Will Government Help With Underwater Homes? Ask A Trader.

Mark says:

Many American’s prior to the Housing Bubble bursting just did not have the financial expertise and judgment to make prudent decisions when it cam to buying a home and fell into the trap of listening to greedy lenders selling them more house then they could afford. Now that were here, how do we as a country get out of this mess?
I believe Financial Planners can help end this crisis. Please read the following article I recently came across dealing with solving the Underwater Mortgage crisis. At the end, I added an addendum in which Financial Planners will a key part in solving this crisis.
(Here is the article)
“Ocwen Financial expanding program for underwater borrowers”
The Ocwen Financial program restores some equity in the borrowers’ property, which helps motivate them to stay current on their modified loan payments and avoid foreclosure.
August 07, 2011|By Kenneth R. Harney If you give millions of seriously underwater a new equity position in their properties by reducing their principal mortgage debt, will they keep paying on their loans and avoid foreclosure?Call it a pipe dream or a significant model for other lenders and investors, but one company says it has found an important combination: Modify underwater borrowers’ loans so that their payments are reduced to a manageable amount and cut their principal debt over time, but make the deal dependent on their scrupulous on-time monthly payments of the new amount plus sharing of a portion of any future profit they make on the house sale.In practice, the plan works like this: Say you’ve been underwater on your loan. You can’t handle the payments and you’re heading down the conveyor belt to near-inevitable default and foreclosure. Now the company servicing your mortgage makes you this multipart offer: First, we will reduce your loan balance to a level where you will have 5% positive equity in the house. That is, rather than the original amount that has you drowning, we will set your debt at 5% below the appraised value of the house.Next, we’ll modify the mortgage so your monthly payments reflect the reduced underlying principal balance. Then, in annual increments over the next three years, we will write off the amounts of the original debt balance that we reduced. In exchange, we will expect that you do two things: Stay current on your loan payments, and agree to let us share 25% of any future gain you make on the house at resale.That’s the deal Ocwen Financial Corp., one of the largest servicers of distressed home mortgages in the country, began offering more than 3,000 underwater borrowers in a test that began a year ago. The results to date: 79% of the customers offered the program in the test signed up, and the re-default rate has been just 2.6% — far below the 40% to 50% rates within similar time periods seen in some federally sponsored loan modification efforts.Ocwen, which services 460,000 loans and is acquiring a portfolio of 250,000 more next month from Goldman Sachs’ Litton Loan Servicing unit, said the test was so promising that it’s now taking the program national. It already has regulatory green lights in 33 states, including California, and expects more to give approval in the months ahead.Ocwen Chief Executive Ron Faris says the key to the program is that the shared appreciation approach allows for a restoration of equity for borrowers, which is “psychologically important” and greatly affects their motivation to keep current on the modified payment terms. It gives them a stake again and gives them some hope.”Our analytics tell us that an underwater loan is one and a half to two times more likely to re-default than one with at least some positive equity,” he said.The shared appreciation and principal reduction concept also works for the bond investors who actually own the mortgages, Faris said. The loans keep performing — unlike many other modification plans — and there’s the possibility of a little sweetener at the end in the form of a portion of any appreciation that occurs beyond the revised appraised value on the house.Paul Koches, Ocwen executive vice president and general counsel, says there is no set cutoff level of negative equity beyond which the program cannot go. So even if your current loan-to-value ratio is 150% — which puts you deeply underwater — the program may include you.There’s a key limitation, of course: Only Ocwen-serviced borrowers who are both underwater and unable to handle current loan payments are eligible. Since roughly 11 million owners are underwater on their loans, according to industry data, and 2 million of them are in financial distress and projected to go to foreclosure, Ocwen’s program can only touch a modest fraction at best.Some large lenders and servicers such as Bank of America and Wells Fargo have initiated principal reduction efforts for some underwater customers, but none to date has announced a shared appreciation feature.Ocwen’s program is drawing praise from consumer advocates active in foreclosure prevention. John Taylor, president and chief executive of the National Community Reinvestment Coalition, said in a statement that “we hope this innovative effort inspires other mortgage servicers to follow suit.”Is this the long-awaited solution to the housing crisis? Not likely. But if major banks and servicers come out with their own versions — and better yet, the Obama administration tells servicers to include the idea in their tool kits — then the effect could be much more powerful.kenharney@earthlink.netAugust 07, 2011|By Kenneth R. Harney If you give millions of seriously underwater a new equity position in their properties by reducing their principal mortgage debt, will they keep paying on their loans and avoid foreclosure?
Call it a pipe dream or a significant model for other lenders and investors, but one company says it has found an important combination: Modify underwater borrowers’ loans so that their payments are reduced to a manageable amount and cut their principal debt over time, but make the deal dependent on their scrupulous on-time monthly payments of the new amount plus sharing of a portion of any future profit they make on the house sale.
In practice, the plan works like this: Say you’ve been underwater on your loan. You can’t handle the payments and you’re heading down the conveyor belt to near-inevitable default and foreclosure. Now the company servicing your mortgage makes you this multipart offer: First, we will reduce your loan balance to a level where you will have 5% positive equity in the house. That is, rather than the original amount that has you drowning, we will set your debt at 5% below the appraised value of the house.
Next, we’ll modify the mortgage so your monthly payments reflect the reduced underlying principal balance. Then, in annual increments over the next three years, we will write off the amounts of the original debt balance that we reduced. In exchange, we will expect that you do two things: Stay current on your loan payments, and agree to let us share 25% of any future gain you make on the house at resale.
That’s the deal Ocwen Financial Corp., one of the largest servicers of distressed home mortgages in the country, began offering more than 3,000 underwater borrowers in a test that began a year ago. The results to date: 79% of the customers offered the program in the test signed up, and the re-default rate has been just 2.6% — far below the 40% to 50% rates within similar time periods seen in some federally sponsored loan modification efforts.
Ocwen, which services 460,000 loans and is acquiring a portfolio of 250,000 more next month from Goldman Sachs’ Litton Loan Servicing unit, said the test was so promising that it’s now taking the program national. It already has regulatory green lights in 33 states, including California, and expects more to give approval in the months ahead.
Ocwen Chief Executive Ron Faris says the key to the program is that the shared appreciation approach allows for a restoration of equity for borrowers, which is “psychologically important” and greatly affects their motivation to keep current on the modified payment terms. It gives them a stake again and gives them some hope.
“Our analytics tell us that an underwater loan is one and a half to two times more likely to re-default than one with at least some positive equity,” he said.
The shared appreciation and principal reduction concept also works for the bond investors who actually own the mortgages, Faris said. The loans keep performing — unlike many other modification plans — and there’s the possibility of a little sweetener at the end in the form of a portion of any appreciation that occurs beyond the revised appraised value on the house.
Paul Koches, Ocwen executive vice president and general counsel, says there is no set cutoff level of negative equity beyond which the program cannot go. So even if your current loan-to-value ratio is 150% — which puts you deeply underwater — the program may include you.
There’s a key limitation, of course: Only Ocwen-serviced borrowers who are both underwater and unable to handle current loan payments are eligible. Since roughly 11 million owners are underwater on their loans, according to industry data, and 2 million of them are in financial distress and projected to go to foreclosure, Ocwen’s program can only touch a modest fraction at best.
Some large lenders and servicers such as Bank of America and Wells Fargo have initiated principal reduction efforts for some underwater customers, but none to date has announced a shared appreciation feature.
Ocwen’s program is drawing praise from consumer advocates active in foreclosure prevention. John Taylor, president and chief executive of the National Community Reinvestment Coalition, said in a statement that “we hope this innovative effort inspires other mortgage servicers to follow suit.”
Is this the long-awaited solution to the housing crisis? Not likely. But if major banks and servicers come out with their own versions — and better yet, the Obama administration tells servicers to include the idea in their tool kits — then the effect could be much more powerful.
kenharney@earthlink.netkenharney@earthlink.net　Addendum: I would add the following provisions to the Ocwen Financial program to motivate and entice Lenders to participate. Any lender that promotes a similar program would assign a Financial Planner that would work with the homeowner and analyze their unique financial situation. The Financial Planner works for the lender and is paid from a small portion from what the Homeowner saves in their newly reduced mortgage payment.The Financial Planners function is to come up with a workable plan based on monthly income and expenses and create a blue print for the Homeowner to follow. This means educating and implementing a retirement savings program, rainy day fund, college fund and vacation fund. The Financial Planner also makes sure a plan is put into place to pay off credit cards and possibly have their employer the (Lender/bank) consolidate the credit cards and facilitate the means to pay them offThe whole point here is the Financial Planner is helping the Homeowner develop a plan to stay on tract, pay their mortgage, pay off credit card bills, save for retirement and free up disposable income. This means will now have disposable income to buy goods and services that will stimulate the economy. This means job creation, new home purchases and job creation.Think about this, How many unemployed financial planners could be hired across this country, become part of the solution to improving the economy and best of all stop the stampede of foreclosures? Before you answer, remember that over 11 Million are underwater in the United States.Answer- Thousands!Think what that would do to the National unemployment statistics. Most importantly, Financial Planners would get millions of back on the road to good ‘responsible’ financial shape. The Financial Planner is also keeping the interest of the Lender in mind, almost guaranteeing that the Homeowner does not default on the mortgage. The Homeowner wins, the Lender/Banks wins and the economy wins.Thank you,MarkBarnegat NJAddendum: I would add the following provisions to the Ocwen Financial program to motivate and entice Lenders to participate. Any lender that promotes a similar program would assign a Financial Planner that would work with the homeowner and analyze their unique financial situation. The Financial Planner works for the lender and is paid from a small portion from what the Homeowner saves in their newly reduced mortgage payment.The Financial Planners function is to come up with a workable plan based on monthly income and expenses and create a blue print for the Homeowner to follow. This means educating and implementing a retirement savings program, rainy day fund, college fund and vacation fund. The Financial Planner also makes sure a plan is put into place to pay off credit cards and possibly have their employer the (Lender/bank) consolidate the credit cards and facilitate the means to pay them offThe whole point here is the Financial Planner is helping the Homeowner develop a plan to stay on tract, pay their mortgage, pay off credit card bills, save for retirement and free up disposable income. This means will now have disposable income to buy goods and services that will stimulate the economy. This means job creation, new home purchases and job creation.Think about this, How many unemployed financial planners could be hired across this country, become part of the solution to improving the economy and best of all stop the stampede of foreclosures? Before you answer, remember that over 11 Million are underwater in the United States.Answer- Thousands!Think what that would do to the National unemployment statistics. Most importantly, Financial Planners would get millions of back on the road to good ‘responsible’ financial shape. The Financial Planner is also keeping the interest of the Lender in mind, almost guaranteeing that the Homeowner does not default on the mortgage. The Homeowner wins, the Lender/Banks wins and the economy wins.Thank you,MarkBarnegat NJ