While the speed at which they have been approving short sales has improved, I believe in a large part this is due to their new standard policy of pumping out an approval that simply releases the lien on the home without forgiving the borrower the deficiency balance.   This can be deadly for the homeowner and the real estate agent who likely advised them to accept the short sale offer.

- The Bank Slayer

Thanks to Robert Doggett @ Texas RioGrande Legal Aid for the following post.

Bank of America N.A. and its wholly owned subsidiary, BAC Home Loans Servicing LP, have been sued by 15 homeowners and the Texas Housing Justice League for abusive servicing practices.  The Texas suit alleges:

This lawsuit complains … of a systematic home loan servicing scheme that includes hours of telephone runaround, misleading and inconsistent information, lost correspondence, verbal abuse, and extensive delay, all of which have documented costs not only in terms of money, but in health. The facts in this case reveal the harsh reality that underlies the loan servicer’s press statements about loan modifications and forbearance agreements following collapse of the U.S. housing market.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 1 here.

It would be hard to imagine that Bank of America and BAC will fight the facts of the case; the question will likely be whether they can get away with it.  The servicer will likely claim that poor “customer service” is something that must be accepted like a slow waiter or a bad movie.  The difference is of course that homeowners are not merely customers that should expect to be mistreated and lied to — homeowners have a contract with the holder of their home loan and these servicers are the agents for the holder — and moreover, servicing a home loan is not in the realm of someone forgetting your fries or being tricked into seeing Gigli.

Many of the Plaintiffs were told that they were eligible for loan modifications or other workout assistance, only to spend months being shuffled through Defendant BAC’s “Home Retention,” “HOPE”, “Foreclosure,” “Bankruptcy” and “Collections” departments with no resolution. Others simply wanted to know that they had been reviewed accurately for eligibility in any available programs, that a denial of assistance was final, and that their arrearage had been correctly calculated. Instead of providing Plaintiffs with basic information about the servicing of their loans and providing timely screenings for workout assistance, however, Defendant BAC misrepresented material information to the Plaintiffs about their loans, and forced them into a scheme of operation so dysfunctional that the constant barrage of misinformation, misdirection, and deliberate inactivity amounted to abuse and harassment.

Plaintiffs describe feeling “harassed,” “like a yo-yo,” and “blocked at every turn.”  When Plaintiffs called Defendant BAC the information they received over the telephone often conflicted with written statements or prior telephone conversations. In many of the telephone calls Defendant BAC spun Plaintiffs in a labyrinth of transfers from one department to another and back again. Plaintiffs spent hundreds of hours on the telephone, explaining their stories to a different person each time they called; often they were transferred between departments, knowing they would never speak to the same person again, and wondering if the information being provided would be contradicted by the next person they spoke with. Often, it was.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 5-6 here.

While servicers will likely complain about the heavy caseloads and large number of loans in default that require attention — one thing is certain, the foreclosure arm of these servicers and their contractors have managed to deal with the heavy caseloads quite well.  If servicers can foreclose on behalf of these lenders at a record pace, they can provide accurate, helpful, timely information to the other party to the contract — the homeowners.

The Texas suit does not merely seek monetary relief, it also seeks injunctive relief as well in an effort to actually encourage or force servicers to make real changes and eliminate these complaints:

Requests to speak with supervisors or managers were met with resistance. During the course of telephone calls to Defendant BAC, Plaintiffs often found themselves disconnected after waiting on hold to speak to a supervisor, or were told that no supervisors were available. Some Plaintiffs sought out face-to-face interviews by contacting Bank of America branch offices, but simply found themselves on speakerphones with the same unaccountable departments that had previously been providing them with misinformation by telephone. Written communications did not fare better. Plaintiffs’ written submissions were often lost or misplaced.  Plaintiffs were asked to sign the same documents three, four or even five times, and were asked to provide the same information repeatedly. Many of the Plaintiffs were assigned multiple “negotiators” who would not return telephone calls, or provide timely information to Plaintiffs.

Plaintiffs’ experiences are not isolated incidents, but instead reveal a pattern and practice by Defendant BAC of deliberately misinforming borrowers in default or at risk of default, and refusing to respond to Plaintiffs’ legitimate, written and oral requests for information.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 5-6 here.

If servicers treated lenders the same way that they treat homeowners, their businesses would disappear.  Let’s hope this reform effort catches on, and servicers make changes without the necessity of litigation or a magician.

He tells tales of “being trained” on programs like HAMP and seeing blacked out sections.   When he asked why IndyMac (now OneWest) redacted the HAMP training guidebook, his supervisor told him, “We don’t agree with those parts so you won’t be trained on them since we aren’t going to implement  it.”   Nice huh?

As a REALTOR you wonder, “Why don’t these banks follow the rules set out to help homeowners, like HAMP and HAFA?”  Because:

#1 they are guidelines, not laws.

#2 they don’t care and do what they want.

If you have an account or mortgage with what was IndyMac, below is info relating to what happened and supposedly who you can contact.   Thanks to Neil Garfield.   The mortgage companies have MERS.  He’s building HERS.      Stay tuned.

- The Bank Slayer

Information for IndyMac Bank, F.S.B., and IndyMac Federal Bank, F.S.B., Pasadena,

Introduction

1. Press Release
2. Acquiring Financial Institution
3. Question and Answer Sheet
   • En Español
   • Chinese Language Version (350 kb PDF File PDF Help)
4. Banking Services
5. Loan Customers
6. Unclaimed Deposits
7. Possible Claims Against The Failed Institution
   • FAQ re IndyMac “No Value” Determination
8. Priority of Claims
9. Dividend Information
10. Brokered Deposits (Institutional Brokers)
11. Agreements
    • Purchase and Assumption Agreement (1.1 mb PDF File – PDF Help)
    • Master Purchase Agreement by and among FDIC as Conservator for IndyMac Federal Bank, FSB and IMB HoldCo LLC, and OneWest Bank Group LLC (5.3 mb PDF File – PDF Help)
    • Loan Sale Agreement Between the FDIC as Receiver for IndyMac Federal Bank, FSB and OneWest Bank, FSB (3.5 mb PDF File –PDF Help)
    • Shared Loss Agreement Between the FDIC as Receiver for IndyMac Federal Bank, FSB and OneWest Bank, FSB (1.7 mb PDF File – PDF Help)
12. IndyMac Bank, F.S.B., Contact Information
    JavaScript is disabled or blocked. Alternatively, you may navigate towww2.fdic.gov/drrip/cs/index.asp and search for the contacts.
13. Balance Sheet Summary

I.  IntroductionOn March 19, 2009, the Federal Deposit Insurance Corporation (FDIC) completed the sale of IndyMac Federal Bank, FSB, Pasadena, California, to OneWest Bank, F.S.B., Pasadena, California.  OneWest Bank, FSB is a newly formed  federal savings bank organized by IMB HoldCo LLC.  All deposits of IndyMac Federal Bank, FSB have been transferred to OneWest Bank, FSB.OnJuly 11, 2008, IndyMac Bank, F.S.B., Pasadena, CA was closed by the Office of Thrift Supervision (OTS) and the FDIC was named Conservator.  All non-brokered insured deposit accounts and substantially all of the assets of IndyMac Bank, F.S.B. have been transferred to IndyMac Federal Bank, F.S.B. (IndyMac Federal Bank), Pasadena, CA “assuming institution”) a newly chartered full-service FDIC-insured institution.  No advance notice is given to the public when a financial institution is closed.

The FDIC has assembled useful information regarding your relationship with this institution.  Besides a checking account, you may have Certificates of Deposit, a car loan, a business checking account, a commercial loan, a Social Security direct deposit, and other relationships with the institution.  The FDIC has compiled the following information which should answer many of your questions.Back to top

II.  Press Release The FDIC has issued the following press releases (PR-56-2008, PR-42-2009) about the institution’s closure.  If you represent a media outlet and would like information about the closure, in California, please contactDavid Barr with the Office of Public Affairs at 202-898-6992, in Washington D.C. please contact Andrew Gray at 202-898-7192. Back to top

III.  Acquiring Financial InstitutionOn March 19, 2009, all deposits of IndyMac Federal Bank, FSB were transferred to OneWest Bank, FSB, (OneWest Bank) Pasadena, California.On July 11, 2008, all non-brokered insured deposit accounts were transferred to IndyMac Federal Bank, F.S.B. (IndyMac Federal Bank), Pasadena, CA (“assuming institution”) a newly chartered full-service FDIC-insured institution.  The OTS appointed the FDIC conservator of IndyMac Federal Bank.  All insured deposit accounts will be available as usual during regular business hours starting July 14, 2008.

Principal and interest on insured accounts, through July 11, 2008, are fully insured by the FDIC, up to the insurance limit of $100,000.  You will receive full payment for your insured account.  Certain entitlements and different types of accounts can be insured for more than the $100,000 limit.  IRA funds are insured separately from other types of accounts, up to a $250,000 limit.

All accounts that exceed the $100,000 insurance limit, and/or all accounts that appear to be related and exceed this limit, are reviewed by the FDIC to determine their ownership and insurance coverage.  If you think you might have uninsured deposits you should call the FDIC Call Center to arrange for a telephone interview with  a Claims Agent at 866-806-5919. The Claim Agent may direct you to download and submit a particular form that will assist in expediting the processing of your claim.

List of Affidavits, Declarations, and Forms available for download

Please return the forms to the FDIC by FAX (facsimile) or mail at the number or address listed for the failed institution.

If it is determined that you have uninsured funds, the FDIC will generate and mail to you a Receiver Certificate.  This certificate entitles you to share proportionately in any funds recovered through the disposal of the assets of IndyMac Bank, F.S.B.  This means that you will eventually recover some of your uninsured funds.  The FDIC declared a 50% advance dividend for uninsured deposits.To find out more about FDIC Deposit Insurance:

• Visit EDIE the FDIC’s Electronic Deposit Insurance Estimator
• View the FDIC Deposit Insurance Coverage Video

Checks that were drawn on IndyMac Bank, F.S.B. will be honored up to your available balance or the insured amount.  You may withdraw funds from any transferred account without an early withdrawal penalty until you enter into a new deposit agreement with IndyMac Federal Bank.  A hold may be in place on deposits accounts due to delinquent loans where the depositor is the borrower or guarantor.  Additionally, any account pledged as collateral for a loan will be held.Back to top

V.  Banking ServicesOn March 19, 2009 there was no break in services.As ofJuly 14, 2008 you may continue to use the services to which you previously had access, such as, online service, safe deposit boxes, night deposit boxes, wire services, etc.

Your checks will be processed as usual.  All outstanding checks will be paid against your available insured balance(s) as if no change had occurred.  IndyMac Federal Bank will contact you soon regarding any changes in the terms of your account.  If you have a problem with a merchant refusing to accept your check, please contact IndyMac Federal Bank, Customer Service Department, at 800-998-2900.  An account representative will clear up any confusion about the validity of your checks.

All interest accrued through Friday, will be paid at your same rate.  IndyMac Federal Bank will be reviewing rates and will provide further information soon.  You will be notified of any changes.

Your automatic direct deposit(s) and/or automatic withdrawal(s) will be transferred automatically to IndyMac Federal Bank.  If you have any questions or special requests, you may contact a representative of your assuming institution at 800-998-2900. Back to top

VI.  Loan Customers If you had a loan with IndyMac Bank, F.S.B., you should continue to make your payments as usual.  The terms of your loan will not change under the terms of the loan contract because they are contractually agreed to your promissory note with the failed institution.  Checks should be made payable as usual and sent to the same address until further notice.For all questions regarding new loans and the lending policies of IndyMac Federal Bank, please contact 800-998-2900 or visit the IndyMac Federal Bank website atwww.IndyMac.com. Back to top

VII.  Unclaimed Deposits Please note that any deposits that have not been claimed within 18 months of the failure of Indymac Bank was sent to the FDIC by One West Bank. If the FDIC is unable to locate the deposit customer, the unclaimed funds will eventually be escheated to the state or according to Federal Law (12 U.S.C., 1822(e)).

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VIII.  Possible Claims Against the Failed InstitutionDetermination of Insufficient Assets To Satisfy Claims Against Financial Institution in Receivership

SUMMARY: The FDIC, by its Board of Directors, has determined that insufficient assets exist in the receivership of IndyMac Bank, F.S.B., Pasadena, California and the receivership of IndyMac Federal Bank, FSB, Pasadena, California to make any distribution to general unsecured claims, and therefore such claims will recover nothing and have no value.

DATES: The Board made its determination on November 12, 2009.

FOR FURTHER INFORMATION CONTACT: If you have questions regarding this notice, contact Thomas P. Bolt, Counsel, Legal Division, (703) 562–2046 ortbolt@fdic.gov; Shane Kiernan, Senior Attorney, Legal Division, (703) 562–2632 or skiernan@fdic.gov,

SUPPLEMENTARY INFORMATION: On July 11, 2008, IndyMac Bank, F.S.B., Pasadena, California (‘‘IndyMac Bank’’) (FIN # 10007) was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (‘‘FDIC’’) was appointed as its receiver. In complying with its statutory duty to resolve the institution in the method that is least costly to the deposit insurance fund (see 12 U.S.C. 1823(c)(4)), the FDIC effected a pass-through receivership. Accordingly, the FDIC organized IndyMac Federal Bank, FSB, Pasadena, California (‘‘IndyMac Federal’’), a new federal savings bank for which the FDIC was appointed as conservator. IndyMac Bank’s assets were transferred to IndyMac Federal under an agreement whereby the amount (if any) realized from the final resolution of IndyMac Federal after payment in full of IndyMac Federal’s obligations was to be paid to the IndyMac Bank receivership. On March 19, 2009, IndyMac Federal was placed in receivership and substantially all of its assets were sold. The amount realized from the resolution of IndyMac Federal is insufficient to pay all of its liabilities, and therefore there will be no amount to pay to the IndyMac Bank receivership.Section 11(d)(11)(A) of the FDI Act, 12 U.S.C. 1821(d)(11)(A), sets forth the order of priority for distribution of amounts realized from the liquidation or other resolution of an insured depository institution to pay claims. Under the statutory order of priority, administrative expenses and deposit liabilities must be paid in full before any distribution may be made to general unsecured creditors or any lower priority claims. The FDIC has determined that the assets of IndyMac Bank are insufficient to make any distribution on general unsecured claims and therefore, such claims, asserted or unasserted, will recover nothing and have no value. The FDIC has also determined that the assets of IndyMac Federal are insufficient to make any distribution on general unsecured claims and therefore, such claims, asserted or unasserted, will recover nothing and have no value. //

Federal Register / Vol. 74, No. 221 / Wednesday, November 18, 2009 / Notices59541

FAQ re IndyMac “No Value” Determination Back to top

IX.  Priority of ClaimsIn accordance with Federal law, allowed claims will be paid, after administrative expenses, in the following order of priority:

Depositors

General Unsecured Creditors

Subordinated Debt

Stockholders

Back to top

X.  Dividend Information When IndyMac was placed into Conservatorship in July of 2008, the FDIC calculated that the ultimate resolution of IndyMac would result in a recovery of approximately 50% of the uninsured deposits of IndyMac. Based upon that estimate, an advance dividend in that amount was paid to the uninsured depositors at that time. The announced sale of IndyMac to IMB Management Holdings is consistent with the original estimate and no additional dividend will be paid as a consequence of this sale.While no dividends for the uninsured depositors are anticipated at this time, the FDIC will continue to periodically re-assess the financial condition of the receivership to determine if there is additional cash for dividend distributions.

Dividend History on IndyMac Bank, F.S.B.
JavaScript is disabled or blocked. Alternatively, you may navigate to
www2.fdic.gov/DIVWEB/Dividendindex.asp and search for the dividends. Dividend Information on Failed Financial Institutions Back to top

XI.  Brokered Deposits The FDIC offers a reference guide to deposit brokers acting as agents for their investor clientele.  This site outlines the FDIC’s policies and procedures that must be followed by deposit brokers when filing for pass-through insurance coverage on custodial accounts deposited in a failed FDIC Insured Institution.Deposit Broker Processing Guide

Bank of America, clearly our Nation’s leading “uplifting promise to do something press release” mortgage banker, immediately stepped forward to claim,

“The new program will give us a degree of efficiency that we have not had in the past,” said Matt Vernon, Bank of America’s executive in charge of short sales and foreclosed properties.

Why? Well as USA Today is reporting.

Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed for sale.  If the offer is above that, the lender must accept it.

That’s a big change from current practice. Lenders generally don’t calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.”

Hold the presses!!!! You mean the bank is going to calculate an amount they are willing to take BEFORE considering a short sale!   This is absolutely amazing.  I bet not a single bank today has any idea of what they will take for an offer.   I heard they simply throw darts at a board with a bunch of dollar amounts.

WAKE UP!!    Of course, they already have a number they are willing to take! Give me a break.

Oh and by the way… loans currently under the Freddie and Fannie umbrella aren’t eligible.

Let me tell you very simply how this is going to work:

1. The bank has a number that is very close to payoff or full market value whichever is higher.   This will be the target for the homeowner to try and reach for a “pre-approved” short sale bid.
2. The $3K, the homeowner is supposed to receive to help move, will be used to pay for outstanding items like property taxes, HOA bills, real estate commissions, closings cost, etc.  How do we know this?  Because the FHA through HUD already gives homeowners $1,500 to move.  Guess what?  It almost always goes in its entirety to pay for seller related selling costs.
3. There will be the standard long wait time to get approved for a short sale if you don’t reach the “pre-approved bid amount”.

Bottom Line:   This program will do nothing to speed up the process except for buyers BUT it will give a little wiggle room at the end of the sale to cover a seller’s outstanding past due bill.  Hey, something is better than nothing.

-          The Bank Slayer

Below is the USA Today article….

Short-sale program aims to help ‘underwater’ homeowners

WASHINGTON — The government launched an effort on Monday to speed up the time-consuming, often-frustrating process of selling your home if you owe more than it’s worth.

The Obama administration will give $3,000 for moving expenses to homeowners who complete such a sale — known as a short sale — or agree to turn over the deed of the property to the lender. It’s designed for homeowners who are in financial trouble but don’t qualify for the administration’s $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure doesn’t hurt a borrower’s credit score for as much time as a foreclosure. For lenders, a home usually fetches more money in a short sale than a foreclosure. And the bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure.

“It’s very traumatic and embarrassing and frustrating to go through a foreclosure,” said Laurie Maggiano, policy director of the Treasury Department’s homeownership preservation office. With a short sale, she said, “your financial issues are your own problem and not neighborhood conversation.”

Falling home prices and lost jobs have forced many sellers into this position. For example, in Orange County, Calif., short sales made up about 26% of the market in March, compared with 17% a year earlier, according to data complied by Altera Real Estate, a local brokerage. In the Minneapolis-St. Paul metro area, about 12% of all deals since October were short sales, up from about 8% a year earlier, according to the Minneapolis Area Association of Realtors.

The expanded incentives will help accelerate short sales, said Mark Zandi, chief economist at Moody’s Analytics. He expects 350,000 homeowners nationwide to use the program through the end of 2012, more than double his earlier forecast.

A short sale appears to be the only way out for Brandee Chambers, 36, of Las Vegas. She got into trouble during the housing boom by taking out a risky loan against her home and using the money to buy two investment properties in Phoenix.

Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it.

That’s a big change from current practice. Lenders generally don’t calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.

The new program “will give us a degree of efficiency that we have not had in the past,” said Matt Vernon, Bank of America‘s executive in charge of short sales and foreclosed properties.

Under the new process, buyers who submit an offer to purchase a home in a short sale should get a response within two weeks, as opposed to months. If that happens as planned, it would be a big improvement. Real estate agents across the country have complained that lenders are often difficult to reach, sometimes only communicating by e-mail and infrequently at that.

“You’re one of 400 properties on a screen,” said Dave Bauer, a real estate agent in Danville, Calif.

Some real estate agents who specialize in short sales are optimistic. “It could be the first government program that actually helps Las Vegas,” said Steve Hawks, a real estate agent there who specializes in short sales. Most borrowers in Las Vegas, he said, owe so much more on their mortgages than their properties are worth they can’t qualify for a loan modification.

The Treasury Department outlined the plan last November, but doubled the original $1,500 in relocation money after realizing that many homeowners need more cash to move out. That’s because landlords usually want large deposits from people whose credit records have gone sour after missing mortgage payments.

However, there are plenty of restrictions. To qualify, the home needs to be a borrower’s primary residence. Homeowners either have to be behind on their mortgages or on the verge of becoming delinquent.

Currently, the program is not available for mortgages owned or guaranteed by mortgage finance companiesFannie Mae and Freddie Mac, though the two government-controlled companies will soon follow suit, said the Treasury’s Maggiano.

Bottom line is more foreclosures are coming.  Hopefully some will be averted with short sales and modifications but homeowners and REALTORS have to act quickly before the loan is too far behind.  The foreclosure process in Texas is FAST!!!!

Stats from 2008, (in the Houston MLS) show that only 15% of all REALTORS listing short sales successfully closed them.

An 85% failure rate is not good.

Don’t waste another minute.

- The Bank Slayer

Declining Mortgage Performance in Q409 Means More Foreclosures Ahead: Feds

Posted By JON PRIOR

In Q409, the amount of mortgages falling behind by 90 or more days increased 21.1%, resulting in more foreclosures ahead, according to a study from the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS).

The OCC and the OTS report covers nearly 34m loans totaling $6trn in principal balances, representing 64% of all outstanding mortgages in the US. Overall mortgage performance declined for the seventh consecutive quarter, as 86.4% of the mortgages studied were current and performing at the end of Q409.

Banks initiated fewer new foreclosures in the quarter, swelling projections of the “shadow inventory” of homes waiting to hit the market. The actual number of that inventory remains in debate. Standard & Poor’s showed it could take three years for the market to clear ^[1] the overhang. Richard Powers, senior vice president of real estate sales at Altisource Portfolio Solutions said that number could double ^[2].

The US Treasury Department launched the Home Affordable Modification Program (HAMP) in March 2009 to give incentives to servicers for the modification of loans on the verge of foreclosure. Today, the Treasury mandated that servicers participating in the program halt foreclosure procedures ^[3] until a borrower has been considered for HAMP. In Q409, HAMP servicers initiated more than 250,000 new HAMP three-month trial plans and converted more than 21,000 trials into permanent modifications.

But echoing same sentiments from the Treasury, servicers reported that HAMP and even some private-market foreclosure programs are not for everyone ^[4], and not everyone can get help.

“In this regard, servicers reported that they expect new foreclosure actions to increase in the upcoming quarters as many of the mortgages that are seriously delinquent may eventually result in foreclosure as alternatives that prevent foreclosure are exhausted,” according to the report.

As far as regarding how you “get your principal reduction” in HAMP read on…

Remember folks, these changes to HAMP and HAFA and every other program rolled out require not only sign off at each of the various “banks” but also they are guidelines meant to encourage behavior.

You should drink eight glasses of water each day as well.  Do you follow that guideline?

Thus far we have seen no significant recourse for homeowners if the mortgage companies don’t obey these guidelines.   But let’s at least consider what they are proposing.

The new HAMP guidelines:

• “encourage principal write-downs”
• “are to be implemented in coming months”
• “requirement that servicers consider ‘principal relief’”
• “Borrowers faced with unemployment… will be able to have payments temporarily reduced to an affordable level for three to six months”
• “servicers must pursue early intervention”

Especially power is a REQUIREMENT to consider.  Tack on the MUST pursue early intervention.  i.e., MUST mail homeowners letting them know they need to take action or they will face foreclosure.    I’m sure we’re all encouraged about the “affordable” payments when you have no income due to loss of job.  I vote for $1 mortgage payments.

If you want to take down the bank, forcing them to offer you a significant loan modification or write-down in a short sale be prepared to fight and fight hard.  It is a winnable battle but suit up.

-          The Bank Slayer

Treasury Prepares Principal Reduction Initiative under HAMP

Posted By DIANA GOLOBAY On March 26, 2010 @ 8:00 am | 1 Comment

(Update 1: adds Treasury announcement.)

The US Treasury Department, as it continues to revamp the Home Affordable Modification Program (HAMP), announced today an initiative to encourage principal write-downs.

The principal reduction plan is one of the changes to HAMP, to be implemented in coming months.

The changes will encourage servicers to write-down a portion of mortgage debt as part of a HAMP modification, allow more borrowers to qualify for modification and help borrowers move into more affordable housing when modification is not possible, according to a fact sheet on the improvements provided to HousingWire.

Most notable among the new initiatives is the requirement that servicers consider “principal relief” including write-downs.

“This alternative modification approach will include incentive payments for each dollar of principal write-down by servicers and investors,” Treasury said in a statement today. “The principal reduction and the incentives will be earned by the borrower and lender based on a pay-for-success structure.”

The principal reduction initiative is geared toward borrowers with excessive negative equity.

The write-downs will apply only to borrowers with 115% or higher loan-to-value (LTV) ratios. Servicers will initially forbear some or all of the balance exceeding 100% of the home’s value, down to a 31% debt-to-income ratio. Then, the servicer will forgive the forborne amount in three equal installments over three years, contingent on the borrower’s ability to remain current on payments.

Borrowers faced with unemployment – therefore, a lack of income to calculate the debt-to-income ratio targeted under HAMP – will be able to have payments temporarily reduced to an affordable level for three to six months. Treasury is also clarifying borrower outreach and communication requirements, increasing incentives available to servicers and extending those incentives to borrowers with mortgages insured by the Federal Housing Administration (FHA).

The Treasury also announced adjustments to FHA programs that will provide more refinancing options to borrowers with negative equity due to large local declines in home prices. The new FHA loan should re-equify the borrower by reducing the amount owed on the original loan by at least 10% and resulting in a principal amount less than the home value. After refinance, the combined first mortgage and any secondary liens cannot surpass 115% of the current value of the home.

“This refinancing will help homeowners by setting monthly payments at affordable levels and decreasing the mortgage burden for families owing significantly more than their homes are worth,” Treasury said. “Keeping more responsible families in their homes should support the continued recovery of the housing market.”

For borrowers that cannot complete a modification, there’s the Home Affordable Foreclosure Alternatives (HAFA) program, which ends in a short sale. Treasury said today it will double relocation assistance payments to borrowers that elect HAFA, as well as increase incentives for servicers and lenders in order to increase participation in this program.

Laurie Maggiano, Director of Policy in the Office of Homeownership Preservation at the Treasury, indicated yesterday during a Webinar ^[1] hosted by HousingWire that a significant announcement around HAFA was in the works.

The Treasury yesterday announced sweeping improvements ^[2] to the way servicers actively solicit borrowers for participation in HAMP, even from the protection of bankruptcy. Beginning June 1st, servicers must pursue early intervention, pre-screening every borrower that misses two or more payments to determine eligibility for HAMP and soliciting those qualifying borrowers for HAMP participation.

The news of a HAMP principal reduction program comes after Bank of America (BAC ^[3]: 17.90 +0.90%) introduced this week ^[4] an earned principal forgiveness program in which a forborne amount of principal will gradually be forgiven over a five-year period.

Analyst commentary on the program suggests it bears adverse implications ^[5] for the payout of certain non-agency mortgage-backed securities (MBS). In particular, the program presents a “clear negative” for junior mezzanine and subordinate debt holders, as well as moral hazard risk as borrowers intentionally default to receive principal forgiveness.

The following article on CNNMoney highlights what hopefully is a positive trend in lenders considering short sales not only as a better alternative to foreclosures but reducing the time it takes for a short sale to be approved.   As a side note, I take issue with the Equator “software guy” as his system has flaws and is an obstacle versus a helpful tool at the homeowner level (at least right now).

- The Bank Slayer

Don’t foreclose! Do a short sale

NEW YORK (CNNMoney.com) — Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.

“Banks have ramped up short sale approvals,” said Duane Legate of House Buyer Network, which connects short sellers with buyers. “They’re hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales.”

These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.

And Bank of America (BAC, Fortune 500), the country’s largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.

Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. “Bank of America approved it in 24 days,” she said. “That flipped me out.”

This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.

Beware: You lost your house but still have to pay

In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete,” said Chris Saitta, CEO of Equator, which produces short sale software.

“Things would just fall into a black hole and not come out again,” added Weintraub.

And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.

In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there’s usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.

But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. “The lenders lose 50% on a foreclosure and only 30% on a short sale,” said Glenn Kelman, founder of the real estate Web site Redfin. “And short sales offer a way to get distressed properties off their books quickly.”

And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.

Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 “relocation incentive” and servicers will get $1,500 for handling a short sale.

The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.

Equator’s Saiita anticipates a short sale explosion in response to the new program. “The challenge will be handling all the volume,” he said.

The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.

The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.

Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.

By Les Christie, staff writer – March 29, 2010: 3:46 AM ET

Thanks to Consumerlaw.org for this article.

– The Bank Slayer

Bait and switch program

The Mortgage Bankers Association says “Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted.” NYT article here.  Yeah, and Tiger Woods cheated on his wife as a last resort too.  See news story below.

These examples are from Texas, but this is a national problem.  The federal government created HAMP to enable homeowners to modify their loans and avoid foreclosures but few permanent modifications have actually occurred.  The Program’s own Loan Modification Report here, shows that as of January 2010 less than 4% of borrowers that are more than 60 days delinquent have received permanent modifications.  The first step is obtaining a trial modification, and very few homeowners have been offered one (according to the report it’s about 37.3% of eligible borrowers).

One reason for this is that loan servicers give confusing information — often what borrowers are told on the phone conflicts with the information that they receive in writing.  For example, borrowers are told on the phone that while they are in review their house will not be sold, but continue receiving letters saying the lender is foreclosing.  Loan servicers tell borrowers not to worry about the documents they get as “it is part of the process.”  Then a few days before the sale, they unilaterally decide that the borrower has not provided a necessary document or piece of information, and proceed to the sale.

Further, servicers routinely lose borrower documents, want more, and then lose these.  No person is responsible or accountable for the loan file.  Instead, the division of labor is so fractured that a borrower might talk to 5 or 6 different customer service representatives in 3 or 4 different departments just trying to get an answer to a simple question such as “what documents are missing from my application?” Or “what program am I being considered for?”  All of these representatives are merely consulting a computer screen that may take days to update, and will only contain information if the appropriate representatives actually input it.  The result is that servicers spend disproportionate resources pushing customers from one department to another, and never actually problem-shooting to resolve the minor defects in modification applications.

Servicers claim that they are overloaded and are working as fast as they can.  I believe them on this point – they are overloaded because they allocate the bulk of their resources to representatives that talk borrowers in circles reading inaccurate information off computer screens, rather than to training representatives to analyze and resolve problems.  And servicers are working as fast as they can – to foreclose on homeowners.  Why?  The answer to that question is discussed in an article by the National Consumer Law Center (NCLC) : “Why Do Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior” here.

The national bait-and-switch program is working perfectly.  They trick people and distract them with dreams of modification, and meanwhile foreclose on the home. Lenders merely get borrowers to chase their tails, and never even tell them that their HAMP modification application has been rejected.  Of course they do find out, after it is too late to run to bankruptcy court.  This is not an accident; this is their playbook.  See Report by NCLC and National Association of Consumer Advocates here.

As for the second step of the modification process, permanent loan modification, Bank of America was just sued for promising to make modifications to loans at a foreclosure clinic and failing to do so.  So far in our office, we have seen one permanent modification.  Bank of America and Wells Fargo were sued in Massachusetts for providing trial modifications, but failing to permanently modify the loan.  Article here.  HAMP guidelines are ridiculously weak.  They allow lenders to continue the foreclosure process even when they are considering a modification application.  See Supplemental Directive 09-09 here at Page 10.  Lenders are prohibited from conducting a sale when they are still considering a modification, but what they say typically is that the borrower is not eligible the day before.  Why not make that a clear ban?

Q1106. Must servicers suspend foreclosure or not initiate foreclosure for all borrowers who are potentially eligible for HAMP?

To ensure that a borrower currently in foreclosure or at risk of foreclosure has the opportunity to apply for a HAMP modification, servicers should not proceed with a foreclosure sale until the borrower has been evaluated for the program. Additionally, servicers are strongly encouraged not to initiate foreclosure until a borrower has been evaluated and determined to be ineligible for the program or the borrower fails to respond to a HAMP offer that has been made by the servicer.

HAMP 1106 FAQ, at page 3, as of February 25, 2010 here.

And while the guidelines require homeowners to get written decisions from the lender regarding their applications (see HAMP Supplemental Directive 09-08 of November 3, 2009 here), the Federal Reserve has conveniently decided that ECOA (Equal Credit Opportunity Act) does not require written decisions on HAMP applications where the borrower is in default.  See Federal Reserve Bank Consumer Affairs Letter CA-09-13here.  Once again the Federal Reserve puts the people above the banks.  The result of this matters — borrowers may find it much harder to take action based on a violation of a supplemental directive as compared to ECOA (and the lenders know it).  As a result, we see few lenders providing written denials of loan modifications which means borrowers are kept in the dark until it is too late.  The document lenders do provide regularly that indicates that a homeowner’s HAMP application was denied is an eviction notice after they foreclosed already.

As we predicted long ago (here), HAMP is a total failure.  HAMP was supposedly the industry suggested program that was going to work as an alternative to giving bankruptcy judges the authority to modify residential loans (like they have for loans on second homes and boats).  Not surprisingly, the lenders’ solution was a victory for them and an insult to the rest of the world.

This is good and bad.

The good news is that hopefully most of the rip-off operations available through the internet will be out of business.  It has always been our belief that you should work only with local, Better Business Bureau-accredited companies.  Local is KEY.  You need professionals that understand your needs and can adjust to your schedule.  Only a local company (with real offices) and experienced personnel will be able to stay in the game and get the results you need.

Bad news is that there are legitimate loan modification companies that have the time, experience and knowledge to successfully hassle with your mortgage company everyday (while you’re at work) until a modification is approved.    These companies will now likely be kaput.

End result is this…HAMP related loan modifications are at times capable of being handled by non-legal personnel but anything beyond a HAMP modification (and even some of these) is a better fit for mortgage litigation.

- The Bank Slayer

The Federal Trade Commission proposed a new rule to prohibit third-party mortgage companies from charging upfront fees for foreclosure rescue and modification services.

The FTC brought 28 cases against companies that charge a fee, promising the borrower a modification from the lender. The cases allege these companies never provided the services promised and that they misrepresent their affiliation with the government and other housing assistance programs, including the Home Affordable Modification Program (HAMP).

“Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” said FTC chairman Jon Leibowitz ina press statement ^[1]. “The proposed rule would outlaw up-front fees so companies can’t take the money and run.”

The new FTC rule would also bar the companies from telling borrowers to end communication with their lenders. It would require that the companies notify a potential client of their for-profit status.

“Far too many homeowners have paid up-front fees to bad actors who promised loan modifications but never delivered,” US Treasury Department secretary Timothy Geithner said. “I commend the FTC for proposing a strong set of safeguards to protect consumers from these predatory practices.”

Several states already have similar laws in place, forbidding the upfront fees. Governor Arnold Schwarzenegger signed Senate Bill 94 in October 2009, which banned the fees.

In a story in the November issue ^[2] of HousingWire, a spokesman for the California attorney general’s office said that complaints of modification fraud increased with the same velocity as foreclosures. In 2007, consumers registered 27 complaints for the year, a number that grew to 163 in 2008. In September 2009 alone, the office heard 158 complaints, totaling nearly 2,000 for the year.

In the story, an FTC spokesman warned borrowers against the fraudulent practice.

“People should avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company,” the spokesman said.

As the first step in the rule-making process, the FTC sought comment on the practices of the for-profit mortgage relief companies in June 2009. A month later, the FTC launched Operation Loan Lies ^[3], a coordinated national law enforcement effort to hunt down mortgage modification scams.

The new proposed rule has a 45-day public comment period that ends March 29, 2010.

HAMP tends to instill false hope in borrowers many of who soon find out either:

a)     they have been denied for a permanent modification even after making their payments;

b)    they have stopped making payments because they were told to and now can’t catch back up.

-       The Bank Slayer

Elizabeth Warren’s Report:

The December report of the Congressional Oversight Panel presents a finding that the TARP (Troubled Asset Relief Program) overall assisted in preventing a bigger crisis, but it created more challenges and encouraged risk-taking.

Earlier reports mentioned the abysmal failure of the foreclosure prevention/mortgage modification program and the government’s awareness of this failure. The panel has made recommendations to attempt to fix the issues.

However, in the December report, the following remains a key failure:

• The foreclosure crisis continues to grow.
• More than two million families have lost their homes to foreclosure since the start of this crisis.
• Countless more have lost their homes in short-sales or have turned their keys over to the lender.
• Foreclosure starts over the next five years are projected to range from 8 to 13 million.
• More than a year after TARP was passed, it appears that the TARP’s foreclosure mitigation programs have not yet achieved the scope, scale, and permanence necessary to address the crisis.

Executive Summary, Elizabeth Warren Introduces December Report

Here is a summary:

HAFA – New Program Offers Borrowers Foreclosure Alternatives

Introduction of Home Affordable Foreclosure Alternatives – Short Sale and Deed-in-Lieu of Foreclosure

Overview

Supplemental Directive 09-09 provides guidance to servicers on the Home Affordable Foreclosure Alternatives Program (HAFA) and includes the general terms and conditions, evaluation process, documentation, and reporting requirements. As part of the Home Affordable Modification Program (HAMP), HAFA provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu (DIL) to avoid foreclosure on a HAMP-eligible loan.

Foreclosure Alternatives

The HAFA program simplifies and streamlines the use of short sale and DIL options by incorporating the following unique features:

• Complements HAMP by providing viable alternatives for borrowers who are HAMP eligible.
• Utilizes borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.
• Allows the borrower to receive pre-approved short sale terms prior to the property listing.
• Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement.
• Requires that borrowers be fully released from future liability for the debt.
• Provides financial incentives to borrowers, servicers, and investors.

Timing & Eligibility

Servicers – Supplemental Directive 09-09 is effective April 5, 2010, but participating servicers may elect to implement HAFA prior to April 5, 2010, in accordance with the Supplemental Directive. In order to participate in HAFA, a servicer must have executed a HAMP Servicer Participation Agreement (SPA) by December 31, 2009. (The HAMP SPA is available for review on HMPadmin.com.)

Borrowers – Servicers must consider a HAMP-eligible borrower for HAFA in accordance with their policies within 30 calendar days of the date the borrower:

• Does not qualify for a HAMP Trial Period Plan,
• Does not successfully complete a HAMP Trial Period Plan,
• Is delinquent on a HAMP modification by missing at least two consecutive payments, or
• Requests a short sale or DIL.

Note: A borrower must be considered for a HAMP modification and other retention programs offered by the servicer prior to being considered for HAFA.

If you are trying to save your family from a foreclosure situation call our office now at 713-595-8200.

– The Bank Slayer