Lenders Scramble to Help Struggling Homeowners: "We Don't Want to Foreclose"

Discussion in 'Wall St. News' started by biggerfish, Apr 4, 2007.

  1. Too late for the bulk of subprime homeowners?

    Mortgage Pros Scramble to Modify Loans
    Lenders Scramble to Help Struggling Homeowners -- "We Don't Want to Foreclose"

    Wednesday April 4, 4:35 pm ET
    By Ellen Simon, AP Business Writer

    NEW YORK (AP) -- As home foreclosures mount, mortgage companies are knocking on doors, sending letters and making phone calls with a simple message for struggling homeowners: They'd rather modify your loan than foreclose.

    EMC Mortgage Corp., which has a $78 billion loan portfolio that includes subprime loans to homeowners with weak credit, this week launched a 50-person team it calls "the Mod Squad." Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment. In an industry that often rewards workers for getting off the phone quickly, each team member has time to speak to as few as three people a day.

    "You can't just run this like a call center; it needs to be run like a counseling center," said John Vella, president and CEO of EMC. Right now, $2.14 billion in mortgages, 2.74 percent of EMC's portfolio, is in default, up from 1.93 percent a year ago.

    Lenders have long modified loans for homeowners facing job loss, illness, divorce or a death in the family. But with many borrowers across the country struggling to keep up with mortgage payments, mortgage companies increasingly are prodding anyone who's having trouble making payments for any reason to give them a call.

    Critics say lenders made loans to borrowers who weren't creditworthy with terms that would be impossible for them to meet. Whether the current wave of workouts will merely postpone foreclosures -- and delay bad loans hitting lenders' books -- is an open question.

    Regulators will be watching to see how many modifications are successful, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business.

    The scant public information on modifications makes evaluation tricky, said Thomas Lawler. The former chief economist at Fannie Mae now runs his own consulting business, Lawler Economic & Housing Consulting, in Vienna, Va.

    Loose lending standards followed by lax modifications can merely delay a problem, Lawler said. He pointed to the raft of modifications done in the manufactured housing business in the mid 1990's, when easy credit led to a wave of defaults and reposessions.

    "If people had known what the servicers were doing, red flags would have been raised; but by the time people knew what was going on, it was too late," he said.

    Advocates say that half the people in foreclosure never talk to their banker before losing their house, and many could rework their loans if they only got help.

    "It's tragic," said Colleen Hernandez, president of the nonprofit Home Ownership Preservation Foundation. "We have the capacity to help a whole lot more people."

    Calls to her group have picked up markedly. Its 24-hour hotline, (888) 995-4673, is getting 300 calls a day, from 75 daily in the first quarter of 2006.

    Civil rights groups called Wednesday for a six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders should help borrowers refinance their mortgages or face lawsuits.

    A modification helped Ana Rodriguez, 41, keep her family's home.

    Rodriguez and her husband, Ricardo, bought a house in Chicago's Jefferson Park neighborhood in 1998. Their mortgage was $1,200 a month. After he lost his job as a machinist, the couple refinanced the home in 2004 with an adjustable rate mortgage. The new payment was $1,500 a month.

    He found a new job, but a year later, he was out of work again.

    Rodriguez, a secretary, called Chicago's department of housing, which referred her to a nonprofit. It worked with her mortgage company, Homecomings Financial, part of GMAC Financial Services.

    "I did emphasize that if there was nothing they could do before we would lose our home, we wanted to sell it before losing," she said. "They said they were going to try to work everything out."

    Her husband found a job soon after and the couple made three payments that included penalties and fees for the installments they'd missed. He quickly found a better job and the couple was able to refinance with a 30-year mortgage at 6.62 percent interest last October. The monthly payments are $1,600.

    "We really got ahead of this one," said James Leyba, the community relations specialist at Homecomings who worked with the Rodriguez family.

    New foreclosures hit their highest ever level in the fourth quarter of 2006, according to the Mortgage Bankers Association. Home owners are the obvious losers, but all the financial services companies involved lose. The lender loses the steady stream of payments it counted on. If it sold the loan as part of a securitization, a package of mortgage-backed securities, that investor loses. Loan servicers, who are usually paid a fraction of the interest on a loan, lose too.

    With home values falling in some parts of the country, none of the finance companies want to be stuck owning a house that has depreciated, or, worse, a house surrounded by other homes in foreclosure. EMC says it loses, on average, 40 percent of the value of a loan in foreclosure and also has to pay taxes and other expenses on the property.

    "The larger the loss of value and the greater the likely loss will be, the more flexible we are," said Larry B. Litton, Jr., president and chief executive of Litton Loan Servicing in Houston, which services $60 billion in mortgages. "We may waive past-due amounts. In extreme situations, we may even waive principal, if need be."

    Litton said his company is modifying about 1,000 loans a month; up from 300 to 400 about six months ago. Vella said he hopes the Mod Squad will be able to modify up to 2,000 loans a month; six months ago EMC only modified about 500 loans a month. The Mod Squad has been getting an average of 600 calls a day since Monday.

    EMC has hired an increasing number of contractors over the last three months to knock on the doors of shaky borrowers and drop off fliers asking the home owners to call the company. Last month, the contractors visited 3,000 properties.

    The Mod Squad is planning a six-city tour; it hopes to attract struggling homeowners to information and counseling sessions with offers of $100 gift cards to Home Depot Inc. The number is (877) 362-6631.

    Companies with older programs are trying to stand out. The Hope program sponsored by GMAC ResCap and Homecomings Financial, which has a team of 20 loan workout experts, may change its name to differentiate itself from newer Hope programs, a spokesman said.

    The investor in securitized loans often dictates how much a loan can be modified, and Litton said his company has demanded more flexible terms from securitizers, which lets it modify problem loans with lower interest rates or extended terms. For instance, a home owner whose adjustable rate mortgage "resets" to a higher interest rate on May 1, 2007 might get a 24-month extension, putting the adjustment off until May 1, 2009.

    "That may give the borrower breathing room,
    " Litton said.

    "It's really up to servicers in this climate, he said. "If the servicers aren't flexible, then we're going to see credit losses like we've never seen before."

    Home Ownership Preservation Foundation: http://www.995hope.org/
  2. blast19


    Pretty funny article....I read it earlier. I'm a bit confused though about how these lenders are able to authorize rate reset deferrals and such. They sell most of them to investors so I don't understand how they would have the right to do so without investor approval. Investors should be peeved about this I'd think and want to get money back or something else.

    I think the bulk of this can't be solved by waiving fees and they certainly are unlikely to give better loan terms to most of the Alt-A borrowers, some 40% of loans the last two years.
  4. :D
  5. Not a felony for mortgage fraud in Nevada?? No need for "vulture investors" to swoop in on residential foreclosures - apparently some have figured out a way to accumulate properties by deceit without serious penalty, firsthand.

    2007 LEGISLATURE: Panel told of lending 'lies, fraud'
    Southern Nevadans relate stories of losing their homes

    CARSON CITY -- Southern Nevada residents described Wednesday how they were conned by unscrupulous lenders into signing contracts to make mortgage payments beyond their ability to pay.

    Carol Wolff sobbed as she told the Assembly Commerce and Labor Committee how she fell behind in her mortgage payments and ended up signing a contract with a lender who promised her another loan so "I could save my house."

    In reality, the "mortgage consultant" secured title to her home, made her sign a lease and then kicked her out when the lease expired.

    "I ended up losing my house," said Wolff. "I lost everything."

    Daniel Ebihara, a lawyer with Clark County Legal Services, said what happened to Wolff happens regularly in Southern Nevada.

    "It's lies, fraud and misrepresentation," he said. "They learn how to do it in get-rich seminars held in hotel ballrooms. They get people to knowingly or unknowingly convey title to them by telling the people they will save them from foreclosure. No one is ever saved."

    Wolff and Ebihara joined a line of people testifying in support of Assembly Bill 440, which would create the felony crime of mortgage fraud.

    The bill also would require lenders to verify that the people who borrow money have the ability to repay the loan from their income and other assets. The lenders also could not make misrepresentations or conceal material facts about the loans.

    Now some lenders make "no-document" and "low-document" loans in which they do no or little checking on the income and assets of borrowers.

    Amy Austin, testifying in Las Vegas, described how she has been a victim of identify theft and mortgage fraud. She said a real estate agent stole her identity and used it to buy two houses for $600,000.

    She said she never signed any loan documents, met anyone or verified anything. The loan officer ultimately was suspended for only three months, she added.

    While the banks freed her from liability on the mortgages, Austin said her credit has been ruined.

    "Pass this bill," she said. "These people are criminals."

    Assemblyman Marcus Conklin, the bill's sponsor, said Nevada leads the nation in the rate of mortgage foreclosures with one in 278 loans ending up in default. The rate is three times the national average.

    He said part of the problem is the income needed to qualify for a traditional mortgage on a $300,000 home in Las Vegas is 170 percent of what the average family earns.

    "That means there is a large market for alternative financing products," he said. "Las Vegas is a hotbed of activity that may not be in the best interest of consumers."

    During the hearing, witnesses said many of the home loans in Clark County are "negative amortization" mortgages, with which the buyer never reduces the principal.

    The principal even may increase over the years, although the buyer faithfully makes payments.

    In response to questions, Conklin, D-Las Vegas, said people are "desperate for homes" and often willing to enter into mortgages they cannot afford.

    "We have plenty of jobs, but we don't have affordable housing," he said. "People give them loans, knowing they cannot pay. Then they foreclose on them and take all their assets."

    "This is a big problem," said Scott Bice, commissioner of the state Mortgage Lending Division. "Until some of these people go to jail, it is not going to have much of an impact.

    Bice said he has pulled licenses of some unethical lenders, but then they "simply go underground" and continue to operate under the licenses of other lenders.

    A vote was not taken on the bill in a hearing that lasted all afternoon and into the evening.

    Assembly Commerce and Labor Committee Chairman John Oceguera, D-Las Vegas, asked Conklin to meet with lobbyists for legitimate lending organizations and work on possible amendments.

    Brock Davis, a representative of the Mortgage Bankers Association of Nevada, acknowledged there is a problem with unethical lenders, but said he represents the "good lenders" and supports much of the bill.

    "The real problem is negative amortization, suicidal loan programs that people are put on probably through misrepresentation," Davis said.

    But he said 85 percent of the people receiving no-document or low-document loans pay their mortgages on time. Without these loans, many people would not be able to get into a home, he said.

    During the hearing, Assemblyman Morse Arberry, D-Las Vegas, mentioned he is a mortgage broker and expressed concerned amount of about mortgage fraud.

    "How many people do you need to enforce this?" he asked Bice. "You will need an army of folks."

    Bice told Arberry, chairman of the Assembly Ways and Means Committee, that he is seeking an adjustment to his budget.