The Big Story Blog

The Big Story Blog: October 25, 2011 Archive

Crawling out of the mortgage mess

Posted at 6:20 AM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

foreclose.png
(MPR Photo/Annie Baxter)

We were supposed to be out of the mortgage mess by now. But five-plus years since real estate values began to decline, many homeowners in Minnesota and the nation are still struggling with the housing market's collapse.

One of the biggest continuing worries: More than one in five Minnesota houses with a mortgage are under water or close to it, meaning the debt owed on the house is greater than the house's current value.

With new promises from the Obama administration to do more, we're going to spend the day digging into the current state of the mortgage mess.

Any experience with mortgages or refinancing in Minnesota the past few years? Tell us. Post below or click here and share your story with us directly. It'll make us all smarter.

Here are some of the things we know this morning.

1.) Aid to 1 million more homeowners. President Obama officially unveils his plan to expand help for those who owe more on their mortgages than their homes are worth, a situation known as "negative equity."

Some media got an early look at the plan. The Washington Post writes:

Previously, you had to owe less than 125 percent of the value of your home to take advantage of the Home Affordable Refinance Program. Now HARP is opening up to borrowers who owe more than 125 percent of the value of their homes -- which describes many homeowners in Florida, Nevada and Arizona. What's more, Obama doesn't need Congress' permission to act.

So how much impact will this new program have on the broader economy? Not a whole lot, in all likelihood. The Federal Housing Finance Agency estimates that 800,000 to 1 million homeowners could take advantage of the new program.

2.) Stubborn numbers. While some aspects of the housing market have improved, the data on underwater mortgages has stayed frustratingly consistent during 2010 and 2011.

Here's a look at the September CoreLogic data at the Calculated Risk blog.
calcrisk.png

Here's the same chart by Calculated Risk from November 2009
tttQ3NegEquity3.jpg

Despite all the efforts to help struggling homeowners, the percentage of homes underwater or nearly underwater in Minnesota hasn't moved much in two years.

3.) Negative equity hurts. It's no secret the housing markets have been a mess in the recession and now during the "recovery." As we noted earlier this year, the parlor game is guessing when "normal" returns. The CoreLogic data tell us that many problems remain just below the surface.

Underwater mortgages are a problem for the whole market. It starts many on the road to foreclosure, which creates layers of new problems.

"Negative equity holds millions of borrowers captive in their homes, unable to move or sell their properties," Mark Fleming, chief economist with CoreLogic, said in a prepared statement last spring. "Until the high level of negative equity begins to recede, the housing and mortgage finance markets will remain very sluggish."

And until the housing and mortgage markets regain their footing, it won't be much of an economic recovery.

Tuesday 10/25/2011
Underwater mortgages: Any way to the surface?

Posted at 6:20 AM on October 25, 2011 by Paul Tosto
Filed under: Hed

Need-to-read stories on the mortgage mess

Posted at 8:36 AM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

We'll be reporting and looking for insight all day into mortgage and housing issues in Minnesota. Below is a look recent stories to get a handle on the scope of the problems. Also, be sure to check out Today's Question at MPR News Is home ownership an attractive option these days?

Distressed home sales push down price data The Star Tribune reports, "Prices on distressed sales in the Twin Cities have fallen three times more than prices on traditional deals in the past few years...underscoring the impact foreclosures and short sales have had on the local housing market.

Home prices up in half of major US cities Some good news this morning. The Associated Press reports the widely followed Case-Shiller Index shows home prices rose in half of major cities measured during August.

The Twin Cities market has two positive months of summer growth in housing prices but still has the worst one-year decline of any of the 20 metro areas followed with values down 8.5 percent from the same time in 2010.

Poverty jumps in the suburbs. Your suburban home value crashed in recession, you lost your job but the mortgage is still there. That's one reason poverty has surged in the suburbs. The New York Times reports on the jump in suburban poverty. In a graphic the paper shows Minneapolis among nine metro areas that shifted to majority suburban poor in the last decade.

nytimes.jpg

Minnesota Today editor Michael Olson has pulled together a feed of housing and real estate stories from around Minnesota:

Any other stories or links on the mortgage mess we should care about? Post them below or contact us directly.

What's the new help for underwater mortgages?

Posted at 9:35 AM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

The Obama administration is expanding efforts to help citizens who saw the value of their homes plummet during the recession and now owe more on their mortgages than their home is worth.

It's basically a widening of the federal Home Affordable Refinance Program. designed to help people refinance their mortgages to take advantage of historically low interest rates.

Calculated Risk, one of our favorite economy blogs, writes, "What this program does do is remove many of the stumbling blocks to refinancing Fannie and Freddie loans (eliminate reps and warrants, reduce or eliminate fees, automatic 2nd subordination, minimal qualifying).

"These were all deal killers for HARP, and hopefully these changes will smooth the refinance road."

Minnesota Housing Finance Agency Commissioner Mary Tingerthal told Morning Edition host Cathy Wurzer today the changes could help 100,000 Minnesotans.

Click on the play button below to hear the interview.

While the expanded federal approach could help many more people refinance, it's not for everyone.

Tingerthal says it only applies to people with mortgages owned by home loan giants Fannie Mae or Freddie Mac.

You also have to be up-to-date on your payments.

It's intended for the homeowner that's still employed and isn't really struggling financially "but can't take advantage of lower interest rates because the value of their home has fallen through no fault of their own," Tingerthal said.

Banker views on expanded aid for underwater mortgages

Posted at 11:07 AM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

We're getting a ton of stories and responses this morning to our query on coping with underwater mortgages and the housing market. We'll be sharing some of them on the blog this afternoon.

But we wanted to highlight a few insights from bankers in MPR's Public Insight Network. on the expanded rules to help make it easier for people under water on their mortgages to refinance.

Alex Stenback, a Twin Cities mortgage banker and writer of the Behind the Mortgage blog, writes:

On a first read of the announcement, the changes look to be aggressive, and will absolutely capture more borrowers who were frozen out of low-rate refinances. Itshould set off a refinance boomlet as pent-up demand rushes into the market to grab ultra-low rates.

But before anyone gets too giddy, there are a few things worth understanding about how and when this new program will work out.

Bottom line: While this is an encouraging set of changes, and will allow hundreds of thousands of additional refinances, implementation and participation by the private lenders, servicers, mortgage insurers and others remains THE key to the success, and availability, of HARP II.

Carlos Gutierrez is a mortgage broker in Plymouth who's shared his insights with us throughout the recession and "recovery." He talked about the frustrations he's dealt with trying to make the current programs work.

"I work with 10 lenders and they are not consistent in their acceptance of Fannie and Freddie loans," he said. "Some accept loans to 95% of the appraised value, other to 105% and I have only one that accepts loans to 125% of the appraised value.

"I have one customer with a loan... sold "under duress" to Freddie Mac. Freddie owns the loan now, but no lender will refinance it with the special programs."

So what should be done?

"Make all lenders accept loans to 125% ( or more)," Gutierrez said. "Somehow accept loans that now have mortgage insurance. Accept loans that Fannie and Freddie bought from bankrupt lenders ( it is not the borrower's fault).Allow borrowers to go from a fixed mortgage to an ARM (adjustable rate mortgage).

Hans Hansen, a banker from Spring Lake Park, shared frustration about his own circumstance.

I have called to attempt to refinance three times in the past two years. Each time the value of my home has declined to the point where I did not qualify. I also did not qualify due to the fact that I do not have a government guaranteed loan (Freddie Mac or Fannie Mae).

I have never been late on a payment, and that was also used by the bank as a reason I could not refinance - apparently, these programs are only for those in peril of foreclosure.

Mortgage restructuring should be allowed for anyone current on their mortgage. I would be able to save over $350 per month if I could refinance at current rates.


Your neighbors' stories about mortgage struggles

Posted at 2:10 PM on October 25, 2011 by Paul Tosto
Filed under: Jobs and unemployment

We talk a lot of data here. We dig numbers and what they tell us. But when it come to mortgage problems in Minnesota, statistics can't give you a measure of pain.

We've been talking for months to Minnesotans in the MPR News Public Insight Network about crumbling housing values, owing more on your house than it's worth and the struggle of some to navigate the help offered by banks or the feds.

We reached out again to the network to see if we could get some folks to share more stories and we got a big response. We're going to feature a couple of posts this afternoon based on the stories people have shared. The basic question we asked: Has your mortgage or home value caused you any problems in the past five years?

Click on the map icons below to read the stories of folks who answered yes to that question and also answered our second question: What, if anything, should the government do to help people who owe more on their mortgages than their property is worth?

View Mortgage problems in Minnesota in a full screen map

Here's a sampling of what we heard:

Home values, having plummeted, has delayed or eliminated retirement Unfortunately, we are among the other poor middle class slobs who bought a starter home, stayed in it and paid off our mortgage thus disqualifying us for the inevitable Gov. handout. Why, oh why didn't we keep up with the Jones, buy a McMansion and have other tax payers pay our corrupt banking system and Gov. for it. -- Fred Walk, Richfield
(Obama's new initiative) is too little too late. After being laid off in October 2009, we entered the HARP modification program and paid the 'trial period payment' for seven months. At that point we were told we don't qualify and were sent a bill for $4,500 (the total difference between the lower and regular payments) that was due in two weeks to get the loan current. I had gotten a full-time job a couple months prior, but we couldn't pay that amount.

We stopped paying any payments last October, and moved into a rental home this September. Bank of America will own our home in January 2012. The HARP program offered some hope of help, but ultimately we had the door slammed shut on us and lost our home because of it.

Instead of TARP bills to help the banks, roll out a large bill to forgive a portion of the principal on underwater mortgages. -- Andy Feig, Northfield

I have so far been able to make house payments but not for much longer, my kids want food, its either one or the other... not both. Kids don't seem to understand the fix we're in. They want cellphones, games, school trips, braces, prom dresses... things that put us underwater

Redo the whole mortgage system. -- Betty Vandenheuvel, Isanti

'I will never pay this off'

Posted at 3:26 PM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

'I will never pay this off."

"I no longer view my home as an investment, but a place to live."

"Our credit rating has been ruined."

You can't read through the heartfelt stories of Minnesotans and their mortgage struggles and not feel bad. These are folks, for the most part, who made what looked like a smart economic decision and were blindsided by plunging home values and a crumbling economy that put them underwater.

President Obama is expanding a federal program that help people refinance at a lower rate and, hopefully, stay solvent. It might not help.

We asked: Has your mortgage or home value caused you any problems in the past five years? What, if anything, should the government do to help people who owe more on their mortgages than their property is worth?

Stuck in a neighborhood full of foreclosures

We bought our home in the Frogtown neighborhood of Saint Paul in 2005 for $174,000. It currently has a market rate value of $122,000. Before buying our home, went through a City Living first-time homebuyers program through the City of Saint Paul and through this program were given a 30 year fixed loan with an interest rate of 5.25%.

As a part of the City Living program we are not allowed to re-sell our house until we had lived there for nine years. We recently inquired about refinancing and were told by our bank that we do not qualify as we are too far underwater. We did everything right and thus far we do not qualify for ANY loan forgiveness. In the mean time, we have seen three of the neighbors on our block go into home foreclosure and have to move, thus driving down the value of our home even more.

A month ago, just on the heels of three houses across the street from us going vacant, we had a break-in at our home. The one light at the end of the tunnel is that we live on Charles and Victoria, just two blocks away form what will be an LRT stop. We are hoping that light rail will help to stabilize our home value and bring back people to live in the vacant homes on our block. -- Emily Seru, St. Paul

"I will never pay this off"

kholm.JPG

I quit my job in October of 2008, thinking I'd find another in a snap. Of course, we know how the last quarter of 2008 unfolded. I soon realized I was not going to work again - and when I turned 62 and aged out of unemployment, I applied to modify my mortgage. It took three years - three tries - and when I finally succeeded, the principle was raised $8k, my interest rate dropped 2.5 points, and the terms were extended from 30 to 40 years.

Essentially, I will NEVER pay this off, and I know it. My mortgage payment, however, was lowered almost $500. The difference has allowed me to stay in my home. If, however, taxes and homeowner insurance rates continue to climb (mine have escalated 30 percent in 2009, 20 percent in 2010), $500 will be gone in a hurry. -- Kristine Holmgren, St. Paul

"Our reluctance to spend any money on home improvements has to be an enormous drag on the economy"

We purchased our home in the early summer of 2007, at the very peak of the market. Since then, we have basically been only been able to pay down the mortgage as fast as the home loses value. We haven't been able to build equity, and we're stuck paying mortgage insurance for as long as we can see.

We are also reluctant to spend money on any improvements to the house, as we feel we will not realize a gain. For similar reasons, we don't pay extra on our mortgage. Even though we're not technically underwater, and I suspect many people are in our situation, our reluctance to spend any money on home improvement has to be an enormous drag on the economy.

The most frustrating thing is, we didn't do anything wrong - we didn't borrow more than we could afford or take on a risky loan. We simply paid the market price for a modest house. If what we have lost in equity over the past four years were forgiven - only 10% of our home value - it would completely change how we view our home. It would go back to being a store of wealth, and an investment. We'd hire contractors and spend money on home improvements. -- Phil Larson, Duluth

"My home value has plummeted"

As a result of the recent financial crisis, my home value has plummeted almost $50,000, leaving it underwater.

I did attempt working with Bank of America to use the Making Homes Affordable program, but they kept me in a constant state of reviewal for over a year before telling me that because I am on Unemployment Insurance (despite it is being supplemented by freelance/seasonal work) that I was not earning an income and didn't qualify for any aid.

They attempted to keep me cycling through the program, but I finally got them to back me out of it. I'm apparently better off making my payments as I always have than attempting any sort of modification with BoA..-- Monte Gruhlke, Champlin


"Our credit rating has been ruined"

We have been trying to get a loan modification from our lender, Citimortgage for over two years. We bought our house in 1999, did some work on it and refinanced in 2002.

jjacques.JPG

In 2003, my husband was diagnosed with cancer. He underwent surgery and returned to work. Six months later his employer laid him off. He has finally returned to work, but it is a lower paying job with no health care benefits.

My job does provide health insurance, but there is no employer match, so we pay $1200 per month.

Our medical expenses are pretty high, but mortgage holders are not required to take these costs into account when they figure out if you qualify for a modification. We have tried four times over the past two years. I can't even begin to detail how insane the process is.

Finally this week we got two letters from Citi, one said, "Sorry you've been denied." The other said, "You have been approved for a trial 3 month loan modification of $1343." Trial loan modifications are the way banks stretch out the process and pretend to be helping the borrower, when in reality they are killing your credit rating. When you go on these trail modification plans, where you pay less, they still charge you late fees for the amount you are not paying, and accrue interest and fines each month. These are reported to credit agencies.

So even if we could possibly get out from under our house, our credit rating has been ruined. We can't sell the house, because we're about $30,000 short. The banks have no incentive to modify your loan because they already got paid. They get that money and they get to resell your house. -- Joy Jacques, Cannon Falls


"I no longer view my home as an investment, but a place to live."

I was laid off in 2009 and didn't get a job for almost 18 months. When I did, it was for much less than I made before. I drained my savings account paying my bills and my mortgage. I have not sought help from my bank or any government agency because I don't qualify.

I've chosen to continue paying my mortgage and stay in my home because I feel it's my responsibility to do so. To rent would be as expensive, if not more. I no longer view my home as an investment, but a place to live. -- Roxie Davis, Buffalo


"For people to be able to succeed, they must also be allowed to fail."

My home value dropped, causing the bank to call the line of credit I had. I had to quickly get another loan when the timing was the worst to do so.

Government should immediately cease all programs designed to prop up debtors with public money. All the efforts to put band aids on this problem will only cause problems with the free market, which has a method to work with failure. For people to be able to succeed, they must also be allowed to fail. -- Brad Hartmann, Osseo

(Thanks to my MPR News colleague Molly Bloom for pulling together these responses.)

What should government do to help underwater homeowners?

Posted at 3:55 PM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

Earlier today we highlighted the stories of Minnesotans who've struggled with mortgage problems from owing more on the mortgage than what their house is worth to trying to navigate the increasingly complex refinancing system.

But even with as bad as things have been, the majority of Minnesotans have been able to stay current on their mortgages and still hold a home value greater than the debt owed.

If you haven't been touched by the mortgage crisis, what do you think government should do to help those who have? Click on the map icons below to hear from those Minnesotans. Then add your voice.

View Minnesotans unhurt by mortgage problems in a full screen map

3 things to know about crawling from the mortgage mess

Posted at 4:07 PM on October 25, 2011 by Paul Tosto
Filed under: Housing and mortgages

foreclose.png
(MPR Photo/Annie Baxter)

1.) Help for 100,000 Minnesotan homeowners, maybe. It can't hurt. President Obama's plan to expand eligibility for a federal program that helps people get refinancing on homes where the debt owed is bigger than the home value will bring relief to some who need it. A Minnesota housing official said it could aid another 100,000 Minnesotans.

But as mortgage banker Alex Stenback pointed out, "While this is an encouraging set of changes...implementation and participation by the private lenders, servicers, mortgage insurers and others remains THE key to the success, and availability" of new refinancing options.

2.) The mortgage and housing crisis is changing us. Coincidentally, the New York Times today reported on the jump in suburban poverty. In a graphic, the paper showed Minneapolis among nine metro areas that shifted to majority suburban poor in the last decade.

nytimes.jpg

The mortgage mess isn't completely to blame. But it's no stretch to connect the dots:
Your suburban home value crashed in recession, you lost your job but the mortgage is still there.

This economy has shattered 60 years of belief that a house in the suburbs was a fool-proof investment, an asset that would always grow in value and build equity that could be tapped for family vacations, cars, college tuition and other luxuries.

The economy and housing markets will recover. But it may come too late for people who were depending on their home values for so many things.

For more perspective on this, check out the responses we got to the MPR News question of the day: Is home ownership an attractive option these days?

3.) "We didn't do anything wrong." Minnesotans in the MPR News Public Insight Network shared a ton of heartfelt stories with us about dealing with mortgage problems. These are folks, for the most part, who made what looked like a smart economic decision and were blindsided by plunging home values and a crumbling economy that put them ultimately damaged them -- and their neighborhoods.

Recovery comes eventually. But it's anyone's best guess when.

Phil Larson of Duluth spoke for many Minnesotans in the current straits.

"The most frustrating thing is, we didn't do anything wrong," he wrote us. "We didn't borrow more than we could afford or take on a risky loan. We simply paid the market price for a modest house."

Learn anything today about underwater mortgages and plans to help that we missed? Post something below or contact us directly.

About Paul Tosto

Paul Tosto

Paul Tosto writes the Big Story Blog for MPR News. He joined the newsroom in 2008 after more than 20 years reporting on education, politics and the economy for news wires and newspapers across the country.

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