ARE CHANGES COMING TO BANK OF AMERICA?

February 12, 2011 5 Comments

Anyone

involved in the real estate industry is aware of the processing problems at Bank of America.  Applicants for loan modification get pushed from trial mod to trial mod before being rejected and borrowers in default are often going two years without paying while no foreclosure is started.  Perhaps that will now be changing.

As reported in DSNews.com

Bank of America announced last week that it has set up a new operational division to deal with problem loans and resolve investors’

mortgage repurchase claims. The newly formed unit, which the company has labeled Legacy Asset Servicing, will service all defaulted loans and discontinued residential mortgage products. It will be led by Terry Laughlin. Laughlin will oversee the bank’s mortgage modification and foreclosure programs, in addition to his existing duties of resolving residential mortgage representation and warranties repurchase claims.  In addition, Laughlin is charged with leading BofA’s borrower outreach program to include more than 400 housing rescue fairs in 2011, building additional homeowner assistance centers in communities across the country, and expanding partnerships with nonprofits.

The decision to establish a new, separate division to handle the company’s problem loans came out of the North Carolina bank’s very recent, and very public, robo-signing quandary, which prompted reviews of hundreds of thousands of case files and a nationwide suspension of all Bank of America foreclosures and REO sales. The bank said in a statement that the issues that came to light in September and October of last year led the company to initiate a “self-assessment of default servicing.”  While the review of the foreclosure process found that the underlying grounds for foreclosure decisions has been accurate, Bank of America implemented a series of improvements – including staffing, customer impact, and quality controls,” the company said.

Barbara Desoer, Bank of America Home Loans president, will continue to oversee the servicing of the company’s more than 12 million mortgage customers who remain current on their accounts, as well as the mortgage origination side of the business.  “This alignment allows two strong executives and their teams to continue to lead the strongest home loans business in the industry, while providing greater focus on resolving legacy mortgage issues,” said Brian Moynihan, BofA’s president and CEO. “We believe this will best serve customers – both those seeking homeownership and those who face mortgage challenges – as well as our shareholders and the communities we serve.”

Bank of America also said Friday that it is exiting the reverse mortgage origination business, citing “competing demands and priorities that require investments and resources be focused on other key areas of our business.”  Bank of America Home Loans will continue to serve the needs of existing reverse mortgage customers and those with loans in process.

Whether any or all of these changes will bring any certainty or predictability to BofA’s handling of loan modifications, short sales, and foreclosures is unclear at this time.  BofA has reported an increase of permanent modifications from November to December yet during that same period people in trial modifications declined.  Until we see any clear guidelines on what to expect when dealing with BofA, we encourage you to act early, connect with a Realtor, and know your options.

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IS THE HAMP PROGRAM IN DANGER OF FAILING?

February 10, 2011 2 Comments

Anyone who has tried to get a loan modification through the Home Affordable Modification Program (HAMP) knows what a frustrating and, most-often, unsuccessful “solution” this has been for upside-down homeowners seeking to save their homes.  As I have previously reported, only 4.6% of applicants ever obtain a permanent HAMP modification and, as of those, 60% later fail generally because there is no principal reduction. 

HAMP was created in 2009 as a part of President Obama’s plan to stabilize the housing market and help struggling homeowners get relief and avoid foreclosure.  Yet for 2010, HAMP modifcations declined compared to lender’s own proprietary modifications.

Meanwhile, these have been dwarfed by foreclosures, 2.6 million foreclosures started and 1 million completed.  In a report to Congress published the first week of February, Neil Barofsky described the drawbacks and potential problems the bank bailout had created in regard to companies deemed “too-big-to-fail.”

His report also covered controversial issues surrounding the Home Affordable Modification Program (HAMP), designed by Treasury as a foreclosure prevention effort.  Barofsky is the special inspector general for the Troubled Asset Relief Program (TARP). The HAMP initiative, including incentive payouts to servicers, borrowers, and investors, is funded with TARP dollars. 

HAMP, Barofsky says in the report, “continues to fall dramatically short of any meaningful standard of success.”  According to Barofsky, the program was doomed from the beginning, because it was inefficiently designed with inconsistent rules that have been revised too frequently. He calls the 522,000 permanent modifications the program provided in 2010 “anemic,” and calls attention to the more than 792,000 trial and permanent modifications that have been canceled and more than 152,000 that are still in limbo. 

In December, the Congressional Oversight Panel estimated that at this rate, HAMP will generate anywhere from 700,000 to 800,000 permanent modifications, a far cry from the 3 to 4 million modifications predicted by Treasury.

Not only does Barofsky assert that HAMP is not working because of poor design and implementation, but he also says another issue is the participation and administration of the program by servicers.

Servicers, he says, have been compounding the problems of the program with unnecessary delays, by failing to follow program standards, and even by misplacing borrower paperwork. Treasury’s reaction to these issues has been lenient because of a fear that enforcing the program rules will encourage servicers to discontinue use of HAMP all together.

“Without meaningful servicer accountability,” Barofsky writes, “the program will continue to flounder. Treasury needs to recognize the failings of HAMP and be willing to risk offending servicers. And if getting tough means risking servicer flight, so be it; the results could hardly be much worse.” 

In response to the Barofsky Report, three congressmen on the Oversight and Government Reform Committe have proposed a bill to end the program.  “HAMP is a colossal failure,” said Rep. Jim Jordan (R-Ohio), who is chair of the Oversight subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending.

He continued, “In many cases, it has hurt the very people it promised to help. It’s one more example of why government interference in the private sector doesn’t work and that’s why it should be repealed.” 

 

Rep. Patrick T. McHenry (R- North Carolina), , who chairs the Oversight subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, thinks enough is enough.

“The number of homeowners kicked out of HAMP – and arguably left worse off by participating in the program- exceeds the number actually helped by hundreds of thousands,” he said. 

What the future holds for HAMP and how this will impact the millions of financially-strapped borrowers trying to save their homes is unknown.

Don’t expect any improvement from the government. As frustrating as the present system is, it is the only path to modification.  Don’t quit trying but don’t put yourself in a deeper hole in the process.

Get good, qualified information early and watch for changes.

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Chase Second Mortgage – Short Sale and Foreclosure

January 6, 2011 3 Comments

One of the key points we look for when we advice upside-down owners is whether they have multiple loans. This is because if a foreclosure by Trustee Sale occurs, generally it will be the first loan that forecloses and that action would wipe out the second lender’s security leaving them a right to sue the borrower for any deficiency.  However, under California law, when both loans are owned by the same lender, a “merger” of interest occurs. The foreclosure by one is treated as the foreclosure of both and in California neither would have any deficiency recourse against the borrower.

One area we have seen often is lenders breaking the merger by selling off the second loan after a default occurs.  Although there has not been much action by these second lenders to pursue a deficiency, we have raised the defense that the buyer of such a loan really had nothing to lose since there was no real value in the security for the loan and therefore they should not be able to sue the borrower for any unpaid amount on the second loan following a foreclosure by the first.

We expect to see a lot of such lawsuits over the next few years brought by collection companies and others who may pay pennies on the dollar and then sue for the full dollar.

Today we encountered a change to that typical sell-off strategy. In this case, Chase held both the first and second loans and was demanding recourse which the borrower could not pay.  The borrower had some leverage because of the merger and had some defenses if Chase sold the second to another creditor. 

But Chase flipped this on its head. 

Instead, Chase assigned the first loan to Bank of America which immediately filed a Notice of Default to start foreclosure, a foreclosure which will wipe out the security for the Chase second loan. The assignment broke the merger but it did not create a defense against Chase filing a lawsuit on the second because Chase already owned the second loan.

We already know that Chase more than any other lender is playing hardball in the short sale and foreclosure process.  This unique strategy change is no doubt intended to improve their odds of recovering from a borrower that may have some assets…. assets that Chase would have learned about through the Short Sale Hardship application. 

This approach, coupled with Chase’s common unwillingness (not)  to approve short sales, suggests that they view the short sale process not as loss mitigation but rather as a means of gathering information on the borrower that they can use to sue the borrower and get more money. 

In our initial discussions of this strategy, we think there are a number of other defenses to such a strategy that seeks to run around the established legal policy that a lender must look to its security first.  This “gaming the system” may not be endorsed by the coutrs but it is too ealy to tell. 

If you or your clients are dealing with Chase loans in a short sale, be wary especially where two loans are involved.  Let us know what your experiences are so together we can develop the best response to not only defeat this strategy but to convince Chase to cooperate with the short sale.

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Real Estate Outlook 2011

January 5, 2011 2 Comments

 As we enter this New Year, our economy remains in serious condition and millions remain in default and uncertain about their housing futures.  Yet in the midst of this mess, there is both Good News and Bad News.

First the Good News – 2011 should see some improvement in the general economy as the damage from the real estate and financial market collapse begins to resolve.  We’re already witnessing climbing values in the stock market and record prices for commodities such as gold and silver.  This may not mean confidence but at least people with money to invest aren’t keeping their money under their pillow.  Interest rates are edging up but are still historically low. Retailers have reported strong sales during the Christmas season and, in general, despite all of the political battles between Republicans and Democrats, consumers are feeling somewhat upbeat.  They’re still in pain but most can feel the healing taking place.

Now the Bad News -  This recession will not be over in 2011, particularly as it affects real estate.  While the economy may be slowly improving, businesses are being slow to expand and so unemployment remains very high.  Without greater certainty of stable employment, people are hesitant about making major purchases such as homes.  This uncertainty is causing economists to predict that California could be looking at another 10-11% drop in housing prices during this year fueled both by high unemployment and enormous State budget deficits. Millions of homeowners still face possible foreclosure as loan modifications remain unavailable to most. Further, the impact of the real estate bubble collapse is expanding:

1) Subprime Loan Borrowers - This was the first phase of damage from the recession. Although most of these sub-prime loans have by now been foreclosed or short-sold, 2011 will see another wave of defaults on those 2006-7 loans with 5 year adjustments.  As these move from interest-only to fully amortized, borrowers could see their loan payments double removing any capacity to pay;

2) Economy Impacted Borrowers - This is the second phase of the recession and it’s where we are today and will likely be for at least another year.  The tough part about a collapsing bubble is that it also causes “collateral damage” to those with good loans.  Millions have lost their jobs, or had cut backs or government furloughs that leave them unable to pay their loans. And with California’s record budget deficits, no-one has any confidence that State spending will improve.  Significantly, many economy-impacted borrowers may have other assets that they could spend to cover their loan deficiencies, but with no end in sight and further value losses predicted, many are finding it wise to “strategically default” rather than disclose their other assets to their lenders as part of a loan modification or short sale application.  For these borrowers, letting a foreclosure occur may make more financial sense.

3) Commercial Borrowers – This is the third phase and the one with the largest economic consequences.  One doesn’t have to look far to see empty store fronts of businesses that have closed terminating their jobs in the process.  Each of these also means a loss of income for the owner of the property and, added together, can cause the property owner to default resulting in a possible loss of all businesses. 2010 saw foreclosures nationwide of shopping centers and office complexes and large manufacturing companies.  Unlike home foreclosures, the failure of commercial loans often involves tens of millions of dollars in debt, loss of hundred or even thousands of jobs, and the loss of tax dollars for communities.  These problems together could bankrupt the lenders and even the communities where the businesses are located.  As a result, we’re now seeing commercial loan workout programs coming together with owners, lenders, accountants, community leaders, and others seeking to find a way to prevent the wide-spread losses that failure would bring.  We’ll likely be working on this area through 2014 and this will be the key in finally turning the corner from recession to real recovery in the real estate market.

Meanwhile, lenders are picking up the pace of foreclosures and filing lawsuits to recover loan deficiencies. In response, borrowers and governments are fighting back.  I’ll cover this in more depth in my next posting along with how you can protect yourself.

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Troubled Mortgage Predictions for 2011

December 29, 2010 Leave a Comment

As 2010 ends and the new year looms over the horizon we are faced with a myriad of issues that have yet to show their ugly head.  The housing prices coupled together with unemployment and low income will ultimately produce financial issues for many homeowners in 2011.

Troubled Mortgage Predicitons for 2011

In the third quarter 2010 One in Four single family homes had negative equity, this according to Zillow.  This is an HUGE number that could potentially lead to issues in the housing market in 2011.  If homeowners realize the housing market is continuing to decline, the impact could be severe.  We could be looking at an increase in foreclosures which increases housing inventory and that will lead to a decrease in housing prices.  With a decrease of more than $1.7 trillion  in home values nationwide in 2010 it will be interesting to see what 2011 holds

Another potential issue is more bank related.  Loss severity is on the rise.  This number is the difference between the mortgage loan amount and what the bank can turn the house for through either a short sale or foreclosure.  This is the amount of cash the bank will actually take from the real estate transaction in the end.

Indexes and Monitoring the Real Estate Markets-

With all that’s going on in the Real Estate arena we have to look at the idea of the bottom of the market.  The variables that attach themselves to this concept are virtually endless but in an article discussing homebuilders market we still have a ways to go to reach the February 2007 highs.  A more precise indicator, well at least in my eyes, is the S&P/Case-Shiller Index.  This index is a 20 city index that measures single home values which people watch to better understand the housing market trends nationwide.  The index has been decreasing due to expiring tax incentives and increasing foreclosures nationwide.

2011 Foreclosure Prediction

Foreclosures have been stalled for several months as banks try to work through the government sponsored programs and the foreclosure scandle that rocked banks over the past few months.  A large influx of foreclosed homes or REO properties will be hitting the market in 2011 causing downward pressure on home prices due to the increase in inventory.

In the end we will need to watch how banks handle their REO inventory and how the handle short sales to determine where housing prices will go.  Per usual pricing will be determined on where you live more than the index itself.  Hopefully banks will slowly push out their foreclosures instead of dumping a large volume of homes onto the market.

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California Foreclosures- Hiring An Attorney

December 22, 2010 1 Comment
DAVID STREITFELD, On Tuesday December 21, 2010, 4:50 am EST

In California, where foreclosures are more abundant than in any other state, homeowners trying to win a loan modification have always had a tough time.

Now they face yet another obstacle: hiring a lawyer.

Sharon Bell, a retiree who lives in Laguna Niguel, southeast of Los Angeles, needs a modification to keep her home. She says she is scared of her bank and its plentiful resources, so much so that she cannot even open its certified letters inquiring where her mortgage payments may be. Yet the half-dozen lawyers she has called have refused to represent her.

“They said they couldn’t help,” said Ms. Bell, 63. “But I’ve got to find help, because I’m dying every day.”

Lawyers throughout California say they have no choice but to reject clients like Ms. Bell because of a new state law that sharply restricts how they can be paid. Under the measure, passed overwhelmingly by the State Legislature and backed by the state bar association, lawyers who work on loan modifications cannot receive any money until the work is complete. The bar association says that under the law, clients cannot put retainers in trust accounts.

The law, which has few parallels in other states, was devised to eliminate swindles in which modification firms made promises about what their lawyers could do, charged hefty fees and then disappeared. But foreclosure specialists say there has been an unintended consequence: the honest lawyers can no longer afford to assist Ms. Bell and all the others who feel helpless before lenders that they see as elusive, unyielding and skilled at losing paperwork.

The revelations three months ago that large banks were sloppy and negligent in preparing foreclosure documents underscore just how important it is for distressed homeowners to have representation, lawyers and consumer advocates say. Homeowners whose cases were handled improperly have little way of knowing it. Even if they found out, they would be hard-pressed to challenge a lender without a lawyer.

“Consumers just don’t know what is going on,” said Walter Hackett, a former banker who is now a lawyer for a nonprofit service in Riverside. “They get a piece of paper saying they are going to lose their homes and they freak out.”

The problem for lawyers is that even a simple modification, in which the loan is restructured so the borrower can afford the monthly payments, is a marathon, putting off their payday for months if not years. If the bank refuses to come to terms, the client may file for bankruptcy. Then the lawyer will never be paid.

Alice M. Graham, a lawyer in Marina del Rey, said a homeowner in default recently tried to hire her. When Ms. Graham declined, the despairing owner begged her in vain to accept payments under the table.

“The banks have all the lawyers they want, and the consumers are helpless,” Ms. Graham said.

In some states, including New York and Florida, foreclosure proceedings are overseen by courts. In California, the process is more of a private matter between the bank and the homeowner. Through Sept. 30, lenders filed notices of default on 229,843 homes in California this year, according to the research firm MDA DataQuick.

The length of time California households spend in foreclosure, which was rising as owners pursued modifications, fell in the third quarter to 8.7 months, from 9.1 months in the second quarter. That could indicate that the absence of defense lawyers is beginning to accelerate the process.

While lawyers for nonprofits like Mr. Hackett continue to represent clients, they are too overwhelmed to help everyone. “A homeowner in California is going to have an extraordinarily difficult time finding an attorney,” he said.

That group includes Ms. Bell, who owned two properties free and clear and then gave in to a friend’s urging to “put your money to work.” That friend was an agent, and soon Ms. Bell owned two more properties and was making unsecured loans.

The loans went bad, the investments went bust, and Ms. Bell is trying to salvage her home. She wants an advocate but is reluctant to respond to any of the solicitations that fill her mailbox. “I know better,” she said.

Many people did not. Defaulting owners saw television commercials or heard radio ads where a lawyer promised relief. They handed over a few thousand dollars and heard no more.

Two years ago, the state bar association had seven complaints of misconduct in loan modifications. By March 2009, there were more than 100 complaints, and a task force was formed to deal with the problem. Soon, there were thousands of complaints.

It was a public relations disaster. The president of the bar association wrote in a column last year that “hundreds, and perhaps thousands, of California lawyers” were victimizing people “at the most vulnerable point in their lives.”

Politicians heard complaints, too. Ron Calderon, a state senator who represents several communities east of Los Angeles, sponsored a bill that prohibits advance payments for modifications and required lawyers to warn clients that they could do the job themselves without professional assistance. Lenders were supportive of the bill, Senator Calderon said.

It passed 36 to 4 in September 2009. The maximum punishment is a $10,000 fine and a year in jail.

The law is working well, Senator Calderon said. “You do not need a lawyer,” he said.

Mark Stone, a 56-year-old general contractor in Sierra Madre, feels differently. A few years ago, he got sick with hepatitis C. Unable to work full time, he began to miss mortgage payments. The drugs he was taking left him “a little confused,” he said.

Mr. Stone knew that his condition put him at a disadvantage in negotiations with his bank. So he hired Gregory Royston, a real estate lawyer in Redondo Beach. It took Mr. Royston nearly a year, but he restructured the loan.

Without the lawyer, Mr. Stone said, “I’d be living under a bridge.”

The legal bill, paid in advance, was $3,500. “Worth every penny,” said Mr. Stone, who is now back at work.

Mr. Royston said winning modifications was never easy and often impossible. “The banks stymie the borrower, and they really stymie any third party who works on behalf of the borrower,” he said.

A spokesman for the Mortgage Bankers Association said it simply wanted to protect homeowners from fraud. “Be very careful about anyone who wants you to pay them to help you get a loan modification,” said the spokesman, John Mechem.

That advice has never been more true. If any honest lawyers still do modifications, they are lost in a sea of swindles. “This law,” Mr. Royston said, “took the wrong people out of the game.”

Suzan Anderson, supervising trial counsel of the California bar’s special team on loan modification, defended the law, saying that in other types of cases, including personal injury and medical malpractice, the lawyers do not get paid until the end. She acknowledged, however, it was “a very problematical situation.”

As for the swindlers singled out by the law, they appear unfazed. The state bar is investigating 2,000 complaints of modification fraud.

“I wish the law had worked,” Ms. Anderson said.

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Housing Mess Silver Lining

December 21, 2010 Leave a Comment
It has now been nearly three years since the real estate market began unravelling.  Millions still struggle with over-encumbered properties and loss of income from the recession. Most economist predict that home prices may fall another 11% in 2011, as rising defaults crash with difficult to get purchase financing. Yet there is some good news for the diligent:1.  Housing prices are really undervalued. Today’s pricing is based on distressed sales. No-one would sell if they had a choice. This means that in reality, housing prices are higher than the sales would indicate. DSNews reports that the analysts at Capitol Economics have concluded that house prices are now 14% to 17% undervalued relative to disposable income per capita.  This is a 30 year high in affordability!

2.  Mortgage Rates remain low.  Although there has been some upward movement, mortgage rates remain between 4.25% and 5%.  My own office manager just refinanced her home for 3.5%!  Incredible financing opportunities.  Qualifying may still remain a challenge. Hopefully the lenders have learned their lesson and will actually require that the borrower have the ability to pay.

3.  Foreclosures are slowing.  Due in part to the Robosigner scam, foreclosure starts have been slowing even though delinquencies remain high. November Notice of Default filings were down 9.3% in California and 31.7% in Washington.  Lenders may be starting to realize that they can recover more for their investors by negotiating than they would get from a foreclosure. 

4.  Junior lenders are more willing to take hits.  The problem in most short sales has not been first lenders; it has been junior lenders (2nds and 3rds) who would have a personal judgment claim against the borrower after a foreclosure. Of course, having a claim and collecting upon it are two very different things. In the past week, our attorneys at BPE law have successfully negotiated a $200,000 release for $17,000; complete releases for $0; $150,000 for $5,000; and we’re completing a $2.2 million commercial loan payoff for no more than $100,000.

So what should this mean to you?  If you’re in default, keep negotiating with your lenders. They may be more accepting of a loan modification or a short sale without recourse or contribution.  And get help from real estate professionals in your community. They speak the language of the lenders.

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options. 
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Wells Fargo Helps Save Californians From Mortgage Problems

December 20, 2010 Leave a Comment

 

Wells Fargo Enhances Mortgage Assistance for At-Risk Wachovia Pick-a-Payment Customers in California

DES MOINES, Iowa–(BUSINESS WIRE)– Wells Fargo & Co. (NYSE:WFC – News) announced today that beginning Dec. 20, 2010 through June 30, 2013, at-risk Wachovia Pick-a-Payment customers in California may be eligible to earn principal forgiveness by making on-time mortgage payments. The company also will contribute $33 million to the state to enlist help in customer outreach, and to prevent or mitigate the impacts of foreclosures in California communities.

The program is the result of an assurance agreement between Wells Fargo and California Attorney General Jerry Brown related to the marketing and origination practices World Savings Bank (a subsidiary of Golden West Financial) and Wachovia used for pay option mortgages prior to Wachovia’s merger with Wells Fargo on Dec. 31, 2008. It is an extension of Wells Fargo’s ongoing efforts to assist at-risk Wachovia Pick-a-Payment customers with home payment relief, which began immediately following the merger.

These efforts have included modifications designed to make homeownership sustainable using combinations of interest rate reductions, term extensions, and principal forgiveness. The company also has hosted three large-scale Home Preservation Workshops in California in Los Angeles, Oakland and Ontario, and opened 15 Home Preservation Centers across the state to provide at-risk customers with the opportunity to meet face-to-face with a home preservation specialist.

“The majority of Wachovia’s Pick-a-Payment customers reside in California,” said Mike Heid, co-president of Wells Fargo Home Mortgage. “We’re pleased that going forward the attorney general’s office will assist with outreach, so that we can continue to work with as many customers as possible on the options available to them to prevent foreclosures.”

From January 2009 through November 2010, the company has extended significant home payment relief to more than 50,000 at-risk Wachovia Pick-a-Payment customers in California. The modifications have included some combination of interest rate reductions, term extensions, forgiveness on tax and insurances advances, and more than $2.9 billion in principal forgiveness. From Dec. 20, 2010 through June 30, 2013 – the period of the assurance agreement – the total amount of incremental relief for customers could be as much as $2.4 billion depending on the economy and individual borrower circumstances. This amount is consistent with the company’s prior expectations for loss mitigation in the California Pick-a-Payment portfolio, which was marked down in purchase accounting at the time of the Wachovia merger.  

California joins 9 other states that have entered into similar agreements with Wells Fargo: Arizona, Colorado, Kansas, Florida, Illinois, Nevada, New Jersey, Texas and Washington.

The company will contact customers likely to be eligible for the new program via letters, and will maintain a dedicated helpline – including Spanish-speaking specialists – to assist borrowers. Homeowners who already have received a modification will not be eligible for the new program. Wells Fargo customers who originally took out pay option mortgages through Golden West or Wachovia who are looking for information about the loan modification program can call 888-565-1422.

http://finance.yahoo.com/news/Wells-Fargo-Enhances-Mortgage-bw-1254816536.html?x=0&.v=1&.pf=real-estate&mod=pf-real-estate

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Foreclosure Detectives Hunt For Lies

November 29, 2010 1 Comment

URBANDALE, Iowa—In two squat, suburban office-park buildings here, Richard Barrent is digging through loan files that could help decide who pays for the mortgage-paperwork debacle.

The former Wells Fargo (NYSE: WFC - News) & Co. quality-assurance manager’s two-year-old company is part of a cottage industry of loan detectives obsessed with detecting fraud, misrepresentations and violations of underwriting guidelines. Such discoveries can be used as ammunition to force banks and other lenders to buy back loans from bond insurers, holders of mortgage-backed securities and other customers of forensic loan-review firms.

“There is a growing interest across the board” for such reviews, says Charles Cacici, managing member of Risk Management Group, a Brooklyn, N.Y., company that also scours mortgage files for problems. Competitors include Digital Risk, Clayton Holdings and Allonhill.

The tedious business, usually involving hundreds of pages per loan, has taken on new urgency since the foreclosure problems erupted in mid-September. Losses to U.S. banks from loan repurchases could reach $40 billion to $90 billion, according to J.P. Morgan Securities. Previous estimates were much higher but have declined partly because it is so difficult to compel lenders to take back loans.

Loan files sometimes can be hard to get. And mortgage companies often dig in their heels when confronted with a demand to repurchase a loan. That can result in negotiations or lawsuits that can stretch for months or more—or a stalemate.

“It is a day-to-day, hand-to-hand combat,” Bank of America (NYSE: BAC - News) Chief Executive Brian Moynihan said recently when describing the Charlotte, N.C., bank’s resistance to loan-repurchase requests.

In the worst-case scenario for investors, months of effort can result in nothing. Those odds are likely to discourage some investors from pursuing loan repurchases, which could reduce overall losses for banks. The payoff for investors and bond insurers when a bank eats a shaky loan: The lender typically must pay the difference between the original loan amount and what was recovered in foreclosure, or unpaid principal plus accrued interest if the loan is outstanding.

Losses on troubled loans can sometimes hit 80% of the original loan amount, says Mr. Barrent, the 49-year-old president and chief operating officer of Barrent Group. He won’t identify any of the company’s clients, though he says the firm is talking with bond investors about how to recoup losses from sloppy mortgage servicing.

Among the companies trying to make banks eat shaky loans are Fannie Mae and Freddie Mac. Last month, a group of large investors objected to the handling of 115 bond deals issued by units of Countrywide Financial, now part of Bank of America.

In one typical example, Gayle Hanson, a senior loan auditor for the Barrent Group, sifted through 331 pages of loan documents as part of her autopsy of $165,000 home-equity line of credit on a Colorado Springs, Colo., home. The file included multiple copies of the mortgage and notes detailing efforts to contact the delinquent homeowner.

She also scours credit reports, property records, appraisals, telephone listings, photographs of the house for signs that it was an investment rather than a primary residence, and any indication that the borrower owned property not disclosed on the loan application or that the appraisal was inflated.

Ms. Hanson found that the Colorado Springs borrower had at least three undisclosed mortgages totaling $520,000 in addition to nine investment properties listed on the loan application.

The files contained little information to support the borrower’s claim that he earned $13,500 a month, as well as $5,700 a month in income from rental properties. “The underwriter didn’t do due diligence on this,” she said. Barrent wouldn’t identify the borrower or lender.

Barrent works with clients to select mortgages with a high probability of problems. Misrepresenting income is the most common defect in loan files reviewed by the company’s 38 employees. That isn’t surprising given that many loans it reviews didn’t require borrowers to document their earnings.

One borrower whose loan was scrutinized claimed to be a shoe salesman earning $35,000 a month. A regional sales manager who cited earnings of $250,000 a year actually made $47,000 as a clerk for the same company.

About 65% of Barrent’s reviews result in a loan-repurchase request. Banks have bought back about 1,100 loans, or about half, with clients of the loan-review firm recovering nearly $142 million in losses, according to the company. The figures reflect reviews for bond insurers and exclude loans for which negotiations are continuing.

Closely held Barrent gets paid an undisclosed fee for each loan it inspects or in some cases, a portion of the recovery. “You are going to have to pound the table and go the distance,” Mr. Barrent says.

Investors in mortgage-backed securities face tougher obstacles than Fannie Mae, Freddie Mac or bond insurers, says Glenn Schorr, an analyst at Nomura Securities International Inc. Bond investors typically must prove that an underwriting breach, not tumbling home prices or rising unemployment, “materially and adversely” affected a loan’s value, he says.

In addition, contracts on bond deals often require investors to win support from 25% of the voting rights in the trust before they can petition for access to loan files. Even then, “the servicer will, in many cases, refuse,” says Talcott Franklin, a lawyer in Dallas who has been organizing bond investors to pursue such claims and represents investors with at least a 25% stake in more than 3,000 bond deals.

Some investors are using outside data to build their case. David Grais, a New York lawyer representing two Federal Home Loan banks in lawsuits against securities firms that sold mortgage-backed securities, recently hired CoreLogic, a Santa Ana, Calif., company, to supply public records data on 750,000 loans in more than 250 bond deals.

Mr. Grais used the information to look for signs of inflated appraisals, undisclosed liens and investment properties or second homes that had been listed as primary residences. Nearly half the loans had at least one material flaw, he says, adding that he is optimistic that the results will convince a judge to give him full access to the loan files.

“We have lined up a battalion of loan file reviewers,” he says.

Written by Ruth Simon

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Filed Under Short Sale Help Tagged With foreclosure, foreclosure detectives, foreclosures, stop foreclosures

Robo-Signing Slows REO and Short Sales

November 23, 2010 1 Comment

Foreclosed Home As recently reported in www.DSNews.com, the ongoing controversy surrounding deficiencies in foreclosure documentation is taking its toll on the housing market as a significant share of home shoppers refused to even look at distressed properties in October, according to an industry study conducted by Campbell Surveys.  Fears of litigation from former owners who lost their homes to robo-signer foreclosures are making REO properties unattractive since legal battles could tie-up the properties for months or even years to come. With foreclosures on the rise, this presents a major problem for lenders who otherwise would get stuck with holding and maintaining unsellable properties. News reports that major servicers were pulling REO properties off the market, including some already under contract, clearly spooked would-be homebuyers, Campbell Surveys found.  The company’s closely-watched monthly survey found that 14 percent of owner-occupant homebuyers and 6 percent of investors refused to view foreclosed properties in October. This buyer fear was even worse for short sale properties, where 30 percent of owner-occupant shoppers and 20 percent of investors refused to consider short-sale homes.

Not surprisingly, the drop in overall distressed property sales activity helped produce a decline in average prices for short sales, move-in ready REO, and damaged REO in October. This certainly has helped sellers of non-distressed properties which suddenly became more attractive to ready buyers.  This increased demand has pushed their prices higher.

Is there an end in sight? Not soon.  Citigroup, which has adamantly contended that they were not involved in the robo-signer problem, has uncovered some 14,000 defective foreclosure actions.  Core Logic, the company which provided analytical date for the investment industry (www.corelogic.com), indicates that there currently are 4.2 million homes on the market for sale, a 15 month supply. However, beyond this “visible market”, there is a “shadow market” of properties more than 90 days in default, in foreclosure, or REO’s that are not on the market. Core Logic reports that there are 2.1 million more properties. When added together, we actually have a 23 month supply of houses on the market.  Typically a reading of six to seven months is considered normal, so the current total months’ supply is roughly three times the normal rate.  And it may be even more than that. Lender Procesing Services which handles foreclosure processing estimates that there are more than 7 million loans in default! (DS News 11/17/10).  In the aggregate, alanysts are projecting a possible 7% drop in home prices over the next year before the housing market starts to stabilize.

So what should this mean to you? If you’re in default, keep negotiating with your lenders. They may be more accepting of a loan modification or a short sale without recourse or contribution.  If you’re an REO or short sale buyer, check the documents carefully and make sure the title insurance will protect you from any claims of defective foreclosure actions.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

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Filed Under Short Sale Help Tagged With pulling REO properties off the market, reo, robo signing, short sales
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