While many of the loans that went into default were originated in early 2007, the median origination month for last quarter’s defaulted home loans was July 2006, the same month as during the prior three quarters. According to DataQuick, the median origination month a year before was June 2006, so the foreclosure process has moved forward through one month of bad loans during the last 12 months.  “Mid-2006 was clearly the worst of the ‘loans gone wild’ period and it’s taking a long time to work through them,” Walsh said. “We’re also watching foreclosure activity start to move into more established mid-level neighborhoods. Homeowners were able to make their payments longer than homeowners in entry-level neighborhoods, but because of the recession and job losses, that’s changing.”  The mortgage lenders that originated the most loans that went into default last quarter were Countrywide with 5,588, Wells Fargo with 3,482 and Washington Mutual with 3,460. Along with Bank of America (1,760 loans) and World Savings (1,869), they were also the most active lenders in the second half of 2006. Last quarter’s default rate on loans originated in the second half of 2006 ranged from 1.5% for Bank of America to 13.1% for World Savings, according to DataQuick.

On mortgage loans from primary residences, California homeowners were a median five months behind on their mortgage payments when lenders filed notice. The borrowers owed a median $13,510 on a median $325,818 mortgage.  On home equity loans and lines of credit in default, borrowers owed a median $3,939 on a median $62,965 credit line. The amount of the credit line that was actually in use can’t be determined from public records.

According to California loan relief guru, Jeff Morris, “Homeowners need to take a deep breath and reevaluate their mortgage relief options, even if they were recently denied by a loan modification company or mortgage lender, because new opportunities have arisen.”  For borrowers with no equity looking to refinance, they should consider the Home Affordable Refinance Program that enables the refinancing of Fannie Mae and Freddie Mac mortgage liens up to 125%.

Jeff Morris of the Loan Modification Relief firm in California expressed approval in the Governor’s action. “Even though there is unfortunate fraud happening, it does not mean that you need to attack all loan modification companies.  Morris continued, “If loan modification companies were not allowed to charge fees up-front, there would be no more loan modifications, because the process can take 6 months for successful mortgage relief.  Who in their right mind would work for free for 6 months?”

The bill, which has an “urgency clause” attached to it, now must pass the State Senate, and if passed, could be signed by the Governor on October 11th, and go into effect immediately thereafter.  SB 94’s author is California State Senator Ron Calderon, the Chair of the Senate Banking Committee, which shouldn’t come as much of a surprise to anyone familiar with the bigger picture.  Sen. Calderon, while acknowledging that fee-for-service providers can provide valuable services to homeowners at risk of foreclosure, authored SB 94 to ensure that providers of these loan modification services are not compensated until the contracted services have been performed.

SB 94 prevents loan modification companies, brokers, individuals… and even lawyers… from receiving fees or any other form of compensation until after the contracted services have been rendered.  What loan modification company in their right mind would go through 120 days of work negotiating a loan modification with their client’s lender only to have the client say, sorry we don’t have the money to pay you for your services. 

The loan modification bill will now go to the Democratic controlled Senate where it is expected to pass.  Loan modification executive, Glen Silver said in a recent press conference, “Too bad for genuine loan modification companies, Bush couldn’t get a third term, because he wouldn’t have signed it, but we know everyone’s buddy Obama would sign a national bill as soon as he smells political success.”  Silver continued, “The President would be able tell his buddies on capitol hill that he saved Americans from loan mod scams, but really he is just going to kill the loan mod business and lenders will get their leverage back.  I guarantee the lender lobbyists created this bill.

www.youtube.com/watch?v=aJUDyTTf25k

Supporters of the loan modification fraud bill say that the state is literally teeming with con artists who take advantage of homeowners desperate to save their homes from foreclosure by charging hefty fees up front and then failing to deliver anything of value in return.  They say that by making it illegal to charge up-front fees, they will be protecting consumers from being scammed.

Yes there have been some shady brokers who committed predatory lending abuses that took advantage of distressed homeowners, but thousands of borrowers benefitted from genuine mortgage relief negotiations from trust-worthy loan modification firms across California. The actual number of loan mod scams remains unclear.  Now that we’ve learned that lenders and servicers have only modified an average of 9% of qualified mortgages under the Obama plan, it’s hard to tell which companies were scamming and which were made to look like scams by the servicers and lenders who failed to live up to their agreement with the federal government.

In fact, ever since it’s come to light that mortgage servicers have been sued hundreds of times, that they continue to violate the HAMP provisions, that they foreclose when they’re not supposed to, charge up-front fees for mortgage loan modification plans, require homeowners to sign waivers, and so much more, who can be sure who the scammers really are.  Let’s consider how the President is cracking down on corruption…Bank of America, received the worst grade of any bank on Obama’s report card listing because they only modified 4% of the home loans from borrower’s who were eligible for mortgage relief since the plan began.  Didn’t the government give Bank of America 200 billion in the bank bail-out of the century?  Bank executives assert that the loss mitigation department is running into obstacles handling the incoming phone calls.

Loan modifications can combine lower interest rates, maturity date extensions, changing from adjustable to fixed interest rates, and the reduction of principle. Of the four, principle reductions are statistically the best way to ensure the long term success of a loan modification. According to LPS reports, loan work-outs that included principle reductions had a 25% lower re-fault rate than those without a reduction. Fitch’s numbers concurred with those numbers, indicating that loan modification plans that included principle reductions saw a 40% to 50% chance of a re-fault. Not surprisingly, Fitch found that loan modifications where loan principle was increased due to missed payments and penalties being added to the backend of the loan had a re-fault rate of 60% to 70%

The goal is to ensure loan servicers make legitimate attempts to work with borrowers before foreclosing. Because of the Federal moratorium, most of the big mortgage lenders already have a loan modification program in place. Those companies don’t have to comply with the new state law and can apply for an expemption.

That process however, can take up to a month to complete. During that time mortgage loan servicers can carry on with business as usual, including foreclosing on delinquent accounts. The State announce the California moratorium would go into effect immediately, but will the major mortgage lenders fall into line with it?

www.youtube.com/watch?v=TX_-nTtNXfU

California Foreclosure Moratorium Guidelines:

ü  The moratorium applies to first mortgages made from 2003 through 2007.

ü  The mortgage loan must be for your principal residence.

ü  The homeowner must have received a notice of default.

ü  The home loan servicer does not have a California loan modification program in place.

ü  Because many homeowners are upside down on their mortgages

There is a concern that the 90-day negotiating period will only postpone the inevitable because so far the banks are not reducing the principal.  California doesn’t know how many people will actually have their foreclosures put off, nor what banks already have loan modification programs in place. The Department of Corporations does plan to post which institutions apply to be exempt from the moratorium.

A new cycle of mortgage bills arising from the high number of home foreclosures in the Inland area and around California is moving through the Legislature, following major initiatives at the state and federal levels in the past year.

The bulk of the new state proposals expand protection for renters living in foreclosed properties, create new rules for reverse mortgages, and impose standards on loan-modification consulting companies, such as banning them from taking advance payments from troubled homeowners.

Some industry groups and lawmakers question the need for more state legislation so soon after Congress and the Legislature approved measures to address the foreclosure problem.  Some of the laws have been on the books for only a relatively short while. 

A 90-day foreclosure moratorium approved as part of the February budget package takes effect Monday.  “It’s premature to add new legislation on top of what we have before we see what the results are,” Dustin Hobbs, of the California Mortgage Bankers Association, said. “We’re not saying more action can’t be taken down the road. But let’s see what happens first.”  But supporters say much remains to be done to address the state’s foreclosure problem, and to prevent it from happening again.

Paul Stein, associate director of the California Reinvestment Coalition, which advocates for low-income residents in the financial sector, said Congress is taking the lead in crafting foreclosure-related fixes. Those include possibly making it easier for bankruptcy judges to modify mortgage payments for struggling borrowers.

There is still a large role for the state to play, he said.  “It’s still the case that … financial institutions are not accountable for the impacts of foreclosures on borrowers and communities. They’re really not obligated to help anybody,” Stein said.

Home Loan Defaults Rise

Foreclosures have been a major burden on the Inland economy. In April, there were almost 5,000 notices of default filed in Riverside County, according to ForeclosureRadar, a tracking service. The notices are the first step in the foreclosure process. The county had the fourth-highest rate of foreclosure sales last month.

San Bernardino County had about 4,000 notices of default and the seventh-highest rate of foreclosure sales in April.  The main state foreclosure law to emerge last year was SB 1137. It requires lenders and loan servicers to talk with borrowers before starting foreclosure proceedings. The aim is to get more loan modifications.  This year, lawmakers introduced more than 30 foreclosure- and mortgage loan modificationj related bills. Nearly all of the authors are members of the Legislature’s Democratic majority.  About 24 measures are still pending, with most facing a Friday deadline to clear the Legislature’s appropriations panels.

Some of the foreclosure prevention bills would put the state in compliance with the federal Secure and Fair Enforcement of Mortgage Licensing Act approved in July 2008.  The law requires mortgage loan originators to be licensed and complete 20 hours of pre-licensing legislation, along with other requirements.  It wasn’t clear whether mortgage lenders and banks would be exempt from this new licensing requirement.