Produce the Note + Lawyers = Fraud in CA

Distressed home owners are being advised of a new way to stop foreclosure on their homes, and it's not the silver bullet that it claims to be. The newest urban legend in real estate is a version of the "Produce the Note" strategy. The theory is that your mortgage has been resold 3 times to different banks, and the bank that now holds your mortgage probably can't find the official documents that show you owe money - the "Note". If the bank can't produce the Note, they can't legally make you pay your mortgage payments or foreclose on you (this doesn't have any credibility in non-judicial foreclosure states, and little evidence of long-term value in other states).

Attorneys, unfortunately, are some of those people propagating a scam based on this strategy. California has begun prosecuting attorneys who charge distressed homeowners thousands of dollars up-front, thousands in ongoing monthly fees, and never get any results. They file a simple lawsuit and never follow up. Why? Because there is no evidence that any of their clients actually get help. The vast majority end up being foreclosed upon anyway.

Mortgage Fraud Report

Seattle Foreclosures

Making Home Affordable - Changes on the way for Freddie Mac

Freddie Mac is making improvements to the Relief Refinance Mortgage terms. This program is part of the Making Home Affordable plan from the federal government which was intended to help struggling home owners to refinance their mortgage to lower interest rates.

FHMC (Freddie Mac/Federal Home Mortgage Corporation), will allow home owners with a mortgage that is FHMC owned to refinance with any affiliated lender, not just the current servicer of the loan. There could be more costs associated with using a new lender, as opposed to the current one.

Borrowers will also be able to include a larger percentage of closing costs into the loan.The limits for closing costs will be raised to the lower of $5000 or 4% of the loan amount. This could allow home owners to buy down their interest rates more significantly.

No word yet on the exact date that these improvements will take effect

Rates Drop Again - 4.85% Interest

Interest rates on 30 year mortgages dropped to 4.85% this week, a 38 year low according to Freddie Mac.

After the Fed's announcement of plans to buy $750B in MBSs and $300MM in Treasuries, the mortgage markets responded with the big drop. On top of the $8000 tax credit for first time buyers and lowered prices over the last few years, incentives for buyers are everywhere right now.

Cramdowns on the way, Investments on the way down

Mortgage "cramdowns" are being pushed in government legislation as we speak. For borrowers who are in Chapter 13 bankrupcty, a cramdown is when a bankruptcy judge is allowed to lower the actual balance of the insolvent borrower's mortgage.

This is the peak of a number of homeowner-rescue tactics. While there have been plenty of options for borrowers to have their interest rates lowered or late penalties removed from their loans, never before has the government allowed a judge to choose the balance of a loan and force a bank to accept it.

Have a 401k? IRA? Pension? Plan on retiring any time soon? You should be worried. Much of the current turmoil in the markets is based on financial institutions' instability. Cramdowns will amplify those problems, and the markets will suffer increasingly. When banks' assets are on the line, so are yours.

There isn't a lot of sympathy for banks right now, but the banks are losing their shirts, too. Have you seen the stock prices, layoffs, and government takeovers? This has all happened before the actual instrument of these banks' assets becomes dependent on bankruptcy judges' opinions of "appropriateness".

We all want to be sympathetic to those who are having trouble paying their mortgages, and our government is putting out a lot of options for those folks. Cramdowns are only going to bring down a lot more people at a faster pace.

Mortgage Delinquencies 12%? Take a deep breath...

Foreclosures and a slow economy are taking their toll on the real estate market, there's no denying it. Let's all take a deep breath when we read the headline statistics about mortgage delinquencies, though.

The latest screamers are these:12% of mortgages are behind at least 30 days. 48% of subprime loans are behind on payments.

Those numbers are bad, but don't fall into the trap of thinking that everyone is falling behind on their payments. Statistics have a funny way of being manipulated to their user's benefit (including mine).

40% of homes in America have no mortgage. They are owned free and clear. This would mean that only 7% of homeowners are behind on their mortgages.

Subprime loans only account for about 15-20% of all mortgages (depending on who you believe). If half of them are behind on payments (7%-10% of all mortgages), these late subprime borrowers would only account for 4-6% of all homeowners (removing free and clear homes again).

So 7% of homeowners are behind, and most of those are the 4-6% that are subprime. That doesn't sound as bad, does it? Unemployment numbers are higher than that.

These numbers are not perfect, and neither is the road ahead for our market. Just take statistics with a grain of salt.

A Mortgage Bailout for Responsible Homeowners? Maybe...

The mortgage bailout and foreclosure rescue from the federal government has elicited a lot of emotion. Many homeowners have complained that they have been struggling to pay their mortgage on time and that they shouldn't have to bail out those that have stopped paying.

Help *may* be on the way. As new details of the Housing Affordability and Stabiliy Plan emerge, it seems that homeowners who are current on their mortgage will be eligible for the plan. If their mortgage is with FNMA or FHMC, and they are less than 5% "under water", they can qualify. They do, however, have to show an imminent hardship that will make it hard for them to continue paying on time.

The big questions: What will constitute a "hardship", and what percentage of this money will actually be available to homeowners who are current? Would it make more sense to reward those who are still current, as they are the least likely to walk away from their homes in one year from now? Would it create too much of a subjective process and a mountain of paperwork to determine who is truly challenged financially? Surely it's easier to say "This person isn't paying on time, they qualify." That doesn't mean it makes the most sense.

No question, there will be a landslide of people applying. Details of the plan are ever-changing, so you can keep your fingers crossed, but don't get too excited yet.