by Jim the Realtor | Jun 3, 2010 | Bailout |
From SFGate:
Jose Vega was on the phone with JPMorgan Chase in April negotiating a loan modification when a real estate agent knocked on the front door of his Pittsburg house and said it had been repossessed in foreclosure a day earlier.
“I literally handed the phone to him and said, ‘Why don’t you tell this guy from Chase?’ ” Vega recalled. “It’s obvious the system is broken and needs to be fixed. The Chase executive handling my case didn’t know about the foreclosure.”
A proposed California law, SB1275, seeks to prevent similar situations by requiring lenders to give a decision on loan modifications before starting foreclosure proceedings.
A similar provision took effect Tuesday for banks complying with the federal Home Affordable Modification Plan, or HAMP, but the California law goes a step further by specifying that borrowers can sue lenders that foreclose in violation of the bill’s provisions, which also include detailed notification rules.
“Having a clearly defined consequence makes it more likely, we hope, that the servicers will avoid making the mistake in the first place,” said Paul Leonard, director of the California office for the Center for Responsible Lending. “Despite their best efforts, servicers continue to have capacity problems where the left hand doesn’t know what the right hand is doing.”
Beth Mills of the California Bankers Association said the industry opposes the bill because it addresses a moving target, HAMP.
“We think it would be a mistake for the state to codify HAMP when this is a program that has evolved and changed dramatically since it was first announced,” she said. “A couple of months from now, we could see new directives for HAMP.”
Banks against damages
Banks dislike the bill’s provision allowing borrowers to sue and receive up to $10,000 or treble damages.
“We’re extremely opposed to any sort of private right of action,” Mills said. “We feel even if minor technical violations may occur, it would be an avenue for borrowers to sue and further delay the foreclosure process even if they’re ineligible for a loan modification.”
State Sen. Mark Leno, D-San Francisco, who is the bill’s co-sponsor along with Senate President Pro Tem Darrell Steinberg, D-Sacramento, said the legislation is needed because HAMP doesn’t hold servicers accountable even when they act improperly.
“We know there will still be foreclosures, but we want to make sure there are no preventable foreclosures,” he said.
Helping borrowers
About 25 to 30 percent of loans are not subject to HAMP, so the bill would widen the pool of borrowers who might get assistance, Leno said.
The bill is expected to be heard in the Senate Banking Committee today to consider updates made to it when HAMP regulations changed. Under legislative rules, it must pass a Senate floor vote by Friday to stay in play.
Another foreclosure prevention bill, AB1639, passed the Assembly Appropriations Committee on Friday and is expected to be heard on the floor this week.
That bill would “establish a monitored mediation program to help homeowners and lenders reach sustainable loan modifications,” according to the office of Assemblyman Pedro Nava, D-Santa Barbara, who sponsored it along with Assembly Speaker Emeritus Karen Bass, D-Baldwin Vista (Los Angles County).
by Jim the Realtor | Jun 2, 2010 | Bailout |
Hat tip to dough, and as seen on CR from cnbc.com:
This morning executives at Bank of America rolled out their new “Principal Reduction Enhancement” program, which is an earned principal forgiveness plan for borrowers behind on their mortgages and whose loans are at least 20 percent underwater in value. The plan is in conjunction with the government’s Home Affordable Modification Program, but the government’s principal reduction plan isn’t in place yet.
What makes BofA’s plan so proactive is that it employs, “a principal reduction as the first step toward reaching HAMP’s affordable payment target of 31 percent of household income when modifying certain NHRP-eligible mortgages — ahead of lowering the interest rate and extending the term.”
On the conference call to announce the program this morning, BofA’s credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are “more than we have ever experienced before.” He went on to say, “there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers.”
Schakett says the foreclosure process is still taking 13 to 14 months (and by my estimates that’s an optimistic assessment), and so there’s over a year of free rent. While the banks are trying to improve the time, they’re just not there yet.
31 percent of foreclosures in March were deemed to be “strategic default” by researchers at University of Chicago and Northwestern University. That’s up from 22 percent in March of 2009.
We already know that mortgage walkaways are more prevalent among borrowers whose neighbors or friends have done the same thing. We also learn from those same researchers that the likelihood of walking away increases by 23 percent when homeowners learn that a neighbor got some principal forgiveness.
by Jim the Realtor | May 20, 2010 | Bailout |
Justabroker mentioned SB 1178, backed by the C.A.R. Here’s their pitch on why the non-recourse law should apply to refinances:
California has protected borrowers from so called “deficiency” liability on their home mortgages since the 1930s, but the evolution of mortgage finance requires the statute to be updated. Current law says that if a homeowner defaults on a mortgage used to purchase his or her home, the homeowner’s liability on the mortgage is limited to the property itself. The law has worked well since the 1930s to protect borrowers, ensure the quality of loan underwriting and allow borrowers who are brought down by financial crisis to get back on their feet.
Unfortunately, the 1930s law does not extend the protection for purchase money mortgages to loans that re-finance the original purchase debt — even if the re-finance was only to gain a lower interest rate. Recent years of low interest rates have induced tens of thousands of homeowners to re-finance their mortgages, yet almost no one realized that by re-financing their mortgages to obtain a lower rate, they were forfeiting their protections. These borrowers became personally liable for the balance of the loan.
C.A.R. is Sponsoring SB 1178 Because:
SB 1178 is fair. Home buyers, and lenders, entered into the purchase with the idea that the mortgage would be non-recourse debt, and that the lender would look to the security (the house) itself to make good on the debt if the borrower cannot. It meets the legitimate expectation of the borrowers, who have no idea that they are losing this protection by a re-finance. Homeowners didn’t know that their re-finance exposed them to personal liability, and new tax liability, on the note. It would be unfair to allow a lender, or someone that has purchased a note from a lender, to pursue the borrower beyond the value of the agreed upon security.
SB 1178 is consistent with the intent of the orginal law and simply updates it for modern times. Current law was intended to ensure that if someone lost their home to foreclosure, they wouldn’t be liable for additional payment. Since the law was passed over 70 years ago, homeowners re-financing from the original loan to lower their interest rate has become commonplace. The 1930s legislature didn’t anticipate how mortgages would change over time.
Lenders could pursue families to collect this “deficiency” debt years down the road. Under current law, lenders have up ten years to collect on the additional debt after a judgment has been entered on the foreclosure. Years after a family has lost their home, they could find themselves in even more financial trouble. Lenders could even sell these accounts to aggressive collection agencies or even bundle them into securities. The end result would be banks who didn’t lend responsibly in the first place coming after families for even more money that they don’t have.
SB 1178 does NOT apply to “cash-out” re-finances, unless the money was used to improve the home and it doesn’t apply to HELOCs.
The C.A.R. video (1:39 min):
http://videos.car.org/mediavault.html?menuID=3&flvID=8
by Jim the Realtor | May 17, 2010 | Bailout, Loan Mods, Strategic Defaults, Thinking of Buying? |
NEW YORK (CNNMoney.com) — Pressure is mounting on loan servicers and investors to reduce troubled homeowners’ loan balances…but the two largest owners of mortgages aren’t getting the message.
Fannie Mae and Freddie Mac, which are controlled by the federal government, do not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans.
But their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns. In late March, it announced servicers will be required to consider lowering balances in loan modifications. And just who would tell Fannie and Freddie to start allowing principal reductions? The Obama administration.
Asked whether they will implement balance reductions, the companies and their regulator declined to comment. The Treasury Department also declined to comment.
What’s holding them back is the companies’ mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners’ loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people’s mortgages.
The housing crisis has already wreaked havoc on the pair’s balance sheets. Between them, they have received $127 billion — and recently requested another $19 billion — from the Treasury Department since they were placed into conservatorship in September 2008, at the height of the financial crisis.
Housing experts, however, say it’s time for Fannie and Freddie to start reducing principal. Treasury and the companies have already set aside $75 billion for foreclosure prevention, which can be spent on interest-rate reductions or principal write downs.
“Treasury has to bite the bullet and get Fannie and Freddie to participate,” said Alan White, a law professor at Valparaiso University. “It’s all Treasury money one way or the other.”
Though servicers are loathe to lower loan balances, a growing chorus of experts and advocates say it’s the best way to stem the foreclosure crisis. Homeowners are more likely to walk away if they owe far more than the home is worth, regardless of whether the monthly payment is affordable. Nearly one in four borrowers in the U.S. are currently underwater.
Principal reduction in the long run will lower the risk of redefault,” said Vishwanath Tirupattur, a Morgan Stanley managing director and co-author of the firm’s monthly report on the U.S. housing market. “It’s the right thing to do.”
Meanwhile, a growing number of loans backed by Fannie and Freddie are falling into default. Their delinquency rates are rising even faster than those of subprime mortgages as the weak economy takes its toll on more credit-worthy homeowners. Fannie’s default rate jumped to 5.47% at the end of March, up from 3.15% a year earlier, while Freddie’s rose to 4.13%, up from 2.41%.
On top of that, the redefault rates on their modified loans are far worse than on those held by banks, according to federal regulators.
Some 59.5% of Fannie’s loans and 57.3% of Freddie’s loans were in default a year after modification, compared to 40% of bank-portfolio mortgages, according to a joint report from the Office of Thrift Supervision and Office of the Comptroller of the Currency. This is part because banks are reducing the principal on their own loans, experts said.
So, advocates argue, lowering loan balances now can actually save the companies — and taxpayers — money later.
“It can be a financial benefit to Fannie Mae and Freddie Mac and the taxpayer,” said Edward Pinto, who was chief credit officer for Fannie in the late 1980s.
What might force the companies’ hand is another Obama administration foreclosure prevention plan called the Hardest Hit Fund, which has charged 10 states to come up with innovative ways to help the unemployed and underwater.
Four states have proposed using their share of the $2.1 billion fund to pay off up to $50,000 of underwater homeowners’ balances, but only if loan servicers and investors — including Fannie and Freddie — agree to match the writedowns. State officials are currently in negotiations with the pair.
“We remain optimistic that we can get a commitment from Fannie, Freddie and the banks to contribute to this strategy,” said David Westcott, director of homeownership programs for the Florida Housing Finance Corp., which is spearheading the state’s proposal.
by Jim the Realtor | May 5, 2010 | Bailout, Market Conditions, Thinking of Buying? |
From the P-E:
Foreclosed homes that went to auction in Riverside the morning of April 25 were reserved for bidders who wanted to buy their first houses and had been qualified for financing that the County of San Bernardino offers through its Neighborhood Stabilization Program.
The county previously had little success using the first-time home buyer financial assistance. A major reason was that the funds come from the federal government which requires houses purchased with such assistance to be bought at a discount of at least 1 percent below market.
Fierce demand for foreclosed houses from first-time buyers and investors has caused home prices to soar too high on the open market to qualify for the Neighborhood Stabilization Program.
Something similar happened at the April 25 auction. Several real estate agents who were there with clients complained that the bidding went way above what they figured the properties were worth, although they had understood the auctioneer would halt the bidding before it hit the limit.
The winner of the first house auctioned said he had raised his bid far higher than what he figured the house would appraise for because he realized that the price would have to be lowered to meet the guidelines of the Neighborhood Stabilization Program.
His strategy may work. In an e-mail, Jim Park, chief executive of New Vista Asset Management, an asset manager for Freddie Mac, whose forelcosed homes were auctioned, said appraisals were being ordered on the 14 homes earmarked to be sold with Neighborhood Stabilization Program buyer assistance.
“If, for some reason, these NSP appraisals come in below the purchase price, Freddie Mac intends to adjust the price so that the property meets the NSP and financing requirements,” he said.
by Jim the Realtor | Apr 19, 2010 | Bailout, Loan Mods, Shadow Inventory, Short Sales |
Hat tip to shadash, who is fuming:
Bank of America wants to give struggling mortgage customers who are collecting unemployment benefits up to nine months with no mortgage payment.
That’s right. Zero payment.
Customers would have to agree that, if they haven’t found a job within the nine months, they will sign over their house to the bank. The Charlotte bank would give them at least $2,000 to help with moving expenses.
The proposal needs regulatory approval, and the bank doesn’t know when, or if, that will happen.
Some experts say the plan could become an industry model and is the most substantial, creative approach yet to addressing the fallout from stubbornly high unemployment, which is driving mortgage delinquencies and foreclosures.
The plan also could provide families with faster relief, allow them to save money and provide a timetable for making decisions. The bank could avoid millions in collection and foreclosure expenses.
“It’s an innovative way for Bank of America to demonstrate it’s working with its customers,” said Mark Williams, a former Federal Reserve bank examiner. “Regulators should view this as a positive step as well.”
(more…)
by Jim the Realtor | Apr 13, 2010 | Bailout, Neg-Am |
Carl Levin is the chairman of the subcommittee that investigated the WaMu disaster – from the latimes.com:
“Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river,” Levin said. “Using a toxic mix of high-risk lending, lax controls and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad. . . . It is critical to acknowledge that the financial crisis was not a natural disaster, it was a man-made economic assault.“
Today the WaMu executives are testifying before Congress:
“As CEO, I accept responsibility for our performance and am deeply saddened by what happened,” said Kerry K. Killinger, WaMu’s former chief executive. But he and other executives said in their prepared remarks that they had worked to limit the company’s mortgage lending as the housing market began slowing and that, more than anything else, the bank was overtaken by economic events out of its control.
“Beginning in 2005, two years before the financial crisis hit, I was publicly and repeatedly warning of the risks of a housing downturn,” Killinger said. “Unlike most of our competitors, we aggressively reduced our residential first-mortgage business.”
Stephen J. Rotella, WaMu’s former president and chief operating officer, testified in his prepared remarks that he and others worked to reduce the company’s exposure to the deteriorating housing market but were unable to do enough — or to anticipate the historic market collapse.
“As the former COO of WaMu, I would like to be able to say that after my arrival at the bank in 2005, every decision that was made was correct,” he said. “But I was neither more prescient about the future than the chairman of the Federal Reserve Bank or the secretary of the Treasury, nor did I have complete decision-making authority at the company.”
In his first public statement since the bank was seized by regulators and sold for $1.9 billion to JP Morgan Chase, Rotella said the failure was principally the result of the company’s risky concentration in the housing market and rapid growth “magnified and exacerbated by the extreme conditions in the economy.”
“The executive team and all of our people worked very hard to mitigate those risks right up until the seizure and sale of the bank,” Rotella said.
(more…)
by Jim the Realtor | Apr 11, 2010 | Bailout, Loan Mods, Mortgage Lawsuits, Short Sales |
From the W-S-J:
After losing her condo in San Diego to foreclosure last year, Charissa Kolich thought that at least she was free of mortgage bills.
But Wells Fargo & Co., which holds a home-equity loan made five years ago to Ms. Kolich, last month filed a lawsuit against her in the Superior Court of California, San Diego County, seeking to collect the nearly $72,000 it said she still owed on that second mortgage. “This was all kind of a shock,” says Ms. Kolich, a food-service administrator recently diagnosed with inoperable brain cancer.
Banks are coming under increasing political pressure to write off or at least write down second-lien and other junior mortgages as a way to help borrowers keep their homes or extract themselves from heavy debt. As the Wells Fargo suit shows, however, banks often are reluctant to give up on loans when they see a chance of recovering all or part of their money.
This issue will be the focus of a hearing Tuesday by the House Financial Services Committee in Washington. Panel members are due to quiz executives from Wells Fargo, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. about their junior-lien mortgage policies.
(more…)
by Jim the Realtor | Apr 11, 2010 | Bailout, Loan Mods, Short Sales |
Bank of America is sending out emails confirming that they are participating in the HAFA program, and linking to the N.A.R. description:
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.
Here is the link that provides the details about going from HAMP to HAFA:
The Home Affordable Foreclosure Alternatives (HAFA) Program provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. 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 deed-in-lieu.
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 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.
HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation.
HAFA is all well and good in areas around the country where Fannie/Freddie loans prevail. We’re on the lookout for any sign that major lenders/servicers are fully releasing borrowers from future liability on non-Fannie/Freddie loans. It may take a while before it filters down, because borrowers have to apply for a HAMP first, and then HAFA. If anyone hears about a policy authorizing full release of a non-Fannie/Freddie deficiency, or pre-approved short sale, let’s us know! Our BofA rep said last week it will depend on the investor, but if you have to process the whole package just to find out, and the answer is no release, who cares – nothing has changed.
by Jim the Realtor | Apr 9, 2010 | Bailout, REOs, Short Sales, Thinking of Buying? |
Hat tip to Susie! From the L.A. Times:
The measure, which is expected to be signed by Gov. Arnold Schwarzenegger, would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale.
Thousands of Californians whose homes were foreclosed on or sold at a loss would get tax relief under a measure approved Thursday by the state Legislature.
The bill would waive state taxes on mortgage debt that has been forgiven in a foreclosure or short sale. It is expected to affect about 34,000 taxpayers.
Gov. Arnold Schwarzenegger said he would sign the measure, which would also provide about $60 million in tax credits to green-energy companies, when it reached his desk. Californians can already claim the tax breaks on federal returns. Lawmakers passed the measure in time for people to take advantage of it by the April 15 deadline for filing tax returns.
“The mortgage-debt tax relief provision in this bill will provide financial shelter for tens of thousands of Californians who have lost their hopes and dreams in the housing market crash, and it’s about time we gave these folks a helping hand,” said state Sen. Ron Calderon (D-Montebello).
The short-sale provision would mean about $34 million less in tax revenue for the state over three years, according to the Franchise Tax Board.
The “green” credits are a response to the federal American Recovery and Reinvestment Act, which provides grants to firms for power plants that produce renewable energy. The federal government does not tax the grant money. Under the bill approved Thursday, California would provide similar relief.
Other parts of the measure, SB 401 by Sen. Lois Wolk (D-Davis), were called tax increases by Republicans. Even though they supported the tax-relief element, several GOP members of the Senate and Assembly voted against the bill, which was opposed by the Howard Jarvis Taxpayers Assn.
The Republicans objected to a provision that would reduce deductions for charitable gifts, and to changes that would allow the state to tax more income earned by minor dependents.
The changes would also make it harder to qualify a home as a principal residence for purposes of escaping capital gains taxes when the property is sold, and some penalties and interest charges to corporations would be increased, according to Therese M. Twomey, a principal consultant for the Senate Republican Policy Office.
These changes would bring in more than $10 million in new revenue over five years, Twomey said.
“It’s an issue of fairness,” said Sen. George Runner (R-Lancaster). “You are giving money to one group of people and taking it away from another group of people.”
With the plunge in the real estate market, many Californians have found themselves owing much more on their mortgages than their homes are worth. Some have been foreclosed upon or asked their lender to approve a short sale, in which a home is sold for less than the debt, some of which is waived.
The amount waived has been considered taxable income under California law. The measure passed Thursday would eliminate that tax when a bank agrees to accept less than what is owed on a home. The governor vetoed a similar bill last month because it included a provision, since removed, that would have increased penalties against businesses and wealthy individuals who abuse tax credits.
Jose Vega was on the phone with JPMorgan Chase in April negotiating a loan modification when a real estate agent knocked on the front door of his Pittsburg house and said it had been repossessed in foreclosure a day earlier.
