FHA Cracks Down on Dubious Lenders

The Federal Housing Administration served subpoenas Tuesday on 15 mortgage companies with high default rates for FHA-backed loans.

The agency has previously taken action against several lenders with questionable records, including Lend America and Taylor, Bean & Whitaker Mortgage Co.

Department of Housing and Urban Development’s Inspector General, Kenneth Donohue said he plans to determine why these 15 lenders had so many loans that defaulted shortly after they closed.

Troubled lenders include: First Tennessee Bank N.A, of Memphis, Tenn.; Alethese LLC, of Lakeway, Texas; Security Atlantic Mortgage Co., of Edison, N.J.; Pine State Mortgage Corp., of Atlanta; Birmingham Bancorp Mortgage Corp., of West Bloomfield, Mich.; Alacrity Financial Services LLC, of Southlake, Texas; Assurity Financial Services LLC, of Englewood, Colo.; D and R Mortgage Corp., of Farmington, Mich.; Webster Bank, of Cheshire, Conn.; Mac-Clair Mortgage Corp., of Flint, Mich.; Americare Investment Group Inc., of Arlington, Texas; 1st Advantage Mortgage, of Lombard, Ill.; American Sterling Bank, of Independence, Mo.; Sterling National Mortgage Co., Inc., of Great Neck, N.Y.; and Dell Franklin Financial LLC, of Columbia, Md.

John Courson, CEO of the Mortgage Bankers Association, applauded the crackdown. “We’re concerned about the viability of the program and we want to make sure that the bad apples and the bad players, frankly, are eliminated,” he said.

Feds Scold Bank of America, Wells Fargo on Loan Modifications

The Treasury Department on Tuesday announced that only 9 percent of eligible home owners had been helped by the federal program to modify home loans and prevent foreclosure.

It scolded banking giants Bank of America and Wells Fargo, both of which received federal bailout money, pointing out that these banks have been among the least willing to assist troubled borrowers.

Bank of American modified 4 percent of eligible loans, and Wells Fargo modified 6 percent.

Big banks that did better included JPMorgan Chase & Co., which modified 20 percent of eligible loans, and Citigroup Inc., which modified 15 percent.

The bank with the best results was Saxon Mortgage Services Inc., which helped about 25 percent of its eligible borrowers.

Source: The Associated Press, Alan Zibel (08/04/2009)

Inspect foreclosures before you buy

It’s no surprise that buyers are looking for a bargain but now even more people are gaining interest in the growing foreclosure market. According to Trulia.com and RealtyTrac, a recent survey shows that 55 percent of U.S. adults are at least somewhat likely to consider a foreclosed home when buying real estate. That’s a nearly 10 percent increase from November 2008.

However, many buyers are a bit leery of foreclosures because approximately 85 percent said they can’t identify negative aspects of the properties. That figure also rose by 5 percent from the last quarter of 2008. Among the top concerns are hidden costs, a risky process, and further de-valuing of the foreclosed property. Buying a foreclosure doesn’t have to be a scary and unknown process if you take the right precautions. Inspect before you buy is a good motto for any real estate transaction but even more so with a home that has been foreclosed and possibly sitting vacant for long periods of time.

“A lot of the foreclosures that I have inspected have had fires, usually due to the heating equipment. And it’s predominantly because somebody just wasn’t taking care of the equipment—not because they were trying to set the house on fire because they were upset—it’s just poor maintenance,” says Frank Schulte-Ladbeck, a home inspector based in Houston, Texas.

He says the trouble with foreclosures is what happens to the homes during the foreclosure process. “People who are getting into the point where they’re going toward foreclosure usually don’t have money for maintenance,” says Schulte-Ladbeck. Consequently, sometimes important housing needs are let go or, potentially worse, the former homeowners unsuccessfully attempt to do their own repairs.

“You see weird plumbing or wiring set-ups that can sometimes really cause a problem down the road, like with the electrical [system] causing fires or the plumbing causing leaks,” says Schulte-Ladbeck.

Another big concern is when the previous homeowners used various items in the home as replacement for something that had broken. Schulte-Ladbeck says because homeowners who are facing foreclosure frequently cannot afford to fix something in the home, they go without it but that can cause more problems. “I saw one [foreclosure] home, that didn’t have any heating so they were using their fireplace but they weren’t using the fireplace correctly—they had closed the damper and it was allowing the smoke to get into the room. So there was all this smoke damage inside.” How about that terrible smell? Many buyers think it’s only due to mold. But Schulte-Ladbeck says it could be a different cause as was the case with a townhouse he recently inspected. “The water out of the bathrooms had drained out the P-Traps [the pipe that is under sinks and contains water] so you started getting a really awful sewage smell in the house. A lot of people associate that with mold but it’s actually the P-Trap which prevents the [noxious sewer gas] from backing up into your house. When a foreclosed home is sitting for six months or a year, that water will dry up. So then you need to pour water back into that drain to clear away the smell,” says Schulte-Ladbeck.

The best thing you can do if you’re considering a foreclosure is to have it inspected. Just make sure that the property is ready to be inspected or you could be doing yourself a huge disservice. “The one thing that I really suggest to buyers is that a lot of times they have me go in and inspect the foreclosure when it’s still winterized which means that all the power is off, the gas has been turned off, and the water has been turned off. But there’s just no real way to properly check the home to see if something has gone wrong without those things being on.” “Have everything turned on because that’s when you might start seeing things that are wrong like leaks and electrical problems. You could see problems with the heater or the water heater, ovens or cook tops that use natural gas,” says Schulte-Ladbeck.

Seeing is believing and, with inspections, the only way to know for sure is to have everything operating in order to gain the most knowledge about what things will need repairing.

How long does loan modification take?

Understandably, homeowners who apply for a loan modification tend to get a little antsy and perhaps even annoyed when they apply for a loan modification and then fail to hear anything for several weeks, especially if they continue to receive late payment notices and nasty phone calls from collection agencies. Many homeowners wonder, “How long will it be before I hear anything?” and “What should I do while I’m waiting.” The following information should help answer those very pressing questions.

How long will it take? The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative.

Note: The loan modification timeline is not set in stone. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot of collateral issues can see their loans take longer than what has become the typical 30- to 90-day timeframe.

A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to. Although each borrower’s situation is unique, knowing the measures the lender is willing to take for similarly situated borrowers can be a real time saver.

Whether you are dealing directly with your lender or through a loan modification specialist, ask several questions up front:

 
• How long is the process likely to take? Find out the best- and worst-case scenarios and then count out the days and mark them on your calendar. 
• When can I expect to hear something about my case? Mark this date on your calendar. 
• If I don’t hear anything by the specified date, whom should I contact? Get the person’s name, employee identification number (if available), phone number, and any extension you need to dial to reach the person directly.

What should I do while I’m waiting? Playing the waiting game can be agonizing, particularly when you have no idea of whether your application will be accepted or rejected or what the lender will offer in terms of a workout. It feels like your future hangs in the balance, and you remain in the dark. Knowing the standard timeline for processing a loan modification can certainly help relieve some anxiety. In addition, you can continue to make progress on your own by doing the following:

 
• If you hired a loan modification specialist to represent you, do not speak with your lender or lender’s representative. Refer all matters to the professional who is representing you. Anything you say to the lender could confuse things or compromise your representative’s ability to negotiate the best deal on your behalf. 
• Log all phone calls and correspondence between you and your lender or representative. Write down the number you called, the person you talked with, what the person said, and what you said – not word for word, just jot down the key points. 
• Keep track of important dates. If you do not hear something back on the date promised, call the next day to find out what’s going on. Lenders almost never call you back with updates. If you hired a third party representative, they will (or should) keep you posted, but the lender simply doesn’t have the time to make follow up phone calls. If you’re dealing with your lender directly, you’ll have to be the one making the calls. Mark your calendar and schedule periodic update phone calls. Consistent follow up is paramount to a successful modification. 
• Explore other options. If the lender denies your request for a loan modification or presents an offer that you cannot accept, you will need a plan B (and maybe a plan C and a plan D). In addition, other options may be better for you than a loan modification. Consult a real estate agent about listing your home for sale. Talk to a mortgage broker or loan officer about refinancing. Speak with a bankruptcy attorney to find out whether filing bankruptcy would be a better choice. 
• Don’t be surprised if you continue to receive delinquency notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. If the lender is able to foreclose in 30 days and a workout takes 60 days, there’s a slight timeline problem. Push to have all default and foreclosure actions put on hold while your workout attempts are underway.

When your fate is in someone else’s hands, 30 to 90 days can seem like an eternity. By doing your part to keep the process on track, remain informed, and explore other options, you not only improve your chances of achieving a positive outcome, but you can also reduce the stress that commonly accompanies the waiting process.

Investor Report: BANK OF AMERICA SHORT SALES

Investors looking to acquire houses through short sales just might be in for some good news.

One of the largest holders of second liens in the U.S., the Bank of America, says it’s relaxing its policy on payoffs connected with short sales.

That’s important because large banks have been major impediments standing in the way of thousands of short sales, demanding money for home equity lines and second mortgages that would otherwise be worthless if the short sale property went to foreclosure.

Bank of America had been among the least cooperative of all banks in agreeing to short sale payoff terms, according to industry critics.

The company’s policy was blunt: Pay us 10 percent of what the homeowners owed on the equity line balance or second mortgage, or we won’t sign off on the short sale, which is necessary for the deal to go through.

Now the bank has adopted what spokesman Terry Francisco told Realty Times is “a less arbitrary, more rational” policy.

“What we’re saying (to short sale proposals) is — give us an opportunity to participate and gain at least some of the savings” that will go to the first lien holder — the primary lender on the property — by avoiding the high expenses and losses of a foreclosure, according to Francisco.

Bank of America is now asking for five percent of the sale proceeds on the short sale, net of realty commissions, closing and other costs.

The bank believes that should open the door to more successful transactions, as well as more fruitful negotiations with buyers and sellers to avoid foreclosures.

But not all short sale market experts are convinced that’s the case. Raffi Tal, CEO of Los Angeles-based I-Short Sale, Inc., one of the largest players in the field, says Bank of America’s new policy “will still jeopardize” many short sales that involve its second liens.

The bank’s previous 10 percent policy meant they’d demand $20,000 on a $200, 000 equity line balance, or they wouldn’t bless the deal. But their new policy still means “they want $15,000 if the net proceeds are $300,000″ on a short sale, Tal told Realty Times — even though the economic value of their holding may in fact be zero.

Bottom line for investors: If there’s a Bank of America second mortgage or credit line on the house you’re after in a short sale, work the new numbers. At least some of the time you might be surprised that the answer from the big bank is now ‘yes.’

And watch for other major banks to follow suit.

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