New Overdue Home Loans Swamp Effort to Fix Mortgages in Default
Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by double last month, a sign that nationwide government efforts to help delinquint homeowners avoid default may be failing.
In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track.
Foreclosure filings surged 65 percent and bank seizures more than doubled in April compared with a year earlier as rates on adjustable mortgages increased. Lawmakers and Federal Reserve officials are trying to ease the worst U.S. housing slump since the Great Depression through tax rebates, expanded federal mortgage insurance and other programs like FHA Secure.
It's going to take a while before you see the impact of the government's plans, if you can even see a discernable one. The government continues to lower the amount of homeowners that will find assistance with the programs becoming available to them. In fact, it has been reported that the FHA Secure Program is actually assisting five times as many homeowners that are not in default than homeowners that are.
In April, a record 183,000 homeowners were able to work out new borrowing terms with lenders and avoid foreclosure filings, according to the Hope Now Alliance, a mortgage industry coalition formed last year at the urging of U.S. Treasury Secretary Henry Paulson.
And It Keeps Getting Worse
The same month, foreclosure filings were reported on more than 243,000 properties, a 65 percent increase compared with April 2007. One in every 519 U.S. households is in some stage of the foreclosure process.
The Hope Now program has so far proven insufficient with a failure rate of nearly %50 for the first quarter of 2008, the head of consumer and community affairs at the Fed, told the Conference of State Bank Supervisors at a meeting in Florida. The mortgage crisis is bad and it's getting worse, repeating the central bank's plea for lenders to consider forgiving portions of mortgages.
Cure Ratio
Last month's 54 percent cure ratio among defaulted mortgages compares with 80 percent a year earlier and 87 percent in March. Comparisons with previous months may not be valid because one lender changed the way it calculated defaults and cures reported to the insurers.
The lender switched to defining defaults as 60 days overdue rather than 90 days for its April data. Because loans are less likely to return to good standing after falling three months behind, the switch to a 60-day threshold probably boosted the number of cures disproportionately to the increase in defaults.
The insurers say they've raised prices and stopped selling policies to the riskiest borrowers or covering loans in areas such as California and Florida with the highest default rates. The value of new mortgages privately insured by borrowers rose 12 percent from April 2007 to $19.4 billion last month, according to the mortgage insurance group, even as the number of policies issued fell 27 percent to 108,322. The top three mortgage insurers have lost more than four-fifths of their market value in the past year as the housing recession deepened.
The Senate Banking Committee last week approved legislation to create a program at the Federal Housing Administration to insure as much as $300 billion in mortgages for struggling borrowers after lenders agree to reduce the loan amounts.
Loan Modifications
A Loan Modification is a permanent change in one or more of the terms of a mortgagor's loan (ie. rate decrease, term increase), and allows the loan to be reinstated, which results in a payment the mortgagor can usually afford.
Loan Modifications are not occurring nearly at the numbers necessary to stem the foreclosure crisis, people are still going into foreclosure when, with a write down on existing principal balance, they could still stay in their homes. However, reducing the principal balance will not only further cripple the loan servicers and investors but will also (with government assistance) place the burden back on to the taxpayers.
Part of the problem is that so many of the loans were securitized, making it difficult to determine who has the legal authority to modify them. To compound the problem, loan servicers sell the mortgage notes at such a high rate it makes it difficult to know who even owns the note. A very high percentage of loan servicers continue to collect payments on mortgage loans where they are not even in possession of the original mortgage note, which is a requirement in order to proceed with foreclosure in most states. About 90 percent of subprime loans have been bundled into securities which allowed borrowers with poor credit histories to obtain a mortgage.
That is where the problem started, unethical mortgage brokers and lenders began peddling these loans to homeowners with above average credit not disclosing the effects of the loose lending guidelines. A high percentage of homeowners when asked stated they did not know what a negative amortization loan was or that the interest rate would increase by double in the next 5 years. Surprising to very few, subprime borrowers are behind in their payments at more than five times the rate of prime mortgage borrowers and a high portion of these people have experienced a mortgage rate increase of at least three percent.
|
