NorCalSavant

The moratoria banks had on foreclosures have expired, and a steady stream of foreclosures is expected to hit the market throughout the remaining year. As these foreclosed properties add to the supply of houses on the market, home prices are expected to continue to decline or stay declined.

Source: www.ehow.com

The Obama administration has been coming out with a slew of programs to stop the ongoing foreclosure hemorrhage in housing industry. Treasury came out with the Making Home Affordable Refinance and Modification programs earlier to help defaulting homeowners. Next came the Second Lien Program. Treasury also modified the Hope for Homeowners (H4H) program. Since then, Treasury has come out with the Foreclosure Alternatives and the Home Price Decline Protection Incentives Programs.

Foreclosure Alternatives Program

The Foreclosure Alternatives Program provides incentives to a homeowner and the mortgage servicer to pursue short sales of homes or deeds in lieu of foreclosure. Troubled Borrowers meeting the minimum eligibility requirements for a Home Affordable modification but unable to qualify for a loan modification will receive up to $1,500 to help with relocation expenses when they agree to a short sale or deed-in-lieu of foreclosure. Mortgage servicers will earn up to $1,000 for successfully completing the short sale or deed-in-lieu.

The Foreclosure Alternatives Program provides for a simplified and streamlined process, time frames, and standard documentation for short sale and deed-in-lieu. More details on the program are available here in this webpage on Treasury’s website.

Home Price Decline Protection Incentives Program

In neighborhoods where home prices are continuing to decline presenting a disincentive to the lender to do a loan modification, the Home Price Decline Protection Incentives Program provides additional cash incentives for two years after loan modification with the amount of the incentive linked to the decline in local housing prices. More details on the program are available here in this webpage on Treasury’s website.

Helping Families Save Their Homes Act of 2009

Last week on Wednesday, President Obama signed into law the Helping Families Save Their Homes Act of 2009. The Act modifies the Hope for Homeowners Program by reducing fees and providing greater incentives to mortgage servicers for loan modification. It also makes the underwriting requirements more consistent with standard FHA practices.

The Act also provides a safe harbor from liability to mortgage servicers performing a loan modification consistent with Treasury’s programs or utilizing Hope for Homeowners. Investors lobbied heavily against the provision claiming sanctity of contract law but lost in the end. Congress had earlier rejected mortgage cramdown, that is, mortgage modification by a bankruptcy judge. The safe harbor provision has been presented in as an alternative to bankruptcy cramdown.

The Impact on Foreclosures

Is the full force of the federal government as reflected in these various initiatives going to root out the drumbeat of foreclosures? I think these programs only tinker at the edges of the problem. In the end, these programs provide incentives to avoid foreclosures rather than require lenders and servicers to not foreclose. The size of the incentive is not tied to the size of the mortgage, and thus, can be relatively minor in expensive markets. Lenders and servicers have generally appeared to have chosen to not realize a quick loss on their books by loan modification or refinancing. Or maybe, they are holding out for the government to come out with even better incentives if things stay bad.

There is some hope that with the threat of investor lawsuits gone, some mortgage servicers may be more inclined to modify a loan than before. Of course, it will probably only work when the mortgage servicer is not the original lender. The safe harbor provision provides the only worthwhile ray of hope in substantially impacting ongoing drumbeat of foreclosures.

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