“The Most Rewarding Part of My Job”

By: Denitra Braham, Housing Counselor

The most rewarding part of my job is when I assist a person who comes in seemingly hopeless and I help them create a new outlook on their circumstances.
I had the pleasure of assisting an elderly homeowner, Grace*transition from her home and into a senior living facility. When Grace first came in she was insistent about keeping her home, but I knew she couldn’t afford it and she had negative equity, so would not qualify for a reverse mortgage.
I explained to her that it was impossible for her to keep the home, but that she was in no way a failure for no longer being able to make the payments. I told her that she had worked hard her whole life and created a home for her children and herself and now it was time for her to relax and enjoy life stress free. I could tell that she was disappointed, but I encouraged her to take some time to think about our conversation and that I would proceed any way she decided to go.
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Grace called me a few days later and said she mulled over what we discussed and was able to recognize that transitioning to senior housing would be the best move for her. I connected her with several contacts and resources for senior living and helped her complete the paperwork for a deed in lieu.
At first finding senior accommodations seemed bleak, but the deed in lieu was in progress and time was limited. After 5 months of diligent searching, it did not look like Grace would be able to find an apartment in a retirement home in time. I made some calls to her mortgage company and Grace was persistent in her search as well. Then after another month, everything fell into place.
Grace was able to secure an apartment in the senior retirement home she had originally chosen with a rent of $187.She received her deed in lieu with $10,000 for her transition through the Home Affordable Foreclosure Alternatives program (HAFA), and was given an additional 6 months in her home to pack up and move.
She called me and thanked me for sticking in there with her and encouraging her to make the best decision for her situation. This was one of the most rewarding experiences I have ever had.
*name changed
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10 Things to do if You are Facing Foreclosure

Based on MD DHCD 2014 4th quarter Foreclosure report
Based on MD DHCD 2014 4th quarter Foreclosure report

The St. Ambrose Legal Services department has compiled the following tips for what to do if you’re slipping towards foreclosure: 

  1. Ask for help as soon as you realize you are in financial trouble. The sooner you ask, the more likely you are to get the necessary support to resolve the problem.
  1. Stay in contact with your bank/lender so that they are aware of your situation. If you are upfront and transparent about your financial situation, your bank will better understand your needs and interests.
  1. Do not pay fees for services to assist you with your financial situation when the service is available for free. Thoroughly investigate anyone who is charging you for financial services and what they are doing for the fees.
  1. Take advantage of free services! The state and the banks will inform you of free counseling and legal services that are available to you.
  1. Do not take advice from friends, neighbors, or family, unless they are trained in financing.
  1. Open all of your mail, promptly. Don’t assume you already know what’s inside.
  1. There is no way to get out of the debt obligation. Don’t bother looking for a way out. Instead, determine if a loan modification is a viable option for you.
  1. Understand your responsibilities under the debt obligation. A deed of trust is the same thing as a mortgage. A deed is the document that transfers ownership of real estate.
  1. Know your rights and don’t sign any contracts unless you fully understand the document. You may be offered a ‘friendly foreclosure’ at mediation, but thoroughly research the implications of this sort of agreement before signing any contract.
  1. Do not think the problem will just go away. If you cannot afford your house, start considering what next steps you will take in order to find a new living space.

The threat of foreclosure can be intimidating, but being informed of your rights and responsibilities can make the process easier. Going through a foreclosure doesn’t mean losing everything. If you remain informed and proactive throughout the process you’ll be able to salvage the maximum amount of your investment. Find help, resolve the problem, and look ahead to life after foreclosure. Call St. Ambrose for free legal advice and foreclosure counseling: 410-366-8550 

AIG Levels Claims Against BoA for Losses Tied to Mortgage Bonds

Image Source: New York Times

American International Group’s lawsuit against Bank of America was widely reported yesterday, as news outlets revealed that the financial firm initiated the suit in an effort to recover more than ten billion dollars in losses resulting from asset-backed securities they purchased from the bank.  According to the New York Times’ financial reporters Gretchen Morgenson and Louise Story, AIG “claims that Bank of America and its Merrill Lynch and Countrywide financial units misrepresented the quality of the mortgages placed in securities and sold to investors,” say inside sources.

As many of you many now know, BoA has faced intense scrutiny over the last several weeks.  A few weeks back, we covered the controversy clouding the bad loan settlement the bank negotiated with investors, in which BoA managed to secure a tremendously favorable outcome.  Just a few days ago, Morgenson penned a follow up piece documenting New York Attorney General Eric Schneiderman’s decision to challenge the settlement.  Apparently, Schneiderman takes issue with a number of the settlement’s terms, particularly those that preclude private litigants who may have suffered from the bank’s troubled loans from making a further claim.

The settlement has prompted other investors, like AIG, to join in on the litigation against the bank.  As Morgenson and Story’s article points out, BoA has encountered 25 suits related to the financial crisis thus far, many more than any other American bank.  Moreover, the journalists correctly tie this ongoing litigation into a broader theme: the federal government’s inability to successfully prosecute members of the banking industry.

Citing legal scholars and the insiders at the Justice Department, the writers imply that the lack of government intervention may be the result of the higher standard of proof necessary to secure a criminal conviction.  This notion has been buttressed by the fact that federal prosecutors were unable to deliver a conviction against Washington Mutual and Countrywide, two banks that have been involved in Justice Department investigations. These failures, unfortunately, create a situation in which investors must regulate the banks through litigation, which is extraordinarily costly and inefficient for all parties involved.

Whether the suit has any merit is a question in and of itelf—BoA rebuts AIG’s claims by arguing that the securities at issue appeared safe to both parties, and that their decline was the result of an unexpected depression in the housing market.  BoA further contends that “AIG is the very definition of an informed, seasoned investor,” and that they fully assumed the risk in purchasing the bank’s potentially high yield securities.

As we have stated several times, the underlying theme that constitently presents itself throughout the media analysis of BoA’s pre-courtroom saga is the lack of regulation in the securities industry.  While it is unclear as to which industry player has the upper hand here, all bear some fault—BoA for marketing the securities in the first place, AIG for creating a market for them, the ratings agencies for ensuring their legitimacy, and perhaps most of all, the government for failing to regulate.  Had these toxic assets not hit the market in the first place, the transaction and subsequent dispute would never had occurred and the economy may be much better off.  Along with it, our clients, many of whom had mortgages resold to Wall Street banks before the crisis, would have been better off, too.

The Debt Ceiling and Housing

Source: Center for American Progress

August 2nd.  The day looms over the American public drearily, as failed negotiations leading up to the imposing government debt deadline make the possibility that the United State will default on its debt all the more likely.  We have heard from pundits and economists that the consequences would be devastating, that inflation would soar and unemployment would also increase, all while spiraling the U.S. economy into a double-dip, “U-shaped” recession.  The consequences of default on some facets of the U.S. economy seem more apparent than others, like the demand for government issued securities and the market for our bonds.  Among all of the apocalyptic speculation about what would happen if we defaulted, however, little commentary has emerged focusing on the housing market.

However, Christian Weller of the Washington-based Center for American Progress, a left-of-center think tank, had already analyzed the effects that a potential default would have on the housing market as early as last May. Now, Weller’s analysis seems all too apropos, as default increasingly looks like it could be a real possibility.  Back in May, long before most analysts even considered a default scenario, Weller wrote in a CAP brief that “if Congress fails to raise that ceiling then the U.S. housing market would most likely experience a severe double-dip contraction marked by lower housing sales and depressed home prices.”  It turns out, albeit not surprisingly, that the potential downgrade of treasury securities and the depressed market for government issued bonds could have a devastating effect on the housing market as well.

The brief goes on to outline six main contentions as to what a default would mean for housing: 1) mortgage interest rates will rise more than U.S. Treasury rates; 2) mortgage rate will remain high for some time; 3) new home sales could drop to record lows; 4) existing home sales will decrease;  5) housing prices will drop in the wake of fewer sales; and finally, 6) the economy will suffer.

Throughout the analysis, a subtly consistent point emerges: mortgage rates are directly tied to treasury interest rates, and thus, higher treasury interests would translate to higher mortgage rates.  Because U.S. government debt is perceived to be an almost risk-free investment, a default would very likely increase the interest rate on U.S. Treasury bonds.  As the table above shows, the correlation with between increased debt and higher mortgage rates are staggering.

But what’s worse, according to Weller, “the assumption is that even if the debt ceiling is not raised in August, members of Congress will eventually come to a budget agreement to pay for the government’s operations and pay the outstanding debt.”  However, even a temporary default will have an impact a major, perhaps permanent impact on interest rates, as investors, for the first time, will associate risk with U.S. debt.

While all of this may come across as overly abstract and theoretical, the effect that a default will have on the housing market, and more specifically, on St. Ambrose and the Baltimore community, will be huge.  To name just one example, much of revenue that helps fund our operation here in Baltimore comes from home sales [hyperlink], as our inventory of competitively-priced, high quality homes in the Baltimore area has long been an asset building and neighborhood stabilizing resource for low and middle income homeowners of Baltimore City.  With higher mortgage rates, however, fewer and fewer families would realistically be able to secure a home loan that may fund even our modest properties.  This fact coupled with the recent news that a median income Baltimore resident may be unable to afford a Baltimore home makes the prospect of a default significant.

Beyond this, our foreclosure prevention department, which is swamped with cases, would certainly have to shoulder an increase in clients.  More foreclosure and less affordable housing means more vacant properties, depressed mean home values in neighborhoods, and depleting household equity for Baltimore families.  In total, the effect on our community would be devastating, and we hope that our two major political parties will find a way to stave off this disaster.  Time will tell.

Backlog of Foreclosed Properties Bodes Poorly For Housing Market

A Foreclosed Property (Image Source: Huffington Post)

This week, several sources have reported new information indicating that a colossal backlog of foreclosed properties has amassed, where banks, unable to convert the repossessed homes into sales, simply hang on to them for an indefinite period, with no discernible hope that a transaction may take place.  While most Americans are keenly cognizant of the foreclosure crisis, even housing experts found themselves shocked to come across some of the newly released statistics: according to the New York Times, lenders “own more that 872,000 homes as a result of the groundswell in foreclosures, almost as twice as many as when the financial crisis began in 2007.”

In addition to demonstrating that the crisis never really ended, this figure suggests that policies aimed at prevention have not worked, and in this severe economy, middle-income families throughout the nation continue to face the constant threat of losing their most valuable asset.  In Atlanta, for instance, “lenders are repossessing eight homes for each distress home they sell,” a staggering ratio.  The ratio is six to one in Minneapolis, and in “once hot” markets like Chicago and Miami, whose real estate is among the most expensive in America, the ratio still remains about two to one.  Indeed, if banks continue to foreclose while maintaining a systematic inability to sell, this glut is sure to continue, signaling that there really may be No End in Sight.

The Times offers two reasons for the glut: “inadequate staffs” and “delays imposed by lenders because of investigations into foreclosure practices.”  While it’s difficult to comment on the former without further information, the latter cause is surprising, since such “investigations” were presumably initiated to assist foreclosure victims and therefore help families stay in their homes.  Of course, if these “investigations” were effective—assuming the term refers to an overhaul of foreclosure practices—then the end result should be a decrease in lender owned homes, not the other way around.

While the paper concedes that “the biggest reason for the backlog” is that it takes longer to sell a foreclosed property than owner-owned home, the paper goes on to suggest that slowing down the foreclosure process has contributed to this stagnant market.

In contrast to this suggestion, home owners require a more drastic overhaul of foreclosure practices, not less.  The writer seems to miss the point that stymieing the process often diverts foreclosure altogether, benefiting the home owner and the bank alike.  Indeed, the Times would serve the public by presenting this backlog in a much more nuanced fashion.  While the investigations may slow down sales in the short term, they serve a larger purpose of ensuring that faulty practices that should never have taken place began to finally desist.  Moreover, while the policies encouraging the investigations have too often fallen short, they are nevertheless crucially important.  It’s easy for both parties to scapegoat government programs like HAMP, but to really curtail the rise of lender owned homes, the government must strengthen aid programs, ensuring that that enforcement mechanisms exist and that homeowners have the ability to access the services of HAMP and similar programs in an efficient and understandable context.

In short, while this problem is enormous, the first step to mitigating it is to prevent foreclosure altogether, and for that, we require more government programs and yes, more investigations into unfortunate practices (take, for example, the Washington Post columnist Dana Millibank, whose home was mistakenly foreclosed upon.  And as Paul Krugman points out, there’s no reason to think that this is an exception).

Unfortunately, all indications suggest that this won’t happen.  Proposed cuts in HUD have already taken place, and, coupled with a federal government obsessed with spending cuts, this could only mean one thing: less foreclosure prevention help, the return of unethical lending practices, and no solution to growing stock of foreclosed homes that no one is willing to buy


Congress Proposes Cut to Important Foreclosure Counseling Program

A Foreclosed Home on the Market (Image Source: CNN)

We’re a little late commenting on this news, but the proposed cuts in the U.S. Housing and Urban Development Department’s primary program that appropriates funds for foreclosure prevention counseling has caused considerable buzz throughout the community development world.  Needless to say, St. Ambrose, like many other non-profit organizations in Baltimore and around the nation, would take a palpable hit if the measures materialize.

Here is the summary from the New York Times:

[The] proposal for the current fiscal year, which is scheduled for final votes in Congress imminently, cuts $88 million from the Department of Housing and Urban Development’s budget for loan counseling programs, including for reverse mortgages, a HUD spokesman confirmed Thursday. Some $9 million of that total is reserved for reverse mortgage counseling, which helps borrowers understand the benefits, costs and risks, of such loans

HUD’s program, the Housing Counseling Program, has made an enormous impact in the effort to mitigate the foreclosure crisis.  In the last few years, the Housing Counseling Program has delivered individual counseling to more than four million families in the midst of the foreclosure process.  The program has worked to prevent mortgage delinquency for more than two and a half million households, with almost one million avoiding foreclosure altogether.  Is has helped more than half a million renters and homeless individuals resolve landlord-tenant matters and other legal issues.  Finally, hundreds of thousands have benefited from pre-foreclosure counseling, which takes place before proceedings commence, enabling many families to refinance their homes, obtain reverse mortgages, and stave off disaster entirely.

These cuts could be severe, no doubt, and they are the product of a highly politicized Congress obsessed with slashing spending they perceive to be “wasteful.”  Indeed, part of the reason that this proposal has emerged relates to the public’s misunderstanding of foreclosure prevention counseling and its societal significance—a misunderstanding that has arisen because it’s difficult to articulate how this kind of counseling can provide both huge financial and emotional relief to homeowners and families.  And counseling has received poor press because of the failures of programs like HAMP and the government’s inability to regulate lender practices, topics that we have covered extensively in the past.

Despite these setbacks, we at St. Ambrose believe that nationally sponsored foreclosure counseling provides systemic help in alleviating the current crisis.  This is why the state of New York, for instance, has proposed providing not only counseling but guaranteed legal assistance to residents undergoing foreclosure, and several other commentators have pointed out the importance of counseling as well.  Here, we see it working first hand, every day.

If you have been in the foreclosure process and have received counseling or legal aid, please call your Congressperson, tell your friends to call theirs, and feel free to share your experiences here.

New Program Brings $40 Million to Maryland for Foreclosure Prevention

Official Logo of HUD, Which Administers the Program

As many of you may know, Maryland recently gained $40 million for foreclosure assistance as part of the Emergency Homeowner Loan Program, signed into law several months ago by President Obama.  Governor O’Malley used these funds to kick off the Emergency Mortgage Assistance Program last week.  On her popular Real Estate Wonk blog, Jamie Smith Hopkins succinctly describes the program’s bullet points:

Borrowers could receive as much as $50,000 in interest-free loans to pay off past-due amounts and to make up to two years of payments. They must have taken an income hit of at least 15 percent, be three to 12 months behind on their mortgage and have a “reasonable likelihood” of being able to get back on their feet.

The emergency help is like loan-to-grant money given to first-time homebuyers: No payments are due for five years, and every year the total is reduced by 20 percent until nothing is owed — as long as the homeowner keeps the property and stays up-to-date on the mortgage during that time.

Ms. Hopkins then asks: “what do you think? Better or worse off than loan modifications?”  While perhaps failing to directly proffer a response, my thoughts are below:

Maryland’s adoption of the new Emergency Mortgage Assistance Program is welcome news, no doubt, but it’s important to temper our optimism with strong caution.  As it stands, the new program delivers cash, not regulation.  And as we’ve seen all too often in our counseling sessions and discerned from our peers across the nation as well as from the news media, cash alone certainly may not result in a tangible step towards mitigating the impact of the foreclosure crisis, which, at least ostensibly, is the goal of this legislation.  Take for example Bryan Sheldon’s recent commentary about a “typical” mediation process, in which Bryan, a veteran counselor, accurately describes some of the common troubles that home-owners face while utilizing HAMP: banks’ ridiculous and erroneous demands for documents unrelated to foreclosure, the government’s inability to enforce program guidelines (and the banks’ inability to comply), and the banks’ illegal practice of commencing foreclosure proceedings while the borrower is under review for HAMP assistance.  Recently, policymakers were forced to draft legislation prohibiting lenders from initiating a foreclosure while the borrower is actively seeking mediation.  While this prospective reform is a breath of fresh air, it should have been totally unnecessary: common sense should prompt one to realize that such a practice is dishonest and unethical.

Frankly, Bryan hits the nail on the button when he writes, “the basic problem with the available government programs is that they have been implemented in the grossly deficient regulatory system which contributed to the foreclosure crisis in the first place.”  Indeed, I’m not convinced that this new program will produce results without robust, broad financial regulation to accompany it.

It’s important to remember that the foreclosure crisis was two-fold.  The predatory lending scams defined stage one, causing massive foreclosures and therefore families without housing, an aggregate loss of equity across the nation, and oddly as well as most consequentially, a crash in the U.S. securities market.  This last consequence led to stage two: large-scale layoffs, which subsequently forced many middle class families to default on their mortgages and eventually face the inevitable.

These victims still exist.  Many are still jobless, even homeless. And while many such people borrowed beyond their means, this trend emerged because of the gaping income inequality and stagnant wages that pervaded the last few decades, obligating many middle-class Americans to borrow more than they could take on.

These problems are now structural, and in addition to emergency benefits like the one’s offered in the new package, a structural fix is likewise necessary. To be sure, The administration has made some good efforts: the Frank-Dodd bill aimed at regulating the financial markets, the concept of a Consumer Financial Protection Bureau, headed by Elizabeth Warren, to name a few. But these development aren’t cutting it, indicated by the continuing prevalence of foreclosures nationwide.

I’m worried that the administration will stop with this initiative and that it will turn into another HAMP, which does not grant the Treasury Department the ability to impose fines on banks, a loophole that the latter group routinely abuses, among other shortcomings.  Along with foreclosure assistance to states, the President Obama needs to return to the drawing board and draft comprehensive financial regulation that 1) includes consumer protection measures, 2) defines and streamlines the process of responding to a foreclosure, while consolidating paperwork, 3) rigorously regulates the trading and development of dangerous securities, and 4) provides stringent enforcement measures.  This last point is crucial, as it had become fairly obvious that the government, all too often, has been plainly unable to administer the rule of law.

Until then, unfortunately, I am not convinced that this measure won’t fall short.  So while the state should welcome the Emergency Homeowner Loan Program with open arms, first and foremost, in order to stymie the foreclosure crisis and ensure it does not reoccur, we must mend “the grossly deficient regulatory system” that caused it.