California Bankruptcy Attorney Blog

Our Ontario loan modification attorneys wrote last week about several Sacramento-area lawsuits alleging that lenders are deliberately trying to push borrowers into foreclosures. This is not a common allegation, but a March 2 article from the San Jose Mercury-News shows that lawsuits in general are an increasingly common tactic in California for homeowners desperate to keep their homes. The article said federal lawsuits over the Truth in Lending Act or wrongful foreclosure have skyrocketed in the past five years, from just 29 in 2005 to 1,395 last year. Many more may be filed in state courts. Lawsuits typically allege that the bank reneged on a loan modification deal, or made an original loan that it never should have made.

Both are claims made by Sonia Leverman, one of the plaintiffs in the article. The Sunnyvale homeowner was given English-only documents to sign for her adjustable-rate mortgage even though she doesn't speak English well. She says she was shocked when the rate shot up by nearly $2,000 a month, shortly after her husband lost his job and her sons' work hours were cut back. The family later completed a three-month trial loan modification, only to be denied a permanent loan modification because, the lender said, their third payment was late. They have a Western Union receipt showing it was on time. Finally, they hired a loan modification attorney who sued the loan servicer for breach of contract. Now, they're on track for a permanent modification, although they're still underwater.

The family's lawyer said the servicer refused to negotiate until he got involved. This is typical in our experience as Bellflower loan modification lawyers. Lenders and loan servicers believe they can make more money by foreclosing than by helping modify a loan that they don't think the borrower can pay off. Rather than say so, they find excuses to derail permanent loan modifications, allowing them to look like they're trying to help. Meanwhile, borrowers who are genuinely trying to meet their financial obligations get a "runaround." That's true even in cases like Leverman's, in which there was strong evidence of wrongdoing and thus a clear risk that the family would take legal action. In addition to the dispute over the on-time payment, providing English-only documents to Leverman may have been a violation of California's Foreign Language Contract Act.

Continue reading "Californians Increasingly Sue to Enforce Loan Modification Deals With Lenders" »

Our San Bernardino County loan modification attorneys have known for months, if not a year, that banks are letting more time go by before re-selling foreclosed homes. But a Feb. 27 article from the Los Angeles Times says borrowers are starting to notice -- and living in the homes rent-free while the lender delays a foreclosure or a sale. Reasons the article gives for the trend include large backlogs at banks; the low prices foreclosure sales can get in the housing market; the glacial loan modification process; and banks' ability to use former homeowners as unpaid maintenance workers. In fact, at least one lender, Citibank, has formalized the arrangement, allowing foreclosed homeowners to stay rent-free for six months if they hand over the lease.

One economist estimated that as many as 100,000 families could be living rent-free in the Inland Empire alone, judging by the difference between the number of loan delinquencies and the number of foreclosures. Among them are the Harrisons of Perris, one of the most foreclosed cities in California. Eugene and Patricia Harrison stopped paying their mortgage in October of 2008 because of a job loss, and went into default after Countrywide Financial, their mortgage holder, told them they needed to be in default for a loan modification. Since then, they've received several contradictory or confusing notices from the bank, including an order to vacate that was not enforced. Sixteen months after their last mortgage payment, they are still arguing with Bank of America, which bought Countrywide, for a loan modification.

If this trend holds, it could be a gift to struggling homeowners. Most people go into default on their mortgage payments because they have financial problems. Allowing these homeowners to live rent-free for months lets them save their money, so they can find a rental home or get legal help. But as Westminster loan modification lawyers, we are disappointed that stories like the Harrisons' are still so common. Countrywide Financial was one of the leading subprime lenders, which authorities believe was why it failed, and why many former Countrywide customers are entitled through legal settlements to loan modifications. The article doesn't say whether the Harrisons would qualify, but it's clear from the article that Bank of America has not given their case enough attention to resolve it properly.

Continue reading "Report Says Banks Increasingly Allow 'Squatting' by Foreclosed Homeowners" »

Our Redlands loan modification attorneys have believed for many months that mortgage lenders are not very interested in modifying loans. But according to a Feb. 22 article in the Sacramento Bee, at least 11 lawsuits in the region allege that one lender has actively tried to push its borrowers into foreclosures. The claims against OneWest Bank stem from its purchase of the failed IndyMac Bank from the FDIC. To sweeten a deal that would give OneWest a lot of troubled loans, the FDIC agreed to absorb some of the losses from those loans. The lawsuits allege that this makes it more profitable for OneWest to foreclose than to allow loan modifications, even though it is participating in the federal Home Affordable Modification Program.

Ten of the claims are in U.S. Bankruptcy Court for the Eastern District of California, and one is in state civil court. One of the attorneys for the bankruptcy cases said IndyMac bought the bad loans for 70% of their value, but can expect FDIC reimbursement for 80% or more of the losses on the loans, and can keep any proceeds from a foreclosure sale. He said this means OneWest can actually make more money on a foreclosure than it could by keeping the loan alive at a discount. He and another bankruptcy lawyer also said OneWest illegally increased mortgage payments after their clients filed for bankruptcy. In the state court case, the plaintiff claims OneWest violated the Truth in Lending Act by ceasing meaningful responses after it took over an IndyMac mortgage.

As Chino Hills loan modification lawyers, we have filed several lawsuits with similar claims about foot-dragging that violates the TILA. However, the claims about the FDIC reimbursement agreement are new to us, and disturbing. We have long since concluded that most lenders have a policy against making loan modifications, even if they claim they grant them and are participating in HAMP. Studies have repeatedly shown that lenders sometimes stand to make more money on a foreclosure. Other times, blind application of policy or balance-sheet trickery blocks loan modifications for borrowers who are willing and able to make payments. This applies to lenders without an FDIC reimbursement deal. Similarly, all creditors, no matter what their relationship with the government, are forbidden from trying to collect debts after a bankruptcy is filed.

Continue reading "Sacramento Lawsuits Allege Lender Deliberately Pushes Borrowers Into Foreclosure" »

Our Fullerton loan modification attorneys were very interested to learn that the federal government is still looking for ways to improve the Home Affordable Modification Program. A Feb. 22 article in the Wall Street Journal says the Treasury Department, which administers HAMP, is considering several changes that would give borrowers more chances to fight an unfair denial by their lenders. Most importantly, the proposed rule would require lenders to give borrowers thirty days after a denial of a HAMP application to respond. The idea is to allow borrowers to appeal the lender's decision without fear that the lender will foreclose.

The proposal is part of internal federal documents and is not final. A spokesperson for the Treasury Department said it was one of many ideas under consideration and that no announcements are scheduled. Other parts of the proposal included:

• Expanding the requirement to make "reasonable solicitation efforts" to let borrowers know they qualify for HAMP. The proposal would specify that lenders must contact any borrower whose payments are late by 60 days or more and who is eligible for HAMP, with at least four phone calls and two letters, one certified.
• A requirement to certify in writing that the borrower is not eligible for HAMP before a foreclosure sale.
• A requirement to suspend foreclosure proceedings while a HAMP application is being considered. This is not currently mandatory, although many lenders say their policy is to suspend foreclosures.

The article says the proposals would slow down the already slow foreclosure process. That may be an implicit criticism, but we're not sure we see anything wrong with slowing it down. These proposals seem designed to address common complaints about lenders' behavior in HAMP, particularly complaints about incorrect denials and foreclosures happening during a loan modification application. Many borrowers have gone to the media with stories about being foreclosed on after a loan modification was granted, suggesting that lenders' left hands don't talk to their right hands often enough. If another month is what it takes to prevent this sort of seeming incompetence, our Colton loan modification lawyers are okay with a delay -- especially since lenders already routinely drag their feet on applications.

Continue reading "Treasury Department Considers Adding Appeal Period to HAMP" »

Federal statistics on loan modifications under the Home Affordable Modification Program have not been encouraging. So our Rancho Cucamonga loan modification lawyers were pleased to see a sharp increase in temporary modifications made permanent in the Treasury Department numbers released Feb. 17. According to the Feb. 18 Los Angeles Times, lenders stepped up in January, increasing the number of permanently modified loans from 66,465 at the end of December to 116,297 at the end of January. Another 76,482 modifications were approved and waiting for acceptance by the borrower, the report said.

HAMP was announced about a year ago as the Obama administration's attempt to slow foreclosures and help the housing market recover. However, the program has come under intense fire in the past year as a "failure," because very few modifications have been done compared to the estimated 3.4 million mortgages eligible. The program's slowness has attracted criticism of the participating lenders as well as the government and, to a lesser extent, borrowers who don't follow instructions well. The January numbers say 28% of eligible homeowners have now entered the program through all participating lenders. At Bank of America, the nation's largest loan servicer, that number was 22%, up from 15% in December and 12% in November. And HousingWire reported that California has the most active HAMP loans, trial and permanent, in the U.S.

This is good news for our clients. As Corona loan modification attorneys, however, we'd like to know what role public relations played in the sharp upswing in loan modifications. We wrote in December about a meeting the federal government called with participating lenders, in which it reportedly chastised them for their very low rate of conversions as of November. Treasury officials also planned to require more frequent updates from participating lenders and even fine those that don't respond fast enough. We suspect these actions had a strong effect on January's loan conversion numbers. As with other aspects of HAMP, we believe lenders simply declined to take serious action to prevent foreclosures until the government "shamed" them publicly or added teeth to the program.

Continue reading "New Federal Data Shows Sharp Increase in Permanent Loan Modifications" »

A year after President Obama announced his Making Home Affordable plan to slow foreclosures, the plan has been heavily criticized. From the left, and from Ontario loan modification attorneys like us, the criticism has focused on the plan's lack of teeth -- nothing compels lenders to participate, or complete their side of the deal in a timely manner. A Feb. 14 article in the New York Post makes the same criticism, but of a similar program in New York state. The Bankruptcy Loss Mitigation Program, a project of bankruptcy judges in the Southern District of New York, has produced fewer than 10 permanent loan modifications out of 808 applicants, the newspaper said. And according to many personal bankruptcy attorneys, the problem, as with HAMP, is that the plan doesn't motivate lenders to actually complete the deals.

Under the Bankruptcy Loss Mitigation Program, lenders and borrowers are supposed to meet face to face to negotiate a loan workout whenever the circumstances make one possible. That part of the program is working, says Judge Cecelia G. Morris of Poughkeepsie bankruptcy court. But consumer bankruptcy attorneys say the rate of loans actually modified is miserable. One attorney said he hasn't had a single case in which the lender got the paperwork right the first time. This is also a common complaint from borrowers and attorneys trying to participate in HAMP, who say they've been strung along for months by lenders who repeatedly lose paperwork, ignore it for months or give contradictory instructions. Another attorney suggested that banks would have a stronger incentive to finish loan modifications if bankruptcy judges were allowed to reduce principal on primary homes, as they are currently allowed to do with second homes and vehicles.

That attorney was referring to "cramdowns," a proposal that unfortunately died in Congress last year due to strong lobbying from the financial industry. Our Chino loan modification attorneys agree that cramdowns would incentivize lenders to get the deal done. If lenders know they may lose money by forcing a borrower into bankruptcy, they are much more likely to complete a loan modification deal in which they lose far less money and can better control the terms. As things stand, lenders lose nothing if they force borrowers into bankruptcy by refusing to make a good-faith effort to modify loans. This is the real problem behind the "failure" of HAMP, and we do not believe it will be fixed unless authorities find some way to show lenders that making the modifications is in their best interests.

Continue reading "New York State Loan Modification Program Called Ineffective Because It's Voluntary" »

As San Bernardino County loan modification attorneys, we have been reluctant to write about media coverage of the trend toward homeowners "walking away" from their mortgages. We find that despite the wealth of coverage of this emotionally charged issue, the vast majority of our clients have personal and financial reasons to look for other solutions first. However, a Feb. 16 article from CBS News provides a good overview of the pros and cons of this decision. CBS MoneyWatch.com editor at large Jill Schlesinger said the decision may be right for some people, but it's not one to make lightly.

Walking away from a mortgage means moving out and stopping payments because it makes more financial sense to leave than to stay -- not because you can't afford the mortgage. These "strategic defaults" are done because the borrowers are deep underwater and the numbers show that their finances will recover sooner this way. Not surprisingly, Schlesinger warned readers that any default, including a strategic default, will destroy their credit for seven years. She advised borrowers to weigh this against the prospect of being locked into a mortgage payment two to three times the price of rent. You may want to consider a strategic default if you're more than 20% underwater, she said, but you should always do the math. Interestingly, Schlesinger added that most borrowers are reluctant to consider walking away until they see the numbers convincing them that it's a better long-term financial move.

Our Pomona loan modification lawyers know firsthand that borrowers don't make this decision casually. We have represented candidates for a loan modification from the beginning of the housing crisis. In most cases, our clients have strong emotional reasons for wanting to hold on to their homes, along with practical reasons like wanting to keep the down payment or keep their children in good schools. However, when the math shows that a default or a personal bankruptcy makes more sense than fighting for the home, we don't hesitate to explain that to our clients. As Schlesinger points out, large real estate developers have walked away from soured investments for the exact same reasons, without creating the outcry aimed at individual homeowners making what is ultimately a business decision.

Continue reading "CBS News Financial Expert Discusses Pros and Cons of 'Walking Away'" »

As Riverside County loan modification attorneys, we have been skeptical about reports that the housing market is rebounding. A Feb. 16 article from the Associated Press feeds that skepticism by reporting that the number of people behind on their mortgage payments rose at the end of 2009. This continued the disturbing trend of delinquency rates rising over the last year's for each previous year, and reversed a trend toward smaller gains in delinquencies for the rest of 2009. Credit reporting agency TransUnion, which reported the numbers, said it expects foreclosures to continue rising throughout 2010.

TransUnion counts a mortgage delinquent when the borrower is at least two months overdue with a payment. It collected data using its database of credit information on 27 million people. It said in the fourth quarter of 2009, 6.89% of mortgage payments were at least 60 days overdue. That's up from 6.25% in the third quarter of 2009, and from 4.58% in the last quarter of 2008. A spokesperson for TransUnion said a certain amount of uptick is normal during the holiday season, when some people prioritize holiday spending over paying debts. But the trend may go beyond the seasonal, he said, especially if it continues into 2010. Furthermore, adjustable-rate mortgages written in 2006 and 2007 are likely to reset to higher numbers this year, which will create high mortgage payments and eventually more debt. That means more delinquencies are likely, and foreclosures will follow.

Our Fontana loan modification lawyers would like to declare that the market is improving, but the numbers just aren't there. In addition to the considerations mentioned in the article, we believe the continuing high rate of unemployment is a factor. The article does mention that the average amount of debt in new mortgages has increased slightly, which is a good sign because it shows that home prices may be rising slightly. We agree with the TransUnion spokesperson that increasing and stabilizing home prices will be key to the housing market's recovery. Unfortunately, this won't happen quickly unless lenders take a more active approach to stopping foreclosures -- or the federal government requires them to.

Continue reading "Mortgage Delinquencies Remain High in Last Quarter of 2009" »

The New York Times recently ran a story on an approach to negative equity that intrigued our Redlands loan modification attorneys. According to a Feb. 8 post on the Bucks Blog, a private equity company has begun offering lenders and mortgage servicers a program intended to stop "strategic defaults." That term refers to the practice of homeowners walking away from their mortgages when they owe substantially more than the homes are worth. The Loan Value Group offers lenders a chance to hold on to these borrowers by essentially paying the borrowers to stay put. Specifically, the group offers to pay back some of the negative equity when the mortgage is paid off, as an incentive for homeowners to hold on.

The company works only with homeowners who can afford their mortgages, but who are at risk for strategic default because it makes more financial sense to stop paying. It works with client banks and mortgage servicers to identify at-risk borrowers, using a combination of location, income and negative equity information. Then, targeted borrowers are offered money payable when they fulfill the terms of their loans, whether that means paying off the mortgage, refinancing or a short sale. The payment is calculated to be just enough to keep them in their homes, but not enough to make up all of their negative equity. The Times said this typically works out to 8 to 10 percent of the loan's value, but could be as much as 20 percent in boom-and-bust areas. The lender avoids taking a loss in a foreclosure and the borrower stays in the home.

As Costa Mesa loan modification lawyers, we're interested in anything that seems to offer a solution that keeps homeowners in their homes and doesn't meet strong opposition from banks. We believe bankers' reluctance to lose profit (real or imaginary) is the primary problem with loan modification programs, as well as the reason they opposed mortgage cramdowns in bankruptcy. This program may meet those conditions. However, we'd be interested in knowing more about the Loan Value Group's own business model. All businesses exist to make money, and it's important to evaluate whether a business makes money to your detriment before signing on. And borrowers participating should realize that the offer won't necessarily solve their problems. Before signing on, they should do the math and make sure an eventual reward makes it worthwhile to stay on.

Continue reading "Private Fund Invents Program Paying Underwater Homeowners to Stay Put" »

As Rialto loan modification attorneys, we were very interested to get a glimpse into a complaint against a major bank by one of its own former employees. The blog Consumerist ran a post Feb. 8 about a former Bank of America employee who was laid off last year after 21 years, most recently doing due diligence on loans. Vince K. also had a home loan through Bank of America, and he couldn't pay for it after he lost his job, so he arranged a short sale. Unfortunately, the bank never took the loan off its books after the sale, which led to debt-collection phone calls at 4 a.m. and a bill for insurance on a property he no longer owns. In January, a year after his layoff and five months after the short sale, he finally wrote to Bank of America CEO Brian Moynihan to beg for a sensible resolution.

The letter-writer starts out by acknowledging that he owes money for the deficiency balance -- the mortgage debt left over after the proceeds of his short sale. He said he was aware that he owed the money, but that the bank's way of handling this was to "robocall" him at 4 a.m. After weeks of such calls, he tried to contact someone at the bank directly and eventually ended up talking to someone who put his account into collections. He had to call to straighten that out before he could start making payments on the deficiency -- very small ones out of his unemployment check.

During that time, it became clear that the bank hadn't removed his loan from its books, in part because it was sending Vince K. letters demanding that he buy insurance on the property he sold. The bank eventually "force placed" insurance and billed him for it. Then he began receiving collection phone calls about the mortgage debt again. Despite explaining his situation, then reaching out to contacts in the company, he couldn't stop the calls. Finally, he wrote this letter to the media and to the CEO, explaining his problem in detail and with documentation.

Our Placentia loan modification lawyers have read many horror stories like this, but rarely in so much detail and from someone who understands the company from the inside. If the allegations in the letter are true, it seems clear that Vince K. is a victim of severe incompetence by the bank. Not only has the bank failed to clear his mortgage debt off its books, but it has repeatedly violated the Fair Debt Collection Practices Act by attempting to collect debt that is not validated and by calling outside the legally allowed hours. Furthermore, we think it's significant that all of this happened to a former Bank of America employee who presumably knew which departments and people to speak to about the problems. If someone like that can't get a basic problem solved, the chances must be even lower for someone with no bank experience or connections.

Continue reading "Laid Off Bank Employee Writes CEO to Complain About Banks Mortgage Mistakes" »

As Rancho Cucamonga loan modification attorneys, we routinely work with homeowners who are forced by financial circumstances to consider loan workouts, short sales, deeds in lieu of foreclosure and other last-ditch financial moves. So we were interested to see an article on CNN.com Feb. 3 that explains one of the lesser-known repercussions of a foreclosure. As the article explains, a foreclosure or a short sale doesn't always end the homeowner's financial obligations. In many cases, lenders may still pursue the homeowners for the difference between what they owe on their loans and the sales price of the property. This is called a deficiency judgment, and it's achieved by suing the borrower in state court for the difference.

One woman in the article thought she was free of the debt after she was forced to short-sell her house. But about a year and a half after the sale, she received a notice saying the lender was holding her responsible for the $65,000 difference between the sale price and her loan. She couldn't pay, so she had to declare personal bankruptcy. This is not uncommon, the article said, thanks to falling home prices that make it next to impossible to sell homes for what they were worth a few years ago. In fact, lenders in many states can pursue people who let the home go into foreclosure, even if the lender knows the homeowner can't pay. In fact, state laws allow lenders to wait a few years to sue, until borrowers have gotten back on their feet financially. Whether a lender will pursue a deficiency judgment depends on the lender's own policies, the state the home is in and the types of loans involved.

As the article notes, California is a non-recourse state, which means lenders can't go after foreclosed borrowers under certain circumstances. Unfortunately, they're free to pursue deficiency judgments against foreclosed borrowers with refinanced loans and second mortgages, and those who made a short sale or deed in lieu of foreclosure. They're also free to sell those debts to debt collectors who will then go after the borrower. For our Anaheim loan modification lawyers, this means we must carefully analyze the possibility of a deficiency judgment in every case involving loan forgiveness. When necessary, we will aggressively negotiate for a legal document releasing clients from any further financial obligation after the transaction. In some cases, we can also defend clients in court against lawsuits trying to get money the borrower doesn't have and never did have through a deficiency judgment.

Continue reading "Some Mortgage Lenders Pursue Foreclosed Homeowners for Loan Difference" »

Our San Bernardino County loan modification attorneys have long believed that lenders' policies are primarily responsible for their success or failure in the federal loan-modification program. A Feb. 2 post on AOL's DailyFinance blog adds evidence to that belief by profiling practices at Ocwen Financial. Ocwen has attracted media attention because unlike the larger lenders, it's got a strong record in the Home Affordable Modification Program. Where Bank of America had converted fewer than 2% of its trial modifications to permanent and Chase had converted 4% as of mid-December, Ocwen had converted 40%. Its redefault rate is also about half of those at the larger banks. The DailyFinance blog concluded that policies in place at Ocwen made the difference.

According to the blog, Ocwen got its start by buying distressed loans, working with homeowners to sort them out and selling them once they increased in value. It has since shifted to loan servicing, but a company spokesman attributed its success to that background. Where larger lenders had to scramble to handle surging delinquencies, Ocwen already had resources allocated. Borrowers work with a single consultant, not whoever happens to answer the phone, and that consultant is chosen for specific personality traits. Ocwen also uses behavioral-science tricks to remind homeowners of their documentation responsibilities. For example, consultants are trained to remind borrowers that the federal government will accept only signed tax return documents as income verification. And perhaps most importantly, Ocwen is willing to modify principal in cases where it believes that's necessary -- about 15%.

As Fullerton loan modification lawyers, we suspect all of these are radically different from the way larger banks handle HAMP. While not every lender has the background and experience Ocwen has in loan workouts, it's not hard for any company to follow the policies and hiring practices outlined in the post. In particular, the policy of reminding borrowers what documentation they must submit seems very basic and sensible. Perhaps more difficult for the larger banks would be imitating Ocwen's willingness to cram down mortgage principal. Financial institutions are notoriously reluctant to do this, despite the multiple studies suggesting it's the best way to keep underwater borrowers from defaulting or walking away. Major banks may believe they cannot afford to do this, but Ocwen, a much smaller company than Bank of America or Chase, appears to be surviving it.

Continue reading "A Look at Why One Lender Has Succeeded in HAMP While Others Have Failed" »

As Fontana loan modification attorneys, we were interested in a recent announcement that the federal government is changing important rules for its foreclosure prevention program. According to a Jan. 28 article in MarketWatch, participants in the Home Affordable Modification Program will have to provide income-verification documents at the start of the process, beginning in June. In return, lenders will be required to acknowledge receipt of the documents within 10 days and make a yes or no decision within 30 days. The goal is to speed up the process of converting trial modifications into permanent ones.

HAMP has been under fire recently because of repeated reports that most loan modifications have not been made permanent. As the Chicago Tribune reported Jan. 28, the Treasury Department reports that only about 7.3% of HAMP loan modifications have been made permanent. Federal officials say the new rules will hasten the process by eliminating confusion and delay about income documentation. Previously, borrowers were required to provide the documentation during their three-month trial periods. Some had income changes that slowed the process or didn't submit the right documents, while others reported that lenders gave them contradictory requirements or lost their documentation. The up-front documentation rule mimics rules at two of the lenders with the highest conversion rates, GMAC Mortgage and Ocwen Financial Corp.

Our San Juan Capistrano loan modification lawyers wish the new program well, but we're afraid it won't increase conversion rates significantly. A large part of the problem with loan modification conversion lies with the lenders' inability or unwillingness to process applications quickly and explain requirements clearly. We believe lenders behave in these uncharacteristically incompetent ways because they don't truly want to offer loan modifications. The new rules try to stop bureaucratic delays by setting deadlines for responses, but these are easy to get around or ignore, if that suits the lender's needs. To get real action, banks need a clear showing that modifying loans is in their self-interest, through either market forces or government intervention.

Continue reading "Treasury Department Announces Tighter Deadlines and Documentation Rules for HAMP" »

Our Rancho Cucamonga loan modification attorneys have read scores of articles in the past year about the ineffectiveness of most anti-foreclosure efforts, public and private. A new study by state banking regulators and attorneys general confirmed that problem yet again, according to a Jan. 20 article from Dow Jones Newswires. The State Foreclosure Prevention Working Group reported that despite efforts from homeowners themselves, loan servicers and government agencies, foreclosures are likely to actually increase in 2010. The recommendations from the group, whose members include California Attorney General Jerry Brown, included a call for principal write-downs (or cramdowns) to decrease the chances of another default.

The report (PDF) is based on two years of data from 13 mortgage servicing firms. Most disturbingly, it found that only four in 10, or two-fifths, of borrowers in default were even involved in a "loss mitigation effort." As of the end of October 2009, there were 1.7 million borrowers who were at least two months behind in their payments. Meanwhile, in the year between October 2008 and October 2009, the number of loans in foreclosures jumped by 52%. The study also found that the proportion of prime loans in default increased 21% between 2007 and 2009. And more than 70% of loan modifications that are granted actually increase the principal owed, the report said, while only 9% of loans got a principal reduction reducing the balance by more than 10%.

As Fountain Valley loan modification lawyers, we're disappointed to hear that principal is actually added in so many loan workouts. Several studies, as well as common sense, show that negative equity increases the chances that the loan will go into default. It's quite clear by now that banks do not like principal reductions; lobbyists for the financial services industry fought tooth and nail against a proposal to allow mortgage cramdowns during bankruptcies. However, lenders may actually lose more than 10% in a foreclosure or bankruptcy -- and current policies seem designed to force one of those choices. If lenders and servicers are serious about keeping borrowers in their homes, it's clear that they should seriously reconsider principal cramdowns.

Continue reading "State Group's Report Says More Aggressive Effort Needed Against Foreclosures" »

Our Ontario loan modification attorneys are not alone in believing that loan modification programs have not helped most homeowners avoid foreclosure. But we were interested to see a Jan. 19 article in the Wall Street Journal reporting that at least some analysts think it's helped stabilize the housing market anyway. The report from Barclays Capital says the federal Home Affordable Modification Program has helped reduce the number of foreclosed homes offered for sale, which has helped stop housing prices from sinking. This helped home prices bounce back a little in the past year, which has helped increase stability in the market, experts say.

Stabilizing housing prices and encouraging new buyers is not an official goal of HAMP, the article said. The official goal is to help borrowers in trouble keep their homes by reducing their monthly payments. The program is not considered a success, although the Treasury Department announced a small amount of progress Jan. 15. But Barclays Capital's analysis said HAMP has been successful at preventing an even steeper fall in housing prices by "buying time" for the housing market. The report said the market was flooded with foreclosed homes in 2008, which pushed prices down. But thanks to HAMP, foreclosure moratoria (like the one here in California) and other programs, the foreclosure process slowed and nearly 210,000 fewer foreclosed homes hit the market in November 2009, compared to a year earlier. Barclays Capital expects the number of foreclosures to peak again in spring or summer of 2010.

As Cerritos loan modification lawyers, we're glad that HAMP has helped slow down and possibly even reverse the fall of housing prices, which was particularly sharp here in Southern California. This should help keep some people out of foreclosure simply by leaving them equity in their homes, and hopefully start restoring more equity as prices normalize. But as this article notes, that's not the goal of HAMP, and progress toward its actual goal of preventing foreclosures has not been strong. Financial institutions have blamed government rules and borrowers themselves for this lack of progress, but media reports show that lenders and loan servicers behave like they don't really want to make loan modifications. But instead of saying so, they continue to take applications and ignore them, repeatedly lose them or deny them for spurious reasons.

Continue reading "Analysis Says Federal Mortgage Program Has Helped Prop Up Housing Prices" »