Mortgage Foreclosure & Refinance Resource

As home values across the country continue to plummet, the authorities say a new breed of swindler is preying on the tens of thousands of homeowners desperate to avoid foreclosure.

Until recently, defrauders tried to bilk homeowners out of the equity in their homes. Now, with that equity often dried up, they are presenting themselves as “foreclosure rescue companies” that charge upfront fees to modify loans but often do nothing to stave off foreclosure.

The Federal Trade Commission brought lawsuits last year against five companies representing 20,000 customers, and state and local prosecutors have brought dozens more. In Florida, Attorney General Bill McCollum recently sued a company that he said had more than 600 victims.
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President-elect Barack Obama’s economic team is expressing interest in a U.S. Treasury plan to spur homebuying through new securities aimed at driving down mortgage rates.

Incoming White House economic chief Lawrence Summers is seeking details of the proposal from Columbia Business School Dean Glenn Hubbard, who put together the plan’s foundation with Columbia’s Christopher Mayer. Mayer has briefed Federal Reserve Bank of New York staff. Timothy Geithner, head of the New York Fed, is Obama’s Treasury-secretary designate.

Obama’s encouragement is important for the program to proceed because the Treasury doesn’t want to start projects that could be abandoned after January, a Bush administration official said. The proposal, now on a fast track at the Treasury, would be the most comprehensive government effort yet to stimulate the housing market. It would accelerate the decline in mortgage rates already sparked by a Fed commitment to buy $600 billion of debt linked to home loans.

“This proposal is all about putting out the fire,” said Mayer, real-estate professor at Columbia in New York who is a visiting scholar at the New York Fed. “There is nothing else on the table that even has the possibility of preventing a large, further decline in house prices.” [Read more →]

Now, with the economy in full retreat and the jobless rate rising, borrowers and lenders in areas with previously marginal foreclosure rates are bracing for the worst.

As a result, the banking industry has taken pre-emptive measures to help borrowers. The best example is an initiative, announced this month, to help those who took out loans backed by Fannie Mae and Freddie Mac, the government-owned companies that buy conventional mortgages from a wide swath of lenders. The companies’ loans make up about 58 percent of single-family mortgages nationwide.

Lenders are willing to change the loan terms if homeownership costs exceed 38 percent of gross monthly income — a measure known as the debt-to-income ratio. Lenders use this benchmark for determining the size of a loan.

But a property tax increase or a job loss can push borrowers beyond that threshold. To stave off financial jeopardy, lenders are asking that anyone with a debt-to-income ratio exceeding 38 percent contact the company that sends the borrower’s monthly mortgage bill. These loan servicers, as they are known, can drop the interest rate, reduce the loan’s principal by as much as $100,000 and extend the repayment to 40 years, if doing so ensures the borrower can pay the loan, according to Ed Delgado, a senior vice president of Wells Fargo Home Mortgage.
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