Mortgage Lender's Bankruptcy May Threaten Thousands of Homeowners (American Home Mortgage)

[TexasLawyer]

Source: WSJ

Mortgage Lender's Bankruptcy May Threaten Thousands of Homeowners
By PEG BRICKLEY
September 12, 2007; Page A15

Thousands of homeowners face an "imminent risk" of losing their homes because of clashes between American Home Mortgage Investment Corp. and its former financial backers, according to Freddie Mac, a government-chartered housing financier.

In documents filed with the U.S. Bankruptcy Court in Wilmington, Del., Freddie Mac said it seized $7 million that homeowners sent to American Home to cover principal and interest payments, property taxes and insurance just before the company's Aug. 6 collapse. American Home quit making payments to tax authorities and insurance companies Aug. 24.

Freddie Mac said 4,547 loans valued at nearly $797 million are at stake. It said it doesn't have the loan files necessary to pay insurance premiums and property taxes on them, however. "Therefore, there is the imminent risk that borrowers' insurance policies may lapse for nonpayment, subjecting the borrowers to a risk of loss of their mortgaged properties," Freddie Mac said.

Property-tax bills will go unpaid, Freddie Mac said, "resulting in increased tax liabilities and possible tax-foreclosure sales." It added it needs a court order allowing it to seize American Home's loan files "to avoid these serious consequences stemming from AHM's inability to service the Freddie Mac mortgage loans." The wave of mortgage-lender bankruptcies in the past few months has disrupted loan-servicing arrangements and triggered court fights over who should get control of the files necessary to service the loans, court documents show.


Read more: http://online.wsj.com/article/SB118955540976824460.html?mod=loomia&loomia_si=1

[slackmaster]

1. Even with an impound account, homeowner is always responsible for keeping T&I current

An impound account is a crutch. Homeowners should take control of their finances and not trust a mortgage company to keep up with those critical payments.

[Xipe Totec]

3. It's called an escrow account

and not all homeowners can manage their own escrow. You have to have at least 20% equity in your property before you are allowed to manage the escrow account; otherwise the mortgage company has control of it.

[slackmaster]

9. Impound account is also a widely accepted term

http://www.citifinancial.com/glossary/defin/ImpoundAccount.htm

You have to have at least 20% equity in your property before you are allowed to manage the escrow account; otherwise the mortgage company has control of it.

It varies from lender to lender. I was able to shut mine off when my LTV ratio got below 90%.

[Xipe Totec]

15. Point remains the same; you can't just do it because you want to

Never heard is called an impound account before.

[slackmaster]

16. Many people who CAN get out of T&I escrow/impound don't do it

My point is that everyone who CAN take control of those things SHOULD do so at the earliest possible opportunity.

[mountainvue]

39. Actually you can for an extra .25 hit to rate. That was

the policy of a lot of mortgage companies. Also, a lot of sub prime lenders didn't collect escrows at all, even when the LTV was 100%.

[susanna]

23. After a refinance in 1996...

...and we were just below 20% equity, so the bank set up escrow automatically: the refinancing BANK missed the summer tax payment during the refinance. It might have foreclosed our home had we not caught it...but then we didn't catch it until 1999! It was awful. Lots of penalties we should NOT have paid. A lawyer agreed that the bank was at fault, but said suing them would cost us more in attorney fees (than the penalties on the real estate) to prove our case. Yay. In retrospect, I should have sued and asked reimbursement for attorney fees. I didn't, and it's over now.

That said, the MINUTE we had enough equity, we pulled the taxes, insurance, etc., back. No way do I trust those people with my home. We pay it all ourselves and check the insurance plus the tax rolls for city and county every year to make sure we're paid up. No problems since.

[annm4peace]

25. Impound is CA, AZ, OR, HI, WA

the term for everyone else is Escrow. (I can't remember what AK does)

Both mean to include tax and insurance (or just tax) in monthly payment and the lender or who is servicing the loan will make the monthly tax payment.

If you chose not to impound (or escrow).. then you are responsible for your monthly taxes.

Unfortuantely many lenders sell the "servicing" of their loans to other lenders or other service companies and these companies might or might not make your monthly tax payment so it is good to check and make sure they do. call your local county office.

* with the bankruptcies it would be good to make sure your lender is still in business.

[slackmaster]

33. Homeowner is responsible for T&I even if there is an escrow (impound) account

That is very clear in the fine print of every Deed of Trust I have had or read (we use those in CA rather than Mortgages). Even if the lender or servicer screws up.

[wryter2000]

30. I didn't know that

You have to have 20% equity?

I signed up for an escrow account when we bought the house because I figured it would be convenient. Now, every time I get a tax bill with the notation that it's been sent to my mortgage company, I wish I could pay it, instead, so I'd know it got paid. So far, the company has been fine. I actually like them much better than my first mortgage company.

I have Chase now, and I somehow doubt J. P. Morgan's outfit is going to go belly-up.

[mountainvue]

38. Impounds/escrows = same thing. n/t

[Dr.Phool]

6. A lot of the time, an escrow account is required.

When I bought my first house with a VA loan, and 10% down it was required.

I feel sorry for those homeowners. They'll have to pay taxes and insurance twice.

[slackmaster]

8. Yes, and many people keep those in place even when no longer required to do so

I feel sorry for those homeowners. They'll have to pay taxes and insurance twice.

They will be made whole in the long run, but they will be screwed for cash for a while.

[hang a left]

24. T and I are sometimes required in mortgage payments...

particularly those that are guaranteed by the government.

[TexasLawyer]

2. dramatic story

... for an article about mortgage lending.

Just days before American Home's bankruptcy filing, Freddie Mac and Ginnie Mae terminated the company's loan-servicing rights. They also sent representatives to collect loan files from American Home's servicing facility in Irving, Texas.

In court documents, American Home said Ginnie Mae representatives "stood in a line in front of the doors and sat on the stairs, preventing AHM Servicing employees from entering the office." Freddie Mac said American Home "had its security personnel escort the Freddie Mac representatives out."

[Roland99]

4. All hail Bush's 'ownership society'!!

[madrchsod]

5. well thats about two days spending in iraq.

so we are fighting them over there so we can throw people out on the streets over here? is that what it`s all about?

[bluestateguy]

7. What happens when the holder of your mortgage goes belly up?

Say you are a homeowner with a mortgage, making payments on time, but then your mortgage holder goes out of business. What happens then? Are you home free on the loan, or do you still have to pay it?

[slackmaster]

12. Typically your loan is sold to another company

And you have to start making payments to the new mortgagee under the terms of your note.

Read the fine print on your mortgage. It explains what is supposed to happen if the note is sold.

You do have to cover yourself. Sometimes errors by the lenders prevent you from getting proper notice.

[Warpy]

14. If you've been paying in a timely manner

meaning you've never been a day late, your paper will be bought by another lender. You'll just have to put a different name on the monthly check.

If you've got a spotty record, then you might be put into the position of looking for refinancing, yourself. You may simply be foreclosed.

If you're in an upsidedown position, owing more on the house than it is worth, you'll have to pay the difference up front in order to refinance.

There are going to be a lot of people declaring bankruptcy over this one.

[Warpy]

10. Anyone with a mortgage will have to check every year

now to make sure the insurance and taxes have been paid out of the escrow account.

This sucks.

[Xithras]

20. Everyone SHOULD be checking anyway.

I pay mine to Countrywide every year, and they still missed one of my tax payments right after I refinanced. When the county finally sent me a notice the following year, I had to pay it myself...WITH PENALTIES...and pursue a refund from Countrywide. I got the tax money back, but they refused to refund the penalty amounts. I lost money because they f'd up.

When I went back and looked at my records, I noticed that my annual tax assessment fliers from the county had a small warning that the property had delinquent taxes. Since Countrywide was supposed to be paying the taxes for me, I never even bothered opening them.

[Warpy]

22. I was lucky

because my yearly notices came though marked "paid."

Now I own the place and pay it all myself.

[donkeyotay]

11. Why would people current on their payments face losing their homes?

Just because the mortgage company and Freddie Mac can't figure out how to apply their payments for insurance? This isn't the fault of the home owners, nor is it under their control. Why should they face any fallout?

[slackmaster]

13. Mortgages always require YOU to keep taxes and fire/flood insurance current

You have to keep an eye on the lender if you have your taxes and insurance impounded. Even if they screw it up, YOU can be in default if your insurance or taxes aren't current.

[Trillo]

17. Sounds like another SCAM foisted on those who are paying the bills.

The government seizes the payments, but then claims it can't forward those to the note-holders, in turn the note-holders go after the mortgage holders (homeowners) for failure to pay, and the best case scenario is the homeowners pay more in increased costs and for lost payments.

Therefore, the government seems complicit in a scam to foist responsibility of higher future costs to those who have been paying their bills, unless they take full financial responsibility. Perhaps it will all be wound down with a minimum of disruption, but that wouldn't be in accordance with Murphy's Laws.

[fasttense]

18. I get an annual statement detailing how the escrow was dispersed.

I'll take a very close look at it this year.

[shanti]

19. how does one

check the liquidity of their mortgage company? this is making me nervous, even tho i've been current on my own mortgage (and no forseeable problems) for the last 11 years.

[Jazzgirl]

21. I'm with you Shanti.

I've been current for the last almost 6 years. Never, ever late and this is horrifying. I have my mortgage through Citigroup but any of these lenders are subject to go belly up. This is some scary shit!

[shanti]

27. i heard that!

i used to have citicorp, but when i refinanced in 2004, it was sold to another lender, HomeQ. i also have an escrow account, and i like it because it's done automatically, which lowers the worry quotient....so far!

[Zorro]

26. Try these

www.bauerfinancial.com

www.bankrate.com/brm/safesound/ss_home.asp

[cutlassmama]

28. I'm thinking of buying a home. Should I do it now? I'm scared.

[BigBearJohn]

29. If I were you, I would rent. Wait to see what happens with the economy.

[AlCzervik]

31. get a normal mortgage and have at least 20% down pmt. no reason to be scared

and don't buy more than you really afford, if anything buy less of a house than you can afford and don't forget to factor in monthly costs like utilities and upkeep.

[Gormy Cuss]

36. Yeah, if one can afford that route and can stay put for the long haul, it's probably a good idea.

The only other exception would be if you live in a rapidly imploding market like some parts of Florida and California (Stockton and parts of San Diego, for example.)

[AlCzervik]

37. indeed, Elk Grove here and it's not a good time to be selling.

[Xithras]

32. How's your local market?

Around my home prices are in a freefall. Homes that sold for $500,000 a couple of years ago are now selling for around $350,000, and they are still dropping. If your area is the same, I'd watch the local numbers for a while before buying. Wait until prices level off and THEN buy.

I know that prices are a bit lower in Texas, but it would suck to spend, say, $200,000 on a nice house today, and have the house next door sell for $150,000 a year from now. If waiting a year or two might save you a substantial amount of money, it would be silly not to wait.

If you're in an area where the market is merely flat, or worse, where it's still climbing, you should buy immediately.

Overall, there is little danger for homeowners themselves in this crisis as long as you buy a house that you can actually AFFORD (no interest only ARM loans). I'm not even averse to 100% or 103% loans without a down payment, as long as it comes with a fixed interest rates and doesn't have any balloon payments attached.

Here's a suggestion for you from someone who has bought and sold a lot of properties over the years. Go to a lender and get preapproved for a home loan BEFORE you go house shopping. This used to be the standard way of doing things, but was largely forgotten when everything exploded. Find a loan with a rate and terms you like, and get preapproved for an amount with a payment you can afford (to to stay under 1/3 of your monthly income on the house payment). That will give you a solid ceiling on the amount of house you can buy, and ensure that you don't overspend.

Too many people overbought because they took a walk through some pretty model home and got excited when the salesman told them that "We can finance anybody!" They rushed into home ownership with whatever loan company their realtor or salesmen suggested, and never did the math on whether the homes were affordable in the longer term.

[HiFructosePronSyrup]

34. Can somebody explain to me these bankruptcies in simple, dumb-downed terms?

Why are mortage companies going out of business?

OK, lots of people are defaulting on their loans, I get that. But then the mortgage companies get to repossess and resell the houses.

OK, so the houses are being devalued, and the mortgage companies can sell them at the same price they bought them, I get that too. So the mortgage companies haven't got liquid assets. But shouldn't the principles and mortgage insurance and so on more than make up for it? Is this really the bad housing market, or is it really bad business practices coming back to haunt them?

[muriel_volestrangler]

35. And now specific British lenders have problems:

The Bank of England has agreed to give emergency financial support to the Northern Rock, one of the UK's largest mortgage lenders, the BBC has learned.

However this does not mean that the bank is in danger of going bust, Business Editor Robert Peston says.
...
The firm's shares have almost halved in value this year and talk that it may be in further trouble left it as the biggest loser on the FTSE 100 on Thursday, closing down 4.9%.

Northern Rock has loans and other assets on its balance sheet of £113bn. The value of deposits placed with it by retail customers is £24bn.

http://news.bbc.co.uk/1/hi/business/6994099.stm

[Earth_First]

40. I'll tell you what...

If we lose our home because of a tax-lien foreclosure because my escrow is lost due bankruptcy from predatory subprime mortgage lending, I can GUARANTEE you that I will not leave on my own accord.

I'd be willing to bet that I am not the ONLY one either...