Borrowers Lie for Better Loan Mods

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Cijfers even op een rij:
Obama's $75 billion loan modification plan (to help 4M borrowers - 1 out
of 15 with a mortgage) has 200,000 modifications in progress & Moody's
estimates 5M will lose house in next 3 years.
Dus totaal 60M eigenaars met hypotheek (USA heeft 310M inwoners).

Groet / Cees

http://abcnews.go.com/Business/obama-loan-modification-plans-give-rise-fraud-real/story?id=8331327
Borrowers Lie for Better Loan Mods, Real Estate Players Say
Some Say Obama Loan Modification Plan Gives Rise to Fraud
By MAURNA DESMOND, Forbes.com
Aug. 25, 2009

Under the president's loan modification program, if a borrower is deemed
in "imminent default," the lender and Uncle Sam will rework the mortgage
by lowering interest rates, stretching out the payback term or lowering
the principal to reduce the monthly payment to less than a third of the
borrower's current income. Moody's estimates 5 million Americans will lose
their homes in the next three years, even with a "robust" government
modification effort.

In his 25 years as a real estate agent, Jim Klinge has seen plenty of
borrowers try to work the system, especially in subprime-scourged North
San Diego, where he works and lives. Like many in his industry, he says
the Obama administration's $75 billion loan modification plan is giving
rise to another bout of fraudulent mortgage activity. "With all certainty,
it's being gamed," he says.

Under the president's program, if a borrower is deemed in "imminent
default," the lender and Uncle Sam will rework the mortgage by lowering
interest rates, stretching out the payback term or lowering the principal
to reduce the monthly payment to less than a third of the borrower's
current income.

The idea is to keep people who bought too much house paying their
mortgages in order to stem the next wave of foreclosures. Moody's
estimates 5 million Americans will lose their homes in the next three
years, even with a "robust" government modification effort. Klinge and
other industry players say borrowers are fibbing about their income and
expenses in order to get lower payments, just as they lied in order to buy
a bigger home on the way up. "And it's a lot easier to show you're broke,"
he said.

The administration hoped to help 4 million borrowers--about 1 in 15
Americans with a mortgage--through its modification push. So far, only
about 200,000 trial modifications are in process. (See "Weak Progress On
Loan Modifications.") "The real question is how many people fall into
these categories," says Steve Malanga, a senior fellow at the Manhattan
Institute, a conservative think tank.

Under the program, if a borrower makes too much money, the prospect of
getting a lower monthly mortgage payment might encourage them to ratchet
down their current income. Millions of Americans are self-employed, so
they could decide to pay themselves less this year and invest more in
their company. "It's a real hazard," Malanga says.

If eligible, the borrower's lowered loan payments would be about a third
of their present income--not what they pulled in last year or in the next.
If the homeowner's spouse wasn't listed on the original mortgage, it isn't
need-to-know information. "It's based on what's on the first note," says
Edward Fay, chief executive of Fay Financial, a Chicago-based mortgage
servicer. Borrowers might also quit their job or stop working over time.
"Why would you keep working your second job?" asks Fay.

If a borrower is worried about being tied down to a home (the loan
modification doesn't transfer if the home is sold), they could always rent
out the property for the life of the loan.

Who qualifies? There are only a few big requirements for a taxpayer-funded
workout. The borrower must have taken out a mortgage smaller than $729,500
before January 2009 and currently live in the home they may soon no longer
be able to afford. Take this easy five-question quiz on the Treasury Web
site to find out if you qualify.

The murky decision of whether to foreclose on a property or modify is
based on which is more profitable for the lender. If the borrower makes
far too little money, then a modification may not work out because the
lender can make more money selling the property. However, if the home has
fallen a lot in value, the borrower may have a better chance of getting a
lower payment since the lender doesn't want to sell when the home is it at
its lowest value.

While moral hazard is a major concern for those trying make this
foreclosure prevention program work, government regulators are more
concerned with the loan modification shops that are ripping off distressed
homeowners. In the Federal Bureau of Investigation's 2009 mortgage fraud
report, the agency warned of a coming waving of criminal activity tied to
real estate with loan modification scams a prime concern.

The Federal Trade Commission has been cracking down. In June, for
instance, it slapped the Federal Loan Modification Law Center (Edmond)
with a complaint alleging the company used radio advertisements to lure
troubled homeowners into paying up to $3,000 for help getting a
modification, but failed to help at all in numerous instances.

"We're enforcing the law against these scam artists; we're putting others
on notice that unless they change their ways, they're next; and we're
working with other government agencies, non-profits, and mortgage
companies to reach out to our neighbors in distress with the details of
how to get help," said FTC Chairman Jon Leibowitz.

**********
Dit bericht is verzonden via de informele D66 discussielijst (D66 at nic.surfnet.nl).
Aanmelden: stuur een email naar LISTSERV at nic.surfnet.nl met in het tekstveld alleen: SUBSCRIBE D66 uwvoornaam uwachternaam
Afmelden: stuur een email naar LISTSERV at nic.surfnet.nl met in het tekstveld alleen: SIGNOFF D66
Het on-line archief is te vinden op: http://listserv.surfnet.nl/archives/d66.html
**********