After having settled predatory lending charges with 42 states, Bank of America has modified more than 64,000 home loans worth $823.5 million in principal and interest savings, with the intention of modifying loans and reducing interest rates for up to 100,300 borrowers (more…)

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April marked the second month in a row that more than 300,000 troubled homeowners received foreclosure notices, a jump of 32 percent over the same time last year, reports The Associated Press (“April Foreclosures Up 32% Over Last Year, Report Says,” May 13, 2009).

According to foreclosure data service RealtyTrac, more than 324,000 homeowners received at least one foreclosure-related notice in April. One in every 374 U.S. housing units received such a notice last month, the highest monthly foreclosure rate since RealtyTrac began collecting data in 2005.

“We’ve never seen two consecutive months like this,” said Rick Sharga, senior vice president for marketing at RealtyTrac. “It’s the volume that’s surprising.”

Nevada, Florida, and California posted the highest rates of foreclosure of all states, with Arizona, Idaho, Utah, Georgia, Illinois, Colorado, and Ohio rounding out the other top 10 states in the nation. In Nevada, one in 68 homeowners received a foreclosure filing, compared to 1 in 135 in Florida, and one in 138 in California, RealtyTrac data showed.

Although the number of homes repossessed by banks was down by about 11 percent since March, RealtyTrac cautions that what seems to be good news may not be as positive as it appears. The decline in home repossessions is likely the result of widespread mortgage moratoriums implemented earlier this year, in which banks suspended foreclosure proceedings as they waited for the launch of the government’s new Making Home Affordable plan in April.

Now that many of those moratoriums have been lifted, experts project that home repossessions may soon go back to their previous levels.

Whether Obama’s housing plan will actually help the projected 9 million homeowners seeking debt relief through mortgage modifications or refinancing remains unclear, as initial reports by homeowners indicate that lenders have been extremely slow or unresponsive to homeowners’ attempts to take advantage of the government programs.

Homeowners on the brink of foreclosure fear that the government’s housing plan may not do enough to help them keep their homes and stem the tide of foreclosures.

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New York State Attorney General Andrew Cuomo has subpoenaed 14 debt settlement companies and one law firm as part of an investigation into the debt settlement industry, a move that has been labeled a “P.R. stunt” by an industry lawyer, The New York Times reports (“An Inquiry Into Firms That Offer to Cut Debt,” May 8, 2009).

Robby H. Birnbaum, a debt settlement lawyer who is also on the board of an industry trade group, said late last week that the debt settlement companies named in the investigation were placed in an awkward position when they first learned of Cuomo’s inquiry via the media.

“The press release was issued before any of these companies even received subpoenas,” Birnbaum said, so initially the debt settlement organizations would have had nothing to respond to. The companies in question didn’t receive their subpoenas until after Cuomo’s office generated its press release.

Companies’ Services May Not Be Living Up to Their Advertising

According to The Times, Cuomo will be investigating to what extent the subpoenaed debt settlement firms provide the debt relief services described in their advertisements by examining the companies’ fee structures and client base. Debt settlement organizations negotiate with credit card companies to reduce a client’s debt balance and typically charge a fee of about 15 percent of the client’s debt.

“With all of the problems we face in this time of economic distress, it is outrageous that these firms are targeting those who are the most financially vulnerable,” Cuomo said through an aide.

The purpose of the inquiry is to “ensure that people are not victimized when faced with financial hardship,” Cuomo’s office stated (“N.Y. Attorney General Probes Debt Settlement Firms,” Reuters, May 7, 2009).

Cuomo’s new investigation stems from a previous inquiry by the attorney general into two firms, Texas-based Credit Solutions, the nation’s largest alleged debt settlement firm, and Nationwide Asset of Arizona. Credit Solutions was accused of engaging in “false, deceptive, and misleading acts and practices” in a March suit against the company, and Nationwide will soon be named in a suit and be accused of fraud.

Several Firms Welcome Industry Investigation

Cuomo’s current suit targets several debt settlement companies located across the nation and a single law firm:

American Debt Foundation Inc., American Financial Service, Consumer Debt Solutions, Credit Answers L.L.C., Debt Remedy Solutions L.L.C., Debt Settlement America, Debt Settlement USA, Debtmerica Relief, DMB Financial L.L.C., Freedom Debt Relief, New Era Debt Solutions, New Horizons Debt Relief Inc., Preferred Financial Services Inc., U.S. Financial Management Inc. (operating as My Debt Negotiation), and Allegro Law.

Several of the 14 firms named in Cuomo’s investigation have said they would welcome an investigation into the industry, which includes as many as 2,000 debt settlement companies nationwide. Some of these companies even went as far to say they would embrace tougher regulations in their industry, one that critics claim is under-regulated.

“The only companies that will suffer are those that don’t offer genuine value,” said Jeff Takle, a spokesman for a Massachusetts debt settlement firm.

Robert Linderman, general counsel for one of the firms named in the investigation, Freedom Debt Relief of San Mateo, Calif., echoed Takle’s sentiments and said, “We’re delighted the attorney general is seeking information from the industry.”

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Although many banks have already received their portion of the $75 billion the government has allocated for the new Making Home Affordable plan, some mortgage lenders are moving so slowly to modify homeowners’ mortgages through the plan that homeowners fear they could still lose their homes to foreclosure, National Public Radio reports (“Homeowners Find Loan Modification Slow Going,” May 7, 2009).

“I faxed my loan-modification application six times to the two banks and everybody keeps saying, ‘We didn’t get your application yet, we didn’t get your application yet,’” says Dorothea Wang, a California homeowner who hasn’t been able to pay her mortgage since January and is about to default on her home loan with Wells Fargo. Wang says she’s called and left several messages with the bank, but nobody ever returns her calls.

“Unfortunately, that’s a true story and I hear it all the time,” says Yolandra McClinton, a Los Angeles Neighborhood Housing Services counselor. McClinton says this has been typical of mortgage holders since they‘ve become overwhelmed with the large number of homeowners attempting to get their loan modified through government programs.

Wells Fargo just received its $3 billion subsidy from the government to help struggling homeowners like Wang, but according to Ed Delgado, senior vice president of default and retention operations at Wells Fargo Home Loans, his company has been busy getting up to speed with the new program.

It takes time to roll out the “decisioning” software that helps lenders determine if homeowners qualify under the new program, Delgado says. Lenders use the software, in part, to determine if homeowners actually live in their home and if they spend more than 31 percent of their gross monthly income on their mortgage payment.

Those customers who meet the eligibility requirements, Delgado explains, would typically have the interest rate on their mortgage reduced for at least five years under the government’s plan.

Many industry insiders including Lori Gay, president of the Los Angeles Neighborhood Housing Services, believe that lenders are just too busy dealing with foreclosures and don’t have the time to help homeowners with mortgage modifications.

“Are they ready to make this a massive program yet, or do they need three months to get their systems in place?” Gay asks. “This is where people get lost in the cracks.”

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In one of the largest collection awards ever granted by a jury, a California couple has been awarded $500,000 in damages for being harassed and threatened by the debt collection agency Credigy Services Corporation, reports insideARM (“Jury Awards $500,000 to California Couple in FDCPA Case,” May 5, 2009).

Under the Fair Debt Collection Practices Act, which protects consumers against abusive collections tactics by debt collectors, Manuel and Luz Fausto were awarded $100,000 for actual damages and $400,000 in punitive damages, granted by a jury for “malicious and reckless disregard of the couple’s rights.”

The award stems from a dispute over the couple’s Wells Fargo charge card debt they thought they had paid off in the late 1990s, said the Faustos’ lawyer, David Humphreys of Humphreys Wallace Humphreys, P.C.

During the mid-1990s, the couple realized that their credit card balance was continuing to rise even though they were making payments on their account, but a local Wells Fargo branch denied their request to have the account frozen.

To resolve the situation, the Faustos went to a local debt settlement company that promised to negotiate a payoff of the credit card balance. The couple thought the account had been paid off in the late 1990s, after they made two money order payments.

Then in 2006, the couple was contacted by Credigy with a demand to pay $17,000. Even after a cease-and-desist notice was sent to a Brazilian affiliate of Credigy, the debt collection company still made over 90 threatening calls and sent innumerable letters to the Faustos’ home.

Debt collection attorney Manny Newburger says the jury award in this case is one of the largest given to a consumer under the FDCPA, noting that usually “there is little or no evidence of actual damages presented by the consumer.” In this particular case, however, the Faustos were able to document the harassing nature of Credigy’s practices, including the company’s baseless threats, having recorded the last phone call from the collector.

Newburger believes that the verdict in the Fausto case was based largely on state legislation and doesn’t think that the size of the award will motivate more consumers to sue debt collection agencies in the future.

“I think this verdict is indicative of what this jury thought of this particular case,” Newburger said, “but not of anything else.”

Correction: May 8, 2009

This post has been revised to reflect the following correction: The original post mistakenly referred to the $500,000 jury verdict as the largest award conferred upon a consumer under the Fair Debt Collection Practices Act. In fact, the $500,000 decision is among the largest FDCPA findings on behalf of a consumer, but not the singular largest.

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California’s unemployment rate hit a record 11.2 percent in March, leaving 2.1 million people jobless — the highest level since World War II, according to a report released last week (“State Unemployment Rate Highest Since 1941,” San Francisco Chronicle, April 18, 2009).

The March figure surpasses the 11 percent unemployment rate the state reached during the early 1980’s recession, says Patti Roberts, spokeswoman for the state’s Employment Development Department. The March unemployment rate approaches the 11.7 percent unemployment rate the state had in January 1941.

While last month’s unemployment rate for the state was significantly higher than the national figure of 8.5 percent for March, California had the 4th highest rate of unemployment in the country, perhaps due to the decline in real estate.

“California’s higher rate of job loss is primarily the result of greater exposure to the housing downturn,” said Stephen Levy, director and senior economist at the Center for the Continuing Study of the California Economy in Palo Alto.

Forecasters Vary on Outlook

The unemployment rate is grim and many Californians have been affected by job losses, “But on the other hand things are not really as bad as you might think,” said Chris Thornberg of Beacon Economics, a California real estate and economic forecasting firm.

Thornberg believes that these job losses can be attributed to the slump in consumer spending over the last year, and sees spending starting to stabilize in the near future along with the job market.

But Jerry Nickelsburg, an economist with the UCLA Anderson Forecast, believes that in all likelihood, the job market will continue to get worse before it gets better. He predicts California’s jobless rate will reach a high of 12 percent before it begins to decline sometime in 2010.

“Unemployment will likely creep up through the end of the year,” Nickelsburg said, “because employers will want to see that the increase in demand is strong before they hire.”

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At a time when thousands of homeowners are facing foreclosure and are desperately trying to hang onto their homes, bogus loan modification companies are continually popping up to scam homeowners, taking their money without actually doing any work to modify home loans, reports KCRA Sacramento (“Loan Modification Company Is a Scam,” March 31, 2009).

Most recently, the Better Business Bureau of Northern California has issued warnings to homeowners about the Roseville-based company ShortRefiNow.com, an unlicensed loan modification organization that has reportedly stolen thousands of dollars from struggling homeowners.

Kris Pinkney, one of ShortRefiNow.com’s clients, gave the company $3,000 upfront to modify her mortgage. When she contacted her lender later to see how the modification was going, her mortgage holder told her that ShortRefiNow.com called and asked a single question: “How do you do a refinance?”

When Pinkney attempted to follow up with ShortRefiNow.com about her mortgage modification, she got the runaround. “They said, ‘I’m not sure who’s taking care of it. The person taking care of it had emergency surgery,’ ” Pinkney said. “I knew — you know when someone’s lying.” Eventually, Pinkney did get a portion of her $3,000 payment back from ShortRefiNow.com.

Other homeowners weren’t as fortunate. According to the BBB, 14 other individuals who filed complaints against the company and paid between $2,600 and $5,300 upfront to have their mortgages modified never received the promised services or any payment refunds.

In February, the California Department of Real Estate issued a Desist and Refrain Order against ShortRefiNow.com, demanding that the company stop performing any and all acts requiring a real estate license until the company obtains that license, KCRA reports.

Although ShortRefiNow.com assured KCRA that in response to the order they were looking for attorneys to address their client’s claims, it now appears that ShortRefiNow.com has vacated its office.

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Although the nation’s housing market is in dire straits, a different sort of real estate boom may be taking shape: mortgage loan modifications (“A Different Kind of Real Estate Boom: Loan Modifications,” the Ann Arbor Business Review, March 18, 2009).

New government loan modification incentives, a tight credit market, and millions of homeowners facing foreclosure have all created a huge unmet demand for private mortgage loan modification services.

In some cases the only way for homeowners to avoid foreclosure is to have their mortgages modified, said Gibran Nicholas of the CMPS Institute, a company that trains mortgage professionals, particularly in the states where property values have dropped sharply — Michigan, Arizona, Florida, California, Nevada — and where a greater number of homeowners now owe more money on their home than what their property is worth.

But when, Nick Demeester, a supervisor of the housing group at Michigan-based nonprofit GreenPath Debt Solutions, has been asked if there is an adequate supply of qualified mortgage loan modification companies and counselors to meet this demand, his response has been “Right now, no.”

Although his organization has seen an increase in lenders’ willingness to modify mortgage loans, Demeester said, “We have not seen a lot of deferring of principle,” one of the most effective ways lenders can modify a homeowner’s mortgage. Instead, he said, lenders have preferred to move homeowners from an adjustable-rate mortgage to a fixed-rate loan or to extend the length of the loan, from 30 to 40 years, for example.

Nicholas stated that the potential boom in loan modifications is largely dependent on whether lenders choose to take part in President Obama’s new voluntary loan modification plan — a strategy that rewards lenders with incentives for altering mortgage terms for homeowners.

If lenders begin participating in the president’s program, “The Obama plan is going to create a lot of work for loan modification services,” Nicholas said. The only question is which companies will be getting that business.

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Scam artists masquerading as loan modification consultants have become more bold when it comes to deceiving homeowners, California Attorney General Edmund Brown said in a news release issued last week, (“Brown Warns Homeowners That Scam Artists Are Using Forged Letterhead of Lenders to Con Californians,” California Attorney General news release, March 9, 2009).

“Scam artists have sunk to a new low and are using the forged letterhead of lenders to con worried Californians into handing over their hard-earned money,” Brown said. “Californians should be deeply skeptical of anyone who demands money up front and makes extravagant promises that they can save their home.”

The warning from Brown comes shortly after the arrest of Anna Santos of North Hills, Calif., who was charged with money-laundering, conspiracy, and four counts of grand theft for the part she played in a loan modification scheme that stole $700,000 from homeowners.

Under First Gov, a fraudulent mortgage modification company, Santos and others solicited hundreds of homeowners by mailing them flyers that appeared to be from their lender or the government. The flyers, which featured large headers with the words “Final Notice,” falsely promised homeowners that they would receive mortgage modifications to stop foreclosure on their homes in exchange for upfront fees ranging from $1,500 to $5,000.

Once homeowners provided their mortgage information to Santos’ company, they received a “confirmation” letter and other documents that led them to believe that their mortgage lender had been notified of their mortgage loan modification.

When homeowners complained that they were still receiving foreclosure notices from their lender, homeowners were told that their mortgages had finally been renegotiated, but that their lenders needed further “good faith” payments to secure the new terms of their mortgage.

Homeowners were then instructed to submit their payments, in the form of money orders or cashier’s checks, to the fictitious “Payment Processing Department.”

None of these payments, however, were credited to homeowners’ mortgage loans, according to the news release. Instead, Santos deposited the funds into the fraudulent company’s bank accounts and then transferred the money to others involved in the mortgage modification scheme.

Many victims lost more than $6,000 in the scam before the attorney general stepped in and put an end to the group’s criminal activities.

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Two California men have been convicted of filing fraudulent bankruptcy petitions on behalf of Kansas homeowners who were behind on their mortgages and in danger of losing their homes to foreclosure, according to a U.S. Department of Justice press release (“Los Angeles Men Convicted On Charges Of Filing False Claims In Kansas Bankruptcy Courts,” Jan. 20, 2009). (more…)

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