About the Author
Moe Bedard is a leading expert and trusted authority in regards to loan workouts and loan modifications. Moe is the founder and President of Loan Safe Solutions, LoanSafe.org and the main contributor to LoanWorkout.org. He has blogged on this subject more than any other person on earth and has personally been involved in over 300 loan workouts and mortgage audits.
Secretary Paulson Prepared Remarks in Orlando, Florida
December 17, 2007 HP-740
Orlando, Fla. - Good afternoon. Thank you, Congressman Feeney and thanks to all of you for joining me to discuss the current housing market.
After years of unsustainable home price appreciation and an abundant supply of easy credit, the U.S. housing market is experiencing an inevitable downturn. Here in Orlando, house prices increased by an average of over 15 percent a year from 2001 to mid-2006. Now, that trend has reversed and house prices declined 7 percent in the last year. Your city has been particularly hard-hit by foreclosures.
Although the housing market downturn is a significant challenge, homeownership remains a vital and positive aspect of American life — 68 percent of American households own their own home and 93 percent of Americans pay their mortgages every month, right on time.
We do expect that the housing market turbulence will take some time to work through, and that there will be some penalty on our short-term economic growth. Fortunately, the economic picture in Orlando is relatively strong: you have a healthy job market, with an unemployment rate over one percentage point below the national average.
Overall, the U.S. economy will continue to grow and is fundamentally sound. Core inflation is contained, continued job gains are providing a good foundation for household spending, corporate balance sheets remain healthy overall, and strong growth abroad is supporting U.S. exports. Our economy is operating against the backdrop of a strong global economy.
We want, when possible, to minimize the housing market downturn’s impact on the national economy, Florida’s economy and cities like Orlando. A spike in home foreclosures can pose costs for whole neighborhoods, causing property values to decline and crime to increase. This can undermine the financial stability of neighboring families and communities.
Foreclosure isn’t only expensive for homeowners. Investors – the owners of the mortgage – also get hit with steep losses. Investors would rather find a solution other than foreclosure, if there is one.
In any normal business situation where both sides see that they are going to suffer losses, they would get together and strike a deal to minimize those losses. But this situation isn’t normal; the company that made your mortgage may no longer hold it. Instead, mortgage investors are spread all over the world, making it very difficult for them to reach an individual decision on each troubled mortgage.
Until recently, our system has been able to shoulder the burden of this complexity because the volume of struggling borrowers was manageable in a period when home prices were generally increasing. But today, there are a rising number of subprime borrowers who will face a problem when their mortgage interest rate resets and their monthly payments increase. We anticipate that 1.8 million owner-occupied subprime mortgage resets will occur in 2008 and 2009. This rising volume makes it impossible for the investors who own the mortgages to deal with them in the usual way.
The government acted to prevent a market failure and to try to avoid unnecessary harm that would result from a cumbersome, difficult decision-making process due to a coming wave of struggling subprime borrowers. We developed a solution that involves no government funding or subsidies for industry or homeowners.
Our solution centers on bringing mortgage market participants together in the HOPE NOW alliance. The alliance is a coalition of mortgage servicers - the people who collect your payments - counselors and investors that are working to avoid preventable foreclosures.
As I see it, subprime borrowers fall into three broad categories. There are those who can afford their adjusted interest rate; these homeowners need no assistance. There are homeowners who haven’t even been making payments at the loan’s starter rate and may not have the financial wherewithal to sustain home ownership; some of these homeowners will become renters again.
A third category is homeowners with steady incomes and relatively clean payment histories who cannot afford the higher adjusted rate. These are the homeowners we need to see fast-tracked into a modification or refinancing.
Through the HOPE NOW alliance we are focusing on this third group, determining who they are and what steps may appropriately assist them. With HOPE NOW, we announced a three point plan to aggressively help as many able homeowners as possible keep their homes.
First, we are increasing efforts to reach able homeowners who are struggling with their mortgages. We learned that 50 percent of foreclosures occur without borrowers ever asking for help. Many borrowers in trouble are afraid to speak to their lenders. But we know that the sooner a struggling borrower reaches out to address the problem, the more likely it’s possible that it can be resolved. Nothing is worse than doing nothing.
HOPE NOW is sending outreach letters to borrowers likely to be facing trouble, and has expanded a toll-free number where concerned homeowners can talk to mortgage counselors about their financial circumstances.
Second, we are working to increase the availability of affordable mortgage solutions for these borrowers. The industry is developing modifications and other mortgage products that may allow more people to stay in their homes. HUD has implemented FHASecure, which is already refinancing more homeowners into FHA mortgages. I am very hopeful that Congress will pass a final version of an FHA modernization bill, so more borrowers will have the option of an affordable FHA mortgage.
Third, we have led the industry to develop a systematic means of efficiently moving able homeowners into sustainable mortgages. The industry came together and developed straight-forward criteria to allow them to quickly identify borrowers who can’t afford their mortgage reset, but have the financial wherewithal to continue to own their home. For the mortgages in this group, both the borrower and the investor are better off if foreclosure is avoided. The industry announced two weeks ago that they will now be able to fast-track these borrowers into mortgage modifications — which will result in a 5-year interest rate freeze for some mortgage holders.
This effort is not an across-the-board mortgage payment freeze. There are many subprime borrowers who will be able to afford their higher mortgage payments, so they don’t need help. Others will not be eligible for fast-tracking, but will go through a longer process to demonstrate that they can’t afford the mortgage reset. And, of course, some may not be able to afford any reasonable mortgage modification.
The fast-tracking of a significant portion of these subprime borrowers into a refinance or a modification frees up resources so that lenders can work with other borrowers. We are working to prevent a market failure by avoiding foreclosures that otherwise would occur just because someone wasn’t reached in time or the system could not respond quickly enough to produce an outcome in the best interest of the homeowners and the investors who own the mortgages.
And let me say to all of you here today – that if you, a friend or family member is worried about losing their home, please call the HOPE NOW hotline or your mortgage servicer immediately.
Our plan won’t prevent every foreclosure, and modification will be available only when it’s a financially feasible and necessary solution. The industry has committed to reporting results of this effort, and we will measure our success by number of foreclosures prevented, not the number of mortgages modified.
This plan is neither a silver bullet, nor is it perfect, but it is the best way to deal with the unprecedented volumes that threatened to overwhelm the normal functioning of this market.
We can, and will, monitor the situation closely and do our best to address issues as they arise.
Popularity: 7% [?]
Did they change the terms of your loan to an arm? This is too risky 
How about also arresting this Countrywide employee, Cheaters Among Us, Sue Barry, http://reno.broowaha.com/article.php?id=3415.Sue Barry has been a loan officer and ...
Dec 18th, 2007 at 6:11 pm
I found this speech interesting as well. Much to do has been made about the CAUSE of the subprime crisis. Governor Randall S. Kroszner of the Board of Governors of the Federal Reserve System testified before the Committee on Financial Services, U.S. House of Representatives on December 6, 2007 and had much to say on the subject:
HERE ARE SOME OF THE HIGHLIGHTS:
“In recent years, the subprime market has grown dramatically, enabling more and more borrowers to obtain credit who traditionally would have been unable to access it.
“The growth of this market is well recognized. Also well recognized are the problems that have arisen with these changes. The Board believes that responsible subprime lending has an important role to play in expanding credit to traditionally underserved borrowers. IT ALSO RECOGNIZED, HOWEVER, THAT SOME OF THE LENDING UNDERTAKEN IN RECENT YEARS WAS NEITHER RESPONSIBLE OR PRUDENT.
“. . . . some borrowers whose mortgage balances exceed their house values may be tempted to walk away from their loans. Borrowers who purchased properties solely for investment purposes may be more likely to default in this situation; INDEED, THE MORTGAGE BANKER’S ASSOCIATION HAS FOUND A DISPROPORTIANTE SHARE OF SERIOUS DELINQUENCIES ARE ASSOCIATED WITH NON-OWNER OCCURPIED PROPERTIES IN SOME OF THE STATES WITH THE HIGHEST INCREASES IN DELINQUENCIES.
“A recently released study by the Federal Reserve Bank of Boston attributes most of the recent rise in foreclosures in Massachusetts to declining house prices.2
“Over a quarter of homeowners report that their houses decreased in value over the past year, just a bit above the level last seen in the early 1990s.1 These price changes will affect homeowners’ abilities to resolve financial troubles by refinancing their mortgages or pulling equity out of their homes, and may lead to increased defaults.
“Borrowers who have lost their jobs, not surprisingly, may have difficulty meeting their mortgage payments. Thus, increases in unemployment in certain areas, such as states in the Midwest struggling with job cuts in the auto industry, are another major factor contributing to higher delinquency rates.
“The final major factor explaining the current increase in delinquency rates is the APPARENT DETERIORATION IN UNDERWRITING STANDARDS beginning in late 2005. An increasing number of subprime loans were made with layers of additional risk factors, such as a lack of full documentation or very high loan-to-value ratios. Much of this weakening in underwriting standards happened outside of institutions regulated by the federal banking agencies. In addition, prior to late 2005, high demand for housing and rising house prices allowed borrowers to recover from these risks through profitable home sales and refinancings, HIDING THE WEAKENED UNDERWRITING STANDARDS FROM VIEW.
“The slowdown in house prices, coupled with shifts in underwriting standards, are the most likely explanation for the pronounced rise we have seen in defaults occurring within a few months of origination, before most borrowers would have experienced significant changes in their payment obligations or in their financial situations.
“Looking forward, we expect the substantial payment increases often experienced at the first interest-rate reset to result in higher delinquencies.
“If the benefits of homeownership are to be realized, we believe that homeownership must be sustainable and that access to responsible lending be available for consumers. To achieve this, the Board believes that there must be appropriate consumer protection and responsible lending to traditionally underserved borrowers.
“. . . enforcement of consumer protection laws and regulations is critical
“As I will discuss further in a moment, we support these efforts (LOAN MODIFICATION) because foreclosure is generally the worst possible option for CONSUMERS, INVESTORS AND COMMUNITIES AND SHOULD BE AVOIDED WHENEVER OTHER VIABLE OPTIONS EXIST.
“Changes to existing terms, however, should not be made lightly, should be consistent with safe and sound lending practices, and should not be made when they are only delaying losses to investors and consumers. In short, we should pursue sustainable solutions.
“The Board recognizes, however, that improved disclosures are necessary BUT NOT SUFFICIENT to address the problems. In addition to these actions, therefore, the Federal Reserve will exercise its rulemaking authority under the Home Ownership and Equity Protection Act (HOEPA) to address UNFAIR OR DECEPTIVE mortgage lending practices. At the same time we propose the TILA rule changes on advertising and timing of disclosures, we will issue, for public comment, significant new rules that would apply to subprime loans offered by all mortgage lenders.
“we are looking closely at practices in the subprime mortgage market, such as prepayment penalties, failure to offer escrow accounts for taxes and insurance, stated-income and low-documentation lending, and the failure to give adequate consideration to a borrower’s ability to repay.
“The Mortgage Reform and Anti-Predatory Lending Act of 2007, which was passed by the House of Representatives last month, would extend additional oversight and consumer protections to the market.
“A second issue is the possible imposition of civil money penalties when the enforcement agencies find that there is a pattern or practice of violations. Penalties collected would be used to establish a trust fund for those consumers whose interests had been harmed but who lack a remedy in the event, for instance, that the responsible party has gone out of business.
Dec 18th, 2007 at 6:12 pm
Here’s the link: http://www.federalreserve.gov/newsevents/testimony/kroszner20071206a.htm
Dec 21st, 2007 at 2:27 pm
Great, the Oropezas must be loving this.
Dec 28th, 2007 at 11:58 am
What if the lending institution does not want to work with you and will not modify or refinace the loan with a fixed interest rate? We are facing a huge increase in our house note in January 2008. We will not be able to make those payments.
Help!
JS
Mar 31st, 2008 at 10:54 am
We’re in deep trouble right now in our house. Last year, I filed a Chapter 13 to save our house for being foreclosure, and to condolidated our bills, but it makes us horrified and depressed to pay all of our debt. Last 2 months ago, I received a notice mortgage company that we have to pay $4,500.00 every month due of we’re negative on escrow last year for about $11,000.00+, then this coming April, it will raise up our mortgage payment due of adjustable rate. Now we’re looking of a house to live, and let them foreclose our house due of this situation. For us, it’s very hard to find a house to live with a records of bad debt and bankcruptcy, besides we still owed property tax last year and this year. This problem is really affecting our health as well our kids. We can’t hardly sleep at night. We love our house but the economy at this time is very low. At my work, they cut down our pay. I need a big help from the President Bush and from the government how we can survive this crisis. I understand we’re not the only one, but is there any way we can do? Just call me Ema. Thank you!
Mar 31st, 2008 at 10:56 am
We’re in deep trouble right now in our house. Last year, I filed a Chapter 13 to save our house for being foreclosure, and to condolidated our bills, but it makes us horrified and depressed to pay all of our debt. Last 2 months ago, I received a notice mortgage company that we have to pay $4,500.00 every month due of we’re negative on escrow last year for about $11,000.00+, then this coming April, it will raise up our mortgage payment due of adjustable rate. Now we’re looking of a house to live, and let them foreclose our house due of this situation. For us, it’s very hard to find a house to live with a records of bad debt and bankcruptcy, besides we still owed property tax last year and this year. This problem is really affecting our health as well our kids. We can’t hardly sleep at night. We love our house but the economy at this time is very low. At my work, they cut down our pay. I need a big help from the President Bush and from the government how we can survive this crisis. I understand we’re not the only one, but is there any way we can do? Just call me Ema. Thank you!