Real Relief for Upside Down Home Owners

RISMEDIA, March 9, 2010—Forget loan modifications, short sales, and “jingle mail”! If you are one of an estimated 50 to 60 million homeowners whose mortgage is part of a securitized pool, the law is on your side and everyday more and more people are deciding to exercise their rights with regard to the documents they signed.

There is much more contained within those documents and pooling and servicing agreements that govern the pools than just the borrowers promise to pay. And, there are laws that must be adhered to by the lender of the money.

As it turns out, virtually all of the securitized private label loans were part of a massive and ongoing fraud upon both the borrower and the investor. And, the fraud continues as the pretender lenders force more defaults, stop making payments to the pools, collect on the credit default swaps, and top it all off by seizing the underlying assets (only if they can make additional money on them) and keeping any proceeds for themselves.

What borrowers and investors agreed to and what they actually got are at odds, and these discrepancies raise serious legal issues including, but not limited to, Truth In Lending Violations, Real Estate Settlement Procedures Act Violations, Fraud, Bait and Switch, illegal kickbacks involving the borrower, and out right fraud and conversion upon the investor.

In the cases of loans such as a 2/28, pick-a-pay and option arm, their very existence is prima facie evidence of predatory lending and fraud upon the investors.

Nor are we talking about a small amount of money or a technicality. We are talking about a complex system of deceit by financial intermediaries that can turn a single modest home loan into millions of dollars in profit for them.

The Worse the Loan the More They Can Make

Suppose a buyer actually qualifies for a $300,000 fully amortized, fixed rate loan at 5%.

But, right at the end of the process the underwriter calls the loan officer and says something like this;

“We’ve just had a change to our underwriting guidelines and we aren’t going to fund the loan.”

This is really funny because the loan is already funded. Now, it’s time to kick up the profits. Of course, the loan officer’s emotions run the full range from disbelief to anger to fear. “Why?” She pleads.

Underwriter: “His ratios. He needs a lower monthly payment. Resubmit in our new super-duper, magical flex loan with the built in implosion feature.”

Now, before we run out and lynch a bunch of loan officers, this is what they were given to work with and trained to do. They were as indoctrinated into this as if they had drunk the cool aid. If it makes you feel better, they got pushed into these loans too. I get a lot of email from loan originators and real estate agents who often feel embarrassed about their choices, but back then we didn’t know that it was just a giant Ponzi scheme.

The loan product is determined by an underwriter. The perception is that the only purpose for underwriting is to determine the credit worthiness of the borrower and the value of the security. But, the underwriting process actually yields far more valuable information. It also reveals the borrower’s default probability and numerous details about their behavior. Knowledge of the borrower’s behavior combined with negative features in the loan allowed insiders to project when the loan would default.

Armed with this information, the underwriter is able to “tweak” the loan to increase the Yield Spread Premium and the Service Release Premium, as well as, increase the likelihood of collecting on the credit default swaps. That is the process of putting you into the most profitable loan possible. And, it is where the real predatory lending takes place.

Back to our borrower. By bumping our highly qualified borrower from 5% to 8%, they only increase the likelihood of default; they are able to extract an enormous undisclosed Service Release Premium and a Yield Spread Premium. The Yield Spread Premium is supposed to be disclosed, but often isn’t.

The Service Release Premium is where the real money is, and it’s hidden. The investor provides $480,000 to the financial intermediary in exchange for a five percent annual return of $24,000 plus a guaranteed return of principal.

The financial intermediary only loans our borrower $300,000, but when the rate adjusts to 8%, the investor has his $24,000 annual income, the financial intermediary pockets a $180,000 Service Release Premium, makes up the initial shortfall in the pool payments and buys credit default swaps.

So this is where we really are.

They are not banks. They call themselves banks, but they aren’t banks.

They did not lend you any money. They loaned you someone else’s money.

You don’t owe them any money. Maybe you owe a pension fund or something, maybe not.

You may not owe anyone any money. If the investors recouped their losses from TARP funds, you no longer owe them anything.

They may owe you money. If you were the victim of predatory lending, your damages could be into the hundreds of thousands of dollars, plus legal expenses

They may have no legal right to foreclose on you.

You have a legal right under the terms of your loan agreement and common law to raise the above issues with the true holder of the original note you signed.

Why? Because securitized loans presented an opportunity to commit fraud on both the true lender by skimming, and the borrower by convincing him he should accept a far more expensive loan than the one for which he qualified.

The financial intermediary wrote the pooling and servicing agreements and the credit default swaps. The terms of the pooling and servicing agreement allow the financial intermediary to stop making payments on all loans in the pool and keep the revenue stream from the performing loans when a default occurs within the pool. It also allows the financial intermediary to collect on the credit default swap on the entire pool which is multiples of the loan value of the entire pool.

The game was rigged, but they overlooked one little thing; The Uniform Commercial Code, Chapter 3, 47-3110. The Uniform Commercial Code is replicated in virtually every state, and this section governs who may enforce a note.

Look at this a different way. Suppose you wanted to pay off your loan, but you wanted to be absolutely certain that the money would go to the rightful party so that you would not be subject to someone showing up later claiming you never paid off your note. You have a legal right to know who that party is.

If they cannot satisfy this provision of the UCC, they cannot proceed to foreclose. If you wanted to take the fight to them and see if they can produce the note, this is the law you need to pursue.

Is It the Beginning of the End for Housing Crisis?

RISMEDIA, March 8, 2010—(MCT)—A smaller percentage of mortgages were delinquent and the rate of those entering the foreclosure process slowed in the fourth quarter of 2009, possible signs that the foreclosure crisis that has gripped many of the nation’s housing markets is finally starting to ease, a trade group has reported.

“We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007,” said Jay Brinkmann, chief economist of the Mortgage Bankers Association, in a written statement.

The delinquency rate for mortgages on one- to four-unit residential properties was a seasonally adjusted 9.47% of all mortgages outstanding in the fourth quarter, down from 9.64% in the third quarter and up from 7.88% in the fourth quarter of 2008, according to the MBA’s quarterly delinquency survey.

Delinquencies include mortgages that are at least one payment or more past due but not yet in foreclosure.

Meanwhile, 1.2% of outstanding mortgages entered the foreclosure process in the fourth quarter, down from 1.42% in the third quarter and up from 1.08% in the fourth quarter of 2008. The percentage of mortgages at some point in the foreclosure process at the end of the fourth quarter was 4.58%, up from 4.47% in the third quarter and 3.3% in the fourth quarter of 2008.

The MBA survey covers about 44.4 million loans on one- to four-unit residential properties, or about 85% of all first-lien residential mortgage loans that are outstanding in the country. No doubt, the foreclosure nightmare isn’t over yet.

The percentages of loans 90 days or more past due and loans in foreclosure process set record highs in the fourth quarter, according to the report. Many of those loans more than 90 days past due are in loan modification programs, and some of them have been seriously delinquent for months waiting for modifications to get finalized.

But the good news is there are fewer problem loans actually entering delinquency—likely a result of fewer layoffs, Brinkmann said. “We normally see a large spike in short-term mortgage delinquencies at the end of the year due to heating bills, Christmas expenditures and other seasonal factors. Not only did we not see that spike but the 30-day delinquencies actually fell by 16 basis points from 3.79% to 3.63%,” he said. He added that the non-seasonally adjusted 30-day delinquency rate has only dropped three times in the past between the third and fourth quarter—”and never by this magnitude.”

Depending on the fate of seriously delinquent mortgages—whether they are cured with modifications or ultimately enter foreclosure—the percentage of mortgages somewhere in the foreclosure process could start to see a gradual decline in the second half of the year, he said during a conference call with reporters.

If normal seasonal patterns hold, there could be a bigger drop in the 30-day delinquency rate in the first quarter of 2010, Brinkmann said. That would be a positive sign for the months and years ahead. “The continued and sizable drop in the 30-day delinquency rate is a concrete sign that the end may be in sight,” he said. “With fewer new loans going bad, the pool of seriously delinquent loans and foreclosures will eventually begin to shrink once the rate at which these problems are resolved exceeds the rate at which new problems come in. “It also gives us growing confidence that the size of the problem now is about as bad as it will get,” he said.

Poll Shows Strong Support for Government Housing Initiatives

RISMEDIA, March 5, 2010—Americans remain strongly committed to federal support for home buyers, according to a recent survey of U.S. households.

Roughly 68% of those polled said the government should continue to support housing, and 65% believe the government should be doing more to keep families from losing their homes to foreclosure.

The poll included both home owners and renters and was conducted for the National Association of Home Builders (NAHB) by RT Strategies, a non-partisan public opinion polling firm based in Washington, D.C. RT Strategies interviewed a representative sample of 1,000 adults nationwide by telephone using live interviewers on January 29-31, 2010. The sample included 170 interviews with respondents from cell-phone-only households.

Among those polled, some key groups said the government should continue to play a vital role in maintaining a healthy housing market. For example, 78% of all potential home buyers, including 81% of renters intending to buy a home in the near future, said the government should continue to support housing.

Roughly 65% of home owners said the government also needs to do more to keep families from losing their homes. Support for more foreclosure protection was not confined merely to current home owners. Among renters, 84% said the government needs to do more to helped strapped borrowers. This issue is particularly important to women, with 71% supporting greater foreclosure protection, compared to 58% of men.

Keeping families in their homes is also particularly important to first-time home buyers, as 78% of young adults under age 30 support greater foreclosure protection. And 69% of adults who are 30 to 44, the prime age range for move-up buyers, said they support more foreclosure protection.

Overall, roughly two-in-three respondents said they own their home. Among renters, about two-in-three intend to buy a home in the near future. In addition, 15% of current home owners intend to buy a home in the near future.

The poll asked respondents for their views regarding the Worker, Homeownership and Business Assistance Act of 2009 that extended a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence. The legislation, which was signed into law by President Obama in November 2009, also authorized a tax credit of up to $6,500 for qualified repeat home buyers. Overall, 8% of those surveyed said they intend to take advantage of this credit, while another 24% who might have been interested in using the tax credit said they cannot afford to purchase a home at this time. Of the 33% of respondents who said they are planning to buy a home (both renters and current home owners), roughly 17% said they intend to use the tax credit.

Financial concerns continue to be the greatest barrier to growth in the housing market. Among renters nationwide who aspire to own their own home, 39% simply don’t have the money to buy a home at this time, and another 20% said the primary obstacle is that they feel they cannot qualify for a loan. Larger economic issues also play a role, as 18% of those surveyed said that job security is the greatest obstacle they face in trying to buy a home.

Weakness in the housing market itself may be blocking some home owners who would like to buy a new home, as 29% of current home owners said their greatest obstacle to purchasing another home is their inability to sell their current home. Beyond that, among current homeowners who aspire to buy a new home, 7% feel trapped by a mortgage that exceeds the value of their current home, 14% fear that the value of a new home might fall after they make the investment, and 13% say home prices are too high to allow them to buy a new home at this time.

Even amid a housing market downturn, 40% of respondents said their home is their most valuable investment, twice the number who cite any other single investment–401k accounts, savings accounts and CDs, stocks and bonds, or mutual funds–as their leading family investment.

2-10 Home Buyers Warranty

Starting January 1, 2010, a new Environmental Protection Agency (EPA) mandate will change the way your clients' home air conditioners are serviced and repaired. At that time, manufacturing HVAC equipment that primarily utilizes Freon® (also known as R-22 and HCFC-22) will be banned, and the nation will begin using products such as Puron® (also known as R-410A) as the standard refrigerant for air conditioners. This change will affect your buyers and sellers in many ways. Costs will increase
A variety of factors will lead to increased costs:

•R-22 parts may no longer be available.
•Since R-410A parts are not always interchangeable with R-22 parts, replacement of the entire system might be necessary.
•Physical changes to your system may be needed to accommodate the larger equipment required in air conditioners using R-410A refrigerant.
•The supply of R-22 refrigerant will be limited, causing the price to increase.
•Repairs may take longer because you may want to explore your options and wait for less expensive parts, if they are available.
•New HVAC equipment may be more expensive to purchase and install

Manufacturers' warranties may not provide full coverage
Typical manufacturers' warranties only cover parts for one year, in most cases. Labor is a significant part of any repair. Each manufacturer may take a different position if an R-22 system cannot be repaired or parts are not available.
System and appliance warranties/ service contracts typically exclude coverage resulting from government-mandated changes

Most system and appliance home service contracts/warranties contain language that effectively excludes the additional costs resulting from this government-mandated change. Each home service contract may deal with this situation differently.
Your Disclosure Responsibility
You may want to consult a licensed real estate attorney to determine if there are specific disclosure requirements.

You may also want to:
•Consider adding a disclosure form that details the potential impact of the new refrigeration requirements with all home sales.
•Offer a home service contract/ warranty on each transaction that includes R-410A coverage from a company that covers the transition.
•Have the parties to the transaction sign the disclosure form as evidence that they were made aware of the R-410A issue and were offered a home service contract/ warranty.
•Select a company with R-410A coverage in the base plan. This can be far too costly for your home buyers, to leave to chance or options

2-10 Home Buyers WarrantySM has taken proactive steps to address this change by upgrading our coverage to include R-410A covering costly upgrades, reducing your liability and eliminating risk to homeowners. Visit www.R410ASolutions.com to answer all your questions concerning the impact of this new government mandate to you and your clients or call 877-777-3188 to deliver real time answers to agents and homeowners.

News Channel 4-Interview with Ashley Dugger

In case you missed the interview last night, click here to watch the exclusive interview.

Restaurant Wednesday!

Ombi is a warm, modern space on Elliston Place, bringing contemporary dining to Midtown Nashville. Chef Jason Love and bar manager Terrell Raley serve inventive and flavorful food and cocktails.

Location:
2214 Elliston Place
Nashville

615.320.5350
ombirestaurant.com

News Channel 4 Tonight with Ashley Dugger!!!!

Ashley Dugger with the Fine Living Group will be interviewed on News Channel 4 tonight at 6:00pm. Tune in to see Ashley comment on the biggest mistakes that home buyers make. You won't want to miss this!