OREGON REAL ESTATE ROUND TABLE

Tag: Fannie Mae

  • Fewer mortgages are in default, by Home Savers Real Estate Blog


    Fewer mortgage borrowers are delinquent on their loan payments, according to the latest data from the Mortgage Bankers Association.
    The nation’s overall delinquency rate dropped to 9.85% in the second quarter, down from 10.06% of all loans outstanding three months earlier.

    Even better, the percentage of seriously delinquent loans — ones 90+ days late or already repossessed by lenders — dropped to 9.11% from 9.54% in the first quarter.

    The drop in loans 90 days or more late was the biggest the MBA has ever recorded, according to the MBA’s chief economist, Jay Brinkmann. “That shows we’re making headway,” he said.

    He cited three reasons for the improvement:

    •Fewer loans are coming into the default process;
    •The homebuyers tax credit, which increased demand for homes, generated many pre-foreclosure sales, removing the attached delinquent loans from the statistics;
    •The government- and lender-led mortgage modifications “cured” some payment problems.
    However, even with those bright spots, there was one troubling finding: First-time delinquencies increased after four quarters of decline. It inched up to 3.51% in the second quarter from 3.45% in the first quarter. According to Brinkmann, the reversal reflects the weakness in both the housing market and the overall economy.

    “It’s a question of jobs,” he said. “It takes a paycheck to make a mortgage payment.”

    Underscoring the trend is the foreclosure trend among borrowers with conventional loans, like 30-year, fixed rate mortgages. They accounted for nearly 36% of foreclosure starts during the quarter. And these safe loans rarely get into trouble unless they lose employment or income.

    The four worst hit states — California, Florida, Arizona and Nevada — still account for nearly 60% of national delinquencies, but California’s numbers dropped dramatically this year. At the end of 2009, California foreclosure starts made up nearly 20% of the nation’s total. That dropped to 14.7% during the second quarter.

    Another positive trend is the gradual downturn in the number of borrowers who are underwater on their mortgages, owing more than their homes are worth.

    CoreLogic reported today that the rate of borrowers underwater dropped to 23% in the second quarter from 24% in the first.

    When borrowers fall underwater, it increases the chance that they’ll lose the homes. Brinkmann calls it one of the two “triggers” that lead to foreclosure.

    If homeowners have positive equity, they can use it as a source of cash to pay bills, including mortgages. But if their cash reserves are gone and they can’t afford to make payments because their income has dropped, foreclosure is almost inevitable.

    CoreLogic found that negative equity is worst in five states: Nevada (68%), Arizona (50%), Florida (46%), Michigan (38%) and California (33%).

  • Surprisingly, Underwater Borrowers Say Owning Beats Renting, by Nick Timiraos, Wsj.com


    A new survey shows that Americans are generally taking a dimmer view of homeownership, even as a rising number say they believe it’s a good time to buy a home.

    The survey from Fannie Mae reveals lots of interesting insights like this one: homeowners who are underwater, or owe more than their homes are worth, are more likely to view housing as a safe investment than renters. Almost three out of four mortgage borrowers, and nearly seven in ten underwater homeowners, say that housing is safe, compared to just 57% of delinquent borrowers and 54% of renters.

    Overall, the number of Americans who say that homeownership is a safe investment has declined—to 67% in July, from 70% in January and 83% in 2003.

    While more people believe that it’s a good time to buy and a bad time to sell, the number of Americans who say they’re likely to rent, rather than buy, their next house has increased slightly since January, to one third of those surveyed. (Columnist Brett Arends offers his list of 10 reasons to buy.) Respondents also expect rents to grow much faster than home prices over the next year.

    The report shows some worrying trends for banks and mortgage investors. While three-quarters of borrowers consider their mortgage payment to be their most important debt obligation (that hasn’t changed since January), the number of delinquent borrowers that count their mortgage payment as their most important has fallen, to 50% in July from 57% in January.

    The vast majority of Americans still disapprove of borrowers stopping their mortgage payments. But the number who say it’s acceptable to default if a borrower is underwater has increased slightly, to 10% from 8% in January.

    A few other findings from Fannie’s survey (view the full results, in pdf):

    • Nearly half of all borrowers, and more than half of underwater borrowers, think their lender is likely to pursue other assets in addition to their homes if they were to stop paying their mortgage. [The ability of the lender to do this actually varies from state to state.]
    • Underwater and delinquent borrowers are also slightly more optimistic about the amount of time it will take for their credit scores to recover after a mortgage default. Around one in five of those borrowers say that it would take one to three years to wipe a mortgage default from their credit report, compared to one in seven for the general population.
    • A majority of Americans also believe that borrowers are more at fault than mortgage companies for having unaffordable loans. Nearly 56% of borrowers—and 60% of underwater borrowers—say that borrowers, not banks, have greater culpability for being in over their heads with respect to affordability.

    A separate survey from the Pew Research Center found that 19% of those polled said it was acceptable to walk away from a mortgage, while 59% said it was unacceptable and 17% said it depended on the situation.

    Democrats were twice as likely to say that it was acceptable to walk away from a mortgage (23%) than Republicans (11%), according to the Pew report.

    Follow Nick on Twitter for more housing and mortgage news: @NickTimiraos

  • INSIDE CHASE and the Perfect Foreclosure, by Mandelman Matters Blog


    JPMorgan CHASE is in the foreclosure business, not the modification business’.”  That, according to Jerad Bausch, who until quite recently was an employee of CHASE’s mortgage servicing division working in the foreclosure department in Rancho Bernardo, California.

    I was recently introduced to Jerad and he agreed to an interview.  (Christmas came early this year.)  His answers to my questions provided me with a window into how servicers think and operate.  And some of the things he said confirmed my fears about mortgage servicers… their interests and ours are anything but aligned.

    Today, Jerad Bausch is 25 years old, but with a wife and two young children, he communicates like someone ten years older.  He had been selling cars for about three and a half years and was just 22 years old when he applied for a job at JPMorgan CHASE.  He ended up working in the mega-bank’s mortgage servicing area… the foreclosure department, to be precise.  He had absolutely no prior experience with mortgages or in real estate, but then… why would that be important?

    “The car business is great in terms of bring home a good size paycheck, but to make the money you have to work all the time, 60-70 hours a week.  When our second child arrived, that schedule just wasn’t going to work.  I thought CHASE would be kind of a cushy office job that would offer some stability,” Jerad explained.

    That didn’t exactly turn out to be the case.  Eighteen months after CHASE hired Jared, with numerous investors having filed for bankruptcy protection as a result of the housing meltdown, he was laid off.  The “investors” in this case are the entities that own the loans that Chase services.  When an investor files bankruptcy the loan files go to CHASE’S bankruptcy department, presumably to be liquidated by the trustee in order to satisfy the claims of creditors.

    The interview process included a “panel” of CHASE executives asking Jared a variety of questions primarily in two areas.  They asked if he was the type of person that could handle working with people that were emotional and in foreclosure, and if his computer skills were up to snuff.  They asked him nothing about real estate or mortgages, or car sales for that matter.

    The training program at CHASE turned out to be almost exclusively about the critical importance of documenting the files that he would be pushing through the foreclosure process and ultimately to the REO department, where they would be put back on the market and hopefully sold.  Documenting the files with everything that transpired was the single most important aspect of Jared’s job at CHASE, in fact, it was what his bonus was based on, along with the pace at which the foreclosures he processed were completed.

    “A perfect foreclosure was supposed to take 120 days,” Jared explains, “and the closer you came to that benchmark, the better your numbers looked and higher your bonus would be.”

    CHASE started Jared at an annual salary of $30,000, but he very quickly became a “Tier One” employee, so he earned a monthly bonus of $1,000 because he documented everything accurately and because he always processed foreclosures at as close to a “perfect” pace as possible.

    “Bonuses were based on accurate and complete documentation, and on how quickly you were able to foreclosure on someone,” Jerad says.  “They rate you as Tier One, Two or Three… and if you’re Tier One, which is the top tier, then you’d get a thousand dollars a month bonus.  So, from $30,000 you went to $42,000.  Of course, if your documentation was off, or you took too long to foreclose, you wouldn’t get the bonus.”

    Day-to-day, Jerad’s job was primarily to contact paralegals at the law firms used by CHASE to file foreclosures, publish sale dates, and myriad other tasks required to effectuate a foreclosure in a given state.

    “It was our responsibility to stay on top of and when necessary push the lawyers to make sure things done in a timely fashion, so that foreclosures would move along in compliance with Fannie’s guidelines,” Jerad explained.  “And we documented what went on with each file so that if the investor came in to audit the files, everything would be accurate in terms of what had transpired and in what time frame.  It was all about being able to show that foreclosures were being processed as efficiently as possible.”

    When a homeowner applies for a loan modification, Jerad would receive an email from the modification team telling him to put a file on hold awaiting decision on modification.  This wouldn’t count against his bonus, because Fannie Mae guidelines allow for modifications to be considered, but investors would see what was done as related to the modification, so everything had to be thoroughly documented.

    “Seemed like more than 95% of the time, the instruction came back ‘proceed with foreclosure,’ according to Jerad.  “Files would be on hold pending modification, but still accruing fees and interest.  Any time a servicer does anything to a file, they’re charging people for it,” Jerad says.

    I was fascinated to learn that investors do actually visit servicers and audit files to make sure things are being handled properly and homes are being foreclosed on efficiently, or modified, should that be in their best interest.  As Jerad explained, “Investors know that Polling & Servicing Agreements (“PSAs”) don’t protect them, they protect servicers, so they want to come in and audit files themselves.”

    “Foreclosures are a no lose proposition for a servicer,” Jerad told me during the interview.  “The servicer gets paid more to service a delinquent loan, but they also get to tack on a whole bunch of extra fees and charges.  If the borrower reinstates the loan, which is rare, then the borrower pays those extra fees.  If the borrower loses the house, then the investor pays them.  Either way, the servicer gets their money.”

    Jerad went on to say: “Our attitude at CHASE was to process everything as quickly as possible, so we can foreclose and take the house to sale.  That’s how we made our money.”

    “Servicers want to show investors that they did their due diligence on a loan modification, but that in the end they just couldn’t find a way to modify.  They’re whole focus is to foreclose, not to modify.  They put the borrower through every hoop and obstacle they can, so that when something fails to get done on time, or whatever, they can deny it and proceed with the foreclosure.  Like, ‘Hey we tried, but the borrower didn’t get this one document in on time.’  That sure is what it seemed like to me, anyway.”

    According to Jerad, JPMorgan CHASE in Rancho Bernardo, services foreclosures in all 50 states.  During the 18 months that he worked there, his foreclosure department of 15 people would receive 30-40 borrower files a day just from California, so each person would get two to three foreclosure a day to process just from California alone.  He also said that in Rancho Bernardo, there were no more than 5-7 people in the loan modification department, but in loss mitigation there were 30 people who processed forbearances, short sales, and other alternatives to foreclosure.  The REO department was made up of fewer than five people.

    Jerad often took a smoke break with some of the guys handing loan modifications.  “They were always complaining that their supervisors weren’t approving modifications,” Jerad said.  “There was always something else they wanted that prevented the modification from being approved.  They got their bonus based on modifying loans, along with accurate documentation just like us, but it seemed like the supervisors got penalized for modifying loans, because they were all about finding a way to turn them down.”

    “There’s no question about it,” Jerad said in closing, “CHASE is in the foreclosure business, not the modification business.”

    Well, now… that certainly was satisfying for me.   Was it good for you too? I mean, since, as a taxpayer who bailed out CHASE and so many others, to know that they couldn’t care less about what it says in the HAMP guidelines, or what the President of the United States has said, or about our nation’s economy, or our communities… … or… well, about anything but “the perfect foreclosure,” I feel like I’ve been royally screwed, so it seemed like the appropriate question to ask.

    Now I understand why servicers want foreclosures.  It’s the extra fees they can charge either the borrower or the investor related to foreclosure… it’s sort of license to steal, isn’t it?  I mean, no one questions those fees and charges, so I’m sure they’re not designed to be low margin fees and charges.  They’re certainly not subject to the forces of competition.  I wonder if they’re even regulated in any way… in fact, I’d bet they’re not.

    And I also now understand why so many times it seems like they’re trying to come up with a reason to NOT modify, as opposed to modify and therefore stop a foreclosure. In fact, many of the modifications I’ve heard from homeowners about have requirements that sound like they’re straight off of “The Amazing Race” reality television show.

    “You have exactly 11 hours to sign this form, have it notarized, and then deliver three copies of the document by hand to this address in one of three major U.S. cities.  The catch is you can’t drive or take a cab to get there… you must arrive by elephant.  When you arrive a small Asian man wearing one red shoe will give you your next clue.  You have exactly $265 to complete this leg of THE AMAZING CHASE!”

    And, now we know why.  They’re not trying to figure out how to modify, they’re looking for a reason to foreclose and sell the house.

    But, although I’m just learning how all this works, Treasury Secretary Geithner had to have known in advance what would go on inside a mortgage servicer.  And so must FDIC Chair Sheila Bair have known.  And so must a whole lot of others in Washington D.C. too, right?  After all, Jerad is a bright young man, to be sure, but if he came to understand how things worked inside a servicver in just 18 months, then I have to believe that many thousands of others know these things as well.

    So, why do so many of our elected representatives continue to stand around looking surprised and even dumbfounded at HAMP not working as it was supposed to… as the president said it would?

    Oh, wait a minute… that’s right… they don’t actually do that, do they?  In fact, our elected representatives don’t look surprised at all, come to think of it.  They’re not surprised because they knew about the problems.  It’s not often “in the news,” because it’s not “news” to them.

    I think I’ve uncovered something, but really they already know, and they’re just having a little laugh at our collective expense… is that about right?  Is this funny to someone in Washington, or anyone anywhere for that matter?

    Well, at least we found out before the elections in November.  There’s still time to send more than a few incumbents home for at least the next couple of years.

    I’m not kidding about that.  Someone needs to be punished for this.  We need to send a message.

  • Home Prices Drop in 36 States; Beazer Warns on Orders; 8 Million Foreclosure-Bound Homes to Hit the Market; Prices to Stagnate for a Decade, by Mike Shedlock,


    The small upward correction in home prices from multiple tax credit offerings died in July. Worse yet, inventory of homes for sale as well as shadow inventory both soared. 8 million foreclosure-bound homes have yet to hit the market according to Morgan Stanley.

    Home Prices Drop in 36 States

    CoreLogic reports Growing Number of Declining Markets Underscore Weakness in the Housing Market without Tax-Credit Support

    CoreLogic Home Price Index Remained Flat in July

    SANTA ANA, Calif., September 15, 2010 – CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released its Home Price Index (HPI) that showed that home prices in the U.S. remained flat in July as transaction volumes continue to decline. This was the first time in five months that no year-over-year gains were reported. According to the CoreLogic HPI, national home prices, including distressed sales showed no change in July 2010 compared to July 2009. June 2010 HPI showed a 2.4 percent* year-over-year gain compared to June 2009.

    “Although home prices were flat nationally, the majority of states experienced price declines and price declines are spreading across more geographies relative to a few months ago. Home prices fell in 36 states in July, nearly twice the number in May and the highest since last November when national home prices were declining,” said Mark Fleming, chief economist for CoreLogic.

    Methodology

    The CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic industry-leading property information and its securities and servicing databases. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate “constant-quality” view of pricing trends than basing analysis on all home sales. The CoreLogic HPI provides the most comprehensive set of monthly home price indices and median sales prices available covering 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia.

     

     

    See the above article for additional charts

    Beazer Homes Warns on Orders

    The Wall Street Journal reports Beazer Homes Warns of Order Miss

    Beazer Homes USA Inc. said Wednesday it might miss order expectations for its fiscal-fourth quarter, as it also cut estimates for the year’s land and development spending, reflecting the sector’s weakness following the expiration of home-buyer tax credits.

    Last month, Beazer reported that its fiscal third-quarter loss was little changed because of a prior-year gain, while it reported a 73% surge in closings as buyers raced to qualify for the tax credit. Orders fell 33%.

    Inventory Soars

    Bloomberg reports U.S. Home Prices Face Three-Year Drop as Supply Gains

    The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

    Shadow inventory — the supply of homes in default or foreclosure that may be offered for sale — is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

    “Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

    Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S.

    Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm

    There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at that month’s sales pace, according to the Chicago-based Realtors group [National Association of Realtors].

    “The best thing that could happen is for prices to get to a level that clears the market,” said Shapiro, who predicts prices may fall another 10 percent to 15 percent. “Right now, buyers know it hasn’t hit bottom, so they’re sitting on the sidelines.”

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    Douglas Duncan, chief economist for Washington-based Fannie Mae, said in a Bloomberg Radio interview last week that 7 million U.S. homes are vacant or in the foreclosure process. Morgan Stanley’s Chang said the number of bank-owned and foreclosure-bound homes that have yet to hit the market is closer to 8 million.

    Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That’s an indication lenders — with the help of the government loan modification programs — are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.“The efforts to date have been worthwhile,” Blecher said in a telephone interview from Denver. “They both helped borrowers stay in their homes and kept that supply of distressed properties on the market somewhat limited.”

    I disagree with Herb Blecher. I see little advantage stretching this mess out for a decade, and that is what the government seems hell-bent on doing. Everyone wants the government to “do something”. Unfortunately tax credits stimulated the production of new homes, ultimately adding to inventory. Prices need to fall to levels where there is genuine demand.

    The short-term rise in the Case-Shiller home price index and the CoreLogic HPI was a mirage that will soon vanish in the reality of an inventory of 8 million homes that must eventually hit the market.

    Lost Decade

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    After reaching bottom, prices will gain at the historic annual pace of 3 percent, requiring more than 10 years to return to their peak, he said.

    Home Price Pressures

    Last Bubble Not Reblown

    After the bottom is found, remember the axiom: the last bubble is not reblown for decades. Look at the Nasdaq, still off more than 50% from a decade ago.

    The odds home prices return to their peak in 10 years is close to zero. Houses in bubble areas may never return to peak levels in existing owner’s lifetimes. Zandi is way overoptimistic in his assessment of 3% annual appreciation after the bottom is found.

    Price Stagnation 

    I expect small nominal increases after housing bottoms, but negative appreciation in real terms as inflation picks up in the second half of the decade. Yes, deflation will eventually end. Alternatively the US goes in and out of deflation for a decade (depending on how much the Fed and Congress acts to prevent a much needed bottom). Either way, look for price stagnation in one form or another.

    Thus, if you have come to the conclusion there is no good reason to hold on to a deeply underwater home, nor any reason to rush into a home purchase at this time, you have reached the right conclusions.

    Hyperinflation? Please be serious.

    When Will Housing Bottom?

    Flashback October 25, 2007: When Will Housing Bottom?

    On the basis of mortgage rate resets and a consumer led recession I mentioned a possible bottom in the 2011-2012 timeframe. See Housing – The Worst Is Yet To Come for more details.

    Let’s take a look at housing from another perspective: new home sales historic averages and housing from 1963 to present.

    New Home Sales 1963 – Present

    New home sales reached a cyclical high in 2004-2005 approximately 50-60% higher than previous peaks.This happened in spite of a slowdown in population growth and household formation as compared to the 1960-1980 timeframe.

    From 1997-1998 and 2001-2002 to the recent peak, the average sales level was 1.1 million units, or 45-50% higher than the 40 year average. This translates to an average of 300,000-400,000 excess homes for nearly a decade, and arguably as many as 3-4 million excess homes.

    Such excess inventory may require as many as 5-7 years at recessionary average sales to absorb this inventory.

    Cycle Excesses Greatest In History

    The excesses of the current cycle have never been greater in history. The odds are strong that we have seen secular as opposed to cyclical peaks in housing starts and new single family home construction. With that in mind it is highly unlikely we merely return to the trend. If history repeats, and there is every reason it will, we are going to undercut those long term trendlines.

    There will be additional pressures a few years down the road when empty nesters and retired boomers start looking to downsize. Who will be buying those McMansions? Immigration also comes into play. If immigration policies and protectionism get excessively restrictive, that can also lengthen the decline.

    Finally, note that the current boom has lasted well over twice as long as any other. If the bust lasts twice as long as any other, 2012 just might be a rather optimist target for a bottom.

    When I wrote that in 2007, most thought I was off my rocker. Now, based on inventory, I may have been far too optimistic.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com See the above article for additional charts

    Beazer Homes Warns on Orders

    The Wall Street Journal reports Beazer Homes Warns of Order Miss

    Beazer Homes USA Inc. said Wednesday it might miss order expectations for its fiscal-fourth quarter, as it also cut estimates for the year’s land and development spending, reflecting the sector’s weakness following the expiration of home-buyer tax credits.

    Last month, Beazer reported that its fiscal third-quarter loss was little changed because of a prior-year gain, while it reported a 73% surge in closings as buyers raced to qualify for the tax credit. Orders fell 33%.

    Inventory Soars

    Bloomberg reports U.S. Home Prices Face Three-Year Drop as Supply Gains

    The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

    Shadow inventory — the supply of homes in default or foreclosure that may be offered for sale — is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

    “Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

    Sales of new and existing homes fell to the lowest levels on record in July as a federal tax credit for buyers expired and U.S.

    Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm

    There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at that month’s sales pace, according to the Chicago-based Realtors group [National Association of Realtors].

    “The best thing that could happen is for prices to get to a level that clears the market,” said Shapiro, who predicts prices may fall another 10 percent to 15 percent. “Right now, buyers know it hasn’t hit bottom, so they’re sitting on the sidelines.”

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    Douglas Duncan, chief economist for Washington-based Fannie Mae, said in a Bloomberg Radio interview last week that 7 million U.S. homes are vacant or in the foreclosure process. Morgan Stanley’s Chang said the number of bank-owned and foreclosure-bound homes that have yet to hit the market is closer to 8 million.

    Defaulted mortgages as of July took an average 469 days to reach foreclosure, up from 319 days in January 2009. That’s an indication lenders — with the help of the government loan modification programs — are delaying resolutions and preventing the market from flooding with distressed properties, said Herb Blecher, senior vice president for analytics at LPS.

    “The efforts to date have been worthwhile,” Blecher said in a telephone interview from Denver. “They both helped borrowers stay in their homes and kept that supply of distressed properties on the market somewhat limited.”

    I disagree with Herb Blecher. I see little advantage stretching this mess out for a decade, and that is what the government seems hell-bent on doing. Everyone wants the government to “do something”. Unfortunately tax credits stimulated the production of new homes, ultimately adding to inventory. Prices need to fall to levels where there is genuine demand.

    The short-term rise in the Case-Shiller home price index and the CoreLogic HPI was a mirage that will soon vanish in the reality of an inventory of 8 million homes that must eventually hit the market.

    Lost Decade

    About 2 million houses will be seized by lenders by the end of next year, according to Mark Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania. He estimates prices will drop 5 percent by 2013.

    After reaching bottom, prices will gain at the historic annual pace of 3 percent, requiring more than 10 years to return to their peak, he said.

     Home Price Pressures

    Last Bubble Not Reblown

    After the bottom is found, remember the axiom: the last bubble is not reblown for decades. Look at the Nasdaq, still off more than 50% from a decade ago.

    The odds home prices return to their peak in 10 years is close to zero. Houses in bubble areas may never return to peak levels in existing owner’s lifetimes. Zandi is way overoptimistic in his assessment of 3% annual appreciation after the bottom is found.

    Price Stagnation 

    I expect small nominal increases after housing bottoms, but negative appreciation in real terms as inflation picks up in the second half of the decade. Yes, deflation will eventually end. Alternatively the US goes in and out of deflation for a decade (depending on how much the Fed and Congress acts to prevent a much needed bottom). Either way, look for price stagnation in one form or another.

    Thus, if you have come to the conclusion there is no good reason to hold on to a deeply underwater home, nor any reason to rush into a home purchase at this time, you have reached the right conclusions.

    Hyperinflation? Please be serious.

    When Will Housing Bottom?

    Flashback October 25, 2007: When Will Housing Bottom?

    On the basis of mortgage rate resets and a consumer led recession I mentioned a possible bottom in the 2011-2012 timeframe. See Housing – The Worst Is Yet To Come for more details.

    Let’s take a look at housing from another perspective: new home sales historic averages and housing from 1963 to present.

    New Home Sales 1963 – Present

    New home sales reached a cyclical high in 2004-2005 approximately 50-60% higher than previous peaks.This happened in spite of a slowdown in population growth and household formation as compared to the 1960-1980 timeframe.

    From 1997-1998 and 2001-2002 to the recent peak, the average sales level was 1.1 million units, or 45-50% higher than the 40 year average. This translates to an average of 300,000-400,000 excess homes for nearly a decade, and arguably as many as 3-4 million excess homes.

    Such excess inventory may require as many as 5-7 years at recessionary average sales to absorb this inventory.

    Cycle Excesses Greatest In History

    The excesses of the current cycle have never been greater in history. The odds are strong that we have seen secular as opposed to cyclical peaks in housing starts and new single family home construction. With that in mind it is highly unlikely we merely return to the trend. If history repeats, and there is every reason it will, we are going to undercut those long term trendlines.

    There will be additional pressures a few years down the road when empty nesters and retired boomers start looking to downsize. Who will be buying those McMansions? Immigration also comes into play. If immigration policies and protectionism get excessively restrictive, that can also lengthen the decline.

    Finally, note that the current boom has lasted well over twice as long as any other. If the bust lasts twice as long as any other, 2012 just might be a rather optimist target for a bottom.

    When I wrote that in 2007, most thought I was off my rocker. Now, based on inventory, I may have been far too optimistic.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com

  • Risks of walking away from mortgage debt, by Michele Lerner, Bankrate.com


    Some homeowners underwater on their home loan — meaning they owe more on the mortgage than the home’s current value — are turning to “strategic defaults” in which they simply walk away from mortgage debt.

    But financial experts warn the cost of skipping out on mortgage debt can be high.

    The American Bankers Association recently warned homeowners about the consequences of strategic default, including the possibility of the bank obtaining a judgment to pursue the homeowner’s assets, such as bank accounts, cars and investments.

    Wrecked credit

    A foreclosure — regardless of whether it is because of a strategic default or other circumstances — also has a negative impact on a consumer’s credit score.

    “A foreclosure is one of the stronger predictors of future credit risk,” says Craig Watts, public affairs director of FICO.

    Foreclosures remain on a credit report for seven years, with the impact gradually lessening over time.

    “For someone who has a foreclosure on (his or) her credit report, (his or) her FICO score can generally begin to recover after a couple of years, assuming the consumer stays current with (his or) her payments on all (his or) her other credit accounts,” Watts says.

    Watts says the impact of a foreclosure on a credit score depends on other factors in the borrower’s credit history. The ABA says a foreclosure drops a FICO score by 100 to 400 points.

    Difficulty getting new mortgage

    In addition, a voluntary foreclosure can impact a homeowner’s ability to qualify for a new mortgage for years to come.

    Peter Fredman, a Berkeley, Calif., consumer attorney, says Fannie Mae and Freddie Mac will not approve a mortgage within four years after foreclosure, while the ABA says it can take three to seven years to qualify for a new mortgage.

    In addition, mortgage giant Fannie Mae recently announced a tough new sanction on people who deliberately default on their mortgages. Such borrowers will be ineligible for a new Fannie-backed mortgage for seven years after the date of foreclosure.

    Other consequences

    Tax liability is another potential danger of defaulting. Although the Mortgage Forgiveness Debt Relief Act of 2007 (extended through 2012) offers widespread protection from federal taxes following a foreclosure, state taxes still may be due on unpaid debt.

    A lender can also pursue the remaining debt from an unpaid loan by obtaining a deficiency judgment against the delinquent borrower, or may work with a collection agency to recoup losses.

    And of course, ethical questions surround strategic defaults. A survey by Trulia.com and RealtyTrac found that 59 percent of homeowners would not consider defaulting no matter how much their mortgage was underwater, although another 41 percent of homeowners said they would consider a default.

    Less risky in some states

    Despite the potential negative consequences of a strategic default, the move is less risky in some states than others.

    “The first question for anyone considering a strategic default is whether the homeowners will be liable for the debt anyway,” says Fredman. “Each state has different rules.”

    Non-recourse laws protect homeowners in some states. When a borrower defaults in one of these states, the lender can take the home through a foreclosure but has no right to any other borrower assets. (Home equity loans are not eligible for this protection unless they were used as part of the home purchase.)

    According to research from the Federal Reserve Bank of Atlanta, 11 states are “non-recourse” states: Alaska, Arizona, California, Iowa, Minnesota, Montana, North Carolina, North Dakota, Oregon, Washington and Wisconsin.

    “In California, we have some of the best anti-deficiency rules around, so banks can foreclose on the home but cannot get any other judgment to claim additional assets,” Fredman says.

    In some areas, lenders are so overwhelmed with defaulting customers that homeowners can live in their homes for free for months or even a year or more before the foreclosure is complete.

    The average length of time from default to eviction is 400 days in California, Fredman says.

    Price of freedom

    The potential consequences of strategic default cannot deter some homeowners from taking the plunge, says Frank Pallotta, executive vice president and managing director of the Loan Value Group in Rumson, N.J.

    “While everyone understands the credit score impact of a strategic default, most borrowers don’t seem to care,” Pallotta says. “They think a 200-point hit on their credit score cannot offset the benefit of living for as long as 18 months rent- and mortgage-free. They see strategic default as a form of financial freedom, especially if they live in a non-recourse state and know someone who has done this.”

    Fredman — who developed the “Should I Pay or Should I Go” Web calculator to help consumers evaluate the wisdom of a strategic default — says homeowners considering a strategic default should research state regulations about loan defaults and tax laws. Even non-recourse states have various laws that can impact defaulting borrowers, he says.

    “I also think everyone should consult an attorney and probably an accountant, too, because the relative cost of these professionals is not nearly as high as the potential cost of making a mistake,” he says

  • What changes are coming for FHA lending?, by Charlene Crowell, NNPA Financial Writer


     When the Federal Housing Administration (FHA) was created in 1934, its main focus was to change the difficulty that people seeking mortgage loans faced during the Great Depression. By the end of World War II, many returning service men and women took advantage of FHA programs to help finance home purchases. Today, FHA insures 4.8 million single-family home mortgages.

    Now in 2010, the still-unfolding foreclosure tsunami that began in 2007 has forced FHA to alter how it can continue operating independent of taxpayer funds. Unlike many federal agencies, FHA’s only operating revenues are derived from fees paid for mortgage insurance. In mid-July FHA announced a number of policy changes that included an increase in mortgage insurance premiums. FHA is also considering other changes such as requiring new mortgage applicants to have higher down payments and/or higher credit scores.  

    For many policymakers, increasing required down payments and high credit scores are the opposite of what the country needs right now. Instead, these voices are urging FHA to preserve its traditional role of extending affordable access to homeownership. In their view, that access would be a valued complement to the many reforms sets forth and regulations yet to come from the Dodd-Frank Wall Street Reform Act.

    Among the organizations choosing to file comments on these changes and their likely effects was the Center for Responsible Lending (CRL), an affiliate of Self-Help. With 30 years of service as a community development financial institution operating a credit union and nonprofit loan fund, Self-Help has provided over $5.65 billion of financing to 64,000 low-wealth families, small businesses and nonprofit organizations in North Carolina and across America.  

    Like FHA, Self-Help has been a partner in expanding affordable and sustainable homeownership for many families that otherwise would have remained renters. As Self-Help’s research and policy arm, CRL has authored research reports and provided insightful analyses of nagging housing issues.  

    CRL also recently advised FHA in part, “The foreclosure crisis and the resulting economic crisis were caused by reckless and predatory lending practices and toxic financial products not by any policy goal aimed at increasing homeownership.”

    “The predatory lending practices and toxic products characteristic of the past decade,” continued CRL, “occurred for one reason and one reason only: For mortgage brokers, lenders and investors to make money. . .And communities of color were disproportionately targeted by non-bank subprime mortgage lenders who provided them with higher-cost, risk-layered, less sustainable loans than they qualify for.”

    Statistics from other independent organizations tracking African-American consumer trends support CRL’s own findings.  

    The 2010 annual survey published by the National Urban League, The State of Black America, determined that although nearly three quarters of white families own their own homes, less than half of African-American or Latino families are homeowners. Blacks and Latinos are also more than three times as likely to live in poverty as compared to Whites.

    Earlier this year, and as reported in this column, the Institute for Assets and Social Policy (IASP) at Brandeis University found that only one in four African-American middle-class families in America are financially secure.

    The 15th annual Buying Power of Black America report published by Target Market News determined that the $166.3 billion spent on housing each year is more than double and sometimes triple any other household cost. This fact suggests that housing affordability in the Black community remains a challenge. Moreover, on a range of services and products, Black households were found to spend more than their white counterparts.   

    These facts and other economic measures contributed to CRL’s call for a number of specific FHA reforms. Among them:

    An immediate ban on yield-spread premiums, the broker kickback paid by lenders for pushing high-cost loans onto buyers;

    Safeguards against abusive pricing and fees – including rigorous oversight and enforcement; and

    Stronger, more aggressive limits on points and fees identified in regulation that will complement those outlined in the Dodd-Frank bill.   

    Hopefully the regulations yet to be crafted by FHA will begin to close the affordability gap that now exists for many communities of color. Whatever rules go into effect, will become either the opportunity or an obstacle for people hoping to have their own American dream.

    This article was originally published in the September 13, 2010 print edition of The Louisiana Weekly newspaper

  • Could 62 Million Homes be Foreclosure Proof?, Fox News


     

    Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?

     

    In fear of losing your home? Good news … there is a loophole in the system that could keep you right where you are! So what’s the secret? Watch Attorney Bob Massi’s solution below, and may we suggest a paper and pen to jot down all the details.

    Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles—and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.

    Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

    MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”—an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.

    That means hordes of victims of predatory lending could end up owning their homes free and clear—while the financial industry could end up skewered on its own sword.

    California Precedent

    The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E–11. The court held that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:

    Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.

    In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:

    Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.

    The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:

    This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

    While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

    What Could This Mean for Homeowners?

    Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS’ technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.

    An August 2010 article in Mother Jones titled “Fannie and Freddie’s Foreclosure Barons” exposes a widespread practice of “foreclosure mills” in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.

    In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders’ case in 2004. Five years later, she says, some of the homeowners she’s helped are still in their homes. According to a Huffington Post article titled “‘Produce the Note’ Movement Helps Stall Foreclosures”:

    Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action ‘quiets’ all other claims). Charney says she’s helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.

    Criminal Charges?

    Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used “the artifice of MERS to sabotage the judicial process to the detriment of borrowers;” that “to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;” that the scheme depended on “the MERS artifice and the ability to generate any necessary ‘assignment’ which flowed from it;” and that “by engaging in a pattern of racketeering activity, specifically ‘mail or wire fraud,’ the Defendants . . . participated in a criminal enterprise affecting interstate commerce.”

    Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.

    By Their Own Sword: MERS’ Role in the Financial Crisis

    MERS is, according to its website, “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Or as Karl Denninger puts it, “MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!”

    MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:

    Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder’s office where documents reflecting any ownership interest in real property are kept….

    After MERS, . . . the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible …. The servicer was interested in only one thing – making a profit from the foreclosure of the borrower’s residence – so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the ‘beneficiary’ under millions of deeds of trust in Nevada and other states.

    Axing the Bankers’ Money Tree

    If courts overwhelmed with foreclosures decide to take up the cause, the result could be millions of struggling homeowners with the banks off their backs, and millions of homes no longer on the books of some too-big-to-fail banks. Without those assets, the banks could again be looking at bankruptcy. As was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko [pdf] decision:

    The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

    . . . The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail . . . .

    Nationalization of these giant banks might be the next logical step—a step that some commentators said should have been taken in the first place. When the banking system of Sweden collapsed following a housing bubble in the 1990s, nationalization of the banks worked out very well for that country.

    The Swedish banks were largely privatized again when they got back on their feet, but it might be a good idea to keep some banks as publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century it served as a “people’s bank,” making low interest loans to consumers and businesses through branches all over the country.

    With the strengthened position of Wall Street following the 2008 bailout and the tepid 2010 banking reform bill, the U.S. is far from nationalizing its mega-banks now. But a committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.

    Ellen Brown wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she shows how the Federal Reserve and “the money trust” have usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com, ellenbrown.com, and public-banking.com.

  • Facing Foreclosure? What To Do Right Now, by Jerry DeMuth, HouseLogic.com


    If you’re facing foreclosure, don’t panic: Take steps right now to save your home or at least lessen the blow of its loss.

    A record high 2.8 million properties were hit with foreclosure notices (http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&accnt=0&itemid=8333) in 2009. That’s the bad news. The good news: About two-thirds of notices don’t result in actual foreclosures, says Doug Robinson of NeighborWorks, a nonprofit group that offers foreclosure counseling.

    Many homeowners find alternatives to foreclosure by negotiating with lenders, often with the help of foreclosure counselors. If you’re facing foreclosure, call your lender right now to determine your options, which can include loan modification, forbearance, or a short sale.

    Foreclosure process takes time

    The entire foreclosure process (http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure/foreclosureprocess) can take anywhere from two to 12 months, depending on how fast your lender acts and where you live. Some states allow a nonjudicial process that’s speedier, while others require time-consuming judicial proceedings.

    Once you miss at least one mortgage payment, the steps leading up to an actual foreclosure sale can include demand letters, notices of default, a recorded notice of foreclosure, publication of the debt, and the scheduling of a foreclosure auction. Even when an auction is scheduled, however, it may never occur, or it may occur but a qualified buyer doesn’t materialize.

    Bottom line: Foreclosure can be a long slog, which gives you enough time to come up with an alternative. Meantime, if your goal is to salvage your home, think about keeping up with payments for homeowners insurance and property taxes. Otherwise, you could compound your problems by getting hit with an uncovered casualty loss or liability suit, or tax liens.

    Read the fine print

    Start by reviewing all correspondence you’ve received from your lender. The letters–and phone calls–probably began once you were 30 days past due. Also review your mortgage documents, which should outline what steps your lender can take. For instance, is there a “power of sale” clause that authorizes the sale of your home to pay off a mortgage after you miss payments?

    Determine the specific foreclosure laws (http://www.foreclosurelaw.org) for your state. What’s the timeline? Do you have “right of redemption,” essentially a grace period in which you can reverse a foreclosure? Are deficiency judgments that hold you responsible for the difference between what your home sells for and your loan’s outstanding balance allowed? Get answers.

    Pick up the phone

    Don’t give up because you missed a mortgage payment or two and received a notice of default. Foreclosure isn’t a foregone conclusion, but it’s heading in that direction if you don’t call your lender. Dial the number on your mortgage statement, and ask for the Loss Mitigation Department. You might stay on hold for a while, but don’t hang up. Once you do get someone on the line, take notes and record names.

    The next call should be to a foreclosure avoidance counselor (http://www.hud.gov/offices/hsg/sfh/hcc/fc/) approved by the U.S. Department of Housing and Urban Development. One of these counselors can, free of charge, explain your state’s foreclosure laws, discuss alternatives to foreclosure, help you organize financial documents, and even represent you in negotiations with your lender. Be wary of unsolicited offers of help, since foreclosure rescue scams (http://www.houselogic.com/articles/avoid-foreclosure-rescue-scams/) are common.

    Be sure to let your lender know that you’re working with a counselor. Not only does it demonstrate your resolve, but according to NeighborWorks, homeowners who receive foreclosure counseling are 1.6 times more likely to avoid losing their homes than those who don’t. Homeowners who receive loan modifications with the help of a counselor also reduce monthly mortgage payments (http://www.nw.org/newsroom/pressReleases/2009/netNews111809.asp) by $454 more than homeowners who receive a modification without the aid of a counselor.

    Lender alternatives to foreclosure

    Hope Now (http://www.hopenow.com), an alliance of mortgage companies and housing counselors, can aid homeowners facing foreclosure. A self-assessment tool will give you an idea whether you might be eligible for help from your lender, and there are direct links to HUD-approved counseling agencies and lenders’ foreclosure-prevention programs.

    There are alternatives to foreclosure that your lender might accept. The most attractive option that’ll allow you to keep your home is a loan modification that reduces your monthly payment. A modification can entail lowering the interest rate, changing a loan from an adjustable rate to a fixed rate, extending the term of a loan, or eliminating past-due balances. Another option, forbearance, can temporarily suspend payments, though the amount will likely be tacked on to the end of the loan.

    If you’re unable to make even reduced payments, and assuming a conventional sale isn’t possible, then it may be best to turn your home over to your lender before a foreclosure is completed. A completed foreclosure can decimate a credit score, which will make it hard not only to purchase another home someday, but also to rent a home in the immediate future.

    Your lender can approve a short sale, in which the proceeds are less than what’s still owed on your mortgage. A deed-in-lieu of foreclosure, which amounts to handing over your keys to your lender, is another possibility. The earlier you begin talks with your lender, the more likelihood of success.

    Explore government programs

    The federal government’s Making Home Affordable (http://www.makinghomeaffordable.gov/) program offers two options: loan modification (http://www.houselogic.com/articles/making-home-affordable-modification-option/) and refinancing (http://www.houselogic.com/articles/making-home-affordable-refinance-option/). A self-assessment will indicate which option might be right for you, but you need to apply for the program through your lender. A Making Home Affordable loan modification requires a three-month trial period before it can become permanent.

    Fannie Mae and Freddie Mac have their own foreclosure-prevention programs as well. Check to determine if either Fannie (http://www.fanniemae.com/loanlookup) or Freddie (http://www.freddiemac.com/mymortgage) owns your mortgage. Present this information to your lender and your counselor. Fannie and Freddie also have rental programs under which former owners can remain in recently foreclosed homes on a month-to-month basis.

    The federal Home Affordable Foreclosure Alternatives (https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html) program, which takes full effect in April 2010, offers lenders financial incentives to approve short sales and deeds-in-lieu of foreclosure. It also provides $3,000 in relocation assistance to borrowers. Again, talk to your lender and counselor.

  • Multnomahforeclosures.com: Bank Owned Property List Update for August 2010


    August REO list for bank owned property has been added to Multnomahforeclosures.com . REO lists for Clackamas, Multnomah and Washington County has been addd to the site. The homes listed in these files were deeded back or returned to the investor or lender due to the finalizing of the foreclosure process. Many of these homes may already be on the market or will soon will be. It would not be a bad idea to contact the new owner of these properties and find out what their plans are when it comes to their future ownership of the property.

    Multnomah County Foreclosures
    http://multnomahforeclosures.com

  • Housing Doesn’t Need a Crash. It Needs Bold Ideas, Gretchen Morgenson, Nytimes.com


    WE all know that most of us don’t tackle problems until they’ve morphed into full-blown crises. Think of all those intersections that get stop signs only after a bunch of accidents have occurred.

    Better yet, think about the housing market.

    Only now, after it has become all too clear that the government’s feeble efforts to “help” troubled homeowners have failed, are people considering more substantive approaches to tackling the mortgage and real estate mess. Unfortunately, it’s taken the ugly specter of a free fall or deep freeze in many real estate markets to get people talking about bolder alternatives.

    One reason the Treasury’s housing programs have caused so much frustration among borrowers — and yielded so few results — is that they seemed intended to safeguard the financial viability of big banks and big lenders at homeowners’ expense.

    For example, the government — in order, it believed, to protect the financial system from crumbling — has never forced banks to put a realistic valuation on some of the sketchy mortgage loans they still have on their books (like the $400 billion in second mortgages they hold).

    All those loans have been accounted for at artificially lofty levels, and have thereby provided bogus padding on balance sheets of banks that own them. Banks’ refusal to write down these loans has made it harder for average borrowers to reduce their mortgage obligations, leaving them in financial distress or limbo and dinging their ability to be the reliable consumers everyone wants them to be.

    Various proposals are being batted around to address the mortgage morass; one is to do nothing and let real estate markets crash. That way, the argument goes, buyers would snap up bargains and housing prices would stabilize.

    Yet little about this trillion-dollar problem is so simple. While letting things crash may seem a good idea, there are serious potential complications. Here’s just one: Many lenders and some government agencies bar borrowers who sold their homes for less than the outstanding loan balance — known as a “short sale” — from receiving a new mortgage within a certain period, sometimes a few years.

    For example, delinquent borrowers who conducted a short sale are ineligible for a new mortgage insured by the Federal Housing Administration for three years; Fannie Maeblocks such borrowers for at least two years. Private lenders have similar guidelines.

    Such rules made sense in normal times, but their current effect is to keep many people out of the market for years. And as home prices have plunged, leaving legions of borrowers underwater on loans, short sales have exploded. CoreLogic, an analytic research firm, estimates that 400,000 short sales are taking place each year.

    More can be expected: 68 percent of properties in Nevada are worth less than the outstanding mortgage, CoreLogic said, while half in Arizona and 46 percent in Florida are underwater.

    “There is this perception that maybe we should let the market crash and then prices will level off and people will come out and buy,” said Pam Marron, a senior mortgage adviser at the Waterstone Mortgage Corporation near Tampa, Fla. “But where are the buyers going to come from? So many borrowers are underwater and they’re stuck; they can’t buy another home.”

    There is no doubt that real estate and mortgage markets remain deeply dysfunctional in many places. Given that the mess was caused by years of poisonous lending, regulatory inaction and outright fraud — and yes, irresponsible borrowing — this is no surprise. Throw in the complexity of working out loans in mortgage pools whose ownership may be unclear, and the problem seems intractable.

    The moral hazard associated with helping troubled borrowers while penalizing responsible ones who didn’t take on outsize risks adds to the difficulties.

    STILL, there are real, broad economic gains to be had by helping people who are paying their mortgages to remain in their homes. Figuring out how to reduce their payments can reward responsible borrowers while slowing the vicious spiral of foreclosures, falling home prices and more foreclosures. And it just might help restore people’s confidence in the economy and get them buying again.

    With that in mind, let’s recall an idea described in this space on Nov. 16, 2008. As conceived by two Wall Street veterans, Thomas H. Patrick, a co-founder of New Vernon Capital, and Macauley Taylor, principal at Verum Capital, the plan calls for refinancing all the nonprime, performing loans held in privately issued mortgage pools (except for Fannie’s and Freddie’s) at a lower rate.

    The mass refinancing could have helped borrowers, while retiring mortgage securities at par and thus helping pension funds, banks and other investors in those pools recover paper losses created when prices plummeted. Fannie Mae and Freddie Mac could have financed the deal with debt.

    In the fall of 2008, when Mr. Patrick and Mr. Taylor tried to get traction with their proposal, roughly $1.5 trillion in mortgages sat in these pools. Of that, $1.1 trillion was still performing.

    Instead of refinancing those mortgages, however, the Washington powers-that-be hurled $750 billion of taxpayer money into the Troubled Asset Relief Program, which bailed out banks instead. Though one goal was to get banks lending again, it hasn’t happened.

    Now, almost two years later, $1.065 trillion of nonprime loans is sloshing around in private mortgage pools, according to CoreLogic’s securities database. While CoreLogic doesn’t report the dollar amount of loans that are performing, it said that as of last June, two-thirds of the 1.6 million loans in those pools were 60 days or more delinquent.

    That means one-third of the borrowers in these pools are paying their mortgages. But it is likely that many of these people owe more on their loans than their homes are worth and would benefit greatly from an interest-rate cut.

    If Fannie and Freddie bought these loans out of the pools at par and reduced their interest rates, additional foreclosures might be avoided. The only downside to the government would be if some loans it purchased went bad.

    The benefits of the plan could easily outweigh the risks. Institutions holding these loans would be fully repaid, a lot of borrowers would be helped and additional foreclosures that are so damaging to neighborhoods might be averted.

    “Every program that the government has announced was focused on bad credits, but they were trying to fix a hole that is too big,” Mr. Patrick said. “The idea is to try to preserve the decent risks and not let them go bad.”

    At the very least, this is a sophisticated and realistic idea that’s still worth considering.

  • Executives With Criminal Records Slip Through FHA Crackdown, Documents Show, By Brian Grow, Publicintegrity.org


    A crackdown on reckless mortgage lenders by the Federal Housing Administration has failed to root out several executives with criminal records whose firms continue to do business with the agency in violation of federal law, according to government documents, court records and interviews.

    The get-tough campaign has also been hamstrung because, even when the FHA can ban mortgage companies for wrongdoing or an excessive default rate, the agency does not have the legal power to stop their executives from landing jobs at other lenders, or open new firms.

    After the collapse of the home loan market, the FHA launched an effort aimed at reducing losses on mortgages it insures by weeding reckless lenders out of the program.

    But documents and interviews reveal that more than 34,000 home loans have been issued over the past two years by a dozen FHA-approved lenders that have employed people who were convicted of felonies, banned from the securities industry or previously worked for firms barred by the agency.

    More than 3,000 of those loans, about 9 percent, were seriously delinquent or already a claim on the FHA insurance fund as of June 30. That’s nearly triple the rate for all loans made by FHA lenders over the past two years, about 3.4 million.

    Compared with other regulators, critics of the FHA say it rarely cracks down on company executives. “In the securities industry, you bar people for life. You don’t see that a lot with the FHA,” says Mark Calabria, director for financial regulation studies at the Cato Institute.

    Policing the cubicles and corner suites of FHA lenders is crucial because the agency, which encourages home ownership by insuring mortgages made by qualified lenders, has become a cornerstone of the U.S. housing market. Its portfolio of guaranteed loans has grown to $800 billion in March from $466 billion in fiscal 2008. The agency’s insurance program is financed by premiums paid by FHA borrowers, but taxpayers would be on the line if those funds are depleted.

    The agency has long struggled to stop companies from slipping risky loans under its protective umbrella. It has done this in part by barring lenders if too many of their borrowers default. 
    FHA Commissioner David Stevens has vigorously defended the agency’s bid to drop lenders with higher than average default rates or evidence of fraudulent loans. “No one can feign that we’re not all over fraud now, in this administration,” Stevens says. Since January, the agency has fined or withdrawn the approval of more than 1,100 lenders to issue federally-insured mortgages, according to records provided by the FHA.

    But he added, “By no means do I think are we are out of the woods, yet. …There are going to be some of these guys who slip through.”

    The internal watchdog at the Department of Housing and Urban Development, which oversees the FHA, says the agency has failed to systematically monitor the people making home loans. In recent Congressional testimony, he called for “a new mind-set at the FHA to know your participants and not just the entity.”

    Legislation passed by Congress last year bars any individual from working for an FHA lender in a range of positions if convicted of a felony that “involved an act of fraud, dishonesty, or a breach of trust, or money laundering.” The law, which broadly addressed foreclosure prevention efforts and housing policies, also rendered an FHA lender ineligible if it employs a person convicted of an offense “that reflects adversely” upon the company.

    According to HUD and FHA documents, court records and interviews, at least five convicted felons are now working for FHA lenders or worked for them in recent years.

    Gregg S. Marcus, for example, was co-owner of a mortgage company called Gettysburg Funding Corp. when he pled guilty in 1998 to federal tax evasion in New York following an investigation of false loan applications at that company, according to court records. Marcus was sentenced to five years probation and fined $50,000. His business partner at Gettysburg Funding pled guilty to bank fraud.

    Marcus went on to become executive director at another mortgage lender, Somerset Investors Corp. A HUD database shows Somerset remains an FHA-approved lender. The company’s status as an FHA lender did not change after a March 2010 audit by HUD’s Inspector General recommended Somerset return $2.8 million in insurance payments to the agency because of “significant underwriting deficiencies” in the firm’s loans. The government auditors, who had not set out to examine individual executives, didn’t identify Marcus as a convicted felon.

    HUD officials declined to comment on Gregg Marcus and his criminal conviction. In a statement, HUD said that the president of Somerset recently certified that none of company’s employees “were currently in, or had been involved in, an investigation that could result or has resulted in a criminal conviction. If the information was false, the certification would be inaccurate and may warrant administrative action by HUD.”

    Marcus and his wife, Randi, who is the president of Somerset, did not respond to certified letters requesting comment for this article. Phone calls and e-mails sent to Somerset were not returned.

    While HUD says it tries to keep felons out of the FHA program, housing officials say they cannot bar other individuals just because they had previously worked for a banned lender.

    “Termination of a lender does not specifically prohibit its principals and senior executives from seeking employment with approved lenders or forming a new company that may seek approval,” HUD said in a statement.

    HUD’s own inspector general, Kenneth Donohue, warned at a Senate subcommittee hearing in May that FHA suffers from a “systemic weakness” by allowing these individuals to continue doing business with the agency.

    “Without specific citations against individuals (FHA) could not link principals of a defunct company to those same individuals who would go on to form new entities,” Donohue said. “We see this type of maneuver too often and it makes the FHA program too easy a target for those intent on abusing the program.”

    At least four FHA lenders employ executives who previously worked at companies banned from doing business with the agency, according to documents and interviews.

    Lend America was banned by HUD last December after the Justice Department accused the company it of originating fraudulent loans insured by the FHA. Lend America’s chief business strategist, Michael Ashley, was barred from the FHA for life in March. But at least one of the firm’s other senior executives now works as a sales manager at a company currently approved to make FHA loans.

    In another instance, a former senior executive with BSM Financial, an FHA lender based in Allen, Texas, has worked for two other FHA lenders since that company was barred from the program in 2009. The executive is currently a top official at another FHA lender in Texas, according to documents and interviews.

    BSM had run into trouble in 2006 with auditors from HUD’s Office of Inspector General, who reported that “the lender approved mortgages on overvalued properties for borrowers that were less than creditworthy.” The auditors recommended BSM reimburse $2 million in losses on foreclosed homes, along with other penalties. In April 2009, BSM was banned from the FHA program because the firm never made the first payment required by a settlement agreement following the audit.

    In a statement responding to questions about why the executives have been able to move between various FHA lenders, HUD says, “misconduct or poor performance by a company does not necessarily extend to its officers or employees absent evidence that the officers or employees participated in, directed, knew about or had reason to know about specific violations or misconduct.”

    Stevens, the FHA commissioner, said his agency follows the principle of due process when deciding which individuals to bar.

    “You can’t just throw someone out because you don’t like them,” he said. “They have to violate a law; they have to commit a crime.”

    HUD officials acknowledge that most background checks on lender employees are generally limited to “principals” – individuals identified by FHA firms as senior executives or owners of the company.

    Because HUD allows lenders to identify their own principals, firms sometimes do not disclose the senior role played by convicted felons.

    According to the Justice Department lawsuit filed against Lend America, for example, its chief business strategist, Michael Ashley, had a 10-year history of state sanctions and a federal conviction related to a mortgage fraud scheme. The Justice Department alleged that he directly controlled sales at the firm. Yet Lend America never identified Ashley as one of its principals.

  • Home & Voices In This Corner FHA Chief Risk Officer expects better performance from newer mortgages, by Jon Prior, Housingwire.com


    Bob Ryan is the first chief risk officer of the Federal Housing Administration. He was hired in October 2009. A recent increase in the FHA insurance premiums is stirring some controversy in the market as to when the policy changes will help the insurance fund.

    Sheila Bair, chairman of theFederal Deposit Insurance Corp. said tighter, common-sense controls for mortgage lenders will help the housing market going forward.

    For this edition of In This Corner, Ryan says the models for the policy were built on the forecast that recent FHA mortgages will stay current longer.

    The FHA adjustments to its insurance premiums take effect Oct. 4. But is the increase in the monthly yield offset by the cuts in the upfront premiums?

    No I don’t think it is. There is a net incremental increase embedded in there. People may have a different view of what the expected life of the new loan is, just as every investor has a potential view of what the prepayments are going to be of a particular loan is when they make an investment decision.

    So there is some range of possibilities as far as how long that loan will go out. We use models to help us estimate. It’s a process we go through with the Office of Management and Budget (OMB) and its embedded in the budget process, so it’s pretty well vetted.

    It would take three years to make up unless the increase could go into effect on post-closed loans, which it can’t. But the issue is that we would expect, on average, those loans would last a good bit more than three years. In fact, it would be a little bit more than double, to the seven to eight-year range. So if you were to do the arithmetic on that you’d see it would more than offset the decline in the upfront fee.

    So, you’re expecting borrowers who receive mortgages written Oct. 4 and beyond to be paying premiums for at least seven years.

    These loans will be current longer. There’s a lot of things that play into that, such as the mortgage rate environment. This is all embedded in future forecasting of interest rates, but that the general conventional wisdom is that rates will be more likely to rise than to fall. I’m not making a prediction, I’m just saying that’s what’s embedded in the yield curve.

    And all these things conspire to mean that these loans will probably be out there for a long time.

    With the rise in insurance premiums, how long will it take to get the FHA insurance fund back to a healthy level?

    That’s an involved calculation. You would have to run through and make a bunch of other assumptions. This per rate increase has a large impact on accelerating the return to the 2% capital ratio.

    All the other credit policy changes that we’ve announced, some of which have started to go into effect, all of those enforcement actions, have made lenders more aggressive at how they monitor the credit risk and the underwriting processes that they go through. That means that we’re getting higher credit scores and better quality loans. Those activities in combination are also going to contribute to the return to the capital ratio of above 2%.

    The biggest contributor in the near term is going to be this premium increase.

    Some have said that the FHA’s greatest strength has been its larger upfront fee and the lower monthly premiums. With the latest adjustments, is the FHA moving away from that?

    There’s pros and cons to both the upfront and over-time fee. The biggest con to the over-time fee is right now we allow it to be financed into the balance of the loan. You’re taking that upfront premium, and you’re actually increasing the loan-to-value (LTV) ratio because you’re rolling it into the unpaid principal balance of the loan, and that defeats some of the purpose of it.

    So I think we get a double benefit from lowering that upfront and increasing it over time. It’s also a little bit more borrower friendly, in that they would have to come out of pocket for more cash if they had to pay the full upfront amount out of cash.

     

  • purchase apps rise as refinance demand falls, by Thetruthaboutmortgage.com


    Applications to purchase a home increased during the week ending September 3 as refinanceapps slid, according to the latest survey from the Mortgage Bankers Association.

    That bucked an ongoing trend seen over the past few months in which refinance apps were surging and purchase apps were falling flat.

    Overall, home loan demand decreased 1.5 percent from one week earlier, thanks to a 3.1 percent dip in refinance activity, offset by a 6.3 percent rise in purchase apps.

    “Purchase applications increased last week, reaching the highest level since the end of May.  However, purchase activity remains well below levels seen prior to the expiration of the homebuyer tax credit, and is almost 40 percent below the level recorded one year ago,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in a release.

    “On the other hand, refinance volume dropped last week for the first time in six weeks, but the level of applications to refinance remains close to recent highs, as historically low mortgage rates continue to draw borrowers into the market.”

    The refinance share of mortgage activity fell to 81.9 percent of total apps from 82.9 percent one week earlier as mortgage rates inched off record lows.

    The popular 30-year fixed averaged 4.50 percent, up from 4.43 percent, while the 15-year fixed rose to 4.00 percent from 3.88 percent.

    Finally, the one-year adjustable-rate mortgage ticked up to 7.00 percent from 6.95 percent, and remains quite unattractive.

  • Short Sale Lease-Backs Make Total Sense – Fannie, Freddie and Servicers Are the Problem, Mandelman Matters


    Attention Taxpayers:

    There is a solution to the foreclosure crisis that is destroying our country.  It keeps people in their homes, doesn’t cost taxpayers a dime, and actually makes the banks more money than were they to foreclose on the property.

    It’s called a “short sale lease-back” and here is how it works:

    1. The homeowner applies for a loan modification and is turned down, or just applies for permission to short sell the property.

    2. The options are foreclosure or short sale, as the homeowner is at risk of immanent default.

    3. An unrelated third party investor organization negotiates the short sale with the lender or servicer, and buys the property at the short sale price.

    4. That company also, at that time, agrees to lease the home back to the homeowner for five years at an agreed to price, and with specified terms.

    5. At the end of five years the homeowner can exercise their lease option and repurchase the home for a previously agreed to price.

    There are other relatively minor details, but that covers the broad strokes.  It keeps the homeowner in the house, doesn’t cost taxpayers a dime, and makes the bank more money than would be the case if sold after foreclosure as an REO.

    So, what’s not to love?  Banks win by getting more for the property than would otherwise be the case. Investors win through earning a return that averages 15% on their investment.  Banks win by getting more for the sale of the properties than would result from foreclosure.  Our society, our economy and other homeowners win from a reduced the number of foreclosures.  So, why do Fannie Mae and Freddie Mac both say no.  Neither will approve a short sale under such circumstances.

    By the way, I’ve spoken with one of the principals in the company that does just what I’ve described for homeowners all over the country, and they’re the real deal.  It’s not theory, they’ve done it and it’s fact.  Personally, I found Jorge Newbery, one of the company’s principals, to be one of the brightest, most ethical, caring and candid business executives I’ve ever encountered… and that’s really saying something when you consider that I’ve had more than a couple of decades experience meeting with and speaking with business executives from all over the country and around the world.

    The company’s name is American Homeowner Preservation (“AHP”), and it’s located in Ohio, one of the hardest hit states in terms of foreclosures, and on top of that they’ve got both Dennis Kucinich and John Boehner.  (Kidding, I’m just kidding… sort of… no, I am kidding… sort of… no, really… I am for sure… sort of.)

    So, if you’re anything like me, you’re thinking… okay, so what’s the problem here?  Who wouldn’t like this?  Why in the world wouldn’t Fannie and Freddie, two totally failed mortgage companies whose stocks are listed over-the-counter, right next to Blockbuster video stores, be opposed to a way for them to make more money than foreclosing, something they’re doing far too frequently these days anyway?  You’d think they’d like it just for the change of pace, if for no other reason.

    Because their opposition to approving short sales when the current owner is going to be renting the house from its new owner, well… it feels like they want to punish the homeowner for losing the house to foreclosure, but that can’t be the reason, right?  Tell me I’m right about that… they don’t want to punish the homeowner for anything here, do they?  No, they couldn’t… they wouldn’t… talk to me industry people… what’s going on here.

    Because if I found out that it did have something to do with punishing the homeowner who is losing the home, I would likely find myself compelled to write all sorts of unpleasant things about the relative intelligence of whomever the overpaid clown is currently running the two failed GSEs into the ground.  Why, I might even call him names I haven’t even considered yet.  Nah, it couldn’t have anything to do with punishment, right?  I so want to be right about that… tell me I’m right.

    Well, I did place a call to Fannie Mae and to Freddie Mac inquiring about the rationale behind the policy, so let’s just go on and we’ll all hope for their sake that they say something in response to my inquiries.  If they don’t, then all I can say is that if you’re one of those that felt that I was a little too harsh with the Freddie and Fannie executives when writing about the whole “strategic-default-is-bad-thing, then you won’t like what I’m likely to do to them next time, were I to believe that they actually are attempting to punish a homeowner.

    Like, here’s one of my questions: I realize that you won’t approve a short sale in which the homeowner agrees to live in the home after the sale, renting it from its new owner, but what about if the homeowner agrees to sleep in the home’s back yard… and not go inside except to use the facilities?  Would that be okay, or would the same policy apply?  Well readers, what’s your guess?

    How about if the old owners park their car in the driveway and sleep in it overnight, but then they leave during the day… and the new owner doesn’t even own a car, so he agrees to the deal?  Would you approve the short sale then?  You wouldn’t, would you heartless halfwits?  I didn’t think so.

    Here’s how AHP figures out the monthly lease payments:

    It’s $375 for the first $10,000, $12 per thousand up to $50k.  After that it’s $10 per thousand.  On average, investors make 12% return on the lease.  On a $50,000 purchase price, monthly lease is $855.  The investor pays the taxes and insurance.

    The original homeowner can buy back the house in year one or two for 15% over the short sale sales price.  In year 3 it’s 20% over the short sale price, and year four it’s 25% and in year five it’s 30%.  Throughout the lease the company provides training and education to help ensure that the original homeowner is financially Also they provide counseling to help homeowner be ready to obtain financing by the fifth year, which I think is terrific.

    And, if the homeowner wasn’t able to buy the home in the future, or if they decided not to buy the home, and the house were to sell for more than the pre-agreed to price, the homeowner participates in the profits at 50%.  Amazing, if you ask me.

    Newbery says that PIMCO, the world’s largest bond holder, has said what AHP does should not present a problem for investors or servicers, but when PIMCO contacted several servicers, they found it to be quite the problem.  I want to know why?

    One of the problems could involve establishing the short sale price at which the servicer approves the home to be sold.  Currently, servicers obtain a BPO, which stands for Broker Price Opinion.  It’s sort of an appraisal-lite.  A real estate broker is paid to provide his or her opinion as to the value of the home if sold as a short sale.  One would think that such an opinion would be based on the comparable sales in the neighborhood, but come to find out… it’s not always the case.

    Apparently, servicers that ask for such BPOs from brokers who do broker price opinions are paid an average $35 – $75 for rendering their opinion as to price of home, BUT many of the servicers provide the brokers with something called BRACKETS within which the servicer wants the BPO to come in.  As in… give us your opinion as to the price of this home as long as it comes in within $60,000 and $80,000.  Yeah, there’s a comp that sold for $40,000 last week, but we’re not interested in that one.  We want an opinion between $60,000 and $80,000.

    And isn’t that nice?

    On the other hand, some servicers actually refer clients to AHP.  Default servicers, in particular, that get the charge-off loans from the larger servicers, mostly on low value homes, such that are found in Michigan and Ohio, although there are some in Arizona, Nevada, and even California and Florida, often do so.  In these highly devalued markes, principal reductions are commonplace, the homes are generally worth less than $100,000, with loans that can be $200,000 and up… and the original servicer has decided that it’s just not worth going after anymore.  Clearly, AHP is the best answer for investors in these properties

    Newbery says that the problems his company faces are the same as what everyone else is facing today when negotiating with a lender or servicer.  “Our deals take as long as loan modifications.  We’ve had them take 12 months and one or two have taken 18 months.  If the servicer doesn’t approve it the first time, we resubmit and resubmit, and often times they will accept the fifth offer.”

    I think Newbery’s company is the real deal… a truly win-win-win operation.  “Transparency means sustainability.  Our program is easy to understand, totally transparent and presents a solid value proposition for everyone involved,” explains Newbery.

    So, let’s see what I can find out about this from Fannie and Freddie or other servicers.  Let’s see if there’s some reason we’re not embracing this as an answer that makes sense… or if we’re just intent on punishing those that find themselves in financial trouble… you know… the old fashioned way.

    Personally, I think there should be more companies like Newbery’s, and I hope the idea catches on.  I know there have been several that have had a similar idea, but I haven’t seen any getting actual deals done like AHP definitely has.  So.., investors… come on… start your engines and let’s get this economy moving in the right direction again, or at least let’s stop it from falling through the floor.

    For more information, visit AHPHelp.com.  And for the record, I was not paid a nickel for writing this article, nor do I receive anything when you click or decide to do business with this company.  It may have sounded like an infomercial or commercial, but it was nothing of the kind.  I just think whet they’re doing is great, especially in light of the fact that the government hasn’t the foggiest idea of what to do to change things for the better… obviously.

    If you disagree, I’m open to listening to whatever you have to say.  Either leave a comment or email me at mandelman@mac.com.

  • Treasury Designs New Federal Program to Help Stimulate Economy, by Mandelman, Mandelman Matters


    This week, the federal government is said to be announcing a new federal program designed to keep our economy vacillating between deflationary collapse and contrived recovery.  The program, referred to as the Special TARP Underwriting Program to Impede Development, will first tackle the challenge of bringing the government’s most inane economic stability plans together under one larger, yet infinitely more purposeless program banner.

    Initial funding for the Special TARP Underwriting Program to Impede Development will come primarily from contributions made on a voluntary basis by the nation’s largest and most insolvent financial institutions, through the sporadic unannounced printing of twenty and fifty dollar bills, and from change found in the couches left behind in foreclosed homes.

    Names floated in the press for program director included initial frontrunner, Carrot Top, followed by Dan Quail and Paris Hilton, although confirmed reports say that Treasury Secretary Tim Geithner and White House economic advisor, Larry Summers, have thrown their considerable combined clout behind Elizabeth Warren.

    “I can’t think of anymore more qualified for this job than Liz,” the Treasury Secretary said while attending a Telethon for the Boatless in Miami Beach, sponsored by the magazine, Unbridled Avarice, and through a grant made by Goldman Sachs.  (In the spirit of full disclosure, Goldman did file papers with the SEC stating that the firm does plan to short that grant in an effort to remain vigilant about it’s risk profile.)

    The Special TARP Underwriting Program to Impede Development is known by the acronym, STUPID.  The program is projected to provide assistance to responsible American homeowners who have high credit scores, equity of $200,000 in a second home, and surnames that begin with “Gh” or “Pf,” assuming they did not file a tax return in 1992, and reside primarily in a state that ends in the letter “E”. Qualified homeowners can apply for assistance under the program by calling a toll-free number at HUD; area code 212-GET-STUPID.

    Secretary Geithner explained the program to reporters while waiting for his dessert soufflé to rise.  Those in attendance said that he told the group that the program would help homeowners and get the economy back on track by removing the key obstacle to the future profitability of financial institutions.  He also mentioned that the soufflé was dry.

    “So, now that you understand what STUPID is, let’s talk about what STUPID does,” Geithner told the group.  “I think you can see why Larry and I feel so strongly that Liz Warren be asked to run the new program.  I think that she, more than anyone else I can think of, is representative of what the program is all about.  I’m hoping that within a very short period of time, the entire country will associate the name Elizabeth Warren with STUPID.  I know Larry and I both do already.”

    The good news is that almost all of the HAMP participating servicers have already signed on to participate in the new program, so most homeowners are very likely to find that they have a STUPID Servicer handling their loan.

    http://mandelman.ml-implode.com/

  • Credit score gaps narrow for FHA loans: Quality Mortgage Services, by Jason Philyaw, Housingwire.com


    The credit score gap for 2010 loans through the Federal Housing Administration fell 43 points from 2006 levels, according to Quality Mortgage Services.

    The mortgage quality-control services firm said its data show the average credit score of FHA loans ranked as excellent in 2006 was 665 whereas the average score of a loan ranked fair was 603 for a gap of 62 points. For FHA loans originated so far this year, the firm’s data show excellent loans have average credit scores of 707 while fair loans average scores are 688 for a difference of 19 points.

    “This is good news for investors because of the increase number of loans going for securitization where the borrower has a lower probability of a historical or future 90-day late credit scenario,” Quality Mortgage Services executive vice president Tommy Duncan said.

    The Franklin, Tenn.-based company performs post-closing quality-control audits and tracks trends of mortgages.

    “The decrease in the credit score gap shows that the FHA loan product is limiting itself to home buyers and reducing the number of applicants that would have normally qualified for a FHA loan in 2006,” Duncan said. “Also, this trend may make it more difficult to associate high-risk loans with certain credit score ranges and may place more focus on ratios. This data shows that underwriting templates have adjusted to a higher credit score standard to obtain a FHA loan and may be preventing the tradition first-time homebuyer, or low to moderate income earners, from obtaining a FHA loan.”

    Write to Jason Philyaw.

  • Fannie Mae tries to stimulate market for foreclosed homes, By Kenneth R. Harney, Latimes.com


    The mortgage giant quietly launches the HomePath program, which offers subprime-era terms for buyers: minimal down payments, no appraisals, no mortgage insurance and lower minimum credit scores.

    If you’re a buyer with little cash or a small-scale investor looking for a deal on a foreclosed house, a little-publicized national lending program could be just what you need this fall.

    Here’s what it offers:
    • Minimal down payments — 3% for buyers who plan to live in the house, 10% for investors. Most of your down payment can come from documented gifts from relatives or others with no direct connection to the transaction.
    • No requirement for an appraisal on the property unless you’re applying for additional money to renovate the house. This is crucial because lowball appraisals can be deal-killers, especially when the house needs cosmetic or other repairs.
    • Generous “seller contribution” limits of up to 6% of the price, effectively reducing the cash you’ll need to pay closing costs.
    • No requirement for mortgage insurance coverage, despite your high loan-to-value ratio at purchase.
    • A minimum credit score of 660 — significantly lower than the 700-plus scores many lenders now demand for conventional loans on favorable terms.
    • Maximum loan amounts tied to standard conventional loan limits: $729,750 in the highest cost markets, $625,500 in others, and $417,000 everywhere else.

    Who is offering such an unusual package of come-ons like this in an era of stringent underwriting requirements? It’s Fannie Mae, the mortgage investment giant that got into deep trouble when the housing bubble burst and is now bleeding red ink in prodigious quantities under federal conservatorship. As a result of its past problems, Fannie is saddled with a bulging portfolio of tens of thousands of foreclosed homes. It needs to sell those houses, is willing to finance their transfer to new owners and has come up with a program it calls HomePath to do so. In recent weeks, HomePath loans have been rolled out through mortgage brokers and a network of 50 lenders, so it’s probably available on houses in your area.

    The basics on HomePath: The program is restricted to Fannie Mae foreclosure holdings. The full lineup of listings can be viewed state by state at http://www.HomePath.com. Participating real estate brokers are listed on the same site; Fannie Mae will entertain only offers that come through those brokers, not directly from consumers. Most properties are open to bids from owner-occupant buyers and investors, but some designated “First Look” are reserved for bids from owner-occupants during the initial 15 days after listing.

    There are two main options with HomePath: mortgage financing to buy the house in its current “as is” condition and “renovation” financing, in which Fannie lends additional amounts needed for what it describes as “light to moderate” fix-ups, such as a roof repair or replacement of a heating, ventilation and air conditioning system. Standard HomePath listings are all in “move-in condition,” according to Fannie. That is, the company has inspected them, performed at least cosmetic repairs as needed, and determined them to be structurally sound with no code violations and all systems in working order. Listings eligible for renovation financing generally require some work to be funded through add-on amounts to the mortgage that are held in escrow by the lender after closing and disbursed as repairs are completed during the succeeding six months. The maximum rehab amount is $30,000 or 20% of the projected “as completed” value of the renovated house.

    Interest rates on both options are slightly higher than prevailing conventional or FHA-insured loan rates. For example, Peter Boutell, co-owner of Santa Cruz Home Finance in Santa Cruz, Calif., says that in mid-August, when 30-year fixed rates on owner-occupied home loans dropped to the 4 3/8% range, applicants making less than 20% down payments were required to pay mortgage insurance premiums that pushed their effective rate to about 4 7/8%. At the same time, HomePath loans with 5% down payments were available at 5 1/8%. “This is an amazing program” for people looking for a foreclosure at a low price who don’t have big down payment cash, Boutell said. “You cannot buy a fix-up with conventional financing anywhere. Lenders just won’t do them.”

    Are there potential downsides to HomePath? Absolutely. Although Fannie Mae says it owns foreclosed houses in a wide variety of neighborhoods, mortgage brokers say they are more likely to be found in lower- to moderate-priced areas that took deeper hits when the housing market unraveled. Buyers looking for pristine properties with zero defects might not find what they want on the HomePath listing board. But check it out. Fannie’s loan terms will be hard to beat.

  • How Ruthless Banks Gutted the Black Middle Class and Got Away With It, by Devona Walker, Truth-out.org


    The real estate and foreclosure crisis has stripped African-American families of more wealth than any single event in history.

    The American middle class has been hammered over the last several decades. The black middle class has suffered to an even greater degree. But the single most crippling blow has been the real estate and foreclosure crisis. It has stripped black families of more wealth than any single event in U.S. history. Due entirely to subprime loans, black borrowers are expected to lose between $71 billion and $92 billion.

    To fully understand why the foreclosure crisis has so disproportionately affected working- and middle-class blacks, it is important to provide a little background. Many of these American families watched on the sidelines as everyone and their dog seemed to jump into the real estate game. The communities they lived in were changing, gentrifying, and many blacks unable to purchase homes were forced out as new homeowners moved in. They were fed daily on the benefits of home ownership. Their communities, churches and social networks were inundated by smooth-talking but shady fly-by-night brokers. With a home, they believed, came stability, wealth and good schools for their children. Home ownership, which accounts for upwards of 80 percent of the average American family’s wealth, was the basis of permanent membership into the American middle class. They were primed to fall for the American Dream con job.

    Black and Latino minorities have been disproportionately targeted and affected by subprime loans. In California, one-eighth of all residences, or 702,000 homes, are in foreclosure. Black and Latino families make up more than half that number. Latino and African-American borrowers in California, according to figures from the Center for Responsible Lending, have foreclosure rates 2.3 and 1.9 times that of non-Hispanic white families.

    There is little indication that things will get much better any time soon.

    The Ripple Effect

    If anything, the foreclosure crisis is likely to produce a ripple effect that will continue to decimate communities of color. Think about the long-term impact of vacant homes on the value of neighborhoods, and about the corresponding increase in crime, vandalism and shrinking tax bases for municipal budgets.

    “The American dream for individuals has now become the nightmare for cities,” said James Mitchell, a councilman in Charlotte, NC who heads the National Black Caucus of Local Elected Officials. In the nearby community of Peachtree Hills, he says roughly 115 out of 123 homes are in foreclosure. In that environment, it’s impossible for the remaining homeowners to sell, as their property values have been severely depressed. Their quality of life, due to increases in vandalism and crime, diminished. The cities then feel the strap of a receding tax base at the same time there is a huge surge in the demand for public services.

    Charlotte, N.C. Baltimore, Detroit, Washington D.C. Memphis, Atlanta, New Orleans, Chicago and Philadelphia have historically been bastions for the black middle class. In 2008, roughly 10 percent of the nation’s 40 million blacks made upwards of $75,000 per year. But now, just two years later, many experts say the foreclosure crisis has virtually erased decades of those slow, hard-fought, economic gains.

    Memphis, where the majority of residents are black, remains a symbol of black prosperity in the new South. There, the median income for black homeowners rose steadily for two decades. In the last five years, income levels for black households have receded to below what they were in 1990, according to analysis by Queens College.

    As of December 2009, median white wealth had dipped 34 percent while median black wealth had dropped 77 percent, according to the Economic Policy Institute’s “State of Working America” report.

    “Emerging” Markets Scam v. Black Credit Crunch

    While the subprime loans were flowing, communities of color had access to a seemingly endless amount of funding. In 1990, one million refinance loans were issued. It was the same for home improvement and refinance loans. By 2003, 15 million refinance loans were issued. That directly contributed to billions in loss equity, especially among minority and elderly homeowners. Also at the same time, banks developed “emerging markets” divisions that specifically targeted under-served communities of color. In 2003, subprime loans were more prevalent among blacks in 98.5 percent of metropolitan areas, according to the National Community Reinvestment Coalition.

    One former Wells Fargo loan officer testifying in a lawsuit filed by the city of Baltimore against the bank says fellow employers routinely referred to subprime loans as “ghetto loans” and black people as “mud people.” He says he was reprimanded for not pushing higher priced loans to black borrowers who qualified for prime or cheaper loans. Another loan officer, Beth Jacobson, says the black community was seen “as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.”

    “We just went right after them,” Jacobson said, according to the New York Times, adding that the black church was frequently targeted as the bank believed church leaders could convince their congregations to take out loans. There are numerous reports throughout the nation of black church leaders being paid incentives for drumming up business.

    Due in part to these aggressive marketing techniques and ballooning emerging market divisions, subprime mortgage activity grew an average of 25 percent per year from 1994 to 2003, drastically outpacing the growth for prime mortgages. In 2003, subprime loans made up 9 percent of all U.S. mortgages, about a $330 billion business; up from $35 billion a decade earlier.

    Now that the subprime market has imploded, banks have all but abandoned those communities. Prime lending in communities of color has decreased 60 percent while prime lending in white areas has fallen 28.4 percent.

    The banks are also denying credit to small-business owners, who account for a huge swath of ethnic minorities. In California ethnic minorities account for 16 percent of all small-business loans. In the mid-2000s roughly 90 percent of businesses reported they received the loans they needed. Only half of small businesses that tried to borrow received all or most of what they needed last year, according to a survey by the National Federation of Independent Business.

    In addition, minority business owners often have less capital, smaller payrolls and shorter histories with traditional lending institutions.

    Further complicating matters is the fact that minority small-business owners often serve minority communities and base their business decisions on things that traditional lenders don’t fully understand. Think about the black barber shop or boutique owner, who knows there is no other “black” barber shop or boutique specializing in urban fashions within a 30-minute drive. While that lender may understand there is such a niche market as “urban fashions,” they likely won’t understand the significance of being “black-owned” in the market as opposed to corporate-owned. Or think of the Hispanic grocer with significant import ties to Mexico who knows he can bring in produce, spices and inventory specific to that community’s needs, things people cannot get at chain grocery stores. That lender might only understand there is a plethora of Wal-Marts in the community where he wants to grow his business.

    Minority business owners are often more dependent upon minority communities for survival, which of course are disproportionately depressed due to subprime lending. Consequently, minority business owners have a lower chance of success. Banks, understanding that, are even less likely to lend. It’s like a self-fulfilling prophecy, and it’s beginning to resemble the traditional “redlining” of the 1980s and 1990s.

    “After inflicting harm on neighborhoods of color through years of problematic subprime and option ARM loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment,” said Geoff Smith, senior vice president of the Woodstock Institute.

    Believe it or not, no one in a position of power to stop all this from unfolding was blindsided. Ben Bernanke was warned years ago about the long-term implications of the real estate bubble and subprime lending. Still, he set idly by. He told the advocates who warned him that the market would work it all out. Perhaps they thought the fallout would be limited to minority communities, or perhaps they just didn’t care.

    Devona Walker has worked for the Associated Press and the New York Times company. Currently she is the senior political and finance reporter for theloop21.com. 

     

  • Rescue from foreclosure? Frustration, anger grow, By Sanjay Bhatt, Seattletimes.com


    When he tried to change the terms of his home loan, Michael Guzman was rejected because the bank didn’t consider his joblessness a long-term hardship.

    Kamie Kahlo’s bank offered her a modified mortgage on her Queen Anne home but later told her the lower payments weren’t permanent.

    And Leslie Oldham was stunned her bank moved to foreclose on her Kent home before it gave her a decision on a loan modification.

    “I tried everything I could to work it out with the bank,” said Oldham, 58, “because the last thing I wanted to do was file a bankruptcy.”

    More than a year since President Obama announced an unprecedented national foreclosure-prevention program, many homeowners’ experiences with the program have left them feeling frustrated and angry at mortgage servicers.

    The program gives servicers financial incentives to permanently lower the monthly payments of homeowners who qualify for and successfully complete a three-month trial period. Servicers can modify a mortgage by lowering the interest rate, extending the loan’s terms or deferring payment of principal.

    Federal auditors say the Treasury Department has failed to hold banks and other servicers accountable for following the loan-modification program’s guidelines, and state regulators say there’s little they can do.

    Some examples from the Government Accountability Office:

    • Delayed decisions: After three months of accepting payments on a modified trial loan, banks are supposed to decide whether to make the new terms permanent. But some banks have a backlog of thousands of homeowners who have been making trial payments for six months or longer.

    • Inconsistent treatment: Fifteen of the 20 largest servicers in the program didn’t follow federal guidelines for evaluating borrowers’ loans and may have treated similarly situated borrowers differently.

    • No meaningful appeals: The Treasury does not independently review borrowers’ application or loan files, nor does it have clear penalties for servicers who violate the program’s rules.

    The program was intended to keep 3 million homeowners from foreclosure, but it had produced only about 435,000 permanent modifications through July.

    Treasury officials say the program’s impact can’t be measured by a single statistic. Many homeowners who were deemed ineligible for the federal program have been offered private loan modifications by their servicer.

    Still, six of every 10 seriously delinquent borrowers are not getting help, according to a new study by the State Foreclosure Prevention Working Group. Struggling homeowners are alienated by the mixed messages and long delays, the group said, and almost three-quarters of modified mortgages leave borrowers owing more, not less.

    “That is not a sustainable solution,” said Roberto Quercia, who consulted on the study and is director of the Center for Community Capital at the University of North Carolina, Chapel Hill. “For people underwater, making the hole deeper is a recipe for disaster.”

    Jumbled paperwork

    In March 2009, Treasury officials launched the federal Home Affordable Modification Program (HAMP), its cornerstone effort to rescue the nation’s housing market, in which property values have fallen at a rate not seen since the Great Depression.

    Homeowners must pass three tests to be considered: First, they must have an eligible hardship, such as unemployment. Second, their mortgage must exceed 31 percent of their gross monthly income.

    Finally, the bank applies a “net present value” test to see if it will lose more money from foreclosing on their home than from modifying the mortgage.

    Through July, homeowners in the program saw a median 36 percent, or more than $500, savings in their monthly payment after permanent modification, according to the Treasury.

    But the number of homeowners making trial payments who were dropped from the program — more than 600,000 — now exceeds the number with permanent modifications.

    “Paperwork has been the No. 1 reason homeowners have not been able to convert to permanent modifications,” Treasury spokeswoman Andrea Risotto said.

    The second most common reason, she said, is that homeowners are unable to keep up with payments during the trial period.

    Housing counselors and lawyers for homeowners say servicers misplace documents or wrongly reject eligible applicants for no good reason — even after they’ve made trial payments for six months or longer.

    “The servicers are claiming that the files are a mess or are incomplete,” said Marc Cote, a housing counselor who coordinates Washington state’s foreclosure-prevention hotline. “We have confirmation the fax was received. Then you call back in two days and there’s no record of it. That’s not uncommon.”

    Regulators at the state Department of Financial Institutions say they’ve been flooded with consumer complaints about mortgage issues — such as banks failing to properly credit homeowners for payments.

    Department director Scott Jarvis says a series of federal court decisions since 2002 has made it nearly impossible for regulators to force national banks and thrifts to comply with state consumer-protection laws.

    “It’s a massive shell game,” Jarvis said. “The pea is the consumer, and the consumer ends up getting shuffled around the shells and rarely gets anything resolved.”

    For their part, big banks and other servicers say they’re helping distressed borrowers, while being fair to the majority of homeowners who pay their mortgages on time.

    This year, Chase opened a loan-modification office in Tukwila that focuses on screening homeowners with Chase mortgages in Washington and Oregon.

    And a coalition of big banks recently announced support for a Web portal called HOPE LoanPort that housing counselors can use to submit complete applications, verify their receipt and get status updates.

    “In the end I think we all share a common goal, which is to help as many customers as possible stay in their homes,” said Rebecca Mairone, Bank of America’s national default-servicing executive.

    Left in limbo

    Cote, the housing counselor, recounts this story: On Aug. 6, a national bank told an elderly owner of an Issaquah house that her application for loan assistance — submitted March 3 — was still under review.

    A week later, a trustee let the bank repossess the woman’s house. The bank had denied the woman’s application but never notified her in writing, as required.

    “They’re violating the guidelines,” said Cote, whose agency doesn’t allow him to identify the national bank.

    Some Seattle-area homeowners echo Cote.

    Guzman, of Lake Stevens, has been unemployed for more than two years and was told — incorrectly — by Chase last year that his joblessness did not count as a permanent hardship.

    “Servicers continue to evolve their implementation of HAMP,” Chase said in a statement.

    Moreover, Chase said, it asked Guzman to reapply for loan assistance, but he has refused.

    Guzman said he’s already submitted paperwork three times.

    “Millions of people have gone through this wringer like I have,” he said.

    Kahlo, who bought her Queen Anne home in 1999, said she did everything Bank of America asked her to do to qualify for relief under the federal program.

    After the bank told her it wasn’t permanently modifying her mortgage, she sued, alleging it had violated the federal program’s rules.

    Bank of America sought to dismiss the suit, saying the lower monthly payment it offered her was an alternative to the federal program.

    “A participating servicer is not required to modify every HAMP-eligible loan,” the bank stated in court.

    Without a permanent modification, Kahlo says, she’s in limbo. “I don’t know if I’m sleeping in their home or my home,” she said.

    Declaring bankruptcy was a last resort for Oldham, a widow in Kent who manages payroll for a small construction company.

    But she believed she had no recourse because Bank of America foreclosed on the manufactured home she’s lived in for 15 years.

    Oldham said she got behind on her mortgage because of medical bills.

    She applied for a modification last year, but the bank tacked a foreclosure notice on her door before she received an answer.

    Oldham complained to the state Attorney General’s Office, which passed her on to the state Department of Financial Institutions. That department routinely forwards such complaints — about 540 so far this year — to federal regulators.

    With Oldham, though, the state department lost track of her complaint, finally sending it along last month.

    Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com

  • 66% of homeowners who seek foreclosure counseling cite job losses for trouble, Craig Wolf, Poughkeepsiejournal.com


    Two-thirds of the people seeking foreclosure -prevention counseling in the major local program say it was their loss of jobs or income that got them in trouble.

    And the majority of people counseled did not have subprime mortgages, but conventional, fixed-rate mortgages, according to Hudson River Housing Inc., a Poughkeepsie-based nonprofit.

    The group said its count of counseled homeowners has exceeded 1,500 since beginning the program in 2008.

    Mary Linge, director of home ownership and education, said that 66 percent of homeowners currently cite loss of jobs and reduced income as primary reasons they face foreclosure.

    In foreclosure, a lender who isn’t being paid takes possession of the property.

    Of those who have recently sought services, 79 percent have conventional loans, compared with 43 percent in late 2008 when the program began, Linge said.

    “The foreclosure crisis is now largely being driven by economic pressures, not bad mortgage products,” Linge said.

    Recent research by the Poughkeepsie Journal found that foreclosure filings in state Supreme Court rose in 2009 by nearly 20 percent over 2008. For the first seven months of this year, filings are on course to show a further 10 percent increase.

    Hudson River Housing has received three federal grants totalling $308,602 for counseling people through the Hudson Valley Foreclosure Prevention Services.

    Linge said the National Foreclosure Mitigation Counseling program that has funded her group has done research on results nationally.

    Homeowners who got counseling were 60 percent more likely to avoid losing their homes than people who did not seek help. Clients were more likely to get a loan modification and, on average, saved $454 a month on mortgage payments.

    Reach Craig Wolf at cwolf@poughkeepsiejournal.com or 845-437-4815.