New Rules Could Help Distressed Homeowners
Some distressed homeowners will find it easier to get federal money to pay their mortgages from the state's Keep Your Home California program under new rules that take effect Monday.
The program has been criticized for not spending more of the $2 billion it got in 2010 from the U.S. Treasury Department to help struggling homeowners. As of Sept. 16, it had given out $402 million, about 20 percent.
It's not alone.
In 2010, Treasury allocated $7.6 billion from the Troubled Asset Relief Program for homeowner assistance in 18 states with big unemployment or housing problems. This pot of TARP money is called the Hardest Hit Fund. Each state's housing finance agency could design its own program, with federal approval.
As of June 30, the 18 states collectively had spent only $1.7 billion (22 percent of the total) on assistance to 126,858 homeowners. They spent an additional $308.5 million (4 percent) on administrative expenses, according to a report released Tuesday by the Special Inspector General for the Troubled Asset Relief Program.
The states now estimate they will help only 367,290 homeowners, a third fewer than their peak estimate in early 2011.
The TARP inspector said it urged Treasury more than a year ago "to set meaningful and measurable performance goals," for the program, but Treasury "rejected" its recommendations.
"Treasury and the states are focused on whether the money is being used wisely, not just whether it's being spent," Assistant Treasury Secretary Tim Massad said in a statement.
Loan servicers are not required to participate in Hardest Hit programs. Letting each state design its own program might have discouraged their participation, says Paul Leonard, director of the Center for Responsible Lending's California office.
"These are large, complex intuitions. It's hard to get them to design a little niche program" for each state, especially at a time when they were struggling to comply with the National Mortgage Settlement.
On Tuesday, the state Assembly banking and housing committees held a joint hearing in Alhambra to find out why California's plan hadn't helped more people. "We have to use (the remaining money) before 2017, otherwise it will go back to the federal government," says Ed Chau, D-Monterey Park (Los Angeles County), chair of the housing committee.
The California program provides four types of assistance, including principal reductions on underwater mortgages and payment assistance to the unemployed.
It has relaxed its rules many times since it launched in January 2011. At first, homeowners were excluded if they had taken cash out of their home via refinancing or a home-equity loan. That restriction was later scrapped.
And it originally required loan servicers to match, dollar for dollar, any principal reduction the program awarded to homeowners. It dropped the matching contribution requirement in 2012, which paved the way for principal reductions on loans backed by Fannie Mae and Freddie Mac.
Even so, as of Tuesday the program had provided only $136 million in principal reductions on 2,456 loans.
The program has different, complex rules for each of its four types of assistance. To qualify for any of them, a homeowner's household income cannot exceed a limit for their county ($123,600 in San Francisco), but there is no asset limit. The unpaid principal balance on their first mortgage cannot exceed $729,750.
Here's a look at the two Keep Your Home programs undergoing changes Monday:
For unemployed borrowers, the program pays 100 percent of their mortgage, up to $3,000 per month, for up to 12 months. Homeowners must be receiving unemployment benefits, or have exhausted their benefits within 30 days, when they apply for assistance.
If they later exhaust their jobless benefits, they can finish out their 12 months of mortgage assistance as long as they remain unemployed or underemployed. On Monday, the program will make it clear that if a person is on unemployment but takes a part-time or temporary job, it will not jeopardize mortgage assistance.
Unemployed homeowners need not be underwater to get this help, but the payment on their first mortgage cannot exceed 31 percent of gross monthly household income.
Under current rules, homeowners could not qualify if they had received a notice of default. Starting Nov. 4, they could qualify as long as they apply at least 30 days before a notice of sale is filed.
For underwater homeowners who owe more than 105 percent of their home's value, the program will provide up to $100,000 to reduce their loan-to-value ratio to 105 percent.
Under current rules, homeowners must document a financial hardship, such as a layoff, divorce or medical bill, to get this help. The documentation requirement will be scrapped Monday, but only for borrowers with a loan-to-value ratio exceeding 140 percent. "We believe if you are that severely underwater, that is a hardship," says Diane Richardson, the program's director.
The program will reduce a homeowner's first-mortgage balance by up to $100,000 to get the loan-to-value to 105 percent and the payment to less than 38 percent of monthly income.
Under current rules, if $100,000 is not enough to reach those milestones, the homeowner can get a principal reduction only if the servicer modifies the loan in some way - such as forgiving principal or reducing the interest rate - to get the payment below 38 percent.
That has been a problem for some borrowers because they already got a modification and are paying the lowest rate possible, or their loan is a type that cannot be modified (such as Federal Housing Administration or Veterans Affairs mortgages).
For those borrowers, the program will no longer require a loan modification on Monday. It will simply pay up to $100,000 to reduce the balance to as low as 105 percent of value, but the borrower's monthly payment will not change, provided their payment is less than 38 percent of income.
If a borrower receives assistance, the state will place a lien on the property for five years (if it got a principal reduction) or three years (for other assistance). If the home is sold while the lien is in place and there is equity, the assistance must be repaid. No repayment is required after the lien is removed.
For more information
For additional rules, and to learn more about Keep Your Home California, go to: www.keepyourhomecalifornia.org.
Freddie Mac warns of bogus landlords renting out foreclosed homes.
By Kenneth R. Harney October 21, 2012
WASHINGTON — No one wants to take the blame for the housing bust in this political season, but scammers and rip-off artists in the hundreds are working overtime to siphon dollars out of the wreckage of the crash and its still-vulnerable victims.
You've probably heard about the loan-modification predators who promise financially ailing homeowners that they'll prevent or forestall foreclosures —but are really after thousands of dollars in fees, for which they do nothing.
Now the second-largest source of mortgage money in the country — Freddie Mac — is warning about a troubling wave of post-crash fraud: scammers who illegally rent out foreclosed and for-sale homes to unsuspecting consumers. The bogus landlords don't own the properties — Freddie does — and they have no right to offer them to anyone. But they use Craigslist and other websites to advertise them to prospective tenants.
Typically the rents are tantalizing — say $1,200 a month for a three-bedroom home in a neighborhood where similar houses command double that — and the terms are straightforward: Pay us a security deposit and one or two months' rent upfront — always in cash or money order — and we give you the keys, no questions asked. The fraud promoters sometimes change the locks on the front door, remove the lockbox installed by the real estate agent marketing the house for Freddie Mac and tell prospects: Oh, and don't worry about that real estate sign in the front yard offering the house for sale. We tried to sell the house but it didn't work out, so now we're renting it.
According to real estate brokers working with Freddie, this type of scam can bilk unwary rental home shoppers — some of whom have lost their own homes to foreclosure or short sales — out of hundreds or thousands of dollars. Robert O'Hara, a foreclosure specialist with Re / Max Synergy in suburban Chicago, said one victim told him that she lost a total of $10,000 in upfront fees and rental payments to a fraudulent landlord before she was forced to leave the property.
"This is happening all over the place, in every price range," O'Hara said. "They take the victim's money and disappear."
Sometimes the tenants don't even get the keys; they fill out a fake lease application, disclose sensitive personal information such as their Social Security number and financial data, send the money and never hear a thing again.
Other times they move in and are later discovered by property managers or the real estate agent who listed the house for sale. If they refuse to move out, they're evicted, although in some areas of the country, this can take a long time.
Foreclosure rental scams are becoming a significant problem, said Robert Hagberg, Freddie Mac's associate director of fraud investigations, in part because of the sheer number of foreclosed properties on the market for sale. Freddie Mac had more than 53,000 houses — spread from California to the East Coast — listed for sale, under contract or being readied for sale as of June 30. Hagberg estimated that there have been dozens of houses recently affected by foreclosure rental scams. During the last few months alone, he added, there have been more frauds of this type than were reported in all of 2011.
Another reason foreclosure scams are becoming more commonplace: In the backwash of the worst economic downturn since the 1930s, rental markets are unusually competitive in many cities. People who would have purchased or owned homes before are now shopping for deals on rental houses and condos. When they check out what appears to be a legitimate listing online — with photos and detailed property descriptions, plus a bargain rent — they bite.
For consumers shopping for rental homes and condos who want to avoid getting ripped off, here's what Freddie Mac recommends:
• Check to make sure the property is not already listed for sale. Google the house address and drive by to see if there are for-sale signs posted. You can also check Freddie Mac's foreclosure listings at http://www.homesteps.com.
• If you discover that the "rental" is already listed for sale, notify the listing agent immediately.
• Under no circumstances should you submit an online lease application, including personal credit data, until you have verified that the house is a bona-fide rental. Otherwise, you risk losing not only upfront deposits and rent payments to swindlers but also your financial identity.