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.

Popularity: 6% [?]

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.”

Popularity: 4% [?]

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.

Popularity: 7% [?]

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.”

Popularity: 6% [?]

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.

Popularity: 6% [?]

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.

Popularity: 5% [?]

Hammered by the housing crisis, rampant unemployment, and a declining economy, the city of Detroit has thousands of foreclosed homes for sale with “fire-sale” prices — less than $1 in some extreme cases — that are attracting buyers from as far away as Australia and the United Kingdom, reports the Associated Press (“Outside Buyers Drawn to Detroit’s Foreclosed Homes,” March 9, 2009).

At one time Detroit, the capital of the nation’s auto industry, had one of the highest owner-occupied housing rates in the country. Now, however, the city has the lowest ownership rate for single-family detached homes of 20 of the largest cities in the United States, according to Detroit demographer Kurt Metzger.

Currently, there are more than 1,800 homes for sale for less than $10,000 in Detroit — homes that used to be worth more than 10 times that amount before the national real estate bubble popped, erasing about $2.4 trillion in home values across the country.

Last year, the average sales price of homes that were foreclosed on by the U.S. Department of Housing and Urban Development averaged $8,692, and at the beginning of this year, that price dropped to $6,035, according to HUD statistics. These bargain prices have helped spur sales of foreclosed homes in Detroit.

“In the past few months, I’ve picked up 10 new clients from out of state that are buying in bulk,” said Detroit real estate agent Mike Shannon, whose office specializes in foreclosed properties. “They’re coming to us, saying ‘Look, I want to buy 50, 100, 1,000 [homes].’ They want to own every decent and cheap house they can find.”

Shannon recently sold 30 homes in a single day to one buyer. And a trio of U.K. investors, he says, has bought a half-dozen homes and plans to buy many more.

Popularity: 5% [?]

As part of his crackdown on foreclosure rescue schemes, Arizona Attorney General Terry Goddard has filed a lawsuit against a foreclosure rescue operation that allegedly defrauded as many as 400 Arizona homeowners, according to a news release from the Office of the Attorney General (“Terry Goddard Files Lawsuit to Stop Foreclosure Rescue Operation,” March 5, 2009).

Goddard’s lawsuit alleges that Richard Winer and his associates purportedly identified homeowners facing imminent foreclosure through public records, approached these homeowners claiming to be experienced “distressed property consultants,” and fraudulently promised to stop foreclosure, in many cases, in as little as 24 hours.

“Instead of offering legitimate help to homeowners, this operation misled and exploited them to turn a handsome profit,” Goddard said. “The housing crisis has given rise to a number of rescue scams, and we are going after them aggressively.”

According to court documents, Winer was able to persuade troubled homeowners to sign over the deed to their house to one of his four limited liability companies: Taken Care of Investments, LLC; Homeowner Solutions, LLC; Bourbon Street Property Management, LLC; and Filibuster, LLC, without notifying the homeowner’s mortgage lender or servicer. He then promised homeowners that his company would pay off the full value of their delinquent mortgage payment and assume current payments on their home.

Homeowners were able to remain in their home as a renter and were promised that, within a year of the initial transaction, they could repurchase the property for a $15,000 fee under a sale-leaseback agreement. The lawsuit specifies that most homeowners weren’t able to repurchase their home because a clause in the sale-leaseback agreement nullified the offer after the homeowner-turned-renter made a single late rent payment.

Within two weeks of assuming responsibility of the homeowners’ properties, Winer was able to resell most of the homes to investors at wholesale prices and collect a commission from the sales. Investors were then able to flip the properties of homeowners who were unable to repurchase their properties, reselling them at full-market value.

If convicted, the court may require Winer to perform several actions:

• Pay full restitution to all victimized homeowners

• Forfeit $10,000 in civil penalties to the State of Arizona for each violation of the Consumer Fraud Act

• Forfeit $5,000 in civil penalties to the state’s Department of Financial Institutions for each violation of state debt management and mortgage acts

• Reimburse the State for all costs associated with the lawsuit

Popularity: 5% [?]

Out-of-work homeowners with Citigroup mortgages may soon be getting a break from their lender. Citigroup announced that it will be cutting mortgage payments to an average of $500 a month for three months under its new Homeowner Unemployment Assist program, reports The Associated Press (“Citigroup to Cut Mortgage Payments for Jobless,” March 3, 2009). (more…)

Popularity: 4% [?]

Countrywide Financial Corp. — one of the nation’s largest mortgage lenders — has agreed to reform its lending practices and pay approximately $3 million to Nevada borrowers victimized by its lending practices as part of a settlement agreement with the state’s attorney general. (more…)

Popularity: 5% [?]