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Tag Archives: Foreclosure

“Robo-signer” problem unlikely to afford relief to Washington homeowners in foreclosure – despite big problems at GMAC and J.P. Morgan Chase bank.

[catagories: Washington bankruptcy attorney]

The Seattle Times reported on Sunday, October 3, 2010 (columnist Blythe Lawrence) and the New York Times reported on September 30, 2010 (columnist David Streitfeld) that J.P. Morgan Chase and GMAC were quietly halting or delaying foreclosures in up to 23 states which require "judicial foreclosures". Unfortunately, Washington is a state which allows non-judicial foreclosures, so it seems unlikely that Washington residents will receive the benefit of a postponed or stopped foreclosure because of "robo-signer" foreclosure procedural inconsistencies.

Just what is a "robo-signer"? Take the case of Jeffrey Stephan, 41, who was a modest to low paid employee at GMAC. From his cubicle in Pennsylvania, "robo-signer" Mr. Stephan signed off on as many 10,000 foreclosures per month. This is about one foreclosure per minute, assuming an eight hour work day. The problem is that Mr. Stephan’s signature indicated that the information in the legal foreclosure documents was accurate to teh best of his knowledge, and that he signed in the presence of a notary. The problem was, that didn’t always happen, according to depositions that Mr. Stephan gave in December and June for court cases involving families trying to keep their homes, reports Brady Dennis of The Washington Post. (See Sunday, October 3, 2010, Seattle Times article).

Mr. Dennis reports that "Stephan’s admission has cast into doubt thousands of mortgage-foreclosure filings. Ally Financial, the nation’s fourth-largest home lender and GMAC’s parent company, halted evictions in 23 states that mandate a court judgment before a lender can take possession of a property."

IDEAS FOR ACTION: I have seen a few court cases in bankruptcy court where hopeful individuals are trying to stall or stop a foreclosure by complaining that the foreclosing bank cannot produce copies of original notes or produce a "chain of assignments" showing the various transfers of ownership of the loans. These hopeful (but misguided) borrowers may successfully see a slight delay in the bankruptcy courts, but they should not hold their breath for a permanent injunction against foreclosure. Our local judges are not inclined to give anyone a free house. Remember, one of our local bankruptcy judges ran a foreclosure/garnishment/repossession law firm for many years and thus enjoyed bread buttered by the mortgage lenders for most of a long legal career; It is unlikely in my opinion that this judge will put up with such anti-foreclosure stall tactics for any appreciable length of time. No observation here is meant to disparage the judge or any judge for that matter, but to just point out a widley known fact in the reasonable exercise of first amendment freedoms. Most of the foreclosure stall tactics you might read about on the internet mostly originate from more distantly liberal jurisdictions; I doubt they are going to meet with much traction in this jurisdiction. However, this unlikely strategy of a permanent injunction against foreclosure is absolutely distinct and different from a perfectly allowable "lien strip" of a second mortgage. A "lien strip" which is fully permissible and legal under the bankruptcy code. In a lien strip, a Chapter 13 debtor may be able to completely write off his/her second mortgage and remove the lien from the property without having to pay one dime to the second mortgage holder.

Mortgage modifications well below target: Americans need more help says NY Times 300,000 foreclosure filings for third month in a row — 92,858 homes repossessed in July, 2010

“As repossessed homes are put up for sale, house prices are likely to fall further. As prices fall, more borrowers end up “underwater”–they owe more on their mortgages than their homes are worth. That’s a big risk factor for default.

Moody’s Economy.com estimates that 1.9 million homes will be lost this year, down only slightly from 2 million in 2009.

So far only 398,198 loans have been permanently modified, and only $321 million of the $30.1 billion allocated to the home modification program has thus far been spent.

Part of the problem is poor administration. Homeowners, who apply to their bank or mortgage service company, complain about confusing procedures and lost paperwork. Banks have complained of frequent rule changes from the government.

Another big problem is that many lenders, whose participation in the program is voluntary, have been reluctant to aggressively rework bad loans. Reducing a loan’s principal balance–rather than lowering interest levels or extending pay out periods–is often the chance of keeping underwater borrowers in their homes. Banks have been loath to accept the bigger losses that come with lowering principal. Fearing that banks will drop out of the program altogether, the Treasury has not pushed them hard enough.”

The August 20, 2010 NY Times OpEd piece proposes that the use of the states to give money directly to temporarily unemployed or under-employed individual homeowners to make mortgage payments through the Hardest Hit program (part of HAMP, which is part of TARP), through about which 4.1 billion has thus far been disbursed, may be a better route than the loan modification programs emphasized thus far to date.

Ideas for Action: Don’t expect to modify yourself out of a bad situation. You will never see a mortgage loan principal balance deduction. If you don’t mind a temporarily lower payment but still remaining underwater on your home, then I suppose a mortgage modification is not so bad. You might want to consider a “lien strip” through Chapter 13 bankruptcy if you have a second mortgage and if the value of the home is less than the amount owed on the first mortgage.

Is there a “flexible mortgage” in your future? – new thoughts and trends in mortgages – article by UCLA Law Professor Katherine V.W. Stone

Professor Katherine V.W. Stone, of UCLA law school writes that in the “old economy”, periods of joblessness were a clear sign of an unreliable borrower, but not any more, as we are in a “new economy”. Professor Stone’s article is entitled “The 30 Year Prison”, and appears in the August 12, 2010 edition of The NY Times.

Professor Stone calls for a major changes to mortgages–a “flexible” mortgage with the borrower having an option to request a two-year period of “interest only” payments. She suggests that the Federal Housing Administration require that any mortgages it insures be set up to mandate that borrowers who are involuntarily out of work be allowed to convert to an interest-only loan for up to two years. She points out that since the FHA insures almost one-third of the mortgage housing market, in short order the mortgage industry would very likely follow suit, and that this practice would become the norm for all mortgages.

Professor stone writes: “It’s not as if the 30-year self-amortizing mortgage has been around forever. In fact, it is a fairly recent invention. Before the 1930s, homes were financed by three-to-five-year balloon loans. Homeowners made interest-only payments for the duration of the loan, then typically rolled them over into new loans when they came due. During the Great Depression, however, many borrowers were unemployed when their loans came due; banks were reluctant to offer new loans, and owners had not accumulated enough money to pay off their loans. The result was a wave of foreclosures. In response the Home Owners’ Loan Corporation, created as part o the New Deal, developed a new kind of loan: instead of a few years of small payments followed by a very large one, homeowners would make regular payments of interest and principal for 30 years. In the old economy, periods of joblessness were a clear sign of an unreliable borrower. Today, they are simply a function of the job market, which flexible mortgages would take into account.”

Loan Modifications in Washington: How much is the government spending through HAMP and TARP?

Washington will get some share of the $1 billion disbursed to HUD to help with house payments so if you are unemployed and falling behind on house payments, hit HUD up for a loan.

Unfortunately, Washington homeowners get NOTHING from the recent $2 billion disbursed by the Troubled Asset Relief Program to other states. The benefited states as to the $2 billion include Alabama, Illinois, Kentucky, Mississippi, New Jersey, and Washington D.C., as part of the Hardest Hit Fund disbursements.

This $2 billion is the third large grant to the Hardest Hit Fund. Washington has not received any portion of those three grants. The Hardest Hit Fund receives disbursements from the $45.6 billion set aside for housing issues in the Troubled Asset Relief Program. Hardest Hit Fund disbursements to those favored states to date now total about $4.1 billion in three disbursement. The Hardest Hit Fund is, for now, out of money.

To date, the other funds in the $45.6 billion earmarked from TARP to be expended for housing issues include $30.6 billion for loan modification programs (such as HAMP, AKA the Housing Made Affordable Program) and $11 billion for a FHA refinancing program. Thus, there would now seem to be no funds–zero dollars–left to disburse to the Hardest Hit Fund except that, as reported by Mr. Streitfeld in the New York Times, the government has up until October 3, 2010 (the two-year anniversary of TARP) to shift the $45.6 billion in committed funds around within the housing assistance program. Perhaps the government could issue one more Hardest Hit Fund disbursement which would make house payments for people by giving them outright grants or interest free loans to make house payments while unemployed, underemployed or suffering from some other sort of financial stress or strain. If the past is a guide to future policy actions, I doubt that Washington state would be a beneficiary.

While frozen out of the $2 billion Hardest Hit Fund to date, Washingtonians may see a little benefit from the $1 billion that was just disbursed to HUD (Housing and Urban Development) from the new Financial Overhaul Law. This $1 billion HUD disbursement apparently is not part of TARP, so it is $1 billion in “new money” in addition to the $45.6 billion in TARP for housing issues. As to this $1 billion, Mr. Streitfeld reports that HUD indicates it will work with local aid groups to offer bridge loans of up to $50,000 to eligible borrowers to help them pay their mortgage principal, interest, insurance and taxes for up to 24 months by way of interest-free loans to such affected homeowners.

Mr. Streitfeld reports that between the $1 billion HUD funds from the Financial Overhaul Law and the $4.1 billion pumped into the Hardest Hit Fund in three installments, up to 400,000 borrowers could ultimately benefit. However, given the reported 14.6 million unemployed or the 3 million households contemplating foreclosure, this assistance is modest, given the size of the foreclosure problem.

Loan Modifications: Washington state homeowners are “out of luck” — no help from TARP “Hardest Hit Fund” which just received $2 billion from Obama

Congratulations Illinois and Ohio homeowners! Sorry Washington homeowners – you lose!

Washington homeowners will receive no part of the round number #3 of “Hardest Hit” funds, which includes a disbursement of $2 billion recently committed from TARP funds to help homeowners in Alabama, Illinois, Kentucky, Mississippi, New Jersey, and Washington, D.C.

The Hardest Hit Fund draws on the total $45.6 billion set aside for housing in the TARP program; the TARP program started in the fall of 2008.

Ohio announced that it would use its $172 million share of the $2 billion to aid 15,356 homeowners by helping bring delinquent mortgages current for owners experiencing hardship because of a loss of income. The assistance will last up to 12 months, according to the report by NY Times reporter David Streitfeld on August 12, 2010.

In addition to losing out in round #3, Washington state also lost out in rounds #1 and #2 of the Hardest Hit Fund.

Round #1 contained a grant of $1.5 billion in the fall of 2008 to Arizona, California, Florida, Michigan, and Nevada.

Round #2 contained a grant of $600 million to North Carolina, Ohio, Oregon, Rhode Island and, South Carolina.

Information for this blog post appears thanks to an article by Mr. David Streitfeld of the NY Times. Please see the August 12, 2010 issue, page B-1.

Economy slowing down again, and Federal Reserve Bank is running out of traditional stimulus options says UCSC Economics Professor Carl E. Walsh

The economy is slowing down again despite interest rates being lower than ever: What is the government going to do next? Here is the answer, by NY Times Reporter Sewell Chan:

“The challenges the Federal (Reserve Bank) faces aren’t going to get any easier in the coming months,” said Carl E. Walsh, a professor of economics at the University of California, Santa Cruz. “The choices ahead are only getting worse as the economy seems to be slowing down.” Professor Walsh was quoted in the New York Times Thursday, August 12, 2010 edition, Section B1

Sewell Chan’s August 12, 2010 NY Times article introduces us to a new term, “Quantative Easing”, and says that after lowering short term interest rates, about the only thing that the Federal Reserve can do is to pursue a policy of “Quantitative Easing”. According to Mr. Chan, Quantitative Easing is a controversial and uncertain central bank tactic. There is little modern historical precedent by which Quantitative Easing can be studied and analyzed by economists to predict results.

Mr. Chan explains that because short term interest rates are already close to zero, that now the Federal Reserve Bank’s last and final option is more “Quantative Easing”. Will it work?

What is “Quantative Easing”? Simply put, it is the printing of additional money to purchase financial assets in the market place, by using government money to buy instruments held by investors. The instruments purchased by the Government Treasury in “Quantitative Easing” are things such as (a) mortgage backed securities (b) buying/cashing out debts owed by the government such as Fannie Mae and Freddie Mac obligations/bonds and (c) buying Treasury Securities like government bonds.

How does “Quantative Easing” seek to help the economy? My understanding is that Quantitative Easing intentionally creates some inflation as it increases the money supply, and thus with more money rolling around, there is an incentive to invest it by lending it to others. People and investors who now have this freshly borrowed cash then go on spending sprees, and it is these sprees which are supposed to stimulate economic growth by more lending to people who buy things with the newly borrowed proceeds.

In short, more people buying things with borrowed money increases demand for goods and services and such. Increased demand keeps prices for goods and services higher, which is supposed to offset the deflation of prices of goods and services that is occurring in this recession. (See following blog post describing why deflation is “bad”)

Shortly put, deflation is supposed to be “bad” during a recovery from economic recession because deflation will result in a further economic slowdown as people conserve their cash and do not spend it in order to wait for lower prices on everything from TVs to cars to houses to ocean cruises.

This would be a “Second Wave” of “Quantitative Easing” as the Federal Reserve Bank already took a first “Quantitative Easing” step between January 2009 and March 2010 by printing money in the amount of $1.725 trillion (that is 1,000,000,000,000!) dollars to purchase $1.25 trillion in mortgage-backed securities (essentially buying mortgages from private investors), $175 billion in debts owed by government-controlled entities like Fannie Mae (more mortgages) and $300 billion in Treasury securities.

Here are the pros and cons:

Pros of “Quantitative Easing” to buy mortgages and investment instruments held by private investors when lowering interest rates doesn’t seem to be getting the job done to stimulate the economy: Sewell Chan of the NY Times writes that the Federal Reserve Bank’s Chairman Ben Bernanke is an astute student of the Great Depression and that Mr. Bernanke has long argued that the central bank (The Federal Reserve Bank) has the additional tool of Quantitative Easing which should be somewhat readily used to avoid deflation in prices, as deflation will slow, stop or reverse a recovery as people look at cash as an investment in and of itself instead of spending the cash. For example, if you know that the $500 TV set will reduce to $475 in six months (a mere 5.0% deflation in price) then you are more inclined to wait six months to purchase. If you know that your $300,000 home you are looking at buying will decrease 5.0% in one year to $285,000 then you will keep in renting one additional year and will not buy the home, thus stagnating the housing market.

Cons of “Quantitative Easing” More conservative voices (according to the NY Times Swell Chan) propose that the Federal Reserve Bank should not go out into the marketplace to buy mortgages, and that the most aggressive steps taken should be to lower short term interest rates (please note that short term interest rates are almost zero!)

Problem #1: Those economists wary of “Quantitative Easing” say that in a “perfect storm” of circumstances, Quantitative Easing can lead to 1970s style “stagflation” as the government floods the economy with too much available money when it buys out the debt obligations of (a) mortgage backed securities (b) debts owed by government entities to investors such as Fannie Mae bonds and (c) Treasury securities, in an atmosphere when the economy is operating at a reduced level, because there is a surplus or bumper crop of money floating around, but not so much to buy.

Problem #2: According to economists skeptical of “Quantitative Easing” say that further purchases of mortgages, government debts and treasury bills by the Federal Reserve will undermine faith in the US dollar as an accepted stable world currency and the safety of the US Treasury bill as keeping ahead of inflation because it fosters “perceptions of monetizing indebtedness,” according to Mr. Chan’s analysis of economist Kevin M. Warsh, in that it looks like it is the printing of money to pay off the public debt. “On a very simple level [with Quantitative Easing], the Federal Reserve Bank is printing money so the Treasury can spend more than it’s collecting in tax revenues…these are highly unusual circumstances, so no one is too worried about it [right now]. But it is always a temptation to use the central bank to finance government expenditures.”

Mr. Chan writes that economist Kevin M. Warsh notes that the Federal Reserve already has purchased 2.3 trillion worth of debt which includes vast sums of Treasury Bills, perhaps too much. The Treasury Bills are essentially a large share of the national debt. (Note that the Chinese probably now hold the remaining balance. That is a none too funny note for another day). Mr. Warsh notes that the Federal Reserve Bank’s institutional credibility is at stake, if it threatens the currency’s stability to pursue domestic growth.

Problem #3: Economists wary of Quantitative Easing relate that economists “don’t have a lot of good historical episodes in modern economies to know exactly what the effects of quantitative easing are.” Mr. Chan quotes Professor Walsh.

10 Worst American Real Estate Markets – SUPRISE! Not all of them are in Michigan!

Now folks, this link was just too darn interesting to pass up, so here it is for a quick read. You may have to wait a moment for the iritating “pop up screen with shade over the article” to pass, but after it passes in about 20 seconds,you will be able to read a fascinating (and shocking) article with eye-popping statistics on the current state of real estate markets in America. Who would have thought Santa Cruz, CA would make the list…read on….