Foreclosure Army

Sheila Bair, chairman of the Federal Deposit Insurance Corp., last week told attendees of the Brookings Institution Forum that while some credit markets may be stabilizing, things may get worse before they get better, according to a transcript of her speech. She said the pace of loan modifications is too slow because of the loan-by-loan approach by lenders.

The FDIC is calling for as much as $50 billion in new Home Ownership Preservation Loans to pay down a portion of more than 1 million mortgages, Bair said. Funded by the U.S. Treasury, the loans pay down 20 percent of an existing mortgage — leaving a more manageable loan amount for the current lender to modify. Without breaking the securitization contract, the current lender would subordinate their first lien to the government loan and pay the interest for the first five years.

The Office of the Comptroller of the Currency issued a warning to delinquent borrowers that they should be wary of foreclosure rescue con artists. Instead, they should immediately contact a legitimate financial counselor or their lender — who is often in the best position to help by identifying options or modifying the loan.

OCC described a lease-back or repurchase scam, where the con artist promises to eventually sell back the property if the borrower signs over title and leases it during the interim. Another scam leads the borrower to believe a title transfer is just a refinance, while a third scam involves repeatedly filing bankruptcy to delay the foreclosure.

Real Estate Mortgage Investment Conduits can now modify mortgages before they become delinquent without jeopardizing their REMIC structure, the IRS ruled Friday.

Previously, the IRS held that even if an entity initially qualified as a REMIC, one or more significant modifications of the loans held by the entity could terminate the qualification if the modifications cause less than substantially all of the entity’s assets to be qualified mortgages. But now, “if a change in the terms of an obligation is ‘occasioned by default or a reasonably foreseeable default,’ the change is not a significant modification.”

The IRS cautioned, however, that no inference should be drawn about whether similar consequences would apply if a loan modification falls outside the scope of the procedure.

President Bush yesterday said 1.4 million foreclosures have been prevented by the HOPE NOW program since the program was launched, according to a White House press briefing. First-quarter foreclosures prevented numbered 500,000.

“Our policy in this administration is we — laws shouldn’t bail out lenders, laws shouldn’t help speculators, the government ought to be helping creditworthy people stay in their homes,” Bush said.

Kondaur Capital Corp. announced that 6 million mortgages are currently headed for default. The Santa Ana, Calif.-based company said it helps boost the value of delinquent loans by working with borrowers to determine whether they have the ability and desire to pay, then make adjustments that ultimately create a situation where slightly lower payments can continue to be made.

Operation HOPE Inc., which said it has helped more than 8,396 borrowers so far, received an $891,000 government pass-through grant originating from community nonprofit Rural Community Assistance Corp. to support foreclosure intervention and loss mitigation counseling. The funding stems from a coalition of foreclosure prevention agencies in California and utilizes funding from Neighborworks America with the National Foreclosure Mitigation Counseling Program.

The National Association of Realtors outlined a number of steps its members are taking to reduce foreclosures, a press release Friday said. One Realtor said she helps borrowers avoid foreclosure through short sales. The trade group said it is also working with neighborhood organizations and agencies to help delinquent borrowers.