What Is Loan Recasting?

calculator

The housing debacle remains impervious to improvement for millions of homeowners who find themselves unable to sell, unable to refinance and unable to move on with their lives. The post-2007 tightening of  loan guidelines prevents many from using the traditional method of changing a mortgage loan, refinancing.  For some the solution may be in the newly-popular loan recast  offered by some banks. It’s not publicized, but some banks will do it.

What is a Loan Recast?

wad of money

With a loan recast, the borrower puts a significant amount of cash into his current mortgage principal. The principal may be underwater or may show equity, even significant equity. Let’s say the borrower has just received a large inheritance or settlement and would like to take a chunk of it and apply it to his mortgage. Assuming the bank agrees, the loan is then re-calculated, re-amortized at the same rate and terms. The borrower can now look forward to lower mortgage payments throughout the life of the loan.

Loan recast differs from a loan refinance in several ways. For one, the fees are usually minimal, around $150, compared to the thousands of dollars required to refinance a loan. Second, instead of taking money out of the equity as in some refinances, the homeowner puts money in with the goal of lowering the principal owed. Third, the terms and conditions of the loan do not change, though due to the payment to the principal, the payments will be lowered. How significant the change depends totally upon the amount put into the loan.  Of course, since the borrower is giving money to the bank rather than asking to borrow more, the borrower does not have to supply credit report, tax returns or other financial information.

Some Loans Cannot Be Recast

For those with FHA or VA loans, the issue is simple: the loans cannot be recast. These are government-backed loans and are simply too complicated to allow it. Then, many lenders will not recast adjustable loans [ARMs] or jumbo loans. Also, many banks simply do not offer loan recasting and even those that do must be prodded and poked into offering the service . The borrower must be proactive.

Who Would Benefit?

Obviously, the main beneficiaries of a loan recast would be those who already have their mortgages at low fixed rates.  If the interest rate is higher than, say, 5%, it’s usually not worthwhile for the borrower to pay it down unless absolutely no other option  is open.  Above 5% interest, all things being equal, it makes more sense to seek out a refi. Also, since the payments of adjustable rate mortgages can easily be changed simply by adding the extra money to the principal as the rates re-adjust every few months or every year depending upon the terms of the note, most borrowers with ARM mortgages do not need to recast their loans.

Loan recasting may apply even to underwater homes. Assuming that the homeowner is current in his present payments and determined to stay in the home no matter what and, further, is convinced that with time and patience the home will rise in value, the underwater homeowner may decide that a loan recast is the best option. Though the government and numerous housing advocacy groups have suggested principal reduction to the banks as a way to alleviate the housing crisis, by now it is pretty clear that  forgiving debt is the last thing that the banks want to do. With a loan recast,  homeowners take  matters into their own hands.

Loan recasting is not by any means a panacea as it can apply only to a few. The borrower must have a significant amount of money to put into the mortgage, must be current, must have a fixed mortgage and must be satisfied with the current terms and conditions.  For those who do meet these criteria, loan recast is yet another financial tool to help weather the housing downturn.

 

 

Is The Housing Crisis Over and Out?

Housing Is On The Upswing

The Good News

The worst of housing times may be slowly working its way into a dim memory as home buyers are returning to the marketplace. The national housing stats are suggesting that the terrible pain of the last six years may, at last, be coming to an end.  According to the National Association of Realtors [NAR], national home sales rose 3.4% in April for a total of 4.6 million homes sold  and the median home price for the nation rose to $177,400, a full 10% over last year. Of course, the  NAR has a vested interest in the health of the housing sector and its stats may be on the rosy side, as many commentators have pointed out. Still, 10% increase in value, even 5%, is terrific news.

house arrow up

For more good news,  purchases of new homes rose almost 10% over last year. At the same time the purchase price of these new homes rose almost 5% to a national median of $235,700. Housing starts are up over 50% from their 2009 low.  So, it does seem as if there is some ground for optimism. Finally, the combination of  incredibly low mortgage rates and low home prices has begun to attract the public, still stunned from the worst economic downturn in decades.

Why Is This Happening?

For the millions still underwater and behind in outrageous payments, even thinking that the housing crisis may be on its way out is a cruel joke. Nevertheless, there are some solid reasons for an eventual and actual end to the housing crisis of the last few years.  Our U.S, labor market has been improving over the last two years ever so gradually, diminishing the ranks of the unemployed slightly month by month. Add to that enticing mortgage rates which remain at historic lows and it makes sense that home buyers with the wherewithal would begin to have enough confidence in their future prospects to make that big home purchase.

Rent vs. Buy

Rental rates have been rising throughout the country and renting has many advantages over owning a home. Nevertheless, rental rates are still much higher than the cost of owning a home in great swaths of the country. This is based on purchasing a home with 20% down and owning the same home for at least 5 years  Additionally,these stats take into consideration only the purchase price of the home,  not the ongoing costs of maintaining it.

Though for the most part  in Southern California rental rates are still cheaper than owning a home, the allure of home ownership is still a strong pull both for the younger, first-time buyers as well as older, more experienced ones. The many young people who have returned to live with Mom and Dad or those who have rented with roommates for several years are now yearning to live free–in their own homes.

Is The Crisis Finally Over?

Millions of homes are still underwater. Millions of homeowners are still faced with foreclosure or the prospect of short sale. With that in mind,  the housing crisis is certainly not over.  Despite the modest recovery in the U.S., now our global trading partners are starting to slow down or even crash themselves, especially the EU and the BRIC countries [Brazil, Russia, India, China], which had been keeping the economic engine stoked.  This country is recovering and we may manage to keep up the trend going mainly by satisfying pent-up internal demand, especially in housing.

 

Should I Buy Or Sell Now?

smiley-face-house

It seems clear that now and for the rest of this year, it’s a good time to buy a home. Prices are still very low and mortgage rates are very low. Both of these factors are likely to extend through the end of the year and into 2013.

For those thinking of selling, it’s a more mixed picture. For those deeply underwater, home prices are unlikely to spike in the next few years, so better to bite the bullet and sell now.  For those who want to move up, this  seems to be the ideal time to make the move. And, of course, many have little choice in the matter: whether it’s through marriage, divorce, new babies or new jobs, selling is really the only option.

 

 

Foreclosure Past or Future? Here’s Help

stop foreclosure fraud

Federal Bank Regulators Wake Up

By now, most of us have heard about the shenanigans of Big Banks around foreclosures–robo-signing, sloppy record-keeping, fradulent foreclosures of all kinds.  Federal regulators, 4 years into this, appear to have finally woken up.  This week, regulators required 14 mortgage servicers to mail out 4.3 million letters to possible victims of wrongful foreclosure practices. It’s about time.

What’s In The Letters?

These letters will invite the borrowers to submit their cases for a free review by independent consultants that are funded by the lenders but vetted by regulators. In other words, the banks must pay for the reviews and the salaries of the reviewers, but all are under the scrutiny of the regulators.  If it is determined that borrowers were harmed financially by negligent or fraudulent foreclosure proceedings, then banks must compensate the borrowers.

The regulators under the Comptroller of the Currency have apparently determined that wrongdoing did take place. That’s why these letters are going out.  These regulations are also enforced by the Federal Reserve which, as you may remember, coughed up the TARP payments to these same Big Banks, BofA, Chase, Citi and Wells Fargo as well as a host of smaller banks.

foreclosure-fraud-cartoon

What Are Some Tricky  Bank Practices?

Banks have seemingly engaged in many activities ranging from merely negligent to downright nefarious in order to foreclose on non-paying borrowers or, even in some cases, on people who actually were paying or who even owned their homes outright. That’s right. The massive money and power of these Big Banks allowed them to foreclose on people who had no mortgages at all in a few isolated cases.  Most of these misdeeds have come to light in the so-called judicial states where each foreclosure must go before a judge and where borrowers can contest the action if they so choose.  California, by the way, is a non-judicial state where foreclosure proceedings do not involve the courts or judges.

Some judges and attorneys in these judicial states have noticed peculiar signatures, for instance, with the same signatory appearing multiple times on legal documents but clearly in different handwriting. Multiple personality disorder? It appears not–robo-signing was the name of that game. And, it is fraud. This is what some banks were doing when they couldn’t locate the original paperwork. Our system of real estate has demanded that the original paperwork be present to back any claim to foreclose for over 200 years. But, banks had instituted their own electronic system, called MERS, which made it easier to change the ownership of mortgages but more difficult to maintain the paperwork. Solution? Make it up…just do anything to kick those people out of their houses.

What Are Regulators Offering As Compensation?

Well, that’s the rub, isn’t it? The whole Wall Street fiasco has been marked by absent or weak regulators. Already more than 10 million homes have been foreclosed upon and regulators are just now making any noises about calling the banks to account. So far, the regulators have not established any guidelines for compensating borrowers found to have been  fraudulently deprived of their homes, though compensation of some sort is promised.

Plus, banks may want to be “held harmless” against further lawsuits if they pay even token compensation. Will the regulators agree to that?  Given the terrible track record of these regulators, there is every reason to suspect the real purpose of these letters rather than aiding consumers aims really to calm the situation for the servicers who are now facing massive potential litigation.   If it seems paranoid to suspect federal regulators of favoring the banks over consumers, call me guilty because I do suspect that very thing.

How Do Borrowers Sign Up?

Borrowers who want to learn more about the federal claims process can visit IndependentForeclosureReview.com or call (888) 952-9105.

Borrowers must request reviews by April 30, and the foreclosures must have been on primary residences to be eligible.

Kamala Harris Comes Through: CA Out Of Big Banks Deal!

kamala harris, attorney general of california

Kamala Harris Is My Hero, Too

This is terrific news: Kamala Harris, California’s Attorney General, has heard the people of this state, suffering under the worst mortgage and real estate crisis since the Great Depression. She has opted out of the proposed settlement of the 50 states Attorneys General with the Big Banks. That settlement, rumored to be about $25 billion, is really small potatoes and would have been a disastrous conclusion of their investigation.  $25 billion would barely settle the monetary issues for California alone, not to mention the other 49 states. In addition, the banks are seeking to limit all their legal liability in return for the meager settlement. Despite the support of the Obama administration,hoping to end financial uncertainty with this settlement, Harris has decided that California will pursue a separate investigation and, if possible, make a separate settlement with the Big Banks.

Other States Are Reluctant To Sign

Harris follows in the footsteps of Eric Schneiderman of New York who has launched a wide-ranging investigation of the activities of the Big Banks which include Bank of America, Chase, Wells Fargo, Citigroup and Ally Financial.  Other states have also signaled their displeasure with the proposed deal which, if rumors are correct, allots a huge windfall to the Big Banks and a meager settlement to the states. Besides New  York and California, Delaware Massachusetts, Kentucky and Minnesota, along with our hard-hit neighbor, Nevada have all signaled intense dislike of the proposed deal.

California, already one of the worst foreclosure states in the nation, recently made headlines again when foreclosures jumped 55% in one month as BofA, a prime supplier of SoCal mortgages during the “bubble years” via Countrywide, prepared to “dump” more seized homes on an already-bloated real estate market. Stockton, CA is especially at risk for there, it is estimated, 1 in every 7 homes could be foreclosed in the near future. Likewise,  Nevada’s Las Vegas is suffering from an especially difficult and long-lasting crisis  as estimates say that 75% of Las Vegas homes are underwater and could potentially be foreclosed.

Fraudulent Mortgage Practices

As indicated in a previous post, some of the most notorious fraudulent practices of the Big Banks, such as robo-signing, continue despite their public exposure. Since California is a non-judicial state, meaning foreclosures do not have to be approved by a judge or, indeed, by anyone, fraudulent foreclosures are harder to spot. Judicial states, in general, are the ones which have brought such practices to light. Given the huge number of foreclosures in California, though, it stands to reason that large numbers of these were not legitimate.  Victims of such practices should have the help of the state’s top lawyer, the attorney general, to help them seek redress. Except in rare cases, it is prohibitively expensive for individuals to launch suits against Big Banks. That should not give the Big Banks carte blanche to commit wholesale fraud against California mortgagees.

What Does This Mean For Distressed Homeowners?

The most likely scenario now with both New York and California posing uncomfortable questions to the Big Banks while launching probing investigations into mortgage abuse is that the 50-state deal will collapse. The Big Banks will have to live with  uncertainty. Will they be brought to the bar for their crimes? How much will it cost them? Will heads roll? And the Big Question for Big Banks: will profits suffer? will stock prices dive? Few have much sympathy left for the banks, so, aside from Timothy Geitner and Henry Paulson, few will really care.

big banks bailout cartoon

The outcome for the distressed and already-foreclosed-upon homeowner, though is a different story. With multiple ongoing investigations, quick relief in the form of monetary settlements is not in the cards.  It is really, though, to everyone’s advantage to dig deeper into this morass of abuse. If the fraud is papered over, then, equally obviously, it will happen again. If the banks made trillions by fraud and nobody cares to demonstrate the modus operandi, then they will continue to  behave in the same way. Showing the crime and punishing the criminal:  That is the basis of our judicial system and it is a vital necessity in this case.

Some of the more flagrant practices are already known, publicized, and yet continuing. Big Banks could regulate themselves in order to regain public confidence. This is, apparently, what was expected of them after the 2008 bailout which seems to have been offered with no strings whatsoever.  Did they regulate themselves?  For those imprisoned in Siberian ice caves for the past 4 years, the Big Banks went right back to business as usual. Congress needs to regulate our messed-up financial sector. The sooner, the better if we are ever to get out of this nightmare.

Eric Schneiderman Is My Hero!

Attorneys General of 50 States Sue The Big Banks

As mentioned in a previous post back in March, for months now the Attorneys General of  all  50 states of the union have together been suing the big banks over violations of real estate law. Banks transferred their mortgages repeatedly in order to create the infamous mortgage-backed-securities [MSB] filled with non-performing loans and sold all over the world. But, the banks never paid the taxes and fees due on the transfers and so have opened themselves up to lawsuit from every state.

We all know how strapped the states are for cash, so it’s no surprise that the Attorneys General would make every effort to collect.  In the meantime, though, the Obama Administration has also gotten involved and, as per usual, the Big Banks have been frantically lobbying to limit their liability-drastically limit their liability.

 

In fact, a number like $20 billion has been bandied about, leaked to the press, while yet the banks object vociferously to this number which, large though it is, is paltry in comparison to the hundreds of billions, not to mention trillions, they raked in during the “bubble” years when they were making these horrible loans to almost anyone with a pulse. Considering, too, that the final settlement amount must be shared among 50 states, that $20 billion is really small potatoes.

Banks Want To Escape Liability-Totally

The banks’ behavior, though, is far more troubling than merely limiting the dollar amounts they must pay the states. No, you see the banks want to limit their total liability to all those who lost their homes, legally or illegally. As mentioned in a previous post, foreclosure fraud via cooked-up loan documents is still going on, as was recently discovered. This plan would also limit banks’ liability to those investors, both at home and abroad, who bought the toxic investments which the banks knew were substantially worthless as they off-loaded them to the unsuspecting. The dive the pension funds took? Not their responsibility, either.

Helping the banks contain this damage into one neat little package and, as Matt Taibbi of RollingStone has it, shooting it off into deep space, are many of the AGs and the Obama Administration. It seems it would serve government’s goals as well if this whole thing would just go away.  Put into a neat, little [and cheap for the banks] package and allow the banks to then go their merry way. Never mind the millions of former homeowners who lost their homes, whose lives were ruined, whose livelihoods were destroyed by the easy money provided by the banks which fueled the bubble and made them billions of dollars.

My Hero Eric Schneiderman

 

Enter my hero, Eric Schneiderman, Attorney General of New York [my home state]. Schneiderman has refused to go along. Schneiderman actually wants to investigate the activities of these banks. Earlier this year he launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies. Further, Schneiderman is also blocking an individual $8.5 billion settlement for Countrywide investors. He has sued to stop that deal, claiming it could “compromise investors’ claims in exchange for a payment representing a fraction of the losses.”

Schneiderman is seriously compromising the Big Banks’, other Attorneys’ General and the Obama Administration’s efforts to shovel this huge pile of doo-doo under the rug of a tiny settlement.  He is under tremendous pressure to cave and has been summarily kicked off the negotiating team.

Banks are spouting a revisionist line: their crime is faulty paperwork, not massive corruption and fraud which, for those of us who can remember what life was like 5 years ago, a dwindling group, it appears, was their real crime. Banks knew their loans were bad. That is why they “sliced and diced” them and stuffed them into MBSs in the first place. They behaved with no regard for the effect on others; they operated solely for their own benefit. And, benefit they did, let us remember, to the tune of billions of dollars. And, when their crimes started to catch up to them, they cried “Bailout” to the federal government and the very same evil-doers got billions in tax-payers money.

Why is Eric Schneiderman the only one who remembers this? Why is he the only one who understands that he is the defender of the millions of helpless homeowners who lost their homes, often illegally, after they had already been victimized with fraudulent loans and offered no loan mods or trifling mods by these very same banks?

Eric Schneiderman is my hero. I truly hope he can hold out against the combined pressure of the Obama Administration and most of the other AGs. Please, Eric, hold fast.

Banks Are Still Cheating!

After all the hullaballoo last fall over the “robo-signing” scandal, you would think that banks had learned their lesson. You wouldn’t expect to see a big bank still forging documents so it could foreclose, would you? You would be wrong.  GMAC, one of the biggest of the big mortgage lenders/servicers, was recently caught-again!-doing that very thing.

Here’s what happened. The bank wanted to foreclose on a property in New York and, as often happens in these days of mortgage-backed securities, tranches and what have you,  did not have the requisite documents. Usually in a case like this, the bank goes to the original lender and asks permission to recreate the original documents. Even that sounds pretty murky. We consumers are required to have documentation for everything or–too bad for you–no dice. In this case for GMAC, though, it was even worse because the original lender, notorious subprime mortgage-maker Ameriquest, had gone out of business in 2007.

So, GMAC, not to be deterred, started seeking ways to craft the documents anyway. The problem, as stated by its own “Document Execution Team” head, Jeffrey Stephan, was that the bank did not have signing authority.  Several months passed and no solution appeared to help GMAC out of this legal “snag.”  Then, suddenly, GMAC had an answer. It filed a document with New York City authorities  stating  the delinquent Ameriquest loan had been assigned to it “effective” August 2005. The document was dated July 7, 2010, three years after Ameriquest had ceased to exist and was signed by Stephan, who was identified as a “Limited Signing Officer” for Ameriquest Mortgage Company. Soon after, GMAC filed for foreclosure.

Was it legal? No way was this little trick legal as it did not have signing authority from the defunct Ameriquest. In fact, it’s own paperwork giving itself authority was dated in 2010. Oops!

Guess what, GMAC? In New York it’s a felony to file paperwork “with intent to deceive”.  Already we know that GMAC was at the forefront of the fradulent “robo-signers” and, apparently, has not taken its lesson to heart because, according to ProPublica which discovered this particular case, this is just one of hundreds, if not thousands of similar work-ups arranged by GMAC so it can proceed to foreclosure, regulations and laws be damned.

Snagged in the act, so to speak, GMAC has not yet been able to foreclose on this home where the owner still resides. And, since apparently no one did much homework at the time of the demise of these sub-prime lenders, this will continue to plague not only GMAC, but also other mortgage servicers in their quest to foreclose.

How inconvenient it is that real estate laws exist! How much better if these silly little laws could be just wiped off the books and the banks allowed to do as they wish-foreclose without proper documentation.

That is the root of the cries for “less regulation”, “free market capitalism,” no “job-killing rules” and the like.   GMAC is not alone in its tricky interpretation of foreclosure laws.  Many banks have filed thousands of false foreclosures, knowing full well that few homeowners will contest them in court.  In fact, fewer than 4% of foreclosures are contested, though the stakes are very high for homeowners.   Recently, in Vermont a judge threw out a pending foreclosure from GMAC, based on a flawed signature emanating from the aforementioned Stephan who has admitted to signing up to 400 foreclosure notices a day, precipitating the foreclosure scandal.

My, How Mortgages Have Changed!

The horse has already bolted out the barn door, which the mortgage industry is now nailing firmly shut.   Due to the banks’ foolhardy loans during the “bubble years”, home prices and loan values are now at an all-time low, but few are able to benefit. The reason? Those who want a home loan today need pristine credit. That means a FICO score of 750 to 775.  Since the nation’s median score is 711, that means fully half the population would not qualify for a new home loan even if the 20% down payments were no problem.

Because of the new, much tighter loan qualifying guidelines, the terrific bargains out there will have to remain a tantalizing, but forbidden  treat for potential buyers. In the past before the current crisis, a FICO score of 700-725 was considered “solid”, a good risk for the bank. FICO scores range from 300 to 850.  Freddie Mac and Fannie Mae, two government agencies, are now covering about 75% of the mortgage market and, according to data just released pursuant to the Dodd-Frank financial-services legislation,  have approved borrowers with 750 to 775 for 75% of their mortgages when in 2005 that high a FICO accounted for just 5% of approvals.

Paying close attention to credit reports is now, more than ever, of prime importance for would-be home owners.  Having a score below 750 does not make getting a mortgage approval impossible, just more expensive. Besides the 20% down payment required for conventional mortgages,  a 730, for instance, would cost an extra .125 percentage points per year.  Between 700 to 725, previously an un alloyed approval, the borrower will pay an extra quarter percentage point. Below 680, it gets harder to find an approval and, of course, costs more.

Those who already own their homes and are looking to tap into today’s great loan rates will face similar obstacles. The banks will look for the higher credit scores, adequate income and what is now increasingly difficult to come by–at least 20% equity in the property. The rules for refi really are little different from those for first-time buyers. Cash-out refis also are subject to stringent approval guidelines as home values are still dropping or wildly gyrating in many areas. And, unlike the past, no one seems to have much faith in the future any more.