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Sunday, April 22, 2012
Fixing the mortgage industry

By REGINA E. CORCORAN Special to The Citizen

Or should I say, "DFD?" Since the start of 2013, five new and interesting strategies have developed to jump-start the ailing housing and mortgage industries.

On March 6, the Federal Housing Authority (FHA) received authorization to reduce fees and make FHA Streamline Refinances as easy to slide through as coconut oil in August. For those who want to refinance to a lower rate and have an FHA loan that closed before June 1, 2009, now is the time.

FHA borrowers do not have to prove their income, employment or credit. There will be no new appraisal. That means even those who owe more than their home is worth can get a new loan.

FHA also made these refinances more desirable by dropping the mortgage insurance rates. Instead of charging 1 percent of the loan balance up front, the fee will be only 0.01 percent. That's like buying gas for 4 cents a gallon.

In addition, they are reducing the monthly mortgage insurance premiums from 1.15 percent to only 0.55 percent of the loan balance.

The Consumer Financial Protection Bureau (CFPB) wants to concentrate more on "consumer service" and less on "mortgage servicing."

Although borrowers chose their loan originator, they lost control after closing. Their "mortgage servicers" were often not customer friendly. Between "please hold because your call is important to us" and slow death via dial by number -- "oprima dos para Español," three for FAQs ... nine to repeat and zero to return to the main menu -- they could be dead before they ever were able to speak to a human being.

The main thrust of the CFPB is no surprises. Mortgage customers should receive clear advance notice about interest rate changes and how their payments are applied.

The new rules will make mortgage statements more uniform. They will include a definition of terms, breakdown of the payment, amount and due date of the next payment, itemization of other fees and charges, and late fee warnings. Delinquent borrowers will receive alerts and information about loss mitigation alternatives.

New rules covering "force-placed" insurance would require the servicer to ask the borrower, not once but twice, to prove evidence of insurance before charging them for the "force-placed" insurance.

The CFPB would require the servicers to make good faith attempts to contact delinquent borrowers and inform them of options to avoid foreclosure, including counseling.

They think that loan servicers should provide a loss prevention team. Borrowers should have easy access to their records and to these employees. The team would have access to loan underwriters who can evaluate the borrowers' eligibility for a loan modification or a refinance.

National Mortgage News reported on March 21 that FHA will extend the "short refinance" program until the end of 2014. This is due in part to "The Problem," which is that they have closed only 840 of these loans since the program began in August 2010.

How does a short refinance work? It is similar to a short sale, where the underlying lender accepts a payoff of less than what is owed. In a short refinance, the lender must write off at least 10 percent of the loan balance so that the new loan-to-value ratio is not greater than 97.75 percent.

Because an inchworm can cross a super highway faster than lenders will agree to either a short sale or a short refinance, these mortgages have a very scant track record.

The $26 billion settlement agreed to by five of the largest lenders is nearly wrapped up. The deal struck with the government requires Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial to use $20 billion to help borrowers avoid foreclosure via loan reductions and modifications (see short refinance above).

They will also pay $5 billion to federal and state governments, which will send $2,000 checks to 750,000 people who were improperly foreclosed on between 2008 and 2011. Every time I multiply $2,000 by 750,000 I get $1.5 billion. The federal government gets the rest. Does this remind you of "one for you and three for me"?

The top five jackpot winning states are, in millions: California, $410.6; Florida, $334.1; Texas, $134.6; New York, $107.6; and -- surprise -- Illinois, $105.8.

The Federal Reserve obviously sat back, grinned and said, "That went well!" It announced on March 19 that it planned to fine eight more financial institutions for allegedly improper foreclosures, including Everbank, Goldman Sachs, HSBC Holdings PLC, PNC Financial Services Group, MetLife, OneWest Bank, Suntrust Banks and U.S. Bancorp.

DFD. Dialing For Dollars.

What do you think?

Regina E. Corcoran, SRA, is a Florida real estate broker, state-certified residential appraiser and residential contractor. She is president of AmeriRealty Corp. and vice president of AmeriMortgage Corp. She can be reached at ReginaECorcoran@cs.com. Corcoran writes her column exclusively for The Citizen. It appears every other Sunday.

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