Fannie Mae announced Thursday that it is implementing a program under which qualifying homeowners facing foreclosure will be able to remain in their homes as renters if they voluntary transfer the property deed back to the lender.
The GSE’s new Deed for Lease Program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under the program, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at market rate.
“The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Fannie Mae’s VP. “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”
To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Investor properties with tenants are also eligible for the program.
Prospective renters must show that they can afford to pay the new market rental rate and must be able to document that the rental payment is no more than 31 percent of their gross income.
Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period.
A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.
Friday, November 6, 2009
Wednesday, November 4, 2009
Loan Modification Failure Rate
I have spent the last several years preaching Short Sales and the importance of recognizing there significance in the market place. Now with the national changes in the political climate the 'Anti Foreclosure Parade' marches on. Here are some facts about Loan modification which I am anxious to stop writing about. It appears the HAMP program is about as significant as a Big Foot sighting!
In what it termed a "conservative projection," Fitch Ratings says 65% to 75% of securitized subprime loan modifications will fall back into default a year after modification.
The findings were included in Fitch's semiannual report on loss mitigation actions taken by servicers on securitized loans. The report, which included information from Fitch-rated servicers and data from First American Loan Performance, found that, during the first half of 2009, about 30% of modified subprime loans fell back into default by the six-month mark and about 60% redefaulted 12 months after modification.
These numbers actually understate the number of loans that fail after modification, Fitch says, because the figures do not include modified loans that were subsequently re-modified or liquidated. While the rating agency adds that the number of prime-loan modifications initiated this time last year is insufficient for Fitch to determine a 12-month trend, at six months, the statistics on prime redefaults are similar to those for subprime and Alt-A loans.
By analyzing a pool of loan modifications from the third quarter of 2008 - a pool that included prime loans but mostly comprised Alt-A and subprime loans - Fitch found that 34% of the loans are current today. Five percent are in 30-day buckets, 17% received a second modification and 8% have been liquidated. These statistics support Fitch's contention that its 65%-75% redefault projection is conservative.
In explaining why modifications may not necessarily be the best route for servicers to take with certain borrowers, Fitch warns its rated servicers against re-modifying loans for the sake of improving performance data.
"The use of multiple mods for the sole purpose of managing default statistics and advances could not only put at risk a servicer's, as well as the transaction's, ratings, but also could greatly increase the ultimate loss to the investor," the report's authors state.
Modifications as a percentage of loan resolutions (i.e., actions that result in home retention as well as those that result in foreclosure) grew in the first six months of the year when compared to the six months ending Dec. 31, 2008. Loan modifications accounted for 58.1% of residential mortgage-backed securities loan resolutions in the first half of 2009, whereas they made up only 39.6% of loan resolutions in the last half of 2008. In total, 88.5% of the loans worked by Fitch-rated servicers' loss mitigation departments between January and June 2009 resulted in workouts. For the prior six-month period, 71.4% of cases resulted in workouts.
Looking for a Loan Modification, good luck. All too many loan moods are in favor of the lender and not the consumer!
-Christopher Rockey
In what it termed a "conservative projection," Fitch Ratings says 65% to 75% of securitized subprime loan modifications will fall back into default a year after modification.
The findings were included in Fitch's semiannual report on loss mitigation actions taken by servicers on securitized loans. The report, which included information from Fitch-rated servicers and data from First American Loan Performance, found that, during the first half of 2009, about 30% of modified subprime loans fell back into default by the six-month mark and about 60% redefaulted 12 months after modification.
These numbers actually understate the number of loans that fail after modification, Fitch says, because the figures do not include modified loans that were subsequently re-modified or liquidated. While the rating agency adds that the number of prime-loan modifications initiated this time last year is insufficient for Fitch to determine a 12-month trend, at six months, the statistics on prime redefaults are similar to those for subprime and Alt-A loans.
By analyzing a pool of loan modifications from the third quarter of 2008 - a pool that included prime loans but mostly comprised Alt-A and subprime loans - Fitch found that 34% of the loans are current today. Five percent are in 30-day buckets, 17% received a second modification and 8% have been liquidated. These statistics support Fitch's contention that its 65%-75% redefault projection is conservative.
In explaining why modifications may not necessarily be the best route for servicers to take with certain borrowers, Fitch warns its rated servicers against re-modifying loans for the sake of improving performance data.
"The use of multiple mods for the sole purpose of managing default statistics and advances could not only put at risk a servicer's, as well as the transaction's, ratings, but also could greatly increase the ultimate loss to the investor," the report's authors state.
Modifications as a percentage of loan resolutions (i.e., actions that result in home retention as well as those that result in foreclosure) grew in the first six months of the year when compared to the six months ending Dec. 31, 2008. Loan modifications accounted for 58.1% of residential mortgage-backed securities loan resolutions in the first half of 2009, whereas they made up only 39.6% of loan resolutions in the last half of 2008. In total, 88.5% of the loans worked by Fitch-rated servicers' loss mitigation departments between January and June 2009 resulted in workouts. For the prior six-month period, 71.4% of cases resulted in workouts.
Looking for a Loan Modification, good luck. All too many loan moods are in favor of the lender and not the consumer!
-Christopher Rockey
Monday, November 2, 2009
Does Loan Modification turn your Mortgage into Recourse Debt?
I have been asked this question several times in the recent past. I have always told Real Estate professionals that as long as the the original purchase money deed of trust is recorded on the property, the lender has no recourse. In LA last week I had a couple agents put up a very excellent argument on why the debt should become recourse. I decided to do the research beyond my own suspicion and seek the advice from a REPUTABLE attorney!
Under California law (Civil Code Section 580b), if a lender makes a loan to enable a borrower to buy a 1-4 unit property which they live in, the lender has no recourse against the borrower. They can only take (foreclose) the property. They cannot get a judgment against the borrower if the property is not worth the amount owed on the loan. This is called an “acquisition loan”. If the borrower later refinances this loan by getting a new loan, this protection is generally lost because the new loan was not obtained to acquire the property. That makes sense. But what about a loan modification?
Recently, several clients have had lenders (or collection companies) tell them that their loans became recourse because they got a loan modification. From what I can see, this appears to be false and is no doubt said in an attempt to collect some money even when there is no recourse.
The First reason that this is false is that the loan and security (deed of trust) have not changed. It is still the acquisition loan and the same date of purchase recorded security. Second, there is a rule in law called “substitution”. The substitution doctrine applies when an acquisition loan is refinanced by the lender holding the original acquisition debt. The acquisition portion refinanced retains its purchase money character and the anti-deficiency protections of CCP §580(b) apply. (Union Bank v. Wendland, 1976). Further there is legal authority that the protection extends to situations where the “beneficiary of the purchase-money loan ‘refinances’ the loan, ie: same lender, borrower, and security, but different loan amount. From these sources, it appears fairly clear that a modification will not alone convert a non-recourse acquisition loan into a recourse loan. As the court said in the Union Bank case, “…. the protections of the anti-deficiency statutes can not be avoided because of some clever paper shuffling on the part of the lender. To allow such is a circumvention of the anti-deficiency statutes.”
It was also clearly outlined to me that if the lender did try to actually seek a judgement a trial could easily be attained. With that said any first year internet attorney could win that case by illustrating the unpopular lender practices now perceived by the American public as villainous.
-Christopher Rockey
Under California law (Civil Code Section 580b), if a lender makes a loan to enable a borrower to buy a 1-4 unit property which they live in, the lender has no recourse against the borrower. They can only take (foreclose) the property. They cannot get a judgment against the borrower if the property is not worth the amount owed on the loan. This is called an “acquisition loan”. If the borrower later refinances this loan by getting a new loan, this protection is generally lost because the new loan was not obtained to acquire the property. That makes sense. But what about a loan modification?
Recently, several clients have had lenders (or collection companies) tell them that their loans became recourse because they got a loan modification. From what I can see, this appears to be false and is no doubt said in an attempt to collect some money even when there is no recourse.
The First reason that this is false is that the loan and security (deed of trust) have not changed. It is still the acquisition loan and the same date of purchase recorded security. Second, there is a rule in law called “substitution”. The substitution doctrine applies when an acquisition loan is refinanced by the lender holding the original acquisition debt. The acquisition portion refinanced retains its purchase money character and the anti-deficiency protections of CCP §580(b) apply. (Union Bank v. Wendland, 1976). Further there is legal authority that the protection extends to situations where the “beneficiary of the purchase-money loan ‘refinances’ the loan, ie: same lender, borrower, and security, but different loan amount. From these sources, it appears fairly clear that a modification will not alone convert a non-recourse acquisition loan into a recourse loan. As the court said in the Union Bank case, “…. the protections of the anti-deficiency statutes can not be avoided because of some clever paper shuffling on the part of the lender. To allow such is a circumvention of the anti-deficiency statutes.”
It was also clearly outlined to me that if the lender did try to actually seek a judgement a trial could easily be attained. With that said any first year internet attorney could win that case by illustrating the unpopular lender practices now perceived by the American public as villainous.
-Christopher Rockey
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