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Archive for September, 2009

A Foreclosure Tsunami Part 1

Posted by CM on September 22, 2009

Hi folks, I’m back from vacation!  I just finished reading Ms. Diane E. Thompson’s written testimony to the U.S. Senate regarding HAMP (Home Affordable Modification Program).  HAMP is a program started by the Obama administration as part of their Making Home Affordable programTHIS IS VERY IMPORTANT INFORMATION: 75% of ALL mortgages in the U.S. are eligible for HAMP!  That said, finding a mortgage servicer who actually participates and handles the program correctly is another story all together.  As usual, the mortgage servicers aren’t really providing the necessary relief for homeowners under HAMP as this testimony highlights and as we already know from our experiences. 

A majority of the issues in this testimony, I have either experienced or read about before.  I will assume the same can be said for you.  What is refreshing and comforting is that at least someone in the U.S. Senate knows it too.  What remains to be seen is whether or not any changes come out of this testimony. 

For the full testimony, Click Here

Here are some excerpts I thought may be of interest to you.  If you are trying to obtain a loan modification using HAMP, please read this testimony in its entirety so that you know what your rights are in this program. 

Foreclosure and Modification Statistics

  • 13 million foreclosures are estimated between the years 2008-2014.
  • Currently, 12% of mortgages are past due and 7% are delinquent.
  • 8% of loans were modified in 2007-2008
  • In most cases, modifications reduced payments but increased the principal balance.

Summary of Loan Modifications

  • In order to avoid a foreclosure tsunami, loan modifications that lower the principal amount is the only viable option.  Even participating mortgage servicers of HAMP are still unwilling to lower the principal amount. 
  • To date, mortgage servicers under HAMP are a) not providing a sufficient number of loan modifications to homeowners, b) modifications offered do not meet the guidelines of HAMP, and c) HAMP still presents serious barriers to mass loan modifications.
  • Homeowners are often not offered a loan modification prior to foreclosure sale.  Furthermore, this testimony advocates that foreclosure proceedings be stopped while in the process of modification.    
  • The Net Present Value model (a model which determines whether the investor will make more money from a modification or foreclosure) should be made available to the public.  Plus, a second independent review and a place to complain should be available when a servicer rejects a loan modification application. 
  • Second liens should be modified with the first lien. 
  • Large servicers such as PHH Mortgage are not participating. 

Sources:
1.  Preserving Homeownership: Progress Needed to Prevent Foreclosures.  Written testimony of Diane E. Thompson, National Consumer Law Center and on behalf of National Association of Consumer Advocates.  Before the United States Senate Committee on Banking, Housing, and Urban Affairs.  7/16/09.
2. National Consumer Law Center: www.consumerlaw.org
3. National Association of Consumer Advocates: www.naca.net
4. U.S. Senate Banking, Housing, and Urban Affairs Committee: http://banking.senate.gov/public
5. Making Home Affordable: www.makinghomeaffordable.gov

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A Foreclosure Tsunami Part 2

Posted by CM on September 22, 2009

Excerpts from Diane E. Thompson’s written testimony to the U.S. Senate, Click here for full testimony

Servicer and Investor Relationship

  • Investors lose 10 times more on foreclosures than they do on modifications.
  • Servicers, not investors, make the decision to modify a loan.
  • Servicers are automated pass-through accounting entities, whose mechanical actions are performed offshore or by personified computer systems. 
  • Servicers’ entire business model relies on making money by skimming profits from what they are collecting. 
  •  Performing modifications would cost servicers upfront money in fixed overhead costs, including staffing and physical infrastructure. 
  • Modification services are NOT compensated by the loan owner and the investor is paid first.   
  • The servicers’ costs in a foreclosure ARE compensated and the servicer is paid before the investor. 
  • Servicers have no motivation to change their ways, they have a successful business model, and weak oversight and incentives.  To see changes in behavior, servicers need to be fined for not making loan modifications. 
  • Homeowners have few market mechanisms to ensure that their needs are met from servicers. 
  • Servicers increase their net worth by gambling on market trends, not by providing top-notch customer service. 
  • Currently, investors recover more through refinancing than by modification.
  • With an underwater home, investors lose 65% in a foreclosure.
  • Investors will only lose 20% in a modification of an underwater home.
  • INVESTORS ARE NO MORE POWERFUL THAN BORROWERS IN PROVIDING DIRECTIONS TO SERVICERS.  

Sources:
1.  Preserving Homeownership: Progress Needed to Prevent Foreclosures.  Written testimony of Diane E. Thompson, National Consumer Law Center and on behalf of National Association of Consumer Advocates.  Before the United States Senate Committee on Banking, Housing, and Urban Affairs.  7/16/09.
2. National Consumer Law Center: www.consumerlaw.org
3. National Association of Consumer Advocates: www.naca.net
4. U.S. Senate Banking, Housing, and Urban Affairs Committee: http://banking.senate.gov/public
5. Making Home Affordable: www.makinghomeaffordable.gov

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A Foreclosure Tsunami Part 3

Posted by CM on September 22, 2009

Excerpts from Diane E. Thompson’s written testimony to the U.S. Senate, Click here for full testimony

HAMP Recommendations

  • Mandate affordable payments
  • Limit fees charged
  • Permit principal reductions
  • Needs more transparency
  • Foreclosures should be stopped while in HAMP review
  • An ombudsmen should be available for homeowner complaints

HAMP Violations

  • HAMP prohibits a waiver of legal rights.  Servicers are still seeking waivers or admission of default, both prohibited under HAMP guidelines.
  • All homeowners who request HAMP review are entitled to one even if you are not in default.
  • HAMP forbids any upfront payments as a precondition to review or trial modifications.
  • HAMP requires that no foreclosures be initiated and no foreclosure sales be completed during a HAMP review
  • Homeowners encounter barriers when negotiated a modification.
  • Servicer staff have no clue about HAMP

Suggested HAMP Guidelines Adjustments

  • Homeowners need principal reductions, not forbearance.
  • An involuntary drop in income should qualify you for a second HAMP review.
  • Those in bankruptcy should have better access to HAMP.
  • Requirement for second liens to be modified simultaneously as the first.
  • Federal law should require that mortgage servicers provide homeowners with contact information for a real person with the information and authority to answer questions and fully resolve issues related to loss mitigation activities for the loan. 
  • Transparency should provide information about the loan and its servicing history.

 

Sources:
1.  Preserving Homeownership: Progress Needed to Prevent Foreclosures.  Written testimony of Diane E. Thompson, National Consumer Law Center and on behalf of National Association of Consumer Advocates.  Before the United States Senate Committee on Banking, Housing, and Urban Affairs.  7/16/09.
2. National Consumer Law Center: www.consumerlaw.org
3. National Association of Consumer Advocates: www.naca.net
4. U.S. Senate Banking, Housing, and Urban Affairs Committee: http://banking.senate.gov/public
5. Making Home Affordable: www.makinghomeaffordable.gov

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Making Home Affordable

Posted by CM on September 18, 2009

On September 9, 2009 The Treasury released the second Making Home Affordable Program Servicer Performance Report through August 2009. Click here for the report
Assistant Secretary for Financial Institutions, Michael S. Barr, provided written testimony to Congress about stabilizing the housing market.  Click here for the testimony

Posted in Congressional regulation, Foreclosure, Green Tree Servicing, Mortgage Service Providers, Mortgage Servicers, PHH Mortgage, Treasury | Tagged: , , , | 1 Comment »

PHH has sold all their mortgages

Posted by CM on September 6, 2009

According to SEC filings dated June 2, 2009; it appears that PHH through Chesapeake Funding has sold ALL of their mortgages.  However, they have retained their servicing rights. 
PHH sold their mortgages for $1 Billion to: J.P. Morgan, Bank of America, Citigroup, Wachovia, Scotia Capital, and RBS.     

See the full SEC filing here

Posted in Foreclosure, Green Tree Servicing, J.P. Morgan Chase, Mortgage Servicers, PHH Mortgage, Treasury | Tagged: , , , , , , , , , , | Leave a Comment »

HR 1728

Posted by CM on September 6, 2009

HR 1728: The Mortgage Reform and Anti-Predatory Lending Act, Click Here for the full text in PDF

On April 28, 2009, Ms. Maureen McGrath of the National Advocacy Against Mortgage Servicing Fraud provided a written statement to the U.S. Congress to lend her organization’s support to HR 1728. 

The following are some key points regarding fraud from her written statement in her own words.

  • The first fraud by an institution is offering a loan when they know the homeowner does not have the means to ever repay the loan. 
  • The first fraud can also be offering a loan when the LTV (loan-to-value ratio) is upside down because the collateral cannot bear the price of the principal of the loan.
  • The second fraud is committed when a BPO (broker’s price option) is ordered rather than an appraisal.
  • An appraisal becomes fraudulent when an appraiser is coerced into “hitting the mark.”

Ms. McGrath further advocates oversight and regulation of the appraisal process because no uniform, nationwide oversight guidelines exist now.  Read her full statement here. 

I have advocated for a Mortgage Bill of Rights, but this bill is what we need instead.  It is comprehensive and worth the time to look over it.  Lets lend our support to this bill.  On May 7, 2009 the bill passed the House with 300 votes.  It is now awaiting Senate approval.  I will keep a tracker of this bill on the right side bar. 

Sources:

Written Statement of Maureen McGrath on behalf of National Advocacy Against Mortgage Servicing Fraud.  Submitted to the House Committee on Financial Services Hearing on HR 1728, The Mortgage Reform and Anti-Predatory Lending Act.   4/28/09.

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Meet with Wells Fargo Reps

Posted by CM on September 4, 2009

Starting Tuesday, September 8th, 2009; Wells Fargo Representatives will be on hand at the Phoenix Convention Center for 3 days to meet with customers regarding their loan modification applications.  Customers will be able to determine if their modification applications have been approved or denied.

Mrs. Giguere of Phoenix, AZ, lost her employment and requested a loan modification from Wells Fargo.  She sent in her paperwork several times with no response.  In bankruptcy court she was able to ask a high-ranking bank executive of Wells Fargo why she never received a response to her loan modification request and subsequent paperwork. 

Judge Randolph J. Haines of the United States Bankruptcy Court asked this of the Wells Fargo executive: “When did you tell the debtors that their loan was no longer being considered for modification?”

The Wells Fargo rep replied, “We haven’t. They’ve never been told.”

Ha! I would love to hear PHH Mortgage admit that and more! 

Read the full story here

Source:
Judges’ Frustration Grows with Mortgage Servicers. John Collins Rudolf. The New York Times. 9/4/09. 
URL: http://www.nytimes.com/2009/09/04/business/economy/04wells.html

Posted in Foreclosure, Mortgage Service Providers, Mortgage Servicers, New York Times, PHH Mortgage | Tagged: , , , , , , | Leave a Comment »

Highlights from Maureen McGrath’s Testimony

Posted by CM on September 4, 2009

Highlights from Maureen McGrath’s Testimony to Congress in 2004

9/4/09

Coleen Martinez
coleen.martinez@stopmortgageservicers.org

  • Ms. McGrath is the founder of the National Advocacy against Mortgage Servicing Fraud.
  • Schlosser v. Fairbanks decided that Fairbanks Capital (a mortgage servicer) was in fact a “debt collector” when it acquired a debt in default. 
  • Consumers do not have a choice concerning who will service their loans.
  • Force Place Insurance: Mortgage loan documents allow the lender to add insurance when the homeowner fails to maintain the insurance.  However, some predatory lenders force place the insurance when the homeowner has current insurance. 
  • Most predatory lenders lend up to only 80% of the value of the home, leaving the other 20% as a cushion to protect the lender in case of foreclosure.
  • When default occurs, the lender will foreclose, buy the home at the foreclosure sale and resell it for a substantial profit.
  • Class Action: If enough loans in a trust are placed in default, the trustee will not have sufficient funds to make a distribution.  Shareholders sue. 
  • If a multitude of homes are wrongfully foreclosed on, the REMIC (Real Estate Mortgage Investment Conduit) may be in violation of tax code.  The foreclosures may not be considered “foreclosures” and may actually be considered a “prohibited transaction” causing the asset cap to be effected. 
  • Recommends a certified appraiser perform an independent appraisal of properties. 
  • Recommends an opt-out period of 6 months for our mortgage servicers.

 

Look at bullet # 6 again.  Do you notice something with that statement?  The lender will foreclose, then buy the property at auction and then sell it?  How could the lender foreclose when they didn’t own the property in the first place?  I see this as a HUGE problem.

 

Please read Maureen McGrath’s testimony in its entirety.  Click Here

 

Sources:
1. Testimony of Maureen McGrath on behalf of National Advocacy Against Mortgage Servicing Fraud.  Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  United States House of Representatives.  Field Hearing on “Broken Dreams in the Poconos: The Response of the Secondary Markets and Implications for Federal Legislation.”  6/14/04.

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Fabrication of Default

Posted by CM on September 4, 2009

By Coleen Martinez
coleen.martinez@stopmortgageservicers.org
9/4/09

{This is another post from my reading of Ms. McGrath’s testimony to Congress.  Please note that Ms. McGrath’s words were so important and concise that I could not properly put her words into my own.  Therefore, most of this post is verbatim.  I have added the hypothetical examples.  Click here for the full testimony.}     

In my last post, Making Money as a Mortgage Servicer, I wrote about late fees.  This is how the late fees system works.  Our hypothetical situation has a mortgage for $245,000 with a $1,750 monthly payment.    

  • The date the monthly payment is received is manipulated in order to create a late payment.
  • A 5% “late fee” is triggered. [5% of $1,750 is $87.50]
  • Suspense: The late fee is deducted from the next month’s principal and interest payment. [1750 – 87.50 = 1662.50]
  • So, the next month’s payment immediately becomes a partial payment ($1662.50), which is placed in suspense and creates another late fee for that month. 
  • With this one late payment, the homeowner is now considered 1 month delinquent. 
  • Below is a chart following the payments until a default is reached (90 days). 
Month Payment Late? Y/N Fee of 5% Suspend Amount Owed
January 1750 Y 0 0 0
February 1750 Y 87.50 From January
1662.50
1750
March 1750 Y 87.50 From February
1662.50
1750
April 1750 Y 87.50 From March
1662.50
1750

 

  • If I have understood this concept correctly, with this situation, the borrower will always be behind by a full payment amount. 
  • Property Preservation (PP): 60-days delinquent; real estate agents drive-by the property to make sure that it is not in a condition that would jeopardize the investment of the trust. 
  • Property Preservations can occur multiple times a day, week, or month. 
  • The charge for PP’s can range from $10.00 to $150.00.  The charge is incurred by the borrower through fees. 
  •  90-days delinquent: Foreclosure Proceedings begin and with this come Broker’s Price Options (BPO).
  • According to Ms. McGrath’s testimony, “The mortgage servicer will order a “quick sale” price for the property from the BPO.  This will often drop the price of a home by thirty, forty, or fifty thousand dollars1.”  This situation can lower the neighborhood value and depress that area’s market.

Based on my experience, the BPO’s ordered for my house resulted in inflated prices.  The BPO’s were not at all representative of the current market value of the home, neighborhood, and town. 

Sources:
1. Testimony of Maureen McGrath on behalf of National Advocacy Against Mortgage Servicing Fraud.  Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  United States House of Representatives.  Field Hearing on “Broken Dreams in the Poconos: The Response of the Secondary Markets and Implications for Federal Legislation.”  6/14/04.

Posted in Congressional regulation, Foreclosure, Green Tree Servicing, Mortgage Service Providers, Mortgage Servicers, PHH Mortgage | Tagged: , , , , , , , , , | 1 Comment »

Making Money as a Mortgage Servicer

Posted by CM on September 4, 2009

By Coleen Martinez
coleen.martinez@stopmortgageservicers.org
9/4/09

On August 5th, 2009, the Associated Press published an article about lawsuits against mortgage servicers1.  Here are a few key quotes from that article, “Servicers earn a quarter to a half percent on the value of the loans they service.” And “servicers also make money through late fees and/or foreclosing.”  Well, this is how they make their money.    

Hypothetical example:

  • PHH Mortgage pays $1 million to Bank of America for the right to service a loan portfolio of 1,000 loans with a total balance of $100 million. 
  • The portfolio has an estimated average life of 7 years. 
  • The servicing fee on the $100 million is .25%, which generates income of $250,000 a year.
  •  It only costs PHH Mortgage $50 a year to service each loan, or $50,000 in total.
  • PHH’s net income is $200,000 a year for 7 years or $1.4 million. 
  • Therefore, after 7 years, PHH Mortgage has recouped their original investment of $1 million and made a $400,000 profit. 

Hypothetical example continued with late charges:

  • The rate of return on investment is 9.2% before late charges.
  • If a late charge of 5% of the payment is collected from just 1% of the borrowers, the rate of return on the investment goes from 9.2% to 10%.
  • If late charges can be collected from 5% of the borrowers, the rate of return exceeds 12%.   

Both examples were written close to verbatim from Maureen McGrath’s testimony to the U.S. House of Representatives.  (I added PHH Mortgage and Bank of America, Ms. McGrath’s testimony stated “firms” instead of actual companies.  I also added the $1.4 million net income and $400,000 profit so you would not have to get your calculators out!) 

 Ms. McGrath was kind enough to alert me to her testimony and send me a copy.  Click here for her full testimony.  Maureen McGrath is the founder of the National Advocacy Against Mortgage Servicing Fraud.  She testified before Congress in 2004.      

 Sources:
1. AP IMPACT: Government Mortgage Partners Sued for Abuses.  Daniel Wagner. AP. 8/5/09.
   URL: http://hosted.ap.org/dynamic/stories/U/US_MORTGAGE_MIDDLEMEN?SITE=KYB66&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2009-08-05-20-52-21

2. Testimony of Maureen McGrath on behalf of National Advocacy Against Mortgage Servicing Fraud.  Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  United States House of Representatives.  Field Hearing on “Broken Dreams in the Poconos: The Response of the Secondary Markets and Implications for Federal Legislation.”  6/14/04.

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