Archives for January 2014

Why do Reverse Mortgages Suck?

Reverse mortgages suck because they prey on the elderly.

These loans are pitched to the elderly who may need cash out of the equity in their home.  Realizing how bad these loans are, there are new limits to curb up front spending so retirees will not outlive the money they can receive.  Since there is over $3 trillion in housing wealth among older Americans, there is money to be made by lenders.  This equates to preying on the elderly.   These types of loans are limited to homeowners over 62 years old and are intended to allow homeowners to tap into the equity in the house without having to move out of the house.  Monthly payments are not due since most elderly are living on social security and retirement income and cannot afford to make monthly payments.

Under the new rules, borrowers will have access to only 60 percent of their equity at closing or in the first year.   However, any time you take out the equity from the home, the homeowner needs to have a good plan on how he is going to spend the money.

There are significant risks with these reverse mortgages.

  • If the market declines again, the equity will dry up and the homeowner will have no money left.
  • Borrowers still need to pay property taxes and insurance.
  • If the Borrower moves out of the house and into a nursing home, this act is a default under the loan documents.  Foreclosure proceedings will start.
  • If the Borrower dies and the appropriate time period has past for probate, then foreclosure proceedings will start. 

Bottom line is that reverse mortgages suck for the elderly.

 

DEATH OF HOMEOWNER- WHAT NOW?

DEATH OF HOMEOWNER- WHAT NOW?  When a homeowner dies, the lender must offer an arrangement whereby survivors of the deceased are allowed to continue making mortgage payments, thus enabling them to either keep and/or continue to occupy the home.  The lender must also offer to evaluate the heirs or those who have a legal interest in the home for an assumption of the loan or alternatively must offer loss mitigation measures.

The Consumer Financial Protection Bureau (CFPB) has rules about how the lender communicates with family members after a homeowner dies, how lenders treat homeowners who have filed bankruptcy or invoked certain protections under the Fair Debt Collections Practices Act (FDCPA).

Lenders are also mandated to attempt to contact the homeowner (mail, phone, email) each time the homeowner misses a payment and to provide information that can help them get caught up.  

Under the FDCPA and bankruptcy laws, delinquent homeowners can inform lenders to stop communication with them. However, under the CFPB’s rules certain notices and communications are still required.  For example, should a homeowner who declared bankruptcy and requested the lender to stop communication with him now request information about loss mitigation, then the lender must provide the information.

When lenders better understand the rules they have to follow, it is better for homeowners.

HOME RETENTION STRATEGIES- THE NEW NORMAL

Lenders now find themselves continuously offering home retention strategies as the new normal.  The new way lenders handle problem loans has been startling partly due to new  loan servicing regulations.

Now that home values are rising again, homeowners are less likely to hand over the keys to the house, less likely to accept a deed in lieu of foreclosure and less likely to do a short sale.   For homes acquired with investment in mind, creative loan modifications appeal to long-term preferences to ride out the storm.

Before the mortgage crisis the process was simple when dealing with delinquent loans.  A notice of default was sent out and the system went on autopilot until the foreclosure process was complete.

Once the crisis hit, lenders were completely overwhelmed.  The deluge of volume combined with new state and federal regulations aimed at protecting homeowners were too much for lenders.   As a result a new way of thinking about default servicing arose.  Lenders now find themselves continuously offering home retention solutions as the new normal.   The home retention new normal is creative and flexible.   Once the notion of forgiving principal was unacceptable, today the concept is all about minimizing losses.

Home retention is also fueled by non-monetary motivations involving the impact to the family.  The neighborhood relationships, the local schools, the youth sports and the difficulty in replacing the home experience all come into play with psychological equity.

Option #1:           The new 12/24 flexible modification is very popular where the homeowner remains responsible on the loan for the entire balance but is forgiven for an agreed upon amount if payments are kept current for 12 months and another increment is forgiven after 24 months. This plan is preserving homeownership for thousands of families and keeping houses out of the hands of the banks.

Option #2:           The “short refi” is equivalent to a preemptive strike where lenders seek out seriously delinquent homeowners before formal default occurs.  The “ short refi” involves shortages in principal and interest that may or may not be made up over time.  These plans require a short amount of time to accomplish and involve lower long term losses for the lender.  These plans are not currently offered on government sponsored enterprise (GSE) loans, like Fannie Mae or Freddie Mac.

Option #3:           Structured settlements are especially interesting to older homeowners who want a debt-free home.  The homeowner will need to offer assets with cash value, such as personal property, 401k and other retirement accounts, life insurance policies that can pay a predetermined amount the lender will accept for payment in full on the loan.

The home retention new normal also includes other home retention strategies for conventional and FHA loans. Contacting the lender rather than for the homeowner sticking his head in the sand is the best option.

CREDIT CARD ABUSIVE PRACTICES

Credit card customer sued debt collector for abusive practices for violating the Fair Debt Collection Practices Act (FDCPA) by using deceptive and abusive practices to collect the debt by falsely representing the legal status of the debt and threatening action that could not be legally taken.  Royal Financing Group v. Perkins, Missouri Court of Appeals, Eastern District (2013).

Royal falsely represented its standing to collect the debt in that it couldn’t prove its status as valid assignee of Chase Manhattan Bank.
– Royal knew that it lacked evidence to support its claim and engaged in deceptive behavior intended to intimidate Perkins into paying;
– Royal misrepresented the character of the debt by treating the entire amount as principal and seeking interest thereon without any knowledge of the actual breakdown of the total;
– Royal wrongly attempted to collect amounts not permitted by contract in that the cardholder agreement attached to its petition was inadequate to impute an obligation to Perkins for attorney fees; and
– Royal possessed no documentation whatsoever establishing Perkins’s obligations under the purported cardholder agreement as alleged in Royal’s petition.  

MORTGAGE SERVICING – A $10 TRILLION BUSINESS

Mortgage Servicing is a $10 Trillion market.  So why is Citigroup selling off roughly $63 billion in loans it holds in its portfolio?  It could be to pay off the $395 million settlement to Freddie Mae or it could be a trend with other large banks.  In recent months Wells Fargo, Bank of America and Ally Financial have been selling their servicing loans as they are angling to get out of the servicing business.  Maybe it is because of the new regulations because it certainly is not because they don’t want to make a profit.  There is big money to be made.  Private equity firms and hedge funds are jumping into the void.

This is not good as homeowners will get eaten up with these rookies now taking over the servicing of loans.

ALERT- NEW MORTGAGE HAZARD INSURANCE RULES EFFECTIVE IMMEDIATELY

New mortgage hazard insurance rules go into effective immediately.  Forced Place insurance may happen if the homeowner does not have hazard insurance.  However, the servicer of the loan may not charge a homeowner for this type of insurance unless there is reason to believe the homeowner has failed to maintain appropriate coverage.

The CFPB (Consumer Financial Protection Bureau) rules protect consumers from risky mortgage servicing business practices.  These rules modify Regulation Z of the Truth in Lending Act (TILA) and Regulation X of the Real Estate Settlement Procedures Act (RESPA) dealing with the procedures for various servicing of loans.

Now, a notice must be sent to the homeowner 45 days before charging for force placed hazard insurance and a second reminder must be sent at least 15 days before actually charging the homeowner.  If the homeowner provides proof of insurance, the servicer of the loan is required to cancel any force placed hazard insurance and refund any premiums paid for the period of coverage that overlapped.

If the homeowner has an escrowed loan and pays money into an escrow account, servicers shall continue to advance payments to the insurer regardless of the homeowner’s payment.

The new regulations also provide forms to help servicers determine what language should be included in the disclosures and which statements should be in bold lettering.

The cost of the force-placed insurance premium should be stated as an annual premium in the second and final notice.

A servicer may charge a homeowner for force-placed insurance retroactive to the first day of any period in which the homeowner did not have hazard insurance in place, provided the servicer sent all required notices within the specified time frames.

A servicer is entitled to require a copy of the homeowner’s hazard insurance policy declaration page, insurance certificate, policy or other similar form of written confirmation that the homeowner has continuous insurance coverage.

MISSOURI RECEIVES $14 MILLION FROM MORTGAGE SERVICER- OCWEN FINANCIAL

Ocwen Financial Corp is the largest nonbank mortgage servicer.  Due to its abuses in handling homeowner loans, it will pay $2.1 BILLION dollars to settle claims.  Missouri will get about $14 MILLION.  Ocwen took advantage of homeowners at every stage of the process.  Ocwen mislead people on foreclosure alternatives and denied modifications to those who should have qualified.  Ocwen imposed unauthorized fees on homeowners for default related services.  Ocwen provided “false and misleading information “about the status of foreclosures, according to regulators.

Ocwen is to spend some of the money on foreclosure compensation and “principal forgiveness modification programs” for people who are behind on payments or whose homes are worth less than they owe on the loan.  Now, Ocwen will need to follow specific guidelines and face independent monitoring.

Homeowners who had been foreclosed on from January 1, 2009 to December 21, 2012 can seek some compensation.  $127 million will be use for this purpose.   However, the majority of the money will be used for modification of loans and principal reductions over three years.

 

BANK OF AMERICA STABBED HOMEOWNER IN THE BACK

I was not shocked to read that Isabel from Florida was trying to save her home.  I was not shocked to learn that Bank of America (BOA) stabbed her in the back by doing nothing to help her.

Isabel is typical of all homeowners who make the effort to save their home only to find that BOA, at best through stupidity or at worst intentionally, did nothing to help her.   BOA pretended to listen after Isabel complained to her congressman and the OCC (Office of Comptroller of Currency).  However, BOA then stated it never received Isabel’s required documentation.  This is a standard excuse used by the bank.  When a Borrowers modification application is delayed for a year or longer, the loan continues to accumulate thousands of dollars in fees and interest charges.  Is this a reason for the delay?

BOA sought the help of outside agencies to assist with the necessary paperwork.  However, these agencies could not resolve homeowner issues because the agencies had to rely on BOA employees who often ignored requests for necessary paperwork.   Allegations have come from former BOA employees that BOA was not interested in a good faith review of homeowner applications and that BOA employees had quotas for closing files, so shortcuts were taken.   So, according to former employees, instead of helping homeowners BOA stalled homeowners with repeated requests for paperwork, improperly removed complaints from the system, denied modifications to homeowners who should have qualified for a loan modification.

What of Isabel?  Well, she had proof of submitting all her documentation on time.  BOA gave her conflicting reports of what was missing.  Results:  No modification and now no home.

 

BIG BANKS payout BIG MONEY and still make HUGE PROFITS

How can BIG BANKS pay out BIG MONEY and still make huge profits?  This was only possible due to the banks’ failure to lend the money to Americans but instead lent the billions they received in government bailout money to foreign banks at a higher interest rate than the banks were paying our government.

BANK OF AMERICA, the second largest lender agreed in January 2013 to pay $11.7 BILLION dollars to resolve mortgage disputes with Fannie Mae.  ($3.6 billion was in cash).

CITIGROUP agreed in July 2013 to pay $968 MILLION dollars to Fannie Mae as compensation for faulty home loans.

WELLS FARGO BANK, the largest home lender, faced repurchase demands at the end of September on about $958 million in mortgages.   Wells Fargo, in December, reduced the payment to $541 MILLION cash to be paid to Fannie Mae. (Wells Fargo reached a $869 MILLION dollar settlement with Freddie Mac in September to resolve disputes on similar type loans).

None of these banks are going out of business.  In fact, they are all show a profit.  This means that these payments have minimal impact to their bottom line.  From one year ago, Wells Fargo stock is up $10, Citigroup is up $13, and Bank of America is up $6 per share.