Stay and Fight or Walk?

Troubled home loans continued to mount in the nation's banks in the third quarter as even once-solid borrowers increasingly fell behind on their mortgage payments.

For the first quarter ever, the number of homes in foreclosure with mortgages serviced by U.S. national banks and savings and loans topped the 1-million mark, according to figures released Monday by the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

The percentage of prime borrowers whose loans were 60 or more days past due doubled from the July-to-September period a year earlier. And more than half of all homeowners whose payments had been lowered through modification plans defaulted again.

The report, which covers about 34 million loans, or about 65% of all U.S. mortgages, underscores the obstacles to strengthening the nation's rickety housing market. Stubborn unemployment is making it tough for millions of homeowners to pay their debts. In addition, many people whose monthly installments have been lowered still are unable to keep up with their payments.

Of the mortgages serviced by national banks and thrifts, only 87.2% were current and performing. It was the sixth straight quarter that the quality of those home loan portfolios had slipped.

"Mortgage performance continued to decline as a result of continuing adverse economic conditions including rising unemployment and loss in home values," the report said.

Seriously delinquent mortgages -- loans 60 or more days past due and loans to delinquent borrowers who have filed for bankruptcy -- rose to 6.2% of the servicing portfolio. That's a 16.7% increase over the second quarter and a 73.8% increase from a year earlier, the report said.

Of those seriously delinquent loans, the number of homes in the foreclosure process reached 1.09 million, about 3.2% of all the loans surveyed.

The report highlighted some troubling trends as the housing market continues to struggle despite increasing sales and prices in many areas. Difficulties increased for holders of prime mortgages, with the percentage of those loans that were 60 days or more past due increasing to 3.2%, up almost 20% from the second quarter and more than double the rate of a year earlier.

-Christopher Rockey

FACS Endorses Moratorium

Fannie Mae and Freddie Mac will suspend foreclosure evictions from December 19, 2009 through January 3, 2010. To help struggling families over the holidays, both owner-occupants and tenants living in properties foreclosed upon by Fannie Mae will not be evicted. Freddie Mac's suspension of evictions will be limited to properties up to four units.

In a similar move, Citigroup Inc. will suspend foreclosure sales and evictions for 30 days through January 17, 2010 for loans it owns. Citigroup's foreclosure moratorium, however, does not extend to loans it services on behalf of other investors. Given these developments, other lenders may follow suit, so check with the lender if appropriate.

I believe we can expect several lenders to follow suit in fact. The Moratorium Christmas rumor has been around for months now. I think it's a great move to not have the sheriff throw someone out of their home on Christmas Eve. By the way, it's a very voter initiative also.

-Christopher Rockey

FACS agrees on High Priced Homes

Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

“The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9 million property marketed as a short sale because the price is less than the mortgage, leaving the bank with a loss. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”

Payments on about 12 percent of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7 percent a year earlier.

As defaults on the biggest mortgages rise, borrowers such as Steve Holzknecht are turning to short sales to exit loans that now are larger than the market value of the house. In such a transaction, the lender agrees to accept less than a 100 percent payoff on a mortgage to expedite the property’s sale.

Holzknecht, 53, last month cut the asking price for his 7,280-square-foot home in Kirkland, Washington, by $550,000 to $1.25 million, lower than the balances of his two mortgages. Holzknecht, the former owner of Four Suns Inc., a Seattle luxury homebuilder that went out of business two months ago, constructed the Craftsman-style home in 2000. He declined to identify his lenders or the amount he owes.

Common Plight

“It’s not uncommon to see this situation on the high end of the market -- homes selling for less than it would cost to build them,” said Holzknecht’s agent, Joe Flick of Roanoke Group in Seattle. The property came on the market eight months ago priced at $1.85 million, he said.

Porter Michael Peterson, a 33-year-old linebacker for the National Football League’s Atlanta Falcons, bought a mansion near Tampa, Florida, four months ago for $1.1 million -- almost half the amount of the mortgage taken out by the sellers three years earlier, according to real estate records. Reggie Roberts, a spokesman for the Falcons, didn’t return a call seeking comment.

Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn’t break out short sales by size of mortgage.

Upside Down Mortgages

“You are just starting to see the tip of the iceberg with luxury short sales,” said Adrian Heyman, owner of Property Advisors, a real estate broker in Scottsdale, Arizona. “A lot of wealthy people are upside down in their mortgages and they just can’t afford the second or third vacation home anymore.”

There are 114,000 home loans of more than $1 million, according to First American. About a quarter of all mortgaged homes in the U.S. have loan balances bigger than their current value, known as being upside down or underwater, the data company said.

The Dow Jones Industrial Average lost more than half its value as it tumbled to a 12-year low in March. The number of U.S. households with a net worth of more than $1 million, not counting primary residences, fell to a five-year low of 6.7 million last year from a record 9.2 million in 2007, according to Spectrem Group, a Chicago-based consulting firm.

The financial-services industry was among the hardest hit by the recession. While Goldman Sachs Group Inc. set aside a record $16.7 billion in the first nine months of the year for employee bonuses, some Wall Street executives will see pay cuts, according to Johnson Associates Inc., a New York-based compensation-consulting firm.

Distress

Year-end bonuses for people at hedge funds, asset- management firms and insurance companies probably will drop an average 20 percent, the firm said.

“There’s a lot of distress,” said Tracy McLaughlin, co- owner of Morgan Lane Real Estate in Ross, California, north of San Francisco. “You have hedge-fund guys whose funds evaporated and a year-and-a-half later they’re still not working.”

The entry-level segment of the housing market was aided this year by an $8,000 first-time buyers tax credit that pushed resales to a 6.1 million annual pace in October, the highest since February 2007, the National Association of Realtors said in a Nov. 23 report.

President Barack Obama signed a bill last month extending the program into next year. The new version keeps the first-time buyer benefit and makes a smaller credit available to some move- up buyers. It can’t be used for homes priced above $800,000.

Luxury Market Left Out

The Federal Reserve set out in January to lower fixed mortgage rates by purchasing $1.25 trillion of bonds backed by home loans. The 30-year fixed rate for so-called conforming loans that can be bought by Fannie Mae and Freddie Mac dropped to an all-time low of 4.71 percent in the week ended Dec. 4, according to McLean, Virginia-based Freddie Mac, the second- largest U.S. mortgage financier. The rate rose to 4.81 percent last week.

The Fed purchases haven’t affected the high end of the market because they exclude so-called jumbo loans. Mortgages above the $729,750 limit set by Congress for the nation’s highest-priced markets cost almost 1 percentage point more than conforming loans, according to Keith Gumbinger, vice president at HSH Associates, a mortgage-data company in Pompton Plains, New Jersey. That’s quadruple the historic spread.

“There is no refinance market for you if you are underwater and outside the Fannie and Freddie framework,” Gumbinger said. “High-end neighborhoods are all suffering from the same problems of diminished income at a time when there is little equity to work with.”

Trapped by Market

Masoud Bokaie, co-founder of engineering firm BORM Associates Inc. in Irvine, California, owes $2.6 million on a 3,664-square-foot house with marble floors and granite counters about 10 miles (16 kilometers) away in Newport Beach. He’s waiting to hear whether lenders Luther Burbank Savings and Wells Fargo & Co. will approve a short sale.

He received an offer last month “close to” the loan balances, said Shirley Cameron, his agent at Coldwell Banker Platinum Properties in Irvine, who declined to specify how much. Bokaie said he doesn’t want to pay $7,000 a month in net costs including the property’s mortgages and taxes when real estate values in the area continue to tumble.

“What’s the point when the market is going in the other direction?” Bokaie said in an interview.

The U.S. median home price was $173,100 in October, 25 percent lower than its July 2006 peak, according to the National Association of Realtors. Prices fell 7.1 percent from a year earlier, the slowest pace of the year.

More Declines Expected

“The reason the low end stopped falling is because the government stepped in with affordable loans,” said Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm that runs the world’s largest bond fund. “There is no political will to bail out a million-dollar house.”

Luxury home prices probably will drop another 5 percent before reaching a bottom in September 2010, according to Sam Khater, senior economist at First American.

Those declines may lead to losses on jumbo mortgages that dwarf the “haircut,” or discount to full value, that banks take on short sales or foreclosures of moderately priced homes, said Rodriguez, the agent with JM Group in Miami.

“When the bank takes a loss on a $3 million property it’s a lot bigger than the loss on a home with a $150,000 mortgage,” Rodriquez said.

I have said it a thousand times now and I will continue to say it. Any Lender big enough to give your clients everything they want is certainly big enough to take away everything they have. A mortgage on a high priced home three years ago for three million dollars is now only worth one million. They do a Short Sale like they should, make sure you are getting them 'Full Settlement Language' against any further potential recourse. We have clients all the time that think letting the home go to foreclosure will satisfy the exposure to deficiency. Not true I will say this, I would rather have the common exposure to a forty thousand dollar deficiency than a couple million. Short Sale or foreclosure in many states. That could potentially be catastrophic to the financial future of a seller for years to come.

-Christopher Rockey

-Christopher Rockey

Loss Mitigation and FACS

The Treasury Department has started dispatching what it calls foreclosure "SWAT teams" to big banks to take a hard look at their operations.

The administration says it is cracking down on mortgage companies that aren't doing enough to implement President Obama's program to prevent foreclosures. The government hopes to help 3 million to 4 million people. But many economists say the program is stumbling, and that greater oversight is needed.

About 750,000 people have had their mortgage payments reduced so far through the president's Making Home Affordable plan. But the vast majority of those people — more than 95 percent — are just in the temporary trial stage of the program. Meanwhile, the foreclosure crisis remains one of the biggest threats to the economy.

One judge publicly announced "The behavior of these lenders are similar to the behaviors we saw with early century Gangsters." With that said all involved in these transactions run into several frustrations. It is important for Real Estate professionals especially working on Short Sales never loose their professionalism. Loss Mitigation is very much an art rather than a science this is truly a people business.

-Christopher Rockey

FACS Certification

“FOR IMMEDIATE RELEASE”

Mortgage Resolution Services Introduces a National Foreclosure Alternative Certified Specialist designation for Realtors®

SACRAMENTO, CA. – Mortgage Resolution Services, the nation’s pre-foreclosure solution and Short Sale experts (www.mrseducation.com), and subsidiary of Fidelity National Financial (NYSE: FNF) has announced the creation of a Foreclosure Alternative Certified Specialist (FACS) designation for Real Estate professionals. The FACS designation will allow professionals to move short sale opportunities forward more quickly, avoiding time consuming and potential deal ending delays and missteps. Through the course participants will learn key short sale expectations and points of negotiation established by lenders. FACS will also assist professionals in expanding their abilities to help the over 3.9 million homeowners currently in default with selling their homes through short sale proceedings avoiding full-scale foreclosure.

“Short sales are very much an art not a science,” says Scott Thompson, founder of Mortgage Resolutions Services, a national expert on the subject of short sales, and one of two instructors in the FACS course. “The key is mastering the rules and expectations of the lenders, and then learning how to structure the sales for rapid approval. The FACS course teaches real estate professionals how to do this – efficiently and effectively.”

The FACS course will be held in major metropolitan cities throughout the nation during 2010. The cost for the one day course is well below other short sale courses available in the market, but the content is significantly superior. “Our FACS course is the most current and unique short sale education available,” says Christopher Rockey, Mortgage Resolutions Services, Director of Education, “because the course is always adapting. We work with lenders negotiating and closing short sale transactions on a daily basis. The FACS participants are the beneficiaries of this constant interaction and experience.”

Those Real Estate Professionals certified with the FACS designation will experience a turning point for their careers. With foreclosure filings exceeding over 300,000 for the ninth straight month, the landscape of the real estate market is changing and the knowledge needed for real estate professionals to be successful is clear. The FACS course is comprised of the best material needed to teach the highest level of pure short sale strategy and execution available in the market. For more information or to register for the FACS course please visit www.mrseducation.com.


Mortgage Resolution Services, Inc. provides a full range of services to the real estate community, all designed to support the efforts of brokers and agents working with homeowners overburdened with mortgage debt. MRS provides education, coaching and a comprehensive short sale processing services to help real estate professionals who are seeking to adjust their business plan to account for current market conditions.

Fidelity National Financial, Inc. (NYSE:FNF), is a leading provider of title insurance, specialty insurance, claims management services and information services. FNF is the nation's largest title insurance company through its title insurance underwriters - Fidelity National Title, Chicago Title, Commonwealth Land Title, Lawyers Title, Ticor Title, Security Union Title and Alamo Title - that collectively issue more title insurance policies than any other title company in the United States. FNF also provides flood insurance, personal lines insurance and home warranty insurance through its specialty insurance business. FNF also is a leading provider of outsourced claims management services to large corporate and public sector entities through its minority-owned subsidiary, Sedgwick CMS. FNF is also a leading information services company in the human resource, retail and transportation markets through another minority-owned subsidiary, Ceridian Corporation. More information about FNF can be found at www.fnf.com.

-You saw it here first!

FACS Flipping Warning

We at FACS (Foreclosure Alternative Certified Specialist)have no intention to be on our soap box or to tell agents what they can or cannot do. Within the last year there has been a dramatic increase of ‘Option contract’ flipping. The good news is that yes option contracts are legal. The bad news is that an option contract is not good for anyone beyond the middle man investor. Option contracts expose a seller to a higher liability of recourse debt and could exploit a homeowner to greater tax related penalties. BEWARE of the legal and especially the ethical issues in option contracts I assure you staying away from them is the wisest way not to be sued by a past client. Besides I have had Cracker Jack box attorney’s tell me they would be more than happy to take any option contract case pro bono.

Flipping houses is becoming big business in the world of real estate investment. Unfortunately it takes all kinds of ‘flippers’ to make the world go around and some of them aren’t nearly as conscientious as others. If you are going to get into the business of flipping houses and want to make a living, and build a good reputation, for producing quality results you need to see to a few details throughout the process.

1) Do what needs to be done. Don’t cut corners and create situations that will put the family that purchases your home in personal or financial risk. You want to create a safe home for the family or person that ultimately makes the purchase. You do not accomplish this by taking shortcuts and using shoddy workmanship.
2) Avoid spending money that doesn’t need to be spent. By this I mean don’t spend money creating more work. Many people do this by deciding to tackle additions, rip out walls, or changing floor plans. These kinds of changes are best left to the buyer unless they will significantly improve the asking price you can bring in on the house. Otherwise spend the bulk of your money in kitchens and baths where they are best known for bringing in bigger profits.
3) If it ain’t broke don’t fix it. There is a lot of wisdom in this age-old saying. There is no reason to go in and fix something that doesn’t need to be fixed unless doing so will improve the value of the house to its buyers.
4) Always work within a budget. Most people set a budget when planning to flip houses but very few manage to work within that budget. This is the difference in making the profits you anticipated and putting the entire project at risk.
5) Create a home that the buyer will want to live in not the home that you will want to live in. You should never flip a house or design a flip according to your tastes; it is a recipe for disasters in more ways than one. First of all, it is unlikely that buyers will be able to afford it. Second, it sets you up for hurt feelings if a potential buyer rejects any small details. Third, it often raises the price you must seek for the property in order to cover the increased costs of decorating and designing according to your taste. Finally, it often leads to unnecessary expenses, which defeats the purpose of a quick flip type of project.
6) Time is money. Remember this in all things. The more time it takes to do the flip the more money it’s going to cost and the less money you are going to make. Plan small changes that have a big impact and can be done quickly to get the most out of your flip.
7) Never attempt a champagne flip unless you have a champagne budget to back it up. Just as flipping above the market is an unwise move it is equally unwise to flip a property beneath your target market as well. Do not attempt to flip a house in an upscale neighborhood if you can’t manage the upscale building supplies and appliances that will be needed in order to make it a success.

While these aren’t guarantees for success they are solid advice that will minimize the risks you face when flipping properties.

Keeping an ethical head will greatly reduce your personal exposure to legal issues and your reputation will be such that your investor pool should greatly increase.

-Christopher Rockey

FACS May Disagree

Stop paying your mortgage.

That's the underlying message from a University of Arizona law professor, whose new paper is hitting a nerve as the nation's housing crisis enters its fourth year.

Brent White denies advocating walking away from a mortgage that is bigger than the value of a home. Nonetheless, he lays out a case of how it can be done, and his suggestions have gone viral, popping up online, in newspapers and on television.

White is hardly first to talk about the idea of walking away from a mortgage that is bigger than the value of a home. Nonetheless, his suggestions have gone viral and are popping up online, in newspapers and on television.

It's a move that can save some people money, but at the expense of wrecking their credit.

The topic is central to what's crippling the housing market: About one in four homeowners, or 10.7 million Americans, are considered underwater, meaning their mortgage exceeds their home value, according to real-estate information company First American CoreLogic.

In the markets hardest hit by the nation's housing bust — Florida, Arizona, California, Michigan and Nevada — the share of homeowners who are underwater is 40 percent.

"Millions of Americans would be better off financially if they did walk away," says White, who authored the paper "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."

What White is saying goes against everything that we've been taught about contracts. If you make a mortgage commitment, most people think you have a responsibility to pay.

On top of that, White suggests those who decide walk away should consider getting a new car or house before they default on their mortgage, which will constrain their credit.

Mr. White, here is my question to your cavalier media seeking agenda. While standing by your name as a Professor, aren't you advising clients to walk away from debt that may hold recourse? Mr. White may not be familiar with all the facts of recourse debt even in his own state of Arizona which is commonly mistaken as an anti deficiency state. In Arizona they have a unique definition of purchase money to any other state. Lenders only have recourse on non purchase money which can be defined in Arizona exclusively as 'Cash Out.' With that said, if there is a potential for recourse (Arizona also carries a 2.5 acre property recourse law) and Professor White is advising homeowners to walk away? I believe because of the nature of his job status he may be taking a huge public liability. Of course we should show some sense of forgiveness, after all he is only an ASU professor.

Just teasing Sun Devils! I wish you all the luck, Foreclosure Alternatives are always the way to go!

-Christopher Rockey

Your FICO Score

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The "damage points" data, unveiled recently by FICO, are part of the most revealing glimpse into the firm's once-secret -- and still mysterious -- credit scoring model. The new information discloses how many points borrowers' scores will drop when they make the most-common mistakes.

'Help People Understand' Scores

"I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble," says FICO spokesman Craig Watts. "Getting and maintaining a good score isn't complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. "



The greater transparency about FICO scores is important because American consumers' ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit. Other companies also offer scores, but FICO's version is the most widely used by lenders in determining whether a consumer can borrow, and at what rate.

FICO's credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they're figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The "damage points" information, revealed in a report by personal finance writer Liz Pulliam Weston, will be made available through its myFICO.com Web site starting this weekend.

FICO's information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).

Those with good or excellent credit -- so-called prime borrowers -- put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score -- 780 -- that same delinquency can send a FICO score tumbling by 90 to 100 points.

If you earn your FACS certification as a Real Estate Professional you get a hand out showing what the three major credit Bureaus told me in a face to face interview specifically on the topic of Short Sale's.

-Christopher Rockey

Defaulting on Your Mortgage? Is Your Agent FACS Certified?

Due to the national mortgage failure rate there are several alternatives available to homeowners to avoid Foreclosure. If you are considering a Short Sale make sure your agent is FACS Certified. The Foreclosure Alternative Certified Specialist is the highest level of Short Sale education in the country according to Fidelity National Financial. Beyond Short Sale's, the agent's who have earned FACS will have a superior knowledge of Loan Modification, Short Refinance, and several other options.

Activity in Fannie Mae’s portfolios declined according to most metrics during the month of October as compared to September. Delinquency rates reported, however, continued to increase.

In their monthly summary, Fannie Mae reported the corporation’s Book of Business declined at a compound annualized rate of (3.1) percent during the month. The current Book of Business is $3.23 trillion, an increase 4.8 percent thus far in 2009.

The retained portfolio declined 27.8 percent to $771.5 billion during October. The portfolio has declined 2.4 percent thus far in 2009. The principal decline was in non-Fannie Mae Agency Securities which dropped from $60.6 billion to $49.4 billion. Mortgage loans increased by about $5 billion and non-Agency securities decreased a little over $5 billion. Fannie Mae, along with Freddie Mac is mandated to reduce its portfolio by 10 percent a year beginning in 2010 until the portfolio of each corporation reaches $250 billion.

It is imperative for agent's to know they have no choice but to be in the default market if they are planning to do Real Estate over the next ten years. The Foreclosure Alternative Certified Specialist (FACS) designation should be mandatory for Real Estate Professionals.

-Christopher Rockey

Why You Need to Earn the FACS Certification

Option-ARMs: File under, "It sounded good at the time."

These exotic mortgages allowed homebuyers to come to closing with little cash and choose, monthly, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due.

Of course, the last option is the one 93% of option-ARM buyers selected, according to a new report released this week by Standard & Poors.

But eventually, everyone has to pay the piper.

Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating. And many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become standard amortizing loans. Additionally, some newer loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.

That means borrowers are about to start paying very hefty prices for their homes. In one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.

25% default rate
But that doesn't just spell bad news for borrowers. Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report's coauthors.

And the newer the loans, the worse they will perform, the report said. The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.

That includes all option-ARMs issued in 2007. But if you calculate default rates for only 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.

So, while there may not be an awful lot of these loans out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.

Bubble markets
And the markets where they'll produce the most foreclosures are still among the most vulnerable in the nation.

Option ARMs were most popular in bubble markets -- California, Nevada, Florida and Arizona -- where double digit home annual price increases put the cost of buying a home out of reach.

In fact, 60% of these loans went to residents of California and other Western states, places where prices have fallen the most, according to report coauthor Diane Westerback. "The geography is negative for these products," she said.

Many borrowers in these places could only afford a home if they chose the option ARM. Many counted on continued hot market conditions to add value to their homes. The extra equity could then be tapped to pay their bills.

We all know how that worked out.

Home prices in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more. When the loans recast, most borrowers will find themselves severely underwater.

"Because borrowers of [options ARMs] are in a much worse position," said Westerback. "You'll see defaults rising very rapidly."

And most option ARM borrowers will not be good candidates for refinancing or mortgage modifications because their loan-to-value ratios will be far too high. Under the administration's Making Home Affordable program, for example, mortgages with balances that exceed 125% of the home's value are not eligible for help.

Not so white lies
There is another little problem that many option-ARM borrowers seeking refinancing would face: "Upwards of 80% of were stated-income loans," said Westerback.

These are the so-called "liar loans" in which lenders did not verify that borrowers earned as much money as they said they did. Lenders may not be able to modify mortgages because many of the borrowers' income could not stand up to the scrutiny. Borrowers may also not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.

Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for disaster.

I had a conversation wit h the HR Director for Layton Construction this evening who said on the commercial side they expect 2010 to be the toughest year to get work since the great Depression. I will form an opinion on Commercial Real Estate soon but I can tell you, historical trends are pointing in a bad direction!

-Christopher Rockey

FACS

Foreclosure Alternative Certified Specialist (FACS)
In 2008 Fidelity National Financial (FNF) acquired a California based company that specializes in pre-foreclosure and Short Sale compliance. This company, Mortgage Resolution Services, since it’s FNF acquisition has had the opportunity to make a very serious place for itself in the Short Sale industry. Because Mortgage Resolution Services has an affiliation with FNF they are able have face to face appointments with lenders. These meetings are specifically made to learn the lenders language in the Short Sale process.
Mortgage Resolution Services has a unique ability to teach the lenders language and then pass that education on to Real Estate professionals. The FACS certification is specific to Short Sales but not exclusive. Because this is a foreclosure Alternative certification, we present all avenues to avoiding foreclosure including, Loan Modification, Short Refinance, High LTV refinance and others.
The FACS course is the only interactive course that requires participation from all attendees. Each student is broken into a team with one common goal much like in real life. This is also a unique teaching method rather than other certifications that bolt a desk to the ground, lock the doors and make you listen to an instructor for two days.
Mortgage Resolution Services is highly sensitive of its FACS education and only teaches very specific Short Sale strategy and execution. Because our course is the only one day Short Sale, it is fast paced a lot of fun and cost efficient.
Scott Thompson the founder of Mortgage Resolution Services who authored the FACS course has been recognized as an industry expert by National Association of Realtors. NAR has had Scott Thompson out to Washington DC on numerous occasions for national webinar education on the subject of Short Sales. Christopher Rockey, the Director of Education for Mortgage Resolution Services and the FACS certification is also a National Speaker on Short Sales.
FACS is the highest level of Short Sale strategy and execution offered for your budget as a one day course. If you are an agent interested in how to get short Sales done in a more efficient manner, specific strategies on settling with junior lien holders, how to protect commissions and interested in depth training on Risk Management, FACS should be highly considered as the training course for you and your team of Real Estate Professionals.

FACS

Media Advisory

“FOR IMMEDIATE RELEASE” Fidelity National Financial

Rancho Cordova, California www.mrseducation.com

November 24th, 2009 916.631.6180


Fidelity National Financial Implement’s National Pre-Foreclosure Compliance Course for Realtors®

SACRAMENTO, CA. – Fidelity National Financials pre-foreclosure solution and Short Sale arm known as Mortgage Resolution Services (www.mrseducation.com) has announced the Foreclosure Alternative Certified Specialist, FACS designation for Real Estate professionals today on a national platform. Mortgage Resolution Services is a national Short Sale processing center located just outside of Sacramento California.

Scott Thompson the founder of Mortgage Resolution Services is considered a national expert who has already been sought out nationally for expert advice on the subject of Short Sales. Thompson will be one of two instructors who was recently quoted in Time magazine saying “Short Sale’s are very much an Art not a Science.” Christopher Rockey, Director of Education for the FACS certification is recently quoted as saying “It’s important for the Realtor® to know that any lender big enough to give their clients everything they want is certainly big enough to take away everything the homeowner has.”

The FACS course will be unique to any other course because of the affiliation Mortgage Resolution Services has with FNF. Tom Bolinger, twenty year FNF employee heads up Mortgage Resolution Services and is quoted as saying “Our FACS Course and Instructors have a more unique understanding of the lenders language than the lenders themselves in some cases.” This understanding and ability to communicate that language to Realtors® will make this one day training a turning point for the careers of Real Estate professionals nationwide.

Thompson and Rockey the instructors for the FACS course, have taken part in writing Short Sale certification courses in the past. The two believe they have comprised the best of the material to bring the highest level of pure Short Sale strategy and execution on the market.

Please note for registration information please go online to www.mrseducation.com
# # #

Uncle Ben

Federal Reserve Chairman Ben Bernanke has a tough road ahead.
Very tough.
Bernanke, whose four-year term expires in January, is certain to face a contentious Senate banking panel at his confirmation hearing, set for Dec. 3. He is also defending against the sharpest attack on Federal Reserve powers ever.

The latest blow came last week, when a House panel overwhelmingly agreed to tack on to must-pass regulatory reform a proposal to dig into the Fed's books, despite attempts by Rep. Barney Frank, D-Mass., to make it less intrusive.

Fed watchers say they expect that Bernanke will be confirmed for a second term as chairman. But he may get the fewest favorable votes on record - and end up at the helm of a vastly changed Federal Reserve.

"It's going to wind up to be a very different institution," said American Enterprise Institute scholar Vincent Reinhart, a former director of the Fed's division of monetary affairs. "At least on the Federal Reserve part, Congress is going to converge on something that's tougher on the Fed. It's a way to vent anger. And fundamentally people are angry."

What Congress has in store for the Fed
While many credit Bernanke for saving the economy from falling into the next Great Depression, some in Congress blame the Fed - and Bernanke - for having failed to restrain the housing bubble. Others say he has gone too far in the financial system bailouts.

Interesting to see why Mr. Frank wants such a high level of anonymity? I wonder if it has anything to do with intrusions in his own personal life?

-Christopher Rockey

Deed for Lease Program

Fannie Mae announced Thursday that it is implementing a program under which qualifying homeowners facing foreclosure will be able to remain in their homes as renters if they voluntary transfer the property deed back to the lender.

The GSE’s new Deed for Lease Program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under the program, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at market rate.
“The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Fannie Mae’s VP. “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Investor properties with tenants are also eligible for the program.

Prospective renters must show that they can afford to pay the new market rental rate and must be able to document that the rental payment is no more than 31 percent of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period.

A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

Loan Modification Failure Rate

I have spent the last several years preaching Short Sales and the importance of recognizing there significance in the market place. Now with the national changes in the political climate the 'Anti Foreclosure Parade' marches on. Here are some facts about Loan modification which I am anxious to stop writing about. It appears the HAMP program is about as significant as a Big Foot sighting!
In what it termed a "conservative projection," Fitch Ratings says 65% to 75% of securitized subprime loan modifications will fall back into default a year after modification.

The findings were included in Fitch's semiannual report on loss mitigation actions taken by servicers on securitized loans. The report, which included information from Fitch-rated servicers and data from First American Loan Performance, found that, during the first half of 2009, about 30% of modified subprime loans fell back into default by the six-month mark and about 60% redefaulted 12 months after modification.

These numbers actually understate the number of loans that fail after modification, Fitch says, because the figures do not include modified loans that were subsequently re-modified or liquidated. While the rating agency adds that the number of prime-loan modifications initiated this time last year is insufficient for Fitch to determine a 12-month trend, at six months, the statistics on prime redefaults are similar to those for subprime and Alt-A loans.

By analyzing a pool of loan modifications from the third quarter of 2008 - a pool that included prime loans but mostly comprised Alt-A and subprime loans - Fitch found that 34% of the loans are current today. Five percent are in 30-day buckets, 17% received a second modification and 8% have been liquidated. These statistics support Fitch's contention that its 65%-75% redefault projection is conservative.

In explaining why modifications may not necessarily be the best route for servicers to take with certain borrowers, Fitch warns its rated servicers against re-modifying loans for the sake of improving performance data.

"The use of multiple mods for the sole purpose of managing default statistics and advances could not only put at risk a servicer's, as well as the transaction's, ratings, but also could greatly increase the ultimate loss to the investor," the report's authors state.

Modifications as a percentage of loan resolutions (i.e., actions that result in home retention as well as those that result in foreclosure) grew in the first six months of the year when compared to the six months ending Dec. 31, 2008. Loan modifications accounted for 58.1% of residential mortgage-backed securities loan resolutions in the first half of 2009, whereas they made up only 39.6% of loan resolutions in the last half of 2008. In total, 88.5% of the loans worked by Fitch-rated servicers' loss mitigation departments between January and June 2009 resulted in workouts. For the prior six-month period, 71.4% of cases resulted in workouts.

Looking for a Loan Modification, good luck. All too many loan moods are in favor of the lender and not the consumer!

-Christopher Rockey

Does Loan Modification turn your Mortgage into Recourse Debt?

I have been asked this question several times in the recent past. I have always told Real Estate professionals that as long as the the original purchase money deed of trust is recorded on the property, the lender has no recourse. In LA last week I had a couple agents put up a very excellent argument on why the debt should become recourse. I decided to do the research beyond my own suspicion and seek the advice from a REPUTABLE attorney!

Under California law (Civil Code Section 580b), if a lender makes a loan to enable a borrower to buy a 1-4 unit property which they live in, the lender has no recourse against the borrower. They can only take (foreclose) the property. They cannot get a judgment against the borrower if the property is not worth the amount owed on the loan. This is called an “acquisition loan”. If the borrower later refinances this loan by getting a new loan, this protection is generally lost because the new loan was not obtained to acquire the property. That makes sense. But what about a loan modification?

Recently, several clients have had lenders (or collection companies) tell them that their loans became recourse because they got a loan modification. From what I can see, this appears to be false and is no doubt said in an attempt to collect some money even when there is no recourse.

The First reason that this is false is that the loan and security (deed of trust) have not changed. It is still the acquisition loan and the same date of purchase recorded security. Second, there is a rule in law called “substitution”. The substitution doctrine applies when an acquisition loan is refinanced by the lender holding the original acquisition debt. The acquisition portion refinanced retains its purchase money character and the anti-deficiency protections of CCP §580(b) apply. (Union Bank v. Wendland, 1976). Further there is legal authority that the protection extends to situations where the “beneficiary of the purchase-money loan ‘refinances’ the loan, ie: same lender, borrower, and security, but different loan amount. From these sources, it appears fairly clear that a modification will not alone convert a non-recourse acquisition loan into a recourse loan. As the court said in the Union Bank case, “…. the protections of the anti-deficiency statutes can not be avoided because of some clever paper shuffling on the part of the lender. To allow such is a circumvention of the anti-deficiency statutes.”

It was also clearly outlined to me that if the lender did try to actually seek a judgement a trial could easily be attained. With that said any first year internet attorney could win that case by illustrating the unpopular lender practices now perceived by the American public as villainous.

-Christopher Rockey

Raising the Limits

President Obama is expected to sign a resolution passed late yesterday by Congress extending the current limits for Fannie Mae, Freddie Mac, and FHA loans through 2010. The limits were set to expire at the end of this year. This is especially critical for California, where more than 80 percent of all loans are financed by Fannie Mae, Freddie Mac, or FHA, and will help maintain the positive signs we are now seeing in California’s mortgage market. President Obama is expected to sign the resolution today or tomorrow as part of a broader piece of budgetary legislation that will prevent a government shutdown.

While home prices in California have declined, the demand for housing has not. The market has been dominated by first-time home buyers who have faced a shortage of financing opportunities. The loan limits are set at 125 percent of local median home sales prices, up to a maximum of $729,750 in high-cost areas, including many regions in California. Sales in move-up and high-end markets have been constrained this year; the loan limits extension will help qualified home buyers in these markets to move forward with their purchases.

Although loan limits are safe through 2010, there is still work to be done. Congress has yet to act to extend the First Time Home Buyer Tax Credit past its current Nov. 30 expiration date. Yet the impact of the home buyer tax credit is clear: A C.A.R. survey of first-time home buyers shows that 40 percent would not have purchased a home without the tax credit.

In tandem with our efforts to extend the current loan limits, C.A.R. and NAR are vigorously working to have the soon-to-expire federal First Time Home Buyer Tax Credit extended, and we need your help.

I am asking every one of you to contact your congressional representative today. In the Senate, an amendment offered by Senators Dodd, Lieberman, and Isakson will both extend the program into 2010 and expand the eligibility requirements. The amendment has been attached to a bill that will extend unemployment insurance benefits. We expect the bill will pass the Senate and then be voted on by the House of Representatives.

Please call your Congressional Representative to urge them to support the Unemployment Extension bill that contains the home buyer tax credit. Please call (800) 961-3302 and enter your PIN number 195517903 when you are prompted to be connected to your legislator’s office.

Thank you for your help with this effort. Together, we can make a difference in Washington, D.C.

rockey@mresolution.com

FACS Foreclosure Alternative Certified Specialist

Although the FACS certification course is a national training platform, we really need to have a very specific partnership with entities that have made the right commitment to this market.

As millions of American families struggle to keep their homes not knowing where to go for help, the Northeast Atlanta Metro Association of REALTORS® (NAMAR) wants to help those homeowners learn how to avoid foreclosure and keep their home, and have launched www.UnnecessaryForeclosure.com to do so.

“The prospect of losing one's home can be overwhelming and stressful for homeowners,” says Tom O’Rourke, NAMAR's chief executive officer and executive vice president. “From predatory lending to topics like forbearance and reinstatement to short sales and where to find help that one can trust, foreclosure is a confusing and complicated process. UnnecessaryForeclosure.com provides honest, practical tips and advice in plain, easy-to-understand language.”

The Web site offers a list of nonprofit organizations dedicated to helping consumers avoid foreclosure, warning signs of predatory lenders and information on mortgages that could lead to trouble for homeowners. Detailed information on short sales and the short sale process and the tax implications of foreclosure is also available. Among the most useful pieces of information on the site is a list of common solutions that can be reached with a lender, such as repayment or loan modification. The site also offers references for consumers, which includes a series of informational brochures to educate homeowners and consumers on today's mortgage options. Lastly, the site provides information on how a REALTOR® can help. REALTORS® are in the business of homeownership, and can offer invaluable guidance and options for a homeowner in need.

“If a homeowner is behind on mortgage payments for any reason, or expecting to have problems in the near future, they should be proactive and work with experts and their lenders to find a solution now to avoid losing their home,” continues O’Rourke.

NAMAR has produced a series of videocasts to help consumers understand their options and give tips on how to avoid losing one's home. These videos can also be found at www.UnnecessaryForeclosure.com.

-Christopher Rockey

NAHREP / AAREA Las Vegas

Last week I spoke in LA for NAHREP and this week I am leaving to speak in Las Vegas. We will be rolling out our FACS certification course (Foreclosure Alternative Certified Specialist) and Scott Thompson the founder of our company and I both are on panels to speak to the public about the nature of our market and Short Sale compliance.
Hispanic and Asian Real Estate professionals and industry business leaders will convene next week at the 2009 AREAA/NAHREP Real Estate and Marketing Conference in Las Vegas to discuss the state of the current multicultural homebuyer market. Hosted by the Asian Real Estate Association of America and the National Association of Hispanic Real Estate Professionals, the meeting is one of the largest industry gatherings of multicultural real estate professionals and is expected to draw 1,500 practitioners that actively work with the underserved market.

The conference will feature 22 different sessions that include general session discussions about the state of the multicultural real estate market and practitioner-based tips workshops on topics like foreclosures, short sales, appraisals, loan modifications and more. National leaders such as FHA Commissioner Dave Stevens; Lloyd Frink, CEO of Zillow; Economists Lawrence Yun, National Association of Realtors; and Eugenio Aleman, Wells Fargo; Political Consultant Howard Glaser; Barrett Burns, CEO of Vantage Score and senior executives from Fannie Mae, Freddie Mac, Bank of America, Chase and Wells Fargo will participate in the event. Leading servicers and asset managers will also offer insights about current trends in the foreclosure market.

Asian, Hispanic and African American homeowners have been broadly impacted in the foreclosure crisis due to the high proportion of sub-prime mortgages used by them to purchase or refinance homes. Many minority neighborhoods have been devastated by foreclosure. Real estate and housing leaders will discuss strategies to help stabilize these neighborhoods, rescue beleaguered homeowners and make it possible for new buyers to purchase homes while government tax incentives are available and housing is affordable.

If Consumers Suffer we all Suffer!

You heard it here first YSP is gone effective January 1st Mortgage Brokers will not be allowed Yield Spread Premium from lenders. So what does the industry as a whole do? Change the name name from YSP to SPS (Which may or may not stick) and allow the oversight committee to regulate the amount of SPS granted to 1.5%. If you are not quite sure what that means it's simple, more good mortgage brokers are going to Short Sale their houses because they will not have the income necessary to maintain there way of life. Also, larger front end points will become more and more common. Today industry standard is 1% loan Origination and by January first the industry should be at about three points which will force more qualified buyers to the big lending mills that don't get paid on points but volume. Other industry changes are coming as well:

REO Buyer Can Select Escrow and Title: Effective October 11, 2009, the Buyer's Choice Act prohibits an REO lender selling residential property up to four units from directly or indirectly requiring the buyer to purchase escrow services or title insurance from any particular company. A buyer, however, who has received written notice of the right to make an independent selection, may agree to the REO lender's escrow or title recommendations. An REO lender that violates this law can be held liable for three times the charges the buyer incurred, whereas a violation by the seller's agent may be subject to license disciplinary action. This law expires on January 1, 2015. Assembly Bill 957.
No Advance Fee Loan Modifications: Starting October 11, 2009, a new law prohibits anyone from claiming any compensation for negotiating or arranging a loan modification until after that person fully performs each and every service as promised. Aimed at combating loan modification scams, this ban applies to upfront fees collected by real estate agents and attorneys. The ban expires on January 1, 2013. Also effective immediately, anyone who negotiates or arranges a loan modification must give the borrower a specified notice that paying a third-party for loan modification services is unnecessary. These new requirements apply to mortgage loans secured by residential property up to four units, with certain exceptions for lenders and loan servicers acting on their own behalf. Violations can be penalized by, among other things, a $10,000 fine plus one-year imprisonment for individuals, or a $50,000 fine for businesses. Real estate brokers with existing Advance Fee Loan Modification Agreements reviewed by the Department of Real Estate (DRE) can no longer, as of October 11, 2009, enter into these agreements or collect advance fees. Agreements entered into and advance fees collected before October 11, 2009 are not affected. For the DRE announcement, go to http://www.dre.ca.gov/pdf_docs/SB94WebAnnouncement(brokers).pdf. Senate Bill 94.
Advance Fee Redefined: Aside from loan modifications discussed above, Senate Bill 94 also broadens the definition of an advance fee which must be specially handled by real estate agents, such as by submitting an advance fee agreement for DRE review and placing funds received into a broker's trust account. Under the new definition that took effect on October 11, 2009, agents cannot separate advance fees or services into components to avoid the advance fee requirements. More specifically, an advance fee is now defined as "a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed." Exceptions include advertisements in newspapers of general circulation, tenant prescreening fees, and tenant security deposits. Senate Bill 94.
Mortgage Loan Originators Regulated: Beginning in December 2010, a real estate licensee acting as mortgage loan originator must obtain a license endorsement, which entails education, written testing, and reporting requirements. A mortgage loan originator is anyone who, for compensation or gain, takes a mortgage loan application or offers or negotiates terms of a mortgage loan for residential property containing one-to-four units. Exemptions include real estate agents who only engage in selling, buying, or leasing activities, unless compensated by a lender or mortgage loan originator. This license endorsement requirement comports with the creation of a Nationwide Mortgage Licensing System and Registry under recent federal law. Finance lenders and residential mortgage lenders under the Department of Corporation must also register in the nationwide system. Additionally, if a real estate broker or the broker's salesperson makes, arranges, or services loans secured by residential property containing one-to-four units, the broker must notify the DRE by January 31, 2010 or within 30 days of commencing such loan activity, whichever is later. Senate Bill 36.
Mortgage Broker Activities Restricted: Commencing January 1, 2010, a mortgage broker will be deemed a fiduciary with a duty to place the borrower's economic interest above his or her own. This fiduciary duty pertains to a mortgage broker who makes loans secured by residential property of one-to-four units. Also starting January 1, 2010, the law will strictly regulate higher-priced mortgage loans as defined, including requiring upfront disclosure if a mortgage broker only arranges higher-priced mortgage loans, restricting prepayment penalties and yield spread premiums, prohibiting negative amortization, and prohibiting mortgage brokers from steering borrowers to higher-cost loans. Assembly Bill 260.
Appraisal Industry Oversight: The Office of Real Estate Appraisers (OREA) will have regulatory oversight of appraisal management companies, which gained prominence after Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC). Starting January 1, 2010, the OREA must implement a registration system for appraisal management companies, including fingerprinting and background checks for persons with operational authority as defined. On a separate note, this law clarifies what conduct constitutes improperly influencing the appraisal process by anyone with an interest in a real estate transaction. Such prohibited conduct includes withholding or threatening to withhold an appraisal fee, withholding or threatening to withhold future appraisal business, and promising future business, promotions, or compensation. Senate Bill 237.
Mortgage Fraud Becomes a State Crime: As of January 1, 2010, anyone who deliberately makes any misrepresentation or omission during the mortgage lending process with the intent of influencing that process will be guilty of mortgage fraud under California law. A violation of this law is a crime punishable by one-year imprisonment. Under existing federal law, loan fraud against a federally-insured lender is a crime punishable by a $1 million fine, plus one-year imprisonment (18 U.S.C. section 1014). Senate Bill 239.
Increase in Homestead Exemptions: Coming into effect on January 1, 2010, the homestead exemption protecting a homeowner's equity from judgment creditors has been increased by $25,000 across the board to $75,000 for individuals, $100,000 for married couples or family units as specified, and $175,000 for persons over 65 years, disabled, or over 55 years with limited income as specified. Assembly Bill 1046.
60-Day Notice to Terminate Tenants Extended: Existing law generally requiring a 60-day notice to terminate a month-to-month residential tenant, which was originally slated to sunset on January 1, 2010, has been extended indefinitely. A 30-day notice to terminate is sufficient if the tenant has lived in the property for less than one year, or if the landlord has sold the property and certain requirements are met as specified in our standard-form Notice of Termination of Tenancy (C.A.R. Form NTT). The 60-day notice requirement does not apply to fixed-term leases, such as a one-year lease. Other laws address tenants in properties foreclosed upon. Senate Bill 290.

The first Wave of the Hurricane

I call this 'The First Wave of the Hurricane of Lawsuits' because I expect many more. In each lawsuit the homeowner will be the troubled waters of the unpredictable storm. The next wave, Homeowners suing their attorney's in the Loan Modification process. Where does it end? Homeowners suing the lenders. Lenders suing homeowners for deficiency judgments. Homeowners suing failed attorney's. The state and counties filing suit against the lenders and the attorney's. We have created a financial hurricane which comes from the exact same 'Mortgage Storm' that GREED created in the first place. No accountability invites hurricanes to rip through our financial district with fierce vengeance and this hurricane I assure you will not go away after a few days.

During the housing boom, mortgage lenders were doling out the dough, giving loans to people who could never have qualified before.

Now, homeowners and government officials are increasingly taking these institutions to court, alleging unfair and predatory practices. While many of these suits are still winding their way through the legal system, some banks have already settled for millions of dollars.

The defendants include the biggest names in the business -- from Wells Fargo (WFC, Fortune 500) to Countrywide Financial to Citigroup (C, Fortune 500).

"Borrowers are looking to the legal system for help in keeping their houses," said Gary Klein, a partner in Boston-based Roddy Klein & Ryan, which focuses on consumer law. "There are more cases pending than I've ever seen in my 23-year career."

Homeowners are seeking the courts' help either individually or as part of class action lawsuits. With foreclosures continuing to rise, borrowers are looking to force banks to modify unaffordable loans or to stop them from foreclosing on homes. Often, they also seek money.

To be sure, banks have faced unfair lending lawsuits for years and have paid millions of dollars in settlements. But the recent housing boom was fueled by questionable and exotic loans that many borrowers had no hope of repaying.

Some of the cases involve the classic predatory lending schemes, where certain borrowers were given mortgages with high interest rates, while other suits are combating loans that are ultimately unaffordable.

In addition, the mortgage industry preyed on a wider group during the housing boom, capturing more middle-class borrowers. These homeowners have more means to hire attorneys.

Those in more dire financial straits are turning to lawyers who work for non-profit legal services agencies or who agree to seek payment from the banks if they win the case.

Some borrowers who hire lawyers to defend them against a foreclosure sale are successful in getting the courts to stop or delay the proceeding, at least until the bank considers whether a loan modification would be more appropriate.

Then, there are class action suits on behalf of hundreds or thousands of homeowners. In one of his current class action cases, Klein is suing Wells Fargo because one of the banks Wells Fargo now owns originated payment option adjustable-rate mortgages. This type of loan allows borrowers to make very low monthly payments, and the unpaid interest is then added to the principal. Many borrowers end up defaulting on their payments.

The suit's goal is to get Wells Fargo to restructure the borrowers' mortgages to make them affordable, Klein said.

"They are looking for a second chance," he said of the homeowners.

The suit also seeks damages, particularly for those borrowers who've already lost their homes or paid off their loans.

Wells Fargo said it was filing a motion to dismiss the case, calling the claims baseless and a mischaracterization of the bank's long-standing commitment to responsible lending and the pricing practices.

Attorneys general file suit
Meanwhile, state attorneys general are likewise filing suit against the mortgage industry's major players, alleging predatory lending and deceptive business practices. Banks are also getting hit with suits from the NAACP, some cities and individuals claiming discrimination against minority borrowers.

In Massachusetts, Attorney General Martha Coakley reached a $10 million settlement in June with subprime lender Fremont Investment & Loan for its unfair lending practices. The state will distribute $5 million to state residents with Freemont loans, and another $3 million will go foreclosure relief and homeowners education. The rest will go to the state and to cover costs.

The California-based lender agreed to do more loan modifications and not to foreclose upon up to 2,200 loans without notifying the attorney general's office first and seeking court approval in certain circumstances.

"The American dream of homeownership has turned into a nightmare for many borrowers because of predatory lending practices," said Massachusetts Attorney General Martha Coakley, when the settlement was announced in June. "We will continue to hold companies responsible for their role in the foreclosure crisis."

The Fremont settlement came a few months after Coakley negotiated a $60 million settlement with Goldman Sachs (GS, Fortune 500) over its role in bundling subprime loans into securities and selling them to investors. As part of the deal, the Wall Street investment bank agreed to modify loans of more than 700 troubled borrowers.

Attorneys general reached the largest predatory lending settlement a year ago. Bank of America agreed to spend $8.4 billion to lower the interest rates or loan balances of nearly 400,000 Countrywide customers with subprime loans or payment option ARMs.

"This settlement holds the number-one mortgage lender in the country accountable for deceptively putting borrowers into loans they didn't understand, couldn't afford and couldn't get out of," Illinois Attorney General Lisa Madigan, one of the lead negotiators, said at the time. "These are the very practices that have created the economic crisis we're currently experiencing."

Bank of America said the agreement was in the best interest of its customers and investors in mortgage-backed securities, though a group of investors is suing the bank over the settlement terms.

Principal Balance Reduction on Loan Modification?

Banks and loan investors are starting to bite the bullet and lower the principal due on home mortgages for some struggling borrowers, a new report from bank regulators shows.

That's good news for some homeowners, but may portend more write-offs over the next few years for banks and other lenders now wading through hundreds of thousands of applications for loan modifications. The tradeoff for banks is that by taking the hit now they can boost their chances of being repaid.

Primary Source
Read the full OCC report. Banks and loan servicers modify loans primarily by reducing interest rates or extending the term of the mortgage. These methods can temporarily help borrowers struggling to make payments without requiring lenders to lower the principal owed. Now, in a small but growing number of cases, banks are going further and writing off some of the loan altogether.

Part of this is due to prodding from the Obama administration, which has made saving homeowners from foreclosure a cornerstone of its economic-rescue strategy. The administration in March announced plans aimed at helping as many as nine million households struggling with mortgage debt through loan modifications or refinancings. The plans include financial incentives for mortgage-servicing firms that modify loans.

At the same time, banks now have more flexibility to modify loans because of their success in stabilizing their balance sheets and, in some cases, raising fresh capital. Banks can afford "to take the pain up front," said Kevin Fitzsimmons an analyst at Sandler O'Neill & Partners LP in New York. "If they want a legitimate chance of salvaging something out of the loans, they are better off taking the loss now."


Bloomberg News

Rows of tract houses this month in Las Vegas. The median home price in the area fell 40% to a 10-year low in August amid sales of foreclosures.
The portion of loan modifications in the second quarter that involved reducing the principal jumped to 10% from 3.1% in the first quarter, according to the report released Wednesday by the Office of the Comptroller of the Currency, or OCC, which regulates national banks.

Alejandro Estrella, a mail carrier in Riverside, Calif., said he was surprised when his lender, the Wachovia unit of Wells Fargo & Co., agreed recently to reduce the principal he owed on two mortgages on his home by 18% to about $237,000. That will lower his monthly payments to less than $1,500 from about $2,100. "I wasn't expecting it," said Mr. Estrella, who started out seeking just a reduction in his interest rate and got counseling from Springboard Nonprofit Consumer Credit Management.

Principal reductions are still the exception, though. Tom Kelly, a spokesman for J.P. Morgan Chase & Co., said the lender first tries to make loans affordable by lowering the interest rate for borrowers who qualify for modifications. If that doesn't result in a low enough payment, the bank may extend the term of the loan or defer repayments on part of the principal. That deferred principal would come due if the home is sold or refinanced.

But banks and loan servicers are recognizing that modifications don't always work if the borrowers aren't given a big enough break. Of loans modified in this year's first quarter, 28% were in default again within three months, the OCC said. Among those modified in last year's second quarter, 56% were in default again a year later.

Although the Obama administration programs for averting foreclosures got off to a slow start, they are starting to result in larger numbers of modified loans. The OCC report tallied 439,574 agreements to help troubled borrowers, including loan modifications and other repayment plans, in the second quarter. That was up 75% from a year earlier. Of that total, 142,362 of the agreements were classified as loan modifications, and 10% of those involved reducing the principal.

Beyond Housing, a nonprofit in St. Louis that counsels distressed borrowers, recently won a principal reduction for Evone Lester, a prison employee who had fallen behind on her payments and faced foreclosure. The loan was being serviced by Wells Fargo & Co. but was owned by an investor, Beyond Housing said. The investor agreed to reduce the loan balance to about $48,800 from $72,000, said Chris Krehmeyer, chief executive of Beyond Housing. That helped cut the monthly payment to $761 from $1,039.

In spite of these efforts, foreclosures continue to rise. In a report last week, Amherst Securities Group, a New York research firm, estimated that about seven million homes -- representing 12% of U.S. homes with mortgages -- will end up changing hands in foreclosures or related transactions over the next few years. The company said it doesn't expect that loan-modification efforts will ease the problem significantly, largely because so many people default again.

The OCC's report, which covers about 64% of all U.S. home mortgages outstanding, found that 11.4% of those mortgage loans were at least 30 days overdue or in foreclosure at the end of the second quarter, up from 10.2% three months earlier and 7.4% a year before.

The OCC isn't requiring banks to reduce principal, said Joseph Evers, a deputy controller at the regulatory agency. But, he said, the OCC has told banks they need to make sure modifications are "more sustainable," giving borrowers a real chance to keep up with the new payments.

Separately, the Federal Reserve Board Wednesday released a report on mortgage data from more than 8,000 lenders under the Home Mortgage Disclosure Act, known as HMDA. The report showed that blacks and Hispanic whites were far more likely to be denied last year for refinancing conventional mortgages, those that aren't insured by the federal government.

The denial rate for blacks was 61%, compared with 51% for Hispanic whites and 32% for non-Hispanic whites. That may partly reflect the larger proportion of minority borrowers who got subprime loans during the housing boom and ended up in homes whose values have crashed.

Move over Loan Modification, Now there's Something Meatier

The U.S. Treasury will soon finalize a plan to expand its incentives for mortgage companies to include "short sales" as a way to stem a rising tide of foreclosures, according to a Treasury spokeswoman.

"Short Sales," or sales of homes for less than the balance on existing mortgages, are seen as a key way to supplement other efforts such as loan modifications to steady housing. Unlike most modifications, "Short Sales" eliminate the problem of negative equity that has become a big reason for defaults as home prices have plunged.

The incentives, first announced in May, would expand the government's Home Affordable Modification Program that has seen limited success in lowering payments for hundreds of thousands of homeowners deemed eligible. Just 12 percent of homeowners eligible have had their loans reworked, leaving millions more foreclosures to come, the Treasury said on September 9.

More short sales may alleviate fears that a raft of "shadow supply," or foreclosures in the pipeline, will flood the market and deal a blow to the nascent rebound in housing seen over the U.S. summer months, analysts said. The overhang of supply is currently about 7 million units, or 135 percent of a year's of existing home sales, according to Amherst Securities Group.

"What they are trying to do is move some of these foreclosures in the pipeline, and bring them to a resolution before (foreclosure) happens," said Lisa Marquis Jackson, a vice president at Irvine, California-based John Burns Real Estate Consulting. "12 percent of these being modified isn't enough to clean these up."

Realtors express frustrations with banks when trying to negotiate a short sale, which can take four to five months to complete, according to John Burns consultants. Buyers often walk away from sales because banks are slow to respond, or balk at the offer.

The Treasury will use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.

Incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said in May. They would add to other incentives that servicers can receive for reducing loan payments.

In May, the Treasury proposed lenders would receive a $1,000 payment for allowing the owner to sell the house for less than the amount owed on the mortgage, and accepting the proceeds as full repayment. They can also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.

Borrowers who agree to short sales or deed-in-lieu deals can received up to $1,500 in closing costs. Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.

"Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure," John Burns consultants said in a research note dated Oct 1 alerting clients of an impending Treasury announcement.

I am, just like you very anxious to see what happens. In california SB306 has certainly sent a false hope into the market place. I will write more on that subject later.

-Christopher Rockey

Loan Modification Loosers

In the past I have interviewed and spent many tedious hours talking to different Loan Modification company's. Either under the DRE model or the attorney model. At one point I saw that even I can fall victim to being 'Sold' on a company. Some Loan Modification places offer money back, other's offer attorney protection with fancy forensic loan analysis. Either way I am continuing to research for consumers and came across some very interesting facts.

The State Bar of California, alarmed by the number of lawyers preying on vulnerable homeowners, today identified 16 attorneys who are under investigation for misconduct related to loan modification.

“In my 21 years in attorney discipline, I have not seen a crisis of this magnitude. It is truly unprecedented,” said Interim Chief Trial Counsel Russell Weiner, who is waiving investigation confidentiality in favor of public protection. The waiver, allowed by law, is used only occasionally, but Weiner said the seriousness of the problem demanded a strong reaction by the bar in order to protect consumers. This is the first time the names of more than a few lawyers being investigated have been made public.

“The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding,” Weiner added. “There are literally thousands of victims who have lost money they could not afford to lose. Under the circumstances, the need for public information and protection is paramount.”

Those attorneys being named by the State Bar have allegedly taken fees for promised services and then failed to perform those services, communicate with their clients or return the unearned fees, Weiner said. Some attorneys misrepresented the services they could provide. “It appears these attorneys may have significantly harmed their clients who were already facing great financial pressure and the possible loss of their homes.”

About one-quarter – almost 800 cases – of the active investigations in the Office of Chief Trial Counsel (OTC) are related to foreclosure complaints. The office has experienced a 58 percent increase in active investigations over 2008 due in large part to the huge increase in complaints against attorneys offering loan modification services. “Our office is aggressively investigating these cases and is working proactively with law enforcement,” said Weiner.

In March of 2009, the State Bar created a special team of investigators and lawyers to handle the growing number of complaints received about attorneys offering loan modification services. OTC found that many of the offending attorneys are associated with firms that use telemarketers or phone banks to sign up clients without regard to the facts of the individual case or whether or not the client can be helped, Weiner said.
In many cases, the attorneys work with untrained non-attorney staff engaging in the unlawful practice of law by offering legal advice to prospective clients. OTC also is investigating the non-attorney staff for possible referral to law enforcement.

In recent months, OTC has obtained the resignation of three attorneys who were offering loan modification services. Those attorneys chose to give up their licenses to practice law rather than face disciplinary charges and possible disbarment. In addition, OTC lawyers are preparing to put some attorneys on inactive status pending the filing of formal disciplinary charges

Weiner warned consumers to take special caution when seeking legal representation related to loan modification. “Consumers should not be comforted by advertisements that claim the attorney is a member of the State Bar of California,” he said, noting that all attorneys practicing in California on a regular basis are members. “Such membership does not mean the attorney has any special knowledge, experience or expertise in the area of loan modification. In fact, it appears that many of the attorneys offering these services have little or no prior experience in the area of loan modification.”

The following attorneys have received a significant number of complaints related to the loan modification services they were hired to perform. They are entitled to a full and fair hearing on any charges that may be filed in the future. No discipline may be imposed unless and until the State Bar proves allegations of misconduct by clear and convincing evidence.

▪ David Arase, Bar No. 233705, Arase Law Firm and National Housing Assistance

▪ Stephen Burns, Bar No. 113371, Legal Group Network

▪ Robert Buscho, Bar No. 122556, United Law Group

▪ Nicholas Chavarela, Bar No. 251632, Rodis Law Group and America’s Law Group

▪ Steven Feldman, Bar No. 103676, Feldman Law Center

▪ Eric Johnson, Bar No. 224065, Avantgarde Group

▪ Paul Lucas, Bar No. 163076, Lucas Law Center

▪ Brandon Moreno, Bar No. 233750, U. S. Foreclosure

▪ Jeffrey Nemerofsky, Bar No. 213014, U.S. Advocacy Law Group and U.S. Financial Products

▪ Gregory Paiva, Bar No. 207218, Law Offices of Gregory Paiva

▪ Adrian Pomery, Bar No. 249664, U.S. Foreclosure

▪ Ronald Rodis, Bar No. 181873, Rodis Law Group and America’s Law Group

▪ Mark Shoemaker, Bar No. 134828, Advocates for Fair Lending

▪ Marc Tow, Bar No. 78429, Marc Tow and Associates

▪ Michael Yellin, Bar No. 255050, A Fresh Start Loan Modification

▪ Sean Rutledge, Bar No. 255938, United Law Group

The State Bar suggests that consumers be wary of attorneys offering loan modification services under any of the following circumstances:

Advertisements of the office do not expressly identify by name the attorney who is responsible for the business.
Office staff will not readily identify by name the attorney responsible for oversight of the business.
The attorney in charge of the office is too busy or not willing to meet personally with prospective clients.
The firm advises a consumer to stop paying the existing mortgage.
The business, through its advertisements or claims of its representatives, makes claims that sound too good to be true, such as claims of a 90 or 100 percent rate of success in obtaining loan modifications, or claims that a reduction in the mortgage principal is likely to be achieved.
The business demands payment of a large fee, even before obtaining a prospective client’s basic income and expense information, and information about the existing mortgage and present home value.
The attorney responsible for the business is not licensed to practice law in the state where the consumer resides.
There are legitimate loan modification services and ethical attorneys that are providing the promised services for their clients. Two places to start in the search for loan modification assistance are: HUD Housing Counselors, 800-569-4287, http://www.hud.gov/counseling; and HOPE NOW, 888-995-HOPE, http://www.hopenow.com.

Consumers can also find qualified attorneys through a State Bar-certified lawyer referral service that can be found on the State Bar’s Web site (www.calbar.ca.gov), or by calling the State Bar’s Lawyer Referral Services Directory at 1-866-442-2529 (toll free in California) or 415-538-2250 (from outside California).

Consumers having a problem with the attorney handling their loan modification may contact the State Bar at 1-800-843-9053 or visit the State Bar’s Web site at www.calbar.ca.gov to find a complaint form.

I am still certainly promoting our new friends at www.loanlifesavers.org. the two key components they offer that I am attracted to are their presence in the non-profit sector and the fact that (For Free) consumers have to apply to be accepted into their program of which they have a high turn down rate.

-Christopher Rockey

Auto Reply

Dear Mr. Rockey:



Thank you for contacting me to express your support for expanding the first-time homebuyer tax credit. I appreciate the time you took to write and welcome the opportunity to respond.



In July 2008, the Housing and Economic Recovery Act of 2008 (Public Law 110-289) provided first-time homebuyers with a tax credit, equivalent to an interest-free loan, worth up to $7,500. The tax credit applied to homes purchased between April 9, 2009 and July 1, 2009. As the housing situation worsened in the fall of 2008, additional action was taken to prevent further declines in home values. Congress included in the American Recovery and Reinvestment Act of 2009 (Public Law 111-5), a more robust first-time homebuyer tax credit. Specifically, the tax credit was increased to $8,000 for homes purchased in 2009 and will not have to be repaid.



I understand your belief that the first-time homebuyer tax credit should be increased and expanded further. As you know, on June 10, 2009, Senator Johnny Isakson (R-GA) introduced the "Home Buyer Tax Credit Act of 2009" (S. 1230), which would increase the credit to up to $15,000, remove income eligibility limits, and expand it to include homebuyers purchasing homes other than their first. S. 1230 has been referred to the Senate Finance Committee, of which I am not a member. Please know that I will keep your support for this legislation in mind should it come before the full Senate.



Once again, thank you for writing. If you have any additional questions or concerns, please do not hesitate to contact my Washington, D.C. office at (202) 224-3841. Best regards.




Sincerely yours,

Dianne Feinstein
United States Senator

Race to the Moon

In the late sixties we witnessed a global race by all nation's to be responsible for the first man on the moon. Unless your a conspiracy theorist living in a trailer in the desert with sixty cats you believe the US one that race. We again now have a new race, national and international company's are participating to end recession. It is still a race for technology but we have the first place company's trying to be heard. When I call this the race to end recession we know from historical data that although these 'Company's' are not saying that's what this is about, there are several media whispers that will give the originating company this prestigious title. The plan is to have a single electronic platform that 'Learns' the lenders specific software. One of the biggest failures in Short Sale's is the lack of communication. We have tried to get lenders to use our Transaction Point software but all lenders have already invested millions in their own software which is not compatible with any other. The invention of an electronic platform that would be compatible to every lenders software would essentially wipe out Loss Mitigation and it's current horrible lack of participation in communication. Service Link is an FNF owned company and has it's 'Vision Sale' product and in second place -

Foreclosure.com Founder, President and CEO, Brad Geisen, announced today that he has built the first-ever short sales offer management system that handles marketing, processing, negotiating and closing services all in one central location.

QuickSale(SM) (www.QuickSale.com) is an easy-to-use platform that simplifies an often long and complicated process, bringing together all parties -- distressed homeowners, lenders, investors, buyers and agents -- who all share one common interest: Moving real estate inventory as fast as possible under the best terms.

"Short sales are the ultimate solution when it comes to solving the national foreclosure crisis now and in the future," said Geisen.

In short sales situations, banks or mortgage lenders agree to discount home loan balances prior to selling because of economic (local home values have plummeted) or financial (unemployment) hardship on the part of homeowners.

Geisen states that QuickSale.com helps cash-strapped homeowners avoid foreclosure and minimize the negative impact on their personal credit, allowing them to pursue alternative housing options worry-free when the time is right.

On the lender side, banks ensure instant liquidity for the defaulted loans on their books, maximizing the amount (often 80 to 90 percent of market value) that they can get out of distressed properties in a much shorter timeframe (30 to 90 days).

QuickSale.com closes the loop by bringing in agents and buyers located throughout the United States and beyond who purchase the distressed properties at negotiated prices before the banks repossess them. Agents who coordinate short sales from start to finish through the QuickSale(SM) system earn commissions.

"Banks lend money, they're not in the business of marketing and selling real estate -- certainly not on today's current scale," said Geisen. "And their loss mitigation departments are just too overwhelmed at this point. QuickSale.com is a structured tool that provides much-needed support and relief. It short circuits the entire foreclosure process to ensure the best possible outcome for all parties involved . . . quickly."

I have heard of several other software platforms but none so advanced they are actually meeting with the GSE's about enforcing servicers to use them.

-Christopher Rockey

Foreclosure Prevention Politically Popular?

The Federal Deposit Insurance Corporation (FDIC) today announced that it is releasing a free tool kit of information that will help borrowers, community stakeholders and the banking industry avoid unnecessary foreclosures and stop foreclosure "rescue" scams that promise false hope to consumers at risk of losing their homes.

The tool kit includes critical information to help borrowers know who to contact and what documents they need to have available to apply for a loan modification that could save their home from foreclosure. This tool kit also describes the warning signs of potential foreclosure "rescue" scams and how consumers, community stakeholders, and bankers can report scammers and prevent fraud. The public can access the free tool kit at http://www.FDIC.gov/foreclosureprevention. To ensure this information is widely available, the FDIC is conducting outreach to community-based organizations and the banking industry, and furnishing a referral service to help consumers identify sources of legitimate help and report fraud to the appropriate law enforcement agencies.

"It is vitally important that consumers and bankers know all of the resources available to help prevent unnecessary foreclosures. The tool kit released today, along with our outreach, should help consumers know how to get a loan modification when they need one. While reaching out a helping hand, we must also be on guard for those who would prey on consumers who are facing foreclosure," said FDIC Chairman Sheila C. Bair. "Everyone with a stake in this issue – from community leaders to those with a neighbor, friend or family member facing hardship – must take responsibility for reporting questionable activity and directing consumers to legitimate sources for assistance." Raising consumers' awareness of foreclosure "rescue" scams will give borrowers more confidence in knowing they are working with legitimate counselors and servicers to obtain a loan modification that could help them avoid foreclosure.

The FDIC's foreclosure prevention tool kit includes:

Is Foreclosure Knocking at Your Door? brochure (available online and in print), which encourages consumers facing financing difficulties to contact their servicer, apply for a loan modification, and talk to a counselor.
Beware of Foreclosure Rescue Scams brochure (available online and in print), which provides information on common scams, tips for detecting fraudulent deals, and resources for reporting criminal activity.
Spring 2009 edition of FDIC Consumer News, which features advice for consumers on avoiding foreclosure rescue and loan modification schemes.
Your Own Home module of the FDIC's Money Smart curriculum, which offers tips and advice on avoiding foreclosure with a loan modification, preventing foreclosure "rescue" scams and providing legitimate sources of foreclosure prevention assistance.
The tool kit and other helpful resources are available on the FDIC's foreclosure prevention Web page at www.fdic.gov/foreclosureprevention.

Also as part of this initiative, the FDIC is continuing to work with banks and community-based and consumer organizations to avoid foreclosure and stop foreclosure "rescue" scams, particularly in underserved communities. Consumers are encouraged to report questionable activities, including solicitations or offers, to their servicer and appropriate state and federal authorities, which may include the Federal Trade Commission and the appropriate state attorney general. Consumers who have difficulty finding contact information for these officials or their servicer may receive a referral by calling the FDIC Call Center at 1-877-ASK-FDIC (1-877-275-3342) or visiting www.fdic.gov.