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Are Investors Taking Over your Neighborhood?

For information about Southern California luxury homes in Los Angeles County, Orange County, and San Diego, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties serves discriminating buyers and sellers of California luxury and coastal real estate in Newport Beach, Manhattan Beach, Hermosa Beach, Dove Canyon, Ladera Ranch, Marina del Rey, San Juan Capistrano, Palos Verdes, Pacific Palisades, Mission Viejo, Rancho Margarita, San Clemente, Redondo Beach, Santa Monica, Venice, Malibu, Irvine, Bel Air, Beverly Hills, and Beverly Glen.

Are Investors Taking Over your Neighborhood?

They’ve got the cash and the manpower working in their favor. They’re buying up parts of your neighborhood in hopes of turning quick profits, and in their own words, moving a once-stagnant market forward. For first-time homebuyers, they’re seen as potential hurdles.

The presence of real estate investors in San Diego County has mushroomed. A total of 1,030 properties were sold in June to absentee buyers, mainly investors and buyers of second homes, DataQuick numbers show. That’s the highest level of absentee-buyer activity since 1,089 in June 2005 — when countywide home prices neared a dizzying peak of $517,500 and amateurs placed risky bets in the real estate game. Their share now of the total housing market in the county has skyrocketed, too. Absentee sales made up 30 percent of all homes sold in February, a peak, and has been in the 28 percent region ever since.

An absentee buyer is someone who indicates at the time of sale that their property tax bill be sent to a different address, based on DataQuick’s definition.
So are we back in 2005, a time of fast-and-loose borrowing and rocket-fast price appreciation? Not at all. In today’s market, mortgage underwriting remains tight and prices are steadily climbing. Also, investors now are savvier, eyeing smaller profits and have found strength in numbers. Instead of going at it alone and buying one-offs, they’re working with others and rehabbing several properties at a time.

“Unlike the dumb money of the 2003-2005 period, I would characterize the buyers of 2008-2012 as pretty sophisticated, often with full-time acquisition staff and more likely to do a lot more research before buying,” said Norm Miller, real estate professor at University of San Diego.

Another major difference in the current market is inventory levels. Right now, fewer than 6,000 homes are listed for sale in San Diego County, 55 percent lower than what was available about two years ago, the latest numbers from the San Diego Association of Realtors show.

Fewer homes on the market means more competition for anyone who wants to buy, from the investor looking for his next project to a couple looking for a starter home. It also means higher chances of multiple bids, sometimes upbids, which can dash first-timer hopes of buying in the under-$300,000 pricing area.

“There’s almost no inventory,” said Stan Gendlin, acquisitions manager with CT Homes, a local real home-flipping company. “Investors are looking for anything they can get. Everyone is bidding each other up.”

What kinds of tactics are investors adopting?

Curtis Gabhart has been a full-time real estate investor for 12 years. Like many in his field, he goes where there are opportunities.

Before the real estate bust, Gabhart’s focus was apartment buildings. Post-bust, it’s been single-family homes.

Problem is, he and others like him have already gobbled up most of the under-$300,000 inventory, which also is popular among first-time homebuyers. Homes in that price range have been popular since they cost less to acquire, and if they require little work, could yield higher, faster profits.

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81 Percent of Refinancing Homeowners Maintain/Reduce Mortgage in Q2

For interest in Southern California luxury real estate in Los Angeles County, coastal Orange County homes and San Diego homes, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties serves discriminating buyers and sellers of La Jolla California real estate and properties in Newport Beach, Dana Point, Laguna Beach, Palos Verdes, Mission Viejo, Redondo Beach, Santa Monica, Malibu, Beverly Hills, Bel Air, and Beverly Glen.

81 Percent of Refinancing Homeowners Maintain or Reduce Mortgage Debt in Second Quarter

Inflation-Adjusted Cash-Out Volume at 17-Year Low

MCLEAN, Va., Aug. 1, 2012 /PRNewswire/ — Freddie Mac (OTC: FMCC) released the results of its second quarter refinance analysis showing homeowners who refinance continue to strengthen their fiscal house.

News Facts

In the second quarter of 2012, 81 percent of homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Of these borrowers, 59 percent maintained about the same loan amount, and 23 percent of refinancing homeowners reduced their principal balance; the share of borrowers that kept about the same loan amount was the highest in the 27-year history of the analysis.
The net dollars of home equity converted to cash as part of a refinance, adjusted for consumer-price inflation, was at the lowest level in 17 years (since the second quarter of 1995). In the second quarter, an estimated $5 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, substantially less than during the peak cash-out refinance volume of $84 billion during the second quarter of 2006.
The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.5 percentage points, or a savings of about 28 percent in interest rate, the largest percent reduction recorded in the 27 years of analysis.
Among the refinanced loans in Freddie Mac’s analysis, the median depreciation of the collateral property was 16 percent over the median prior-loan life of 5.1 years. The prior-loan age was the oldest in 13 years, surpassed only by the prior-loan age recorded in the third quarter of 1999.
Property-value change and loan age varied between Home Affordable Refinance Program (HARP) and other refinance loans. For loans refinanced during the second quarter through HARP, the median depreciation in property value was 34 percent and the prior loan had a median age of about 5.5 years (to be eligible for HARP, the prior loan had to be originated before June 1, 2009). Excluding HARP loans, other loans refinanced during the second quarter had a median property-value decline of 2 percent over a median prior-loan age of about 4 years.
Quotes
Attributed to Frank Nothaft, Freddie Mac vice president and chief economist:
“The typical borrower who refinanced reduced their interest rate by about 1.5 percentage points. On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months. Fixed-rate mortgage rates hit new lows during June, with 30-year product averaging 3.68 percent and 15-year averaging 2.95 percent that month, according to our Primary Mortgage Market Survey®.
“The enhancements to HARP announced in October, such as removing the maximum loan-to-value limit, resulted in additional refinance volume during the second quarter. HARP loans were about one-third of Freddie Mac’s refinance fundings during the second quarter, the highest share since HARP’s inception.”
Get the latest information from Freddie Mac’s Office of the Chief Economist on Twitter:@FreddieMac
Cash-out Refinance Analyses Information
These estimates come from a sample of properties on which Freddie Mac has funded two successive conventional, first-mortgage loans, and the latest loan is for refinance rather than for purchase. The analysis does not track the use of funds made available from these refinances. The analysis also does not track loans paid off in entirety, with no new loan placed.

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Facing Foreclosure?

For information about distinguished Southern California luxury real estate in Los Angeles County, as well as coastal Orange County homes and San Diego homes, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties serves discriminating buyers and sellers of exclusive California real estate.

Facing Foreclosure?

The number of foreclosures in California and across the nation is on the rise. It is possible we can help. The law firms our organization works with have extensive experience in helping homeowners as do the attorneys’ that form part of the team. There have been numerous scams from firms and individuals claiming they can help the homeowner. BEWARE!  It is highly recommended the homeowner interview a number of firms and individuals before making a decision.  You may contact our organization for a free consultation. Homeowners have some potential options which are discussed below:

Mortgage Modification:

The Mortgage Modification program allows most homeowners who can make payments keep their homes. By actively counseling the clients and aggressively negotiating with their lenders one is capable of modifying the original loan to give the client a fresh start in managing their home finances. Depending upon the individual needs of each client, modifications can range from a simple interest rate reduction resulting in a lower monthly payment to what is known as a “recapitalization agreement.” A recapitalization agreement takes all the “arrears” or monthly amounts that should have been paid but wasn’t paid, interest, fees, and missed payments and adds it to the principal of the mortgage loan. The life of the loan can also be extended to lower the monthly payments. In some instances, the complete removal of the principal above the current fair market value and “arrears” is removed.

Lien Stripping:

The lien stripping program is available for individuals desiring to reorganize their debt using Federal Laws under Title 11 of the United States Code. The mortgage removal program can only be used in the context of a reorganization, often referred to as Chapter 13 (see below). If you own a home with more than one mortgage, you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records, thus leaving only the first original mortgage! If you qualify, all mortgages except the first would no longer be secured by your home, and you would stop all payments except the first immediately.

There is nothing the creditor can do, provided you qualify for a simple three part test:

  1. The First Mortgage is equal to or higher than the fair market value of the home,
  2. You have income, and 3) Your total unsecured debt is under 336,900 and your secured debt is under 1,010,650. Unsecured debt is an item like credit card debt; secured debt is money owned on a vehicle secured by the vehicle or a mortgage secured by the property.

This ruling pretty much allows junior lien (seconds and thirds, etc.) removal on most properties bought or refinanced since 2004 due to the decline in real estate values.

Chapter 13 Reorganization:

The Chapter 13 “Reorganization,” allows one to consolidate all debts into one low monthly payment. The payment amount is tailored to one’s budget. Chapter 13 is technically a Bankruptcy, but viewed at differently since it is not a “straight bankruptcy” which simply eliminates all debt without any payment whatsoever. Instead, it consolidates all missed mortgage payments or “arrears” and then spreads the repayment out over 3-5 years.
It may also be possible to have junior liens or second and third mortgages along with other debt like credit cards be reduced as part of this process.

The net result may be a substantial reduction in monthly payments so one can keep his or her property. The Chapter 13 program results in a more realistic repayment plan than the short term plans currently offered by most lenders outside of the laws under Title 11, and you maintain all your rights under TILA, RESPA, HOEPA, FDCPA, FCRA, etc.

Short Sale:

A “Short Sales Program” markets and sells the property for at or below market value even though the property owner may owe substantially more than that on the mortgage(s). A short sale will not only stop the foreclosure but will prevent the adverse credit implications associated with a foreclosure.
Recent laws have gone into effect at the Federal and California State governments wherein the banks and finance companies are not allowed to come after the homeowner for any deficiency in monies owed.

Credit of the homeowner is normally not impaired about seven to ten years with a bankruptcy filing. It  usually takes around two years.

It’s not uncommon to remain many months longer and in some more than a year in a property without paying using a short sale or a short sale combined with a bankruptcy.

Equity Recoupment:

The Equity Recoupment program allows homeowners to recoup what they may have lost as a result of predatory lending and the current mortgage crisis. Some homeowners have been able to stay in their homes anywhere from six months to years without making a single payment. Most homeowners are not aware of the many federal and state laws to address the very issues all of us are facing today with widespread foreclosures and predatory lending.

Deed In Lieu of Foreclosure:

A deed in lieu of foreclosure may be an option to prevent a foreclosure from hurting your credit if you are behind on your monthly mortgage payments and are unable to sell your home at the current market value. The process involves giving the property directly back to the lender, or “deeding it back in lieu of foreclosure.” The lender benefits as they are able to mitigate the additional losses they would incur from having to proceed with a lengthy foreclosure.

It is not always a simple process. Team members of our organization are willing to provide a free consultation. There are issues each homeowner should be aware of such as: to

  1. Get the homeowner released from most or all of the personal indebtedness associated with the defaulted loan
  2. Prevent the homeowner from experiencing the public notoriety of a foreclosure and subsequent credit implications, and
  3. Put money in our client’s pocket via “Cash for Keys”.

Summary

The homeowner has a number of options to consider. We hope this article is helpful.

BEWARE THOSE LOAN MODIFICATIONS

For information about luxury real estate in Los Angeles, Orange County, and coastal San Diego homes for sale, call Bob Cumming, Keystone Group Properties, at 310-496-8122. Keystone Group Properties services buyers and sellers of distinctive Southern California real estate from Newport Beach to La Jolla to Beverly Hills.

BEWARE THOSE LOAN MODIFICATIONS

The lenders are holding questionable if not worthless paper. One is validating a debt that he or she likely does not have anymore or at least has substantial offsets against as soon as one signs the modification. One is validating a security instrument (mortgage) that was most likely destroyed in the securitization process.

Unless one gets all the terms one wants, do not sign the modification. Consult with your real estate attorney. As a minimum, one also needs to protect themselves from later claims as it relates to a break in the chain of title caused by securitization. It is suggested one acquire new title insurance, conduct a quiet title action in the courts or perhaps do both.

Engaging a competent attorney and law firm is paramount to the success of securing a loan modification that meets your short term and long term needs.

Mortgage crimes are focus of new task force

For information about exclusive Los Angeles real estate, Orange County CA homes, and coastal San Diego homes, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties servicesbuyers and sellers of distinguished Southern California homes from Laguna Beach to San Juan Capistrano, Beverly Hills to La Jolla real estate.

Mortgage crimes are focus of new task force

WASHINGTON (CNNMoney) — A new special task force to investigate and prosecute those responsible for bad mortgages during the housing boom will be part of President Obama’s 2012 agenda.

Obama announced Tuesday that he’s asked the Justice Department to create a special unit of prosecutors and state attorneys general to investigateg abusive lending and packaging of risky mortgages that led to the housing crisis. And he’s tapped an avowed Wall Street enemy, New York Attorney General Eric Schneiderman, to help run the crime unit, according to a White House official.

“This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans,” Obama said in his State of the Union speech.

The new unit’s goal will be to investigate banks, financial firms and mortgage originators that broke the law, and to compensate victims and provide relief for homeowners, the White House official said.

Although the housing bust is more than four years old, this is the first time the Obama administration has indicated it will go after mortgage originators and Wall Street banks that got homeowners into loans they couldn’t afford — actions seen as a key culprit of the financial crisis.

The mortgage industry has often been blamed for its role helping homeowners get lines or credit and bigger mortgages during the housing boom. The industry saw little downside, unloading the risk that the loans would go bad on to the financial markets.

With Schneiderman, who has been working on his own investigations into big banks, Obama is signaling he’s ready to go after financial crimes. And left-leaning progressive groups cheered the news.

“Schneiderman has shown himself to be a courageous hero in his defense of the struggling underwater homeowners in his state and across the country,” according to a statement released by a coalition of left-leaning advocates such as MoveOn and New Bottom Line.

The news came as a surprise to the financial industry, which had been predicting Obama would tout a proposed settlement under discussion among federal regulators, state attorneys general and the largest bank mortgage servicers under investigation for improperly foreclosing on homeowners.

“We believe the industry is worried that this new task force will go after the banks for the origination of many of the mortgages that have defaulted or are now underwater,” said JaretSeiberg, a senior policy analyst for the Washington Research Group.

The state attorneys general, the Justice Department and the Department of Housing and Urban Development have been in talks for nearly a year with big bank servicers that stand accused of using robo-signers to service home loans. The five largest mortgage servicers involved in the talks are: Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial (GJM).

According to people familiar with the talks, a draft settlement would result in those banks paying $20 billion to $25 billion toward housing relief. About 1 million underwater homeowners would be eligible for an average $20,000 off the principal owed.

In return, state attorneys general would not be able to file future lawsuits against the bank mortgage servicers that agree to the deal. The amount of relief available for homeowners depends on how many state attorneys general agree to the deal.

Obama didn’t mention the talks in his State of the Union speech. A White House official said Wednesday that the new task force would not prevent progress that has been made on that deal.

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Truth in Savings Act

Keystone Group Properties offers distinguished Southern California luxury real estate in Los Angeles County, coastal Orange County homes, and San Diego homes in LaJolla. For more information, call Bob Cumming at 310-496-8122. Serving buyers and sellers of exclusive real estate in Newport Beach, Dana Point, Laguna Beach, Laguna Niguel, Coto de Caza; Marina Del Rey, Manhattan Beach, Hermosa Beach, Dove Canyon, Ladera Ranch, San Juan Capistrano; Palos Verdes, Pacific Palisades, Mission Viejo, Rancho Margarita, San Clemente, Redondo Beach, Santa Monica, Venice, Malibu, Irvine; and homes in Bel Air, Beverly Glen, and Beverly Hills CA real estate.

Truth in Savings Act (TISA)

The Truth in Savings Act (also known by the acronym TISA) is a United States federal law that was passed on December 19, 1991. It was part of the larger Federal Deposit Insurance Corporation Improvement Act of 1991 and is implemented by Regulation DD. It established uniformity in the disclosure of terms and conditions regarding interest and fees when giving out information on or opening a new savings account. On passing this law, the US Congress noted that it would help promote economic stability, competition between depository institutions, and allow the consumer to make informed decisions.

The Truth in Savings Act requires the clear and uniform disclosure of rates of interest (annual percentage yield or APY) and the fees that are associated with the account so that the consumer is able to make a meaningful comparison between potential accounts. For example, a customer opening a certificate of deposit account must be provided with information about ladder rates (smaller interest rates with smaller deposits) and penalty fees for early withdrawal of a portion or all of the funds.

The Act is only applicable to deposit accounts that are held by a “natural person” for personal, household, or family use. Accounts owned by businesses or organizations such as churches and neighborhood associations are not subject to these rules.

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Real Estate Settlement Procedures Act (RESPA)

For information about upscale Los Angeles County Southern California luxury real estate and luxury homes in coastal Orange County and San Diego, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties serves discriminating buyers and sellers of exclusive properties from Newport Beach and Coto de Cazato, Hermosa Beach and Ladera Ranch to Pacific Palisades and Malibu, and Irvine to Beverly Hills CA real estate.

Real Estate Settlement Procedures Act (RESPA)

Purpose of the Act

It was created because various companies associated with the buying and selling of real estate, such as lenders, real estate agents, construction companies and title insurance companies were often engaging in providing undisclosed kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics.

For example, a lender advertising a home loan might have advertised the loan with a 5% interest rate, but then when one applies for the loan one is told that one must use the lender’s affiliated title insurance company and pay $5,000 for the service, whereas the normal rate is $1,000. The title company would then have paid $4,000 to the lender. This was made illegal. The reason is to make prices for the services clear so as to allow price competition by consumer demand and to thereby drive down prices.

Restrictions

The Act prohibits kickbacks between lenders and third-party settlement service agents in the real estate settlement process (Section 8 of RESPA). Even reciprocal referrals among these types of professions could be construed in court as a violation of the law of RESPA. It requires lenders to provide a good faith estimate (GFE) for all the approximate costs of a particular loan and finally a HUD-1 (for purchase real estate loans) or a HUD-1A (for refinances of real estate loans) at the closing of the real estate loan. The final HUD-1 or HUD-1A allows the borrower to know specifically the costs of the loan and to whom the fees are being allotted. Beginning January 1, 2010, amendments to RESPA restrict the amount that fees can increase between the GFE and HUD-1 or HUD-1A. Origination charges are not allowed to increase, while certain third party service providers’ fees can increase by no more than 10%.

Account Inquiries – “Qualified Written Request”

If the borrower believes there is an error in the mortgage account, he or she can make a “qualified written request” to the loan servicer. The request must be in writing, identify the borrower by name and account, and include a statement of reasons why the borrower believes the account is in error. The request should include the words “qualified written request”. It cannot be written on the payment coupon, but must be on a separate piece of paper. The Department of Housing and Urban Development provides a sample letter.

The servicer must acknowledge receipt of the request within 20 business days. The servicer then has 60 business days (from the request) to take action on the request. The servicer has to either provide a written notification that the error has been corrected, or provide a written explanation as to why the servicer believes the account is correct. Either way, the servicer has to provide the name and telephone number of a person with whom the borrower can discuss the matter. The servicer cannot provide information to any credit agency regarding any overdue payment during the 60 day period.

If the servicer fails to comply with the “qualified written request”, the borrower is entitled to actual damages, up to $1000 of additional damages if there is a pattern of noncompliance, costs and attorneys fees.

Criticisms

Critics say that kickbacks still occur. For example, lenders often provide captive insurance to the title insurance companies they work with, which critics say is essentially a kickback mechanism. Others counter that economically the transaction is a zero sum game, where if the kickback were forbidden, a lender would simply charge higher prices. One of the core elements of the debate is the fact that customers overwhelmingly go with the default service providers associated with a lender or a real estate agent, even though they sign documents explicitly stating that they can choose to use any service provider. Some say that if the profits of the service providers were truly excessive or if the price of the services were excessively inflated because of illegal or quasi-legal kickbacks, then at some point non-affiliated service providers would attempt to target consumers directly with lower prices to entice them to choose the unaffiliated provider.

There have been various proposals to modify the Real Estate Settlement Procedures Act. One proposal is to change the “open architecture” system currently in place, where a customer can choose to use any service provider for each service, to one where the services are bundled, but where the real estate agent or lender must pay directly for all other costs. Under this system, lenders, who have more buying power, would more aggressively seek the lowest price for real estate settlement services.

While both the HUD-1 and HUD-1A serve to disclose all fees, costs and charges to both the buyer and seller involved in a real estate transaction, it is not uncommon to find mistakes on the HUD. Both buyer and seller should know how to properly read a HUD before closing a transaction and at settlement is not the ideal time to discover unnecessary charges and/or exorbitant fees as the transaction is about to be closed. Buyers or sellers can hire an experienced professional such as an attorney to protect their interests at closing.

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Truth in Lending Act (TILA)

For information about luxury Los Angeles real estate, Orange County CA homes, and coastal San Diego homes in Southern California, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services buyers and sellers of distinctive Southern California real estate— Manhattan Beach and Hermosa Beach, to Dove Canyon, Ladera Ranch, San Juan Capistrano, and Redondo Beach; Marina del Rey, Santa Monica, Venice, Beverly Hills to La Jolla homes and more.

Truth in Lending Act (TILA)

The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.

TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. Rather, it requires uniform or standardized disclosure of costs and charges so that consumers can shop. It also imposes limitations on home equity plans that are subject to the requirements of Sec. 226.5b and certain higher-cost mortgages that are subject to the requirements of Sec. 226.32. The regulation prohibits certain acts or practices in connection with credit secured by a consumer’s principal dwelling.

The Truth in Lending Act was originally Title I of the Consumer Credit Protection Act, Publication .L. 90-321, 82 Stat. 146, enacted June 29, 1968.

The regulations implementing the statute, which are known as “Regulation Z”, are codified at 12 CFR Part 226. Most of the specific requirements imposed by TILA are found in Regulation Z, so a reference to the requirements of TILA usually refers to the requirements contained in Regulation Z, as well as the statute itself.

From TILA’s inception, the authority to implement the statute by issuing regulations was given to the Federal Reserve Board. However, as of July 21, 2011, TILA’s general rulemaking authority is transferred to the Consumer Financial Protection Bureau, which will be established on that date pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act which was enacted in July 2010. The Federal Reserve will retain some limited rulemaking authority under TILA for loans made by certain motor vehicle dealers, and for certain provisions related to real estate appraisers.

Organization

The regulation is divided into subparts.

Subpart B relates to open-end credit lines (revolving credit accounts), which includes credit card accounts and home-equity lines of credit (HELOCs).

Subpart C relates to closed-end credit, such as home-purchase loans and motor vehicle loans with a fixed loan term. It contains rules on disclosures, treatment of credit balances, annual percentage rate calculations, right of rescission, non requirements, and advertising.

Subpart D contains rules on oral disclosures, Spanish language disclosure in Puerto Rico, record retention, effect on state laws, state exemptions (which only apply to states that had Truth in Lending-type laws prior to the Federal Act), and rate limitations.

Subpart E contains special rules for mortgage transactions. Section 226.32 requires certain disclosures and provides limitations for loans that have rates and fees above specified amounts. Section 226.33 requires disclosures, including the total annual loan cost rate, for reverse mortgage transactions. Section 226.34 prohibits specific acts and practices in connection with mortgage transactions.

Several appendices contain information such as the procedures for determinations about state laws, state exemptions and issuance of staff interpretations, special rules for certain kinds of credit plans, a list of enforcement agencies, model disclosures which if used properly will ensure compliance with the Act, and the rules for computing annual percentage rates in closed-end credit transactions and total annual loan cost rates for reverse mortgage transactions.

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MERS Mortgage Electronic Registration Systems

For information about Southern California luxury homes in Los Angeles County, Orange County and San Diego County real estate, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services discriminating buyers of coastal Southern California real estate in Malibu to homes near the waterfront in Newport Beach to La Jolla.

MERS Mortgage Electronic Registration Systems

MERS’ primary function is to act as a document custodian. Major players in the mortgage lending industry created MERS to simplify the process of transferring mortgages by avoiding the need to re-record liens – and pay county recorder filing fees – each time a loan is assigned. “Instead, servicers record loans only once and MERS’ electronic system monitors transfers and facilitates the trading of notes …” Currently over half of all new residential mortgage loans in the United States are registered with MERS and recorded in county recording offices in MERS’ name.

This has reduced transparency in the mortgage market in two ways. First, consumers and their counsel can no longer turn to the public recording systems to learn the identity of the holder of their note. Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again. But more importantly, all across the country, MERS now brings foreclosure proceedings in its own name – even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home.

Consumers, who are facing foreclosure, that try to assert predatory lending defenses are often forced to join the party – usually an investment trust – that actually will benefit from the foreclosure. As a simple matter of logistics this can be difficult, since the investment trust is even more faceless and seemingly innocent than MERS itself. The investment trust has no customer service personnel and has probably not even retained counsel.

Inquiries to the trustee – if it can be identified – are typically referred to the servicer, who will then direct counsel back to MERS. This pattern of non-response gives the securitization conduit significant leverage in forcing consumers out of their homes. The prospect of waging a protracted discovery battle with all of these well funded parties in hopes of uncovering evidence of predatory lending can be too daunting even for those victims who know such evidence exists. So imposing is this opaque corporate wall, that in a “vast” number of foreclosures, MERS actually succeeds in foreclosing without producing the original note – the legal sine qua non of foreclosure – much less documentation that could support predatory lending defenses.

A critique of the effect of securitization lies in the impact it has on civil procedure. Discovery, negotiation, and litigation in general is more expensive for consumers with securitized loans than it is for loans funded by the traditional secondary market. Legal scholars have made a compelling case for the serious potential consequences for consumers when businesses use procedural dispute resolution costs as a hedge against enforcement of substantive law.

Moreover, an extensive literature demonstrates the great vulnerability of our civil justice system to manipulation of procedure in general, and discovery in particular. For example, a federal district judge’s remarks from the late 1970s seem equally resonant today:

The civil justice system in the United States depends on the willingness of both litigants and lawyers to try in good faith to comply with the rules established for the fair and efficient administration of justice. When those rules are manipulated or violated for purposes of delay, harassment or unfair advantage, the system breaks down. There continues to be abuse of the judicial process. Abuse of the judicial process occurs most often in connection with discovery. Unjustified demands for and refusals to provide discovery prolong litigation and drive up its costs. Fabrication and suppression of material facts are regrettably common occurrences, although lawyers and judges are often reluctant to admit it.

Given these observations, we should not be surprised to find a business system that derives its revenue from creating procedural roadblocks in the way of consumers litigating from the brink of homelessness.

One characteristic of structured finance is the erection of such barriers. In traditional two and three-party mortgage markets, consumers and their counsel had a clearer idea of whom they were borrowing from and who might seek to foreclose upon them if they failed to repay. Service of process, interrogatories, depositions, and negotiations could be expected to involve only one company which was responsible for all, or nearly all, the relationship functions associated with the loan.

By comparison, selling a loan into a contemporary structured finance conduit can force consumers to communicate with and litigate against many more business entities. Even simple litigation tasks, such as service of process, interrogatories, and requests for production of documents, can become much more complicated in structured finance. One could serve one party years’ ago. Today, one might need to serve ten or more different parties or businesses.

This is a major challenge as the consumer will almost always have no knowledge of the name, address or other contact information for many of these firms. Legal counsel for the foreclosing party most likely does not know which businesses were involved in performing the various functions associated with the loan. Phone calls to the loan’s servicer are frequently ignored, subject to excruciating delays, and typically can only reach unknowledgeable staff who themselves lack information on the larger business relationships.

Securitization trustees are not in the business of counseling the thousands of mortgagors pooled in each of the many real estate trusts they oversee. Policy makers must not underestimate the staggering difficulty of reconstructing the facts involved in only one loan. Securitization creates an opaque business structure that consumers have great difficulty forgathering.

Securitization also complicates the paper trail for a given mortgage by facilitating frequent permutations in the servicing and ownership history of the loan. One of the benefits of securitization is that it allows trustees to shop for the most efficient servicer, reassigning servicing rights for loan pools when a better deal comes along. And, depending on how the securitization conduit is structured, a loan may undergo several assignments in route to its destination pool. While these changes may help ensure that the pool securities pay out on time and otherwise manage risks to the businesses involved, they also raises costs for the consumer attempting to piece together who did what to them.

Mortgage loan documentation has become more complex, the organizational technology of securitization has displaced older, more transparent, public systems for maintaining records. Nowhere is this more apparent than the use of the Mortgage Electronic Registration System, or MERS, to circumvent county recording offices.

It is suggested the consumer consult with a legal firm that is most experienced in working with MERS and the multiple issues.

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Foreclosure or Bankruptcy: Best Course of Action?

For information about luxury real estate in Los Angeles, Orange County, and coastal San Diego homes for sale, call Bob Cumming, Keystone Group Properties, at 310-496-8122. Keystone Group Properties services buyers and sellers of distinctive Southern California real estate from Newport Beach to La Jolla to Beverly Hills.

Foreclosure or Bankruptcy: What Might Be the Best Course of Action?

While millions of Americans are severely impacted by the economy, we find that more and more families are falling behind in their mortgage payments. A number of families have already or will be faced with the decision of what to do. Is it better to lose your house to foreclosure or file for bankruptcy protection?

Neither option is good for future credit considerations. A foreclosure will remain on your credit history for 7 years, while a bankruptcy remains for 10 years. In spite of the fact a foreclosure stays on the credit report for less time than a bankruptcy, mortgage lenders and banks look more seriously at foreclosures as normally a bankruptcy does not include the house.

It is suggested to contact your lender even if you are behind in payments or have received an official “notice of default” saying you’re several months behind, you still have time before the formal foreclosure process begins.

Foreclosure should not be foregone conclusion. Try to avoid it. The first question you need to decide is whether you want to keep your house or give it up. If you want to keep it, you need to try to work out a plan to get back on track. This involves either making up for the missed payments – which you can do all at once or try to spread out – or coming up with a new plan. One option is to have the loan modified – at a lower interest rate, for example. Or you can ask for “forbearance,” which basically means the lender suspends payments until you can get back on your feet. If you’re in over your head and bought too much house, though, these options probably aren’t going to help. It is suggested you consider professional help in modifying your loans.

It is against California law for an organization to collect up-front fees. If you consider wanting professional help, it is suggested you interview a number of attorneys and law firms and get references. Look at the alternatives and most importantly listen to professional advice and form your own opinion. Make a decision only after this process.

You may have to consider moving. Even if you do lose your house, you don’t want a foreclosure on your record when you go looking for a smaller house or a place to rent. One option is to ask the lender to hold off on foreclosing until you sell. If your mortgage is bigger than your house is worth, you are looking at what’s called a “short sale.”

You can also try something called a “deed in lieu of foreclosure” – which basically means you turn over your house to the lender and walk away without owing anything. But you’ll need to work this out with the lender: you can’t just walk away.

While it’s possible to work out one of these solutions with your lender on your own, you may have better luck with the help of someone who specializes in the process. A good attorney who knows real estate law can help, but you may not be able to afford that. A credit counselor (from an accredited, non-profit agency, not the slime balls who spam you with bogus promises of making your debts “go away”) is another option. Lenders are more likely to go along if a competent third party is there to help smooth the process. California law does not permit upfront fees to credit counselors or parties claiming they can modify loans. Fees can be paid to California licensed attorneys provided they are providing a service. It is suggested you interview a number of attorneys and law firms and make a decision only after this process has been completed.

If all else fails, you may have to consider allowing foreclosure to proceed – or filing for bankruptcy. It depends on each person’s situation. It is suggested one consult with a good credit counselor and a bankruptcy attorney who can review your options and walk you through the various options.

To summarize, the key is to start this process early on and before a notice of default is received.

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