One of the hardest-hit states is trying to put together a principal reduction program by purchasing severely delinquent underwater mortgages.
But Federal Housing Finance Agency officials don’t seem to be cooperating with Nevada state officials.
The Federal Housing Administration has agreed to work with its servicers to identify pools of Nevada loans that the state can purchase at a discount, according to Nevada Business and Industry director Bruce Breslow.
But Breslow did not get a favorable response from FHFA officials. The Nevada official was given the impression that Fannie Mae and Freddie Mac don’t have the technical capability to identify nonperforming mortgages by geographic location.
While testifying before Nevada legislators last week, Breslow called the GSE regulator’s response “incredulous” and “very suspect.”
A FHFA spokesperson noted that Fannie and Freddie do not currently sell nonperforming loans. “NPL sales are under consideration but they are very complicated, require thorough review and no decision has been made at this time,” she said.
Breslow has lined up $100 million in funding from the U.S. Treasury Department. With the state legislature’s approval, he hopes to get $49 million in matching funds from the national mortgage settlement to launch the $150 million principal reduction program this summer. It is officially called the Nevada Home Retention Program.
Fannie and Freddie spokesmen said their servicing officials were not aware of this new Nevada program.
However, Freddie has provided Nevada officials with lists of HARP-eligible borrowers in their state, a Freddie spokesman said.
The federal government’s Home Affordable Modification Program and the Home Affordable Refinance Program have not been as effective in Nevada, because a lot of residents have seen their incomes decline along with the value of their homes.
The state program has a “better chance of success” because it offers principal reduction, according to Kolleen Kelley, president-elect of the Nevada Association of Realtors.
The state Realtors are supporting the home retention proposal.
As required by Treasury, Nevada must create a nonprofit agency to administer the program. Its goal is to purchase delinquent (90 to 180 days past due) underwater mortgages at a 30% discount to the current market price.
In refinancing borrowers, the amount of the mortgage will be reduced to current market value of the property. Qualified borrowers will end up with a 30-year fixed-rate mortgage at the current mortgage rate.
In cases where the delinquent homeowner does not want to participate in the program or the property is vacant or abandoned, the department hopes the legislature will create a fast-track foreclosure process.
Such legislation would allow the nonprofit agency to quickly clean and repair the homes so they can be sold to first-time homebuyers and owner-occupants. The Home Retention Program will also finance those sales.
The NAR president-elect noted that many foreclosures are purchased by investors and converted into rentals and there has been a shortage of inventory for homebuyers. “We have multiple offers on practically every property,” Kelley said. “This program will allow some of the inventory to come back on the market.”
Once the Home Retention Program is up and running, Breslow wants to refinance 700 to 800 underwater borrowers in the first year. After the loans are seasoned, he intends to sell them so the program can buy more loans and refinance more delinquent underwater borrowers.
