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It may not be in the headlines, but we all realize the housing meltdown continues in 2010. Foreclosure rates are stubbornly high, despite so many efforts to reduce them.
It may not be in the headlines, but we all realize the housing meltdown continues in 2010. Foreclosure rates are stubbornly high, despite so many efforts to reduce them. 1. Foreclosure rates remain high 2. Foreclosures are climbing the economic ladder, meaning higher priced homes are now coming under price pressure - even in the most sought-after locales. 3. Unemployment is rising and is expected to continue to rise throughout the yearwith a leveling off period before beginning to decline. 4. Commercial property foreclosures will increase throughout the year - vacancy rates are at an all-time high. 5. Experts all agree that inflationary pressures will be a problem in the coming years. Deficit spending (borrowing) virtually insures it. 6. The gov't cannot continue the bailouts - too expensive There's no reason to expect that there will be any appreciation in home prices anytime soon. A report recently predicted that as many as 48% of homeowners will be "upside-down" on home mortgages by the end of 2010. More price erosion is expected in the coming months before the decline stops and we hit bottom. Gov't efforts to stem the tide of foreclosures, most notably the loan modification program, just gets more scandalously slow each month. Backlogs, erroneous denial of applications, errors galore...the banks can't hire and train fast enough to keep up. Some negotiators have as many as 300 files at one time! Real, meaningful principal reductions seem like so much hype at this point. During the housing bubble, lenders cut corners to sell more loans to meet the Wall Street demand for mortgage-backed securities (MBS). Loan originators, many of whom had been hastily recruited, poorly trained and with no experience in any other market condition, cut corners to meet high quotas. Brokers, appraisers, Lenders, Realtors, and Home Inspectors...virtually everyone in the industry...responded with what has now been labeled predatory lending practices. Predatory Lending is unethical and some of the actions are illegal. Some of the violations have inconsequential penalties. Do you really care if Chase gets a nasty letter from a regulator, or if Wells Fargo gets cited for failure to provide enough copies of disclosure documents? No. You care about whether or not the violation can now benefit you by improving your negotiating position for a modification or other workout. Predatory Lending was common. Whether through unintentional errors caused by haste or through blatant disregard for the law, the violations may now provide the leverage you need to negotiate a good workout solution. The most frequently cited violations are as follows: 1. Charging unnecessary fees 2. Charging more (higher points) than needed to buy-down rate 3. Charging for pmi (private mortgage insurance) in cases where it was not needed 4. Including single-premium life insurance policy (one that pays the mortgage if the borrower dies) and charging the premium in the loan - without adequate explanation of the product or the need for the product realtive to laon apporval. 5. Convincing borrowers to refinance so frequently that the fees charged "strip equity" 6. Failing to disclose terms of the loan 7. Use of low (aka "teaser") rates with adjustable-rate mortgages to get buyers to accept loan products that are high risk 8. Falsifying (or knowingly participating in falsification) of any facts (income, home value, assets, etc.) on application to enable the borrower to qualify to borrow more than they should 9. Selling a higher rate loan when the borrower could have qualified for a lower rate 10. Targeting protected minority groups and other vulnerable groups with unfair loan products 11. Selling loans that were clearly "not in the borrowers' best interest" 12. Promising refinancing in a short period of time - as a way to get borrowers to accept bad loan terms, etc. If there is evidence that your lender acted inappropriately in selling you a high interest-rate or high fee loan, or by illegally "assisting" you in preparing the documents, or by approving a bad loan, you may have additional leverage to use in your loan modification or even in a lawsuit. What if I told you that your lender violated three laws in at least seven instances during your loan process? What if one of those violations was serious enough to warrant a lawsuit! Would that give you confidence going into negotiations for a deed-in-lieu or a modification? Oh, yes indeed. Lenders and loan originators were pretty well versed in the law and how to skirt the fringes of the law. So, often your findings will not reveal egregious violations. Rather, the audit may uncover "pattern of inappropriate actions" that, taken altogether, show disregard for your rights and caused you damage. It is in the presentation of the "evidence" of violations that your case can be made and your purpose achieved. I highly recommend you conduct a Forensic Loan Audit: 1. the loan was made during the 2002-2008 timeframe 2. if the loan came from a broker (not an employee of the lender) 3. if your loan is an Adjustable-rate, negative-amortizing, "Pick-a-Pay" Option ARM, or interest-only loan payment type 4. if the loan is a sub-prime loan or an Alt-A loan 5. if loan has pre-payment penalty of ANY kind 6. if your loan was a no-doc (stated-income) loan or low-doc (minimal documentation) loan 7. if you felt unduly pressured to get the loan or to sign the documents 8. If you were pressured to accept terms and costs that you had not been advised of earlier...with promises of a refinance in the near future to a better loan 9. If, either when you took the loan or during the projected life of the loan, your debt-to-income ratio was (or was projected to be) higher than 40% 10. If you were pressured to accept mandatory arbitration, limiting your legal rights. Legal Action - worth it? The loan modification process is a negotiation. The more leverage you have the more likely it is that you will succeed. Proof of lender violations of TILA, RESPA, HOEPA or state or federal consumer protection laws can give you a significant advantage. Forensic Loan Audits are professional audits of the loan and the process used to qualify you and the property for the loan. They are extensive. They are performed by auditors, specially trained in spotting violations. Three Comments I have become convinced that Forensic Loan Audits provide valuable leverage to homeowners in loan modifications. Time and again I've seen workouts concluded faster and better for borrowers who invest the time, energy and money into such audits. Secondly, I have observed that, oftentimes, the power of the information is in its effective use. That is, even tepid results from an audit can be used effectively in negotiations. Not as a "bluff" but as a signal that you have the resolve and capacity to negotiate professionally. Lastly, I've observed that often there are "low-hanging fruit" in the audit. Clear violations of a serious nature that can be readily identified. A deliberate, informed consumer can spot common violations without too much effort. Then, it's simply a matter of finding a trustworthy auditor. More on this topic, next time. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Rockwood has been providing Loan Modification help to thousands since the housing meltdown began.? Visit Rockwood's site about DIY Loan Modiification at Home Loan Modification Click here to get your own unique version of this article with free reprint rights. |