TIPS to Avoid Foreclosure:

 Having trouble paying your mortgage? Help is just a phone call away.Tips to Avoid Foreclosure 

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 Hundreds of thousands of families behind on their mortgage could avoid foreclosure by acting quickly and reaching out to their lender or a reputable nonprofit. Here are some tips to keep in mind.
How should I avoid mortgage trouble?Prioritize your expenses. Prioritize your bills and pay the ones that are most necessary for the well-being of you and your family, such as shelter, food, and utilities.Protect your credit score. When you are experiencing a financial challenge, remember that making late payments or skipping them can seriously affect your credit score.Beware of scams. Beware of predatory lenders, pre-approved loan offers, and phony counseling agencies. Homeowners facing financial troubles are especially vulnerable because they are desperate to find a solution to their problems. Legitimate counseling agencies will offer their programs for free or for a small administrative charge. Check with a lawyer or your mortgage company before signing anything involving your home. Do not sign anything you do not understand. The U.S. Department of Housing and Urban Development has more information about avoiding predatory lending on their website, should I do if I miss a mortgage payment?

Call for help—it’s the most important thing you can do. More than half of homeowners facing foreclosure did not call for help when they fell behind in their mortgage payments.

Don’t make a bad situation worse. Ignoring your situation won’t make it go away. Take the steps provided in this sheet to protect your home, your family, and your credit rating.

Notify the bank as soon as you know your payment will be late. Calling when you are 30 or 60 days late is better than calling when you are 120 days late. You still have some options. You must put your pride on hold if you’re truly serious about stopping the foreclosure process. Remember that foreclosure is not in the best interest of lenders—lenders report that it costs up to $50,000 or almost half the loan balance each time they write off a foreclosure.

Work it out. Depending on the situation, the lender may lower the interest rate, lower the borrower’s monthly payment, or enter into a repayment agreement for missed payments.

Avoid foreclosure rescue scams by calling a reputable nonprofit organization. The Homeowner’s HOPE Hotline, available at, (888) 888-995-HOPE, is an independent, third-party resource that is part of a HUD-certified, not-for-profit network dedicated to helping homeowners. HOPE counselors are trained to set up a plan of action designed just for you and your situation. (Spanish speaking counselors are also available; llame español.) When you call HOPE for Homeowners, you won’t be judged, you won’t pay a dime, and most of all, you won’t be disappointed.

What are my options if I cannot make payments?

Forbearance. You are allowed to delay payments for a short period, with the understanding that another option will be used afterwards to bring the account current.

Reinstatement. When you are behind in your payments but can promise a lump sum to bring payments current by a specific date.

A Repayment Plan. If your account is past due, but you can now make payments, the lender may agree to let you catch up by adding a portion of the past due amount to each current monthly payment until your account is current.

Modifying Your Mortgage. The lender can modify your mortgage to extend the length of your loan (or take other steps to reduce your payments). One solution is to add the past due amount into your existing loan, financing it over a long term.

Selling Your Home. If catching up on payments is not possible, the lender might agree to put foreclosure on hold to give you some time to attempt to sell your home.

Property Give-Back. The lender can allow you to give-back your property – and then forgive the debt. Give-backs do, however, have a negative impact on your credit record, although not as much as a foreclosure. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.

How can I reduce the risk of foreclosure when I purchase or refinance my home?

Take advantage of prepurchase counseling offered by not-for-profit organizations. Homeowners can avoid trouble later on by making informed decisions while purchasing their homes. Borrowers who are most likely to keep their homes understand their mortgage options and how much they can really afford. Education also helps borrowers identify and avoid unscrupulous sellers or lenders. A recent study found that borrowers who received counseling have half the default risk as those who did not.

Avoid prepayment penalties and balloon payments. People who refinance their mortgages with loans containing prepayment penalties or balloon payments are more likely to undergo foreclosure, according to a study by researchers at the University of North Carolina. According to the study, a prepayment penalty increases foreclosure risk by about 20 percent. Mortgages with balloon payments were 46 percent more likely to go to foreclosure than loans without. Protect the equity in your home – it’s a valuable source of wealth that will build over time.

Stay on top of home repairs and maintenance. NeighborWorks® organizations provide counseling in home maintenance and repairs and rehabs that improve the value of a home. Too often emergency repairs and less-than-trustworthy contractors push a homeowner into foreclosure.



Are Foreclosure Auctions Legal?

Lawsuit: Foreclosure Auction Ads, Actions Illegal

Just when you thought problematic real estate sales were slowing down and their aftermath (including foreclosures, bankruptcy filings, etc.) was picking up, a new lawsuit regarding foreclosure auctions has cropped up.

According to the Inman News, a lawsuit was filed with the California Superior Court this month on behalf of three people who attended a foreclosure real estate auction in the southern part of the state. One of the three is reportedly a real estate broker for RE/MAX.

Sources indicate that the suit claims deceptive advertising strategies on the part of those promoting real estate auctions and actions during real estate closings that violate federal regulatory laws. Because the lawyers in charge are reportedly seeking class action status for the suit, tens of thousands of people could be affected.

It seems that one lawyer involved has noted that, if the suit is granted class action status by the court, three groups of people could be affected: those who attended foreclosure auctions, those who entered a winning bid but did not ultimately buy the property and those who entered a winning bid and did follow through with the purchase.

The lawsuit evidently focuses on what happens after someone enters a winning bid at a foreclosure auction (where a property in foreclosure is bid on by potential buyers).

Apparently, even after an auctioneer yells “sold,” winning bidders may not end up purchasing the property in question. Property sellers or lenders can, in most cases, accept or reject a bidder’s offer after the auction is over, according to reports.

Many real estate auctions are called “reserve auctions,” because properties for sale have “reserve prices” that must be reached in order for a property to actually be sold. This price, it seems, is rarely mentioned during the auction itself, which can lead a bidder to believe he or she has purchased a house for a set amount, when in fact the details may not be finalized.

This reportedly happened to one of the plaintiffs in the suit, who won an auction by offering $153,000 on a property and was told at signing that she would have to fork over an additional $50,000 if she wanted to own the home.

The lawsuit also alleges that many auction companies require buyers to use their settlement service providers when signing the paperwork, and during the final transaction require buyers to pay for sales costs – including commissions! And some of these fees, according to the suit, violate state regulations.

The defendants listed include Countrywide Home Loans Inc., GMAC Mortgage LLC, auction companies, and title and escrow companies.

It seems that even the current economic upheaval caused by deceptive mortgage lending and real estate practices is not enough to deter some from fraudulent and illegal behavior.

What Happens to Car If You File Bankruptcy?

What happens to my car if I file bankruptcy?

There are several issues to consider in answering this question. The most important issue is the value of your car. In most cases, you can protect your car using the allowable bankruptcy code exemptions. An exemption allows you to file for bankruptcy relief and protect some of your property. The bankruptcy courts understand you need a car to get to work and to pick your kids up from school. So long as you aren’t driving an antique classic car, you will likely be able to keep your car.

Many states allow debtors to elect the bankruptcy code exemptions. In those states, debtors get their choice between the federal exemptions and those in the law of their state. For the balance of the states, only the state exemptions can be selected. The exemption laws vary greatly from state to state. You need to consult a seasoned bankruptcy lawyer for the list of exemptions available to you.

The next question is whether you have clear title to your car. If you have pledged your vehicle as security for a debt, or if you are financing or leasing a vehicle, you have three options for secured car loans when you file Chapter 7 bankruptcy.

Car Loans in Chapter 7 Bankruptcy

Reaffirm: A reaffirmation agreement is a contract between you and the car creditor in which you agree to pay the balance owed on your car note, despite the bankruptcy filing. You continue to make payments, and the creditor promises that, as long as payments are made, the creditor will not repossess or take back the property.

Reaffirmed debts are not discharged, and the debt survives the bankruptcy. If you do not make your car payments after you reaffirm the car loan, the car lender can repossess the car and sue you for the deficiency balance. After the finance company repossesses the car, they will sell the car at the auto auction. Usually the finance company does not get enough money from the auction to pay off your loan. This shortfall is called a “deficiency,” and you would still be legally obligated to pay the creditor the deficiency balance. As you can see, the decision to reaffirm your car loan is a serious financial matter.

Reaffirmation agreements are strictly voluntary. You are not required by the Bankruptcy Code or other state or federal law to reaffirm your car loan. Before entering into such an agreement, you will want to speak to a bankruptcy attorney to make sure that the reaffirmation is in your best interest.

Redeem: In Chapter 7, you have the right to purchase or redeem your car from the creditor by making a lump sum payment equal to the car’s fair market value. The 2005 bankruptcy code provides that you must pay the creditor the replacement retail cost of the car. The balance of the debt will be discharged. For example, assume you own a car worth $5000.00, but owe the finance company $10,000.00. In this circumstance, you could redeem the vehicle by paying the creditor $5000.00, and the remaining balance will be discharged in your bankruptcy. In Nevada, the car value from exemption is $15,000.

Surrender: If you cannot afford the monthly payments on your car loan, or if you determine that you owe more than the car is worth, you can unload the car and the debt in your Chapter 7 bankruptcy by surrendering the vehicle to the creditor.

Car Leases in Chapter 7 Bankruptcy

If you are leasing your car when you file Chapter 7 bankruptcy, you can choose to either continue making the monthly lease payments, or surrender the car back to the creditor. If you surrender the leased car, any obligation under the lease will be eliminated in your Chapter 7 bankruptcy case.

Car Loans in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is powerful tool to protect your car from repossession. If you have fallen behind on your car payments, you can file a Chapter 13 bankruptcy to stop the repossession of your vehicle. The amount you have to pay for your car depends upon when you bought your car.

910 Claims: If you bought your vehicle within 910 days of filing your bankruptcy case, you must repay the entire car loan. The good news is that the interest rate you pay on your car loan may be significantly reduced. For example, if you owed $10,000 on a car loan whose blue book value was only $5000, you would be required to pay the entire $10,000 balance if the car was purchased less than 30 months, or 910 days, of filing. In short, debtors who want to keep their cars must pay the full loan amount rather than “cram down” the debt to the value of the car.

Cram Down: If you bought your car more than 910 days before you file bankruptcy, you will only have to repay an amount equal to the present value of the car. For example, if you owed $5000 on a car that is worth only $2500, upon filing Chapter 13 you would be required to repay the finance company only $2500 over the three to five year term of your Chapter 13 repayment plan.

Car Leases in Chapter 13 Bankruptcy

You car lease cannot be paid through the Chapter 13 bankruptcy repayment plan that you devise with your bankruptcy attorney. You can “assume” the lease and continue making the monthly payments. You can “reject” the lease and return the car to the creditor. The creditor will sell the leased vehicle, apply the sale proceeds to your lease balance and then file a claim in your Chapter 13 bankruptcy case for the lease deficiency. This deficiency is an unsecured, non-priority claim, which means you will likely only pay that creditor pennies on the dollar.

Foreclosure Rescue Scams Spreading Across America

Foreclosure Rescue Scams Mounting Along with Foreclosure Rates

can be traumatic, and unfortunately people in difficult circumstances make easy prey for the unscrupulous. As foreclosure rates climb across the country and more and more homeowners find themselves at risk of losing their homes, predators are springing up nearly as quickly to profit from their distress.

Homeowners desperate to stop foreclosure may put their trust in the wrong people, and in doing so may lose more than they’d ever expected. Several states have taken action against predatory “mortgage rescue” companies and individuals claiming to offer services to stop foreclosure over the past two years.

Foreclosure rescue scams take many forms, but here are a few examples of operations shut down, sued, or otherwise sanctioned by some states-they’re representative of some of the most common foreclosure rescue scams:
  • Illinois regulators shut down a mortgage rescue scam in which investors would persuade homeowners to sign over the deeds to their homes and any earned equity. Homeowners were told that the investors would pay off the delinquency, lease the property back to the homeowner, and eventually sell it back to them.
  • In North Carolina, a company searched courthouse records for people facing foreclosure, then sent direct mail solicitations claiming special expertise and a high rate of success in stopping foreclosure. Homeowners paid a fee up front, usually one month’s mortgage payment, and then many never heard from the company again. In addition to losing the money paid to the company, many of these homeowners lost the opportunity to negotiate with their mortgage lenders or seek other solutions because the company instructed homeowners to have no direct contact with their lenders.
  • Three Washington state businesses allegedly targeted consumers who had fallen behind on their property taxes, taking title to their homes in return for very small payments. The companies then let the properties go to tax sales and collected for themselves the surplus equity that would otherwise have gone to the homeowners.
  • The Texas Attorney General won a restraining order and order freezing assets against a woman who allegedly told homeowners that she would negotiate with their mortgage companies to resolve past-due payments and stop foreclosure. Bobbie Heckard then reportedly gave homeowners forms she said would allow her to negotiate on their behalves, but which actually deeded their property over to her.

Although these are some of the most common foreclosure rescue scams at the moment, there are as many means of deception as there are people in difficult circumstances. If you’re looking to stop foreclosure, don’t let desperation push you into uninformed or hasty decisions. In particular, beware of any company that instructs you not to talk to your mortgage lender, or who makes promises (such as, “We’ll sell the house back to you at a later date.”) that aren’t part of a written agreement. Make sure that you read and understand everything that you sign, and if you don’t understand, have someone you trust or a local attorney review the document before you sign. If the person or company you’re dealing with does not want you to have the paperwork reviewed by an outside party or discourages talking to an attorney, that should be a red flag that they may have something to hide.

There are a variety of options available to stop foreclosure, depending upon the specifics of your situation. For people with significant equity in their homes who are not more than 90 days past due, refinancing is often a viable alternative to stop foreclosure. For those who can’t refinance, a debt workout plan may be the answer. And even if negotiations and refinancing don’t work out for a homeowner, Chapter 13 bankruptcy may stop foreclosure.

Whatever your specific circumstances, do your homework. Make sure that you’re dealing with a reputable company or attorney, that you have read and understood everything that you sign, and that you aren’t relying on verbal promises that may not be enforceable.

How to Stop a Foreclosure?


Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If  that happens, you not only lose your home, you also would owe HUD an additional amount. Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.



1. DO NOT IGNORE THE LETTERS FROM YOUR LENDER. If you are having problems making your payments, call or write to your lender’s Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help.


2. Stay in your home for now. You may not qualify for assistance if you abandon your property.


3. Contact a HUD-approved housing counseling agency. Call 1-800-569-4287 or TDD 1-800-877-8339 for the housing counseling agency nearest you. These agencies are valuable resources. They frequently have information on services and programs offered by Government agencies as

well as private and community organizations that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge.



You may be considered for the following:

Special Forbearance.Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.


Mortgage Modification.

You may be able to refinance the debt and/or extend the term of your mortgage loan. This

may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount.


Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current.


You may qualify if:

1. your loan is at least 4 months delinquent but no more than 12 months delinquent;

2. you are able to begin making full mortgage payments. When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property.


Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.


You may qualify if:

1. the loan is at least 2 months delinquent;


2. you are able to sell your house within 3 to 5 months; and


3. a new appraisal (that your lender will obtain) shows that the value of your home meets HUD program guidelines.


Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily “give back” your property to the lender. This won’t save your house, but it is not as damaging to your credit rating as a foreclosure. You can qualify if: 1. you are in default and don’t qualify for any of the other

options; 2. your attempts at selling the house before foreclosure were unsuccessful; and

3. you don’t have another FHA mortgage in default.




Your lender will determine if you qualify for any of the alternatives. A housing counseling agency can also help you determine which, if any, of these options may meet your needs and also assist you in interacting with your lender.

Call 1-800-569-4287or TDD 1-800-877-8339.




Yes. Beware of scams! Solutions that sound too simple or too good to be true usually are. If you’re selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your

financial difficulty. Be especially alert to the following:


Equity skimming. In this type of scam, a “buyer” approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The “buyer” may suggest that you move out quickly and deed the

property to him or her. The “buyer” then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember, signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.


Phony counseling agencies. Some groups calling themselves “counseling agencies” may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself for free, such as negotiating a new payment plan with your lender, or  pursuing a pre-foreclosure sale. If you have any doubt about paying for such services, call a HUD-approved housing counseling agency at 1-800-569-4287 or TDD 1-800-877-8339.

Do this before you pay anyone or sign anything.



Here are several precautions that should help you avoid

being “taken” by a scam artist:

1. Don’t sign any papers you don’t fully understand.

2. Make sure you get all “promises” in writing.

3. Beware of any contract of sale or loan assumption where you are not formally released from liability for your mortgage debt.

4. Check with a lawyer or your mortgage company before entering into any deal involving your home.

5. If you’re selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state’s Attorney General, the State Real Estate Commission, or the local District Attorney’s Consumer Fraud Unit for this type

of information.




1. Don’t lose your home and damage your credit history.

2. Call or write your mortgage lender immediately and be honest about your financial situation.

3. Stay in your home to make sure you qualify for assistance.

4. Arrange an appointment with a HUD-approved housing counselor to explore your options at 1-800-569-4287 or TDD 1-800-877-8339.

5. Cooperate with the counselor or lender trying to help you.

6. Explore every alternative to keep your home.

7. Beware of scams.

8. Do not sign anything you don’t understand. And remember that signing over the deed to someone else does not necessarily relieve you of your loan obligation.

Act now. Delaying can’t help. If you do nothing, YOU WILL LOSE YOUR HOME and your good credit rating. Visit our web site at U.S. Department of Housing and Urban Development Office of Single Family Housing

451 Seventh Street, SW Washington D.C. 20410-3000


Bailout Money Has Not Trickled:

The bailout hasn’t trickled down to Main Street where the foreclosure crisis is far from over Print
By Mary Delach Leonard, Beacon staff   
Last Updated ( Sunday, 12 October 2008 )
Three alarming facts about failing home loans are worrying Karen Wallensak of Catholic Charities who works with troubled homeowners on the front lines of the foreclosure crisis.
 Wallensak, executive director of the agency’s Housing Resource Center in St. Louis, speaks in a calm, reassuring voice even when she is delivering bad news, such as her expectation that the mortgage crisis has “legs” that will carry it into the next decade. Catholic Charities is one of the local nonprofit agencies that make up the St. Louis Alliance for Homeownership Preservation that provides free counseling to troubled homeowners.”These are gloomy times,” Wallensak said. “I don’t think anything the federal government has proposed is going to mitigate this. From what I’m seeing, there are still waves of foreclosures that are going to ripple through our country and our community here in St. Louis for up to another three years.”

Worry No. 1:

In July, the number of prime loans in foreclosure moved ahead of the number of sub-prime loans in foreclosure. (The terms prime and sub-prime refer to the credit histories of the borrowers; sub-prime loans were generally made to people with less-than-perfect credit ratings.)

In July, 105,000 prime borrowers and 92,000 sub-prime borrowers entered into some stage of foreclosure, according to statistics compiled by HOPE NOW, a coalition formed by the lending industry that operates a national hotline for homeowners facing foreclosure. The number of prime borrowers facing foreclosures was about double the number recorded in July 2007.

“In July, sub-prime became old news in the mortgage crisis,” Wallensak said. “Part of that is just the impact of the economy. People are losing jobs, the cost of living is going up and folks who were on the edge and a paycheck away from disaster — and that describes probably two-thirds of Americans, whether they’re affluent or not — this is just toppling them right over the cliff.”

Worry No. 2:

About 3 million “Alt-A” mortgages have just started to re-set, with monthly mortgage payments increasing by as much as 150 percent. Alt-A loans, which stands for Alternative A-paper, include a variety of “creative financing” products that fall somewhere between prime (A loans) and sub-prime (B loans) and account for an estimated $1 trillion in loans. Nationwide, 16 percent of Alt-A loans made since January 2006 are at least 60 days behind in payments, according to statistics compiled by Bloomberg News.

In many cases, Alt-A loans required only minimum payments that were far lower than even the monthly interest on the loan. The difference between this minimum and what was actually owed was tacked onto the loan principal. Every month, the principal amount grew, and, in most cases, homeowners have little or no equity in the property. (To read about a Kirkwood woman who lost her house because of one of these kinds of loans, click here.)

“Many of these loans have gigantic re-sets. About one-third of them are what are called the pick-a-pay adjustable rate mortgages, where people could pick what they wanted to pay,” Wallensak said.

Alt-A loans were often sold to people who could not have afforded the monthly payments of a conventional loan — with the idea that they could refinance before the loans re-set. But the tight credit market and falling housing prices closed that escape hatch.

“What makes these loans so scary is that so many of them were what they called no-documentation loans or what we call ‘liar loans’ where people did not have to verify their incomes,” Wallensak said.

In 2006, the Mortgage Asset Research Institute reviewed 100 samples of no-documentation loans, comparing the “stated income” with IRS income forms. The group warned that actual income was overstated by more than 50 percent in nearly 60 percent of the loan samples.

“These loans were very lucrative for mortgage brokers. If they made them and sold them they got paid a handsome fee,” Wallensak said. “Some of the biggest entities that bought up these loans — Freddie Mac, Fannie Mae, Wachovia, Lehman Brothers — shall I continue the list?”

Worry No. 3:

Sub-prime borrowers with adjustable rage mortgages who received some type of loan modification during the first half of 2007 were again 90 days or more behind in their payments by the end of March 2008, according to a report by Moody’s Investors Service.

Wallensak attributes the rate of failure to the fact that lenders insisted on repayment plans rather than renegotiating the terms of the failed mortgages.

“During 2007, there were many foreclosures happening, and loan servicers primarily were not willing to modify loans. They just wanted to be paid back,” she said.

In most cases, these repayment plans allowed borrowers to make up missed payments and late penalties over a period of time, by adding an agreed amount to their monthly payments. Homeowners, who were already hard-pressed to make their original mortgage payments, were unable to sustain these higher amounts.

“So, we have perhaps a second wave of people coming who already received help once and who were not able to make good on the repayment plan they thought would work,” Wallensak said.

A slow-moving trickle

Wallensak’s worries, shared by other housing counselors, add up to a gloomy bottom line: While the $700 billion taxpayer bailout of Wall Street’s troubled financial institutions is trickling down through the economic stratosphere, the flood of foreclosures will continue on Main Street — pushed along by the free-falling stock market, loss of jobs and rising food and fuel prices.

In August alone, 303,879 properties in the United States were in some stage of foreclosure, according to Missouri ranked 15th with 3,755 foreclosures, while Illinois was ninth with 10,757.

“That ‘trickle down’ hasn’t trickled yet,” said Chris Krehmeyer, executive director of Beyond Housing, another nonprofit in the St. Louis homeownership alliance.

Krehmeyer said the massive bailout has yet to provide relief for individual homeowners. Although he credited Sen. John McCain for at least making an attempt to address the needs of individual homeowners with his rescue plan announced during Tuesday’s presidential debate, Krehmeyer has reservations about its effectiveness. He said the McCain plan doesn’t get at a critical issue — loan pooling — that has prevented individual homeowners from negotiating better loan terms with their mortgage servicers. (To read more of Krehmeyer’s analysis of the McCain proposal, click here.)

Risky mortgages were packaged, securitized and sold in pools to reduce financial risk to investors, who even now are unwilling to negotiate substantial loan modifications, the housing counselors say. What’s needed are reductions in principal — in light of falling housing prices — and lower interest rates to replace ballooning adjustable rate mortgages.

“We only have a small percentage of loans that are going south, but it is dramatic and it is significant and higher than in years past,” Krehmeyer said. “We need to figure out from a securities standpoint how to get at these loans — how do we stop as many as possible from going under. We’re still going to have a lot of people losing their homes, but is there any way we can minimize that damage? I’ve not heard anyone put up a macro solution.”

Eric Madkins, director of housing and foreclosure intervention for the Urban League of Metropolitan St. Louis, says that while the government and financial institutions concentrate on unclogging the banking system so money again begins to flow, troubled borrowers won’t see any relief until public policy is changed.

“On Main Street, until lenders and servicers of these loans look for ways to perform loss mitigation — whether it is reductions in principal or taking borrowers out of adjustable rate mortgages and placing them into fixed mortgages — the problem will persist,” Madkins said.

He adds that evaluating troubled mortgages is going to be an enormous task, amplified by the fact that the properties will have declined in value.

Economist Jack Strauss of St. Louis University said the government has tremendous latitude and could, in fact, cut through the tangled financial web of loan pools to intervene on behalf of homeowners.

Strauss said the government could take several actions, including freezing interest rates on re-setting adjustable rate mortgages.

Plans, such as McCain’s, to buy troubled loans have historical precedence, both during the Depression and in other countries, Strauss said. But he believes that lenders should be forced to accept a loss of at least 10 to 15 percent to keep taxpayers from bearing the full cost of the rescue. Strauss said few lenders would fight such a write-down because they lose two or three times that amount when properties go into foreclosure.

“There is no winner here. But even the banks would be better off because nobody wins in a foreclosure,” said Strauss, who is the director of the Simon Center for Regional Economic Forecasting at SLU.

Strauss believes that Congress could also help homeowners by rewriting federal bankruptcy laws to give judges the ability to force loan modifications.

Making matters worse

In the meantime, the worsening economy is adding more families to the foreclosure rolls, Madkins said.

“We are seeing families that are facing foreclosure not because they bought a house that was far beyond their means and had bad credit. These families have prime — not sub-prime — mortgages and are facing foreclosure due to unemployment, layoffs or under-employment. To stay afloat, the head of the household has to take a job that pays less than the original job,” he said.

Because of declining home values, refinancing is no longer a solution for these homeowners, and they quickly run out of options if lenders aren’t willing to work with them.

The counselors agree that the need far outweighs any available help.

For example, the Federal Housing Administration has just rolled out the Hope for Homeowners loan program to refinance mortgages for about 400,000 borrowers across the country.

“But there are millions of homes facing foreclosure, so it’s going to help some people, no doubt, but for most who are in foreclosure now or near to that point, I don’t see anything on the horizon that’s going to be of great help,” Wallensak said.

The sad reality is that by the time the crisis wanes, analysts predict that more than 2 million American families will have lost their homes. 

“And some of that is because so many people simply don’t have the income to sustain the mortgage. And if that’s the case, there’s little that can be done,” Wallensak said.

Wallensak cited the case of a tradesman who works in the now-suffering construction industry who asked for help because he was falling behind on his mortgage once more — after having negotiated a repayment plan with his lender. The principal on his loan is $300,000, and his mortgage had been $2,600 a month. He was now paying $3,700 a month.

“He makes about $30,000 a year, and I said, ‘Excuse me, sir, how can you possibly afford a $2,600 loan payment on $30,000, and he said, ‘Well, I did lots of side jobs’ — which weren’t reported to the IRS. And he had gotten a no-doc loan and didn’t have to declare his income,” she said.

Wallensak said that though the case was not typical of the people she normally hears from, she expects to see more of them as Alt-A loans fail.

“That’s what is going to be washing up on the beach — borrowers with more affluent incomes who have gotten loans they truly couldn’t afford from the first moment,” Wallensak said. “And I’ll have to tell them, ‘Unless your lender can modify the loan so you can afford it on your current income, we can not help.’ ”

Wallensak adds that those types of loans have contributed to a public backlash about the foreclosure crisis.

“A lot of folks ask me, ‘Why should I help bail out people who were careless or used bad judgment or didn’t tell the truth? But the case I just described is not common among our clients. Our clients usually have a lower income and may have made some mistake in judgment, but really a lot of times they just got a bad loan they didn’t deserve,” she said.

Wallensak said the agencies have a responsibility to be honest with homeowners whose budgets simply can’t sustain an unaffordable mortgage. The agencies have limited funds to assist homeowners and are careful to spend that money where it can have a real effect.

“We are that gut check for the homeowner,” she said.

Wallensak urges struggling homeowners to contact a housing counselor because even when no financial assistance is available, the agencies can assist them in planning their next moves.

Help in the meantime

Local housing counselors agree that state and federal officials could take some steps to ease the pain of homeowners, if even temporarily. For example, a 90-day moratorium on foreclosures could give homeowners a chance to seek remedies — or at least consider options.

They say state legislators could help by changing Missouri from a non-judicial foreclosure state, where no court action is required, to a judicial state, such as Illinois, where the process is court-administered. The change would lengthen the foreclosure process, which can take as little as 60 days in Missouri, giving homeowners more time to seek a solution. In Illinois, foreclosures can take a year.

Other actions include stronger oversight of mortgage brokers and the lending industry.

“If there is anything this has shown is there is a place for regulation,” Wallensak said. “Allowing the mortgage industry to run amok with no oversight leads to disaster. I don’t want to over-regulate, but I think some responsible oversight of the mortgage lending industry is called for. And if we don’t learn that much from this crisis, then I would just throw up my hands.”

Contact Beacon staff writer Mary Delach Leonard.



There is a Scammer Born Every Minute

This is an interesting story. All those scammers who had destroyed this real estate market in the first instance, are coming back to surface for the last kill. These are vultures. Make sure, if your telephone ring at dinner time, or any time of the day, you only talk to qualified people. First get their name, and telephone number, and ask them which attorney are law office is handling the loan modification. It is important to get their phone number and other business licenses. Maybe you recognize someone who already scammed you previously.  You never know, if you meet him again. You know what to do this time. Every minute a new scammer is born. Watch out.

Here, is this interesting article.

There’s a scammer born every minute Print
By Mary Delach Leonard, Beacon staff   
Last Updated ( Wednesday, 30 July 008 )
For American homeowners drowning in mortgage and consumer credit debt, here is a grim warning from law-enforcement agencies: There are sharks in the water.

 * On Monday, Missouri Attorney General Jay Nixon announced “Operation Stealing Home” to crack down on mortgage fraud and financial predators taking advantage of homeowners facing foreclosure. Nixon’s office filed lawsuits against seven individuals and businesses accused of defrauding customers through refinancing, advance fee and foreclosure consulting scams.

* In May, a national alert against foreclosure scams was issued by the U.S. Treasury Department’s Office of the Comptroller of the Currency, which charters, regulates and supervises all national banks.

The alert warned against variations of lease-back and repurchase scams that promise financially distressed homeowners they can stay in their homes.

Basically, the schemer offers to pay the mortgage and rent your home back to you. Often, they may promise to sell the home back to you when you’ve recovered from your troubles. In the meantime, the homeowner is asked to transfer the property deed, often to a third party, who now has the power to sell your house, charge you sky-high rent, evict you and, most likely, steal whatever equity you had in the house. In the meantime, you are still responsible for the mortgage and if the schemer stops making your monthly payments, you still end up in foreclosure.

* Local FBI agents are actively investigating mortgage fraud in the St. Louis area, with the U.S. Attorney’s office prosecuting nine cases between March 1 and June 18. “Operation Malicious Mortgage,” a national FBI effort during that same time, netted charges against 406 defendants, responsible for $1 billion in fraud. Nationwide, the FBI has 15,000 mortgage fraud cases pending, up from 436 in 2003.

Maxwell Marker, assistant special agent in charge of the FBI’s St. Louis division, said that as funding dried up in the mortgage market, schemers began shifting to foreclosure-based scams.

You’ve been scammed?

Report it

Law-enforcement officials say fraud often goes unreported because the victims are either embarrassed, or they don’t think there is anyone who can help them.

“Folks often think, ‘Oh, this is just about me, and it’s not a federal matter,” said agent Maxwell Marker of the St. Louis division of the FBI. “We may not be able to address your individual case right now, but we will take all your information and data. It’s very important that we have that intelligence, so we can start connecting the dots.”

St. Louis FBI: (314) 231-4324

Missouri attorney general’s Consumer Protection Hotline: (800) 392-8222 or

Illinois Attorney General Consumer Fraud Hotline: (800) 243-0618

“They’ll identify individuals who are in financial distress but have some degree of equity in their property. They essentially make an offer that can’t be refused,” he said.

Marker said the FBI has seen lease-back schemes in St. Louis but not to the degree that it has occurred in other cities, such as Atlanta, Las Vegas or on the West Coast, where the fallout from the mortgage crisis has been more severe.

The most common form of mortgage fraud in St. Louis is a form of flipping. Schemers purchase run-down properties and then resell them at huge profits, based on fraudulent appraisals claiming rehab work that was never done, said Alan Peak, supervisory special agent of the St. Louis FBI.

Fraud Alert: Advice for consumers

Financial predators find their victims through public records of foreclosure and bankruptcy filings, advertising and by purchasing mailing lists. They might contact you by phone, email, direct mail or even show up at your door. Know whom you are dealing with.

“It’s difficult to sort out who is legitimate and who is not,” said agent Alan Peak of the St. Louis FBI. “When you start getting into financial difficulty you may make inquiries through legitimate avenues, but the con men will buy mailing lists from those companies.”

Here are some tips:

* Seek free advice from housing counselors at HUD-approved agencies.

* Work through reputable lenders and Realtors; check their licenses with the state, county or city regulatory agencies.

* Ask a lot of questions. If something doesn’t sound right to you, it probably isn’t.

“We see crime victims all the time who say that something just didn’t seem quite right to them,” said agent Max Marker of the St. Louis FBI. “Trust your instincts.”

* If you are asked to hide information from your lender, it is a warning sign that something is not above-board.

* Seek legal advice before transferring the deed of your property to an individual who has promised to help you. Often, the request is for a Quit-Claim Deed.

* Never sign a blank document or a document containing blanks. Don’t sign anything you don’t understand. “At the end of the day, a good attorney can be worth the money,” Marker said. Check with the state bar association for records of discipline before hiring an attorney.

* Check with the Better Business Bureau before working with anyone offering assistance, but keep in mind that just because the BBB has no complaints on file, doesn’t guarantee that the organization is legitimate.

* Use resources on the Internet, such as the FBI website. Check out the people you are dealing with at websites where consumers catalog their complaints against lenders, brokers and servicers. (You can often find these sites by doing a simple Internet search; google the name of the organization or individual and the word “complaints.”)

* Stay informed and know the status of your proceedings. Be wary if your “helper” doesn’t keep you informed about what they are doing on your behalf.

* Remember the adage: “If it looks too good to be true, it probably is.”

“They go into targeted areas and purchase vacant properties for $30,000 or $40,000. Sometimes, in as little as 72 hours, they will sell those properties to a straw buyer they have lined up, in some cases for $130,000 or $140,000 using a fraudulent appraisal report,” Peak said.

Ultimately, the mortgages are sold on the secondary market and the property ends up in foreclosure again, still in the same run-down condition and still worth only $30,000 or $40,000. In the short term, though, property values in the neighborhood go up, driven by the inflated sales prices. That, in turn, drives up property tax assessments. When the schemers pull out, property values plummet, and the neighborhood is left holding the bag.

“We’re all the victims,” Marker points out. “It affects every single one of us. It affects us in the fees we pay to get a mortgage. It affects us in our property values. It can affect individuals from $20,000 properties to multimillion-dollar properties. It affects the gamut.”

Mortgage fraud can take years to unravel, the agents say. In one of the biggest local cases, the FBI tracked 65 flipped properties to the same group.

Marker said the scammers usually target individuals who are unsophisticated in financial matters, or they work through places of trust, such as churches. They might co-op a church member who will then share his or her good fortune with others. And they are industry-savvy.

“They’re very good at exploiting any crack in the system. We’ll identify one of those cracks and work with the industry to close it, and they’ll move somewhere else,” Marker said.

Expect to see the Missouri attorney general’s office file more lawsuits against predators, said John Fougere, a spokesman for Nixon. Fougere would not put a number on pending investigations but said announcements of such legal actions often spur other consumers to contact authorities about similar experiences.

Fougere said predators take advantage of flood and tornado victims, so it is not surprising to find them at work during a financial crisis.

Even people who know better can fall for schemes when faced with financial troubles, the FBI agents say.

“When somebody is desperate and they see that life (preserver) ring out there, they’ll grab for anything,” Marker said.

The agents say they will be watching for new schemes after housing-rescue legislation is signed into law.

“Anytime there’s a big pool of money out there, there are bad guys lurking in the shadows trying to figure out how to get their hands on it,” Peak said.

 Contact Beacon staff writer Mary Delach Leonard.



The language of a foreclosure: Must Read

Understanding the language of foreclosure Print
By Mary Delach Leonard, Beacon staff   
Last Updated ( Thursday, 03 July 2008 )
 If you — or someone you know — are worried about making house payments, it’s time to take action. Trouble is, mortgage talk is a language many homeowners do not understand. ARMs, resets, balloons … and the dreaded F word: Foreclosure.
A sub-prime mortgage, for example, is not a reference to the interest rate of the loan but to the credit history of the borrowers.Here are some simple definitions for complex terms you should know:

Adjustable-rate mortgage (ARM): A mortgage that starts out with one interest rate for a period of time and then “resets” to a new interest rate.

What you should know: The starting interest rate is often enticingly low. The new interest rate will be higher — and your monthly loan payments will get bigger. That’s called payment shock.

2-28 ARM: An adjustable-rate mortgage that has a fixed interest rate for two years. Then, the interest rate begins to float, based on an index, plus a margin. Typically, these adjustments increase interest rates every six months, which is why they are often referred to as “Exploding ARMs.”

What you should know: 2-28 ARMs fall into the category of “creative financing” mortgages that were typically aimed at people with poor credit ratings. The idea was that in two years, these borrowers could fix their poor credit ratings and then refinance to fixed-rate loans. Often, the new variable interest rates drive monthly payments higher than borrowers can afford.

Balloon or reset mortgage: The total of monthly payments does not cover the entire loan balance. At the end of a balloon loan — usually three to seven years — the homeowner must either pay off the balance in a lump sum or refinance the loan.

What you should know: Think of these as temporary loans. After three or seven years, you need to come up with the balance. Balloon loans have higher foreclosure rates than traditional mortgages because borrowers often can’t afford to pay off balances when they come due – and may be unable to find refinancing.

Conventional mortgage: The interest rate is locked in — and your monthly payments remain the same — for the term of the loan. Also called a fixed-rate mortgage.

Deed in lieu of foreclosure: If you can’t afford the mortgage payments and are unable to sell your home, a lender may accept ownership of your property in place of the money you owe. This is referred to as “walking away.”

Default: When a borrower has missed payments, the loan is in “default.”

What you should know: The sooner a borrower takes steps to find a remedy, the more options there are.

Equity: The value of your home, minus what you owe on it. If you owe $80,000 on a house you mortgaged for $100,000, your equity is $20,000.

What you should know: If property values decline, your equity will also decline. For example, if that $100,000 home drops in value to $90,000, you still owe the $80,000 you borrowed, but your equity is now only $10,000. When your house falls in value below what you owe on it, it’s called negative equity. On the bright side, if your home rises in value, so does your equity.

Fixed-rate mortgage: The interest rate is locked in — and your monthly payments remain the same — for the term of the loan. Also called a conventional mortgage.

Forbearance: A lender agrees to let a borrower postpone payments for a temporary period to give the borrower time to catch up on late or missed payments.

What you should know: This remedy is more likely to be available to borrowers who seek help early, before they fall several payments behind.

Foreclosure: When a homeowner is unable to make the payments on a mortgage, the lender can legally seize and sell the property as stipulated in the mortgage contract.

What you should know: Foreclosure is a worst-case scenario that will trash your credit rating for years and prolong your battle to get back on your feet.

Interest-only loans: Loan payments, due at intervals, go only toward the interest on a loan. When the loan is up, usually five to seven years, the full principal is due.

What you should know: This is a “creative financing” mortgage. Interest-only loans might work for people who are paid big bonuses once or twice a year — or, borrowers who expect a big inheritance. For most people, they are risky business.

Loan modification: A lender agrees to change the terms of a loan when a borrower has the means to make monthly payments but is not able to meet the current terms of the loan, often due to “resetting” interest rates. Modifications typically lower the interest rate of a loan, extend the length of the loan or switch the borrower to a different type of loan.

What you should know: Act quickly; good lenders may be willing to work something out because foreclosures are costly to them, as well.

Loss-mitigation department: When contacting your lender, ask for this department. This is where you’ll find the people who can help you find a temporary remedy to your problem or work out a loan modification.

What you should know: The collections department and the loss-mitigation department have different missions, so be sure you know to whom you are talking. Also, when working out a temporary solution or modification, get it in writing.

Mortgage broker: Brokers are not lenders; they find mortgage loans for borrowers. Brokers are compensated directly by borrowers — usually a percentage of the total loan, plus other fees. They have no legal obligation to work in the best interests of borrowers. Sometimes, brokers are paid a commission by lenders based on the profitability of the loan, which again works against the interests of the borrower.

What you should know: The majority of sub-prime loans were originated by mortgage brokers.

Predatory lending: Loans that victimize borrowers with excessive or hidden fees, high-interest rates, steep prepayment penalties and other terms that trap borrowers in debt.

What you should know: If it sounds too good to be true, it probably is. Get a second opinion — or consult an attorney — before signing on the bottom line.

Prepayment penalty: A fee a lender charges if the borrower pays off the loan before the agreed upon end of the loan.

In other words: If you pay off a 20-year loan in 10 years, you must pay whatever you still owe on the loan (the principal), plus a fee that is specified in the loan contract. Steep prepayment penalties are common in sub-prime mortgages with high interest rates because borrowers try to pay these loans off as early as possible.

Reset: See balloon mortgages and adjustable rate mortgages.

Short sale: When the sale of your home brings less than the outstanding loan, lenders may agree to forgive the difference.

What you should know: This may be a way to avoid foreclosure and protect your credit rating. Unfortunately, you still lose your home.

Sub-prime mortgages: The word “sub-prime” is applied to a wide range of mortgages that have a common characteristic: risk.  In general, sub-prime mortgages are aimed at borrowers with less-than-perfect credit histories and may offer “creative” financing approaches: adjustable rates, balloons, interest-only, no down payments, little documentation.   

Here’s the confusion: The word sub-prime does not refer to the interest rate of the loan, but to the borrower’s credit quality. In fact, the interest rates on these loans are almost always higher than the overall market rates.

Sources: Federal Housing Administration; the Pew Charitable Trusts; Federal Reserve Bank of St. Louis;


What is a Foreclosure Timeline?

Few people think they will lose their home, they think they have more time. Here’s how it happens. Note: Timeline varies by state.

  • First month missed payment – your lender will contact you by letter or phone. A housing counselor can help.
  • Second month missed payment – your lender is likely to begin calling you to discuss why you have not made your payments. It is important that you take their phone calls. Talk to your lender and explain your situation and what you are trying to do to resolve it. At this time, you still may be able to make one payment to prevent yourself from falling three months behind. A housing counselor can help.
  • Third month missed payment – after the third payment is missed, you will receive a letter from you lender stating the amount you are delinquent, and that you have 30 days to bring your mortgage current. This is called a “Demand Letter” or “Notice to Accelerate”. If you do not pay the specified amount or make some type of arrangements by the given date, the lender may begin foreclosure proceedings. They are unlikely to accept less than the total due without arrangements being made if you receive this letter. You still have time to work something out with your lender. A housing counselor can still help.
  • Fourth month missed payment – now you are nearing the end of time allowed in your Demand or Notice to Accelerate Letter. When the 30 days ends, if you have not paid the full amount or worked our arrangements you will be referred to your lender’s attorneys. You will incur all attorney fees as part of your delinquency. A housing counselor can still help you.
  • Sheriff’s or Public Trustee’s Sale – the attorney will schedule a Sale. This is the actual day of foreclosure. You may be notified of the date by mail, a notice is taped to your door, and the sale may be advertised in a local paper. The time between the Demand or Notice to Accelerate Letter and the actual Sale varies by state. In some states it can be as quick as 2-3 months. This is not the move-out date, but the end is near. You have until the date of sale to make arrangements with your lender, or pay the total amount owed, including attorney fees.
  • Redemption Period – after the sale date, you may enter a redemption period. You will be notified of your time frame on the same notice that your state uses for your Sheriff’s or Public Trustee’s Sale.

Important: Stay in contact with your lender and get assistance as early as possible. All dates are estimated, and vary according to your state and your mortgage company.


What is a Foreclosure Process?

Foreclosure processes are different in every state. If you are worried about making your mortgage payments, then you should learn about your state’s foreclosure laws and processes. Differences among states range from the notices that must be posted or mailed, redemption periods, and the scheduling and notices issued regarding the auctioning of the property. However, a general understanding of what to expect can be found on our Foreclosure Timeline.

In general, mortgage companies start foreclosure processes about 3-6 months after the first missed mortgage payment. Late fees are charged after 10-15 days, however most mortgage companies recognize that homeowners may be facing short-term financial hardships. It is extremely important you stay in contact with your lender within the first month after missing a payment.

After 30 days, the borrower is in default, and the foreclosure processes begin to accelerate. If you do not call the bank and ignore the calls of your lender, then the foreclosure process will begin much earlier. At any time during the process, talk to your lender or a housing counselor about the different alternatives and solutions that may exist.

Three types of foreclosures may be initiated at this time: judicial, power of sale, and strict foreclosure. All types of foreclosure require public notices to be issued and all parties to be notified regarding the proceedings. Once properties are sold through an auction, families have a small amount of time to find a new place to live and move out before the sheriff issues an eviction.

Judicial Foreclosure. All states allow this type of foreclosure, and some require it. The lender files suit with the judicial system, and the borrower will receive a note in the mail demanding payment. The borrower then has only 30 days to respond with a payment in order to avoid foreclosure. If a payment is not made after a certain time period, the mortgaged property then is sold through an auction to the highest bidder, carried out by a local court or sheriff’s office.

Power of Sale. This type of foreclosure, also known as statutory foreclosure, is allowed by many states if the mortgage includes a power of sale clause. After a homeowner has defaulted on mortgage payments, the lender sends out notices demanding payments. Once an established waiting period has passed, the mortgage company rather than local courts or sheriff’s office carries out a public auction. Non-judicial foreclosure auctions are often more expedient, though they may be subject to judicial review to ensure the legality of the proceedings.

Strict Foreclosure. A small number of states allow this type of foreclosure. In strict foreclosure proceedings, the lender files a lawsuit on homeowner that has defaulted. If the borrower cannot pay the mortgage within a specific timeline ordered by the court, the property goes directly back to the mortgage holder. Generally, strict foreclosures take place only when the debt amount is greater than the value of the property.

Chairman Ben. Bernanke’s Speech:

Chairman Ben S. Bernanke

At the Economic Club of New York, New York, New York

October 15, 2007

The Recent Financial Turmoil and its Economic and Policy Consequences

The past several months have been an eventful period for the U.S. economy. In financial markets, sharpened concerns about credit quality induced a retrenchment by investors, leading in some cases to significant deterioration in market functioning. For some households and firms, credit became harder to obtain and, for those who could obtain it, more costly. Tightening credit conditions in turn threatened to intensify the ongoing correction in the housing market and to restrain economic growth. In response to these developments, the Federal Reserve has taken a number of measures to help ensure the normal functioning of financial markets and to promote sustainable economic growth and price stability. In my remarks this evening I will review recent events, discuss the Federal Reserve’s responses to those events, and conclude with some comments on the economic outlook in light of recent developments. Although financial markets around the world have come under pressure in the past few months, I will focus my comments primarily on the United States. I will also have little to say this evening about the serious implications of rising rates of mortgage delinquency and foreclosure for troubled borrowers and their communities or about the Federal Reserve’s responses to these important problems; I have discussed these issues several times in the past and will return to them in the future.

The Origins and Evolution of the Financial Turmoil
Overall, U.S. economic performance so far this year has been reasonably good. The rate of economic expansion slowed somewhat in late 2006 and early 2007, but growth in the second quarter was solid and some of that momentum appears to have carried over into the third quarter. The pace of private-sector job creation has slowed this year, but the unemployment rate has moved up only a little from its recent lows. And, although energy prices have been volatile, indicators of the underlying inflation trend, such as core inflation, have moderated since the middle of last year.   

Moderate growth in overall economic activity has continued despite a notable contraction in the housing sector that began in the second half of 2005. The housing correction has intensified this year as demand has declined further, inventories of unsold new homes have climbed relative to sales, and house prices have decelerated, with some areas of the country experiencing outright declines in home values. In response to weak demand and bloated inventories, homebuilders have sharply curtailed new construction. The decline in residential investment directly subtracted about 3/4 percentage point from the average pace of U.S. economic growth over the past year and a half.  In its regular reports to Congress, most recently in July, the Federal Reserve Board has highlighted as a downside risk the possibility that housing weakness might spill over to other parts of the economy–for example, by acting as a restraint on consumer spending.  Thus far, however, direct evidence of such spillovers onto the broader economy has been limited.

The housing correction has taken a more visible toll on the financial markets. In particular, since early this year, investors have become increasingly concerned about the credit quality of mortgages, especially subprime mortgages.  The rate of serious delinquencies has risen notably for subprime mortgages with adjustable rates, reaching nearly 16 percent in August, roughly triple the recent low in mid-2005.1  Subprime mortgages originated in late 2005 and 2006 have performed especially poorly, in part because of a deterioration in underwriting standards. Moreover, many recent-vintage subprime loans will experience their first interest-rate resets in coming quarters. With the softness in house prices likely to make refinancing more difficult, delinquencies on these mortgages are expected to rise further.

At one time, most mortgages were originated by depository institutions and held on their balance sheets. Today, however, mortgages are often bundled together into mortgage-backed securities or structured credit products, rated by credit rating agencies, and then sold to investors. As mortgage losses have mounted, investors have questioned the reliability of the credit ratings, especially those of structured products. Since many investors had not performed independent evaluations of these often-complex instruments, the loss of confidence in the credit ratings led to a sharp decline in the willingness of investors to purchase these products. Liquidity dried up, prices fell, and spreads widened. Since July, few securities backed by subprime mortgages have been issued.

Investors’ reluctance to buy has not been confined to securities related to subprime mortgages. Notably, the secondary market for private-label securities backed by prime jumbo mortgages has also contracted, and issuance of such securities has dwindled.2  Even though default rates on such mortgages have remained very low, the experience with subprime mortgages has evidently made investors more sensitive to the risks associated with other housing-related assets as well.

The problems in the mortgage-related sector reverberated throughout the financial system and particularly in the market for asset-backed commercial paper (ABCP). In this market, various institutions have established special-purpose vehicles to issue commercial paper to help fund a variety of assets, including some private-label mortgage-backed securities, mortgages warehoused for securitization, and other long-maturity assets. Investors had typically viewed the commercial paper backed by these assets as quite safe and liquid, because of the quality of the collateral and because the paper is often supported by banks’ commitments to provide lines of credit or to assume some credit risk. But the concerns about mortgage-backed securities and structured credit products (even those unrelated to mortgages) greatly reduced the willingness of investors to roll over ABCP, particularly at maturities of more than a few days.  The problems intensified in the second week of August after the announcement by a large overseas bank that it could not value the ABCP held by some of its money funds and was, as a result, suspending redemptions from those funds. Some commercial paper issuers invoked their right to extend the maturity of their paper, and a few issuers defaulted. In response to the heightening of perceived risks, investors fled to the safety and liquidity of Treasury bills, sparking a plunge in bill rates and a sharp widening in spreads on ABCP.

The retreat by investors from structured investment products also affected business finance. In particular, issuance of collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs), which in turn had been major buyers of leveraged syndicated loans, fell off significantly during the summer. Demand for leveraged loans slowed sharply, reducing credit access for private equity firms and other borrowers seeking to finance leveraged buyouts (LBOs).

Concerns about liquidity and credit risk surfaced even in markets in which securitization plays a much smaller role. For example, spreads on lower-tier unsecured commercial paper jumped and issuance was limited to very short maturities. In corporate bond markets, issuance of speculative-grade bonds dropped off sharply as risk spreads widened. And although equity prices have moved up on balance since late spring, swings in prices have been large; indeed, the expected stock-price volatilities implicit in options prices roughly doubled during the summer before falling back more recently.

As the strains in financial markets intensified, many of the largest banks became concerned about the possibility that they might face large draws on their liquidity and difficult-to-forecast expansions of their balance sheets. They recognized that they might have to provide backup funding to programs that were no longer able to issue ABCP. Moreover, in the absence of an active syndication market for the leveraged loans they had committed to underwrite and without a well-functioning securitization market for the nonconforming mortgages they had issued, many large banks might be forced to hold those assets on their books rather than sell them to investors as planned. In these circumstances of heightened volatility and diminished market functioning, banks also became more concerned about the possible risk exposures of their counterparties and other potential contingent liabilities.

These concerns prompted banks to become protective of their liquidity and balance sheet capacity and thus to become markedly less willing to provide funding to others, including other banks. As a result, both overnight and term interbank funding markets came under considerable pressure. Interbank lending rates rose notably, and the liquidity in these markets diminished. A number of the U.S. ABCP programs that had difficulty rolling over paper were sponsored by or had backup funding arrangements with European banks. As a result, some of these banks faced potentially large needs for dollar funding, and their efforts to manage their liquidity likely contributed to the pressures in global money and foreign exchange swap markets.

The U.S. subprime mortgage market is small relative to the enormous scale of global financial markets. So why was the impact of subprime developments on the markets apparently so large?  To some extent, the outsized effects of the subprime mortgage problems on financial markets may have reflected broader concerns that problems in the U.S. housing market might restrain overall economic growth. But the developments in subprime were perhaps more a trigger than a fundamental cause of the financial turmoil. The episode led investors to become more uncertain about valuations of a range of complex or opaque structured credit products, not just those backed by subprime mortgages. They also reacted to market developments by increasing their assessment of the risks associated with a number of assets and, to some degree, by reducing their willingness to take on risk more generally. To be sure, these developments may well lead to a healthier financial system in the medium to long term:  Increased investor scrutiny of structured credit products is likely to lead to greater transparency in these products and more rigor in the credit-rating process. And greater caution on the part of investors seems appropriate given the very narrow spreads and the loosening in some underwriting standards seen before the recent episode began. In the shorter term, however, these developments do imply a greater measure of financial restraint on economic growth as credit becomes more expensive and difficult to obtain.

The Federal Reserve’s Response to the Financial Turmoil
Fortunately, the financial system entered the episode of the past few months with strong capital positions and a robust infrastructure. The banking system is healthy.   Despite a few notable failures, hedge funds overall seem to have held up well, and their counterparties have not sustained material losses. The clearing and settlement infrastructure generally worked well despite trading volumes that were extremely high in some cases. Nevertheless, the market strains were serious, as I have discussed, and they posed risks to the broader economy. The Federal Reserve accordingly took a number of steps to help markets return to more orderly functioning.

The Federal Reserve’s initial action was to increase liquidity in short-term money markets through larger open market operations–the standard means by which it seeks to ensure that the federal funds rate stays at or near the target rate set by the Federal Open Market Committee (FOMC).  A number of other central banks took similar steps. One source of pressure in the overnight market was the demand for dollar funding by European banks to which I alluded earlier. As Europe is in the latter part of its trading day when U.S. markets open, this extra demand for dollars at times led the federal funds rate to open well above the target. The extra provision of liquidity by the Fed helped counter the resulting pressure on the funds rate early in the day; it also eased banks’ concerns about the availability of funding and thus assisted the functioning of the interbank market.  To be clear, an open market operation can provide market participants with increased liquidity; but the intervention does not directly increase participants’ capital or allow them to shed risk. In essence, these operations are short-term loans collateralized by government securities.

The vigorous provision of funds through open market operations succeeded in damping pressures in overnight funding markets. Yet markets for term funding, including commercial paper markets as well as the interbank markets, remained strained, and signs of broader financial stress persisted. On August 17, the Fed took further action when the Federal Reserve Board cut the discount rate–the rate at which it lends directly to banks–by 50 basis points, or 1/2 percentage point. The Fed also adjusted its usual practices to facilitate the provision of financing for as long as thirty days, renewable at the request of the borrower.

Loans through the discount window differ from open market operations in that they can be made directly to specific banks with strong demands for liquidity.  (In contrast, open market operations are arranged with a limited set of dealers of government securities.)  In addition, whereas open market operations typically involve lending against government securities, loans through the discount window can be made against a much wider range of collateral, including mortgages and mortgage-backed securities.  As with open market operations, however, Fed lending through the discount window provides banks with liquidity, not risk capital. In particular, the strong collateralization accompanying discount window credit eliminates essentially all risk for the Federal Reserve System and the taxpayer. Nonetheless, the availability of the discount window is potentially significant for banks, as it gives them greater confidence that they can obtain additional liquidity as necessary. Access to a backstop source of liquidity in turn reduces the incentives of banks to limit the credit they provide to their customers and counterparties. The Federal Reserve also took some other steps in response to strains in financial markets, including reducing the fee that it charges for lending Treasury securities from its portfolio, thus helping to meet the heavy demands in the market for those securities.

The Federal Reserve’s actions to ease the liquidity strains in financial markets were similar to actions that central banks have taken many times in the past. Promoting financial stability and the orderly functioning of financial markets is a key function of central banks. Indeed, a principal motivation for the founding of the Federal Reserve nearly a century ago was the expectation that it would reduce the incidence of financial crises by providing liquidity as needed.

In its supervisory role, the Federal Reserve–like other bank regulators–attempts to ensure that individual banks maintain adequate liquidity on hand and make provision to raise additional funds quickly when the need arises. We must be wary of a subtle fallacy of composition, however. Even if each market participant holds a significant reserve of what–in normal times, at least–would be considered highly liquid assets, for the system as a whole the only truly liquid assets are cash and its equivalents. The quantity of cash assets in the system at a point in time is, in turn, essentially fixed, being determined directly or indirectly by the central bank. Thus, whenever an investor sells less liquid assets to raise cash, the cash holdings of other market participants are reduced by an equal amount. Consequently, in highly stressed financial conditions, when the marketwide demand for liquidity rises sharply, one of two things must happen:  Either the central bank provides the liquidity demanded by lending against good collateral, or forced sales of illiquid assets will drive the prices of those assets well below their longer-term fundamental values, raising the risk of widespread insolvency and intensifying the crisis. If the crisis becomes sufficiently severe, history suggests that damage to the broader economy is likely to follow.

In his classic 1873 treatise, Lombard Street, Walter Bagehot famously articulated the need for central banks to be prepared to lend freely against good collateral (what he called “good banking security”) but at a penalty rate.3  A panic, said Bagehot, is a “species of neuralgia” and as such must not be starved (p. 25). Of course, judgment is required to assess whether a particular set of market conditions is severe enough to warrant extraordinary injections of liquidity by the central bank; a too-aggressive intervention could unduly reduce the incentives of market participants to insure against more-normal liquidity risks. In the steps it took, the Federal Reserve strove to reach a middle ground, signaling its willingness and ability to provide liquidity to markets as needed without significantly distorting the incentives of individual banks and other market participants to manage their liquidity prudently.

The Federal Reserve’s efforts to provide liquidity appear to have been helpful on the whole. To be sure, the volume of loans to banks made through the discount window, though it increased for a time, has been modest. However, collateral placed by banks at the discount window in anticipation of possible borrowing rose sharply during August and September, suggesting that some banks viewed the discount window as a potentially valuable option. On the other hand, no amount of liquidity provision by the central bank can be expected to solve the problems regarding the valuation of complex securitized assets or to reverse the credit losses on subprime mortgages. These underlying difficulties will be resolved only over time by financial markets.

Since mid-August the functioning of financial markets has improved to some degree, supported not only by liquidity provision but also by the monetary policy action taken in September, to which I will return in a moment. Interest rate spreads on ABCP have fallen by more than half from their recent peaks, and overall commercial paper outstanding has edged up this month after declining sharply over August and September. Interbank term funding markets have improved modestly, though spreads there remain unusually wide. Some progress has been made in bringing pending LBO-related loans to market, albeit at discounts and with tightened terms. Risk spreads in corporate bond markets have narrowed somewhat, the issuance of speculative-grade bonds has restarted, and investment-grade issuance has been strong. Volatility in many asset markets has declined toward more-normal levels. Perhaps most important, in many markets investors are showing an increased capacity and willingness to differentiate among assets of varying quality.

In contrast, despite a few encouraging signs, conditions in mortgage markets remain difficult. The markets for securitized nonprime (that is, subprime and so-called alt-A) loans are showing little activity, securitizations of prime jumbo mortgages reportedly have increased only slightly from low levels, and the spread between the interest rates on nonconforming and conforming mortgages remains elevated. These continued problems suggest that investors will need more time to gather information and reevaluate risks before they are willing to reenter these markets.

Monetary Policy and the Economic Outlook
The Federal Reserve’s efforts to support the normal functioning of financial markets have as their ultimate objective the stability and efficiency of the broader economy. In addition, of course, the Federal Reserve can adjust the stance of monetary policy by changing its target for the federal funds rate. The FOMC manages monetary policy to further its dual mandate to promote maximum sustainable employment and price stability.

The turmoil in financial markets significantly affected the Committee’s outlook for the broader economy. Indeed, in a statement issued simultaneously with the Federal Reserve Board’s August 17 announcement of the cut in the discount rate, the FOMC noted that the downside risks to growth had increased appreciably. However, to allow time to gather and evaluate incoming information, possible policy action was deferred until the Committee’s next regularly scheduled meeting on September 18.

A key issue at that meeting was the extent to which the market disturbances had affected the outlook for the housing sector.  Financial markets overall had improved somewhat, but tighter terms and standards in the mortgage market–particularly in the nonprime and jumbo segments–appeared likely to intensify the correction in housing significantly, with adverse implications for construction activity and house prices. Indeed, incoming housing data had continued to soften even before the advent of the stress in financial markets. A further sharp contraction in residential construction seemed likely to hold down overall economic growth in the fourth quarter and in early 2008.

As they had at earlier meetings, the participants in the September meeting evaluated the potential effects of housing-market developments on other parts of the economy. They agreed that significant spillovers to household and business spending were not yet evident. For example, auto sales had picked up in August from the low levels of earlier in the summer; and business investment did not appear to have been seriously affected by financial market developments, as highly rated firms continued to enjoy good access to credit. Strong growth abroad was also viewed as supporting U.S. exports and domestic production. And as I have noted, the available evidence suggested that overall economic growth in the third quarter remained moderate.

However, downside risks to both household and business spending had clearly increased over the period since the Committee’s previous meeting. Notably, the weak housing market, somewhat downbeat consumer sentiment, and slower growth in private-sector employment increased the likelihood that consumption spending would slow in coming quarters. Participants at the September meeting also reported somewhat greater caution in the outlooks of their business contacts. Financial market conditions were expected to improve slowly at best; and even if conditions began to normalize, credit would likely remain noticeably tighter for many borrowers than had been the case during the summer. Furthermore, any weakening in the economy could itself have a negative effect on still-fragile credit markets, possibly leading credit conditions to tighten further.

Regarding the other half of its mandate, to promote price stability, the Committee noted some improvement over the past year in measures of the trend component of inflation, such as core inflation. Moreover, slower growth in aggregate demand would help to ease pressure on resources. But inflation risks remained, including still-high levels of resource utilization and elevated prices for oil and other commodities. The Committee agreed that continued close attention to inflation developments was warranted. Overall, given the great difficulty of knowing how financial conditions would evolve or the extent of their effect on the economy, Committee members judged the level of uncertainty in the outlook to be unusually high.

As you know, the Committee chose to cut its target for the federal funds rate by 50 basis points at the September meeting. This action was intended to help offset the tightening of credit conditions resulting from the financial turmoil. Risk-management considerations also played a role in the decision, given the possibility that the housing correction and tighter credit could presage a broader weakening in economic conditions that would be difficult to arrest. By doing more sooner, policy might be able to forestall some part of the potential adverse effects of the disruptions in financial markets. As most of the meeting participants saw growth likely to run below trend for a while and with the incoming inflation data on the favorable side, the risks to inflation from this action seemed acceptable, especially as the Committee was prepared to reverse the policy easing if inflation pressures proved stronger than expected.

Since the September meeting, the incoming data have borne out the Committee’s expectations of further weakening in the housing market, as sales have fallen further and new residential construction has continued to decline rapidly. The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year. However, it remains too early to assess the extent to which household and business spending will be affected by the weakness in housing and the tightening in credit conditions. We will be following indicators of household and business spending closely as we update our outlook for near-term growth. The evolution of employment and labor income also will bear watching, as gains in real income support consumer spending even if the weakness in house prices adversely affects homeowners’ equity. The labor market has shown some signs of cooling, but these are quite tentative so far, and real income is still growing at a solid pace.   

On the inflation side, prices of crude oil and other commodities have increased somewhat in recent weeks, and the foreign exchange value of the dollar has weakened. However, overall, the limited data that we have received since the September FOMC meeting are consistent with continued moderate increases in consumer prices. As the Committee noted in its post-meeting statement, we will continue to monitor inflation developments carefully.

It does seem that, together with our earlier actions to enhance liquidity, the September policy action has served to reduce some of the pressure in financial markets, although considerable strains remain. From the perspective of the near-term economic outlook, the improved functioning of financial markets is a positive development in that it increases the likelihood of achieving moderate growth with price stability. However, in such situations, one must also take seriously the possibility that policy actions that have the effect of reducing stress in financial markets may also promote excessive risk-taking and thus increase the probability of future crises.  As I indicated in earlier remarks, it is not the responsibility of the Federal Reserve–nor would it be appropriate–to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy. In particular, as I have emphasized, the Federal Reserve has a mandate from the Congress to promote maximum employment and stable prices, and its monetary policy actions will be chosen so as to best meet that mandate.

Indeed, although the Federal Reserve can seek to provide a more stable economic background that will benefit both investors and non-investors, the truth is that it can hardly insulate investors from risk, even if it wished to do so. Developments over the past few months reinforce this point. Those who made bad investment decisions lost money. In particular, investors in subprime mortgages have sustained significant losses, and many of the mortgage companies that made those loans have failed. Moreover, market participants are learning and adjusting–for example, by insisting on better mortgage underwriting and by performing better due diligence on structured credit products. Rather than becoming more crisis-prone, the financial system is likely to emerge from this episode healthier and more stable than before.

I have sought this evening to put recent financial market developments in context and to explain the thinking behind the steps taken by the Federal Reserve.  This has been a challenging period. Conditions in financial markets have shown some improvement since the worst of the storm in mid-August, but a full recovery of market functioning is likely to take time, and we may well see some setbacks. In particular, investors are continuing to reassess the risks they face and have not yet fully regained confidence in their ability to accurately price certain types of securities. The ultimate implications of financial developments for the cost and availability of credit, and thus for the broader economy, remain uncertain.

In coming months, the Federal Reserve, together with other agencies both here and abroad, will perform comprehensive reviews of recent events to better understand the episode and to draw lessons for the future. For now, the Federal Reserve will continue to watch the situation closely and will act as needed to support efficient market functioning and to foster sustainable economic growth and price stability.


1. Estimates of delinquencies are based on data from First American LoanPerformance. Return to text

2. Jumbo mortgages are those mortgages for which the principal value does not conform to the limit set annually by Fannie Mae and Freddie Mac for loans they will purchase; the amount for 2007 is $417,000. Jumbo loans are thus a type of  “nonconforming” loan. Prime loans are those made to borrowers with good credit records. Return to text

3. Walter Bagehot (1962 reprint), Lombard Street (Westport, Conn.: Hyperion Press). Return to text

Loan Modification for Distressed IndyMac Folks:

Loan Modification Program for Distressed Indymac Mortgage Loans


IndyMac Federal Bank, FSB (“Indymac Federal”) will implement a new program to systematically modify troubled mortgages. The program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. This in turn will maximize value for the FDIC, as well as improve returns to the creditors of the former IndyMac Bank and to investors in those mortgages. The new program will help IndyMac Federal improve its mortgage portfolio and servicing by modifying troubled mortgages, where appropriate, into performing mortgages.

Below are some questions and answers regarding the program:

What loans are eligible?
What is the timeline for rollout of offers?
How will you determine which loans receive modification proposals first?
What modification options will be available to borrowers?
How does the IndyMac Federal determine whether the modified mortgage is affordable to the borrower?
How do borrowers apply for the program?
Where should borrowers interested in the program call to apply?

What loans are eligible?
The streamlined loan modifications will be available for most borrowers who have a first mortgage owned or securitized and serviced by IndyMac Federal where the borrower is seriously delinquent or in default. IndyMac Federal also will seek to work with others who are unable to pay their mortgages due to payment resets or changes in the borrowers’ repayment capacities. This streamlined approach applies only to mortgages for the borrower’s primary residence. As with all modifications, borrowers will have to demonstrate their financial hardship by documenting their income.

The goal of this streamlined loan modification program is to achieve improved value for IndyMac Federal by turning troubled loans into performing loans and, thereby, avoiding unnecessary and costly foreclosures. Accomplishing this goal will reduce the costs to the FDIC of the failure of IndyMac Bank and provide improved returns to investors in securitized mortgages.

Some mortgages serviced by IndyMac Federal are subject to additional contractual terms governing loan modifications. While additional steps are necessary to comply with those contracts, IndyMac Federal will work to expedite approvals for modifications to help eligible homeowners keep their homes.

IndyMac Federal will only make modification offers to borrowers where doing so will achieve an improved value for IndyMac Federal or for investors in securitized or whole loans. Modification offers will be provided consistent with agreements governing servicing for loans serviced by IndyMac Federal for others. The modification program does not guarantee a modification offer for IndyMac Federal borrowers.

What is the timeline for rollout of offers?
Proposed modification terms already are being sent to IndyMac Federal borrowers based on information provided by the borrowers. Several thousand modification offers will be sent by the end of this week and we will continue to reach out to many more distressed borrowers in the coming weeks. Once the borrower signs the agreement and sends a check for their new mortgage payment, along with the information necessary to verify income, IndyMac Federal will promptly finalize the modification once it verifies that the borrower’s income matches the specific modification offer. Borrowers who have not been contacted by IndyMac Federal with a modification offer, but who are experiencing financial hardship and are falling behind on their mortgage payments should contact the bank to inquire whether they may be eligible for a loan modification that could help them keep their home.

How will you determine which loans receive modification proposals first?
IndyMac Federal is focusing on mortgages that are now seriously delinquent or in default in order to prevent further losses on those mortgages and to avoid unnecessary and costly foreclosures. Borrowers who have not been contacted by IndyMac Federal with a modification offer, but who are experiencing financial hardship and are falling behind on their mortgage payments should contact the bank to inquire whether they may be eligible for a loan modification that could help them keep their home.

What modification options will be available to borrowers?
Under the IndyMac Federal program, eligible mortgages would be modified into sustainable mortgages permanently capped at the current Freddie Mac survey rate for conforming mortgages (now about 6.5%). Modifications would be designed to achieve sustainable payments at a 38 percent debt-to-income (DTI) ratio of principal, interest, taxes and insurance. To reach this metric for affordable payments, modifications could adopt a combination of interest rate reductions, extended amortization, and principal forbearance.

If, consistent with maximizing the net present value of the mortgage, an interest rate reduction below the current Freddie Mac survey rate is necessary to achieve a 38% DTI, then IndyMac Federal could reduce the rate further for five years. After five years, the interest rate would increase by no more than 1% per year until it capped at the Freddie Mac survey rate where it would remain for the balance of the loan term. Other modification features could be combined with an interest rate reduction, as necessary and consistent with maximizing the value of the mortgage, to achieve sustainable payments.

It is important to remember that there are no fees or other charges for this modification. All unpaid late charges will be waived.

How does IndyMac Federal determine whether the modified mortgage is affordable to the borrower?
IndyMac Federal determines whether a modification proposal is affordable based on income information received from the borrower. Modifications would be designed to achieve sustainable payments at a 38 percent housing debt-to-income (DTI) ratio of principal, interest, taxes and insurance. To reach this metric for affordable payments, modifications could adopt a combination of interest rate reductions, extended amortization, and/or principal forbearance.

How do borrowers apply for the program?
Thousands of delinquent borrowers will be receiving proposed offers for a loan modification in the coming weeks. These offers are based on current income information provided by the borrowers. Borrowers also may call 1-800-781-7399 to talk with an IndyMac Federal customer service specialist and find out if they may qualify for a loan modification under this program or alternatives that may help them keep their home. Once a borrower has provided financial information to an IndyMac Federal customer service representative, IndyMac Federal will evaluate whether a loan modification may be available and, if so, provide a proposed offer to the borrower by mail.

Once a borrower has received a proposed modification offer, all it takes for them to bring their mortgage current and qualify for a final modified mortgage is to

  1. sign and return the enclosed Modification Agreement along with a check for their modified monthly mortgage payment and
  2. provide verification of their income to confirm that they qualify for the proposed modification.

The borrower must then continue to make timely payments at the modified monthly payment amount and comply with all other terms of their mortgage agreements. If the borrower’s verified income information demonstrates that they do not qualify for the proposed modification, IndyMac Federal will contact them to discuss alternatives that may help them keep their home.

Where should borrowers interested in the program call to apply?
Borrowers who are delinquent or who are experiencing financial hardship and are falling behind on their IndyMac Federal mortgage should call 1-800-781-7399 to speak with an IndyMac Federal customer service representative. They may also visit the FDIC website ( or the IndyMac Federal website ( to find out more about the loan modification program.


For further information on Indymac Federal please visit:

Remarks by FDIC Chairman Sheila C. Bair on the IndyMac Loan Modification Announcement:

Are More Foreclosure Coming?

Bad news are not coming to an end. It seems like the whole economy was purposely sabotaged by the very knowledgeable people who were supposed to give it strength and credibility. There are miles high condominiums in Florida and other places which are vying their space for foreclosure, short sales, and of course just plain abandonments. There seems no dearth of bad news coming from all the four corners. It is not the ARMS, or ALT papers anymore, it is the 30 years, 20 years mortgage secured by middle class people who had a credit score of 700 and more, who are declaring bankruptcy. I just heard on 60 minutes tonight that one in every third mortagee in US is behind at least one payment. This is bad news. It seems like the president-elect has already too much on his plate. The Wall Street has already cleansed itself, the index is what it should ideally reflect the market. Well, the oil prices are rapidly coming down. One thing which shocks me that all the Pundits used to say that oil prices are going up because people in India and China had bought too many cars. Folks, that was all belony. People in both China and India howns the same number of cars, but the oil prices are rapidly coming down. One thing is clear that oil prices were manipulated, and since the artifical control has been relaxed, they are coming down. I don;t know why the Bailout money was so lavishly given out to Banks without any proper checks and balances. Still, it is not too late to make them fully accountable, and the banks should not be allowed to either buy more banks with this money, or give bonuses to their employees and managers. This bailout money should judiciously be used for only one purposes and that is saving the home of average Americans and hard pressed families.

List of Loan Modifications Lenders

I have in my previous articles written few times that your lenders’ first lines of defense is the collection department. These are very hard core people who just wants to collect money from you regardless of your dire economic situations. These are very difficult and dedicated people, and would not let your phone calls transfers to the next line or the right phone system. Again, you have to learn to navigate the phone systems of your lenders. Absolute patience is required because the phone system is digitized and one mistake means, you have to start all over. Please do not lose your patience, or start yelling on anyone. Again, don’t call at rush hours. Best days to call is of course Thurdsays and Fridays. Make sure you write down the name of the person, and his/her telephone number along with the extension. As I wrote previously, these lenders have various sections for loan modifications like home retention, loss mitigation. Just be patient with all these names and nomenclautre.

Your lenders like to work with you. Just like you, they are equally frustrated with the system. Below here, I have found an exhaustice list of the phone and addresses of all the famous lenders. Please never call the number listed on your coupon vouchers or your statements, they are mostly meant for customers services. The loan modification department has different telephone numbers.
Okay, here is the list:

Lender/Servicer Loss Mitigation Phone Numbers & Contact Information

ABM AMRO Mortgage (800) 783-8900

Accredited Home Lenders(877) 683-4466

AMC Mortgage Services (Also handles loans originated by Ameriquest and Argent) (800) 211-6926
1600 McConnor Parkway
Schaumburg, IL 60173

American Home Mortgage Corp.(877) 304-3100*

Ameriquest Mortgage (Debt collection — see AMC Mortgage Services) (800) 211-6926

Aurora Loan Services (Debt collection) (800) 550-0508
By Overnight Mail:
601 5th Avenue
Scottsbluff, NE 69361
Attn: Customer Service
By Regular Mail:
P.O. Box 1706
Scottsbluff, NE 69363
Web: icing%2fDefault.aspx

Avelo Mortgage LLC (866) 992-8356*

Bank of America(800) 846-2222

BB&T Mortgage (800) 827-3722*

AmTrust Bank (fka Ohio Savings Bank) (888) 696-4444

Beneficial (800) 333-5848

Central Pacific Bank (800) 342-8422*

Charter One (800) 234-6002

Chase (800) 446-8939
Chase Home Finance (800) 848-9136 (customer service) (858) 605-2181 (delinquency customer service)
Chase Home Finance-New Jersey(800) 446-8939*Chevy Chase Bank(800) 933-9100*

Chase Manhattan Mortgage
(800) 446-8939 (Ohio Servicing Center)
(800) 526-0072 (Florida Servicing Center)
(800) 527-3040 x533 (Florida Servicing Center)

Chevy Chase Bank (800) 933-9100
Web: (Payment Addresses)

Citi Financial Mortgage (800) 753-3673

Citimortgage (800) 283-7918

Countrywide (800) 262-4218…t_login254.asp

Ditech (800) 852-0656 (800) 449-8582

Downey Financial Corp.(800) 824-6902, ext. 6696

Deutsche Bank National Call Number on Mortgage Statement

EMC 800-723-3004
P.O. Box 141358
Irving, TX 75014-1358

EverBank (800) 669-7724 ext. 4730

Equity One (Debt collection) (866) 361-3460

First Horizon Home Loans (800) 489-2966*

Fifth Third Bank (800) 375-1745 Option 3

First Merit Bank (888) 728-9931

Flagstar Bank (800) 968-7700, ext. 9780

Fremont Investment & Loan (866) 484-0291

GMAC Mortgage (800) 850-4622

GreenPoint Mortgage Funding (800) 784-5566, ext. 5383*

Green Tree (877) 816-9125

Homecomings Financial (800) 850-4622*

HomeEq Mortgage Servicing ( Debt collection) (866) 822-1471

Household Finance (A HSBC Co.) (800) 333-5848

Household Mortgage (800) 333-4489

HSBC Mortgage (800) 338-6441
Default Resolution Team (if long term problem)
2929 Walden Avenue
Depew, NY 14043
(888) 648-3124 Loss Mit
(732) 352-7519 Fax

Huntington National Bank (800) 323-4695

Indymac Bank (877) 736-5556
C/O Loan Resolution Department
P.O Box 7014
Pasadena, CA 91107
(Monday – Friday 6:15am-7:15pm. (Pacific Time))

Irwin Mortgage (888) 218-1988
P.O Box 7014
Pasadena, CA 91107
Web:!ut/p/cxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLN4g3sdAvyHZUBAAqwx 9c

James B. Nutter & Company (800) 315-7334

Key Bank (800) 422-2442

LaSalle National Bank (800) 783-8900

Litton Loan Servicing (800) 999-8501 or (800) 548-8665
Fax (713) 966-8820
4828 Loop Central Drive
Houston, Texas 77081-2226

Loss Mitigation Department Hours:
Monday Eastern: 9 a.m. – 7 p.m. Central:8 a.m. – 6 p.m. Mountain:7 a.m. – 5 p.m. Pacific:6 a.m. – 4 p.m.
Tuesday-Thursday Eastern:9 a.m. – 9 p.m. Central:8 a.m. – 8 p.m. Mountain:7 a.m. – 7 p.m. Pacific:6 a.m. – 6 p.m.
Friday Eastern:10 a.m. – 6 p.m. Central:9 a.m. – 5 p.m. Mountain:8 a.m. – 4 p.m. Pacific:7 a.m. – 3 p.m.
Default Counseling Department representatives are also available most weekends on Saturday from 8 a.m. to 12 p.m. and Sunday from 10 a.m. to 2 p.m. (CST).

Midland Mortgage (800) 552-3000 or (800) 654-4566

Mortgage Lenders Network (800) 691-0129

Mortgage Electronic Registration Systems (888) 679-6377

National City (800) 367-9305, Ext. 53221 or (800) 523-8654
Attention: Homeowner’s Assistance
3232 Newmark Dr.
Miamisburg, Ohio 45342
(8AM-10:30PM ET, Monday – Thursday)
(8AM-5PM ET, Friday)
(8AM-Noon, Saturday)

Nationwide Advantage Mortgage Company (800) 356-3442, ext. 6002*

NationStar Mortgage (888) 850-9398* Press 0 for operator

New Century Financial Now Carrington Mortgage Services (800) 790-9502 or (877) 206-9904
(6:00 a.m. to 7:00 p.m. Pacific Time, Monday – Thursday)
(6:00 a.m. to 6:00 p.m. Pacific Time, Friday)

NovaStar Mortgage Loan Resolution Department (888) 743-0774 Non-English: (888) 743-0774, ext. 4523

Ocwen Federal Bank (800) 746-2936 or (877) 596-8560

Attention: Financial Information
12650 Ingenuity Drive
Orlando, Florida 32826
Ocwen Financial Corporation
1661 Worthington Rd., Suite 100
West Palm Beach, Florida 33409
Phone: 877-226-2936

For serving Ocwen with legal process, please send to their registered agent:
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
Phone: 561-682-8000, x8386

Option One (866) 711-1962 or (888) 275-2648

PHH Mortgage (Formerly Cendant) (800) 257-0460
For borrowers facing possible delinquency: (800) 330-0423*
For borrowers in the foreclosure process: (800) 750-2518
Web: NTNAME=phhmort-stb&TARGET=$SM$https%3a%2f%2fwww%2ephhmortgage%2ec om%2fhome%2flandscape%3fjpid%3dLogIn%26loginmode%3 dregistered&SMSESSION=NO

ResMae Mortgage Corp.(877) 473-7623, ext. 5944

Saxon (800) 665-7367

Select Portfolio Servicing (888) 818-6032
Fax: (801) 293-3936
Loan Resolution Department
P.O. Box 65250
Salt Lake City, UT 84165-0250
(Monday – Thursday 10:00 a.m. – 10:00 p.m. EST)
(Friday 10:00 a.m. – 7:00 p.m. EST)
(Saturday 9:00 a.m. – 1:00 p.m. EST)

SkyBank (800) 290-3359

Sun Trust Mortgage (800) 634-7928
PO Box 26149
Richmond, VA 23260-6149
Mail Code RVW 3003Web:

Third Federal Savings (888) 844-7333

US Bank (800) 365-7900

Wachovia Bank of Delaware (866) 642-8608

Washington Mutual (866) 926-8937 or (888) 453-3102 or (800) 478-0036 or (800) 254-3677

Waterfirld Mortgage (800) 957-7245
Fax: (260) 459-5390
c/o Loss Mitigation Dept.
7500 W. Jefferson Blvd.
Fort Wayne, IN 46804
(7 am – 10 pm EST Monday – Thursday)
(7 am – 9 pm EST Fridays)
(8 am – 2 pm EST Saturdays)

Wells Fargo (877) 216-8448 or (866) 261-5642 or (800)766-0987 or (800) 678-7986 for payment assistance
Borrower Counseling Services
Monday – Friday 8:00 a.m. – 9:00 p.m., CT
Saturday 9:00 a.m. – 2:00 p.m., CT

Wendover Financial Services Corporation (800) 934-1081 or (800) 436-1022

Wilshire Credit Corporation (888) 502-0100
P.O. Box 8517
Portland, OR 97207-8517
From 6 a.m. to 5 p.m. (Pacific time) Monday through Friday

Can You Do Your Own Loan Modifications?

You can do your Own Loan Modification?

I have repeatedly been asked by potential clients and other friends if they can do their loan modification. The quick answer is yes, they can. But the next question is how they can?  Well, first thing is that Loan modification is difficult and there are stumbling blocks on each phase. The first contact is difficult. The good news is that banks have hired more people for loan modifications and the process appears to be simple, but in fact, it is becoming more and more complicated. There is still old mentality of saying No, and it is the easiest thing to say No. No, has very little consequences. A Yes, means more commitment and more work, and these folks does not like to work.

A Word of Caution

Even if still you like to do the loan modification yourself, please take care of the following steps.

1.         Write a good economic hardship letter starting with changes in your job, hours, pay scale, and then your spouse in a similar way.

2.         Make sure you approach the right section of the bank. Only talk to the Loan Mitigation, Home Retention, Loss Mitigations. Be careful about not talking too much with the Debt Collection People. They get commission when you pay your delinquent amount, and they   have no authority to offer you in return.

3.         Don’t be evasive and procrastinate in responding to your mail. Answer them and keep communicating with them.

4.         Make record of each and every document you send them. It is good idea to write a journal of all your mail received and sent.

5.         Get full name, extension number of the person you spoke each time you contact them or vice versa.

6.         When informing them about your financial situation, don’t give too negative a picture of yourself and your income. In fact, you have to tell them that you are still credit worthy and income producing individual, who is temporarily in trouble.

Hopefully, these tips would help you.

Not that I mean to be disrespectful but these are still what I call”over the coounter medicine” which may be good if you have a headache or common cold, but what if you have problem of (god forbid) liver diseases, pancrease, or heart issues or some major problems, and now you need a prescribed drug, see a doctor, a pharmacit and labs need to be done. That is why a qualified licensed attorney who is familiar with the laws of RESPA, TILA, HOEPA, can be very helpful to you.


No Bailout for Auto: World Market Plunging

World markets plunge as US auto bailout fails

LONDON – World stock markets plunged Friday as the U.S. Senate’s rejection of a $14 billion deal to rescue Detroit’s ailing automakers stoked concerns that the recession in the world’s largest economy will be even longer and deeper than projected.

The FTSE 100 of leading British shares was down 127.87 points, or 2.9 percent, at 4,260.82, while Germany’s DAX fell 185.22 points, or 3.9 percent, to 4,581.98. The CAC-40 in France fell 130.48 points, or 4.0 percent, to 3,175.65.

Earlier, Asian markets tumbled, with Japan’s Nikkei 225 stock average down 484.68 points, or 5.6 percent, to 8,235.87. Hong Kong’s Hang Seng index slid 5.5 percent to 14,758.39.

U.S. stock index futures pointed to a big sell-off later on Wall Street. The Dow Jones industrial average was projected to drop 259 points, or 3.0 percent, to 8,311, while the broader Standard & Poor’s 500 index was forecast to fall 32.90 points, or 3.8 percent, to 841.60.

Investors were rattled after the bailout for Detroit’s struggling Big Three automakers failed in the U.S. Senate. The collapse came after bipartisan talks on the auto rescue broke down over Republican demands that the United Auto Workers union agree to steep wage cuts by 2009 to bring their pay into line with U.S. plants of Japanese carmakers.

The bankruptcy of any of the big American automakers would deal another blow to the world’s largest economy, already in recession.

“For anyone looking for a quiet end to the year, forget about it,” said Mitul Kotecha, an analyst at Calyon Credit Agricole.

Hopes for the U.S. auto industry now appear to rest with President George W. Bush agreeing to tap the $700 billion Wall Street bailout fund, or TARP, to aid the carmakers. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.

“This will likely keep markets on edge over the coming weeks…unless it is evident that TARP funds will be used,” said Kotecha.

It’s not just stock markets suffering in the wake of the failure of the Senate to pass the rescue deal. The dollar slumped overnight too, particularly against the yen.

The dollar fell to a low of 88.16 yen, its lowest level since Aug. 2, 1995 — before it recovered to trade above 90 yen.

That heaps more bad news on major Japanese exporters like Toyota and Sony — already reeling from waning global consumer demand — whose overseas income is eroded by an appreciating yen.

Toyota Motor Co. dived 10.1 percent, Nissan Motor Co. lost 11.5 percent and Sony Corp. fell 6 percent. South Korea’s Hyundai Motor Co. shed 9.3 percent and Kia Motors Corp. was off 9.1 percent.

Mainland China‘s stock market fell as investors were discouraged by the lack of any major new initiatives to spur the economy following a top-level economic conference earlier in the week. The benchmark Shanghai Composite Index dropped 3.8 percent to 1,954.21.

Figures this week show that China’s economy is feeling the pinch of the global slowdown. For the first time in seven years, exports fell in November.

Investors also grappled with grim U.S. economic and corporate news. New unemployment benefit applications in the week ending Dec. 6 rose to a seasonally adjusted 573,000 from an upwardly revised figure of 515,000 in the previous week. And Bank of America Corp. announced it expects to cut 30,000 to 35,000 jobs over the next three years.

Markets had rallied after President-elect Barack Obama last weekend proposed a massive stimulus package for the U.S. economy once he takes office in late January, pledging the largest public works program since the creation of the U.S. interstate highway network a half-century ago.

“This has been a typical bear market rally. It’s been based on very high expectations of Obama’s fiscal stimulus plan,” said Arjuna Mahendran, head of Asian investment strategy at HSBC Private Bank in Singapore.”It’s been based on expectations and nothing else.”

Elsewhere, oil prices retreated to below $46 a barrel Friday in Asia after a strong rally overnight, but traders said expectations of a sharp production cut by the OPEC cartel would support the market. Light, sweet crude for January delivery fell $1.27 to $46.71 a barrel in electronic trading on the New York Mercantile Exchange.