A 203 (k) Loan is a type of mortgage that can be used to rehabilitate the home you are living in (done as refinancing), or a home you are looking to purchase. You can also rehab a multi-family single-dwelling with a 203 (k) Loan.
203 (k) Loans are offered via the Housing and Urban Development Office (HUD) of the Federal Housing Administration (FHA). The 203 (k) Loan allows a borrower to roll the costs of the rehabilitation into the mortgage as opposed to finding separate financing for your rehab job.
What’s good about a 203 (k) Loan
- You can borrow funds (as part of a mortgage) to replace your roof, get a new furnace, weatherize, upgrade your kitchen or bathroom, etc.
- You can use the money to significantly improve energy efficiency, such as installing solar panels for electricity or a hot water system or new windows.
- You don’t need to have a lot of equity in your home.
- You can improve the value of the home you want to buy right off the bat.
- You can correct Title 5 (septic) issues before moving in.
- You can purchase all new appliances for apartments if you have or are purchasing a multi-family house.
- You can add an additional floor or room to the house.
Standard 203 (k) Loan
One of the most difficult aspects of the standard loan is the requirement to have an appointed plan reviewer in order to have FHA approval. The plan reviewer meets with the customer and determines the scope of work. “The plan reviewer has a lot of power. For example, they may require you to add another $25,000 to the project in order to meet HUD guidelines.
The project reviewer has a lot of control over who is hired for the project (s) and ultimately make the decisions on who to hire based on estimates. The project reviewer does a feasibility study that can take “one day or two to three weeks,” .
Streamlined 203 (k) Loans
One of the major differences between a standard and streamlined loan is the maximum amount that can be borrowed is $35,000. “This includes permits, inspection fees, and a ten percent contingency reserve,”. “So, what you really have is $30,000 to $31,000 for renovation.” In the streamlined loan, only specific types of rehab can be done to a property. “You can’t do substantial structural repair,” . The plan reviewer in a streamlined loan will allow the customer to seek out estimates themselves and make their own choices regarding which contractor to use.
There are still a wide range of projects that can be done with the streamlined loan, including most energy efficiency improvements.
There are some state-to-state differences that apply to the loans, but most are not usually significant according to Barron.
For more information on HUD guidelines relating to 203 (k) Loans, go to:
http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
To find lenders in your area that can do 203K’s try this web site:
www.mortgageseeker.net
Tuesday, December 28, 2010
Tuesday, August 31, 2010
Homebuyers Beware: Tougher Rules for FHA Loans
Consumers face changes to credit scores and borrowing costs
By Jennifer Waters, MarketWatch
CHICAGO (MarketWatch) -- Consumers looking for home loans backed by the Federal Housing Administration will face tougher hurdles and higher costs under new legislation and new rules that could take effect as soon as this month.
Higher monthly fees, larger down payments and better credit scores are among the new initiatives intended to insure that the FHA stays solvent. Its reserves, which are used to cover bad loans, plummeted to $3.5 billion at midyear from $19.3 billion in September 2008, according to a report from the Department of Housing and Urban Development.
Proponents of the measures applaud the FHA's efforts to preclude the need for a taxpayer bailout, while also stepping up the quality of its insurance portfolio. But critics fear that the moves will stifle an already sluggish recovery in housing and will be most burdensome on first-time home buyers who rely most on the FHA insuring their loans. The FHA backs 30% of all loans outstanding and is on track to insure 1.7 million loans by the end of its fiscal year Sept. 30, according to its recent quarterly report to Congress.
"This wouldn't be such a big deal if the economy was going well and houses were moving quickly," said Gibran Nicholas, chairman of CMPS Institute, which trains certified mortgage-planning specialists. "But when you're talking that the majority of buyers out there are first-time home buyers using FHA financing, now it begins to make a pretty big impact."
Here's a rundown on some of the initiatives:
Higher monthly fees. Earlier this month, Congress gave the green light for the FHA to raise the monthly premium it charges on loans; a presidential signature is expected. FHA-backed loans have looser restrictions than other mortgages on down payments--now at 3.5% of the home's selling price -- but require borrowers to pay an upfront fee and a monthly fee.
The legislation allows the FHA to hike the monthly fee to as much as an annualized 1.5% of the loan balance, up from 0.55%, though initially it will go only to 0.9%.
The initial fee was upped earlier this year to 2.25% from 1.75%, though the FHA has said it will bring it down to 1% with the higher monthly fee.
Even with the decrease in the upfront fee, increasing the continuing fee is expected to generate $300 million per month, "which would replenish FHA's capital reserves much faster than is possible under the premium authority" now, according to the quarterly report.
Better credit scores. In its 76-year history, the FHA has never required a credit score from borrowers, though the lenders typically have. That would change under a proposed rule that the FHA is expected to adopt.
The FHA would require borrowers to have at least a 500 score for FHA backing. At 580 and above, borrowers would be eligible for the 3.5% down payment. But those who fall between 500 and 580 would see their down payments jump to 10%.
That, however, is still well below scores of 660 to 720 that most lenders look for to accept only a 10% down payment. "No lender is going to do that loan for a borrower with a 580 score and only 10% down," said Christopher Gardner, chief executive of FHA Pros, an FHA approval service.
For the FHA, "this change is dramatic," the quarterly report said. Among borrowers with scores below 580, loans 90 days in arrears, what FHA calls "seriously delinquent," have been three times as high as those for borrowers with scores above 580, the FHA said. Of the total FHA loan portfolio, some 6% are to borrowers who had scores below 580 at the time of origination, FHA Commissioner David Stevens told a House subcommittee in March.
Cutting sellers' contributions. This is the change that will have the biggest impact on borrowers, because it could nearly double their total upfront costs from the just the required 3.5% down payment to a total 6.5%.
Sellers have been able to contribute up to 6% of the price of the home toward the buyer's purchase. That was often done by paying some of the closing costs, such as the upfront FHA fee and other fees, amounting to about 3% of the purchase price. Sellers might also agree to pay from some needed repairs, sparing the buyers that expense.
As part of its proposed rule changes, the FHA wants to slice the seller's contribution to no more than 3%, which CMPS Institute's Nicholas said ups the buyer's ante to 6.5%. "Why [should] the home be less affordable to the buyer under the new rules?" Nicholas asked.
The FHA contends that this change will weed out sellers who artificially inflate the sales price to create the concession. It also will bring FHA in line with industry standards, according to Bankrate.com
These are just the latest in a string of new policies that the FHA has imposed in the last few years and could lead to substantially fewer buyers looking for the FHA insurance, turning instead to Fannie Mae or Freddie Mae programs.
"Many of these reforms were long overdue as FHA did not respond effectively to changes in the marketplace that happened during the housing boom and the subsequent decline," Stevens told Congress.
By Jennifer Waters, MarketWatch
CHICAGO (MarketWatch) -- Consumers looking for home loans backed by the Federal Housing Administration will face tougher hurdles and higher costs under new legislation and new rules that could take effect as soon as this month.
Higher monthly fees, larger down payments and better credit scores are among the new initiatives intended to insure that the FHA stays solvent. Its reserves, which are used to cover bad loans, plummeted to $3.5 billion at midyear from $19.3 billion in September 2008, according to a report from the Department of Housing and Urban Development.
Proponents of the measures applaud the FHA's efforts to preclude the need for a taxpayer bailout, while also stepping up the quality of its insurance portfolio. But critics fear that the moves will stifle an already sluggish recovery in housing and will be most burdensome on first-time home buyers who rely most on the FHA insuring their loans. The FHA backs 30% of all loans outstanding and is on track to insure 1.7 million loans by the end of its fiscal year Sept. 30, according to its recent quarterly report to Congress.
"This wouldn't be such a big deal if the economy was going well and houses were moving quickly," said Gibran Nicholas, chairman of CMPS Institute, which trains certified mortgage-planning specialists. "But when you're talking that the majority of buyers out there are first-time home buyers using FHA financing, now it begins to make a pretty big impact."
Here's a rundown on some of the initiatives:
Higher monthly fees. Earlier this month, Congress gave the green light for the FHA to raise the monthly premium it charges on loans; a presidential signature is expected. FHA-backed loans have looser restrictions than other mortgages on down payments--now at 3.5% of the home's selling price -- but require borrowers to pay an upfront fee and a monthly fee.
The legislation allows the FHA to hike the monthly fee to as much as an annualized 1.5% of the loan balance, up from 0.55%, though initially it will go only to 0.9%.
The initial fee was upped earlier this year to 2.25% from 1.75%, though the FHA has said it will bring it down to 1% with the higher monthly fee.
Even with the decrease in the upfront fee, increasing the continuing fee is expected to generate $300 million per month, "which would replenish FHA's capital reserves much faster than is possible under the premium authority" now, according to the quarterly report.
Better credit scores. In its 76-year history, the FHA has never required a credit score from borrowers, though the lenders typically have. That would change under a proposed rule that the FHA is expected to adopt.
The FHA would require borrowers to have at least a 500 score for FHA backing. At 580 and above, borrowers would be eligible for the 3.5% down payment. But those who fall between 500 and 580 would see their down payments jump to 10%.
That, however, is still well below scores of 660 to 720 that most lenders look for to accept only a 10% down payment. "No lender is going to do that loan for a borrower with a 580 score and only 10% down," said Christopher Gardner, chief executive of FHA Pros, an FHA approval service.
For the FHA, "this change is dramatic," the quarterly report said. Among borrowers with scores below 580, loans 90 days in arrears, what FHA calls "seriously delinquent," have been three times as high as those for borrowers with scores above 580, the FHA said. Of the total FHA loan portfolio, some 6% are to borrowers who had scores below 580 at the time of origination, FHA Commissioner David Stevens told a House subcommittee in March.
Cutting sellers' contributions. This is the change that will have the biggest impact on borrowers, because it could nearly double their total upfront costs from the just the required 3.5% down payment to a total 6.5%.
Sellers have been able to contribute up to 6% of the price of the home toward the buyer's purchase. That was often done by paying some of the closing costs, such as the upfront FHA fee and other fees, amounting to about 3% of the purchase price. Sellers might also agree to pay from some needed repairs, sparing the buyers that expense.
As part of its proposed rule changes, the FHA wants to slice the seller's contribution to no more than 3%, which CMPS Institute's Nicholas said ups the buyer's ante to 6.5%. "Why [should] the home be less affordable to the buyer under the new rules?" Nicholas asked.
The FHA contends that this change will weed out sellers who artificially inflate the sales price to create the concession. It also will bring FHA in line with industry standards, according to Bankrate.com
These are just the latest in a string of new policies that the FHA has imposed in the last few years and could lead to substantially fewer buyers looking for the FHA insurance, turning instead to Fannie Mae or Freddie Mae programs.
"Many of these reforms were long overdue as FHA did not respond effectively to changes in the marketplace that happened during the housing boom and the subsequent decline," Stevens told Congress.
Tuesday, August 17, 2010
FHA Rolls Out Principal Reducing Refis for Underwater Borrowers
Nearly a quarter of U.S. homeowners with a mortgage owe more on the loan than their home is worth, and home prices are threatening to fall further and push even more borrowers underwater. The Federal Housing Administration (FHA), though, is throwing out a lifeline.
Starting September 7, the federal agency will offer new FHA-insured mortgages to certain underwater, non-FHA borrowers who are current on their mortgage payments and whose lenders agree to write off at least 10 percent of the unpaid principal balance.
This last part could prove to be the caveat that leads the new FHA refi program down the same road as the federal government’s other housing programs – a road of below par results and public criticism.
Lenders are fantastically reluctant to write down mortgage principals. It would mean either they or their mortgage investors would have to eat the amount of debt that’s forgiven, and it could set a precedent that a loan contract is not a contract at all if the terms spelled out in black and white can be changed based on market nuances, such as a slump in real estate values.
The FHA refi program for underwater borrowers was originally announced in March as part of the administra-
tion’s expanded foreclosure prevention strategy. On Friday, FHA and HUD published a mortgagee letter explaining to lenders the details of the new negative equity refinancing program.
To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, and occupy the property as their primary residence. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal of at least 500.
Participation in the program is voluntary and requires the consent of all lien holders. The borrower’s existing first lien holder must agree to write off at least 10 percent of their unpaid principal balance to bring the borrower’s combined loan-to-value ratio to no more than 115 percent.
In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
To facilitate the refinancing of new FHA-insured loans under this program, the Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens.
Servicers planning to take part in the new program must execute a Servicer Participation Agreement (SPA) with Fannie Mae by October 3, 2010.
HUD says interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees to write down a portion of the unpaid principal.
FHA Commissioner David H. Stevens, said, “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product
Starting September 7, the federal agency will offer new FHA-insured mortgages to certain underwater, non-FHA borrowers who are current on their mortgage payments and whose lenders agree to write off at least 10 percent of the unpaid principal balance.
This last part could prove to be the caveat that leads the new FHA refi program down the same road as the federal government’s other housing programs – a road of below par results and public criticism.
Lenders are fantastically reluctant to write down mortgage principals. It would mean either they or their mortgage investors would have to eat the amount of debt that’s forgiven, and it could set a precedent that a loan contract is not a contract at all if the terms spelled out in black and white can be changed based on market nuances, such as a slump in real estate values.
The FHA refi program for underwater borrowers was originally announced in March as part of the administra-
tion’s expanded foreclosure prevention strategy. On Friday, FHA and HUD published a mortgagee letter explaining to lenders the details of the new negative equity refinancing program.
To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, and occupy the property as their primary residence. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal of at least 500.
Participation in the program is voluntary and requires the consent of all lien holders. The borrower’s existing first lien holder must agree to write off at least 10 percent of their unpaid principal balance to bring the borrower’s combined loan-to-value ratio to no more than 115 percent.
In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
To facilitate the refinancing of new FHA-insured loans under this program, the Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens.
Servicers planning to take part in the new program must execute a Servicer Participation Agreement (SPA) with Fannie Mae by October 3, 2010.
HUD says interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees to write down a portion of the unpaid principal.
FHA Commissioner David H. Stevens, said, “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product
Tuesday, June 22, 2010
How much mortgage can you qualify for?
How can someone determine how much of a mortgage they might qualify for? Using some basic math skills it can be easy for someone to figure out how much of a mortgage they might qualify for. These are some simple methods anyone can use to see how much of a mortgage they can afford before seeking out a mortgage company for financing.
The most basic formula for figuring out how much of a mortgage one may qualify for is the two and one half times income formula. This will help someone figure out the amount they can qualify for before any other factors are figured in and can be used as a basis for determining the qualifying mortgage amount. For an example, let's assume that someone has a gross income of $30,000 per year. 30,000 multiplied by 2.5 equals 75,000. This means based on this income amount a person will qualify for a $75,000 mortgage.
Your Debt to Income Ratio
Another factor that will play into how much of a mortgage someone can qualify for is their other monthly expenses. This is where what is called a "debt ratio" comes in. This has to do with someone's monthly expenses and the amount of income they have left over after these obligations are taken out. Prior to the mortgage meltdown, many mortgage companies would consider a debt ratio of up to 65 percent or more, depending on other off-setting borrower strengths. Normally, however, the debt ratio needs to be about 40 to 50 percent for a mortgage to be approved. This can be broken down so that it is easily understood.
Let's say someone's monthly gross income is $3500 per month. This comes out to $42,000 per year and would qualify them for a $105,000 mortgage. Let's say they only need to borrow $100,000 and their estimated monthly payment would be $400. They have a car payment of $400 per month, credit card bills of $300 per month, and living expenses of $475 per month. With the new mortgage payment added in, they would have a total of $1575 in expenses. $1575 divided by $3500 is approximately a 45 percent debt ratio, meaning they will have no problem qualifying for this mortgage. However, now let's say someone with the same income has a car payment of $500 per month, credit cards of $500 per month, a personal loan for $250 per month, and monthly living expenses of $500 per month. Adding in the new mortgage payment would mean total monthly expenses of $2150, giving them a 61 percent debt ratio. This could mean that the lender would require the borrower to put more money down on the house, meaning less of a loan amount, and thus a lower monthly payment.
While credit may also be a factor in a mortgage company's decision, the income and expenses of an applicant, or applicants , will be the main focus of how much of a mortgage one will qualify for. Knowing how important these factors are and being able to have this knowledge prior to applying for a mortgage should provide the insight needed to better prepare someone in knowing how much of a mortgage they can get.
Feel free to check out this site to find a local lender in your area
www.mortgageseeker.biz
The most basic formula for figuring out how much of a mortgage one may qualify for is the two and one half times income formula. This will help someone figure out the amount they can qualify for before any other factors are figured in and can be used as a basis for determining the qualifying mortgage amount. For an example, let's assume that someone has a gross income of $30,000 per year. 30,000 multiplied by 2.5 equals 75,000. This means based on this income amount a person will qualify for a $75,000 mortgage.
Your Debt to Income Ratio
Another factor that will play into how much of a mortgage someone can qualify for is their other monthly expenses. This is where what is called a "debt ratio" comes in. This has to do with someone's monthly expenses and the amount of income they have left over after these obligations are taken out. Prior to the mortgage meltdown, many mortgage companies would consider a debt ratio of up to 65 percent or more, depending on other off-setting borrower strengths. Normally, however, the debt ratio needs to be about 40 to 50 percent for a mortgage to be approved. This can be broken down so that it is easily understood.
Let's say someone's monthly gross income is $3500 per month. This comes out to $42,000 per year and would qualify them for a $105,000 mortgage. Let's say they only need to borrow $100,000 and their estimated monthly payment would be $400. They have a car payment of $400 per month, credit card bills of $300 per month, and living expenses of $475 per month. With the new mortgage payment added in, they would have a total of $1575 in expenses. $1575 divided by $3500 is approximately a 45 percent debt ratio, meaning they will have no problem qualifying for this mortgage. However, now let's say someone with the same income has a car payment of $500 per month, credit cards of $500 per month, a personal loan for $250 per month, and monthly living expenses of $500 per month. Adding in the new mortgage payment would mean total monthly expenses of $2150, giving them a 61 percent debt ratio. This could mean that the lender would require the borrower to put more money down on the house, meaning less of a loan amount, and thus a lower monthly payment.
While credit may also be a factor in a mortgage company's decision, the income and expenses of an applicant, or applicants , will be the main focus of how much of a mortgage one will qualify for. Knowing how important these factors are and being able to have this knowledge prior to applying for a mortgage should provide the insight needed to better prepare someone in knowing how much of a mortgage they can get.
Feel free to check out this site to find a local lender in your area
www.mortgageseeker.biz
Wednesday, April 28, 2010
Investigation Finds Fraud in WaMu Lending
Senate report: Failed bank’s own action couldn’t stop deceptive practices
April 12, 2010
WASHINGTON - The mortgage lending operations of Washington Mutual Inc., the biggest U.S. bank ever to fail, were threaded through with fraud, Senate investigators have found.
And the bank's own probes failed to stem the deceptive practices, the investigators said in a report on the 2008 failure of WaMu.
The panel said the bank's pay system rewarded loan officers for the volume and speed of the subprime mortgage loans they closed. Extra bonuses even went to loan officers who overcharged borrowers on their loans or levied stiff penalties for prepayment, according to the report being released Tuesday by the investigative panel of the Senate Homeland Security and Governmental Affairs Committee.
Sen. Carl Levin, D-Mich., the chairman, said Monday the panel won't decide until after hearings this week whether to make a formal referral to the Justice Department for possible criminal prosecution. Justice, the FBI and the Securities and Exchange Commission opened investigations into Washington Mutual soon after its collapse in September 2008.
The report said the top WaMu producers, loan officers and sales executives who made high-risk loans or packaged them into securities for sale to Wall Street, were eligible for the bank's President's Club, with trips to swank resorts, such as to Maui in 2005.
Fueled by the housing boom, Seattle-based Washington Mutual's sales to investors of packaged subprime mortgage securities leapt from $2.5 billion in 2000 to $29 billion in 2006. The 119-year-old thrift, with $307 billion in assets, collapsed in September 2008. It was sold for $1.9 billion to JPMorgan Chase & Co. in a deal brokered by the Federal Deposit Insurance Corp.
Jennifer Zuccarelli, a spokeswoman for JPMorgan Chase, declined to comment on the subcommittee report.
WaMu was one of the biggest makers of so-called "option ARM" mortgages. These mortgages allowed borrowers to make payments so low that loan debt actually increased every month.
The Senate subcommittee investigated the Washington Mutual failure for a year and a half. It focused on the thrift as a case study for the financial crisis that brought the recession and the loss of jobs or homes for millions of Americans.
The panel is holding hearings Tuesday and Friday to take testimony from former senior executives of Washington Mutual, including ex-CEO Kerry Killinger, and former and current federal regulators.
Washington Mutual "was one of the worst," Levin told reporters Monday. "This was a Main Street bank that got taken in by these Wall Street profits that were offered to it."
The investors who bought the mortgage securities from Washington Mutual weren't informed of the fraudulent practices, the Senate investigators found. WaMu "dumped the polluted water" of toxic mortgage securities into the stream of the U.S. financial system, Levin said.
In some cases, sales associates in WaMu offices in California fabricated loan documents, cutting and pasting false names on borrowers' bank statements. The company's own probe in 2005, three years before the bank collapsed, found that two top producing offices — in Downey and Montebello, Calif. — had levels of fraud exceeding 58 percent and 83 percent of the loans. Employees violated the bank's policies on verifying borrowers' qualifications and reviewing loans.
Washington Mutual was repeatedly criticized over the years by its internal auditors and federal regulators for sloppy lending that resulted in high default rates by borrowers, according to the report. Violations were so serious that in 2007, Washington Mutual closed its big affiliate Long Beach Mortgage Co. as a separate entity and took over its subprime lending operations.
Senior executives of the bank were aware of the prevalence of fraud, the Senate investigators found.
In late 2006, Washington Mutual's primary regulator, the U.S. Office of Thrift Supervision, allowed the bank an additional year to comply with new, stricter guidelines for issuing subprime loans.
According to an internal bank e-mail cited in the report, Washington Mutual would have lost about a third of the volume of its subprime loans if it applied the stricter requirements.
Copyright 2010 The Associated Press.
www.mortgageseeker.biz
April 12, 2010
WASHINGTON - The mortgage lending operations of Washington Mutual Inc., the biggest U.S. bank ever to fail, were threaded through with fraud, Senate investigators have found.
And the bank's own probes failed to stem the deceptive practices, the investigators said in a report on the 2008 failure of WaMu.
The panel said the bank's pay system rewarded loan officers for the volume and speed of the subprime mortgage loans they closed. Extra bonuses even went to loan officers who overcharged borrowers on their loans or levied stiff penalties for prepayment, according to the report being released Tuesday by the investigative panel of the Senate Homeland Security and Governmental Affairs Committee.
Sen. Carl Levin, D-Mich., the chairman, said Monday the panel won't decide until after hearings this week whether to make a formal referral to the Justice Department for possible criminal prosecution. Justice, the FBI and the Securities and Exchange Commission opened investigations into Washington Mutual soon after its collapse in September 2008.
The report said the top WaMu producers, loan officers and sales executives who made high-risk loans or packaged them into securities for sale to Wall Street, were eligible for the bank's President's Club, with trips to swank resorts, such as to Maui in 2005.
Fueled by the housing boom, Seattle-based Washington Mutual's sales to investors of packaged subprime mortgage securities leapt from $2.5 billion in 2000 to $29 billion in 2006. The 119-year-old thrift, with $307 billion in assets, collapsed in September 2008. It was sold for $1.9 billion to JPMorgan Chase & Co. in a deal brokered by the Federal Deposit Insurance Corp.
Jennifer Zuccarelli, a spokeswoman for JPMorgan Chase, declined to comment on the subcommittee report.
WaMu was one of the biggest makers of so-called "option ARM" mortgages. These mortgages allowed borrowers to make payments so low that loan debt actually increased every month.
The Senate subcommittee investigated the Washington Mutual failure for a year and a half. It focused on the thrift as a case study for the financial crisis that brought the recession and the loss of jobs or homes for millions of Americans.
The panel is holding hearings Tuesday and Friday to take testimony from former senior executives of Washington Mutual, including ex-CEO Kerry Killinger, and former and current federal regulators.
Washington Mutual "was one of the worst," Levin told reporters Monday. "This was a Main Street bank that got taken in by these Wall Street profits that were offered to it."
The investors who bought the mortgage securities from Washington Mutual weren't informed of the fraudulent practices, the Senate investigators found. WaMu "dumped the polluted water" of toxic mortgage securities into the stream of the U.S. financial system, Levin said.
In some cases, sales associates in WaMu offices in California fabricated loan documents, cutting and pasting false names on borrowers' bank statements. The company's own probe in 2005, three years before the bank collapsed, found that two top producing offices — in Downey and Montebello, Calif. — had levels of fraud exceeding 58 percent and 83 percent of the loans. Employees violated the bank's policies on verifying borrowers' qualifications and reviewing loans.
Washington Mutual was repeatedly criticized over the years by its internal auditors and federal regulators for sloppy lending that resulted in high default rates by borrowers, according to the report. Violations were so serious that in 2007, Washington Mutual closed its big affiliate Long Beach Mortgage Co. as a separate entity and took over its subprime lending operations.
Senior executives of the bank were aware of the prevalence of fraud, the Senate investigators found.
In late 2006, Washington Mutual's primary regulator, the U.S. Office of Thrift Supervision, allowed the bank an additional year to comply with new, stricter guidelines for issuing subprime loans.
According to an internal bank e-mail cited in the report, Washington Mutual would have lost about a third of the volume of its subprime loans if it applied the stricter requirements.
Copyright 2010 The Associated Press.
www.mortgageseeker.biz
Sunday, April 18, 2010
Bank of Mom and Dad Shuts Amid White-Collar Struggle
ECONOMY , APRIL 5, 2010
Bank of Mom and Dad Shuts Amid White-Collar Struggle
By MARY PILON
FAIRFIELD, Conn.—When Maurice Johnson was laid off a year ago from his six-figure salary as a managing director at GE Capital, it wasn't his future he was worried about.It was his children's. The family income of the Johnsons is a fifth of what it used to be. And the children are about to feel the pain. Mr. Johnson's two oldest are attending his alma mater, Johns Hopkins University, at an annual cost of $50,000 apiece. And his youngest daughter, 15 years old, recently began her own college search. Mr. Johnson isn't sure whether he'll be able to help her to go to college, or even to get the older kids to graduation.
Mr. Johnson, who watched his own father struggle as an engineer without a college degree, was determined to do better for his own children. "We saved like crazy from the minute they were born," he says. "Then, it all fell to pieces."
Many families such as the Johnsons—upper-middle-class professionals—are suddenly downwardly mobile. For years, they used rising family wealth to help foot the bill for college, down payments for houses and start-up cash for children's careers. But pay cuts, layoffs and the decadelong flatlining of the stock market mean many families can no longer help their children.
This comes as young adults could use a financial helping hand more than ever. The unemployment rate for workers ages 16 to 29 was 15.2% in March, the highest rate since 1948, according to the Bureau of Labor Statistics.
"It's almost a double whammy," says Ann Huff Stevens, an economics professor at the University of California at Davis. "If a parent goes through a job loss, they're going to contribute less. And there's a direct effect because kids themselves are earning less, too. A recession like this might have some lasting effects for parents and kids."
In general, highly trained and educated workers are faring better than those without degrees in this labor market. The unemployment rate for college graduates is 5%, compared with 9.7% overall. In general, the employment picture is improving, with employers adding 162,000 jobs in March, the biggest monthly gain in three years.
Even so, the average length of unemployment, 31 weeks, is at its highest level since 1948. There were a total of 2.3 million unemployed college graduates in March 2010, 1.45 million more than in March 2007, with heavy layoffs in white-collar sectors such as finance.
In the long run, the drop in parental aid could make young adults a more financially resilient generation, like children of the Great Depression. But for now, economists worry that without parental cash, young adults may put off entering the housing market, settling into career paths and having families.
"Now, not only do parents no longer have the money to help their children out, but banks will no longer lend to home buyers without the income to support repayment," says Cheryl Russell, a demographer and author of "Americans and Their Homes: Demographics of Homeownership."
The rate of home ownership among people ages 25 to 29 fell to 37.7% last year, from a peak of 42% in 2006, according to the U.S. Census. Home ownership for those under 25 fell to 23.3% from 26% in 2005, the lowest rate for any age group.
Indeed, the bank of Mom and Dad is closing at a time when young people are having trouble borrowing from traditional lenders. Some 22% of young people between the ages of 18 and 34 said they've been turned down for a mortgage, loan or credit card in the past year, according to a February survey from FindLaw.com, a legal marketing and information site. That's double the percentage of any other age group in its survey.
As a result, many young people are now moving home to save on rent. About 21% of young adults say they've either moved in with a friend or relative, or had a friend or relative move in with them because of the economy, according to a study from the Pew Research Center.
In past recessions, women would re-enter the work force to help prop up household income, says Katherine Newman, a Princeton University sociology professor. But now, more women are working and themselves experiencing layoffs. Before the 1990 recession, 57.4% of American women worked, and in the next two years, some 1.1 million more entered the work force. Today, it's the reverse. On the eve of the latest downturn in 2007, 59.3% were working and 2.6 million more women were unemployed. Women's overall participation rate in the work force has remained flat since then.
Many parents who were set to retire are now delaying it to compensate for battered retirement accounts, leaving even fewer openings for younger workers to fill. There are an additional 500,000 workers over the age of 65 in the work force now compared with 2007.
"We may have well given up on the idea that our kids will do better than us," Prof. Newman says. "But the idea that they should do as well, that's something we haven't given up on yet."
Before her December 2008 layoff from Bank of America Corp. as an executive recruiter, Diane Hayes bought a "dream house" for her family, which includes her three teenage daughters with disabilities, two with autism and one with Down syndrome. The 3,600-square-foot house in Orlando, Fla., had a pool in back that could be used for therapy and custom-designed rooms to accommodate five people into adulthood. "The pool was the only place we could all be together and enjoy ourselves," Mrs. Hayes says.
Her husband continues working as a writer, but without her six-figure income, the family was forced to sell the home in November. The Hayes had a $650,000 mortgage and sold the house for $375,000. Their lender forgave the difference as part of the sale, Mrs. Hayes said. But the family still has loans outstanding for $50,000.
They've since moved to a 1,200-square-foot, two-bedroom house nearby that they are renting for $1,200 a month. All three girls share one bedroom with bunk beds. The house is in the same neighborhood, so the family can use the same supermarkets and schools, hoping to ease the anxiety many autistic children face when adjusting to new environments.
The family had to cut the four different specialized summer camps that each child attended, at a cost of $1,600 for all three children per week. And they've been forced to eat into a nest egg designed to support the girls as adults.
"With kids with disabilities, there's no cheap way out," Mrs. Hayes says. She adds: "Other people can send their kids to community college, have them get part-time jobs, and think 'maybe our son or daughter will support us'…We can't do that."
Last month, Mrs. Hayes found some temporary work as a recruiter. The income is lower than her Bank of America salary, there are no benefits and her brother has helped pitch in with day care. She says she's grateful for the opportunity, but knows it could be precarious. "We're not going to spend on anything," she says.
In other families, the gaps in financial support have become glaring between siblings. Ten years ago, when Patricia Bennett earned more than $100,000 a year selling risk-management software on Wall Street, she paid $30,000 cash for her now 28-year-old son's freshman year at Morehouse College in Atlanta with little hassle.
After being laid off in April 2009, Ms. Bennett now makes $9.75 an hour as a part-time cashier at Williams-Sonoma, in addition to doing volunteer hospice care. In January, she received a foreclosure notice on her home in Monroe, N.Y. Her youngest son is a sophomore at Lafayette College and will have to drop out next year unless he obtains more scholarships and loans.
Last year, Lafayette increased financial aid by 8.5% and cut its operating budget by 5% to keep pace with the increase in financial-aid requests and prevent students from leaving for financial reasons "There's concern about reality today and what's ahead," says Robert Massa, Lafayette's vice president of communications.
Ms. Bennett's husband, William, was unemployed as a salesman for two years before he started selling cars on commission in July of 2009. Before they became eligible for health insurance with his new job, the family went without it for months at a time so that they could contribute around $1,000 for pocket money and bus tickets for their son to visit home.
The gap between their two sons' experiences is particularly frustrating for her. "It's a bitter pill to swallow," Ms. Bennett says. Many parents are less able to help their children after graduation as well. Angelica Hoyos, a 26-year-old living in Los Angeles, has put her photography and sculpture career on hold since her parents pulled the financial plug earlier this year after the family's granite-countertop business suffered. Ms. Hoyos has moved in with her boyfriend, cut spending and earns about $1,000 a month doing free-lance design work and baby-sitting.
"My artistic career is put on the side because I have to make a living," she says. For Mr. Johnson, the former GE Capital executive, not being able to see his children through college is particularly painful. Both he and his wife attended Johns Hopkins in Baltimore. When he decided to earn his masters in finance there decades ago, he says he had little doubt about it being "a good value proposition."
The Johnson children always had part-time jobs in high school. But in college, they struggled for months to find part-time and summer work over the past two years. Finally, one landed a seasonal job folding clothes at Old Navy. Last year, the Johnsons didn't qualify for work study because the household income was too high. Since resubmitting their aid application, they have qualified. Their son got a work-study gig at a university office.
Johns Hopkins last year added $2 million in financial aid just to accommodate the surge of additional aid requests for its 5,000 undergrads. Some 61% of higher-education institutions reported an increase of 10% or more in financial-aid applications than the previous year, according to a September 2009 survey from the National Association of Student Financial Aid Administrators. More than a million more federal financial-aid applications were filed during the beginning of 2009 than in the beginning of 2008, with a 16.3% increase among dependent students.
"We had folks who never needed aid before and now they have one, two parents unemployed," says Vincent Amoroso, the school's director of student financial services. "And these are folks who used to make $100,000 or $200,000 a year who are coming to see us." Mr. Johnson made up to $550,000 a year, including bonuses, before losing his job in March 2009. The Johnsons had stashed $250,000 away for college.
If that money isn't tapped sooner for household expenses, it might buy two years of schooling for each of his children, Mr. Johnson calculates. Further expenses such as first homes and weddings are out of the question. "They're going to have to elope," he says. In the summer of 2007, the Johnsons paid $1.5 million for their Fairfield home and took out a mortgage of $852,000. Mr. Johnson figures it could realistically sell for $800,000 today. Given the numbers, the family is trying to avoid moving and recently refinanced their house at a lower interest rate.
"It's emasculating," Mr. Johnson says. "I'm supposed to be providing for them, but I can't."
The children haven't talked about transferring to less expensive colleges yet. "I'm going to take it all day by day," says Kristian Johnson, 20, the oldest of the Johnson siblings. Now a sophomore, he says he's prepared to take out loans to finish.
Margot Johnson, 18, says her father's career experience has affected her goal as an economics major. "I want to study economics," she says, "but not something in the corporate world." Mr. Johnson concedes that Elsa Johnson, the youngest, is "getting the raw end of the deal." By the time the 15-year-old daughter starts looking at colleges, most of the savings set aside for school could be gone.
Already passionate about fashion and design, Elsa says she'll opt for the least-expensive design school she can get into and is looking into paying for school herself. Until then, she's cut back on shopping trips and food and coffee spending with friends. She no longer asks for weekly allowances. "My parents are already stressed out enough," she says.
Meanwhile, Mr. Johnson continues to look for work and crunch numbers of the new household-budget reality.
"I know, I know—cry me a river and then build a bridge and get over it, right?" Mr. Johnson says. "Still, there was a set of expectations we established, consciously or not, and they are not being met any more."
http://online.wsj.com/article/SB10001424052748704207504575130171387740744.html
Bank of Mom and Dad Shuts Amid White-Collar Struggle
By MARY PILON
FAIRFIELD, Conn.—When Maurice Johnson was laid off a year ago from his six-figure salary as a managing director at GE Capital, it wasn't his future he was worried about.It was his children's. The family income of the Johnsons is a fifth of what it used to be. And the children are about to feel the pain. Mr. Johnson's two oldest are attending his alma mater, Johns Hopkins University, at an annual cost of $50,000 apiece. And his youngest daughter, 15 years old, recently began her own college search. Mr. Johnson isn't sure whether he'll be able to help her to go to college, or even to get the older kids to graduation.
Mr. Johnson, who watched his own father struggle as an engineer without a college degree, was determined to do better for his own children. "We saved like crazy from the minute they were born," he says. "Then, it all fell to pieces."
Many families such as the Johnsons—upper-middle-class professionals—are suddenly downwardly mobile. For years, they used rising family wealth to help foot the bill for college, down payments for houses and start-up cash for children's careers. But pay cuts, layoffs and the decadelong flatlining of the stock market mean many families can no longer help their children.
This comes as young adults could use a financial helping hand more than ever. The unemployment rate for workers ages 16 to 29 was 15.2% in March, the highest rate since 1948, according to the Bureau of Labor Statistics.
"It's almost a double whammy," says Ann Huff Stevens, an economics professor at the University of California at Davis. "If a parent goes through a job loss, they're going to contribute less. And there's a direct effect because kids themselves are earning less, too. A recession like this might have some lasting effects for parents and kids."
In general, highly trained and educated workers are faring better than those without degrees in this labor market. The unemployment rate for college graduates is 5%, compared with 9.7% overall. In general, the employment picture is improving, with employers adding 162,000 jobs in March, the biggest monthly gain in three years.
Even so, the average length of unemployment, 31 weeks, is at its highest level since 1948. There were a total of 2.3 million unemployed college graduates in March 2010, 1.45 million more than in March 2007, with heavy layoffs in white-collar sectors such as finance.
In the long run, the drop in parental aid could make young adults a more financially resilient generation, like children of the Great Depression. But for now, economists worry that without parental cash, young adults may put off entering the housing market, settling into career paths and having families.
"Now, not only do parents no longer have the money to help their children out, but banks will no longer lend to home buyers without the income to support repayment," says Cheryl Russell, a demographer and author of "Americans and Their Homes: Demographics of Homeownership."
The rate of home ownership among people ages 25 to 29 fell to 37.7% last year, from a peak of 42% in 2006, according to the U.S. Census. Home ownership for those under 25 fell to 23.3% from 26% in 2005, the lowest rate for any age group.
Indeed, the bank of Mom and Dad is closing at a time when young people are having trouble borrowing from traditional lenders. Some 22% of young people between the ages of 18 and 34 said they've been turned down for a mortgage, loan or credit card in the past year, according to a February survey from FindLaw.com, a legal marketing and information site. That's double the percentage of any other age group in its survey.
As a result, many young people are now moving home to save on rent. About 21% of young adults say they've either moved in with a friend or relative, or had a friend or relative move in with them because of the economy, according to a study from the Pew Research Center.
In past recessions, women would re-enter the work force to help prop up household income, says Katherine Newman, a Princeton University sociology professor. But now, more women are working and themselves experiencing layoffs. Before the 1990 recession, 57.4% of American women worked, and in the next two years, some 1.1 million more entered the work force. Today, it's the reverse. On the eve of the latest downturn in 2007, 59.3% were working and 2.6 million more women were unemployed. Women's overall participation rate in the work force has remained flat since then.
Many parents who were set to retire are now delaying it to compensate for battered retirement accounts, leaving even fewer openings for younger workers to fill. There are an additional 500,000 workers over the age of 65 in the work force now compared with 2007.
"We may have well given up on the idea that our kids will do better than us," Prof. Newman says. "But the idea that they should do as well, that's something we haven't given up on yet."
Before her December 2008 layoff from Bank of America Corp. as an executive recruiter, Diane Hayes bought a "dream house" for her family, which includes her three teenage daughters with disabilities, two with autism and one with Down syndrome. The 3,600-square-foot house in Orlando, Fla., had a pool in back that could be used for therapy and custom-designed rooms to accommodate five people into adulthood. "The pool was the only place we could all be together and enjoy ourselves," Mrs. Hayes says.
Her husband continues working as a writer, but without her six-figure income, the family was forced to sell the home in November. The Hayes had a $650,000 mortgage and sold the house for $375,000. Their lender forgave the difference as part of the sale, Mrs. Hayes said. But the family still has loans outstanding for $50,000.
They've since moved to a 1,200-square-foot, two-bedroom house nearby that they are renting for $1,200 a month. All three girls share one bedroom with bunk beds. The house is in the same neighborhood, so the family can use the same supermarkets and schools, hoping to ease the anxiety many autistic children face when adjusting to new environments.
The family had to cut the four different specialized summer camps that each child attended, at a cost of $1,600 for all three children per week. And they've been forced to eat into a nest egg designed to support the girls as adults.
"With kids with disabilities, there's no cheap way out," Mrs. Hayes says. She adds: "Other people can send their kids to community college, have them get part-time jobs, and think 'maybe our son or daughter will support us'…We can't do that."
Last month, Mrs. Hayes found some temporary work as a recruiter. The income is lower than her Bank of America salary, there are no benefits and her brother has helped pitch in with day care. She says she's grateful for the opportunity, but knows it could be precarious. "We're not going to spend on anything," she says.
In other families, the gaps in financial support have become glaring between siblings. Ten years ago, when Patricia Bennett earned more than $100,000 a year selling risk-management software on Wall Street, she paid $30,000 cash for her now 28-year-old son's freshman year at Morehouse College in Atlanta with little hassle.
After being laid off in April 2009, Ms. Bennett now makes $9.75 an hour as a part-time cashier at Williams-Sonoma, in addition to doing volunteer hospice care. In January, she received a foreclosure notice on her home in Monroe, N.Y. Her youngest son is a sophomore at Lafayette College and will have to drop out next year unless he obtains more scholarships and loans.
Last year, Lafayette increased financial aid by 8.5% and cut its operating budget by 5% to keep pace with the increase in financial-aid requests and prevent students from leaving for financial reasons "There's concern about reality today and what's ahead," says Robert Massa, Lafayette's vice president of communications.
Ms. Bennett's husband, William, was unemployed as a salesman for two years before he started selling cars on commission in July of 2009. Before they became eligible for health insurance with his new job, the family went without it for months at a time so that they could contribute around $1,000 for pocket money and bus tickets for their son to visit home.
The gap between their two sons' experiences is particularly frustrating for her. "It's a bitter pill to swallow," Ms. Bennett says. Many parents are less able to help their children after graduation as well. Angelica Hoyos, a 26-year-old living in Los Angeles, has put her photography and sculpture career on hold since her parents pulled the financial plug earlier this year after the family's granite-countertop business suffered. Ms. Hoyos has moved in with her boyfriend, cut spending and earns about $1,000 a month doing free-lance design work and baby-sitting.
"My artistic career is put on the side because I have to make a living," she says. For Mr. Johnson, the former GE Capital executive, not being able to see his children through college is particularly painful. Both he and his wife attended Johns Hopkins in Baltimore. When he decided to earn his masters in finance there decades ago, he says he had little doubt about it being "a good value proposition."
The Johnson children always had part-time jobs in high school. But in college, they struggled for months to find part-time and summer work over the past two years. Finally, one landed a seasonal job folding clothes at Old Navy. Last year, the Johnsons didn't qualify for work study because the household income was too high. Since resubmitting their aid application, they have qualified. Their son got a work-study gig at a university office.
Johns Hopkins last year added $2 million in financial aid just to accommodate the surge of additional aid requests for its 5,000 undergrads. Some 61% of higher-education institutions reported an increase of 10% or more in financial-aid applications than the previous year, according to a September 2009 survey from the National Association of Student Financial Aid Administrators. More than a million more federal financial-aid applications were filed during the beginning of 2009 than in the beginning of 2008, with a 16.3% increase among dependent students.
"We had folks who never needed aid before and now they have one, two parents unemployed," says Vincent Amoroso, the school's director of student financial services. "And these are folks who used to make $100,000 or $200,000 a year who are coming to see us." Mr. Johnson made up to $550,000 a year, including bonuses, before losing his job in March 2009. The Johnsons had stashed $250,000 away for college.
If that money isn't tapped sooner for household expenses, it might buy two years of schooling for each of his children, Mr. Johnson calculates. Further expenses such as first homes and weddings are out of the question. "They're going to have to elope," he says. In the summer of 2007, the Johnsons paid $1.5 million for their Fairfield home and took out a mortgage of $852,000. Mr. Johnson figures it could realistically sell for $800,000 today. Given the numbers, the family is trying to avoid moving and recently refinanced their house at a lower interest rate.
"It's emasculating," Mr. Johnson says. "I'm supposed to be providing for them, but I can't."
The children haven't talked about transferring to less expensive colleges yet. "I'm going to take it all day by day," says Kristian Johnson, 20, the oldest of the Johnson siblings. Now a sophomore, he says he's prepared to take out loans to finish.
Margot Johnson, 18, says her father's career experience has affected her goal as an economics major. "I want to study economics," she says, "but not something in the corporate world." Mr. Johnson concedes that Elsa Johnson, the youngest, is "getting the raw end of the deal." By the time the 15-year-old daughter starts looking at colleges, most of the savings set aside for school could be gone.
Already passionate about fashion and design, Elsa says she'll opt for the least-expensive design school she can get into and is looking into paying for school herself. Until then, she's cut back on shopping trips and food and coffee spending with friends. She no longer asks for weekly allowances. "My parents are already stressed out enough," she says.
Meanwhile, Mr. Johnson continues to look for work and crunch numbers of the new household-budget reality.
"I know, I know—cry me a river and then build a bridge and get over it, right?" Mr. Johnson says. "Still, there was a set of expectations we established, consciously or not, and they are not being met any more."
http://online.wsj.com/article/SB10001424052748704207504575130171387740744.html
Wednesday, April 14, 2010
Victims of Wells Fargo Mortgage Fraud Speak Out - Story 1
March 20, 10:12 AM · Michael Schmitt - Long Island Libertarian Examiner
Wells Fargo took billions of taxpayer dollars to assist homeowners in reducing their mortgage and prevent foreclosures. Instead, Wells Fargo committed massive fraud in a scheme to defraud homeowners into foreclosure. They deceive homeowners into believing they are receiving a modification but it is a trick. Wells Fargo later claims that they are only "trial modifications" and place the homeowner into automatic foreclosure. Of 100,000 trial modifications sent out, only a handful ever became permanent while the others were placed in foreclosure without the homeowner ever realizing it until it was too late. This is a criminal act. Here is one such story.
"I thought you might be interested to know that I participated in the Wells Fargo Loan Mod Workshop that took place last September. I had previously been trying since May 2009 to get a loan modification due to my husband's job loss and subsequent lower paying job. I was able to come away with what I thought was a permanent loan mod when I left that night. The Wells Fargo banker that I worked with told me that we had been approved and that we only had to make the new lower payments on the four month agreement for Sept, Oct, Nov, & Dec to make it permanent. She even told me what our interest rate would be. We lived up to our end of the agreement by making the four payments on time.
I called Wells Fargo in December 2009 to see what we needed to do to finalize. I disclosed that my husband was once again unemployed but had found a job and would be starting soon. They canceled the loan mod and restarted our application process. To our horror and dismay they said we no longer qualified because our deficit was too high. Imagine that! Now we don't make enough money to qualify. We had no choice but to sign a four month moratorium that allows us to make no payments at all until June 2010 upon which a very large balloon payment will be due. This is supposed to give us time to get our finances in order. I am still making what would have been the loan mod payment each month in good faith. We have never been late on our mortgage. I pulled our credit report yesterday to find that Wells Fargo has reported us as being delinquent since Aug 2009 even though we didn't start the four month trial period until September 2009. This is false reporting and I intend to call them on Monday and let them know that!
According to this website: http://blog.wellsfargo.com/wachovia/2009/08/a_hamp_loan_modification_updat.html, Wells Fargo goal is to send eligible customers a trial modification agreement within 48 hours. But after reading the more then 300 blogs you can see that it's not true. I have been trying for ten months to get a loan modification. I'm wondering how many other Arizona residents who attended the workshop were given a temporary loan mod to later be denied a permanent one. How long are the struggling middle class workers going to have to put up with this? Wells Fargo needs to be held accountable and I will gladly join a class action lawsuit!"
Copyright 2010 Examiner.com. All rights reserved.
http://www.examiner.com/x-33820-Long-Island-Libertarian-Examiner~y2010m3d20-Victims-of-Wells-fargo-mortgage-Fraud-speak-out--Story-1
Wells Fargo took billions of taxpayer dollars to assist homeowners in reducing their mortgage and prevent foreclosures. Instead, Wells Fargo committed massive fraud in a scheme to defraud homeowners into foreclosure. They deceive homeowners into believing they are receiving a modification but it is a trick. Wells Fargo later claims that they are only "trial modifications" and place the homeowner into automatic foreclosure. Of 100,000 trial modifications sent out, only a handful ever became permanent while the others were placed in foreclosure without the homeowner ever realizing it until it was too late. This is a criminal act. Here is one such story.
"I thought you might be interested to know that I participated in the Wells Fargo Loan Mod Workshop that took place last September. I had previously been trying since May 2009 to get a loan modification due to my husband's job loss and subsequent lower paying job. I was able to come away with what I thought was a permanent loan mod when I left that night. The Wells Fargo banker that I worked with told me that we had been approved and that we only had to make the new lower payments on the four month agreement for Sept, Oct, Nov, & Dec to make it permanent. She even told me what our interest rate would be. We lived up to our end of the agreement by making the four payments on time.
I called Wells Fargo in December 2009 to see what we needed to do to finalize. I disclosed that my husband was once again unemployed but had found a job and would be starting soon. They canceled the loan mod and restarted our application process. To our horror and dismay they said we no longer qualified because our deficit was too high. Imagine that! Now we don't make enough money to qualify. We had no choice but to sign a four month moratorium that allows us to make no payments at all until June 2010 upon which a very large balloon payment will be due. This is supposed to give us time to get our finances in order. I am still making what would have been the loan mod payment each month in good faith. We have never been late on our mortgage. I pulled our credit report yesterday to find that Wells Fargo has reported us as being delinquent since Aug 2009 even though we didn't start the four month trial period until September 2009. This is false reporting and I intend to call them on Monday and let them know that!
According to this website: http://blog.wellsfargo.com/wachovia/2009/08/a_hamp_loan_modification_updat.html, Wells Fargo goal is to send eligible customers a trial modification agreement within 48 hours. But after reading the more then 300 blogs you can see that it's not true. I have been trying for ten months to get a loan modification. I'm wondering how many other Arizona residents who attended the workshop were given a temporary loan mod to later be denied a permanent one. How long are the struggling middle class workers going to have to put up with this? Wells Fargo needs to be held accountable and I will gladly join a class action lawsuit!"
Copyright 2010 Examiner.com. All rights reserved.
http://www.examiner.com/x-33820-Long-Island-Libertarian-Examiner~y2010m3d20-Victims-of-Wells-fargo-mortgage-Fraud-speak-out--Story-1
Monday, April 12, 2010
Chase Sued: Allegedly Told Homeowner to Stop Payments, Then Foreclosed
JPMorgan Chase told a California couple to quit making mortgage payments in order to qualify for a loan modification but then foreclosed on their Sacramento home, according to a lawsuit filed in federal court.
Faiz and Khadija Jahani called Chase in December 2008 because they were having trouble making their mortgage payments. According to the suit, they were told that they wouldn't qualify for a modification without being delinquent and that they should stop making payments for three months.
At the beginning of June, the Jahanis claim that they were told they qualified for a modification that reduced their monthly payments. Three weeks later, they received a letter telling them the bank intended to foreclose. This confusing back-and-forth continued for months, with Chase repeatedly asking them to resend paperwork, according to the complaint filed in U.S. District Court, Eastern District of California/Sacramento Division, which was first reported by Courthouse News.
The couple is demanding damages of $150,000 for breach of contract, fraud, predatory lending and violation of the Fair Credit Reporting Act.
In October, a real-estate investor knocked on the Jahanis' door and asked them about buying the house, telling the couple that it was a bank-owned property. When the Jahanis called Chase to find out what was going on, they claim they were reassured that the bank had not foreclosed on the house.
"They kept getting conflicting information," said lawyer Piotr Reysner. He added that, as far as he can tell from public records, the bank did in fact foreclose on the property. "Unfortunately, they face a situation right now where they could easily get a three-day notice to quit the house." Chase did not immediately respond to a request for comment.
Reysner, a bankruptcy attorney, said he did not know whether the Jahanis had been pursuing their modification via the Obama administration's Home Affordable Modification Program, which started in spring 2009 and gives banks incentives to modify mortgages for hard-luck homeowners. Banks are not allowed to foreclose on borrowers eligible for the program, but they are allowed to move forward with the foreclosure process during a trial modification, a source of much confusion for borrowers everywhere.
"The fact that a servicer is telling a homeowner that they're taking care of the matter and, while they're negotiating, the house moves into foreclosure is a completely common scenario in today's foreclosure world," said Ira Rheingold, director of the National Association of Consumer Advocates.
In March, HuffPost reported on Indiana law student Melissa Stuart, who had been making monthly payments under HAMP, only to be told when the trial period ended that she was delinquent. Stuart ultimately won a permanent modification.
UPDATE 6:05 PM: Several readers and commenters have written to say they're having the same kind of problem. And Melissa Huelsman, a Seattle attorney whose practice focuses on predatory lending and wrongful foreclosure, wrote HuffPost to say clients of hers went through the same process as the Jahanis and were ultimately evicted. She wrote: I'm just getting ready to file suit against Chase for this same thing, except my clients were actually making their trial loan mod payments up until the month before Chase foreclosed. They went to make the December payment but got a knock on the door from a realtor before they could do so. They spent a couple of weeks trying to get someone at Chase to fix the problem, except that Chase kept telling them that the property had not been foreclosed. Turns out Chase was wrong and the house was sold to a third party. They were just evicted a couple weeks ago and we're getting ready to file.
http://www.huffingtonpost.com/2010/04/06/chase-sued-allegedly-told_n_527031.html
Faiz and Khadija Jahani called Chase in December 2008 because they were having trouble making their mortgage payments. According to the suit, they were told that they wouldn't qualify for a modification without being delinquent and that they should stop making payments for three months.
At the beginning of June, the Jahanis claim that they were told they qualified for a modification that reduced their monthly payments. Three weeks later, they received a letter telling them the bank intended to foreclose. This confusing back-and-forth continued for months, with Chase repeatedly asking them to resend paperwork, according to the complaint filed in U.S. District Court, Eastern District of California/Sacramento Division, which was first reported by Courthouse News.
The couple is demanding damages of $150,000 for breach of contract, fraud, predatory lending and violation of the Fair Credit Reporting Act.
In October, a real-estate investor knocked on the Jahanis' door and asked them about buying the house, telling the couple that it was a bank-owned property. When the Jahanis called Chase to find out what was going on, they claim they were reassured that the bank had not foreclosed on the house.
"They kept getting conflicting information," said lawyer Piotr Reysner. He added that, as far as he can tell from public records, the bank did in fact foreclose on the property. "Unfortunately, they face a situation right now where they could easily get a three-day notice to quit the house." Chase did not immediately respond to a request for comment.
Reysner, a bankruptcy attorney, said he did not know whether the Jahanis had been pursuing their modification via the Obama administration's Home Affordable Modification Program, which started in spring 2009 and gives banks incentives to modify mortgages for hard-luck homeowners. Banks are not allowed to foreclose on borrowers eligible for the program, but they are allowed to move forward with the foreclosure process during a trial modification, a source of much confusion for borrowers everywhere.
"The fact that a servicer is telling a homeowner that they're taking care of the matter and, while they're negotiating, the house moves into foreclosure is a completely common scenario in today's foreclosure world," said Ira Rheingold, director of the National Association of Consumer Advocates.
In March, HuffPost reported on Indiana law student Melissa Stuart, who had been making monthly payments under HAMP, only to be told when the trial period ended that she was delinquent. Stuart ultimately won a permanent modification.
UPDATE 6:05 PM: Several readers and commenters have written to say they're having the same kind of problem. And Melissa Huelsman, a Seattle attorney whose practice focuses on predatory lending and wrongful foreclosure, wrote HuffPost to say clients of hers went through the same process as the Jahanis and were ultimately evicted. She wrote: I'm just getting ready to file suit against Chase for this same thing, except my clients were actually making their trial loan mod payments up until the month before Chase foreclosed. They went to make the December payment but got a knock on the door from a realtor before they could do so. They spent a couple of weeks trying to get someone at Chase to fix the problem, except that Chase kept telling them that the property had not been foreclosed. Turns out Chase was wrong and the house was sold to a third party. They were just evicted a couple weeks ago and we're getting ready to file.
http://www.huffingtonpost.com/2010/04/06/chase-sued-allegedly-told_n_527031.html
Wednesday, April 7, 2010
Current Events in Housing and Mortgage Markets
Regulatory Items
The biggest regulatory reform on the horizon is the bill sponsored by Sen. Dodd. This would place significant oversight within the Federal Reserve and also create a Consumer Protection element. In prior newsletters we referenced the Consumer Financial Protection Act of 2009. It would establish a new consumer protection agency, and this legislation contains an amendment related to the HVCC. Among the provisions would be a sunset of the existing HVCC agreement in lieu of a new comprehensive appraiser independence measure with the intent of a consistent appraisal regulation for all valuation services scenarios. The current HVCC agreement only impacts loans sold to Fannie and Freddie. New "HVCC Like" language enacted by FHA is a somewhat different flavor. It would require the CFPA to lead a negotiated rulemaking committee on appraisal independence. This CFPA language is not in the Dodd bill - and in fact no significant appraisal language is. The differences would likely be addressed in a reconciliation process.
What is the future of Fannie and Freddie? Apparently no one knows, including Treasury Secretary Timothy Geithner. There does seem to be consensus that these two entities cannot return to their former "in between" status. They will likely become either fully privatized or true government agencies... or combined into a single agency. But most suspect the GSE (Government Sponsored Entity) status will be a thing of the past.
One of the regulatory items gaining steam is oversight for Appraisal Management Companies or AMCs. Legislation is being enacted at the State level. Others have suggested that the new RESPA and FHA requirements call for separation of the appraisal fee from the management fee. I expect much more industry chatter over this issue and I will continue to provide perspectives in future newsletters.
The other regulatory "hot button" right now is over the use of a BPO in lieu of an appraisal. Each State has its own laws and regulations on when and where a BPO is acceptable. Many states do not allow the use of a BPO for any use beyond pricing a home for a listing. NAR and the Appraisal Institute have been butting heads on this issue and I see continued volleys ahead.
Markets
The latest Fannie Mae projections for the residential market call for slow growth in 2010... but at least growth and not contraction. As we reported in the last newsletter, short sales and foreclosures continue to be the biggest impediment to stabilization. The foreclosure pain is not uniform. Some areas are relatively unscathed while other neighborhoods have the majority of transactions as short sale or foreclosure. This map shows state by state statistics for foreclosure rates. However, foreclosures are not slowing and if anything continue to ramp up. The pace of defaults overwhelms lenders. HUD also published some excellent map based tools for showing housing statistics.
A new term that entered the real estate realm is "strategic mortgage default". This has to have lenders very concerned! As if foreclosure due to economic hardship is not enough to deal with, a growing number of property owners are opting for foreclosure as a simple business decision. As the social stigma for mortgage default diminishes, it appears more borrowers are choosing this option. Not surprisingly, this decision is most closely correlated with how "underwater" the borrower is.
On the Commercial Real Estate (CRE) front, significant weakness continues. We see softness in rents, increased vacancies, and value correction... all of which of course varies by market and property type. Many lenders are aggressively writing down loans, forgiving debt, and not renewing lines of credit. I won't even elaborate on subdivisions! Real estate lending on the commercial side is not popular among banks at the present.
On the Lighter Side
Finding a good book is always a treat. While non-fiction is often dry, I highly recommend "Too Big To Fail" by Andrew Ross Sorkin. This book offers a highly readable account of the financial meltdown and the major players involved. On my list of books to read is "The Big Short" by Michael Lewis. I have read other Lewis books and find him to be an excellent writer.
I have heard my fair share of appraiser "war stories" over the past few decades... but being attacked by a "Spice Girl" really does take the top prize! Although the funniest appraiser "appearance" on TV still has to be from The Sopranos... "I'm only the appraiser!"
The biggest regulatory reform on the horizon is the bill sponsored by Sen. Dodd. This would place significant oversight within the Federal Reserve and also create a Consumer Protection element. In prior newsletters we referenced the Consumer Financial Protection Act of 2009. It would establish a new consumer protection agency, and this legislation contains an amendment related to the HVCC. Among the provisions would be a sunset of the existing HVCC agreement in lieu of a new comprehensive appraiser independence measure with the intent of a consistent appraisal regulation for all valuation services scenarios. The current HVCC agreement only impacts loans sold to Fannie and Freddie. New "HVCC Like" language enacted by FHA is a somewhat different flavor. It would require the CFPA to lead a negotiated rulemaking committee on appraisal independence. This CFPA language is not in the Dodd bill - and in fact no significant appraisal language is. The differences would likely be addressed in a reconciliation process.
What is the future of Fannie and Freddie? Apparently no one knows, including Treasury Secretary Timothy Geithner. There does seem to be consensus that these two entities cannot return to their former "in between" status. They will likely become either fully privatized or true government agencies... or combined into a single agency. But most suspect the GSE (Government Sponsored Entity) status will be a thing of the past.
One of the regulatory items gaining steam is oversight for Appraisal Management Companies or AMCs. Legislation is being enacted at the State level. Others have suggested that the new RESPA and FHA requirements call for separation of the appraisal fee from the management fee. I expect much more industry chatter over this issue and I will continue to provide perspectives in future newsletters.
The other regulatory "hot button" right now is over the use of a BPO in lieu of an appraisal. Each State has its own laws and regulations on when and where a BPO is acceptable. Many states do not allow the use of a BPO for any use beyond pricing a home for a listing. NAR and the Appraisal Institute have been butting heads on this issue and I see continued volleys ahead.
Markets
The latest Fannie Mae projections for the residential market call for slow growth in 2010... but at least growth and not contraction. As we reported in the last newsletter, short sales and foreclosures continue to be the biggest impediment to stabilization. The foreclosure pain is not uniform. Some areas are relatively unscathed while other neighborhoods have the majority of transactions as short sale or foreclosure. This map shows state by state statistics for foreclosure rates. However, foreclosures are not slowing and if anything continue to ramp up. The pace of defaults overwhelms lenders. HUD also published some excellent map based tools for showing housing statistics.
A new term that entered the real estate realm is "strategic mortgage default". This has to have lenders very concerned! As if foreclosure due to economic hardship is not enough to deal with, a growing number of property owners are opting for foreclosure as a simple business decision. As the social stigma for mortgage default diminishes, it appears more borrowers are choosing this option. Not surprisingly, this decision is most closely correlated with how "underwater" the borrower is.
On the Commercial Real Estate (CRE) front, significant weakness continues. We see softness in rents, increased vacancies, and value correction... all of which of course varies by market and property type. Many lenders are aggressively writing down loans, forgiving debt, and not renewing lines of credit. I won't even elaborate on subdivisions! Real estate lending on the commercial side is not popular among banks at the present.
On the Lighter Side
Finding a good book is always a treat. While non-fiction is often dry, I highly recommend "Too Big To Fail" by Andrew Ross Sorkin. This book offers a highly readable account of the financial meltdown and the major players involved. On my list of books to read is "The Big Short" by Michael Lewis. I have read other Lewis books and find him to be an excellent writer.
I have heard my fair share of appraiser "war stories" over the past few decades... but being attacked by a "Spice Girl" really does take the top prize! Although the funniest appraiser "appearance" on TV still has to be from The Sopranos... "I'm only the appraiser!"
Tuesday, April 6, 2010
Looming Foreclosures Threaten Rebound
Housing Market Swelling with Homeowners Who Can't Afford Mortgages - a Ticking Time Bomb
By Washington Post staff writer Renae Merle, March 12, 2010
The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.
About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners. And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.
As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.
The rate at which J.P. Morgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. But the bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter.
"Some of the positive housing data may not be signaling a true turning point, as many servicers are holding back on foreclosures and the related houses are not yet being offered for sale," said Diane Westerback, a managing director at Standard & Poor's. Westerback said it could take 33 months to clear the backlog.
Data released Thursday by RealtyTrac illustrate the dynamic. While banks repossessed fewer homes in February than a month earlier, borrowers continued to fall behind on their payments, adding to the inventory of properties headed toward foreclosure that have yet to be put on the market, said Daren Blomquist, RealtyTrac's spokesman.
"Just looking at the numbers, we would expect there to be a bigger percentage of properties" repossessed by banks by now, he said.
This "shadow market" reflects the increasing lag between defaults and foreclosures. Many lenders are struggling to keep up with the overwhelming number of borrowers who can't make their payments, and they're reluctant to rush repossessed homes onto the market when prices are depressed.
Delinquent borrowers
Today's delinquent borrowers, for the most part, differ in a key regard from those who were caught up in the surge of defaults in 2008. That earlier wave, which precipitated the financial crisis, consisted largely of subprime borrowers who defaulted when their risky loans became unaffordable.
The borrowers in trouble now are, for the most part, people who have better credit and safer loans and have become delinquent because they've lost their jobs or are dealing with other economic setbacks, economists said. More than 75 percent of the borrowers who are now seriously delinquent -- meaning they have missed at least three monthly payments -- have traditional prime loans, according to First American CoreLogic. Most of these borrowers have not made a mortgage payment in six months.
These borrowers are among the most difficult to help. Homeowners with economic troubles such as extended unemployment often cannot make even reduced mortgage payments. And the longer borrowers stay delinquent, the more difficult it is to fashion a mortgage relief plan for them.
Some lenders are giving distressed borrowers more time to see whether they can modify the terms of their loans. It can take a borrower six to seven months to find out whether he or she qualifies for a permanent loan modification under the federal foreclosure relief program, Making Home Affordable, according to Barclays Capital.
In Maryland, for example, lawmakers extended the foreclosure process from 15 days to 135 days in 2008 and are considering emergency legislation to force lenders into mediation with a borrower before foreclosing on a property. But other states and jurisdictions have even more drastic measures to slow down the foreclosure process. "There were cases where sheriffs were refusing to file foreclosure notices," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.
After a temporary foreclosure moratorium in 2008, the backlog of homeowners facing foreclosure in Maryland has surged. The number of Maryland homeowners who are seriously delinquent or in the midst of the foreclosure process nearly doubled during the fourth quarter of 2009 compared with the same period a year earlier, according to data from the Mortgage Bankers Association.
"Lenders are deluged by late-stage delinquencies. The pent-up foreclosure inventory is there," said Massoud Ahmadi, director of research for the Maryland Department of Housing and Community Development.
Housing prices
The uptick in foreclosure sales is helping depress Maryland home prices, he said. "We have seen that home sales are on an upswing, but prices are on a downswing. That is the impact of the shadow inventory. It is keeping prices down," Ahmadi said. In addition to those already in default are 11 million more U.S. borrowers who owe more on their mortgage than their home is worth -- known as being underwater -- and are in danger of becoming delinquent, said Sam Khater, chief economist for First American CoreLogic.
Over the past year, the number of foreclosed homes going up for sale has declined. Distressed properties made up just 38 percent of purchases in January, compared with the 49 percent peak in March 2009, according to the National Association of Realtors. That helped the inventory of homes on the market fall to a 7.8-month supply, close to the figure during normal times and down from more than 11 months in July 2008. But as prices continue to stabilize, lenders are likely to take advantage of the situation by putting more of these distressed properties on the market, economists said.
"Banks have remained in foreclosure paralysis, allowing that backlog to get larger and larger. You can't do that indefinitely," said Sandeep Bordia, head of U.S. residential credit strategy at Barclays Capital. That impact could be muted if enough buyers emerge to snap up properties or efforts to enroll borrowers in mortgage relief programs improve. Some lenders are looking for ways to ease delinquent borrowers out of their homes without a foreclosure. For example, lenders are allowing more short sales, in which the home is sold for less than the outstanding loan balance. Citigroup is testing a program that allows delinquent borrowers to stay in their home for six months free if they leave the property in good condition, making it easier to sell afterward.
"We are anticipating a foreclosure glut that is likely to come up in next 16 to 18 months. We are trying to stay ahead of this," said Sanjiv Das, chief executive of CitiMortgage. These types of programs are "protecting house prices and consumer sentiment from going down further," he said.
Regional impact
The impact of the coming foreclosure wave will vary by region. The Washington area has a "shadow inventory" of about 67,000 properties that could go into foreclosure this year, an 11-month supply at the current sales rates, according to research by John Burns Real Estate Consulting in Irvine, Calif. That is slightly higher than the national average but far less than the hardest-hit communities, such as Orlando and Miami, where there is two-year backlog.
And the backlog will hang over some communities for years. By the end of 2012, 39 percent to 50 percent of home purchases in Phoenix will still be foreclosed properties, J.P. Morgan Chase has estimated. In Los Angeles, they'll account for 28 percent of home sales.
http://www.cbsnews.com/stories/2010/03/12/politics/washingtonpost/main6291903.shtml
Housing Market Swelling with Homeowners Who Can't Afford Mortgages - a Ticking Time Bomb
By Washington Post staff writer Renae Merle, March 12, 2010
The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.
About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners. And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.
As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.
The rate at which J.P. Morgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. But the bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter.
"Some of the positive housing data may not be signaling a true turning point, as many servicers are holding back on foreclosures and the related houses are not yet being offered for sale," said Diane Westerback, a managing director at Standard & Poor's. Westerback said it could take 33 months to clear the backlog.
Data released Thursday by RealtyTrac illustrate the dynamic. While banks repossessed fewer homes in February than a month earlier, borrowers continued to fall behind on their payments, adding to the inventory of properties headed toward foreclosure that have yet to be put on the market, said Daren Blomquist, RealtyTrac's spokesman.
"Just looking at the numbers, we would expect there to be a bigger percentage of properties" repossessed by banks by now, he said.
This "shadow market" reflects the increasing lag between defaults and foreclosures. Many lenders are struggling to keep up with the overwhelming number of borrowers who can't make their payments, and they're reluctant to rush repossessed homes onto the market when prices are depressed.
Delinquent borrowers
Today's delinquent borrowers, for the most part, differ in a key regard from those who were caught up in the surge of defaults in 2008. That earlier wave, which precipitated the financial crisis, consisted largely of subprime borrowers who defaulted when their risky loans became unaffordable.
The borrowers in trouble now are, for the most part, people who have better credit and safer loans and have become delinquent because they've lost their jobs or are dealing with other economic setbacks, economists said. More than 75 percent of the borrowers who are now seriously delinquent -- meaning they have missed at least three monthly payments -- have traditional prime loans, according to First American CoreLogic. Most of these borrowers have not made a mortgage payment in six months.
These borrowers are among the most difficult to help. Homeowners with economic troubles such as extended unemployment often cannot make even reduced mortgage payments. And the longer borrowers stay delinquent, the more difficult it is to fashion a mortgage relief plan for them.
Some lenders are giving distressed borrowers more time to see whether they can modify the terms of their loans. It can take a borrower six to seven months to find out whether he or she qualifies for a permanent loan modification under the federal foreclosure relief program, Making Home Affordable, according to Barclays Capital.
In Maryland, for example, lawmakers extended the foreclosure process from 15 days to 135 days in 2008 and are considering emergency legislation to force lenders into mediation with a borrower before foreclosing on a property. But other states and jurisdictions have even more drastic measures to slow down the foreclosure process. "There were cases where sheriffs were refusing to file foreclosure notices," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.
After a temporary foreclosure moratorium in 2008, the backlog of homeowners facing foreclosure in Maryland has surged. The number of Maryland homeowners who are seriously delinquent or in the midst of the foreclosure process nearly doubled during the fourth quarter of 2009 compared with the same period a year earlier, according to data from the Mortgage Bankers Association.
"Lenders are deluged by late-stage delinquencies. The pent-up foreclosure inventory is there," said Massoud Ahmadi, director of research for the Maryland Department of Housing and Community Development.
Housing prices
The uptick in foreclosure sales is helping depress Maryland home prices, he said. "We have seen that home sales are on an upswing, but prices are on a downswing. That is the impact of the shadow inventory. It is keeping prices down," Ahmadi said. In addition to those already in default are 11 million more U.S. borrowers who owe more on their mortgage than their home is worth -- known as being underwater -- and are in danger of becoming delinquent, said Sam Khater, chief economist for First American CoreLogic.
Over the past year, the number of foreclosed homes going up for sale has declined. Distressed properties made up just 38 percent of purchases in January, compared with the 49 percent peak in March 2009, according to the National Association of Realtors. That helped the inventory of homes on the market fall to a 7.8-month supply, close to the figure during normal times and down from more than 11 months in July 2008. But as prices continue to stabilize, lenders are likely to take advantage of the situation by putting more of these distressed properties on the market, economists said.
"Banks have remained in foreclosure paralysis, allowing that backlog to get larger and larger. You can't do that indefinitely," said Sandeep Bordia, head of U.S. residential credit strategy at Barclays Capital. That impact could be muted if enough buyers emerge to snap up properties or efforts to enroll borrowers in mortgage relief programs improve. Some lenders are looking for ways to ease delinquent borrowers out of their homes without a foreclosure. For example, lenders are allowing more short sales, in which the home is sold for less than the outstanding loan balance. Citigroup is testing a program that allows delinquent borrowers to stay in their home for six months free if they leave the property in good condition, making it easier to sell afterward.
"We are anticipating a foreclosure glut that is likely to come up in next 16 to 18 months. We are trying to stay ahead of this," said Sanjiv Das, chief executive of CitiMortgage. These types of programs are "protecting house prices and consumer sentiment from going down further," he said.
Regional impact
The impact of the coming foreclosure wave will vary by region. The Washington area has a "shadow inventory" of about 67,000 properties that could go into foreclosure this year, an 11-month supply at the current sales rates, according to research by John Burns Real Estate Consulting in Irvine, Calif. That is slightly higher than the national average but far less than the hardest-hit communities, such as Orlando and Miami, where there is two-year backlog.
And the backlog will hang over some communities for years. By the end of 2012, 39 percent to 50 percent of home purchases in Phoenix will still be foreclosed properties, J.P. Morgan Chase has estimated. In Los Angeles, they'll account for 28 percent of home sales.
http://www.cbsnews.com/stories/2010/03/12/politics/washingtonpost/main6291903.shtml
Monday, April 5, 2010
Let the Short Sales Begin
By: Diana Olick, CNBC Real Estate Reporter
Today the Administration's Home Affordable Foreclosure Alternative Plan takes effect, offering incentives to borrowers, servicers, investors and second lien holders to push short sales through the system. Yep, everyone gets a cut of government funds to get these troubled borrowers out of their homes and get them sold, even if the sale price is less than the value of the loan.
I find it interesting that before the plan even went into effect today, the Administration upped the incentives a week ago, doubling the amount of cash to $3000 offered as borrower "relocation expenses" and juicing the payoffs to the others as well. Of course they want to push short sales because of course they know that their modification program isn't working as planned.
But the biggest impediment to the plan is the lenders themselves, who have to weigh what's going to save them the most money and cause them the least bleeding on their books.
Is it a short sale or a foreclosure sale? We're already seeing inventories shrinking way down out West, where banks are holding on to foreclosed properties and manipulating prices to their advantage. I'm also starting to hear rumblings among the number crunchers that the wave of foreclosures we keep hearing about is about to hit with a thunderous roar.
Mortgages
30 yr fixed 5.23% 5.36%
30 yr fixed jumbo 5.93% 6.03%
15 yr fixed 4.56% 4.92%
15 yr fixed jumbo 5.46% 5.64%
5/1 ARM 4.05% 3.64%
5/1 jumbo ARM 4.48% 3.71%
Servicers are ramping up the mod process and pushing those who don't qualify out the door more quickly than ever. A big jump in inventories, which we already saw last month, right in the midst of the Spring market will turn home prices on their heels. Don't get me wrong, I'm loving the jump we saw today in the Pending Home Sales Index, but there was just something a little too hesitant in the Realtors' report. They seem to be talking about hints and hopes, rather than real change.
Today the Administration's Home Affordable Foreclosure Alternative Plan takes effect, offering incentives to borrowers, servicers, investors and second lien holders to push short sales through the system. Yep, everyone gets a cut of government funds to get these troubled borrowers out of their homes and get them sold, even if the sale price is less than the value of the loan.
I find it interesting that before the plan even went into effect today, the Administration upped the incentives a week ago, doubling the amount of cash to $3000 offered as borrower "relocation expenses" and juicing the payoffs to the others as well. Of course they want to push short sales because of course they know that their modification program isn't working as planned.
But the biggest impediment to the plan is the lenders themselves, who have to weigh what's going to save them the most money and cause them the least bleeding on their books.
Is it a short sale or a foreclosure sale? We're already seeing inventories shrinking way down out West, where banks are holding on to foreclosed properties and manipulating prices to their advantage. I'm also starting to hear rumblings among the number crunchers that the wave of foreclosures we keep hearing about is about to hit with a thunderous roar.
Mortgages
30 yr fixed 5.23% 5.36%
30 yr fixed jumbo 5.93% 6.03%
15 yr fixed 4.56% 4.92%
15 yr fixed jumbo 5.46% 5.64%
5/1 ARM 4.05% 3.64%
5/1 jumbo ARM 4.48% 3.71%
Servicers are ramping up the mod process and pushing those who don't qualify out the door more quickly than ever. A big jump in inventories, which we already saw last month, right in the midst of the Spring market will turn home prices on their heels. Don't get me wrong, I'm loving the jump we saw today in the Pending Home Sales Index, but there was just something a little too hesitant in the Realtors' report. They seem to be talking about hints and hopes, rather than real change.
Fed stopped buying Mortgage Backed Securities; What happens to Mortgage Rates now?
Mortgage rates took a major beating last week after Fed officially stopped buying mortgage backed securities. Fannie Mae 30 year (4.5%) mortgage bond opened the week at 100.44, and closed at 99.47, a drop of whopping 97 bps (see chart below). The mortgage rates for most of the conventional loan programs had jumped up by .25%. These are ominous signs.
If last week was any indication this is not going to be a slow rise in interest rates as a lot of experts had predicted. From what we have seen so far we are definitely looking at mid -high 5 percent range by the end of the year, if not higher. For the real estate market that is still fragile, more than .5% increase in rates could come as a big blow.
If you were looking to buy a house and had a Pre-approval done, it may be a good idea to get it reviewed again by your lender. An already .25% increase in rate means that you may not qualify for the same amount of mortgage that you did 1 week back. And if you are looking to refinance, you opportunity to get a low rate may be limited.
Mortgage rates took a major beating last week after Fed officially stopped buying mortgage backed securities. Fannie Mae 30 year (4.5%) mortgage bond opened the week at 100.44, and closed at 99.47, a drop of whopping 97 bps (see chart below). The mortgage rates for most of the conventional loan programs had jumped up by .25%. These are ominous signs.
If last week was any indication this is not going to be a slow rise in interest rates as a lot of experts had predicted. From what we have seen so far we are definitely looking at mid -high 5 percent range by the end of the year, if not higher. For the real estate market that is still fragile, more than .5% increase in rates could come as a big blow.
If you were looking to buy a house and had a Pre-approval done, it may be a good idea to get it reviewed again by your lender. An already .25% increase in rate means that you may not qualify for the same amount of mortgage that you did 1 week back. And if you are looking to refinance, you opportunity to get a low rate may be limited.
Top ten underwater mortgage locations
U.S News & World Report recently reported on the top ten places in the United States that had the most “underwater” mortgages.
Understanding Negative Equity or Underwater Mortgage. Negative equity or “underwater” mortgage is when a home owner owes more on their home than it’s worth. Therefore, home owners who sell their home will still owe their lender to pay off their mortgage loan because they will not be able to sell their home for enough money to pay it off.
What this means for the housing market is that it stalls it. People aren’t able to move and buy a new home, because they can’t afford to pay off their mortgage loan after selling their own home. If these home owners are unable to pay their monthly mortgage payment, they may end up in foreclosure, which means banks lose money and the housing market deals with another decline in home prices due to the influx of foreclosures.
The Most Underwater Locations in the United States. It’s interesting to see where home values took a hit around the country because it helps us see where the housing market has taken the hardest hit and is in the most state of recovery. All the following locations are from the report by U.S. News & World Report and the percentages are how much single-family homes are underwater for that city and are from a report by Zillow.
1.Las Vegas, NV – 81 percent
2.Merced, CA – 64 percent
3.Phoenix, AZ – 62 percent
4.Orlando, FL – 58 percent
5.Greeley, CO – 45 percent
6.Bend, OR – 41 percent
7.Minneapolis – St. Paul, MN – 39 percent
8.Memphis, TN – One third
9.Cleveland, OH – 32 percent
10.Grand Rapids, MI – 29th percent
Understanding Negative Equity or Underwater Mortgage. Negative equity or “underwater” mortgage is when a home owner owes more on their home than it’s worth. Therefore, home owners who sell their home will still owe their lender to pay off their mortgage loan because they will not be able to sell their home for enough money to pay it off.
What this means for the housing market is that it stalls it. People aren’t able to move and buy a new home, because they can’t afford to pay off their mortgage loan after selling their own home. If these home owners are unable to pay their monthly mortgage payment, they may end up in foreclosure, which means banks lose money and the housing market deals with another decline in home prices due to the influx of foreclosures.
The Most Underwater Locations in the United States. It’s interesting to see where home values took a hit around the country because it helps us see where the housing market has taken the hardest hit and is in the most state of recovery. All the following locations are from the report by U.S. News & World Report and the percentages are how much single-family homes are underwater for that city and are from a report by Zillow.
1.Las Vegas, NV – 81 percent
2.Merced, CA – 64 percent
3.Phoenix, AZ – 62 percent
4.Orlando, FL – 58 percent
5.Greeley, CO – 45 percent
6.Bend, OR – 41 percent
7.Minneapolis – St. Paul, MN – 39 percent
8.Memphis, TN – One third
9.Cleveland, OH – 32 percent
10.Grand Rapids, MI – 29th percent
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