Thursday, October 09, 2008

The Forgotten Homeowners still on the Limbo.

Blame it on the" new economy". You know things are bad when the government devises a bailout bill that ignores the plight of homeowners facing foreclosure, and then the country's biggest mortgage lender announces a massive mortgage modification program. Countrywide Financial, which was recently acquired by Bank of America and is regarded by many to be the corporate poster child for predatory lending, announced a settlement that would provide loan relief for 400,000 borrowers, virtually equaling what the federal government's own modification program is supposed to accomplish.
In what should be regarded as a model for how mortgage lenders should be compelled to fixed the mortgage crisis, Countrywide,

a]long with the direct relief,...will waive late fees of $79 million and prepayment penalties of $56 million and suspend foreclosures on delinquent borrowers with the riskiest loans.
A foreclosure relief fund will be created with $150 million from Countrywide to help borrowers who are four months or more behind on their payments or whose homes have already been foreclosed on. The company will also provide $70 million to help troubled borrowers relocate to rental housing. In all, Countrywide is setting aside $8.7 billion to help borrowers.
...Under the terms of the settlement, Countrywide will reduce principal balances in some cases and cut interest rates in others. Rates could decline to 2.5 percent, depending upon a borrower’s ability to pay, and remain at that level for five years. Then the rate will adjust to prevailing interest rates charged by Fannie Mae on its fixed-rate mortgages.

What's significant about this program is that it reveals the culpability of lenders in the foreclosure crisis, as well as the responsibility they should assume in helping homeowners avoid foreclosure. Although Countrywide does not admit to any wrongdoing - standard practice in these types of agreements - investigations into Countrywide's practices revealed massive acts of underwriting and sales abuse, thus demonstrating how many lenders either manipulated or did not fully disclose the terms of their mortgages.

The California foreclosure bill which targeted the ever-increasing problem of vacant foreclosed homes faced a narrow defeat last Wednesday. According to Don Perata, the sponsor of this bill, its objective was to make sure that people stayed in their own homes. However, the Republicans in the Senate argued that the bill would be an unfair burden on banks as well as on mortgage companies.
A Republican Dave Cox, said that, the lenders would be scared away from California by the bill as they could face a fine of $1,000 daily if they failed to maintain vacant properties, and also give a notice of four months before there is a 10 percent or more increase in mortgage payments. The foreclosure rate in California is among the top five and the state, in fact, has the highest volume of foreclosure. Perata goes on to say that, often three or four houses going waste in a neighborhood is a common sight. This problem has been the topic of hot debate in economic circles for many months now, and California is one of the top states suffering from foreclosures in the country.
According to George Runner, who is a Republican hailing from Lancaster, South California, the law should try to pin down home owners who claimed larger loans by lying about their income, as well as on unethical lenders who trap people into taking loans they cannot possibly afford. Perata had submitted the measure in the form of urgency legislation and to be passed, it required a two thirds majority in its favor. However, it failed as there were 14 votes opposing it, whereas only 26 votes were in favor of the measure. Perata admitted that the high foreclosure rate in California was also partly due to fraud, speculation as well as non-viable financial planning.
In California alone 300,000 loans wait to be reset. Last week, the State Assembly introduced parallel legislation which declared that people wanting to buy houses should be able to afford insurance, mortgage and property taxes. The rules governing mortgage brokers and agents dealing in real estate in California were made stricter in tune with the lending guidelines of the federal government. Foreclosed houses have been burgled and stripped of electrical appliances, copper wiring and pipes, all of which can be sold as scrap. It is truly a sad sight to see empty neighborhoods with foreclosed homes

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