"A select group of struggling mortgage borrowers are about
to get an offer that sounds too good to be true. Executives
at Bank of America say they will begin mailing 200,000
letters offering certain customers mortgage principal
reduction. 'If people get these things and toss them, they
won’t be eligible,' says Ron Sturzenegger, the Bank of
America executive charged with providing solutions to
borrowers in need of mortgage assistance. But the offer is
real, and eligible borrowers could get as much as $150,000
knocked off the balance of their mortgages. It is all part
of the $25 billion settlement reached this year between
federal and state agencies and the nation’s five largest
mortgage servicers over fraudulent foreclosure document
processing (so-called 'robo-signing'). Bank of America, in
a deal with state attorneys general and the US Department of
Justice, committed $11 billion to mortgage principal
reduction, but executives say they will go beyond that if
enough borrowers respond to their offer. Five thousand
borrowers have already received a collective $700 million in
principal reduction through a pilot program for those
already in a modification negotiation. The 200,000 borrowers
being targeted now may have already exhausted modification
options or may have yet to contact the lender.
Executives say borrowers receiving the letters are eligible,
but they still have to prove they qualify. In order to be
eligible, a borrower must be 60 days late on the mortgage
payment as of Jan. 31, 2012. The borrower has to owe more on
the mortgage than the home is currently worth, commonly
known as being 'underwater' on the mortgage, and the
borrower’s loan must either be owned by Bank of America or
serviced by Bank of America for an investor who is allowing
the modifications. In order to qualify for the
modification, the borrower must answer the letter with full
documentation of income, showing that under the terms of the
modification they can still make the monthly payment. A
borrower with no income would therefore not qualify. A
borrower’s current monthly payment must be more than 25%
of gross income, and the borrower must show they are unable
to afford that. 'If you can afford to make your monthly
payment and are choosing not to, you will not get this
principal modification,' says Sturzenegger. If the borrower
qualifies, Bank of America will bring the monthly mortgage
payment down to 25% of the borrower’s gross income. That
could mean principal forgiveness well over $100,000, as
there is no limit to the amount of the mortgage. If enough
borrowers respond, it could cost Bank of America far more
than it committed to in the settlement. 'Yes, we have the
capability to go well beyond the $11 billion,' adds
Sturzenegger.
Bank executives say that before choosing
which borrowers will get the offer, they
performed a net present value test on each loan, making sure
that the principal reduction modification would net Bank of
America or the investor who owns the loan more than
foreclosing on the home. 'It has to be fair to the investor
as well,' says Sturzenegger. Not all of the 200,000
borrowers who receive the letters are expected to respond.
Executives say there is a level of fatigue among delinquent
borrowers who have already received several notices or who
may have gone through a failed modification process already.
Some borrowers simply don’t want to stay in their homes,
while others may think the offer is a scam. 'They have been
contacted by a lot of other people, and this offer may
appear too good to be true,' says Sturzenegger.
That’s why Bank of America is sending the letters by
certified mail and trying to make the language as simple as
possible. A sample letter obtained by CNBC shows a bring red
box in the top corner labeled, 'IMPORTANT' and simple
language stating, 'Qualifying customers may reduce their
monthly payment by an average of 35%.' Some 6,500 letters
should be arriving in mailboxes across the country this
week, with a wave of new letters going out every week until
the end of the summer, when all 200,000 should have been
mailed. Bank of America is staggering the mailings in order
to handle the expected response. The bank has staffed up to
handle the task, with 50,000 employees manning servicing
desks, but the process will clearly take a lot of time.
That’s why Bank of America has suspended any foreclosure
actions against these 200,000 borrowers until the process is
complete. There are currently 5.59 million US loans that are
either delinquent or in the foreclosure process, according
to Lender Processing Services. Bank of America services one
million of those loans, but many of them are owned by Fannie
Mae and Freddie Mac. Their regulator, Edward DeMarco of the
Federal Housing Finance Agency, has yet to agree to
principal reduction in loan modifications, despite harsh
criticism from some lawmakers on Capitol Hill and increasing
pressure from the White House."
Fannie Mae and Freddie Mac, the nation's two largest mortgage
backers, will implement their new short sale guidelines on June
15. The changes require mortgage servicers to make a decision
within 30 days of receiving a short sale offer. They also must
consider requests for pre-approved short sales within that same
timeframe. If the lender needs more than 30 days, it must give
borrowers weekly status updates and a decision within 60 days of
the initial application. This extension gives lenders more time
to determine the value of the property or to get the approval of
a mortgage insurer. The moves are aimed at streamlining the
short sale process, which often takes months to complete. Faster
response times could help thousands of homeowners. Short sale
transactions can get so complicated that many prospective buyers
won't even consider making an offer on a short sale property. And
many of those who bid often walk away from the offer because
lenders take so long to make a decision. "Short sales are more
complex than routine home sales since they may involve multiple
parties and long-distance negotiating," said Tracy Mooney, a
Freddie Mac senior vice president. The new rules "are intended to
help make the decision process more transparent and timely."
Banks have also caught on to the benefit of approving short
sales. Foreclosures take more time for the bank to recoup their
money, and it costs upwards of $50,000 to process a foreclosure.
But in the wake of the robosigning scandal, banks are more apt to
help and even encourage a homeowner to pursue via a short sale.
In addition to the benefits of the bank, the homeowner comes out
much better in the long run. Along with a new home, their credit
has been salvaged to a respectable level as opposed to letting a
home go due to foreclosure. With a foreclosure it can take up to
seven years for your credit to show signs of improvement.
The golden age for foreclosure squatters may soon be coming
to an end now that the $26 billion mortgage settlement has
been approved.
The settlement, agreed to by the nation's five largest
mortgage lenders, is expected to speed up the foreclosure
process by providing stricter guidelines for the banks to
follow when repossessing homes. The banks involved include
Bank of America, JPMorgan Chase, Citibank, Wells Fargo and
Ally Financial. Many foreclosures have been in limbo since
fall 2010 following the so-called robo-signing scandal, when
banks allowed employees to sign off on thousands of
foreclosure documents a month with little verification.
Lenders hit the pause button on foreclosures because they
"were afraid that anything they did would be under a
microscope," said Eric Higgins, a professor of business at
Kansas State University. As a result, borrowers who were
seriously delinquent on their loans have been able to stay
in their homes for months or even years without making a
single payment. Nationwide, the average time it takes to
foreclose on a home -- from the first missed payment to the
final bank repossession -- stretched to 370 days during the
first quarter, almost twice as long as it took five years
ago, according to Daren Blomquist, the marketing director at
RealtyTrac.
In some states, delinquent borrowers have been squatting in
their homes much longer. In Florida, the average time was
861 days, and here in New York it was 1,056 days -- close to
three years. "Perhaps a million foreclosures could have
been pursued last year but weren't," said Rick Sharga,
executive vice president for real estate investment company,
Carrington Holdings. But that's all about to change, he
said. "We're going to see an increase in the speed of
foreclosures and a higher number of foreclosure starts." In
fact, there are indications that the pace of foreclosures
are already starting to pick up.
While overall foreclosure activity was down during the first
quarter, filings were up 10% in the 26 states where
foreclosures must undergo court scrutiny, according to
RealtyTrac. It was in these judicial states that the
processing of foreclosures slowed the most following news of
the robo-signing scandal, said Blomquist. Many banks in
these states stopped filing foreclosures unless they were
extremely confident it would pass muster in the court. (In
non-judicial states, foreclosures are reviewed by a trustee,
which is a third party such as a title company and less
likely to parse every legal document). But now lenders can
move more confidently, said Brandon Moore, RealtyTrac's CEO.
In the judicial state of Indiana, for example, foreclosure
filings were up 45% year-over year. And in Florida, they
were up by almost 26%, according to RealtyTrac. "The dam
may not burst in the next 30 to 45 days, but it will
eventually burst, and everyone downstream should be prepared
for that to happen -- both in terms of new foreclosure
activity and new short sale activity," Moore said in a
statement. The resulting flood could bring home prices down
even further -- yet another impetus for the banks to clear
out their foreclosure pipeline as quickly as possible, said
Kansas State's Higgins. Then, industry thinking is, the
housing market would be able to get back to normal and home
prices could eventually find their true value. Some industry
analysts, such as the chief economist for listing site
Zillow, Stan Humphries, are predicting that could happen as
soon as the end of the year. Zillow estimates that home
values nationwide will fall another 3.7% by the end of 2012,
and that price will likely bottom out by early 2013. Should
home prices hit a bottom then stabilize, it would push many
potential buyers off the fence, according to Mike
Fratantoni, a vice president at the Mortgage Bankers
Association. House hunters would no longer be afraid of
investing in assets that were losing money. "The market is
already on the verge of turning the corner on prices and
this will help," said Fratantoni.
Bank of America (BOA) says it's making changes to its short-sale
procedures that will shorten decision times on short sale offers
to 20 days, down from 45 days or longer. The new task flow in
BOA's short-sale management platform, Equator, will enable
short-sale specialists to conduct tasks like document collection,
valuations and underwriting simultaneously. When buyers walk,
agents will have five days instead of 14 days to submit a backup
offer. Bank of America is requiring a new third-party
authorization form for short sales initiated beginning April 14.
When the changes to Equator take effect Saturday, five documents
will be required to process short sales initiated with an offer:
- A purchase contract including buyer's acknowledgment and
disclosure.
- HUD-1.
- IRS Form 4506-T.
- Bank of America short-sale addendum.
- Bank of America third-party authorization form.
The Equator platform will be offline the night of Friday, April
13, and into early Saturday, April 14, to implement changes.
Offer documents and supporting documents for all short sales
submitted with an offer must be uploaded before Friday, April 13,
or files may be declined.
The $26 billion foreclosure settlement has finally been given the
green light, making it possible for roughly two million of the
nation's hardest hit borrowers to see a significant reduction in
their mortgage payments. Agreed to between the nation's five
largest banks and attorneys general from 49 states and the
District of Columbia, the deal settles charges of foreclosure
processing abuses dating back to 2008. The settlement, the
details of which were first announced in early February, has been
in the works for more than a year. Here's what the banks agreed
to and what borrowers can expect in the days ahead.
The banks and servicers have committed at least $17 billion to
reduce principal for borrowers who 1) owe far more than their
homes are worth 2) are behind on payments. The amount of
principal reduction will average about $20,000 per borrower in
the cases of four of the banks. The Bank of America reductions
will be even steeper, averaging $100,000 or more, according to
spokesman Rick Simon. Another $3.7 billion will go toward
refinancing mortgages for borrowers who are current on their
payments. This will enable them to take advantage of the
historically low interest rates that are currently available.
The banks will pay $5 billion to the states and the federal
government, the only hard money involved in the deal. Out of that
fund will come payments of $1,500 to $2,000 to homeowners who
lost their homes to foreclosure.
Other funds will be paid to legal aid and homeowner advocacy
organizations to help individuals facing foreclosure or
experiencing servicer abuses. Another $1 billion will be paid
directly by Bank of America to the Federal Housing Administration
to settle charges that its subsidiary, Countrywide Financial,
defrauded the housing agency. In addition, the banks agreed to
eliminate robo-signing altogether and to use proper and legal
procedures when putting homeowners through the foreclosure
process. They also agreed to end servicer abuses, like harassing
delinquent borrowers for payments, and to include principal
reductions more often in their mortgage modifications programs.
Craig Karmin and James Hagerty from the Wall Street Journal report on a trend that is spreading across the countryside. Houses with mortgages of $5M or more have seen a dramatic rise in mortgage defaults. People used to make money and could afford these gargantuan money pits but, with job cuts and a struggling economy these properties are going down the tubes, like their lower cost brethren. The article states, “In February alone, 352 homes nationwide in this category were scheduled for foreclosure auction, the final step before a bank acquisition. That is the largest monthly number of these so-called notices of sale since the financial crisis began. By comparison, in all of 2009, there were 1,312 such notices.” Astonishing numbers!
I think that this is the beginning of a trend. Why? Because wealthy people have the means to pump good money after bad to keep a house out of foreclosure. But, the money will eventually run out. Either that, or the home owner will make a business decision and engage in a strategic foreclosure.
http://online.wsj.com/article/SB10001424052702304198004575172303998670976.html
Bank of America will make deeper and broader cuts than other
banks, which will allow it to avoid as much as $850 million in
penalties and give more than 200,000 financially strapped
households the opportunity to sharply reduce their mortgage
balances. The side deal is unique to Bank of America, said the
Wall Street Journal, citing a senior administration official. It
added that many of the write-downs will be made on loans
originated by Countrywide Financial Corp, which Bank of America
bought in 2008, and then packaged into securities. Investors in
those securities could then be affected by the side deal. Bank of
America said on Feb. 9 that under the government settlement,
write-downs will be made on loans originated by Countrywide
Financial Corp prior to and for a period following the bank's
acquisition of that lender. The other banks accused of abusive
mortgage practices that settled with the government were Wells
Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial
Inc.
A calculation by a Brookings Institution economist narrowed down
a pool of underwater homeowners to 500,000 who could qualify for
principal reduction from the $25 billion mortgage settlement.
Using the parameters of the settlement, Ted Gayer found just 5%
of the nation's 11.1 million underwater borrowers could get the
principal reduced on their mortgage, first reported by The
Washington Post. About $10 billion of the settlement, in the form
of credits, will go toward principal write-downs made by the five
banks. Only homeowners delinquent on their mortgages are
eligible. Gayer eliminated others according to underlying
requirements, including Fannie Mae or Freddie Mac loans and homes
not owner-occupied. It's a rough calculation, Gayer warned, and
he made some assumptions in the process. He eliminated any loans
not held on the banks' balance sheets, as well as any with a
second loan. Mortgage bondholders may not take kindly to
principal write-downs, he said.
Five years after the housing bubble burst, America's wealthiest
families are now losing their homes to foreclosure at a faster
rate than the rest of the country -- and many of them are doing
so voluntarily. Over 36,000 homes valued at $1 million or more
were foreclosed on -- or at least served with a notice of default
-- in 2011, according to data compiled by RealtyTrac, which
tracks foreclosures. While that's less than 2% of all
foreclosures nationwide, it represents a much bigger share of
foreclosure activity than in previous years. Out of all
foreclosure activity, the share of foreclosures on properties
valued at $1 million or more has risen by 115% since 2007 while
the share of multi-million dollar foreclosures -- or homes valued
at more than $2 million -- jumped by 273%. Meanwhile, the share
of foreclosures on mid-range properties valued between $500,000
and $1 million fell by 21%. But don't expect a few depressed
mansions to bring down the neighborhood. A single foreclosure in
an otherwise wealthy area is unlikely to impact surrounding
values, Daren Blomquist, vice president of RealtyTrac said.
"You're not going to see the weeds growing." But there will be
an opportunity for buyers to snatch up these impressive houses at
bargain basement prices, he said, which could provide a
much-needed boost to sales overall. "In a good way, this is going
to drive turnover," he said.
In any out-of-court settlement for alleged wrongdoing, the test
of whether prosecutors got a good deal rests on the answers to
three questions: Does it hold the miscreants accountable? Does it
make victims whole? And does it prevent similar misconduct in the
future? Thursday’s $25 billion agreement by five banks to end
a 16- month investigation of abusive foreclosure practices fails
on the first two counts. And we won’t know for some time
whether it is successful on the third. Nonetheless, the deal is
in the country’s interest because it clarifies the liabilities
of banks that filed bogus court documents to speed up
repossessions. That could clear the clogged foreclosure process
and, more importantly, help bring a moribund real-estate market
back to life.
The banks -- Bank of America Corp., Wells Fargo & Co., JPMorgan
Chase & Co., Citigroup Inc. and Ally Financial Inc. (the five
largest home-loan servicers) -- have committed to spend the bulk
of the $25 billion on reducing the principal owed by at-risk
homeowners. Smaller amounts will go to people who already lost
their homes or are in the foreclosure process. The settlement
could help as many as 2 million borrowers, including many whose
mortgages are underwater. Cash payments of up to $2,000 will go
to those whose homes were repossessed from September 2008 to
December 2011. Since 2007, about 4 million families have lost
their homes or are about to, and an additional 11 million owe
about $750 billion more on their mortgages than their homes are
worth. Even taking into consideration that some borrowers acted
irresponsibly and don’t deserve compensation, the settlement
amount is a pittance.
The deal does have teeth. It calls for an outside monitor and for
heavy penalties if banks don’t make good on their commitments.
More important, banks will be given credit only for what they
actually accomplish for homeowners -- and not for any refinancing
offers that borrowers refuse. This rightly gives the victims some
leverage. If a bank falls short of its agreed benchmarks, it
must pay the difference plus a penalty. And it must meet all its
obligations in three years. The settlement also reverses the
banks’ incentives to foreclose on families rather than keep
them in their homes with loan forgiveness. Until now, banks had
been loath to reduce principal amounts because it meant
recognizing losses on their balance sheets. This deal awards more
credit for principal reduction and less for lowering interest
rates or extending payment terms. Banks have calculated that the
settlement is in their interest, even though it means they may
have to continue paying huge mortgage-related litigation costs.
The deal enables them to predict their legal exposure. Even
better, it could help the housing market recover. Banks own
outright almost half a million homes and have 2 million more in
various stages of foreclosure. Such so-called shadow inventory
has been a drag on the market, which after six years remains
depressed, holding back the overall recovery. With this
settlement, banks can clear out their backlog of stalled
foreclosures. In the short run, that may drive prices down even
more, but it will also help the housing market find its natural
bottom faster. Only then can home prices, which have fallen by
more than a third since 2007, begin to rise again. Borrowers can
finally start to rebuild equity. Once banks reduce their
real-estate inventory, and their balance sheets recover,
they’ll be able to loosen up home- lending standards to create
new mortgages. If this is the result of a less-than-satisfactory
legal settlement, it will have been worth the wait.