financialcounselor

Posts Tagged ‘Loan’

The Old Bait-and-Switch

In Scams, Uncategorized on June 21, 2012 at 9:41 pm
Today I want to talk about one of the oldest scams in the book. It’s called a bait-and-switch. Basically what happens is, the victim is offered a great deal, but when it comes time to sign on the dotted line, the deal has changed. This is what happened to one of my clients, a contractor from New York named John.
John had a nice low interest mortgage, but he wanted to add an addition on to his home, which he could rent out for some extra income. He was a building contractor and planned to do the work himself. So far, so good. But it was still a costly project in materials alone, so he refinanced his house to its full market value, borrowing an extra $40,000 above what he owed on his current loan to pay for the project, borrowing a total of $245,000.
“The brokers I was dealing with were offering a fixed rate 5 percent loan,” John said. “The day before we were set to close, a broker from the company called to reschedule it. They had me go to their office at midnight to sign the papers.”
Now, let me just pause the story, and say that if a business deal needs to be consummated at midnight, it’s probably not a good sign. Let’s continue.
“John, who was this company that was doing business at midnight?” I asked him.
“I had only spoken to them over the phone. When I showed up at midnight, their office was in a storefront in a seedy part of town. Then they told me they couldn’t get me the fixed rate mortgage; they could only get me an adjustable rate mortgage. I was all set to start work on the addition, and I even ordered some of the materials so I went through with it.”
Now, three years later, his payments have doubled because of the screwy loan terms. With his own contracting business not doing well, he is probably going to lose the house.
“I should have known better,” he said. “It’s my fault.”
That one really made me think. This guy was a building contractor from Brooklyn. And he wasn’t streetsmart enough to walk away from a mortgage loan being made at midnight, in a storefront with the terms changed at the last minute?
Now, forget the fact it was midnight in a seedy part of town. Anytime, and I mean anytime, you find the terms of a potential business transaction being changed on you at the last minute, back out of the deal. Do not fall for the old bait-and-switch.

Bank CEOs Hopelessly Addicted to Giving out Mortgages that will never be Paid Back

In Opinion on December 7, 2010 at 8:41 pm

Addiction is a horrible thing. When a person cannot stop him or herself from doing something destructive, even after the person has seen the consequences of their destructive actions, well, that is sad indeed. And people can become addicted to anything. People can even become addicted to giving out mortgage loans that won’t be paid back.
It’s true. Not a lot of people are aware of this addiction; it’s much less common than something like alcoholism, for example. And this particular addiction is usually only found among people who run banks.
Two years ago, you may recall, the world’s entire financial system nearly collapsed because so many people were defaulting on their mortgage loans. If I remember correctly, economic leaders explained the necessity of bailing out the too-big-to-fail financial institutions by saying that the world was, “Looking into the financial abyss,” or something to that effect. Treasury Secretary Tim Geithner said that the bailout was unfair to the public, but “had to be done.”
So you might think that the same banks that nearly failed only two years ago because of mortgage defaults would not be giving out mortgages that are likely to be defaulted upon, what with how doing that nearly bankrupted them and caused us to look into the financial abyss and everything. I mean it’s only been two years!
But no, banks still give out mortgages to people who don’t have enough income to afford the monthly payments. (To read a story about 3 people who took out mortgages just this year, and have never made a single payment, see the blog post, https://onthefrontlinesofamericanswarwithdebt.wordpress.com/2010/10/12/banks-still-giving-out-unaffordable-mortgages/ )
Because I’ve never been a banker, I’ve never had the chance to experiment with giving out unaffordable mortgages. I’m glad, because it seems like a real tough monkey to get off your back.
It’s almost comical. Talk about a quick relapse. Only two years since tons of taxpayer money was injected into the financial system to keep huge financial companies from insolvency because of mortgage defaults. And apparently they never quit doing it.
Did the people running our banks miss that on the news? Were the bank CEOs out roaming the streets looking for people to sign up for mortgages when that story came on? “Hey man, hey man, you wanna buy a house? I got the money right here.”
I mean, those people currently running the nation’s banks have to be aware that their own firms nearly collapsed from mortgage defaults, right? Why would they keep doing the same thing that nearly bankrupted their companies only two years ago? All I can think is, giving out mortgage loans that will likely be defaulted upon must be one hell of a drug.
If it’s decided to give more taxpayer money to banks, perhaps the government could require bank executives complete a 12-Step program as a condition.

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.”

Banks still giving out Unaffordable Mortgages

In When it Comes to Borrowing Money... on October 12, 2010 at 5:35 pm

Will they ever learn?
 
  The biggest cause of 2008’s financial meltdown, we are told, was mortgage loans not being paid back. Our leaders and media tell us that all those mortgages being defaulted upon nearly caused another Great Depression.
Well, there must be something really attractive about giving mortgage loans to people who can’t pay the money back. Because apparently, it’s still happening. It’s nearly 2011, and I am speaking to people who are defaulting on mortgages they got after the economy collapsed in fall 2008 — from all the defaulting mortgages. 
  For example, there was a man named John who got his mortgage in January 2010. This man has never made even one payment on this loan because he simply has never been able to afford it. The budget we put together shows his monthly expenses are $1,000 more than his income. John told me that now, 10 months after taking on this debt, he is actually making more than when he got the loan. His finances were even worse when the bank gave him the money!
  Another client named Donna told me how she is planning to refinance her condo, and how the mortgage broker setting her up with the loan plans to submit income statements she filled out five months earlier, back when she had a second job. Donna had always relied on that second job to live, but she was laid off from it in the time since getting approved for the loan. She told me the broker assured her there would be no problem; the bank giving her the money wouldn’t request up to date proof of her income.
The payment on the new mortgage would be $1,200; her income from the one job is $1,600. Donna is actively looking for another second job, but if she takes out this loan, and doesn’t find another job quick, she’ll probably default, possibly follow John and never make a payment.
  My last example is a woman named Margo who got her mortgage in the winter of 2009 when the stock markets were in a tailspin. In the year and a half she’s had the mortgage, she’s made only 10 payments. She made the first five payments on time but then she started to be late or miss payments altogether. The payment on her mortgage is $900; her monthly income is $2,000. Margo’s budget shows that her expenses are $100 more than her income. And nothing about her finances had changed since she got the mortgage, she told me.
  “I was really surprised they gave it to me,” she said.
 
  So if you’re in the market to get a home loan, be sure you know the most you can afford in a monthly house payment. Because as you can see from these examples, the person setting you up with the mortgage isn’t going to tell you.
 
  Just a thought…current and former Federal Reserve Chairmen Ben Bernanke and Alan Greenspan, along with all the CEOs in the banking industry say there was no way to forsee the disastrous effects of the mortgage meltdown, or to know there was even a problem.
Perhaps they read this blog.

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.

Know what you CAN’T afford

In Lesson of the Day on September 8, 2010 at 9:23 pm

Banks still giving out mortgages that will never be paid back 

  Scott from Georgia called in because he was having to borrow money from his parents every month to make his house payment. Scott was 26 years old, and he brought home $1,800 per month in income. He had just bought this home a year earlier, and his monthly mortgage payments were $900. Half his income went right to the mortgage! Anybody is going to struggle when half their income goes right to a house payment. Plus you’ve got to pay utilitites, plus whatever it costs when something breaks.
 “I don’t know Scott, without a roommate or a big raise, it just doesn’t seem like you can afford this mortgage,” I said. “The house payment is half of your income. Did they know how much you made when you got the loan?”
 “Sure, I had to submit my pay stubs and tax returns,” he said. “I was pretty shocked when they said I qualified.”
“If it were thirty years ago, you probably wouldn’t have,” I said.
  As soon as he bought the house he began to have money problems. That’s because Scott’s salary simply didn’t afford him $900 a month for housing. He needed a house or rent payment that was closer to $600. And now his parents were getting tired of giving him hundreds of dollars every month to pay his bills.
 “Unless you can get more money coming in, you should probably talk to the bank about letting go of the house,” I said.
  Scott got his loan in the fall of 2008. By that time the default rate on mortgages had been climbing steadily and we were on the brink of economic meltdown. Maybe those bank executives whose bank lended Scott the money simply don’t read newspapers? Doubtful. More likely, the bank that loaned him the money turned around and immediately sold the debt for a profit, which is how the mortgage industry now functions.
  So keep that in mind if you are in the market for a mortgage. Don’t let some loan officer or broker tell you what you can afford. Know yourself what you can afford so that you don’t end up in a situation like Scott’s.

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...

Image via Wikipedia

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...

Image via Wikipedia

 

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.