Platinum Pros

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.

Real estate experts say more help needed

Ed Taylor, Tribune

February 18, 2009 - 5:44PM

Many Valley real estate experts gave President Barack Obama high marks Wednesday for seriously attacking the foreclosure crisis in his speech at Dobson High School in Mesa.

But many also questioned if it will be enough to reduce the number of foreclosures and stabilize the housing market.

"It's a good start, but it's not enough money to help all those who need help," said Letha Martin, owner of Platinum Financial Resources, a Queen Creek-based real estate, mortgage and loan-modification company.

She said $1 trillion in adjustable rate mortgages are scheduled to reset their interest rates in the next two years, and many of those homeowners will likely face foreclosures.

"We're going to still see a huge problem of foreclosures and property values declining," she predicted.

Karl Guntermann, a real estate professor at the W.P. Carey School of Business at Arizona State University, said Obama's proposals are "long overdue." But he also questioned if they will be enough.

"It seems like it should have an impact, but everything the government has done seems to be inadequate," he said.

To emphasize the magnitude of the problem, Guntermann said the latest data for December and January indicate that home prices in the Valley have fallen back to 2001 levels.

Jay Thompson, a Gilbert real estate broker, also expressed doubts the program will cover enough distressed and potentially distressed homeowners to bring the market out of its depression.

"They say it will help 7 (million) to 9 million homeowners, but the number of foreclosures alone will reach 10 million in a few years," he said. That doesn't include many more that are in danger of foreclosure and need rescuing, he said.

He also said the refinancing provisions of the plan, which are separate from the loan-modification incentives, won't help many distressed Arizona homeowners because their homes have lost too much value to qualify for refinancing.

Still, real estate and banking experts said it's a good sign that the Obama administration at least is wrestling with an enormous problem that is driving down the entire economy.

"My general reaction is the cavalry is coming over the hill," said R.L. Brown, a Valley real estate consultant and analyst. "The tragedy of it is the cavalry should have come over the hill a lot sooner."

Although the program won't help those who have already lost their homes to foreclosure, the 7 million to 9 million homeowners who will be helped "clearly is a significant number," he said.

Martin added that Obama has a knack for giving people hope.

"He's helping Americans feel that someone is on their side," she said.

Jill Hoogendyk, president of the Arizona Mortgage Lenders Association, said the program, most of which can be implemented by executive orders without Congressional action, will help many homeowners.

"It will take a little time to get procedures in place, but it should give lenders more incentives to become more aggressive in making loan modifications," she said.

That's particularly true if the loans are owned by Fannie Mae and Freddie Mac, the federally backed institutions that own many American home mortgages, she said.

The situation gets more complicated if the loan is controlled by private investors as part of mortgage-backed securities, she said. In those cases the servicer who manages the loan must get investor approval to make modifications, and the program does not appear to offer many incentives for investors to modify," she said.

"The servicer often is afraid to make modifications because they are afraid of investor lawsuits," she said. "What the servicer really needs is a safe harbor from litigation."

She was critical of another component of the plan, which would give bankruptcy judges the power to modify the terms of mortgages if lenders or investors don't. Such authority, sometimes called a "cram-down" approach, would require Congressional approval.

"I don't think anyone who suggests a cram-down proposal is thinking long term," she said. "In the long term, if that option is widely available it will be more expensive and harder to borrow to buy houses."

Martin believes the real solution to the housing-market problems is to convince banks to loosen up their approval of new loans. That was not part of the program outlined by Obama in Mesa, but it is being addressed by the U.S. Treasury in a plan to remove toxic assets from the banks' ledger books.

"I am constantly running across clients who want to buy homes, but I can't get them approved (for a loan)," she said. "How do you expect the market to rebound if there aren't any buyers?"

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Courtesy of Captain Save A Loan

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