NYT: Fees may deter efforts to alter loans

This week, the Obama administration summoned mortgage company executives to Washington to demand they move faster to lower payments for homeowners sliding toward foreclosure. Treasury officials called on the companies to hire and train more people quickly to field applications for relief.

But industry insiders and legal experts say the limited capacity of mortgage companies is not the primary factor impeding the government’s $75 billion program to prevent foreclosures. Instead, it is that many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

Reluctant to modify loans?
Rich Miller, a governance project manager at Countrywide Financial and Bank of America before he left in January, said Bank of America had been reluctant to modify loans, which hurt the bottom line. The company has been waiting and hoping the economy will improve and delinquent customers will resume making payments, he said.

“That’s the short-term strategy,” said Mr. Miller, who oversaw training programs at Countrywide, which was bought by Bank of America. He now works as an industry consultant.

Bank of America disputed that characterization. “To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous,” said Robert V. James, the bank’s senior vice president for mortgage operations and insurance. “It’s not the right thing to do.”

Mortgage companies, some of which are affiliated with the nation’s largest banks, are paid to manage pools of loans owned by investors. The companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on their payments. Indeed, their percentage often increases on delinquent loans.

Chance to add revenue
Legal experts say the opportunities for additional revenue in delinquency are considerable, confronting mortgage companies with a conflict between their own financial interest in collecting fees and their responsibility to recoup money for investors who own most mortgages.

“The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify,” concluded a recent paper published by the Federal Reserve Bank of Boston.

Under the Obama administration’s foreclosure program, a servicer that modifies a loan for a homeowner collects $1,000 from the government, followed by $1,000 a year for each of the next three years. A senior Treasury adviser, Seth Wheeler, said these payments amounted to “meaningful incentives to servicers to help overcome the challenges and competing demands they face in considering and completing loan modifications.” He added that mortgage companies “are contractually obligated to the terms of this program, which require them to offer modifications to qualified borrowers.”

But experts say the administration’s incentives are often outweighed by the benefits of collecting fees from delinquency, and then more fees through the sale of homes in foreclosure.

“If they do a loan modification, they get a few shekels from the government,” said David Dickey, who led a mortgage sales team at Countrywide and Bank of America, leaving in March to start his own mortgage advisory firm, National Home Loan Advocates. By contrast, he said, the road to foreclosure is lined with fees, especially if it is prolonged. “There’s all sorts of things behind the scenes,” he said.

When borrowers fall behind, mortgage companies typically collect late fees reaching 6 percent of the monthly payments.

“For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit,” said Diane E. Thompson, a lawyer for the National Consumer Law Center, in testimony to the Senate Banking Committee this month. “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”

She cited Ocwen Financial, which reported that nearly 12 percent of its income in 2007 came from fees to borrowers.

Paul A. Koches, Ocwen’s general counsel, said: “We’d prefer that to be zero. The costs associated with our delinquent loans are in every instance in excess of the late fees.”

Data on delinquencies reinforces the notion that servicers are inclined to let problem loans float in purgatory — neither taking control of houses and selling them, nor modifying loans to give homeowners a break.

From June 2008 to June 2009, the number of American mortgages that were 90 days or more delinquent soared from 1.8 million to nearly 3 million, according to the realty research company First American Core Logic. During that period, the number of loans that resulted in the bank taking ownership of the home declined to 245,000, from 333,000.

As a home slides toward foreclosure, mortgage companies pay for many services required to take control of the property and resell it. They typically funnel orders for title searches, insurance policies, appraisals and legal filings to companies they own or share revenue with.

‘Hugely profitable’
Ocwen established its own title company, Premium Title Services, in part to keep more of the revenue from foreclosures, said Ms. Golant, who helped start it.

“It was hugely profitable,” she said. “Premium Title would charge for the title when it got transferred to Ocwen, then charge again when it got transferred to the new buyer, and then sell title insurance. It was easy money.”

Mortgage companies not only gain this extra business through their subsidiaries, but also collect reimbursement for the payments when the houses are sold.

The investors who own bad mortgages accept whatever is left. Investors typically do not notice how much they give up to the servicers, because fees are embedded in complex sales.

“It’s under the radar,” Ms. Golant said.

Ultimately, the benefits of delinquency erode incentives for mortgage companies to dispose of troubled loans quickly, say experts, allowing distressed houses to decay and fall in value — a fact of little interest to the servicer.

“At the end of the day, it doesn’t matter what the house sells for, because they don’t take that loss,” said Ms. Golant. “Meanwhile, they are collecting all these fees.”

This story, “Lucrative Fees May Deter Efforts to Alter Troubled Loans,” originally appeared in the New York Times.

Keeping your existing house when you buy a new one could be THE most profitable financial decision you could make. Consider the following: 1. Second stream of income: When you move to another place and keep your current house as a rental, this gives you an extra stream of income. 2. Pay less tax: Your rental property produces business income. When you have a business, you are entitled to tax write-offs.

1. Second stream of income: When you move to another place and keep your current house as a rental, this gives you an extra stream of income.

2. Pay less tax: Your rental property produces business income. When you have a business, you are entitled to tax write-offs. This could save you a lot of money that you would normally pay to CCRA (Revenue Canada).

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6. Guaranteed income: If you are willing to make some small changes to your house so it meets the standards required for disabled people, you will have a long list of potential tenants waiting for you. In many cases, some government agency will be paying their rent. You will get a good, stable, low-maintenance tenant. You will also be helping someone in need. If you need money for the renovations, you can re-finance as much as 90% to 100% of the market value of your house. Government grants may also be available.

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These strategies will not work for everyone. Before you implement your plans, check with an accountant, lawyer, mortgage broker or other professional. You may need to work with someone. Use your children, parents, brothers, sisters, good friends as a co-signer or co-investor. Grow wealthy together, with the people you love.

The first step will be the injection of some kind of fluidity in the cash flow. The outgoing administration has taken the correct step towards this and slowly it seems to be showing results. But the efforts have been insufficient. More is required.

The president has to give first preference in supporting the housing sector. The financial crisis has largely been due to the travails in the housing sector plagued by foreclosures. This has been followed on by increasing unemployment and falling real estate market. To reverse the situation the housing sector has to be propped up first. Others will follow. It must not be forgotten that the householders are the first and foremost customers of American business.

As a start the president should request the Congress to extend the insurance benefits of the unemployed for another six months. But this will be only a temporary painkiller and not the curative medicine. It is only with the stabilization of the real estate market that sanity will return to the economy.

The origins of the financial crisis go back to the time when defaults on sub-prime mortgages began to increase from the summer of last year – 2007. So the target is to check the continuing defaults. This in turn will put a halt on foreclosures. With the stopping of reo homes rushing into the market the price of property will find a level and not go down further. If not the vicious cycle will continue – further defaults will lead to foreclosures and falling prices. The gloom in the construction industry will then spill over to other sectors. A jobless construction worker cannot buy a car. So that group suffers. People with slim purses do not dine out and so the eateries are affected. The links in the chain are endless. Ultimately the morale of the millions of people, that makes up the American nation become as depressed as the economy.

The process of showing and selling your home can go much more smoothly if you get everything ready. Find out how to get your home ready to impress buyers for the best offers and the top price for your home.

Preparing your home for sale is a bit like designing a stage for a play. Everything is in just the right place, perfectly arranged, and comfortably set.

There are television shows like Designed to Sell¹ focused exclusively on, not decorating a home, but getting an otherwise drab, cluttered, boring house ready for a quick and profitable sale. Homes that are properly prepared sell faster and at a higher price than similar, unprepared homes.

The professional organizaton, Staged Homes ² trains real estate professionals and other interested individuals in the art of “Home Staging” and issues a certificate as an “Accredited Staging Professional ™.”

Just what do “Home Stagers” do and how can their theory help you sell your home?

Get out the cleaning supplies, boxes, and get ready to sell your home fast! You’ll love how easy it is to transform a languishing, slow-moving home into a quick sale with just a bit of elbow grease and an eye for beauty.

You may be lucky and just need to do some long-neglected simple home repairs, get rid of clutter and add fresh flowers. Or you might have to repaint or recarpet your home to give it a fresh look. If you’re handy, you’ll be able to do most things yourself. But you may need to hire a plumber to install a new faucet in the kitchen or other professional to replace outdated light fixtures or window treatments.

You need to keep in mind that you’re not going to make the changes to live in your home. Your only goal is to show your home at its very best to potential buyers. Without being distracted by clutter and dirt, they’ll be able to picture themselves in the home you’re trying to sell. They will find it hard to resist making an offer.

If you’re skeptical about the benefits of going to all this work or doubt that it will make any difference in selling your home, put yourself in the place of a home buyer.

Have you ever toured through a development of model homes? The paint is fresh, appliances are shiny, there is artwork arranged around the house, and fresh flowers stand on the kitchen counter. Mirrors are sparkling, towels fresh, and there are no toys on the floor. The rooms look spacious and the furniture comfortable.

The kitchens and bathrooms are polished, smelling fresh, and clutter is not to be seen. The closets are empty or organized. The garage floor is clean and neat and looks much larger than you’d need for two cars.

Now leave the development of models and go down the street where the homes are several years old. Children’s toys are stacked in the family room. So many boxes are piled in the garage that you couldn’t park even one car there. Clothes fill the bedroom closets and boots and mittens fill the hall closet. The house isn’t dirty, but there are dishes in the kitchen sink and toothpaste stuck on the bathroom vanity. Homework is spread out on the dining room table. The family dog is yapping because of the strangers in the house and the floors are scratched. Dead plants “welcome” you at the front door.

With all other things being equal, which house would be more appealing to you? Of course, the first one! The homes may be the same size, but because of the clear layout, the first home seemed much larger. The house was prepared to show off all the good points and none of the bad.

Coral Nafie

Lori Matzke, Professional Home Stager and Founder of “Center Stage Home” says, “What most homeowners need to understand, is that the way a home should be presented for resale and the way you live in your home are two completely different things. Most of us don’t actually live in our lives like a page torn out of House Beautiful.

“Keep in mind that what you are selling is the house — not its contents,” she adds. If you remove throw or area rugs, eliminate clutter and collections, and cut down on furniture and accessories, the room will appear to be more airy and spacious. “It’s all about flow. The eye should move easily from room to room, reflecting on the best features of your home rather than on the possessions inside the home. You really have to completely detach yourself from your possessions and look at your home like you’re seeing it for the first time.” Look through the eyes of the buyer.

If you just can’t see through all your things to the core of your home, consider hiring a professional.

Interview two or three home stagers at your home. Find out what they will (and won’t) do, how long it might take, what the fees are, and how soon they might be able to start. Ask for references from recent customers, see photos of their “before” and “after” homes, and get their opinion on what exactly needs to be done in your home. Also, be sure to clarify what items in the plan that you will be responsible for (perhaps moving clutter to the storage unit) vs. what they will handle for you.

“Often, a Professional Home Stager can advise you about small improvements that will improve your home’s re-sale value,” says Ms. Matzke. “Often times, things a homeowner may overlook, like adding fresh paint and replacing worn carpeting, can make a huge impact on a buyer’s first impression of your home. And likewise, what a seller feels may be a big drawback may not be a factor at all in the overall appeal of the home.” Ms. Matzke offers more information and a printable list of home staging tips on her website, Center Stage Home.

Coral Nafie

If you’re a homeowner with an objective point of view, you may be able to clear out and rearrange by yourself. After all, you’ll eventually be packing up all of your possessions to move, so boxing up unneeded items and clutter shouldn’t be too much of a problem.

However, if you find it hard to edit your own stuff, then either ask a friend to help or hire a professional home stager.

Call in the Pros

You can locate a professional home stager “much like you would find any other professional service,” says Ms. Matzke. Ask around and get referrals. Check with your real estate agent. Many real estate firms keep lists of professionals who can do everything from clean a home to repair a leaking kitchen faucet and will probably have information on home stagers in your area as well.

Professional home stagers or interior redesigners charge by the scope of the work, anywhere from a few hundred dollars for one room to a few thousand dollars for an entire home. It will depend on the size and scale of the work involved.

Most will empty one room at a time then begin to bring back your furnishings and accessories to make a more cohesive design statement.

If you decide to do the work yourself, approach the job the same way. Home staging is home staging, no matter who does it.

Plan to do one room at a time. Remove anything and everything that is personal, shabby, soiled, or crowded. Clean all surfaces thoroughly, then replace only the pieces that look wonderful. In this case, less is more.

~ Coral Nafie³

Coral Nafie

Are you ready to get started?

Clear the Decks

Rent a storage unit or borrow a friend’s garage for a few weeks or months and fill it with boxes of collectibles as well as sports equipment, holiday decorations, seasonal clothing, and extra furniture.

Then begin to fill it with things that are unsightly. Add prepacked items, boxes of garage clutter, and items pulled from storage areas including the basement and attic. You’re going to have to move it sometime anyway, so get some of it out of the way before you begin showing your home.

What Goes, What Stays?

You know that people will open your cupboards and closets. Be sure they’re organized neatly and not packed to the point of overflow. They’ll look more spacious if you don’t try to show off your whole wardrobe or collection of china. They’re not buying that! Let potential buyers envision their own thing there. Will they fit, or will the space seem too small, since your own things don’t fit?

If your closets are stuffed, it’s time to weed through things. You can either sell or give items away or pack them up for your next home. Every storage area in your home — including display shelves — should be neat, clean, organized, and clutter-free.

Get Rid of Personal Items

Take down your wedding photos, religious items, the kids’ school pictures, and your collection of refrigerator art. A buyer needs to picture himself living in the house. That will be more difficult if your personal photos, awards, and mementos are evident everywhere. It won’t take long to remove these things. Be sure to wrap them carefully and put them in the storage unit.

Remove All Valuables

During the time of your home sale, you’ll have lots of people coming through, including potential buyers, groups of realtors on walk-throughs, open houses, inspectors, cleaners and handymen. Before they do, pack up your art collections, crystal, silver, and anything that could be stolen or broken. You’ll be moving it anyway, so you might as well get it ready ahead of time.

Make a List

Ask your realtor, a friend, or your home stager to help you put together a list of items that need fixing. Walk slowly through every room and look for obvious defects, such as loose door handles, burned out light bulbs, leaking faucets, or stained carpeting. Add to the list little irritants or eye-sores, such as slippery rugs or dangling extension cords. You might as well take the time to make repairs before buyers knock on the door.

Anticipate the Home Inspection

Most buyers hire a third-party inspector to check out the systems of the house prior to purchase. Ask for a copy of a home inspection report to learn what areas of a home will be examined before the sale. Whenever possible, repair items that could be cited on the report. You’ll probably not be able to anticipate every inspection item, but you’ll have another chance to fix these later, after the report comes back.

Clean and Repair Tile Grout

You might have lived with gray tile grout or moldy caulk around the tub. But these items may turn off a potential home buyer. Take a good look at your kitchen and bathroom tile. Clean and bleach white grout to remove any stains. Scrape out and regrout any badly damaged or mildewed areas. Caulk corners, cracks, and gaps around the sink and tub.

Clean Like You’ve Never Cleaned Before

Once the clutter is out of the way, you can really get to some thorough cleaning. Cleaning for home staging goes beyond a regular house cleaning routine. You’ll want to really concentrate on bringing a sheen to every surface of your home.

Make a list and do the work yourself or hire a cleaning crew to come in after you’ve moved out the clutter — and just before your home goes on the market. Check every surface including windows (inside and out) and window sills, ledges, door knobs, ceiling fan bladess, mini blinds, ceiling and floor corners — and make sure they are clean. It might be helpful to make a list of things to be done in every room. Check off the items as you complete them.

Create a Welcoming Entrance

Remember the outside of your house when you’re getting ready for sellers. After they see your home from the street, they’ll notice the front door and porch. Spend some time and money getting this area beautiful.

Wash, scrub, or repaint the front door so that it shines. Replace the door handle if it is weathered and unsightly. Clean any windows in this area until they sparkle. Add a fresh topiary or planter and keep it watered and trimmed. Put a pretty wreath on the door. Stand outside and look into your entry area. It will be the first thing buyer’s see of the inside of your home. Is it welcoming, clean, uncluttered?

~ Coral Nafie⁴

Coral Nafie

Rearrange the Furniture

Remember that the purpose of this preparation is to sell your home fast. What worked for your family may not work for an open house. You may need to call in help from friends or a pro to help you rearrange the furniture for a smooth traffic flow and maximum impact.

Accessorize

Rethink your accessories in every room. Keep in mind — uncluttered, elegant, color-coordinated, beautiful. Again, less is more, so pare down and box up anything “extra” or unneeded.

Fresh Flowers and Plants

Look carefully at your houseplants. If they’re leggy, dying, or otherwise scraggly, it’s time to give them a new home or toss them out. Start over with some new plants. There are some services in larger cities that will rent houseplants, so that may be an alternative to buying everything new. Be sure to place the plants in clean and attractive containers that will contain and reduce any problems from excess watering.

Turn Up the Light

Dark areas are uninviting, so keep the lights on. Some quick fixes might include opening the blinds, adding lamps, increasing bulb size, or replacing dated light fixtures. You might consider buying several inexpensive uplights. Placed them in corners, on top of a tall armoire, or behind plants to create an intesting layer of light.

Bathrooms

Clean and neat is obvious. But also consider replacing torn and frayed old towels with a couple of fresh new ones. Put a flowering plant on the vanity, and remove all personal care items from the countertops. Put the diryStash dirty laundry somewhere else (perhaps in the washer). Polish the mirror until it glows. If you have room a small table lamp can give a warm glow to this room.

Keep It Up

Maintain Don’t undermine your hard work by ignoring basic maintenance during the weeks your home is being shown. Keep up on watering the plants, polishing the mirrors, dusting the front door, and keeping clutter at bay.

Pets

I know that my pets are part of my family, but prospective buyers may not be quite so attracted to them. If you can, take your pets and their paraphanelia to a neighbor’s or a relative’s home when showing your house. If that’s not possible, put them outside or in a closed room.

Appealing Extras

Many realtors suggest baking bread or cookies to fill a home with a wonderful aroma. Practically speaking this may not be possible every day, but you might keep it in mind for open houses or repeat visits by potential buyers. Or buy some potpourri and refresher oil in a non-offending fragrance like cinnamon or vanilla.

Floor Plans

If you have a clear floorplan of your home (perhaps from your builder) include it on the back of your home information sheet. It will help refresh the memory of buyers and help set your home apart from all the others they’ve seen. The plan should be professionally drawn, including room measurements.

Tablesettings

Get out your prettiest china and centerpiece and create a beautiful tablesetting. You’ll provide a homey look to even the coolest dining room.

Staging Relaxing Areas

Think of each room as a “set” that you can decorate any way you please to increase your home’s sense of peace, warmth, and order. Consider some of these ideas:

• Set up a tea service at a small table by a window overlooking a garden.
• Place an open book and cozy throw on the upholstered chair in your bedroom.
• Pile an attractive bowl with fresh fruit on the kitchen island.
• Display a vase of fresh (very fresh) flowers in the entry hall.
• Arrange some beautiful cookbooks on the desk in your kitchen.

In short, have some fun with a few accessories here and there, making interesting little vignettes that say ” Welcome “. They could very well help sell your home in record time and for a higher price!

Perhaps now would be a good time. Personally I would wait to the next review of the Base Rate by the MPC.

Is it just because you think you can get a better deal elsewhere and you think you can pull some slick financial move? If so – sounds risky and not likely to pay off.

Now, if you have some crazy mortgage that is resetting and you can't afford it and are facing foreclosure – then selling quick and cheap is probably something to look at.

You purchased your house for 245,000 have put 15,000 into it = so you have 260,000 in your house. If you sold now for 255,000 you would lose 5,000 Plus 15,3000 commission (6%) Plus additional closing costs on the old home. Since it's a buyers market – there is a good chance the buyer will want you to contribute some to their closing costs.

Then you are going to incur commission and some closing costs on the new home. You would have to purchase the new house for 40,000 below value just to break even.

Unless you have a reason to sell – I'd stay where you are. It will take a few years, but the housing market will rebound. It probably will not go back to the all time highs – but will stabilize.

Not much else you can do other than try and sell for what you think the house is worth and hope that buyers think it's reasonable.