Friendly Banks?

By now everyone knows that you can call your bank to discuss work-around solutions if you’re having trouble keeping up with your mortgage. What’s not well known is the risk you may face from some financial institutions. The banks are motivated to modify your loan, ONLY if it serves their best interest. There is an endless stream of complaints from hardworking consumers who are getting no where fast with their banks.

Case in point, I recently spoke with a potential client about a refinance of her primary residence. She was confused about why her bank was trying to get her to refi her first mortgage of $216,000 down to just $157,500. This wonderful woman who everyday cares for people with disabilities called her bank pro-actively to see about getting out from under her current loan because a Balloon payment was coming due in January 2010. She filled out the application and sent in “all” her financials and bank statements. Her bank reserves showed over $100,000 in various assets that she needs and uses to care for her handicapped 10-year old daughter. She works full time caring for disable children and has a very limited income. The bank saw the large balances and sent her a new loan commitment document. She began communicating with the loan officer at the bank via email and was smart enough to save the emails. The loan officer at the bank was very vague with disclosure and never really spelled out the terms of the loan. The woman called her Realtor and her Realtor contacted us.After looking at her original loan documents with her Realtor, it was clear why this bank wanted to get her to come into close with $75,000 and switch her from a balloon, to a 3/1 ARM at 5.5%. When she emailed asking why they sent her a ARM rather than a 30-year fixed, they responded to her by saying, “you can always refi in 3 years”.

Whats more frightening is that this bank sent her a Residential Mortgage Loan Commitment that lacked the necessary legal disclosures for her to clearly understand what the loan would cost her.What we found after some due-diligence was horrifying! To summarize the facts, we will begin with the first loan.

The original Truth-in-Lending Statement (TIL) was off by .25%. The homeowner never received her final HUD-1 closing statement and there were significant issues with the way her original loan was cast. Next, the bank was trying to literally steal her liquid assets from her bank account which she needs to support her disable daughter. The banks goal was to get into a positive equity position on the property instead of being upside down. There was no reason for the bank to send her a commitment letter for another Adjustable Rate loan when they could have easily offered her a 5% 30 year fixed rate mortgage. Further, the new loan documents (which she never signed) also had mistakes on the Truth-in-Lending (TIL) just like the first loan.

We are thankful for the quick thinking of the homeowner and our Realtor partner who brought this to our attention. We’ve already notified the lender in writing of the many violations and we’ve already begun to go to work on behalf of the homeowner without any fees. For anyone who gets that tinge in the gut saying “somethings wrong” it’s usually always right. Listen to your gut instincts, call your Realtor, if you have one, to get an objective opinion, or call EC360 and the 360 Group for honest objective advice at no cost. We’ll be updating this post as soon as get the proper resolution with this “un-named” bank which will soon be on the news!

IN 2008 I PLEADED WITH CA LEGISLATORS TO GET ME IN FRONT OF GOVERNMENT OFFICIALS TO TELL THEM HOW TO FIX THE REAL ESTATE CRISIS. By staffing thousands of call center reps to “pro-actively” call each homeowner and offer to re-write their mortgage at the same principal amount, but at just 2% interest rate, the entire crisis would have been avoided.

#1. This would have created thousands of new jobs in every metropolitan city of the US.

#2. All the worst loans ( negative amortizations, adjustable, ARM, Pick-a-pay loans etc) would all have been converted to 30 year PITI loans.

#3. With the most dangerous loans out of the market, the secondary market would have contunied to perform and thus stopped the meltdown.

#4. Values would have not tanked so the equity that so many had would still remain.

#5. It would have cost the government far less than what they have spent to date and stopped the crisis before it got the steam to affect other financial markets.

Since this never happened, the secondary markets continued to experience losses due to theĀ packagingĀ of bad loans and the foreclosure mess proliferated. Even today in 2010, I still have not heard or read any significant dialog about how to pro-actively address the problem. Lets see how long it takes and how bad it has to get before they begin discussing Principal reductions or modifications for everyone. The fact is that a bank can still make money on a 2% loan as long as it performs. Soon ( I guess by 2012) values will be even worse and then we’ll begin hear rumblings of Principal Reductions, as that will be the last ditch effort to stop the bleeding. Time will tell!



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