Bankruptcy and your Mortgage Lender

If you are in bankruptcy and your mortgage lender wants its money, the law requires increased transparency of mortgage servicing practices during your Chapter 13 bankruptcy cases.  The goal was to stop perceived abuses and organization.  Reality did not rise up to expectations in part due to ambiguity in the rule’s language which brought about implementation of local bankruptcy rules, practices and court cases.

Specifically, Rules 3001 and 3002.1 required for your mortgage lender to file  with the court a “notice” of all payment changes and advances made by your lender on the loan. Toward the end of a Chapter 13 case, the trustee is required to file a “notice of final cure payment” and the lender in turns files a response either agreeing or disagreeing.  Note that we are talking about your principal residence where you planned on paying back the arrearages or missed payments and planned to continue or “maintain” ongoing monthly payments.  But does the rule mean that it is the Trustee or you who are to “maintain” these payments?  Well, it depends on whether these payments are to be paid directly by you or by the Trustee, and it depends on whether the court in your local jurisdiction has set up a local rule dealing with this issue.  Confused enough.  With some of the largest mortgage creditors interpreting their noticing responsibilities as inclusive of these direct pay scenarios, the practice of filing the supplemental claim has caused more confusion with trustees who view these supplemental claims as inappropriate due tot he mortgage lender’s claim not falling within the “maintain” prong of the test.  It has also caused you to pay more as with each notice that is filed your lender is charging a fee.

Just as confusing is the requirement of this notice rule when relief from the automatic stay has been granted to allow for a foreclosure of the property.  It seems like common sense or obvious that when the collateral has been released by the bankruptcy judge to allow for a foreclosure that compliance with the notice rule should stop.  Yet again different courts have interpreted the rule differently.   Uniformity by local rule seems an impossibility.   So, addressing the issue at the time of the relief hearing appears the most direct approach whereby the lender asks the judge for a waiver of the rule after relief has been granted.  Good luck bankruptcy and your mortgage lender.

SHOULD FANNIE MAE DIE?

Should Fannie Mae Die?  First, note that Fannie Mae is not the government.  Yes, it was created by  Congress with its own special charter and regulations.  Yes, our Treasury owns 80% of the stock.  Yes, I did say “stock” because Fannie Mae is a publicly traded shareholder owned corporation.  In 2008 our President, our Congress stepped in and seized the company, ie: saved it from going bankrupt.  The situation was so bad that Fannie Mae was and continues to be under conservatorship being run by the Federal Housing Finance Agency (FHFA) who has all the power, rights and privileges to manage the company.  Well, like all things in the government, the solution is never the cure and often times causes more problems.  The FHFA is so big it needed to delegate specified duties to a board of directors whose only job is to do the bidding of the FHFA.  What fiduciary obligations does the board of directors have to us, the taxpayer?  None.  It is our tax dollars that keep Fannie Mae afloat but the board does not have to listen to us.  The government has spent historically spent or wasted our money. Should this situation be any different?

Our President’s position since 2008 is to let Fannie Mae die; to much risk and burdens on us, the taxpayers.  WOW, he must really care; He must really be listening.  He said at a speech at a high school in Phoenix that, “For too long,Fannie and Freddie were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag.”  However, five (5) years later Fannie Mae is still here.  First, the government bailed out Fannie Mae because it was too weak and the economy would collapse.  (Can you say Chicken Little).  Now, Fannie Mae cannot die because Fannie Mae is making too much money.  So, should Fannie Mae die? Well, Hell No, America is capitalism.  America is Big government.  Go USA.

Mortgage Fraud Restitution

Mortgage Fraud Restitution, how appealing, but is it happening?  The U.S. Supreme Court is figuring this out in Robers v. U.S. on the question of how much restitution was owed to a victim of mortgage fraud under the Mandatory Victims Restitution Act (MVRA).  Naturally the person who committed the fraud is appealing stating that he should not owe so much. The victims never get a break.  The lower court calculated the restitution as the difference between the loan amount and the resale price at foreclosure.   Robers (and no it is not spelled “Robbers”) thinks the calculation should be based on fair market value at time of foreclosure.  Robers focused on the idea of making the victim whole again.  But what Robers forgot is that the victim lost money.  The victim does not want a piece of property which maybe worthless or maybe the victim does not want to have the liability of being a property owner.  Stay tuned to see what the Supreme Court will do.

Protecting Consumers from Banks

New rules took effect in January protecting consumers from banks.  Interest rate adjustment notices for ARMs (adjustable rate mortgages) requires banks to provide a new initial rate adjustment notice to consumers.  This notice must include an estimate of the new interest rate and the amount of the payment that may be in effect once the ARM loan begins to adjust.  The notice must be sent between 210 and 240 days prior to the first payment that becomes due after the rate first adjusts.  Periodic ARM adjustment notices are required to be sent to consumers between 60 to 120 days before a payment at the new level is due.   Banks must also disclose additional prepayment penalty information

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.

 

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.