Matt's Take on the News

Buyer finds trouble with purchase of foreclosed home

By MARY SANCHEZ

By MARY SANCHEZ The Kansas City Star

On Friday, Jack Douglas checked the roof of the foreclosed Agnes Avenue home that he bought in December

To say Jack Douglas got the runaround when he tried to pay cash for a foreclosed house is a huge understatement.

He got ripped off.

Literally, by the vandals who stripped out the furnace, water heater and most of the water pipes. And indirectly by others involved in the sale through the U.S. Department of Housing and Urban Development. Thieves had time to kick both the back and front door in during repeated break-ins while bureaucracy dawdled.

It’s a saga that astounded members of a committee concerned with foreclosures and vacant properties in Kansas City.

How indicative it is of similar dealings with low-income foreclosures is up for debate. The right people, including HUD’s regional administrator, are paying attention now.

But Douglas’ new home in the 3700 block of Agnes Avenue is unlivable. The 50-year-old man is on disability, unable to drive or work due to seizures.

In late December, he bought the house outright, plunking down $8,000 cash. One would think cash would talk. It took some shoving.

The first real estate agent tried to steer him to a higher-priced home, refusing to handle the sale of the two-bedroom house he wanted. Other agents wouldn’t return his phone calls. “I guess the commission would be too low for them,” Douglas surmises.

Douglas finally connected with real estate agents Ron and Joan Yaffe, who aided during the next two months of negotiations on the price.

HUD, through a company that handles its foreclosure properties, made numerous counter-offers. The Yaffes were told several times that counters can come back higher than the list price on low-priced foreclosures. The original asking was $8,000. Douglas offered $5,000 cash, then $6,000. One counter would have made the sale $9,300.

Then came the disputes about buying “as is.” The sale hadn’t closed when the break-ins occurred. Eventually, Douglas got a $750 credit, which isn’t even close to the $3,000 to $5,000 estimate to replace the furnace, pipes and water heater.

Ron Yaffe wrote up a four-page account of Douglas’ troubles. It’s in the hands of HUD officials in Washington now.

Locally, Neighborhood Housing Services will try to aid with repairs.

It appears a series of gaffes played out, bungling the deal through bureaucracy, miscommunication and probably a bit of classism. Counter offer policies that work for higher-priced properties might need adjusting for lower-priced homes, given the current market.

Douglas represents what such homes, often in blighted areas, need. He was highly motivated and wanted to be the owner/occupier of a foreclosed house.

A cash-in-hand buyer like him should find the way paved.

Loan Mods are on the Decline!

As robo-signing reviews reach completion, servicers are beginning to work through some of their foreclosure backlogs, according to a third-quarter report from Moody’s Investors Service.

Moody’s reports that as servicers work through the bulk of their delinquencies, modifications are on the decline. Servicers are now turning to loss mitigation alternatives, including short sales and deeds in lieu, Moody’s says.

Moody’s calculated a decline in “total cure and cash flowing,” measuring successful loss mitigation efforts in the third quarter. The decline “resulted from servicers having worked through significant portions of their eligible 60-plus delinquencies,” according to Moody’s.

Citi, GMAC, and Chase experienced the greatest decreases in cures.Among subprime loans, Ocwen posted the highest cure rate – 44 percent. The high cure rate at Ocwen is linked to high numbers of modifications relative to its peers.

Moody’s notes that the high cure rate includes “a significant number of re-modifications,” which occur when an initial modification fails.

Ocwen saw re-defaults among 54.5 percent of its subprime modifications, the highest rate among its peers.

Ocwen was followed by Bank of America with a 50.5 percent re-default rate on modifications of subprime loans.

BofA also posted the highest rate of re-defaults of ALT-Aloans (42.3 percent) and the second-highest re-default rate for jumbo loans (35 percent).

Consistent with its high re-default rate, Ocwen ranked highest for re-modifications of subprime loans. Ocwen’s re-modification rate for the third quarter was 24.8 percent. The second-highest re-modification rate was seen at Wells – 6.8 percent.

The high re-default and re-modification rates at Ocwen “calls into question Ocwen’s process in evaluating borrowers for a modification,” Moody’s states.

However, Moody’s also concedes, “not all of the first modifications were necessarily completed by Ocwen due to servicing acquisitions prior to the analysis period.”

Moody’s also reports foreclosure sale to REO liquidation timelines are little changed from the second to third quarter. However, Moody’s forecasts longer timelines throughout the year.

Program allows East Bay family to buy back foreclosed home

By Sean Maher

Contra Costa Times

Posted: 01/16/2012 07:16:55 PM PST

Updated: 01/17/2012 07:41:57 AM PST

With the help of an Oakland-based company that is buying up hundreds of bank-owned properties in Contra Costa and Solano counties, an Antioch family is the new owner of the same home it lost to foreclosure almost two years ago -- and at less than half the price it originally paid.

"We're so lucky. I mean it's the kind of thing, you tell it to the guy on the next bar stool, he thinks you did something illegal," said Darren Gates, a 40-year-old contractor and father of four.

Gates and his wife, Zelena, are the beneficiaries of a program started by Waypoint Homes, which was founded in 2009. Among its partners is former National Football League placekicker Doug Brien, who played football at Concord's De La

Salle High School and Cal, where he earned a bachelor's degree. He began investing in real estate in 1997, three years into a pro career that started with the 49ers' 1994 Super Bowl championship team.

Brien says one of Waypoint's top goals is getting foreclosure victims back into stable homeownership, a business model that appears new to the Bay Area, according to mortgage experts.

Waypoint bought the Gates' home when it went into foreclosure in 2009 but made a deal with the family: It could continue living there as renters and, under a special program, could start earning credit toward buying a home again.

Although Brien cautions this is a rare outcome, and a first in the company's history, the Gates family succeeded in buying back the home they'd lost, closing escrow near the end of last year.

Fewer than 10 percent of Waypoint renters are in that program, Brien said, though the company is pursuing another

model in a similar spirit. More than half of Waypoint's renters are former homeowners, many having lost their homes to foreclosure, and under a "lease with rewards" program, the company is grooming those renters into a second customer base that can use Waypoint as their agent to get back into homeownership.

Waypoint is focused primarily on Contra Costa and Solano counties, where home prices are lower, though the partners say they plan to spread into Alameda County this year.

Foreclosures remain high throughout the Bay Area, according to census information and foreclosure data website ForeclosureRadar.com:

Contra Costa County recorded more than 11,000 notices of default in 2011, or about one for every 95 residents.

Alameda County recorded about 10,700 default notices, or about one for every 141 residents.

Solano County, with less than a third the population of Alameda County, still registered more than 5,300 defaults, or about one for every 78 residents.

In all three counties, the notices were down about a third from the previous year but remain a severe problem for many residents -- and possibly an opportunity for local investors.

Waypoint started off buying about 900 foreclosed homes, Brien said, mostly in East Contra Costa County and in Solano County, and hopes to maintain most of them as rentals. But under the special leasing program, tenants in good standing can get free counseling to improve their credit and earn 10 percent of what they pay in rent to put toward the purchase of any home at the end of their lease, as long as they use Waypoint as the buying agent.

The partners tout the program as the first of its kind in a new, quickly growing housing market for single-family rentals in the wake of the nation's mortgage crisis.

GI Partners, a Menlo Park-based equity firm, announced Wednesday it will be investing at least $100 million in Waypoint's efforts, which Brien said will allow it to leverage as much as $250 million in buying power to acquire foreclosed housing.

John Holmgren, a mortgage broker with Oakland-based firm Holmgren & Associates, said he's not familiar with Waypoint and has not yet seen the model the company proposes elsewhere in the local market.

"I haven't heard of it, but it's a very ingenious idea in this market," he said.

Oakland real estate broker Paul Valva -- who agreed he hasn't seen the model applied anywhere in the Bay Area so far -- said investing in rentals is a good idea right now, with rents going up across the Bay Area as former homeowners flood the rental market.

Brien says the "lease with rewards" model is preferable to the one the Gates family used, because it provides flexibility to both parties and offers a better chance for a strong return on Waypoint's investment in the houses.

Partner Gary Beasley said the ideal time frame to hold on to a property is about five to seven years. The company expects housing values to begin recovering in about two years.

Darren Gates said he and his wife bought their house in Antioch's Mira Vista Hills development in 2005, near the height of the housing boom, after a long struggle to compete with other buyers.

"We looked at 30 or 40 houses," he said. "We would offer $5,000 or $10,000 over the asking price, and somebody else would offer $20,000 more."

Though modest in size, the home they found is close to a charter school the children attend, as well as a park for them to play in.

The home cost $455,000, and when the market went badly south a few years later, Gates says he was paying as much as $3,400 a month -- in interest only -- for a house that had plummeted in value. Compounded with a drastic drop in work for his self-owned contracting business, the family decided that "walking away was the only choice that made sense," Gates said.

So the family did what thousands like them have done: They stopped making payments and waited for the notice of foreclosure to arrive. It took almost a year.

"We'd boxed up our important stuff and put it in storage in case we had to get out on one day's notice," Gates said.

But when the Waypoint partners visited their home and spelled out the plan -- allowing the family to rent it with an end-goal of repurchasing it -- it was a no-brainer.

"It was a relief, a blessing, luck, anything you can call it," Gates said.

The purchase price this time around? About $180,000.

In 2009, Waypoint paid $143,000 for the house at auction, which is where it pays cash for most of its properties.

"We're buying about 30 houses a month right now and plan to be at about 100 a month by the end of the year," Brien said.

"It's hard to see during a recession how things can turn around," Beasley said. "But on a regional level, we've seen booms and busts even more drastic than what we're going through now on the national level."

Short sales increase in Tampa Bay area

By Mark Puente, Times Staff WriterTampa Bay Times

A spike in the number of homes sold through short sales in the Tampa Bay area is driving down prices — and that may be good news.

Short sales — when a bank takes less than what is owed on a home — have climbed nearly 25 percent in the last five months when compared to the same period in 2010. Median prices on those deals fell 24 percent.

Those numbers hardly sound like reasons to jump for joy. But experts say the housing market cannot recover until thousands of local homeowners get rid of their underwater mortgages, clearing a big backlog of distressed properties.

"This is good for the economy," said University of Central Florida economist Sean Snaith. "It helps get us to the other side. These houses have to go through this process."

Of course, there are downsides to all this. In the short run, falling values put downward pressure on asking prices as sellers compete for buyers. In the longer run, though, buyers might actually find it harder to afford their dream home. As short sales move more houses, the best of them will get more offers, forcing buyers to pay more. Ultimately, the very definition of a recovered housing market is higher prices.

From July 2010 through November 2010, Tampa Bay lenders recorded 2,971 short sales with a median price of $112,000. In the same period this year, banks recorded 3,700 short sales with a median price of $89,900 in Pinellas, Hillsborough and parts of Pasco and Hernando counties, according to My Florida Regional Multiple Listing Service data.

"We're seeing enough positive growth (in the economy) that we'd expect to see these gains," said Scott Brown, chief economist with Raymond James in St. Petersburg. "It's still going to be a long recovery, but we'll take anything we can get at this point."

There's another sliver of good news from the rise in short sales. It shows banks increasingly are turning away from the more time-consuming process of paying thousands of dollars in legal fees to evict people through foreclosure. Critics have slammed lenders all year for not working faster to clear the backlog.

"This make more sense," said Chris Hounchell, a short sale specialist with Keller Williams Realty in St. Petersburg. "Banks are realizing that economic benefit to short sales. It's a quicker resolution than foreclosures."

Foreclosures in the Sunshine State must be approved by judges and take about two years.

"In Florida, foreclosures end up being big losers for banks because of the judicial process," Snaith said. "This is an evolution in the banks' thinking. It's a good thing."

Experts have been predicting that a tsunami of houses from the ''shadow inventory'' would decimate the market. That inventory includes homes with mortgages 90 days late and nearing foreclosure or homes already seized by a lender but not listed for sale .

Increasing short sales decrease the inventory.

While short sales have risen, foreclosure sales in the bay area plummeted from their peak of 1,549 in March to 505 last month, a 67 percent drop. The 505 sales last month is 23 percent lower than November 2010.

Hungry investors are now entering bidding wars on short sales because the supply of bank-owned homes is so low.

"The investors are all over these," said Craig Beggins, owner of Century 21 Beggins Enterprises in Apollo Beach. "They have no choice. This is going to cause the average prices to go up. The cheap houses are going away."

And short sales, experts say, are better for neighborhoods. Houses listed as short sales tend to remain occupied until sold and hold higher values than those sold as a bank-owned foreclosures. Short-sale owners typically leave houses in better shape than people who are evicted. That helps maintain the value of neighboring properties.

Beggins, whose agents close 20 to 25 short sales a month, said the deals help homeowner associations clear delinquencies when the properties sell.

It's better for the housing recovery and the banks' bottom line if lenders don't flood the market with foreclosed homes, Beggins said, adding: "The lenders really have the control."

Lower prices could force home­owners who are not financially distressed to not list their homes for sale until the market improves. Currently, the region has about a six-month supply of homes. The lower the supply, the stronger the market.

Peter Murphy, president of Tampa's Home Encounter, a full-service real estate firm, said the short-sale increase is a double-edged sword for sellers.

"This sounds like a good idea for the banks," he said. "If they want to sell, they have to drop their price. Short sales are good for banks, but they're not really good for the housing market."

Brian Lamb, Fifth Third Bank's Tampa Bay president, said his bank would rather sell houses in short sales than seize them in foreclosure. "Our goal is to be fair to our customers," he said. "We absolutely want to work with our borrowers."

Although short sales are a more favorable option to foreclosure, lenders must approve them for hardship reasons and they typically take longer to complete than conventional sales. Agents says some lenders are starting to close in 45 to 60 days instead of a year or longer. Some offer cash to homeowners for moving expenses and waive the unpaid balances on their loans.

And not every owner has to be in default. Many lenders are allowing homeowners to be current on their payments while being approved for a short sale. Bank of America recently rolled out a program in Florida that offers between $5,000 and $20,000 to sellers who dump their houses in short sales.

For borrowers, the damage to a credit score is less severe with a short sale than a foreclosure. Borrowers can usually buy a new home within two or three years after a short sale whereas it can be longer with foreclosure, said Andy Wood of American Mortgage Services in Tampa.

He added: "A short sale sends a message that the owner worked with the lender to mitigate the loss to the bank."

"Foreclosures and evictions on hold for the holidays

By Christopher Quinn

The Atlanta Journal-Constitution

Families in foreclosed homes are getting a holiday reprieve again this year, as government sponsored mortgage giants Fannie Mae and Freddie Mac, along with major banks such as Wells Fargo are holding off on foreclosures and evictions until 2012.

Like last year, the Thanksgiving and Christmas moratorium dropped metro Atlanta foreclosure notices in December to one of the lowest monthly totals for the year with 7,454. Only June 2011 was lower at 7,374. That is still more than twice the number of monthly foreclosure notices in the years leading up to the housing crisis.

The total for notices in 2011 dropped to the lowest level since 2008 -- 109,548 in metro Atlanta. There were 127,140 notices last year and 117,107 in 2009.

A notice does not always end up in foreclosure, as the homeowner can work out a deal with the bank, sell the home or find a few other escapes.

Many factors are helping depress the total in 2011 -- from federal regulators requiring more careful paperwork to a push by banks and nonprofits for refinancings, and the effects of the "robo-signing crisis," where lenders stopped foreclosures because forged or illegal real-estate documents were found in many cases.

Still, no U.S. housing market has ever experienced the many pressures and changes like those of today, local experts say, That makes it difficult to interpret what the shifting numbers mean.

"We had this ridiculous amount of foreclosures for all of 2009 and 2010 and it carried into the first quarter of 2011," said Barry Bramlett, the CEO of Equity Depot's Foreclosure Report.

"We are definitely going to be down in the number of properties advertised for foreclosure this year. If the only criteria is that less foreclosures are good, then that is a good thing," he said.

But the dropping number in 2011 means homeowners in shaky situations and ripe for eviction are just being put off to another day, it will slow the process by which the market is clearing itself of bad loans, Bramlett said.

"If your criteria is we are just going to continue stagnant because we won't allow the situation to weed itself out, then it is bad," Bramlett said.

"And all these influences which are influencing us downward are still there. It makes you think it is not going to change quickly.

Surprise: Credit union can take car, boat, RV if you walk out on unsecured loans

By Mark Puente, Times Staff Writer

Using a little known tactic, credit unions are repossessing customers' cars after they default on credit card payments or other unsecured loans.

With their customers battling declining wages and unemployment, credit unions increasingly employ the perfectly legal maneuver to stem financial losses.

"It's happening more than we know," lawyer Shawn Yesner said. "I don't see banks doing this, but credit unions do it a lot."

The tactic is called cross-collateralization. Clauses in loan agreements transform secured loans, like cars, boats or recreational vehicles, into collateral for unsecured loans like credit cards.

Credit unions can even block customers from selling a paid-off vehicle if the client has other outstanding debts with the institution.

The cross-collateralization clauses are disclosed in loan contracts, but the language is buried in the documents.

"Nobody ever reads that fine print," said Sami Thalji, a lawyer.

Some consumers first hear of the agreements in bankruptcy proceedings. A person who declares bankruptcy but wants to keep a car is surprised when the credit union adds the balance of an unpaid credit card or other credit lines to the auto loan from that credit union.

Suncoast Schools Federal Credit Union is the largest credit union in Florida and the 13th largest in the country. Jim Simon, senior vice president of loss and risk mitigation for Suncoast, said the lender is obligated to enforce the agreements and will freeze or seize accounts to cover losses.

"It's our members' money," Simon said. "Every member is an owner. Sometimes we have to do unpopular things."

Unlike banks, credit unions are member owned and return profits to members, not investors. The institutions have built a reputation on customer service and by charging lower interest rates on loans.

Suncoast is one the top automotive financiers in Tampa Bay. After taking a car or money from an account, Suncoast will likely return them when the default is cleared, Simon said.

Suncoast has repossessed only about 2 percent of cars in its portfolio of 70,000 car loans this year, Simon said. That would amount to about 1,400 repossessions. Freezing accounts, seizing money or repossessions is the last option, he added, stressing that the worst thing a consumer can do is avoid calling his lender when financial troubles arise.

"Your financial institution is here to help," Simon said. "We don't know what is going on in their lives. At the end of the day, it's best to communicate with the financial institution."

Officials with Grow Financial Federal Credit Union and GTE Federal Credit Union did not return calls for comment.

Keith Leggett, vice president and senior economist at the American Bankers Association, estimates that more than 70 percent of all credit unions use cross-collateral clauses in loan documents. He urges the institutions to be more transparent to customers.

"It's a rude awakening," he said. "Consumers need to understand this."

As a convenience to customers, lenders typically dangle lower interest rates to those who open checking and savings accounts and then take on mortgages, credit cards and car loans.

Lawyers warn that consumers shouldn't give one lender all their business. Holding multiple accounts with one credit union is not good since the lender has control over everything, Thalji said.

"Don't bank where you borrow," he said. "When credit unions freeze the accounts, bad things happen. Checks bounce; people can go into financial turmoil overnight."

Residents encouraged to participate in foreclosure review

Easton Courier

Attorney General George Jepsen and state Banking Commissioner Howard F. Pitkin are encouraging Connecticut borrowers who believe they suffered financial injury because of harmful mortgage loan servicing and foreclosure practices to participate in an Independent Foreclosure Review and claims process.

"This presents an opportunity for Connecticut borrowers to receive some compensation for damages they suffered as a result of harmful practices by the loan servicing companies during foreclosure," Mr. Jepsen said. "I would encourage them to take advantage of this program."

Mr. Pitkin added, "This is an important program and I encourage anyone who was involved in the foreclosure process and is eligible to participate in this review."

Eligibility

To be eligible for review and financial remediation, borrowers must have had a mortgage in the foreclosure process between Jan. 1, 2009, and Dec. 31, 2010. In addition, the property securing the loan must have been the borrower's primary residence, and the loan must have been serviced by one of the following loan servicers:

America's Servicing Company

Aurora Loan Services

Bank of America

Beneficial

Chase

Citibank

CitiFinancial

CitiMortgage

Countrywide

EMC

Everbank/Everhome

GMAC Mortgage

HFC

HSBC

IndyMac Mortgage Services

Metlife Bank

National City

PNC

Sovereign Bank

SunTrust Mortgage

U.S. Bank

Wachovia

Washington Mutual

Wells Fargo

The Independent Foreclosure Review and claims process was ordered by the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System — the federal agencies with responsibility and authority to regulate and supervise the loan servicers.

The federal agencies have ordered independent firms to evaluate whether individual borrowers suffered financial injury as a result of their loan servicer's errors, misrepresentations, or other deficient foreclosure practices; and to determine the appropriate amount of financial remediation that the loan servicer must provide to individual borrowers.

Many Connecticut borrowers have already received letters from the independent firms approved by the federal regulators. Those and other eligible borrowers are advised to complete the forms and mail them to the address provided by the April 30, 2012, deadline. Borrowers who have questions regarding the Independent Foreclosure Review and claims process should call the program administrator at 888-952-9105 or visit independentforeclosurereview.com.

Connecticut homeowners experiencing difficulty making their mortgage loan payments currently should contact the state Department of Banking's Foreclosure Assistance Hotline (877-472-8313). The department assists homeowners who are attempting to achieve loan modifications and prevent foreclosure.

Occupy’s next frontier: Foreclosed homes

A campaign to defend families from evictions and protest foreclosure fraud launches next week

Occupy Wall Street is promising a “big day of action” Dec. 6 that will focus on the foreclosure crisis and protest “fraudulent lending practices,” “corrupt securitization,” and illegal evictions by banks.

The day will mark the beginning of an Occupy Our Homes campaign that organizers hope will energize the movement as it moves indoors as well as bring the injustices of the economic crisis into sharp relief.

Many of the details aren’t yet public, but protesters in 20 cities are expected to take part in the day of action next Tuesday. We’ve already seen eviction defenses at foreclosed properties around the country as well as takeovers of vacant properties for homeless families. Occupy Our Homes organizer Abby Clark tells me protesters are planning to “mic-check” (i.e., disrupt) foreclosure auctions as well as launch some new home occupations.

“This is a shift from protesting Wall Street fraud to taking action on behalf of people who were harmed by it. It brings the movement into the neighborhoods and gives people a sense of what’s really at stake,” said Max Berger, one of the Occupy Our Homes organizers and a member of Occupy Wall Street’s movement-building working group.

The backdrop for all this is a new study suggesting the foreclosure crisis is only half over, with 4 million homes in some stage of foreclosure. Meanwhile, reports of illegal or questionable behavior by banks and mortgage lenders continue to stream in.

Like many of the Occupy actions that have focused on specific policy questions, this one is being organized by established progressive and labor-affiliated groups along with their allies in the movement. Among the allied groups listed on Occupy Our Homes’ website, for example, are the New Bottom Line and New York Communities for Change. On the Occupy Wall Street side of things, members of the direct action working group and the movement-building group in New York have been involved in the project.

Occupy Our Homes’ website (which was registered by a former SEIU official staffer) has the trappings of a slick professional campaign, with videos featuring the stories of families facing foreclosures and a pledge visitors are encouraged to sign stating:

… that until the banks do their part to help homeowners and to fix the economy, by writing down mortgage principal to current home values, I will:

I will support homeowners resisting wrongful foreclosure evictions.

I will resist any attempt by the bank to take my home.

If they come to foreclose, I will not go.

A network of groups organized as Take Back the Land has been doing eviction defenses and related actions around the country for five years, according to organizer Max Rameau.

“Now with this Occupy movement ramping up, I think we have a significant chance to keep large numbers of people in their home,” Rameau told Democracy Now earlier this month. “[The goal is to] not only force the banks to allow the family to stay in the home. But also then force policy changes that would help thousands of other people for whom we’re not doing eviction defenses.”

We saw a similar dynamic in the preexisting campaign to extend the millionaire’s tax in New York, which has benefited from new energy and a new banner offered by the Occupy movement.

Will the new Occupy push on foreclosures pick up any steam? I’ll be covering whatever happens on Dec. 6, so stay tuned to find out.

Foreclosure fraud whistleblower found dead

By msnbc.com staff

A notary public who signed tens of thousands of false documents in a massive foreclosure scam before blowing the whistle on the scandal has been found dead in her Las Vegas home.

NBC station KSNV of Las Vegas reported that the woman, Tracy Lawrence, 43, was scheduled to be sentenced Monday morning after she pleaded guilty this month to notarizing the signature of an individual not in her presence. She failed to show up for her hearing, and police found her body at her home later in the day.

It could not immediately be determined whether Lawrence, who faced up to one year in jail and a fine of up to $2,000, died of suicide or of natural causes, KSNV reported. Detectives said they had ruled out homicide.

Lawrence came forward earlier this month and blew the whistle on the operation, in which title officers Gary Trafford, 49, of Irvine, Calif., and Geraldine Sheppard, 62, of Santa Ana, Calif. — who worked for a Florida processing company used by most major banks to process repossessions — allegedly forged signatures on tens of thousands of default notices from 2005 to 2008.

Trafford and Sheppard were charged two weeks ago with 606 counts of offering false instruments for recording, false certification on certain instruments and notarization of the signature of a person not in the presence of a notary public. You can read a .pdf version of their indictment here.

Police said at the time that the alleged scam had thrown into question the legality of most Las Vegas home foreclosures in the past few years, leaving many people living in foreclosed-upon homes that they unknowingly don’t actually own.

“I would suggest you review your documents and bring them to an expert and an attorney,” said John Kelleher, chief deputy attorney general for Nevada’s fraud unit.

Hundreds attend home foreclosure prevention workshop

Amanda Mole, Hernando County Independent Examiner

Drivers jockeyed for a parking space in Central High School’s parking lot. Hundreds of people carrying pencils and notebooks flooded the hallways. Nervous chatter permeated the air. One would think it was the first day of school.

But it was not the first day of school. It was an early Saturday morning, and the people crowding the hallways were desperate homeowners, not high school teenagers. Over 300 people pre-registered for this morning’s home foreclosure prevention workshop sponsored by Congressman Rich Nugent. Hundreds more arrived and registered on-site.

Congressman Nugent, clearly moved, welcomed participants in the auditorium. “One person told me he was afraid that he’d register and be the only one here,” he told the crowd. “What’s important is that we understand that no one is alone in this, and that we talk to each other and come up with ideas and solutions.”

The event, which took place from 9:00am to 1:00pm, included three panel discussions with advice on consumer protection, legal process, and credit management and debt reduction. Additionally, 30 vendors, including banks, legal service providers, and debt counselors, were available on-site to provide assistance to the attendees free of charge. Dozens of people waited in long lines to take advantage of the opportunity.

Chai Mookdasanit, a self-employed small business owner facing home foreclosure, expressed appreciation for Congressman Nugent’s efforts. “Things like this need to take place more often,” he stated. “The county needs to be more aware of resident issues besides just enforcing the law… and giving out traffic violations,” he added with a laugh. “All of us are people. We all want to take care of our children. We all want to give them food, clothes, good education, you know? We all want the same thing.”

Are you facing home foreclosure? If so, here are some tips to protect yourself:

Beware of foreclosure rescue scams. Remember that if it sounds too good to be true, it probably is. Never send your mortgage payment to anyone other than your financial service provider. Any service that demands an up-front payment is in violation of the law.

Always have a written contract, and always know what you are signing.

BE PERSISTENT when communicating with your bank or mortgage lender. When you fail to connect with someone via phone or email, request an in-person meeting.

Contact reputable non-profit housing or financial counselors, such as the U.S. Department of Housing and Urban Development or the Homeownership Preservation Foundation.

If you think you are stuck in a foreclosure scam, consider contacting the following agencies immediately:

Federal Trade Commission

State Attorney General

State, County, and City Protection Offices

Fannie Mae, Freddie Mac Ban Steven Baum Law Firm From New Foreclosures

By Thom Weidlich

Bloomberg

Fannie Mae and Freddie Mac, the mortgage-finance companies operating under U.S. conservatorship, dropped Steven J. Baum PC from their list of law firms eligible to handle foreclosures.

“After Nov. 15, 2011, servicers may not refer any new Fannie Mae foreclosure or bankruptcy cases in New York to Steven J. Baum PC,” Fannie Mae said in servicing notice that day.

Freddie Mac announced its ban Nov. 10. Both companies said the Baum firm would continue to work on matters referred before the effective dates. Neither said why the firm was being suspended.

Last month, Steven J. Baum PC, one of the largest foreclosure law firms in New York state, agreed to pay the U.S. $2 million and change its practices to resolve a probe of its foreclosure filings. The agreement concluded an investigation into whether the firm filed misleading pleadings, affidavits and mortgage assignments in courts, according to a statement by U.S. Attorney Preet Bharara in Manhattan. The settlement didn’t constitute a finding of wrongdoing.

Earl Wells, a spokesman for Baum, didn’t immediately return a call seeking comment on Fannie Mae and Freddie Mac’s actions.

Brad German, a spokesman for McLean, Virginia-based Freddie Mac, said the company doesn’t comment on why it drops law firms from its list.

“We add and subtract designated counsel all the time,” he said in a phone interview today.

Amy Bonitatibus, a spokeswoman for Washington-based Fannie Mae, said that, beyond the servicing notice, she could only say that “Fannie Mae has permitted servicers to transfer existing cases from the Baum firm to new counsel.”

State attorneys general and federal regulators are negotiating with banks including JPMorgan and Bank of America to try to reach a settlement over faulty foreclosure practices.

Accusations

Steven J. Baum PC, located in Amherst, New York, just north of Buffalo, has attracted lawsuits and fines for its actions during the housing crisis. It has been accused of overcharging, filing false documents and representing parties on both sides of a mortgage transfer. On Oct. 28, a New York Times column reported that the Baum firm held a Halloween party last year during which employees dressed as foreclosed-upon homeowners.

New York Attorney General Eric Schneiderman is investigating the Baum firm, two people familiar with the matter said in May. Danny Kanner, a spokesman for Schneiderman, declined to comment on the investigation.

Home Seizures

Earlier this year, Florida foreclosure firm Law Offices of David J. Stern ceased processing home-seizure cases after Fannie Mae, Freddie Mac and home-loan servicers, including the largest U.S. banks, dropped it.

“GMAC Mortgage no longer uses the Steve Baum law firm and began suspending its activity with that firm in September,” Gina Proia, an Ally Financial Inc. spokeswoman, said in an e- mail.

Thomas Kelly, a JPMorgan Chase & Co. (JPM) spokesman, said the bank doesn’t comment on vendor relationships and wouldn’t say whether it continues to use the Baum firm.

“We have terminated that relationship,” Lawrence Grayson, a Bank of America Corp. (BAC) spokesman, said in a phone interview. That occurred before Fannie Mae’s and Freddie Mac’s announcements, Grayson said.

“We are evaluating and monitoring the firm and we will respond in the best interest of our customers and investors,” Vickee Adams, a Wells Fargo & Co. spokeswoman, said of the Baum firm in an e-mailed statement.

Mark Rodgers, a Citigroup Inc. spokesman, declined to comment on the Baum firm.

Foreclosed Homes Are Now Being Used As College Dorms And Pot Farms

By: Eric Goldshein

The Business Insider

There’s no reason to be happy about the housing market nowadays — unless you’re a college student in California, or a pot farmer.

These two demographics are taking advantage of high foreclosure rates, with varying levels of success.

University of California students are renting foreclosed homes in the city of Merced, which has the third-highest foreclosure rate in the country, for around $250-$300 a month per student, according to the NY Times (via Curbed).

Living alongside neighbors who are paying $3,000 a month on their mortgages, Merced students are living a lifestyle most college kids could only dream about, complete with granite counter tops and marble baths.

Meanwhile, Nevada’s pot growers are turning foreclosed homes into greenhouses, according to the LA Times (also via Curbed). Entire houses have been turned into grow rooms, which can help farmers turn a massive profit (the DEA puts a pound of hydroponically grown marijuana at about $3,000).

This year alone, authorities have busted 130 indoor sites in Nevada, up from 18 in 2005. That’s still a way to go to catch California’s numbers, but in both cases a trend has certainly developed.

Investors Raising Cash to Buy Government Foreclosures

By: Diana Olick

CNBC Real Estate Reporter

If only all the confidence swirling around the stock market todaycould find its way to potential home buyers across the nation; unfortunately it will take more than a little Greek bounce to right what's wrong in housing.

Contracts to buy existing homes fell in September, according to a new report from the National Association of Realtors, and the culprit is confidence. More Americans are staying where they are more than ever before, and even Baby Boomers, once expected to fuel an active adult market, are stagnant.

What's weighing on confidence are still-falling home prices, and what's pushing those home prices down are foreclosures. That's why the Obama Administration is pushing a potential plant to auction off foreclosed properties in bulk to investors, specifically the quarter of a million properties currently on the books of Fannie Mae, Freddie Mac and the FHA. As demand for single family rental properties rises, so too do potential investor returns.

"There is a hope that we'll be able to do a pilot in the near future, perhaps by the end of 2011 or early 2012. However, there hasn't been any decision on timing yet," according to an administration source.

The hope is there, and apparently the cash is there as well.

"Many investors are out there raising billions of dollars to buy these properties," says Jaret Seiberg of MF Global. "It's a great idea, and it's one of the few things that we've heard in several years now that could really help housing in a meaningful way."

Seiberg likens it to the Resolution Trust Corporation, which liquidated assets (primarily real estate assets) during the Savings and Loan crisis in the 1980's.

"The idea is not just to reduce supply but to reduce the fear that there's going to be this massive flood of foreclosed homes into many markets, and it's that fear of this foreclosure inventory that's really keeping prices down," adds Seiberg.

There were takers back then, and will likely be many takers now.

"The beginning of the rentership society is upon us," say analysts at Morgan Stanley. "Singe family rental total returns offer lower volatility and outsized returns vs. other major asset classes, even when accounting for the housing bubble and subsequent declines."

Investors would need some incentives, however, like perhaps a tax break or low-interest-rate loans. Currently Fannie Mae caps the number of loans it makes to investors in single family properties at 10. Any program would of course have to go through Fannie and Freddie's regulator, the Federal Housing Finance Agency (FHFA), which is still, shall we say, mulling:

"Before moving forward with individual asset sales, we're working hard to ensure that we have engaged appropriate private sector financial expertise. For any given locality, market conditions may dictate one or another type of transaction," says an FHFA spokesperson.

Well I guess that's a start.

A Deal that Wouldn't Sting

The New York Times

Published: October 29, 2011

By GRETCHEN MORGENSON

After months of back and forth, a deal that is supposed to punish large financial institutions for foreclosure misconduct may be nigh.

While the exact terms remain under wraps, some aspects of this agreement — between banks on one side, and the federal government and a raft of state attorneys general on the other — are coming into focus.

Things could change, of course, and the deal could go by the boards. But here’s the state of play, according to people who have been briefed on the negotiations but were not authorized to discuss them publicly.

Cutting to the chase: if you thought this was the deal that would hold banks accountable for filing phony documents in courts, foreclosing without showing they had the legal right to do so and generally running roughshod over anyone who opposed them, you are likely to be disappointed.

This may not qualify as a shock. Accountability has been mostly A.W.O.L. in the aftermath of the 2008 financial crisis. A handful of state attorneys general became so troubled by the direction this deal was taking that they dropped out of the talks. Officials from Delaware, New York, Massachusetts and Nevada feared that the settlement would preclude further investigations, and would wind up being a gift to the banks.

It looks as if they were right to worry. As things stand, the settlement, said to total about $25 billion, would cost banks very little in actual cash — $3.5 billion to $5 billion. A dozen or so financial companies would contribute that money.

The rest — an estimated $20 billion — would consist of credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors. How many credits would accrue to a bank is unclear, but the amount would be based on a formula agreed to by the negotiators. A bank that writes down a second lien, for example, would receive a different amount from one that writes down a first lien.

Sure, $5 billion in cash isn’t nada. But government officials have held out this deal as the penalty for years of what they saw as unlawful foreclosure practices. A few billion spread among a dozen or so institutions wouldn’t seem a heavy burden, especially when considering the harm that was done.

The banks contend that they have seen no evidence that they evicted homeowners who were paying their mortgages. Then again, state and federal officials conducted few, if any, in-depth investigations before sitting down to cut a deal.

Shaun Donovan, secretary of Housing and Urban Development, said the settlement, which is still being worked out, would hold banks accountable. “We continue to make progress toward the key goals of the settlement, which are to establish strong protections for homeowners in the way their loans are serviced across every type of loan and to ensure real relief for homeowners, including the most substantial principal writedown that has occurred throughout this crisis.”

Still, a mountain of troubled mortgages would not be covered by this deal. Borrowers with loans held by Fannie Mae and Freddie Mac would be excluded, for example. Only loans that the banks hold on their books or that they service for investors would be involved.

One of the oddest terms is that the banks would give $1,500 to any borrower who lost his or her home to foreclosure since September 2008. For people whose foreclosures were done properly, this would be a windfall. For those wrongfully evicted, it would be pathetic. Roughly $1.5 billion in cash is expected to go into this pot.

The rest of the cash that would be paid by the banks is expected to be split this way: the federal government would get about $750 million, state bank regulators about $90 million. Participating states would share about $2.7 billion. That money is expected to finance legal aid programs, housing counselors and other borrower support. If 45 states participated, that would work out to about $60 million apiece.

OBVIOUSLY, the loan modifications would make up a majority of the deal. And this is where real questions arise. For example, how can we be sure this plan won’t reward banks for modifications that they would have agreed to or should already have done absent the deal?

Perhaps most important, will the banks change the terms of loans enough to ensure that borrowers can actually meet their obligations over time? Or will these modifications default again, as is often the case? If so, the banks will have received a lucrative credit, even though borrowers fall back into trouble.

Such concerns are justified because past settlements promising big help to borrowers have failed to live up to their hype. An example is the 2008 settlement with Countrywide Financial that was struck by Illinois and California. Characterized as providing $8.7 billion in relief to troubled borrowers, it turned out to generate nowhere near that benefit.

The deal being discussed now may also release the big banks that are members of MERS, the electronic mortgage registry, from the threat of some future legal liability for actions involving that organization. MERS, which wreaked havoc with land records across the country, was sued last week by Beau Biden, Delaware’s attorney general, on accusations of deceptive trade practices.

The MERS registry was also subpoenaed last week by Eric Schneiderman, the attorney general of New York, as part of his investigation into the fun-while-it-lasted mortgage securitization fest. If he were to sign on to the settlement, his investigation into MERS could not move forward.

“Rules matter,” Mr. Biden said in announcing his suit. “A homeowner has the obligation to pay the mortgage on time and lenders must follow the rules if they are seeking to take away someone’s house through foreclosure.”

Abiding by the rules has not been the modus operandi in the foreclosure arena. That’s why any settlement must be tough, truly beneficial to borrowers and monitored for compliance. Otherwise, the deal would be another case where our government let the big banks win while Main Street loses.

Waiver OK'd on flipping houses

10:00 PM PST on Monday, January 18, 2010
By LESLIE BERKMAN
The Press-Enterprise

In a move that could make foreclosed properties more attractive to investors and increase the number of homes available to first-time buyers, the federal government is temporarily lifting a prohibition against providing FHA mortgage insurance for homes that are resold within 90 days.

The Department of Housing and Urban Development designed the regulation to discourage the flipping of houses by investors that drove up prices during the housing market boom of a few years ago. But critics say its unintended effect has been to reduce the options of first-time buyers who already are competing for a shrunken supply of homes for sale.

Last year banks slowed the flow of properties headed to foreclosure, possibly in an effort to modify troubled mortgages to make them more affordable or to avoid posting losses when the homes are sold.

The waiver on the purchase of flipped houses with FHA mortgages, which begins Feb. 1 and is effective for one year, "will give FHA borrowers access to a broader array of recently foreclosed properties," HUD said Friday in announcing the change.

Conditions attached to the waiver are expected to prevent what HUD called "predatory practices" by investors. For instance, when a house is resold within 90 days of purchase at a price that is 20 percent higher, the seller would have to justify the increase, such as by showing how much was spent on repairs and renovation.

Some real estate experts complain that investors who come into the foreclosure market with cash have an unfair advantage over first-time buyers who are less attractive to the banks because they frequently can afford only minimum down payments.

Other experts argue that investors perform a community service by buying and fixing up the most distressed and vandalized foreclosed houses that otherwise would be uninhabitable and ineligible for FHA financing. But they add that in many cases investors have not been able to sell the refurbished houses to FHA buyers because they could not wait 90 days to recoup their purchase, rehabilitation and holding costs.

So instead of first-time buyers with FHA mortgages getting such houses, they often have been sold to investors who have converted them to rentals or to people who could afford the larger down payments required for conventional financing.

Rich Cosner, president of Prudential California Realty with nine offices in Orange, Riverside and San Bernardino counties, said because of the FHA restriction against insuring loans on houses bought from flippers, many first-time buyers "were locked out of some of the best houses."

Investor-owned houses that are "flipped" represent "a small but growing percentage of the resale market," said Andrew LePage, a spokesman for DataQuick Information Systems, which tracks housing sales and prices. LePage said absentee buyers, most of whom are investors, in December accounted for 24 percent of sales in Riverside County and 28 percent in San Bernardino County.

In November homes resold after being owned no more than 180 days represented 3 percent of sales in Riverside County and 4 percent in San Bernardino County, LePage said.

More investors

Nicholas Manfredi, president of the Corona-based Inland Empire Investors Forum, said HUD's waiver was greeted with joy by his investor colleagues.

"They were high-fiving me in the gym this morning," he said Monday.

Manfredi said he is certain the change will attract more investors who will buy houses in neighborhoods dominated by FHA buyers. He said previously some investors shied away from these lower-price neighborhoods, which he said had the effect of perpetuating community blight.

However, Manfredi said the future of the Inland foreclosure market is too murky for him to recommend that investors dive into flipping. His biggest worry, he said, is that the change in federal policy may mean that the government expects banks to start allowing their backlog of delinquent loans to rush to foreclosure. If that happens, he said, home prices will fall and harm anyone needing to quickly sell investment properties.

Several local real estate agents, including Joyce Aragon, a sales agent for All National Realty in Ontario and president of the Inland Valley Association of Realtors, say in recent weeks they have seen an uptick in the volume of repossessed homes coming to market.

Pete Nyiri, owner of Top Producers Realty in Corona, a major broker of repossessed houses, said the number of foreclosures that banks assigned to him last month increased 40 percent and many of those have yet to be listed.

Barclays Expects ‘Triple-Dip’ With Another 7% Drop in Home Prices

By: Carrie Bay

DSNews.com

The analysts at Barclays Capital say a “triple-dip” in home prices will likely materialize by early next year.

The term “triple-dip” emerged in a Clear Capital report a couple of weeks ago, and Barclays says its analysis corroborates the idea.

The research firm warns that home prices will likely slip another 6 to 7 percent over the coming winter months. That would put median prices at a new low for this cycle, in fact about 3 percent below the double-dip measurement of last spring.

Following the probable “triple-dip” in the first quarter of next year, Barclays says home prices will “rise very gradually.”

“While the likelihood of a negative tail scenario in housing has increased, the probability of a 15-20 percent decline from current levels is still low, in our view,” Barclays’ residential credit analysts said in their report.

“Long-run home price measures suggest that prices are close to equilibrium,” they added.

Barclays notes that delays associated with foreclosures have, for the moment, prevented an overcorrection in home prices by limiting the amount of REO inventory on the market.

Still, REO inventory levels have remained elevated, and Barclays says close to 4 million homes are seriously delinquent or in foreclosure and will eventually need to be sold.

“We expect 90+ to foreclosure and foreclosure to REO roll rates to improve in the coming quarters. That said, the timelines of defaulting loans should continue to ramp up,” Barclays said.

As foreclosure to REO roll rates improve, the number of distressed homes placed on the market will increase.

Barclays says although REO supply and demand are currently evenly matched, the glut of foreclosed homes in the pipeline should eventually cause REO supply to far exceed REO demand.

This supply-demand imbalance could remain well into 2013 and 2014, according to the research firm.

Barclays says price gains will be constrained by the amount of REO supply that will be placed on the market in the next few years. At the same time demand for these homes will be “highly dependent” on the state of the economy, the firm stressed.

Bank of America Offers Short-Sale Program Through End of November

By: Mark Puente

ST. Petersburg Times

The clock is ticking on homeowners who want to take advantage of Bank of America's recently announced short-sale incentive program.

To collect up to $20,000, qualified sellers must get their homes listed for sale by the end of November.

The bank, which services 1.1 million Florida mortgages, says it is not limiting the offer to delinquent borrowers. Homeowners with good payment histories could also qualify, said Christina Beyer Toth, a Tampa-based Bank of America spokeswoman.

When the nation's largest lender announced the program offer last week, it didn't specify which homeowners would qualify or whether the bank wanted to only dump toxic loans it acquired from Countrywide Financial in 2008.

The program will save the bank attorney fees, court costs and property taxes by avoiding foreclosure. It also speeds the process of getting bad loans off its books and gets the properties back on the market faster.

Here's what else Bank of America mortgage holders need to know about the program:

Q. How will homeowners know if they qualify?

A. Bank of America will send them a solicitation mailer. Home­owners can also call the bank to see if they qualify, and real estate agents will notify eligible homeowners already listed for short sale. Either the homeowner or agent can call the short-sale specialists for further information and to determine eligibility. Government-backed loans and lot loans are excluded.

When do the homes have to be listed for sale?

Between Sept. 26 and Nov. 30. The deal must close by Aug. 31, 2012. Sales already under contract are not eligible for the cash assistance.

Q. Can homeowners with good payment histories qualify if their loans are under water?

A. Yes. Bank of America selected Florida for the test-and-learn program to determine whether the additional incentive increases the use of short sales instead of other more expensive, and perhaps less dignified, transitions like foreclosure. If it works in Florida, the bank might roll it out in other parts of the country.

Q. How will the payouts be determined?

A. Qualified homeowners will get 5 percent of the unpaid balance as of August 2011, with a minimum payout of $5,000, Bank of America says. For instance, a homeowner who owes $100,000 as of August would get $5,000 (5 percent of $100,000). A homeowner who owes $200,000 would get $10,000. And so on up to a maximum of $20,000. The sales price does not impact the payout.

To sweeten the deal further, Bank of America will consider waiving the deficiency on the loan, which allows homeowners to sell the house for less then they owe without having to make up the difference to the bank. That can save homeowners thousands of dollars and enable them to buy another home quicker.

Q. Will the program impact a homeowner's credit rating?

A. It depends on whether the loan is delinquent or current when the home is sold. The short sale will be reported as any other short sale is reported, in line with national credit reporting standards, Bank of America says. If "short sale" is listed on a credit report, the score will drop by at least 100 points, experts said. But some short sales are being listed as " paid in full," which wouldn't have the same detrimental impact on a credit rating.

Q. Are the cash payouts government funded?

A. No. Bank of America will pay all incentives.

Q. How much money does Bank of America plan to spend on the cash assistance?

A. "We cannot provide an answer," Toth said.

Short sale specialist Steve Capen of Keller Williams Realty in St. Petersburg cautioned that homeowners shouldn't get overly excited because many of these plans have restrictions.

Two of his clients applied for the program, and each learned immediately that they qualify for more than $12,000 if the homes sold. Both clients have been delinquent on their mortgages for more than a year, Capen said.

On the other hand, the banks told two other clients, who are current on their loans, to apply for the offer but did not specify if they would get any money, he said.

"They're not giving any answers on the payout," he said.

The Long Sale...

By: GRETA GUEST

DETROIT FREE PRESS

Buyers and Sellers Find Short-Sale Process Frustrating

DETROIT | Short sales are among the most arduous real estate transactions, often taking six months or more to close — if they get done at all.

Facts

CONSIDER THIS:

Most experts agree that it is wise to hire a Realtor who is experienced in short sale transactions and a lawyer, if possible.

A short sale is less onerous to one’s credit than a foreclosure. For instance, Fannie Mae allows people with a short sale on their record to get another mortgage after two years while those with a foreclosure have to wait seven years.

Once the seller has negotiated a deal with the bank about how much, if any, money to bring to the closing table, the bank usually issues a deficiency waiver that would protect the seller from being sued later on for the balance.

Keep the lines of communication open with lenders/servicers.

Keep detailed records.

Send everything to the lender/servicer by certified mail.

Source: Free Press research

They can be a life raft for distressed homeowners who owe more on their houses than what they’re worth, but the experience depends on a variety of factors, such as the number of lenders involved and whether there’s a hardship, mortgage insurance attached or whether the buyer has the patience to stay with the process.

A short sale occurs when a lender agrees to accept less than what the homeowner owes. The transaction requires that the homeowner has a financial hardship.

Homes with more than one mortgage and mortgage insurance tend to take the longest, said Ellen Mahoney, president of Complete Title Services’ loss mitigation division in Birmingham, Mich. A growing reason short-sale deals fall through or take longer is because of mortgage insurance purchased after the homeowner closes on the deal and the loan is later sold to other lenders and investors.

Unlike private mortgage insurance required for sellers who put less than 20 percent down, these lenders and investors buy insurance to minimize risk. It is known in the real estate industry as pool insurance because it covers a group of loans that have been purchased.

Premiums are paid by the lender or investor, and the homeowner isn’t aware of it.

When the loan defaults, such as in a short sale, the mortgage company may demand that the seller pay part of what is owed to minimize its losses.

“That’s a mess. They are the worst,” Mahoney said. “It is usually the lender mortgage insurance that nobody knew about, and it is usually on the second mortgage. It is real disruptive.”

Often, the bank holding the first mortgage isn’t made aware that the second mortgage had been insured until the end of the process, even if both loans are with the same lender. If the mortgage insurance company doesn’t sign off on the deal, the process starts over again.

These kinds of delays mean buyers walk away because of the time and frustration involved.

Brian Pannebecker, 52, of Shelby Township, Mich., made an offer on a home in his neighborhood only to have the bank reject it.

“I would never, ever look at a short sale,” he said. “I would go right to a foreclosure, which I eventually did. It was much, much easier.”

Instead of buying in Michigan, Pannebecker bought a two-bedroom condo in Fort Myers, near where his father retired. He made an offer that was accepted within 24 hours during the holidays. The whole deal closed in six weeks.

Buyers don’t typically ask to see short sales unless they have the luxury of waiting for an undetermined length of time to move, said Renee Reyer, a Realtor with Clients First Realtors in Canton, Mich.

Reyer does her homework on short sales. She checks the property history and finds how many mortgages the seller has to determine how difficult the deal might be to close. Based on that information, she works out the percentage of risk that the property won’t close and presents that to her clients.

Banks say they’ve been working harder to make the short-sale process easier, but they acknowledge the delays.

At Chase, the average response is 30 days from request to approval, said spokeswoman Mary Kay Bean in Detroit. Chase has completed 120,000 short sales using its own process nationwide since June 2009 and is now averaging 5,000 a month.

Klorinda Hibbert, a real estate agent at Michigan brokerage Re/Max in the Hills, spends most of her day working on short sales and has 14 in progress now. She’s noticed changes in the past year — and they aren’t for the better.

She said lenders and servicers are requesting more than one broker’s price opinion. The lender works with real estate brokers who put together a valuation on the property based on what similar properties are selling for. They’re also requesting formal appraisals. They are good for only 90 days.

“The banks are willing to go into foreclosure rather than do a short sale,” Hibbert said. “They want to get paid in full.”

Even the federal government’s program to streamline short sales — known as the Home Affordable Foreclosure Alternatives Program — has yet to gain traction because it doesn’t allow the lender to collect on the home’s deficiency.

Bank of America Lawyer, Consultant Gave Foreclosure Probe Chief $15,000

By MASSIMO CALABRESI

Iowa’s Democratic Attorney General Tom Miller is known for taking on big business. Elected to eight four-year terms, he led a multi-state anti-trust case against Microsoft in 2001 and filed a suit against 79 drug companies in 2007, alleging they illegally profited by inflating prices for drugs purchased through Medicaid.

Most recently, Miller took the lead on the investigation by all 50 state attorneys general into the “robo-signing” foreclosure scandal, where several big banks allegedly approved taking away people’s homes without adequately verifying the facts in court, as required by law in some states.

Last fall, just after he made the announcement that he would look into the foreclosure mess, contributions to Miller’s campaign coffers for November’s election soared, thanks in large part to out-of-state lawyers who make a living representing big banks, a new report from the National Institute for Money in State Politics finds. “Nearly half of the money Miller raised in 2010,” NIMSP reports, “was donated after the October 13 announcement that he would be coordinating the 50-state attorneys general investigation.”

Two Miller contributors have become directly involved in defending the banks in the probe. One, Meyer Koplow of Wachtell Lipton in New York, gave Miller $5,000 and is representing Bank of America in direct negotiations with Miller, the attorney general tells TIME. Another, Elizabeth McCaul of Promontory Financial Group, gave Miller $10,000 and is consulting Bank of America in the negotiations, Miller says. Bank of America was one of the first and most prominent institutions accused in the foreclosure investigation. It gave more than $80,000 to the Democratic Attorney Generals Association, which spent more than $200,000 on Miller’s campaign, Miller says.

Miller says Kaplow and McCaul are old friends and professional associates, and that they were not working for Bank of America before election day. He says neither has discussed the campaign contributions with him since they began work for the bank.

The NIMSP report and revelations of campaign contributions by those working for Bank of America come at a sensitive moment, as Miller is in the thick of far-reaching negotiations with the banks. Though the case started as an investigation into robo-signing, it has broadened. The talks are aimed at a settlement that could set the terms by which banks service current and future home loans, and determine how they foreclose on properties. That could complement, or supercede, a settlement between banks and federal regulators reached earlier this year.

Talks over monetary aspects of a potential settlement between the AGs and the banks are just getting under way. New rules for banks writing down mortgage principal and the establishment of a bank-paid fund to help with loan modification are on the table. Some reports have potential bank payments reaching $20 billion but sources on both sides suggest that number is high. The breadth of the negotiations has caused seven Republican attorneys general to split with the 43 other AGs.

In early March, American Banker published a 27-page term sheet that Miller and the other attorneys general had presented to the banks in the talks. “We’ve had negotiations and have agreement on some of the terms but no overall agreement,” Miller says.

Miller objects strongly to the NIMSP report. “It is extremely false and misleading,” Miller says. He disputes the report’s assertion that many of his campaign contributors have a “vested interest in the final terms of the settlement.” Other than Koplow and McCaul, none of the other lawyers named as campaign contributors in the report are involved in the case and none has an interest in the settlement, Miller says.

Miller also says the report commits “an omission of material fact” in its description of his fundraising by comparing 2010 fundraising to prior races. “This race was unlike any race I’d been in before,” Miller says. “It was a race where the other side had $2.2 million. The most any of us ever spent in this race before was $300,000 or $350,000,” he says. Miller says he didn’t have a competitor in 2006 and that in 2010 he and his supporters eventually raised and spent around $1 million.

Kevin McNellis, the author of the report, says the fact that he compared 2010 to 2006 without mentioning that there was no competitor in that race was “an oversight on my part.” Though the report argues that the campaign contributors’ interest in the outcome of the settlement of the foreclosure investigation is “vested,” which means “guaranteed” or “unconditional,” McNellis says he does not know which individuals or firms are directly involved in negotiations.

But McNellis asserts that, “When they were contributing last fall, I’m sure that it was something they were very keenly aware of, that Miller was leading the investigation.” They would have an interest in the outcome, McNellis says, “even if they weren’t directly involved in the negotiations.”

Neither McCaul nor Koplow would comment for this story.

Freddie Mac Military Foreclosure Prevention Programs–Service Members Get Nine Month Foreclosure Delay

By Lee McFarland

Freddie Mac recently offered the opportunity for military service members to delay foreclosure for nine months as many military personnel returning from active duty are struggling to make their mortgage payments, which has been common among homeowners across the nation. In a recent press release, Freddie Mac stated that servicers will not initiate foreclosure for at least nine months for financially troubled service members as this should give these financial institutions opportunities to find mortgage solutions for military homeowners suffering from financial difficulties in their personal life.

Obviously, there are home loan modification programs which maybe available to homeowners in the military, but it’s hoped that these efforts to suspend foreclosures by Freddie Mac can offer particular service members more opportunities to find the affordability they need in their monthly mortgage payment. There have been many cases both with military homeowners and nonmilitary homeowners where traditional modifications have simply been unhelpful in delaying or preventing foreclosure for their personal situation.

While there are also VA loan modification opportunities for those who qualify, this effort by Freddie Mac is hoped to, again, offer an extension on the time a servicer has to find an affordable solution to a homeowner’s predicament when these individuals who are returning from active service duty. This assistance opportunity which is provided to homeowners in a Freddie Mac mortgage will run through the end of 2011, which again, should offer foreclosure prevention options for military personnel in a troubling mortgage predicament.

Understandably, not all military personnel who are offered the opportunity to delay foreclosure on their home loan will benefit even if their servicer seeks out an assistance plan which may help them avoid foreclosure, but additional time to find modification programs, alternative mortgage payment assistance, or even a foreclosure alternative option through short sales or deed in lieu of foreclosure opportunities could be beneficial for military personnel in need of immediate mortgage assistance.

Short Sale And Deed In Lieu Of Foreclosure Plans After Mortgage Assistance Denials See Increase For Distressed Homeowners

Homeowners who are in a situation where they have attempted to find lower payments on their mortgage may find that some options for mortgage assistance is not available, as we have seen in monthly Treasury Department reports showing that there are homeowners who are denied assistance through the federal modification program, but in cases where homeowners may be facing negative equity as well, or may simply not qualify for these modifications, short sale and deed in lieu of foreclosure plans have been offered after a denial. Yet, questions have arisen over how beneficial these alternatives to foreclosure may be, despite the fact that there are some homeowners seeking out these options for their situation.

However, according to reports from the federal modification program, the program total for the top servicers within HAMP saw an increase in the deed in lieu of foreclosure plans and short sell options between May and June as homeowners whose trial modification was canceled saw an increase of almost 3,000 of these offers made available, while homeowners not accepted for a trial modification saw an increase of almost 10,000 in terms of the totals being tracked in this area.

Understandably, some homeowners feel that these options are more beneficial than resigning themselves to foreclosure, simply because it could help some families transition from a situation that is unaffordable, in terms of their home loan obligation, and by selling their home at a loss will be free and clear of any money owed to their lender. This can be helpful during times where distress like negative equity or even unemployment had arisen, but some arguments are still being made that homeowners should avoid turning to these options primarily, as there are still ways to avoid the loss of one’s home entirely.

Homeowners do need to be aware that there could be adverse effects on their credit score as well simply because this may be seen in a similar light as someone who settles the debt for less than they had originally owed. While there are some servicers who are working with homeowners to help them complete options like short sales, homeowners do need to keep in mind this could negatively impact their credit.

It has been the case though, some homeowners are simply not in a position where they are primarily concerned about their financial life, in terms of their credit score, as some men and women are simply trying to make ends meet, payoff multiple debt obligations, or overcome joblessness and may feel that getting an opportunity to participate in a short sale or a deed in lieu program will be best for their current situation. Yet, homeowners do need to understand that there are resources available to help them look at their financial situation, as housing counselors and similar assistance resources are still being stressed to homeowners in the hopes that troubled homeowners will use this assistance opportunity to look at how they may not only benefit from mortgage aid currently available but potentially find debt relief in other areas and avoid the loss of their home.

9 arrested in Pasadena protest over home foreclosure

By Nicole Santa Cruz /Los Angeles Times

Nine people were arrested Wednesday afternoon in Pasadena after protesting the foreclosure of a La Puente woman’s home.

A group of about 70 people supporting Rose Gudiel and her disabled mother began protesting outside Pasadena City Hall, then moved to a Fannie Mae building nearby. Fannie Mae owns the loan on Gudiel’s house.

The building’s management determined that the protesters were being disruptive to business. After several warnings, the crowd dispersed and after a third warning nine people were arrested, said Lt. Pete Hettema of the city’s Police Department.

“Everyone was pretty cooperative,” Hettema said. “Obviously, the people in there were attempting to make a statement.”

Protesters held signs and chanted phrases such as “Shame, Shame Fannie Mae.” The group was associated with the Alliance of Californians for Community Empowerment and the Service Employees International Union.

Amy Schur of Los Angeles attended the protest. She called Gudiel’s actions courageous and said the woman’s situation is an “unfair, wrongful foreclosure.”

“This is about families across the city and across the country who are having their homes wrongfully taken away from them,” she said. “There are a lot of preventable foreclosures out there.”

Gudiel, 34, said she just wants to sit down and talk with representatives who might be willing to negotiate instead of foreclose.

“Every corner of that house is part of my American Dream,” she said.

A court date on the arrests is set for Dec. 7.

Robo-signed mortgage docs date back to late 1990s

By PALLAVI GOGOI

NEW YORK (AP) — Counties across the United States are discovering that illegal or questionable mortgage paperwork is far more widespread than thought, tainting the deeds of tens of thousands of homes dating to the late 1990s.

Already, mortgage papers are being invalidated by courts, insurers are hesitant to write policies, and judges are blocking banks from foreclosing on homes. The findings by various county registers of deeds have also hindered a settlement between the 50 state attorneys general who are investigating big banks and other mortgage lenders over controversial mortgage practices.

The problem of shoddy mortgage paperwork, which comprises several shortcuts known collectively as “robo-signing,” led the nation’s largest banks, including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., and other lenders to temporarily halt foreclosures nationwide last fall.

At the time, “robo-signing” was thought to be contained to the affidavits that banks file when a mortgage is issued and somebody buys a house. The documents are used to prove they have the right foreclosure if the homeowner isn’t making mortgage payments. Companies that process mortgages said they were so overwhelmed with paperwork that they cut corners.

The suspect documents could create legal trouble for homeowners for years.

But now, as county officials review years’ worth of mortgage paperwork, in some cases combing through one page at a time, they are finding suspect signatures — either signed with the same name by dozens of different people, improperly notarized or signed without a review of the facts in the paperwork — on all sorts of mortgage documents, dating as far back as 1998, The Associated Press has found.

“Because of these bad titles, property owners can’t prove they own the properties they think they bought, and banks can’t prove they had the right to sell them,” says Jeff Thigpen, the registrar of deeds in Guilford County, N.C.

In Guilford County, where Greensboro is located, a sample of 6,100 mortgage documents filed since 2006 turned up 74 percent with questionable signatures. Thigpen says his office received 456 more documents with suspect signatures from Oct. 1 through June 30.

The suspect signatures found by Thigpen and other registrars around the country were on documents from the banks involved in the temporary foreclosure halt and others.

Widespread robo-signing that stretches back a decade or more could create problems for homeowners. Regulators have so far not asked lenders to clean up the potentially millions of suspect documents filed in the past decade or earlier. That troubles some banking experts, including Sheila Bair, who until early July was chairwoman of the Federal Deposit Insurance Corp.

“We do not yet really know the full extent of the problem,” Bair said in written remarks to the Senate Banking Committee. She and others have called for a comprehensive study on the extent of the fraudulent signatures in mortgage documents.

If documents with robo-signed signatures are challenged in court, judges could question the ownership of the properties, says Katherine Porter, a professor at University of California Irvine School of Law and an expert on consumer credit law. The consequences extend to homeowners in good standing when they try to sell.

If invalid documents are discovered in the chain of ownership, it could delay the sale or make it difficult for buyers to get a mortgage because title insurers won’t write a policy for the property, says Justin Ailes, vice president of government affairs of the American Land Title Association, a trade association representing the title insurance industry. Banks and other mortgage lenders won’t write a home loan without title insurance.

Among the findings shared with The Associated Press by county officials from several states:

— An investigation of mortgage documents in the county that includes Salem, Mass., found that more than 25,000 had suspect signatures. The earliest date to 1998, says John O’Brien, the registrar of deeds there.

— In Michigan, the state attorney general has sent criminal subpoenas to three companies that processed mortgage paperwork after 24 local recorders of deeds looked through their files and found rampant robo-signing.

— An Illinois county, Kankakee, pulled a sample of 60 documents filed since 2007 to look for suspect signatures. All 60 were “signed” by people who have been identified as robo-signers. At least 12 county officials in Illinois have sent their findings to the state attorney general.

The results of these reviews are troubling to the registers of deeds in counties across the country. It’s the job of these officials to record documents on property transfers, and they say, they need to be able to trust that notarized paperwork is legitimate.

“I want papers that come into our office to be clean,” says Lori Gadbois, the recorder of deeds in Kankakee County, whose office handles more than 15,000 mortgage documents in a typical month.

Many banks began outsourcing paperwork at the beginning of the housing boom around 1998. That’s when an increasing number of home loans were being packaged into securities on Wall Street and sold off to global investors. As demand skyrocketed, lenders and mortgage processing firms hired entry-level employees to sign hundreds of mortgage documents a day.

Sometimes they forged the signatures of executives who were qualified to sign. Other times, actual executives signed the documents without verifying their accuracy. Many of the documents were stamped by notaries even though the people who had signed the documents weren’t present when the papers were notarized, a requirement by law. All are instances of robo-signing, and are potentially illegal.

Meanwhile, federal bank regulators have focused on getting banks to clean up their act in the future, not on fixing the potentially millions of tainted documents that have been filed in land record offices in counties across the country.

Robo-signing came to light last fall, when the largest banks halted foreclosures for several months to clean up their paperwork problem. The lenders promised last fall to stop the practice. But The Associated Press reported in July that robo-signing has continued. Officials in at least four states say mortgage documents with suspect signatures have been filed with counties in recent months. The revelation led to calls for Congressional hearings.

On Thursday, the mortgage unit of Goldman Sachs Group Inc. agreed to stop robo-signing and other controversial mortgage practices under an agreement with New York state’s banking regulator. The Federal Reserve, meanwhile, launched a formal enforcement action against the unit, Litton Loan Servicing, ordering it to review foreclosure proceedings from 2009 and 2010.

“The banks are playing with the integrity of the land record system,” says John O’Brien, the recorder of deeds from Salem, Mass.

The documents that are filed in county deed offices are legal affidavits that transfer loans from one bank to another in a sale, refinancing, or foreclosure and certify if a loan has been paid off. They verify that there are no claims against the property.

Robo-signing could ultimately invalidate tens of thousands of home ownership documents, say legal experts.

In addition to delaying regular sales, banks could be blocked from foreclosing even if the homeowner falls behind on mortgage payments for the same reasons.

That’s already happening.

Judges who handle foreclosures in Maine, California, Arizona, New York and other states have thrown out foreclosure cases if documents contain signatures of known robo-signers.

On July 1, a state judge in Brooklyn ruled that HSBC lacked the legal authority to foreclose on homeowner Ellen Taher because the mortgage documents that accompanied the filing were signed by at least three known robo-signers.

In May, a Maine judge dismissed another foreclosure involving HSBC, calling mortgage documents presented in a case untrustworthy because they contained signatures of one person posing as three different people. HSBC spokesman Neil Brazil says another company handled the mortgage paperwork in the New York case, and the bank is working with regulators to address and resolve issues related to robo-signing.

Registrars like Thigpen in North Carolina and O’Brien in Massachusetts say they have taken their findings to federal authorities. Except for a call from the North Carolina attorney general’s office, though, Thigpen says he has been ignored for months.

Deed offices in North Carolina and Massachusetts have stopped recording documents if they contain signatures of names known to be part of the robo-signing scandal. Such actions could delay new sales. O’Brien, the recorder of deeds from Massachusetts, says he’s only responsible for one county out of more than 3,000 in the U.S.

“Federal regulators with a lot more authority than me have to step up to the plate and help correct this,” he says.

The 50 state attorneys general have been negotiating a settlement with major lenders over robo-signing and other bad mortgage practices. Analysts say it could top $20 billion. But the attorneys general of some states, including New York, Massachusetts, Illinois, Delaware and California, have balked because banks have demanded a release from all future liability on past mortgage practices or the mortgage-backed securities they sold to investors.

Floridians facing foreclosure could lose their homes faster under plan making rounds in Tallahassee

By Kathleen Haughney

Floridians facing foreclosure could be stripped of their homes faster and have routine access to the courts limited under a proposal likely to come before Gov. Rick Scott and the Legislature in the coming months.

Bankers see it as a speedy and efficient way to manage foreclosure cases and get tens of thousands of Florida properties in ownership limbo back on the market, helping pull the state out of its economic doldrums.

In contrast, foreclosure defense lawyers and consumer activists see the plan as removing judicial oversight from a system that has proven to be riddled with fraud and abuse, and leaving ordinary homeowners defenseless before some of the state’s most powerful financial interests.

“Obviously there’s a lot of fraud being perpetrated by the banks in these cases,” said Michael Redman, a Palm Beach County resident who founded the Website 4closurefraud.org to chronicle Florida’s ongoing foreclosure crisis. “At this point in the game, it’s almost ridiculous to take it out of the court system.”

But the Florida Bankers Association, which has pushed the plan over the past few years, has key allies. Scott voiced support for the proposal at a Florida Bar convention this summer and told reporters Wednesday he is still interested in it. Some lawmakers have already jumped on board.

“Well, I want to make sure that we have an efficient process, so we don’t create a reason for banks or whoever lends money not to lend money in Florida,” Scott said. “When you talk to people that are in the system now they say it’s 600 days to get through foreclosure. All that does is create another incentive for people to not lend money when we want people to lend money to our state.

“I don’t know the answer yet, but I want to look at the process,” Scott said. “I want to get more information before I make a decision.”

According to RealtyTrac, a foreclosure tracking firm, Florida had the third highest foreclosure rate in the nation and was second in the number of foreclosure cases filed in 2010. On average, the firm said, the foreclosure process takes 676 days.

Usually the lender reclaims possession; other times, homeowners get to keep their property.

Currently, Florida is one of only 20 states to handle the foreclosure process through the courts. In California and Nevada, which have also been plagued by high foreclosure rates, foreclosure proceedings are primarily conducted outside court in about four months, though a judge can get involved if one of the parties deems it necessary.

Typically in states using a non-judicial system, the mortgage contract is based on a deed that includes a clause allowing banks to begin foreclosure proceedings without going to court. The bank gives notice to the homeowner and if the homeowner did not respond, the bank can reclaim the property.

Lawmakers and the Florida Bankers Association have pushed in the past for Florida to become a non-judicial foreclosure state but have come up short, with concerns about rampant fraud by some lending institutions trumping other arguments.

Legislation has not been filed yet this year on the issue, but legislative leaders inTallahassee seem interested. Legislative economist Amy Baker gave a presentation on the issue this week to the House Civil Justice Subcommittee and Katie Betta, a spokeswoman for House Speaker Dean Cannon, said that Cannon, R-Winter Park, has said he is open to it, but cautioned that the “devil is in the details.”

“That’s going to be a big issue this year. It’s already shaping up to be,” said state Rep. Darren Soto, D-Orlando, a member of the civil justice subcommittee who is opposed to taking judges out of routine foreclosure proceedings. “When we’re talking about the property right being paramount, we need to make sure due process is exhibited,” Soto said.

Anthony DiMarco, a lobbyist for the Florida Bankers Association, which represents more than 300 banks and financial institutions, said the association has not finalized its legislative agenda for 2012, but that it has generally supported the change in the past because it believes the faster homes can be repossessed by lenders, the better off the economy will be.

New buyers will move into the houses and apartments and start paying taxes, plus condo or homeowners association fees, he said.

“We have to get to the bottom to get out of this recession and the sooner we can do this the better,” DiMarco said.

But defense attorneys say the existing system needs more oversight by the courts, not less. Lawyers in the past few years have reported numerous cases where documents used to support foreclosures were missing or forged. The result has been a process that is not always fair to the homeowner, they say.

“Anything that takes away oversight isn’t necessarily a good thing, not necessarily for homeowners in foreclosure or the market in general,” said Chris Immel, a foreclosure lawyer in Palm Beach County. “We routinely see documents that just don’t add up.”

DiMarco argues, however, that with reputable financial institutions, that shouldn’t be a problem. Most cases, even when going through the courts, result in foreclosure, he said, but a non-judicial route would get to that end result quicker.

In states that already settle matters outside of the courts, homeowners are still given notice and time by lenders to settle the issue. If there is a mistake, they should be able to notify their bank and straighten out the problem, DiMarco said.

But if the bank is acting irresponsibly, DiMarco added, lawyers and judges should become involved.

“I think the end result is going to be the same and it will just be done a little quicker,” he said. “Other states have not seemed to have had a problem.”

Slow sales of bank-owned houses helps stabilize prices

BY COURTENAY EDELHART Californian staff writer

Bakersfield’s disproportionate number of lender-owned houses may be helping insulate the local real estate market from price fluctuation.

That was the assessment of two California Association of Realtors economists, who on Tuesday issued the group’s annual California housing market forecast.

Banks have been selling off their considerable inventory of foreclosed homes slowly in Kern County and other areas with high foreclosure rates, and that has helped to stabilize prices in regions hardest hit by the real estate crash, said deputy chief economist Robert Kleinhenz.

“You’re probably going to see more price stability in those areas than some of the other areas with more equity sales,” he said.

In Kern County, more than half of sales are distressed in some way, with the bulk leaning toward short sales, Kleinhenz said.

A short sale is an agreement between a seller and a lender to sell a property for less than the balance of the mortgage.

If a short sale can’t be worked out, often the house goes into foreclosure. At that point, the home is defined as a real estate owned, or REO, property.

In the Bakersfield area, 41 percent of existing single-family home sales in August were REOs, and 19.1 percent were short sales, according to the Crabtree Report, a monthly report on the local housing market produced by Affiliated Appraisers.

That’s an improvement over August of 2009, the year local home prices bottomed out. Back then, 60 percent of local home sales were REOs and 14 percent were short sales.

It’s a good sign that short sales are increasing and sales of lender-owned properties are falling, Kleinhenz said.

“When you see more short sales than REOs, that is indicative of a market that is further along in the healing process than some areas of the state,” he said.

Crabtree Report author Gary Crabtree cautioned that there is a large disparity between the number of short sales on the market compared with the number of short sales that have actually closed, however.

Even after a buyer and seller have reached an agreement, the bank has to sign off, and many lenders are either rejecting offers or taking a very long time to respond, he said.

“I’ve seen properties that have two to three buyers before they finally get an offer accepted by the bank,” Crabtree said.

In a Lender Satisfaction Survey the California Association of Realtors conducted over the summer, more than half of Central Valley Realtors characterized short sale transactions as “difficult” or “extremely difficult” to close.

“Despite assurances by lenders in recent months that they would improve their short sale processes, clearly, not enough is being done,” association treasurer Don Faught said in a statement.

In spite of that, the California Association of Realtors is forecasting that the state’s median home price next year will be $296,000, up less than 2 percent over this year and well below the 2010 median price of $303,100.

Sales should grow about 1 percent to 496,200 next year, the association predicted.

“We have a market that is moving forward very sluggishly, bouncing along the bottom with the understanding that there’s a whole closet full of wild cards that could change things,” said the association’s chief economist, Leslie Appleton-Young.

One of the biggest factors is the unemployment rate, which is holding back the entire state but is especially pronounced in the Central Valley, where so much job growth was tied to real estate and construction.

That situation isn’t likely to change any time soon, Appleton-Young said.

Kern County’s unemployment rate was 14.4 percent in August, compared with 11.9 percent statewide and 9.1 percent nationally.

Report: Hamp Applicants Foreclosed On

By Kara Johnson

Hoping for a government-backed loan modification on a Fannie Mae mortgage? Better do it before you fall more than 12 months behind on your mortgage, according to a recent report.

Fannie Mae has been directing mortgage servicers to proceed with foreclosure when mortgages are more than 12 months overdue, even when the homeowners were being considered for loan modification under the federal Home Affordable Modification Program (HAMP). That’s according to an investigation by the Detroit Free Press, which published the results in a three-part series beginning Sunday.

According to the Free Press investigation, Fannie Mae directed lenders to proceed with foreclosure against homeowners who were actively seeking HAMP loan modifications, contrary to Fannie Mae’s own declared policies and the government’s rules for HAMP. The paper cited confidential records it obtained that detailed correspondence between Fannie Mae and lenders responsible for servicing the mortgages in question.

In the correspondence, Fannie Mae cited a newly implemented “delay initiative” requiring that all mortgages more than 12 months past due must be on an active payment plan with monthly payments coming in order to avoid foreclosure. Requests for postponement in the absence of such a plan were denied.

The report on the investigation did not address how a homeowner might go about arranging such a payment plan while pursuing a HAMP loan modification; a loan modification is in itself a type of alternate payment plan.

One of the ongoing problems with the HAMP initiative has been that many homeowners have reported that their lenders have told them that they must be delinquent on their mortgage to be considered for a HAMP loan modification, contrary to the government’s rules for the program.

Fannie Mae officials contacted for the report declined to comment on the cases of specific homeowners. However, representatives of mortgage servicers said that in at least some cases, homeowners had failed to submit necessary documents or missed deadlines for filing requests or submitting documents. Homeowners, on the other hand, complained of getting the run-around from their mortgage servicers despite submitting requested information.

Bank Allowed to Resume Forclosures on NJ Homeowners

Written by

David P. Willis | Staff Writer

A California bank can follow through with foreclosures on New Jersey homeowners who have defaulted on their mortgages, a state judge ruled Wednesday.

OneWest Bank, formerly failed IndyMac Federal Bank, was the fifth big bank given the go-ahead this week by General Equity Judge Mary C. Jacobson.

On Monday, Jacobson ruled she was confidant Bank of America, Citibank, JPMorgan Chase and Wells Fargo will no longer engage in so-called robo-signing and can resume foreclosures.

The companies were found in compliance seven months after state Supreme Court Chief Justice Stuart Rabner essentially placed a moratorium on foreclosures until it was clear that lenders weren’t robo-signing documents — a process in which company employees or contractors, inundated with foreclosures, sign off on documents so fast that they don’t know what they are signing.

Judges overseeing the foreclosure process said the practice meant there was no way for them to know if an affidavit or certification was, in fact, true.

Jacobson appointed Richard Williams as “special master” to oversee the banks’ plans. Williams has yet to submit the plans for the last lender, Ally Bank, formerly GMAC Mortgage, said Winnie Comfort, a spokeswoman for the state judiciary.

The six big banks had experienced some robo-signing problems in the past. They also account for a large majority of the foreclosure actions in New Jersey, Williams said in his report. OneWest has pending foreclosures against 3,800 mortgage loans in the state.

Through a spokesman, OneWest Bank declined to comment Wednesday on the court’s action.

Rabner’s order gave homeowners some breathing room; The number of foreclosures filed in New Jersey fell from 58,000 in 2010 to 6,000 through July 2011.

The possible restart of foreclosures has loomed over the slumping real estate market. Thousands of foreclosed homes could come on the market at a time when home prices continue to fall.

“As both the economy and the market are leaking, this is poor timing because it will put additional strain on the economy, the banking system and on the housing market,” said Jeffrey Otteau, president of the Otteau Valuation Group in East Brunswick.

A sharp increase in the rate of foreclosure actions is now expected, he said.“And to the housing market, that means additional distressed inventory being added to the mix of home sales,’’ he said.It also will cause additional declines in home prices, he added.

Otteau said he expects the areas of Ocean County and south, Warren and Sussex counties, and the state’s larger cities to bear the brunt of the foreclosure actions.

Before Jacobson’s ruling Wednesday, OneWest, which is based in Pasadena, Calif., had to detail how it handles foreclosures throughout the company and describe its procedures.In his report, Williams said OneWest showed that its internal processes will make sure that paperwork is processed by a bank representative with knowledge gained by a personal review of the records.

The judge’s order calls for Williams to monitor OneWest as it resumes processing mortgage foreclosure cases.

Short Sales Become Bank Foreclosure Shortcut

By Shanthi Bharatwaj

NEW YORK (TheStreet) -- Banks dealing with lengthy, complicated and frequently messy foreclosures are starting to see "short sales" as a quicker and cheaper way of getting bad loans off their books.

The nation's biggest mortgage servicers- Bank of America(BAC), JPMorgan Chase(JPM) and Wells Fargo(WFC) - are beginning to step up their efforts to ease the short sale process for borrowers who are unsuccessful in getting loan modifications and face the threat of foreclosure.

Servicers are attempting to reach out to borrowers and are paying out more incentives to those suffering financial hardship to help proceed with a short sale. They are also cutting down the time taken to approve short sales, although realtors still complain that the process takes too long.

JPMorgan has processed 120,000 short sales through its proprietary program since June 2009 and now averages 5,000 short sales a month. The bank says its average response time to approve a short sales transaction is 30 days.

"We think the short sale is a good solution for many struggling homeowners and we let them know that it's an option," said Christine Holevas, spokesperson for JPMorgan in an email. "Our outreach efforts have increased in the past year or so. Foreclosure can be an expensive and lengthy process for all parties. It's a good deal for the homeowner and a good deal for us (a cheaper way to get a bad loan off the books.)"

A short sale is seen as a more palatable alternative to foreclosure for borrowers. In its simplest form, borrowers with underwater mortgages sell their homes to a buyer at a price that is approved by the lender. The lender normally forgives the difference between the loan and the sale proceeds- in essence the bank is being shorted for the loan amount.

Previously, lenders were said to prefer foreclosures to short sales because they -- or the investors in the loans -- figured that more money could be made from the former.

But the average time for the foreclosure process- from the time of notice to the completed foreclosure- is now 318 days in the U.S., according to RealtyTrac.

The foreclosure process in the state of New York, which follows a judicial process, took 966 days on average for properties foreclosed in the second quarter. New Jersey and Florida followed with an average processing time of 944 days and 676 days respectively.

The longer it takes for a foreclosure to be approved, the longer bad loans stay on banks' books.

Why foreclosures take so long?

Foreclosures are also more expensive, because of the legal expenses involved as well as the expenses for maintenance and upkeep while the property is in foreclosure.

Wells Fargo, for instance, incurred expenses on repossessed homes to the tune of $305 million in the second quarter and $408 million in the first quarter, according to data from SNL. Data for the other big banks wasn't available.

But at a time when analysts are paying more attention how well expenses are managed, banks might be more willing to look at other alternatives.

According to real estate analytics firm CoreLogic, the number of short sales in the market have tripled in the last two years and transactions are anticipated to grow by 25% in 2011. The markets with the largest short sale volume are California, Arizona, Colorado and Florida.

"Lenders often consider short sales as the lesser of two evils when compared to foreclosures," Core Logic noted in a May 2011 report on short sales. "While significant losses may be incurred in both foreclosure and short sale scenarios, the overall negative financial impact of short sales is typically less than that of foreclosure. In many cases short sales represent the best way for lenders to minimize their overall losses. In general, all parties fare better when a foreclosure is prevented."

JPMorgan is now paying certain types of borrowers- such as those with infamous option-arm mortgages as much as $35,000 to help them out with a short sale, the Herald Tribune reports.

JPMorgan spokesperson Holevas told TheStreet that the incentives vary and that they are available only for certain kinds of borrowers. She would not share specifics about the incentives.

CitiMortgages, the mortgage servicing arm of Citigroup(C_) is paying an average $12,000 in incentives, up from between $3,000 and $5,000 in 2010 for short sales on its own loan portfolio, HousingWire reported in June, citing a senior real estate management executive.

Again these incentives are paid out by servicers on the short sales of their own loan portfolios. In cases where loans have been sold, investors often dictate how much is paid out. But it suggests that servicers are beginning to push short sales more aggressively.

J.K. Huey, a senior vice president at Wells Fargo Home Mortgage- REO and Short Sales says transactions through the bank's proprietary program have been fairly stable. But the bank has seen a pickup in short sales through the government's HAFA (Home Affordable Foreclosure Alternatives) program, which loosened restrictions in February.

Most of the short sales executed by Wells are in the harder-hit housing markets such as California and Florida, which is also where they service more loans. The borrowers in these transactions are fairly late in their delinquency stage, although Wells does engage with borrowers who reach out to them earlier in the process.

Investors too are willing to consider short sales as a first option.

"Short sale is considered a positive alternative to foreclosures," said Huey. "Investors for the most part will do a short sale over a foreclosure provided the net present value shows it that way. Investors have been very attentive to this, as has the Treasury."

Still, the short sale process is not easy and industry observers say sellers and buyers of short sale properties must set realistic expectations.

For one, borrowers should realize that their credit scores aren't any less affected under a short sale than it is in the case of a foreclosure. In both case, the borrower is considered in default.

However, in a short sale, the borrower's debt is often forgiven, at least on the first lien. Also, a borrower who does a short sale might be able to apply for another mortgage sooner than he or she could in the case of a foreclosure, where the wait can be as much as 7 years.

For buyers interested in bidding for short sale properties, the process can be frustrating. P/>Jeff Lischer, managing director for regulatory policy at the National Association of Realtors says banks are trying to do improve the process, but realtors still complain that the process is chaotic.

Most still say there is a lot of back and forth in the documentation process as well as disagreements over valuation of the property. Short sale contracts often fall through because there are multiple parties involved. And the process varies significantly from one servicer to another.

"It is hard to know what the rules are," says Lischer. "You can have a house with two loans serviced by two different servicers. You need to get four parties to sign off on your short sale, instead of one."

Wells' Huey says that servicers are now using workflow processes that have shortened the processing time considerably.

In the simplest of cases, where loans are owned by the bank and there are no junior liens or mortgage insurance companies involved, a short sale transaction can be approved in as little as five days, provided all the documentation is in order, she says.

It gets more complicated when there are more parties involved. Investors, junior lien holders and mortgage insurers often want more documentation to prove financial hardship of the seller, proof of funding for the borrower and they usually want to negotiate the price. That adds to the processing time, which takes Wells on an average 15 days.

She also adds that the short sale process can go a lot more smoothly when the real estate agent is someone who understands how to do a short sale. "This is not a regular sale where there is just one contract between a buyer and a seller," she said.

--Written by Shanthi Bharatwaj in New York

Foreclosures of expensive homes take longer

By Julie Schmit, USA TODAY Updated

Foreclosures are taking longer for more-expensive homes than for less-expensive ones, giving those homeowners more time in homes without mortgage payments, new research analyzed for USA TODAY shows.

From January through May, almost 400,000 homes were repossessed by lenders or sold to others at foreclosure auctions. By the time they were repossessed or sold, mortgages on the more-expensive homes were delinquent an average of 647 days, almost four months longer than the less-expensive homes, data from national mortgage tracker LPS Applied Analytics indicate.

The longer time frames occurred in 45 states and ranged from days to months.

LPS broke the homes into categories of those valued under $417,000 and those from $417,000 to $999,999.

Longer foreclosure times may seem to favor owners of more-expensive homes, but banks say loan size “doesn’t dictate the foreclosure process,” says Wells Fargo spokesman Tom Goyda. Lenders aren’t showing favoritism to wealthier people — they’re just doing what makes the most business sense,” says Sean O’Toole, CEO of foreclosure tracker ForeclosureRadar.

Industry analysts say other factors are likely affecting time lines, including the type of:

•Loan. Loans below $417,000 are generally owned by mortgage giants Freddie Mac and Fannie Mae. Their processes lead to quicker resolution than if loans are held by others. “It’s a much simpler process,” says Jason Kopcak, mortgage loan expert at Cantor Fitzgerald.

Bigger loans, often found on pricier homes, tend to be held by lenders or investors. Banks are “moving the stuff they don’t own first,” to satisfy others and limit litigation, says Paul Miller, analyst at FBR Capital Markets.

•Home. Lower-priced homes have a larger pool of buyers. More may be exiting foreclosure via short sale, says Kyle Lundstedt, LPS managing director. Short sales occur when lenders sell for less than what’s owed on the home.

•Homeowner. Those who can buy expensive homes may have more resources to delay foreclosures, says Richard Bove, banking analyst with Rochdale Securities.

Lenders may also be delaying having to take bigger losses that tend to occur with pricier homes, O’Toole says. He recently assessed 155,000 California foreclosures and found that foreclosures took longer for loans over $417,000 than for smaller loans.

Miller says lenders are “not managing their losses that closely.” Foreclosure time lines are mostly driven by investor owners and state laws, says Bank of America spokesman Dan Frahm.

In California, which led in foreclosure sales January through May, more-expensive homes averaged 78 more days delinquent than the others at the time of the sale, LPS’ data show. In Arizona, another big foreclosure state, the pricier homes were 65 more days delinquent at time of the sale. In Florida, that spread was 97 days.

FHFA, Treasury, HUD Seek Input on Disposition of Real Estate Owned Properties

Range of Ideas Sought, Including Transition to Rental

Washington, DC — The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and Department of Housing and Urban Development (HUD), has announced a Request For Information (RFI), seeking input on new options for selling single-family real estate owned (REO) properties held by Fannie Mae and Freddie Mac (the Enterprises), and the Federal Housing Administration (FHA).

The RFI’s objective is to help address current and future REO inventory. It will explore alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.

“While the Enterprises will continue to market individual REO properties for sale, FHFA and the Enterprises seek input on possible pooling of REO properties in situations where such pooling, combined with private management, may reduce Enterprise credit losses and help stabilize neighborhoods and home values,” said FHFA Acting Director Edward J. DeMarco. “Partnerships involving Enterprise properties may reduce taxpayer losses and meet the Enterprises’ responsibility to bring stability and liquidity to housing markets. We seek input on these important questions.”

“As we continue moving forward on housing finance reform, it’s critical that we support the process of repair and recovery in the housing market,” said Treasury Secretary Tim Geithner. “Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets, and support neighborhood and home price stability.”

“Millions of families nationwide have seen their home values impacted as their neighbors’ homes fall into foreclosure or become abandoned,” said HUD Secretary Shaun Donovan. “At the same time, with half of all renters spending more than a third of their income on housing and a quarter spending more than half, we have to find and promote new ways to alleviate the strain on the affordable rental market. Taking steps to encourage private investment in REO properties and transition them into productive use will help stabilize neighborhoods and home values at a critical time for our economy.”

The RFI calls for approaches that achieve the following objectives: reduce the REO portfolios of the Enterprises and FHA in a cost-effective manner; reduce average loan loss severities to the Enterprises and FHA relative to individual

distressed property sales; address property repair and rehabilitation needs; respond to economic and real estate conditions in specific geographies; assist in neighborhood and home price stabilization efforts; and suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.

FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures, but respondents are encouraged to propose strategies they believe best accomplish the RFI’s objectives. Proposed strategies, transactions, and venture structures may also include: programs for previous homeowners to rent properties or for current renters to become owners (“lease-to-own”); strategies through which REO assets could be used to support markets with a strong demand for rental units and a substantial volume of REO; a mechanism for private owners of REO inventory to eventually participate in the transactions; and support for affordable housing.

Justice Foreclosed

By: JUL 25 2011

Financially battered state courts simply cannot keep up with rising mortgage defaults

 In many ways, Frank and Deana Dixon's saddening, maddening story is the story of America's ongoing (and oft-forgotten) home foreclosure crisis. It's not just about bad loans, venal banking practices, and desperate borrowers. It's also about state court systems, addled by budget shortfalls, which cannot remotely keep up with the pace of foreclosure lawsuits. These two lamentable trends, speeding trains headed in opposite directions, have created a terrible mess that is hindering the nation's economic recovery.

The Dixons live in Scituate, Massachusetts. In 2009, like millions of other American homeowners that year, they sought to modify the terms of their home loan. They verbally agreed with their lender, Wells Fargo, to take certain steps toward such a modification. The bank told the Dixons to stop making their payments on the loan (funds that would later be added to the modified loan amount) and to provide loan officers with certain financial information. The Dixons complied and began to work with bank officials.

Eighteen months later, however, instead of modifying the loan, Wells Fargo told the Dixons that they had defaulted upon their payment obligations -- because they hadn't made their monthly payments. The bank told the family it intended to foreclose upon their house. The notice from Wells Fargo, which arrived 17 days before Christmas 2010, gave the family roughly 30 days notice. The Dixons sued to stop the foreclosure and their case wound up in federal court, before Chief U.S. District Judge William Young of Massachusetts.

Last Friday, Judge Young issued a ruling that gives the Dixons an opportunity to win their case (the family sought merely to bring Wells Fargo back to the negotiating table to discuss the loan modification). Here is the text of the ruling in Dixon v. Wells Fargo. In it you can assess not just how difficult the law has made it for families like the Dixons to vindicate their rights in court (thank you, banking lobby) but also how swamped the nation's court systems have become in handing the flood of foreclosure cases brought on by the sub-prime lending scandal.

When the Dixons sued Wells Fargo to stop the foreclosure of their home, they argued that they had reasonably relied upon the oral promises of bank officials who had told them to stop making their monthly payments. The Dixons were damaged by this reliance, they told Judge Young, because their failure to make their payments for month after month while they negotiated with the bank made them vulnerable to default and foreclosure, which of course is precisely what happened.

Wells Fargo, meanwhile, argued that the oral promises of its banking officers was not sufficiently "definite as to be binding" and that the Dixons' reliance "on its promise was neither reasonable nor detrimental." The bank also argued that the family's claim was preempted by the Orwellian-titled "Home Owners Loan Act," a Depression-era federal statute that has been amended over the decades to help lenders far more than borrowers. The failure of the parties to reach a loan modification, the banking giant told Judge Young, was none of the court's business.

Although it received tens of billions in federal bailout money, Wells Fargo evidently has made a habit of stringing its borrowers along before refusing to agree to loan modifications. And its foreclosure practices already have been blasted by the Supreme Court of Massachusetts. For his part, Judge Young first determined that the Dixons and the bank had not made an oral agreement to agree, which would have been more difficult to enforce under the ancient doctrine of promissory estoppel, but rather an "agreement to negotiate" further on the loan modification. And then he came to the core of the case:

In the present case, Wells Fargo convinced the Dixons that to be eligible for a loan modification they had to default on their payments, and it was only because they relied on this representation and stopped making their payments that Wells Fargo was able to initiate foreclosure proceedings. While there is no allegation that its promise was dishonest, Wells Fargo distinctly gained the upper hand by inducing the Dixons to open themselves up to a foreclosure action. In specifically telling the Dixons that stopping their payments and submitting financial information were the "steps necessary to enter into a mortgage modification," Wells Fargo not only should have known that the Dixons would take these steps believing their fulfillment would lead to a loan modification, but also must have intended that the Dixons do so.

Where's George Bailey when we really need him? Judge Young then determined that "no consensus" has yet emerged from the courts about the extent to which the Home Owners Loan Act precluded state law claims like the Dixons'. So he concluded that the family could proceed toward trial to see if they could prove their clams against the bank. The family's claim, Judge Young wrote, legitimately seeks "... to hold the lender to its word." The bank now may appeal the ruling to the 1st U.S. Circuit Court of Appeals or it may work out a loan modification with the Dixons.

Few civil cases are more important to individuals than those which affect their right (or lack thereof) to live in their own homes. Yet while the worst of the foreclosure epidemic appears to be over -- largely as a result of increased regulatory and judicial pressure put on banks to ease their aggressive approaches -- state court systems from sea to sea have been financially battered to the point where they simply can't keep up with those foreclosure cases which still are pouring through. As Judge Young put it in his opinion:

Clogging the operation of the mortgage foreclosure system with court delay simply will not work. Either individual rights will be submerged, and people will lose their homes unlawfully, or home mortgage liquidity will atrophy, the larger economy will suffer, and potential home buyers will be denied homeownership, although financially able to support mortgage payments.

In Massachusetts, where both Judge Young and the Dixons live, budget shortfalls have resulted in chaos. Earlier this month, two of the Commonwealth's Supreme Court Justices, reacting to budget figures offered by Gov. Deval Patrick, said that 11 state courts would likely have to close. In California, a state ravaged by foreclosures, dozens of courthouses have been (or soon will be) closed, hundreds of court workers have been laid off, and thousands of others have been furloughed as a result of budget cuts. "It has never been worse," California Supreme Court Chief Justice Tani Cantil-Sakauye recently told the San Jose Mercury News.

Pick a state, any state, and you can see how bad the problem is. For example, how would you like to be a homeowner fighting your foreclosure case in Florida? Here's how the Sun-Sentinel described the problem last summer:

Statewide, more than 700,000 foreclosure cases have been filed in the past two years, one out of four in Broward and Palm Beach counties. In South Florida, the number of foreclosure cases has increased tenfold in five years. In Broward, about 52,000 cases were filed last year, up from 5,300 in 2004. In Palm Beach County, about 30,000 foreclosure cases were filed last year, up from about 3,200 five years earlier. "It's overwhelming the courts," said Broward Circuit Judge Jack Tutor. He estimates he and the other circuit civil judges are each juggling 5,000 to 6,000 cases at one time. Two of three are foreclosures.

Judge Young cited me in Dixon v. Wells Fargo (Footnote 11) for the proposition that the legislative and executive branches are abandoning the judicial branch just when people need their judges and courthouses most. The Dixons got lucky. They were randomly assigned a judge who was willing to quickly move on their case and to speak out about the larger problem. But for every family like the Dixons there are thousands more whose lives are in limbo while they wait for their foreclosure cases to wend their way through court. It's yet another sign that America is slouching toward third-world justice for its citizens. Surely we can do better for these other families, if not for their own sake then for the sake of the nation's real estate market.

Hit with foreclosures, Bank of America donating, demolishing homes

By: Lindsey Rupp

 TNEW YORK — Bank of America Corp., faced with a glut of foreclosed and abandoned houses it can’t sell, has a new tool to get rid of the most decrepit ones: a bulldozer.

The biggest US mortgage servicer will donate 100 foreclosed houses in the Cleveland area, and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co., Citigroup Inc., JPMorgan Chase & Co. and Fannie Mae are conducting or considering their own programs.

Disposing of repossessed homes is one of the biggest headaches for lenders in the United States, where 1,679,125 houses, or one in every 77, were in some stage of foreclosure as of June, according to research firm RealtyTrac Inc. The prospect of those properties flooding the market has depressed prices and driven off buyers concerned that housing values will keep dropping.

“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp., which works with lenders, government officials, and homeowners to salvage vacant homes. “The best thing we can do to stabilize the market is to get the garbage off.”

Bank of America had 40,000 foreclosures in the first quarter, saddling the lender, based on Charlotte, N.C. with taxes and maintenance costs. The bank, which unveiled the Cleveland program last month, has committed as many as 100 properties in Detroit and 150 in Chicago, and may add as many as nine cities by the end of the year, said Rick Simon, a spokesman.

The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program. Uses for the land include development, open space, and urban farming, according to the statement. Simon declined to say how many foreclosed properties Bank of America holds.

Ohio ranked among the top 10 states with the most foreclosure filings in June, according to RealtyTrac. The state has 71,617 foreclosed homes, Cuyahoga County 9,797, and Cleveland 6,778, RealtyTrac said.

The tear-downs are in varying states of disrepair, from uninhabitable to badly damaged. Simon said some are worth less than $10,000, and it would cost too much to make them livable.

“No one needs these homes, no one is going to buy them,” said Christopher Thornberg, partner at the Los Angeles office of Beacon Economics LLC, a forecasting firm. “Bank of America is not going to be able to cover its losses, so it might as well give them away.”

Donating a house may create an income tax deduction, said Robert Willens, an independent accounting analyst in New York. A bank might deduct as much as the fair market value if a home was not acquired with the intent of knocking it down, he said.

Wells Fargo and Fannie Mae already started donating houses and demolition funds in Ohio. San Francisco-based Wells Fargo, the biggest US home lender, gave 26 properties and $127,000 to the Cuyahoga land bank, said Russ Cross, Midwest director for Wells Fargo Home Mortgage.

Fannie Mae, the mortgage-finance company operating under US conservatorship, made its first deal with the Cuyahoga land bank in 2009, and sells houses to the organization at a “very nominal value,” or about $1 and an additional $200 in closing costs, said P.J. McCarthy, who heads alternative disposition programs.

Fannie Mae sold 200 foreclosures to the Cuyahoga organization in 2010 and has similar programs in Detroit and Chicago. Cleveland is the only city where Washington-based Fannie Mae contributes $3,500 toward demolition, McCarthy said.

JPMorgan Chase, the second-largest US bank, has donated or sold at a discount almost 1,900 properties valued at more than $100.million in more than 37 states since late 2008, including 22 in Cleveland, said Jim O’Donnell, manager of community revitalization. The majority aren’t demolished.

The knockdowns are not likely to outpace foreclosures, said Rick Sharga, RealtyTrac’s senior vice president. Foreclosures may accelerate as banks clear a backlog caused by soft real estate markets and legal disputes over tactics used to seize homes. “These sorts of programs will basically only be nibbling on the edges,” Sharga said.

Banks Hit Hurdle to Foreclosures

By: Nick Timiraos

Banks trying to foreclose on homeowners are hitting another roadblock, as some delinquent borrowers are successfully arguing that their mortgage companies can't prove they own the loans and therefore don't have the right to foreclose.

These "show me the paper" cases have been winding through the courts for several years. But in recent months, some judges have been siding with borrowers and stopping foreclosures after concluding that banks' paperwork problems are more serious than previously thought and raise broader ethical questions.

This year, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and others have raised questions about whether banks properly demonstrated ownership.

During the fall, banks temporarily suspended foreclosures to address so-called robo-signing problems, where employees were approving legal documents without properly reviewing them. They said that in weeks they could fix what they considered to be simple clerical errors. But borrowers are uncovering new types of document problems, further delaying banks' efforts to get foreclosures back on track.

In some cases, borrowers are showing courts that banks failed to properly assign ownership of mortgages after they were pooled into mortgage-backed securities. In other cases, borrowers say that lenders backdated or fabricated documents to fix those errors.

"Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages against these operations could be significant and take years to materialize," said Sheila Bair, chairman of the Federal Deposit Insurance Corp., in testimony to a Senate committee last month .

Last month, the Maine Supreme Court reversed the foreclosure of Dana and Robin Murphy of Auburn, Me., after concluding that the mortgage company, a unit of HSBC Holdings PLC, filed "inherently untrustworthy" documents. An HSBC spokesman declined to comment.

The case began in 2008 when HSBC filed to foreclose on the Murphys, who hadn't made a mortgage payment in two years. A trial judge initially rejected HSBC's foreclosure because the bank couldn't show it owned the promissory note—in effect, the borrower's IOU. The court later granted the foreclosure after HSBC submitted new paperwork.

However, the Murphys found discrepancies and alleged that the documents were backdated. The court voided the foreclosure and sent the case back to the lower court to determine potential penalties.

Attorneys for borrowers reject the view that they are using arcane legal rules to secure free houses for clients who aren't paying their bills. Efforts to gloss over incomplete or falsified evidence "can't be tolerated by a free society," says Thomas Ice, an attorney in Royal Palm Beach, Fla., who has a similar case before the Florida Supreme Court. "This is a huge assault on our legal system" that risks "turning us into a banana republic."

Laurence E. Platt, a banking-industry lawyer at K&L Gates in Washington, concedes that banks may have been sloppy. But he says "the real assault on the legal system" are efforts by judges and local officials to strip lenders of their rightful ownership and make foreclosures impossible.

In March, an Alabama court said J.P. Morgan Chase & Co. couldn't foreclose on Phyllis Horace, a delinquent homeowner in Phenix City, Ala., because her loan hadn't been properly assigned to its owners—a trust that represents investors—when it was securitized by Bear Stearns Cos. The mortgage assignment showed that the loan hadn't been transferred to the trust from the subprime lender that originated it.

Specific deal agreements required Bear Stearns to assign the loan within three months of the securitization. Because it failed to do so, Alabama Circuit Court Judge Albert Johnson determined, the trust didn't own the mortgage. "The court is surprised to the point of astonishment that the defendant trust did not comply with the terms," of the securitization agreement, he wrote.

The ruling is one of the first in the nation to strip a mortgage trust of an asset it thought it owned. A similar case earlier this year was decided in the bank's favor when it held that the borrower wasn't a party to the securitization agreement.

Nick Wooten, the lawyer for Ms. Horace, says the case won't necessarily influence other decisions unless it is upheld by a higher court. But he says it is "another brick in the wall of trial-court-level cases that clearly show the wheels fell off the bus in the securitization industry during the bubble."

J.P. Morgan Chase hasn't appealed the case. A bank spokesman declined to comment.

Curing incomplete mortgage assignments can be tricky because many lenders that originated subprime loans are still listed as the owner but have gone out of business.

Bill Dallas, former chief executive of subprime lender Ownit Mortgage Solutions Inc., receives between 200 and 300 pieces of mail every month at his former company's California headquarters from companies looking to correct ownership flaws. "Am I surprised? Absolutely not," says Mr. Dallas, who founded and ran the subprime lender until its collapse in late 2006. "I knew this assignment problem was going to be an issue."

Loans with botched assignments or no assignment are "really problematic" because "the person that originated the loan is gone, the person that funded it is gone, and your servicers are confused," he says.

Florida Legislators Pull Funding for Foreclosure Courts

By: Carrie Bay

The already clogged foreclosure system in Florida could come to a near standstill this summer after state legislators voted not to extend a special round of funding approved last year to bring in additional case managers and judges to help clear the backlog of foreclosure cases.

After much lobbying from the Office of the State Courts Administrator last year, lawmakers awarded $6 million to the state court system to increase personnel and resources for handling foreclosure actions.

It was a one-time allocation, and that line item didn’t make it into the budget for the new fiscal year, which for the state and the courts begins in July.

The money helped to fund the so-called “rocket dockets” in certain jurisdictions. These courts have been highly criticized by consumer advocacy groups who say they ignore procedural safeguards in order to rush through foreclosures and deny homeowners the opportunity to present a defense.

According to the local paper, the Palm Beach Post, since June 2010, these courts have whittled the state’s backlog – which stood at 462,339 cases at that time – by just 139,615 cases, leaving more than 322,700 pending foreclosures still stuck in the system and likely to remain there as the courts lose funding.

The Circuit Court in Palm Beach County has already started cancelling scheduled foreclosure hearings. Judge John Hoy issued a court order last week which said, “Because of the lack of funding by the Florida Legislature, judges are unavailable to preside over foreclosure trials beginning July 1, 2011.”

Craig Waters, a spokesperson for the Office of the State Courts Administrator, says there was never any expectation that the one-time funding would be renewed, especially in light of Florida’s severe budget shortfall.

“Foreclosure cases will continue to be heard in the Florida state courts just as they were before the 2010-11 fiscal year,” which benefited from the extra $6 million in funding, Waters said.

After robo-signing delays and the institution of a statewide pre-foreclosure mediation program that gives court mediators 120 days from the filing of a foreclosure to schedule a mediation session, RealtyTrac reports that Florida’s foreclosure timeline has continued to lengthen, even with the additional resources and judges hired.

The tracking firm says the full foreclosure process in Florida took an average of 619 days during the first quarter of this year. That’s up from 470 days in the first quarter of 2010, just before the special funding was allocated, and nearly four times the average of 169 days it took in the first quarter of 2007.

Local market participants are concerned that any additional delays caused by the funding cuts for the upcoming fiscal year will mean that homes sit vacant longer, further contributing to neighborhood blight and weighing on already depressed property values.

Foreclosures Fall To 40 Month Low- Due to Paperwork Delyas, Not Recovery

Foreclosure activity has fallen to a 40-month low, but not because of any recovery in the housing market, a new report finds. Rather, the slowdown comes from massive delays in processing foreclosure paperwork.

In April, overall foreclosure filings -- including default notices, scheduled auctions and bank repossessions -- declined for the seventh month straight to 219,258, a 9 percent decrease from March and a 34 percent decrease from April last year. Banks seized 69,532 homes last month, a 5 percent drop from March, according to data provider RealtyTrac.

“This slowdown continues to be largely the result of massive delays in processing foreclosures rather than the result of a housing recovery that is lifting people out of foreclosure," said James J. Saccacio, chief executive officer of RealtyTrac, in a press release.

Nationwide, foreclosures completed in the first quarter of the year took an average of 400 days from initial default notice to conclusion, up from the 340 days the process took last year and more than twice the average time -- 151 days -- it took to complete a foreclosure in the first quarter of 2007. In some states, that number soared higher. In New Jersey and New York, the average timeframe in the first quarter of this year was 900 days. In Florida, it was 619.

With home prices still falling, a slowdown in foreclosures driven by paperwork delays is bad news for the overall housing market recovery. Home prices hit their lowest point in two years in April, falling 0.7 percent below March 2009 levels, according to a recent report by Clear Capital. Housing experts say the data from RealtyTrac's report does not indicate a reversal of this trend will be quickly forthcoming.

"As the servicers sort out their processing issues and staff up a little that means these homes will end up on the market as a distress sale and that will cause home prices to fall further," said Celia Chen, a housing market analyst for Moody's Analytics. "It delays the problem. It extends the recovery in the housing market,"

Last fall, many of the nation's largest lenders voluntarily halted home repossessions when flawed foreclosure practices came to light. On Wednesday, the Huffington Post reported that HSBC North America Holdings, the 12th-largest mortgage servicer in the U.S., will continue its moratorium on home seizures in some jurisdictions. According to the bank's filings, the bank will not fully resume foreclosing on defaulted borrowers for a number of months. The Obama administration is now pushing for the creation of a federal account to help distressed borrowers and settle ongoing probes into faulty mortgage practices, the Huffington Post reported on Wednesday.

There is still a large stock of homes in distress -- at least 3.7 million homes are in a late stage of the foreclosure process, according to the report -- and housing experts stress that processing these properties as quickly as possible is critical to the recovery of the housing market.

"This is what frees up the economy to make forward progress and allows home prices to rise," said Michael Englund, chief economist at Action Economics. "It will probably take about another year to work our way through the foreclosure mess."

Illinois home foreclosure activity rose more than 5 percent in May

Illinois home foreclosure activity rose more than 5 percent in May compared to the previous month.

A report released Thursday by Irvine, Calif.-based RealtyTrac shows Illinois with 10,574 foreclosure filings last month. Filings include default notices, auction-sale notices and bank repossessions.

The filings represent one in every 500 housing units in the state. That rate is almost 30 percent lower than in May of last year and ninth-highest nationally.

Foreclosures had fallen more than 16 percent in April compared to March, but RealtyTrac attributed decreases in many states to paperwork processing delays rather than a housing recovery.

Nevada continued to have the nation's highest foreclosure rate -- one in every 103 housing units.

Other states with foreclosure rates higher than Illinois are Arizona, California, Florida, Georgia, Idaho, Michigan and Utah.

Don’t “Like”: Couple Receives Foreclosure Notice on Facebook

Another reminder that your public Facebook profile is being viewed by more than just your friends:

A couple in Australia has received the worst kind of wall post. After they defaulted on their mortgage, the bank who owned their loan couldn’t locate their current address or email address. After searching extensively, the couple’s public profiles were found on Facebook.

Since the Facebook users had posted their birthdates on their profiles and friended one another, the bank investigators could verify that these were, indeed, their defaulting borrowers. Realtor.org reported that bank officials served the couple with a foreclosure notice, and Australian courts upheld the process.

This just may be the day that you finally review your Facebook profile and its privacy settings.

“No end in sight to foreclosure quagmire”

MSNBC) -- Four years after a wave of rogue mortgage lending sent the U.S. housing market into the worst collapse since the Great Depression, the devastating flood of resulting foreclosures shows no sign of abating. In some ways, the problem is getting worse.

House prices are falling again, forcing more homeowners "underwater" -- owing more than their house is worth. Lenders' shoddy document practices have brought widespread court challenges, slowing the process and leaving millions of homeowners in limbo.

And the foreclosure crisis continues to weigh heavily on the fragile economy.

"Right now, it's the second-biggest drag on the economy after the surge in oil prices," said Moody's Analytics chief economist Mark Zandi.

Already some 5 million homes have been lost to foreclosure; estimates of future foreclosures range widely. Zandi, who has followed the mortgage mess since the housing market began to crack in 2006, figures foreclosures will strike another three million homes in the next three or four years.

Congress and the White House have run out of ideas to save those homes, he said.

"There's no political appetite to do anything," he said. "So we're on our own."

There were many causes of the foreclosure crisis -- and plenty of blame to go around among mortgage lenders, regulators and, in some cases, the borrowers themselves. But as the crisis has accelerated it also has swept up families who, through no fault of their own, have lost or are in danger of losing their homes.

The government's efforts to stem the crisis are widely viewed as a failure. Its flagship foreclosure relief program, the Home Affordable Modification Program, has been hampered by confusion over its terms, lenders' widespread refusal to forgive loan principal and a "trial modification" process that, in some cases, leaves homeowners worse off than when they entered the program.

"The biggest problem with the program is that noncompliance is still rampant, and it's not improving," said Alys Cohen, an attorney with the National Consumer Law Center, which is lobbying for more effective foreclosure prevention programs.

Despite the heavy toll on families, communities and the economy, the response from Congress, the White House and an alphabet soup of federal and state agencies has been a piecemeal approach that hasn't fixed the problem.

"This is an industry that was simply not prepared for this crisis, hasn't had the procedures in place, hasn't had the people to deal with it," said Tim Massad, who oversees HAMP as acting assistant secretary for financial stability at the Treasury Department. "And we've seen that over and over again. I think they're better, but they're not nearly where they need to be."

The government has repeatedly tried to offer effective solutions. Recent federal budget cuts have made matters worse by eliminating funding for frontline housing counselors, who are already spread thin in their efforts to help homeowners.

Federal bank regulators, citing widespread "unsafe and unsound practices," recently announced a series of new regulations for lenders to follow to try to fix the problem. Critics argue the new rules don't go far enough and merely codify changes the industry already is making.

Bankers have agreed to review their practices and report back to regulators with a plan to fix them, for example, but those reports won't be made public. They also agreed to hire their own auditors to look into cases where homeowners were wrongly foreclosed.

The House recently voted to scuttle HAMP, which has dispersed only a fraction of the $50 billion Congress authorized in 2009. There are no signs the Senate plans to follow suit, although the program officially ends next year.

In the Senate, Jack Reed, D-R.I., has reintroduced a bill that died last year which would toughen requirements on lenders to modify loans. Democratic Sen. Sherrod Brown of Ohio has introduced a bill that would include a range of consumer protections for mortgage borrowers. Neither bill has made it out of the Banking Committee.

Other agencies are pressing mortgage lenders to break the logjam. Attorneys general from all 50 states -- along with the Justice Department, the Federal Trade Commission and the new Consumer Financial Protection Board -- are in talks with major lenders that would require them to follow steps that are currently voluntary, including modifying loans by writing down the principal owed. Bankers have raised numerous objections to the initial proposals.

The Treasury continues to tweak the HAMP program. It recently introduced a requirement, for example, that lenders assign a single point of contact to help homeowners cut through a thicket of red tape.

Yet families continue to lose their homes at a pace not seen in decades. Last year set a record for foreclosures, according to RealtyTrac. The pace slowed in the first quarter but is expected to pick up again as banks work through a thicket of legal challenges to faulty document practices.

The glut of unsold homes and the overhang of foreclosures are weighing on the housing market. Construction of new homes has fallen to levels never recorded. Government tax credits for home buyers briefly helped stabilized home prices, but prices have begun falling again as those incentives have expired. Falling home prices chip away at household wealth, dampening consumer spending.

Each new foreclosure brings another distressed property on the market, pushing prices lower. The greatest risk, said Zandi, is a downward spiral that becomes difficult to unwind.

"Prices decline, that pushes people underwater," he said. "There's 14 million people now underwater. Half of those are underwater by more than 30 percent. That's the fodder for (more) default."

The depression in the housing industry, which accounts for up to 20 percent of U.S. employment in good times, has stalled economic growth and contributed to a stubbornly high jobless rate of 9.0 -- far higher than is typical this far into a recovery.

With effective solutions in short supply, attorneys and housing advocates say the ranks of distressed borrowers continue to swell.

"I've never seen a flood like this," said Gary Klein, an attorney at Roddy, Klein and Ryan in Boston who has spent 25 years defending homeowners facing foreclosure. "There are so many people that need help at this point that we can't even begin to handle all of the phone calls."

The companies tasked with collecting payments from borrowers are just as overwhelmed. More than four years after the housing bubble burst, the mortgage servicing industry is grappling with its own dysfunctional thicket of red tape, missing documents, false affidavits and conflicting guidelines.

"We are finding that the documents themselves are manufactured," said James Kowalski, an attorney in Jacksonville, Fla., who handles foreclosure defense and prevention. "We're finding that the affidavits, which are the pieces of paper by which the servicer testifies in court, are not true. Once you get underneath the surface of all those made-up documents, you find homeowners that shouldn't be in foreclosure."

In many cases, homeowners who were granted a "trial" modification under the HAMP program wound up worse off. Unless they won final approval, the lower monthly payments during the "trial" period placed them in default and speeded the path to foreclosure.

"I've seen homeowners that have everything that they need in order to qualify for that modification," said Chris Wyatt, a former vice president at a major mortgage loan servicing company who has worked in the industry for 20 years. "They meet all the criteria for that modification, yet were denied. So the customer actually gets caught into this kind of Catch-22, and at the end of the day the servicer says, 'Sorry, I can't do them all, and so I'm going to foreclose.'"

Government officials compounded the problem by setting overly aggressive targets for the program and then pressing mortgage servicers to show quick results.

"They would do anything to get trial modifications on the board," said Caroline Herron, a former Fannie Mae official who worked as a consultant to HAMP. "Nobody made it a priority to figure out what the real problem was, and what needed to get fixed to make sure the program could work. Instead, it was pressure to report on findings and pressure servicers to bring the numbers up."

For their part, mortgage servicers say they were stymied by repeated revisions in the rules once the HAMP program started, which made it harder to follow shifting guidelines.

Treasury's Massad admits the system was flawed and created frustration on both sides.

"We certainly acknowledge we haven't done as much as we would like, he said. "But I think the fact remains that people have a lot more options because of this program than they did before we started. And the program has changed the way the industry approaches modification so that we're seeing a lot more modifications than we otherwise would have."

Wells Fargo CEO hears from angry America at annual meeting

The Business Journal - by Mark Calvey, San Francisco Business Times

Wells Fargo & Co. ’s annual meeting routinely draws protesters and shareholders advocating a range of social issues. But Tuesday’s gathering was more intense than in previous years, with shareholders calling for the bank to adopt an immediate foreclosure moratorium and waive principal on troubled mortgages.

At one point, five shareholders were escorted by San Francisco police officers out of the meeting, arm in arm, with one shouting as she left, “Profit over people isn’t good for the United States.”

The chants of protesters, which included “You owe us,” could be heard from 15 floors below the Julia Morgan Ballroom on California Street in San Francisco, where the meeting was held. The Service Employees International Union and other public employees’ unions, along with several housing and faith-based groups, were prominent in the protest that greeted arriving shareholders.

Wells Fargo is the parent of Wachovia Bank, which is second in Triad market share behind only BB&T.

The two-and-a-half-hour meeting at times took on overtones of angry voters attending a school board or city council meeting rather than the usually more sedate gathering of bank stockholders.

Some said they would not step away from the microphone until Wells Fargo agreed to a foreclosure moratorium. Turning off the mic did not deter them.

The bank was equally persistent in rejecting a foreclosure moratorium.

“No. We’re not going to agree to a moratorium. It doesn’t help the process,” said Wells Fargo Chairman and Chief Executive John Stumpf. “A moratorium only puts off the inevitable.”

He said when Wells (NYSE:WFC) moves to foreclosure, the borrower is typically 16 months behind on payments and a fourth of the troubled homeowners have already abandoned their properties.

Those attending the meeting went through the usual metal detectors in addition to being required to hand over tape recorders to the coat check and get their hands stamped before proceeding into the main ballroom.

Stumpf defended his $19 million pay package last year, saying 70 percent of his compensation is based on corporate performance.

Those speaking at the annual meeting in favor of a shareholder proposal calling for a review of the bank’s foreclosure practices captured the impact of the nation’s housing crisis.

An Oakland, Calif., resident shared her experience in trying to save her home, Milwaukee residents sought the bank’s help in fighting foreclosure blight, a Nebraska man said he’s unable to refinance because his home has lost too much value, and a pastor said his church is suffering as parishioners lose their homes and move away.

“Maybe we just need to pray,” the pastor said.

All shareholder proposals opposed by the bank’s board failed. The proposal calling for the foreclosure review received 22 affirmative votes, while the ability to call a special shareholders meeting with a 10 percent stake, down from 25 percent, won 44 percent support; cumulative voting for directors won 29 percent of the shareholder vote; a measure calling for an independent chairman won 30 percent support and another on board compensation won 5 percent.

The shareholder give-and-take included questions on the validity of the bank’s book value while some admonished Wells to stop blaming the former Wachovia Corp. for its problems. Wells bought Charlotte-based Wachovia in late 2008.

“There is much suffering,” Stumpf told those attending. “And at the heart of that suffering is a lack of employment opportunities.

“We forgave $4 billion of shareholder capital to keep these families in their homes,” Stumpf said, noting that the bank has helped 700,000 borrowers through loan modifications. He said 80 percent of those modifications were done outside the federal Home Affordable Modification Program.

“I get it. There’s a lot of pain, and we’re doing our level best to help,” Stumpf said.

As if those attending needed any reminders that America is in a world of hurt, Stumpf went into overview on the bank’s performance. Although 2010 was a good year for Wells Fargo’s bottom line, revenue took a hit as loan demand from consumers and businesses waned.

“It’s not that we’re approving fewer loans,” Stumpf said. “It’s that we’re seeing less demand.”

Illinois Widens Robo-Signing Probe

Attorney General appeals to whistle-blowers

Mark Huffman | ConsumerAffairs.com

We haven't heard much lately about robo-signing of foreclosure documents in the mortgage industry, but the issue is still on the radar screen in Illinois.

Illinois Attorney General Lisa Madigan has expanded her investigation, issuing subpoenas to two national mortgage servicing support providers. The subpoenas were issued to Lender Processing Services Inc. and Nationwide Title Clearing Inc., two Florida-based corporations that provide “document preparation services” and other loan management services to mortgage lenders for use against borrowers who are in default, foreclosure or bankruptcy.

“Foreclosure became a rubber-stamping operation that robbed many homeowners of the American Dream without a fair and accurate process,” Madigan said. “I will not relent in my investigation into the fraudulent practices by lenders and others that caused and exacerbated the mortgage crisis and the resulting massive foreclosure crisis.”

Major players

Madigan said Lender Processing Services (LPS) provides loan servicing support for more than 50 percent of all U.S. mortgages. More than 80 financial institutions use LPS to service more than 30 million loans. These loans have an outstanding principal balance exceeding $4.5 trillion.

Nationwide Title Clearing (NTC) provides a range of mortgage loan services to eight of the top 10 lenders and mortgage servicers in the country. NTC specializes in creating, processing and recording mortgage assignments, which are often needed for a lender to foreclose on a borrower.

Madigan said she is looking into reported allegations that LPS and NTC engaged in the practice of “robosigning” legal documents filed with the court to foreclose on borrowers. Robosigning occurs when an individual has no knowledge of the information contained in the document and often doesn’t even read or understand the document that he or she is signing.

The use of robosigned documents was pervasive as lenders foreclosed on borrowers’ homes. The probe will also include a complete review of the accuracy of the systems and services that LPS and NTC provide to the large lenders including servicing platforms, foreclosure attorney interaction with these platforms and the assignment of mortgage process.

Looking for whistle-blowers

Madigan also took the unusual step of publicly appealing to former employees of LPS, NTC, or former employees of any residential mortgage servicer or bank who have knowledge of any unlawful practices relating to mortgage servicing or the execution of documents, to contact her office.

The robo-signing scandal first came to light last year when a Florida attorney, deposing a GMAC Mortgage official, learned that the official, who was required to read and affix a notarized signature to thousands of foreclosure documents, employed a robo-signer.

It was later determined that several large mortgage servicers, to cope with the crush of foreclosure documents, did the same thing.

Banks to Pay $22 Mil for Military Foreclosure Errors

May 28, 2011 11:03 AM EDT

Bank of America and Morgan Stanley have agreed to pay more than $22 million combined to settle federal civil charges on improperly foreclosing on military personnel, The Associated Press reports.

Between 2006 and 2009, the mortgage lenders foreclosed on 178 military members in 22 states without getting court approval. The military members affected will each receive $125,562, on average. The banks will also continue to investigate whether improper foreclosures occurred in 2009 through 2010.

The settlement is "easily the largest amount recovered" in a case of improper military foreclosures, ThomasE. Perez, an assistant attorney general, told The Associated Press.

The Servicemembers’ Civil Relief Act offers protections to military personnel to prevent foreclosures. It bans evictions or creditors trying to repossess their property while on active duty.

JPMorgan Chase earlier this year admitted to overcharging about 4,000 military personnel on mortgages and wrongly foreclosing on 14. It paid $2 million in settlement charges originally and last month paid more than $60 million to settle a class-action lawsuit regarding the overcharges.

California bill ending 'dual track' foreclosures faces key vote

Pursuing foreclosure even if a borrower has sought a loan modification has faced criticism. The Senate measure would require a lender to fully evaluate a homeowner for a loan modification first.

By Alejandro Lazo, Los Angeles Times

A proposed law facing a key vote in Sacramento on Wednesday would require lenders in California to make a decision on mortgage modifications for delinquent homeowners before beginning the repossession process, in effect ending "dual track" foreclosures in the state.

Financial institutions commonly pursue foreclosure even if a borrower has requested a loan modification, a two-track process the lending industry has argued is necessary to protect its investments. But dual tracking is under fire from regulators and lawmakers in the wake of last year's "robo-signing" scandal, which revealed widespread foreclosure errors.

The California Homeowner Protection Act, authored by state Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco), is one of the furthest-reaching efforts to limit the practice. Several other states have passed requirements for third-party groups to oversee mediations between mortgage servicers and homeowners.

The California bill, SB 729, would require a lender to fully evaluate a borrower for a loan modification before filing a notice of default, the first stage in the formal repossession process, and a significant change in the way foreclosures are conducted in the Golden State.

The law would give delinquent homeowners the right to sue their lenders to stop foreclosures if they believe the requirement to properly evaluate their loan modification requests had not been followed. If the sale occurs without the proper evaluation, homeowners would also be given the right to sue for damages or to void a foreclosure sale for up to a year after the sale.

Such a change is necessary in the state because the two-track process often leads to unintended foreclosures by mortgage servicers that "don't know what they are doing" and often bungle the loan modification process, Leno said in an interview.

"We know of folks not only entering the loan modification process, but folks who have already been accepted, and are making timely loan modification payments, and then getting a knock on their door and being told 'your home will be sold,'" Leno said. "The stories are many and horrifying."

Groups representing lenders said the legislation overreaches and would only inhibit the state housing market's recovery by slowing down an already drawn out foreclosure timeline. California's comparatively streamlined foreclosure system, which allows for a home to be taken back without a court order, has helped the state work through a foreclosure glut relatively quickly and recover faster than other hard-hit states.

"It is just not good for the housing market, which is not good for the state economy, especially when we are at 12% unemployment," said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. "It is a reaction, an overreaction, to procedural mistakes," he continued, "and this doesn't really get at solving any of those problems."

The bill also would make it more difficult for investors to purchase, renovate and resell bank-owned properties to first-time buyers because it gives foreclosed-on homeowners a year to sue after a foreclosure sale, critics said. Home buying by investors has been a significant driver of California home sales since the housing market hit bottom two years ago.

"It's unlikely that any prospective home buyer would want to buy these properties with that lingering uncertainty hanging over their heads," said Beth Mills, a spokeswoman for the California Bankers Assn. The bill also would require mortgage servicers to:

•Prove they have a right to foreclose;

• Adhere to new timelines when evaluating borrowers for possible loan modifications;

•Provide an explanation letter detailing why a mortgage modification was not granted if a borrower is denied;

•Make a declaration of compliance with the law each time a notice of default is filed.

The bill also would allow a state banking regulator or the state attorney general to take action against lenders if the law isn't followed.

Major mortgage servicers are under increased scrutiny since it was revealed last year that they employed so-called robo-signers. These bank employees signed off on legal documents needed in foreclosure cases without reading them or, in several cases, understanding what they were signing.

There were widespread complaints of botched loan modifications that left delinquent borrowers worse off, and foreclosures made without documentation of who owned loans that had been sold and resold in the secondary market where mortgage securities are created and traded. Mortgage servicing operations were shown to be understaffed and employees were poorly trained.

In response, federal regulators this month ordered the nation's biggest banks to overhaul their procedures and compensate borrowers hurt financially by wrongdoing or negligence. The agreement between the regulators and banks requires mortgage servicers to stop foreclosure once a homeowner is approved for a temporary mortgage modification.

But consumer advocates criticized those orders as watered down and not going far enough. A wider-ranging investigation conducted by a coalition of state attorneys general and other federal agencies is continuing.

Consumer advocates and lawmakers are hoping that the California bill will have momentum following revelations of the foreclosure paperwork debacle. The proposed law is similar to a bill that passed the state Senate last year but was defeated in the Assembly.

The bill faces a hearing and vote in the state Senate's Banking and Financial Institutions Committee on Wednesday. The committee is headed by Sen. Juan Vargas (D-San Diego), who isn't completely sold on the legislation, said his chief of staff, Jim Anderson.

"My understanding is that Sen. Vargas has some concerns with the bill, but prefers to ask questions of the author and discuss the bill in the public hearing tomorrow before making his final decision," Anderson said. Vargas wasn't available for comment Tuesday.

The bill has been endorsed by a slew of consumer advocacy groups including the Center for Responsible Lending. Many of these groups have slammed federal banking regulators, saying they failed to stop unsafe lending during the housing boom and preempted state attempts to rein in predatory lending.

Bank of America Lawyer, Consultant Gave Foreclosure Probe Chief $15,000

By MASSIMO CALABRESI

Iowa’s Democratic Attorney General Tom Miller is known for taking on big business. Elected to eight four-year terms, he led a multi-state anti-trust case against Microsoft in 2001 and filed a suit against 79 drug companies in 2007, alleging they illegally profited by inflating prices for drugs purchased through Medicaid.

Most recently, Miller took the lead on the investigation by all 50 state attorneys general into the “robo-signing” foreclosure scandal, where several big banks allegedly approved taking away people’s homes without adequately verifying the facts in court, as required by law in some states.

Last fall, just after he made the announcement that he would look into the foreclosure mess, contributions to Miller’s campaign coffers for November’s election soared, thanks in large part to out-of-state lawyers who make a living representing big banks, a new report from the National Institute for Money in State Politics finds. “Nearly half of the money Miller raised in 2010,” NIMSP reports, “was donated after the October 13 announcement that he would be coordinating the 50-state attorneys general investigation.”

Two Miller contributors have become directly involved in defending the banks in the probe. One, Meyer Koplow of Wachtell Lipton in New York, gave Miller $5,000 and is representing Bank of America in direct negotiations with Miller, the attorney general tells TIME. Another, Elizabeth McCaul of Promontory Financial Group, gave Miller $10,000 and is consulting Bank of America in the negotiations, Miller says. Bank of America was one of the first and most prominent institutions accused in the foreclosure investigation. It gave more than $80,000 to the Democratic Attorney Generals Association, which spent more than $200,000 on Miller’s campaign, Miller says.

Miller says Kaplow and McCaul are old friends and professional associates, and that they were not working for Bank of America before election day. He says neither has discussed the campaign contributions with him since they began work for the bank.

The NIMSP report and revelations of campaign contributions by those working for Bank of America come at a sensitive moment, as Miller is in the thick of far-reaching negotiations with the banks. Though the case started as an investigation into robo-signing, it has broadened. The talks are aimed at a settlement that could set the terms by which banks service current and future home loans, and determine how they foreclose on properties. That could complement, or supercede, a settlement between banks and federal regulators reached earlier this year.

Talks over monetary aspects of a potential settlement between the AGs and the banks are just getting under way. New rules for banks writing down mortgage principal and the establishment of a bank-paid fund to help with loan modification are on the table. Some reports have potential bank payments reaching $20 billion but sources on both sides suggest that number is high. The breadth of the negotiations has caused seven Republican attorneys general to split with the 43 other AGs.

In early March, American Banker published a 27-page term sheet that Miller and the other attorneys general had presented to the banks in the talks. “We’ve had negotiations and have agreement on some of the terms but no overall agreement,” Miller says.

Miller objects strongly to the NIMSP report. “It is extremely false and misleading,” Miller says. He disputes the report’s assertion that many of his campaign contributors have a “vested interest in the final terms of the settlement.” Other than Koplow and McCaul, none of the other lawyers named as campaign contributors in the report are involved in the case and none has an interest in the settlement, Miller says.

Miller also says the report commits “an omission of material fact” in its description of his fundraising by comparing 2010 fundraising to prior races. “This race was unlike any race I’d been in before,” Miller says. “It was a race where the other side had $2.2 million. The most any of us ever spent in this race before was $300,000 or $350,000,” he says. Miller says he didn’t have a competitor in 2006 and that in 2010 he and his supporters eventually raised and spent around $1 million.

Kevin McNellis, the author of the report, says the fact that he compared 2010 to 2006 without mentioning that there was no competitor in that race was “an oversight on my part.” Though the report argues that the campaign contributors’ interest in the outcome of the settlement of the foreclosure investigation is “vested,” which means “guaranteed” or “unconditional,” McNellis says he does not know which individuals or firms are directly involved in negotiations.

But McNellis asserts that, “When they were contributing last fall, I’m sure that it was something they were very keenly aware of, that Miller was leading the investigation.” They would have an interest in the outcome, McNellis says, “even if they weren’t directly involved in the negotiations.”

Neither McCaul nor Koplow would comment for this story.

Palm Springs man charged with bilking renters with foreclosed home

FDLE allows you to search by county, city, ZIP code and/or pattern for a last name.

By CYNTHIA ROLDAN

A 47-year-old Air Force veteran faced a judge this morning, after being arrested for allegedly stealing utilities and for "acting as the proprietor" of a foreclosed home in the Village of Palm Springs.

Glenn Garlington Dewey, whose last known address was in Palm Springs, was taken into custody after a Palm Springs Public Safety investigator determined Dewey had been collecting $600 in rent from at least five people, who were living in the spare rooms of 2903 Appalachee Road, according to the arrest report.

That house, however, was determined to have been foreclosed on in 2010. The investigator also discovered that the last owner of the house, who now lives in Texas, was Cobb Scott - not Dewey, the report stated.

The investigator noted in the report that Dewey had also replaced the house's water and electrical meters with that of a neighboring home in foreclosure.

During his first appearance hearing this morning, Palm Beach County Circuit Judge Krista Marx ordered Dewey be held in lieu of $5,000 bond.

Marx scheduled a Veteran's Court hearing for Dewey for Thursday.

Wrongful Foreclosures

We were worried recently when we saw an advance draft of legal agreements between federal regulators and the nation’s big banks to address and correct foreclosure abuses. The actual deals were as bad as we feared.

Related

It turns out that the inquiry that preceded the agreements was limited to reviews of “foreclosure-processing functions” — things like paperwork handling and work-force supervision. The reviews found big processing problems — no surprise there — and the agreements call for more staff and better management.

What was not looked for is far more significant. Because so few files were examined, the regulators’ report says, “the reviews could not provide a reliable estimate of the number of foreclosures that should not have proceeded.” So much for the burning question of the extent of wrongful foreclosures. The reviews also did not look at potential abuses outside the foreclosure process, including unreasonable loan fees and misapplied loan payments. Such faulty charges can precipitate default by making it impossible for borrowers to catch up on late payments.

Nor did the reviews focus on faulty loan-modification processes, like instances in which bank employees wrongly told borrowers they needed to be delinquent to qualify for new loan terms. Delinquency subjects borrowers to late fees, damaged credit and an increased risk of falling hopelessly behind. It also harms mortgage investors who are stuck with the loan losses. But it can be profitable for banks that service loans; they can extract late fees from the borrower or upon the foreclosed home’s sale.

To add insult to injury, the agreements leave it largely up to the banks to investigate themselves on those issues. They require banks to choose, hire and pay independent consultants to check a sample of pending foreclosures; banks are then supposed to reimburse wronged borrowers. The regulators pledge to ensure that the reviews are comprehensive and reliable. We’re not holding our breath.

The agreements do not include monetary penalties, though regulators say fines are coming. Regulators appear divided over whether the agreements should preclude efforts by the states to correct and punish foreclosure abuses. The Federal Reserve and the Federal Deposit Insurance Corporation have stated clearly that the agreements do not stop other enforcement actions. The Office of the Comptroller of the Currency has not ruled out such interference. Over all, an important opportunity has been missed for real reform, redress and accountability.

Big Banks Get Foreclosure Orders

Regulators Detail Steps Lenders Must Take to Revamp Processes; Fines Are Still to Come

By VICTORIA MCGRANE, ALAN ZIBEL and ROBIN SIDEL

U.S. regulators hit the nation's largest banks with a first round of sweeping penalties for improper home-foreclosure practices, issuing detailed orders to revamp the way they deal with troubled borrowers.

The orders issued on Wednesday to 14 financial institutions didn't include fines. Officials said they are coming.

"There will be civil money penalties; the question is timing and amount. But we're not letting that clock run forever," Acting Comptroller of the Currency John Walsh told reporters. The orders were issued by his office, the Federal Reserve and the Office of Thrift Supervision.

The bank regulators' action came as Obama administration officials and representatives of state attorneys general met with the bank representatives in an ongoing effort to reach a broader deal over alleged mortgage-servicing abuses, which brought foreclosures to a near halt last fall. All sides want a settlement that can resolve the issue so foreclosures can proceed again, which could help the sickly housing market.

Some attorneys general and administration officials have pushed for banks to pay more than $20 billion in civil fines or to devote a comparable amount to modifying mortgages held by distressed borrowers.

Several officials said the regulators' action wouldn't undermine the broader settlement talks. "This doesn't change what we are doing," said Iowa Attorney General Tom Miller in an interview. Mr. Miller, who is spearheading the 50-state investigation, said, "We are moving ahead full speed."

Outside observers said the orders could make it harder for state attorneys general to extract greater concessions from the banks.

"The biggest stick in this fight just settled, so there's going to be a lot less pressure on the banks to agree to a radical resolution to resolve the state complaints," said Jaret Seiberg, an analyst in Washington with MF Global.

Mark Zandi, chief economist at Moody's Analytics, said the agreement appears to require only "modest changes" to banks' foreclosure process and is unlikely to have a big impact on the housing market or broader economy. Still, Mr. Zandi added, "the foreclosure process will remain bogged down and a true bottom in the housing market elusive" until the banks reach a complete settlement with the state attorneys general.

Bank executives said the changes ordered would be anything but modest. "It's very demanding and there is a lot that we have to do," said one bank official. "It will be fairly expensive and a big resource drain."

The regulators issued the orders to the nation's four largest banks—Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. Also receiving orders were Ally Financial Inc., HSBC Holdings PLC, MetLife Inc., PNC Financial Services Group Inc., SunTrust Banks Inc., U.S. Bancorp, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank.

Bank of America, Wells Fargo, J.P. Morgan and Citigroup were ordered to revamp mortgage-lending practices.

Under the orders, banks have 60 days to establish plans to clean up their mortgage-servicing processes to prevent documentation errors.

The orders also direct banks to take steps to ensure they have enough staff to handle the flood of foreclosures, that foreclosures don't happen when a borrower is receiving a loan modification and that borrowers have a single point of contact throughout the loan-modification and foreclosure process.

Banks must hire an independent consultant to conduct a "look back" of all foreclosure proceedings from 2009 and 2010 to evaluate whether they improperly foreclosed on any homeowners and require each company to establish its own process to consider whether to compensate borrowers who have been harmed.

Critics, including other regulators, believe this process and other aspects of the orders leave too much discretion to banks.

J.P. Morgan, in a statement, acknowledged that the consent orders "are targeted directly at weaknesses in our processes and controls." The New York bank took a charge of $1.1 billion in the first quarter to reflect higher mortgage-servicing costs that resulted from a string of new regulations enacted after the financial crisis.

Other banks said many of the required changes already are under way. "This is an unprecedented measure and a tough message to take, but it will make mortgage servicing practices better across the board," Wells Fargo said. The San Francisco bank said it already has taken numerous actions to address the issues, including hiring 10,000 employees since 2009 to deal with foreclosure issues.

PNC Financial Services sought to distance itself from the industry's mess, saying that it represents just 1.5% of the mortgage-servicing business. A spokesman for the Pittsburgh bank said that its internal review had determined that the bank didn't foreclose on customers without a "valid reason or appropriate documents."

Even before the orders became public, critics charged that the bank regulators were letting servicers off too easy and were undercutting the broader talks.

The OCC, which has been the target of most criticism, defended the enforcement orders. "They require substantial corrective actions," Mr. Walsh said. "The banks are going to have to do substantial work, bear substantial expense to fix the problems that we identified" as well as to identify and compensate homeowners that suffered financial harm.

The Federal Deposit Insurance Corp. in a statement called the orders "only a first step" and declared its full support for the broader talks. "The enforcement orders announced [Wednesday] complement, rather than pre-empt or impede, this ongoing collaboration," it said.

State Officials, Federal Regulators Could Issue Separate Orders For Foreclosure Reform

The Huffington Post Maxwell Strachan First Posted: 04/12/11 12:41 PM ET Updated: 04/12/11 12:50 PM ET

The rift continues to widen between state and federal officials over foreclosure reform.

Since the 50 state attorneys general first issued their proposal to aggressively overhaul the foreclosure process and penalize servicers, the two sides have clashed over the specifics, with states reportedly advocating for stricter measures than federal regulators.

Disagreements have now become pronounced enough to leave open the prospect that the states could eventually issue their own orders for reform, independent of the Comptroller of the Currency and Federal Reserve -- two government agencies charged with reforming the foreclosure process, according to the Wall Street Journal.

In a letter sent on Monday to the Federal Reserve, the WSJ reports, 22 current and former board members of the Fed's Consumer Advisory Council said federal regulators' potential proposal appears to be "profoundly disappointing," leaving "too much discretion" to mortgage companies without imposing strict enough penalties for foreclosure abuses.

America's five largest mortgage firms have saved over $20 billion since the start of the housing crisis by shortcutting the home loan process of struggling borrowers, HuffPost's Shahien Nasiripour reported earlier this month.

In a report last month that drew the ire of housing and consumer advocates, the Fed found no evidence of wrongful foreclosures.

Still, other regulators have advocated hitting the 14 largest mortgage firms with upwards of $30 billion in penalties for past abusive practices.

Amid the debate, a new paper entitled "The Economics of the Proposed Mortgage Servicer Settlement," funded in part by the financial services industry, disputes the notion that the state attorneys generals' proposal will protect homeowners, arguing that it would instead "generate significant unintended negative consequences" by raising "the number of defaults and servicing costs."

Reuters blogger Felix Salmon doesn't agree, calling the paper "ridiculous" and emphasizing the conflict of interest. "Even bankers," Salmon notes, "aren’t making these arguments with a straight face any more."

The federal debate over the foreclosure process has heated up in recent weeks, with the Obama administration backtracking on an earlier, more dramatic proposition more in line with that of the states attorneys general. The president's earlier proposal would have required mortgage lenders to reduce monthly payments for millions of U.S. homeowners.

AMERICAN BANKER ARTICLE:

By Kate Berry

The event was billed as an opportunity for San Diego real estate agents to get some pointers on hard-to-close short sales.

"Learn How to Escalate Your Short Sales from a local branch, Get Your REO Pre-Approval Letters Faster, and much more," read a flier for the April 14 luncheon sponsored by the local chapter of the National Association of Hispanic Real Estate Professionals.

By "local branch," the trade group's flier meant a local branch of Bank of America Corp. And the featured speaker was Alan Seelenbinder, B of A's vice president of portfolio retention, real estate owned and short sales.

Seelenbinder told the 200 agents in attendance that one of the most common complaints he hears from brokers handling short sales is, " 'I lose buyers because it takes so long.' " Pointing to a table of B of A loan officers, he said, "If you keep the people involved and you have your buyer working with a loan officer that understands the process, the buyers will stay interested."

Homebuyers have been scarce this spring selling season, and banks are looking for every opportunity to get their retail staff to close loans. So it's only logical that Bank of America, the second-largest originator, would want to finance the buyers in distressed sales — and develop relationships with the agents who broker them. According to the National Association of Realtors, distressed transactions made up 40% of all sales of existing homes in March. Short sales alone accounted for 13%.

But Bank of America is also the largest servicer of home loans, with the power to approve or reject many short sales. So some real estate agents, as well as competitors of B of A, are interpreting pitches like the one Seelenbinder has been making as a subtle way of telling agents to send lending business to B of A if they want to get a short sale done for an existing, distressed B of A borrower.

"It's a clandestine steering to say, 'Go to our loan officer, and your deal will get done faster,' " said Charlie Christensen, a branch manager and senior loan officer at Equitable Mortgage Group in San Rafael, Calif. "The loan officer just has the inside track at B of A, and they're not going to offer that to an outside lender. It flies in the face of the spirit of the deal."

Explicit steering would potentially violate the Real Estate Settlement Procedures Act, which forbids promising anything of value in exchange for referring business.

B of A said there is no correlation between a short sale being approved (which is done at a central office) and the buyer obtaining financing from a Bank of America loan officer. The company says it is simply suggesting retail branches as a place that short-sale brokers can turn to if they hit a wall dealing with the short-sale department. The retail loan officers would help them talk to the right people in the central office.

Matt Vernon, B of A's head of short sales, said the company is "utilizing our mass distribution of loan officers across the country to educate realtors" about the short-sale process. "If they have a good experience, we expect them to have the opportunity to give us business in the future. We would certainly like that opportunity as we would in any mortgage transaction."

When asked if retail loan officers can clinch a short sale, Vernon said, "They can do absolutely nothing." Typically, the loan officer would "escalate it to their management and over to the short-sale business," he said. "We would have no interaction with the specialist in short sales on the loan officer side."

Sergio Moreira, president of the San Diego chapter of the NAHREP, seconded that view.

"This is just good customer service," Moreira said. "What they said is, if you have a relationship with a B of A loan officer, go to them and they might help you on that short sale. The word 'expedite' means to help. It doesn't say they're going to solve the short sale at the branch, and I don't see how B of A is trying to keep the business."

Michael Byrd, the owner of SLO Homestore in Grover Beach, Calif., which represents buyers in short sales, said he has advised some clients to go to bank retail branches "just to get help cutting through the bureaucracy."

"There's a lot of frustration on the agent side because there's not a lot we can do to try to expedite things with the short sale," Byrd said.

The situation would indeed create an opportunity for the loan officer to make a sales pitch for the new loan, he said. But seizing that opportunity is not inherently objectionable, unless getting the short sale closed is a condition of that bank's getting the loan.

"Business logic says that if there's a loan to be had, try to get it," Byrd said. "It's just a question of whether you cross Respa."

Banks have long required when selling repossessed properties that a buyer get prequalified with the original lender even if they make it clear that the person does not have to use that bank to get the loan, Byrd said. "In the back of their minds, they're thinking, 'By the time the consumer has gone to all this trouble, they'll just stick with us.' "

If a broker having a hard time getting a short sale done goes to a branch for help, "technically the loan officer can't do anything on a short sale other than go to the bank directory and try to get the agent a better contact."

Still, George Kenner, a broker at Keller Williams Realty in San Diego who has 14 short sales pending with B of A, said he was incensed by the suggestion that agents like him go to a retail loan officer to get their short sales resolved. Kenner claims to have made hundreds of calls to B of A, written dozens of letters to the bank's executives and industry officials, and received no responses to his inquiries.

He too interpreted Seelenbinder's pitch as "steering" real estate agents to B of A's own retail branches to get new business while failing to offer a single point of contact for borrowers or agents to resolve short sales.

"They're doing everything they can to capture the new loan but nothing to help with the actual short sale," said Kenner, who posted a video of Seelenbinder's presentation on his blog. "It's a silent quid pro quo where there's no explicit demand for the borrower to get a loan through B of A, but it's very clear how beneficial a good relationship with B of A is."

Vernon said that real estate agents have told B of A that they want mortgage loan officers to know the basics of default, loss mitigation and alternatives to foreclosure.

"That's part of our strategy to differentiate ourselves with the real estate community," Vernon said. "If it gets to a [short-sale] transaction with specificity, that's when we have to pull in the experts to talk with the realtor."

Fannie Mae offers buyer incentives

Washington Business Journal - by Jeff Clabaugh

Fannie Mae is reviving buyer incentives first offered last year as it tries to unload all the foreclosed houses it is sitting on.

If you buy a house Fannie Mae is holding as a result of a foreclosure, Fannie Mae will give you up to 3.5 percent of the final selling price to be applied toward closing costs. The sale must closed by June 30.

Fannie Mae already offers lower rate mortgages and renovation financing to buyers who buy one of its foreclosed homes.

Last year, Fannie Mae (OTC BB: FNMA) gave real estate agents and brokers $1,500 bonuses for bringing buyers to the table.

Read more: Fannie Mae offers buyer incentives | Washington Business Journal

Largest Village In New York Closes Chase Account To Protest Foreclosures

The Village of Hempstead, a relatively low-income, minority-heavy municipality on Long Island, pulled its money out of JP Morgan Chase bank on Tuesday as part of a statewide campaign protesting the bank's dismal mortgage modification record.

"It's important that Chase and all the big corporate banks start to heed the minority communities," Hempstead Mayor Wayne Hall said in an interview. "There's a lot of power in the minority communities. If we all stick together and start withdrawing our money out of these big banks and start putting it into more favorable banks, Chase will review its procedures for modifications."

Nearly one in every four U.S. homeowners with mortgages -- or 10.8 million people -- currently owe more on their home than it's worth. In Hempstead, almost 4 percent of homes are in the foreclosure process, according to Dealbook, a rate four times Nassau County average. While data on Chase loans in Hempstead are hard to come by, in nearby New York City, only six percent of the 1,027 borrowers with Chase mortgages who asked for help in the past year were granted a permanent modification, according to a report released recently by the Center for New York City Neighborhoods. Moreover, a full 80 percent of these homeowners have not even received an offer for a loan modification.

Chase's national modification record is not much better. Of 233,653 trial modifications started by Chase under the Obama administration's Home Affordable Modification Program (HAMP) launched in 2009, the bank now has just 71,657 active permanent modifications, according to the latest data from the Treasury Department.

One Hempstead homeowner, Maribel Toure, said she has been trying and failing to modify her mortgage loan with Chase bank for two and a half years.

"It has been an unhealthy experience, with bad communication and no response," she told NY Communities for Change, a coalition of working families in low- and moderate-income communities. "I have to work 16-hour shifts in the hospital to make extra money, and I've asked for a modification three times, but have gotten no straight answer -- I'm stuck in limbo."

A Chase spokesperson said the bank has "served the financial needs of the Village of Hempstead well" for more than 30 years.

"In New York, Chase has offered 50,000 modifications to struggling borrowers and has prevented seven foreclosures for every one foreclosure here," he said. "This past weekend, we met face-to-face with 2,200 borrowers in Brooklyn to help them stay in their homes."

The Village of Hempstead is the first municipality in the country to close a bank account due to foreclosure policies. But a spokesperson for NY Communities for Change said many local governments throughout the state are planning to close their Chase accounts in the coming months. New York City Councilman Jumaane Williams marched into a Park Avenue Chase bank in February to close his account, and major unions have also announced their intention to pull their pension-fund money out of JP Morgan Chase.

"Banks like Chase should be ashamed of themselves," Hempstead Deputy Mayor Henry Conyers said in a press release. "They were bailed out with taxpayer money - now look what they are doing to the taxpayer: foreclosing instead of modifying."

Hoping Won't Cure What Ails Housing

American Banker

By Barbara A. Rehm

The negotiations between mortgage servicers and state and federal officials are a distracting sideshow to the serious debate we should be having about how to solve the nation's chronic housing problems.

Endless meetings, drafts of dueling documents, hand-wringing, finger-pointing solve nothing.

The sad fact is millions of people have mortgages they can't afford, no matter how much their monthly payment is reduced. It may sound harsh, but the national interest is not served by policymakers' hatching yet another bad idea for how to keep those people in their homes.

"Everybody has been obsessed since the crisis began on preventing foreclosures. Everyone keeps coming up with these magic bullets, some scheme that is going to prevent 1 million foreclosures at little or no cost to anyone," said Paul Willen, a senior economist and policy adviser in the Federal Reserve Bank of Boston's research department. "But there is no cheap, easy way to fix this."

Policymakers don't want to admit that.

Most government officials have adopted a wait-and-hope approach, and those who do talk about housing make earnest statements about keeping hardworking people in their homes. That's a worthy goal, for sure, but it's ignoring reality: from 2007 to 2010 there were 8.6 million foreclosures. Another 2 million foreclosures are in the works now, according to William R. Emmons, an assistant vice president and economist at the Federal Reserve Bank of St. Louis, and another 4 million mortgages are so underwater that they are headed toward foreclosure.

"And if house prices keep falling, then you just keep replenishing the pipeline," Emmons said in an interview Monday.

But rather than own up to that, the federal government is, once again, standing by while the states step in.

Innovation at the state level would be nice, and that's exactly what the billions pledged to the Hardest Hit funds more than a year ago were supposed to accomplish. But the state AG settlement has hijacked center stage, commanding more than its fair share of everyone's attention.

The AGs started out with an admirable goal: establish mortgage servicing standards so we never have another mess like this. But then they pivoted to the more controversial idea of reducing borrowers' principal. Rather than being a silver-bullet solution, principal reductions have derailed the settlement. Lenders balked because they consider principal reductions an invitation to anyone who has ever considered walking on their mortgage to grab their running shoes.

It doesn't matter which side is right.

Say the servicers agreed to cough up the $20 billion that's been suggested, and say that leads to $20,000 being written off the mortgages held by 1 million people. That would hardly make a dent in the problem.

The other big "solution" is a hodgepodge of loan modification programs that haven't worked. Redefault rates are high and no one wins when a modified loan goes into default again. All that does is postpone pain and weigh down the market and the economy.

The government's wait-and-hope strategy hinges on an upswing in home prices, and that's not happening.

The S&P Case Shiller home price index reversed its upward trajectory and has been slumping for six months now.

"The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery," David M. Blitzer, the chairman of the Index Committee at Standard & Poor's, said last week in a statement. "At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing."

Plenty of smart people think the mortgage mess could drag on for decades. Some even wonder, given how protracted the foreclosure process is, why we haven't seen a surge of strategic defaults. "More people are going to say, 'I am not going to try to solve this. It's going to be in my best interest, with the average time for foreclosures being 525 days, I am just not going to pay,' " said Ricardo Byrd, executive director of the National Association of Neighborhoods. "We are getting close to the tipping point where the stigma of not paying is being reduced."

Asked what he thinks should be done, Byrd said, "The president needs to bring everybody in a room and say we are going to figure this out today."

At a minimum, someone in the federal government — I nominate HUD Secretary Shaun Donovan — needs to get to work on a comprehensive strategy.

Stop trying to not offend anyone and impose some pain on all sides. Servicers, investors and borrowers all have varying interests in seeing the foreclosure mess cleaned up. But only the federal government has the incentive and the capacity to craft a comprehensive solution that can work.

The government should shift its focus from trying to keep current borrowers in homes at all costs to figuring out how to get people who can afford it to live there.

"We have to come to the realization and stop fooling ourselves that for some people there is no solution," said Cliff Rossi, who has worked in both government and the industry and is currently an executive-in-residence of the Center for Financial Policy at the University of Maryland's business school. "There are borrowers who are so underwater and have no capacity to repay, and as unfortunate as it is, we are just going to have to move those people through the foreclosure pipeline fast."

Willen, who holds a PhD from Yale and has intensively studied the mortgage market for years, agrees the federal government has to find a way to make the foreclosure process easier and faster.

"We need to get these properties back into the hands of long-term, sustainable owners," he said.

Short sales and some sort of cash-for-keys plan are two more essentials to clearing the backlog of troubled mortgages.

Say you took that $20 billion and you gave 2 million people who can't pay their mortgages $10,000 to walk away. Seems smarter than the principal-reduction alternative outlined above. The borrower would have enough money to rent a new place and the lender would have the title without the hassle or cost of foreclosure.

The Obama administration is going to have to bite some political bullets. Borrowers who don't deserve help are going to get it. Speculators will cash in. Lenders with lousy underwriting standards may avoid some losses (though they will still absorb plenty). Servicers with lax controls may be left off some hooks. Taxpayers will get stuck with some of the bill.

It won't be politically popular, but the alternative is another decade or more of a real estate market strangled by foreclosures.

Median price isn't necessarily your price

Average home worth more than foreclosure

The median sales price of a single family home in Brevard County in 2010 was $120,000. You own an average home, so your house would fetch that price, right?

Actually, an “average” owner-occupied home in Brevard is worth quite a bit more, a FLORIDA TODAY analysis of property sales records found. Try nearly $25,000 more.

The median sales price — half sold for more, half for less — has been the standard way to chart the change in home values for decades. But in recent years, these figures have been distorted by a trend not seen since the Great Depression: Foreclosures now account for a substantial portion of all homes sold.

One out of every four houses sold last year was a foreclosed property, and the median sales price was just $70,000.

The median price for all of the other houses? $143,000.

The discrepancy is even greater for condos. The median price for foreclosed condos was $45,700. For all other condos it was $118,750.

Despite some buyers’ wishful thinking, the price difference isn’t because lenders will accept very low prices just to get rid of unwanted properties. It’s because, in general, foreclosed properties are in much worse condition than other homes.

Back to Brevard

When Renee and Jack Angel returned to Brevard County last year after spending a few years in Virginia, they went house shopping.

The couple put in an offer on a short sale but gave up on it months later when there had been little progress toward closing.

In the following weeks, the couple looked at about 30 other houses in Port St. John and southern Titusville, all foreclosures. Renee Angel said all of them were trashed. While the prices were good for some of them, she said she wasn’t interested in doing major home repairs.

Finally the couple came upon a foreclosed house in Port St. John that was in pristine condition. They closed on the home in December.

“We actually were able to move in and not have to do anything,” Angel said.

The poor condition of foreclosed properties like the majority the Angels looked at is more the norm than the exception for foreclosures, say real estate agents and home shoppers.

In some cases, foreclosed houses have been stripped by their previous owners, either out of anger or in efforts to make money on the sale of appliances and fixtures. It is not uncommon that by the time a lender reclaims a home, it no longer has appliances, cabinets or flooring, said Gary Altizer, a real estate agent who specializes in selling foreclosed properties.

“I see everything. .¤.¤.¤places without toilets even,” said Altizer, who works at Re/Max Alternative Realty in Indialantic. “They’ll steal everything.”

Even in cases where the previous owners have left homes in pristine condition, vandals often break in and take anything of value.

Banks sometimes will pump money into fixing up a home, but more often than not, they won’t. For them, there is little incentive to spend time and money on repairing a house unless they can get a significant return on their investment.

“It really just depends if it makes sense to them,” Altizer said.

Market influences

Few doubt that foreclosures — and their kissing cousins, short sales — will play a dominant role in the Space Coast real estate market in 2011.

Lenders already own thousands of homes in the county, not all of which have been put on the market. Thousands more foreclosures are working their way through the courts. Lenders reclaimed 4,100 properties through foreclosure in 2010, up from 2,200 in 2009. And with a third or more of homeowners owing more than their house is worth, lenders will be under increasing pressure to approve short sales, where they agree to a sales price less than they are owed.

But the process of selling a foreclosed or otherwise distressed home isn’t easy.

Jeremy “Deano” Chaple and his wife, Ann, decided last year was the right time to buy their first home. “Everything was going down. I had the money. And I was tired of renting,” said Jeremy Chaple, promotions director for Clear Channel Radio Brevard.

Like the Angels, the Chaples looked at more than 30 homes, mostly foreclosures, in Palm Bay. And like the Angels they found most of them in terrible disrepair — until they finally ran across the southwest Palm Bay home they ended up buying.

“This one was immaculate,” he said.

But the house was a short sale, which meant it took six months before the couple could finally close on the house. But it also means they paid $102,000 for a house that sold for $175,000 in 2008.

Lenders are encouraging real estate agents to find more buyers like the Chaples, folks who plan to move into the home they are buying, rather than investors who plan to fix houses up, rent them out and perhaps resell them in the future. The feeling is owner-occupied homes add to a neighborhood’s stability and lead to higher home values. And that helps lenders two ways: First, it means they can sell subsequent properties for more money. And higher home values make it less likely that other homeowners will let themselves slide into foreclosure.

“All the banks are wanting to push for stabilization of a neighborhood by getting homeowners in there, not just investors,” Altizer said.

Absent owners

But the FLORIDA TODAY analysis found that about 48 percent of the people who bought foreclosed homes in the county last year were having the tax bills sent to another address, an indication that they were not living in the properties they bought.

Investors do have somewhat of an advantage in that they pay cash for houses and can close quickly while others generally have to get a mortgage, a process that can add weeks, if not months, to the sales process.

On the other hand, in the interest of neighborhood stabilization, lenders will accept an owner-occupied offer over a similar investment offer, Altizer said.

One problem, though, is that while investors typically have a pretty good idea of the actual value of a home and what a lender will sell it for, too many potential buyers who want to move into a house mistakenly think they can buy foreclosures for as little as half the listed price.

“Buyers seem to think they can steal the property,” Altizer said. “That isn’t really true.”

Credit Q&A: How Does Foreclosure Affect My Score?

By Jeanine Skowronski

Q. How will a foreclosure affect my credit score? And how long will it take to recover?

A. The answer all depends on your score at the time of foreclosure.

Fortunately, FICO, the company responsible for our current credit score model, just completed a study that simulates how various types of mortgage delinquencies can affect one’s credit. FICO was nice enough to let us publish the study as part of this week’s Credit Q&A.

To complete the study, FICO simulated five types of mortgage delinquencies – 30 days late, 90 days late, deed-in-lieu settlement, short sale and foreclosure – on consumers scoring 680, 720 and 780, respectively. Prior to the delinquency, all consumers had an active currently-paid-as-agreed mortgage on file.

Other facets of the consumers' profiles (e.g., utilization, delinquency history and age of file) were typical for the three score points considered.

As you can see, the higher your score, the harder it falls and the longer it takes to get back to where it was before delinquency.

“You can start to see improvement before then, but it takes longer for a higher score to fully recover,” Joanne Gaskin, who wrote about the study on FICO’s Banking Analytics Blog earlier this month, tells MainStreet.

According to Gaskin, the study was done because FICO wanted to clear up a common misconception consumers have about how mortgage delinquencies affect their credit score.

“People try to persuade consumers to believe that a short sale will have significantly less impact on their score than a foreclosure will,” she says, but “there’s very little difference from a FICO perspective.”

As the chart illustrates, both types of delinquencies cause each prospective consumers’ score to plummet the same amount of points. Consumer A, who has a 680 credit score, will take around an 85-point hit. Consumer B, with a score of 720, will take around a 150-point hit. Consumer C, who is among the credit elite, will see his score drop around 160 points in either instance.

It will take about three years following either a short sale or foreclosure to return to your score of 680, and seven years to get up in the 700s—if you don’t incur more delinquencies.

As Gaskin explains, delinquencies include more than just missed payments on a mortgage. You can’t start defaulting on your credit card bills or start ignoring your auto loan.

“Your profile would have to go back to being what it was [before foreclosure],” she says.

http://www.mainstreet.com/article/moneyinvesting/credit/debt/credit-qa-does-foreclosure-affect-my-score?page=1

Fannie: Servicer side agreements with mortgage insurers prohibited

By: KERRY CURRY

Fannie Mae told mortgage servicers Friday that any deals that would compromise mortgage insurance on loans delivered to the government-sponsored enterprise are strictly prohibited.

Fannie issued a servicer policy update clarifying its prohibitions on loss sharing, indemnification and settlement agreements with mortgage insurers.

"Fannie Mae reminds servicers of their contractual obligation and responsibility to ensure that any mortgage insurance coverage required at the time a loan is delivered to Fannie Mae is maintained and remains in force to protect Fannie Mae’s interests in its mortgage loans at all times, unless the conditions that Fannie Mae imposes for replacing or canceling the coverage are met," the guidance stated.

Fannie Mae clarified that arrangements that compromise mortgage insurance coverage are generally inconsistent with protecting the GSE's interests in mortgage loans.

"Effective immediately, Fannie Mae is prohibiting servicers from entering into any agreement that modifies the terms of an approved mortgage insurance master policy on loans delivered to Fannie Mae."

Prohibited agreements include, but are not limited to, agreements that directly or indirectly:

Modify master policy provisions for settling of claims

Limit the right of a mortgage insurer to conduct file reviews or investigate claims

Limit the right of a mortgage insurer to rescind coverage

Rescind or modify coverage,

Restrict notice to Fannie Mae of changes in coverage status.

Fannie said servicers must also disclose any such agreements previously enacted with mortgage insurers.

Proposed settlement would force banks to allow short sales for delinquent homeowners

The proposed deal among banks and government officials is aimed at stabilizing the real estate market and helping underwater borrowers who are months behind on mortgage payments avoid foreclosure.

By Jim Puzzanghera and Alejandro Lazo, Los Angeles Times

Reporting from Washington and Los Angeles

Major banks may be forced to let severely delinquent homeowners sell their houses for less than the loan amounts owed as part of a broad settlement of federal and state investigations into botched foreclosure paperwork, according to government officials involved in the negotiations.

The requirement to allow so-called short sales would be in addition to forcing mortgage servicers to reduce the amount some homeowners owe on their loans, said two officials, who spoke on the condition of anonymity because negotiations are ongoing.

The goal of short sales would be twofold: provide a quicker and more economical way for banks to dispose of distressed real estate and to help stabilize the real estate market by clearing out a backlog of defaulted mortgages that are poised for foreclosure.

They would be used in situations in which borrowers were so underwater that the more costly and time-consuming process of foreclosure would seem to be the only option.

“Short sales just command a better premium than foreclosures,” said Glenn Kelman, chief executive for online brokerage Redfin. “It’s like day-old bagels. They never sell for the same price. If they sit there for a while, nobody wants them because houses just break down when they are left alone.”

Foreclosures continue to drive down housing values, with prices in 20 major U.S. cities down an average of 3.1% in January compared with the same month a year ago, according to new data from a Standard & Poor’s/Case-Shiller index. Prices in Los Angeles were down 1.8%.

The latest proposal is among those to be discussed when executives from the top five mortgage servicers meet Wednesday in Washington with state and federal officials working on a settlement that could range from $5 billion to $25 billion.

Those servicers are Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.

It will be the first face-to-face meeting since attorneys general from all 50 states, along with federal officials from the Justice Department and other agencies, presented the banks with 27 pages of demands calling for sweeping changes to mortgage servicing, including how homeowners are treated when they try to modify their loans.

The banks have given officials a counterproposal on some of the mortgage servicing requirements that includes a single point of contact for distressed homeowners, timelines for considering modifications, an online system for checking the status of applications and a third-party review of rejections, one of the officials said.

Short sales would help accelerate the turnover of homes from borrowers who are months behind on their mortgage payments, Kelman said.

Some sellers are not eager to complete a short sale because it would force them out of their home. And lenders can withhold approval of a short sale if they don’t like the price.

Banks often resist such sales because they are difficult to execute, particularly when multiple creditors and other parties are involved. In addition, short sales lock in losses for the lender that might be reduced if the sale is delayed until the market improves.

Requiring banks to allow short sales could fuel further opposition from some Republican attorneys general and members of Congress who already have criticized the broad scope of the proposed settlement.

Some House Republicans have derided possible payments of $20,000 to encourage distressed homeowners — dubbed by some as “cash for keys” — as a bailout for irresponsible behavior.

Seven Republican attorneys general recently wrote to Iowa Atty. Gen. Tom Miller, a Democrat who is leading the negotiations for the states, saying the proposals go beyond resolving damages from foreclosure paperwork problems. Those problems include robo-signing, the practice of bank employees’ signing sworn documents without reading or understanding them.

“I think it’s morphed into something that’s bigger and different than what we talked about in the beginning,” said Oklahoma Atty. Gen. E. Scott Pruitt, a Republican who organized the signing of one of the letters.

Pruitt said he might not join the settlement if it is too broad. And with 24 Republican attorneys general nationwide, opposition could limit the size of a settlement and how many people it covers.

Miller has been in contact with some of the attorneys general who have raised concerns, said spokesman Geoff Greenwood.

“We’ll do the best we can to reach a comprehensive agreement that is in everyone’s best interest,” Greenwood said. “At the end of the day, an attorney general must decide for himself or herself whether to sign on to this, assuming we get a settlement.”

In Southern California, short sales made up an estimated 19.8% of the market for previously owned homes last month. That was up from an estimated 18.4% in February 2010 and 12% in February 2009, according to DataQuick Information Services of San Diego.

Combined with foreclosures, these so-called distressed sales made up more than half of homes sold in the Southland last month.

Though struggling homeowners escape weighty mortgage debts quickly under a short sale, they don’t get away unscathed.

Their credit scores are damaged enough to limit their borrowing capability for years, though the damage is perhaps less severe than in foreclosure. Money for down payments and renovations would be lost, and there may be tax consequences.

The California Assn. of Realtors has been pushing for short sales to be made simpler. Earlier this month, in an open letter in the Los Angeles Times and six other California newspapers, the group called on banks to approve more short sales and for regulators to streamline the process.

The real estate agents argued that short sales are better for consumers and banks.

One More Casualty of the Foreclosure Crisis: Property Tax Revenues

The Home Defenders League, a community activist organization in California, released a report last week with the provocative title of "Home Wreckers: How Wall Street Foreclosure are Devastating Communities." The report makes a simple but powerful point that has not been widely appreciated. Property tax revenues, which many municipalities use as a primary source of funding for education, police, fire, and other essential functions, are tied to real property values. Since the height of the market in 2007, on a national basis, it has been commonly reported that commercial real estate values have dropped at least 40% and residential real estate values have dropped at least 30%.

Of course, the concept of "real estate value" is pretty fuzzy. The fair market value of a thing is normally determined by a willing buyer and willing seller. But in the current market, there are a number of complications. First, there are a large number of unwilling sellers pricing their homes in light of a pending foreclosure, or because of a loss of employment or similar crisis. Second, both the residential and commercial real estate markets continue to be hampered by the unavailability of debt. Yes, the most credit worthy commercial and residential borrowers, with sufficient money for a healthy down payment, can obtain financing. But many other borrowers cannot. As a result, the market has way too many unwilling sellers and not nearly enough willing buyers (with adequate financing). So "real estate values" are significantly depressed. But if capital begins to flow more freely and employment rates rise, the number of willing, financeable buyers will increase and push values up.

That's how markets work. If the market thinks that my house is worth 30% less today than it was three years ago, that makes me sad, but doesn't actually hurt me until I'm forced to internalize that drop in value by selling the house at a reduced price. But one of the problems with the current crisis is that the policy response is forcing widespread internalization of depressed values, in both the commercial and residential real estate markets, by encouraging distressed sales and foreclosures. Many analysts in the commercial real estate world believe that this is a good thing, because the market can't begin to improve until it hits bottom. But by capturing the temporarily depressed values and translating those into lower property tax assessments, this activity will have significant effects even after values begin to improve.

The property tax assessment method varies by state, but changes in value for a specific property are generally captured when a property is sold. In periods where significant changes are experienced in the larger market, an assessor may also increase or decrease the assessed value of a neighborhood or entire community by applying a particular formula. For a variety of reasons, assessed values normally lag "real time" values. For example, Maryland assesses real property every three years and recently issued a reassessment reflecting a 22% drop in value since 2008, the largest decline in the history of the Maryland Department of Assessments and Taxation. Other states may reassess on an annual basis, but use a prior year's assessment in calculating current taxes. For example, in Washington State, 2011 property tax bills reflect 2009 assessments.

Many municipalities have reported that property tax assessments began to fall two years ago for the first time since the Great Depression, and have continued to fall since. These reduced assessments can have significant consequences for state and local government, particularly if there is a property tax cap in place. For example, the Home Defenders League estimates that California property tax revenues are expected to decline by $3.8 billion because of residential foreclosures.

There are no easy answers here. But it is clear that we shouldn't compound the problem by forcing more homeowners, commercial real estate borrowers, and, by extension, taxing authorities, to internalize temporarily depressed values by encouraging sales into a distressed market or completing foreclosures. The real estate bubble burst and "value" was lost. Understood. But perhaps we should focus on trying to restore some of that value and mitigating the problems that will inevitably be caused by steep drops in property tax revenue.

Party Lines!

By Alan Zibel

The House voted Wednesday to end a government effort to revitalize neighborhoods blighted by the recession and housing crisis, with Republicans calling the program unnecessary and wasteful.

The 242-182 vote, mostly on party lines, was the third of four planned this month to end Obama administration initiatives to ease foreclosures and mend troubled neighborhoods. The measures are likely symbolic, as the Democratic-led Senate is unlikely to take them up and President Barack Obama has threatened a veto.

The vote Wednesday would cut off funding for the Department of Housing and Urban Development’s $7 billion Neighborhood Stabilization Program. That effort, created in a bipartisan housing bill passed in 2008, is likely to help fix up 100,000 properties in areas hard-hit by foreclosures, according to HUD.

Republicans called it wasteful and not subject to thorough oversight. Taxpayers are not repaid when blighted homes are fixed up and sold, said Rep. Judy Biggert (R., Ill.). Instead, “the money is treated like a slush fund…it is never returned to the taxpayer,” she said. “We need to stop funding programs that don’t work with money we don’t have.”

Democrats noted that the program is supported by city and local officials around the country. In one part of Indiana, “new businesses have opened and an area in decline has now blossomed again,” said Rep. Andre Carson (D., Ind.).

The vote comes after the House voted last week to end a yet-to-be-launched program to help unemployed homeowners and one to help borrowers refinance if their property values have plunged.

Republicans also plan to vote by the end of the month to eliminate the Obama administration’s flagship foreclosure-prevention program, the Home Affordable Modification Program. They argue that the administration’s housing programs are costly to taxpayers at a time when budget cuts are needed to get the U.S. economy back on track. Republicans also say that the government has failed to prevent many foreclosures and has, in some cases, left homeowners worse off.

Launched nearly two years ago, HAMP has assisted about 540,000 homeowners, far short of initial expectations that it would aid up to 4 million. A congressional panel estimates it will eventually reach as many as 800,000 homeowners.

While GOP lawmakers call the program a waste of money, the Obama administration says it is still benefiting tens of thousands of new borrowers every month.

Bank of America Unit Tried to Hide Foreclosure Information, Hackers Say

BY CHRIS V. NICHOLSON

A hacker organization known as Anonymous released a series of e-mails on Monday provided by a former Bank of America employee who claims they show how a division of the bank sought to hide information on foreclosures.

The bank unit, Balboa Insurance, was acquired by Bank of America when it bought the mortgage lender Countrywide Financial in 2008. Balboa deals in so-called force-placed insurance coverage on mortgages. The e-mail messages concern the removal of information linking loans to other documentation.

A Bank of America spokesman told Reuters on Sunday that the documents had been stolen by a former Balboa employee, and were not tied to foreclosures. “We are confident that his extravagant assertions are untrue,” the spokesman said.

The e-mails dating from November 2010 concern correspondence among Balboa employees in which they discuss taking steps to alter the record about certain documents “that went out in error.” The documents were related to loans by GMAC, a Bank of America client, according to the e-mails.

“The following GMAC DTN’s need to have the images removed from Tracksource/Rembrandt,” an operations team manager at Balboa wrote. DTN refers to document tracking number, and Tracksource/Rembrandt is an insurance tracking system.

The response he receives: “I have spoken to my developer and she stated that we cannot remove the DTNs from Rembrandt, but she can remove the loan numbers, so the documents will not show as matched to those loans.”

According to the e-mails, approval was given to remove the loan numbers from the documents.

A member of Anonymous told DealBook on Monday that the purpose of his Web site was to bring attention to the wrongdoing of banks. “The way the system is, it’s made to cheat the average person,” he said.

He had set up a Web site to post bank data that WikiLeaks has said it would release, and was subsequently contacted this month by the former Balboa employee. It has been speculated that the documents, which have yet to be released, would focus on Bank of America. The spokesman for Anonymous said he had no direct ties to WikiLeaks, which is run by Julian Assange.

Balboa describes itself as providing “mortgage and auto lender-placed insurance tracking services.” Lender-paced insurance is another term for force-placed coverage.

Mortgage lenders require that homes be insured. In the event that mortgage holders let insurance lapse, lenders may take out their own insurance on the property, which protects the lender’s interest but is paid for by the mortgage holder.

Bank of America agreed last month to sell Balboa to QBE of Australia, which is set to pay $700 million up front and take on $1.2 billion in liabilities. A representative of QBE was not immediately available for comment.

A Housing Markey Cycle Diffrent From Others

By FLOYD NORRIS

TO judge by the overall level of home sales in the United States, the housing market has stabilized at a level well below the peak period of 2005 and 2006 but still higher than the sales rates that characterized prosperous periods in the 1980s and 1990s. Still, few of those sales are of new homes and a rising proportion are forced sales of homes no longer worth the amount that was borrowed.

The sales rate for existing homes — about 4.9 million over the last 12 months — is virtually the same as in mid-1999. Yet sales of newly built single-family homes have plunged to the lowest levels seen since the government began collecting statistics on such sales in 1963. The Census Bureau reported this week that only 17,000 new homes were sold in February, for an annual rate of 250,000 after taking seasonal factors into account. Both of those numbers are the lowest on record.

The February sales pace was undoubtedly depressed by harsh weather in the Northeast, and a rebound in March or April is possible. But the total number of homes sold over the 12-month period — 349,000 — is lower than in any comparable period.

As a result, this cycle has been very different from previous ones. Home sales plunged in the early 1980s, when a combination of severe recession and high interest rates devastated the housing business, and they also suffered in 1990 and 1991, another recessionary period. But in each of those recessions, sales of new and existing homes declined at about the same pace.

It was decreased demand that hurt sales in previous downturns. Now demand is down, in part because some would-be buyers cannot qualify for mortgages that would have been available during the boom. But oversupply is also a major problem now.

Too many houses were built in many areas during the boom, and now housing starts have plunged, as can be seen in the bottom chart. There are fewer newly built homes available, and in some areas, buyers complain that builders have not been willing to cut prices to meet the prices available on used homes in the same area.

But there is a large number of used homes available. The National Association of Realtors estimates that almost two of every five used homes sold in February were on the market because the previous owner was in trouble. It says 26 percent of sales were from foreclosures, and an additional 13 percent were “short sales,” in which the lender agrees to allow the homeowner to sell the home for less than the outstanding balance of the loan. Sellers often have little say in the timing of such sales, and are in a poor bargaining position.

The percentage of forced sales rose to nearly half of all sales in early 2009, at the height of the credit crisis, but fell to around 30 percent as the economy began to improve and banks imposed moratoriums on foreclosures. Now it is on the rise again, producing new pressures on prices and increased competition for home builders still trying to sell homes built in more optimistic times.

Mortgage probe talks split, clouds market recovery

By Joe Rauch and Dave Clarke

CHARLOTTE, N.C./SAN DIEGO |

(Reuters) - - The main regulator for the largest U.S. banks is preparing to break from state authorities and move first to settle with lenders over their foreclosure practices, according to a source familiar with the process.

The settlement from the Office of the Comptroller of the Currency could come in the next couple weeks, the source said and would dash hopes for a comprehensive settlement that could help heal the housing market.

About a dozen federal authorities and 50 state attorneys general have worked for months to reach a coordinated settlement over allegations banks foreclosed with improper documents and cut corners on repossessing homes.

The authorities were working to structure a settlement that would have let banks contain their litigation risk, help homeowners mistreated during foreclosures and remove a cloud of uncertainty hobbling the housing market's recovery.

"It's never great news when there's no coordinated response to the greatest challenge in the economy," said Adrian Cronje, chief investment officer at Balentine, an Atlanta-based wealth management firm.

"It's such a political minefield that I could see something like this might cause the inventory of foreclosed homes to remain high for quite a bit longer."

The source said the OCC, impatient with infighting over the structure of a coordinated settlement, is preparing to move on its own set of fines and business-practice fixes for banks.

The exact details of an OCC proposal are not yet known. OCC spokesman Bob Garsson declined to comment.

Bank of America Corp, Citigroup Inc and Wells Fargo & Co are among the banks in settlement talks.

While a settlement with the OCC would remove one question mark for banks, they could still face myriad suits from investors, homeowners and attorneys general.

Iowa Attorney General Tom Miller, who is heading up the states' probe, issued a statement saying a settlement from the OCC would not derail the AGs pursuit of its own deal with the banks. "While it is unfortunate that the OCC may be heading toward a path of working outside and independently of other federal agencies, state attorneys general, we will continue our efforts to the fullest extent possible," Miller said.

Those threats will keep gumming up the foreclosure process and could keep the housing market's recovery in a holding pattern. Foreclosure tracker RealtyTrac reported that foreclosures in February 2011 were down 27 percent from the same month last year, in large part due to legal uncertainty.

CONSUMERS CAUGHT IN MIDDLE

An independent settlement from the OCC would likely be smaller in scope than a deal envisioned by other U.S. authorities that would have forced banks to pay about $20 billion -- which would be used in part to help struggling homeowners -- and agree to reduce loan balances to keep borrowers in homes.

The OCC settlement is expected to do little to help struggling homeowners, millions of whom are facing mortgages worth more than their homes.

The banks, the regulators and the attorneys general are all in a big piddling contest and that leaves consumers in the middle getting wet," said Tony Plath, a banking professor at the University of North Carolina at Charlotte.

Analysts said multiple settlement agreements issued by federal and state authorities would also be the worst-case scenario for the largest U.S. banks, who would have to deal with a deluge of legal threats and reforms.

"The banks would rather their multiple regulators come together and coordinate, but it just seems like that's not happening," said Jefferson Harralson, a bank analyst with Keefe, Bruyette & Woods Inc.

GROWING TENSIONS

The OCC's potential split is the latest symptom of the contentious, politicized debate about how best to fix the U.S. mortgage market and who should bear the losses for millions of foreclosed homes nearly five years after the housing market began to collapse.

In a sign of growing tensions among the authorities, on March 3, state attorneys general sent banks aspects of a proposed settlement endorsed by some federal agencies, but not the OCC or the Federal Reserve, the main banking regulators involved in the discussions.

The 27-page document proposed changes to how the mortgage servicing industry operates and advocated reducing loan balances for struggling borrowers as a way to help them avoid foreclosure.

Republican lawmakers and some state attorneys general have slammed that 27-page document, calling it an abuse of power.

A separate settlement from the OCC is also an example of the tense history between state attorneys general and the national bank regulator.

In 2005, the OCC sued then-New York Attorney General Eliot Spitzer, alleging Spitzer's office was interfering with the regulator's oversight of banks after he attempted to request bank records for review of potential anti-discrimination law violations.

At the time, Spitzer called the suit "shameful" and one that was designed to shield banks from state scrutiny.

Later that year, a New York federal court judge issued an injunction barring Spitzer from reviewing banks' records.

Analysts said the possible settlement is the latest step in that regulatory fight.

"This is the OCC trying to take this issue back into Washington and take some of the steam away from the states," Plath added.

(Reporting by Joe Rauch and Dave Clarke; editing by John Wallace, Gary Hill and Andre Grenon)

Florida lawyer David Stern ends foreclosure law practice

(Reuters) - A prominent Florida lawyer accused of mishandling many foreclosure cases in that state is shutting down his foreclosure law practice at the end of the month, a regulatory filing shows.

The decision by the lawyer, David Stern, was announced by DJSP Enterprises Inc, a company he once ran and which calls itself the main customer of the Law Offices of David J. Stern PA.

DJSP said it expects to receive no further referrals from Stern. The company, whose businesses have included processing, servicing and title operations, has already laid off much of its workforce.

A lawyer for Stern did not immediately respond to a request for a comment on Monday.

DJSP shares traded down 7 cents, or 29.2 percent, at 17 cents in morning trading on the Nasdaq, after falling as low as 15.5 cents. They traded as high as $13.65 last April.

Stern's firm is among several being investigated by the office of Florida Attorney General Pam Bondi over whether documents they submitted in foreclosure cases were defective.

Major mortgage companies, including Fannie Mae and Freddie Mac, stopped doing business with Stern.

Florida media last month said Stern was trying to sell some luxury assets, including homes and a yacht, worth millions of dollars. He resigned as chief executive of Plantation, Florida-based DJSP in November.

(Reporting by Jonathan Stempel in New York, editing by Maureen Bavdek and John Wallace)

Banks could face billions in fines over foreclosures

By Vicki Needham

Two of the nation's largest banks may face billions in potential fines or enforcement actions from state and federal regulators over allegations of improper foreclosure paperwork.

Wells Fargo & Co. and Bank of America say they're being investigated by several government agencies over their foreclosure practices.

Regulators could seek upward of $20 billion in penalties for problems with the foreclosures, which would come from the Treasury Department and Department of Housing and Urban Development, is still in the works, according to several news reports.

In a filing with the Securities and Exchange Commission, Wells Fargo said the investigations are centered around whether the bank violated fair-lending laws and followed proper procedures with its foreclosure affidavits.

"With regard to the investigations into foreclosure practices, it is likely that one or more of the government agencies will initiate some type of enforcement action against Wells Fargo, which may include civil money penalties," the company said in its filing. "Wells Fargo continues to provide information requested by the various agencies."

The bank also said there are seven class-action suits and several individual-borrower actions have been filed against it, which focus on problems with foreclosure paperwork, which could lead to losses as high as $1.2 billion.

"Specifically, plaintiffs allege that Wells Fargo signers did not have personal knowledge of the facts alleged in the documents and did not verify the information in the documents ultimately filed with courts to foreclose," Wells Fargo said in the filing.

Bank of America also said the investigations could lead to “significant legal costs,” according to its annual report to the SEC.

U.S. House Republicans Move to End Foreclosure Aid Programs

By Phil Mattingly

U.S. House Republicans plan to move forward with bills that would end anti-foreclosure programs put in place by the administration of President Barack Obama, saying they are doing more harm than good.

The House Financial Services Committee will consider bills next week to terminate four mortgage assistance programs, including the Treasury Department’s Home Affordable Modification Program, or HAMP.

“In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners,” Representative Spencer Bachus of Alabama, the chairman of the panel, said today. “These programs may have been well-intentioned but they’re not working and, in reality, are making things worse.”

While the Treasury Department reported that more than 30,000 homeowners permanently lowered their mortgage payments in December as participation in HAMP accelerated, the program has failed to reach Obama’s goal of helping 3 million to 4 million homeowners avoid foreclosure. Troubled borrowers continue to fall out of the program at a faster rate than they join. A total of 58,020 loan modifications had been canceled through December, according to the Treasury.

“While we cannot prevent every foreclosure, it is important to remember that these programs have helped to create more options for affordable and sustainable assistance than have ever been available before,” Tim Massad, the acting assistant Treasury secretary for financial stability, said in a Jan. 31 statement on the program.

‘Anemic’

The results have been criticized by housing advocates, lawmakers and watchdog groups, including Neil Barofsky, special inspector general for TARP, who in a January report, called the results “anemic” and “remarkably discouraging.”

Republican Representatives Jim Jordan of Ohio and Patrick McHenry of North Carolina last month introduced the bill to terminate HAMP.

The panel also will mark up bills that would terminate the Federal Housing Authority Refinance Program, funding for the Emergency Homeowners Relief Program and the Neighborhood Stabilization Program.

Lawmakers in the Democrat-controlled Senate have not introduced companion legislation.

Foreclosure Mediators: Banks Pushed Us to Fail

By KIMBERLY MILLER

Palm Beach Post Staff Writer

Florida's Supreme Court sought a foreclosure lifeline in forcing banks and borrowers to mediation. It was hoped a judicial referee could help unclog court dockets and free struggling borrowers.

But in documents obtained by The Palm Beach Post and described in a recent court order, mediators complain lenders and their attorneys are stifling the system by pressuring negotiations to end in a stalemate.

In some cases, mediators report that deals were struck for trial payment plans or to seek a loan modification, but that banks or their attorneys asked for the meeting to be recorded as an impasse.

The motive for a deadlock, homeowner advocates say, is money. Declaring a different outcome stalls the process and could mean a return to mediation if an agreement falls through. At the same time, several of the state's large foreclosure law firms also run title companies, which can pick up business when a home is repossessed.

An estimated 350,615 foreclosures clog Florida courts. Many experts argue it is not until those cases clear that Florida's economy and real estate market will rebound. The mediation program, which is only for homesteaded properties, was designed to reduce judicial workload and give borrowers a chance to save their homes.

More than a year after mediation became a required step, however, barriers including the impasse complaints and trouble contacting borrowers have limited the program's success.

A December report on seven of Florida's 20 circuit courts found just 6 percent of homeowners referred to mediation left the negotiating table with an agreement. One mediation management company says that agreement rate is lower than reality because of how mediations are tallied.

The program has seen similar results in Palm Beach County. Between July and September, 1,949 foreclosures were referred to mediation. Of those, 152 mediations were conducted, with 27 ending in a written settlement.

"Settlement in these cases is not in the economic interest of the foreclosure law firms or servicers handling the foreclosures," said Boca Raton foreclosure defense attorney Ron Kaniuk of Ricardo, Wasylik & Kaniuk. "The law firms not only do the foreclosure work, they do the evictions and the bank-owned home sales and the title work, so if they modify a loan, if they come to a settlement and the foreclosure case ends, their work ends."

According to state business records, at least three of the law firms facing inquiry or investigation by the Florida Attorney General's Office are directly tied to title companies. Kahane & Associates in Plantation, the Law Offices of Marshall C. Watson, and the Law Offices of David J. Stern have title agencies with the same registered agents and same operating addresses.

The attorney representing Stern said he had no comment for this story. The other firms did not respond to messages.

In November, the state Supreme Court changed the reporting form used by foreclosure mediators by removing the option for impasse. The new form allows for three endings : a partial or full agreement, no agreement or adjournment. An adjournment leads to a follow-up mediation, which is scheduled on the spot at no extra cost. Mediations cost $750 and are paid for by the lender.

Because mediations are confidential, detailed accounts of the meetings are forbidden.

The court gave no explanation for the change, noting only that "some managed mediation programs have reported that mediators have been pressured to report an impasse of mediation when an adjournment would be appropriate."

Similar concerns also were included in a September memo to Chief Justice Charles T. Canady from the state courts administrator. She wrote there had been complaints of bank attorneys halting mediations by requiring documents beyond what is required in the Supreme Court order.

Shari Olefson, a Fort Lauderdale real estate attorney who represents banks, agreed that it's in the best interest of the bank to get an impasse if a written agreement can't be reached.

"The lender knows unless they are actively foreclosing that time is on the side of the borrower," Olefson said. "The borrower will ask for another six months to sell the property, but they're not paying the mortgage in those six months."

Olefson blames disorganization and lack of communication between lenders and their attorneys for some of the problems with mediation. Paperwork gets lost, young attorneys who aren't handling the daily dealings of the case are assigned to mediate it, and bank representatives may not have authority to do much negotiation. But borrowers are also culpable, she said.

"The whole mediation system is so people feel they are being given a shot to be heard," Olefson said. "Not all banks are horrible, and maybe the homeowner made mistakes and shouldn't stay in the house."

Lisa and Mitchell Glogower of Jupiter know they've made financial missteps. Mitchell, a chiropractor, retired in 2000 and later lost big in the stock market. A refinanced mortgage put them further in the hole, and now Mitchell is having trouble finding a well-paying job. Lisa's salary as a second-grade teacher isn't enough to pay the mortgage.

The couple had hoped a September foreclosure mediation would lead to a loan modification. They were wrong.

"We figured OK, finally, people want to help the homeowners, but that was not the case," said Lisa Glogower, whose foreclosure was handled by the Marshall C. Watson firm. "I got the impression the mediation was just a set of questions they had to ask and we answered. It was not individualized. It was cut and paste."

And it was declared an impasse.

The Glogowers' home is scheduled to sell at foreclosure auction March 14.

Mediation numbers

Palm Beach County's required foreclosure mediation program began in July, although judges could order cases to mediation before that.

1,949 cases referred between July and September

453 borrowers were reached

212 mediations scheduled

152 mediations held

14 borrowers failed to appear at mediation

3 lenders failed to appear at mediation

27 written agreements were made at mediation

125 mediations closed without agreement

217 cases still pending

Source: Palm Beach County Bar Association

Silicon Valley real estate: Foreclosure lull ends in Santa Clara County

By Pete Carey

After a two-month lull because of a national paperwork scandal, foreclosures in Santa Clara and San Mateo counties in January returned to levels that have prevailed since 2008, indicating the crisis will continue this year but also putting more low-priced homes on the market.

Last month's increase in foreclosures may be followed by bigger increases in the next few months, according to some real estate professionals.

In Santa Clara County in January, 398 home were either repossessed or sold by lenders to third-party buyers, a nearly 70 percent jump from the month before, according to real estate information service ForeclosureRadar. San Mateo County had 160 foreclosures in January, a 75 percent jump from December.

But the slide into foreclosure can be a long one. According to ForeclosureRadar, it takes an average of 292 days from the time a bank files a notice of default to the actual sale of a home on the courthouse steps.

Ingeborg Dale, 77, an artist who is dealing with diabetes, heart problems, cancer, arthritis and an impending foreclosure, said her son hasn't been able to make a payment on her Santa Clara townhouse for a year and a half. She let him take out a loan on her home, which she has lived in since 1963 and which was paid off at the time.

"He lost his job, got a heart attack and four ulcers. With no job, he can't afford to pay. They tell me they are selling it March 18," she said.

'Very frightening'

"It is very frightening when you are my age," she added. "I have quite a few friends willing to give me a room, but I have two little dogs. They are my children."

Dale said she is working with Project Sentinel, a nonprofit housing counseling agency in Sunnyvale. "It was supposed to be foreclosed on Jan. 12, but they got it stopped until March 18," she said.

While foreclosures come with the pain of someone losing their home, the houses that end up on the market can offer first-time buyers a crack at homeownership.

"This will give us some fresh inventory of low-cost homes come this spring," Sean O'Toole of ForeclosureRadar said of the January increase. "That's good and could help home sales. It's not going to be a lot, because the volumes aren't that high, but this back-to-bank inventory tends to be pretty popular among buyers."

According to ForeclosureRadar, in January there were 2,420 bank-owned homes in Santa Clara County and 3,900 others in which the banks have told the owners the home is to be auctioned. In San Mateo County, 1,116 homes are owned by banks and 1,459 others are scheduled for sale. More than 5,500 homeowners in the two counties have fallen three or more months behind on their mortgage payments.

For auctioned homes, the winning bid was an average $400,000 in Santa Clara County and $458,000 in San Mateo County, according to ForeclosureRadar.

The increase in foreclosures brings them back to about where they were at the end of last summer, before "robo-gate" -- a scandal over bank paperwork -- caused major lenders to halt foreclosures. O'Toole said an expected backlog of two months of delayed sales has not materialized.

"I wouldn't sound an alarm over these increases," O'Toole said. "It's really just stuff returning to normal."

Homes to hit market

Even so, thousands more homes are waiting to hit the market. "There is a crazy number of people we're talking to that are over 12 months behind on their mortgage payments that have not been foreclosed on yet," Dominic Nicoli of Intero Real Estate said. Nicoli does foreclosure sales for several major lenders, including Bank of America.

"We had not gotten any new listings in three months and we got two last week," Nicoli said. "They are definitely accelerating evictions."

While banks are foreclosing on properties again, it's still a smallish part of the overall market for homes, said Richard Calhoun of Creekside Realty in San Jose.

Calhoun said foreclosure resales are normally about 15 percent of homes sold in Santa Clara County, although that increased to 24 percent in January.

Foreclosure attorney Stern selling Hillsboro Beach estate properties - and perhaps a super yacht

Luxury assets are worth tens of millions

By Peter Franceschina, Staff Writers

In yet another sign that times are tougher for Plantation foreclosure attorney David Stern, he is looking to unload luxury assets worth tens of millions, including two estate properties on Hillsboro Beach that stretch from the Intracoastal to the blue waters of the Atlantic and what is believed to be his Italian-built super yacht.

Stern, 50, made a fortune by building Florida's largest foreclosure legal practice, with an army of attorneys and more than 1,000 employees processing paperwork for repossessions throughout the state.

He received a $58.5-million payout last January when he took his paperwork operation public and the new company, DJSP Enterprises, began trading on the Nasdaq stock exchange. He collected expensive properties, Ferraris and other luxury cars, and two jets.

But his law firm and DJSP have been battered in recent months by reports that his firm relied on fraudulent documents generated by the paperwork processors, and the firm is one of seven currently under investigation by the Florida Attorney General's Office for alleged document irregularities.

Major banks stopped doing business with him, lawyers quit his firm and DJSP laid off its workers by the hundreds. The company had only approximately 50 employees remaining as of last notice.

What is reported to be Stern's 130-foot yacht, Misunderstood, is listed for sale for $18 million at The Yacht & Brokerage Show on Miami Beach. The side-by-side properties on Hillsboro Beach are listed for a total of nearly $20 million. And a vacation chalet outside the ski-resort town of Vail, Colo., has been for sale for $6.9 million since last year.

Miami attorney Jeffrey Tew, who represents Stern, said he had no knowledge about the assets being listed for sale. "I can't comment on it," Tew said Friday. "It's private business, not a legal matter."

Even if Stern sells those assets, he still will own a $15-million, 16,000-square-foot mansion on the Intracoastal in Fort Lauderdale and a 9,000-square-foot penthouse condominium valued at $5.9 million atop the Ritz Carlton on Fort Lauderdale Beach.

The Mangusta yacht, which used to be berthed at Stern's Intracoastal mansion in Fort Lauderdale, was built in 2009. An online listing reads: "Immaculately maintained by a careful owner, this superyacht accommodates eight guests in four cabins and cruises at 32 knots, powered by twin 4610hp MTU engines. Available to view at the Miami Yacht Show, Misunderstood is asking $18 million."

The Misunderstood is the centerpiece of the opulent sales pavilion at the yacht show for Overmarine, the Italian company that produces the Mangusta line, even though her sale is being handled by brokerage company Camper & Nicholsons International in Fort Lauderdale, which has its own space at the show. Overmarine has placed white, modern sofas on the dock immediately behind Misunderstood, and requires guests to check their bags and take off their shoes before boarding for a tour.

Inside, the boat features four staterooms paneled in finely grained wood, each with its own marble trimmed bathroom. There is an exercise room, with two treadmills, and a separate marble-topped bar on the rear deck. Two large compartments in the stern, flanked by twin staircases that descended to the rear platform, house cinnamon-colored personal watercraft.

One of the Hillsboro Beach properties is vacant land, but it is listed for more than the neighboring property with an oceanfront home because the empty lot is significantly larger. The land is listed for $9.9 million,about $1 million more than Stern paid for it in September 2008, records show.

Its listing online reads, "The trophy of all South Florida! Deep lot on Hillsboro Mile, the most amazing ocean-to-intracoastal estate property. No wake zone at the mouth of Hillsboro Inlet, a yachtsman's dream. Build your dream estate!"

The two-story home next door meaasures 5,300 square feet and has four bedrooms and four bathrooms. The listing says the owner will consider offers between $8.9 million and $10.5 million. Stern paid $8 million for the home two days after buying the neighboring property, records show. Taxes on both properties run more than $120,000 a year apiece, and they were both listed for sale in late November.

The listing calls the home, "One of the Largest & Most Amazing Ocean to Intracoastal Estates in All of South Florida! Hampton-like oceanfront home with 100 ft. on the beach and buildable guest house on the Intracoastal. Spectacular private tennis court, resort-style pool, patio with pavilion. Private dockage for large yacht on ICW NO-WAKE Zone."

The home outside Vail is owned by Stern's wife, Jeanine, and the listing price was dropped by $1 million in September. It is 8,300 square feet and has six bedrooms and seven bathrooms. The master bath has a stone fireplace. Jeanine Stern bought the home for $5.9 million in December 2001, records show.

Its listing reads, "The time is now and it's priced to sell! Ideal location, floor plan, and slope views. The perfect meshing of mountain rustic charm and family function. The main level is wonderfully open from the kitchen & hearth room to the great room and dining area. An extraordinary master bedroom suite includes two fireplaces, expansive his/her vanities & closets and a deck with slope views."

U.S. Regulators Target Loan Servicers to Fix Foreclosures

By Prashant Gopal and Lorraine Woellert

TMortgage modification events may be held more often as loan servicers try to cut the number of foreclosures.

U.S. mortgage servicers face a new era of tighter oversight as regulators seek to cut the number of botched foreclosures and increase loan modifications for struggling borrowers.

The industry, which oversees $10.6 trillion in loans, has been overwhelmed by more than 3 million foreclosures since 2006. The housing-market collapse exposed failures — in the way servicers are paid, track loans and process property seizures — that threaten to stall a fledgling rebound in prices and sales.

“If we fail to act decisively now to deal with the foreclosure crisis, we risk triggering a double-dip in U.S. housing markets,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in a Jan. 19 speech to mortgage-industry executives in Washington. “The problem is serious, and the need for action is urgent.”

Changes being studied include a new fee structure for servicers, independent reviews of rejected requests to ease loan terms and a fund to compensate victims of improper foreclosures, according to Bair and other federal and state regulators. Lawmakers have proposed reining in the privately run Merscorp Inc., even as the company says it could serve as a national mortgage registry.

While regulators are in the early stages of their work, any changes probably will raise the cost of servicing loans, which would mean higher costs for homeowners. The reforms are in part a response to a long list of court cases that showed banks trying to foreclose using shoddy documentation or without being able to demonstrate they had the standing to do so.

Competing Foreclosures

Until last week, Jacqueline Yulee was defending her Jacksonville, Florida, home against foreclosure by two banks, each claiming it owns the $213,750 mortgage she signed on Halloween in 2003.

Wells Fargo & Co., based in San Francisco, filed its complaint against the 58-year-old insurance agent on April 14, more than a year after Minneapolis-based U.S. Bancorp started its proceedings. The companies are trustees for investors in two separate mortgage pools, and her loan couldn’t be held by both at the same time. Last week, after being asked about the dueling foreclosures, Wells Fargo withdrew its lawsuit.

The second suit shouldn’t have been filed, said Ron Bendalin, general counsel at Irving, Texas-based Vantium Capital Inc., whose Acqura Loan Services business is servicing the mortgage for Wells Fargo. The loan was sold to the Wells Fargo trust on Feb. 3, 2010, and the trust should have replaced the plaintiff in the first case, he said.

“I think we put too much trust in banks,” said Yulee, who stopped paying her mortgage two years ago after losing a previous job. “We assume they know what they’re doing.”

Overreaction Feared

The Mortgage Bankers Association, the industry’s Washington-based trade group, is seeking a role in developing new rules and has put together a panel of executives to study proposals, Chief Executive Officer John A. Courson said.

“Anytime you see a situation like this it will typically result in regulation and oversight,” Courson said in an interview. “All of us agree the process would need improvement, but what you don’t want to do is overreact.”

Servicers collect monthly mortgage payments, and may modify or foreclose on a loan in a default. They often don’t own the loans they are servicing. The four biggest companies by portfolio size — Bank of America Corp., Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. — service about half of home loans by value, according to data from news website Mortgagedaily.com.

Industry revenue is based on the size of the loan, not the cost to manage. That means servicers make less money on delinquent or defaulted loans, which are more expensive to administer.

Foreclosure Incentives

Servicers have an incentive to push for foreclosure, which can generate additional fees, and they also can charge borrowers when they are late making payments, giving them a reason to delay loan modifications. Accounting rules allow banks that foreclose to hold off writing down any loss until the home is sold. They must take the loss immediately when allowing a sale by the owner for less than value of the mortgage.

While the flat-rate fee system worked when the market was rising, it failed during the meltdown, Federal Housing Administration Commissioner David Stevens said in an interview. One alternative would be to impose fees that vary with the cost of servicing a loan, he said.

“Servicers’ lack of reserving appropriately and not creating infrastructure to manage nonperforming markets like the kind we’re in is inexcusable,” Stevens said. “You cannot overstate the concern” among regulators that the industry doesn’t have enough capital, he said.

The FHA can impose triple damages on servicers that violate its rules on handling foreclosures.

Bair’s View

The FDIC’s Bair is also calling for variable fees.

Banks, which are typically paid 0.25 percent of the principal balance to service a loan, “created perverse incentives to automate critical servicing activities and cut costs at the expense of accuracy, reliability and currency of loan documents and information,” she said in written testimony for a Senate hearing last month on housing.

Bair this month proposed giving borrowers the right to an independent, third-party appeal of requests to modify loan terms when they have been denied. She also suggested that servicers fund a foreclosure commission — modeled after the one formed to distribute money to victims of BP Plc’s Gulf of Mexico oil spill last year — to resolve borrower complaints.

Disagreement on Timing

Edward DeMarco, acting director of the Federal Housing Finance Agency, on Jan. 18 directed Fannie Mae and Freddie Mac to work with the Department of Housing and Urban Development to consider alternatives to flat servicing fees.

Fannie Mae and Freddie Mac,the two largest mortgage- finance companies, were taken over by the government in 2008 and are overseen by the FHFA. New rules wouldn’t be implemented until mid-2012 at the earliest, DeMarco said in a statement.

The U.S. Treasury Department endorsed DeMarco’s approach, while Bair said more rapid change is required. She wants to include new mortgage-servicing standards in risk-retention rules required by the Dodd-Frank Act that are being written now, a position that puts her at odds with the mortgage industry. She has support from consumer groups and state regulators including New York Banking Superintendent Richard H. Neiman.

Flawed Files

Regulators stepped up their scrutiny of the industry after evidence emerged in court cases of bank employees and contractors submitting hundreds or thousands of affidavits weekly to support foreclosures without proper review. The so- called robo-signers were papering over a bigger problem: loan files marred by erroneous, incomplete or missing information, according to Thomas Adams, a partner at New York-based law firm Paykin Krieg & Adams LLP and former executive at bond insurers Ambac Financial Group Inc. and FGIC Corp.

Shortcomings have included promissory notes or mortgages that are missing or not properly assigned or endorsed as securitized loans are bought and sold. Maintaining an accurate chain of title is crucial because it shows who has the right to foreclose when the loan goes into default, Adams said.

“They didn’t bother to document all the traveling,” Adams said. “To foreclose they had to fill in all the steps that happened three years earlier.”

Agencies including the Federal Reserve and FDIC began investigating the industry in September, more than three years after foreclosures started to surge. All 50 state attorneys general announced their own probe the following month.

Iowa’s Miller

The attorneys general, who initially began investigating the use of robo-signers, have said they plan to address the loan-modification process in settlements with major servicers. They may push to bar foreclosures when borrowers are already seeking modification and to create a fund to compensate victims of wrongful foreclosures.

Iowa Attorney General Tom Miller said in an interview this month that additional issues, such as whether borrowers are being charged appropriate fees, may be included in any settlement.

Michael Waldron, a partner at Washington-based lobbying firm Patton Boggs LLP, which has represented mortgage companies in meetings with the attorneys general, said state officials will get the most immediate and “impactful reform” because they can seek sanctions such as fines.

“There will be reform through investigation and findings,” Waldron said. “Some of those will result in settlement agreements with monetary penalties of significance.”

MERS Role

While regulators are focused on servicers, U.S. Representative Marcy Kaptur has proposed legislation to curb the role of Merscorp, the Reston, Virginia, company formed in the mid-1990s by the industry to track servicing rights and beneficial ownership of loans. Many large servicers log the changes on the private database run by its Mortgage Electronic Registration Systems Inc. unit rather than filing mortgage assignments with county records offices. The system has allowed the industry to save at least $2 billion in filing fees.

Kaptur, a Democrat from Ohio, introduced a bill in November to prohibit Fannie Mae, Freddie Mac and Ginnie Mae from owning or guaranteeing any mortgage for which MERS is the mortgagee of record. The House didn’t act on the legislation, and Kaptur plans to push it again this year.

Diverging Views

Consumer advocates have said that MERS, which has 60 percent of newly originated loans on its system, masks the real owner of a loan and is subject to lapses and mistakes because it isn’t authoritative or transparent. Judges nationwide have issued diverging opinions on whether MERS can act as the nominee, or agent of the lender on the mortgage.

“For the first time in the nation’s history, there is no longer an authoritative public record of who owns land in each county,” Christopher Peterson, a University of Utah law professor, wrote in a recent paper on the electronic-tracking system.

In a statement, MERS said there has never been a requirement that assignments be filed with local land offices and that its system shows the beneficial owner of loans.

MERS was designed to “build upon and supplement, but not displace, the existing public land-record system,” the company said in the e-mailed statement. “The MERS process creates accountability and transparency, helps keep costs low, reduces the risk of errors in record-keeping and makes it easier to keep track of the lien if a loan is sold to other banks and investors.”

National Registry

Kaptur’s bill includes a proposal for a HUD study of changes including the feasibility of a federal title-recording system for property transfers. MERS says it could provide such a national system.

MERS could be “harnessed by Congress and the industry to improve the mortgage finance system,” R.K. Arnold, its president and CEO, told a House subcommittee in November. Arnold retired this month.

All residential home loans should be tracked on a national database that would include the name of the borrower and servicer, the location of the property and the owner and physical location of the promissory note, he said.

Regulators waited too long to address the servicing industry’s failures, said Julia Gordon, senior policy counsel in Washington for the Center for Responsible Lending, which seeks to prevent abusive financial practices. The volume of foreclosures, the dual role of banks as servicers and lenders, and complaints by consumer advocates should have prompted an investigation years before the robo-signing scandal, she said.

Consumers or Banks

The Office of the Comptroller of the Currency, which has long had full-time examiners onsite at large banks, relied on the firms’ internal controls and audits to ensure federal and state foreclosure laws were being followed, Bryan Hubbard, a spokesman for the agency in Washington, said in an e-mail.

“The dependence on internal audits and controls failed to identify these issues as the volume of foreclosures increased rapidly during the past few years,” Hubbard wrote.

Kurt Eggert, a professor at the Chapman University School of Law in Orange, California, said it isn’t clear whether regulators will make changes that benefit consumers.

“My fear is they’re going to see how they can fix this to save the banks rather than fix it so borrowers aren’t abused by servicers,” he said.

More Foreclosures Headed To Market In 2011

Fannie Mae and Freddie Mac have a huge inventory

Mark Huffman | ConsumerAffairs.com

The recent report that foreclosure filings hit a record high 2.9 million last year might lead you to believe that the worst is over. Especially since the monthly foreclosure totals began to fall late in the year.

But that might be a misreading of the data, analysts say. Foreclosure actions fell late in the year, in large part, because banks slammed on the brakes in the wake of the robo-signing scandal. The pace could pick up again in 2011 -- with a vengeance.

RealtyTrac, the private firm that tracks and markets foreclosures, predicts buyers will have plenty of opportunities to snap up bargain-priced foreclosures in the coming year. The reason?

A large number of foreclosed homes, owned by Fannie Mae, Freddie Mac and HUD, are headed to market. Not only are the prices low, but the owners are also throwing in incentives, like preferred financing.

"The cherished account right now is Fannie and Freddie," said Tom Moon, a Fannie Mae and Freddie Mac approved broker with Pacific Moon Real Estate in Orange County, Calif. "Any broker would like to have Fannie and Freddie because they seem to have the most properties right now."

Fannie and Freddie properties tend to be lower-priced, entry-level housing that, when it goes up for sale in a foreclosure, is priced even lower. RealtyTrac notes that, in the hard-hit housing market of Orange County, Calif., that's what is attracting the bulk of active buyers.

Second quarter reports from Fannie and Freddie show the two government sponsored enterprises (GSEs) are acquiring real estate owned (REO) properties through foreclosure at a significantly faster pace than overall growth in REO activity based on RealtyTrac data.

Fannie Mae took ownership of 68,838 REO properties in the second quarter of 2010 -- an increase of 114 percent from the second quarter of 2009 -- and Freddie Mac took ownership of 34,662 -- a 58 percent increase from the previous year.

That compares with a 38 percent in REO activity during the same timeframe, according to RealtyTrac.

Then there's HUD, which acquired more than 23,000 foreclosed properties through sour FHA loans. The result, analysts say, is a large inventory of homes with a very motivated seller -- the U.S. Government or a GSE.

If the foreclosure tsunami hasn't yet peaked, it could mean another tough year for those trying to sell a home, but even better selection of bargains for buyers.

Foreclosures Boost Commercial Real Estate Sales

With tighter credit demands from lenders and an oversupply of available properties, sales of commercial real estate in Pensacola continue to be sluggish at best.

Still, in overall dollar value, the top 10 commercial sales in 2010 doubled those of 2009 — totaling about $60 million compared to the previous year's $27 million.

Leading the way in commercial sales are properties that have been foreclosed upon.

"We are doing a lot of work in that area, with multi-family residential leading the way," said Justin Beck of Beck Property Co. "It's easiest to get financing these days for multi-family properties."

Three entities of J.I. Kislak Inc., of Miami Lakes, paid a total of $11.5 million cash for three apartments that went into foreclosure last year and were owned by Miami-based Ocean Bank.

The three, with a total of 481 units, are:

• Villas at Jasmine Creek on East Nine Mile Road. It was purchased for $6.5 million, down from $14 million at the last sale in 2006.

• Villas at Jasmine Park on North Ninth Avenue. The cost was $2 million.

• Villas at Jasmine Fields on West Fairfield Drive. It was purchased for $3 million, less than half of the $6.5 million purchase price in 2006.

"We own the Ashley Club and Arbor Club apartments in Pensacola and have been operating them successfully," said Thomas Bartelmo, the president and CEO of J.I. Kislak. "So, we are very familiar with the market there and had been looking for opportunities to buy distressed properties. We feel like we got the three properties at a price where we can make some money."

Two of the three apartment complexes only are 50 percent occupied, Bartelmo said. But he believes with renovations, effective marketing and management, those numbers will improve.

He also said the company's investment in Pensacola will be a significant shot in the arm to the area's economy.

"We have all types of work to do there at those three properties, including roofing, asphalt, interior renovations," he said. "We're negotiating with various local vendors now, and at the end of the day, we will be putting a lot of people to work."

Market Still Struggling

Despite the investments made over the past year by J.I. Kislak Inc. and other national firms, commercial market sales still have a long road to recovery, according to local brokers.

Eight of Escambia County's 10 largest commercial sales in 2010 were to companies based in South Florida, Minnesota, Georgia, New York and Washington, D.C.

"There is still very little liquidity in the commercial marketplace," said John Griffing, owner of NAI Halford in Pensacola. "We are continuing to have some success with the leasing end of our business, but sales are different."

He said banks are generally lending only to those borrowers who actually are using at least half the property they intend to buy, not to investors.

"Users are the only buyer types who we are seeing have any success in borrowing money," Griffing said. "As far as speculative buyers, they are finding it very difficult to get the money to leverage deals."

He said the market also still is hamstrung by buyers waiting for already depressed commercial property prices to decline even further.

"We are seeing some interest in vacant commercial land, but the potential buyers are not quite pulling the trigger," he said.

Foreclosures CarrySales

Metro Market Trends President Al Muller said the commercial sales market over the past 12 months has been similar to the residential market — dominated to a large extent by foreclosures and short sales.

"The commercial guys I've talked to lately are doing many more leases than sales," he said. "These days, you can negotiate a lease for commercial property, and if you're not certain where the market is headed, it's a good way to go."

Beck said the Pensacola market must work its way through the inventory of distressed commercial properties before the overall market regains momentum.

For the commercial market to really get rolling again, he also said, sellers must start putting more attractive numbers on the table for investors.

"On the buy side of commercial properties in Pensacola, there is still an enormous chasm between buyers and sellers. Sellers have got to get more realistic on prices," he said.

"Nobody I talk to these days thinks there is going to be a major ramp-up or fast recovery in the market. I think we're going to see slow growth for a long time, and this will be the 'new normal' for the commercial market."

Massachusetts Foreclosure Ruling Threatens Mortgage Handling

The Supreme Judicial Court in Massachusetts made a pivotal ruling on Friday against U.S. Bancorp (NYSE: USB) and Wells Fargo (NYSE: WFC) in a mortgage foreclosure case. The higher court confirmed the lower court's ruling which invalidated several foreclosure sales because proof of mortgage ownership was not clear.

"This decision is going to raise serious problems in hundreds of thousands of foreclosure cases," said homeowner-defense attorney Thomas Cox, a Maine attorney. "It has the potential to require that foreclosures be done over, and I think there's going to be significant turmoil nationally. There's going to be major uncertainty."

Offering another view, American Home Mortgage Servicing, based in Coppell, Texas, said that the "decision is of limited applicability because it is based on law that is unique and specific to Massachusetts. The decision does not extend to foreclosures in other states." Perhaps not yet, but perhaps a precedent has indeed been set.

The confusion of ownership is a result of the transference of assets into mortgage-backed securities. Wells Fargo and U.S. Bancorp argued that securitization documents provided sufficient evidence proving that they owned the mortgages before the foreclosure sales occurred. The court deemed this insufficient. As foreclosures are rampant, implications of this ruling are widespread. What will happen to those who purchased homes in foreclosure?

The ruling in the case dictates that "any mortgage foreclosure which was initiated by a securitized trust at a time when the trust had not obtained a mortgage assignment which gave it the lawful right to do so is void," according to Paul Collier III, an attorney representing a homeowner in the case. The homeowner who was evicted still technically owns the home, according to the ruling.

Today, traders will be looking at Financial Select Sector SPDR (NYSE: XLF) to see the market impact of this ruling. XLF already took a dip early Friday from $16.42 to $16.04, before a correction to $16.22 at close. Of further interest will be individual banks, such as Bank of America (NYSE: BAC), which is down almost 1% in pre-market trading. JP Morgan Chase (NYSE: JPM), U.S. Bancorp (NYSE: USB), Goldman Sachs (NYSE: GS), took a similar dip alongside the financial ETF XLF.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Home foreclosures are down, but people are still struggling to make their mortgage payments

Bank owned homes still pile up

S, foreclosures are rampant. But Florida and the Bay Area saw a sharp drop in new foreclosure filings by banks in January. It sounds like good news…until you talk to the experts.

Eddie Serralles is a jack-of-all real estate trades. He’s a real estate broker and agent, a mortgage broker and a general contractor working mostly in Ybor city and Tampa Heights.

“When I came to this market 20 years ago, there were so many abandoned homes and homes sitting vacant. It was a depressed market. It wasn’t good at all,” remembered Serralles. And he says it may be worse today, in part because banks are so slow to sell homes that are in foreclosure.

“The price keeps dropping, we keep on submitting offers and deals keep falling through and we keep making more offers and trying to cooperate with the lender. By the time they accept the deal, the buyer’s already gone and found another piece of property”.

Florida is one of five states along with California, Texas, Arizona and Michigan that accounted for more than half the foreclosures last month.

A new report shows the number of foreclosures in the Tampa Bay Area dropping by ten percent, but real estate consultant Peter K. Murphy of Home Encounter in Tampa believes that’s a temporary blip.

“We know for a fact that we have about eight months of foreclosure inventory on the market right now, but when you drive down the street and see a little sticker on someone’s window and no ‘for sale’ sign on the yard, that’s a property the bank is holding on to and not selling yet. And those are all over town,” said Murphy.

Banks are holding on to those properties because they don’t want to flood the market and drive prices down even more sharply. Experts expect a slow, gradual return to normalcy lasting four or five years.

But until then, there’s opportunity.

“When you can buy a piece of foreclosure real estate for a 53 percent discount from what a regular property sells for that’s an opportunity that every one of us should jump on board” said Murphy.

Tenants don't have foreclosure-act protections in short sales

Such a sale avoids completion of the foreclosure process. The new owner becomes a renter's new landlord and can decide to continue the tenancy or terminate it.

Question: I have rented a house for several years. The current owner told me that he is going through foreclosure. He says that he is about to conclude an agreement to allow a "short sale" of the property, which I understand allows the house to be sold for less than the amount of the mortgage. I thought there were special protections for tenants who are caught up in foreclosures. Are there any special protections for me if there is a short sale?

Answer: There is a federal law, the Protecting Tenants at Foreclosure Act, which gives additional rights to "bona fide" tenants living in a property that changes ownership due to a foreclosure. This law requires a minimum of 90 days' notice to month-to-month tenants after the foreclosure has been completed. Tenants who have a bona fide lease are entitled to remain until the lease expires.

These protections apply only after the foreclosure has been completed. In California, foreclosure is completed when a trustee sale has occurred, resulting in a new legal title to the person or company that purchased the property at the trustee sale auction. The current owner has no standing to control the trustee sale.

A short sale occurs as a result of a voluntary agreement among the current owner, the new owner and the lender, whose permission is required. The purpose of the short sale procedure is to avoid the trustee sale and find a new owner before the old owner's rights are extinguished by the trustee sale.

Unfortunately for you, this means that the additional protections of the foreclosure act will not be available to you because the foreclosure was never completed. The new owner taking title pursuant to the short sale becomes your new landlord and can decide to continue your tenancy or terminate it pursuant to the usual 30-notice period, or a 60-day notice period if you have been a tenant for more than one year.

BofA creates new unit, names foreclosure czar

Creation of a division to oversee problem home loans indicates that Bank of America, the largest U.S. mortgage servicer, is attempting to be more aggressive in resolving its portfolio of troubled loans.

Bank of America Corp appointed on Friday a new foreclosure and loan modifications czar, and created a new unit to oversee problem home loans in a bid to sort out its ongoing foreclosure issues, becoming the first large U.S. bank to do so.

The new unit creates a seventh major division at the bank reporting directly to Chief Executive Brian Moynihan, an indication that the largest U.S. mortgage servicer is attempting to be more aggressive in resolving its problem loan portfolio.

Analysts said the move is a signal that major U.S. mortgage lenders have not yet turned the corner on dealing with the problem home loans on their books.

"This is a significant step. If Bank of America has these issues, what kind of problems does everyone else have?" said Matt McCormick, a Cincinnati-based portfolio manager at Bahl & Gaynor Investment Counsel Inc.

The change splits the bank's mortgage business into two parts: one focused on current and new mortgages, and another dedicated to foreclosures and workouts.

Bank of America, the largest U.S. bank by assets, named Terry Laughlin to oversee the new unit, called legacy asset servicing. The division will have roughly 30,000 employees.

Laughlin, 56, is a former FleetBoston executive who joined the bank in July 2010 as a credit loss mitigation executive in the mortgage division.

The new unit will manage foreclosures and loan modifications, and will work to resolve mortgage repurchase claims from investors.

Last fall the bank temporarily suspended foreclosures after critics alleged the industry cut corners on foreclosure paperwork and used so-called robo-signers, employees who signed thousands of foreclosure notices without reviewing the documents.

Separately on Friday, the bank announced it was exiting the reverse mortgage lending business.

When will housing come back in California?

Five experts offer their views

Foreclosures in the state are still high. Sales of new homes are at historic lows. And millions of homeowners are underwater on their mortgages. So what's the outlook for 2011 and beyond?

As housing recoveries go, this one is in need of a cure.

Homeownership — and the buying and selling of residences — is an economic keystone that carries overwhelming weight in Californians' personal sense of financial well-being.

But the momentum of the state's housing rebound has faltered, with sales falling and prices softening despite bargain-basement interest rates. Foreclosures in California are still high. Sales of new homes are at historic lows. The construction sector is in the doldrums. And millions of the state's homeowners owe more on their mortgages than their properties are worth.

Real estate historically has helped give a boost to economies exiting a recession, but the severity of this bust is nearly unprecedented: Californians have lost $1.73 trillion worth of equity in their homes since prices peaked in 2007, according to Moody's Economy.com.

Although California's housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.

The Times asked five California experts for their take on the state of real estate and what they think is needed to get the housing market moving again. They range from the pessimism of a foreclosure specialist to the decidedly more upbeat view of a Realtor association economist.

• Richard Green, director of the USC Lusk Center for Real Estate, predicts home prices will remain flat in 2011.

California's recovery will hinge on location, said Green, who held professorships at several universities and worked as a principal economist at Freddie Mac before becoming director of the Lusk center.

"Draw a line from El Centro up to Sacramento and think of all the towns up and down that line. Unless we have hyperinflation in general in the economy — prices going up a lot — I would guess that in my lifetime we will not see a return to the prices that we had at the peak," Green said.

"Now, places like La Jolla, Malibu, Laguna, Huntington Beach, Atherton, Palo Alto, the city of San Francisco, Marin County, those are places where within the next five years I could easily imagine prices returning to their peak."

"The markets in the Central Valley were much more bubbly than the markets on the coast," he said. "You have very few people who make a lot of money in these places."

"Whereas a place like Silicon Valley, or a place like West Los Angeles, there is a critical mass of very high-income people.… That means you have a large number of people who can afford to spend in the neighborhood of $1 million on a house, and these are desirable places."

"The more a property is a commodity that you can easily substitute for something else, the less the chance it will ever come back to its peak. The rarer a property is, the more likely it's going to come back quickly."

• Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011.

There are few professionals who would like more to see the housing market bounce back to the heady days of old than Realtors. Real estate agents made a killing when the housing market soared and then took a pounding when it tanked.

During the boom years, Appleton-Young said, she espoused the theory that rising prices mattered more than making solid loans. That theory appeared correct as long as values kept rising.

"What happened this time was prices plummeted and everyone was in trouble," she said.

These days, the economist sees little chance of the market returning to its previous heights anytime soon.

"We are in a very slow-moving recovery with prices stabilized at the moderate and low end," Appleton-Young said. "We are still seeing price attrition and price softening at the upper ends of the market."

2011 will be lackluster, she said, but that does not mean California is not improving.

"We are almost two years into a price recovery. The problem is not to look at 2007 as the normal market that you are moving back up to, because it wasn't a normal market. We are back in an underwriting environment that actually makes sense."

"You are seeing prices recovering throughout the state," she added. "It is just going to take time."

• Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011.

The real estate slump has been good to Norris, an investor in foreclosed homes. But he believes the market is being artificially boosted by government programs and is set to fall further this year.

"We are in an artificial recovery," Norris said. "It's government controlled and manipulated. We have extremely favorable interest rates that we really should not have, based on our debt. We have supported real estate with tax rebates, and we have prevented inventory from showing up by allowing people to be two and three years behind on their mortgages."

Foreclosed homes, in particular, are being kept off the market through loan modification attempts and other policies.

"You've had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening," Norris said. "It's definitely standing in the way of the natural process."

What does the housing market need most?

"Demand for houses," Norris said. "Somebody able to qualify for a loan and actually being able to get it. And that's why it is not going to happen."

• Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to "stabilize" in 2011 but declined to make a specific price prediction.

Determining whether the housing market is on steady footing is essential to developers such as Haddad, the former chief investment officer for Lennar Corp. Haddad, along with Lennar, is now part owner of FivePoint, which is managing the development of the Valencia community in Los Angeles County and other high-profile projects. He believes a recovery has yet to take hold in California.

"We are bumping along the bottom," Haddad said. "And that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery. You need to have a period where values are not going down and the trend is moving in a different direction."

California's coastal markets will come back once the job market returns, he said, lifting consumer confidence. But California's inland areas are more likely to lag behind, and builders will have to reconsider the kind of product they offer in such places.

"In the Central Valley, values have changed a lot," Haddad said. "You are not going to be able to really have enough depth in the market to sell large, expensive homes, because the ceiling of value is way down."

"If you pick on a market like Orange County," he said, "it is still a place that once people feel confident.... I believe people will be out buying homes."

Affordability is working in the market's favor.

"We have a mortgage environment that is more favorable — the rates are down — but people are not able to get mortgages, and that is not helping. The most important thing we need is jobs and job creation."

"Affordability is something I look at, and obviously that is a very attractive metric right now.... There is a value proposition out there right now that is very attractive, that we haven't seen in four decades."

• Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011.

Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.

In that vein, he views the plunge in home values as its own recovery of sorts "because that is when prices went from stupid-high levels to levels that made sense again," Thornberg said. "Now we are in a post-recovery recovery, if you will."

"This is not the bust. A bust implies that prices have fallen to levels that are too low. And I would argue that prices today are relatively high. It's interest rates that have given us this degree of affordability, and from that perspective that is why I don't expect prices to come down."

Since helping found Beacon in 2006, Thornberg has become chief economist for state Controller John Chiang and chair of the Controller's Council of Economic Advisors. He serves on the advisory board of New York hedge fund Paulson & Co. He has been a forceful critic of the Obama administration's policy attempts to right the market.

"The administration has tried, through a variety of policy methods, to try and spike the market," he said.

Faces of the Home-Foreclosure Crisis

The Tidal Wave of Defaults and Delinquencies That Began Four Years Ago Has Hit Individuals at All Levels of Society

The foreclosure crisis that erupted four years ago has claimed more than five million American homes—about 10% of all homes with a mortgage. It began in lower-income neighborhoods and has spread to some of the most exclusive addresses in the U.S.

The seeds of the crisis were planted a decade ago when banks, discovering the high returns from selling bundles of securitized mortgages, relaxed lending standards and originated millions of adjustable-rate subprime mortgages. Such loans were designed to allow just about anyone to get a home loan.

When interest rates on the adjustable-rate mortgages finally climbed, many borrowers began falling behind on their payments, leading to the first wave of delinquencies and defaults.

At the start of 2008, with the U.S. economy weakening and job losses multiplying, the defaults began to spread as millions of Americans with plain-vanilla prime mortgages also ran into trouble making their payments. In some cases, borrowers found they had paid inflated prices for homes they could no longer afford. Others got into trouble by or borrowing against the equity in their homes. According to the Federal Reserve, Americans withdrew more than $1.1 trillion of equity from homes in 2006 and 2007.

By the end of 2008, with home values plunging, one in six homeowners found themselves underwater—owing more on their homes than they were worth. Borrowers, even those with stable jobs, began to see such negative equity as a reason to stop making their payments. That triggered the third wave of the foreclosure crisis: the strategic default.

The Obama administration is working with banks to head off future defaults and stanch the foreclosure wave by modifying mortgages. The federal programs have so far disappointed. The Home Affordable Modification Program, for example, was launched in the summer of 2009 with the intention of modifying three million to four million loans. So far, it has provided permanent help to fewer than 450,000 struggling borrowers.

Here are six stories of people caught in the foreclosure crisis, by circumstance or choice—from those who fell victim to hard times to others who squandered equity on cash purchases.

The crisis looks set to continue. Another four million people are in danger of losing their homes, according to the Mortgage Bankers Association. And until foreclosures are cleared, the housing market is unlikely to recover.

The foreclosures have had a silver lining for one group of Americans: Many families locked out of the housing market during the boom can now afford to buy.

Freddie Mac Military Foreclosure Prevention Programs–Service Members Get Nine Month Foreclosure Delay

By Lee McFarland

Freddie Mac recently offered the opportunity for military service members to delay foreclosure for nine months as many military personnel returning from active duty are struggling to make their mortgage payments, which has been common among homeowners across the nation. In a recent press release, Freddie Mac stated that servicers will not initiate foreclosure for at least nine months for financially troubled service members as this should give these financial institutions opportunities to find mortgage solutions for military homeowners suffering from financial difficulties in their personal life.

Obviously, there are home loan modification programs which maybe available to homeowners in the military, but it’s hoped that these efforts to suspend foreclosures by Freddie Mac can offer particular service members more opportunities to find the affordability they need in their monthly mortgage payment. There have been many cases both with military homeowners and nonmilitary homeowners where traditional modifications have simply been unhelpful in delaying or preventing foreclosure for their personal situation.

While there are also VA loan modification opportunities for those who qualify, this effort by Freddie Mac is hoped to, again, offer an extension on the time a servicer has to find an affordable solution to a homeowner’s predicament when these individuals who are returning from active service duty. This assistance opportunity which is provided to homeowners in a Freddie Mac mortgage will run through the end of 2011, which again, should offer foreclosure prevention options for military personnel in a troubling mortgage predicament.

Understandably, not all military personnel who are offered the opportunity to delay foreclosure on their home loan will benefit even if their servicer seeks out an assistance plan which may help them avoid foreclosure, but additional time to find modification programs, alternative mortgage payment assistance, or even a foreclosure alternative option through short sales or deed in lieu of foreclosure opportunities could be beneficial for military personnel in need of immediate mortgage assistance.

B Of A Foreclosure Mistake – Dead Husband’s Ashes Missing

The foreclosure mess has claimed another victim, this time in Truckee, California. It seems that Bank of America foreclosed on the wrong home and sent in its goon squad of contractors to remove the owner’s contents. Along with all of the furniture, clothing, and other personal items, were the ashes of the dead husband of the owner. After finding out that the bank had erred and subsequently revoked the foreclosure, the husband’s ashes are nowhere to be found.

Needless to say the family is upset about the incident and have filed a lawsuit against Bank of America. In one recent article it also stated that:

In an era when millions of homes have received foreclosure notices nationwide, lawsuits detailing bank break-ins like the one at Ms. Ash’s house keep surfacing. And in the wake of the scandal involving shoddy, sometimes illegal paperwork that has buffeted the nation’s biggest banks in recent months, critics say these situations reinforce their claims that the foreclosure process is fundamentally flawed.

Identifying the number of homeowners who were locked out illegally is difficult. But banks and their representatives insist that situations like Ms. Ash’s represent just a tiny percentage of foreclosures.

Many of the incidents that have become public appear to have been caused by confusion over whether a house is abandoned, in which case a bank may have the right to break in and make sure the property is secure.

Some of the cases appear to be mistakes involving homeowners who were up to date on their mortgage — or had paid off their home — but who still became targets of a bank.

I love the statement that these types of mistaken foreclosures make up a small amount of all foreclosures. It is only a small amount if you are not one of the victims. I am sure Bank of America will settle this case out of court, but if it chooses not to, I would love to be on the jury.

FHabitat Works to Put Foreclosed Homes with Needy Families

By Michelle A. Vu|Christian Post Reporter

Habitat for Humanity, known for building homes for those in need, is “aggressively” working on providing affordable shelter by buying foreclosed homes and selling them at low cost to poor families.

For about a year and a half now, the ecumenical Christian ministry has worked in local markets across the United States buying foreclosed homes in cities such as Miami, Boston, New York, Charlotte and Atlanta. HFH is also considering buying homes across the state of Michigan where there is a “huge opportunity,” said Mark Crozet, senior vice president of resource development for Habitat for Humanity International.

Crozet noted that it is oftentimes cheaper to provide a family with a foreclosed home than to build a new house.

“In many new markets, we don’t need to build new homes when there are existing housing there that may just be sitting empty or be sitting in foreclosure that we can help get back on the market and start re-populating communities,” said Crozet to The Christian Post on Tuesday.

The HFH official highlighted that the “real win” in the situation of buying foreclosed homes is working with banks that try to give it to the ministry at a discounted rate or at a rate that is not available on the open market. In particular, he said Habitat is having a “significant amount of success” working with Citibank, Wells Fargo, and Bank of America, which had existing partnerships with the ministry before these deals.

In addition to special rates, these banks also help Habitat to get the properties within blocks of each other so that whole neighborhoods can be revitalized.

Helping the effort is Thrivent Financial for Lutherans, a non-profit organization helping its members achieve financial security while giving back to their communities. Thrivent has committed $10.4 million for the year 2011 to build Habitat homes. Crozet said Thrivent and other companies help provide the capital necessary to buy foreclosed homes.

Over the course of six years - the past five years and 2011- Thrivent Financial will surpass $150 million in contributions to Habitat towards building homes for poor families.

Since its founding in 1976, Habitat for Humanity International has built, rehabilitated, repaired or improved more than 350,000 houses worldwide, providing affordable shelter for more than 1.75 million people.

Flawed mortgage modification programs fueling Treasure Coast bankruptcies

By Nadia Vanderhoof

Federal mortgage modification programs aimed at keeping financially at-risk Treasure Coast homeowners from being foreclosed on are instead fueling consumer bankruptcies, according to several housing experts.

Some Treasure Coast homeowners who were denied mortgage modifications through President Obama's Home Affordable Modification Program say bankruptcy was the only way they legally could get out of their homes and protect future assets from mortgage servicing companies and lenders.

After nightmare experiences and enormous frustration with the modification program, they feared lenders might go after their assets to recoup losses years after a foreclosure or short sale, which is selling a home for less than the remaining balance on the loan.

While there are success stories of the program — which has kept some Treasure Coast residents in their homes and out of foreclosure, the number of people helped is small.

As of October, lenders had granted a meager 2,156 permanent modifications to Treasure Coast homeowners — 384 in Indian River County and another 1,772 in Martin and St. Lucie counties combined.

According to RealtyTrac, foreclosure filings were reported on 11,880 homes in the tri-county region through this year. Another 18,998 were recorded in 2009 and 15,631 in 2008.

Meanwhile, bankruptcies on the Treasure Coast continue to pile up.

In 2008, there were 1,723 consumer bankruptcies filed in Martin, St. Lucie and Indian River counties. That spiked to 2,562 in 2009. This year, the Treasure Coast is on track to surpass those numbers with a staggering 2,202 local consumers already filing for bankruptcy through September alone.

"Some people are being put into a position of bankruptcy because their modification did not take place," said Richard Peek, president of the Florida Association of Mortgage Brokers. "Not everything is being done as far as assisting people in being able to maintain their homes."

RESIDENTS STRUGGLE WITH LENDERS

Karen Lehmann is one of those people.

She vacated her Vero Beach home in September and filed for bankruptcy after nearly a two-year modification struggle with Litton Loan Services, the company servicing her mortgage owned by banking giant JPMorgan Chase & Co. With two part-time jobs as proof of income, Lehmann said a modification was approved on her $188,000 mortgage, bringing it down to $146,000 in 2009. The modification was later revoked by Litton despite on-time mortgage payments, months of repeated phone calls, mounds of paperwork, court hearings and mediations.

The reason? She no longer fit the modification guidelines of the loan's investor.

"When they reneged, that was it. I was so tired, I didn't have any fight left in me," Lehmann said. "I had done everything I could. Bankruptcy was my last resort. It was not something I took lightly."

Lehmann, who paid a reduced monthly mortgage of about $700 before the modification was revoked, said shortly before she moved out of her home of 11 years, Litton and Chase wanted her to agree to a short sale for $94,000.

"I thought, this is never going to stop. They wanted me to sign a quit claim deed and if the house didn't sell by December, they wanted me out by January," Lehmann said. "On top of that, they were trying to come after me for more insurance and property taxes. They wanted almost $5,000 more to insure (the home)."

Out of desperation and to prevent further monetary demands from Chase and Litton — Lehmann turned to bankruptcy to protect her finances.

"I wanted to get on with my life. I didn't want them to try and get back at me later," Lehmann said. "No doubt, they would have come after me for the balance of the mortgage after the short-sale. With everything that happened, everything I went through, there was no guarantee it was going to end there."

TREASURE COAST CASE EXEMPLIFIES THOUSANDS

Some financial experts say the events leading up to Lehmann's bankruptcy aren't unique. Her ordeal is likely shared by thousands of homeowners nationwide.

Michael Larson, a real estate analyst with Jupiter-based Weiss Research, described Lehmann's experiences as an unforeseen consequence of the Treasury's failed modification program.

"The government was overselling this program, over-promising and under-delivering. It was not designed to take care of the key problem and fix the problem of upside-down homes and the structure of those loans," Larson said. "There's a fundamental problem with these modification programs and many more people will foreclose, go bankrupt or both as long as there is no long-term change to its design."

Barbara Bradley-McLeod said her lender, Bank of America, strung her along for about a year, promising a mortgage modification on her Port St. Lucie home after her work hours were cut in 2009.

"Every time I tried to talk to them, they said I was missing something else. Send us this paperwork. We need some other papers," Bradley-McLeod said. "Then they said that we didn't qualify because we had a Freddie Mac loan or a Fannie Mae loan. This was after one whole year. And I never missed one mortgage payment."

Bradley-McLeod filed for bankruptcy earlier this year.

"It seems like the banks, the big companies all got bailed out, but what about the little people? Nothing trickled down to us," Bradley-McLeod said.

Treasury spokesman Mark Paustenbach said the agency is aware there are problems with the program, but "breaking a contract between a borrower and a servicer would be illegal."

"We talk to families every day that are at risk of losing their homes and are terribly frustrated by their inability to communicate with their lender and get the help they need," Paustenbach wrote in an e-mail. "We have worked tirelessly for 18 months to stand up a ground-breaking program that has given half a million of these folks permanent mortgage relief. But we know that we have only begun to address the problem. We will not stop until we make mortgage modifications easier, shorten decision time, reduce paperwork and give homeowners greater peace of mind."

BANKRUPTCIES CONTINUE TO RISE

In 2009, the Treasury Department announced the Home Affordable Modification Program, a $50 billion Troubled Asset Relief Program program aimed at helping up to 4 million at-risk homeowners avoid foreclosure by reducing their monthly payments. Experts say the program has failed to live up to its promises.

"Many families encounter an incompetent or even predatory mortgage servicing system once they apply to the program, experiencing delays or denials that are inconsistent with the promise of the program guidelines," said Julia Gordon, senior policy counsel at the Center for Responsible Lending, during her Oct. 27 Congressional testimony. "Hundreds of thousands of people who received trial modifications during HAMP's initial phase have ended up in a worse financial situation as a result of their participation in the program."

Other experts say bankruptcies, already on the rise because of the recession, will continue to spike until the avalanche of foreclosures slows down and more pressure is placed on lenders to engage in massive principal reductions.

"In past business cycles, we looked to housing to bring back the economy because of how multifaceted it is," Metrostudy's Chief Economist Brad Hunter said. "I don't think there's a solution to stimulating the economy without solving the housing problem and getting (gross domestic product) growing again. It isn't growing fast enough, at this point, because of the unemployment rate, which is tied to housing."

Flawed modification programs will continue to undermine Florida's economic recovery until they are overhauled, said Sean Snaith, director of University of Central Florida's Institute of Economic Competitiveness.

"I think by and large they (modification programs) are largely viewed as a failure ... just a lot of smoke and mirrors without any substance," Snaith said. "Really, they reach out to the fringe that were likely to default anyway. What would have worked is doing something in terms of principal write-downs to reflect current values because it's not helping the economy when all these folks paying for underwater mortgages continue to loss equity in their homes. That's where all your discretionary spending is going."

Foreclosure takes toll on increasing number of children

By Dina ElBoghdady

Washington Post Staff Writer

Three years into the mortgage crisis, the public debate over how to stem the unprecedented tide of foreclosures and the damage they are doing to the housing market has largely overshadowed any discussion of the human toll. But researchers have begun to examine what happens to people after they lose their homes and are becoming especially concerned about the harm to children.

The number of children displaced has climbed steadily in recent years, with nearly 40 percent of U.S. school districts surveyed citing foreclosure as the top reason for the surge in homeless students, according to a report this summer by First Focus and the National Association for the Education of Homeless Children and Youth.

Children who are forcibly uprooted from their homes and schools tend to suffer emotionally, socially and academically, studies preceding the mortgage meltdown show. Researchers suspect the same might be happening with children who have been dragged through foreclosures and they are urgently exploring the consequences.

"This foreclosure crisis is the largest forced relocation event we've had in this country since the Great Depression. In the modern educational environment, we've never seen anything come close to this," said Dan Immergluck, a housing policy professor at the Georgia Tech.

Susan Brooking never imagined her family would get tangled up in a mortgage crisis when she and her husband, Robert Brooking Jr., started building a home just north of Charlottesville nine years ago.

But the family's finances collapsed after her husband was laid off from his job working for a home builder in early 2008. In August, the couple received a foreclosure notice and moved out a few weeks later, soon after their 5-year-old son, Connor, began kindergarten.

Susan Brooking settled in at her sister's house with Connor and his 19-month-old brother. Her husband lives nearby with his parents. Neither home was large enough to accommodate the family, but they were able to stay close to Connor's school.

"My son keeps asking why, why, why at every step," Susan Brooking said. Why did they have to move? Why can't he visit his bedroom at the old house? Why are his toys in storage? Why do they have to live apart? Why did he have to leave behind the playground that he and his father had just started building?

"Now he's acting up in class," she said. "All we think about is renting a house in the same school district so we can get some normalcy back into our lives. We don't want to deal with another school and another transition."

Mindy Thiel, a private therapist in Rockville, said she's seen more and more families in the same situation over the past two years. Their kids often express a "feeling of powerlessness," she said. "Even 5-year-olds conceptually get the idea of loss, and they get extremely sad and frustrated that they can't do anything to change the situation."

The longer the foreclosure process drags on, for years in some cases, the more likely children are to lapse into hopelessness and internalize feelings of insecurity that can linger into adulthood, she said.

"They're wondering where their next home, their next school, their next set of friends are going to be," Thiel said. "A poignant issue that's often overlooked is: 'Where will my dog go? What will happen to my fish or my rabbit?' . . . It changes their world view."

About a year into the mortgage crisis, First Focus, a group that advocates for children and families, released a study in May 2008 projecting that 2 million children would lose their homes to foreclosure by 2010. This was a conservative estimate because it was limited to families that defaulted on subprime loans and did not include conventional loans or children evicted from rental units, the group said.

In the District, the Urban Institute found that about one quarter of homes in foreclosure had a public school student living in them in the 2008 school year. The number of public school students affected by foreclosure more than doubled in 2008 from the previous two school years, the study said.

This research, funded by the Open Society Institute, is also looking into foreclosure patterns in New York and Baltimore, examining in part the impact on schools and children. In New York City, the number of students directly affected by foreclosure in the 2006 school year rose to 18,525, 59 percent more than the number affected in the 2003 school year, according a study released this fall by the Institute for Education and Social Policy and New York University.

In a study this year of 25 Latino families, many parents reported that foreclosure-related problems strained their relationships with their children and their partners, in part because they often ended up living in cramped quarters with relatives or friends.

Some of the parents in the study, conducted by the National Council of La Raza and the University of North Carolina at Chapel Hill, said their children blamed them for losing the home. Eight families reported increased conflict among siblings. Fourteen parents said their relationships suffered and 10 said they considered leaving their spouses or partners. Two spouses had separated when the interviews took place last year.

Nor is the fallout limited to people who own their homes. About 40 percent of families facing eviction were renters whose landlords were foreclosed upon, according to an estimate by the National Low Income Housing Coalition.

Valeria Jones of Rockville was among the many renters caught unaware when an eviction notice arrived, leaving her family little time to prepare a move.

"Every time I turned around, someone was knocking on the door and talking about foreclosure," Jones said, "and the landlord still kept telling me to ignore it and still kept asking for his rent and threatening that he'd put me out on the street."

Jones said her teenage grandchildren and niece, all of whom live with her, were rattled. They answered doors and read letters and heard the neighbors whisper, she said. "They made themselves crazy with worry."

Then, on moving day in March, Jones was transporting boxes into the family's new rental home when the eviction crew changed the locks on their old home. The kids came home from school to find their belongings in a trash bin.

"They lost the kind of stuff you can't replace, like the journal my granddaughter used to write in all the time and artwork from first grade," Jones said.

The family is uncertain whether they will stay in their new home. It's in a new school district, and she says her granddaughter, a straight-A student, keeps saying, "Grandma, I'll kill myself if you send me to that school."

Under federal law, students who lost their homes to foreclosure can remain in their schools until they find permanent housing even if they moved from their original school districts. If they find a fixed-living arrangement during the academic year, they can stay in their schools until the year ends.

Still, with all the issues the foreclosure crisis raises about the social and emotional development of children and the stability of the schools they are entering and leaving, the issue has not yet attracted the kind of public-policy response it deserves, experts say.

The problem might be the division of labor in government, said Amy Ellen Schwartz, director of New York University's Institute for Education and Social Policy.

"The housing thing is a housing department issue. The education thing is an education department issue," she said. "It's become an 'It's not my turf, it's not your turf' kind of issue, and it's fallen through the cracks a bit."

Arizona sets another foreclosure record in 2010

by Associated Press

PHOENIX - Arizona will close out 2010 with a record number of home foreclosures, marking the third straight year of staggering growth for bank repossessions.

From January through November, 65,911 Arizona homeowners lost their houses to the mortgage holder, 12 percent more than were taken in all of record-setting 2009, according to foreclosure listing firm RealtyTrac Inc. Banks and loan companies were on track to take thousands more homes in December.

The coming year doesn't look much brighter for homeowners, as Arizona's unemployment rate remains stubbornly high and more adjustable rate mortgages come off low teaser rates. A 50 percent drop in home values from the 2007 peak, and tighter lending standards, are preventing many homeowners from refinancing.

But efforts by the federal government to push banks to modify troubled loans should keep the numbers from soaring too much higher, said Daren Blomquist, communications director for Irvine, Calif.-based RealtyTrac.

``We don't see it a lot worse, but we also don't see it getting a lot better,'' Blomquist said. ``We don't see it getting a lot worse because there are a lot of fail-safes in place to try to keep foreclosures from getting worse. You have all the foreclosure prevention programs, which are having some effect, you have lenders who for whatever reason are much slower to foreclose and aren't just slamming the market with foreclosures as soon as they get them.''

Other experts who watch the state's housing market aren't so sure that the worst is over for the foreclosure mess. One of those is Jay Butler, an Arizona State University real estate studies professor.

Several major lenders temporarily halted foreclosures this fall after criticism that they had taken shortcuts in legal documents, leading to a dip in repossessions last month. But those delayed foreclosures are expected to start reappearing soon. Butler said an increase in foreclosures is virtually certain early in 2011, for that reason and others.

``I think a lot of people have used all the resources they had to keep their home and they've just grown tired of the whole process and will plan to move on,'' Butler said. ``They thought by now maybe they'd be more secure in their jobs, or have a job. But we're still talking about potential furloughs and layoffs. A lot of the economic issues in the environment have not been cleaned up and people are going very frustrated.''

Much of the pain is in the Phoenix area, which accounts for about two-thirds of the state's foreclosures. But Tucson and smaller cities and towns are also suffering.

The U.S. is on track to have more than a million homes lost to foreclosure in 2010, and RealtyTrac's Blomquist said another million could come in 2011.

The foreclosure crisis hit the nation and Arizona with a vengeance starting in 2007, when the mortgage markets froze and exotic subprime mortgages led to widespread lender failures. Foreclosures soared and the price of an average resale home in the Phoenix market slid from $260,000 in 2007 to $140,000 in the third quarter of 2010, according to ASU studies.

Phoenix-area home prices, after stabilizing in mid-2010, slid again starting in August. What's more troubling is that banks are taking longer to begin the foreclosure process. Bank of America Corp.'s CEO said recently that in the third quarter, homeowners were delinquent an average of 560 days before his bank began foreclosure proceedings. Normally, 90 days delinquency starts the process, Blomquist said. Also, RealtyTrac's database shows only about 30 percent of the homes taken by banks this year have been put on the market, leaving a large 'shadow inventory' that could hamper price appreciation.

The collapse brought Arizona's once-booming home construction industry to a virtual standstill. Thousands of foreclosed tract homes are now boarded up, and there's an inventory of more than 60,000 vacant homes.

RealtyTrac's foreclosure numbers for Arizona tell the story: In 2006, just 1,196 homes were taken by banks, but that soared to 12,107 in 2007, 50,608 in 2008, and 58,552 in 2009.

If December's foreclosures reach the monthly 2010 average of about 6,000, more than 70,000 Arizona homes will have been lost to foreclosure this year.

The foreclosure mess also led to a widespread loss of homeownership, with an estimated 80,000 Phoenix-area homes now being rented by former homeowners, said Elliott Pollack, who runs a respected economic and real estate consulting firm in Scottsdale.

For many who have managed to keep their homes, there is more bad news: More than 50 percent of the homeowners in the Phoenix area owe more than their home is worth and are ``underwater'' on their mortgages.

For those homeowners, economic forecasts that show the economy slowly improving in the coming years may bring little relief. They're either going to lose their homes to foreclosure or a short sale, or be stuck in them because they can't sell them for enough to pay off the mortgage.

``By the time the housing market is back to normal, which I think is 2014 or '15, ... housing prices I think have to go up 60 percent from where they are today,'' Pollack said. ``Now, that 60 percent from where they are today, as outrageous as that sounds, still leaves you 30 percent below the peak. So if you bought in 2005-2006, and you had a large mortgage, you're still underwater, you're still not moving, or you're sending your keys back to the bank.''

Family faces foreclosure after following the rules

Carolyn Said, Chronicle Staff Writer

After struggling with medical crises and recession-related lost income, Susan and Robert Gerke thought they had jumped through every hoop that their bank, CitiMortgage, required for them to get a loan modification.

They made 11 trial payments on time, sent in paperwork as requested and stayed in close touch with Citi. So it came as a rude shock when they received the foreclosure notice on the San Rafael home they've owned for 15 years.

"We were so sure we could keep it and that they were really working with us, I just feel blindsided," Susan Gerke said.

The house is scheduled to be foreclosed upon on Dec. 29, leaving the family of four - the Gerkes, their 22-year-old autistic daughter and Susan's 86-year-old father, who has Alzheimer's disease - without a place to live.

Their story mirrors those of thousands of other homeowners who've been denied long-term relief under the government's Home Affordable Modification Program. The pace of conversion from trial plans to permanent modifications has slowed dramatically, dropping from about 55,000 a month early this year to just 28,000 in September, government records show.

What sets the Gerkes' situation apart is that as longtime homeowners, they have significant equity in their home.

Penalized for equity

In fact, their attorney, Marilyn Sullivan, said the couple are being penalized for that equity.

"Citibank gave them a HAMP loan modification and took it away from them - because the house is worth more than the loan, so Citi will financially benefit from foreclosure," she said.

Citi spokesman Mark Rodgers wrote in an e-mail discussing the typical approach to equity, not the Gerkes' case: "In general, a borrower with positive equity in their property has the ability to refinance or sell their property and pay off the loan in full to avoid foreclosure. A modification is still an option if the borrowers' income can support a payment that passes the (net present value) test when compared against liquidation."

Net present value is a formula banks use to determine whether foreclosure or loan modification would be better for them financially. Under HAMP, banks may pick the option that nets them more money.

The Gerke family's difficulties escalated in 2008, when Robert Gerke began using a wheelchair because of multiple foot and leg injuries and neuropathy. Around the same time, Susan Gerke became gravely ill with an intestinal disorder that required major abdominal surgery. Both health crises racked up large medical expenses.

Even earlier, Robert Gerke's business as a consultant and writer in advertising and marketing had suffered as the economy crumbled. He is the family's sole breadwinner, as Susan stays home with her father and their daughter. The couple exhausted their retirement savings to stay current on their mortgage payments.

The Gerkes received a loan modification in September 2009. A month later, Robert Gerke's income improved thanks to a long-term consulting contract, something they said Citi ignored when it later denied them a permanent modification.

In July, Susan Gerke said, she attempted to make her 12th trial modification payment by phone and Citi told her it would not accept it because they had been "tracked for foreclosure."

Sullivan, the attorney, said the bank committed several errors in the process, including not complying with the California rule that lenders must discuss loan modification 30 days before filing a notice of default.

Modifications hard to get

Studies show that getting a permanent HAMP modification is increasingly difficult.

Neil Barofsky, the special inspector general who oversees HAMP and the Troubled Asset Relief Program, issued a scathing report to Congress last month, detailing how HAMP trial modifications frequently backfire.

"Many HAMP borrowers, already contending with other hardships ... end up unnecessarily depleting their dwindling savings in an ultimately futile attempt to obtain the sustainable relief promised by the program guidelines," he wrote. "Perhaps worst of all, ... they may face back payments, penalties and even late fees that suddenly become due on their 'modified mortgages' and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent."

After being contacted by The Chronicle, Citi's Rodgers said the bank would review the Gerkes' situation to see whether a foreclosure-prevention program might still be applicable. Late Wednesday, Sullivan said she had been informed that the family had been conditionally approved for a loan modification.

For the Gerke family, such a solution would be a lifesaver.

"My biggest concerns are my dad and my daughter," Susan Gerke said. "If we lose our home, then I'm going to have to put my dad in a (residential care) home. I know he'll decline very quickly from that. My daughter's birthday is in December, and she keeps asking if we will be home on her birthday. We love this house. It's not just my husband and I losing a place to live; it would have some very serious repercussions for my dad and my daughter. I'm so afraid of that."

Number of the Week: 492 Days From Default to Foreclosure

492: The number of days since the average borrower in foreclosure last made a mortgage payment.

Banks can’t foreclose fast enough to keep up with all the people defaulting on their mortgage loans. That’s a problem, because it could make stiffing the bank even more attractive to struggling borrowers.

In recent months, the number of borrowers entering severe delinquency — meaning they missed their third monthly mortgage payment — has been on the decline, falling to about 700,000 in October, according to mortgage-data provider LPS Applied Analytics. But it’s still more than double the number of foreclosure processes started.

As a result, banks are taking progressively longer to foreclose. The average borrower in the foreclosure process hadn’t made a payment in 492 days as of the end of October, according to LPS. That compares to 382 days a year ago and a low of 244 days in August 2007.

In other words, people who default on their mortgages can reasonably expect, on average, to stay in their homes rent-free more than 16 months. In some states such as New York and Florida, the number is closer to 20 months.

That’s a meaningful incentive, and it’s likely to grow unless banks manage to boost their throughput. Speeding up the process won’t be easy, as demonstrated by the banks’ continuing legal troubles related to robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation.

Millions of Americans still are paying their mortgages even though they owe more than their homes are worth. The more banks’ backlog grows, the more likely they are to join it, adding to the already giant pile of foreclosures weighing on the housing market.

Foreclosures on Prime Mortgages Hit Record High

By Michael Kraus

The housing market set an ignominious record in the third quarter. According to a study from the Mortgage Bankers Association, foreclosures on prime mortgages hit a new record high in the third quarter of 2010 as the U.S. economy continues to decelerate and housing prices continue to drop. The percentage of prime mortgages in foreclosure rose to 2.45 percent, up from 2.36 percent the prior quarter according to a report from the Mortgage Bankers Association.

Michael Fratantoni, VP of Research and Economics for the Mortgage Bankers Association commented:

“Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes. Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate.”

Currently unemployment is at 9.6 percent, and when marginally attached workers and the underemployed are included, the unemployment rate jumps to 17 percent. In addition to this, home values are about down about 25 percent from their peak in late 2006. This has resulted in a situation where about 25 percent of borrowers are underwater on their mortgages, and another 25 percent are at risk of being underwater if prices decline further. It is no wonder that foreclosures are up even amongst those who took out prudent mortgages.

UPDATE 1-Panel sounds foreclosure warning, industry downplays

* Oversight panel gives range of possible outcomes

* Bank industry faces $52 billion mortgage put-back risk

* BofA, JPMorgan to face Senate Banking panel on Tuesday

(Adds Treasury, ASF and Moynihan comments)

By Dave Clarke and Corbett B. Daly

WASHINGTON, Nov 16 (Reuters) - Widespread problems in how U.S. lenders documented foreclosures could spark a wave of legal challenges resulting in massive losses to banks and serious new troubles for the housing market, a federal watchdog warned on Tuesday.

The Congressional Oversight Panel, the overseer of the government's Wall Street bailout, in its latest report laid out a range of possible outcomes for the foreclosure paperwork mess that emerged in September.

In the best-case scenario, the watchdog said, concerns about the paperwork mess are "overblown" and banks would be able to proceed with foreclosures as soon as invalid court documents were replaced with proper paperwork.

But in the worst-case scenario, it warned that banks could face billions of dollars in losses.

Banks are accused of having used "robo-signers" to sign hundreds of foreclosure documents a day without proper review, a fiasco that reignited public anger with banks that received billions of dollars in taxpayer aid in the financial crisis.

Bank of America (BAC.N), Ally Financial and JPMorgan (JPM.N) were among banks that temporarily suspended foreclosures pending internal reviews of their practices, but have since begun to resume sales of foreclosed properties.

Bank of America and JPMorgan officials are due to testify before a Senate panel later on Tuesday. [ID:nN14285999]

In the worst-case scenario, the panel said banks may be unable to prove that they own the mortgage loans they claim to own, legal challenges could call into question the validity of 33 million mortgage loans -- many of which were then securitized and sold to investors -- and banks could face billions of dollars in unexpected losses.

"If such problems were to arise on a large scale, the housing market could experience even greater disruptions than have already occurred, resulting in significant harm to major financial institutions," the 125-page report said. "At present, the reach of these irregularities is unknown."

The American Securitization Forum on Tuesday pushed back against claims that mortgage servicing problems could pose problems for the mortgage backed securities market, saying it has conducted its own study of the issue.

"We are confident that the process in which market participants assign and transfer mortgage notes and mortgages is valid, sound and legally binding," ASF Executive Director Tom Deutsch said in a statement.

The panel, created to oversee the $700 billion bank rescue approved by Congress in 2008, also said banks could end up losing $52 billion from so-called mortgage put-backs, or loans that were sold to other investors but would have to be bought back due to problems that have turned up.

Those losses would be borne predominantly by Citigroup (C.N), JPMorgan Chase, Bank of America and Wells Fargo (WFC.N), the panel said.

LAWMAKER SHOWDOWN

Banks have been eager to downplay the impact of the mess over foreclosure paperwork, saying evictions through foreclosure have been "materially accurate."

Bank regulators and all 50 state attorneys general are investigating bank foreclosure practices. On Tuesday Bank of America Chief Executive Brian Moynihan said a quick settlement with the states is best for all involved. [ID:nN16104232]

"It is in everyone's best interest to get this settled and behind us," said Moynihan, speaking at the Bank of America Merrill Lynch Financial Services conference in New York.

He also said the bank was working through its mortgage repurchase requests from private investors. While the costs for buying back bad mortgages, or put-backs, will be manageable, Moynihan said such disputes could drag on for years.

Banks face lawmaker scrutiny later on Tuesday in hearings by the Senate Banking Committee, and then another hearing on Thursday before the House of Representatives Financial Services Committee.

A top Bank of America executive acknowledged problems in the bank's foreclosure practices in testimony prepared for the Senate hearing and said Bank of America is working to replace previously filed affidavits in as many as 102,000 pending foreclosure cases.

"Thus far, we have confirmed the basis for our foreclosure decisions has been accurate. At the same time, however, we have not found a perfect process," said BofA home loans chief Barbara Desoer in the prepared testimony.

David Lowman, chief executive for home lending at JPMorgan Chase, also laid out missteps in foreclosure paperwork and said the bank is cleaning up errors.

The banks are not the only ones under fire. Regulators are facing criticism from lawmakers for not picking up on the paperwork problems earlier. Many of these regulators -- including officials from the Federal Reserve, the Office of the Comptroller of the Currency and the Housing and Urban Development Department -- are scheduled to appear at Thursday's House hearing.

Obama administration officials have said they are taking the issue seriously.

"We strongly believe that the reported behavior within the mortgage servicer industry is simply unacceptable, and servicers who have failed to follow the law must be held accountable," Treasury spokesman Mark Paustenbach said in a statement. "That's why the Administration has led a coordinated interagency effort to investigate misconduct, protect homeowners and mitigate any long-term effects on the housing market." (Reporting Corbett B. Daly and David Clarke in Washington; Additional reporting by Joe Rauch in Charlotte, N.C.; Editing by Leslie Adler and Chizu Nomiyama)

Happy Holidays From Matt & Randy

December 23, 2010

I’m a very big proponent of giving back to the less fortunate. This week, we had the pleasure of giving back to two families in need and to a daycare center that was in need of supplies.

Our assistant, Ashley, came to us with an idea of giving gifts and food to two families that wouldn’t have enjoyed a nice holiday season. Don’t get me wrong, they probably would have appreciated each other, but they simply didn’t have the means to provide their children with a very Merry Christmas season. We also loaded up a daycare center with supplies that they desperately needed. It’s a good feeling when you give back.

Our business is very successful which affords us the ability to buy gifts and supplies for people in need. My challenge to you is to do the same.....not necessarily with your money but with your time. You don’t have to spend money to give back to the less fortunate. You can volunteer your time to a soup kitchen....you can volunteer your time at an old age home....you can volunteer your time, as I do, as a coach to kids trying learn to to play sports.

If you are like many in this world you are in the process of setting your New Years resolutions.....make this one of them.....to give back (in a concrete and measurable way) to those that are less fortunate. Have a GREAT holiday season!

PS Check out the video at the day care center and let me know what you think.

http://www.youtube.com/user/MattandRandyonline#p/a/u/0/oo21Tixu--I

Sterns Follies!

WEST PALM BEACH — The transfer of thousands of files from the deposed David J. Stern law firm caused not just a foul-up in recent Palm Beach County foreclosure auctions, but is shutting down cases to the point that one defense attorney called the lack of action "malpractice."

Between Nov. 29 and Friday, there were 110 foreclosure sales in Palm Beach County in which the bank made no bid for the home, according to the Palm Beach County Clerk's office.

Unwitting investors put in winning offers as low as $200 for homes they'll probably never get because the auctions were not properly advertised, likely lost in the shuffle from Stern's office to other firms.

Foreclosure defense attorneys said hearings are being canceled, they don't know who is representing the banks in their cases, and that motions for Stern to withdraw from cases aren't being filed, leaving the firm as attorney of record.

The problems led Broward County Chief Judge Victor Tobin to issue a temporary administrative order outlining how Stern cases should be handled and requiring legal evidence be shown that the firm was terminated and new counsel hired.

"It appears that Stern has not made arrangements for the orderly transfer of cases from him or his firm to new counsel for pending cases," Tobin wrote.

And Palm Beach County Clerk of Court Sharon Bock said the transfers are "just adding to the misery that is already happening" in the foreclosure courts.

"As you try to solve one problem, you get another problem," Bock said.

Attorney Jeff Tew, who is representing Stern and his firm, declined to comment Friday.

Stern's Plantation-based company, once one of the largest in the state to handle foreclosure cases, was dramatically downsized this fall as allegations emerged of forged signatures, improperly notarized affidavits and fraudulently filed documents. Last month, mortgage giants Fannie Mae and Freddie Mac both cut ties with the firm, which has laid off at least 50 percent of its staff since October.

Boca Raton foreclosure defense attorney Loretta Bangor said the decrease in staff is likely contributing to the confusion.

In order to change counsel or cancel a sale, a motion must be filed with the court.

"Who is there to actually send these things out?" asked Bangor, who has about 30 cases formerly handled by Stern. "Nothing is happening, nothing is being published, and if that's the case, malpractice is being committed."

Tom Ice, of the Royal Palm Beach-based foreclosure defense firm Ice Legal, said when he calls Stern's office to ask about a case, he's told that the file is no longer there.

"We hate to be jerks about it, but we can't put our cases on hold indefinitely," Ice said.

The most public manifestation of the problem was probably in the foreclosure auctions.

The 110 cases where sales occurred with no bid from the banks will likely have to go back to a judge to either have the sale canceled or verified.

Bock said Friday there are only 15 auctions scheduled in the next two weeks for cases handled by Stern. Because of the low number, she and the court administration decided against canceling all Stern sales.

"We're expecting the new firms will have an opportunity to go through the records and make a judgment on what to do," Bock said.

Bank of America lifts foreclosure freeze

December 10, 2010 | 10:02 am

Bank of America lifted its national foreclosure freeze this week and began taking back some 16,000 properties, starting with homes that were either vacant or did not have owners living in them.

The bank, which is the largest financial institution in the U.S., declared a national freeze on foreclosure sales in October, after it acknowledged it had employed people who legally attested to the accuracy of foreclosure documents without reading them.

But just three weeks into the freeze, BofA began resubmitting the legal documents necessary for foreclosure in some 102,000 cases, in the 23 states that require a court order to take back a home -- much faster than most analysts had expected in those states.

Until this week, however, it had kept its freeze on foreclosures in place in the 27 so-called non-judicial states – where a court order is not required - which include California.

The bank said in a statement Thursday that it had completed its review and is comfortable resuming its taking back of homes.

"The review shows the basis for our foreclosure decisions has been accurate,” said Barbara Desoer, president of Bank of America Home Loans. “We have identified areas of our process that can be improved, and while we make these improvements, it’s important that we move ahead with efforts to reduce the number of abandoned properties across the country. These properties can drag down home values in neighborhoods and slow the eventual recovery of the housing market."

BofA said it was taking some steps to improve its foreclosure processes, including better training of its workers and its outside counsel, as well as ensuring that the affidavits the bank submitted to courts in the judicial foreclosure states were "reviewed, properly executed and notarized."

Sean O'Toole, founder of data-tracking firm ForeclosureRadar, said on Thursday that foreclosures by Bank of America had spiked by 10 times this week compared with last week.

O’Toole said that declaring a national freeze -– so as to encompass states such as California, which did not have any high profile cases of robo-signers -- was probably largely a public relations move and that there were likely few problems with the process in the Golden State.

"It was probably more due to political expediency than actual underlying problems in their processes here,” O’Toole said. “I think it was politically popular for them to show an abundance of caution and slow things down.”

Banks escaping big foreclosure class actions

By Dan Levine

(Reuters) - Lenders snarled in thelegal thicket over shoddy U.S. foreclosure procedures have so far avoided national class action lawsuits from homeowners, largely because borrowers cannot demonstrate economic harm, according to plaintiff lawyers.

Several large plaintiff firms circled around banks when reports of problems with foreclosure affidavits snowballed in late September.

But as servicers like Bank of America Corp, Ally Financial and JPMorgan Chase attempt to resolve a 50-state probe into their practices -- and other legal challenges -- big class action lawyers have taken a pass on diving into the mess.

"We looked at this up one side, down the other," Joseph Cotchett, of Cotchett, Pitre & McCarthy, said on Wednesday.

Ultimately, the firm decided it would not file suit over the affidavits, Cotchett said, because most borrowers are actually behind on their payments.

That makes it too difficult to make a claim for serious damages, he said. "It's about as basic as that," Cotchett said.

A public furor erupted in recent months over whether banks cut corners in the foreclosure process with so-called "robo-signers" of legal documents used to justify taking homes. Servicers briefly halted foreclosures and evictions as state and federal regulators announced investigations.

Banks have disclosed some legal challenges from homeowners, but the class action lawsuits they are facing have not been national in scope.

In defending one Indiana class action, Bank of America has echoed the conclusion reached by some plaintiff lawyers in arguing that the borrower cannot show harm because they would have lost their home anyway.

Plaintiff attorneys are usually paid a portion of the damages they recover.

Some plaintiff lawyers who have devoted resources to the issue haven't walked away yet. Bruce Simon, with Pearson, Simon, Warshaw & Penny, said this week that his firm still intends to file a national class action.

And Lieff Cabraser Heimann & Bernstein's Eric Fastiff said his firm is still examining the issue. "Investigations take time," he said.

Andrew Friedman of Cohen Milstein said he strongly believes many foreclosures were done improperly.

But getting a judge to certify a national class action is difficult, he said, because homeowners have wildly varying circumstances in terms of their relations with servicers.

That, combined with the damages issue, makes a class action tough.

"I've looked at it pretty seriously, but I keep running into the same buzzsaw," Friedman said.

Mortgage Modifications Aren’t Stopping Foreclosures

Programs designed to keep owners in their homes are being upended by lost paperwork and procedural errors

By Kathleen M. Howley, Dakin Campbell and Danielle Kucera

Jill Gray of Mesquite, Tex., says her 3-year-old son, Anthony, often tells her before he goes to bed: “I wanna go to the other house.” Last month Gray, Anthony, and Tiffy, their black Labrador mix, moved about 12 miles to a rental after their one-story brick house in Garland was auctioned in a foreclosure. Gray, 38, tried for almost a year to get her mortgage modified. Bank of America (BAC) initially agreed, only to rescind approval, telling Gray that documents were missing—documents that Gray says she sent.

Gray’s experience of being evicted while participating in a program designed to avert foreclosures is being repeated thousands of times at the biggest mortgage firms, according to groups that aid borrowers. The government’s Home Affordable Modification Program (HAMP) came under fire at hearings late last month for granting homeowners “trial modifications” during which late fees and debts can stack up and documents can disappear, triggering foreclosures.

“Many homeowners end up facing foreclosure solely on the basis of the arrears accumulated during a trial modification,” said Julia Gordon, senior policy counsel at the Center for Responsible Lending, in congressional testimony on Oct. 27. “One incomplete payment or one accounting mistake can land you on an apparently unstoppable conveyor belt to eviction.”

DUBIOUS RESULTS

With as many as 7 million homes facing foreclosure or already taken, according to real estate website Zillow, both the government and companies such as Bank of America and JPMorgan Chase (JPM), the two biggest U.S. lenders, offered programs to forestall seizures by easing mortgage terms. Changes include cutting interest rates for as long as five years and extending repayment to 40 years. About half the 1.4 million temporary or trial modifications granted since the program’s March 2009 inception have been canceled, according to Treasury Dept. data. Only 466,708 borrowers have received permanent modifications. About one in five of the canceled modifications is either in foreclosure or bankruptcy, according to a Treasury survey of the nation’s eight largest mortgage servicers, which handle billing, collections, and foreclosures.

Even borrowers who do win approval and never miss a payment can wind up in foreclosure, the Office of the Special Inspector General for the Troubled Asset Relief Program said in an Oct. 26 report to Congress. “They may face back payments, penalties, and even late fees that suddenly become due on their ‘modified’ mortgages and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent,” according to the report.

Mortgage firms make the problem worse by losing paperwork, according to testimony from Richard H. Neiman, the New York State superintendent of banks. In a May and June survey of 40 counselors representing as many as 14,000 borrowers, the California Reinvestment Coalition found that all of them said servicers had lost or ignored documents, according to Associate Director Kevin Stein, whose San Francisco organization works with low-income communities. “It’s more common to hear that banks have lost paperwork than to hear that they received it and properly handled it,” says Joseph Ridout, a spokesman for Consumer Action, a San Francisco education and advocacy group with a network of 9,000 community organizations nationwide. That leaves HAMP participants vulnerable to foreclosure, a process that has been tainted by allegations of “robo-signing,” in which mortgage firms sign and submit court documents to justify home seizures without verifying they were accurate. Attorneys general in all 50 states are investigating.

HAMP MODIFICATIONS

Under HAMP, homeowners have their mortgage payments reduced to 31 percent of their monthly gross income. The process often results in them owing more money because accrued interest and other charges are tacked onto the mortgage balance. Some HAMP modifications add so-called balloon payments to the loan that are due when a house is sold or the loan paid off. “The program continues to perform well,” says Andrea Risotto, a Treasury spokeswoman. “The target of affordability that HAMP put in place—this idea of 31 percent debt to income, which was far more aggressive than what was done historically—is helping homeowners sustain the modification.”

Spokesman Tom Kelly says JPMorgan is able to track paperwork because it scans every document as soon as it’s received. At Ally Financial, spokeswoman Gina Proia says the lender requires homeowners to submit paperwork at the start of the modification process, leading to a “higher likelihood” of permanent modifications and lower re-default rates. Jumana Bauwens, a Bank of America spokeswoman, declined to comment on matters tied to lost paperwork.

Gray, the former homeowner in Texas, says she fell behind on her mortgage bills last year after paying for medical treatments for her son that weren’t covered by insurance. She says she received the modification offer from Bank of America in December and immediately signed and returned the contract, using the supplied FedEx (FDX) envelope. Bauwens said the bank didn’t receive it by the due date. Gray kept a record of her calls to the bank and printed confirmations of documents she faxed. The log reads, in part: “Sept. 9: Called, was disconnected. Called again. Spoke to Christina. While transferred to supervisor I was disconnected.” When her home was auctioned in September, there were no bidders, so it reverted to the mortgage holder, Freddie Mac (FMCC), which was taken over by the government in 2008. The house is now listed for sale at $55,000.

Gray is again being considered for a modification, and the foreclosure