OOOPs, Platinum Did It Again!!! Quoted in the AZ Republic

Housing aid may not help many Arizonans

Experts: Little benefit for those too far 'underwater'

by J. Craig Anderson - Feb. 27, 2009 12:00 AM
The Arizona Republic

Housing Secretary Shaun Donovan has revealed more details of the Obama administration's $75 billion foreclosure-prevention plan, raising early doubts about the program's ability to help homeowners in Arizona.

Most struggling Arizona borrowers are too far upside-down on loans to qualify for refinancing at a reduced loan amount under the program, local real-estate professionals said after learning about provisions discussed by Donovan before Congress on Thursday.

Some called it a step in the right direction, but it would help a limited number of homeowners in Arizona unless the guidelines continue to be modified.

A key element of the plan involves federal subsidies to lenders that reduce the principal balance on loans in which borrowers are up to 5 percent "underwater." Underwater is term meaning a loan's unpaid principal balance is more than the home's current market value.

That program applies only to mortgages held by finance companies Fannie Mae and Freddie Mac, which experts say include less than 20 percent of the nation's distressed home loans.

Another provision would provide subsidies to lenders that modify loan agreements for borrowers who owe up to 50 percent more than the home's value, but those modifications would not have to include reducing the loan's principal.

Full details about the plan are set to be announced Wednesday.

Mateo Garcia, president of Mateo Mortgage Funding in Tempe, said that he fears loan modifications funded by the plan won't be enough to keep most struggling borrowers in their homes.

"In Arizona, Florida, California and Nevada, most borrowers are underwater by more than 50 percent," Garcia said. "I just think Washington is seriously naive to what is going on in the streets on a daily basis."

Bob Bemis, chief executive officer of the Arizona Regional Multiple Listing Service, said that the plan President Barack Obama first announced last week at Dobson High School in Mesa is a positive first step but does not address the bigger problem of plummeting home values.

"A house that was worth $300,000 may now only be worth $150,000 to $180,000 or less," Bemis said. "Even if the bank modifies the loan, extending the term to 40 years and dropping the interest rate to under 5 percent, the homeowner will still never be able to sell the house for what is needed to repay the total debt."

Bob Wasieko, of Phoenix-based Security Mortgage Corp., said that the $75 billion allocated toward preventing foreclosures is "a drop in the bucket" given the total value of distressed home loans in the United States.

"I think it would take over a trillion dollars to truly make a dent," he said.

Letha Martin's concern is that the promise of federal assistance will discourage homeowners in Arizona from taking the steps necessary to improve their financial situation on their own.

"Too many people are placing too much stock in the degree of impact the stimulus plan is, in fact, going to have," said Martin, vice president of Valley loan modification firm the Platinum Group. "This pie-in-the-sky attitude may lull people into a false sense of security."

In other housing news Thursday, the U.S. Department of Housing and Urban Development has reinstated higher limits on Federal Housing Administration mortgage loans that had expired on Jan. 1.

The limit in the Phoenix area returned to the 2008 limit of $346,250 as of Wednesday for a single-family home. It had been lowered to $271,150 for this year.

Jody Davis, chairman of legislative affairs for the Arizona Association of Mortgage Brokers, said that a last-minute lobbying effort is responsible for Arizona's higher FHA-insured loan limit.

"We were worried it was actually going to go down further," he said, explaining that Arizona's median home price, the basis for determining FHA loan limits, fell by $50,000 in 2008.

Lobbyists for the lending industry argued that lowering the FHA loan limit would further slow home sales and economic recovery.

Davis explained that it's difficult and much more expensive for borrowers to obtain mortgages on homes above the FHA limit. Even if a borrower has near-perfect credit, most conventional non-FHA loans require at least a 10 percent down payment and thousands of dollars more in up-front costs, he said.

FHA-insured loans require only a 3.5 percent down payment, and other initial costs such as loan origination fees are greatly reduced.

By reinstating the higher FHA limits, Davis said federal officials have removed an obstacle to reducing the Phoenix area's oversupply of homes for sale, which some analysts estimate to be as high as 86,000 units.

That's more than a year's supply of homes.

"There's just too much inventory," Davis said.