LIBOR, Treasury Index, CODI, COFI….What Do These Letters Mean?
If you’ve looked at your loan documents lately (which, I hope you have after having read my blog), you might have noticed that your loan is tied to an Index upon which the payment is based on. Basically, your adjustable rate is figured by adding the index to the margin, whichever index your loan is tied to.
There are quite a few indices, but the most common one I see in homeowners’ loan documents is the LIBOR, which stands for the London Interbank Offering Rate.
The LIBOR is the daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank market).
The majority of loans I see are tied to the LIBOR index, although recently I’ve seen a handful of loans tied to the Treasury Index, (or CMT for Constant Maturity Treasury), which is the average yield on United States Treasury securities adjusted to a constant maturity of 1 year, as made available by the Federal Reserve Board.
Recently, I also saw a large loan that was based on the COFI, or Cost of Funds Index, or more formally, the 11th District Cost of Funds Index of the Federal Home Loan Bank (FHLB), which is located in San Francisco. The 11th District includes the states of California, Nevada, and Arizona.
What’s interesting about these indices is that it is very difficult, if not impossible, to properly disclose the terms of these mortgages. Why? Because no one knows what the index will be in the future. I doubt the authors of the TILA foresaw the advent of adjustable rate mortgages. The financial industry keeps coming up with sophisticated products that consistently outpace our government’s ability to regulate them. Adjustable rate mortgages are just one of those inventions.
If a loan was really large, the bank would need to hold the note on its books, which meant it could not be securitized. The bank would not be able to free up the capital by selling the Note, it had to find a way to make money on the loan, so it sold the borrower an exotically financed loan.
Video: The Bank’s Attorneys Just Don’t Get It Either
Video: Three Steps to Prepare for Strategic Default
Video: Beware the Telephone Hearing
Do You Really Need a Loan Audit?
The simple answer is: if you can afford it, everyone who is defaulting or considering a strategic default should have a loan audit performed. However, I have a few caveats and things you should consider before you pay for a loan audit.
Today I saw this article that says California Attorney General Gerry Brown is warning homeowners to avoid forensic loan audits. How timely it was that I was already thinking about posting something about loan audits and he makes these comments!
First of all, Gerry Brown is wrong on so many points in his witch hunt to stop people from providing distressed homeowners with foreclosure related services. See my previous post on his ridiculous stance. While I agree with him in principle regarding the loan modification industry needing regulation, he went overboard. His zealousness in going after “foreclosure consultants” has basically ensured that homeowners will not have access to legal representation, among other services. He wants to be elected in California and is trying to look like he’s protecting consumers when he’s really harming them.
Where was he when the loan modification scams started? Why wasn’t his office participating in that discussion? I have personally spoken to many of you who have filed complaints against the loan modification shops that defrauded you, and most of you are still scratching your heads about what to do next. So much for his efforts to help citizens. All he’s doing is pursuing his own personal agenda, which is to be elected as governor of the State of California.
Californians, elect him at your own peril.
Now that I’m off my soapbox, I do want to comment on what I think he’s trying to do.
First, there are a lot of people out there who are hawking loan audits that don’t have a clue what they’re doing. I know because I get calls from people who have had a computerized audit that was performed using software. The people selling computerized audits are usually former mortgage brokers who are out of a job and have to do something to make money. They have a customer base of people they sold (bad) loans to, and now they can sell them something else by offering a fix to the bad loans they wrote in the first place. The are also usually auditing for TILA/RESPA violations, and as I’ve explained before, these don’t win court cases.
However, because these loan auditors don’t have any legal experience, they tell people that the TILA/RESPA violations are enough to win a court case, or that they could win their home free and clear based on a few violations, which is ridiculous.
I’ve seen homeowners pursue half-cocked actions against the lender only to lose the case and their home when their case gets dismissed because they relied on advice from someone who didn’t know what they were talking about or gave them false hope. These computerized audits performed by people with no legal experience are a waste of time and money.
By the way: I sell loan audits. They are $750, and on average, take at least four hours or more to complete. Loan audits are a highly specialized service and that’s why they are expensive. I have thirteen years of legal experience and a master’s degree. I don’t make guarantees with regard to the findings of a loan audit.
I could be charging more, and eventually I will charge more, but for right now I don’t need to charge thousands of dollars to deliver an excellent, if not the best, loan audit product on the market.
I don’t use software or take shortcuts to audit files. I review every single shred of paperwork a homeowner sends me for an audit. Right now, I’m doing most of the loan audits myself because I haven’t been happy with the results when they’re done by someone else.
There is a big difference between hiring someone for a computerized audit and the service I provide. If there is a problem with your loan documents, I will find it. I find problems with loans in about 90% of the time because the mortgage industry consistently ignored the laws or didn’t know that they were breaking the law. I also consistently find things that lawyers and other auditors miss.
I know that there are a lot of people taking advantage of homeowners, and that people who are offering a legitimate service automatically get lumped in with the crooks. I’m not interested in ripping anyone off. It’s not worth destroying my reputation or being investigated for a measly $750. Beyond that, ripping people off is not in line with who I am as a person or with my life’s purpose.
If you are facing a decision of whether to pay for a loan audit or whether to spend that money to move, I’m always going to tell you to get on with your life. Spend your money to move out of your toxic asset. You’re not going to benefit from my service because you’re not in a position to stick around and fight.
The point I’m trying to make is that a loan audit, when performed correctly by a person with experience and an understanding of the complex issues, is a tool in your arsenal. This tool can be used for multiple strategies, including a loan modification, short sale, walking away, bankruptcy or fighting foreclosure. It is the first step in getting a clear picture on what’s wrong with your loan. But you shouldn’t waste your money to hire someone who ultimately doesn’t know what they’re doing or if you don’t have money or stomach to fight the bank.
Ask any potential loan auditor for references from other clients. You can also ask for a sample audit, although I do not share sample audits with prospective clients as a matter of policy, for various reasons.
If you have questions or want a loan audit, please send me an e-mail at Christine@desertedgelegal.com. Be sure to include your phone number. I will spend fifteen minutes to determine whether I can help you and we’ll go from there.
Advice for Lawyers Helping Homeowners
This blog post is for the lawyers out there. It might make you angry given that it’s coming from a paralegal, but I think these points need to be shared with my fellow legal professionals.
Many of you are trying to help your clients navigate a bad situation with their mortgages. Some of you have practiced in other areas of the law but are thinking about getting into foreclosure defense.
However, many of you are doing your clients a disservice by not using a loan audit and not helping your clients plan for strategic default. I see this all the time. I also see law firms who think they have performed an audit on a client’s mortgage paperwork but have missed some of the most obvious problems with the loan documents.
For example, I have a client with a large nonconforming loan who has hired two different law firms to perform audits and/or negotiate a loan modification. When this client asked his lawyer about having an independent loan audit performed, his lawyer told him it was a waste of money because the firm had already looked at it and couldn’t find anything wrong with it.
Ugh. I hear this garbage all the time from lawyers. I know of very few lawyers who truly know what they’re doing when it comes to mortgage issues. They are still approaching mortgage problems the old way, which doesn’t work anymore.
Firing off a letter on your firm’s letterhead is NOT going to get your client priority attention. Lawyers, like everyone else, are getting nowhere fast when it comes to dealing with the banks. Look at what happened with loan modifications! Even lawyers are having trouble getting them done, which resulted in the bar associations going off the deep end and investigating lawyers.
The banks don’t care if you’re a lawyer. So, unless you apply a creative strategy or are prepared to file a lawsuit, you won’t get anywhere and you should be aware of this before you start charging your client for your services.
So, here are a few suggestions to those of you looking for ways to better serve your clients.
Before you do anything, think about your strategy. I see a lot of lawyers who fire off a letter of representation to the bank and get no response. Meanwhile, the loan continues moving toward foreclosure, the ridiculous phone calls continue and nothing gets resolved.
It’s also a good idea early on to make sure your client understands the difficulty in negotiating with the bank. A lot of people dislike lawyers because they perceive that the lawyer takes their money and never puts them into a better position. You can easily spend a lot of time figuring out how to deal with the bank and never get anywhere. I think you can head off a lot of headaches down the road by communicating openly with your client, verbally and in writing, that it is difficult and possibly time consuming to attempt negotiations with the bank.
Second, hire or suggest that your client hire a loan auditor (I know a great one!) to audit the loan documents before you do anything else. This means you will need to be honest with yourself about your understanding of what is going on in the loan documents. Your lack of knowledge is going to waste a lot of your time and your client’s money, especially if you don’t have a clear picture of what’s really going on.
A loan audit will tell you what’s wrong with the loan and identify other issues that you should investigate before you even attempt negotiating with the bank. You will want to find as much leverage as possible against the bank, and have that in your back pocket when the time comes to negotiate.
Third, I suggest you or your client send a Qualified Written Request after the loan audit to request additional information. The lender may provide you with some interesting information! You will likely discover that you’re attempting to negotiate with a party who has no legal authority to negotiate with you, or modify the loan. You may also find several other issues that could change your entire strategy.
Fourth, be aware of the foreclosure timelines. Ideally, you will begin working with a client in the early stages of their strategic default and before they receive a Notice of Default. The closer your client is to foreclosure without your having any of these steps completed is going to be stressful and challenging, especially if you don’t have much experience in this area. You’ll be looking at a TRO to stop a non-judicial foreclosure to buy yourself some time to investigate the situation. Conducting your investigation at the eleventh hour is going to be time consuming and costly for your client.
By the way, the client decided to proceed with the loan audit anyway. I audited the file and noticed several obvious problems that the law firms and previous auditors completely missed. The most obvious thing the firm missed was that the lender/title company had never recorded the Deed of Trust for the first loan!
Hello? How can you miss something like that?
So, my fifth suggestion is to check to see what’s on file at the County Recorder’s office early on. You might be surprised to learn what’s on file, including a fraudulent MERS assignment.
I’m happy to discuss working with you lawyers out there – send me an e-mail: Christine@desertedgelegal.com.
Video: Servicers are Lying About Loan Mods
Why You Should Consider a Short Sale as Part of Your Strategic Default
Until a few weeks ago, I didn’t think much of the short sale process because much of what I heard about them was that like modifications, they were difficult to get approved. I’ve heard countless stories about how real estate agents were beating their heads against the wall in attempting to negotiate with the bank, lining everything up, including a buyer, only to have the potential buyers disappear because they got tired of waiting for the bank.
A lot of things have changed in my perspective since then, and I think the short sale is increasingly becoming a better option for many people because it is an alternative to losing a house to foreclosure.
The first reason I think a short sale is a better option than foreclosure is because in some cases, it can stop a foreclosure proceeding in its tracks, and from a strategic default standpoint, having more time to make plans is a definite plus. Many times, a bank will postpone a foreclosure sale once the property has been listed for sale. Josh has told me stories of people staying in their homes for months while they are waiting for a bank to approve a short sale. In the end, if the bank doesn’t approve the offer, they have still bought themselves time to get ready for whatever happens next.
Second, (and I don’t have any firsthand knowledge of this), but my understanding is that a short sale is less damaging to your credit score.
Third, as I’ve mentioned before, I think it’s clear that loan modifications are not the solution. I know there are a few of you out there who have received permanent mods, but you are the exception. If you cannot get a modification, that means you either walk away (assuming you’re not worried about a deficiency judgment) or file bankruptcy to prevent a deficiency or to get a workout plan done on your home. I fortunately live in one of the anti-deficiency states, but many of you do not, and deficiency judgments are something you should be concerned about.
Fourth, we’re seeing some creative things being done to get a short sale approved these days. We’re talking to a company who is ready to roll out a major program to its clients to offer loan audits to homeowners and investors to help get a short sale approved. I’m also hearing about attorneys who are accelerating short sales using loan audits and negotiating for clients to get a short sale approved as fast as possible.
Fifth, FHA has removed its seasoning requirement. Since FHA is the only one loaning money to homeowners, this rule basically prevented much of the short sale inventory from moving because investors could not buy a property as a short sale and sell it on a short turnaround.
So, as an investor, in order to play the short sale game and make money, you had to have a pile of cash because you would be holding onto the property for at least ninety days before you could sell it to a borrower who was getting an FHA loan.
My understanding is that the FHA lifted the rule because of the glut of properties that were just not moving, and like we’ve said before, until the inventory moves, real estate really cannot rebound and neither can our economy.
The lifting of the seasoning rule is good news for homeowners. Despite the fact that they basically get nothing from a short sale, it means they could get themselves out of a sticky situation much quicker, allowing them to get on with their life.
If an investor makes an offer on the property, it normally stops the foreclosure while the bank makes a decision on your offer. The homeowner knows that they have some time to prepare to move without worrying about being dumped on the street. In some cases, the investor will negotiate with the bank on the homeowner’s behalf, which further reduces stress. And in many cases, the bank will agree to waive its deficiency claim when it accepts a short sale, which, from my legal perspective, seems like the most important piece of the puzzle.
If you need help with a short sale, please let me know. I work with investors all over the country who are buying homes, using a loan audit as a negotiating tool with the bank and helping people get on with their lives.
Got questions? Send me an e-mail: Christine@desertedgelegal.com
We’re Not Giving Up, We’re Just Shifting the Conversation
I’ve heard from a lot of you that you’re disappointed because you think we’re giving up on helping homeowners fight foreclosure. I wanted to comment on this, because it’s just not true!
There seems to be a lot of confusion about what we’re doing at ForeclosureIndustry.com, and I want to clarify the direction we’re headed in.
We are still going to talk about how to fight foreclosure, and offer services, such as the loan audits, which will help you figure out what’s wrong with your loan and give you negotiating leverage with the bank.
For those of you who are fighting foreclosure on your own, we’ve just launched the DIYstopforeclosure.com website where you can talk to each other and share information and resources.
We’re also going to start talking more about strategic default and ways to get on with your life. We offer assistance using loan audits and matching up investors with homeowners who want to short sell their homes.
So, if you need help, please don’t hesitate to reach out to us. You can call us at 888-688-8605 and leave us a message. Someone will get back to you to figure out if we can help.
Thanks! Christine
Jane Almost Gets Her Day in Court
This morning was Jane’s court hearing in Illinois. She noticed up a bunch of motions, including the Motion to Set Aside the previous order because the foreclosure mill attorneys didn’t give her proper notice. It went very well!
Here’s what Jane sent me in an e-mail today:
“Christine:
Wooo, I couldn’t wait to get home and write this up,
I got there a little before 9:00, I went straight to the clerk and said “My name is Jane and I want to let you know I’m here and I have a case today” She said to have a seat and someone would call me. I told her that I was the one that requested the court date, and I wanted to make sure she called my case.
About then the Foreclosure Mill Attorney yelled for me and said “Oh it’s been cancelled, we tried to contact you” (Christine’s note: Again? I can’t help but think this attorney is worried – she has to be in BIG TROUBLE for the stunts she’s pulled for lying on the Certificate of Service about giving Jane proper notice and then asking for a default judgment.)
I turned around to the clerk and said, “They can’t cancel my court date, I’m the one who requested it”.
So the lawyer asked to talk to me outside the room:
Foreclosure Mill Attorney: “We had to cancel today and reschedule for March 2nd or 25th the judge cannot hear contested cases on Thursdays”
Jane: “Were you planning on giving me notice of that?”
Foreclosure Mill Attorney: “Yes, but would you please just tell me what it is you want to do?”
Jane: “The last time I spoke with you, you told me that you could not answer any of my questions, and suggested that I get an attorney, so I will not ask or answer any of your questions”
Foreclosure Mill Attorney: “You can discuss what it is you want, are you wanting to try and keep this house and make payments?” (Christine’s note: I think Jane was smart by not telling Foreclosure Mill Attorney anything. These are the people trying to take her house! I wouldn’t tell her anything that she could use against Jane later.)
Jane: “If I am, I will discuss that with the lender”
Foreclosure Mill Attorney: “You can discuss that with me, I represent the lender” (Christine’s Note: this is a LIE. She represents the SERVICER, not the Lender – the Lender is Quicken Loans and isn’t even a party to this foreclosure.)
Jane: I just shrugged my shoulders and shook my head. She was clearly pissed and marched back into the courtroom!
I went straight back to the clerk and Foreclosure Mill Attorney walked over to hear what I was saying. I told the clerk that I needed the judge to hear the “motion to set aside” today because they’ve already set a sale date. She said to have a seat and she would give it to him.
About 2 minutes later they called me up to the judge. He very politely explained “I cannot hear contested matters on Thursdays. You have some significant motions here and I will need some time to review them and we can come back into court later” (Christine’s note: This is good news – Jane FINALLY has the judge’s attention on the issues in this foreclosure!)
Jane: “I understand, however I need the motion to set aside the previous order, that they didn’t give me notice on, because they’ve already set a sale date based on that order”.
Judge: “All motions and orders in this case will be on hold, until we hear the case at a later date.”
The dumb broad lawyer was steamed!! (Christine’s note: Jane did a great job of being persistent and standing up for herself here. This is what it looks like — don’t be afraid to make the Foreclosure Mill Attorneys angry!) I went to the clerk again, she marched up there too. She had her planner trying to find a good date to come back. The clerk was pushing into April on her calendar. She finally agreed to March 2nd but I could see her planner was clearly booked. Haha!
What a good day – If I accomplished nothing else, the look on that woman’s face made my day!!
Jane”
Jane’s fight gives us all some hope that there are some real legal issues that need to be addressed. As Neil Garfield says, these pretender lenders normally won’t survive the discovery phase of litigation because they can’t substantiate their lawful right to foreclose without documents.
I’ll write more later on what discovery is, for those of you wondering. The short explanation is that it’s basically the part of litigation where the parties share information with the other side to get all the issues out in the open. Usually it becomes evident during discovery who’s got the problems with their case, after documents are produced and depositions are taken. After discovery the parties usually begin discussing settlement or preparing for trial. More on this in another blog post.
The other interesting thing about Jane’s situation is that she is likely helping hundreds of other homeowners. She is in a county in Illinois where this particular judge is rubber stamping foreclosure paperwork in favor of the lender because people aren’t fighting back, which makes me sad. However, it sometimes just takes one person to stand up. This attorney has to appear before this judge likely daily or weekly and if the judge knows they are doing shady stuff on the hundreds of other cases, maybe he will start asking questions on his own about their right to lawfully foreclose on all the other homes they are attempting to steal from the homeowner.
Got questions? Send me an e-mail or leave your comments below.
