Loss Mitigation Industry Update

CREDIT CARD USERS are getting fed up with policies that raise interest, rates indiscriminately, cut credit limits without reason, and impose stiff penalties. The backlash is evident in a rash of web sites and BBB complaints, but the credit card companies continue with their punitive policies.

A PROPOSED PIECE of legislation would expand the existing $8000 first-time home buyer’s tax credit to $15,000, make all home buyers eligible, and eliminate income caps. The proposed legislation would also extend the credit to the middle of 2010.

FREDDIE MAC WILL no longer require that borrowers refinance through their original servicers, opening the door to greater options for finding the best deal on refinancing a Freddie Mac loan. The agency will also allow more closing costs to be refinanced into the new loan. Previously, refinanced closing costs were capped at $2,500; the new rule caps it at either 4 percent or $5,000, whichever is lower.

MORTGAGE SERVICERS ARE finding it hard to hire personnel, and the lack of staff—and increasing number of applications for modifications—is causing a tremendous backlog. It is not unusual for a servicer to take up to two months to issue a response, and documents often get lost in the shuffle.

MERSCORP’S NEW MERS Investor ID program will automatically send a notice to borrowers within 30 days, informing them of a change in ownership of a home loan. This small measure could have a positive impact on loan mods, which are often stifled as some borrowers have found it difficult to find out who actually owns their mortgages.

MORE STATES ARE requiring mediation between homeowners and lenders during the foreclosure process. In Indiana, a new law will take effect on July 1 imposing the requirement statewide; a similar law has already been in place for Marion County with positive results.

EXISTING HOME SALES were up 2.4 percent in May over April, but down 3.6 percent from May a year ago. Median prices dropped 16.8 percent for the year to $173,000 because of the high percentage of distressed properties on the market.

BORROWERS 60 DAYS or more behind on Fannie Mae or Freddie Mac mortgages reached 1.1 million in the first quarter compared to the year-ago quarter. The delinquency rate increased to 3.62 percent from 3.03 percent over the same period.

California Adopts Moratorium On Home Foreclosures

Today's the start of California's 90-day foreclosure moratorium.

Lots of questions this morning on the real meaning of California's new 90-day foreclosure moratorium beginning today - which got plenty of attention on national TV yesterday.

What's most important to remember: this does NOT stop foreclosures effective today.

It begins a process in which lenders must apply to the state for an exemption from the 90-day moratorium. Lenders must show the state they have an aggressive loan modification program in place to receive the exemption.

If the state approves it they are exempt from the moratorium - unless it's later discovered that they are falling down on the job of modifying loans.

Bottom line: Lenders that do NOT have aggressive loan modification programs in place will have to wait 90 days longer than usual to foreclose.

Essentially, an aggressive modification gets the amount owed down to 38 percent or less of a borrower's income. One of the worries, though, as this goes into effect: most of the new waves of borrower trouble is related to losing jobs. One wonders if any lender can get a loan modified to 38 percent of monthly income if most of the income is unemployment benefits.