Mortgage Law Network » Däna Wilkinson, Attorney at Law

New Year’s Resolution–Don’t Be Financially Illiterate

Däna Wilkinson, Attorney at Law — Thu, 31 Dec 2009 17:25:34 +0000

Anyone who works with consumers these days–attorneys, housing counselors, lenders, and brokers and, for that matter, anyone who reads media reports on the mortgage crisis–has no doubt reacted to some tale of financial woe like this: “How could anyone be that dumb!” We’ve all heard some version of the exploding ARM, the payments which are higher than the borrower’s monthly income, the “liar’s loans” with no proof of income (or anything else) required. Whether we are reacting to the lender’s nonsensical approval of the loan, or the borrower’s outrageously optimistic assumptions, at some point we come across a scenario that just boggles the mind.

Of course, in many of those cases, there is an explanation, if you know the background. Many transactions which appear ridiculous in hindsight made perfect sense, or at least some sense, at the time they were transacted. But there may be a bigger issue at work here: Americans’ abysmal financial literacy.

Bob Sullivan, of MSNBC’s Red Tape Chronicles, has a lot to say about financial literacy, or “innumeracy.”

Turns out, there’s an entire field of study — albeit a small one — devoted to this subject. It’s called “innumeracy” — or mathematical illiteracy. It’s a hidden epidemic in our society. And the consequences are dire.Just as there is a hidden epidemic of people who are functionally illiterate in our country, there is big problem (bigger, by my reckoning) with people who can’t do basic math. There’s no way to function in our society without understanding money, percentages, interest calculation and so on. Yet in a recent government study, less than one in seven American adults ranked “proficient” at math.

Here are a few examples of innumeracy in action:

According to the Department of Education’s National Assessment of Adult Literacy, U.S. adults are terrible at solving real-world math problems, like calculating tips or comparing prices in grocery stores. Some dismal results:

*Only 42 percent were able to pick out two items on a menu, add them, and calculate a tip.

*Only 1 in 5 could reliably calculate mortgage interest.

*1 in 5 could not calculate weekly salary when told an hourly pay rate.

*Only 13 percent were deemed “proficient.” Worse yet, only 1 in 10 women, 1 in 25 Hispanics and 1 in 50 African Americans made the grade.

*Americans are terrified of numbers when it counts most: 20 million Americans pay someone to file their 1040EZ, a one-page tax form with around 10 blanks to fill out.

If ever there was any doubt about the importance (to all of us) of financial literacy, the last two years have proved the point, in spades. Now, I don’t doubt that there have been other factors at work in creating the current mortgage crisis. Like greed, for example. And magical thinking. I am inclined to think those factors played the largest role. But consumers are largely powerless to address corporate greed, as manifested by bankers who created more and more exotic securities to sell in order to prop up paper profits, and not incidentally, their bonuses. And we are largely powerless to address the kind of magical thinking that allows mortgage brokers, lenders, and rating agencies to expect the same outcome from no-doc, no down-payment loans as from traditional, thoroughly underwritten mortgage loans. But we can, and should, learn to do the math.

One reason to increase our financial literacy is to make it harder to rip us off. If you can’t calculate a simple interest rate, how do you know you aren’t paying too much on your car, your credit cards, or even your mortgage? If you can’t add, how do you know your bank, lenders, and even the cashier at the grocery store isn’t ripping you off?

Perhaps more importantly, if you can’t do those things you can’t budget, you can’t save, and you can’t plan for things like retirement and college for your kids. It is difficult to accumulate wealth, and if you manage to do that despite your financial illiteracy, you are setting yourself up as a target for every kind of scam artist. And if you can’t accumulate wealth, plan for retirement, and take care of your family, you are setting yourself up for a lifetime of financial stress and disappointment.

The resources are out there. There are non-profit counseling services to help you learn to budget. There are free interest and amortization calculators online. (Several calculators are available at www.bankrate.com, but that’s just one example.) There are books, and blogs, and every kind of article imaginable. I know math freaks a lot of people out (which is why people pay someone to file their 1040EZs) but if you can read, you can learn to do this. And if you are reading this and you know how to do this, help someone who can’t. Don’t do it for them–teach them to do it themselves. And for mercy’s sake, teach your kids, or find someone else who can. Ignorance is not bliss–it’s expensive, it’s offensive, and it affects all of us.

Foreclosure Rescue Scams Deluge Homeowners

Däna Wilkinson, Attorney at Law — Wed, 30 Dec 2009 04:51:10 +0000

If your property goes into foreclosure, you will find your mailbox (and sometimes even your phone, e-mail, and front oor) full of offers to “help” you. You may wonder how they know to contact you. The answer is simple–they data-mine the court files or any other public record created when a foreclosure is begun.

You may have some offers from legitimate housing counselors, but you may also have offers from less legitimate outfits–everything from sophisticated sales pitches to those who strictly prey on fear of losing a home, and even those who try to convince you that they operate in some official capacity with your lender or even the court.

The worst of these scams are out to steal the equity in your home; at the very least, they will cost you time and money that you don’t have if you hope to save your home. So how do you find legitimate help? Try the HUD web site for links to legitimate housing counselors, although it may be hard to find someone who has time to help you–they are pretty swamped. Even better, contact an attorney who defends mortgage foreclosures to help, or at least advise you concerning the process and the time frame that you have in which to act. You may think that you don’t need an attorney to fight a foreclosure. You may think that you need someone to work out a mortgage modification for you. Don’t be surprised, however, if it’s difficult to find an attorney who will undertake to do that for you. Many lenders and modification programs will only deal with you. They won’t deal with an attorney (or any paid representative). The mortgage modification process is also extremely frustrating. If you qualify, you may also want to contact your local legal services organization for assistance.

“In Foreclosure”–What Does It Mean?

Däna Wilkinson, Attorney at Law — Wed, 02 Dec 2009 04:10:21 +0000

I frequently have clients tell me that their homes are “in foreclosure.” Upon reviewing the situation carefully, however, I find that the phrase “in foreclosure” may mean different things to different people, and it may be important to distinguish between those different meanings.

To me, as a lawyer in a judicial foreclosure state (where it takes a law suit to foreclose a mortgage) “in foreclosure” means that there is a law suit pending seeking to foreclose that mortgage. Papers have been filed, perhaps a hearing has been held, or a date set for an auction on the courthouse steps. The wheels have been set in motion, and there is a definite timetable for completion of the foreclosure action. To a lawyer in a non-judicial foreclosure state, that phrase may mean that the necessary notices have been given, and the process that will result in a foreclosure sale is pending.

To a lender, “in foreclosure” may not necessarily mean that there is a suit pending, or even that the non-judicial process of foreclosure has begun. It may mean only that the troubled loan has been referred to the department that handles such loans, or that it has been referred to an attorney for appropriate action. It may mean that action will be taken shortly (in Southern parlance, something is “fixin’ to happen”) or it may mean only that the people in charge of the account have changed. It may not be an important distinction in and of itself, but it can be important both in terms of the length of time you have to respond, and in terms of the costs that are being added to your loan. So, if you are talking to your lender and they tell you that the loan is “in foreclosure,” ask them specifically what that means, and what steps they have taken..

My clients also use the phrase “in foreclosure” to mean that they are behind in payments and are anticipating a foreclosure shortly, even if they haven’t gotten any formal notice of foreclosure and even if they haven’t been told of any pending action. Sometimes my clients think of it that way only because they think enough time has gone by that a foreclosure suit should be pending. Again, it helps to be accurate and specific, especially when talking to a lawyer. For example, if I know that a client has a foreclosure action pending, with a foreclosure sale in the immediate future, I am going to have to put other matters on hold to deal with that as an emergency, and I am going to have to charge fees accordingly. I am going to have to set aside sufficient time to handle the matter, or even decline the matter and send it to someone who has adequate time to devote to it. So, I not only need to know if there is a foreclosure suit pending, I also need to know if there is not. Like the Boy Scouts, this is one time it pays to be prepared.

Wait for Modification or File Chapter 13?

Däna Wilkinson, Attorney at Law — Tue, 01 Dec 2009 03:55:03 +0000

Lately I have had a number of clients who have asked me whether they should continue to seek mortgage modification, or go ahead and file a Chapter 13 to stop a foreclosure. With the slow pace of lenders’ response to modification applications, and the pressure of possible foreclosure, it can be a difficult decision. Here are a few factors to consider.

1. You need to know what kind of modification you are applying for. It is not unusual for lenders who offer internal modification or workout programs to process those while proceeding with foreclosure at the same time. If that is the case, you may have a very limited time in which to deal with a foreclosure if you are turned down for a modification. Other programs, like the HAMP program, require that lenders stop foreclosures while they process modifications. It is important to know whether your lender is proceeding with foreclosure in parallel with a modification application, or suspending foreclosure. If the latter is the case, you will have more time to respond, but you still may have to respond quickly.

2. You need to know whether you are likely to qualify for modification under the application guidelines. For example, the HAMP program requires that you show that you have sufficient income to make the reduced payments in order to get approval. If you just lost your job, and you have no income, you aren’t going to qualify for that particular program. If you can predict with a fair amount of accuracy whether you will be accepted or rejected for modification, you can plan accordingly.

3. You need to know something about the foreclosure process where you live, and where your case is in that process. The type of process and the length of time foreclosure takes can vary enormously from state to state. There can also be differences in what a lender considers to be “in foreclosure” and what a lawyer would describe as “in foreclosure.” The best way to determine what the process is and where you are in it is to consult with a seasoned attorney who handles such matters in your jurisdiction. If the process is truncated where you live, or your property is about to be sold, your options may be much more limited that if the process allows you more time.

4. You may want to consider whether you have defenses to foreclosure. First of all, most modification agreements that I have seen contain some language that says that you are waiving any defenses to the mortgage. Know what you are giving up before you sign such a release. Further, you may also want to consider defending a foreclosure action as a third alternative to modification programs or Chapter 13. Many attorneys who handle such matters report that the most meaningful modifications that they see are those that are the result of settlement negotiations where defenses to foreclosure have been raised.

5. You need to know what it will take, both in time, paperwork and money, to file a Chapter 13 if all else fails. I get phone calls all the time from people who want to come in a discuss filing a Chapter 13, for the first time, on the eve of a foreclosure sale. It just can’t be done that quickly. There are documents to gather, paperwork to fill out, credit counseling to complete, and fees to pay, not to mention finding an experienced bankruptcy lawyer who has time to meet with you and review you situation. None of that can easily (if ever) be done on short notice. You need to prepare for a Chapter 13 bankruptcy filing, even if you hope that it won’t be necessary.

Abysmal Record on Modifications Prompts Additional Attention

Däna Wilkinson, Attorney at Law — Mon, 30 Nov 2009 03:10:24 +0000

CNN reports that the Treasury Department is ramping up efforts to coerce banks into modifying more mortgages. The reason is, of course, that the number of mortgages that have been modified under the HAMP (or any other) program have been insignificant:

For example, fewer than 5% of the trial adjustments on loans owned or guaranteed by Freddie Mac were converted to permanent modifications as of Sept. 30, according to the mortgage finance giant.

Looking more broadly, the figures are even lower. As of Sept. 1, only 1.26% of all trial adjustments were made permanent after three months, reported the Congressional Oversight Panel, which monitors the government’s use of bailout funds.

Meanwhile, more and more people are falling into foreclosure. The combined percentage of loans in foreclosure or at least one payment past due was 14.4% in the third-quarter, according to the Mortgage Bankers Association. That’s the highest the group has ever recorded.

Lenders say it’s the fault of homeowners–that they don’t provide documentation, or don’t have jobs, or don’t hold their mouths just right when they are licking the stamp to mail their trial payments. (Pardon me, my cynicism may be showing.) Borrowers report (to CNN, and on a smaller scale, to me) that they send the same documents over and over, but the lenders “lose” them.

While the Obama administration and the Treasury Department struggle to put enough pressure on banks and mortgage lenders to take the steps needed to prevent a total meltdown of our financial system AGAIN, I would just like to quietly remind them, and Congress, that giving bankruptcy judges the power to do just that might be a very good idea. Just a hint….

HUD Identifies Source of Increased Foreclosures and Delinquencies

Däna Wilkinson, Attorney at Law — Mon, 28 Sep 2009 19:43:59 +0000

In HUD’s Interim Report to Congress on the root causes of the foreclosure crisis, the conclusions reached by the panel are a searing indictment of the mortgage and investment banking industries:

… [I]t seems clear … that the sharp rise in mortgage delinquencies and foreclosures is fundamentally the result of rapid growth in loans with a high risk of default—due both to the terms of these loans and to loosening underwriting controls and standards. Mortgage industry participants appear to have been drawn to encourage borrowers to take on these riskier loans due to the high profits associated with originating these loans and packaging them for sale to investors. [Internal citations omitted.]

Borrowers, or at least some of them, come in for their share of the blame, too:

While systematic information on borrowers’ motivations in obtaining these loans is not available, existing evidence suggests that some borrowers did not understand the true costs and risks of these loans, while others were willing to take on these risks to tap accumulated home equity or to obtain larger homes.

Whether studies such as these and other expert analysis will lead to any substantial change in the way mortgages are originated in the future remains to be seen, current industry practices seem to have reverted to the traditional underwriting of mortgage loans that existed prior to the invention and proliferation of mortgage-backed securities. For now, at least, if you are looking to borrow to refinance your home or to purchase a new one, expect the process to be detailed, invasive, and a whole lot more trouble than your more recent no-doc or low-doc mortgage experience. If you are going to get a loan closed today, you can expect to have to put forth more effort, and probably a lot more money, than over the last few years.

I’ve heard from a number of clients over the years, who have come to me with mortgage payments that they clearly can’t make, that they just didn’t expect that the lender would give them a mortgage that they couldn’t afford. Experience has given the lie to that assumption, and it is not wise to depend on any lender to look after your best interest. But for the short term, it may be that your lender will be looking at those questions a bit more carefully, which could end up being a good thing. I just don’t know whether to expect it to last.

Your Re-Finance Has Been Approved–How Do You Get to Closing?

Däna Wilkinson, Attorney at Law — Fri, 31 Jul 2009 16:18:56 +0000

In the last several months, with interest rates at historic lows, and bailout cash funding some new loans, it has become possible to get a traditional re-finance approved, usually to take advantage of lower rates. It may not be possible to refinance if you have no equity (or negative equity) in your home, but if you aren’t under water yet, it may be approved. Or, you may be able to get approval to purchase a new home. Once approved, though, you have to get the transaction closed, and that may be more of an adventure than you expect.

When I bought my first home, no one had ever heard of no-doc or “liar’s loans.” I went through a bank, and a traditional (and very conservative) underwriting process. I remember what a hassle it was–seemingly endless requests for documents, verification of every piece of information, and not only a down payment, but a requirement that I also have two months of payments on hand when we got to closing. Combined with a few issues to do with title insurance, and I was ready to walk away more than once, but there were no other options.

A few years later, when I bought my second home, all of that had changed. I kept calling the loan officer to ask if he needed anything, and the loan closed quickly and with a minimum of fuss. I still have the files generated by each closing. The first one is in a multipart binder that’s about three inches thick; the second one I could stick in my wallet.

If you remember the days of old, then you’ll be better prepared to deal with the underwriting process once again. If you bought your first home in the days of no-doc loans, you may be in for a rude awakening. You may be left scrambling to provide verification of income, including gifts, you will have to provide bank records and tax returns, and you may also have to have money in the bank to get a loan closed. Be prepared for a longer, more tedious process, and ask questions. Ask what they are going to require you to do, what documentation you will need, and when. If the loan is in underwriting, you may want to contact those folks directly. Make sure you understand any deadlines, including the expiration of your interest rate commitment. My advice is to pick your own attorney to handle the closing for you, and make sure he knows about those deadlines, too.

It may be a very favorable time to refinance if you qualify, and it may pay off in the long run, but expect the process to take longer and be more frustrating than it has been in a number of years.

HAMP Helping, But Too Few, Too Slow

Däna Wilkinson, Attorney at Law — Thu, 30 Jul 2009 01:40:53 +0000

CNNMoney has collected comments and reviews of the government’s Home Affordable Modification Program, or HAMP, which demonstrate the frustration that borrowers are having trying to get HAMP modifications through the approval process.

Most servicers started implementing the program in April and May, but soon faced harsh criticism as applications flooded in. CNNMoney.com has heard overwhelming negative reviews from the nearly 500 people who wrote in about their experiences.

…

To help servicers speed up the modification process, the administration said it will work with the institutions to set more exacting performance measures, such as average borrower wait time, document handling and response time for completed applications. Officials will release their first progress report on each servicer — detailing the number of trail modification offers were extended and are underway — by Aug. 4.

Servicers, including Citigroup, JPMorgan Chase, Bank of America, Ocwen and Wells Fargo, were spending all of Tuesday meeting with Treasury and Housing department officials in the morning and early afternoon, and then with housing counselors in the latter part of the day.

Servicers and the administration are looking for ways to streamline the process, including standardizing forms and definitions, possible online applications, and increased staffing. (The latter, I would note, would also put some folks back to work.) For now, all we can say is that the process tends to be longer and more frustrating than anyone wants it to be. I remains to be seen whether the program will be too little, too late.

Simple Steps to Take When You Get a Foreclosure Notice

Däna Wilkinson, Attorney at Law — Mon, 27 Jul 2009 19:52:24 +0000

What do you do when you get a mortgage foreclosure notice? More and more people every day are experiencing one of the most unsettling things that can happen in your financial life. People who never expected to have to deal with such a thing are faced with a new reality. So, what do you do?

1. Do not ignore it. No matter what your circumstances, whether you are determined to keep your home, or resigned to losing it, nothing justifies ignoring such a notice. No matter how dire the situation, you need to face up to it, figure out your options, and make an informed decision. It may be tempting to stick your head in the sand, but sooner or later you’ll be forced to face it, and it might as well be early enough in the process to take constructive action.

2. Go see a lawyer. You need to know what the process will be like, and how much time you have, at a bare minimum. Laws can differ drastically from state to state, and the process that may take months in one part of the country may take 60 days or less in another. A lawyer will be able to tell what the process is like, the timeframe for taking action, or deciding to take none. A lawyer may be able to suggest a way to defend the foreclosure action, or discuss filing a bankruptcy. Don’t be afraid of the cost. Many lawyers offer a free or reasonably priced brief consultation for just such a purpose.

3. Call your mortgage company. You probably already have, and you may be sick of talking with those people who hounded you on the phone to send payments, when you told them you just didn’t have it to send. (The collection folks probably didn’t have the authority to modify the loan anyway.) If the property is in foreclosure, however, you probably aren’t going to talk to those folks any more. Once a foreclosure is started, you are probably going to talk to someone in the mortgage company’s “loss mitigation,” department, who may be able to help, or offer another solution, whether it’s a mortgage modification to allow you to keep the house, or the possibility of a deed in lieu of foreclosure or a short sale. It may be difficult to get through, or to get to talk to someone with the ability to help, but this is one of those times where persistence pays off.

4. Check out the Making Home Affordable web site, or NCLC’s mortgage modification portal, to check out possible loan modification options and see if you qualify. Frankly, some people don’t, and not all programs are available through all lenders. But if you qualify, the modification can be extremely beneficial. Many programs are available to those already in foreclosure, and some are designed specifically for that circumstance.

5. Save as much money as you can. No matter what eventually happens, or what decision you make, you will need a nest egg. If you decide to sell or walk away from your home, you will have to pay moving expenses, utility deposits, and such. If you can work out a modification, you may need to make a lump sum payment, or at least demonstrate that you have the ability to make a payment. If you decide to file a Chapter 13 bankruptcy to keep your home, you will need money to pay attorney fees.

Getting a foreclosure notice is no one’s idea of a good thing, but you can survive the experience and come out the other side in better financial health than before.

South Carolina Supreme Court Establishes HAMP Procedure

Däna Wilkinson, Attorney at Law — Thu, 28 May 2009 19:48:33 +0000

The South Carolina Supreme Court has issued an administrative order that establishes a procedure which delays foreclosure sales in pending cases until HAMP applications can be processed where the mortgage is subject to HAMP, requires lenders to notify the court when HAMP applies in new cases, and allows foreclosure to proceed where loans are not subject to modification under HAMP or HARP. This order follows the Supreme Court’s unprecedented order of May 4, 2009 staying all foreclosure sales in the state until the applicability of HAMP and HARP could be determined.

It is early days yet, but anecdotal reporting from practitioners in South Carolina seems to indicate that lenders are still having problems meeting the requirements of the administrative order. In the meantime, homeowners may be receiving more notices that are difficult to understand. If you are in foreclosure, or if you’re just not sure how you are affected, consult an attorney. The time frame for taking action may still be limited.