Thursday, August 8, 2013

Making the Most of the Making Home Affordable Act

There's some good news and some tough news for homeowners.

Since the beginning of the year, around 2.4 million homeowners have finally been able to begin rebuilding equity thanks to increasing home prices and decreasing foreclosures. According to the latest Corelogic Report (June 2013), almost all of the statistics measured have indicated an improvement in the state of the foreclosure market since June 2012. The balance of severely delinquent first mortgages has decreased 27% from the same time last year. There were 55,000 foreclosures in June 2013, down from 68,000 in June 2012, a year-over-year decrease of 20%. Foreclosure inventory has decreased from 1.4 million to 1.0 million, a change of 28%. These are good signs of a housing recovery, albeit a fragile one.

While we did experience the first month-over-month increase in delinquency rates in five months, a 9.91% increase between May and June, it can be mostly attributed to expected seasonal patterns.

Nevertheless, we are still at a relative high point in delinquency rates. We are still far from pre-crisis levels of foreclosures, which averaged 21,000 a month between 2000 and 2006. There is no ignoring the more than 7 million mortgages that are still underwater. Some cities, such as Richmond CA, are facing such a crisis that they are considering using the power of eminent domain to seize homes and gain control over the process of making them more affordable for residents. Shadow inventory is creating a backlog for banks that slows processing and blurs inventory numbers. 

The main issue lies with the fact that many do not qualify for loan re-modifications in today’s market where credit is still relatively tight. Homeowners are left with no other option but to go through the costly process of foreclosure. 

That was the motivation behind the Making Home Affordable (MHA) act by the Obama Administration. Originally only available for loans backed by Fannie Mae and Freddie, the MHA uses the Home Affordable Modification Program (HAMP) to help eligible homeowners modify or rewrite their loans terms to avoid foreclosure. Usually, this means lowering monthly payments (subject to rate floor of 2%) and/or extending the term of the loan to a maximum of 40 years. Recently, changes have been made to make the MHA benefits better and more accessible. The two biggest changes were:

  1. The program was extended to the end of 2015
  2. Loans modified under HAMP have been made available for loans serviced by other qualified mortgage servicers, who are provided with the opportunity to enter into contracts with the Federal Government (the U.S. Treasury) to modify homeowners' mortgage loans in a particular and uniform fashion.
Peak Loan Servicing, our mortgage servicing entity, just earned this important certification this summer and can begin helping homeowners. HAMP certification allows Peak to reach out to those seeking to modify distressed loans and avoid foreclosure. According to Scott Sawyer, an industry specialist at Peak, having more qualified servicers is going to be a boon to these homeowners, the mortgage market and the housing market in general.

Although the housing market is markedly improving, we cannot ignore the millions of homeowners still facing foreclosure and volatile market conditions. Eli Tene, managing Directors and Principal of The Peak entities makes it clear that its new HAMP certification represents “strengthened endorsement [of Peak] on the part of Treasury, HUD and the Obama Administration’s Making Home Affordable program but also… another major step in fulfilling the Peak Corporate Network’s brand promise as a comprehensive real estate services provider for both consumers, investors, and other real estate professionals.”


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