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December 2018
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State and federal officials have launched ‘”Operation Loan Lies” — an effort targeting nearly 200 loan modifications firms for a number of alleged illegal practices including promising services they can’t deliver, charging more than $5,000 in advance fees and misrepresenting their affiliations with mortgage servicers.  Former Ditech executive, Jeff Morris said in a recent interview with Loan Modification Buzz, “There is nothing wrong with paying a loan modification company money to renegotiate the terms of your mortgage, but make sure the company actually submits a loan workout request with your lender’s loss mitigation department.”  Morris reminded the news company that not all loan modification firms were bad and that some were actually save families from foreclosure.

Federal and state agencies took 189 actions today against modification and foreclosure-rescue firms, the Federal Trade Commission announced. The coordinated actions were part of a national law-enforcement effort by 2 federal and 23 state agencies to crack down on loan modification scams.  “Operation Loan Lies,” has targeted loan modification firms that allegedly promised to obtain modifications or stop foreclosures, but the companies actually did nothing. Advance fees charged by the loss mitigation firms were equal to one or more mortgage payments, but no loan negotiations ever took place. 

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According to a recent report from Foreclosure Related News, mortgage fraud reports spiked 36% in the United States last year as distressed homeowners and mortgage professionals tried to maintain their standard of living from the boom years, the U.S. Federal Bureau of Investigation said last week, calling fraud rampant and growing.  The State of Maryland recently issued cease-and-desist orders against seventeen loan-modification companies, part of a national effort to go after consultants the Federal Trade Commission alleges are “con artists” preying on homeowners in trouble. 

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.

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Fitch Ratings published a report recently that examined the performance and effectiveness of foreclosure preventions with loan modification programs in terms of helping prevent a borrower from losing their home in foreclosure. Their report pointed out massive failure rates. Fitch’s foreclosure prevention reports that had come out earlier in year found that 50% of mortgage modifications done in the first half of 2008 had gone back into default by year-end. The recent loan modification study by Fitch estimates that between 65% and 75% of modified subprime mortgages will become 60-days or more delinquent again within a year of  that the loan is modified.

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%

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Loan modification activity continues to rise as delinquent homeowner look for help. Mortgage loan modification agreements have helped many homeowners salvage their homeownership with lower mortgage payments, but not everyone qualifies. Mortgage modifications and loan workouts are successfully negotiated when the borrower has a job and has the ability to afford the revised loan payment.

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.

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Reuters recently reported that U.S. mortgage companies increased their use of loan modifications in foreclosure prevention efforts to a record level in December, an industry group said on Thursday. 

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

More than 2.3 million American homeowners faced foreclosure proceedings last year, an 81% increase from the previous year.  Recent foreclosure reports suggest that one in five of those households in California are presently delinquent on the home mortgage.


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.  

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In a recent article written by Michael Forsy, the President-elect Barack Obama says he will use the remaining $350 billion in funds for the Troubled Asset Relief Program to soften the foreclosure crisis and ease credit markets for businesses and families and to help reduce mortgage loan payments for people facing foreclosure, his top economic adviser Larry Summers said.  Loan modification plans remain a focal point for mortgage relief and Obama continues to persuade lenders to provide negotiated loan modifications that provide payment relief.

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.

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The government and the mortgage industry leaders announced the launch of the most sweeping effort yet to aid distressed homeowners by accelerating the process for loan modifications hundreds of thousands of delinquent loans held by Fannie Mae and Freddie Mac. FHA, which seized control of the two mortgage finance companies in September, announced the plan Tuesday along with other U.S. government and industry officials, including Hope Now, an alliance of mortgage companies organized by the Bush administration last year. Foreclosures hurt families, their neighbors, whole communities and the overall housing market,” said James Lockhart, the housing finance agency’s director. “We need to stop this downward spiral.”

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.

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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.



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Chase Mortgage, also known as JPMorgan Chase has joined Countrywide and GMAC by now offering mortgage loan modifications.  According to the Associated Press, last week, Chase loss and mitigation department said it is launching a new program to reduce the number of home foreclosures it undertakes The mortgage loan bank will not put any homes into foreclosure for the next 90 days while it implements the foreclosure prevention program, which is expected to help as many as 400,000 borrowers with about $70 billion in loans.

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?

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The government is considering a plan that would help around 3 million homeowners avoid foreclosure, sources briefed on the matter said. A final deal had not been reached as of Wednesday afternoon and negotiations could still fall apart, but government agencies were contemplating using around $50 billion from the recently passed bailout of the financial industry to guarantee about $500 billion in mortgages. This new plan could include loan modifications that would lower interest rates for a five-year period, according to two people briefed on the mortgage loan modification plan, who asked not to be identified because details were still being worked out and the plan was not yet public. This foreclosure prevention plan would be the most generous effort yet to limit damages from the U.S. housing recession, which has damaged credit markets globally.

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.

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Mortgage lending measures to keep homeowners out of foreclosure have slipped, according to the State Foreclosure Prevention Working Group — a group of state attorneys general and state banking regulators working to prevent home foreclosures. “Too many homeowners are trying to avoid foreclosure without receiving any meaningful assistance by their home loan servicer,” the report concluded, “a reality that is growing worse rather than better, as the number of delinquent mortgage loans, prime and sub-prime, increases.”

The Working Group issued its third “Analysis of Subprime Mortgage Servicing Performance,” based on data collected from subprime mortgage servicers. The recent foreclosure report said nearly 8 out of 10 homeowners that are delinquent on their mortgage payment are not on track for any loan modification or loss mitigation solution that would help them to avoid foreclosure, a higher percentage than this company found in its April report.

The Working Group’s third report concluded: “While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing.” “Servicers appear to have reached the ‘low-hanging fruit’ of non-prime loans facing interest rate hikes, while not developing effective approaches to address the bulk of sub-prime mortgages which are in default before interest rate resets,” the report said. “Based on the rising number of delinquent mortgage loans from borrowers with good credit and projected numbers of payment option ARM loans facing reset over the next two years, we fear that continued reactive approaches will lead to another wave of unnecessary and preventable foreclosures.”

The report says “the number of mortgage loans on track for a loan modification has dropped precipitously” in recent months. “The mortgage industry’s failure to develop a more pragmatic approach to stop foreclosures has only increased  property values to decline even further with more anticipated losses on home loan portfolios,” according to the state officials’ new report.

More and more mortgage lenders are presenting loan modification options to their customers rather than taking on more properties that are worth far less than what they appear to be valued at on paper. “We are troubled that more homeowners are not receiving enough helpful assistance to stop preventable foreclosures,” said Iowa Attorney General, Tom Miller, a founder and leader of the State Foreclosure Prevention Working Group. “While banks and Wall Street firms continue to report record write-downs of mortgage loan portfolios and securities, the losses do not appear to be flowing down to the majority homeowners in the form of affordable loan modifications.” The result has been record levels of unnecessary home loan defaults that have accelerated declines in property values that have affected all of us.”

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In the wake of the recent financial bail-out, federal regulators told Congress that they are working on a plan that would help some of the distressed homeowners prevent foreclosure.  After the mortgage lending debacle became a global financial crisis, Congress called on former Federal Reserve Chairman Alan Greenspan to discuss his role with the foreclosure crisis.  Greenspan quickly warned that it will likely get worse before it gets better.

Greenspan called the banking and housing chaos a “once-in-a-century credit tsunami” that led to a breakdown in how the free market system functions. Accused of contributing to the meltdown, but denying that it was his fault, Greenspan told a House panel the crisis left him — an unabashed free-market advocate — in a “state of shocked disbelief.” The longtime Fed chief acknowledged under questioning that he had made a “mistake” in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions. Greenspan called it “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” His much-anticipated appearance came as committees in both the House and the Senate held competing hearings on the financial crisis. At one such forum, a senior Treasury official said the Bush administration intends to get a program to help struggling homeowners revise mortgages up and running soon.

The U.S. government’s $700 billion financial rescue effort, told the Senate Banking Committee that the new plan could include setting standards for restructuring mortgage loans that makes them affordable to the homeowner while providing a guarantee to banks that follow the foreclosure prevention procedures. According to Neel Kashkari, who is overseeing the government’s $700 billion financial rescue, “We are passionate about doing everything we can to avoid preventable foreclosures,” he said.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the same Senate panel that the government needs to do more to help tens of thousands of home borrowers avert foreclosure, including setting standards for modifying mortgages into more affordable FHA mortgage loans and providing loan guarantees to banks and other mortgage services that meet them. “Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said. “By doing so, unaffordable home loans could be converted into loans that are sustainable over the long term.” Emergency Economic Stabilization Bill provided a new provision for mortgage lenders to help homeowners avoid foreclosure with a mortgage loan modification agreement. FHA continues to promote sensible loans featuring fixed rate terms and flexible credit guidelines that encourage homeowners to refinance rather than lose their homes to foreclosure. The FDIC is working “closely and creatively” with the Treasury Department on such a plan, she said.

Greenspan told the House Oversight Committee he was wrong in believing that banking institutions would be more prudent in their mortgage lending practices because of the need to protect their stockholders. Greenspan, who stepped down in February 2006 after serving as Fed chairman for 18 1/2 years, was asked to explain and elaborate his role regarding the sub-prime mortgage crisis. Some critics have blamed him for contributing to the problem by leaving interest rates too low for too long and for failing to regulate risky banking practices. Committee Chairman Henry Waxman, D-Calif., suggested that Greenspan contributed to “irresponsible lending practices” by rejecting appeals that the Fed intervene to regulate a surging subprime mortgage industry. “The list of regulatory mistakes and misjudgments is long,” Waxman said of oversight by the Fed and other federal regulators. “My question for you is simple,” Waxman told Greenspan. “Were you wrong?” “Well, partially,” Greenspan said. But he went on to assign the blame on soaring home loan foreclosures on overeager investors who did not properly take into account the threats that would be posed once housing sector stopped its unprecedented upward trend. 

Committee members accused existing and former regulators for not doing more to stop abusive predatory and risky lending practices. Christopher Cox, chairman of the Securities and Exchange Commission, acknowledged to the House panel that “somewhere in this terrible mess, laws were broken.” He said the government was doing the best it could to identify and pursue individuals and companies that broke the law.

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Over 100 million households have learned about where to go for help if they’re experiencing mortgage trouble that might lead to foreclosure through a national public service advertising campaign led by NeighborWorks(R) America in partnership with the Ad Council.  Launching with material financial support from the home loan and financial services industries in June 2007, the television, radio, Internet and outdoor ad campaign is the third most active Ad Council campaign, trailing only the organization’s effort to promote broadcast TV parental controls and the long-running drunk driving prevention campaign.

In all, the mortgage and financial services industry supported public service advertising campaign has generated nearly $74 million in donated ad time.  As a result of this and other outreach efforts by participating non-profit organizations, mortgage lenders and thousands of homeowners who faced possible home foreclosure have contacted non-profit housing counselors around the county and received information regarding loan modifications that can help families avoid foreclosure.

“The advertising campaign continues to show progress and success,” said Kenneth D. Wade, CEO of NeighborWorks America. “With more than 100 million broadcast, Internet and outdoor media impressions since the campaign’s launch a year ago, we know that many people who would have been foreclosed upon have prevented foreclosure and remain in their homes.”

“The current financial crisis has its beginnings in the weakness of the housing market,” explained Wade. “We believe that an important step in reversing the current decline in the housing market involves continued outreach to homeowners with the right information they need to help them save their homes or get into a more sustainable housing situation. That’s why this effort will continue into 2009 and NeighborWorks America is working on additional tactics to help strengthen homeownership and stabilize communities.”

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Consumer debt continues to climb each year. Clearly, Americans have a problem spending more money than they have. Debt to income ratios have been increasing significantly with consumers as incomes are declining while outstanding balances increase at a rapid pace. Over the last ten years, homeowners have been able to take out home equity loans and consolidate their credit card debts into a lower more responsible fixed rate payment that they could afford. Back then home values rose annually, so borrowers could refinance their spending problems every few years. When the subprime mortgage debacle turned into a credit crunch, mortgage lenders quickly tightened their loan guidelines. Almost simultaneously, home values began to decline and homeowners were no longer able to refinance and consolidate their debt. People began losing their homes because they were defaulting on their home loans.

Unfortunately a foreclosure epidemic arose and banks began to fail because with increased foreclosures came a serious liquidity problem that significantly limited banks to lend to each other. Even when the Federal Reserve cut interest rate many times, the credit crunch got worse.

Now Americans find themselves with high rate credit card debt and mortgages that are larger than their homes are actually worth. Homeowners aren’t able to refinance for lower payments, debt consolidation or cash out. With home equity loans disappearing, debt settlement has increased dramatically because its legal and gives consumers a true alternative to bankruptcy. Debt settlement provides debt relief because the debt negotiation companies are able to reduce your balances and pay-off your revolving debt that carries the compounding interest.

The other refinancing alternative that has risen in popularity with homeowners has been loan modifications. Mortgage loan modifications are the result of banks restructuring loans for borrowers so they can avoid a foreclosure. The liquidity of banks has eroded in the foreclosure epidemic and now delinquent homeowners seem to have more leverage, because mortgage lenders don’t want your home anymore.

Bryan Dornan is a mortgage industry expert who has published many financial articles online. Mr. Dornan operates several companies like Lead Planet, Loan Modification Outlet and Nationwide Marketing. Dornan recommends the following debt relief websites: debt settlement and Loan Modification. Article Source:

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A new law enacted on July 8, 2008, now requires Lenders of residential loans in the State of California to accept loan modifications in most foreclosure situations.  California Civil Code 2923.6 went into effect on July, 2008, and applies to all residential loans made from January 1, 2003, to December 31, 2007, inclusive, that are secured by residential real property and are for owner-occupied residences.

Practically all residential mortgages have Pooling and Servicing Agreements (“PSA”) since they were transferred to various Mortgage Backed Security Trusts after origination.  These vehicles likewise almost always contain a duty to maximize net present value to its investors and related parties.  Under the new laws, California Civil Code 2823.6 broadens and extends this PSA duty by requiring servicers to accept loan modifications with borrowers.

Essentially, California Civil Code 2923.6(a) states that “a servicer acts in the best interest of all parties if it agrees to or implements a loan modification where the (1) loan is in payment default, and (2) anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.”

Likewise, California Civil Code 2923.6(b) now provides ”that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority.”

So what does all this mean?  Well, lets take an example:

John Martin’s loan is presently in default, or reasonably foreseeable of near default.  The house he previously bought 2 years ago for $800,000 with a $640,000 first and $140,000 second, has now plummeted to $375,000.  While Mr. Martin can no longer afford the $9,000 per month mortgage payment, he is willing, able, and ready to execute a modification of his loan on the following terms:

a) New Loan Amount: $330,000.00

b) New Interest Rate: 4.75% fixed

c) New Loan Length: 30 years

d) New Payment: $1,721.44

While this new loan amount of $330,000 is less than the current fair market value, the costs of foreclosure need to be taken into account.  Foreclosures typically cost the lender $50,000 per foreclosure.  For example, the Joint Economic Committee of Congress estimated in June, 2007, that the average foreclosure results in $77.935.00 in costs to the homeowner, lender, local government, and neighbors. Of the $77,935.00 in foreclosure costs, the Joint Economic Committee of Congress estimates that the lender will suffer $50,000.00 in costs in conducting a non-judicial foreclosure on the property, maintaining, rehabilitating, insuring, and reselling the property to a third party. Freddie Mac places this loss higher at $58,759.00.  

Accordingly, the anticipated recovery through foreclosure on a net present value basis is $325,000.00 or less and the recovery under the proposed loan modification at $330,000.00 exceeds the net present recovery through foreclosure of $325,000.00 by over $5,000.00.  Thus California Civil Code 2923.6 would mandate a loan modification to the new terms.

The homeowner just got a new arrow to add to his foreclosure defense quiver.  Pursuant to California Civil Code 2923.6, the lender is now contractually bound to accept the loan modification as provided above.  Failure to do so should allow the borrower to sue for specific performance or wrongful foreclosure in State Court.   Written by Michael G. Doan

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More than 120,000 struggling California homeowners could see their monthly mortgage payments lowered after Bank of America Corp. agreed to provide $3.5 billion in loan and foreclosure relief to settle lawsuits it inherited with its takeover of Countrywide Financial Corp. The pact stems from cases filed earlier this year by California and other states, alleging Countrywide, based in Calabasas (Los Angeles County), used misleading advertising and unfair business practices to dupe customers into taking out home loans they couldn’t afford. Bank of America acquired Countrywide, along with its outstanding legal challenges, in July. To settle with all the states involved, BofA said it would provide up to $8.4 billion in interest rate and principal reductions on as many as 400,000 mortgages nationwide plus more than $200 million in aid for those who have suffered or face foreclosure. “Today, I’m announcing the biggest mortgage loan modification in American history,” California Attorney General Jerry Brown said at a press conference Monday morning. “Bank of America settled because their new entity, Countrywide, was guilty of massive irregularities.” His office claimed the agreement represents the largest predatory lending settlement ever, dwarfing a $484 million settlement with Household Finance Corp. in 2002. But the bulk of the settlement consists of loan reductions, not outright payments, and the total figures assume every eligible borrower participates and investors who control the loans cooperate.

‘This is a beginning’

The settlement terms are “not as impressive as Brown’s press release at least indicates,” said Robert Gnaizda, general counsel with the Greenlining Institute, a Berkeley advocacy group that presses businesses to serve low-income communities. “This is a beginning but not an extraordinary settlement.” He said the bank would have performed many of those workouts voluntarily for several reasons, including to qualify for aid under the federal bailout bill passed last week and to take advantage of programs created by the Housing Economic Recovery Act of 2008 in July. BofA, for instance, has said it will try to refinance some customers into fixed-rate FHA mortgage loans under the Hope for Homeowners program included in the latter bill. Through it, banks have to write down existing mortgages to 90 percent of the new appraised value of the home, but the FHA agrees to cover the unpaid balance if the loans go into foreclosure. Gnaizda also criticized BofA for not declaring a moratorium on foreclosures and for not establishing a system for providing borrowers in-home counseling on their modification options. BofA spokesman Dan Frahm defended the settlement. “We think it’s a program that provides more solutions than ever before to assist troubled borrowers and put them on the path to sustained homeownership,” he said. Frahm said the bank won’t initiate or proceed with any foreclosure sales until it determines whether borrowers will qualify for the modification program, which goes into effect Dec. 1. The Association of Community Organizations for Reform Now, another group representing low-income communities and an outspoken proponent of loan modifications for troubled borrowers, lauded Monday’s announcement. “More than any action of Congress, and certainly more than any voluntary industry action promoted by the Bush administration, today’s settlement is a new model for solving the foreclosure crisis by litigating against the predatory products peddled by huge lenders and winning direct relief for borrowers who are struggling with their mortgages,” President Maude Hurd said in a prepared statement.

Some will not qualify

In itself, however, the settlement doesn’t promise significant relief for a real estate sector still awash in foreclosures, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

“Relative to the overall size of the market, (it’s) not that big,” he said. “Fundamentally, it’s not going to change anything.” Frahm and Brown both acknowledged that the deal won’t even allow all of Countrywide’s customers to avoid foreclosure, as some won’t qualify for the workouts. The loan modification program covers subprime and pay-option adjustable rate mortgage loans initiated between Jan. 1, 2004, and Dec. 31, 2007. To qualify, borrowers generally must: be 60 or more days late on their payments or face a loan reset that is likely to make them seriously delinquent, meet certain income requirements based on the size of the mortgage, still owe at least 75 percent of the current value of the home and occupy the property in question. The settlement will affect borrowers differently based on the type of loan they took out: Those with certain types of adjustable rate loans, in which the interest rate and monthly payments jump after a preliminary period, may receive an extension of the introductory rate. Customers with so called pay-option ARMs, which allow borrowers to choose a minimum payment that doesn’t cover interest and thus allows the total owed to grow each month, could have their loan principal reduced to 95 percent of the home’s current value. Borrowers with high interest rate fixed loans may be eligible for rate reductions. Some qualified borrowers’ loans will be adjusted automatically, others will receive notices that they could qualify for a modification beginning 90 days before their loans reset, said Kathrin Sears, California’s supervising deputy attorney general, who helped negotiate the settlement. “We’re trying to address those in the most serious distress first,” she said. Attorneys general in 10 other states are participating in the settlement, including Arizona, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington. Brown’s original lawsuit named Countrywide’s former Chief Executive Officer Angelo Mozilo and former President David Sambol, claiming they had encouraged the loosening of lending standards to allow a surge in issued loans. The executives were not included in the settlement, and Brown plans to continue to prosecute those cases.

Highlights of the BofA settlement

Bank of America agreed to provide up to $8.68 billion of home loan and foreclosure relief to settle loan abuse lawsuits against Countrywide, which it acquired in July. If every eligible borrower and investor participates, the loan modification program will provide Californians with $3.5 billion, as follows:

– $3.4 billion worth of reduced interest payments and principal.

– Waiver of late fees of up to $33.6 million.

– Waiver of prepayment penalties of as much as $25.6 million for those who receive modifications, pay off or refinance their loans.

– $27.9 million for borrowers who are 120 or more days delinquent or whose homes already have been foreclosed.

– Around $25.2 million for borrowers who can’t afford monthly payments under the modification program and eventually lose their homes to foreclosure.

Source: Office of the attorney general, state of California

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