Ultimate Help For Homeowners: Mortgage Litigation

Over the past three years while writing this blog, I have combed every source I came across for avenues that could possibly help homeowners keep their homes, reduce their payments or avoid foreclosure. I have written about loan modifications, federal loan modifications, loan restructuring, short payoffs and forensic loan analysis, trying to see if any of these cold provide a solution to the housing crisis we are facing. In the end, though some of these helped some individuals a bit, nothing has actually made much of a difference.

Ultimately, I have come to believe, banks are not going to help homeowners because it is not in their financial interest. Because of TARP and really for PR purposes, banks have done a few loan mods, helped a few homeowners avoid foreclosure and participated in a few forums to help individual property owners. In the aggregate, though, their efforts have been puny in the face of massive numbers of underwater homes. Their public pronouncements about their interest in remedying the situation have clearly been hypocritical in light of the little they have done.

Banks have become the most hated institutions in America and for good reason.

Quite some time ago, I came to the conclusion that only massive legal force would give homeowners any leverage in dealing with banks. Forensic loan audits seemed for a while to provide this. Legal firms analyzed individual loans uncovering in the process RESPA violations, fraud, and numerous questionable actions in almost every loan done since around 2002. The attorney would then send this information to regulating agencies and to the fraudulent bank, expecting some repentant reaction.
But, when faced by an individual attorney representing an individual homeowners, each bank’s response was, “So what? What do you intend to do about it?” Since lawsuits are very expensive, the banks were aware individuals behind in their mortgage payments were highly unlikely to file suit.

What To Do?

Finally, we may have some recourse. It seems that across the country many attorneys have been filing suit against banks for their fraudulent actions and, little by little, the database of suits has been growing. At this point, more than three years into the crisis, attorneys have banded together to file on behalf of individual homeowners and, if a suit against that individual’s bank already exists, to add him to the list of plaintiffs.
This seems the only way to go. Joining such a suit costs money, of course, and no results can be guaranteed, but to me it seems like the best solution so far.
Here are some of the benefits of mortgage litigation.

  • A lawsuit is filed-a judge decides the merits of a case, not the banks
  • If it goes to trial, banks know that juries now universally favor homeowners
  • This is not a loan modification–the banks do not control the outcome

Possible Outcomes

If the attorney or legal firm accepts the case, the demand is always to completely tear up the note or mortgage on the property. While this is not always the outcome or even usually, the next demand is for the note to be re-written to 70% of current value of the property. Of course, another outcome is always that the homeowner and his attorney might lose the suit. That is possible but highly unlikely.

Loan Mods: What’s the Situation Now?

It’s been about a year now since the Obama administration introduced its loan mod program, HAMP, so what’s happened?
What have American homeowners been getting for our government’s $7 billion?

Loan Mods One Year Later

Aw, come on, you know the answer–not much. As usual, the big banks don’t want to play. Always ready for a handout, they pretend to go along, but never really deliver. At this point, one year later, we now have about 299,000 permanent loan mods as of April 2010, according to the US Treasury. That’s about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month.

Terrible Loan Mod Results Compared to the Problem

Placed in its proper context and you will see how measly that is. We’ve already had more than 3 million foreclosures. Estimates are that about 7.5 million mortgages are in the 90-day-late situation, meaning they are most likely heading into foreclosure. So, that 299,000 doesn’t seem like much, does it, for a whole year?
But wait, it gets worse. The number of people who failed to get loan mods rose dramatically in April, up 79%, in fact. About 270,000 or 23% dropped out at some phase of the process.

Why would this be happening?

I’m sure that banks would like to point the finger at deadbeat homeowners, but that would be a lie, a big, fat lie. Having been involved in a few of these mods and receiving many calls from anxious homeowners, I can say categorically it is not the fault of homeowners. It is the fault of the big banks who make the task so tedious and so long and drawn out that anybody would get frustrated and quit.
Here are just a few of the comments I’ve heard lately..One that particularly galls me is Maria who cannot get CitiBank to give her the time of day. Why would that be? Why, she’s current in her payments, so unless there’s already a fire, this company has no interest in preventative maintenance. Then, there’s Monica who owns several investment single-family homes she was hoping would help provide her retirement. They’re all upside down now and the bank will not even talk to her because she’s also current.

Only Solution Now: Short Sale

Talk to Mike. AMHSI told him point-blank it had no interest in doing loan mods. So, he stopped making his payments and put it on the market as a short sale. Is that a better solution? Folks, that’s about the only solution left. We can all stop dreaming now that the banks will actually do these “workouts” whether they have support from the government or not. They will pretend to do them, but make the process as onerous as possible. Then, too, many who actually produce all the paperwork and wait the 3 to 6 months of processing time are refused a loan mod anyway. Why? Well, if you’re unemployed and really need one, you can’t get one because there’s no income to pay it. If you’re employed, you, like Goldilocks, need to make just the right amount of money or you’ll make either too much or too little and you won’t qualify…

I don’t think I want to write about loan mods anymore. They are a complete crock.

What Is Loan Restructuring?

Why Loan Mods Stink

As mentioned in previous posts, loan modifications, as practised by most major banks,  do not offer the results most homeowners had expected. Very few are altering the loan balance, yet millions of mortgages are upside down, many, especially in California, by hundreds of thousands of dollars.

What did we expect? We thought that the huge influx of tax payer money from TARP to keep the banks in business would result in more consumer-friendly lenders.  What were we thinking? We were  massively deluded. When banks have the upper hand as they do when homeowner/consumers are petitioning for a better deal, they will do the obvious. Take all the time in the world for the process, then order up massive amounts of paperwork, then lose the paperwork and finally offer a tentative agreement, possibly with a big cash payment,  diddling  as long as possible before making it permanent.

How Homeowners Can Gain the Upper Hand

What’s the alternative? How can homeowners shuck the petitioner role and instead gain the upper hand? Let’s remember that banks are regulated.  Yes, during the boom years many of the regulators were asleep at the switch and irregularities and downright fraud became business-as-usual. Despite the lack of enforcement, the laws and regulations still exist and did exist even when not well enforced.

Today, specially trained attorneys are seeking to force the banks to restructure the loans done incorrectly, irregularly or even downright illegally. Many avenues of approach exist. Sometimes banks or brokers did not follow regulations in the origination process; sometimes the entire loan itself was a complete fraud. But, federal law does cover these situations. In these cases the law gives homeowners the upper hand.

What Is Loan Restructuring?

Really, this is what happens when regulations and laws are actually enforced. Oversight, we now realize, is key for the financial industry as with so many others.  Loan restructuring can have several possible forms. Complete loan rescission is one possible outcome.  The lender may issue an entirely new loan with a new balance, a new interest rate and even a new investor or any combination of these. Alternatively, the lender may agree to a financial settlement. It all depends upon the specific original loan itself.

Certain types of loans can be restructured; others cannot.  Stated income loans are  prime candidates for restructuring as well as ALT-A, Adjustable-rate loans [ARMs] and ARMs that can negatively amortize [neg-AMs] along with the famous Sub-Prime loans.

If you have one of these types of loans  and have an interest in gaining the upper hand over your bank, contact me. Sorry, but for right now, I can help only those loans on property in California.

For other states, I NOW  have additional resources.  Give me a call at 626-641-0346

Mortgage Aid Event in L.A.

Subprime Crisis No Barrier to Affordable Housing
Image by woodleywonderworks via Flickr

Some 30% of all California mortgages appear to be underwater, so loan modification is a term many have come to know. We’ve also come to realize that the process is long, complicated, and in many cases, expensive. The end result is usually not as good as hoped, despite the apochrophal stories we’ve all heard about balance reductions and interest rates of 2%. If true–very rare…

But now–help is at hand–and it’s not going to cost a penny. A five day mortgage aid event, running September 24th through Monday September 28th, brings counselors from Boston-based Neighborhood Assistance Corp of America [NACA] comes to Los Angeles. The $1 million cost of the event is funded by federal grants.

Here, counselors will scan homeowners’ mortgage documentation and send the files to nearly 2,000 on-site servicers and lenders, including representatives from Wells Fargo, Chase and B of A, who will be there to negotiate more affordable loans.

If you are in trouble with our mortgage, what have you got to lose? No more run-around from bank servicers. They will be right there. The Save the Dream Tour, launched in Cleveland, will continue on to Chicago, St Louis as well as Phoenix, la Vegas and San Francisco.

You can register for an appointment as http://www.naca.com or toll-free at 888-499-6222.


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Tsunami of Foeclosures Coming

So much for all the “good” news coming out of  D.C. Goldman Sachs, JP Morgan Chase, B of A are all happy campers with their billions in profits, while the rest of us lose our jobs and watch our state sink into bankruptcy. No one ever mentions that, besides the TARP money since repaid,  Goldman Sachs got $12 Billion from AIG to cover hedge fund losses. And, of course, where did AIG get the dough to cover its insurance policies? Why, funny you should ask, that also came from tax payers…So, it’s kind of an endless circle of taxpayer funds creating “wealth” for these jokers while the rest of us starve. That’s capitalism, right?

But, back to real estate…What does all this have to do with real estate. Plenty, as it turns out. Chase and B of A are, of course, banks, now, in fact, the biggest banks in the country. That means they also control a majority of the mortgage loans and how the rising default rate is to be handled. In case you hadn’t heard, default rates are up and rising. Could that have anything to do with the also rising unemployment rate now over 10% in 30 states and 12.6% in California last time I checked. Here, even the “good” state jobs are now at risk and going down the tubes faster than your 5-year-old at Raging Waters.

With no job or prospect of a job, when underemployed or working only part-time or sporadically, home owners can’t cover their mortgage payments. Add to that, the factor of plunging prices. It’s estimated that by now, after more than a year of record foreclosures and drops in home values, 27% of all California home owners are under water, that is, they owe more than their homes are worth. Of course, the smart ones are short selling their homes. It’s hard to give up the old homestead and all the work and money put into it, but once the underwater mark hits 30% loss of equity, it really makes more sense to let it go. It will be years before that equity returns given the numbers involved.

home floating on waves

What about the refi program discussed in a previous post? For some, that might be an option. It’s no help if you’ve lost your job. You won’t qualify.  If you still have a job and can afford the payments, this is an option. Though, notice–you still owe the money your home is no longer worth. You do pobably have a better rate and more managable payments, but, the debt is still there.

What about the loan mod program also discussed in a previous post? Well, there we’re back to these big banks, Chase, B of A, Wells Fargo and all the rest. These banks do most of the loans in the country, so borrowers  have to apply to these banks to get  loan mods.  Obama’s Homeowners’ Stabilization program, announced amidst much hopeful optimism in March, has proved less than effective, shall we say. Chase trumpets that it has modified 138,000 loans since April. That sounds reasonably good, but the program was supposed to modify more than 4 million in 3 years…Not much of a start, so far…

Then, there’s B of A which says it’s done 45,000 loan mods since April. That’s for the ENTIRE COUNTRY.  Think about this: California ALONE had 135,431 notices of default [NODs] send out from January through March of this year. B of A and its newest acquisition, failed California-based Countrywide, probably account for at least 30% of those loans or 40,000 loans. So, B of A is basically DOING NOTHING to help at this time of NATIONAL CRISIS. And, remember 27% of California homeowners are under water and so need to have their loans modified. How many actual borrowers would that be? I don’t know, but we have 35 million people, so that’s got to be in excess of 1 million loans….Nationwide, in the first quarter 1.8 million homeowners fell more than 60 days behind on their loans, 15% more than the prior quarter [Q4 08]. To repeat: this is a NATIONAL CRISIS.

What is going to happen next? Is B of A going to change its corporate culture and start helping homeowners?  Not bloody likely. Digging deeper into the trough of public money is more apt  to be that bank’s continuing attitude.  Just try to do loan mods with Countrywide and B of A or short sales. They take forever–4 months is the minimum; there is no maximum time.  The paperwork demanded is just stunning. B of A NEVER, to my knowledge, forgives even one penny of any under water loan balance as some banks actually are doing.   Its idea of what it owes to the common good is EXACTLY ZILCH, NOTHING, NADA.

So, those foreclosures, kept off the market by useless cycling of paperwork in rejected refis and loan mods, will come onto the market, especially here in California.  Last summer, foreclosure sales statewide hit a high of 26,500 a month.  Before this year is out, we may well beat that record. I am one of many real estate brokers who supply lenders with estimates of value or broker price opinions [bpo] and I can say, anecdotally, that I am very busy, often doing 3, 4 or even 5 every day.  If  I am that busy, so are the others who do this work. That means so many foreclosures looming…

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Is the Recession Over? Coulda’ Fooled Me

Lately, we’ve been getting report after report in our media that the “greatest recession since the Depression” is over or almost over or showing signs of weakening…Really?

Here’s a snippet from a March, 2009 N.Y. Times article: “Retail sales are up. Industrial production is up. So are housing starts, non-farm employment, exports and business confidence. Even department store sales in the New York area are finally turning around.  At the same time, inflation, interest rates, new jobless claims and personal debt are all, gratifyingly, down. Is the recession over? Finally, after 19 months, the answer appears to be yes.”

Isn’t this a bit crazy? What  is he  talking about?  Unemployment continues to climb with another 500,000 jobs lost in April and a tsunami of foreclosures predicted for this summer and into next year. So, who’s out of recession? Why the stock market, of course, and why not? They’ve emptied the U.S. Treasury to save the Fat Cats of Wall Street while the rest of us are left with plunging home values and no jobs. The S & P 500 continues to climb and the banks are eager to get out from under the TARP.

Well, whoopee, for them…That same N.Y. Times [different article, of course] notes that 5.4 million homeowners nationwide are now delinquent or in some stage of foreclosure. That’s about 10% of ALL mortgages and that is very scary. I guess several factors are driving these homeowners into foreclosure. The first must be job loss. It’s hard to pay your mortgage with no income. The second must be plunging home prices which ties into job loss as more and more go into foreclosure driving prices down still further.

It really kills me to listen to the suits on TV gabbling about the “end is in sight”  and other equally nauseatingly self-serving opinions. If you are an investment banker on Wall Street, then I guess it’s over for you. The taxpayers bailed you out. If you’re an autoworker, not so much. Or, an auto-dealer. Or, anyone involved in the peripheral auto industry, supplies, parts, repairs. Oops, there goes a good chunk of California as well.

So, why would these bloated opinionators be so determined to call an end to the recession?  Besides bankers, they might be politicians or connected to the new administration or the Democratic party. I’m an Obama supporter, too, but getting increasingly tepid about him. His vaunted plan to save 4 million homes from foreclosure? Well, we’re  3 months into it and so far a mere 100,000 have had their loans modified. That means payments are reduced to manageable levels for 3 to 5 years, but  the principal will not be reduced one iota. That’s what’s really fueling foreclosures and delinquencies: buyers are massively upside down in their home values. It really doesn’t make much sense to keep paying the mortgage, even a “modified” mortgage when you are $100,000 to $200,000 “under water”. The banks don’t want to reduce the principal balances on their loans. No, they want to have the  TARP money from taxpayers and then continue on their merry way. Life will go as before–sweet–for them. Obama and his administration have apparently caved to the banks’ desires and have not asked them to reduce the principal balances owed. underwater borrower

No, Obama & Co.  would prefer to announce the “end is in sight” and ignore the tsunami of foreclosures expected this summer and into next year as the unemployment rate continues to climb, and homeowners’ equity continues to sink. This problem is especially acute here in California. Our unemployment rate is soaring; our state government has crumbled; every state agency, including schools and universities, is taking a huge hit, compromising our future as well as our present; homeowners are losing equity by the minute.

Obama was actually here a few days ago for a massive fundraiser. That’s what California means to politicians–parachute in, grab dough from our fat cats and then high tail it back to D.C. where they proceed to ignore us again….Left coast indeed.

Obama’s Plan: Help for Small Investors

Sign for Barney's Loans, corner of Second Ave ...
Image via Wikipedia

Yes you read that right. Obama’s plan will also help you refinance if you have rental properties. Last week Fannie Mae and Freddie Mac announced they would refinance rental and second homes as part of the Obama administration’s housing relief effort.  That is a relief! It seems that finally these lending giants have realized that helping small investors will also help renters and if nothing else provide homes for the foreclosed upon.

Here’s the skinny. First, the loans must be owned by Fannie or Freddie. If you don’t know, call your servicer to find out or go to Fannie and Freddie websites. If your loan is with another entity or a private lender, you will not be eligible.

Just as with owner-occupied properties, the loan to value ratio cannot exceed 105% and that is up to $729,750 loan amount.  Let’s say you bought a duplex or a fourplex a few years back for $500,000 with a first mortgage of $400,000 at 7.5% and that loan has now been acquired by Fannie Mae. You may well be able to refinance into todays 5% and 6% rates, thereby greatly increasing your cash flow. Even if the value of your property has dropped in the intervening few years, as long as the current market value is at least $420,000, you can do it.

Of course, you do have to be a good prospect for a refi. Your payment history on the loan should be close to perfect–no 30 day lates in the past 12 months. Even if you’ve had other financial woes which may have tanked your credit score, it’s still possible because Fannie and Freddie have agreed to waive their usual minimum score requirement and you won’t have to pay for new mortgage insurance [pmi].

You will have to show income to qualify–often investment income from the building is enough–and there will be the usual closing costs which will increase your loan balance.

All in all, though, this is a great deal!

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