Eisrael Gomez Realtor - Monterey County Blog

Even though the following incident highlights an older couple that was taken advantage of, it highlights the need to seek professional guidance from a reputable source. 

If someone you know is behind on payments or having trouble with a home loan, please advise them to contact an established reputable realtor or seek legal counsel.  I hear from individuals of all walks of live who have lost thousands of dollars by not making a simple call for a second opinion. 

Always feel free to call or comment. 

Eisrael Gomez, CENTURY 21 A Property Shoppe 831-809-8266

When 'Rescue' Means Eviction

By PHILIP SHISHKIN

In 2003, Daphne Webb, a 73-year-old mother of nine, had a heart attack, quit her cleaning job and was soon struggling with medical bills. She and her husband fell behind on the mortgage payments on their white clapboard house in Montclair, N.J.

"Everything came down all at once," says her husband, William, whose $45,000-a-year income as a bus driver wasn't enough to keep the family financially afloat. By 2006, the Webbs were facing foreclosure.

Mark Matcho

So when two real-estate investors offered to purchase their house, rent it to them and then help them buy it back -- using a long-established practice known as a sale-leaseback -- the Webbs say they jumped at the opportunity. In doing so, the elderly couple waded into the murky world of "foreclosure rescue," a business that targets the growing numbers of distressed homeowners seeking help.

In some cases, according to recent warnings by authorities, homeowners can dig themselves into an even deeper hole by dealing with purported rescuers, while doing little to ward off eviction. Instead of saving homes, federal officials have warned, distressed homeowners can sometimes lose them -- along with any savings they had.

"People are desperate and willing to consider things they were never willing to consider before," says Bradley Elbein, national coordinator of the Federal Trade Commission's Foreclosure Rescue Fraud Project. "It is a real problem." Many rescuers use sale-leaseback arrangements, while others charge homeowners a one-time fee to help them negotiate with creditors.

Sale-leasebacks are a common and legal practice in real estate. To raise cash for short-term needs or to secure tax benefits, a company can sell a building it owns, and then pay rent to the buyer to stay in it. The strategy was particularly attractive before the economic crisis, when credit was easy to obtain and investors believed real-estate prices would keep climbing.

Some leaseback agreements allow sellers the option to repurchase the property at a later date. In residential real estate, a sale-leaseback can allow homeowners in financial trouble to remain in their homes and pay off their debts. But investigators say the strategy is susceptible to fraud when investors don't give homeowners the promised money. Some investors pocket the mortgages they obtain from banks or strip equity from the homes they buy instead of helping former owners get back on their feet, investigators say.

Charges of Fraud

The Webbs allege in a civil lawsuit filed in New Jersey Superior Court that they were defrauded into giving up title to their home, and lost $400,000 in home equity and tens of thousands of dollars in fees paid to the two investors, Ronald Losner and Alyssa Azran. The home, now owned by Ms. Azran, is in danger of being foreclosed on, and the Webbs, who have been paying rent to her, could get thrown out by a new owner.

Through an attorney, Mr. Losner and Ms. Azran denied any wrongdoing and said they prevented the Webbs from being evicted when they were in trouble in 2006. The attorney declined to discuss specifics of the Webbs' allegations. The case is currently awaiting trial.

A number of cases of alleged sale-leaseback fraud have recently surfaced in Florida and California, affecting hundreds of homeowners in these hard-hit real-estate markets.

In October, federal prosecutors in Tampa, Fla., charged Mario Quiroz and Jose Oliveri with wire fraud and money laundering, stemming from sale-leasebacks to 290 homeowners facing foreclosure. Most of the homeowners ended up being evicted and lost any equity they held, investigators say. Messrs. Quiroz and Oliveri, who are accused of defrauding banks of $33 million in the alleged scheme, are believed to have fled to Peru, the Treasury Department says. An attorney for Mr. Oliveri says his client denies wrongdoing. An attorney for Mr. Quiroz couldn't be reached for comment.

On Feb. 2, a grand jury in San Diego indicted William Hutchings and nine others on charges of allegedly defrauding some 400 homeowners. According to the indictment, the homeowners, mostly Hispanic, were told their properties could be protected because they were part of a land grant Mexico made to the U.S. in the 1850s, and that somehow made them immune from foreclosure.

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Joe Fornabaio for The Wall Street Journal

William and Daphne Webb, of Montclair, N.J., are suing investors who bought their house and leased it back to them.

The consultants falsely claimed the homeowners could take advantage of the immunity by turning over their property deeds to trusts controlled by the consultants that were connected to the grant, the indictment states. Most of the homeowners who turned over their deeds and paid fees to the consultants were later evicted, prosecutors say.

Gregory Turner, an attorney for Mr. Hutchings, says his client was going to help the property owners save their homes, but that prosecutors intervened. "There was never an opportunity to demonstrate the veracity of this program," Mr. Turner says.

Foreclosure Proceedings

According to the Webbs' lawsuit, Mr. Losner and Ms. Azram approached them after the couple had sought and failed to obtain federal bankruptcy protection, and the bank that held their mortgage began foreclosure proceedings. They offered the sale-leaseback arrangement for the house, which Mrs. Webb had owned since 1983, says the lawsuit. In a posting on Foreclosures.com, a Web site geared toward real-estate investors, Mr. Losner and Ms. Azran describe efforts by people to save their homes via bankruptcy filings and advise tapping into "this distressed source of people" by approaching them with an offer after they fail to get bankruptcy protection.

The Webbs sold their home to Ms. Azran for $820,000 in March 2006, but received no money in the sale, according to the lawsuit. They also signed a $2,600-a-month lease agreement that stated they could buy the house back if they paid a $45,000 option price after 18 months of paying rent, the lawsuit states.

Mr. Webb says he and his wife didn't fully understand what they were signing. Tom Farinella, an attorney who represents Mr. Losner and Ms. Azran, says the Webbs were told to consult an attorney about the paperwork, but they didn't. "For the Webbs to now claim they are victims of some large-scale scheme begs to differ with the fact that they were adequately advised to retain counsel," says Mr. Farinella.

He declined to make his clients available for comment. New York State court records show that Mr. Losner, a former attorney, was disbarred in 1995 for allegedly unethical conduct in representing clients in real-estate transactions.

According to the Webbs' lawsuit, Ms. Azran obtained a $533,000 mortgage from Credit Suisse through a mortgage broker in Brooklyn, N.Y. The lawsuit alleges Credit Suisse, which is named as a defendant, approved the mortgage even though Ms. Azran didn't list a job on her application and stated her liquid assets totaled just $100. She also listed 11 other heavily mortgaged rental properties, the lawsuit states.

A spokesman for Credit Suisse said "we are investigating the matter." He confirmed that some of the loans it sourced through the Brooklyn broker -- "less than 20%" -- required only a Social Security number, a good credit score and an appraised value of the property.

After obtaining the mortgage, Ms. Azran paid off the Webbs' delinquent mortgage, on which they owed about $400,000. Between April 2006 and June 2008, the Webbs paid about $36,000 in rent to Ms. Azran and Mr. Losner, according to the lawsuit.

The Webbs say they made several inquiries about buying their house back for $45,000 in 2007 and 2008. Their lawsuit says Mr. Losner sent appraisers to the house, which cost them at least $700. He also told them at some point they would need to pay $120,000 to buy their house back, according to the lawsuit.

Meanwhile, Ms. Azran fell behind in her mortgage payments and in December 2007, Wells Fargo, which serviced the mortgage, filed for foreclosure on the house. A New Jersey Superior Court judge has effectively stayed the foreclosure, and the Webbs remain in the house and are paying their rent to an escrow account.

Write to Philip Shishkin at philip.shishkin@wsj.com

Many clients in Monterey County can relate to the following article from the Wall Street Journal http://online.wsj.com

Jumbo Loans, Jumbo Headaches

By NICK TIMIRAOS

Washington is trying to ease the mortgage crisis by helping people refinance into home loans with better terms. But one group is being left on the sidelines: borrowers with loans too big to qualify for government backing.

President Barack Obama's housing stability plan, announced last week, excludes such borrowers from nearly all of its mortgage-bailout provisions. Instead, it focuses on middle-income consumers who have lower, so-called conforming loans. Such loans top out at $417,000 in most parts of the country, though they can run as high as $729,750 in certain pricier markets, such as parts of California, New York and Hawaii.

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Bryce Boyer for The Wall Street Journal

Neil Littman, who lives near Boulder, Colo., says conforming-loan limits in the area are too low.

Anything bigger is called a "jumbo" loan -- and not only is the government ignoring this segment of the market, so are lenders, few of whom are originating or refinancing jumbo mortgages. The reason: Jumbo loans are too large to be guaranteed by a government-backed mortgage agency, such as Fannie Mae or Freddie Mac, meaning banks assume the risk if the loan goes bad. In the current lending environment, few banks want to take on any risk.

That's hurting borrowers like Pete Zipkin, who's the kind of affluent customer that banks once coveted. The 35-year-old technology executive -- who says he has a spotless credit record and at least 20% equity in his home -- has come up empty-handed in his search for a jumbo mortgage of more than $1 million for his recently built five-bedroom home in Alamo, Calif., near San Francisco.

Unable to find a fixed-rate mortgage when his construction loan expired last fall, Mr. Zipkin now has a variable-rate loan that adjusts monthly. The rate is currently 5%, but it can go as high as 12%. He says banks have turned him down in part because they are worried about falling home prices in California, even though price declines in Alamo, where the median home price is $1.3 million, have been less severe than in the rest of the state.

"If somebody has the income, the equity and the credit rating," they should qualify for a loan, Mr. Zipkin says.

'Buying Down' a Mortgage

Many homeowners in high-priced markets are experiencing similar difficulties, and are left with few options other than to raid their savings or retirement accounts and use the cash to "buy down" their mortgages. In some cases, home buyers need to put up a large down payment, often 25% or more, to qualify for a jumbo mortgage. Others are bypassing jumbos altogether and putting up enough cash to become eligible for a lower-rate conforming loan.

"Every single day I'm talking to people who have a jumbo loan, and I can't do anything for them," says Jeff Lazerson, a mortgage broker in Laguna Nigel, Calif.

While total mortgage originations fell by 17% in the fourth quarter from the previous quarter, jumbo originations fell by 42% to $11 billion, according to Inside Mortgage Finance. That's the lowest volume ever tracked by the trade publication, which has figures dating to 1990.

ING Direct, a unit of ING Groep NV, is one of the few lenders that is boosting jumbo originations, though it requires a minimum 30% down payment in the most expensive housing markets, up from 20% earlier last year. For condos, ING requires a minimum 45% down payment.

"If you have been able to ... save for a down payment, that to us speaks volumes about your character," says Bill Higgins, ING's chief lending officer.

Like most jumbo lenders, ING offers mainly "hybrid" adjustable-rate mortgages that carry a fixed-rate for five or seven years and then reset annually to an adjustable rate. ING is offering initial rates as low as 5.5% for a seven-year adjustable-rate jumbo mortgage. Last week, the average for a 30-year conforming mortgage was 5.22%, according to HSH Associates, a financial publisher.

Higher Rates

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• Raiding Your 401(k) to Refinance

Jumbo borrowers have always paid slightly higher rates than conforming-loan borrowers, in part because luxury homes can be harder to sell quickly for their full price if a homeowner defaults. But the gap between jumbo and conforming loans, historically around 0.3 percentage point, is now about 1.55 points, with jumbo rates averaging about 6.77%.

Some banks, though, are quoting much-higher jumbo rates. Mortgage brokers say that indicates that lenders are reluctant to make jumbo loans and are setting their prices high to deter new deals. For example, Taylor, Bean & Whitaker Mortgage Corp. in Ocala, Fla., recently listed a 7% rate on a 30-year fixed-rate jumbo loan, but charges up-front origination fees equal to 5% of the loan.

Real-estate professionals say that the lack of financing for high-income consumers is putting extra pressure on affluent communities and causing prices to fall even further. "The million-dollar-and-above market is sinking like a lead weight," Mr. Lazerson says.

Frustrated Buyers

That is frustrating potential buyers like Brandon Steele, a vice president of marketing for a food-products company, who was approved by his credit union for a $990,000 loan last year to buy a home in the Sherman Oaks section of Los Angeles. He had hoped to move his growing family out of the single-family house he has rented for the past four years and into a larger one. Those plans fell through when his credit union told him in December that they were getting out of jumbo lending.

"We thought we were being prudent by not jumping into the housing market when it was overinflated," he says. "It's a catch-22. Now that we want to purchase, we cannot get financing."

Mr. Steele says that he and his wife have high incomes and a solid credit rating, but that the money he had planned on using to make a larger down payment was lost in the stock market. He says his only option now is to wait for home prices to fall another 20% or to save an additional $100,000.

"Short of moving into a two-bedroom apartment or not funding my 401(k), I can't save that kind of money in a year," he says. "If you live in a high-cost area, there's a whole different standard. Everything's a jumbo loan." Mr. Steele says that for now, he's hoping his credit union, where he's been a customer for 10 years, will reinstate his pre-approved status and fund the loan.

The lack of financing is particularly acute in markets where rising home prices have made jumbo loans a necessity for even middle-class borrowers, such as New York City, coastal California and Washington, D.C. "If you own a $650,000 home in many parts of this country, you're not a wealthy person by any stretch, and you're being cut out of any relief," says Guy Cecala, publisher of Inside Mortgage Finance.

Around 4% of all borrowers have loans that exceed conforming limits, according to an estimate by First American CoreLogic. But that share rises in high-cost states such as California, at 17%, and New York, at 8%.

Some jumbo clients -- enticed by historically low conforming rates -- are willing to dip into their retirement savings to lower their balances. Neil Littman, for one, estimates that he'd save $300 a month if he paid $25,000 to bring his loan down to the $417,000 limit in Erie, Colo., a bedroom community about 30 minutes east of Boulder.

"Right now I'm trying to conserve cash, but to get the savings on the interest rate, I'm willing to put more money down," says the 38-year-old, a commercial real-estate broker.

Mr. Littman, who purchased his four-bedroom home in April 2007, laments the fact that the Boulder area doesn't have a higher conforming-loan limit. Median home prices in Boulder are nearly $650,000, though median prices for the county are much lower, at around $360,000.

Raiding the 401(k) Account

Other borrowers are raiding their 401(k) accounts in order to qualify for a cheaper mortgage. Jon Eisen, a San Diego mortgage broker, says that one of his clients -- a dentist with a $1 million jumbo loan -- is considering pulling $450,000 from a retirement savings account to pay down his "interest-only" adjustable rate mortgage, in which principal payments are deferred for a set period. That would allow him to refinance into a fixed-rate conforming loan.

Randy Kobata, who lives in Santa Monica, Calif., says he's considering taking $70,000 out of his savings to pay down his mortgage in order to get to the conforming limit. He isn't able to refinance his adjustable-rate jumbo loan from Washington Mutual Inc., now a unit of J.P. Morgan Chase & Co., because the value of his two-bedroom home has declined by $100,000 in the past two years. Meanwhile, the 31-year-old, who works in commercial real estate, has asked the bank for a rate reduction.

Rather than dip into savings to get a better rate, some advisers say, clients are better off holding tight. "If your home has lost 15% in two years, why pay down just to refinance?" says Craig Vogt, a mortgage broker in Brooklyn, N.Y. "It's like losing money two times."

Write to Nick Timiraos at nick.timiraos@wsj.com

from the wall street journal

http://online.wsj.com

By RUTH SIMON and NICK TIMIRAOS

The Obama administration is trying to ensure its $275 billion housing-relief program will help only genuinely needy homeowners, but some critics say that it will also aid those who don't need -- or deserve -- the help.

"It's going to encourage everyone under the sun to try to qualify for this," warns Chris Mayer, senior vice dean at Columbia Business School.

Other critics balk at the idea of providing help to borrowers who used their houses as cash machines, or who bought much costlier homes than they could afford.

Administration officials say it is impossible to help large groups of borrowers without introducing some degree of what has come to be known as "moral hazard." In other words, in its effort to help homeowners who behaved responsibly but wound up in trouble, the Obama plan will likely help some who didn't, which some say encourages more risky behavior.

The guidelines for loan modifications, part of the overall housing-relief program, are scheduled to be released early next month. Administration officials stress that they are carefully designing them to make sure borrowers can't game the system. For example, investors and homeowners who can afford their mortgage payments won't qualify for help, officials noted.

The announcement of the administration's program is already producing a flurry of calls to mortgage companies. A Wells Fargo spokeswoman said that interest in refinancing had contributed to a 20% increase in call volume at its retail-mortgage call center Thursday.

Steve Walsh, a mortgage broker in Scottsdale, Ariz., says his phones have been "ringing off the hook." But he says he is frustrated that the provisions weren't more detailed. "We don't really know what to tell people," he says.

Moral hazard has been a key issue in the debate over how the government should respond to financial distress, whether among homeowners or corporate titans. Critics have assailed the bank bailouts for helping businesses whose mistakes contributed to the financial crisis in the first place. And some homeowners who have stayed current on mortgages don't like the idea of helping borrowers who refinanced homes and pulled out cash for vacations, cars and other things, or submitted loan applications that falsified their income.

Another concern is that borrowers are stopping making payments in order to get help. That's because mortgage companies often won't modify the loans of troubled borrowers until they're delinquent.

The Obama plan addresses this issue by making it more likely that borrowers who need help will get a modification before they become seriously delinquent. Under the plan, mortgage companies and investors will receive incentive payments for helping borrowers who are "at risk" of defaulting because of a loss of income or an interest-rate increase, for instance.

"The Achilles' heel" of many previous efforts to stem foreclosures is that they have required borrowers to default in order to get help, says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School. Providing aid to borrowers who haven't yet defaulted "is an unrecognized and powerful component of this plan," she says.

The loan-modification guidelines that will be released next month also will be designed to weed out borrowers who don't need help, administration officials say. For example, they are likely to require that mortgage companies verify borrowers' incomes or claims of financial hardship to make sure they can't afford their payments.

Some homeowners who borrowed more than they could afford, either when they bought the house or refinanced, also may not qualify for assistance. That's because mortgage servicers are likely to use a "net present value" test to determine the losses that would result from a modification, and how they would compare with a foreclosure. If the losses are too great, the modification wouldn't be likely to happen.

But some borrowers may slip through the cracks. Someone working two or three jobs to make ends meet, for instance, may decide to give up one job in order to show a lower income. "Five years ago, if you really wanted to buy a house, you would do whatever you could to show every income source to make it as high as possible," says Tom Lawler, an independent housing economist. Now, borrowers seeking help "will want to show a low income." Borrowers with substantial assets but moderate incomes may also be able to get help, he adds.

Mr. Mayer says his "biggest pet peeve" with the Obama plan is that it will pay participating borrowers $1,000 a year for staying current on their mortgages once they are modified. He says, instead, participants should be warned: "If you're not going to make your payments on time, you're going to lose your house, because we just made it affordable."

Write to Ruth Simon at ruth.simon@wsj.com and Nick Timiraos at nick.timiraos@wsj.com