Will Banking Regulators Worsen The Foreclosure Crisis?

Today, Jody Shenn of Bloomberg reports on another potential problem facing homeowners struggling with their mortgage payments.

"Banking regulators may push more homeowners into foreclosure by making it tougher to refinance subprime mortgages, said Angelo Mozilo, head of the largest U.S. home-loan lender."

"The Federal Reserve, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency proposed guidelines last month that would encourage lenders to turn down borrowers who won't be able to afford mortgages after ``teaser'' rates expire. Rates on loans to people with poor or limited credit are typically fixed for two or three years and then rise. "

I'm already starting to see many lending institutions and investors tighten underwriting standards which hurts the very people whom need help the most. If this trend continues you'll likely see the foreclosure problem spread as many more homeowners will be 'locked out' from the chance to refinance t0 a lower payment loan.

"The change would block more than half of subprime borrowers from refinancing mortgages at a time when slumping real estate prices have already caused delinquencies to rise to a four-year high, according to Mozilo."

"Teaser rates on almost 2 million subprime loans will expire in 2007 and 2008, according to First American Corp. a Santa Ana, California-based realty data firm."

"Mozilo compared the proposals to the savings-and-loan crisis of the late 1980s, when he said more than 1,000 thrifts failed in part because regulators set rules that encouraged thrifts to buy bonds with credit ratings below investment grade and then forced them to sell, causing prices to tumble."

-Bill Burniece

A Government Mandated Foreclosure Moratorium?

This is a possibility, amongst many others, being considered by Congress looking for a way to stem the tide of foreclosures nationwide. While it sounds like a good idea on the surface it may be impossible due to the complexity of the mortgage industry and its multi-tier hierarchy.

Holden Lewis of Bankrate.com writes in an article released today:

"The high number of new foreclosures hints that the foreclosure problem will get worse, and members of Congress are looking for fixes."

'"There are no easy market solutions,"' David Berenbaum, executive vice president of the National Community Reinvestment Coalition, told the committee. He suggested a government solution instead: a mandated temporary halt in foreclosures. Too many law firms and mortgage servicers rush consumers into foreclosure without assessing their ability refinance or catch up on their payments, he said."

"Moratorium would raise questions

There were no servicers at the witness table to critique the notion of a national foreclosure freeze. A mortgage servicer might have asked who would pay the accumulated interest payments during a moratorium. For example, if a six-month halt to all foreclosures merely delayed a consumer's foreclosure for six months instead of preventing it, that homeowner would rack up seven months of unpaid interest charges instead of one month. Who would be responsible for paying the extra amount: the servicer, the investors who own the loan, the borrower? If it's the latter, is that fair? Or would the taxpayers pick up the tab?

Proponents of a foreclosure moratorium say it would give borrowers time to refinance if possible, and would give servicers time to modify loans. Mortgages can be modified in different ways: The interest rate can be reduced, payments can be suspended until the borrower finds a job, or missed payments can be caught up over time or tacked onto the end of the loan."

Complicating things further is the fact that many loans are sold after closing - releasing the original lender from any obligation or authority to modify terms.

"Most mortgages are sold to an issuer, which packages loans into pools with hundreds or thousands of loans with similar terms, rates and credit quality. Each pool of loans is securitized, meaning that bonds backed by the loans are sold to investors. The investors don't own whole loans, they hold interests in the entire pool of loans.

When mortgages are securitized, they are chopped up and thoroughly mixed together. Modifying a loan in a securitized pool is like extracting a teaspoon of sugar from cupcake batter.
"Once the lender has sold the mortgage to the issuer, the lender no longer has the power to restructure the loan or make other accommodations for its borrower," Bair said. That power resides with the servicer, but "the servicer can only do what the securitization documents allow it to do.

Oftentimes, those contracts make it nearly impossible to modify more than 5 percent of the loans in the pool. Loans can't be modified until the borrower is at least a month past due. Tax laws and accounting rules"

It is clear that there are NO easy answers... yet. If you are in danger of foreclosure you cannot afford to wait for Congress to act. You need to take matters into your own hands. You can take the first step by going here.

-Bill Burniece

Will Government Intervene To Help Homeowners In Foreclosure?

That is yet to be determined. But what we can be certain of is a heated debate on this issue in the coming months.

Yesterday, key Senate Democrats fired the first shot suggesting that hundreds of millions of dollars in federal aid may be needed to assist homeowners at risk of foreclosure. Charles Schumer, chairman of the Joint Economic Committee, called on the federal government to consider a large federal bailout program as the foreclosure epidemic worsens.

Elsewhere, consumer activists and nonprofit groups are putting pressure on Wall Street to assist homeowners facing foreclosure in the restructuring of their home loans.

I will be keeping a close eye on these developments for you. Stay tuned.

-Bill Burniece

Don't Be Victimized By Foreclosure "Rescue" Scam Artists

As I've discussed here before there are people out in your community right now looking to rip you off. They will stop at nothing to try to steal your home from you. And if you are in foreclosure you are vulnerable.

This week I was sent yet another article detailing the despicable things these predators will do to try to take your home from you. This one is from Orange County.

'Teri Allen and her mother, Jacquie, thought Edward Seung Ok would rescue them from losing their Anaheim Hills home after they'd gotten behind on their house payments. Instead, he transferred title to their house to a sham buyer, borrowed huge sums against it and pocketed the loan proceeds, the Allens would later allege in a fraud lawsuit.

On March 1, the mother and daughter lost the three-bedroom house they'd bought together, along with about $300,000 in equity they would have gained had they just sold the house outright. Last weekend, they moved into a rental and wondered if they would ever be homeowners again.

"We thought everything was going to be taken care of," Teri Allen, 38, said. "Then all of a sudden … we started getting notices of default in the mail."

The Allens are among at least 10 Orange County families who were victimized by so-called "foreclosure rescue" or "equity skimming" scams involving Ok and his associates, according to the FBI. A federal indictment charges Ok and four others with defrauding about 100 homeowners throughout Southern California out of about $12 million.'

Always have your guard up when approached by any stranger claiming they can help you out of your foreclosure. Ask for ID and references of other people they have 'helped.' Tell them up front you will be checking into their background and business record. And most importantly, never ever sign anything without having an attorney review the documents. With your home involved the stakes are much too high.

'"We will see more and more of that as foreclosures continue to rise," said Peter Norell, who leads an FBI white-collar crime unit in Santa Ana. "All kinds of scams come out of the foreclosure market."

In most cases, according to court files and experts, homeowners desperate to save their homes from the auction block are induced into signing deeds – or their names are forged on deeds – "temporarily" transferring ownership to sham buyers.

Because homes often are worth more than the mortgage amount, lenders are willing to increase that debt, sometimes up to the market value of the property. So perpetrators arrange a new loan at market value, pay off existing loans and pocket the excess cash.

Since the perpetrators have no intention of repaying the loans, the homes usually end up in foreclosure anyway, and the mortgage companies that issued the loans end up taking the house back and reselling it at a loss.'

Don't make the mistake of compounding an already difficult financial situation with the nightmare of losing your home to thieves.

-Bill Burniece

Facing Foreclosure? Call Your Lender!

Noelle Know of Gannett News included an interesting statistic in a story earlier this week:

"Of the almost 280,000 homeowners who lost their homes to foreclosure last year, half of them never talked to their lenders."

All I can say is wow!

As I've said many times before the single most important thing you must do when facing foreclosure is contact your lender. Not tomorrow... TODAY.

Trust me - your lender does not want your home. Most foreclosures involve homes with little or no equity. Lender's lose money when they have to acquire and resell the property. According to the story in Gannett, foreclosing on a home and reselling it costs a lender $59,000 on average. What they really want is for you to stay and pay. They will likely work out a payment plan or other solution with you if you contact them immediately.

To help you be better informed when you speak with your lender, Gannett News reports that the following five solutions may be considered by lending institutions as an alternative to foreclosure:

"Refinance: Allow the homeowner to refinance the current loan into a new loan. For example, you could refinance from an ARM into a fixed-rate loan.

Repayment plans: Long-term catch-up plans allow homeowners who have fallen behind to pay more per month on their mortgage, gradually bringing their loans up to date.

Loan modification/restructure: Agreement to change the interest rate or other terms of the loan

Forbearance: To postpone the interest or payments on the loan for a fixed period of time

Quick sale: Allows the borrower to sell the property for less than the loan, and consider the loan paid in full."

Keep these strategies in mind if you find yourself in this type of unfortunate situation. And always remember to CALL YOUR LENDER!

-Bill Burniece

Seek Foreclosure Hotlines

Colorado, where I live, has done an excellent job addressing the problems facing consumers in or heading towards foreclosure. Since they set up a Foreclosure Hotline 5 months ago they have already received over 11,000 calls from people in trouble with their home loans.

Anyone outside of Colorado should contact their state's Division Of Housing to find out if they have set up their own foreclosure hotline or foreclosure help center.

I predict an increase in demand for these services through the remainder of 2007 and into 2008.

-Bill Burniece