Monthly Archives: April 2015

Brace for a flood of foreclosures when boom-era HELOCs turn 10

from Jerry Kronenberg @ Mainstreet

Millions of Americans will soon see monthly bills shoot up on home equity lines of credit (HELOCs) taken out during the housing boom, because HELOCs are going to start making homeowners pay both interest and principal, not just interest. That’s bad news because many consumers are already underwater, meaning they owe more than their places are worth, a RealtyTrac study shows.

“A lot of people were using their homes as ATMs during the bubble, and that — coupled with the fact that home values have since gone down — has backed a lot of them into a corner,” says Daren Blomquist of RealtyTrac, which recently analyzed home equity lines of credit on millions of properties.

HELOCs are a type of second mortgage that homeowners use to tap into equity that they’ve built up in their residences.

A bank will typically give you a revolving line of credit up to a certain amount (often around $100,000) and let you use the money to buy whatever you want. You typically have to pay just interest — no principal — on your balance for the first decade of the loan’s 30-year term.

But after that, you generally have to begin paying interest and principal — and RealtyTrac thinks that will soon create big problems for millions of homeowners who got HELOCs between 2005 and 2008, just as the housing market peaked.

Home values collapsed in late 2008 as the housing bust and Great Recession took hold, leaving lots of HELOC borrowers “underwater,” owing more on their first and second mortgages than their properties are worth even today.

A RealtyTrac analysis of public property records across America found that at least 3.3 million homes still carry HELOCs from the 2005-08 era, with 1.8 million of these residences — or 56% of the total — considered “seriously underwater.” Consumers who own those homes owe lenders at least 125% of a property’s current market value.

RealtyTrac predicts that once the average HELOC borrower’s ten-year interest-only period ends, the person’s monthly bill will more than double to $279 from just $133 today.

That might not sound like much, but Blomquist thinks the higher charges will throw many struggling homeowners into foreclosure. “I think it’s a significant shock that will push a lot of people over the edge,” he says.

RealtyTrac expects the biggest problems in California, Florida and Illinois, which have not only high levels of boom-era HELOCs in general but lots of loans tied to seriously underwater homes.

For example, the firm found that some 646,000 California residences carry 2005-08 HELOCs, including 424,000 linked to properties whose owners are deeply in the red.

Mark Hughes of First Team Real Estate near Los Angeles expects many underwater homeowners simply to “walk away” from their residences, moving out and letting lenders deal with the problem.

“I think a lot of people will say: ‘Not only can I not afford the higher HELOC payments, but do I even want to try? Am I just throwing good money after bad?'” he says.

Still neither Blomquist nor he sees the problem as widespread enough to spark a second U.S. housing bust.

Blomquist says many cities have short supplies of homes for sale, so they should manage to absorb properties that hit the market due to HELOC-related foreclosures.

But the expert does consider the likely added inventory “one of several factors that will make home prices plateau this year in many markets.”

picture from original article: © Carlos Barria/Reuters

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Feds Fine Mortgage Servicer $63 million

From Bob Sullivan at

Nationwide mortgage servicing company Green Tree will pay $63 million to settle allegations that it mistreated mortgage holders, federal authorities revealed this week.

Green Tree was accused of misleading consumers about their monthly payments, harassing them if they were as little as one day late, forcing them to making payments using a pricey “Speedpay” system, stalling short sales and not honoring mortgage modifications. The firm will return $48 million to consumers and pay a $15 million civil penalty; it admitted no wrongdoing.

“Green Tree failed consumers who were struggling by prioritizing collecting payments over helping homeowners,” said CFPB Director Richard Cordray. “When homeowners in distress had their mortgages transferred to Green Tree, their previous foreclosure relief plans were not maintained. We are holding Green Tree accountable for its unlawful conduct.”

Green Tree, based in St. Paul, Minn., has rapidly expanded into the residential mortgage market and services loans for millions of homeowners, in part by buying the rights to service loans from other servicers. The firm was accused of failing to honor mortgage modifications that had been granted to homeowners after it acquired the loans from other financial institutions.

“It’s against the law for a loan servicer to lie about the debts people owe, or threaten and harass people about their debts,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Working together, the FTC and CFPB are holding Green Tree responsible for mistreating homeowners, including people in financial distress.”

Green Tree did not immediately respond to a request for comment from According to the Minneapolis Star Tribune, the firm said it is developing and deploying “best practices.”

“We believe this resolution is in the best interest of Green Tree, our consumers, our clients and our shareholders,” CEO Mark J. O’Brien of Walter Investment, Green Tree’s parent company, told the newspaper. “We … continue to be committed to properly serving homeowners and helping them remain in their homes.”

The CFPB and FTC alleged that:

  • In numerous instances, Green Tree took two to six months to respond to consumer requests for short sales. This could have cost consumers potential buyers, and it may also have cost them other loss mitigation alternatives while their short sale requests were pending.
  • If a consumer was two weeks or more past due, Green Tree consumers could receive seven to 20 phone calls a day, some starting as early as 5 a.m. or continuing until as late as 11 p.m. The collectors didn’t limit themselves to home phones, calling some people at work. Some Green Tree representatives also told consumers that nonpayment of their mortgage loan could result in arrest or imprisonment. Or, representatives threatened seizure or garnishment of the consumer’s wages when Green Tree had no intention to take such actions. Such threats are illegal.
  • Green Tree deceived consumers to get them to pay $12 for its pay-by-phone service, called Speedpay. Green Tree representatives would pressure consumers to use the service by telling consumers that Speedpay was the only available payment method to ensure the payment would be received on time. In fact, Green Tree accepted other payment methods that do not involve a fee, such as checks and ACH payments. Green Tree also made payments from consumers’ bank accounts without their authorization. For example, homeowners who gave Green Tree their account numbers to set up a one-time payment through Speedpay later discovered the company had used the information to arrange for additional payments without their consent.
  • Green Tree furnished consumers’ credit information to consumer reporting agencies when it knew, or had reasonable cause to believe, that the information was inaccurate, and failed to correct the information after determining that it was incomplete or inaccurate. (Consumers are entitled to free copies of their credit report every year from each of the major credit reporting agencies to ensure that they are accurate.)
  • Green Tree told consumers they owed fees they did not owe, or that they had to make higher monthly payments than their mortgage contracts required.

The order would also require Green Tree to end the alleged mortgage servicing violations, honor the prior loss mitigation agreements, take efforts to help homeowners preserve their home and provide quality customer service, according to the release.

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picture from article: © Blog “Delayed, Harassed &

Supply of Seattle-area homes hits lowest point ever recorded

It seems that Seattle is about to edge out San Francisco in one metric — but it’s not necessarily one the Emerald City wants to be known for.

The greater Seattle metro area has the lowest supply of homes for sale ever recorded.

The region, which includes King and Snohomish counties, has a supply of only 2.2 months, according to March data from Seattle online real estate brokerage Redfin. That’s the same as the hyper-competitive housing market of San Francisco.

Redfin has been tracking the data since 2007. While it’s impossible to say if this is indeed the lowest supply in history, Redfin data scientists believe it’s a safe bet.

The mantra seems to be: fewer houses, higher costs. The median price of a home in the Puget Sound region climbed to $385,700 in March, Redfin data shows. That’s an 11.8 percent increase from March last year.

Seattle’s housing market is no doubt heating up in part because of the booming tech industry in the state. The region has become a hotbed of new tech activity, with Uber, Best Buy and SpaceX opening offices in the last couple months. All these companies are bringing workers to the area, many of whom make lucrative salaries and are looking to buy homes.

Due to the low supply and frenzy of buying activity, experts say buyers should expect to put in multiple offers before one is accepted.

“Listings are flying off the shelf faster than allergy medicine in this early spring market,” Multiple Listing Service Director Frank Wilson said in a statement from the NWMLS last month.

Nationwide, home sales increased 10 percent over last year, according to Redfin. More than 3,600 homes sold in Seattle in March, a 14 percent increase since last year.

It is likely the region will continue to see houses fly off the market at unprecedented paces — the spring buying season is here and Seattle millennials, myself included, are starting to buy homes.

Deutsche Bank nears $1.5-plus Libor settlement

Deutsche Bank is nearing a record settlement topping $1.5 billion to resolve the German banking giant’s alleged role in manipulating a global financial benchmark.

Bank officials are in talks with federal prosecutors, British and U.S. regulators and New York’s financial services regulator over evidence that Deutsche Bank traders tried to manipulate the London Interbank Offered Rate, a person familiar with the discussions said Thursday.

The resolution could be reached as soon as this month and is expected to include a criminal guilty plea by a Deutsche Bank subsidiary in the United Kingdom, said the person, who spoke on condition of anonymity because there has been no authorized public discussion of the continuing negotiations.

In a Thursday news account, The New York Times reported that Deutsche Bank said it was continuing “to work with the authorities that are reviewing interbank offered rates matters.”

The pending agreement represents the last major unresolved bank investigation involving the global financial standard popularly known as Libor. Set by the London-based traders of major banks, Libor is used to set rates on trillions of dollars of loans, credit cards and some complex financial derivatives.

Major U.S. and overseas banks collectively have been hit with billions of dollars in penalties over the Libor rate-rigging scandal. Several former banks traders have also been personally charged by authorities in the U.S and Great Britain.

The financial penalty under negotiation with Deutsche Bank, Germany’s largest financial institution, would top previous Libor-related resolutions, including the $1.5 billion settlement Swiss banking giant UBS reached with international regulators in Dec. 2012.

Although Libor rate-setting may seem arcane outside of banking circles, the rate-rigging potentially affected millions of consumers who paid financial rates that were artificially high or low.

Deutsche Bank is among several major banks targeted in a civil class-action lawsuit over their alleged roles in the Libor scandal. The multi-district federal case was filed by U.S. municipalities and financial funds who argue they suffered financial damages by receiving lower interest rates on transactions as a result of the suspected manipulation.

The banks have are pursuing a motion to dismiss the lawsuit on grounds that they are legally subject to lawsuits in their home countries, not cases filed in U.S. courts.

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