Federal mortgage help not working

In its latest report, the Congressional Oversight Panel notes that the programs initiated by the Treasury Department to help homeowners facing foreclosure have not been effective. Fewer than 200,000 people have been permanently helped by the programs so far. I do not think this should be a surprise to anyone.

What incentive do the banks have to help homeowners facing foreclosure? The government bailed them out and continues to offer help as more foreclosures pile up. Participation in all of Treasury’s programs so far has been voluntary for the banks. A new requirement that loan servicers explain to homeowners why their loan modification has been declined is not going to increase the number of modifications. New efforts to get banks to write down principal loan amounts to bring loans in line with actual house values has gained no traction, even with one out of four mortgages currently being upside down.

What incentive does a homeowner have to apply for help through these Treasury Department programs? With second mortgages, credit cards, car loans and other debt, most homeowners would still pay nearly 60% of their income towards debt service even with reduced first mortgage payments. If they do attain a “best case” 5-year payment reduction, the homeowner will probably still be upside down and looking at higher payments once again.

Lenders and borrowers both seem slightly confused by the trickle of modifications to existing programs and new programs that keeps coming from Treasury. No-one seems to know whether to try to modify a mortgage now or wait a few months to see if something better comes along. Homeowners have seemingly been stuck in a non-stop cycle of applying to lenders for help, being denied after multiple delays and then being encouraged to apply for help again under a new or changed program, only to be denied yet again.

Meanwhile, more and more homes are foreclosed upon. Housing prices seem to be stabilizing in parts of the country but are still plummeting in some major cities. And the banks are once again profitable thanks to the federal government bail-outs.

Why “green” is important to real estate investors

There are a lot of reason why green is in the news so much. Many of those reasons are going to become very important to everyone involved in real estate or real estate investing. Green is not just about trees and polar bears but about making homes more affordable and salable. Home buyers are interested in green and investors should remember this when doing rehabs.

Homeowners in all areas of the country benefit from living in energy-efficient houses. Well insulated walls and ceilings, thermal-barrier windows and no air leaks reduce heating and cooling bills for everyone. Installation of modern, efficient furnaces, air conditioners and electrical appliances also leads to reduced emissions, reduced raw materials extraction, reduced transportation costs and less waste in general. There are many programs at all levels of government to help homeowners pay for these types of improvements on older homes. More incentives also need to be made available for purchasing energy-efficient new homes.

Water contributes to the monthly cost of home ownership. Making a home more water-efficient can both lower operating costs and benefit the environment. Reduced water use can even delay or prevent sinkhole formation in areas prone to sinkhole activity. Low-volume toilets, shower heads and faucets all help reduce water usage. Native-plant landscaping watered with captured roof run-off can greatly reduce irrigation needs. Where available, recycled water can be used for irrigation. Tankless, or on-demand, hot water heaters save both energy and water.

Solar water heaters are an ancient and proven technology that is easily and cheaply installed and can also be adapted to heating the house. Passive solar home designs can reduce demand for air conditioning by limiting indoor direct-sun exposure during summer days and allowing cool night air into the home. Solar electric has become much more efficient and affordable than ever before and can supply much of a home’s needs during the day but storage is still a problem. Wind electric generation is just starting to trickle down to the individual home level and should become much more affordable and available during the next few years.

All of these “green” upgrades will lower monthly bills and increase salability of a home. These are not “fringe” ideas limited to the granola & chai crowd at the co-op. Mainstream home buyers are now looking for “green” features because they benefit everyone.

Florida mimics the feds in useless foreclosure help

In December of 2009, Florida’s Supreme Court required the 20 state judicial circuits to sponsor mediation between lenders and homeowners. This was supposed to ease the mortgage crisis. But it was a totally new program and each circuit had to design it from scratch. Pasco and Pinellas will start offering the foreclosure mediation in June and Hillsborough does not know yet when it will be able to start. There are now more than 50,000 mortgage default cases clogging the judicial system in those three counties alone.

First the borrower is contacted. The borrower then meets with a foreclosure counselor. Then mediation is scheduled. The best case scenario is that it would take at least a month after a program begins before the first case would get to mediation. Those with other mediation experience in Florida estimate only half of the eligible homeowners would sign up. Real estate investors without homestead exemptions would not even be eligible for the program.

The entire program of foreclosure counseling for the borrower and then mediation costs $750. This fee is paid by the lender. Sessions are set for no more than three hours.

This just does not sound like a useful or practical program. Three hours to work out an alternate solution to foreclosure with a bank? Really? Has any of these Supreme Court justices tried to convince a bank to do a short sale recently? Have they timed the process?

Another requirement: mediation sessions must be scheduled between 60 and 120 days after the foreclosure filing. How is this going to help any of the cases currently in the system? Does the Supreme Court think there are that many more foreclosures yet to come? Why not find a way to help some of the people that are being foreclosed on right now? Many of the foreclosures now in the system have been dragging on for much longer than 120 days.

A further requirement of the court: bank representatives at the mediation sessions must have full authority to modify the mortgage. The problem is that many of the banks filing the foreclosures are only servicing the loans. The mortgages are often owned by investing companies across the state or across the country. How is that ever going to work? The justices are again showing a severe lack of knowledge of how the modern mortgage system works.

So here is the way I see it. In the face of a poor economy and strangled budgets, the state Supreme Court has forced every judicial circuit in Florida to start a large new program from scratch that is not going to help any homeowners. There is no incentive for the banks to cooperate and it is another colossal waste of taxpayer money.