Dean Graziosi

The Neighborhood Assistance Corporation of America (NACA), the brainchild of Bruce Marks, has been reaching out to troubled homeowners with its Save The Dream presentations.  Based on the theory that bad things happen to good people, Save The Dream conferences provide homeowners the opportunity to meet with many of the nation’s lenders to attempt on-the-spot modification programs instead of foreclosure.

NACA has already hosted more than 400,000 homeowners at a dozen conferences.  The organization has entered into agreements with many of the country’s lenders whereby the lenders would offer 2% mortgages over the life of the modified loan.

At its most recent conference in New York City, NACA posted its best results yet.  Steve and Elena Servi of California received a 2% loan modification from Wells Fargo.  Their previous loan was at 6.75%.  Approval was issued the same day.

In a similar case, Rodney Wynn of North Carolinas received another on-the-spot modification.  Wynn had a 13.4% mortgage that he can no longer afford.  His previous monthly payment was $1800 per month.  His new 2% mortgage payment is $970 per month.  Wynn avoided foreclosure and the bank avoided repossessing the home. 

Banks have come to realize this is an extraordinary market.  In the past, banks would foreclose based on the market conditions.  In today’s flooded market, banks are finding that they must hold properties longer than usual.  As a result these lenders are leaning toward attempting more and more modifications.

When loans are made affordable, homeowners are less likely to re-default.  Reports from RealtyTrac suggest that after one year, only 34% of modified loans whose payments had been reduced by 20% or more actually ended in foreclosure.  This is a significant improvement.  Loans with modifications that created payments with less than 20% reductions failed at a 63% rate.  Perhaps banks are finally coming to understand that giving up a little can save them a lot.

Bookmark With

During the preceding three months, anyone who has tried to buy a property would have been advised to look at foreclosed properties. The first time investors with some understanding of the market would have definitely understood that there is a lot of help from the foreclosed properties. Most of the properties are much below the fair priced bracket and are great buys. However, few would have known the differences between short sale and REO properties, or known where to get the best deals. Knowing about it and actually getting the best deal is the gap filled by an experienced agent.

REO means Real Estate Owned. These are properties are owned by lenders, mostly by the bank, posted after an unsuccessful attempt at auctioning. Once the bid is put up, (usually up to the outstanding amount) and there are no takers for the property, the bank has to transfer the ownership legally to its name. Once there are distress signals from the property like delayed or missed payments, the value of the property is quickly determined.

The price of the property is understood by obtaining the Broker Price Opinion (BPO) or by issuing an appraisal. Once the value is determined, the property is put through short sale or a foreclosure. In the case that the property goes through the short sale or foreclosure process, it is not listed under a REO. In the cases where the property doesn’t go through the foreclosure auction, it is listed as a REO. The bank repossesses the property and allows it to go through the normal channels of selling.

The bank will usually remove the liens and other expenses; this “new” product would now be sold through another set of auctions or through professional sellers. As real estate investors or first time homebuyers, it makes a lot of sense to go after these properties. The value to be paid is well below the existing market price and the title of such properties is also very clear.

Bookmark With

When Congress passed new legislation in May 2009, consumer protectionism took on new meaning in the area of mortgage reform.  The new bill put overdue pressure on lenders to raise levels of integrity and accountability in the shaken mortgage industry.  While the law may limit the number of new loans, the consumer is better served with a return to credible first and second mortgage standards.

As a result of the legislation, the lender must now provide a more transparent lending process and must document all financial qualifications of prospective borrowers.  The mortgage application process is more cumbersome, but certainly serves to the consumer’s benefit.

The act takes a strong position in opposition to the unfair lending practices of the past.  For example, the bill prohibits the lender from directing consumers to more costly, fee-based loans, for which the mortgage broker stands to reap quick profits.  In efforts to raise accountability standards, consumers are now permitted under federal law to directly redress firms involved in securitizing mortgages unless the securitizer has provided the borrower with a loan that meets the basic ability to repay standards.

The bill sets new standards that define the net tangible benefits to the borrower.  Any loan that does not comply with these standards is in violation of federal law and the issuer is liable for damages.  This is welcome news to consumers who had been shaken by reports of loan improprieties.

Today’s mortgage market is very different than the market that created the wheeling and dealing atmosphere of 2006 and 2007.  In fact, the Mortgage Reform Act encourages responsible underwriting through federal mandates that require creditors to retain an economic interest in a material portion of at least 5 percent of the credit risk of each loan.  This means that when the creditor sells, transfers or conveys the loan to a third party, the originator must retain a 5 percent interest.

This retained exposure keeps the lender “in the game” so to speak.  Now, there is lasting incentive for the lender to create good, credit worthy loans.  Federal banking agencies are empowered to make exceptions to this risk retention clause if form and amount are deemed advantageous to the borrower.

As the U.S. works its way through the housing crisis, new mortgages and new refinancing plans, including modifications, will now serve the borrower better.  Combines with new appraisal standards, qualified borrowers are assured of obtaining fair loans that are not inflated on properties that have fair market value.  These core issues are assured by the new federal standards.

The housing crisis is filled with tragic stories of foreclosure, short sales and plunging values affected by these conditions.  With these new lending policies in place, the market should stabilize and viable loans will be available to take advantages of the depressed residential market. 

The implications of these new standards have inspired the recent market turnaround as buyers enter and return to the home-buying process.  Congress and the mortgage industry are to be commended for their efforts to stabilize the lending industry.

Bookmark With