Upside Down Mortgage

Archive for the ‘Subprime Mortgages’ Category

Subprime Regulations

Question: Are you a borrower that has sought thier own modification through a lender where you are in a subprime loan?

If you are, and you are up for bought with this bank, be advised that they are, in 97% of the cases, going to be coming back at you with every reason why not to do a modification for you and they are going to go the full 13 rounds with you. your opponents (Yes Opponents) that your Lenders are going to place on the other end of the telephone, are so knowledgeable in the banking rules and regulations, that they will literally be able to talk behind your back; in front of your face. It's not brain surgery to know that this is true. Just ask yourself this question. Are the banks looking out for my best interests-or their own? These banks take your money-most of it; invest that money, make a profit from it, and reinvest that money and never even say thank you, do they? Did you get a Christmas card from them last Christmas for all the interest that you paid into them? I know that I didn't.

Answer: I have done several modifications recently, and find your statements untrue.

The banks are all receiving tax payer funds if you qualify to a modification (there are several programs), it is in their best interest to modify your loan as opposed to foreclosure.

Deconstructing the Subprime Crisis

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Countrywide Subprime Lending

Over the course of the last year, federal laws regarding loan modifications have changed radically.  Between the end of George W. Bush’s presidency and Barak Obama’s new administration, federal laws  have opened new opportunities for homeowners to avert foreclosure and have access to loan modifications.

Basically, there are four core laws which create the guidelines for all mortgages.  These laws attempt to make the guidelines uniform, based upon equality and that they be administered fairly.  All lenders are required to operate under certain rules, regulations and procedures when taking loan applications.  The rules are: the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), Equal Credit Opportunity ACT (ECOA) and the Fair Credit Reporting Act (FCRA).  Some of these laws are quite old and were passed in a very different era, but Congress hopes that these rules provide the kinds of guidance that will help people borrow money to get a home without being taken advantage of.

RESPA requires lenders to give a good faith estimate of all closing costs that you are likely to pay.  The hope is to keep the borrower from being forced to pay hidden fees at closing.

TILA requires that annual percentage rate (APR), term of the loan and total costs be disclosed to a borrower prior to extending credit to the borrower.  This information must be obvious on documents presented to the consumer before signing, as well as on periodic billing statements (although that is less often).    Obviously, subprime mortgages, and other “creative†forms of mortgages, may have violated this law.

ECOA prohibits any discrimination in lending based on race, creed, religion, national origin, sex, marital status or age.  Discrimination does not just mean refusing to give a mortgage, it could also mean taking advantage of people and giving them unfavorable mortgage terms just because of their minority status.  

FCRA promotes accuracy, fairness and privacy of information in the files of consumer reporting agencies.  When you apply for a mortgage, the lender always pulls a credit report and FCRA gives you access to the report they pull.  If you have ever been rejected for a credit card, you will doubtless have received a letter explaining the decision and informing you of your right to view your credit report; this is due to FCRA.

California loan modification attorneys are familiar with the state and federal laws governing loan modifications, as well as how those laws can be used to benefit your situation.  If you are facing foreclosure, there is a chance that your mortgage company might have violated one of these statutes.  This could be used as leverage either during a loan modification or even during litigation.  The federal government is still investigation how often mortgage companies such as Countrywide violated these laws in selling people subprime mortgages.  Having a mortgage with a highly fluctuating interest rate certainly seems to violate some of the federal laws mentioned above, as does the tactic of lying about the borrower’s income (which some real estate agents did quite often).  A loan modification attorney can be a big help in figuring out just how the laws governing mortgages can benefit you.

About the Author:

Loan Modification Help Center is a free gathering place for resources and information on the rapidly evolving field of loan modifications. The internet is over flowing with information on this subject with the problem being that there can be as much bad information and advice as good. For a homeowner struggling with mortgage payments and facing the possibility of foreclosure, the importance of getting straightforward information with no agenda or ulterior motive is of utmost importance. The resources we make available at Loan Modification Help Center are just what homeowners need as they seek to understand their options and get the information they need to make the critical decisions involved in a loan modification. For more information about loan modification programs visit loanmodificationhelpcenter.org.

Source - Loan Modification Help Center – Federal Law Governing Mortgage Lending

Fight Foreclosure: Make 'Em Produce The Note!

Timeline Subprime Mortgage Crisis

Accounts receivable represent amounts due from customers who have purchased merchandise on credit and who have agreed to pay within a specified period or when billed by a company. Since all accounts receivable represent a portion of purchased merchandise on credit it is a given that some of the income represented within the account will not actually be received by the company.  Due to this business phenomenon it becomes necessary for any company to account for this loss on the balance sheet. Commonly named bad debts expense this has become a major focal point in recent financial history because of the credit crisis in the subprime mortgage industry.  For companies that issued subprime mortgages there is an internal assumption that a large portion of the accounts receivable or credit debt will not be repaid. The reason a company can handle such a large amount of risk is due to overall sales volume. By having a large clientele base revenues can be increased enough to cover the overall loss, but as recent history shows one shift in the current economic climate can have drastic consequences to not just one industry but to the global economy depending on how leveraged the world economy is to any one economic environment. In the case of the US mortgage market we found that it was not only the mortgage companies but all of the subsidiary investors which took on a portion of the risk by chasing large rewards, these risks created an overly leveraged market. As investors continued to build housing in the hope of riding increases in housing prices they created an excess in housing inventory, which in turn devalued the houses on the market as well as those being built. When localized household wealth declined mortgage lenders lost capital and the ability to fund refinancing and the necessity for an increase in the adjustable rates on existing home loans. Since there was already too much risk inherent in the market those borrowers who were questionable to begin with defaulted at an ever increasing rate until the market collapsed around them. These defaulted borrowers have to be accounted for on the books, and this is what we will take a closer look at.

When a purchaser buys merchandise on credit certain entries must be made to the accounting ledger. Let’s say NEC Inc. sells some coffee cups on credit. If we assume the cups were already produced and in inventory then Cost of Goods Sold (COGS) is debited for the manufacturing cost and Inventory is credited for the same amount, say 7,000 dollars. This takes care of the internal cost of producing those cups. Next Accounts Receivable is debited $10,000 and the Sales account is credited $10,000. Now NEC Inc. has transferred the COGS to the customer but instead of increasing cash flow it has only increased the money owed in the form of accounts receivable. Like your average consumer credit card when goods or services are sold from one company to another some form of payment timeline is agreed to, but for ease of use we will assume the retailer who purchase the cups agreed to pay the total amount in full that the end of the month. However, just few days later a natural disaster strikes and not only is the retailer completely destroyed but all possible liable parties are affected to the point where they cannot pay their debts. Now NEC Inc. has 10,000 dollars the on the books that should have become cash flow but instead will never be recouped.

In this situation NEC Inc. has very little choice but to move the debt into a Bad Debt Expense account. This type of account is called a contra account in that it is reported as a subtraction on the asset portion of the balance sheet. Under the asset portion of the balance sheet an entry is logged under allowance for bad debts while bad debts expense is debited. This is of course is not a write off, but it is unlikely that a company would write off the debt until the books have been closed that the end of fiscal quarter. When the write-off entry is noted it will come in the form of decrease to the accounts receivable account and an increase to the allowance for bad debt. In the case of NEC Inc. the initial entry would include a debit of -$10,000 to Allowance for Bad Debts and a credit of -$10,000 to Bad Debts Expense. Then debit of -$10,000 to Accounts Receivable and a debit of +$10,000 to the Allowance for Bad Debts. The allowance for bad debts account is a valuation account because its credit balance is subtracted from the debit balance off the Accounts Receivable. If, on the other hand, a company wishes to use the direct write-off method then a debit is entered under Bad Debts Expense and a credit is placed under Accounts Receivable for the amount of the bad debt. By correctly recording bad debt a company ensures that its net income, ROI, ROE, and liquidity measures remain accurate.

About the Author:

Source - Matching Receivables: How to Account for Bad Debt

46 Years of Change