Total Mortgage Advice

Deutsche Bank Recognizes the Depth and Width of "A" Paper Crisis to Come

2009-09-28T08:44:00.000-07:00

Summary
The depth of the "Alt A" mortgage crisis is coming home to roost. We are likely to see the depreciate creep (or flood as the case may be) is going to hit the areas that the subprime loans barely touched.
Analysis

Deutsche Bank (DE:DBK), while prompting new concern about the severity of the "A" paper mortgage crisis, is simply being forthright about the depth and width of the problem. Other lenders have been avoiding the truth as a means to avoid panic and to prevent further declines in their respective stock prices.

The "subprime crisis", while bad, was nothing compared to the potential crisis looming within the "A" paper and "Alt A" paper markets. I have been shouting from the mountaintops that the Option-ARM portfolios outstanding pose a substantial threat to our recovery. Negatively amortizing loans, combined with sharp declines in value, combined with lender hesitance to embrace loan mod options, combined with nominal loan mod options for this particular product, combined with the communal shamelessness of "walking away", are all conspiring to create the perfect storm for the real estate markets and banks.

Option-ARM's aside, as the article explains, we are seeing the creep of depreciation in more affluent communities and those where values were the highest at the peak of the market. The community mood is such that people are willingly walking from properties as a business decision, without the shame that that accompanied foreclosure in the past: "Why pay for a million dollar home that is worth $600,000.00?" Furthermore, "The value is not likely to come back for ten or more years!" In the communities that have been hardest hit, the latter point is even more valid than in the "Heartland". People in California, Florida, Las Vegas, etc., are certainly more nomadic than other regions of the country. These nomads are not willing to wait out the markets. The problem is that the population's, portfolios, and aggregated net worth of these nomadic areas is a substantial percentage of the country’s overall wealth. Thus, as the saying goes, "where California, et al, goes, so goes the country".

Of course, the unfortunate homeowner's who bought in the few years prior to the real estate run are going down with the ship.

The bankers who recognize the depth of the problem and openly address it will likely come out on top. Loss mitigation solutions, further consolidation of troubled banks, and real bleeding are necessary to get things back to equilibrium. I personally believe that is will be three years before we can foreclose, negotiate, or sell the inventory of houses that will be necessary for the market to start rising again.

Joe Chatham
President
Chatham Mortgage Partners Inc
805-496-3000 x1

Round II: Coming to a Neighborhood Near You

2009-09-28T08:40:00.000-07:00

Summary:

While a very general description of the Pay Option ARM disaster that is looming, the Reuters article is dead-on in two conclusions: many more homes will be hitting the market over the course of the next two and one-half years and that the mortgage plague that started with the subprime crisis will be moving from the lower income strata to the middle and higher income areas.
Analysis

Iowa AG Tom Miller is correct in his assessment of the Pay Option ARM crisis. The crisis is not looming; it is here. As I have written and consulted on numerous occasions in the past, we have entered a period of re-cast hell. The Pay Option ARM, a loan that offers the borrower the flexibility of up to four payment options, was the product du jour for the years 2004, 2005, and 2006. While I think the Pay Option ARM is a terrific product for the right borrower, it has been abused. I have heard varying numbers regarding the dollar amount of outstanding Pay Option ARM's written in those three years, but I think it is safe to say, in total, there was about $500,000,000,000 lent under this program. According to Fitch Ratings, 80% od Option Arm borrowers pay the negatively amortizing payment option! So, this means that approximately $400,000,000,000 worth of loans will negatively amortize (turn upside-down) up to 125% of the original loan amounts, or BACK to $500,000,000,000! The problem is, of course, that the underlying value of the security backing these loans (residential real estate) has dropped anywhere from 25-50%! Most of these loans were written at 80% LTV. Thus, taking into account the negative amortization and depreciation, borrowers will owe 133% LTV, conservatively. I know quoting "The Clash" is not professional for my esteemed readers, but I can't find a more appropriate line: "Should I stay or should I go now? If I go there will be trouble. If I stay it will be double".

The typical recast allows the borrower to go to 125% OR five years, whichever occurs first. Given the low rates over the past five years, and given that most of the Pay Option ARM's are based on either Libor or MTA, most of the loans are triggering the recast feature at five year benchmark. Despite the knowledge of many of the borrowers that they will not be able to afford their recasted payment, they are sitting in their properties as long as possible taking advantage of the minimum payment option, tax benefits, and keeping a roof over their heads. The Pay Option ARM, it appears, offers a fifth feature: delayed accountability for both the borrowers and the lenders! The problem is that time is running out over the next two and one-half years; both borrowers and lenders must finally ante up.

Recasts are now being triggered from 2004. The article states that $389,000,000,000 worth of loans was written in 2004 and 2005. While I cannot find the source to show the average loan size, let's divide that number a reasonable average home loan of about $260,000, or 1,496,000 homes, and we have a lot of homeowners facing some huge payment jumps between now and the end of 2010. While I have heard varying numbers regarding the default rate on these loans (it is a bit too early to have accurate info), but let's be real conservative and estimate that 25 percent default, or 374,000 foreclosures/short-sales added to an already bulging inventory (9-15 months, depending on the area). I have heard some claim default rates as high as 40%. Do I hear the sound of prices dropping more?!

Up until now, the lenders have not had to acknowledge these bad loans. In the past, lenders have taken advantage of accounting rules that allow them to claim the fully amortizing payments instead of the minimum payments. Only now, will they have to start showing the loans that are starting to default. It will be ugly. Perhaps acknowledgement of the problems will come in the form of active and real loss mitigation efforts: reducing loan amounts, extended terms, lower rates, etc.

I will not bore you with the reasons these loans were mostly given to middle and upper income borrowers except to say that underwriting did, in fact, require decent credit scores and, given the low payments this program afforded, these loans tended to be loaned on higher-valued properties. Thus, we will see the creep of defaulted loans from the economically challenged areas to the more affluent areas, resulting in lower prices, more foreclosures, lower prices, more foreclosures, etc., etc.

In my past writing and musings I have used different figures, but the figures are only starting to roll in. My doomsdaying is a work in progress and will be amended as I gather new info. Please keep in mind, I am not ordinarily bearish; it only hurts my business if I am correct. Indeed, I hope I am wrong. I can assure the readers, however, that I have remained relatively conservative.

Joe Chatham
President
Chatham Mortgage Partners Inc.
805-496-3000 x1

It is all in the "W"

2009-09-28T08:33:00.000-07:00

Summary:

KB (NYSE:KBH), a lower cost builder, is benefitting from the perception that we have hit the bottom. We have not. Thus, the peak of the inside of the "W" is about to wane.

Analysis:

KB is benefitting form a few things; namely, KB is a builder of less expensive and/or "starter homes". Thus, they benefit tremendously from the tax incentives that the Obama Administration created, the easing lending standards/rates for FHA loans and the increased lending limits for conforming loans, the perception of diminishing inventory of lower priced homes, and the de facto overall reduction of new building. All of these factors have postured KB and their business model to benefit from the inside/upward slope of the "W" recovery...if in fact we are in a recovery? I would not pull out the hammers and construction crews yet!
There is the "Alt A" mortgage crisis about to hit and the resulting inventory surge is going to create huge challenges to home builders and the overall economy. The inside/downward slope of the "W" is about to hit. Of course, no one knows how many foreclosures will be coming to market in the next three years, but we are finally hearing writers and analysts acknowledge that the "Alt A" crisis exists, and with it the very real proposition that home prices will still decline further. Declining values will equal more problems for all builders, including KB. We will simply have too many homes on the market to leave room for new
construction.

Joe Chatham
President
Chatham Mortgage Partners Inc.
805-496-3000 x1

2009-08-24T08:24:00.000-07:00

Hello,

I would like to gather up mortgage holders and attorneys who are interested in filing a Class Action Suit against Aurora/Lehman brothers. I would like to put up some kind of sign up sheet on the internet of people that are interested, and see what we can do.

Aurora/Lehman Brothers is suing me for foreclosure in southwest florida, where I put $50k down on a $250k house which is now worth about $89k. It has lost it's value because of their actions and I think they are liable for that. They have damaged me extensively, and many many people throughout this country and it's time for them to be held responsible for their actions.

This company and many other investment banking companies took individual's fees for mortgages, upped the supposed "median price in America" for housing (to $250k in 2005), gave loans to any bum on the street who could sign their name, and created the financial disaster that so many people in Florida, Arizona and California are facing, as well as most of the Country, and foreign countries. And now, they want $200k from me for a house which they have destroyed the value on, in a town where they have destroyed the job market and renters cannot pay anywhere near the carrying costs for the houses they had appraised and approved for these high prices. They failed in their fiduciary responsibilities, are being investigated by the FBI for fraud, and after having destroyed me financially, are further trying to get me to pay them $200k for a house they don't even have a Note for.

Thank you for reading, and let me know if you have any suggestions or would like to list this on your blog as a place for people to add their names.

Liz M.

I am happy to post this with the caveat that TotalMortgageAdvice.com neither endorses nor supports this lawsuit. We are completely neutral.

Fed Wants To Limit Compensation On Difficult Loans

2009-08-11T11:22:00.000-07:00

Albeit, sub-prime and Alt-A lending appear to be dead for the time being, both product pools are extremely valuable for the mortgage borrowing community. Yes, there have been abuses, but that does not mean we effectively "throw the baby out with the bathwater". This proposal by Bernanke and Co. simply insures the demise of the sub-prime lending industry. Thus, eliminating a huge pool of potential borrowers and destroying a sector that, until recently, was an extremely important part of lending, "sub-prime". We need sub-prime lending, ironically, to help get us out of this mess.

Yes, abuses have taken place in sub-prime lending over the past several years. The fact is, however, that sub-prime lending (to encapsulate all sub-prime and Alt-A loans) has been a successful part of the lending world going back decades. Remember HFC (NSE:HFC/PB), Beneficial, Norwest, Associates, Avco, etc.? All the aforesaid were vital companies serving borrowers' needs. The key differences in the "old" style of sub-prime lending and the style which helped get us into this mess, are that the old-style maintained higher underwriting standards and priced according to risk.

Obviously, underwriting standards need to be raised. I remember when HFC was considered insane for going to 85% CLTV! Assuming we can re-establish sound sub-prime underwriting standards, we need to price accordingly.

This brings us to risk-based pricing. Higher borrowing costs for sub-par borrowers will achieve two things: 1) It will limit borrowers to those who are willing to pay the price for their inferior credit circumstance(s), and 2) the higher costs and rates to the borrowers will help the offset losses for the lenders due to higher charge-off. Some may argue that this will stifle lending. What lending? Nobody is lending in the sub-prime arena these days anyway. Perhaps we can attract lenders back by allowing them to make profits based on risk?

So how does this relate to Mr. Bernanke, et al? If we limit the compensation for lending to higher risk borrowers, you will simply see loan professionals walk away from that business altogether. The work it takes to get a sub-prime borrower approved is FAR more than the work to get an "A" paper borrower approved, historically speaking. If I were to spend three months working a difficult file, I want to be paid for it. Borrowers understand this as does anyone who charges for their labors.

We need to get back to good underwriting, appropriate pricing, and compensation that make sense. I am not arguing that abuses were committed. I am arguing that we cannot eliminate, by regulation, policies, or compensation structures, the much-needed area of lending called sub-prime. To limit compensation to that of "A" paper compensation is just another nail in the coffin.

Joseph Chatham

I hate to say I told you so, but....

2009-08-11T11:17:00.000-07:00

The following relates to the article above:

The Reuter's article reinforces what I have been saying for the past several years. More importantly, it reinforces what I have been saying (and writing) for the past several months; we have a ways to go before the real estate market bottoms-out! Despite all the glowing news from the realtors, mortgage bankers, etc., we need to be leery of the sources and look at the facts. We have a HUGE backlog of REO, a large portfolio of upside down neg am loans which are yet to recast (and offer little in the way of loan mod potential), homeowners who are resigned to the fact that their values will not come back any time soon, tax policy which encourages abandonment, lenders who are unwilling to negotiate, poor policies from a well-intentioned government, and cheap postage to mail keys back to the lenders. The list goes on and on. We will likely see the bottom of the trough at around 45% to 50% of the peak. Not to be too political, but we need to let this bleed and recover rather than use inneffective anesthesia on a wound that is festering: it lessens the pain, but does nothing for the infection.

Joe Chatham

Loan Modification, Aurora Loan Services, and Fear

2009-07-09T06:36:00.000-07:00

Dear MortgageMaster,

I am wondering if I am also at the start of a bad experience with Aurora Loan Services. Let me start by saying that at this point I have never been late with my mortgage payment of $740.36. But after being laid off and subsequently taking a buyout from the auto industry, my family’s income has significantly dropped. For this reason I asked Aurora Loan Services if I was eligible for a modification under the Obama Plan. They assured me I was and took my info over the phone, coming up with a new payment amount of $736.54. The payment has not dropped much, but my new payment would include escrow for taxes and ins that my old payment does not. They mailed me the modification papers around May 24, including the trial payment plan details, financial affidavit, etc. with a due-back date of June 16. No problem. I filled everything out, copied all my financials, sealed it up, and sent it out June 1, 2009 in the preaddressed/postage paid envelope they provided. I might mention that while on the phone with the initial representative I consented to have each of the 3 trial payments automatically come out of my checking account on the first of the month in which it is due (with the first due July 1, 2009). On June 16, I called Aurora to make sure my paperwork had made it by the deadline and was told it was not in the system yet, but they were “bogged down with lots of them, try again next week-they should be there). The next week I called Aurora, still no sign of my paperwork and I’m told to call in a week once again. June 30 I called back, concerned that my first trial payment is coming out but they have no paperwork for a modification plan. I’m told “don’t worry about it. Send the paperwork that I have, (which is not all of it) via fax.” At about this time I’m starting to get a bad feeling. I have one set important financial information floating around ALS, a trial plan payment coming out, and no proof of any modification plan in my hand because I sent both copies back as instructed. Not a good place to be at. My unease leads me to the BBB to see if Aurora has any bad listings due to the mod program-nothing much specific there. I do a search on Aurora Loan Services and come back with a nightmare of bad experiences people have had. Now I feel sick. I watch my bank account for when the trial payment comes out, which it did, for the $736.54. Then I log onto my mortgage account and the first thing I see is my July 1, 2009 payment is still due in the amount of $740.36. So I look at where my payment was posted and instead of principal/interest/escrow the money was posted under “other”. What the heck is that! And the system says I’m not paid for July! I’m not waiting for 3 months of the system saying my mortgage is behind and possibly starting foreclosure proceedings. I guess my only choice is to make the July regular payment and try to get the other funds released to me and the “mod program” stopped. Do I have a legitimate concern? Could I be blindsided by Aurora if I leave things the way they are? Or am I just overreacting to the horror stories I read online?

Thanks for any input,
Melissa K

Melissa,
Your experience unfortunately is not unique these days and it's not just Aurora. Secondly, you are not being paranoid or overreacting. The bigger loan servicers, in particular B of A/ Countrywide, can be particularly onerous to deal with. Aurora is not much different. Bottom line advice to you or any other person trying to do their own loan modification would be to keep extremely good records of what you have sent (always keep copies), who you are talking with, dates and time, extensions or direct lines if available, list of promises made and whom to call when you haven't received what you've been promised. Most importantly is follow up. Our firm has had some success by calling back sooner than later and also more frequently, in particular once we have some contact person in an organization that has been responsive. If your property is in jeopardy of foreclosure/sale, it is all the more important to follow up sooner rather than later and find out whom to contact at the company facilitating the sale. We recently negotiated a forbearance deal and only when we got the fax from the servicer saying the sale had been postponed did we actually feel like we had some success. To get there required multiple phone calls and faxes and lots of good record keeping.
With respect to your individual situation, do your self a favor and do a print screen of any withdrawals that have been made from your bank account and also do print screens of your account at Aurora. This will possibly be your only hard copy for purposes of backing up your story. If you are not getting any response, be prepared to spend a lot of time on hold. Continue to make the payments that you promised to make as this will most certainly show compliance from your end and you will point to this when you call them. Again, make a print screen of the withdrawal and also print screen to show how payment was applied.
It also helps to keep in mind whom you are dealing with on the other end of the phone. Often times that person has been on the job for only a very short period of time and won't know a whole lot. If you feel like your are simply educating that person by repeating your information again and again, don't hesitate to ask for a supervisor, or in some cases being polite telling them you've got a screaming kid and you'll have to call back. While not the most pleasant thing to do you are rolling the dice that you'll get someone else who is more experienced when you call back. Also, demeanor is really important on the phone. It might sound like a cliche, but you really do attract more flies with honey than you do with vinegar - i.e. be nice to the person - chances are really good that they have been screamed at for the last 5 phone calls and called every name in the book.
I wish you luck. A loan modification can be akin to a marathon in that it is often a very long process.
Regards,
Gregory T. Royston, Esq.
South Bay Law Group, P.C.3848 Carson Street, Suite 204Torrance, California 90503
www.sbaylaw.com
Office 310-780-8275
Cell 310-977-1062Fax 310-943-1472

Despite positive numbers, the slide will likely continue!

2009-06-05T12:10:00.000-07:00

Yes, we are seeing more first-time homebuyers purchasing the American Dream. Yes, the discounted prices that foreclosures offer are attractive. We are, however, far from the point where prices and capacity to purchase are at equilibrium.

At the peak of the housing market (Q2/3 2005) no more than 11-15% of people had the ability to buy homes in all of the major metropolitan areas. The "Affordability Indices", community-specific measurements of those who could afford to buy a home, were ridiculously low, despite the availability of exotic loan products designed to keep payments reasonable. The prices of homes soared to completely unsustainable levels. Based on these indices, 85-90% of the population would be condemned to a life of renting. Of course, this trend was both economically unhealthy and totally unsustainable. We all know what happened since.

Home prices have now seen some pretty serious declines in some areas. Based on the CNN article, we have seen prices fall as much as 59.1% (Cape Coral-Ft. Meyers FL), year over year! The serious declines in value, combined with tax credits, FHA lending, and the perception that we are close to "the bottom" has enticed many buyers into the world of homeownership.The good news is that first-time homebuyers are getting financing and buying homes. The mortgages people are qualifying for are, for the most part, sound products with little controllable risk. Given that most buyers (investors/flipper excluded) will remain in their homes for at least five years, these new buyers are likely to be making sound, long-term investments. It is my contention, however, that these low priced opportunities are far from the bottom, pricewise.

Despite the contentions of NAR's Chief Economist, Lawrence Yun, that this is a lull before the upturn, I believe that we are still at unsustainable price levels and that the existing "A" paper and "Alt-A" paper loan portfolios are conspiring to drive values down another 10-20%. If you look at the WFB/NAHB Index of Opportunity for 231 cities, from May 18, 2009, you will note that many of Electoral Colleges "Big Six" states (CA, NY, TX, FL, IL, PA), and their respective large cities, are represented in the lowest quartile (32 of 57). The suggestion being that a huge portion of the population lives in areas where homes are least affordable.

It is a fairly reasonable contention that either incomes need to increase significantly (not likely), mortgages need to be made more affordable (possible, with caution), or that values still need to be brought in line with incomes. We have seen some laudable efforts to drive rates down and have witnessed the resulting run in loan originations. The likelihood of continued low rates, for the short-term, is pretty strong. I believe that the government will do what is necessary to keep rates down…even if it has to buy the bonds itself to keep yields low. But rates can only go so low; prices still need to come down. The latter is the path of least resistance given the amount of inventory and the pending "A" paper crisis.

The Subprime crisis is winding down. We still have a tremendously large amount of "A" paper loans that will be adjusting and a really, really dangerous inventory of Pay-Option ARM's which have started to re-cast as I type. The details and mechanics of these loans make them nearly impossible to “modify" and will necessarily create a tremendous amount of foreclosures in areas ranging from the lower economic strata to the highest. The subprime loans were the tip of the iceberg.

So, yes, we are seeing a dramatic increase in some areas that were hit the hardest. Yes, there is more optimism on the streets regarding housing opportunity. We are even seeing some lending happening! We still need, however, for prices to adjust to reasonable levels. I am not an economist, nor do I know what levels of homeownership and affordability that are necessary for a healthy economy (I have heard figures in the 70% area), but I do know that given current income levels, home prices need to still come down to a point where an average American family can buy a home.

Although I believe we have some serious pain ahead regarding home values, I also believe that the resulting opportunities will be a welcome relief to an American middle-class that needs relief from the high cost of home ownership.

Joe Chatham

Hope Now Information

2009-02-20T04:35:00.000-08:00

"Dear MortgageMaster,

What is FED/MOD?

Melva

Melva,

I am assuming a Fed/Med is a federal loan modification. I am also assuming you either heard someone talking about it or you were solicited using this term. Either way, it is probably referring to the federal loan modification program, Hope Now. This is taken directly from FHA's site, including contact number:

HOPE NOW
HOPE NOW is an alliance between counselors, servicers, investors, and other mortgage market participants. This alliance maximizes outreach efforts to homeowners in distress to help them stay in their homes. Its purpose is to reach and support as many homeowners as possible. The members of this alliance recognize that by working together, they will be more effective than by working independently.
Are you having trouble paying your mortgage? Call the Homeowner’s HOPE™ Hotline: 1.888.995.HOPE or go to their website at www.hopenow.com. Do it today!
Good luck!

MortgageMaster

Commissions For Loans and Note Modifications?

2009-01-28T15:31:00.000-08:00

Hi, Are there any regulations regarding the disbursement of commissions via a mortgage transaction? Can a company sign up independent agents who work as an independent contractor to market refinance and modification loans for a financial institution and receive commissions from that company as an independent contractor? Please advise... Thanks, Gary

Hi Gary,

It sounds like you are describing a mortgage broker: a person who markets lending services and then places his/her clients with a lender he/she/it (if incorporated) has "Broker Agreements" with. Mortgage Brokers specifically work as Independent Contractors for the lender(s) they have agreements with. They are paid commissions for successfully closed deals. Otherwise they would be employees and bound to sell the loans of that company only...not to mention the myriad of tax/compensation issues the lender's wish to avoid. With regard to the loan modification side of it, I would SUGGEST that the same is true. The Loan Mod industry is relatively new and mostly unregulated. I would venture to guess that ANYONE can collect commission on these files. I have heard talk that some regulatory agencies are looking into regulating this industry...but nothing concrete so far.

MortgageMaster

Escrow Funds, Continued

2009-01-28T14:22:00.000-08:00

Hi,

Please see my comments, in YELLOW CAPS, interspersed throughout your letter:

"Hello,

Thank you for getting back to me so quickly. This was, and still is, a complicated situation. From your response, I can see that there were some things that I didn't explain clearly. I thinks it's because I'm so tired of telling my story!!! However, that certainly isn't your fault. As far as the first contractor, you're right in that I didn't allow him to finish all that was on his original estimate. It was mainly the hardwood flooring that he had nothing to do with. The hardwood flooring has been installed and the company has been paid. Once the contract found out that he wouldn't be doing the flooring, he got ticked. I had been in contact on a regular basis with the mortgage company and they were aware that I was not intending to allow him to complete all of the work that was in the original estimate. There is some work still not done, mainly painting. I have since had to have a painter come in and repaint my house because the painting was soooooooooooooooooooooooooo bad, but he only got the upstairs done. I also had to have some other things done that he simply didn't finish. All of that stuff has been paid for out of my pocket. Therefore, there is no money that needs to go back to the insurance company. I even had to pay for part of the hardwood flooring out of my pocket. SEND YOUR RECEIPTS TO THE LENDER WITH A LETTER DETAILING WHAT HAPPENED. SEND IT CERTIFIED, SIGNATURE REQUIRED, TO THE PRESIDENT OF THE LENDER (THIS IS KEY)!

Once the adjuster was told that the contractor would not be completing the floors, he called the contractor and asked for a final bill. DID THE CONTRACTOR SEND HIS FINAL BILL? WAS HE PAID, ALBEIT HIGHER THAN QUOTED, THE AMOUNT HE BILLED? THE CONTRACTOR HAS A RESPONSIBILITY TO BILL IN A FAIR AND TIMELY MANNER. IF YOU HAVE A COMPLAINT, THREATEN THE CONTRACTOR WITH A FORMALIZED COMPLAINT TO THE STATE REGULATORY AGENCY HE WORKS UNDER. NOBODY LIKES "DINGS" ON THEIR RECORD! When I talked to the mortgage company asking for the remainder of the money, they told me that the contractor and I would have to sign off and then they could release the money back to us. I STILL DO NOT UNDERSTAND WHY THEY WILL NOT GIVE YOU THE MONEY, IF QUALIFIED TO BE GIVEN TO YOU, IF THE ORIGINAL CONTRACTOR WAS PAID. IT SOUNDS LIKE HE HAS NOT BEEN PAID YET, OR THAT HE HAS BEEN PAID BUT WILL NOT SIGN OFF ON THE FACT THAT HE HAS BEEN PAID. THUS, LEAVING THE LENDER WITH THE IMPRESSION THAT THE CONTRACTOR MAY STILL MAKE CLAIMS. TELL THE LENDER/ADJUSTOR TO ASK FOR THE FINAL BILLING AND HAVE THE LENDER HAMMER IT OUT WITH THEM. AFTER ALL, THE CONTRACTOR PROVIDED A WRITTEN ESTIMATE (I HOPE!) AND IS BOUND TO HIS ESTIMATE WITHIN REASON. OTHERWISE, IT IS SIMPLY SOUR GRAPES AND I SUGGEST FILING A COMPLAINT AGAINST THE CONTRACTOR. THE LENDER IS RIGHTFULLY FEARFUL THAT A LIEN COULD BE FILED. THEY ARE CAUGHT IN THE MIDDLE. They asked for a whole letter from the contractor since the amount he would be paid was less than the original estimate. I have explained to them that the amounts differ because he didn't do the floors. However, the contractor wrote a final bill for what I supposedly still owed him. The problem is that on the final bill, he didn't take the original bill and subtract the flooring, which would have made perfect sense and would have been fair. Instead, he added charges that weren't on the original bill. For example, on the final estimate, he added a charge for $1,500 for prepping the ceilings and the walls for painting!!!! Basically, he was ticked about losing the flooring money, so he was trying to get the money in another way. I explained all of this to the mortgage company and I asked them to get involved, but they refused to do so. So, the bottom line is: The mortgage company will not release the funds to just me until he signs off because he could put a lean again my property. I think that is wrong of them because I feel they should be looking out for me, but they aren't. AGAIN, IT IS THE CONTRACTOR WHO IS CREATING THE PROBLEM. FILE A COMPLAINT!!!!

I contacted the contractor and we got nowhere!!! I finally got an attorney, whom I asked to simply call the contractor, rather than doing all of the legal paperwork, but she didn't do that. She did call the contractor's worker, who owed me $1,000 for some furniture, but she said the contractor owed me more money so she would have to start in writing. Again, I asked her not to for a couple of reasons: 1) to save me money; and 2) so he wouldn't get intimidated by the legal part of it and feel he had to contact, and in turn, pay his attorney. At the beginning, he was willing to sign off, but once he saw all of the paperwork, he said he would need a week for his attorney to look over the paperwork. When the week was up, she called him back and he stopped returning her calls. I don't know if it's because his attorney found a loop hole for the contractor or what. I have since talked to the attorney and she told me it wouldn't be worth taking him to court because I would spend more than I'm trying to get back!!!! That ticked me off since I have already paid her over $1,000, but the worst part was that after she told me that, she left another message for him saying that if he didn't return her call, then I would file a law suit!!! Why she would tell him that if she told me it would cost that much, I don't know!!!! I am absolutely fit to be tied!!!!

FILE A COMPLAINT ABOUT THE CONTRACTOR! YOU MAY NOT NEED AN ATTORNEY YET!

I am going to contact the mortgage company tomorrow and I am going to ask them for assistance one more time. If they won't help me, then I am going to go to their regulatory agency. Would that be the FTC? Is that the appropriate person for me to contact? I'm not sure if I understood the part you wrote about escrow. You said that's a third party, but I think they are just holding the money in the mortgage company. ESCROW CANNOT RELEASE FUNDS UNLESS THE LENDER AUTHORIZES THEM TO DO SO. I WAS GOING TO SUGGEST CONTINUALLY FOLLOWING WITH THEM, BUT IT ALL STARTS WITH THE CONTRACTOR. Does that make sense?? Should I expect them to give me the money since he won't sign off or not? Should I expect them to help me by contacting him or not? They sure wanted to know everything about him as far as making sure the work would be done properly and all, that he was licensed, bonded and insured, but now that he is being an idiot, they won't help me!!!!! I am not in the wrong in this situation, but yet I can't find anyone to help me. Could I expect his insurance company to help me or my insurance company??

Help!!!!!! Not only am I out all that money, but I STILL have to hire a painter to fix the incredible MESS he made in my home!!!! How can he get away with this???

I would appreciate any help you can give me.

Thank you,

Robin"

Picking Mortgage Insurance Companies

2009-01-28T11:52:00.000-08:00

Does a person have the right to try to obtain their own PMI or do they have to accept the lenders choice ?

Don

Don,

I have never, in 20 years, had a client specifically request an MI company. The fact is there are only a few providors of mortgage insurance: PMI, RMIC, CMG, MGIC, and maybe another one or two. The afmorementioned are, however, the larger underwriters. The way the process works is that your lender submits loan files to one or more of the mortgage insurance companies and hopes that they will get an approval. if a MI company will not approve the policy, the lender will not do the loan (unless they choose to self insure, if available). Thus, the loan is really not approved until the MI company says it is insurable.

While you can ask your lender who they use for MI (as most will use several), and say you have a preference amongst their carriers, the real question is who is willing to approve the loan. Generally, the lender will send it to the MI company they feel will get the loan insured. If all are willing to underwrite the loan's MI, I suppose their could be differences in their premiums, but it is probably nominal. In addition to the need for getting approvals, the lenders are likely to lean toward the MI carrier(s) with the lower premiums: lower premiums = lower debt ratios = more approvals = more revenues.

If you still want to pursue this, ask your lender if they will let you select amongst their MI vendors and if there are differences in the premiums.

I hope this helps.

MortgageMaster

Are 10 Year Mortgages Legal In Texas?

2009-01-27T13:02:00.000-08:00

Can you tell me if 10 year mortgages are legal in the state of Texas? We were told by our "out of state lender" that they were not legal in Texas, but they gave us one anyway. Since then, Wells Fargo has purchased the mortgage & we have 4 1/2 years left to pay. Due to family illness, we must lower our monthly payments & are trying to work with the bank. If they are illegal will that give us any leverage in dealing with the bank?

Thanks,
JM

Hi Jane,

I say this with the caveat that I am not licensed in Texas. Thus, I am not an expert nor can I offer a legal opinion. I can, however, tell you that I called four separate mortgage companies located in Texas and asked them if a ten year mortgage was possible. Without exception, they all said they could offer 10-year conventional mortgages. The each noted, with prodding, that they could not offer 10-year mortgages on the FHA program. I know you are searching for options. Given that you are currently in a ten year, with a ten-year amortizing payment, I would be pretty surprised if your lender did not offer to modify the loan into a 30 year at a reasonable rate for you...assuming the 30 year payment would be affordable for you. As I have stated many times, lenders do not want to foreclose. If you can make the 30 year payment, I am sure they will work with you.

MortgageMaster

Refund of Escrow Funds

2009-01-27T10:49:00.000-08:00

Hello,

In Feb. 2008, I had a pipe freeze and burst, which caused damage to three floors of my home. As it turned out, the pipe did not meet code, but that's beside the point, as far as what I am asking about at this time. My mortgage company held the money paid out by the insurance company for structural damages in escrow until the damages were fixed by the contractor. Because of the poor quality of care shown for my household belongings, not to mention the poor quality of work completed, I decided not to have the original contractor install the new hardwood flooring. As a result, he decided to change many of his original prices and also add new charges to my bill to try to compensate for the money he lost by not being allowed to do the floors. As a result of the changes made, there is still money that my mortgage company is holding. I have provided them with an update on which items the contractor did complete and which ones he didn't. However, since the orignal estimate doesn't match the final one, they will not release the extra money back to me without the contractor's signature, which he is refusing to provide! So, about $4,500 is just sitting in my mortgage company !!!! I desperately need that money back to pay for expenses I have incurred in trying to fix and/or finish the things that the first contractor ruined.

Do I have any recourse in getting the mortgage company to turn the $4,500 over to me??? It does belong to me!!!

Please advise me.

Thank you for your help,

Robin

ALTHOUGH I AM A BIT CONFUSED, IT SOUNDS, OVERALL, LIKE YOU HIRED ONE CONTRACTOR TO DO THE WORK. YOU WERE NOT HAPPY WITH THAT CONTRACTOR AND TERMINATED HIM PARTLY THROUGH THE PROJECT. HE CHARGED MORE FOR THE PORTION OF WORK WHICH HE COMPLETED THAN WAS QUOTED. IT SOUNDS LIKE HE WAS PAID, WITHOUT QUESTION, BY THE LENDER FOR THE PORTION OF THE WORK HE DID COMPLETE. IT SOUNDS LIKE CONTRACTOR #2 FINISHED THE WORK TO YOUR SATISFACTION. I ASSUME HE WAS PAID. IT ALSO SOUNDS LIKE HE CAME IN BELOW THE ORIGINAL CONTRACTOR'S BID. THUS, YOU HAVE $4500 LEFT OVER. HAS ALL THE WORK BEEN SIGNED-OFF BY THE LENDER AS SATISFACTORY? IF NOT, THE REMAINING FUNDS MAY BE NEEDED TO COMPLETE THE WORK. IF ALL THE WORK IS DONE AND SIGNED OFF BY THE LENDER, AND YOU HAVE AN OVERAGE OF $4500, YOU MAY BE ENTITLED TO THE MONIES. PERHAPS THE INSURANCE COMPANY IS ENTITLED TO A REFUND OF THE UNUSED MONIES? I DO NOT KNOW. EITHER WAY, I DO NOT SEE HOW THE FIRST CONTRACTOR CAN BE HOLDING THIS UP (UNLESS HE IS THE ONE SIGNING-OFF ON THE WORK?). I WOULD EITHER SEEK LEGAL COUNSEL OR CALL THE ESCROW OFFICER AND HAVE HER POINT ME TO THE APPROPRIATE PERSON AT THE LENDERS. REMEMBER, ESCROW IS A DISINTERESTED THIRD-PARTY AND SHOULD BE ASSITING YOU IN THIS MATTER.

MortgageMaster

Lender, Who Is Foreclosing, Lost Paperwork!

2009-01-05T16:59:00.000-08:00

Hello,

I am sending this as directed from your website. I have been served foreclosure documents (lawsuit) from my lender. They admit in the lawsuit that they have lost the original docuents "but expect to recover them". I understand that what usually has happened is that the docuemnts were not properly filed with a trust as required by The Securities Act and other mortgage lending laws.I also understand that if I allow this foreclosure to proceed, I may find yet another creditor on my doorstep demanding payment as the current plaintiff may not be the correct plaintiff in this case.I'm not denying that I have a mortgage, just want to make sure the plaintiff is indeed the plaintiff.What law, Securities Act section or other case law can I refer to in my response to the court? Thank you for your assistance.

Doug

Hi Doug,

This is a case where contacting an attorney may prove invaluable; particularly an attorney that is specializing in "loss mitigation" or "loan modifications". You can listen to your talk radio or simply google: "attorney, loss mitigation, Los Angeles (or wherever you live). Given that they cannot locate the documents, you may have the upper hand. An attorney can make the most of this error. Also, you generally do not have to pay for many of these loss mitigation services up front, but rather when they are settled. Attorney's however, may require a "retainer" to start negotiating. The Esq. following the attorney's name carries a lot of weight and may be worth the upfront investment.

MortgageMaster

ILL, ILLITERATE & Seeking Help on Note Modification

2008-12-30T08:40:00.000-08:00

WE GOT A MORTAGE ,BECAUSE WE WERE IN A SITUATION THAT WE WERE NEEDING HELP BAD, DUE TO ILLNESS (MY HUSBAND HAD HAS 2 CANCER SURGERIES) . WE DID NOT WANT TO LOOSE OUR HOME WE HAD WORKED SO LONG FOR, SO WE ACCEPTED THE MORTAGE. AT THE TIME, WE WERE SO DESPERATE TO SAVE OUR HOME, WE SIGNED THE PAPERS. NOW WE LEARN THAT 100% OF ALL MONEY PAID IS ON INTEREST ONLY. NONE OF THIS IS APPLYING TO THE PRINCIPAL OF THE LOAN. MY HUSBAND CAN NOT READ OR WRITE VERY WELL, AND THE BANK MANAGER EXPLAINED THE LOAN TO HIM, BUT I SOMEHOW BELIEVE WE ARE BEING MIS LED. PLEASE HELP US, TO SAVE OUR HOME, AND EXPAIN WHAT WE CAN DO TO FIX THIS. WE ARE ON A VERY SMALL INCOME, AND WANT TO KEEP OUR HOME THANK YOU VERY MUCH

Hello,

I am so sorry to hear about your husband's illness. I hope that his surgeries were a success and that he is well again! I am concerned that your husband signed documents without the assistance of a literate advocate. This is something that you may want to share with a professional loss mitigation company (there are thousands of them: google one in your area). Be careful, however, and do not pay anything upfront. Most are working on a success fee now. In other words, they do not get paid unless they successfully negotiate your loan. MAKE SURE TO MENTION THE CIRCUMSTANCES AND THAT YOUR HUSBAND IS ILLITERATE!!!! Lenders are not the bad guys they are made out to be. They will likely assist you in some manner: lower rate, longer repayment terms, both, etc. Review some of the blogs in the past on this site. You may find some helpful insight.

MortgageMaster

Debt Forgiveness For Those With Severe Medical Costs

2008-12-29T13:26:00.000-08:00

Hi,

Do mortgage companies ever forgive an entire home loan debt ($102,000.00) because of medical reasons? I ask because of severe health problems in my family and medical bills we can't get on top of, even with our credit card. Mr. Warren Buffet recently paid off our credit card and a home equity loan because of our need. But our house payment is nearly half of our monthly income. (We are living on Social Security Disability). Thanks,

Denise

Dear Denise,

Please forgive my more-than-tardy reply: This e-mail was lost in my e-mail files!

I am really very sorry to hear about your medical issues. I hope everything turns out well. To answer your question, simply: It is up to the lender. The fact is that if you are behind, you have several options for a loan modification: lower rate, longer term, a combo, etc. Lowering the principal is certainly not unheard of, but much less common...even in these crazy times. Given your circumstances and the likelihood of some media attention that you received re: Mr. Buffet's generosity, you may be able to get the lender to help. Even if the lender extended your term and lowered your rate, you would be better off than you are now. Just remember, you get more with honey than you do with vinegar. In other words, the lenders want to help. They do not like to be yelled at or assaulted. This is not advice directed specifically at you, but at all those who are looking for loan modifications. Good luck!

MortgageMaster

I Am Paying Too Much Toward Interest!

2008-12-29T09:58:00.000-08:00

Good day,

I have concerns that my financial institution (RBC) has made too much money from the interest off my mortgage (You and me both, brother, you and me both!) and I should be able to negotiate terms in lowering my interest rate or at the very most pay principal only (not likely). You may be able to negotiate terms, but it will likely result only from being delinquency on your part. Unfair, I know, but it is the way things are right now.

I’ve lived at my residence for just over 11 years. I originally borrowed $85,000 to buy it.The home was built in 1901 and has had significant upgrades, but marketable for about $90,000.I have re-mortgaged twice, once in 2002 when the balance I believe was around $77,000 for $104,000 to consolidate debt, go back to school and another time in 2007 for the amount owed then, approx. $89,000.I still owe $87,000 on the house and over the course of 11 years I have given the bank approx. $88,530 total principal and interest. I do know that since I have re-mortgaged a couple times, I would have to “bight the bullet” about the amount of dollars paid.But is there rules a bank must follow in order to not take advantage of a client who has obviously paid into a mortgage enough? I know it sucks, but mortgages are "front-loaded" regarding interest. In other words, the VAST majority of your payments will go to interest for the first many years. It is only in the last ten years that you really clobber the principal! Thus, by refinancing as you have, twice, you keep starting the "interest-clock" ticking! The bank is following rules as allowed and as drawn-up in your mortgage note. Do not feel as though you are a "sucker", your mortgage is not likely any different than all the other mortgages out there. I have 148 months remaining on my term at a monthly payment of $769 equalling an additional $113,812 to the already $88,530 totalling $202,342 for a $90,000 home. I truly don’t see the cost advantage. There is not cost advantage, per say. The advantage is in tax deductions and appreciation of value: I do not know the present value, but it is likely to be substantially higher in 148 months. In the meantime, you are also writing off the interest. Home ownership is still a great investment OVER THE LONG RUN! What can I do? Please help any advice is greatly appreciated. Apply extra toward the principal every month or make an extra payment every year. This will reduce the amount to be paid and the time that you continue to make payments. Good luck!

Thanks kindly, Mark

Mis-applied Check?

2008-12-29T09:31:00.000-08:00

MortgageMaster,

My homeowners sent me a check for damages to my home, which I sent to my morgage Bank to endorse and return. This was in Sept. all repairs have been completed, I can not get my morgage company to reimburse me for repairs to my home. I think there is federal regulations ,that a morgage company can only hold your insurance check for a certain lenght of time.Please let me know this ruling from the Federal Government.thanks

Hello,

I am not familiar with the regulation that you are writing about. As far as I know, HOA's are regulated by the state(s) they are located and/or operating in. This is also true of mortgage lenders. Thus, I would contact the appropriate state or federal agency to get the correct answer. Based on your e-mail address and a little "googling" on my part, I think you are in California. It does not sound as though you need help with the HOA, but rather, the lender. Lenders can be regulated by a bevy a different organizations. In California it can be California Department of Corporations, FDIC, California Department of Financial Institutions, California Department of Real Estate, etc.

The first thing I would do is look at your October statement and see if the endorsed check was applied as a payment to your mortgage. If so, ask a supervisor to void the transaction and send you a check (you may need to prove the work has been satisfactorily completed). If not applied to your mortgage, where was the money applied (assuming the check was cashed?: Check with the HOA)? If the check was cashed, you are entitle to know where it was applied. It sounds as though there is more of a lack of communication than something nefarious. If the check was not cashed, you are back in the driver's seat. Good luck!

MortgageMaster

Spousal Abandonment: Who Pays The Mortgage?

2008-12-29T08:57:00.000-08:00

Dear MortgageMaster,

My (ex) wife and myself have joint names on mortgage agreements some 3 plus years ago. She has left the marriage with no apparentintent on paying her share of payments. She has departed to the Mid West states (U.S.) Kansas City, MO. Before she left she told me if I was to sell her assets, and property she wanted half of profits. When she departed the mortgage owing was $ 90,000 with total debts ( matrimonial ) over $ 25,000.Are there laws in N.S. concerning abandonment of marriage, especially, concerning debts incurred since marriage.

Dear Sir,

I am sorry to hear about your sad turn of events. Unfortunately, I have absolutely no knowledge of Canadian law. Even in the U.S., the laws from state to state differ regarding mortgage obligations. In California, for example, whoever signs the mortgage paperwork as a borrower is responsible for the mortgage, regardless of changes in marital status. You need to speak to an attorney. Sorry I could not help!

MortgageMaster

Can I Pay 1/2 My Mortgage Payment Twice Per Month?

2008-12-22T14:19:00.001-08:00

Dear MortgageMaster,

I have spent the last 6 months splitting my mortage payment in half. I will send half the first week of the month and the second half no later than the 18th of the month. I have explained to them that I am a childcare provider and that I pay them as much as possible as soon as possible. I have asked for my due date to be reset for nine consecutive months to reduce or eliminate the late fees that continue to accrue on my account. They refuse to do so. My question is, is there a regulation that mandates that the mortgage company applies funds as received and re figures interest on the outstanding principle or can they hold the funds unapplied and continue to collect interest as if no effort or money was received? My mortgage company it First Franklin Financial Services

Julie

Dear Julie,

Insofar as a regulation that mandates that a mortgage company accept your 1/2 payments as they are received, I do not know of any. Nor am I familiar with any mortgage company that will accept 1/2 payments twice a month on First Mortgages. Since HELOC's are lines of credit, you can arguably use this payment method as long as both 1/2 payments are received before the "late" date. Macquarie Bank, an Australia-based bank, has a heloc first that can be used in the manner you are talking about (as could any Heloc 1st). Other than a Macquarie First, I do not know of any lenders who are set-up to accept payments in the manner described. Perhaps you can try and put aside one payment over the next few months, put it in a separate checking account, and then when you have enough saved up, send it to the lender. Then you will always be on schedule. Also, given the current markets, you may be able to negotiate a loan modification changing your due date. Lenders are becoming increasingly flexible! Good luck!

MortgageMaster

Kentucky Homeowner

2008-12-19T14:52:00.000-08:00

MortgageMaster,

I'm in search of some mortgage regulations for the state of kentucky. My primary question is, how long must i be in a home before i can re-sell it? also, questions relating to that with regards to taxes, etc. if i'm in a house for a year and a half, what willhappen when i sell it? is there any fine/fee/ are any gains taxable?
if yuo have any answers, or a reliable location wherei might find them, i would greatly appreciate it.
Regards,Jeremy

Hi Jeremy,

You need to speak to a CPA. I AM NOT OFFERING THE FOLLOWING AS ADVICE, BUT SIMPLY MY OBSERVATIONS OR KNOWLEDGE. PLEASE CONFIRM WITH A TAX PROFESSIONAL: Generally, there are no taxable gains on a property (if < $250k/individual or <$500k for a couple) as long as you have lived in that property for at least two of the past five years, cumulatively). Thus, it makes sense to me that 1 1/2 years may have create a taxable event (it is less than two years, altogether). I am not sure if Kentucky has anything different from the above.

MortgageMaster

Bi-weekly Payment Plans

2008-12-19T14:27:00.000-08:00

Dear MortgageMaster,

I am trying to set up a biweekly payment option on our 30 year fixed mortgage. I am told by my mortgage lender that I must use their outside FNC insurance company to accomplish this which will cost me $375 to set up. Iasked to do it myself through my bill pay option at my financial institution. I was informed I could not. Is it legal for the mortgage co.to demand I use their system and not apply my additional $ paid in the same interest saving manner?

Jon

Dear Jon,

Congratulations on tapping into one of the most powerful and painless methods of paying your mortgage off early...thus, saving thousands and thousands of dollars! Your lender can require you to use their program if you need to use them to set up the bi-weekly program. YOU DON'T!!! Simply take one month's payment and divide it by twelve, and then increase your monthly payment by the 1/12. For example, if your monthly principal and interest payment is $1200, divide it by twelve ($100), and add the $100 to your regular payment ($1200 + $100 = $1300). This achieves the same thing as a bi-weekly payment plan (for reasons I will not explain, it actually works a little faster and better), costs nothing, and is relatively painless. A word of caution, make sure that you note on your payment coupon that you are paying extra and want it applied to principal.

MortgageMaster

Will Bank Lower My Principal?

2008-12-19T14:14:00.000-08:00

Dear MortgageMaster,

I was told by someone that couldn't make their payments and were behind on their mortgage that they called the lender and they wiped away a large portion of their debt and reduce their monthly payments by almost $1000. They said the lender was able to do this because of Federal program for first time home buyers. Have you heard anything about this?

Katie

Hi Katie,

Your friend is one of the luckier borrowers I have heard about. I have researched and cannot find a Federal loss mitigation program that is specific to first-time home buyers or that mandates lowering principle on a loan. There is a plan called Hope Now through HUD as well as several other programs designed to help the struggling homeowner. That being said, there are plenty of loan modifications occurring via the lenders and third parties (For-Profit and Non-Profit). Most do not involve cutting the principle loan amount. In fact, very few will lower the loan amount. Most will lower the interest rate, defer payments, lengthen the term of the loan repayment, etc. The facts are if it makes dollars and sense (pardon the pun), the lender will entertain the modification.

MortgageMaster

Does One-Time Lawsuit Settlement Affect Underwriting?

2008-12-19T14:02:00.000-08:00

Dear MortgageMaster,

I have received a settlement for a personal injury which is not subject to tax reporting or taxation. It will make my personal income look elevated in comparison to next year. Is this a situation that could be explained by letter to a mortgage broker and other creditors so that my ability to seek credit next year won’t be negatively impacted?

Thanks, Susan

Hi Susan,

I hope you have healed from your ordeal. You said that the settlement "was not subject to tax reporting or taxation". How will it make your personal income look elevated? Perhaps it is reported, but not taxed? I do not know. Let's assume that you did claim the income (regardless of its taxability), a simple letter may be required. This income is like a one-time capital gain; lender's will not count it. Capital gains, however, can be counted if they are consistently earned over a two year period (some lender's may request three years of taxes as proof). Thus, dividends, real estate gains, etc. MAY be counted, if they qualify. A one-time settlement will not effect you, one way or another insofar as income qualifications are concerned. You can use this money and source it as your down payment.

MortgageMaster