Archive for the ‘financial’ Category

Am I the only one or is the fact that the loan to deposit ratios (blue lines) are so high scary?

Bank Health Ratios - Wells Fargo, Citibank, Chase, Bank of America

Bank Health Ratios - Wells Fargo, Citibank, Chase, Bank of America

What happens if the non performing ratio goes up?

Full article: How’s your bank doing?

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Loan Modifications, touted as one solution to the housing crisis, haven’t lived up to their promise. For one thing, they seem quite difficult to get. A cbsnews article suggests this is because of potential problems with the banks’ balance sheet causing by lurking bad home equity loans. The theory goes, if the banks recognized the true value of these loans, the writedowns to their balance sheets would be in the billions, causing losses and a possible need to increase the amount of regulatory capital they have on hand. For those of you that have been following the financial crisis, you’ll know there has been efforts to force the banks to increase the amount of cash they have to offset the amount of money they have lent out in loans. This is what is meant by regulatory capital.

The article shows a Reuters image I’ve captured here.

Bank exposure to unsecured home equity loans

Bank exposure to unsecured home equity loans

This raised some questions in my mind.

  • Why is this impacting requested loan modifications where there is no second lien present? I can understand the reluctance to modify the second lien so that it loses most of it’s value, but I don’t think this explain the many loan modifications that are not getting through as there is no second lien or home equity loan.
  • What the heck is a “unsecured home equity loan”? A home equity loan by definition is secured by real estate. Otherwise it is just a personal loan. So I did some research. Apparently, a home equity loan becomes “unsecured” when the there is no equity to support it (it’s an underwater loan). If this is the explanation I think the “40% writedown” may be too conservative. In distress situations, the second lien is usually wiped out almost completely.

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The Obama administration has not been happy with the lenders’ effort to help property owners in the housing crisis. For the more than 6.5 million property owners currently late on their mortgage only 170,000 loan modifications have been completed.

Under increasing government pressure, Bank Of America launched a new program to erase as much as 30% off the principal in underwater home loans. The program should be available sometime in May, and before you ask, yes it is only available to homeowners with principal residences.

The enhancements to the National Homeownership Retention Program (as they call it) are coming soon according to their web site.

Bank of America has not been my favorite bank, but I am cheered to see a major bank lead the way towards measures that must be taken. Both property owners and the banks are going to have to compromise and meet somewhere in the middle for us to get out of this mess.

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Forensic Loan Audits is another tool underwater and delinquent borrowers are using to fight foreclosure. The idea is that you find problems with the mortgage documentation and use this to pressure the lenders into a loan modification or other outcome favorable to you the borrower.

During the height of the housing boom, not only did lenders get careless with who they would lend to, but also with following the RESPA and TILA regulations. RESPA, Real Estate Settlement Procedures Act, mandates improved disclosures (and timelines for those disclosures) for real estate transactions, such as the good faith estimate of closing costs and the HUD statement. The serving transfer notice you get when your bank sells your loan to another is part of RESPA. TILA, the Truth in Lending Act, governs disclosures about the cost of credit, such as the APR (annual percentage rate).

A forensic loan audit may find violations of RESPA and TILA. However an recent article by Marilyn Bowden is finding that even though 98% of loan audits find violations, it doesn’t buy you much. For one thing pursuing this with your lender is a legal matter with all the costs that come with that, including litigation. Another is that the lenders are not really responding to the legal pressure. Think about it, you are in a long line of people threatening to sue the bank.

However, comments on the web indicate some success when the bank can’t produce the mortgage documentation at all. With the dicing and repackaging (securitization) of mortgages done for the now hapless investors, some mortgages may have gotten lost and that might be something worth hiring a lawyer for.

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Bank of America seems to be rather organizationally challenged. I’ve experienced this first hand with their property claims process.

I’ve seen cases where a troubled homeowner has received two completely different letters from them within the SAME WEEK. One threatening to foreclose, the other saying they were working on the “loan workout request”.

When I worked out a temporary forbearance with them due to the fire and rehab, they then apparently fedex’ed some loan modification (??) papers to the property address (I bet the tenants were confused) and then called and told me that they would be doing a loan modification with me to adjust my loan payment to … wait for it .. wait for it .. to exactly the same amount as my current loan payment!

So, some major internal problems. Now it appears they are busy foreclosing on the wrong houses. Below are three cases, the “parrot one” in particular has gotten a lot of press.

Note that in the Angela Iannelli case, B of A first blamed the contractor.

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Troubled homeowners who have gone through a foreclosure or a short sale may have a lurking problem that could cause them problems years down the road. Even though you think you may have put a bad chapter in your life behind you, the lender can still come after you with a deficiency judgment.

A deficiency judgment is when the lender sues you for the difference between the loan amount and the amount they (the lender) realized when the house was sold. Whether it was through a short sale or sold as a bank owned property may not matter.

Yahoo finance published an article that illustrates the problem with several examples. In one, a borrower even signed a document at a short sale closing that gave the lender permission to come after him.

If you are in a short sale, make sure you get agreement (in writing) that the lender will not pursue a deficiency judgment against you. If you have lost a house through foreclosure, whether the lender can come after you will depend on the state the house was in.

If you are in a recourse state, the lender can pursue a deficiency judgment against you. Per The New Republic blog, the non recourse states are Alaska, Arizona, California, Iowa, Minnesota, Montana, North Carolina, North Dakota, Oregon, Washington and Wisconsin. However, even iin these states, a lender may have recourse with second liens and refinanced loans. Regardless, consulting an attorney is needed for advice on your specific situation.

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What do you do when a property you bought for 5.4 billion is now only worth 1.8 billion? Why you give it back to the lender of course.

Several people who track the commercial real estate market have warned of a coming wave of commercial property defaults that might make the current residential real estate problems look like peanuts. Adding credibility to this claim, Tishman Ventures recently defaulted on Stuyesvant Town & Peter Cooper Village in Manhattan and returned the property to its lenders in a deed-in-lieu arrangement.

With a loan more than double the property value, the action by Tishman makes financial sense. They are not the only ones giving property back to the banks, recently several towers in San Francisco bought by Morgan Stanley at the peak, were returned to the lender. Note the quote in the article: “This isn’t a default or foreclosure situation,” …. “We are going to give them the properties to get out of the loan obligation.”

The Huffington Post, a popular blog, contrasts the Stuyvesant situation with a borrower who is underwater on a mobile home. Entitled “Tishman Speyer Walked Away From Its Stuyvesant Town, Peter Cooper Village Mortgage. Why Can’t You?”, one has to wonder at the double standard here.

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Short sales would appear to be the best answer to a bad situation. The borrower can’t carry the mortgage payments, the loan is more than the house is worth. With a short sale, the lender agrees to take less than the loan in exchange for a buyer that keeps the house off their hands.

Seems like a better solution all around. Short sales reportedly are not as damaging to a credit rating than foreclosure, the legal costs of a foreclosure are avoided, and the bank typically gets more money (especially when the buyer is a retail buyer) than they would through foreclosing on the property, carrying the property and paying the holding costs, and then selling it as bank owned.

However as Robert B. Jacobs writes, the best solution isn’t always what happens. In one case the lender refused to release the seller from being liable for the difference between the selling price and the loan amount. So the property went through foreclosure instead. While foreclosure laws in each state are different, apparently in the state this foreclosure occurred (probably California), the lender lost recourse to go after the borrower for the difference. The saying “cutting off your nose to spite your face” seems appropriate here.

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When you have an insured loss over a certain amount, the insurer will write the check to both you and the lender.  Now comes the hard part, getting the money out of the lender.  I recently had to go through Bank of America’s property claims process, it was full of mistakes and frustrations.

Basically here is how the process works.  You get a percentage to get the rebuild job started.  And then you request an inspection.  Based on the inspection results, more money will be released to you.   And so on, until the job is 90% done and they release the rest of the money.  Here is what to expect based on my experience:

  • Expect lengthy delays in every step of the process.   For example it takes 2 days for a check request to be “approved”.  I was also told I would have a check by a certain date, it showed up 3 days later.
  • You will need to shepherd every single step.  For example, don’t expect that an inspection automatically generates a check to you, in most cases you have to call and request the check.
  • The amount of money that will be released to you is unpredictable and based on the inspection.   A draw schedule that I sent in was pretty much ignored.
  • Ask to have the process explained several times.  I got a different story from each rep I talked to, one told me it took 2 days to schedule the inspection, the next time I called in asking why the inspection hadn’t happen, I was told 3 days.
  • Expect lots of mistakes.  The first check sent to me was sent to an old address (even though my loan statements had been coming to my new address for 18 months).  A canceled check’s funds was not returned to the account.  And most baffling of all, the first check was made to a second party even though I am the only party on the loan and the title!

The process was totally unworkable for any realistic construction schedule, especially one that had roof work and the corresponding worry of completing that particular work quickly.  What I had to do was fund the work up front and then work with the bank to get my money out of them.   I can’t imagine what it must be like for a property owner with no resources.

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The Treasury released new guidelines on short sales to “simplify” the process.   The new rules addressed the response period by the bank and second liens.   Starting in 2010 the banks now have 10 days to respond to a short sale offer.   It remains to be seen whether this will become a reality.   Banks are taking months (if not more) to respond to an offer.  The worse offenders are Chase, Bank Of America and National City (which is now PNC).  I know of several deals that have been waiting over 6 months.  So 30 days would be revolutionary, 10 days just simply amazing.

The Treasury also is trying to help out in situations where the second lien holder blocks the deal.  Usually in a short sale the second lien holder ends up taking a lot less or nothing, so many of them are holding out and refusing to take the loss.  The guidelines now caps the proceeds to subordinate lien holders to $3,000.

It really remains to see whether these guidelines will improve the situation.  The loss mitigation departments seem overwhelmed, and quite frankly it does appears that the banks are happy to just sit on the offer and wait.   Delaying means that their books look healthy for one more quarter, and maybe the market will turn around.  Foreclosure would cost them more but that’s not this quarter.  I know of one smaller bank that is refusing all short sales, they are foreclosing and then sitting on the properties, they must have some cash to back this strategy.

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