“My sense is that it’s having an impact,” … but “there is obviously still distress in the mortgage market” Bair said in answering questions after a speech to the Chicago Federal Reserve Bank’s annual bank structure conference.

According to Bair, most mortgage holders will continue making their monthly payments if they are brought down to the affordable level, regardless of whether they are in the upside-down mortgage scenario or not. Upside-down mortgage refers to a condition when a home value is lower than the mortgage owed on the property.

Loan workouts are traditionally more difficult to pursue if the credit distress is driven by a life event, such as loss of a job or disability, when compared to the workouts as a result of a structural problems with the loan itself.

Sheila Bair said she would like to see the secondary mortgage market “come back in the right way” with “the right incentive structure” after being a casualty of the financial crisis that started in 2007.

Bair said the agency had added 1,000 staff in the past and is still hiring, commenting on the FDIC’s workload during the recent spate of bank failures.

Federal Deposit Insurance Corporation (FDIC) official Loan Modification Guidelines.

FDIC “Loan Mod in a Box” additional Loan Modification Tools

Background

Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow (around 4 percent of seriously delinquent loans each month). It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures.

Modifications should be provided using a systematic and sustainable process. The FDIC has initiated a systematic loan modification program at IndyMac Federal Bank to reduce first lien mortgage payments to as low as 31% of monthly income. Modifications are based on interest rate reductions, extension of term, and principal forbearance. A loss share guarantee on redefaults of modified mortgages can provide the necessary incentive to modify mortgages on a sufficient scale, while leveraging available government funds to affect more mortgages than outright purchases or specific incentives for every modification. The FDIC would be prepared to serve as contractor for Treasury and already has extensive experience in the IndyMac modification process.

Basic Structure and Scope of Proposal
This proposal is designed to promote wider adoption of such a systematic loan modification program:

1. by paying servicers $1,000 to cover expenses for each loan modified according to the required standards; and
2. sharing up to 50% of losses incurred if a modified loan should subsequently re-default

We envision that the program can be applied to the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009. Of this total of approximately 4.4 million problem loans, we expect that about half can be modified, resulting in some 2.2 million loan modifications under the plan.

Details on Program Design

• Eligible Borrowers: The program will be limited to loans secured by owner-occupied properties.

• Exclusion for Early Payment Default: To promote sustainable mortgages, government loss sharing would be available only after the borrower has made six payments on the modified mortgage.

• Standard NPV Test: In order to promote consistency and simplicity in implementation and audit, a standard test comparing the expected net present value (NPV) of modifying past due loans compared to the strategy of foreclosing on them will be applied. Under this NPV test, standard assumptions will be used to ensure that a consistent standard for affordability is provided based on a 31% borrower mortgage debt-to-income ratio.

• Systematic Loan Review by Participating Servicers: Participating servicers would be required to undertake a systematic review of all of the loans under their management, to subject each loan to a standard NPV test to determine whether it is a suitable candidate for modification, and to modify all loans that pass this test. The penalty for failing to undertake such a systematic review and to carry out modifications where they are justified would be disqualification from further participation in the program until such a systematic program was introduced.

• Reduced Loss Share Percentage for “Underwater Loans”: For LTVs above 100%, the government loss share will be progressively reduced from 50% to 20% as the current LTV rises.¹ If the LTV for the first lien exceeds 150%, no loss sharing would be provided.

• Simplified Loss Share Calculation: In order to ensure the administrative efficiency of this program, the calculation of loss share basis would be as simple as possible. In general terms, the calculation would be based on the difference between the net present value of the modified loan and the amount of recoveries obtained in a disposition by refinancing, short sale or REO sale, net of disposal costs as estimated according to industry standards. Interim modifications would be allowed.

• De minimis Test: To lower administrative costs, a de minimis test excludes from loss sharing any modification that did not lower the monthly payment at least 10 percent.

• Eight-year Limit on Loss Sharing Payments: The loss sharing guarantee ends eight years of the modification.

Remodification

This is where things can get confusing: a loan remodification is doing the same as mentioned above after you have already successfully went through the process the first time. The problems begin when the modification is accepted just because it’s better than what someone may have now, but it’s not good enough long-term for that homeowners overall situation. Most banks don’t make it easy for homeowners to modify the first time around, that’s why so many people are turning to companies with experience, such as a non-profit or a law firm. The second time is even harder: a loan remodification means it didn’t work the first time. Why go through the effort again for no reason, can be the bank’s rationale.

This in my opinion is why a certifed representative working on your behalf, can be so valuable. If you are in a situation where you have already modified your loan and it doesn’t look like it’s going to work, contact your lender or someone who can work on your behalf with them. If you are going to have a chance in making your loan remodification work, the best bet is to do it before you become delinquent again.

While the plan which is scheduled to begin on March 4th 2009 is estimated to help 9 million homeowners, there are certain groups that are unfortunately outside of the plan’s reach. Here are the five most important things you Must know about the HASP:

1. Homeowners with conforming mortgages (mortgages under $417,000) may qualify to refinance at a lower rate. Some homeowners may be able to qualify even if they have never been seriously behind on their mortgages.

2. Homeowners with subprime or so-called “exotic” loans may qualify
to modify their current loans to make the payments more affordable.

3. Both of the above groups may be able to qualify even if their property is worth as much as they owe.

4. Homeowners who’s loan amounts are much higher than the value of their property most likely are outside of the scope of the proposed plan. This unfortunately will affect the markets where real estate prices have taken the steepest declines, such as California, Florida, Nevada and Arizona.

5. Homeowners who’s loans were not securitized by Fannie Mae or Freddie Mac may find it difficult to refinance or adjust their rates. Most homeowners may not know or realize that unless they have specifically asked their lenders.

Housing Secretary Shaun Donovan said Thursday in an interview that it’s critically important that banks and lending institutions “step up to the plate” to help make certain the Obama administration’s new home foreclosure initiative succeeds.

“This started as a mortgage crisis but it’s become a jobs crisis,” said Donovan following the announcement of the $75 billion plan to help prevent foreclosures.

In an interview with the “Today” show on NBC Donovan stated that the administration feels confident that enough requirements are put in place to ensure refinancing by the banks which will “tip the balance for millions of homeowners.”

Sheila Bair of Federal Deposit Insurance Company stated that the while some foreclosures will be unavoidable, the plan should help bring the foreclosure levels to the historical averages.

The plan’s key provision for mortgage modification will only benefit the people with good credit under the new plan, Donovan said in the interview.

“There are clearly a number of homeowners around the country who won’t benefit and shouldn’t benefit”, Donovan said referring to the investor homeowners that never intended to occupy the purchased property.

Reported by Associated Press on February 19th 2009

stop foreclosure

In an effort to keep 9 million people from loosing their homes President Barack Obama unveiled his $75 billion mortgage relief plan on Wednesday, February 18th.   The plan will reportedly help homeowners afford their monthly payments by either refinancing their mortgages or having their loans modified.  The president is broadening the government resque to include those who are current on their monthly payments but are at risk of being default.  Obama’s plan met a sharp opposition from the Republican party.   Obama responded to critics: The plan is not meant to help irresponsible borrowers.

“It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell,” Obama said Wednesday. “It will not reward folks who bought homes they knew from the beginning they would never be able to afford.”