The Arizona Republic - July 2008
Renewed investor interest in low-priced properties helped make June the best month so far this year for Valley home resale activity, but foreclosures were almost just as prevalent, according to the latest report from Arizona State University's Realty Studies department.
ASU reported Wednesday that Valley home resales hit 4,565 in June, up slightly from May and almost exactly the same as in June 2007.
Foreclosures, however, were way up from the previous June - 3,275 this year compared with 575 in 2007, according to the latest report from Jay Butler, director of Realty Studies at the Morrison School of Management and Agribusiness at ASU's Polytechnic campus. In May, the split was 2,895 foreclosed homes and 4,315 resale transactions, the report says. June 2007 saw 575 foreclosures and 4,570 resales.
June is usually a strong month for home sales, so it's not surprising that it has been the best month so far this year for home resales.
The year-to-date total for 2008 is 21,060 resales and 14,590 foreclosures, according to Butler's report. That number is slightly less than the 16,647 foreclosures The Arizona Republic's own data analysts reported recently.
Friday, July 25, 2008
Housing-aid bill not a cure-all
The Arizona Republic - July 2008
A federal housing bill poised to become law this week is likely to help ease Arizona's housing-market pain, but a variety of local voices in the industry said it won't heal the deeper wounds.
Too many residents are neck-deep in unaffordable mortgages for Arizona's cut of the proposed $300 billion in federal refinancing aid to save them all, government and business leaders said Wednesday.
"We've got a huge problem here," said Fred Karnas, state Department of Housing director. "It's obviously not going to solve the problem, but it will bring a variety of resources for partial solutions."
Those resources provided in the bill include a higher cap on Federal Housing Administration loans; $3.9 million in community-development block grants to buy and restore abandoned properties; an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac; and the creation of an independent regulator to ensure sound management and operating standards for those lending institutions.
"Overall, we're really positive about it," Karnas said. "I've been joking . . . that every housing bill we've wanted to get passed in the last 18 years somehow wound up in this bill."
Kevin Egan, president of Tempe luxury-home builder T.W. Lewis, said any measure that helps maintain the stability of Fannie Mae and Freddie Mac is good for Arizona's housing market.
Egan said home builders such as T.W. Lewis that specialize in "move-up" homes, those for existing homeowners who have accrued equity and want or need a larger home, have been struggling even more than builders at the extreme high and low ends.
Therefore, raising the cap for FHA loans from $362,790 to $625,000 (which follows a temporarily higher limit earlier this year) will help get midrange customers buying again, he said.
"I think we have to get investors back into the market," Egan said.
ARM conversions
Home buyers struggling to keep up with adjustable-rate loan payments would be allowed to convert those loans to 30-year, fixed-rate FHA loans under the legislation.
But Karnas said some Arizona borrowers are so deep in negative equity that no realistic refinancing deal would allow them to keep their homes.
"I think there are some markets in which the bottom has completely fallen out," he said.
Margie O'Campo de Castillo of Arizona Dream Realty said she doesn't understand why lenders aren't already trying to help homeowners refinance into fixed-rate loans to avoid foreclosure.
"The housing package will help some," she said, "but we shouldn't kid ourselves. Housing is just one failing pillar of our economy, and I'm not sure we the taxpayers have enough money to fix our housing crisis."
Property-rehab grants
The housing bill also will provide $3.9 billion in community-development block grants for local governments nationwide to buy and rehabilitate foreclosed properties.
President Bush initially threatened to veto the bill unless Congress removed the grant provision, which his administration called a bailout for banks.
Still, Karnas said, the amount is not significant enough to take on a large percentage of foreclosures.
Foreclosures across metro Phoenix numbered 16,647 for the first half of the year, up from 9,966 during all of 2007 and 1,070 in 2006.
Karnas said Arizona officials expect to receive about $100 million of the bill's grant money, based on a formula that favors states with the greatest number of foreclosures.
"A hundred-million dollars maybe buys you 500 homes," Karnas said. "It'll make a dent, but it won't solve the problem."
Federal backing
The bill also is aimed at protecting future loans by offering mortgage giants Fannie Mae and Freddie Mac an unlimited line of credit and allowing the federal government to buy equity in those institutions. Federal legislators say it will also promote sound management and operating standards of those government-sponsored institutions by creating an independent regulator with wide-ranging authority.
Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. Kaufman also said the bill, along with recent government promises to support Fannie Mae and Freddie Mac, should help calm jittery investors here and abroad.
"Foreign investors, so far, have been very patient," said Kaufman, referring to turmoil in the U.S. financial markets.
Another provision likely to affect Arizona's new-home market is the proposed ban on federal insurance for mortgage loans in which a home's seller pays the buyer's down payment through a non-profit intermediary.
Down-payment assistance requires the buyer to receive approval for a Federal Housing Administration loan, and the seller must agree to pay the buyer's down payment, usually 3 to 6 percent of the home's sale price. Then, the lender arranges with a non-profit assistance provider to accept the seller's donation, which it then gifts to the buyer, minus a transaction fee.
Seller-funded, down-payment assistance has drawn criticism from the FHA, which considers the practice a "shell game" that circumvents sound lending standards and carries a higher default rate.
However, some local lenders say down-payment assistance is responsible for at least half of all mortgage loans currently being issued in the Valley. They are worried that eliminating the practice would knock the already staggering local housing economy flat on its face.
"It has really opened the doors to so many people, and now those doors are going to be shut," Phoenix loan originator Dean Wegner said.
Wegner also questioned why the bill includes an increase in the required down payment on FHA loans from the current 3 percent to 3.5 percent.
"It's going to hurt good people who want to buy houses, who don't have any issues," he said about the bill, "and it's going to help the people who are in trouble."
A federal housing bill poised to become law this week is likely to help ease Arizona's housing-market pain, but a variety of local voices in the industry said it won't heal the deeper wounds.
Too many residents are neck-deep in unaffordable mortgages for Arizona's cut of the proposed $300 billion in federal refinancing aid to save them all, government and business leaders said Wednesday.
"We've got a huge problem here," said Fred Karnas, state Department of Housing director. "It's obviously not going to solve the problem, but it will bring a variety of resources for partial solutions."
Those resources provided in the bill include a higher cap on Federal Housing Administration loans; $3.9 million in community-development block grants to buy and restore abandoned properties; an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac; and the creation of an independent regulator to ensure sound management and operating standards for those lending institutions.
"Overall, we're really positive about it," Karnas said. "I've been joking . . . that every housing bill we've wanted to get passed in the last 18 years somehow wound up in this bill."
Kevin Egan, president of Tempe luxury-home builder T.W. Lewis, said any measure that helps maintain the stability of Fannie Mae and Freddie Mac is good for Arizona's housing market.
Egan said home builders such as T.W. Lewis that specialize in "move-up" homes, those for existing homeowners who have accrued equity and want or need a larger home, have been struggling even more than builders at the extreme high and low ends.
Therefore, raising the cap for FHA loans from $362,790 to $625,000 (which follows a temporarily higher limit earlier this year) will help get midrange customers buying again, he said.
"I think we have to get investors back into the market," Egan said.
ARM conversions
Home buyers struggling to keep up with adjustable-rate loan payments would be allowed to convert those loans to 30-year, fixed-rate FHA loans under the legislation.
But Karnas said some Arizona borrowers are so deep in negative equity that no realistic refinancing deal would allow them to keep their homes.
"I think there are some markets in which the bottom has completely fallen out," he said.
Margie O'Campo de Castillo of Arizona Dream Realty said she doesn't understand why lenders aren't already trying to help homeowners refinance into fixed-rate loans to avoid foreclosure.
"The housing package will help some," she said, "but we shouldn't kid ourselves. Housing is just one failing pillar of our economy, and I'm not sure we the taxpayers have enough money to fix our housing crisis."
Property-rehab grants
The housing bill also will provide $3.9 billion in community-development block grants for local governments nationwide to buy and rehabilitate foreclosed properties.
President Bush initially threatened to veto the bill unless Congress removed the grant provision, which his administration called a bailout for banks.
Still, Karnas said, the amount is not significant enough to take on a large percentage of foreclosures.
Foreclosures across metro Phoenix numbered 16,647 for the first half of the year, up from 9,966 during all of 2007 and 1,070 in 2006.
Karnas said Arizona officials expect to receive about $100 million of the bill's grant money, based on a formula that favors states with the greatest number of foreclosures.
"A hundred-million dollars maybe buys you 500 homes," Karnas said. "It'll make a dent, but it won't solve the problem."
Federal backing
The bill also is aimed at protecting future loans by offering mortgage giants Fannie Mae and Freddie Mac an unlimited line of credit and allowing the federal government to buy equity in those institutions. Federal legislators say it will also promote sound management and operating standards of those government-sponsored institutions by creating an independent regulator with wide-ranging authority.
Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. Kaufman also said the bill, along with recent government promises to support Fannie Mae and Freddie Mac, should help calm jittery investors here and abroad.
"Foreign investors, so far, have been very patient," said Kaufman, referring to turmoil in the U.S. financial markets.
Another provision likely to affect Arizona's new-home market is the proposed ban on federal insurance for mortgage loans in which a home's seller pays the buyer's down payment through a non-profit intermediary.
Down-payment assistance requires the buyer to receive approval for a Federal Housing Administration loan, and the seller must agree to pay the buyer's down payment, usually 3 to 6 percent of the home's sale price. Then, the lender arranges with a non-profit assistance provider to accept the seller's donation, which it then gifts to the buyer, minus a transaction fee.
Seller-funded, down-payment assistance has drawn criticism from the FHA, which considers the practice a "shell game" that circumvents sound lending standards and carries a higher default rate.
However, some local lenders say down-payment assistance is responsible for at least half of all mortgage loans currently being issued in the Valley. They are worried that eliminating the practice would knock the already staggering local housing economy flat on its face.
"It has really opened the doors to so many people, and now those doors are going to be shut," Phoenix loan originator Dean Wegner said.
Wegner also questioned why the bill includes an increase in the required down payment on FHA loans from the current 3 percent to 3.5 percent.
"It's going to hurt good people who want to buy houses, who don't have any issues," he said about the bill, "and it's going to help the people who are in trouble."
NE Valley foreclosures surge
SCOTTSDALE - About 800 Northeast Valley property owners lost their homes to foreclosure in the first half of this year, nearly five times as many as the same period a year ago, according to a data analysis by The Arizona Republic.
Plus, nearly 2,000 area homeowners have been issued a notice of trustee sale, a precursor to foreclosure. That is nearly three times as many as the first six months of 2007.
Foreclosures by city through June 30 of this year and the percentage increase from a year ago are:
• Scottsdale, 640 homes, an increase of 378 percent.
• Fountain Hills, 82 homes, up 531 percent.
• Cave Creek, 58 homes, up 164 percent.
• Paradise Valley, 17, up from zero.
• Carefree, 7, up 250 percent.
Notices of a trustee sale were sent to 1,543 Scottsdale homeowners and another 410 went to owners in the four other Northeast Valley communities.
The highest concentration of foreclosures are in these areas:
• Downtown, south to Thomas Road.
• The Scottsdale Airpark area, bounded by Shea Boulevard, Bell Road, Scottsdale Road and 104th Street.
• The Kierland area, bounded by Tatum Boulevard, Shea, Bell and Scottsdale Road.
• DC Ranch, McDowell Mountain Ranch and other areas in the 85255 ZIP code.
Plus, nearly 2,000 area homeowners have been issued a notice of trustee sale, a precursor to foreclosure. That is nearly three times as many as the first six months of 2007.
Foreclosures by city through June 30 of this year and the percentage increase from a year ago are:
• Scottsdale, 640 homes, an increase of 378 percent.
• Fountain Hills, 82 homes, up 531 percent.
• Cave Creek, 58 homes, up 164 percent.
• Paradise Valley, 17, up from zero.
• Carefree, 7, up 250 percent.
Notices of a trustee sale were sent to 1,543 Scottsdale homeowners and another 410 went to owners in the four other Northeast Valley communities.
The highest concentration of foreclosures are in these areas:
• Downtown, south to Thomas Road.
• The Scottsdale Airpark area, bounded by Shea Boulevard, Bell Road, Scottsdale Road and 104th Street.
• The Kierland area, bounded by Tatum Boulevard, Shea, Bell and Scottsdale Road.
• DC Ranch, McDowell Mountain Ranch and other areas in the 85255 ZIP code.
Thursday, July 10, 2008
Arizonans brace for summer mortgage resets
The Arizona Republic - July 2008
More Arizonans than ever before will face the threat of foreclosure this summer as their adjustable-rate mortgage loans jump to a higher interest bracket.
Adjustable-rate mortgage "resets" - in which a low initial interest rate is converted to a higher rate - are expected to peak this month in Arizona, and experts say the summer resets undoubtedly will lead to fall foreclosures.
In a state where one in 20 mortgage borrowers is already at least 30 days behind on payments, government officials, nonprofit organizations and even some lenders have stepped up efforts to help Arizona families stave off foreclosure. A statewide hotline set up in late May to connect borrowers with HUD-approved foreclosure intervention counselors received nearly 1,500 calls in its first month of operation, and a large nonprofit organization with strong lobbying power recently opened an office in Phoenix to bring its counseling services to the state.
Those efforts have contributed to a growing number of success stories. Unfortunately, the fastest-growing segment of delinquent borrowers is just beginning to grapple with the prospect of higher monthly bills, which typically are triggered by resets two to three years into the term of a sub-prime loan.
The effect of a reset varies tremendously based on each loan's specific terms, ranging anywhere from a slight increase in the required monthly payment to doubling it.
Most borrowers awaiting initial loan resets have accrued no equity because of plummeting land values, making it virtually impossible to refinance. For some of them, foreclosure is all but inevitable.
"My opinion is that we haven't seen the worst of it," said Kevin Murphy, executive director of Labor's Community Service Agency in Phoenix. "People who got into those stupid loans did so with the idea that the property value would increase."
Resets rising As of February, an estimated 157,000 adjustable-rate loans had yet to reach their initial reset dates in Arizona, according to economic research firm First American CoreLogic, based in Santa Ana, Calif. The total value of those Arizona loans was roughly $38.7 billion, company spokeswoman Meghan Donovan said.
First American determined that nearly 10 percent of those loans would reach their initial reset dates between March and August, with the highest monthly total - about 2,600 loans, valued at nearly $665 million - occurring in July.
The number of monthly resets is then expected to gradually decline and stabilize until a second, even more dramatic increase in resets occurs in mid-2010, according to First American's research.
The second spike represents so-called "option ARM" adjustable-rate loans, in which borrowers are allowed to make lower monthly payments until the loan reaches an automatic 5-year reset date or the borrower hits the maximum limit on negative amortization, usually 110 percent to 125 percent of the original loan amount.
The vast majority of adjustable-rate mortgages in Arizona that have yet to reach their initial reset dates were issued from 2004 to 2006, when the housing market crested and fell, Donovan said.
The lending industry has since phased out most of the loan types responsible for the ensuing foreclosure crisis, but homebuyers who agreed to those terms are still contractually bound to fulfill their obligations unless the lender is willing to renegotiate, said Murphy, who runs a free, nonprofit foreclosure intervention counseling service in Phoenix.
Since September, calls from struggling borrowers with adjustable-rate loans have increased from a small fraction of all inquiries to nearly half, Labor's counselor Liz Henry said.
"Prior to that, it was more traditional loans," she said.
Murphy said most lenders won't even consider modifying a loan to reduce the effects of a reset until the borrower is at least 60 days delinquent and has demonstrated a willingness to eliminate excess spending, sell off luxury items and even take a second job if necessary to keep the home.
Even then, the mortgagor must have sufficient monthly income and a history of timely payments before the reset made them unmanageable.
"They're not going to bend over to the extent some of these homeowners need them to," Murphy said.
The surge in resets has made it far more difficult to negotiate agreements that will keep homebuyers out of foreclosure, Murphy said.
"Up until six to eight months ago, our success rate was up in the 90 percent range," he said. "That's when some of those ARMs started to reset."
Sweat equity Labor's Community Service Agency has still enjoyed some recent successes, however bittersweet.
Phoenix resident Connie Vasquez was one of hundreds of struggling Valley homebuyers who picked up the phone in June and called for help.
Vasquez, 56, reached out to the Arizona Foreclosure Help Line, a new service administered by the Arizona Department of Housing that connects residents with one of a dozen state-contracted foreclosure intervention services.
"When I first called, I was a bit leery," said Vasquez, who works for the Arizona Public Safety Retirement System. "I just took a shot."
Vasquez, who has a traditional, fixed-rate loan, struggled to pay the monthly bills after worsening arthritis made it impossible for her 58-year-old husband, Nolberto, to continue practicing his trade as a concrete finishing contractor.
"My husband hasn't worked in about a year, and so I got stuck with everything," she said.
At first, Vasquez was able to keep her mortgage current by taking on a second job at the post office and cutting back on family expenses.
However, the seasonal job ended after the New Year, and before long she had missed a house payment.
The already difficult task of scraping together $1,400 a month to pay off the mortgage suddenly became double, Vasquez said. Now she would have to come up with $2,800 to avert the foreclosure process.
"It was very stressful during that time," she said. "I was getting desperate."
Vasquez was connected by the hotline service to Labor's Community Service Agency, where counselor Henry asked her to collect the required documents to prove her income and expenses.
Two weeks later, Vasquez arrived for a face-to-face meeting to go over the documents with Henry and answer some questions. By that time, her mortgage had become three months past due.
Henry convinced Vasquez' lender, HSBC Mortgage Services, to forgive the past-due payments and add them back into the loan's principle. The lender did not reduce her interest rate or the amount of her monthly bill.
Vasquez still had to make one payment of $1,400 in June, but she is no longer in default.
"It took every penny I had," she said, sitting in her 115-degree living room on Monday afternoon. Air-conditioning is a luxury she can no longer afford.
Still, Vasquez said she is committed to keeping the home at any cost.
"I don't want to worry about where I'm going to live in 10 or 20 years," she said. "It's stability - I'll always have someplace to go."
New hope Though it might seem harsh, Henry said the forbearance agreement she negotiated for Vasquez would not have been possible six months ago.
Faced with the prospect of taking on massive inventories of abandoned homes, lenders are becoming more flexible in situations where the borrower shows a strong desire to honor their mortgage agreement.
"A lot of the lenders are creating special departments dedicated to what they call 'home retention,'" Henry said, adding that it's a big step forward from the typical "loss mitigation" departments focused entirely on recovering the lender's money.
The home retention staff usually has limited autonomy to negotiate with foreclosure intervention counselors, which makes the process more productive, she said. In some recent cases, lenders have agreed to reduce the interest rate of an adjustable loan to what it was before the reset and fix it at that rate, though such concessions are still rare.
One persisting obstacle to loan renegotiation is that mortgage lenders have a fiduciary responsibility to the investors who have purchased bundles of sub-prime loans, also known as mortgage-backed securities, on the open exchange.
"A lot of these policies are set by the ultimate investor in the loan, and not the people who administer the loan," Murphy said. "They can only go so far, because everybody up the chain has someone to answer to,"
Darren Duarte, spokesman for nonprofit mortgage lender and foreclosure intervention provider Neighborhood Assistance Corporation of America, said his organization also has seen a greater willingness on the part of lenders to make deals with counseling services on behalf of borrowers.
One lender even agreed to reduce the total amount of a client's debt by $20,000 and lower her interest rate from almost 15 percent to less than 7 percent, Duarte said, adding that such deals are not typical.
Neighborhood Assistance Corporation, based in Boston, opened a Phoenix office two months ago and already has helped several Valley residents hang on to their homes, he said. The nonprofit group also offers its own low-interest, fixed-rate mortgage loans to responsible borrowers and lobbies against predatory lending practices.
Duarte said the middlemen of mortgages, including bankers, brokers and investment marketers, are responsible for creating and selling loans that doomed borrowers and mortgage-backed securities investors to failure.
"People took advantage of these people," he said. "We had all these players here trying to make money off them."
Murphy said he believes regulators also failed the borrowers and backers of adjustable-rate mortgage loans, and the half-baked efforts of Congress to bail out borrowers are too little, too late.
"There needs to be more control at the federal level," he said. "This whole mess is the result of lax enforcement by the federal government."
More Arizonans than ever before will face the threat of foreclosure this summer as their adjustable-rate mortgage loans jump to a higher interest bracket.
Adjustable-rate mortgage "resets" - in which a low initial interest rate is converted to a higher rate - are expected to peak this month in Arizona, and experts say the summer resets undoubtedly will lead to fall foreclosures.
In a state where one in 20 mortgage borrowers is already at least 30 days behind on payments, government officials, nonprofit organizations and even some lenders have stepped up efforts to help Arizona families stave off foreclosure. A statewide hotline set up in late May to connect borrowers with HUD-approved foreclosure intervention counselors received nearly 1,500 calls in its first month of operation, and a large nonprofit organization with strong lobbying power recently opened an office in Phoenix to bring its counseling services to the state.
Those efforts have contributed to a growing number of success stories. Unfortunately, the fastest-growing segment of delinquent borrowers is just beginning to grapple with the prospect of higher monthly bills, which typically are triggered by resets two to three years into the term of a sub-prime loan.
The effect of a reset varies tremendously based on each loan's specific terms, ranging anywhere from a slight increase in the required monthly payment to doubling it.
Most borrowers awaiting initial loan resets have accrued no equity because of plummeting land values, making it virtually impossible to refinance. For some of them, foreclosure is all but inevitable.
"My opinion is that we haven't seen the worst of it," said Kevin Murphy, executive director of Labor's Community Service Agency in Phoenix. "People who got into those stupid loans did so with the idea that the property value would increase."
Resets rising As of February, an estimated 157,000 adjustable-rate loans had yet to reach their initial reset dates in Arizona, according to economic research firm First American CoreLogic, based in Santa Ana, Calif. The total value of those Arizona loans was roughly $38.7 billion, company spokeswoman Meghan Donovan said.
First American determined that nearly 10 percent of those loans would reach their initial reset dates between March and August, with the highest monthly total - about 2,600 loans, valued at nearly $665 million - occurring in July.
The number of monthly resets is then expected to gradually decline and stabilize until a second, even more dramatic increase in resets occurs in mid-2010, according to First American's research.
The second spike represents so-called "option ARM" adjustable-rate loans, in which borrowers are allowed to make lower monthly payments until the loan reaches an automatic 5-year reset date or the borrower hits the maximum limit on negative amortization, usually 110 percent to 125 percent of the original loan amount.
The vast majority of adjustable-rate mortgages in Arizona that have yet to reach their initial reset dates were issued from 2004 to 2006, when the housing market crested and fell, Donovan said.
The lending industry has since phased out most of the loan types responsible for the ensuing foreclosure crisis, but homebuyers who agreed to those terms are still contractually bound to fulfill their obligations unless the lender is willing to renegotiate, said Murphy, who runs a free, nonprofit foreclosure intervention counseling service in Phoenix.
Since September, calls from struggling borrowers with adjustable-rate loans have increased from a small fraction of all inquiries to nearly half, Labor's counselor Liz Henry said.
"Prior to that, it was more traditional loans," she said.
Murphy said most lenders won't even consider modifying a loan to reduce the effects of a reset until the borrower is at least 60 days delinquent and has demonstrated a willingness to eliminate excess spending, sell off luxury items and even take a second job if necessary to keep the home.
Even then, the mortgagor must have sufficient monthly income and a history of timely payments before the reset made them unmanageable.
"They're not going to bend over to the extent some of these homeowners need them to," Murphy said.
The surge in resets has made it far more difficult to negotiate agreements that will keep homebuyers out of foreclosure, Murphy said.
"Up until six to eight months ago, our success rate was up in the 90 percent range," he said. "That's when some of those ARMs started to reset."
Sweat equity Labor's Community Service Agency has still enjoyed some recent successes, however bittersweet.
Phoenix resident Connie Vasquez was one of hundreds of struggling Valley homebuyers who picked up the phone in June and called for help.
Vasquez, 56, reached out to the Arizona Foreclosure Help Line, a new service administered by the Arizona Department of Housing that connects residents with one of a dozen state-contracted foreclosure intervention services.
"When I first called, I was a bit leery," said Vasquez, who works for the Arizona Public Safety Retirement System. "I just took a shot."
Vasquez, who has a traditional, fixed-rate loan, struggled to pay the monthly bills after worsening arthritis made it impossible for her 58-year-old husband, Nolberto, to continue practicing his trade as a concrete finishing contractor.
"My husband hasn't worked in about a year, and so I got stuck with everything," she said.
At first, Vasquez was able to keep her mortgage current by taking on a second job at the post office and cutting back on family expenses.
However, the seasonal job ended after the New Year, and before long she had missed a house payment.
The already difficult task of scraping together $1,400 a month to pay off the mortgage suddenly became double, Vasquez said. Now she would have to come up with $2,800 to avert the foreclosure process.
"It was very stressful during that time," she said. "I was getting desperate."
Vasquez was connected by the hotline service to Labor's Community Service Agency, where counselor Henry asked her to collect the required documents to prove her income and expenses.
Two weeks later, Vasquez arrived for a face-to-face meeting to go over the documents with Henry and answer some questions. By that time, her mortgage had become three months past due.
Henry convinced Vasquez' lender, HSBC Mortgage Services, to forgive the past-due payments and add them back into the loan's principle. The lender did not reduce her interest rate or the amount of her monthly bill.
Vasquez still had to make one payment of $1,400 in June, but she is no longer in default.
"It took every penny I had," she said, sitting in her 115-degree living room on Monday afternoon. Air-conditioning is a luxury she can no longer afford.
Still, Vasquez said she is committed to keeping the home at any cost.
"I don't want to worry about where I'm going to live in 10 or 20 years," she said. "It's stability - I'll always have someplace to go."
New hope Though it might seem harsh, Henry said the forbearance agreement she negotiated for Vasquez would not have been possible six months ago.
Faced with the prospect of taking on massive inventories of abandoned homes, lenders are becoming more flexible in situations where the borrower shows a strong desire to honor their mortgage agreement.
"A lot of the lenders are creating special departments dedicated to what they call 'home retention,'" Henry said, adding that it's a big step forward from the typical "loss mitigation" departments focused entirely on recovering the lender's money.
The home retention staff usually has limited autonomy to negotiate with foreclosure intervention counselors, which makes the process more productive, she said. In some recent cases, lenders have agreed to reduce the interest rate of an adjustable loan to what it was before the reset and fix it at that rate, though such concessions are still rare.
One persisting obstacle to loan renegotiation is that mortgage lenders have a fiduciary responsibility to the investors who have purchased bundles of sub-prime loans, also known as mortgage-backed securities, on the open exchange.
"A lot of these policies are set by the ultimate investor in the loan, and not the people who administer the loan," Murphy said. "They can only go so far, because everybody up the chain has someone to answer to,"
Darren Duarte, spokesman for nonprofit mortgage lender and foreclosure intervention provider Neighborhood Assistance Corporation of America, said his organization also has seen a greater willingness on the part of lenders to make deals with counseling services on behalf of borrowers.
One lender even agreed to reduce the total amount of a client's debt by $20,000 and lower her interest rate from almost 15 percent to less than 7 percent, Duarte said, adding that such deals are not typical.
Neighborhood Assistance Corporation, based in Boston, opened a Phoenix office two months ago and already has helped several Valley residents hang on to their homes, he said. The nonprofit group also offers its own low-interest, fixed-rate mortgage loans to responsible borrowers and lobbies against predatory lending practices.
Duarte said the middlemen of mortgages, including bankers, brokers and investment marketers, are responsible for creating and selling loans that doomed borrowers and mortgage-backed securities investors to failure.
"People took advantage of these people," he said. "We had all these players here trying to make money off them."
Murphy said he believes regulators also failed the borrowers and backers of adjustable-rate mortgage loans, and the half-baked efforts of Congress to bail out borrowers are too little, too late.
"There needs to be more control at the federal level," he said. "This whole mess is the result of lax enforcement by the federal government."
Fed to curb shady home-lending practices
July 2008
WASHINGTON - The Federal Reserve will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, its most sweeping response to a housing crisis that has propelled foreclosures to record highs.
To prevent a repeat of the current mortgage mess, Bernanke said the Fed will adopt rules cracking down on a range of shady lending practices that have burned many of the nation's riskiest "subprime" borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles.
The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.
Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.
"These new rules ... will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending," Bernanke said.
Consumer groups have complained that the proposed rules aren't strong enough, while mortgage lenders worry that they are too tough and could crimp customers' choices.
The Mortgage Bankers Association urged the Fed to "take a balanced approach in devising final regulations so that the credit crisis is not worsened."
Meanwhile, the Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, warned the Fed that weak regulation and oversight has led to the "worst credit crunch in generations."
The Fed — under former chairman Alan Greenspan — came under attack for not acting early on to crack down on dubious lending. Some critics complained that Greenspan, who ran the Fed for 18 1/2 years — failed to act as a forceful regulator especially during the 2001-2005 housing boom, when easy credit spurred lots of subprime home loans and many exotic types of mortgages.
Meanwhile, signs emerged Tuesday that the housing market's slump is likely to persist through the summer, and the real estate market may not recover for at least another year.
The National Association of Realtors' pending home sales index slipped by 4.7 percent in May to the third-lowest reading on record. The decline "suggests we are not out of the woods by any means," said the group's chief economist, Lawrence Yun.
In an extraordinary action aimed at averting a financial catastrophe, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.
"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.
The Fed's decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.
Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.
Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.
Bernanke, in appearances on Capitol Hill has said he doesn't believe taxpayers will suffer any losses.
In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn't intervene, he said, problems in financial markets would have snowballed, imperiling the country.
"Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy," Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.
Dodd, meanwhile, praised the Fed's actions in a statement Tuesday, saying, "I am pleased that the Federal Reserve is now taking steps to issue new rules for mortgage lending and to improve oversight of our financial system. As documented by the Senate Banking Committee, it was the lack of regulatory will, not lack of regulatory authority, that contributed to the current credit crisis."
The Fed's consideration of giving Wall Street firms more time to tap the Fed's emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.
Policymakers — in the White House, in Congress and other federal agencies — will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.
Although those efforts are already under way and will be the focus of a House Financial Services Committee hearing Thursday, it will fall to the next president and next Congress to settle them. Both Bernanke and Treasury Secretary Henry Paulson are scheduled to testify at Thursday's hearing.
The Bush administration has proposed revamping the nation's financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.
The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.
Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.
Bernanke recommended that Congress give a regulator the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC's oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.
Subscribe to:
Posts (Atom)