Fannie, Freddie Boost Effort to Minimize Foreclosures (Update3)

Fannie, Freddie Boost Effort to Minimize Foreclosures (Update3)

 

By Dawn Kopecki and Rebecca Christie

 

Nov. 11 (Bloomberg) -- Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, will accelerate anti- foreclosure efforts by streamlining loan modifications to lower monthly payments for more struggling homeowners.

 

Fannie and Freddie, operating under a government conservatorship, will target loans in which borrowers are at least 90 days delinquent and have high loan-to-income ratios, officials from the Treasury and the Federal Housing Finance Agency said today at a press conference in Washington. The companies may offer homeowners reduced interest rates and longer terms of as much as 40 years to trim monthly payments.

 

``With such broad adoption, this new protocol will be a standard for the industry to quickly move homeowners into long- term sustainable mortgages,'' Neel Kashkari, the Treasury's interim assistant secretary, said in a prepared statement.

 

The initiative expands efforts by the Hope Now Alliance, a group of investors, advocacy groups, and mortgage lenders and servicers such as Citigroup Inc. and Wells Fargo & Co. that Treasury Secretary Henry Paulson helped create last year. The success rate in the past for ``curing'' delinquent loans with modifications similar to what the government proposes was about 50 percent for both prime and subprime borrowers with damaged credit, according to data from the Mortgage Bankers Association.

 

``We realize a number of these can't be saved because of the borrower's situation,'' said MBA Chief Economist Jay Brinkmann. ``But if we can save half of them, that's a good result.''

 

A Central Role

 

California, Florida and other high-cost real estate markets where borrowers have larger debt loads or nontraditional mortgages will likely reap the most from the program, he said.

 

U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record as home prices fell and stricter mortgage standards made it harder for homeowners to sell or refinance, RealtyTrac, a provider of real estate data based in Irvine, California, said on Oct. 23.

 

Paulson has said a housing market recovery is central to the economy's revival and urged Fannie and Freddie to play a bigger role.

 

``If housing doesn't get stabilized, it's really going to continue to bleed the economy,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, and Bloomberg's most-accurate economic forecaster for 2008.

 

Under the proposal, mortgage servicers will work with borrowers to reduce monthly payments to 38 percent of their gross income, a threshold of affordability, by lowering the principal, reducing interest rates and extending the length of the loan term. The plan doesn't include money from the Treasury's $700 billion bank rescue and isn't mandatory for companies that received federal aid.

 

Conditions and Fees

 

Homeowners that qualify will receive notices about the program. Their loan modifications won't become final until they have made three consecutive payments, and there is no limit to the number of times a loan can be modified. The new payment will include all of the borrower's monthly housing costs, such as taxes and condominium payments.

 

Fannie and Freddie are paying mortgage servicers $800 to process each modification, which isn't available for investment or vacation properties. Fannie and Freddie will absorb the losses on loans or mortgage securities they own while investors in mortgage bonds guaranteed by the government-run corporations will bear a brunt of the losses on that debt.

 

``This idea is really to keep homeowners in their homes,'' FHFA Director James Lockhart said in an interview with Bloomberg Television today. ``If we can start stabilizing the mortgage market, prevent foreclosures, hopefully, we can put a floor under house prices, and that would be important to every homeowner in this country.''

 

Bair Objects

 

Federal Deposit Insurance Corp. Chairman Sheila Bair, who has advocated using some of the money from a $700 billion bank rescue program to help with loan modifications, said today's announcement doesn't go far enough.

 

``This is a step in the right direction but falls short of what is needed to achieve widescale modifications of distressed mortgages,'' Bair said in a statement sent by e-mail. ``As we lend and invest hundreds of billions of dollars to help institutions suffering leveraged losses from defaulting mortgages, we must also devote some of that money to fixing the front-end problem: too many unaffordable home loans.''

 

Bair said there are still questions about implementation including: Allowing extended amortization prior to interest rate reductions; the length of caps on payment increases, interest rate caps; and compliance reporting, according to the statement.

 

Housing Slump

 

Lockhart placed Fannie and Freddie under federal control Sept. 6 and has since pushed the new management to work harder than the old management at modifying troubled single-family and multifamily mortgages to curtail foreclosures.

 

Fannie and Freddie's loss mitigation efforts so far have fallen short, according to a FHFA report last month. Fannie and Freddie's success in resolving delinquencies fell in the second quarter, the companies took on fewer loan modifications and workout plans for borrowers, and their success for loans in loss mitigation declined to a 37.2 percent rate from 43.7 percent in the first quarter, FHFA data shows. Company executives estimated about 10,000 borrowers a month may qualify for the new program.

 

FHFA and the Treasury have put more pressure on the lending industry to be flexible with struggling homeowners. The U.S. housing slump may extend into a fourth year as banks still turn away borrowers, foreclosures worsen the glut of unsold homes and job losses climb higher.

 

Best Decisions

 

Lower property values will keep eroding home equity, complicating even more refinancings. The S&P/Case-Shiller home- price index of values in 20 U.S. cities dropped 16.6 percent in August from a year earlier, the fastest pace on record. The index has been lower every month since January 2007.

 

The worsening economic slump means there's a need to scrutinize past loan-modification programs and see how they can be improved, said Mary Coffin, executive vice president of loan servicing at Wells Fargo, the largest U.S. mortgage servicer.

 

``We didn't have the economic situation we have today 18 months ago, so we've got to re-look at it, and say, `What's the best decision for investors, borrowers and the state of the entire country?''' Coffin said in an interview at a Securities Industry and Financial Markets Association conference yesterday in New York.

 

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.

 

Last Updated: November 11, 2008 18:24 EST

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The Underwhelming Frannie Loan-Mod Plan

The Underwhelming Frannie Loan-Mod Plan

 

The Frannie loan-mod plan has arrived, and it's not particularly exciting. Among the more obvious problems:

 

• It applies only to mortgages owned by Frannie, which means, by definition, that it doesn't include subprime mortgages. FHFA is trying to apply moral suasion -- but no cash -- to persuade other mortgage holders to adopt the same plan. Good luck with that.
• It doesn't even begin to address the problem of mortgages which have been securitized, rather than being held by a single bank.
• It's based on the idea that servicers "have dedicated personnel who are experienced in working with borrowers who are struggling with finances, but who are eager to keep their homes". Not nearly enough of them they don't.
• It requires borrowers to be 90 days delinquent -- and therefore gives many borrowers with mortgages over 38% of their gross monthly income a massive incentive to cease making any mortgage payments now.
  The onus is on the borrower to initiate proceedings, providing a package including "monthly gross household income, association dues and fees, and a hardship statement". For $800 per mod, servicers aren't going to be proactive about helping get this kind of thing done, especially given how overworked they are already.
  

 

In a quite extraordinary turn of events, FHFA director James Lockhart said in his statement that "we have drawn on the FDIC's experience and assistance, and have greatly benefited from the FDIC's input", yet the FDIC's Sheila Bair then turned around and released her own statement, saying that the plan "falls short of what is needed to achieve widescale modifications of distressed mortgages".

 

Clearly this is not going to be the last word when it comes to government attempts to help stabilize the housing market. It's probably going to be the last word until January 20, though; after that, Bair might find Treasury and the White House more amenable to her ideas.

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Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges of Unlawful Mortgage Servicing and Debt Collection Practices

Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges of Unlawful Mortgage Servicing and Debt Collection Practices

 

The Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation, have agreed to pay $28 million to settle Federal Trade Commission charges that they engaged in unlawful practices in servicing consumers’ home mortgage loans. The companies allegedly misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Under the proposed settlement they will stop the alleged illegal practices and institute a data integrity program to ensure the accuracy and completeness of consumers’ loan information.

 

“Like other companies that send a bill, mortgage servicers must make sure that the amount they say is due really is the amount due,” said Lydia B. Parnes, Director of the FTC’s Bureau of Consumer Protection. “Consumers have the right to expect accuracy from the company that collects their mortgage payments.”

 

As stated in the FTC’s complaint, Bear Stearns and EMC have played a prominent role in the secondary market for residential mortgage loans. During the explosive growth of the mortgage industry in recent years, they acquired and securitized loans at a rapid pace, but they allegedly paid inadequate attention to the integrity of consumers’ loan information and to sound servicing practices. As a result, in servicing consumers’ loans, they neglected to obtain timely and accurate information on consumers’ loans, made inaccurate claims to consumers, and engaged in unlawful collection and servicing practices. These practices occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which became effective on May 30, 2008.

 

According to the complaint, EMC is the mortgage servicer for many of the loans Bear Stearns and EMC acquired. Many of these loans are subprime or “Alt-A” (less than prime) loans, including nontraditional mortgages such as pay option adjustable rate mortgages (“pick-a-payment” loans), interest-only mortgages, negative amortization loans, and loans made with little or no income or asset documentation. EMC’s loan servicing portfolio has grown significantly in recent years; as of September 2007, it serviced more than 475,000 mortgage loans with a total unpaid balance of about $80 billion.

 

THE FTC COMPLAINT

 

The complaint charges Bear Stearns and EMC with violating the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act’s (TILA) Regulation Z.

FTC Act Violations: The defendants are charged with unfair and deceptive loan servicing practices in violation of the FTC Act. They allegedly misrepresented the amounts consumers owed; assessed and collected unauthorized fees, such as late fees, property inspection fees, and loan modification fees; and misrepresented that they possessed and relied upon a reasonable basis for their representations about consumers’ loans.

 

Fair Debt Collection Practices Act Violations: The defendants allegedly violated several provisions of the FDCPA in collecting loans that were in default when they obtained them. They also allegedly made harassing collection calls; falsely represented the character, amount, or legal status of consumers’ debts; and failed to communicate that debts were disputed. In addition, they allegedly used false representations or deceptive means to collect, and failed to send consumers a validation notice containing the amount of the debt and the consumer’s right to dispute the debt and obtain verification of the debt.

 

Fair Credit Reporting Act Violations: The FTC alleges that the defendants furnished information about consumers’ payment status to credit reporting agencies (CRAs). When consumers informed the defendants that they disputed the completeness or accuracy of the reported information, the defendants failed to report the dispute to the CRAs as required by the FCRA.

 

Truth in Lending Act’s Regulation Z Violations: The complaint also states that the defendants charged borrowers a loan modification fee, typically $500, and automatically added the fee to the modified loan’s principal balance. In doing so, the defendants failed to provide the borrowers with required TILA disclosures.

 

THE SETTLEMENT

 

The proposed settlement requires Bear Stearns and EMC to pay $28 million to redress consumers who have been injured by the illegal practices alleged in the complaint. In addition, the settlement bars the defendants from future law violations and imposes new restrictions and requirements on their business practices. Specifically, the settlement:

 

bars the defendants from misrepresenting amounts due and any other loan terms; 
requires them to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans; 
bars them from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract; 
prohibits them from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes; and 
prohibits the defendants from violating the FDCPA, FCRA, and TILA. 

 

The proposed settlement further requires Bear Stearns and EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information that they obtain about consumers’ loan accounts, before servicing those accounts. The defendants must obtain an assessment from a qualified, independent, third-party professional within six months and then every two years, for the next eight years, to assure that their data integrity program meets the standards of the order.

 

The proposed settlement also contains record-keeping and reporting provisions to allow the FTC to monitor compliance with the order.

 

The Commission vote to authorize staff to file the complaint and proposed stipulated final order was 4-0. The documents were filed in the U.S. District Court for the Eastern District of Texas.

 

Including the case announced today, the Commission has brought 23 actions in the past decade alleging deceptive or unfair practices by mortgage brokers, lenders, and servicers. Several of these landmark cases have resulted in large monetary judgments that have returned more than $320 million to consumers.

 

CONSUMER HOTLINE: If the court approves the settlement, consumers who are eligible for redress will be contacted by mail. The Commission’s consumer hotline regarding the settlement is 1-877-787-3941. Consumers who have changed their address recently may provide updated contact information by calling the hotline. Consumers also can find information about the settlement on the FTC’s Web site athttp://www.ftc.gov.

 

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge. 

 

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.

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State Sues Large Mortgage Lender

State Sues Large Mortgage Lender

AG Alleges Countrywide Misled Borrowers

 

Written by: TheIndyChannel.com

 

INDIANAPOLIS -- Indiana has sued Countrywide Home Loan Inc., claiming deceptive and misleading practices in thousands of loans issued in the state.

 

Attorney General Steve Carter on Sunday announced the lawsuit against the country's largest mortgage lender, 6News' Ericka Flye reported.

 

Carter said the actions of Countrywide and parent company Countrywide Financial Corp. were far from fair.

 

The state claims that between July 2005 through this year, Countrywide violated Indiana's Home Loan Practices Act by misleading homeowners about their loans, which differed from the terms in their signed contracts, and inflating consumers' incomes on documents.

 

"People have been led to believe they can get a 1.75 percent rate good for five years -- quite a deal -- but, in fact, that rate has been adjusted after three months," Carter said. "Hopefully this is a warning to some degree to lenders in Indiana that we want them to be fair with Indiana consumers."

 

Carter claimed that in one Indiana case, a person's income was stated in a contract as $14,000 a month when it was just $3,000 a month.

 

The state said Countrywide also provided incentives to employees to sell loans with risky features and misled borrowers about prepayment penalties.

 

"These are people that were told, 'If you sell your home, you're not going to have to pay a prepayment penalty,'" Carter said. "In fact, they've been charged for that."

 

The state wants loan terms it claims were misrepresented voided and is seeking fines and restitution for families affected by the company's loan practices.

 

"We hope that they (borrowers) will file a complaint with the Indiana Attorney General's Office, and they may then become part of this lawsuit," Carter said.

 

In a statement released Monday, Countrywide officials said, "Since taking ownership of Countrywide in July, Bank of America has been involved in a detailed review of Countrywide’s operations. Practices that established Bank of America’s positive reputation and record in home lending are an illustration of how we will operate the combined company."

 

Four additional states have also taken action against Countrywide -- Connecticut, California, Illinois and Florida.

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Suit blames loan servicer for pending foreclosure

Suit blames loan servicer for pending foreclosure

 

By Kimberly Blanton
Globe Staff / August 5, 2008

 

A Boston-area couple who are in foreclosure, despite their herculean attempts to prevent it, have filed a lawsuit against Washington Mutual, one of the nation's largest mortgage servicing firms.

 

In the suit, filed in Suffolk Superior Court, Lori and Mark Pestana of Westford allege the loan servicer was unresponsive to their repeated phone calls and to their applications to negotiate an arrangement that would have allowed them keep their house out of foreclosure.

 

The suit is seeking class-action status on behalf of thousands of Washington Mutual borrowers in Massachusetts.

 

Their allegations echo those of other borrowers who dealt with customer service departments at major loan servicing firms. Loan servicing firms accept payments and handle mortgage duties on behalf of lenders or the

 

Wall Street investors who hold the loans.

 

The firms, inundated with loan delinquencies and foreclosures, often don't respond to phone calls or letters and fail to accept late payments, renegotiate loans, or approve house sales that would avert foreclosures, some borrowers and agents have said.

 

"I feel like we were just sucked in and caught in a vortex that we couldn't get out of," Lori Pestana said about trying to prevent Washington Mutual, or WaMu, from foreclosing on a $275,000, fixed-rate mortgage.

 

WaMu yesterday said it is "fully committed to helping our customers stay in their homes" and that "foreclosure is a last resort."

 

The role of servicing firms in the rising tide of US foreclosures is a growing political issue as lawmakers realize the firms - and investors who purchased the mortgages in bundles - are logjams to resolving individual homeowners' situations and clearing up the housing crisis. WaMu is a lender as well as a servicing company.

US Representative Barney Frank, the Newton Democrat who is chairman of the House Financial Services Committee, recently asked servicers to explain their poor handling of loan modifications for borrowers trying to keep their homes.

 

Frank plans to send a letter today asking servicing firms to delay all foreclosures until Oct. 1, when a new federal program takes effect to help homeowners refinance their mortgages. That program will provide Federal Housing Administration guarantees to lenders willing to make up to $300 billion available to refinance struggling borrowers. Frank scheduled a Sept. 17 hearing to examine whether lenders have complied with his request for a delay.

 

In their lawsuit, the Pestanas are seeking damages for their tarnished credit and are trying to reverse their eviction and foreclosure. Their Boston lawyer, Gary Klein, said their eviction has been delayed until late August.

 

The suit, filed one week ago, indicates the Pestanas would not have gone into foreclosure if they had reached someone at WaMu with authority to resolve their problem.

 

After the couple missed their August 2007 payment, Mark Pestana, a human resources specialist, and Lori Pestana, a business consultant whose work had slowed, still felt they could get current on their loan. One option might have been dipping into retirement savings, they said.

 

After reading on WaMu's website that it would assist distressed borrowers with loan modifications, Lori Pestana called and was told they could not qualify until their payments were 50 days late. To become eligible, they stopped paying and applied for help on Oct. 9, 2007.

 

Although the Pestanas said they were told they would get an answer in four to five weeks, a Nov. 13 letter from the Boston law firm Harmon Law informed them they were in foreclosure. Harmon Law represented WaMu in the foreclosure, the suit said.

 

The Pestanas said they tried at least twice to determine the amount they could pay to reinstate their loan, but Harmon Law either did not call back or could not give them an amount. Another time, Harmon Law refused a $12,000 payment, because it was $3,000 short of the total payoff amount, the suit said.

 

Harmon, which was also named in the lawsuit but was not included in the class-action claims, declined to comment.

 

In January, Lori Pestana called WaMu again but was "caught up in an endless telephone loop," the suit said; she left a message but no one called her back.

 

WaMu and Harmon Law violated state law requiring them to bargain in good faith, Klein alleged.

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State, homeowners taking on lenders

State, homeowners taking on lenders

Questionable mortgages appear headed for court

 

By PHUONG CAT LE

P-I REPORTER

 

Michelle Miran didn't realize that there was something wrong with her mortgage until the interest rate reset last year.

 

Her truth-in-lending statement – the legally required disclosure of loan rates and estimated costs – noted a 30-year fixed rate with monthly payments of $1,311 for 359 months. But two years into it, her monthly payment shot up to about $1,700, and she and her husband fell behind.

 

They're now fighting foreclosure on their Tacoma home and fighting back in court, suing the mortgage broker and lender.

 

Their battle comes as state regulators have cracked down on mortgage abuse, bringing charges against lenders and brokers for charging unlawful or excessive fees, failing to disclose costs and fees to borrowers and imposing illegal prepayment penalties.

 

The state Department of Financial Institutions has filed administrative charges against a dozen consumer loan companies so far this year, already twice as many as it did last year. Those companies include Countrywide, NovaStar and American General.

 

"There's been such a national outcry about bad loans that regulators are stepping up to the plate more and trying to do something," said Kurt Eggert, a professor at the School of Law at Chapman University in Southern California and a former member of the Federal Reserve Board's Consumer Advisory Council.

 

"There's pressure on state officials to do something about it."

 

Deb Bortner, head of the Department of Financial Institutions' consumer services division, said the agency has been able to scrutinize lenders better over the past two years because of an increase in enforcement staff and examiners, along with a shrinking field of consumer loan companies.

 

And more charges are in the pipeline, she said.

 

"I see more problems coming up. There's a credit crunch, so I think each mortgage broker and each consumer loan company is struggling to maintain their business," she said. "I think there will be some corners cut to keep these companies alive."

 

While some homeowners clearly overextended themselves and got in over their heads, those now helping troubled borrowers point to evidence that, in many cases, lenders and brokers lied, failed to disclose information or misrepresented the terms of loans.

 

For instance, the state is seeking to revoke the license of American General and fine it $500,000 for violations uncovered during a routine exam. On more than 70 of the 474 loans state examiners reviewed, American General charged greater than 25 percent interest – more than the state allows.

 

On at least 80 loans, borrowers didn't get timely disclosure of what they were paying in interest rates or prepayment penalties.

 

"We are in the process of reviewing the department's filing, and we'll be responding in due course," said Joe Norton, a spokesman for AIG, the parent company of American General.

 

In the most publicized action, Gov. Chris Gregoire announced charges last month against Countrywide Loans. The state accused the company of discriminating against minority borrowers on the same day California and Illinois sued Countrywide, accusing it of deceiving consumers into taking on risky loans.

 

Countrywide did not comment on Washington's investigation, but a spokesman said last month: "We continue to be duly authorized to conduct business in Washington and are actively serving home buyers and existing customers there. We do not expect this to change in the foreseeable future."

 

In the past year, Washington has revoked the licenses of four lenders: Dana Capital Group, First NLC Financial Services LLC, Lindstrom Financial Group and Challenge Financial Group LLC. And the Legislature passed a number of laws this past session to protect consumers from mortgage abuse.

 

Ari Brown, the Mirans' attorney, and others say the increased oversight comes too late for thousands of borrowers who were duped by unscrupulous lenders and brokers.

 

Miran, 30, and her husband were able to make the mortgage payments on their three-bedroom home until the loan rate reset. The increase of about $400 a month, coupled with a maternity leave, made it difficult for them to keep up with payments.

 

"I'm worried, knowing that I'm going to lose my house," said Miran, who works two jobs. "It's going to be very hard for me."

 

After taking their case to an attorney for review, the couple discovered a number of irregularities with their loan.

 

Among other things, the truth-in-lending statement they received represented the loan as a conventional 30-year, fixed-rate loan. Their lawsuit alleges that the monthly payments shouldn't have gone up after two years. Their HUD-1 settlement, a document borrowers get at closing that itemizes all charges, did not credit the couple for a $6,000 payment to mortgage broker America One, their lawsuit says.

 

Miran said the loan officer rushed her through the closing process, sending her a 2-inch- thick stack of documents while she was out of town on business.

 

Miran signed the documents alone in her hotel room, and not in the presence of an escrow agent, even though an agent's signature appears on the documents, according to the lawsuit.

 

She also paid loan-origination fees that didn't reduce the rate she was charged, she said.

 

The state issued a cease and desist order against the loan officer, Eliza Bautista, in 2006, about a year after the Mirans took out their loan.

 

The mortgage broker, America One, and the lender, Argent Mortgage (now Citi Residential Lending) said they, too, were misled by Bautista.

 

Autumn Van Rooy, president of America One, said, "The loan officer had been terminated with our company and therefore conducted her business outside the terms of her employment and was not an agent of our company at that time."

 

Douglas Davies, an attorney for Citi Residential, said his company wasn't involved its origination and bought the loan afterward. He said Citi offered the couple opportunities to modify their loan.

 

"It was a better loan than they had, and they simply refused to do that," he said.

 

Brown countered that Bautista's "employer is liable for everything she does, and Argent (now Citi Residential) is the one who extended the loan and set the condition."

 

Everyone, from loan officers to brokers to lenders, looked away, he said.

 

"Nobody wants to check to make sure these are bona fide loans," Brown said, adding that his clients' situation is all too common.

 

Marilyn Bentz, 77, a retired Kirkland woman, sought help from Washington ACORN, an advocacy group, after learning that the refinance loan she got in 2006 was actually a negative amortization loan.

 

She knew the rate on the loan would adjust each year. But nowhere on the documents did it spell out that the payments listed were minimum option payments and not what she actually owed in principal and interest, she said.

 

"I would never have signed for a negative amortization loan," said Bentz, an ACORN member.

 

Rather than reducing her mortgage since December 2006, her loan grew by $34,000.

 

She learned later the loan also included a yield spread premium of $15,093, a payment that the lender made to her broker in return for putting her into a higher-rate loan than she could have qualified for, she said.

 

Bentz said she was told there was no prepayment penalty but learned the opposite was true when she tried to refinance the loan shortly afterward.

 

The mortgage broker, who did not become licensed when the state changed its licensing rule last year, could not be reached for comment.

 

"I was totally unprepared for this kind of deception," Bentz said.

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Little foreclosure relief seen from housing bill

Little foreclosure relief seen from housing bill
Problems with Fannie, Freddie complicate prospects in Congress

 

If the housing bill wins final passage the most optimistic forecasts suggest it would help only about 400,000 of the estimated 3 million homeowners who will likely lose their homes in the next year.

 

By John W. Schoen
Senior Producer
MSNBC
updated 10:42 a.m. PT, Thurs., July. 17, 2008

 

ANALYSIS

 

After a year of debate, Congress appears close to passing a bill intended to stem the rising tide of home foreclosures and stabilize the shaky housing market.

 

But even if the bill wins final passage — far from a certainty — the most optimistic forecasts suggest it would help only about 400,000 of the estimated 3 million homeowners who will likely lose their homes in the next year.

 

Prospects for the bill have been complicated by the mortgage meltdown's latest chapter — the severe turmoil surrounding Fannie Mae and Freddie Mac, the government-sponsored companies that provide much of the capital to the mortgage market. A Bush administration plan to help prop up the two faltering enterprises has been tacked on to the housing bill, generating some backlash from congressional Republicans.

 

Federal Reserve Chairman Ben Bernanke warned this week that the ongoing housing crisis is having a serious ripple effect.

 

“The declines in home prices have contributed to the rising tide of foreclosures,” Bernanke told a congressional panel. “By adding to the stock of vacant homes for sale, these foreclosures have in turn intensified the downward pressure on home prices in some areas.”

 

One major hurdle to passage of the bill is a proposed $4 billion in community development grants to help agencies in hard hit areas to buy and refurbish foreclosed homes, renting them out or reselling them.

 

The debate over the provision has become something of a showdown. President Bush has threatened to veto the bill if it includes the community grants, while House supporters have vowed to keep it in the final bill, which is expected to come to a vote early next week.

 

Opponents say using tax dollars to buy foreclosed homes amounts to a bailout for lenders; proponents argue that the funds would create new jobs and help stem the slide in home price where foreclosure rates are highest.

 

“The real losers in this awful crisis are the residents who live next to the foreclosed property who have continued to pay their mortgages on time yet see their property values rapidly decreasing,” Ali Solis, vice president of public policy for Enterprise Community Partners, a non-profit group that helps finance affordable housing.

 

The centerpiece of the proposed foreclosure relief effort is $300 billion in federal loan guarantees to help homeowners refinance into mortgages with better terms. But attorneys, housing counselors and others working with strapped homeowners say the proposal falls short because it leaves the decision to modify a loan up to the lender or loan servicing company.

 

That means the housing bill will have “little or no impact on the number of foreclosures,” according to O. Max Gardner III, a Shelby, N.C. bankruptcy attorney who works with homeowners who are trying to modify their mortgages.

 

“I just don’t think the bill addresses the core problem,” he said. “You have so many servicers representing so many different interests with each (mortgage pool) to some extent having different guidelines on loan modifications.”

 

Despite government efforts to prod lenders to speed up the process of reworking bad loans, progress has been slow.

 

A survey by Moody's Investors Service released Monday found that as of March loan servicers had modified less than 10 percent of the subprime loans with interest rate resets — up from 3.5 percent in December. Some homeowners report that their modified loan came with higher monthly payments, offering little long-term relief.

 

The survey found that about 40 percent of the loans modified in the first half of 2007 were 90 or more days delinquent as of the end of March.

 

A weakening economy, along with rising prices for food, energy and other household expenses, has expanded the pool of homeowners at risk of default. Some who might otherwise be able to keep up with their payments are falling behind as job loss or major health expense depletes their savings or retirement funds.

 

“The crisis is not getting better, the crisis is getting more severe,” said Susan Keating, the president of the National Foundation for Credit Counseling, which works with local agencies helping cash-strapped families. “And the tentacles of the problems are much more far-reaching than any of us would have considered 18 months ago.”

 

While the initial rounds of mortgage defaults and foreclosures were concentrated on the lower end of the economic ladder, the problem is now hitting families with higher incomes. Gardner says he’s seeing a big increase in bankruptcy filings from wealthier clients.

 

“From predominantly hourly employees all the way up to doctors, lawyers, insurance agents, people that were involved in the banking mortgage and real estate business,” he said. “It’s just been a massive upward movement on the income scale.”

 

For some homeowners, no amount of government help will head off a foreclosure. That includes many in states with the highest concentrations of mortgage defaults, such as California, Florida, Arizona and Nevada. In those states up to 40 percent of buyers in recent years were buying the homes as investments, according to Wachovia economist Mark Vitner.

 

“These investors never thought they’d have to make any mortgage payments. They thought they’d flip it,” he said. “These investors have no money. They have nothing. They used credit cards to make the down payment.”

 

Other homeowners facing default simply bought more house than they could afford, sometimes based on the advice of a real estate agent or mortgage broker.

 

With so many different factors behind the rise in foreclosures, the extended debate over the housing bill has brought wide disagreement about appropriate solutions.

 

Opponents of government relief maintain that borrowers willingly took on debts they knew — or should have known — they couldn’t afford. But as state and federal investigators have brought thousands of cases of mortgage fraud in the past year, the role of mortgage brokers and lenders has gotten more attention.

 

Bernanke, in announcing new mortgage rules this week, said many borrowers had been victimized by "unfair or deceptive acts and practices by lenders."

 

Among other provisions, the new Fed regulations require mortgage brokers and lenders to verify that a borrower can afford the mortgage and fully understands the terms. The rules also bar lenders from locking home buyers into bad loans by applying unaffordable pre-payment penalties.

 

While much of the early debate on the housing bill centered on whether the government should “bail out” borrowers and lenders who got in trouble, the debate has shifted with the collapse of Bear Stearns in March and the problems faced by Fannie Mae and Freddie Mac

 

Critics of the two companies have long voiced concerns that, with a combined $5 trillion in mortgages and mortgage-backed bonds, Fannie Mae and Freddie Mac had grown too fast and hold too little capital to weather a severe downturn.

 

The White House's proposed reforms could help maintain a ready supply of affordable mortgage financing for future home buyers. But they won’t help those with existing loans who face default. Or their neighbors who are seeing their home’s value decline.

 

“It’s not going to speed up or lessen the impact of the correction of the housing market,” said Vitner. “It’s too late for that. There's nothing that can be done.”

This article and many others can be found on Nationwide Home Owners Assistance (www.nationwidehoa.com)