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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With more than 2.1 million homeowners estimated to lose their homes this year according to Moody’s projections, more and more homeowners nationwide are falling prey to mortgage modification scams promising to help homeowners retain their homes.

In Arizona, foreclosure-rescue scams have skyrocketed 30 percent in the past few months, Arizona Attorney General Terry Goddard revealed at a recent meeting of the Arizona Foreclosure Prevention Task Force (“Foreclosure Scams on the Rise,” The Arizona Republic, May 20, 2009).

“Firms are contacting homeowners on the verge of foreclosure, offering help and instead taking the money the homeowner has,” Goddard said. “We have a real obligation to find these people and prosecute them.”

New foreclosure-rescue scams have arisen under the federal government’s mortgage loan modification plan that began in March, in which lenders work with homeowners who are at risk of losing their homes to reduce the interest rate or principal on a mortgage in an effort to help these homeowners avoid foreclosure. The federal program was recently expanded to assist homeowners who previously didn’t qualify for mortgage loan modifications due to the fact that they owed more on their home than what the home was worth.

Just-released data shows that mortgage companies have made more than 55,000 offers to modify mortgage loans since the government mortgage modification program’s March inception date, according to The Arizona Republic. Currently, 14 companies, which service 3 out of every 4 of all U.S. mortgages, have signed up to do mortgage modifications under the new government plan.

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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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In what may be the first statewide order of its kind, the South Carolina Supreme Court has temporarily suspended an estimated 5,000 pending home foreclosures to give homeowners more time to take advantage of a new government program that helps them refinance their mortgage, The Associated Press reports (“Top SC Court Halts Thousands of Foreclosures to Let Owners Refinance; May Be First in Nation,” May 5, 2009).

In March, the Obama administration announced a plan to help homeowners avoid foreclosure that would provide billions of dollars in incentives to lenders for modifying home loans.

As part of that plan, government–owned lenders Fannie Mae and Freddie Mac, the two largest mortgage holders in the nation, unveiled a flexible refinancing program that would assist homeowners in obtaining a lower interest rate on their mortgage and mortgage payments homeowners could afford.

South Carolina’s temporary mortgage suspension plan comes as a result of a request from Fannie Mae’s attorney, Ronald Scott, who argued that a temporary suspension of foreclosure sales was necessary to ensure that homeowners who qualify for the federal programs wouldn’t lose their homes before being able to take advantage of the program.

Under the court’s ruling, South Carolina judges will be prevented from finalizing foreclosure sales statewide on properties with mortgages held by Freddie Mac, Fannie Mae, or any other lender that is participating in a federal housing assistance program.

Mortgage experts say that the ruling may be the nation’s first court-ordered foreclosure stop for an entire state.

Freddie Mac spokesman Brad German said that this ruling, issued by a court that has statewide jurisdiction, is the first he’s heard of in the country. He said, “We’re not aware of anything like this, anywhere else.”

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Homeowners are more likely to lose their homes to foreclosure because they’ve lost their jobs than because their loan payments have become unmanageably high, according to a new study by the Boston Federal Reserve that is raising doubts about the effectiveness of the government’s new loan modification program (“Unemployment: Big Factor in Home Defaults,” Reuters, April 13, 2009).

The study revealed that consumers are also more likely to default on their home loans if their home values plummet than if their mortgage terms are unfavorable. That finding led Boston Federal Reserve economists to conclude that policies directly aimed at providing aid to unemployed homeowners may be more effective at helping homeowners avoid foreclosure than the loan modification and refinance policies outlined in President Obama’s home rescue plan.

Under the government plan, certain homeowners who are underwater on their mortgages would be able to get a government-subsidized mortgage loan modification through their lender, while other homeowners who have little or no equity would be able to refinance their home loans.

“Foreclosure-prevention policy should focus on the most important source of defaults” including unemployment, the economists wrote in the study.

They said that homeowners would be better served by a government plan that supplements an unemployed homeowner’s lost income with loans and grants, though the report didn’t outline details for this type of strategy.

Government Program Questioned

Although government officials believe that the housing crisis can be attenuated, “by changing the terms of ‘unaffordable’ mortgages,” Boston Federal Reserve economists point out that policies targeting the modification of home loans “face important hurdles in addressing the current foreclosure crisis.”

Chief among those hurdles is how effective Obama’s loan modification program will be at preventing foreclosures and how many homeowners will actually be able to refinance their homes at today’s record-low interest rates in one of the most stringent credit markets in years.

While the Obama administration estimates that the loan modification plan will help around 9 million homeowners stay in their homes and that some 7 to 9 million homeowners may be eligible to refinance, both options may end up helping far fewer homeowners than expected.

In order to refinance, homeowners must owe no more on their mortgage than 5 percent more than what their home is worth and those homeowners trying to modify their mortgages must still have enough income to make a reduced loan payment to qualify.

Hundreds of thousands of homeowners who reside in Nevada, Florida, Michigan, and Arizona — where property values have plummeted by as much as 45 percent — won’t qualify for the government loan modification program. They may, however, benefit from the unemployed homeowner plan highlighted in the Boston Federal Reserve report, if it ever becomes reality.

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President Obama is encouraging homeowners to take advantage of record-low, 4.78-percent mortgage rates by refinancing their homes as soon as possible, The Associated Press reports (“Obama: Timing Right for Millions to Refinance,” April 9, 2009).

“The main message we want to send today is there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates,” Obama said at a recent photo opportunity at the White House. “That is money in their pocket.”

While the president highlighted the “good news” of such low mortgage interest rates and their potential to help more homeowners refinance, Housing and Urban Development Secretary Shawn Donovan cautioned that interest rates on most home loans will probably still fall even further than their current lows.

“I think you will see them continue to come down, based on everything that we’re doing, but recognize that they’ve already started to make a big difference,” Donovan said at a recent press conference promoting the president’s plan to rescue the housing market.

She commented that home purchases are up by 20 percent since the president’s February unveiling of the housing rescue plan, an indicator that the new government program — set up to help consumers modify their mortgages or refinance their homes — may already be positively affecting the housing market.

President Obama said that the government’s new strategy to help homeowners has contributed, at least in part, to the “recent surge in refinancing,” however Obama warned homeowners who are looking to avoid foreclosure through refinancing options or through other mortgage modification methods to be on the lookout for scams.
“If somebody is asking you for money up front before they help you with your refinancing,” he said, “it’s probably a scam.”

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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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In what some industry experts think may be the next wave of the foreclosure crisis, banks are refusing to take possession of properties after they’ve been foreclosed on, causing homeowners even further financial strain and distress, reports The New York Times (“Banks Starting to Walk Away on Foreclosures,” March 30, 2009).

Mortgage holders are most often abandoning homes in cities where homes are inexpensive to begin with, including Buffalo, N.Y., South Bend, Ind., and Kansas City, Mo, and where home prices have dropped so dramatically that banks no longer see the value in hanging on to a property even if only to strip it of valuable fixtures and appliances.

City officials in Buffalo, for example, say the number of lenders abandoning homes has reached “epidemic” proportions. Just last year the city sued 37 banks over 57 abandoned properties, although lenders actually walked away from far more homes.

“The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can,” said Guy Cecala, publisher of the industry newsletter Inside Mortgage Finance. “It’s just a sign of the times that things are so bad no one wants to take possession of the property.”

Homeowners Still Held Responsible for Their Foreclosed Homes

Lenders say that it is no longer financially feasible for them to repossess certain properties, claiming they would lose money once legal fees and ongoing maintenance costs are taken into consideration.

When mortgage holders refuse to take possession of properties after foreclosure, cities often force the homeowners — who have already walked away from their homes — to accept responsibility for properties that have often gone beyond repair.

“It’s just a crime the way it puts people in limbo, said South Bend Mayor Stephen Luecke. “They first off have gone through the grief of losing their house, then they move out and find out that they still own it and have responsibility for it.”

Technically, according to the Times, homeowners are also liable for continuing to make mortgage payments on the property. Yet, since it is almost impossible to figure out which company holds the loan on a property after the mortgage has been bundled and resold, homeowners rarely resume making monthly mortgage payments.

“Nobody has any idea who owns what or who’s responsible,” said Judy Fox, a lawyer at the Notre Dame Legal Aid Clinic in Indiana. “It’s a very common story.”

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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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In an attempt to help millions of homeowners mired in foreclosure and to stabilize a slumping real estate market, Citigroup is negotiating the details of a mortgage modification agreement with federal lawmakers, The Wall Street Journal reports (“Citigroup, Senators in Talks to Let Judges Modify Mortgages,” Jan. 8. 2009). (more…)

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