Las Vegas real estate, mortgage, appraisal blog

The Herald Tribune reported that Fannie Mae and Freddie Mac have both released guildelines to address the problem with "walkaways", people who have walked away from their mortgage. Penalties not only from the lenders, but from even the IRS, are facing these homeowners. The other big issue will be credit ratings, which will be aversely affected and will continue to be a factor for up to seven years.

Robin Stout Migala, consumer outreach manager for Freddie Mac, said in an interview that "there are so many bad reasons for walking away" from a home loan. Not only are borrowers' credit standings wrecked -- forcing them into excessively high interest rates on any credit they can manage to obtain. But they also face other potential problems, including federal income tax liabilities.

Federal legislation enacted last year allows homeowners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven. Walkaway borrowers, by contrast, have nothing forgiven, and the IRS may demand income taxes on the balance they never paid, according to Migala.

There are numerous websites that claim that you can live for free in your home for months and that then the same company can help your credit rating to rise again and that you will be able to buy a home again within a short period of time.

Fair Isaac Corp., developer of the FICO scores used in most mortgage transactions, is unhappy at any suggestion that a foreclosure could be minimized or wiped away in a short period of time. Its scoring model counts foreclosure as a long-standing and severe event, nearly comparable to bankruptcy, with negative consequences for all forms of credit that walkaways might seek to obtain. That includes credit card applications, auto loans, student loans -- and even insurance and employment.

FICO spokesman Craig Watts said that the impact of a foreclosure on an individual's score depends heavily on the payment history, length and number of credit tradelines in a consumer's file, but "it is always significant."

New guidelines have been enacted to make sure that this is how Fannie Mae and Freddie Mac are responding.

On March 31, Fannie Mae sent out new guidelines to lenders aimed at walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are "documented extenuating circumstances." In those cases, the mortgage prohibition is for three years.

Even after five years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680.

Freddie Mac, Fannie's rival, counts foreclosures as major credit blots for seven years, and a senior official said the company is now aggressively pursuing some walkaway borrowers "to preserve our deficiency rights" where permitted under state law.

US News published an article yesterday about how former Lending Tree employees helped lenders get information about borrowers with passwords they shouldn't have access to. Most of the forums are complaining about how these employees knew the passwords and about Lending Tree security but the larger issue isn't the letter:

April 21, 2008

Dear LendingTree Customer:

We want you to know that some loan request forms our customers sent to LendingTree may have been seen by lenders without our consent. These lenders then used the forms to market their own mortgage loans to our customers. While we don't believe that the forms were used for any other purpose, we want you to know what happened and what we did to correct this situation, as well as what you can do to monitor your credit records.

What Happened and What We Did

Recently, LendingTree learned that several former employees may have helped a handful of mortgage lenders gain access to LendingTree's customer information by sharing confidential passwords with the lenders. When we learned of this situation, we quickly contacted the authorities, and LendingTree is helping with their investigation. We promptly made several system security changes. We also brought lawsuits against those involved.

Based on our investigation, we understand that these mortgage lenders used the passwords to access LendingTree's customer loan request forms, normally available only to LendingTree-approved lenders, to market loans to those customers. The loan request forms contained data such as name, address, email address, telephone number, Social Security number, income and employment information. We believe these lenders accessed LendingTree's loan request forms between October 2006 and early 2008.

What You Can Do

Again, we don't believe any identity theft or fraudulent financial activity resulted from this situation. However, we suggest you get a free credit report. Look for any accounts you didn't open and/or inquiries from creditors that you didn't initiate. If you see anything you don't understand, contact the credit bureau. If you see anything suspicious, you may want to file a fraud alert with the bureaus. For more information on how to do this, please refer to LendingTree's Guide to Protecting Your Credit and Identity.

Where to Get More Information

We regret any inconvenience and apologize for any unwanted mortgage calls you may have received. For more information about this situation, and for more information on what you can do, please refer to the attached Questions & Answers.

Sincerely,

R.L. Harris

Instead the real issue is the reader comment below:

The number of times they sell your personal information leads to privacy breaches as well. You are led to believe that when you apply with them that you are applying to a "bank". In fact, your application (name, address, social security number, phone, fax, email) is SOLD to mortgage brokers, lenders and loan originators all over the country.

The only qualification you need to purchase a lead from Lending Tree is the ability to PAY for it.

One lead is sold to MANY. I have had people tell me that I am the 10th caller from thier one inquiry.

When you apply with LT then you are exposing your personal information to a large number of people and you don't know who. I don't believe there is any amount of security they can institute to stop information sharing.

The public should be made aware of this PRIOR to applying with them.

So let's get this straight everyone. It's not that lenders got information from Lending Tree and it's a huge breach of security. It's that the lenders didn't pay for it so Lending Tree is trying to scare people into not working with these lenders. Is it legal? Well, if you gave your information you gave them the right to distribute it to lenders and the lenders who got it from former employees did steal the information. Is it ok that this is happening? That's a whole different story.

Las Vegas homeowners are getting press again, this time for a rather unpleasant reason. When leaving homes that are going into foreclosure they are trashing the home. According to Las Vegas Review-Journal it is only getting worse.

The new HVCC is under scrutiny by the OCC, according to an article in Reuters and is not faring well. John Dugan, the Comptroller of the Currency, says that the deal tries to do too much and will accomplish far too little.

The deal struck between the two mortgage-finance giants and New York Attorney General Andrew Cuomo in early March will not eliminate flawed appraisals and might unduly burden mortgage companies.

"It is not clear that the appraisal function should be outside the institution," Dugan said, responding to questions at an Excheqeur Club luncheon.

Dugan said appraisers affiliated with a mortgage lender can bring a level of quality control that might not exist with a third-party institution.

"I don't think you can address all the issues with a blanket prohibition like that," Dugan said.

A statement from the OCC is expected soon. Despite halving the amount of time regulators were willing to accept comments on the plan many are making sure that their voices are being heard.

The Senate approved its Housing Relief Bill yesterday with a rather stunning 84 to 12 victory. Despite White House opposition it was an overwhelming show of consensus from both parties. The bill is supposed to help as many as 1.5 million homeowners by having the FHA (Federal Housing Administration) insure up to $300 billion in refinanced mortgages, according to an article in The New York Times.

The Senate majority leader, Harry Reid of Nevada, called the vote “just the beginning of a process” that he said “will continue in the House of Representatives.” He added, “I hope that when the process is complete, we will have a strengthened bipartisan bill that will do even more to help families, communities and our economy.”

The Bush administration is also working on its own plan to help replace adjustable rate mortgages with more affordable loans. These loans would, of course, be issued by the government. Officials for the deal claim that the plan could help as many as 100,000 homeowners.

The Presidential candidates are weighing in as well. John McCain announced his own plan on Thursday while speaking in Brooklyn. He says his plan would help up to 400,000 homeowners refinance with more stable terms by using government-backed loans. Both Hillary Clinton and Barack Obama issued statements claiming the Senate bill didn't go far enough.

Homeowners shouldn't start waiting for the bailouts to begin, however.

In the House, Mr. Frank has said his plan would help as many as 1.5 million homeowners. The Bush administration disputes that figure, and says that aiding that many borrowers would require loosening underwriting standards to a point where taxpayers would be at serious risk of having to cover the cost of what could be a large number of defaulted loans.

Some of the numbers given for the Bush administration’s plan are also being questioned. Officials say that a loan refinancing program, created by the president in August, called FHA Secure, has helped 140,000 owners refinance so far, and is on track to help 400,000 by year-end. With the new plan to loosen eligibility rules, another 100,000 will refinance, they say.

But some Democrats and advocacy groups say those numbers are exaggerated and only a small fraction of those being helped by the Bush administration were really in danger of foreclosure.

The Senate bill, although unlikely to be enacted in its current form, would cost about $15 billion over 10 years.

You know it's bad when entire states are giving you a vote of "No Confidence". Appraisers have been, on average, a bit up in arms about the HVCC ever since it was proposed. Alabama's reasons not only echo those of appraisers in Alabama, but appraisers all over the country.

• The HVCC will likely result in more unreliable appraisals being used by Government Sponsored Enterprises (GSE's) to determine the value of collateral for mortgage loans.
• The HVCC has no authority to penalize those individuals who attempt to improperly influence appraisers.
• The HVCC does nothing to criminalize the improper influence of appraisers or the appraisal process.
• The HVCC could undermine legitimate, ongoing efforts in Congress to pass meaningful legislation, which would criminalize the improper influence of appraisers.
• The HVCC gives shareholders in Fannie Mae and Freddie Mac false hope that collateral for mortgages is being properly valuated.
• The HVCC gives U.S. taxpayers a false sense of security that its GSE's have taken all meaningful steps to address valuation concerns related to the current mortgage meltdown.
• The HVCC gives individuals taking out a conventional mortgage a false sense of security that their house is being properly appraised.

The more people are looking into the HVCC the less it looks like it is going to accomplish its intent. There was a call today (noon EDT) to address issues. We look forward to seeing what the result of these votes and calls are.

A recent New York Times article talked about how the Treasury Department is proposing that there should be more oversight in the financial market. The first paragraph gives a graphic mental image of what is assumed will happen.

The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

Somehow people are not realizing that this is a classic example of laws being passed that are simply to make people feel safe. Further in the article the truth about this proposition was made clear.

While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.

The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.

The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system.

And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.

The most interesting part is the quote "only when an investment bank's practices threatened the entire financial system."

If these same lawmakers and regulators knew when that was...someone would have stepped up sooner. Who really has the insight to decide when the "entire system" is actually at risk and not just one bank?