Norfolk, Virginia Beach, Chesapeake, Portsmouth, Suffolk

Diane Olick is CNBC’s Real Estate Reporter.  She writes her blog titled “Realty Check.”  Her article below was published last Friday, January 15.  It was so compelling that I wanted to share it with my readers who may have missed it.

 

 

Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks.

 

I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.

 

His companies include 1800CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he's been receiving all kinds of questions and complaints about trouble with second lien holders.

 

As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used "piggy back" loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don't qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan).

 

About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.

 

In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

 

If they don't, and there's no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn't have to agree, but more and more are doing so.

 

That's all legal.

 

But here's what's not legal and what's apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say "on the side," I mean in cash, off the HUD settlement statements, so the first lien holder doesn't see it.

 

"They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale," says Brandt. "So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal."

 

(RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.

 

I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, "That's a red flag!"

 

Clearly illegal.

 

Brandt told me he's heard from at least 200 agents that they've had these requests made by representatives of Citi Mortgage, JP Morgan Chase, Bank of America and other large banks.

 

Most agents wouldn't go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.

 

"I think it's wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client," says Gentry matter-of-factly. "Aside from being illegal and a violation of RESPA, it's immoral and truly it's just sad for the client that it's hurting."

 

Gentry says she has had the requests made three times and claims she lost one sale because of it.

 

"The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase."

 

JP Morgan Chase simply answered, "No Comment," when I relayed the charge to their media representative.

 

Bank of America denied the practice to CNBC in a written statement:

 

"Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens."

 

Citi 's reply was a bit more complicated:

 

“We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws."

 

"When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it's been cleared through legal and they don't care. Do it anyway," charges Gentry.

 

I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it.

 

The real estate agent was rightly concerned and reluctant (the recording was given to me by Brandt who got it from the agent. The agent would provide no information on the lender, for fear of retribution):

 

AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…

 

LENDER: You're not going to lose your license - we have plenty of realtors who do this, who actually understand how this whole process goes - and they realize that OK, if I want to get this done, this will take place."

 

I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this.

 

The folks at HUD said they'd be very interested to see my story.

 

By: Diana Olick
CNBC Real Estate Reporter

 

I was speaking to a Realtor today and she mentioned that in the last 4 foreclosed home buyers,  3 chose not to have an inspection because they were bank owned.

Wow I thought they must be some risk takers!

Here are five reasons for a buyer to reconsider having an inspection:

Lack of disclosure - The inspector's experience can help build a picture of the home's past and it future potential.

Sneaky Vandelism - The obvious stuff is a no brainer but we have seen disconnected gas lines, rubber balls pushed into drain lines and food stuffed into heating ducts. I can't say we will find it all (man's ingenuity know no bounds) but we certainly know where look.

Unpermitted work - If the past owners did there own work without permits, the new owners most likely will be required to bring everything up to current code. A small renovation can turn into a bigger project at the request of the local building department. Inspectors regularly recognized this and alert buyer to it.

Unwelcome guests - Lots of rodents, bugs and animals will move into a vacant house. I can almost guarantee a house that was vacant last fall will have some guests.

Weather related issues - Most of the winterization I have seen is a joke. We regularly find freeze damage to the plumbing, leaking valves in toilets, and split lines hot water baseboard systems.

In most cases the home inspector is going to find items that will cost much more than their fee to repair. In some cases the buyer will reopen negotiations and be successful. Regardless when they go to move in there will be less unpleasant surprises as try to take this house and make it their home.

Rick Bunzel, CRI
Pacific Crest Inspections
WA Licensed Home Inspector #312
ASHI Certified #249557
NPSAR Nominee Affiliate of the Year 2009-2010
NAHI Member of the Year 2008
NPSAR Affiliate of the Year 2006-2007
WWW.PacCrestInspections.com
360-588-6956
Fax 360-588-6965
Toll Free 866-618-7764

I wanted to take a moment to make sure you are familiar with events surrounding a sweeping set of policy changes for FHA announced earlier this week. The announcement details the changes that Secretary Donovan promised to deliver by the end of January when he testified before Congress last month.

 

The new policies are designed to strengthen the FHA's capital reserves so we can continue to fulfill our mission of serving underserved communities.  In addition, we were determined that these changes should support, not disrupt, the nation's housing market recovery.  Bringing these changes to market has been the result of a lot of hard work and long hours.  And, I am proud to have worked with so many of you on this initiative.

 

What changes will be implemented?  We announced the following on January 20:

1. Increase the up-front mortgage insurance premium (MIP) to 2.25%;
2. Update credit score and down payment requirements for new borrowers;
3. Reduce seller concessions to three percent, from six percent; and
4. Implement a series of significant measures aimed at increasing lender enforcement. 

 

When combined with the risk management measures announced in September of last year, these new changes are among the most significant steps ever taken by FHA to address risk.  Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery.  Importantly, FHA will remain the largest source of home purchase financing for underserved communities.

 

Let's go into more detail:

 

Announced FHA Policy Changes:

 

1.      Increase the MIP to build up capital reserves and bring back private lending.

o    The first step will be to raise the up-front MIP by 50 basis points to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

o    If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.

o    This shift will allow for the capital reserves to increase with less impact on the consumer because the annual MIP is paid over the life of the loan instead of at the time of closing.

o    The initial up-front increase is included in Mortgagee Letter 2010-02 and will go into effect in the spring.

 

2.      Update the combination of credit scores and down payments for new borrowers.

o    New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program.  New borrowers with less than a 580 credit score will be required to put down at least 10%.

o     This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

o    This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

 

3.      Reduce allowable seller concessions from 6% to 3%.

o   The current level exposes the FHA to excess risk by creating incentives to inflate appraised value.  This change will bring FHA into conformity with industry standards on seller concessions.

o   The change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

 

4.      Increase FHA lender enforcement.

o    Publicly report lender performance rankings to complement currently available Neighborhood Watch data which will be accessible via www.hud.gov on February 1.

§  This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

o    Enhance monitoring of lender performance and compliance with FHA guidelines and standards. 

§  Implement Credit Watch termination through lender underwriting ID in addition to originating ID.

§  This change is included in Mortgagee Letter 2010-03 and is effective immediately.

o    Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.

§  Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

o    HUD is pursuing legislative authority to increase enforcement on FHA lenders.  Specific authority includes:

§  Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.  This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.

§  Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. 

 

Note:  This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.

 

In addition to the changes I have outlined, we are continuing to review FHA's overall response to housing market conditions, to evaluate its mortgage insurance underwriting standards, and to improve its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

 

I know this is a lot of information to absorb.  Listed below are links to some of the major stories about the announcement.  I promise to keep you aware as we implement these changes going forward.

 

Wall Street Journal (Nick Timiraos, 1/20) "FHA Sets Tighter Lending Requirements" The Federal Housing Administration is implementing more-stringent lending requirements and higher borrower fees to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency. LINK

  

Washington Post (Dina ElBoghady, 1/20) "FHA plans to require borrowers to produce more cash for downpayments" The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials. LINK

  

Chicago Tribune (Mary Ellen Podmolick, 1/20) "FHA homeownership rules to change" The Federal Housing Administration announced changes Wednesday that will make it more expensive for homebuyers to secure agency-backed mortgages while some consumers will be priced out of the housing market. LINK

  

CNNMoney.com (Tami Luhby, 1/20) "FHA loan requirements will make it harder to get a mortgage" It's going to be harder to get a government-backed mortgage from now on. LINK

CNBC.com (Diana Olick, 1/20) "FHA Boosts Insurance Premiums to Cushion Defaults" In a move to shore up the FHA's beleaguered balance sheet, Commissioner David Stevens on Wednesday announced big changes at the government mortgage insurer that now backs about half of all home loans to the nation's minorities. LINK

 

I want to thank you for your efforts to keep this housing system on track. The role of the Real Estate Agent, Mortgage Lender, Settlement Service Provider, and all who make the dream of homeownership a reality, is critical to stabilizing this economy.  Your work is for a good cause.  We really are making a difference in people's lives.  Thanks for the partnership!

 

Homeless In America

"There but for the grace of God, go I" - attributed to John Bradford, 16th Century

In any given night in America, 700,000 to 2 million people have no home to go to. Staggering statistic? Yes. And these numbers were from 1996.

In Colorado Springs, Fountain Creek runs parallel to Interstate 25. It has become 'home' to many of the city's considerable homeless population. It is estimated that Colorado Spring's chronic homeless number about 350 persons, and about 750 more have joined the homeless population due to job loss. That puts the number of people living on the streets, or along the creek bed, at approximately 1100.

Local Shelters are filled to capacity, and while the city struggles to find a solution, the homeless camps remain. Some cities around the country are providing basic services to their 'tent cities' on public land, such as portable toilets, (which I saw today at a few of the camps I photographed), trash pick up, firewood, and mobile medical vans.

A few of the homeless are there because they want to be. Most are not.

 

Why not designate an area, provide the needed services, and give these people a place to live with some dignity while we all await better times?

Proudly, in just 24 hours, we as Americans donated 10 million dollars to the relief effort in Haiti.

Granted, it's not on the same scale, but are the fast growing tent cities across America not also a crisis?

Statistics show that most homeless are men. But more and more women and children are joining them as families lose their jobs, and with them, the ability to pay rent. This is a cold, and dangerous way to live.

While I took these photos in Colorado Springs, I'm sure they are indiscernible from any other city in the country.

 

DBoucher Photography

Nature and Wildlife Photography Notecards

Real Estate Showcase Slideshows

 

Position yourself above your competition - Utilize a "Real Estate Showcase" Slideshow as a listing tool.  Post it on your own website - Realtor Showcase Members can upload it to Realtor.com - Post it on your blog to showcase your listings.

 

"Real Estate Showcase" Slideshow and Web Presentations, more captivating than a virtual tour!

Photos taken by Debi Boucher, DBoucher Photography, all rights reserved, may not be reproduced without express written permission.