Banks are facing the inevitability of bankruptcy modification of mortgages.Banks have fought the notion of what is called a cramdown, saying that giving bankruptcy judges the ability to modify first mortgages will drive up borrowing costs for everyone.Supporters of cramdowns point out that modifications are no more costly than bankruptcies.To get the support of Citigroup, the only major bank that has spoken out in favor of bankruptcy modification, supporters of the proposal agreed to limit the cramdowns to existing mortgages. Banking industry lobbyists want to further limit the cramdowns to subprime loans taken out between 2002 and 2007. “To the extent that anything is ultimately passed, we would certainly want to limit that damage,” says Steve O’Connor, head lobbyist for the Mortgage Bankers Association.
Source: Business Week, Theo Francis
More buyers in search of home loans are turning to an obscure program operated by the United States Department of Agriculture.
The program allows no-money-down purchases. In fact, including a mortgage insurance policy, a borrower can seek up to 102 percent.
To be eligible, buyers can’t have income that exceeds 115 percent of the median county income. The loans are restricted to low-density areas, generally towns of no more than 25,000 residents. The loans are made by private lenders, then insured by the government.
Some home builders are promoting the use of this program. “It’s one of our main tools right now,” says John Bargnesi, vice president for sales of Scottsdale, Ariz., home builder Meritage Homes.
Source: The Wall Street Journal, Nick Timiraos
Increasingly, sellers seeking short sales are encountering a new twist.
Lenders are agreeing to let some short sales go through, but they want the home owners to sign a note promising to pay some or all of the balance due – debts that could burden borrowers for the rest of their lives.
Moody’s Economy.com estimates that about 10 million home owners have negative equity, a condition known colloquially as being upside down or underwater. By next June, the forecasting company expects the total to rise to 12.7 million — a quarter of all home owners who have mortgages.
“The first wave of foreclosures involved a lot of investors who just disappeared,” says Lance Churchill of Frontline Seminars, which teaches real estate practitioners how to negotiate with lenders on short sales. “Now, home owners with jobs and assets are underwater and want to sell. The banks want as much as they can get, today or in the future, and the owners want to get away clean.”
If the lender does a short sale without extracting anything from the seller, everyone in the country who is upside down could try to wiggle out from under and banks will take a fresh wave of hits. But if the lender pushes too hard, the borrower will default, leaving the bank in worse shape.
Source: The New York Times, David Streitfeld 09/18
Fannie Mae has tightened standards for the home mortgages it guarantees or buys.
The government-sponsored provider of home loan funding told lenders Monday it will require a minimum credit score of 580 for most loans it buys on an individual basis. Credit scores range from 300 to 850. In the past, Fannie had no minimum score.
Fannie also told lenders it will increase the period needed for borrowers to re-establish credit history after a foreclosure from four years to five. Fannie said it would allow shorter recovery periods for borrowers with “documented extenuating circumstances” that caused the foreclosure.
In a separate memorandum, Fannie, told loan services last week that it could extend forbearance periods on delinquent borrowers to as long as six months to allow borrowers time to find an alternative to foreclosure.
Source: The Wall Street Journal, James R. Hagerty (04/02/2008)
Tougher lending policies have unintended consequences for minorities and low- to moderate-income families, according to a survey of 1,135 combined members of the National Association of Hispanic Real Estate Professionals (NAHREP), the Asian Real Estate Association of America (AREAA) and the National Association of Real Estate Brokers (NAREB).
Fannie Mae, Freddie Mac, lenders, and mortgage insurance companies are all implementing declining market policies, which increases mortgage and refinance rates and usually call for larger down payments. “In effect, the consequence of these policies is a near complete suspension of financing resources to communities that need it most,” says NAHREP Chair Felix DeHerrera.
Here’s a rundown of the survey’s top findings:
- 62 percent of minority real estate professionals are concerned about declining market policies.
- 35 percent say areas with a high concentration of minorities and low-income residents have experienced a disparate impact of the policies.
- 27 percent are worried that some lenders may act too quickly to identify minority neighborhoods as being declining markets.
- 69 percent say that for every transaction they close, they turn away two to four customers that are unable to qualify for a mortgage under declining market guidelines.
Source: NAHREP, AREAA, NAREB (04/01/2008)