Mortgage Lowdown

– Pushpa Sathish, Staff Writer

Frauds do pay, but only until the law catches up with you; then you’ll have to pay the price for all the misdemeanors you committed. Husband and wife, Anna and Mark Bonds of St. Louis County, have been indicted on multiple charges of mortgage fraud and conspiracy to commit mail fraud.
Anna has been accused of using her position as a mortgage broker for the firms of A Mortgage Solutions and C.D. Adams, to falsify documents and information about her clients in order to secure mortgages for them — the catch here being the fat commissions she pocketed from the deals. She also allegedly bought and sold personal property with loans brokered using false financial and employment data.

[via Biz Journals]

If convicted, each mortgage fraud charge carries a maximum penalty of 30 years in prison and/or fines up to $1 million; the conspiracy charge carries a maximum of five years and/or fines up to $250,000.

– Pushpa Sathish, Staff Writer

Consumer protection from fraudulent lending practices just got a boost with a new bill that proposes that loan officers, mortgage brokers and retail lenders not lend clients more than they can afford to pay back or more than their house is worth. Advocated and promoted by Rep. Barney Frank, the new chairman of the House Financial Services Committee, the bill will receive top priority to enable it to become a law that regulates lending standards across the country. The House Financial Services Committee is the primary originator of banking and mortgage-related federal legislation.

Consumers not well-versed with the way the mortgage industry works usually borrow beyond their means and end up deep in debt. One of five sub-prime borrowers who opted for reduced-payment, low-documentation mortgages between 1998 and 2006 are in danger of losing the roof over their heads because of sharp increases in payment and penalties, according to a survey by the Center for Responsible Lending.

What does the mortgage industry think of this proposed law? Steve O’Connor, senior vice president for the Mortgage Bankers’ Association, feels that a federally imposed suitability standard would be “vague and subjective,” and not allow the borrower to be in control of the transaction. Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, echoes O’Connor’s sentiments and adds that a suitability test “could lead to accusations of discrimination.” 

– Pushpa Sathish, Staff Writer

Arizona is waking up to the fact that fraud in its mortgage industry is taking a significant toll on its real estate value. The large number of cash-back deals of late has induced a state legislation, which if passed, will make mortgage fraud a felony. The bill, introduced by Sen. Jay Tibshraeny of Chandler, seeks to punish offenders with up to 10-year sentences.

Cash-back deals are swindles that work by obtaining mortgages that are much more than the actual values of the houses; the difference from the real value is pocketed as profit. This scam pushes up the values of all other homes in the entire neighborhood, with homeowners left to bear the negative effects associated with overpriced homes. AZ Central reports:

Only two states, Colorado and Georgia, have laws specifically regulating mortgage fraud. Most states, including Arizona, must try to prosecute the crime under general fraud laws, which make convictions difficult and less of a deterrent.

When we are ready to close in on a home, we tend to get overwhelmed by the entire process. There’s so much to do, loans to be procured, insurance… the works. Sometimes in this melee, we may forget certain things. For instance, we may not realize the importance of closing costs or settlement costs.

These costs are associated with the sale of a home or the refinancing of a mortgage and generally range from 3% to 8% of the total loan amount. Usually, when you refinance, the costs are lower and many of the costs can be rolled into the loan. There are certain costs that you just need to pay—for instance some fees and taxes, which the law decries that the buyer pay. However there are other costs that you can negotiate and split with the seller. For instance, you can do so with points. So it is important that you have a good idea of the expenses you can share to reduce your final costs.

–By Priya Jestin, Staff Writer

There’s one good thing about bad news — more often than not, it sends you some form of warning before arriving. No, I’m not joking. If you look hard enough, you’ll find a pattern just about everywhere — from natural storms to stock market crashes. Well, I’m dealing with neither but with something more closer home — foreclosure. It is important to know the warning signs of foreclosure to prevent it from happening to you. So, what exactly are these signs?

Is your house worth less than what you owe? I know this sounds odd especially when house prices are not exactly crashing. But this is a very real possibility. The risk of foreclosures is very high if you’ve taken a loan in excess of 80 percent of your home’s purchase price. The problem is that you are stretching your budget well beyond your means. And in the event of a fall in prices, you could be badly stuck.

Exotic Mortgages: I think I’ve written more and enough about Adjustable Rate Mortgages, other exotic loans and the risks associated with them. For a short period of time, monthly payments are quite low and bearable, and then the problems begin.

Behind on mortgage payments: This is one of the biggest indicators of a coming problem. There could be many reasons like loss of job, illness, death in the family — of the earning member. Just about anything that contributes to reduction in income could adversely affect your payment capacity.

You can address all these factors. But time is of essence. It is important to contact a skilled lawyer before foreclosure starts.

–By Priya Jestin, Staff Writer

The last five years saw an enormous boom in the home equity loan and mortgage lending market. The main reason was that investors sought to build equity in the rising real estate market. There have been benefits, like increased homeownership from this boom. However, it’s not been all smooth sailing.

Home prices have been rising steadily during the last five years. The increase in real estate speculation has helped drive prices to record levels. This, combined with low growth in jobs and salaries, has made many markets unaffordable. The worst was Santa Barbara, California, which was overvalued by nearly 70%.

The huge overvaluation has forced the hands of many buyers, leading them towards dangerous interest-only loans and other risky loans, such as the Option ARM. These loans, which still leave the owners with huge monthly payments, generally do not help reduce the principal of the loan.

Planning to sell your home so you can make a gift of the money to your son/ daughter and probably move in with them or near them? Think again. Retirement is an expensive proposition and you may still need the money. Courant.com reports:

Retirement is expensive (and getting more so by the minute), and I really think your parents should bank their $100,000 in case they need it for health costs or other expenses as they age.

Want to know more? Read on

Is your former spouse’s financial misdemeanors haunting you? This is a familiar story: One of the spouses makes a mess of the finances and then the family is forced to go into personal bankruptcy to save assets like their home. Now if you are divorced and you have the house, then you are probably paying the mortgage on the home. But if you don’t yet have the house in your name, and the bankruptcy prevents you from taking another loan, you may be in a bit of a soup. So how do you ensure that the house for which you are paying will indeed be yours at a later date? If your ex-spouse still has the title to the property, then you should get a quit claim deed from him/her. This will show that s/he has relinquished all ownership right to the property to you.

However if s/he refuses to give you a quit claim deed until the time at which you’re able to refinance, you may probably have to wait until such a time. Then, you can have him/ her execute the quit claim deed at the closing on your mortgage. These things can happen simultaneously.

Guess bad times shadow everyone. I mean until now I only thought about how bad things were for me. A high mortgage rate was just the beginning of a long list of highs. And none of this is going to end anytime now. However, it is not only final consumers like us who are suffering. Latest figures show that that the housing market has cooled off tremendously. Inventories of unsold new homes have gone from four months’ supply a year ago to six months now. That means developers are also having a bad time.

But still at the end of the day, it’s us homeowners who are taking a bigger beating. Our purchasing power has depressed and even if we want to put our homes on the market, I doubt there are buyers who can afford to take them right now. Along with high oil prices, these effects are hurting other industries.

The last decade has been a good time for the housing industry, the mortgage loan industry and for people belonging to the lower economic strata of society. The housing boom during this period helped a large number of people take homes, which they otherwise may not have been able to afford.

And the fact that minority home ownership rates rose above 50 percent for the first time in 2004 is a laudable fact. But before we go into a back-patting mode, let us look at the deeper and murkier part of this entire story. Behind this success lies a disturbing trend. In the past few years areas with large poor and minority populations in places like Cleveland, Chicago, Philadelphia and Atlanta have experienced a sharp rise in foreclosures. In some cases, these have more than doubled. According to a recent report, black people in Cuyahoga County were nearly 3 times more likely than white people to have received a high-interest mortgage loan last year, regardless of how much they earned. And this is just the foretaste of the can of worms that was opened thanks to recently released federal data.

What then happens is that communities like Blacks and Latinos are unable to pay the high rates and more often than not, the story ends in foreclosure. What’s sad is that this cycle is not going to end anytime now. According to experts, this is only the first wave of financial distress and there is more to come. And the culprit in all this is the subprime mortgage, which initially seemed like a godsend and has now become a nightmare for the minorities.