Question: Well, we just received a notice that IndyMac, who we have a second mortgage with, closed it’s doors. They kindly sent us a notice that they are working with Wells Fargo to offer help refinancing our loan. My concern is this, if we have to go through a “regular” refinance, there is no way we would qualify with our credit being in the dumps. It’s obvious they aren’t transferring our loan to Wells Fargo, but just offering help to refinance. So I’m concerned. I don’t see how they can do that. When calling the Wells Fargo number they provided, I couldn’t get through to anyone. I’ll try again tomorrow. I would appreciate any advice.

Thanks,

Jen

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Dear Jen,

Sorry to hear of the difficult situation you’re facing. Hang in there. Each bank has different rules to an extent on how they are dealing with the current troubles so I can’t comment on exactly what you’re facing. However,  here is what I know:

1. A bank can not force you to refinance in the sense that they can not call back a loan unless you’ve violated some very serious terms. Even then it would have to be pretty bad. This is a rule dating back to the aftermath of the Great Depression. If banks could call back mortgages – in today’s climate – 50-60% of folks would lose their homes – since the vast majority are not in a position to pay back their home loans on short notice without selling the house.

2. Banks can sell the servicing rights – in which case the terms of the loans remain unchanged but only the loan is transferred to a different lender. This doesn’t require you to refinance.

So, with that – I am not sure what exactly Indy is trying to do. I would try to reach someone there and ask them exactly what they are talking about.

I don’t know what else to say really.

Hope that helps. Good luck Jen!

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It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.

Reminds me of Lisa Simpson’s line in “Homer the Vigilante“, when Homer sets up a group to track down a cat burglar.  Lisa’s line goes along the lines of (paraphrase): “but if you’re the police, who’s going to police the police?” To which Homer replies “I don’t know, the Coast Guard?”

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IndyMac, the second-biggest independent U.S. mortgage lender last year behind Countrywide Financial Corp., has lost almost $900 million in the nine months ended in March amid tumbling home prices. The company is focusing on mortgages that can be sold to government-sponsored enterprises like Fannie Mae and Freddie Mac.

If you are in the market for a home mortgage and were working with a mortgage broker, call your broker to ask if the loan was to be placed with IndyMac. You’ll need a new lender!

In other bleak news, it was disclosed today that Fannie and Freddie may be required to raise as much as $85 billion in additional capital. To be fair it’s due to new accounting rules, but still the markets were in turmoil.

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In that spirit, today I want to bring to your attention a brilliant post by the North Phoenix Agent, Heather Barr. She has proposed a very practical way to fix the foreclosure mess. Since she doesn’t trust any of the “big three” presidential candidates to offer anything that would work (she does admire the Obama overall theme though). So in the spirit of citizen government Heather proposes her own “real world” solution. This is a great post and a wonderful read. If only our leaders could think like her!

If you haven’t read it already, then head on over to the North Phoenix Agent Blog. We’d all love to hear from you on what you thought about her plan – so leave your comments. If you like the plan then maybe we can convince one of the candidates to select Heather as their running mate? I’ve already made a campaign sticker!

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Your thoughts?

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Michael J. Missal, a Washington, D.C. attorney appointed by a bankruptcy judge to probe years of accounting missteps by Irvine, Calif.-based New Century, said the company’s leaders turned a “blind eye” to the increasing risk of making loans to people with bad credit.

Operating out of a “brazen obsession” with cranking out mortgages, New Century ignored an alarming rise in signs of trouble with it loans, Missal said. He found the company engaged in seven improper accounting practices, including one that some witnesses said was recommended by KPMG.

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NEW YORK (MarketWatch) — Bank of America Corp. said Friday it’s purchasing Countrywide Financial Corp. for $4 billion, effectively doubling down on a previous investment in the troubled firm and catapulting the buyer into the top spot among mortgage lenders and loan servicers in the U.S.

The stock-swap deal will put an end to the independence of the troubled California lender headed by Angelo Mozilo, and represents an increase from the Charlotte, N.C., bank’s August investment of about $2 billion.

There were rumors earlier this week that Countrywide was running out of cash.

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Staring January 15, all loans going to Fannie Mae will be subject to the decling markets guideline:

“Current home price trends indicate that home values continue to decline in many markets across the country. As a result, and based on our continued monitoring of loan performance, Fannie Mae is reinstating a policy to restrict the maximum loan-to-value (LTV) ratio and combined loan-to-value (CLTV) ratio for properties located within a declining market to five percentage points less than the maximum permitted for the selected mortgage product.”

“The reinstatement of the maximum financing policy and the other changes outlined in this Announcement are necessary in light of current market conditions. These policies are effective for all loans delivered with application dates on or after January 15, 2008.”

What this means to you is that if the appraiser indicates that the property is in a declining market then you may be required to put an additional 5% down. However, be aware that only MyCommunity and Flex loans are severely affected since until now we were able to do such loans upto 100%. Now we can only go upto 5% in a declining market scenario.

Does this mean 100% financing is no longer available? Most certainly not. Remember that FHA and VA loans are still around and neither agencies have any immediate plans to change guidelines. This is not to say they don’t care about potential falling values.

In fact both FHA and VA will be asking for detailed explanation in the appraisal on whether or not the property is in a declining market. But they neither program has indicated that they will then force the borrower to put more money down.

I know that most of Maricopa and Pinal county zip codes (Phoenix Metro area) fall with declining markets. While this does not disqualify you from 100% financing, make sure your lender offers FHA as a possibility (and VA if you qualify). With higher lending limits and competitive rates, these are certainly loan options you need to seriously consider.

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Countrywide Financial’s … shares plummeted to new lows Tuesday amid rumors — later denied — that the mortgage lender could be nearing a bankruptcy filing.

The beleaguered company’s stock closed down 28.3% to $5.43, a new 52-week low. Shares dipped as much as 34% to $5.05 in Tuesday trading — even after a brief trading halt on the New York Stock Exchange and the company issued a statement denying the rumors Tuesday afternoon — challenging the notion that the nation’s largest mortgage lender is too big to fail.

The rumors don’t appear to be without merit, according to MarketWatch:

“Countrywide is severely challenged and might falter if it does not receive an infusion of at least $4 billion within the next couple of weeks,” Egan-Jones Ratings Co., a ratings agency, wrote in a note Tuesday. “The GSEs likely curtailing purchases have hurt Countrywide.”

It’s really bad news if the nations largest mortgage lender fails. That would send the industry in a further tailspin.

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The group of wordsmiths chose “subprime” as 2007′s Word of the Year at its annual convention Friday.

“‘Subprime’ has been around with bankers for awhile, but now everyone is talking about ‘subprime,”‘ said Wayne Glowka, a spokesman for the group and a dean at Reinhardt College in Waleska, Georgia. “It’s affecting all kinds of people in all kinds of places.”

About 80 members of the organization spent two days debating the merits of runners-up “Facebook,” “green,” “Googleganger” and “waterboarding” before voting for an adjective that means “a risky or less than ideal loan, mortgage or investment.”

2007 was truly a remarkable year for the mortgage industry, but alas for all the wrong reasons. I think it will be remembered as a watershed year and people will be talking about its impact for a long long time to come.

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