A terse letter from a lawyer came eight months ago, telling them that
their lender now owned the house. Three months later, the bank told them
to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven
years ago for $128,000, with its views of the San Jacinto Mountains.
They’re not planning on going anywhere.

“We’re kind of on pins and needles, but who’d want to leave when you put
this kind of energy into a house?” said Eugene Harrison, gesturing
toward a bucolic mural of mountains, stream and flowers the couple
painted on the living room wall.

Throughout the country, people continue to default on their home
loans—but lenders have backed off on forced evictions, allowing many
to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including
government pressure on banks to modify loans and keep people in their
homes. And with a glut of inventory in places like Southern California’s
Inland Empire, Nevada and Arizona, lenders are loath to depress housing
prices further by dumping more properties into a weak market.

Finally, allowing borrowers to stay in their homes helps protect the
bank’s investment as it negotiates with the homeowners, said Gary
Kirshner, a spokesman for Chase bank, a major lender. “If the person’s
in the property, there’s less chance for vandalism, and they’re probably
maintaining the house,” he said.

Economists say the situation won’t last forever, but in the meantime the
“amnesty” may allow at least some homeowners to regain their financial
footing and avoid eviction.

In the Inland Empire, an estimated 100,000 homeowners are living
rent-free, according to economist John Husing, who based that number on
the difference between loan delinquencies and foreclosures. Industry
experts say it’s difficult to say how many families are in that
situation nationally because only banks know for sure how many customers
have stopped paying entirely.

But Rick Sharga of Irvine, Calif., data tracker RealtyTrac notes that
the number of loans in which the borrower hasn’t made a payment in 90
days or more but is not in foreclosure is at 5.1% nationally, a record
high. And yet the number of foreclosures last year was 2.9 million,
below the 3.2 million that RealtyTrac economists predicted.

More evidence is provided by another firm, ForeclosureRadar, which says
it now takes an average of 229 days for a bank to foreclose on a home in
California after sending a notice of default, up from 146 days in August
2008.

“For some reason, banks are being more lenient with homeowners who are
behind on their loans,” Sharga said. “Whether it’s a strategy to try and
slow down the volume of foreclosures or simply a matter of the banks
being able to keep up with volume is something that banks only know for
sure.”

Lenders say the trend reflects their efforts to work with borrowers to
modify loans to avoid foreclosure. Bank of America “continues to exhaust
every possible option to qualify customers for modification or other
solutions,” spokeswoman Jumana Bauwens said.

Some lenders are making it a policy to partner with delinquent
borrowers. Citibank said this month that it would let borrowers on the
brink of foreclosure stay at their homes for six months, whether or not
they make payments, if they turn over their property deed. Such policies
may partly reflect the fact that lenders can’t keep up with all the
foreclosures, some say. “The mortgage lenders are so backlogged that
some people are able to slip through the cracks,” said Kathryn Davis, a
real estate agent at America’s Real Estate Advocates in Corona.

That was apparently the case for the Harrisons, who were told at various
times that their house had been sold, that it belonged to someone else
and that it was empty. “It’s been frustrating,” said Eugene Harrison.

The Harrisons missed their first payment in October 2008, shortly after
Patricia Harrison lost her job as a healthcare aide and her husband’s
part-time towing work dried up. They said they applied for a loan
modification but were told that they couldn’t receive one until they
were three months behind on their payments. So they stopped paying.

In April 2009, they received a notice warning them that their property
“may be sold at a public sale,” and in July, they were told their house
was a bank-owned property.

The bank sent a notice by FedEx in October demanding $3,000, and when
the Harrisons called to discuss this notice, they were told they had
four days to vacate the house.

Panicked, they arranged to stay with family in New Mexico and started
packing their things, filling their garage with boxes of books, camping
equipment and art. But no one came to kick them out. “We were afraid to
leave the house, afraid the sheriff was going to come,” said Patricia.

After contacting consumer advocates about their situation, the Harrisons
decided to stay put. Soon after, two men in a white pickup truck showed
up at the house and peeped in the windows, telling the Harrisons that
they thought the house was abandoned. The Harrisons suspected they were
planning to move in themselves and chased them away.

As they wade through the red tape, the Harrisons can’t imagine
abandoning a house where they’ve left their mark in the goldenrod and
potpourri rose walls, the new fixtures and stenciling in the bathrooms,
the fruit trees planted in the yard.

Although the Harrisons’ future is uncertain, industry observers agree
that the rent-free life can’t last forever. As home values climb, banks
will find it financially advantageous to foreclose on delinquent
borrowers and sell their properties.

“In many cases, particularly in California, people owe a boatload of
payments, and no bank is going to forgive that,” said Guy Cecala, editor
of Inside Mortgage Finance, a trade publication.

In Diamond Bar, the Fraguere family is finally moving on after living
rent-free for 18 months. Job loss and other setbacks prevented them from
paying their mortgage, but they say they didn’t hear anything from the
bank until a real estate agent showed up at their door last month saying
she was going to sell their house.

Sandy Fraguere wasn’t surprised that it had taken the bank so long to
ask them to move. “I don’t think they really knew what was going on or
who was there,” she said.

Next stop for the Fragueres is a hotel, where they plan to stay for two
weeks until their apartment in Chino Hills is ready for them to move in.
Their dogs are being boarded and their belongings stored until they can
retrieve them someday. The Fragueres have started saying goodbye to
their neighbors, adding yet another empty house to a block that has
already seen two other families forced to pack up and leave.

(c) 2010, Los Angeles Times.

That’s because lenders have been quietly selling second mortgages and
home equity lines left unpaid after foreclosures and short sales. The
buyers: collection agencies, which in some states have years to make a
claim. If they win court judgments, these collectors could have years to
pursue borrowers with repayment plans, and even garnish their wages,
said Scott CoBen, a Sacramento bankruptcy attorney.

“The only relief a consumer will have is entering into a debt
negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice
president with the New York-based Consumer Mortgage Audit Center. The
firm provides mortgage analysis to lenders, advocacy groups and attorneys.

The phenomenon suggests an ominous, looming echo of today’s real estate
meltdown. As debt collectors surely seek at least partial repayment of
millions of dollars in unpaid home loans, some say renewed financial
stresses on tens of thousands of local consumers could dampen economic
recovery.

“I think there will be a lot of unhappy people when it hits,” said
CoBen. “We saw this in the ’90s. This is not really new. Just when you
think you’re back on your feet, you’re making money and the economy’s
good, they hit you with this.”

Alayon said most people are so stressed out and exhausted by trying to
save their homes today that they are unaware they could face another hit
later. And many who are losing homes don’t get the advice necessary to
prevent future fallout, say nonprofit loan counselors.

“You’ve got tens of thousands of people in California who have this
hanging over their heads who don’t even know it,” said Scott Thompson,
principal at for-profit Mortgage Resolution Services in Carmichael,
Calif. He fears a new wave of bankruptcies might flatten people just
starting to recover from losing their homes.

“So many of these are people with 750 or 800 credit scores who made a
bad decision,” said Thompson. “Or they’re people who suffered income
cuts. These are people, in terms of the economy, whom we need to
participate.”

But an entire industry is gearing up to buy their debt at deep discounts
and collect what they can, Alayon said. “It’s a big business and
investors are coming out of the woodwork. It’s a very lucrative
business,” she said. Real estate insiders and financial players know it
as “scratch and dent.”

Regionally, no one knows for sure how much unpaid debt is on the line.
CoBen said people who used their borrowings for a traditional loan on a
house in which they lived generally have little to worry about. But
borrowers may be vulnerable in years ahead—generally, those who
defaulted not only on their first mortgage but also on a home equity
loan or second mortgage.

In California, banks can’t collect from borrowers for primary, so-called
“first-lien,” loans that go unpaid. When a house is foreclosed or sold
through a short sale, the lender of the first loan gets the house back
or the proceeds from another buyer.

But banks also made thousands of “second-lien” loans, including those
used to finance 20% down payments during the housing boom. A separate
category of “seconds” includes home equity loans and home equity lines
of credit. Nationally, about 3.4% of those loans are currently
delinquent, according to Foresight.

Owners are generally, but not always, on the hook for the second loans
left over from a foreclosure or short sale. Most investor mortgages,
too, leave the borrower liable for potential unpaid debt. In many short
sales, experienced real estate agents or attorneys can negotiate away
debt obligations for the second-lien loan. But many inexperienced
borrowers don’t know that, and sign final-hour agreements giving lenders
the right to pursue them later.

“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit
mortgage counselor NeighborWorks America. He said nonprofit counselors
can help. “Often when you work with a real estate agent, they’re not
really equipped to handle the repercussions. They’re set up to make the
sale,” he said.

Government forces are already moving to limit potential damage to
millions now struggling with home loans. A new Obama administration
short sale program aims to prevent banks that hold second-lien loans
from pursuing collections from homeowners after the short sale. It goes
into effect April 5, 2010 and works this way: Sellers will receive
notice that their servicer has steered part of the sales proceeds to
secondary lien holders “in exchange for release and full satisfaction of
their liens.” This release would apply only to short sales done through
the administration’s Home Affordable Foreclosure Alternatives program.

In California, Democratic state Sen. Ellen Corbett recently introduced
SB 1178, which would expand California’s protections for some people who
refinance and take on a second mortgage.

People who refinance, but use the funds to improve their homes or to
stay in their homes with a better interest rate, would be protected.
Lenders could not seek court judgments to collect from these borrowers
in the event of foreclosure or short sales.

“If you refinance a property and aren’t using the money for personal
reasons, you shouldn’t lose your personal protections,” said California
Association of Realtors lobbyist Alex Creel. He said the idea has been
around for years but has become more urgent as thousands lose income and
fall into mortgage trouble. The bill would apply to all foreclosures or
short sales that occur after it becomes law. It doesn’t matter when the
loan was made, Creel said. SB 1178 is still in the early stages of
consideration. It must clear both houses of the Legislature and be
signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.

(c) 2010, The Sacramento Bee (Sacramento, Calif.).

Distributed by McClatchy-Tribune Information Services.

In a housing market where tighter lending requirements have made FHA financing the only option for some buyers, this 90-day policy has (1) kept some homebuyers from being able to purchase affordable homes and (2) prevented the quick resale of foreclosed properties, which affects the ability of communities to stabilize and rebuild.

Research has shown that the buying, fixing, and reselling of foreclosed properties is often achieved in less than three months time.

The temporary waiver, which will expand access to FHA mortgage insurance to many, will be in effect for a period of one year, unless extended or withdrawn by the FHA. With this in mind, now may be an excellent time to contact clients who have recently purchased a foreclosed property and those who may be on the fence about purchasing a foreclosure as a short-term investment.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

To ensure FHA borrowers are protected from inflated prices, the policy has certain restrictions, including:

• All transactions must be arms-length and there can be no identity of interest between the buyer and seller.
• If the sales price of the property is 20 percent or more above the seller’s acquisition cost, the lender must meet specific conditions for the waiver to apply.
• The waiver is limited to forward mortgages, and cannot be used under the Home Equity Conversion Mortgage (HECM) purchase program.

You can read the full text of the waiver on HUD.gov.

Sincerely,

Michelle Wickett
Evergreen Home Loans
(360) 791 – 0513
mwickett@evergreenhomeloans.com