Real Estate News
Bank of America Suspends Foreclosures in 23 States
The nation’s largest bank has halted foreclosures in certain states after evidence was disclosed that it too had ill-famed “robo-signers” rubber-stamping approvals of foreclosure cases without verifying their validity.
Bank of America has placed foreclosure actions in 23 judicial states on hold while it determines if the paperwork was processed correctly and affidavits by staff members were indeed legitimate. The company has not yet disclosed how many foreclosure cases the suspension affects.
BofA is the third major mortgage lender in two weeks to call for a freeze on foreclosures out of concern that faulty documentation could give borrowers grounds to overturn court-ordered evictions.
GMAC Mortgage set off what’s turning into a domino effect when it admitted on September 20th that a “glitch in its internal procedures” led it to halt evictions, cash-for-key transactions, lockouts, and even suspend sales of REO properties in the same 23 judicial states. JPMorgan Chase soon followed suit.
BofA was one of seven financial institutions ordered by regulators at the Office of the Comptroller of the Currency to reassess their foreclosure processes in light of the paperwork snafus beginning to surface.
But according to an Associated Press report, evidence that BofA employees were signing off on foreclosures without following the rules was discovered back in February.
One of the company’s executives testified at a Massachusetts bankruptcy hearing nine months ago that she signed off on 7,000 to 8,000 foreclosure documents a month without even reading them, AP said.
As DSNews.com previously reported, these robo-signers may be commonplace fixtures in a growing number of servicing shops struggling to keep up with large numbers of foreclosure cases.
But while they may have served to speed up the processing of the foreclosure backlog in recent months, they are now the culprits of what is expected to be lengthy and strenuous delays in some states and what could turn into a deluge of costly legal court battles.
By: Carrie Bay
Should we extend anti-deficiency protections to homeowners who have refi’d & are now facing foreclosure?
C.A.R. is sponsoring SB 1178 (Corbett) to extend anti-deficiency protections to homeowners who have refinanced “purchase money” loans and are now facing foreclosure. Most homeowners didn’t even know that when they refinanced they lost their legal protections, and now may be personally liable for the difference between the value of the foreclosed property and the amount owed to the lender.
SB 1178 was two votes short of passage last week and is now being amended to remove the provision about “cash out” refinances. With this amendment the borrower will still be protected on a “purchase money” mortgage when that mortgage is refinanced but not on any cash out. SB 1178 will be now be voted on again TOMORROW in the Senate. If you are receiving this Red Alert, your senator did NOT vote for the bill last week.
Action Item
Call Your Senator Today!
Urge him or her to vote “Yes” on SB 1178.
Call 1-800-672-3135 and below find the pin number that relates to your State Senator.
Background
California has protected borrowers from so called “deficiency” liability on their home mortgages since the 1930s, but the evolution of mortgage finance requires the statute to be updated.
Current law says that if a homeowner defaults on a mortgage used to purchase his or her home, the homeowner’s liability on the mortgage is limited to the property itself. The law has worked well since the 1930s to protect borrowers, ensure the quality of loan underwriting and allow borrowers who are brought down by financial crisis to get back on their feet.
Unfortunately, the 1930s law does not extend the protection for purchase money mortgages to loans that re-finance the original purchase debt — even if the re-finance was only to gain a lower interest rate. Recent years of low interest rates have induced tens of thousands of homeowners to re-finance their mortgages, yet almost no one realized that by re-financing their mortgages to obtain a lower rate, they were forfeiting their protections. These borrowers became personally liable for the balance of the loan.
C.A.R. is Sponsoring SB 1178 Because:
SB 1178 is fair. Home buyers, and lenders, entered into the purchase with the idea that the mortgage would be non-recourse debt, and that the lender would look to the security (the house) itself to make good on the debt if the borrower cannot. It meets the legitimate expectation of the borrowers, who have no idea that they are losing this protection by a re-finance. Homeowners didn’t know that their re-finance exposed them to personal liability, on the note. It would be unfair to allow a lender, or someone that has purchased a note from a lender, to pursue the borrower beyond the value of the agreed upon security.
SB 1178 is consistent with the intent of the orginal law and simply updates it for modern times. Current law was intended to ensure that if someone lost their home to foreclosure, they wouldn’t be liable for additional payment. Since the law was passed over 70 years ago, homeowners re-financing from the original loan to lower their interest rate has become commonplace. The 1930s legislature didn’t anticipate how mortgages would change over time.
Lenders could pursue families to collect this “deficiency” debt years down the road. Under current law, lenders have up ten years to collect on the additional debt after a judgment has been entered on the foreclosure. Years after a family has lost their home, they could find themselves in even more financial trouble. Lenders could even sell these accounts to aggressive collection agencies or even bundle them into securities. The end result would be banks who didn’t lend responsibly in the first place coming after families for even more money that they don’t have.
SB 1178 does NOT apply to “cash-out” re-finances or to Home Equity Lines of Credit (HELOCs).
More than Half of Foreclosures Triggered by Job Loss: NeighborWorks
According to a study released Friday by NeighborWorks America, 58 percent of homeowners who’ve received assistance through its national foreclosure counseling program reported the primary reason they were facing foreclosure was reduced or lost income.
NeighborWorks was created by Congress in 1991 as a nonprofit organization to support local communities in providing its citizens with access to homeownership and affordable rental housing. In January 2008, with the foreclosure crisis raging, Congress implemented the National Foreclosure Mitigation Counseling (NFMC) Program and made NeighborWorks the administrator.
The organization says that over the course of the NFMC program, the percentage of homeowners who’ve cited wage cuts or unemployment as the primary reason they were facing foreclosure has steadily increased.
In November 2009, 54 percent of NFMC-counseled borrowers reported reduced or lost income as the main reason for default. Six months earlier in June 2009, it was 49 percent; in February 2009, 45 percent; and in October 2008, 41 percent.
These steady increases parallel the nation’s unemployment rate, which until the November 2009 employment report, had marched upward since October 2008.
“With unemployment numbers not likely to dip below nine percent in 2010, our report proves what many already believed to be true. Unemployment and reduced income are having a devastating effect on our nation’s homeowners,” said Ken Wade, CEO of NeighborWorks America.
The administration recently announced changes to its Making Home Affordable program to provide assistance to unemployed homeowners by temporarily reducing or suspending mortgage payments for a minimum of three months. The initiative becomes effective July 1, 2010.
The federal government has also awarded additional funding to states where unemployment is high to support localized mortgage relief programs for homeowners who are out of work.
Lawmakers too are on a push to help homeowners who’ve lost their jobs. Congress’ financial reform package includes a measure that uses $3 billion from the Troubled Asset Relief Program (TARP) fund to make loans of up to $50,000 to unemployed homeowners to be used to make their mortgage payments for up to 24 months while they are looking for a new job.
Wade said, “While Congress and state governments have stepped up and extended unemployment benefits to help families survive this tough economic climate, it’s time for mortgage servicers and investors to make meaningful accommodations for homeowners facing foreclosure. If they don’t, we’ll see even more empty houses and devastated neighborhoods in our communities.”
NeighborWorks also noted in its report that 62 percent of all NFMC clients held a fixed-rate mortgage, and 49 percent were paying on a fixed-rate mortgage with an interest rate below 8 percent.
Nearly one million families have received foreclosure counseling as a result of NFMC Program funding. According to NeighborWorks, NFMC clients are 60 percent more likely to avoid foreclosure than homeowners who do not receive foreclosure counseling.
-Carrie Bay, DSNews
Karen Pauksta 