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Glossary
Modification: when a lender agrees to modify the terms of a mortgage without refinancing the loan.
California cracks down on Loan Modification companies
With the U.S. economy struggling after devastating losses, including those in the real estate and employment sectors, many homeowners have sought to adjust the terms of their home mortgage with the help of Loan Modification companies that advertise assistance in this process. Unfortunately, some of these companies have engaged in dishonest practices, which have cost consumers additional fees that amount to thousands of dollars. Often, this has happened because the homeowner has been ill informed of the way that the loan modification process works or the homeowner has been unaware that they could actually negotiate a loan modification without paying an outside company for their assistance. The state of California, however, is putting an end to the unscrupulous business practices of some of these companies and is proposing a serious effort, which will ultimately protect homeowners who are facing foreclosure.
Originally drafted by Democratic senator Ron Calderon, a new measure known as SB 94 passed the Senate Judiciary Committee on April 22, 2009. This bill is intended to protect homeowners from paying upfront fees that are often charged by companies or individuals who offer to help them modify their existing home loan. There is no need for a distraught homeowner to pay these additional fees as loan modifications can be requested and obtained directly from their lender.
Due to the record number of homeowners who are now in default on their mortgages and are facing home foreclosure, many unscrupulous individuals and companies prey on the stress and fear of these homeowners by offering them unneeded assistance at a high price. Some of these companies are not only charging high upfront fees, but are often making promises about their services that aren't kept. This leaves a homeowner in a greater bind, as they have paid exorbitant fees while nothing has been accomplished; yet the clock is ticking towards their home being repossessed by their lender and sold at a trustee sale.
If approved by the Senate Appropriations Committee, SB 94 will make it illegal for individuals or companies to charge upfront fees to the homeowner, which helps relieve some of the burden off of many who are already economically strapped and in fear of losing their homes. Those companies and individuals who are honestly operating on behalf of assisting the homeowner can remain in business, but cannot charge upfront fees, must deliver all services as promised before accepting payments and must make the homeowner aware that the same services are offered for free elsewhere.
With knowledge comes power and homeowners who seek to modify their home loans should make educating themselves on the process a priority. This includes, of course, researching all of the options that are available to prevent a home from being foreclosed on. Any troubled homeowner that is behind in mortgage payments is advised to contact their lender to ask about available options. As California seeks to protect homeowners, it is important that lawmakers in other states follow suit and that homeowners everywhere stay informed of their options at all times.
Foreclosures Continue To Rise
There is much conflicting news on the economy over the past few months. One reason is that certain industries and sectors have achieved greater improvement than others. In terms of the real estate market, the news is certainly not bright. The facts are undeniable: the number of home foreclosures has dramatically increased during the month of April. This news proved shocking to some as there were many indications that the worst aspects of the recession’s impact on the housing market had passed. It does not appear this is the case as the numbers paint a dark picture based on provable statistics.
The number of foreclosures that have been registered in April is upwards of 374,000. That is a staggering amount of homes and would approach depression era level foreclosures. This is roughly 1 out of every 350+ homes in the United States. The numbers are even more shocking considering the sheer volume of foreclosures in March where among the highest on record. This led many to expect that the numbers for April would be lower. However, the numbers have increased which is an ominous sign for future economic recovery. This is not to say that the economy or the housing market will never recover. It will certainly recover in time, but this time will not be coming soon.
Part of the reason for this is that foreclosures are depressing the prices in homes. In some respects, homes are being sold at less then their actual value due to the proliferation of short sales, wholesale purchasing, and sheriff sales. As a result, the actual value of many homes is difficult to ascertain. Yes, there are many ripple effects that come out of the rising foreclosure crisis and few of them are positive.
On the surface, there is an interesting figure that corresponds to the high foreclosure numbers. That would be the fact that the number of bank repossessions have slowly been dropping bit by bit. Upon first glance, one would assume that this means more people are able to pay their mortgage. However, this is not the case. The lower number is likely due to the fact that many legislative and lender moratoriums have prevented the foreclosure process from starting on delinquent loans. Because fewer loans started the process, there were fewer getting all the way to the point of repossession. Now that those moratoriums are over, the volume of new fillings is increasing and it is likely that we’ll see a corresponding increase in actual repossessions in the coming months.
This situation is further compounded by the number of homes that have dropped in value and are locked in with expensive mortgages. As a result, many homeowners will literally walk away from their homes rather than actually pay the (now) inflated mortgage.
As such, the figures on foreclosures for April are among the most distressing in years. However, it is not impossible for the economy and the housing market to rebound in the near future. Exactly when this will occur is yet to be seen.