Friday, October 19, 2012

Why Loan Modification is detrimental to you

Loan modification problems with the wrong company can cost consumers money

Posted July 15, 2012, at 11:26 a.m.

A weary consumer from midcoast Maine wrote to us recently in hopes that others could benefit from her experience. She had sought some relief from her mortgage payment in the form of what is becoming a nasty twist on advance fee schemes.
Many homeowners have had their loans renegotiated with satisfactory results. Others, like our consumer, had been swayed by a company against which the Federal Trade Commission recently filed a complaint.

The company, calling itself Advocates For Consumer Affairs, had promised a number of clients that it could lower their interest rates and cut monthly payments on the order of 50-80 percent. It could do this, it claimed, using a tool called a forensic mortgage loan audit.

The FTC cites claims on the company’s website (now defunct) which claimed “up to 95 percent of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending.” The forensic audit could find these defects and use them as leverage to broker a better deal with the holder of the mortgage.

All the client had to do was pay the company several hundred dollars (in our consumer’s case, $1,800) up front. It was only later that the hard truth became clear.
The FTC reports that it’s found no evidence that forensic loan audits help with a loan modification or any other form of foreclosure relief. That’s the case even if the audit is undertaken by a trained, licensed, legitimate auditor, mortgage professional or lawyer.

Some federal laws make it possible to sue your lender based on errors in loan documents. Even if you sue and win, though, your lender doesn’t have to adjust the terms of your loan to make it more affordable.If you cancel your loan, you’ll have to return the borrowed money; that makes losing your home a real possibility.

People who are in default or are facing foreclosure are likely targets for foreclosure rescue scams. The midcoast consumer had entered into a business relationship with Advocates just weeks before the FTC hit the firm with, first, a temporary restraining order, then a preliminary injunction.
In its complaint, the FTC charged the firm:
• Did not secure interest rates or payment reductions that it promised.
• Either didn’t contact lenders or, if it did, failed to follow up.
• Failed to return phone or email inquiries seeking updates on clients’ cases.
• Didn’t give refunds to customers requesting them.
• Put consumers at risk of losing their homes and having their credit ratings damaged.

The case is pending, and the midcoast consumer, along with many others in similar situations, is out a lot of money. We would urge people with mortgage woes to visit our blog and under the “education” tab find “foreclosure prevention kit,” a link to the Pine Tree Legal Assistance website and some excellent advice on how to really deal with mortgage problems.
You also may call 888-995-HOPE any time for free personalized advice from people in housing counseling agencies certified by HUD.

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer 04412, visit or email

Tuesday, October 16, 2012

Short Sale Documentation-What is Needed.

Short sale documentation is often required in order to determine whether there is a verifiable hardship or proof of imminent hardship. Many short sale lenders have guidelines with respect to hardship and can only approve short sales where they collect this documentation, and verify that the seller has a legitimate hardship—not just a plan for strategic default.

In conducting short sale, agents learn how critical is to gather and submit supporting documentations on a timely matter. Frequently, precious time is wasted when lender notifies that they do not have all the documents at hand thus can't issue approval.

Short Sale Documentation-What is Needed.

Monday, October 8, 2012

Why the big banks are doing more short sales


Why the big banks are doing more short sales

San Diego County’s level of housing distress took a pivotal turn this year. Short sales, once rare deals in the real estate world, now make up a bigger share of the residential market compared to foreclosed homes that have been resold.
Short sales allow homeowners who can’t afford their mortgages to sell their homes for less than what they still owe, as long as the lender says OK. One in five homes resold in the county were short sales, based on August numbers from local real estate tracker DataQuick. Compare that to single-digit percentages seen while the housing bubble began to percolate in 2007.
Short sales are expected to become even more common and easier to close as Freddie Mac, which owns or guarantees a sizable chunk of mortgages in California, will make it easier for borrowers to complete them starting next month. Borrowers will see that the process is considerably shorter and that it will leave less of a financial black mark on their credit histories.
Already boosting the number of short sales is a $25 billion mortgage deal between the nation’s biggest banks and 49 states that settled foreclosure abuse allegations and was signed earlier this year. The agreement essentially forces banks to do more short sales and provide relief to borrowers on expedited terms. Some banks are even offering cash as incentives to get more people to short sell.
“Banks are really motivated to do short sales,” said Matt Battiata, who owns Del Mar-based Battiata Real Estate. “...Banks have decided and learned over the last several years that short sales are a much better way to mitigate loss.”
The end result appears to be good for the housing market.
The increase in short sales means a more dynamic real estate market, fewer losses for banks and increased chances that short sellers could buy homes again after a shorter hiatus.

Why the latest Freddie Mac changes matter

The biggest change? Freddie Mac officials in late August said they will no longer require homeowners to default on their mortgage in order to qualify for a short sale. As of Nov. 1, homeowners with Freddie-backed loans would just have to prove financial hardship from events including death, divorce or disability.
The change is a great protection for consumers because Freddie Mac doesn’t typically postpone foreclosures for defaulted borrowers trying to qualify for a short sale, said San Diego short sale negotiator Jacalyn Blank. If the short sale falls through, then the homeowner with a Freddie-owned loan is likely to face foreclosure.
Without the upcoming change, “it’s a much more dangerous game to play,” Blank added. “...Now they won’t have to take that risk anymore.”
The change also helps borrowers preserve their credit score, which can take a dive if they are behind on their mortgage payments and hurt their chances of buying another home.
The latest Freddie Mac changes also involve giving its servicers (the companies that handle mortgage payments) more authority during the short sale process.
This is another biggie, Blank said, because “it’s a long chain of telephone” among Freddie, the servicer and negotiators without this newly granted authority.
“This should cut two to three weeks out of the (short-sale) process,” she said.
Freddie Mac buys mortgages from lenders and sells them to investors on the secondary mortgage market. The government-controlled company with fellow mortgage giant Fannie Mae owns or guarantees more than 50 percent of the mortgages in California, so what Freddie says and does in a short sale could affect a number of potential buyers and sellers in the market.

Why the mortgage settlement matters

Six months ago, five of the nation’s largest lenders struck a $25 billion deal with attorneys general of 49 states to settle allegations that they financially hurt borrowers and abused the mortgage system for years. Though pundits would later criticize California Attorney General Kamala Harris and other leaders for giving in to the banks too easily, the long-awaited settlement was major. It’s second only to the massive tobacco-industry deal reached in the 1990s.
Politics aside, the point of the historic agreement was to force those lenders — Bank of America, Wells Fargo, Citi, Chase and Ally — to provide relief to consumers in the form of loan modifications, mortgage forgiveness, refinances, and yes, short sales. So far consumer relief has totaled more than $10 billion, with 80 percent of that being short sales.
More than 74,000 borrowers nationwide have completed short sales through the settlement, based on a recent report from the agency watching over the deal. Roughly 34 percent were done in California. (County-by-county tallies were not available.)
The logic behind short sales is to get struggling homeowners out of homes they can no longer or barely afford and shift those properties to consumers who are in a better financial position.
“We tried, we really did,” said Mary Anne Camilon, who moved in with family in Ventura County after losing her teaching job in San Diego. “When we realized we weren’t moving back to the San Diego area, there was no reason to hold on to it (the house) anymore.”
The national mortgage settlement is structured in a way that banks get more incentives if they provide more consumer relief, such as short sales, during the first year instead of dragging it out through the three years they have been allotted.
Possible penalties are also pushing banks to move faster. Every time one of the lenders provides consumer relief, they get a credit toward their settlement record. If they fail to fulfill what they promised in the deal within three years, then they could pay at least 125 percent “of its unmet commitment amount,” the mortgage report stated.
“I believe we have made a good first step,” wrote the appointed mortgage settlement watchdog Joseph A. Smith in the progress study dated Aug. 29. “More hard work remains.”

Why cash bonuses will help

Major banks like Bank of America and Chase are pushing more short sales through with the help of cash.
They’re offering distressed borrowers deals that for some are hard to believe.
“I think it said, ‘You could be eligible for up to $20,000 in funds to help you get into a new home...” said Camilon, the teacher who short sold her Vista property.
She was skeptical, but after consulting with Ryan Donigan, of Utopia Mortgage & Real Estate, she went ahead with a short sale. Once escrow closed, she got her money.
The trend of banks offering cash bonuses for completed short sales emerged about a year, as the U-T San Diego reported. But it has grown more common. This year, Bank of America began to offer it to any of its borrowers who ask. Certain banks are pickier.
Bank of America is offering delinquent homeowners $2,500 and $30,000 in relocation help once a pre-approved short sale closes. Similar offers, many of which appear expedited, have been seen from Citi, Chase and others.
“I have a Carlsbad seller who got a letter from Chase saying they will pay them $35,000 to do a short sale,” said Battiata. “There’s outreach...On a foreclosure, they lose more money.”

What this means for the market

Transit planner Brian Lane and his wife bought their Lakeside home at the height of the market. As the recession set in, the couple with two kids could barely afford the mortgage so they short sold their home in March 2010.
Despite that experience, the Lanes want to own again and it could be as soon as the upcoming spring.
“I am just starting to look,” Lane said. “We had a short sale in March 2010, so will be waiting to March 2013 to close an FHA loan.”
As the banks continue to fulfill their promises to hurt borrowers through the $25 billion foreclosure settlement and the Freddie Mac changes take effect, more former homeowners like Lane could theoretically own again within a short time period. Their credit scores won’t sink as low because they aren’t forced to default and because a short sale gives off less of a sting on your credit report than a foreclosure.
“My story is going to become quite common as those who short sold are looking to re-enter the market,” added Lane, whose score took a 150-point dive after his short sale. Now? It’s rebounded to more than 700.
“I’m optimistic,” he said. “I hear home prices are going up a little ... so hopefully the people who have been waiting to put their house on the market will put it out because it’s more of a seller’s market.”
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Wednesday, October 3, 2012

Musings About Short Sales and Late Payments

Musings About Short Sales and Late Payments

by Melissa Zavala on October 3, 2012
short sales with late payments

Have you ever had a client ask you if they could participate in a short sale without missing a mortgage payment?  If so, how did you respond?

Prospective short sale sellers that are still making their mortgage payments are often curious about whether they could successfully receive short sale approval on their home without ever missing a payment.
Clearly those folks are a little different from the faction who are unemployed or underemployed and can barely make ends meet. These are borrowers facing imminent default or those out to sell their home for other reasons. Often borrowers still making their mortgage payments have a strong desire to preserve their credit.

So, the question is, “Can you participate in a short sale without missing a mortgage payment?”
The answer is simple (read: sarcasm): Yes, no, or maybe.
There are certain short sale lenders that will approve a short sale with no missed payments—especially for those short sale sellers facing imminent default. There are other lenders that will not. And, to even make it more confusing, remember that all of the big servicing companies (Bank of America, Chase, Wells Fargo among others) service loans for hundreds of investors—each with their own guidelines for short sale approval.
So, what does that mean for you and to your business? It means that even if one B of A short sale got approved with no late payments, it’s possible that the next will not. Each short sale seller’s loan is owned by a different noteholder, and it is the noteholder guidelines that control the decision-making process.

In 2012 alone, we have seen a handful of short sale sellers that have been told that their short sale will only be evaluated if the borrower is 60 days late on the mortgage: we’ve seen it at B of A, we’ve seen it at Wells Fargo, and we’ve seen it at IndyMac. Heck… we even received a conditional approval the other day from PNC that said that the short sale approval letter is conditioned upon the seller missing two payments. However, the negotiator did do a solid for the short sale seller; she pushed the closing date out 65 days so that now the seller can go late.
The bottom line is that there are many unknowns with short sales. Often times experienced agents and short sale processors can surmise how things will probably happen based upon their previous experience. However, with all of the continuing changes in the distressed property world, you really never know.

Monday, October 1, 2012

Bank of America and subordinate loans

Borrowers with second liens owned and serviced by Bank of America  may qualify to get their subordinate debt extinguished entirely.

The banking giant mailed 150,000 letters to pre-qualified homeowners who are eligible to have their Bank of America second-lien mortgages eliminated.  The full story from Housingwire below:

Bank of America may eliminate 2nd liens to those who qualify