Predatory lending with a smiley face

[one...two...tree 2,762]

Obama is banking on "loan modifications" to help struggling homeowners -- but mortgage brokers are the real winners.

Editor's note: Research assistance for this article was provided by the Investigative Fund of the Nation Institute.

By Alyssa Katz, Salon

March 4, 2009 | LONG BEACH, Calif. -- Some 40 mortgage brokers and real-estate agents are gathered at the Long Beach Hyatt on a balmy Friday in January to attend a seminar conducted by broker Allen Brodetsky and local real-estate attorney Steve Vondran. The mortgage business might have collapsed, but those assembled in the glittering ballroom have each paid $195 so Vondran and Brodetsky can teach them a fresh way to make money off of other people's debt.

"The Department of Real Estate has granted brokers a whole new product line you never had before," says Vondran, as the Dockers- and Ann Taylor-clad crowd read from fat binders and ponder the unfamiliar terms in Vondran's PowerPoint presentation -- "LOAN AUDITS," "QUALIFIED WRITTEN REQUEST."

The new product is a loan modification. When borrowers are unable to pay their monthly mortgage bills, a frequent occurrence in this era of self-destructing subprime loans, loan modifications allow the borrowers to renegotiate the terms of their mortgages. They pay a lower monthly charge and keep their houses, and the broker earns a paycheck for arranging the new deal.

Besides doing so-called loan mods themselves, Vondran and the San Fernando Valley-based Brodetsky help others get started in the business. Vondran also has another niche within the field: Brokers hire him to eyeball borrowers' mortgage papers to see if their original lenders committed improprieties in making the loan. Many of the lenders did, and loan mod brokers who can promise their clients a legal review have an edge on the competition. Pitching his services to the room, Vondran works up a lather against predatory lending, which he denounces, quite accurately, as "an unlawful attack on home equity."

Brodetsky then shows the group at the Hyatt a redacted photocopy of a loan modification he recently secured. It cuts the borrower's monthly payment to about $1,500 -- half of what it would have been if he or she had to pay the full amount owed.

Unfortunately for the borrower, however, is that the remaining debt doesn't vanish. Those unpaid tens of thousands are waiting there to be reckoned with down the road, plus years of additional interest. "Isn't that predatory lending?" gasps one of the attendees at the Hyatt. Vondran and Brodetsky change the subject.

By the Obama administration's account, its new housing rescue plan, which goes into effect on Wednesday, will pull up to 4 million homeowners back from the brink of foreclosure. It also offers another 5 million or so excessively indebted borrowers the chance to refinance into lower-interest loans.

But the biggest winners in the government's $275 billion homeowner bailout just might be the mortgage brokers who were largely responsible for creating the disaster in the first place. Many are now reinventing themselves as heroes of the mortgage crisis by offering loan modification services. And between its new cash support and the refinancing program, through which they can benefit from the federal aid via brokers' fees, the Obama homeowner bailout might as well be a full employment program for them. The Treasury Department's FAQ for borrowers warns, "Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance." But nothing in the homeowner bailout prevents these middlemen from stepping in and taking a cut.

In California, home to nearly one-fourth of all the foreclosures in the country, there are now applications pending from some 500 brokers and real estate agents seeking to get in on this new line of business, which hardly existed six months ago (but now has its own trade group). California's Department of Real Estate, which licenses mortgage brokers and real estate agents, has so far authorized more than 200 companies to negotiate with mortgage lenders to modify loans, and the list grows longer every week. They may charge borrowers whatever they choose for this service, as long as they only collect a portion of the fee upfront and take the rest once the job is completed. The going rate ranges from a flat $2,985 to about 1 percent of the amount of the mortgage, or $4,000 on a $400,000 loan.

The problem is that the majority of loan mods are lousy deals for homeowners. Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.

-----

Like many other former mortgage brokers, Shawn Kolahi of Irvine, Calif., now runs a company licensed by the state of California to help borrowers negotiate loan modifications. His company, Loan Processing Center Inc., employs nearly 80 sales reps and case processors in a sleek office in Irvine. Up through 2007, Irvine was the subprime lending capital of America, home to infamous powerhouses like Ameriquest and New Century. For a fee of several thousand dollars, Kolahi's company pores through loan files; assembles financial documents from borrowers; haggles with lenders -- the kind of vital scrutiny that these borrowers' mortgage brokers didn't provide in the first place. The brokers at the Loan Processing Center are now working in reverse. In seeking mortgages on behalf of borrowers, they used to provide a bare minimum of evidence to lenders that applicants could make a monthly mortgage payment. Now the brokers spend their days trying to prove that borrowers can't make their loan payments, and need to renegotiate their mortgages.

"We had to try to stay alive," explains account executive Sam Carlson, who recruits brokers from across the country to join the operation. He formerly worked at a mortgage brokerage. Now his new company blitzes homeowners who have subprime and other high-risk mortgages with junk mail and telemarketing calls. Carlson reports that Loan Processing Center has worked with some 1,700 clients so far. "We're the biggest," he boasts.

more...

http://www.salon.com/news/feature/2009/03/...m=/news/feature

[Ban Hammer 13,333]

business as usual, eh?

[Peikko 1,575]

Just the free market at work. Such a beautiful thing.

[one...two...tree 2,762]

business as usual, eh?

The problem is that the majority of loan mods are lousy deals for homeowners. Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.

In case you missed that part.

[Peikko 1,575]

FP, everyone is responsible for themselves. They should get an independent adviser to read the legaleeze if they are not competent to do it themselves. Seriously, all these ###### idiots taking out these mortgages that they can't afford should quit their whining and move into a trailer. Idiots!

[Ban Hammer 13,333]

business as usual, eh?

The problem is that the majority of loan mods are lousy deals for homeowners. Federal banking regulators recently determined that more than half of all mortgages that were modified by lenders in early 2008 ended up heading into foreclosure again in less than six months. Most loan modifications, in fact, dig borrowers deeper into debt.

In case you missed that part.

didn't miss it at all.

FP, everyone is responsible for themselves. They should get an independent adviser to read the legaleeze if they are not competent to do it themselves. Seriously, all these ###### idiots taking out these mortgages that they can't afford should quit their whining and move into a trailer. Idiots!

here's some real cheap too!

http://www.visajourney.com/forums/index.php?showtopic=182667

[one...two...tree 2,762]

FP, everyone is responsible for themselves. They should get an independent adviser to read the legaleeze if they are not competent to do it themselves. Seriously, all these ###### idiots taking out these mortgages that they can't afford should quit their whining and move into a trailer. Idiots!

I take it you haven't bought a house here in awhile. You have to sign pages upon pages of documentation and even if you read over everything carefully, good luck fully understanding all the details without consulting a lawyer.

[Peikko 1,575]

Why wouldn't you hire a lawyer to read the documents for you? Seriously, how dumb are these people?

[I AM NOT THAT GUY 5,715]

FP, everyone is responsible for themselves. They should get an independent adviser to read the legaleeze if they are not competent to do it themselves. Seriously, all these ###### idiots taking out these mortgages that they can't afford should quit their whining and move into a trailer. Idiots!

I know at least one person that was advised not to buy the house he was looking at, but he persited anyways, and has got himself into one bad deal after another. He whines about how it is not his fault, but he steps into deal after deal with both eyes wide open. The lending companioes try to work with him, but he is the one who does not follow through with his obligations. He could have walked away a couple years ago with a tidy sum of cash, but he won't give up that house.

Edited March 4, 2009 by Mister_Bill

[Peikko 1,575]

See how easy it is to be popular on VJ?

[one...two...tree 2,762]

Why wouldn't you hire a lawyer to read the documents for you? Seriously, how dumb are these people?

You sound like an elitist now.

IMO, the loan details need to be clear and in easy to understand terms for the purchaser.

[Ban Hammer 13,333]

Why wouldn't you hire a lawyer to read the documents for you? Seriously, how dumb are these people?

i didn't, but i also knew the drill. it was a fixed rate loan, not one of the variable rate ones.

[I AM NOT THAT GUY 5,715]

Why wouldn't you hire a lawyer to read the documents for you? Seriously, how dumb are these people?

You sound like an elitist now.

IMO, the loan details need to be clear and in easy to understand terms for the purchaser.

There is a piece of paper that comes with every loan. It tells you what your payments are, how many payments you will make for how long, what the total of all those payments are, and how much you are paying in interest. It does not get any simplier than that. If you get an adjustable loan, they also tell you how much your payments could increase, and explains about negative amortization. It is in big type, and simple English.

[one...two...tree 2,762]

Why wouldn't you hire a lawyer to read the documents for you? Seriously, how dumb are these people?

You sound like an elitist now.

IMO, the loan details need to be clear and in easy to understand terms for the purchaser.

There is a piece of paper that comes with every loan. It tells you what your payments are, how many payments you will make for how long, what the total of all those payments are, and how much you are paying in interest. It does not get any simplier than that. If you get an adjustable loan, they also tell you how much your payments could increase, and explains about negative amortization. It is in big type, and simple English.

Oh really? Those bad bad buyers who can't even read. Bless the lenders...they were only doing their job.

[I AM NOT THAT GUY 5,715]

Why wouldn't you hire a lawyer to read the documents for you? Seriously, how dumb are these people?

You sound like an elitist now.

IMO, the loan details need to be clear and in easy to understand terms for the purchaser.

There is a piece of paper that comes with every loan. It tells you what your payments are, how many payments you will make for how long, what the total of all those payments are, and how much you are paying in interest. It does not get any simplier than that. If you get an adjustable loan, they also tell you how much your payments could increase, and explains about negative amortization. It is in big type, and simple English.

Oh really? Those bad bad buyers who can't even read. Bless the lenders...they were only doing their job.

Looks pretty obvious to me! However, here are a couple of links that identify the problem, and discuss solutions, instead of whining about the problem:

http://www.gao.gov/new.items/d061112t.pdf

http://www.ourbroker.com/?p=2069