Monday, May 25, 2009
Obama’s Administration Foreclosure Prevention Plan…the 6% Solution?
www.homeseekercenter.com Did you happen to see the press released sent on May14th? The headliner was: More than 55,000 troubled homeowners have received loan modification offers under President Obama's foreclosure prevention program.I think we should all take a closer look at these programs and the numbers being reported. First, homeowners did not receive 55,000 loan modifications. They received offers to apply for loan modifications of which very few will qualify. To qualify for the Obama, plan, a homeowner must have a mortgage of no more than $729,750 originated before Jan. 1, 2009, and be in default or at risk of default for a reason such as a significant change in income or expenses. Oh, and the cost of foreclosure has to be higher than the cost of modification or you won’t qualify. You need sufficient income to pay the modified mortgage payment. Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year. Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher. “We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.” From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion. During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans — those given to people with slightly tainted credit — rose 159,000, to 836,000. Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier. Treasury Secretary, Tim Geithner, said "These are critical steps in stemming the foreclosure crisis and stabilizing the housing market, both of which are critical to our economic recovery." Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure. My message to Tim Geithner, “a well designed programs is critical in stemming foreclosures and in stabilizing the housing crisis but the programs you have initiated are not working. Three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.” According to RealyTrac.com the number of new foreclosures in May was 342,000. If I assume that 20,000 mortgages were modified in May this represents about 6% of the total homes lost during a single month of May. Let stop playing around. What we need is a program is designed to Help Homeowners that are at risk of losing their homes. The number one issue is job loss! Like it or not, most working Americans have used Credit not Savings to be the safety net when income was interrupted or when unexpected large expenses occurred. With depreciated homes values and the tight credit market “Lines of Credit or Second Mortgages” are not available to those who have lost or had their income greatly reduced. What the market needs is either a Government Grant Programs for distressed property owners or a Loan Assistance Program much like provided in a natural disaster. Remember 60% of payment defaults are a direct result of job loss due to the downturn in the economy. As job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures. That’s My Take…What’s Yours?