At death, who inherits credit card debt?

By Sally Herigstad • Bankrate.com

 

 Highlights

There's a big difference between being an authorized user and a co-signer.

If your ex takes custody of a joint credit card, it pays to check your credit.

Credit card debt is unsecured, so collectors could end up out of luck.

After the death of a family member, many spouses, ex-spouses and even adult children find themselves with a surprise "inheritance" -- leftover credit card debt.

When someone dies, the estate pays credit card balances and other debts. If a person dies with more debts than assets to pay them, creditors can be out of luck -- and they often are. But there are exceptions that could leave you on the hook for someone else's credit card balance after that person's death.

Joint cardholders beware

If you're a joint cardholder, meaning you co-signed for the credit card, you're liable for the debt. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help

If you're only an authorized user, you're not liable when the cardholder dies. If you co-signed as a joint cardholder, then you just got a new credit card debt. "Sometimes, people can be on a credit card and not even know it," says Pennsylvania attorney Linda A. Kerns. "Maybe when they filled out the credit card applications, (the joint cardholder) didn't even tell them." These accounts could show up years later, at the time of a death or divorce. "I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event," says Kerns.

Who got custody of the credit card?

It happens too often: One spouse agrees to pay off a joint card as part of a divorce settlement. But if the ex doesn't do it or dies before the debt is paid and your name is still on the card, the credit card company may come looking for you.

Furthermore, according to Texas attorney Glen Ayers, if you live in a community property state, you'd better hope you didn't receive community property in the divorce. "That divorce judgment does not bind the credit card company. It's going to chase you," he says.

In a community property state, the rules are different during life and at death. "In community states such as Texas, any community property that passes to my wife as well as any specific bequest to my children would be liable on my death," says Ayers.

If a wife, for example, has no contractual obligation to the community property, her separate property can't be touched, Ayers adds. However, community property can be used to pay off debts. Community debt laws are complex and vary even among community property states, so talk to a lawyer in your state about your situation.

Using a card after death could spell trouble

Continuing to use a credit card as an authorized user after the cardholder's death could put you in big trouble. "That's got criminal implications," says Ayers. "If somebody wanted to make a case of that, is that any different than picking up a card on the street?"

The same goes for using the card as an authorized user when you know the debt won't be paid. For example, says Kern, "You'd be committing fraud if you knew a parent was near death and the estate didn't have money and you used it knowing it wouldn't be paid off."

When the estate loses, beneficiaries lose

Even if you are not held personally liable for the debt on a credit card, you'll feel the effects of it if you're a beneficiary of the estate. Debts will be paid from the estate before beneficiaries receive any distributions.

There is a specific time period for creditors to file a claim against the estate. When an estate is probated, creditors are prioritized. Credit card debt is unsecured, unlike a mortgage, which is secured by property, or a car that is secured by the vehicle. So it's likely the credit card company will be at the back of the line when it comes to paying debts from the estate.

That doesn't mean the credit card company won't try to recoup the debt from family members, so don't fall for it if you know you're not liable. Taking some pre-emptive action, such as notifying credit card companies that the cardholder has died, will help prevent them from contacting you.

Before any debts are paid out of an estate, including credit card debt, consult your attorney.

Read more: http://www.bankrate.com/finance/debt/death-inherits-credit-card-debt.aspx#ixzz2ChFqmzfl
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A San Jose house that sold this month. Record low mortgage rates are generating fat profits for lenders. (Paul Sakuma / Associated Press)

By E. Scott Reckard

June 29, 2012, 2:53 p.m.

Independent mortgage bankers and the home-loan arms of major banks are making the highest profit in years on loans they make and then sell, thanks to rock-bottom interest rates.

The record-low rates have been a recent boon to borrowers, who have enjoyed 30-year fixed-rate loans starting with a "3" for the first time. But the rates could be still lower if lenders cut their profit margins, according to data released Friday by the Mortgage Bankers Assn. Instead, bankers have been making extra money by keeping the rates higher than necessary, which makes them more profitable when they are sold to Fannie Mae, Freddie Mac or other buyers in the secondary markets, the Mortgage Bankers Assn. figures show.

The lenders made an average profit of $1,654 on each loan they originated in the first quarter of 2012, up 51% from $1,093 per loan a year earlier. Secondary-market income rose from an average $3,827 per loan in the first quarter of 2011 to $5,011 in the latest quarter, a gain of 31%. The average gain on the sale of a loan was the highest since the trade group began tracking mortgage banker production profits in 2008.

One factor in the bonanza is big banks charging higher than market rates when they refinance their customers using the government's Home Affordable Refinance Program. HARP lowers the risks for banks despite the fact that the borrowers owe more than their homes are worth.

Nomura Securities analyst Brian Foran said in a recent report that the banks are typically making an extra 2% of the HARP loan amount — an additional $7,000 on a $350,000 loan, for example. The gains in profit have come despite rising costs for personnel, commissions, office space and equipment in the mortgage industry, the trade group said.

Obtuse, you have no idea what you're talking about.  I'm a mortgage professional, and I'm busier than ever.  We are making lots of loans, but we've made it harder to get them.  So long as applicants meet the standards, they get loans.  You'd rather we go back to making the types of loans that created this problem in the first place?  I, for one, never liked those "stated income" loans with variable payments and negative amortization, and I never made them.  We are making hoards of cash because the federal government had ordered us to be more heavily capitalized in the event of another market crash.  So we are definitely retaining more earnings than we used to.  If you're not a homeowner but want to be, or if you're a homeowner and want a better deal than you have, you should let me know.

May 09, 2012|By E. Scott Reckard, Los Angeles Times

Johnny James and his wife, Yolanda Hatcher, have had more trouble than expected… (Arkasha Stevenson, Los…)

A newly streamlined government plan to reward homeowners who diligently pay their underwater mortgages is proving a bonanza for banks, which by one estimate may pocket $12 billion in extra revenue by refinancing loans. The revisions to the Obama administration's 3-year-old Home Affordable Refinance Program have yielded mixed results for homeowners, analysts and mortgage professionals say.

Some responsible homeowners are indeed getting lower-interest loans despite owing far more than their homes are worth. But others have loans that don't qualify, or must jump through hoops the plan was supposed to eliminate, such as on-site appraisals and extensive paperwork.

What's more, critics say, homeowners who get new loans are being stuck with higher rates than necessary, often half a percentage point or more. That's because banks are refinancing only their own borrowers, instead of competing against one another, which would drive rates down.

"The banks should charge lower than the market interest rate because the new version of the program means less work and less risk for them. Instead, they are charging more," said Amherst Securities analyst Laurie Goodman, who titled a recent report on the program "And the Winner Is ... the Largest Banks."

The program is a key part of President Obama's efforts to bolster the ravaged housing market. Administration officials including Housing and Urban Development Secretary Shaun Donovan are pressuring Congress to pass a law enabling the program to be used to help more homeowners.

"There's a real urgency here because interest rates today are at the lowest level they have ever been," Donovan testified Tuesday before the Senate Banking Committee. "But as the economy continues to improve, the expectations are this window of record low interest rates may not last for a long time."

In response, Sens. Robert Menendez (D-N.J.) and Barbara Boxer (D-Calif.) said Tuesday that they would introduce legislation this week to extend streamlined refinancing to all underwater Fannie and Freddie borrowers and eliminate appraisal and upfront fees for homeowners using the program to obtain new loans.

The Home Affordable Refinance Program is less controversial than relief plans for delinquent borrowers. Few have objected to its goal of helping homeowners who pay their loans on time but can't refinance at today's record low rates because their home values have plummeted.

To qualify, borrowers must owe more than 80% of the current home value. They can't have missed a payment for the last six months and are allowed to have been late by 30 days only once in the last year.

As this year began, nearly 1 million loans had been replaced using the program, but only 1 in 10 had balances higher than 105% of the home value. The changes, phased in during the first quarter, aim to encourage refinances no matter how far underwater the loan is.

The program is for loans owned or backed by Fannie Mae and Freddie Mac, the government-supported mortgage buyers that handle 60% of U.S. home loans. It works by having mortgage customer-service providers, which are mainly arms of banks, refinance borrowers into new loans that are sold to Fannie or Freddie.

Because Fannie and Freddie already are stuck with the losses if the existing loans go bad, the thinking goes, substituting lower-interest new mortgages actually reduces everyone's risk. The homeowners have hundreds of dollars more each month, which makes them less likely to default — a boon to their local housing markets and a lift for the economy when they spend their extra cash.

      

The problem, Goodman said, is that the streamlined program minimizes processing costs for the existing loan servicers but not for competitors, who must collect nearly as much information about borrowers as though they were writing new loans. The program also exempts existing servicers from having to reimburse Fannie and Freddie for losses on certain flawed mortgages — a multibillion-dollar problem these last few years for the big banks — while requiring competitors to bear that same risk.

President Obama envisioned a different scenario when he announced the revised program last fall.

"These changes are going to encourage other lenders to compete for that business by offering better terms and rates," he said. "And eligible homeowners are going to be able to shop around for the best rates and the best terms." That wasn't the experience of Johnny James, who bought a Gardena condominium with a 20% down payment during the housing bubble and now owes $414,000 on a home Fannie Mae says is worth $266,000.

James and his wife, Yolanda Hatcher, have full-time jobs with Los Angeles County and excellent credit ratings. Since they hadn't missed payments on their Fannie Mae loan, they thought they were good candidates for a lower-interest refi.

May 09, 2012|By E. Scott Reckard, Los Angeles Times

But their servicer, Seterus Inc., said it was just a bill collector, not a lender. Their original lender, JPMorgan Chase & Co., said it would refinance only loans it is currently servicing. Wells Fargo & Co. said the same, and online mortgage specialist Quicken Loans said the condo was too far underwater to refinance.

"There's not a lot of help out there for folks like us," James said.

The couple turned to mortgage broker Jeff Lazerson, who said he submitted applications to eight lenders and found only one that would refinance them. The pending deal, which would cut their rate to 4.63% from 6.25%, was made after they fully documented their income and assets and paid for an on-site appraisal.

 Today!www.TheMortgageLawGroup.com

"This program has been billed as a worry-free way for responsible people to get a break on rates even if they're way underwater," said Lazerson, president of Mortgage Grader in Laguna Niguel. "From where I sit, it's a disaster."

James Parrott, senior advisor on housing at the White House's National Economic Council, said that even in its imperfect current version, the program would aid many of the half million or so borrowers who have applied to refinance since the latest revisions were made. "Those people get dropped from 6% or 7% loans to somewhere around 4%," he said. "They will have hundreds of dollars more for themselves every month and thousands of dollars a year."

While proponents say the program makes winners out of all hands, it is not without detractors.

Alexandria, Va., banking consultant Bert Ely said easy-qualifier loans "are what got us into this mess in the first place" and that waiving legal liabilities for banks could result in another round of mortgage headaches in 2013 and beyond.

"What the government is sanctioning is kicking the can down the road, again," he said.

Like other administration plans to bolster housing, the voluntary Home Affordable Refinance Program had underperformed until recently. Lenders rarely refinanced loans bigger than 105% of the home's value even though they were permitted to go to 125%.

But that changed as the new rules loosened restrictions and did away with the 125% cap. Applications for these refinances rocketed from less than 5% of the mortgage market in December "to close to 25% and rising," Nomura Securities analyst Brian Foran wrote in a recent report.

The loans are more profitable as well. In the past, Foran said, lenders typically made 2% of the loan amount when selling a loan to Fannie or Freddie, so a $350,000 loan might yield $7,000 in revenue.

Because the banks are charging higher than market interest rates for loans made under the program, the mortgages are more valuable to investors and sell for more. The banks are typically making an extra 2% of the loan amount, Foran said — another $7,000 on the $350,000 loan, money that drops to the bottom line.

By Foran's calculations, writing more loans at higher profit could yield $12 billion in additional revenue for lenders. All the big banks showed unexpected jumps in their first-quarter mortgage profits, in large part because of the revised government program, said Keefe, Bruyette & Woods research director Frederick Cannon. "Interesting that [the program] would be so good for banks," he said.

scott.reckard@latimes.com

Robert Reich

Chancellor's Professor of Public Policy, University of California at Berkeley; Author, 'Aftershock'

Break Up the Big Banks, Says the Dallas Fed

Posted: 03/29/2012 2:44 pm

As the Supreme Court shows every sign of throwing out "Obamacare" and leaving 30 million Americans without health insurance, another drama is being played out in the quiet corridors of the Federal Reserve system that may affect even more of us.

Taxpayers will be on the hook for another giant Wall Street bailout, and the economy won't be mended, unless the nation's biggest banks are broken up.

That's not just me talking, or the Occupier movement, or that wayward executive who resigned from Goldman Sachs a few weeks ago. It's the conclusion of the Dallas Federal Reserve, one of the most conservative of the Fed's regional banks.

The lead essay in its just released annual report says a cartel of giant banks continues to hobble the recovery and poses an ongoing danger to the economy.

Wall Street's increasing power remains "difficult to control because they have the lawyers and the money to resist the pressures of federal regulation." The Dodd-Frank act that was supposed to control Wall Street "leaves TBTF [too big to fail] entrenched."

The Dallas Fed goes on to argue that the Fed's easy money policy can't be much help to the U.S. economy as long as Wall Street is "still clogged with toxic assets accumulated in the boom years."

So what's the answer, according to the Dallas Fed? It's "breaking up the nation's biggest banks into smaller units."

Thud. That's the sound the report hitting the desks of Wall Street executives. They and their Washington lobbyists are doing what they can to make sure this report is discredited and buried.

When I spoke with one of the Street's major defenders in the Capitol this morning he snorted, "Dallas represents small regional banks that are jealous of Wall Street." When I reminded him the Dallas Fed was about the most conservative of the regional banks and knew firsthand about the dangers of under-regulated banks -- the Savings and Loan crisis ripped through Texas like nowhere else -- he said, "Dallas doesn't know its [backside] from a prairie gopher hole."

So as Republicans make the repeal of "Obamacare" their primary objective (and Alito, Scalia, Thomas, Roberts and perhaps Kennedy sharpen their knives) another drama is taking place at the Fed. The question is whether Bernanke and company in Washington will heed the warnings coming from its Dallas branch, and amplify the message.

Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.

Bank of America Sold Card Debts to Collectors Despite Faulty Records

By Jeff Horwitz

MAR 29, 2012 6:31pm ET

Bank of America has sold collections agencies rights to sue over credit card debts that it has privately noted were potentially inaccurate or already repaid.

In a series of 2009 and 2010 transactions, Bank of America sold credit card receivables to an outfit called CACH LLC, based in Denver. Co. Each month CACH bought debts with a face value of as much as $65 million for 1.8 cents on the dollar. At least a portion of the debts were legacy accounts acquired from MBNA, which Bank of America purchased in 2006.

The pricing reflected the accounts' questionable quality, but what is notable is that the bank could get anything at all for them. B of A was not making "any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever" about the accuracy or completeness of the debts' records, according to a 2010 credit card sales agreement submitted to a California state court in a civil suit involving debt that B of A had sold to CACH.

In the "as is" documents Bank of America has drawn up for such sales, it warned that it would initially provide no records to support the amounts it said are owed and might be unable to produce them. It also stated that some of the claims it sold might already have been extinguished in bankruptcy court. B of A has additionally cautioned that it might be selling loans whose balances are "approximate" or that consumers have already paid back in full. Maryland resident Karen Stevens was the victim of one such sale, which resulted in a three-year legal battle (see related story).

Bank of America declined requests to comment for this story, other than to say through spokeswoman Betty Riess that it works with credit card customers to try to resolve delinquent debt issues. CACH did not respond to several phone and email messages seeking comment on the terms of its purchases.

Some industry observers said that the language in Bank of America's sales documents should be regarded as standard legalese intended to protect it against a disgruntled buyer's legal claims. And even though Bank of America refused to stand behind the accuracy of the records it sold, debt buyers are the ones who make the call to sue.

"The buyer has the primary responsibility to test the … quality of what they're buying," says Samuel Golden, a former OCC ombudsman who is a managing director at consulting firm Alvarez & Marsal in Houston, Texas.

Collectors' responsibilities aside, other banks' sales agreements suggest Bank of America's standards are emblematic of wider industry practice that raises risk management concerns. For less than $1.2 million a month — a rounding error on B of A's income statement — the company sold CACH accounts that raise regulatory and reputational questions about the accuracy of its records and its disclosures to courts.

Industry Practice

As the originators of credit card loans, banks are at the headwaters of the rivers of bad debt that flow into the collections industry. Over the last two years, Bank of America has charged off $20 billion in delinquent card debt. The bank settles or collects a portion of that itself and retires other accounts when borrowers go bankrupt or die. An undisclosed portion of the delinquent debt gets passed along to collectors. Once sold, rights to such accounts are often resold within the industry multiple times over several years.

Bank of America's caution that its card records may be incomplete or inaccurate suggests that documentation and accuracy problems may originate at the debt's source. Other banks' debt sale contracts acknowledge potentially large holes in their records as well.

One such example involves a 2009 U.S. Bancorp forward flow agreement, which outlines plans to sell a certain volume of delinquent accounts in the future. U.S. Bancorp's agreement states that it may have failed to credit borrowers for some payments and only guarantees the accuracy of account balances within a 10% margin of error.

Teri Charest, a spokeswoman for the bank, noted that the contract had expired and said that, regardless of such past contractual language, the bank scrubs its card data and that the claims it sells are accurate.

JPMorgan Chase, meanwhile, drafted an agreement to sell $200 million of credit card debt to Palisades Collection in 2008, even though records proving the debt might be unavailable for close to half the claims. "Seller represents and warrants that documentation is available for no less than 50% of the Charged-off Accounts," JPMorgan Chase's sales agreement stated.

The bank declined to comment. Palisades' chief counsel Seth Berman says the company has not bought Chase card debt in several years, but that its standards were always high.

The U.S. Office of the Comptroller of the Currency is already investigating JPMorgan Chase's handling of credit card debt records, as reported by American Banker earlier this month. A group of current and former employees described at the time how the bank had sold card accounts previously deemed "toxic waste" and which suffered from errors in the amounts being claimed.

CACHing In

At Bank of America, records declared unreliable yet sold to CACH were used to file thousands of lawsuits against consumers, according to a review of hundreds of cases in the state courts where collection suits are typically filed. The overwhelming majority of cases end in default judgments, which are awarded to creditors when borrowers don't show up to contest the claims made against them.

In cases where debtors do challenge collections demands in court, the original bank-creditor must testify about the documentation supporting the claims. In several such instances, people identified as Bank of America employees have submitted affidavits attesting to the validity of debts sold by the bank to collections firms.

Even though Bank of America previously disavowed "the accuracy of the sums shown as the current balance," the sworn statements vouch for the borrowers' debts down to the penny and declare that the bank's "computerized and hard copy records" back the claims. There are other possible discrepancies, as well: the affidavits state that B of A "has no further interest in this account for any purpose," while the sales contracts reference a "revenue sharing plan."

The prospect that B of A was selling unreliable credit card debts did not deter CACH from buying them. A subsidiary of SquareTwo Financial, CACH does not collect debts itself. Instead, it operates like a restaurant franchiser, acquiring rights to the delinquent debts that are the raw materials of the collections business. It then works with law firms around the country that do the actual collections work, providing them with debt files, court witnesses and other services.

In thousands of cases in state courts, CACH has appended a single page from its purchase agreements with Bank of America attesting to its ownership of delinquent credit card debt. CACH has omitted from many such filings the more than 30 additional pages where Bank of America disclaims the accuracy of its debt records. Even so, attorneys affiliated with CACH have cited the reliability of Bank of America's records as the foundation for their collections lawsuits.

In the case involving CACH in Duval County, Florida, a person described as B of A "Bank Officer" Michelle Samse swore in an affidavit that "There is due and payable from WENDY CODY as of 9/18/2009 the sum of $12266.83." The Samse affidavit, typical of many others, went on to say "The statements made in this affidavit are based on the computerized and hard copy books and records of Bank of America, which are maintained in the ordinary course of business." Attempts to contact Samse and Cody through Bank of America switchboards and public records searches were unsuccessful.

Trust Us

The degree of precision attested to regarding Cody's debt is curious, considering that Bank of America declared it was unable to produce records to back it up. "[T]he original contract in this matter has been destroyed, or is no longer accessible," Semse's affidavit states. "This affidavit is to be treated as the original document for all purposes."

The affiliate representing CACH in the Cody case was Collect $outheast, which uses the phrase "Let us show you the MONEY!" in company promotions. Collect $outheast and Florida attorneys representing CACH in other cases did not respond to requests for comment.

Taras Rudnitsky, a consumer defense attorney in Lake Mary, Florida has regularly defended consumers against lawsuits filed by CACH affiliates in Duval County. He says he regularly demands that debt buyers file banks' sales agreements with the court and invariably runs into stiff opposition.

"In every single case I have involving a debt buyer, they refuse to produce a forward flow agreement," he says, referring to the term for sales contracts under which banks agree to sell a specific number of delinquent accounts in the future. "When push comes to shove, the case disappears."

Weak Link

For individual clients, dismissal of such a case is a victory, but such outcomes are the exception. In the vast majority of collections suits, consumers fail to respond to card payment demands and become liable for default judgments, says Peter Holland, who runs the University of Maryland Law School's Consumer Defense clinic and has collected some of the forward flow agreements. As a result, the questionable reliability of second-hand debt claims is failing to receive the attention it deserves, he says.

"The [terms of] forward flows are being hidden from the public and from the courts," says Holland. "When the banks say explicitly that they don't have the documentation, that's something courts need to know. When a bank says a balance is 'approximate,' that's something courts and consumers need to know."

To date, it is debt collectors who have been the main focus of complaints and lawsuits alleging wrongdoing. In the past year alone, collections firms have paid out a number of multi-million dollar settlements over allegations they robo-signed affidavits, failed to produce evidence to support payment demands and sued consumers over debts that were no longer owed.

According to a trade organization for the collections industry, much of the criticism of collectors' records stems from banks' failure to provide adequate documentation of debts.

"We're not getting what we need from the seller," says Mark Schiffman, a spokesman for the American Collections Association, which wants to see better recordkeeping and more documentation included in debt sales. "Consumer groups want to see original contracts and original documentation. That would make a lot of these debts disappear because a lot of that documentation may not exist."

Regulatory Interest

Washington regulators are beginning to look at what responsibility banks have for wrongful collections activity. But questions about jurisdiction and whether banks will get roped in remain open.

"Not enough information [is] flowing through to debt collectors," says Tom Pahl, an assistant director in the Federal Trade Commission's division of financial practices. Despite its concern, the FTC lacks the authority to regulate financial institutions

"We can't reach the banks to say 'Thou shalt file the following pieces of information with the loans,'" Pahl says. "We're trying to do most of this through either law enforcement, which is case-by-case, or by jawboning the industry."

The Consumer Financial Protection Bureau has jurisdiction over credit cards and last month announced plans to take a close look at the collections industry. The bureau's interest has been heightened by revelations of abuses by mortgage servicers, including robo signing of affidavits, according to spokeswomen Jennifer Holland.

The CFPB is "very concerned that the same shortcuts and violations may be occurring with other kinds of debt collection," she says.

The OCC, which likewise oversees banks, declined to comment on specific institutions' sales of credit card receivables. However, it expects banks to adhere to high standards regarding account records, especially in cases where institutions attest under oath to their accuracy, according to OCC spokesman Bryan Hubbard.

"There may be reasons it's hard to do. Large portfolios being bought. Systems integration. But banks are still accountable for maintaining accurate records," says Hubbard.

Program to aid unemployed homeowners provides little relief

By E. Scott Reckard and Alejandro Lazo, Los Angeles Times

March 3, 2012

Only a fraction of the $7.6-billion federal Hardest Hit Fund has been paid out to needy borrowers. California has provided homeowners less than 2% of the federal funds it received, as of last year.

A $7.6-billion federal program to help unemployed homeowners stave off foreclosure has provided little relief two years after being unveiled, with less than $218 million of the money paid out to needy borrowers as of Jan. 1.

California, which was allocated nearly $2 billion from the Hardest Hit Fund, provided less than $38.6 million in assistance for 4,357 borrowers by the end of last year, according to the state's latest report to the Treasury Department.

That amounted to less than 2% of the federal funds available to the state's Keep Your Home California program.

"It's about helping the homeowner, and that's not happening," said Bruce Marks, head of the foreclosure counseling group Neighborhood Assistance Corp of America. "As we speak, there are thousands of people losing their homes."

The Hardest Hit program was funded by the U.S. Treasury Department with money left over from the federal government's TARP program. States have earmarked about 70% of the money to keep unemployed homeowners current on their mortgage payments or to help borrowers catch up on missed payments. The rest is set aside for other relief programs, such as reducing mortgage balances and helping borrowers move after losing their homes. In addition to California, 17 other foreclosure-torn states and the District of Columbia were eligible for funds.

Government officials, lenders and housing advocates offer a variety of explanations for why the money has not been spent, including a slow-moving bureaucracy and the government's inability to make eligible homeowners aware of the program. For example, state and federal officials said California's Employment Development Department declined to mail information about the program to laid-off workers applying for unemployment benefits, citing legal constraints.

In Oregon, state labor officials aggressively promoted the program to residents on unemployment. It led to 16.4% of the available federal funds being distributed as of Dec. 31 — the most of any state.
"I really, really don't understand why that unemployment program isn't used more" to promote the program, said Paul Leonard, California director of the Center for Responsible Lending, an advocacy group.

A California Employment Development Department spokesman did say the program was promoted on the agency's website and on its Facebook page. Samuel Herrera, 59, said he is struggling to keep up with the payments on his Bakersfield home after he was out of work for three months last year. Herrera said he went to a jobs center run by the state unemployment department last year and asked if there were any programs for borrowers. No one mentioned the Keep Your Home California program, he said.

"I am always looking for whatever news and new programs that come out to help homeowners working to pay their mortgages," Herrera told The Times, speaking in Spanish. "I am sorry I didn't know about it, because immediately when I lost my job I went to unemployment, and I asked them if there were any new programs to help me." State officials said another reason for the program's poor performance was that lenders would not go along with a plan to write down mortgage balances.

California, Nevada and Arizona jointly devised a plan to provide mortgage relief funds to struggling borrowers only if banks and loan investors agreed to reduce the principal owed on the loan by a matching amount. For instance, a $25,000 principal reduction from the lender would be doubled, producing a $50,000 benefit to the borrower.

State officials say banks, loan investors and the government-owned mortgage giants Fannie Mae and Freddie Mac declined to go along with the plan.

"I think the biggest reason is the banks are not participating in the principal-reduction piece," said Diane Richardson, legislative director for the California Housing Finance Agency, which developed the state's program. "They are choosing not to participate for whatever reason."California is now considering helping homeowners without lender participation, state housing agency spokeswoman Evan Gerberding said.

"That is something we might consider," she said. "We are constantly looking at ways to improve the program and make it more accessible to homeowners."Many lenders have adamantly opposed principal write-downs, arguing that they are not worth the cost and that they would create a "moral hazard" by rewarding delinquent borrowers while others get nothing.

Edward DeMarco, head of the independent federal agency that oversees Fannie Mae and Freddie Mac, has contended that reducing principal on mortgages owned or guaranteed by Fannie and Freddie was not consistent with his responsibility to protect taxpayers. The government has pumped $183 billion into the companies, which were seized in 2008 to prevent their bankruptcy.

Bank and government officials say another reason is that many homeowners have simply chosen not to participate, reasoning that they paid inflated prices for their homes and that it no longer makes financial sense to keep the mortgage.Whatever the reasons, housing advocates say many of the nearly 1 million Americans who lost their homes to foreclosure last year might not have if the program had been better managed.

Federal and state officials acknowledge the program started slowly but contend that it is gaining traction. In addition to the funds used by the end of last year, "considerably more has been committed," said Mark McArdle, director of the Hardest Hit Fund for the Treasury Department. California had allocated $50 million through the end of February and estimates that $200 million is in the pipeline, according to the state housing finance agency.

The program varies from state to state. In California, the funds can be used to help out-of-work homeowners by making monthly payments of up to $3,000 for nine months. During 2011, the state's housing finance agency delivered less than $25 million in such payments to 3,551 borrowers.

A recent $25-billion settlement struck by state attorneys general and the Justice Departmentrequires the five largest mortgage servicers to reduce billions of dollars in principal. That deal raised hopes of higher participation in the California, Arizona and Nevada programs by servicers who could help borrowers further with the additional matching funds at no cost.

One borrower who did get help was Gabriela Barrios of Compton, a single mother of two who had her loan balance cut by $40,000 and her interest rate lowered under the Keep Your Home California program.

Barrios, a clinical coordinator for United Healthcare, received first-time home buyer assistance from the city of Compton and a loan from the state Housing and Finance Department."I felt it was a blessing, like God sent me a blessing," Barrios said.scott.reckard@latimes.com  alejandro.lazo@latimes.com

America’s Sickest Housing Markets

Posted: July 13, 2012 at 6:48 am

Read more: America’s Sickest Housing Markets - 24/7 Wall St. http://247wallst.com/2012/07/13/americas-sickest-housing-markets/#ixzz20jXiEDBM

According to data released earlier this month, asking home prices in the nation’s largest metro regions rose for the fourth time in five months. This is another positive sign for the national real estate market. However, a review of the data, provided by home price authority Trulia.com, indicates that many of the country’s largest cities continue to struggle due to weak demand, high foreclosure rates and negative
equity.

Read: America’s Sickest Housing Markets

While many of the largest housing markets are showing positive signs, based on both vacancy rate and average year-over-year home price decline, many markets are taking longer than most to recover. Several of these are a product of the burst housing bubble, while others have been in trouble for decades. Based on housing data, 24/7 Wall St. identified the five “sickest” housing markets in America.

Three of the five worst housing markets are in California. They are Sacramento, San Diego and the Riverside-San Bernardino-Ontario metro region — the central part of the state often referred to as the “Inland Empire.” The remaining two cities are Virginia Beach, Va., and Toledo, Ohio. Each of these areas averaged a decline in home prices between the first six months of 2011 and the first six months of 2012.

These housing markets also have high home vacancy rates, indicating a lack of interest in these regions. High vacancy rates — the percentage of homes currently unoccupied — also tend to depress property values. Each of the five markets is among the top 25 for the highest home vacancy rates and rental vacancy rates. Riverside and Virginia Beach are in the top 15 for each. Toledo has the highest home vacancy rate in the country, at 5.6% of homes.

Trulia’s chief economist, Jed Kolko, told 24/7 Wall St. that the underlying causes of home price declines are high vacancy rates, foreclosures and negative equity. He explained that in many cases the burst housing bubble, and subsequent collapse of home prices, were the primary causes of these metro regions real estate woes.

Of the five markets on our list, three had among the largest declines in home prices during the recession. Housing in Sacramento and Riverside lost over half of their value during the decline. “Markets like Sacramento and Riverside-San Bernardino saw a lot of overbuilding during the bubble and therefore had more housing than there was demand. They have a lot of foreclosures still on the market, their short sales are still a big share of home sales,” said Kolko.

Indeed, according to the first quarter 2012 negative equity report from real estate site Zillow, each of the three California markets have among the largest proportions of homes with mortgages worth less than the current home value, known as underwater mortgages. In San Diego, nearly one in 10 mortgages is underwater.

The troubles in other markets, Kolko explained, are more the result of long-term economic difficulty, as in the case of Toledo, for example. Toledo and many other Midwestern locations, he explained, “are not suffering from overbuilding so much as from years of slow job growth and slow demand.” A review of Realtor.com’s search ranks, which rate the amount of interest in a housing market based on incoming searches, shows that Toledo is the second-least searched large housing market in the country.

RealtyTrac’s foreclosure rates for the first six months of the year also reflect the trouble these markets are in. Four of the five markets on our list are in the top third for homes in foreclosure. The Riverside-San Bernardino-Ontario metro area has the highest foreclosure rate in the country among the 75 markets we reviewed, with one out of every 39 homes with mortgages foreclosed upon between January and June.

Also Read: The Fastest Growing Cities in America

To identify the America’s sickest housing markets, 24/7 Wall St. reviewed U.S. Census Bureau home and rental vacancy data for the 75 largest metropolitan statistical areas in the country for the first quarter of 2012. We then narrowed the list to markets where home vacancy rates had declined from the previous quarter to eliminate those markets that are showing real improvement. Using a six-month average of year-over-year declines in asking price from Trulia.com, we excluded metro regions where asking prices had shown a trend of increasing in the past six months. Finally, we excluded any remaining markets with positive housing data. These data sets included: negative equity and home price declines from Zillow.com, foreclosure rates from Trulia.com, home price forecasts from Fiserv and time on market and real estate search popularity from Realtor.com.

These are America”s sickest housing markets.

Read more: America’s Sickest Housing Markets - 24/7 Wall St. http://247wallst.com/2012/07/13/americas-sickest-housing-markets/#ixzz20jXRdKXS

5) Sacramento-Arden-Arcade-Roseville, Calif.

>Average annual list price decline: -7.2%

> Rental vacancy: 6.8%

> Homeowner vacancy: 2.5%

Asking home prices in the Sacramento metro region were down by 4.1% from June of this year compared to June of last year. Since they peaked in late 2005, home prices in the Sacramento metro region lost more than half of their value. This 54.7% drop is the sixth-largest decline among the country’s large housing markets. More than 2% of homeowners were in foreclosure between January and June of this year, the sixth-highest proportion of the 75 metropolitan areas considered. The number of home listings in the metro region has decreased by almost 36% since April 2011. In March activists from the region visited President Obama’s Sacramento reelection offices demanding that government sponsored enterprises reduce principals on mortgage loans to reflect the present value of homes in the area.

4) Virginia Beach-Norfolk-Newport News, Va.

> Average annual list price decline: -3.4%

> Rental vacancy: 6.8%

> Homeowner vacancy: 2.8%

The housing market of Virginia’s south shore is still suffering from the recession — the average drop in list prices for the first six months of this year was 3.4%. Median home prices have plummeted almost 20% since peaking in 2007, but a disconnect between potential buyer incomes and housing prices in the Virginia Beach area seems to still exist.  The metropolitan area has a median list price that is almost 25% higher than the national average, while median incomes there are only about 13% higher than the national median, according to Fiserv 2011 fourth-quarter estimates. In February, the Virginia Beach Assessor’s Office released a projected fiscal year 2013 assessment of $48.7 billion for the value of all taxable property in the area. This represented a 3.7% decline from the previous year, with 79% of properties receiving a decreased assessment value.

3) San Diego-Carlsbad-San Marcos, Calif.

> Average annual list price decline:-3.2%

> Rental vacancy: 8.6%

> Homeowner vacancy: 2.7%

With nearly 165,000 home mortgages underwater, the greater San Diego metropolitan area has one of the nation’s highest number of homes in negative equity. Home values in the San Diego region had the 13th-largest drop (37.1%) from their peak in 2006 to the first quarter this year of all metropolitan areas reviewed. Underwater homes are a problem, and the region has $20.5 billion in total negative equity, with nearly 10% of homes under water. According to the North County Times, the assessed value of all taxable property in the county fell by 0.14% to $395.1 billion in 2011.

2) Toledo, Ohio

> Average annual list price decline: -6.8%

> Rental vacancy: 6.4%

> Homeowner vacancy: 5.6%

From January to June, 2012, Toledo has had some of the sharpest declines in housing list prices. Between January 2011 and January of this year, for example, asking prices fell 11.7%. Between the fourth quarter of 2011 and the fourth quarter of this year, Fiserv project that median home value in the region will fall by nearly 3%, which would be one of the largest declines among large metro regions in the U.S. Toledo has the single highest homeowner vacancy rate among largest metro areas, with a rate of 5.6% in the first quarter 2012. In the Toledo metropolitan area, 37.5% of homeowners with mortgages are in negative equity.

Also Read: Home Sellers Smarter than Realtors Think

1) Riverside-San Bernardino-Ontario, Calif.

> Average annual list price decline: -1.8%

> Rental vacancy: 9.4%

> Homeowner vacancy: 4.4%

Riverside is the third California metropolitan area suffering from a sick housing market. In this region, homeowners paying a mortgage have $41.5 billion in negative equity, the fifth-highest amount in the nation. Many of these homes are under water because median home prices plunged by 55.6% from their peak in 2006. The metro had an annual unemployment rate of 14.3% in 2010, the highest among the largest cities in the country (it was 11.8% in May 2012), and 12.3% of homeowners with a mortgage are 90 or more days delinquent on their payments — the ninth-highest rate. According to Southern California’s City News Service, the assessed value of all taxable property in the county is estimated to be $204.8 billion for the 2012-2013 fiscal year, a $300 million decline from the $205.1 billion assessment in the previous fiscal year. While the decrease is lower than previous years, it means things have yet to improve.

Michael A. Sauter, Lisa Nelson and Alexander E. M. Hess

 
Read more: America’s Sickest Housing Markets - 24/7 Wall St. http://247wallst.com/2012/07/13/americas-sickest-housing-markets/#ixzz20jWwwop2