Yesterday, the House voted to terminate the FHA Refinance Program by a vote of 256-171. This is one of a number of upcoming votes in the House to eliminate foreclosure mitigation programs. Only one Republican, Joe Heck of Nevada, whose district features one of the worst foreclosure crises in the nation, voted to retain the program. 18 Democrats went along with termination. Another measure on the floor today would cancel out the Emergency Homeowners’ Relief Program, which is a HUD measure.
The White House has promised a veto, so this and other House bills are a bit like spitting into the wind. But the problem with defending these Administration foreclosure programs is their inability to do the job. For instance, this program, which actually has some OK provisions to refinance underwater mortgages where the homeowner is current into sustainable FHA loans, has used just $50 million of the over $8 billion available. Because they again work on a discretionary basis, the Administration puts itself at the mercy of a corrupt servicer industry to decide whether or not to grant the loan modifications or the refinancing.
Similarly, incentives for short sales, where the borrower can quickly sell a home for less than they have left on their mortgage, are running into problems with completion. This is from a letter from the president of the California Association of Realtors:
Unfortunately, many homeowners are unable to successfully negotiate a short sale. According to a recent survey of 2,150 California REALTORS® who have assisted clients with a short sale, only three out of five transactions closed – even when there was an interested and qualified buyer.
What’s the problem? For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures. Many homeowners have second mortgages, which further complicate matters. Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process. Poor and slow service by many banks and servicers has only exacerbated the problem. Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times. These delays discourage potential homebuyers from considering a short sale purchase.
In many cases, the servicers and the GSEs are just not complying with federal guidelines. The mortgage market has basically become like the Wild West – there’s no real monitor on the side of justice, so every actor is just going their own way and maximizing short-term profit, even when that is to the detriment of the housing market and the economy. Programs from the government that fail to address this aren’t terribly useful.
In fact, because all these servicers are running into a wall of legal trouble of their own causing, not only is the housing market stalled, but foreclosures have dropped significantly. As Yves Smith points out, this reveals how dysfunctional the servicers are right now. The foreclosure mill law firms that they used to contract work out to are bugging out, judges are asking them for more and more verification, and new investigations pop up every day:
Prosecutors have launched an investigation into a complaint that more than 1,000 deeds for homes foreclosed upon in Maryland were improperly executed — the latest development suggesting widespread problems in the way foreclosures have been handled in the state.
The complaint, filed last week by a paralegal formerly employed by the Shapiro & Burson law firm, lays out allegations that attorneys who were supposed to be signing deeds and key foreclosure paperwork for Maryland properties instead instructed others to falsify their signatures on the documents.
Mike Konczal has two very good stories about the problems with mortgage servicing: one on Carrington, a really terrible subprime securitization specialist, and one about Dana Milbank and what his refi problems reveal.
The larger point here is that the servicer industry is horribly broken, and all of the government’s foreclosure mitigation programs rely on a functional servicer industry. That’s why I can’t get too amped up about their cancellation.