foreclosure prevention

Ah, to be a Real Housewife of Orange County. While many of her O.C. neighbors are being sucked down the foreclosure drain, Alexis Bellino -- she of "The Real Housewives of Orange County" fame -- and her husband, Jim, have been spared the pain and humiliation of losing their home in default of their $4.6 million loan. Perhaps there is enough pain and humiliation associated with starring in this show and the forces of karma needed to restore balance to the universe? It certainly isn't an everyday occurrence that Chase Bank gets to be a shining knight in loan-modification armor.

The Bellinos reportedly were behind $83,000 in payments on their Newport Beach home, according to The Orange County Register. The 4,200-square-foot house was set to be auctioned off on the old courthouse steps earlier this week, but the Bellinos were able to seal a loan modification deal with Chase. The newspaper confirmed the arrangement with Jim Bellino.

Their story appears pretty typical, up to a point.

Does a shred of good news have an impact amid a forest of disastrous reports? The Mortgage Bankers Association reported that the number of loans in the foreclosure process declined in the second quarter of 2010 for the first time since 2006. The question remains whether this figure matters in light of the recent 27 percent decline in existing home sales. The answer is probably yes and no. The good news is that most of the subprime loans that contributed to the housing crash have worked their way through the system. The bad news is that many homeowners with conventional loans are now sliding toward foreclosure due to the persistently high unemployment rate. While nobody really knows whether home sales will recover in the coming months, it's nice to know that not every every market indicator is pointing toward the cellar.

The Obama administration plans to funnel a total of $3 billion in aid to jobless homeowners having trouble making payments through various state agencies. Some $2 billion in payments will be made by the Hardest Hit Fund created through the Treasury Department to state Housing Finance Agencies (HFAs). The other $1 billion will be provided through the Department of Housing and Urban Development and used to supply 24 months of assistance to homeowners on the brink of foreclosure. Qualifying borrowers must have had solid payment records prior to loss of income and must be at least 3 months behind in their payments.

It's sad but true. Americans are increasingly filing for bankruptcy in order to avoid foreclosure.

Katherine Porter, a bankruptcy expert at Harvard Law School, estimates that 75 percent of Chapter 13 filings fall into this category. "Despite all the government programs, bankruptcy is probably the most commonly used foreclosure prevention technique," Porter tells HousingWatch.

If you'd like to file for bankruptcy but are worried about your credit, Porter says don't worry. "Those who have a foreclosure filing against them, their credit score has already taken such a big hit that the additional blemish of bankruptcy is not particularly significant," she says.

It's sad that we've had to resort to this, but the truth is that bankruptcy filing stops the foreclosure process cold. Lenders aren't even allowed to try collecting debts until a judge gives them the OK.

It's only a short reprieve though, says Porter, lasting a couple of months at the most because by then most court cases have been resolved.

Are you stuck with high mortgage interest, but think you can't refinance because you owe more than the house is worth? You may still be able to qualify for a Fannie Mae Refi Plus loan.

You can get a refi for up to 125 percent of your home's value. That means if the current market value is $200,000, you can get a mortgage up to $250,000. So even if your house is underwater, if you're stuck with a loan above 6 percent, you should still talk with your lender about a Fannie Mae Refi Plus loan. You may also want to use this program to lock in a low fixed rate, if you still have an adjustable rate mortgage.

The loan must currently be owned by Fannie Mae. You can find out if your loan is eligible by using the Fannie Mae lookup tool. If you find out your loan is owned by Fannie Mae, your next step is to call your loan servicer. You can find out if your servicer is in the Fannie Mae network and a contact number for him using Fannie Mae's search tool.

The refinance process for Fannie Mae has been streamlined and you may not even need to get an appraisal or credit check, as long as you have been paying your mortgage on time.

Are you unemployed and trying to find a way to keep your home? As of July, help is available from the Home Affordable Unemployment Program (HAUP). If you qualify for the program your mortgage payment could be suspended or reduced, depending on your financial situation.

Here are the basic eligibility requirements for HAUP:

• You must own a one- to four-unit property and live in one of the units as your principal residence.
• The mortgage on that property must be a first lien originated on or before Jan. 1, 2009.
• The current unpaid balance of the mortgage is equal to or less than $729,750.
• Your mortgage loan is in default or default is "reasonably foreseeable."
• Your mortgage has not been modified by HAMP or you have not received previous help from this program.
• You must seek help before three full mortgage payments are due and unpaid.
• You must prove that you are unemployed and document your unemployment benefits.

The servicer can also require that you have been on unemployment benefits for at least three months before your forbearance period can begin.

If you're a cash-strapped homeowner, an offer to modify your mortgage or help you avoid foreclosure no doubt sounds tempting. After all, you may be behind on your home loan. Credit card bills could be past due, as well. And you're likely struggling just to make ends meet.

But when someone comes along promising to help you save your home, how do you know whom to trust?

Fortunately, there are reputable organizations available to help financially troubled homeowners – as well as some telltale signs that can tip you to a foreclosure rescue scam.

More than 7.3 million home loans are in some state of delinquency or foreclosure, and there's no end in sight. That's because the number of homeowners who are 90 days or more delinquent jumped 9.2 percent in May 2010 over May 2009, according to the Mortgage Monitor Report from Lender Processing Services (LPS).

When you add that to the inventory of home foreclosures (3.18 percent), 12.38 percent of homeowners are at risk of losing their homes.

In 12 states the delinquency rate is even higher -- over 10 percent. These include Nevada (14.5 percent), Mississippi (14 percent), Georgia (12.3 percent), Florida (11.2 percent), Arizona (11 percent), California (10.8 percent), Rhode Island (10.6 percent), Tennessee (10.6 percent), Alabama (10.5 percent), Michigan (10.4 percent), Louisiana (10.3 percent), and West Virginia (10.3 percent).

The good news, if you can call it that, is that people in trouble are able to stay in their homes longer -- even if they do default on a mortgage.

With the average foreclosure now taking 438 days, delinquent borrowers are finding that they can live in their homes without making mortgage payments for at least a year. But there is a catch. That nationwide average may not apply in your state.

The states with the longest wait time before foreclosure are those states that require a judicial foreclosure, which means the bank or investor must take the case to very crowded courtrooms. There are 16 states that require a judicial foreclosure: Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Pennsylvania and South Carolina.

But even if you don't live in one of those states, your state might be taking action to slow down foreclosures and at least require a mediation before you lose your home.

JPMorgan Chase CEO Jamie Dimon was once a golden boy in Washington. After his bank emerged relatively unscathed from the subprime meltdown, Dimon was an enthusiastic supporter of the government's bailout plans. The lifelong Democrat was a member of Barack Obama's unofficial brain trust during the 2008 presidential campaign, and his name was even floated as a potential Treasury Secretary. In the thick of the financial turmoil in February 2009, President Obama held out JPMorgan as an example of a well-managed bank.

These days the praise on both sides has grown more restrained as the president and the banker clash over financial reform and foreclosure prevention.

The gloves came off entirely Tuesday in testimony before the House Committee on Financial Services. David Lowman, Dimon's lieutenant and the CEO of Chase's home lending, argued strongly against a cornerstone of the Obama Administration's plan to help homeowners facing foreclosure.

Ever wonder why banks have been so slow to modify home loans on the brink of foreclosure? I have. Well, part of the answer may have just been revealed in a recent story in London's Financial Times.

The story is about the resistance of some investors to get back into real estate, especially as the federal government winds down its programs that have propped up the market. Big investors like BlackRock, a leading bond investor, that once put money into home loans are staying on the sidelines because of an unresolved fight in the financial markets. If these investors continue to turn up their noses at bonds backed by mortgages, that would mean less money available for homes loans and higher interest rates as a result.

The dispute is over who bears the brunt of losses on distressed mortgages, in particular those linked to a second lien, as is often the case. And it goes a long way to explaining why banks have seemingly sabotaged the government's efforts at foreclosure prevention.

Lots of government officials have promised to help homeowners facing foreclosure, but New York City is finally offering homeowners something of real value: free legal aid to help them negotiate a fair deal from their banks.

"No family facing the loss of their home should be without representation," says New York City Mayor Michael Bloomberg.

The city plans to train 300 new volunteer lawyers over the next three months, through an organization called NYC Service Legal Outreach. One hundred lawyers will be stationed at courthouses to screen homeowners, while the other 200 will be matched with individual homeowners and represent them through the foreclosure settlement process, according to a story in Crain's New York Business.

The lawyers will represent homeowners during the mandatory "settlement conference" now required under New York City law, when the homeowner and the bank meet to negotiate alternatives to foreclosure.

It's as good as official: Home Affordable Modification Program, the year-old government program to save homeowners from foreclosure, is a flop.

Today, the Obama administration is set to announce new aid for many homeowners in trouble, who have been beyond help under the limited rules of the old HAMP program.

Using $14 billion more from Troubled Asset Relief Program, or TARP, Treasury for the first time will support reductions of principal that borrowers owe – a crucial step in bringing underwater borrowers back into financial stability. (Ironically, Bank of America beat them to it with a principal reduction program it announced yesterday).

And there's even bigger news in store. The administration may also allow some borrowers who owe more on their mortgages than their homes are worth to refinance into new, smaller mortgages that are based on their actual home values through the Federal Housing Administration.

A bunch of stiff-suited bankers may be the last group you'd expect to launch a proposal that aims to give the unemployed a bit of mortgage breathing room.

Well, surprise, surprise! The Mortgage Bankers Association has offered up a voluntary forbearance program for home owners who have lost jobs and cannot make mortgage payments. The group's motive for cooking up the proposal, presented recently to federal authorities, says a lot about the state of our economy.

In his latest effort to stop the foreclosure tidal wave, President Obama, flanked by Nevada Senator Harry Reid (D), on Friday announced a Plan B for five states hardest hit by the housing crisis: Nevada, Florida, Michigan, California, and Arizona. The president is directing an additional $1.5 billion in aid to the states, which they can spend as they choose.

It's small change compared to the $50 billion the feds have committed so far to the Home Affordable Modification Program, but don't be deceived. This could be the first baby step toward real help for homeowners – if the states play their cards right.