little more than send monthly statements in the mail and track down delinquent borrowers. Like other mortgage servicers, Saxon was essentially the link between borrowers and the investors who owned pools of mortgages. It handled the day-to-day business of collecting payments on behalf of those investors, and when borrowers fell behind, of covering the payments until it could collect. When borrowers defaulted, Saxon would either modify the loans or foreclose.
Now, firms like Saxon are under pressure to stem foreclosures at all costs. That means many employees need to be trained in an entirely new set of skills. Under HAMP, reworking a single loan can be a time-consuming process with many steps, from calculating a borrower's debt-to-income ratio, to negotiating with investors who own different slices of the loan pool, to figuring out which type of modification works best for each borrower. Loan specialists need to study multiple guidelines, online tutorials and a HAMP data dictionary with terms such as "underlying trust identifier."
In May, shortly after the government program kicked off, Anthony Meola, Saxon's chief executive, gave his employees a call to arms. Standing atop a makeshift stage in the middle of Saxon's call center in Fort Worth, Texas, Mr. Meola barked into a microphone: "You are getting a chance to help preserve the American dream. Think about what you could do -- you can save someone's home!"
Saxon also has a financial incentive: The government is paying servicers $1,000 for each loan they modify, with another $1,000 annually for up to three years if borrowers stay current. In all, the U.S. could provide as much as $18.6 billion to the mortgage industry, investors and borrowers.
Yet there is growing concern among some lawmakers that loan modifications aren't moving fast enough. In late June, 20 Democratic senators wrote to Treasury Secretary Timothy Geithner, whose agency is the architect of the housing program, to ask him to put more pressure on mortgage-servicing firms. The group cited a recent report from a foreclosure program administered by NeighborWorks America, a Washington network of affordable-housing organizations, that found homeowners still were being forced to wait, on average, 45 to 60 days for help.
On July 9, Mr. Geithner sent a message to the mortgage-servicing firms that have signed up for the modification program and told them to ramp up their efforts. "We believe there is a general need for servicers to devote substantially more resources to this program," Mr. Geithner wrote, including adding staff and call centers. He said the agency would begin publicly reporting each firms' results starting in August, and that Freddie Mac, the government-controlled mortgage buyer, would be auditing a sample of declined requests to make sure no borrowers were denied incorrectly.
Saxon so far has completed nearly 17,000 loan modifications where borrowers have submitted income verification and other documentation and made their first payment. In total, it has given initial approval of 28,000 modifications where the borrower has provided spoken information about income, a process that underscores the government's desire to move things along quickly.
Still, some Saxon borrowers have endured long waits. Diana Wiles, a 54-year-old lab technician in Fremont, Mich., was approved in February for a modification on a $113,000 home-equity loan which cut her interest rate to 1.75% from 6.75%.
She says Saxon told her not to make her March loan payment and it would send her documents to sign and return. But the documents didn't arrive -- and Saxon charged her a late fee for missing a payment. Ms. Wiles made another attempt to modify her mortgage, and this time, Saxon screened her to see if she qualified under HAMP. But when the firm requested she put property taxes and insurance in an escrow account, as the U.S. program required, she balked. "I didn't trust them after all we had been through," she says.
Over the next six weeks, she resubmitted her financial information twice and called Saxon weekly, without a clear answer.
After The Wall Street Journal inquired about Ms. Wiles's case, she received a package confirming terms of an approved loan modification, setting her mortgage rate at 1.75% for five years beginning Aug. 1. A Saxon spokeswoman says her financial documentation only recently had been completed.
But more confusion followed. After her loan package was confirmed, Ms. Wiles received a letter dated June 24 from Saxon that said her first new payment was actually due July 1. Ms. Wiles phoned to clarify and then received another letter dated June 25 that told her to disregard the June 24 letter and that in fact her new loan package would begin Aug 1.
Saxon's borrowers' rate of so-called re-defaulting -- or defaulting on a loan after it's been modified -- has also been higher than most. Of the loan modifications made by Saxon in the first quarter of 2008 where monthly payments were decreased by more than 20%, 34% of the amount owed was delinquent by 60 days or more 10 months after the modification, according to Credit Suisse Group. That compares with an average of 27% delinquent for the 18 servicers Credit Suisse analyzed.
Part of the problem at Saxon is that it didn't ramp up its ability to modify loans as early as other servicing companies. A spokeswoman for Saxon says that when Morgan Stanley purchased the company in 2006, it lacked enough employees and systems to undertake massive numbers of modifications. It wasn't until the spring of 2007 -- after its portfolio of subprime loans had already started to sour -- that Saxon began to focus on modifying loans. Not until the fourth quarter of 2008 did Saxon boost its capacity to handle a large flood of requests.
Some Saxon borrowers have gotten swift modification approvals. Lorraine Rodriguez, a hospital worker in Anaheim, Calif., called Saxon in mid-May. Following an hourlong call, she says, Saxon told her she had been approved for a three-month trial modification starting June 1, cutting her mortgage rate to about 5% from 9.5%. Her monthly payment was cut 42%, to just below $1,900. The new rate "is still a high amount and is tough for us," says Ms. Rodriguez, 57.
Charged with beefing up Saxon's operations is Mr. Meola, an accountant who held senior mortgage positions at Citigroup Inc., PNC Bank, Washington Mutual Inc. and New Century Financial Corp.
Mr. Meola, 52, is the author of a how-to management guide, which offers tips on communications and staying positive. At Washington Mutual, the lender that collapsed in 2008, Mr. Meola teamed up with basketball legend Earvin "Magic" Johnson to build homes for needy communities. Mr. Meola, who oversaw loan production, was a showman and comic in front of sales forces, says a person familiar with his time there.
He joined Morgan Stanley in the spring of 2007 as chief operating officer of its residential mortgage business as the firm was in the midst of a massive spurt of loan originations and securitizations. That growth had enabled Morgan Stanley to climb up the rankings of subprime-mortgage sales. Within a few months, Mr. Meola and Morgan Stanley effectively stopped making subprime loans as the industry collapsed.
At the time it was purchased in 2006, Saxon's portfolio totaled 165,000 loans for an unpaid balance of $26 billion. As of June 30, 2008, the portfolio had grown to 342,404 loans, the bulk of which were subprime, with a balance of $56.9 billion.
By the time the Obama administration and Treasury Department launched HAMP, Saxon was having trouble keeping up with requests for modifications, even as it attempted to get up to speed. Mr. Meola says in the fourth quarter of 2008 he had ordered Saxon to upgrade its call-center systems, improve training and make sure callers were routed to the right employees.
The company has retrained 659 employees on how to implement the government program. It has invested in a new, high-speed scanning software system, which can scan up to 125 documents a minute. Before the change, it took 20 minutes to upload the same amount of documents.
Mr. Meola reviews a sample of calls into the Saxon call center, including analyzing wait times. His checklist, which monitors customer dealings in 30-minute intervals, includes counting the number of denials and available agents.
He's been deflecting criticism from some watchdogs. In April, for example, Saxon executives convened at the Fort Worth unit of the Better Business Bureau. The agency, after receiving a spike in complaints from Saxon customers, had given the company an "F" based on the complaints.
Sitting in a small conference room, members of the bureau told Saxon executives of complaints about service, billing and miscommunications during refinancing, according to an agenda for the meeting. More than 300 people had lodged complaints in the year ending early 2009. Mr. Meola says complaints spiked after Saxon took over a portfolio of 80,000 loans from a troubled rival in 2007. The bureau has since upgraded Saxon to a "D."
Among those who had complained was Steve Applegate, owner of a Lake Mary, Fla., building-supplies business. Hurt by the construction downturn, Mr. Applegate last fall asked Saxon to modify his $750,000 home loan.
Mr. Applegate, a 60-year-old father of two, says he was told in January that he'd been approved for a rate cut to 2.08% from 6.5%, which would cut his $4,063 monthly payment by more than half. But the confirming paperwork from Saxon never arrived, he says, and in March, he was notified he was in default. When he phoned Saxon, a different loan negotiator recommended foreclosure.
He tried to resuscitate the earlier modification. At one point in April, he spent nearly two hours on the phone with Saxon, got disconnected twice, and was routed to four individuals, according to a recording of the call.
In May, Mr. Applegate was informed by Saxon that he had approval under HAMP for a modification starting June 1.
The good news didn't last. When he tried to make a second payment on the modified loan, he was told he hadn't qualified after all. When the Journal asked what happened, a Saxon spokeswoman said that the company had erred in sending him paperwork for a HAMP modification because his outstanding loan balance exceeded the program's limit of $729,750.
Earlier this month, Saxon said it would modify his loan outside the federal program. Mr. Applegate is still waiting.
By CARRICK MOLLENKAMP and SERENA NG of the WSJ
Friday, July 3, 2009
Jumbo Loans = Jumbo Problem!
I believe we all like some of the signs coming in today for Real Estate…at least in the overall number of contracts being written. It does appear that demand is beginning to come around with the discounts offered from many of the REO properties, and short sale scenarios. Couple this with the tax credit, and other incentives towards First Time Homebuyers, and the numbers can be falsely positive.
There is a big…let me re-phrase that: There is a JUMBO Problem that is beginning to scream loudly…and needs attention.
To make sure we are all with a crystal clear understanding, a Jumbo Loan is a single mortgage that is higher than $417k.
Do you know what is required to obtain most Jumbo Loans?
1. 20 to 25% Down Payment (some areas may be higher)
2. A 720 credit score or higher
Most areas have seen an increase in demand of homes that are priced below $450k, and the homes that are above $450k have typically dropped in demand significantly.
There are several reasons for the reduction in the volume of sales for this range, but the primary reason is the difficulty of obtaining financing for a Jumbo Loan. If this situation does not find some relief to have lenders be able to get back to a “healthy” (not sub-prime, and not exotic type loans, but good sensible lending) lending practice for this price range, we will soon be faced with a deeper hole that will perpetuate our existing problems with foreclosures.
What would be considered healthy?
I have talked to several people in the lending industry and the general range would be 10% down payment, and a minimum of 650 on the credit score…with full documentation to prove the relevant facts.
We need the banks to help themselves first.
Until they can attract more buyers to the Jumbo type of loan, the foreclosures in this range will begin to become a significant problem, and pricing could see a significant problem in this range.
So, hopefully lenders can see this and figure out how to assist in increasing the demand in lieu of exaserbating something that will keep supply increasing, and demand decreasing…it is a catch 22 for the lenders, but the risk of doing nothing is greater than trying something.
There is a big…let me re-phrase that: There is a JUMBO Problem that is beginning to scream loudly…and needs attention.
To make sure we are all with a crystal clear understanding, a Jumbo Loan is a single mortgage that is higher than $417k.
Do you know what is required to obtain most Jumbo Loans?
1. 20 to 25% Down Payment (some areas may be higher)
2. A 720 credit score or higher
Most areas have seen an increase in demand of homes that are priced below $450k, and the homes that are above $450k have typically dropped in demand significantly.
There are several reasons for the reduction in the volume of sales for this range, but the primary reason is the difficulty of obtaining financing for a Jumbo Loan. If this situation does not find some relief to have lenders be able to get back to a “healthy” (not sub-prime, and not exotic type loans, but good sensible lending) lending practice for this price range, we will soon be faced with a deeper hole that will perpetuate our existing problems with foreclosures.
What would be considered healthy?
I have talked to several people in the lending industry and the general range would be 10% down payment, and a minimum of 650 on the credit score…with full documentation to prove the relevant facts.
We need the banks to help themselves first.
Until they can attract more buyers to the Jumbo type of loan, the foreclosures in this range will begin to become a significant problem, and pricing could see a significant problem in this range.
So, hopefully lenders can see this and figure out how to assist in increasing the demand in lieu of exaserbating something that will keep supply increasing, and demand decreasing…it is a catch 22 for the lenders, but the risk of doing nothing is greater than trying something.
Tuesday, June 30, 2009
Atlanta North Update - Bottom on the way? Talk to Terry June Edition now available!
Demand is rising, and Supply is shrinking! Lending practices and Jumbo Loans will hold the key.
Visit www.TalktoTerry.com to watch the quick video.
Visit www.TalktoTerry.com to watch the quick video.
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