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Obama Administration Launches Another Mortgage Program

February 2, 2012 By

In his State of the Union address earlier this month, President Barack Obama outlined what he called a “Blueprint for an America Built to Last,” and a major part of that plan includes another mortgage refinancing program.

The president’s plan includes “broad based refinancing,” which is designed specifically to help consumers who have seen the value of their homes slip below the amount they still owe on their home loans, as long as they have been responsible in continuing to pay their bills, the White House said. Borrowers who are current on their mortgages will be given the chance to avoid some red tape when attempting to refinance their current home loans to make them more affordable. Through the plan, underwater homeowners will be able to save an average of $3,000 per year on their home loan payments.

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“There are more than 10 million homeowners across the country right now who, because of an unprecedented decline in home prices that is no fault of their own, owe more on their mortgage than their homes are worth,” Obama said during a speech to unveil the plan in Falls Church, Virginia. “It means your mortgage, your house is underwater.”

The other major aspect of the plan is the creation of Homeowner Bill of Rights. This will create a single set of lending standards so that both borrowers and mortgage lenders are able to better understand the rules. For example, this includes a simpler mortgage disclosure form that will make it easier for borrowers to understand the terms of the loan they’re seeking, and tells them everything they need to know about all fees and penalties associated with their new account. It will also set guidelines for lenders that prevent conflicts of interest, provide support for responsible homeowners when their property is in foreclosure and protect homeowners against improper seizures that includes the right to appeal.

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In the past few years, the federal government has unveiled a number of other mortgage and refinance assistance programs designed to help homeowners with various economic problems related to their home loans. However, these programs were often criticized as being too difficult for even the most troubled borrowers to qualify for, and as a consequence, helped far fewer Americans stay in their homes than were originally intended.

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Will Obama’s Mortgage Plan Work?

January 25, 2012 By

If you’re a homeowner who is struggling to keep up with a mortgage you can’t afford, or wondering whether to continue to stay and pay on a home that is deeply underwater, you may have seen another glimmer of hope in yesterday’s news about more proposals to address the housing crisis.

Early Wednesday, preliminary details of a proposed mortgage settlement between five big banks, state attorneys general and the Obama administration, all of whom have been negotiating for months now, were released.

Under the proposed settlement, five of the largest banks would allocate $25 billion (not all in cash) to be used to refinance or modify mortgages, as well as provide principal reduction for some homeowners. Some of the settlement funds would go to state foreclosure relief programs, and a portion would be used to provide restitution for homeowners who were the victims of abusive foreclosure tactics. Those homeowners would get checks averaging roughly $2000; no doubt amounting to insult after the injury they’ve gone through while losing their homes.

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The Center for Responsible Lending, an advocacy group that has been raising concerns about mortgage abuses since the beginning of the housing crisis, said the proposal wasn’t perfect but did “represent an important step forward in addressing foreclosure abuses” by putting an end to robo-signing and servicer abuses, and by promoting “more sustainable mortgage modifications.” Other activist groups are urging a postponement until further investigation.

No deal has been finalized.

[Related Article: Underwater On Your Home? Your Six Options]

The President’s Plan

Later that evening, President Obama raised the housing crisis in his State of the Union address. He made two proposals to help the market:

  • The opportunity for “every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates.  No more red tape.  No more runaround from the banks. “
  • Calling on the “Attorney General to create a special unit of federal prosecutors and leading state attorney[s] general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.” It will include expanded “investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.”

No specific details of the refinance proposal were released last night, but many are skeptical that the program will go far enough, or that Congress will approve additional measures to help homeowners. TheStreet.com says that analysts are already calling the plan “dead on arrival.” Even if the President is able to expand refinancing opportunities, the sobering fact is that some 11 million homeowners owe more than their homes are worth, and their average negative equity is $65,000, according to CoreLogic. By comparison, $25 billion is a drop in the bucket.

However, neither the initial details of the settlement, nor the President’s announcement, gave struggling homeowners any specific action they can take to try to get help now; any reason to believe that they will be eligible for help so they can keep their homes; or that the housing market will recover anytime soon. Instead, they’re left to keep hanging in there, hoping things might be different this time around.

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Why Can’t the Housing Crisis Be More Like the Banking Crisis?

If the government approached the housing crisis the way it did the banking crisis, things might be different, says former TARP General Inspector Neil Barofsky. In this video interview with the American Banker, he says, “They went all in. No cap on resources, tapping every available resource…trillions and trillions of dollars.” But “when it came to the housing market,” he says, “it just wasn’t there.” Comparing the help the banks received under TARP to what homeowners haven’t received, he pulls no punches: “they have a lot more sympathy toward the larger financial institutions, frankly, than to the homeowner on Main Street.”

Once again, the word to struggling homeowners is to sit tight. Hopefully, help is coming. But no word on what happens if it doesn’t.

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Image: trint, via Flickr.com

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Ohio’s Biggest Cities Plagued by High Foreclosure Rates

May 9, 2011 By

Ohio's Biggest Cities Plagued by High Foreclosure RatesNew data from the nonprofit organization National People’s Action shows that one in 10 properties in the cities of Cleveland, Cincinnati and Columbus have been in foreclosure since the housing crisis began, according to a report from the Youngstown Business Journal. In addition, one in 20 properties in the “Three Cs” has been seized by lenders in that time.

The country’s five largest mortgage lenders—JPMorgan Chase, Bank of America, Wells Fargo, Citibank and U.S. Bank—are responsible for 57 percent of all foreclosure notices, the report said. Prior to the slowing of the filing process by the robosigning scandal, those banks accounted for about 700 foreclosures in the three cities every month.

The foreclosure problem has also affected occupancy rates in many neighborhoods, the report said. Homes seized by banks were far more common in areas with vacancy rates of 22.3 percent or more.

Ohio is one of the states that has been hardest hit by the foreclosure epidemic, though those in the Southern U.S., such as Arizona, Florida and California, have been affected far more deeply.

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Ohio’s Biggest Cities Plagued by High Foreclosure Rates

May 9, 2011 By

Ohio's Biggest Cities Plagued by High Foreclosure RatesNew data from the nonprofit organization National People’s Action shows that one in 10 properties in the cities of Cleveland, Cincinnati and Columbus have been in foreclosure since the housing crisis began, according to a report from the Youngstown Business Journal. In addition, one in 20 properties in the “Three Cs” has been seized by lenders in that time.

The country’s five largest mortgage lenders—JPMorgan Chase, Bank of America, Wells Fargo, Citibank and U.S. Bank—are responsible for 57 percent of all foreclosure notices, the report said. Prior to the slowing of the filing process by the robosigning scandal, those banks accounted for about 700 foreclosures in the three cities every month.

The foreclosure problem has also affected occupancy rates in many neighborhoods, the report said. Homes seized by banks were far more common in areas with vacancy rates of 22.3 percent or more.

Ohio is one of the states that has been hardest hit by the foreclosure epidemic, though those in the Southern U.S., such as Arizona, Florida and California, have been affected far more deeply.

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Credit Score Recovery Time from Foreclosures and Short Sales

March 24, 2010 By

What's now a million-dollar question was only a 25-cent question yesterday, because everyone already knew the answer: How long does it take for your credit scores to recover from a short sale or a foreclosure? Years, right? These incidents remain on your credit reports for seven years and short sales are reported as either charge-offs or settlements. Those two events, as well as foreclosures, are all seriously negative and could significantly damage your credit scores for many years.

So why has this suddenly become a topic of debate, discussion, and conflicting answers? Because in March 23rd’s American Banker, Barrett Burns, the CEO of credit score provider VantageScore Solutions claimed, "...it can take borrowers as little as nine months to repair their credit score after a short sale or foreclosure."

Wow, that’s great news! Or is it? I found this difficult to believe, so I interviewed Craig Watts from FICO – credit score inventor, and VantageScore’s prime competition – to get the company’s input on how long it takes to repair your credit scores after such an event. Here’s the full transcript of my interview, unedited.

Ulzheimer: Is FICO willing to go on the record discussing the impact of a foreclosure and/or a short sale on a consumer’s credit score?

Watts: "FICO has consistently found that past payment history is the single most predictive category of information when we empirically develop credit scoring models using consumer credit histories. As an example, we recently looked at a sample of about 10 million credit reports representing a highly diverse U.S. population. We examined that group's most recent, twelve-month performance window. We found a default rate of 2.9% for the subset of all consumers with a clean credit record, and a default rate of 49% for the subset of all consumers who had had a recent foreclosure. In other words, consumers who recently experienced a foreclosure were about 17 times more likely to default on a credit obligation in the next 12 months than were people with a clean credit record. Obviously, recent credit defaults are vitally important when one is objectively assessing default risk."

Ulzheimer: How long does it take for a consumer’s score to recover after a short sale or foreclosure? And by recover, I mean fully recover.

Watts: "A consumer with a foreclosure or similar default on her credit report can expect her score to begin recovering after a couple of years if she consistently pays all her bills on time, keeps any credit card balances low, and takes on new credit only when needed. As the default event ages on her credit report its influence on her score will diminish, until the credit bureau removes the record from her file after seven years."

The bottom line is this: You can't fully repair your credit score in as little as nine months unless you can convince the credit bureaus to remove the items from your credit reports. And as long as the items are accurate they will remain for seven years. Your scores will begin to recover in time as the item gets older and older and loses predictive value, but unfortunately it won’t happen after only nine months.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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