Are mortgage companies stalling the loan modification program?
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Are mortgage companies stalling the loan modification program?
real estate News & Commentary by Chris McLaughlin, July 30, 2009
http://www.shortsalesriches.com
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Are mortgage companies stalling the loan modification program?
Industry experts are increasingly saying that operational glitches are not the main impediment to the success of the mortgage modification program. Mortgage companies get to make money — fees for insurance, appraisals, title searches and legal services — as long as a borrower remains delinquent, and lose their fees once foreclosure sets in. “It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a lawyer who defends homeowners against foreclosure. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”
Mortgage companies dispute the characterization. “To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous,” said Robert James, senior vice president for mortgage operations at Bank of America. Some analysts say that the “late” fee collected by mortgage companies, when borrowers start to fall behind, can be significant. “For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit,” said Diane Thompson, a lawyer for the National Consumer Law Center. “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”
PennyMac seeks $400 million to buy “bad” mortgages
In the current market, when financial firms are trying get rid of bad loans, there is one firm which seeks to make money in distressed debt. PennyMac plans to raise $400 million by way of initial public offering with the idea of buying portfolios of bad loans. Companies such as PennyMac believe that desperate lenders would under-value their sub-prime loan assets and create an opportunity for intelligent buyers. “Our ability to buy the loans at the discount is what gives us the ability to work aggressively with the borrower in terms of reducing their payment,” said Stanford Kurland, CEO of PennyMac.
Kurland worked for Countrywide which was among the firms that created sub-prime mortgages which ultimately led to the credit crisis. PennyMac works with individual borrowers and sees what it can wring out of the loan by offering lower interest payments and principal write-offs. The company hopes to make annual returns of 18 to 25% before fees and has attracted investments from BlackRock and Highfields Capital investments. When questioned about his stint at Countrywide, Kurland said: “I left Country in 2006, and much of the things that you’re criticizing, or that people criticize, occurred quite a ways after I left.”
Unemployment rises for the sixth straight month in metros
According to data released by the Labor Department, jobless rate rose in June for the sixth straight month in 372 metropolitan areas. Jobless rates are hovering at over 15% in 18 of the areas among which 8 cities are in California. In 144 metropolitan areas, jobless rate was higher than 10%; unemployment was more than 10% only in 6 cities, a year ago. Over 75% of Americans live in cities and this data gives a good picture of how recession has impacted the country.
Analysts are concerned about the impact of unemployment on foreclosures. “As unemployment rises, we are seeing a change in the financial profile of the people seeking our help,” said Suzanne Boas, president of Consumer Credit Counseling Service. “We are serving an increasing number of people who work in professional services and skilled trades. These people have maintained solid incomes their entire lives, but are now in financial trouble and are reaching out for counseling to help avoid foreclosure.” According to RealtyTrac, California, Florida, Nevada and Arizona had most foreclosures in the first half of the year. Other regions are likely to get impacted as joblessness spreads.
Small business lending showing improvement
Analysts say that lenders are warming up to small businesses, indicating that the outlook on the economy is turning positive. “To date more than 700 lenders who have not made a loan since October, are now making them,” said Jonathan Swain, assistant administrator, communication and public liaison for the Small Business Administration (SBA). The government, as part of its stimulus package, offers guarantees up to 90% of loans made to small businesses. “At 10 percent risk it’s easier for a bank to step up and make that loan, perhaps to something they weren’t willing to about six months to a year ago,” said Tom Burke, head of Wells Fargo’s SBA Lending Program. “It makes lenders take more risk.”
The SBA has enabled $6.5 billion in small business lending with the approval of $4.8 billion in loans since February 2009. “Loans are available, as long as you qualify, about 8,000 commercial banks have money to lend,” says William Dunkelberg, chief economist for the National Federation of Independent Business. Lending assistance to small businesses is critical for economic recovery. “Billions of dollars have been put in the hands of small business owners to keep their doors open,” said Swain. “These are dollars that are driving to save jobs and helping the economic recovery.”
American Express buys back TARP warrants
The Treasury Department received $340 million from the American Express Company towards the redemption value of warrants issued by American Express when it received bailout funds under the Troubled Asset Relief Program (TARP). Along with dividends on the preferred shares, the redemption value yielded 26% on the investment made by the government. American Express joins other large firms such as Goldman Sachs, U.S. Bancorp, BB&T and State Street Corporation, which have redeemed TARP warrants.
Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette who has studied TARP warrant repurchases, said the return from the American Express investment was in line with what the government received from Goldman Sachs. A Congressional oversight panel recently cautioned that companies may buy back warrants too cheaply, impacting returns on tax payers’ money. “It seems that Congressional pressure has significantly stiffened the negotiation stance of the U.S. Treasury,” said Wilson.
Now on to our real estate investor education section…
Coolest Google Gadgets You Never Knew About for real estate
Let’s face it, if you are like most people you spend more than your fair share of time online surfing the Internet or otherwise Tweeting away time. Chances are, you may have missed out on some of the coolest Google gadgets that make great tools for real estate. Spend some time exploring then get ready to save these sites to your favorite lists:
- Google Maps. Stop driving all over town to see the neighborhood of a potential property. Instead, simply type in the zip code then zoom down to the “street view”. Not only can you see the property as well as those of the neighbors, but you can actually take a virtual walk down each road and around the block! Try it at http://maps.google.com/maps?hl=en&tab=wl.
- My Maps. Create your own customized maps with full GPS navigation/directions that can be sent and received via cell phone. It’s the perfect companion to showing homes! <a href=”http://www.android.com/market/free.html#app=mymapseditor”>http://www.android.com/market/free.html#app=mymapseditor.
- Google Trends. See what people are searching for then track it over time. Isolate by region or even city then use as a leading indicator for interest in real estate or short sales. Just type in “real estate” or “short sales” to see for yourself how well this little gem works! http://www.google.com/trends?q=short+sales&ctab=0&geo=all&date=all&sort=0.
- SketchUp. Create, modify and share 3 dimensional models of homes, repairs or even modifications to real estate with Google SketchUp available at http://sketchup.google.com/.
- Picasa. If you haven’t used Google’s super simple photo editor and storage service it’s time to give it a try. Password protect those areas you want or allow anyone to view pictures of homes and other real estate related investments. Simple and free. http://picasa.google.com/
- Google Mobile. Get your email, maps, photographs, GPS info, favorite blog or new content plus much more with Google Mobile. http://www.google.com/mobile/#utm_source=us-et-more&utm_medium=et&utm_campaign=mobile.
- Google Voice. Stop giving out your real phone number – instead, protect your privacy and security with a virtual phone number that reroutes to your phone or other line. Thanks to Google Voice, it’s now possible. Currently in Beta, Google Voice is available by invitation only but if you apply, it typically takes approximately 5 to 10 days to receive an invitation. Best of all, number portability plus all the other bells and whistles are included for free! http://www.google.com/googlevoice/about.html
- City Tours. Show out of town prospects all the sites from the comfort of their own homes thanks to City Tours. Identify points of interest and plan trips for most major cities. http://citytours.googlelabs.com/
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
real estate Attorney and investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest real estate firms,
running 4 different offices, supporting nearly
450 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in real estate Investing, Entrepreneurship, and
Wealth Building
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