June 25, 2018

Countrywide Customers: Mortgage Help is on the Way for Many

CNN.Money.com is reporting that Bank of America has announced a plan to cut mortgage payments on loans held by its Countrywide division.  The program targets holders of subprime adjustable rate mortgage (ARMs), subprime fixed rate loans and option ARMs, but prime and Alt-A borrowers, who did not document their income, will be eligible as well.

Countrywide is now owned by Bank of America (as of July, 2008) and the Countrywide/Bank of America plan is designed to settle complaints filed against Countrywide by several state Attorneys General over predatory lending practices.

This foreclosure prevention plan will start in December and will reduce mortgage payments for eligible homeowners to no more than 34% of the borrower’s gross income.  Countrywide is now in the process of screening its files and will notify eligible borrowers.

Sub-Prime Mortgage Fiasco Explained…Using Stick Figures

We have all heard about the “sub-prime” mortgage crisis, but do you really understand what it is all about and why the collapse of the sub-prime market has lead to a decline in your local real estate market as well as a decline in the American economy in general.

The BankruptcyProf blog, edited by Professor Jonathan Hayes of the West Los Angeles School of Law explains why sub-prime mortgages are a problem and why this market collapsed.  The explanation consists of a PowerPoint presentation using stick figures.  If only Economics 101 was so clear and enlightening.

Take a look and let me know what you think.

Homebuilders Facing Financial Crisis or Bankruptcy

I received a call today from a reporter at the Atlanta Journal/Constitution.  He is looking to speak with homebuilders (small or large) who are struggling financially.  He is preparing a feature on the local real estate market and the struggles of local homebuilders and developers.  You would not have your name published if you prefer.  If you would like to speak with this reporter, please contact me offline and I’ll put you in touch.

Foreclosure Practices in North Georgia Come Under Scrutiny

The New York Times published an investigative report on March 30, 2007 entitled Foreclosure Machine Thrives on Woes.  The article addresses what has become a growing problem in bankruptcy cases:

  • out of control fees and costs added to mortgage loan balances
  • failure of mortgage companies to properly account for payments
  • refusal or failure of mortgage companies and their counsel to resolve disputes amicably

The Times tells the story of a Georgia couple – the Atchleys – who filed Chapter 13 and paid their mortgage but found themselves on the receiving end of multiple motions for relief asserting that mortgage payments had been made.  In addition to the stress and cost of dealing with these inaccurate motions (which would be withdrawn at the last minute), the Atchley’s discovered that their payoff balance was being adjusted higher and higher with questionably fees and costs.  The Atchleys eventually sold their house but now the United States Trustee has sued Countrywide claiming that its pattern of conduct was an abuse of the bankruptcy system.

The Atchleys decided to sell their home, and contend that they lost over $20,000 in equity.  I have seen similar cases in my own practice.   One case in particular comes to mind.  My client filed bankruptcy to stop a property tax sale, and subsequently fell behind in her ongoing mortgage payments.  She then decided to sell her condo (there was significant equity), the closing attorney gave her a payoff figure that seemed extremely high.  I looked at the payment ledger and I saw overcharges and double billing.  One item showed a charge of $650 as attorney’s fees arising from a Motion for Relief.  However the Order on the Motion for Relief provided for only $550 in attorney’s fees and my client had already paid that fee directly when she cured her post petition arrearage.  There was also a $2,500 "analysis charge" that no one could explain.

While Chapter 13 remains the only option to stop a foreclosure, you should realize that there is a good likelihood that if you file, your payoff balance will go up and that you may have limited recourse to challenge these charges.

Thanks to my colleagues at Clark and Washington for bringing the New York Times article to my attention.

CNN and Fortune Magazine Explain The Many Repurcussions of the Sub-Prime Meltdown

A lot has been written about the housing and mortgage finance crisis in the United States.  You may be wondering how and why you would be affected by the failure of a mortgage company that issued high interest loans to borrowers who were not credit worthy.  Although it may not be obvious, a rising delinquency rate among sub-prime borrowers can and has impacted:

  • housing prices (the value of homes in most places in the country has gone down)
  • interest rates
  • inflation
  • the stock market
  • our trade imbalance with other countries
  • the decline of the dollar
  • oil prices
  • the stability of the stock market and commodities markets
  • employment
  • foreclosures

CNN and Fortune Magazine have produced a television program called "Busted – Mortgage Meltdown" that explores all of the implications of our mortgage crisis.  I suspect that the show will end up on-line but for now, you can visit the multi-media online companion to the show. 

Thanks to Paula Wethington from the blog Monroe on a Budget for writing about the CNN/Fortune program on her blog.


Georgia Legislature Considers Home Foreclosure Relief Bills

Today’s Atlanta Journal-Constitution reports that the Georgia state Senate has approved two bills designed to help stuggling homeowners avoid foreclosure.  Senate Bill 519 would increase the pre-foreclosure notice to homeowners from the current 15 days to as much as 60 days.

Senate Bill 531 would require the current holder of a mortgage to register its name on the public record.  Supporters of S.B. 531 note that with mortgages being sold from lender to lender, it is often difficult to know where to send a check and with whom to discuss loan forebearance agreements.  Loan servicing companies, who manage loans for mortgage companies often do not have the authority to negotiate or enter into forebearance agreements.

The Atlanta paper quotes a mortgage industry spokesman as supporting S.B. 519, and supporting S.B. 531 with some reservations.

These two mortgage bills now head to the House of Representatives where they will be debated and possiby modified.  There is no word yet from Governor Perdue as to whether he is prepared to sign either or both bills into law.

While I applaud the state Senate for taking action that could possibly help homeowners, I want to make sure that you understand several things:

  • First, these two bills are a long way from becoming law.  The state House of Representatives may vote either or both bills down, or the bills could be significantly weakened in the House or in conference committee.
  • We don’t know if the Governor will sign these bills into law.
  • The mortgage industry spends a lot of money lobbying legislators – while an industry rep claims to be in favor of these bills, only time will tell if the mortgage industry will really go along with a law that makes foreclosure more difficult.

Still, I encourage all homeowners to contact their legislators to ask them to support these two bills.   Skyrocketing foreclosure numbers do not help mortgage companies who get stuck with unwanted property, nor do they help frantic homeowners.

Can Project Lifeline Help You?

Earlier this month, President Bush and Treasury Secretary Henry Paulson, together with representatives from Bank of America Mortgage, JP Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo announced the creation of "Project Lifeline" designed to help financially strapped homeowners avoid foreclosure.  You can read more about Project Lifeline here.

Together, the participating mortgage companies service about half of all mortgages in the United States.  Project Lifeline is designed to add 30 days to the foreclosure process in order to give homeowners additional time to renegotiate or come current with their loans.

The specifics of this program are somewhat unclear to me.  A search for "project lifeline" on Bank of America’s web site yielded no results.  A search on Washington Mutual’s web site yielded no results.  Countrywide’s web site does not have a search function, nor does the web site for Chase Mortgage.

Presumably, a homeowner looking for relief from his mortgage delinquency will have to call the same mortgage company that has previously been calling him to demand payment.  Obviously, any effort by the mortgage industry to head off foreclosures is welcome, but I don’t sense that there is a whole lot of effort being put into Project Lifeline.

My colleague Scott Riddle points out on his Georgia Bankruptcy blog that Project Lifeline is not available to debtors in bankruptcy.  It is also not available if you have rental homes or if your home is empty.

In reading various blogs, it appears that the primary criticism of Project Lifeline has to do with its focus.  As blogger Paul Kedrosky points out, high foreclosure rates are a function of declining home values, not interest rates.  Kedrosky argues that homeowners are likely to walk away from their homes and mortgages if they realize that the value of their home is greatly exceeded by the debt on that home.  It will be interesting to see if Project Lifeline does anything to stop the growing number of foreclosures.

I would be interested to hear from anyone who has attempted to delay foreclosure using the Project Lifeline tactic and if you agree with Mr. Kedrosky that foreclosures are more a function of falling home values rather than rising interest rates.

Do You Want to Be Interviewed by French Television?

I received a call this morning from a colleague who tells me that she was contacted by a French television producer who is working on a news story about the real estate market in Atlanta.  They are looking to interview someone who is facing a foreclosure.  If you have any interest in being interviewed for a program that will air in France, you can contact the producer, J.B. Faby by email.

If you decide to do this, please let me know – I would like to hear about your experiences.

Protect Yourself from Mortgage Fraud

My colleague, New York bankruptcy lawyer Jay Fleischman, posted the following video produced by FreddieMac on the Mortgage Law Network blog.  This very compelling video demonstrates how mortgage scammers use the foreclosure process to rip off homeowners.  It is definitely worth a watch.

Metro Atlanta Foreclosures Up 29% in 2007

The Atlanta Journal-Constitution reports that foreclosures in the 13 county metro Atlanta area are up 29% in 2007 as compared to 2006.  In 2007, there were 58,076 foreclosures, which is equal to around 4,900 foreclosures per month.  Note that these numbers only refer to the metro Atlanta area, not Georgia as a whole.

By contrast, in 2001, there were just over 20,000 foreclosures in the metro Atlanta area.

What has caused the metro Atlanta foreclosure rate to triple?  From my viewpoint, the mortgage industry has created this situation by creating one junk mortgage product after another.  Mortgage loan originators have a vested interest in writing loans – these loans are usually bundled and sold as investment products.  Therefore, it does not really matter if a homebuyer is truly qualified – as long as there is some way to write the loan, the originating lender is happy, the mortgage broker is happy and the first line of investor is happy.

For example, a prospective homeowner who earns $85,000 might qualify for a $200,000 loan at a fixed rate payable over 30 years, coupled with 10% down.  That same prospective homeowner might qualify for a $250,000 loan with a teaser rate of 2% for three years then adjustable thereafter.

The loan originator will have long sold the loan before three years are up and when the loan adjusts, the monthly payment may go up $200 to $400 per month.

Homebuyers naturally look for ways to afford bigger and newer homes and easy money makes it easy to get in and drives prices up.

Until recently, a cash stapped homebuyer could at least try to sell, even it meant just getting out.  Now, the investment community has dicounted these packages of underperforming loans, meaning that new money is tight and  home prices are being squeezed downward.  Thus, we have a foreclosure "crisis."

The AJC story further reports that many of the loans in foreclosure have not adjusted recently at all – as the Fed has kept rates stable or down.  When more adjustable rate mortgages begin adjusting up, the current foreclosure situation could get much worse very quickly.

My advice to homeowners who are struggling to pay their current mortgage loans is to downsize as soon as possible.  Chapter 13 has become a much less viable option and it won’t help if you have an adjustable rate mortgage anyway.

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