Foreclosure Help

Why is my lender so slow in responding?

2009-02-05T07:26:00.000-08:00

A couple of days ago I was reading an article about the mortgage investment process from a lender's perspective and thought: "no wonder these guys are so slow to respond, they don't know who owns the loan!". That's when I figured I should briefly discuss how we got to this point.

Back in the good old days, when you took out a mortgage at your local bank, the bank lent you the money and you gave them a mortgage on your home. The home was the collateral on the loan. They kept the loan in their portfolio. Whenever you ran into problems your local bank would contact you and try to help you resolve the situation, because they would rather lose a little bit of money than have to foreclose on your home and lose a lot.

Some banks would sell your loan to another bank or Fannie Mae or Freddie Mac and although things would be a little more difficult to resolve, they were still managable. However, someone came up with the bright idea of handling loans as a security (like stocks). Now, they would take your loan and combine (or pool) it with other loans of similar type and sell it off as a package. These are known as Mortgage Backed Securities (MBS's) because they were backed up by the mortgages on the homes. They weren't backed by the homes but by the mortgages on the homes.

Now it became more difficult to figure out who owns your loan. The bank which gave you the mortgage doesn't own it (it already sold the loan). The company which created the pool the mortgage backed security doesn't own it. It is just a middleman. The Mortgage backed security is owned by a bunch of investors, so how do you get a loan modification from a group of investors.

To make matters worse, that is not the end of it. These mortgage backed securities were then tranched (or divided) into new types of securities called: "Collateralized Mortgage Obligations" or CMO's. Tranching could be done in different ways (I'll discuss tranching in an upcoming article). These weren't backed up by the homes or even by the mortgages on those homes. These were backed up by the Mortgage Backed Securities mentioned above. Now who owns your loan? Hard enough to figure out? Well, the process could be repeated again. That's why when you try to get answers from your lender, you can never get a straight answer. The truth of the matter is, they probably don't know who owns your loan or your loan may be owned by a group of investors far removed from the loan process.

Bad news for lenders; good news for you.

2009-01-08T07:25:00.000-08:00

It seems every day, we read about the crushing amount of foreclosures ocurring throughout the US. Courts in states like California, Nevada and Florida continue to be inundated with massive amouts of foreclosure filings. Take for example: Lee County, Florida an area that's near and dear to my heart. They are dealing with a caseload of over 20,000 foreclosures and more to come down the pike.

The massive amount of foreclosures back up the court system and put downward pressure on prices. Both of these things are good news for homeowners with mortgages in distress. Because the court system is backed up, the lender will have to spend over a year and a lot of money in court costs and lawyers fees to foreclose on an asset that is generating no revenue. Moreover, there is a massive downward pressure on prices. Depending on the market, a home today may be worth only half as much as what it was worth at the market's peak (sometime in 2006). All indications are that prices will continue to fall in the near future and will probably remain stagnant for quite a while after that.

Lenders are in the business of making money. So why would they want to spend a lot of money to take back an asset whose value declines on a daily basis. It is in their best interest to keep you in the home and find a way to allow you to make the payments. If they have to modify the interest and even the principal, it is a better deal for them than to foreclose. Most lenders have come to that realization. I believe that in the very near future, it will become a lot easier to avoid foreclosure. In the meantime, hang on as best you can and call your bank, you may be surprised at how much more friendly it has become.

Is there foreclosure help available locally?

2008-12-18T07:35:00.000-08:00

A few days ago, I saw in our local newspaper an article about what our local government was attempting to do to help homeowners at risk of foreclosure and it made me think: "our local governments may be able to provide help where the federal government can't."

Don't get me wrong, the federal government has its mind in the right place; it's just too big and inefficient to get much done. Helping homeowners in distress is a job that must be done one homeowner at a time.

Let me give you an example. In July of 2008, the federal government passed the government rescue bill, which was supposed to help 250,000 families. Estimates vary, but we hear that the number of people helped so far, falls in the hundreds not the thousands. Why? There are many reasons: 1. the government bureaucracy is good for major projects that can be handled in bulk but not projects that have to be done one piece at a time. 2. The lenders are slow to respond because they are not set up to handle loan workout plans for loans which don't even belong to them. 3. Homeowners feel overwhelmed because up to this point the only representatives fo the lenders they've dealt with are the collectors harassing them every month to pay the mortgage.

In contrast take a look at what our county government is going to do here in Lee County, Florida. With $900,000 in State money set aside for that purpose, they will offer up to $8000 to homeowners with moderate, low or very low incomes. Any homeowner who's had a major hardship such as job loss, medical illness, weather event related property damage, or unforeseen home repair bill will be able to qualify for this money. How simple can it get: if you qualify, they will give you enough money to get your loan caught up and stave off the foreclosure. In combination with all the foreclosure counseling that's offered, this will give the homeowner the best hope of finding a permanent solution to his/her foreclosure problem.

Just like this example, there are plenty of communities taking matters into their own hands to help stop this wave of foreclosures which is threatening to ruin the nation's economy. Keep your eyes open, you may see that the solution to your problem is not with the federal government but right there in front of you.

More hope for homeowners at risk of foreclosure.

2008-11-29T10:35:00.000-08:00

Lately, there have been moves by both the Federal Government and individual banks to provide relief for homeowners who are at risk of going into foreclosure. When the FDIC took over Indymac bank, with no fanfare, they did something which is a breakthrough which until now has been greatly resisted: they started rewriting loans.

Borrowers who are at risk of foreclosure are getting letters offering to cut their payments to just 38 percent of their incomes. They do this by offering modifications that can include: lower interest rates, longer term loans and possibly reductions in principal. The FDIC under chairman Sheila Bair wants to take this program nationwide by offering this program to all Fannie Mae and Freddie Mac customers.

Now, three banks have joined in on the process by offering modifications similar to these. The three banks are: Bank of America, J. P. Morgan and Citigroup. They came about through different circumstances but they've finally arrived at the same junction: homeowner relief. Bank of America was forced into this when it purchased Countrywide. To settle a lawsuit against Countrywide, Bank of America agreed to rework the loans of homeowner in foreclosure who meet certain criteria (sub-prime or adjustable rate mortgages) in the following eleven states: Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington. Citigroup decided to do a similar thing on its own for homeowners in similar distress. JP Morgan the purcharser of Washington Mutual, decided to put a halt on all foreclosures for the next 90 days beginning November 1st. It will use that time to work with the homeowners in providing relief to them.

This provides hope to homeowners currently in distress and who have managed to hold on this long that other banks will either decide to follow these banks on their own or will follow suit under the threat of lawsuit. If you are at risk of being foreclosed on, there is reason for hope, but do not bury your head in the sand and hope that something will happen automatically, call your lender and start to make it happen.

Will the Housing Rescue bill of 2008 help?

2008-08-12T15:33:00.000-07:00

Recently, Congress passed and President Bush signed the Housing Rescue Bill of 2008. On the post of July 26, 2008, I listed the highlights of the bill. Now, I want to take this opportunity to offer my views on it.

It's most prominent feature is the one allowing homeowners in distress not only the ability to refinance their loan, but also at a better rate and for a lower loan amount. This will be a win-win situation all the way around. The owner will be able to refinance to an affordable loan, the lender will have to cut the loan amount by approximately 15%, but the loss incurred will be a lot less than if it foreclosed on the loan. Finally, the neighborhood will benefit because this'll mean one less house to fall into disrepair and to add blight to the neighborhood.

The 3.9 billion dollars that will be provided to neighborhoods to buy foreclosed homes, fix them up and sell them should help neighborhoods which are already inundated with blight caused by massive amounts of foreclosures in certain areas. What I think might cause problems is the distribution. How will they decide who to give the money to? We'll have to wait and see how this is handled. It could turn out to be a godsend or a nightmare.

As far as helping out Freddie Mac and Fannie Mae, the jury is still out. Sure, they are so big that if they were to fail, they could cause a collapse of the housing market, but they are not a government entity and they have taken advantage of the implicit guarantee by the government to pass on as high grade bonds what were really junk bonds. I say, if the government is going to implicitly guarantee their investments they should subject them to a lot more regulation. They should carry the same reserves as banks. This should greatly reduce their chance of failing.

Last but not least, it's great that the bill will offer a $7500 tax credit to first time homebuyers. This should help get the housing market jumpstarted.

Today, Congress passed the Housing Rescue Bill.

2008-07-26T17:07:00.000-07:00

Today, the Senate passed the Housing Rescue bill passed by the House on Wednesday (7/23/08). The main goal of the bill is to allow up to 400,000 homeowners facing foreclosure to refinance to new loans backed by FHA. The bill will allow homeowners who are already behind on the mortgage the ability to refinance to a new more affordable loan if they can demonstrate that they'll be able to make the new payment. The new loan will be for a lower amount, because the current lender will be required to take a loss to offset the home's loss of equity.

Besides helping homeowners, there are a few other things that this bill will do to help the home market:
1) Raise the loan limit for Fannie Mae, Freddie Mac and FHA to 625, 000 (15% higher in high cost areas). These loans are known as conforming loans and come at much lower rates than loans for higher amounts (known as jumbo loans). Raising the limits in effect lowers the interest rates charged for loans within the new limits.
2) Provide 3.9 billion to neighborhoods that they can use to fight blight by buying and fixing up foreclosed properties.
3) Will require lenders to demonstrate to buyers how high their payment can go during the life of the loan.
4) Gives the Treasury unlimited power to lend money to Freddie Mac and Fannie Mae and to buy their stock.
5) Provides tax credits of up to $7500 to first time home buyers.

State of the Housing rescue bill.

2008-07-05T06:21:00.000-07:00

As of today, July 5th, 2008, it looks like the Housing Rescue Bill is set to pass both the House and Senate and that President Bush will be willing to sign it (see post from June 10th for more info). It looks like they might add a provision championed by Senator Chris Dodd of Connecticut, which should be particularly helpful for people who have already fallen behind on their payments and for whom foreclosure is imminent.

What's great about it is that not only will it allow people with sub-prime loans that are at risk of having their interest rates resetting to much higher rates, but it will also: 1) be allowed for people who are already behind on their payments and 2) will attempt to get the lenders to accept a payoff of their loan with much less than is owed to them. So let's say you owe $250,000 on house that is worth $180,000. Then, they'll try to refinance your loan at $180,000 and have the prior lender accept the $180,000 as payment in full. Your monthly payment will be much lower because your interest rate will be lower and your loan amount will be much lower.

Things you'll need to keep in mind, it hasn't been approved yet. Also, you'll have to prove that you can make the new payment in order to be accepted. Finally, you will have to be willing to share any future profits that you get once the market improves. I'll keep you posted.

The Economic Stimulus Package contains language that will allow 250,000 families to refinance to prevent foreclosure.

2008-06-10T14:50:00.000-07:00

Beginning March 6, 2008, President Bush signed into law the Economic Stimulus Package of 2008 which will be helpful for homeowners at risk of foreclosure. The highlight of this plan is that it will increase the loan limit of FHA loans, Fannie Mae and Freddie Mac from $362,790 to $729,750 in high cost metropolitan cities such as: New York, Los Angeles, San Francisco and Washington D.C. Even lower costs cities will benefit from the new loan limit of $271,050. This plan should allow 250,000 families to refinance their mortgages and preemptively avoid foreclosure.

Please note that in January of 2009 the loan limits will return to the old numbers. A couple of years ago, the President introduced a bill to Congress to modernize the FHA by offering flexible down payment requirements and higher loan limits. It would also allow the FHA to take risk into account in calculating premiums to try to force a more rational market and thus avoid surprises. This bill was taken up by the House and Senate separately, but the final bill has not yet been sent to the President.

The most important aspect of this bill is that it will raise the loan limits permanently. However, we must not overlook its attempt to stem future real estate market problems.

In foreclosure? When should you leave your house?

2008-05-27T13:12:00.000-07:00

The foreclosure process is a very long process. Today, with so many homes in foreclosure, the court system is being taxed to the limit and cases are languishing even longer than normal. The foreclosure process takes many months and in some places will last over a year.

If you are in foreclosure, then by definition you are having monetary problems (otherwise you would've paid your mortgage). Instead of renting a house right away and spending money in moving, use this opportunity to save some money for your eventual move. Moving out right away is not going to earn you any points with the lender. In fact, it may be to its advantage to have you remain in the house if you are at least maintaining it in good condition.

You should remain in your home as long as you can. Please note, that the length of the foreclosure process varies by state, so in some states your stay will be longer than others and consulting with a lawyer will always be worth your while. Your county courthouse and lender will let you know when it's time to get out. Hopefully, by that time you will have saved enough money to move out.

What's Congress doing to help you avoid foreclosure?

2008-05-15T10:50:00.000-07:00

Lately, both the Senate and the House have been working on bills that go much further than the Hope Now project and project Lifeline mentioned in a prior post. They each have separate versions which will have to be reconciled before the President can sign it into law. It's constructive to discuss each plan individually to give you an idea of what to expect in the near future.

Maxine Waters (D-California) has proposed a bill to give $15 billion to the states to be used to purchase foreclosed properties. The idea is that the states will buy and rehabilitate these properties so that they do not become eyesores which blight the whole neighborhoods.

Barney Frank (D-Massachusetts) has proposed a plan which in addition to Waters' plan provides the following: an FHA guarantee for $300 billion in refinance funds. These funds will provide loan guarantees allowing lenders to refinance loans to homeowners facing foreclosure because of high interest payments. It relaxes standards for FHA loans in order to provide fixed rate loans to financially strapped homeowners who can prove that they will be able to pay the new loan. The current lender will have to agree to take a substantial loss on the loan.

In addition to the FHA guarantees, Barney Frank's bill will provide up to a $7500 tax credit to anyone purchasing a foreclosed property.

On the Senate side, the Senate Majority leader, Harry Reid has proposed the Senate version of the bill which among other things provides: a $25 billion tax break for money losing businesses such as homebuilders, a $7000 tax credit for individuals buying foreclosed properties, $4 billion in grants to communities to buy and fix foreclosed properties, $150 billion for pre-foreclosure counseling to individuals in jeopardy of losing their homes and finally $10 billion in tax free revenue bonds to help refinance loans for homeowners in jeopardy of losing their homes.

The Senate version of the bill seems to favor lenders and builders more than the homeowners who really need to be bailed out, so I'm guessing the bill will have to be much closer to the House version in order to avoid a veto by the President. I'll keep tabs on this and let you know what happens.

Avoiding foreclosure with a short sale.

2008-05-06T08:46:00.000-07:00

These days we're hearing the term: "short sale" used a lot in the real estate field. Real estate agents have been mentioning that term often to their anxious sellers and to their bargain hunting buyers. But what is a short sale and how can it be helpful for someone who is in a bind?

Short sale is used to refer to the act of selling your home for less than the amount that is owed on the mortgage. In order for this to work, the lender must agree to take less than what you owe on the mortgage as full payment for the home.

Now, why would a lender allow this? Keep in mind that if the lender were to foreclose on your home, it would have all kinds of expenses that would need to be paid. It would have attorney's fees in order to do the foreclosure. It would then become owner of the home and incur all the costs of homeownership such as: maintenance, insurance and taxes, protection and possible vandalism. Then, in order to sell it, it would incur the costs of sales, such as commissions and required repairs. It may take up to a year to foreclose on the home and another year to sell it. On top of that it might only sell at a reduced price. All told, the lender may incur costs of up to 50,000 and then have to dramatically cut the sales price in order to sell in a down market.

For this reason, it would be to the lender's advantage, when all else has failed, to allow you to sell the home in a short sale. Carrying out a short sale is just like any other sale except that it has the added twist, that any purchase offer will have to be approved by the lender. Depending on the lender, selling your home in this manner will be much slower than a straight sale, because the lender will usually be slow to answer but it can be done and will be a win-win for you and the lender. Most real estate agents have become somewhat familiar with this sales method, but you may do well to pick one who is experienced in short sales just to avoid any more headaches.

The most important thing you can do to save your home from foreclosure.

2008-05-04T08:02:00.000-07:00

When people ask me if there's one bit of advice that I can give them that will help them save their home from foreclosure. I always answer the same way: "Talk to your lender." That's it that's the most important thing you can do.

I don't mean just talk to the customer service representative who calls to harass you on a daily basis and who demands that you make your payment. I mean call the loan loss mitigation department. Loan loss mitigation is a term that the lenders use to refer to the department in charge and with authority to negotiate with you and help you stay in your home.

It is to the lender's advantage to keep you in your home. The last thing the lender wants is to become a homeowner or a landlord. It knows that the expenses of the foreclosure process are only the beginning. If it takes the house back, it will have to deal with maintaining the home, insuring it, protecting it from vandals, possibly renting it out, possibly holding it for a long time, preparing it for sale and if it's lucky enough to sell it in this market, paying all the inherent closing costs. Taking all these costs and headaches into account, the lender prefers to negotiate with you.

For that reason, it is to your advantage to call the lender's loan loss mitigation department as soon as you realize that you may be in trouble. Customer service should be able to give you that number. If you have already fallen behind, the mail that you get from the lender will usually list the number for their loan loss mitigation department.

Don't pass up this opportunity to prevent foreclosure.

Government help for foreclosure.

2008-04-18T09:32:00.000-07:00

You've probably heard a lot about steps the government has taken to try to help borrowers stuck in this foreclosure mess. Well, here's some information about the programs currently available and how they will help you:

Hope Now -Dial 888-9995-HOPE(4673) to speak with a counselor 24 hours a day, seven days a week. It's set up to help borrowers with adjustable rate mortgages originated between 1/1/2005 and 7/31/2007 and which will reset between 1/1/2008 and 7/31/2008. However, something not mentioned is that they'll be able to help anyone by pointing them in the right direction and by helping renegotiate any mortgage.

Project Lifeline -The following six banks: JP Morgan, Washington Mutual, Citigroup, Countrywide, Wells Fargo and Bank of America are participating in a program where they will contact the borrowers who are late by 90 days or more to work out a plan that will hopefully help you avoid foreclosure. In the process, they will postpone foreclosure proceedings an additional 30 days.

FHA Secure-As part of the stimulus package recently passed, the government raised the loan limits on FHA loans and also conventional loans sold to Fannie Mae and Freddie Mac. This should allow borrowers in high cost states to refinance their loans. On 4/9/08, HUD offered another welcome change to the FHASecure program that will allow people who are 2 months behind or who have had 2 late payments in the last 12 months to refinance at a 97% LTV. It will even allow borrowers who are 3 payments behind or who've had 3 late payments in the last 12 months to refinance at a 90% LTV. This is great because it'll allow you to get great FHA rates even if you're encountering payment problems, so take advantage of it.