The House Of Representatives this week passed a bill that would essentially authorize federally-insured depository institutions and banks to lease back houses to occupants of foreclosed properties. The proposed terms of the lease is up to five years. This is a bold move, which is aimed at limiting inventory, which would then hopefully stablilize home prices. The long term effects will vary depending on location, and just how long the defaulted homeowners will be allowed to stay as renters will be up to the bank. You can read more here.

For those of  you who are investment-savvy, here is an IPO you may want to keep your eye on. Penny Mack Mortgage Investment Trust plans to trade on the NYSE under the symbol PMT.  The company plans to acquire distressed mortgage loans and, through a network of special servicing expertise, rehabilitate them into sustainable performing loans. You can read more here .

The House Appropriations Committee has approved an extension of the $729,750 loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration through September 2010. The committee also increased the lending and guarantee authority of FHA and Ginnie Mae, as requested by the Obama Administration. The Department of Housing and Urban Development appropriations bill authorizes FHA to insure $400 billion in single-family loans during fiscal year 2010, up from $315 billion in the current 2009 fiscal year, which ends Sept. 30. The FY 2010 appropriations bill allows Ginnie Mae to guarantee up to $500 billion in securities backed by single-family and multifamily loans. Congress provided the secondary market agency with $400 billion in MBS guarantee authority in the FY 2009 appropriations bill. The massive stimulus bill that President Barack Obama signed in February raised the maximum loan limit for the GSEs and FHA to $729,750. But the higher limit is due to expire at year-end, if the full House as well as the Senate does not approve this bill.

Foreclosure filings hit 1.5 million homes in the first half of ‘09 according to the July 16, 2009 issue of the Wall Street Journal. The foreclosure train wreck continues, as a weak job market and falling home prices pushed foreclosures to a record high in the first half of the year. There are more properties in foreclosure available than ever before in California and while these deals may seem like bargains, many of these properties have more than the usual number of problems. 

Jerry Malcome was able to purchase a foreclosure in Sherman Oaks California at a reduced price. However, as soon as he moved into the house the toilet backed up flooding the bathroom floor with raw sewage. The gas company then refused to turn on the gas to the heater because it was listed as a condemned furnace and he had to replace some wiring and lighting fixtures that mysteriously disappeared. The money Jerry saved on the purchase was now going being spent on handling a list of unexpected emergency repairs.

To avoid these kinds of problems a buyer should be aware of the kinds of issues commonly found with abandoned and foreclosed homes:

1. There is often none of the usual transaction disclosure information required when banks sell a foreclosed property and typically they will deny any liability for problems found with the property during the sale process and after the purchase.

2. Many times these homes are poorly maintained and deteriorated because the owner ran out of money and was forced to let their property fall into a state of disrepair.

3. There is often sabotage and vandalism caused by disgruntled owners or vandals. Deliberately damaged walls, windows, and doors, as well as clogged toilets, garbage disposers, sink drains and sewer-lines are quite common.

4. Systems and components get stolen or removed from the property such as light fixtures, appliances, heaters, toilets and cabinets.

5. Pools and spas are left un-maintained or drained and left to deteriorate.

6. Houses left vacant create special issues: Unused sink, tub and shower faucets and drains often become clogged with rust flakes and debris restricting the flow of water.

7. Water, gas and electric services discontinued making it impossible to inspect each of the components and fixtures of the property. A buyer should have all the services turned on so a proper inspection of every system can be done before the deal is closed.

8. Mold and mildew issues are commonly found when buildings are left sealed up for an extended period of time.

A buyer’s best protection is to do extensive research and inspections. It should be standard to have professionally performed home inspections, sewer line inspections, chimney inspections, and mold inspections with a foreclosure purchase. Being diligent and thorough can help avoid the nightmare of serious unanticipated costs.

Courtesy of Larocca Inspections

The Federal Trade Commission and Attorney General Gerry Brown revealed lawsuits today filed against companies running loan modification scams in Southern California . You can read about it here.  This is good news, but the question remains– How many more of these “operations” will continue to use their advance fee agreements with the CA Dept of Real Estate, and their “attorney affiliates” as a license to steal?  It isn’t a secret anymore that loan modifications are not granted to just anyone because of lender/investor criteria, so why justify up front fees when it is most likely not going to be approved anyway?  What I still don’t understand is why many homeowners will often lose part of the “retainer fee” when the modification is unsuccessful. This “fee” should be put into a trust fund until the modification works. If it doesn’t, they get their money back. There are a few loss mitigation companies who do just that- this should be the standard for all of them.

 When a borrower enters into a contract to make bi-weekly payments on their mortgage, the amortization schedule is accelerated. For example, with a 30-year amortization schedule, the borrower makes 12 payments per year. In a bi-weekly arrangement, the borrower makes 26 ‘half’ payments, which allows the loan to be paid off in 22.8 years instead of 30 years. It’s the same as making 13 monthly payments. This ultimately saves the borrower thousands of dollars in interest rate fees. However, bear in mind that bi-weekly programs usually have some type of setup, transaction, and maintenance fees associated with them. A custodian manages the bi-weekly payments in a trust account (and also makes a profit on the interest accrued there). Because the lender really doesn’t accept partial payments, this middle man is still making monthly payments to the lender on some type of pre-payment schedule. It is important for the consumer to know that the same results can be achieved without hiring an outside company to do this. As long as your loan program carries no pre-payment penalty, pre-payments can be made on a monthly or annual basis to shorten the loan term to save money on interest or remove PMI charges on loans that have less than a 20% down payment. The borrower simply needs to indicate the extra payment is being made toward the principal balance, and have the discipline to make these extra payments as scheduled.

Courtesy of  Arcstone Financial

Title is the legal documentation that bestows ownership of real property. This is to be indicated in Part II of the 1003 Uniform Residential Loan Application as “manner in which title will be held.”

The decision of how the title will be held should not be put off until the last minute since it has a great impact on future tax planning, the financial future of the borrower(s) and their respective heirs, and the choice of the lender.

It is most important for the mortgage consultant to work hand-in-hand with the borrower’s financial planner or tax consultant to assist their mutual client in order to make decisions that work best for their particular scenario.

For example, most married couples would consider holding title with Joint Tenancy. But if one spouse has a good credit history while the other has damaged credit that may prevent funding of the loan, it would be advantageous to place title in the name of the spouse with the good credit rating.

Common ways to hold title are broken down into options that fall under the categories of sole ownership or co-ownership. Many states permit the holding of title in a living trust, but some lenders do not accept those terms. There are ways around this, but this is where the financial planner and the mortgage planner can make a tremendous difference by working together.

Courtesy Of

Arcstone Financial

Los Angeles, California - Attorney General Edmund G. Brown Jr. today sued a foreclosure consultant and an attorney – Paul Noe Jr. and Mitchell Roth – who conned 2,000 desperate homeowners into paying exorbitant fees for “phony lawsuits” to forestall foreclosure proceedings.

These lawsuits were filed and abandoned, even though homeowners were charged $1,800 in upfront fees, at least $1,200 per month and contingency fees of up to 80 percent of their home’s value.

“Noe and Roth ripped off homeowners desperate for help by charging unconscionable fees for phony lawsuits,” Brown said. “Instead of aggressively pursuing the lawsuits, Noe and Roth strung them along so they could continue to rake in fees.”

Beginning in mid-2008, Noe promised homeowners facing foreclosure or default he could help them lower or eliminate their mortgage debt.

He convinced more than 2,000 homeowners to sign “joint venture” agreements with his company, United First, and hire Roth to file suits claiming that the borrower’s loan was invalid because the mortgages had been sold so many times on Wall Street that the lender could not demonstrate who owned it. Similar suits in other states have never resulted in the elimination of the borrower’s mortgage debt.

After filing the lawsuits, Roth did virtually nothing to advance the cases. He often failed to make required court filings, respond to legal motions, comply with court deadlines, or appear at court hearings. Instead, Roth’s firm simply tried to extend the lawsuits as long as possible in order to collect additional monthly fees.

Under the terms of the agreement, United First charged homeowners approximately $1,800 in upfront fees, plus at least $1,200 per month. If the case was settled, homeowners were required to pay 50 percent of the cash value of the settlement. For example, if United First won a $100,000 reduction of the mortgage debt, the homeowner would have to pay United First a fee of $50,000. If United First completely eliminated the homeowner’s debt, the homeowner would be required to pay the company 80 percent of the value of the home.

Brown’s lawsuit contends that Noe, Roth and United First:

• Violated California’s credit counseling and foreclosure consultant laws, Civil Code sections 1789 and 2945;
• Inserted unconscionable terms in contracts;
• Engaged in improper running and capping, meaning that Roth improperly partnered with United First, Inc. and Noe, who were not lawyers, to generate business for his law firm violating California Business and Professions Code 6150; and
• Violated 17500 of the California Business and Professions Code.

Brown’s office is seeking $2 million in civil penalties, full restitution for victims, and a permanent injunction to keep the company and the defendants from offering foreclosure consultant services.

Paul Noe Jr. was convicted of wire fraud in 1989 and the subject of a California Department of Insurance Cease and Desist Order in 2004. Mitchell Roth resigned for the California State Bar in late May 2009, after the State Bar closed his law firm.

VICTIMS:

P.J. – After receiving default notices and conducting unsuccessful negotiations with his lender, P.J. of Panorama City contacted United First and was promised his home could be saved. In November 2008, P.J. signed a contract with United First and hired Roth’s law firm, paying nearly $5,000 in upfront and monthly fees. Even as P.J. was paying United First, Roth did nothing to advance his case, and his lender foreclosed on his home earlier this year.

A.S. – In June 2008, A.S. from La Mesa, Calif. received notices that his mortgage payments were going to increase from $3,700 to over $5,000 per month. A.S. was referred to United First by a member of his church. Representatives of the company assured him that his mortgage debt could be eliminated. A.S. paid over $10,000 to retain Roth’s firm. Shortly after signing a contract, A.S. received foreclosure notices from his lender. He called United First about the notices but was told not to worry and that his case was moving along. In January 2009, A.S. received a notice to come to United First’s office to pick up his file. Roth had abandoned his cases, and the State Bar had shut down the firm.

Tips for Homeowners

DON’T pay money to people who promise to work with your lender to modify your loan. It is unlawful for foreclosure consultants to collect money before (1) they give you a written contract describing the services they promise to provide and (2) they actually perform all the services described in the contract, such as negotiating new monthly payments or a new mortgage loan. However, an advance fee may be charged by an attorney, or by a real estate broker who has submitted the advance fee agreement to the Department of Real Estate, for review.

DO call your lender yourself. Your lender wants to hear from you, and will likely be much more willing to work directly with you than with a foreclosure consultant.

DON’T ignore letters from your lender. Consider contacting your lender yourself, many lenders are willing to work with homeowners who are behind on their payments.

DON’T transfer title or sell your house to a “foreclosure rescuer.” Fraudulent foreclosure consultants often promise that if homeowners transfer title, they may stay in the home as renters and buy their home back later. The foreclosure consultants claim that transfer is necessary so that someone with a better credit rating can obtain a new loan to prevent foreclosure. BEWARE! This is a common scheme so-called “rescuers” use to evict homeowners and steal all or most of the home’s equity.

DON’T pay your mortgage payments to someone other than your lender or loan servicer, even if he or she promises to pass the payment on. Fraudulent foreclosure consultants often keep the money for themselves.

DON’T sign any documents without reading them first. Many homeowners think that they are signing documents for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership to the “rescuer.”

DO contact housing counselors approved by the U.S. Department of Housing and Urban Development (HUD), who may be able to help you for free. For a referral to a housing counselor near you, contact HUD at 1-800-569-4287 (TTY: 1-800-877-8339) or www.hud.gov.

Brown’s Actions to Help Homeowners and Stop Loan Modification Fraud

Sued Countrywide For Predatory Lending And Secured $8.6 Billion Settlement. In October 2008, Brown announced an $8.68 billion settlement with Countrywide Home Loans, once the largest lender in the county, after the company deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers’ ability to afford loans.

Obtained Guilty Plea From Woman Who Operated Sophisticated Loan Scam. In May 2009, Brown obtained a guilty plea from Anna Santos, 22, who used forged documents to convince more than 100 desperate homeowners to hand over an average of $3,000 for non-existent loan modification services.

Shut Down “Foreclosure Freedom” And Announced Arrest Of Two Loan Modification Scam Artists. In March 2009, Brown shut down Foreclosure Freedom, a fraudulent loan modification company that continued to collect fees and mortgage payments from dozens of homeowners without ever providing loan modification services. The two scam artists were charged with 24 counts of grand theft and 25 counts of foreclosure consultant statute violations.

Broke Up “First Gov” And Sent Five Members To Prison. In November 2008, Brown shut down First Gov, a company that demanded $1,500 to $5,000 in up-front fees to modify loans it never renegotiated. In March 2009, five members of the ring were sentenced to a total of 18 years in prison.

Ended “Federal Land Grant” Foreclosure Rescue Scam. In May 2008, Brown ended a scam in which hundreds of homeowners were convinced to pay $10,000 to place their property in a land grant, a phony and worthless real estate document, and then convinced to sign over the deed to their home.

Shut Down Six Predatory Lending Companies. In March 2008, Brown shut down Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions for promising homeowners unrealistically low mortgage payments and then switching them to loans that did not match the original agreement, many with hidden fees of up to $20,000. The three scam artists who operated the scheme have been sentenced to three years in prison.

Have you thought about buying a house, but worried about further price drops? What if you think the bottom is no where in sight?  Or you own property and want a way to protect your equity?  This article  from Marketwatch addresses the current financial crisis which Robert Schiller describes as ” a failure to manage housing risk.” This should be required reading for homeowners, and investors alike, for the same reason commodity futures markets were created- to hedge risk.