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Thread: Predatory Mortgage Firms

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    Default Predatory Mortgage Firms

    If you're planning to buy check out these all-too-common horror stories BEFORE you sign on the dotted line.
    http://realestate.msn.com/buying/Art...mentid=2133885
    (snip)
    Huge errors and software glitches
    Any number of predatory practices, from not crediting payments to prematurely initiating foreclosure proceedings, can send struggling home buyers over the edge.

    Bureaucratic mistakes and software glitches are no small problem in the servicing industry. Huge errors stem from the massive turnover of ownership alone. Servicing rights for any individual mortgage are valued separately from the actual loan and are often sold repeatedly by banks and third-party servicers without customers having a clue or a choice.

    Still, there is no rule that says the old servicer must transfer the entire record to the new servicer. Often borrowers aren't informed of a change, and they use their original payment coupon book and send checks to the old address. The checks usually get sent back to the borrower, while the new servicer chalks it up as a late payment, deducts a penalty from the mortgage and marks it as underpaid. After a few months of this, the loan is recorded as delinquent. But the customer may not know anything is wrong because servicers aren't required to send a statement, and if they do, it is often incomplete. A foreclosure notice can be the first indication of any trouble.

    One Housing and Urban Development investigator says in a recent case a borrower faced foreclosure because 19 mortgage payments were missing. "The servicer found all 19 payments in what we call a 'miracle' because we got involved," the investigator says.(snip)
    “What a caterpillar calls the end of the world we call a butterfly.” - ECKHART TOLLE

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    Default Re: Predatory Mortgage Firms

    ^^^ all true, and all symptomatic of the fundamental change in the US mortgage industry after the last provisions of the Glass-Steagall act were repealed under the Clinton Administration.

    Actually, documentation and communication problems on the 'servicing' end ... while having the potential to quickly and incorrectly affect the borrower's credit rating ... isn't the worst possibility.



    (snip)"A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools.

    Judge Christopher A. Boyko of Federal District Court in Cleveland dismissed 14 foreclosure cases brought on behalf of mortgage investors, ruling that they had failed to prove that they owned the properties they were trying to seize.

    The pooling of home loans into securities has been practiced for decades and helped propel real estate prices in recent years as investors sought the higher yields that such mortgage trusts could provide. Some $6.5 trillion of securitized mortgage debt was outstanding at the end of 2006.

    But as foreclosures have surged, the complex structure and disparate ownership of mortgage securities have made it harder for borrowers to work out troubled loans, in part because they cannot identify who holds the mortgage notes, consumer advocates say.

    Now, the Ohio ruling indicates that the intricacies of the mortgage pools are starting to create problems for lenders as well. Lawyers for troubled homeowners are expected to seize upon the district judge’s opinion as a way to impede foreclosures across the country or force investors to settle with homeowners. And it may encourage judges in other courts to demand more documentation of ownership from lenders trying to foreclose.

    The ruling was issued Oct. 31 by Judge Boyko, and relates to 14 foreclosure cases brought by Deutsche Bank National Trust Company. The bank is trustee for securitization pools, issued as recently as June 2006, claiming to hold mortgages underlying the foreclosed properties."(snip)


    Lots of you are probably wondering why a court ruling that forces mortgage lenders to prove the entire 'transfer of mortgage ownership' trail in order to initiate a foreclosure matters at all to them ... after all a judge who blocks 'foreign banks' from foreclosing on beleaguered US homeowners is doing a good deed, right ?

    Unfortunately, wrong ! And this is the reason why. America now has the lowest savings rate since the great depression. In order to make new mortgage loans, if American banks aren't getting money from American depositors they must go to foreign sources for that money. In this particular case, the foreign money behind the US mortgage loans flowed through Deutsche Bank.

    One of the reasons that mortgage interest rates are lower than credit card interest rates or auto loan interest rates is that they are supposedly 'secured' by the real estate purchased. In other words, if the borrower goes belly up, the creditor supposedly has the right to foreclose on that real estate and sell it to recover most of the money the creditor loaned to the belly up borrower in the first place. However, the Ohio judge's ruling sets a precedent that will now make it much more difficult and much more expensive for this to happen - and particularly so in the case where the mortgage has been repackaged into bonds and resold to foreign lenders.

    Again you ask, so what ? Well, every lender evaluates risk factors when interest rates are set. This judge's ruling now increases the potential losses for (foreign) lenders when (US) borrowers go belly-up.

    As such, those lenders are going to demand higher than 'normal' interest rates in future mortgage loans that carry any significant amount of default risk. Also as such, those lenders are probably going to cut back on the amount of money they are willing to put at risk in the form of US mortgages. This will disproportionately affect the future loan approval prospects for would-be mortgage borrowers who have any sort of additional risk factor (like being self-employed, like being unable to fully document income etc.), and will also force would-be mortgage borrowers who have any sort of additional risk factor to pay higher interest rates if they do get approved.

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