Resources for preventing foreclosure

If you’ve been dealing with your loan servicer and not your lender, you’ve been talking to the wrong people. A recent CNN article, published today, discusses the story of Yolanda Cruz. Cruz had been negotiating with America’s Servicing Company (ASC) about getting current on her loan when she was told a $3,000 payment could catch her back up. She mailed the check and then ASC said it was for the wrong amount and “mailed it back.” Well the check got lost and cashed, she was out $3,000 and not in any better a position. All this only to find out that, according to Erin Kemple, the Connecticut Fair Housing Center’s Executive Director, that “the servicer doesn’t have the power to renegotiate a loan … because they don’t actually own the loan [they can't] make changes to the payment plan.”

Lessons Learned:

• Loan servicers can’t renegotiate your loan.
• Get everything in writing.
• If a check is being returned by regular mail, put a stop payment on it.

The Office of Federal Housing Enterprise Oversight, (OFHEO) announced today that it would be loosening the capital requirements on Fannie Mae and Freddie Mac such that an additional $200 billion in liquidity will become available to the mortgage pipeline. What’s that mean in english? Fannie Mae and Freddie Mac lend out money but need to hold a certain amount of reserve in the event of calamity, the OFHEA announced that that reserve amount has been reduced by $200 billion. That $200 billion will then go into the mortgage pipeline and trickle out to additional funds for lending, great news for folks who are fearful of a potential foreclosure.

The good news is that if you’re looking at an ARM resetting in a few months, now is the time to call your lender and negotiate a new loan. Every single day you wait means that $200 billion is trickling away and the probability you get a good deal gets smaller and smaller. The bad news is that if you’re already in foreclosure, it’s too late to take advantage of this change.

So, call your lender and face the problem head on. Please don’t wait and hope it’ll get better, this is the hope you’ve been waiting for - now go get it.

The Treasury Department and the Department of Housing and Urban Development will announced Project Lifeline today. Project Lifeline is a program that will allow those who have fallen behind on payments to work out a more affordable loan with their lenders, starting with six majors lenders. They would effectively suspend foreclosures for 30 days in order to work things out. The six lenders in the pilot program are Bank of America Corp, Citigroup Inc., Countrywide Financial Group, JPMorgan Chase & Co., Washington Mutual Inc., and Wells Fargo & Co.

Those six are also involved in an organized effort known as Hope Now. Hope Now seeks to freeze rates on subprime mortgages for five years to help borrowers with loans that will spike after an ARM resets. The plan seeks to help out people who have mortgages that are 90+ days late.

The group said it helped 545,000 subprime borrowers with spotty credit in the second half of last year, compared with its January estimate of 370,000. That works out to 7.7% of 7.1 million subprime loans outstanding as of September 2007.

Unfortunately, many borrowers can’t work things out even after getting a brief respite. If you think you can, trying one of these programs may give you the room you need to survive.

Source: CNN Money

Being a resident of the Baltimore-Washington D.C. area, I read the Baltimore Sun quite often and recently there was a blog post by one of their bloggers, The Real Estate Wonk, that contained a lot of valuable information for those looking for help in dealing with a potential foreclosure. She gave the usual “call your lender” advice but then followed it up with some valuable resources if you find that the loss mitigation department of your lender is, as many are, swamped.

Let’s play the other side of the game for now, let’s say you are a prospective real estate investor and you’re looking to find a few good investments in our down market. One of the resources you might consider turning to is a foreclosure listing service such as RealtyTrac. RealtyTrac is a monthly paid service that will let you search for the foreclosure listings online and give you the address of the homeowners (and homes, of course).

Now, you might be saying - “What? Those people are evil!” Well, before jumping to that conclusion, recognize this if you are about to be foreclosed. The evil party in this whole ordeal isn’t the investors looking to buy your place on the cheap, it’s everyone else. The bank gave you a loan you couldn’t afford, you didn’t do the due diligence to know whether you could make the payments, the seller didn’t seem to complain much when they took your money (I wouldn’t call the seller evil though!). The real estate investor might be your one chance at getting a little of your equity out of the house, depending on how much you paid vice the value of the home.

So, if you’re an investor, don’t hesitate to call up one of these to-be-foreclosed to see if you can work something out. Don’t see it as kicking someone out of their home (the bank will do that in a month or two), see it as perhaps getting a bit of the owner’s equity out from the walls before the bank takes the whole thing.

There’s a CNN article today about how Cleveland homeowners facing foreclosure are turning towards pay day loans to make ends meet. It’s horrible because pay day loans have ridiculous interest rates and fees that, if spelled out plainly, would make most people run for the hills.

A payday loan is a small-dollar, short-term loan with fees that can add up to interest rates of 400 percent. They’re generally taken out when the borrower is caught short on cash and promises to pay the balance back next payday.

If you’ve considered a pay day loan to make your next payment, read the article because it’s especially informative on the predatory nature of these loans.

Today it was leaked that the Bush Administration has hammered out a deal in which ARMs could be frozen for five years to help the economy recover from the subprime mess. The agreement was a compromise between banking regulators who wanted 7 years and the mortgage industry who wanted 1-2 years. Ultimately, the detail have yet to be released but here are a hint: “the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.”

More in this My Way article but the only salient detail released was what I wrote above..

Henry Paulson, the Secretary of the Treasury, is confident than an arrangement may be in place for a freezing of adjustable rate mortgages for homeowners. The current plan is to freeze ARMs for financially responsible borrowers, whatever that means, for a period of anywhere from one to two years to as many as five or seven. This would help the housing market recover what is the worst housing slump in at least twenty years.

An estimated 2 million subprime mortgages, loans offered to borrowers with spotty credit histories, are scheduled to reset to much higher levels by the end of 2008. Those resets will push the payment on a typical mortgage up by $350 per month, taking it from $1,200 currently to $1,550.

What does this mean for you if you’re going to take an ARM rate increase? Not entirely sure because they haven’t been clear on who will be eligible other than to say that it’s “financial responsible” borrowers who can “make the lower payments, but not the higher ones.” Which really is a bunch of baloney to me because everyone fits that description. If you couldn’t make the lower payments, you wouldn’t be in trouble because you wouldn’t be in homes. It’s the adjustment that’s killer.

We will have to wait and see how this shakes out.

That’s right, even when you’re losing your house someone is looking to profit from it by dinging you with foreclosure fees. It’s not enough that you’re losing your home, that the process is stressful and potentially embarrassing, but the lack of oversight in the foreclosure process also means that some places will try to squeeze a little more out of your wallet or pocketbook. If you are currently going through the foreclosure process, it pays to read this harrowing article on foreclosure fees in the New York Times.

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter [associate professor of law at the University of Iowa] found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

Thanks to Consumerist for pointing out a story on CNN about how debt counselors are getting slammed in the subprime meltdown.

“I don’t think people fully appreciate the pressure that’s being put on those counselor organizations today,” says a Housing and Urban Development official. In addition to offering financial advice, the counselors try to help negotiate payment plans with lenders, stave off foreclosure notices, and even offer mental health support for people so distraught that they become depressed or suicidal. The average pay: $30-50,000 a year.

If you’re facing foreclosure and working with a debt counselor, please be very very patient. They are trying to help and the last thing they want to do is screw you over or screw up; so if they slip up, be patient and work with them - it’s in your own best interest.