As I mentioned in my post about Shadow Inventory in California, many of the major banks have released only a fraction of recently foreclosed homes.
To combat the effects of even more foreclosures in the California housing market, Attorney General Edmund G. Brown Jr. has asked ten major banks and loan servicers to detail their plans to assist homeowners who will be forced to pay increased fees for their Pay Option Adjustable Rate Mortgages.
Why?
He knows that these increased rates will trigger a new round of home foreclosures.
With a 20% increase in foreclosure activity, the California housing market accounted for 250,000 new foreclosure filings in the last quarter. Increased Pay Option ARM rates are only going to produce more distressed homeowners and in turn, this will increase the foreclosure rate across the country, as California already accounts for 25% of the nation’s foreclosure activity.
Can a Responsive Lending Industry Help Owners Avoid Foreclosure?
Brown believes it can. As California homeowners hold almost 60% of the nation’s Pay Option ARMs . That means approximately one million of these mortgages will reset nationwide in the next four years, resulting in higher fees and a huge increase in the amount of foreclosures banks and REO Asset Managers need to acquire and resell.
In a letter sent to Bank of America Home Loans & Insurance, Wells Fargo & Company, JP Morgan Chase & Co., Litton Loan Servicing, ResCap, Ocwen Financial Corporation, OneWest Bank, American Home Mortgage Servicing, Saxon Mortgage Services, and Select Portfolio Servicing on October 29, Brown requested information about:
1. The number of Pay Option ARM loans secured by residential real property located in California that they are servicing
2. Of the number of Pay Option ARM loans identified, how many have negatively amortized, and what is the average dollar amount of that negative amortization.
3. A detailed explanation of all efforts they have taken to handle customer service concerns of homeowners with Pay Option ARM loans, including any increased staffing and a description of any notices they send or are planning to send to borrowers whose loans are about to reset.
4. A detailed explanation of the loan modification plans they have developed for Pay Option ARM loans and state the circumstances under which their plans allow for the reduction of principal, and the possible amounts of principal reduction.
5. To the extent their approach for considering whether and how to modify Pay Option ARM loans has changed since the beginning of the foreclosure crisis with an explanation of the changes.
Banks and loan servicers have only until November 23rd to respond.
Loan Modifications Can Help Home Owners Now
To be successful, the current loan modification programs must expand. Principal reduction is exactly what homeowners need. Homeowners living in areas of California with sharp depreciation in housing prices don’t have enough equity in their homes to qualify for Administration’s Home Affordable Modification Program (HAMP). And the situation is even worse for homeowners with Pay Option ARMs, who now owe more on their homes than when they first took out their mortgages.
And another big problem facing homeowners is that some big lenders and servicers fail to respond to their phone calls, ask them to resubmit the same paperwork over and over again, tell them they will not be considered for a modification unless they are already in default, give no answers to their request for a loan modification and leave them with no option but try and sell their home through short sale, go through foreclosure, or file for bankruptcy.
With almost one million more Pay Option ARMs resetting within the next four years, the foreclosure crisis is going to worsen dramatically. And California is at the center of this crisis.
If there’s room for the lending industry to budge, Brown is going to find it and encourage them to take action before the housing market in California takes another nose-dive and the current recession becomes more painful for all of us.
Have questions about Short Sales or the Pay Option ARM?
Just contact me and I’ll be glad you answer your questions.
Sincerely,
Mark Shandrow
REO Broker-Associate
Shandrow Group
shandrowgroup.com
