Banks Lower Fees Amid Criticism
MSNBC reported last week that banks such as Bank of America and Chase are voluntarily curbing their fees as a result of criticism.
Beginning on October 19, Bank of America customers will no longer be charged an overdraft fee when an account is overdrawn by less than $10 per day. However, my favorite fee, the “extended overdraft fee” will still be assessed if you don’t deposit enough money to bring the account into the positive within five days.
Bank of America will also limit the number of times they will charge you an overdraft fee to four times per day. This is apparently a major change from the bank’s position earlier this year. Bank of America raised this cap to ten times per day (yikes!) from five. The company’s increased overdraft fees of $35 (up from $25) will remain.
Chase says it won’t charge you a fee when your account is overdrawn by $5 or less, and the maximum times it will charge you an overdraft fee will be lowered to three from six.
Another change, which I think is good, is that consumers will have the opportunity to opt-out of “overdraft programs” which means that a transaction will be declined if you don’t have the money in your account. I personally don’t think this was ever a real “overdraft” plan to help consumers – it was a plan to make money by charging consumers fees for overdrawing their accounts by small amounts when the consumer didn’t have the choice to opt out of that program.
This program is deceptive because most people think they can only spend the money that’s in the account when they use their debit card.
However, if a consumer opts out of the “overdraft” program, it means a major loss of profits, which the banks will be looking to recover somewhere. These lower fees coupled with the new credit card legislation means that the banks will have to find other ways to make money, so you’ll still need to be vigilant and pay attention when it comes to your bank accounts.
New Rules Coming for Credit Rating Agencies
The Securities and Exchange Commission is proposing new rules for credit rating agencies.
You might be asking, “What are credit agencies and what does this have to do with my mortgage problems?” I’m not talking about consumer credit reports but rather agencies that rate securities.
There are three major credit rating agencies that dominate the markets: Moody’s, Fitch Ratings and Standard & Poor’s.
Credit agencies issue ratings on the creditworthiness of public companies and securities. Their ratings can influence a company’s ability to raise capital, borrow money from banks, and the price of securities being purchased by banks, mutual funds, pensions and government.
The credit rating agencies are blamed by many for contributing directly to the financial collapse. Millions of people, businesses and governments relied upon these rating agencies’ ratings and lost a lot of money as a result. In addition, the rating agencies have been heavily criticized for their failures to identify risks in mortgage backed securities, particularly subprime mortgages.
In July, the California Public Employees’ Retirement System sued the agencies for more than $1 billion dollars in investment losses because they relied on the ratings to purchase securities to be held in their system.
Last year, the credit rating agencies were forced to downgrade thousands of securities as home loan delinquencies soared and the value of those investments dropped, causing hundreds of billions in losses and write downs at big banks and investment firms.
Regulators want to make room for more competition in the rating industry by adding new entrants to the seven existing agencies.
One of the SEC’s proposals is intended to bar companies from “shopping” for favorable ratings of their securities by requiring companies to disclose whether they had received preliminary ratings from other agencies.
The FDIC is Broke
Yes, you read that correctly: the Federal Deposit Insurance Corporation, the entity that insures your deposits in the banks, is nearly broke as a result of bailing out failed banks.
I’m sure the banking industry is laughing all the way to the bank….(pun intended) because instead of asking the Treasury for a direct bailout, the FDIC will borrow billions of dollars from private banks. The FDIC’s chairwoman, Sheila Bair, doesn’t get along with Tim Geithner, so she would rather not ask him for a loan. No kidding!
The government loans banks taxpayer money only to get a loan of that money back to the government….the bankers love this plan because it means more risk free loans to banks that are really backed by taxpayer dollars, yet another new way to make money without actually putting any money at risk (it’s your money, after all).
The Wall Street Journal reports that borrowing from the industry is allowed under an obscure provision of a 1991 law adopted during the savings and loan crisis. The lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry. The bonds would be listed as an asset on the books of the banks.
I think this whole idea is insane and the financial mess in this country gets more interesting every day. Pass the popcorn!
The Other Reason You Didn’t Get Approved for a Loan Mod: the Pooling and Service Agreement
Have you attempted to get a loan modification under the government’s Home Affordable Modification Program (“HAMP”) but been turned down? I’m not surprised.
Despite more loan modifications being offered to homeowners overall, less than ten percent of the homeowners who qualify for a modification are actually being offered one.
Apparently lenders don’t have a legal duty to modify loans under the program, as evidenced by this recent blog post about a lawsuit filed by a homeowner. The homeowner’s attorney argued that her client qualified for a loan modification under the program, but the lender refused to grant it.
The homeowner lost, despite the lender’s attorney’s lackluster performance in the courtroom, despite a Net Present Value calculation in the homeowner’s favor, because the Supreme Court Judge found that the banks do not have an obligation to modify the loan under the HAMP program.
Despite qualifying, there is likely another reason why the homeowner didn’t qualify: the pooling and service agreements (“PSA”) between the investor on their loan and the servicer. Each mortgage pool has a limit to the number of loans it can modify under the PSA, and too many people probably defaulted before you did.
In many cases, the PSA’s between the servicer and investor only allow modifications of a certain percentage of loans. The PSA governs the terms of how mortgages are pooled, securitized, sold to investors and then serviced, and many of these agreements contain provisions that do not allow servicers to modify loans for homeowners. Those that do typically only allow for less than 10% of the mortgages in a pool to be modified.
If the servicer modified too many loans, it would be in breach of the PSA, and opening itself up to lawsuits by the investors in the mortgage pool, and servicers have been hesitant to take that risk, regardless of the government’s loan modification programs.
If you’ve been turned down for a loan modification because your investor isn’t participating, here’s what I suggest you do:
First, send the servicer (the company you send your mortgage payments to) a Qualified Written Request (“QWR”) that includes a request for the Pooling and Service Agreement between the servicer and the investor. The servicer might not produce it, but it’s worth a shot anyway for the wealth of other information you’ll receive from the servicer.
The servicer will probably tell you that you’re not entitled to receive a copy of the PSA because it’s “not relevant” (which is ridiculous – of course it’s relevant!)
I have seen servicers produce a copy of it, so a QWR is a good first step.
The lender may tell you in its response to your QWR who owns the Note to your property, and if it’s a mortgage pool traded publicly on the stock exchange, there is another way to obtain the PSA. Visit the Securities and Exchange Commission’s website and run a search in the EDGAR database, and you’ll find the PSA there.
Publicly traded companies are required to routinely file reporting documents, of which the PSA is usually one of them. If you are savvy at reading contracts, you can review it to determine how the servicer is required to handle loss mitigation and loan modifications.
If the servicer tells you that your investor isn’t participating, you can ask why. If they tell you that they’ve reached the limit of mortgage modifications, ask if they can remove your mortgage from the pool. The PSA will discuss how that might be done — it should contain provisions for how the servicer is supposed to handle loss mitigation and how the mortgage security is structured.
This is why government backed mortgages have been eligible for mortgage modifications while other investors/lenders have not been as keen to offer them. The government isn’t going to sue itself, but an investor might sue a servicer for breach of the PSA between the two parties.
MERS Finally Takes a Hit Thanks to the Kansas Supreme Court
In case you haven’t heard, a Kansas Supreme Court has ruled that MERS has no standing to foreclose.
It was just a matter of time before a court somewhere decided against MERS.
For those of you who don’t know who or what MERS is, it’s the Mortgage Electronic Registration System, essentially an electronic database that was created by the mortgage industry to circumvent the proper recording of deeds at the local level.
They are a private company owned by the banks, and mortgages that are registered with MERS are usually done so at the time of the loan closing. In fact, some of you might have seen the MERS fee of three or four dollars on your HUD-1 settlement statement.
As we mentioned in an earlier blog post on MERS, its alleged status as a “beneficiary” under Deeds of Trusts is false. MERS is an electronic database! MERS is not a beneficiary under any Deeds of Trusts or mortgages and it cannot foreclose because it cannot and does not have standing to.
This decision is significant because there are SIXTY MILLION mortgages registered in their database, about half of all the mortgages in the United States, and MERS has no standing to foreclose on any of them.
It will be interesting to see how the banking industry will maneuver its way out of this mess. In the meantime, millions of homeowners in Kansas just got an extension of time.
I’ll bet the lenders start negotiation with homeowners in Kansas now! They may not have a choice, knowing they cannot foreclose.
You can read the full decision here.
Video: Commercial Real Estate REALLY Is the Next Big Crisis
FREE Foreclosure Survival Event for Homeowners in Arizona
I’m holding an event for homeowners in Phoenix on October 6, 2009.
I’ve assembled a team of experienced professionals, including an attorney, a coach, a loan auditor and a loan modification processor, to answer your questions about loan audits, loan modifications, bankruptcy, foreclosure and litigation for TILA/RESPA violations, and other related topics.
If you’re not sure if you want to spend the money on a loan audit, I’ll be conducting free-mini loan audits for anyone in attendance, so bring your closing documents to the seminar.
I will also give away a full forensic loan audit to one lucky attendee, and I’m offering everyone else $100 off a loan audit just for attending this seminar.
The room will only hold thirty people, so please go here to register and save your spot.
Commercial Real Estate REALLY Is the Next Big Crisis
On August 10, 2009 I posted an article asking readers if commercial real estate was the next big crisis. I spent a lot of time writing that article because there wasn’t a lot of reliable information on the commercial real estate situation available.
Interestingly, it turns out that we were ahead of most of the major media with this blog post. And, tooting my own horn, the video on my YouTube channel is the most-watched video, and the blog post has received the most comments of any blog post on the site.
Furthermore, I have it on pretty good authority from a source inside the Treasury (who will remain anonymous because they didn’t want to get into trouble. Makes us sound important, doesn’t it?) that the Treasury is more worried about commercial real estate than most people, even so-called real estate experts, realize. I suspect that there isn’t much information out there because the recession is supposedly over (or we’re all tired of hearing all the bad news!)
The Fed probably learned a lot from the residential mortgage crisis and it won’t be caught unawares this go round, which explains Plan C and the easing of the rules for restructuring commercial mortgage backed securities.
This week, the Wall Street Journal reported that the Fed has released new rules that make it easier for distressed property owners to restructure loans that were packaged by Wall Street firms and sold as securities. The WSJ says that most people in the industry were happy with the new rules, but others warned it would be problematic, especially for the servicers of the securities who will be under pressure from borrowers and competing classes of investors.
The IRS also helped this week by issuing new rules that will give servicers some wiggle room in negotiating with borrowers on performing loans that may not be due for some time. The new rule applies to all loan modifications that were made after Jan. 1, 2008.
Finally, for a more personal spin on the commercial real estate crisis, check out this story from Slate.com about a guy names Scott Lawlor and his company, Broadway Partners’ acquisition of Boston’s Hancock Tower and subsequent default on the loan in January 2009.
The article’s author says that Lawlor has become the whipping boy for the commercial real estate crisis, despite the fact that he was doing the same thing many other commercial real estate players were doing before the credit markets dried up.
I wonder how many more Scott Lawlors are out there.
It’s interesting to me that commercial real estate is a lagging indicator of economic problems in the country – it was still going strong when the problems with residential mortgage began. I don’t think anyone (except maybe Josh) thought that the recent economic problems were going to be as bad and last for as long as they did. Until jobs are created, commercial office space demand will remain low, creating a drag on the economy.
Clearly, we have a big problem on our hands. My bet is on another round of bailout money for the coming crisis in commercial real estate. The Treasury’s Plan C, a pre-emptive program, won’t be enough to stop a big wave of loan defaults, bankruptcies and foreclosures.
If you need help renegotiating a commercial loan modification, please contact me. We have attorneys in our network who can help you out. As I mentioned before, I just did a commercial loan audit and found some problems with the paperwork. As it turns out, residential and commercial lending guidelines have more in common than you might think.
If you offer commercial loan modification services, we’d love to hear from you – I’m open to a guest blogger who wants to explain how it works to our audience. Please comment or send us an e-mail.
DEBTORS REVOLT BEGINS NOW! YOUTUBE Video
UPDATE: Video now has over 200,000 views on YouTube.
Bank of America increases the interest rate on credit card customer of a 14 years. This customer was not late, behind on payments or over her balance limit. Some of the language is not suitable for youngsters and work but the message is real and is represents the next wave of default.
Watch Out For Bank Fees!
Banks are increasingly being squeezed by new legislation and credit card and mortgage defaults. When this happens, you can bet that banks will be looking for other ways to remain profitable.
The banks are not your friend when it comes to bank fees! There are countless stories on the internet about people who were close to having an empty bank account, charged small amounts, but the bank paid them and charged the account holder a whopping $35 per charge. In some cases, the banks changed the order in which they paid items so that they could charge more fees.
Recently, new legislation was signed into law that makes it illegal for banks to arbitrarily change fees for credit cards.
Interestingly, the new legislation makes fewer people attractive in terms of credit offers: If you pay your balance in full, you’re not profitable for the banks because you don’t pay interest. If you carry a balance, the banks cannot increase your rates without giving you advance notice. This means you’re not going to be as profitable either.
So what’s a bank to do? Figure out other ways to squeeze more money out of its accountholders with a new generation of bank fees.
You’ll start seeing larger annual fees on credit cards, for starters. I wouldn’t be surprised to see banks begin charging to use ATM and debit cards. You’ll see higher monthly bank account fees, and higher fees for returned checks and electronic authorizations.
My favorite is the “Extended Overdraft Fee” which means they’ll charge you another fee for being overdrawn for too long. Some banks will charge a daily fee if you’re overdrawn. This has happened to me personally.
It’s tough right now already without a bank sucking more money out of your pocket. Here are some things you can do to avoid paying bigger bank fees.
First, consider paying for daily expenses with cash. Some people take out a lump sum of money each week to pay for incidentals and when it’s gone, it’s gone. You might spend all your money, but at least you won’t be facing overdraft charges when you finally put your hard earned money into the bank.
Second, consider switching to an ATM card instead of a debit card. You might get some funny stares from your banker when you tell them you don’t want to use a debit card anymore, but this is the fastest way to end all the fees and mishaps relating to debit charges. You’ll only be able to withdraw the money in your account, which is a good thing.
The other upside to this is that you won’t have to worry about a thief emptying your bank account as a result of stealing your debit card number. Yes, banks have programs in place to identify fraud, but if it happens to you, you’ll still be waiting several days or weeks before you’ll have access to your cash.
The downside to using an ATM card is that you’ll need to be more meticulous about record keeping and plan your purchases ahead of time to make sure you have enough cash on hand.
Third, keep detailed records of your bank balances. Set up bank alerts on your accounts and pay attention to them. Most banks will send you e-mails or texts to let you know when items post or are withdrawn. You’re probably paying a fee somewhere to use these features; take advantage of them.
Fourth, consider giving up writing checks. Bounced check fees will be one of the first fees to skyrocket. You can pay your bills using the bill pay feature provided by most banks, and you can’t write a check from bill pay unless the money is in the account.
Another upside to foregoing checks is that checks are a major source of fraud. It’s really easy to write a check and forge someone’s name, and merchants aren’t uniform on checking identification when checks are written.
A few years ago, my purse was stolen and the thief forged several checks. I had to visit the police department in each city where a check was forged. Talk about a hassle and major waste of time! I was lucky that the thief only wrote a couple of checks and I caught it early, but this could cause financial disaster and huge amounts of time when trying to clean up your reputation.
Finally, if you don’t like the idea of giving up checks or your debit card, consider setting up two accounts at different institutions so that if one gets overdrawn and you can’t catch up, you have another account that you can use in the meantime. I also always keep some cash squirreled away just in case of a financial disaster. Cash is king when you have an emergency.
