Help Finally Comes to Struggling Homeowners

by Ted A. Greene on February 3, 2016

The 2007 Mortgage Forgiveness Debt Relief Act has been extended through the end of 2016.
On December 18, 2015, President Obama signed a bill that extended the Mortgage Forgiveness Debt Relief Act through December 31, 2016. The extension also retroactively covers mortgage debt cancelled in 2015.
The Mortgage Forgiveness Debt Relief Act (MFDRA) prevents homeowners who went through a short sale from being taxed on the amount of their home mortgage debt that was forgiven. Believe it or not, but normally, debt that has been forgiven by a lender counts as taxable income.

Originally enacted in 2007, the Mortgage Forgiveness Debt Relief Act allows debt forgiveness of up to $2 million to NOT be considered taxable income if:
•    The house has been used as the principal place of residence for two of the last five years.
•    The debt has been used to buy, build, or make substantial improvements to the home.

Obviously, this is a huge relief to owners of distressed properties who are already facing financial burdens, and it eases many of the concerns they may have had about moving forward with a short sale.

There are other ways to avoid the debt such as insolvency or bankruptcy but you really need to talk to both a legal professional and a tax expert.

If you need help with your mortgage please contact Mr. Greene. He has been a leader in helping homeowners struggling with their mortgage and even has been suing the banks to force them to follow California law. He can be reached at (888) 442-2545 or send him an email at

Distressed Outlook: Big Banks Continue to Whittle Down Legacy Loans

Editor’s Note: This story is part of National Mortgage News’ 2015 Outlook coverage. Click here for more stories previewing the industry’s biggest trends for 2015.

The nation’s largest banks have attacked their delinquent loan portfolios with gusto, but they may hit barriers in 2015 as they try to further whittle down their distressed assets.

Some industry experts are predicting a new wave of delinquencies and foreclosures in the coming year if interest rates rise, causing home prices to decline.

Many of the largest banks continue to sell off nonperforming loans. Hedge funds and private-equity firms have bid up the prices of distressed loans as they seek to profit from recent home price increases, which could abate in the coming year.

Bank of America has made the greatest strides in whittling down its distressed assets afterselling off more than $1 trillion in nonperforming loans since 2009. The $2.1 trillion-asset bank in Charlotte, N.C., held 221,000 delinquent loans on its balance sheet in the third quarter, a 44% drop from a year earlier.

About three-quarters of its nonperforming loans are legacy assets from its 2008 acquisition of Countrywide Financial. B of A held roughly $10 billion in nonperforming residential mortgage loans at the end of the third quarter, and $32 billion in delinquent loans inherited from Countrywide. Those totals exclude home equity loans and lines of credit.

B of A has estimated that it will get back to a normal level of delinquent loans by 2016. Some analysts think that is an optimistic assessment, since some loans probably cannot be sold, and working out problem loans — especially those at the bottom of the barrel — is notoriously slow and labor intensive.

Meanwhile, Wells Fargo held roughly $10.7 billion of loans that were 30 days or more delinquent in the third quarter, according to the bank’s 3Q14 earnings. It also holds $46.4 billion in legacy loans in its Pick-a-Pay mortgage portfolio acquired from its 2008 purchase of Wachovia.

Overall, the seven largest banks and one large thrift saw an improvement in the number of seriously delinquent loans held on their balance sheets at the end of the third quarter, as of Sept. 30 according to a December report from the Office of the Comptroller of the Currency.

Roughly 5.2% or 117,673 residential mortgages were seriously delinquent at the end of the third quarter, down from 5.5% a year earlier, the report found. The reporting banks include Bank of America, J.P. Morgan Chase, Citibank, HSBC, PNC, U.S. Bank, and Wells Fargo, while OneWest Bank is the largest thrift.

But the report also noted that about 8% of mortgages held in bank portfolios lack credit scores at origination and are a mix of prime, Alt-A, and subprime mortgages.

“Since 2009, mortgages owned by the servicers have performed worse than mortgages serviced for (Fannie Mae and Freddie Mac) because of concentrations in nontraditional loans, weaker markets, and delinquent loans repurchased from investors,” the OCC said.

Large bank lenders have opted to sell defaulted loans to avoid the high costs of servicing and holding the debt. Large banks in particular have relied on sales of mortgage servicing rights, as well as servicing transfers, pay-downs and payoffs to reduce their holdings of nonperforming loans. An estimated $60 billion in nonperforming loans is expected to have changed hands in 2014.

CFPB Proposes to Expand Foreclosure Protections

The Consumer Financial Protection Bureau (CFPB) proposed on Thursday an additional set of measures designed to expand foreclosure protections for mortgage borrowers.

In an announcement Thursday afternoon, CFPB detailed the latest additions to its mortgage servicing rules, which first went into effect earlier this year. Since that time, the bureau says it has continued to engage in outreach with consumer advocacy groups, industry representatives, and other stakeholders to develop additional provisions to protect consumers and make it easier for companies to comply with the rules.

“The Consumer Bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon,” CFPB Director Richard Cordray said in a statement. “Today’s proposal would give greater protections to mortgage borrowers.”

Chief among the proposed rules would be a requirement that servicers must provide additional foreclosure protections to borrowers who have already worked through the loss mitigation process previously and recovered.

Under the current rules, servicers are already required to provide certain protections, including the right to be evaluated under CFPB requirements for foreclosure avoidance options, once during the life of the mortgage.

The proposed rule would require servicers to offer those same protections again for borrowers who have brought their loans current at any time since the last loss mitigation application. The bureau says the rule is largely designed to protect those who obtain a permanent loan modification and then later suffer an unrelated hardship that could create additional struggles, such as a job loss or the death of a family member.

This is a developing story. Check back later for more details.

Ocwen Backdated Thousands of Foreclosure Notices, Lawsky Says

New York’s top banking regulator claims mortgage servicer Ocwen Financial sent more than 6,100 borrowers notices of possible foreclosure only after their payment deadlines had passed.

The systems failures that Ocwen outlined previously as “isolated” are much greater in scope than what the company had previously disclosed, according to Benjamin Lawsky, superintendent of the state’s Department of Financial Services.

Lawsky sent a warning letter Tuesday to Ocwen Chairman William Erbey, his counsel and directors, regarding what Lawsky described as a practice that is possibly still ongoing.

“Ocwen must fix its systems without delay,” the letter said.

Officials of Atlanta-based Ocwen are cooperating with the investigation and “deeply regret the inconvenience to borrowers who received improperly dated letters as a result of errors in our correspondence systems,” an Ocwen spokesman wrote in an email. They have identified 281current New York-based customers who were affected and are reviewing the other cases cited by Lawsky, the email said.

Shares of Ocwen were down 20%, to $21, in midafternoon trading.

Ocwen, the country’s largest nonbank mortgage servicer, has been under regulatory scrutiny over the past year, as consumer protection regulators scrutinize nonbank servicers’ ability to adequately administrate loans. Servicers’ portfolios have more than doubled in just a year’s time, as banks attempt to shed their servicing rights before new regulatory capital rules take effect.

In September Ocwen told monitors the backdating issue was an isolated incident, but the issue is far larger, Lawsky’s letter said. There may have been 6,100 problem letters sent to borrowers before Ocwen addressed the issue in May 2014, after an employee alerted a monitor of the problem five months prior. The company told monitors it responded and corrected the issue in May.

“Each of these representations turned out to be false,” the letter said.

The problem may prove to be even more widespread, perhaps affecting hundreds of thousands of borrowers, according to the letter.

The Consumer Financial Protection Bureau has also tightened the screws on servicers. It took its first enforcement action under new servicing rules last month against Flagstar Bank after claiming the Michigan bank blocked customers’ attempts to save their homes.

That enforcement action underscored the regulatory headaches facing nonbanker servicers Ocwen and Nationstar Mortgage Holdings, Guggenheim analyst Jaret Seiberg told clients recently. “The policy environment will make it more expensive to be a mortgage servicer, which will hurt profitability,” he wrote.

Seiberg added in a follow-up note Tuesday, after the release of the Lawsky letter, that “if Ocwen intentionally misdated letters to deprive borrowers of modifications, then it could be exposed to serious legal liability,” especially if the loans in question were backed by Fannie Mae or Freddie Mac.

Highly critical lawmakers in Congress have called for capital requirements on nonbank servicers. Ocwen, Nationstar and others responded last month and are organizing a new trade group in Washington to represent their interests.

Isaac Boltansky, an analyst at Compass Point Research & Trading, believes the Federal Housing Finance Agency will this fall outline capital and liquidity standards for servicers, which could go into effect as early as first quarter 2015, he said last month after Ginnie Mae released a 20-page assessment of the sector.

3 Signs Foreclosures Are Still Festering in California

California foreclosure activity in the fourth quarter of 2013 dropped to the lowest level since the third quarter of 2006. Foreclosure activity has been steadily declining in the state on an annual basis since the first quarter of 2010.

But there are three signs there are still some old, rotten and fermented foreclosures festering in the California foreclosure pipeline that eventually will be completing the foreclosure process and hitting the market — in 2014 if the market is lucky. If they linger any longer these old foreclosures could really stink things up.

1. Foreclosure starts rebounding

First, California foreclosure starts increased 10 percent on a year-over-year basis in the first quarter of 2014. That might not sound serious, but it stands out because it’s the first annual increase in the state’s foreclosure starts since first quarter of 2012, and even then foreclosure starts increased less than 1 percent from the previous year. The last double-digit percentage annual increase in California foreclosure starts was way back in the first quarter of 2009.

California foreclosure starts increased 10 percent from a year ago in the first quarter of 2014, the first double-digit percentage annual increase in the state’s foreclosure starts since the fourth quarter of 2009.

RealtyTrac predicted this rebound about six months ago after foreclosure starts dropped precipitously in the beginning of January 2013, when a new law called the Homeowner Bill of Rights took effect. That legislation codified in California for all lenders some of the principles of the National Mortgage Settlement for the nation’s five major lenders. Those principles include no dual-tracking (where a foreclosure progresses concurrently while a homeowner is pursuing a foreclosure alternative); and a single point of contact at the mortgage servicer for delinquent homeowners. The law also allows for a fine of $7,500 per loan foreclosed improperly in addition to additional damages that can be pursued by the homeowner for material violations of the law.

The law only applies to California foreclosures pursued using the typical non-judicial process in the state, but interestingly part of the rise in foreclosure starts in the first quarter comes as a result of skyrocketing judicial foreclosures. This indicates lenders in some cases are willing to use the often lengthier judicial process to avoid some of the potential minefields in the re-invented non-judicial foreclosure process.  Out of the 20,228 California foreclosure starts in the first quarter, 1,396 were filed judicially — up from just one judicially filed foreclosure start in the first quarter of 2013.

2. Average default amounts rising

The rise in foreclosure starts is clearly not the result of a new wave of distress hitting the California housing market, but old distress finally entering the foreclosure pipeline. That’s clear because the average default amount on the first quarter batch of foreclosure starts is the highest average default amount RealtyTrac has documented in a single quarter since it began tracking this metric in the first quarter of 2011.

The default amount is the amount a homeowner is behind on payments when the mortgage servicer files a public notice starting the foreclosure process. The average default amount on California foreclosure starts in the first quarter of 2014 was $56,415, up 53 percent from the average default amount of $36,839 in the first quarter of 2013. Assuming a monthly mortgage payment of roughly $3,000 — which is likely on the high side — that average default amount represents homeowners who have been missing their mortgage payments an average of 18 months before the bank starts the foreclosure process. On top of that, the average time to complete a foreclosure once it starts in California is now at 429 days.

The average amount California homeowners are behind on payments was more than $56,000 for properties that started the foreclosure process in the first quarter of 2014.

3. Bank-owned homes lingering

That leaves the California foreclosure process at an average of 993 days — more than two and a half years — from the first missed mortgage payment to bank repossession. But the process to completely resolve that distressed property situation takes even longer because it’s taking longer for banks to sell foreclosed properties even after the foreclosure process is complete.

Bank-owned properties that sold in the first quarter of 2014 had been foreclosed an average of 220 days when they were sold, up from an average of 172 days an year earlier.

Bank-owned properties sold in the first quarter of 2014 took an average of 220 days to sell from the time they completed the foreclosure process. That’s actually down from 247 days in the fourth quarter of 2013, but it’s up 28 percent from an average of 172 days in the first quarter of 2013.

That now puts the entire distressed property disposition process at an average of 1,213 days from delinquency to REO sale — well over three years.

The average time it takes to complete the entire foreclosure process, from delinquency to disposition of the REO, is now more than 1,200 days in California.

Real-life example of a sleeper foreclosure

I recently encountered one of these well-aged foreclosures in my neighborhood. I knew it was in foreclosure several years ago, but I assumed the situation had been resolved because the homeowner continued to occupy the home.

But then one day I was walking by and noticed furniture strewn about the lawn and several signs posted in the front window. One of those signs announced the property owner had been evicted by the Orange County Sheriff. Another announced the property was not yet listed for sale, but provided the name and phone number of a real estate agent who will be listing the property for sale eventually.

My curiosity pricked, I looked the property up on RealtyTrac — which I should have been doing anyway as a responsible neighbor — and discovered it had started the foreclosure process in September 2010, but did not complete the foreclosure process and become bank-owned until January 2013. Then it took more than a year before the bank evicted the homeowner, and it will likely be at least another couple months before the property is listed for sale.

This property started the foreclosure process for the most recent owner in September 2010, was foreclosed in January 2013, and the homeowner was evicted in January 2014. The property is still not listed for sale.

I’d call a property like this a sleeper foreclosure. For the last few years it showed no visible signs of being in distress, but now it certainly is, and the longer it sits vacant the more it could negatively impact the values of surrounding homes in the neighborhood — including mine. As more sleeper foreclosures like this across the state are re-awakened it could become a bit of a reality check for the California housing market in 2014.


California foreclosure rates rise in 2014

DataQuick: Default notices expected to continue dropping

 UPDATED 2:39 PM PDT Apr 22, 2014

SAN DIEGO —A research firm says California home foreclosure starts increased from January through March after plunging to an eight-year low in the previous quarter.

DataQuick said Tuesday that there were slightly more than 19,200 default notices filed in the first quarter, up 6 percent from the fourth quarter of 2013 and up 4 percent from the same period a year earlier.

Figures for the first quarter of 2013 were driven lower by new state laws designed to protect homeowners from losing property.

The San Diego-based research firm says default notices are expected to continue dropping, thanks to an improving economy and higher home prices. California home prices surged to a six-year high last month.

Default notices are the first step in the foreclosure process.

Published By: kcra – Yesterday