‘Free Rent’ Approach on the Rise as Some Homeowners Stop Paying Mortgages

foreclosure

Some homeowners stop paying their mortgages.

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.  Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

 

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Payday Lenders Find New Way to Scam People – Advances on Unemployment Checks

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Payday loan services – Putting loan sharks out of business

Critics say the high fees that come with the loans send the jobless into a cycle of debt. The industry sees it as a service for people in need.
The payday loan industry has found a new and lucrative source of business: the unemployed.
Payday lenders, which typically provide workers with cash advances on their paychecks, are offering the same service to those covered by unemployment insurance.
No job? No problem. A typical unemployed Californian receiving $300 a week in benefits can walk into one of hundreds of storefront operations statewide and walk out with $255 well before that government check arrives — for a $45 fee. Annualized, that’s an interest rate of 459%.
Critics of the practice, which has grown as the jobless rate has increased, say these pricey loans are sending the unemployed into a cycle of debt from which it will be tough to emerge.
Many payday clients pay off their loans and immediately take out another, or borrow from a second lender to pay off the first, and sink ever deeper into debt. Typical customers take out such loans about 10 times a year, by some estimates.
Lenders “market the product to give the illusion of assistance,” said Ginna Green, a spokeswoman for the advocacy group Center for Responsible Lending. “But instead of throwing them a life jacket they’re throwing them a cinder block.”
The industry sees it as a service, providing short-term loans to people who wouldn’t stand a chance with a conventional bank.
What’s clear is that in California, where the unemployment rate hit 12.4% in December, some jobless workers in need of quick cash are turning to payday lenders, regardless of cost.
Ed Reyes, a Los Angeles resident who lost his job in retail about six months ago, said he has had to take out payday loans three times since becoming unemployed. The advances on his government check, he said, have helped him pay his household bills before late charges accrue.
“To be honest, I didn’t know if they’d give me one, but they did,” he said, standing outside the unemployment benefits office in downtown Los Angeles.
Ignacio Rodrigues, a clerk at Van Nuys payday lender Ace Cash Express, said about a quarter of first-time borrowers he sees now use their unemployment checks as proof of income.
“They just need extra money, and we do it,” he said of the instant loans.
It’s legal. Payday lending is regulated by the state, but lenders are not required to check sources of income. A borrower needs only to have a bank account and valid identification to get a loan.
In California, close to 1.4 million jobless residents are getting unemployment benefits, out of a pool of some 2.3 million who are unemployed, according to the most recent numbers. Weekly benefits range from $40 to $450 and normally last a maximum of 26 weeks. But federal extensions signed into law during the recession have boosted the maximum duration for some workers to nearly two years.
With regular checks rolling in, the unemployed can be reliable borrowers for payday lenders. By law, the lenders can charge a $15 fee for every $100 borrowed. The maximum loan in California is $300 — which coincidentally is the just about the size of the average Golden State unemployment check.
The borrower leaves a postdated personal check to cover the loan and fee, which the lender can cash after about two weeks.
In California, the maximum annual interest rate allowed for these loans is 459%. APRs in other states are even higher: nearly 782% in Wyoming and 870% in Maine. The rates are blasted by critics. But Steven Schlein, a spokesman for payday lender trade group Community Financial Services Assn. of America, defended offering the loans to the unemployed, saying the critics don’t understand the realities of scraping by.



“Who are they to decide?” Schlein said. “We issue billions of dollars of credit. They issue platitudes and pats on the back.
“These people need money. They tell them to go to their relatives. These people have bills to pay. These people need to go to job interviews. They need credit.”
Schlein said just a fraction of the industry’s clientele is unemployed. Still, it’s good business.
Making payday loans to borrowers who receive unemployment benefits is not necessarily riskier than making other loans, he said, particularly in California, where benefits are relatively high. Default rates for loans made by the industry’s handful of public companies range from about 2.5% to 5%, Schlein said.
There were 2,385 licensed payday lenders in California as of 2008, according to the most recent report from the state Department of Corporations, which regulates the lenders. Nationwide, payday clients borrow an estimated $40 billion a year.
Payday lenders have been controversial since the industry expanded rapidly in the 1990s, with critics accusing the outfits of preying on the poor. Arkansas, Georgia, New Jersey and New York have virtually banned the institutions. In 2006, Congress stymied payday loans to military personnel, passing a law capping interest at rates prohibitively low for payday lenders. The legislation was spurred by concern that payday loan debt was affecting morale and readiness for deployment.
While California legislators capped the maximum loan amount, attempts to further regulate the industry — lowering the APR, for example — have foundered.
Some payday lenders refuse to lend to the unemployed.
At Papa Cash in Van Nuys, customers are welcomed with the motto “Where Papa always treats you like family.” But the store does not accept unemployment checks as proof of income.
“No EDD,” a clerk said through the glass, referring to the benefits distributed by the state Employment Development Department. “The checks can stop at any time.”
At a San Fernando Valley branch of payday behemoth Advance America, however, loans to the unemployed have increased in recent months, said a manager there who asked to remain anonymous because she was not authorized to speak for the company.
Most unemployed borrowers, she said, come in twice a month and often appear more desperate than other clients.
“They need it more,” she said. “When we tell them they need to wait because they forgot their checkbook or some other snag, you see a sadness in their eyes, kind of like it’s all piling up, the frustration.”
Still, the manager said she viewed her firm as providing a service that’s all the more vital in hard times.
“For an honest, hardworking family person, we can really help them get by until the next check,” she said. “It’s not for us to say they shouldn’t be getting a loan. That’s not our judgment.”
An unemployed borrower who gave his name only as Oscar exited Ace Cash Express in Van Nuys on a recent afternoon. He said he lost his job at a garden sprinkler installation company a year ago and has been depending on unemployment insurance ever since. He said he borrows against his benefit checks at payday loan stores to make ends meet.
“It helps me pay for food, for my apartment, other expenses,” he said in Spanish, tucking an envelope of cash into his worn jeans.
Via latimes.com

Critics say the high fees that come with the loans send the jobless into a cycle of debt. The industry sees it as a service for people in need. We just call it a scam. Lenders are finding new and unusual ways to take advantage of desperate people.

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Lenders Delaying Evictions, Borrowers Living Rent-Free

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Patricia and Eugene Harrison have lived since October 2008
without making any payments on their mortgage

Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.
It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.
A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.
Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.
“We’re kind of on pins and needles, but who’d want to leave when you put this kind of energy into a house?” said Eugene Harrison, 70, gesturing toward a bucolic mural of mountains, stream and flowers the couple painted on the living room wall.
Throughout the country, people continue to default on their home loans — but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.
Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.
And with a glut of inventory in places like Southern California’s Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.
Finally, allowing borrowers to stay in their homes helps protect the bank’s investment as it negotiates with the homeowners, said Gary Kirshner, a spokesman for Chase bank, a major lender.
“If the person’s in the property, there’s less chance for vandalism, and they’re probably maintaining the house,” he said.
Economists say the situation won’t last forever, but in the meantime the “amnesty” may allow at least some homeowners to regain their financial footing and avoid eviction.
In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it’s difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.
But Rick Sharga of Irvine data tracker RealtyTrac notes that the number of loans in which the borrower hasn’t made a payment in 90 days or more but is not in foreclosure is at 5.1% nationally, a record high. And yet the number of foreclosures last year was 2.9 million, below the 3.2 million that RealtyTrac economists predicted.
More evidence is provided by another firm, ForeclosureRadar, which says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.
“For some reason, banks are being more lenient with homeowners who are behind on their loans,” Sharga said. “Whether it’s a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure.”
Lenders say the trend reflects their efforts to work with borrowers to modify loans to avoid foreclosure. Bank of America “continues to exhaust every possible option to qualify customers for modification or other solutions,” spokeswoman Jumana Bauwens said.
Some lenders are making it a policy to partner with delinquent borrowers. Citibank said this month that it would let borrowers on the brink of foreclosure stay at their homes for six months, whether or not they make payments, if they turn over their property deed.
Such policies may partly reflect the fact that lenders can’t keep up with all the foreclosures, some say.
“The mortgage lenders are so backlogged that some people are able to slip through the cracks,” said Kathryn Davis, a real estate agent at America’s Real Estate Advocates in Corona.
That was apparently the case for the Harrisons, who were told at various times that their house had been sold, that it belonged to someone else and that it was empty.
“It’s been frustrating, a real major pain in the buttocks,” said Eugene Harrison, a nondenominational minister with a clipped mustache and a sudden laugh.

The Harrisons missed their first payment in October 2008, shortly after Patricia Harrison, 57, lost her job as a healthcare aide and her husband’s part-time towing work dried up. They said they applied for a loan modification with Countrywide Financial (since acquired by Bank of America) but were told that they couldn’t receive one until they were three months behind on their payments. So they stopped paying.
In April 2009, they received a notice warning them that their property “may be sold at a public sale,” and in July, they were told their house was a bank-owned property.
he bank sent a notice by FedEx in October demanding $3,000, and when the Harrisons called to discuss this notice, they were told they had four days to vacate the house.
Panicked, they arranged to stay with family in New Mexico and started packing their things, filling their garage with boxes of books, camping equipment and art. But no one came to kick them out.
“We were afraid to leave the house, afraid the sheriff was going to come,” said Patricia Harrison, an amateur painter.
After contacting consumer advocates about their situation, the Harrisons decided to stay put. Soon after, two men in a white pickup truck showed up at the house and peeped in the windows, telling the Harrisons that they thought the house was abandoned.
The Harrisons suspected they were planning to move in themselves and chased them away.
The couple don’t want to leave but are in the midst of a running dispute with Bank of America about the terms of their loan modification. The bank says it mailed them documents this month.
As they wade through the red tape, the Harrisons can’t imagine abandoning a house where they’ve left their mark in the goldenrod and potpourri rose walls, the new fixtures and stenciling in the bathrooms, the fruit trees planted in the yard.
Although the Harrisons’ future is uncertain, industry observers agree that the rent-free life can’t last forever. As home values climb, banks will find it financially advantageous to foreclose on delinquent borrowers and sell their properties.
“In many cases, particularly in California, people owe a boatload of payments, and no bank is going to forgive that,” said Guy Cecala, editor of Inside Mortgage Finance, a trade publication.
In Diamond Bar, the Fraguere family is finally moving on after living rent-free for 18 months. Job loss and other setbacks prevented them from paying their mortgage, but they say they didn’t hear anything from the bank, First Franklin, until a real estate agent showed up at their door last month saying she was going to sell their house.
Sandy Fraguere wasn’t surprised that it had taken the bank so long to ask them to move.
“I don’t think they really knew what was going on or who was there,” she said.
Next stop for the Fragueres is a hotel, where they plan to stay for two weeks until their apartment in Chino Hills is ready for them to move in. Their dogs are being boarded and their belongings stored until they can retrieve them someday. Their children, ages 8 and 9, are being steeled for more instability.
The Fragueres have started saying goodbye to their neighbors, adding yet another empty house to a block that has already seen two other families forced to pack up and leave.
Via latimes.com

Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.

Continue reading… “Lenders Delaying Evictions, Borrowers Living Rent-Free”

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