Bank of America’s Foreclosure Fight Plan

Wednesday, March 24, 2010

SUSIE GHARIB: Welcome relief today for some people who can’t make their mortgage payments if they’re with Bank of America. Tom, under pressure from state attorneys general, the bank agreed to forgive as much as 30 percent of the loan principal. Today’s announcement comes as part of a settlement with the state of Massachusetts.

TOM HUDSON: And you know Susie, lots of strings are attached though to qualify. In fact for one thing, relief is only for certain types of mortgages. The homeowners also have to be at least 60 days behind on their payments and significantly underwater on those loans. Now just 45,000 people are eligible nationwide.

GHARIB: And those loans could be reduced by a combined total of $3 billion. The plan goes into effect in May. Now leading the negotiations with Bank of America was Massachusetts Attorney General Martha Coakley and she joins us now. Attorney General Coakley, thank so you much for coming on the program.

MARTHA COAKLEY, MASSACHUSETTS ATTORNEY GENERAL: Good evening.

GHARIB: Let me begin by just congratulating you on the deal. Forty five thousand people will be helped by this agreement. But my question is, is that enough? We report on our show all the time that there are millions of people who are under water in that they owe more to banks than the value of their home. Is this enough?

COAKLEY: Well, it is certainly a good start, because we’ve tried with other attorneys general to push this idea that modifying loans, reducing principal so that you get modifications that actually work to keep people in their homes, this is the first time that people have really been willing to do this. And so Countrywide, those who have Countrywide Mortgages will benefit, but our hope is that other servicers, holders of notes will recognize that this is really what has to happen to make sure that we stop the spread of foreclosure and we start to turn this economic crisis around.

GHARIB: Well, that’s a good point. Do you think that your agreement with Bank of America will be a prototype for other lenders and even for the Federal government for the Treasury to do something similar?

COAKLEY: Well, we hope so because for several years now, we’ve worked on foreclosure rescue schemes, on bringing lawsuits. The attorneys general had an agreement with Bank of America, with Countrywide in the past. But even though the servicers have said they’ve been willing to modify loans, we’ve seen somewhat half hearted efforts even from the Federal pressure. This is an agreement that they will do this and we believe it’s commercially reasonable for them to do it, rather than to have homes foreclosed upon. And we hope that it finally is beginning to dawn that this is what should happen to turn this around, keep them in the home, but also stop the greater threat of foreclosures, make sure we don’t have the abandoned property and keep people back, you know, paying a monthly amount so that we really stop the trend that we’ve seen that’s really underlying the root of a lot of this economic crisis.

GHARIB: You mentioned about the half hearted efforts. Even in the case of this deal with Bank of America, what can you do to make sure that they really do modify loans in this way?

COAKLEY: Well, I think it’s clear that as a result of our investigation and in fact that we were looking for this remedy. We were prepared to bring suit if we weren’t able to reach this agreement. And some of the money that comes to the commonwealth are for monitoring and implementation of this agreement. We believe very strongly that this has to happen. It has to happen in a way that actually keeps people in their homes. So we’re committed to it. And the fact that it is going to be national I think will have both other servicers as well as other attorneys (AUDIO GAP) people in their homes not just modifying those foreclosure in another six months or a year.

GHARIB: So what’s next? What’s your next move? What else can you do and other states do to help distressed homeowners who are not part of, who do not have loans with Bank of America, but what more can you do to help distressed homeowners?

COAKLEY: Well, as we have looked at the range of options, as we have in Massachusetts brought a suit against Freemont and a suit pending against Option One, we are continuing to focus on both holding accountable those who made these kinds of loans and I should point out that they’re not just sub-prime loans here. These were loans that were made in a variety of ways to people who might have had more, they were credit worthy borrowers. They might have had less risky financial products and I think we’re going to continue to look at those who have made the loans, those who are servicing the loans, where the sticking point has been. Let’s get the servicers together with the holders of the notes to say this is what really should be happening, to continue this push to really stop the spread of foreclosures. So we’re going to continue to stay active with many of the other attorneys general and I know the Federal government through its program in working in conjunction with attorneys general looking at mortgage fraud, but also looking at ways in which we start making these remedies be real remedies to keep people in their homes.

GHARIB: Certainly a lot more work to be done. We appreciate your coming on the program to tell us about this first phase. Thank you very much.

COAKLEY: Thank you.

GHARIB: My guest tonight, Martha Coakley, Massachusetts attorney general.

The number of foreclosures fell last year. Yet at the same time, lenders began the process of foreclosing on hundreds more homes in the area.

High unemployment will probably result in more homeowners falling behind on their mortgage payments. If there is another wave of foreclosures, however, it probably will not be as extreme as the original surge, according to government, real estate and bank officials.

“I don’t think we’re entirely out of the woods, not until the economy rebounds more robustly,” said Patrick J. Sullivan, director of New Bedford’s Office of Housing and Community Development. “We’re staying optimistic that the worst has past us.”

The nature of the foreclosures appears to be shifting, too. While the original crisis was sparked by predatory loans and people buying homes they could not afford, future defaults will result from more traditional causes: job losses, illnesses and other personal upheavals, experts said.

Those more standard types of foreclosures might be accelerated in the aftermath of the subprime crisis. People who are facing job losses or divorce also see that the values of their homes have declined and even might be worth less than what they owe, said Carl W. Taber, executive vice president and chief lending officer at Citizens-Union Savings Bank.

Still, Taber doubts that a second wave of foreclosures would equal the scale of the subprime wreckage.

“We are seeing some positive signs, but we are seeing these lingering problems,” he said.

One positive sign is the smaller number of homes lost to foreclosure in 2009.

Bristol County’s foreclosures slid from 1,135 in 2008 to 884 last year, a 22 percent drop. Plymouth County’s foreclosures fell from 1,184 in 2008 to 933 last year, a 21 percent decline, according to The Warren Group, publisher of Banker & Tradesman.

At the same time, however, foreclosures were still above 2007′s numbers, and the number of new foreclosure proceedings rose in 2009.

Petitions jumped by just over 33 percent to 2,490 in Bristol County, and by nearly 34 percent to 3,108 in Plymouth County, when compared to the year before, according to the data.

New foreclosure proceedings could remain high this year as people continue to struggle with job losses or fewer work hours, said Timothy M. Warren Jr., chief executive officer of The Warren Group.

“I do think they are going to remain at their high levels,” Warren said.

At the other end of the process, he said there might be a logjam of pending foreclosures that could become final. He attributed the backlog to some lenders making adjustments after courtroom setbacks and delays of paperwork getting to the registries of deeds.

New Bedford has been hit particularly hard by foreclosures, and the citywide statistics from The Warren Group show a similar mixed picture.

Completed foreclosures in the city declined by a third in 2009 from the previous year. There were 204 properties taken last year, compared to 306 in 2008 and 217 in 2007. Petitions numbered 508 last year, higher than the previous year (399) but still below 2007 (575).

On the national scene, there has been good news and bad news in the past week.

The percentage of borrowers who missed just one payment on their home loans fell to 3.6 percent in the final quarter of 2009 from 3.8 percent in the third quarter, the Associated Press reported, based on the Mortgage Bankers Association’s latest survey results.

While there was a glimmer of hope in the delinquency numbers, there was some disappointment with the progress in the federal government’s efforts to help distressed homeowners.

More than 1 million homeowners across the country have received offers of trial loan modifications under the Obama administration’s Making Home Affordable program, but only 116,000 have permanent modifications through January, according to the new government numbers released last week.

In Massachusetts, out of 21,435 modifications, only 2,788 are considered permanent.

“I have been very disappointed,” U.S. Rep. Barney Frank, D-Mass., said in a telephone interview.

Frank said he will meet with officials from the U.S. Department of Housing and Urban Development and the Treasury to discuss what he sees as an impediment: banks’ unrealistic valuation of second mortgages that they hold. He wants to persuade banks, particularly ones that received federal help, to wipe out those second mortgages.

“Banks have to recognize they’re not worth anything,” he said.

Frank has also proposed using some of the interest from the government’s bailout of the financial industry to help unemployed people who are struggling with their mortgages. He said the plan has passed the House of Representatives.

In other news, President Barack Obama on Friday announced $1.5 billion in funding for programs in states hardest hit by the housing crisis. However, Massachusetts is not among the targeted states.

Helping matters locally, home buyers, bankers and real estate agents have become more accustomed to short sales — when an owner is able to sell a house for less than the mortgage is worth, getting the lender to forgive the difference or work it out somehow, said Ralph Grassia, regional vice president for Jack Conway & Co.

Short sales are more common. In the past six months, some bankers have even started encouraging distressed owners to sell and avoid future problems, Grassia said.

The glut of foreclosed homes that drove down prices is easing as well, he said.

“The real estate market has taken a turn for the better,” he said. “The foreclosures will always be factor out there, but I think what’s happening is the market is not flooded with them as it was before.”

Many homeowners are losing their homes to foreclosure.  There are several steps involved in the foreclosure process, including ways to stop the foreclosure.  These steps include refinancing with a loan officer, loan modification, selling the home, conducting a short sale or credit counseling agencies.  Most states require a period of redemption giving the seller a certain amount of time to cure the default and regain control of the property.

What is a Short Sale?

When the lender agrees to accept less than the full amount owed on a foreclosed home, they conduct what is called a short sale.

Advice for Those Considering a Short Sale
Contact Your Lender as soon as you can’t afford the payments on your home. Find a short sale buyer by advertising, or through a real estate service or short sale specialist. Your lender doesn’t want to foreclose. They would rather work toward a profitable alternative.  Once you have a potential buyer, you are directed to the department that handles short sales. There will be certain information that will have to be submitted to your lender before a short sale is considered. 

Here’s a list of items you may need when considering selling your home as a short sale:

• Income statements or recent paycheck stubs
• Bank statements of all your assets
• A hardship letter that describes the reasons you can’t make your payments. You’ll also need any documentation such as medical statements or proof of lost wages).
• An appraisal of your property
• The projected proceeds of your property after the mortgage is paid off. This will be a negative amount in a short sale including fees and closing costs.
• A listing agreement and purchase agreement

The steps are different for each lender but by being prepared ahead of time, you can save a lot of time during this process.

Can I Buy a Short Sale Foreclosure Home?

Not all lenders accept short sales, even though is often found in the real estate industry. One way to buy a short sale home is to negotiate directly with the seller before the foreclosure is final. Know your rights as well as the sellers before approaching a seller of a short sale. There are several facts to consider if you’re interested in selling or buying property this way.

• Number one is to seek legal advice from a from an informed real estate attorney.
• Number two is to know the tax implications of a short sale.
• Number three is to get advice from a certified public accountant.

How are Massachusetts mortgages foreclosed?

The primary method of foreclosure in Massachusetts involves what is known as non-judicial foreclosure.  This type of foreclosure does not involve court action but requires notice commonly called foreclosure by sale.

When the mortgage is initially signed it will usually contain a provision called a power of sale clause which upon default allows the lender to foreclose on the property in order to satisfy the underlying defaulted loan which is sometimes referred to as a bond. An attorney usually acts as a representative of the lender to effectuate the sale which typically occurs in the form of an auction.

Auctions are conducted by an auctioneer. Because this is a non-judicial remedy there are very stringent notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.

What is a Home Foreclosure?

Foreclosure is the legal proceeding in which a mortgagee, or other lienholder, usually a lender, obtains a court ordered termination of a mortgagor’s equitable right of redemption. Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the owner the right of redemption if the borrower repays the debt.

When and How Does a Home Foreclosure Happen?

The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust”. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that “the lender has foreclosed its mortgage or lien”.

http://en.wikipedia.org/wiki/Foreclosure.

So, in other words, if you took out a mortgage to pay for a house, and for whatever reason, do not continue to pay the mortgage on time, the lender can take your house from you to repay the debt that you’re owed.

Keep reading, and I’ll continue to post what I try to understand what is occurring the Boston Home Foreclosure market and documenting everything I learn along the way.