Defaulting on the Dream

The Pew Charitable Trust has just released "Defaulting on the Dream: States Respond to America's Foreclosure Crisis" . This is a state-by-state breakdown of the effects of the mortgage crisis. It details the scope of the problem, as well as identifies state-specific resources for borrowers who are in financial trouble. If you want an in-depth report on the current mortgage crisis, or just want to know if your state is offering help for homeowners, this is the place to look.

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.

Foreclosure Relief Scams

In the past I've written about loan scams (Beware of Mortgage Tree Lending and Beware of Predatory Lenders) and credit repair scams. Recently, a new scam artist has begun to appear - the "forclosure relief expert". Preying on people who are about to lose their home to foreclosure, these thieves are out to steal your home as well as any savings you may still have. Here's how they work.

You are delinquent in your mortgage payments and are afraid that you are going to lose your home. Suddenly, there is an answer to your prayers. You are offered the services of a "foreclosure relief expert". This offer may appear in the form of a letter in the mail, a flyer at your door, or even a knock at the door. Whatever the form, the offer is the same. By following the "expert's" advice, you will be allowed to remain in the home as a renter. This will give you an opportunity to save some money. And once you get your financial house back in order, you can then buy back the home.

So what's really going on? First, your "expert" will introduced you to an "investor". You will be instructed to deed your home over to this "investor". In exchange, he will pay off your loan and you can remain in the house as his tenant. Of course you'll need to pay him rent.

The "investor" then goes and gets a new loan on the property, pulling out as much equity as possible. You keep mailing him your rent until, one day, you receive a notice to vacate the property. It seems your "investor" has taken any of the remaining equity in the home, converted it to cash, and then defaulted on the loan. This leaves you, as the tenant, out on the street.

These thieves are con artists and very good at gaining the trust of people desperate for help. Here are some warning signs that you are being set up:

The offer of help comes out of the blue - it could be in the form of a phone call, letter, or flyer;

The paperwork is complicated and the explanantions are not clear;

You are asked to sign blank documents or forms with false information.

These are sure signs that you are dealing with a crook. There is an excellent video on You Tube that deals with this topic. If you think you have been approached by or are a victum of a credit scam artist, call the Mortgage Fraud Hotline 1-800-4FRAUD8 (1-800-437-2838).

Losing your home is very stressful, but there are legitimate ways to get help. The best place to start is by talking to your lender. Read Economic Hard Times for some suggestions as to your options. Or call the HOPE National Helpline at 888-995-HOPE. They are open 24 hours and provides free assistance.

Beware of Mortgage Tree Lending

San Jose Better Business Bureau is warning borrowers not to do business with a company called Mortgage Tree Lending. The company claims to be from San Jose but they are actually located in Canada. This company steals money from clients through a classic advance-fee scam. Preying on desperate borrowers, the company promises to "secure" a loan if the borrower sends a "Loan Insurance Premium". The premium, typically 10 to 20 percent of the amount the client wishes to borrow, is sent to an address in Ontario, Canada. Needless to say, the loan never comes through and the funds are never returned.

Legitimate lenders often charge fees for processing, appraisal, etc. but these fees are usually deducted from the loan amount. But honest lenders do not guarantee loan before all investigations are completed, and they do not require up-front payment for this approval. These advance fee loan scams are illegal in both the US and Canada. Below are some signs that the “Lender” is a scammer:

Pressures you to act immediately.
Guarantee loans, even if you have bad credit, no credit or a bankruptcy
Refuses to provide its street address location.
Demands that you wire money, rather than use a credit card or check, before you have a loan offer confirmed in writing.
Written communications contains typos and grammatical errors.
When you telephone, no one is ever "in"; your calls are not returned, or the voicemail box is always "full".

If you think you have fallen prey to lending scam, call your Better Business Bureau to file a complaint.