Other real estate related bills signed into law this month by Gov. Arnold Schwarzenegger aim to crack down on abusive lending practices by mortgage brokers; provide more safeguards for seniors taking out reverse mortgages; and require lenders to provide a summary translation of loan papers to non-English speakers.
Effective Oct. 11, Senate Bill 94 made it illegal for anyone to collect advance fees from consumers seeking a loan modification. The legislation closed a loophole that previously allowed state- licensed real estate brokers and attorneys to collect advance payments for loan modification services provided a client signed off on forms approved by the state Department of Real Estate.
SB 94 was written by state Sen. Ron Calderon, D-Montebello.
“Over the past two years, unscrupulous attorneys and real estate brokers have abused their trusted roles and exploited desperate homeowners seeking to avoid foreclosure. The loophole that allowed this abusive practice has now been closed, and homeowners should avoid any person charging upfront fees for foreclosure relief services,” state Attorney General Jerry Brown said in a statement.
Advance payments previously collected before Oct. 11 are not impacted by the law but no additional fees can be collected going forward,
said Tom Pool, a Department spokesman.
About 1,000 real estate brokers had previously submitted the required paperwork to collect advance payments before the law became effective, he said. More than 1,300 consumers have contacted the department with complaints about foreclosure rescue firms, most of which involved paying advance fees and not getting the loan modification assistance that was promised, he said. In many cases, the fees were collected by people who were not even licensed to offer loan modifications.
SB 94 only allows fees to be collected after the promised services are provided. Consumers must also be told that similar services are available from nonprofit housing counseling agencies approved by the federal Department of Housing and Urban Development. Consumers must also be told they have the option of calling their lender directly to request a change in loan terms.
Effective Jan. 1, three other laws will kick in to provide more protections to consumer who take out home loans:
For now, subprime loans have pretty much gone away in response to tougher lending standards but Holmgren expects that demand for such products will eventually return when the economy improves.
“It would be wonderful if every consumer had perfect credit” but that is not the case, Holmgren said. “It’s bad for those consumers (with poor credit scores) because it restricts their choice and that’s what this does … In this troubled economy, there is a number of people whose credit has suffered.”
Mortgage brokers would also be banned from offering negative amortization loans, which results in a growing loan balance the longer the borrower holds the loan. Strict caps would also be placed on prepayment penalties.
Fight Club entered popular culture in 1999 when director David Fincher adapted Chuck Palahniuk’s novel into a film that reflected the zeitgeist of modern America with its empty culture, obsession with aesthetic beauty, and slavish under and middle classes.
Warning: Decade-old spoiler coming up.
The film ends with the agents of “Project Mayhem,” protagonist Tyler Durden’s followers, destroying the headquarters of the major credit card companies with many tons of explosives. Durden’s theory is that without the records of debt, everyone gets a fresh start. They are no longer slaves to the banks, and they are free.
This concept resonated hugely with Americans, and not just the douche bag frat boys who taped Brad Pitt’s six-pack to their dorm walls. Citizens are working harder for less these days, and the American ennui originating from Reagan’s tyrannical reign of deregulation, union busting, and middle-class rape has now exploded into severe disillusionment and anger. Americans are being crushed by debt, can’t afford health care, and have less job security than ever.
Even the dimmest Americans know they’re getting screwed by Wall Street fat cats, and nothing could have made that reality clearer than the bailouts: $1 trillion dollars of taxpayer money that went to line the pockets of the guys and gals who crashed the economy.
And if that wasn’t bad enough, once the fat cats and credit card companies’ armies of Repo Men were through collecting the contents of the houses, they came back for the houses themselves. The banks tried to sell the old, familiar lie that “irresponsible people” i.e. “black people” went and got themselves into a mess they couldn’t dig themselves out of, which was almost always a lie. Subprime lenders issued mortgages in a predatory fashion, frequently lied, and used creative math to convince people they could afford mortgages with hidden, adjustable interest rates.
Those that can afford to play Capitalism: The Game prosper, while the rest of society suffers. Of course, those of us who don’t work for the Big 4 banks in the Too Big To Fail gang, wither and die. Today, The New York Times announced the 100th small bank failure of 2009. Don’t expect any mourning. The bank isn’t named “JPMorgan Chase.”
It’s projected that by 2012, there will be eight million home foreclosures in the United States. Lots of politicians are siding with the banks during the foreclosure epidemic, but a few brave souls are standing up to the Wall Street criminals.Read Full Post | Make a Comment ( 1 so far )
The legislation, introduced today by Senator Jack Reed of Rhode Island, would require lenders to evaluate all borrowers for affordable loan modifications before initiating foreclosure. It would also require banks to offer and approve a loan modification if the restructured mortgage returns more money, the so-called net-present value, to investors than would foreclosure.
The proposal would establish new penalties and would let borrowers overturn foreclosures if lenders fail to comply. It would also place new limits on fees charged in foreclosure.
The reason we have this crap going on is quite simple, and fixing it is also quite simple:
Banks are holding homes back and foreclosing when they should be modifying as a direct consequence of the policies and actions of the government.
As just one example the “loss share” agreement made with the buyers of IndyMac has set up a perverse incentive system where the usual incentives to modify loans have been intentionally and wantonly destroyed.
If you remember this was the deal announced:
As part of the deal, the FDIC entered into a loss-sharing agreement with IMB HoldCo. IndyMac will assume the first 20 percent of losses on a portfolio of “qualifying loans,” after which the FDIC will assume 80 percent on the next 10 percent of losses, and 95 percent on losses thereafter.
Ok, so we have a maximum loss that the investors (which include George Soros and Michael Dell, by the way) can take which is:
20% + 2% (80% of 10%) + 3.5% or about 25% of the total is theirs – but note that “theirs” is all at the top – once you get into the “meat” of the losses only 5% of whatever is left is theirs.Read Full Post | Make a Comment ( None so far )
They are telling you to run away from loan modification companies who charge a fee. They are paying the politicians to introduce laws making it difficult for you to hire an attorney when negotiating a loan workout. They want you to contact them directly and without the assistance of an advocate. They are scaring you to think that anyone who charges a fee for helping you negotiate a loan modification must be a crook. They claim all mortgage professionals, lawyers and forensic loan examiners who charge a fee are scam artists. They say it should all be free because theoretically you can do all of it yourself.
Just like you can file your own taxes and represent yourself in court, you can also spend the time and effort to learn the ins and outs and nuances of negotiating a favorable loan modification with the same predatory bank that put you in the mess you are in. You can stay up all night and study law so you can go up against their high priced lawyers. You can take time off work and stay on the phone four hours a day trying to get through to their loss mitigation departments. You can re-send the same documents over and over again because mysteriously they keep losing your entire file more than once. That is right you can certainly do this all yourself.
And the reason why you should go to the negotiating table all alone and without any backup is because they want to protect you from the big bad lawyers, mortgage auditors and loan modification companies who have the nerve to charge a fee for helping you! Imagine that. People actually want to make a living while providing a valuable service. What a crime.
Is anyone with an IQ above 10 buying this nonsense? If you had a choice would you go to an IRS audit without a skilled CPA? Would you defend yourself in a criminal trial without the best lawyer money could buy? So why should negotiating with a bank be any different than negotiating with the IRS? Because bankers are more ethical than IRS agents? That must be it.Read Full Post | Make a Comment ( 1 so far )
This lecture was delivered on March 25, 2009, at Union Theological Seminary in a public forum, “Christianity and the U.S. Crisis,” associated with a class co-taught by Cornel West, Serene Jones, and Gary Dorrien. It is an abridged version of a chapter in Dorrien’s forthcoming book, Social Justice in Question: Economy, Difference, Empire, and Progressive Christianity (Columbia University Press, 2010).
Today we are caught in a global economic crash and depression, a calamity affecting every nation connected to the global economy, especially poor nations lacking economic reserves. But this crisis also puts into play new possibilities for a democratic surge, perhaps toward economic democracy.
From the perspective of Economics 101, every bubble mania is basically alike, but from the beginning, this one has been harder to swallow, because it started with people who were just trying to buy a house of their own, who usually had no concept of predatory lending, and who had no say in the securitization boondoggle that spliced up various components of risk to trade them separately. It seemed a blessing to get a low-rate mortgage. It was a mystery how the banks did it, but this was their business; we trusted they knew what they were doing. Our banks resold the mortgages to aggregators who bunched them up with thousands of other subprime mortgages, chopped the package into pieces and sold them as corporate bonds to parties looking for extra yield. Our mortgage payments paid for the interest on the bonds.
For twenty years securitizations and derivatives were great at concocting extra yield and allowing the banks to hide their debt. Broadly speaking, a derivative is any contract that derives its value from another underlying asset. More narrowly and pertinently, it’s an instrument that allows investors to speculate on the future price of something without having to buy it. The words that are used for this business-securitization, insurance, diversifying risk-sound reassuring, but they mask that the business is pure high-leveraged speculation and gambling. Credit-default swaps are private contracts in a completely unregulated market that allow investors to bet on whether a borrower will default. Ten years ago that market was $150 billion; today it’s $62 trillion, and it’s at the heart of the meltdown. Credit default sellers are not required to set aside reserves to pay off claims, and in 2000 Congress exempted them from state gaming laws. AIG’s derivatives unit was a huge casino, selling phantom insurance with hardly any backing, for which we now have to pay. The tally for the past six months: four bailouts, $160 billion, some very hard-to-take bonus payments, and no bottom in sight for a sinkhole of toxic debt exceeding $1 trillion.Read Full Post | Make a Comment ( None so far )
Today President Obama is conducting a town hall meeting in New Mexico focusing on the issue of credit card debt. This is a welcome turn in the national economic conversation from the plight of big institutions and the financial system to what is perhaps the most important part of the story of the Great Recession still not adequately understood – the weakened state of the American consumer prior to the recent recession and financial collapse.
We’ve told this story many times – despite robust growth in the Bush Era, incomes for a typical family fell. Most measures of consumer health during the Bush went in the wrong direction. We saw an increase in those without health insurance, in poverty, incomes fell. The lack of income growth – coupled with a flood of cheap money – helped drive increased consumer indebtedness – mortgages themselves, credit cards, home equity loans. People borrowed to maintain their lifestyles, and to keep up with the Jones. The continued consumption and borrowing was justified in the minds of consumers by the power of the wealth effect brought about the rapidly increasing value of homes and stocks. But we know what happened next. Assets fell. Incomes did not appreciably rise. The debt remained. People lost jobs. The already very weakened balance sheet of a typical family grew much much worse.Read Full Post | Make a Comment ( None so far )
I’m starting to think that what we have here is a failure to communicate. And just in case it’s my fault, I’m writing this to correct any misperceptions that may or may not be out there. I’m usually not one for drama, but this isn’t a usual situation by any means. THIS IS AN EMERGENCY, by any definition of the word.
THIS IS A THREAT TO THE ENTIRE LEAGUE…
YOU WON’T HAVE TO WORRY ABOUT YOUR TEAM IF THE ENTIRE LEAGUE IS OUT OF BUSINESS.
I’m not at all sure that the private sector, for-profit loan modification firms have an appreciation for what’s going on in California or across the nation as a whole. To be blunt, I’d be willing to bet money that the entire industry will be gone in six months, give or take. Gone. I’d be willing to bet, but who’d bet against?
I’ve been driving around visiting loan modification firms all over Southern California, meeting with their owners and senior managers, seeing their operations, and there are quite a few who obviously have a lot of money invested in systems, people, overhead… these firms employ thousands of people, and are handling loan modifications for tens of thousands of clients. If I were them I’d be scared to death.
I’ve also assembled a team that is spending its days gathering data from all 50 states, identifying loan modification firms, checking their backgrounds and status, collecting data on their numbers of clients, and loan modifications completed by month. I’m getting ready to lobby on behalf of the millions of homeowners who need access to for-profit loan modification firms, through a newly formed nonprofit organization called “Mandelman’s March”. (Most of you have received information on this, but if you haven’t, now would be a good time to get in touch.)Read Full Post | Make a Comment ( None so far )
The Los Angeles City Council has made it illegal for mortgage and real estate brokers to charge an upfront fee when offering to help distressed homeowners obtain loan modifications. This effectively puts the loan modification business for real estate and mortgage brokers out of business. Gone. Bye-bye…
In case anyone thinks that’s not the case, let me explain.
Once a mortgage is modified, what would a loan modification company do if the customer didn’t pay the bill? Threaten to ruin the homeowner’s credit? You must be kidding. These are people that almost lost their homes. Their credit, you might consider, already leaves much to be desired. Take them to Small Claims Court? Sure, why not. As long as you understand that the best-case scenario is that you’re going to get like $20 a month, Small Claims Court might work out fine. Of course, when the homeowner doesn’t make the $20 payment, you’ll be going back to court or chasing a homeowner around for $20… well, plus late fees, so let’s say $24.
And please don’t tell me that people will pay their bill because they’re just that appreciative of the work that was done. Because I have a friend who runs a hospital, and 50% of his bills go unpaid all the time. Why do you think hospitals are so interested in what kind of insurance you have? Because they know that 50% of the patients won’t pay their bills, that’s why.
Helping someone with a loan modification without an upfront charge is something a nonprofit organization might do, but it’s not a business plan for a for profit entity… unless of course you follow the hospital pricing model and start charging $7,000 for a loan modification. Then when half don’t pay, you’ll be okay.
Yep, now that’s what I call a law that’s helping troubled homeowners. Thanks Mayor Villaraigosa! Good thinking there. You’re a smart one, I’ll give you that. Did you have anything to do with the Hope-4-Homeowners program, by any chance? Just wondering…
Here’s what I found to be the most amazing aspect of the story in the LA Times. It said: “Some of the services are legitimate, officials said, but others are not.” SOME are legitimate? OTHERS are not?Read Full Post | Make a Comment ( None so far )
President Obama has apparently embarked upon a campaign to put all private sector loan modification firms out of business because some are apparently scams. It’s a curious approach when you consider that there have been and continue to be countless stock market related scams in this country, but I can’t remember a president telling me not to pay my financial advisor as a result.
Speaking on the subject of his housing rescue plan, which will, once it’s available, offer to modify certain mortgages, the president has said on several occasions: “If you have to pay, walk away.” So, the fact that they charge a fee makes them a scam? And here I always thought that it was charging a fee and not delivering a service that was a problem. Just the fact that a firm charges a fee… well, not so much, right?
If the president is right about the whole charging a fee issue, then why does the California Department of Real Estate tell homeowners that they should be sure to use a loan modification firm that uses its “Advance Fee Agreement”? I’m confused.
President Obama has also said that people don’t need to pay a fee to have their loan modified because they can simply call their banks directly. I was curious about this, so I went to IndyMac Federal’s Website that advertises their new streamlined loan modification service. Here’s what it says in the first three paragraphs:
“The goal of this streamlined loan modification program is to achieve improved value for IndyMac Federal. IndyMac Federal will only make modification offers to borrowers where doing so will achieve an improved value for IndyMac Federal.”
Unusually forthcoming, if you ask me. The bank is telling you right up front that they’re happy to negotiate a modification of your mortgage in their best interests, certainly not yours. And that’s what they should be doing, I suppose. But as a homeowner, don’t I want someone who knows mortgage modifications to be negotiating on my behalf?
Telling me I don’t need to pay an expert to represent me with my bank seems like the police telling me that I don’t need an attorney after I’ve been arrested because I can just ask the District Attorney any legal questions I might have. Gee, thanks for the advice, but I think I’ll go ahead and call my own lawyer anyway, okay?Read Full Post | Make a Comment ( 2 so far )