It may not be in the headlines, but we all realize the housing meltdown continues in 2010. Foreclosure rates are stubbornly high, despite so many efforts to reduce them.
1. Foreclosure rates remain high
2. Foreclosures rates are increasing in the best neighborhoods. High-end homes are now feeling the price pressure as a result.
3. The unemployment rate continues to rise. It is expected to continue to rise throughout 2010.
4. Commercial real estate is the next major industry to implodefollowed by credit card companies.
5. Inflation can only be kept in control for so long – expect rising prices worldwide starting in 2010.
6. The controversial bailouts won’t continue
There’s no reason to expect that there will be any appreciation in home prices anytime soon. A report recently predicted that as many as 48% of homeowners will be “upside-down” on home mortgages by the end of 2010. More price erosion is expected in the coming months before the decline stops and we hit bottom. Gov’t efforts to stem the tide of foreclosures, most notably the loan modification program, just gets more scandalously slow each month. Backlogs, erroneous denial of applications, errors galore…the banks can’t hire and train fast enough to keep up. Some negotiators have as many as 300 files at one time! Real, meaningful principal reductions seem like so much hype at this point.
Homeowners are advised to use every tool available to save your home! During the housing market boom, lenders loosened underwriting standards to sell more and more loans to meet the insatiable global demand for mortgage-backed securities. Loan originators cut corners to meet sales quotas. Lenders, brokers, appraisers, Realtors, and Home Inspectors participated in what has now been labeled predatory lending. Predatory Lending is clearly unethical and some of the actions are illegal. Some violations have remedies that are inconsequential to most borrowers. Some experts estimate that MOST Adjustable-rate mortgages made during the period 2003-2008 show evidence of violations of consumer protection laws. Whether by unintentional errors or through greed and disregard for the law, the violations may now provide leverage for homeowners to negotiate a good workout solution.
What are the most common violations? Here are the top 10!
1. Charging unnecessary fees
2. Charging excessive fees for loan rate buy-down (points)
3. Selling private mortgage insurance (pmi) in cases where it was not needed
4. Selling single-premium life insurance and charging the premium in the loan – without prior knowledge and consent of the borrower.
5. “Stripping Equity” by refinancing so many times that the fees eat up the equity and make the borrower vulnerable to foreclosure (too high DTI)
6. Not fully disclosing loan terms
7. Using low “teaser” rates with adjustable-rate mortgages to convince borrowers to accept high-risk loans
8. Falsifying (or knowingly participating in falsification) of any facts (income, home value, assets, etc.) on application to enable the borrower to qualify to borrow more than they should
9. Pushing a more expensive product for personal gain – even if the borrower could qualify for a lower-priced loan
10. Targeting poor, uneducated, elderly or minority groups with unfair loan products and taking advantage of their vulnerability
11. Failing to take into account “borrowers’ best interest”
12. “Promising” to refinance “soon” in order to convince borrowers to accept bad loan terms
If I was able to show you how your lender violated laws during your loan processing and that some of the violations were serious enough to warrant a suit, would you be more confident in workout negotiations with that lender. Oh, I think so! Lenders and others were pretty well versed in the law and how to stay on the fringes. So, often your findings will not reveal big violations. But, the auditor may uncover a “pattern” of behavior thatdemonstrated disregard for your rights and that harmed you.
You should get a Forensic Loan Audit if:
1. your loan was purchased during the 2002-2008 timeframe
2. if your loan was sold to you through an independent broker (not an employee of the lender)
3. if the loan is an ARM, neg-am, “Pick-a-Pay” Option ARM, or interest-only loan
4. if loan is a sub-prime loan (3+ points higher than the best loans at the time) or if it is an Alt-A loan
5. if the loan had any pre-payment penalties
6. if loan was a no-doc or low-doc loan
7. if you felt “hustled” to get the loan or sign the documents
8. If you accepted poor terms with a promise to refinance to a better loan “soon”
9. If your loan payment, including principal, interest, tax, insurance and homeowner’s association fees (HOA) exceeds 40% of your gross household income
10. If you were forced to accept mandatory arbitration, thereby limiting your legal rights.
Legal Action – worth it? The loan modification process is a negotiation. The more leverage you have the more likely it is that you will succeed. Proof of lender violations of TILA, RESPA, HOEPA or state or federal consumer protection laws can give you a significant advantage. Forensic Loan Audits are professional audits of the loan and the process used to qualify you and the property for the loan. They are extensive. They are performed by auditors, specially trained in spotting violations.
Three 2010 observations
I am convinced that Forensic Loan Audits give leverage to homeowners in loan modifications negotiations. Workouts are routinely concluded faster and better for borrowers who present such information during the negotiations. Secondly, I have observed that the power isofte in the effective use of the information. That is, even common results from an audit can be used effectively in negotiations as a signal that you are serious about the negotiations and will not just stand in line…like everyone else. finally, I’ve seen that often there are what I call “low-hanging fruit”. These are clear violations of a serious nature that can be readily identified. An informed consumer can spot these violations without too much effort. After that it is simply a matter of finding a trustworthy auditor. More on this topic, next time.
Want to find out more about actually getting loan modifications? Visit Rockwood’s site about DIY Loan Modiification at Home Loan Modification