Fannie Mae Tries to Save Drowning Borrowers

Fannie Mae has announced a new program meant to help borrowers who are "underwater", homeowners who owe more on their homes than the home is presently worth. If these borrowers tried to sell their homes, because of the decrease in value, they would have to bring cash to the closing in order to make up the difference between the sales price and the loan amount. If, instead, they wanted to keep the home but refinance for better rates or terms, they would also be required to add cash to make up the difference between the new appraised value and the old loan amount.

Fannie Mae's new program will refinance mortgages at up to 120% loan to value. It is limited to loans that are paid to date and that Fannie either owns or insures. Fannie estimates that 150,000 homeowners could be helped by such a program.

The thrust of the program is obviously to buy time. Fannie is betting that, by refinancing homeowners, it will assist them in keeping payments current and that in the long-term, house prices will improve. Critics say that this is just pushing today's problem into tomorrow. But given the number of foreclosures, anything that helps with today's crisis is worth trying.

Zillow Branches Out

Many people have heard of Zillow, an Internet site that helps people determine property values. Now Zillow has branched out to matching up borrowers and lenders. Many Internet sites already do this. But what makes Zillow unique is that the borrower is not required to provide sensitive personal information, such as name, social security number, address, etc., in order to get a free rate quote.

The borrower creates an anonymous mortgage request. The money can be used for a purchase, refinance, or a home equity loan. The borrower will be asked to provide information on the property, type of loan, income, debt, and an estimate of his credit rating. Of course, the more accurate the information you provide, the more accurate the loan quotes you will receive.

Lenders (an unlimited number of them according to Zillow) review the mortgage requests and submit mortgage quotes for those requests. These will not be "insta-quotes" done by a computer but rather personalized, hand-written quotes. The quote consists of an interest rate with specific lender fees, easily broken down into average monthly payments that meets the requirements of a particular loan product (e.g., 30-year fixed rate).

The borrower can then review the quotes and contact any lender whose offer is appealing. Of course, once the borrower makes contact, they are no longer anonymous. And the borrower can not consider these quotes as actual loan offers. The lender will need to verify the borrower's information before a firm offer will be made.

A very nice feature of the site is that borrowers can rate lenders with whom they have been in contact. This rating system will be available to other borrowers, so they can consider an lender's "score" when deciding which lender to use.

I did a test of the site, requesting a 30 year fixed rate loan for a refinance. I received responses from three lenders. One offered me a 5 year fixed rate instead of the the 30 year rate I requested. I gave him a poor rating. But the other two offered reasonable rates and fees.

This is a great tool for anyone who is loan-shopping. Even if you don't use one of Zillow's lenders, it's a good way for you to compare rates and terms offered by other lenders.

House Stealing - The Latest Scam on the Block

This is a repost of an article on the FBI website. You can see the original by clicking here.

What do you get when you combine two popular rackets these days—identity theft and mortgage fraud? A totally new kind of crime: house stealing.

Here’s how it generally works:

… The con artists start by picking out a house to steal—say, YOURS.
… Next, they assume your identity—getting a hold of your name and personal information (easy enough to do off the Internet) and using that to create fake IDs, social security cards, etc.
… Then, they go to an office supply store and purchase forms that transfer property.
… After forging your signature and using the fake IDs, they file these deeds with the proper authorities, and lo and behold, your house is now THEIRS.*

There are some variations on this theme…

… Con artists look for a vacant house—say, a vacation home or rental property—and do a little research to find out who owns it. Then, they steal the owner’s identity, go through the same process of transferring the deed, put the empty house on the market, and pocket the profits.
… Or, the fraudsters steal a house a family is still living in…find a buyer (someone, say, who is satisfied with a few online photos)…and sell the house without the family even knowing. In fact, the rightful owners continue right on paying the mortgage for a house they no longer own.

It can get even more complicated than this, as we learned in a recent case out of Los Angeles that we investigated with the IRS. Last year, a real estate business owner in southeast Los Angeles pled guilty to leading a scam that defrauded more than 100 homeowners and lenders out of some $12 million. She promised to help struggling homeowners pay their mortgages by refinancing their loans. Instead, she and her partners in crime used stolen identities or “straw buyers” (people who are paid for the illegal use of their personal information) to purchase these homes. They then pocketed the money they borrowed but never made any mortgage payments. In the process, the true owners lost the title to their homes and the banks were out the money they had loaned to fake buyers.

So how can prevent your house from getting stolen? Not easily, we’re sorry to say. The best you can do at this point is to stay vigilant. A few suggestions:

If you receive a payment book or information from a mortgage company that’s not yours, whether your name is on the envelope or not, don’t just throw it away. Open it, figure out what it says, and follow up with the company that sent it.
From time to time, it’s also a good idea to check all information pertaining to your house through your county’s deeds office. If you see any paperwork you don’t recognize or any signature that is not yours, look into it.

House-stealing is not too common at this point, but we’re keeping an eye out for any major cases or developing trends. Please contact us or your local police if you think you’ve been victimized.

Resources:
- Los Angeles investigation press release
- Mortgage Fraud: General overview and statistics
- Related story

* - Since the paperwork is fraudulent, the house doesn't legally belong to the con artists.

Declining Market Just A New Name For Redlining?

Banks used to "redline". Red lines were drawn around certain neighborhoods where the bank did not want to make loans. It was, quite simply, discrimination and it is now, thankfully, illegal. However, Fannie Mae and Freddie Mac are being accused of re-instituting this old practice under a new name, the "declining markets" lending policy. Under this policy, they charge borrowers higher fees and demand larger down payments when properties are located in areas where the lenders believe prices have dropped. Some industry estimates put the total number of Zip codes affected across the country at between 8,000 and 12,000.

Realtors groups are strongly protesting this policy. Timothy Sandos, president and CEO of the National Association of Hispanic Real Estate Professionals, says this makes buying homes disproportionately more costly for minorities and moderate-income families who can't afford the higher down payments and fees. Labeling an area as "declining" becomes a "circular, self-fulfilling prophecy," says Sandos. By making it more difficult to buy in these neighborhoods, the prices of homes drop. Richard Gaylord, the president of the National Association of Realtors, asked Freddie Mac and Fannie Mae to "discontinue the policy of stigmatizing entire Zip codes or metropolitan areas" as declining since they "typically include widely differing" local neighborhood conditions.

A Fannie spokesman said the company has heard the critiques on declining markets designations, "and we take (them) seriously." Freddie Mac said through a spokesman that it is "re-evaluating" its policy. But is it really appropriate to allow Freddie Mac and Fannie Mae to self regulate? What do you think?

Short Sales Can Take a Long Time

Sometimes, when a homeowner can no longer afford their house payments, they can arrange a short sale with the lender. In a short sale, the lender agrees to accept the proceeds from the sale of the home, even though they are not enough to cover the full loan amount. Lenders often agree to this because, even though they get less than the amount the homeowner owes, they actually save money by not having to go through the costs of foreclosing on the homeowner. And the homeowner avoids foreclosure, thereby preserving their credit rating. A short sale can be a great solution for both the lender and the homeowner.

But if short sales are such a good deal for everyone, why are they so difficult to arrange? The first reason is the amount of paperwork involved. The lender wants to see documentation to confirm that the homeowner really can not afford to continue making payments. And once they make that determination, they need to assess the value of the home by hiring an appraiser or having a Realtor provide an estimate of value.

Once an offer comes in, the lender tried to ensure that the proposed sale is an "arm's length" transaction. They want to make sure the buyer has no relationship with the seller that would give the seller an incentive to offer the home on special terms. They also need to confirm that the buyer has the funds to afford the house. Sometimes the lender requires that the buyer be approved by the lender's underwriter.

Even if all this goes well, there can be complications. If the seller has a mortgage and a home equity line, both lenders must approve the deal. This can be extremely difficult when the sales price may not be enough to cover the value of first loan, let alone a second loan.

If you think a short sale may be the solution to your mortgage problems, contact your lender now. The sooner you start this process, the more likely you will be able to find a deal that works for everyone.

Basic Facts About the Mortgage Crisis

If you need help paying your mortgage, here are some suggestions:

Call your lender NOW. The sooner you contact them, the more they may be able to do to help;

Do not move out of your home. If you abandon the home, you may not qualify for assistance;

There are LOTS of scammers trying to steal your money, home, or both (see Foreclosure Relief Scams). If you want help, make sure you are speaking with a HUD- approved housing counselor. You can find approved agencies near you by calling HUD at (800) 569-4287.

Here are some others numbers that may help:

Operation Hope (877) 592-4673;
NeighborWorks (888) 995-HOPE;
National Community Reinvestment Coalition (202) 628-8866;
National Council of LaRaza (202) 785-1670;
Neighborhood Assiatance Corporation of America (888) 302-NACA;
Acorn - Home Equity Loss Prevention Program (888) 409-3557; and
National Foundation for Credit Counseling (866) 557-2227.

Hope Now - Providing Hope for Bankers, Not Borrowers

Last July, in an attempt to help mitigate the growing foreclosure crisis, the government announced the creation of Hope Now. If a borrower was having trouble making home loan payments, they could call 1-888-995-HOPE where they would be put in touch with credit counselors and lender representatives.

The credit counselors would discuss ways to restructure debt and manage finances. If the borrower needed some extra time to catch up on payments, a loan representative could offer a repayment plan which afforded the borrower some flexibility in making the payments. If the borrower could no longer afford the loan, the lender representative would review the terms of the loan and, if possible, offer modifications such as a reduction in rate, forgiveness of a portion of the principal, or change in the maturity date. As of March, 2008, Hope Now claims to have been responsible for a total of 1,035,000 loan workouts which included 758,000 repayment plans and 278,000 loan modifications.

But a New York Times article written by Lynnley Brown asserts that Hope Now is, in fact, offering very little hope. This is because, as Ms. Brown explains, it is run by the very same people who caused the problem. Here are some examples.

The executive director of Hope Now is Faith Schwartz. Ms. Schwartz is also an executive at Option One Mortage, a subprime lender. Hope Now is run out of the Housing Policy Council which is part of the Roundtable, a financial services lobbying group. Hope Now is also backed by the American Securitization Forum. The Forum and the Roundtable are both on record as opposing any government housing effort that would require them to take losses on bad mortgage loans. Another component of the Hope Now alliance, the non-profit Homeownership Preservation Foundation, was established in 2003 with a $20 million grant from GMAC-RFC, a mortgage lender. “Hope Now is a failure," said Michael Shea, the executive director of the Acorn Housing Corporation, a large counseling agency that is part of the Hope Now alliance. "It's industry-dominated."

But if Hope Now is a failure, then what about the million plus borrowers they claim to have helped? Even Hope Now says it is unsure how effective it is. They admit that they do not differentiate between the number of loan workouts that occur as a result of their efforts and those that might have happened anyway. But William A. Longbrake, vice chairman of Washington Mutual Savings and Loan and a senior policy adviser to the Roundtable, says he has “indirect, inferential evidence” that Hope Now is helping. So what sort of help do they provide?

Hope Now receives over 4,500 calls per day, but only 4% of callers ever get to speak to a counselor. It could be because many became frustrated with the long hold time and hang up. Hope Now claims that callers typically wait less than 30 seconds to be connected to a call-center operator. But a reporter who called Hope Now was kept on hold for 50 minutes before hanging up.

When a borrower does finally reach a counselor, these counselors are urged to follow the guidelines of the American Securitization Forum which represents financial companies that bundle mortgages for sale to investors. The Forum's executive director, George Miller, told The Times that it represents the interests of investors and "we want to minimize losses on bad mortgages and maximize recovery." Both the Forum and the Roundtable oppose opening up bankruptcy courts for struggling homeowners because it could lead to further losses for the banks.

I am sure there are some borrowers who have been helped by Hope Now. But based on The Times report, bankers, not borrowers, can be a lot more hopeful.