US HomeSavers Loss Mitigation Blog

What if people who lost their homes to foreclosure could rent their houses back from the lenders that repossessed them? That idea, which has lingered on the outskirts of the housing-crisis debate, got a boost last week when the federal housing agency Fannie Mae said it would start offering leases of up to 12 months when other avenues to keeping families in their homes, like loan modification, fail. “It’s a big step forward,” says Dean Baker, co-director of the Center for Economic and Policy Research, and a long-time proponent of rent-back programs.

At first blush, the notion seems like a win-win-win. Former homeowners get to stay in their houses; even if a mortgage payment isn’t affordable, market rent may be. Neighborhoods ostensibly benefit, too, since it’s safe — and better for property prices — when blocks aren’t full of foreclosure-related vacancies. And lenders? Turning properties into rentals until the market rebounds may sound like an appealing alternative to selling assets at cut-rate prices. “This is another tool to use, and it doesn’t cost the government anything,” says Congressman Gary Miller, who has sponsored a bill to make it easier for banks to enter into long-term leases with tenants. (See high-end homes that won’t sell.)

Yet there is little reason to believe that Fannie’s move is going to immediately spark a wave of me-too programs. Cheryl Lang, CEO of Integrated Mortgage Solutions, a firm that helps manage repossessed houses, says she’s seen some interest in the concept, but companies are hesitant to implement it for fear of the legal consequences. “Once a lender takes possession, if there’s a mold issue or Chinese drywall, whatever the problem is with that house, whether or not the lender is aware of it, that’s a liability,” says Lang. She recalls being on a panel sponsored by the Mortgage Bankers Association a few months ago and watching as the attorneys in the room went round and round on the issue.

Many of the nation’s largest lenders, including Citigroup and J.P Morgan Chase, have meager interest in converting homes into rentals. “We’re in the lending business,” says Chase spokesman Tom Kelly. “We’re not really equipped to be landlords.” Lenders are sitting on nearly half a million repossessed houses nationwide, but getting rid of them quickly, even if that means taking a hit on price, seems to be the preferred response. A recent presentation by the head of Chase’s retail financial services division showed that the company’s servicing portfolio went from having about 52,000 repossessed homes in Sept. 2008 to some 30,000 in Sept. 2009. Over that period, the average price at which the firm sold houses from that stock dropped from $175,000 to $150,000. (See how to plan for retirement at any age.)

Fannie Mae has brought in a property management company to run its rental program, but even with that imported expertise, the number of people who wind up as tenants likely won’t be large. There are many alternatives that must be pursued first, including loan modification and selling the house for less than it’s worth. Only people who exhaust other options and are eligible for a deed in lieu of foreclosure — a process of handing over the deed in exchange for loan forgiveness — will have the option to rent. In the first nine of months of 2009, Fannie Mae executed just under 2,000 deed-in-lieu transactions — the pool from which renters will come. Freddie Mac, another federal housing agency, has been offering leases to former owners on a month-to-month basis since March, but hasn’t said how many people have taken advantage of the offer.

Now, none of that means rent-backs won’t eventually take off. There are plenty of examples in the recent past of housing policy starting at the federal housing agencies and later expanding industry-wide thanks to strong-arming from some combination of the Obama Administration and Congress. Loan modifications are the quintessential example. Perhaps one more relevant bit here is the law that was passed earlier this year requiring banks that repossess houses to honor the terms of existing leases (i.e., to not immediately kick out any existing renters). Fannie Mae already had such a policy in place. Over the summer, an assistant secretary of the Treasury Department told a Senate panel that the Administration was considering rent-backs, but the idea hasn’t gained traction since then.

After all, the big Administration push has been loan modifications. Earlier this week, Treasury reported that through October more than 650,000 homeowners have received trial modifications under the government’s Making Home Affordable plan. How lasting that help will be, though, is a different question: as of Sept. 1, only 1,711 borrowers had successfully completed the trial phase and received permanent changes to their loan terms, according to a report by the Congressional Oversight Panel.

If loan modifications aren’t the long-term success the Administration is banking on, people will wind up losing their homes to foreclosure anyway, and the number of repossessed properties owned by banks will again swell. Perhaps then, more attention will turn to the idea of renting houses back to former owners.

Read more: http://www.time.com/time/business/article/0,8599,1938255,00.html?xid=rss-topstories#ixzz0WeWinWQt

Read more: http://www.time.com/time/business/article/0,8599,1938255,00.html?xid=rss-topstories#ixzz0WeWJPfGh

Fannie Mae implements deed-for-lease program that allows troubled borrowers who don’t qualify for loan modifications to stay in their homes.

Giving troubled borrowers yet another way to avoid foreclosure, Fannie Mae said on Thursday it would allow eligible homeowners to rent their own homes.

The Deed for Lease program lets homeowners transfer the deed back to their lender and then sign a lease to remain in the home. The effort is aimed at borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification. Borrowers must live in the home as their primary residence and must be released from any subordinate liens.

The program aims to reduce the number of foreclosed properties being abandoned because they often fall into disrepair and hurt the surrounding homes’ values. Also, it keeps a roof over troubled borrowers’ heads and a steady stream of income coming from the property. Tenants of homeowners may also be eligible for leases.

“This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” said Jay Ryan, vice president of Fannie Mae, a mortgage-guarantee firm under federal government control.

Homeowners must show they can afford market rent, but that payment cannot be more than 31% of the borrower’s pre-tax income. Leases may be up to 12 months, with the possibility of renewal or month-to-month extensions. If the property is sold, the new owner picks up the lease.

“It really buys them time,” said Paul Habibi, real estate professor at UCLA’s Anderson School of Management.

Stopping foreclosures

But in the long-run the program only delays the inevitable sale of the distressed properties.

While this initiative is not part of the Obama administration’s loan modification program, the White House is leaning heavily on Fannie Mae and its sister firm, Freddie Mac, to assist in stemming the foreclosure crisis.

Freddie Mac launched a program in January that allowed borrowers to stay in their homes on a month-to-month basis after they go through foreclosure.

Despite the government and financial industry initiatives, foreclosures hit an all-time high in the third quarter. During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession, according to RealtyTrac.

Last month, Treasury officials announced that 500,000 troubled borrowers have been put into trial modifications under the president’s plan. The program calls for eligible homeowners to pay no more than 31% of their pre-tax income toward their mortgages.

At the same time as it tries to ramp up its loan modification program, the administration is looking for ways to help those not eligible for adjustments. In May, officials unveiled a program to incent borrowers and loan servicers to participate in short sales and deeds in lieu. Under that initiative, borrowers get up to $1,500 to assist with relocation expenses and Treasury pays servicers $1,000 when the deal is completed.

Short sales, in which the home is sold for less than the mortgage balance and loan servicers may forgive the difference, and deeds in lieu, in which borrowers voluntarily forfeit the deed and the debt may be erased, are faster and cheaper than foreclosure

The Obama plan, to create and fund public-private partnerships to buy toxic loans and securitized assets not only will not work, but will be the final blow to a global economy bloated with derivatives that cannot be legally linked to the real estate they represent. The government’s dirty little secret, which it has been suppressing for months, is that most adjustable rate mortgages were illegally securitized in the haste to convert toxic loans into fee-generating mortgage backed securities.

Judges across the nation, including Boyko, Rose, Kurtz, Schack, Rosenblatt, Bufford, O’Malley, Shaw, Bryant and Foley have issued orders dismissing foreclosures brought by lenders that have illegally securitized loans and are no longer current holders of the notes. These “quiet title actions” have forced lenders, including Chase, Citibank, Wells Fargo, Washington Mutual, Countrywide, Lehman, Shearson, Indymac, Bear Stearns, Wachovia, and Bank of America to unravel their notes’ dizzying journey from the mortgage closing to an investment bank or depositor, then to a series of trustees who pooled and sold the loans and issued shares of mortgage backed securities. What makes these securitizations illegal is how fraudulently they were conducted, by foregoing proper assignments and transfers required by law to secure an interest in the underlying real estate.

Now, the Obama Administration not only wants to continue this fraud, but is planning to reward the very investment banks and hedge funds that were architects and participants of the securitization that created the global financial crisis.

While this is devastating news to taxpayers who will be stuck with more debt, it is great news for homeowners’ with securitized loans. Ironically, their mortgage lenders’ haste to securitize their loans has provided a security blanket that protects them from foreclosure. In fact, many homeowners already own their homes free and clear and just don’t know it yet, hence the purpose of my new book. Consider this reversal of misfortune divine intervention against a greedy global conspiracy aimed at defrauding homeowners and stealing their homes.

But don’t look to the federal government for help, as they have been part of the conspiracy. The Obama foreclosure plan, wise to the fact that securitized mortgages cannot be legally modified, is focusing instead on homeowners not in default, leaving another ten million homeowners hung out to dry. The research group, Realtytrak estimates over three million homeowners now face foreclosure and another six million will soon be in payment shock when their toxic loans reset this year, forcing them into foreclosure.

Like an uninvited and unwelcome Santa Ana, millions of American homeowners are reeling from a blast of illegal foreclosures and unlawful evictions. Tragically, while many have already turned in their keys, others are quickly learning if they can find fraud, they can forget foreclosure. The recently won class action predatory lending lawsuit, The People of California vs. Countrywide, which settled for 8.7 billion dollars, has been a wake-up call to many distressed homeowners now empowered to wage mortgage war. Homeowners already kicked out of their precious homes can file fraud claims post eviction.

And there is plenty of fraud to go around: fraud in the solicitation, processing, closing, securitizing and servicing of toxic mortgages; fraud in the courtroom as lenders’ attorneys file fraudulent foreclosures; fraud in the packaging, selling and credit-rating of mortgage backed securities; and fraud in the illegal modifications of securitized loans.

While the government keeps bailing out the very institutions at the heart of the fraud, like the mortgage giants and their insurance company, there just isn’t enough money in the world to cover the costs of bad loans, litigation, credit default swaps and fraudulent workouts. A better move would be to quickly extinguish these loans upon evidence of homeowner fraud.

You may be wondering, how did this mess happen? How did the economy just ten years ago, buoyed by a transformational president and a budget surplus, end up in a recession soon to become a depression? The answer is greed.

The derivatives explosion, coupled with the Fed’s lowering of interest rates and the Senate’s relaxation of credit standards led Wall Street to create toxic “non-traditional loans” sold to homeowners purely to generate profit. These include hybrid adjustable rate mortgages, no doc loans and even NINJA loans, made with no income, no assets and no job. As the loans changed hands during each stage of the securitization process, fees were paid in the form of yield spread premiums, kickbacks, commissions, referral fees, bonuses, closing costs and profits.

It has been nothing short of a conspiracy to defraud homeowners, with everyone from the loan broker, to the loan officer, to the appraiser, to the title agent, to the servicer, to the Depositor, to the Trustee, to the foreclosing Trustee, to the lender’s attorney — all on the take. But homeowners are wising up, and hiring attorneys skilled in predatory lending litigation.

Southern California commercial litigator, Robert Allan of the Robert Allan Law Group, says this: “These claims can be won if counsel for the homeowner can prove the lender’s intention to fraudulently induce the homeowner into a transaction for the lender’s sole benefit. A lender has a statutory duty to ensure a homeowner has the financial ability to repay a loan for their home.” Allan believes a forensic audit of the loan is crucial to establishing the lender’s intent and in evaluating the merits of a homeowner’s claim.

Nationally recognized forensic mortgage auditor, Marie McDonnell agrees, “A mortgage audit these days is a search for fraud in the inducement, origination, closing and servicing of toxic loans. It is the homeowners’ best plan of attack against their predatory lender and a sure defense against foreclosure.”
McDonnell, along with other advocates, auditors and attorneys, believes over 80% of adjustable rate mortgages were fraudulently induced so the lenders could quickly transform the loans into profitable mortgage backed securities.

Next to California’s rapidly growing foreclosure crisis, Florida, not far behind, has taken up the fight. Attorney April Charney, known as “the foreclosure killer,” provides attorney workshops to stop and reverse foreclosures, while litigators across the nation focus on educating judges about the illegal machinations inherent in securitized mortgages. Charney says, “It is common to prove that transfers and endorsements of notes were not properly made, and the real note holders are impossible to identify. The securitization process has failed, and the lenders cannot live up to the claims and contracts outlined in their 10 and 8K Securities and Exchange Commission filings.” By demanding that lenders prove their right to foreclose, Charney untangles the covert interweaving of conspiring mortgage brokers, lenders, investment banks, depositors and trustees who had their hands in the securitization cookie jar.

My upcoming book, entitled Mortgage Wars: How to Fight Fraud and Reverse Foreclosure not only helps homeowners overcome payment shock and post traumatic stress disorder, but leads them, step by step, into a plan of engagement against their predatory lenders, including how to evaluate their toxic loan, get it audited, rescind it and hire the right attorney to take their lender to court.

Predatory lending lawsuits not only bring quiet title to the court’s attention, which will result in foreclosure dismissal, but pay substantial damages to homeowners, including a full refund from their lender, as well as attorney fees. Luckily, laws like The Truth in Lending Act and the Real Estate Settlement Procedures Act, fall squarely on the side of defrauded homeowners. Other typical causes of action include fraud and fraudulent misrepresentation, unfair competition and unjust enrichment. I discussed this issue with Senator Arlen Specter during a recent dinner and he agreed that victimized homeowners ought to go before a judge and demand justice.

This road to reversing payment shock, delinquency, default, foreclosure, or even eviction — by filing a predatory claim, like Bryan and Susan Andrews did against Chevy Chase Bank, focuses on the lender’s fraudulent misrepresentations and predatory practices. While the Andrews’ lawsuit has yet to reach class action status, the couple walked out of court owning their home free and clear. Their Wisconsin attorney, Kevin Demet, is fighting for class action status straight to the Supreme Court. He is encouraging other attorneys who represent defrauded homeowners to do the same.

To date, the media has had it all wrong, painting a false picture of a nation of deadbeats who sought liar loans. In reality, the demand for derivatives led to the conspiracy to defraud homeowners and investors alike in a parallel scheme of falsely inflating loan amounts, real estate values and credit ratings.
And, while homeowners have an arsenal of legal weapons at their disposal to fight their mortgage wars and win, they need to be shown, step by step, how to do it. The home is the family’s sanctuary and psychological haven. Ripping homeowners from their homes is not only wrong, it is extremely damaging to the family system and has already proven fatal in some cases.

As far as the ballooning government bailout goes, there is not enough money in the world to save toxic lenders from their eventual fate. While the Obama Administration should follow the lead of Ohio, which insists that lenders prove their right to foreclose before filing foreclosures, the nation of enraged homeowners will more likely litigate their cases en masse in order to remove toxic lenders from title via judges’ orders for re-conveyance.

However, if, in a fantastic and improbable flight into health, President Obama decided to play Robin Hood, and demand toxic loans be extinguished, vindicated homeowners would be able to quickly reverse the recession. That would be an economic stimulus plan that would actually work, rather than handing the predators more taxpayer money taken from of the pockets of defrauded homeowners. But denial runs deep and cronyism runs deeper. When the Administration learned it couldn’t beat the holders of mortgage backed securities into rewriting pooling and servicing agreements, it decided to join them. By relieving predatory lenders of their toxic loans and investors of their worthless securities at the taxpayer’s expense, the final nail on the coffin of our nation’s economy will be in place.

Mortgage Wars will be available in bookstores in June. Or go to www.yourmortgagewar.com to order an advance copy and find resources.