• Mar. 26, 2008 - Mortgage Scheme
Daily Real Estate News | March 25, 2008Feds Charge 19 With Mortgage Fraud
Federal prosecutors announced 19 indictments Monday in a mortgage scheme that stole nearly $13 million in home equity and victimized more than 100 home owners.
Under the scam, home owners facing foreclosure were promised lower home payments and cash up-front if they agreed to add another name to their home’s title. The victims were led to believe they were paying rent to the investors to give them time to get their affairs in order, according to officials.
Prosecutors say the scam was headed by Charles Head of La Habra, Calif. Prosecutors say additional indictments are likely as they continue investigating.
In all, prosecutors say Head defrauded 115 financially strapped home owners in 22 states of at least $12.6 million. The fraud began in and continued through 2006.
Victims ranged from first-time home buyers to the elderly and cost 90 percent of the victims their homes, said Assistant U.S. Attorney Ellen Endrizzi.
Source: The Associated Press, Aaron C. Davis (03/24/08)
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• Mar. 7, 2008 - Fannie Mae and Freddie Mac
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Daily Real Estate News | March 6, 2008New Appraisal Rules for Freddie, Fannie
Fannie Mae and Freddie Mac have reached an agreement with New York Attorney General Andrew Cuomo that requires them to have independent appraisals of home values.
Under the agreement, home appraisals have to come from assessors who don’t have formal ties with a lender or mortgage broker.
Lenders wishing to sell their mortgages to the nation's two largest sources of home finance must make sure that they don’t rely on in-house appraisers and don’t own an appraisal firm itself, according to the agreement drafted by Fannie Mae.
This agreement brings to an end a large portion of an investigation by New York State into how Wall Street bundled and sold millions of dollars of questionable home loans.
The agreement has three tenets and applies to lenders nationwide:
- Under the newly created Home Valuation Protection, mortgage brokers are prohibited from selecting appraisers. Lenders can’t use staff appraisers or appraisal companies owned or managed by their companies. The code also entitles the borrower to one copy of an appraisal report, free of charge, within 3 days of the closing of the loan.
- Beginning Jan. 1, 2009, Fannie and Freddie will no longer purchase mortgages from lenders that use internal appraisers. Lenders will be required to represent and warrant that the appraisal report was obtained in a manner consistent with the New Home Valuation Protection Code.
- A clearinghouse of appraiser information will be created, with a separate board of directors, to monitor complaints from appraisers and consumers. All lenders will be required to provide post-purchase copies of appraisal documents to the clearinghouse. Lenders will establish a telephone hotline and e-mail address to receive complaints from appraisers and users of appraisal services on the improper influence or attempted improper influence of appraisers.
Source: Reuters News, Patrick Rucker, and NATIONAL ASSOCIATION OF REALTORS® (03/03/08)
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• Mar. 5, 2008 - Reducing Foreclosure News
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Reducing Foreclosures is Fed Chair's Goal
Federal Reserve Chairman Ben Bernanke Tuesday called for stronger measures to reduce rising foreclosures.
"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods, and the nation as a whole," Bernanke said. "Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should, be done," the Fed chief said.
Bernanke suggested that lenders provide relief to struggling borrowers by reducing the amount owed when borrowers are underwater. He acknowledged that this might be a hard sell to bankers, but he maintained that it could work in the long run. "Measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs," Bernanke said.
Source: The Associated Press, Jeannine Aversa (03/04/2008)
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• Feb. 25, 2008 - Questions and Answers on Home Foreclosure and Debt Cancellation
Questions and Answers on Home Foreclosure and Debt Cancellation
Update Feb. 4, 2008 — The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
- Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
- Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
- Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
- Non-recourse loans: A non-recourse loan is a loan for which the lenders only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences, as discussed in Question 3 below.
3. I lost my home through foreclosure. Are there tax consequences?
There are two possible consequences you must consider:
- Taxable cancellation of debt income. (Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes). (Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5. Enter your adjusted basis in the property. (Usually your purchase price plus the cost of any major improvements.) ____________
6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can you provide examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.) ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero. ___$30,000__
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return),
report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.
6. I don’t agree with the information on the Form 1099-C. What should I do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
8. Where else can I go to get tax help?
If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.
In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on an LITCs in your area.
Related Items:
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• Feb. 22, 2008 - Mortgage Delinquencies and Foreclosures
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In Focus
Mortgage Delinquencies and Foreclosures: Third Quarter Data Show Increases in Both by George Ratiu, Economist, NAR Research
The numbers tell the story – more households are delinquent in their mortgage payments, and foreclosures are on the rise. According to data from the Mortgage Bankers Association’s (MBA) National Delinquency Survey,* the third quarter of 2007 recorded an increase in both mortgage delinquency and foreclosure rates.
First, let’s discuss mortgage loans outstanding. Nationally, the number of mortgages increased by 2.64 percent from that in the second quarter of last year; on a year-over year basis, the increase was 6.61 percent. Not all areas of the country exhibited the same level of activity. The states with the highest increase in year-over-year mortgage volume were Vermont (20.98%), Delaware (21.40%), South Dakota (25.57%) and North Dakota (27.41%). Meanwhile, two states experienced a drop in mortgages serviced compared with the second quarter—Idaho (-5.92%) and Utah (-1.83%).
Composition of the Mortgage Market
The composition of mortgage loans shifted from the second to the third quarter of 2007, with a one-percent drop in subprime loans being offset by a one-percent increase in prime mortgages. As of the third quarter, prime mortgages accounted for 78 percent of the total loans serviced. Subprime loans made up the second largest group of mortgages – 13 percent – followed by FHA loans (7%) and VA loans (2%). Keep in mind that these percentage breakouts pertain to homeowners who have mortgages. There are approximately one-third of homeowners who do not have a mortgage because they have paid it off.
Delinquency Rates
Mortgages with installments past due – i.e., delinquent – increased from 5.06 percent to 5.81 percent in the third quarter compared with the previous quarter. Year-over-year, the number of delinquent mortgages was up 27.89 percent. The one exception was the state of Louisiana which recorded a 7.11 percent drop in the number of Total Past Due mortgages, mostly fueled by a 42.36 percent decrease in mortgages with 90-day Past Due installments. The figure reflects past Katrina rebuilding activity in the New Orleans area.
Mirroring the upward swing in the number of delinquencies, foreclosure starts were also higher in the third quarter of 2007 than in the previous quarter or the third quarter of 2006. The number of foreclosure starts was up 35.70 percent compared with the level in the second quarter, and 76.93 percent higher year-over-year. In terms of numbers, there were 354,254 foreclosure starts in the third quarter of 2007 versus 261,063 in the prior quarter, and 200,223 in the third quarter of 2006. Nationally, there were nine states that posted more than a 100 percent increase in foreclosure starts.
It wasn’t all bad news. Indeed, there were some bright spots in this landscape. Three states experienced decreases in year-over-year foreclosure starts—Vermont (-26.28%), South Dakota (-16.99%), and Utah (-15.75%).
Foreclosure inventories also increased in the third quarter. They rose by 23.90 percent from the level in the second quarter. On a yearly basis, inventories were up 71.59 percent compared with the third quarter in 2006. The increase in foreclosure inventories was most severe in four states that experienced high home price appreciation coupled with speculative real estate investing—Arizona, California, Nevada and Florida.
Subprime Loans
The subprime fallout continues to have an impact. The number of subprime loans serviced nationally during the third quarter was down 3.45 percent from that in the second quarter. Compared with the previous quarter, every state recorded a decrease in the number of subprime mortgages, with Iowa, Kansas and Colorado posting the largest changes: -5.05%, -4.87%, and -4.27%, respectively.
In contrast with the decrease in the number of subprime loans serviced, the delinquency rate for subprime mortgages moved from 14.54 percent in the second quarter of 2007 to 16.68 percent in the third. Subprime mortgages also posted an upward swing in foreclosure starts—25.31 percent higher than in the second quarter, and 74.53 higher than in the third quarter of 2006.
Foreclosure inventories were 85.15 percent higher for subprime mortgages year-over-year. This increase was driven mostly by 13 states that posted increases of 100 percent or more—California, Nevada, Arizona and Florida among them. On the flip side, three states recorded drops in foreclosure starts for subprime mortgages on a year-over-year basis – Utah (-32.26%), Vermont (-51.39%), and South Dakota (-58.81%). Moreover, one other state – Montana – showed a decline in foreclosure inventories of 9.88 percent.
What it Means for the Housing Market
The increase in mortgage delinquencies and foreclosures are taking a toll on housing markets, particularly in states where rapid price appreciation combined with speculative investing led to the proliferation of subprime and adjustable rate mortgages. Looking forward to the months ahead, the states with high delinquency rates will continue to experience downward pressures on home prices. The passage of the national economic stimulus package is likely to mitigate some of the effects of rising delinquencies and foreclosures. Based on an economic impact study conducted by NAR, it is estimated that increasing the GSEs’ conforming loan limits would result in as many as 500,000 refinanced loans and a potential 210,000 reduction in foreclosures.
*MBA's National Delinquency Survey collects data from over 80 percent of about 50 million outstanding loans in the housing market. For more information, visit the Mortgage Banker's Association.
Reprint from online article at National Association of Realtors - Real Estate Insights |
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• Feb. 20, 2008 - Loan Limits / The Impact
How New FHA, GSE Loan Limits Impact You:
Last week, President Bush signed into law a $152 billion economic stimulus bill that includes temporary increases in loan limits for the government sponsored enterprises (GSEs) — Fannie Mae and Freddie Mac — and the Federal Housing Administration until Dec. 31. But what does this mean for you?
"The importance of immediately implementing the new limits cannot be overstated," said NAR President Richard Gaylord last week in a public statement. "Mortgage markets throughout the country need liquidity. Our research indicates that the increased FHA loan limits will help an additional 138,000 Americans achieve the dream of homeownership and will allow nearly 200,000 homeowners to refinance and potentially keep their homes.”
The FHA limit will increase to as much as $729,750 in high cost areas (to 125 percent of local median home prices). The GSE limit will jump to $729,750 for loans; currently Fannie Mae and Freddie Mac loans are capped at $417,000.
Eligible loans from FHA include mortgages that were issued for credit approval on or before Dec. 31, 2008. GSE loans that are eligible include loans that originated after July 1, 2007 to Dec. 31, 2008.
The U.S. Department of Housing and Urban Development is required to publish the new mortgage limits by March 14; the limits will be effective for FHA immediately upon publication. |
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• Feb. 1, 2008 - Mortgage Debt Cancellation Relief
• Aug. 24, 2007 - Foreclosure Story Page 2
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Below you will find stories relating to companies or individuals who claim to want to help, yea help themselves to more than they deserve.
Facing foreclosure? Rescue firms are risky!
FORT LAUDERDALE, Fla. – Jan. 26, 2007 – To a financially strapped homeowner terrified by the prospect of foreclosure, it sounds like an escape plan: temporarily transfer title of the property to a foreclosure rescue firm, which pays the mortgage and allows you to rent the house. The company promises that after six months or a year you can regain ownership.
But it’s not always that simple. Terms of these deals are difficult for struggling homeowners to meet. And real estate experts say savvy firms often prey on elderly or low-income owners who are not sophisticated in financial matters.
For many, these agreements can cost them their homes and their equity because they don’t understand what they are signing.
It’s a “severe” problem that’s likely to worsen as the number of foreclosures rises, said Elizabeth Renuart, an attorney at the National Consumer Law Center in Boston who studies rescue schemes.
South Florida, which was one of the nation’s hottest real estate markets until last year, now has some of the highest foreclosure rates. According to a study of 100 metropolitan areas by California-based RealtyTrac, Fort Lauderdale had the second-highest rate of homes in some stage of foreclosure in the July-September period, trailing only Detroit. Miami was No. 4 and the Palm Beach area ranked No. 13.
Leo Tucker, of Lauderdale Lakes, thought he could save his home by cutting a deal with Real Estate Depot, a Boca Raton company.
Tucker claims that Real Estate Depot and one of its business partners, David Lievano, have been trying to take his three-bedroom, two-bath house since offering him a rescue plan in 2003. Tucker, 42, is suing to recover the home and the equity in it.
Alan Crane, a Boca Raton lawyer representing Real Estate Depot and Lievano, said Tucker willingly transferred the house to Real Estate Depot and signed a clearly labeled sale contract. Real Estate Depot’s intention was to buy the house from Tucker, Crane said.
Tucker’s case is one of a dozen, including three involving Real Estate Depot, that lawyer James Bonfiglio, of West Palm Beach, is handling against so-called foreclosure rescue firms.
Tucker, a delivery truck driver, went through a costly divorce in 2002, fell behind on his $1,000 monthly mortgage payments and was filing for bankruptcy.
In July 2003, a week or two before a bank-ordered foreclosure auction was to take place, Tucker received a letter from Real Estate Depot saying he could avoid foreclosure and bankruptcy. Foreclosure sale information is available at county courthouses and on various Web sites specializing in such information.
The letter, according to Tucker, said Real Estate Depot could save his home.
Tucker said Lievano came to his house a day or two before the scheduled foreclosure auction. “I was desperate,” Tucker said. “I wasn’t thinking, and I didn’t have a lawyer read my paperwork. I was just glad I was going to save my house.”
Tucker could have tried to sell the house, but, like many homeowners, he felt a strong emotional attachment to it. He had been living in it since 1987, when he bought the property for $78,000.
Real Estate Depot took ownership of the house at a sale price of $100,500 and rented it to Tucker for $1,550 per month, with an option to buy it back for $135,000. Tucker made the $1,550 payments for six months, but stopped after he went to a mortgage broker about refinancing and was told he was no longer the owner. “I was thinking it was still mine,” he said.
A month later, Real Estate Depot filed suit to evict Tucker and his mother, Amylue Tucker, who also lives in the house. After consulting a real estate lawyer, Tucker filed for bankruptcy, which froze the eviction proceedings and has allowed him to stay in the home.
Real Estate Depot’s president, Alan Klasfeld, could not be reached for comment despite several phone calls. Attorney Crane said the company does not consider itself a foreclosure rescue firm. “Real Estate Depot buys, sells and leases real property,” he said.
Many homeowners can’t afford to hire a lawyer and don’t know how to go about getting free legal help. What’s more, such cases are difficult to win in Florida, real estate lawyers say, because judges in the state tend to enforce what’s written in a contract.
A signed contract is at the center of Eleanor Mitchell’s dispute with National Foreclosure Management Inc. over her three-bedroom Miami Shores home.
Mitchell, 57, said she heard about National Foreclosure through an advertisement on a gospel radio station in Miami. She wanted to get equity out of the house, but said she ended up signing a warranty deed that transferred ownership to a straw buyer representing National Foreclosure. “I didn’t know what was going on,” she said.
In a Miami-Dade County lawsuit, Mitchell claims she was “financially distressed, unsophisticated in business and legal matters, and unrepresented by independent legal counsel” when she and her mother, Carrie Saunders, who co-owned the house, signed the papers. Mitchell is suing for damages and to have the title transferred back. Mitchell and Saunders have been able to stay in the home while the dispute continues.
National Foreclosure, which had operated out of Miami Lakes when Mitchell sought its help, has since moved out of its office. A phone number for an office National Foreclosure had in Memphis, Tenn., has been disconnected, and the company’s owners could not be reached for comment. Despite several attempts, Lerone Thurston, a Miami Lakes lawyer representing National Foreclosure in the suit, could not be reached for comment.
Because rescue firms have signed contracts to support their arguments, legal strategy is crucial for homeowners.
Bonfiglio is arguing that Tucker retained ownership because the deal was not a legitimate sale and lease. “After he signed the paper, he stayed in the house,” Bonfiglio said. “There was nothing that would indicate that my client was anything but the owner.”
Real Estate Depot paid $13,104 to make the mortgage current and about $10,000 for repairs, Crane said.
“That’s not something mortgage companies do,” he said. “Landlords do that.”
Copyright © 2007, South Florida Sun-Sentinel, Ian Katz. Distributed by McClatchy-Tribune Business News.
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• Aug. 24, 2007 - Foreclosure Help Page 1
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Are You Having Problems Paying Your Mortgage?
Learn How to Avoid Foreclosure and Keep Your Home.
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Center for Responsible Lending NeighborWorks® America
National Association of REALTORS®
The Voice for Real Estate
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YOU’RE NOT ALONE IF YOU’RE HAVING TROUBLE PAYING YOUR MORTGAGE
The housing boom led to a record homeownership rate of nearly 70 percent, but some homeowners now face problems making their mortgage payments and can’t refinance their loans. Over the last few years, lenders invented new types of mortgages to help families buy their first homes and refinance their existing mortgages. Many of these mortgages helped families without cash for a down payment, or with less-than-perfect credit, qualify for loans known as "subprime" loans.
Subprime loans have a higher interest rate and higher costs, such as prepayment penalties. A very popular, widely available mortgage product is the hybrid adjustable rate mortgage (ARM). Hybrid ARMs have an initial period with a lower interest rate ("teaser rate") followed by significant increases over the remainder of the loan. The hefty payment increase is often called "payment shock" because the borrower is surprised by the size of the increase and can’t afford the new payment.
If you are having trouble paying your mortgage for any reason, or expect problems, you should work with experts and your lender to find a solution now. If you fall behind and don’t take action, the lender will foreclose on your home. If that happens, you may lose your home and all of the money you have already invested in it. The sooner you act, the better the chances you will avoid foreclosure.
The Center for Responsible Lending estimates that 2.2 million American households with subprime mortgages have lost or will lose their homes as monthly payments rise on high-risk mortgages. These families stand to lose as much as $164 billion of equity in their homes.
This brochure will help you understand your options and give you tips on how to avoid losing your home—regardless of what kind of mortgage you have.
If you’re in trouble, call 888-995-HOPE COUNSELING RESOURCES
Non-profit organizations dedicated to helping consumers avoid foreclosure can be invaluable.
• NeighborWorks® organizations work with the Homeownership Preservation Foundation to support a nationwide assistance number—888-995-HOPE. You can speak with a counselor, day or night, to help you get back on track financially. (English and Spanish)
• Reputable counseling agencies, such as NeighborWorks® organizations, can help you avoid foreclosure. Look up your nearest NeighborWorks® organization at www.nw.org.
• The U.S. Department of Housing and Urban Development (HUD) website has a list of HUD-approved counseling organizations, by state (www.hud.gov/counseling). We recommend that the list be used as a starting point to find good counselors. You also can call 800-569-4287 or TDD 800-877-8339.
• Watch out for questionable counseling companies who advertise that, for a minimal fee, they will assist homeowners by hiring a lawyer to defend the foreclosure in court or negotiate lender assistance on the borrowers’ behalf. You should call a HUD-approved counseling organization, a local NeighborWorks® organization, or 888-995-HOPE before you pay or sign anything.
MORTGAGES WITH "PAYMENT SHOCK"
Mortgages like these can give you a "payment shock":
• 2/28 and 3/27 Mortgages. A 2/28 or 3/27 adjustable rate mortgage gives the borrower a fixed payment for the initial two- or three-year period before adjusting the mortgage up as often as every six months. After the initial "teaser rate" period, your mortgage payments typically adjust up every six months.
• Interest-Only Mortgages. An interest-only mortgage lets you pay only the interest on the loan for the first 5 or 10 years and nothing to pay off the loan amount (principal). After the interest-only period, the mortgage requires much higher payments covering both interest and principal that must be repaid over the remaining years of the loan.
• Payment Option Adjustable Rate Mortgages. Payment option mortgages let the borrower decide how much to pay each month. You can even pay less than the interest, and add the unpaid interest to the total amount of principal you owe. Or you can pay just the interest or an amount sufficient to pay off the loan in 15 or 30 years. These mortgages can have an especially big payment shock.
Be careful if your mortgage has any of the following features:
• A "teaser rate" or "no interest" period that expires and leads to a big jump in your monthly payment.
• An option to pay less than the full interest due in any given month. Taking that option makes the amount you owe go up instead of down, since the interest you don’t pay is added to your loan balance.
• An adjustable interest rate with very high or no limits on the amount your payment can go up.
• A payment that doesn’t include an amount for paying property taxes and homeowners insurance. This means you may be hit with big bills you didn’t expect.
HOW REALTORS® CAN HELP
REALTORS® are in the business of helping people become homeowners and want to do everything they can to make sure you can afford to stay in your home.
• The best and least expensive option will often be working with the current lender (or the "loan servicer" hired by the lender to oversee your loan). Read more about your options on the next page.
• If your current lender isn’t willing or able to help, you may be able to refinance your current mortgage with another lender. REALTORS® can help you find responsible lenders that make fair and affordable loans.
• To address the growing foreclosure problem, especially with subprime loans, some state and local governments and nonprofit organizations are offering financial assistance. Ask your REALTOR® or counselor about who to call.
• Counseling agencies are in the business of helping borrowers like you. Check out Counseling Resources for some ideas.
• Remember, you should shop just as carefully for a mortgage as you do for a car or anything else you buy. Getting the lowest possible rate and fees can save you many thousands of dollars over the life of the loan.
• Sometimes the only option is selling the home. Of course, no one is better at helping a seller than a REALTOR®. It is better to sell than go through foreclosure because it will be easier to qualify for credit in the future and buy another home.
• Be wary of advertisements like "Cash for Houses/Any Situation" or "We Buy Houses for Cash." Consumer groups have learned that many of these are scams that bait homeowners with the promise of rescuing them from imminent foreclosure. Unfortunately, the "rescue" often involves the borrower signing over the house and the family being evicted from their home.
TALK TO YOUR LENDER
Talking to the lender, or "loan servicer" that collects the payments, should be one of your first steps. The earlier you call, the better your chance to work out a solution. Here are some options:
• Forbearance. Lenders may let you make a partial payment, or skip payments, if you have a reasonable plan to catch up. Tell your lender if you expect a tax refund, a bonus, or a new job.
• Reinstatement. Reinstatement refers to making a payment that covers all your late payments, usually at the end of a forbearance period.
• Repayment Plan. If you can’t afford reinstatement, but can start making payments to catch up, the lender may let you pay an additional amount each month until you are caught up.
• Loan Modification. Your lender may agree to amend your mortgage to help you avoid foreclosure. The options include:
o Adding all the missed payments to the loan amount and increasing the monthly payment to cover the larger loan.
o Giving you more years to pay off the loan, lowering the interest rate, and/or forgiving part of the loan, to lower your monthly payment.
o Switching from an adjustable rate mortgage to a fixed rate mortgage, so you aren’t exposed to increases in your monthly payment.
o Requiring amounts for taxes and insurance to be included with your monthly mortgage payment so you avoid big bills in addition to your mortgage.
• Sign Over the Property to the Lender in Exchange for Debt Forgiveness. This can hurt your credit, but is better than having a foreclosure in your credit history.
WHAT IF THE VALUE OF THE PROPERTY IS LESS THAN THE AMOUNT YOU OWE?
Where the value of the property is less than the mortgage amount, REALTORS® can help explain to the lender why it makes sense to let the homeowner sell the property for the best price and then forgive the remainder of the debt.
• Unfortunately, the amount of debt the lender cancels is treated as income when you file your tax return.
• REALTORS® and the Center for Responsible Lending are working for enactment of pending legislation so homeowners aren’t stuck with a tax bill they can’t afford to pay.
• Some lenders may require you to sign a promissory note for the difference between the value of the home and the amount owed. Before you sign any documents, please seek the advice of a housing counselor or lawyer.
FIND OUT MORE: QUICK REFERENCES FOR CONSUMERS
To help educate home buyers and homeowners about today's mortgage options, the National Association of REALTORS® (NAR) have produced a series of consumer information brochures. This is the fourth in the series, which also includes: and the Center for Responsible Lending
• How to Avoid Predatory Lending
• Specialty (Nontraditional) Mortgages: What Are the Risks and Advantages?
• Traditional Mortgages: Understanding Your Options
NAR also has issued a brochure in partnership with HUD’s Federal Housing Administration:
• FHA Improvements Benefit You
You can find all the brochures on NAR’s Website (go to www.REALTOR.org/subprime).
WATCH OUT FOR PREDATORY LENDERS
Here are some warning signs:
• Sounds too easy. "Guaranteed approval" or "no income verification" regardless of borrower’s current employment, credit history, and assets. These claims indicate the lender doesn’t care about whether you can afford to make the payments over the long haul.
• Excessive fees. Higher lender and/or mortgage broker fees than are typical in your market. Because these costs can be financed as part of the loan, they are easy to disguise or downplay. On competitive loans, fees may be negotiable. It is common for home buyers to pay only 1 percent of the loan amount for prime loans. By contrast, a typical predatory loan may cost 5 percent or more.
• Large future costs. High-risk adjustable rate mortgages where the payment rises a lot after the "teaser rate" period are seldom appropriate for families who already have had problems repaying other loans. Home buyers should avoid large single "balloon" payments (a lump sum due at the end of the loan’s term).
• Closing delays. The lender delays closing, so your commitment on a reasonably priced loan expires.
• Over-valued property. Inflated appraisals that allow excessive fees to be included in the loan and result in the borrower owing more to the bank than the home is worth.
• Barriers to refinancing. Prepayment penalties that make it hard for a borrower to refinance in order to pay off a high-cost loan by taking advantage of a low-cost loan.
• No down payment loans. These loans may be split into two mortgages, with one having a much higher cost. Home buyers should be sure they can afford the payments.
• Unethical document management. Ethical lenders and brokers always require you to sign key loan papers, and never ask you to sign a blank document or a document dated before the date you sign.
call 888-995-HOPE to speak to a counselor on how to avoid foreclosure. Available in English and Spanish, 24/7. Or visit www.995hope.org for more information.
ADDITIONAL RESOURCES:
For immediate advice:
HUD Resources
• For a list of HUD-approved counseling agencies, by state, go to www.hud.gov/counseling.
• HUD’s Internet page—"How to Avoid Foreclosure"–is aimed at borrowers with FHA-insured mortgages, but can help other borrowers as well. Go to www.hud.gov/foreclosure.
Go to www.freddiemac.com and search for this brochure by typing in the full name of the brochure.
Freddie Mac: "Keeping Your Home, Protecting Your Investment."
For a simple calculator to help homebuyers estimate how much they can afford to spend, read "How Much Home Can You Afford?" http://www.GinnieMae.gov.
Ginnie Mae
is a brochure issued by 11 federal agencies on how to shop, compare, and negotiate the best deal on a home loan. www.federalreserve.gov/pubs/mortgage/mortb_1.htm.
"Looking for the Best Mortgage"
To find consumer resources related to a variety of lending issues, go to www.affil.org.
Americans for Fairness in Lending:
6 Consumer Handbook on Adjustable Rate Mortgages (the "CHARM" booklet)
Credit-reporting agencies:
Equifax (800) 685-1111 www.Equifax.com.
Experian (888) 397-3742 www.Experian.com.
TransUnion (800) 916-8800 www.TransUnion.com.
Go to www.AnnualCreditReport.com to ask for a free copy
of your credit report, once a year, or call 877.322.8228.
See also www.FTC.gov.
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The National Association of REALTORS®
"The Voice for Real Estate," is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries. For more information, visit www.REALTOR.org.
is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s largest community development financial institutions. For more information, visit www.ResponsibleLending.org.
The Center for Responsible Lending
NeighborWorks® America creates opportunities for people to improve their lives and strengthen their communities by providing access to homeownership and to safe and affordable rental housing. For more information, visit www.NW.org.
May 2007
Item # 126-126
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Center for Responsible Lending NeighborWorks America
910 17th Street NW, Suite 500 1325 G St., NW, Suite 800
Washington, DC 20006 Washington, DC 20005
National Association of REALTORS®
500 New Jersey Avenue, NW
Washington, DC 20001
issued by the Federal Reserve Board (FRB) and the Office of Thrift Supervision (OTS). http://www.FederalReserve.gov. At the FRB site, click on "publications and education resources" and then on "consumer information brochures."
Reprinted from National Association Of Realtors Website all rights reserved.
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• Jan. 31, 2007 - Foreclosure
Financial troubles have hit us all at some time in our life and once you realize there is no way out the only approach is to reach out for help, it's not going away and the longer you wait the harder it is to get lenders to work a plan of action. Call and you'll find we are trustworthy and truly care about your situation. We will do all within our power to help and if points to a sale of your home as a last result it's better for you than destroying your credit. You can always purchase a new home again if your credit is intact. Again call us at 407.330.0060.
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Watch out for questionable counseling companies who advertise that, for a minimal fee, they will assist homeowners by hiring a lawyer to defend the foreclosure in court or negotiate lender assistance on the borrowers’ behalf. You should call a HUD-approved counseling organization, a local NeighborWorks® organization, or 888-995-HOPE before you pay or sign anything.
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Be wary of advertisements like "Cash for Houses/Any Situation" or "We Buy Houses for Cash." Consumer groups have learned that many of these are scams that bait homeowners with the promise of rescuing them from imminent foreclosure. Unfortunately, the "rescue" often involves the borrower signing over the house and the family being evicted from their home.
Here are some links to help you out:
HomeOwnership Preservation Foundation
Federal Reserve Education website
Hud - Tips for Avoiding Foreclosure
HUD - Find A Housing Counselor
Foreclosure Assistance Programs Web Links by State:
Massachusetts Department of Housing & Community Development
MassHousing
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