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September 2nd, 2009

Update1 Making Home Affordable’s Impact on Foreclosure Sales

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What do banks do once they foreclose on a property? There has been a lot of controversy recently whether banks are holding onto foreclosed properties in order to keep home prices from dropping even lower. Diana Olick of CNBC wrote an interesting post on her blog “Realty Check” on Monday, in which she reached out to a representative from Bank of America (BofA) to get some answers.

The answers turn out to be quite interesting indeed because BofA highlights some of the exact same reasons we have detailed in past posts why the Making Home Affordable program will likely never generate the type of results the president has hoped for.

Is BofA not releasing foreclosed properties to the market on purpose? BofA says no. The bank says that foreclosure sales have been down recently because as soon as the details surrounding Making Home Affordable (MHA) were released, the bank was committed to give troubled borrowers every opportunity to stay in their homes.

However, BofA says, now that MHA is in full swing, the program’s faults or limitations will likely cause foreclosure sales to once again rise. There are three main factors limiting servicers’ abilities (in this case BofA’s) to modify or refinance loans.

Unemployment: There are just some problems that servicers can’t fix, says BofA. Since the subprime crisis has largely past, the new wave of defaults and foreclosures have been triggered by economic forces, mainly unemployment.

“…some of the leading causes of foreclosure are not ones that will be ameliorated by the Obama plan (at least not enough to change the ultimate outcome),” wrote Randall Wharton in a June 2009 article in Servicing Management Magazine. “According to research performed at Countrywide in 2007, some of the most common reasons for foreclosure are reduced income, illness or other medical expenses, and divorce.

“A recent paper from the Federal Reserve Bank of Boston found a direct correlation between an increase in unemployment rates and an increase in mortgage default rates. The authors estimated that for every 1% increase in unemployment, the probability of a 90-day delinquency increased by 10% to 20%.”

Third-Party Investors: In further defense that BofA hasn’t been purposely keeping foreclosed homes off the market, the bank claims that their obligation to third-party investors is to prepare defaults for foreclosure in order to recoup the investment as swiftly as possible.

Yet, third-party investors are another reason why foreclosure sales have lagged. These investors must decide on a loan-by-loan basis whether it is more economical to foreclose the property or rework the loan for the borrower.

Ramped Up Demand: Servicers are dealing with such an influx of demand that it’s hard for them to keep up. Even with the addition of more employees, banks seem to be failing at making everyone happy.

Despite only hearing from one bank, Olick’s conversation with BofA provides a rebuttal to the accusations that banks are purposely not selling foreclosed properties. While it’s true that falling home prices are a major stumbling block for the real estate market’s recovery, BofA says that’s not the reason foreclosure sales are slumping. The implementation of MHA has created a new playing field for servicers to contend with.

We want to hear more from both borrowers and servicers. Share your stories, leave us a comment.

Update1: The post above was written based off of part one of Diana Olick’s article “What Banks Are Really Doing With Foreclosures.” After you read our post above, be sure to read part two of Olick’s “What Banks Are Really Doing With Foreclosures.”

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21 Responses to “Update1 Making Home Affordable’s Impact on Foreclosure Sales”

  1. Troy Says: September 2nd, 2009 at 12:58 pm

    My two cents….

    Bank of America- Wrecking the American Dream (One Community At A Time)

    5500 NW 91st Street- “Love Don’t Live Here Anymore”. Neither do any people, although various animals and vermin have moved in to occupy the rampant outgrowth of weeds and mangled landscape surrounding the property. From a distance, the weathered and peeling exterior paint is sufficient to draw one’s attention away from the broken window and light fixture strewn across the front yard. Amidst a picturesque community of soccer moms, mini-vans, and kids, we have our own version of neighborhood “blight”. Who is the bad-actor in the neighborhood that owns this run-down property, does not mow the lawn, and fails to pay the neighborhood association dues? None other than Bank of America.

    This memo was written by a concerned Countrywide borrower (yes, I am fortunate enough to be current on my mortgage). Like many other communities across the country, my neighborhood has experienced a number of foreclosures, short-sales, and borrower hardships. Luckily, Midwest home prices never reached “bubble” territory and most prudent banks have faced minimal losses relative to high-priced coastal markets and abysmal Michigan/Ohio markets. In spite of this “luck”, our community is suffering the fallout from Bank of America’s pernicious lending activity and utter failure to manage its lending portfolio.

    While many Americans make an honest effort to live within their means, for most people “their means” is dictated by employment and business conditions (which lie outside of their control). Given the difficult economy, a number of my neighbors have been forced to sell their homes at a loss, attempt a short-sale, or face eventual foreclosure. In many cases, the bank-lender is forced to recognize a financial loss on the mortgage. But far from being the victim, companies like Bank of America have exacerbated the problem and served-to-terrorize the community at-large. I suppose since BofA has received government “TARP” support, it would be fair to characterize it as state-sponsored terrorism.

    How, you ask? Lets look at the unfortunate example of 5500 NW 91st Street. Abandoned for nearly two years, the owners of the property have been trying to get rid of the property for nearly as long. The owners have not had enough money to pay homeowner dues, taxes, or their mortgage in roughly the same time period. They have tried doing a short-sale on the property to recoup some of the mortgage value for Bank of America. In September 2008, the owners’ diligent efforts to sell the property and settle the mortgage debt seemed to have bourne fruit. A buyer emerged willing to pay $195,000, ABOVE the $190,000 list price. Although Bank of America quickly agreed to the deal, they apparently failed to show up at closing. Numerous calls to the bank fell on deaf ears, endless telephone-prompts, and countless voicemail systems. The buyers eventually walked in frustration, leaving the original “owners” stuck in the seventh circle of mortgage hell.

    The story gets better. And by “better”, I mean more interesting, not in the literal sense of better. Following the failed sale, the owners stopped paying the electricity bill, which caused flooding in the finished basement (accounting for half the square footage of the property). In addition to 1,500 sq. ft of carpeting that had to be ripped out, the flooding caused an outbreak of mold that has quickly spread throughout the lower level. The problem has progressively gotten worse, with humidity and mold that can incur a coughing spell if someone lingers in the home too long. In spite of the mold problem, numerous realtors submitted offers between $180-189,000, with nary a response from Bank of America. (not a yes, no, or maybe to be found). As spring/summer wore on, the mold has grown worse and potential buyers apparently walked away.

    Ironically, neighborhood home prices have continuously sunk the past two plus years as Bank of America grows more stubborn in its resolve (to avoid recognizing a default or foreclose). My neighbor has had their property for sale for more than two years, offering it below the original purchase price. Another neighbor down the street sold a very nice 4BR/3BA for a large loss as well (below the $190,000 price that BofA scoffed at). Part of the problem may be that entrants to our neighborhood are forced to drive by the Bank of America property… with its dilapidated paint, unpaid dues, and over-grown, weed-strewn lawn. Once potential buyers are convinced that this is a second-class neighborhood, all home prices in the neighborhood suffer as a result.

    Given that many neighbors carry Bank of America/ Countrywide mortgages, we are left to wonder if the bank has some other motive behind its destructive lust for losing money. The bank is not seeking profits, or at least loss-minimization. The bank is willing to make the property-tax payments to avoid a sheriff’s sale by the county, but is unwilling to sell the property either above/at/below fair-market value. At the same time, the bank does not maintain the property or ensure it complies with the basic maintenance codes of our homeowner’s association. One wonders if the ultimate plan is to drive down property values for the neighborhood sufficiently that other neighbors consider walking away (due to negative home equity). We are left to dwell on the following quote from Terminator:

    “Listen and understand! That Terminator (Bank of America) is out there! It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever, until you are dead (or foreclosed).”

  2. REInvestInfo (Robert Prieto) Says: September 2nd, 2009 at 4:39 pm

    Update1 Making Home Affordable’s Impact on Foreclosure Sales | HSH … http://tinyurl.com/p7abzk

  3. Sally Says: September 3rd, 2009 at 2:25 pm

    Yes I agree some Banks have all the leverage. To many people sit on the side lines and Wait on the Bank.. We will not let all these Banks Do that . Come visit us at CurrentForeclosures
    And see the variety Homes we have to offer.

  4. Tim Manni Says: September 4th, 2009 at 11:26 am

    Thanks for commenting Sally, unfortunately the link you provided isn’t working.

  5. Kevin Simpson Says: September 4th, 2009 at 3:36 pm

    Bank of America needs to cooperate by trying to sell more homes in foreclosure, helping the real estate market with business movement. Here in ForeclosureListings.com, we receive good number of properties to sell.

  6. Dutchie Says: September 11th, 2009 at 1:57 pm

    My husband and I made an offer on a short sale in April. We made an offer $35,000 above the listing price. Our offer was accepted by the seller and turned into the lender (Bank of America). The seller’s agent has been in contact with the lender and we were getting updates monthly. A month ago our agent said things were looking good for us and we should know something shortly. A week later she called us upset to say B Of A closed the file. They gave no counter offer and said our offer was too low due to the market change in the last few months. We put in a completely new offer of $27,000 more. As of today it has been another 3 weeks still with no answer. By the way we found out the office that handles their short sales is in India. Our offer is probably sitting on someones desk. We have also been out bid on 6 foreclosure offers. FRUSTRATING!

  7. Tim Manni Says: September 14th, 2009 at 1:25 pm

    Dutchie,

    Wow, frustrating indeed. These types of stories — usually involving BofA specifically — have really begun to pile up. You say you’ve bid on six different foreclosed properties…do you know if these properties have been sold to other consumers, or has their ‘file been closed’ as well?

    I wonder how this type of outsourcing will affect business as time goes on? To me, there’s nothing more frustrating.

    Good luck and thanks for sharing your story on our blog. Keep us posted!

    Thanks,
    Tim Manni

  8. Sheila in Idaho Says: September 21st, 2009 at 4:22 pm

    I participated in the “Making Home Affordable” plan, made four payments, and Bank of America is still foreclosing on my home. When I was finally able to talk to someone at Fannie Mae about it, I was told that it is illegal for them to have not provided me with approval or denial BEFORE MY THIRD TRIAL PAYMENT. My third trial payment was made 8/1/09. As of today, BofA is now claiming that my “paperwork is not complete.” Upon discussing it with them, I was told that I needed to provide a written statement that I do not receive alimony (I have been divorced for 14 years and have never received alimony, as indicated by my tax returns they have in their possession). And they wanted a copy of my son’s birth certificate because I receive child support. Another outrageous effort to stall while the foreclosure sale date gets closer. I have heard of numerous people in my situation who lost their homes while in complete compliance with the Making Home Affordable program.

  9. Tim Manni Says: September 21st, 2009 at 5:02 pm

    Sheila,

    First off, I’m sorry to hear of your troubles. Yeah, I thought the trial period was only for three payments…it doesn’t seem right that they waited until the fourth payment to tell you that they were foreclosing anyway. Furthermore, I really hope Washington is taking a hard look into people, as you say, who are seemingly complying with the program, only to lose their homes anyway.

    Keep in touch and thanks for sharing your story,
    Tim

  10. Judy in California Says: September 27th, 2009 at 3:26 pm

    My husband and i have just made our 4th Making Home Affordable trial payment to BofA. When i call to speake to someone about what is going on with our modification nobody in any dept. knows anything!!! I have a bad feeling that they are going to foreclose even though we have made all of our payments on time and have given them ALL the documents they asked for. The problem is that our Govt. is not holding the banks accountable for this program and as a result, the banks do not have to answer to anyone! The cutomer has absolutley noone to turn to for help(not even attorneys) as this is not a Law but a “Program” and therefore no legal action can be taken. Shame on our Govt. for not following up on how the banks are doing their dirty business. BofA is a theiving,lieing,greedy bank and I will never do business with them agian!

  11. Tim Manni Says: September 28th, 2009 at 12:01 pm

    Judy,

    First off, we are really sorry to hear of your struggles. Unfortunately, you have alluded to and are suffering from most of the snares that this “program” possesses. If you’ve been following this blog for a while now you’ll know that we speculated from the beginning that these types of programs will struggle do to the fact that participation is optional for the lender. Furthermore, Washington can only apply pressure for lenders to do more, but pressure is where it ends. You’re right, it’s not a law and lenders aren’t mandated to participate, thus the govt can’t regulate them.

    The problems you are and have experienced are pretty identical to those of “Sheila in Idaho” — and both of you have BofA for a lender. I wonder how deep this “trend” runs?

    Please keep us posted and don’t give up. Thanks for sharing your story,
    Tim

  12. Leah Says: October 14th, 2009 at 9:43 pm

    Has anyone considered complaining to the BBB. I have searched high & low. This BoA is not a part of the solution, but part of the problem!

  13. Tim Manni Says: October 18th, 2009 at 12:18 pm

    Hey Leah,

    Thanks for commenting, sorry it took me so long to get back to you. I haven’t heard of anyone complaining to the BBB about BofA…yet, I really wouldn’t be surprised if they did — we’ve heard a lot of criticism about BofA.

    Hope to hear from you again soon,
    Tim

  14. AJ Says: December 4th, 2009 at 3:37 pm

    I started my saga over a year and a half ago with the Hope program. Finally after a year I received a permanent modification starting in Sept. I made the payments as agreed, and then I received the MHA trial (they sent it, I did not want to sign as the permanent modification offered two months earlier was for less money)BofA sent a intent to accelerate letter,(in otherwords starting the foreclosure process) saying I owed them more money (over 10k) with less than 30 days to pay OR I could sign the MHA trial which expired that day and waves all my rights) The reason they say (well, what they say depends on who I talk to, the time of day, and what day of the week it is) that they didn’t calculate my taxes into the original offer, even though I repeatedly asked them to, and they are adding an additional 300 per month for the pleasure of having an escrow. So I signed it, and made my payment, and am very confident that they will refuse to offer me a mortgage and foreclose once the trial is over for the house my family has lived in for over 11 years. Its a shame that they were too big to fail, but the American working class isn’t. How about them not returning the taxpayer loan and cramming down the mortgages? (they get a 0% interest loan with no strings, but we get bullied and threatened) I hope the next time they are on the brink of failure the government helps them the way BofA has helped us.

  15. Steve Says: December 4th, 2009 at 5:48 pm

    I just spoke to BofA (of course i didnt hear this from them), but out of over 10,000 customers who have finished their trial period payments for the Making Home Affordable Program (Obama Paln), only 3 have received their new loan documents!

    When i emailed this news to our state assembly office, i received this information back;

    Thank you for the update. On your very important note – our staff in Sacramento will be conducting combined State and Federal Hearing on this very important matter. We will subpoena BoA, Well Fargo and Chase financial representatives to Sacramento to account for the backlog and inability to address the housing crisis in California. We will also ask family’s, like yourself, to testify to the problems you have experienced under the President’s Federal Plan. I am determined to make this process work for our families across California. Please stay with me here! I will be in contact with you shortly. Once again, thank you for the update. I am on your case!

    You may also find this interesting – http://jacksonville.com/forums/news/rants_raves_forum/193005

  16. Tim Manni Says: December 7th, 2009 at 2:01 pm

    Steve & AJ:

    First off, we’re sorry to hear of your troubles. Secondly, we can’t tell how many complaints we’ve received from BofA regarding the mod program. Steve, thank you so much for sharing the response you received, hopefully more borrowers will take this route so our lawmakers can begin to see the true scope of the problem.

    Thank you both for sharing your experiences, PLEASE keep us updated.

    Tim

  17. chan Says: December 16th, 2009 at 10:53 pm

    WHY ARE THESE CALLS TO BANK OF AMERICA – MAKING HOME AFFORDABLE – being routed to INDIA ??????? Is BOA NOT FLOUTING THE RULES BY OFFSHORING THESE JOBS??????

  18. Tim Manni Says: December 17th, 2009 at 10:29 am

    Chan,

    I have no idea why these calls would be routed to India (cost savings I suppose), but I can’t say I’m surprised. Did you call BofA and you know for sure that the call was routed to India? If so, we’d love to hear more about that! Please share your story with us!

    Thanks for commenting, hope we hear from you soon,

    Tim

  19. John Wright Says: May 10th, 2010 at 5:41 pm

    When gas went up in the 90s, President Clinton responded “It looks like someone is playing politics.” Who knows, maybe that was the day that a law being passed that stipulated they had to pay more than 75 million. Maybe they rose the gas rates to remind the President that they have the power to create and economic crisis, with one stroke of a pen. HOW DARE THESE OIL PIGGIES HOLD OUR PRESIDENTS AND THE AMERICAN ECONOMY HOSTAGE WITH THREATS OF ECONOMIC SABOTAGE!

    Piggy Banks:
    But there is a bigger spill on the horizon my friend. This spill is going to effect every coast line in America. It is called the GREAT FORECLOSURE SPILL! It will also keep bubbling and bubbling and bubbling foreclosures. It is still going to happen, even though the American Tax Payer funded TARP with a potential 581 BILLION DOLLARS as BAIL OUT money to the piggy banks. I mean if the government is in the lending business, why not have just loaned it to the American homeowner directly? I mean these piggy banks caused the whole mortgage crisis in the first place. TARP gave one bank $45 BILLION DOLLARS! Just like Clinton said with the oil companies, it now looks like Bank of America is “playing politics with the modification process.” While dealing with the piggy banks, President Obama and Bush had the same look of fear on their face, as President Clinton did with the oil companies. HOW DARE THESE PIGGY BANKS HOLD OUR PRESIDENTS AND THE AMERICAN ECONOMY HOSTAGE WITH THREATS OF ECONOMIC SABOTAGE!

    I dedicate to both the Piggy Oil Companies and Piggy Banks the following song by George Harrision and John Lennon. Appropriately titled “Piggies” I invite you to listen to it on youtube as you read the words

    http://www.youtube.com/watch?v=NTmeHM-Hojg&feature=related

    Have you seen the little piggies
    Crawling in the dirt
    And for all the little piggies
    Life is getting worse
    Always having dirt to play around in.

    Have you seen the bigger piggies
    In their starched white shirts
    You will find the bigger piggies
    Stirring up the dirt
    Always have clean shirts to play around in.

    In their ties with all their backing
    They don’t care what goes on around
    In their eyes there’s something lacking
    What they need’s a damn good whacking.

    Everywhere there’s lots of piggies
    Living piggy lives
    You can see them out for dinner
    With their piggy wives
    Clutching forks and knives to eat their bacon.

    I AM FIGHTING BACK!

    You can read my story or show your support in your comments at: Unitedlawgroup.com
    under the John Wright vs. Bank of America Lawsuit

    Please send an email to BofA CEO with “I SUPPORT JOHN WRIGHT VS. BANK OF AMERICA”

    Divided we may have fell America. But UNITED WE WILL STAND!

    Sincerely,
    Johns-wright@hotmail.com

  20. brooke Says: August 9th, 2010 at 11:38 pm

    my loan is through bank of bofa 275 times i have called them in 6 months trying to come up with a revised mortgage first they told me i made 200 dollars a month to little then when i worked my ass off to qualify they told me i made to much so i borrowed 12,000.00 from my annuity to get out of foreclosure after the payment was made they kept 6,000.00 for lawyers fees and foreclosure fees and said if i didn’t make a immediate payment of 6,000.00 my house would be back in foreclosure and i wouldn’t be able to make a payment how can that even be legal to not disclose the whole amount then if i come up with more money are they again going to add fees…. my loan is a insured fha loan is that y the bank seems like they r doing everything possible for me to lose my home because its insured and they will get there money anyway

  21. Eva Says: October 9th, 2012 at 3:31 pm

    To Judy and Sheila, this trend runs very deeply. When I got in it was a 6 months trial then they said I made it and there was another 6 months at lower payments, then I received a foreclosure notice saying pay $5400 in 30 days or we take your home. I paid, but they ruined my credit any way, I still have my home, but can’t buy a car,get a credit card, nothing and I have more than $300,000 in equity in my home. Now they want me to do it again, because I am 30 days behind. I just wrote Dr. Phil and asked why he does not address some of these problems on his show. I don’t know where to turn, but can’t go through this again. I have a foreclosure date of Oct 27,2112. So what do people like me do now Tim? Not to mention my phone rings every 30 minutes from them. 30 DAYS BEHIND!!

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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