Remember the proposed requirement from six federal agencies that home buyers make down payments of at least 20 percent if they want the lowest interest rates?
We’ve been keeping you up to date on this issue here, and the latest is, the 20-percent proposal is still alive, but it’s temporarily bogged down in agency reviews of the roughly 12,000 comments filed by interest groups and individuals.
It almost certainly would not be ready for adoption until the first quarter of 2012. Even then, there would be a mandatory one-year lag before the requirement could take effect, pushing the issue into 2013 — well after the presidential and congressional elections.
The controversy comes at a politically sensitive time for President Obama. Housing continues to be a lead weight holding back the economic recovery. His polling numbers are plunging, plus key segments of his political base — unions, community and economic development groups, and consumer activists — oppose any move to force working families to come up with more cash to buy a home. The six agencies’ rule — even in proposal form — is likely to be an attractive target for the president’s opponents next year.
Bottom line: Don’t expect to see a 20-percent rule in the near future. Even independent regulators don’t operate in political vacuums. They’ve either gotten the message already or they will soon.
The Obama administration is laying out three broad options for overhauling the mortgage lending system, but will let Congress make the final decision…
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Struggling Refinance Program Extended
The Obama administration recently announced that borrowers with little or no equity in their homes will have yet another year to take advantage of a refinancing program that so far has made little progress.
The initiative, known as Home Affordable Refinance Program (HARP), was set to expire in June. But, so far, it has reached fewer than 200,000 of the up to 5 million borrowers federal regulators hoped it would help.
The program is aimed at the millions of borrowers whose home equity has been diminished by falling home prices, or who owe more than their homes are worth, making it impossible for them to take advantage of historically low mortgage rates. Originally the program targeted borrowers whose loan balances were slightly higher than their property’s value. The program was later expanded to include borrowers who owe up to 25 percent more than their homes are worth.
These underwater borrowers are at greater risk of foreclosure, and the administration hoped that lowering their payments would decrease their chances of falling behind.
But the program ran into several problems. Many borrowers were too underwater to qualify and the program was limited to loans backed by Fannie Mae or Freddie Mac, the mortgage financing companies. The initiative was also dogged by delays as lenders struggled to update their computer systems to accommodate the program. Another obstacle was that many homeowners have second mortgages or private mortgage insurance, which can get in the way of refinancing a primary loan.
And for some borrowers, the costs associated with refinancing, such as closing costs, were not worth the lower interest rates, especially for homeowners worried they might lose their jobs or might hit another financial crunch later.
Foreclosure Activity Declines in January
A total of 315,716 U.S. homes were mired in the foreclosure process in January, a 10% decline from foreclosure activity measured in December.
That number is still 15% above the level of foreclosure activity reported in January 2009. The report shows that one in every 409 U.S. housing units last month received a foreclosure filing — default notices, scheduled auctions or bank repossessions.
The sharp year-over-year increase is a sign that a backlog of defaulting properties may now be entering the foreclosure phase after several national and local moratoriums expired last year and the Obama administration’s efforts to provide mortgage relief for thousands of Americans has failed to make temporarily lowered payments permanent.
Default notices were down 12% from the previous month but were up 4% from January 2009. Scheduled foreclosure auctions were down 11% from the previous month but were up 15% from January 2009.
New Rule Affects Foreclosure Avoidance Program
The Obama administration overhauled its struggling foreclosure avoidance program recently, saying it would require homeowners seeking to ease their mortgage terms to document their financial situation before a trial modification is granted.
Borrowers previously could have their interest rates lowered and the terms of their loans extended on a trial basis without providing pay stubs and other financial documents. Banks and other mortgage customer-service providers were supposed to collect that information during a three-month trial period, with the modification becoming permanent if the borrower made three lowered payments and submitted the required paperwork.
The program yielded few permanent modifications, however. Servicers reported that large numbers of borrowers failed to properly document their situations, while homeowners complained that the banks were unreasonable and lost documents. According to the Treasury Department, between last spring, when the program began, and the end of December, servicers extended nearly 1.2 million offers to modify mortgages on a trial basis — but just 66,465 troubled home loans had been modified permanently.
The new procedure, to be adopted by loan servicers by June 1, would provide troubled borrowers with what the Treasury Department said would be a “simple, standard package of documents” to complete so that servicers could calculate whether they would qualify for a loan modification.
With that determination made in advance, any borrower who makes three payments at the modified rate would automatically have the modification made permanent.
The program was designed to provide billions of dollars in government subsidies to encourage lenders to forestall foreclosures.
To obtain the subsidies, servicers must slash interest rates, extend the terms of loans to 40 years and suspend payments on part of the amount owed.
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