UPDATED: Obama “promise kept” to prevent foreclosures results in more foreclosures

There’s no doubt about it… as the St. Pete Times PolitiFact says, Obama’s promise to create a foreclosure prevention fund to the tune of $75 billion minimal, with the Making Homes Affordable Program is in the “promises kept” column.

What the PolitiFact tracking system doesn’t discuss if it spending the taxpayers money has any any effect on the foreclosure trend. And the fact it, reality dictates it not only hasn’t prevented… or even slowed… foreclosures, but they’ve been on the rise since the O’Inaugural festivities…. despite still relatively low interest rates.

Well… congratulations, Obama. You kept your promise, put us further in debt, and time has proven this is not working, nor is likely to work in the predictable future. Allow me to ‘splain…

According the RealtyTrac trends (graphics which I am prohibited to reproduce here for copyright restrictions that I will honor), the two highest months for foreclosures in 2008 were August and December, where the numbers were just slightly above 300,000 each month. All other months were below.

In February, Obama’s first month in office, they were up, but still under the 300K mark.

Enter Obama and his $75 billion Making Homes Affordable Program… a real loser of an idea that I posted on back in mid February. This brainstrom was not a creature of legislation, but of the omnipotent Treasury department, and utilizes mostly TARP funds approved by Congress in that fiasco passed last fall. Tho in retrospect, a $750 bil bailout, and appropriations of only half that prior to Obama’s assumption of power, is starting to look like a blue light special in price.

For more details on this HASP plan – aka Making Homes Affordable and Homeowners Stability Program – check my above linked Feb post. But I’ll summarize. Your mortgage can neither be too much, and cannot be too “toxic” (an asset upsidedown in value). Additionally, you are subject to strict restrictions on your employment income, and income to debt ratios. In other words, if you’ve lost your job, don’t count on a remodification under the Obama plan, or any other plan. Under HASP, the government buys down the rates to no more than 38% of the distressed borrower’s income, and the banks get to eat the rest by buying the rates down to 31%.

Any of you ever buy down your purchase or refi mortgage rates in a real estate transaction? If you have, you’ll know that a reduction of .0125% in the rate usually costs 1% of your loan value. It is not a cheap proposition.

To make it even more absurd, this HASP/MHA plan was no different than an ARM…. it was a teaser rate that reset after five years. Needless to say, if those that modified out of their loans into this, and didn’t default on the new payments (as more than half of them have) for the five years, they were again in a pickle five years down the road… still saddled with an asset that may or may not appreciate to the toxic loan value.

Obama’s plan hit the media with great fanfare all thru February… his plan to “prevent foreclosures” it was. The details were not announced until early March. And thus far, it’s been not only ineffective, but utter chaos.

March and April foreclosures were just below the 350K mark, with a slight dip in May due to under 5% rates for a brief period, but still well over 300K in foreclosures monthly. BTW, the rates rose almost a full percentage point in the three weeks that followed, and new mortgages and refis dropped 30%.

In mid april, a month following Obama’s Treasury plan, the foreclosure stats released by RealtyTrac showed in increase by 9% nationally.

RealtyTrac’s latest foreclosure statistics are now available, and once again the news isn’t very good. According to the U.S. Foreclosure Market Report for the first quarter of 2009, foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 803,489 properties, which sadly translates into a 9 percent increase from the previous quarter and an increase of nearly 24 percent from the same period in 2008. The bottom line: One in every 159 U.S. homes received a foreclosure filing during the months of January, February, and March.

But wait, you want to say… Obama’s program didn’t get implemented until early March. Give it time, you say. Fair ’nuff. It’s now July… three and a half months after the spending spree debacle to “prevent foreclosures” was implemented. How we doing now, bucko?

In May… that “better than previous” month because of low rates, foreclosures were still up 18% nationally compared to the same period last year.

“May foreclosure activity was the third-highest month on record and marked the third straight month where the total number of properties with foreclosure filings exceeded 300,000,” said James J. Saccacio, chief executive officer of RealtyTrac, a California company that tracks foreclosures nationwide.

Saccacio predicted that foreclosure activity will pick up in the months ahead as delays and moratoriums in several states end.

Early June Tabitha Berg in enewschannels paints a tarnished rose with a bit of a happy face using the Foreclosure Listings database.

ForeclosureListings.com compiles and tracks data about foreclosures throughout the United States. According to their results, many cities and states have seen a decrease in the number of foreclosures between April and May 2009. These cities include Las Vegas (8.33 percent), Phoenix (2.28 percent), Atlanta (2.03 percent), Detroit (1.02 percent), Miami (6.10 percent), and Denver (7.56 percent). California, Georgia, Texas, Nevada, and Colorado have all seen their statewide numbers of foreclosures decrease by 5 percent or less. While that may not seem significant, most of these states have seen gains in foreclosures every month for at least a year.

Sounds good until you realize that four out of the five states mentioned are in the top 10 states with the highest foreclosure rates. California was having over 90,000 foreclosures monthly, so that 5% translations to 4500 homes. What is not made clear is if these homes sold out on a short sale to avoid the foreclosure process.

Berg then goes on to name the places that were seeing increases in their foreclosure numbers (somehow placing Nevada in the dubious position of having a decline, and also having an increase… huh?)

Despite the positive results listed above, ForeclosureListings.com also noticed some hot spot cities on the horizon for potential investors. These are cities that have seen tremendous jumps in the number of reported foreclosures. According to ForeclosureListings, Chicago increased by nearly 13 percent, Minneapolis increased by almost 10 percent, North Las Vegas saw an increase of over 6 percent, and Memphis jumped by over 31 percent. Both Illinois and Nevada saw statewide increases: 6.62 percent and 4.65 percent, respectively. Florida, Ohio, and Michigan all saw increases statewide of around 1 percent. While these state increases may seem small, these states have already seen large numbers of property foreclosures and the situation does not seem to be drawing to a close if these most recent figures are any indication.

Adding another voice to the housing market status is Debra Tone of the send2press Newswire in late June, noting in her headline that the housing market “Shows Little Hope the Housing Crisis is Nearing an End.” After citing foreclosure increases via Jacob Christensen from ForeclosureWarehouse, she solemnly states in her final paragraphs:

These findings are contrary to the predicted outcome. Because the high number of foreclosures has glutted the market with unsold properties, the prices have decreased. In California, for example, the average home price decreased by nearly $200 just between April 30th and May 30th. Other states have seen similar decreases during that period: Michigan ($900), Ohio ($600), Florida ($300), and Georgia ($100).

These prices have been steadily falling since the housing market began crashing two years ago. These reduced prices were expected to prompt an increase in home purchases.

The problem is mortgage rates have increased and have made home buying less desirable and less affordable for the average consumer. Mortgage rates for a 15 year loan increased from 4.82 percent in the middle of May 2009 to 5.25 percent just one month later. Thirty-year mortgage rates increased from 4.86 percent to 5.72 percent during the same period. Without a decrease in these rates or a significant reduction in foreclosures by state, the prices for homes should continue to decrease.

Absolutely true. But we have now put ourselves into the conundrum that we’re borrowing to the hilt to placate a self-absorbed POTUS and welfare state oriented Congress which will cause the dollar value to fall and inflation to ensue. The ways we’ve been able to control inflation in the past… ala the 80s… was to increase the rates for credit – including mortgage loans. For those of you too young to remember, or never learned, we were seeing 15-19% rates for mortages.

Have you any idea what that does to a $200K loan on your modest home today? A 5.8% rate on a $200K mortgage (principle only) is $1,148.16. For a buyer to purchase your home, and pay off your mortgage, at a 15% rate entails a payment monthly of $2528.89. Talk about emptying your buyer pool potential….

So what’s the problem with Obama’s Treasury plan, and why am I so sure it’s not going to work now, or in the future? Stephanie Armour of USA TODAY documented the chaos with the Making Homes Affordable plan, and noted that the lenders… despite the incentives… still aren’t making those modifications. Some of it is sheer backlog from the high influx of new purchases by first time homebuyers, seeking that $8,000 tax credit we the taxpayer are gifting them, plus refinances. And with these delays of overload comes risk. There is only so much time in a preforeclosure status before the court steps auction looms. Those in the arrears live in a very time sensitive status.

Naturally, there’s gotta be someone who rattles off the absurdity that banks are deliberately refusing to deal with the remod requests for “political” reasons:

“Some lenders may not be turning (homeowners) down right away because it might be politically easier to push them off and delay,” says Joel Naroff at Naroff Economic Advisors. “No one will admit they’re doing this.”

Okay… perhaps Mr. Naroff will explain to us why the little guy in the remod chain has a “political” motive to refuse remods. Can he possibly be under the assumption that banks are just dying for another foreclosure in their asset column? Not likely.

Naroff gets a little closer as he continues… and also indicates that mortgage deliquencies… and thereby foreclosures (or short sales)… are likely to increase as the unemployment numbers continue to rise. And this can result in a remodification merely delaying the inevitable.

Naroff also says banks today are dealing with even more demand for mortgages, including refinancings, than during the peak of the housing bubble in 2006, and the backlog is likely to get worse as more homeowners lose their jobs. Mortgage delinquencies have been growing in areas where unemployment has been rising fast, and even homeowners who successfully get modified mortgages could face trouble later if their incomes or home values fall.

Besides the delays and backlogs, others are simply not qualifiying… much to their confusion and misinformation.

Robin and Craig Doyle of Woodland Hills, Calif., have been trying to get a loan modification through their lender, JPMorgan Chase, since February.

Robin, who does freelance writing from home, said she initially was told to send a letter describing her hardship, paycheck stubs, tax returns and other information.

She assembled a 200-page file and sent it along. A month later, she was told she had to redo the information because the file she’d sent had become outdated.

Another time, Robin says, she was told her file had been mistakenly closed altogether. On another occasion, she was told the request couldn’t be processed because she hadn’t included information about a homeowner association fee, even though her family doesn’t belong to such an association.

“I’ve had to resend it four times,” says Robin, 35. “It’s making me sick. It’s been five months. I’ve spent hours and hours on this and sleepless nights. It’s foremost on my mind. I look at my beautiful home and wonder if I’ll have it next month.”

The Doyles pay $5,031 a month on a mortgage of $947,000. They have an interest-only loan at a 6.3% rate that will reset in about seven years. On interest-only loans, borrowers pay only interest for a specific period to temporarily reduce the payments. After that, they pay interest and principal.

After finally getting their paperwork thru, they were told… as they would have known from the beginning if they checked the government website and used the eligibility query… that they don’t qualify for the Obama plan because their loan amount is too high. These people are *not* the “little people” Obama plans on helping.

Judy Lederman, 49, of Scarsdale, N.Y., a freelance writer after losing her full-time job in public relations a year ago, says she tried to get a modification with Chase about three months ago. She has an interest-only loan at 5.25% that resets in one year. How high it will rise depends on interest rates then.

She says Chase denied her request a few weeks ago because she has an adjustable-rate mortgage, but other borrowers with ARMs are getting modifications under the Obama plan.

“They kept me on hold and waiting for months. I bent over backwards to get them what they needed, but it was like no one was home,” Lederman says. “I really don’t know what else to do. I don’t know who to trust.”

The day after USA TODAY called Chase for comment, Lederman says the bank called her. She says the representative told her she was turned down because of missing information and that new forms to apply for a modification were being expedited to her home. “There was some miscommunication, but we have reconnected with the borrowers and are working on finding solutions for them,” Zuccarelli says regarding the complaints about Chase.

I’m not too sure what to say to someone who opts for an ARM/interest only loan except that she needs a financial advisors. This is obviously someone inept at making wise decisions on financing.

But let me give Ms. Lederman an answer to her question… she is not getting a loan modification because she is not employed and, as a self employed entity to replace regular employment, her income is not increasing. So she will not qualify since the bank is not sure she will be able to sustain the new payment. As another self employed individual, I know all too well where the banks are saying yes, and saying no. And thanks to a Congress, who has demanded that lenders scrutinize buyers to insure they can pay back a mortgage over the length of the loan (like how would anyone know that?), their “caution” is resulting in very tight restrictions on just who gets modified.

UPDATE: NYT’s David Streitfeld’s article today, “Tight Mortgage Rules Exclude Even Good Risks” echos what I say above INRE the extreme swing from easy money, to tightening up credit to the absurd…. especially for the self employed.

Mortgage brokers say those who are being rejected for loans are often entrepreneurs who are used to taking risks. “They are chomping at the bit to get into this market, but are forced to the sidelines,” said Stuart Fraass of Guaranteed Rate Inc. “If you’re self-employed, you have virtually no chance of getting a mortgage now.”

Mr. Fraass was unable to help Raghbir Singh, a real estate investor who owns a gas station in Dover, N.H. Mr. Singh tried to buy a $301,000 house for himself and his family with 10 percent down and excellent credit, but was rejected. “It was unfair,” Mr. Singh said. “I’m a good risk, but I’m forced to rent.”

The range of denials runs the spectrum… “…incomes are adequate but irregular; they are self-employed and take many deductions, reducing the taxable income on which lenders focus; their credit scores are below the cut-off point, which has been raised drastically; their down payments are less than 20 percent.” What is most important is that delays in housing recovery is a delay in economic recovery. For as Streitfeld accurately states:

Housing usually leads the country into a recession, which certainly happened this time, and also leads it out — which will not happen in 2010, the real estate industry contends, without stronger efforts to thaw the market.

The man that nailed the mortgage scene accurately is Lou S. Barnes, an owner of a mortgage bank in Colorado, the Boulder West Financial Services.

“The credit pendulum is stuck at ‘stupid.’ I am turning down loans every day that my grandfather in his Ponca City, Okla., savings and loan in 1935 would have been happy to make. And he was tough.”

I might make a more sweeping statement and say that a meddling Congress and a WH admin bent on “remaking” American into a Euro-socialist welfare state are *also* “stuck at stupid”. END UPDATE

Craig, a writer in the TV industry, is finding considerably less work. And his 2008 year couldn’t have been too stellar since the writers went on strike for over three months, and again almost crippled the industry. But instead of recognizing the WGA’s part in his own reduced income, he sums up Obama’s plan as this:

“I feel like Obama’s plan has done absolutely nothing,” says Craig, 38.

The fact is, even withstanding Craig’s self-inflicted reduced income (and the repercussions of that strike on everyone else’s income…), Obama’s plan *has* done absolutely nothing.

Since its debut, the plan has led to offers of more than 190,000 mortgage modifications with lower monthly payments, according to the Treasury Department. During that time, lenders either have started or advanced foreclosure proceedings against more than 1 million homes, according to RealtyTrac. About 20% of those were foreclosed upon and repossessed. The Center for Responsible Lending says 2.4 million Americans are at risk of foreclosure in 2009, and 8.1 million could be over the next four years.

A “promise kept”? I’ll give you that. But it was a costly promise that leads to just a pile of wasted taxpayer money.

Hold on to your hats, folks. Buy now when the rates are low, and park your butt for about a decade. Don’t plan on refinancing (also meaning, don’t buy with an ARM) for about a decade until this (if possible) blows over. Because, as Bette Davis famously said as Margo Channing in All About Eve:

“Fasten your seatbelts. It’s going to be a bumpy night”…. and it’s going to be one long night in the mortgage industry.