Yes, there will be some effects to you and me if we are applying for credit like buying a car or house. Maybe not much since most banks are NOT giving out loans.  This downgrade is a reflection of our country not being able to live within its means.  We actually borrow money to pay back money we have borrowed.   Do you know what that eventually means?  The house of cards will soon fall.

The long version or complete version of the movie House of Cards video.

On August 1, the Federal Housing Administration plans to extend the amount of time homeowners will be permitted to miss mortgage payments from four months or less to a full year. At that point, the full foreclosure process would begin, if necessary.

The foreclosure program began in 2009 to assist those at risk of foreclosure by reducing their monthly payments. Borrowers were permitted to make lower payments on a trial basis, but thus far, the program has been unable to convert them into permanent loan modifications. In the beginning, nearly two million homeowners were receiving the trial modifications, but since then, a large majority of the homeowners have dropped out of the program entirely.

Still the federal government is working to revise the plan, as President Obama and his administration have come to terms with the notion that the housing crisis has continued to negatively impact the economy. Obama recently admitted that the housing market “has been most stubborn to us trying to solve the problem.” He also confessed that the program instituted to help struggling families keep their homes was “not enough” and that the government needed to go “back to the drawing board.

The newly modified Federal Housing Administration Program will back up the jobless homeowners to answer their banks. Under this program, FHA requires banks to wait for 12 months before foreclosing properties. According to Shaun Donovan, Secretary of Housing and Urban Development, the FHA modification is called a “forbearance period.” This change is necessary to assist Americans in coping with the possibility of long-term unemployment.

Not all loans are FHA government insured, so check to see if yours is before requesting this.  Either look at your original loan documents you signed or call the bank’s customer service department.  The only problem with the second choice is you will be automatically transferred to the collections department if your loan is already in default.  If you are at this point, then I recommend you ask for the supervisor before giving out your account number since you are looking only to find out what type of loan you have and to find out if your loan qualifies for a forbearance.

Now if your loan is not of this type, then the bank you are dealing with may actually give you a modification. They were originally stingy about doing this a few years ago, but considering where we are now in this economy, they seem to be more generous about doing modifications.  Not just loan payment reductions but actual loan principal balance reductions.  I previously blogged about some banks are giving out automatic modifications.

Even if you don’t think you qualify for a modification, but do have a source of income, call the lender and find out what your options are.  With the way the courts are backed up, the foreclosure process is taking up to 2 years anyways where people are not paying rent and not being evicted immediately.

I don’t know when this takes effect, but it has been announced. Will this help most people? The answer is no. Will it help some people? The answer is yes.  The situation will depend on whether that unemployed borrower can obtain employment.  That is the common problem with most of the borrowers in default or in arrears.

Without a job there is little or no income to make the house payment.  Unemployment and food stamps only take you so far.  That is why the forbearance will not work for most people because it doesn’t solve the underlying problem.

Just like the previous programs put in place like HAMP or TARP by the white house, long term it will fail.  The best this program can do is stall the process.  Considering that right now it is taking up to 2 years for lenders to foreclose, this forbearance really isn’t helping anyone.  A possible unintended consequence might be clearing the pipelines in court for the queue of houses that need to be foreclosed on now.

LA Times:

The new requirement for so-called forbearance comes on top of several initiatives the White House has launched since 2009 to try to stem the tide of foreclosures, which continue to drive down real estate prices.

President Obama admitted this week that those efforts — such as the much-maligned Home Affordable Modification Program, which offered incentives to banks to lower monthly payments for troubled borrowers — haven’t tamed the problem.

“We’ve had to revamp our housing program several times to try to help people stay in their homes and try to start lifting home values up,” Obama said. “That’s probably been the area that’s been most stubborn to us trying to solve the problem.”

Housing advocates and some lawmakers have pushed the administration to increase the amount of time unemployed homeowners would be allowed to skip payments. The White House agreed partly because 60% of people without jobs have been unemployed for more than three months, Donovan said.

Separately, the Federal Reserve told Congress on Thursday that it wanted uniform standards for how mortgage servicers handle modifications, foreclosures and other issues. The Fed, along with HUD and other federal regulators, is working on such standards.

In addition, regulators are working with attorneys general from all 50 states on a broad settlement with major banks of investigations into botched foreclosure paperwork.

The administration’s latest plan, unveiled Thursday, affects a small group of homeowners — about 3,500 borrowers a month who default on loans backed by the Federal Housing Administration and a total of about 1 million people eligible for HAMP aid.

But Donovan said he hoped that the new requirements would be adopted voluntarily throughout the broader mortgage industry.

Under the plan, mortgage servicers for FHA-insured loans will be required to allow qualified homeowners to miss up to 12 months of payments as unemployed borrowers look for new jobs.

The administration also is making it easier for unemployed homeowners to qualify for the assistance, removing what it called some “upfront hurdles” involving screening for employment and payment history.

In addition, mortgage servicers participating in the administration’s mortgage modification program will be required “whenever possible” to extend the minimum period that eligible unemployed homeowners can miss payments to 12 months.

The missed payments would be added to the mortgage balance and made up by the homeowner, though in some cases those debts could be forgiven by the lender, Donovan said.

But like the other government attempts to aid homeowners, the new effort has limitations. Only about 10% of some 50 million mortgage loans outstanding nationwide are backed by the FHA. And less than a quarter of the approximately 4.6 million homeowners who are behind on their mortgages qualify for the HAMP program.

Bert Ely, an independent banking consultant, said allowing unemployed homeowners to skip payments sounds good in theory but has problems that would make it difficult for the industry to adopt a 12-month standard.

“Unfortunately, a lot of times forbearance just postpones the problem,” he said. “So you extend from four months to 12 months and things don’t work out. Who eats the loss?”

But the People Improving Communities Through Organizing National Network, a coalition of faith-based community groups, said the administration’s announcement Thursday was “yet another step toward breaking the link in America between losing your job and losing your home.”

Rep. Barney Frank (D-Mass.) also cheered the move, saying many of his colleagues believed that the previous minimum “was not nearly enough time.”

“I think the 12-month extension will help very much,” he said.

Last year, the special inspector general for the Troubled Asset Relief Program, which funded the administration’s mortgage modification initiative, urged that the minimum period for skipped payments be increased.

Wells Fargo Home Mortgage, one of the nation’s largest mortgage servicers, said it already offered homeowners the ability to skip up to 12 months of payments “in some cases.” From January 2009 to last April, the company has offered assistance to 173,000 customers who have lost their jobs, spokesman Tom Goyda said.

Because the administration hasn’t released details of the changes in its programs, Wells Fargo would not comment specifically on them, he said.

Due to the large swelling numbers, the average time of the foreclosure process is taking up to 2 years in some areas. Hopefully if you are in this process this is giving you some relief while you transition to another home to live in. The same article makes some crazy claims like:

In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.

Clearing the pipeline in New Jersey, which like New York handles foreclosures through the courts, would take 49 years. In Florida, Massachusetts and Illinois, it would take a decade.

In the 27 states where the courts play no role in foreclosures, the pace is much more brisk — three years in California, two years in Nevada and Colorado — but the dynamic is the same: the foreclosure system is bogged down by the volume of cases, borrowers are fighting to keep their houses and many lenders seem to be in no hurry to add repossessed houses to their books.

If this were true, that means the foreclosure process would be longer than the actual loan term (average 30 years) and that some people in NY and NJ could live in their homes rent free for 62 and 49 years respectively. All due to the backup in the court systems.

Personally, I believe not only are there more foreclosures in pipeline but millions more on hold in pre-foreclosure because the banks simply can not afford to take all those houses in and report their true losses. They pretend it is for other reasons, but we know they are all about the bottom line. Otherwise, they would simply modify all the delinquent loans of everyone who can still afford to make a lower payment based on a principal reduction instead of taking the homes back.

A spokesman for Bank of America said, “Any suggestion that we have a strategy to delay foreclosures is baseless.” A Wells Fargo spokeswoman blamed changes in state laws governing foreclosure for any slowdown. A GMAC spokeswoman said it was following “regulatory and investor expectations.” JPMorgan Chase declined to comment. Servicers said some of the decline in foreclosures could be traced to an improved economy.

If you follow government reports, then you might think maybe the US economy has turned the corner.   But if you live in America, you know the reality is quite the opposite.  We have an unemployment force in the record millions that rival the numbers during the Great Depression.  So why would the number of foreclosures go down then?

That is a great question and there is a simple answer.  The banks have so many foreclosures that the courts are literally clogged up, and banks have decided to simply stall the foreclosure process since they will reduce the losses recognized on the books.

Oregon Live:

Experts attributed the declining foreclosure numbers in part to lingering problems banks are experiencing in properly documenting its foreclosures. Homeowners have gone to court by the thousands to fight foreclosure, many of them arguing that the banks don’t have the necessary valid documentation to repossess their homes.

The delays continue to push the 2 million U.S. homes already on banks’ books or in some stage of foreclosure further into limbo and put banks on track to repossess about 200,000 fewer homes this year than in 2010, the firm said. “The problem with that, even though it sounds better, is that all of those foreclosure auctions we should have seen this year roll into next year, and that means it’s going to take that much longer for the housing market to recover,” said Rick Sharga, a senior vice president at RealtyTrac. 

The pace of homes entering the foreclosure process and those ending up as bank-owned properties began slowing sharply last fall, when allegations surfaced that many banks relied on erroneous documents when they foreclosed on thousands of homes. Since then, banks, federal regulators and state attorneys general have been reviewing how foreclosures were carried out the past two years. That has prompted lenders to resubmit paperwork on foreclosures and, in states where courts play a role in the process, caused a logjam of foreclosure cases.

Lenders also have put off taking action against delinquent borrowers as U.S. home sales have slowed this year. 

In many cases, banks are only going forward with the foreclosure process as quickly as they can sell the properties they already have on the market, Sharga said.

I think Realty Trac summarizes it the best:

That’s because the biggest reason for the foreclosure slowdown, RealtyTrac says, is not an improving economy but rather delays by banks. Ever since last fall’s “robo-signing” scandal prompted judges to take a closer look at foreclosure paperwork, banks have been slowing the process down.

The story is a Florida couple was wrongly foreclosed on even thought they paid for their house in cash.  Bank of America has been known to make many foreclosure mistakes and forced this couple to defend themselves in court with an attorney.  BofA lost the case and were told to pay attorney fees which they ignored.  Under the law, the couple’s attorney got deputies at the branch to start confiscating bank goods to pay towards the funds owed.  The bank only owed the $2500, but I am surprised the attorney didn’t go after BofA for emotional damage.

CBS News:

Collier County, Florida — Have you heard the one about a homeowner foreclosing on a bank?

Well, it has happened in Florida and involves a North Carolina based bank.

Instead of Bank of America foreclosing on some Florida homeowner, the homeowners had sheriff’s deputies foreclose on the bank.

It started five months ago when Bank of America filed foreclosure papers on the home of a couple, who didn’t owe a dime on their home.

The couple said they paid cash for the house.

The case went to court and the homeowners were able to prove they didn’t owe Bank of America anything on the house. In fact, it was proven that the couple never even had a mortgage bill to pay.

A Collier County Judge agreed and after the hearing, Bank of America was ordered, by the court to pay the legal fees of the homeowners’, Maurenn Nyergers and her husband.

The Judge said the bank wrongfully tried to foreclose on the Nyergers’ house.

So, how did it end with bank being foreclosed on? After more than 5 months of the judge’s ruling, the bank still hadn’t paid the legal fees, and the homeowner’s attorney did exactly what the bank tried to do to the homeowners. He seized the bank’s assets.

“They’ve ignored our calls, ignored our letters, legally this is the next step to get my clients compensated, ” attorney Todd Allen told CBS.

Sheriff’s deputies, movers, and the Nyergers’ attorney went to the bank and foreclosed on it. The attorney gave instructions to to remove desks, computers, copiers, filing cabinets and any cash in the teller’s drawers.

After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees.

“As a foreclosure defense attorney this is sweet justice” says Allen.

Allen says this is something that he sees often in court, banks making errors because they didn’t investigate the foreclosure and it becomes a lengthy and expensive battle for the homeowner.