Latest HARP program for underwater mortgages ramping up

"HARP 2.0," the second version of the federal mortgage refinancing program, comes with streamlined processing, but some key issues could hinder borrower participation.

March 04, 2012|By Kenneth R. Harney

Reporting from Washington - The most ambitious federal mortgage program to date aimed at millions of underwater homeowners is poised to take off in the coming two weeks, yet some key issues could hinder borrower participation. One of them involves something most owners know nothing about: Who was your mortgage insurer on your underwater loan?

Though it was announced by the Obama administration late last year, "HARP 2.0" - the second version of the Home Affordable Refinance Program - will finally hit full stride around the middle of this month, when Fannie Mae and Freddie Mac finish tweaking their automated underwriting systems to accept applications, and lenders and mortgage insurance companies start handling large volumes of requests.

Home buying: Most affordable in decades

By Les Christie@CNNMoneyFebruary 17, 2012: 12:10 PM ET

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Youngstown, Ohio is the metro area where homes are the most affordable in the nation.

NEW YORK (CNNMoney) -- Buying a home is now more affordable than it has been in the last twenty years.

Thanks to continued declines in home prices and rock-bottom mortgage rates, the National Association of Home Builders/Wells Fargo Housing Opportunity Index hit a record level of affordability.

According to the index, 75.9% of all new and existing homes sold during the three months ended Dec. 31 could have been comfortably purchased by families earning the national median income of $64,200.

That was the highest percentage recorded in the 20-year history of the index, and a sharp increase from just three months earlier when 72.9% of all homes sold were considered affordable.

Unfortunately, being able to afford a home and actually being able to buy one are two different matters entirely. According to Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Fla., potential home buyers are still finding it difficult to land mortgages.

Mortgages are cheap but you can't get one

"While today's report indicates that home ownership is within reach of more households than it has been for more than two decades, overly restrictive lending conditions confronting home buyers and builders remain significant obstacles to many potential home sales," he said.

Those who do land a mortgage, will be able to take advantage of rates that seem to hit a new low every week. This week interest rates for 30-year loans averaged a record low of 3.87%, according to Freddie Mac.

Where the deals are

Youngstown, Ohio is the most affordable major metro area in the nation to buy a home, according to the NAHB. The faded steel town, located in eastern Ohio, could be on the verge of an economic renaissance with new gas drilling techniques that could help exploit nearby gas reserves, according to the report.

There, 95.1% of homes sold during the quarter were deemed affordable to typical local households earning the area's median family income of $54,900.

The other metro areas near the top of the list included Lakeland, Fla., Modesto, Calif., Harrisburg, Pa., and Toledo, Ohio.

Among small housing markets, Kokomo, Ind. had the highest housing affordability index with more than 99% of all homes sold there affordable to typical families. Fairbanks, Alaska, Cumberland, Md., Lima, Ohio, and Rockford, Ill. were all very affordable as well.

New Yorkers could only shake their heads at the housing opportunities available outside their metro area. Just 29% of the homes sold in the New York metro area during the last three months of 2011 were affordable for the typical local family.

That's the lowest level in the U.S. -- even though locals typically earned $67,400, roughly $3,000 more than the national median. It was New York's 15th consecutive quarter as the least affordable metro area.

Nearly as expensive are housing markets in Honolulu, San Francisco, Santa Ana, Calif., and Los Angeles.

Find homes for sale

First Published: February 16, 2012: 10:00 AM ET

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Mortgage deal could bring billions in relief

By Chris Isidore and Jennifer Liberto@CNNMoneyFebruary 9, 2012: 2:11 PM ET

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WASHINGTON (CNNMoney) -- In the largest deal to date aimed at addressing the housing meltdown, federal and state officials on Thursday announced a $26 billion foreclosure settlement with five of the largest home lenders.

The deal settles potential state charges about allegations of improper foreclosures based on robosigning, seizures made without proper paperwork.

The settlement includes the Justice Department and the U.S. Department of Housing and Urban Development, as well as 49 state attorneys general -- all but Oklahoma.

"We are using this opportunity to fix a broken system," said U.S. Attorney General Eric Holder at the news conference announcing the settlement.

The settlement sets up a federal monitor to oversee the process and try to prevent roadblocks and red tape that tripped many homeowners seeking help in earlier programs designed to address the housing crisis.

President Obama said the settlement will "begin to turn the page on an era of wrecklessness that has left so much damage in its wake."

"No action, no matter how meaningful, is going to by itself entirely heal the housing market," he said in separate remarks. "But this settlement is a start."

Most of the relief will go to those who owe far more than their homes are worth, known as being underwater on the loans. That relief will come over the course of the next three years, with the banks having incentives to provide most of the relief in the next 12 months.

"This settlement is about homeowners, homeowners in distress," said Iowa Attorney General Tom Miller at the news conference with state and federal officials.

What the settlement means to you

Principal reduction: At least $17 billion will go to reducing the principal owed by homeowners who are both underwater and behind on their mortgages.

The agreement calls for principal reduction for as many as 1 million people. But it's unlikely the money will go that far, because many people need more than the $17,000 average reduction that would result if the money is split among 1 million homeowners.

At the same time, total principal reduction could go higher -- to as much as $34 billion -- since the agreement requires deeper principal reductions for the most troubled loans.

Refinancing: Officials say up to 750,000 other underwater homeowners who are current on their mortgages will be able to refinance their current loans at lower rates. They will not receive a reduction in principal, but with mortgage rates now near record lows, they could receive substantial savings on their monthly payments.

The settlement sets aside $3 billion to account for the reduced interest payments the banks will receive after the refinancing.

Robosigning payments: About $1.5 billion of the settlement will go to homeowners who had their homes foreclosed upon between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. They will receive up to $2,000 each.

Accepting that payment does not preclude homeowners who lost their home in an improper foreclosure from suing the bank to recover damages, Donovan said.

Participating banks: The five mortgage servicers that are parties to the settlement -- Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500), Wells Fargo (WFC, Fortune 500) and Ally Financial -- will pay a total of $5 billion to the states. Some of that money will go to foreclosed homeowners and the rest to the states.

Federal officials say negotiations are underway to expand the settlement to nine other major servicers, which would raise the overall value of the settlement to $30 billion.

Related settlements: The deal spurred pacts between the authorities and banks in similar cases.

Oklahoma Attorney General Scott Pruitt announced a separate $18.6 million settlement that addressed homeowners whose homes were foreclosed through improper means, but did not provide help to those whose mortgages were underwater. He said he believes the broader agreement "overreached" the authority of both federal and state governments.

"We had concerns that what started as an effort to correct specific practices harmful to consumers, morphed into an attempt by President Obama to ...fundamentally restructure the mortgage industry in the United States," Pruitt said.

The Federal Reserve said it had reached an agreement with the five banks to pay a $766.5 million in sanctions related to their servicing practices.

And Loretta Lynch, the U.S. Attorney in Brooklyn, N.Y., announced a $1 billion settlement with Bank of America to resolve claims of underwriting and mortgage origination fraud by BofA and mortgage lender Countrywide Financial, which BofA bought in 2008.

The $26 billion deal announced Thursday is the second biggest settlement ever involving states. It trails only the $206 billion pact in 1998 with the tobacco industry.

And it dwarfs any settlements that major Wall Street firms have reached to resolve other allegations of misdeeds related to the financial markets meltdown and the Great Recession.

Still it only will help a faction of those homeowners who are struggling with mortgages. The relief would not be available to those homeowners whose mortgages have been sold to the government-sponsored mortgage guarantors Fannie Mae and Freddie Mac.

There are 1.5 million homeowners who are 90 days or more delinquent on their mortgages but not yet in foreclosure, according to the most recent estimate from the Mortgage Bankers Association. An additional 1.9 million are in the foreclosure process. And CoreLogic estimates that 11 million homeowners are underwater on their mortgages.

Obama proposes new home refinancing plan

The settlement does not preclude criminal prosecutions from being pursued. It also doesn't stop investigations into other allegations of misdoings, such as the process of bundling loans into mortgage-backed securities and selling them to investors.

"It wasn't the servicing practices that created the bubble nor caused the collapse," said Donovan. "It was the origination and the securitization of these horrendous products. We will be aggressive about going after those claims."

The deal is supposed to protect consumers when it comes to robosigning, and ensure that mortgage servicers agree to communicate better, avoid delays and give homeowners who are late on mortgage payments a fairer shake.

New York's participation had been shaky this week, because some of the banks involved in the multi-state deal had also been sued by Attorney General Eric Schneiderman last week. Those banks -- Bank of America, Wells Fargo and JPMorgan Chase -- had also asked for a legal pass from Schneiderman's lawsuit, which accuses them of deceptive foreclosure practices for relying on the Mortgage Electronic Registration System.

On Tuesday, Schneiderman's office organized a media briefing to talk about the deal and then canceled it minutes before it was supposed to begin.

The big question throughout the negotiations was how much money would be available to help homeowners, which depended on how many states agreed to the deal. California's participation raises the total settlement value by several billion dollars.

At least one consumer advocacy group, the Center for Responsible Lending, has said the deal -- while "no silver bullet" -- leaves room to hold banks accountable in other mortgage probes, said Kathleen Day, a spokeswoman for the nonprofit.

But other left-leaning groups, including Move On and the New Bottom Line, are continuing to urge states to hold out for a big criminal investigation and a $300 billion settlement award.

--CNN's Jessica Yellin contributed to this story.

First Published: February 9, 2012: 10:07 AM ET

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Obama unveils mortgage refinancing plan

By Lucy Madison Topics White House .16 Comments

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President Barack Obama holds up a proposed mortgage application form as he speaks at the James Lee Community Center in Falls Church, Va., Wednesday, Feb. 1, 2012.

(Credit: AP Photo/Cliff Owen)

President Obama on Wednesday unveiled a proposal aimed at making it easier for Americans to refinance their mortgages, urging Congress to act on what he called a "make-or-break moment for the middle class."

Speaking to a crowd in Falls Church, Virginia, the president laid out a plan, originally outlined in last week's State of the Union address, he said would "give every responsible homeowner in America the chance to save about $3,000 a year on their mortgage by refinancing at historically low rates."

"What this plan will do is help millions of responsible homeowners who make their payments on time but find themselves trapped under falling home values or wrapped in red tape," he said. "If you're ineligible for refinancing just because you're underwater on your mortgage, through no fault of your own, this plan changes that. You'll be able to refinance at a lower rate, you'll be able to save hundreds of dollars a month you can put back in your pocket. Or you can choose those savings to rebuild equity in your homes - which will help most underwater homeowners come back up for air more quickly."

He also outlined what he called a "Homeowners Bill of Rights," or, "one straightforward set of commonsense rules of the road that every family knows they can count on when they're shopping for a mortgage."

That set of rules, aimed at protecting borrowers, would demand simple mortgages with no hidden fees; would put in place guidelines to prevent conflicts of interest damaging to homeowners; give support to families who are current on their payments; and provide protection against inappropriate foreclosure.

"No more hidden fees or conflicts of interest," Mr. Obama said. "No more getting the runaround when you call about your loan. No more fine print that you use to get families to take a deal that as not as good as the one they should have gotten. New safeguards against inappropriate foreclosures. New options to avoid foreclosure if you've fallen on hardship or a run of bad luck. And a new, simple, clear form for new buyers of a home."

The president recalled his and First Lady Michelle Obama's experience buying their first home together - a process he described, humorously, as so complicated that the two of them would end up looking through the forms and asking "what does this phrase mean?"

"And that's, you know, for two trained lawyers," he laughed.

He held up a one-page mock-up of what he wants such forms to look like in the future, and pointed to the Consumer Finance Protection Bureau (CFPB) as a means to achieving that end.

"Now that our new consumer watchdog agency is finally running at full steam, now that Richard Cordray is in as the director of the CFPB, they are moving forward on important protections like this new, shorter mortgage form," Mr. Obama said.

The goal, he said, was to make things "simple, not complicated," to protect consumers from getting "cheated."

"Terms are clear. Fees are transparent," he said.

The president painted his agenda as a stark contrast to that which Republicans favor.

"This, by the way, is what some of the folks in Congress are trying to roll back and prevent from happening," Mr. Obama said, referencing widespread Republican opposition to the power granted to CFPB to serve as a consumer watchdog agency.

"I guess they like complicated things that confuse consumers and allow them to be cheated. I prefer actions that are taken to make things simpler and easier to understand for consumers so that they can get the best deal possible - especially on the single biggest investment that most people will ever make," he said.

Another facet of the plan would turn foreclosed homes into rental properties because, as Mr. Obama noted, "that empty house or for sale sign down the block can bring down price of homes across the neighborhood."

"We're working to make sure people don't lose their homes just because they lost their job," he said. "These are steps that can make a concrete difference in people's lives right now."

Mr. Obama framed the issue to voters in personal terms.

"I've been saying that this is a make-or-break moment for the middle class, and this housing crisis struck right at the heart of what it means to be middle-class in America," he said. "Our homes, the place where we invest our nest egg, the place where we raise our family, the place where we plant roots in a community... It's personal. It affects so much of how people feel about their lives, about their communities, about the country, about the economy."

Taking an apparent swipe at Republican presidential candidate Mitt Romney, who in October told the Las Vegas Review Journal's editorial board that the government should not try to stop the foreclosure process but rather "let it run its course and hit the bottom," Mr. Obama argued that "it is wrong" to make responsible homeowners wait out the crisis.

"It is wrong for anyone to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit rock bottom. I refuse to accept that and so do the American people," he said.

"Government must take responsibility for rules of the road that are fair and fairly enforced. Banks and lenders must be held accountable for ending the practices that helped cause this crisis in the first place. And all of us must take responsibility for our own actions - or lack of action," Mr. Obama said. "So I urge Congress to act. Pass this plan. Help more families keep their homes. Help more neighborhoods remain vibrant. Help keep more dreams defended and alive. And I promise you that I will keep doing everything I can to make the future brighter for this community, this commonwealth, for this country."

When asked about Mr. Obama's proposal following the remarks on Wednesday, House Speaker John Boehner dismissed it as the latest in a series of failed pitches.

"One more time? One more time? How many times have we done this? We've done this at least four times where there's some new government program to help homeowners who have trouble with their mortgages," he said. "None of these programs have worked. And I don't know why anyone would think that this next idea is going to work."

Romney, meanwhile, suggested on Tuesday that Mr. Obama would have trouble getting re-elected due the state of the housing crisis. "If you are part of the housing crisis, you are probably not going to get elected president," he said.

Mortgage rates will likely remain very low, at least through mid-2012, according to Freddie Mac.

Rates on 30-year conforming mortgages have hovered around 4.0 percent or lower for the past quarter. The GSE says that in large part due to the Federal Reserve's program for extending the maturity date for mortgage securities it holds. This program is expected to continue through the middle of next year.

This should keep fixed-rates for 15- through 30-year mortgages relatively low during the first half of the year, with rates edging up during the second half, Freddie Mac said in its latest market outlook.

In addition, the GSE says the Fed's guidance that it will likely keep the target range for its benchmark federal funds rate near zero though mid-2013 ensures that initial

interest rates for adjustable-rate mortgages (ARMs) will also remain extremely low throughout 2012.

Freddie Mac also said in its outlook forecast that housing activity will be better in 2012, but not robust. The GSE says to expect fewer single-family originations but more multifamily lending next year.

Looking at the macroeconomic picture, Freddie expects stronger growth, in the range of 2.5 percent in 2012. While the national unemployment will decline going forward, the GSE expects it to remain above 8 percent through next year.

"While the headwinds remain strong going into 2012, there are indications the economy and the housing market are gaining ground, albeit slowly," commented Frank Nothaft, Freddie Mac's chief economist.

Nothaft says sustained and increased job growth are essential to move the recovery forward - and by that he means monthly payroll gains well above the 130,000 average seen in 2011.

In housing, Nothaft says to look for the rental market to lead the way and for some improvement in the single-family space to pop up in parts of the country.

While green shoots of recovery appear to be beginning to take hold, the industry shouldn't set expectations too high.

"All told, next year will be another bumpy ride," according to Nothaft.

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