Pam Marron Home Lending

Morning Briefing: HELOC owners face sharp payment increases in 2017

May 2, 2017 by · Leave a Comment 

by Steve Randall
Challenging times are ahead for thousands of homeowners with HELOCs as their lines of credit reset with higher monthly payments while some may struggle to refinance.Analysis by Black Knight Financial shows that 1.5 million HELOCs will see interest-only draw periods end this year with just under $100 billion in outstanding unpaid principal balances; an average of $62,500 per HELOC.

The data reveals that average borrowers whose lines of credit reset will face an additional cost of $250 per month, more than double the current average payment.

“In 2017, 19 percent of active HELOCs are facing reset,” said Ben Graboske, Black Knight Data & Analytics EVP. “This is the largest share of active HELOCs facing reset of any single year on record, although the approximate 1.5 million borrowers slated to see their HELOC payments increase this year is about 100,000 fewer borrowers than in 2016.”

Graboske explained that the lines resetting this year and early in 2018 are the last of the pre-crisis-era HELOCs that the industry has been focusing on since early 2014.

A third of those with HELOCs resetting this year will find refinancing challenging as they have less than 20 per cent equity in their homes. A fifth have less than 10 per cent and 1 in 10 are underwater.

While that is a concern, it reveals a large improvement from 2016 when 45 per cent of HELOC owners were below 20 per cent and a fifth were underwater.

For most borrowers though, recent conditions have enabled them to avoid the addition monthly cost of a reset.

“One thing that’s working in the 2007 vintage HELOCs’ favor has been the equity and interest rate environment of the last year. Rising home prices and low interest rates throughout 2016 have allowed borrowers to be much more proactive than in years past in terms of paying off or refinancing their lines to avoid increased monthly payments,” Graboske explained.

*originally published on Mortgage Professional America’s website.

What Could Drive Another Mortgage Crisis?

September 2, 2016 by · Leave a Comment 

Continued Policy That Damages Credit of Responsible Homeowners and the Apathetic Reason Nothing is Done

By Pam Marron, for National Mortgage Professional Magazine | Sept. 2016 Issue

There is no refinance available for as many as 6.4 million negative equity homeowners who have a conventional first mortgage not backed by government sponsored enterprises (GSE) Fannie Mae or Freddie Mac, or a second mortgage or home equity line of credit (HELOC) that is “underwater”, where more is owed on the mortgage than the home is worth. Many of these mortgages are interest only loans that are now resetting to fully amortized payments with increases seen as high as 400%+. Simply, because these loans have negative equity, there is no refinance available to reduce initial higher interest rates from years ago. The only option for affected homeowners is a modification or a short sale and both require the homeowner to be delinquent on their mortgage first.

These homeowners struggle to “stay put” in negative equity homes awaiting home values to return. If this problem is not taken seriously, the result will be a new wave of short sales that will have a negative impact on the housing industry. It is already happening.

And this time it is affecting the elderly.

Caps placed on the maximum loan-to-value of non-GSE 1st mortgages and the combined loan to value when 2nd mortgages and HELOCs exist are what holds back a refinance for these specific negative equity loans. Compound this with the interest only reset of many of these loans, and the problem is disastrous.

For too long, there has been a lack of attention to a refinance where none exists for negative equity homeowners. Many believe these homeowners “did it to themselves” and massive press about short sellers labeling them as “strategic defaulters” (or those able to make payments but refuse to) was overshadowed by the fact that negative equity homeowners who worked with banks to short sell homes were told by their own lenders that they could not get approved for the short sale until they were delinquent on their mortgage first. This policy continues to this day for most lenders.

But since 2013, reports have proven that [1]”ruthless” or “strategic” default during the 2007-09 recession were relatively rare. In a [2]2015 follow up of this study, job loss and adverse financial shocks in addition to divorce, large medical expenses and other severe income loss attributed greatly to mortgage default. Most importantly in this report… While household-level employment and financial shocks are important drivers of mortgage default, analysis shows that financially distressed households do not default. More than 80% of unemployed households with less than 1 month of mortgage payments in savings are current on their mortgage payments.

Disdain of reasons for why negative equity occurred is often the primary focus of apathetic attention to a refinance solution. Instead, focus should be on a sustainable refinance for those on time with their mortgage payment to assist them to “stay put” longer.

There is no argument of “moral hazard” or “strategic default” for a refinance option that allows responsible homeowners breathing room to stay put. When homeowners are not struggling to make their payments, they keep up homes which increases the value of our communities.

We can continue to think that the negative equity problem has gone away in the United States but it has not.  More calls are coming in from elderly with no chance of increase in their income. Many of them did a refinance or a second mortgage to help other family members but are now stuck themselves. The reason for a refinance should not matter. And we shouldn’t require affected homeowners to be delinquent on their mortgage first causing a destruction of good credit that results in negative unintended consequences for future credit.

Instead, we should be questioning how we can stabilize areas where negative equity still exists.

There are solutions available with existing mortgage programs now. A white paper entitled “Urgent Attention Needed: Two Problems and Solutions That Exist for Responsible Homeowners Who Have Negative Equity in Their Homes” that provides U.S. and Florida data showing how many negative equity homeowners can be helped is at http://housingcrisisstories.com/wp-content/uploads/2016/07/Urgent.pdf.

[1] Unemployment, Negative Equity, and Strategic Default | August 2013 |Federal Reserve Bank of Atlanta | http://www.urban.org/sites/default/files/gerardi-kerkenhoff-ohanian-willen-strategic-default.pdf

[2]  Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default | Sept. 21, 2015 | https://www.bostonfed.org/publications/research-department-working-paper/2015/cant-pay-or-wont-pay-unemployment-negative-equity-and-strategic-default.aspx

How to Prevent the Next Housing Crisis

August 25, 2016 by · Leave a Comment 

By Staff KnowledgeWharton – from The Fiscal Times

Payment Reductions Should Continue After HAMP Expires: Regulators

July 25, 2016 by · Leave a Comment 

By Brian Collins, from National Mortgage News
July 25, 2016

Federal regulators warned mortgage servicers Monday that they will still expect them to offer loan modifications to distressed homeowners even after the Home Affordable Modification Program expires at year-end.

Continue reading…

Better Details Needed for FHA Back to Work, Conv “Extenuating Circumstances”

May 6, 2015 by · Leave a Comment 

Better Details Needed for FHA Back to Work Program and Conventional “Extenuating Circumstances”

 

By Pam Marron

For past short sellers who have gone through the loss of a home and are eligible to return, criteria needed for a new mortgage is vague. The result is a partial story.

Proving “extenuating circumstances” and confining the timeline for an economic event is a struggle for loan originators and underwriters trying to comply with vague criteria. Because of so many variables, lenders deny new loans for borrowers with a short sale or foreclosure in their past even when they may be eligible to repurchase again.

We HAVE to get this right. Detailing WHY the loss of a home is the hardest thing for affected consumers to provide… not because they can’t remember, but because they relive it.

In attempting to originate the FHA “Back to Work” loans, it would seem the process is simple. The criteria for “Back to Work” is to show a 20% reduction in income sustained for 6 months minimum that resulted from a loss of employment or reduction in income, which is considered the “economic event”.

Here’s the bigger problem. Most who had an “economic event” tried to hang on, wiping out assets along the way. But, while trying to hang on, homeowners accumulated more debt to stay solvent and in most cases, to stay current on their mortgage. Then, another “economic event” hit, assets were gone and debt is so excessive that there is no choice but to short sell.

As a mortgage broker in Florida where it is common to see Boomerang Buyers (those eligible to re-enter the housing market after a short sale or foreclosure), I often hear the full story for those who have lost a home and want to re-try home ownership again. An economic event followed by a prolonged period of trying to stay put, finally ended with another event where funds were no longer available and the only choice was to short sale, occurred in a great deal of these cases.

Proof also exists to show a good number of these folks had excessive debt that pushed up debt to income ratios incredibly high prior to the sale of their underwater home.

But, it gets confusing for a new mortgage. For the FHA “Back to Work” program, HUD approved counselors are able to determine hardship and can provide those who attempt a re-purchase one year after a short sale, foreclosure or bankruptcy with a housing counseling certificate.

However, that doesn’t mean the mortgage company will approve the mortgage. Because the economic event may have occurred years ago and short sale processes took months or years, documentation such as tax returns and bank statements needed to show a lack of assets may stretch over the previous five to seven years rather than the most recent two years that lenders are accustomed to evaluating.

Mortgage companies who offer FHA “Back to Work” are reluctant to promote this almost two year old program due to few of these loans getting approved. Part of this is because loan originators don’t provide enough documentation, and the other problem is that there seems to be wide discrepancy between underwriting opinion on these files.

Varying opinion also exists for “extenuating circumstances” noted in Fannie Mae and Freddie Mac guidelines for eligibility of a new mortgage under four years. Underwriting interpretation of these guidelines vary greatly from lender to lender for the few mortgage companies who offer these loans.

For loans submitted with what seems to be an iron clad “extenuating circumstance” or proof of the 20% reduction in income for 6 months minimum for FHA’s “Back to Work” program, underwriter opinion seems to vary widely. Some underwriters think the decision to short sale was too soon, while others wonder why homeowners waited. It seems they are trying to justify the sale was “not strategic”.

The income, current credit and assets of borrowers who have gone through a short sale and are trying to re-enter the housing market is more than acceptable per current guidelines. They have to be next to perfect, and they know it. Other than knowledge of the past short sale, these are loans that any lender would want to have on their books.

Those who make policy need to talk directly with affected past short sellers. They need to come to where underwater home problems still exist and see for themselves what is really happening. This can truly help the housing industry recover.

 

 

 

 

Video: Past Short Sellers Can Be Homeowners Again!

October 16, 2013 by · Leave a Comment 

The fix is in!

 

Video: Past Short Sellers Can Be Homeowners Again!

George Albright, like many past short sellers, had a problem when he was eligible to repurchase a home. His past short sale credit was showing up as a foreclosure. George made this video to explain how he was able to get his credit corrected and buy a new home again. How many past short sellers, or those who may have to short sell, can this help? Simple instructions for past short sellers, realtors and lenders!

Click on picture above or go to http://youtu.be/ZPvzVpnwKRI

Pasco man gets around home lending glitch

September 15, 2013 by · Leave a Comment 

8 on your side

Posted: August 28, 2013

By Shannon Behnken

PASCO COUNTY, FL -In 2010, George Albright’s Trinity home lost half its value, and he lost income. His lender agreed to allow the house to sell for less than Albright’s mortgage and write off the rest. This foreclosure alternative is supposed to help distressed homeowners get back on their feet.Albright knew the short sale would be a black mark on his credit, but he wanted to buy a home again in a few years.”The bank approved it, so I thought I’d be okay in a couple of years and get back in the market.”

One of the benefits to a short sale is that most lenders require only a two-year waiting period before you can buy again. A foreclosure, on the other hand, sticks on your credit report for seven years. But Albright, and thousands of others who have waited their two years, are finding that a computer glitch resulted in foreclosure, the “kiss of death” in lending, on their credit anyway.

“Again, I thought I did the right thing, and I’m getting linked in with other foreclosures, and I didn’t think that was fair because I thought I did the right thing, as best I could at that time.”

The problem is that credit agencies don’t have a code for “short sale” and so many just mark foreclosure. Fannie Mae is working on a fix to its computer system that would flag this problem. The new system is supposed to launch Nov. 16. In the meantime, the Federal Housing Administration is working to change its guidelines, too.

Instead of waiting three years for an FHA loan, a distressed seller can now jump back into the market after one year of good credit.

Until all of the computer fixes are in place, experts recommend obtaining a letter from your former lender to prove your short sale situation.

This is what Albright did, and now he has been approved to buy a home again.

National Consumer Reporting Assoc.(NCRA)…Could Not Have Done This Without Them!

September 6, 2013 by · Leave a Comment 

NCRA 8.23.13

Short sales coded as foreclosures hurt credit

August 29, 2013 by · Leave a Comment 

channel 8 8.26

Posted: August 26, 2013

By Shannon Behnken

PASCO COUNTY, FL – For a distressed homeowner who owes way more on a mortgage than a home is worth, a “short sale” can be a ticket out of foreclosure.

A short sale occurs when a bank allows a home to sell for less than you owe, then writes off the rest. It’s supposed to be a black mark on your credit for just two years, instead of the usual seven years for a foreclosure.

“The benefit of entering a short sale agreement is that you’ll be able to re-enter the housing market a lot quicker than having a foreclosure on your credit,” said Joe Gendelman, of National Credit Federation in Tampa.

Gendelman said he’s working with dozens of clients who went through short sales, but then found a foreclosure listed on their credit years later.

The problem is bank and credit bureaus have no special code to report a short sale, so when a new lender checks your credit, it often shows up as a foreclosure.

So thousands of Bay area homeowners who completed short sales years ago are now having trouble buying another home, or even a car.

“Forty percent of homes in the state of Florida are under water.  So, it really creates a mountain that if people need to sell for some reason, many times they would have to be forced to do a short sale,” Gendelman said.

Mortgage Giant Fannie Mae, which underwrites mortgages, says it’s in the process of changing its computer system so that short sales are flagged.

In the meantime, experts recommend you ask for a letter from the lender who approved your short sale. That way, you have proof, if you need it.

Negative Equity Declines in 2Q13, but Trouble Looms for Many Homeowners

August 29, 2013 by · Leave a Comment 

By Evan Nemeroff  AUG 29, 2013 12:40pm ET

With home values rising over the last several months, the national negative equity rate is falling. But for millions of homeowners, it could take years for them to regain equity, Zillow said.

Approximately 12.2 million homeowners with a mortgage were in negative equity at the end of the second quarter, the Seattle-based real estate information provider said in a report. This figure is down from 13 million homeowners in 1Q13 and 15.3 million a year ago.

Even if home prices go up by 4.8% in the next year, it would take a homeowner who is 20% underwater about four years to reach positive equity, assuming appreciation continues at that rate going forward.

“Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air. For those homeowners who are deeply underwater, though, there is still a long row to hoe,” said Stan Humphries, chief economist for Zillow.

Overall, the negative equity rate for all homeowners with a mortgage is 23.8%. More than half (57%) of homeowners in negative equity are underwater by at least 20%. Furthermore, 13.4% of underwater borrowers owe more than twice what their properties are worth.

Among the 30 largest metropolitans areas covered by Zillow that have the highest percentage of mortgaged homeowners with negative equity in the second quarter are Las Vegas (48.4%), Atlanta (44%) and Orlando (39.8%).

Over the next year, Zillow is forecasting that the negative equity rate for homeowners with a mortgage will fall to at least 20.9%, which will help free 1.9 million borrowers from being underwater. The majority of these homeowners, Zillow said, that will fall into positive equity are anticipated to come from Los Angeles, Riverside, Calif., and Atlanta.

“The frustrating slow pace of negative equity declines in the face of such robust home value appreciation is a direct result of the fact that many people in the hardest-hit markets are underwater by an enormous amount,” Humphries stated. “Because of this, negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved.”

 

 

 

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