California Loans News

According to California-based data researcher company Interthinx, mortgage frauds related to property valuation has increased to 46 percent compared to a year ago. The company’s study showed that there have been a noticeable number of schemes made against short sales, REO inventories and refinancing by borrowers whose equity was damaged due to the declining real estate values.

Generally, the Interthinx Mortgage Fraud Risk Index poured more than 11 percent from the earlier quarter. This covers the common types of mortgage fraud including property valuation. This data indicated that fraud and its perpetrators have intensely worked up their way in these times of economic and real estate crises.

The data company further stated that “the highest levels mortgage fraud risk correspond closely to the states with the highest levels of foreclosure activity.” And what is more alarming is that over the past year, there has been an increase in geographic concentration of mortgage fraud risk. The company explained, “Despite relatively small variations on the national scale, the range from the lowest to the highest risk state has widened considerably.”

Nevada was reportedly to have the highest risk. On the other hand, DSNews reported that in early October, the state has already launched an “all-out offensive to absolve that title.” Another known foreclosure hotbed is California, which has 7 out of 10 riskiest metro areas in terms of potentiality to these kinds of fraudulent activities. The state’s fraud index represented the largest one-year increase in all states. Interthinx noted that “the highest risk counties were previously confined to the state’s inland region but the risk has now spread to many coastal counties as well.” Arizona and Florida rank 3rd and 4th, respectively, in the Interthinx’s riskiest list. These two locations are also included in the areas deeply affected with high foreclosure trends.

The fraud risk list also included the areas of Charleston, South Carolina, Portland and Bend, Oregon, Minneapolis-St.Paul, Minnesota and Washington, D.C.

Meanwhile, the company’s Occupancy Fraud Risk Index has shown a 30 percent decline compared from a year ago. This index is closely related to schemes concerning speculative investments. This drop was explained to occur because of the consumers’ reduced economic circumstances and the depressed market for residential investment and rental properties. However, the company said, “A very slight increase over the last quarter – the first since the fourth quarter of 2006 – suggests that occupancy fraud risk may be poised for a rebound.”

Another decline in risk of fraud is in terms of employment and income claims, down 35 percent. This may be attributed to the decrease lenders’ growing use of Internal Revenue Service data in income verification. Also, the Interthinx said that the decrease may be because of a reduced need for misrepresentation of income as housing is slowly becoming more affordable.

Analysts of the company still expect that fraud risk may continue to increase in the next three years. This may be due to the wave of adjustable rate mortgage loans (ARMs) to be reset between the remaining weeks of this year and the first quarter of 2012.

The mortgage insurer company Genworth Financial has reported a net income of $45 million during the third quarter this year, compared to the company’s net loss of $258 million in last year’s same time frame. Despite the overall earnings, the company also revealed a $116 million worth of net operating losses of its U.S. Mortgage Insurance (US MI) segment, compared to its losses of $121 million during the same period last 2008.

The earnings report of Genworth exposed that the company changed its underwriting guidelines in order to create growth for the future. Genworth has also restricted coverage in 199 metropolitan statistical areas (MSAs) to 90 percent loan-to-value (LTV) mortgages basing on the conditions of specific housing markets. But during the third quarter of 2009, it has reopened coverage to 95 percent of LTV mortgages. On the other hand, the company’s guidelines were limited to the states of California, Florida, Arizona, Nevada and Michigan – the territories considered to be hotbeds of the foreclosure crisis.

Genworth’s US MI segment also has higher loss mitigation savings and lower losses. There has been a reported $224 million savings, equaling to $557 million worth of savings for the whole year. The report also projected the company to “save between $775 million to $825 million in loss mitigation through additional execution, resources and rising intensity loan modifications.”

As Home Affordable Modification Program (HAMP) servicers increase modification works so should their savings could be. During last month, HAMP servicers have already reached the 00,000 trial modification targeted limit, which was claimed by the Obama Administration to be a month ahead of plan. According to reports from Government Sponsored Enterprises (GSEs) and other loan modification servicers, Genworth estimated 11,500 delinquent loans within HAMP. The U.S. Treasury Department allocates incentives to participating loan servicers to the program.

Genworth chief executive officer Michael Fraizer said, “We are encouraged by the multiple signs of stabilization and improvement in our served markets which combined with our focused growth strategies, engaged distribution relationships and risk reduction efforts position us well for improved as we move ahead.”

The U.S. Congress passed a congressional resolution last November 1 extending the conforming loan limits through the year 2010. This stated that the current conforming loan limits of $417,000 for most locations in the country and $729,750 for high-cost areas like California would be extended. President Obama was expected to sign the resolution within two days as part of budgetary legislation preventing government shutdown.

The California Association of Realtors (CAR) and the National Association of Realtors (NAR) have been outspoken advocates of making higher conforming loan limits higher. The two groups have also contributed efforts for the provision of the Housing and Economic Recovery Act of 2008. This included the temporary raising of conforming loan limits from $625,500 in high-cost areas to the said amount above. The limits have also been extended until this year. In addition, the recent resolution has paved the way to extending the higher conforming loan limits for Fannie Mae, Freddie Mac and Federal Housing Administration (FHA) loans until the next year.

CAR president James Liptak said, “There is no doubt that higher loan limits and the federal tax credits for first-time homebuyers have helped stabilize California’s housing market over the last year. CAR applauds our congressional representatives for their actions to extend the higher loan limits through 2010. They now should focus on making higher loan limits permanent.”

The conforming loan limit establishes the capacity of Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac can buy or guarantee. This also refers to the maximum size of a mortgage the said GSEs would be allowed to purchase. Non-conforming or “jumbo loans” on the other hand are those that usually carry higher mortgage interest rates. These have increasing monthly payments which may hinder families in California to buy residential properties that have been made less affordable through such loans.

Nine subsidiaries of FBOP Corporation of Oak Park, Illinois were closed down by the Federal Deposit Insurance Corporation (FDIC). Three of these are located in California, another three in Texas, two in Illinois and one in Arizona. These closed down institutions contributes to those that have failed this year, totaling to 115. This is the highest number of failures for this kind of financing agencies in a single year since the saving & loan crisis.

More specifically, the nine banks are Bank USA N.A. Phoenix, California National Bank of Los Angeles, San Diego National Bank of San Diego, Pacific Bank of San Francisco, Park National Bank of Chicago, Community Bank of Lemont in Lemont, Illinois, North Houston Bank in Houston, Madisonville State Bank in Madisonville, Texas and Citizens National Bank of Teague, Texas. All together, these banks have 153 offices. These also account for the combined assets of $19.4 billion and deposits of $15.4 billion. Beginning last Saturday, these would be opened as U.S. Bank branches.

The FDIC paved the way for an agreement with the U.S. Bank of Minneapolis, Minnesota to take over the operations of the said institutions. The U.S. Bank of Minneapolis is a wholly-owned subsidiary of the U.S. Bancorp. It has also been touted as one of the country’s top 10 banks.

The U.S. Bank said that the agreement was a “low-risk” acquisition. The FDIC has also agreed to share in any losses on all the loans previously made in the deal. Furthermore, the new owner said that it would still implement either of the FDIC’s or other approved mortgage loan modification programs on the residential mortgages assumed within the loss-share agreement.

The FDIC also estimated that the closing of these FBOP subsidiary banks have cost the agency a collective amount of $2.5 billion. As for the consumers of the said failed banks, they are still protected. The FDIC would cover customer accounts even those reaching up to $250,000. They could access their money by writing checks or using ATMs or debit cards. The checks would be processed, and the borrowers could still make their mortgage and loan payments like business as usual.

Vice chairman of consumer banking for U.S. Bancorp Rick Hartnack said, “This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions.”

The U.S. Bank has taken advantage of such opportunities for growth expansion. Last month, it has purchased BB&T’s Nevada banking operations as an addition to its present acquisitions in the said states. This recent takeover of FBOP’s subsidiaries gives the institution a larger market share in the states of California, Illinois and Arizona and a rather new footprint in Texas. As for the U.S. Bancorp, it has repaid the Treasury Department all of its $6.6 billion in Trouble Asset Relief Program (TARP) bailout money. It has also reported a net income of $603 million for the third quarter, according to the company’s report last month.

Attorney General Edmund “Jerry” G. Brown Jr. called on the attention of several banks and loan servicers to detail their plans regarding assistance of troubled homeowners. This move is to possibly avert the “new wave” of foreclosures vis-à-vis the massive monthly payment increases made on Pay Option Adjustable Rate Mortgages (ARMs).

Brown said, “Homeowners with Pay Option ARMS are sitting on ticking time bombs that the lending industry has the power to defuse. Unless these banks and loan servicers act quickly, hundreds of thousands of mortgages will reset across the state, creating a new wave of foreclosures.”

During the third quarter assessment this year for the California real estate market trend, the state has already accounted for more than 25 percent of the whole country’s foreclosure activity. There are estimated 250,000 homes that have received foreclosure notices and filings in the Golden State. This also accounts for a yearly increase of more or less 20 percent in the said real estate activity.

Homeowners in the state comprise almost 60 percent of the country’s unusual Pay Option ARMs that have originated between the years 2004 and 2008. Almost one million of these mortgages would be reset in the whole nation for the next four years. This would then lead to higher payments and immense boost in the number of foreclosed properties.

Brown believes that through the lending agencies’ initiatives to be responsive to homeowners and loan modification programs that the problems could be addressed. He also asserted that the programs should be expanded and the assistance extended further. In light of this action, he asked 10 lending companies to submit their plans for this call by November 23. The lending institutions referred to are Bank of America Home Loans & Insurance, Well Fargo & Company, JP Morgan Chase & Co., Goldman Sachs’ Litton Loan Servicing, GMAC’s ResCap, LLC, Ocwen Financial Corporation, OneWest Bank (formerly known as IndyMac Federal Bank), American Home Mortgage Servicing, Saxon Mortgage Services, Inc. and Select Portfolio Servicing.

Brown’s request letter includes the following key details to be provided by the lenders:
1.    The number of option ARM loans secured by residential real property located in California that you are servicing (regardless of whether you own the loans).
2.    Of the number of Pay Option ARM loans identified above, the number that have negatively amortized, and the average dollar amount of that negative amortization.
3.    A detailed explanation of all efforts you have taken to handle customer service concerns of borrowers with Pay Option ARM loans, including any increased staffing and a description of any notices you send or are planning to send to borrowers whose loans are about to reset. For advance notices sent to borrowers, please specify how far in advance of the reset date you send, or plan to send, those notices.
4.    A detailed explanation of the loan modification plans you have developed for Pay Option ARM loans. Please state the circumstances under which your plans allow for the reduction of principal, and the possible amounts of principal reduction. If you are not willing to consider principal reduction as part of your plan, please explain why. Please also specify whether you have already implemented your modification plans for Pay Option ARMs or, of not, the time frame within which you expect to do so.
5.    To the extent your approach for considering whether and how to modify Pay Option ARM loans has changed since the beginning of the foreclosure crisis, please explain the changes and the reasons for those changes.

This letter was issued by deputy attorney general Benjamin Diehl. It also stated, “We look forward to receiving the requested information and to productive discussions on how to minimize the impact of Pay Option ARM recasts on California’s residents and economy.”

Meanwhile, Brown has made sure that measures to protect homeowners against loan modification fraud in the state are realized. Last year in October, there have a settlement worth $8.68 billion with Countrywide Home Loans. This occurred due to the investigation revealing that the said company has “deceived borrowers by misinterpreting loan terms, loan payment increases, and borrowers’ ability to afford loans.” Furthermore, there have court orders to shut down more than 30 fraudulent foreclosure assistance companies.

A California homeowner filed a class-action suit against Pulte Homes alleging the latter to fraudulently propping up home prices and sales in a “house of cards” scheme. The scheme eventually caused values in its developments to plummet. The Pulte Homes is the nation’s largest home builder company.

The lawsuit was filed under the U.S. District Court in Northern California. The builder company was alleged that its “one-stop shopping” business model allowed it to put homes on the market at inflated prices. The complaint also contained details that through the Pulte Homes’ business model, sales, financing, settlement services and appraisals were controlled. The buyers are then given mortgages they could not afford. The suit stated, “Since Pulte Mortgage, Pulte’s financing subsidiary, quickly sold its loans on Wall Street, it was not affected when buyers defaulted.”

Spokesperson for the Michigan company Jacque Petroulakis said, “Pulte Homes believes the allegations are without merit and we will vigorously defend the case.”

Lead attorney in the case Steve Berman said that some of Pulte’s development projects have become “toxic subdivisions with foreclosure signs all over the place, homes not taken care of, and no chance that the prices will go back up.” Berman also said that Pulte “lured unqualified buyers – such as the case’s named plaintiff Sodalin Kaing, who earns $21 an hour but bought a house for $518,215 – with the promise of large discounts if they used Pulte Mortgage.”

The suit is on behalf of every homeowner who has bought a Pulte home in state from January 1, 2005 to March 1, 2007. Homeowners could learn more about the suit at www.hbsslaw.com/pultehomes. Berman added that the case may be expanded to include developments of the builder company in Nevada and Arizona.

Berman’s firm, Seattle-based law firm Hagens Berman Sobol Shapiro, also has pending class-action suits against KB Homes and Countrywide Financial. These two were alleged that they have performed a scheme to drive up home prices.

Standard & Poor’s Ratings Services are examining mortgage insurance operations of seven companies for downgrade. Analyst Ron Joas said that the company’s move reflects “our view that macroeconomic conditions may have become more difficult for the mortgage insurers since we last conducted an extensive of the sector in April.” The ratings company expected mortgage insurers to have to sustain losses from 2010 to 2011. However, loss mitigation work for the respective companies is anticipated to be commenced in the second half before this year ends.

S&P said that the results from MGIC Investment Corp. and Old Republic International Corp. for the third quarter “may be indicative of an elongation of the loss cycle, and that mortgage insurers are experiencing a sharper and more rapid transition of delinquencies into prime books of business than we expected.”

The companies with mortgage insurers in risk for downgrade are Old Republic, Radian Group, Inc., Genworth Financial Inc., PMI Group Inc., CMG Mortgage Insurance Co., United Guaranty Residential Insurance Co. and the California Housing Loan Insurance Fund. MGIC was not included as the company’s mortgage insurer was downgraded last week.

The ratings company said that its review would examine the portfolios of the insurers. They would also focus on “trends of increased delinquencies among prime-rated borrowers and how company efforts might mitigate losses.” Mortgage insurers have also seen claims to continue increasing as home delinquencies and defaults on loans rise. The downgrades of at least one mark are possible if the ratings company would project losses would not return to expected levels “in the near future.”

Spokesperson for the California Housing Loan Insurance Fund said they are not “surprised, given the woes that the state’s housing market has endured over the past several years” with regards to the continuous real estate market deficiencies. Meanwhile, the shares of PMI and Radian have decreased by 13 percent and 4.5 percent respectively. Old Republic’s was down 1.1 percent and Genworth slipped by 1.7 percent.

California loan modification market law firm American Mitigation Law Group (AMLG) said that amidst signed laws protecting consumers, education for the homeowners is very much vital in making the laws in full effect. The law firm was one of the proponents of Senate Bill 94 (SB 94 or No Advance Fee Loan Modifications Law), which prohibits loss mitigation companies and mortgage servicers like agents and lawyers to charge advance fees prior completion of their tasks.

The company is also “hopeful that (through SB 94) cases of fraud in the industry will be significantly reduced as firms are held more accountable for how they charge for their services.” And they also reminded consumers that “homeowner education is every bit as vital because fraudulent companies can manipulate those that haven’t been properly educated on the issue.”

For one, the California Department of Real Estate (DRE) has released a list of companies that were given letters with “No Objection” in their advance fee-based contract. The DRE website stated that these agreements are not valid anymore due to the implementation of SB 94.

To propagate such information, the AMLG has included an SB 94 Frequently Asked Questions resource in its home loan modification website. Site visitors and users could click on the “Resources” tab across the top menu and select “California SB 94.” The questions and answers in the AMLG site’s FAQ are targeted to “help those in need of a loan modification better understand SB 94 and prepare themselves for any discussion with a loss mitigation firm.”

The AMLG company also advised homeowners that there are already many firms “struggling to become compliant with new regulations” under the said law. On one hand, AMLG is performing business as usual but now in observance of what the bill requires.

Real estate market analysts said that instead on being just compliant, companies should focus its efforts to the client’s needs to continue providing resources and assistance for those who are really in difficulty paying up their loans.

The chairwoman of the Subcommittee on Housing and Community Opportunity calls on real estate players to bring out lawsuits against high paying loans so more homeowners could save their properties. Chairwoman Maxine Waters, D-35th California, said, “We need aggressive action to force lenders to modify the predatory loans that they made. State attorneys general and civil rights groups are taking the lead in preventing foreclosures by filing lawsuits against the originators of these predatory loans, and I commend for their action.”

In 2008, the Congress passed the Housing and Economic Recovery Act. This created Hope for Homeowners, which is a mortgage principal reduction program. The Act also helped organizing the Neighborhood Stabilization Program that addresses abandoned properties and those that have gone through foreclosure. This year, the Congress passed another law that included measures in facilitating more accommodations of loan modifications. This is the Helping Families Save Their Homes Act. In March this year also, the Obama administration established the Making Home Affordable program. This one gives monetary incentives for mortgage servicers that participate in the loan modification work.

“Despite all our efforts in Congress, foreclosure rates are still increasing and show no signs of slowing down. Struggling homeowners need permanent loan modifications to prevent foreclosure. While the Making Home Affordable program has produced 500,000 trial modifications, very few permanent modifications have been provided,” Waters further explained.

Mortgage servicers participating in the program have been reported to perform slowly in modifying eligible loans in their loan portfolios. The Treasury Department revealed recent data that Bank of America (BoFa), Well Fargo and JP Morgan Chase modified a small percentage of their respective eligible loans. BoFA modified only 11 percent, Wells Fargo and JP Morgan Chase modified only 20 percent and 27 percent respectively.

According to online foreclosure tracking service Realty Trac, filings for foreclosures already reached a record high during the third quarter this year. It was equivalent to more than 937,000 during the said period.

In light of the lawsuits Waters was claiming, the impact of litigation may aid the homeowners keeping ownership of their properties through filed suits and resolved settlements. Attorney general of California Jerry Brown was reported to leading this measure underway. He managed $8.7 billion settlement with Countrywide last 2008. Waters said, “Countrywide was the leading architect of the subprime bubble. Attorney general Brown successfully argued that loan originators are responsible for these predatory loans and that they must be held accountable for their actions.”

In other locations, the move has also been proven effective. Massachusetts attorney general Martha Coakley achieved a settlement with Fremont Investment and Loan and Fremont General Corporation, the former’s parent company. The settlement amounted to $10 million, which would provide funding to foreclosure problems and troubled borrowers in the said state. The City of Baltimore, Maryland is suing Wells Fargo for “targeting subprime loans to African-American individuals, families and communities.” And the City of Cleveland, Ohio is suing 21 lending agencies for making predatory loans.

The National Association for the Advancement of Colored People (NAACP) has also filed a lawsuit against major lenders like Wells Fargo, Chase, Citi Mortgage, GMAC Mortgage, HSBC, SunTrust Mortgage and others.

Waters said, “I urge the state attorneys general to band together – much as they did when they sued the tobacco companies – and bring a national class action lawsuit against lenders and mortgage servicers.” Waters has also brought up another legislation that requires mortgage servicers to work early on with homeowners defaulting on their loans. She added, “Congress and the Administration have done a lot to address this crisis, but it’s not good enough, so I am continuing to search for ways to keep families in their homes. in the meantime, we need more of these kinds of suits because that is what lenders will respond to.”

As housing advocates of Los Angeles launched a campaign of vigilance against mortgage rescue scams, a couple with a property soon to hit foreclosure were charged in torturing two loan modification agents they suspected to perform fraudulent tasks. The couple Daniel Weston and Mary Ann Parmelee and other people allegedly lured the victims, Lamond Dean and Luis Garcia, to an office in Glendale. Spokesperson for the Los Angeles County district attorney Shiara Davila-Morales said that the agents were tied up, held for hours, robbed and beaten.

A statement from the district attorney’s office revealed, “The two allegedly sought loan modification assistance from the victims but believed that nothing was being done and wanted their money back.” Davila-Morales further said that the “police were called after one of the victims managed to escape.”

A criminal complaint filed against Weston, Parmelee and three other defendants stated that they were each charged with two counts of torture, two counts of false imprisonment by violence and two counts of second-degree robbery. Weston, 52, and Parmelee, 51, were arrested last week and set for a bail bond of $1 million each. They share a residential property in La Cañada-Flintridge which was in foreclosure. Davia-Morales said that the couple believed “they had been swindled.”

Weston and Gustavo Canez, 36, were the ones who allegedly carried out the beatings in front of Parmelee, Mario Solomon Gonzales, 47, and Marissa Parker, 49. Prosecutors said that the latter three had previous deals with the agents by referring loan cases to them. Authorities further said that a handgun and wooden knuckles were used in the attack. Gonzales is also facing one count of possession of a deadly weapon. He was allegedly carrying the wooden knuckles.

Parmelee, Gonzales and Parker pleaded not guilty last Friday. Weston and Canez were in court last Monday. The last two’s cases were continued to November 2.