The New York Court of Appeal recently opined in NYCTL 1999-1 Trust v. 573 Jackson Avenue Realty Corp., 13.N.Y.3d 573 (December 15, 2009) that the definitive requirement for redeeming real property during foreclosure proceedings  is the “unconditional tender [to the foreclosing party] of the full amount due” before auction.  This general rule in mortgage foreclosure proceedings also applies to the foreclosure of a tax lien.

However, note that the Courts will exercise their broad equitable powers to void judgments and even set aside sales (extending the homeowner's right of redemption), where homeowners are seeking to modify or reinstate their mortgages while the lender continues with the foreclosure action. Jimmy Lathrop, Esq., the Director of Foreclosure Intervention at the Brooklyn Bar Association Volunteer Lawyers Project, recently discussed in his blog post,  three cases where the court found that the homeowner's good faith negotiations mandated an equitable solution and a possible complete bypass of RPAPL §1341 which defines the requirements and time frame of the borrower's right of redemption.

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Having recently issued a decision canceling an Indymac mortgage lien in another foreclosure action, Judge Spinner turns his attention to the outrageous actions of Wells Fargo and holds the mortgage behemoth liable for trespass, resulting in $155,092.00 judgment, in Wells Fargo v. Tyson. At the outset, the court pointed out that the Plaintiff sent a per diem attorney to the first  settlement conference who had no knowledge of the case so that any potential progress was thwarted.  It is a common problem and a recurring complaint that usually Plaintiff’s representative, at these settlement conferences, has no authority to negotiate, thus preventing any meaningful settlement and violating the spirit of the law. Having aroused the ire of numerous judges, you would think that these foreclosure mill law firms would figure out that they had better send counsel with authority to enter into some sort of settlement or at least have the ability to get someone on the phone who has it.

Certain facts were not disputed – that Wells Fargo had a representative enter the premises, without notice, not once but twice.  The representative changed the locks despite the fact that the premises were obviously not abandoned by the defendant.  Defendant had previously winterized the home, secured it, maintained the exterior of the premises and did not remove his furniture, clothing, food etc.  Defendant also visited the home at least once a week and had asked a neighbor to keep an eye on the premises.

Plaintiff relies on certain language in the mortgage itself: “Lender, and others authorized by Lender may enter on and inspect the Property. They will do so in a reasonable manner and at reasonable times. If it has a reasonable purpose, Lender may inspect the inside of the home or other improvements on the Property. Before or at the time an inspection is made, Lender will give me notice stating a reasonable purpose for such interior inspection.” as well as the express provisions in another paragraph regarding abandonment: “If…I have abandoned the Property, then Lender may do and pay for whatever is reasonable and appropriate to protect Lender’s interest in the Property…Lender’s actions may include but are not limited to: (a) protecting and/or assessing the value of the Property; (b) securing and/or repairing the Property;…Lender can also enter the Property to make repairs, change locks…and take any other action to secure the Property.”

In its analysis, the court first noted that mortgage documents and their terms are not negotiable and as such, are contracts of adhesion.  Therefore, they are to be construed strictly against the drafter – the plaintiff herein.  Belt Painting Corp. v. TIG Insurance Company 100 NY2d 377 (2000). “Under the circumstances presented to this Court, it is appropriate and fair that the terms of the instrument be construed in favor of Defendant.”  Using a fair reading of the above language, it is apparent that the Lender’s actions must be reasonable and entry can only be upon adequate notice. Further, abandonment of the property is a condition-predicate to entry and the testimony of the defendant substantiated defendant’s claims that he had not abandoned the property.

Based upon the foregoing facts, Spinner declared that the Plaintiff  engaged in a Trespass on at least two occasions:

Distilled to its very essence, trespass is characterized by one’s intentional entry, with neither permission nor legal justification, upon the real property of another, Woodhull v. Town of Riverhead 46 AD3d 802, 849 NYS2d 79 (2nd Dept. 2007). The injury arising [*4]therefrom afflicts the owner’s right of exclusive possession of the property, Steinfeld v. Morris 258 AD 228, 16 NYS2d 155 (1st Dept. 1939), Kaplan v. Incorporated Village of Lynbrook 12 AD3d 410, 784 NYS2d 586 (2nd Dept. 2004). The elements of a claim for trespass are intent coupled with the entry upon the land that is in possession of another. In order for trespass to lie, general intent is legally insufficient. Instead, there must be a specific intent, either to enter the land or to engage in some act whereby it is substantially certain that such entry onto the land will result therefrom, Phillips v. Sun Oil Co. 307 NY 328, 121 NE2d 249 (1954). The intent need not be illegal or unlawful, MacDonald v. Parama Inc. 15 AD2d 797, 224 NYS2d 854 (2nd Dept. 1962) but even one who enters the land upon the erroneous belief that he has the right to enter thereon will be held liable in trespass, Burger v. Singh 28 AD3d 695, 816 NYS2d 478 (2nd Dept. 2006). Trespass will lie against a party if entry upon the land was perpetrated by a third party, such as an independent contractor or other party, at the direction of the party to be charged, Gracey v. Van Kamp 299 AD2d 837, 750 NYS2d 400 (4th Dept. 2002). Id.

Turning to the issue of damages, the court expressed that a foreclosure action is an action in equity and as such, it may impose punitive damages.  “In a suit in equity, the Court is empowered with jurisdiction to do that which ought to be done.” Id.  Spinner then turned to address the bank’s egregious conduct:

Here, the Court is constrained to find that the conduct of Plaintiff in this matter was both willful and wanton, as evidenced by not one but two unauthorized entries into Defendant’s dwelling, occurring in complete derogation of Defendant’s right of possession. This conduct becomes even more glaring when consideration is given to the fact that Defendant affirmatively notified Plaintiff that he had secured the property and that it was not abandoned and still contained his personal property. Even so, Plaintiff maintains that it has entered the property under a color of right, which turns out to be illusory under the circumstances. In spite of these declarations, Plaintiff willfully took it upon itself to enter the property on more than one occasion, doing so unreasonably and without notice, in direct contravention of the terms of its mortgage promulgated to Defendant by its assignor. This is even more distressing when it is considered that Plaintiff breaches its obligations to Defendant under the mortgage, running roughshod over Defendant’s rights with a specious claim that it is acting to protect its rights and the property. In short, the conduct of Plaintiff was nothing short of oppressive and would best be described as heavy handed and egregious, to say the very least. Certainly, the trespass was willful and calculated and was not accidental in any way and the Court finds that Plaintiff did not act in good faith. Under these circumstances, an award of both actual and exemplary damages is necessary and appropriate in order to properly compensate Defendant for the losses he has sustained by way of Plaintiff’s shockingly wrongful conduct as well as to serve as an appropriate deterrent to any future outrageous, improper and unlawful deeds.  Id.

Unfortunately, it appears that this type of behavior is not unheard of by members of the real estate bar.  One member noted that a similar situation occurred with a foreclosure defendant client of his.  Although he had secured and winterized the premises, the bank’s inspection service alleged the premises were wide open and entered the premises.  They also changed the premises, turned the valves to “turn off the water” which instead resulted with the water being turned on.  The pipes burst and flooded the home.

The court’s actions in Wells Fargo v. Tyson should send a clear and unequivocal message to Lenders and their various contractors that they do not have an absolute right to enter a mortgagor’s property and such behavior will not be tolerated.

Related posts:

1. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants
2. Real Estate Law Update: New York State Decisions of Interest
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Short sale transactions are essential to move properties in furtherance of rebuilding our economy. They directly benefit several parties including:

• the distressed homeowner: unburdened by debt he cannot afford without the same level of credit score damage a foreclosure would cause as well as possible deficiency judgments;
• the real estate agent: earns commissions (provides jobs etc);
• the short sale bank: removes nonperforming assets from its books,  usually at far less of a loss than if the property became an REO; and
• real estate investors: acquiring properties at a discount provides incentive to negotiate as well as to seek out qualified purchasers

Part of the fallout from the real estate market crash is a rash of negativity aimed directly at real estate investors.  They, along with mortgage brokers and other members of the real estate community, are being made the scapegoats for the Housing Bubble.  I’m going to clue you in on a little secret – it really wasn’t them.  Not that there weren’t unscrupulous investors, loan officers etc. – far from it.  Point the finger directly at the Banks and the Government. The Banks needed those deals to package up and sells as mortgage backed securities on Wall Street.  When there was not enough product, they lowered their standards to bring in more loans. They blatantly ignored fraud reports and lended on questionable properties. The banks created exotic loan products and recklessly offered them without regard to ability to pay.  The Government wanted to increase homeownership among minorities – hence ACORN. It created several programs and incentives to push the percentage of homeownership way above the standard amount.  I am also going to point the finger at the American Homeowner who decided to use their home as an ATM, or who lied on their loan applications because they needed to compete with the Joneses.  Lets also add real estate agents to the mix who fought for higher and higher appraised values and selected comparables for their Broker Price Opinions (BPO) to influence the appraiser to come in higher. (RANT finished)

These very parties, who irresponsibly handed money to unqualified buyers on overvalued properties, as part of their attempt to pass the blame to real estate investors, are throwing around the “fraud” label with regard to flipping short sale transactions (for more discussion on Short Sale Fraud please read my prior blog post). In an attempt to curtail the investor’s ability to flip these properties, some banks are including “no-flip” clauses in their short sale approval letters. I have seen this language in Bank of America, GMAC, EMC,Countrywide to name a few.  There are varying forms of this language from purporting to restrict the transfer of the subject property for 30 days post closing to voiding the transfer and reinstating the note and security agreements, post-closing, if the bank determines that there was fraud.

The easiest language to address in the 30 day post-closing restriction on transfer.  Lets review basic contract law and the doctrine of privity.  Basically a contract does not confer rights or impose obligations upon anyone except for the parties to it. The contractual relationship is between the homeowner and the bank. The short sale approval is a settlement of the debt obligation between these parties.  The bank has no contractual relationship with the investor and/or buyer and therefore this language, purporting to impose a restriction on the investor/buyer, is unenforceable against the investor/buyer. With respect to the other no-flip clauses, Bob Massey does an excellent job of explaining how to handle those banks in his video:

I have located an underwriting bulletin from Stewart title which addresses these problematic clauses in short sale approval letters.  It indicates that such language makes the transaction “uninsurable”.  As Massey suggests, request that the clause be removed from the short sale approval letter as title will not insure the transaction and provide a copy of the title bulletin to support your argument. You might have to bypass the negotiator and contact a supervisor but this should be sufficient to persuade them to delete the offending language.

What have you encountered and what has worked for you? Please comment!

Related posts:

1. PropertyShark University – Short Sales Class – Tues June 17, 2008 – Don’t Miss It!!!
2. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
3. Buyer $5,000 Short – How to Close the Gap…from a NY Point of View

Highlights of the HAFA program are as follows:

• Servicers have 10 days to approve or disapprove a request for short sale.
• Uses borrower financials and other documents already submitted for a loan modification.
• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
• Prohibits servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
• Uses standard processes, documents, and timeframes/deadlines.
• Provides financial incentives: $1,500 for borrower relocation assistance; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors (note holders).
• Caps proceeds to second lien holders at $3,000.00. (interesting but I wonder at how those lien holders in the second position feel about this)

Requirements:

• Loan must be HAMP eligible – Services must evaluate a buyer for a HAMP modification first before giving any consideration for a HAFA short sale or Deed in Lieu (DIL);
• Property is borrower’s principal residence;
• the mortgage is a first lien and was originated before January 1, 2009;
• the loan must be delinquent or default reasonably foreseeable;
• loan amount limit is 729,750 (on 1 family units);
• borrower’s total monthly payment exceeds 31 percent of the home owner’s income and attested to by affidavit;
• Sale must be an arm’s length agreement and the buyer must agree not to sell the property for 90 days (problematic and I believe will diminish the potential of this program);
• Requires property to be listed with a real estate broker (I wonder who lobbied for this…so this has to be added on to the  servicer’s Minimum Net Proceeds and thus increases the cost to Purchaser)

While I admire the government’s attempt at allieviating the short sale log jam, as usual, they overstep their bounds. The American people are being asked to yet again foot the bill for the banks’ irresponsible lending practices to the tune of $3,000 per closing.  Further, mandating that properties be listed with a real estate broker across the board is excessive and will, in effect, add to the purchase price paid by the prospective buyer.  The arm’s length rule eliminates family attempting to save the home and the 90 day prohibition against resale will chill real estate investor participation which plays a major role in moving houses (I find this restraint on alienation to be disturbing as well and question its enforceability). Lastly, I question how many second lienholders are going to participate with their payments limited to $3,000.00.  Without their participation, it will be an exercise in futility as many of these homeowners have 2 loans.

Related posts:

1. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
2. PropertyShark University – Short Sales Class – Tues June 17, 2008 – Don’t Miss It!!!

Evidently the government is serious about getting these delinquent mortgages modified – here is another positive change to HAMP:

Press Release from HUD:

WASHINGTON – U.S. Department of Housing and Urban Development Secretary
Shaun Donovan today announced the Federal Housing Administration (FHA)
has implemented changes to its loan modification program to ensure
consistency with the Obama Administration's Home Affordable Modification Program. By August 15th,
FHA borrowers will be able to significantly reduce their monthly
mortgage payments by seeking a loan modification through their current
mortgage company or loan servicer under the new FHA-Home Affordable
Modification Program (FHA-HAMP).

"Today, we're bringing another important tool to the table to help
struggling families who are desperate to keep their homes," said
Donovan. "Tens of thousands of FHA borrowers will now be able to modify
their mortgages in the same manner as so many others who are taking
advantage of the Administration''s Making Home Affordable program. This
is just the latest tool we are providing to help homeowners prevent
foreclosures through the Making Home Affordable program. Earlier this
month we announced an expansion of the Home Affordable Refinance
Program to borrowers who are up to 125 percent underwater. Together,
these actions will significantly increase the help available to
homeowners.

"The Helping Families Save Their Homes Act of 2009, signed into law on
May 20, allows FHA to give qualified FHA-insured borrowers the
opportunity to reduce their monthly mortgage payment by modifying the
mortgage through FHA-HAMP. FHA released the program's implementation
guidelines today. FHA expects all servicers to implement the changes by
August 15. The program permanently reduces a family's monthly mortgage
payment through the use of a partial claim, which defers the repayment
of mortgage principal through an interest-free subordinate mortgage
that is not due until the first mortgage is paid off.

FHA has used the partial claim option in the past, which allows a
lender to advance funds on behalf of a borrower, to reinstate a
delinquent loan that was up to 12 months delinquent. Now, this program
will allow HUD to bring the borrower's payment down to an affordable
level. This will be accomplished by bringing the mortgage current,
buying down the loan by up to 30 percent of the unpaid principal
balance and deferring these amounts in a partial claim.

FHA will pay an incentive to loan servicers for each FHA loan modified
under this program. A Mortgagee Letter, along with detailed
requirements for the FHA-Home Affordable Modification Program, was
distributed to all FHA lenders today. The implementation of this
program will further the Obama Administration's efforts to stabilize
the housing market by helping homeowners to stay current on their
mortgages and stay in their homes, therefore preventing the destructive
impact of foreclosures on families and communities.

Making Home Affordable, a comprehensive plan to stabilize the U.S.
housing market, was first announced by the Obama Administration on
February 18. More than 200,000 trial loan modifications are already
underway, tens of thousands of refinancings have closed, and
informational mailings about the program have been sent to more than
one million borrowers who may be eligible.

FHA borrowers who are experiencing difficulty making their mortgage
payments should contact their loan servicer or HUD's National Servicing
Center at (888) 297-8685 to determine if they qualify for the FHA-Home
Affordable Modification Program. The Mortgagee Letter, with detailed
information about the program, is available on the HUD website. Non-FHA
borrowers can find information about the Obama Administration's Making
Home Affordable program at www.makinghomeaffordable.gov.

HUD News Release 09-137

Related posts:

1. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
2. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
3. FHA Unveils New Plan to Let Home Buyers Use $8,000 Tax Credit Upfront as a Downpayment

I find it utterly amazing that Patterson credits New York’s 23% decrease in foreclosures in 1st Quarter 2009 as compared to 1st Quarter 2008 (compared to a 24% increase nationally) to his New York Foreclosure Prevention & Lender Responsibility Act of 2008 where the credit should lie in New Yorkers’ steadfast resolve to be represented by attorneys for the biggest transactions of their lives.

While politicians continue to churn out legislation after legislation eliminating borrower choice, capitalism and so forth, perhaps the Department of Justice’s position that lawyers create an unfair monopoly in the area of real estate closings should be revisited as the lawyers are the only ones out there who can preserve our freedom to choose and protect the average American from being misled into a toxic mortgage. 

New York Governor Wants Stronger Mortgage Protections
Carrie Bay | 06.15.09

New York Gov. David A. Paterson has proposed legislation that would build upon the state’s subprime lending reform law enacted last year. The measure centers on providing additional protections for homeowners and tenants, establishing safeguards against foreclosure rescue scams, and preventing urban blight caused by foreclosed homes.According to Paterson, more needs to be done to prevent predatory lenders from taking advantage of New Yorkers. He also says lawmakers can no longer allow tenants who live in foreclosed properties to find their leases terminated without reasonable notice, nor can they let struggling homeowners who are looking for help lose their homes to loan modification scams.

For more please read: DSNews.Com Default Servicing In Print and Online – Formerly REO Magazine

Tags: loanmodification, subprimemortgage, foreclosure, tenants, wallstreet, realestate

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. DANGER ZONE – New York Post
3. Foreclosure Defense Bar: Heads Up! Forensic Exam of TBW Mortgage Corp Loan Docs Could Be Fruitful

I have been advising everyone in the real estate industry, that New York’s Foreclosure Prevention and Lender Responsibility Act went into effect September 1, 2008 and includes, among other items, strict requirements for those who seek to perform loss mitigation on behalf of distressed home owners.  These requirements include written, notarized contracts with a right to cancel and a prohibition against collecting fees upfront except for attorneys and non-profits. It seems to me that these loan modification companies are ignoring the law at their peril.
- Kathleen A. Scanlon, Esq.

Daniel Massey November 30, 2008

Shelly Ann Bell was only a month behind on her mortgage in August, but with the interest rate scheduled to adjust upward and $4,000-a-month payments staring her in the face, she knew it would soon be impossible to keep up.

So when the 28-year-old nurse manager got a call from a man promising to help modify the mortgage on her single-family home in Springfield Gardens, Queens, it sounded like a way out of her troubles. She says she paid $2,150 to the Loan Modification Group, a Florida-based company, and was told to cease making monthly mortgage payments. She’s now five months behind, and in danger of losing the home she bought in 2007 so her 3-year-old son could grow up with a backyard.“I haven’t gotten a loan modification,” she says. “I haven’t gotten anything from them.” The company could not be reached for comment.

With citywide foreclosures up 50% over a year ago, some of the same bankers and brokers who sold unaffordable, subprime loan officers are now joining the rapidly growing ranks of mortgage modification consultants. While some members of what an online ad called one of the “fastest-growing job markets in the country” run legitimate businesses, housing advocates say many are taking people’s money and doing little or nothing in return.

The burgeoning industry has caught the attention of the FBI’s New York office and the state attorney general. At best, loan modification companies provide homeowners with a service they could get for free from their lenders or nonprofit housing counselors, says the U.S. Department of Housing and Urban Development. Frequently, they ask homeowners for thousands of dollars up front, which is illegal in 12 states, including New York, unless the fee is made to a lawyer or nonprofit. As part of the sales pitch, homeowners are often advised to stop making mortgage payments, putting their homes in further jeopardy of foreclosure.Often, the companies do little to facilitate an affordable mortgage modification, advocates say.

Firms bombard homeowners with mailings and phone calls; they scour public records for homeowners whose properties are in danger of being foreclosed, and they advertise on Craigslist.

“You see one here and there, and then all of a sudden you realize it’s an epidemic,” says Jessica Attie, co-director of South Brooklyn Legal Services’ Foreclosure Prevention Project. “They sound very appealing. It’s hard for people to know many are not legitimate companies.”Attorney Adam Cohen of MFY Legal Services’ Foreclosure Prevention Project, says one of his clients paid nearly $5,500 to American Modification Agency, a Long Island company that also operates as Amerimod Modification Agency. He was drawn by a flier stating that AMA was the “only company that is registered, licensed, insured and bonded to modify mortgages in the United States that has a 100% success rate and money-back guarantee.”That cloak of professionalism is misleading, as there is no way to be licensed as a mortgage modification consultant, Mr. Cohen says. And AMA not only failed to produce an affordable modification for his client, but it also caused the client to fall $30,000 behind on his mortgage by telling him not to make his payments, Mr. Cohen says.

John Schaefer, an attorney for AMA, says the client was already substantially behind in his payments and that the company was able to facilitate a modification within 22 days, which the client reneged on. As for the claims in the flier, an AMA spokesman says the agency had “no record of authorizing or authenticating” the leaflet.

The company, which claims to have 400 agents, has raised concern among officials in New Jersey, where the Mercer County clerk recently issued a consumer alert that AMA purported in phone solicitations to be working with the clerk’s office.Law enforcement agencies are zeroing in. The Illinois attorney general last month filed seven lawsuits against modification firms that failed to negotiate workouts for clients. And the Colorado attorney general has filed 15 cease-and-desist orders against such companies.In New York, Attorney General Andrew Cuomo’s office is reviewing complaints, a spokeswoman says. The FBI’s New York office is also investigating.“We are aware of it and are working diligently to address the issue,” says Supervisory Special Agent Rachel Rojas. “This is a new scheme, and we assume it’s going to get worse.”

Free | Crain’s New York Business

Tags: loanmodification, subprime mortgage, American Modification Agency, foreclosure, New York law,

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. Foreclosure Defense Bar: Heads Up! Forensic Exam of TBW Mortgage Corp Loan Docs Could Be Fruitful
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Kathleen Pender Sunday, November 16, 2008

Should you keep paying your mortgage?

If you have significant equity in your home, absolutely. Are you an idiot to keep paying your mortgage? If you don’t, it’s getting harder to answer that question, especially when our government keeps giving people who owe more than their homes are worth so many reasons not to pay.

Last week, the government announced a program that will substantially lower payments for many homeowners who have little or no equity, but only if they are at least 90 days delinquent. Critics say the plan, which applies to loans owned or guaranteed by government wards Fannie Mae and Freddie Mac among others, could encourage people to suspend payments.

But what about the moral obligation to pay off a debt?

Elected officials have been chipping away at that by blaming the foreclosure crisis largely on predatory lenders. In a campaign fact sheet, President-elect Barack Obama says he “recognizes that the real victims in the subprime mortgage crisis are not the lenders, but the millions of borrowers who followed the rules and whose only crime was taking out mortgages that lenders told them they could afford.”

Last year, Congress started removing some financial hazards of default when it passed a bill that temporarily waives the income tax on mortgage debt that is canceled when a homeowner is foreclosed upon, sells a home for less than the remaining debt (a short sale) or gets a loan modification that reduces the principal balance. The tax waiver originally applied only to debt on a primary residence canceled in 2007, 2008 or 2009. Last month, in the bailout bill, Congress extended the waiver until 2013. There are exceptions: The waiver applies only to debt that was used to buy or improve a primary residence. If you took out a home-equity loan or did a cash-out refinance to buy a car, you’ll still owe tax on that debt if it is canceled. For state income taxes, California has partially conformed to the federal law, but only for debt canceled in 2007 or 2008. (For more details, see my April 24 column at www.sfgate.com/ZFJS.)

The Federal Housing Administration is offering two programs to help homeowners get more-affordable mortgages, FHA Secure and Help for Homeowners. Neither requires borrowers to be current on their payments.The program announced Monday goes a step further by requiring homeowners to be late. The Streamlined Modification Program, sponsored by the government agency that oversees Fannie Mae, Freddie Mac and 27 loan servicers, promises to swiftly reduce payments for certain homeowners who appear to be on the verge of foreclosure. How to qualifyTo qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 percent of the home’s value. It’s fine if you owe more than it’s worth. Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies .If you meet these requirements and can document your income, your servicer will reduce your monthly mortgage payment – including property taxes, insurance and association dues – to 38 percent of your gross income.The reduction can be accomplished in one or more ways:– Reducing the interest rate, but not below 3 percent. (The new rate, if below market, goes back to a market rate after five years.)– Extending the term of the loan up to 40 years.– Reducing the principal on which monthly payments are calculated. Unpaid principal is added to the loan balance and due when the homeowner sells or refinances. The reduced interest payments never have to be repaid.

If you owe more than the home is worth, the plan will only reduce principal down to 100 percent of market value, according to an official for the Federal Housing Finance Agency, which supervises Fannie Mae and Freddie Mac.If all three of these maneuvers can’t reduce your payments to 38 percent of income, you won’t get a fast-track modification but could still request a customized deal, says the official, who spoke on the condition of anonymity. The streamlined process looks only at income, not assets. If you refinanced your home to buy a Mercedes or own another home, you won’t be expected to sell them to pay your mortgage. Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again. “This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford. “The government is offering loan servicers $800 for every homeowner they get into the plan. Schiff predicts that loan agents “will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan. “To prevent fraud, the government says a borrower “must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification.

“The housing agency official doubts that people will stop paying just to get a modification because it will hurt their credit record, and that will make it harder to get a loan and possibly a job.” Credit bureau reports are checked by employers. They’re taking a big risk missing three payments just to get a lower rate,” she says. An existing lender who sees your credit score deteriorate could also cut back on your credit and possibly raise your rate.

Credit score impact

Risking your credit score for a lower rate “sounds like a game of chicken on the lending highway,” says Craig Watts, a spokesman for Fair Isaac, which markets the FICO credit score.A 90-day delinquency will hurt your score, but not as badly as a foreclosure. How many points it takes off depends on other things in your credit file, such as the number and severity of late payments on other accounts.In the latest version of FICO, which is just being rolled out, “one isolated delinquency will do less damage to your score than it has in the past,” Watts says. Consumers who suffer a severe delinquency can rebuild their scores over time by paying all credit accounts on time and keeping their balances low.

 ”If it was me and I was certain that I could keep my home even after missing a couple payments by working out a deal with the lender, I’d be for keeping the home,” Watts says. “Your score will bounce back.”Schiff predicts that many homeowners will reach that conclusion and that the new program will cost Fannie and Freddie far more than expected. Although the mortgage giants are under a government conservatorship, the housing agency official says that any losses under the program will not be paid for by taxpayers unless Fannie and Freddie exhaust their reserves.

Are you an idiot to keep paying your mortgage?

Tags: loanmodification, FHA, subprime, mortgage, equity, real estate, Fannie Mae, Freddie Mac

Related posts:

1. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
2. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
3. Foreclosure Defense Bar: Heads Up! Forensic Exam of TBW Mortgage Corp Loan Docs Could Be Fruitful

July 22, 2008 – CMPS Institute

 “There are two main issues that need to be addressed regarding the problems being experienced by Fannie Mae and Freddie Mac,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.

Issue #1 – Short-term crisisFannie and Freddie currently purchase a whopping 68% of all new US home mortgages compared to 45% one year ago. This means that if they fail, nearly 70% of US home buyers would be unable to qualify for financing. “The declines in home prices we are currently experiencing would pale in comparison to the rapid free-fall in home values that would result if 68% of home buyers suddenly found themselves without funding options,” said Nicholas.The carnage in the real estate markets wouldn’t be the only crisis facing consumers. Wall Street investors, financial institutions, mutual funds, foreign governments and wealthy foreign investors have long considered their investments in Fannie Mae and Freddie Mac to be super-safe. The turmoil currently being faced has totally hammered the asset values of Fannie and Freddie and put downward pressure on both their bond and stock prices.“Accounting rules require financial institutions to reassess the value of their investments based on current market prices,” said Nicholas. “Every time asset prices fall, financial institutions need to raise more money to maintain their minimum capital requirements.” The downturn in Fannie and Freddie stock and bond prices has the potential to cause upheaval in financial markets across the world. “This pressure to raise funds and meet capital requirements creates a downward spiral in prices forcing financial institutions to continually sell even more assets into an already depressed market,” said Nicholas. “A bad situation quickly becomes even worse – this is exactly what has been happening among financial institutions since the credit crisis began in July 2007.

”Issue #2 – Long-term policyFannie Mae was created in 1938 as a government agency with a mission to buy mortgages from banks and issue bonds on the bond market using the pool of mortgages as collateral for the bonds. This process was designed to add liquidity to the mortgage marketplace and supply banks with extra funds that could be used to allow more Americans to buy and own homes. Fannie Mae became so successful and profitable that in 1968, the government decided to spin it off into a private, shareholder-owned company. In 1970, the government chartered Freddie Mac as another private, shareholder-owned company to provide some competition to Fannie Mae and further add liquidity, stability and affordability to the housing market. Since then, the companies have grown so large that they own or guarantee roughly half of all mortgages in the United States.The main issue being faced by government officials today is whether it is wise or viable to have US taxpayers support the risky business practices of for-profit companies like Fannie Mae and Freddie Mac. Interestingly enough, Fannie and Freddie do not wish to be completely privatized. They have spent over $170mm on government lobbying activities since 1998. “Their preferred status and insider ties to the government have resulted in record corporate profits when times were good and a taxpayer-funded safety net when times are bad,” said Nicholas. “Just because the companies engage in a business that benefits the public, doesn’t mean that they deserve to be fully backed by taxpayers and the federal government.

”Nicholas and the CMPS Institute are among the growing number of individuals and institutions that have called for completely privatizing Fannie and Freddie and eliminating their ties to the government. “Breaking up the companies and completely privatizing them may very well be a viable long-term solution that could prevent a crisis of this magnitude from occurring in the future,” Nicholas said. “The delicate balance here is not to sow the seeds of next crisis while simultaneously preventing a full-scale meltdown of the US housing market and financial system.”Members of the press can learn more about Fannie Mae, Freddie Mac and other current events in the mortgage industry by attending the upcoming CMPS event in New York City, July 28-30, 2008. The main presenter will be CMPS Institute Chairman Gibran Nicholas, and there will be a special real estate market forecast delivered by Dr. Lawrence Yun, chief economist of the National Association of Realtors. The entire event is open to the press, who can request complimentary attendance by registering here: http://www.cmpsinstitute.org/public/forecastAbout CMPS Institute: CMPS is a training, examination, certification and ongoing membership program for financial professionals who provide mortgage and real estate equity advice. Recognized for its preeminence within the industry, the CMPS curriculum represents the core knowledge expected of residential mortgage advisors regardless of the diversity of specializations within the industry. Over 5,500 financial professionals have gone through the program since its launch in 2005. For more information or to find a certified professional near you, please visit www.CMPSInstitute.org or call 888.608.9800.CMPS Institute by Josephine Nicholas, Ann Arbor-MI

Fannie and Freddie – What Went Wrong and Can It Be Fixed?

Tags: FannieMae, Freddie Mac, lending, mortgage, crisis, foreclosure, real estate

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YouNewsTV™Story Published: Jun 18, 2008 at 8:36 PM MDTStory Updated: Jun 18, 2008 at 8:36 PM MDTBy Associated Press SEATTLE (AP) – Washington Mutual Inc. said Wednesday it would stop offering two types of complex mortgage products as part of a shift in its mortgage business, as it works to deal with the fallout from the subprime mortgage mess.The nation’s largest thrift said it would no longer offer negative amortizing loan products, and will also end its WaMu Mortgage Plus loan.

Negative amortization happens when a payment on a loan does not cover the interest due, and the amount of interest owed is added to the principal balance, increasing the size of the loan.WaMu Mortgage Plus loans were mortgages with built-in lines of credit and flexible payments.Washington Mutual also said it is adding $1 billion to its borrowers’ assistance program, developed in 2007 to help people with subprime mortgage loans stabilize their finances and avoid foreclosure.In aftermarket electronic trading, Washington Mutual shares fell 10 cents to $6.16, from their regular session close at $6.26.

Washington Mutual to end 2 complex mortgage types

Tags: subprime, mortgage, Washington Mutual, WAMU, negative amortization

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