|
Home Base
The new HUD Emergency Homeowners Loan Program will complement Treasury’s Hardest Hit Fund by providing assistance to homeowners in hard hit local areas that may not be included in the hardest hit target states. Those areas are still being determined. The program will work through a variety of state and non-profit entities and will offer a declining balance, deferred payment “bridge loan” (zero percent interest, non-recourse, subordinate loan) for up to $50,000 to assist eligible borrowers with payments on their mortgage principal, interest, mortgage insurance, taxes and hazard insurance for up to 24 months. Under the program, eligible borrowers must: 1. Be at least three months delinquent in their payments and have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within two years; 2. Have a mortgage property that is the principal residence of the borrower, and eligible borrowers may not own a second home; 3. Demonstrate a good payment record prior to the event that produced the reduction of income. HUD will announce additional details, including the targeted communities and other program specifics when the program is officially launched in the coming weeks. top
Mortgage Servicers Get Bad Grades on Loan Modifications J.D. Power and Associates puts numbers on the problem areas. Mortgage servicers more often miss on delivering key service practices during the loan modification process, according to the J.D. Power and Associates 2010 U.S. Primary Mortgage Servicer Satisfaction StudySM released on August 26. This will not come as a great surprise to many homeowners who have had to endure the tribulations of loan modification. The study finds that, compared with the loan origination process, mortgage servicers more often fail to deliver on certain best practices during the loan modification process, including providing and meeting a time frame for approval; not asking for information more than once; explaining the entire process during application; and providing proactive status updates during the process. For example, only 28 percent of customers were asked to provide information more than once during the mortgage origination process, compared with nearly 80 percent of customers during the loan modification process. “While the loan origination process is already a milestone event for most homeowners, the stakes are even higher for those going through the modification process,” said David Lo, director of financial services at J.D. Power and Associates. “Homeowners navigating the loan modification process may be fearful of losing their home, and that can add significant fear and anxiety to an already stressful experience. As a result, it’s especially important that servicers make every effort to deliver on key best practices and make the experience as painless for customers as possible.” Overall, the key service practices that have a particularly strong positive impact on customer satisfaction during mortgage servicing are: ●Fee transparency: Communicating all fees in a concise way to ensure complete understanding and no surprises. ● Informative account statements: Providing account statements to ensure that the most important information customers need is easily found. ● Billing and payment by preferred method: Ensuring that customers are able to receive account statements and make payments through their preferred method. ● Problem resolution: Ensuring that once a problem is identified, it is resolved quickly and efficiently. The study measures customer satisfaction with five areas of the mortgage servicing experience: fees; billing and payment process; escrow account administration; website; and phone contact. The study also finds that focusing on preventing problems during the servicing process—which may be accomplished by consistently performing key service practices—may not only improve customer experiences, but may also reduce the number of inbound customer contacts. On average, customers with lower levels of satisfaction within the prime segment are nearly 3.5 times more likely to contact their servicers, compared with highly satisfied customers (satisfaction scores of 800 or higher, on a 1,000-point scale). “Focusing on performing best practices, such as providing transparency around fees, using the customer’s preferred method of billing and payment, and providing concise, informative, and easy-to-find account information, not only has a strong positive effect on loyalty and retention rates, but can also result in decreases in inbound call volume of up to 13 percent—leading to cost savings for mortgage servicers,” said Lo. The study also finds that higher customer satisfaction may lead to higher levels of loyalty and retention. Among customers in the prime credit segment, 34 percent of those who are highly satisfied (scores of 800 or higher) say they “definitely will” recommend their servicer—compared with just 6 percent among customers with lower satisfaction scores. Similarly, 27 percent of highly satisfied prime credit customers say they “definitely will” select their servicer for a new home mortgage, while only 6 percent of less-satisfied customers say the same. BB&T (Branch Banking & Trust) ranks highest in customer satisfaction among primary mortgage servicers with a score of 795 and performs particularly well in fees and billing and payment process. SunTrust Mortgage follows with a score of 767, and U.S. Bank ranks third with 755. The 2010 U.S. Primary Mortgage Servicer Satisfaction
Study is based on responses from 4,516 homeowners regarding
their experiences with their primary mortgage servicer and
was fielded May through June 2010. Technology Development Outlook Improves
Thanks to the persistence of Federal Communications Commission Chairman Julius Genachowski over the last month, homeowners and other consumers will likely benefit from better telecommunications technology. This technology is critical to a large array of consumer activities ranging from teleworking to telehealth options. Progress was made in two key areas; the looming shortage of broadcast spectrum needed to sustain the rapid growth in mobile telecommunications, and network neutrality. In the former area, the Wall Street Journal reported on August 31 that the FCC may announce new rules at its September meeting. Chairman Genachowski's aides have been meeting with broadcasters recently regarding the unused spectrum between TV channels. The broadcasters own much of that spectrum, which can both penetrate buildings and travel farther than current Wi-Fi signals. There are both technical and legal barriers to its use in mobile telecommunications. Broadcasters fear that mobile and TV signals may bleed into each other or otherwise cause interference. They also insist that they have no intention of ceding spectrum they own without appropriate compensation. It is unlikely that the FCC would be able to expropriate that spectrum without the consent of the broadcasters, so the announcement that the rules may be forthcoming, combined with the reports of ongoing discussions between the FCC and broadcasters, suggests that they may be on the verge of a workable compromise in both areas. The FCC had also sought a negotiated solution to the vacuum in network neutrality enforcement authority resulting from a recent court case. Network neutrality is the principle that consumers should have unfettered access to the Internet. From a practical standpoint, Congress will have to pass new legislation defining what will be enforced and which federal agencies will be responsible for its enforcement. Its discussions included leading proponents of a very strict approach to its enforcement, including Google and several consumer groups. While the talks broke down in early August, they appear to have set the stage for a negotiated compromise between Google and Verizon, which also participated in the FCC meetings. Although not exactly what the FCC had in mind, the Google and Verizon compromise could nevertheless serve as the basis for legislation that would restore the government’s ability to enforce network neutrality. Because the issue has been so contentious in recent years, it is unlikely that legislation will pass Congress without broad-based support. The negotiations hosted by the FCC no doubt helped to narrow differences on the issue, and in the end may have been the push needed to break the impasse and restore the needed regulatory authority.
If the vultures can help homeowners, why can’t the lenders or the government? Many of us believe that the government should step in to help prevent home values from tanking further, dragging the nation into a worse recession and hurting innocent and irresponsible homeowners alike. In a recent Wall Street Journal editorial Congressmen Darrell Issa and Jim Jordan argued that the Administration’s Home Affordable Modification Program (HAMP) should be shut down because of its numerous inefficiencies. These legislators make some good points, and we recognize that the HAMP program’s performance has been poor despite persistent Administration efforts to address its faults. It stands in stark contrast to the recent success of several private mortgage vulture funds in helping to recue distressed homeowners while profiting their investors. One of them, Selene Residential Mortgage Opportunity Fund, was also recently featured in a Wall Street Journal article. In contrast to the HAMP program, the company as had a 70% success rate, modifying loans successfully about half the time and negotiating successful short sales 20% of the time. Why is Selene so successful?. Around 90% of Selene's loan modifications involve reducing the principal, compared to less than 2% of the modifications done by federally regulated banks in the first quarter. Selene is able to do so profitably because it buys distressed loans from lenders at very steep discounts that reflect the true market value of those homes, and then passes much of those savings on distressed homeowners though much lower mortgage payments, in some cases cutting monthly payments by half. This greatly reduces the all important debt-to-income ratios, and Selene’s results show that it is possible for many homeowners now living on reduced incomes to keep up with their mortgage payments. It also raises the question: why are mortgage lenders unwilling to reduce the mortgage balances of homeowners when they modify mortgages under the HAMP program, yet they turn around and sell the mortgages for a song to funds like Selene, who have found a niche doing what the lenders could have done themselves? It is almost as if lenders want the HAMP program to fail and would rather pass the mortgage balance reductions on to vulture funds rather than to their mortgagees, some of whom were financially naďve and snookered by those lenders into taking out mortgages that were inappropriate for their circumstances. This conundrum might also be of interest to other
legislators, such as Barney Frank. Perhaps Congressmen
Frank, Issa, and Jordan could work together on hearings to
explore both ways to encourage the expansion of Selene’s
business model and find out whether mortgage lenders are
purposely trying to sink the HAMP program, or are just
stupid and insensitive to the damage they’ve caused so many
homeowners. top
Treasury Secretary Ponders Housing Finance In remarks to the media in an August 17 Housing cum press conference, Treasury Secretary Tim Geithner offered his assessment of the challenges of building a more stable housing finance system. Alongside the broader failures that contributed to this financial crisis, there are several that directly involved the government sponsored entities, Fannie Mae and Freddie Mac. While private mortgage lenders were the originators and biggest cause of the problem, Fannie and Freddie also joined the party, lowering their underwriting standards, providing guarantees for increasingly risky types of mortgages without charging nearly enough to cover the risk. The result was huge losses for the taxpayer, and the risk of such losses in the future must be averted. It is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again. We need to delineate more clearly the public policy goals of how best to promote reasonably priced and stable mortgage costs for most Americans from how best to provide access to affordable housing for lower income Americans. Secretary Geithner identified what he believes are the four key questions underlying reform and outlined some of the key policy choices we face in answering them. The first question is the most fundamental: What role should the government play to provide stability to the housing finance system, both in times of prosperity and during downturns? This question is really about whether the government – in order to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn – has to provide a form of guarantee or insurance against losses. Many countries do this, but they do it in very different ways. Some do it through the banking system, with the array of instruments used to protect banks. Some do it with specialized mortgage finance companies, with backing from the government. Some do it with covered bonds, which are bonds issued by banks but backed by individual mortgage loans. Some make the insurance or guarantees explicit. Many leave them implicit or hidden. Without such support, the risk is that future recessions could be more severe because the financial system would not have the capital to support mortgage lending on an adequate scale. House price declines could be more acute, with even greater damage to financial wealth and economic security. The policy question is to what extent the private market can provide that form of insurance or guarantee on its own, or whether this is fundamentally a role for government. This crisis – where we saw a full retreat by private financial institutions from many forms of mortgage and consumer lending – provides a compelling illustration of why private markets, left to their own devices, find it hard to resolve financial crises. The challenge is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure. The second question is what role should the government play in providing financial support to improve access to affordable housing? The choices here range from whether we should provide more support or less; whether we should realign our incentives for owning or renting a house; and how we delineate our support for affordable housing from the mechanisms we use for general housing finance. The third question is what should we do about the securitization market more generally? In the lead-up to this crisis, we saw a fundamental breakdown in incentives around underwriting. Risk migrated away from banks to non-banks that were not subject to supervision. Many firms in the mortgage business were not required to hold capital against the risks they took. Credit ratings agencies did not adequately capture the risks of a significant fall in housing prices. The recent Dodd-Frank legislative reforms require very substantial changes to the securitization markets – markets that are so important to how we finance housing in America. Among other things, these reforms require a level playing field in terms of constraints on risk taking across financial firms – whether banks or non-banks – operating in the housing finance market, stronger consumer protections, new disclosure requirements, reforms of the credit rating agencies, and risk retention thresholds for specified mortgage products. The fourth and final question is how do we best manage the transition to a new housing finance system? Here we face several different imperatives. We need to begin the process of weaning the markets away from government programs and make room for the private sector to get back into the business of providing mortgages. We need to continue working to keep overall mortgage rates low. As we go through this transition, it is important that consumers maintain access to credit at attractive rates. The planned wind down of the Fannie and Freddie’s portfolios should be done in a careful way. top
|
Please take the time to contact your legislators and express your views on pending policy issues covered in this month’s Home Base. It's easy - you can reach your legislators by email in a couple of mouse clicks, and you can use the content in Home Base and elsewhere on our website to help you develop your message.
To look up the phone number, email, and/or postal address of your
U.S. Representative or your two U.S. Senators, (or
your state representative or state senator)
click here. You can also look up which
legislators represent your zip code if you don’t
recall their names. Copyright
2010, American Homeowners Foundation and the American Homeowners
Grassroots Alliance. |
August Activities brighten the outlook for consumers.
