By Julie Schmit, USA TODAY

Steve and Tamara Gewecke are fighting to keep their home from foreclosure by challenging the bank to prove it has standing to foreclose.

In 2009, the Geweckes filed a lawsuit to block their foreclosure. At the heart of their case is this question: Who owns their mortgage?

They allege the investor trust that claims to doesn’t because there’s no proper record of the mortgage’s transfer to the trust.
Their complaint also alleges that the mortgage didn’t get to the trust until 18 months after the trust closed to new loans.

Their argument is one that more borrowers are making as they fight foreclosures in courts nationwide. Their attorneys allege that companies used shoddy practices at the height of the subprime lending boom when reselling mortgage loans in rapid-fire fashion, leaving questions now about mortgage ownership as foreclosures mount.

While homeowners are unlikely to keep homes if they haven't paid their debts, their challenges are delaying foreclosures and giving them more leverage to win loan modifications, legal experts say. Their arguments are also getting more attention after revelations this fall that companies produced thousands of potentially fraudulent foreclosure documents. The Department of Justice and others are investigating.

“There has been a sea change,” says Katherine Porter, a bankruptcy expert at the University of Iowa. “Judges are more willing to listen to homeowners … to establish if the bank has done something wrong. In the past, it was always, ‘The bank is right.’ ”

New York State Supreme Court Justice F. Dana Winslow testified at a congressional hearing this month that he’s seen so many problems with foreclosure cases that he no longer assumes the company attempting to foreclose is the right one. Instead, he calls them the “presumptive mortgagee in foreclosure.”

Winslow said he’s often seen cases in which lawyers pushing for foreclosure failed to produce the mortgage note — which proves ownership of the debt — or produced the wrong note. Companies failed to establish the legal chain of title proving their right to foreclose and submitted “questionable” affidavits attesting to ownership of notes and mortgages, the lien on the property, he said.

Homeowners’ attorneys also allege that companies created documents if they didn’t have the ones they needed, including lost-note affidavits signed by low-level employees who never read the affidavits yet attested to their accuracy. It was “cheaper to make the documents up than … to dig them up,” says Linda Tirelli, New York consumer bankruptcy attorney.

Florida attorney James Kowalski, in recent written testimony to congressional lawmakers, cited a case in which two companies are trying to foreclose on the same house. Both claim to own the note.

Financial firms have said that any mistakes were minimal and can be remedied. In October, several firms, including Bank of America and GMAC Mortgage, temporarily halted some foreclosure sales to check procedures.

The industry also has defended the practice of bundling mortgages into securities for sale to investors. “There will be instances where mistakes were made … but the broad process is sound,” says Tom Deutsch, executive director of the industry’s American Securitization Forum.

If companies can produce documents to prove standing to foreclose, some foreclosures may simply be delayed, legal experts say. But it’s not clear that the issues are minor, said the Congressional Oversight Panel in a report last month. In a worst-case scenario, the report said that banks “may be unable to prove that they own” mortgages, clouding property titles for millions of homes and causing substantial financial harm to banks.

The issues are technical but “pose a potential systemic risk to the U.S. economy,” Georgetown University law professor Adam Levitin said at a recent congressional hearing. If mortgages were not properly transferred, “Then mortgage-backed securities would in fact not be backed by any mortgages whatsoever,” Levitin said.

A tangled paperwork trail

In the past, lenders rarely struggled to prove they had standing to foreclose. Local banks made mortgage loans, kept the documents and took payments.

But in the past decade, trillions of dollars of mortgage loans were packaged and sold to investors. Starting a day or two after homeowners signed closing papers, loans were sold and re-sold en route to investor trusts. To speed and reduce the cost of the process, lenders created Mortgage Electronic Registration Systems, or MERS, to track mortgage ownership and sometimes serve as mortgagee of record for the actual note owner. Some homeowners have challenged MERS’ authority to foreclose on the note owner’s behalf.

At issue now is whether mortgage loans were properly transferred and whether those transfers were properly documented.

Homeowner attorneys, such as the non-profit law firm representing the Geweckes, say that didn’t always occur. Financial firms say it did. The trustee in the Gewecke case, US Bank, argues that Minnesota law does not require an assignment — a public record showing a transfer — of the mortgage at every step of its path into a trust. It also says that the note was put into the trust on time and so the mortgage was too. US Bank says it can prove that it owns the Geweckes’ mortgage because it has the original note, the trust mentions the Gewecke loan and US Bank has an assignment that shows the mortgage was transferred from the Geweckes’ original lender to US Bank. A hearing in Minnesota U.S. District Court is set for Jan. 10.

Deutsch also says that the typical contract governing trusts doesn’t require that all prior owners or holders of mortgage notes appear on documents to show chain of ownership as notes pass from lenders or others to trusts. Levitin says they typically do. The law on such matters is “uncertain,” says Christopher Peterson, law professor at the University of Utah. He predicts years of litigation.

Judge rules against BofA

The homeowners’ cause scored a win last month when U.S. Bankruptcy Judge Judith Wizmur dismissed Bank of America’s claim to enforce a New Jersey mortgage originated by Countrywide Home Loans in 2006.

Wizmur said that Countrywide, which Bank of America bought in 2008, never properly endorsed and transferred the mortgage note to the Bank of New York, the trustee of an investor trust. As such, there was no evidence that Bank of New York owned the note, leaving it unenforceable. A Bank of America employee also testified that Countrywide routinely failed to transfer original notes.

In her order, Judge Wizmur noted a “bizarre twist” in which Countrywide said the note had been “misplaced, lost or destroyed” but then said it had been found. Attorneys couldn’t “explain the inconsistencies,” Wizmur wrote.

Bank of America counters that it was Countrywide’s policy to deliver notes as trust rules require and that the employee who testified “was mistaken,” says spokesman Jerry Dubrowski. Bank of America will not appeal because it doesn’t think the ruling will have broad implications, he adds.

The homeowner’s attorney, Bruce Levitt, says the ruling means that his client no longer owes the $211,000 that Bank of America said was owed.

Moody’s Investors Service, in a Dec. 6 report, said Countrywide probably did deliver mortgage notes. But it also said that when companies failed to do that, they “may not be able to foreclose” and that, given the New Jersey case, Bank of America may face more such challenges.

Other judges have also required more proof of right to foreclose. This month, a Florida judge dismissed a foreclosure case and said it could be refiled but needed to lay out the chain of who owned and held the mortgage loan from the start. In Ohio, a judge this month also ruled in a homeowner’s favor in a foreclosure when he said, among other things, that there was no evidence that an allonge — a paper signed by the mortgage note’s previous owner transferring ownership — was affixed to the note as it should have been. That left the note’s ownership unclear.

The United States Trustee Program, which guards against bankruptcy court fraud for the Department of Justice, has also launched an “enhanced review of documents” in cases where banks seek to foreclose or collect payments, says U.S. Trustee spokeswoman Jane Limprecht.

The impact is being felt. Last month, the Justice Department’s trustee for bankruptcy cases in northern Georgia filed papers in at least two cases saying that banks hadn’t proved that they could enforce notes or deeds for the debtors’ homes. The increased oversight by the trustees is meaningful, says bankruptcy attorney Howard Rothbloom. “The federal government has come in and said that lenders have to have their paperwork in order,” he says.

Few foreclosures challenged

More than 90% of homeowners don’t fight their foreclosures, lawyers say. Even if they do, the vast majority are unlikely to keep homes, because they haven’t paid their debts, attorneys say. “The only way to avoid foreclosure … is to pay off the loan,” says Shari Olefson, a real estate attorney who often represents banks. If needed, companies will find notes, re-do sloppy paperwork and prove standing, she says. Bank of America and Wells Fargo say they can retrieve notes, when needed, and have good processes.

While banks made mistakes, the “probability is high that we’ll figure out who owns the mortgage,” says Richard Bove, banking analyst for Rochdale Securities.

Still, attorneys say companies may be more apt to modify loans if foreclosure records aren’t in tip-top shape. Modifications “become more available when there is greater risk to the lender,” says Judge Winslow in an interview. Rarely, if ever, will homeowners walk away with free homes even if there are title issues that take time to resolve, Winslow adds. Homeowners “owe someone.”

The Geweckes want a loan modification so they can stay in their home of 16 years. Their current loan has an adjustable 9.25% interest rate. They owe more on the house than it’s worth.

They’re not looking for a “free ride,” says Steven, 40, who works in marketing. Neither do they want to pay off one firm and then face a future claim by another.

They also hope their case will send a message to mortgage companies that they must obey rules, too.

“I understand that if you don’t make your payments, you’ll lose your home,” says Tamara Gewecke, 41. “But make sure you do it right. Make sure you’ve got your paperwork done.”

Make sure that you pay careful attention to this… MID Has Boosted Homeownership. Chairs of the President’s Deficit Reduction Commission recently leaked a draft of suggestions for reducing the deficit. Among the many proposals are recommendations that would reduce or eliminate the Mortgage Interest Deduction. This could negatively impact real estate transactions. The leaked draft was intended to show that drastic changes are needed if the deficit is to be reduced. The leaked draft is NOT the Commission’s final recommendation. A formal report is expected on December 1. Recommendations in it will become formal only if 14 of the 18 commissioners vote in favor of the proposal. Etc.

Deficit Commission Chairs Release Draft MID Proposal

The concepts in the draft range from full repeal of the MID to other, various reductions. One proposal would reduce the cap on interest deductions from its current level of $1 million of mortgage debt to $500,000 of debt. The MID for home equity lines would be repealed, and the deduction for second homes would be repealed. Another version does not target MID specifically, but would rather reduce all itemized deductions by a fixed percentage. For example, if an individual’s combined MID, state and local taxes and charitable contributions were $15,000 and a 20% reduction was imposed, that individual would be permitted to deduct $12,000 ($15,000 x 0.8). A third group of proposal would retain the MID and some benefits for low-income families.

The revenues derived from cutting or eliminating the MID would facilitate the reduction of tax rates from its current 35% top rate to top rates of 23 – 26%, depending on the depth of the MID reduction. NAR and PWR will continue to monitor this situation as it develops and the full Committee report is released. We strongly oppose any changes to the MID or any plan that makes it more difficult for people to achieve the American dream of homeownership.

A rush by U.S. homeowners to refinance at near record-low interest rates marks a rare bright spot for the mortgage industry, under attack for choking the economy with shoddy loans and botched foreclosures.

Wells Fargo & Co., the biggest U.S. mortgage lender, received $194 billion of loan applications in the third quarter, the second-most in its history, Chief Financial Officer Howard Atkins said last week. About 80 percent were to refinance. Bank of America Corp. CFO Charles Noski said lending margins are up and demand should remain robust through year-end.

As the Mortgage Bankers Association opened its annual conference Monday in Atlanta, lenders that survived the real estate crash were finding the pickup in refinancings overshadowed by a national foreclosure investigation and fresh investor efforts to force loan buybacks. They are also concerned that new consumer-friendly regulations will be burdensome.

“After 22 years of fielding our survey of attitudes and behavior, I have never seen lenders respond with such uncertainty,” Jeff Lebowitz, founder of Mortech LLC, said in an e-mail after the research firm released its yearly survey of industry executives this month.

The report found that two-thirds of firms with annual lending volume of more than $5 billion expect that the issue affecting them the most in the next year will be adapting to rules created in response to the global financial crisis, which was caused by record defaults on housing debt.

Adapting to changes

Mortgage lenders feel like comic-strip character Charlie Brown, John Courson, president of the Mortgage Bankers Association, said Monday at the group’s conference. “We’ve got a lot of ‘Lucys’ in our life these days, people who, just as we think we’re moving down the field, pull the football out from under us.”

The Dodd-Frank bill passed this year seeks to rein in predatory lending by requiring banks to make a “reasonable and good-faith” determination that borrowers are able to repay some kinds of loans. It also instructed regulators to define which types of mortgages banks can make and package into bonds without retaining a slice. In addition, the bill created the Consumer Financial Protection Bureau, which will have the authority to regulate “unfair, deceptive or abusive” mortgage transactions and other credit products.

Changes related to mortgage disclosure and fee requirements in an update of the Real Estate Settlement Procedures Act are among the most challenging for lenders, said Wil Armstrong, chairman of Cherry Creek Mortgage Co., which made $3.4 billion in home loans last year.

“The industry can’t absorb change after change after change,” he said.

Refinancing applications have more than doubled since the start of the year, hovering for the past 10 weeks near levels not seen since May 2009, according to Mortgage Bankers Association data. Rates for 30-year fixed-rate loans declined to 4.19 percent in the week ended Oct. 14, according to Freddie Mac, the lowest since it began tracking the data in 1971.

More profit per loan

With fewer competitors in the market, per-loan profit on making and selling mortgages is rising, with the difference widening between average rates on new loans and yields on Fannie Mae-guaranteed bonds into which they can be packaged. The gap is about 1 percentage point, up from about 0.45 of a percentage point a decade ago, according to data compiled by Bloomberg.

Not all applications are turning into new loans. Many consumers can’t qualify because of tightened lending standards or because their homes are valued at less than their existing mortgages, a situation known as being “underwater” that is a major obstacle to a real estate recovery.

Depressed home sales

Completed refinancings in the third quarter were an estimated 56 percent below the second quarter of 2004, after applications earlier that year touched similar levels, data from the bankers group show.

Meanwhile, home sales remain depressed.

Compared with a year earlier, existing home sales were down 19 percent in September before adjusting for seasonal patterns, the National Association of Realtors said Monday. Sales fell to a 4.53 million annual rate, exceeding the 4.3 million pace that economists forecast, according to the median projection in a Bloomberg News survey.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/10/26/BUKB1G1NEU.DTL#ixzz144umAhcM

It also varies depending on which of the three main credit repositories you check. Each has a different scoring formula and different information in its files. – By Lew Sichelman – October 24, 2010 – Reporting from Washington —

Here is a scenario that happens all too frequently: A would-be home buyer applies online to obtain his all-important credit score. It comes back at a healthy 720, good enough to qualify for the best rate in the mortgage market. But then, when he applies for a loan with a local lender, his score is much lower. So low, in fact, that he might not qualify, even at less favorable terms.

What gives? How can your credit score be one number on one day and a different figure the next? And why does your score vary from one company to another?

A lot of things could be at play here. Let’s start with the basics.
A credit score is a three-digit number that is considered an accurate predictor of whether you will make your house payments on time every month. The higher the number, the safer the bet that you will repay.

But your score is based on the information contained in your credit record. And because what’s in your file is fluid, so is your score.

“Credit is dynamic information,” says Greg Holmes, national director of sales and marketing at Credit Plus, a Salisbury, Md., company that serves the mortgage business. “It’s constantly changing. It’s up and down and constantly moving.”

Your record changes every time the company that has your car loan reports an on-time payment — or more important, a missed payment that’s now more than 30 days late. It changes each time your credit card balance changes. It changes every time you apply for new credit. And it changes when an old bankruptcy finally falls into the abyss, never to be reported again.

Because a credit record is a moving target, shifting on a daily or even hourly basis, your credit score is nothing more than a numerical snapshot of your file at the moment it is calculated. As such it can change from one moment to the next.

“It depends on how much information is coming and going in and out of that credit report,” Holmes says. “It’s whatever time of day and month you pull the report. There’s even a difference between an account that’s less than six months old and one that’s older.”

If you asked someone to pull your credit score today, exactly six months and 29 days after you closed a department store account, for example, the number would be different than if you asked tomorrow, when it has been seven months since the account was shut down. Maybe not by much, but perhaps enough to alter your chances to obtain financing.

But there’s more to your score than what’s in it. Another big factor is what’s not in it. Not every creditor reports information to each of the three main credit repositories.

Say your auto lender is a local bank that reports only to Experian because Experian has a bigger presence in your state. In that case, neither TransUnion nor Equifax will know whether you are current on your car payments. They wouldn’t know about your car loan at all. As a result, a credit score based on your Experian file will be different from one based on the records maintained by the other two big bureaus.

Also, each repository has its own credit-scoring formula. A Minneapolis analytics company known as FICO (formerly Fair, Isaac and Co.), from which the term “FICO score” comes, created all the formulas. But the algorithm used by each credit bureau is slightly different based on factors that each believes to be a more or less important component of risk.

So not only is TransUnion’s score different from Equifax’s and Experian’s because it is based on information only in its records; it’s also different because it uses a different analytical model. And even if each depository maintained the same files, their scores would be different because they use different formulas.

Next, it’s important to know that the mortgage industry isn’t the only business to use credit scoring to rate potential borrowers. Actually, housing finance came somewhat late to the technique. The insurance business has been grading potential customers for decades, and now auto lenders, finance companies, banks, employers and dozens of others use credit scoring to make decisions.

The key is that each business has its own scoring formula. And a score that may be acceptable to, say, the finance company offering to lend you $5,000 for a new roof probably won’t be acceptable to a mortgage company trying to decide whether to lend you $500,000 to buy a new house.

So if you received your score from one of the Internet sites that provide a free score — but try to hook you into paying a monthly fee to monitor your credit file — it’s a safe bet that the number, accurate or not, won’t be worth much if you are in the market to buy a house.

If you’re buying a house, you’ll want an industry-specific mortgage score. No other score will do.

“Anybody can calculate a score,” Holmes says. “Who accepts it is what really matters. Even the scores used in the mortgage industry wouldn’t mean anything if Fannie Mae or Freddie Mac didn’t accept them. Or if JPMorgan Chase or Wells Fargo or Bank of America didn’t accept them.”

You can obtain a free copy of your credit record from each of the three major credit bureaus at http://www.annualcreditreport.com. The law entitles you to one free report every 12 months from each repository, but there’s nowhere I know of to obtain a free credit score.

Many outfits offer “free” credit scores, but in most cases, you have to sign up — for a monthly fee — for a credit-monitoring service. You usually can opt out of the service after a trial period. But the companies are hoping that you won’t, or that you’ll forget and won’t pay much attention to your credit card bill when it arrives in the mail.

But remember, not every score is acceptable to mortgage lenders. I’m aware of only one online service that fits the bill: http://www.myfico.com. But even then, you’ll have to sign up for the Score Watch monitoring service that FICO offers in conjunction with Equifax. You’ll just have to remember to cancel the service before the free trial period runs out.

Beyond that, would-be home buyers can obtain meaningful credit scores by applying for a mortgage, either directly with a lender or with a broker who deals with several lenders. Once you apply, lenders are obligated by law to share the score they used as a basis to decide whether you qualify.

And once you obtain a satisfactory credit score, make sure that you don’t do anything credit-wise that will change it, at least not until after the loan closes. Remember, a credit score is a moving target, so if you run out and buy new furniture using credit, your score will suffer, and you may no longer qualify for a mortgage to buy your house.

lsichelman@aol.com – Distributed by United Feature Syndicate. Copyright © 2010, Los Angeles Times

Hope you find this article helpful… have a great day and thank you for checking back in.

CALIFORNIA ASSOCIATION OF REALTORS® releases its California Housing Market Forecast for 2011:
Small increases projected in both home sales and median home price

LOS ANGELES (Oct. 4) – A weaker-than-expected economic recovery will result in a projected decline in California home sales for 2010, although home sales are expected to edge up slightly in 2011, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) “2011 California Housing Market Forecast” released today.

California home sales for 2010 are forecast to decline 10 percent from the 2009 sales figure of 546,500 homes sold. Sales in 2011 are projected to increase a lackluster 2 percent to 502,000 units compared with 492,000 units (projected) in 2010. After two consecutive years of record-setting price declines, the median home price in California will climb 11.5 percent in 2010 to $306,500 and increase another 2 percent in 2011 to $312,500, according to the forecast.

“California’s housing market will see small increases in both home sales and the median price in 2011 as the housing market and general economy struggle to find their sea legs,” said C.A.R. President Steve Goddard. “The minor improvement in the housing market next year will be driven by the slow pace of recovery in the economy and modest job growth. Distressed properties will figure prominently in the market next year, but we also expect to see discretionary sellers play a larger role,” he said.

“As the U.S. economy continues its tepid recovery, we’ll see some improvement in California’s economy,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “We expect a net jobs increase of approximately 1.4 million jobs in California for the year to come and an improvement in unemployment figures,” she said.

“The situation in the California housing market continues to be a tale of two housing markets,” said Goddard. The segment of the market under $500,000 has been driven by distressed sales, while higher-priced areas of the state have been constrained by restricted financing options, and increasingly have experienced an increase in the number of distressed properties. Sales in the low end have been constrained by a lack of inventory, putting upward pressure on prices. Multiple offers on lower-end homes have been very common, according to Goddard.

“A lean supply of available homes for sale will drive prices up at the low end, but larger inventories and limited, less attractive financing will cause continued softness at the high end,” said Appleton-Young. “There’s some indication that lenders will accelerate the number of foreclosures coming on market, further adding to the housing supply, but we do not anticipate that lenders will flood the market with distressed properties,” she said.

“The wild cards for 2011 include federal housing policies, actions of underwater homeowners, and the strength of the economic recovery,” said Appleton-Young. “What is certain is that favorable home prices and historically low interest rates will continue to make owning a home in California attractive for those who are in a position to buy,” she said.

An expanded forecast presentation will be presented Wednesday afternoon during the CALIFORNIA REALTOR® EXPO 2010 (http://expo.car.org/), running from Oct. 5-7 at the Anaheim Convention Center in Anaheim, Calif. The trade show attracts nearly 7,000 attendees and is the largest state real estate trade show in the nation.

Don’t miss “2010 Econ Panel: The Future of Real Estate Finance and Your Market in 2011” during CALIFORNIA REALTOR® EXPO 2010. C.A.R. Vice President and Chief Economist Leslie Appleton-Young will lead a panel of renowned economists as the experts share their predictions on what the changing economy means for real estate. Panelists include: Richard Green, professor and director of the USC Lusk Center for Real Estate; John Karevoll, housing analyst at Dataquick Information Systems; and Michael LaCour-Little, professor and director of the California State University, Fullerton Real Estate and Land Use Institute. The panel is scheduled to be held Thursday, Oct. 7, from 2 p.m. – 3:30 p.m. at the Anaheim Convention Center.

2011 FORECAST FACT SHEET

The C.A.R. Expo is this week at Anaheim Convention Center… Make sure you check out REBarCamp and Tech Tuesday! I’m sure these will be well worth your time! On a side note… what do you think as far as the projections and information presented above? I would love to hear your thoughts… simply send me a comment below.

Mortgage makers are going beyond tax returns and bank statements to determine whether you’re a good risk. They’re checking such things as where you have pizza delivered and where you shop online.

Reporting from Washington — That pizza you had delivered the other night could mean the difference between whether you are approved for a mortgage or rejected.

There’s a big stretch between making a house payment and paying for a pizza. But it’s not what you pay for carryout that matters, at least not in the eyes of lenders. It’s where the food was delivered.

Ordering takeout proves that you live where you say you do, and that helps lenders uncover the crook who claims to live in the property he is trying to refinance when he really lives hundreds of miles away. Or expose the 35-year-old who says he has a $1,200-a-month apartment when he really lives rent-free with Mom and Dad.

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When you order food online, you become part of a vast database that lenders might tap to help them determine whether you are a good risk. Moreover, all sorts of these data reservoirs exist, and none of them is off-limits to lenders who are coming off the worst financial debacle since the Great Depression.

“If the data is available and it can be obtained legally, I’m going to test it,” says Alex Santos, president of Digital Risk, an Orlando, Fla., analytics firm that works with lenders and investors to build better underwriting mousetraps. “If it is inexpensive and makes my credit model better, I’m going to use it.”

Digital Risk is just one of numerous risk-management companies that are continuously probing for ways to help clients quantify their risk, prevent fraud and otherwise ensure the quality of their loans. And they’re going to extraordinary lengths to do so.

For example, they might peek into your online-buying habits. After all, the reasoning goes, someone who buys his shirts from a Brooks Brothers catalog may have more disposable income than someone who shops at JCPenney.

“At least that’s a theory we can test,” Santos says. “We’re looking for any type of data source that you can plug into a computer. It takes only a month of trial and error to determine whether the information can help [determine credit risk] or not. We have a hypothesis, push a button, and the computer tells us whether the data is predictive or not.”

This sort of data mining goes way beyond your credit score, that financial snapshot that measures your ability and willingness to repay your debt. And, Santos says, “there’s a tremendous amount of this kind of analytics going on right now.”

Lenders are still checking credit histories, not just when you apply for a mortgage but also a second time a day or two before the loan closes. But your credit score — known as a FICO score for the name of the company that created the scoring formula — is now considered “too broad.” Consequently, it has moved down in the hierarchy of tests that lenders are using to make certain that someone isn’t hoodwinking them.

First and foremost, lenders are pulling copies of your tax returns directly from Uncle Sam.

Don’t be alarmed. You give the lender permission to do that when you sign Form 4506-T. The idea here is to make sure that you haven’t altered the copy of your last two years’ tax returns that you provided when you signed your loan application. Lenders want to know if you might have exaggerated how much you earned.

Form 4506-T isn’t new. But a few years ago, at the height of the housing-market bonanza when home loans were easy to come by, many lenders failed to use it. Now practically everyone is going straight to the federal tax collector to compare the returns you provided with those on file with the IRS.

Lenders also are going to great lengths to verify employment and assets. Not only are they calling the name and work number you provided on your application, but they also are seeking confirmation in writing from your employer about what you earn, your position and how long you’ve worked there.

It’s the same for your bank accounts. Rather than being satisfied solely with the copies of the bank statements you provided, lenders are going directly to your bank to secure another set of those statements to make sure the numbers line up.

Lenders are no longer taking the appraiser’s word for how much the property you want to buy or refinance is worth, either. Now, they are employing automated valuation models as a second line of defense to be certain the appraiser’s estimate is on the money.

Next in the line of defenses is your credit score, but not just the score pulled when you applied for the loan. Now, they are pulling a second score shortly before closing to make sure that you haven’t taken out a car loan, bought a houseful of furniture on credit or done something else that might change your ability to make your house payments.

Lenders also are searching for other undisclosed liabilities by running your Social Security number through a huge database known as Mortgage Electronic Registration Systems.

Since 1997, more than 63 million mortgages have been registered on the MERS tracking system, each with a distinct 18-digit identification number. So, if you have another mortgage that you “forgot” to tell your lender about, this check will probably find it.

Now, too, the most cautious lenders are digging into noncredit proprietary databases such as those maintained by Papa John’s or Victoria’s Secret. And nothing is out of the realm of possibility. The “only boundary,” says Digital Risk’s Santos, is whether information can be accessed legally.

As long as it does not distinguish between race, religion, age and other “protected” classes, anything is fair game.

Distributed by United Feature Syndicate.
Copyright © 2010, Los Angeles Times

MILITARY veterans have long been accustomed to a relatively easy mortgage process. Even borrowers with no down payment or a low credit score were usually granted V.A. loans, in large part because the Department of Veterans Affairs insures a quarter of the loan amount.

But about two years ago, lenders began limiting the conditions under which they would offer these mortgages, and industry executives say that since the start of the year, all the nation’s major lenders have followed suit.

“It’s been a tightening across the board,” said Nathan Long, the chief executive of VAMortgageCenter.com, an online broker of V.A. mortgages.

Lenders will still offer V.A. loans with no down payment, he said, but “if you have a credit score of 610, the best thing to do is work on your credit and try again in a couple of months, because you don’t really have any options.”

Mr. Long says major lenders like Bank of America, Citigroup and JPMorgan Chase, typically will not offer V.A. loans to borrowers with credit scores below 610. Debora Blume, a spokeswoman for Wells Fargo, said the cutoff score for her bank’s V.A.-insured loans was 600.

The tighter credit policies also extend to the Streamline Refinance program, which allows borrowers with V.A. loans to refinance into another V.A. loan with very little paperwork and, until recently, no appraisal.

Mr. Long and V.A. representatives say that lenders are now requiring borrowers to pay for an appraisal, which can cost $300 or more depending on a home’s location. If the new loan amount is more than the value of the home, they will most likely reject the application.

Not surprisingly, V.A. loan volume has fallen so far this year. William White, the acting assistant director for loan policy at Veterans Affairs, said his agency was on pace to insure about 300,000 mortgages this fiscal year, which ends Sept. 30, versus 325,000 in 2009. The nation’s overall loan volume rose about 19 percent during the same period, according to the Mortgage Bankers Association, to $1.92 trillion from $1.62 trillion. (The trade group tracks only total dollar amount.)

Mr. White said he understood why lenders might be restricting the loans, as the V.A. insurance only covers 25 percent of the loan amount. But he added that borrowers of V.A. loans generally had a lower default rate than prime borrowers over all — 2.6 percent versus 3.4 percent, according to the Mortgage Bankers Association — despite the fact that their credit scores were typically lower.

V.A. mortgage borrowers tend to “show some discipline,” Mr. White said, offering one explanation, “and we think they try real hard to make their payments.”

The average credit score for a V.A. borrower last year was just over 700, while the average credit score for all borrowers was 750, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the government-sponsored companies that establish underwriting standards.

Mr. Long noted that V.A. loans remain competitive with other loan products. Borrowers who qualify — they must prove 24 months of continuous active military duty, and cannot have experienced a dishonorable discharge, among other things — can secure rates of 4.75 percent on 30-year fixed-rate loans, he said. That is the case even for borrowers with 620 credit scores, he added. The average rate nationwide for all 30-year fixed-rate loans is around 4.70 percent.

There is a one-time insurance fee that varies according to the size of the loan and the borrower’s credit profile, but the average is about 1.75 percent of the loan amount. On a $200,000 mortgage the cost would be $3,500. About a quarter of applicants — disabled or retired veterans, for instance — qualify for exemptions from that payment.
A version of this article appeared in print on June 27, 2010, on page RE7 of the New York edition.

More mortgages were permanently modified in May under the government program, but more modifications were canceled as well. Some of those borrowers worked out alternative terms with private lenders.

A distressed home awaits a buyer in Davie, Fla. Mortgage servicers have been pressured by the government to make more loan modifications permanent. (J Pat Carter, Associated Press / May 12, 2010)
By Jim Puzzanghera, Los Angeles Times

Reporting from Washington —

More borrowers dropped out of the Obama administration’s foreclosure prevention program last month than were added, but many of those homeowners found private help from their mortgage companies, according to data released Monday.

The number of mortgages with permanently reduced payments under the Home Affordable Modification Program increased 15% in May to 340,459. The pace of new temporary three-month modifications eased in May, with an increase of just 2.5% to 1,244,184.

But cancellations of mortgage modifications continued to grow. Canceled trial modifications rose 55% in May from April. More than a third of all trial modifications started since the program began last year — 429,696 — now have been canceled.

Cancellations of permanent modifications also were up sharply, rising 70% to 6,357 in May from April.

But overall, homeowners with permanently reduced mortgage payments have fared better in the program. The cancellations amount to just 1.8% of all the permanent modifications offered since the program began last year.

The administration’s report said that at the eight largest mortgage servicers, including Bank of America, CitiMortgage and JPMorgan Chase, nearly half of homeowners whose temporary government modifications were cancelled received an alternative modification.

Of the 194,056 total cancellations for those servicers under the Obama administration’s plan, just 7% resulted in foreclosure actions. An additional 2% resulted in a short sale.

The Los Angeles-Orange County area continued to account for the most active trial and permanent modifications under the administration program, with 52,119, or 6.4% of the national total. The New York City area was second with 6.1%. The Inland Empire ranked fourth with 5%.

The $75-billion Home Affordable Modification Program offers mortgage servicers cash incentives to reduce mortgage holders’ payments. The goal is to modify the mortgages for 3 million to 4 million people by the end of 2012. The median payment reduction in permanent modifications has been about $500 a month.

But the program has been criticized for not helping enough homeowners and for slow participation and bureaucratic runarounds by major mortgage servicers.

Administration officials increased pressure on mortgage servicers in December to make more of the modifications permanent.

As part of that process, the administration reviewed cases in which some servicers denied mortgage modifications. Officials agreed with most of the decisions, but in 3.9% of the cases, reviewers disagreed with the servicers’ decisions and ordered the firms to hold off on foreclosure action until the cases were reevaluated.

jim.puzzanghera@latimes.com
Copyright © 2010, The Los Angeles Times

Los Angeles, CA – Attractive Affordability Continues
to Lure Buyers
(4,559 single-family permits in 2008, 21st largest market in the country)

Buyers still in the market following the tax credit extension. Buyer traffic remained
above agents’ expectations in November, as our buyer traffic index inched up to 59 from
57 in October (readings above 50 indicate traffic above expectations). Agents said there
was little change in traffic levels this month after the tax credit was extended early on, as
buyers continued to focus on the affordability created by low prices, low rates and the
credit. One agent noted, “The tax credit extension has put some people back in the market
who thought they couldn’t find what they wanted before. Most of the first-time buyers think
they should get a foreclosure or short sale for less than the asking price, but banks are
being firmer on prices.” Other agents said the extension of the credit also gave buyers
more confidence that they are getting in at or near the bottom of the market, especially as
inventory levels come down, although they do note buyers remain very value focused.
Lower inventories and solid demand lead to sequentially higher prices. Home prices
increased sequentially in November, as our home price index improved to 61 from 52 in
October (readings above 50 indicate higher prices over the past 30 days). Agents said
prices were helped by the strong demand trends, which led to a further drawdown in
inventories. Our home listings index improved to 84 in November from 71 in October, with
readings above 50 indicating lower inventory levels. We’re hopeful that these positive
trends can continue, but remain worried about the growing backlog of foreclosures that
have yet to hit the market.

Comments from real estate agents:
■ “There are too many cash buyers (investors) and real buyers are getting
frustrated.”
■ “Buyers are looking for bargains and trying to take advantage of the tax credit.”
KB Home, Standard Pacific and MDC have the most exposure. Approximately 3% of
sales for Hovnanian, KB Home and Standard Pacific come from L.A., the most among the
large builders.

SEARCHING

1) Homes may be listed as Active, but they may have many offers or they may already be Sold.

2) Homes may be a Short Sale, even if it is not clearly identified.

3) Most home features may not be listed, or may not be correct.

4) The home may be in an Association, even if it is not disclosed; there may be Mello-Roos Tax, even if it is not disclosed; the home may be on leased land, even if not disclosed.

MAKING OFFERS

1) There may already be many other offers and the property may sell above the list price.

2) The listing Agent may have dozens of distressed listings in many areas, and they may know little about any particular home or area.

3) A Bank Owned Home may have an Asset Manager handling hundreds of homes, so a response could take from 1 day to 1 week or more.

4) A Short Sale Could take 2 to 5 months to get an approval, and up to 80% will never get approved. Any updates or responses could take weeks to months. After waiting months, the approved price returned by the bank could be much higher than the list price.

ACCEPTED OFFERS

1) Until it closes escrow, even with a signed, accepted offer, the bank or owner can decide not to sell and any money spent by the buyer for inspections, appraisals, etc will not be refunded.

2) The condition of the property is unknown to the owner and the agents. The buyer takes complete responsibility to pay for and conduct as many inspections that they desire, including but not limited to the physical condition, the association, permits, taxes, etc.

3) Most banks will put in their contracts that the home is sold ‘AS IS’, and they will refuse most repair requests that you make after inspection. Many will NOT even do Termite Repairs.

4) Most banks will put into their contracts that if the buyer closes late, the buyer will pay a daily fee for each day late; this could be from $50 to $250 a day or more.

5) The bank will insist on choosing the Title and Escrow Company, these may be slow, overworked and sometimes inexperienced people working on too many files at the same time.

THE ESCROW

1) The escrow experience for most buyers, agents & lenders may be the most frustrating part.

2) Things that normally take hours may take days.

3) Things that normally take days may take weeks.

4) The buyer, agent and lender can call escrow repeatedly, and things may not speed up.

5) The buyer, agent and lender can visit the escrow office, and things may not speed up.

6) The same information may often need to be given to escrow multiple times.

7) We may deal with many people at the escrow company, and they may not be sure of anything.

DO NOT plan on a specific closing date, no matter how efficient the lender and agent are, the escrow company may slow things down at every stage and the seller may have a final review.

9) At the end of this slow, frustrating escrow, they will still charge you the full regular escrow fee.

10) Upon Close you may only get 1 key, possibly not a Garage Door Opener, or mail box key & No association key for the pool, etc. You may need to buy keys and change locks.

Most of the escrows will eventually close, so try not to let the system that some banks have put into place to sell their properties dampen your excitement for your new home!

Jeffrey Simons ~ Broker Associate – Prudential California Realty 714.746.8103 Jeff@Jeffreysimons.com