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Bank delinquency rates have gone up every quarter this year and are currently higher than they have been they began collecting data over 20 years ago.  When individuals as well as businesses begin to struggle to make their payments timely, another wave of economic backlash usually soon follows.  Some things may give the appearance of improved economic conditions but it may also be the illusion of a little calm before the next storm.

As unemployment continues to increase, prices for goods and services climb higher and companies already suffering begin further tightening of their proverbial belts by holding off on merit or cost of living increases, consumers find they have to resort to credit for basics like food and gasoline.  When conditions don’t improve, the delinquencies on those credit charges begin to mount.  Another wave of foreclosures are already predicted in the coming months so we do we begin to actually ‘turn the tide’ on this recession?

For any consumer reading this, please be proactive with your credit and don’t get delinquent.  Make minimum payments if you have to but make them on time to protect your credit rating.  It’s better to have some credit build up than to have your credit history ruined.  If you are already delinquent, call your creditor and ask for a payment modification, even if it’s temporary, to help restore a good payment history.  Unnecessary late charges, even if late payments aren’t reported on your credit history, just cost you more money.  Pay timely and avoid the extra 5 to 20 percent late fee companies charge.  If left with little other alternative when money is tight consider a part-time job to help cover expenses.  Many ‘work at home’ jobs are available now for those that would have child-care issues. 

The tide will eventually turn and economic conditions will improve.  You’ll get a raise, a better job, costs of goods and services will go down and life will feel a little less frantic.  Protect yourself, your family and your credit by avoiding delinquency and you’ll weather the storm well!

With the administration’s pressure to stop the increasing numbers of foreclosures nationwide, Citigroup has hired around 1400 new employees.  In addition to the personnel, Citi has spent time and money improving infrastructure, such as more telephone lines, in order to accommodate the ever increasing number of calls from distressed borrowers. 

While commendable on the surface, keep in mind that Citi received approximately $45 billion in TARP funds last year to avoid collapse as a result of their high numbers of subprime loans and other tainted investments.  In addition to being a lending giant, Citi is also a servicer of mortgage loans for other lenders.  Estimates put Citi handling around $770 billion in mortgage loans of which the lion’s share are for other lenders.  Citi is the fourth-largest US mortgage servicer.

The Associated Press reported Monday afternoon that Attorney Generals located in Washington state, Iowa, Arizona, Colorado, Illinois, Nevada, North Carolina, Massachusetts, Missouri and Ohio are forming a task force to investigate mortgage fraud along with representatives of the Department of Justice, Federal Tresury, Department of Housing and Urban Development, and the Federal Trade Commission. 

This is a significant first step to arresting practices detrimental to the industry as a whole such as equity skimming, false foreclosure rescue offers, straw purchase deals and unethical and/or predatory lending practices.

We will keep you aprised of developments surrounding this effort to correct and curtail wrongdoing in the mortgage industry.

In a previous post, I described some of the issues consumers are facing regarding loan modifications.  Recently, an Arizona judge ordered Wells Fargo to ‘explain’ their modification practices before the court.  To read all about it, visit Mandelman Matters.

On May 1st this year, the Federal Housing Finance Agency implemented the Home Valuation Code of Conduct (HVCC) as a result of a lawsuit filed by New York’s Attorney General, Andrew Cuomo, against former lending giant Washington Mutual.  While the initial aim of this legislation was to attempt to protect consumers, the result has hurt more than it’s helped.

Prior to May 1st, lenders had the ability to select the appraiser for a particular property based on the appraiser’s good credentials, knowledge of the market area and the fee s/he would charge the borrower.  The lender could agree to cover the cost of the appraisal for the customer as part of their service to the customer.  The turnaround time for a typical appraisal was 3-4 days and, if the appraisal order was placed with an appraiser that could not meet the turn-time request, the order could be withdrawn and placed with another qualified appraiser.  Most importantly, if the borrower was seeking a refinance, the lender could call the appraiser to discuss the possible value of the property prior to placing the order and, in doing so, could help the borrower avoid the expense of an appraisal if the value would not support the new loan requested.

Now, as a result of the new regulations, a lender can have no involvement in the placement of appraisal orders.  They are required to be placed through a third-party.  The lender doesn’t get to select the appraiser based on his/her knowledge and experience.  The appraisal is ‘assigned’ to an appraiser by the third-party which charges a fee for the ‘placement’ of the appraisal and then ‘assigns’ that appraisal order to whomever they choose.  This frequently results in appraisers being sent to do appraisal in areas they are not familiar with, fees to the borrower that are substantially higher often as much as $200 or more, and much longer turn around times which can put a borrower’s contract in jeapordy if it is a purchase with a set timeframe to close.

With a refinance, being unable to speak to the appraiser prior to placing the order to get any idea of value means the borrower must spend $450 or more for an appraisal that may or may not support the loan s/he is requesting.  The borrower, often considering refinancing as a means to alleviate some other financial challenge, would have then spent a considerable amount of money for no benefit if his/her property did not appraise. 

While I don’t dispute there were unethical practices by many lenders and appraisers alike which have contributed to the housing/mortgage crisis, a more reasonable response to this issue would be to pass legislation that would prevent the inheirent ‘conflict of interest’ that arises when a mortgage lender or broker also owns a realty firm, a title agency and an appraisal company.  These kinds of incestuous relationships, which still exist, but were even more prevelant during the housing boom as one company and/or individual tried to control and financially benefit from all parts of a real estate and mortgage transaction.  This led to many abuses.  Again, the simpler correction would be to make it unlawful for the same company and/or individual to have ownership in more than one ’servicer’ to an individual residential real estate transaction.

If you are having trouble getting your current mortgage modified, it may have more to do with the lender’s desire to collect the very high fees they charge for delinquent loans than on the lender’s limited staff capabilities as the Federal government has alluded to.  The Tresury department has expressed that mortgage companies are not hiring people quickly enough to meet the current volume of customers seeking modification.  I have had numerous customers share with me their frustations and difficulties in trying to get someone at their lender and/or servicing company to assist them with answering questions, let alone getting their loan modified.  In the meantime, delinquency fees continue to accrue on their loans putting them further behind. 

Another issue is those who are pro-active and are trying to avoid becoming delinquent due to job loss, death of a spouse or divorce, are often told that they must become delinquent before any modification option is available to them.  One late mortgage payment can drop an individual’s credit score up to 100 points.  Since credit scoring drives many factors in an individual’s life beyond the issuing of credit, such as employment opportunities or rates offered on insurance, it is ridiculous that lenders want to ‘recommend’ to individuals to become 90-days delinquent on their mortgage before seeking modification assistance.  Yet that is exactly what has been told to several people I know who later called me seeking some kind of solution to their situation.  Unfortunately, loan modification can only be offered by an individual’s current mortgage company.  In most cases, due to depressed values, refinancing with a new lender is not an option because the property will not appraise for what is currently owed on the mortgage, further strapping the homeowner.

If a person is in a financial crisis to begin with and is attempting to find a workable solution before the crisis becomes dire, they should be applauded and given every possible resource available.  To tell someone that essentially, they will not be offered any help until they’ve allowed their credit rating to be destroyed does not make sense in any way.  Oh, and by the way, even after giving a borrower this ‘advice’ to let their mortgage go 90 days delinquent doesn’t guarantee the lender will agree to a modification at that time.

For some very real, albeit scary, information regarding our current real estate market, check out Mike “Mish” Shedlock’s article on HoweStreet.com “Brace for a Wave of Foreclosures, the Dam is About to Break.”

According to multiple news sources, over 15 million homeowners in the US are upside-down in their current mortgage.  This means that the homeowner owes more on their mortgage(s) than the home is actually worth at this time.  With unemployment creeping upward and companies cutting back on salaries, performance increases, etc., there is most likely another wave of foreclosures coming.

The government’s attempt to entice lenders to modify these type mortgages so homeowners can avoid foreclosure isn’t really working.  As of July, according to several reports, as little as 9% of the troubled homeowners in the US are receiving any assistance at all through mortgage modification with their lender.  Lenders claim to be ‘overwhelmed’ by the number of people calling for assistance but the truth is more than likely closer to the fact that, in these tough ecconomic times, they don’t want the burden of more ‘tainted’ debt.

Delinquency rates on all forms of credit are rising at a rapid pace.  The result, banks are continuing to clamp down on lending to businesses and consumers.  According to Federal Reserve report, they plan to keep things tight for at least another year.

While persistence is key, according to those that have successfully negotiated a modification, it is time-consuming and fraught with frustration.  Homeowners are only eligible if they are “at risk of imminent default.”  If you think you need to pursue a mortgage modification, prepare before you call.  You’ll need copies of tax returns, pay stubs, bank and savings accounts, a written explanation on why your mortgage is currently unaffordable and what event(s) caused your income to fall or your expenses to rise.

The USDA Rural Development Home Loan is one of the last remaining ways to help homebuyers buy a home without a large down payment.  Believe it or not, USDA has been around for a long time.  Since the demise of the “subprime” no money down, no mortgage insurance loan, Loan Officers are going back to the basics.
 

What is a USDA Rural Development Loan?
 

A USDA Rural Development Home Loan is a loan backed by the USDA that allows homebuyers to purchase a new home for 102% financing. There are not many other options left to buy a home with no money down, and it is unclear how long this program will be available as it relies on government funding every year.  The best features of a USDA loan are the long list of benefits to borrowers. 
 

Compare these features with your other loan programs:

* No money down—up to 102% financing and based on appraised value
* No mortgage insurance required (just 2% upfront guarantee fee)
* Thirty-year fixed rates with no loan limits (income limits apply)
* New or existing homes accepted
* New manufactured homes on land/foundations also eligible
* No first-time homebuyer requirements
* No cash reserves required
* Owner-occupied only
* Generous seller contribution limits

* Not a government or down-payment-assistance program
* It’s a lender’s program–using lenders’ money and lenders’ loan forms

Eligibility includes household income limitations and geographic location of the property being financed.  To learn more about the USDA Rural Development Home Loan, visit www.usda.gov

According to the requirements of the SAFE Mortgage Licensing Act, individuals seeking Loan Officer or Mortgage Broker Licenses must pass a national test and any state-mandated test in order to qualify for a mortgage license.  The national component of the required exam was released on July 30, 2009 along with the first group of state exams.  All state components are slated to be available no later than December 31, 2010.