Most people are under the impression that the foreclosure crisis is getting better. The US News published an article that indicated the contrary.
JPMorgan Chase announced that the bank was set to open more home foreclosure prevention centers for their customers in California later this year. Chase’s announcement of new California mortgage help centers was received with warm applauds by homeowners that continue to struggle to make their mortgage payments in the one of the nation’s highest cost housing regions. According to Legal Loan Relief, rates for mortgage refinancing are incredibly low, but not enough homeowners can qualify with the tighter loan guidelines. Therefore more foreclosure prevention programs are needed to help distressed homeowners survive the foreclosure crisis.
These home foreclosure prevention centers have taken a unique approach. Eileen Leveckis, a spokeswoman for Chase in San Francisco said, “We started this whole initiative in response to the crisis.” Chase first opened the homeownership centers in 2009 and they recently announced more expansion in an effort to extend mortgage relief on a local level. In June in Northern California, the bank opened a Walnut Creek center; other sites launched last year in Los Angeles and San Diego counties.
Over the last few years, banks have been pretty active in approved home loan modification agreements for distressed homeowners nationally. When Karol Enferadi finally received a contract for her loan modification, she wrote “rejected” on it in large letters and mailed it back to Wells Fargo. Under the contract, the 65-year-old’s monthly payments would have been reduced for several years, but then eventually her payments would have jumped higher than her current monthly payment and she did not foresee her income increasing accordingly.
Many homeowners say they have been struggling with getting their mortgage restructured through the federal government’s Home Affordable Modification Program since it began in April 2009. Banks have been swamped with an influx of applications and have been struggling to adapt to new federal standards, said Joe Ohayon, senior vice president of community relations for Wells Fargo Home Mortgage. “It really transformed how home-loan servicers review applications,” Ohayon said. “It was not such a simple change for the mortgage industry. Just the volume of customers in distress was something the industry had to adjust to. I think that led to some issues.”
Home Loan Modifications Reducing Monthly Payments
Banks like Wells Fargo have responded by ramping up staffing to accommodate the volume of loan modification applications and adapting new technology to minimize multiple requests for documents. And in response to complaints from customers who said they were getting bounced between departments, Wells Fargo also started a one-on-one program in which one agent is assigned to a case so homeowners have one point of contact Ohayon said the industry is continuing to adapt to HAMP standards and homeowners seeking a mortgage loan modification should be persistent and patient, and should not hesitate to contact their servicer.
More than 1.2 million homeowners have entered a trial modification through the HAMP program, according to a July report from the U.S. Treasury Department and the U.S. Department of Housing and Urban Development. See related story on loan-modification program. In June, about 166,000 homeowners were still in limbo after having waited six or more months in a trial period that was designed to last three months, according to the federal data. Many gave up: More than 91,000 people in trial modifications canceled in June, and of those, 60% had been in trials for more than six months. Mortgage holders such as Enferadi have learned hard lessons in the process and have advice and warnings to those just starting their application. MarketWatch worked with ProPublica, a nonprofit news organization, to find homeowners participating in HAMP, including Enferadi. See more on ProPublica’s site. These homeowners said the process of home loan modifications is often time-consuming and frustrating, but staying organized and persistent can help.
Review Finance Contracts Carefully
Enferadi said one of the most important steps she took was to read her contract carefully and consider its long-term consequences. In her case, when Wells Fargo agreed to lower her monthly payments for five years, the bank also had her payments climb above her original $3,000 monthly amount after those five years. She thought it was a bad deal, so she rejected the offer. “Find out as much as you can,” Enferadi said. “Be persistent. Record names and take notes.” John Martin, a lawyer in Nevada who helps homeowners with home-loan modifications, said he would have advised Enferadi to avoid signing that contract. He said the HAMP program was designed to lower interest rates, reducing monthly payments for five years and then easing up to the original amount. Article was written by Rebecca L. McClay for MarketWatch.
In a recent article on CNNMoney.com, they discussed the irony of losing your home in to foreclosure and then owing money to the bank for the deficiency. Many homeowners choose a short sale over a foreclosure or loan modification. Borrowers like the loan modification option when they want to keep the house. If they do not want to keep their house the most common options are home foreclosures or short sales.
Vanessa Corey sold her house in a short sale, but still owed some of the mortgage balance. Now the bank is coming after the $65,000 difference. Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage loan and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes. It can even happen to people who got their bank to approve them selling their home for less than it is worth. Vanessa Corey, for example, short sold her Fredericksburg, Virginia home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it. “My understanding was that the deficiency was negotiated away,” she said. “Then, last November, I got a letter from a lawyer telling me I owed the mortgage lender $65,000. I had to get a bankruptcy lawyer and file a bankruptcy through the courts. . There was no way I could pay it.”
Foreclosure Crisis is Spreading
Many homeowners are now in the same boat. And not just those who took out no income check loans than they could afford or who did so called “liar loans” where they didn’t have to verify their income. Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments “After the banks foreclose, it’s very common now to have large deficiencies with houses not worth the balances owed,” said Don Lampe, a North Carolina real estate attorney. Most home loan lenders mostly decline to comment but Corey’s lender, BB&T did indicate it was pursuing more deficiency judgments “They follow the rise and fall of home foreclosures,” said the spokeswoman, who would not discuss Corey’s account.
Can the Banks Come After You?
Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them. “Once they have a judgment, they can pursue you anywhere,” said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Florida. “They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail.” In the case of foreclosure, mortgage lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms. Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the original loan was refinanced, some or all of it may be subject to claims.
Check the Home Foreclosure Rate in Your state
Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank. But even when mortgage lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation. “People shouldn’t have a false sense of security that a deficiency judgment may not be later sought,” Zaretsky said. He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount. “The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting,” Zaretsky said. One concerning matter is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest. It doesn’t have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job. It wasn’t until 2008, when the second mortgage holder asked him for $25,000, that he realized he still was liable. “I told them, ‘Hey, you guys released the title,’” he said. “As far as I know, I’m off the hook.” He wasn’t. Releasing title does not necessarily end the debt. It’s complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the home loan. Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale. Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt. “He had no idea what he was doing,” said Zaretsky. “All the lender had to do was go to court to convert the confession into a deficiency judgment.” Lenders are also very inconsistent. One of Zaretsky’s short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency.
Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky. “Banks are pulling credit reports to see if it’s a strategic default,” he said. “If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come after you.” If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu “We don’t favor any short-sale contracts that leave any deficiency that can be pursued,” he said. Robinson himself knows what can happen. He paid off a deficiency after his own New Jersey house went through foreclosure 11 years ago. Article was written by Les Christie for CNN Money.
A slew of struggling homeowners are coming forward with complaints about the way banks are operating under a federal loan modification program announced last year by the Obama administration. Thousands of American homeowners need help mortgage refinancing or qualifying for a loan modification agreement that would lower the interest rate, like a refinance loan.
“You Qualify.” Those two words, from the mouth of a bank representative last October, triggered a wave of relief for Tracy Davis and her husband James. The couple had been in and out of work for three years and were struggling to pay their home loan on time, so when the Bank of America worker told them they qualified under a federal program to receive a loan modification, they finally saw a path to keeping their house. “We walked out thinking, great,” Tracy Davis said. But weeks went by, and nobody contacted them, and they weren’t able to reach anyone — other than representatives at a call center in India. “To this day, we’ve not heard from someone,” she said. “It’s February. This goes back to October 30.”
The Davises, who live in Cincinnati, are among a slew of struggling homeowners coming forward with complaints about the way banks are operating under a federal loan modification program announced last year by the Obama administration. The program, called the Home Affordable Modification Program, aims to keep 3 to 4 million people in their homes. Federal statistics show banks are making plenty of offers, but relatively few of those loan changes are being made permanent of the more than 1 million homeowners who have started the required three-month trial period, only 116,000 have had their new terms made permanent.
The complaints have a common tune. Homeowners say the banks are giving them the runaround either by pledging to modify loans and then not following through, as with the Davis family, or by signing them up for the trial period and then leaving them in limbo. ”This is an epidemic problem,” said Stuart Rossman, director of litigation with the National Consumer Law Center.
Under the terms of the Treasury Department program, participating banks that offer new loan terms are supposed to put homeowners through a three-month trial period. If the homeowners make timely payments and meet other conditions, the terms are supposed to become permanent. But a pair of lawsuits filed in U.S. District Court in Boston this past week claimed Bank of America and Wells Fargo were violating those rules.
In the Massachusetts cases, the lawsuits describe a Kafkaesque scenario in which the banks have been holding up the mortgage loan terms because of missing paperwork that they either won’t identify or never required in the first place.
For instance, homeowners Odalid and Wilfredo Bosque, according to one suit, entered the trial period from October to December of last year, but after they “timely made each of the payments,” Wells Fargo did not offer a final agreement. The Bosques were told that they did not submit their paperwork, but when they called the bank, agents purportedly told them “there is no paperwork missing.” Meanwhile, they continued to receive calls from the collections agency.
Wells Fargo issued a statement saying the bank has “diligently” worked with homeowners to complete the loan modifications for customers who meet the loan modification guidelines. ”Unfortunately, not all customers who enter a HAMP trial ultimately qualify for the program. In these instances, we work to determine if another foreclosure prevention option is available to them,” the written statement said. Rossman said that his borrowers qualified.
Under the program, banks get $1,000 for every modification, and then they can receive $1,000 a year for up to three years. Borrowers, too, can get $1,000 a year from the government under the plan, though the incentives don’t kick in until after the three-month trial. The program is meant to reduce monthly mortgage payments to 31 % of income.
Government statistics from January show Bank of America has offered the modifications to nearly 330,000 homeowners, but it made only 12,761 permanent. Wells Fargo has made 188,749 offers and made 17,652 permanent. There’s a gap between those figures for most banks. J.P. Morgan Chase, for instance, made more than 222,000 offers, but sealed 11,581 of them.
Banks are now required to extend a lot more than a loan modifications. As a result of the federal Protecting Tenants in Foreclosure Act, states across the country are passing similar legislation that makes home lenders obligated to maintain home foreclosures from the time of the judgment of foreclosure through the closing of the sale. “I do believe that we are seeing a number of laws to protect tenants and blighted properties,” said Nanci Weiss gold, a partner with the Washington law firm K&L Gates. “I am seeing these types of laws not only at the state level but also at the local-level. The sheer number of these laws coupled with the potential liability will raise a huge compliance problem for servicers.”
In New York, Gov. David Patterson signed the Mortgage Foreclosure Law which takes effect on April 14th. A spokesman for Foreclosure Lawyers of America said, “The law applies when the property is vacant or if it’s been abandoned by the mortgagor but is rented by a tenant. The law is enforceable by the tenant, any HOA or municipality. If the property is occupied the law states it must also be in a safe and inhabitable condition. This includes the cost of heat. “Effectively, mortgage lenders are now responsible for the maintenance and repairs,” said Heather Rogers, an attorney with Davidson Fink LLP in Rochester, at the New York State Bar Association’s annual meeting here. “The intent of the statute was clearly to fight blight and properties that were being abandoned and bad for neighborhoods and home values. However, anybody who does home foreclosures should know it can be a very long time between judgment and recording of the deed,” Ms. Rogers told conference attendees. “That’s when a lot of mortgagors decide to pull their head out of the sand and maybe try to do something. Bankruptcy is filed. The process can be very lengthy.”
It’s unclear as to whether the costs of maintenance and repairs can be added to the debt, she added. “It would depend on the mortgage documents, but this is a huge cost and liability for lenders.” This law has many other areas that impact foreclosures, added Ira Goldenberg with Goldenberg & Selker LLP in White Plains. It creates a hardship for condominiums, he said at the conference. “There is no way to force a bank to speed up its home foreclosure process. Many times, the condominium is being doubly punished because the unit owner has already stopped paying the common charges and may have abandoned the unit. The bank doesn’t pay those common charges. So, it puts the condominium in a deeper hole.” On top of that, if the unit is unsafe or unclean, the condo board steps in as a common expense to maintain the unit. “This statute makes some change. So, the question is whether the obligation to pay this maintenance is in fact a common charge. I think the answer from the statute is a resounding that it’s not clear.”
Another element of the law requires that all foreclosures are now subject to mandatory settlement conferences effective February 13th, applying to every single home loan. Prior to this statute it was only subprime mortgages that were subject to these. The only “out” is if the property is not owner-occupied, said Ms. Rogers. “But in practice that’s not always true. A lot of the judges are issuing them anyway. Just because the statute says one thing doesn’t mean that’s how we are going to proceed.”
Any foreclosure filed prior to Jan. 14, 2010 that wasn’t already subject to the settlement conference and has not yet reached judgment is subject to a conference at the request of the defendant. The court is required to send a notice to the defendant telling them they have this option. “There is nothing mentioned about how long you have to wait until you hear back,” she said. “The whole process is a work in progress. The statute does not set forth how these settlement conferences should be held. Every county is different. Some counties have a system put in place and things are going a little more smoothly than others. Other counties are leaving it up to individual judges. Counties are trying to work with the judges to see if they can put forth a streamlined process.”
The state is also requiring 90-day pre-foreclosure notices for bad credit home loans, including the newly added condos and co-ops. This notice, which lists HUD-approved agencies that can assist borrowers, cannot be sent with any other notice. One of these notices must be sent every 12 months if the borrower is not already in foreclosure. Mortgage lenders are required within three days of sending the notice that they must make an electronic filing with the New York State Banking Department stating the name of the borrower, their address, last known telephone number and the amount due on the mortgage loan. The banking department has 180 days or “such time as they determine” to put the system in place. “As you can imagine there is no system in place at this time,” Ms. Rogers said. “The problem is the statute must also contain a further allegation that the lender complied with the statute. I’m not sure if this was an unintended consequence or an intended consequence, but the argument could be made foreclosures will have to cease until the ability to make the filing with the banking department is completed,” she said. Mimicking the federal Protecting Tenants in Foreclosure Act, a 90-day notice for properties sold at a foreclosure sale must be sent to any tenant telling them of a change in ownership to the property. Here, tenants are informed they may remain in the property for 90 days or their lease term. Article was written by Jennifer Harmon
Freddie Mac said delinquencies in its mortgage portfolio continued to rise last month, putting further pressure on the mortgage giant. It and larger sibling Fannie Mae were put into conservatorship in September 2008 by the federal government amid fears of mounting losses at the companies. Home loan modifaction plans continued to flood the mortgage market. The Home Affordable Refinance Program is reportedly helping homeowners refinance even if they have a mortgage that is higher than their home’s value.
Freddie said December loan delinquencies on single-family residences rose to 3.87% from 3.72% in November and 1.72% a year earlier. The report also showed that the unpaid principal balance of Freddie’s mortgage-related investments portfolio fell 0.9% during the month to $755.3 billion. The portfolio rose at a 5.7% annualized rate in December.
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Meanwhile, refinance loan and home purchase volume rose to $27.3 billion from $19.3 billion a month earlier. Freddie shares closed at $1.21 and were inactive after-hours. The stock has doubled the past year.
Home foreclosure rates are forecasted to climb through late next year, peaking only after the U.S. unemployment rate reaches 10.2% in the 2nd quarter, the Mortgage Bankers said. Home foreclosures remain a real problem for the mortgage and housing industries. “This recession is like a hurricane: You’ve survived the storm and you have a big mess afterwards,” Jay Brinkmann, the chief economist of the Mortgage Bankers Association, said today at the group’s annual conference in San Diego. The effects of the recession, which he said probably ended in July, will linger for “some time” in the form of higher unemployment, fewer mortgage loan originations and lower business development, he said. Brinkmann forecasts $1.56 trillion in home mortgage originations for 2010, down about 21% from a projected $1.96 trillion for this year.
The delinquency rate on U.S. home loans reached an all-time high in the second quarter, but the pace of growth for the rate slowed, a possible sign the mortgage crisis may be beginning to turn the corner. Data provided by credit reporting agency Trans Union shows the ratio of mortgage holders who are 60 days or more behind on their payments increased for the 10th straight quarter, to 5.81% nationwide for the three months ended June 30th. That’s up 65%, from 3.53%, in the 2008 second quarter. A loan delinquency of 60 days is considered a precursor to foreclosure, because of the difficulty homeowners would have coming up with two back payments to bring themselves current.
While the delinquency rate hit a new high, however, the increase from the 1st quarter to the 2nd was 11.3%. In the two prior quarters, the delinquency rate spiked almost 16%. That slowdown may be a good sign, said FJ Guarrera, vice president of Trans Union’s financial services division. “We have reason to be cautiously optimistic,” he said. While there’s no way to know exactly why the pace of growth is slowing, Guarrera said, it appears that loan modification programs aimed at helping distressed homeowners from both the FHA mortgage and conventional lenders are beginning to help. In addition, he said, consumers are being more careful with their spending.
For the second quarter, Nevada, Florida, Arizona and California remained the four states with the highest delinquency rates, mirroring the locations where foreclosures are the highest. Nevada’s delinquency rate spiked to 13.8, from 11.6% in the first quarter and 6.63% in the 2008 second quarter. In Florida, the delinquency rate rose to 12.3%, from 11% in the first quarter, and 6.47% in the 2008 second quarter. Trans Union culls its database of 27 million consumer records to produce the statistics. Read the complete article online > Mortgage Delinquency Rate Climbs to All Time High.
Bloomberg News new recently published an article about home foreclosures continuing to soar even three years after this foreclosure crisis began. Watch this YouTube video with an interview and discussion with Rick Sharga of the Realty Trac. He talks about the 1.5 million record high foreclosure numbers. Are loan modifications helping or just delaying the reality?
Massachusetts foreclosure petitions in June jumped to 2,835 – more than eight times higher than the 350 petitions in June 2008 and 21.7% higher than the 2,329 filings in May, said the Warren Group, which added that the number of petitions to foreclose in June was the highest it’s been in the previous 13 months. Foreclose prevention methods with petitions being the 1st step in the foreclosure process, noted the Warren Group, a Boston firm that tracks real estate data and publishes Banker & Tradesman.
Foreclosure deeds are the final step in the foreclosure process, and in June, Massachusetts foreclosure deeds “plunged 45.1% to 621 from 1,131 in June 2008 but climbed 6.7% from 582 in May,” the Warren Group said. “June’s foreclosure petitions were close to the historical highs we saw in the early part of 2008,” Warren Group chief executive Timothy M. Warren Jr. said in a statement. “We saw a big drop-off in foreclosure petitions in the middle of last year after the state passed a law requiring mortgage lenders intending to start foreclosure proceedings to give defaulting borrowers 90 days to catch up with missed payments. But in subsequent months, petitions to foreclose mounted.”
The Warren Group also examined foreclosure activity in Massachusetts for the first half of 2009. Foreclosures in Massachusetts fell 29% during the first half of 2009 compared to a year earlier, the firm said, but petitions to foreclose rose 5.6% during the first six months of 2009 from the same period last year. “There were 4,737 foreclosure deeds from January through June, a 29.4% drop from 6,707 during the same months in 2008,” the Warren Group said. “There are many incentives for home loan lenders to complete loan modifications to help homeowners who can’t afford their current mortgage payments. But many finance executives continue to question whether these loan modifications are really sufficient to help homeowners.”
Let’s be honest… There can be no denying the fact that the US government is not in favor of forcing homeowners out of their homes, even when they are in home loan default and facing foreclosure. Legislative bodies in Washington, Fannie Mae and Freddie Mac, have taken action with home loan modifications to stem the foreclosure crisis in an effort to keep more borrowers in their homes.
From the early days of this crisis, the federal government hoped that mortgage lenders would begin to actively modify existing mortgages to meet this goal. While programs advanced by the U.S. Department of Housing and Urban Development (HUD) did not attract the attention of mortgage lenders, changes in the way the industry is approaching this problem—and the high risk of class-action lawsuits against those institutions that do not act—are leading more lenders to consider moving forward with mortgage modification programs. In the end, mortgage lenders who can effectively modify mortgages for borrowers in default will be in a position to get those borrowers back on track, keep them in their homes and revitalize the income streams from these deals. With housing prices continuing to fall across the country, refinancing these mortgages is often not an option, making loan modifications the most viable strategy. But, there are a number of challenges lenders will face with this plan.
The first challenge involves attempting to modify the mortgage without giving away too much of the revenue promised by the borrower in the original deal. When lenders were offered the opportunity to refinance troubled borrowers into Federal Housing Administration FHA loans last year, the fact that they would have to agree to accept the proceeds of the new mortgage as payment in full of their preexisting senior loan and release their lien made the offer unappealing for many lenders as that meant that the outstanding principal balance owed would not be fully paid. Unfortunately, loan modification programs will also involve lenders leaving some money on the table. While specific features of the various programs will vary, most lenders will find that they are waiving prepayment and restructuring fees associated with mortgage modifications.
The second challenge lies in finding a way to give borrowers a deal they can still afford. By far, the most significant factor involved in borrowers getting into trouble has been their inability to pay the monthly mortgage loan payment after an adjustable-rate mortgage loan ticked up. In an effort to keep these borrowers on track, some lenders are modifying loans such that the borrowers’ monthly payments (including principal, interest, taxes and insurance) fall between 31% and 38% of gross income. Lenders are doing this by reducing interest rates, extending amortizations, and/or forbearing the principal owed on the mortgage. Finally, and perhaps most significant to the long-term success of the lender’s modification of a loan, lenders must deal with the fact that many of the loans they will attempt to modify have already been pooled into mortgage-backed securities that have been sold off to investors. This means that it would be prudent for the lender to determine whether investor approval is required for the loan modification. If investor approval is required, then the lender must ensure that it satisfies all of the criteria necessary to obtain approval of the modification. (Note, too, that the approval of junior lien holders may be required to restructure home loans.) For the protection of the lender and the investors in these securities, proper documentation and regulatory disclosures are critical during this process. There are three essential types of documents that must be part of any loan modification program. They include consumer disclosures, investor-related documents and the loan modification documentation. Like any mortgage transaction, there are disclosures that must be presented to the borrower at prescribed times. The modification process changes the process somewhat. A new Regulation Z disclosure is ordinarily required when an existing obligation is satisfied and replaced by a new obligation undertaken by the same consumer. However, a workout of a delinquent loan will not require a new Regulation Z disclosure unless the rate is increased or the new amount financed exceeds the unpaid balance plus earned finance charges and certain insurance premiums.
If the mortgage rate is increased based on a variable-rate feature that was not previously disclosed or if a new variable-rate feature is added to the obligation, a new disclosure will be required. The lender will also not have to worry about providing a new notice of right to rescind under Regulation Z for a modification of a closed-end mortgage by the original creditor. However, the right of rescission will apply to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge, and amounts attributed solely to the cost of the transaction. Home loan lenders subject to state regulation governing mortgage lending will also be required to provide state-specific disclosures. The reality is that, depending on the terms of the loan modification, other disclosure obligations under Regulation Z and applicable state law may be triggered. A lender may want to engage legal counsel to ensure that all required federal and state disclosures necessary to complete a loan modification are provided to the homeowner. If investor approval of the modification is indeed required, the lender should ensure that any investor-specific documents required to be included in the loan modification are, in fact, provided to the borrower and/or included in the modification package. Finally, the modification must be documented just like any other mortgage transaction. Depending upon the circumstances and applicable law, this may involve modification of both the promissory note and the security instrument. The mortgage modification agreement is generally always recorded. Mortgage Lenders that can effectively implement a loan modification program will fare better than those that choose to proceed with foreclosure and then take on the responsibility of maintaining properties or try to dispose of them at a loss in a weak housing market. However, before proceeding with a loan modification, lenders must be prepared to meet any documentation and investor-specific requirements for the modification to be a success. — Article written by Don Iannitti
1. Unemployment: Celia Chen, an economist at Moody’s Economy.com said, the erosion of the labor market–the unemployment rate recently hit 9.5 percent–is the key factor in the rise of home foreclosures, says “Employers continue to shed jobs, and that makes it difficult for even people with good credit who were doing fine to keep up with their mortgage payment,” Chen says. For example, a recent report issued by federal bank regulators found that mortgage loans to borrowers with solid credit histories were going bad at a rapid clip. “Prime loans, which represented two thirds of all mortgages in the portfolio, experienced the highest %age increase in serious delinquencies, climbing by more than 20 % from the prior quarter to 2.9 % of prime mortgages,” the report stated.
2. Plunging home values: Nearly three years after its peak, the painful decline in home prices continues. Although the pace of decline moderated slightly from the previous month, home prices in 20 major metro areas dropped 18.1 % in April from a year earlier. Falling home values have dragged more than 20 % of American homeowners “underwater”–meaning they owe more on their mortgages than the property is worth–as of the first quarter. By sucking equity out of homes, the price declines have also evaporated much of a homeowner’s financial incentive for paying their mortgage bill, Chen says. “When somebody doesn’t have equity in their house and they are struggling to pay their mortgage, the likelihood of a foreclosure is much higher,” she says. In addition, home owners with less equity in their homes will have a more difficult time refinancing their mortgage.
3. End of foreclosure moratoriums: The end of certain foreclosure moratoriums-including those of Fannie Mae and Freddie Mac, which were lifted in late March-also contributed to the rise in foreclosures during the period, Chen says. As these efforts unwound, lenders and servicers put additional properties into their foreclosure pipelines, she says.
4. Is Obama’s plan working?: A key component of Obama’s housing rescue plan is an effort to restructure–or modify–as many as 4 million troubled loans. So far, about 325,000 modification offers have been made through the program, according to Bloomberg news. Chen says the program is having an impact for certain individual borrowers, but the efforts–at least so far–have not put much of a dent into the national foreclosure epidemic. “The program is making progress. It’s just that there are a large number of distressed borrowers out there,” she says. “It’s so hard to process all of those loans, and then second of all, not all of those borrowers will qualify for the program.” Borrowers have complained of long delays and bureaucratic hurdles in their efforts to modify their mortgages.
Though the administration’s effort includes incentive payments to convince servicers to modify the loans, Newport says some may find it less costly to foreclose on the property. “My understanding is that there is going to be some pressure from the administration to get banks to start renegotiating more loans,” he says. “But if [modification is] not in [the servicer's] self-interest, I don’t think that they are going to do much.”
5. Mounting political pressure: Mortgage services appear to be facing mounting pressure from Washington to redouble their efforts. “We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” Treasury Secretary Tim Geithner and HUD chief Shaun Donovan said in a recent letter to 25 mortgage servicing
firms. In a hearing last week, Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, expressed his frustration more directly. “Why am I still reading about lost files, understaffed and undertrained servicers, and hours spent on hold on the phone?” Dodd said in a prepared opening statement. “Why are servicers and lenders refusing to accept principal reduction so that homeowners can start building equity and get the housing market moving again?”
6. Foreclosure outlook: Despite this pressure, Newport expects foreclosure rates to creep higher for the next year or so. “It’s going to keep on getting worse until the unemployment rate peaks, which we think will happen in about the middle of next year,” he says. For her part, Chen argues that a successful mortgage rescue program could expedite a housing recovery. “The hope is that we will be able to push through enough mortgage modifications to prevent home prices from falling too much more,” she said.
Article was written by Luke Mullins, USNews.com
California loan modification requests continue to be reported with increasing volumes. Many California homeowners need jumbo mortgage refinance loans, but they do not qualify as the jumbo lending has tightened significantly. Governor Schwarzenegger implemented another California foreclosure moratorium to help distressed homeowners in his state, but is it helping?
Many Wall Street analysts covering the home-builder sector remain skeptical of talk of a sustained recovery. “Overall, the California construction companies we met with echoed what we have been hearing throughout the U.S.: that there was clear momentum in sales in the spring, but concerns still remain around the sustainability of the improvement we have seen,” said Barclays Capital analyst Megan McGrath in a note recapping a recent industry conference. “The availability of credit, to both builders themselves and to borrowers seeking home loans, continues to be challenging,” McGrath wrote. “While it appears that banks and mortgage lenders are willing to do some construction-only loans to builders, land-related financing appears to be relatively non-existent.” Read the original article California Housing Recovery Slow as Loan Modifications Mount online.
Zions Bank and Keller Williams Real Estate are sponsoring an information session on June 9th to inform people about refinancing and loan modification options with President Barack Obama’s Making Home Affordable program.
According to Mike Barnes, most home owners will qualify for some part of the foreclosure prevention program. He calls it exciting and beneficial. And it’s free. “In all my experience I’ve never seen anything like this,” he said. Barnes believes many people can benefit from the program because it has two parts. The first is the most accessible one: FHA refinancing. In order to alleviate the pain of home owners, the federal government has pushed mortgage interest rates down to historically low rates. Unfortunately, many owners who pay on time, live within their means and have done nothing wrong don’t qualify to refinance because the value of their home has dropped in the recession.
If the mortgage loan is 80 to 105% of the value of the home, the government will assist in the refinancing to current low rates, Barnes explained. The second part of the program is harder to qualify for, but will save many people’s homes from foreclosure, he said. It is loan modification. The government will take drastic measures to help qualified participants stay in their home. There are five criteria: if the home is the primary residence, if the mortgage is for less than $729,000 (not a jumbo loan), was obtained before Jan. 1, 2009, if the owner has experienced financial, setbacks and if the mortgage payment exceeds 31% of their gross income.
The people targeted for this program are those who were victims of loan officers setting up monthly payments way beyond a person’s means and people who obtained a reasonable mortgage but have reduced income because of the recession, Barnes explained. The goal of the mortgage loan modification plan is to reduce a mortgage payment to 31 % of the participant’s gross income and has set strategies for doing so. “The administration wants it standardized,” he said. “They’ve dictated these terms.” The first step would be to lower interest rates incrementally, to as low as 2%, until the monthly payment doesn’t exceed 31%. If that doesn’t work, the life of the loan could be extended up to 40 years. If that still doesn’t do it, up to $50,000 can be placed in interest-free forbearance, or a delayed balloon payment. That lower mortgage rate will last for up to five years, after which time it will go up to a regular market rate, but then freezes at that for the life of the loan, he said. “It costs homeowners nothing to do this,” Barnes said. “It’s against the law to charge for this service.”
Article was written by Andrew Kirk.