Banks favor foreclosure

Banks favor foreclosing over altering home loans
by Laurie Roberts, columnist - Dec. 4, 2010 12:00 AMThe Arizona Republic

Hannah Swearengin and I are walking around her cozy north-central Phoenix home on Thursday, and she is describing what it feels like to live there these days.
"Terrible stress, just terrible stress," she says. "I have, like everybody else, worked hard all my life. I raised and educated four children, one with special needs. I've never asked anybody for anything. I never thought at this time in my life that I'd be in this position, ever."
Swearengin is in good company. Close to 200,000 Arizona families are believed to be behind on their mortgages. By month's end, more than 50,000 will have lost their houses this year, as banks foreclose and sell them for a song.
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When that happens, the Swearengins of the world will be out and their neighbors will be left an empty eyesore, plus an average $22,000 hit to the value of their own homes, according to the Center for Responsible Lending. Meanwhile, the banks or whoever owns the loans will have bigger losses in many cases than if they had just worked with the struggling homeowner.
So what gives?
"I wish I knew," said Attorney General Terry Goddard, who is asking the Legislature to adopt a Borrower's Bill of Rights that would force banks to treat customers more fairly.
"They're hurting themselves. They're hurting their investors. They're hurting their credibility going forward, bottom line, by essentially trashing these assets. Every house that gets sold on the courthouse steps in this economy is a fraction of its value. All of us take a hit."
Swearengin, 68, has owned a home for most of her life and says she had never missed a payment until February. Her struggles began in late 2008 when she fractured her back and was unable to work, assuming she even could find work given that she's a Realtor in one of the nation's worst real-estate markets. For much of the past two years, she's lived on her savings, and the drain only increased in late 2009 when she was hospitalized with kidney failure.
By January, it became clear that she wouldn't be able to keep up with the $1,700 monthly payments on her $225,000 mortgage. So she called CitiMortgage, hoping to work something out, only to be told that she had to miss three payments before they could even talk about it.
She's now missed 11. She's faxed and re-faxed documentation of her situation. She calls every few days, never speaking to the same person twice. And still she waits to hear whether the bank will modify her mortgage. At one point, she says, the bank told her that it might be able to cut her payments in half by extending her loan to 40 years.
But since then, she's heard only silence, and her home is due to be auctioned off on Dec. 30.
CitiMortgage declined to discuss Swearengin's loan, citing privacy, but it offered a general comment. "The modification process involves submission of financial documentation, which must be updated and refreshed at certain points," wrote Mark Rodgers, CitiMortgage's director of public affairs. "If any required documentation is missing, the modification may not proceed. Variations in the borrower's financial circumstances, such as changes in income, also have a direct bearing on eligibility for permanent modifications. We are looking into this case and will work with the homeowner to explore potential solutions to avoid foreclosure."
This is, of course, what all the banks say, right up until the moment they foreclose and sell your place for a fraction of what it's worth.
In fact, the practice is so prevalent that this week, U.S. Acting Comptroller of the Currency John Walsh told the U.S. Senate Banking Committee that he's directing the big banks to suspend foreclosures for borrowers who are actively seeking loan modifications.
So who's responsible for putting people like Hannah Swearengin and Hazel Nitis - the cancer patient whom I wrote about earlier this week - out when it appears each could stay put if given a modification?
Banks blame the investors who own the loans.
But two of the biggest - Freddie Mac and Fannie Mae - pointed right back at the banks that service the loans, in testimony before Congress this week. "Servicers are required under our servicing contracts to help borrowers in trouble, not just collect payments," said Terence Edwards of Fannie Mae.
But a local real-estate attorney tells me that there's a financial incentive for the banks to foreclose rather than modify.
"At a foreclosure, they get all the fees, they get all the late charges. They get all their lost money off the top," said attorney Robert Nagle. "They don't want to reduce principal, because it's like your investment portfolio: They charge you 1 percent based on the amount they're managing. So if they start giving everyone reductions, their fees are going to be less because they're not managing as much."
Swearengin isn't even looking for a reduction of her principal, just an extension of her loan and perhaps a lower interest rate to bring her payments to a level she can afford.
The alternative is obvious. All you have to do is look at the foreclosed house next door. It's not hard to spot. It's the albatross at the end of the block, the weed-ridden mess surrounded by homes with neatly trimmed lawns ... for now.
Reach Roberts at laurie.roberts@arizonarepublic.com or 602-444-8635.Read more: http://www.azcentral.com/arizonarepublic/local/articles/2010/12/04/20101204bank-foreclosures-roberts.html#ixzz17AIR29bj

We have sign outside of our office that says, "Free foreclosure list!" It works like a charm.

I notice that people come in and say, "I would like a free foreclosure-and-short-sale-list, please." We start talking and I realize that 90% of the general public does not know the difference between these two animals - they just want a bargain and think that foreclosure-and-short-sales are the way to get one.

A little foreclosure and short sale 101, OK?

A foreclosure is easy to understand. Somebody bought a house and got a mortgage to do so and then couldn't make their payments so the bank took the house back and is now selling it. We call these REO properties.

Short sales are a different breed. A short sale means that the seller needs to sell the house, but it's worth less than the pay-off on the mortgage. Now we need to find a buyer, get an offer, and then convince the bank to accept less then was agreed upon when the seller bought the house. Short sales get complicated - the banks are not equipped or inclined to give us an answer in any reasonable amount of time. The seller has to "qualify" for the short sale almost like when they bought the house. The bank wants them to prove that they can't make up the difference between the sales price and the mortgage balance.

Since a seller walks away from a short sale with, uh, nothing, and the buyer has to be incredibly patient waiting for the bank to make up their minds, tempers can run high.

Since a seller makes no money on a short sale, why do they bother? Why not just walk away? 2 reasons: most people are honorable and want to live up to their obligations as best they can. Also, a short sale affects a seller's credit for 2 to 3 years, while a foreclosure will ding it for 5 to 7 years.

What's in it for the buyer? Foreclosures and short sales are quite often priced below the "normal" competition.

What are the drawbacks? A buyer is getting involved with a house where the last owner was probably pretty mad when they left. Usually, there aren't any appliances or window coverings or light fixtures, they're often dirty, and the landscaping is suffering or dead because nobody cares. Sometimes the last owner deliberately trashed the place, kicking holes in the walls and taking a drill to the plumbing and a hammer to the tiles. (Shame on them! It isn't the poor house's fault.)

The other drawback on an REO is that the bank has no idea of the condition of the property. The buyer gets no disclosures, no warranties, and no promises - they're on their own as far as figuring out what kind of shape this house is in. (I would never sell one of these properties without a thorough ASHI certified inspector going over it first. Never!)

So if you think that you might be interested in picking up one of
these "bargains," please call a REALTOR(R) who is experienced in dealing with them. Remember, these properties are tricksy and difficult and require a competent professional.

If you're a homeowner that's afraid that you might be in one of these situations, again, call a REALTOR(R) who knows what they're doing. There are a lot of scams out there and a lot of unscrupulous bottom-feeders that want to take advantage of people's fear and desperation. Don't deal with a "loan modification facilitator" if they want money up front. Reputable loan modifiers will wait until the job is done to collect a fee. They're one of the few professions that I can think of that get paid like REALTORS(R).