Continue Reading Add comment February 18th, 2009
President Obama is unveiling a $75 billion multi-pronged plan Wednesday that seeks to help up to 9 million borrowers suffering from falling home prices and unaffordable monthly payments. Read more »
Continue Reading Add comment February 18th, 2009
President Obama and Tresury Secretary Geithner are spending $75 billion to help homeowners stay in their homes. Is there something in there for you?
The quickest answer can be found by looking at how much you earn, not how much you owe. If your total monthly home payments (interest, principal and taxes) are greater than 31% of your monthly, pre-tax income you may qualify. Even if your home is worth less today than what you owe, you may be able to refinance.
Here’s an example from the Treasury Dept. Let’s say you paid $230,000 for a home in 2006. It’s now worth $189,000. If you can prove to your lender that your payments are greater than 31% of your income and you are at risk of default, you may be able to get your interest payment reduced. A subprime loan that cost you 7.5% today or $1,500 a month, could get lowered to 4.4% or $1,100 a month, with the lender and the government both picking up some of the cost of the payment reduction.
What if your payments aren’t higher than 31% of your income? The Administration has also proposed a way to help homeowners who aren’t at risk of default refinance, even if they owe more than what their house is worth. Normally it’s difficult to refinance if you owe more than 80% of what your home is worth. But under new rules you may be able to refinance up to 105% of the home’s value. Not all mortgages will be eligible. They have to be owned or insured by Fannie Mae, Freddie Mac or one of the other government-backed programs. High-value, “jumbo” loans may not meet the test.
The new plan fixes some of the problems in the structure of the mortgage market today. There is a $1,000 incentive payment for mortgage servicers to renegotiate loans. Previously they didn’t have much incentive.
The new loans can apply to homeowners who are current in their payments. You do not have to have missed payments to get the bank’s attention. As long as the borrower stays current on their new loan they can also get an incentive of $1,000 per year for five years, applied to pay down their mortgage principal.
The new loan subsidies do not apply to second homes or investor-owned properties. The complete eligibility guidelines will be out on March 4, which is when mortgage lenders can begin accepting applications. There’s more discussion of the new plan at the White House’s blog.
Continue Reading Add comment February 18th, 2009
Here’s what it would have bought you recently in six major metro areas: three where prices have risen the most in the past year and three where they’ve tanked. Read more »
Continue Reading Add comment February 18th, 2009
Michael Sichenzia served four years in a New York State penitentiary for mortgage fraud. Today the founder of Deerfield Beach, Florida’s Dynamic Consulting Enterprises has positioned himself as an advocate for homeowners trying to break out of a prison of debt.
Businesses such as Sichenzia’s, which charge a fee to desperate homeowners to renegotiate their mortgages with banks, have been controversial. Loan negotiators have been accused by law enforcement authorities of charging borrowers thousands of dollars in fees while not doing any work. Similar services are available for free at non-profits such as the Neighborhood Assistance Corp. of America and NeighborWorks America.
Last October a new law in Florida prohibited mortgage “rescue” companies from collecting fees in advance for their services. While we can’t vouch for Sichenzia’s results, his thoughts on the evolving business of loan modifications are worth hearing.
BW: How does your business work?
We re-negotiate loans on behalf of homeowners. We’re able to get someone a loan modification that reduces their rate, extends their term, gets a lower payment and, in rare cases, a principal reduction. We charge a flat fee of $550. We have 680 active files and a staff of 15.
I thought Florida law now prohibits loan negotiators from charging up front?
Most people aren’t able to get to their package of info together. The banks ask for financial statements, tax returns, pay stubs, thirteen things. Most people send them in drips and drabs. Or they don’t send the hardship letter. And they are not able to get help. We charge for putting the package together. All the negotiations are done for free.
Wouldn’t people be better off just going to non-profit counseling services that don’t charge a fee?
You can go to a non-profit, but the non-profits lack the expertise. There’s no training out here. This became the new social service. Many of the non-profits carved out $200 million from the (banking industry-led) Hope Now alliance. Many of the local dollars ended up in unsophisticated and ill-trained agencies that didn’t have the expertise, which is why you see such poor results from Hope Now.
We keep hearing banks don’t want to renegotiate loans?
The banks are negotiating to the extent that they own the loans. The first thing we do is ask the servicer who the owner of the loan is, so we’re negotiating both ends. It’s an onion and you have to peel back the layers.
Can anyone renegotiate their loan? Do you have to be in dire straits?
If I had a mortgage today I’d be negotiating a loan. Everything is on the table. Everything is negotiable. If there’s a reasonable expectation I can’t pay my loan you can negotiate. Do not just stop paying your mortgage and have it ruin your credit rating. Show the bank why you’re not going to be in shape to make the payment in the future. We like to see payments of principal, taxes and insurance less than 33% of the borrower’s gross monthly income. Anything over that and you can make an argument.
Does the owner of the loan make a huge difference in the outcome?
The difference can be night and day. If I have loan which Chase owns I can get an 8.5% interest rate dropped to 4%. A 30-year loan turned into a 40-year. You may even get a deferral of principal. That will drastically change your monthly payments. If it’s through Aurora, which is a huge servicer, I’ll never get that deal. They don’t have the ability to negotiate because they can’t get all the investors to agree. You’ll get a half to one point reduction in the rate for maybe five years.
Why is there such a huge difference?
Right now there’s no incentive on the part of the servicer to modify the loan. In fact, they run the risk of being sued by the investors. We need to give them a piece of the game and incentivize the investors too. Most of the early payments go toward interest. If we started paying principal down faster, everyone would get paid back faster. If we threaten to put a moratorium on foreclosures, that would get the investors to go along.
What other ways can we get out of this mess?
The next step is industry-wide guidelines about what a loan modification should look like. We have no industry guidelines. The closest thing is what the F.D.I.C. did with IndyMac, which was great in my opinion. You need to take into consideration the budget of the borrower today, and the total debt to income ratio. Not gross income, after tax income. If you don’t’ take holistic approach, it’s bound to default in six months.
What should a borrower look for if they’re considering hiring a loan negotiator?
You shouldn’t be spending more than $550. If they’ve only been in business a year they likely don’t have the experience. It can take 3 to 6 months to do one of these modifications. If they don’t have ten people working there they can’t service more than 50 clients.
What’s your opinion of some of the big players in the business, Countrywide, Golden West Savings?
Most of what we are working on is Countrywide-originated loans. Countrywide produced a product, it was an addictive drug. They unleashed an army of non-salaried employees. This was a very quick way to build a business. Same thing with World Savings, which was the name Golden West used. They had the audacity to sponsor the Center for Responsible Lending. World was the guy you went to when you couldn’t go anywhere else. Wachovia bought it. Whoever did the due diligence was really asleep at the helm.
You spent four years in prison for mortgage fraud?
I originated loans and sold them in the secondary market. Those were mistakenly overstated. I committed mortgage fraud and served time from 2002 to 2005.
So are you in this now for the money or as some sort of Karmic pay-back?
We’re running a for-profit company on a non-profit basis. I did a lot of bad in my life. I made a lot of money doing it. I’m open about my past, everyone knows about it. I had a couple senior citizens. They owned a house for 30 years. They got a $176000 loan from Countrywide. They’re on fixed income. They needed a couple of thousand to pay their taxes and the guy walked them into a loan that they’ll never pay back. Those are the people I want to fight for. They get blown away by the loan mitigation process.
Continue Reading Add comment February 18th, 2009
President Obama will unveil his foreclosure prevention plans in Mesa, Ariz., on Wednesday. It’s an appropriate place to talk about the U.S. mortgage-default problem: More than half the homes for sale in this sprawling suburban town are distressed properties. Read more »
Continue Reading Add comment February 18th, 2009
Obama administration officials are hammering out the details of a $50 billion foreclosure prevention program that the president is set to unveil Wednesday in Arizona, sources said. Read more »
Continue Reading Add comment February 18th, 2009
Amid a flurry of announcements of delayed projects in New York City, Forest City Ratner Cos. has orchestrated the $161.9 million refinancing of a loan connected to its $4 billion Atlantic Yards project in Downtown Brooklyn. Gramercy Capital Corp., which made the original loan to Brooklyn-based FCRC for the purchase of land for Atlantic Yards, provided the refinancing along with a group of co-lenders.
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