Foreclosure News

FHA to Handle Foreclosure Crisis
Congress still hasn't produced its long-awaited foreclosure relief bill, but there is some modest progress to report.

All the major players -- from the heads of the key housing committees to the presidential contenders -- now agree on one central point: There will be no new agency created to deal with the national foreclosure crisis. Instead, all the work will be loaded onto the shoulders of the Federal Housing Administration -- the FHA.

Earlier this year, there were moves in Congress to revive some version of the Depression-era Home Owners Loan Corporation, which bought up hundreds of thousands of delinquent mortgages and replaced them with more affordable governmentbacked loans. The agency, which ultimately turned a small profit for the U.S. Treasury, closed its doors in the early 1950s.

Enhancements to FHASecure Initiative
On April 9, 2008, President Bush announced enhancements to the FHASecure initiative, which will give the Federal Housing Administration (FHA) flexibility to help more families keep their homes in light of the decline of the subprime market and impending interest rate adjustments affecting numerous borrowers in both the subprime and Alt- A markets.

Under this new plan, FHA will have additional flexibility to insure mortgages, including those for borrowers who were late on some payments or received a principal write-down from their lender.

With the new criteria lenders may voluntarily write down the outstanding subprime mortgage principal balances to a 97 percent or 90 percent LTV ratio depending on the borrowers' circumstances.

FHA will also encourage lenders to make other arrangements, such as subordinate financing, to fill the gap between the existing loan balances and the FHA-insurable loan amount. The refinanced loan amount backed by the FHA would be based upon a new appraisal, performed by an FHA-approved appraiser.

New foreclosure rescue plan offers "Help Now"
A proposal to combat foreclosures was unveiled in March by the National Community Reinvestment Coalition (NCRC), a non-profit community advocacy group. Dubbed "Help Now", the program calls for the government to buy up at-risk loans, restructure the terms to make them affordable and sell the reworked loans back into the secondary market.

Help Now aims to improve upon the efforts of HOPE NOW, the alliance of lenders, mortgage servicers, non-profit community advocacy groups and investors led by the Bush administration to help troubled borrowers stay in their homes. The Help Now approach will be more effective because, according to NCRC CEO John Taylor, it will make it easier for lenders to rework the terms of troubled mortgages.

Under this proposal, the government would allocate as much as $20 billion up front. It would use those funds to buy up mortgages from investors in a reverse-auction process, at prices below the face value of the loans. In a reverse auction, sellers compete against one another, slashing prices until a buyer - in this case the government - says yes to a deal.

Since the government would buy the mortgages at a discount, it can pass the savings on to the borrowers by reducing the mortgage balances by the same percentage as the discount. So, it doesn't let the homeowner completely off the hook as they still have to pay at least part of the debt.

The new, reworked mortgages will be underwritten conservatively, with loan-to-value ratios of no more than 90 percent.

RealtyTrac -- 1st quarter Foreclosure Report
Although not comprehensive, RealtyTrac does publish the largest national database of foreclosure and bank-owned properties, with over 1 million properties from nearly 2,500 counties across the country.

According to RealtyTrac, foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 649,917 properties during the 1st quarter 2008, a 23% increase from the previous quarter and a 112% increase from the first quarter of 2007.

For 1st quarter 2008. . .

• One in every 194 U.S. households received a foreclosure filing during the quarter.
• Foreclosure activity increased on a year-overyear basis in 46 out of the 50 states and in 90 of the nation's 100 largest metro areas.
• Ohio ranked eighth among the 50 states for its foreclosure rate of one for every 161 households, a total of 31,252 foreclosures in the quarter.
• Nevada posted the country's worst foreclosure rate with one in every 54 households receiving a foreclosure-related notice.
• Columbus ranked 32nd (out of 100 metro areas) with 5,338 filings in the period, or a rate of one for every 144 households.
• California and Florida metro areas accounted for 13 of the top 20 metro foreclosure rates.
• Stockton, California ranked no. 1 as one in every 30 Stockton households received a foreclosure filing during the quarter - 6.6 times the national average.
• Las Vegas documented the third highest metro foreclosure rate, with one in every 44 households receiving a foreclosure filing during the quarter.

Consumers share the blame for the foreclosure mess
While foreclosure filings rose 23 percent in the first quarter 2008 from the previous quarter, mortgage fraud cases rose 19 percent (600 to 713) in the same periods according to the Fraudblogger Index compiled by MortgageDaily.com.

Mortgage Daily estimates that one-fourth to onethird of these buyers committed some sort of serious fraud against the lender by lying about their ability to repay the loan. And that doesn't even count the less serious fraudsters ? like those who borrowed downpayments from friends or family and didn't tell the lender.