Association of Mortgage Investors Sees Need for More Robust Solution to Foreclosure Crisis

NEW YORK, April 15 /PRNewswire/ -- Micah Green of Patton Boggs LLC today released the following statement on behalf of the Association of Mortgage Investors in response to Treasury's release of the March Home Affordable Modification Program report:

"The March HAMP report is more bad news for homeowners and more evidence that the root causes of homeowner defaults have yet to be addressed.

Unfortunately, this news was predictable. Since the inception of the program, we have been concerned that the risk for redefault is extremely high since the majority of homeowners who are in permanent HAMP modifications are still paying nearly 60 percent of their income to support all debt payments.

Regrettably today's report shows that now those same homeowners are under the terrible pressure of having to devote over 61 percent of their pre-tax income to debt payments. This number is trending the wrong way. This is also simply unsustainable for a homeowner who still has to feed and clothe their family.

Any solution will be incomplete if it does not give homeowners a way to reduce debt payments on all of their obligations. This is why AMI supports shifting away from a short term modification plan toward a principal reduction/refinancing plan that has first and second liens participating in a program that will help the homeowner afford their mortgage and help rebuild equity – with the end goal of keeping them in the home.

Until the affected homeowners have the flexibility to stay in their homes and support their families – something too many of them can't do today – this problem will continue to prevent an economic recovery."

Yesterday the Association of Mortgage Investors was also represented at a hearing before the Subcommittee on Housing and Community Development of the House Committee on Financial Services. Vincent Fiorillo testified on ways to provide homeowners and the housing market with meaningful and permanent relief – namely, through a mortgage refinance program designed to help homeowners stay in their homes and rebuild equity. The full testimony is available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/testimony_-_fiorillo_4.14.10.pdf. Highlights include:

• An overview of problems causing increased foreclosures:
  • Income Documentation Problems: The current mortgage modification program has trial loan modifications for homeowners under the HAMP program that were permitted without any verification of the income stated on the modification application. While Treasury has taken steps to correct this programmatic flaw, the March results continue to be plagued by the allowance of liar modifications in the first version of HAMP.  
  • Second Liens Issue: The largest mortgage servicers are conflicted by massive investments in portfolios of home equity loans and lines of credit, and have aggressively modified 1st mortgage debt in order to improve the available liquidity for homeowners to pay for that same home equity loan and other unsecured debt.  The 2nd lien portfolios are a significant asset on the balance sheets of the 4 largest banks and remain valued at prices that could never be realized in the capital markets.  

• An approach to solving to the foreclosure crisis:
  • Mortgage investors believe that any successful solution to the housing crisis must address issues of affordability, negative equity and servicer conflicts of interest.
  • To be successful, a loan modification or principal reduction program must be designed to ensure that the risk of default is minimized. The only way to effectively accomplish this is to reduce the homeowner's overall debt to ensure that their total "debt to income" ratio is sustainable. This involves reducing mortgage balances on all liens on the property, first mortgage, and other subordinate liens.
  • The Association of Mortgage Investors supports the framework of FHA's recent announcement to reduce principal through a refinancing program for homeowners who are "underwater" on their mortgage. However, the details of the program are vague, and banks have significant conflicts of interest and likely won't implement the program until these conflicts are resolved. 

SOURCE Association of Mortgage Investors