Signs That You're a Victim of PREDATORY LENDING!

Predatory mortgage lending involves a wide array of abusive and unethical business practices. Here, the “Center for Responsible Lending” (“CRL”) boils it down to eight (8) of the most common signs of a bad home loan.

Your best defense? Shopping. Before accepting a mortgage, it is always a good idea to talk to several lenders to make sure you understand the most competitive options available to you, and be on the lookout for predatory signs. If you encounter any one of the “red flags” described below, say no and look for a better deal.

• Excessive fees
• Prepayment penalties
• Inflated interest rates from brokers (yield-spread premiums)
• Steering and targeting
• Adjustable interest rates that “explode”
• Promises to fix problems with “future refinancings”
• Not counting taxes and insurance in a monthly payment
• Repeated refinancings that drain your resources

EXCESSIVE FEES

When buying a home or refinancing, you should shop based on interest rate, of course, and you should also make sure you understand all the other costs of the mortgage. “Points” or “discount points” are the lender’s fee for making the loan. On a competitive loan, you will be charged one point, or one percent of the loan amount. You also can expect additional fees, which may include payment to a broker and charges for such necessities as an appraisal and title insurance. High points and fees are the hallmark of a predatory loan. It’s worth your time to get your credit score in advance and research typical fees in your area.

PREPAYMENT PENALTIES

A prepayment penalty—most common on subprime mortgages—means that you will have to pay a steep fee before refinancing. A prepayment penalty can become a trap that locks you into an expensive mortgage even when you could qualify for a more affordable loan. The penalty is typically effective for two or three years and costs more than six months’ interest. Before agreeing to a mortgage, make sure it does not come with a prepayment penalty. If it does, refuse the loan and find a better deal.

INFLATED INTEREST RATES FROM BROKERS (YIELD SPREAD PREMIUMS)

Mortgage brokers receive frequent updates on what kinds of loans lenders are offering and at what price. Watch out for brokers who try to sell you a loan with an inflated interest rate—i.e., higher than the rate acceptable to the lender. Be aware that brokers have plenty of incentive to increase interest rates unnecessarily, since lenders often reward them by paying a “yield spread premium.” This compensation is essentially a kickback for making the loan more costly than necessary. To make sure your transaction doesn’t include a yield spread premium, ask for a good faith estimate in advance, and make sure you understand all items that represent compensation to the broker.

STEERING & TARGETING

Predatory lenders may try to steer you into a more expensive loan, such as a subprime mortgage, even when you could qualify for a mainstream loan. If you are a senior citizen or a minority, be on the lookout for predatory lenders who target vulnerable groups. Fannie Mae has estimated that up to half of borrowers with subprime mortgages could have qualified for loans with better terms. Remember that you don’t need to give in to aggressive sales tactics. Don’t respond to ads that say bad credit doesn’t matter, and be especially wary of lenders or brokers who contact you or those who try to rush you into decisions. An ethical lender will answer your questions and encourage you to make an informed decision based on your own best interests.

ADJUSTABLE INTEREST RATES THAT “EXPLODE”

During the height of the reckless boom in subprime lending, the most common type of subprime mortgage was an “exploding ARM”—a home loan with an adjustable interest rate that can increase sharply after a short time, usually two or three years. If you are a person of modest income, this type of loan is not appropriate for you. Beware of adjustable-rate loans that can rise significantly, especially if the interest rate can never go down. Make sure you understand the worst-case scenario before agreeing to this type of loan. And don’t count on a future refinance to get out of trouble in the future (see next item

PROMISES TO FIX PROBLEMS WITH FUTURE REFINANCING

Predatory lenders are notorious for selling bad deals by promising that they will refinance the loan within a short time, or if it becomes unmanageable for you. It is important to remember that the lender is not bound by that promise, and it is best to refuse a loan if it stretches you too much financially, now or in the foreseeable future. Also, avoid any mortgage that comes with a “balloon” payment, meaning that you will be obligated to pay the loan in full after a relatively short period of time.

NOT COUNTING TAXES AND INSURANCE IN A MONTHLY PAYMENT

Home buyers should find out up front whether their monthly mortgage payment will include the costs of property taxes and insurance (i.e., whether the lender has established an escrow account for these costs). If not, the homeowner will be responsible for paying these costs separately, usually in a lump sum each year. Unscrupulous lenders make monthly payments seem artificially low by excluding taxes and insurance, and many families have been pushed into foreclosure because they couldn’t afford to pay these costs.

REPEATED REFINANCINGS THAT DRAIN THE BORROWER’S RESOURCES (LOAN FLIPPING)

Beware of lenders who aggressively approach you to refinance your home loan. They may try to entice you with cash, but these loans typically increase the amount you owe on your home and can also increase your monthly payment. It is important to consider all that you are likely to lose valuable equity that you have already acquired on your home—equity that could help send a child to college or fund retirement. Flipping can quickly drain borrower equity and increase monthly payments—sometimes on homes that had previously been owned free of debt. In too many cases, predatory lenders have refinanced families repeatedly until there is nothing left and the family is forced into foreclosure.

Beware Bank's FINE PRINT-Homes Sold w/out Notice!

Beware the FINE PRINT in a Mortgage Company's "Loan Modification Agreement" – Some Homeowners are Learning that their Homes are Being Sold without Notice!

WASHINGTON — Ten months after the Obama administration began pressing lenders to do more to prevent foreclosures, many struggling homeowners are holding up their end of the bargain but still find themselves rejected, and some are even having their homes sold out from under them without notice.

These borrowers, rich and poor, completed trial modifications of their distressed mortgage, and made all the payments, only to learn, often indirectly, that they won’t get help after all.

How many is hard to tell. Lenders participating in the administration’s Home Affordable Modification Program, or HAMP, still don’t provide the government with information about who’s rejected and why.

To date, more than 759,000 trial loan modifications have been started, but just 31,382 have been converted to permanent new loans. That’s averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks.

In the fine print of the form homeowners fill out to apply for Obama’s program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights. This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.

That’s what happened to Evangelina Flores, the owner of a modest 902 square-foot home in Fontana, Calif. She completed a three-month trial modification, and made the last of the agreed upon monthly payments of $1,134.60 on Nov. 1. Her lawyer said that in late November, Central Mortgage Company told her that it would void her adjustable-rate mortgage, which had risen to a monthly sum above $2,000, and replace it with a fixed-rate mortgage.

“The information they had given us is that she had qualified and that she would be getting her notice of modification in the first week of December,” said George Bosch, the legal administrator for the Law Firm of Edward Lopez and Rick Gaxiola, which is handling Flores’ case for free.

Flores, 58, a self-employed child care worker, wired her December payment to Central Mortgage Company on Nov. 30, thinking that her prayers had been answered. A day later, there was a loud, aggressive knock on her door. Thinking a relative was playing a prank, she opened her front door to find two strangers handing her an eviction notice.
“They arrived real demanding, saying that they were the owners,” recalled Flores. “I have high blood pressure, and I felt awful.”
Court documents show that her house had been sold that very morning to a recently created company, Shark Investments. The men told Flores she had to be out within three days. The eviction notice had a scribbled signature, and under the signature was the name of attorney John Bouzane.

A representative in his office denied that Bouzane’s law firm was involved in Flores’ eviction, and said the eviction notice was obtained from Bouzane’s Web site,www.fastevictionservice.com.

Why would a lawyer provide for free a document that gives the impression that his law firm is behind an eviction. “We hope to get the eviction business,” said the woman, who didn’t identify herself. Flores bought her home in 2006 for $352,000. Records show that it has a current fair-market value of $99,000. The new owner bought it for $78,000 at an auction Flores didn’t even know about.

“I had my dream, but now I feel awful,” said Flores, who remains in the house while her lawyers fight her eviction. “I still can’t believe it.”

How could Flores go so quickly from getting government help to having her home owned by Shark Investment? The answer is in the fine print of standard HAMP documents.

The Aug. 25 cover letter from Central Mortgage Company, the servicer that collects Flores’ mortgage payments, offered Flores a trial modification with this comforting language: “If you do not qualify for a loan modification, we will work with you to explore other options available to help you keep your home or ease your transition into a new home.” CMC is owned by Arkansas regional Arvest Bank, itself controlled by Jim Walton, the youngest son of Wal-Mart founder Sam Walton.

A glance past CMC’s hopeful promise finds a different story in the fine print of HAMP document, which contains standardized language drafted by the Obama Treasury Department and is used uniformly by lenders. The document warns that foreclosure “may be immediately resumed from the point at which it was suspended if this plan terminates, and no new notice of default, notice of intent to accelerate, notice of acceleration, or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by applicable law.”

This means that even when a borrower makes all the trial payments, a lender can put the house up for auction if it decides that the homeowner doesn’t qualify — assuming that foreclosure proceedings had been started before the trial period — without telling the homeowner.

Until now, lenders haven’t even had to notify borrowers in writing that they’d been rejected for permanent modifications. In January, 11 months after Obama’s plan was announced, homeowners will begin receiving written rejection notices, and the Treasury Department finally will begin receiving data on rejection rates and reasons for rejections.
The controversial clause notwithstanding, the handling of Flores’ loan raises questions.
“Foreclosure actions may not be initiated or restarted until the borrower has failed the trial period and the borrower has been considered and found ineligible for other available foreclosure prevention options,” said Meg Reilly, a Treasury spokeswoman. “Servicers who continue with foreclosure sales are considered non-compliant.”

CMC officials declined to comment and hung up when they learned that a reporter was listening in with permission from Flores’ legal team. Arvest officials also declined comment. McClatchy did hear from Freddie Mac, the mortgage finance agency seized by the Bush administration in September 2008. Freddie owns Flores’ loan, and spokesman Brad German insisted that Flores was reviewed three times for loan modification.

“In each instance, there was a lack of documentation verifying that she had the income required for a permanent modification,” German said.

That response is ironic, said Michael Calhoun, the president of the Center for Responsible Lending, a nonpartisan group in Durham, N.C., that works on behalf of borrowers. “These lenders gave loans with no documentation and charged them a penalty interest rate for doing so. And now when the people ask for help, they are using extravagant demands for documentation to give them the back of their hand and continue to foreclosure,” Calhoun said.

German said that Flores was sent a letter on Nov. 24, which would have arrived several days later, given the Thanksgiving holiday, informing her that she’d been rejected for a permanent modification. Flores and her attorney said she never got a letter, and neither Freddie Mac nor CMC provided proof of that letter.

Exactly one week after the letter supposedly was sent, Flores’ home was sold to Shark Investments. That company was formed on Aug. 19, according to records on the California Secretary of State’s Web site. Shark Investments, apparently an unsuspecting beneficiary of Flores’ woes, has no phone listing. The Riverside, Calif., address on the company’s filing as a limited liability company traces to a five-bedroom, four-bath house with a swimming pool.

German didn’t comment on whether Flores received sufficient notice under Freddie Mac rules, or how the home could move to sale so quickly. Flores’ legal team, which specializes in foreclosure prevention, thinks that lenders and servicers are gaming Obama’s housing effort.

“It seems servicers are giving people false hopes by sending them a plan, and they are using the program as a collection method, getting people to pay them with no intention of modifying the loan,” said Bosch. “I believe they are using this as a tool to suck people dry.”

Dashed hopes aren’t exclusive to the working poor such as Flores. David Smith owns a beautiful home in San Clemente, Calif., the location of the Richard Nixon Presidential Library. Smith purchased his five bedroom home four years ago for $1.3 million. Today, the real estate Web site Zillow.com estimates the value of Smith’s home at $981,000, slightly below the $1 million he still owes on it.

Smith said he went from “making a lot of money to making hardly any” as the national and California economies plunged into deep recession. He’s a salesman serving the hard-hit residential and commercial construction sector. On top of his hardship, Smith’s mortgage exceeds the limits for the HAMP plan.

In late August, Smith signed and returned paperwork in a prepaid FedEx envelope to Bank of America that said it had received the contract needed to modify the adjustable-rate mortgage he originally took out with the disgraced lender Countrywide Financial, which Bank of America bought last year.

The modification agreement shows that Bank of America agreed to give Smith a 3.375 percent mortgage rate through September 2014, and everything Smith paid between now and through 2019 would count as paying off interest. He’d begin paying principal and interest in October 2019, with the loan maturing in 2037.

The deal favors the lender, but Smith, 55, jumped on it because it kept him in the home.
Armed with what he thought was “a permanent modification,” Smith returned a notarized copy of the agreement and made subsequent payments on time. In return, he got a surprising notice from Bank of America saying that his house would be auctioned off on Dec. 18.

“It looks like they’re trying to sell this out from underneath me,” Smith said. “My wife cries all the time.”

After a Dec. 16 call from McClatchy asking why Bank of America wasn’t honoring its own modification, the lender backed off. “The case has been returned to a workout status and a Home Retention Division associate will be contacting Mr. Smith for further discussions,” said Rick Simon, a Bank of America spokesman. “The scheduled foreclosure sale will be postponed for at least 30 days to allow for review of the account in hope of completing a home retention solution for Mr. Smith.”

The Center for Responsible Lending says such problems are common. “Everyone acknowledges that the system is not working well,” Calhoun said.

NY TIMES - LOAN MODS NEED DEBT REDUCTION

EDITOR’S NOTE: The NY Times is urging the Government to create a new, fully-overhauled “Loan Modification Program” that emphasizes PRINCIPAL REDUCTION along with interest rate reduction. In reviewing the progress of loan modifications over the past 12 months, the NY Times found:

(1) Current loan modification programs almost always focus on rate reduction rather than on any principal writedown;

(2) The average monthly rate reduction for completed loan modifications nationwide has been just over 30%;

(3) Almost 75% of loan modification that only involve “rate reduction” fail within 12 months;

(4) The qualifying process for government loan mod programs (and also with private loan mod programs) focuses almost exclusively on a borrower’s income - and fails to properly account for a borrower’s legitimate, bona fide monthly expenses;

(5) Negative equity in a property – rather than a borrower’s unemployment – is the biggest factor causing mortgage defaults;

(6) Any “new” government loan mod program needs to emphasize and create incentives for lenders to give principal reductions;

(7) Currently, banks and other mortgage companies are rarely, if ever, agreeing to “principal reductions” when they are acting merely as a “servicer” for a third-party investor. But banks HAVE been willing to grant principal reductions in 30.5% of the cases in which they are both the true “investor” as well as the “servicer” of a mortgage.

Here's the full article from the Times:

Why Treasury Needs a Plan B for Mortgages (By GRETCHEN MORGENSON, NY TIMES, 12/6/09)

AFTER months of playing pretend, the Treasury Department conceded last week that the Home Affordable Modification Program, its plan to aid troubled homeowners by changing the terms of their mortgages, was a dud. The 10-month-old program is going nowhere, the Treasury said, because big institutions charged with implementing it are dragging their feet.

“The banks are not doing a good enough job,” said Michael S. Barr, assistant Treasury secretary for financial institutions, in an article published last Sunday in The New York Times.

After the government spent hundreds of billions of dollars bailing out banks, the Obama administration rolled out the $75 billion loan modification plan to show its support for beleaguered homeowners. But if the proof of the pudding is in the eating, homeowners are going hungry.

A stalled loan modification plan might not be worrisome if the foreclosure crisis were abating. Yet at the end of September, a record 14.4 percent of borrowers were either in foreclosure or delinquent on their mortgages, the Mortgage Bankers Association reported.

It’s time for the government to acknowledge the flaws in its program and create one that might actually succeed. Only then will the supply of homes for sale, and the pressure on prices associated with that overhang, be reduced.

The Treasury program has decided to tackle the delinquent mortgage problem by reducing the interest rate on eligible borrowers’ loans to a level that makes monthly payments affordable. But how it calculates affordability is one of the program’s major flaws — at least that’s the view of Laurie Goodman, senior managing director at Amherst Securities Group and head of mortgage strategy at the firm.

Her research shows, for instance, that 70 percent of modifications involving only interest rate cuts, rather than reductions in the principal borrowers owe, have failed after 12 months. The Treasury program is likely to have similar outcomes.

According to government investigators, the average monthly mortgage payment for a borrower under early plan modifications fell by 34 percent. Assessing for possible success under these terms, Ms. Goodman analyzed past re-default rates on modifications that cut payments by 34 percent. She found that 65 percent of borrowers fell back into delinquency.

The terms of loan modifications also make them especially failure-prone because the government calculates “affordability” (how much mortgage debt a borrower can actually manage) in a highly unusual way — raising serious questions for the housing market over all and for the program’s effectiveness for borrowers.

Moreover, investors in first liens, like pension funds and mutual funds, also get beaten up in this process.

For example, in devising what it considers an affordable mortgage payment, the program doesn’t account for all of a borrower’s debts — the first mortgage, second lien, credit card debt and automobile payments. Instead, it calculates affordability using only the borrower’s first mortgage payment, insurance and property taxes.

As a result, what may look like an affordable mortgage payment under the Treasury plan quickly becomes onerous when other debt is added. While the government may ignore a borrower’s second lien and revolving credit obligations, you can be sure the creditors that extended those loans will not. Re-defaults seem a likely result.

Another flaw in the program, Ms. Goodman said, is its failure to consider how much equity, or negative equity for that matter, the borrower has on a property. She said that while many analysts contend that unemployment is the major predictor of mortgage defaults, her research shows that negative equity, when a borrower owes more on the home than it is worth, is actually the driving force.

Ms. Goodman recently compared the experiences of prime mortgage borrowers living in areas with an 8 percent unemployment rate. Those with at least 20 percent equity in their properties were falling two payments behind for the first time at a rate of only 0.22 percent a month. But the same 60-day delinquency rate for those who owed at least 120 percent of the value of their homes was 1.46 percent a month.

“We have kicked the problem down the road through modifications that don’t work,” Ms. Goodman said in an interview last week. “You have to address the second liens and ultimately have some type of principal write-down program so borrowers can re-equify.”

Unfortunately, there is a $442 billion reason that wiping out second liens is not high on the government’s agenda: that is the amount of second mortgages and home equity lines of credit on the balance sheets of Bank of America, Wells Fargo, JPMorgan Chase and Citigroup. These banks — the very same companies the Treasury is urging to modify loans that they service — have zero interest in writing down second liens they hold because it would mean further damage to their balance sheets.

Say a troubled borrower has a first mortgage owned by a pension fund in a securitization trust and a second lien held by the bank that services the loans. The servicer is happy to modify the first mortgage under the Treasury program because the pension fund holding that loan takes the biggest hit while the second lien is untouched. This hurts the investor who holds the first mortgage and the borrower, who must pay off the second lien, which typically has a significantly higher interest rate.

The result? Yet another conflict of interest enriching financial companies while impoverishing investors and consumers.

AN interesting data point: when banks DO own all the mortgages on a property they seem to see the merit in principal reduction modifications. Studying second-quarter government data, the most recent available, Ms. Goodman found that when banks owned the loans, 30.5 percent of modifications reduced principal balances. When they service someone else’s loan or hold a second lien on the property, they rarely allow principal reductions.

Of course, cries of moral hazard will erupt if borrowers get large cuts in their principal balances. Rightly so. Why should those who took on too much debt to buy too much house get rescued when those who were prudent go unrewarded?

But doing nothing also has hazards, the most obvious being continuing foreclosures, which nobody wants, and further declines in real estate prices that will hurt homeowners as well as investors.

Ohio Sues Lender for Bad Service to Homeowners

From www.bloomberg.net – December 16, 2009

Ohio Attorney General Richard Cordray filed suit against major international mortgage lender “Barclays Capital Real Estate Inc.” for issuing what he called unfair loan modification agreements and for providing “inadequate, incompetent customer service” to people at risk of losing their homes to foreclosure.

Cordray’s complaint against the Barclays’ subsidiary known as “HomEq Servicing”, was filed today (12/16/09) in state court in Dayton, Ohio. The attorney general asked for a court order barring the loan-servicing firm from violating state consumer protection laws, and has demanded fines of $25,000 for each violation.

HomEq services more than 10,000 subprime loans in Ohio (and many thousands more nationwide), Cordray said in a statement. Borrowers were forced to enter into one-sided agreements releasing the company from liability in exchange for the opportunity to keep their homes, and this particular lender’s actions (as well as those of other servicing agencies) have aggravated the foreclosure crisis, Cordray stated.

“In Ohio, we have zero tolerance for any more excuses,” Cordray said. The actual name of the case is State of Ohio v. Barclays Capital Real Estate Inc., 09-10136, Montgomery County, Ohio, Court of Common Pleas (Dayton).

The Ten (10) Most Dangerous Toys for 2009

Just in time for the holiday season, the organization “The World Against Toys Causing Harm, Inc.” (“WATCH”) released its list of “Ten Worst Toys”.

WATCH is a Massachusetts, non-profit corporation working to educate the public about life-threatening toys and other children’s products, including children’s furniture, clothing and playground equipment. Beginning in 1973, WATCH has published its annual “Ten Worst Toys.”

Here’s the 2009 list:

1) Disney-Pixar Wall-E Foam Rocket Launcher
2) Moon Board Pogo Board
3) Curious Baby George Counting-My First Book of Numbers
4) The Dark Knight Batman Figure
5) X-Men Origins Slashin’Action Wolverine
6) Lots To Love Babies Mini Nursery
7) Just Kidz Junior Musical Instruments
8) CAT Rugged Mini
9) Pucci Pups Maltese
10) Spy Gear Viper-Blaster

If you want to know what WATCH finds troubling about these toys please visit the organization's website:

http://www.toysafety.org/worstToyList_index.shtml

Fannie Mae, Freddie Mac Seeking MORE Bailout Funds

(From www.bloomberg.com)

Fannie Mae and Freddie Mac’s federal regulator is renegotiating the companies’ financing plan with the U.S. Treasury Department and may seek an increase to their $400 billion federal lifeline before the end of the year, according to people familiar with the talks.

Treasury and Federal Housing Finance Agency officials are also debating whether to lower the mortgage-finance companies’ dividend payments on their Treasury borrowings, according to these people, who requested not to be identified describing the internal deliberations.

Fannie Mae and Freddie Mac, the largest sources of mortgage money in the U.S., have used $111.6 billion of their $400 billion in backup financing in less than a year. The companies say their 10 percent annual dividend payment, which comes to about $5 billion each, costs more than either have earned in most years and adds to their draws on Treasury.

“A larger line, safest to be executed before year end, would buy Washington the time necessary to address more pressing housing matters,” Jim Vogel, a debt analyst with FTN Financial in Memphis, Tennessee, said in a note to clients today. “The possible risk in the discussions is any investor disappointment that might follow no change in the existing agreements.”

FHFA spokeswoman Stefanie Mullin, Treasury spokeswoman Meg Reilly, Freddie Mac spokesman Doug Duvall and Fannie Mae spokesman Brian Faith declined to comment. Fannie Mae rose 5 cents, or 4.4 percent, to $1.18 at 4:15 p.m. in New York Stock Exchange composite trading. Freddie Mac rose 4 cents, or 2.8 percent, to $1.48.

$400 BILLION LIFELINE

The financing plan instituted for Fannie Mae and Freddie Mac requires them to reduce their $1.57 trillion combined mortgage portfolios by 10 percent annually starting next year and caps their debt issuance at 120 percent of their assets.

The Treasury and Federal Housing Finance Agency seized control of the mortgage-finance companies almost 16 months ago amid fears the two were at risk of failing. Officials set up a $200 billion lifeline with the Treasury, which was doubled in May, to keep the companies solvent. If they exhaust that backstop, regulators will be required to place them into receivership.

Treasury officials aren’t likely to take the chance of allowing the companies to fall into receivership, which is a bankruptcy-like process that would increase the companies’ debt costs and disrupt the mortgage markets, said Paul Miller, a former examiner for the Federal Reserve who now analyzes the banking and mortgage industry for FBR Capital Markets in Arlington, Virginia.

‘PAIN THRESHOLD’

“The Treasury has shown that their pain threshold is almost” non-existent, and the housing “market is still very fragile,” Miller said in an interview.

The companies have said $200 billion apiece may not be enough support. The Treasury Department is facing a Dec. 31 deadline to increase that amount without congressional approval.
While Treasury officials are free to renegotiate other terms of the deal, such as the dividend payment and restrictions on debt issuance, at any time, Congress set a deadline of the end of this year on the department’s ability to invest in the companies.

“Treasury should be giving confidence to the markets that they will take care of it,” said Rajiv Setia, a fixed income analyst for Barclays Capital in New York. “You increase the backstop and it removes the element of doubt.”

RULES KEEP SHIFTING

Washington-based Fannie Mae, which has lost $120.5 billion over the last nine quarters, has requested $60.9 billion from the Treasury this year. McLean, Virginia-based Freddie Mac has tapped $50.7 billion in government capital since November 2008 and recorded $67.9 billion in cumulative losses over the last nine quarters amid a three-year housing slump.

The companies are an integral part of President Barack Obama’s housing-relief plan and have been pushed by the government to help more homeowners modify or refinance their loans to more affordable terms to curb foreclosures. The government-sponsored enterprises, or GSEs, own or guarantee about $5.5 trillion of the $11 trillion in U.S. residential mortgage debt.

“With the GSEs being used as public policy tools, it is impossible to quantify with certainty what losses might be in a stress scenario, as the rules of the game might keep shifting,” Setia said.

"Forgiven" Mortgage Debt May NOT be Taxable Income

Homeowners whose mortgage debt was partly or entirely forgiven in calendar years 2007, 2008 and 2009 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their federal income tax return, according to the Internal Revenue Service.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007 (as modified in 2008) taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on this the IRS website.

“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”

The new law applies to debt forgiven from 2007 to 2009 – and will continue in full force and effect for debt forgiven through the end of calendar year 2012. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief.

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for relief under the “Mortgage Forgiveness Debt Relief Act”. HOWEVER, other kinds of tax relief are still available for debts of this nature, particularly if the taxpayer can claim “insolvency” during the year in which the particular debt was forgiven. (See Form 982 for details).

Borrowers whose debt is reduced or eliminated normally receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home (Box 7).

Loan Mods 101: Persistence & Patience are Critical

Loan modifications are complex transactions that take time, persistence and patience to execute. Banks must make a thorough review of the borrower's situation in order to be sure that the homeowner can repay the modified loan. Borrowers should do their homework, hire compentent and experienced representation, and understand the basics of this process before contacting the lender.

Q: What IS a "Loan Modification"?

A: A "Loan Modification" is NOT a "refinancing" or a "new loan", but rather a voluntary agreement negotiated with a lender that modifies the terms of an existing mortgage loan contract. Changes can be made to interest rate, principal, length of loan or other terms.

Q. What is necessary in order to obtain a Loan Modification?

A. There are several factors that a lender will review to determine eligibility:

(i) Hardship: This includes the loss of a job, change in marital status, reduction in wages, death, illness, etc. The bank bank must have reason to believe that, despite the hardship, the borrower will be able to make the modified payments.

(ii) Ability to Pay: Past payment history and the ability to recover from the hardship will be considered here.

(iii) Net Cash Flow: Lenders use this to determine if the borrower will have the funds to repay the loan with the modified terms.

(iv) Fixed vs. Adjustable Loans: It is easier to modify a loan with adjustable terms than one without.

(v) Interest Rate: Higher rate loans are being modified more frequently than lower rate loans.

Q: How Long Does A Loan Modification Take?

A: This question is not an easy one to answer. There too many variables. Some things that impact the duration include having properly completed paperwork, providing supplementary documentation in a timely matter, fully disclosing all income and expense sources at the beginning, having a verifiable hardship, and vigilence and persistence on the part of the homeowner.

Each lender and servicer can have different requirements and procedures that can impact the time it takes. While some people have received loan modifications in as little as two to three months, some take as long as nine or ten months.

Q: Will the Lender or Servicer Include Late Charges in the Modified Loan?

A: HUD states that accrued late charges "should" be waived by the lender when the loan is modified. This varies depending on the lender. However, borrowers can request a complete breakdown of fees and penalties.

Q: Will Missed Payments Be Added Back Into the Modified Loan?

A: It is reasonable to expect that past-due payments can be added to the new loan balance. Lenders make this determination on a case by case basis based on several factors.

Q: Can Loans which are "Current" Be Considered for Modification?

A: Many lenders will accept applications from borrowers facing hardship who are not yet behind in their payments. In this case, homeowners must prove that a hardship or pending interest rate increase (otherwise known as "imminent default") will prevent them from making a payment.

Q: What About Loans With a Prepayment Penalty?

A: Part of the request to modify should include asking the lender to waive the prepayment penalty. Having this adds to the complexity of the request but will not prevent a lender from considering or completing the loan modification.

Q: What Types of Hardship Will Be Considered?

A: Lenders and servicers typically consider divorce, separation, death of a spouse or co-borrower, death of a family member, loss of income, extended illness, job relocation, and military service as reasons to modify a loan. The hardship letter should supply all of the important facts in a logical manner and illustrate in a compelling manner why the hardship should be considered.

Q: How Will a Loan Modification Affect Credit Scores?

A: Loan modifications can be reported to credit bureaus as unsatisfied debts. In addition, during the modification process the lender may divert a portion of the payments to a loss mitigation account so the loan may be reported as 30-90 days past due during that time. If the lender pulls a credit report, that could also impact the FICO score.

(EDITOR'S NOTE: For more information on the impact a "Loan Mod" has on a credit score - and ways to "lessen" the impact" - see the article "How do Loan Modifications Affect Credit Scores?", published on this blog in early December, 2009).

SUMMARY: A loan modification is a change in the terms of the contract between the borrower and the lender. Lenders and servicers will require accurate documentation to be delivered in a timely manner. If there is concern that there was fraudulent or illegal activity when the initial loan was issued, homeowners should contact a competent law firm to review the documents. If there was a violation or fraud, homeowners should contact the appropriate government agency to file a complaint.

Loan Mod Still Not Done? Get Your Paperwork In!

(Editor's Note: Successfully navigating through the loan modification approval process is lengthy and requires that all documentation is correctly submitted. An incorrect submission will only lead to delays and possibly denial. Do it right from the beginning.)

According to the Associated Press, as of the end of November only 31,382 loan modifications have been made “permanent” out of 759,058. While November’s number is still drastically low – it’s about three times higher than October’s.

Why is this the case? One reason is painfully obvious – the lenders are so disorganized, that borrowers and their advocates have to submit mod applications at least three to four times before lenders acknowledge they actually received the financials of the struggling homeowner.

But the blame cannot be pinned solely on the mortgage companies. Numerous sources are reporting that a significant majority of borrowers (particularly those who attempt their modifications without professional representation) aren’t obtaining permanent modifications because their paperwork has been either incomplete or completely non-existent.

From WhiteHouse.gov:

“The majority of homeowners in trial plans still owe their servicer paperwork. Thirty-seven percent of homeowners have submitted paperwork that is incomplete. More than twenty percent of homeowners have submitted no paperwork at all.”

From the Associated Press:

“The mortgage companies, also known as loan servicers, have had a hard time getting borrowers to complete the needed paperwork for the administration’s loan modification program. Nearly 60 percent of the 375,000 borrowers who qualify to have their loan modifications completed by year-end have either submitted incomplete paperwork or none at all.”

As stated by Phyllis Caldwell (who recently was named to lead the Treasury Department’s homeownership preservation office), “Borrowers must understand the urgency of getting their completed paperwork in so they do not miss out on the opportunity for more affordable mortgage payments.”

On December 9^th, Chase Mortgage — the nation’s third-largest servicer — announced that “only 16% [of their modifications] have been approved (or ready to be approved) for a permanent modification.” The “National Mortgage News” adds that approximately 71% of the homeowners are current on their trial mods, but many have not submitted the required documents for underwriting – pay stubs, proof of employment and tax returns.

“We are focused on helping the 51% of borrowers that are paying but need help completing documents,” said Chase executive Molly Sheehan.

The inability doesn’t end with Chase. Only about 10,000 borrowers nationwide completed the modification process as of October, according to the Associated Press. The news source says the Treasury will release November’s stats tomorrow. With perpetual, back-and-forth blame being passed between servicers and borrowers, we wonder how long the administration will let their program continue as is without making some changes.

From Law.Com - Best Gadget Gifts for the Holidays

(Editor's Note - With everyone else putting out their lists of "best holiday gifts", I found it interesting that "Law.Com" decided to "weigh in" on the matter. But why should I be surprised, having worked in the legal profession for half of my adult life? Since when did an attorney (including me) NOT have an opinion on something? - crq).

Gadget Gifts for the 2009 Holiday Season

From Law.Com / Alan Cohen

12-14-2009

This holiday season may not bring us any revolutionary new gadget (no Apple tablet -- yet), but some existing products are getting significant updates or new accessories that boost their performance. Heck, even Microsoft now has a media player that you can call stylish while keeping a straight face. Here are some of the most noteworthy new offerings -- year-end purchases that, in most cases, won't eat up a year-end bonus.

Sony PSP Go (Sony Computer Entertainment America Inc., $250). When it was announced earlier this year, the PSP Go garnered the last thing a marketing department wants: head-scratching. And little wonder. Here was a redesign of a product that never really met expectations -- Sony's $170 PlayStation Portable -- yet was more expensive, with less functionality, than its predecessor. In the blogosphere, the technical term was: Huh?

To shrink the bulky PSP down to an iPhone-like size, Sony had to get rid of the unit's optical drive and choose a download-only delivery model for games, movies, and TV shows (to store them, Sony added 16 gigabytes of flash memory). That approach has been a gold mine for Apple, but Sony's problem was that millions of discs (called UMDs) were already out there, and they'd all be useless on the Go. Making matters worse, the company declined to let existing PSP owners download free copies of games they already owned. So if you had a disc of "Need for Speed" and wanted to play it on your new PSP Go, you had to buy a digital copy, at full price -- not a great way to reward customer loyalty.

Fortunately, Sony's engineers have done better than its marketers. The Go is a technical marvel. It's about a third smaller than the old PSP but seems far lighter, thinner, and sleeker (it weighs less than 6 ounces). And it really does fit in a pocket -- something the old PSP never did. While the screen is smaller now -- 3.8 inches versus the old PSP's 4.3 inches -- it is sharp, vivid, and still bigger (slightly) than an iPhone screen. Downloading content -- which includes a vast library of games and movies -- is easy. And Sony has introduced a handful of low-priced (under $10), bite-size games called Minis that mark a welcome first step into Apple's App territory (indeed, one of the first Minis to appear is a version of the iPhone staple: Fieldrunners).

Clearly, existing PSP owners should proceed with caution; but for everyone else, the Go is an excellent media player that's priced in the same ballpark as the Zune and iPod Touch, and can play far more complex games.

Kensington Travel Battery Pack and Charger for iPhone and iPod Touch (Kensington Computer Products Group, $70). As anyone who has ever used one can tell you, griping about the iPhone is mean-spirited and wrong. But the über-smartphone does have one flaw (please, no hate mail): battery life. Working overtime as phone, e-mail device, media player, and portable computer, the iPhone drains power fast -- most users find they can barely go a day without needing to recharge. So here's a shout-out to Kensington's new travel battery and charger. Unlike some emergency chargers, it plugs directly into the iPhone's dock connector, so there are no cables to mind (and we do mind them). It is compact and light -- smaller than a tin of Altoids -- and also doubles as a kickstand for watching video on a seat tray. In our crisis-mode use, the pack's lithium polymer battery provided enough juice to fully charge our iPhone once we hit the dreaded "10 percent battery" warning. And we were able to use the phone seamlessly while the main battery topped off. Kensington's unit works with the iPod Touch, as well as the Classic and Nano. Just remember to charge it, too, before heading out, or you'll need an emergency charger for your emergency charger, and that's not a good scene.

Sony Reader Pocket Edition PR-300 (Sony Electronics Inc., $200). We know: You were expecting us to recommend a Kindle. But while we are big fans of Amazon's electronic book reader -- purchasing titles directly from the device really is the way to go -- we've long thought that Sony produces the better hardware. Its screens are easier on the eyes, with better contrast; the build quality far superior (ever drop a Kindle? We have, and the results weren't pretty); the controls more comfortable to use. But Sony's e-readers long suffered from three problems: no wireless access to content, high prices for the hardware, and often bizarrely high prices for the books themselves (sometimes even higher than hardcovers you could buy in the store). With the Pocket Edition e-reader -- and some changes to its business model -- Sony has eliminated the latter two gripes. At $200, the Pocket Edition is less expensive than the recently reduced but still overpriced Kindle ($259). And best-sellers are now available for a reasonable $10.

The Pocket Edition's compact size -- with a footprint, roughly, of a paperback book, but far thinner -- won us over, too. Other e-readers are made more for a backpack than a coat pocket. Sure, we'd still love to see built-in wireless (a Sony model with this feature is in the works), but buying books via PC (or Mac) and then loading them onto the reader is more inconvenient than taxing.

Keep in mind that this is not the e-reader solution for everyone: You can't, for example, annotate books on the Pocket Edition. And while we think the five-inch screen offers plenty of reading real estate, some users will prefer the six inches that both Kindle and Sony's own higher-end device, the far-too-expensive $300 Reader Touch Edition, offer. There's no slot for a memory card on the Pocket Edition (as there is on the Touch Edition), so you're limited to the unit's built-in memory -- enough, says Sony, for some 350 e-books. Finally, if you travel overseas, the Kindles now shipping from Amazon have been enhanced to allow wireless book purchases in more than 100 countries.

The e-book market is seeing plenty of activity of late -- as we went to press, Barnes & Noble was readying its own $259 e-reader, complete with wireless book-buying -- but for basic meat-and-potatoes e-reading, the Pocket Edition is a solid, compact contender at a reasonable price.

Panasonic DMP-B15 Portable Blu-ray Player (Panasonic Corporation of North America, $800). While Blu-ray discs -- the high-resolution successor to the DVD -- have been on the market for more than three years, the first portable player is only making its debut now. For a lot of videophiles, the question isn't what took so long, but why bother at all. Blu-ray, they'll tell you, was designed for large screens, the televisions that take up half a wall -- not a 9-inch screen that sits on one's lap. True enough, but here's the thing: As more people buy Blu-ray discs, some are going to want a way to watch them away from home, particularly if they've got kids and long car rides.

Panasonic's solution isn't perfect. At $800, it is the most expensive portable movie player you're bound to come upon (although it's cheaper than buying a new laptop configured with a Blu-ray drive, and savvy shoppers will find it discounted). It's big, too -- larger than many netbook computers. And the controls -- particularly the volume buttons -- are small and awkward. But image quality is nothing short of amazing, even at 8.9 inches. It's been a long time since we've seen even a middling image on a portable disc player -- even the big guns like Panasonic and Sony have been churning out low-cost, low-end products as the market becomes commoditized. So to see a truly spectacular picture is something special. As more Blu-ray portables appear, prices should drop, but until now, Panasonic's player means that your Blu-rays won't gather dust while you're on your next trip.

Zune HD (Microsoft Corporation, 16 gigabytes: $219; 32 gigabytes: $289). Comparisons of the Zune with the iPod always reminded us of the movie "Twins" -- with Arnold Schwarzenegger as the iPod and Danny DeVito as the Zune. By almost every measure, the iPod seemed the more powerful, more capable, and more presentable contender (the boxy Zune was like the computer-age version of grandma's Dodge Dart). So here's the headline: Microsoft's latest iteration of its portable music-video-podcast (and now, a lot more) player has not only closed the gap in many respects, but overtaken the iPod in some. For one thing, the Zune HD looks great. It's small and sleek (about 80 percent the size of an iPod Touch), and has a terrifically bright display (albeit one that, at 3.3 inches, is a bit smaller than the Touch's). That comes in handy, given the movies you can buy or rent via the online Zune marketplace. We never thought we'd say this, but Microsoft has designed a user interface that's just as good as anything to come from Apple. You also get access to FM radio stations -- and HD radio in areas where it's available. And for $20 more than the eight-gigabyte iPod Touch, you can have double the storage space. Finally, you can sync your content with your PC (but not a Mac) wirelessly, a great feature.

While the Zune marketplace isn't quite as rich as the iTunes Store (particularly for video), and Zune apps (yup, just like iPhone apps) are, so far, few and rather feeble (thanks for the free chess, but we'll gladly pay for a better selection), we dig Zune Pass, a $15-per-month service that lets you download and listen to as much music as you like, as long as your subscription remains active (and you can keep ten tracks per month outright).

Zune HD sports wi-fi and a browser, too -- though if you're looking mainly for a pocket Internet device, the iPod Touch is still the better choice. Note, too, that while Zune can store high-definition (720-pixel) video, you'll need an optional -- and, at $90, overpriced -- dock to play it on your TV (the Zune itself cannot display HD content). But for music fans in particular, Zune has transformed itself like Cinderella off to the ball. And if Microsoft can beef up the apps and video downloads, the clock may never strike midnight.

iPod Nano (Apple, 8 gigabytes: $149; 16 gigabytes: $179). For a while now, the iPod Nano has been something of a tough sell: It lacks the big screen and wireless Web browsing that its big sibling, the iPod Touch, offers. Meanwhile, it stores far less content than the iPod Classic. So it was a pleasant surprise to see the pocket-friendly Nano (just 1.28 ounces) get the biggest makeover in this fall's iPod update. There's now a built-in video camera (nothing that will make you forget IMAX, but good enough for Facebook). An FM radio (finally) and pedometer (plug in your weight and it will track the calories you burn walking around all day) are nice touches, too. And while this is the first time Apple has not increased storage capacity in a Nano update, it did cut the price of the 16-gigabyte model from $199 to $179. We're glad that Apple bumped up the Nano's screen size, but at 2.2 inches, it's still too small for watching anything longer than a 15-minute "SpongeBob SquarePants" episode. Putting aside that and another quibble or two -- we'd rather activate the video camera from a button, not a menu -- the Nano is now an easier purchasing decision, particularly for music lovers who are watching both their wallets and their waistlines.Gadget Gifts for the 2009 Holiday Season

Alan Cohen

Summary of Government's Loan Mod Program ("HAMP")

(A) Which mortgages are eligible for HAMP?

(1) The mortgage must be a first mortgage for a 1-4 unit residential property that serves as the borrower's current primary residence.

(2) The borrower must have had a change in circumstances that causes financial hardship, or be facing a recent or imminent increase in the amount of the borrower's monthly payment that is likely to create a financial hardship.

(3) The unpaid principal balance of the mortgage must be no more than $729,750 (this
 amount increases proportionately for multiple unit properties.)

(4) The mortgage cannot have been previously modified under the HAMP.

(5) The mortgage must have been originated on or before January 1, 2009 (mortgage s
are eligible to be modified until December 31, 2012)

(B) Which eligible mortgages must be modified?

After determining that the mortgage is eligible based on the requirements set forth above, a net present value test must be performed on the mortgage. This test determines whether the estimated net present value of the mortgage, as modified, is greater than the estimated net present value of the mortgage absent modification. Relevant parameters for the net present value test include the estimated value of the property upon foreclosure, cure and redefault rates, the amount of any incentive payments made under the HAMP and other information affecting the potential future value of the mortgage. If the net present value test determines that the modified loan is more valuable, as modified, participating servicers are required to offer the borrower a modification. However, servicers have the option of offering borrowers a loan modification even if the modified loan is estimated to be less valuable. The Treasury Department will release further parameters for the net present value calculation at a later date.

(C) How, exactly, are loans modified under the HAMP Program?

(1) Interest rate reduction. First, a servicer must attempt to reduce the interest rate for the mortgage in increments of 0.125% (subject to a floor of 2%) until a mortgage debt-to-income ratio (Front-End DTI Ratio) of 31% is reached. For purposes of calculating Front-End DTI Ratio, mortgage debt includes principal, interest, taxes, insurance, homeowners association and/or condominium fees and certain arrearages. Mortgage insurance premiums and debt service on subordinate liens are not included. If the interest rate required to reach a Front-End DTI Ratio of 31% is above an interest rate cap (set at the lesser of: (a) the original contractual rate, or, (b) the current Freddie Mac Primary Mortgage
Market Survey rate) the modified rate will become the interest rate for the remainder of the term of the mortgage. If the modified interest rate is below the cap set forth above, the modified rate will remain in effect for the first five years and then increase by 1% per year until it reaches the level of the cap, at which time it will be fixed.

(2) Extension of term or amortization. If a Front-End DTI Ratio of 31% cannot be reached by lowering the interest rate to 2%, servicers may extend the term of the mortgage to up to 40 years. If loan terms prohibit extending the term, the amortization period can be increased to up to 40 years, which will result in a balloon payment that will be due upon the maturity or other termination of the
loan.

(3) Forbearance of principal. If the above steps still do not result in a Front-End DTI Ratio of less than 31%, servicers may forbear principal, which would then become due upon the maturity or other dermination of the loan. The guidelines mandate that interest cannot accrue on the forbearance amount.

(4) Commencement of a Trial Period. After the modified interest rate is determined, the borrower engages in a trial period lasting 90 days, or 3 payment periods, during which the borrower must make payments at the modified terms. If the borrower is current at the end of the trial period, the modification is then effective.

(D) What incentives are given to Lenders under the HAMP Program?

Acknowledging the failure of prior loan modification programs, the Obama plan provides a variety of incentives to lenders and servicers to gain their participation on more loan modifications.

Lenders (or whoever owns the mortgage in this era of securitization) are eligible for the following incentive payments from the government:

(1) A payment in the amount of one-half of the difference between the borrower's monthly payment, as modified, and the lesser of: (a) the monthly payment of the loan at a 38% Front-End DTI Ratio, or, (b) the borrower's current monthly payment. This compensation will be paid for up to five years.

(2) A bonus incentive of $1,500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to some restraints.

(3) Compensation to partially offset probable losses from home price declines for loans that have already been modified.

Servicers - including lenders that service their own loans - are eligible for the following incentive payments:

(1) An initial payment of $1,000 for each successful modification.

(2) Annual payments of up to $1,000 for the first three years following successful modification, provided the borrower stays in the program.

(3) A bonus incentive of $500 for any loan modified while the borrower is still current (including less than 30 days delinquent), subject to de minimis restraints.

Even borrowers, who have already obtained the benefit of having their loans modified, get sweeteners from the governent. For example, if the borrower makes mortgage payments on time during the first five years after the modification, the principal on the loan will be reduced by an additional $1,000 each year.

(E) What are some potential problems with HAMP?

In addition to obvious moral hazard seemingly present in all of the government bailouts, loan modifications create problems for investors in mortgage-backed securities. Most of the mortgages in this country are owned in some way or another by investors who have already taken huge losses on their investments in these securities. Loan modifications may be opposed by investors, and may result in litigation as it did when Countrywide (now owned by Bank of America) settled predatory lending charges by various State Attorneys General by agreeing to modify thousands of mortgages. Investors in the mortgage-backed securities containing these Countrywide loans banded together and brought litigation to prevent the modifications. The Treasury guidelines do not really address this, but state that servicers must comply with the terms contained in servicing agreements (including pooling and servicing agreements) for eligible mortgages, or make reasonable efforts to remove any prohibitions or obtain waivers from any necessary party.

The plan also presents additional problems for lenders and servicers. The guidelines prohibit servicers from passing along most charges in connection with loan modifications. For instance, while notary fees, property valuation and other required fees may be reimbursable from a lender or investor, servicers cannot pass these costs to borrowers. In addition, servicers cannot require a borrower to contribute cash to the closing of a loan modification, and must waive any unpaid late fees. Servicers participating in the HAMP are required to enter into service contracts with Treasury's financial agent prior to December 31, 2009. These service contracts are likely to require servicers to offer loan modifications to all eligible mortgages in a servicer's loan portfolio. Treasury expects to circulate examples of these contracts in April 2009. Servicers performing loan modifications will also be subject to detailed data gathering and recordkeeping requirements. Treasury will issue details on these requirements at a later date.

CALCULATOR - How Much House Can You Afford?

Enter your income, the monthly minimum payment on your debts and the amount of cash you can put toward a new home. You'll need to choose an interest rate (the table below shows national averages as of 12/11/09) and estimate your credit rating. We'll calculate the maximum house you can afford, the size of the loan and an estimated payment, making some basic assumptions about taxes, insurance and closing costs. We'll also adjust for your credit history. These are guidelines. Lenders may approve a loan for more, but that doesn't mean the loan is a wise choice.

Term		Rate
30-yr Fixed		4.75
15-yr Fixed		4.24
1 yr. ARM		3.71

Gov't Mortgage Relief Has Only Helped 4% of Owners

WASHINGTON — The Obama administration's embattled mortgage relief plan has provided permanent help to only four percent (4%) of borrowers who have signed up - weak results that could threaten the housing market's recovery.

Among big lenders, Bank of America Corp. had the worst performance in the Treasury Department report card released Thursday. The nation's largest lender completed just 98 modifications for the 160,000 borrowers who had signed up by the end of November. GMAC Mortgage had the most modifications of any lender, just 7,100.

About 760,000 have signed up for the program since it launched in March. But as of last month, just over 31,000 homeowners had received permanent loan modifications. Nearly the same number have fallen out of the program completely either because they missed payments or were found to be ineligible.

The report shows the administration is not going to hit its long-term target of helping up to 4 million borrowers with modified loans, said Ted Gayer, an economist at the Brookings Institution.

The more borrowers the program can't reach, the more foreclosed homes will spill onto the market, pulling down home prices. About 14 percent of homeowners with a mortgage are either behind or in foreclosure.

"Nobody really knows how big that wave will be," Gayer said.

The Treasury Department has begun "stepping up" pressure on the industry to improve. The administration's focus is to "get as many of those eligible homeowners as possible into permanent modifications," said Phyllis Caldwell, chief of Treasury's homeownership preservation office.

When the poor progress was clear last summer, Treasury set a goal of enrolling up 500,000 borrowers by Nov. 1. With the clock ticking, many lenders started giving homeowners verbal approval for a temporary modification.

"They were going to do anything to hit that number," said Marietta Rodriguez, national director of homeownership programs at NeighborWorks America.

Under the program, eligible borrowers who are behind or at risk of default can have their mortgage interest rate reduced to as low as two percent (2%) for five years. They are given temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the required paperwork, including proof of income and a financial hardship letter.

Lenders blame the low success rate on borrowers who don't return the necessary paperwork to complete the process.

But Michael Heller of Salinas, Calif., says he and his wife have submitted all of the required documents and made six months of $1,800 payments to JPMorgan Chase & Co., but have yet to receive an answer.

"Every time we send them documents, they send us a form letter that says your modification is risk, you screwed up, you didn't send us the necessary documents," said Heller whose landscaping business has taken a severe hit due to the recession. He figures the house he bought for $640,000 in 2006 is now worth $250,000.

"You never talk to the same person twice," he said. "It makes you a little bit kooky. This has been extremely stressful."

JPMorgan Chase had no immediate comment on their case.

Mike Brauneis, director of regulatory risk consulting at consulting firm Protiviti Inc., predicts that only 20 percent of borrowers who were verbally approved for modifications will ultimately sign up.

"Either people qualify verbally and never send their paperwork in, or they send it in and the numbers are different," he said.

Wells Fargo & Co. has enrolled about 3,500 homeowners in the Obama program so far. There are 14,000 more who have completed all their paperwork and are likely to finish the process soon. Another 9,000 have made three payments but haven't sent back any documents, while 11,000 have sent some paperwork.

"We're going to do all we can to try to get their attention," said Cara Heiden, co-president of Wells Fargo's mortgage division.

Bank of America said it is trying to reach 50,000 customers who have completed three payments but are missing some or all documents. It said its "momentum in converting customers to permanent modifications" will show results this month.

Some borrowers, who lied about their incomes when they originally took out their loans, still aren't able to show proof. During the housing boom, the lending industry didn't require borrowers to prove their income, and those loans are highly concentrated in the states hardest-hit by the housing bust.

More than half of loans made in California and Nevada from 2004 to 2007, for example, required little or no documentation, according to research firm First American CoreLogic. Nationally, about 4.3 million of those loans were made during the boom years.

"You definitely have a group that shouldn't be in the loan in the first place" said Terry Moore, managing director of consulting firm Accenture's North America banking practice.

A watchdog report this week said the government effort "appears capable of preventing only a fraction of foreclosures" and that only $2.3 million out of a potential $75 billion government commitment had been spent.

Steve Carpinelli, 39, of Alexandria, Va., thought he'd be a natural candidate for the Obama plan, after seeing his income drop 35 percent from about $65,000 two years ago. He's struggling, but has still made his monthly mortgage payments so far.

Though he was initially approved for a temporary modification, made four trial payments and sent back the necessary paperwork, Citigroup Inc. denied him last month.

"It is the most grueling processes I have ever been through financially," Carpinelli said.

A Citi spokesman declined to comment on his case but said, "if the borrower does not qualify, we look for other potential loss mitigation solutions."

Originally Published in the Huffington Post, 12/10/09

Fla Supreme Ct May Require Foreclosure Mediation

The Florida Supreme Court has been asked to adopt a uniform plan of statewide mandatory mediation for residential foreclosures to help manage the flood of filings currently clogging the State's courtrooms.

The high court recently heard arguments on a task force report recommending mandatory mediation as part of a streamlined and uniform approach to the foreclosure crisis. (Note: nearly half of Florida's judicial circuits already require some form of "pre trial mediation" - the procedures for which vary wildly from circuit to circuit - prior to a residential foreclosure case proceeding to final judgment).

While questioning some specifics of the plan, Justices seemed eager to help circuit courts deal with an onslaught of foreclosure cases — many involving unrepresented homeowners with a limited understanding of the legal process.

“What is the solution to what this court system has — a tsunami of these filings?” Justice Barbara Pariente asked a banking industry lawyer.

Lenders oppose some aspects of the plan, which they say would place an unfair financial burden on them.

“The goal is taking the burden off the court,” Pariente said in response to that concern. “We’re not just trying to, quote, 'help' the borrower.”

Miami-Dade civil administrative judge Jennifer Bailey, who chaired the statewide task force, said mediation was not recommended to favor the interests of either borrowers or lenders, but to help courthouses manage an overload of cases.

“We are imposing structure on an extremely chaotic situation,” she said. Through September, more than 291,200 foreclosure actions were filed statewide this year, Bailey added.

In Miami-Dade County, the court experienced a 474 percent increase in foreclosure filings from 2006 to 2008. The caseload has climbed 516 percent in Broward County and 496 percent in Palm Beach County.

The filings are swamping the courts and taking judicial energy away from other cases, said former Florida Bar president Alan Bookman of Pensacola, who served on the task force. “We’re not trying to favor the homeowner over the lender. We’re trying to create a level playing field,” he said.

During the 90-minute Supreme Court hearing, lawyers discussed one example of how cases get dragged out and tie up court resources — the canceled foreclosure sale.

In Miami-Dade County, 65 percent of scheduled foreclosure sales each month are canceled. One reason is borrowers and loan servicers are working toward an agreement, lawyers said.

Justice R. Fred Lewis called that 11th hour approach “nonsensical. “Wouldn’t it be a better policy for a trial court to make sure that process is completed before the final judgment?” the Justice asked.

Lewis said it would be essential for each circuit to ensure the independence of mediation agencies, saying a bias toward either side would be “devastating to the process.”

He also wanted to know when results from each program should be expected. “Will the crisis be passed before we have them in place?” Lewis asked.

Justice Charles Canady suggested financial interests, not negotiation, might delay some foreclosure sales.

“Lenders are making a business decision that they don’t want the sale to go forward,” he said. “They would rather inventory these houses and wait for a better time in the market.”

Fort Lauderdale attorney Marc Ben-Ezra, whose law firm, Ben-Ezra & Katz, has represented lenders in about 30,000 foreclosures in two years, said Canady’s concern is an “urban myth.” Lenders want foreclosures resolved as quickly as possible, he said.

“We’re generally graded by our clients on how efficiently we can complete the process,” Ben-Ezra said.

A more significant reason for delay is borrowers who don’t appreciate the seriousness of their situation until “a final judgment is bearing down on them,” he said.

Improving early communication between borrowers and lenders is a major goal of the task force. The plan calls for mediation on homestead property at the lender’s expense unless the lender and borrower agree otherwise.

In addition, the task force recommended a central foreclosure Web site to provide information on foreclosure counseling, access to court dockets and resources for borrowers.

Under the proposals, lenders would be required to verify the contents of their complaint at the time of filing, and parties wishing to cancel or reschedule foreclosure sales would have to file a motion listing their reasons.

In cases where borrowers have not been located, the task force recommends a new form for process servers to fill out to demonstrate the steps they took before abandoning a search.

Three circuits including Miami-Dade already have adopted mediation programs administered by the Collins Center, a nonprofit Tallahassee think tank. The service costs $750 per case.

Chief Justice Peggy Quince said embracing mandatory mediation could create a monopoly for the center, and she called that prospect “disturbing.”

Critics of the task force plan mainly object to the financial burden and legal hurdles placed on lenders, which already lose money on most foreclosure actions. Mediation fees alone could cost banks more than $20 million a year, said task force member Lee Haworth, chief circuit judge in Sarasota County. He wrote a dissenting report suggesting borrowers and lenders should split the cost of mediation when possible.

“People who have the ability to contribute toward the mediation process should step up and do it,” Haworth told the court. “Both sides need skin in the game.”

He said a determination could be built into the mediation process itself so it would not burden judges. Without such protection, he said, the “Donald Trumps of the world” could get a free mediation.

But most homeowners who default on their loans are not sophisticated investors and are overwhelmed and confused by the foreclosure process, Bailey told the panel.

“Most of the people we’re talking about, this is the most complex transaction they have ever dealt with in their entire life.”

Treasury Dept Creates Plan to Simplify SHORT SALES

(EDITOR'S SUMMARY - The Treasury Department's "HAFA" program has been created to simplify and streamline the use of "short sales" and "deeds-in-lieu" as alternatives to foreclosure. As is the case with the "HAMP" program, the government is providing financial incentives to lenders and servicers choosing to participate in HAFA. The program only applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac - which will issue their own versions of HAFA in coming weeks - Chris Qualmann)

Originally Published by Reuters News Service

The U.S. Treasury Department has provided long-awaited guidance on a plan for mortgage companies to speed up "short sales" of homes and other loan modification alternatives to stem a rising tide of foreclosures.

The "Home Affordable Foreclosure Alternatives" ("HAFA") Program provides financial incentives and simplifies the procedures for completing short sales - a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed, according to an announcement on the Treasury's website.

Guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders.

The incentives, first announced in May, expand on the government's "Home Affordable Modification Program", known as HAMP, that has seen limited success in lowering payments for distressed homeowners. On December 1st, the Treasury Department also announced that it has stepped up pressure on mortgage companies to make permanent the 650,000 trial modifications they have started.

"While HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is expected that servicers will encounter situations where they are unable to approve" or offer a modification, the Treasury said in its announcement.

Financial incentives for completing short sales or similar deed-in-lieu transactions -- in which the deed is simply transferred to the lender -- include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would receive $1,500 in relocation expenses.

Short sales are favored by real estate agents and community groups over foreclosure because they can preserve the borrower's credit rating and leave the property in better condition than when a homeowner is evicted. While primary lenders typically realize steep losses, their recovery is typically far better than under foreclosure.

But short sales have been frustrating for borrowers and real estate agents, often hung up by negotiations with multiple lien holders and mortgage insurance companies. Real estate agents have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Among requirements, mortgage servicers have ten (10) days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt. It also prohibits mortgage servicing companies from reducing real estate commissions on the sale - a practice that has dissuaded many agents from taking short sale listings.

In one of the most contentious issues gumming up negotiations between lenders, the guidance caps the aggregate proceeds to subordinate lien holders at $3,000.

Second lien holders in recent months have begun demanding more money from the first lender, seller, buyer or agent in exchange for releasing their claim, agents have said. Because primary lenders would face larger losses in a foreclosure, some subordinate lenders have felt empowered, the agents said.

The largest second-lien holders are Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co and Citigroup Inc. Second lien holders may proceed with a short sale outside of the Treasury program, if they felt the cap was too low, a Treasury official said in October.

"If there was a short sale program that didn't recognize the second lien holder position, it could have pretty damaging consequences for the industry," Sanjiv Das, chief executive officer of CitiMortgage, said in an interview last week.