Posted by kevin on July 25, 2017 under Foreclosure Blog | 
NJ had 35,000 foreclosures filed in 2016. That is about one half the amount of annual foreclosure actions filed at the height of the mortgage crisis, but it is still significantly higher than the 20,253 foreclosures filed in 2005. And, at the time, 2005 was a record year.
Bankrate lists New Jersey as the worst state when it comes to foreclosures. Statewide the rate of foreclosure is one unit in 515. The national average is one unit in 1636.
There are a myriad of reasons for this dubious honor, but that is not the point of this blog. Readers should be aware that New Jersey still has a foreclosure problem. Individual home owners should be aware that there are steps to be taken if you fall behind on your mortgage.
The first thing that you should do if you are delinquent is not to bury your head in the sand, or hope that things will work out. If you take that approach, I assure you that things will not work out.
There are many factors which go into an analysis of a foreclosure situation. How much is the mortgage? How much is the property currently worth? Is it a single family residence or rental property? If rental, is it rented and for how much? What is your income? What is the monthly principal, interest, taxes and insurance (PITI)? Is the loan interest fixed or variable and what is the current rate? Is there a second mortgage? What other debts do you have? What loan documents do you have? Were you represented by an attorney in the loan transaction? And probably, the most basic factor is what is it you want to accomplish?
Once your situation is analyzed, you can start to put together a strategy. Maybe, you do not want to keep your home that is grossly “underwater”. In that case, a short sale may be an appropriate strategy. Maybe, you are only a few months behind and have significant credit card debt and doctor’s bills. In that case, a Chapter 7 or Chapter 13 bankruptcy may be an appropriate strategy. Maybe you were put into a loan that you could not afford. In that case, litigation (that is, fighting the foreclosure in court) may be the answer. Maybe you could benefit from a modification. Even though the federal HAMP program was phased out as of December 31, 2016, Fannie Mae and Freddie Mac have their own programs which could significantly lower your monthly payment. Moreover, private lenders have what are called “proprietary” mortgage modification programs which may be helpful.
As you can see, there are options available. Moreover, you are not limited to one option. I have had clients who fight the foreclosure in State court and then seek a modification, or a Chapter 13. Others seek a modification and then file Chapter 13, or seek a modification while in Chapter 13.
The key is, seek help early in the process. Even the most experienced foreclosure/bankruptcy attorney may not be able to help you if you call and say, ‘I have a sheriff sale tomorrow. Can you help?’
Posted by kevin on July 16, 2017 under Foreclosure Blog |
The Making Homes Affordable HAMP mortgage modification program expired on December 31, 2016. If you filed for modification before that date, you application will be considered until December 31, 2017. However, no new applications under HAMP after December 31, 2016. So, where are we at?
Well, the GSE’s (Fannie Mae, Freddie Mac) still have programs and most, if not all, servicers and lenders have their in-house programs.
For example, in December, 2016, Fannie Mae announced its new Flex program which combines features of the Fannie Mae HAMP, Standard and Streamlined modification programs. As with the prior programs, your loan has to be held by Fannie Mae in its own portfolio or sold to investors by Fannie Mae. Servicers can begin implementing the new program as early as March 1, 2017 but must implement the program no later than October 1, 2017. Borrowers who are delinquent or in imminent danger of default qualify. If the borrower is less than 90 days delinquent, PITIA (principal, interest, taxes, insurance, and HOA assessment) is based on 40% of gross income and the reduction in payment must be at least 20% of what the borrower had been previously paying. If more than 90 days delinquent, then the servicer considers only a 20% reduction. The program utilizes waterfalls similar to previous programs and does allow principal forbearance in certain situations. Although geared to primary residences, investment properties and vacation homes can be eligible if the loan is at least 60 days delinquent.
In-house programs exist just as before. They are sometimes called proprietary programs. I have dealt with so-called proprietary programs since 2012. The biggest problem is that the servicer does not publish the program guidelines so you are getting basically a pig in a poke. However, for the most part, the proprietary programs are similar to the HAMP programs in that the servicer will target PITIA payments at a percentage of income. Normally, the target is in the 30-40% of gross income range, but I did have a case with Bank of the West where they targeted PITIA at 50% of gross income. There are waterfalls to get to the target as with the HAMP loans. The biggest difference is that few proprietary modifications will take the loan out to 480 months from filing of the modification application. The worst case scenario is that the modification term is limited to the remaining term of the loan.
There is still a brisk market for mortgage modifications on their own, in conjunction with a foreclosure or in conjunction with Chapter 13 bankruptcy. Since the Dodd Frank modification rules kicked in in 2014, a foreclosing lender cannot start a foreclosure unless it has made a decision of a pending mortgage modification application. If the foreclosure has been filed, and the borrower files a complete mortgage modification application within 37 business days before the sales date, a lender is precluded from going to sheriff sale until it makes a decision on the modification application. That is Dodd Frank. Many servicers will put off the sale if the application is filed less than 37 business days of the sale. I have had situations where the servicer has put off the sale when the application was filed 10 business days before the sale, and I have also had situations where decisions, for whatever reason, have not been made for well over a year after the application is submitted.
So, if you are behind on your mortgage but have a job, you can still qualify for a mortgage modification. It would pay to look into that option.
Posted by kevin on May 6, 2016 under Foreclosure Blog |
Seven years into the mortgage crisis, FHFA finally announced a program that could reduce principal on residential mortgage loans. This has been a political hot potato. After the bailout of FNMA (Fannie Mae) and FHLMC (Freddie Mac) (collectively known as the GSE’s), Director DeMarco was dead set against principal forgiveness. He was supported by Treasury Secretary Geithner. President Obama said that he was in favor of principal forgiveness but it took him about 6 years to get off the schneid. First, he had to replace DeMarco with a more sympathetic Director, Congressman Mel Watt. Two years later, a new program.
But, it is far from a uuuuge program. It affects about only 33,000 significantly underwater mortgages according to reports in Housingwire and National Mortgage News. That’s the bad news. The good news is that NJ has the highest share of properties eligible.
Here’s the deal. The property must be owner occupied, and you have to have been behind at least 90 days as of March 1, 2016. So, no strategic defaults. Fannie or Freddie have to either own the loan or have guaranteed it. The outstanding principal balance must be no more than $250,000 and the mark to market loan to value (MTMLTV) must exceed 115%.
You still capitalize earnings, reduce the interest rate and extend the loan. But the last step is that if the MTMLTV is greater than 115%, you reduce the MTMLTV to 115%. That amount according to one article is forgiven. According to another article, it is put in a suspense account at 0% interest, and if the borrower makes all required payments for a given amount of time, that amount is forgiven.
What the GSE’s had was a principal forbearance program. Same calculations which should lead to the same monthly payment. However, the lesser of 30% of the unpaid principal balance or amounts greater than 115% of MTMLTV is put in a suspense account with 0% interest. So, say that amount is $30,000. It stays in the suspense account until you pay off the loan, sell or refinance. Then, you have to pay back the $30,000 as a balloon payment.
Some may say, too little too late. But, I say it is worth looking into.
If you think you fit into this program or what like to see if you do (or if you are looking for a mortgage modification) contact us at kh@kevinhanlylaw.com.
Posted by kevin on October 22, 2014 under Foreclosure Blog |
Well, on Tuesday (10/21), most newspapers indicated that the FHFA and major mortgage lenders had entered into an agreement in principal to loosen lending requirements. The announcement was made by FHFA boss, Mel Watt, at a speech before mortgage bankers in Las Vegas.
Las Vegas, that is precious. John Stewart’s writers could not have come up with a funnier story line.
To increase access to credit for lower income borrowers, Watt called for loan to value ratios of 95-97%. With only 3-5% down, borrowers have little skin in the game. If housing prices decline, they will be underwater. How is that different from 2008? One way it will not be different is Fannie and Freddie will insure the loans, therefore, the taxpayer will be bailing out lenders on defaulted loans.
The devil is in the detail as they say. So, we will see in the next few months what safe harbors are given to lenders.
When Dodd-Frank was promulgated, it included a specific provision that stated, in general terms, that a lender must grant a mortgage loan based primarily on the ability of the borrower to repay and not on the value of the collateral. The analysts railed on that such an onerous standard would kill the housing market. Well, my research indicates that the Dodd Frank standard is the fundamental definition of predatory lending, and has been around in Interagency guidelines, regulations, and OCC Advisory Letters since the mid 1990’s.
History has a tendency to repeat itself. I just did not think that it would happen so soon.
Posted by kevin on October 21, 2014 under Foreclosure Blog |
A recent WSJ article indicated that Fannie and Freddie on one side and the major mortgage lenders on the other side are close to an agreement to lower standards to provide mortgages to borrowers with weak credit. The article meanders through many issues- downpayment reduction, mortgage buybacks, fraud, foreclosure, opening credit markets for low income borrowers.
Pre-2008, lending standards were so loose that you could get a mortgage if you had a pulse. Why? A variety of reasons but one reason was that mortgage originators and securitizers were dumping their loans on investors so they had little risk and made lots of money in fees and in selling mortgage backed securities. Of course, as the number of defaults increased, the house of cards collapsed and with it the US economy. We are still mopping up the mess with foreclosures continuing.
Now, the President is pushing the banks to make loans if not to anyone with a pulse, then to people with less than decent credit ratings. Pre-2008, these were called subprime loans. Ed DeMarco, the head of the FHFA which oversees Fannie and Freddie, resisted this and also principal reduction on mods (not good). Now, Mel Watt is in charge of FHFA and supposedly pushing President’s agenda. The problem is how far to you push opening credit- too little and you do not get the economic benefit of an expanded housing market; too much and you get the same problems that you had in 2008.
On the other side you have the banks. They are looking for a safe harbor to make questionable loans. HAMP 1 is based on PITI (principal, interest, taxes, insurance and association fees) of 31% of gross income. HAMP II takes us, for the most part, up to 42%. Would not be surprised if banks are looking for some safe harbor in the 45% range.
My experience in handling foreclosure cases for borrowers over the last 5 years is that 45% is on the road to disaster. When you factor in that taxes rise (especially in States like NJ) 45% can grow to 50% in no time. Is that where we want to be?
Posted by kevin on September 18, 2013 under Foreclosure Blog |
If you listen to the various commentators, there were numerous reasons for the housing bubble. Some blame the government. the Community Reinvestment Act, enacted during the Carter administration, encouraged (or better yet, demanded) that banks lend money to people who would not traditionally qualify for a mortgage loan. That law basically lay dormant during Reagan and Bush I. However, as the economy picked up in the second Clinton administration, the feds started to push this law.
Going hand in hand with the Community Reinvestment Act was the Federal Housing Enterprises Financial Safety and Soundness Act (which was eventually anything but), a 1992 Act which gave HUD authority to administer GSE’s (Fannie Mae and Freddie Mac) affordable housing provisions. The law established a quota of loans to borrowers who were at or below median income in their area and required to be bought by the GSE’s. These loans were commonly called sub-prime mortgages. The initial quota was 30%. By 2008, however, the percent of subprimes on the books of the GSE’s was over 70% of all subprime loans.
Others blame Wall St and how it is structured. Prior to the 1980’s, investment houses were mostly partnerships with unlimited liability. One reckless partner could bring down the whole firm, so risk was managed by the partners keeping an eye on each other. But Wall St realized that it needed more capital than its partners could generate to be involved in bigger trades, bigger deals. It needed OPM- other people’s money. To accomplish this, the firms became corporations, went public and brought in piles of money. The new owners were the shareholders. The old owners had shares and managed the firm. The money that the old owners took out changed from profits to yearly compensation. Pay was tied into performance. Bigger profits, bigger pay and bonuses. However, with bigger profit comes bigger risk. In the past, the unlimited liability aspect of the partnerships checked risk. But now the investment firms were corporations dealing with OPM, so risk was no longer a primary factor. The investments firms borrowed heavily to make the big deal or trade. That’s fine as long as everything is going up, but a disaster when the bottom falls out.
A third factor was, related to the structure of Wall Street but accomplished by the government, was the repeal of the Glass Steagall Act. This Act came about in the 1930’s. It separated commercial banking from investment banking. Restrictions were put on commercial banks because they were take deposits from the public. That gave them lots of capital but restricted what they could do with it. Investment banks could not take deposits; and therefore, had less capital. However, investments banks could get involved in more and riskier deals or trades for their own account. By the 1990’s, commercial banks were looking at the investment banks and saying, ‘imagine what we could do with all out money if we had the investing flexibility of the investment banks’. Investment banks were looking at the commercial banks and saying,’ if we only had the capital that commercial banks have, imagine what we could do’. The solution? Get rid of Glass Steagall. We all know that Democrats and Republican agree on very little. But they had no trouble, during the second term of Clinton, coming together to repeal Glass Steagall. 90 Senators voted for the repeal. Do I hear, Campaign Contributions?
Finally, on the private sector side, was the emergence of private mortgage securitizations. In short, Wall St bundled a thousand or so mortgages and put them into a trust. Certificates of participation in the trust were sold to investors. Bad loans were mixed with pretty good loans and good loans, but somehow the trusts all got triple A ratings- even if they were dogs. Wall St used its massive marketing apparatus to sell these securitizations around the world. Hell, you got 50-100 basis points better than Treasuries on an investment that was triple A. Investors fell for it. The big wigs at the investments houses saw the incredible profits coming out of these securitizations and push for more.
Now, just so that political blame can be shared, the Bush II administration had to see the warning signs of a housing bubble but took no aggressive steps to stop it. Yes, they half-heartedly tried to rein in the GSE’s but backed off when certain congress people started to scream that lower income people were being hurt.
Well, in late 2007, the bubble burst. Rates on adjustable mortgages spiked up. People could not afford to pay and went into foreclosure. This led to a drop in housing prices. Then, more people faced foreclosure. They could not refinance because the value of their homes now did not justify a re-finance. So, they went under. Prices continued to fall. Investors then refused to invest in private securitizations. This eventually lead to the bailout of Bear Stearns followed by the bankruptcy of Lehman Bros, and then the financial crisis and recession.
As I said before, there is enough blame to go around; however, my assessment is that government policy was the dominant factor in this whole mess- not say 90%, but at least 60%.
Keep an eye on what the government does now that Fannie and Freddie are making money again. Any shift in policy to make loans more available may be the first step toward the next bubble.
Posted by kevin on June 1, 2013 under Foreclosure Blog |
The Government’s Making Homes Affordable programs, including the much maligned HAMP modification program, were in effect through December 31, 2013. If you have read previous blogs, you know that I was not a fan of the prior versions of HAMP. Not the least of my criticisms was that HAMP does not apply to GSE loans; that is, Fannie Mae, Freddie Mac etc. However, the latest re-incarnation (which hit the public last fall with handbook at the end of 2012) has some good things to say about it. One major problem, however, was that since the program was ending at the end of 2013, many homeowners would not file in a timely manner.
On May 30, 2013, the feds took some of the pressure off. Jack Lew, the new Treasury Secretary, announced that the HAMP program (along with the short sale- deed in lieu program and the unemployment program, and others) will continue through December 31, 2015. A supplemental directory (gives us the details) is due to be published next week. In addition, on the same day, FHFA announced that the programs for Fannie Mae, Freddie Mac, VA and FHA will also continue through the end of 2015. Even though the GSE programs do not allow principal forgiveness at this time, they are worth looking into.
If you look at the Home Page of my foreclosure website, you will see that our main emphasis is on fighting foreclosure through the litigation process. That was because the Making Homes Affordable programs (including HAMP) stunk the place out. And our experience indicated that aggressive litigation was the best path to securing a respectable modification. Now, as the programs are getting better with age, I am reconsidering a limited change to our approach. Yes, we litigate when necessary. But if you are the proper candidate, we will assist with modification proposals even if no litigation is involved. Be on the lookout for changes to our HOME page.
Posted by kevin on September 7, 2011 under Foreclosure Blog |
A few weeks ago, things were looking good for the “too big to fail” predatory banks. The feds (FDIC) were ready to make a deal. Most of the State AG’s were backing off. The carnivore, Schneiderman, was dumped from the leadership group of AG’s. In NJ, the big lenders got the OK to continue foreclosing with new and improved certifications (looked eerily like the old and unimproved certifications to me). A couple of zigs and a couple of zags, and the banks could get out of this mess. Then, last Friday the Federal Housing Finance Agency, the overseer of FANNIE MAE and FREDDIE MAC, filed lawsuits against every major lender in sight claiming fraud and demanding upwards of $50B.
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