Sunday, June 29, 2008

Mortgage Payment Fraud Alert

A new scam has started to appear regarding loan payments. As many of you know, when you get a home loan, the loan is often sold to a servicing company. This allows the lender to recoup the money they loaned you and lend it to someone else. Once the loan is sold, you make your payments to the loan servicer, not the original lender.

Recently, some borrowers have been receiving letters informing them that their loan has been sold and they are to send all future loan payments to the new servicer. The problem is, the loan was not sold. So the unsuspecting borrower sends their loan payment to the new address. A couple of months go by and they receive a letter from the real lender telling them that their loan is in default. The borrower tries to contact the "servicer" only to find that they have closed up shop and have moved on to a new state and new name. The borrower now is out the money they sent to the crooks, and has late fees on their loan.

In an attempt to stop this fraud, lenders have set up a protocol for the transfer of a loan. Two letters are now sent - one from your lender telling you they have sold the loan, one from the servicer telling you they are now taking over the loan. If you receive a letter telling you your loan has been sold, you should contact your original lender to verify that they have, in fact, sold the loan.

Friday, June 27, 2008

FHA Amends "Anti-Flipping" Rule

The following is a press release from HUD dated June 26, 2008

WASHINGTON - In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration today announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.
For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.

“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”

FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.

Thursday, June 26, 2008

Insuring Vacant Homes

As homes languish on the market, many homeowners are vacating their homes. This can be for a variety of reasons. They may have to move for a job relocation; they may have purchased another home; or they may be negotiating a short sale with the lender and have made other living arrangements. Whatever the reason, a vacant home may cause a problem with your insurance coverage.

Insurance companies consider vacant homes to be a high risk for vandalism and theft. And if there is a fire or a burst water pipe, no one is there to report it, so the resulting damage can be much greater. You need to check your policy to see if your vacant home is covered. If not, you should consider getting vacant homeowners coverage. Ask your existing insurer if they offer the policy. But you should also comparison shop with other insurers for the best rate. Coverage may also be available through some state-run insurance plans, such as Fair Access to Insurance Requirements (FAIR) Plan.

If you can't get - or afford - vacant homeowners insurance, you might want to consider these options:

Stay in the home until it's sold. If more than one person now resides in the home, perhaps one could remain while the other moves;

Discuss the pros and cons of renting the home with your Realtor. If you decide this is a good option, you may need to change your insurance to reflect that the property is now a rental. But that insurance will be cheaper than vacant home insurance; or

Hire a house-sitter, or allow a friend or relation live in the home until it sells.

Even if you can't have someone live into the house, try to make it look like someone is living there. Keep the home and yard maintained. Periodically enter the home to make sure there are no leaks, cracked windows, etc. Don't allow the mail, newspapers or deliveries to pile up.

You may want to install a security system. Consider putting the lights on timers and make sure the windows are covered. You might ask a neighbor to park in the driveway.

Whatever you do, don't commit fraud by lying to your insurance company. Most policies allow you to leave the home vacant for a certain period of time before you are required to switch to a vacant home policy. If leave your home vacant longer than your current policy permits and the place is damaged or destroyed, the insurer can challenge the claim.

Tuesday, June 24, 2008

Home-Value Web Sites Miss the Mark

This article comes from the Associate Press (06/23/2008)

Online home-value sites offer some useful tools, but their estimates are often wrong.

"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them." and rely on computer-generated automated models to estimate values. The models help compensate for the fact that many neighborhoods don’t have enough sales to generate accurate values based on experience.

But these computer models don’t reflect home condition, improvements and may not even accurately convey property descriptions.

Marty Frame, general manager of, says the data on the site is best used as a way to form an overall impression of a neighborhood."

Our goal is to provide you all this information and let you cherry-pick the things that are most interesting to you," Frame says. "You're going to look at an estimate and say, "that makes sense' or 'that doesn't make any sense."

Monday, June 23, 2008

How Did We Get Into This Credit Mess?

Journalists are very good at reporting the problems caused by the credit crisis - foreclosures, plummeting property values, destroyed credit ratings - but not so good at giving a jargon-free explanation of how this happened. So here goes...

In 2001, the US was officially in a recession. What helped pull us out was an upswing in residential real estate purchases and an overall increase in consumer spending. This was fueled by easy credit. People were tapping into their home equity to pay for everything from college educations to Hawaii vacations. As more people borrowed, lenders drooled over the money made from loan fees and wanted more. So new loan products flooded the market, each of which required less from the borrower in order to qualify - less down payment, less income verification, less credit-worthiness.

These sub-prime loans became prevalent because banks were no longer the driving force behind the lending industry. That role was turned over to non-bank (and non-regulated) financial institutions who packaged these loans into large bundles called mortgage-backed securities (one security typically holds 1,000 mortgages), and sold them to investors.

But why would investors buy these securities if they included risky loans? Because some Wall Street analysts designed risk-pricing models which said that loans are less risky when bundled in large groups then when held individually. If you invest in one real estate loan and the borrower defaults, your investment is in trouble. But if you invest in 1,0000 loans and one defaults, the loss is easily absorbed into the profit from the 999 good loans. And the underlying premise of those models was that, since the Great Depression, US real estate values had never gone down year-over-year on a national basis. Investors knew real estate-backed securities would always be a safe bet.

And what about the borrowers? Why would they take out a loan they could not afford? They knew that, when their 1% adjustable rate loan jumped to 9% in a few years, they would not be able to "pay the piper". Like the Wall Street analysts, borrowers were also aware that real estate was a sure thing. They knew they would be able to sell the home and make a great profit. Would-be homeowners who, a few years before, would have waited to save up a down payment, jumped at the chance to buy now with nothing down. Real estate speculators figured they could buy with cheap money and sell at a profit before their loan rates increased. Everybody would make out OK because everybody was sure that real estate values would continue to increase.

And then the rates on these loans started to rise. As the "teaser" rates expired and the "real" loan rates started to adjust up, the homeowners did exactly what they had planned. They put their homes on the market and waited for the buyers to come flooding in so they could sell the house, pay off the loan, and pocket a nice profit.

But there were just too many loans adjusting upward at the same time, so there were too many sellers trying to move their properties at the same time. In order to get rid of the homes, sellers started to drop their prices. Eventually, prices became so low that, even if they did sell, the proceeds would no longer cover the debt owed on the home. So some sellers walked away from the property, letting the bank foreclose.

Banks are not in business of owning real estate, so they were eager to get rid of their foreclosed properties as quickly as possible. These institutional sellers dropped prices even lower. This forced individual sellers to follow suit. This spiral continued until now, for the first time since the Depression of the 1930's, property values have dropped throughout the entire country.

Monday, June 16, 2008

Thieves Strip Vacant Houses

Foreclosures are wreaking havoc, not only with the lives of the former owners, but with entire areas. Empty houses cause blight in what were formerly a well-maintained neighborhoods. Pools have become breeding grounds for mosquitoes. And now there is another problem - copper theft.

With the rise in the cost of copper, empty homes are being stripped of their copper pipes, fixtures, and even lawn ornaments. An average house can yield $1,200 in used copper. And it's not just foreclosed homes that are at risk. Homes under renovation, where the plumbing is being replaced, or where the owners are on vacation are also being targeted.

Many states are trying to pass laws that require proof of ownership before used copper can be purchased. But until that happens, the best defense is local. If you see suspicious activity in a house you know to be vacant, call the police.

Monday, June 9, 2008

New Wave of Bank Defaults are on the Horizon

Banks have been struggling to deal with home mortgage defaults. But even as the number of home defaults seems to be growing, a new group of borrowers is about to enter the default crisis.

Home builders, condominium developers, and land speculators are facing growing problems making payments on their loans. There is no money to build and, even if the home gets built, there are no buyers. According to an article in the Wall Street Journal, those banks which are heavily tied to home construction loans have begun to dump them, many at steep discounts, a precursor to billions of dollars in new losses.

In testimony before the Senate Banking Committee on Thursday several bank regulators testified on the seriousness of the situation. Federal Deposit Insurance Corporation Chairman Sheila Bair pointed to banks that are not diversified or with high exposures to residential construction and development as being of particular concern. Also smaller banks are not in a good position to offset losses. Even larger banks in states like Nevada and Arizona that have been hard hit by the housing crisis are already reeling from home loan defaults and may not be able to survive another round of write-offs in the building sector.

Sunday, June 1, 2008

TransUnion Lawsuit Settled And You May Benefit

TransUnion, one of the three largest credit reporting agencies, has just settled a class-action lawsuit. They were accused of selling the private credit information of American consumers to marketers who then used that data to sell products and services back to the consumer.

Ken McEldowney with Consumer Action said, "TransUnion was getting deep into credit reports to get information to tailor lists that were valuable for other companies. This is by far the largest class action ever and the largest ever involving privacy violations. It sends a strong message to organizations that hold your private information."

If you have used a credit card or carried any kind of debt or loan account in the past 21 years, you are probably entitled to benefit from this unprecedented $10-billion dollar lawsuit settlement. The tentative settlement gives a majority of Americans free round-the-clock access to their credit reports and credit scores. Additionally, consumers would receive e-mails updating them about any significant changes to their credit files, such as late payments or accounts opened in their names.

In addition to getting free credit monitoring, consumers can claim a portion of the settlement money by registering at, starting June 16. But people are being warned NOT to respond to emails claiming to be from TransUnion. It could be a trick by spammers posing as the credit agency and going after your private information. TransUnion said it will only communicate through that website.