Bank: ‘We’ll Reduce Your Loan, You Share Future Appreciation’

Daily Real Estate News | Wednesday, July 27, 2011

 

Ocwen Financial Corp., a servicer of residential mortgages, launched a new loan modification program to reduce the principal on a mortgage for delinquent borrowers, but the borrowers must agree to let loan investors share in future appreciation of the home’s value when the market recovers. 

Through the Shared Appreciation Modification program, Ocwen will write down the principal of the loan to 95 percent of the home’s current market value. The amount written down will then be forgiven in one-third increments over a three-year timespan, as long as the home owner remains current on the modified mortgage. 

Then, “when the house is later sold or refinanced, the borrower must share 25 percent of the appreciation with the investors that own the loan; borrowers keep 75 percent of the gain,” the company notes.

Loan modifications will be available only to home owners in negative equity. 
"Like all modifications, SAMs help home owners avoid foreclosure. But they also restore equity,” says Ocwen CEO Ronald Faris in a public statement about the program. “That's a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it's important too. Our analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.” 

The program, which is expected to be rolled out into 33 states, is one of the first principal reduction programs started by a private company. 

Source: “Ocwen Unveils New Principal Reduction Program,” HousingWire (July 26, 2011) and “Ocwen Offering Mortgage Modifications That Restore Equity for Underwater Borrowers,” GlobeNewswire (July 26, 2011)

New Grant for Military First-Time Home Buyers

Daily Real Estate News | Tuesday, July 26, 2011

 

A new program is offering financial assistance to first-time home buyers who are veterans or active-duty military members. The Pentagon Federal Credit Union Foundation, a nonprofit national organization, is offering the assistance through its Dream Makers program.

Active duty personnel, veterans, retired members of the military, and employees of the U.S. Department of Defense and the Department of Homeland Security may be eligible for a grant up to $5,000 to use on down payments and closing costs when buying their first home. The grants can be applied to a mortgage from any financial institution.

“Members of the military often put off buying a home earlier in their careers because they’re moving around the country a lot,” says Kate Kohler, chief operating officer for the PenFed Foundation. “We want to make sure they have resources to add immediate equity into their home when they decide to buy.”

To view eligibility requirements, visit www.pentagonfoundation.org/dreammakers.


Source: “Veterans and Active Duty Can Get Financial Help When Buying Their First Home,” Pentagon Federal Credit Union Foundation (July 25, 2011)

Buyers Rejected for Loans Can Now Find Out Why

Daily Real Estate News | Thursday, July 21, 2011

 

A provision in the Dodd-Frank financial reform law, which took effect this week, is requiring lenders to provide consumers with a free credit score, which will help provide new insights into why they may have been rejected for a loan or did not qualify for the best, lowest rate.

While borrowers can access their credit scores from the credit bureaus, the credit score that a lender uses isn’t always the same one that the credit bureau provides you. According to a report by the Consumer Financial Protection Bureau, some credit bureaus sell consumers “educational” scores that aren’t the same ones used by lenders, or these bureaus may base the score on a different model than the one lenders use.

Now, borrowers for the first time will get a more accurate view of what credit score lenders are using to base their mortgage on.

Under the new provision, lenders will be required to provide potential borrowers with a free credit score whenever they reject an application for a loan. Lenders must provide borrowers with an “adverse action” notice, which will include their credit scores as well as an explanation of why they were rejected for a loan.

Lenders will also be required to provide a free credit score and an explanation whenever they approve a loan but at a higher rate than what is given to their best customers.

Mark Greene, CEO of FICO, says that many borrowers may be surprised to learn that they didn’t qualify for a lender’s lowest rate when applying for a loan.

Source: “Turned Down for a Loan? Now You Can Find Out Why; Consumers Can Also Get Free Credit Scores if Loan Rate Isn’t Best Available,” USA Today (July 21, 2011)

Wells Fargo Faces $85 Million Penalty

The Federal Reserve Board on Wednesday issued a consent cease and desist order and assessed an $85 million civil money penalty against Wells Fargo & Company of San Francisco, a registered bank holding company, and Wells Fargo Financial, Inc., of Des Moines. The order addresses allegations that Wells Fargo Financial employees steered potential prime borrowers into more costly subprime loans and separately falsified income information in mortgage applications. In addition to the civil money penalty, the order requires that Wells Fargo compensate affected borrowers.
 
The $85 million civil money penalty is the largest the Board has assessed in a consumer-protection enforcement action and is the first formal enforcement action taken by a federal bank regulatory agency to address alleged steering of borrowers into high-cost, subprime loans.

Wells Fargo Financial--a once-active, non-bank subsidiary of Wells Fargo--made subprime loans that primarily refinanced existing home mortgages in which borrowers received additional money from the loan proceeds in so-called cash-out refinancing loans. The order addresses allegations that Wells Fargo Financial sales personnel steered borrowers who were potentially eligible for prime interest rate loans into loans at higher, subprime interest rates, resulting in greater costs to borrowers. The order also addresses separate allegations that Wells Fargo Financial sales personnel falsified information about borrowers' incomes to make it appear that the borrowers qualified for loans when they would not have qualified based on their actual incomes.

These practices were allegedly fostered by Wells Fargo Financial's incentive compensation and sales quota programs and the lack of adequate controls to manage the risks resulting from these programs. These deficiencies allegedly constitute unsafe and unsound banking practices and unfair or deceptive acts or practices that are prohibited by the Federal Trade Commission Act and similar state laws. In agreeing to the order, Wells Fargo did not admit any wrongdoing. The order requires Wells Fargo to compensate borrowers affected by these practices. To identify prime-eligible borrowers with cash-out refinancing loans who were subject to improper steering, Wells Fargo is required to reevaluate the qualifications of all borrowers who took out a subprime, cash-out refinancing loan between January 2006 and June 2008 to account for certain specific steering techniques. To identify Wells Fargo Financial borrowers whose income information was falsified without their knowledge, Wells Fargo is required to set up a procedure for potentially affected borrowers to show that their actual income at the time did not qualify them for the loans they were granted. Wells Fargo is required to provide notice of this procedure to all borrowers who obtained cash-out refinancing loans between January 2004 and June 2008 at a Wells Fargo Financial office where there is evidence that sales personnel at that office altered or falsified borrowers' income information.

These compensation plans must be approved by the Federal Reserve. An independent, third-party administrator will review determinations about the eligibility of individual borrowers for compensation and the amounts of compensation provided. The Federal Reserve will also monitor compliance with the approved plans. Failure to comply with the plans will constitute a breach of the cease and desist order.

The amount of compensation provided to individual borrowers will depend on a number of factors, including differences between what borrowers paid and what they should have paid in terms of origination points, interest payments, fees, and penalties. Until specific determinations of harm to individual borrowers are made, it is difficult to determine the total amount of compensation provided to borrowers. Based on preliminary estimates, the amount of compensation that each eligible borrower will receive ranges between $1,000 and $20,000, but some eligible borrowers may receive less than $1,000 and others may receive more than $20,000. The number of borrowers who may receive compensation under both plans is estimated to be between 3,700 and possibly more than 10,000.

Further information for borrowers may be found at www.wellsfargo.com/mortgage .

In addition to the monetary components of the settlement, Wells Fargo is required to improve oversight of its anti-fraud and compliance programs and incentive compensation and performance management policies for personnel who sell and underwrite home mortgage loans. The Board also has issued consent orders against 16 former Wells Fargo Financial sales personnel prohibiting them from becoming employed in the banking industry. The Board has also issued a consent cease and desist order against another former Wells Fargo Financial sales person prohibiting future improper conduct.

FTC Returns Nearly $108 Million to 450,000 Homeowners Overcharged by Countrywide for Loan Servicing Fees

The Federal Trade Commission is mailing 450,177 refund checks worth almost $108 million to homeowners who were allegedly overcharged by Countrywide Home Loans, Inc. As part of the FTC’s efforts to protect financially distressed homeowners, the FTC reached a settlement with Countrywide last year over allegations that the company collected excessive fees from borrowers who were struggling to keep their homes.

“It’s astonishing that a single company could be responsible for overcharging more than 450,000 homeowners,” FTC Chairman Jon Leibowitz said. “Countrywide’s unconscionable behavior harmed American consumers on a massive scale and we are proud to be getting every single dollar back to hundreds of thousands of struggling consumers who can least afford to lose the money.”

The FTC’s June 2010 settlement order required Countrywide, which is now owned by Bank of America, to pay $108 million to be used for refunds and barred the company from taking advantage of borrowers who have fallen behind on their payments. The refunds are being distributed to consumers whose loans were serviced by Countrywide between January 1, 2005, and July 1, 2008, and who were subject to the company’s allegedly unlawful practices.

According to the FTC, homeowners who were in default on their loans were charged excessive fees for services such as property inspections, lawn mowing, and other services meant to protect the lender’s interest in the property. Rather than simply hire third-party vendors to perform the services, Countrywide used subsidiaries to hire the vendors. The subsidiaries allegedly marked up the price of the services charged by the vendors – often by 100 percent or more – and Countrywide then charged the homeowners the marked-up fees. The FTC complaint alleges that the company’s strategy was to increase profits from default-related service fees in bad economic times.

Also, in servicing loans for borrowers trying to save their homes in Chapter 13 bankruptcy proceedings, the FTC alleged that Countrywide made false or unsupported claims to borrowers about amounts owed or the status of their loans, and added fees and escrow charges to their mortgage accounts without notice.

An administrator working for the FTC will send out refunds to consumers who were overcharged for property inspections, maintenance services, title searches, and foreclosure trustee services, and to those who were in Chapter 13 bankruptcy, and were charged fees or escrow charges without being notified.

Consumers who receive the checks should cash them by September 19, 2011. The amount of each check will vary from less than $500 to as much as several thousand dollars. The FTC never requires consumers to pay money or provide information before redress checks can be cashed. Former Countrywide customers with questions should call the redress administrator, Gilardi & Co., LLC at 1-888-230-3196 or visit the FTC’s Countrywide settlement webpage.

Second Chance for Owners Who Lost Homes

More than 2 million home owners who were foreclosed on or were in the process of a foreclosure during 2009 or 2010 can now ask for a review of their case, banking regulators announced this week.

The move is to help identify home owners who may have been improperly foreclosed upon, Julie Williams, chief counsel of the Office of the Comptroller of the Currency, said at a congressional hearing.

Home owners who ask for the review will receive a letter explaining their rights.

Mortgage servicers will hire independent auditors to conduct reviews of the cases and determine if home owners should receive financial compensation if the foreclosures were not done properly. They will also look for borrowers who were denied loan modifications when they may have been eligible for one.

The reviews are part of the mortgage servicer requirements called for by regulators after an investigation last fall revealed improper foreclosure practices by banks. Banks have until Wednesday to submit plans to the OCC on how they plan to revamp foreclosure practices.

Source: “Foreclosed Home Owners May Seek Case Reviews,” USA Today (July 8, 2011)

Copyright National Association of REALTORS®. Reprinted with permission

Obama Announces More Aid for the Unemployed

Home owners who have lost their jobs will get more mortgage relief. The Obama administration has announced that two programs for unemployed home owners will extend the forbearance period on mortgages to 12 months.

For unemployed home owners with a Federal Housing Administration loan, the forbearance period will be extended from four months to 12 months. The Obama administration also said it will remove hurdles to make it easier for unemployed borrowers to qualify for FHA’s Special Forbearance Program.

“The current unemployment forbearance programs have mandatory periods that are inadequate for the majority of unemployed borrowers,” U.S. Housing and Urban Development Secretary Shaun Donovan said in a statement. “Today, 60 percent of the unemployed have been out of work for more than three months and 45 percent have been out of work for more than six. Providing the option for a year of forbearance will give struggling home owners a substantially greater chance of finding employment before they lose their home.”

The administration also announced that it will extend the minimum forbearance period in the Making Home Affordable Program from three months to 12 months for eligible unemployed home owners, when possible under regulator and investor guidelines. Forbearance will also be available to borrowers who are seriously delinquent.

All FHA-approved mortgage servicers are required to participate in FHA’s Loss Mitigation Program, which includes the Special Forbearance program. 

Obama: More Needs to be Done to Handle Housing Crisis

The announcement of more aid for unemployed home owners comes shortly after a Twitter town hall meeting Wednesday where President Obama said one of his administration’s biggest mistakes in its handling of the economy has been its response to the housing crisis and “not doing enough” to help home owners.

"The continuing decline in the housing market is something that hasn't bottomed out as quickly as we expected, and so that's continued to be a big drag on the economy," Obama said during the town hall forum. "We've had to revamp our housing program several times to try to help people stay in their homes and try to start lifting home values up."

Source: “Obama Administration Offers Additional Mortgage Relief to Unemployed Home Owners,” HUD (July 7, 2011) and “At Twitter Town Hall, Obama Concedes ‘Not Enough’ Done to Address Housing Crisis,” Washington Post (July 7, 2011) and U.S. Department of Housing and Urban Development (July 7. 2011)

Copyright National Association of REALTORS®. Reprinted with permission

Loan Modification Scams Soar

Daily Real Estate News, July 6, 2011

More home owners who are desperate to avoid foreclosure are finding themselves victims to loan-modification scams.

In the latest to grip headlines, attorneys in California — where these scams are particularly rampant — filed the state’s first class-action lawsuit against an alleged loan modification scam, part of RewireMyLoan.com. In the lawsuit, prosecutors charge that the company collected nearly $5,000 each from at least 90 victims, promising to do loan modifications and offering a 100 percent money-back guarantee. The victims say the company never did the loan modification or refunded their payments.

The majority of the victims in the lawsuit are Spanish-speaking, and while the advertising and discussions they had with the company were in Spanish, they say the contracts they signed were in English. The home owners say they were also told to not contact their bank directly or their contracts would be voided. (Read: How to Spot Foreclosure-Prevention Scams)

Scam Prevention Network
The Lawyers' Committee for Civil Rights, government housing agencies, and other nonprofits have created the Loan Modification Scam Prevention Network to compile complaints about such fraud. From February 2010 to June 1, the network gathered nearly 15,000 complaints involving $37 million in lost money. California accounted for the majority of the losses, with 3,105 complaints filed and $11 million in losses from these scams.

For home owners who believe they were a victim of a loan-modification scam, the Loan Modification Scam Prevention Network encourages them to visit www.preventloanscams.org to file a complaint.

Source: “Lawsuit Goes After Loan-Modification Fraud," The San Francisco Chronicle (July 1, 2011)

HELP From EHLP

Washington D.C. – The U.S. Department of Housing and Urban Development (HUD) in conjunction with NeighborWorks America announced the launch of the Emergency Homeowners’ Loan Program (EHLP), to help homeowners who are at risk of foreclosure in 27 states across the country and Puerto Rico.

Congress provided $1 billion dollars to HUD, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to implement EHLP. The program will assist homeowners who have experienced a reduction in income and are at risk of foreclosure due to involuntary unemployment or underemployment, due to economic conditions or a medical condition.

Under EHLP guidelines eligible homeowners can qualify for an interest free loan which pays a portion of their monthly mortgage for up to two years, or up to $50,000, whichever comes first.

“Through the Emergency Homeowners’ Loan Program the Obama Administration is continuing our strong commitment to help keep families in their homes during tough economic times,” said HUD Secretary Shaun Donovan. “Working with our community partners across the nation through NeighborWorks America, we are pleased to launch this program today in 27 states and Puerto Rico to help families keep their homes while looking for work or recovering from illness.”

The EHLP funds will pay a portion of an approved applicant’s monthly mortgage including missed mortgage payments or past due charges including principal, interest, taxes and insurance. EHLP is expected to aid up to 30,000 distressed borrowers, with an average loan of approximately $35,000.

“Through our work around the country, NeighborWorks America knows all too well that in these tough economic times, homeowners facing foreclosure are seeking help wherever they can find it. The deadline is July 22, 2011, so we encourage homeowners to submit their information now in order to find out if they qualify for this new mortgage assistance program and learn more about the many options available to assist those with housing needs,” stated Eileen M. Fitzgerald, CEO of NeighborWorks America.

The EHLP funding is a complement to the Hardest Hit Fund which makes available $7.6 billion to 18 states and the District of Columbia that were hardest hit by the housing crisis. The EHLP funds will be offered in the following states: Alaska, Arkansas, Colorado, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming and Puerto Rico. Five states operating substantially similar programs are administering EHLP funds through their existing programs: Connecticut, Delaware, Idaho, Maryland, and Pennsylvania. With today’s launch, mortgage assistance is now available for unemployed and underemployed homeowners in every state.

Contact information for participating agencies, the Pre-Applicant Screening Worksheet and more information on the EHLP assistance and its eligibility requirements can be found at http://www.findehlp.org/ or by calling toll free at 855-FIND-EHLP (346-3345).

'Mastermind' of $2.9B Scam Gets 30 Years

Daily Real Estate News, July 1, 2011

Lee B. Farkas, who federal prosecutors have considered the “mastermind” behind one of the largest bank fraud schemes in history, was sentenced on Thursday to 30 years in prison.

Farkas, the former chairman of the mortgage firm Taylor, Bean & Whitaker, is the single largest prosecution from the financial crisis, The New York Times reports.

Prosecutors say the $2.9 billion scheme, which began in 2002, led to the collapse of Colonial Bank and cheated investors and the government out of billions of dollars. Prosecutors claimed that TBW executives secretly overdrew the mortgage lending company’s accounts with Colonial Bank and to cover up the overdrafts, sold Colonial about $1.5 billion in “fake” and “worthless” mortgages, some of which already had been purchased by other investors. Ultimately, Colonial filed for bankruptcy in August 2009, making it one of the largest bank failures in history.

The government, in wanting to send a warning to the financial industry, had originally asked for a 385-year prison sentence for Farkas.

Source: “Former Chairman of Mortgage Firm Sentenced to 30 Years in Bank Fraud,” The New York Times (July 1, 2011)