Your mortgage is about default due to slow payments. The question comes up as to what makes better financial sense; a short sale or fore-closure on the property. If

you have the ability and the lender and all the other lien holders agree, a short sale (paying less than one owes to the lien holders) might make more sense. If the lenders do not agree, foreclosure may be inevitable and your only choice. Both, the short sale and the fore-closure will have a negative impact on your credit scores.

Getting Short Sale Approval

Another requirement is that one MUST have the approval of the lien holders legal department and you MUST show good reason for the request to short sale the loan. Legitimate, valid reasons include disastrous medical issues (death of the primary borrower) that have caused the deficiency, mass lay-offs in a given geographical area and extreme unusual circumstances way outside the norm (i.e.: weather that has devastated the entire area, earthquakes that have completely destroyed the area where the property is located).

Just because one of these circumstances has occurred does not excuse, negate or hold harmless the borrower from the debt. The fact is the lender provided funds for the PURCHASE of the home… not the home itself. This is one reason many insurers are suggesting flood insurance for most properties. If one looks at the devestation caused by the flooding in the mid-west in recent years, one can quickly see why flood insurance is now more the norm as opposed to the exception. 

With the involvement of FEMA, many homeowners have been provided short term loans regardless of credit to be made whole, in a sense, so they do not fall behind on their loans and for many, they have been able to re-build, sell or relocate without the negative impact on credit or the devestating effects the occurrence caused in the first place. Most lenders will readily accept these payments, even if they had to wait for the payments from FEMA, rather than re-victimize an otherwise solid borrower who, through no fault of his own, found himself in these unfortunate circumstances.

Another financial vehicle that has become very popular is medical savings accounts. People who have these accounts are already prepared to make payments on what could be very expensive treatment and some insurance policies provide very large face amounts to reduce the potential financial ruin due to catastrophic illnesses.

Foclosure

Financial irresponsibility, poor decision making, failure to replace income due to firing are all examples of why a lender would refuse a short sale. I saw a sign recently that read “Poor planning on your part does not constitute an emergency on my part”. In this context, that means, if one makes the ill-advised decision to engage in activities that entail a huge amount of financial risk and loses his money or one engages in illegal activities NO lender will approve a short sale.

An example of an illegal activity would be any activity that violates the RICO Act. For quite some time, the safest haven to hide ill gotten gains was in real estate because it was very difficult for law enforcement to seize a property. RICO changed all that. If it is found out that ill gotten gains were used to purchase and as a result “hide” these monies vis a vis the real estate owned, the lender will not grant approval to the short sale and under the RICO Act will immediately institute foreclosure proceedings.

After the fore-closure is completed and in conjunction with  law enforcement, the property becomes the property of the government. The house and the contents, at this point become the property of the government and are subject to auction or sale.

Consult With An Attorney Before Foreclosure

Please note: ONE MUST CONSULT WITH AN ATTORNEY TO FILE THE PAPERWORK FOR APPROVAL OF A SHORT SALE. My recommendation also is that if  fore-closure is inevitable, consulting with an attorney is highly recommended. If you have read my previous articles, the reasons are clear.

If a short sale is granted, one will also need to understand that it will be very difficult to obtain a loan for at least three years under FNMA or FHA guidelines. One needs to consult with the lenders to find what all of their guidelines are in qualifying for a new loan.

 Some lenders do not have every program available. In other words mortgage company A may not have the programs that mortgage company B does. It will require some checking and some phone calls/emails to find out. I cannot stress the importance of the borrower performing his due diligence in looking into qualifying for a loan after a fore-closure or a short sale.

With all of the information you have read here about mortgages and bankruprcy, a wise question to ask is how to avoid filing bankruptcy in the first place. In this day and age of economic uncertainty, declining property values, high unemployment, declining wages and an increase in the costs of goods and services, it is difficult for many people to avoid borrowing more, stretching out payments for a longer period of time, borrowing from their savings or worse, mortgaging their childrens’ futures just to stay afloat.

My Story Avoiding Of Bankruptcy

As a parent, I know that in the middle of the last decade, my wife and I at times had to make these difficult choices. Fortunately, the amounts we had to borrow from our savings were not so high that we wound up finally declaring bankruptcy, but we did come close. I remind the reader that I was in the mortgage business for well over 15 years and was in the trenches, so to speak, on a daily basis and my income was reduced because of the mortgage crisis.

Avoiding Bankruptcy Starts At Home

The very first thing we did to avoid bankruptcy was reduce unnecessary expenditures. That meant taking day trips to the mountains or the shore as part of our vacation time instead of being away for a week or two at a time. We had to reduce the number of vehicles from two to one to reduce the amount of gas we used, vehicle insurance and maintenance and our children had to make do with a little less.

Another thing we did was not take out new credit or any new loans, we paid off credit cards and started taking care of and maintaining the houses we owned ourselves. I am in no way a handy man, but basic things like lawn maintenance, any electrical repairs I did myself. We even replaced our carpeting ourselves because our daughter is highly allergic to carpeting glues. Another way to reduce these expenditures is to limit shopping excursions as much as possible.

When Bankruptcy is Unavoidable

Assuming one has done some of the things I just outlined and bankruptcy is now unavoidable, how can the process be made as smooth as possible? First of all, pay off as much as possible before filing. Please note that the courts will want to see a list of all debts and credits on a balance sheet.

There have been instances of people going to court to file either without this list or have conveniently hidden monies. These monies are typically not reported to the IRS, are assets that are hidden in other relatives accounts, have been moved to minor childrens accounts,etc. This is not only un-ethical but illegal.

If the amounts are high enough, one could be prosecuted for fraud under the RICO Act. So, a complete listing of all assets and debts is required. Be prepared with bank statements, stocks, bonds, etc. A bankruptcy attorney will give you a list of all that is required. Lawyers will charge you over $500 if you are short on cash you may want to get a bankruptcy software, which is low cost bankruptcy assistance program (costs less than $50).

Be advised that creditors have a right to dispute one’s ability to pay the debts, the amount owed and any communications you have had with the creditor in regard to their attempt to collect the debt. One major pitfall is any attempt on the part of a creditor to collect on a deceased parents’ debt. As strange as this sounds, it does happen. When my step-father passed away in 1994, the hospital called me on several occasions to collect on his unpaid hospital bill. I was never listed as the responsible party for his debts, yet they listed his debts on my credit report. It took many calls to their attorneys from my attorneys as well as cease and desist notices sent to the hospital to stop contacting me.

Which Regulations Protects You

Under the current FDCPA regulations, I could have filed a lawsuit against the hospital. Another pitfall one can encounter in filing, is for one not retaining correspondences between yourself and the creditor.

Strange as this may sound, creditors do NOT always have accurate information. This is because their accounting departments are split between loans in default, loans in good standing, collection departments, servicing,legal etc. and it does happen that these departments do not always “talk” to each other. Keep all correspondences you receive and any canceled checks you may have.

You may have to contact your bank for statements showing these payments. You should insist on correspondences in writing. Telephone calls can become heated, recollection of these calls can be sketchy and since there is frequently a lot of emotion involved, exact recall may be difficult. If all this seems way over your head, or you think it should be done professionally, you are right. A bankruptcy software is a low cost alternative assistance when filing bankruptcy.

Now that bankruptcy is a certainty, it is imperative that all parties resolve these issues sans heated emotions. Accurate record keeping is critical as is full disclosure on the part of the borrower.

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Read These Post On Bankruptcies:

1. Do You Know All Your Alternatives To Bankruptcy
2. Can You Refinance After Bankruptcy?
3. Where Can I Find Sub-prime Loans Today??
4. Get Your 80/20 Mortgage Loan Approved in 2012

If you have fallen into a bankruptcy situation, do not give up on your hopes there are some alternatives to bankruptcy. There are several things you may want to know and some action plans you may wish to follow.

There are some ways to get assistance when it comes down to bankruptcy and most of them can cost quite a lot. There are lawyers who will guide you through the fine print and the court forms, but expect to pay hundreds of dollars for their advice. We can advice you to consider cheaper assistance solutions, which do not rip your pocket when you are at your weakest financial position. You will see our recommendation below.

How To Avoid Bankruptcy

The following is a list of what a borrower can do to avoid bankruptcy:

• Renegotiating with the creditor the terms, payment amounts and due dates of the payments on the balance owed.
• Refinancing the debt into a whole new loan.
• Credit counseling.
• If the bill is erroneous or not accurate, disputing the bill.
• Filing a complaint against the creditor.

If you do decide that the bills you have received are inaccurate or erroneous, be prepared with any documentation, correspondence, days, dates, times of all phone calls, names of the parties you spoke to and the nature of the calls.

Federal Acts To Fight Bankruptcy

Keep in mind that the FDCPA provides severe penalties to creditors who violate the following regulations (some of them have been in existence for many years):

• FIRREA – Financial Institutions Reform, Recovery And Enforcement Act
• ECOA  - Equal Credit Opportunity Act – provides some standard credit report codes that each of the big three credit reporting bureaus use.
• FDCPA - Fair Debt Collection Practices Act – Has strict guidelines about what debt collectors can and cannot do.
• Privacy Act of 1974 - This act protects certain federal government records pertaining to individuals. The Privacy Act prohibits the disclosure of a record about an individual from a system of records absent the written consent of the individual.
• RICO Act – Racketeer Influenced and Corrupt Organizations Act.
• Dodd-Frank Act of 2010 – Dodd-Frank Wall Street Reform and Consumer Protection Act.
• Regulation Z (mortgages only) – The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost.
• Regulation X (all loans) – HUD’s Reg X Real Estate Settlement Procedures Act.
• Graham, Bliley, Leach Act of 1999 - The Gramm-Leach-Bliley Act requires financial institutions to explain their information-sharing practices to their customers and to safeguard sensitive data.
• Patriot Act of 2001 – ‘Know Your Customer’ describes the means by which the identity, background and other aspects of potential customers can be checked by financial institutions.

As one can plainly see, there are many acts and regulations in place to prevent fraud and misrepresentation on the part of the creditor, BUT, I caution the reader that these acts apply to you as well.

We can recommend you a ‘Bankruptcy Software’ which can guide you through all the process with real time online assistance, and all the forms you will need, while facing court and the creditors lawyers.

Don’t Get Ripped By Lawyers – Get This Low Price Assistance

These rules were put into place to protect he borrower from the many mortgage and foreclosure scams  that are out there, especially on the internet and as a result of the events of 9-11, but to protect the creditors from having their solvency threatened from terrorists and scam artists.

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Read More Related Posts:

1. Can You Refinance After Bankruptcy?
2. BEWARE Of “Mortgage Rescue” Companies Scam
3. Short Sale Tax Consequences For 2011

Once the bankruptcy has been discharged, what should YOU do? What does a bankruptcy do to your chances for refinancing or being able to acquire a mortgage in the future? In this review you can read more on bankruptcies and refinancing.

In the first place, if you haven’t been late on mortgage payments and the mortgage was not included in the bankruptcy, do not be late on ANY payments to any creditor. Lenders of all types, will not refinance a borrower’s loan if there are any late payments during or after a bankruptcy.There are two types of bankruptcies that a person may file. One is a chapter 7 and the other a chapter 13.

Your Mortgage & Chapter 7 Bankruptcy

Get Advice Before Refinancing

In a chapter 7 bankruptcy, all debts are liquidated and unpaid to the creditors. If the attorney feels the borrower can make the mortgage payments, typically an attorney will not include the mortgage(s) in the list of creditors to be liquidated. This will show that the borrower at least paid is mortgage(s) on time. If the mortgage is included, then the possibility of finding a lender to refinance the loan(s), is greatly diminished.

If you are with your back to the wall, get the Bankruptcy Software to walk you out of trouble.

What Does Chapter 13 Bankruptcy Mean

In a chapter 13 bankruptcy, the debts are reduced to a fraction of the original amounts owed and a trustee is appointed by the courts to receive the payments. It is imperative that these payments are made on time and in full as directed by the court. If a borrower decides he wants to refinance while the bankruptcy is still not discharged by the court, there are two requirements which must be met.

1. Firstly, there must be a one year history of the trustee being paid on time.
2. The trustee must grant permission for the borrower to do so. No lender, especially with the newer rules in place, will originate and process a loan that has no chance of closing.

In terms of rates and fees, one can expect that the rates and fees will be higher. It is important that the borrower be on the lookout for irregularities from the prospective lender for changing Good Faith Estimates that make no sense, rates that shift and change without notice and terms and conditions that are worded so as to be confusing to read and understand. Under the new rules, wording lending conditions such that a borrower cannot understand them is not only un-ethical, it is illegal.

Refinancing Chances After Bankruptcy

So, yes, it is possible to have filed a bankruptcy and refinance afterward. With the new rules in place, it is also more difficult to file a bankruptcy. One of the reasons, and this is the one that had creditors up in arms, was that borrowers were borrowing a lot of money and purchasing on credit, only to become insolvent as a method of avoiding paying the just debts that are due.

What To Do..

Most important is to get professional assistance, you may want to purchase the bankruptcy software, which will take you hand in hand in your bankruptcy process with all the tough files and fine print, which lawyers charge hundreds of dollars for.

To get better chances for refinancing after bankruptcy the best thing for a borrower to do is contact the creditors when difficulties arise and enter into different repayment plans, including debt management, credit counseling and lastly bankruptcy.

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Read more posts:

1. How To Prove Income When Requesting To Refinance
2. Income Documentation Changes For FHA Loans
3. Risk Based Pricing And Your Mortgage 1003 Application Approval
4. Short Sale Tax Consequences For 2011

The financial markets may be facing another turmoil, as the FHA insured home loans may crack down some of th largest nations banks. The mortgage lenders such as Bank of America (BAC_), Wells Fargo (WFC_) and JPMorgan Chase are facing large losses due to a  non proportional growth of mortgages borrowed through the FHA.

The review below by By Philip van Doorn, from The Street.com describes how the financial markets may be on a high roller coaster speed ride into another wall!

“In its annual report to Congress on Tuesday, the FHA said that its insurance fund declined even further from last year and its capital ratio “measures reserves in excess of those needed to cover projected losses over the next 30 years.”

The agency’s economic worth has declined to $2.6 billion as of Sept. 30, from $4.7 billion a year earlier.

The FHA insures over $1 trillion in single family mortgage loans, with borrowers paying a monthly premium for the coverage. The agency said that its Mutual Mortgage Insurance Fund, or MMI, had increased to $33.7 billion as of Sept. 30, from $33.3 billion a year earlier, but that its capital reserve ratio was just .024%, falling from 0.50% a year earlier, and far below the 2.00% minimum required by Congress.

The FHA says thr agency projects that its capital ratio will reach the required 2.00% during Fiscal 2014.

FBR Capital Markets analyst Paul Miller said in a report on Wednesday that since the FHA believes that “unless housing prices stabilize, the insurance fund has a 50% chance of running at a deficit,” banks fear that “the FHA’s worsening financial condition could prompt the agency to audit claims.”

When an FHA-insured loan goes bad, the lender files a claim with the agency, which the FHA typically pays-out quickly. Miller said that “due to the state of the FHA’s financial position and the possibility of further home price declines, the agency is motivated to take a closer look at claims it has paid out to recoup losses,” and that “the agency’s hyper-technical servicing requirements make it more likely that servicers, and not originators, could be most at risk in the near term.” Read more..

I think the real threat is not from the FHA but from the borrowers who fail to stay current on the FHA mortgages, the mass underwater mortgage situation, where 60% of the mortgaged homes are underwater, where in some places borrowers decide not to pay, and wait to be evacuated. This is the main issue that need to be addressed.

Without the FHA insured mortgages, millions would be homeless, the lenders need to be able to join the new Obama reformatted refinancing program (HARP), to avoid such a financial disaster as mentioned above to take place.

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Some homeowners may find that they need to be able to prove their income when refinancing their home. The bank or lender approval process for a refinancing request may be a long time consuming process. This means that a few weeks or even monthmay pass between th eapplication and the final approval.

In the meantime, life can be a suprizing trip ride, borrowers may find a better job or lose their current job, seasonal income may increase or decrease, nonsalary sources of income may begin (getting a second job) or nonsalary sources of income may be finished. Income documentation for FHA loans are not expected to change at 2012, the same basic guidelines still rule for refinancing applications.

Read below how on ways you can prove your income before refinancing your mortgage.

Taxable Income is the Only Kind That Counts
As a general rule, only taxable income can be counted when qualifying for a mortgage, says Julie Miller, a sales manager for Prospect Mortgage Co. in Irvine, Calif. This requirement trips up not only self-employed people but also employees who deduct unreimbursed employee business expenses on IRS Form 2106. Examples include business mileage, parking, travel, meals and entertainment costs.

“If you earn $60,000 a year, but you wrote off $5,000 in expenses, meaning you had to spend $5,000 to make $60,000, then your taxable income is only $55,000,” Miller says.

Nonsalary sources of income, such as a second job or sideline business, are acceptable if the income is consistent and reported on the borrower’s tax return, says Peter Thompson, a senior loan officer at Prospect Mortgage Co. in Naperville, Ill. Social Security benefits, pension payouts, child support and the like can count, too, if the payments are regular.

Seasonal income typically must be annualized to smooth out highs and lows and show a true picture, Thompson says. Examples include landscape and construction workers whose hours are dictated by the weather and retail sales clerks whose schedules vary by holiday shopping patterns.

Lenders Look Backward and Forward
Lenders use a two-year look-back period to evaluate a borrower’s income for a refinance or purchase mortgage. But that doesn’t necessarily mean the borrower must show two years’ worth of employment in the same job with the same employer, Thompson says. Instead, any gap in employment needs to be explained, and current income must be consistent and reliable.

“You don’t have to be at the job for two years,” he says, “but you have to show that what you’re working at now is likely to continue and that the income is realistic.”

Debt-to-Income Ratios are Conservative
Lenders use a debt-to-income ratio, or DTI, to figure out whether the borrower can afford the mortgage payment, even if it’s for a refinance with a lower payment. Years ago, borrowers could qualify with a DTI as high as 60% or even 65%. Nowadays, Miller says, most loans require a DTI of no more than 45%. FHA loans, insured by the Federal Housing Administration, are a bit more flexible.

“The automated underwriting systems typically want 45%Proving income to refinance your mortgage or below,” Miller says. “(With) FHA, you can still go to 50 fairly easily.” Read more on proving income..

 

Banks and lenders are much more careful when they come to approve a new mortgage for a borrower. The conservative guidelines are those you will meet when they look at your application. The low DTI ratio for home loans, is a way the lender secure themself from giving loans to borrowers who may later be in financial dificulties.

So you need to focus on two main aspects when coming to refinance your mortgage. To be able to verify your income before refinnacing, and to try and raise your FICO score, to get better terms by the lender. Improving to a better FICO score means you will get lower rates, and save thousands inlower mortgage payments.

If your score is below 700, you might want to clean it yourself – get this ‘Clean Credit In 37 Days’  guide.

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Many people today are strangled by their mortgage payments, their lives are stressed with the next payments and the uncertainty of the employment markets. A new proposal raised lately offering to allow mortgages to be paid using the 401(k) retirement funds.

There is some sense in this new proposal, people are losing their home every day in foreclosures companies scams and underwater mortgages which can not be refinanced. The 401(k) accounts may have thousands of dollars which can ease the immediate financial ‘pain’.

Pulling Money From 401(k) Accounts to Pay The Mortgage 

Earlier this week, I ran across an article about a new piece of legislation being promoted by two Georgia Congressmen who want to allow people to pull money out of their retirement accounts to pay down their mortgages.

Dubbed the Hardship Outlays to Protect Mortgage Equity (HOME) Act of 2011, the legislation would allow homeowners to withdraw up to $50k or half of the account value, whichever is smaller, without paying the usual 10% penalty. In short, you’d have to use the funds to make mortgage payments within 120 days of receiving the distribution.

You can read the text of the bill here: HOME Act of 2011

The sponsors, Sen. Johnny Isakson and Rep. Tom Graves, argue that people who are faced with losing their homes should not be forced to pay a penalty to access their own money. At the same time, many financial experts are skeptical. One big concern is that people would be pulling money out of 401(k) accounts that are protected from creditors and putting it into a home that could ultimately be taken from them.

Another justification that Isakson gave is that people could use the withdrawals to get their underwater mortgages back above water, thereby allowing them to refinance their mortgage to a more favorable rate. Of course, with the recently announced changes to the HARP program, those with underwater mortgages will now have an easier time refinancing, so it might not be necessary to raid their 401(k) to make this happen.

One concern I have is that, if passed into law, the new rules would effectively allow anyone with a mortgage to raid their retirement account, whether or not they really need the money to cover their payments. While I understand the desire to help people stay in their homes, the last thing we need to do is make it too easy for anyone and everyone to pull money out of retirement accounts.

What do you think? Is this a good policy move? Or are we just kicking the can down the road, essentially transforming the problem from unaffordable mortgages into unaffordable retirements?

As an aside, I know of at least one reader out there will likely be strongly in favor of this idea… Our good friend Carlos, who cashed out his 401(k), paid the 10% penalty (plus taxes), and used the proceeds to pay off his mortgage just three years after buying his house. See original source article.

I think this is a very dangerous proposal, as it is solving immediate financial risks, but making future financial disaster! The retirement funds all of us are saving year after year, are our safety net once we retire. Allowing easy access to these funds mean people who are stressed financially will take 401(k) funds to pay current mortgages, and will be left with no retirement plan.

When they reach their elderly years.. who will feed them? How do they plan to survive with little or no pension at all?

Consider to share this with people you care about.

Many people do not know, but seniors can buy a home using reverse mortgages. The process of buying a home using the reverse mortgage method for seniors is an affordable solution for millions of seniors throughout the US.

The qualification process is not to complected, but you would want a mortgage broker by your side during the decision making. there are always small print to notice, and a wider financial aspects that need a professional opinion. See the Washington Post guest writer who sheds some light on the reverse mortgage home buying for seniors:

“You should consider the FHA Home Equity Conversion Mortgage, which is the only federally insured reverse mortgage available.

To qualify, you must be at least 62; if you are buying with a spouse, both of you must meet the age requirement. The house you buy must be your principal residence and you must certify that you will live in the house within 60 days of obtaining the loan. Although single-family residences and properties with two to four units are eligible, cooperative housing is not. And if you are considering buying a condominium unit, make sure that the entire condominium association is FHA-certified. (See my column from Oct. 22.)

You (and your spouse, if applicable) will be required to meet with an approved credit counselor because there are significant legal and financial implications to such a mortgage. If you plan to leave your house to your children, for example, a reverse mortgage may leave little or no equity should you live a long time. Additionally, there are costs involved in such a transaction, although in many instances, they can be included in the amount of the loan. A counseling certificate must be submitted to the lender before closing.” Read More..

FHA Home Equity Conversion Mortgage

Like every financial decision reverse mortgage has both sides, a benefit and some pitfalls, not every buying a house using reverse mortgage would be the best option for seniors.

“Is a reverse more favorable than a regular mortgage? Yes, for two reasons: First, I will still have almost $200,000 left from the earlier sales proceeds. But more important, I will not have to make any mortgage payments. The bulk of a regular mortgage payment is the portion that goes to interest. For example, if I were to get a 30-year fixed loan for $200,000 at 4.25 per cent, my monthly payment would be $975 — money I am saving with the new reverse loan.

When does the loan come due? When you move out or die. At that time, you or your estate will either have to pay off the then outstanding mortgage — which will be much higher than the original loan, since interest will be added yearly — or sell the property. But one thing is clear: Neither you nor your heirs will ever have to pay more than the value of the house; that’s what FHA guarantees, since it has to pay any excess.” Read More..

In order to meet the credit requirements of reverse mortgage home buying for seniors, you may want to get a DIY clean credit guide, (See the ’37 days to clean credit’ guide) a guide that will help you through step by step and assist you to clean your credit and remove from negative items on your credit report. Once your credit is nice and clean, you can proceed your lender.

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They have been suing one another the HUD U.S. Department of Housing and Urban Development and Allied Home Mortgage Corp. Each of them blaming the other for improper business relations. There are mutual law suits filed by each side. In the middle I am sure there are hundreds of families who have trusted both sides to help them save their home from going underwater.

Allied Home Mortgage Corp. v Shaun Donovan law is at U.S. District Court, Southern District of Texas (Houston). The HUD has filed a lawsuit against Allied Home Mortgage Corp at U.S. District Court, Southern District of New York (Manhattan).

‘Allied Home Mortgage’ James C. Hodge Sues HUD

“Allied Home Mortgage Corp. sued the U.S. Department of Housing and Urban Development for suspending the firm’s ability to write Federal Housing Authority-insured home loans.

Allied and James C. Hodge, founder and chief executive officer of the Houston-based firm that claimed last year to be the biggest closely held mortgage broker in the U.S., sued HUD Secretary Shaun Donovan and the agency after federal authorities sued Allied and Hodge on Nov. 1 for alleged fraudulent lending practices.

The same day the U.S. sued Allied, HUD suspended the firm’s ability to participate in FHA-insured mortgage loans. That suspension will wipe out 70 percent of Allied’s business, Hodge claimed in his lawsuit, which was filed yesterday in federal court in Houston.

“The immediate suspension of authority to originate and underwrite loans will effectively kill Allied Corp. as an ongoing business,” Kent Altsuler, Hodge’s lawyer, said in the filing.

The government action will also cause Allied’s warehouse financing lines of credit to be terminated, according to the new lawsuit.

Regulatory Power

“This means that Allied Corp. will not only be unable to originate FHA-insured mortgage loans, but Allied will also be unable to originate any sort of mortgage loans — whether FHA- insured or not,” Altsuler said.

“HUD has improperly used its regulatory power of suspension to get, essentially, a combined temporary restraining order and preliminary injunction against Allied Corp., without any judicial review or due process,” Altsuler said.

The government claims one-third of the 112,324 loans originated by Allied from 2001 through 2010 defaulted, forcing HUD to pay $834 million in insurance claims, according to its lawsuit, which was filed in federal court in New York.

“Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program and repeatedly lying about its compliance,” the U.S. said in its complaint. “In the past decade, Allied has originated loans out of hundreds of branches it never disclosed to HUD.”

Triple Damages

The government claims Hodge created a “culture of corruption” and used offshore compliance employees who didn’t even know what mortgages were. The U.S. is seeking triple damages from Allied under the federal False Claims Act.

Hodge, in his suit, denied that he or Allied engaged in wrongdoing. He claimed the company’s “performance numbers are exemplary,” according to the filing.

“Allied Corp.’s total delinquency and claim ratio is 87 percent, or less than the national average,” Altsuler said in the suit.

Hodge asked the judge to set aside the HUD suspension, restore Allied’s FHA origination and underwriting privileges, and enjoin the government from taking any suspension actions against Allied until the U.S. suit is resolved.” Read More About This

Not every day you hear of a law suit against the HUD (U.S. Department of Housing and Urban Development)! This story will be long and complecated, as both sides will prove no wrong doing.

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In referencing to the rates on FHA loans and VA loans, they are typically 1/4-1/2% higher than FNMA/FHLMC rates. This is because the GNMA funds are based on the faith and credit of the United States… they are NOT based on the yields from the 10 year note which drive conforming/conventional rates.

FHA Mortgages & VA Loan – Borrowers

FHA and VA loans take on a somewhat riskier clientele than FNMA or FHLMC and therefore the rates will be higher. What one needs to really understand is that the more risk a borrower wants a lender to possibly undertake, the higher the rate will be. It is akin to paying more for a little more. As a consumer, I would be very wary about any lender who says that he can get a rate that is significantly lower than any body else.

Think about it this way: if I am a lender and I buy my mortgage monies from the same pool as the guy down the block does, how can he afford to buy it cheaper on the same day at the same time and therefore lend it out at a significantly lower rate than everybody else.

The reverse is also true. If I am buying the same money, on the same day, at the same time, how and why would the rate I offer to you be higher than everybody else? You will recall in an earlier article I mentioned the Dodd-Frank Act of 2010, and in fact it has been mentioned many times, and that I stated that the days of a lender receiving YSP are over.

Beware Of FHA/VA Rates Which Are TOO Low

If someone is offer either ridiculously higher or ridiculously lower rates than everyone else, there is something radically wrong. Either he is some how getting a kickback from the broker he is securing the GNMA funds from (ILLEGAL!) OR he is trying to build his pipeline… at a loss to himself!

Either something illegal is happening or something stupid is happening and a word about the guy offering rates that are significantly lower than everyone else… Caveat Em tor…buyer beware. Chances are very high that his lock is only good for 15 days and no one can close a loan in only 15 days; it could take up to 10 days for an appraiser to contact you and meet with you. After that point he will give you any rate he feels like. FHA appraiser inspection includes much more than the regular appraisal report, so does an VA appraisal report.

FHA Home Loans And VA Loans Rates Conclusion

Although the regulations have been tightened across the board, there are still problems and kinks to be worked out of a very fluid situation and tenuous market. One can go online and look up GNMA prices and yields, track them and they will give you a general idea as to which way rates are moving.

See also the post about – FHA & VA Income Documentations Changes For 2011/2012