Helvetica Hard Money

GovTrack: H.R. 3648 [110th]: Text of Legislation, Enrolled Bill

GovTrack: H.R. 3648 [110th]: Text of Legislation, Enrolled Bill

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Home Prices Still Haven't Hit Bottom Yet

Is Now Time to Buy Income Property?

New federal rules protecting applicants for home loans take effect July 30

The Federal Reserve regulations require lenders to provide consumers with initial disclosures of their mortgage costs within three business days of their loan applications, among other changes.

Article by Kenneth R. Harney, July 19, 2009 Reporting from Washington -- If you're applying for a loan to buy a primary or secondary home, or planning to refinance, you should be aware of a little-publicized set of federal consumer-protection rules that take effect July 30.

Among other key changes, the new Federal Reserve regulations require lenders to provide you with initial disclosures of your estimated mortgage costs within three business days of your loan application. If you don't get them, you can pull the plug.

The rules also prohibit lenders from collecting any fees -- except a reasonable charge for checking your credit -- until you've been given the loan-cost disclosures.

This means no more out-of-pocket upfront application charges until you've received the truth-in-lending disclosures and an annual percentage rate (APR) calculation of those loan costs.

Because many mortgage brokers and lenders traditionally have collected fees covering appraisal, credit and various other charges at the time of application -- sometimes amounting to hundreds of dollars -- this will be a significant change in procedure for the lending industry.

The rules also prohibit quickie closings on loans by requiring a seven-day waiting period after applicants are handed their early disclosures or the disclosures are mailed. You'll have a week to think about the transaction and decide whether it's right for you. Final truth-in-lending disclosures are due three business days before closing.

Here's an even more sweeping change for applications on or after July 30: The new Fed rules require lenders to deliver a copy of the real estate appraisal to you three business days before the scheduled closing on the loan.

In the past, even though federal regulations guaranteed that consumers could request and obtain a copy of the appraisal, lenders and home buyers frequently ignored that right. Many consumers had no knowledge of this right because no one in the home purchase, financing or settlement process told them about it.

Now the timing of the loan closing -- which is the financial ballgame for loan officers, realty agents, title and escrow officials -- will depend upon your receipt of the appraisal in advance. The three-day rule can be waived if you don't think receiving the appraisal is necessary.

Another significant change under the new rules: If the APR on the early truth-in-lending disclosure increases by more than one-eighth of a percentage point (0.125), the lender will now be required to "redisclose" -- that is, provide you with a corrected version and allow you an additional seven business days to consider the transaction before settlement.

What might cause the APR to increase after the initial disclosure? Lots of things: Say you left your initial rate on the loan to float with the market, but rates increase.

You'll need to get an amended truth-in-lending disclosure. Or perhaps the lender got inaccurate estimates of costs from third-party participants in the transaction, such as the settlement or escrow company. Or say that unexpected eleventh-hour junk fees materialize.

All these events, which have been frequent sources of consumer complaints this decade, could force the lender to redisclose loan costs and set back timing for the settlement.

What are some of the likely repercussions of the Fed's new mandates? First, the traditional approach of aiming in advance for a date-certain settlement target for home loan transactions almost certainly will be affected.

Closing dates will be more closely tied to lenders' and settlement agents' accurate estimates and their ability to deliver disclosures and appraisals by the required dates. If appraisers are backlogged and can't produce valuation reports quickly, settlements will have to be delayed.

Second, the purposes of the rules are to afford consumers better access to, and more time to consider, key elements of what are major financial transactions for most people. There might be fewer instances of last-minute closing-date surprises on fees, where buyers are slammed with hundreds of dollars of charges they'd never expected. But nobody can say that for sure.

Finally, the rules may well trigger waves of litigation if lenders and their business partners are not scrupulous in their compliance. There is an active and aggressive segment of the legal profession that specializes in going after banks and mortgage companies for truth-in-lending violations. Don't be surprised if you hear of lawsuits seeking cancellation of mortgage deals because timing deadlines were not met or appraisals not received.

As David Berenbaum, executive vice president of the National Community Reinvestment Coalition, put it in an e-mail comment: "Consumer advocates will closely monitor" compliance with the new Fed regulations, and the lending industry can expect "civil litigation against bad actors."

Bar issues foreclosure ethics alert for loan modification attorneys

California law specifically addresses foreclosure consultants and restricts their activities; among other things, they are prohibited from collecting upfront fees for their work. However, because attorneys are permitted to accept advance fees, they are in demand by some loan modification businesses. (Licensed brokers also may accept advance fees under certain circumstances.)

According to the alert, posted on the State Bar's home page (calbar.ca.gov), "There is evidence that foreclosure consultants may be attempting to avoid the statutory prohibition on collecting a fee before any services have been rendered by having a lawyer work with them in foreclosure consultations."

The alert goes on to list a series of ethics rules prohibiting lawyers from:

* paying a referral or marketing fee to a foreclosure consultant or other person for referring distressed homeowners to the lawyer;
* directly or indirectly splitting fees earned from a distressed homeowner client with the foreclosure consultant or any other non-lawyer;
* aiding a foreclosure consultant or anyone else in the unauthorized practice of law or forming a partnership or joint venture with a foreclosure consultant or other non-lawyer if any of its activities would involve providing legal services;
* contacting in person or by telephone a distressed homeowner referred by a foreclosure consultant or someone else unless the lawyer has a family or prior professional relationship with the homeowner;
* filing a lawsuit without good cause or motions in a lawsuit that are simply intended to delay or impede a foreclosure sale; and
* failing to perform legal services with competence.

Read the Alert: http://calbar.ca.gov/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf

Read entire article: http://www.calbar.ca.gov/state/calbar/calbar_cbj.jsp?sCategoryPath=/Home/Att orney%20Resources/California%20Bar%20Journal/March2009 &sCatHtmlPath=cbj/2009-03_TH_02_ethicsalert.html&sCatHtmlTitle=Top%20Headlin es

FW: Financial Rescue Turns to Toxic Assets

New Funds to Vie for the Securities, Setting A Market Price So Banks Could Sell Them

The Obama administration is aiming to solve one of the toughest riddles at the heart of the financial crisis -- how to value the toxic assets weighing down the books of banks -- by setting up several funds to vie for these securities, sources familiar with the plans said yesterday. By competing to buy assets, the funds could set a market price that would finally allow banks to sell them off.

The government is seeking to attract private investors to manage and put their own money into these funds by offering to cap their losses and share in the risk of buying the troubled assets.

These investors would likely include hedge funds, private-equity firms and other wealthy Wall Street financiers, according to market analysts and industry executives. They said the government could draw political fire for teaming up with these unregulated enterprises.

Obama's team is hoping to unveil this effort, which is the signature program in its multipronged rescue of the financial system, in the next few weeks, a source said.

The size of the initiative could range from $500 billion to $1 trillion, according to Treasury officials. While it is unclear how much of that would come from private sources, Treasury Secretary Timothy F. Geithner warned yesterday that the administration may ask Congress for more rescue funds.

"As expensive as it already has been, our effort to stabilize the financial system might cost more," he said in prepared remarks for a House hearing on the federal budget.

Federal officials in the Bush and Obama administrations have struggled for months to find a way to price these distressed assets, which are backed by troubled mortgages and other loans, that is high enough to help banks but low enough to protect the government from massive losses. Establishing several funds, run by private managers, would take that vexing problem out of the government's hands, allowing market forces to determine what these assets are worth.

This effort shares some similarities with a separate government initiative, the Term Asset-Backed Securities Loan Facility, which officials detailed yesterday. The TALF program -- which begins with $200 billion in public funds and could expand to $1 trillion -- is intended to jump-start the lending markets for education, autos, small businesses and credit cards. Ford Motor Credit, for one, is expected to announce today its intentions to use TALF to sell new securities that would allow people to get loans to buy Ford cars.

The program also relies on private-sector enterprises -- such as hedge funds and private-equity firms -- to determine how much to pay for asset-backed securities, which provide financing for consumer loans. The government would give these private investors loans to help buy the securities and offer to cover some losses. But unlike the program to buy toxic assets, the TALF is focused on newly issued and highly-rated assets.

Both of these initiatives look to tap private investment funds, bond traders and some hedge funds, which are key players in what is often called the "shadow banking system" -- the financial markets beyond traditional commercial banks that provided about 70 percent of credit to borrowers before the crisis. Developed by Treasury official Steve Shafran, a Bush administration holdover, and New York Federal Reserve Bank president William C. Dudley, the TALF initiative is the most sweeping step yet to get these markets functioning again.

"When congressional committees berate bank CEOs for not lending, they entirely neglect this securitized shadow banking world," said William H. Gross, chief investment officer of Pacific Management Co., the nation's largest investor in bonds. "The Fed has recognized that, but it's taken them a while to get this program operating."

Government officials said lending could not return to normal without helping the shadow bankers. Officials said that the more rigorous executive compensation restrictions that apply to banks that receive rescue money would not apply to the hedge funds and other middlemen who make the TALF money available to borrowers.

Both the toxic-assets program and the TALF would involve non-recourse financing. This means the companies can lose the money they invest to buy securities but cannot lose more than they invest.

Stephen Schwartzman, chief executive of private-equity giant Blackstone Group, said the TALF has gotten an encouraging response from the credit markets, which have begun to revive in recent weeks in anticipation. Blackstone, he said, has decided to look into buying up the assets offered in the TALF, though the firm has never bought such securities before.

The government's terms give private firms the potential for making tremendous profits, while limiting the losses private investors could face.

"I think if the government is prepared to partner with the private sector as well as put up leverage to facilitate certain kinds of investment it could be quite interesting to a private-sector investors," Schwartzman said. He added it is very difficult today for most private investors to get such favorable opportunities.

The TALF will begin taking applications from investors March 17 and pumping money out March 25, officials said.

Lenders with big consumer credit divisions that could benefit from the TALF moved higher yesterday on the stock market. American Express shares rose by nearly 7 percent, while Capital One Financial advanced 1 percent.

By David Cho and Neil Irwin, Washington Post Staff Writers, Wednesday, March 4, 2009; D01

U.S. Recession Deepened More than Expected in 2008

The U.S. recession deepened a lot more in late 2008 than first reported, according to government data showing a big revision down because businesses cut supplies to adjust for shriveling demand.

Gross domestic product decreased at a seasonally adjusted 6.2% annual rate October through December, the Commerce Department said Friday in a new, revised estimate of fourth-quarter GDP. The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in first-quarter 1982 GDP.

In its original estimate, issued a month ago, the government had reported fourth-quarter 2008 GDP fell 3.8%. The sharply lower revision to a decline of 6.2% reflected adjustments downward of inventory investment, exports and consumer spending.

http://online.wsj.com/article/SB123574078772194361.html?mod=djemTMB

Buyers' Revenge: Trash the House After Foreclosure

Buyers' Revenge: Trash the House After Foreclosure
Thursday March 27, 11:32 pm ET
By Michael M. Phillips WSJ

LAS VEGAS -- Eddy Buompensiero noticed eight pairs of shoes outside the door of the modest house on Mother of Pearl Street, evidence that the former owners were still living there even though the bank had foreclosed.

Mr. Buompensiero, a gray-bearded inspector for REO Asset Services-1st Realty Group, rang the bell. When no one answered, he taped a letter to the door offering the occupants $1,000 to move out. The catch: They won't get a cent if they trash the house before they leave.

"If it was me, I'd take the money," Mr. Buompensiero said as he drove away. Either way, they're "going to get thrown out in a couple of weeks."

The stucco subdivisions of Las Vegas are caught up in the nation's foreclosure crisis. These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. Real-estate agents estimate that about half of foreclosed properties to be sold by mortgage companies nationwide have "substantial" damage, according to a new survey by Campbell Communications, a marketing and research firm based in Washington, D.C.

The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. A ransom? A bribe? "Yeah, somewhat," says John Carver, an agent specializing in foreclosed homes for Prudential Americana Group in Las Vegas. But "you lose a house, and then you get some financial help -- it's a good thing...It's a win-win for both parties."

No one tracks how frequently such payoffs are made. In Las Vegas, agents hired by the banks to handle foreclosed properties say the "cash for keys" approach, as it's known in the industry, is a regular part of the job. After all, formal eviction proceedings can take months and cost potentially much more than a payoff.

Analysts predict that as many as two million homeowners could enter foreclosure this year, caught by a slowing economy, falling house prices and, in many cases, adjustable mortgages with rates rising from high to higher. In Las Vegas, 1.9% of homes in the Las Vegas area were in the foreclosure process in January, almost triple the rate of a year earlier, according to First American CoreLogic Inc., a Santa Ana, Calif., real-estate and mortgage data company.

Each day, auctioneers offer 150 to 200 properties for sale in the small lobby of the Nevada Legal News -- a high-speed inventory of dreams forfeited on Lucky Boy Drive, Jackpot Circle and other Las Vegas addresses. Often in attendance is Eddie Haddad, a 36-year-old who cut his real-estate teeth buying and restoring foreclosed properties. During the boom, he tried developing a 38-story tower of lofts for the Las Vegas art set. But the project stalled, and a few weeks ago, Mr. Haddad again found himself shopping for bargains at the foreclosure auction.

"We expect them to be trashed," Mr. Haddad says of the homes he buys. He prefers to call in the sheriff when he needs to evict hold-out occupants; for him, paying cash is a "last resort."

About 95% of the auctioned properties, however, go unsold and revert to banks eager to get the properties off their books. Some owners just walk away peacefully. But agents say a significant number take what they can carry and take revenge on the rest.

"I'm one of the thousands of people in town in foreclosure so I'd like to get as much as possible for the items," said one recent Las Vegas online ad offering a double wall oven, dishwasher and built-in microwave, all of which, in most cases, legally belong to the bank. Rules vary by state and county, but in Las Vegas, banks typically own everything that is built into a foreclosed home.

"When you're losing your dream, and you're paying all this money to it...and you're hoping that it's going to go up, and you're going to make 100 grand like everybody else did, and it doesn't happen -- you know, people get upset," says Joe Kraemer, a broker with Century 21 Advantage Gold who deals in foreclosed homes.

The evidence of that discontent was all over the carpet when Mr. Carver, of Prudential Americana Group, first visited a foreclosed house on Perfect Parsley Street. It didn't look like the usual waste from an abandoned dog or cat. "I would say 'ferret' from the way it's all along the baseboard, the way an animal would scurry," he said recently, leafing through photos of his most-memorable vandalized properties.

The original owner bought the house new in 2003 for $131,000. A year ago, Mr. Carver says, it could have fetched a quarter of a million. But the market fell fast and the owner, for unknown reasons, fell delinquent. The bank hired Mr. Carver and Leslie Carver, his wife and business partner, to list it, but chose not to refurbish before selling. The house sold for $170,000 in November, ferret scat included.

Cruising the wreckage of the Las Vegas property market every day in his silver Cadillac Escalade, the 38-year-old Mr. Carver has developed a connoisseur's eye for pointless destruction. Vandals who break into empty houses often smash windows and paint graffiti on the walls, he says. But it takes an enraged, delinquent mortgagor to indulge in a frenzy of destruction, such as the one that took place recently in a three-bedroom, 1,949-square-foot house in a residential and industrial area northeast of the casinos on the Strip.

Light switches, outlet covers and thermostats were smashed. There was what looked to be crowbar damage along the staircase. A large pool of paint had hardened on the living-room carpet. It appeared that someone had dripped motor oil in a trail that wound its way through every carpeted room. The appliances were gone, as were most light fixtures. A cabinet door had been removed and left soaking in a full tub of water. Not a wall was left without a hole the diameter of a closet rod, including the pink child's room once carefully decorated with a floral wallpaper stripe. It's damage that Mr. Carver described as "a vengeance-type thing."

"Some people have issues, and need to do what they have to do, I guess," he said.

The former owners, who couldn't be located, paid $261,892 for the house when it was new in March 2006, borrowing $209,513 in their first mortgage, according to public records. Now it's listed for $149,000 -- as is.

Banks rarely pursue charges against destructive homeowners; it's not worth the cost and trouble. Instead, they try to prevent home rage by giving agents such as Mr. Carver blanket authorization to offer at least $300 to occupants to get them to leave peacefully.

Late last month, Mr. Carver left a letter on the door of a house with a red-tiled roof in Henderson, abutting Las Vegas. "I may be able to offer you cash to vacate the property," the note said.

The owner, a 43-year-old man with two children who spoke on the condition that his name not be used, says he bought the property in 1993 for $140,000. Three years ago, he says he had the house appraised for $440,000 and took out a $207,000 home-equity loan to pay off credit-card bills and buy his wife a new van. His initial payments were an affordable $1,800 a month.

He fell behind, however, after he went through a divorce and his landscaping business faltered, just as his interest rate was rising. The man worked out a payment plan with the bank and borrowed heavily from his father, but, including penalties, his monthly payments rose to $4,000, he says. After two months, he says, he ran out of money, and the bank foreclosed.

He called Mr. Carver after receiving the cash-for-keys note, but was left cold by the bank's initial $500 offer to leave the house soon, intact and broom-swept. "If I stay here it will cost them a lot more money," both men remember the former owner saying.

The man says he was just pointing out that eviction is expensive for the bank and says he had no intention of damaging the house. But he had "pushed the right buttons" for Mr. Carver. "He didn't actually come out and threaten the property in any way," Mr. Carver says. "But I assumed that he probably wouldn't be too happy if he got evicted and locked out."

Mr. Carver consulted with the bank and upped the offer to $2,800.

"Better than nothing," the owner responded.

Last week, Mr. Carver went to the house, found it clean and whole, and handed the man a check. "Everybody walks away somewhat happy," Mr. Carver said. "I guess."

New Nevada Bill AB 440 Means Near Death to Stated Income Loans

NEVADA PASSES AB 440 REQUIRING LENDERS TO VERIFY A BORROWER'S ABILITY TO REPAY A LOAN

In an effort to protect consumers from unscrupulous brokers and as a knee jerk reaction to the current subprime turmoil, Nevada passed Assembly Bill 440.  Effective October 1st, 2007, AB 440 amends NRS 598D.100, in part, to make it an unfair lending practice for a lender to: “knowingly or intentionally make a home loan, other than a reverse mortgage, to a borrower, including, without limitation, a low-document home loan, no-document home loan or stated-document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.”

To read the new bill in its entirety click here: Nevada AB 440

http://www.leg.state.nv.us/74th/Bills/AB/AB440_EN.pdf

The issue with the Nevada bill is that it is unclear to what extent a licensee must investigate a borrowers stated income declarations and many licensees have expressed concern over the meaning of "commercially reasonable means or mechanisms" in the context of determing that the borrower has the ability to repay the loan.

NEVADA MORTGAGE LENDING DIVISION TRIES TO CLARIFY AMBIGUITY 

In an effort to clarify the ambiguity the Comissioner of the Mortgage Lending Division issued a statement to lenders. Among other things, the Division says that "licensees must verify the information that borrowers provide. The Division recognizes that there are some general sources, such as Salary.com and the Department of Labor, which may be utitlized to verify income in those situations where verfication of employment, pay stubs or tax returns are not utilized."  The Division also stated that, "it is also important that licensees document for examination purposes that these discussions and verifications occurred.  One suggested method fo rdoing so would be the completion of a worksheet for each home loan."  The Division provided a sample worksheet. Click here for a copy of the worksheet.

http://www.mld.nv.gov/Documents/2007-09-14-MLD-ExhibitA.pdf

Click here to Read the Commissioner's Letter in full.

http://www.mld.nv.gov/Documents/2007-09-14-MLD-LtrNo2007-2AB440.pdf

NEVADA HOUSING MARKET WILL LIKELY SUFFER FURTHER PRESSURE AS A RESULT OF FURTHER LIQUIDITY ERROSION

The letter and the worksheet did little to provide lenders with confidence to continue lending to stated income borrowers in the state.  In fact, several major lenders made statements that they will discontinue making stated income loans until the legislation is repealed including Wells Fargo and TB&W.  It does not take a Harvard economist to predict what affect this will have on the Nevada housing market, already having one of the highest foreclosure rates in the nation.  '

See also article written by NARREIA Staff

http://www.narreia.com/newsadvice/news_detail.php?blog_id=956

HELVETICA TEMPORARILY CEASES FUNDING STATED INCOME RESIDENTIAL LOANS

It appears that Nevada is putting an unreasonable burden on lenders requiring them to investigage borrower and broker fraud.  The irony is that the Lender who fails to identify the fraud, may be sued by the same perpetrator pursuant to AB 440 and prosecuted for that same fraud. Until Nevada repeals or amends the new law to allow for more predictability in its interpretation, Helvetica and its affiliates have joined those others lenders that have decided to cease making stated income residential loans to borrowers in Nevada.  Let's hope that other states do not follow suit, else stated income borrowers will be left without a source for a loan.

Private Money Lenders May Offer More Loan Programs Including Commercial

Offer Private Money Commercial Loans to Compliment Your Loan Program Offerings

Private money or "Hard Money" lenders may also offer more than just residential loans.  Private money lenders may also provide commercial loans for credit challenged borrowers.  Banks that offer commercial loans may decline a loan even though a borrower may have substantial equity in the property because of:

• Insufficient ownership seasoning
• Insufficient income history or seasoning (e.g., recent rehab)
• Poor borrower debt-to-income (DTI) ratios
• Poor debt service coverage ratios (DSC)
• No or high vacancy factors
• Fast closing not possible
• Current or history of bankruptcy
• Current or history of foreclosure
• Seller financing to 100%
• Need for improvements or rehab
• Owner occupied or poor tenant credit quality
• Poor borrower credit, Sub-500 FICO scores

Private money lenders will look past the income, history and credit and focus on the equity in the property to secure their loan.  Typically private money lenders will loan up to 60% of the value of a commercial property sometimes more with affinity or multi-family properties. 

Consider offering your clients small balance commercial loans to compliment your existing mortgage services.  Go to www.helveticaroup.com and register to receive more information about private money commercial loans.