Brookings-

Summary

Should another housing market crash occur, the government’s highest priority should be helping cash-short homeowners maintain spending in a weak economy and avoid foreclosure by temporarily reducing or deferring mortgage payments.

In “Efficient Credit Policies in a Housing Debt Crisis,” Janice Eberly of Northwestern University and Arvind Krishnamurthy of Stanford University build a theoretical framework to guide policymakers ahead of a housing collapse and in the aftermath, finding that reducing the loan principal spreads the benefits of government funds over a long period of time, rather than focusing on the crisis period. The housing bust of the late 2000s was at the heart of the worst recession since the Great Depression, and resulted in a set of government programs to help beleaguered homeowners and cushion the blow to the overall economy. The authors focus on the importance of liquidity constraints and consumer spending in the overall economy, especially during a financial crisis when there is a need to support household consumption.

[BROOKINGS]

LA TIMES-

Bank of America said Friday it would reduce by about $100,000 the amount owed by as many as 200,000 underwater homeowners as part of the recently announced government foreclosure settlement with top mortgage servicers.

BofA made the commitment as part of a $1-billion side deal to the $25-billion foreclosure settlement, said bank spokesman Richard Simon.

The principal reductions could eliminate the entire underwater portion of some mortgages that the bank services, with the average reduction expected to be more than $100,000, he said.

By cutting the amount owed on the mortgages, Bank of America could reduce the $3.25 billion in penalties it faces from the foreclosure settlement by $850 million. The details of the principal-reduction agreement were first reported by the Wall Street Journal.

[LA TIMES]

H/T to a subscriber

This is about S 170 and HR 363.  Refi at LV, not FMV, and  appraisals are prohibited… Mortagee would presumably stay w/current servicer and lose existing rights, if any, re origination.  New securities are rebundled for sale (PIMCO, Penny Mac, et al).

If this happens, it will happen under the radar via Super Committee, not transparent law-making.

No one is looking at this.

(Bloomberg) —

U.S. Democratic Senator Barbara Boxer said she found a Republican colleague to help push a bill requiring Fannie Mae and Freddie Mac to let homeowners refinance properties worth less than their existing mortgage.

Senator Johnny Isakson, of Georgia, agreed to back the proposal that is also supported by Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., Boxer told reporters today on a conference call.

[BLOOMBERG]

from AARP’s Press Release:

The plaintiffs, from Indiana, New York, and Maryland, are represented by AARP Foundation Litigation and the Washington, DC law firm of Mehri & Skalet, PLLC.  The lawsuit, filed in U.S. District Court for the District of Columbia, seeks an injunction prohibiting HUD from abandoning long-standing rules and from illegally foreclosing on surviving spouses.  These arbitrary changes allow lenders to initiate foreclosure and eviction actions against the plaintiffs.

The case will have broad national implications, because the outcome will determine whether spouses will be able to stay in homes that are now “underwater” as a result of the housing downturn, a possibility that reverse mortgage borrowers have always paid insurance premiums to protect against.

I know some people have this notion that somehow California real estate prices are going to miraculously recover simply by sheer determination and the belief in late night infomercial catch phrases. Instead of focusing on larger macro economic trends they will use limited data that doesn’t capture the larger emerging trend. We’ve all seen those TV ads yet data is going in a very different direction. Inventory is increasing in California. Prices are dropping. Problem loans are still filling the pipeline. These are facts and as stubborn as they are, they tell us a more provocative story about real estate in the state. That story revolves around the fact that a large shadow inventory is lingering and the artificial dams of government intervention are having a tougher time holding back the flood. Today, I wanted to focus on the higher end markets of Los Angeles County to show that contrary to a handful of anecdotal cases, overall there is a bigger trend emerging. The mid-tier market is now entering its correction.

Before we look at Santa Monica our targeted city today, I wanted to provide you with 35 specific examples of million dollar prime location foreclosures in Southern California. These are all in Los Angeles County:

Continue reading …Dr. Housing Bubble

Could this mean the 60% are either in Foreclosure or Lost their homes!

Survey: 4 in 10 homeowners would consider walking away from ‘underwater’ mortgage

MIAMI – May 21, 2010 – More than 40 percent of homeowners with a mortgage say they would consider abandoning an “underwater” property, according to a national online survey released Thursday.

The study conducted this month by Harris Interactive for real estate firms Trulia and RealtyTrac touched on a topic that affects many South Floridians.

More than 371,000 homes in Palm Beach, Broward and Miami-Dade counties were worth less than the mortgage amount at the end of the first quarter, Zillow.com said recently.

Pete Flint, chief executive of Trulia, said on a conference call with reporters he “absolutely expects” more homeowners to walk away in the coming years as the stigma of foreclosure fades.

This is the fifth such survey of consumer attitudes since 2008, but the first time questions about underwater mortgages were included, Flint said.

Because South Florida home prices have fallen by more than 40 percent since the peak of the housing boom in 2005, underwater borrowers here may have to stay put for a decade or more until they can break even in a sale, housing experts say.

Maybe they are staying there for free because they are jobless…and the government that keeps bailing out the CROOKS …probably don’t give a “hoot” what happens to these families. For Mr. Sanchez…you should be ashamed for yourself!

You got that right…WE ARE PISSED OFF… YES!!

TAMPA, Fla. – April 6, 2010 – The mortgage crisis is causing more than just heartburn for homeowners. It’s changing their moral compass.

Homeowners are walking away – even when they can afford their payments. Some loot on the way out the door, carting off light fixtures, appliances, anything of value.

Others trash the home to ruin the bank’s chances of selling it. They pour cement down the drains, flood the house or punch holes in the walls.

A few years ago, such behavior would have been considered reprehensible.

But today’s homeowners are tired of watching the lenders who triggered the financial meltdown get bailed out while they suffer. They want revenge.

They feel entitled.

“It went from being a shame to being behind on your mortgage to feeling like it’s a big joke,” said Jim Kelly, a Tampa homeowner who said numerous neighbors have stopped paying. “The big talk at cocktail parties is how underwater is your house and how long have you lived there for free.”

Homeowners’ attitudes are changing as they realize their home values have dropped below what they owe. Nearly one-quarter of U.S. mortgages are underwater.

In some neighborhoods, experts say, it could take a decade or longer for prices to catch up. Some people blame lenders for steering them into a bad loan. Even homeowners who have faithfully paid their bills are angry. With so many of their neighbors defaulting, more people are giving in to the temptation.

“The social norms are changing,” said Luigi Zingales, a professor at the University of Chicago’s Booth School of Business. “The more people hear about their neighbors doing these things, the more acceptable it is.”

About 36 percent of the nation’s defaults in December were what Zingales calls “strategic defaults,” meaning homeowners deliberately let the home go into foreclosure. That’s up from 25 percent in March 2009, according to research Zingales conducted with colleagues at Northwestern University’s School of Business.

“People are afraid to walk away if they don’t know what will happen to them,” Zingales said. “Once they learn it’s not that bad, they’re more likely to do it.”

Consider Lutz’s Shawn Aaron, a friend of Kelly’s.

Expensive paintings and flat-screen TVs line the walls of his 5,800-square-foot home in the Cheval community. A Corvette sits in his garage. He paid $1.3 million for the home in November 2004.

More than two years ago, he stopped paying his mortgage and thinks a lot of other homeowners should follow his example. The way Aaron sees it, after the lender to which he agreed to make payments sold his mortgage, he doesn’t have a contract with the loan’s new owner. That lender, he says, has filed for foreclosure but has yet to prove it owns his loan.

“No one has answered my questions about my mortgage,” Aaron said. “I hope I win the case and stay here long term.”

Aaron said he also has stopped paying the mortgage on an investment property.

Aaron has such intense feelings about the housing crisis that he started a company, US Lender Audit, to help homeowners fight banks. The company reviews mortgages and finds what it thinks are problems with loans. Attorneys then use the report to fight for their clients in foreclosure cases.

“People have a right to question their mortgage,” Aaron said.

Aaron’s rationalization puts Kelly in an uncomfortable spot. The two are good friends, but have conflicting views on the mortgage crisis. They agree to disagree and don’t let it affect their friendship.

Kelly paid off his mortgage 17 years ago and never tapped his equity, even though he saw the appraised value jump a couple of hundred thousand dollars.

Neighbors of his took a different approach. That couple bought a house 25 years ago for $80,000, took out home-equity loans, and bought furniture and went on exotic trips. They owe $250,000 and stopped paying the mortgage.

“It’s a moral issue,” Kelly said. “You borrowed the money and because of the world credit issues that have nothing to do with your house, you think you’re entitled to something.”

Tampa real estate agent Paul De La Torre said he often sees the entitled attitude. Clients who are trying to sell their homes for less than the mortgage – called a short sale – are increasingly asking to take items with them.

“They want to take the appliances and other things they bought with their equity money,” said De La Torre, of Keller Williams. “I tell people that if you didn’t pay for it with your own money, it should stay with the house. Taking it just makes it more difficult to find a buyer.

“I just sold one house where the guy took the wall plates,” De La Torre said. “Those are like 60 cents at Home Depot.”

De La Torre said he has come across homes for sale that look great on the outside but are destroyed inside. Some people left food in the sink to stink up the house. They ripped out cabinets and toilets.

“Everybody says: Look what the bank did to me,” De La Torre said. “But when people were selling their homes for $100,000 profit, no one complained.”

Alex Sanchez, president and chief executive of the Florida Bankers Association, said people who destroy homes or deliberately stop paying should be ashamed.

“What happened to the American values of pulling yourself up by your bootstraps?” he said. “By the time we get our hands on these homes, they are ruined. People take sledgehammers to them. … It’s something our parents would not be proud of.”

Professor Zingales said his research has shown that the economy is continuing to change homeowners’ perceptions of right and wrong.

“We asked homeowners, ‘Would you walk away if your value dropped $50,000 below what you owe? What about $100,000 or $150,000?’” he said. “Eighty percent said they thought it was immoral to walk away. But that doesn’t mean they won’t.”

That leaves Kelly, who owns his house free and clear, feeling stuck.

“I feel like a jerk in some respects,” Kelly said. “I paid my mortgage and worked hard to pay off my house and send my kids to college. Others lived like champs, and they’ll end up getting their houses for free.”

Copyright © 2010 Tampa Tribune, Fla., Shannon Behnken. Distributed by McClatchy-Tribune Information Services.

The government tries a new tack in the fight against mortgage foreclosures

Mar 31st 2010 | NEW YORK | From The Economist print edition

WITH America braced for 4m or more foreclosures this year, the government is still searching for an effective way to stop the rot in housing. Under the Home Affordable Mortgage Programme (HAMP), a mere 170,000 borrowers have received permanent loan modifications, well below the target of 3m-4m. Will a revamped HAMP, unveiled on March 26th, mark a turning-point?

Until now the focus has been on lowering mortgage payments as a share of income, mainly through interest-rate reductions and term extensions. New rules put an emphasis on reducing principal (ie, loan balances). A crisis first sparked by subprime-mortgage defaults has since spread to better-heeled borrowers: one in four American households with mortgages owe more than their properties are worth. Forgiving some of this debt makes it less likely that they will throw away the keys.

The new plan aims to help in four main ways. It offers incentives for loan servicers (which collect payments for investors in mortgage-backed securities) to reduce principal for those owing more than 115% of the property’s current value; the write-down will be staged over three years if the borrower keeps up with lower payments. Second, struggling borrowers who have kept up their payments can switch into loans guaranteed by the Federal Housing Administration (FHA), a government agency, as long as their loan is reduced by 10% or more. Third, jobless borrowers will get up to six months of payment assistance while they look for work.

The final element is perhaps the most important. The government hopes to remove a blockage in the modification process with a bribe to holders of “second lien” mortgages, such as home-equity loans. CreditSights, a research firm, estimates that the four big banks hold $423 billion of home-equity loans (see chart), $151 billion of them to borrowers who are either underwater or close to it. These lenders have resisted modification of first mortgages, fearing knock-on write-downs of their second liens. The sweetener on offer is a payment of between ten and 21 cents on the dollar for balances they cut.

The new plan is widely seen as having more teeth than the first version of HAMP. But it still has its flaws. Participation by servicer banks is not assured. The motivation to avoid modifying second liens is likely to be stronger than a few thousand dollars in incentive payments for investors and servicers. Even so, the plan appears to treat second-lien holders better than investors in the main mortgage, because the former are not required to cut principal when first-lien balances drop. This “undermines the priority of claims in the capital structure” and supports the overvaluation of exposures on banks’ books, says Joshua Rosner of Graham Fisher, a consultancy.

The taxpayer will still be stuck holding the bill for the FHA. Already, the agency’s reserves have been heavily eroded by risky loans it took on in 2008-09 to shore up the housing market. Even homeowners may end up feeling dissatisfied. It is jobs that these households really desire, says Anthony Sanders, a property-finance professor at George Mason University, not to stay in a house that they cannot afford, especially when rental properties are so readily available.