Making Homes Affordable - Notes on Latest Additions

Posted on Friday, May 15, 2009

$75 Billion Making Homes Affordable
• Refinances and Modifications
• 8 weeks now
• Helped 50K people so far
• “Holes” in plan
Borrowers who can’t afford 31% criteria, HAVE to get rid of property. Increasingly more borrowers unemployed – can’t quality
Properties in markets where values keep decreasing – lenders fear modification will fail and they’ll be stuck with REO worth even less
More than 5% u/w don’t qualify for refi. Borrowers significantly u/w electing to walk as financial strategy (2 mill v. 6 mill)
Lenders paid if borrower keeps current over time/60% normally do
New Features Announced This Past Week Address “Holes”
• Focus on borrower who can’t sustain the home and markets hardest hit by price reductions
• Goal is encourage quick sale or voluntary repossession
• Allocate $10 billion of $50 billion already dedicated
• Expect to help 4 million
• So far largest servicers holding 75% signed up
• “Everyone takes a haircut”
Pays lenders $1000 regardless of whether borrower eventually defaults
$1000 to second lenders to release lien.
$1500 to borrower to relocate
• Still doesn’t make lender whole
But also avoid foreclosure, REO maintenance, carrying and resale costs including regulatory requirements of carry assets on their books (50% of loan)
Gives lenders and servicers additional justification against feared investors suits
• Better for borrower credit
• Adds new, more appropriate, alternatives beside refinance or modify
Cash for Keys
Deed in Lieu
Short Sale
Problem Still
Still not enough incentive for borrower to not walk if significantly u/w
Investor insurance terms may “chill” servicer/lender use of these new alternative
342K U.S. foreclosure notices last month. 1 in every 374. 75% increase in Florida over last year. More than 1.5 million Floridians are underwater. Far more than this plan’s fixing
What to Expect
Takes 3 – 4 months to implement and start seeing results.
Most lenders doing 3 month forbearance first
Lenders and servicers still overwhelmed by calls/understaffed/discouraging
Commercial foreclosure crisis (FWB) still looming. 30% of all properties in next 2 years
Good news is statewide mandatory mediation being considered by Florida Supreme Court – report due in August.

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