Washington state considers short sale protection
Banks could soon be barred from pursuing deficiency judgments
against Washington state borrowers after a short sale. A Senate
committee in the Washington State Legislature will hold a hearing
over H.B. 2718, which states that if a bank "writes off debt from
the short sale, they can't then subsequently collect this debt
from the seller. The bill was modeled after similar action passed
in Oregon last summer. The bill if passed does not require the
lender to accept a short sale offer. It would go into effect with
90 days of being passed. According to a Washington Realtors
alert put out late last week, a borrower would report the write
off to the Internal Revenue Service and take a tax deduction for
the loss. This same amount is also counted as taxable income for
the seller. "Providing certainty and consumer protections for
short sale sellers is critical in the current real estate
market," the trade group said. "Successful short sales often
prevent foreclosures that would harm consumers, tax revenue and
economic recovery." After the Oregon bill took effect in June,
REO numbers became choppy and then began to fall at the end of
the year. In September, repossessed homes totaled 1,420,
according to RealtyTrac. That number increased to 2,057 the
following month then slid to 936 in November and 874 in December.
Some of that could be due to seasonal trends. Most lenders put
repossessions on hold during the holiday season, but the December
total was down 29% from the same month one year earlier.
S&P warns of rate cuts over health costs
Ratings agency Standard & Poor's warned it may downgrade "a
number of highly rated" Group of 20 countries from 2015 if their
governments fail to enact reforms to curb rising healthcare
spending and other costs related to aging populations. Developed
nations in Europe, as well as Japan and the United States, are
likely to suffer the largest deterioration in their public
finances in the next four decades as more elderly strain social
safety nets, S&P said in a report. "Steadily rising healthcare
spending will pull heavily on public purse strings in the coming
decades," S&P analyst Marko Mrsnik wrote in the report. "If
governments do not change their social protection systems, they
will likely become unsustainable." If no reforms are adopted,
healthcare-related credit downgrades would likely start within
three years, eventually leading to an increase in the number of
junk-rated countries as of 2020, the study showed.
Olick - US Treasury forcing principal forgiveness
"Late Friday the US Treasury Department announced a major
expansion of its Home Affordable Modification Program (HAMP).
The three-year-old program has been largely deemed unsuccessful,
as it has provided just about 750,000 borrowers with permanent
loan modifications. The initial expectation from government
officials was that it would help three to four million borrowers.
'Clearly the initial program erred on the side of making sure
taxpayers were protected, but it didn’t do enough to help the
overall economy,' said Michael Barr, former Asst. Treasury
Secretary for Financial Institutions and one of HAMP’s original
architects. Now taxpayers will pony up the cash, as Treasury is
tripling the financial incentives to lenders and opening the
program up to Fannie Mae, Freddie Mac and investors in rental
properties. The money would come out of TARP funds, i.e. from the
taxpayers. We still don’t know if Fannie and Freddie will
participate, since their conservator, the FHFA’s Ed DeMarco,
has been actively fighting principal write down for years. A week
ago he sent a letter to members of congress explaining the math
behind his argument.
But the Treasury may be forcing DeMarco’s hand. He claimed that
writing down mortgage principal would cost $4 billion more than
the modifications that Fannie and Freddie are doing now. Those
involve interest rate reduction and principal forbearance. The
newly expanded HAMP, however, with its triple- sized cash
incentives, would shore up that $4 billion hole. Funny how he
mentioned that hole on Monday, and the Treasury announced the new
plan Friday. 'If he [DeMarco] doesn’t get to yes, then he has
no political leg to stand on,' says FBR’s Ed Mills, who
estimates the enhanced program could add one million borrowers to
its ranks. Mills says a ‘no’ from DeMarco would enable the
Obama Administration to replace him, which it tried to do once
before, only to be blocked by members of Congress. 'It would be
an appropriate response for him to do it,' says Barr of DeMarco.
'I do think they should participate.' I asked Barr why the
Treasury waited three years to use the TARP funds for principal
reduction. The obvious answer is that this is presidential
election year, and the housing market is still floundering, but
Barr claims the Treasury was just being careful. 'It’s a use
of taxpayer funds, and you want to make sure you’re not
providing more of an incentive than is required,' he said. 'One
person’s successful program is another person’s bailout.'"
Treasury department stirs the pot
The Treasury Department is investigating a report that Freddie
Mac, the mortgage giant, bet against homeowners’ ability to
refinance their loans even as it was making it more difficult for
them to do so, Jay Carney, the White House spokesman, said
yesterday. ProPublica and National Public Radio reported that
Freddie Mac, which maintained slightly tighter restrictions than
Fannie on homeowners’ eligibility to refinance, had a
multibillion-dollar investment whose value hinged on borrowers
continuing to pay higher interest rates. Beginning in 2010,
Freddie bought several billion dollars’ worth of “inverse
floater” securities — essentially the interest-paying portion
of a bundle of mortgages — for its investment portfolio while
selling the far less risky principal portion. Fannie and Freddie
are supposed to be decreasing the size of their investment
portfolios. There is no evidence that Freddie tailored its
refinancing standards to its investing strategy, but “inverse
floaters” make less money if the loans they cover refinance to
a lower interest rate. Freddie issued a statement yesterday
defending its commitment to helping homeowners. “Freddie Mac is
actively supporting efforts for borrowers to realize the benefits
of refinancing their mortgages to lower rates,” it said. The
company said refinancing accounted for 78% of its loan purchases
in 2011.
HAMP 2.0
The expansion of the Home Affordable Modification Program (HAMP)
by the Treasury Department is expected to benefit special
mortgage servicers, mortgage insurers and nonagency
mortgage-backed securities holders, while having no material
effect on agency MBS, Keefe, Bruyette & Woods said yesterday.
Previously, if a borrower's first-lien monthly mortgage payment
was lower than 31% of income, the borrower was ineligible for
HAMP. Factoring other debts to the evaluation will expand the
pool of borrowers who can now qualify for HAMP. Investors also
were given new incentives for accepting principal write-downs,
with the financial benefits for such an action increasing from a
range of 6 to 21 cents on the dollar to 18 to 63 cents. The
Obama administration also extended the HAMP program deadline
through December 2013. "We believe that the more flexible
debt-to-income ratio and the inclusion of some investor
properties will have a positive impact on modification activity,"
KBW analysts said in its research note. "The impact of the
increased principal reduction incentives remains unclear.
While it should help the nonagency sector, the impact would be
far greater if there was GSE participation. The response from
FHFA on Friday afternoon suggests that the GSEs might not
participate," according to KBW analysts. The research firm
expects the changes to have "no material impact on agency MBS
prepayment speeds." However, special servicers in the mortgage
industry are expected to benefit from the modifications. Ocwen
Financial Corp. earned $28.3 million in HAMP incentive fees in
the first nine months of 2011, and KBW believes other firms also
will benefit from an expanded HAMP program. Barclays Capital
analysts also see the changes as having no significant impact on
agency MBS. "The reason is that the vast majority of debt
forgiveness will be on delinquent loans, which are typically
already bought out of the agency MBS trust," Barclays wrote.
"The only effect might be from the moral hazard side: if
underwater borrowers in agency MBS pools start going delinquent
on purpose to qualify for debt forgiveness, speeds will obviously
rise. But we think this is unlikely to have a significant effect
on agency speeds."
Banks could soon be barred from pursuing deficiency judgments
against Washington state borrowers after a short sale. A Senate
committee in the Washington State Legislature will hold a hearing
over H.B. 2718, which states that if a bank "writes off debt from
the short sale, they can't then subsequently collect this debt
from the seller. The bill was modeled after similar action passed
in Oregon last summer. The bill if passed does not require the
lender to accept a short sale offer. It would go into effect with
90 days of being passed. According to a Washington Realtors
alert put out late last week, a borrower would report the write
off to the Internal Revenue Service and take a tax deduction for
the loss. This same amount is also counted as taxable income for
the seller. "Providing certainty and consumer protections for
short sale sellers is critical in the current real estate
market," the trade group said. "Successful short sales often
prevent foreclosures that would harm consumers, tax revenue and
economic recovery." After the Oregon bill took effect in June,
REO numbers became choppy and then began to fall at the end of
the year. In September, repossessed homes totaled 1,420,
according to RealtyTrac. That number increased to 2,057 the
following month then slid to 936 in November and 874 in December.
Some of that could be due to seasonal trends. Most lenders put
repossessions on hold during the holiday season, but the December
total was down 29% from the same month one year earlier.
S&P warns of rate cuts over health costs
Ratings agency Standard & Poor's warned it may downgrade "a
number of highly rated" Group of 20 countries from 2015 if their
governments fail to enact reforms to curb rising healthcare
spending and other costs related to aging populations. Developed
nations in Europe, as well as Japan and the United States, are
likely to suffer the largest deterioration in their public
finances in the next four decades as more elderly strain social
safety nets, S&P said in a report. "Steadily rising healthcare
spending will pull heavily on public purse strings in the coming
decades," S&P analyst Marko Mrsnik wrote in the report. "If
governments do not change their social protection systems, they
will likely become unsustainable." If no reforms are adopted,
healthcare-related credit downgrades would likely start within
three years, eventually leading to an increase in the number of
junk-rated countries as of 2020, the study showed.
Olick - US Treasury forcing principal forgiveness
"Late Friday the US Treasury Department announced a major
expansion of its Home Affordable Modification Program (HAMP).
The three-year-old program has been largely deemed unsuccessful,
as it has provided just about 750,000 borrowers with permanent
loan modifications. The initial expectation from government
officials was that it would help three to four million borrowers.
'Clearly the initial program erred on the side of making sure
taxpayers were protected, but it didn’t do enough to help the
overall economy,' said Michael Barr, former Asst. Treasury
Secretary for Financial Institutions and one of HAMP’s original
architects. Now taxpayers will pony up the cash, as Treasury is
tripling the financial incentives to lenders and opening the
program up to Fannie Mae, Freddie Mac and investors in rental
properties. The money would come out of TARP funds, i.e. from the
taxpayers. We still don’t know if Fannie and Freddie will
participate, since their conservator, the FHFA’s Ed DeMarco,
has been actively fighting principal write down for years. A week
ago he sent a letter to members of congress explaining the math
behind his argument.
But the Treasury may be forcing DeMarco’s hand. He claimed that
writing down mortgage principal would cost $4 billion more than
the modifications that Fannie and Freddie are doing now. Those
involve interest rate reduction and principal forbearance. The
newly expanded HAMP, however, with its triple- sized cash
incentives, would shore up that $4 billion hole. Funny how he
mentioned that hole on Monday, and the Treasury announced the new
plan Friday. 'If he [DeMarco] doesn’t get to yes, then he has
no political leg to stand on,' says FBR’s Ed Mills, who
estimates the enhanced program could add one million borrowers to
its ranks. Mills says a ‘no’ from DeMarco would enable the
Obama Administration to replace him, which it tried to do once
before, only to be blocked by members of Congress. 'It would be
an appropriate response for him to do it,' says Barr of DeMarco.
'I do think they should participate.' I asked Barr why the
Treasury waited three years to use the TARP funds for principal
reduction. The obvious answer is that this is presidential
election year, and the housing market is still floundering, but
Barr claims the Treasury was just being careful. 'It’s a use
of taxpayer funds, and you want to make sure you’re not
providing more of an incentive than is required,' he said. 'One
person’s successful program is another person’s bailout.'"
Treasury department stirs the pot
The Treasury Department is investigating a report that Freddie
Mac, the mortgage giant, bet against homeowners’ ability to
refinance their loans even as it was making it more difficult for
them to do so, Jay Carney, the White House spokesman, said
yesterday. ProPublica and National Public Radio reported that
Freddie Mac, which maintained slightly tighter restrictions than
Fannie on homeowners’ eligibility to refinance, had a
multibillion-dollar investment whose value hinged on borrowers
continuing to pay higher interest rates. Beginning in 2010,
Freddie bought several billion dollars’ worth of “inverse
floater” securities — essentially the interest-paying portion
of a bundle of mortgages — for its investment portfolio while
selling the far less risky principal portion. Fannie and Freddie
are supposed to be decreasing the size of their investment
portfolios. There is no evidence that Freddie tailored its
refinancing standards to its investing strategy, but “inverse
floaters” make less money if the loans they cover refinance to
a lower interest rate. Freddie issued a statement yesterday
defending its commitment to helping homeowners. “Freddie Mac is
actively supporting efforts for borrowers to realize the benefits
of refinancing their mortgages to lower rates,” it said. The
company said refinancing accounted for 78% of its loan purchases
in 2011.
HAMP 2.0
The expansion of the Home Affordable Modification Program (HAMP)
by the Treasury Department is expected to benefit special
mortgage servicers, mortgage insurers and nonagency
mortgage-backed securities holders, while having no material
effect on agency MBS, Keefe, Bruyette & Woods said yesterday.
Previously, if a borrower's first-lien monthly mortgage payment
was lower than 31% of income, the borrower was ineligible for
HAMP. Factoring other debts to the evaluation will expand the
pool of borrowers who can now qualify for HAMP. Investors also
were given new incentives for accepting principal write-downs,
with the financial benefits for such an action increasing from a
range of 6 to 21 cents on the dollar to 18 to 63 cents. The
Obama administration also extended the HAMP program deadline
through December 2013. "We believe that the more flexible
debt-to-income ratio and the inclusion of some investor
properties will have a positive impact on modification activity,"
KBW analysts said in its research note. "The impact of the
increased principal reduction incentives remains unclear.
While it should help the nonagency sector, the impact would be
far greater if there was GSE participation. The response from
FHFA on Friday afternoon suggests that the GSEs might not
participate," according to KBW analysts. The research firm
expects the changes to have "no material impact on agency MBS
prepayment speeds." However, special servicers in the mortgage
industry are expected to benefit from the modifications. Ocwen
Financial Corp. earned $28.3 million in HAMP incentive fees in
the first nine months of 2011, and KBW believes other firms also
will benefit from an expanded HAMP program. Barclays Capital
analysts also see the changes as having no significant impact on
agency MBS. "The reason is that the vast majority of debt
forgiveness will be on delinquent loans, which are typically
already bought out of the agency MBS trust," Barclays wrote.
"The only effect might be from the moral hazard side: if
underwater borrowers in agency MBS pools start going delinquent
on purpose to qualify for debt forgiveness, speeds will obviously
rise. But we think this is unlikely to have a significant effect
on agency speeds."
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