Tag Archives: subprime mortgage

Top 10 Steps for State Governments to Tackle the Mortgage Crisis

The Brookings Institution, one of the nation’s most prestigious think tanks, has issued a new report on the mortgage crisis focusing on the role of state governments. 

The report, entitled “Tackling the Mortgage Crisis: 10 Action Steps for State Government,” was written by Alan Mallach, a Senior Fellow at the National Housing Institute and a Visiting Scholar at the Federal Reserve Bank of Philadelphia, and suggests “10 Action Steps” that can be taken by state governments to “tackle both the immediate problems caused by the wave of mortgage foreclosures and prevent the same thing from happening again.”

The 10 steps are:

  • Help borrowers gain greater access to counseling and short-term financial resources.
  • Ensure a fair foreclosure process.
  • Encourage creditors to pursue alternatives to foreclosure.
  • Prevent predatory and fraudulent foreclosure “rescue” practices.
  • Establish creditor responsibility to maintain vacant properties.
  • Make the process as expeditious as possible.
  • Ensure that the property is ultimately conveyed to a responsible owner.
  • Better regulate the mortgage brokerage industry.
  • Ban inappropriate and abusive lending practices.
  • Establish sound long-term policies to create and preserve affordable
    housing, for both owners and renters.

These seem like common sense steps to us — although the debate over what in fact are “inappropriate and abusive lending practices” and “sound long-term policies to create and preserve affordable housing” — will be where the reform process is likely to break down.

We’ve noted before that “while the federal government’s response to the mortgage and real estate crisis appears to be paralyzed by partisan politics, the States are taking the initiative in trying to protect homeowners facing foreclosure.”

The Brookings Institution agrees:

“Although most media attention has focused on the role of the federal government in stemming this crisis, states have the legal powers, financial resources, and political will to mitigate its impact. Some state governments have taken action, negotiating compacts with mortgage lenders, enacting state laws regulating mortgage lending, and creating so-called ‘rescue funds.’ Governors such as Schwarzenegger in California, Strickland in Ohio, and Patrick in Massachusetts have taken the lead on this issue. State action so far, however, has just begun to address a still unfolding, multidimensional crisis. If the issue is to be addressed successfully and at least some of its damage mitigated, better designed, comprehensive strategies are needed.”

As we’ve pointed out, “Unless a national consensus is quickly reached on dealing with the rising tide of foreclosures — and we believe this is unlikely to happen when presidential candidates are competing for votes based on whose plan is best for dealing with the mortgage and real estate crisis – we think lenders can expect to fight individual battles over foreclosure in all 50 States. Given the negative publicity that lenders have had in the media, and with a bitterly fought presidential election on the horizon, these are not battles that the lenders are likely to win.”

Since delinquent and at-risk borrowers have far more political leverage in many state capitols than they have in Washington, the Brookings Institution report not only provides a road map for individual state action, but also further increases the pressure on the mortgage industry and their supporters in the federal government to come up quickly with an effective national plan for dealing with the foreclosure crisis.

 

One of Charles Head’s “Operation Homewrecker” Scammers Still Listed as Broker on Reverse Mortgage Website

Keith Brotemarkle, one of the people indicted with Charles Head in an alleged “equity stripping” scheme called Operation Homewrecker, was also involved in a reverse mortgage company called Reverse Mortgage Resources.

The company’s website “invites qualified brokers to become Approved Reverse Mortgage Advisors” with Reverse Mortgage Resources.  It asks potential affiliated brokers ” Who did you speak with at Reverse Mortgage Resources?” 

One of the brokers listed as being at Reverse Mortgage Resources is Keith Brotemarkle.

Brotemarkle was allegedly a participant in Charles Head’s “equity stripping” scheme that netted approximately $5.9 million in stolen equity from 68 homeowners in states across the nation. Targeting distressed homeowners and defrauding mortgage lenders through the use of straw buyers, Head would receive approximately 97 percent of the stolen equity, while the other defendants received either the remaining 3 percent of equity or a salary from the fraudulently-obtained funding. The defendants used referrals from mortgage brokers to identify and solicit new victim homeowners, and also sent “blast faxes” to mortgage brokers throughout the country and mass emails to potential victims. Through misrepresentations and omissions, desperate homeowners would be offered what appeared to be their last best chance to save their homes. Victims were left without their homes, equity, or credit.

The FBI has recently announced that it has begun an investigation to the misuse of reverse mortgages.  Reverse mortgages release the equity in a property to the homeowner in one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves the home.  In the U.S., reverse mortgages are available for people 62 years old or older. Reverse mortgages are typically used to finance retirement or pay unexpected medical bills.  While reverse mortgages can make sense for seniors, the FBI is concerned about possible abusive sales practices that prey on seniors, such as aggressive and untruthful marketing and excessive fees.

Reverse Mortgage Resources is run by mortgage broker Don Marginson.  Its website states that it is located in Ranch Bernardo, California, and that it is “expanding again with offices to cover the Southeast and Northeast United States.”

We have no reason to believe that Reverse Mortgage Resources is not legitimate, and we would not want to assume that it is illegitimate simply because of its association with Brotemarkle.

But we would suggest that they remove Brotemarkle’s name from its website.

 

 

N.Y. Times Editorial Calls for Foreclosure Prevention Legislation Before the Next Mortgage Meltdown

The New York Times entered into the politics of the foreclosure crisis with an explosive editorial today accusing the Bush administration of failing to protect the economy and instead “sowing confusion and delay” in the face of the mortgage meltdown.

Here’s what the Times said:

“The housing bust is feeding on itself: price declines provoke foreclosures, which provoke more price declines. And the problem is not limited to subprime mortgages. There is an entirely different category of risky loans whose impact has yet to be felt — loans made to creditworthy borrowers but with tricky terms and interest rates that will start climbing next year.”

“Yet the Senate Banking Committee goes on talking. It has failed as yet to produce a bill to aid borrowers at risk of foreclosure, with the panel’s ranking Republican, Richard Shelby of Alabama, raising objections. In the House, a foreclosure aid measure passed recently, but with the support of only 39 Republicans. The White House has yet to articulate a coherent way forward, sowing confusion and delay.”

“[I]f house prices fall more than expected — a peak-to-trough decline of 20 percent to 25 percent is the rough consensus, with the low point in mid-2009 — financial losses and economic pain could extend well into 2011.”

“That is because a category of risky adjustable-rate loans — dubbed Alt-A, for alternative to grade-A prime loans — is scheduled to reset to higher payments starting in 2009, with losses mounting into 2010 and 2011. Distinct from subprime loans, Alt-A loans were made to generally creditworthy borrowers, but often without verification of income or assets and on tricky terms, including the option to pay only the interest due each month. Some loans allow borrowers to pay even less than the interest due monthly, and add the unpaid portion to the loan balance. Every payment increases the amount owed.”

“In coming years, if price declines are in line with expectations, Alt-A losses are projected to total about $150 billion, an amount the financial system could probably absorb. But until investors are sure that price declines will hew to the consensus, the financial system will not regain a sure footing. And if declines are worse than expected, losses will also be worse and the turmoil in the financial system will resume.”

“There’s a way to avert that calamity. It’s called foreclosure prevention. There is no excuse for delay.”

We agree with the Times that effective foreclosure prevention legislation is long overdue.  As the Times pointed out, unless Congress acts fast, it is likely that the economic consequences of the bursting of the housing bubble will be even more serious and widespread.

Even Fed Chair Ben Bernanke — who could not be called an advocate of government intervention in the markets — has stated that “High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy” and that what is at stake is not merely the homes of borrowers, but “the stability of the financial system.” 

We also can not imagine a more self-defeating political strategy than that of the Republicans who have opposed foreclosure prevention legislation. 

We’ve already written about Senator Richard Shelby’s close ties to the apartment owners industry, which has aggressively opposed federal aid to homeowners in, or near, default.

Surely, with the presidential election only months away and their party in trouble, more Republicans — including Senator McCain — should see the need for coming to terms with the economic, and political, realities of the foreclosure crisis, even if it requires ideological compromise.

 

Eleven State Foreclosure Prevention Group Slams Lenders and Bush’s New Hope Alliance — Says Not Enough Being Done to Help Homeowners

In the summer of 2007, the Attorneys General of 11 states (Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio, and Texas), two state bank regulators (New York and North Carolina), and the Conference of State Bank Supervisors formed the State Foreclosure Prevention Working Group to work with servicers of subprime mortgage loans to identify ways to work together to prevent unnecessary foreclosures. 

The Working Group has now issued two reports, in February 2008 and April 2008, based on data collected from subprime mortgage servicers. 

The reports note that foreclosure prevention continues to fall short, despite widely-publicized campaigns to encourage homeowners in trouble to seek help and initiatives by servicers to fast-track loan modifications.

The major findings of the State Foreclosure Prevention Working Group include the following:

  • 70 percent of homeowners who are two months behind on their mortgages still aren’t getting help and are still not on track for any loss-mitigation.
  • While the number of borrowers in some kind of loss mitigation program has increased, it has been matched by an increasing level of delinquent loans; thus, the relative percentage has remained about the same. “This large gap suggests a systemic failure of servicer capacity to work out loans.” 
  • Only one in three delinquent borrowers completed a workout within 45 days.  Slow assistance is partly why the number of homeowners facing foreclosure increased 16 percent.  Servicers’ loss-mitigation departments are severely strained in managing the current workload.  “We are concerned that servicers overall are not able to manage the sheer numbers of delinquent loans…the burgeoning numbers of delinquent loans that do not receive loss-mitigation attention are clogging up the system on their way to foreclosure…We fear this will translate to increased levels of vacant foreclosed homes that will further depress property values and increase burdens on government services.”
  • Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification.  Such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans. Many servicers are replacing their use of repayment plans in favor of loan modifications.
  • The Hope Now Alliance — a coalition of mortgage lenders and servicers backed by the Bush administration — has not provided borrowers with very much hope.

Based on their findings, the State Foreclosure Prevention Working Group made the following recommendations:

  • Develop a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach. “Initial efforts to develop systemic approaches are far too limited to make a difference in preventable foreclosures. Without a systematic approach, we see little likelihood that ongoing efforts will make a serious dent in the level of unnecessary foreclosures.”
  • Slow down the foreclosure process to allow for more work-outs. “Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure.”

“Progress is being made, but there is a long way to go,” said Iowa Attorney General Tom Miller, a founder and leader of the State Foreclosure Prevention Working Group. “We still see a tremendous gap between the need for loan work-outs and the options in place today.”

“Foreclosures are costly, further reduce real estate values, and harm not only borrowers, but also neighborhoods and communities,” said Massachusetts Attorney General and Working Group member Martha Coakley.  “In most cases, and particularly where mortgage loans contain payment terms that were not structured to be sustainable in a real estate downturn, loan modification and other loss mitigation should be done much more actively.”

We would point out that the states involved in the Working Group have nearly half of the nation’s electoral college votes — and that several of these states are crucial “swing” states in the 2008 presidential election.  The candidates need to pay close attention to the Working Group’s findings and recommendations.

 

Update: Mortgage Scam Website Sill Online

Here’s an update to our earlier post “Mortgage Scam Website Still Online.”

The Web page we originally linked to has been taken down. 

We have, however, found another page that is still on online.

The website says “Let technology and the power of the Internet work for you!  Take the headaches out of shopping for a home loan.”

You can find it here.

UPDATE:

We’ve also found a reverse mortgage website that lists Operation Home Wrecker scammer Keith Brotemarkle as one of its brokers.  You can read our post here.

Mortgage Scam Website Still Online

We blogged yesterday about the federal indictment in “Operation Homewrecker” of Charles Head and 18 others for what the FBI alleges to be a major mortgage scam that defrauded homeowners of their houses, their equity and their credit.

Today we saw that a website of Charles Head’s company is still online.

The website of Head Financial Services (“The Smart Way to Shop for a Lender”) is hosted by the website for Huntington Beach News.

The website promises that you can “Get 3 competing mortgage bids with one easy form” and that “Lenders are standing by now to serve you.” 

 

A representative of the Huntington Beach News told us that the page was a paid advertisement.

He also said that he didn’t know who had paid for the page, but that he needed to take the page down.

The only link on the page is to Charles Head’s email at charleschead@aol.com.

UPDATE:

The Web page we originally linked to has been taken down.  You can see another Head Financial Web page that is still online here.

We’ve also found a reverse mortgage website that lists Operation Home Wrecker scammer Keith Brotemarkle as one of its brokers.  You can read our post here.

California Takes Action (But Not Very Much Action) Against Mortgage Fraud

With great fanfare, California Attorney General Jerry Brown and local prosecutors in San Bernardino and Los Angeles counties announced yesterday that they had shut down subprime mortgage fraud schemes that had victimized thousands of homeowners.

The San Bernardino County district attorney’s office arrested five people and were waiting for two more to surrender to face charges of conspiracy, grand theft and elder abuse, and a related lawsuit was filed in Los Angeles County Superior Court accusing six companies — Lifetime Financial Inc., Nations Mortgage Inc., Greenleaf Lending Inc., Virtual Escrow Inc., Olympic Escrow and Direct Credit Solutions Inc. — of using predatory lending practices to trap homeowners in illegal and expensive loans.

All of the companies participating in the fraud were allegedly operated by one family.

According to prosecutors, the schemes operated by promising borrowers unrealistically low interest rates of less than 6% a year and then having them sign contracts that carried higher rates. The companies are also alleged to have charged hidden loan fees of as much as $20,000 per transaction.

“As the mortgage crisis worsens, a growing number of fly-by-night companies are employing utterly brazen tactics to push homeowners into illegal and unconscionable loans,” California Atty. Gen. Jerry Brown said. “The illegal sales practices of these companies . . . included psychological pressure, forgery and outright lies.”

The predatory practices that were alleged included:

“Offering thousands of dollars in cash back without disclosing that the money would be used to cover high fees;

Falsely promising to reimburse prepayment penalties from the victim’s current lender;

Pressuring victims to sign inaccurate loan documents by promising to correct excessive fees;

Failing to provide copies of signed documents;

Forging victims names and signatures on loan documents;

Falsifying income information on loan applications and creating fake references;

Refusing to honor written demands to cancel loans.

If a consumer tries to back out of the transaction, the companies promise to waive thousands of dollars in various processing, application, origination and underwriting fees. If the consumers agree, sales representatives provide a new statement but then resubmit the original forms, ultimately charging the same excessive fees.”

Brown’s office is seeking civil penalties of $2,500 for each violation of law and full restitution as well as a permanent injunction against operation these businesses. Penalties and restitution are estimated by prosecutors to exceed $20 million.

Although the announcement of the prosecutions was staged for maximum political effect, the response from the local media and consumer groups probably hasn’t been what Jerry Brown expected.

Rather than congratulating Brown on his prosecution of mortgage fraud, the commentary has criticised Brown for taking so long to do so little.

Paul Leonard, director of the California office of the Center for Responsible Lending, said that while the prosecution would help “to rid the marketplace of the most egregious illegal practices,” the real problems in the subprime market are caused by practices that are still legal.  “The illegal practices are only the tip of the iceberg,” Leonard said. “The vast proportion of the problems in the sub-prime market were caused by perfectly legal but systematic failures.”

Los Angeles Times real estate blogger Peter Viles was even more skeptical.  Viles noted that “The companies accused in the crackdown are not exactly household names and were operated by a single family in Tarzana.”

More caustic still was John Gittelsohn at the Orange County Register.

Gittelsohn observed that this appears to be Brown’s first attempt to prosecute mortgage fraud since he took office. 

“Since early 2007,” Gittelsohn wrote, “federal authorities have initiated civil and criminal probes of lenders such as New Century Financial Corp., a bankrupt subprime lender in Irvine. Attorneys general in New York, Ohio and other states have announced investigations into mortgage writing, financing and other industry players.”

“Brown’s predecessor, Bill Lockyer, in cooperation with other prosecutors won multi-million dollar settlements in predatory lending cases against Orange-based Ameriquest Mortgage Co., Illinois-based Household Finance Corp. and Irvine-based First Alliance Mortgage Corp. among other companies.”

“As the birthplace of America’s subprime lending boom and bust, you’d expect California’s Attorney General to be a national leader in policing the mortgage industry.”

Gittelsohn then asked: “So what’s taken Brown so long?” 

Brown says that he intends to bring additional legal actions, both civil and criminal, against other mortgage lenders and foreclosure consultants who are taking advantage of homeowners in California.

We hope he does. 

But we also agree with Paul Leonard that illegal practices are only the tip of the iceberg in the current mortgage crisis, and that the vast proportion of the problems in the sub-prime market are the result of perfectly legal but systematic failures in the mortage industry and credit market.