Luxury homes hit foreclosure list

A multimillion dollar Wolfe Pointe estate near the Lewes-Rehoboth Canal. A neo-Colonial house in Bayfront at Rehoboth with an outdoor pool. A 9,000-square-foot Selbyville mansion on 4 acres with two master bedrooms.

For the past year, foreclosures were clustered in western Sussex County near Seaford and Laurel. But in recent months, the web of delinquencies has spun toward the coast.

Now, the overextended affluent are being turned out of their million-dollar homes.

“The trend right now is more expensive properties, higher mortgages. In a lot of cases, it’s now even second homes,” said Lynn Kleb, a deputy in the Sussex County Sheriff’s Office who handles foreclosures.

“I definitely see a trend shifting from primary foreclosures to second homes in Ocean View, Selbyville. They’re in Bethany Beach, which we’ve very rarely had before, and Milton is another one that we generally didn’t have in the past,” she said.

From 2007 to 2008, foreclosure rates have nearly doubled.

In 2007, there were 418 foreclosures in Sussex County.

In 2008, foreclosures rose to 678. This year, for the first quarter, 192 foreclosures are under way and there’s no sign of the rate letting up. “I probably have another 100 already for April and May,” Kleb said. She said she couldn’t keep up with the filings. She used to sell 30 foreclosed homes a month. Today, she works on 60 or more. For the first time, the sheriff’s department held a sale in December because there were so many foreclosures, Kleb said.

There’s also a shortage of buyers. Kleb said about 100 people attend the county’s monthly sheriff’s sales, but about one-third fewer are casting bids, leaving banks with the homes.

Uncle Sam to the rescue?
State Banking Commissioner Robert Glen said, “I’m not surprised that for second homes, the market has dried up. It’s hard for them to sell homes at a good price, let alone at a price that would settle the outstanding debt on the property.” He also said federal programs have begun in an effort to keep homeowners in their homes. In February, President Barack Obama announced new U.S. Treasury Department guidelines for the $75 billion Homeowner Stability Initiative to reduce mortgage payments. The goal is to reduce homeowner payments to within 31 percent of homeowners’ income by providing incentives to lenders.

“If the borrower is currently paying more than 38 percent of income, the lender is being asked to find a way to reduce that to 31 percent on the lender’s nickel. The cost is shared by lowering the interest rate or lowering the principal,” he said.

In February, the U.S. Treasury also added $200 billion to mortgage lenders Fannie Mae and Freddie Mac to help 9 million Americans stay in their homes. Last year, Fannie Mae and Freddie Mac began to put foreclosure moratoriums in place. So have Bank of America and other lenders.

Time will tell if government efforts aimed to reduce a pileup of unsold homes – unwanted inventory – will help the foreclosure rate, Glen said.

In the short term, Glen said, “If homeowners have problems, be proactive. Don’t wait until you start getting notices. If you’re becoming delinquent, don’t ignore it. For homeowners who wait that long, it’s very, very difficult to help them.”

In Sussex County, some government intervention into the mortgage crisis is already visible.

Kleb said some homeowners that are on the stayed list, or those that have been removed from auction, have been helped by the foreclosure moratoriums initiated in December 2008 and the first quarter of 2009.

Second homeowners, however, are out of luck, as specific guidelines detailed in the federal mortgage bailout program don’t help everyone. “The mortgage help relief bill does not include second homes. They have to be owner occupied,” Kleb said.

Local response
Sussex County Sheriff Eric Swanson said deputies used to post notices on homes with people still in them. Today, few are around, an indication that absent owners are away in their primary homes.

“We’re now being hit with a second wave,” he said.
He’s also seeing more and more banks and mortgage companies trying to forestall foreclosures.

“When you’re falling behind in payments, especially if you’re sick or lost your job, the banks are willing to work more now with people. I think mortgage companies and lenders are sympathetic to it. They’re trying to feel for the people,” said Swanson.

At County Bank, President and CEO Harold Slatcher has restructured loans or only required payment on loan interest for short periods of time for some borrowers who have lost their jobs.

Compared to last year, residential home-mortgage delinquencies have increased by 15 percent, he said.

Of the residential loans at County Bank, only 10 percent are wholly owned by the bank. He said 90 percent of residential loans have been sold to a second market. “The problem with loans in the secondary market is that someone in London might own your home,” Slatcher said.

“Loans that we keep, one-on-one, are conventional loans with a lower interest rates,” he said. Slatcher said he is willing to work more with wholly owned bank loans. “We’re not in the foreclosure market business,” he said.

Loan delinquencies in the commercial sector, however, have doubled compared to last year, he said.

“Most Delaware small developers that have built one or two model homes are being foreclosed. Now they can’t afford to carry even model homes because they’re not selling. These are generally small developers – not mega-builders,” Slatcher said. “Once people in our market are convinced we’ve hit the bottom, we will see people buying these properties. People haven’t quite brought themselves to the end. I think we’re going to see this kind of market in ’09 and start recovering in 2010.”

Facing foreclosure

Homeowners facing foreclosure may be able to work out loan repayment terms with their lender, such as a deed-in-lieu or a short sale. If homeowners pursue a short sale or a deed-in-lieu, experts say it's essential to get the bank to agree in writing that any deficiency in money owed is waived.

Deed-in-lieu
A deed-in-lieu is short for deed-in-lieu of foreclosure where the homeowner gives the deed back to the lender. This process usually takes 30 days.

Short sale
A short sale means the lender will accept less than the total amount due on the mortgage, but the owner still owns the home. This process takes about 90 days.

contributed by By Kevin Spence

Please note: Philadelphia Foreclosure Protection Service Solutions does not advise deed-in-lieu because it does not eliminate the deficiency. This is why you need an advocate/expert to help with your modification on your side.

Deed-in-lieu can help homeowners contain their credit score if handled properly.

FHA Posts Solution For Adjustable Rate Mortgage Foreclosures

The Federal Housing Administration has recently released a new initiative that would permit troubled homeowners with adjustable rate mortgages that are approaching reset to refinance once the loan has rest or even after the loan has become delinquent in special circumstances. Called The FHASecure Initiative, it would apply to non-FHA ARMs where the homeowner has not had a history of late payments in the six month period prior to actual reset. If the home has sufficient equity, the homeowner would still be able to refinance even if he has become behind in his payments, with some special conditions. The borrower would have to prove that if he receives an FHASecure refinance, he can afford to make the new payments based on his income at the time he makes application.

The new FHA initiative is a temporary measure and applications must be filed prior to December 31, 2008. The FHA will make nationwide loans based upon 97.75% of an appraisal estimate. The maximum mortgage that will be provided for a single-family home would vary with the home’s geographic location. They are not setting an income limit and individuals with a credit score under 650 will be eligible for the loans. The FHA would then allow the individual to roll over the first lien and second mortgage with which the home was originally financed, along with prepaid expended, closing costs, discounted points late charge and prepayment penalties. It seems likely that FHASecure could save hundreds or even thousands of troubled homeowners from losing their homes.

This initiative, coupled with some concurrent plans from the Congress and multiple state plans could work together to help protect homeowners from living a worst case foreclosure scenario during 2008.

This FHA initiative comes at a time when attendees at the annual Standard & Poors bank conference heard dire predictions that not only the mortgage sector but the entire US economy seems headed for recession. Chase, Goldman Sachs, Merrill Lynch and others are clearly having a bad financial time during this crisis.

The one positive thing that seems to be taking place is the feds and many of the worst-hit states are finally getting around to taking some legislative steps to provide help and prevent many new foreclosures from happening. New York state, for example, is moving to stop greedy mortgage brokers in their tracks by preventing them from tricking buyers into accepting bad loans that they can’t afford and forcing them to provide full disclosures about loan terms and conditions. They are also proposing that borrowers have a reciprocal right to attorney’s fees and residential leases.
The one thing nobody has even proposed is any way to help the homeowners who have already lost out through foreclosure. The only group that could do that is the federal government but, unfortunately, politics always gets in the way. But at least the feds and the states are finally starting to do more than talk and at least get ready to throw a life preserver to future homeowners about to lose their homes.

AIG finally names names

The insurer yields to congressional pressure to name the banks that have pocketed taxpayer funds in a massive bailout.


By Colin Barr, senior writer
March 15, 2009: 5:56 PM ET

NEW YORK (Fortune) -- AIG gave in to demands from Congress Sunday, naming the banks that pocketed billions of dollars last fall as part of a federal bailout of the troubled insurer.

AIG, facing intensifying scrutiny of its pay practices and questions about whether taxpayer money has been well spent on its behalf, released a list Sunday afternoon of the firms that benefited from the government's efforts last year to prop up the New York-based company. The list is topped by numerous European institutions and two big Wall Street firms, Goldman Sachs (GS, Fortune 500) and Merrill Lynch (ML).

AIG, which has avoided bankruptcy only because of $170 billion worth of taxpayer funding, said it released the list of trading partners, along with the sums they received, because the company "recognizes the importance of upholding a high degree of transparency with respect to the use of public funds." AIG said it made the announcement after consulting with the Federal Reserve, which has led the bailout of the company.

Legislators have been asking since last fall for the names of the counterparties, contending that taxpayers have a right to know how their funds are being used. Fortune reported a partial list of the recipients earlier this month, though Sunday's disclosures are the first full accounting of which firms received funds and how much they got.

A top Fed official told Congress March 5 he didn't believe it would be helpful for the names of AIG's counterparties to be revealed, because doing so could cause companies doing business with AIG to back away from the company. The disclosures could also undermine confidence in the markets and reduce economic stability, Fed vice chairman Donald Kohn told the Senate Banking Committee in testimony March 5.

Kohn's stand drew fire from legislators such as Senate banking panel chairman Chris Dodd, D-Conn. He and other senators urged Kohn to consider the implications of spending billions of dollars of taxpayer funds without transparency.

"Public confidence in what we're doing is at stake, and the public right now is deeply deeply troubled," Dodd said at the hearing March 5. "I understand the legal arguments you've given me, but that kind of answer undermines public trust."

AIG said Sunday that it had consulted with the Fed "about the potential public benefit of counterparty disclosure and the potential that such disclosure would cause competitive harm to AIG or its counterparties."

At issue is which banks were made whole by federal funds extended to AIG in the name of unwinding its troubled credit default swap and securities lending businesses.

Rep. Carolyn Maloney, D-N.Y., sent a letter to Fed chief Ben Bernanke earlier this month requesting information about transactions last November in which the Federal Reserve Bank of New York agreed to lend $52.5 billion to two newly formed companies for the purpose of purchasing troubled debt linked to AIG.

One of those companies got $30 billion from the New York Fed for the purpose of buying so-called collateralized debt obligations, the bundles of risky debt sold on Wall Street. AIG had promised to make the CDO owners whole in case of any losses via the sale of credit default swaps.

The government agreed to buy the CDOs in hopes of unwinding the swaps, which became a massive cash drain at AIG after its credit ratings were downgraded last fall.

On Sunday, AIG named the banks that received collateral on AIG's credit default swap obligations as a result of the government's support of AIG, as well as those that received payments as a result of the government-backed CDO purchases and those that got funds in the unwinding of AIG's securities lending business.

The top recipients of CDS-related collateral were France's Societe Generale, with $4.1 billion, Germany's Deutsche Bank (DB), with $2.6 billion, and Goldman Sachs and Merrill Lynch of the United States, with $2.5 billion and $1.8 billion.

They were also the top recipients of payments under the CDO purchase program, with SocGen getting $6.9 billion, Goldman $5.6 billion, Merrill $3.1 billion and Deutsche Bank $2.8 billion.

The top beneficiaries of payments tied to the unwinding of the securities lending portfolio were Barclays (BCS) of the U.K., with $7 billion, Deutsche Bank, with $6.4 billion, BNP Paribas of France, with $4.9 billion, Goldman with $4.8 billion and Bank of America (BAC, Fortune 500) with $4.5 billion.

Foreclosure: 5 tips to protect your home and scams to watch out for

Don’t ignore your mortgage problem.
If you are unable to pay--or haven’t paid--your mortgage, contact your lender or the company that collects your mortgage payment as soon as possible. Mortgage lenders want to work with you to resolve the problem, and you may have more options if you contact them early. Call the phone number on your monthly mortgage statement or payment coupon book. Explain your financial situation and offer to work with your lender to find the right payment solution for you. If your lender won’t talk with you, contact a housing counseling agency. You can find a list of counseling resources at NeighborWorks and on the U.S. Department of Housing and Urban Development's (HUD) website or by calling (800) 569-4287.



Do your homework before you talk to your lender or housing counselor.
Find your original mortgage loan documents and review them. Review your income and budget. Gather information on your expenses, including food, utilities, car payment, insurance, cable, phone, and other bills. If you don’t feel comfortable talking to your lender, contact a housing or credit counseling agency. Counselors can help you examine your budget and determine the options available to you. They may also advise you about ways to work with your lender or offer to negotiate with your lender on your behalf.



Know your options.
Some options provide short-term solutions/help, while others provide long-term or permanent solutions. You may be able to work out a temporary plan for making up missed payments, or you may be able to modify the loan terms. Sometimes, the best option may be to sell the house. For information on different options, visit HUD’s website or Foreclosure Resources for Consumers for links to local resources.



Stick to your plan.
Protect your credit score by making timely payments. Prioritize bills and pay those that are most necessary, such as your new mortgage payment. Consider cutting optional expenses such as eating out and premium cable TV services. If your situation changes and you can no longer meet your new payment schedule, call your lender or housing counselor immediately.



Beware of foreclosure rescue scams.
Con artists take advantage of people who have fallen behind on their mortgage payments and who face foreclosure. These con artists may even call themselves “counselors.” Your mortgage lender or a legitimate housing counselor can best help you decide which option is best for you. For tips on spotting scam artists, visit the Federal Trade Commission's website, Foreclosure Rescue Scams. Report suspicious schemes to your state and local consumer protection agencies, which you can find on the Consumer Action Website.

Several options are available to you. Some options provide temporary solutions for short-term problems such as being one or two months behind in your mortgage due to illness. Other more permanent solutions address long-term financial difficulties, such as job lay-offs or long-term unemployment. If you have a FHA-approved loan, special loan modification programs may be available to you-ask your lender about them. Unfortunately, in some cases, keeping your home may not be possible-options for handling that situation are available as well.

Temporary solutions for short-term financial problems:

Reinstatement: Lenders are often willing to “reinstate” your loan if you make up the back payments in a lump sum by a specific date. A forbearance plan may accompany this option.

Forbearance:
Your lender may be able to provide a temporary reduction or suspension of your mortgage payments for a short period, such as 3 or 4 months. After this time, your lender will work with you to create a repayment plan for the loan. You may qualify for forbearance if you have experienced a reduction in income (for example, if you have become unemployed) or an increase in living expenses (for example, higher medical bills). You must provide information to your lender to show that you will be able to stick with the new payment plan.

Repayment plan:
Your lender may agree to a plan that includes your regular monthly payments plus a portion of the past due payments each month until your payments are caught up.
Long-term solutions or adjustments to your loan:
Loan modifications: Your lender may be willing to rewrite the terms of your original mortgage loan to address your financial situation. A loan modification is designed to make your monthly payments affordable. Changes to your loan may include extending the number of years to repay and changing the interest rate, including changing an adjustable rate to a fixed rate. You may have to pay a processing fee to obtain a loan modification.

Partial claim:
If your mortgage is insured by a private mortgage insurance firm, your lender might help you file a claim. Some insurers provide a one-time, interest-free loan to bring your account up to date. The interest-free loan is due when you refinance, pay off your mortgage, or when you sell the property.

If keeping your home is not an option, you may want to consider these alternatives:

Sale:
Your lender will usually give you a specific amount of time to find a buyer and pay off the amount you owe on your mortgage. Your lender may require you to use a real estate professional to help you sell the property.
Pre-foreclosure sale or short sale: If you can’t sell the property for the full amount of the loan, your lender may accept the amount you get for the selling price, even if it is less than the amount you owe. You may owe income taxes on the difference between the amount you owe and the amount you are able to pay back. Check with the Internal Revenue Service for tax information.

Assumption:
A qualified buyer may be allowed to assume (take over) your mortgage. Ask your lender whether this option is available to you.

Deed-in-lieu of foreclosure:
You may be able to “give back” your property to the lender, who then forgives the balance of your loan. Again, there may be income tax consequences, so check with the IRS. This option will not save your home, but it is less damaging to your credit rating. Some lenders impose certain restrictions on taking back property. For example, they may require that you try to sell your home at a fair market value for at least 90 days.

For more information about loan options that may address your unique situation, visit the HUD website or call toll free- 1-800-792-1400 for free information

thank you Mary Schwager for this contribution