Ethics alert Ca Bar - foreclosure and loan modification

http://calbar.ca.gov/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf

ETHICS ALERT
Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications
Committee on Professional Responsibility and Conduct
(February 2, 2009)
You have all read and heard about the residential mortgage crisis in California. In 2007,
roughly 84,000 California homeowners lost their homes in foreclosure.1 Through the first three
quarters of 2008 alone, that number increased to over 190,000. During that same period, lenders
recorded nearly 330,000 notices of default on California home mortgages. Recording a notice of
default is the first step of a non-judicial foreclosure or trustee sale, the most common process in
California, which typically takes four to six months or more. In other words, the crisis seems far from over.
Seeing a business opportunity in this crisis, “foreclosure consultants” purport to offer distressed homeowners assistance in assessing their options and/or negotiating loan
modifications with their lenders.2 According to the California Legislature,
These foreclosure consultants, however, often charge high fees, the payment of
which is often secured by a deed of trust on the residence to be saved, and
perform no service or essentially a worthless service. Homeowners, relying on
the foreclosure consultants’ promises of help, take no other action, are diverted
from lawful businesses which could render beneficial services, and often lose
their homes, sometimes to the foreclosure consultants who purchase homes at a fraction of their value before the sale.
Vulnerable homeowners are increasingly relying on the services of foreclosure
consultants who advise the homeowner that the foreclosure consultant can obtain
the remaining funds from the foreclosure sale if the homeowner executes an
assignment of the surplus, a deed, or a power of attorney in favor of the
foreclosure consultant. This results in the homeowner paying an exorbitant fee
for a service when the homeowner could have obtained the remaining funds from
a trustee’s sale from the trustee directly for minimal cost if the homeowner had

President Obama new loan modification plan - Making Home Affordable

Obama's Making Home Affordable

Home Affordable Modifications

1. Loan modification can begin immediately

2. Owner occupant in 1-4 unit property, uppaid principle balance equal to $729,750. (for one unit)

3. Loan orginated before 2009

4. Have a mortgage payment that is above a 31% debt to income ratio. (debts are specifically defined to include - mortgage/loan payments, taxes, homeowner fees and insurance)

5. A change in income or expenses which make the old payment no longer affordable.

6. Borrowers can be CURRENT. A borrower does need to be at risk of imminent default and will be screened.

There is a trial modification period which borrowers must complete.

There is the possiblity for principle reduction.

There is also the possiblity of a pay off of $1000 to the junior loan.

For more information on the new home affordable loan modification plan

for more information on president obama's new loan modification plan

20% of homeowners are upsidedown

One in five U.S. mortgage borrowers are underwater: Financial News - Yahoo! Finance

Reuters
One in five U.S. mortgage borrowers are underwater
Wednesday March 4, 8:55 am ET

By Jonathan Stempel

NEW YORK (Reuters) - One in five U.S. homeowners with mortgages owe more to their lenders than their properties are worth, and the rate will increase as housing values drop in states that have so far avoided the worst of the crisis, a new study shows.

ADVERTISEMENT
About 8.31 million properties had negative equity at the end of 2008, up 9 percent from 7.63 million at the end of September, according to the study, released Wednesday by First American CoreLogic. The percentage of "underwater" borrowers rose to 20 percent from 18 percent.

Another 2.16 million properties could go underwater if home prices fall another 5 percent, the study shows.

First American said the value of residential properties fell to $19.1 trillion at year-end from $21.5 trillion a year earlier, with half the decline in California. Forty-three U.S. states and Washington, D.C., were included in the study.

More short sales seem to be on the horizon for higher end homes

Jumbo Mortgages, Jumbo Headaches - WSJ.com

Anything bigger is called a "jumbo" loan -- and not only is the government ignoring this segment of the market, so are lenders, few of whom are originating or refinancing jumbo mortgages. The reason: Jumbo loans are too large to be guaranteed by a government-backed mortgage agency, such as Fannie Mae or Freddie Mac, meaning banks assume the risk if the loan goes bad. In the current lending environment, few banks want to take on any risk.

That's hurting borrowers like Pete Zipkin, who's the kind of affluent customer that banks once coveted. The 35-year-old technology executive -- who says he has a spotless credit record and at least 20% equity in his home -- has come up empty-handed in his search for a jumbo mortgage of more than $1 million for his recently built five-bedroom home in Alamo, Calif., near San Francisco.

Unable to find a fixed-rate mortgage when his construction loan expired last fall, Mr. Zipkin now has a variable-rate loan that adjusts monthly. The rate is currently 5%, but it can go as high as 12%. He says banks have turned him down in part because they are worried about falling home prices in California, even though price declines in Alamo, where the median home price is $1.3 million, have been less severe

REOS may soon be driving prices down even further

I have read that at least a quarter of the bank owned foreclosures are just are not on the market.



REALTOR® Magazine-Daily News-REOs Expected to Flood Market

REOs Expected to Flood Market
Mortgage lenders are likely to put their growing supply of repossessed homes up for sale in the months to come.

According to the Mortgage Bankers Association, 10 percent of home loans was either delinquent or in the foreclosure process at the end of September. Plus, Fannie Mae and Freddie Mac saw repossessions grow nearly 25 percent to 15,196 homes from the second quarter to the third quarter of 2008.

Lenders may have to reduce the principal balance on loans to do more than slow down the foreclosure process for many borrowers.

Asset Protection - Florida Real Estate

In my real estate practice I come across a lot of people needing asset protection advice.  I know from doing a lot of reading and speaking with collection attorneys, there is lot of bogus advice out there on the internet.

But, for people with significant assets, I do tell them to consult an asset protection attorney.  (*An area which I will probably get pulled into in the future.)  Recently my client came back and told me their expensive asset protection plans have centered around buying and homesteading property in Florida. 

Something I understand very well.  I lived in Florida for 4 years during the Real Estate boom.  I am licensed as an attorney there and sold real state there.  Just about every person close to retirement age - wants to figure out how to protect themselves from taxes or creditors. 

Now that the price of florida real estate has been cut in half, it may be a good place to try and shelter your assets. 

However, you might want to cross the stateline with the intent to live there. 

I will post more on this subject over time. 

If you are willing to establish a homestead there and you wish to shelter some cash, let us know - we can put you in touch with some smart people.    





REALTOR® Magazine-Daily News-Lehman Ex-CEO Sells Home to Wife for $100

Lehman Ex-CEO Sells Home to Wife for $100
The ex-CEO of Lehman Brothers Holdings Inc., which filed the largest corporate bankruptcy in history, has sold his Florida home to his wife for $100.

Richard S. Fuld Jr. and his wife Kathleen bought the home in Martin County. Fla., for $13.75 million in 2004.

Lawyers speculate that Fuld’s transfer of his share is a tactic to take advantage of Florida’s generous home-protection laws, which could prevent angry investors from taking the Fuld’s property in a lawsuit or bankruptcy proceedings. But they question whether Fuld could prove that Florida is his primary residence since he spends most of his time in New York.

Lawyers also suggest that Florida courts could deem the transfer fraudulent, voiding Kathleen Fuld’s purchase.

Source: The Wall Street Journal, Jamie Burns (01/26/09)

For more on asset protection

Why traditional Loan Modification is difficult

One of the best articles I have seen on the subjectof loan modification.  Perhaps the reason why you need to gain legal leverage over the servicer and lender before you begin a loan mod. 



National Mortgage News - MortgageWire Archive

Trouble with Loan Mods Trouble with Mods

By Kate Berry, American Banker

As the mortgage industry begins modifying troubled loans in greater numbers, early rounds of modifications are coming in for bad performance reviews for failing to prevent borrowers from defaulting again.

A handful of analysts and academics who have studied which types of loan modifications work have found that some of the most common changes - reducing or freezing the interest rate and allowing missed payments to be rolled into the balance - often fail to prevent re-defaults.

These are, of course, high-risk loans by definition. But one aspect of some modifications points to why the default issue can re-arise so quickly. The addition of arrears and fees to loan balances can actually increase monthly payments, a situation that leaves strapped borrowers no better off from a monthly cash-flow perspective. (Not all lenders charge fees on modifications. Bank of America Corp., for example, waives fees on the Countrywide Financial Corp. loans it is modifying under an agreement with state attorneys general.) Also, in an environment where house prices are falling, higher loan balances can erode or wipe out a homeowner's equity.

"We're going backwards," said Alan White, an assistant professor at Valparaiso University School of Law. "The voluntary modifications are putting people underwater more than they already are and those terms are contributing to the failure rate."

Mr. White said he examined the September and October remittance reports on $4 billion of bonds backed by subprime and alternative-A mortgages. Of the loans that were modified, roughly 72% received some form of "negative prepayment" that increased the principal balance.

He and others said that the most effective modifications are the ones that reduce principal as well as the interest rate. But principal reduction remains rare.

Rod Dubitsky, the head of Credit Suisse Group's asset-backed securities research, division found that only two servicers - Ocwen Financial Corp. and Goldman Sachs Group Inc.'s Litton Loan Servicing LP - are doing it in any great numbers. "It seems that the momentum in mods is taking principal forgiveness off the table," Mr. Dubitsky said.

Servicers are less likely to make loan modifications that result in lower payments than those that result in higher payments, he said.

In his own analysis of monthly trustee reports from 19 servicers, Mr. Dubitsky found that about 30% of borrowers who received any type of modification in the fourth quarter of last year became 60 or more days delinquent within eight months.

Of the loans that received "traditional" modifications (rate reductions or capitalizations of past-due payments) resulting in higher payments, 44% defaulted within that time frame, he said. By comparison, the rate for principal reductions was 23%. Another group of modified loans - hybrid adjustable-rate mortgages whose rates were frozen or did not rise as much as originally planned - performed slightly better, but Mr. Dubitsky said most of those had not defaulted before modification.

Some servicers acknowledge that principal reduction would be a more effective way to prevent foreclosures, but they say their hands are tied.

"The guys in the trenches will tell you that if you don't offer some level of principal forgiveness to the borrower who is upside-down on their loan, you will have a high failure rate," said Tom Marano, the chairman and chief executive of Residential Capital LLC. But "there are a lot of cases where the investor does not allow us to reduce the principal."

His Minneapolis lender, a unit of GMAC LLC, typically offers an interest rate reduction first. If the borrower still has trouble keeping up, ResCap will then recapitalize missed payments.

Mr. Marano suggested that one way to help underwater borrowers was to offer a deal in which investors would get a share of any future appreciation of the home in return for lowering monthly payments. "We need to offer the borrower something to keep them incented but not give them a free pass," he said. But ResCap has not tried this because investors will not let it do so, he said.

Negative equity is a major factor in determining whether a delinquency leads to a foreclosure, but historically it has not been found to prompt delinquency in the first place.

Mark Fleming, the chief economist at First American CoreLogic Inc., said that for owner-occupied homes, "under moderate levels of being underwater, most individuals would choose to stay put." He pointed to factors like the enjoyment and shelter people get from their homes, ties to the community, and the costs of moving.

But with the depth of home price declines, the question now is "how far underwater does a homeowner need to be to decide to walk away?" Mr. Fleming said.

Over the last year, he said, one of the largest drivers of foreclosures has been negative equity, which makes it impossible for people to sell their houses to pay off loans once they get into trouble after the loss of a job or a divorce, or any of the customary causes of delinquency.

In his study, Mr. White found that servicers forgave an average of $1,914 in unpaid interest and fees on modified loans. But they increased principal by an average $11,200, including interest on arrears, taxes and insurance advances. Servicers will foreclose on a homeowner for a loss of roughly $121,000 a loan rather than forgive "a few hundred dollars" of debt, he said.