Home Loan Rates increased this last week from last week:

* Loan fees are referred to as points. This chart represents the average national points charged according to Freddie Mac. For example, if you are paying .7 points on a $100,000 loan your fees will be $700.

Citigroup announced a new test plan to help homeowners who have lost their jobs. Under the plan, mortgage payments will be reduced to $500 for up to three months while the homeowners search for new jobs. During the three month period, Citi will refrain from foreclosing on the homes. If a homeowner lands another job, Citi will then consider a permanent loan modification.

HOW DOES THIS PLAN AFFECT YOU?

It probably doesn’t, even if you have a loan with Citi. Sanjiv Das, chief executive of subsidiary CitiMortgage, only estimates that this plan will affect thousands of homeowners during the next two years.

Why not tens of thousands? Or hundreds of thousands?

Well, because the plan only applies to a small pool, a very small pool, of homeowners who have home loans with Citi.

• The program does not apply to subprime subsidiary CitiFinancial (which is where a higher percentage of loans are in default)
• The program does not apply to loans sold by Citi to investors even when the loans are still serviced by Citi
• The loan must be less than $417,000
• You must live in the home
• You must be at least 60 days past due on your mortgage
• You must prove that you have registered for unemployment
• If your taxes and insurance exceed $500, you must pay all of your insurance and taxes
• You must pledge that you are looking for a job

This isn’t as sweeping of a change as we’d like to see, but it is creative, practical and a step in the right direction. If the plan works, over time it could be adopted by investors and other lenders.

The bastards* at Standard & Poor’s that produce the Case-Shiller U.S. Home Price Index gleefully* announced yesterday that home prices have continued to drop. How much? The national average dropped 18% from the end of 2007 to the end of 2008.

That’s the largest drop in the index’s 21 year history. Nationally, we are now at 2003 price levels.

The markets that were hardest hit are as follows:

Phoenix————–34.0%
Las Vegas———— 33.0%
San Francisco——— 31.2%
Miami————— 28.8%
Los Angeles———-  26.4%
San Diego———— 24.8%
Tampa————–  22.0%
Detroit————– 21.7%
D.C.—————- 19.2%
Minneapolis———- 18.4%

WHAT DOES THIS MEAN FOR YOU?

For the record, by “you” I don’t mean all the sharks out there looking to buy distressed homes. There are already too many guys in Armani suits and perforated Italian shoes on the airwaves and the Net telling people they can get rich by taking advantage of distressed homeowners or buying foreclosed homes.

By “you” I’m referring to homeowners who are trying to pay off their mortgages and keep their homes.

The national average doesn’t mean much to you, since the only thing that matters is how much your home has dropped in value. And that number varies widely. For example, some markets like Dallas and Denver saw modest drops of 4%.

Moreover, within a city price drops vary by neighborhood. For example, in Los Angeles homes in less expensive neighborhoods have dropped by 50% from their peak, homes in middle class neighborhoods have dropped by 38%, and homes in expensive neighborhoods dropped 28%.

So, the best way to find out what your home is worth today isn’t to read about national trends in the newspaper. Instead, ask two of your local real estate agents to personally tour your home and give you an estimate. Alternatively, you can hire a professional appraiser. Either way, you will get more accurate information and can make informed decisions about what to do with your home.

*Okay, the Case-Shiller folks probably aren’t bastards, and there’s nothing to indicate they gleefully announced the drop in home values. Nevertheless, I’m noticing that some economists and statisticians, along with some renters, seem to be enjoying this housing meltdown a little bit too much.

“HOPE for Homeowners” is a federal lending program that was established in 2008 to much fanfare to help 400,000 homeowners refinance their mortgages to avoid foreclosure. So far, only 25 families have received home loans.

Meg Burns, HOPE’s Executive Director, claims that there are too many restrictions that prevent homeowners from qualifying.

Barney Frank (D-Mass.), Chairman of the House Financial Services Committee, claims that the program was flawed from the beginning, and will hold a vote today on a bill that would make it easier for homeowners to qualify for refinancing.

WHAT THIS MEANS FOR YOU

25 out of 400,000 is .00625 percent. That’s a pretty low success rate by anyone’s standards, even Uncle Sam’s.

How low? It’s the equivalent of getting 1 hit out of every 16,000 times at bat. It’s the equivalent of 4 inches out of a mile.

To say that this is a failed government program would be an understatement. You have to wonder how many taxpayer dollars went into setting up and running a program that was doomed to fail. What was the cost to us taxpayers on a per loan basis?

That said, I can understand how in the rush to pass legislation last year they choose a conservative path, albeit too conservative.

The fact that Congress is attempting to revise the program to loosen the standards is good news for you. Ms. Burns, who heads the residential housing programs at the Federal Housing Administration under HUD, seems committed to finding ways to make the program work.

This is part of a larger trend to help homeowners who are facing foreclosure. The legislation that was passed in 2007 and 2008 were steps in the right direction, but didn’t do enough fast enough. As we begin 2009 we expect to see existing plans reworked and new programs implemented.

If you are already in the foreclosure process these changes may be too little too late. If you are hanging on but worried about your ability to pay your mortgage in the future, then help may be on the way.

JP Morgan Chase & Co. announced on January 13 that it will expand its loan modification program to cover investor-owned mortgages.  The expansion affects $1.1 trillion in loans owned by groups of investors and serviced by Chase.  In some situations, Chase will need to obtain investor approval before modifications can occur.

In October 2008 Chase announced that it would work to modify mortgages on loans that it owned.  Since then, Chase has delayed foreclosure actions on more than 80,000 such loans.

By expanding the program to include investor-owned mortgages, MoneyHugger estimates that approximately 4 million additional homeowners may be covered under the program.  (Our estimate is based upon our calculation of Chase’s average mortgage amount.)

Chase stated that it has previously modified more than 300,000 loans.

WHAT THIS MEANS FOR YOU

This is a major development.  $1.1 trillion — that’s $1,100,000,000,000 for us civilians.  That’s a lot of zeros.

One of the big problems in the foreclosure fiasco is that the millions of loans are owned by investors, including foreign governments and financial institutions.  The companies servicing the loans, such as Chase, often lack legal authority to modify individual loans without investor approval.  Seeking approval from an investor on a loan-by-loan basis takes time and costs money.

It’s hard to see Bob Banker calling the Bank of Iceland to tell them that Johnny & Suzy Homeowner in Kokomo can’t afford their $1,500 a month mortgage because Johnny isn’t getting overtime anymore at the GM plant, but they can afford $1,000 a month, and the loan can be modified.  Then, the people at the Bank of Iceland have to analyze and approve each modification.  Now, multiply that process by 4 million.

I don’t see it happening fast enough.  It’s easier just to foreclose.

Interestingly, Chase has determined that in most cases it has a legal right to modify the loans WITHOUT the approval of the investors.  Chase’s attorneys reviewed their agreements with the investors and decided that in most cases they did not need investor approval after all.

This could potentially impact millions of homeowners.  You could be one of them.

On a macro level, this will put pressure on other servicing companies such as Indymac to expedite loan modifications on investor-owned loans as well.

Citigroup yesterday became the first major bank to endorse a law that would allow bankruptcy judges to revise mortgage terms, including reducing principal balances.

Currently, while judges can restructure car loans and credit card debt, they are legally prohibited from restructuring mortgages. In the past several months, the lending industry has vehemently opposed any changes to the current law. Mortgage lenders have argued that they if judges could revise mortgage terms the loans would become more expensive for everyone, and loans would be eliminated all together for riskier borrowers.

Citigroup’s about face no doubt was at least partially driven by the fact that the financial behemoth has received billions in federal bailout funds, and congressional democrats have been putting pressure on Citi to back the law.

Citi qualified its support by saying the law should only apply to loans made prior to the laws passing.

WHAT DOES THIS MEAN FOR YOU?

The law has not yet been passed, and therefore has no current impact on you. However, the law is quickly gaining momentum. Last month, the law was also backed by the National Association of Home Builders, which also had previously opposed the law.

If the law were passed, bankruptcy could provide immediate relief to distressed homeowners. Moreover, the threat of bankruptcy could force lenders to modify more loans more quickly.

On November 20, 2008 Fannie Mae and Freddie Mac announced a moratorium on foreclosures. The moratorium was scheduled to run through January 9, 2009. Approximately 16,000 homes were expected to be affected.

As a result of the moratorium, you can expect a surge of foreclosures during January, February and March of 2009 unless Fannie Mae and Freddie Mac take corrective action.

WHAT DOES THIS MEAN FOR YOU

If you are planning on selling your home in the first quarter of 2009 – especially if it is a short sale – expect a lot of competition from a wave of foreclosed homes that will be coming on the market.

It also means that there will be added pressure on home prices, and values are more likely to continue falling in the first half of 2009. If you are already upside down on your home, expect it to get worse before it gets better.

In a major concession to homeowners, the Internal Revenue Service announced that it would expedite the process of subordinating a tax lien when a homeowner is refinancing or restructuring a home loan. Moreover, the IRS may waive the tax lien altogether when a homeowner is doing a short sale.

What this Means for You

If you have a tax lien on your property and are in the process of refinancing or restructuring your mortgage you will need the IRS to waive payment of the tax lien, and an agreement from the IRS that the lien will be in a second position to the new loan. Under the new IRS plan the agency will be more lenient in granting waivers, and grant them more quickly.

Moreover, the IRS may waive the tax lien altogether in the event of a short sale.

Props to the IRS

The IRS is about the last place that you would expect a helping hand from – special props to IRS Commissioner Doug Shulman for pushing this reform through.

Posted by Mark Williams

Yesterday the House Oversight and Government Reform Committee ripped into former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron.

The Committee is chaired by Henry Waxman, a democrat from Beverly Hills who has been attacking a lot of people lately. It often appears that Mr. Waxman is more interested in obtaining confessions and laying blame and generally attacking the free market than he is in sorting out the foreclosure fiasco.

At this particular hearing he was flummoxed when the executives refused to take personal blame for the subprime meltdown.

Fannie and Freddie have been taken over by federal regulators. The two agencies own or guarantee more than $11 trillion in home loans.

Damaging Emails Found

The Committee uncovered internal emails at the agencies that warned senior executives about the risky nature of the loans that they were buying, specifically stated income loans. Not only did the CEOs ignore the emails and continue to acquire increasing questionable loans, but in Freddie Mac’s case the former chief risk officer that sounded the alarm was fired.

How Does This Impact You?

Not at all. This hearing was more about playing the blame game than it was about helping out distressed homeowners. The real work is already underway at Fannie, Freddie, the FDIC and Treasury.

It’s just interesting to know that the two agencies that bought or guaranteed 50% of all home loans suspected as early as 2005 that many of the loans would eventually be defaulted upon, and that the warning bells were ignored.