All national banks and their operating subsidiaries — including their mortgage servicing operations — are regulated by the Office of the Comptroller of the Currency, a part of the Treasury Department. According to OCC Chief Counsel, Julie L Williams, the latest federal figures show that 8 percent of all loan modifications resulted in higher monthly payments while 1.9 percent created no change.

In effect, of 272,399 borrowers who sought loan modifications in the second quarter, 21,831 wound up with higher costs while 5,136 saw no reduction in monthly home expenses. The typical increase was $132.

Servicing Monopoly

In addition, Ms. Williams testified that eight major banks service 63 percent of the nation’s mortgages.

“Servicing” is the process which comes into play after a mortgage is created. The “servicer” collects monthly payments from the borrower, uses the money to pay off loan owners and usually property taxes and property taxes. In addition, if a payment is not made it is the servicer who handles such jobs as modification and foreclosure.

All national banks and their operating subsidiaries, including their mortgage servicing operations, are regulated by the OCC. Williams says that “the servicing portfolios of the eight largest national bank mortgage servicers account for approximately 63 percent of all mortgages outstanding in the United States — nearly 33.3 million loans totaling almost $5.8 trillion in principal balances as of June 30, 2010.”

The eight major banks include Bank of America, Citibank, JPMorgan Chase, HSBC, MetLife, PNC, Wells Fargo, and U.S. Bank.

This concentration is impressive given that the entire banking system had 6,622 national banks as of late November. In effect, about 1/10th of 1 percent of the banking system controls almost two-thirds of all mortgage servicing.

To date, says Ms. Williams, “six large national bank servicers have publicly acknowledged deficiencies in their foreclosure processes. The lapses that have been reported represent a serious operational breakdown in foreclosure governance and controls that national banks should maintain. These lapses are unacceptable, and we are taking aggressive actions to hold national banks accountable, and to get these problems fixed.”

22,000 mortgage foreclosure modifications resulted in higher payments is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: foreclosure, higher, increase, loan, modification, monopoly, mortgage, OCC, Office of the Comptroller of the Currency, payments, robo-signing, servicing

Under the Mortgage Assistance Relief Services rule, the FTC says that mortgage foreclosure rescue and loan modification services cannot collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable. Individuals and organizations that violate the rule will be subject to FTC civil penalties. Excluded from the ruling are banks, savings and loans, federal credit unions, common carriers, and insurance companies. Attorneys may charge advance fees — but such fees must be held in an escrow (trust) account.

The MARS rule will be a substantial problem for foreclosure rescue companies and loan modifiers. Without the ability to quickly collect up front — and with a requirement to show results — most will instantly go out of business.

However, the new FTC regulations do not go as far as some states. For instance, in Maryland if a foreclosure rescue specialist sells a distressed property within 18 months after acquisition then 82 percent of any profit must be paid back to the original owner. Illinois and Minnesota have similar regulations.

The FTC further explains the details of the new regulation as follows:

The MARS rule applies to for-profit companies that, in exchange for a fee, offer to work on behalf of distressed consumers to help them obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans. The Final Rule, among other things, would: (1) prohibit providers of such mortgage assistance relief services from making false or misleading claims; (2) mandate that providers disclose certain information about these services; (3) bar the collection of advance fees for these services; (4) prohibit anyone from providing substantial assistance or support to another they know or consciously avoid knowing is engaged in a violation of the Rule; and (5) impose recordkeeping and compliance requirements.

Advance fee ban

The most significant consumer protection under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

Disclosures

The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

• they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
• the lender may not agree to change the consumer’s loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

Prohibited claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company’s affiliation with government or private entities;
• the consumer’s payment and other mortgage obligations;
• the company’s refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
  the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorney exemption

Attorneys are generally exempt from the rule if they meet three conditions: they are engaged in the practice of law, they are licensed in the state where the consumer or the dwelling is located, and they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must meet a fourth requirement — they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.

All provisions of the rule except the advance-fee ban will become effective December 29, 2010. The advance-fee ban provisions will become effective January 31, 2011.

Mortgage foreclosure rescue scams (finally) blocked by feds is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: assistance, banks, civil, claims, collection, credit unions, distressed, foreclosure, FTC, howemowners, insurance companies, lawyers, loan, MARS, misleading, modification, mortgage, Mortgage Assistance Relief Services, penalties, recordkeeping, relief, rescue, rule, S&Ls

According to J.D. Power and Associates, mortgage servicers often fail to deliver on certain best practices during the loan modification process, “including providing and meeting a time frame for approval; not asking for information more than once; explaining the entire process during application; and providing proactive status updates during the process.”

“While the loan origination process is already a milestone event for most homeowners, the stakes are even higher for those going through the modification process,” said David Lo, director of financial services at J.D. Power and Associates. “Homeowners navigating the loan modification process may be fearful of losing their home, and that can add significant fear and anxiety to an already stressful experience. As a result, it’s especially important that servicers make every effort to deliver on key best practices and make the experience as painless for customers as possible.”

The company reports, for example, that “only 28 percent of customers were asked to provide information more than once during the mortgage origination process, compared with nearly 80 percent of customers during the loan modification process.”

Context

One has to wonder if there are any conditions under which mortgage servicers — the folks who collect monthly loan payments and process foreclosures when payments are not made — can satisfy borrower expectations. After all, when a loan is originated that’s a happy experience because the borrowers are getting a home. In the case of a loan modification borrowers are in deep trouble and likely facing foreclosure, bankruptcy or both. In such an environment you can pretty much understand that borrowers may not be too thrilled with anything done by a loan servicer.

Service Practices

Power says there are several key service practices that can have a particularly strong positive impact on customer satisfaction:

Fee transparency: Communicating all fees in a concise way to ensure complete understanding and no surprises.

Informative account statements: Providing account statements to ensure that the most important information customers need is easily found.

Billing and payment by preferred method: Ensuring that customers are able to receive account statements and make payments through their preferred method.

Problem resolution: Ensuring that once a problem is identified, it is resolved quickly and efficiently.

You can easily understand that clarity is required with the first three items, it’s the fourth which is a problem. “Resolution” may not possible and in cases where a borrower has lost a job there’s nothing the servicer can do to help the homeowner short of offering them employment.

On a scale of 1,000, Powers says that “BB&T (Branch Banking & Trust) ranks highest in customer satisfaction among primary mortgage servicers with a score of 795 and performs particularly well in fees and billing and payment process. SunTrust Mortgage follows with a score of 767, and U.S. Bank ranks third with 755.”

Given the terrible circumstances involved, it’s amazing that any servicer can satisfy distressed borrowers.

Servicers “Fail” Mortgage Modification Expectations is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: loan, modification, mortgage, satisfaction, servicers

The reality is that the Obama loan modification program has saved roughly 100 times as many homes from foreclosure as the programs started under President Bush. That doesn’t mean the Obama plan is perfect or wonderful, but it’s surely better than many commentators suggest.

For it’s part the Bush Administration had two important foreclosure programs.

Hope For Homeowners

First, there was the Hope for Homeowners plan, a program which set aside $300 billion to refinance toxic loans made no later than January 1, 2008.

No doubt $300 billion is a lot of money but just how many loans were refinanced under H4H? Let’s see, there were 0 in fiscal 2008, 23 in fiscal 2009 and 48 so far in fiscal 2010. That’s a total of 71 loans. Over three years. A little more than one per state.

Why did Hope for Homeowners fail? Lender participation was voluntary, new loans were limited to 90 percent of appraised value and appraised values had gone down so lenders were being asked to take a loss for every loan refinanced under the program.

FHASecure

Second, there was the FHASecure program.

“In the coming days,” said President Bush in 2007, “the FHA will launch a new program called FHA-Secure. This program will allow American homeowners who have got good credit history but cannot afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes. In other words, we’re going to start reaching out and making sure people know that this option is available to them so they can stay in their homes.”

Sounds great. So what happened?

To follow the program you have to look at the number of delinquent conventional loans refinanced with FHA-insured mortgages. There were no such loans in fiscal 2007, 3,794 such loans in fiscal 2008 and 316 mortgages in fiscal 2009. That’s a total of 4,110.

But according to then-HUD Secretary Alphonso Jackson the story was different.

“FHASecure,” he said, “has helped more than 100,000 families stay in their homes. Homeowners are cutting their monthly mortgage payments by an average of $400 a month compared to their exotic subprime loans. They no longer have anxiety about finding foreclosure notices in their mailboxes, thanks to the safe mortgage alternative that FHASecure offers.”

So did the program help 4,100 delinquent conventional borrowers or more than 100,000?

The original purpose of the FHASecure program was to help delinquent conventional borrowers get FHA financing. Jackson himself had testified before Congress in 2007 that the FHASecure program was for “borrowers who are otherwise creditworthy, but have recently become delinquent on their mortgages as their teaser rates reset.”

But since the program wasn’t working the solution was to redefine the program.

HUD did this by simply changing its FHASecure Frequently Asked Questions page to say “these FAQs have been modified to reflect that the term FHASecure applies to all conventional to FHA refinance transactions. The previous edition of FAQs indicated that only those borrowers who were delinquent due to reset of their non-FHA ARMs were eligible for FHASecure, causing confusion.”

And just like that the FHASecure program was a “success” — unless you were one of the millions of borrowers with a toxic loan that needed to be refinanced.

Making Home Affordable

In March 2009, a few weeks after entering office, the Obama Administration started the Making Home Affordable program. In basic terms, the program today has four elements:

1. The Home Affordable Refinancing is for those making payments who want to refinance but lack equity.
2. The Home Affordable Modification is for borrowers who face foreclosure as a result of higher mortgage payments, reduced income or hardship (think medical bills).
3. The Second Lien Modification Program (2MP) is for borrowers with second liens of more than $5,000. May result in lower interest rate or an extended loan term.
4. The Home Affordable Foreclosure Alternatives Program (HAFA) is for borrowers who have been unable to get help under Making Home Affordable. It provides as much as $3,000 to borrowers who participate in a short sale or deed-in-lieu of foreclosure.

So how is the program doing?

The July 2010 results look like this:

• The government has identified 1,623,584 delinquent borrowers who qualify for program help.

• Some 1,528,563 have been asked to participate in the program. Amazingly, 245,651 refused, meaning that 1,282,912 borrowers started loan modification trials.
• Of those who started loan modifications, 520,814 could not complete the three-month trial period and will likely lose their homes. In addition, 8,823 who passed the trial modification period and obtained a “permanent” loan modification actually re-defaulted. In total, 529,637 borrowers have washed out of the program to date.
• Roughly 364,077 borrowers are still in trials.
• There have been 389,198 permanent modifications to this point. These are people who otherwise would have lost their homes.

The bottom line: The Obama program has so far saved 389,000 borrowers from foreclosure, a number which will increase in the coming months and a number which is now nearly 100 times greater than the foreclosure prevention results under the Bush Administration.

Is it good that more than nearly 530,000 borrowers have so far dropped out of the program? Of course not, it’s a terrible thing to face foreclosure. But ask yourself: How come we suddenly have so many distressed buyers in the first place? When did the foreclosure mess begin? Why weren’t distressed borrowers helped before, when the foreclosure crisis first began to unfold? How much help and enthusiasm have lenders given the Administration? What better alternative has anyone been able to offer the 530,000 borrowers who did not succeed with Making Home Affordable?

Blaming the Obama program for failing to save more distressed homeowners is like a guy in a life raft who drills a hole in the bottom and then complains that everyone else isn’t bailing fast enough. It just isn’t right.

———————————

Published originally on the Huffington Post.

100 to 1 — Obama Mortgage Modification Plan Tops Bush is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Bush, FHASecure, foreclosure, H4H, Hope for Homeowners, Jackson, modification, mortgage, Obama, re-default

The site, Know Your Options.com, has the usual bells and whistles for a modern site and includes sections devoted to refinancing, repayment plans, forebearance, modification, short sales, deed in lieu of foreclosure and a deed-and-lease back plan.

The site also has some useful and nicely-laid out forms such as a financial checklist and a contact log. There is, of course, lots of advice against walking away from your home, a so-called strategic default.

“Through foreclosure prevention programs, borrower outreach, underwriting guidelines and servicer engagement, Fannie Mae is taking a comprehensive approach to helping struggling borrowers,” says Jeff Hayward, a Fannie Mae senior vice president. “Identifying accurate resources and finding the right answers can be a difficult challenge for borrowers facing hardship and a flurry of disparate, incomplete and sometimes fraudulent information. Know Your Options is the company’s newest effort to reach distressed homeowners and is designed to bring the best information and guidance together in one place so that struggling borrowers can focus on finding solutions that work for their particular circumstances.”

What’s Missing

The new Fannie Mae site has some valuable information and the site itself is certainly well-designed. That said, where is the parallel site for would-be borrowers who have yet to have an encounter with lenders? Why wait until someone faces foreclosure before providing valued consumer information? Why not have warnings and red flags in place to help borrowers at the beginning of the mortgage process?

The new Wall Street Reform Act provides a perfect platform for Fannie Mae and other major players in the mortgage arena to openly tell the public that we now have such a thing as a qualified residential mortgage. In basic terms that’s a conventional, FHA or VA mortgage underwritten with a fully-documented loan application, a mortgage where prepayment penalties are limited to the first three years of a fixed-rate mortgage and banned for ARMs. A qualified residential mortgage is also a loan with fewer than 3 points and where the lender has an obligation to assure that the borrower is receiving a net tangible benefit.

Why Foreclosure Prevention Is Not Enough is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: deed in lieu of foreclosure, deed-and-lease back, Fannie Mae, forebearance, foreclosure, modification, qualified residential mortgage, refinancing, repayment plans, short sale, strategic default, walkaway, Wall Street Reform Act

How can you prove that a lender screwed up? One idea is to get something called a forensic mortgage loan audit.

The catch, says the Federal Trade Commission, is that such audits are “the latest foreclosure rescue scam to exploit financially strapped homeowners.”

“In exchange for an upfront fee of several hundred dollars,” says the FTC, “so-called forensic loan auditors, mortgage loan auditors, or foreclosure prevention auditors backed by forensic attorneys offer to review your mortgage loan documents to determine whether your lender complied with state and federal mortgage lending laws. The ‘auditors’ say you can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce your loan principal, or even cancel your loan.”

Free Pass For Lenders

There’s a real tragedy here on several levels: First, lenders should be held accountable for properly maintaining mortgage accounts. How is it possible to know whether lenders seeking to foreclose have the records right without a careful review of the loan? In a sense, the FTC is giving a huge pass to lenders. It’s like asking Enron to vouch for its own accounting.

Second, imagine if a borrower is foreclosed and the lender seeks a deficiency judgment for the unpaid balance. Wouldn’t it be good to know how much is actually owed to the lender before a court makes an award?

Third, it is troublesome to have the FTC suggest that distressed borrowers should not seek help from licensed attorneys. The implication seems to be that all attorneys who work in the foreclosure defense field are somehow tainted, an implication which is nonsense.

Perjury

We know that lenders are not always right. For instance, the paperwork in so many Florida foreclosure cases has been so wrong, so often that the state court system decided in February that attorneys must verify that their claims are correct or face charges of perjury.

“When filing an action for foreclosure of a mortgage on residential real property,” said the Florida state court system, “the complaint shall be verified. When verification of a document is required, the document filed shall include an oath, affirmation, or the following statement: Under penalty of perjury, I declare that I have read the foregoing, and the facts alleged therein are true and correct to the best of my knowledge and belief.”

The reason for the rule, says Florida, is “(1) to provide incentive for the plaintiff to appropriately investigate and verify its ownership of the note or right to enforce the note and ensure that the allegations in the complaint are accurate; (2) to conserve judicial resources that are currently being wasted on inappropriately pleaded ?lost note counts and inconsistent allegations; (3) to prevent the wasting of judicial resources and harm to defendants resulting from suits brought by plaintiffs not entitled to enforce the note; and (4) to give trial courts greater authority to sanction plaintiffs who make false allegations.”

In other words, the Florida courts have found multiple instances where lender foreclosure claims were simply untrue.

And yet, the FTC says:

There is no evidence that forensic loan audits will help you get a loan modification or any other foreclosure relief, even if they’re conducted by a licensed, legitimate and trained auditor, mortgage professional or lawyer.

Some federal laws allow you to sue your lender based on errors in your loan documents. But even if you sue and win, your lender is not required to modify your loan simply to make your payments more affordable.

If you cancel your loan, you will lose your home and you will have to return the money you borrowed to your lender.

You can see the problem here: Audit fraud is obviously wrong, it’s a crime. It will not result in a mortgage modification. And a fraudulent effort to stop a foreclosure will only make things worse for borrowers. But the issue for many homeowners is NOT that they want to modify their loan, it’s that they want to avoid an improper foreclosure. How can borrowers get help when the FTC is warning against the use of even a “licensed, legitimate and trained auditor, mortgage professional or lawyer.” Is no one other than a lender qualified to review foreclosure claims?

Perhaps the answer is that we ought to license mortgage auditors. But until we do, what are homeowners supposed to do to protect their homes against unfair and incorrect foreclosure claims? What are borrowers supposed to do when overcharged by lenders?

it’s true that some attorneys have committed fraud. it’s also true that the overwhelming majority have not. The FTC’s recommendation is simply too broad.

The FTC — which has an exceptional record defending consumer interests — needs to offer better, more precise advice to the public. What, exactly, should borrowers do in the face of lender foreclosure claims which may be false or inflated?

The real point is that lender errors cannot be used to force a loan modification. However, lender errors should not be the basis of a foreclosure. Someone at some point needs to review lender foreclosure claims to see if they’re justified.

If you face a foreclosure claim defend your rights and get help from an experienced attorney or legal clinic. Speak with a HUD foreclosure avoidance counselor. See if pro bono legal services are available. A local community housing group may be able to help. Lastly, look into the government’s mortgage modification program, Making Home Affordable.

Can “Mortgage Loan Audits” Stop Foreclosures? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: audit, auditor, error, Federal Trade Commission, Florida, foreclosure, FTC, lawyer, lender, loan, modification, mortgage, perjury

Truth is, a lot of people who enroll in the foreclosure prevention program don’t make it. The government reports that through April 299,092 borrowers received permanent loan modifications under Making Home Affordable — and also that 277,640 borrowers had been cancelled.

Now both Fannie Mae and Freddie Mac — organization nationalized by the federal government — have issued rules which says that when a borrower cannot get a permanent modification they then have the “choice” of either a short sale (what lenders call a preforeclosure sale) or a deed in lieu of foreclosure under HAFA — the Home Affordable Foreclosure Alternative program.

Payments To Borrowers

To qualify, says Freddie Mac, the “borrower must be more than 60 days delinquent and have cash reserves less than the greater of $5,000 or three times their current monthly mortgage payment.”

If you have been in the Making Home Affordable program and have been cancelled, and if your loan is owned by Fannie Mae or Freddie Mac, then speak with your lender about a short sale or deed-in-lieu of foreclosure under HAFA. To see if your loan is owned by either company go to the Making Home Affordable loan lookup page.

Feds Start New Short Sale & Deed-in-lieu of Foreclosure Options is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Fannie Mae, foreclosure, Freddie Mac, HAFA, Home Affordable Foreclosure Alternative, loan, Making Home Affordable, modification, mortgage, permanent, preforeclosure sale, short sale

There are times though when either the borrower or the lender will seek a mortgage modification, a change in the original terms of the loan agreement.

On the borrower’s side, there are several forms of mortgage modification.

• A lower rate.
• A longer loan term.
• Both a lower rate and a longer loan term.
• The waiving of various fees and penalties such as a prepayment penalty.
• A short sale where the lender agrees to allow the sale of the property for an amount that’s less than the debt in full or partial settlement of the loan.

It’s also possible for a lender to want a loan modification. For instance, rather than foreclose a lender might accept a deal where the interest rate or monthly payments actually rise. A lender might extend a loan to avoid foreclosure or a lender might tack missing payment onto the end of a mortgage to, again, avoid foreclosure.

As well, if a lender needs cash, it might agree to the early payment of the loan in exchange for something less than the entire debt. This is called a curtailment.

What Is A Mortgage Modification? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: change, curtailment, modification, penalties, prepayment, rate, short sale, term

It doesn’t have to be this way. Stop foreclosures and you can stop the widespread erosion of home values. Why? Because when a few houses in the neighborhood are foreclosed the value of all homes are impacted.

To date, efforts to halt the mortgage meltdown have been limited, but perhaps there’s a different approach to consider, one created under a law intended to benefit coal miners.

Black Lung & Equity Sharing

The Black Lung Benefits Revenue Act of 1981 (Pub. L. 97-119) made it possible for residential property to be owned by both an occupant co-owner and a non-occupant co-owner — and for both owners to write-off expenses just like any owner-occupant or owner.

Called equity sharing, such an arrangement can work like this:

Occupant Collins has a 75-percent interest in the property and a non-occupant investor, Baker, owns 25 percent. Collins pays a fair market rental to Baker for the 25 percent of the property not owned by Baker. If the property is sold, then the profits are divided with 25 percent going to Baker and 75 percent going to occupant Collins.

Under the coal miner’s bill, investor Baker can write off his share of the mortgage interest, taxes and other costs as a business expense and depreciate his 25 percent of the property. Collins, the resident, can write off mortgage interest and property taxes, but not depreciation or regular ownership expenses because he is an owner-occupant and not an investor.

“Equity-sharing would allow many owners to stay in their homes and avoid foreclosure,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com, the nation’s leading foreclosure marketplace. “Lenders would benefit because homes could be saved from foreclosure. Neighborhoods and communities would be ahead because fewer foreclosures would mean a reduced number of homes for sale at distressed prices. The result would be less downward pressure on local home values.”

Mark Cuban

“Why can’t home owners sell some percentage of equity in their homes on a listed exchange?” asks Mark Cuban, owner of the Dallas Mavericks. “Why can’t I ‘Take My House Public?’”

Cuban says such deals could work like this:

1. “The house is appraised by a company approved by the exchange that lists the houses.
2. “‘Shares’ are set with a Par Value of 10% of the appraised value. For a $100,000 house, there are 10 shares potentially available. However at no point in time can more than 40% of the ‘shares’ in a home be sold. We don’t want the opportunity for ‘hostile takeovers.’
3. “The price of the shares will of course be set by the market. In a hot market it will be set above par, in a tough market like today, it will sell below Par.

4. “All Proceeds from the sale of shares MUST be used to pay down any debt on the home.”

There’s a catch here, however, which now dooms both Cuban’s idea as well as any similar approach to bail-out distressed borrowers. Equity-sharing has traditionally been designed as a way to acquire property, not as a way to refinance. Selling an equity interest in a home with an existing owner, changing the title, sets off the “acceleration” clause found in virtually all mortgages.

If equity sharing is to alleviate the foreclosure problem, then lenders will have to agree to a new and different form of loan modification. Instead of enforcing due-on-sale clauses, they’ll have to accept a change of title and new ownership.

Losses

Is this a problem for lenders? Not hardly. With the use of equity sharing lenders could avoid foreclosures and save an estimated $40,000 to $80,000 for each property which does not go to auction. Local home values would be maintained, meaning that the value of the lender’s security would be protected and conserved. Properties would be easier to refinance at lower rates with the addition of a strong equity partner.

While Cuban offers the idea of a formal marketplace, equity sharing deals could also be done informally among family members, companies with employees who need assistance, community groups, religious organizations or any two people with shared interests.

Oh, and since you’re wondering, why are the tax benefits for equity sharing found in legislation designed to aid coal miners? Because Washington works in strange and mysterious ways.
————————

Published originally by RealtyTrac.com in November 2007 and posted with permission.

Can “Equity Sharing” Prevent Foreclosures? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: 1981, ARM, Black Lung Benefits Revenue Act, equity sharing, listed exchange, Mark Cuban, modification, modify, mortgage, option, shares

For its part, the lending industry says it’s great at disaster relief.

“The truth is,” said John Robbins, chairman of the Mortgage Bankers Association in 2007, “we’re good at cleaning up. We had a lot of practice after what Katrina and Rita did to the Gulf Coast. We prevented widespread foreclosures for more than 18 months by providing forbearance for many homeowners.”

In fact, there’s actually a National Housing Locator System for disaster victims — a system, says HUD, designed “to deliver housing assistance by rapidly locating rental housing and available government-owned single family homes for sale during an emergency.”

Little Change

But instead of fires and floods, we now face a national financial disaster of massive proportions caused in large measure by toxic loan products and reduced underwriting standards. Why are the actions which are so right and so obvious when homes burn in California or flood along the Gulf Coast so wrong when loans reset? What, exactly, is the practical difference between a home lost to fire and a home lost to toxic financing? Are not the losses in either case substantial?

A 2007 survey from Moody’s Investor Service tells us that few loans are now being modified.

“Despite much industry dialog and heavy press attention on the topic of loan modifications as a mitigation technique to avoid foreclosure and reduce losses on defaulted loans, the survey results suggest that on average subprime servicers have only recently begun to materially increase the number of modifications as it relates to interest rate resets. Specifically, the survey showed that most servicers had only modified approximately 1% of their serviced loans that experienced a reset in the months of January, April and July 2007.”

By November 2009 not much had changed. The federal government was reporting that 31,382 loans had been modified under its Making Home Affordable program while an additional 697,026 loans were in trial modifications.

Meanwhile, according to RealtyTrac, 306,627 homeowners nationwide were facing foreclosure in November 2009, up 18% from a year earlier.

“State by state, the economic costs from the subprime debacle are shockingly high,” says Senator Charles E. Schumer (D-NY). “From New York to California, we are headed for billions in lost wealth, property values, and tax revenues. The current tidal wave of foreclosures will soon turn into a tsunami of losses and debt for families and communities.”

“Lenders have shown that they are entirely capable of dealing with large numbers of troubled loans in times of crisis and disaster,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com, the largest marketplace for foreclosure properties. “The need now is to institute such programs on a national basis, to recognize that the mortgage meltdown is both substantial and worthy of the same concern that lenders display when visible disasters lead the nightly news.”

One approach might be mass modifications.

“Renegotiating terms loan by loan is too costly and time consuming,” says Sheila C. Bair is the chairman of the Federal Deposit Insurance Corporation, writing in The New York Times.

“Subprime servicers should take a more standardized approach: restructure all 2/28 and 3/27 subprime hybrid loans for owner-occupied homes in cases where the borrower has been making timely payments but can’t afford the reset payments. Convert these to fixed-rate loans at the starter rate.”

Bair’s idea is innovative, but it would impact mortgage investors more than any other group. By the time the matter got untangled in court, millions of additional homes would be lost to foreclosure.

Three Steps

Is there a solution? There certainly is not an answer which will save every deserving borrower, but there is a way to keep investors whole while saving a large number of homes.

How? Take three steps: First, require lenders to offer every toxic ARM borrower the opportunity to refinance. Second, ban the imposition of prepayment penalties for those who refinance ARMs. Third, make the modification process cost free to assure that borrowers are not overcharged.

An opportunity to refinance is not the same as a commitment to refinance. The Make Homes Affordable program requires income verification and the completion of a three-month trial period. That’s not unreasonable — and it’s certainly better than foreclosure.

————————

Published originally by RealtyTrac.com during November 2007, edited and updated, and posted with permission.

Why Can’t We Treat Foreclosures Like Fires & Floods? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: disasters, earthquakes, fires, foreclosure, hurricanes, modification, Mortgages, natural