Archive for November, 2010

 F.H.A. Rule Changes for Mortgage Borrowers

 
HOME buyers with sketchy credit who are unable to qualify for conventional mortgages may now find it more costly and difficult to obtain loans insured by the Federal Housing Administration. 
 
New rules that went into effect this month adjust the two types of mortgage insurance paid by consumers for loans insured by the F.H.A., which is part of the Department of Housing and Urban Development.
 
One change raises the annual insurance premium, paid monthly by the borrower, setting it at 0.85 percent to 0.9 percent of the loan balance, depending on the down payment or equity owned; the amount used to be 0.5 percent to 0.55 percent. The other change lowers the one-time upfront insurance premium that borrowers must pay, to 1 percent of the loan balance from 2.25 percent.
 
The upfront premium is paid in a lump sum at closing or added to the loan balance, unlike the monthly premium, which is paid over the life of the loan in addition to the interest and principal.
 
The decrease in the upfront premium, welcome though it might seem to some customers, does little to offset the effects of the monthly increase, which Andre Harriott, the president of the Access Mortgage Corporation in New Haven, Conn., called “really pretty hefty.”
 
“Everyone is really living paycheck to paycheck,” he said.
 
F.H.A. loans are usually taken out by buyers who cannot qualify under the stiffer down-payment requirements of Fannie Mae or Freddie Mac, the government-controlled buyers of loans. F.H.A. requires 3.5 percent, while Fannie Mae typically requires 5 to 15 percent or more, depending on the type of loan.
 
The changes, under an example provided by the F.H.A., mean that a borrower who puts 3.5 percent down on a $154,000 house with a 30-year fixed-rate mortgage at 5 percent (such a consumer typically earns a gross annual income of $54,000, according to the agency) and who finances the upfront premium into the loan will see monthly mortgage payments, including taxes, interest and the two insurance premiums, rise to $1,238 from $1,205. The example is based on median data, including property taxes put at about 2.5 percent of home value. That increase includes the drop in the upfront mortgage insurance, to $1,486 from $3,344 — but also includes the rise in the monthly insurance premium, to $111 from $68.
 
Last August, President Obama signed into law a bill authorizing the F.H.A. to increase premiums to shore up its insurance funds; the agency had been authorized to raise the annual premium to as much as 1.55 percent.
 
Conventional loans, which conform to Fannie and Freddie underwriting guidelines, do not require upfront mortgage insurance. But some may require monthly private mortgage insurance, if the borrower puts less than 20 percent down toward the purchase, or has less than 20 percent equity in a refinancing.
 
F.H.A. borrowers, meanwhile, can stop paying the monthly mortgage insurance only after five years and when their loan-to-value ratio reaches 78 percent, at which point they have 22 percent equity in their home.
 
F.H.A. loans are typically offered by niche direct lenders, and because of the insurance, they often carry interest rates equal to or slightly below those of conventional loans.
 
In October, the F.H.A. set a minimum FICO score of 500 for borrowers who want an F.H.A.-insured loan — the first time a minimum was set. It also introduced a new minimum down payment of 10 percent for borrowers with FICO scores below 580. (Those above 580 still pay a minimum 3.5 percent.)
 
The issue for the F.H.A, Mr. Harriott said, is that the realm of borrowers has widened. “We see executives of little companies, teachers, people making $200,000 a year, doing an F.H.A. loan, because they’ve gotten into a financial situation,” he said, adding that F.H.A. loans are perceived as safe by investors because of the insurance.
 
By LYNNLEY BROWNING
For more: http://nyti.ms/h22leV

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NEVER Buy Real Estate Using A Quit Claim Deed.

ALWAYS Buy Real Estate via a Real Professional Closing At A Real Estate Attorney’s Office or Title Company. This article explains the many pitfalls of using a "Quit Claim Deed" (not Quick Claim)

Mike Butler

 
Title insurance protects owners of real estate, and mortgage lenders, against any possible losses if the title to real estate is determined to be defective in some manner. If any type of encumbrance, lien or other defect to the title is discovered following the transfer of ownership or the placement of a mortgage lien, the owner and the lender are protected against losses associated with correcting the problem. If you desire to transfer or obtain an interest in real estate through a quitclaim deed, then you need to know whether title insurance is available.
 
 
Quit Claim Deed Function
 
The function of a quitclaim deed is to transfer the interest a purported owner of real estate may have in that property. Unlike a warranty deed, a quitclaim deed does not carry with it a guarantee that the title to the real estate is free and clear of any liens or encumbrances. The person conveying an interest in real estate with a quitclaim deed essentially is doing so in an "as is" condition.
 
 
Significance
 
Because no warranty or guarantee is made regarding the actual state of the title when a quitclaim deed is used, title insurance cannot be obtained. Title insurance is available when a warranty deed is used, because of the clear title guarantee associated with that type of instrument.
 
A primary reason why title insurance is not available with a quitclaim deed is because no title search is undertaken before such a deed is signed and filed. A title search is a thorough investigation of the state of the existing title to real estate to determine what liens or encumbrances, if any, exist.
 
 
Purpose
 
The purpose of title insurance is to protect a person or other legal entity against losses that arise when a lien or encumbrance is discovered after a transfer of title occurs. In the absence of a title search associated with a quitclaim deed, no title insurance company will extend this type of protection to the property owner.
 
 
Warning
 
A person receiving a purported real estate interest via a quitclaim deed may receive no legal right to the property whatsoever. If the person seeking to transfer real estate with a quitclaim deed has no legal interest, nothing legally is conveyed. In the absence of title insurance–which is not available for a quitclaim deed–the person receiving the quitclaim deed has no legal recourse because the deed itself states that only the interest of the grantor, if any interest exists, is conveyed.
 
 
by Mike Broemmel, Demand Media
For more: http://bit.ly/cYZmaq

 

Question: What’s worse than having your house foreclosed upon?
 
Answer: having your house foreclosed upon twice . Unless, of course, you get it back the second time.
 
Homeowners in Massachusetts are now facing "back-to-back foreclosures," due to problems with property titles. When lenders are unable to get title insurance for the property on which they have foreclosed, they are now opting to try the whole process again. In Massachusetts, where the issue has affected at least hundreds, and "possibly thousands," of homeowners, it has become common enough to merit its own name: "re-foreclosure."
 
It sounds pretty awful. But the “re-foreclosure’’ storm clouds may have a silver lining for some homeowners: Sometimes, the banks lose the second time around.
 
From the Boston Globe article:
 
"Zepheniah Taylor lost his Dorchester three-decker to foreclosure two times in 17 months. Now the 59-year-old grandfather has returned home to stay. The scenario, once implausible, is becoming more common in the crazed and fast-changing world of foreclosures."
 
Also of note, homeowners are able to purchase their houses back at "current market value" — which means if the property value has deteriorated, as is often the case in neighborhoods with high foreclosure rates, the homeowner may be able to benefit by buying the property back at a cheaper price.
 
In the words of one such beneficiary: "I’m starting over fresh…It feels good. It is a new chance. "
 
But the whole process can be a little unsettling. In the words of Zoe Cronin, an attorney with Greater Boston Legal Services, a group that represents low income people: "They are weirded out…What is this? I got a letter saying I own my house again."
 
At the moment, it is still unclear how many properties and homeowners could be affected by these types of issues in the future.
 
By: Ash Bennington, writer for CNBC
 
For more: http://bit.ly/a7mX5v

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Even as investors put aside their worries on Friday about the effect of the foreclosure mess on bank stocks, new signs emerged of what is likely to be a long and expensive legal battle for the financial services industry over mortgages gone bad.

 
Citigroup disclosed in a regulatory filing that it was being sued by several investors, including Charles Schwab and the Federal Home Loan Bank of Chicago, in an effort to force Citigroup to buy back soured mortgages that the investors contended did not conform to proper underwriting standards.
 
Meanwhile, Wells Fargo said in a filing that it “cannot estimate the possible loss or range of loss” from these cases, and Bank of America said in a filing that investors holding $375 billion worth of mortgage securities had filed similar suits.
 
In a separate announcement, however, Bank of America said a lawsuit brought by the Maine State Retirement System and other investors was dismissed on Thursday by a federal court in California, reducing that $375 billion figure to $54 billion. But that news came after the S.E.C. filing had already been prepared.
 
The dismissal is a significant victory for Bank of America and underscores the legal challenges in trying to force banks to buy back defaulted mortgages.
 
“The court’s ruling demonstrates the strict legal hurdles plaintiffs face in bringing these sorts of claims,” said Brian E. Pastuszenski, counsel for Bank of America’s Countrywide unit.
 
Still, Bank of America faces a different effort by other investors, including the Federal Reserve Bank of New York and Pimco, the giant money management firm, to force it to buy back a portion of roughly $47 billion in mortgages they hold. Neither the $375 billion nor the $54 billion figure reflects this push, because those investors have yet to sue.
 
On Thursday, Bank of America’s lawyers sent a strongly worded letter to the lawyer leading the $47 billion effort, rejecting her claims as “utterly baseless.” The bank contends the any loss of value stemmed from the economic downturn rather than an underlying problem with how the mortgages were sold to investors or have been serviced.
 
Bank of America and other large institutions like JPMorgan Chase and GMAC Mortgage have been criticized for pursuing foreclosures without the proper paperwork or with signatures by so-called robo-signers.
 
But on Wall Street, the worry is that efforts to force the banks to buy back defaulted mortgages could actually be a longer and more expensive fight for the industry. Some analysts estimate the eventual cost could total tens of billions of dollars, and that worry pushed down shares of the big banks sharply last month.
 
Indeed, Bank of America’s chief executive, Brian T. Moynihan, has signaled that the threat of forced buybacks will not be resolved quickly — or cheaply.
 
“It’s loan by loan, and we have the resources to deploy in that kind of review,” he said last month, during a conference call to discuss the bank’s financial results for the third quarter. “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”
 
Despite the disclosures, bank stocks rallied for the second day in a row. Bank of America shares closed up 23 cents, at $12.36, while Citigroup rose 16 cents, to $4.49, and Wells Fargo jumped $1.76, to $29.22.
 
By NELSON D. SCHWARTZ
For more: http://nyti.ms/aQgZUD
When Michael Gazzarato took a job that required him to sign hundreds of affidavits in a single day, he had one demand for his employer: a much better pen.
 
Lisa Krantz for The New York Times
Linda Almonte of San Antonio has filed a wrongful termination suit against JPMorgan Chase, where she flagged defects in a portfolio of debt Chase was trying to sell.
 
Luke Sharrett/The New York Times
In July, the Federal Trade Commission, led by Jon Leibowitz, issued a report critical of the debt-collection system, saying banks were selling account information that can be riddled with errors.
“They tried to get me to do it with a Bic, and I wasn’t going — I wasn’t having it,” he said. “It was bad when I had to use the plastic Papermate-type pen. It was a nightmare.”
 
The complaint could have come from any of the autograph marathoners in the recent mortgage foreclosure mess. But Mr. Gazzarato was speaking at a deposition in a 2007 lawsuit against Asset Acceptance, a company that buys consumer debts and then tries to collect.
 
His job was to sign affidavits, swearing that he had personally reviewed and verified the records of debtors — a time-consuming task when done correctly.
 
Sound familiar?
 
Banks have been under siege in recent weeks for widespread corner-cutting in the rush to process delinquent mortgages. The accusations have stirred outrage and set off investigations by attorneys general across the country, prompting several leading banks to temporarily cease foreclosures.
 
But lawyers who defend consumers in debt-collection cases say the banks did not invent the headless, assembly-line approach to financial paperwork. Debt buyers, they say, have been doing it for years.
 
“The difference is that in the case of debt buyers, the abuses are much worse,” says Richard Rubin, a consumer lawyer in Santa Fe, N.M.
 
“At least when it comes to mortgages, the banks have the right address, everyone agrees about the interest rate. But with debt buyers, the debt has been passed through so many hands, often over so many years, that a lot of time, these companies are pursuing the wrong person, or the charges have no lawful basis.”
 
The debt in these cases — typically from credit cards, auto loans, utility bills and so on — is sold by finance companies and banks in a vast secondary market, bundled in huge portfolios, for pennies on the dollar. Debt buyers often hire collectors to commence a campaign of insistent letters and regular phone calls. Or, in a tactic that is becoming increasingly popular, they sue.
 
Nobody knows how many debt-collection affidavits are filed each year, but a report by the nonprofit Legal Aid Society found that in New York City alone more than 450,000 were filed by debt buyers, from January 2006 to July 2008, yielding more than $1.1 billion in judgments and settlements.
 
Problems with this torrent of litigation are legion, according to the Federal Trade Commission, led by Jon Leibowitz. The agency issued a report on the subject, “Repairing a Broken System,” in July. In some instances, banks are selling account information that is riddled with errors.
 
More often, essential background information simply is not acquired by debt buyers, in large part because that data adds to the price of each account. But court rules state that anyone submitting an affidavit to a court against a debtor must have proof of that claim — proper documentation of a debt’s origins, history and amount.
 
Without that information it is hard to imagine how any company could meet the legal standard of due diligence, particularly while churning out thousands and thousands of affidavits a week.
 
Analysts say that affidavit-signers at debt-buying companies appear to have little choice but to take at face value the few facts typically provided to them — often little more than basic account information on a computer screen.
 
That was made vividly clear during the deposition last year of Jay Mills, an employee of a subsidiary of SquareTwo Financial (then known as Collect America), a debt-buying company in Denver.
 
“So,” asked Dale Irwin, the plaintiff’s lawyer, using shorthand for Collect America, “if you see on the screen that the moon is made of green cheese, you trust that CACH has investigated that and has determined that in fact, the moon is made of green cheese?”
 
“Yes,” Mr. Mills replied.
 
Given the volume of affidavits, even perfunctory research seems impossible. Cherie Thomas, who works for Asta Funding, a debt buyer in Englewood Cliffs, N.J., said in a 2007 deposition that she had signed 2,000 affidavits a day. With a half-hour for lunch and two brief breaks, that’s roughly one affidavit every 13 seconds.
 
By DAVID SEGAL
 
For more: http://nyti.ms/9TxTra
 

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 Consumer advocates, the press, investors and homeowners have already compiled a compelling list of transgressions: conflicts of interest that have banks pushing foreclosures, without a good-faith effort to modify troubled loans. Dubious fees that inflate mortgage balances. The hundreds of thousands of flawed foreclosure affidavits that violated homeowners’ legal protections. The misplaced documents. And it goes on. 

 
 
IN Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills.
 
This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.
 
Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.
 
The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.”
 
Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation.
 
However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process.
 
When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service.
 
This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer.
 
A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages.
 
The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed.
 
Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork.
 
Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.
 
By YVES SMITH
 
For more: http://nyti.ms/aPlvOQ