As a result of the foreclosure robo-signing mess uncovered last September, loan servicers are facing new federal and state requirements outlined in a draft settlement proposal last week.  Here are the highlights that could provide greater protection for homeowners:

  • Servicers would agree to stop dual tracking.   Hard to believe, but currently many companies will pursue foreclosure, even while the borrower is trying to get a loan modification.    This new requirement would mean that foreclosure processing would be put on hold during the loan modification process.
  • Servicers would be required to review any loan modification that is denied.  They would also have to implement a system whereby the borrower would have 10 days to appeal a modification denial.
  • Most significant is the provision that would require servicers to “implement processes reasonably designed to ensure that factual assertions made in pleadings, declarations, affidavits, or other sworn statements filed by or on behalf of the servicer are accurate and complete.”  This would help alleviate the problem of minimum wage processors signing-off on foreclosures.
  • The proposal also states that servicers may not develop compensation programs for employees that encourage foreclosure over modification or other options.   And yes, that was in place at some institutions.
  • And lastly, servicers would be required to offer one point of contact to borrowers trying to complete a loan modification, short sale or forbearance agreement.   Finally!  This alone should improve the process, or at least lessen the frustration level of speaking with a different person every time the borrower calls.

Do I think this will improve loss mitigation for borrowers?  Let’s say I’m cautiously optimistic.  At the end of the day of course, any regulation is only as good as the enforcement that backs it.

Many homeowners who are facing foreclosure are turning to attorneys to help them save their homes, especially in light of the recent revelations regarding mishandled paperwork.  With few other options available, the struggling homeowners hope that an attorney will find a flaw or legal loophole that will cause the foreclosure to be dismissed.  The problem is that most of these homeowners have no way to pay the legal fees.

But one enterprising law firm in Florida came up with a solution:  If they manage to get a foreclosure dismissed, the firm takes out a second mortgage on the property to pay the legal fees!  The Ticktin Law Group in Deerfield Beach reasoned that this was a way they could find an affordable way to represent homeowners.  Other firms are now following their example with similar second mortgage programs.

OK, call me crazy, but how does this make sense?  A homeowner that presumably owes more than the house is worth and has a first mortgage they already can’t afford, now takes on additional debt in the form a second mortgage?  The lawyers point out that they are charging low interest, around 4.0%, and insist that they would never foreclose.  So, the home is saved, for the moment, but how is this a sustainable solution? Sorry, but this defies logic and seems downright predatory.  I’ll be stunned if these poor homeowners aren’t back in foreclosure a year from now.

For the first time in over 6 weeks interest rates for 15 and 30-year fixed mortgages rose…not much mind you, but they did increase.  15 year rates rose from an average of 3.62 to 3.74 percent, and the 30 year rate increased from an average of 4.21 to 4.34 percent.

According to the Mortgage Bankers Association we also saw a sharp drop in the number of applications submitted for the week ending October 15th, down by 10.5 percent from the previous week.  Refinance applications were down 11.2 percent and applications for home purchases were down 6.7 percent.

Now I’m no economics wiz, but even I can tell you that this is not good.  The MBA attributed the drop in applications to the slightly higher rates, but more importantly to public apprehension and confusion surrounding the mismanagement of foreclosure paper work by some banks and servicers.  So at a time when we have an increased number of foreclosures and short sales hitting the market, we have potential buyers of distressed properties pushing back, fearful that there could be issues in the transaction that would give them less than clear title.  And, oh yeah, let’s throw in a rate increase.

So once again, it appears that the banks are doing nothing to get us out of the mess they created….but of course, it’s not all bad for most of them.  Wells Fargo turned a profit of $3.35 billion for Q3, up from $3.24 billion a year ago.  I’m sure that warms the hearts of everyone who lost their home last quarter.