Archive for the ‘Mortgages/Home Loans’ Category

Major Federal Court Ruling: Borrowers Are Third Party Beneficiaries Under HAMP

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As you know, one of the major hurdles for HAMP has been the lack of enforceability on the borrower’s side. I have said on this very blog many times that HAMP, well-intentioned as it may be, had no teeth.

Well, in a recent ruling, a Southern California Federal Court Judge, M. James Lorenz, may have just given HAMP some badly needed dentures.  The ruling was made on behalf of the plaintiff, Ademar Marques, who sued Wells Fargo for breach of contract under HAMP. There have been and are a number of lawsuits alleging the same thing and the big question has been, how will the courts rule. Now we have an answer from at least one Federal Court.

The judge ruled that borrowers are intended third party beneficiaries to the contract made between the servicers and the Federal government when the servicers agree to participate in HAMP.  What this means is that, according to this ruling, borrowers do have standing to sue for breach of contract under HAMP. 

While there is no guarantee that other judges will rule similarly, it does establish precedent in case law for other judges to follow. It certainly means that cases in California, one of the states hardest hit by the foreclosure crisis, that there is hope for homeowners struggling to get their loans modified.

Blaming Fannie & Freddie: Taking The Easy Way Out

“Will Obama Slay The Fannie and Freddie Beast?”  is the headline of one story appearing in Newsweek today. Basically, it appears that instead of doing anything to the major players that actually caused the economy to collapse, you know, those fat cat Wall Street CEOs with their stupid, blow-up-the-housing market schemes, once again the easy target gets the blame: poor people who shouldn’t have been able to buy homes in the first place.

The Obama administration appears to be suggesting — very subtly — that homeownership isn’t a God-given right. That the American dream has morphed into an American entitlement. That millions of people who should not have been homeowners in the first place ended up paralyzed by unsustainable debt as a result

The American Dream is indeed powerful and one of its major tenets is owning your own home. Why is that such a tenet, though? Because for years, owning a home was the only asset any except the top five percent of Americans could claim.  Having said that, homeownership has never been an entitlement and the idea that giving poorer Americans the ability to purchase homes led to this crisis is completely incorrect. It is par for the course, however, as it is easy to blame everything on those least able to represent themselves. Poor and working class Americans  don’t have a powerful lobby like Wall Street does.

The fact is that the financial crisis was NOT caused by making loans to poor people to buy homes. It was NOT caused by the CRA or Fannie and Freddie. It was caused by greedy Wall Street bankers knowingly creating financial products that were doomed to fail from the very beginning.  The Center For Responsible Lending and others have done studies which have  revealed that risky borrowers weren’t the problem;  it was the terms of the loans themselves .  In fact, the majority of people who received “subprime” loans could have qualified for conventional mortgages, with a much lower default risk.  Furthermore, most of the loans made were not loans to first time homebuyers: the majority were refinances and loans made to homeowners moving from one house to another.  

It is deeply saddening to me that the Obama Administration appears to be buying into the Republican talking points, given to them straight from Wall Street, that the cause of the crisis was government intervention to try and help people get a leg up when true cause was the absence  of government in making sure that the mortgage products that were being peddled to the American people were safe and sustainable.

Renting After Foreclosure

Losing your home to foreclosure is a terrible event. Not only is it stressful and demeaning, it ruins your credit score, which can make it harder for you to rent an apartment. Here are some tips to help you find a rental:

Stay away from big corporate owned apartment complexes as these have strict guidelines and will most definitely do a credit check.  Instead, focus on smaller apartment buildings or homes owned by  private landlords as they are less likely to run your credit. You can find these listings most often on Craigslist or your local newspaper. Stay away from rental guides, as most of the apartments advertised there will be run by huge corporate owned property management firms.

Network with friends and family to see if they know anyone who has an apartment or house to rent and is willing to forego a credit check or who will be willing to rent to you despite your damaged credit

Stay in your home as long as possible and save as much money as you can during that time.  While the foreclosure process, from the formal filing of the “Notice of default” to the foreclosure sale can take four months, the average foreclosure today is taking more than 15 months from the date of the first missed payment to the date of the auction.  Use this time to your advantage to save as much cash as you can.

Be prepared to pay up to three months rent in advance, plus the typical security deposit and first and last month’s rent. Have this in cash. Most landlords will be happy to rent to you if you have cash in hand.

If  there is no way you can avoid a credit check, have someone available with good credit to be your co-signer. Family should be first and then friends. 

Get references. Ask your employer and the manager of your local bank branch to write you a reference letter. Keep this in reserve if a prospective landlord asks for it.

Don’t lie, but don’t volunteer information, either. If you’re asked about something, be honest, but never offer up unasked for information. For example, don’t walk into the rental manager’s office and present him or her with your reference letter or offer up any long explanations. Doing so will only raise unnecessary alarm bells with the landlord.

While renting after foreclosure may be a little harder, it is not impossible. With the number of foreclosures going into the millions by the end of this year and continuing apace for the next number of years, foreclosure is no longer the black mark it used to be. Most landlords are understanding, and if you can demonstrate your ability to pay, having a foreclosure on your record will not prevent them from renting to you.

Wall Street Is Circling The Wagons Against Elizabeth Warren as Head of Consumer Bureau

The newly created Consumer Financial Protection Bureau was an idea conceived Harvard Professor and long time advocate for the middle class, Elizabeth Warren.  Since the agency was her idea, and she is obviously the most qualified person to lead it, then her confirmation as its head should be a shoo-in.

That would be true in the real world, but in the Washington Beltway, what is up is down and what is wrong inevitably turns out to be right as long as enough lobbyist money is spent to woo political officials along the way.

Wall Street was extremely opposed  to the consumer financial protection bureau and  through their lobbying efforts, managed to get it moved within the Fed instead of outside it. Beyond that, they haven’t managed to weaken it any further, but appointing a Wall Street insider would ensure that the agency would have no teeth and be practically useless.

Treasury Secretary Timothy Geithner,  a Wall Street insider if there ever was one, is quite opposed to Warren, who has dressed him down a time or two as he appeared before the Congressional Oversight Committee that she chairs. Where no one else would ask the tough questions, Elizabeth Warren did, and when the answers given were less than candid or complete, she poured on the heat.

 

 

 

Now we hear that Senator Chris Dodd, Chairman of the Senate Banking Committee does not believe that there are sixty votes in the Senate to confirm Warren as director of the CFPB.  From the article:

I think Elizabeth would be a terrific nominee," Dodd told NPR’s Diane Rehm on Monday. "The question is, ‘Is she confirmable?’ And there’s a serious question about it.

Senator Dodd has taken a great deal of donations from the banking industry and while fighting for financial reform, he has also worked to weaken it at the behests of his donors. His remarks today are even more of an indication that Wall Street will fight tooth and nail to prevent Warren from heading the agency that was her brainchild.

Elizabeth Warren Predicted The Financial Collapse Back In 2004

 

Elizabeth Warren,  a Harvard Law Professor and the current chairwoman of the Congressional Oversight Committee in charge of overseeing usage of the TARP bailout funds, predicted the financial collapse long before anyone else was talking about it.

In this 2004 interview with Dean Lawrence R. Velvel where she discusses her book, The Two Income Trap,  she reveals the instability that pervades the lives of most middle class Americans and why so many end up in Bankruptcy court. She says that in order to keep up with the expenses, people with median incomes have been forced to borrow and borrow. Why? Because the median income in the United States is increasingly not enough to keep up with the cost of living. She talks about the fixed expenses that families have, such as the mortgage payment, health insurance, and educational expenses as having grown dramatically in the last generation. It is important to understand, here, that, these fixed expenses can’t be cut back.  That’s why they’re called “fixed expenses.”

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Kondaur Capital and Jon Daurio In Foreclosure News Again

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I wrote about the debt buyer, Kondaur Capital, back in May. Remember those guys, the company that’s headed by former Ameriquest executive Jon Daurio?  They buy “scratch and dent” mortgages for pennies on the dollar, then get the homeowners out as quickly as possible and sell the home for a profit.  The Wall Street Journal just did another piece on them.

Apparently, one Baltimore homeowner, Eddie Patrick, was talked into dropping his lawsuit against Kondaur when it promised to “work with him” on a loan modification. They foreclosed on him anyway and then offered to sell the house back to him for $140k, which Mr, Patrick, not being made of money like these Wall Street scum, can’t afford.  Mr Patrick’s six year old son is battling brain cancer and recently had two operations. Kondaur has since generously offered Mr. Patrick $8,100 to move by the end of August and has lowered the sales price on the home to $130k.

This Daurio guy is a virtual font of insane and inane comments, especially since the fellow used to originate subprime loans that he knew full well the borrowers could never repay:

We help borrowers understand they have a house they can’t afford.

Except that they probably CAN afford the home with a decent mortgage on it. Most of the people who were sold “subprime” loans could have qualified for cheaper and safer conventional mortgages, as I noted here

The vast majority of these people knew the risk they were taking. Like so many of the borrowers I dealt with when I was originating loans, they thought housing prices were going up.

Actually, it was guys like Daurio who sold borrowers the bill of goods that prices would always go up and they could always refinance at a later date to get a better deal.  I’m going to get a little nasty here, but I can’t stand people like this Daurio, the architects of the current depression. No, Daurio, you ass, the borrowers weren’t aware of the risks, but you sure were, and you convinced them that home prices never fall. You and your Wall Street magic made it seem like they could afford these loans, when in fact, they could not.

Attributed to him, but paraphrased by the author of the WSJ article  is this little gem:

It is no surprise that some borrowers are unhappy when Kondaur forces them to face the music, Mr. Daurio says, but it isn’t his fault that borrowers got themselves into houses they can’t afford.

At the risk of repeating myself, actually, it is your fault, Daurio. You and your Wall Street brethren created these toxic mortgages and foisted them off on people. And now you want to profit off of the mess you made? Really? And this is being allowed?

Ok, enough excoriating of our pal, Daurio.  The real story here is that the regulators don’t know how to treat debt buyers like Kondaur. Are they debt collectors or mortgage lenders?  North Carolina’s chief deputy banking commissioner, Mark Pearce says:

I have concerns that some of these activities fall through the cracks of the regulatory structure.

For the first time, debt buyers, those denizens of the debt collection underworld, are entering the mortgage market, and our current laws aren’t clear on how to deal with them.  This doesn’t meant that current law won’t protect you from these predators, it just means it’s going to be a tougher fight.

Financial Reform Passes: What Does It Mean For The Average Consumer?

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So the Senate voted today to pass financial reform, a bill aimed chiefly at reining in Wall Street from doing the kinds of things that lead to the financial collapse of 2008. There has been a lot of talk about derivatives  and credit default swaps, and while these are important parts of the reform bill, which ultimately affect each and every one of us, there are other aspects of this bill that will more directly affect average Americans.

The largest of these is the creation of a new consumer watchdog agency known as the Consumer Financial Protection Bureau. This agency will be located within the Federal Reserve but will be completely independent from it. It will have an independent director and will have the authority to make and enforce rules against unfair and deceptive consumer credit practices. This agency will regulate the practices any business that engages in consumer lending, from credit card companies and mortgage lenders to payday loan companies. The one group exempted from CFPB authority are auto dealers.

Basically, what the CFPB will do is make sure that when you sign a credit card agreement, you know exactly what you’re getting into. Even more importantly, it will ensure that if you borrow money, you can do it safely and with the knowledge that you can pay it back without going broke. Hopefully, the CFPB will put an end to the usurious practices of payday lenders, for example.

Finally, the reform bill contains new regulations with respect to mortgage lending.  Lenders will no longer be allowed to pay brokers additional fees for steering borrowers into riskier and more expensive loans if they qualify for cheaper safer ones. It also forces lenders to adopt stricter underwriting standards to ensure that no one receives a loan they can’t afford to repay and it reduces abusive repayment terms like huge prepayment penalties and other “junk” fees.

While the reform bill isn’t as strong as many would like, it does have some good aspects that will help consumers better manage their debt. I hope that Elizabeth Warren is appointed to be the director of the CFPB. 

I’m curious….what do YOU think about the financial reform bill?

Should I Apply For A HAMP Loan Modification?

Unless you’ve been living under a rock for the past year or so, I’m sure you’ve heard of President Obama’s Home Affordable Modification Program, or HAMP for short. The program provides incentives to participating servicers and lenders to modify mortgages at risk of foreclosure.

Should you apply for a loan modification under HAMP? The answer depends on your circumstances. The first question you need to answer is do you qualify?

To qualify for a HAMP mod, your mortgage must:

1: Be on your primary residence. No vacation homes or homes purchased for investment purposes
2: not exceed $729,750
3: must constitute a hardship
4: must have been obtained prior to January 2009
5: payment in excess of 31% of gross income

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More Lawsuits Filed Against Lenders For Breach of Contract Under HAMP: Don’t Mess With Texas

It looks like more and more lawsuits are popping across the country from angry homeowners regarding the failures of bank servicers to properly handle loan modifications under HAMP. I’ve written about the suit filed in Massachusetts here.

The latest lawsuit was filed in the state of Texas by The Texas Housing Justice League and 15 homeowners against Bank of America and its subsidiary, BAC Home Loan Servicing LP.  This lawsuit, like the others, alleges, in part,  that the HAMP trial modification agreement is a contract which Bank of America and BAC violated by not timely modifying the loans once the plaintiffs had performed their parts under the loan modification agreement.  In some cases, the plaintiffs’ homes were foreclosed upon even while they were in an active trial modification and making payments.

The complaint lists a litany of grievances common to most homeowners who have attempted to get their loans modified: lost paperwork, servicer demands for same information numerous times, inconsistent information given by bank employees, and a difficulty in reaching someone in charge to get answers.

Like the other lawsuits, most important points of contention that the courts will have to decide are as follows:

1: Does the agreement between non-GSE servicers and the Treasury  to participate in HAMP constitute a legal and binding contract? If so, then the servicers are legally obligated to follow each and every program guideline, including but not limited to not foreclosing on properties that are in active HAMP trials. 

Granted, even if the courts decide that the HAMP participation agreement is a legally binding contract, the Treasury, and not the homeowners would have to sue for non-performance. 

2: Does the HAMP trial modification agreement between the servicer and the homeowner constitute a legal and binding contract? If so, then the servicer has a duty to the homeowner to perform its part of the contract, that is to modify the loan, so long as the homeowner has completed his or her part, that is made the payments and sent in the requested documentation.

How the court rules on the second question is more important for homeowners seeking modifications. Favorable rulings will invite more lawsuits from other states, and could possibly move the courts to act similarly in other jurisdictions.

Strategic Default Is Only Ok If You’re Rich

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A recent article in the New York Times discussed how the rich are defaulting on their mortgage loans at an increased rate as compared to the rest of the population.  From the article:

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

In fact, the delinquency rate on investment homes with mortgages of a million dollars is more than double the rate of homes where the mortgage was less. For the million dollar homes, the rate is 23% as opposed to 10% for less expensive properties.

Yet, Fannie Mae and Freddie Mac, the largest lenders of residential mortgage loans under $500,000, are stepping up the rhetoric against strategic defaulters and taking steps to penalize them. 

Since Fannie Mae and Freddie Mac cannot take loans of greater than $729k, the result is quite obvious: to penalize the working and middle class for making the same smart money moves that rich people do and take for granted all the time.

Recently, the Republicans added an amendment to a bill that would forbid strategic defaulters from getting FHA financed loans, ever. Who gets FHA loans? Not the rich…these are solidly middle and working class financial instruments. 

Despite all of the moralizing about “keeping your word…you signed on the dotted line that you would pay…” and “foreclosures damage the community,” the real motivator for lenders here is fending off damage to the bottom line.  Let’s be clear:  if a high percentage of mortgage holders with loans under $500K were to default, this would really damage the financial health of the  banks.  It has nothing to do with morality or a sense of community and everything to do with profit. If these banks gave a fig about community or morality, they never would have created the incredible mortgage casino that brought us to this point.

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