Unscrupulous mortgage servicers sued for inappropriate practices

An investigation by the Associated Press (AP) has found that mortgage servicers, who play a key role in the government’s loan modification program, are making money at the expense of troubled homeowners. According to the AP, at least 30 servicers have been sued for a variety of inappropriate practices - harassing borrowers, imposing illegal fees and charging for unnecessary insurance policies. The list of errant companies includes some of the biggest players in the servicing industry — Bank of America, Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. “The irony is, in essence, the government is paying servicers to do their job, which is to do loan modifications where appropriate,” said Kurt Eggert, a law professor at Chapman University. “And that’s not a part of their job they were ever especially good at.”

The government says it needs the servicers since they are the only link between borrowers and the investors who indirectly own their mortgages through securities. “Refusing to work with a bad player would deprive homeowners, who have mortgages with that servicer, from getting modifications,” said Treasury spokeswoman Jenni Engebretsen.

Will the mortgage rate rise hit loan demand?

A survey released by Freddie Mac says interest rates on 30-year fixed-rate mortgage averaged 5.22% for the week ending August 13, up from the previous week’s 5.22%. The rise in the mortgage rate reflected the rise in yields on Treasury securities. Mortgage rates have stayed at over 5% for 11 straight weeks now. Analysts say that rates have a positive impact on loan demand when they remain below 5%.

Earlier this year, when the rates dropped below 5%, refinancing activity rose. David Adamo, CEO of Luxury Mortgage, says currently homeowner confidence and not interest rate is the major factor impacting the housing industry. “Once the general psychology of the market place returns to normal we will see the purchase activity substantially improve which will restore our housing market and overall economy,” said Adamo. Housing market has been showing signs of stabilization with sales rising and prices declining in many regions of the country. A further rise in mortgage rate could negatively impact the industry. The Federal Reserve (Fed) has proposed to buy as much of $1.75 trillion worth securities in 2009 in order to keep borrowing costs low for homeowners. It looks as though the Fed is meeting resistance from the bond markets.

FHFA’s expanded “home affordable” program likely to help struggling borrowers

As home prices fall, homeowners find that their homes are worth less than what they owe towards mortgage payments. The Federal Housing Finance Agency (FHFA), on account of rising negative home equity, has expanded the home affordable program to allow lenders to offer new mortgages to borrowers even if their home’s value exceeds the mortgage amount by as much as 25%, as long as the borrower has been regular in loan payments in the past year. The government feels that “good” borrowers may become part of the next wave of foreclosure unless offered assistance.

According to zillow.com, 22% of homeowners nationwide have negative home equity. In states such as California, Nevada, Arizona Las Vegas, and Florida, over 40% of homeowners have negative home equity in certain areas. The new version of home affordable program will lower monthly mortgage payments for troubled borrowers. The program covers only loans purchased by Fannie Mae and Freddie Mac.

What’s Better - Short Sales or Tax Certificates?

Late night guru’s and top selling books both proclaim tax certificates as a sure-fire way to build wealth. While tax certificates and liens can certainly become a profitable part of your investment portfolio, they are not without risk. When it comes time to investing your hard earned dollars into real estate, what is better - short sales or tax certificates? Keep reading to learn the facts behind the façade then decide for yourself which makes the most financial sense.

Fact- Tax Certificates can generate returns as high as 16 to 18 percent. While that certainly beats putting your money into a savings account or even the stock market, it’s still a far cry away from the returns realized by many short sale investors. Consider this, if you were to take $100,000 and invest it entirely into tax certificates each earning an incredible 18 percent, you would generate $18,000 profit (before taxes, transaction fees, losses etc…). On the other hand, that same $100,000 could be used to purchase up to 5 short sale properties at 20 percent down payment…each of which could easily earn $18,000 in much less than one year’s time!

Fact - Tax certificates and raw land rarely generates residual income. Your money is tied up until the redemption period or the property is sold. Short sales can be rented, leased or otherwise used to generate income prior to the actual sale.

Fact - Tax certificates are not always redeemed! Especially during tough economic times, the back taxes plus interest and other fees may cost more than the property is worth leaving tax certificate investors holding the bag. You can petition to have the property sold but back taxes, liens and other expenses often make it a losing proposition. Worse, if you don’t continue to pay the taxes on the property, additional liens could drive up the total cost even more.

Fact - Liens, environmental restrictions and major clean-ups can further reduce the profit potential of a property even should you become the “high bidder” for a non-performing concern. People promoting the benefits of buying tax certificates for investments rarely talk about the cost of taking acquisition should a property fail to be redeemed. The underlying assumption is the value of the underlying land would compensate for the risk - but what happens if the land itself is the risk? Remember, there is a reason certain properties are forfeited…typically because the value of the property has dropped below the back taxes and other liens or because there is a very high assessment, clean-up fee or restriction associated with the parcel.

Fact - Minimum bids on auctioned properties may not ever reach the minimum you have invested into the property. Further compounding the problem, if more than one tax certificate investor has an interest, proceeds are further divided.

Fact - Clouded title is common. Another relatively expensive problem rarely mentioned in association with tax certificates is the issue of a clouded title or lack of proper recording. Remember, tax certificates only earn those great interest rates if they are actually redeemed - otherwise, you could be stuck with a property you never expected to own and which could cost a small fortune to obtain clear title, pay off existing liens, bring the property up to par in order to sell or even “unload” if excessive environmental or other concerns are noted.