Mortgage lending, refinancing starting to rise

Local bankers and real-estate agents say the uptick in the housing market has been modest, attributing increases to the first-time homebuyer tax credit being offered through November, the depressing effect foreclosures have had on prices and refinancing of existing loans into lower rates.

Nationally, home sales are growing at their fastest rate in more than eight years after stalling out in the middle of 2008. New-home sales for June were up 11 percent from May.

"It's not coming back as fast as we would like, but it's been a modest increase," Zanesville-area Realtor Jay Butler said. "The phone ringing is better than not having it ringing."

Buyers are starting to take advantage of a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers. Home sales must be completed before Dec. 1 for buyers to take advantage.

Jeff McLendon, of McLendon Mortgage in Zanesville, said the availability of the tax credit has been a good thing and about 60 percent of the loans his firm has done have been eligible for the credit.

"When that came out, our phones were ringing off the hook. The first thing people were asking is, 'Do I qualify for this?'" McLendon said. "Then they want to know if they can close before the tax credit is up. It's the busiest we've been in four years."

Carl Raines, vice president and local branch manager with Peoples Bank in Zanesville, said one-year comparisons between spring 2008 and the same time period this year show that mortgage financing has doubled in the area.

But a lot of the growth he sees is in residential home refinances, he said.

"We're up in the region, in southeast Ohio. We're losing adjustable rates to people refinancing into fixed rates," Raines said. "But we exceeded our loan goals in February, March, April and May."

He said construction home loans are picking up, which has increased the sales of construction materials.

Raines attributes some of that to the tax credit for first-time homebuyers.

The rate of home repossessions through foreclosures remains high in Muskingum and surrounding counties, but that's also had a positive effect on housing prices for the consumer.

"It's lowered prices significantly, I would say 15 to 20 percent," Butler said. "We have people who are ready and qualified to buy a home, but banks were tight for a good stretch there. The first-time money has helped some. But you've got to have a credit score of 620 or better for a lender to look at you. It comes down to lending ability."

Tom Lyall, president and CEO of Century National Bank in Zanesville, said Century had record lending volume through the first half of 2009, mainly via refinancing.

"But the last couple of months, we've seen a pretty nice increase in home purchases," Lyall said. "Overall volume has been terrific, and the tax credit has taken the strain off of budgets for some people."

But some would like to see more help.

"If the purchaser could get their hands on that credit at the time of sale, it would be so much better," McLendon said. "That money could be used for the down payment or to fix up the home, whatever. If you get the credit after you buy the home, how did that help you buy your home?"

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Banks slow to modify mortgages, Treasury reports

Despite the continuing foreclosure crisis, banks have made little progress toward modifying the loans of stressed-out homeowners, drawing fire from advocacy groups who say both financial institutions and the federal government should do more.

In its first report on the Obama administration's efforts to prod lenders to help as many as 4 million homeowners by reducing their mortgage payments, the Treasury Department said just 9% of eligible loans had been changed.

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Loans were modified even less often by the two mega-banks that dominate the mortgage market: Wells Fargo & Co. reduced payments for only 6% of its eligible home loans under the government's program, and Bank of America Corp. modified just 4%.

The administration, under tremendous pressure to help homeowners avoid foreclosure, has said that despite the low percentage of loans that had been modified under its plan, the program "has made rapid progress in a few short months" and was on track to help 3 million to 4 million eligible borrowers.

But critics say the effort is way behind.

"Congress and the administration need to end their 'pretty please' approach to the banks and instead finally force lenders to work to keep people in their homes," said Kevin Stein, associate director of the California Reinvestment Coalition.

Some of the major lenders whose efforts were documented in the report released Tuesday had better success, such as GMAC and JPMorgan Chase & Co., which racked up 20% modification rates. Others, including Wells Fargo and BofA, said the report didn't reflect their efforts to modify loans outside Obama's Making Home Affordable program. They also said the workings of the 5-month-old program were not clarified until last month, forcing lenders to wait until just a couple of weeks ago to adopt it.

"We did 240,000 loan modifications in the first seven months of the year, of which just over 20,000 are [Obama plan] mods," said Mike Heid, co-president of Wells Fargo Home Mortgage.

BofA modified 150,000 loans during the first half of the year without going through the Obama program, plus 28,000 using the government's plan, Barbara Desoer, president of Bank of America home loans, said in a statement.

The government has pledged to provide $75 billion in incentive payments to participating borrowers and mortgage companies.

Under the Obama plan, more than 400,000 modification offers have been extended and more than 230,000 trial modifications have begun, the Treasury Department reported.

But the number of homeowners in distress is huge. Nearly 2 million foreclosure filings were made during the first six months of this year, ranging from default notices to completed foreclosure sales, according to foreclosure data firm RealtyTrac. There were 3.2 million such filings in all of 2008 and 2.2 million in 2007.

Dozens of homeowners have contacted The Times in recent months, complaining about lenders' sluggishness or outright refusals to modify loans. Some homeowners were behind in their payments; others were keeping up by going through their savings, but facing a looming bankruptcy.

Domingo Delgadillo of Antioch, Calif., started out well able to afford the pay-option Wachovia bank loan on his 3,000-square-foot home. But when his real estate business collapsed in 2007, he started making only the minimum payments, causing his loan balance to balloon as the value of his house dropped. He's paying 60% of his gross earnings for the house now and has asked for a modification -- to no avail.

"When I called Wachovia in July to request a loan modification, I was told that they still had not implemented their program," he said. "I do not understand how it is possible."

Reached Tuesday afternoon, a spokeswoman for Wells Fargo Home Mortgage, which agreed to buy Wachovia last year as it teetered near collapse, said she couldn't comment on individual customers or access Delgadillo's records so late in the day. She said that in some cases, loans sold to other parties could be modified only if they were in "imminent default." Delgadillo said he had been told his loan was sold to Bank of New York.

The Obama plan is modeled on a program the FDIC developed to modify mortgages at failed IndyMac Federal Bank in Pasadena. Using incentive payments to lenders and borrowers who agree to loan modifications, it reduces mortgage interest rates and extends the duration of the loans to 40 years. The idea is to try to reduce first mortgage payments, taxes and insurance to 31% of a borrower's gross income.

Participants must fully document their earnings and assets, and the first three months of modification is a trial period. If borrowers make three straight payments on time, showing their willingness and ability to pay, the modification becomes permanent.

Critics say the plan needs to be toughened, calling anew for change in federal law to allow bankruptcy judges to order lenders to reduce the principal owed on home mortgages.

These so-called cramdowns had been supported by President Obama and top officials including Lawrence H. Summers, director of the White House's National Economic Council. But the idea has been repeatedly shot down in Congress, in part because the banking industry vehemently opposes it.

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has said he would push for cramdowns if lenders did not show they were modifying more mortgages.

But UC Berkeley economist Kenneth Rosen, who supports voluntary but not court-ordered efforts to lower principal amounts for homeowners, said the federal efforts to prevent foreclosure might show improvement down the line.

"These are early days," Rosen said. "The numbers could be quite different six months from now."


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