In late October 2009, the homeowners met individually with representatives of Bank of America at an event sponsored by the United States Department of Treasury.  At the event homeowners sat down with representatives of Bank of America, discussed their circumstances, and homeowners provided documentation.

At these meeting after discussing the individuals circumstance and reviewing the financial documentation, Bank of America informed the homeowners they qualified for a loan modification and described the specific term of the modification.  Bank of America also promised to send the confirming documents by mail within a few weeks.

However, none of the homeowners received the promised documents and Bank of America is ignoring the homeowners repeated attempts to inquire about the status of their modifications.  Some homeowners have been advised they will penalized of they continue to inquire.

On particular family is now battling a foreclosure.  All of the homeowners are asking the Court to order Bank of America to honor its promises to modify the mortgages and to award damages.

NATION’S HOUSING

Professor advises underwater homeowners to walk away from mortgages

Brent T. White, a University of Arizona law school professor, says that it’s in the homeowners’ best financial interest to stiff their lenders and that it’s not immoral to do so.

By Kenneth R. Harney

November 29, 2009

Reporting from Washington

Go ahead, break the chains, stop paying on your mortgage if you owe more than the house is worth. And most important: Don’t feel guilty about it. Don’t think you’re doing something morally wrong.
That’s the incendiary core message of a new academic paper by Brent T. White, a University of Arizona law school professor, titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.”

White contends that far more of the estimated 15 million U.S. homeowners who are underwater on their mortgages should stiff their lenders and take a hike.

Doing so, he suggests, could save some of them hundreds of thousands of dollars that they “have no reasonable prospect of recouping” in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume, he says.

“Homeowners should be walking away in droves,” White said. “But they aren’t. And it’s not because the financial costs of foreclosure outweigh the benefits.”

Sure, credit scores get whacked when you walk away, he acknowledges. But as long as you stay current with other creditors, “one can have a good credit rating again — meaning above 660 — within two years after a foreclosure.”

Better yet, homeowners can default “strategically”: Buy all the major items they’ll need for the next couple of years — a new car, even a new house — just before they pull the plug on their current mortgage lender.

“Most individuals should be able to plan in advance for a few years of limited credit,” White said, with minimal disruptions to their lifestyles.

What kind of law school professorial advice is this? Aren’t mortgages legal contracts? In so-called anti-deficiency states such as California and Arizona, mortgage lenders have limited or no legal rights to pursue defaulting homeowners’ assets beyond the house itself, White said. In other states, lenders may decide that it is not worth the legal expense to pursue walkaways, or consumers may be able to find flaws in the mortgage documents, disclosures or underwriting to challenge the original contract.

The main point, he said, is that too often people’s emotions get in the way of clear financial thinking about mortgages, turning them into what he calls “woodheads” — “individuals who choose not to act in their own self-interest.” Most owners are too worried about feelings of shame and embarrassment after a foreclosure, and ignore the powerful financial reasons for doing so.

Buttressing these emotions is a system that White labels “the social control of the housing crisis” — pressures and messages continually sent to consumers by the “social control agents,” namely banks, government and the media. The mantra that these agents — all the way up to President Obama — pound into owners’ heads, White said, is that “voluntarily defaulting on a mortgage is immoral.”

Yet there is an inherent imbalance in the borrower-lender relationship that makes this morality message unfair to consumers, White says: Banks set the rules during the housing boom, handing out home loans with no down payments, no income checks and inflated appraisals. Now that property values have dropped 20% to 50% in many areas, banks have been slow to modify troubled mortgages and reluctant to reduce principal debts.

Only when homeowners cut through the emotional fog and default strategically in large numbers, White argues, will this inequitable situation be seriously addressed.

How does White’s 52-page manifesto go over with mortgage lenders? Predictably, not well. Officials at Fannie Mae and Freddie Mac — investors who fund the bulk of all new mortgages in the country — disputed White’s characterization of how quickly after foreclosure a walkaway borrower can obtain a new loan. It’s not three years, they said, it’s a minimum of five years, absent extenuating circumstances such as medical or employment problems that caused the foreclosure.

“Borrowers who walk away from their mortgage obligations face serious consequences,” including severely depressed credit scores for extended periods, said Brian Faith of Fannie Mae.

In addition, he said, “there’s a moral dimension to this as homeowners who simply abandon their homes contribute to the destabilization of their neighborhood and community.”

The housing market faces the prospect of a new round of foreclosures as hundreds of thousands of risky home loans known as option adjustable-rate mortgages reset to significantly higher payments that could force borrowers to fall behind, according to a report released Tuesday by Fitch Ratings.

About 70 percent of the $189 billion in outstanding option ARMs will reset by 2011, the report said, which would be another setback to a teetering housing market still struggling to recover from the mortgage meltdown that precipitated the financial crisis.

Option ARMs make up only 1.3 percent of percent of outstanding mortgages and were used by a far smaller segment of the population than subprime mortgages, according to First American CoreLogic, so the fallout from the resets should not be as devastating. But the unraveling of the option ARMs could be felt for years.

“It does tell you there’s going to be continued front-page news about high levels of foreclosures as these loans continue to struggle,” said Paul Miller, an analyst at FBR Capital Markets.

Option ARMs, also called pick-a-pay loans, allow borrowers to choose how much to pay each month. Nearly all the borrowers who took out this type of loan from 2004 to 2007 chose to pay less than the interest due. Sometimes they paid as little as 1 percent interest. But the loans eventually require the borrowers to start paying the principal and full interest rate, so the payments shoot up.

“It’s a ticking time bomb for some people,” said Brian Bethune, an economist at IHS Global Insight, who said banks have already written off about $500 billion of these loans and other risky mortgages. Consequently, foreclosures have substantially reduced the number of outstanding option arms.

In its report, Fitch estimates that $134 billion in option ARMs will reset in the next two years. It expects monthly payments to jump 63 percent on average, or $1,053 a month, for loans adjusting this year and next, prompting a rise in defaults and foreclosures.

One surprise is that many option ARMs have gone bad even before adjusting, suggesting that some of these borrowers didn’t stand a chance, said Sam Khater, a senior economist at First American CoreLogic. As of April, more than 35 percent of option ARMs were at least two months late even though they had not reset.

“These people were having trouble making the minimum payment, let alone dealing with the payment shock once the loan adjusted,” Khater said.

At the root of the problem is that many who took out option ARMs were betting that home prices would rise. The loans helped people buy homes at a time when prices surged to unprecedented highs. As long as home prices kept climbing, these borrowers could refinance before their loans adjusted. But once prices tumbled, that option vanished. Now many people cannot refinance because they owe more than their homes were worth.

The most severe problems have surfaced in states with the steepest price drops. About 75 percent of option ARMs financed homes in California, Florida, Nevada and Arizona, where prices have plunged on average 48 percent from the second quarter of 2006 to the first quarter of this year, according to Fitch.

But for people struggling to make the lower payment before the loan adjusts, refinancing probably won’t help, said Guy Cecala, publisher of Inside Mortgage Finance. “Just about anything they refinance into is going to give them higher payments than they have now.”

The Fitch Report covers only those mortgages that were securitized, meaning packaged into securities and resold. Fitch does not analyze that mortgage financiers Fannie Mae and Freddie Mac, or lenders, hold in their portfolios.

Recognizing the troubles ahead, some of the nation’s largest lenders have tried to limit losses by modifying or working with borrowers refinance the option ARMs remaining in the portfolios, Cecala said.

Among the most aggressive have been Bank of America, J.P. Morgan Chase and Wells Fargo. Each of these has recently acquired another major lender specializing in option ARMs: Countrywide, Washington Mutual and Wachovia, respectively.

As for the loans that were securitized, only 3.5 percent of the 1 million loans made in 2004 through 2007 and covered in the Fitch report have been modified.

By Kenneth Harney

Washington Post
Posted: 09/06/2009 12:00:00 AM PDT

WASHINGTON — How’s this for a business plan to make money during the housing bust? You buy or rent lists of recent default filings from across the country — thousands of people who have been notified by lenders that if they don’t get their mortgage payments back on track, the next step will be foreclosure.

You send each home- owner on the list a personalized letter with this urgent message: We know you’re having a tough time right now, but WE CAN SAVE YOUR HOME! It’s not too late! We know how to get through to your lender and work things out to save your house. Call this toll-free number immediately!

The letters go to rich people, poor people, owners of big and small houses, and they generate hundreds of callbacks. Many panicked owners agree to pay a fee of $1,200 to $1,300 for the foreclosure prevention services in advance.

You can guess what happens next: little or nothing in the way of help in most cases. The homeowners lose their houses to foreclosure, and the rescue company keeps sending out letters and pocketing fees.

Late last month, the Federal Trade Commission settled with a Florida-based company, United Home Savers, which allegedly operated like this, and victimized more than 3,100 homeowners nationwide. The company and its officers denied any legal wrongdoing as part of the settlement, but have shut down the firm and agreed to a $4.1 million judgment and close monitoring by federal officials of their futu

The 3,100 victims, in other words, probably won’t see a dime in restitution.

But United is just one of hundreds of alleged foreclosure rescue operations that have prospered in the toxic wasteland of the mortgage market bust.

Reilly Dolan, the FTC’s assistant director for financial practices and the coordinator of “Operation Loan Lies,” says the FTC has brought or settled 19 cases against firms of this type in the past 12 months. The joint federal-state effort that has targeted 189 companies allegedly running mortgage modification or foreclosure prevention scams,

What telltale signs should tip off financially distressed homeowners?

No. 1: If the company claims to be able to guarantee success in preventing foreclosure, no matter what your financial situation or mortgage details, don’t listen further to the marketing pitch. Nobody can guarantee you’ll get a loan modification, and nobody can guarantee that your lender won’t pull the plug and foreclose.

No. 2: Before homeowners send any money, they should thoroughly check out any company asking for $1,000 to $4,000 in advance.

“We can’t say all advance fees are illegal,” said Harold Kirtz, the FTC lawyer who led the government’s case against United Home Savers. But when the fees are for things like “processing” and “administration” costs, “in most case they’re probably bogus.”

No. 3: Finally, mortgage modification companies that claim to have special inside connections allowing them to make your payments directly to your lender — provided you send your monthly checks to the modification company, not to your regular servicer — are almost certainly intent on just one thing: cashing as many of your checks as possible, pocketing the money, and leaving you unprotected on the conveyor belt heading for foreclosure.

As Nevada fine tunes its foreclosure mediation program, another question has popped up.  Who should represent consumers at the mediation table.  Should you hire a lawyer?  Or is a licensed mortgage modifier adequate?  I say check your local rules before making that decision.

Nevada today enacted permanent regulations that require licenses for home mortgage modification and foreclosure consultants are expected to become effective today, but one important question remains unanswered.

Can these licensed consultants represent clients in mediation sessions with mortgage lenders?

Bill Gang, spokesman for the Nevada Supreme Court, said non-attorneys cannot provide legal advice.

However, Gang said: “You can perform certain functions and serve a client.”

Gang referred further questions to the State Bar of Nevada, which referred the call to a coordinator for the mediation program who could not be reached for comment.

The mediation program was established through a new state law. The law allows homeowners who have received a foreclosure notice to have mediation with the lender.

The first mediations are scheduled to begin in September. Gang estimates that 1,000 mediations will be conducted every month after the program starts.

At a hearing Tuesday in the Sawyer Building, Mortgage Lending Commissioner Joseph Waltuch said he could not advise licensees on whether they can represent clients in mortgage mediation meetings. Waltuch does not have authority over the mediation program.

Waltuch adopted the final regulations under a separate new law requiring the licenses for mortgage consultants. The rules probably will become effective today after review by other state officials, he said.

Meanwhile, the mortgage lending division has licensed about 25 firms as residential mortgage loan modification and foreclosure consultants under temporary rules. Another 75 individuals associated with the firms also have become licensed.

Mandy Peacock, managing partner AAA Home Rescuers, said many mortgage and foreclosure consultants favor the law and regulations.

“Our industry absolutely needed tight regulation to make sure everybody played by the rules,” Peacock said.

Ben Rodriguez of 1st Loan Modification of America mentioned problems with mortgage modification scams before licensing.

“I’m very happy for me and for the customers as well” that the profession is licensed, Rodriguez said.

Added Waltuch, “The scams have been very rampant.”

Unlicensed consultants often charged up-front fees and then provided no assistance to desperate homeowners facing foreclosure.

Although attorneys are exempt from licensing requirements, Peacock said some attorneys are annoyed that their assistants must obtain licenses to consult on mortgage modifications and foreclosures.

Consultants who help clients seek home mortgage loan modifications from lenders need not be licensed if they do it for free, he said. Nor are nonprofit organizations required to obtain licenses.

For-profit consultants must take classes, post bonds and follow rules adopted by the mortgage division.

Licensed consultants are required to keep customer funds in separate trust accounts and to have their books audited yearly.

The regulations limit what the consultants can state in advertisements.

“The very first thing you can’t do is guarantee anything,” Waltuch warned consultants. “You cannot falsely advertise.”

Modification and foreclosure consultants may not use the name of a lender or financial institution in ads without the approval of the lender, he said.

The delinquency rate for mortgages in Wisconsin jumped in the second quarter, but the state still is faring better than the nation as a whole at keeping current on house payments.

Nationally, the delinquency rate was 8.86%, an increase from 6.22% during the same time last year. The seasonally adjusted national rate was 9.24%, breaking a record set in the first quarter of this year. The MBA’s delinquency rates for individual states aren’t seasonally adjusted.

Among the 50 states and District of Columbia, Wisconsin ranked 36th in delinquencies and 20th in foreclosures started in the MBA survey.

Nationally, loans on which foreclosure actions were started during the second quarter amounted to 1.36%, down slightly from last quarter but up from 1.08% a year earlier.

The percentages of loans at least 90 days past due and loans in foreclosure in the U.S. both hit new highs.

“While the rate of new foreclosures started was essentially unchanged from last quarter’s record high, there was a major drop in foreclosures on subprime ARM loans,” said Jay Brinkmann, the MBA’s chief economist. “The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase. As a sign that mortgage performance is once again being driven by unemployment, prime fixed-rate loans now account for one in three foreclosure starts. A year ago they accounted for one in five.”

In Wisconsin, 4.35% of prime mortgages – the kind offered to the most credit-worthy borrowers – were at least one month overdue, compared with 6.01% for the U.S.

About 25 of every 100 subprime mortgages – higher-interest mortgages sold to people with shakier credit histories – in the state were in arrears in the second quarter. Wisconsin’s 25.14% delinquency rate on subprime mortgages compares with the national rate of 24.46%.

MORTGAGE DELINQUENCY RATES RISE

The Mortgage Bankers Association attributed record delinquencies in the second quarter to job losses.

Percentage of loans with installments past due

Wisconsin: 6.86% in 2009 vs. 4.73% in 2008

United States: 8.86% in 2009 vs. 6.22% in 2008

Percentage of loans in foreclosure

Wisconsin: 3.57% in 2009 vs. 2.51% in 2008

United States: 4.30% in 2009 vs. 2.75% in 2008

Prime loans past due

Wisconsin: 4.35% in 2009 vs. 2.82% in 2008

United States: 6.01% in 2009 vs. 3.73% in 2008

Subprime loans past due

Wisconsin: 25.14% in 2009 vs. 18.24% in 2008

United States: 24.46% in 2009 vs. 18.21% in 2008

* The delinquency rate includes loans that are at least one payment past due but does not include loans in any stage of the foreclosure process.

Source: Mortgage Bankers Association

FORECLOSURES HIT RECORD

What happened? A quarterly report released Thursday by the Mortgage Bankers Association found that more than 13% of American homeowners with a mortgage have fallen behind on their payments or are in foreclosure.

What does it mean? It’s another record, and an indication that the foreclosure crisis is still getting worse as layoffs continue to soar.

What’s next for the economy? Foreclosures won’t stop rising until around six months after layoffs peak. And economists don’t expect unemployment, now at 9.4%, to crest until this winter at the earliest.

The Obama administration has held a series of meetings in Washington with mortgage providers to encourage them to accelerate the pace of their loan re-structuring programs which is a key part of the government’s plan to boost the property markets.

It believes that if more property owners can be helped then the pace of re-possession will slow and property prices will stabilize. It is estimated that three to four million property owners could be helped.

But so far it is not happy with the reaction from loan providers. ‘If lenders and loan servicers don’t pick up the pace of modifications dramatically, Congress is poised to force them to do so,’ said a government spokesman.

Officials are angry that the biggest 25 loan providers, including Bank of America, Wells Fargo and Citigroup, are not keeping to their promises to increase the pace of their loan restructurings under the administration’s Home Affordable Modification Program.

The original goal of having at least 500,000 trial modifications underway by the beginning of November is way behind schedule. So far only about 200,000 modifications have actually been put into place.

Some parts of the industry confirmed that things will speed up. A joint statement from the Mortgage Bankers Association, the Financial Services Roundtable and the Housing Policy Council said their members are ‘committed to helping at-risk borrowers with workout solutions to help avoid foreclosures.’

But not everyone is convinced. Some politicians want the government to force them into keeping their promises. Illinois Democratic Senator Dick Durbin said a voluntary system is not working and he wants bankruptcy court judges to be given the power to impose involuntary modifications on lenders, including slashing principal balances of delinquent borrowers.

This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.

Home price declines will have their biggest impact on prime “conforming” loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.

“We project the next phase of the housing decline will have a far greater impact on prime borrowers,” Deutsche analysts Karen Weaver and Ying Shen said in the report.

Of prime conforming loans, 41 percent will be “underwater” by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties’ value, up from 29 percent, it said.

“The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding,” the analysts said. Prime jumbo loans make up 13 percent of the total market.

Deutsche’s dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.

Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.

The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.

Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were “affordability products” originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,

Of option adjustable-rate mortgages — which cut payments by allowing principal balances to rise — 89 percent will be underwater in 2011, up from 77 percent, the report said.

Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.

“For many, the home has morphed from piggy bank to albatross,” the analysts said.