The latest foreclosure statistics are out and news isn’t very good. Foreclosure filings in February jumped nearly 6% from January, despite foreclosure moratoriums and prevention programs around the country, according to RealtyTrac’s 2009 U.S. Foreclosure Market Report.

Foreclosure filings were reported on 290,631 properties in February, up almost 30% from February 2008. The report, which was issued just a few hours ago, also reveals one in every 440 U.S. homes received a foreclosure filing in February.

The increase in foreclosure activity from January to February is more than somewhat surprising, especially given that many of the foreclosure prevention efforts and moratoria in place in January were extended through most of February.

A 45-day voluntary foreclosure moratorium in Florida expired at the end of January, and foreclosure activity there was up 14 percent from the previous month. And, many New York foreclosure proceedings delayed by a new law for an extra 90 days appear to have hit the system in February, when the state’s foreclosure activity increased 23 percent from the previous month.

Nevada, Arizona, California post top state foreclosure rates

With one in every 70 housing units receiving a foreclosure filing in February, Nevada continued to document the nation’s top state foreclosure rate. Foreclosure filings were reported on 15,783 Nevada properties during the month, a 9 percent increase from the previous month and a 156 percent increase from February 2008.

Arizona posted the nation’s second highest state foreclosure rate in February, with one in every 147 housing units receiving a foreclosure filing during the month, while California posted the nation’s third highest state foreclosure rate, with one in every 165 housing units receiving a foreclosure filing.

Other states with foreclosure rates ranking among the nation’s 10 highest were Florida, Idaho, Michigan, Illinois, Georgia, Oregon and Ohio.

California, Florida, Arizona post highest foreclosure totals

Foreclosure filings were reported on 80,775 California properties in February, the most of any state and a 5 percent increase from the previous month. The state’s foreclosure activity increased 51 percent from February 2008, with auction sale notices increasing nearly 179 percent — the most of any category on a year-over-year basis.

Florida foreclosure activity increased nearly 14 percent from the previous month and 43 percent from February 2008 — thanks in large part to a nearly 158 percent year-over-year increase in auction sale notices and a 128 percent year-over-year increase in bank repossessions. With 46,391 properties receiving a foreclosure filing, the state posted the nation’s second highest state total in February.

Arizona posted the third highest state total in February, with 18,119 properties receiving a foreclosure filing during the month — a 23 percent increase from the previous month and an 88 percent increase from February 2008.

Nevada, Illinois, Michigan, Ohio, Texas, Georgia and Virginia also reported foreclosure totals that were among the nation’s 10 highest.

Sunbelt cities post top metro foreclosure rates

One in every 60 Las Vegas housing units received a foreclosure filing in February, giving the city the nation’s highest foreclosure rate among metro areas with a population of at least 200,000. The city’s foreclosure rate was more than seven times higher than the national average. Another Nevada metro area posted a foreclosure rate in the top 10: Reno-Sparks ranked No. 8, with one in every 108 housing units receiving a foreclosure filing.

The Cape Coral-Fort Myers, Fla., metro area documented the second highest foreclosure rate in February, with one in every 65 housing units receiving a foreclosure filing during the month.

Six California cities registered foreclosure rates among the top 10: Stockton at No. 3 (one in 67 housing units), Modesto at No. 4 (one in 68), Merced at No. 5 (one in 74), Riverside-San Bernardino at No. 6 (one in 80), Bakersfield at No. 7 (one in 85), and Vallejo-Fairfield at No. 10 (one in 111).

With one in every 110 housing units receiving a foreclosure filing, the Phoenix metro area posted the ninth highest foreclosure rate in February.

Ralph R. Roberts, GRI, CRS Award-Winning REALTOR® and Author Loan Modification For Dummies (avail. Summer 2009)

Homeowners facing foreclosure often dig themselves into a deeper hole by agreeing to unaffordable repayment plans. It’s a shame that lenders even pitch such plans, because they ultimately lead borrowers on the path to failure. Recently, a visitor to KeepMyHouse.com described a situation that’s a classic case of a servicing company setting up the homeowners for failure.

Question: We are currently with Litton Loan Servicing and have had a foreclosure started…. We contacted them and have gotten a forbearance agreement that raises the payment $200.00, not lowered it. We are also upside down because of the market and all the fees associated with their attempt to foreclose. We have made 4 payments at the higher amount but can’t keep borrowing to do this. Can we mitigate with the attorneys you recommend or is that not possible until we start missing payments? We are employed but our income has dropped as we are self employed in the health care field.

Answer: Forbearance is not a loan modification. Forbearance is a repayment plan – an installment plan to catch up on late and missed payments and any penalties associated with them. As such, forbearance is a viable option only for homeowners who have recovered from a temporary financial setback and now have sufficient income to cover both their original monthly house payment plus an extra payment to catch up on late and missed payments.

Your situation, as you describe it, makes you a poor candidate for forbearance. Assuming your lender knew the details of your financial situation, it should have never offered you a forbearance agreement. As you explain, you are now having to borrow money to afford the higher payments. This is not a sustainable situation.

Based on the scenario you’ve presented, yes I think you would be a good candidate to re-negotiate your monthly payment. A loan modification requires in its barest and most basic form, three elements:

1. A verifiable hardship (reduction in income)
2. Affordability (some income to make a house payment, albeit it a lower payment)
3. Mitigation of lender-losses (the lender stands to lose less money through loan modification than foreclosure)

Without knowing more, you appear to meet the first two eligibility requirements. Now whether it’s less expensive for the lender to modify than to foreclose; I don’t know. Don’t wait until you’ve defaulted on the forbearance agreement to try to get a loan modification. Start by contacting your servicer immediately or employ the services of a third-party to do it for you (preferably an attorney experienced with loan modification). Make sure you tell any third party that you currently have a workout in place, but it’s not affordable because of a reduction in household income.

Many homeowners mistakenly believe that they cannot qualify for a loan modification until they have missed one or more payments. Theoretically, this is not true, but in practice, lenders often refuse to consider a loan modification until a homeowner has missed one or more payments.

If you are having trouble making your mortgage payments due to a qualifying and verifiable financial hardship, you should take action sooner rather than later. The sooner you act, the more options you have available and the more time you have to pursue those options. Under president Obama’s plan, the loan may not have to be in default for homeowners/borrowers to qualify for relief, but the details of this plan and its implementation are still unfolding. Don’t assume the answer is no… call your lender to find out or work with a qualified attorney to find out for you.

Ralph R. Roberts, GRI, CRS Award-Winning REALTOR® and Author Loan Modification For Dummies (avail. Summer 2009)

Fannie Mae has announced it is extending — through March 31, 2009 — its moratorium of all eviction proceedings involving Fannie Mae funded mortgage investments, as the government-sponsored enterprise (GSE) implements new initiatives aimed at helping more distressed homeowners save their homes.

In making the announcement, Fannie Mae also issued special foreclosure sale requirements in response to the Obama administration’s Making Home Affordable program. According to the GSE, a foreclosure sale may not occur on any Fannie Mae loan until the loan servicer verifies that the borrower is ineligible for a “Home Affordable Modification” and all other foreclosure prevention alternatives have been exhausted.

Through its Home Affordable Modification Initiative, Fannie Mae will work with loan servicers across the United States to help distressed borrowers modify their current loan into a mortgage that is more affordable and sustainable. Loan servicers participating in the program may reduce interest rates, lengthen the payment time frame or take other steps, such as principal forbearance, to bring the monthly payments down to as low as 31 percent of the borrower’s gross (pre-tax) income.

To ensure borrowers currently at risk of a foreclosure have the opportunity to apply for a Home Affordable Modification, Fannie Mae servicers have been directed not to proceed with a foreclosure until a borrower has been evaluated for the program.

Ralph R. Roberts, GRI, CRS Award-Winning REALTOR® and Author Loan Modification For Dummies (avail. Summer 2009)

Uncertainty still swirls around President Obama’s stimulus plan, particularly the foreclosure fix embedded in the stimulus package. Many homeowners, like the one who recently asked me the following question, are  confused over whether they should accept a deal currently on the table or wait until all aspects of the stimulus plan are understood and take affect:

Question: I reside in Bronx, New York, and have paid my monthly mortgage on time for the past 5 years I’ve owned my home. My current interest rate is 6.25% and my monthly mortgage payment is $1,840.55. This past week, I contacted my lender to negotiate a lower interest rate and was told that because my FICO score is 780 and I have excellent credit, my lender could refinance my loan to 5.125%, which would bring down my monthly mortgage payment to $1,440.00 (a difference of $400.55). My bank is charging me $11,200.00 minus a $3500.00 tax discount making my total closing costs for this refinance $7,700.00. My question is, should I wait until Obama’s Stimulus Plan takes affect or should I go with my lender’s offer?

Answer: Congratulations on properly managing your finances and your mortgage and earning a FICO of 780. In times like these, maintaining a score over 750 is quite an accomplishment, and you should use it to your benefit. With a score of 780, you deserve additional perks, such as a lower interest rate and closing costs.

With a 780 FICO score, it seems to me that you shouldn’t have to pay a lot of points and/or fees to refinance your loan. Ask your lender the following questions:

• Why your closing costs are so high? I don’t know the balance you’re refinancing, but you might find you can get a reduction in the closing costs simply by asking. Closing costs are negotiable.
• How many points are you charging?
• Why are you charging points?
• Are you charging a loan origination fee? If so, how much?
• May I see a Good Faith Estimate? You shouldn’t have to ask, but if you’re lender has not provided you with a Good Faith Estimate, ask for one. It should provide a detailed breakdown of all costs associated with the loan.

The standard score to avoid fees in the market today is around 740. You’re at 780, so you shouldn’t be forced to pay a lot of fees. The interest rate seems to be in line with the market trends, but the more points you pay the better your rate should be, make sure that’s the case. The industry is trending toward larger percentage drops for points paid. This means that paying a point years ago might have reduced your rate by ¼ % (.25%), but in today’s market that same point might reduce your rate by 1/2% to 2/3% or more (.5% - .67%). Just make sure you’re asking the questions to find out what your points are buying you.

Using your monthly savings of $400.55 per month, it will take you over 19 months to recover the closing costs at $7,700. So, yes you’re saving $400 per month, but is it costing you more than that savings is worth? If you roll the closing costs into the loan, it will take you even longer to recoup that amount because there will be interest assessed. You have to make this decision for yourself, but if you’re planning to stay in your house for a while then it makes more sense because all the savings after the 19 month period will go straight into your pocket. It’s a cost-benefit analysis, plain and simple.

Shop the loan. Get a second or even third opinion on the rate, term, fees, closing costs, etc…. Don’t accept the first loan your offered. Don’t tell the other lenders what you’ve already been offered. Have them give you an independent quote. Tell the loan officer that you’re comparing loans before you decide which one to accept, so he or she should come up with their best and most competitive loan available. Then sit down with the loan offers you’ve received and compare them. If you have an accountant, attorney or other trusted advisor, consider sitting down with them to help you compare the loans’ pros and cons. Go with the one that benefits you the most. Please let me know how it goes. I’m very interested to see what the final loan looks like and what you were able to save.

Ralph R. Roberts, GRI, CRS Award-Winning REALTOR® and Author Loan Modification For Dummies (avail. Summer 2009)

The U.S. House of Representatives approved H.R. 1106, the Helping Families Save Their Homes Act of 2009, by a vote of 234- 191 on Thursday evening. The Act, if approved by the U.S. Senate (see S.61 for the Senate version) and signed by President Obama, gives bankruptcy courts the authority to modify the terms or reduce the principal balance of a homeowner’s mortgage, while protecting lenders from investors when loan terms are altered. More on this developing story from Inman News:

The Senate bill’s sponsor, Sen. Dick Durbin, D-Ill., has said he is considering amending the legislation to restrict bankruptcy judges’ cram-down powers to subprime mortgages.

Critics say changing the bankruptcy code would flood courts with distressed homeowners, and raise the cost of borrowing by introducing new risks for lenders.

Cram-down supporters say those fears are exaggerated, as only those loans made in the past would be eligible for judicial modification, and lenders would step up their efforts to engage in workouts with borrowers to avoid having loan terms re-written in court.

HR 1106 includes language that would provide a legal “safe harbor” for loan servicers who modify loans and expand the scope of the Federal Housing Administration’s “Hope for Homeowners” guarantee program for refinancings.

The Obama administration said it advocates “careful changes” to the bankruptcy code that would subject only those mortgages within Fannie Mae and Freddie Mac’s conforming loan limits to court-ordered modifications.

The Helping Families Save Their Homes Act seeks to help the estimated 7- 9 million households facing possible foreclosure by including key incentives that encourage lenders to renegotiate affordable mortgages for homeowners who are underwater, at risk of foreclosure, and those nearing bankruptcy.

Specifically, the bill fixes the Hope for Homeowners (H4H) program, implemented October 1, 2008, which was designed to get more families into affordable mortgages by:

• reducing current fees that have discouraged lenders from voluntarily participating, and
• offering new incentives for lenders to negotiate loans.

To further encourage participation in this program, the bill protects lenders from lawsuits for modifying loans. This will make reasonable loan modifications available to more homeowners at risk of foreclosure.

To help families who have exhausted options for relief, the bill also allows bankruptcy judges to modify the terms of a loan for existing primary residence mortgages.

Currently, the mortgage for a primary residence cannot be modified in bankruptcy — unlike every other secured debt — including debts secured by second homes, investment properties, luxury yachts, and private jets.

Ralph R. Roberts, GRI, CRS Award-Winning REALTOR® and Author Loan Modification For Dummies (avail. Summer 2009)

The U.S. Department of the Treasury recently released its Home Affordable Modification Program Guidelines, which include eligibility requirements to determine which homeowners qualify for relief under the plan. Following are the eligibility requirements as specified in the guidelines:

• Mortgage must have originated on or before January 1, 2009.

• Home must be an owner-occupied primary residence (verified with tax return, credit report, and other documentation such as a utility bill) – this program is not designed for investor-owned properties.

• Home must be a single family 1-4 unit property (including condominium, cooperative, and manufactured home affixed to a foundation and treated as real property under state law).

• Home may not be vacant or condemned.

• Borrowers in bankruptcy are not automatically excluded from consideration.

• Borrowers in active litigation regarding the mortgage loan can qualify for a modification without waiving their legal rights.

• First lien loans must have an unpaid principal balance (prior to capitalization of arrearages) equal to or less than:

1 Unit: $729,750
2 Units: $934,200
3 Units: $1,129,250
4 Units: $1,403,400

• Foreclosure actions are suspended during the trial period or while borrowers are considered for alternative foreclosure prevention options. If homeowners fail to qualify, foreclosure proceedings may resume.

• No minimum or maximum LTV ratio for eligibility purposes.

• Loans are eligible for only one loan modification under the program.

• Subordinate liens (such as second mortgages or home equity loans or lines of credit) are not included in the Front-End DTI calculation, but they are included in the Back-End DTI calculation.

• Servicers should follow any existing express contractual restrictions with respect to solicitation of borrowers for modifications.

Applicants will be accepted into the program until December 31, 2012 (the program expiration date), but incentive payments will continue up to five years after the date of entry into the Home Affordable Modification Program. Monitoring will continue through the life of the program.

Keep in mind that these eligibility requirements are simply government guidelines. Avoid the temptation to qualify or disqualify yourself based solely on what the eligibility requirements indicate. Consult a loan modification specialist who works with lenders on a daily basis to review your situation and determine whether you are likely to qualify. Sometimes the only way to determine whether you qualify is to actually submit your loan modification application.

Ralph R. Roberts, GRI, CRS Award-Winning REALTOR® and Author Loan Modification For Dummies (avail. Summer 2009)

Many homeowners are wondering what President Obama’s $75 billion foreclosure plan will mean for them. Although the eligibility requirements and other details are likely to become clearer in the next few weeks, you can glean some information from the Homeowner Affordability and Stability Plan. Here, I highlight some of the key points mentioned in the Plan.

The Plan’s executive summary clearly states the problems that the Obama administration foreclosure plan is designed to address:

• Due to falling property values, many homeowners cannot refinance into mortgages with lower interest rates.

• Nearly six million homeowners are facing foreclosure, primarily due to the current recession.

• The foreclosure epidemic is further depressing property values, with each foreclosure reducing nearby property values up to an estimated 9 percent.

The Homeowner Affordability and Stability Plan is designed to help nearly 9 million families restructure or refinance their mortgages to avoid foreclosure. The plan has three key components:

1. Provide access to low-cost refinancing options for responsible homeowners suffering from falling home prices.
2. A $75 Billion Homeowner Stability Initiative for at-risk homeowners
3. Supporting low mortgage rates by strengthening confidence in Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac

Low-Cost Refinancing

The Homeowner Affordability and Stability Plan recognizes that many homeowners cannot take advantage of historically low interest rates, because their loan-to-value (LTV) ratios are too high for them to qualify for a refinance loan. Most lenders want to see an LTV of 80 percent or lower before they will consider approving a refinance loan; that is, homeowners must owe no more than 80 percent of the current value of their property (for example $80,000 or less on a $100,000 home).

Given the fact that property values have dropped as much as 25 percent or more in some areas of the U.S., many homeowners have seen their LTV’s rise above the 80 percent cut off. Obama’s foreclosure plan is designed to “help as many as 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac refinance through those two institutions.”

By refinancing into a loan with a lower interest rate, homeowners can save hundreds of dollars per month and thousands per year – perhaps enough to protect their homes from foreclosure. On a $200,000 30-year mortgage, a reduction from 8 percent to 6 percent drops the monthly payment $268.43 – an annual savings of $3,221.16.

$75 Billion Homeowner Stability Initiative

The $75 billion homeowner stability initiative targets at-risk homeowners, many of whom are stuck in adjustable-rate mortgages (ARMs) and have seen their house payments rise to 40 or even 50 percent of their monthly income. The program offers cash incentives to lenders and borrowers for working out loan modification agreements that result in reasonable, affordable monthly mortgage payments and enable the homeowners to keep their homes. Following are some key points about this component of the plan:

• The primary goal of the initiative is to reduce homeowners’ monthly payments to sustainable, affordable levels.

• Real estate investors need not apply. This initiative is available exclusively to help homeowners retain possession of their primary residence.

• The plan covers households “at risk of imminent default despite being current on their mortgage payments.” In other words, you can qualify even if you haven’t yet missed a house payment.

• Under the initiative, the lender is responsible to lower the interest rate so that the homeowners’ monthly mortgage payment is no higher than 38 percent of their monthly gross income. If the payment is still not affordable at that level, the initiative matches “further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent.” Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

• The lower interest rate must remain in place for five years, at which time it can gradually be stepped up to the conforming loan rate in place at the time of the loan modification.

• Servicers receive an up-front incentive of $1,000 for “each eligible modification meeting guidelines established under this initiative” plus a monthly incentive up to $1,000 per year for three years as long as the borrower remains current on the loan.

• Borrowers receive an incentive of up to $1,000 per year for five years, as long as they stay current on their loan. The money is applied to pay down the balance on their loan; it is not given directly to the homeowners to spend as they wish.

• Servicers receive a $500 incentive, and mortgage holders receive a $1,500 incentive for modifying at-risk loans before the borrowers fall behind. This is intended to provide early assistance to borrowers – before they default on their loans.

• Mortgage holders receive an additional insurance payment, linked to declines in the home price index, on each modified loan. This is designed to discourage mortgage holders from foreclosing now out of fear that property values will fall even further if they wait to foreclose.

• As part of the plan, the Treasury will develop uniform guidelines for loan modifications across the mortgage industry. All financial institutions that receive Financial Stability Plan financial assistance will be required to adhere to the guidelines.

• Strong government oversight will be in place to monitor performance and ensure compliance with the plan’s guidelines.

• The plan allocates $1.5 Billion in relocation and other forms of assistance to renters displaced by foreclosure and $2 billion in neighborhood stabilization funds.

Low Mortgage Rates

The third major component of the Homeowner Affordability and Stability Plan is to “support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.” To accomplish this goal, the plan calls for the following:

• Increasing the Treasury Department’s funding commitment to Fannie Mae and Freddie Mac to ensure security of the mortgage market. Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.

• To promote stability and liquidity, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities.

• Treasury will increase the size of the GSEs’ (Government Sponsored Enterprises’) retained mortgage portfolios by $50 billion to $900 billion along with corresponding increases in allowable debt, so Fannie Mae and Freddie Mac can facilitate financing for the mortgage industry.

• The administration will work with Fannie Mae and Freddie Mac to support the efforts of state housing finance agencies in serving homeowners.

For additional details, check out the “Help for homeowners” Q&A post on the White House Blog.

Ralph R. Roberts, GRI, CRS Award-Winning REALTOR® and Author Loan Modification For Dummies (avail. Summer 2009)