California To Offer Program To Trim Underwater Mortgages
by Jim Wasserman – Sacramento Bee, 6/28/2010 (Legal)
Lots of people will want to get in on this one: California is going to use federal money to pay down the mortgages of struggling homeowners.
The California Housing Finance Agency announced that it will spend $420 million to trim individual mortgages by up to $50,000. Lenders will be asked to match the amount, a deal that could make thousands of mortgages newly affordable across the Sacramento area.
The program, launching Nov. 1, will be run on a first-come, first-served basis, said Evan Gerberding, marketing manager for the CalHFA’s “Keep Your Home” initiative. “Unfortunately, there will likely be more demand than funding,” she said.
Specifics on the selection process are still in the works. But CalHFA will exclusively fund applicants from low to moderate-income households.
In Sacramento, that’s expected to mean people earning less than $68,000 a year. Borrowers will have to be delinquent or in imminent danger of defaulting, but have adequate income to continue paying after getting the help. Gerberding advised people to keep checking the Keep Your Home website for applicant criteria to be posted later. She said people struggling to make payments shouldn’t wait for the program to start, but should contact lenders and loan counselors now.
Thousands of Californians who meet the income guidelines will want in, but one fact will block many. “This is to help people with purchase loans,” Gerberding said Wednesday. That rules out borrowers whose troubles began with cash-out refinances when their homes were worth more than now. Gerberding said exceptions may be made for people who refinanced to get lower interest rates. The program also requires that homeowners live in the house they mortgaged.
For years, federal and state governments have rolled out programs to stimulate loan modifications, and most have proved disappointing. California’s new program is one of the first large-scale attempts at wholesale “principal writedowns,” where loans are shrunk to more closely match today’s home values. “We think it’s encouraging that they took on principal reduction in the way that they did, devoting most of the resources to it,” said Kevin Stein, associate director of the California Reinvestment Coalition.
The low-income advocacy group has campaigned for principal reductions since 2007. “That’s the real need in California, to address the negative equity of borrowers being underwater,” Stein said. CalHFA, the state’s affordable housing bank, estimates it will help 40,000 or more households avoid foreclosure with principal writedowns and other plans unveiled Wednesday. In all, the agency received $700 million for the relief programs, part of a $1.5 billion federal initiative to curb foreclosures in the hardest-hit housing crash states. “We anticipate offering this over the next three years,” Gerberding said.
The agency will also spend $129 million providing up to $15,000 to help people catch up with late payments. An additional $64 million will provide the unemployed up to $1,500 a month to pay the mortgage for six months. Finally, homeowners will receive up to $5,000 to move when they cannot afford the mortgage under any circumstances. In all, the program will steer a maximum of $50,000 to qualifying households to avert foreclosures.
The CalHFA manager said there is no geographical quota. But help will roll first to hardest-hit counties, including much of the Central Valley. In Sacramento, Placer, Yolo and El Dorado counties, 12 percent of mortgages are seriously delinquent or in the foreclosure process. And nearly half the region’s mortgaged households owe more than the house is worth, according to housing industry tracker CoreLogic. “There are thousands who could benefit,” said Pam Canada, executive director of Sacramento nonprofit loan counselor NeighborWorks Homeownership Center. Gov. Arnold Schwarzenegger pledged Wednesday to work with CalHFA “to ensure that these programs are implemented in a way that assists the greatest number of Californians.”
CalHFA hopes banks will match the $700 million. “We’re asking lenders to come to the table with us on this,” Gerberding said. “We can’t force them to do that. But many of them have indicated they are happy to do that,” she said. Gerberding said CalHFA will add fewer than 10 new staff members to run the program. Administrative costs are estimated at about $52 million – 7.5 percent of the funding. — Call The Sacramento Bee’s Jim Wasserman, (916) 321-1102 or email him at jwasserman@sacbee.com. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.
RealtyTrac Sees First Annual Drop in Foreclosures Since 2005
Foreclosure filings across the country dropped from the year before for the first time since RealtyTrac began measuring the statistics in January 2005.
The company measures default notices, scheduled auctions and bank repossessions across the US. Filings were reported on 333,837 properties in April, a 2% drop from the same month in 2009 and a 9% drop from March.
James Saccacio, CEO of RealtyTrac, said it could be a sign that foreclosure activity is starting to flatten.
“There were two important milestones in the April numbers that show foreclosure activity has begun to plateau — but at a very high level that will not drop off in the near future,” said Saccacio, chief executive officer of RealtyTrac.
The first milestone was the drop in foreclosures. The second was that REO, or properties taken back by the bank, hit a record monthly high of 92,432 in April, up 1% from February and 45% from April 2009. It was a 1% increase from the peak in December 2009.
However, default notices dropped “substantially” on a monthly basis, according to the report. RealtyTrac reported 103,762 default notices in April, a 12% drop from February and a 27% drop from April 2009, when default activity peaked at more than 142,000.
“We expect a similar pattern to continue for most of this year, with the overall numbers staying at a high level and ripples of activity hitting the various stages of the foreclosure process as lenders systematically work through the backlog of distressed properties,” Saccacio said.
Nevada held the highest foreclosure rate for the 40th straight month. There, one in every 69 housing units received a foreclosure filing in April, more than five times the national average. Arizona moved from third to second despite a 15% decrease in foreclosure activity. There, one in every 169 homes received a filing. Florida held the third spot, where one in every 182 homes received a filing.
California fell from second to fourth. There, one in every 192 homes received a foreclosure filing.
Source: Jon Prior
Foreclosure 101-Introduction to Foreclosures.
Estimates of Foreclosure Shadow Inventory Decline
Shadow Inventory
According to a WSJ article today Barclays Capital estimates banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. Barclays has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank’s previous methods, the estimate for February would have been more than 600,000.
Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.
To read the full WSJ article click