California official warns of loan resets
Lenders can defuse pay-option ARM 'time bombs'
By Inman News, Friday, October 30, 2009.Homeowners with pay-option adjustable-rate mortgage (ARM) loans are sitting on "ticking time bombs that the lending industry has the power to defuse," California's attorney general said in asking 10 lenders and loan servicers for information that would make clear the extent of the problem and what they intend to do about it.
Economists estimate that about 1 million pay-option ARMs will reset in the next four years, "dramatically worsening the foreclosure crisis," the attorney general's office said in a letter to lenders. With 58 percent of all pay-option ARMs originated between 2004 and 2008, California will be the "epicenter of this crisis," the letter said.
Pay-option ARM loans, now rarely made, give borrowers the option of making minimum monthly payments during an introductory period that often repay none of a loan's principal and only part of the interest owed. Such loans are known as "neg am," or negatively amortizing mortgages, because their balance increases over time.
Lenders are being asked to provide by Nov. 23 information on the number of pay-option ARM loans they are servicing in the state, the number that have negatively amortized, and a "detailed explanation of the loan modification plans" they have developed for the loans.
The Obama administration's Home Affordable Modification Program (HAMP) has been slow to get off the ground and will not benefit thousands of Californians threatened by foreclosure, the letter said, as it does not allow for principal reductions.
"This situation is even more dire for borrowers with pay-option ARMs, who now owe more on their homes than when they first took out their mortgages," the letter said.
The letter was sent to Bank of America Home Loans & Insurance, Wells Fargo & Co., JP Morgan Chase & Co., Litton Loan Servicing, ResCap LLC, Ocwen Financial Corp., OneWest Bank, American Home Mortgage Servicing, Saxon Mortgage Services Inc., and Select Portfolio Servicing.
In a press release, Attorney General Edmund "Jerry" Brown Jr. -- a leading candidate in the state's 2010 gubernatorial election -- noted he has sought court orders to shut down more than 30 fraudulent foreclosure assistance companies and brought criminal charges and obtained lengthy prison sentences for dozens of deceptive loan modification consultants.
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Submitted by Ken Lampton on October 30, 2009 - 5:48am.
Even if Mr. Brown is doing this primarily to boost his chances of becoming governor, hats off to him for stimulating media coverage of a problem that is little-understood by the general public.
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Ken Lampton, CRS, CDPE
RE/MAX Realtors
Dallas, Texas
www.mstreets.com
Submitted by Larry Whited Sr. on October 30, 2009 - 9:43am.
Financial deregulation taken to the extreme creates extreme greed and extreme risk taking by the unsuspecting middle class.
The inevitable crash of the deregulation bubble caused a reduction of the middle class and a recession / depression i.e. when the middle class loses their savings, 401k value and buying power our economy suffers to the same degree of their loss.
A large, employed, financially sound and prosperous middle class it the foundation of a stable free market society.
The financial and housing bubble of this decade was fueled by the implied assurance of great short term gain by people who could not afford and were ill-equipped to take that risk. The end result of this crash is an extreme accumulation of wealth by the small percentage of our society who perpetrated the stock, financial and loan scams on the rest.
Stock and financial scams that appear to create instant wealth create herd mentality i.e. everyone ignores logic and does what everyone else is doing which gives the illogical act creditability. This may be the 21st century version of a legal Ponzi scheme enabled by Washington.
I am reminded of a famous quote by Joe Kennedy (JFK’s Father) I read somewhere a long time ago. He was getting a shoe shine in the summer of 1929 and the shoe shiner was telling him about all the money he was making in the stock market. He said to a friend “when the shoe shine boy is in the market its time for me to get out.” He pulled out of the market and did not loss his fortune when the market crashed in Oct 29.
He was appointed the first chairman of the newly created SEC in 1934 which formulated the regulation of investment banks/wall street etc that help keep our financial system safe for the next 50 years.
The Glass-Steagall Act of 1933 became the foundation of protection for our consumer banking and financial system. It created a firewall between consumer banks and investment banks. In 1980 Washington/Congress began to dismantle that firewall and we had the Savings and Loan crash/bailout in 1988. In 2000 Washington completely gutted Glass-Steagall and 7 years later we have the worst financial crash since 1929.
This experiment in deregulation has proven that a free market works best with a reasonable amount of regulation. We need a new and improved Glass-Steagall Act to protect our children from a repeat.
Larry A. Whited, Sr., CRB, CRS, GRI
President & Founder
www.maxUnet.com & www.WebMLS.net
A Virtual Real Estate Franchise System
** We will sell your home for as little as 2% + $500. Includes full service and MLS **
P.O. Box 757
West Chester Ohio