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New Report Shows Dangers of Reverse Mortgages

In Housing Horror Stories on July 11, 2012 at 11:17 pm
MANY SENIORS WHO TAKE ON REVERSE MORTGAGES DON’T UNDERSTAND RISKS

I’ve written a few times in this little blog of mine about senior citizens who came to me for help after taking out a reverse mortgage on their home, and for one reason or another, are in danger of losing their home because of the reverse mortgage. You wouldn’t believe how often this happens, even though reverse mortgages are touted as plum dandy for seniors who need money, but want to keep their home.
Well finally, somebody decided to get of their keister and do some research on the problems reverse mortgages can cause and how dangerous they can be.
The Consumer Finance Protection Bureau looked into the issue and recently issued a report about the risks and dangers of reverse mortgages.
With a reverse mortgage, a senior citizen borrows against the equity in their home, but the money doesn’t need to be paid back until the homeowner sells the house or dies. Basically, not until they no longer live in the property. Until then, the borrowed money accumulates interest, and the equity the senior still has in the home diminishes as the interest piles up.
The CFPB found that a lot of senior citizens who take out reverse mortgages don’t understand that concept, much less all the other dangers they need to be aware of with these loans.
One major problem the research found was that there is a ton of misleading advertising about reverse mortgages, and the risks of seniors to be scammed and victimized by fraud is huge. It also found that even though seniors who take on reverse mortgages are given disclosures about the loans to read, these disclosures are tough to understand, especially if the senior didn’t happen to spend an entire career studying the intricacies of high finance.
Finally, the report ends by saying that because of the current economic situation that sees pensions disappearing, investments that don’t generate livable incomes, and social security benefits that don’t keep up with the cost of living, more and more seniors will take on reverse mortgages.
So there you have it. Another banking innovation that was touted as something to help people is actually wrecking lives.
You can view the full report at:
http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf

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Homeowner Convinced her Mortgage Company using Secret Phone Technology to Avoid her

In Housing Horror Stories on June 18, 2012 at 10:59 pm

In my line of work counseling homeowners who are trying to get help from their mortgage companies, I hear a lot of crazy stories from people who believe their mortgage company intentionally jerks them around–losing documents, giving them wrong information, things like that. I mean, some of what people tell me borders on conspiracy theory type of stuff. It’s nuts.
My personal favorite is how the fax machines at mortgage companies never work. You wouldn’t believe how often I hear a mortgage company employee tell their customer to resend documents because the fax machine was on the fritz. The people who work at the mortgage companies must beat the hell out of their fax machines.
I thought I’d heard it all. But recently a client of mine named Janice told me a new one. Janice told me how a specific person at her mortgage company was assigned to handle her loan modification application, and nobody else at the mortgage company was allowed to speak to her about her situation. The problem was, this particular employee could never be reached and rarely returned Janice’s phone calls. Now this is another one I hear all the time. But her story got weird when Janice told me that whenever her file manager did call her, her phone wouldn’t ring. She would simply find a voicemail from the person.
“It happens all the time,” she told me. “I’m convinced they’ve got some technology that allows them to make a call and have it go right to your voicemail.”
My obvious question to her was, Isn’t it possible you were away from your phone or on the other line when the file manager called?
No, it wasn’t, Janice said.
“This has happened a lot. It just happened again yesterday,” she said. “I was home all day. There were no messages, then at some point I noticed the light on the phone flashing which means I have a message. I played it and sure enough, it was from the file manager.”
I asked her, Isn’t it possible you were talking on the phone when they called?
“I have call waiting,” Janice said. “Why does my call waiting work for everyone else? Why does my phone ring for everyone else except my mortgage company?”

Mortgage Company Offers HAFA Program, then Reneges at the Last Minute

In Housing Horror Stories on June 8, 2012 at 12:13 am

I’ve written a lot about the trials and tribulations of people desperate to get accepted into the government’s housing program in order to have their mortgage payment reduced, and hopefully, be able to keep their home. I’ve tried to illustrate the craziness and the frustration that many people deal with as they navigate their mortgage company’s application processes, which frankly, could drive a person nuts.
Well, today I spoke to a lady who was sobbing because she was denied entry into a program that would have helped her get rid of her house.  See, the government has another program called the Home Affordable Foreclosure Alternative. What this does, is it streamlines the process for people who want to give up their house through a short sale. In addition to making the sale go through a lot quicker, the homeowner gets $3,000 for relocation expenses.
This woman, Carla, saw a huge drop in her income, I’m talking 60 percent, and she knew there was no way she was going to be able keep up with her house payments. So she approached her mortgage company about short selling the house. And they told her they would put her in this HAFA program and give her the $3,000 to move. To Carla, this was the answer to all her prayers, because she had nothing to pay for a move and a security deposit on a rental. So Carla got herself a realtor and began packing. A buyer was found, and the closing date for the sale was set.
Well, three days before the closing, her mortgage company told Carla that she was not approved for HAFA after all, and she would not be getting the three big ones. And this poor woman was scheduled to be out of the house within days after the closing. So here it was a week before she had to move and give a check to her new landlord, and the money she was banking on to pay for it all wasn’t going to be there. And now she was on the phone sobbing to me.
We called the mortgage company and were told that the investor who held her loan did not participate with the HAFA program, even though five months earlier she was told that yes, the investor does participate in HAFA and she was approved for it.
“Let me ask you something,” I said to the mortgage company phone rep. “Why did you tell this lady months ago she was approved for this program, if the investor you work for doesn’t even participate in it?”
You know what the guy answered me? He said, “I don’t know.”
“Well, she can’t move without that money, which your company told her she would be getting. And she needs to be out of the house in a week. Why wasn’t she notified earlier than three days before closing that she’s not approved for this? Do you know the answer to that?”
Of course he didn’t.
My advice to Carla was to call off the sale, and let the bank foreclose. That would take a while, and in the meantime she would hopefully save up the money to move.
That’s why I always tell my clients, don’t bank on anything a mortgage company says. As you can see, the people giving out the information don’t even know what’s going.

Better customer service at Pizza Hut

In Housing Horror Stories on May 8, 2012 at 8:07 pm

Ocwen admits mistake; refuses to correct it

Don’t you hate it when somebody makes a mistake, and then they refuse to correct it? Of all the ways to demonstrate you have no class, that has to be on top of the list.
That’s what Ocwen Loan Servicing did to one of my clients recently. My client, Tom, saw his business slow way down, and he couldn’t afford to pay his mortgage for five months.  Lucky for him, Tom’s business bounced back relatively quickly, and his income was back to where he could afford his monthly mortgage note, plus extra to pay back the past due amount he owed.
The problem, and the reason Tom called me, was because Ocwen refused to accept any payments from him. They wouldn’t even allow him to pay extra to bring his mortgage current. Ocwen was demanding the entire past due amount of several thousand dollars, or nothing at all. And the reason they wouldn’t accept payments, an Ocwen employee had told him, was because his financial information had been entered into their system incorrectly.
Being self-employed, Tom had been required to submit a profit/loss statement for his income. The Ocwen employee told Tom that someone inaccurately entered his income as $16,000 per month. In reality Tom only made $4,500 per month.  The P/L statement covered three months, but the employee who took his information thought it only covered one month. Thinking Tom made all that money, Ocwen refused to let him pay back the arrears little by little, which makes sense; I’d demand all my money back too if the guy who owed me was rolling in dough.
But here’s the thing that made me want to punch a hole in my cubicle. That wasn’t the case. Tom didn’t make sixteen grand a month. The person who took his information just made a mistake reading his statement. And even though they acknowledged the mistake, this company was refusing to correct it.
We called Ocwen to see if they would be reasonable. The conversation that followed was enough to make you question the future of the human race. The representative on the phone told us that yes, Ocwen did misinterpret Tom’s income when his information was received, but afterward Ocwen had implemented a policy not allowing repayment plans for anybody.
“But sir,” I began. “You had his information before your new policy went into effect, and you made your decision to deny him a repayment plan based on a mistake you acknowledge your company made. How can you not address and correct your mistake?”
The rep simply told us nothing could be done. So we tried to work our way up the managerial chain, speaking to a supervisor, and then a manager. As we got higher up the chain, each person seemed to understand the situation less than the one before. Also, the foreign accents got thicker with each successive person. The last person we talked to, the manager, told us that not only would they not accept payments, they were going to start foreclosure unless Tom paid the entire back due amount..
“My God,” I said. “If you order a pizza with pepperoni, but they give you anchovies, they take it back and give you a new one with the right stuff on it. How can you foreclose on this man’s house, after you made a mistake with his file? Especially since he has enough money now to pay back the arrears he owes. He’s not looking for a handout.”
But the manager just repeated that foreclosure would begin in two weeks. I advised Tom call a bankruptcy attorney to see if that would stop the sale of his home, which Ocwen seemed set on doing.

Homeowners can’t Neglect the Taxes and Insurance

In Housing Horror Stories on November 15, 2010 at 1:40 am

After letting his homeowner’s insurance lapse, 85-yr-old sees his house payment jump 118%

One of the major costs in owning a home is the property taxes and homeowner’s insurance. You’ve got to make sure these are paid up, otherwise you could find yourself faced with expensive problems.
And I’m not even talking about the dangers of your house burning down during a lapse in your insurance coverage.
I’m talking about the needless costs a person can incur when their mortgage company finds out the taxes or insurance have not been paid. The bank that is owed your mortgage debt, and who has their stake in your home, can heavily penalize their borrowers for not paying these bills. I’ve seen it with my clients, and brother it is expensive.
Your house is their collateral, and they do not like to find out their collateral is not insured. Banks know the importance of insurance. And they really don’t like it when some taxing body puts a lien on their collateral.
I’ve never seen mortgage companies impose actual penalty fees in situations like this. But I have seen them pay the taxes or the homeowner’s insurance, and then extract huge sums of money from the borrower for reimbursement. When the bank has to pay your bills, its bottom line is violently disturbed. It’s like throwing a bucket of ice water on a hornet’s nest, and the reaction is similar.
When a mortgage company pays your tax or insurance bill, it will usually set up escrow accounts for these things to make sure they never go unpaid again. You will now have to fund these accounts every month as part of your monthly house payment. When this happens, the increase in the house payment can be huge. Because in addition to the current year’s taxes or insurance you have to pay toward each month, you must reimburse the bank for whatever it paid on your behalf. If you can’t handle this huge spike in your house payment, the effects can be disastrous.
Most recently, this happened to a client of mine named John. John is an 85 year old man who lives alone. He gets social security of $1,200 every month. That’s it. His mortgage payment was $500, and he paid the relatively small tax and insurance bills himself. The problem was that John had been short of money when his insurance bill came in, and he didn’t pay the bill until about five months later. By that time, his mortgage company had arranged for insurance coverage on the house, and set up an escrow account for John to pay into every month. John’s payment jumped from $500 to $1,089! That’s only $11 less than his monthly income. That was four months before he called us. He’d missed all four new payments, he owed the mortgage company a total of $7,000, and they had initiated foreclosure.
Now, if you noticed the numbers, you might be asking why John owed $7,000 if he only missed 4 payments at $1,089 apiece, which equals only $4,356.
That’s because the insurance policy put in place by the mortgage company cost $1,600 for only five months of coverage! (John’s policy cost only $1,100 for the entire year.) In a situation like this, a mortgage company will often get a “sight/unseen” insurance policy. This means the insurance company has not inspected the property, so they charge more because they don’t know what they are insuring. Also, these policies usually carry no deductible, which also drives up the cost for coverage.
John had about $50,000 in equity in his house and he stood to lose it all if the foreclosure went through. To stop the foreclosure, John would need to come up with the entire seven grand, or file for bankruptcy. And the mortgage company told us–in no uncertain terms–that the escrow account would be there for the life of the loan. There was no chance in hell of cancelling them and letting John pay the insurance himself. These were some angry hornets indeed. So even after the arrears were paid back, John’s monthly payment would be significantly higher. All because he didn’t pay an $1,100 insurance bill.
“John do your kids know what’s going on with the house?” I asked him.
“No,” he said.
“I think you’re going to have to tell them.”

With Chase Bank, there’s the truth, and then there’s the truth

In Housing Horror Stories on September 21, 2010 at 12:23 am

  Today I got into an argument with a customer service rep at Chase Bank. I’m usually a pretty cool-headed guy, but I hate to hear people lie. And it also aggravates me when people don’t know their job. I was on the phone with Chase because one of their borrowers called us for advice on what to do since Chase had denied her request for a Making Home Affordable loan modification after her work hours were cut drastically, leaving her unable to make her house payment. Chase’s policy is that they will not modify loans where the borrower has equity in the home. And that’s what happened with the homeowner who was calling us for advice. Unfortunately, Chase sometimes tells their borrowers that it’s the MHA program that carries this stipulation.
  “Chase said the government program is only for people who owe more than their home is worth,” she said.
  “They told you what?” I demanded.
  So we called Chase to find out why this woman was told such a blatant untruth.
  “Yes sir,” said the customer service rep. “The Obama program doesn’t allow loan modifications if there is equity in the home.”
  “No, the government program does not say that,” I said. “Nothing in the MHA guidelines says you can’t get a loan modification if you have equity. That’s Chase’s policy. I’ve dealt with this issue before with your company. Please tell this woman that Chase just doesn’t modify loans if there is equity in the house. ”
  I went around in circles for a while with the rep, and finally I told her to either put a manager on the phone, or to tell a manager what I was saying and to come back to us with an answer.
  She came back after leaving us on hold for a couple minutes.
  “I’m sorry sir, you’re correct. It is a policy of Chase that we only modify loans when the borrower is underwater.”
  “Thank you for admitting that,” I said. And I hung up.
  I got the homeowner to hear the truth, but I still had to tell her she should put her house up for sale if she can’t get a second job.
  So if you’re a Chase borrower trying for a loan modification, and your house is worth more than you owe, forget about it.

Do you know who you work for? Aurora Loan Servicing doesn’t

In Housing Horror Stories on August 26, 2010 at 8:20 pm

Customer service rep swears they have no idea who owns their borrower’s loan

  If someone asked you who you work for, can you imagine their reaction if you told them you didn’t know? They’d probably think you were a spy or something.
  Apparently, Aurora Loan Servicing literally doesn’t know who they work for. The function of a mortgage servicing company like Aurora is to collect mortgage payments from homeowners for the investor to whom the mortgage debt is actually owed. And the servicer gets a fee for performing this function.
  Today I tried to facilitate some kind of workout option between Aurora and a borrower who was in default on his mortgage, due to being laid off from work for four months. Unfortunately, we didn’t have any luck, though we did have a remarkable conversation.
  The representative who answered our phone call told us that there was something about this particular mortgage that precluded it from any kind of repayment plan or workout agreement.
  We asked what it was about the mortgage, or what the investor’s guidelines were. She said she did not know. That was when the borrower asked who the investor of his mortgage was. That was when it got weird.
  “We don’t know who owns it,” the representative said.
  “Wait a second. How can you not know who owns this mortgage?” I asked. “You just collect this man’s payment and you give it to the owner of the debt. You work for the owner of this debt. Are you telling me you don’t know who you work for and who you give his money to?”
  “We don’t know who owns it,” she repeated.
  “Look, if you’re not authorized to disclose the owner of the mortgage, that’s fine, just say it. But you have to know who you’re collecting money for.”
  “We don’t know who owns it,” she repeated for about the fifth time.

HSBC blatantly lies to Texas man about the mortgage process

In Housing Horror Stories, Scams on August 14, 2010 at 12:32 pm
Mortgage Loan Fraud Assessment based upon Susp...

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Instead of checking out HSBC’s false claims, he accepts their deal and will soon be losing his house

  A lot has been written about predatory lending practices employed during the housing boom. But the following was one I hadn’t heard of in the news.
  The victim was a man from Texas who at one point had a nice 6 percent fixed interest rate mortgage. But in 2006 he refinanced his house with an adjustable rate mortgage, the rate had since soared to 10 percent, and his payment had gone through the roof.
  Why would anyone do such a thing? This man told me that in 2006 he received a phone call from megabank HSBC, warning him that if he didn’t take this horrible refinancing deal they were offering, another bank could buy his mortgage and change the terms to be even worse.
  “HSBC called me out of the blue,” he said. “The guy told me that any company could buy my mortgage, and they could change the terms to whatever they wanted. The guy said I should just refinance with them, so I would know what I was getting.”
  “Mortgages are bought and sold everyday,” I said. “Whoever buys your mortgage can’t just change the terms on you. HSBC actually told you this?”
  “Yup. And I panicked.”
  This man was screwed. There was no way he could afford the house payment. And he couldn’t refinance again because like so many, the value of his home had dropped below what he owed on the mortgage.
  This man was blatantly lied to, but instead of checking out HSBC’s claim, he unthinkingly rushed into their offer out of ignorance and fear.
  If only he’d done some research. Most credit counseling agencies like mine offer mortgage counseling where the whole process is explained and all questions answered. If only he had called my agency before accepting HSBC’s deal. He would have discovered quickly that the con man offering this horrible loan was lying to him. Nobody can just change your loan terms if they buy your loan.
   Please learn from this man’s experience. If you intend to get a mortgage, and you don’t know a lot about how the mortgage industry works, do your homework first. Just an hour on the phone could save you from ruin, just like it could have saved this man.

What to Expect from a Lender

In Housing Horror Stories on July 24, 2010 at 1:02 am
Half million dollar house in Salinas, Californ...

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13 payments from paying off their mortgage, this unemployed couple are in danger of losing their home

  Many of my clients think that because they have paid on time in the past, their creditors will be lenient with them. Usually they won’t.
  You could pay on a 30-year mortgage for 29 years, never be a day late with a payment, and if you suddenly stop making that payment, they’ll foreclose to get that last year’s money they’re owed. And they’ll charge you all the normal attornies’ fees, late fees, and penalties in the process. 
  One of my clients actually was in this exact same predicament. His name was Jose, and this man had only 13 payments to make before his home would be paid off. But Jose worked in construction and as you may know, that industry has been at a standstill for almost two years. Jose hadn’t worked in a year and a half, and he’d missed six house payments by the time he called us. Now, the bank was moving to foreclose, and they were moving quickly. The home was scheduled to be sold at auction in the next month.
  Jose’s unemployment benefits had stopped, and his wife didn’t make much at her job. The $6,000 they’d had in savings was long gone. Theirs was a 15-year mortgage, so the monthly payments were rather high–$1,500 per month. They’d moved here from Mexico thirty years ago, and they’d saved a lot of money by the time they bought the house in 1996. Jose made pretty good money doing construction, so they opted for the shorter term mortgage with a big down payment in order to pay off the house more quickly. If it weren’t for all the foreclosure costs and penalty fees, they would only have owed about $20,000 on the house. It was due to paid off in mid-2011. But all the costs associated with the bank’s foreclosure action came to another $5,000. They were so close to owning their house outright, but because Jose couldn’t find another job, they were in real danger of losing their home and their investment.
  The reinstatement amount–legalese meaning the cost to stop foreclosure and bring the loan current–was about $26,000, due in a month. The mortgage company was offering one thing only: they would accept half the reinstatement amount, with the remaining half to be paid off over six months, in addition to the monthly mortgage payments. That meant a combined debt payment of $3,700 per month. It did not help. 
  “There’s nobody else I can borrow money from,” said Jose. “Isn’t there somebody at the bank I could talk to about this?”
   We called his mortgage company–one of the major ones–to find out if they would be reasonable, or if we might actually talk to a decision maker.
  I explained to the customer service rep that there was literally no way they could come up with the $13,000 by the deadline given, that they had no money left, and I asked if it was possible for them to pay some smaller amount each month, perhaps just the interest  until Jose got back to work
  “According to the notes here,” said the person on the other end, “We would need thirteen thousand, two hundred, dollars by June 26 or the house would be sold at public auction…”
  “Wait a second,” I interjected. “Are you guys really going to take his house? He’s only got 13 payments until the loan is paid. He’s never been late on a payment in 14 years. You can’t work with him until he finds a job?”
  “I’m sorry sir, the decision is the decision. There’s nothing I can do.”
  I asked to speak to a manager, and it went straight to voicemail.
  Jose and his wife were forced to declare bankruptcy in order to stop the foreclosure sale. And this was a guy who never was late with a house payment, he never had any excessive debt and had a good credit score. That’s the kind of behavior you should expect from a lender. Don’t expect anything less.