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Housing-Market / US Housing Sep 11, 2009 - 01:36 AM GMT

By: Mike_Shedlock

Housing-Market

Best Financial Markets Analysis ArticleForeclosure filings are still on a rampage as noted by the Bloomberg headline U.S. Foreclosure Filings Top 300,000 for Sixth Straight Month.


A total of 358,471 properties received a default or auction notice or were seized last month, according to data provider RealtyTrac Inc. That’s up 18 percent from a year earlier, and down 0.5 percent from July, the Irvine, California-based company said in a statement. One in 357 households received a filing.

Nevada had the highest foreclosure rate in August, with one in every 62 households receiving a filing, even with an 8.4 percent decrease in foreclosures from July, RealtyTrac said. August filings were up 53 percent from a year earlier, with 17,902 Nevada properties receiving a foreclosure filing.

The second-highest foreclosure rate in August was recorded in Florida, with one in every 140 households receiving a filing, followed by California, where one in 144 households received a foreclosure filing.

A 9.6 percent month-to-month decrease in filings helped lower Arizona’s foreclosure rate to fourth-highest in August from third-highest in July, RealtyTrac said. One in every 150 Arizona households received a foreclosure filing last month, still more than twice the national average, the company said.

Bank of America Corp. and Wells Fargo & Co., among the worst performers of banks in the foreclosure-prevention plan, stepped up their pace of mortgage modifications by at least 60 percent last month. Bank of America more than doubled its number of modifications started to 59,891 in August from July, while Wells Fargo increased by 64 percent to 33,172.

In the RealtyTrac survey, Michigan, Idaho, Utah, Colorado, Georgia and Illinois accounted for the other states with the top 10 highest rates of foreclosure filings. Six states accounted for 62 percent of the nation’s foreclosure filings.

California had six metropolitan areas among the top 10. Stockton and Merced ranked second and third; Riverside-San Bernardino-Ontario, Vallejo-Fairfield and Modesto were fourth through sixth; and Bakersfield was 10th. Two Florida metropolitan areas were in the top 10, with Orlando- Kissimmee at No. 8 and Cape Coral-Fort Myers at No. 9, according to RealtyTrac, which collects data from more than 2,200 counties representing 90 percent of the U.S. population.

HAMP Success Rate 12 Percent

In the Making Home Affordable Program, 12 Percent Of Eligible Borrowers Helped so far.

Twelve percent of distressed homeowners eligible for mortgage modifications under the Obama administration's signature effort to reduce foreclosures have been helped so far, the Treasury Department reported on Wednesday. That's an improvement over the previous monthly report on servicer participation in the Making Home Affordable modification program, which revealed that only 9 percent of eligible homeowners had started trial modifications from the start of the program in April through July.

Overall, 360,165 out of 2.9 million eligible distressed homeowners have started trial modifications under the $75 billion Home Affordable Modification Program (HAMP), which gives mortgage servicers an incentive to reduce monthly payments to 31 percent of a borrower's income. Nineteen percent of eligible borrowers were offered trial modifications, up from 15 percent in the previous report.

Servicers that offer modifications get $1,000 upfront and another $1,000 per year so long as the homeowner stays current, and homeowners can get $1,000 a year toward reducing their principal for up to five years.

"Several months into the Home Affordable Modification Program...homeowners and their advocates report that the program is not providing a sufficient number of loan modifications to homeowners, the modifications offered often do not meet the guidelines of the program, and the program itself still presents serious barriers to mass loan modifications," said Alys Cohen, a staff attorney with the National Consumer Law Center in prepared remarks before the housing subcommittee.

"Moreover, even if HAMP operated at its full capacity as envisioned by Treasury officials, HAMP's loan modifications still would be substantially outpaced by foreclosures, and the modifications themselves lack the mandated principal reductions that many believe are necessary to stem the foreclosure tide."

Definition of Success

The definition of success seems to be getting someone in the program. In previous loan modification programs, close to 50% of borrowers got behind again within a year. Moreover, if one has to stretch out payments for 40 years, reduce the principle, reduce the interest, and make other adjustments, does that really make the home affordable?

HAMP Fact Sheet

Here is the Making Homes Affordable Fact Sheet

Treasury will partner with financial institutions and investors to reduce homeowners’ monthly mortgage payments.

- The lender will have to first reduce monthly payments on mortgages to a specified affordability level (specifically, the lender must bring down monthly payments so that the borrower’s monthly mortgage payment is no greater than 38% of his or her income).

- Next, the program will match further reductions in monthly payments dollar-for-dollar, from 38% down to 31% debt-to-income ratio for the borrower.

- To ensure long-term affordability, the modified payments will be kept in place for five years and the loan rate will be capped for the life of the loan. After five years, the interest rate can be gradually stepped-up by 1% per year to the conforming loan survey rate in place at the time of the modification.

- To reach the target affordability level of 31%, interest payments will first be reduced down to as low as 2%. If at that rate the debt to income level is still over 31%, lenders then extend the term or amortization period up to 40 years, and finally forbear principal at no interest, until the payment is reduced to the 31% target.

- Treasury will share the costs of reducing the payment from 38% DTI to 31% DTI dollar for dollar.

- Note: Lenders can also bring down monthly payments to these affordability targets through reducing the amount of mortgage principal. The program will provide a partial share of the costs of this principal reduction, up to the amount the lender would have received for an interest rate reduction as long as the lender reaches the target rate of affordability at 31% debt-to-income.

Note that the efforts are heavily weighted towards lowering the monthly payment. To truly make the home affordable, principle reductions are needed.

Moral issues aside, it makes little sense for borrowers to accept the HAMP payment reduction terms if it leaves the borrower hugely underwater, and especially if it turns a no-recourse loan into a recourse loan.

Finally, because of rising unemployment, there are many who cannot afford anything but free. These issues are guaranteed to limit the effectiveness of the program.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

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