Representative Zoe Lofgren, a California Democrat, proposed securing meaningful principal write-downs for underwater homeowners by allowing a temporary reduction in the interest rates of those homeowners who file for bankruptcy.

She presented the plan in a letter to President Barack Obama earlier this month and it was discussed by the Democratic lawmakers and FHFA’s acting director Edward DeMarco on Wednesday.

A cramdown is a would-be bankruptcy process whereby a borrower would file bankruptcy, and as part of a reorganization plan, cram a principle reduction of a mortgage down a lenders throat. (Not just a “temporary” reduction in interest, by the way, but a true write down of principal.)

Seems counter-intuitive, doesn’t it?

“Hi, Judge. I’m a bankrupt borrower, but I could afford my house if I owed less, and had to pay less interest. The lender won’t agree. Will you make them, please.”

How does someone who is “bankrupt” afford a house?

It’s simple, in some cases anyway.

The largest debt of a cramdown borrower would be the mortgage. The borrower ** would be ** able to afford the house mortgage ** if ** the mortgage amount was equal to the value of the house – not 125% or 150% of the value of the house. If the interest rate were lower, that would help too.

Who loses in this scenario?

Fannie Mae and Freddie Mac – those GSEs that hold 75-85% of all mortgages in the US. (Oh, and some private banks that hold the balance. After all, what’s good for the goose…)

Can Freddie and Fannie afford to take the hit? THAT’s the question.

We’ve (as a Country) already dumped 2 TRILLION dollars into the economy. The Government (that’d be you and me by the way) will need to pay for the write offs any cram down allowed. How much more would that be – and where would it come from?

Here’s my $0.02.

The economy limps along like overcooked spaghetti. It’s going nowhere until the banks can get rid of the toxic debt, and consumer confidence rebuilds. Take the losses now, and we can start the recovery sooner. Yes, the losses WILL BE staggering. The bankruptcy courts will be overwhelmed. (I’d bet that some smart folks will start renegotiating those loans without the need for bankruptcy court intervention if the law allowed a borrower to do it through a bankruptcy proceeding – after all, it’d be cheaper for the banks that way…)

But, once the borrowers start paying on their loans again, once borrowers “feel” like they have readjusted on their homes, confidence – i.e. certainty – returns. And with certainty comes spending. With spending comes an uptick in the economy, and the ability for everyone to start making money again. Even he Banks. THAT’s how we pay for the losses Fannie and Freddie will take. We tax our way through it, with the increased economic activity.

Hell no, it’s not pretty. But it could work!

The L.A. Times recently reported that the Fed is now looking to find ways to dispose of the 248,000 homes it owns (through bank REOs) by either selling them in bulk to investors who will be required to rent them, or to sell them on rent-to-own basis.

“One idea could be to create pools of foreclosed properties that would be sold in bulk to private investors, who would then rent them out, helping reduce taxpayer losses on the bailouts of Fannie and Freddie. Another idea could be for investors to buy homes and then rent them on a rent-to-own basis.”

http://latimesblogs.latimes.com/money_co/2011/08/foreclosure-obama-housing-market-rent-fannie-mae-freddie-mac.html

Who is kidding whom here? “Rent-to-Own”? What are we – a mattress store?

The Fed will give a new buyer a break by allowing them to rent, then buy at a price (presumably) fixed at the time they enter into this agreement (thus allowing the buyer to get some upside?) Or, is the program designed to let the Renter buy it at market value several years from now, if they qualify? (That way, the Fed gets the upside, and the rental value. It beats having an empty house…)

Why not just take the mark-down to market value today, and reform the existing loan – and allow the current owner to keep it?

Either way, there is going to be a loss.

Code of Civil Procedure §§ 116.221 & 116.224 were amended by Calif S.B. 221 and these changes are effective: January 1, 2012 until January 1, 2015. They increase the amount that an individual can sue for in small claims court to $10,000.

(Companies are still limited to only $5,000 per claim.)

Why is this important? And why only through 2015 – when the law reverts to the $5,000 level (or maybe the $7,500 level it was also temporarily raised to a few years ago…)?

Beats me.

It might make it interesting for all those borrowers who had “oral promises” from banks not to foreclose – to bring an action in small claims (you know, quick and dirty street justice a’ la Judges Judy or Whapner) for breach of the oral agreements.

That could be fun. And $10k makes it worth while to do – for a filing fee of about $50 bucks (more or less…).

Calling a Bank about a loan is THE most frustrating experience … even more so than sending in a loan mod request package — for the 15th time.

From a legal perspective, it gets worse, especially when “Joy” or “Nancy” tells you one thing (like, “You’re approved for our internal Loan Modification Program…”) but refuses to put it in writing. Or the letter you get says something different than the Bank’s representative said on the phone.

What do you do to protect yourself?

Try this:

When someone from the Bank calls, tell them: “I am recording this call for LEGAL purposes. Please state your full name and your birthdate – for identification purposes.”

How much you wanna bet the call will end – right there?

It will. And that’s OK.

If the Bank representative won’t agree to be recorded – END THE CALL. Nothing that is said in it will will matter anyway. The Bank will change its position. And you won’t be able to prove a thing. (And having the Bank’s representative refuse to be recorded, can work to your advantage later in court…)

Oh, and when Joy or Nancy balks, remind her that the Bank is recording the call already. For “training purposes.”

The latest and greatest news is that FHA will allow borrowers who are unemployed up to one year of deferred mortgage payment relief (read: live for free) while they get back on their feet.

This represents about 4% of the troubled California mortgages.

Fannie Mae and Freddie Mac loans are NOT included in this program. Neither are portfolio residential loans held by banks (like all those pesky seconds out there…).

So, for the very few that the “new” program will help (the unemployed, FHA insured, one loan only borrower), congratulations!

For the rest of us: Isn’t it grand how the Government is here to help?

Next.

Oh how I do LOVE first tuesday. Here’s their latest take on Bank of America’s “new and improved” loan modification centers. (And, while they don’t use the word ‘bullshit’ – which I would – they come pretty darn close!)

“Six new Bank of America (BofA) mortgage help centers will be opened in Los Angeles, San Diego, Riverside/San Bernardino, Antelope Valley, Modesto and Bakersfield by early summer. These new mortgage help centers will provide homeowners in danger of foreclosure on a BofA loan the ability to discuss their individual loan situations with BofA staff in hopes of obtaining the near-mythical permanent loan modification.

This newly-announced move comes in response to a scathing critique (full of bark, but oddly bite-less) of the Big Banks’ loose lending and servicing procedures which precipitated the Great Recession.

The housing counselors staffing these new mortgage help centers will be comprised largely of existing BofA employees the Big Bank is looking to redistribute during the current slowdown in loan originations.

But will these six new mortgage help centers actually help? The critics are skeptical. Like many Americans, the pundits have taken a “we’ll-believe-it-when-we-see-it” attitude to the multitude of reform promises made by the Big Banks. These centers, after all, aren’t changing BofA’s modus operandi; they merely provide friendlier faces for their refusals.

first tuesday Take: Count us as one of the critics, but don’t believe the modifications will somehow magically flow forth. Viewed in the best light, BofA is 1) providing its homeowners with a more reliable way of reaching someone who will deny their loan modification requests, and 2) giving its under-employed employees something to do. But we are talking about a bank here, so the likelihood that this move will live up to the best possible interpretation is pretty darned miniscule.

It’s been clear for awhile that marking all these loans to market will hugely undermine (and that’s a nice way of saying “topple”) BofA’s claim to solvency. And even if you believe BofA cares for its customers, it doesn’t care enough for them to go out of business. [For more on mark-to-market vs. mark-to-management accounting, see the October 2010 first tuesday article, Deflation’s push on the real estate recovery.]

So, we’ll say this for BofA: they can be congratulated on their ability to get press coverage on their staffing acuity while they avoid increasing the swollen ranks of California’s unemployed. But mortgage assistance? Don’t count on it.”

From first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516

The Ney Work Times reported on teh story May 5. Some of its commentary:

“Just over two million homes are in foreclosure nationwide, according to LPS Mortgage Monitor, and another two million borrowers are severely delinquent.

Additional centers may open later this year, the bank said. Counselors fluent in languages including Spanish, Korean, Vietnamese and Russian will be available for non-English speaking customers.

‘There are some people that prefer a face-to-face experience,’ said Rebecca Mairone, national mortgage outreach executive for Bank of America. ‘They prefer telling their story face to face or need additional information about documents or other counseling. We’re committed to helping distressed customers.’

Most of the counselors in the new centers will be transferred from other areas of the mortgage business, like sales and originations, which have slowed with the decline in mortgage demand.

Bank of America officials said their internal foreclosure procedures had changed in the wake of public criticism, and that the centers were being opened partly in response to customer feedback.”

“THERE ARE SOME PEOPLE THAT PREFER THE FACE TO FACE EXPERIENCE”?

“WE’RE COMMITTED TO HELPING DISTRESSED CUSTOMERS”

“MOST OF THE COUNSELORS WILL BE TRANSFERRED FROM OTHER AREAS OF THE MORTGAGE BUSINESS”

What a crock.

It would have been more honest to say: “We don’t want any more bad press so we’re not going to announce layoffs of our mortgage staff, and it’s better public relations to give our customers a face to face denial.”

Lance Churchull writes:
“One thing I have wondered about in the past is why the two government-sponsored entities, Fannie Mae and Freddie Mac, found it necessary to have different rules for short sales, but then I remembered that the “G” in GSE stood for government and, of course, the government usually makes things more complicated than they should be. Well, on April 28, 2011, the Federal Housing Financing Agency (FHFA), which has been overseeing Fannie Mae and Freddie Mac since their near financial collapse, decided it would be better if they had uniform rules for delinquent mortgages. The FHFA has directed that Fannie Mae and Freddie Mac align their guidelines for servicing delinquent mortgages they own or guarantee with the stated purpose of creating an updated framework that will establish uniform servicing requirements for how delinquent mortgages are handled, including the short sale process. The director of FHFA said, “Once fully implemented, the enterprises’ aligned policies will require earlier contact, more frequent communication and prompt decisions.”

The aligned guidelines will also govern the “dual track” foreclosure process by requiring the servicers to immediately contact delinquent borrowers in an effort to resolve a delinquency. The foreclosure process may not commence if the borrower and the servicer are engaged in a good faith effort to solve the delinquency. In the event that the property is referred to foreclosure, financial incentives would be provided to encourage the servicers to help continue the borrowers pursue a foreclosure alternative such as a short sale.

Freddie Mac and Fannie Mae must issue the new guidelines to their servicers on or before September 30, 2011. Having reviewed the actual and very detailed servicing announcements by both Fannie Mae and Freddie Mac that seems like an awfully long time to implement the new rules. However, given the fact it took Fannie Mae and Freddie Mac eight months to implement a HAFA program that was nearly the same as the Treasury Department’s program, I guess it is reasonable for them to take five months to align their loss mitigation rules.

One of the new policies that agents will like is that Fannie Mae and Freddie Mac will have the same borrower package for borrowers to be considered for all workout and foreclosure avoidance solutions, including HAMP modifications and short sales. When the borrower’s package is received, it is required that at the beginning of the process there be a simultaneous evaluation of borrowers for both the HAMP and HAFA programs. An additional new standard that agents will applaud is that there will be a uniform case escalation process which requires acknowledgement of an escalation request within three business days after receipt and adherence to a 30-day maximum total time to resolve an escalated case.

Since Fannie Mae and Freddie Mac short sales constitute a large portion of the short sale market, new uniform short sale guidelines and procedures for non-HAFA short sales would certainly be welcomed by the real estate industry. Let’s hope that the new guidelines, when they are issued, will actually simplify and expedite the process, and that the servicers will effectively implement the new rules. Stay tuned for updates on this topic, but don’t hold your breath in anticipation of seeing the newly aligned Fannie Mae and Freddie Mac short sale rules very soon.”

I couldn’t agree more.

Freddie Mac bulleting 2011-05 states No More MERS foreclosures.
MERS must transfer the interest it holds as indentured trustee (or whatever) to the actual loan services.

I wonder how much money MERS just lost on all those fees it was generating?

And how will the true servicers will feel about having to foreclose the old way?

The Federal Trade Commission has banned eight mortgage relief and foreclosure prevention marketers from plying their trade and fined them over $23 million for deceptive advertising. The eight individuals involved in three companies – two of them in California — have also been ordered to return over $30 million in fees to fleeced consumers.

The California firms included:

Federal Loan Modification Law Center run by Steven Oscherowitz, which marketed a “federal loan modification program” that charged an upfront fee of $3,000 and promised mortgage mods to distressed homeowners. The settlement order includes a $11.5 million judgment against Oscherowitz, and the FTC continues to pursue five other individuals in connection with this scam.

DirectLender.com aka Loss Mitigation Services, which charged an upfront fee of $5,500 and promised loan modifications. The firm and individuals Dean Shafer, Marion Anthony “Tony” Perry and Bernadette Perry also misrepresented themselves as agents of the consumer’s lending institution. The settlement order imposed a fine of $6.2 million.

A New Jersey company – Hope Now Modifications – and brothers Salvatore and Nicholas Puglia were fined $5.3 million for claims they could provide mortgage modifications and for misrepresenting themselves as affiliated with a free federal homeowner assistance program, the Hope Now Alliance.

To date, the FTC has brought 29 cases against marketers who have falsely promised foreclosure prevention and mortgage modification services.

In a classic case of “too little, too late”, the U.S. Senate voted to ban “liar loans” as part of the financial regulatory reform bill and require lenders to fully document a borrower’s income before approving a loan.

From a CNNMoney report:

This would effectively end the origination of no-doc or stated-income mortgages, which many call “liar loans” because borrowers did not have to prove their income. Housing experts point to these mortgages as one catalyst for the housing collapse.

The bill would also prohibit lenders from giving brokers incentives for steering customers to loans with higher interest rates or prepayment penalties.

“Deceptive mortgage practices like hidden steering payments directly led to the Wall Street meltdown and resulted in millions of families losing their homes,” said Sen. Jeff Merkley, D-Ore., co-author of the bill.

The provisions build on Federal Reserve regulations that required lenders to verify the income and assets of subprime borrowers. Those rules, which went into effect in October, did not ban incentive payments, called yield-spread premiums.

“This should make the mortgage market a safer place for consumers,” said Julia Gordon, senior policy council for the Center for Responsible Lending.