Here’s what the federal agency says about “Operation Loan Lies”:The FTC charged that the defendants falsely claimed that they would either obtain a mortgage loan modification or stop foreclosure, or both, and that some of the defendants falsely represented that they would give consumers refunds if they failed to do so. After charging consumers the equivalent of one month’s mortgage payment or more in advance, these companies often did little or nothing to help homeowners renegotiate their mortgages or stop foreclosure. After failing to provide the promised services, the defendants that promised refunds did not honor those promises. Several were mortgage broker outfits and several were loan modification companies that were run by attorneys.

The state Department of Labor, Licensing and Regulation offers suggestions for avoiding foreclosure-help scams, including this one: “Beware of any person or organization asking you to pay up-front fees in exchange for providing mortgage counseling services or mortgage modification of a delinquent home loan.”  Remember, HUD-approved nonprofits have counselors who help borrowers navigate their lenders’ loan-modification process, and they do foreclosure-prevention work free of charge. Here’s the list of Maryland housing counseling groups.

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%

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.

Mortgage loan modifications, or permanent mortgage changes to lower payments, reached 122,000 in December, compared with the previous high set in October, said Hope Now, a coalition of mortgage service companies, home loan lenders and credit counselors.  Total “workouts,” including negotiated payment plans, increased to a record 239,000 in the month.  Regulators and lawmakers have criticized the industry’s foreclosure prevention efforts as too slow, or not effective, given reports that more than half of the modifications were failing after six months. The Federal Reserve said this week it would make additional measures to limit foreclosures by encouraging servicers to provide loan modification plans for at least $74 billion loans it owns, or has stakes in.

Mortgage Foreclosures Spiked 81% in 2008

www.youtube.com/watch?v=feWwlyBFpGk

Hope Now, an industry group that includes major mortgage lenders such as Wells Fargo & Co (WFC.N: Quote, Profile, Research) and subprime loan servicers, said members will likely turn more to re-underwriting new mortgage loans with lower interest rates or principal, over the less draconian practice of setting new payment plans to stretch out costs.  “Hope Now expects that the increasing reliance on loan modifications rather than payment plans will continue as economic conditions warrant,” the group said in a statement.  Data showing more prime borrowers than subprime borrowers were facing foreclosures in December underscored the urgency of foreclosure prevention. Total foreclosure starts rose by 34,000 in December from November, 75 % of which were prime loans, it said.  

In a letter to congressional leaders, Summers said the incoming administration will work with Congress to institute tougher accountability standards for the program, work to overhaul bankruptcy laws, and “impose tough and transparent conditions on firms receiving taxpayer assistance.”   Summers pledged that taxpayer money would only be used “when sufficient private capital cannot be attracted.”  Summers is Obama’s incoming head of the National Economic Council.  Read the original article.

The mortgage modification plan could have tremendous importance because Fannie Mae and Freddie Mac own or guarantee nearly 31 million U.S. mortgage loans or nearly 6 of every 10 outstanding. Still, government officials did not have an estimate of how many people would qualify for the new program.  Officials hope the new approach, which goes into effect December. 15., will become a model for loan servicing companies, which collect money for mortgage lenders and then distribute them to investors. These companies have been roundly criticized for being slow to respond to a surge in defaults.

To qualify, borrowers would have to be at least three months behind on their home loans, and would need to owe 90 % or more than the home is currently worth. Investors who do not occupy their homes would be excluded, as would borrowers who have filed for bankruptcy.  Borrowers would get help in several ways: The interest rate would be reduced so that borrowers would not pay more than 38 % of their income on housing expenses. Another option is for loans to be extended from 30 years to 40 years, and for some of the principal amount to be deferred interest-free.  While mortgage lenders have beefed up their efforts to aid borrowers over the past year, their earlier efforts have not kept up with the worst housing recession in decades.

And critics were quick to pour water on the latest plan.  “Instead of a massive foreclosure prevention program, we wait for a homeowner to be in a failing position before doing anything, which often is too late,” said John Taylor, president and CEO of the National Community Reinvestment Coalition.  “It’s been the foreclosures that have been driving the economic downturn and we’ve been saying that for 13 months now. To stop the bleeding is to end foreclosures,” he continued. “But now that so many other sectors in the economy have fallen, I’m not sure if we’re past the point of no return. It’s appalling that they don’t get.”

More than 4 million American homeowners, or 9 % of borrowers with a mortgage were either behind on their mortgage payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association.  According to former WMC mortgage executive, Scott Hess, “The clock is ticking for distressed homeowners who are looking to stop the foreclosure process and it’s about time the government stepped in to provide some much needed mortgage relief.” 

Tuesday’s announcement comes too late for Troy Courtney, a 44-year-old San Francisco police officer.  He moved out of his home in Mill Valley, Calif., at the start of this month — taking his children, three dogs and one cat with him — after failing at several to attempts to get a loan modification, loan work-out or a short sale — where the lender agrees to receive less than the loan is worth.  Courtney worked overtime and tapped into his retirement account to try to catch up with two loans on his home. But in the end he couldn’t convince Countrywide Financial, which managed the loan for Wells Fargo, to modify the loan.  “I feel like I missed the boat,” he said of the new efforts to help more homeowners. “I’m just mad at the whole system.”

One reason the problem has been so tough to solve for borrowers like Courtney is that the vast majority of troubled loans were packaged into complicated investments that have proven extremely difficult to unwind.  Deutsche Bank estimates more than 80 percent of the $1.8 trillion in outstanding troubled loans have been packaged and sold in slices to investors around the world. And it appears the majority of those loans will not be helped by the new plan.  The remaining 20 percent are “whole loans,” which are easier to modify because they have only one owner.   Nevertheless, Tuesday’s announcement coupled with recent and more aggressive strategies from the major retail banks are important steps to correct the foreclosure crisis. After more than a year of slow and weak initiatives, there appears to be a serious effort to get at the heart of the credit crisis: falling U.S. home prices and record foreclosures.

Citigroup announced late Monday it is halting foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments. The New York-based banking giant also said it is also working to expand the program to include mortgages for which the bank collects payments but does not own.  Additionally, over the next six months, Citi plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are on the verge of falling behind. This represents about one-third of all the mortgages that Citigroup owns, the bank said.  Citi Mortgage plans to devote a team of 600 salespeople to assist the targeted borrowers by adjusting their rates, reducing principal or increasing the term of the loan.   

Late last month, Chase expanded its mortgage modification program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The mortgage lending giant has already modified about $40 billion in mortgage loans, helping 250,000 customers since early 2007.  Bank of America recently stated that beginning Dec. 1, it will modify an estimated 400,000 home loans held by newly acquired Countrywide Home Loans as part of an $8.4 billion legal settlement reached with 11 states in early October.

Arnold Schwarzenegger continues his mission to help distressed California homeowners by proposing additional home mortgage relief in an effort to stabilize the golden state’s economy.  The California governor announced a new plan to encourage lending companies to modify existing mortgage loans as a way of preventing foreclosure.  Like Obama’s previous suggestions, Schwarzenegger proposed a 90-day moratorium for homeowners risking foreclosure. Mortgage lenders still would have the option for exemption in unique circumstances.

Several weeks ago, Schwarzenegger vetoed a Democratic bill to ban bad mortgage lending practices.  The governor’s new proposal comes in advance of his call for a special legislative session to address the budget gap and other issues.  Regardless of the budgets deficits, California homeowners need mortgage loan relief as most traditional refinancing options have evaportated.  Most California borrowers have watched the equity in their home disappear and many have adjustable rate mortgages that exceed their budgets.  The California Governor seeks cooperation from lenders and banks with mortgage loan modifications, forbearances and loan work-out agreements.

The modification program will also be offered to customers of Washington Mutual, which JPMorgan Chase recently acquired, and EMC, which was a mortgage unit of Bear Stearns Cos. and bought by JPMorgan in February, according to the AP. The program is apparently designed to help rework multiple mortgages, instead of going through time-consuming case-by-case reviews.  Since 2007, the Chase has modified about $40 billion in mortgage loans which have helped about 250,000 homeowners.

JPMorgan’s latest, expanded plan calls for setting up 24 regional counseling centers, hiring 300 additional loan counselors, creating new home financing alternatives, reaching out to borrowers with prequalified loan modification terms, and a new process to review each loan before it enters foreclosure. Also, when JPMorgan bought Washington Mutual and EMC, it acquired many home mortgages that were called option-ARM loans that featured adjustable interest rates that allowed the borrower choose whether to pay the full mortgage loan payment or less than the interest that was due. The mortgage restructuring program will eliminate that option.

As part of a legal settlement, Bank of America has said it will start a loan modification program on Dec. 1 that is expected to cover about 400,000 loans held by Countrywide Financial Corp.  The FDIC has had some success with its loan modification program since taking over IndyMac Bancorp over the summer, which may have influenced JPMorgan’s program.  Plans for regional counseling centers, hiring additional loan counselors, and dumping those pick-a-payment options sound like a good start, even if they are a little bit late. Do you think the bank’s efforts will make a difference, or just delay the inevitable?

More than four million American homeowners with a home loan were at least one payment behind on their mortgage at the end of June, and 500,000 had started the foreclosure process, according to the most recent data from the Mortgage Bankers Association.  The government’s program would be run by the Federal Deposit Insurance Corp. The agency’s chairman, Sheila Bair, said last week she was working “closely and creatively” with the Treasury Department on such a plan, but revealed few details.  Andrew Gray, an FDIC spokesman, said it would be “premature to speculate about any final framework or parameters of a potential program.”  Treasury Department spokeswoman Jennifer Zuccarelli called details of the loan modification plan “simply inaccurate.” She said the Bush administration “is looking at ways to reduce foreclosures, and that process is ongoing,” but has not decided on a final approach.

Borrowers across the country have expressed anger over the government’s existing loan assistance programs, which critics say have been too slow and small in scope to have much impact on soaring foreclosures.  On Wednesday, about 100 demonstrators marched in front of the headquarters of Fannie Mae, and forced a mid-afternoon meeting with the company’s chief executive, Herbert Allison.  Some held signs that read “Restructure our mortgage loans now,” “Fannie Mae destroys lives” and “Foreclose on Fannie Mae.”  Bruce Marks, chief executive of the Boston-based Neighborhood Assistance Corp. of America, called on Fannie Mae to adopt a program similar to the one the FDIC put in place at failed IndyMac Bank of Pasadena, Calif. Borrowers there are getting interest rates of about three percent for five years.

According to Nationwide Marketing president Bryan Dornan, “Clearly homeowners need a new opportunity to improve their mortgage payment when they do not qualify to refinance their existing home loan.” Dornan continued, “In some cases refinancing just doesn’t helped enough, so loan modification will help the homeowner, while providing a cost-effective solution for the lender because foreclosures are expensive and property values have been declining quickly.”  

The nation’s top mortgage lenders will continue their discussions with the government regarding foreclosure prevention.  Over the past 10 weeks, Fannie Mae says it has received more than 40,000 defaulting loans and stopped eighty percent of them from going into foreclosure.  After meeting with Allison, Marks said the chief executive “understands the issue of making these mortgages affordable over the long term.”  Last month, the government seized control Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, with a rescue plan that could require the Treasury Department to inject as much as $100 billion into each to keep them afloat.

It was unclear Wednesday what role Fannie and Freddie would play in the government’s sweeping plan to help millions of American homeowners. But lawmakers on Capitol Hill want the companies to take a more aggressive approach.  Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee said in a statement that “federal agencies and financial institutions must do more to modify the mortgages they hold in order to stop foreclosures and help families keep their homes.” By guaranteeing millions of mortgage loans, the government could help restore confidence in the market for securities backed by home loans. That was where the global credit crisis started, leading to this month’s dramatic stock market plunge.   As a surprising number of homeowners began defaulting on their loans, investors could no longer put a value on the securities which were backed by pools of mortgages.