Sara’s Homes

The U.S. Treasury said its foreclosure-prevention program has cut mortgage payments for about 947,000 households, at least temporarily.

That was the number of households benefiting from easier loan terms at the end of January through the Obama administration's Home Affordable Modification Program, known as HAMP. The total was up about 11% from a month earlier. The administration estimates that 1.7 million households—about 3% of those with mortgages—are eligible for the program.

HAMP, announced a year ago by President Barack Obama, gives lenders incentives to help struggling borrowers avoid foreclosure by shrinking their payments through a reduction in the interest rate to as low as 2%. In some cases, loan terms are extended to 40 years.

Participants first are given three-month "trial" modifications. If they make payments on time and meet other requirements, including documentation of their income, they are given permanent modifications. As of Jan. 31, about 116,000 borrowers had such permanent fixes, up 75% from a month earlier.

The Treasury said 60,000 trial modifications have been canceled. Many more are likely to fall out of the program this month because extensions of the time available to verify incomes have run out.

For those who fail to qualify, lenders may proceed with foreclosure or seek other solutions, including short sales, in which homes are sold for less than the loan balance due.

The program's dropout rate is likely to be high, partly because lenders allowed many people into trials without first making sure they qualified. Wells Fargo & Co. said 92,000 of the borrowers it services had made three trial payments by Jan. 31. It expects about half of them to get permanent modifications. Others failed to provide all or some of the required documents or were found to be ineligible after the paperwork was reviewed.

Among loans with permanent modifications, the median monthly savings is about $522, the Treasury said. It said borrowers in trial and permanent modifications have saved more than $2.2 billion so far.

Prodding lenders to saving more borrowers, the Treasury is publishing monthly comparisons of their performance. As of last month, it said Citigroup Inc. had provided modifications to 50% of the estimated number of eligible borrowers. Both J.P. Morgan Chase & Co. and Wells Fargo were at 38%, and Bank of America Corp. was at 22%.

In a statement, Bank of America said it had made stronger gains than rivals last month in providing trial modifications and converting trials into permanent fixes.

An estimated 4.5 million home owners owe 75 percent more than their homes are worth. That number is likely to peak at 5.1 million in June, affecting 10 percent of home owners and making them increasingly likely to just walk away.

''We're now at the point of maximum vulnerability,'' says Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. ''People's emotional attachment to their property is melting into the air.''

Consultants at Oliver Wyman calculated that 17 percent of owners defaulting in 2008 –about 588,000– chose to default even though they could pay.

First American estimates that it would cost about $745 billion – about the same as the original 2008 bank bailout – to restore all underwater borrowers to the break-even point.

Doing so would be seen as highly unfair by many taxpayers, says Michael S. Barr, assistant Treasury secretary for financial institutions, but doing nothing would be another blow to a fragile economy.

Home designers and builders speaking at the recent International Builders Show in Las Vegas say that buyers are seeking cost-effective features and rejecting things that don’t have lasting value.

“It's all about family togetherness – casual living, entertaining and flexible spaces," says Carol Lavender, president of the Lavender Design Group in San Antonio.

Paul Cardis, CEO of Avid Ratings, which conducts an annual survey of buyer preferences, identified these must-haves in new homes:

1. Large kitchens with islands
2. Energy efficiency, including energy-efficient appliances, super insulation, and high-efficiency windows.
3. Home offices
4. Main-floor master suite
5. Outdoor living space
6. Ceiling fans
7. Soaking tub in the master suite and/or an oversize shower with a seating area
8. Stone and brick exteriors rather than stucco or vinyl
9. Community walking paths and playgrounds
10. Two-car garages, but three-car garages are even more desirable

The housing market, and with it the mortgage landscape, have changed dramatically over the past two years.

Rules for scoring a low-interest mortgage have become stricter, and homebuyers must be savvy and well-prepared to land any home loan. Below are 10 tips to make your homebuying or refinancing odyssey more successful in 2010.

1. Consider an adjustable-rate mortgage.
In late 2009, one in 20 borrowers was obtaining an adjustable-rate mortgage. As mortgage rates rise in 2010, the proportion of ARM borrowers is expected to grow.

The most popular adjustable is the 5/1 ARM, which carries an introductory rate that lasts five years, and then can change annually thereafter. Typically, the introductory rate on 5/1 ARM is lower than the rate on a 30-year fixed. That makes the 5/1 ARM a viable option for borrowers who are sure they will sell their homes within five or six years, before the monthly payments have a chance to skyrocket.

A fixed-rate mortgage is probably the safest option for homebuying. But for people who plan to sell their homes within a few years, a hybrid ARM is worth considering.

2. Get your loan early in the year.
The Federal Reserve plans to stop buying mortgage-backed securities by the end of March. Most mortgage experts believe that rates will rise when mortgages go off Fed support, as private investors require higher rates to compensate for the risk.

3. Know your credit.
As the mortgage world goes back to basics, good deals require high credit scores. Until recently, it took a credit score of 720 or higher to get the best combination of fees and points. Now the best homebuying deals go to borrowers with credit scores of 740 or higher.

4. Ask for three or four loan scenarios.
Instead of focusing only on the interest rate, consider more than two combinations of discount points and loan type.

Let's say your best guess is that you'll live in the house for eight years. Compare the total fees and monthly payments that you would make under three or four different loan deals. Ask yourself how much it would cost to pay zero discount points and get a higher rate compared with paying discount points in exchange for lower rates. What about a 5/1 or 7/1 ARM?

5. Refinance for the remaining term.
When refinancing a 30-year mortgage, too many people start from the beginning again. When you refinance a 30-year loan that you've had for five years, pay off the new loan in 25 years. Just ask the lender to amortize the loan for the remaining period of the old loan. 

6. Know your numbers.
The housing boom busted more than three years ago, and still people are tempted to take on too much debt. Let the Federal Housing Administration be your guide for homebuying.

The FHA caps borrowers' house payments at 31% of gross (pretax) monthly income. So, if you earn the median household income of $4,200 a month before taxes, your house payment, including principal, interest, taxes, insurance and association dues, should be no more than 31% of that, or $1,302. Some housing counselors say you should spend less — around 28% to 30% of gross income.

The FHA limits total debt payments to 43% of monthly income. Total debt payments include first and second mortgages, auto loans, credit cards and child support. Some non-FHA loans let you borrow more, but you shouldn't have to stretch.

"Expectations to grow into a payment ought to be scaled back until the economy is into a full recovery," says Jim Sahnger, mortgage planner for Palm Beach Financial Network in Stuart, Fla.

7. Small down payment? Go FHA.
Most lenders require buyers nowadays to make down payments of at least 10%. Similarly, most lenders require homeowners to have at least 10% equity to qualify for a low-rate refinance.

For people who don't have the 10%, the FHA is an option. To get an FHA-insured mortgage, you need a down payment, or equity, of at least 3.5%.

8. No down payment? Go VA or RHS.
The Department of Veterans Affairs guarantees no-down payment mortgages in the VA Guaranteed Home Loan Program. To meet eligibility requirements, you must provide proof of military service.

The U.S. Department of Agriculture's Rural Housing Service doesn't require down payments, either. The eligibility requirements include restrictions on income as well as property location.

9. Check rates on jumbos.
Jumbo mortgages were a casualty of the credit crisis that began in the summer of 2007. Jumbo rates soared and remained high for more than two years. But at the end of 2007, rates on jumbo mortgages began falling. Toward the end of 2009, rates on fixed-rate, 30-year jumbos dropped to around 6%. Jumbo ARM rates also fell. For homeowners with at least 20% to 30% equity, refinancing is worth a look.

10. If you fall behind, consult a counselor.
Delinquent borrowers who receive foreclosure counseling are 60% more likely to keep their homes than people who don't get counseling, according to NeighborWorks America. They also are more likely to receive mortgage modifications and lower payments.

 

Setting the right price is as much about knowing how buyers think as it is about how much the property is worth. By Jonathan Clements of The Wall Street Journal.

If you're selling a car or a house in today's sluggish economy, make sure the price is right.

Americans are constantly buying stuff. But most of us don't do a whole lot of selling — which means we don't have much experience at setting prices.

Want to improve your odds of finding a buyer? As you try to unload your car or your home, consider these four pricing tricks.

Looking slim. We all know that $1.99 is barely less than $2. Yet retailers continue to use this trick, because there's ample evidence it works.

"When we look at prices, we make judgments in a fraction of a second," explains Manoj Thomas, a marketing professor at Cornell University. "We read from left to right. We anchor our judgment on the first thing we see."

For instance, if you're trying to sell your old car that you think is worth $8,000, you might set the price at $7,999. Potential buyers will read the seven first — and have a sense the car is cheaper than it really is.

Alternatively, you might start at $8,222 and then quickly drop the price to $8,111. One study of price comparisons found that, if the left digits are the same, buyers will focus on the right-hand numbers.

At that point, buyers perceive the discount to be larger if those right numbers are declining from, say, two to one rather than from nine to eight. Even though the decline is the same in dollar terms, "people think they're getting a better deal," says one of the study's co-authors, Robin Coulter, a marketing professor at the University of Connecticut.

Stacking up. As buyers check out your car or your house, they'll have in mind a price they are willing to pay. The good news: You can influence that price.

"You should list higher than you're willing to accept," says Alan Cooke, a marketing professor at the University of Florida. "If you ask a high price, people use that as information in setting their reference price. But there's also evidence that, if you set a price that is implausibly high, the impact will be less than if you set a price that's more reasonable."

In addition, you can affect the reference price of buyers by, for instance, telling them your car's book value or sharing the price of competing properties in the neighborhood. The obvious caveat: Pass along this information only if the comparisons are in your favor.

Sending messages. Imagine you're selling your house, which you figure might fetch a little less than $600,000. A round number, such as $595,000, will convey quality, while a precise number, such as $595,385, will indicate a bargain.

The reason: We associate precise numbers with lower-priced goods. A precise number also may signal that you have given a heap of thought to the price and you aren't inclined to negotiate.

Trying to settle on an asking price for your home? "If it's a new development and you're trying to give the impression of prestige, you would want to go for the round number," advises Vicki Morwitz, a marketing professor at New York University. "But if you're going for the quick sale and you want to give the impression of a bargain, you would want to go for the precise number."

Cutting prices. In today's housing market, many homeowners are struggling to find a buyer.

Thinking of dropping your asking price? Suppose that, as in the above example, you initially asked $595,385. If you lower the price to, say, $578,495, potential buyers may perceive the price drop as relatively modest.

"You want to make the computation as easy as possible," Cornell's Thomas says. "If you use digits that make computation difficult, it will lead to a perception of a small difference."

What to do? You might specify the dollar discount — or, alternatively, lower the price from $595,385 to maybe $580,385 or $575,385. That way, it will be easy for buyers to calculate the price drop.

The Obama administration is trying to simplify the paperwork for people seeking lower home-mortgage payments in an effort to avert more foreclosures.

The Treasury outlined new guidelines Thursday aimed at streamlining requirements for mortgage relief under the administration's Home Affordable Modification Program launched a year ago.

The guidelines specify that borrowers must provide three items to loan servicers, the companies that collect mortgage payments: a form requesting a loan modification, authorization for the servicer to seek tax information from the Internal Revenue Service and evidence of income, such as two recent pay stubs. Previously, some servicers have asked borrowers to fax in copies of their tax returns. Borrowers sometimes couldn't find the needed tax forms or complained that servicers repeatedly lost material faxed to them.

The previous documentation requirements were "somewhat overwhelming" for some borrowers, says Morgan McCarty, head of mortgage servicing at Regions Financial Corp., a banking company based in Birmingham, Ala.

The Treasury also said that, effective June 1, servicers must collect the information before starting borrowers on three-month "trial" loan modifications, during which borrowers must show they can make the payments before being granted a permanent reduction in their loan costs. Many servicers have been starting trial modifications based on unverified information provided orally by the borrower, only to find later that the borrower wouldn't or couldn't provide documentation.

As of Dec. 31, about 900,000 borrowers had been given trial modifications but only 66,465 had been converted to a permanent fix. That largely reflects problems getting documentation. The Treasury acknowledged that some of those 900,000 borrowers won't end up qualifying for a loan modification through the program.

As of Sept. 30, about 7.5 million households—about 14% of those with home loans—were behind on payments or in the process of foreclosure, according to data from the Mortgage Bankers Association, a trade group.

Many of those struggling borrowers owe far more to their lenders than the current value of their homes—a condition known as being "underwater"—and wonder whether it is worthwhile to keep paying. Micah Green, a partner at the law firm Patton Boggs in Washington who represents some large investors in mortgages, says the administration should revamp the program to put more stress on reducing principal owed by borrowers who can show that they would be able to stay current on a smaller, refinanced loan. In many cases, that would require the holders of both a first- and a second-lien loan to accept a write-down of the amount owed, a complicated process.

Treasury officials said Thursday they were looking at ways of helping underwater borrowers but haven't found practical means of doing that on a large scale. "There are no simple solutions," Herb Allison, an assistant Treasury secretary, said in a press briefing.

Fannie Mae is offering a 3.5% incentive for buyers who purchase and close on a Fannie Mae-owned home between January 28 and April 30, 2010. Buyers purchasing properties listed on HomePath.com that are closed within this period may receive up to 3.5% of the final sales price for:

 

·         Closing costs;

·         The purchase of new Whirlpool^® appliances by Fannie Mae; or

·         A mix of closing costs and appliances, at the buyer's discretion, up to the maximum 3.5%.

To be eligible for this incentive:

·         Offers must be accepted on or after January 28, 2010;

·         Property sales must close before May 1, 2010, and;

·         Buyers must be owner-occupants (investors are excluded).

 

The incentive reinforces the organization's commitment to stabilizing communities and assisting buyers. For more information about this incentive, visit www.HomePath.com, read the press release on fanniemae.com, or contact a Fannie Mae listing broker.

Despite increasing pressure to take more aggressive steps to keep troubled borrowers in their homes, the Obama administration said Wednesday that it had no immediate plans to alter its foreclosure-prevention program by increasing its reliance on reducing loan balances.

The administration's statement came as attorneys general and banking regulators in 14 states warned that policy makers needed to do more to stem the tide of foreclosures.

The Obama program, announced in February as a cornerstone of the administration's efforts to stabilize the housing market, has been running into increasing criticism as delinquencies have mounted. The program has focused on reducing loan payments to affordable levels through interest-rate reductions and other changes in loan terms. But state officials and others say it needs to address falling home prices through principal reductions because many homes are now worth less than their mortgages.

"The failure to reduce principal jeopardizes the sustainability of loan modifications," Mark Pearce, North Carolina's deputy banking commissioner, said at a briefing for reporters.

In a related development, the Treasury Department said the administration next week will issue new guidance for lenders to deal with a looming deadline that is putting many homeowners participating in the program at risk of disqualification because of paperwork problems.

More than 900,000 homeowners have begun trial modifications under the program, but documentation issues are hampering efforts to convert those to permanent fixes. Last month, the administration gave many borrowers in the program an extension until Jan. 31 to provide the documents. But the administration said last week that it doesn't plan to extend the deadline further.

New York State Banking Superintendent Richard Neiman said Wednesday that he believed that about 450,000 homeowners who have made at least three required trial payments "face the prospect of foreclosure on January 31st strictly on account of documentation issues."

Administration officials haven't said how many borrowers in the program would be affected by the approaching deadline. "We expect to issue guidance to servicers next week to expedite conversions of current trial modifications and provide guidance on documentation," Assistant Treasury Secretary Michael Barr said.

Under the program, borrowers must make three trial payments and provide a hardship affidavit and other required documents. On Friday, the administration released a report that said only 7% of the homeowners who received trial modifications on their loans through the plan had received a permanent reduction as of Dec. 31.

Mortgage companies say many borrowers haven't provided some or all of the required paperwork, while borrowers complain they are asked for the same documents multiple times.

State officials on Wednesday called on the administration to loosen documentation requirements and expand the use of principal reductions. A report issued by state attorneys general and state banking regulators found that more than 70% of loan modifications resulted in an increase in the principal amount owed as unpaid interest, fees and other charges were rolled into the loan amount.

The report, by the State Foreclosure Prevention Working Group, said current efforts are failing to keep up with the number of borrowers falling behind on their loans. Only four in 10 borrowers who are at least two months behind on their payments are involved in any sort of loss-mitigation effort. Without more aggressive steps, including a focus on principal write-downs, foreclosures will continue to weigh on the economy, the report warned.

"Despite efforts of servicers, homeowners and the government, the foreclosure crisis continues to worsen. These signs point to more foreclosures in 2010 than in 2009," the report said.

The states' report, based on data from 13 mortgage servicing firms, offered a stark view of the housing market. Through the end of October, there were 1.7 million mortgages at least two months behind on payments, while the number of loans in the process of foreclosure increased by 52% between October 2008 and October 2009, the report said