The Truth About Mortgage.com

A New Jersey-based company has launched an incentive-based program to address the risk of strategic default, which is surely on the rise as a result of sinking property values.

Loan Value Group, LLC’s “Responsible Homeowner Reward” (RH Reward) program creates incentives for homeowners to stay current on payments without changing the terms of the loan or reducing principal.

The firm’s proprietary model evaluates borrowers and singles out those most at risk of strategic default, using metrics like income, geography, and amount of negative equity.

“The desired outcome for all parties is to create an incentive for the borrower that positively influences behavior, at a cost to the risk owner that is far cheaper than every other option, including delinquency, sale of the note, or default,” the release said.

Loan Value Group believes the program has a number of advantage over traditional loss mitigation strategies like loan modifications.

Specifically, the company believes it can enroll borrowers in a number of days versus months, at a much lower cost, and if they happen to re-default, they won’t receive the reward, so there’s less downside risk.

That’s pretty important, considering the near-50 percent re-default rate on many industry loan modifications.

“The mortgage is not being restructured and accordingly does not have to go through the many legal and administrative hurdles experienced in a normal modification,” the company added.

The big question is how large the reward will need to be to entice the homeowner to stick around, especially if they’re deeply underwater.

That reward will vary based on a number of factors, with the most at risk of strategic default probably receiving the most lucrative offer.

The company has already signed on “one of the largest investors in consumer and mortgage debt in the U.S.,” who has purchased and sold more than $5 billion in debt since 2008.

The Mortgage Bankers Association sold its Washington D.C. Headquarters at a multi-million dollar loss to commercial real estate firm CoStar Group, according to the WSJ.

The bankers group apparently parted with the property for $41.3 million, well below the reported $79 million paid back in 2007, while it was still under construction.

The sprawling 170,000-square foot, 10-story building at 1331 L St. NW was completed in the summer of 2008, and put up for sale just over a year later.

At the time, MBA chief John Courson warned it was dealing with a “challenging leasing environment,” adding that continued ownership of the building would be “imprudent” and hinder its services over the long term.

The MBA’s membership has dwindled in recent years as a result of the mortgage crisis, falling from roughly 3,000 to about 2,400 members.

At the same time, the MBA has laid off about 30 percent of staff.

When the MBA first secured the property valued at $100 million, it was required to come in with a larger-than-expected down payment and a less favorable interest rate because of the timing of the deal.

So much for it’s always a good time to buy…

CoStar said it was able to take advantage of what it saw “as a historic opportunity to secure an exceptional asset at a greatly reduced price.”

The FTC has proposed a new rule that would ban upfront fees for loan modification services nationwide.

Per the rule, companies offering such services would have to wait until after receiving a documented offer from the loan servicer or mortgage lender to collect payment.

“Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” said FTC Chairman Jon Leibowitz, in a press release.

“The proposed rule would outlaw up-front fees so companies can’t take the money and run.”

Additionally, the rule would ban providers from telling consumers to stop communicating with their lenders or loan servicers, advice that could land a borrower in even more trouble.

And to stop sharing misleading facts regarding the the cost, refund, and cancellation policy, the chances of getting a loan modification, and how long one might take.

Loan modification providers would also need to disclose the total price of the service, that they’re “for-profit” businesses unaffiliated with the government or the consumer’s lender/servicer, and that there is no guarantee the lender will agree to modify the loan.

Of course, the proposed rule generally exempts entities that own or service mortgage loans, and lawyers would have limited exemption if they represent consumers in a bankruptcy or other legal proceeding (always loopholes).

Upfront fees are already banned in 20 states, most notably California and New York.

Take a look at the worst loan modification companies, per MFI-Mod Squad, and always do your due diligence before working with anyone.

The FTC proposal has a 45-day public comment period ending March 29, 2010; this may have been helpful a year ago…

The number of million-dollar plus homes sold in the Golden State fell for the fourth consecutive year, according to DataQuick.

Just 18,621 million-dollar plus homes sold in California last year, down 23.8 percent from the 24,436 sold in the state during 2008.

Such sales peaked in 2005, when a staggering 54,773 were sold; last year’s total was the lowest sales count since 2002, when only 15,703 were sold.

“Prestige home sales are a unique sub-category of the real estate market,” said John Walsh, DataQuick president. “The buyers and sellers respond to a different set of motivations. In the multi-million-dollar price ranges, decisions are largely discretionary and aren’t as dependent upon jobs, prices and interest rates the way they are for most buyers and sellers.”

“Traditional million-dollar markets are holding up relatively well, while expensive markets that emerged four or five years ago are not,” he added.

Meaning far fewer million-dollar home sales in areas like Riverside County.

Roughly 1,900 homes previously sold for one million or more sold for six figures; the median price decline between the 2009 sale and the previously $1 million-plus sale was about $420,000, a 35 percent decline.

A Bel-Air home sold for $26.5 million in July was the most expensive sale in the state last year; another 332 homes sold for more than $5 million, 228 sold between $4-$5 million, and 590 sold in the $3 million range.

About 29 percent of the sales were financed with cash, up from 24 percent in 2008; of those who did finance with jumbo loans, the median down payment was 39.4 percent.

Last year, Notices of Default, the first step of the foreclosure process, were filed on 4,925 homes previously sold for over one million dollars.

Trustees Deeds, or homes actually lost to foreclosure, totaled 2,698 on homes previously sold for $1 million plus.

Total California home sales at all price levels increased 16.9 percent last year to 460,166, up from 393,703 in 2008.

The 30-year fixed climbed back above five percent this week, rising two basis points to 5.01 percent, according to mortgage financier Freddie Mac.

A year ago, the popular mortgage program averaged 5.25 percent, meaning interest rates have been attractive for a long, long time now.

“Mortgage rates remained relatively stable for a second week amid news of a strengthening housing market,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a release.

“Pending existing home sales rebounded by 1 percent in December from a record drop in November that was due in part to the original expiration of the homebuyer tax credit, according the National Association of Realtors®.”

The 15-year fixed averaged 4.40 percent this week, up from 4.39 percent last week, but well below the 4.92 percent average seen a year ago.

The five-year adjustable-rate mortgage climbed to 4.27 percent from 4.25 percent, but still remains about a point below the 5.26 percent seen this time last year.

Finally, the one-year ARM bucked the trend, slipping to 4.22 percent from 4.29 percent, and easily beating its year-ago average of 4.92 percent.

The interest rates above are good for conforming loan amounts with a loan to value of 80 percent; mortgage pricing adjustments may lower or raise your actual interest rate.

Jumbo loans continue to price a percentage point or higher than conforming loans.

Well, an increasing number of consumers are making sure the plastic is paid before the mortgage, bucking the historical trend and adding to strategic default worries nationwide, according to credit bureau TransUnion.

In the first quarter of 2008, the percentage of consumers current on credit cards but delinquent on mortgages first surpassed the percentage of consumers current on their mortgages and delinquent on their credit cards.

Since then, the trend was worsened, with the percentage of consumers who are delinquent on their mortgages and current on their credit cards rising to 6.6 percent as of the third quarter of 2009, up from 4.3 percent in Q1 2008.

“Conventional wisdom has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages,” said Sean Reardon, the author of the study and a consultant in TransUnion’s analytics and decisioning services business unit, in the release.

“However, a recent TransUnion analysis has found that increasingly more consumers are paying their credit cards before making mortgage payments. This analysis reaffirms the results of a previous TransUnion study that examined data between the third quarter of 2006 and the first quarter of 2008.”

It’s even worse in hard-hit foreclosure hotspots like California and Florida; in the Golden State, more than 10 percent of consumers are current on their credit cards but late on the mortgage, up from 3.5 percent in 2007.

In the Sunshine State, the number is above 12 percent, up from five percent in in 2007.

The reversal in payment hierarchy could signal that homeowners see mortgage default as inevitable or less of a concern, now that it’s become so widespread.

Or it may have to do with continued loss of equity, pushing more homeowners to stop paying voluntarily and focus on other, more manageable obligations.

It looks increasingly likely 2010 will be the year of the strategic default…

Residential Capital (ResCap), the money-burning real estate finance arm of GMAC, is expected to slash more than 300 jobs at locations in Costa Mesa, California and Charlotte, North Carolina.

The Charlotte office will be shut down entirely, while the Costa Mesa office will retain roughly 30 people, according to a company spokeswoman.

Many of the job losses are tied to the Ditech brand, which offers home loans to consumers via the retail channel, mainly online.

Back in 1999, the company employed about 800 people, before being sold to GMAC.

The more troubled wholesale lending arm of ResCap, Homecomings Financial, ceased operations back in September 2008.

At that time, all 200 GMAC Mortgage retail locations were also shut down, resulting in roughly 5,000 layoffs company-wide.

ResCap will continue to make home loans through its own staff and via correspondent lenders, and still operates a servicing unit that ranked fifth in the nation in 2009.

Tomorrow GMAC may report a loss of more than $10 billion for all of 2009 thanks to surging defaults at ResCap; it lost roughly $5 billion in the fourth quarter alone.

The U.S. government already controls a 56 percent stake in GMAC thanks to a series of taxpayer bailouts, and could end up with more than 70 percent when all is said and done.

(photo: sociotard)

Mortgage demand jumped 21 percent on a seasonally adjusted basis (23.5% unadjusted) during the week ending January 29 compared to one week earlier, according to the Mortgage Bankers Association.

“Mortgage application volume rebounded last week, returning the purchase and refinance indexes to levels from mid-December,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in a release.

“Rates continue to hover around 5 percent, quite low by historical standards, but are well above the record lows seen in 2009, and hence are not generating substantial refi volume.  We expect that rates will rise over the next few months as the Federal Reserve winds down its MBS purchase program, and this will likely lead to a decline in refinance volume.”

The refinance index surged 26.3 percent during the week, while seasonally adjusted purchase applications increased more than 10 percent.

Unadjusted purchase demand was up 17.5 percent week-to-week, but still off 11.2 percent compared with the same week a year ago.

The refinance share of mortgage activity increased to 69.2 percent of total applications from 67.6 percent one week earlier as interest rates displayed little movement.

Both the popular 30-year fixed-rate mortgage and the 15-year fixed dipped a single basis point to 5.01 percent and 4.33 percent, respectively.

The one-year adjustable-rate mortgage decreased to 6.70 percent from 6.84 percent, while the ARM-share of total applications fell to 4.5 percent from 4.7 percent.

The MBA’s weekly survey covers more than half of all retail, residential home loan applications, but does not factor out duplicates or declined apps.

(photo: luisbarreto)

Roughly 9.1 percent of borrowers with FHA loans were seriously delinquent (at least three months behind) as of December, according to a report from the Washington Post.

That’s up from 6.5 percent a year ago, thanks mainly to FHA loans originated in 2007 and 2008 going sour, putting increased pressure on the FHA’s depleted insurance fund.

But recent changes, such as higher mortgage insurance premiums, should bolster the reserve, with $5.8 billion in fees expected in fiscal year 2011, up from $2 billion this year.

Meanwhile, the FHA had to pay out insurance claims on 47 percent more loans in October and November compared to the same period a year earlier.

And expects to pay out claims to lenders on one of every four loans originated in 2007 and 2008, back when seller paid downpayment assistance loans were still kicking about.

Foreclosures are also up 26 percent from a year ago, but the majority are probably tied to older vintages.

Additionally, the average credit score at the FHA has risen from 630 to 690 in the past two years as the borrower profile shifted in the wake of the mortgage crisis.

That should be a plus for the FHA, along with the prospect of a housing bottom in the near future.

In recent months, the FHA has also cracked down on a number of bad lenders, those with higher-than-normal default rates or unsavory business practices.

Check out the delinquency chart below if you like pictures:

(top photo: 顔なし)

Government mortgage financier Fannie Mae is offering 3.5 percent in seller assistance if you purchase one of their previously foreclosed HomePath properties.

The offer is good for any owner-occupant who purchases an REO (Real estate owned) home listed on Homepath.com by May 1, 2010.

The 3.5 percent of the final sales price may be used toward either closing costs and/or choice of appliances; finally, you can get that shiny metallic Sub-Zero fridge you always wanted.

“Attracting qualified buyers to the market and reducing the inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover” said Terry Edwards, Executive Vice President of Credit Portfolio Management, in a press release.

“Many families are taking advantage of the federal homebuyer tax credit to buy a new home so this is a great time for Fannie Mae to offer some additional help.”

Many of the Fannie Mae-owned properties also offer special financing, allowing borrowers to purchase a home with as little as three percent down.

The down payment can be funded by your own savings, or via a gift, grant, or loan from a nonprofit organization, state or local government, or employer, so let’s hope this whole thing doesn’t get exploited (mortgages with no money down).

I did a quick search and found 757 eligible properties in Los Angeles County, with listing prices ranging from $41,000 in Lancaster, CA to $634,900 in Glendale, CA.