Summary: Shaun Donovan, Secretary of the Department of Housing and Urban Development (HUD), spoke to a members of the National Association of Real Estate Editors yesterday afternoon in Washington, D.C. After he made his prepared remarks, Donovan took questions from the media on the topics of foreclosures, mortgage lender compensation, and whether he is satisfied with the response from mortgage lenders to the loan modification program.
Q&A with Shaun Donovan, Secretary of HUD
Shaun Donovan, Secretary of the Department of Housing and Urban Development (HUD), spoke to a members of the National Association of Real Estate Editors yesterday afternoon in Washington, D.C. A copy of his prepared remarks can be seen here. After he made his prepared remarks, Donovan took questions from the media.
Question: Why Make Preventing Foreclosures the Top Priority?
Q: There’s a lot of emphasis on preventing foreclosures. But if you let foreclosures happen now, perhaps you’re not delaying the inevitable. You’ll also make houses cheaper, which will make them more affordable for buyers. Why make preventing foreclosures the first priority? Donovan: First, the President has been clear that we can’t stop every foreclosure. Clearly, there are families in homes they can’t afford. We have to do more than just stop foreclosures. We have to encourage other opportunities, like a deed-in-lieu of foreclosures and short sales. These options are better for (the homeowners’) credit, and allow the house to be reoccupied sooner. Second, we got to a point where foreclosures were a self-reinforcing cycle. Fifty percent of home sales were based on foreclosures (in the latest numbers). The concentration of these bad loans because of subprime lending was geographically targeted. It was driving down neighboring property values.
If a house is burning down, it can burn down the whole neighborhood. You’ll see a 5 to 10 percent decrease in the values of the surrounding houses. Foreclosure is part of the problem.
On the $8,000 tax credit, the way we allowed the tax credit to be monetized allowed organizations who could provide down payment assistance – like state housing finance agencies, and others – to use the $8,000 tax credit to offset closing costs, premiums, and down payments above 3.5 percent. The change on seller-funded DP has had positive effect on HUD’s book of bus. Eliminating third-party seller-funded down payments will save taxpayers $2.5 billion. It went from a cost to a savings.
Question: Are You Satisfied by the Response of Lenders to the Loan Modification Program?
Q: Are you satisfied by the response of lenders to the loan modification program?
Fifty percent of loan modifications resulted in same or higher payments. When constructing the plan, we created a standardized approach where mortgage needed to be truly affordable. We chose a 31 percent debt-to-income ratio. We won’t provide benefits to servicers unless they meet this. In a few weeks, we did more loan modifications than any prior effort. The Hope for Homeowners program has refinanced 51 loans since October 2008.
We’ve already underwritten close to 200,000 loan modifications, with 40,000 offers last week. But I’m not satisfied. This is critical moment.
Question: Will You Have to Go to Congress for Funding of Reverse Mortgages?
Q: John Dougan, Commissioner of the OCC, made comments on reverse mortgages last week. Most of the reverse mortgages come from FHA’s HECM program. Dougan indicated he might have to go to Congress for funding.
DONOVAN: Dugan was focused on HECM reverse mortgages, which are not connected to our program. We requested $800 million for HECM reverse mortgages, but overall, even with $800 million, we expect FHA to make money for the taxpayer. We can raise premiums, change the loan-to-value ratio. We’ve also been conservative in calculating the home values.
We want to have a broad housing policy change, including rental housing valued the same as homeownership.
While there are increased resources for low-income Americans, particularly at this point of crisis, one of the little-recognized facts of foreclosure crisis is that 40 percent of those displaced are renters. We have a lot to do to protect families that are renters. One thing I learned in local government is that the Federal government often stands in the way of local or state governments.
Question: Are You Going to Require Mortgage Lenders Be Paid on Salary with No Bonus?
Q: Are you going to require mortgage lenders be paid on salary with no bonus?
DONOVAN: I don’t think there is a single prescribed way that we’ll lay out for every mortgage broker in the country for how they’re compensated. First, there has to be a duty to provide an affordable mortgage. The fact that you can originate a mortgage that borrowers couldn’t afford cannot be allowed to continue. We’ve laid out principals and broad requirements that will require that to happen. Also, but it’s the retained risk that I talked about on liability and (requiring mortgage lenders to retain) some percentage of ownership. There has to be the ability to continue to tie some responsibility with some ownership of risk and the careful grafting of liability so we don’t have this kind of system again.
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(View All Topics)FHA loans HUD financing first time home buyer foreclosure home buying home loan ilyce glink mortgage mortgage lenders mortgage loan personal finance advice real estate advice refinance mortgage tax credit
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Comments
larry says
Could you please find out and write about what a loan modification "offer" is?? To me, it rings of purposeful obfuscation. 1. is it an instance of a counselor (like with neighborworks) telling a consumer that they should qualify for a modified loan, then the servicer sits on it for weeks? Net: loan is not modified. 2. is it an instance of a servicer telling a consumer, yes, you should qualify, but we need to have it approved before it goes into effect?? Net: loan is not modified. 3. is it an instance of servicer telling a consumer, we will modify your loan according to the following terms, but before we will do that, you (borrower) need to make the new payments for a few months...? Net: loan not modified. 4. is it an instance of a servicer actually completing written documents to modify a loan -- that is, the consumer can make payments under the terms of the modified loan with confidence he or she isn't on the path to foreclosure ?? The only qualification is that until the borrower makes new payments for a few months, the servicer will not receive subsidy payments from Treasury. ??? Net: loan is modified. If it's 1, 2, or 3 -- it's an instance of HUD waving shiny objects to distract you from the fact that no action is occurring. If it's #4, then why call it an "offer"? It's a modified loan. the only qualification relates to the promise of subsidies to the servicer. Moreover, is there a reason why HUD/Treasury cannot tell us how many loan mods servicers have acutally made in recent months? And, of those. how many result in lower principal and interest payments from the borrower??
Ilyce says
@Larry Your questions are valid. I don't have all of the answers yet, but here is what I learned last week. First, loan modifications are made on a trial offer basis for 3 months. If the homeowner makes 3 on-time payments, the modification is firmed up and considered final. HUD says about 150,000 loans have been modified. Since it's just about 3 months (since March 4) since the new government rules regarding loan modifications went into effect, I have to assume that these numbers are only for the trial modifications, not final modifications. While that number sounds big, it isn't. Foreclosures are at a record high and HUD knows it needs to fix this problem in order to get the economic engine moving again. As for lower principal and interest payments, I assume that most of the loan modifications done since March 4, when the 31 percent of gross monthly income rules went into effect, have done both. Then again, maybe not. Please check back. We'll report more information as we get it. Thanks for your comment.