Posts Tagged ‘foreclosure prevention’
Wednesday, July 11th, 2012
It is official – today California passed the controversial Homeowner Bill of Rights. The controversial bill, which actually consists of a series of bills, was created to protect the rights of mortgage borrowers and those caught in the foreclosure process. The law will take effect January 1, 2013, and focuses on the following:
Single point of contact with lenders: The bill will ease borrower access to their lenders by guaranteeing them a single point of contact in their communications throughout the pre-foreclosure process. Oftentimes borrowers (and agents alike) get the runaround and speak with a different person every time they communicate with the lender. One person may provide information, but on the next call a different person may say something opposite. A single point of contact with the lender could be beneficial.
Dual track foreclosures prohibited: Banks will not be allowed to foreclose on a property while the borrower is attempting to seek a loan modification. Oftentimes, borrowers who have been attempting loan modifications find their home is sold at auction while they are waiting to see if they will qualify. This is due in part to the lack of communication between the different bank departments – the right hand not knowing what the left hand is doing. Many see this as unfair to the homeowner, who is trying to do the right thing to avoid foreclosure.
Homeowner right to sue banks: The bill will allow homeowners to sue their banks under certain circumstances for wrongful foreclosure. This is the most controversial part of the legislation. Many feel it will create frivolous lawsuits, which will lengthen the foreclosure crisis and in turn prevent the housing market from recovering.
Rescue money for blighted neighborhoods: The bill also will provide money to local governments and receivers to fight blight, which resulted from numerous foreclosures and abandoned homes. This is meant to increase property values in these neighborhoods, which in turn will improve local real estate markets.
Protection for renters: The bill will offer protection to renters who live in homes that have been foreclosed upon. Purchasers of these rented homes will be required to honor existing leases, and will be required to give renters 90 days to find a new rental property. Under the current law buyers of tenant-occupied foreclosed homes can refuse to honor leases and even kick out the tenants.
Extension of National Mortgage Settlement provisions: The new bills will extend coverage beyond the 5 lender servicers who were named in the National Mortgage Settlement – if your loan is not covered under the settlement because it is not serviced by one of these 5, the new law will ensure that many of the main provisions of the settlement will apply to your loan.
Despite the controversy, the Homeowner Bill of Rights has noble goals and may actually benefit many borrowers. The lawsuit provision could be disastrous, and it remains to be seen how effective it would be even if used appropriately. All eyes will be on California after January 1 to see how these new laws play out.
Photos courtesy of Dreamstime
Monday, October 10th, 2011
Cash for keys programs – where the banks pay money to the homeowners if they walk away from their homes and leave them in good condition – have been common in the foreclosure arena for some time. Now the banks want to apply this principle to the short sale industry. I have been hearing tidbits about this for about a month now, but a weekend article in the San Diego Union Tribune confirms that this is now official.
Major lenders, like Chase, Wells Fargo, Bank of America and others, have apparently begun offering cash to distressed borrowers in order to get them to agree to short sale their homes – up to $35,000 in some cases. Before you get all excited and pick up the phone to call your lender, you need to be aware of how this process works. As with any bank program, the bank controls the process, and you cannot simply call and opt into the program. Apparently the bank reviews distressed situations and contacts the homeowner. The money is paid at the close of escrow of the short sale.
How this system makes sense at all to the banks, who choose the lucky homeowners, is baffling. I find it hard to believe, as I am in the middle of a battle right now with one of these big lenders, just to get them to accept a buyer’s offer on my short sale listing that is perfectly in line with the comparables. But of course, some bank decisions remain and will always remain a big mystery.
My hope is that these lenders are finally realizing that it is up to them to fix the housing crisis, and that they need to get rid of all their distressed inventory to do so. Maybe some angel descended down and landed on the shoulders of the bank CEOs. Ah, but I know better: with the banks, it is all about how much they can make. They must be finally realizing that foreclosure costs them too much money, so giving away a few thousand dollars and blessing more short sales will save them in the long run. Banks don’t do anything because they care about people.
It will be interesting to watch this one, to see how many people actually get “chosen” to be involved with these programs. If you are one, please let me know. I will protect your privacy, but would love to know how the process goes, and whether it is as smooth as the banks say it will be. The proof will be in the pudding, so I am looking forward to seeing how many homeowners are truly helped by this latest lender brainstorm, and truly hope it helps.
Thursday, October 6th, 2011
In the last few weeks we have seen what happens when Americans have had enough – Occupy Wall Street is a prime example. While for now these protests have been free of violence, if the economy does not start to improve that may not be the case. It is time to start doing something, and by this I don’t mean politicians sitting around and trying to come to solutions to which everyone will agree; frankly, Americans are tired of that.
If we want to fix the economy we need to focus on jobs and housing, plain and simple. Now, I know that there are a lot of people who will disagree that housing should be a focus for recovery, and I have read many blog posts and comments on blog posts stating so. However, let’s look at it from a historical perspective.
Housing is at the core of what it means to be American. The dream of homeownership has and continues to be strong, despite the economic situation. It is something tangible that defines who we are as a people – it means security, pride, community, somewhere to raise our children and hang our family photos, plant gardens and host holiday celebrations. If purchased correctly, your home is your future, and will grow equity (yes, I really believe this). Markets are cyclical, economies rise and fall. But a house is a home, and it’s value is irreplaceable.
We need to fix the housing market – it is the only way to really strengthen the economy. For those disbelievers, here is an example from my daily life. I have a short sale listing, and a well qualified buyer. The sellers and buyer have been waiting for the bank to approve the short sale for months. The bank wants $30,000 more than what the home is worth. The buyer’s offer is slightly above comps but it needs to appraise, so she cannot agree with the bank’s asinine logic. While the bank continues to throw more roadblocks in the path, the property is losing value. If the property forecloses and the bank relists it on the market, it will sell for less than the price that is now on the table.
Should the bank accept the offer and let us open escrow, here is what will happen:
* If we get all the distressed inventory off the books the housing market can finally start to return to a “normal” housing market.
* Once the new buyer closes escrow she will hire contractors, painters and handymen to fix up her new home. This creates jobs.
* The buyer will purchase furnishings and items for her new home – this contributes to spending.
* The buyer will pay property taxes on the new home, and a mortgage. This puts money in the economy (rather than having the property sit for possibly a long time, empty)
* The sellers can begin to heal their credit, so in less time they too will be able to go back into the market as consumers
* The neighborhood will benefit from distressed properties selling, from both not having them sit abandoned and need maintenance, and because the longer they sit on the market the more the value of neighborhood homes will drop.
* The lender can get one more house off their books, avoiding foreclosure – which could cost them lots of money and legal fees. If lenders have less foreclosures they will be less resistant to lending, allowing more buyers to qualify for loans, which stimulates purchases.
Do you see, just from this one example, how housing relates to the state of the economy? All of the above effect the attitudes of Americans – it will create less fear, a more positive outlook, the desire to go out and consume once again.It is one spoke in the wheel, I know, but it does relate to what is going on out there, and if we ever want to fix the economy we need to work on housing. To me this is plain and simple. What do you think?
Tuesday, September 13th, 2011
After many real estate industry complaints that the new Obama administration recovery plans did nothing for housing (aside from refinancing assistance plans, which as we all know still require lender cooperation), out comes a plan with that goal in mind. But will this new plan really help distressed inventory and jobs, or is it merely another attempt that will eventually fall apart and leave the housing market no better off?
The new plan, called Project Rebuild, is actually not a completely new concept. Based on the already somewhat successful Neighborhood Stabilization Program (NSP), which in two parts provided grants to states and local governments (and later to non-profit agencies) to rebuild blighted neighborhoods, Project Rebuild focuses on jobs. The $15 billion program will connect out of work Americans with jobs to rebuild distressed neighborhoods, including both residential and commercial properties.
There are several problems with this approach.
1. How will neighborhoods be identified to participate? The program states that it will focus on the most distressed neighborhoods, yet there are so many areas that have these types of neighborhoods. While $15 billion seems like a lot of money, when you are talking about rebuilding homes and buildings it can go pretty quickly. Many states, like California, don’t have the money to fix all the broken neighborhoods, so while some may be helped this obviously will not make the problem substantially better.
2. How will states decide who gets these jobs? Many states have big unemployment numbers, and while the program states it will give jobs to people in the distressed areas again – this means the rest of those in other distressed areas will receive no jobs. It cannot cover everyone, and may not even be able to make a dent in jobless numbers. Also, there will likely be many people who cannot work in construction, for various physical reasons. What, specifically, are these jobs going to be, and how will they choose who gets them? What if people need training – is that part of the budget?
3. Will fixing some distressed areas really make that much of a difference in the distressed housing market? Should the feds even be involved in this? Some say that the feds need to leave the distressed markets alone, with perhaps the only exception being the need to get lenders to be more cooperative in working with distressed homeowners in avoiding foreclosure. (It is important to note there are federal programs with this goal in mind, but the fact is that the lenders still can do whatever they like, for the most part, and cooperation is not where it should be). Distressed markets can actually be good for housing, as they bring prices down so that more people can afford to buy. This can really be a blessing or it can be a problem, depending on your thinking.
I think it is fantastic to try and clean up some of those areas that have suffered the worst, and make these neighborhoods liveable once again…while at the same time providing jobs that meet that goal. We all know that there are so many people out there who are ready and able to work, and providing more jobs is a great goal. I am just not sure that this is the best way to do it, and even with private sector involvement I question whether there will be enough money to go around.
We could look at some other options. One that comes to mind is to pour some of that money into our public schools so that we can hire more teachers and reduce class sizes, bring back art and music and P.E. to many schools. Bolstering up schools is a win-win for everyone, including neighborhoods. This is just one idea, and I do think we need to do something about the lenders and the difficulties with them refusing to help people avoid foreclosure. In time, this will help heal neighborhoods as well. The fact is that we still do not have a strong program to help the housing market and homeowners.
What do you think? This is a tough call, and I would love to hear your thoughts – I invite you to comment below (if you do not see the comment box, simply click on the title of this post and then scroll down to the end).
Tuesday, September 6th, 2011
There has been quite a bit going on in the distressed property market as of late, and if you are a homeowner who is underwater or are unable to continue to pay your mortgage, there is some good news on the horizon to help you.
HAMP incentives increased for early borrower assistance: Fannie Mae has increased HAMP incentives to servicers who work out loan modifications with borrowers. HAMP – the Home Affordable Modification Program – is a program that encourages lenders to work with homeowners in issuing loan modifications. It gives financial incentives to the lenders who successfully work modifications. With the new increase, the feds are attempting to sweeten the proverbial pot to encourage even more modifications in lieu of short sales and foreclosures, and the goal is to do so early in the delinquency process. While the lenders still have to agree to issue the modifications, hopefully these extra incentives will push them toward looking more closely at modifications before rushing to initiate foreclosure proceedings.
Housing counseling agencies awarded money by HUD: HUD (The U.S. Department of Housing and Urban Development) has awarded $10 million to housing counseling agencies across the country, in order to strengthen counseling available to struggling homeowners. The money will be distributed to areas that face high incidences of foreclosures, and is good news for desperate homeowners.
Feds are telling states to design more state-specific programs to help borrowers: Several prominent economists have been sharing their view that states can do more to help distressed homeowners, acknowledging that the biggest problem in doing so is state funding. To that regard, HUD earlier this year created the EHLP – the Emergency Homeowner’s Loan Program. It, along with other federal programs, provided $1 billion to states with programs geared toward helping homeowners. Many state programs have realized great success in this endeavor, and the problem facing these programs going forward will be the federal budget situation. If you are looking for a way to get help with a distressed home situation, now is a great time to find out if there are any state programs that can assist you.
If you are delinquent on your mortgage and have not discussed options with a counselor, a Realtor and your accountant or financial planner, it is imperative that you do so. There are options available to you, but the longer you wait, the less of a chance that you may be able to reap the benefits of any of these options. The government is attempting to help you, and there are some programs available for free, such as HopeNow, the free counseling agency that can review your situation with you and make suggestions about available options. They can be reached at (888)995-HOPE.
Tuesday, July 5th, 2011
Recently I heard of a desperate homeowner who was told to file bankruptcy in order to prevent foreclosure. But will this really work?
Foreclosure postponement reasons are outlined in the California Civil Code (section 2924 g (c) (2)), and can include mutual agreement, operation of law (such as charges of fraud against the lender), discretion of a trustee, request of a beneficiary and bankruptcy.
Many believe that filing for bankruptcy actually stops foreclosure, but the truth is that it merely puts a stay on all debt collection actions, for up to one year. This means that actions such as foreclosure cannot proceed until the debt is resolved by the homeowner, or until the lender obtains permission from the court to continue with the sale of the property.
If a homeowner can work out a plan to pay debt owed to the lender on the home than bankruptcy could be a good option. It gives the homeowner time to restructure obligations and devise a plan for paying them. In such a case a postponement could be beneficial. But if you are trying to find a way to stop foreclosure, bankruptcy is not such an option.
My advice is to speak with a bankruptcy attorney to see if this is a viable option for you. You need to understand all of the consequences of a bankruptcy, as well as your state laws, and you need to explore other options as well before filing. I also advise speaking with your accountant to see if there are other ways to structure your obligations.
Sunday, March 20th, 2011
If you have been following the recent hearings to determine lender punishment in the robo-signing scandal, you know that it has been very controversial (if you have not, click here for a good explanation of the issues: http://tinyurl.com/4sqlyo4). Lenders and many government officials are trying to lighten the proposed punishment, arguing that forcing lenders to reduced loans of those unaffected by the robo-signing scandal is not fair punishment. Regardless of the arguments one thing is for sure: future borrowers will come out ahead no matter what the resolution.
Any punishment that is meted out, and they will be, is going to effect all borrower transactions in the future in the following ways:
1. Servicers will be required to provide sufficient staff in their loss mitigation departments to answer all borrower claims relating to loan modifications. Furthermore, they will have to be able to provide proof of ownership of the note on all loans on which they attempt to foreclose. This is a big win-win for borrowers, who will likely see a big difference in loan modification assistance.
2. Servicers will be required to provide the loan modification request customers with a single point of contact–one person who can handle the request. This will eliminate the “he said-she said” conundrum that most borrowers face when trying to get answers about their loan modification application. Now you will know exactly with whom to speak, eliminating headaches, wrong information, missed deadlines and wasted time. This by far is one of the most significant changes to come out of the scandal, and will help not only borrowers but many real estate professionals in their efforts to short sale a home–if the modification is not granted the agents will know who to contact to seek short sale approval.
3. No more dual tracking of modifications and foreclosures. This means that if you are in the process of seeking a modification the foreclosure possibility will be put on the back burner until the modification is denied, if that is the case. The lender will not be allowed to advise non-default borrower to default, and will be prohibited from discouraging borrowers from seeking assistance from counseling organizations.
4. No more insurance profits: servicers will not be allowed to receive kickbacks from insurance providers affiliated with them, nor to force the borrower to take high-premium policies from the same.
All in all, no matter the final outcome of these negotiations, it is clear that borrowers will be much more protected than they have in the past as a result. It is painful out there for many homeowners but this is a big step in the recovery process, and it is one that focuses exclusively on borrower rights. Check back here to keep informed.
Sunday, December 26th, 2010
Could it be that loan modifications are actually raising debt? I read a short article today by Dean Calbreath in the San Diego Union Tribune that stated yes, they are. Mr.Calbreath points out that more foreclosures could be prevented if, instead of increasing the debt on the principal of troubled mortgages, the lenders reduced the principal. This makes sense, right?
A study released last week by a Federal Reserve branch points out that principal reductions over time have a lower chance of loan redefaults than do those with mere payment changes. But this scenario is not the case in the majority of modifications. The norm is for the lender to reduce payments only, rolling any missed payments into the loan balance. This is obviously a problem, especially for those living in homes where the value has dropped substantially. It’s simple logic: if you are given a loan modification based on current market value, meaning not only your payments but your principal balance is reduced, you may be more motivated to keep making payments.
This refusal to follow logic will not only limit the effectiveness of loan modifications, but will lead to more foreclosures down the road. According to the recent study the current loan modification practice tacks on between $7400 and $8160 to the balance of the loan. So, you ask, why are the lenders not following this logic? That seems to be another million dollar question in the sea of million dollar questions when referring to lender behavior over the last several years.
The potentially good news is that the current investigation into how banks handle loan modifications and foreclosures may have some bearing on future cases. Currently less than 40% of the potential foreclosures in San Diego county have been prevented through permanent loan modifications this year under the federal HAFA program. Maybe reducing the principal on troubled mortgages will be the new foreclosure prevention method that helps get that number up. I sure hope so.
Thursday, April 1st, 2010
A new program is being unveiled today called Handshakes for Homeowners, which aims to recognize underwater homeowners (they owe more than their house is worth) who continue to pay their mortgages on time. With the goal of helping 200,000 homeowners in the next 12-18 months, this program is a creative albeit slightly strange way to reward homeowners, but hopes to prevent more foreclosures in the process.
Here is how the program works: regional centers will be set up with staff (“Handshake Helpers”) trained to go out into the communities and congratulate those who have consistently paid their mortgages. These do-gooders will receive handshakes, certificates and in some cases T-shirts or watches bearing slogans that announce the wearer pays his mortgage. Yes, I said T-shirts.
Lenders will be encouraged to help with the program by giving away trinkets to those who have proved loyal paying customers. These may come in the form of concert or sports tickets, for example. Lenders will be given incentives to participate but doing so is voluntary.
I know what you are thinking and it does seem rather silly. What these troubled homeowners would really like is a little leniency on their payments for being so consistent, right? But with lenders hurting so much I don’t think we will see that happening. Think of it as a little reward that you might not treat yourself to, and a pat on the back. We all could use a little pat, right?
Saturday, March 20th, 2010
Loan modifications have become the preferred method of avoiding foreclosure over the last few years. Although many people are unsuccessful in obtaining them, and the government continues to create programs to entice lenders to grant more modifications, there is one aspect that is not often discussed in relation to those who obtain them: credit consequences.
Everyone knows that credit scores suffer after a foreclosure or short sale, but it comes as a surprise to many that the same occurs after a loan modification. After all, it is an agreement with the lender that keeps the borrower in her home and in good standing, with many of those borrowers never having missed a payment. Once the loan modification is complete it is not abnormal to have a 100 point drop in credit scores. Why?
The argument is that the homeowner is trying to do the right thing in modifying the loan, to avoid foreclosure or even a short sale. He or she has typically not missed any payments. So why be penalized? Everyone wins: the homeowner stays in the home and continues to make payments, albeit more affordable ones that reflect current market values. The lender avoids a short sale or foreclosure, losing thousands (or even hundreds of thousands) of dollars in fees and winding up with a vacant property to sell.
The credit rating industry justifies the hit by arguing that only those with financial difficulties seek loan modifications, thus other lenders and those who extend credit need to be aware of that fact.
This issue is just another thorn in the side of the embattled Making Home Affordable Program, which has only helped about 170,000 homeowners (although initially expected to help millions). For those lucky enough to be admitted to the program, there is a three month trial period under which the homeowner makes the new payments. If they are made on time and without any problems the applicant is granted the modification. The credit drop tends to occur during these three months, which could be a problem if the applicant does not qualify and then has to go through a short sale or foreclosure–at that point their credit score would have dropped immensely, with a potential double hit.
All in all this is just another hurdle for the troubled homeowner facing the possibility of not being able to make house payments. Although with a modification the credit score is not hit as hard as with a foreclosure it is still something to be aware of when deciding what to do.