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Thursday, March 25, 2010

Bank of America to reduce mortgage principal for some homeowners

Bank of America, the nation's largest mortgage lender, on Wednesday announced a program to offer homeowners who owe significantly ...

The Washington Post

Bank of America, the nation's largest mortgage lender, on Wednesday announced a program to offer homeowners who owe significantly more than their homes are worth the opportunity to have their loan balances reduced.

The program, which starts in May, would potentially help about 45,000 homeowners nationwide. In launching the effort, Bank of America is jumping into the debate about how to address the millions of homeowners whose mortgages exceed the value of their homes and who have complicated industry and government efforts to prevent foreclosures.

Lenders have traditionally resisted reducing borrowers' loan balances, arguing that doing so would encourage homeowners to miss mortgage payments to qualify. But as foreclosure-prevention efforts have struggled, the industry has started to relent. Bank of America is hoping that by reducing principal balances it will give borrowers an incentive to keep up with their payments and potentially create an industry model.

The company "has found that many homeowners who owe considerably more on their mortgages than their homes are worth are reluctant to accept a solution that addresses only the amount of the payment without an accompanying reduction in the balance due on the loan," said Barbara Desoer, president of Bank of America Home Loans.

The Bank of America plan is limited in scope. Borrowers must have missed at least two mortgage payments and be severely underwater to qualify, owing 20 percent more than their homes are worth. It is also limited to borrowers with certain types of risky loans, including subprime mortgages or other loans with a two-year adjustable rate.

Bank of America expects to forgive about $3 billion in principal on loans as part of the program. The effort expands a settlement agreement that the bank made with several state attorneys general in 2008 to modify thousands of mortgages and settles a Massachusetts investigation of lending practices by Countrywide Financial, which Bank of America acquired in 2008.

Treasury officials have said they were considering proposals to address negative equity, but have not given a timeline for announcing a plan. Under the federal foreclosure-relief program known as Making Home Affordable, borrowers can receive up to $5,000 to lower their loan balances if they keep up their payments. But that amount would make only a small dent in the problem facing millions of homeowners, housing advocates have said.

Economists consider underwater borrowers among the most vulnerable to foreclosure, even if they can afford their mortgages, and some industry officials worry that more of them will simply walk away from their mortgages, or "strategically default," rather than spend a decade or more trying to regain positive equity. First American CoreLogic has estimated that more than 11.3 million homeowners are underwater on their mortgages.

During the third quarter of 2009, 13 percent of loan modifications included a reduction in the borrower's principal, up from 10 percent during the second quarter, according to a report by the Office of the Comptroller of the Currency. Wells Fargo, for example, says it has increasingly used principal reductions for homeowners with "pay option arm" loans. The bank says it forgave $2.6 billion in borrowers' principal balances for these types of mortgages last year.

10:17 am hst 

Wednesday, March 3, 2010

From Plunkett Clooney RE: Condos -- FHA ends most condominium project ’spot approvals,’ costly

David S. Keast

Plunkett Cooney

In response to the current residential housing loan debacle, lender beware, most

condominium mortgage lending have been dramatically altered, effective Feb. 1, when

new Federal Housing Administration (FHA)-insured mortgage loan requirements were

implemented.

Plunkett Cooney anticipates additional changes to, or perhaps delays in the

implementation of, these requirements in response to growing housing industry

consternation that implementation will further constrict the availability of mortgage

financing to a significant component of the housing market. FHA-insured mortgages

constitute 30 percent of all condominium financing.

Unless a condominium project is a fully-detached “site” condominium, in which case

FHA has agreed that the new requirements will not apply, mortgage lenders will no

longer be able to obtain FHA “spot approval” of condominium projects based upon a

certification by the condominium property manager or association officer. A “preapproval”

of the entire condominium project will now be required. FHA announced that

“pre-approvals” are valid for a two-year period and “re-approval” requirements have not

been announced.

The new FHA “pre-approval” requirements differ in important respects from those

previously announced by the Federal National Mortgage Association (Fannie Mae) and

the Federal Home Loan Mortgage Corporation (Freddie Mac), but address the same

issues and adopt many of the same standards. Criminal penalties, including incarceration

and fines up to $1 million may now be imposed for the knowing submission of any false,

fictitious or fraudulent statements in connection with a “pre-approval” application.

FHA (as had Fannie Mae and Freddie Mac) imposes separate requirements for “new

projects” (generally, those which are not both 100 percent complete and 90 percent

conveyed), for which additional unit sale, certificate of occupancy and association

turnover requirements, and “existing projects” exist. Common requirements include, but

are not limited to:

Aggregate limitation upon FHA-insured mortgages in any project: A

maximum of 30 percent of the project’s units may be secured by an FHA-insured

mortgage (50 percent or 100 percent, if certain additional requirements are met in

2010);

Association restrictions:(A) Assessments: Not more than 15 percent of total units aredelinquent in

assessment payment for more than 30 days.

(B) Insurance:

Hazard – Replacement cost;

Liability – minimum $1 million

Fidelity (if 20 units or more) – minimum times

the aggregate amounts of monthly assessments plus reserve amounts

Flood (if applicable) – minimum $250,000

Co-owner HO6 in amount equal to 20 percent of appraised value (unless Association

master policy “all-in” coverage, including improvements and betterments)

(C) Budget: Adequate or meets minimum reserve funding

requirements

Occupancy restrictions: 50 percent of units owner-occupied (vacant and real

estate owned properties may be excluded from numerator and denominator).

Commercial limitation: Non-residential uses in a mixed-use project restricted to

25 percent of the project area.

Legal compliance: The project representative must certify that the “project was

declared and exists in full compliance with applicable state law requirements of

the jurisdiction in which the project is located and with all other applicable laws

and regulations.”

Issued Nov. 6, 2009, The FHA’s new requirements are embodied in FHA Mortgagee

Letters 2009-46 B (permanent baseline guidance for condominium project eligibility) and

2009-46 A (temporary exceptions designed to address current housing market

conditions).

Previously, Fannie Mae announced comparable requirements in Announcement 08-34

and introduced its Project Eligibility Review Service (PERS), a fee-based projectacceptance

service for Fannie Mae sellers and servicers. This fee-based service requires

lenders to submit the complete project package to Fannie Mae by e-mail.

The FHA and Fannie Mae “pre-approval” processes are document-intensive and detailoriented.

Although not required by the agencies, in view of the potential criminal

penalties, a lender seeking pre-approval should consider obtaining the assistance of legal

counsel.

7:26 am hst 


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