New wave of foreclosures and a few solutions…

Posted on September 26, 2011 by admin

 It was recently reported that Bank of America is ramping up its foreclosure processing well over 200% more month-to-month sending out far more notices of default to borrowers in August than in previous months.  As you no doubt know a notice of default (NOD) is the first stage of the foreclosure process in non-judicial foreclosures states, that is, where foreclosures do not go before a judge. The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the sheer volume of troubled loans and the ‘robo-signing’ processing scandal.

Mortgage and housing analyst and strategist Mark Hanson’s research points to unusually high legal default filing activity by Bank of America, the primary driver of foreclosures. An unidentified Bank of America spokesman commented that it appeared that the numbers generally track with key categories limited to non-judicial key states, California and Nevada. However judicial states continue to move more slowly, with states like New Jersey only beginning to start processing foreclosures again this month.

August 2010 was one of the highest foreclosure months on record, however the foreclosure numbers are down very slightly year-over-year, but only because, the ‘robo-signing’ scandal was uncovered. Delays in processing have artificially lowered the foreclosure numbers over the past year, so this new surge is likely addressing loans that have been long delinquent, but unaddressed. In other words, the foreclosure pipeline is filling again. RealtyTrac, a widely followed foreclosure sale and data site, is also confirming a surge in overall notices of default in its August numbers, to be released later this week. They do not cite Bank of America specifically, which bought Countrywide Financial, taking on millions of troubled loans. RealtyTrac’s Rick Sharga said the increase may simply be the lenders and servicers starting the next cycle of REO, bank-owned property sales, and processing of loans through foreclosure. August traditionally is a high month for foreclosure actions, so part of the increase might be seasonal and could be any number of reasons – but with 3.5 million delinquent loans, this had to happen sooner or later.’

The $64,000 question is, is this merely a one month catch-up purge or will it continue at high levels for a while and if the latter, will other banks follow suit quickly? If other banks see B of A pushing more loans to foreclosure it will inevitably translate into more properties heading for sale, so they may want to get in before that glut of properties deflates property prices even further. ‘This proves once again that ‘credit’ as measured by legal defaults and foreclosures is not necessarily about borrowers missing payments but rather about what the servicers chose to do about it,’ notes Hanson.”

It is also sad to read that millions of home owners have been shut out of refinancing their homes.  That’s correct, in a report issued this week of a Federal Reserve study just released it is estimated that about 2.3 million homeowners could have refinanced their mortgages last year if they didn’t owe more than their homes were worth or if lending standards weren’t so strict.  Long-term mortgage rates are near record lows and have been below 5% for all but two weeks this year. The average rate on a 30-year fixed loan is now 4.09%. But lenders typically require homeowners to have equity in their homes to refinance. And many lenders are approving only borrowers with high credit scores. Roughly 22.5% of homeowners, or about 11 million, are “underwater” — they owe more than their homes are worth — according to CoreLogic, a real estate data research firm. The figures don’t show how many of the homeowners obtained loans during the housing boom, when lending standards were often lax. Many lenders offered loans to people with poor credit, no employment checks and little or no money down. The Fed said about 4.5 million refinancing applications were approved last year. In a healthy housing market, that figure would be nearly much higher, it said.

The Federal Housing Finance Agency has said it’s reviewing a program it launched two years ago to see if it might be expanded to let more homeowners qualify. The program, called Home Affordable Refinance Program, or HARP, lets people whose homes are underwater by up to 20 % refinance at lower rates. But to be approved for the program, homeowners must be current on their mortgages, which must date from 2009 or later. As of July, about 838,000 homeowners had refinanced through the program. Officials had hoped at least 4 million Americans would take advantage. The Fed’s study reviewed information from more than 7,900 lenders.

The number of approved mortgages fell from nearly 9 million in 2009 to fewer than 8 million in 2010, consider that this number at the peak was 15.6 million in 2005.

Here’s a suggestion I wish the banks and “authorities” would stop to consider … many home owners have, over the years, pumped tens of thousands into their homes in the form of down payments, principle reductions and home improvements and have, until the recent recession, had a good credit payments history. However, because of deflated property values or other stricter lending criteria have been unable to refinance their mortgages and, for a variety of reasons beyond their control, have become delinquent on their mortgage payments.  One would think that it would be in the banks best interest to consider recommending the credit scoring agencies ignore mortgage lates and not allow them adversely effect the borrower’s credit score if caused by circumstances beyond the borrower’s circumstances, like job loss, reduced income, inability to refinance, or modify their mortgage loans, or sell their homes.

If the banks feel compelled to foreclose for whatever reason it would be in their best interest to allow borrower’s to remain in their houses as a tenant. They should be encouraged to sign a lease purchase agreement at the “then current market value” whereby after a predetermined period of making timely rental payments, say two or three years, they be allowed the opportunity and option to repurchase their homes. Furthermore a portion of the rental payments they had been making over the years would be allowed to be considered to be apportioned as a “down payment” on the purchase price of the home.    This would achieve the following “win-win” for all parties; the neighborhood would have a less vacant “for sale properties”, the bank would have less costs and liability exposure of maintaining vacant properties, and the homeowner would have the benefit of being able participate and once again enjoy in the benefits and prestige of home ownership.  Unfortunately the negative impact of reduced property values would not be eliminated and would continue to affect all homeowners in the neighborhood. Naturally, it would be both advisable and necessary to limit the offering of this solution only to home owners who had acted “somewhat” fiscally responsibly in acquiring their homes, had not lied about their financial status when machining the loan application,  and had not used the equity in their homes as a an ATM to support a lavish or irresponsible life style, but rather to homeowners who had lost their homes due to circumstances beyond their control (like through job loss, reduced income, entered into bad loan programs.  

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Will there be another recession?

Posted on September 6, 2011 by admin

The general consensus is that we are heading for another recession and that it could be far more painful and severe than the last. Although this may be hard to accept or even believe.  Given that the economy is much weaker than it was in December of 2007 when the last recession befell us, it appears to be a very logical conclusion to reach, as many economists point out. They point out that that job growth rate is weak (close to being nonexistent), incomes are down, industrial production is down, consumer confidence is at the lowest it’s been in years and the property market is not showing signs of rebounding.  In short we have gained NO GROUND even though “a recovery” began in June of 2009, according to the Obama administration. Anxiety and uncertainty has increased, encouraged by the decision of Standard & Poor’s to downgrade the country’s credit rating and as Europe continues its desperate attempt to stem its debt crisis.

However America is a very resilient country AND WE WILL OVERCOME THIS HURDLE TOO! Make no mistake, unfortunately we all have to live through these hard times – so just hang in there, be patient and above all remain positive!

 

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What’s happening in the foreclosures and short sales arena.

Posted on September 5, 2011 by admin

For the readers of this blog who crave facts, figures and statistics, I give you this blog. Most of the foreclosure information comes from information provided by LPS Applied Analytics in its July Monitor. The average loan in foreclosure has gone for 599 days with no payment.  Of the nearly 1.9 million loans that are 90 or more days delinquent but not yet in foreclosure, 42% have not made a payment in more than a year, with an average delinquency of 397 days. Both of these timelines are new records, LPS says.

 Meanwhile, the report shows that first-time foreclosure starts were near three-year lows, and first-time delinquencies accounted for only 25% of new delinquent inventory. As of the end of June, 4.1 million loans were either 90 or more days delinquent or in foreclosure. Foreclosure sales remain constricted, with foreclosure starts outnumbering sales by a factor of almost three to one.

 LPS says the slowdown is most pronounced in judicial foreclosure states, which maintain a foreclosure and seriously delinquent pipeline that is more than three times as long as that in non-judicial states.

 On average, at the current rate of foreclosure sales, judicial foreclosure states would require 111 months to work through inventories of loans that are 90 or more days delinquent or in foreclosure as compared to in non-judicial states, which would be able to clear the inventories in approximately 32 months

 According to the Lender Processing Services report the number of mortgages that are delinquent or in foreclosure is at 6,538,000. The company’s assessment is based on mortgage performance statistics derived from its loan-level database of nearly 40 million mortgage loans through the end of July. LPS says the national delinquency rate – loans that are at least 30 days past due but not yet in foreclosure – rose to 8.34 percent as of the end of July. That’s up 2.4 percent from June but down 10.4 percent from July 2010. According to the company’s latest report, 4.11 percent of the nation’s outstanding mortgages were part of the foreclosure inventory at July month-end.  The foreclosure inventory rate – which LPS calculates as loans that have been referred to an attorney but have not yet reached the final stage of foreclosure sale – increased 0.4 percent from June, and is up 9.7 percent from a year earlier. Of the 6,538,000 mortgages going unpaid in July, LPS says 2,156,000 were in the process of foreclosure.  The remaining 4,382,000 were 30 or more days past due but the lender had not yet initiated foreclosures. Of these, 1,899,000 were 90-plus days delinquent.

The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 8.44 percent of all loans outstanding as of the end of the second quarter of 2011, an increase of 12 basis points from the first quarter of 2011, and a decrease of 141 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 32 basis points to 8.11 percent this quarter from 7.79 percent last quarter.  The percentage of loans on which foreclosure actions were started during the second quarter was 0.96 percent, down 12 basis points from last quarter and down 15 basis points from one year ago.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 4.43 percent, down 9 basis points from the first quarter and 14 basis points lower than one year ago. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 7.85 percent, a decrease of 25 basis points from last quarter, and a decrease of 126 basis points from the second quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 12.54 percent on a non-seasonally adjusted basis, a 23 basis point increase from last quarter, but was 143 basis points lower than a year ago.

“Mortgage delinquencies are no longer improving and are now showing some signs of worsening,” said Jay Brinkmann, MBA’s Chief Economist.  Foreclosure inventory rates also fell, to their lowest level since the third quarter of 2010. While some have argued that this drop in foreclosures is a temporary drop which does not reflect the problems yet to come, this does not appear to be the case, at least at the national level.

It is not a surprise that short sales are on the increase. According to RealtyTrac, short sales, as a percentage of home sales, are increasing in many states, helping some neighborhoods and homeowners avoid the more devastating impacts of foreclosures. The increases were sharper in California and accounted for 25% of home sales. Bank of America, the largest home mortgage servicer, expects to complete more than 100,000 short sales this year — more than double what it did in 2009, the bank says. In California, Wells Fargo, Senior Vice President J.K. Huey said short sales have been “steady and slightly” up in recent months, partly because there are fewer bank-owned houses for sale in some markets, and that has forced buyers to pursue more short-sale properties.

Additionally Nevada, Michigan, Georgia and Colorado were some of the other States showing increases in short sales. In Colorado, short sales were 17% of all sales in the second quarter, up from 10% a year earlier.

According to RealtyTrac, in the second quarter, short-sale homes sold at a 21% discount to non-foreclosure homes, while bank-owned homes went at a 40% discount, and short sales also reduce losses for loan owners because they avoid the full foreclosure costs.

A little known fact is that potential borrowers may qualify for a new mortgage in a shorter timeframe after a short sale than after a foreclosure and that’s one of the reasons many more home owners are pursuing this option. Short sales peaked at 16% of the market in early 2009 says RealtyTrac. Realtors feel that there should be an increase in short-sales and that they should be getting completed faster.

According to the Treasury Department there were 10,438 Home Affordable Foreclosure Alternatives, (HAFA) short sales completed by servicers through the government’s HAFA program since it launched in April 2010,.

HAFA was designed to provide an incentive to servicers for completing short sales and deeds-in-lieu of foreclosure for loans that fail the Home Affordable Modification Program.

Through June, servicers started 21,412 short sales and DIL’s (deeds-in-lieu), up 20% from the month before. A total of 10,754 were completed, up 25%.  JPMorgan Chase is the programs leading performer, completing nearly 3,600 through the program, including nearly 1,000 in June alone.  Wells Fargo was second, completing more than 3,100 since the program launched and roughly 700 in June and Bank of America completed 1,873 HAFA transactions, an increase of roughly 200 in the month.

Pam Marron, a senior loan officer with Gold Start Mortgage Financial Group in Tampa Bay, Fla., says an increasing number of homeowners in negative equity positions view a short sale as their only way out. Many, she said, are defaulting because banks require them to do so in order to qualify for a short sale. She went on to say that “The growing problem in Florida is the alarming increase in the number of short sale listings that are coming onto the market. These people are still employed but severely underwater and are having to short sale because they are not able to pay the vast difference owed between the mortgage amount and the value of these homes”.

“Banks are requiring homeowners to default in order to qualify for the short sale.”  In 22% of the HAFA agreements started – equal to roughly 4,700 mortgages – many homeowners who began a HAMP trial payment period but later requested a HAFA agreement or were disqualified from HAMP.

 

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Many lenders are refusing to refinance underwater mortgages

Posted on August 10, 2011 by admin

By Roy B. Satz and Pamela Stewart

Sadly many homeowners were advised by lenders that if they continued to make their mortgage payments faithfully and in a timely manner they should easily be able to refinance into affordable fixed-rate loans getting them out of the variable or deferred payment loan programs that they were presently in. But that day never came for many of them irrespective of their making their mortgage payments on time and in many cases even of they had a credit score that was good. 

According to data submitted to federal regulators and analyzed by the Wall Street Journal, nearly 27% of mortgage applicants were denied mortgages in 2010, up from 23.5% a year earlier. Included in these statistics were responsible homeowners with good credit who were consistently making their monthly obligations, many times at great sacrifice to themselves. They have been denied refinancing in order to avoid losing their homes. All the time while hundreds of thousands of delinquent homeowners have been “squatting” in their homes without making a single mortgage payment in months and in many cases, even years.

Dissatisfaction with the industry has grown in the last year, and continues to grow, according to consumer-opinion surveyor JP Power. Much of it comes from borrowers who would like to refinance but can’t because falling home prices have left them without enough equity in the property or they can’t meet today’s tougher credit requirements. 

Let’s not lose sight that many of today’s homeowners purchased their homes during a time of “easy credit” during many years of rampant property appreciation making use of using mortgage products, like interest-only loans and option adjustable-rate mortgages available to marginally qualified borrowers. To make matters worse, if that was even possible, homeowners “fudged” their income, assets, and employment information to “qualify” for those loans. The majority of who used their appreciating properties as ATM’s withdrawing their equity as quickly as they could to fund the lifestyles they were had become accustomed to living.

Mark Zandi, chief economist for Moody’s Analytics explained that this could mean big losses for the banks if the borrower defaulted subsequently so this has led to many lenders refusing to refinance underwater mortgages (loans that are larger than the value of the home).

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According to Tim Johnson “robo- signing” has placed mortgage servicers under the gun and many lenders are refusing to refinance underwater mortgages

Posted on August 9, 2011 by admin

 By Roy B. Satz and Pamela Stewart

“Homes that should move through the foreclosure process are held up because courts and servicers are concerned that paperwork has not been completed properly.  Robo-signing, lost paperwork and wrongful evictions have put mortgage servicers under the gun”, said Banking Committee Chairman Tim Johnson as he blamed servicers, in part, for stalling the housing recovery.

To address this problem, lawmakers are considering formulating a belated, but most necessary, national standard for mortgage servicers.  The industry is urging caution as servicers are already subject to a slew of new servicing rules from bank regulators, the FHA, Fannie Mae and Freddie Mac and more could be on the way, as four of the largest banks who hold >60% of the servicing market, Bank of America, JPMorgan Chase, Wells Fargo and Ally Financial, are in settlement talks with states attorneys’ generals.

Faith Schwartz, who heads up the industry-led Hope Now Alliance, says ‘it is important to understand the wide variety of rules and initiatives already in progress.’  One rule creates a single point of contact. While it may sound simple, Schwartz describes companies having to complete intensive retraining of employees, so they can answer all consumer questions, instead of passing them from department to department, what a pleasant change as this continues to be a huge source of frustration for hundreds of thousands of borrowers.

Dissatisfaction with the industry has grown in the last year, and continues to grow, according to consumer-opinion surveyor JP Power. Much of it comes from borrowers who would like to refinance but can’t because falling home prices have left them without enough equity in the property or they can’t meet today’s tougher credit requirements.  Credit unions, independent and community banking groups want an exemption from a national standard, saying they were not part of the problem. Jack Hopkins, who is CEO of CorTrust Bank in Sioux Falls, SD, says his bank competes for loans by keeping the loans in-house, but to comply with rigid and over-prescriptive new rules could force them to exit the servicing business.” 

“Just as we saw a double dip in home prices, we may be seeing another surge in foreclosures.  And just as the home price scenario was caused by artificial government stimulus, in the form of the home buyer tax credit juicing home sales only briefly, the foreclosure scenario was caused by real negligence, in the form of the ‘robo-signing’ paperwork scandal.  Banks and servicers stopped foreclosures entirely for a time after the malpractice was discovered, and courts delayed the process, picking through papers as foreclosures were resubmitted; that is now turning around.  The system is ramping up again, and foreclosure starts are up dramatically, more than 10% in June from the previous month, according to Lender Processing Services (LPS). The good news of the past few months has been that while the end game is quickening, as stalled foreclosures are making their way through the system at a faster pace, new delinquencies were decreasing, leading us all to believe that the crisis is abating.  Well think again.

New delinquencies rose 2.4% in June, which isn’t a lot, but it is still the wrong direction. This as the pipeline is still so clogged that foreclosure timelines continue to rise. The average loan in foreclosure in June was delinquent a record 587 days, and more than 40% of 90+-day delinquencies have not made a payment in more than a year. For loans in foreclosure, 35% have been delinquent for more than two years, according to LPS.  [Friday's] surprisingly good jobs report for July did not do much to impress economists, who cited still fewer people working in July than June and far fewer job creations on average in the past three months than in three months before that. Bottom line, we need surging jobs to shore up consumer finances and consumer confidence, both of which are vital to housing’s recovery.  Even as Fannie Mae reported a second quarter drop in mortgage delinquencies in its portfolio, chief economist Doug Duncan had this to say about the future:

 ’Economic growth at the current pace is insufficient to spur sustained, robust job creation, which is required to boost sentiment, spending and housing demand. Our July Fannie Mae National Housing Survey, to be released next Monday, continues to indicate a high level of caution among consumers regarding additional financial commitments. In addition, 70% of Americans believe that the economy is moving in the wrong direction, according to our quarterly survey that will be released. The impact of recent financial market volatility on household wealth is an additional setback to confidence and the outlook for the housing market.’

As the foreclosure numbers are not improving sufficiently, which the latest data indicates, and the weak economy is in fact getting weaker, the Obama administration will have to reverse its course of removing itself from housing and figure out new and better ways to jump back in.  It is a constant source of amazement at how little the President speaks of our housing disaster after all it is what got us into this mess in the first place, and without its strong recovery, one wonders how long the recovery will take to recover – I firmly believe it will recover after all America is a most resilient country – I just hope and pray that it happens during my lifetime!

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Will Bank of America’s settlement deal result in more homeowners losing their homes?

Posted on July 18, 2011 by admin

 by Roy B. Satz and Pamela Stewart

In a recent article by N. Schwartz published on July 11th, 2011 he questions whether a proposed settlement between Bank of America, the country’s largest mortgage servicer, and powerful investors of troubled mortgage securities stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities will ultimately mean that 10’s of 1,000s of distressed homeowners will be evicted from their homes and end up losing their homes as a result of a the settlement. 

But skeptics say that previous arrangements, like another multibillion-dollar settlement by Bank of America in 2008, have barely made a dent in the problem.  Bank of America appears to be giving varying signals regarding whether borrowers qualify for modifications or not – not a particularly reassuring sign – especially considering that their programs offering mortgage relief to struggling homeowners has failed.  The question is how it could, or more importantly, whether it will be fixed in way that’s fair to owners and taxpayers?

No definitive income qualification have been set as part of the agreement, which was announced last month, many servicers use a formula in which borrowers can qualify for a modification as long as the new monthly payment does not exceed 31 percent of their monthly gross income. For borrowers who are unemployed or lack the income to cover even reduced mortgage payments, foreclosure and eviction could result more immediately.  Personally I remain somewhat skeptical of promises that lower monthly payments would be easier to obtain.

With 1.3 million borrowers at risk of foreclosure, Bank of America has been overwhelmed by the surge in defaults for the nearly 275,000 borrowers who took out those loans. The outcome depends greatly on how deeply they are in the foreclosure process and they have sufficient income and reserves to dig themselves out. Hopes have been raised that this logjam will finally begin to ease.

However for distressed homeowners in better financial shape, the outcome may be more positive: for them the deal would include incentives for mortgage servicers to help homeowners who have fallen behind on their payments and whose homes are worth less than they borrowed, and that’s good positive news as recovery of the housing markets is as dependent on moving through the foreclosure process as quickly as is humanly possible as is “confidence in the economy” and the recovery of the job market.

According to Tony Meola, a servicing executive with B of A their goal is to modify as many borrowers into performing loans as possible … “ … to reinstate as many borrowers in a modification that performs well, … It also is likely to lead to faster resolution in those unfortunate situations where foreclosure is inevitable. While not a desirable outcome, the recovery of the housing markets depends on moving through the foreclosure process as quickly and fairly as possible.”  On a more realistic note Michael S. Barr, a former assistant Treasury secretary now teaching law at the University of Michigan was reported to have said “The mortgage servicers have repeatedly promised to do things and then not done them, I think it’s positive in general, but I don’t expect it to be transformative of what we’ve witnessed from the mortgage servicers over the last four years.” 

Homeowners now facing foreclosure who had loans with Countrywide, the subprime lender bought by Bank of America in 2008, the deal could bring a few advantages.  Under the terms of the agreement, Bank of America must now start transferring these borrowers to smaller outside servicers, even without the deal being approved in court, which is not expected until November (2011 hopefully). The draftsmen of the settlement these sub servicers will be far more efficient than Bank of America’s payment processing centers.

Analysis of data by RBS prepared as part of the settlement found that Bank of America provided fewer modifications as a percentage of unpaid principal than JPMorgan Chase, Wells Fargo, Litton and other servicers. In addition, borrowers defaulted again within six months in nearly one in five cases when modifications were made by Bank of America, a higher rate than other servicers but in contradiction Bank of America contend they have made nearly 875,000 modifications since 2008, more than any other servicer – go figure – sounds almost like politics – just who should one believe?

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Mortgage Industry’s “disdain for borrowers whom they didn’t think were worth helping’ – says FDIC Chairwoman – Shelia Bair

Posted on July 18, 2011 by admin

 by Roy B. Satz and Pamela Stewart 

A recent article on July 13, 2011 written by Lois Beckett and published in ProPublica outgoing Federal Deposit Insurance Corporation (FDIC) Chairwoman, Shelia Bair, testified before the House Financial Services Committee’s Financial Institution and Consumer Credit Subcommittee on Capitol Hill on May 26, 2011.  A revealing exit interview by Joe Nocera generated plenty of buzz providing a comprehensive look at her role from 2006 to 2011, especially her characterization of the foreclosure crisis.  Sheila Bair was quoted as saying that the mortgage industries reluctance to provide mortgage modifications stemmed in part from the “industry’s disdain for borrowers.” She went on to explain that “they (the financial institutions I presume) didn’t think borrowers were worth helping” and although President Barack Obama’s “heart is in the right place,” she criticized his economic team for taking controversial steps to aid banks while, in Nocera’s words, being “utterly unwilling to take any political heat to help homeowners.”

Joe Nocera, goes on to say that they have been tracking Obama’s struggling home loan modification program since 2009 and that Bair’s analysis of the government’s approach is very much in line with what they had been reporting and that from the beginning, the program was watered down and stripped of key enforcement measures after President Obama backed away from his campaign promises to force Banks to modify mortgages and that the treasury’s oversight of the program was lax and characterized by deference to the banks.

It is only recently that the government has begun (what appears to be reluctantly) penalizing several major banks for their byzantine, error–prone modifications.  As we’ve written on our previous blogs and in our recently published book “MORTGAGE MODIFICATION SECRETS”  home owners are regularly forced to reproduce documents that were submitted and “lost” by the recipients (even though proof of receipt of those documents were confirmed). This has been exasperated by the preponderance of poor communications and erroneous denials. So it’s not at all surpizing that as of May, only a few homeowners had received permanent loan modifications – a mere “drop in the ocean” of the millions of property owners the Obama administration promised to help.

Bair became the first regulator to speak so frankly about the issue by criticizing the industry’s approach to the problem. In her interview, Bair, a moderate Republican appointed by President George W. Bush, described the long-standing industry resistance to granting home loan modifications – resistance that she first tried to overcome, unsuccessfully, just before the housing bubble burst in 2007. 

After she took over the FDIC in 2006, Bair said, she realized that “predatory” loaning practices—like adjustable rate mortgages where rates jumped steeply after an introductory period – had become mainstream. Bair held a series of meetings with mortgage industry executives. The goal was to forestall wide-scale foreclosures by convincing debt servicers to modify loan payments when homeowners went into default.

“After doing some arm-twisting,” Nocera writes “Bair felt she had extracted a commitment” that servicers would try to restructure mortgages—in particular, that they would be willing to freeze adjustable-rate mortgages at the original payment level, rather than the higher “reset (recast) rate,” as Nocera reported in 2007 and later that year, AFTER the housing market had crashed, Bair learned from a survey of mortgage servicers that those conversations had been ignored. “It showed that like 1 percent of those reset mortgages were being restructured,” Bair told Nocera “They would just push people into foreclosure.” She told Nocera that she felt that she had been lied to, and that what mortgage servicers had promised in their meetings with the FDIC had simply been meaningless “happy talk.”

As we’ve previously reported, part of the problem with the home loan modification process is that mortgage servicers have few incentives to help homeowners or save investors money because it is 100% voluntary and not mandatory.  Servicers, the largest of which are the nation’s biggest banks, don’t own the vast majority of the loans they handle. That means that they don’t bear the loss if the loan goes to foreclosure. In fact, servicers often make money from foreclosure fees. See our previous blogs.

Bair pointed out this same problem in an op-ed in the Washington Post echoed her address to the National Press Club in June. She noted that the servicers’ short-term incentives to foreclose on homes were wildly out of line with everyone’s long-term benefit—including their own:

[Mortgage servicers'] under-investment in servicing has led to a huge inventory of foreclosed properties and mounting litigation that is likely to cost them far more than any savings they achieved by cutting corners.

In Bair’s account, the Treasury’s prioritization of the well-being of financial institutions over the well-being of homeowners has hobbled the government’s foreclosure response since the beginning of the crisis. As reported in February, Geithner’s Treasury undermined a 2009 attempt to put more pressure on servicers to modify mortgages.

Bair told Nocera that when she went to the Treasury in 2007 to encourage them to put pressure on mortgage servicers, she received little response. The government, she said, “thought maybe I was overstating the problem and that it wasn’t going to be that big a deal.” Instead, Bair gained a reputation as “difficult.”

In her recent Washington Post op-ed, Bair wrote:  Government efforts to promote modifications … have gradually moved in the right direction but have remained behind the curve. At the height of the crisis in the fall of 2008, when fear over where the bottom was ruled the markets, policymakers were supremely focused on the short-term priority of preventing the failure of the nation’s largest financial companies. Government assistance to financial institutions took a variety of forms, amounting to a total commitment of almost $14 trillion by the spring of 2009. While those actions were necessary to prevent an even bigger economic catastrophe, we still have not addressed the No. 1 cause of both the crisis and the subpar recovery we are in: a stubborn refusal to deal head-on with past-due and underwater mortgages.

Commencing in September, Bair will be working for Pew Charitable Trusts (a ProPublica supporter) – a move that earned her plaudits from the Wall Street Journal’s Deal Blog, which noted, “Here’s a bit of shocking news: A Washington regulator is NOT going to work for the industry she used to rule over.” She has also secured a book deal for her own account of the financial crisis, “Bull by the Horns: What Main Street Must Do to Fix Wall Street.”

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HAFA Short Sales and Deed-in-lieu Alternatives has JP Morgan Chase and Wells Fargo leading all the banks

Posted on July 8, 2011 by admin

By Roy B. Satz and Pamela Stewart

Home Affordable Foreclosure Alternatives Program known as HAFA provides options that avoid costly foreclosures as well as offers incentives to borrowers, servicers and investors who use the short sale or DIL deed-in-lieu alternatives to foreclosure thereby avoiding the costly and time consuming foreclosure process. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or DIL.

In 2009, the Treasury Department introduced the HAFA program to provide a viable option for homeowners who are unable to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2012.

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer – provided the title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

Over one hundred mortgage companies have agreed to participate in the Home Affordable Modification Program SM (HAMP SM). Below is a list of companies who are participating and the contact information for submitting an application. In addition, all mortgage companies with loans owned by Fannie Mae and Freddie Mac are required to participate.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation. Presently JP Morgan Chase and Wells Fargo, accounting for 60 percent of the deals, are leading the banks approved to participate in the HAFA short sales program and the government which has already provided incentives to loan servicers entering into >17,000 agreements and successfully completing 8,309 short sales and granting deed-in-lieu of foreclosures to a further 232 more properties through May according to figures released by the Treasury Department. (See the article in Inman News on Tuesday July 5th, 2011) Together Chase and Wells accounted for nearly two-thirds of the agreements loan servicers had entered into with homeowners through May giving them the go-ahead for an attempted HAFA short sale or deed-in-lieu of foreclosure.

Details of the HAFA program can be found on the following link http://www.makinghomeaffordable.gov/get-assistance/contact-mortgage/Pages/default.aspx or by calling the Homeowner’s HOPE™ Hotline at 1-888-995-HOPE (4673).

Anyone needing help working with their mortgage company, or believe that they have been wrongfully denied for a modification should call the hotline and ask for “MHA Help”.

HAFA Provisions

  • Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
    Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
  • Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
  • Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
    Uses standard processes, documents, and timeframes/deadlines.
  • Provides the following financial incentives:
    $3,000 for borrower relocation assistance;
    $1,500 for servicers to cover administrative and processing costs;
    Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
  • Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.
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Appeals Court Clarifies MERS Role in Foreclosures

Posted on July 7, 2011 by admin

 By Roy B. Satz and Pamela Stewart 

Brendan Pierson wrote an article in the New York Law Journal on June 13, 2011 that the Appellate Division, Second Department, ruled on Friday June 13th 2011, that MERS, the ubiquitous Mortgage Electronic Registration Systems, the holder of millions of mortgages does NOT HAVE THE RIGHT TO FORECLOSE ON A MORTGAGE or assign the right to anyone else IF IT DOES NOT HOLD THE UNDERLYING PROMISORY NOTE.

Justice John M. Leventhal wrote for a unanimous panel in the case Bank of America v. Silverberg, 17464/08 …

 “This court is mindful of the impact that this decision may have on the mortgage industry in New York, perhaps the nation, nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property.”  

The opinion noted that MERS is involved in about 60 % of the mortgages originated in the United States.

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A Typical Horror Story

Posted on July 7, 2011 by admin

By Roy B. Satz and Pamela Stewart

Most people have similar horror stories about mortgage modifications – they spent over two years and created about 75 pounds’ of paper trying to get any modification to their mortgage. 

Most people tell us that every month for the past year or two they received threats and warnings from their mortgage holder/loan servicers (including B of A, JP Morgan Chase, Wells Fargo, Litton, Citi, to name but a few) that the bank/loan servicer was about to foreclose on their home and that late fees were mercilessly piling up. Nearly every two months, the couple would dutifully fax in a pile of paperwork reminding the firm that they were participating in its loan modification program and making trial payments prescribed by the bank.

They have had multiple “relationship managers” (quite the relationships they succeeded in building between the homeowner and the bank – NOT!).  Each time the homeowner speaks with the bank they have to speak with a different “relationship manager” who insists on having them RE- file the same papers again and again and again. And each time you have to start over again. Each phone call ends with the homeowner feeling that this time will be different and they’ll get a permanent modification.

But what about the poor homeowner who simply can’t afford to make their mortgage payments any longer but who would and could survive if they were able to refinance or modify their existing mortgages? 

In 2009, the Obama administration launched its Home Affordable Modification Program (HAMP), estimating that his would keep +- > 5 million families in their home — keeping many millions of empty houses off the market, a critical step in maintaining the health of the housing market. At the same time, banks committed to continuing their “internal” similar and parallel proprietary modification processes for homes that didn’t meet the qualifications needed for the of the H A M Program.

So now the question being asked nationwide is “what is causing the constipation of the mortgage modification market”? What’s causing the pipeline to clog and keep the housing market from correcting itself and moving to a recovery?  Well the answer is both simple and complex and multifaceted but it begins and ends with a BIG FAT … NO CONFIDENCE by both the banks and the public.

This causes the banks not to lend which in turn creates an ever increasing and growing surplus of homes for sale. Then poor employment prospects compound the problem by reducing the number of prospective buyers add to this that the banks have made it more difficult for the buyer to qualify for a mortgage – and banks being reluctant to lend.  Then there’s the cherry on the top is other than first time home buyers every buyer of a house needs to sell their home first … a catch 22 situation? … so now we have … no buyers … difficult to qualify for a mortgage … lack of loans …

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