In the meantime, according to the Congressional Oversight Panel’s Chair, Harvard Law Professor, Elizabeth Warren, by their April report, the foreclosure crisis did not show any signs of abating. In that report it is mentioned “principal forbearance was rare and principal forgiveness rarer still. Deferred principal accounted for about 28 percent of the mortgage modifications, while only six percent of them involved principal cuts. An additional six percent incorporate principal cuts and deferred principal.”

The report noted “The Panel has concerns as to whether the modifications make homeownership sufficiently affordable to avoid foreclosure, given borrowers’ broader circumstances. As noted previously, the program without considering the existence of junior liens leaves borrowers still paying a significant percentage of their income for housing. This is particularly problematic because most HAMP modification recipients are underwater.”

The Panel’s report dealt with in detail the problem thus – “This points to the problem with the lack of principal forgiveness in HAMP up to this point. Lack of principal forgiveness means that homeowners will continue to be underwater. It also means that more of each payment will be going to interest, rather than paying down principal, and it may mean that some borrowers have to pay for longer period of time. All of these factors increase the re-default risk on modified mortgages, and to the extent that a permanent modification is not sustainable, it merely delays a foreclosure and the stabilization of the housing market.”

The report pointed out that as in April, less than a quarter of eligible homeowners have converted from temporary trial modification plans into five-year plans. Treasury originally forecast up to a 75 percent conversion rate. And while it’s too early to tell the rate at which these modified loans will default, Treasury estimates a 40 percent re-default rate.

But that was in April –  we are in July now and yet to see “principal reductions” as planned.

According to this new program, the qualified unemployed borrowers of mortgage loans can have a forbearance period, which reduces or suspends their monthly mortgage payment.

Importantly, this program is beneficial for conventional loans only; government loans such as FHA are not included, but refinance options may be taken through FHA mortgage to settle the existing conventional loans.

Mortgage servicers are required to offer UP when the following qualification criteria is met:

• The mortgage loan should have originated on or before January 1, 2009 as a first lien mortgage.
• Secured by a one-to-four unit property – one unit of which is the borrower’s principal residence and the unpaid principal balance (UPB) is equal or less than $729,750 on one unit properties.
• The concerned mortgage loan should not have been previously modified under HAMP and no UP forbearance period has been previously received by the borrower.
• Borrower is unemployed at the date of making the request for UP and is able to provide documentary proof – either they will receive unemployment benefits or have been receiving unemployment benefits at the commencement of the forbearance plan.
• Servicers have the discretion whether or not to require a borrower to have received unemployment benefits for up to three months prior to the commencement of the forbearance plan.
• Borrower is either delinquent on the mortgage repayment, but has not missed more than three consecutive monthly payments or default is reasonably foreseeable.
• It is for the servicer whether to offer UP if a borrower’s total monthly mortgage payment is less than 31 percent of the borrower’s monthly gross income.

It was estimated that around 30% of these homeowners have underwater mortgages and more than 4 million homeowners are in the brink of foreclosures – most of them are even 90 days beyond their dues.

Fannie Mae generates income through interest rate differences between its funding to the lending institutions and interest on mortgage securities it holds as investments. Additional income is also derived through it, significantly from guarantee fees for assuming the credit risk on mortgage loans guaranteed by it. According to estimates, Fannie Mae’s mortgage portfolio was in excess of $700 billion, as of August 2008.

Fannie Mae and another GSE – Freddie Mac – although not entirely backed by the US Government through its Treasury Department, were certified as “playing a central role in the US housing finance system”, to alley the market fears by the Government, when the devastating foreclosure crisis hit the country in 2007.

The impact of foreclosure crisis has uprooted many financial institutions, in declaring bankruptcy and still more to follow suit, thus eroding public confidence on the credibility of the financial system presently.

With this back-story, now the disturbing news is Fannie Mae’s holding properties foreclosed for default in mortgage repayments, nearly doubled from what they were in 2009. The quarterly report on earnings of Fannie Mae, pertaining to the first quarter ended March 2010, in its single-family portfolio, the foreclosure rate soared to 1.36 percent, up from the reported 0.55 percent during 2009.

The holdings of Fannie Mae in its single-family portfolio were more than $11.4 billion in the first quarter of 2010, up from the figure of $6.2 billion, during the same period of last year.

The financial loss of Fannie Mae, as reported in the first 3 months of 2010 was $11.5 billion and the GSE has requested an aid of $8.4 billion of the tax-payers’ money from the Treasury Department. As regards foreclosure volume, from 62,000 properties in 2009, it went up to more than 109,000 properties presently and at the beginning of the period under review it stood at 86,000 properties.

Foreclosure properties held by Fannie Mae were contributed region-wise as follows: Southeast region of US contributed the most by 17,700 properties; Midwest region 15,000 properties; Southwest 12,800; West 12,600 and last by 3,500 from Northeast region.

In the quarterly analysis report under review, Fannie Mae states that consequent to the foreclosure moratoria adopted by the market, the levels of foreclosures were impacted during the first 6 months of 2009 to be less. The report adds “The continued weak economy and high unemployment rates, as well as the prolonged decline in home prices on a national basis, continue to result in an increase in the percentage of our mortgage loans that transition from delinquent to foreclosure status and significantly reduced the values of our foreclosed single-family properties”.

What are the facts behind the above statement? Too many troubled home owners have been left out to suffer. Statistics reveal more than 6 million American families are more than 2 months in default of mortgage loan repayments. Foreclosure notices all over the country are averaging 200,000 every month.

Mortgage payment installments are too expensive for many borrowers, in spite of help coming in the form of “loan modifications”. Re-default  rate – that is borrower-home owners defaulting once again after loan modifications – is very high. Billions of tax payer money is being spent on this and yet many households are struggling to overcome the foreclosure tragedy.

In the new mortgage applications scenario – it is still awful and last week mortgage applications fell by 9.6%; property purchases were down by 10.5% and mortgage refinances were down by 9% as reported by authentic real estate sites. The mortgage stress is thus visible and mortgage market is at the doldrums.

JP Morgan Chase tops the list of consumer and real estate delinquencies. During the Congressional hearings, Morgan Chase is reported to have apprised the law makers about the large-scale mortgage principal reduction by lenders. In the longer run, such mortgage principal reductions can be “harmful to all – consumers; and investors and would adversely affect future mortgage market conditions.”

According to Morgan Chase, the estimated cost of reducing all home loan balances to present appraised values would cost somewhere around $900 billion and it would cost the government exchequer nearly $150 billion.

In the country’s banking system, even after years of the “great credit crunch” began, the notional amount of derivative contracts stood at $213 trillion – with mortgage related derivates being most problematic – at the end of 2009.

Bair pointed to the general downturn in the number of new foreclosure case in the latter half of 2009 as an indicator the market had started to seriously consider alternative measures that would keep borrowers in their homes while minimizing the fallout for themselves.

This tends to ring true as more and more major lenders appear to be willing to institute their own programs to assist the embattled homeowner communities that make use of their services. She has also indicated that regulators and the government need to take note of the way the mortgage problem is evolving and adjust their policies accordingly if progress is to be made.

Bair has indicated that the FDIC is accessing their loss share agreement write-downs as a potential aid to keeping homeowners in their homes and enhancing the overall value of their loans. She added that this would also save the lenders the killing costs of foreclosures which would also have numerous positive spin-offs for the industry as a whole.

She has made it clear that none of these measures can be considered to be blanket solutions and that mortgages with loan to value (LTV) relationships of 150% or more would, in all likelihood, be lost. Bair believes that a reduction of LTV ratios to around 100% would greatly reduce the default frequency.

That in itself is a hard target to get close to, and Bair has conceded that the FDIC’s studies in this regard are a work in progress. The upside is that the work is progressing, both on a legislative and grass roots level. As long as policy makers and industry players can stay on the same page and work towards long term equitable solutions the short sale and foreclosure monster may yet be slain.

President Obama made his first address on the subject and drew laughter and smiles on the faces of the Senators, by saying that he knew the Wall Street would not relish this idea of paying back the tax payer; but when they can afford paying big bonuses to their shareholders and employees, they can very well afford to pay a modest fee to the US tax payers, who were responsible for this present state of affairs, by rescuing them during dark times.

Obama also agreed that the Bank bailout effort of the government is not welcomed by the public, but said it was a necessary step, for the purpose of saving the US economy from falling deep down further.

He recalled the time he took over office, when it was an urgent task to bail out the same banks – which were the root cause of bringing the housing crisis – by the government intervention. It was not an easy task, but it had to be undertaken. He knew that the bank bailout was one thing that unified both Democrats and the Republicans to oppose. Everyone including him hated it but there was no escape.

Obama reminded the House that when he ran for president, he had promised that he would not just do what was popular but what was necessary.  If the financial system had been allowed to melt down the results would have been devastating – doubling the unemployment figure; closing of more businesses and losing more and more homes to the foreclosure crisis.

The President announced that an amount of $30 billion drawn from the larger banks would be used towards helping the smaller ones.

So Obama is destined to make more speeches and win more applause and standing ovations from the Treasury benches at least.

During the Midwinter Meeting of the Urban Land Institute the issues that were focused on were increasing foreclosures, re-setting of the private residential financial market together with changes in demand for housing fueled by the ‘baby boomers’, their children as also by immigrant families and the tech savvy generation. It was stressed that what had been the previous ‘old normal’ would not make a return but a new type of urban development would emerge that would be laced simultaneously with opportunities as well as challenges. If this fact is not grasped then the builders might construct properties that no longer are in demand.

Although stabilization in the housing sector has just started in the strongest markets, the overall prices of residences would probably decrease by another 10% in 2010. This would further increase the number of underwater mortgages with houses being worth less than the loan due.

The increasing number of those walking away from such mortgages suggests a new trend in homeownership. The belief about property being the surest road to wealth is badly shaken. It is making people turn to tenancy rather than ownership. Those who are buying will be doing so for reasons of shelter and not for investment.

Two key predictions were made for the coming decade. Firstly appreciation of property will rise but very slowly – 1% to 2% per year. The present home ownership rate of 67% (69% at the time of the housing boom) is likely to fall to 62%.

The opinion voiced was that the sustained stability of the housing market depended on how the private mortgage financing would revive and when it would do so. Currently the federal government provides nearly all the new mortgage loans through purchases of mortgages or securitization. Decreasing this staggering support would mean restructuring or totally doing away with Fannie Mae. Freddie Mac and the like, lessening possibilities of risk by tightening rules for the originators of mortgages and restoring consumer confidence in the mortgage backed securities.

These changes would for many years increase capital flow impacting on debt volume, costing and to whom it would be available.

Simultaneously the numbers of delinquencies have increased. Phyllis Caldwell of Homeownership Preservation Office of the Treasury said, “Treasury is committed to working with servicers and borrowers to sustain this improved pace.”

The government expedited its own operations relating to laxity of servicers and sent SWAT groups to clear up jams. Banks were now ordered to submit progress in the matter twice a day.

But despite this concern remains as foreclosure numbers far outpaces the number of borrowers being helped. In 2009 there were 3 million foreclosure filings. David Berenbaum of National Community Reinvestment Coalition said, “We have a lot more to do if we’re going to address the foreclosure crisis. The servicers will have to step up to the plate.”

Moody’s expects the HAMP plan of the Obama government would save 400,000 or a maximum of 1 million homeowners from foreclosure. There are too many who are underwater. With loan value being more than the worth of the properties they cannot qualify for help under the programme. Many fail to provide required documents. But with increasing numbers falling into foreclosure the economy will further suffer with prices of real estate diminishing again by 10% by 2009 3^rd quarter.

Three quarters of those running on trial modifications have been able to keep current. The servicers are complaining of not getting the documents timely while the borrowers allege that the banks are misplacing repeatedly these papers.

Treasury officials failed to give a definite answer when queried about solutions to this impasse.

Kashkari was a favorite choice of the previous Treasury Secretary Henry Paulson, for making a blueprint of TARP. Kashkari narrated how one of his peers began screaming over the exploding situation – the impending collapse of the entire financial system of USA. Another nearly had a heart attack by working continuously on the bailout measure because he had no time to go to the doctor.

But Kashkari was quite blasé as he added 23 pounds to his physique, munching into tortilla chips, while the credit crisis was raging. He described the time stretching from October 2008 to May 2009 to be “like a dream.” Speaking to the Washington Post holed up in a shack in northern California woods, he said, “Sometime I think, was it real?”

Previously Kaskhari was employed with Goldman Sachs. But Paulson, who was then the chief executive of the bank, was chosen in June 2006 to become the Treasury Secretary of President Bush. Soon after, Kaskhkari became the assistant of Paulson.

In 2008 February Kashkari took over charge for making an outline for an emergency program anticipating the credit crunch’s blowing up into a fully mature financial crisis. By October the crisis had hit the country and his plan, running into ten pages, became the blueprint for the program to bailout the banks.

Kashkari admitted that he picked up “a number out of the air” while coming to a decision in tandem with Paulson about how much funds should be asked from the Congress for TARP.

Reminiscing on a talk he had with Paulson, Kashkari said, “It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get . What about a trillion?’ ‘No way,’ Hank shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain.”

Kashkari recalled how Paulson had endured a sleepless night negotiating with Congress leaders. He referred to another time when a government economist had been in tears muttering, “Oh my God, the system’s collapsing.” The Chief Compliance officer of TARP endured a heart attack and was hospitalized working 18 hours each day for 40 running days to give the finishing touches.

Kaskhari commented that not only were they worried about the failure of the banking system but were terrified about “the day after.” It seemed an impossible task to “take over 8,000 banks.”

For seven months Kashkari endured criticism from both the media and the Congress. Legislators took him to be a chump while bloggers named him Cash-n-Carry. Ultimately he resigned and shifted with his wife into a shack and worked hared chopping wood to get rid of the bailout fat.

He assisted Paulson in penning his memoirs. Recently Pimco has engaged him as managing director to lead the firm’s investment operations.

A year following the bailout the government while admitting to its failure argued that TARP had saved the country from a worse situation – the total collapse of the financial infrastructure.