Sub Primers in Charge of Mortgage Mods

Since the sub prime mortgage market has died the formers employees need to do something. So what better than starting mortgage mod companies to try to work out the loans that they sold a few years ago. Who knew the loans better, right? They already know the lenders that they sold the loans to as well. Plus they are making money in the process. So it must be a win-win situation, at least for the ex sub prime employees. For those that bought the loans a few years ago it sounds more like a lose-lose situation. They are paying the mods money to still lose their house anyways. And what are the new mod employees doing to help the poor folks facing foreclosure? Why laughing at them! That is what just happened in California according to this New York Times article titled Subprime Brokers Back as Dubious Loan Fixers. Let's take a look -

By Mr. Soussana’s own account, his customers fared less happily. He specialized in the exotic mortgages that have proved most prone to sliding into foreclosure, leaving many now scrambling to save their homes.

Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California.

“We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.”

Mr. Soussana’s partners at FedMod, as the company is known, were also products of the formerly lucrative world of high-risk lending. The managing partner, Nabile Anz, known as Bill, previously co-owned Mortgage Link, a California subprime lender, now defunct, that once sold $30 million worth of loans a month.

...

FedMod is but one example of how many of the same people who dispensed risky mortgages during the real estate bubble have reconstituted themselves into a new industry focused on selling loan modifications.

And of course there is a Mozilo involved - Angelo Mozilo's nephew.

This company figured out how to work the system the best ways possible. Get a lawyer in charge so they could charge up front fees. Once they got the money they did little else - even pay their employees!

The article is long but it does a great job of portraying the build-up and downfall of the company. Definitely worth the read. And worth remembering not to pay someone, anyone, up front to modify your mortgage!

NJ Mortgage Mod Scams

Getting into trouble with your mortgage is bad enough, but then getting ripped off in the process of trying to straighten it out is even worse. We hear story after story of people falling for scams. Yesterday in The Record, in an article titled Lending nothing but woe, they try to help people steer clear from some of the more common scams. This article is helpful due to the focus on NJ specific issues. Let's take a look -

[I]t’s not even legal under New Jersey law to charge for loan modification work.

State and federal regulators have cracked down, saying these companies often:

• Falsely suggest they are linked to the Hope Now Alliance, a federally sponsored program of free mortgage counseling by non-profit agencies.
• Charge fees to help clients modify their loans.
• Fail to get mortgages modified, as promised.
• Refuse to give clients refunds.

Any request for payment is a big red flag.

"I try to tell people: Do not pay anybody," said Shirley Robertson, a housing counselor with the Paterson Task Force.

...

Under state law, only non-profit social service and credit counseling agencies can serve as "debt adjusters."

...

According to the FTC, homeowners struggling with their mortgages should avoid any company that:

• Guarantees to stop the foreclosure process, no matter what the homeowner’s circumstances.
• Instructs homeowners not to contact their lender, lawyer or credit or housing counselor.
• Collects a fee before providing any services.
• Accepts payment only by cashier’s check or wire transfer.
• Encourages homeowners to lease their home so they can buy it back over time.
• Tells homeowners to make mortgage payments directly to the company, rather than the lender.
• Tells them to transfer the property deed or title to the company.
• Offers to fill out paperwork for them.
• Pressures homeowners to sign paperwork they haven’t had a chance to read thoroughly.

Pretty clear and straight forward advice. Hopefully this will get out there enough so that the people in need can get hold of it. Unfortunately it was in the Real Estate section - the section people often read when looking for properties but not really the go to place when you want to hold onto your current property. Maybe a front page type of story would get the info to the right people.

July's Loan Mod Meeting

So we now that the new housing plan is working about as good as the old housing plan (Hope Now) which means that it is not working. So a meeting will be convened on July 28 where Treasurer Geithner and HUD secretary Donovan will discuss (read force) the top 25 mortgage lenders to adopt modify mortgages. This article from the New York Times titled From Treasury To Banks, an Ultimatum on Mortgage Relief discusses some of the details. Let's take a look -

... Thursday night when I was shown a letter that the administration had just sent out calling for yet another big meeting at Treasury with yet another sector of the financial industry. Signed by Treasury Secretary Timothy Geithner and Shaun Donovan, the housing and urban development secretary, the letter demanded that representatives from the top 25 mortgage servicers assemble in Washington on July 28. It is likely to be every bit as painful for them as that Paulson meeting last October was for the bank C.E.O.’s.

The subject of the meeting is going to be loan modifications. Specifically, the government is going to be asking — in none-too-friendly fashion — why the nation’s big servicers aren’t doing more to modify loans for homeowners who are in danger of defaulting on their mortgages. Back in the spring, after all, they all signed onto the administration’s new Making Home Affordable program, which uses a series of incentives — not the least of which is $1,000 to the servicers for every mortgage they modify — to help keep people in their homes and prevent foreclosures.

...

So far, however, the results have been disheartening. As of July 6, according to some internal Treasury data I was given a peek at, a total of 131,030 mortgages had been modified under the program, on a three-month trial basis (the Obama program calls for three-month trials before the new loan terms are locked in). That may sound good — but it’s a drop in the bucket compared with those 3.5 million potential foreclosures this year.

...

Many institutions also are reluctant to do large-scale mortgage modifications because they will hurt the balance sheets. After all, if a loan is modified, the bank has to take a write-down on the portion of the loan it is swallowing. If lots of loans are modified, that means a lot of write-downs.

...

Sure, foreclosure ultimately costs the bank more money than a modification would. But foreclosures these days take a long time — as much as 18 months in some states. And all that time the banks can keep the loans on their books at inflated values. Daniel Alpert, the managing partner of Westwood Capital, calls this practice “extend and pretend.” In fact, he said, he has been hearing that banks aren’t even willing to conduct so-called short sales anymore. Those are sales where the borrower asks the bank to sell the house for whatever it can get, and the bank in turn lets the borrower walk away from the loss that results from the sale.

Will anything really change? Or will foreclosure keep rising or will lenders try to re-write the loans. We can not see many ways the government can force this onto the lenders. So it is really just a wait and see...

Not Making Payments

Apparently the number of HELOC that have payment delinquencies is increasing. With rising unemployment rates we can expect this number to continue climbing. And with allowing HELOCs just for having some equity in the home, as during the bubble, there were many people who could never really afford their lines in the first place.

More delinquencies also means more loss and write-off for the banks. The big question is what are the lenders breaking point. They already have government funds propping them up - but will that be enough? Probably not for some. So let's take a look at this Washington Post article titled Delinquencies On Home-Equity Loans, Credit Cards Hit Historic Levels -

Delinquencies on home-equity loans and credit card payments hit record highs in the first quarter of this year, according to data released today by the American Bankers Association.

Home-equity loans were one of the major culprits of the current crisis. To recap: Cheap credit caused a housing boom in the first part of this century. Skyrocketing home values led homeowners to take out home-equity loans -- essentially, treating their homes like ATMs -- to buy consumer products. Then, when home values started flattening then falling, it all collapsed, debt upon debt.

According to the American Bankers Association, delinquencies on home-equity loans climbed to 3.52 percent from 3.03 percent in the fourth quarter of 2008, with late payments on the loans jumping to a record 1.89 percent.

...

This is even worse news: It means people are living off their credit cards with 28 percent interest rates now that their home-equity loans have run out.

This is why smart people are skeptical that the U.S. is in a real recovery. Many believe there's more bad news to come until unemployment starts dropping and home prices stabilize.

Things are interconnected - if people are not working they can not pay their bills - including HELOCs. We wonder were the new historic highs will be. Close to 5%? Maybe more?

Protecting Consumers Against Lenders

The Obama administration is looking to start a regulating agency protecting Americans regarding various financial instruments such as home loans, pay day loans, credit card fees as well as others. If it does half of what it promises we are off to a good start. Which means the lending industry is trying to kill the agency upon proposal. When your income is based on excessive fees there is little incentive to reduce them. And since the bubble burst we are seeing new and interesting ways to add the excessive fees to consumers. The new agency is described in this New York Times article titled Banks Balk at Agency Meant to Aid Consumers. Let's take a look -

The Obama administration fired an opening shot on Tuesday, sending Congress a detailed, 150-page proposal for an agency that would set new standards for ordinary mortgages, restrict or prohibit risky loans, investigate financial institutions and enforce new laws aimed at protecting credit card customers.

...

The industry’s heated reaction presages an intense lobbying battle that is already beginning. Opponents include JPMorgan Chase and Wells Fargo as well as thousands of regional and local banks that have close ties to lawmakers in every part of the country. But the opposition could also include countless mortgage lenders and independent mortgage brokers.

...

“We know the optics are bad,” said Scott Talbott, vice president for government affairs for the Financial Services Roundtable, a trade association in Washington. “If you are against a consumer regulatory agency, then everybody will say you’re against consumer regulation.”

...

It would give the new agency marching orders to set standards for traditional mortgages, and the agency would have the authority to demand that lenders offer those kinds of loans or give consumers the chance to opt out of riskier products.

It would also give the new agency the power to restrict or prohibit mortgages that come with hidden fees and steep penalties for borrowers who pay the loan off early. It would also be empowered to interpret and enforce the new credit card law that Congress passed last month, aimed at restricting banks from arbitrarily raising interest rates.

It would also have examiners, much like existing bank regulatory agencies, who would have the authority to go into specific institutions, issue subpoenas and scrutinize their practices, demand changes and seek penalties.

While some may argue against any new regulations - we would argue that any industry that is powerful enough to take the country requires some oversight.

Hopefully the proposal does not get watered down.

Trying for Resubordination

One big problem for many trying to refinance is that HELOC and HELs will not resubordinate. If there is no resubordination there can be no refinancing. This is a big problem for those looking to lower their rates. Instead of having the extra cash, the second line makes the budget that much tighter. The LA Times has an question-answer section that addresses just this issue. The post is titled Keep after your home equity line of credit lender when refinancing your mortgage. It seems that with enough pressing you can do the seemingly impossible - get the lender to resubordinate! Let's take a look -

Dear Liz: I'm in a potentially bad situation with my home equity line of credit. I'm trying to refinance my primary mortgage and would save nearly $150 a month. But the HELOC lender is dragging its feet on agreeing to a subordination. If the lender doesn't agree, I lose the deal. I'm wondering why the lender does not believe it to be in its interest to help when I am trying to improve my financial situation. Can you give me some insight into the line of thinking here?

Answer: Unfortunately, many would-be refinancers are in your uncomfortable position. They have a second mortgage, such as a home equity line of credit, on their property. These loans are known as "seconds" because the lender is in second position to be paid off when the home is sold, after the primary lender has been paid.

For a refinance to proceed, these HELOC lenders have to agree once again to be subordinated into second position. Some lenders balk because they don't believe their borrowers have sufficient equity to cover both loans (even though, as you note, a lower payment on the first mortgage could make it more likely that the borrower could make payments on the second).

But a bigger problem seems to be lack of staff and lack of priority. Lenders are so busy trying to meet the demand for refinancing that other concerns, including subordination, often fall to the bottom of their to-do list.

That means you have to be extremely vigilant if you don't want your refinance deal to fall apart. Call your new lender and your HELOC lender every few days to track the progress of your subordination. If there are problems or missing paperwork, promptly address those issues.

If your rate lock is within two to three weeks of expiring and your subordination still hasn't been approved, call your HELOC lender and politely ask that your request be given top priority.

If you can't get through to the subordination department's main line, ask the phone reps if there is a fax number or e-mail address you can use. If all else fails, take your problem to the bank's chief executive. You'll find the name and address online.

Too bad we did not know this a few months back! We wonder if this really works, or if they just drag things out long enough so your rates expire. And with the rising rates this can be a race against time...

NJ Foreclosures Drop

Why? Well the article in The Record titled N.J. bucks national trend with drop in foreclosures is not exactly clear. Was the drop due to modifications? Due to refinancing at lower terms? Could short sales be on the rise? Perhaps we will not know but let's take a look at the article -

While national foreclosure filings are on the rise, New Jersey filings dropped 41 percent in May from a year ago, RealtyTrac said Wednesday.

The cause for the decline is not entirely clear, and it may not point to any long-term trends, analysts said.

One explanation may be that troubled homeowners are seeking help in modifying their loans before they end up in foreclosure, according to Phyllis Salowe-Kaye, head of New Jersey Citizen Action, which counsels homeowners. The non-profit is continuing to see a high demand for foreclosure counseling, she said.

Another possibility: With mortgage rates dipping below 5 percent last month, more homeowners in distress may have been able to avoid foreclosure by refinancing out of troubled mortgages, said E. Robert Levy, head of the Mortgage Bankers Association of New Jersey.

...

In Bergen County, one in every 1,239 households received some foreclosure filing during the month; in Passaic County, the number was one in every 589.

Nationally, foreclosures were up almost 18 percent from a year ago, RealtyTrac said.

Well at least we have some good news today.

June Housing Fair

For those that need help with their mortgages or modifications, there is another housing fair coming up. Unfortunately it is only for 3 hours during the middle of a Thursday, and down in Trenton. Hopefully they will schedule several ones at various times and days throughout the state so people do not have to lose a days pay just to find out they are not qualified or to receive promises that will not be fulfilled. But for those interested, this post from my New Jersey Central has information about the fair. Let's take a look (and ignore the headline, which has the wrong month) -

Government agencies, non-profits and banks will take part in the New Jersey State Library sponsored Get Help! With Housing Fair on Thursday, June 25, from 11 a.m. to 2 p.m. at the Capitol Complex Plaza, next to the State Library on West State Street.

Residents will be able to get their questions answered about refinancing, avoiding foreclosure, homeowner rights, new benefits for first-time home buyers.Participating organizations include the state Dept. of Banking and Insurance; Housing and Mortgage Finance Agency; Administrative Office of the Courts Foreclosure Mediation Program; Legal Services of NJ; Mercer County Housing and Community Development Office; and TD Bank.

That first time buyer push is going strong. Perhaps it should be called "how to lose 10% of your investment in 1 year - but we will credit you up to $8000 to make up for your loss" program. Oh, too wordy, maybe just the "first-time knife-catcher credit." Since that really what it is.

More Broken Promises

Hope Now seemed to be a bust. Now we have an new housing plan. This one will modify mortgages using many of the same lenders that brought us on the brink in the first place. We have heard that there is little to no write-downs. The push for refinancing - the source of many fees - seems to be the lenders biggest push. But where does that leave the people in trouble. Foreclosures up. People still underwater. Loans spread out or having delinquent payments added on the back end. The taxpayers are losing. The homeowners are losing. The government is losing. The only winner with the latest housing plan seems to be the lenders (and perhaps the few new government hires that run the program). This article from the New York Times titled Promised Help is Elusive For Some Homeowners gives a perfect example. Let's take a look -

[W]hen Eileen Ulery called her mortgage company — Countrywide, now part of Bank of America — the bank did not offer to alter her mortgage. Rather, the bank tried to sell her a new loan with a slightly lower monthly payment while asking her to pay $13,000 toward the principal and a fresh $5,000 in fees.

....

Through many months of wrangling over the fate of the financial system, with hundreds of billions of taxpayer dollars dispensed on bailouts, distressed homeowners have waited for their own rescue amid talk that it was finally on the way. Modifications of so-called subprime and Alt-A mortgages — those made to people with tarnished credit — actually fell by 11 percent in May from April, according to research by Alan M. White at Valparaiso University School of Law.

...

Far from being one of those who used easy-money loans to speculate on homes proliferating across the desert soil of greater Phoenix, she has lived in the same modest, stucco-sided condo in suburban Mesa for a dozen years. She bought the two-bedroom home in 1997 for $77,500.

...

Like tens of millions of other American homeowners, she added to her mortgage balance as the value of her condo swelled, at one point exceeding $200,000. She refinanced to pay off some credit cards and settle into a 30-year, fixed-rate loan. Later, she took out a home equity line of credit to buy a new Hyundai. She refinanced again in 2007, borrowing $20,000, mostly for a new roof.

...

Ms. Ulery is among that unhappy cohort — her house is worth about $122,000, and she owes $143,000 — but walking away is not for her.

...

To which she poses her own question: What sort of deal is it for the American taxpayer? As she sees it, the same banks that generated the mortgage crisis are now getting public money to fix it, while doing little more than seeking new fees.

“I don’t think the government gets it,” she said. “These are the same people you couldn’t trust before.”

Perfect closing line! It does seem to be the same way looking from this direction in Jersey as well. Is this another housing plan going bust?

Interest Rates Are Rising

One of the few brightspots during recent times was the low interest rates. These once in a lifetime rates spurred a refinancing boom - giving many people extra money every month and generating income for brokers, lenders, appraisers and everyone else tied to refinancing. It also helped the ARM holders - keeping affordable payments rather than rising ones. However those times are fading away. If you did not lock into a rate by early May you just may be out of luck. If governmental forces can drive rates back down they will - or at least try very hard to - but chances are that boom has also busted. From this article in Bloomberg titled Bernanke Bid To Lift Housing Scuttled By Rising Rates, Defaults. We discussed the defaults earlier, now lest look at the rising rates -

Federal Reserve Chairman Ben S. Bernanke’s efforts to bring down borrowing costs to revive the housing market and help the economy are stalling. Mortgage rates are almost back to where they were in March before the 30-year rate fell to a record and sparked a refinancing boom. Mortgage delinquencies rose to a record 9.12 percent of U.S. home loans and house prices dropped the most on record in the first quarter, industry reports show.

“Housing is not going to be the engine to get us out of this recession,” said Robert Eisenbeis, chief monetary economist for Vineland, New Jersey-based Cumberland Advisors Inc., and former research director at the Federal Reserve Bank in Atlanta. “They’ve squeezed a lemon and now they’re trying to squeeze some more, but you can only get so much juice out of a lemon.”

Rates are rising as President Barack Obama is trying to spur a housing recovery. Obama has pledged to spend $275 billion to help keep as many as 9 million Americans in their homes and stem the rise of foreclosures. His measures also include a tax break of as much as $8,000 for first-time homebuyers that wouldn’t require repayment.

...

Freddie Mac estimates 73 percent of the projected $2.7 trillion of mortgage originations in 2009 will be for refinancing. In 2005, when the annual rate of home sales peaked, 48 percent of the $3.3 trillion in mortgages were refinancings, according to Freddie Mac. Refinancing originations may rise 145 percent to $1.87 trillion this year, according to a Mortgage Bankers Association estimate, the first increase in four years.

...

Treasury yields are rising as the U.S. government sells debt and investors anticipate more supply of government securities being sold to fund federal spending. That in turn is helping push mortgage rates higher.

Part of the problem for some wanting to refinance was the barriers of being underwater or having a second mortgage that would not resubordinate. People who could have saved substantially were left out of the refinance rush. Now with the rates inching upward they will be less inclined to rush out. It will also cause problems for the ARMs resets.

New Appraisal Rule

On May 1st there was a big change to the appraisal requirements for a mortgage sold to Fannie Mae or Freddie Mac. No longer can appraisers be hired by mortgage brokers - now the appraisers must be hired by the lenders. This definitely will cut down on some fraud issues, but it will also put up new barriers. Making the next several months a little more difficult as the changes are adopted. We did not even know about the change until we read a WSJ article titled A Battle Plan For Refinancing Your Mortgage. Let's take a look -

On May 1, a new Home Valuation Code of Conduct took effect, which is intended to keep mortgage brokers and others from influencing appraisal values. As a result, only lenders, not mortgage salesmen, may hire and pay appraisers, often using middlemen known as appraisal management companies.

The process is too new to know what the impact will be, but some mortgage lenders and brokers fret that national appraisal management companies may not know much about their areas. "We're getting calls from Indiana about a co-op on 17th Street," says Melissa Cohn, president of Manhattan Mortgage Co. in New York, one of the nation's largest mortgage originators.

If you're worried about what your home will be valued at, see if a friendly real-estate agent will provide you with recent similar sales in your neighborhood. Otherwise, you may have to fork over an appraisal fee -- $350 to $500, depending on where you live -- to find out if you have enough equity, even if you don't qualify for the loan.

An accurate appraisal is very important in regards to home equity and refinancing issues. In order to negotiate you need to bring some equity to the table. The more the better.

But meanwhile there is a big concern that the new rule will drive up the cost of an appraisal while driving down the accuracy. Are these complaints valid? Guess we have to wait and see.

New Reverse Mortgage Issues

Not that we do not already have a long list of potential problems with reverse mortgages - now we get word that new changes will make more problems. But maybe these new changes will be a deterrent of sorts. Ever changing interests rates and closing points are bound to scare many people away. Perhaps this will turn out to be a good problem. In an article in The Record titled Reverse mortgage: declining reliability we get a glimpse of the new changes and the effects they are already having. Let's take a look -

Reverse mortgages are becoming more popular, in part because retiree stock accounts have lost so much value. Federal data show a record 11,261 reverse mortgages were made in March, up from 9,086 the month before. The National Reverse Mortgage Lenders Association expects the number to grow to about 150,000 this year, up 30 percent over last year.

Last month — and without any real warning — Fannie Mae made changes that allow for higher margins for reverse mortgage lenders. Simply put, margins are the interest rate spreads a lender makes on the loan. So, the higher the margin, the higher the interest rate the borrower pays.

Worse still, under the new rules the margin — typically 2 to 3.5 percentage points — can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

The borrower signs a disclosure form from the lender projecting the maximum amount of money the borrower may receive. But with rates that can change, the seniors will not really know how much they can borrow until closing, or days before. That makes the disclosure form practically useless, Smaldone said.

...

But within the industry, fears are mounting that the higher margins are turning the reverse mortgage industry into the more traditional loan market, creating heavy competition that could lead to over-lending and introduce more predatory lenders.

Is this a bug or feature? And the sudden changes that caught the lending industry off-guard? There is definitely more to this than meets the eye.

HELOC Lockdowns Still Surprising in NJ

We have been running stories for over a year now of homeowners having their HELOCs suspended or closed down. Yet the news media still finds people who are shocked, yes shocked, that this is happening. Perhaps a year ago this was an interesting news story - but now, still? Evidently for one of our fellow Jerseyians this is still a big news story - enough to make the news. In an article and video (sorry not embeddable - following the link) from Philadelphia CBS 3 report titled 3 On Your Side: Home Equity Loans we were about the local story. Let's take a look -

Joanne LoBuono bought her New Jersey home as a fixer upper. And for the past decade, she's been paying for the repairs with a home equity line of credit.


She met with a banker last month to check on her account.


"She went to look at my line of credit and couldn't open it. She kept saying , 'gee, this is strange, it's blocked," said LoBuono.


The bank had taken away her line of credit.


Her home value is now not worth enough to secure the loan, so the bank cut her off.


Since the mortgage meltdown, banks are re-evaluating their home loans. In Joanne's case, it came as a complete surprise.

She received the letter from the bank informing her a week after finding out. But do people really believe that banks will give notice before closing off the access? That would not make any sense - most people would take everything they had and put it somewhere else if they knew their lines were going to be closed.

There are many on-line sources where people can see the estimated current estimated value of their property. Take a minute over at RealtyTrac's Home Value page and see how much your area has declined. Then you will not be surprised when you receive that letter in the mail...

Short Sales and Promissory Notes

Many people think that the solution to their housing woes is a short sale. And while they do appear to drag on and on with the bank determining if they will accept an offer, there appears to be another snag. Lenders are often requiring homeowners to sign a promissory note on all or part of the balance between what the property is selling for and the accepted purchase price. This had led some short sellers to determine that a foreclosure just might be the better option. An article in the Wall Street Journal titled A Short Sale May Not Mean You Are Home Free lays out the particulars. Let's take a look -

Some homeowners are finding that when they sell their homes for less than the outstanding mortgages -- a so-called short sale -- their mortgage companies are going after them for some or all of the difference. Mortgage companies are also sometimes taking legal action to recover unpaid amounts after a foreclosure is completed.

In a growing number of cases, holders of mortgages or home-equity loans are requiring borrowers in short sales to sign a promissory note, which is a written promise to pay back a loan or debt. Real-estate agents and attorneys say they have seen an increase in requests for promissory notes as mortgage companies look to short sales as an alternative to foreclosure.

...

Some experts say that mortgage companies may pursue leftover debt, or "deficiencies," in greater numbers as the housing market settles. Lenders are "doing everything possible to work with their borrowers and trying to bring stability back to the lending and real-estate market," says Marc Ben-Ezra, an attorney in Ft. Lauderdale, Fla., who represents mortgage companies in foreclosures. "However, the ability to get a deficiency judgment is a valuable right that I think lenders will pursue aggressively in the future as the market stabilizes."

...

Some borrowers are balking. Mack Ransom, a mortgage broker in Ashland, Ore., recently brought Countrywide Financial Corp. a short-sale offer for $279,000 -- well below the roughly $415,000 he owes on his two mortgages. Countrywide countered that it would accept a $310,000 bid, provided Mr. Ransom signed a $48,000 promissory note, he says. Mr. Ransom rejected that offer and is pursuing a different short sale.

"I would take the foreclosure and the credit hit over that," he says. A spokeswoman for Bank of America, which acquired Countrywide last year, declined to comment on a specific case, but said: "The company will ask the borrower to sign a promissory note during the short-sale process if dictated by investor guidelines."

This article has example after example of the different attempts lenders are trying to get some of their monies back. Another interesting point is that the promissory note may be buried in the contract - so it is something that should be looked out for.

Housing Plan and Second Mortgages

The needed part of the Obama Housing Plan foreclosure modification on second mortgages was released yesterday. Let's take a look at a few articles and their analysis on the plan. First from the Washington Post's article titled Foreclosure Prevention Plan Expanded to 2nd Mortgages -

The administration's housing plan pays lenders to help borrowers stay in their homes by modifying their mortgages to an affordable level. But, the plan as first announced in February applied only to primary mortgages. Now, lenders will be eligible for payments when they modify the terms of a second mortgage, including a home-equity line.

About 50 percent of at-risk borrowers have a second mortgage, which can make it difficult for them to afford their homes even after payments are cut on their primary mortgages. Second mortgages were popular during the housing boom for buyers who could not afford big down payments.

Under the new plan, lenders would receive $500 for modifying the second mortgage, plus $250 a year for three years if the loan remains current. The borrower would be eligible for $250 a year for five years to lower their principal balance. The borrower could have the interest rate lowered to 1 percent, depending on the type of loan, with the government sharing the cost of the rate reduction.

Senior administration officials said they expect the second-mortgage program to help 1 million to 1.5 million of the up to 4 million households expected to be covered by the wider loan-modification program. The program, which will take several weeks to get running, will be paid for through bailout funds already allocated to the program, officials said.

...

The Treasury Department also is attempting to breathe new life into another government foreclosure prevention program, called Hope for Homeowners. That program, launched last year, refinances homeowners into more affordable mortgages. But lenders have balked at requirements that they cut some of the principal that borrowers owe. Only one homeowner has received a government-backed loan under the program so far.

Before getting into the new plan - only 1 homeowner was helped by Hope for Homeowners??? Now back to the current second mortgage plan - since the program is voluntary and the incentives are not that high we would be surprised if other than lenders that held both mortgages there was little movement on this front.

But let's take a look at another article to see what else we can find out. From the New York Time's article titled A New Plan to Help Modify Second Mortgages -

The goal of the plan is to plug a hole in the administration’s original program, which offered subsidies to lenders who agreed to modify the primary or first mortgages of homeowners who had fallen delinquent or were in danger of doing so.

...

Under the new program, which officials said would not get under way for at least several weeks, participating mortgage lenders would agree in advance to automatically reduce the interest rates and possibly the outstanding loan amounts for a second mortgage as soon as the first mortgage had been modified.

Lenders would be required to lower the interest rate to just 1 percent for any second mortgage in which the borrower was repaying principal as well as interest. On interest-only loans, the lender would have to reduce the rate to 2 percent. If the lender on the first mortgage agreed to forgive some of the principal loan amount, the second-tier lender would have to forgive the same share of its loan as well.

...

It remains unclear whether mortgage companies will be attracted to the new offer. The second-tier lenders would be making much deeper concessions to borrowers than the first-tier lenders.

But holders of second mortgages are already junior to holders of first mortgages. In foreclosures and distressed sales of homes that have dropped in value, many holders of second mortgages recoup little or none of their money.

Lowering the interest rate may work. But the financial incentives seem to low to really do anything.

So let's end with this Reuters article titled Q&A: U.S. Treasury's "second-lien" mortgage relief plan that gives us an example of what the plan in practice would look like -

A family that borrowed $45,000 on a second mortgage in 2006 with an 8.6 percent interest rate would see their monthly payment drop to $154.81 from $349.48 under the program for amortizing loans. With the interest rate slashed to 1 percent, their savings would be over $2,300 a year for five years.

Another family that borrowed $60,000 on an interest-only second mortgage in 2006 now at 4.4 percent would see their monthly payment drop to $100 from $220 under the program. By reducing the rate to 2 percent, this would result in an annual savings of $1,440 for five years.

An investor who agrees to extinguish a second-lien mortgage that is 120 days delinquent with $40,000 owing could get $1,200 for extinguishing the lien and relinquishing a claim on the property.

The first two examples seem feasible and realistic - the third example seems like there would be resistance. But we'll see...

Mortgage Brokers Are Working

They may not be doing mortgages for new purchases but it sounds like the industry if very busy with refinances. You may have come across deals and discounts to refi - no or lost cost refis are everywhere. And anyone who qualifies may be losing money if they do not refi - or at least run the numbers to make sure that they will be letting such a good deal go by. An article in the Philadelphia Business Journal titled The recent spike in home refinancing is reviving jobs in mortgage lending illustrating that business generated with the record low interest rates and these low cost refi packages. Let's take a look -

Late last month, the Mortgage Bankers Association increased its forecast for national mortgage originations by $800 billion to $2.78 trillion. The organization said that 2009 could become the fourth-highest year for originations, behind only the housing boom years of 2002, 2003 and 2005. Most of that is from borrowers refinancing existing loans rather than new purchases. Mortgages on new homes are expected to decline this year to $821 million from $854 million in 2008, the MBA said.

For the week that ended April 3, the MBA said that about 78 percent of mortgage applications came from refinancings rather than purchases.

Unlike the housing boom of a couple years ago, this new growth was engineered by the government to heal the sector. The Federal Reserve last month committed to buy up to $1.2 trillion in mortgage-backed securities and $300 billion in long-term government debt, which has pushed mortgage rates to record lows.

Now, some lenders that were forced to lay off personnel in the past year are looking to add staff to cope with the increased volume.

...

Jim Linnane, Wells Fargo & Co.’s northeast division manager for retail lending, said refinancing application rates are three to four times normal levels. In 2008, purchases and refinancings were split evenly; now the ratio is 25 percent purchases to 75 percent refinancings.

Just remember that refinancing requirements are more stringent than ever. One needs equity, a high credit score and the ability to show all documents. But it is well worth the savings that many who refinance are getting.

Discount Fees with No Discount

That is a legal argument that is being used to stall, and perhaps prevent, foreclosures here in New Jersey. We came across this story, although it had been out for some time, titled Westwood lawyer's legal efforts may stop N.J. foreclosures in the Star Ledger. While the legal aspect itself is interesting, we were shocked (but should not have been) to learn that the New Jersey Mortgage Bankers Association shares an office with the New Jersey Mortgage Brokers Association. We knew that these parties were aligned, but not intertwined. But let's jump into the article -

A young Westwood attorney is pursuing a simple legal argument that, if upheld by New Jersey courts, could stop many mortgage foreclosures throughout the state.

The argument is this: If, at closing, borrowers paid a discount fee to a mortgage broker and didn't get a reduction in their mortgage interest rates, then the mortgage is invalid and cannot be foreclosed.

...

The claim might seem outlandish, maybe even arrogant, but mortgage bankers are obviously concerned. Their lobbyists have asked the Legislature to change the language in the so-called Lenders' Liability Law (LLA) because, even as the bankers concede in a brief, the wording might be interpreted to support Denbeaux's argument.

...

Any payment given to a mortgage broker beyond an application fee and discount points -- a fee that results in the reduction of the mortgage interest rate -- would be, Denbeaux argues, illegal.

If banks pay the illegal fees to mortgage brokers out of borrowers' funds then, under the Consumer Fraud Law, the transaction is void, Denbeaux says. The mortgages can be rescinded and, if there is no underlying mortgage there can be no foreclosure.

Of course the lenders are fighting this. Interesting to read about someone finding the loopholes that are in the borrowers best interest. We know that there are legal teams that scour for loopholes in the lenders best interest. Best close of the borrower loopholes ASAP.

While we do not agree with keeping people in properties they can not afford, or letting people have their mortgages wiped away from a loophole. It is good for everyone to see the sausage making that the mortgage industry really is.

HELOCs Past and Present

In the recent past HELOC were smart use of people's own money. Now things have changed dramatically. In this article from the New York Times titled Why Credit Lines Are Drying Up illustrates the changes. Lets take a look -

HOME equity lines of credit, sometimes known as Helocs, have been a popular financial tool for homeowners precisely for times like now, when it helps to have a monetary cushion in case of job loss or some other unforeseen fiscal glitch.

These lines of credit essentially replaced savings accounts as the fallback, with many financial advisers counseling homeowners to keep a $50,000 line open at all times.

But that fallback is evaporating. Lenders in the past year have made it much more difficult to qualify for home equity lines of credit, and even those who do get them will pay a much steeper price in interest — about 5 percent, in fact, which is higher than the average long-term mortgage.

During the real estate boom years, home equity lines of credit commonly carried interest rates that varied in accordance with the so-called prime rate. Those with good financial histories could expect their interest rates to float about one half of a percentage point below the prime rate.

Roughly a year ago, though, banks changed the terms of these loans — along with nearly every loan in which borrowers took equity out of their homes. As the economy and housing market declined, it made little sense for banks to lend money on an asset that was becoming less valuable by the week, and in an environment where borrowers had a diminishing ability to repay.

There have been big changes across the board. The idea of "savings" being equivalent to equity has changed. With falling home values many people's "saving" have evaporated. Now their is a push for have real savings again.


Housing is seen again as a place to live - not a retirement fund, a second income, or a safety net. What a big change from the bubble years.

Financially Sophisicated

One has to be financially sophisticated to understand how one can have a mortgage payment that exceeds their monthly income. It is also necessary when understanding why ten-thousand in broker fees for a new loan is necessary. Financial sophistication can help us understand the logic of using a HELOC to pay a mortgage - and being advised to do so by your mortgage broker. It is should be a mandatory requirement for those who use option arms.


Today the Wall Street Journal brings us an article titled Older Borrowers, Out in the Cold that gives numerous examples of people hurt by the financially sophisticated among us. Let's take a look -

In 2006, Carol Couts, a 66-year-old widow in Yuba City, Calif., was living in her home, payment-free, when a mortgage broker persuaded her to refinance her no-cost mortgage for one that exceeded her monthly income by more than $400.

...

In 2007, she received numerous phone calls from a mortgage broker named Daniel Lewis. According to Mrs. Couts, he told her he was contacting seniors to warn them that banks were canceling reverse mortgages because they were unprofitable. She would have to refinance her home, he told her, or lose it. (This wasn't true; reverse mortgages generally aren't repayable until death.)

...

During the mortgage boom, brokers commonly cold-called older homeowners. "I was inundated," says Floy Mae Bryant, 84, a retired telephone operator in Visalia, Calif., who had owned her home since the early 1990s. Loan records show Mrs. Bryant refinanced six times in less than three years using multiple brokers.

Serial refinancing was common among older borrowers, legal-aid lawyers say. Brokers pitched loans with low teaser rates, explaining the homeowner could simply refinance when rates reset. Yet borrowers like Mrs. Bryant didn't understand that each refinancing added thousands of dollars in fees to their debt.

Mrs. Bryant's last refinancing was in September 2005, just a month after her previous one. A mortgage broker placed her in a Countrywide Financial Corp. "option ARM," an adjustable-rate mortgage with a monthly payment of $1,545, barely affordable on her $2,310 Social Security and pension income. To make her mortgage payments, she drew on a $39,000 home-equity line of credit that the same broker encouraged her to set up.

There was another example we left out involving a lender referred to by a church - with the Reverend being friends with the broker. Problems like this are very common. Unfortunately it is hard to sort out what was fraud and what was just carelessness. Also the fraud cases can be confusing and hard to convict.

The interesting part from the article is that fraud cases are usually prosecuted when the fraud is against the lender - not in cases where fraud is committed against the borrower.

Hopefully some of financially sophisticated products that evolved during the Great Housing Bubble will no longer be available in the future.

Lenders Walking Away

When a property is worth less than the costs of foreclosure there is little incentive for foreclosure on a property. We have seen in parts of the country where properties are almost worthless. If a second-hand beat up car is worth more than a property why would a lender foreclose on them. Why would the lender want to foreclose and deal with the property taxes on a deteriorating property.

The funny part of lenders walking away is they are using the same excuses as the mortgagees who fight foreclosures use - who actually owns the loans. Since many of the foreclosures were bundled, sliced and diced it is hard to know who the actual owner is. While the servicer may trigger foreclosures when the payments are not made, the actual note holder is the one who will own the property when all is said and done. And not being able to track down the owner is the latest excuse not to take back virtually worthless properties. Sad but true according to this New York Times article titled Banks Starting To Walk Away On Foreclosures. Lets take a look -

City officials and housing advocates here [in South Bend] and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

...
In Buffalo, where officials said the problem had reached “epidemic” proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.

...
“Oftentimes when the foreclosure starts out, it’s a viable property,” [Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors’ rights firms in the country] said, “but by the time it gets to a sheriff’s sale, it might not have enough value to justify further expense. We’ve always had cases where property was vandalized or lost value, but they were rare compared to these times.”

The problem seems most acute at the bottom of the market — houses that were inexpensive to begin with — and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses. Banks and investors typically lose 40 percent to 50 percent of their investment on every foreclosure.

...
“The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can,” [Guy Cecala, publisher of Inside Mortgage Finance] said. “It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

Another huge problem on the landscape of the housing bubble! Hopefully this will not be happening in a city near us.

The article notes in some cases the houses become so worthless that they are scheduled to be demolished by the city - and the "owner" or mortgagee that was never foreclosed is stuck with the bill. Sad, sad stories. Sad, sad state of the housing situation.