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Fed Cracks Down On Mortgage Servicers, Banks

House Votes to End Embattled Mortgage Aid Program

Published March 30, 2011

WASHINGTON -- House Republicans pushed through legislation Tuesday to terminate an underachieving Obama administration program designed to reduce mortgage payments for homeowners in danger of losing their homes to foreclosure.

Most Democrats, while acknowledging that the Home Affordable Modification Program has fallen short of original goals, protested the vote to kill it.

The GOP-led House this month has voted to kill three other programs aimed at reviving the struggling housing market, including one to aid homeowners who have lost their jobs or become sick and another helping state and local governments buy and revamp abandoned properties.

The HAMP program, said Rep. Judy Biggert, R-Ill., chairwoman of the House Finance Committee's housing panel, is "a poster child for failed federal foreclosure programs."

HAMP, enacted two years ago with funds from the Troubled Asset Relief Program, offers incentives to loan servicers to modify loans for people having trouble making payments. But the Treasury Department has no authority to compel banks and loan servicers to participate, and so far the program has only modified about 600,000 loans, well below the 3 million to 4 million anticipated.

Rep. Patrick McHenry, R-N.C., the sponsor of the bill, claimed that a majority of those who enter the program end up being harmed because they use up savings and damage credit ratings during months of waiting, and then are rejected for permanent reduced loans.

NEW YORK — The bleakest year in foreclosure crisis has only just begun.

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and more will miss payments as they struggle with job losses and loans worth more than their home's value, industry analysts forecast.

"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year by lenders.

1. The outlook comes after banks repossessed more than 1 million homes in 2010, RealtyTrac said Thursday. That marked the highest annual tally of properties lost to foreclosure on records dating back to 2005.

One in 45 U.S. households received a foreclosure filing last year, or a record high of 2.9 million homes. That's up 1.67 percent from 2009.

The mortgage crisis.

The bad mortgages that got the current financial crisis started have produced a terrifying wave of home foreclosures. Unless the foreclosure surge eases, even the most extravagant federal stimulus spending won't spur an economic recovery.

The Obama Administration is expected within the next few weeks to announce an initiative of $50 billion or more to help strapped homeowners. But with 1 million residences having fallen into foreclosure since 2006, and an additional 5.9 million expected over the next four years, the Obama plan -- whatever its details -- can't possibly do the job by itself. Lenders and investors will have to acknowledge huge losses and figure out how to keep recession-wracked borrowers making at least some monthly payments.

So far the industry hasn't shown that kind of foresight. One reason foreclosures are so rampant is that banks and their advocates in Washington have delayed, diluted, and obstructed attempts to address the problem. Industry lobbyists are still at it today, working overtime to whittle down legislation backed by President Obama that would give bankruptcy courts the authority to shrink mortgage debt. Lobbyists say they will fight to restrict the types of loans the bankruptcy proposal covers and new powers granted to judges.

The industry strategy all along has been to buy time and thwart regulation, financial-services lobbyists tell Business Week . "We were like the Dutch boy with his finger in the dike," says one business advocate who, like several colleagues, insists on anonymity, fearing career damage. Some admit that, in retrospect, their clients, which include Bank of America , Citigroup , and JPMorgan Chase, would have been better off had they agreed two years ago to address foreclosures systematically rather than pin their hopes on an unlikely housing rebound.

In public, financial institutions insist they've done their best to prevent foreclosures. Most argue that giving bankruptcy courts increased clout, known as cramdown authority, would reward irresponsible borrowers and result in higher borrowing costs. "What we're trying to do now is target the bill to make it as narrow as possible," says Scott Talbott, a lobbyist for the Financial Services Roundtable. On the defensive, the industry nevertheless benefits from one strain of popular opinion that home buyers who took on risky mortgages -- even if the industry pushed those loans -- don't deserve to be rescued.

An Industry In Denial

However the skirmish ends, the industry's contention that it has done as much as possible to limit foreclosures seems hollow. Some statistics it cites appear to be exaggerated. Even pro-industry figures such as Steven C. Preston, a Republican businessman who headed the Housing & Urban Development Dept. late in the Bush Administration, concede that many lenders have dragged their heels. "The industry still has not stepped up to the volume of the problem," Preston says. One program, Hope for Homeowners -- which Bush officials and banks promised last fall would shield 400,000 families from foreclosure -- has so far produced only 25 refinanced loans.

Meanwhile, an already glutted market sinks beneath the weight of more foreclosed homes. Borrowers whose equity has evaporated have nothing to tap into if the recession costs them their jobs. Some lawmakers and regulators are calling for a foreclosure moratorium. "People are falling through the cracks," Preston says. "That's bad for communities, bad for the individuals losing their homes, and bad for investors."

Foreclosure proceedings typically cost banks about 50% of a property's value. That's assuming the home can be resold -- not a certainty when empty houses multiply in a neighborhood.

Some from the industry denied a foreclosure problem existed, including Sandor E. Samuels, at the time chief legal officer of subprime giant Countrywide Financial. They vowed to continue selling loans with enticing introductory rates as well as those requiring minimal evidence of borrowers' income. "We are going to keep making these loans until the last second they are legal," Samuels later told a fellow participant.

A major reason financial institutions and investors are so determined to avoid modifying loan terms more aggressively has to do with accounting nuances, say industry lobbyists. If, for example, a bank lowered the balance of a certain mortgage, there would be a strong argument that it would have to reduce the value on its balance sheet of all similar mortgages in the same geographic area to reflect the danger that the region had hit an economic slump. Under this stringent approach, financial industry mortgage-related losses could far surpass even the grim $1.1 trillion estimated by Goldman Sachs in January. A desire to postpone this devastating situation helps explain lenders' intransigence, says Rick Sharga, vice-president of marketing at RealtyTrac, an Irvine (Calif.) firm that analyzes foreclosure patterns.

There's reason for skepticism. Federal banking regulators reported in December 2008 that fully 53% of consumers receiving loan modifications were again delinquent on their mortgages after six months. Alan M. White, a law professor at Valparaiso University, says the re-default rates are high because modifications often lead to higher rather than lower payments. An analysis White did of a sample of 21,219 largely subprime mortgages modified in November 2008 found that only 35% of the cases resulted in lower payments. In 18%, payments stayed the same; in the remaining 47%, they rose. The reason for this strange result: Lenders and loan servicers are tacking on missed payments, taxes, and big fees to borrowers' monthly bills.

Consider the case of Ocbaselassie Kelete, a 41-year-old immigrant from Eritrea who called Hope Now last fall. Kelete, a naturalized U.S. citizen, bought a $540,000 townhouse in Hayward, Calif., in November 2006 with no down payment and 100% financing from First Franklin Financial, a subprime unit of Merrill Lynch. At the time, he and his wife earned $108,000 a year from his two jobs, with a pharmacy and an office-cleaning service, and hers as a janitor. Kelete says First Franklin and his realtor convinced him that he could afford a pair of mortgages, one with a 7.5% initial rate that would rise after three years, and a second with a fixed 12% rate. His monthly payment would total $3,600.

"Work With Me"

"The realtor said, 'Just make sacrifices for two years. Home prices will go up, and you can refinance at a lower rate,' " Kelete recalls. He regrets signing a mortgage he couldn't afford -- a mistake many people made during the subprime craze. Home prices didn't go up. He lost his office-cleaning job. First Franklin modified his loans, but added on property taxes it had failed to collect earlier. Kelete's monthly bill rose to $3,900. In October 2008, he called Hope Now. A counselor set up a conference call with First Franklin. The lender's representative said Kelete should get another job or give up the house, the borrower says. Kelete responded that he'd already lost his second job cleaning offices and couldn't find another in a faltering California economy. "Why don't you work with me?" he asked First Franklin. The lender declined. The Hope Now counselor said there was nothing more to do. "Foreclosure is the only future I see," Kelete says. A spokesman for BofA, which acquired Merrill in December, declined to comment, citing the borrower's privacy. After Business Week's inquiries, however, First Franklin contacted Kelete about lowering his monthly payments.

Hope Now's Schwartz acknowledges she is fighting an uphill battle. By her calculation, 45% of the borrowers her organization advises still end up in foreclosure. "If I seem frustrated," she says, "it's because we are dealing with nothing but an exploding problem." She has a fulltime staff of four in Washington; 500 counselors participate in the industry-funded hotline. "You shouldn't take it lightly, what we have achieved," Schwartz says. She bristles at suggestions that the statistics she disseminates are misleading. "I print what I know," she says, noting that some of her bank members aren't forthcoming about loan modifications. "It's like herding and juggling cats."

By early 2008 it was obvious that Hope Now wasn't halting a significant percentage of foreclosures.

In the end, the program included stiff upfront and annual fees and a requirement that homeowners pay the government 50% of any future appreciation in the property's value -- all of which made it much less attractive to borrowers. Moreover, the banks' participation was made entirely voluntary; there was no way to pressure them to cooperate.

Congress approved Hope for Homeowners on July 26, 2008, as part of a larger measure imposing restrictions on the mortgage finance firms Fannie Mae and Freddie Mac.

Those familiar with Hope for Homeowners anticipated that its fine print would discourage all but a few borrowers. "We knew it was likely to have limited appeal," says Preston, the former secretary of HUD, which oversees the FHA. George Miller, executive director of the American Securitization Forum, a Wall Street trade group, calls the program and its 25 refinanced loans "useless" because of the onerous details.

In the first days of 2009 it appeared that progress might be possible on a different front. A slumping Citigroup came back to the Treasury Dept. for a second round of bailout money. Bowing to pressure from regulators, Citi broke ranks with its rivals and dropped its opposition to bankruptcy cramdown.

In the following weeks, banking lobbyists launched a renewed attack on the cramdown legislation. Apart from Citi, "the industry remains united in that bankruptcy cramdown would destabilize the market" by creating widespread uncertainty about the value of numerous troubled mortgages, says Steve O'Connor, senior vice-president for government relations at the Mortgage Bankers Assn. His group is distributing talking points to key congressional aides laying out reasons why "Congress should defeat bankruptcy reform legislation." 

Stefanie and James Smith of Santa Clarita, Calif., fear they may need the help of a bankruptcy court if they are to keep the subdivision home they bought for $579,000 in November 2005. Stefanie, 37, a university human resources coordinator, and James, 40, a federal law enforcement agent, borrowed the entire amount in two subprime loans that required a total monthly payment of $3,000. A representative of their lender, Countrywide, told them not to worry, says Stefanie: They would be able to refinance in a year.

By mid-2007 they were running late on payments, and refinancing options had dried up. With their monthly bill scheduled to jump to more than $4,000 this January due to a rising mortgage rate, Stefanie contacted Countrywide last summer. She asked for a loan modification so they could avoid default. In December the lender said it would be willing to increase their payment by $600. That was better than the scheduled rise of $1,100, so the Smiths agreed.

But now they are struggling to pay the higher amount. Countrywide's parent, BofA, declined to comment, citing the Smiths' privacy. After Business Week's questions, though, Countrywide called them to discuss cutting their payments.

"We knew when we bought that the payments would be a stretch," says Stefanie. She regrets assuming they would be able to refinance at a lower rate. "We are not deadbeats," she adds. "All we want is a mortgage we can afford."

The Good, The Bad, the Ugly 

Do you know the difference between a kick in the butt and kickin' butt? It's a bit like my former brother in law Dick use to say.."sometimes you're the windshield and sometimes you're the bug." And it's now like that in California real estate. Just look at this recent announcement from the California Association of realtors.

California freefall: Home prices fell 26% in February

Update: "Declining Markers"

Lenders have now decided that certain counties are "declining market" areas, meaning the value of homes is going down. So in their eternal knowledge and kind community spirit they have decided they would cut back the L.T.V. (loan to value) percent allowable on loans in those areas. Right now the decline is 5% with more to come. What that means to borrowers is you now have to come up with more down payment if you're buying, and you will get less equity out of your home on a refinance.

An example would be if the loan matrix said they would finance your loan at 95% LTV, if you live in the wrong area they would only finance 90% on the same loan and rates. What this also means is that borrowers will look towards non declining areas for purchases, there by driving prices down even further in the declining counties, so the prophesy becomes self fulfilling. This lovely move, just makes it ever harder for clients to get a deal done. But lenders are in the "cover their butts" mode and this reflects that position.

Alert:... If you have a variable rate loan, with a negative balance, meaning you aren't  paying all your interest and none of your principle, you must convert to a fixed rate as quickly as possible.

Here is what's happening. With values declining and compressing equity, and if your balance is rising due to interest not being paid, each month you are loosing money, and it could be a lot. And while you can't due anything about the market dropping, you can do something about the financing. And if you don't move on this in time...like now... you may not be able to do anything as you will have lost too much equity to qualify for a refinance. So seriously folks, take action. This is really important. Need answers....call...today.

Purchases:

Like no time in recent memory there are more opportunities for buying a home with great rates and pricing.

You'll remember the long lines just a couple of years ago where home buyers stood out side new home developments trying to get on the precious "approved buyers list". What a hassle and frustration. Now the lists and the lines are gone, and so are the high prices. What's left are bargains and amazing concessions. Builders are offering huge incentives including down payments to get people into a home. And for many it couldn't come at a better time.

Yes, prices have dropped, along with rates, and that simply means you can buy more home today for less monthly outgo than anytime in the last several years. 

And financing is still good. Fixed rates are very popular, but the variable rate still works for those needing lower payments for a period of time. The difference can be hundreds of dollars each month.

Where are the bargains? It would seem everywhere. But is that where you should buy? A definite "no" is in order. There are some areas that have experienced a huge drop in value and the drop will last a long time. Just about any where in the California central valley is in trouble. Buying in these areas is only for those wanting to stay in the home for a long time and aren't worried about value, equity or possibly moving.

Alert: Stockton, Ca is one of the hardest hit foreclosure areas in the country. Huge amount of folks have lost their dream to the auction gavel. Be careful if considering buying in this area as more declining values are predicted. Also...caution in Solano County and East Contra Costa County. Again, way over priced and dropping with no bottom in sight. Out of Ca., be careful of Detroit and Flint, Michigan, Florida, Las Vegas, and the Inland Empire of Southern Ca. Other areas are also affected but not to the same degree.

For most folks finding the right home in the right area is critically important. And it's much more than price. Don't be fooled by a price less than the last appraisal. So what. It was probably overpriced when the appraisal was done. And even with the reduction it might still be over priced.

And don't be fooled by short sales and foreclosures. Stop thinking that must mean a good deal. Often it doesn't. People think that buying a foreclosure means they are getting a bargain. It only means the bank owns the property because the last owners couldn't make their payments. That doesn't mean it's a bargain. And buying a foreclosure or a short sale (a short sale is when you buy the property for less than is owed on it) is nothing less than a hassle. For most people it's frustrating and a dead end. There are other ways to get a good deal. In the bay area, Contra Costa County, Alameda, Solano, San Francisco County...deals are alive and available. You just need to know where to look and what to look for.  

We can help. We know the market and where you can get a deal and where you can't. We have the right people with years of experience who can make the process simple, quick, and set you on the road to building significant profits.

Here are some keys:

1, Pay no attention to what the old appraisal said or what you're told was the value. Useless today.

2, Work only with a pro who can get you the advise you need.

3, Get pre-qualified for your purchase. Most sellers wont talk to you until they know you have the ability to buy.

4, The further out you go from the central bay area hub the better deal you can get.

5, A down payment is king, but you can get 100% financing with a decent credit score.

Look at your credit...any mistakes. If you call the creditors you can often get corrections made. Take those corrections to Rate Is Low and we can get the credit bureau to change your score in 72 hours. That will defiantly make buying at a rate you will love much easier.

Here is the bottom line...rates are great...prices are down...payments are lower...opportunity abounds.

Refinancing: While the refinance market has been hard hit by a lack of programs, there are still great opportunities. If you need a conforming loan (under $417,000) there are new govt programs and the rate is low all the way to 100% loan to value for both a purchase and refinance. Many folks are leaving the variable loans for this program.

And the rate is low for variables also. Some programs starting at 2% on option loans. These low rate programs are used to consolidate bills and often get cash out when you're trying to keep your payments low. Don't be afraid of a variable rate. They can be of huge value and have helped many folks out of a serious bind.

Commercial property: Rate Is Low has have an extensive number of programs designed to increase your bottom line on investment property. We understand commercial lending and know how to maximize your profit. If you're in the market to make a purchase with designs on building wealth, we can help. Anywhere in the country...and any kind of property...we have the right program. And your rate is low on commercial lending, with the hardest hitting value and terms anywhere. 

It really Is This easy

If you're like most folks you understand the concept of supply and demand. And much of the housing crisis is based on to much supply(houses) and too little demand(buyers). So we can see that there is a potential solution in just reversing the numbers...like less supply(houses)=more demand( buyers), will cause prices to increase. That's the way it was up till the last year or so. And it's where we have to get to make the teetering go away. So what would that mean?

Well we hear of all the noble things the government is saying they are going to do to clean up the mess: punish the lenders, bail out the struggling homeowners. And most of that is pure crap. It's typical political feel good talk to make you think they know what they are doing. And in the end it's all a blame game so someone takes a fall for the mess. After all, in todays' society isn't the most important thing to have someone to blame for our problems?

Here's what is really happening. Right now is the hardest time I have ever seen to get a loan closed. Whether it's a refinance or a purchase. It is very, very difficult. And the reason is that lenders have taken huge loses and the government has stepped in with their mighty club foot and scared everyone into inerta. And the result is nothing is getting done.

Want to solve the problem?

Then make ways for people to buy homes. Of course they need to be qualified, but make it easier rather than harder. Make it easier for the loan officer, the realtor, the title company, the appraiser...easier for all. For when you do, it's then easier for the borrower, and that means more is accomplished and the cycle is turned around.

Everyone is soft peddling waiting for the other shoe to drop. Why not pick up the shoes and start a new dance. Maybe the "Homeowner Waltz",... that would be better than the "Poor Poor Pitiful Me" that's now being sung.

Really folks it's that easy. This isn't rocket science. Give people a chance to buy in this market and they will do it.

Think about it. This is one of the best markets ever. Prices are the lowest in several years and interest rates are just super. That's a perfect buyers combo.

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I listen to the news and they talk about home sales being down and buyers not returning to the market. That's not true. The buyers are ready, I talk to them everyday. There just isn't adequate financing available. And when a contract is started there's a good chance it will fall through because of how amazing difficulty it is securing financing. And it is the stupidity of this dilemma that is causing the mess to continue.

Sometimes the best way for the train to go forward is for everyone to get off the tracks.

Talk About a Turn Around

Detroit has lead the nation is foreclosures for some time, with an economy depressed by the   auto industry downsize. As the auto industry failed, so did peoples in their desire or ability to keep their homes. But unlike Calif, Florida and Arizona, which ran values to impossible heights then watched them drop, Detroit has seen  flight as folks left looking for new jobs.

But if you ever wondered what impact the housing market has on the local economy, look no farther. Want to see a turnaround? Sell a few homes.

Detroit has a 15% gain over sales for last year and a 45.5% gain in the last month. And realtors are saying they are having one of the best months in a very long time.

And the reason for the turnaround? Tumbling prices, low interest rates and sales of foreclosed properties.

And while Detroit is seeing recovery it wont be alone for long. Other areas will follow. All of the ingredients are there...now for the turnaround.

Congress Can Remove Legal Barriers to Fixing Distressed Home Loans
If we do nothing, the foreclosure crisis will continue with very little change, and the damage will continue to spread throughout our economy.  However, Congress is now considering legislation that would make a huge difference. 

Both the House and Senate are actively considering bills that would lift the ban that prevents homeowners from getting reasonable loan changes approved and supervised by a court of law.  (The House bill is H.R. 3609, the "Emergency Homeownership and Mortgage Equity Protection Act"; the Senate bill is S2136, "Helping Families Save Their Homes in Backruptcy Act.")  Today court-supervised loan modifications are available to family farmers and to wealthy investors with distressed loans, but not to families who are trying to save their home. 

If Congress does the right thing by passing this legislation, we would prevent about 600,000 foreclosures—that's compared to less than 120,000 loans eligible for streamlined loan modifications under the Treasury's plan.

The health of middle-class communities and our economy as a whole depends on stopping the foreclosure epidemic.  Please, if you haven't already written to your Congressional representative or Senator to ask for support for these two bills, please take a moment to do so now.