Sweeping mortgage aid plan unveiled

More than a million owners facing imminent loss of their homes were thrown a lifeline Tuesday by an alliance of banks and government agencies, but some experts said even more needs to be done to deal with the foreclosure crisis.

A new plan to speed the rescue effort for those most in danger of losing their homes was unveiled at a Washington, D.C., news conference by the Federal Housing Finance Agency; Hope Now, a private banking alliance; Wells Fargo Bank; and Fannie Mae and Freddie Mac, the two government entities that hold 58 percent of the nation's single-family mortgages and 20 percent of serious delinquencies.

The plan is intended to speed up the process of modifying mortgages to make them more affordable.

Economic crisis
Full coverage of the economic crisis, plus databases showing bank and credit union rankings with the goal of keeping more people in their homes.

Citibank, a member of the Hope Now alliance, announced its own plan Tuesday to reach out to people not yet in arrears on their loans but who may need help. The bank said it will do "workouts" — negotiating with borrowers to modify their mortgages — for 500,000 homeowners who have mortgage loans from Citibank.

Also, Citibank said it will not start foreclosure on "any eligible borrower" who is trying to stay in their principal residence and has enough income to make affordable mortgage payments. The bank said it has already helped 370,000 families avoid foreclosure.
Two companies that track foreclosures reported big drops Tuesday, reflecting a trend since banks began working with borrowers to keep them in their homes. Foreclosures.com reported a 22 percent drop nationally from September to October, and ForeclosureRadar said California foreclosures were down 39 percent for that period.

But foreclosures have increased almost 150 percent in the past two years, FHFA director James B. Lockhart said at the news conference announcing the new government-industry initiative. "We need to stop this downward spiral," he said.

The foreclosure crisis has broad implications for the economy, prompting the government and private sector to take extraordinary steps to halt it. Foreclosures bring down home values, which leads to more foreclosures. And with job losses mounting, experts expect another wave of defaults.

Under the new plan, lenders will speed up the loan modification process for borrowers who are 90 days or more late on their mortgage payments and whose loans are serviced by Fannie Mae or Freddie Mac or participating lenders and loan servicers — all the member banks. Qualifying homeowners will be allowed to make monthly payments of no more than 38 percent of their monthly income, achieved through extending the repayment period, reducing the interest rate or lowering the principal.

The plan creates consistent rules for modifying loans and adds staffing to deal with the crush of requests for help. Hope Now described it as a "systematic and uniform approach" to what many banks are already doing.

"We are not creating a new federal program here," said Steve Bartlett, president and chief executive of the Financial Services Roundtable, a banking trade group that is the primary sponsor of Hope Now. "We've identified this group of people who are 90 days delinquent, and we realize we have to process their modifications faster," Bartlett said in an interview. He said more than a million people are that far behind on their loan payments. The owners of these loans are Fannie and Freddie and the major banks, he said.

But Federal Deposit Insurance Corp. Chairman Sheila Bair said in a statement that the plan "is a step in the right direction but falls short of what is needed to achieve wide-scale modifications of distressed mortgages."

Bair has recommended using some of the $700 billion bailout to modify mortgages. The plan announced Tuesday does not use any of that money; losses will be absorbed by companies and homeowners.

Many lenders have announced their own loan-modification programs. They include Bank of America, which inherited a huge subprime loan portfolio when it acquired Countrywide Home Loans; JP Morgan Chase, which took over Washington Mutual; and IndyMac, which was seized by the FDIC in July.

The FDIC's loan-modification program for IndyMac subprime borrowers has served as a model for other lenders, as well as for Hope Now.

"What's important is that the program recognizes household debt level and income," said Douglas Robinson, a spokesman for NeighborWorks America, a national network of community developers and affordable housing agencies. "Ability to pay is a critical piece of this that we think is a very important initial step."

But not everyone is convinced.
"I'm disappointed," said Doug Jones, who operates Mortgage Magic in San Jose. Jones said the problem is that many San Jose-area homeowners who got loans with little verification of their income won't be able to make even the modified payments.
Jones has been helping people modify their mortgages, but complained that it has been "a knock-down, drag-out struggle" to get banks to do so. "If a customer is not past due, they encourage in a subtle way for the customer to get past due and then they'll help them. That's horrible."

Who is eligible for Hope Now"s new "streamlined modification program"?

Why isn"t this program available to people who haven"t missed mortgage payments yet?
How does the program work?

When does the program take effect, and where can I find more information?

Hope Now expects most lenders to be positioned to work with borrowers by Dec. 15. Go to www.hopenow.com for information.

By Pete CareyMercury News
Article Launched: 11/11/2008 11:25:50 AM PST

1 in 7 homes in Santa Clara County is 'underwater'

More Santa Clara County homeowners were dragged "underwater" in the third quarter, their home values plunging below what they owed on their mortgages.

Among those who purchased homes in the past five years in the county, 27 percent owed more mortgage debt than their homes were worth in the third quarter. That's up from 24 percent in the second quarter of this year, according to real estate valuation site Zillow.com, in a study to be released today.

Among all homeowners in the county, about one in seven — or 14 percent — were underwater, the company said.

The underwater phenomenon increases the chances that some owners, finding themselves with no equity to protect, will stop paying their mortgages and face foreclosure. Other owners under pressure to sell their homes quickly will be forced to do so at a loss. For the rest, who can keep paying the monthly mortgage bill, the effects of an underwater mortgage may be minor, if depressing. No owner enjoys losing equity, but many will be able to hold on until the day rising values replace some of what was lost.

Across Santa Clara County, the pain of negative equity is being felt much more severely in some neighborhoods than in others, the Zillow report showed.

In Cupertino, for example, only 1 percent of owners who purchased their homes since 2003 were underwater — also called "upside-down" — in the third quarter. In San Jose's
95122 ZIP code, 62 percent of recent buyers had negative equity. In Gilroy, 51 percent did.
That's bad news for many homeowners in the San Jose metropolitan area. But, said Stan Humphries, Zillow's vice president for data and analytics, "When you compare it to other major metro areas in California, it actually fares very well."

On a list of 163 metro areas nationwide, the San Jose metro ranked at No. 65 for the portion of all homeowners experiencing negative equity.

Many of the most afflicted areas were in California, with Stockton leading the pack. There, 46 percent of all homeowners were underwater on their mortgages, according to Zillow. Again, for Stockton owners who bought since 2003, the situation was much worse: 71 percent owed more than their home's market value.

To calculate which homes had negative equity, Zillow compared the original loan balances on homes nationwide to the company's estimates of the homes' values in the third quarter. The advertising-supported Seattle company provides free online estimates — which it calls "zestimates" — of the values of more than 80 million homes across the country.
In deriving its estimates of the portion of homeowners who are underwater, Zillow
makes two assumptions, Humphries said. One is that homeowners have not paid down the principal balance on their mortgages; the other is that homeowners have not refinanced to take additional equity out of their homes. The first assumption tends to overestimate those with negative equity, while the second one tends to underestimate the phenomenon, so the two balance each other out, Humphries said.

The portion of underwater homeowners in San Jose was in keeping with the national trend. Both locally and nationwide, about 14 percent of all homeowners had negative equity in their homes in the most recent quarter.

The third quarter marked the first time Zillow calculated the percentage of all homeowners underwater, so the company had no year-ago figure with which to compare the new findings.
Anne Ramstetter Wenzel, principal at economic research firm Econosystems in Menlo Park, said that at this stage of the housing downturn, having negative equity is a burden on individual homeowners, but is not yet a significant impact on the Silicon Valley economy. That could change if home values keep falling and job losses start to mount, she said.

"If things get really bad next year we might see more . . . people walking away because they owe more than their home is worth," she said. And if more homes land in foreclosure, that hinders any recovery of housing prices.

Wenzel said she's less worried about large-scale "walk-aways" in the valley than she is about the effect of mortgage rates and terms readjusting soon for the many valley residents who took out interest-only loans about five years ago.

Many will find themselves facing much higher monthly payments. Some won't be able to afford those, and may face foreclosure. But even those who can make the higher payments can have a negative impact on the local economy, she said.

"What that affects most is retail sales," she said. If homeowners must start paying hundreds of extra dollars each month on their mortgages, "the homeowner's not able to spend in other areas of the economy," she said.

Zillow's report found that the median estimated value of all types of homes — houses and condos, regardless of whether they have sold recently or not — in the San Jose metro area fell to $640,803 in the third quarter, down 14 percent from the third quarter of 2007. Values have not been so low since the third quarter of 2004, the company said.
Humphries noted that home values in Santa Clara County cities such as Cupertino and Mountain View finally began to slip in the third quarter, despite the fact that other parts of the county already have seen double-digit depreciation.

"Prior to this quarter we were thinking of those as oases," he said. "It's very evident just how much the San Jose metro region has been buoyed by the tech sector."

In Cupertino, Los Altos, Mountain View, Palo Alto and Sunnyvale, the company said, the median estimated value of all homes declined between 1 and 2 percent in the third quarter, compared with a year earlier. Monte Sereno was the only community in the county where values rose compared with third quarter 2007, rising 1.3 percent.


By Sue McAllister
Mercury News
Article Launched: 11/12/2008 12:01:00 AM PST