Monday, December 14, 2009

Bank Foreclosure Filings Often Missing Paperwork

With skyrocketing foreclosure rates across the nation, homeowners have felt powerless to stop big banks from taking over. Many are turning to bankruptcy to try to save their homes.

Those dreaded legal proceedings are leading to free homes for some.

"We were terrified," homeowner Siwanna Green said. "We didn't know what to do."

Green is talking about the day last spring that she found out her 3-bedroom Harlem apartment was going into foreclosure – not from the bank, but from a notice in fine print in the newspaper.

"I tried to negotiate with the bank, and they wouldn't give me any information," Green said. "I keep hearing my apartment is going to be sold, and they kept saying, 'call back, call back.'"

It's the story of many families, but this one may have a nearly fairytale ending since the Greens could get their apartment for free. After being forced into bankruptcy, Green's lawyer David Shaev dug through reams of paperwork to find the bank that says they own the Green home doesn't have a legal leg to stand on.

"They cant prove they have ownership of the mortgage or the note, and they're filing basically are bogus claims," Shaev said.

These cases are far from isolated. Just a handful of attorneys are finding these foreclosure filings are either missing paperwork or fraudulent, meaning the bank doesn't have claim to the home and the mortgage just disappears.

Judges are now ruling that those mortgages be written off. A Patchogue family had their nearly $300,000 mortgage wiped out, and a Cortlandt Manor homeowner just had her $460,000 mortgage thrown out.

In a scathing court hearing the judge declared the mortgage company had a "lack of evidence" to prove they owned the home.

"The judges are very aware and catching on that the documents presented by these banks are not valid," Shaev said.

Shaev and fellow attorneys estimate there could be $1.1 trillion worth of similar mortgage mix-ups.

"If you want to take my client's house away, you better at least prove you have the right to," Shaev said.

A lack of that proof could lead to a very Merry Christmas for some.

While these homeowners can live in their houses free and clear, selling it is another matter since the title is in question. Those battles are currently being fought in court as well.

Tuesday, December 8, 2009

Fairness in Bakruptcy act leads to Unfair Housing Market

The financial crisis of 2008 and the current recession were triggered by the bursting of the housing bubble and the sub prime mortgage crisis that began in late 2006/early 2007. But US personal bankruptcy law also played an important role.

In 2005, major reform of US bankruptcy law sharply increased debtors’ cost of filing for bankruptcy. This caused a sharp reduction in the number of filings. Because credit card debts and other types of unsecured debt are discharged in bankruptcy, filing for bankruptcy loosens homeowners’ budget constraints and makes paying the mortgage easier. Thus the 2005 reform set the stage for an increase in mortgage defaults by making bankruptcy less readily available.

We estimate that the reform caused about 800,000 additional mortgage defaults and 250,000 additional foreclosures to occur in each of the past several years – thus contributing to the severity of the financial crisis.

But over longer periods, bankruptcy filings and mortgage defaults are positively rather than negatively related. To show this relationship, we use a large sample of first-lien mortgages that originated in 2004 and 2005 and are followed each month. Figure 1 shows homeowners’ cumulative probability of defaulting on their mortgages, conditional on filing for bankruptcy. More than 90% of homeowners with subprime mortgages and nearly 80% of homeowners with prime mortgages who file for bankruptcy also default on their mortgages. Most often, default occurs first and bankruptcy second. The reverse relationship (not shown) is similar although less strong: 9% of homeowners with subprime mortgages and 6.5% of homeowners with prime mortgages who default also file for bankruptcy. Figure 2 shows homeowners’ cumulative probability of filing for bankruptcy, conditional on lenders starting foreclosure. More than 70% of homeowners with subprime mortgages and nearly 20% of homeowners with prime mortgages who are subject to foreclosure file for bankruptcy.

We also estimate hazard models explaining homeowners’ decisions to file for bankruptcy following default, controlling for homeowner and property characteristics and local economic conditions. We find that when homeowners default, their probability of filing for bankruptcy over the next several months increases 14- to 16-fold, depending on whether they have prime or subprime mortgages. When lenders start foreclosure, homeowners’ probability of filing for bankruptcy increases around 25-fold, regardless of whether they have prime or subprime mortgages.

Why are homeowners’ decisions to default and to file for bankruptcy so closely related? One reason is that increases (decreases) in income levels increase (decrease) homeowners’ ability to pay both their mortgages and their unsecured debts. Similarly, increases (decreases) in homeowners’ total debt levels decrease (increase) their ability to pay both their mortgages and unsecured debts. In addition, default and bankruptcy are positively related because filing for bankruptcy helps homeowners in financial distress. Homeowners who have fallen behind on their mortgage payments and wish to save their homes gain from filing for bankruptcy, because filing delays foreclosure and gives homeowners more time to repay. Filing for bankruptcy also helps homeowners because bankruptcy trustees may challenge excessive fees and penalties that mortgage lenders frequently impose and bankruptcy judges sometimes discharge second mortgages if they are underwater. Homeowners who do not wish to save their homes also benefit from filing for bankruptcy, because the delay in foreclosure allows them to stay in their homes cost-free for several months during the bankruptcy proceeding. Deficiency judgments – claims on ex-homeowners to pay the difference between the mortgage and the sale price of the home in foreclosure – are also discharged in bankruptcy. All of these factors suggest that homeowners who default on their mortgages also gain from filing for bankruptcy.

Policy implications

These relationships have important public policy implications. Foreclosures have very high social costs, many of which are not borne by either borrowers or lenders. The external costs of foreclosure instead fall residents of neighborhoods that become blighted because of foreclosures and on residents of towns and cities that are forced to cut public services because foreclosures caused property values and property tax revenues to fall.

There is an efficiency gain from using bankruptcy policy to discourage defaults and foreclosures. In particular, the 2005 bankruptcy reform should be at least partially reversed, since lowering the cost of filing for bankruptcy will encourage more homeowners to file and therefore reduce foreclosures. And foreclosure laws should be changed to make the foreclosure process longer and more expensive for lenders – this will encourage them to modify mortgages rather than foreclosing. In addition, reforms such as the credit card legislation recently adopted by the US Congress will affect both bankruptcy and default. The new legislation, which prevents credit card lenders from raising interest rates on existing loans, is likely to reduce the cost and availability of credit card loans and therefore will also reduce both mortgage defaults and foreclosures.

Tuesday, November 24, 2009

Medical Problems leading cause of Bankruptcy

While leaders in Washington debate health-care reform, bills for medical care right now are driving more people into bankruptcy.

"It's overwhelming, tragic and overwhelming," said Peter Frank, a lawyer with Legal Services of the Hudson Valley, whose agency is seeing more bankruptcy and foreclosure cases related to health-care costs than ever before.

Frank said his agency handles about 60 to 80 cases of health-care-related bankruptcies a year. A few years ago, that number was only 5 or 10 cases.

The problem is being felt all over the country. A study led by Harvard researchers and published earlier this year by the American Journal of Medicine estimated that nearly two out of every three personal bankruptcies — 62 percent — were due to medical bills.

That study was conducted in 2007, before the current economic crisis, so things actually might be even worse than that at this moment.

And even those with health insurance can be susceptible if they're hit with a very serious illness. Nearly 80 percent of those in the Harvard study who went bankrupt due to health-care costs had health insurance when they first became ill.

The rough economy overall sometimes forces people to choose between health care and other necessaries. Take a working couple with two incomes, who suddenly lose one income when one of them is laid off. If they choose to drop medical coverage to help offset the lost income, they might later regret it if one suffers a major illness.

COBRA allows workers who lose their jobs to remain under their employer's health-care coverage temporarily — usually for 18 months — but they have to pay the full cost of premiums. Frank said many middle-class people these days can't afford those payments.

Those who end up in that situation can file under one of two chapters of the federal bankruptcy code.

Frank said if they own a home, they usually can try to save it by filing under Chapter 13. That allows them to arrange to pay off their debt over time.

If they don't own a home, they'll usually opt for Chapter 7. There the basic goal is to wipe out the debt by liquidating all assets.

Frank said his agency also has to step in at least once or twice a month to stop debt collectors' harassing phone calls to debtors on fixed incomes.

Tuesday, November 10, 2009

Cramdown Bill Revisited

With foreclosures continuing to climb and midterm elections just a year away, Congress once again is preparing to tackle the mortgage crisis aggressively. High on many a wish list: a renewed push to allow so-called cramdown, which would let bankruptcy judges adjust the terms of home loans to give borrowers relief.

The banking industry hates cramdown from the idea of cramming deals down lenders' throats, but Democrats argue that earlier efforts to fix the housing mess have not done as well as hoped. Moody's MCO estimates that 3.8 million homes will enter foreclosure this year, up 41% from 2008. No surprises, then, those lawmakers are getting an earful. "We have folks calling our office every day," says Senator Jeff Merkley D-Ore., who is pressing Treasury to streamline its program to restructure mortgages.

Capitol Hill is now again looking at other options. One bill, introduced by Senator Jack Reed D-R.I. on Sept. 30 and co-sponsored by Merkley and two other senators, would force lenders to pause before they foreclose and to offer borrowers a break on their mortgage bill if they qualify for help under the Treasury program. Under the same proposed law, states could require mortgage servicers to enter mediation with borrowers before being allowed to foreclose. The bill also would give the states $6.4 billion to help homeowners stay put. "We're really trying to light a fire under the Administration," Merkley says.

Others in the Senate are considering the temporary suspension of home-loan payments or brief monthly mortgage subsidies for unemployed homeowners. House Financial Services Committee Chairman Barney Frank D-Mass. is drafting similar legislation.

The Administration is considering new options, too. One would support the broader housing market by extending a homebuyer's tax credit and making it easier for Fannie Mae FNM and Freddie Mac FRE to finance mortgages. Another would fund state housing agencies and independent mortgage banks. A Treasury spokeswoman noted that the Administration's programs have done more than previous efforts but said it "aggressively continues to build on our progress to date."

Many congressional Democrats think mortgage lenders need to feel the lash before they'll speed up mortgage workouts. Those critics, led by Senator Richard J. Durbin D-Ill., figure banks and mortgage servicers will do their best not to cut principal or interest rates on a mortgage. Lenders want to avoid, or at least delay, the loss they take from lowering what homeowners must pay, critics say. And despite an Administration plan that gives subsidies to mortgage servicers who agree to rework loans, many believe the service firms still gain too much from the fees they collect in foreclosure to bother working out a loan.

Durbin and other lawmakers are calling on Democrats to support what is seen as the party's nuclear option: cramdown. The proposal, which sailed through the House last spring, only to stall in the Senate on a 45-51 vote, authorizes bankruptcy courts to adjust mortgages. If Durbin's bill were to pass, a judge could reduce principal or interest rates on home loans and stretch out mortgage payments, something bankruptcy courts can do already with virtually every other kind of debt.

Supporters say cramdown would free homeowners from debt they can't afford while prodding lenders to cut deals before reaching the courthouse. A bankruptcy-court solution would also cost taxpayers little or nothing. Detractors argue cramdown would spook the mortgage market, driving up borrowing costs and making loans harder to get. Undeterred, Durbin, the second-ranking Senate Democrat, is willing to attach a cramdown provision to any convenient bill if it won't get a hearing on its own. The proposal "will always be part of the conversation, if for nothing else than to scare the [daylights] out of everyone," says one senior Senate aide.

The financial industry, which used major muscle to kill the provision last spring, is arming for the fight, too. "The vote in the Senate was so overwhelmingly close, we're always worried," says one lobbyist. The big banks are leaning on community banks for help: These institutions were largely innocent of the worst excesses of the crisis and tend to be viewed much more favorably on Capitol Hill. "We are kind of the white hat," says a lobbyist for smaller financial institutions. "You'll see a lot of the industry try to hide behind us."

Given the industry's stance, supporters of cramdown say a forceful campaign by the White House would help. President Barack Obama supported it during the campaign and soon after his election, while his chief economic adviser Lawrence H. Summers wrote columns in favor of the proposal last year. But congressional sources say the Administration did little to push for passage of the bill last spring possibly because Obama was reluctant to place further stress on already fragile banks. Now one Treasury official says the department has "no immediate plans" to revive the measure. Yet even without stronger White House support, Durbin might attract enough senators to embrace the bill if foreclosures continue to surge.

Wednesday, October 21, 2009

Foreclosures Vs. Loan Modifications (The Truth)

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed."

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they're obligated to do what's best for the ultimate owners of the mortgage -- the investors -- servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Thompson's report outlines eight specific steps to reverse this trend. They include mandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

Tuesday, February 10, 2009

Mortgage Modification Bill Update

I have written earlier articles denouncing the MBA for standing the way of this ultra neccassery Bill but guess who is in favor of the bill?
Bankruptcy Judges, that's who!
They know a little something about how the law works and I am sure if this proposal was un fair, they would not support it.

Judge Jay Cristol, a federal bankruptcy judge in Miami, said that changing the bankruptcy law would be beneficial because "after foreclosure, families get broken up and lenders hold on to nonperforming assets that they sell at a loss."

Does the MBA(Mortgage Bankers Association) care? No, they still appose the bill and they are joined by the Securities Industry and Financial Markets Association. They claim that they would need to raise interest rates if this bill passes.

Shame on you! Can't you see past your own greed and that people are in real trouble?
That is a Rhetorical Question, obviously you cannot.

Here is a link to the entire article, which was featured in the Wall Street Journal:

Friday, January 9, 2009

Mortgage Modifcation Bill may pass after all!!

If you have not heard the news by now, it is looking as if the Mortgage Modification bill may pass after all. Citigroup has agreed with democratic lawmakers that including this provision in the next stimulus package is a good idea. Offcourse, the Mortgage Industry, Primarily the MBA intends to fight this provision and delay the passing of the stimulus package if it is not removed from the stimulus package. I am very disappointed in the way that MBA and Mortgage Industry is acting, their greed has blinded them and they have no interest in helping ordinary american citizens. I urge everyone out there to read about this deal and if you agree with me, write your local congressman or better yet E-mail the MBA and let them know how you feel.
Here is a link to the article, which explains the "cramdown" deal:;_ylt=AvEIaGHBTadZQHyT_QgX4hjs.6F4
E-mail the MBA at:

If your not sure what to write, Here is what I wrote:
Dear MBA Executives,
I am appalled at the way the MBA is acting, unlawful business practices got you into this mess and congress still decided to bail you out. Now you have the gall to appose the cram down bill, even though you know it will help millions of families struggling to pay their mortgage, primarily because of ballooning Interest rates. These are the same Adjustable Rate loans which, you approved, now your surprised people are having trouble paying mortgages with 11% or above interest rates. If Bankruptcy judges are allowed to modify primary mortgages, it would allow millions of people to afford their mortgage payment, stay in their house and allow the housing industry to recover. Your organization should embrace this plan, not be apposed to it. in the long run, you will still make more money if people stay in their homes and pay their mortgages. Instead, you threaten us with higher interest rates in order to scare congress from passing this bill. You should be ashamed of yourselves, in at a time when Americans from all industries and walks of life need to stand together to weather the storm, you are fighting progress. I hope you come to your senses and realize this is a necessary measure.
As an employee of a Bankruptcy law firm, I come across people everyday that simply have trouble paying their mortgage because of high interest rates, allowing Bankruptcy judges to modify these loans in order for them to better reflect the value of the house and decrease unfsir interest rates is a no-brainer and you are foolish to fight it and by being against this bill, you are demonstrating to everyone that you do not have America's interests in mind and that you are overcome by greed.
Staten Island, NY