More Principle Reductions Approved for Upside-down Homeowners

By: Fred Thomas III

After years of arm twisting and myriad programs aimed at rehabilitating homeowners with mortgage difficulties, a new principal reduction initiative was announced today.

The program is targeted for approximately 9,000 homeowners in the California market whose mortgage balance is near or more than the value of the property, known as being “upside-down.” As part of the Obama Administration's Hardest Hit Initiative the program is called Keep Your Home California. Funding for the program comes from the Wall Street Bailout of 2008.

Principal Reductions have been a political volleyball during the past several years. Advocates stress by not addressing the problems of homeowners losing equity due to the housing collapse which started in 2007, the residual effects are deteriorating communities. Those in opposition stress a free market approach or doing nothing, fearful that helping homeowners would result in a negative impact to investors. Edward DeMarco, Chief of the Federal Housing Finance Agency who oversees housing giants Fannie Mae and Freddie Mac has been under intense pressure to use funding already in place to bring mortgages in line with current values.

Homeowner advocates welcome the news as a sign in the right direction of restoring a critical tax base.

The new initiative only applies to homeowners whose mortgage is owned by Fannie Mae or Freddie Mac. To determine eligibility homeowners are encouraged to visit their website (see below) to determine who the investor is. Once that is established homeowners should call their lender or whoever is servicing their mortgage for final eligibility.

 

Determine who owns your loan.

 

Borrowers in Negative Equity Declines

By: Esther Cho - DSNews.com

 

About 600,000 borrowers rose above negative equity in the second quarter of 2012, CoreLogic reported Wednesday.

According to the company’s analysis, 10.8 million, or 22.3 percent, of residential properties with a mortgage remained underwater for the second quarter of 2012. The second quarter figure is a decrease from the first quarter of this year, when 11.4 million properties, or 23.7 percent, were underwater.

Even though negative equity is said to be a driving factor for default, 84.9 percent of underwater borrowers managed to stay current on their payments.

“The level of negative equity continues to improve with more than 1.3 million households regaining a positive equity position since the beginning of the year,” said Mark Fleming, chief economist for CoreLogic. “Surging home prices this spring and summer, lower levels of inventory, and declining REO sale shares are all contributing to the nascent housing recovery and declining negative equity.”

While 600,000 homes moved into positive territory, 2.3 million borrowers were in a state of near-negative equity since they had less than 5 percent equity in their home. For these borrowers, the scale can tip either way, depending on the direction of home prices.

Anand Nallathambi, president and CEO of CoreLogic, said the expectation is for home prices to continue to trend up in August.

“Were this trend to be sustained we could see significant reductions in the number of borrowers in negative equity by next year,” added Nallathambi.

When combining negative and near-negative equity mortgages, CoreLogic found that 27 percent of all residential properties would be in one of the categories.

In dollar terms, the amount of negative equity decreased quarterly to $689 billion to $691 billion.

The states with the highest percentage of underwater mortgages were Nevada (59 percent), Florida (43 percent), Arizona (40 percent), Georgia (36 percent), and Michigan (33 percent).

Of the 10.8 million underwater mortgages, CoreLogic found that 6.6 million are without a home equity loan and the average amount in which they are underwater is $51,000. About 4.2 million underwater borrowers have first and second liens and on average, they are underwater by $84,000.

The report also stated that homes valued at less than $200,000 had a negative equity share of 32 percent compared to 17 percent for homes valued more than $200,000.

SIFMA is Opposed to Eminent Domain Takeover of Mortgages

On behalf of the Securities Industry and Financial Markets Association (SIFMA), Tim Cameron prepared remarks for a meeting in San Bernardino County to, once again, express opposition towards the area’s proposed use of eminent domain.

San Bernardino County and the cities of Fontana and Ontario created a Joint Powers Authority to explore proposals to assist underwater homeowners. The proposal that has been at the center of debate in the housing industry is the proposed use of eminent domain, which involves seizing underwater mortgages at fair market value. The mortgages would then be refinanced into new loans with more affordable terms.

While it is clear that San Bernardino County, like many other hard-hit areas across the U.S., are in need of a solution to address the problem of negative equity, the idea involving eminent domain has faced strong opposition.

In his prepared remarks, Cameron stated, “we believe that the use of eminent domain would significantly harm mortgage finance markets, reduce access to credit for borrowers, and negatively impact average investors’ portfolios.”

He also said “the use of eminent domain raises serious legal and constitutional issues” and added that “short-term benefits to a small group of performing homeowners” would not outweigh the “long-term costs and liability risks of an eminent domain proposal.”

He further urged the JPA to explore the problem further, pointing out that the proposal “targets a few thousand people who have good credit, are current on their mortgage payments, and most importantly, happen to have mortgages that have been sold in the private label securities market.”

He then went on to ask, “Is this really where the JPA wants to focus its time and attention?”

While SIFMA’s argument reflects the viewpoint of many who stand in opposition to the proposal, Reuters reported California Lieutenant Governor Gavin Newsom asked SIFMA to “cease making threats to the local officials of San Bernardino County” in a statement that was first released to Reuters.

According to the Reuters article, Newsom stated, “This may be an aggressive idea, but communities such as San Bernardino, Chicago and others have no choice in these desperate times.”

Earlier this week, a meeting was held in Chicago in which the proposed use of eminent domain was also discussed.

By: Esther Cho
DSNews.com