Treasury Loan-Modification Guidelines

March 4, 2009, 9:28 am Treasury Loan-Modification Guidelines The following is a summary of the guidelines for modifications of eligible mortgages provided by the Treasury. See full guidelines here. Fact Sheet Making Home Affordable will offer assistance to as many as 7 to 9 million homeowners, making their mortgages more affordable and helping to prevent the destructive impact of foreclosures on families, communities and the national economy. The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan. GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010. The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners program. With the information now available, servicers can begin immediately to modify eligible mortgages under the Modification program so that at-risk borrowers can better afford their payments. The detailed guidelines (separate document) provide information on the following: Eligibility and Verification  Loans originated on or before January 1, 2009.  First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.  All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.  Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.  Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.  Modifications can start from now until December 31, 2012; loans can be modified only once under the program. Loan Modification Terms and Procedures  Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.  Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater in the modification scenario – the servicer must modify absent fraud or a contract prohibition.  Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and redefault rate assumptions.  Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).  The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.  The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.  Servicers must enter into the program agreements with Treasury’s financial agent on or before December 31, 2009.

Payments to Servicers, Lenders, and Responsible Borrowers  The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.  Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus “pay for success” fees on still-performing loans of $1,000 per year.  Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.  The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.  The program will include incentives for extinguishing second liens on loans modified under this program.  No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.  Similar incentives will be paid for Hope for Homeowner refinances.

Transparency and Accountability  Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.  Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.  Freddie Mac will audit compliance.

February 24, 2009, 9:43 am Hardest Hit Markets Unlikely to Get Relief From Obama Rescue Nick Timiraos reports: President Barack Obama’s housing stability plan is less accessible to homeowners in the nation’s hardest hit housing markets, according to data from real estate Web site Zillow.com. The plan offers borrowers with little to no equity in their homes the opportunity to refinance their loans, among other provisions. But there are two major restrictions that limit borrowers’ eligibility to refinance. That plan is limited to loans within the conforming limits that are eligible for backing from Fannie Mae and Freddie Mac, which stand at $417,000 for most of the country but rise to as high as $729,750 in the most expensive housing markets, and to borrowers that have a loan-to-value of 80% to 105% on their first mortgage. A separate initiative would allow some underwater homeowners to apply for a government subsidized loan modification. Nationally, one in four mortgage holders meet two major eligibility criteria for the refinance proposal, but that number falls in certain housing markets that have been the hardest hit by the housing downturn. Only 9% of mortgage holders in the Los Angeles metro area are eligible to refinance, according to Zillow research. An additional 8% of borrowers have a loan-to-value that exceeds 105%, and another 8% of borrowers have loans that meet the 80%-105% loan-to-value criteria but are so-called “jumbo” loans that exceed the conforming limits. (An article in today’s WSJ looks at some of the other problems hitting jumbo borrowers: Jumbo Mortgages, Jumbo Headaches) The result? “Not as many people as you would expect in these markets that were previously overheated are going to be able to avail themselves of the plan,” says Stan Humphries, vice president of data and analytics for Zillow.com. Here’s a closer look at how many borrowers are — and aren’t — eligible to refinance in specific housing markets: • In Miami-Fort Lauderdale, around 17% of mortgage holders meet the refinance criteria. Of the borrowers that don’t qualify, one-quarter have conforming loans that exceed the required 105% loan-to-value and 6% have jumbo loans. • In New York and northern New Jersey, nearly 16% of all borrowers could be eligible to refinance. In the pool of ineligible borrowers, 3% of borrowers are too far upside-down in their homes, and nearly 9% of borrowers have jumbo loans. • In the San Diego region, some 12% of borrowers could qualify for the plan. Of the excluded borrowers, some 13% of conforming borrowers exceed the 105% loan-to-value limit, and 17% have jumbo loans. • In San Francisco, some 8% of borrowers could be eligible. Of the excluded borrowers, around 7% of conforming borrowers exceed the 105% loan-to-value limit, and 21% have jumbo loans. • In the San Jose-Santa Clara, Calif. metro area, just 7% of borrowers could qualify for the plan. Of those excluded, 3% don’t have enough equity and 25% are jumbo borrowers. While Mr. Humphries says the plan is “certainly better than nothing,” he says that the limited impact on the nation’s hardest-hit markets could undermine the goal of stabilizing home price declines by stemming foreclosures. Readers, what do you think? Will you be able to take advantage of this component of the housing stability plan? If you’re planning to refinance through this program, or if you’d like to but you’re excluded by loan limits or loan- to-value limits, we’d like to hear from you. Email: [email protected]. February 19, 2009, 4:58 pm It’s No Longer Finer To Build Homes in Carolina Thomas A. Lawler is founder of Lawler Economic & Housing Consulting, LLC, which provides data, analysis and forecasts of housing, mortgage, financial and economic trends to a select group of clients. Mr. Lawler worked for Fannie Mae for 22 years, before retiring as a senior vice president in 2006. He will be contributing regular posts on regional housing trends to the Developments blog. (Read his full bio.) While many press reports on home sales have focused on national trends, regions have varied massively over the last several months. Many boom/bust areas have seen home sales surge and prices plunge, mainly reflecting an explosion in foreclosure sales, short sales or other distressed sales. Other areas have seen home sales collapse, reflecting the combination of a sharp deterioration in their local economies and sharply tighter mortgage lending terms and conditions. North Carolina is a perfect example. While most areas of the state did not experience out-sized gains in home prices relative to incomes earlier this decade, these areas have seen home sales virtually collapse since last fall. This table shows the National Association of Realtor’s estimates for seasonally adjusted existing home sales by broad region, and for North Carolina.

% Change % Change Region Q01/2008 Q02/2008 Q03/2008 Q04/2008 quarter year United 4,953 4,910 5,023 4,700 -6.4% -5.9% States Northeast 867 877 863 760 -11.9% -13.9% Midwest 1,207 1,123 1,147 1,040 -9.3% -12.4% South 1,953 1,897 1,870 1,733 -7.3% -13.4% West 930 1,017 1,143 1,173 2.6% 26.5% NORTH 181.6 168.8 153.6 121.2 -21.1% -34.7% CAROLINA

Source: National Association of Realtors Recent data from local MLS indicate that home sales by realtors in a number of North Carolina counties remained exceptionally depressed in January. Here are some recent reports from local realtors/MLS on sales and average sales prices last month compared to a year ago. Note that average sales prices do not necessarily reflect changes in typical homes in an area. For example, the drop in average home prices in Charlotte in part reflects a decline in the share of “high-end” homes in the area, not unrelated to the troubles in the banking/financial services sector of that economy.

Home Sales/AverageSales Prices by Realtors, Jan. 09 vs. Jan. 08 Region % Change Sales % Change Price Charlotte 37.4% -13.5% Triangle* -44.4% -3.5% Greensboro -30.6% -10.0% Winston-Salem -30.3% -10.3% *includes Raleigh/Durham/Chapel A number of large public home builders also reported sharp declines in net home orders in the Carolinas last quarter, something that caught them by surprise. Home building remained stronger in North Carolina than in many other parts of the country in 2006 and 2007, reflecting some builders’ views that North Carolina was “safer” than other, bubbly markets. That overbuilding is now contributing to the area’s excess supply of homes. Why have home sales plunged in the area, and why are prices moving lower even though there was no apparent price bubble in the area? While overall tighter mortgage lending criteria has been behind some of the decline, the major reason is that the North Carolina economy deteriorated sharply beginning in the last few months of last year. Here are some data on unemployment rates for North Carolina vs. the U.S. as a whole, which show that North Carolina’s unemployment rate went from below the national average at the end of 2007 to way above the national average at the end of last year.

Unemployment Rate (seasonally adjusted) Region Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 U.S. 4.9% 5.1% 5.6% 6.2% 7.2% North 4.7% 5.2% 5.9% 6.9% 8.7% Carolina

While construction activity and construction employment have declined in North Carolina, Most of the job losses of late have not been directly related to the slump in home building. Indeed, Carolina is a perfect example of a state where “fixing housing first” in order to help the economy makes no sense; rather, in order to “fix housing,” one first needs to fix the economy. Or, as Proust used to say, “it’s the economy, stupid.” February 10, 2009, 10:57 am Mortgage Delinquencies Continued Climb in Fourth Quarter Ruth Simon reports: Mortgage delinquencies continued to climb in the fourth quarter as the economy weakened and home prices continued to fall. Nationwide, 6.10% of mortgages were at least 30 days past due, according to Equifax and Moody’s Economy.com. Foreclosures, meanwhile, rose at a far lower rate, in part because of foreclosure moratoriums. Among the hardest hit states: Nevada, Florida and California. Click on the map below to see the full data set: