41 replies to this topic

[Steve Heard]

Updated: Apr 13, 2011 1:39 PM PDT
By DEREK KRAVITZ
AP Real Estate Writer
WASHINGTON (AP) - The federal government on Wednesday ordered 16 of the nation's largest mortgage lenders and servicers to reimburse homeowners who were improperly foreclosed upon.

Government regulators also directed the financial firms to hire auditors to determine how many homeowners could have avoided foreclosure in 2009 and 2010.

Citibank, Bank of America, JPMorgan Chase and Wells Fargo, the nation's four largest banks, were among the financial firms cited in the joint report by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency,

The Fed said it believed financial penalties were "appropriate" and that it planned to levy fines in the future. All three regulators said they would review the foreclosure audits.

In the four years since the housing bust, about 5 million homes have been foreclosed upon. About 2.4 million primary mortgages were in foreclosure at the end of last year. Another 2 million were 90 days or more past due, putting them at serious risk of foreclosure.

Critics, including Democratic lawmakers in Congress, say the order is too lenient on the lenders. House Democrats introduced legislation Wednesday that would require lenders to perform a series of steps, including an appeals process, before starting foreclosures.

http://www.nbc-2.com/story/14439833/govt-orders-14-lenders-to-reimburse-homeowners?clienttype=printable

If you've read my blog (I'm overdue for another post), you'll know that I've described scenarios where buyers and sellers were acting in good faith, with genuine hardships and bona fide sales offers, only to have the banks foreclose on the homes and end up getting less for the properties than had they accepted a short-sale.

Others were foreclosed upon while trying to negotiate reasonable modifications.

What will consumers get? Too early to tell how much, or how many will get anything, but perhaps this is a step in the right direction.

Stay tuned...

[The Average Joe]

Hmmm...
Person signs contract with bank. Person violates terms of contract. Bank repossesses property as per contract.
Person gets settlement?
What am I missing here?

[Steve Heard]

Hmmm...
Person signs contract with bank. Person violates terms of contract. Bank repossesses property as per contract.
Person gets settlement?
What am I missing here?

I think the issue is that the banks had an opportunity to and an obligation to mitigate or prevent losses.

Two cases came immediately to mind:

1) A young husband and father lost his job. Wife was working, but it wasn't enough to pay the bills. They tried to do a loan modification to get the interest rate and/or payments down. Bank refused. Desperate, the homeowner looked for work out of town and found a new job in another city. He had to relocate, and hired me to list it as a short-sale. He owed, I believe, $360K. We had an offer of $310K. The bank turned it down, ended up foreclosing and selling it for $214,000. They could have made nearly $100,000 more by accepting the short-sale.

2) A homeowner lost his job as an airline mechanic. He tried to get a modification. The bank turned it down. His wife left. He hired me to list his property as a short-sale. We had an offer for $160,000. While we were negotiating that deal, their foreclosure department sold it to an investor for $117,000.

Things like this happened to countless others. It's not just a matter of consumers violating terms, it's about doing what's best and what's right.

[Martin]

I think the issue is that the banks had an opportunity to and an obligation to mitigate or prevent losses.

Two cases came immediately to mind:

1) A young husband and father lost his job. Wife was working, but it wasn't enough to pay the bills. They tried to do a loan modification to get the interest rate and/or payments down. Bank refused. Desperate, the homeowner looked for work out of town and found a new job in another city. He had to relocate, and hired me to list it as a short-sale. He owed, I believe, $360K. We had an offer of $310K. The bank turned it down, ended up foreclosing and selling it for $214,000. They could have made nearly $100,000 more by accepting the short-sale.

2) A homeowner lost his job as an airline mechanic. He tried to get a modification. The bank turned it down. His wife left. He hired me to list his property as a short-sale. We had an offer for $160,000. While we were negotiating that deal, their foreclosure department sold it to an investor for $117,000.

Things like this happened to countless others. It's not just a matter of consumers violating terms, it's about doing what's best and what's right.

Yes, because what is best and right wouldn't be to make the house payment they promised when they signed their loan papers. It is best and right for everyone to get a deal for their special circumstances. Why should a bank take $310 instead of what they were owed? I am so tired of people bailing out of everything and the people who can afford to do what they agreed to, just keep on paying for everyone else.

[Steve Heard]

Yes, because what is best and right wouldn't be to make the house payment they promised when they signed their loan papers. It is best and right for everyone to get a deal for their special circumstances. Why should a bank take $310 instead of what they were owed? I am so tired of people bailing out of everything and the people who can afford to do what they agreed to, just keep on paying for everyone else.

I understand that line of thinking, but in each case, the seller lost his job and the bank did not try to mitigate their losses.

If you were the bank or a shareholder, wouldn't you rather sell for $310,000 than $214,000?

[Steve Heard]

What about the builders who over priced the houses in the first place?

Were they overpriced, or were they selling at what the market would bear? I remember when there were people camping out for a chance to get on the list to buy a new home. Some were putting down their deposits, then by the time the home was ready, they sold for a tidy profit. The American way at its best.

Could they be held accountable as well.....according to your assessment of the situation?

Accountable for what? They built houses and people bought them. If people refused to buy at those prices, they'd lower the prices until the market responded. Take a look at the southeast corner of our city. Lot after lot graded and ready to build on, but few being built because people are buying at the prices the builders want.

The bank is a victim of the whole thing as well as the home buyers, by the way you are making it sound.

I don't know if 'victim' is the right word for any of the players. Some say the banks are to blame by creating new loan products when they had maxed out their market. They came up with equity lines, pay-option ARM's, No Doc loans, 125% loan to value and other products to spur new loan activity. They are left holding the bag, and they should do what they can to mitigate their losses.

Yes, it might seem to be more wise for the bank to take a smaller loss than to hold out for a greater amount of the loan and get shorted anyway. But they are hoping for more money to cut their losses. It's a gamble and maybe they think it's worth the risk.

Banks spend a lot of money and time on appraisals, BPO's (broker price opinions) and AVM's (automated valuation modesl - think Zillow on steroids), MLS and public record data in order to determine the value of properties. When they auction the property off at foreclosure, they don't hold an 'absolute' auction where the highest bidder gets it no matter what. They have a bottom or minimum bid. In the case of the one where we had an offer of $310,000, they had to start $100,000 lower than that figure to get the $214,000. They knew what the property was worth to an investor before they the put it on the auction block.

Plus, I'm sure they are writing those losses off their taxes.

This is true, and in many cases, they had mortgage insurance in place which would make them whole again, or get them close to it. Do you think the mortgage insurance companies would be concerned if they knew the banks could have gotten more for the properties than they sold for?

Couldn't the home owner rent the house out? I know of three home owners who are under water on their mortgages, renting their homes out with rent that won't cover the mortgage payment. They will take a loss on those rental properties off their taxes and make the best of it until the market gets better, so they can sell.

Yes, some do. In the case mentioned above. Let's say the borrower had an interest rate of 6% on $360,000. That's a payment of about $2500 per month, including tax and insurance. He could probably rent the property out for $1500 or so. That would mean he had to take a $1000 per month loss, plus relocate and pay rent in another home. I'm sure some would do it, most would not.

I think it's silly to buy property when the prices are at all time highs...

People buy when they need or want a place. No one knows when the prices will change.

.. but most real estate people will tell you to buy before they prices go higher. They inject fear into people, making them think they will be out priced and never get to own a home, unless they buy that very minute.

I know that some do, and I think of those types as the old-school, used car salesman types. They are the same ones that would try to stir up sales by telling people that the neighborhood is changing and they'd better get out now. Today I find mostly honest, hard-working people who present the facts and figures of the market and let the buyer or seller decide what's best for them. One takes on a lot of liability if they tell someone that prices will go up or down or rates are going to change or lending will get tighter. In fact, there's a form called a Market Conditions Advisory which we give to clients to address just such issues.

If my real estate agent would have had her way, we would be in a house twice the size we need, just because we could afford it! It seems they always want to "MAX" one out for as much mortgage as they can afford, regardless of need.

I personally, and so do most of my peers, go for the long-term relationship and the referrals of happy clients rather than going for the big deal. The relationship is more important than the money made on the deal.

I feel for the investors who bought the loans, the borrowers and homeowners who find themselves upside down, the honest realtors who've gone out of business, the honest appraisers who are being penalized because of the unscrupulous ones.

The point of this excercise, though, is that the banks for a variety of reasons, be they tax, insurance, greed, incompetence, negligence or whatever, sometimes did not make the decision which would have resulted in lower losses, and the government is calling them out on it.

[Redone]

I think the issue is that the banks had an opportunity to and an obligation to mitigate or prevent losses.

Two cases came immediately to mind:

1) A young husband and father lost his job. Wife was working, but it wasn't enough to pay the bills. They tried to do a loan modification to get the interest rate and/or payments down. Bank refused. Desperate, the homeowner looked for work out of town and found a new job in another city. He had to relocate, and hired me to list it as a short-sale. He owed, I believe, $360K. We had an offer of $310K. The bank turned it down, ended up foreclosing and selling it for $214,000. They could have made nearly $100,000 more by accepting the short-sale.



2) A homeowner lost his job as an airline mechanic. He tried to get a modification. The bank turned it down. His wife left. He hired me to list his property as a short-sale. We had an offer for $160,000. While we were negotiating that deal, their foreclosure department sold it to an investor for $117,000.

Things like this happened to countless others. It's not just a matter of consumers violating terms, it's about doing what's best and what's right.

Right and best ? For whom ?

I didn't see those words in my Deed of Trust or Note.

On the homeowner side, I think it's a "Secured" loan whereby you don't pay--they can take your house.
End of story.

Clearly, it wasn't right and best for the shareholders though. Steve though, as we know, the name on your monthly statement rarely is the one calling shots on Mods or Short Sales. It's the end investor which could be China, could be a Pension Fund, could be an Insurance company. Who knows ?

A win-win would be nice , but is not to be expected in all cases.

[rpo]

You should not get upset at people who walk away from their homes. The contract quite clearly states that if you do not pay, the collateral is seized to make up the losses. They are simply following their contracts. People walk away from homes when they owe much less than owed also. Do you know what happened to the equity in the home once it is sold? The bank gets to keep it.

As for the banks being ordered to reimburse homeowners.....THE BANKS BROKE THE LAW. If you are against punishment for the banks breaking the law, then I honestly do not know what to say.

[The Average Joe]

THE BANKS BROKE THE LAW.

Um, what law was that? If the bank takes a loss by foreclosing rather than short-saling, they only hurt themselves (which isn't actually true. My understanding is that there is some government incentive for them to foreclose).
Your response to my original comment gave sad stories, but I fail to see why the bank was obligated to work with anybody. They took a bigger loss than they should have (theoretically, although again, I believe they are getting some kind of subsidy from the feds on foreclosures as opposed to short sales), but that is their choice to make. While in an ideal world the bank would work with the borrower, they are not obligated to once the buyer is in breach of their contract.

[ducky]

THE BANKS BROKE THE LAW.

Um, what law was that? If the bank takes a loss by foreclosing rather than short-saling, they only hurt themselves (which isn't actually true. My understanding is that there is some government incentive for them to foreclose).
Your response to my original comment gave sad stories, but I fail to see why the bank was obligated to work with anybody. They took a bigger loss than they should have (theoretically, although again, I believe they are getting some kind of subsidy from the feds on foreclosures as opposed to short sales), but that is their choice to make. While in an ideal world the bank would work with the borrower, they are not obligated to once the buyer is in breach of their contract.

But doesn't that "government incentive" end up costing all of us? I think the banks absolutely have a duty to mitigate their damages if they are getting taxpayer dollars.

Banks don't seem to honor contracts. How many of us have had changes to our accounts that we didn't originally sign up for. All the bank does is send a letter out saying "We're going to start charging for..." or "We're increasing this fee...," or "We're adding that fee beginning..." Doesn't matter to them what you were promised when you opened your account.

[M.E.G.]

I believe it is up to the banks to decide if they want to short sale, loan modify or foreclose. If the homeowner is not making payments the bank has that right. Yes there are lots of truly distressed owners who want out, but there are also owners that deal with the issue. Whether that is selling less than is owed and coming to the table with more money, or renting out and taking a loss until they can sell. People make choices. The banks get to make choices also.

I have several clients that have lost jobs, or lost income and are trying to do a short sale. They know that I am doing everything I can to get the absolute best outcome for them. But they all know that the bank may not accept a short sale, because of the investors backing their mortgage. They are not claiming unfair treatment.

I have no "hatred" for those who have lost their jobs, in fact my DH has not had his job for over a year.

The more far reaching effect of the government stepping in and changing rules and forcing banks to modify or sale short is how it will affect those wanting mortgages in the future. Mortgages will be more costly and harder to get if the banks have to plan for rule changes or government intervention and of course some will just not continue to do them because of the risk.

M.E.G.

[Steve Heard]

I fail to see why the bank was obligated to work with anybody. They took a bigger loss than they should have (theoretically, although again, I believe they are getting some kind of subsidy from the feds on foreclosures as opposed to short sales), but that is their choice to make. While in an ideal world the bank would work with the borrower, they are not obligated to once the buyer is in breach of their contract.

So, they can refuse to accept the short sale, which would net them more money because the Feds will use our tax dollars to enrich them and that's ok?

But doesn't that "government incentive" end up costing all of us? I think the banks absolutely have a duty to mitigate their damages if they are getting taxpayer dollars.

Banks don't seem to honor contracts. How many of us have had changes to our accounts that we didn't originally sign up for. All the bank does is send a letter out saying "We're going to start charging for..." or "We're increasing this fee...," or "We're adding that fee beginning..." Doesn't matter to them what you were promised when you opened your account.

'Zackly! In California, most if not all residential mortgages fall under the non-judicial foreclosure category, meaning that the bank can foreclose without going to court and getting a judgment from the bank.

If they had to go to court, wouldn't the law require them to try to mitigate their losses?

I believe it is up to the banks to decide if they want to short sale, loan modify or foreclose. If the homeowner is not making payments the bank has that right. Yes there are lots of truly distressed owners who want out, but there are also owners that deal with the issue. Whether that is selling less than is owed and coming to the table with more money, or renting out and taking a loss until they can sell. People make choices. The banks get to make choices also.

Yes, it is up to the banks, but again, they have an obligation, moral or otherwise, to mitigate their losses rather than to take a huge loss and then cry to the government that they need a bailout.

I know there are deadbeats out there and others who have made poor decisions, but that's not the case most of the time, at least with the ones I've been dealing with. I do have a client who took I believe, $20,000 out of their bank account to avoid the short-sale, and I have another who can afford to rent his property out and take a loss of a couple hundred dollars a month, but most I've met with can do neither.

The bank and the borrower made an agreement. The loan was made with the house as security and if they payments weren't made the bank could take the house back. There are countless cases of people saying 'hey, where do I send the keys? I don't want the house. You can have it back!'

Here we have cases where the home owners are essentially saying, 'No need to take it back. Here's a buyer willing to give you far more than you'd make on a foreclosure.'

The bank essentially replies, 'Nah, we'll foreclose and take less. It's our right.'

[Robert Giacometti]

This seems like the FED is imposing an unofficial moratoriam on foreclosures going forward. This may NOT be bad thing for a short time, as it may force banks to be more willing to work with homeowners who might be in position to keep their homes and resume making payments.

Keeping more people in their homes and stemming the number of foreclosures being dumped into the market really does benefit everyone. The Market will continue to decline as long as forclosures are being dumped into the market.

I view this action as a signal how serious this problem really is.

Many banks have foreclosed upon homes that had PMI so the banks really didn't loose much at all in these cases and there was no incentive to work with people to try and keep them in their homes. With Banks getting bail out money, the FED bailing out the Companies who insured the PMI and FED contributing more money into the fund that insures Banks, we the taxpayers are already bailing out Corporate America. So, I'm not opposed to the consumers getting some support once in a while.

I think it remains to be seen if the Banks did anything illegal. If they had, I suspect there would already have been a flood of lawsuits. Again, I think this is simply a shot across the bow to the Banks telling them to do a better job of working with consumers, without passing cumbersome legislation.

I think its a good move.