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 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 February 18, 2016 under Foreclosure Blog |
The HARP program allows certain homeowners who are current on their mortgage loan but underwater,the ability to refinance at a low interest rate. The loan must have closed prior to May 31, 2009 and is owned or guaranteed by Fannie Mae or Freddie Mac. The LTV (loan to value) must be greater than 80%. Current means no 30 day + payments in the last six months and no more than 1 late payment in the last 12 months.
The program is scheduled to sunset on December 31, 2016. It is not expected, at this time, that the program will be extended.
The FHFA is advertising in selected states advising people to check their eligibility and go forward before the deadline.
FHFA estimates that there are 13,800 borrowers in NJ who are eligible for HARP refinancing and about 400,000 nationwide.
If you fit into the criteria listed above and want to reduce your interest rate, check with your lender or servicer to see if they participate in the program.
Posted by kevin on November 29, 2014 under Foreclosure Blog |
In my previous blog, I told of a mortgage modifcation application that is pending for over a year. For me, the telling point of the whole episode was when the point of contact person told me that Freddie Mac owned the loan. Brought back chilling memories.
A few years back (before Guillaume), I got a case dismissed on the day of trial for failure to comply with the Fair Foreclosure Act (Notice of Intent requirements). The Judge held open the dismissal so that my clients could go to mediation which is what they wanted. (Note that my other argument was that plaintiff sold the note to Freddie Mac and therefore lacked standing. In chambers, my adversary vehemently denied that charge.)
Well, we were assigned a HUD counselor (who was excellent) and started the process. The mediator was nice but powerless as all mediators are in the NJ program. The mediators basically defer to to the servicer who runs the show other than scheduling. Note that unless something very egregious happens, the judges do not get involved. I have heard stats at meetings that 35% of the parties in mediation get mods. I think they get those numbers from the same place that they get the Obamacare enrollment numbers.
At any rate, at the first session, we are told that Freddie Mac was not ready to proceed. So much for the veracity of my adversary. By session 6 we were still getting nowhere since Freddie Mac said it was not ready to make a decision. In a letter to my clients and the HUD counselor, I suggested that the only way that we would be able to get a reasonable decision was through escalation. That is the fancy term that MHA uses for an appeal. At the 8th or 9th session (about 10 months into the process), Freddie Mac turned my clients down with some bogus rationale. I was terminated by frustrated clients, and the clients then went the escalation route with the counselor where they finally got their mod well after a year into the process.
Traditionally, judges in NJ have been excellent at the arm twisting and sausage making that goes into the settlement process. For some reason, however, State court judges have shown a reluctance to jump into the settlement fray on foreclosures. Why? I do not know. But one thing I do know is that if those judges took their usual hands on attitude toward settlement, there would be a lot more loans being repaid, while at the same time court calendar’s would become more manageable. But what do I know? I’ve only been doing this for 35 years.
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 December 4, 2013 under Foreclosure Blog |
Freddie Mac buys mortgage loans either for its own portfolio or for sale to investors. Under the terms of these purchases, Freddie has the right to put back the loan to the originator if it is found that the loan does not meet the standards set forth in the purchase agreements. The so-called “put back” loans defaulted because, for the most part, the loans were made to people who could not afford to repay them. That is the essence of predatory lending.
As of September, 2013, Freddie Mac had $1.4 billion in put back loans that were previously owned by BOA, and they wanted BOA to take them back. The settlement reached has Freddie Mac receiving $404 million.
This is not the first time that BOA has settled with Freddie Mac. In January, 2011, BOA made a $1.35 billion settlement over loans sold by Countrywide which was acquired by BOA in 2008. Moreover, BOA recently settled with Fannie Mae for over $11 billion.
Why is BOA settling for these vast sums of money? Well, the standard line is that they want to cut litigation costs and move on. While both statements are technically true, my take is that a primary motivating source in the settlements is that BOA (and other settling banks) does not want the government conducting a methodical and in depth investigation into its lending practices. That would uncover “irregularities” that make everything else look like child’s play.
Let’s play a little detective. Did you ever ask why there was widespread robo-signing of documents which included everything from people signing other people’s name on endorsements and assignments on thousands of documents to outright forged endorsements. I would say the question is, why were these notes not endorsed at the closing or shortly thereafter? I mean, the banks and investment houses had all the best legal minds in their stables telling them exactly what to do and when to do it. Do you really believe they all collectively dropped the ball on doing something as simple as signing an endorsement on a note or signing an assignment of mortgage?
I have been in the trenches for 4 years fighting foreclosures. I have seen a lot of “stuff”, both from the banks and the courts. Perhaps, I have become a bit jaded. But one question that I ask, over and over again, is, ‘was there a reason that the banks and investment houses allegedly did not endorse notes until they were robo-signed just before the foreclosure action was filed? Well, here’s one theory. Banks and investment houses are required to borrower billions of dollars daily at the repo desk. To get their hands on that kind of money, they have to put up collateral. A note that is endorsed to someone else or in blank cannot be used for collateral. But if, by chance (or not by chance), you had notes that were made out to you but not endorsed to a third party or in blank, perhaps, just perhaps, those notes could be used as collateral at the repo desk. Who would know the difference?
That would be a massive fraud. It would make Bernie Madoff look small time. Now, I am not saying that this happened. But, what I am saying is that there has to be a reason that BOA and other banks and investment houses are paying millions and more often billions of dollars in settlements, right and left. There has to be a reason that they do not want any in-depth discovery of their paperwork or e-work. It is not because of a few predatory loans.
Think about it. Then ask yourself, why aren’t the courts and the feds asking this same question?
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 August 7, 2013 under Foreclosure Blog |
Effective July 1, 2013, Freddie Mac came out with its Streamlined Modification program. It applies to loans that are more than 90 days but less than 720 days delinquent. It does not require financial information.
According to the Guide, the servicer is supposed to solicit applications for the program. If an application is filed by the borrower and he or she otherwise qualifies, the servicer obtains a Broker Price Opinion (we generally refer to that as a Comparative Market Analysis (“CMA”), but a BPO is not required for a manufactured home or 2-4 family homes. Once the analysis is completed by the servicer, a trial payment plan is sent to the borrower. If all payments are made timely during the three month trial period, a permanent modification is given.
Say you had a HAMP mod proposal pending on the effective date, and your servicer sends you an invitation to the Streamlined Modification program. You apply for a streamlined mod and get it. You also get a regular HAMP modification. In that case, you get to keep the modification which is most beneficial to you and your family.
As part of the streamlined mod process, Freddie Mac is sending out to servicers a new software package called Workout Prospector which was supposed to be available July 15.
One caveat. Under the streamlined mod program, the servicer is required to offer a mod that is better than what you are currently paying. There is no provision that it must be a minimum of 10% better or that it is tied into your ability to pay. So, if you are currently paying $3000 per month P&I, a reduction to $2950 is deemed an acceptable mod. Clearly, with substantial arrearages, a de minimus reduction such as the example is not going to help anybody.
NO DOC sounds good on its face. Certainly, it is easy. But without your financial data, how does Freddie know whether the mod offer is affordable? Isn’t a predatory loan one that the borrower cannot afford to pay based on his or her income? I am concerned that the streamlined mod program may give us a slew of predatory modifications.
Let’s see how this plays out.
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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