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.

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

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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.

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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.

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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.

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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.

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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?

Reverse Mortgages By The Numbers

We have always felt that Reverse Mortgages were another type of gambling with the future. Especially when the homeowner is young, well young for taking the RM, say in their 60s. Who knows what the future will hold and how long they will live. Through the RM program we are encouraging seniors to take all their savings now and pay a hefty price for doing it. Sure it will be great if their short term needs are met or they live even better than before, but what is the cost. Finally we found someone who ran some of the numbers in this article from The Northern Star titled Reverse Mortgages Come With Danger. Yes this is from an Australian paper, it appears not many in the US actually acknowledge the problems with reverse mortgages. Let's take a look -

The idea behind reverse mortgages is that older homeowners can cash out part of their home's value, with the funds received either as a lump sum, a series of cash payments or a combination of both. The money can be spent however the homeowner chooses, be it to buy a new car, take a holiday or simply meet living expenses.

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A strong point of appeal with reverse mortgages is that no repayments are required until you sell the property or die. However, interest is charged from day one, so it doesn't take very long for the overall debt to escalate, potentially outpacing the increase in your home's value.

To see just how quickly the debt can snowball, let's say that a retiree aged 65 takes out a reverse mortgage, receiving an initial lump sum of $50,000 at the start of the loan, with a further $500 a month paid for the first five years. By the time the homeowner is in his or her mid-80s, the debt plus interest will have grown to $400,000.

The mounting debt may alarm family members, but it should also concern our homeowner.

That is because around 50pc of both men and women currently aged 65 have a 50pc chance of living to their mid-80s.

What is going to happen to the 80 year olds with no equity left? Their savings depleted so they can buy their grandchildren ice creams? Which is what some are suggesting -

Meg Burns, director of the FHA's office of single-family program development, said she's heard only positive feedback.

“One of the things you hear all the time is how this program made a really big difference in their lifestyle, just in little things, like now they can take their grandchildren to get ice cream,” Burns said.

How great will that work out in the end? Sure it feels good now but if it costing seniors their savings and really costing about double due to all the fees and interest how good will that really taste?

We are also wondering about the clause to keep up the property. How is the homeowner going to keep up the property in their 80s when they have no equity for maintenance? And how are we going to evict people whose houses are in disrepair but their Reverse Mortgage requires the house and property to be maintained? If these are not maintained properly the value will decline. The problem is already messy, and the strong push for Reverse Mortgages will make things even messier.

Renters Market

More good news for renters - it's a renters market. There is a glut of apartments in Jersey and many landlords are willing to negotiate in order to rent their space. While some parts have not changed, people still need first months rent and a hefty deposit. Also going in with knowledge of a credit score is a good start. But for other things like rent price and terms landlords are willing to negotiate. Things like lowering the monthly rent, allowing pets and throwing in other perks are apparently taking place. This article from The Record titled It's a renters market; so shop around describes the current action in the rental world. Let's take a look -

A recent survey by Rent.com, an online rentals search site, found a number of signs that the recession is affecting the apartment market, including:

* A larger percentage of tenants searching for two- and three-bedroom apartments — apparently a sign that people are living with roommates or relatives to cut housing costs.

* A larger percentage of tenants using search terms like "bad credit apartments" or "no credit-check apartments," apparently because their credit records are not as clean as they'd like.

* Visits to more Internet apartment sites, apparently because tenants now have a larger inventory of apartments to choose from.

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Apartment vacancies are up, for several reasons. For one thing, there's a larger supply of properties because of building, especially near the Hudson River, during the housing boom. In addition, many homeowners who have failed to sell their homes are renting them out instead.

At the same time, rising unemployment rates mean fewer people are looking for apartments. For example, recent college grads struggling to find work are now more likely to live with their parents than to get places of their own, as they might in a healthier economy.

We wonder if the larger units are due to roommates or families living together. If a family can not buy a house they will be looking at the bigger apartments. We wonder if anyone tracks the rental units - who is renting for how much.

Expanding the Obama Housing Plan

Since the housing market is still falling, there is hope that expanding the plan will slow the pace of foreclosures. It may help some. But the big problem now is the ripple affect from unemployment levels. In addition, for all the controversy about the original housing plan, it had very little impact. This article in the US News titled Obama's Housing Rescue Expands: 6 Things to Know describes the loosing of some of the rules. Lets take a look at the first five -

1. Fannie/Freddie only: Despite the higher loan-to-value ceiling, the original framework of the program remains in tact. For example, only borrowers with loans owned or guaranteed by government-controlled housing finance giants Fannie Mae or Freddie Mac can participate. At the same time, borrowers need to be current on their mortgage to qualify.

2. Falling prices, less equity: The expansion of the qualification parameters comes as the real estate market continues to erode. Home prices in 20 major metropolitan areas fell by more than 18 percent in April from a year earlier, according the Case-Shiller home price index. Among other things, sliding home prices suck equity out of homes. Because of plunging values, more than a fifth of American homeowners were considered "underwater"—meaning they owe more on their mortgages than the property is worth—in the first quarter of this year, according to Zillow. This evaporation of home equity threw sand in the gears of the administration's refinancing initiative. That's because the original terms of the program precluded borrowers with mortgages exceeding 105 percent of their home's value from participating. But by expanding the loan-to-value cap to 125 percent, even borrowers who are significantly underwater will be eligible to refinance through Uncle Sam.

3. Efforts so far: When it rolled out the initiative earlier this year, the Obama administration said the refinancing program could reach up to 5 million homeowners. But in its release yesterday, HUD acknowledged that only "tens of thousands" of refinancings have occurred so far.

4. Expanded reach: The new standards could make up to 2 million additional borrowers eligible to refinance through the program, according to the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. "This program could assist many homeowners who otherwise would have difficulty refinancing due to declining house prices," FHFA Director James Lockhart said yesterday.

5. Mortgage rate hurdle: But not all of those 2 million additional borrowers will end up refinancing. Some won't meet other program requirements, such as being current on their loan. But it's the recent upward trend in mortgage rates that represents perhaps the biggest threat to the program's success. Refinancing applications surged last fall and winter, after the federal government engineered mortgage rates of below 5 percent. But as bond traders became rattled by sharp increases in government spending, they sent yields on 10-year treasury notes—which fixed mortgage rates typically tack—skyward in recent months. As a result, mortgage rates surged, hitting 5.81 percent on June 11, according to HSH.com.

We are surprised that the housing plan has made such a small impact. But just like Hope Now really did not make much of an impact. Sometimes it seems like nothing will stop the downward spiral other than hitting the actual bottom.