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In an effort to “clarify and streamline” the foreclosure mediation process in Nevada, the Nevada Supreme Court has updated the rules of the Nevada Foreclosure Mediation Progam (FMP)[1]. Chief Justice Michael L. Douglas emphasized that “periodic revisions…have always been anticipated…to ensure that the program works for those who need it and use it – both homeowners and lenders.” The rules changes include clarification on forms to be provided, deal with how temporary modifications are handled and require that homeowners be given a date to vacate the premises when they agree to relinquish a home. Furthermore, homeowners can now sign over power of attorney to someone who is representing them.

Nevada’s FMP has been controversial from the start, and one state attorney has filed an appeal for his client, claiming that state judges have “made a mockery of the FMP” by “predetermining” the outcome of cases and settlement talks before ever entering the process. Some judges have stated publicly that they will not modify loans from the bench even when lenders may have negotiated those loans in bad faith. The original 2009 Nevada FMP legislation gives judges the authority to do this if lenders “fail to abide by Nevada FMP guidelines”[2]. By refusing to make modifications from the bench, the attorney in the appeal says that essentially the outcome of the mediation is predetermined if the lender fails to behave ethically and in accord with FMP requirements, leaving the homeowner with no recourse. Some judges consider the idea of modification from the bench not only distasteful, but illegal since “giving judges unlimited authority to modify loans could intentionally or inadvertently harm lenders financially,” which would be a violation of due process, explained UNLV law professor Thomas McAffee.

The modification timeline has also been expanded to 30 days.

Do you think that judges should be able to modify from the bench?

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Let us know what you think about loan modifications and forced modifications below.

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[1] http://www.mortgageorb.com/e107_plugins/content/content.php?content.7871

[2] http://www.lvrj.com/news/judges-accused-of-predetermining-foreclosure-cases-116525958.html

In Nye County, Nevada, a judge has ordered a unit of Bank of America Corporation to halt the majority of its foreclosures in Nevada pending investigation of allegations that the unit, Recon Trust, has been operating without a state business license and has been serving foreclosure notices without even being appointed a Bank of America trustee[1]. These are serious allegations under any circumstances, and just more bad news for the beleaguered lender who recently concluded a “deal” with government-controlled Fannie Mae and Freddie Mac that has led many people to accuse the bank and the government of a “backdoor bailout.” In the wake of all this, BofA posted severe losses for two straight quarters at the end of 2010 and many experts and analysts believe at this point that the best thing for everyone would be for the behemoth to be systematically dismantled before it soaks up any more taxpayer money[2].

The current issue in Nevada stems from the allegations of a Pahrump, Nevada woman who runs a children’s daycare out of her home. She has alleged that Recon Trust, a BofA unit servicing mortgages in Nevada, “served her with a foreclosure notice before Bank of America appointed Recon Trust as a trustee.” Should this prove to be the case, at least 100 homeowners in Nye County alone could be affected and the foreclosures conducted by Recon Trust would be in a position of being fought, revoked and even reversed. Both the trust and BofA could face lawsuits for damages as well as a continuing and burgeoning of the PR disaster that has plagued nearly all lenders in the wake of the robo-signing fiasco.

While BofA insists that not only are all papers and trusts in order, but that a similar lawsuit that it faced in Utah ended with the lender being entirely vindicated, the plaintiff is not stopping with simple allegations of paperwork issues. She is alleging that the bank, with which she has negotiated a temporary loan modification but failed four times to make that modification permanent due to “lost paperwork” that neither side will claim, refused to wait two weeks for an income tax return and failed “to advise her to save money she was paying to the bank during the temporary modifications.”

Bank of America is one of the world’s largest banks, and it stands to reason that it would also have some of the world’s largest problems. However, this bank does seem to be careening out of control in small instances like this one and in much larger instances, such as its recent losses in the stock market and the threat that many analysts feel it poses to the global financial system. One Reuters columnist has called BofA “too big to succeed.” Do you think that it is time to shut BofA down, and will the housing market be hurt or benefit as a result?

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Please leave comments and questions below.

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[1] http://www.lvrj.com/business/bofa-unit-ordered-to-halt-foreclosures-114536739.html

[2] http://blogs.reuters.com/prism-money/2011/01/21/five-reasons-to-dismember-bank-of-america/

The heat is on, as mortgage servicers make an appearance in a Congressional hearing on foreclosure procedures this week. And banks and other mortgage servicers, who rarely place the blame of failed loan modifications on investors, are now singing to a different tune. A top mortgage official in a major mortgage servicer opts to highlight the role of investors in failed loan modifications.

Wall Street investors, says Bank of America’s top mortgage official Barbara Desoer, are at fault in the ballooning number of homeowners losing their properties. She says, “Bank of America is constrained by our duties to investors. Many investors limit Bank of America’s discretion to take certain actions.”

These words, which will reflect her testimony in the day’s hearing, are not new to homeowners. Homeowners have heard different versions of it but the gist is that they are unable to acquire loan modifications because of restrictions set by investors in contracts with servicers. BofA and other banks reveal that the contracts they sign with investors more often than not blocks them from making modifications – and if they’re not blocked from doing so, there are many limitations.

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It is sad how, in the country’s economic state, some people can still think of taking advantage of those who are on the verge of losing their homes. State and federal laws included a loophole that attorneys are now using to milk some cash from homeowners who are struggling to keep their homes.

When the financial and mortgage crisis settled in, loan modification schemes started flourishing as well. To avoid cheating people out of their money, Illinois passed legislation in 2006 that banned charging upfront fees when handling bankruptcy and foreclosure cases. Lawyers were exempted though as they have never been linked to loan modification schemes and it is already their routine to accept upfront fees.

Having seen this loophole, some attorneys are now just collecting the fees and don’t lift a finger in helping out the poor homeowners. Aside from attorneys now setting up their own shops to run this scheme, some mortgage rescue firms are now also recruiting lawyers solely to collect upfront fees. And they have a lot of business in their hands: one in 10 Illinois home mortgage loans became delinquent in the last month.

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The Home Affordable Modification Program (HAMP) was launched by the Obama administration to help the housing market avoid further decline. Since its launch, though, it has left numerous homeowners angry and frustrated – in fact, so angry and frustrated were the homeowners that they are now starting to file lawsuits against mortgage servicers.

Anthony and April Soper is just one of the thousand homeowners that have filed a case against their servicer – in this case the nation’s largest bank, Bank of America. When the couple started experiencing financial trouble in October of last year, they applied for mortgage adjustment with HAMP and were enrolled for a trial plan that reduced their monthly payment from $4,000 to $1,826. The couple claims they paid their reduced mortgage on time (sometimes even early) and even did everything that was required of them, but they still got denied permanent modification and they do not know why.

The Lake Stevens, Washington-couple may or may not keep their home, depending on the result of a class-action lawsuit filed against Bank of America. On September 30, a Nashville federal court will also hear a consideration to consolidate Soper’s case with a dozen or so more cases against the nation’s largest bank. Other major servicers, like JPMorgan Chase and Wells Fargo, are also facing similar pending cases – and if all these cases are taken together, it demonstrates a growing public anger and frustration against HAMP and its mortgage servicers.

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Home Affordable Modification was launched by the Obama administration in March 2009 to help approximately three million homeowners avoid the dark clouds of foreclosures. More than a year from its launch, though, HAMP has kicked out more than half a million people from the program. And there’s much anger and frustration in the same people who placed their hopes in the administration’s flagship housing program.

In HAMP, mortgage servicers are to receive financial incentives for permanently lowering qualified homeowners’ monthly payments. To qualify, a homeowner will undergo three tests: (1) eligible hardship in paying monthly; (2) mortgages is 31% more than gross monthly income; and (3) banks will not lose more through mortgage modification as compared to foreclosure. After undergoing three months trial, homeowners should then have permanent modification to their mortgages.

Those who have successfully graduated to permanent status – totaling 435,000 – report a median 36% or $500 savings; this is via deferred payment of principal or lowered interest rate or extended loan’s term. Their number, though, is still lower than those who have been failed by the program – 600,000 (or maybe even more).

Aside from servicers misplacing paperwork and trial homeowners falling behind payments, the failure may also be attributed to the fact that the Treasury Department does not check if banks and other servicers are following the guidelines.

The Government Accountability Office cited a few examples:

1) A few homeowners have been making trial payments for six months or more but banks and servicers still haven’t come to a decision whether to make the payments permanent or not;

2) Those who are in similar situations may receive different decisions because 15 of 20 servicers do not follow federal guidelines; and

3) Treasury does not have penalties for violators and does not independently review borrowers’ application so as to make meaningful appeals for rejected homeowners.

Treasury officials come to their own defense, saying that the numbers alone cannot speak for the program. Though there are many who have been denied permanent modification, some of them have been able to acquire of private loan modifications from their servicers.

The State Foreclosure Prevention Working Group, though, that is hardly reason to rejoice. There are 40% delinquent borrowers who are not getting any help at all. And 75% of those with modified mortgages end up owing more than their original debt.

There is a lot of work to be done for HAMP to still work. Whether HAMP is still going to prove successful, only the next few months can tell.

Two Clay County mortgage loan modification companies were ordered shut down on Thursday by the Florida Office of Financial Regulation (OFR) and the county’s Sheriff Office, issuing search warrants at the same time enabling authorities to sift through the companies’ records for possible malfeasance.

Ordered closed were Global Equity Solutions, located at 3332 Old Jennings Road in Middleburg and Hope Financial Services at 252 College Drive in Orange Park.

Immediately following the clamp down and the execution of search warrants by the sheriff’s office, the OFR also issued cease-and-desist orders prohibiting the two companies from conducting further business activities though the government agencies refused to withhold any names for now pending the outcome of the ongoing investigation.

The OFR added that charges may be pursued by its office depending on the information that the investigation would yield, following their careful appreciation and verification of the records covered by the search warrant.

Industry experts said that the companies’ closure was a landmark incident in the Jacksonville area, marking the first time that business operations offering mortgage modification services had attracted inquiries and severe actions from government agencies.

They noted too that mortgage loan modifications have become quite prevalent in the area since the onset of the economic downturn in 2007, signifying the crippling and wide-ranging effect of the housing market crisis that ensued following the global crunch.

The protracted housing market problem prompted President Barack Obama to launch his Making Home Affordable program in 2009, aimed to cut down mortgage payment obligations of distressed homeowners facing foreclosure and carrying federal-sponsored Fannie Mae and Freddie Mac loans.

OFR communications director Flora Beal said that by January 1, the Florida state government has implemented stricter requirements for businesses offering mortgage loan modification services, though she admitted that the new directive was not necessarily observed by companies performing the services.

Beal noted that businesses and individuals engaged in loan modification services must obtain license to operate from the government and were barred by a state law from collecting up front fees for their dealings.

She added that companies performing loan modifications in Florida without an active license face the prospect of a five-year imprisonment and up to $5,000 in fines for every offense committed, stressing that the act itself invites felony charges.

On its initial investigation, the OFR discovered that Global Equity and Hope Financial had dispensed their services across the country by utilizing online marketing, mass mailings and call center agents and were able to attract up to 250 open contracts, from which they received up front fees ranging from $1,200 to $1,800.

Beal said that basing on the initial findings, the two companies had violated the law as she noted that their businesses may have enticed hundreds more of clients in Florida though information seized by the OFR has so far shown that only a few individuals were affected in Clay County.

In light of the incident, Beal reminded troubled homeowners that no advance payments were required for processing and completing loan modification as she stressed that quite a number of already distressed people were taken advantage of and still ended up facing foreclosure after paying some money.

Analysts are predicting that the country may expect a huge wave of defaults soon. Recent report, though, reveals that this may not happen. Latter borrowers who had their mortgages modified are no longer having as much problems with payments as compared to their earlier counterparts.

The State Foreclosure Prevention Working Group, composed of 12 state attorneys generals and state banking regulators, has enumerated some troubling signs. In July, sales of previously-owned homes had its most intense drop in the last 15 years. And modifications, which were implemented to lower monthly payments and the number of foreclosed homes, are said to still be outnumbered by foreclosures.

The foreclosure crisis is now three years running but 63% of those homeowners who are at least two months behind their payments are not all too keen in participating in foreclosure prevention programs – whether by the government or private institutions. Homeowners not participating in foreclosure prevention programs is a matter of picking up the phone or responding to lenders calls. Bankers say that, in exchange of short-term pains for banks, lenders should start aggressively seeking homeowners who are already way behind their mortgage payments.

“Servicers must continue to perform meaningful outreach to those homeowners who are seriously delinquent and to perform modifications with significant principal reduction,” says Conference of State Bank Supervisors president/CEO Neil Milner.

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