Since the early 90’s your Fico score has been a standard component of home lending decisions in the United States.  Fico became less significant during the ever increasing property values of the 2000’s as the rise in property values served to get many borrowers out of trouble with their payment obligations.  As everyone now knows, that house of cards/or unabashed risk has come crashing down.

 

Did Fico tell the story?

 

You need only glance at this attached graph to see the answer.  The odds of a borrower becoming delinquent on their mortgage go up over 100 times from a sub 600 score to a 700+ score.  That is huge!  Now the banks are looking at this data with renewed interest.

 

Even with FHA which basically doesn’t acknowledge Fico in their qualifying by allowing “delegated” underwriters to decision borrowers manually irrespective of the score are finding little opportunity for borrowers with sub- 600 Fico’s.  Why?  It is due to the systemic roadblocks (see last weeks post).  Major lenders are simply refusing to accept these borrowers which make FHA’s desire to provide financing to those that might otherwise qualify irrelevant.

 

Curious contradiction.

 I find myself puzzled by the telegraphing being done by the industry which suggests that a borrower need be in default before they can receive attention from Loss Mitigation and default prevention opportunities given the fact that by doing so you will destroy your chances for a new loan as your all important Fico will be adversely impaired.  Fannie Mae’s own guidance suggests “At least two full monthly payments of principal and interest (P&I), taxes, and insurance (or P&I only if taxes and insurance are not escrowed) are due and unpaid”, before you qualify for help. So here we have a landscape where you will likely need to destroy your credit worthiness in order to receive the interest rate reprieve some most desperately need regardless of your intent.  

That is truly a shame!

 FICO credit bureau risk scores made available at all three major US credit reporting agencies — BEACON^sm at Equifax, EMPIRICA® at Trans Union, and the Experian/Fair Isaac model at Experian. (1991)

D

 

Why Government programs to help homeowners don't work.

To understand the breakdown you have to understand the existing structure through which a loan get's done.  This attachment illustrates the process a loan needs to go through to ultimately get funded. The governments desire to provide financing to borrowers in distress or even the appetite of investors to own those loans mean very little unless every step in the process is willing to participate.  One missing step will derail the whole strategy. 

Currently, the major banks through which their retail loan centers, independent brokers and smaller interim banks rely as a necessary step in the funding process do not have any desire to fund and own the responsibility of collecting the payments from borrowers that are clearly in distress.  Even though the "Loan" amount is ultimately guaranteed by Fannie, Freddie or FHA. The responsibility for the payment collections fall squarely on these major banks.  Due to current rising default rates, the banks simply do not want the added work-load, risk and upfront cost associated with borrowers that have displayed a pattern of not paying their mortgage.  Regardless of the reason. 

Can you blame them?   

I must admit, I felt very frustrated when “Hope for Homeowners” was first introduced last October.  We, as a fully delegated FHA lender professed at working with distressed borrowers through successful write-down negotiations and Loan Modification activities, were inundated with borrower requests for this product.  We were anxiously anticipating a windfall of business opportunity when the guidelines were first released.  As I called my contacts at all of the large Institutional Lenders on which we all rely to sell our loans I was met with zero interest in cooperating with the program.  Out of frustration, I went toe to toe with one of the major investors at the Mortgage Bankers meeting in San Francisco where I even brought up the fact that they had just received Billions in TARP money and weren’t going to use any of it for the Hope for Homeowners program when this gentleman said something to me that stopped me in my tracks. 

He said, If we would agree to buy these loans from you where you are on the hook for the borrowers first 4 payments, the typical timeframe for a mortgage bank, or you would have to buy the loan back…what would you do?    Admittedly…I am no longer an advocate for the program. 

What the government needs to do the next time they decide to spend all of the time and money to come up with a program to help homeowners is apply a little discovery to the systemics of actually originating and funding these loans.  They might also do well to get the Major Banks to “sign off” on the program and agree to some level of support.  The Hope for Homeowners program should have included a “First payment default” guarantee and money earmarked for the servicing of these loans.  Then, it might have had a chance.

 

Media Contact:
Rick Arvielo
President of New American Funding
1-800-426-5626
http://www.newamericandirect.com/

Rick Arvielo, President of New American Funding, talks about one of the reasons why many homeowners are facing foreclosure.

Irvine, CA (PRWEB) September 18, 2008 -- Rick Arvielo, President of New American Funding, a mortgage bank that specializes in home loan solutions for troubled borrowers through FHA, talks about a growing issue that isn't receiving much press and is costing people their homes. The issue has to do with Second Trust Deeds holders refusing to re-subordinate behind a new FHA loan, which locks borrowers into their current First Trust Deed with escalating payments.

 

Arvielo says, in order to appreciate the magnitude of this situation, consumers need to understand the market from 2005/2006. A very popular product during that peak in the mortgage industry was the 80/20. That is an 80% First Trust Deed attached with a 20% Second Trust Deed or, 100% financing. This was a very popular loan in the Sub Prime category, where the borrower would receive a favorable rate for a two-year period on the first Trust Deed (TD) and then the interest rate would increase aggressively.

Arvielo observes, "The problem now is we are in a declining market, so these 100% loans are currently at 110% or higher. In many cases we can qualify the borrower for a new 30-year fixed FHA loan on the First TD, bringing their escalating interest rate down and fixing it in the 6% range. We can do this because FHA currently allows the combined loan total to be over 100%. The problem is the Second TD holders are refusing to subordinate, which locks the borrower into their First TD that often times has increased to 9% or higher."

"The only explanation I can come up with for the subordination denial is that FHA requires mortgage insurance, which serves to increase the new first TD amount. Even though the ultimate outcome is the borrower's monthly mortgage expense comes way down, the second TD note holder sees the first TD balance going up, so they turn down the subordination. Or, even crazier, the bank has policies in place that they won't subordinate over 100%, even though they are already over 100%."

When this happens, Arvielo says the future is grim. The borrower, who already owes more than the house is worth, is trapped in a loan where the interest rate is adjusting to unmanageable levels, which literally forces the borrower out of his home.

Arvielo says the solution will require government intervention. One avenue he suggests would be to approve stripping the second TD from the title when it could be proven there isn't enough equity to support the lien. That threat, he says, would likely be enough to get the note holders to cooperate.

Arvielo says this problem is getting worse and receiving surprisingly little press. He urges regulating agencies take action before more people lose their homes.

About Rick Arvielo and New American Funding
Rick Arvielo is President of New American Funding, a mortgage bank that specializes in home loan solutions. New American Funding is committed to providing top quality service. The company offers a wide range of loan programs that are competitively priced. Using the latest technology, the company has made the borrowing process simple and convenient. New American Funding offers competitive rates and eliminates fees associated with a loan arranged through a broker. The company's loan consultants listen to clients' needs and make sure they understand completely, then discuss the options and make sure clients thoroughly understand them. From application through funding, New American Funding makes the loan process simple and convenient. For more information, please visit http://www.newamericandirect.com/.

Media Contact:
Rick Arvielo
President of New American Funding
1-800-426-5626
http://www.newamericandirect.com/

Rick Arvielo, the President of New American Funding, says many homeowners are finding themselves trapped in their loans.

Irvine, CA (PRWEB) May 27, 2008 -- The President of New American Funding, Rick Arvielo, says there is a 'Perfect Storm' brewing when it comes to borrowers qualifying for a new home loan, but unfortunately, this storm is blowing people right out of their homes. He says to truly appreciate where the average mortgage holder is going, it’s important to understand where they have been.

 

 

There simply is no new loan for these people

FHASecure and the proposed FHAModernization will help, but unless someone comes up with a solution to declining values and the Debt to Income dilemma, it will fall well short of heading off this pending doom. We are already talking to thousands of borrowers that are desperate and disqualified due to these issues.

According to Arvielo, qualifying for a loan one year ago couldn’t have been easier. Stated/Stated 100% financing for Subprime borrowers meant buyers didn’t have to qualify from an income or asset perspective and they could borrow 100% of the value of their loan. Investors were saved because homes were worth more six months later. Borrowers in trouble could bail themselves out with a new loan. Now, declining values coupled with yesterday’s loose lending guidelines and high Loan to Value’s have borrowers stranded without a new loan option as their loans race towards unmanageable interest rate resets. "There simply is no new loan for these people," says Arvielo.

Arvielo goes on to state, "The only solution is for someone to spearhead an effort to organize the current note holders of these loans and create a streamlined work-out opportunity for lenders to work on the borrowers behalf to qualify them in a ‘what if’ scenario. Considering some debt forgiveness or providing seconds to accommodate the shortfall would circumvent the ultimate outcome of taking the loans back. I am sure these current note holders would gladly consider this option. There is plenty of pent up capacity within the lending community to conduct the qualifying diligence."

Arvielo observes, when the borrower’s loan resets and they stop making payments, the scenario is grim for everyone. "The borrower’s credit and dream of homeownership is ruined. The foreclosed property becomes a blight on the neighborhood furthering the declination of value which casts other borrowers into this same dilemma and the note holders fare worst of all. Typically, they have to evict and foreclose, then rehab and REO, paying full commission on a reduced fire sale price. The 'All-In' cost can easily climb to 50 or 60% of the note. And, with an unprecedented volume of foreclosures, the lenders ability to assimilate these houses serves to push out the cycle, leading to mounting losses for them and prolonged degradation of the neighborhoods."

Arvielo says FHA is being touted as a bailout option. "FHASecure and the proposed FHAModernization will help, but unless someone comes up with a solution to declining values and the Debt to Income dilemma, it will fall well short of heading off this pending doom. We are already talking to thousands of borrowers that are desperate and disqualified due to these issues."

To further the pain, Arvielo observes, major investors are now imposing their own Fico overlays to FHA. "FHA has long maintained that Fico isn’t used to determining eligibility. Unfortunately, major large investors, upon which the industry relies to sell their loans, are now imposing their own restriction to things like Fico scores, which serves to further the entrapment. Borrowers that qualify but also have lower Fico scores are out of luck and out of options. And, in many cases forced out of their homes," says Arvielo.

"At New American, we are doing what we can to qualify borrowers interested in FHA financing. And, for borrowers trapped, we are working to negotiate with their current investors to alter their existing notes to free the borrower. We have had success doing so with several loan servicing companies. Our hope is that the industry can get together and agree on a protocol to work this out or increasing foreclosures will certainly be the result."

About New American Funding
New American Funding is committed to providing top quality service. The company offers a wide range of loan programs that are competitively priced. Using the latest technology, the company has made the borrowing process simple and convenient. New American Funding offers competitive rates and eliminates fees associated with a loan arranged through a broker. The company’s loan consultants listen to clients’ needs and make sure they understand completely, then discuss the options and make sure clients thoroughly understand them. From application through funding, New American Funding makes the loan process simple and convenient. For more information, please visit http://www.newamericandirect.com/.

Media Contact:
Rick Arvielo
President of New American Funding
1-800-426-5626
http://www.newamericandirect.com/