Often times the first thing in peoples’ minds that are facing this situation is finding a solution to the problem. While negotiating with a lender and seeking a modification is a viable solution to the problem many struggling homeowners are having problems reaching a favorable compromise their lender. This is because lenders are primarily looking out for their bottom line, so it thus follows that a lender will assist so long is it will cost them less than having the house foreclosed on. There is also the consideration that the borrower may possibly default on the loan again. On the borrowers part, the “compromise” may not seem so attractive particularly if the payment was reduced very little or if they happen to be very “upside down” on their house. Allowing the borrower to stay in the home and continue his/hers mortgage obligations is course the most favorable scenario to the borrower and lender, the trick is to make the situation appealing to both parties.

One other possible solution to this problem is refinancing into a lower interest rate. Refinancing can be a very powerful and effective long term solution to alleviating a struggling homeowners woes but it certainly is not meant for everyone, perhaps it is only meant for a small minority. The problem with refinancing is that most lenders require a certain amount of equity in the home, and due to tightening standards a superior credit score is also necessary. Equity or a lack of seems to be the greatest problem, as many individuals during the housing boom purchased homes with little or no down payment and often made interest only payments. This is compounded to the fact that home values have dropped significantly, together these two factors make it impossible to refinance. Typically for a refinance applicants need a credit score above 720 and equity of 20 percent, rendering the opportunity available only to a select few. A Few ways that distressed homeowners with little equity in their homes can refinance is either by obtaining mortgage insurance or refinancing through FHA which requires only a small down payment.

While there are some viable solutions for distressed homeowners many unscrupulous individuals are trying to exploit the situation by creating the perception that they are in fact part of the solution. With this I am referring to many of the so called “mortgage consultants” who for a substantial fee claim they can alleviate a distressed homeowners financial woes and allow them to remain in their home. While I have covered this topic previously, I am again focusing on it in order to raise awareness and highlight what a serious problem this is, not to mention the fact that it is illegal. The Los Angeles Daily News reports that in Los Angeles County these outfits and subsequent investigations have greatly proliferated in the last year. According to FBI statistics the number of mortgage fraud complaints have tripled from 21,000 in 2005 to 63,000 in 2008. Unfortunately, these statistics also indicate that the increase in complaints means that the outfits also grown to be more successful at defrauding vulnerable homeowners. What is also unfortunate is that many distressed homeowners mistakenly consider these outfits as viable solutions to their problems, mainly because these outfits target the homeowners’ ignorance, and anxieties. The one thing we can tell distressed homeowners is that these outfits are not a viable solution to their problems, in fact what they are doing is illegal and can further compromise their efforts to save their home.

Finally what many distressed homeowners are considering solution, albeit a disastrous solution is simply accepting the foreclosure and walking away. Walking away from a home is not only disastrous because you are losing your home and whatever you have invested into it, but it is also disastrous because of its long lasting impact. The lasting impact of foreclosure manifests itself on a person’s credit which according to many is akin to bankruptcy in terms of its severity. This can affect an individual’s ability future financial stability and well being by making it more difficult to secure certain jobs, obtain loans, or qualify for housing. A major reason why homeowners ultimately decide to walk away is simply because they are upside down on their loan. While there are often cases where the owner cannot make the payment and is upside down, there are also cases where the owner can indeed afford the monthly payment but none the less decides to walk because he/she is upside down.

This phenomenon is being primarily attributed to a recently adopted mindset by new homeowners who are now viewing a home primarily as an investment and themselves as investors. Unlike typical Wall Street type investors who seemingly have a more thorough understanding of markets and investing these pseudo “homeowner investors” fail to realize a few things. One is that eventually the market will rebound and they will eventually have the equity in their homes to achieve a favorable refinance or eventually sell and recoup their money. Second, is that unlike Wall Street where one can dump unproductive investments, take a loss and walk away, when dealing with real estate taking a similar course of action would come with severe consequences such as severely damaging a persons’ credit. Finally if an individual wishes to adopt the mindset of the homeowner investor, the individual must also accept the implied risks that come with investments. Generally walking away should only be seen as an emergency or last resort solution. A decision to walk away should only be made after all other options such as negotiating, refinancing or working with a HUD approved counselor have all been exhausted and rendered futile. For some who went in over their heads the decision to walk away can serve as a painful life lesson which will hopefully allow the individual to plan and rationalize more effectively the next time he/she wishes to buy a home.

What this dismal outlook also means is that there will be more desperate homeowners looking for help and scheming “industry professionals” looking to take advantage of an already dismal situation. In an earlier blog post I briefly touched on the loan modification organizations and how they may potentially be illegitimate and illegal. Apparently my analysis and predictions were true as there are now many of these organizations nationwide that have scammed desperate homeowners. Last year the Federal Trade Commission brought lawsuits against five companies that were representing over 20,000 consumers. In addition Angela Rosenau, deputy attorney general in California cited over 300 complaints against such organizations.

A recent article from the New York Times (1/15/2009) highlights the growing problem by documenting the case of Stockton resident Maria Martinez who was facing trouble with her mortgage last summer and was subsequently scammed by a so-called foreclosure consultant who did absolutely nothing but take her money. Today Maria continues to live in the foreclosed home and is simply waiting for the Sherriff to show up and evict her. Maria’s case while tragic is not unique, in fact the same article mentions that many times the defrauders are the same individuals who were aggressively hawking subprime loans and are now taking advantage of desperate homeowners’ who become frustrated or panic after dealing directly with lenders who are often indifferent to their situation. What is important to keep in mind is that in California “mortgage consultants” are prohibited from collecting payments until after they complete their service

Although the effects of the housing crisis are for the most part negative, one good thing that has arisen as a result of the crisis is greater and more affordable opportunities for first time buyers. Currently interest rates are at historic lows and home prices are also extremely low creating an opportunity for first time buyers to enter the market. The drop in prices is in part attributed to the glut of foreclosed and abandoned homes, which makes many buyers wonder how they should go about purchasing one of these homes. Two common scenarios in which these types of homes are purchased are either through short sales or REO purchases. While there are differences between the two they also share a key similarity as far as the purchasing process goes. In both cases one deals with the lender, while a short sale may seem like a straight forward means of purchasing directly from a homeowner it can actually become difficult if the primary and junior lean holders do not agree to the short sale, which would then require substantial negotiations. With REO bank owned properties one is dealing with a lender’s REO department, which in many cases is overwhelmed. In both cases one should expect to be patient however the rewards can be substantial because often times both types of properties are listed below market price, with short sales being slightly more expensive than REO’s.

Also the Mortgage Bankers Association reported on December 24th that the drop in interest rates has caused a spike in the number of mortgage applications. The MBA reports that as of 12/19/08 the Market Composite Index increased 48% from the previous week, going from 841.4 to 1245.4. The MBA emphasizes that the index has not reached these levels since June of 2003. Interestingly, the MBA reports that the bulk of these mortgage applications are mainly from individuals looking to take advantage of the current rates by refinancing. Although it isn’t specifically mentioned, this is good news as many of those refinancing into the current rates are likely to be less at risk of facing foreclosure.

Despite the fact that there are some good indicators in certain segments of the housing market, for the most part the outlook for 2009 remains bleak. In an interview by the Record (12/8/2008, D1) with Gregory Paquin, President of The Gregory Group, a real estate consulting firm, Paquin predicts that 2009 will be a “bottoming out” year for new home builders in terms of new construction which is mainly due to the sluggish economy and competition from cheaper foreclosed homes, which appear to be driving prices so low that builders cannot compete. Although Paquin predicts 2009 to be a “bottoming out” year he sees 2010 and 2011 as years where we will see more growth and stability in the homebuilding industry.

In summary, as we enter the New Year, the local real estate industry will continue to be hampered by the high rate of foreclosure. However, with much lower interest rates and lower prices many first time homebuyers will be looking to purchase homes which can offset some of the damage caused by the rash of foreclosures. Unfortunately for new home developers, competition from lower priced foreclosures and REO’s could mean another dismal year in terms of sales which would hamper new development. This in turn affects the local economy by not providing much needed construction and real estate related jobs that are associated with new development.

Recently I have gotten questions asking what it is we do and how exactly our foreclosure counseling program works. Before I directly answer those questions I would like to put the situation in the proper context by explaining who we are. Visionary Home Builders of California (VHB) is a non-profit agency that specializes in the development of affordable housing for low to moderate individuals and families. In addition VHB is also a HUD approved housing counseling agency that specializes in pre-purchase and foreclosure counseling. What distinguishes our organization from other for-profit “mortgage consultants” in that unlike those other organizations we are subject to HUD’s oversight and strict set of rules, standards, and guidelines.

When an individual or family solicits our foreclosure counseling services the process typically goes like this: the client either picks up or has mailed to them our foreclosure prevention packet, which they must complete and return before an appointment can be scheduled. In order to complete the packet it requires that the client fill out the enclosed forms and provide copies of pertinent documents, which include but are not limited to: bank statements, pay check stubs, a monthly budget, loan documents and copies of their mortgage bills. The purpose of this is to allow the counselor to evaluate the client’s situation and formulate an appropriate plan of action. Subsequent to this the client is called into our office for an appointment to analyze the situation and discuss options. The counselor will also help negotiate with the lender if appropriate. Because every individual case and its circumstances are unique there is no set protocol as to how the counseling and negotiations are conducted.

As was mentioned earlier, because every case is different and presents a unique set of circumstances there is no set or “uniform goal” for every case. Rather the goal is determined through careful thought and evaluation between the counselor and the client. For example, for some clients, an extension of the term of the loan or a reduction in the interest rate may be an appropriate request to the lender.   In some cases, it may be determined that the client cannot afford to stay in the home.  In that situation, the counselor will help the client negotiate a “Cash for Keys” settlement.  Cash for Keys is a program where the lender pays the homeowner a pre-determined amount of money in order to remove all personal belongs from the home, leave it clean and undamaged, and move out by a pre-determined date. Whatever the goal is determined to be, our counselors work diligently and use every available resource at their disposal to accomplish this goal.

With the exception of $20.00USD for a credit report, our counseling services are offered free of charge. The maximum possible cost to client would be $20.00USD.

I hope to have answered all of your questions and concerns regarding who we are, what we do, and how our foreclosure counseling program works. If not please feel free leave a question or comment below, or contact us via our Contact Us form.

Thank You!

In a panel hosted by the AARP, William Apgar of Harvard’s Joint Center for Housing Studies gave an explanation of how the housing crisis affects seniors by stating the following:

“We can make it seem like this is the result of reckless behavior, but it’s the result of thousands of little decisions to take a little bit more loan out to pay for the kids education, to cover a health bill, to deal with the fact that housing costs are high relative to income. It’s a reflection of the failure to deal seriously with our housing affordability issues”.

The fact is that seniors are being equally affected by rising costs and the effects of a slow economy as are other groups, so like others they are finding themselves in the same dire circumstances. But unlike younger more able bodied individuals many seniors can only count on retirement savings or social security as their only sources of income. In an article for Consumer Affairs Diane DiDonato claims that Seniors have become a primary target for predatory lenders due to the substantial equity many have in their owns and also the fact that rising expenses have left many in need of cash. According to DiDonato these circumstances have led many predatory lenders to target seniors in order to convince them to borrow lots of money on their property or to refinance into exotic sub-prime loans.

Another area of concern is related to the fact that a large percentage of seniors facing foreclosure are more likely to be minorities with subprime loans. This phenomenon related to race, predatory lending and foreclosure seems to be a key component in the collapse of the housing market. Most research and findings all seem to focus on young minority first time home buyers as the main victims of subprime loans and foreclosure. Additionally the media seems to portray the victims of subprime loans and foreclosure as irresponsible home buyers who went in over their head. Perhaps in some cases it is true that those who resorted to subprime loans and purchased homes at artificially inflated prices did go in over their head, but according to the AARP many elderly minority home buyers and home owners were aggressively targeted and sought out by predatory lenders. In fact according to the AARP African Americans over the age of 50 represent 14% of foreclosure of cases in their age group and Latinos over 50 represent 16% of foreclosures in their age group. Furthermore the study also demonstrates that combined, African Americans and Latinos over the age of 50 have a foreclosure rate of 0.51% compared to a rate of 0.19% for Whites.

Most troubling, and perhaps disturbing, component of this phenomenon is that so called mortgage consultants (mortgage scammers) are becoming aware of the situation and taking advantage of one the most vulnerable groups in society. During Senate Testimony on seniors and foreclosure, Special Committee on Aging Chairman Senator Herb Kohl (D-WI) stated:

“seniors are particularly vulnerable to rescue scams because many of them are on fixed income and rely on the equity of their homes as their primary financial asset. They are particularly attractive to financial predators because they tend to have a larger amount of equity in their homes.”

A primary cause for this phenomenon seems to lie in the fact that mortgage terms and documents are often very complicated and difficult to understand. Rachel Dollar who testified before the Senate mentions in her testimony that in this situation seniors are at the mercy of often aggressive mortgage brokers who push seniors into less than favorable loans. Additionally, outright fraud is being committed against seniors who have faced foreclosure or are on the brink of facing foreclosure. Often times scammers contact senior homeowners facing financial difficulties and promise to take care of the situation. During Senate testimony it was described that these scammers then collect money or sometimes have the title of the house transferred to the scammer’s name.  In the end, these scammers often take the victims money or make the situation worse than it was before.

Seniors have always been considered vulnerable segment of society, we often hear of seniors being taken advantage of or scammed in one way or another. But we also think of seniors as responsible homeowners who are enjoying their golden years oblivious and immune to the problems many younger people face. Unfortunately this unprecedented housing crisis seems to have shaken our perception by affecting just about every segment of society, wreaking havoc on society as a whole. It is unfortunate that rising costs of living are forcing many elderly homeowners to seek out additional money only to be taken advantage by unscrupulous lenders who make their already difficult situation even worse. Of course the most favorable solution would be to find these unscrupulous individuals and scammers and banish them from the face of the Earth, but is not very realistic. Instead a realistic solution would be for all of us, seniors included to become fully aware and educated in order to avoid these problems. For this reason, it’s imperative for anyone considering purchasing a home, refinancing, borrowing, or going through foreclosure to take advantage of the services offered by HUD approved housing counseling agencies.

With regard to the financial markets President Elect Obama’s plan, for the most part, is set on undoing the deregulation that has occurred in the past years, deregulation that arguably led to the current housing and financial crisis. For example, Obama plans on streamlining the current regulatory system from a system of competing regulatory agencies to a single one. In addition he plans on creating a financial market oversight committee which would report regularly to the President, his advisors, and Congress on important issues before they become a crisis. He also plans on providing the Federal Reserve with basic oversight authority over financial institutions in order to ensure that the Fed becomes a lender of last resort.

Related to consumers, homeowners, home buyers, and those losing their homes Obama plans on providing more funds to prevent foreclosure, and rehabilitate the housing market. Part of Obama’s agenda includes establishing an FHA Housing Security Program similar to the one proposed by Chris Dodd (D-CT). This plan would incentivize lenders to buy or refinance mortgages and convert them to conventional 30 year fixed mortgages. The incentive to lenders would be that the Federal Government would guarantee these loans. In addition, Obama has proposed enacting an additional $30 billion dollar stimulus package which would establish a $10 billion dollar foreclosure prevention fund aimed only at homeowners not speculators and would emphasize foreclosure counseling resources. The other $20 billion would go to local communities facing revenue short falls due to foreclosure and to fund extensions on unemployment benefits. Finally, his plan would include $10 billion dollars toward Mortgage Revenue Bonds, which will be used to refinance sub prime loans and to assist first time homebuyers.

In addressing the lending industry, Obama’s plan is set on regulating lenders while punishing the unscrupulous ones, and protecting consumers. Obama attacks the root of the problem by proposing to ensure accountability in the sub prime mortgage industry. He intends on enacting what is known as the “STOP FRAUD ACT” which provides a federal definition of mortgage fraud, increases funding for law enforcement and prosecution and creates new criminal penalties for mortgage fraud. Obama also calls for more accurate and simplified loan disclosures which would protect consumers by providing a standardized borrower metric known as a HOME score which would allow borrowers to compare and understand mortgage products. Furthermore he would close bankruptcy loopholes for mortgage companies which would eliminate provisions that prevent bankruptcy courts from modifying mortgage payments. Under current rules bankruptcy courts cannot modify the terms of a mortgage even if the loan was predatory.

In all, Obama’s message of hope seemed to inspire voters around the Nation to believe in him. Obama’s plan to regulate and stabilize the financial and housing market also seems to offer a glimpse of hope that as a Nation we can overcome the current crisis. While the plan seems overly ambitious it seems to contain the necessary tools and elements to remedy the current problem and prevent a future one from occurring.

With dramatic increase in foreclosure, drastic drops in property values, stagnant sales and collapsing financial markets as a result of the housing crisis we are, metaphorically speaking, in “the eye of the storm,” a slow yet disastrous storm at that. In fact, the global financial services company UBS projects the year 2009 will be worse and that the housing and financial market situation will continue to deteriorate for at least another 2 years.

Due to the crisis, the number of foreclosures — especially in our own community (Stockton, CA) — has reached unprecedented levels. Due to the scale and magnitude of the crisis banks and lending institutions have become overwhelmed and in the opinion of many homeowners have become indifferent to their pain and hardship. This situation has left many homeowners in the dark; an almost helpless situation. Fortunately, HUD-approved counseling agencies such as Visionary Home Builders (VHB) have stepped up to the plate and continue to be a vital resource for many facing foreclosure. Unfortunately, just as individuals and entities have stepped up to help, many unscrupulous ones have also come forward to take advantage of the situation.

HUD-approved counseling agencies such as VHB often offer their services for free and are subject to Federal regulation and oversight in order to ensure that they are fulfilling their role. Unscrupulous “mortgage consultants” are often aggressive in their approach, make outlandish claims and charge high prices for their services. In fact, in one incident I contacted one of these so called mortgage consultants. When questioned, the representative for this organization asserted that they have a “95% success rate” without being able to clearly define what “success” constitutes or give me a specific number of clients that they have been successful with. Subsequently, the representative stated that the fee for the service was $700 dollars with $300 due in advance. While the representative’s story and claims all seemed a bit suspicious, what raised the red flag was the advance fee requirement.

As a homeowner one has to be cautious when asked to pay for foreclosure counseling services and especially cautious when asked for an advance fee. California Civil Code 2945 regulates mortgage consultants and forbids anyone identifying themselves as such to collect advance fees if a client’s property has had a Notice of Default recorded against it. Mortgage brokers or foreclosure consultants that do charge fees can only do so once their work has been completed.

If a Notice of Default has not been recorded, it is possible for a consultant or mortgage broker to assist in a loan modification and ask for an advance fee. However, if this occurs, the broker or consultant is obligated to provide a signed statement specifying what will be performed, when it will be performed and all costs associated. The statement must then be forwarded to the Department of Real Estate for approval. Once approved by the Department of Real Estate the broker or consultant can collect the fee.

It is often argued that at the root of the housing crisis there were a slew of dishonest and manipulative individuals who took advantage of the ignorance of consumers to ensure their own financial gain. It appears these seedy elements are once again rearing their ugly heads, poised to take advantage of vulnerable homeowners who may already be experiencing difficulties. As homeowners and consumers we have the responsibility to ensure that we are well informed and more critical of the decisions we make in order to ensure the effects of this crisis are not compounded. For these reasons it is necessary to at least have a basic understanding this law.

The HOPE for Homeowners (H4H) program, authorized by the Economic and Housing Recovery Act of 2008, was announced on October 1st by HUD Secretary Preston.  The H4H program is a new program intended to help borrowers at risk of default and foreclosure refinance into more affordable loans. The H4H program will allow borrowers who are having difficulty making their payments, to refinance their current mortgage into a new loan insured by HUDʼs Federal Housing Administration (FHA).

Distressed homeowners have four options to pursue participation in the HOPE for Homeowners program:

1. Homeowners may contact their existing lender and / or a new lender to discuss how to qualify and their eligibility for this program.

a. According to HUD the main requirements to participate are:

i. Have sufficient income to make payments on a H4H loans

ii. The property to be refinance must be the homeowners only and primary residence

iii. All other restrictions or requirements are left to the discretion of participating lender

2.   Servicers working with troubled homeowners may determine that the best solution for avoiding foreclosure is to refinance the homeowner into a HOPE for Homeowners loan.

3.       Originating lenders who are looking for ways to refinance potential customers out from under their high-cost loans and/or who are willing to work with servicers to assist distressed homeowners.

4.       Counselors who are working with troubled homeowners and their lenders to reach a mutually agreeable solution for avoiding foreclosure.

Source:  http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL

• Bank of America/Countrywide to Alter Mortgages in $8.4 Billion plan

Bank of America and a number of U.S. states including California reached an $8.4 billion accord under which the banking giant will modify troubled mortgages and enable nearly 400,000 Countrywide Financial Corp. clients to keep their homes.

the program’s goal, Bank of America said in a statement, is to enable borrowers who financed their homes with subprime loans or pay-option adjustable-rate mortgages to hang on to those homes. The plan will reduce interest and principal on the mortgages by $8.4 billion, the Charlotte, N.C., banking giant said.

· The program applies to mortgages serviced by Countrywide and originated before Dec. 31, 2007

· The target borrowers are those who occupy their homes as their principal residences and “who are seriously delinquent or are likely to become seriously delinquent as a result of loan features, such as rate resets or payment recasts,”

· By Dec. 1, Countrywide staff will begin contacting eligible customers. B of A said it would not begin or advance a foreclosure sale for a borrower who is likely to qualify for the program until Countrywide decides whether the borrower is indeed eligible.

v How Will BofA ensure the mortgage workouts keep people in their homes?

o One method, the bank said, is to ensure that first-year payments of principal, interest, taxes and insurance will equal 34% of the borrower’s income

v The bank said it would modify loans via a number of methods including:

o Refinancing through the FHA Hope for Homeowners program (H4H)

o Automatically reduce interest rates

o Reduce the principle on pay-option adjustable rate mortgages to restore equity

o Also, include $150 million to assist customers who are already in foreclosure or in serious risk

o Include $70 million to help customers who have lost their home to make transitions to other living arrangements.

o BofA stated it will provide these services for free and will waive pre-payment penalties to subprime and option ARM’s

Source: http://au.us.biz.yahoo.com/rb/081006/business_us_bankofamerica_settlement.html?.v=3

• Bank of America/Countrywide Settlement with CA Attorney General

A legal settlement between Countrywide’s parent company Bank of America and California Attorney General Jerry Brown was announced on Monday October 6, 2008. As part of the settlement Countrywide has agreed to cut $3.5 billion in loan obligations to save at least 125,000 homes from foreclosure in California. This is a part of the larger agreement that B of A made with other states mentioned in the previous article. A recent article published by the Modesto Bee (10/7/2008) has indicated that lawsuits filed against Countrywide for alleged deception, steering, and pressure tactics directed mainly at minorities was instrumental in raising awareness and helping finalize this agreement.

As part of the agreement Bank of America has also agreed to the following:

o Freeze and cut interest rates

o Suspend foreclosures

o Waive late fees for live-in homeowners

Aid some of those who have lost their homes

Source: http://www.modbee.com/

Homeownership Education and Cal-HFA

As of October 7, 2008, CalHFA will require that all CalHFA borrowers complete Homebuyer Education Counseling to obtain CalHFA’s financing.  CalHFA will accept a homebuyer counseling certificate of completion issued by either:

1) HUD approved counseling centers,

2) Fannie Mae or Freddie Mac approved counseling agencies,

3) Mortgage insurance companies, or

4) Countrywide Homebuyer Counseling.

Source:  http://www.calhfa.ca.gov/homebuyer/information/borrower-requirements.htm

• Homeownership Education and Foreclosure:

A recent study put together by the Mortgage Bankers Association has indicated that homeowners who have participated in homeownership education programs through Neighbor Works organizations have a foreclosure start rate that is 20 times less severe than that for subprime borrowers

source: http://www.mortgagebankers.org/NewsandMedia

• Foreclosure Prevention Resource:

With the support of a grant from the California Bar Foundation and assistance from the State Bar of California, Office of Legal Services, Access and Fairness staff, the Public Interest Clearinghouse and the State Bar are pleased to announce the new ForeclosureInfoCA.org website.

This Site Includes:

· Lists agencies and organizations providing mortgage foreclosure assistance to consumers.

· Links with www.probono.net/ca and lists the attorney volunteer opportunities available at legal services programs, HUD counseling agencies, local bars and LRS’s interested in using volunteer attorneys to address mortgage foreclosure issues on behalf of home owners and renters.

· Provides consumer education on mortgages, loans and the foreclosure process