Homeowners at Risk of Losing Their Homes — and it’s Not Their Fault!

I’ve written before about the mortgage meltdown. I find the topic fascinating and tragic, so I’ve been following it pretty closely even though it hasn’t affected me personally (yet!?). When I recently read about almost 5,000 homeowners who might lose their homes through no fault of their own, I felt compelled to write a post about it.

Here’s what happened: A mortgage lender named American Home Mortgage Investment Corp. declared bankruptcy on August 6, and stopped making payments to tax authorities and insurance companies on August 24. You know how on your monthly mortgage statement it says “taxes and insurance” and you pay those amounts through the lender? Well American Home stopped doing it. Fortunately, the government (the Department of Housing and Urban Development) has two agencies who step in when things like this happen – Freddie Mac and Ginnie Mae.

Quoting from the Wall Street Journal from September 12:

“Just days before American Home’s bankruptcy filing, Freddie Mac and Ginnie Mae terminated the company’s loan-servicing rights. They also sent representatives to collect loan files from American Home’s servicing facility in Irving, Texas. In court documents, American Home said Ginnie Mae representatives “stood in a line in front of the doors and sat on the stairs, preventing AHM Servicing employees from entering the office.” Freddie Mac said American Home “had its security personnel escort the Freddie Mac representatives out.”

In addition to Freddie Mac and Ginnie Mae, several Wall Street banks are fighting to extract their loans from American Home’s servicing operation. The list includes Morgan Stanley, Deutsche Bank AG, Credit Suisse Group, and EMC Mortgage.

In an interview last week, Ginnie Mae’s senior vice president, Theodore B. Foster, said Ginnie Mae had seized from American Home some of the insurance and tax payments collected from homeowners. “What’s occurred is that we have the money, but AHM hasn’t been able to or willing to pay the taxes and insurance, and they have the loan records,” Mr. Foster said. “Therefore, we don’t know who to pay, and we don’t know how much.”

The Journal quotes Freddie Mac as declaring in the bankruptcy documents that “thousands of homeowners face an ‘imminent risk’ of losing their home.” I’m sure that lawmakers are scrambling to help these homeowners who are stuck in the middle of a mess that they didn’t create. Because of the failure of their mortgage lender’s company, they now face a personal financial crisis.

Real estate agent and RealEstateUndressed blogger Larry Cragun did a nice job covering this same story via the Seattle P-I’s real estate blog and offered up a link to the Mortgage Implode-O-Meter site, which lists imploded lenders.