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Archive for April, 2012

Scam Alert: Mortgage Foreclosure Scams on the Rise

April 24, 2012 Leave a comment

Homeowners beware: the number of reported mortgage foreclosure scams has increased 60 percent so far in 2012, according to the Homeownership Preservation Foundation.

The Huffington Post reports that scammers are exploiting the recent increase in government programs such as the recent national mortgage settlement.

New York Attorney General Eric Schneiderman has warned that scammers claim to be government officials involved in the settlement and try to obtain personal financial information from homeowners seeking assistance.

As foreclosures are expected to rise again in the coming months, homeowners are need to be cautious when seeking debt relief and are reminded to do their research when hiring assistance with the loan modification process.

The California Homeowners Bill of Rights

April 20, 2012 Leave a comment

California Attorney General Kamala Harris has been working since earlier this year on a package of bills to help protect homeowners from foreclosure and wrongful foreclosure practices by banks.

The so-called California Homeowners Bill of Rights was to be put to vote by the California Assembly’s Senate Banking and Finance Committee on Monday. However, Chairman Mike Eng (D-Monterey Park) of the Assembly Banking and Finance Committee asked that debate be postponed for a week in an effort to amend the bills so a compromise could be reached during negotiations with consumer groups and mortgage bankers.

In a press release issued by the Office of the Attorney General, the provisions of the bills were outlined and were aimed at making sure that homeowners are not put on a so-called dual-track process that allows banks to continue a foreclosure process at the same time they are negotiating possible loan modifications.

According to the Huffington Post,

“Other provisions in the bundle require banks to provide homeowners with a single point of contact during the loan modification process and levy a $25 fee on banks every time they register a default. Proceeds from the default fee would then go into a pool of money funding mortgage fraud investigations.”

While some of the provisions outlined in the proposed Bill of Rights overlap with the national mortgage settlement, the settlement expires in three years and Harris wants the rules to extend into perpetuity.

Harris has support from many political leaders on the proposed Bill of Rights, including San Francisco Mayor Ed Lee, as well as dozens of consumer, fair-lending and economic justice organizations, but faces opposition by mortgage bankers, bankers, credit unions and the financial industry.

Short Sales Surpass Foreclosures

April 18, 2012 Leave a comment

For the first time, the number of short sales has surpassed foreclosures according to Lender Processing Services Inc. (LPS).Specifically, short sales outnumbered foreclosures in states with some of the largest shares of homes facing foreclosure, including California.

LPS reports that as of January 2012, short sales accounted for 23.9 of home purchases, compared with 19.7 percent for sales of foreclosed homes. This in comparison to January 2011 data that shows only 16.3 percent of transactions were short sales and 24.9 percent involved foreclosures.

According to Bloomberg, short sale transactions typically fetch a higher price for banks than sales of homes that have gone through foreclosure which is major reason why banks have become more agreeable to selling houses for less than the amount owed on their mortgages

This rise in short sales is likely a result of several new government initiatives.

For example, the Federal Housing Finance Agency ordered loan servicers to respond to all short-sale offers within 30 days, and approve or reject them within 60 days – an effort to short the process that can typically take months longer.

Additionally, banks including Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) have started providing incentives for homeowners to short sell in an effort to avoid foreclosure.

If you are interested in learning more about short sales check out this blog post for 5 Things You Should Know About Short Sales.

New Rules to Fight Foreclosure

April 16, 2012 Leave a comment

Last week, Congress mandated changes in the rules covering the mortgage servicing industry.

According to the Associated Press, “The Consumer Financial Protection Bureau‘s proposed rules would require mortgage servicers to give all borrowers standardized monthly statements and warn borrowers about interest rate or insurance change.”

The proposed rules also require the mortgage servicers to make “good-faith efforts” to contact borrowers at risk of foreclosure and give them options to avoid losing their homes and also include stipulations for improving record-keeping and providing foreclosure counseling to those who need it.

The Consumer Financial Protection Bureau, which supervises U.S. payday lenders, mortgage companies and private student lenders and also can write rules to supervise big lending companies and institute fines, will formally propose the rules this summer and finalize them by January 2013.

Principal Reductions: A Cure to the Crisis?

April 12, 2012 Leave a comment

After much debate, Fannie Mae and Freddie Mac will decide by the end of this month whether they will allow principal reductions on mortgages they back.

Fannie and Freddie have resisted calls to write down the balances on the loans in their portfolio, saying it would be too costly for taxpayers as the mortgage giants are government-controlled companies, regulated by The Federal Housing Finance Agency.

At the core of the debate is Ed DeMarco, acting director for the agency, who has said principal reductions would amount to an expensive taxpayer bailout of troubled homeowners. According to CNNMoney.com, the agency had originally decided against allowing principal reductions after internal studies showed that alternatives such as adjusting monthly payments or forbearing principal were more cost effective.

The Obama administration, however, has tripled the incentives it will pay to Fannie and Freddie for reducing principal under the Home Affordable Mortgage Program, or HAMP and has forced the agency to reconsider.

As reported on CNNMoney.com, Fannie and Freddie have about 3 million loans that are seriously underwater, according to company filings. But three-quarters of these homeowners are current on their payments and may not qualify.

The number of eligible underwater Fannie and Freddie loans could range from a few hundred thousand up to 750,000, according to estimates – a fraction of the total 11 million underwater borrowers in the U.S.

However, there is still debate on if this will fix the housing crisis.

While some economists state that this could be helpful in aiding the crisis, some experts still fear that allowing principal reduction will open a new wave of strategic defaults, where homeowners decide to stop paying their mortgages in order to benefit from modification programs.

Plus, at the end of the day, taxpayers will still be paying for principal reductions – whether taxpayer money comes from HAMP or from the open line of bailouts Treasury provides to Fannie and Freddie.

Foreclosure Settlement Finalized, Now What?

April 11, 2012 Leave a comment

The $26 billion foreclosure settlement between the nation’s five largest banks and attorneys general from 49 states and the District of Columbia was finally finalized by a federal judge on Thursday.

The settlement aims to make it possible for roughly two million borrowers to see a significant reduction in their mortgage payments with principal reductions for underwater borrowers, refinancing on some mortgages to lower interest rates and compensation to those who lost their homes due to improper foreclosure practices.

CNNMoney.com has a complete list of provisions the banks agreed to and has outlined what it means to you, the homeowner.

As reported by CNNMoney.com, the main provisions include:

  • The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments. The amount of principal reduction will average about $20,000 per borrower in the cases of four of the banks. The Bank of America reductions will be even steeper, averaging $100,000 or more, according to spokesman Rick Simon.
  • Another $3 billion or more will go toward refinancing mortgages for borrowers who are current on their payments. This will enable them to take advantage of the historically low interest rates that are currently available.
  • The banks will pay $5 billion to the states and the federal government, the only hard money involved in the deal. Out of that fund will come payments of $1,500 to $2,000 to homeowners who lost their homes to foreclosure. Other funds will be paid to legal aid and homeowner advocacy organizations to help individuals facing foreclosure or experiencing servicer abuses.
  • Another $1 billion will be paid directly by Bank of America to the Federal Housing Administration to settle charges that its subsidiary, Countrywide Financial, defrauded the housing agency.
  • The exact amount of the payments will depend on how many people participate in this part of the settlement. They will share equally in a pool of $1.5 billion. The U.S. Department of Housing and Urban Development expects about 750,000 former homeowners to take part.
  • In addition, the banks agreed to eliminate robo-signing altogether and to use proper and legal procedures when putting homeowners through the foreclosure process. They also agreed to end servicer abuses, like harassing delinquent borrowers for payments, and to include principal reductions more often in their mortgage modifications programs.

Which banks are participating?

Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial are taking part in the settlement.

Loans owned or backed by Fannie Mae and Freddie Mac are not part of the deal nor are loans insured by the Federal Housing Administration eligible.

If I take the money, what rights do I give up?

Individual borrowers do not give up any right to sue.

As part of this deal, state attorneys general gave up the right to sue the mortgage servicers for foreclosure abuses arising out of the robo-signing scandal. However, they reserve the right to sue — or press charges for criminal behavior — if they uncover improper acts when the loans were originated or when they were securitized.

Would I have to pay taxes on the principal reductions or the pay-outs?

If the principal is reduced in 2012, it will not be subject to income tax.

That’s because the Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. The act is scheduled to expire at the end of this year, however.

So if the act is not extended and the principal reduction occurs in 2013, borrowers may be on the hook to pay taxes on the settlement amount.

It’s not clear whether you would have to pay taxes on the $1,500 to $2,000 payout. The IRS declined to comment on the question.

Check out further details about the settlement at CNNMoney.com

California Foreclosures Decrease

April 6, 2012 1 comment

CoreLogic reports that California had the third biggest decrease among U.S. states in the number of homes at some stage in the foreclosure process, according to the Orange County Register.

The report also states that in February, 2.4 percent of the California homeowners with a mortgage faced the possibility of foreclosure – which equals about 160,000 households.

The Orange County Register reports that CoreLogic’s February numbers showed:

  • 6.7 percent of the state’s mortgaged homes, or about 458,000 households, were 90 days or more late on their house payments. That’s down from 9 percent in February of last year.
  • Banks seized 154,212 homes through foreclosure in the 12 months ending in February.
  • Nationwide, banks seized 3.4 million homes through foreclosure during the past 3 ½ years – more than 860,000 of them in the past year.
  • An additional 1.4 million U.S. homes, or 3.4 percent of all homes with a mortgage, were in the foreclosure process.
  • That’s down from 3.6 percent in February of last year, when 1.5 million U.S. households were in the foreclosure process.