Mortgage Law Network

On May 8th, foreclosure prevention legislation, authored by Rep. Barney Frank (D. Mass.), was passed by the House of Representatives.  Despite significant Republican support, President Bush promises to veto.

Under the proposal, if lenders agree to accept 85% of the current appraised mortgage value, the Federal Housing Administration (FHA) will refinance the loan for the borrower. Pundits are already labeling this latest bill as a taxpayer bailout of subprime borrowers and lenders.

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The sub prime loan crisis has caused a rapid decline in home values across the country.  This has depressed the middle class consumer and caused a cutback in many industries related to residential construction.  When consumers feel that they have less equity in their homes, they slow their discretionary purchases.  This slow down in consumer purchasing, coupled with rising fuel prices, has created a downward spiral for the economy.  Unfortunately, more economic trouble may be on the horizon.

The twin fiscal crises of declining home values and tightened credit continue to worsen, threatening the fiscal stability of Fannie Mae and Freddie Mac, the twin giants of the federally-chartered secondary home mortgage market. Responding to an announcement by Standard and Poors warning of signs that the Federal Government might be forced to bail out Fannie Mae, CNN Money issued a dire warning: Trillion Dollar Mortgage Time Bomb Threatens. Read the rest

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Lifetime batting average: .266
Home Runs: 462
Runs Batted In: 1407
Houses in Foreclosure: 1

Mr. Canseco told Inside Edition that he walked away from his $2.5 million, 7,300-square-foot home in suburban Encino because it didn’t make sense to continue making payments.

Homeowners with mortgages in default face several choices, similar to Mr. Canseco. The cold hard reality is whether you can afford your monthly payment. Often that decision involves two parts. First, homeowners often focus on the immediate picture, the default status of the loan, as they try to catch up the delinquent payments. But the second factor is more important. Can you keep up with future monthly payments? It does little good to squander what few reserve funds you can muster to bring a mortgage current only to fall behind months later and eventually lose the home to foreclosure. So what is a person to do? Consider these walk-away options: Read the rest

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Workouts for borrowers with defaulted home loans are a reality.  Unfortunately, it appears to be the small, specialized sub-prime loan servicers that understand the problem and have figured out how to best solve it.  Large lenders have yet to establish procedures for handing defaulted loans quickly and efficiently without resorting to foreclosure.

In an article I wrote several months ago called Loan Modification, Fact or Fantasy, I questioned whether or not the concept of loan modification had any basis in fact or if the press conferences announcing voluntary loan modification programs were nothing more than a publicity stunt.  Read the rest

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Most of us receive them in the mail on a pretty regular basis - those official-looking envelopes that resemble a communication from a government agency, or our home lender, or someone else we cannot afford to ignore.  If we open the letter, it is likely to contain a solicitation for questionable financial services.

Having recently worked with a client who responded to such a solicitation and ended up in a nightmarish home refinancing situation, we applaud H.R. 5895, “A Bill to Require Certain Labeling of Unsolicited Commercial Mail”, introduced by Gary Ackerman (D-NY) on April 24 and referred to the Committee on Financial Services.  Read the rest

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The change in thinking about homes from shelter to investment that Gene Melchionne pointed out was promoted by the marketing of financial products:  unlock the equity in your home;  put your home’s equity to work, screamed the ads.

Now, that equity wasn’t harming anyone, sitting there idle.  In fact, as we see too vividly today, it was a sign of financial strength.  But those who wanted to sell us something made idle equity a mark of financial naivete, of opportunities lost.

We are urged to make bad financial decisions every day:  “Discover, when life can’t wait.”  “You’re entitled …”   These messages bombard us, and our children.  Spend now, whether you can afford it or not.  No one touts the power of saving.

I don’t  really think that advertising in fact created the mortgage mess singlehandedly, but I do hold marketing responsible for changing our view of our homes in a ultimately disastrous way.  A house is not a piggy bank.

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It’s no secret that the current economic troubles were brought about by the bursting housing bubble. Professor Robert Shiller of Yale University performed a study of housing prices from the 1890’s to the present and found that the bubble was much larger than previously thought. The New York Times published an extensive article showing Professor Shiller’s results.

When placed on a graph, the data shows that housing prices have increased nearly 10 fold in the last 10 years. It also shows that the effects of the depression of the 1920’s lasted for thirty years.A home valued at $90,000 in 1915 (when adjusted to today’s values) did not regain that value again until 1946. By comparison, a home valued at $110,000 in 1995 (in today’s dollars) reached a dizzying height of $200,000 in 2007.

If history is any measure, housing prices could fall much further than anyone imagines. And if so, those values might not be seen again for another 50 years.

What changed? Sometime in the 1990’s, people began to see their homes in terms of an investment. A home is no longer a home, but rather an investment to be bought and sold and gains to be realized just like an share of corporate stock. During the sub-prime mortgage run-up, a large number of people borrowed against their homes to subsidize their lifestyles. Prior to the 1990’s, a home was seen more as a place to live and its value was not as important.

When financing real estate, consider the more important issues of whether this property is a home and place to live that you can afford. Forget about its future value because it may be a very long time before there will be any value to realize. A return to more traditional issues in real estate may do more good than any governmental action to prop up mortgage lending.

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According to the New York Times, the Federal Bureau of Investigation and the criminal division of the Internal Revenue Service have formed a task force to examine mortgages that were made with little or no proof of the earnings or assets of borrowers. Federal prosecutors in New York, Los Angeles, Philadelphia, Dallas and Atlanta are involved in the investigation.

While the new task force is focusing on the role of mortgage lenders and brokers in low- or no-documentation loans, it is also examining how the loans were securitized and sold on the financial markets to investors.

In March, the began looking into whether the Countrywide Financial Corporation misrepresented its financial condition and loans. The company is also under the microscope in California and Illinois as well as by the Executive Office of the United States Trustee.

What’s interesting is that the government gets involved in these schemes only after the house of cards has already tumbled, rather than acting on information before something bad happens. Sure, Countrywide is a bad apple - but so are a slew of other lenders, servicers, financial services companies, and sundry players in the mortgage mess. But so long as the money train kept running, the government took a hands-off approach. Now that the townsfolk are standing outside the door wielding pitchforks, that’s different.

Doctor Frankenstein is looking to hand over the monster that he created. Stay tuned for the inevitable hearings, lynchings, and mass executions. Then, when the rabble dies down we can get back to the business that American corporations so adore - fleecing the consumer.

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For some homeowners who refinanced their homes in those heady days when home prices were increasing daily and loans were available to nearly anyone who could fog a mirror, a day of reckoning has arrived.  Many of the loans sold to borrowers with questionable credit or limited ability to make payments are of a type often referred to a 2/28 or 3/27 loans.  This means that the loan has a low introductory interest rate for the first two or three years with the interest rate and thus the amount of the monthly payment increasing dramatically after the honeymoon.

Senator Hillary Clinton has introduced a bill in the Senate that is intended to protect loan servicers from possible claims by investors when the servicer enters into a loan modification agreement with a troubled homeowner to remedy or prevent a default in payment under the terms of the loan.  This legislation would encourage those “voluntary” loan modifications we have been hearing about but has seldom seen.

The Mortgage Enhancement and Modification Act of 2008 sets standards for a qualified loan modification or workout plan on a residential home loan.  It immunizes the companys who actually collect and account for loan payments when they enter into a qualified loan modification with a homeowner in default, or in danger of default, from claims by the owners of the loans or their agents.

A qualified loan modification or workout plan must meet a number of criteria and is prohibited from causing a negative amortization of the loan, requiring the borrower to pay additional points or fees, and must materially improve the ability of the borrower avoid foreclosure and return to a regular scheduled payment that is reasonable for that borrower.

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