HUD ACCEPTING APPLICATIONS FOR ENTITIES TO PURCHASE TROUBLED MORTGAGES, OFFER CHANCE TO AVOID COSTLY FORECLOSURES AND STABILIZE NEIGHBORHOODS

September loan sale to include neighborhood stabilization pools in Chicago, Newark, Phoenix and Tampa as part of broader Obama Administration effort to address shadow inventory, target relief to hardest hit communities

WASHINGTON – Qualified entities interested in purchasing pools of severely distressed loans formerly insured by the Federal Housing Administration (FHA) can now submit applications for the Distressed Asset Stabilization Program, an expansion of an FHA disposition program that sells pools of defaulted mortgages headed for foreclosure and provides the opportunity for the purchaser and borrower to avoid a costly foreclosure. According to loan pool information released today, approximately 3,500 loans will be sold in four metropolitan areas that are among those hardest hit by the foreclosure crisis – Chicago, IL; Newark, NJ; Phoenix, AZ; and Tampa, FL – aligning with other neighborhood stabilization efforts to help those communities recover as quickly as possible. The program is part of the Obama Administration’s broader strategy to encourage public/private partnerships to stabilize neighborhoods and home values in critical markets. Details on the Distressed Asset Stabilization Program can be found at www.hud.gov/fhaloansales.

“The housing market has momentum not seen since before the crisis,” said HUD Secretary Shaun Donovan. “But some metro areas are still under pressure and some FHA borrowers remain seriously behind on their loans and stand to lose their homes in a matter of months. As one step towards avoiding unnecessary foreclosures and further stabilizing communities, we are increasing the number of loans beyond our original goals of 5,000 per quarter to approximately 9,000 this quarter. Providing the opportunity for borrowers to potentially stay in their home under a new sustainable mortgage or other meaningful help not only benefits that homeowner but reduces the costs to FHA and ultimately benefits the entire community.”

Under the program, loans are sold competitively at a market-determined price generally below the outstanding principal balance. FHA then processes an insurance claim, removes the FHA insurance and transfers the loan to the investor. Once the note is purchased, foreclosure is delayed for a minimum of six additional months, giving the new servicer time to work through alternatives with the borrower, possibly finding an affordable solution to allow the borrower to remain in their home. Because the loans are generally sold for less than what the borrower currently owes, the purchaser has the ability to reduce or modify the loan terms while still making a return on the initial investment. If no viable alternatives exist, the purchaser may be able to help the borrower sell the property through a short sale and avoid the costs of foreclosure.

“This program creates the opportunity for everyone – the homeowner, the new mortgage holder, FHA, and the community – to walk away a winner,” said Acting FHA Commissioner Carol Galante. “FHA not only avoids the costs associated with a long foreclosure process, but also the high costs of maintaining and selling vacant properties in already distressed markets.”

FHA began selling distressed single family loans through what is now the Distressed Asset Stabilization Program in 2010 and has successfully sold more than 2,100 single family loans to date. An FHA-approved mortgagee can file a claim for FHA insurance benefits and assign the loan to FHA if the borrower is at least six months delinquent on their mortgage; the servicer has exhausted all steps in the FHA loss mitigation process; the servicer has initiated foreclosure proceedings; and the borrower is not in bankruptcy. These assigned loans are then pooled by FHA for resale through the Distressed Asset Stabilization Program.

Neighborhood Stabilization Loan Sales

In addition to the standard note sales, the enhanced program features new neighborhood stabilization requirements to encourage investment in communities hit hardest by the foreclosure crisis. Approximately 40 percent of the 9,000 loans in the sale scheduled for September 2012 will be located in Chicago, IL; Newark, NJ; Phoenix, AZ; and Tampa, FL – four metropolitan areas where high numbers of seriously delinquent loans could expand an already large inventory of REO properties over the coming months. Designed to help stem the flow of distressed properties hitting these markets, these neighborhood stabilization requirements provide that no more than 50 percent of the loans within a purchased neighborhood stabilization pool may be sold as real-estate owned (REO) properties.

“These markets were chosen because of the high concentration of FHA loans in the pipeline for foreclosure and because each allows us to test this strategy under a variety of market conditions,” added Galante. “Further, in some of these communities, state and local leaders are already acquiring these loans and using tools like the Neighborhood Stabilization Program and the Hardest Hit Fund to offer workable solutions for homeowners and communities. And in each city, nonprofit and for-profit investors have shown great interest in using this program to help borrowers in their community find affordable solutions as quickly as possible. FHA is working with local leaders to create additional smaller pools to fit their targeted neighborhood strategies.”

All parties seeking to bid on the sale pools must first be qualified by HUD. Parties seeking to bid in the neighborhood stabilization pools are required to meet several additional criteria to ensure they will comply with the program’s goal that fewer homes end up as vacant REO properties in metro areas already struggling with high numbers of foreclosures. Eligible investors must have experience in asset management and property management, as well as a proven track record in helping borrowers seriously delinquent on their loans to re-perform or to achieve an affordable alternative to foreclosure. An emphasis will be placed on experience within the metro area in which the bidder is interested.

Bidder qualification materials and guidelines for the Distressed Asset Stabilization Program bidding process can be found at www.hud.gov/fhaloansales.

Problems in Foreclosure Outreach Program

The Government Accountability Office or GAO is of the view that current foreclosure outreach program which has been designed to help troubled property owners is not doing enough to reduce foreclosures in United States.

High rate of Foreclosure

Since the rate of foreclosure is still a major hurdle in the economic and housing recovery, a study was conducted by GAO to find ways of enhancing foreclosure mitigation effort. They came out with a report that suggested that government agencies that are a part of foreclosure mitigation program must make changes in their strategies to help existing borrowers.

Significant Negative Equity

The report released by GAO specifically addressed the United States Department of Agriculture, Federal Housing Administration and Government Sponsored Enterprises. Even though these agencies have modified more than 2 million loans, the number of loans that are in foreclosure are still very high which is weakening the American real estate market. An analysis of the mortgage data showed that about 2 to 3 million loans have characteristics that are associated with high probability of foreclosure like significant negative equity and serious delinquency. Significant negative equity means the ratio of loan-to-value of the property mortgaged is 125 percent or more.

These loans that have significant negative equity are concentrated in states like Florida and Nevada. Also, the recent signals like strong home equity and home prices does not mean that real estate market in US has recovered because the prices of some of the properties is still close to their post-bubble lows. Another worrying factor is that total household mortgage debt is $3.7 trillion more than the household’s equity. This means that household wealth is declining and the value of most properties are not rising.

Problems in Loan Modification

Also, thousands of borrowers who had requested assistance did not receive modification. The applications of about 2.75 million borrowers who had requested HAMP loan modification was denied which has decreased the volume of federal loan modifications. Even though efforts have been made to improve the reach of the refinance programs, low participation of the borrowers in these programs has raised questions on the need for the Treasury to offer financial support for these programs. GAO is of the view that funding given to underused programs must be re-evaluated.

Even though several agencies have stepped up their efforts to monitor the outreach of the services to struggling borrowers, most agencies are not conducting analysis to evaluate the benefits and effectiveness of the foreclosure mitigation programs. GAO is of the view that better analysis of the data collected is needed to improve the effectiveness of mortgage mitigation effort. These efforts will not only reduce cost but also improve the effectiveness of the outreach program.

Suggestions of GAO

The report has also suggested that principal taken by a few homeowners must be forgiven especially loans that have significant negative equity. However, this must be used as one time measure as some borrowers may misuse this benefit.

GAO has also come out with suggestions to help agencies and enterprises that are a part of the outreach program. The report has also called for detailed analysis of the borrower profile and loan data which can help them find effective solutions.

Foreclosures Scenario in the United States

Right now, in the U.S. thousands of people are losing their homes and other properties due to foreclosures. Sadly, the Midwest part of the country has the highest number of foreclosures happening every year and such a high numbers of mortgages and auctions are affecting the real estate scenario of the country. The percentage of foreclosures has gone up to 47% since the last year and is increasing with time. It is being predicted by economists that these mortgages are going to rise in the coming months. According to Economist David Shulman of the UCLA Anderson Forecast, foreclosures will continue to rise for the remainder of the year as more adjustable-rate mortgages reset. California has the highest foreclosure rate and is set to rise.

Foreclosure is a complicated process and raises a number of questions in people’s mind. After the property is mortgaged and auctioned, where does the property go and what happens of it? How do bankruptcies come into picture? How is the real estate situation of the country? These questions are on everybody’s mind and here is some information that will help you understand these questions and their answers. To understand what the effect of foreclosures is, you first need to understand what a foreclosure is.

When a group fails to make payments or dues usually up to 3 months, the authorities take an action against the mortgage borrowers and the lender has the right to take over the property after the process of the foreclosure is complete and the borrower still hasn’t been able to pay the complete dues. Approximate time taken by the process to be complete is 5 to 6 months and after the process the borrower has to leave the place as he or she loses all right to that property.

What happens to mortgaged property?

Auctions

As the rights of the property now rest with the lender, in many cases the bank, there are many options available to them to make use of the property. First option is mortgaging the property right away. The lender puts the property on auction at the time when the foreclosure deal is finalized and the lender takes in whatever the highest bidder has to pay to collect their dues. Most of the time, the new owner get the rights the property in a lower-than-retail price and in this case sometimes the lenders get partial payment for the dues and again the mortgage borrower is entitled to pay the rest of them.

Bank-Owned property

When the bank or the mortgaged lender comes in terms with the fact that the property owner many not be able to give back the dues that had to be given as repayment, the bank or the group decides that they will wait for a better opportunity to sell the property so that they get better returns out of it. This means there will be a delay in selling the property and such property is often called as bank owned property. One problem that arises in bank owned property is that the bank has to maintain it and it takes a lot of resources which is expensive. Thus when not done properly it reduces the value of the place and the banks are not able to sell it.

How do bankruptcies feature in foreclosures?

When a person’s property is going to be mortgaged, one option to avoid losing is to file the form of bankruptcy. Most people think after filing the bankruptcy, nothing can go wrong and they will never lose their house but that is not the case. When filing for a bankruptcy, there are two forms; chapter 7 bankruptcy and chapter 13 bankruptcies. The chapter 7 can you help you delaying the foreclosures with the help of the order known as automatic stay and chapter 13 can sometimes save your home as you can sit with the lender and work out a repayment plan, though not everybody can file chapter 13.

Thus, while borrowing money from bank or other mortgage lenders, a proper risk assessment should be done and extra resources counted so that the situation doesn’t arise. A good bankruptcy and foreclosure attorney can also be of help to prevent foreclosures. No matter how easily or simply somebody puts it, foreclosure is a stressful process and takes a lot of resources and time and poses a threat to the safety of your family and loved ones if such a situation arises.

Property Repossessions – How Are We doing?

There are many things in life that are stressful, and property repossessions has got to be one of the worst. During the last 3 or 4 years, foreclosure procedures on both sides of the Atlantic has caused countless families to lose their homes.

Whilst recent reports in the US state that repossessed homes are on the downturn, a closer look at figures would suggest otherwise. The recent figures are de facto but the speed with which properties are being processed is more the deciding factor re the numbers than an actual slow down in repossessions.

It’s no different in Europe, with vast numbers of Spanish home owners losing their homes on a daily basis. In the heart of the financial mess is Mercia, an area widely advertised a few years back as being some kind of Mecca for overseas property developers. Ordinary home owners were also targeted, with many a UK resident jumping ship and buying what they thought would be their Spanish Shangri-la.

Fast forward to the Spring of 2012 and disaster abounds. Properties are unfinished, complexes deserted. Beautifully constructed blacktop stretches for miles, then simply terminates. Manicured and lovingly tended golf courses are little more than expensive, ornamental landscaping and hotels, stores and bars remain unused.

The Spanish banks are groaning with the effort of trying to sustain a weakening economy and the rest of Europe has averted its eyes whilst praying for a financial miracle. Elsewhere, in the UK reports were published (at the end of May) that stated that house prices had fallen below those enjoyed during 2005.

In seven years, the UK householder has seen a significant drop in the value of property, and just like their American counterparts, it doesn’t look as though things are going to change anytime soon. Property repossessions continue to increase, despite the fact that UK banks have tried to create a better relationship between themselves and their borrowers.

Ireland fares no better, with house prices continuing to fall, and looking elsewhere in Europe it looks as though the entire continent is barely managing to keep a roof over its head. What does all this mean for the average home owner? Simply that you’re not alone, and that the world continues to struggle to regain the financial foothold it enjoyed prior to the 2008 crash.

What can you do to avoid going through a property repossession?

  • approach your bank/lender and discuss your future options. Banks aren’t gaining anything from foreclosures, so see what they can offer by way of support and negotiation. Ask for an extension, see if you can alter the terms of your mortgage; in short explore your options with your lender
  • if it’s possible to do so, try and sell your home. Better to off-load debt that you can’t manage, than to hang on for grim death
  • consider renting. There remains a high demand for rental property, and it may well be worth you moving out and renting your home out, whilst you (in turn) rent somewhere for yourself
  • seek financial advice elsewhere. There are a variety of charitable organizations around the country, make an appointment

Whatever you do, don’t hand your keys over and walk away, Turning your back won’t solve anything in the long term, and you may well find yourself before the court for more than just the mortgage debt itself.

Link: need realistic mortgage advice? Click here.

Foreclosure Negotiations Settlement Scheduled Target is July 13, 2011

Some of the biggest banks in the United States are about to settle state and federal claims over faulty, and fraudulent foreclosures.  The target date for the settlement with Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial is Wednesday, July 13, 2011.

The settlement is expected to exceed $20 billion, forming state and federal funds to provide relief to mortgage borrowers.  The case has been focused on how banks treated customers during the rise in mortgage defaults.  This case is just one in many cases regarding issues of negligent, faulty, and possibly criminal activity related to mortgage and foreclosures.

Some of the issues that are related include compensating people whose homes were improperly seized.   Other issues include the institution of funds for states including Ohio to resolve civil mortgage complaints as well as a separate federal account that would require them to provide a specific amount of mortgage relief to borrowers.

I will be thrilled when this is settled as it is just one more piece of the puzzle that we need to put the Ohio economy back on track, but I am sure that whether they meet the deadline of Wednesday or not, we will be hearing about this topic for quite some time to come.

Ohio Real Estate Market Down | Columbus Down 25%

Real estate sales in Ohio are still quite low, which is confirmed by the May sales figures from RealtyTrac.  One of the problems is that even when a buyer is interested in buying real estate, banks are reluctant to allow them to borrow, even when their credit scores are good.  May home sales in Columbus were down 25% from May 2010, which is an echo of what is happening all over the state.

There is nowhere in Ohio that has been spared from the foreclosure, short sale and price reductions in homes.  Homes that once demanded a price only affordable to successful professionals are now going to auction for far less than $200,000.

3,405 home owners were were forced to move in Cincinnati after their homes were placed on the auction block this summer. Columbus also faces a large foreclosure problem with 4,099 homes recently listed as foreclosures. Smaller communities face the same issues as metropolitan areas, but do not have as many foreclosures and short sales. The southern Ohio cities of Jackson, Athens and Logan each have less 20 repossessed homes listed for sale.

When a home is in foreclosure, there are often also unpaid real estate taxes attached to the property. Local governments and schools around the state are suffering due to the growing amount of delinquent property taxes.

Homeowners in general are impacted by the growing list of foreclosures. The steeply discounted prices on short sale and foreclosed homes drives down the price of similar homes in the same area. Banks require a real estate appraiser to use comparable homes to determine current market value during the loan process. When your neighbor cannot pay his mortgage and his house is sold at a foreclosure auction, your home is now worth less in the eyes of lenders and appraisers.

There is some hope.  In June 2011, there has been a slowdown in the rate of foreclosure filings and of repossessions.  The courts nationally have also become more aggressive about challenging foreclosures. In January 2011, Massachusetts’s top court voided the seizure of two homes by Wells Fargo & Company and US Bancorp after the banks failed to show that they held the mortgages at the time of the foreclosures, and courts in several states are considering similar cases.

Sometimes the Mortgage Money Goes to the Right People

In an unexpected twist, lawyers from Dworken & Bernstein law firm insisted that any unclaimed funds in a settlement with Wells Fargo and CitiFinancial from a class action case regarding unreleased mortgage liens be turned over to charities instead of being returned to the defendants.

Due to this “cypres” legal doctrine, 20 Ohio charities will be able to continue their work with new funding.  The charities that benefited from this donation included Neighborhood Housing Services of Greater Cleveland, Project Love, The E Prep School, The Arc, Society for Rehabilitation, Malachi House, Trinity Episcopal Cathedral, University Hospitals, The Gathering Place, Cornerstone of Hope, Antioch Community Development, Ohio College of Podiatric Medicine, and Gordon Square Arts District.

Many class action suits end up with unclaimed funds, and this doctrine can be applied to all of them, but often the unclaimed funds just go back to the defendants.  Since they are being asked to give up the funds to rectify a wrong, it makes more sense for the unclaimed funds to go out into the community to help those in need of a hand up.  Class action suits are brought to “fight city hall” so to speak, and it is not often enough that the little guy manages to win against the big corporation.  Certainly we see evidence all of the time of when the big guy wins.

Corruption is rampant when no one is watching, and unfortunately class action suits are the only way to get our own back.  Certainly the people that are affected by the injustice committed by the defendants would prefer that the unclaimed money go to the community instead of back to the defendant.

We can think of it as just a little more justice.

Cuyahoga Country Grand Jury Indicts 9 in Fraudulent Home Loans Case

For the first time in Ohio, and one of the few times across the U.S., a grand jury has indicted 9 employees of a California based loan company, Argent Mortgage Inc., for their suspected roles in approving fraudulent home loans.  So far it has been rare that any home loan companies have actually had criminal charges brought against them, whether they approved subprime home loans or not.

Argent Mortgage, Inc. was one of the biggest originators of home loans in Cuyahoga County from 2003 to 2005, and was sold to Citibank in 2008.  This particular case has been investigated by the Cuyahoga County Mortgage Fraud Task Force, and shows how the lending practices of Argent and other subprime lending companies were responsible for the foreclosure crisis that has decimated Cleveland, Ohio and many of its area suburbs.

The indictment of the Argent employees alleges that they helped coach mortgage brokers about how to falsify loan documents so that they misstated the source or existence of down payments and also borrowers’ income and/or assets.

According to the case, employees at an Argent loan processing center in Illinois approved the loans even though they KNEW that their own company’s lending rules had not been satisfied.  Argent employees bent the rules in order to get the loans approved so that they would get higher wages and bonuses.

Subprime loans have been viewed as a major cause of the downfall of the banking industry, as these popular loans during the housing boom between 2000 and 2007 were given with little or no proper documentation in order to get approved.  Because of these loose lending practices, many speculative property purchases were made, and fraudulent practices abundant.

The indicted included 3 Argent account executives assigned to work with mortgage brokers in Northeast Ohio, and two supervisors and four underwriters who were responsible for ensuring that the company’s lending standards were being met.  This investigation into Argent employees grew out of a Cuyahoga County case being prosecuted against Ur Gofman, owner of Cleveland based REal Asset Fund.  Gofman was indicted in August 2008 in Cuyahoga County Common Pleas Court for his role in what prosecutors are calling one of the biggest mortgage fraud schemes in U.S. history.  Gofman was convicted this year in U.S. District Court of mortgage fraud related charges.  Sentencing in this case is scheduled for this week.

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Cleveland is Adding Jobs, But They Don't Pay as Much

Greater Cleveland, Ohio (which includes Cleveland and the outlying suburbs) has actually been doing an admirable job of adding employment opportunities for people out of work, even in a weak economic recovery.  Unfortunately, the jobs that people are getting pay less than they did before the economic downfall.

According to the Brookings Institution’s MetroMonitor, which is a project measuring economic performance in the 100 largest metro areas of the United States, while the Cleveland-Elyra-Mentor area gained jobs in the first quarter of 2011, economic output in the area fell.  This a common trend in the economic recovery patterns over and over again, in many areas.

The report showed that Cleveland ranked second in terms of places that have brought down their unemployment rate, but is still struggling in economic output (the value of goods and serviced produced in the region).  Part of the problem is how productivity is measured.  Manufacturing jobs get higher points on the productivity scale because they pay more than lower paying service jobs.  Manufacturing is a key post-recession job growth factor in Ohio and neighboring states.

Local experts say that there is still reason for hope.  Early figures show that the Cleveland area continued to add obs during the second quarter of 2011, including jobs in the business and professional sector, which are also higher paying jobs.  Cleveland has a very large medical professional community due to the many high level hospitals like the Cleveland Clinic and University Hospitals systems.  In many ways, the medical industry is what is driving much of Cleveland’s economic growth and stability, and creating jobs for people that will eventually turn into home buyers as they settle in the Cleveland area.

Ohio Home Sales Slipping Even Including the Short Sale of Foreclosed Homes

The Ohio housing market is still quite sluggish, even during the time of year when housing sales usually go up due to better weather and ease of moving.  This trend is quite disappointing for real estate sellers, who are blaming part of the home sales slump on bad weather, high gas prices, and the difficulty in getting mortgage loans these days.

Last spring, home sales were up due to a very popular home buyer tax credit, but that is not available for home buyers now, so there is less incentive to take a risk this year.

Sales of homes in Northeast Ohio rose in May, however they were still behind May of 2010.  This pattern was followed across the state of Ohio.  Home sales were 20.8% lower than last year at this time (Ohio Association of Realtors).  In Northeast Ohio, sales of new and existing homes rose 6.8% last month, but were down 17.3% from May 2010.  Condo sales, however, jumped 35.7%, but were 4.6% lower than May 2010. Data is provided form the Northeast Ohio Real Estate Exchange.

Most analysts say that buyer demand is just sluggish, and buyers are sitting on the sidelines waiting to see what is happening.  The average price for a house in Northeast Ohio in May was $121,447, while the average price for a condo was $117,742.