More on Loan Modification

Calculated Risk: IndyMac Mods: Principal Forbearance Vs. Reduction

First, the interest rate is lowered to the current Freddie Mac survey rate for fixed rate mortgages, and fully amortized as a fixed rate loan. As far as I can tell, at this initial step, the loan is amortized over its remaining term, whatever that is.

If that is not enough to achieve 38% HTI, then the interest rate is "stepped" for up to five years. That means that the initial rate is set no lower than 3.00% for the first year, and increased each year by no more than 1.00% per year, until it hits the Freddie Mac survey rate (which was 6.50% at the time FDIC published). This does not make the loan an ARM or subject it to negative amortization; the payment is re-amortized each year after the interest rate "steps up" until it hits the permanent rate. That means that the loan is always paying some principal from the inception of the mod.

Remember that ARMs involve potential rate increases; whether they happen or not, and how far they go, depend on future (unknown) movements in the underlying index. A "step loan," which is what I understand these mods to be, has scheduled rate increases that are exactly specified in the modification agreement, and which are not subject to future market rate fluctuations: each loan will "step up" to the permanent rate, regardless of what happens in a year or four to market interest rates. So the borrower gets the same kind of long-term "rate lock" of a fixed rate loan--the rate will never be higher than 6.50% (or whatever the Freddie rate is on the day the mod is drawn up), and after the initial "step" period it will never be lower than that. The step period simply "ramps" the borrower into the fully-amortized payment at 6.50% by starting out with a fully-amortized payment at a lower rate and slowly increasing that rate each year until the final rate is achieved.

Loan Modification for Distressed Indymac Mortgage Loans

FDIC: Loan Modification Program for Distressed Indymac Mortgage Loans

Loan Modification Program for Distressed Indymac Mortgage Loans
IndyMac Federal Bank, FSB (“Indymac Federal”) will implement a new program to systematically modify troubled mortgages. The program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. This in turn will maximize value for the FDIC, as well as improve returns to the creditors of the former IndyMac Bank and to investors in those mortgages. The new program will help IndyMac Federal improve its mortgage portfolio and servicing by modifying troubled mortgages, where appropriate, into performing mortgages.

Below are some questions and answers regarding the program:

What loans are eligible?
What is the timeline for rollout of offers?
How will you determine which loans receive modification proposals first?
What modification options will be available to borrowers?
How does the IndyMac Federal determine whether the modified mortgage is affordable to the borrower?
How do borrowers apply for the program?
Where should borrowers interested in the program call to apply?

What loans are eligible?
The streamlined loan modifications will be available for most borrowers who have a first mortgage owned or securitized and serviced by IndyMac Federal where the borrower is seriously delinquent or in default. IndyMac Federal also will seek to work with others who are unable to pay their mortgages due to payment resets or changes in the borrowers’ repayment capacities. This streamlined approach applies only to mortgages for the borrower’s primary residence. As with all modifications, borrowers will have to demonstrate their financial hardship by documenting their income.

Assumable mortgages

This is an interesting fact to consider but before you let someone assume mortage speak with a real estate attorney.

REALTOR® Magazine-Daily News-Sellers May Want to Offer Assumable Mortgage

Sellers May Want to Offer Assumable Mortgage

Sellers who can’t find a buyer should look at the terms of their mortgage and, if it is permitted in their area, offer to let a buyer assume their loan.

Assumable mortgages made in recent years generally carry interests rates below current market rates. Plus, a buyer who can qualify with the lender can step into a mortgage without having to come up with a down payment or pay hefty closing costs.

The Website HomeAssume.com matches buyers and sellers. FHA and VA mortgages are assumable, as are many conventional adjustable-rate mortgages.

National Homes Sales statistics

REALTOR® Magazine-Daily News-Existing-Home Sales Hit 5-Month High

Existing-home sales rose in July to the highest level in five months, although they continue to be well below the numbers from last year at this time, according to the NATIONAL ASSOCIATION OF REALTORS®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – increased 3.1 percent in July to a seasonally adjusted annual rate of 5 million units from a downwardly revised level of 4.85 million in June. Sales were 13.2 percent lower than the 5.76 million-unit pace in July 2007.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the up-and-down pattern may break soon.

“We hope the new tools in the hands of home buyers from the recently enacted housing stimulus package will spark a sustained sales uptrend in the months ahead,” he said. “Buyers who’ve been on the sidelines should take a closer look at what’s available to them now in terms of financing and incentives. Given some of the inventory on the market, we also strongly encourage buyers to get a professional home inspection.”

Median Price Down 7.1% from Year Ago

The national median existing-home price for all housing types was $212,400 in July, down 7.1 percent from a year ago when the median was $228,600.

Lawrence Yun, NAR chief economist, said home prices in some regions could soon increase.

“Sales have picked up significantly in several Florida and California markets. Home prices generally follow sales trends after a few months of lag time,” he said. “Still, inventory remains high in many parts of the country and will require time to fully absorb. We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns.”

Analysis of NAR price data since 1968 shows home prices normally rise 1 to 2 percentage points above the overall rate of inflation, building wealth over the typical period of homeownership.

Foreclosures in Riverside and Southern California

Foreclosures push Inland home sales up, median prices down | Business | PE.com | Southern California News | News for Inland Southern California

Inland home sales continued to rise amid falling prices in July as bargain hunters locally and throughout Southern California bought up foreclosure properties in affordable neighborhoods, research firm DataQuick Information Systems reported Monday.

While the number of resale homes sold rose almost 50 percent in Riverside County and 25 percent in San Bernardino County, median prices in both counties dropped 35 percent from a year ago. Slightly more than 4,100 homes were sold in Riverside County at a median price of $260,000, and a little more than 2,500 properties were sold in San Bernardino County, where the median price was $230,000.

Southern California as a whole saw unit sales rise 13.8 percent while prices dropped 31 percent.

"What we're looking at is a fire sale of properties in newer affordable neighborhoods that were bought or refinanced near the price peak with lousy mortgages," said DataQuick President John Walsh.

"What we're still not seeing is this level of distress spreading to more expensive or established neighborhoods," he added.

While foreclosure sales accounted for 43.6 percent of all of July's Southland sales, DataQuick analyst John Karevoll said they were an even more dominant factor in the Inland region. They accounted for 64.2 percent of sales in Riverside County and 58 percent in San Bernardino County, and that trend could continue for several months.

California Real Estate is very hard to appraise in this down market

I note the same problems in San Diego. You must be ready with your other workout options

Real estate chaos hits appraisal industry

Instability in the region's housing market is making it difficult to determine values, according to mortgage brokers and real estate appraisers. "It's miserable," said Karen Mann, who runs a small East Bay appraisal firm called Mann & Associates. "I've been in the business 28 years, and this is the worst downturn I've seen."

While Mann's Discovery Bay office is in one of the hardest-hit parts of the Bay Area, appraisers in San Francisco and other places where the market has fared better echoed many of her concerns. "They are shooting down the value of appraisals like I've never seen before," said Rick Gordillo, whose practice specializes in residential real estate. "It's almost as if they don't want the business. They are turning away loans even when the values are there."

Even seemingly low appraisals are being questioned by lenders, who have been burned by the mortgage crisis and are now scrutinizing loan applications with much more care, said Ed Craine, vice president of the California Association of Mortgage Brokers.