New measures are being implemented to take aim at what consumer groups say is a surge in fraud by entities offering to help struggling homeowners modify their home mortgage loans or avoid foreclosure.  “There are a lot of different scams going on right now,” said Martha Lucey, president of ByDesign Financial Solutions, a nonprofit credit-counseling agency. “Homeowners are struggling with affordability and many are desperate. When consumers are desperate, they’re willing to pay for unrealistic financial solutions.”

The most common allegations involve struggling homeowners who make up-front payments, often in the thousands of dollars, to firms that promise to work with their mortgage lender to renegotiate their mortgage and lower their monthly home loan payments. The mortgage loans are never changed and the money is gone.

A bill by state Sen. Ron Calderon, D-Montebello, would prohibit firms from charging advance fees for mortgage loan modification services. Supporters say the bill would prevent people in bad financial straits from becoming even worse off.

In addition, the legislation would require for-profit firms to tell potential customers that they could get free assistance from various nonprofit counseling agencies.   “The federal fix is going to take care of a lot of the problems we’re experiencing on the foreclosure side of things,” Calderon said. But people looking for help need to be protected, he said.

The California Association of Realtors opposes the bill. The organization objects to the measure’s blanket prohibition on advance fees.  Assemblyman Kevin Jeffries, R-Lake Elsinore, said he is open to more foreclosure-related safeguards, up to a point.”  My view is that the federal government is getting pretty pro-active in cleaning up the lending industry,” he said. “There’s no reason to duplicate what’s happening at the federal level.”

Several other bills build on parts of SB 1137 dealing with rental tenants in foreclosed properties.  One measure would make the buyer of a rental property at a foreclosure sale responsible for returning the tenants’ security deposit.

According to Jim Miller, another bill would give renters up to a year to leave properties that revert to the lender after foreclosure. The renters would have to move if new owners want to move in.  “We think having a family there is much better for all parties involved,” said Ronald Coleman, legislative director of the low-income advocacy group Association of Community Organizations for Reform Now, known as ACORN. Vacant homes get run down and attract vandals, he said.

Home mortgage rates remain low as the Federal Reserve continues to make moves to keep them that way. Freddie Mac’s weekly rate report says thirty-year fixed-rate mortgages fell to an average 4.82%, down from 4.86 % last week. A year ago, thirty-year mortgages were averaging about 6%. 

Long-term fixed rate mortgage loans are now on par with many adjustable rate mortgages. A one year ARM also averaged 4.82% this week. “Long-term fixed-rate mortgage rates have remained below 5% for the past ten weeks as the U.S. Treasury and Federal Reserve act to keep interest rates low through security purchases,” says Freddie Mac chief economist Frank Nothaft. “The treasury purchased $136 billion in mortgage-backed securities through April and the Fed bought $740 billion through mid-May.”

The Federal Reserve has also purchased $115 billion in Treasury bonds since March. Homebuilder confidence rose this month, according to the National Home Builders Association, despite a drop in housing starts. The decline in construction was led primarily by a continued drop in condo and apartment construction.

The Mortgage Bankers Association also reported this week a continued rise in home loan applications, led by refinancing activity.   Mortgage refinancing now accounts for 74 % of all mortgage applications.

Fed Chief Bernanke Endorses Stimulus Package

www.youtube.com/watch?v=pgJmO9qfkwA

With its key lending rate to banks already near zero, the Fed pledged anew to use “all available tools” to revive the economy.  Specifically, the Fed said it is “prepared” to buy longer-term Treasury securities if the circumstances warrant such action. At its previous meeting in December, the Fed said it was merely evaluating that option. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, was the sole dissenter on this point. He wanted the Fed to move forward on buying the securities.  Doing so would help drive down mortgage rates and provide help to the stricken housing market, economists said.  Mortgage lenders continue to report interest rates in the 5% range for 30-year fixed home loans.

For example, many thirty-year mortgage loans featuring fixed interest rates are targeted to the 10-year Treasury note. If the Fed were to buy that security, it would push down rates on home mortgages connected to it. The same logic would apply to other Treasury securities.  “So many consumer rates are pegged to Treasury rates — homes, cars,” said Joel Naroff, president of Naroff Economic Advisors. “If the economy is to recover, consumers need to borrow and need to borrow at reasonable rates. The Fed made clear that it is prepared to make that happen.”  The Fed also said it “stands ready” to expand another program aimed at providing relief to the crippled mortgage market.

Under that program, the Fed is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. It also has agreed to buy up to $100 billion of Fannie and Freddie debt.  Mortgage interest rates have fallen since the program’s announcement late last year. The Fed said it could buy more of these bad credit mortgage securities or extend the length of the program.

The Fed on Tuesday took measures to stem home foreclosures as required by a 2008 law. The relief would apply to mortgage assets the Fed is holding because of last year’s bailouts of Bear Stearns and insurer American International Group. Distressed borrowers could see the amount they owe on their home loan lowered or their interest rate reduced, among the options for help.  But borrowers have no way of knowing whether their mortgage loans are held by the Fed, because their loan payments are collected by other companies, known as loan servicers.

The central bank also will be launching a program aimed at bolstering the availability of consumer loans. Under the program, which is expected to start in February, up to $200 billion will be made available to spur auto, student and credit card loans as well as loans to small businesses. To do that, the Fed will buy securities backed by those different types of consumer debt. The Fed also hopes that action will lower rates on those loans.

The Fed said Wednesday that it will assess whether the program should be expanded in size or scope. Fed officials previously have mentioned the possibility of expanding the program to provide financing for other types of securities, such as those backed by commercial mortgages.

Fed Chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in housing, credit and financial markets that — taken together_ haven’t been seen since the 1930s. Despite the Fed’s aggressive rate-cutting campaign, a string of radical Fed programs and a $700 billion financial bailout program run by the Treasury Department, credit and financial markets are still stressed and far from normal. “Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight,” the Fed said. Homeowners need quick mortgage relief with loan modification programs that guarantee homeowners affordable home loan terms.

Warning that the nation is at a “perilous moment,” President Barack Obama made a fresh plea to Congress Wednesday to enact a $825 billion package of increased government spending and tax cuts to stimulate the economy. The recession, now in its second year, could turn out to be the longest since World War II.   The nation’s unemployment rate bolted to a 16-year high of 7.2% in December and could hit 10 % or higher at the end of this year or early next year. A staggering 2.6 million jobs were lost last year, the most since 1945, though the labor force has grown significantly since then. Another 2 million or more jobs will vanish this year, economists predict.

Against that backdrop, the Fed raised the specter of deflation — but didn’t use the word. The Fed saw a risk that “inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”  With jobs disappearing, home values tanking, foreclosures soaring and nest eggs shriveling, consumers have sharply cut spending. That, along with the housing collapse, has played a big role in causing the economy’s backslide. Many economists predict data will show the economy contracted at a pace of 5.4% in the final three months of last year when the government releases the gross domestic product report Friday. If they are correct, that would mark the worst performance since a drop of 6.4% in the first quarter of 1982, when the country was suffering through a severe recession. The economy is still contracting now — at a pace of around 4%, according to some projections.

The Fed said “the program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally”.  The move comes as policymakers at the central bank and in both the outgoing Bush and incoming Obama administrations look to target lower FHA mortgage rates in the hope that lowering them would halt the decline in house prices and thereby support financial asset prices.

Many Washington-based analysts think there is still a chance that Hank Paulson, the outgoing Treasury secretary, will announce plans for low-cost 4.5 % mortgages for new homebuying before leaving office, based on a plan proposed by Columbia University professors Glenn Hubbard and Chris Mayer.  Barack Obama’s incoming economic team is also looking at ways to lower mortgage rates and ensure the availability of mortgage financing. Meanwhile, regulators are considering relaxing rules on mortgage refinancing in order to make it easier for borrowers with existing mortgage loans to take advantage of lower mortgage rates.  The Fed is also focused on two other areas as it seeks to stimulate the economy – financing consumer loans and potential purchases of Treasury bonds. Read complete article written by Krishna Guha >