Truth in Foreclosure

Yesterday, I posted an article about Freddie Mac’s new workout plan for high risk loans and I promised my assessment of what it actually means to you.

So here goes…

First, a summary of what I gleaned from the article.

1. It’s only concerned with Alt-A or sub-prime borrowers…those at the highest risk of not only going into delinquency, but also of failing out of a loan mod.
2. It’s only a test program right now…5,000 borrowers will be selected by the participating servicers and will be contacted.  The borrowers will come from states with the highest number of qualifying delinquencies.
3. More counselors ’should’ mean faster, more individualized service.
4. Counselors will be equipped to deal with Alt-A (sub prime) loans and the problems they present.  They will also be used to dealing with homeowners in default on these loans.  This means they won’t try to shoehorn people into the ’standard’ workout package because they don’t know any different.  It also means that if they say you don’t qualify for any programs, you don’t.  Assuming, of course, they have a complete understanding of your situation and the numbers associated with it.
5. They don’t have any new programs to use…just the same Streamlined Loan Mods already being used by Fannie Mae, Freddie Mac, and the HOPE Now Alliance lenders.  This means you can get a loan mod yourself…Brent Lane and I did a teleclass on Streamline Loan Mods back in early January…listen in here for FREE.
6. This is a test program right now.  Freddie Mac is going to evaluate it through June and decide at that point whether to expand it, change it, or get rid of it.

I tried to find more information on the servicers involved in the program, but because it’s so new, I could only find info on the one servicer mentioned in the press release…Ocwen Financial.

Of course, there are good and bad stories out there about Ocwen.  But there can be no doubt that they’re one of the most progressive and aggressive services dealing with Alt-A loans today…that’s why Freddie Mac chose them.  In fact, the Bank Lawyer’s Blog had this to say about Ocwen.

Then there is Ocwen, which has already revised 16% of its 340,000 mortgages, in many cases cutting monthly payments 20% to 40%. Based in West Palm Beach, Fla., the company handles some of the worst loans Wall Street kicked up during the housing boom and isn’t about to win any popularity contests among consumers–in the past, it’s been the target of complaints about unresponsiveness and excessive fees. Nevertheless, good ideas can come from unlikely places, and as more borrowers–including a growing number with prime loans–fall behind on payments, there are lessons to be learned from the firm that has done more than almost anyone else to keep struggling homeowners in their houses.

The secret to Ocwen’s success is all in the computer modeling. When home prices began dropping below the amount of the loan balance in some areas of the country, Ocwen called in its programmers.

So the company reprogrammed its computer models, which determine how to extract the most value from each loan, to allow much more substantial changes–lowering a mortgage’s interest rate, docking its principal balance, converting an adjustable rate to a fixed one, stretching out the life of a loan. With many mortgages “upside down” (when the loan is larger than the home’s current value) and the economy sagging, changes often have to be drastic to make the math work, but Ocwen has largely found a way, devising an affordable payment plan 90% of the time.

From doing just a couple of hundred modifications a month in the first half of 2007, Ocwen was up to 4,000 a month by the beginning of 2008, with 77% involving a reduction of the interest rate and 20% including a permanent write-down of the principal balance. Is it working? Six months after receiving an Ocwen modification, 21% of homeowners have again fallen behind on their payments by 60 days or more. That compares with a 37% re-default rate nationally, according to data from federal regulators–a figure that also includes much more stable prime loans.

If you’d like more info, please check out the rest of the article on the Bank Lawyer’s Blog.

Your thoughts and comments are welcome as always!

Twitter This Post

Username: Password (this is not saved):

Related posts

• Freddie Mac Launches New Workout Plan for High-Risk Loans (0)
• Fast Track Workouts Available Now (0)
• Writer’s Block Keeping You from Writing a Hardship Letter? (0)
• Will Freddie Mac’s New Effort Help You? (1)
• What I Forgot to Say (0)