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 occurring in higher-priced neighborhoods. Higher priced homes are now coming under price pressure.
3. The unemployment rate continues to rise. It is expected to continue to rise throughout 2010.
4. Commercial real estate is the next major industry to implodefollowed by credit card companies.
5. Inflation can only be kept in control for so long – expect rising prices worldwide starting in 2010.
6. The controversial bailouts won’t continue
In fact, there’s no reason to expect that there will be ANY upward pressure on home prices in the near future. Actually, a recent report predicts that a full 48% of homeowners will be “upside-down” on their home mortgages by the end of the year. We are likely to see continued price erosion in the coming months before the decline stops and we bottom-out. The loan modification process is getting nastier. The backlog of cases is unmanageable, and growing every day. Banks can’t hire and train fast enough to keep up. Negotiators have as many as 300 files in their charge at one time! And the settlements are not adequate (witness the high percentage that are failing) and real, meaningful principal reductions seem like so much hype at this point.
More than ever, you need to use every tool available to save your home! During the housing market run-up, lenders loosened their underwriting standardssome would say they abandoned themto sell more and more loans to meet the seemingly insatiable 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 sales quotas. Lenders, brokers, appraisers, Realtors, and Home Inspectors responded with what has now been labeled predatory lending. Predatory Lending is unethical and some actions are illegal. Some violations have remedies that are inconsequential to most borrowers. After all, do you really care if Chase gets a nasty letter from a regulator, or if Wells Fargo gets cited for failure to provide triplicate copies of disclosures? No, what you care about is whether/not the error or omission or commission can now benefit you by improving your negotiating position in your loan workout. Predatory Lending was common. Actually, experts estimate that MOST Adjustable-rate mortgages, taken during the 2003-2008 timeframe evidence violation of consumer protection laws. Whether through unintentional errors caused by haste or through greed and 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 Fees for services that were not necessary
2. Charging excessive fees for loan rate buy-down (points)
3. Charging for private mortgage insurance when the borrower did not need it
4. Adding a single-premium life insurance policy (one that pays the mortgage if the borrower dies) and charging the premium in the loan – without prior knowledge and consent of the borrower.
5. Equity Stripping – refinancing so frequently that the fees charged “strip equity” and leave the homeowner in a risky position
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. Misrepresenting facts (income, home value, assets, etc.) on the loan application
9. Pushing a more expensive product for personal gain – even if the borrower could qualify for a lower-priced loan
10. Targeting poor, uneducated, elderly or minority groups with unfair loan products and taking advantage of their vulnerability
11. Failing to take into account “borrowers’ best interest”
12. Promising refinancing after a short period – to get buyers to agree to bad loan terms
What if I told you that your lender violated laws in at least seven instances during your loan process and what if one of those violations was serious enough to warrant a lawsuit! Would that give you confidence in negotiating for a modification? If there is evidence that the lender violated the laws 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. Lenders and others were pretty well versed in the law and how to skirt the fringes. So, often your findings will not reveal egregious violations. But, the audit may uncover “patterns of inappropriate actions” that show disregard for your rights and that caused you damage. 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 your loan was sold to you by a broker
3. if loan is an ARM, negative-amortizing loan, “Pick-a-Pay” Option ARM loan, or interest-only type
4. if the loan is a sub-prime loan or an Alt-A loan
5. if your loan had/has pre-payment penalties
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 promised that your loan could be re-financed after a very short period (1-3 years) as persuasion to get you to accept “less-than-optimal” terms and costs
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 forced to accept mandatory arbitrationto limit your legal rights. Legal Action – Is it worth it?
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 2010 observations
I am convinced that workouts are concluded faster and better for borrowers who invest the time, energy and money into Forensic Loan Audits. Secondly, I have observed that the power of the information is in its effective use. By that I mean, that even luke-warm results from an audit can be used effectively in negotiations as an indication that you have the resolve and capacity to negotiate professionally. Finally, I’ve observed that often there are 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.
Want to find out more about actually getting loan modifications? Visit Rockwood’s site about DIY Loan Modiification at Home Loan Modification
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