I have not posted for a while, sorry, the foreclosure crisis continues, but not a lot new to report.

We hear about the housing bubble, which we in Michigan missed.

But our housing market burst anyway!

And, with unknown trillions of our tax dollars committed to saving the bank and mortgage companies that brought us this mess, the government still takes credit for programs that clearly are not working in preventing foreclosures.

And the banks continue to benefit, with our tax dollars bailing them out when people who lost jobs cannot pay mortgages any more.

Even the latest program, helping unemployed people keep their homes, is another bank welfare project and not a foreclosure prevention program.

We are two years past the Bear Stearns crash that precipitated the crisis, which yours truly and many others in the trenches long predicted.

That apparently did not give us any credibility in prescribing a remedy, judicial mortgage modification.

Which would have allowed Fannie and Freddie, and the mortgage companies and banks, to fail, as they so richly deserved.

And would have allowed the housing market to find bottom.

I believe we would have been on the rebound by now.

But Noooooo!

Uncle Sam, panicked by Wall Street, pulls out all the stops to prop up housing prices.

Keep interest rates low, pay the mortgage companies (?) to write modifications.

Which then fail again anyway, if you are lucky enough to last through the process.

Which, as with most government designed programs, is difficult to figure out.

So a new scam industry is born.

Mortgage assistance, we know the guys in the back room, we can get your mortgage modified, we know how to not only stop foreclosure, but get your payment lowered! and the other slogans of con men adapted to this situation.

Desperate people trying to save their homes, willing to do anything to avoid foreclosure, overwhelmed by incompetent mortgage company employees, bombarded by slick ads and news stories about government programs to help them.

We believe what we want to believe.

I see:

No end to foreclosures in sight.

Foreclosure Crisis Continues

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Golly, I have been screaming about MERS for years.

Well, not to everyone, I guess.

So MERS is less than 20 people, a company whose name is on over 60 million mortgages, which does not actually own any mortgages.

Huh?

Well, Michigan is a perfect example.

Each state has a system for recording of deeds and other real estate documents, like mortgages.

This is so you can check the official records to see if there are any liens, like mortgages, on property that you might want to buy.

Or, if you are a bank or mortgage company, you can see if someone else has a lien that would be ahead of yours.

That is, the first lien has to be paid first, second next, and so on, when the property is sold or transferred.

By Michigan law, the state of Michigan comes first.

Hey, you and I would do the same.

So property taxes have to be paid first regardless of when any mortgage was recorded.

Now, you probably never checked this stuff yourself.

That is what title companies do.

Well, oddly enough, the county register of deeds, who handles these things in Michigan, charges for the service of recording documents.

I just checked the Macomb County Michigan web site: $14 for the first page, $3 for each additional page.

Remember how many pages your mortgage was?

Blame the damn lawyers, but 35, 40 pages or more is not unusual.

Back in the old days, no big deal, you got the mortgage, they added the charge for recording it to what they charged you.

Somewhere in the 1990s, that changed enormously.

I have dealt with parts of the whole meltdown before on this site, let’s just say mortgages were bought and sold and packaged and re-packaged and sold again.

Take that recording fee and multiply it by all those pages and all those mortgage transactions, well, MERS claims to have saved some $2.4 billion.

Sounds innocent so far.

Except that MERS is filing motions to lift the stay in bankruptcy court, starting foreclosure proceedings in some areas, and more.

But, their documents say they are the “nominee” for the mortgagee or note holder or whatever.

Lots of the terminology depends on state law, in Michigan: mortgagee.

So, the savings occurs because MERS is the nominee on the recorded mortgage, for whoever is the actual owner of the note, holder of the mortgage.

All the shuffling and selling and packaging and re-selling goes on behind the scenes, with no notice to anyone who checks the public record.

No problem while the housing bubble was still inflating.

Big problem when that bubble burst.

MERS and the mortgage companies seem not to have kept accurate record of the mortgage assignments and sales and so on.

So, when challenged in courts in Ohio and New York and Nevada and Kansas and Idaho, and especially, Florida, courts have been throwing out foreclosure actions because no one can prove who actually owns the mortgage, that is, who has the right to foreclose.

In Michigan we have foreclosure by publication, so it is difficult to raise this issue as a defense.

What do I think?

I am ready, just get me the right case.

MERS And Mortgages

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Well, here we go again.

Buy and bail, where people get approved for a mortgage to buy a new place, even though they still owe for the old one, never left.

Changes in government lending standards were supposed to prevent this, at least with Fannie Mae and Freddie Mac loans.

Surprise, surprise, as Gomer Pyle used to say, it didn’t work!

Strategic default is another term that defines half the deal, the bail part.

You are current, you can afford the payment, but, you just stop by choice.

The buy part is, you buy another home.

What a country!

Michigan is worse than the national average, of 20% of homes with mortgages underwater, we weigh in at over half.

One theory is, now that prices have stayed down so long, more people are giving up on a market rebound and bailing.

The problem is worse in California and Arizona, which have anti-deficiency statutes.

This means if your home is worth less than you owe, that is the lender’s problem, they cannot chase you for the difference between what they get for the home and what you owe.

Michigan does not have such a statute.

In theory, it requires the lenders to be stuck with their side of the bet when the mortgage wq made, that their appraisals are accurate, as well as their assessment that the property won’t decline below the balance at any point in time.

Yeah, right. California and Arizona were two of the big four housing bubble states, along with Florida and Nevada.

Home equity loans are illegal in Texas, so they largely missed the boat on this one.

Normally I oppose Big Brother enacting laws to protect us from ourselves.

Though it is tempting to support this for Michigan, to make the lenders eat the bad results of their lending decisions, it seems to have made no difference in other states.

Of course, this practice is prevalent primarily among high income earners, who rent out their old home, and show the rent as income, and who have little other debt.

Even more obvious, they go to a new mortgage company for the money to buy the new home.

Hey, the sharks don’t care if another shark does not get fed.

However, just because when you signed the note to pay for the house, thinking it would go up in value, just because everyone said so and real estate always appreciates, does not mean it is right for you to stop paying when the house plunges in value.

Were you going to pay the mortgage company more money if the home increased in value?

Bankruptcy is an option for those who CANNOT afford to pay their debts, a different story.

Buy And Bail Is Back?

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HAMP failing is the topic of an Arthur Delaney story in the Huffington Post.

As well as numerous rants, about failed government policies on mortgages and foreclosure, on this blog.

Estimates in the article of HAMP failure range from 60% to 90%.

This counts only the approved modifications, most of my Detroit area foreclosure calls report the inability to even get a modification.

Yesterday, 10 month trial period, followed by denial.

The program is supposed to be, they review everything, and make a preliminary deal for a new  payment.

If you make 3 monthly payments, on time, at the new amount, you are supposed to get the permanent modification.

Let me know if you got one.

1.4 million homes taken since Obama took office.

And check out the term “shadow inventory” in the linked to post on this site.

Not only is the HAMP program not working, it is running out of gas.

More people canceled and dropped out the last three months than signed up, and June was a 12 month low for new HAMP applications.

Reportedly, less than 5% of the HAMP modifications, that get done, include principal reduction.

That is, reducing the total amount owed on the house.

So, they are just re-shuffling what you owe them, maybe extend the term out to 30 years, maybe temporarily lower the payment.

With at least 15 million homes out there worth less than what is owed on them, how does this help?

Michigan homes are almost certain to continue to fall in value, as we need people with jobs to buy homes and we have been losing jobs for  6 straight years.

The more they foreclose, the more they sell, the more supply, that lowers the price in the market.

Which puts more homes underwater, more incentive for people to bolt, or more often, leave because they cannot afford the payments, and the mortgage companies won’t work with them.

HAMP Foreclosure Prevention Failing

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Barry Ritholtz blogs on some devastating statistics on mortgage modifications.

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Michigan allows foreclosure of a mortgage by publication, an auction process, or through a lawsuit in a court.

If the bank bids the amount you owe at the foreclosure auction, you owe them nothing, no matter what they may get for selling the house later.

However, if the bid is less than what you owe, and it is a reasonable market price, you can be sued for the difference between what they bid and what you owe, also called the deficiency.

If the first mortgage holder forecloses in Michigan, and gets the house back, the second mortgage company gets nothing.

Any secondmortgage has to pay off the first mortgage to get ahead of them in line for rights to the house.

Theoretically, a foreclosure auction could bring more than the balance owed on the first mortgage, which would go to the mortgage holder.

But that does not happen any more in Michigan.

The second mortgage company can sue for whatever amount of money is owed.

In judicial foreclosure, the mortgage company sues in court to get the house back.

Of course, any suit for money by a mortgage company can be stopped by filing bankruptcy.

What if you have two mortgages, and do a short sale?

Well, as a lawyer, what can I say?   It depends.

(see part two)

The second mortgage company has to sign off for title to the real estate for you to transfer, that is, to sell your house.

But signing off their lien on the house does not mean you do not owe them any money, it just means they do not have your house as security for the loan any more.  You still owe on the note, and they may forgive the loan, or not.

Same with the first.  They can sign off their lien on the house so the short sale takes place, but that does not automatically mean that you do not owe them any more money.

Mortgage In Foreclosure, Will I Still Owe Money? (part one)

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The Detroit Free Press recently published an article about wrongful foreclosure and the taking of personal property from Michigan homes in foreclosure.

Unfortunately, the sidebar notes on Michigan foreclosure law are not accurate.

The 2008 Michigan law changes do not automatically “A 2008 law then gives the homeowner 90 days to negotiate with the bank.”

The foreclosure law actually requires the initial notice to tell the homeowner they have 14 days to ASK FOR a modification.

Most homeowners are not using this provision, and the foreclosure just proceeds to the next step, the notice in the Legal News that is published weekly for four weeks.

If the foreclosure sale takes place, the home is sold by the county sheriff to the highest bidder, almost always the first mortgage company.

A second mortgage could bid at the sale, but they have to pay off the first to get title to the property, and most homes in foreclosure are not worth what is owed on the first mortgage.

The first mortgage can bid up to the amount owed, without forking over any actual money.

So, if you owe $100,000, they can bid up to $100,000 just by telling the sheriff that is their bid.

The homeowner then has six months to redeem the property, for the sale price plus interest.

Mortgages always make the homeowner responsible for the costs of foreclosure, so that will be added on to the balance.

With the tens of thousands of Michigan foreclosures, firms like Trott & Trott, as alleged in the Free Press, make mistakes.

They report the redemption period as having expired before that actually happens.

Their client, the mortgage company that put in the highest bid at the sale, then hires a company to clean out the house to start to get it ready for resale.

This is a big problem when they jump the gun, because they are cleaning out your house.

If you live there past the redemption period, title to the property passes to the mortgage company, so they own the house.

But, you are a legal tenant, not a trespasser, so you have to be evicted by a court before they can take physical possession.

This is if you are STILL LIVING IN THE HOUSE.

You can sue whoever is responsible, it the foreclosing law firm made the mistake, the company that stole your goods, the mortgage company that hired them.

As always, talk to a lawyer about your rights.

Wrongful Michigan Foreclosure?

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The national average for the whole process is over a year from when payments stop being made before the foreclosure process is complete.

Foreclosure is controlled by state law, so each state has its own rules.

In Michigan, as long as the home is not abandoned, the basic rule is 180 days after the sale before the buyer, almost always the first mortgage holder, takes title to the property.

More astonishing statistics:  over 650,000 homes in America are at least one and a half years, 18 months, behind on their payments.

And, in almost one in five of these cases, foreclosure proceedings have not even started.

My guess, the mortgage companies reportedly have nearly a 3 year supply of homes they already took back, that they have not put up for sale yet.

Many houses in southeast Michigan are not worth taking back, underwater, that is, not worth the cost of foreclosure to get them back and try to re-sell them.

To repeat one of my themes:  it is only going to get worse in Michigan.

During that redemption period, the mortgagor, the homeowner, still owns the home.

She or he can live there, rent it out, sell it, whatever.

Yes, over half the home in Michigan with a mortgage are underwater, worth less than what is owed on them, so a sale would be a short sale, requiring the mortgage company to release its lien for less than full payment.

And then, there has to be an eviction proceeding if the homeowner does not voluntarily leave.

Streitfeld wrote in the NY Times: Owners Stop Paying Mortgages, and Stop Fretting

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

Now, saving 14 to 18 monthly mortgage payments during this foreclosure process, or whatever can be saved, is certainly enough to move somewhere else.

In many places in Southeast Michigan, it will be enough to buy a house outright.

After Foreclosure, How Long Can I Stay In My Michigan House?

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Warren Michigan is typical of the real estate market in our state, hard to sell even homes coming out of foreclosure.

The Zillow website reports zero, nada, not one, house sold in the last 30 days, out of 1,852 for sale.

According to the Realty Trac site:

“One in every 387 homes in the United States was in some stage of
foreclosure last month, RealtyTrac reported Thursday. The company’s data
shows that foreclosure filings were issued on 333,837 properties in
April. While still elevated, that figure represents a 9 percent drop
from the previous month and a 2 percent decline compared to a year ago.
It’s the only month in the history oef RealtyTrac’s report where
foreclosure activity fell on an annual basis.”

There were no mortgage securitizations sold for the last 2 years, until last month.

That means, whatever mortgage market there was, it was Federal government money subsidizing the mortgages.

And the FHA covered more loans last quarter than Fannie Mae and Freddie Mac put together.

So, Uncle Sam says, let’s solve this foreclosure crisis by underwriting more bad mortgages, which fueled the crisis to begin with.

More defaults always means more foreclosures, which means more homes for sale, (I know I say this all the time!), which means ever lower home prices.

Why would private lenders get back into a market like this, buying mortgages into an ever declining housing market?

No reason, which is why they have stayed on the sidelines.

Which also prolongs the crisis, just like the government’s actions.

We have to hit bottom before we can turn around.

Foreclosures will go down, once the government gets out of the way and lets the home prices fall to market value.

At that point, it will make sense for private lenders to get back in the game.

One thing the government can do to help the foreclosure crisis, is, change Chapter 13 bankruptcy law to allow judicial mortgage modification.

Then the mortgage can be re-written by the court, and the owner can keep the house by paying what it is worth, instead of going through the expense of the foreclosure process, throwing out a taxpayer, and putting yet another home up for sale.

Housing Crisis Means More Foreclosures

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