The Treasury Department said Friday that the nation’s housing market “remains fragile” and reported that far fewer delinquent mortgage borrowers received loan modifications through a federal government program in July than they did in June.
In July, almost 37,000 borrowers received new permanent modifications, according to Treasury’s monthly scorecard on the housing market. That compares with more than 50,000 new permanent modifications made in June through the government’s Home Affordable Modification Program.
In Illinois, 21,842 homeowners have received permanently adjusted loan terms since the government began its effort to stem the foreclosure crisis in the spring of 2009. A month, ago, just over 20,000 homeowners had received HAMP loans.
Meanwhile, the more restrictive requirements that homeowners now need to meet to receive even a trial modification has dramatically shrunk the number of Chicago-area residents who’ve received them. As of last month, 12,734 local homeowners were in active trials; that’s a 30 percent drop from June. The same trend is occurring nationally. Almost half of the 1.3 million trial modifications begun since the program’s inception have been cancelled.
Assistant Treasury Secretary Herb Allison said most cancellations can be attributed to insufficient documentation proving one’s income, missed trial payments or mortgage payments that were already less than 31 percent of a homeowner’s income.
There also has been some improvement working through the backlog of modification applications waiting six months or more for a decision. At the end of July, Bank of America and JPMorgan Chase accounted for half of the 118,000 active trial modifications where it was undetermined whether a permanent modification would be made. Allison said decisions on most of those modifications should be made within the next month or so, but he warned that cancellations will exceed the number of new permanent modifications as that backlog is cleared.
“A number of people who got stated income modifications did not meet the qualifications but most of these people are still being assisted either with a proprietary modification by the servicer or they’re getting other relief or they’ve become current in the meantime,” he said.
Through the end of June, the nation’s eight largest servicers have initiated foreclosure proceedings against more than 40,000 homeowners whose trial modifications have been canceled.
Here’s the solution- “Equity Warrants”.
Because of negative equity about 15 million potential homebuyers are “locked-out” of today’s housing market.
Proposal- The underwater homeowner could–without bank approval–put their home on the market and accept any reasonable offer. To cover the loan payoff shortage an Equity Warrant (aka IOU) would be issued granting the holder rights to the future equity of any home the issuer subsequently owns within the next 10 (or 20) years. (This would be recorded as a second lien.) When the term of the warrant expires, and is called, the holder of the warrant would convert it to a promissory note “secured” by the issuer’s home equity. If at the expiration of the Warrant, the Warrant issuer still doesn’t have enough equity to settle the debt, an unsecured note could fill the gap.
1. For the bank it’s an even exchange of an collateralized mortgage for an un-collateralized IOU. Plus the elimination of a potential default which would likely cost substantially more than excepting the warrant, even if it expires worthless.
2. For the homeowner it’s an escape, trading a bad situation for a potentially better situation.
3. For the housing market it’s a new buyer.
4. No taxpayer money needed.