The $75 billion program pays lenders to modify the mortgages of troubled borrowers, typically lowering their payments by about $500 a month.

But so far, fewer than 200,000 borrowers have received a permanent change to their loans, according to Treasury Department data released Wednesday, a small fraction of the 3 to 4 million borrowers who government regulators initially said the program could help before it expires in 2012. That may not bode well for efforts to stabilize the housing market. Credit Suisse has estimated that 3.2 million foreclosures would have to be prevented this year for home prices to rise modestly.

“Clearly the numbers that were discussed by the administration set up an expectation that just don’t deal with the reality we’re in,” said John Courson, president of the Mortgage Bankers Association.

Administration officials have acknowledged that the program, known as Making Home Affordable, got off to a slow start and has yet to reach its full potential. Many lenders didn’t begin enrolling borrowers until last summer, months after the program was launched. By then, the primary cause of foreclosures had shifted from the risky mortgages that helped spur the financial crisis to rising unemployment. The latter is tougher to address because jobless borrowers often have little money with which to pay any type of home loan.

Through January, nearly a million borrowers had gotten at least some reduction in their mortgage payments as part of the program, but more than three-quarters have yet to win a permanent modification and must still prove they qualify, according to Treasury data. The program “is doing the job it was designed to do, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said in a statement. “Struggling families are receiving payment relief and the housing market is showing signs of stabilization.”

The unemployment factor

But the administration is facing demands to expand the program to help more unemployed borrowers, or to lower the loan balance of underwater borrowers — those who owe more than their home is worth. Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, has launched an investigation into the program. “While I applaud Treasury’s efforts, numerous concerns have been brought to my attention regarding the effectiveness and efficiency of the MHA program and the extent to which it has assisted struggling homeowners,” he wrote to Treasury Secretary Timothy F. Geithner earlier this month.

More than half of those who have received mortgage relief so far have said they needed it because they’ve lost their jobs or had their income drop for some other reason. But many unemployed borrowers can’t qualify for help because they don’t have enough income. Housing advocates argue that some of the billions of dollars set aside for the loan modification program should be diverted into short-term loans for these borrowers.

And underwater borrowers who have little chance of recouping the lost value of their homes need a more generous program, housing advocates say.

Changes to the program are possible, administration officials have said, but it is unclear how extensive they will be.

No appeals process

Another challenge for borrowers is that the program lacks a formal appeals process for those denied relief, leaving homeowners largely to work out problems on their own.

That has been the challenge for Alice Valentine, a Southeast Washington homeowner who had a decrease in income after a work-related injury. When she first sought a loan modification from Bank of America, she was told she qualified, Valentine said. But the promised forms she needed to fill out never arrived, she said.

“I never received anything in writing from them except for threatening letters,” Valentine said. “I have been getting nothing but the runaround.”

So she wrote to the White House instead. President Obama responded, offering encouragement. “The road ahead is difficult, but if we move forward resolutely, then I am confident we will overcome this crisis,” Obama wrote.

A Bank of America spokeswoman said the bank is following the program’s guidelines. “We apologize if there was any miscommunication. We would like to reevaluate her eligibility once her financial situation improves,” said spokeswoman Jumana Bauwens.

The program encourages lenders to modify mortgages by offering them a series of incentive payments. But these payments may not be enough to shift the financial calculations made by lenders before offering mortgage relief. “It is clear the incentives being paid are nowhere close to reimbursing the servicers for the cost and expenses that they are devoting to modifications,” said Courson of the Mortgage Bankers Association.

‘Set up to fail’

Some lenders have sold the loans they made to investors under contracts that restrict modifications. In addition, about 600,000 delinquent borrowers potentially eligible for the program can’t apply because their servicers have not signed up, according to Treasury data.

When Yvonne Gipson, 69, applied for relief on the loan for her Annapolis home last year, she was told by her mortgage servicer, PNC, that her loan had been bundled into a security with other loans by Goldman Sachs, she recounted. PNC informed her that the rules governing that security did not allow the loans to be modified, she said.

Instead, wanting to see her catch up, PNC suggested it could raise her monthly payments. The new payments would consume 66 percent of her income, more than double what would be offered under the federal program. “I was being set up to fail,” she said. “I am trying to do the right thing. I find the whole thing devastating.”

PNC declined to comment and Goldman Sachs said the loan can be modified.

Despite its slow start, the federal program has established industry standards for the types of loan modifications borrowers should receive. So far, borrowers who receive loan modifications under the program are less likely to re-default than those who get help under other mortgage relief programs. About 25 percent of borrowers in the program were delinquent on their new lower payments, according to the Treasury Department, while about half of borrowers in other mortgage relief efforts fall behind again.

But more borrowers in the federal program could re-default later. More than 60,000 of the borrowers who initially enrolled in the program have already failed out.

Part of the problem is that the financial burden on many borrowers extends beyond their primary mortgage to other types of debt. The federal program focuses only on lowering the payments on a primary mortgage to affordable levels, or about 31 percent of income. But even after a modification, many borrowers still have high levels of debt, and federal regulators also want to bring down the payments for second loans, such as home-equity lines. Since announcing the expansion of the program to second liens last April, just one lender, Bank of America, has signed up.

Article Source: Washington Post

Under the proposal, loan servicers would reduce eligible borrowers’ monthly payments to no more than 31% of their household income for up to nine months. Unlike a modification, however, the arrears would be tacked onto the end of the mortgage.

As part of the proposal, the association has asked the Treasury Department to provide loans to some servicers to cover payments to the mortgages’ investors. Treasury officials, who met with the group last week, have not made yet a determination, a spokeswoman said.

The trade group’s goal is to address the growing number of people who are falling behind on their mortgages because they’ve lost their jobs.

“Borrowers with such a precipitous drop in income can’t qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job,” said John Courson, the association’s chief executive.

Once borrowers find new employment, they will be considered for a long-term modification under the Obama administration’s foreclosure prevention program.

Most consumer advocates, however, do not think forbearance plans are an answer to the foreclosure crisis. Most delinquent borrowers need more help than just a temporary reduction of their payments.

Also, it’s unlikely that borrowers will find new jobs in nine months in this tough economy, said Kathleen Engel, a law professor at Suffolk University in Boston who specializes in foreclosures. She said the program would need to last at least two to three years to be effective.

The association unveiled its proposal the same day that Federal Reserve Chairman Ben Bernanke told Congress that he’s concerned about the weak state of the job market. And the White House’s top economic adviser has said she expects unemployment to remain around 10% for the rest of this year and remain high in coming years.

Engel suggests the government provide loans directly to the distressed borrowers to help them meet their obligations while unemployed.

“So far, we haven’t seen a lot of help going to the borrowers,” she said.

The Obama administration last week announced a $1.5 billion initiative to help borrowers who are unemployed or owe more than their homes are worth. The program funnels the funds to five state housing finance agencies and charges them with coming up with programs to help these homeowners

Article Source: CNN Money

Full Disclosure:
When either just describing or encouraging loan modification, the servicer shall give the debtor information that will aid them in understanding the terms of the modification and the process of modification, and debtors should also be given written information about the costs, terms, and risks of modification that is clear and concise. This should be given in a timely manner as to allow debtors to make an informed decision.

Fair Lending:
Modifications under the plan must abide by the Equal Credit Opportunity Act and the Fair Housing Act, both of which do not allow discrimination on a prohibited basis connecting to mortgage transactions. Loan modification plans are subject to fair lending laws, and both servicers and lenders should make sure debtors are being treated equally when it comes to mortgage modification.

Consumer Complaints and Questions:
Servicers should have a system to answer complaints and questions regarding loan modification timely and appropriately, and that every question and complaint is taken seriously and answered appropriately.
This protection will ensure that you and your family are not treated unfairly and can receive the full benefits a mortgage modification.

Article Source: Loan Store

However, despite homeowners who are walking away from their underwater mortgage, many are just looking for help in their monthly mortgage payment. Homeowners feel that the value of their home is bound to rise again, so if they could just make their home mortgage payment more affordable at the present time the underwater status of their home wouldn’t be so bad.

The trouble with having an underwater mortgage is there are few refinancing options as banks are unwilling to refinance a home whose value is less than what is owed in the original mortgage. Refinancing may be an option for a select few homeowners with an underwater mortgage in certain circumstances, but most homeowners will need to look into a home loan modification.

The Making Home Affordable Program is about the only way to lower a mortgage payment on an underwater mortgage. Many of the nation’s top lenders are working with the program so if you are a homeowner with an underwater mortgage you may want to look into a home loan modification to help lower your monthly mortgage payments.

Article Source: Red, White, and Blue Press

While renting out a room has been around for years, especially in the South Bay’s Latino neighborhoods, sharing a home in order to save it has become an increasingly popular way to hang on to the front-door keys to the American dream.
“I’m up against a wall and I had no other place to turn for income,” said Rafael Porras, a 50-year-old waiter who began renting out a room in his downtown San Jose condo this month after he was squeezed by pay cuts at work and a mortgage payment about to rise. “But I had to do it because I don’t want to walk away from this place. ”

Whether they’ve rented out rooms in the past to make ends meet, or a job loss has prompted them to tap into their inner landlord for the first time, many people say their rental income is the only thing keeping them from losing their homes. And for many homeowners — even those whose property is worth less than their loan amount — losing their home is not an acceptable option.

“I can’t imagine life anywhere else,” said 71-year-old Margaret Licon, who bought her San Jose house 40 years ago and raised six kids in it before losing her husband 25 years ago. With no job, dwindling savings, and rising loan payments, Licon

now relies on a houseful of renters to stay afloat — a couple with three kids, an ex-Marine with health problems, and two grandsons shoe-horned into the garage.
“Without my tenants, I couldn’t make it,” said Licon, who’s hoping her lender will modify her $400,000 loan. “But I’ve been here so long, this house is a part of me. I’d even move into my garage and rent out my own bedroom if it meant keeping my home.”

While it’s hard to know precisely how many struggling homeowners have turned to renting out rooms, housing advocates have seen a surge in the past year in the number of people desperate enough to give it a try. Especially among the recently unemployed, rental income — along with family loans — has become a godsend.
“Renting out bedrooms is a growing trend,” says Sunnyvale housing counselor Maritza Wong, who works for the nonprofit Project Sentinel. “And it’s not just lower-income people doing it, but even people who were making good money before losing their jobs.”

At Project Sentinel, where staffers report as many as 20 percent of their clients becoming landlords under their own roof, counselors are recommending the practice as a way for homeowners to tweak their debt-to-income ratio in order to qualify for a modification.

But a word of caution: becoming a landlord, especially for someone with little or no experience, can bring headaches, from tenants who fail to pay rent to those who are just a pain in the neck to live with.
Before finding his current tenant this month, Porras, a waiter at Original Joe’s, took in a roommate last year, “but I didn’t like it because he was messy. He was watching too much TV. I couldn’t even change the channels in my own house.”
The situation became untenable, said Porras, because “he took over the place, sleeping in the living room. I had to force him to leave because we were arguing so much. It didn’t turn out well.”

Often, it’s family members moving in together for shelter from the recession. Patty Guertler with Surepath Financial Solutions in San Jose, a center that offers credit and foreclosure counseling, says often it’s “adult sons and daughters moving back in with their parents who are facing a financial crisis. It’s always been fairly typical in the Latino population to keep the family circle close, but now the recession has made it even more dramatic.”

And all that drama can spell trouble. For Milpitas homeowner Charles Jackson, sharing some of his most intimate space with three non-family tenants is both a necessity — he’s living mostly on Social Security and trying to keep up with a mortgage that’s mushroomed because of refinancing — and a challenge. He’s renting to a couple, who keep to themselves, and a neighbor who needed a room after the house he was living in went into foreclosure.

Jackson and his roommate, Frank Marquez, are still learning the delicate art of sharing an 1,100-square-foot home. “We’ve only got one bathroom that we share, so we both got gym memberships to take some of the pressure off. And I’ve had to set up rules for him so we’d get along.

“Laundry, for example, became an issue,” says Jackson. “Frankie works in a body shop and he didn’t realize that when you wash something really dirty, like his uniform, it leaves a ring. So he’s lost his washing privileges. ‘Go the laundromat,’ I told him. ‘You might meet a nice lady.’ ”

Article Source: Mercury News

“Finally there is good news for California homeowners and help them avoid foreclosure. The new
The California Foreclosure Prevention Act, signed by Gov. Schwarzenegger in February, adds 90-days between the time a homeowner defaults on a loan and when banks can initiate foreclosure proceedings,” states Art Franklin, V.P. AboutCaliforniaLoanModification.com.

AboutCaliforniaLoanModification.com attorneys help homeowner obtain loan modification agreements. These agreements make monthly mortgage payments more affordable.

Assemblyman Ted Lieu, D-Torrance, who wrote the bill states “The goal is to compel banks to do systematic California loan modifications that will reduce the foreclosure rate. California has the highest foreclosure rate in the nation. Until we slow that down, the state’s economy cannot recover.”

Franklin continues “This new law which took effect June 15th. puts the onus on lending institutions to work with homeowners and develop a California loan modification agreement.”

A loan modification agreement usually includes lowering the interest rate, reducing the monthly payment and sometimes substantially reducing the loan balance of the current loan. Homeowners are urged to take advantage of this new law quickly.

Mr. A. from Ontario, California, one of Franklin’s clients that came close to losing his home, states “I know I left it far too late before I called Art. Why is it that, as intelligent humans, we consciously do things that are contrary to our health, wealth or happiness? Not only do we make these decisions but we also rationalize them. For instance, I know I shouldn’t smoke BUT it helps me to relax!”

“I was three months behind with my mortgage payments and didn’t take any action whatsoever. It’s not like I didn’t know what was happening. Was I expecting a knight on a white horse to come up my driveway and make my payments for me? Realistically I knew that wasn’t going to happen and still I was mentally paralyzed. Art’s staff at AboutLoanModification.Com calmed me down, planned a course of action, followed through with that plan and obtained a Loan Modification for me professionally and quickly even though I had already received a Notice of Default.”

Just because you ignore the gas gauge on your car doesn’t mean the situation will improve the longer you leave it. In fact the situation gets worse. If your car runs out of gas on the freeway then you have to address the situation. It also creates more problems. It doesn’t matter what other plans you have that day, you immediately stop your plans, walk to the gas station, get gas and then walk back with a heavier load.”

Franklin continues, “Mr. A. didn’t call us until he received a Notice of Default. He had to take immediate action or be faced with the reality of losing his home. We didn’t let him “Run Out Of Gas” and were able to get an offer on Mr. A’s California Loan Modification from the lender in less than 30 days but the Loan Modification approval can take longer. Most of our clients get an offer for a Loan Modification in 30 – 90 days although we have had approvals in less than 30 days as was the case for Mr. A”.

“We are able to help homeowners through the process physically and mentally because all of our loan modification consultants are mature professionals that are homeowners. Our consultants understand what it means to make a monthly mortgage payment. Our consultants know how it feels to be on the verge of losing your home and can assist clients get through the emotional aspect of the situation.”

Franklin concludes, “Homeowners should move quickly because we feel this new law will create a different kind of run on the banks.”

For more information on California loan modification agreements please all Art Franklin, AboutCaliforniaLoanModifcation.com 877 863 5362 or visit their website at www.aboutcalifornialoanmodification.com

Mr A is willing to discuss his situation and can be reached through Art Franklin.

Here’s an idea being pushed by John Taylor, chief executive of the National Community Reinvestment Coalition, which represents local organizations that promote affordable housing and community development. Mr. Taylor wants the U.S. Treasury to buy large numbers of troubled mortgages at a discount to face value and then ease the terms to make them affordable for the borrowers, including in many cases by reducing the principal to something nearer the current value of the home. After it reworks the mortgages into “sustainable” form, the Treasury could then package and sell them to investors, Mr. Taylor says.

He figures the Treasury could start such a program with only a few hundred million dollars and that it should be profitable. Some private firms, such as PennyMac Mortgage Investment Trust, already have similar mortgage-purchase and modification programs, of course. Mr. Taylor says that’s fine but Uncle Sam should get a cut of this action, especially since the government is propping up the entire housing and mortgage market, making it possible for firms like PennyMac to operate.

A Treasury spokeswoman, asked to comment on Mr. Taylor’s proposal, said: “The Administration is always examining new ways to refine existing housing programs, but we have no changes to report at this time.”

One problem with Mr. Taylor’s idea is that the Treasury might not be very good at valuing and modifying home loans. And it might be awkward for the government to be in the position of foreclosing on those borrowers who, it turned out, can’t be saved even with a loan mod. Mr. Taylor says the government could cope with such challenges. For those who can’t keep their homes, he says, there are “graceful” ways to move them out, such as allowing a “short sale” of the home to avoid a foreclosure. (In a short sale, the holder of the mortgage allows the home to be sold for a sum less than the loan balance.)

The Obama administration’s loan-mod campaign–called Home Affordable Modification Program, or HAMP—provides financial incentives for banks and other owners of mortgages to reduce monthly loan payments for borrowers facing the risk of foreclosure. Through November, loan servicers had signed up 728,000 borrowers for trial loan mods; only 31,000 had qualified for a permanent fix. Many borrowers who got a trial mod have been unwilling or unable to provide all the required documents to confirm their financial situation.

“By anyone’s standards, the participation (in HAMP) has been disappointing,” says Mr. Taylor, “so we need a Plan B.”
by: James R. Hagerty

Article Source:Wall Street Journal

But that night an unwanted visitor arrived: a process server delivered papers that ordered Mrs. Bagnarol and her family to get out. The bank had foreclosed on their property, and they were all being evicted.

Emotions exploded. Not now, the family cursed. A sheriff’s deputy was called to keep the peace. Mrs. Bagnarol died a day later.

But the unfortunate timing of the official visit was not the only source of the anger. More troubling were the financial deals that led to the visit — and the decision by lenders to sign Mrs. Bagnarol up for one exotic mortgage after another.

“It’s definitely elder abuse,” said Carolina Bagnarol, her daughter. “There’s predatory lending here.”

Ms. Bagnarol has filed a lawsuit against a lengthy list of lenders she said took advantage of her mother. The loans plunged her mother deeper into debt with each mortgage payment, to the point of financial ruin. The lawsuit contends that Mrs. Bagnarol was pursued and persuaded — twice over — to take out ultimately disastrous loans on the family’s property.

In recent years, 70 percent of the elderly have been solicited to take out new mortgages, according to a survey by AARP.

“Older people seem to be targeted in part because they own their houses and have owned them for a long time and have equity in their houses,” said Jean Constantine-Davis, senior lawyer for the AARP Foundation.

Mrs. Bagnarol was in her late 70s and suffered from the onset of dementia when she signed the loans, family members said.

“This is one of the most egregious cases I’ve ever seen,” said Michael Rooney, the San Francisco lawyer representing the family in the lawsuit. “The terms were so horrible — negative amortization and adjustable rate — no one would believe this loan was good for her.”

The types of loans Mrs. Bagnarol received were popular at the time. Sold under names like Option/ARM and “Pick-a-Payment,” borrowers could make minimum payments that did not cover the entire amount due. The balance was then added back into the loan, increasing the overall debt.

Eventually that debt would come due, creating huge monthly payments that many homeowners could not afford. Critics blame these loans for helping to cause the housing market crash. Lawmakers agree — as of Jan. 1, it is illegal to write this type of loan in California.

Mrs. Bagnarol first bought the property in 1994 for $535,000, her family said, and for most of the intervening 15 years had a conventional 30-year fixed-rate mortgage. As the property’s value skyrocketed in the boom years, she refinanced to take out money for a family business and to build a new main structure.

This eventually led to a $1,365,000 negative amortization loan in 2005. Its low interest rate soon expired, and she refinanced with another $1.5 million loan on Dec. 29, 2006; under its terms, her monthly payments eventually spiked to $14,541.32 from $5,176.81. When Mrs. Bagnarol fell behind, the debt spiraled to $1,640,000 by December 2008.

Family members say that when they tried to pay on behalf of their mother, the bank was uncooperative. Events snowballed into foreclosure, followed by eviction notices. Eight people live at the compound, including Ms. Bagnarol and her three children.

The situation has torn the family apart. It was Mrs. Bagnarol’s son-in-law, Michael Polizzi of Residential Pacific Mortgage in Alamo, who promoted the loans. He bristled at the notion that he had taken advantage of her.

“If Miss Bagnarol is alleging any improper conduct by RPM or by me, those allegations are false,” Mr. Polizzi said, reading a prepared statement after conferring with his lawyer.

Efforts to save the family homestead have been further complicated by changes in bank ownership. The loan started with World Savings, an institution acquired by Wachovia, which itself was bought by Wells Fargo, a bank that had a policy against negative amortization loans, but now finds itself dealing with the debris.

Giuseppa Bagnarol, 82, was in her final hours in August, dying at home surrounded by the large family she presided over as matriarch.

Wells Fargo is paying attention to the Bagnarol case. On Tuesday afternoon it offered a reprieve. Teri Schrettenbrunner, a spokeswoman for Wells Fargo Home Mortgage, said the bank had halted the eviction process “while we work with her mother’s estate to bring the mortgage payments current.”

Carolina Bagnarol, a former business manager for the rock group Journey who is no stranger to vicissitude, is skeptical. But she is grateful that her mother never knew that her homestead was in jeopardy.

Carolina’s brother, Franco, agreed. “It would have killed her sooner,” he said, “and she would have died unhappy.”

Article Source: New York Times
Scott James is an Emmy-winning television journalist and novelist who lives in San Francisco.

Lenders use special codes to let credit bureaus know what customers are borrowing and whether they’re paying on time. When the loan modification program, which lowers mortgage payments for homeowners who are behind in their payments or in danger of imminent default, was announced in February, lenders used an existing code, called AC, to signal that borrowers were participating in the program.

The problem for those borrowers, however, was the fact that the AC code signals that a consumer has made only a partial payment. That often had a significant impact on the scores of borrowers with good credit who had made all of their payments on time. A Treasury Department spokeswoman estimated that their scores could fall from 30 to 100 points, depending on other information in their credit file .

Why use an old code? The AC code was the closest fit, so the Consumer Data Industry Association recommended using it until it could develop a new one.

One Bank of America executive, for instance, confirmed in this recent New York Times article, that it reported borrowers who made timely payments before and after agreeing to loan modifications as making only partial payments. Presumably, the bank used the AC code, which damaged the credit of many borrowers.

But recognizing that participating in the modification program alone need not harm credit scores by default, the trade association, in cooperation with the Treasury Department, developed a new code, which took effect in November. “The administration felt that it was important to ensure that homeowners who faced foreclosure weren’t unfairly punished for seeking a loan modification,” said Meg Reilly, spokeswoman for the Treasury Department.

The new CN code signifies a loan modified under a federal government plan. It will have no impact on credit scores in the near future.

But will it ever? That depends on whether FICO, which creates the most popular credit score formulas for credit bureaus like Equifax, Experian and TransUnion, concludes that its appearance in a credit file is somehow predictive of late bill payments or other bad behavior. For what it’s worth, the old AC code is correlated with delinquencies and such.

“Our first opportunity to study the predictive value of the new CN special comment code will come later this year, after one of the national credit reporting agencies sends us a new sample of consumer credit reports for our use in redeveloping our scoring models used by that agency,” said Craig Watts, a FICO spokesman. As a result, the FICO scoring formula ignores the CN code in the near term.

Still, the new code is separate from current information about whether borrowers are delinquent on their payments or not. So borrowers with the CN code on their records that pay late will still see their credit scores fall.

In addition, the lenders themselves ultimately decide whether to use the new code. That said, industry best practice is to follow the guidelines, because it’s in all lenders’ best interests to have as much information as possible about potential borrowers, said Norm Magnuson, spokesman for the reporting trade association. For instance, a Bank of America spokesman said Monday that the bank is complying with the guidelines.

As a result, the exact impact of a loan modification on a credit score does depend on several factors as outlined here. (Check here for more details on how a person’s credit report information can influence the score and check here for other advice on improving a low credit score.)

As for those who are current on their payments and were in a trial mortgage modification before the new code was adopted in November (and thus got the “AC” black mark), Mr. Magnuson said the guidelines did not address such retroactive status. But Ms. Reilly, the Treasury Department spokeswoman, said the AC code would eventually be dropped for such people.

Ideally, banks themselves will replace the old code that damages credit scores with the new one that doesn’t (yet). If they don’t make the fix, borrowers should call and request it and file disputes with the credit bureaus asking for a correction of credit reports that have the old code.

But shouldn’t people with modified loans who never missed a payment not suffer a credit score decline under any circumstances? Industry experts believe that some mark is necessary. The reason: those getting the modifications in the first place probably pose more risk to future lenders, given that the mortgage modification program was devised to help people whose money problems make them vulnerable to foreclosure. “They are having financial difficulty, so there is some risk involved,” said Mr. Magnuson.

Do you think people getting loan modifications should escape a black mark? Why or why not?

Author: JENNIFER SARANOW SCHULTZ

Capmark filed last week in Maricopa County Court to foreclose on the first phase of the CityNorth project due to default on a $290.5 million loan. Other lenders that provided the loan include Deutsche Hypothekenbank and CSE Mortgage LLC.

Related, Klutznick and a third partner, J.E. Robert Cos., couldn’t refinance the loan when it came due, according to the companies. Those companies will continue to manage the project.

“The foreclosure will result in a restructuring of equity interests … to enable fresh capital to be injected,” Klutznick principal John Klutznick said in a statement. “Day-to-day operations will continue as usual.”

CityNorth’s first phase, called High Street, includes 175,000 square feet of shops, 330,000 square feet of offices and 99 apartments.

The second phase was to include stores of Nordstrom Inc. and Macy’s Inc.’s Bloomingdale’s, but those retailers pulled out when Klutznick failed to attract enough financing. That phase has yet to start construction.

—Kris Hudson
Negative About Networks
One of the big trends in the commercial real-estate brokerage world over the years has been for independent firms in different cities to form client-referral networks. But one of the biggest networks, Colliers International, has now moved in a different direction.

The holders of the 58 real-estate licenses around the world that made up the Colliers network have voted essentially to give control of the 480 offices in the network to FirstService Real Estate Advisors, a unit of FirstService Corp. FirstService owns a controlling stake of many of the firms in the network.

Douglas Frye, Colliers chief executive, says that the network model doesn’t work because members are undercapitalized and not accountable enough to clients. “They’ve not done real well,” he says. “That’s part of what’s driving this.”

Mr. Frye also agrees that these are tough times for brokerage firms because deal activity has declined sharply. “The clients want more services, better integration, higher accountability, better market information and they want all of that for lower fees than they’ve ever paid before,” he says.

—Peter Grant
Suspense Builds
On Builders’ Results
The surprisingly disappointing 16% plunge in the index for pending sales of previously owned homes announced Tuesday has left investors crossing their fingers about the coming release of quarterly earnings by home builders.

There is some reason for optimism. Buyers, long frozen on the sidelines, have been tempted by low interest rates, reduced prices and a tax credit. But unemployment and a limping economy continue to pose threats.

The first report of the new year comes Thursday with Lennar Corp. Credit Suisse analyst Dan Oppenheim is projecting a 12% decrease in orders from the fourth quarter of 2008.

Still the company has been successful in cutting costs, he notes. “We would not be surprised to see Lennar reach operating profitability (ex-charges),” he said in a research report.

—Dawn Wotapka

Article Source: Wall Street Journal