False foreclosure: Even if you pay up, you lose. (Photo Credit: CC BY-ND/Tim Samoff/Flickr)

According to most insiders who are willing to share their opinion, home foreclosures have been handled in a sloppy, haphazard fashion by banks. Mortgage loan modifications have been assured, yet many of the same homeowners who received such promises have been foreclosed upon. According to the New York Times, a new thorn has emerged: false foreclosures. People who are completely up-to-date on their mortgage payments are discovering their homes have been looted by banks and contractors who have singled them out by mistake.

False foreclosure: A mistake honest homeowners can’t afford

When banks repossess a home, the assumption is that the homeowner is at least 45 to 60 days late with their payment and that the property has been abandoned; it is not assumed that a false foreclosure is in progress. Yet that’s exactly what a growing number of homeowners have faced. After going away for a brief period, they return to a home with changed locks that is bereft of possessions.

This happened without forewarning from Ash’s bank, and it is not unique. Banks foreclose on properties that are sufficiently behind and believed to be vacated, ostensibly to protect the bank assets from vandals. And the number of lawsuits detailing banks breaking into homes is on the rise. While banks insist that false foreclosures apply to a tiny minority of cases, experts indicate that this is not a viable legal excuse for foreclosing on homeowners who have either paid for their homes in full or are completely up-to-date in their payments.

The promise of corrective action

Alan Jaffa, CEO of Safeguard Properties, a contractor that inspects and maintains foreclosed properties for banks, told the New York Times that “a handful of mistakes have been made.” Such contractors work with over a million foreclosed properties each month, and this has been used as a built-it excuse. Financial institutions like Bank of America and JP Morgan Chase claim that if contractors are indeed performing false foreclosures, the banks will take corrective action. However, the same banks also promised loan modifications which were not eventually fulfilled, so consumers would be well-advised not to hold their breath – and keep their lawyer on speed dial, if they can afford a lawyer.

Sources

New York Times

Scavenger lawyers and false foreclosures

Bank of America is under fire for how few foreclosures it has modified or stopped. Image: Flickr / moneyblognewz / CC-BY

Though Congress and state officials are investigating Bank of America foreclosures, Nevada has taken an extra step. The Nevada Attorney General has filed suit against BoA for “deceptive practices.” This lawsuit alleges that the short term loans BoA promised as mortgage modifications simply were not offered.

Nevada loan modifications

The Nevada Attorney General has filed a federal lawsuit against Bank of America. The lawsuit alleges that Bank of America made “false assurances” about the loan modifications they were going to offer. The suit also alleges that short-term loan modification requests were rejected for “inaccurate and deceptive reasons.” In a statement about her lawsuit, Nevada Attorney General Catherine Masto issued a statement that said Bank of America has displayed “callous disregard for providing timely, correct information to people in their time of need.”

The effect of Bank of America on Nevada

Nevada is one of the states that has been hardest hit by the foreclosure crisis. In 2008, Bank of America and Countrywide Financial Corp were ordered by the court to offer good-faith efforts to modify loans. Nevada claims that Bank of America violated that court order by continuing to make a mess of pending foreclosures and modifications in the state. Nevada reports less than 30 percent success with Bank of America Home Affordable Modification Program, while other banks are showing 60 to 89 percent success.

The response of Bank of America

On the same day that Nevada filed suit against Bank of America, Arizona also filed a similar suit. Bank of America has responded to both lawsuits by saying they believe there are “better” ways to address the foreclosure problems. “We share Attorney General Masto’s goal of helping Nevada homeowners. We are disappointed that the suit was filed at this time, however,” Bank of America said. The bank has also said they believe the problems are best addressed in the 50-state negotiations they are currently undertaking. Given the slow response Bank of America has shown in modifying loans or providing short term lending for homeowners in trouble, it is no surprise that Nevada officials have trouble believing them.

Sources:

LA Times
Mother Jones

More people get bank loan modification than federal modifications, but more default on banks mods. Image from Wikimedia Commons.

More people are likely to get bank loan modification than through the government. Troubled homeowners, under certain conditions, could apply through a government-run program for mortgage modification. However a good idea it seemed, the program has been less successful than hoped. As a result, banks have been stepping into the void to modify the mortgages of customers on their own. However, there is an unfortunate corollary. Homeowners are more likely to default on payments if they receive a bank modification.

Bank loan modifications outpace HAMP

The Home Affordable Modification Program, or HAMP is pretty simple. Distressed homeowners apply for a loan modification through the federal government. If certain criteria are met, they receive a trial modification on the bank loan for their home. If the trial is successful, then they get a permanent modification. Unfortunately, less than 45 percent of all permanent modifications stick. According to CNN, of those that default out of the federal program, 44.5 percent end up with a modification from their loan lenders anyway. There are two bank modifications made for every single HAMP modification.

More default on bank modifications

Unfortunately, there are also more defaults on bank modifications. Of the permanent modifications made by HAMP, 11 percent default again. On the modifications made by lenders, 22 percent default. However, there is a reason for that. Of the few who are successful in the HAMP program, the average reduction in monthly payments is $608. Bank modifications lower monthly payments by an average of $307. That may be enough to create breathing room for some, but obviously some homeowners will still be running for payday loans to keep up.

Housing tied to employment

Until employment reaches pre-recession levels again, the real estate industry is likely to make only modest improvements, if any. There have been some causes for hope. Most indicators point to the recovery being slow but steady.

Sources

CNN

Since DVD has replaced VHS tape, rental stores like Blockbuster have been losing ground. Image from Wikimedia Commons.

Blockbuster Video has filed for bankruptcy, as diminishing returns and mounting debt have put the company out of the reach of any loan modification. The company has been predicted to fail for years. Since the advent of Netflix and Redbox, people have been able to get the DVD of their choice faster, and for less instant cash for rentals. The video rental chain is losing ground in the U.S., but still does fairly well worldwide, but the international branches filed for the same protection as well.

Blockbuster wants to rewind on debt

The biggest reason for Blockbuster going bankrupt, besides losing a lot of revenue, is that the company has a lot of debt. The company is filing for bankruptcy, according to the Christian Science Monitor, to get a little debt relief. The company owes over $1 billion, and has not been able to keep up on the payments. Since there isn’t a loan lender that lends debt consolidation loans that big, the company has decided to restructure instead. Blockbuster Video will be trading shares for debts owed to creditors as part of the restructuring.

Losing ground

It has not been a secret that Blockbuster has been losing market share to Netflix, and also to Redbox. The selection that Netflix has to offer is gargantuan compared with Blockbuster. One of the complaints that has been lodged over time about Blockbuster and similar chains is that only popular movies are offered, instead of a wide and varied selection. Redbox doesn’t offer nearly the selection of Netflix, but is available in many locations and doesn’t require membership or having to drive too far.

Late fees canceled on debt payments

Blockbuster in the early 1990s was one of the largest video rental chains in the world. However, as pay per view and then DVD rental by mail became more prevalent, it started to lose ground. Blockbuster has tried to play catch up, but the company has yet to be able to regain lost ground.

Sources

Christian Science Monitor

New homes are being built, but fewer people can borrow money to buy one. Image from Wikimedia Commons.

Despite dismal outlook, new homes are actually being built. Good news on the economic front, especially real estate, is a welcome change from the dismay that has become the norm. However, the number of people borrowing money for new homes is stagnant. Most new mortgage applications are for loan modification, not finance loans for a brand new mortgage and home. New home starts are one of only a few economic indicators that improved over the summer.

Four month high in home starts

New home construction has hit a four-month high. As of August, new home starts, with seasonal adjustment, have climbed to a rate of 598,000 per year at this pace, according to CNN. It was an increase of 10.5 percent. The bulk of the increase, though, was not in single family homes. New single family home starts marked an increase of 4.3 percent. The rate was adjusted to 438,000 per year. Single family homes are the engine that drives real estate. However, without people feeling secure that more pay days are coming, it is difficult to justify getting bank loans for a new home.

More permits granted

Before developers can build, they must get permits. Permits for new home construction increased as well. For August, there was an increase in permits by 1.8 percent. At this rate, 569,000 permits will be granted by the end of the year. The greatest increase in construction for August though, was multi-family homes. Multi-family dwellings had an increase of 32 percent. However, starts for buildings designed for multiple families are a constantly wavering statistic, so don’t expect to see apartment complexes break out like a virus.

A boost is a boost

Real estate has been one of the most dismal sectors of the economy for some time. Improvement and recovery is starting to happen. This August marked a 2.2 percent increase over last year.

Source

CNN

The auction gavel is due to fall on more homes, as repossessions are skyrocketing. Image from Wikimedia Commons.

The dismal saga of the real estate industry in America continues, and despite the occasional bright spot, there is still plenty of bad news to go around. Sales were boosted for some time by the home buyer tax credit. Foreclosures were barely helped by the loan modification program from the government. Not only did few homeowners actually have their bank loans and homes saved by the program, but repossessions have actually increased. In fact, repossessions increased by 25 percent since last year.

Repossessions skyrocket

The number of repossessions has shot through the roof since 2009. According to a recent report by RealtyTrac, repossessions are higher than have been recorded since the recession began. The number of repossessions in August 2010 was up to 95,364, according to Bloomberg. RealtyTrac has never recorded that large a number of repossessed homes in its existence. The number of repossessed homes, where a homeowner has to vacate the premises and the loan company tries to resell it, have only increased. Since August of 2009, repossessions increased 25 percent.

Foreclosures decrease

However, there is some good news. Overall foreclosure and default notices decreased by 5 percent since July of this year. That being said, there is a difference between foreclosures and repossessions. A foreclosure is when mortgage holders have fallen into default, and the bank begins a legal process to get them out of the homes. There also are ramifications, such as the mortgage holder being responsible for any lost revenue when the home sells. Repossessions are just when the bank or finance company kicks a delinquent homeowner out but doesn’t start any legal proceedings, and just resell the home.

Foreclosure inventory increasing

There is an incredible stockpile of available homes, some at discount prices. It isn’t as if you can buy a home with a small cash advance, but if you can get the financing, a good home can be acquired at a great price. As it stands today, one in every 381 homes in America has received a foreclosure notice.

Sources

Bloomberg

Just like a placebo, the mortgage modification program seemed like medicine but it was only a sugar pill. Image from Wikimedia Commons.

After the presidential election in 2008, President Obama went on a bit of  a glut when it came to stimulus programs. Among the first announced was a program called Make Home Affordable, which was a mortgage modification program through the Federal Housing Administration. The FHA works with an applicant’s loan lender, and try to find a way to rearrange the loan to the benefit of all involved. However, the cash advance that was drawn from the Treasury for this program may have been ill spent.

Loan modification from Uncle Sam

The way that the Make Home Affordable program works is that a person who wants to modify the bank loans on their home has to apply for the modification. If the application is accepted, the government, working in coordination with the applicant’s lender, sets up a trial program for a few months. The payments and the loan are restructured on a trial basis, to see if the person can still meet their payment obligations. If the temporary modification is successful, then a permanent modification is made. It sounds simple enough. However, the question becomes whether enough modifications become permanent to justify the program.

Fewer than half are successful

According to the Wall Street Journal, less than 50 percent of all such modifications are successful. In August, an audit of the Home Affordable Modification Program, or HAMP, revealed that only 434, 716 successful permanent modifications have gone through so far. There were 616,839 trial modifications that were canceled. That is a lot of fast cash down the drain. Also, the people who apply are already at incredible risk. The average ratio of debt to income for HAMP participants is 63.5 percent. A person has to have a debt to income ratio of 41 percent or lower to get an FHA mortgage, usually the biggest source of bad credit loans for homes.

Some stimulus

This program was intended to help keep people out of foreclosure. Given that about 40 percent of applicants end up back at square one anyway, it might be time that this program was cut, and modification was left to the private market.

Sources

Wall Street Journal

Real estate may be a veritable desert, but there are some signs of life. Image from Wikimedia Commons.

The housing market in the past year has been a series of small hits and big misses. Banks, buyers, sellers and real estate agents alike are awaiting a return to at least some decent activity. Some signs of life are beginning to show. There was a recorded uptick in the number of new mortgage applications for purchasing a home. Not only that, but applications for loan modification dropped a little bit. However, applications to modify existing loans into low cost loans, or at least lower cost, are still the bulk of mortgage activity, which is significantly low.

New mortgage applications increase

The number of mortgage applications for the purchase of a new home has increased. The Mortgage Bankers Association recorded an increase of 6.3 percent in applications for a purchase, according to Reuters, which is the first significant increase since May of this year. However, it isn’t exactly great news. An increase is an increase, but the number of applications turned in to loan lenders for a home loan is at record low levels. Mortgage loan applications rates are down about 40 percent since May 2009.

Modifications are the bulk of activity

The vast majority of mortgage applications are still for mortgage modification. Applications for a modification dipped 3.1 percent, a slight decrease since May of this year, but modification applications made up almost 82 percent of all mortgage applications. Currently, mortgages of nearly any configuration are low interest loans, as the rate for 30-year fixed mortgages is at 4.5 percent, a 20 year low. The MBA started calculating these statistics in 1990, and the current rates are nearly the lowest they have ever been. The low rates make for a great opportunity to refinance. However, since finance loans are so much harder to access, it is difficult for many to reap the benefits.

Little stimulated

The stimulus seems to not have worked. As the tax credit only managed to temporarily propped up home sales, and the federal refinance program barely works, it seems that the recovery to housing must come from below. More people will need to be working for housing as an industry to have a chance.

Sources

Reuters

Why should students strive so hard only to disappear into a black hole of debt? Image fom Wikimedia Commons.

There are many components to the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, and one of the big items concerns aggressive marketing of credit cards to college students. College is an increasingly expensive undertaking, and many a student has wanted for debt relief upon graduation having to pay back the money lenders that helped finance their education as well as high credit card premiums. The State University of New York system, or SUNY, the state network of public universities that has 68 campuses, has decided to put barriers in place to help keep Joe and Jane college student and their credit scores out of harm’s way.

SUNY says no to marketing practices

According to CNN, SUNY has placed restrictions on marketing practices relating to credit cards on SUNY campuses. The action was spearheaded by Mario Cuomo, the State Attorney General. SUNY schools cannot provide information to credit card companies for the purpose of offering cards to students, without the written prior consent of students. Also, schools cannot receive any funds for doing so. Cuomo has recommended all universities in New York schools adopt the same reforms. Credit card company advertising on campus will also be monitored and controlled by the university.

Students uniquely susceptible

College students are one of the most vulnerable groups when it comes to credit card debt. Sallie Mae found that the average college student carries more than $4,000 in credit card debt upon graduation, on top of their unsecured loans to finance college. There are students that end up dropping out of college to pay off debt or go through lengthy loan modification in order to boost credit scores after graduation. Many employers check credit scores, and students that have had their credit score shot by cards have to put off their dream jobs even longer as a result.

The American Dream becoming a debt nightmare

The American Dream of going to college, getting a good job and making a start in this world is getting further out of reach for the middle class. It seems logical to address the spiraling cost of tuition.

Sources

CNN Money

Even the golfing and country club crowd runs into financial trouble. Image From Wikimedia Commons.

Recessions take a toll on every social class, believe it or not. Some of the wealthiest of the wealthy do pay cash for everything and carry very low debt loads. However, some wealthy people simply take out way bigger bank loans. Some people would rather risk debt and disaster to have the biggest house and flashiest car, and it is showing. Foreclosures on large properties are increasing, as even the wealthy lack the instant money to pay the mortgage. Even rich people could use loan modification.

Recessions affect even the rich

There have been some high profile tumbles for some incredibly wealthy people. Just look at Nicolas Cage; he wound up losing more than one property, among them a $35 million mansion which was foreclosed. The home is listed for only $11.5 million. Granted, millionaires aren’t worried about their credit scores. That said, too much debt is bad. People should aim to have the fewest encumbrances, even of low interest loans, as possible at a time. Remember also that banks can sue delinquent homeowners for the difference in foreclosure sales. Three families from the “Real Housewives” series nearly lost their homes. Jim and Alexis Bellino, from the “Orange County” show of that series had to get mortgage modification after they defaulted.

Aren’t rich people supposed to be good with money?

According to ABC, the Los Angeles County area has exploded with foreclosures on incredibly expensive properties. In fact, the number of foreclosed on properties worth $1 million or more in that area has gone up 300 percent since April of this year. However, it isn’t so much that rich people are careless with their money. In fact, it’s the opposite. People who are more plugged into the realm of finance know that there’s a time to cut your losses and walk away.

Is real estate still a good investment?

The question of whether real estate is a good investment is becoming more pertinent. Plenty of people put a lot into houses for years, even decades, only to lose more than half that value thanks to the market tanking.

Sources

ABC

You think midterms are hard? Try paying off your student loans. Image from Wikimedia Commons.

Recently, it was announced that debt from higher education has outpaced debt from credit cards. Current students and recent graduates are obviously not surprised, but for many it comes as a shock. The cost of attending a four-year university has increased dramatically over the last 20 years, and many have had to turn to getting federal loans, bank loans or education loans from other loan lenders. The amount that students are having to borrow is  also increasing, and so is the number of loan defaults. Student debt is fast becoming another obstacle in the pursuit of the American Dream.

Debt increasing for students

It is incredibly likely that college students will have to borrow money to go to a university. According to FinAid.org, 66.5 percent of all students that obtained a bachelors’ degree from 2007 to 2008 had to get loans to pay for school and ended up $22,656 in debt. Public university students, of which 61.1 percent had to borrow, graduated with $19,839 in debt on average. Private schools take a heavier financial toll. Of private university students, 70.6 percent of students at private nonprofit schools and 97 percent at private for-profit schools have to take out loans. Private nonprofit graduates averaged $27,349 and private for-profit students averaged $24, 635 in debt for their educations.

Harder to discharge

Student loan debt is the hardest to discharge. Unlike credit cards or a mortgage, student loans cannot be discharged in bankruptcy. Also, a frustrated borrower cannot get debt settlement relief with student loans. The payments have to be made exactly as demanded; there is no loan modification for student loans. Not only that, but the number of people that default is going up. According to the Chronicle of Higher Education, 20 percent of all loans that had to be repaid since 1995 have been defaulted on. The rate is higher for students of two-year and private for-profit institutions, and the likelihood increases every year post-graduation.

Students pay dearly for their education

The consequences are that students have to put things off longer. Graduate school, or even buying homes and having children are things which must be put off in order to pay down student loan debt.

Further Reading

FinAid.org

Chronicle of Higher Education

Paying Mercedes rates on a Mercury budget? Look into auto loan refinancing. Image from Wikimedia Commons.

Some people might be led to believe that loan modification is just for mortgages, but that really isn’t the case. You can refinance your auto loans, too. In fact, right now could be a better time than ever to refinance car loans, as rates for car loans are lower than they have been in a while. You can turn your car loans into low interest loans if you refinance at the right time.

Refinancing not only for mortgages

You can refinance a car loan just like you can get mortgage loan modification. In fact, the rates available for car loan refinancing are low enough right now that you may not be able to afford not to refinance your car. According to the Washington Post, auto loan rates are trending lower. Lenders are looking to lend, and dealerships are looking to sell. However, bear in mind that there’s a difference between a loan you get from a bank and one from a dealership. Loans from a dealership often carry higher rates because they’re trying to make more money as the middle man between you and the bank.

What’s the catch?

There is, as there always is, a small catch. Auto loans are tied to your credit score; the higher your score, the lower the rate. So auto loans for bad credit may not be able to be refinanced or even modified. The same article in the Washington Post puts high credit score auto loans at 5.7 percent, but those for low credit score borrowers are as high as 18.5 percent. There are also fees and conditions imposed by each individual lender, so make sure you do your homework.

To refi or not refi?

Well, this is available more for people with great credit, rather than for those who aren’t. Also, you want to be careful of who advertises loan modification. The fastest growing type of scam around is the loan modification scheme, so make sure you know who you’re doing business with before you commit or hand over any cash.

Further Reading

The Washington Post

Notifications of increases in interest rates are at issue in front of the Supreme Court. Image: Flickr / epicharmus / CC-BY

The U.S. Supreme court has announced that it will consider a case involving credit cards. McCoy v. Chase Manhattan Bank, USA, will be heard by the Supreme Court during its next session, which begins in October. The case is a class-action suit that alleges credit card companies cannot retroactively increase the interest rate on a card without notification. Chase bank claims that because the increase is in the initial cardholder agreement, the rate increase did come with notification.

The case of the credit card holder

In McCoy v. Chase Manhattan Bank, James A. McCoy is claiming that Chase Manhattan violated the law when it raised his credit card interest rate. McCoy was late with his payment on the credit card, and Chase retroactively increased his interest rate on all transactions for the month. Though McCoy had agreed to this interest rate increase when signing the cardholder agreement, the bank did not notify him before the rate increase went into effect. McCoy claims that this modification was illegal under the new Truth in Lending Act.

The case of the credit card issuer

Chase Manhattan Bank, who appealed this case to the Supreme Court, claims the company complied with the Truth in Lending Act. The TILA does require that these short term lenders deliver written notice of changes in the interest rates on cards. Chase bank points to one provision that excepts items previously agreed to in the cardholder agreement. In short, the debate comes down to the “natural” interpretation of the Truth in Lending Act provision versus the ambiguity of the language in the law.

Late payments on credit cards

The initial event that led to the McCoy v. Chase Manhattan Bank case was, in the end, in response to a late payment on a credit card. The Truth in Lending Act aims to make the unsecured loan companies that offer credit cards more transparent in what they are charging consumers. Many Americans are relying on credit cards and short term loans to make ends meet. The agreements for these credit cards are often very extensive and difficult to understand. So what do you think: Should credit card companies be required to notify the card holders of every change they have already agreed to, or is the responsibility to read the agreement on the cardholder?