Big Banks | Love's Real Stories

September 18, 2020

Good Government

The Reverse Mortgage has shifted into a new gear. The loan program that allows people to tap their home’s equity for income can now be used to either buy or refinance a home. The program has a new name, too. It is now the Home Equity Conversion Mortgage, or HECM. In the past, the Reverse Mortgage gained a questionable reputation for some elements of the loan terms that have now been removed.

The HECM is a government-sponsored loan, and was created for people over 62 years old to refinance the equity in their home, or buy a new home, eliminate monthly payments, and use the money as a cash advance or monthly income. The loan terms now contain a guarantee that a borrower will never owe more than their house is worth.

The program now also allows for people over 62 to buy a home and finance the debt as a HECM so they have no monthly payments and receive money instead. They can tap into their equity for expenditures on anything they want.

“The HECM completely changed my life,” says Carol Hennison. “After my husband passed, I couldn’t keep our home. The payments and upkeep were too much. I called my Realtor to prepare to sell my house and find a rental to move into. Bless her heart, my Realtor told me about this opportunity, and now I live in comfortably in a new home of my own without stress.”

Carol sold her home and with the proceeds made a down payment on her newer, smaller place. She financed the purchase with a HECM, which allows her the choice of taking cash advances or receiving monthly payments. So, Carol receives the monthly payments, with the option of taking cash advances, as well.

“I have no loan payment and I receive monthly income,” she said. “I can’t believe it!”

The catch is that Carol’s loan balance grows over time, as she receives payments, and the loan balance could eventually exceed the value of Carol’s home. If that were to occur, though, the lender can never pursue her or her heirs for anything. The HECM program is designed to keep people like Carol in their homes and the payments she receives will continue until she moves or dies. If there aren’t enough proceeds from the sale of the house to pay off the loan, the government takes the loss.

John Baxton was behind on taxes and insurance for his house, and late on his mortgage payments. “The last thing I wanted to do was sell my house, but it looked inevitable,” he says. “Then my son heard about this program and I was saved.” Baxton refinanced into a HECM which ended his house payments and gave him monthly income, as well as cash to bring his taxes and insurance current.

“Now I can stay here in the home I love and live very comfortably.” he said. “It’s quite a reversal!”

Here’s the capper: The HECM now has an interest rate of 2.9%. Because it’s a unique government program, the interest rate levels for a HECM are exempt from the usual market controls and influences, so the government can set the rate at the lowest level within the marketplace.

Spread the word to anyone and everyone over 62 years old and tell them the government got this one right!

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August 28, 2015

Sink or Swim

Mel Watt is a man under fire. Mr. Watt is the Director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, which in turn oversees most of the country’s home loans.

Watt is under fire because he is responsible for deciding whether to allow Fannie and Freddie to grant principal reductions for underwater homeowners, whose home loans are higher than the value of their house.

Despite improving Real Estate values, several million people are still in seriously deep water with little hope of reaching the surface any time soon. These people keep making their loan payments, but are stuck in houses they can’t sell and may inevitably fall into foreclosure or just walk away – unless their lender agrees to reduce the amount of their loan.

JoAnn Henderson, the subject of a recent news story, is underwater in her house which she bought in 2001. She refinanced her loan a few years later to a higher amount when her house appraised for $500,000. Her house is now worth less than $300,000 and she owes $450,000 on her loan. JoAnn got in trouble with her house payments when her employment changed and her income went down.

“I would miss a couple of payments, and then pay and pay,” she said. “And then I’d miss a couple more. Yeah, I almost lost the house.” JoAnn was granted a loan modification, which lowered her monthly payments, but she was not granted a principal reduction. She’s hanging in there for now, month-to-month, but still deeply underwater.

Joann’s situation is a typical example of the need for principal reductions, according to proponents who are firing at Mel Watt to make the decision to allow them.

“It seems like principal reduction is a logical no-brainer conclusion,” says a spokesperson for the Center for Responsible Lending. “FHFA’s own analysis found that allowing principal reductions on mortgages held by Fannie Mae and Freddie Mac could provide a potential benefit to these agencies, and a benefit to taxpayers. In addition, principal reduction is already being used routinely by other mortgage holders.”

An Opponent to the idea that I talked to said, “Why give a free lunch to people who over-borrowed and spent the cash?”

Financial advisers Collingwood Group, say too much money would be lost on principal reductions. “This money doesn’t come out of thin air,” says Tim Rood, Chairman. “So it’s going to have to come from taxpayers and investors.”

What should Mel Watt do? Tell underwater homeowners to sink or swim? Or should he throw out the life preserver?

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May 15, 2014

The Czar

I could have saved us all millions of dollars if I had been appointed the Real Estate Czar of the United States, if only there really was such a position as the Real Estate Czar of the United States (RECUS).

If I were RECUS, I would be in charge of all the banks and I would compel them to handle their foreclosures and short sales the right way, instead of their way, which is inept and idiotic, and causes people to shake their heads, pull their hair out, and blow their tops.

The President of the United States (POTUS) should have appointed me RECUS when it was needed the most, back in 2006 when the housing bubble burst and the Great Recession was on the horizon.

My first act as RECUS would have been to notify every bank that I am in charge of all sales; that I have direct access to POTUS and therefore, all bank bailout funds. Then I would have issued the following directive:

“RECUS’ New Short Sale and Foreclosure Rules”

Banks may no longer refuse a short sale for no good reason. If in RECUS’s opinion, the seller has a legitimate hardship necessitating a short sale, and the price offered by the buyer is Fair Market Value, the bank must approve the sale.
For every short sale refusal for no good reason, RECUS will direct POTUS to subtract $10,000,000 from the bank’s bailout money (BOM).

Banks may no longer demand 40 pounds of paperwork to be submitted “for the bank’s sole perusal in settling the aforementioned sale” and then claim “non-receipt of the aforementioned documentation”.
For every pound of paper required by the bank over one single pound, RECUS will direct POTUS to subtract $10,000,000 from the bank’s BOM.
Additionally, the bank will be charged $1,000,000 for every use of the word “aforementioned” more than once.

Banks may no longer refuse a short sale, then foreclose on the property, and subsequently sell the property for less than the short sale price the bank had in hand in the first place. For every dollar less than the original offered price the bank accepts, RECUS will direct POTUS to subtract $10,000,000 from the bank’s BOM.
Additionally, if the property deteriorates during the bank’s ownership after foreclosing, $10,000,000 will be subtracted from the bank’s BOM for every dollar needed to bring the property back to the same condition in which the bank received it.

Actually, I wouldn’t have saved us millions; make that billions.

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December 17, 2013

The Deal

Twenty-five billion dollars used to sound like a lot of money. But next to the trillions we’ve seen thrown around in bank bailouts, tarp funds, and mortgage scandals, it’s no surprise we barely lifted an eyebrow and had to stifle a yawn at the new National Mortgage Settlement. The government has settled with the five biggest banks for a collective fine of $25 billion as compensation for mortgage and foreclosure fraud. The money is supposed to go to homeowners who were wrongly foreclosed upon or wrongly denied loan modifications.

Depending on which politician, consumer advocate, or analyst you listen to, the deal is either a boon or a bust.

Version one, boon:

The government has finally gotten somewhere with their commitment to justice by nailing the banks for their fraudulent loan practices. This is the biggest money settlement in our nation’s history, and it’s just the beginning. The banks are also obligated to open up loan modifications in the form of principal reductions for hard-working people who are “underwater” in their homes, whose loans are more than their homes are worth. If the banks don’t play this right, they will be whacked for more fines. This will break the back of the foreclosure crisis, our economy will straighten up, and home values will rise.

Version two, bust:

The big bank boys are slapping each other on the back, lighting big cigars, and clinking their drinks together in celebration of being let off the hook once again. For the equivalent of a parking ticket in their big-buck world, they are absolved of high crimes against the people of our country. No banker has been brought to justice in this scandal, and they have just been given a new “Get Out of Jail-Free” card. Now with no fear of lawsuits they will drop the hammer on foreclosures they’ve been stalling, which will further depress home values.

Twenty-five billion is a big number. Get out the calculator and start dividing. Please, let’s figure out who gets how much, and if it will make a difference.

No yawning.

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December 5, 2013

Bad Breaks and Good Luck

The big banks that got busted for bungling foreclosures paid billions for their bad business, through a settlement with the U.S. government. Eight-and-a-half billion dollars was paid to the feds, to be distributed to homeowners who were incorrectly foreclosed upon. Unknown is exactly who will receive the money, how much they will be given, and when they will get it.

There are people here in the North Valley who might be eligible- people who were in the process of a loan modification, for instance, who were told by the bank they were qualified for the modification, were days from closing the modification, and the bank abruptly foreclosed. It’s as if the left hand of the bank was holding a pen above the paperwork, ready to sign final documents, when the right hand appeared at lightning speed, seized the documents and fed them through a shredder, then slammed down the hammer of foreclosure. Bad break. No loan modification, no more home, time to pack it up and go.

After people packed it up and went, it was discovered the bank didn’t own some of the loans they foreclosed upon. Faulty and fraudulent paperwork stunk up the bank’s processing departments like rotten eggs. Too late though, the home has someone else living in it now.

Other people got the boot without being given proper notification, without correct paperwork, or disclosure of their rights. Mere technicalities one might say; but procedurally illegal nevertheless.

Amidst the foreclosure wreckage and the bad breaks, there are some good luck stories to be told.

One homeowner (who wishes to be unnamed) had a loan against his property of $375,000, and the house was worth around $225,000. The homeowner lost his job and quit making payments, and the bank began foreclosure proceedings. The homeowner packed, and prepared to hit the road.

Three days before the foreclosure was finalized, the bank confessed their paperwork on the loan was faulty, and they no longer claimed ownership of the loan at all. No one else did, either.

Eureka! The homeowner-who-wishes-to-be-unnamed now owns his home free and clear. He pulled the “Get-Out-of-Jail-Free” card; the “Bank-made-an-error-in-your-favor” card. Lucky break.

He also got his job back.

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Category: Big Banks