Stop Those Foreclosures Now!

Stop those foreclosures now!

The Washington Post reported on September 22 that Ally Financial and some other large mortgage lenders did not follow proper procedures when processing foreclosures. An excerpt:

Some of the nation’s largest mortgage companies used a single document processor who said he signed off on foreclosures without having read the paperwork – an admission that may open the door for homeowners across the country to challenge foreclosure proceedings.

The legal predicament compelled Ally Financial, the nation’s fourth-largest home lender, to halt evictions of homeowners in 23 states this week. Now it appears hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans.

As head of Ally’s foreclosure document processing team, 41-year-old Jeffrey Stephan was required to review cases to make sure the proceedings were legally justified and the information was accurate. He was also required to sign the documents in the presence of a notary.

In a sworn deposition, he testified that he did neither.

The reason may be the sheer volume of the documents he had to hand-sign: 10,000 a month. Stephan had been at that job for five years.

Wow. 10,000 a month for five years. You do the math.

Let me say that I have precious little sympathy for homeowners who lied about their incomes in order to obtain loans. Or buyers who bought, knowing there was no way they could afford the homes, but figured they could sell for a nice profit. Or for others who gamed the system. Or for others who are now walking away from homes that they’re fully capable of making payments on, just because the home’s lost value. If there was mortgage fraud, then prosecute them to the full extent of the law. (I do have sympathy who, through job loss, illness, or other tragedy beyond their control lost their homes.) Hopefully, I’m making myself clear.

But it looks like Ally may not have been playing by the rules, either. If that’s the case, then let’s go after them to the full extent of the law. And if that means stopping hundreds of thousands of foreclosures, then so be it. And if that means going after them for already completed foreclosures that can’t be undone, let’s do that, too.

Here’s a passage I love from Robert Bolt’s A Man for All Seasons about Sir Thomas Moore:

ROPER So now you’d give the Devil benefit of law!

MORE Yes. What would you do? Cut a great road through the law to get after the Devil?

ROPER I’d cut down every law in England to do that!

MORE (Roused and excited) Oh? (Advances on ROPER) And when the last law was down, and the Devil turned round on you-where would you hide, Roper, the laws all being flat? (He leaves him) This country’s planted thick with laws from coast to coast-man’s laws, not God’s-and if you cut them down-and you’re just the man to do it-d’you really think you could stand upright in the winds that would blow then? (Quietly) Yes, I’d give the Devil benefit of law, for my own safety’s sake.

It may be distasteful. It may be messy. It may stick in your craw. But if Ally failed to comply with the law or applicable regulations, then it must be held accountable.

Government First-Time Home Buyer Tax Credit Can Be Used For Closing Costs, Interest Rate Buy-Downs

New home buyers seeking to use the 10% tax credit can use that money up front to help pay for closing costs or to “buy down” their mortgage rate, according to the U.S. Department of Housing and Urban Development.

That’s significant: While the 10% tax credit is great (buy an $80,000 property; get an $8,000 tax credit), buyers used to have to wait until they filed their tax returns to actually benefit from the credit. Now there’s a way to instantly monetize the credit.

And although the tax credit can’t be used for the minimum 3.5% downpayment required by FHA, it can be used to supplement it. And numerous states offer buyers programs to help cover that 3.5%.

[For information on the tax credit itself, see my earlier post at https://realestatesolutions3d.wordpress.com/2009/02/24/first-time-homebuyer-tax-credit-fact-sheet/ ]

Here’s a summary from the National Association of Realtors:

Under the guidance, FHA-approved lenders can develop bridge loans that home buyers can use to help cover their closing costs, buy down their interest rate, or put down more than the minimum 3.5 percent.

The loans can’t be used to cover the minimum 3.5 percent, senior HUD officials told reporters on a conference call Friday morning.

Thus, buyers applying for FHA-backed financing with an FHA-approved lender that offers a bridge-loan program can get a bridge loan to bring down the upfront costs of buying a home significantly but would still have to come up with the minimum 3.5 percent downpayment.

There remain many sources of assistance for buyers needing help with the 3.5 percent downpayment, including many state and local government instrumentalities and nonprofit lenders.

In addition, some state housing finance agencies have developed their own tax credit bridge loan programs, so buyers in states whose HFAs offer such programs can monetize the tax credit upfront to cover all or part of their downpayment. These programs are separate from what HUD announced today.

The first-time homebuyer tax credit was enacted last year–and improved upon earlier this year–to help encourage households to enter the housing market while interest rates are low and affordability is high. The credit is worth up to $8,000 and is available to households that haven’t owned a home in at least three years. The credit does not have to be repaid, and is fully reimbursable, so households can get their credit returned to them in the form of a payment.

How Will The Real Estate Market Be Affected By The Presidential Elections?

The residential real estate market has slumped across the country. Some areas have been hit worse than others.

In the search for solutions, some are looking to the presidential elections. There’s a hope that, somehow, the election of a new president will re-energize the markets. But will it?

First, any effect will be psychological. Now, that’s not to discount psychology. A lot of what’s affecting the current market is buyer (and seller) psychology. And that was certainly the case a couple of years ago, before the real estate bubble burst. People were buying on emotion, not facts and reality. The market was soaring; their friends were making fortunes in a matter of months, and they wanted in on the action. The facts suggested that the growth rate was unsustainable. And reality suggested that soon, with continued escalation of prices, no one would be able to afford a home.

So, what might the psychological effect of the presidential election be? Considering that many people blame the current Bush Administration and its policies for the position we’re in now, the election of someone who supports the current policies probably would have very little effect. The election of someone who represents a break with the past could have a significant psychological effect.

Note: I know it sounds as if I’m saying Obama would help the real estate market and McCain wouldn’t. Again, we’re talking psychology, not actual policy. From that perspective, then, an Obama victory might help, and probably more than a McCain victory.

But it could be possible for McCain to stake out a far different economic position than Bush has. Or he might select someone as his vice presidential running mate who would do that. Or announce people he’d like to appoint to his Cabinet.

On the other side, while Obama in general reflects change, he’d still have to articulate a position of change as it applies to the economy in general and to real estate in particular. And, yes, if Clinton somehow got the nomination, the same conditions would apply.

Obama’s website, at the moment, doesn’t have much detail on the subject. He does say:

“Obama will crack down on fraudulent brokers and lenders. He will also make sure homebuyers have honest and complete information about their mortgage options, and he will give a tax credit to all middle-class homeowners.”

But that’s not the root of the problem.

Obama’s site also says:

“Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama’s increased penalties on lenders who act irresponsibly and commit fraud.”

That might help a small portion of those in trouble. But it won’t help anyone who’s already lost their home, either via a foreclosure or short sale. And it doesn’t appear to help people whose homes have lost substantial value. If someone bought a home in 2006 for $500,000 and it’s now worth $350,000, refinancing that $500,000 mortgage, while lowering payments slightly, still leaves the homeowner “upside down” by $150,000. And all the other homes in that neighborhood are still only worth $350,000…versus $500,000 a couple of years ago.

Meanwhile, McCain does have a proposal, but when you consider the paperwork, the hoops homeowners would have to jump through, and the bureaucracy it’s sure to spawn, there’s a real question of whether it would benefit many homeowners.

McCain’s website says:

John McCain Is Proposing A New “HOME Plan” To Provide Robust, Timely And Targeted Help To Those Hurt By The Housing Crisis. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home’s market value.

Eligibility: Holders of a non-conventional mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30-year fixed-rate mortgage on the existing home.

How It Works: An individual picks up a form at any Post Office and apply for a HOME loan. The FHA HOME Office certifies that the individual is qualified and contacts the individual’s mortgage servicer. The mortgage servicer writes down and retires the existing loan, which is replaced by an FHA guaranteed HOME loan from a lender.

So, under McCain’s plan the homeowner had to be creditworthy after 2005…but nevertheless have accepted an “unconventional loan”…and must be in trouble now…but still must be able to qualify for a 30 year conventional loan. That eliminates a huge chunk of the population in trouble.

And then there’s the fact–as with Obama’s plan–that you’d still be refinancing a $500,000 mortgage on a $350,000 property. When Harry Homeowner wants to sell in a year or two, and his property is still worth under $500,000, what then? Are we just postponing tens of thousands of short sales?

If any of the candidates came in with a “Marshall Plan for Housing,” a major program, well laid-out, with some freshness and creativity, that could have a positive effect. Otherwise, I wouldn’t expect much.

One exception: The housing market around Washington, D.C. Every time there’s a presidential election, housing activity increases simply because a lot of people (administration officials, staffers on the Hill, congressmen and representatives, and so on) leave, and others come to replace them. I think it’s safe to say that there might be a greater turnover in all those categories than in past years. So, it’ll help the DC area. As for the rest of the country? Highly unlikely.

Don Tepper,
www.Solutions3DHome.com
www.WeBuyFairfaxHouses.com
________________________
Realtor with Long & Foster licensed in Virginia