Loan adjustments arriving slower for Tahoe homeowners

Although some lenders nation-wide have been more willing to modify loans backed by government-owned Fannie Mae and Freddy Mac, some Lake Tahoe lenders have had difficulties getting loans modified.

In November, the Federal Housing Finance Agency announced an initiative to reduce the number of preventable foreclosures with a streamline loan modification program. The program targets high-risk borrowers who have missed three payments or more, own and live in the primary residence, and have not filed for bankruptcy, according to a November FHFA announcement.

The program aims to help troubled borrowers reach an affordable mortgage payment, defined as no more than 38 percent of the gross household monthly income.

This is a change from the past when banks rarely changed the terms of a home loan, said Bill Ferrall, Owner of the Tahoe Lending Group in Incline Village. If you were unable to make the monthly payments, you were foreclosed on.

Because of the high amount of second-home ownership, foreclosure problems are not as rampant in Tahoe as they are in Reno and Sacramento, said Ferrall. There are 29 bank-owned properties in Incline Village, he added.

Since banks only recoup about 70 cents on the dollar for a foreclosed property, it makes sense that they would rather have the borrower stay in their home and pay the mortgage then foreclose on the property, Ferrall said.

“It can be a good thing for a homeowner committed to staying in their home,” said Ferrall.

Loans in Lake Tahoe. Despite the streamlining initiative, Dave Giocomini, President of Truckee’s Sierra Mountain Mortgage Inc., said he has had difficulties getting loans modified.

Out of the 10 loans Sierra Mountain Mortgage Inc. has submitted to be readjusted, not one has been approved by a lender.

The Tahoe Lending Group has seen similar problems with the success rate of loan readjustments, according to Ferrall.

Of the 20 cases the group has dealt with, six have turned out successful while the rest are still waiting for the lender’s judgment.

This may be because meeting the standards to qualify for a loan modification are difficult, Giocomini said.

“The problem is unless you have been delinquent for more than 30 days they won’t talk to you,” he said.

Giocomini also added that some loan modifications have been denied because the debt-to-income ratio is too high.

According to Ferrall, banks are likely to approve a loan modification if they see the original loan is more than the house is worth. Personal hardships like a death in the family or divorce can also influence bank decisions, he said.

Many loan modifications end in default. Some lending officers said that loan modifications could be more trouble then they’re worth.

“They don’t work well. I guess with some folks the relief is a good thing, but it just postpones the inevitable,” said Bill Herr, Plumas Bank’s Chief Lending Officer.

However, Herr also said loan modification is a good option for homeowners committed to staying in their homes instead of defaulting, renting an apartment and waiting to build credit to try again.

According to a report released earlier this month by the Office of the Comptroller of the Currency — the federal agency that charters, regulates and supervises all national banks — more than half of the “rescued” mortgages nationwide have defaulted, or as many are calling it “re-defaulted.”

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due,” Comptroller John Dugan said in a statement. “After six months, the rate was nearly 53 percent, and after eight months, 58 percent.”

The Mortgage Bankers Association also filed a report earlier this month that shows a record 1-in-10 American homeowners with a mortgage were at least a month behind on their payments or in foreclosure at the end of September. The report reflects conditions prior to October’s stock market plunge.

Rumors of lower loans may lower demand. Some local lenders think that some homeowners may be waiting for interest rates for home mortgage to drop lower. On Wednesday Freddie Mac reported that the average rates on 30-year fixed-rate mortgages dropped to 5.19 percent, down from 5.47 percent last week, according to the Associated Press. Lowering interest rates like these may keep buyers on the sidelines in the real estate market, Ferrall said. If the current rate for a 30-year home mortgage is around 5.5 percent, who wouldn’t want to wait for 4.5 percent, Ferrall said.

“They are putting a roadblock to recovery in place,” Ferrall said.But as Herr sees it, lowering the rates, in theory, should stimulate the bottoming out of the market.

“The idea is to have more people qualifying for loans,” he said. “The lower you drive the interest rates, the more people can afford to buy a home.”

And when people see the bottom is coming, Herr said the “psychology of the market” will change.

“What’s holding people back is they don’t think prices are at the bottom,” he said. “When Good Morning America and the evening news says we have hit the bottom, then the public will start to believe it and will start buying homes.”

Article Published in the North Tahoe Bonanza 12/19/08
By Nick Cruit-Bonanza Staff Writer

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