New Zealand news about Home Loan Problems
Ian Vickers was gobsmacked when he got a letter from mortgage lender AMP welcoming him as a customer.
That's because the Aucklander's home loan was with HSBC, and the bank, it seemed, hadn't bothered to tell him it had sold his home loan to AMP.
"I was absolutely gobsmacked as I read this letter, informing me that my bank had sold part of its home loans business to them in early July and that I was to complete the appropriate paperwork ASAP. July! Four months ago this deal was completed and my own bank has not had the decency to tell me about this switch!"
He was "angry beyond belief".
"What sort of bank does not tell its customers immediately about such an important decision?"
The bank says it had planned to write to Vickers and customers in the same position when it sold $669 million of loans back to AMP, but some letters were inadvertently not sent out.
HSBC bought the loans from AMP in 2003 as part of plans to become a force in retail banking, but has scaled back its ambitions.
It intends to continue offering accounts and loans, but will focus only on people with "international banking needs", such as new immigrants who bank with HSBC overseas, and retain business interests there.
Though he knows that lenders retain the right to sell loans, Vickers remains angry at the level of service he received from a bank which promotes itself as providing top-quality service.
"I phoned up my `local bank' to speak to a customer representative. Bless them, based in darkest Peru or Outer Mongolia, I tried my best to be civil, as I wanted to speak to someone with a knowledge of this particular bank switch. I got an apology from one person that there had been no letter sent so far but I should be receiving something very soon.
"Another supervisor wouldn't speak to me and sent back a message, via the receptionist, that it was a done deal and that I had no choice but to transfer to this other bank."
Vickers is not unhappy to be going back to AMP, a company which has big ambitions in the mortgage market. The HSBC loans will be managed by Kiwibank, under the AMP brand.
Readers respond to stories from loan problems to taxes to cancer
An inside look at how your credit is scored
Editor - I read Kathleen Pender's Net Worth column regarding Wells Fargo and its home-equity loan problems ("Wells' loss is beyond subprime," Nov. 29) with interest.
I was in the lending business for more than 40 years, before retiring three years ago. I thought I would give you an overview of credit scoring from my point of view.
It was just about 40 years ago that Fair Isaac Corp. came up with a credit scoring system for the company I worked for. They came to all our offices and microfiched all our files, good, bad and charge-offs.
From this information they formulated a scoring system directed toward borrowers purchasing automobiles. Items such as owning a home, home telephone and time on the job received points.
What I found interesting was the automobile question. If the potential borrower owned a foreign vehicle, he received more points than if he owned a Ford or Chevrolet. The reasoning was that an owner of a foreign vehicle was a more conservative borrower than a Ford owner.
At this time we would score the applicant initially by hand. If he was on the edge, we would change that automobile owned from domestic to foreign and, by gosh, he qualified.
Time passes and Fair Issac comes up with an updated scoring system. It's now done by computer and only tied in with the borrower's credit report, which is far superior to any of the older systems, as we are now interested only in how applicants pay their bills.
By this time I owned my own mortgage company. As a group we were against the system, as we felt it discriminated against minorities. They, on average, have lower incomes and are far more likely to have poorer credit. What happened was that subprime credit came into being. People with weaker credit no longer had to go to a finance company; they could go to a real mortgage bank and get a home loan.
On one hand, this was a boon to many as it allowed them to realize the "American dream" and purchase a home, which they are still in. On the other hand, it allowed many to purchase a home, which they had no business doing in the first place.
Now let's talk about all those prime borrowers with top FICO scores. The lenders catering to prime borrowers let themselves become distracted by the score and quit paying attention to the real borrower.
If they had a 730 FICO score, why inconvenience the borrower by asking him to produce tax returns? If a letter carrier claims an annual income of $125,000 annually, who cares, he has a 730 FICO. Let's let him buy the $600,000 home and let's give him a line of credit behind the first mortgage to allow him to fix up the home he is moving into.
This is somewhat like an occasional drinker sitting in a bar and being given his favorite bottle of whisky at no cost. Some will get themselves into real trouble.
I have read that some lenders are blaming FICO scores for getting themselves into their current troubles. The bottom line is that they forgot what enabled the borrowers to get good FICO scores: real underwriting guidelines with actual proof of income.
I feel that home prices will continue to fall. If they drop another 5 or 10 percent, you ain't seen nothing yet.
WARREN OGLOVE
Fullerton grandparents struggle with their home loan's rising payments.
John and Grayce Coffman could lose the Fullerton home they bought in 1977 because they can't keep up with their mortgage's rising costs.
The Coffmans, who are unemployed and in their 60s, borrowed $552,300 from Countrywide Financial, the largest U.S. home lender, in the summer of 2005. Despite making about $50,000 in payments since then, they now owe more than $590,000 to Countrywide.
They, like many other consumers during the go-go days of the housing boom, tapped the rising equity in their home. They took out a loan that allowed them to make a low monthly payment, but tacked the unpaid interest onto the loan balance.
Now the Coffmans say they can't afford the minimum payment of more than $2,000 a month, which has gone up from $1,776 when they first got the loan.
And they certainly can't make the fully amortized payment of more than $4,500, which would be roughly 80 percent of their income. The Coffmans earn about $5,400 a month from Social Security and government assistance for five of their six adopted grandchildren, according to the Coffmans and their recent bank statements. (One grandchild is now an adult.)
Big lenders like Countrywide have programs to help certain homeowners in distress, and President Bush last week announced a plan to keep some subprime borrowers in their homes. But neither of these plans will help the Coffmans, who don't have any subprime loans. Their 1 percent teaser rate ended a little more than a month after they received their loan.
Homeowners like the Coffmans who tapped their equity, as well as those who bought more home than they could afford, are falling behind on their mortgages in increasing numbers. U.S. home loan delinquencies in the third quarter reached the highest level in more than 20 years, according to the Mortgage Bankers Association.
For their part, the Coffmans admit responsibility for getting deep into debt.
They bought their two-story home for $97,000 in 1977 and have since extracted all the equity gain in it. They've cashed out $600,000 in home equity with the help of several lenders, including Countrywide, Washington Mutual, Wells Fargo, and Greenpoint Mortgage Funding.
They spent the money on household bills, an expansion and remodel of their home to make room for the children, and to shore up John Coffman's struggling radiator repair shop, which was sold in 2005, they said.
After taking out a second mortgage in February from Wells Fargo for $114,855, they now owe about $700,000 on their home, which is worth about the same, according to Zillow.com, a Web site that evaluates a home's market worth.
There is no equity left to pay for a refinance, and they couldn't afford payments on any other loan even if they could, the Coffmans say.
"How did it happen? I can't tell you," Grayce "Penelope" Coffman, 64, said. "We just made some really bad decisions."
Jeff Altman, a partner with WestCal Mortgage Corp.in Orange, said falling home prices are another strike against the Coffmans. They really have no way of fixing their debt problems, short of a major drop in interest rates, he said.
"Because they don't have the equity, it's the kiss of death in this case," Altman said.
Countrywide and other lenders have launched public relations campaigns to assure the public and politicians they are helping folks avoid foreclosure.
In September, Countrywide said it planned to modify 25,000 loans by year's end to help struggling homeowners. (Loan modifications can include lowering the interest rate or extending the term of the loan.)
"Our No. 1 priority is to help borrowers stay in their homes," said Steve Bailey, senior managing director of loan administration, in a statement in September. "Countrywide has the right tools, processes and staff to help homeowners avoid foreclosure."
Still, 25,000 amounts to less than 1 percent of the 8.96 million loans the company serviced just before the announcement.
Countrywide, however, said in an e-mail it now has 80,000 borrowers in some stage of a loan workout, which is roughly equal to the number of borrowers facing a serious threat of foreclosure.
But it wasn't until The Orange County Register contacted Countrywide about the Coffmans' situation that the lender offered the family help. Countrywide said the Register's inquiry led to a faster response but not to special treatment.
Otherwise, the Coffmans, who have missed two mortgage payments, would have had until Dec. 16 to pay or the lender would initiate foreclosure, according to an earlier letter from Countrywide.
"I'm planning on staying here," Grayce Coffman said. "They are going to have to drag me out."
Countrywide has offered to lower the Coffmans' interest rate and cap it at 5 percent from about 8 percent currently. They could also skip payments until February, with all missed payments added to the principal balance.
"Countrywide has reached out to the Coffmans to understand their current financial situation and try to work out a solution that will help them stay in their home," the company said in an e-mailed statement.
Grayce Coffman said she's deciding whether to accept Countrywide's offer. While every little bit helps, she's unsure how they can afford the modified loan long-term.
As a whole, loan servicers have a limited track record of modifying home loans, according to rating agencies Moody's and Fitch. For example, Moody's found that most loan servicers of subprime borrowers had only modified 1 percent of their serviced loans that experienced a reset in the months of January, April and July.
Connie Der Torossian of nonprofit Fair Housing Council of Orange Countysaid despite impressive public relations campaigns from major lenders, she has seen few loan modifications from them and even fewer from smaller shops.
"Part of the problem is they are inundated like we are," she said.
However, Der Torossian said she has noted a change in attitude from Countrywide, which may lead to more help for troubled borrowers.
Grayce Coffman said she called Countrywide before missing a payment in October, but was told it only modifies loans of borrowers who have missed at least one payment.
Countrywide said it has no policy that loans must be delinquent before agreeing to work with borrowers. However, Der Torossian said it's common practice for lenders to work only with delinquent homeowners.
Coffman says she doesn't remember what Linda Wilson, the loan officer at Countrywide who got them into the loan, said about the loan's risks when they first got it.
Wilson, however, said she explained everything about how the loan behaves and how payments can change over time.
"They totally understood the loan," said Wilson, who works in Riverside.
The Coffmans signed a deed of trust that outlined how the interest rate could change over time.
But mortgage broker Altman said borrowers rarely read the fine print, and brokers or loan officers at banks should explain in detail how any loan will behave. He generally only suggests option ARMs to sophisticated borrowers, such as investors in several properties.
"You are talking about a very complicated loan," Altman said.
If the Coffmans needed a low monthly payment, they should have received an interest-only loan, he said. In summer 2005, they could have received a 5 percent rate on an interest-only loan fixed for five years by paying a fee and would have received a monthly payment of about $2,300, or roughly $500 more than the initial minimum on their option ARM, he said.
Payments eventually jump on an interest-only loan, but at least the total debt doesn't increase, he said.
The Coffmans have about $1,400 in their joint checking and savings accounts, according to their November statements. Grayce Coffman said they have no other savings.
They do have one prospect for future income. Coffman and her brother inherited a property in Palm Springs from an aunt who passed away. They are selling it and will split the profits.
Coffman said she might use the money to pay off the second mortgage from Wells.
"I just don't know," she said.
My comments are any countries have problems different about their home loans.
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