foreclosure category archives

America’s service members sacrifice a great deal to keep America safe. That’s one of the reasons they enjoy some special protections against foreclosure and mortgage default through the Servicemembers Civil Relief Act.

Someone apparently forgot to tell officials at JP Morgan Chase, the nation’s second-largest mortgage bank.

The finance giant overcharged thousands of military members on their mortgages and improperly foreclosed on dozens of active duty service members. The staggering details, recently unearthed by NBC News, highlight rampant violations of the SCRA that put thousands of soldiers on the brink of financial ruin.

Under the SCRA, service members struggling to keep up with mortgage payments can have their interest rate reduced and be insulated against foreclosure. Chase officials apparently flouted the law, charging as many as 4,000 service members well above the 6 percent cap spelled out in the SCRA.

They also initiated foreclosure proceedings against more than a dozen homeowners.

For their part, Chase officials have characterized the mistakes as “grim” but not malicious, according to NBC.

The company said it would issue about $2 million in reimbursements and ensure that foreclosed upon property owners return to their homes.

“We are deeply appreciative of those who fight to protect our country and Chase funds a number of programs that provide benefits to military personnel and veterans, and while any customer mistake is regrettable, we feel particularly badly about the mistakes we made here,” Kristin Lemkau, chief communications officer at JP Morgan Chase, said in a statement to NBC News.

The Chase debacle underscores the need for greater consumer protections for military homeowners. And that’s why the recently announced Office of Servicemember Affairs is so important.

Part of the fledgling Consumer Financial Protection Bureau, the OSA will closely monitor unscrupulous lending practices against service members and provide education for military families nationwide.

Holly Petraeus, wife of Gen. David Petraeus, current commander of U.S. forces in Afghanistan, is heading up the new agency.

Multiple studies and surveys have shown that military members are more likely to be financially overleveraged than their civilian counterparts. Deployments, changes of station and other elements unique to military life can take a toll on families and their fiscal health.

“Those who serve in the military should be able to focus on their jobs and their families without having to worry about getting trapped by abusive financial practices,” Elizabeth Warren, special advisor to the Treasury secretary for the CFPB, wrote on The White House blog. “America’s national security depends on that basic premise.”

Image: Allan Ferguson

Service members with a Freddie Mac-backed mortgage and who are released from active duty through 2011 have some breathing room in terms of foreclosure.

The government-sponsored mortgage loan purchaser announced Friday that its servicers will stop foreclosures for at least nine months for eligible service members. The goal is to help service members who are struggling to make payments get back on their feet.

“Our military make sacrifices every day to protect our homes and families,” Anthony Renzi, executive vice president of Single Family Portfolio Management at Freddie Mac, said in a news release. “This small act will protect financially troubled service members when they return from active duty by giving them more time to work with their lender to stay in their home.”

The temporary foreclosure stay only applies to military members whose mortgages are owned by Freddie Mac. The company doesn’t issue loans to individual borrowers. Instead, it purchases mortgages on the secondary market.

Service members who are in need of a financial lifeline should contact their mortgage servicer immediately.

The announcement comes on the heels of a mortgage relief measure from Fannie Mae earlier this fall.

Fannie Mae said in September that it would cut back or simply suspend mortgage payments for up to six months for military families hit by financial hardship after the injury or death of a service member.

Service members with VA loans can also contact their nearest regional VA loan center to discuss mortgage relief options.

To learn more, service members can visit Freddie Mac’s page on special options for service members.

Since FHA decreased the UFMIP (up front mortgage insurance) premium and increased the Monthly MI (mortgage insurance) premium, I have seen an uptick in the number of Homepath renovation loans I am originating and I thought I would share why.

Whenever you make a comparison between loan programs you have to start with some Assumptions or a scenario:

Purchase Price:                    $200,000

Cost of Renovation:            $30,000 (if the cost of Renovation exceeds $30,000 no need to compare Homepath is not an Option)

Fico Score:                              660 (if your Fico score is less than 660 no need to compare Homepath is not an Option)

Property Type:                     Single Family or Condo (If the condo is non-warrant-able and cannot be FHA Approved no need to Compare FHA is not an Option)

Max Financing:                     FHA 96.5% LTV and Homepath 97%

What is the Difference in the rates? 

Homepath:With the above scenario I would have to charge 5.25% with 2.125% in points.  The homepath program has a number of loan level price adjustments that total 5.375% in points which include: 1.25% for loan to value and FICO score, 3.625% for No MI, .50% for 97% Loan to Value.  Those adjustments can be paid in cash as additional closing costs or paid by the lender by charging a higher rate.  The highest rate on my rate sheet today is 5.25% and that will allow me to pay 3.25% of the 5.375% in LLPAs leaving 2.125% that will need to be charged as points.

FHA 203(K) Streamline: With the above scenario I would be charging a rate of 4.75% with 0 points.  FHA does require UFMIP of 1% that is typically added to your loan amount in addition to requiring an additional .5% down payment. 

So…The real difference is about .50% in a rate and .625% in  points!  the monthly payment is about $100 less per month with the Homepath loan than the 203K streamline.  Closing costs and paperwork between the two programs are pretty similar.

Take a look at this Total Cost Analysis that I prepared comparing the two programs.

In the mortgage industry as in many industry there are words tossed around like school house chatter which have a clarity of meaning to insiders yet are somewhat foreign to the clients being served. Most home buyers and owners who are refinancing assume if they are getting a loan from LMNOP Mortgage that is their mortgage company for the entire time they have that loan.

Not so fast.

During the application period you will be asked to sign the “Servicing Disclosure Statement” which in essence is telling you whether or not your loan will be serviced by the lender or broker originating your loan. (Image)

What is “servicing”?

The lender who originates your loan may or may not accept and manage your payments.  Smaller lenders may not have the staffing power to do so and larger lenders may like the reduced risk of having a third party company handle mortgage payments, collections and even foreclosure proceedings as required.

The servicer and the lender will enter an agreement about the payments. Generally the servicer will pay your mortgage payment on the 1st of the month to the lender. They actually will pay multiple mortgage payments at once using electronic transfer of funds.  The servicer makes a small gamble that you will either pay early or pay late enough that the servicer’s late fee comes into play. The servicer will pay the lender a reduced cost for the mortgage payment and keep all of the late fee.

When the mortgage and real estate industry began to collapse the servicers were not ready to handle the huge volume of foreclosures, short sales and inexperienced negotiators which cause a huge backlog and resulted in several short sale opportunities being lost, homes being foreclosed on much later than they normally would have and loan modifications being delayed by weeks or months.

The originating lender is not required to tell you to whom they will be selling/transferring the servicing of your loan. They are required only to indicate the likelihood of your loan and/or servicing being transferred or retained.

The entire capitalist system is built on one thing: capital.  Capital can be anything at all – literally – but all capital depends on one thing: ownership.  If there is no ownership of the thing, it is not capital.

Esoteric?  Yes. Vital? Oh, my.

The ownership of property in the US is dependent on a system developed (most proximately) by British clerks.  Those same clerks are responsible for the entire western economic system.  As long as the clerks do their job, ownership can transfer from one party to another and things can be bought and sold.  If they don’t… You get something like Haiti.  I am not exaggerating.

Think about it.  I bought breakfast this morning at the hotel I’m staying at.  The hotel exists because someone has a title to the land it sits on, and the building that sits there.  Eliminate that, and no hotel.  The bacon was produced by someone that owns some land and some hogs.  “Owns”, because he has title to those things.  He can buy them and sell them.  Take that away, and no bacon, at least not for me.  Everything I do, right down to the wi-fi that lets me write this while I’m not listening too closely to a conference session, is owned by someone and that ownership allows that person to sell that ownership to me.

The foreclosure moratorium – you could call it a “meltdown”, except that that word has already been applied to the industry too often to have any impact – goes directly back to this question: who owns the property?

And the answer is: um.  We’ll get back to you on that.

The bank that originally loaned you the money took title to the property as a condition of the loan.  No title, no loan.  They then sold that interest in that title to someone else.  And then, well, then the picture gets murky.  Mortgage notes – property ownership – were bundled and bought and sold by the millions.  The bundles themselves were apparently never really finalized.  As incredible as this might seem, investors bought bundles of mortgages entirely based on the rating of the bundle, without having the actual mortgages IN the bundle specifically identified.

And then the loans began going bad.  Now, someone has to go and foreclose, meaning “get back the interest in the property so that it can be re-sold.”  But who is that someone?  And the answer is: um.  We’ll get back to you on that.  In an alarming number of cases, it turns out, we’re not sure.

It will likely get sorted out.  Eventually.  But in the meantime:

• Courts are refusing to authorize foreclosure because the foreclosing entity has been so often perjuring itself in representing its ownership in the property.
• Lenders are delaying foreclosure – and thus exacerbating the collapse of the market – because they know the courts will no longer take their word for it.
• Title companies are refusing to insure title (guarantee ownership) on purchases of foreclosed properties because the chain of title cannot be definitely established.
• Now the states are looking at the Mortgage Electronic Registration System (MERS), which was supposed to maintain that chain of title (and which apparently did not), and starting to ask questions about how much state transfer tax is due (never paid) on every change of title, once that get established.  How many billions of dollars will that be?

You’re not in a foreclosure position?  Great.  It still matters to you.  There will be repercussions from this debacle that will affect every single person whether he or she owns a home or not.  Ownership is the thing our economic system is built on.  Take that away, and we will all suffer.

We’ll keep an eye on this, and let you know what we see.  For now, all we can tell you is, it’s an epic mess.  Nobody knows how deep and wide that mess really is.

Flickr Photo Credit:Irene2005

Loan modifications have been fading in and out of favor since the idea was floated that the federal government could pick up a portion of the tab for lenders being willing to grant them. modification is a change to the terms of the mortgage to reduce the principal, forgive some interest, or drop the interest rate. Basically, anything that changes the terms of the original note. Banks have been slow to grant them, for reasons that have been detailed here and here on this blog (there are some really good posts on this topic). Now there’s more bad news. For those attempting to get a modification, and even for those lucky few that have been successful.

First, the majority of those attempting to get a modification are seeing related negative items appear on their credit. Our office has an endless parade of people that have been making exactly the payment dictated by the lender in the trial period, complete with back-up documentation for multiple months. They have never missed a payment or been even 10 days late. And yet, their credit shows a long string of 30-, 60-, and 90- day late payments on their mortgage. In other words, the lender negotiated a trial payment, then began marking the borrower late when those payments were made. Can this be sorted out? Probably. Is it a massive headache, and a potential catastrophe? You bet it is. The borrower is often legally in foreclosure. At the point where the lender believes that foreclosing will be financially beneficial they can do so that very weekend.

Now the lender actually has an additional incentive to drag its collective feet in taking care of the modification. Now 23 states have a de facto foreclosure moratorium, lenders may start taking even longer to grant the official contractual modification, because they will now need a large increase in staff in the foreclosure and loss-mitigation departments to meet the increased burden of proof in handling judicial foreclosures. That staff is going to come from the modification department, not the underwriting department or the unemployment line. Reduced staffing = more delays. Get used to it.

But if you get through the process and actually get the modification, you’re out of the woods, right? Wrong.

Suppose you get the modification taken care of. Your job changes and you get a better offer somewhere else. You’re next step is to get pre-approved for a new loan for a home at your new location. You’re denied. Why? Because your current lender has reported on your credit that you have obtained a modification. Once a new lender sees it, your loan is dead. Most lenders have issued credit overlays for mortgage modifications that treat them as pre-foreclosures, and require 48 months from the date of the modification before a new loan is eligible.

Right. A notice of default and a modification have the same credit impact from a refinance or a purchase standpoint. Should you get a modification, you better stay in that house, with that loan, for four years. (Or have a wheelbarrowful of cash).

Personally, I think contractual modifications are a great idea. Commercial loans have been almost infinitely modifiable for centuries. Circumstances change, and if the parties to the contract want to alter the original terms of the agreement, why shouldn’t they be able to? But the way things have turned out with the wave of modification attempts in the residential markets, it might have been better for everyone if the concept never existed at all.

I am thrilled to say that as of today Salem Five has been approved to originate Homepath Renovation loans and thought it would be a good topic to write about.

Q: What is a Homepath Renovation loan?

A: Fannie Mae has a number of properties that they currently own and are marketing for sale.  You can find these properties at www.homepath.com. that site will list all the properties that Fannie Mae is currently marketing.  In order to be eligible for Homepath Renovation financing the listing must be designated as Homepath Renovation eligible.

Q: What is special about Homepath Renovation financing?

A: These are just a few of the benefits

1. The program allows you to incorporate the cost of repairs into your 1st mortgage.
2. It allows loan to values as high as 97% and will allow the remaining 3% to be a gift ot grant from a non profit or Govt agency.
3. No MI is required…now that sounds better than it really is because although there is no MI the rate you will pay will cost more based on the loan to value.

Q: How do I qualify?

A: The best thing to do is to contact an approved Homepath Renovation lender in your local area.  A list of lenders can be found on Fannie Mae’s Website. Some of the more important qualifications are as follows:

1. Unlike the non-renovation homepath loans investors are not allowed.  This program is for 1-4 unit properties that will be owner occupied.
2. Minimum Fico score is 660
3. The Max Rehab is $30,000 realistically that number is $27,000 because the rehab funds must include a 10% contingency for unexpected repairs.

This program is probably not right for everyone but it is certainly worth exploring.  It may be in your best interest to work with a lender/loan officer that offers both the Homepath Renovation loan as well as the FHA 203K Renovation loan.  Just in case you start to look at the scope of work and realize that all the repairs you would like to make ends up exceeding the $30,000 limit on the Homepath Renovation project.  A Common mistake folks that choose renovation loans make is they cut too many corners to keep a budget and end up saying after the fact I wish had done this or I wish I had done that…Make sure to explore all your options.

The maximum loan to values allowed on homepath loans follow the Selling guide with the following exceptions:

1. 90/90/90 for 1-unit investment properties
2. 80/80/80 for 2-unit investment properties
3.  75/75/75 for 2-4 unit investment properties where the borrower owns 5-10 financed properties as described in the “Eligibility Matrix” on the www.efanniemae.com website.

UPDATE: My original post is a good indication I need to apply for a vacation. Sorry about the mis-information, here is an updated correction by Matt (thanks Matt!) and the correct information is in italics — Justin

What Fannie Mae has done is reduce the waiting period for those who agree to DEEDS IN LIEU OF FORECLOSURE from four years to two — THAT’S IT!

https://www.efanniemae.com/sf/guides/ssg/sgpdf.jsp

With the record numbers of foreclosures that have happened (and continue to happen), one of the largest untapped markets of potential home buyers are people who have experienced a foreclosure.

The reason that many people who have a foreclosure do not become home buyers is because Fannie Mae guidelines state that you must wait at least 4 years before being able to qualify for a mortgage after foreclosure and 2 years after short selling your home.

But that all changed recently with an announcement by Fannie Mae that they would allow someone who had a foreclosure to qualify for a mortgage after only 2 years as long as they have put down 20 percent as a down payment.

The change will go into effect for any loan application taken after June 30, 2010 and will be updated in the Fannie Mae desktop underwriter software.

Two years with 20% down?

Correct.

So the message I would give to anyone who is currently going through foreclosure is quite simple: save your money for the down payment on your next house.

I try to eat lunch every day. And earlier this week, I happened to bring a voice recorder with me and taped a conversation about the new Home Affordable Foreclosure Alternatives (HAFA) program with a local Arizona short sale expert, Dean Ouellette.

Justin: Hey, what do you think about the recently announced HAFA program?
Dean: HAFA?

It should be short for “Keep doing what we have been doing and hope for better results“.

It is a good thing that the Government isn’t into real estate investing or our country would have never made it. The HAMP program is just over a year old now and the government fell a little short of their 4 million homeowners getting relief from the program.

According to my sources 5% of that number actually received a permanent loan modification under the program. And if my math is correct, that means that the taxpayers paid over $400,000 for each successful loan mod.

Justin: Wait a minute. $400k for each successful loan mod?
Dean: Yep. And now the same people who promised you the silver bullet with HAMP are promising you the same desired results with HAFA.

Justin: I think I may have seen this kind of thing happen before.
Dean: Exactly. But if you listen to what the people at some of the big real estate companies and associations talk about it, the world is about to be saved.

My prediction?

More of the same and we are just hoping for better results.

Justin: Are you sure? I mean, the home buyer is going to get $1500 for moving expenses if they sell their house under this program, they will not be liable to any deficiencies and the lender will also get $1,000 for approving the short sale in 10 days.

What is so bad about that?

Dean: The devil is in the details. And as always the details never seem to be a rosy as the talking points. Here are just a few highlights of the program — I won’t bore you with a page by page breakdown of the failure.

First the lender has to make a decision in ten days.

A process that now takes them 30-60-90 days to do, they are going to streamline into ten days?

And for this quick decision they will be rewarded, the Government, and by Government I mean you and I, are going to give them $1,000. Woo-hoo you can see them champing at the bit for the extra $1,000?

How many new people are they going to have to hire to manage this process? Probably a lot more than $1,000 will pay for.

Don’t forget, these same banks were offered money for successful HAMP loan mods, and we see how well that worked.

How else will the lender be rewarded? They have to give up the right to go after any deficiencies in the future. So the lender who may now go after the $200,000 loss from the home seller (depending on state rules) now has to waive that right, for $1,000.

Does that make sense to you?

Even if the bank did not go after the deficiencies, they could sell off most of them to collectors for more than $1,000.

Now that is on the first lien, what about if there is a second? This is where it gets fun. If there is a second on the house they cannot receive more than $3,000 HAFA will not apply to the file and the lender does not get his $1,000 nor will the seller get their $1,500. I am not sure about most of the country, but in Arizona many of these short sales have second on them, and in many of those cases the second, which could be for as much as $100,000 are not going to accept $3,000 and that kills the whole deal.

But that is ok because all that matters is the government put out these new guidelines and that is going to save everything. Oh-yea I did mention that right?

These are guidelines, in no way are they mandatory.

And yes the bank needs to give an answer in ten days, that does not mean the answer is going to be a yes.

Expect banks to sign up for the program, the same way they signed up for HAMP.

It is a good faith gesture that will give them some positive press.

But there are very few cases where HAFA will be a success.

My prediction is the success rate will be somewhere close to the HAMP rate, which is about 5%. This is not a number that should get anyone excited. Where do I predict that it will be successful?

Justin: I realize this may be a strange question, but if what you are saying is true, shouldn’t someone be talking about it rather than just us two?

Dean: Don’t ask me.  Hey, can you pass the Ketchup?

Related Thoughts:
Did agents read the new short sale rules?
Where are all of the HAFA defenders?

Photo Credit: R.W.W.

For about 4,000 Citigroup borrowers facing foreclosure, they won’t have to worry about being evicted over the holidays. Citigroup says it will suspend foreclosures (and evictions) for 30 days in a temporary break over the holiday season. This reprieve will go from tomorrow until Jan. 17.

Citi estimates approximately 2,000 homeowners with scheduled foreclosures and another 2,000 that were due to receive foreclosure notices will get a break. Lenders suspended foreclosures last winter, too, to give the loan modification plan (HAMP) a chance to get situated, but so far, the HAMP, HARP and TARP programs are not working as well or as quickly as planned.

According to USA TODAY, “Citi has enrolled about 100,000 borrowers in the Obama program, but had made only about 270 of those modifications permanent as of the end of last month, according to a Treasury Department report. But Das said the low number resulted from a “reporting error” and said it will rise dramatically by year-end.”