Wells Fargo, in a settlement with California's attorney general announced Monday, agreed to provide $2 billion worth of loan modifications to nearly 15,000 homeowners. Under the deal, the bank is also paying a total of $32 million to borrowers who lost their homes to foreclosure, according to the AG. Attorney General Jerry Brown said Wells Fargo will offer modifications to 14,900 homeowners, who have so-called "pick-a-pay" loans. "Customers were offered adjustable-rate loans, with payments that mushroomed to amounts that ultimately thousands of borrowers could not afford," said Brown, who takes over as California's governor next month. "Recognizing the harm caused by these loans -- Wells Fargo accepted responsibility and entered in this settlement with my office." Pick-a-pay loans, where the rate changes throughout the life of the loan, became notorious during the housing market crisis.
According to the AG's office, payments often started low -- at levels that were "insufficient to cover the monthly interest owed, and the unpaid interest was added to the loan balance." The loans would ultimately increase "dramatically," soaring to unaffordable heights for the homeowner and creating the risk of foreclosure. In addition to the loan modifications, Wells Fargo will pay $32 million in restitution to more than 12,000 pick-a-pay borrowers who lost their homes through foreclosure in California. The attorney general noted that the loans were not made by Wells Fargo, but by banks that it acquired: World Savings and Wachovia. Wells Fargo stated that so far it has already extended significant home payment relief options to more than 50,000 at-risk, pick-a-payment homeowners in California -- through interest rate reductions, term extensions, tax forgiveness, insurance advances and principal forgiveness. This adds to the list of pick-a-pay settlements that Wells Fargo has previously signed with attorney generals in Arizona, Colorado, Florida, Illinois, Nevada, New Jersey, Texas and Washington.
Tuesday, December 28, 2010
Monday, December 20, 2010
Force Short Sales
What could force more short sales?
"Despite a government program designed to streamline and incentivize the process, short sales have not even come close to keeping up with foreclosure sales. That may be about to change. If banks see higher losses from foreclosures than from short sales, they may put more resources into approving these deals, where the borrower is allowed to sell the home for less than the value of the loan. 'Loss severities on distressed U.S. residential mortgage loans are likely to increase an additional 5-10 percent from current levels due to higher loss mitigation and foreclosure expenses and weakening home values,' according to a report from Fitch Ratings. Fitch: The anticipated increases for each sector’s average loss severities are expected to be as follows:
- Prime loans: currently 44%, increasing to 49%-54%
- Alt-A loans: currently 59%, increasing to 64%-69%
- Subprime loans: currently 75%, increasing to 80%-85%.
We are already seeing home prices double dip in many markets, and that is expected to continue at least through the first half of 2011. One way to mitigate the losses is through short sales. 'Short sales generally experience recovery rates about 10 percent higher than foreclosure sales,' according to Fitch. Will this be enough to push the banks? Unclear. Servicers actually rake in a lot of money from fees surrounding foreclosures, and so far the government's 'Home Affordable Foreclosure Alternative,' program, which pays servicers cash incentives for doing short sales, has had pretty poor results, really still in the hundreds of loans. Second liens pose a big problem, but many big bank servicers also hold the second liens. It's all about where the math comes out. If home prices fall far enough, the equation may tip from foreclosure to short sale."
"Despite a government program designed to streamline and incentivize the process, short sales have not even come close to keeping up with foreclosure sales. That may be about to change. If banks see higher losses from foreclosures than from short sales, they may put more resources into approving these deals, where the borrower is allowed to sell the home for less than the value of the loan. 'Loss severities on distressed U.S. residential mortgage loans are likely to increase an additional 5-10 percent from current levels due to higher loss mitigation and foreclosure expenses and weakening home values,' according to a report from Fitch Ratings. Fitch: The anticipated increases for each sector’s average loss severities are expected to be as follows:
- Prime loans: currently 44%, increasing to 49%-54%
- Alt-A loans: currently 59%, increasing to 64%-69%
- Subprime loans: currently 75%, increasing to 80%-85%.
We are already seeing home prices double dip in many markets, and that is expected to continue at least through the first half of 2011. One way to mitigate the losses is through short sales. 'Short sales generally experience recovery rates about 10 percent higher than foreclosure sales,' according to Fitch. Will this be enough to push the banks? Unclear. Servicers actually rake in a lot of money from fees surrounding foreclosures, and so far the government's 'Home Affordable Foreclosure Alternative,' program, which pays servicers cash incentives for doing short sales, has had pretty poor results, really still in the hundreds of loans. Second liens pose a big problem, but many big bank servicers also hold the second liens. It's all about where the math comes out. If home prices fall far enough, the equation may tip from foreclosure to short sale."
Tuesday, December 7, 2010
Foreclosure's Froze By Banks
Foreclosure On Temporary Freeze
Like last year, Freddie Mac and Fannie Mae, the two government-controlled mortgage giants, are freezing all foreclosure evictions on mortgage loans they own or back from Dec. 20 through Jan.3. For some of the big private banks, who also usually observe a freeze during the holidays, the situation is a little different this year, thanks to moratoriums they already have in place because of the robo-signing scandal. That freeze was initiated to give the banks time to examine whether they violated any legal procedures in processing foreclosures and to correct and refile questionable documents they uncover. A spokesman for Bank of America, Rick Simon, said that made addressing this year's situation a little awkward but it would still observe its usual holiday policy.
"Bank of America's practice in recent years [is to hold off on] foreclosure sales or evictions from late December through New Year's Day on loans held in our investment portfolio or that are owned by investors who give the bank delegated authority," he said. A spokesman for Chase Mortgage, a division of J.P. Morgan Chase, said its robo-signing-connected moratorium makes an additional holiday freeze moot; it will still be several weeks before it starts to evict borrowers again. Wells Fargo's holiday freeze will run the same two week period as Fannie's and Freddie's and will, like Bank of America's, include all loans it holds in its portfolio. For the other loans it services, it will follow guidelines from investors and from the states where the properties are located. With the number of bank repossessions amounting to around 100,000 a month recently, the temporary reprieve could affect tens of thousands of borrowers in default.
Like last year, Freddie Mac and Fannie Mae, the two government-controlled mortgage giants, are freezing all foreclosure evictions on mortgage loans they own or back from Dec. 20 through Jan.3. For some of the big private banks, who also usually observe a freeze during the holidays, the situation is a little different this year, thanks to moratoriums they already have in place because of the robo-signing scandal. That freeze was initiated to give the banks time to examine whether they violated any legal procedures in processing foreclosures and to correct and refile questionable documents they uncover. A spokesman for Bank of America, Rick Simon, said that made addressing this year's situation a little awkward but it would still observe its usual holiday policy.
"Bank of America's practice in recent years [is to hold off on] foreclosure sales or evictions from late December through New Year's Day on loans held in our investment portfolio or that are owned by investors who give the bank delegated authority," he said. A spokesman for Chase Mortgage, a division of J.P. Morgan Chase, said its robo-signing-connected moratorium makes an additional holiday freeze moot; it will still be several weeks before it starts to evict borrowers again. Wells Fargo's holiday freeze will run the same two week period as Fannie's and Freddie's and will, like Bank of America's, include all loans it holds in its portfolio. For the other loans it services, it will follow guidelines from investors and from the states where the properties are located. With the number of bank repossessions amounting to around 100,000 a month recently, the temporary reprieve could affect tens of thousands of borrowers in default.
Wednesday, December 1, 2010
Fannie and Freddie lift Ban
Freddie Mac and Fannie Mae lift ban
Freddie Mac and Fannie Mae have lifted the ban on the sale of foreclosed homes, frozen since the document handling fiasco that started nearly two months ago. Freddie Mac sent a memo to agents instructing them to “resume all normal sales activity” while Fannie Mae issued a memo telling agents to “proceed with scheduling and holding the closings” of foreclosed sales. Fannie Mae also instructed agents to coordinate with appropriate personnel “if a title issue arises with respect to the potential defect of an affidavit used in the underlying foreclosure.” Fannie and Freddie owned nearly 240,000 properties at the end of September, valued at nearly $24 billion. Analysts claim difficulty selling those homes could lead to higher carrying costs for the mortgage titans. Further delays also could prompt buyers that had been under contract to lower their asking prices or to walk away from deals altogether which could cause the mortgage giants to incur heavier losses.
In August, Fannie Mae told mortgage servicers that they would face fines if foreclosures became unreasonably prolonged in a bid to avoid costly delays. The Federal Housing Finance Agency (FHFA) worked with Fannie Mae to make the decision after a thorough examination of foreclosed properties which the mortgage company has acquired. “Our decision was motivated by several factors including the protection of buyers with title insurance, the negative impact lingering foreclosed properties has on neighborhoods and the cost burden that is placed on taxpayers when [bank-owned] sales are suspended,” a Fannie spokesperson said in a statement. Fannie Mae said it would resume sales for properties with loans that had been serviced by units of Ally Financial Inc., Bank of America Corp., PNC Financial Services Group Inc., J.P. Morgan Chase & Co., OneWest Bank, and Sovereign Bank.
Freddie Mac and Fannie Mae have lifted the ban on the sale of foreclosed homes, frozen since the document handling fiasco that started nearly two months ago. Freddie Mac sent a memo to agents instructing them to “resume all normal sales activity” while Fannie Mae issued a memo telling agents to “proceed with scheduling and holding the closings” of foreclosed sales. Fannie Mae also instructed agents to coordinate with appropriate personnel “if a title issue arises with respect to the potential defect of an affidavit used in the underlying foreclosure.” Fannie and Freddie owned nearly 240,000 properties at the end of September, valued at nearly $24 billion. Analysts claim difficulty selling those homes could lead to higher carrying costs for the mortgage titans. Further delays also could prompt buyers that had been under contract to lower their asking prices or to walk away from deals altogether which could cause the mortgage giants to incur heavier losses.
In August, Fannie Mae told mortgage servicers that they would face fines if foreclosures became unreasonably prolonged in a bid to avoid costly delays. The Federal Housing Finance Agency (FHFA) worked with Fannie Mae to make the decision after a thorough examination of foreclosed properties which the mortgage company has acquired. “Our decision was motivated by several factors including the protection of buyers with title insurance, the negative impact lingering foreclosed properties has on neighborhoods and the cost burden that is placed on taxpayers when [bank-owned] sales are suspended,” a Fannie spokesperson said in a statement. Fannie Mae said it would resume sales for properties with loans that had been serviced by units of Ally Financial Inc., Bank of America Corp., PNC Financial Services Group Inc., J.P. Morgan Chase & Co., OneWest Bank, and Sovereign Bank.
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