Can’t Make Your Mortgage Payments? Your Bank Doesn’t Mind…It Will Use Your House for Parties!

Tuesday, September 15, 2009 |

Whether it is homeowners seeking a mortgage to buy a house or business bosses looking for commercial mortgages, it would seem that it is important to get some advice on the subject.

Catherine Hearnden, director of independent financial advice group MyMortgageDirect, said that "there are so many deals out there" to choose from.

She suggested that there are many elements to consider when trying to secure a mortgage such as looking for the best rate, as well as the most suitable "combination of rate, fees, how interest is charged [and] whether you can make overpayments".

Ms Hearnden also indicated that some mortgage holders will have benefited from the low interest rates this year.

The Bank of England's monetary policy committee brought the cost of borrowing down to 0.5 per cent in March 2009 - a record low - and it has remained at this level for the last six months in a row.

Find out more on our commercial mortgages and how we can help you achieve your aims - enquire online.


Seven low-rate mortgage shams


If you've never bought a home before, when you first start shopping for a mortgage it might seem like the obvious way to choose a lender is to pick the one that offers the lowest interest rate. After all, the interest rate on your mortgage will affect both your short-term and long-term financial well-being because it will determine your monthly mortgage payment and the total amount you'll pay for your home.

Little Things Make a Big Difference

Consider this example: Take out a $200,000, 30-year mortgage at 6.5% interest and you'll pay $1,264.14 a month and $455,090.40 (plus your down payment) over the life of the mortgage. Take out that same 30-year mortgage at 5.5% and you're looking at a mortgage payment of $1,135.58 and a total cost of $408,808.80, or a savings of $128.56 a month and $46,281.60 over 30 years. Even small differences in interest rates, like 6.5% versus 6.2%, can make a big difference. In this case, the 6.2% mortgage rate would save you $39.20 a month and $14,112 over 30 years.

However, taking out a mortgage is a major financial decision, and one that, especially for first-timers, is fraught with potential pitfalls. Just as you consider more than just the sticker price when you shop for a car because factors like safety, fuel economy and reliability are also important, interest rate is only one thing you should consider when shopping for your mortgage. (Learn more about finding the right mortgage in Shopping For A Mortgage.)

Why Low Interest Rates Aren't Always a Bargain

Here are some of the other factors you should consider and why they matter.

1) Teaser Rates

These attractively low advertised interest rates are often just a way to get you in the door. The truth about mortgage rates is that they change multiple times a day. If you contact a lender based on a rate they've advertised, the odds of you actually getting that rate are slim.

2) Fees

There are many costs associated with taking out a mortgage besides the interest rate, like closing costs. Just as the grocery store tries to get you in the door by advertising a gallon of milk for $2 but then wants to charge you $5 for the cereal to pour it on, a bank might advertise a lower interest rate than its competitors but then expect you to pay double the closing costs you might pay elsewhere. Points are another area where lenders can make up for low interest rates by charging borrowers higher fees. However, information on fees isn't likely to be available up front - the only way to find out about these costs is to talk to a lender and have them prepare a good faith estimate for you. (Learn more about avoiding extra fees, read Watch Out For "Junk" Mortgage Fees.)

3) Type of Loan

What type of loan you qualify for will affect your interest rate. That great mortgage rate that you see advertised might be for a 15-year fixed conventional mortgage, but your income and savings might only qualify you for a 30-year fixed FHA mortgage, which will have a higher interest rate and a higher long-term cost. (Read Understanding FHA Home Loans to learn more.)

4) Location

Where you live also impacts mortgage rates. One of the first questions any lender will ask you is the zip code where you plan to purchase property. The national average might be 5.41% on a 30-year fixed, but the average rate in New York City might be 5.49% while the average rate in San Francisco might be 5.33%.

5) Credit Score

The best advertised rates only go to borrowers with the best credit scores. The further below 720 your credit score is, the less likely you are to get a rate similar to the advertised rate.

6) Lending Institution Reputation

Just because you've never heard of a particular lending company doesn't mean that it's up to no good, and just because it's a nationally recognized name doesn't always mean it's a safer choice. Regardless of the lender you're considering, do some research to determine how likely you are to get a fair deal when working with that company. The lender who advertises the best rates is not always a lender who will give you a fair deal.

7) Loan Representative

At least as important as your choice of lending institution is the specific person you work with in that company. Unscrupulous people can work for stellar companies, and people who always put their customers' best interests first can work for shady institutions. This is why the specific person who handles your mortgage for you needs to be someone you trust. Whether this person is competent and ethical in qualifying you for a mortgage, selling you a particular mortgage product, and preparing your mortgage paperwork will have a major impact on your life.

Just ask the people who ended up with mortgages they didn't understand and ultimately couldn't afford and today have foreclosures blemishing their credit reports and are back to renting or even living with relatives to get by. They all probably wish they had looked at more than just the interest rate when they took out their mortgages. (What looks like a good deal often amounts to hidden costs. To learn how to find and avoid them, read Score A Cheap Mortgage.)


Mortgage rates change multiple times a day, and they vary depending on your geographic location, the type of loan you want and your credit score. Perhaps most importantly, they don't tell the whole story about the cost of a loan. A mortgage lender might advertise a great rate, but charge a ton of money in closing costs, or promise a borrower great terms, but then present different numbers in the paperwork at closing when emotions are running high and time is of the essence. Looking at the whole loan package, not just the interest rate, will help you get the best deal.


CEO's Home Mortgage Explains Firm's Use of Debt


Newswise — If you want to know how much debt a corporation is willing to take on, take a look at the CEO’s personal finances.

A new study finds that corporations with higher levels of debt tend to have CEOs who also owe more on their own homes.

Firms whose CEOs have home mortgages have about 4 percentage points more debt than do firms whose CEOs do not take out a mortgage to finance their primary personal residences. The results suggest that the personal attitudes of CEOs toward debt have a strong effect on their firms’ financial decisions.

“It’s not just the characteristics of the firm or the industry that determine a company’s debt choices. Our findings suggest that you have to also look at the personal characteristics of the CEO to fully explain these financial decisions,” said Anil Makhija, co-author of the study and Rismiller Professor of Finance at Ohio State University’s Fisher College of Business.

While other studies have shown how a CEO’s personal characteristics shape management styles and some financial policies at a firm, Makhija said this is the first research to show how CEOs’ personal preferences can impact debt use -- one of the most important financial decisions made by a firm. Past studies have ignored the personal debt preferences of CEOs in explaining the use of debt by firms.

Makhija conducted the study with Henrik Cronqvist, professor of economics and finance at Claremont McKenna College, and Scott Yonker, a graduate student at the Fisher College. The study is available as a working paper at the Social Science Research Network, the Dice Center for Research in Financial Economics website, and other places.

The researchers started by looking at the CEOs of the largest U.S. firms – those leading the S&P 1,500. They then used several public data sources to collect information on the CEOs’ primary residences and mortgages.

They ended up with a sample of 1,351 CEOs. This data provided an interesting snapshot of the lifestyles of the country’s top CEOs. Results showed that the average CEO bought his or her home for $1.65 million in 2005 home price dollars. The average house was 5,180 square feet, had four bedrooms, and about 11 rooms in total.

Results showed that 67 percent of the corporate leaders used a mortgage when they purchased their home, and that they borrowed an average of 66 percent of the purchase price – only somewhat lower than the U.S. average of 75 percent. How the CEOs financed their homes is an indicator of their tolerance for debt, a trait that is difficult to measure otherwise, Makhija said.

The researchers then compared how much debt the CEOs had on their homes with how much debt the firms they led had compiled.

They found a strong positive relationship between personal and corporate debt, even after they took into account a wide variety of factors that could affect either kind of leverage, personal or corporate.

For example they took into account house prices in the areas where CEOs purchased homes, interest rates, age of the CEOs and other factors. They also looked at characteristics of firms that can explain why they would take on more or less debt.

“Even controlling for all of that, we still find that that the personal traits of CEOs explain corporate debt,” Makhija said.

Of course, that fact isn’t necessarily bad if corporate boards of directors are choosing CEOs because of their personal views on debt, and with the expectation that they will follow those preferences at the company.

To test that theory, the researchers also looked at what happened when firms changed CEOs. They found that firms generally hired new CEOs that were similar to their previous leaders in terms of personal preferences for debt on their homes.

But when boards did select new CEOs that had different personal views on debt than did their predecessors, the firm tended to change its own debt structure in ways consistent with the new CEO.

“So when the new CEO seems to be more financially conservative based on his own personal leverage, the firm tends to reduce its corporate leverage,” Makhija said.

“It is possible that the new CEO was selected precisely to change the firm’s capital structure in this direction.”

However, the researchers also found evidence of another explanation: CEOs were more likely to imprint their own personal views on debt of the corporations they led when the firms had weak governance, meaning that the boards did not adequately control the actions of their leader.

The researchers defined boards of directors as providing weak governance when they didn’t provide strong incentive-based pay contracts for their CEOs, and when the boards were so large that individual members didn’t feel as responsible for decisions.

“When boards provide strong leadership, CEOs don’t have as much opportunity to let their personal views on debt – instead of only business reasons – impact their management of the firm,” he said. “But when the boards are weak, CEOs can push the firm in the direction of their own traits and preferences.”

Makhija said he was somewhat surprised by the results. Before conducting the study, he believed that CEOs who took on more debt risk in their personal lives would “hedge their bets,” in a sense, by being more conservative at work.

“We expected that CEOs with a lot of personal debt would try not to put their firms at risk by borrowing heavily,” he said.

Instead, the results show that debt tolerance seems to be a strong personal trait that carries over from a CEO’s personal life into his or her work life.

In that sense, the behavior is consistent with the well-known psychological phenomenon of avoidance of cognitive dissonance. In this case, that would mean CEOs try to avoid the discomfort from a conflict between personal and work attitudes towards debt –- aggressive in one and conservative in the other.

The results also show the importance that strong, individual leaders have on all aspects of a company.

“Our study suggests that we have to also look at the personal traits of CEOs, because they can tell us important information about the financial policies of the firms they manage. Past research has generally ignored these traits in explaining how firms are financed.”


Is Your Short Sale or Loan Modification Being Turned Down?


Has your short sale or loan modification been turned down and you have no idea why? Let's examine some of the reasons. These reasons may not make you feel any better or maybe they are just excuses by your lender, however there are a few things you may not even know about your loan. loan modifications short sales

Let's say that you make your mortgage payment to Wells Fargo. You can no longer handle your payments so you ask Wells Fargo to modify your loan- to do a loan modification for you. You are behind in your payments. You are in fact, in foreclosure but you are still living in your home and the judge in your case has not ordered the sale of your home at auction yet. You are scared. You see your neighbors losing their homes all around you. You are hopeful because you see on the news and in the newspapers that the Federal Making Homes Affordable Program has been helping some folks keep their home and get a loan modification.

You are no longer making your mortgage payment because your adjustable rate has been applied and your mortgage payment has gone from $1600 a month to $2300 per month. You just can not make these payments. You have been trying for almost 2 years now to get Wells Fargo to approve your loan modification. You even hired an attorney to help you with your foreclosure defense.

Wells Fargo turns down your loan modification request. You wonder, how could this be? After all, Wells Fargo is one of the large lenders and is participating in the government's Federal Making Homes Affordable program.

But Wells Fargo tells you that the investor is the one that will not allow you to get a loan modification. What in the world is an investor doing making decisions on your loan you wonder. Well, you are not alone in your confusion. Every day we are explaining the whole mortgage note owner thing to buyers agents, real estate agents and homeowners.

Just because you make your house payments to Wells Fargo does not mean they own that note that you are paying on. They are the servicer. Other words you will hear them called are asset management companies.

The very first thing you need to do before you ask for a loan modification is to find out who actually owns your note. You can do this by calling who you make your mortgage payments to and asking them.

If it is Freddie Mac or Fannie Mae that own your note- you have a much better chance at getting your loan modification approved if you qualify. If it is a private group of investors, your chances go way down. Why would this happen?

One in eight homeowners' loans were sold to investors on Wall Street. What happens is that a bunch of loans are packaged together. These are called mortgage-backed securities. They are then sold off to investors. Homeowners who have mortgage-backed securitized loan are five times more likely to be late on their house payments. Many of these borrowers were given loans they were not qualified for from the beginning. Many of the homeowners getting these loans did not read the fine print and did not realize how high their mortgage payments might go when adjusted.

The rules to allow modifications, short sales and terms of foreclosures and deficiencies are ambiguous at best. Homeowners who are told no by the investor have little recourse.

The federal Making Homes Affordable program lenders who participate in the program must modify all homeowners that qualify. The exception is when the investor has a rule that they do not allow modifications.

The Federal Housing Finance Agency reported to Congress on June 3rd that these securitized mortgages are a "hurdle" to the success of the Making Homes Affordable program. The treasury department has not disclosed why the modifications are denied so there are little to no facts to go on.

Why would the investors say no to your loan modification? Well, Wells Fargo's response is that the investors need their money. Wells Fargo has one situation where the borrowers ( the homeowners) are trying to get their loan modified but Goldman Sachs is the issuer and Deutsche Bank is the trustee. But when you go and talk to these investors and we have on several occasions when doing short sale negotiations for our sellers; the investor passes the buck back to the servicer. For instance, Deutsche Bank says that Wells Fargo is solely responsible for the decision to modify a loan or not.

Some people say that the investors are the scapegoats. Everything can easily be blamed on them. Since you rarely get to speak to anyone at the investors' group it is hard to tell who is telling the truth. In this particular situation Wells Fargo is saying that the investor is not forgiving the past due debt and that makes the payment go up on a loan modification because then Wells Fargo would have to put that past due balance along with all the penalties and fees into the loan modification which then may cause the homeowner to not qualify financially for the loan modification.

Servicers have agreements, contracts that they sign with investors. These agreements contain the rules for modifications. These agreements are called Pooling and Servicing Agreements which is known as PSA's. The PSA is most often what the servicer says is the reason for them not being able to do the loan modification or release the deficiency on a short sale.

But when you talk to other people in the management areas or to the investors they claim that there is nothing in the PSA's that would prevent the servicer from approving loan modifications, short sales and releases. There is a new study coming out from a law school wherein they state that only 8% of these mortgage-backed securities agreements contain any language that says the servicer is not allowed to do a loan modification for these notes. That means that about 92% of all the NO's; could actually be YES's. So why would that even happen?

loan modifications short sales Fear of law suits! The language in the PSA in question here, Wells Fargo and Deutsche Bank- it says that Wells Fargo can "waive, modify or vary any term" as long as Wells Fargo as the servicer makes a "reasonable and prudent determination" that the modification is in the investor's best interest. Attorneys examining these agreements say there is quite a bit of room for servicers to make these decisions. But the language itself in this agreement is enough for the servicers legal counsel to be concerned with the investor suing them for not acting in the best interest of the investor. They can not, no matter how inhumane this sounds, put the homeowner ahead of the investor. This is about business and if they want business from investors they need to make sure they are looking out for the interests of the investors.

The treasury department has stated that the fear of law suits is the biggest deterrent to getting the servicers to approve loan modifications and short sales. So doing little or simply turning down the loan modifications are the answer many servicers choose. This is not personal and this is not against you, the homeowner. The position of the servicers is to watch their own backs and to protect the assets to which they have been entrusted with, your mortgage-backed security. The Treasury Department says they can relieve some of the pressure of the fear of lawsuits by standardizing requirements for loan modifications and also provide some type of calculation to figure out if the investor will make more money by the loan modification or by the foreclosure.

We need to keep in mind one big thing in all of this and that is that these investors end up being regular people because most of these mortgage-backed securities were bought by pension funds and retirement plans of folks like your parents or even yourselves. You may well be one of the shareholders of the very loan you can not pay.


Banks Step Up Loan Modifications Under Obama Program (Update2)

Wednesday, September 9, 2009 |

Sept. 9 (Bloomberg) -- Bank of America Corp. and Wells Fargo & Co., among the worst performers of banks in the U.S. government’s main foreclosure prevention plan, stepped up their pace of mortgage modifications by at least 60 percent in August.

Bank of America more than doubled its number of modifications started through the Making Home Affordable Program to 59,891 in August from July, while Wells Fargo improved by 64 percent to 33,172, the U.S. Treasury said in a report today from Washington. Overall, 47 banks have begun 360,165 modifications through the program, up from about 235,247 in July.

Wells Fargo and Bank of America, which have taken a combined $70 billion in taxpayer-funded aid, had been criticized by lawmakers for not doing enough to offer assistance to struggling homeowners. The banks have cited the time needed to boost staffing in loan servicing departments and government delays in distributing information about the program.

“A lot of our momentum pickup is working with those customers we had already made offers on, making sure they were aware of the offer and converting those offers into trial starts,” Steve Bailey, a Bank of America home retention strategies executive, said in an interview yesterday.

Bank of America’s modification pace may quicken as the Charlotte, North Carolina-based bank accounted for about 22 percent of the 571,354 modification offers made to borrowers, though not all started, through the program. San Francisco-based Wells Fargo accounted for about 13 percent.

Capacity and Transparency

Bank of America and Wells Fargo still lag their peers including JPMorgan Chase & Co. and Citigroup Inc. As of August, Bank of America had started modifications on 7 percent of its eligible loans. Wells Fargo was at 11 percent. Citigroup’s rate was 23 percent, while JPMorgan’s was 25 percent. The best performer among servicers that had at least 100 qualifying mortgages was Morgan Stanley’s Saxon Mortgage Services, which had begun trials for 39 percent of its 73,694 eligible loans.

The Treasury said today that the program has been more successful than any other foreclosure relief effort for “at- risk borrowers.”

“Nonetheless, we recognize that challenges remain in implementing and scaling up the program,” Michael Barr, the Treasury’s assistant secretary for financial institutions said in written testimony to the House Financial Services Committee panel on housing. “We are focused on addressing challenges in three key areas: capacity, transparency and borrower outreach.”

Millions of Foreclosures

Barr said the Treasury has asked loan servicers to expand call centers, add more staff than planned, increase training and to allow borrowers to escalate complaints, among other things.

The program won’t be able to help everyone, Barr said. “Even if HAMP is a total success, we should still expect millions of foreclosures, as” President Barack Obama said when he announced the program in February, Barr said.

Eligible loans under HAMP are those originated prior to 2009, where the owner is “at risk of imminent default” and the underlying property is owner occupied and conforms to Fannie Mae and Freddie Mac loan limits, which can be as high as $729,750 in some areas. The data excludes Federal Housing Administration and Veterans Affairs loans.

‘Besieged With Volume’

“The servicers are still besieged with volume,” said David Sisko, the head of default management services for Deloitte & Touche LLP.

Molly Sheehan, a senior vice president for JPMorgan’s home lending business, told the panel that her company has made progress by hiring more people and investing in technology.

“We believe that the industry as a whole is making significant capacity investments like those made by Chase to provide assistance to as many families as possible,” she said.

The program requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae and Freddie Mac to lower monthly payments for borrowers at “imminent risk” of default. Banks can lengthen repayment terms, lower interest rates to as low as 2 percent and forbear outstanding principal, among other methods.

The Treasury numbers released today doesn’t include redefault rates on the HAMP modifications.

“A lot of these loans shouldn’t have been made in the first place,” Sisko said. “The issue really comes down to how many are going to be successful.”

Unemployment Rate

Government-controlled mortgage-finance company Fannie Mae reported last month that 41 percent of the loans it modified in the fourth quarter, before HAMP was implemented, were still current or had been paid off.

“With unemployment still near 10 percent, even the most ambitious loan modification program will not be able to assist borrowers who have no ability to make a reasonable mortgage payment,” Jack Schakett, a credit loss mitigation strategies executive at Bank of America, said in written testimony to be delivered today to the House subcommittee.

The U.S. jobless rate in August jumped to 9.7 percent, the highest since 1983, and employers cut another 216,000 jobs, highlighting threats to consumer spending.

Mike Heid, co-president of Wells Fargo Home Mortgage, said the program is too new to calculate meaningful success rates and that previous redefault rates may not apply.

“The last couple of months the vast majority of mods all have payment decreases,” Heid said in an interview today. “So historic redefault rates really are no longer appropriate given that the type of mod that’s getting done is just very, very different than it used to be.”

Obama announced the programs in February, and final criteria for administering the modifications on loans owned by Fannie Mae and Freddie Mac were released in April. Specific program guidelines for loans owned by other investors were provided in June, and the Treasury later gave new details for loans backed by the Federal Housing Administration.

To contact the reporter on this story: Dawn Kopecki in Washington at


Oregon AG wins mortgage fraud prosecution grant


SALEM, Ore. (AP) -- Attorney General John Kroger has won a federal grant to help prosecute mortgage fraud as part of his effort to help Oregonians stay in their homes.

Kroger said people threatened with losing their homes during a recession often get desperate, putting them at risk for fraud.

( Graphic)

Kroger said the grant will fund one new prosecutor and one new investigator to coordinate Oregon Department of Justice prosecution of mortgage fraud cases.

The attorney general's office has opened nearly a dozen mortgage fraud and foreclosure scam investigations in the past year, including several criminal cases.


Who'd want to Kop a Liverpool mortgage?


The irony-meter at Anfield is plainly on the blink if an email sent out to Liverpool fans earlier today is anything to go by.

"Be in with a chance of winning a fabulous prize when you get a quote for a Liverpool FC Mortgage!" it declared.

"Get a Liverpool FC mortgage quote for your home and you could win an amazing trip to Liverpool FC's home, Anfield."

Given the ongoing failure of the Reds' attempts to move home, it remains to be seen exactly how many supporters will be signing up with Messrs Hicks and Gillett to finance their own house move.