According to the Federal Trade Commission, the government has sought to ban more than a dozen marketers from selling mortgage relief and foreclosure relief services, in one instance seeking $11.4 million for contempt.

The release from the FTC follows:

As part of the agency’s continuing crackdown on scams that prey on financially distressed homeowners, the Federal Trade Commission announced legal actions against more than a dozen marketers accused of pitching bogus mortgage modification or foreclosure relief services.

FTC settlement orders ban 16 marketers from the mortgage modification or foreclosure relief business. The promoter of a similar scam has been ordered to pay $11.4 million for flouting a previous court order. And, in a new action, the FTC has charged another online marketing operation with masquerading as a government mortgage assistance program.

The FTC settled with the following defendants, all of whom charged consumers up-front fees and made false promises that they could get their loans modified or prevent foreclosure:

Making Home Affordable. The FTC alleged that the defendants impersonated MakingHomeAffordable.gov, a federal government Web site that helps eligible homeowners refinance or modify their mortgages. Defendants Sean Cantkier, Michael Haller, Alan LeStourgeon, Greg Rivera, Lisa Roye, and Jeffrey Altmire bought advertising links on the results pages of Internet search engines, and consumers looking for “making home affordable” were diverted to commercial Web sites that pitched loan modification services or sold consumers’ personal information to marketers of such services. (7/10/2009 release http://www.ftc.gov/opa/2009/07/homeafford.shtm) The defendants will have to give up their ill-gotten gains, ranging from $1,523 to $29,179. Separately, the Commission authorized and the court approved the addition of two counts to the complaint against Scot Lady and dismissed Kean Lee Lim as a defendant. The documents were filed in the U.S. District Court for the District of Columbia.

Federal Loan Modification Law Center. Defendants Nabile (“Bill”) Anz, Federal Loan Modification Law Center LLP, Anz & Associates PLC, Venture Legal Support PLC, and Jeffrey Broughton settled FTC charges that they hawked their so-called “Federal Loan Modification program” in a national advertising campaign targeting financially distressed homeowners. They charged up to $3,000, much of which they required up-front, but Federal Loan Modification often failed to live up to the promised results, according to the FTC’s complaint. (06/26/2009 release http://www.ftc.gov/opa/2009/06/fedloanmod.shtm) In addition to the ban on selling mortgage relief services, the settlement order against Anz, Federal Loan Modification Law Center, Anz & Associates, and Venture Legal Support imposes a $10.8 million judgment, and the order against Broughton imposes a $11.1 million judgment. The judgments are suspended based on their inability to pay. The full judgments will become due immediately if they are found to have misrepresented their financial condition or receive any money from the remaining defendants. The order was filed in the U.S. District Court for the Central District of California. The FTC continues to pursue its case against five other defendants.

Apply2Save. Derek R. Oberholtzer, Apply2Save Inc., and Sleeping Giant Media Works, Inc. allegedly charged consumers up to $995 in advance for promised mortgage loan modification services. Once they were paid, they often failed to answer or return consumers’ telephone calls and sometimes falsely blamed delays on lenders, even though they had made little or no effort to contact lenders, the FTC charged. Most consumers who got loan modifications or avoided foreclosure did so only through their own efforts. (7/15/2009 release http://www.ftc.gov/opa/2009/07/loanlies.shtm) The defendants have filed for bankruptcy. The order imposes a judgment of more than $4 million, which is suspended based on their inability to pay. The full judgment will become due immediately if they are found to have misrepresented their financial condition. The order was filed in the U.S. District Court for the District of Idaho.

New Hope Modifications. Brian Mammoccio and Donna Fisher have settled charges that they falsely claimed they could obtain mortgage loan modifications for consumers in all or virtually all cases, falsely promised a money-back guarantee, and masqueraded as part of the federally-endorsed HOPE NOW Alliance mortgage assistance network. According to the FTC complaint, in many cases, after consumers paid up-front fees, the defendants failed to return their phone calls, or falsely told them that negotiations were proceeding smoothly. In many instances, consumers learned from their lenders that the defendants had not contacted them. (3/24/2009 release http://www.ftc.gov/opa/2009/03/newhope.shtm)

In addition to the ban on selling mortgage relief services, the settlement order imposes a judgment of almost $3.9 million, which will be suspended when the defendants surrender their assets as specified in the order. The full judgment will become due immediately if they are found to have misrepresented their financial condition. The order was filed in the U.S. District Court for the District of New Jersey.

The $11.4 million contempt order against Bryan D’Antonio and three companies he controls,The Rodis Law Group Inc., America’s Law Group Inc., and The Financial Group Inc., came at the request of the FTC, which charged that operators of the scam had falsely claimed they would stop foreclosures and negotiate lower mortgage interest rates, monthly payments, and principal balances. Promoters of the scam claimed a 100 percent success rate and wrongly advised consumers to pay them instead of making mortgage payments. The FTC alleged that homeowners got few, if any, loan modifications, and many people lost their homes to foreclosure after paying them up to $5,500. The operators also falsely claimed that attorneys would check consumers’ loan documents for fraud and other lending violations that they would use as leverage in negotiating loan modifications, according to the complaint.

In May 2009, the FTC charged the defendants with violating a 2001 order that banned D’Antonio from telemarketing and misleading consumers about goods or services. The FTC obtained the 2001 order against D’Antonio and his former company, Data Medical Capital Inc., for operating a work-at-home medical billing opportunity scheme. D’Antonio also pleaded guilty to mail fraud for his involvement in that scam and served almost three years in prison. In addition to the financial sanctions against D’Antonio and the three companies, the court barred him from making misleading statements about refunds, exchanges, and total costs or quantity. The FTC has collected more than $1 million from the defendants’ available assets thus far, and will refer the remainder of the $11.4 million judgment to the Department of the Treasury for collection. The FTC has set up a consumer information line at 1-888-398-8205.

Fedmortgageloans.com. The FTC has charged Dominant Leads LLC, MAD TJ Holdings LLC, James Rambadt, Thomas Hayes, and James Kane with misrepresenting that the mortgage assistance and debt relief programs they are marketing are affiliated with the federal or state government, and that consumers may be eligible for a federal or state loan modification or debt relief program. Some of the defendants’ Web sites use logos similar to the federal government’s MakingHomeAffordable.gov logo, and many of their sites feature official government agency seals or logos and links to federal government Web sites. When consumers seeking mortgage assistance or debt relief services call the toll-free numbers on the defendants’ Web sites, they are connected to other companies that sell supposed mortgage assistance relief or debt relief services for a fee. The FTC seeks to stop the defendants’ illegal practices and make them forfeit their ill-gotten gains. The complaint was filed in the U.S. District Court for the District of Columbia on June 16, 2010.

The Commission votes were unanimous in these actions.

The Federal Trade Commission is a member of the interagency Financial Fraud Enforcement Task Force. For more information on the task force, go to www.stopfraud.gov.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the full force of law when signed by the judge.

FTC Seeks Halt To Mortgage & Foreclosure Relief Programs is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Relief

In the usual case, disaster relief from mortgage investors falls into six possible categories:

1. Suspend mortgage payments for several months.
2. Reduce the payments for several months.
3. Waive penalties and late fees against borrowers with disaster-damaged homes.
4. Quickly releasing insurance money to help borrowers repair homes.
5. Create longer loan modification plans in severe situations.
6. Temporarily discontinue reporting delinquencies caused by the storm to credit reporting agencies.

While these are the forms of relief which Fannie Mae and Freddie Mac will be offering, relief is not automatic. You must apply to your loan servicer — the company that collects the monthly mortgage payment — for assistance. Also, generally, you must live in or near the spill zone, which generally means homeowners in Louisiana, Mississippi, Texas, Florida and Alabama.

Freddie Mac

Under the Freddie Mac forbearance program, mortgage servicers can suspend mortgage payments for up to three months or reduce payments for up to six months. Servicers may recommend to Freddie Mac forbearance for up to twelve months in situations which are especially difficult and drawn out..

In addition, Freddie Mac says servicers “must not accrue or collect late charges from the borrower during a short-term forbearance or any subsequent repayment plan period if the borrower is paying according to the forbearance agreement.”

Fannie Mae

Fannie Mae says “servicers may immediately suspend or reduce mortgage payments for borrowers whose properties or income are negatively impacted by the Gulf oil spill.” Notice the term “may” — there is no “must” in the policy.

Under its “Special Relief Measures” policy, Fannie Mae servicers “may suspend or reduce a borrower’s payments for up to 90 days while the servicer determines the nature and extent of the impact the disaster is having on the condition of the property or on the borrower’s financial condition. At the conclusion of that assessment, servicers have additional flexibilities to evaluate the appropriate loss mitigation alternative based on a case-by-case determination, including an additional three months of forbearance, a loan modification or other customized solution.”

As with Freddie Mac, relief is not automatic. You must contact your servicer if you have been impacted by the BP oil spill.

Other Lenders

Most borrowers do not know who owns their loan, in part because loans are frequently bought and sold. If your loan is not owned by Fannie Mae or Freddie, or if you do not know who owns your loan, contact your servicer anyway. Other loan owners may also have forbearance programs in place.

As an example, CitiMortgage has “announced a foreclosure suspension program for CitiMortgage-owned mortgages in coastal areas hard-hit by the oil spill in the Gulf of Mexico. The aim of this program is to allow distressed homeowners to remain in their homes during these uncertain times as the Gulf communities respond to the oil spill and its economic repercussions. During the three-month suspension, effective June 17 through September 17, 2010, borrowers with first mortgage loans owned by CitiMortgage and who meet certain other criteria will not be subject to foreclosure sales or foreclosure notifications. While CitiMortgage does not own all of the loans it services, the company hopes to help as many borrowers as possible with this initiative.”

“CitiMortgage’s Gulf region foreclosure suspension,” says the company, “affects only those loans it owns in the region. Under the program, CitiMortgage will halt all foreclosure sales on first mortgage accounts in highly impacted coastal areas through September 17th. In addition, evictions on real estate owned properties (REO) will cease during this time. CitiMortgage borrowers occupying residences in zip codes within approximately 25 miles of affected coastal areas will be eligible for the program.”

Cautions

If you are able to get mortgage payments suspended, be sure to ask your servicer how the money is to be repaid. For instance, will money be added to your monthly cost once payments resume? Will the loan term be extended? Etc.

If a foreclosure action is halted can you bring your loan current and stop the foreclosure during the suspension period?

Also, if you’re turned down by your servicer ask if their decision can be appealed. If yes, to whom?

Finally, carefully document all servicer contacts — name, date, who you spoke with, etc. Send in paperwork by certified mail with a return receipt requested to prove when things were sent — and when they were received.

Mortgage Loan Relief For BP Spill Victims is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Let me explain:

I have a mortgage which is set up like this: Payment is due on the 1st of the month. However, there’s a grace period. If the lender gets my payment by the 15th of the month there’s no late fee. In addition, there’s no credit ding. Why? Because only items which are at least 30 days late are included on credit reports.

In other words, this mortgage is exactly like millions of other mortgages, there’s a due date and there’s a built-in grace period. If payment is not received within the grace period then borrowers can be hit with a penalty, perhaps 5 percent of the payment amount.

A Contract Is Not A Contract

Now my lender is trying to modify my mortgage. Apparently a contract is not a contract when a lender doesn’t like the terms of the deal. This seems odd since the lender underwrote my loan after looking at roughly 20,000 pieces of paper and because the mortgage is in the “lender’s usual form” — an expression which means the loan terms are written by the lender’s lawyers to favor, well, the lender.

In the past few days, however, I have received several calls from individuals who say they are my lender. The drill goes like this: The phone rings. It’s 8:30 at night. A pleasant automated voice says I should hold. For whom am I holding? Ah, that turns out to be an alleged “representative” of my bank.

“We see you haven’t paid your mortgage yet,” says a voice on the phone. “If you’re having financial difficulties you may be eligible for help through the federal government.”

“Nope,” I say, “I’m fine.”

“Well, your payment is due on the 1st and has not been received. We can charge your checking account with an electronic transfer right now for a $20 fee and you can avoid a late payment fee.”

So what’s wrong with this call?

First, I can avoid a late fee without help from my bank. I do this by making full and timely payments every month, without exception.

Second, why am I being called? My mortgage says I can make my payment as late as the 15th of the month without any fee or penalty. It’s now the 12th.

Buried in the smooth script and the fake concern regarding my financial situation is a more troublesome issue: Someone I don’t know has called me.

If I authorize them to electronically withdraw money from my checking account I must provide certain information I know and they don’t. And once such information becomes free-range data, how can I be sure they won’t empty the entire account? I don’t actually know the caller. I hear what they’re saying but I have no way of knowing if I’m being contacted by a lender or a con artist. It’s not easy to tell the difference.

Assuming this is a call from my lender, the real effort here is to speed up my payment before it’s actually required. If the lender can scare enough people to flush out more early payments it will then have a few days of extra cash on hand to earn some additional float dollars, money which can be used to fund executive bonuses or help credit card borrowers in need of financing at 29.99 percent.

I’m sure in some sense that any payment made after the 1st is “late” but it doesn’t matter: my lender — and probably your lender — has agreed in writing not to take any action or charge any fee if my payment is received during the grace period. And after all, it was the lender who wrote the loan terms.

So check your loan documents. If you need help, speak with an attorney or legal clinic. Know your rights. If your mortgage allows a grace period then that’s the deal. Always meet the terms of your mortgage with full and timely payments. And if your lender calls early to ask where’s the payment, tell ‘em where they can look for it.

(Peter G. Miller is the author of The Quick & Dirty Guide To Successful Mortgage Modifications. Posted originally with the Huffington Post.)

When To Tell Your Mortgage Lender To Take A Hike is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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A new study by TransUnion, the big credit reporting agency, says there is now a new payment hierarchy where consumers pay their credit cards before their mortgages.

“The percentage of consumers current on credit cards and delinquent on mortgages first surpassed the percentage of consumers current on their mortgages and delinquent on credit cards in the first quarter of 2008,” says TransUnion. “This ‘flip’ is representative of the change in the conventional wisdom around the payment hierarchy, or which debt obligations consumers would choose to pay first.”

“The implosion of the mortgage industry over the last 24 months, the resetting of adjustable-rate mortgages and the weak job market have all come together to redefine how consumers are managing their finances and meeting (or not meeting) their credit obligations,” said Ezra Becker, director of consulting and strategy in TransUnion’s financial services business unit. “The insight gained through this analysis reveals a lot about changing consumer preferences. The financial services industry must recognize and adjust to the payment hierarchy shift with judicious modifications to business models, new assessments of specific areas of risk, and by strategic revisions to acquisition and account management strategies.”

Consumer Logic

Traditional thinking said that consumers put credit card bills ahead of mortgage debt. Here’s why: If you don’t pay your mortgage you’ll lose your home. If you don’t pay your credit card bills you might get sued, your credit score will fall and you may be hounded by debt collectors.

But honestly, how is someone going to take back that trip to Bermuda?

Foreclosure States

TransUnion says “within California, the percentage of consumers delinquent on their mortgages but current on their credit cards increased from 3.5 percent in Q3/2007 to 10.2 percent in Q3/2009 (a 191 percent increase). In Florida, this same variable increased from 5.1 percent in Q3/2007 to 12.4 percent in Q3/2009 (a 143 percent increase). In this same timeframe, the United States experienced a 68 percent increase (from 4.0 percent in Q3/2007 to 6.6 percent in Q3/2009).

“In contrast, the number of California consumers delinquent on their credit cards but current on their mortgages declined from 3.3 percent in Q3/2007 to 2.7 percent in Q3/2009. In Florida, this variable declined from 5.0 percent in Q3/2007 to 3.9 percent in Q3/2009.”

It’s just a guess, but maybe people are making their credit card payments because they’re using credit to buy groceries and such when faced with a job loss or some other form of income reduction. Otherwise, it still seems logical to pay the mortgage and keep a roof over your head before paying credit card debt.

Credit Cards Or Mortgages: Which To Pay First? is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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According to the Federal Housing Finance Agency (FHFA), the headline is that “FANNIE MAE AND FREDDIE MAC LOAN MODIFICATIONS UP BY MORE THAN 50 PERCENT IN FIRST QUARTER, MONTHLY PAYMENTS REDUCED FOR HOMEOWNERS.”

We then learn that “Fannie Mae and Freddie Mac modified nearly 37,000 loans during the first quarter of 2009. It is an increase of 57 percent over the fourth quarter of 2008 and more than double the number of modifications in the first quarter of last year.”

Is 37,000 loans a lot? Is 37,000 loans a big number over a period of three months at a time when foreclosure filings are running at better than 300,000 per month nationwide? Is 37,000 loans impressive in the context of the 30.4 million loans held by Fannie Mae and Freddie Mac?

Notice that the headline discusses loan modifications, but modifications are not the only approach to help those facing foreclosure.

“Modifications represented 43 percent of all completed foreclosure prevention actions in the first quarter of 2009,” says FHFA. In other words, there were about 87,000 loan workouts in total for the quarter and most were not modifications.

Modifications Versus Workouts

“Modifications with more than 20 percent reduction in monthly payments rose from 2 percent in the first quarter of last year to 52 percent in the first quarter of this year.” Question: What about the other 68,000 distressed borrowers? How many of them saw no reduction in monthly costs? How many of them saw monthly costs actually rise, something which is entirely possible with repayment plans, a type of workout which differs from modifications.

The reason there are so few Fannie Mae and Freddie Mac foreclosure actions is very simple: The two companies are better run then anyone will admit, which means their takeover by the government is highly questionable. The average Fannie Mae or Freddie Mac borrower has a credit score of 725 and the typical loan has a loan-to-value ratio of 74 percent, meaning not a lot of loopy loans with toxic terms.

Few Bad Loans

As of March 31th, the percentage of Fannie Mae and Freddie Mac loans that were at least two payments past due (60 plus days delinquent) was 3.6 percent. This compares to 6.1 percent for VA loans, 10.2 percent for FHA loans and 9.2 percent for the industry average.

For all the yelling and screaming about Fannie Mae and Freddie Mac, the bottom-line reality is that their mortgage portfolios are sound and solid, a reality which contrasts with the quickie nationalization of the two companies in the summer of 2008.

The Untold Story Behind Fannie Mae & Freddie Mac is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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On May 11th HUD said first-time buyers could use their $8,000 tax credit to fund their FHA downpayment. In effect, borrowers would get a short-term bridge loan that would be repaid when the money for the tax credit was received.

But, whoops, it turns out that such secondary loans are banned, taboo and not allowed. As a result HUD took down the May 11th almost immediately.

New Policy

Now HUD is back with a replacement letter that says first-time buyers CAN use their tax credit for an FHA down payment — but only when it comes from a state housing agency or approved nonprofit organization.

However, most FHA loans do not come from state housing agencies or nonprofit groups, they come from private lenders such as banks and savings-and-loan associations. When loans come from these sources it’s possible to get a secondary loan — but NOT for a down payment.

“Current law,” says HUD, “does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate.”

FHA Loans With No Money Down

For some first-time buyers the new policy can be translated into home purchases with nothing down. Imagine that Smith gets funding from a state housing agency and buys a home for $228,500. The FHA-required down payment is 3.5 percent of the purchase price or $7,998 in this case.

What About All FHA Borrowers?

Why not allow first-time buyers — or all buyers — to get FHA financing with nothing down?

Risk. The FHA program is an insurance plan. Less down equals more risk and the FHA program has traditionally said that borrowers must come up with the down payment from only two sources: savings or a gift.

The down payment requirement makes sense but is not entirely fair. For instance, if my parents are rich and your parents aren’t, guess who can get a down payment gift — and who can’t?

Also, the FHA allows “seller contributions” for as much as 6 percent of the sale price, meaning that if an owner is sufficiently desperate he or she will pay all the buyer’s closing costs and extra dollars that can be used to increase the down payment. The effect of this policy is to lower the buyer’s cash costs at closing, money that can then be used for the down payment.

If you’re a first-time buyer, please speak with local brokers and lenders to see what’s available under the new HUD policy from state housing agencies and nonprofits.

For a look at program specifics, please go to the IRS page, First-Time Homebuyer Credit.

FHA — Yes (Sort Of) To No Money Down is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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I’m not so sure Ozzie and Harriet were off the mark. Ownit closed in December 2006.

Ozzie and Harriett — the Nelsons of early TV — didn’t do too badly. The Nelsons were a prototypical one-wage earner household. They no doubt financed their home with an afforable fixed-rate loan. The mortgage choices then available were pretty much limited to VA, FHA and conventional financing with 20 percent down, financing that usually came from a local savings & loan association.

Today’s mortgages might well have confused the Nelson’s — they certainly confuse a lot of current borrowers. How could one explain the joys of interest-only financing or option-ARMs to visitors from the 1950s? What would they think of such ideas as negative amortization, interest rates based on LIBOR movements (a European index that did not then exist) and monthly payments that might double in a few years?

The Nelson’s lived in a country that was the world’s largest producer of cars and steel and by far the largest producer and exporter of food, but let’s not idealize the ’50s — schools and neighborhoods were segregated; women were relegated to a second-class status; businesses and colleges openly discriminated against Jews; lenders engaged in redlining; there had never been a Catholic president; the Korean war had ended — and the Vietnam war loomed ahead. But at least in the sense of real estate and mortgages, things were understandable.

The worry at the start of 2007 is that the market for subprime loans is less stable then investors would like and perhaps not so understandable. For instance, a 2006 study by Friedman Billings Ramsey found that default rates for adjustable subprime loans originated in 2005 were “15.4% and 6.3% higher than the default rates of those originated in 2003 and 2004, respectively.” (See the June 2006 MarketPlus Report from FRB for details.)

Well sure, you might think, interest rates reached record lows in the summer of 2003. As rates have risen so have foreclosures.

Not quite. Yes, interest rates have risen since 2003 but the Friedman Billings Ramsey study found that most of the subprime loans (74.9%) were 2/28 hybrid adjustables — that is, financing where the payment stays the same for the first two years of the loan term. “Hence,” says the report, “most of the adjustable-rate subprime loans originated in January 2005 will not reset at the earliest until January 2007.”

If rising interest rates aren’t doing it, then why then the rash of subprime foreclosures?

FBR looked at subprime foreclosure rates in 361 metropolitan statistical areas and found that 95 had particularly steep default rates. The reason: slowdowns in areas dependent on auto manufacturing, weak labor markets in New England and Golf Coast areas still reeling from hurricanes Katrina and Rita.

If you remove these 95 metropolitan statistical areas from the mix you find, according to FBR, that default rates increased from 4.16% in in July 2005 to 5.84% in July 2006. An increase, but not as bad as a superficial figures suggest.

It’s just a guess, but I would suggest that those fiscally-conservative folks from the ’50s might look at the FBR survey results and map out a mortgage investment program that looks something like this:

If I’m a mortgage investor I’d look at rising subprime default rates and say more risk means I need more interest. That, of course, is a problem given that subprime rates are already steep. Can the market absorb higher subprime rates without steeper default levels?

I’d stay away from areas with especially high default rates — that would unfortunately mean less financing for the metropolitan statistical areas where the need for mortgage capital is especially accute.

I’d look ahead and wonder about areas that have high levels of interest-only and option ARM activity. FRB reports that in the first six months of 2006 more than a quarter (25.8%) of the loans in California allowed negative amortization. In the same period interest-only financing was remarkably popular (or necessary) in Charlottesville, VA (47.1%), Ventura, CA (46.3%) and Santa Cruz-Watsonville, CA (45.7%).

I’d wonder what would happen with those 2/28 hybrid adjustables, the ones that will begin resetting in big numbers in this month. Does anyone seriously think that higher interest rates will not compound subprime problems?

The Nelsons may not have had home computers, electronic games or DVDs, but each month they could easily pay their steady mortgage bill. For a growing number of homeowners, that’s not a bad deal.

————————

Published originally by RealtyTrac.com during January 2007 and posted with permission.

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The way you get loans with less down is to find a financially-strong co-signer, someone or something that will bail out the lender if you can’t repay your mortgage. Loans guaranteed by the VA, FHA or private-mortgage insurance (MI) all allow borrowers to buy with little or nothing down.

But — and you knew this was coming — insurance requires an insurance premium, so to buy with little down AND without the cost of insurance, borrowers and lenders during the past few years increasingly turned to “piggyback” financing.

With porker financing you get a first loan for 80 percent of the purchase price and a second loan for 10-, 15- or 20-percent of the home’s value. The result is little or nothing down, plus no cost for mortgage insurance.

Who makes such second loans? Sometimes a second lender, but often the very lender who provided the 80-percent first mortgage and also finances a second loan for the same transaction.

Once-common piggyback deals are now increasingly rare. The reason: That second loan is immensely risky. If a home is foreclosed the odds are overwhelming that the entire value of the second mortgage will be lost. Unlike a first loan, of course, there is neither insurance to offset a loss nor the equity represented by a significant down payment to protect the lender.

The evaporation of piggyback loans is a marketplace “correction” that’s long been overdue. Such financing is cute and clever — but only when home values are rising. Since home values do not always rise, the once-popular piggyback loan is now toast, nicely browned on both sides.

With the virtual disappearance of subprime loans — and with a substantial decline in interest-only mortgages, option ARMs and stated-income loan applications — what we have today is your father’s mortgage marketplace: Take your pick: You can get a conventional loan or a mortgage backed by FHA, VA or private mortgage insurance. Exotic mortgages are out, piggyback loans have been barbecued and dull loans that borrowers can actually understand are back.

Unfortunately, some buyers will not be able to get financing or refinancing under the new standards or they’ll be forced to borrow less. That sounds fairly gruesome until you realize that prudent borrowing means fewer foreclosures and a gradual return to normal markets, things which benefit us all.

————————
Published originally by Realty Times on July 23, 2008 and posted with permission.

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“Late,” I said, “What do you mean by late? Do you mean I owe you a late penalty?”

“Well no,” said the distant voice on the phone, “you don’t owe a late fee but we have yet to receive this month’s payment.”

“Gee, how could that be?” I asked. “Is it possible that you have received no money as yet because the payment is not due for another 10 days or so?

“Have you reported this transgression to a credit reporting agency?” I wondered aloud.

“Well no,” said my caller, “but if you would bank with us electronically then you would not have this problem.”

“I don’t have a problem. If I had a problem you would want a late fee or your would foreclose, but — as you mentioned — I don’t owe you a dime. Nothing is ‘late’ no matter how many times you repeat the phrase. There is no possibility on earth that I will ever give you bank account information over the phone.”

And so it went back and forth. The lender — if it was a lender — was fishing for faster payments, trying to get money before it’s actually due so that it can have a few extra days of interest. It doesn’t matter what our mortgage contract says, it doesn’t matter that our agreement contains a nice, fat grace period, the lender was trying to get a few extra days of interest on the monthly payment.

The call is a pretext. The payment is obviously not “late” as any normal human being not testifying before Congress would understand the term, but that’s not the reason for the call. Instead the purpose is to get folks to sign-up for an automated payment program so the lender can get its money quicker — and, of course, so you will have your money for less time.

For you and me the loss of a few day’s interest on a mortgage payment is not a big deal. But if the lender can convince, or strong-arm, or pressure, thousands of people to make earlier payments then the overnight float begins to build into some serious money.

Some time back I got a string of calls from the same mortgage company wanting me to send in payments sooner by mail. The payment’s weren’t late, mind you, they just were not there fast enough for the lender. The lender eventually figured out that there were no circumstances under which I would be paying them any sooner then required and so they quit calling.

I’m on the FTC’s do-not-call list, but the lender can phone because we have a “business” relationship. Alternatively, being on the do-not-call list does not mean I must be interested or attentive.

If ever there was a bad idea it concerns phone calls from people you don’t know asking about your financial particulars. While my caller identified herself as being with a particular lender, how do I know that’s true? Mortgage information in my state is public.

No less important, we live in an era of rampant identity theft, fake web pages and fraudulent phone solicitations. The Federal Trade Commission says there were 246,000 identify-theft complaints in 2006. What better way to profit from identity theft than to grab someone’s bank account number?

Given that I pay my bills on time, I have no reason to give anyone access to my bank account or any related information. While payments to the lender may be steady, checking account balances rise and fall. I prefer the nice, slow process of paying bills by check, making sure in each case that the lender properly receives all of its money on time and in full.

Of course, it is now possible to get paper checks instantly debited. If my lender cashed my check immediately upon receipt I would be fine with such a process because the lender is entitled to its money as soon as it arrives — but no sooner.

From my perspective, I’m going to act just like a lender and retain every contractual advantage I have. If it happens that a mortgage agreement does not require speedy electronic payments, then guess what? It’s not going to happen.

If a “lender” calls and asks for bank account information over the phone and you’re not interested, just say no. However, if such an approach to bill paying does appeal to you, that’s fine. Say nothing to a phone caller you do not know. Instead, call your lender’s service center and they will gleefully help you set up such an arrangement. Believe me, operators are standing by.

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Published originally by Realty Times on April 3, 2007 and posted with permission.

Taking A Call From A “Helpful” Lender — And Giving Back is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Bigger homes, of course, require more dollars to buy, finance, refinance, insure, heat, air condition, and carpet. The equation is bigger homes = bigger mortgages — and we all know how bigger mortgages impact monthly payments.

It’s not just that we have more interior area, we have also packed more features into today’s houses including, says the NAHB, whirlpool bathtubs, gas fireplaces, gourmet kitchen appliances, state-of-the-art home security systems and low-maintenance exterior materials, make new homes more comfortable and livable than ever. Also, homes built today are also more energy efficient. In fact, new homes are about twice as energy efficient as new homes were just 20 years ago.”

In most communities you can almost date the housing stock by the size of local palaces. The trend seems to be massive footprints on small lots — an approach which creates a lot of interior square footage with little exterior space to maintain.

At a time when there is a strong need for affordable housing, huge and expensive homes are virtually required by the economics of land acquisition. You can’t build small and cheap in most metro areas because the cost to acquire and develop property is so great. In addition, zoning ordinances and minimum lot sizes assure an effective housing shortage in many areas — thus a major reason for rising prices.

People with large holdings and big incomes have choices while those on the cusp of subsistence do not. The failure of our housing market is that we are very good at plans, restrictions and zoning — and not so good at affordable housing. We’ve taken the reward motive out of affordable housing because builders in many communities cannot profitably-construct cheap homes and still meet zoning requirements.

But less expensive homes are possible, sensible and necessary. Smaller lots combined with smaller homes can certainly be built — if allowed. And such homes can easily work for many households: Just look at the typical home sizes from five decades ago — and then look at the number of occupants per house. According to the Census Bureau, the average household had 3.37 people in 1950 — and 2.56 people in 2007.

What we have now are fewer people per household and cavernous, echo-filled structures in which they are housed. This makes little sense in terms of land usage, energy consumption, environmental issues or cost.

Today we increase home values by limiting supply, a better approach would be to increase home prices by enlarging the pool of qualified buyers. We’d have more buyers if we had more affordable housing, homes that can appreciate in value and allow owners to build equity, increase household wealth over-time and re-enter the marketplace as move-up buyers.

As an owner it’s in your self-interest to want the largest possible pool of move-up buyers, a group that represents some 60 percent of the existing home marketplace. Increase the number of move-up buyers and your home is likely to sell faster and for more money. The catch is that you can’t have move up-buyers unless they have properties to replace — thus the need for affordable housing.

Community planning today favors the upwardly mobile, the already settled, growing congestion and a numbing architectural sameness. We are using land regulation to limit affordable housing at the very same time we claim that affordable housing is an attractive and desirable goal — except where we live.

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Published originally by Realty Times on October 24, 2003 and posted with permission.

Mega Homes Versus Real Estate Sanity is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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