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A mother is urged to think twice before cashing out her children's accumulated savings bonds.

How the card issuer reports the card to the credit bureaus determines the effect.

The Obama administration has announced a new program to help borrowers with second mortgages stay out of foreclosure. Under this program, the government will pay mortgage servicers $500 upfront and $250 a year for three years if they successfully modify a second mortgage, such as a home equity loan.

The Treasury Department says second mortgages are a major problem for at risk and foreclosed properties.  These  mortgages have created significant challenges for borrowers avoid foreclosure. This is because borrowers trying to get their primary mortgage modified also need the permission of the company holding the second mortgage. According to the AP:

The administration initiative, funded out of $50 billion in financial rescue money, relies on a series of payments to mortgage companies as an incentive to modify second loans at lower interest rates. Mortgage companies would get $500 upfront for each modified loan, plus $250 a year for three years as long as the borrower doesn’t default.

Under the new plan:

• Lenders will get $500 upfront for each modified loan, plus $250 a year for three years as long as the borrower doesn’t default.
• Borrowers could get up to $1,000 applied to the principal balance of their primary mortgage over five years. , The government would pick up part of investors’ costs as well.
• Lenders would be given the ability to remove second mortgages entirely in exchange for larger government payouts.

A senior administration official told Reuters:

“The second lien holder, as is appropriate in the junior position, is taking more of a reduction in interest rate,” one official said. “The interest rate will go at least as low as the interest rate on the first and it will (fall) much further to get there.”

See also:

• US Govt Unveils New Mortgage Modification Incentives (WSJ)
  

• Obama administration expands housing aid plan (AP)
  

• Treasury Announces Plan Aiding Holders of Second Mortgages (Bloomberg)
  

• Treasury has new mortgage incentives: official (Reuters)
  

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

It isn’t easy being Bank of America these days. The bank had previously thought to be in decent standing up until it acquired struggling firm Merrill Lynch, and since that point things have been..well…awful. The flow of bad press has been non-stop, between Merrill Lynch’s crumbling balance sheet, questionable bonuses, and giving former Executive John Thain the axe, the firm simply can’t escape the ongoing drama. Yet let’s not forget BofA’s other acquisition during the whole financial fiasco, and that’s Countrywide, which recently officially ended its existence as Bank of America “rebranded” the company.

The reasons for the change should be fairly obvious. Countrywide was a great place to be just a few year prior, operating as the nation’s biggest home lender and highly regarded in the industry. Unfortunately, when the existence of increasingly toxic assets was fully revealed, Countrywide was sitting on the biggest waste dump. As a result, the company has been closely associated with housing’s collapse and known for lending out foolishly amid huge paydays for Angelo R. Mozilo (the firm’s cofounder) and FBI investigations. I don’t know about you, but that probably doesn’t reflect well on Bank of America, which has had enough image problems already.

The new firm will be called Bank of America Home Loans, and the marketing campaign involves a new consumer disclosure. The idea is that the firm will let applicants see exactly what their potential mortgage costs are. The statement, called a “Clarity Commitment” includes end-game scenarios for adjustable loans and takes into account data from surveys of about 5,000 customers. I can’t help feel like the whole thing is too little too late for most homeowners, but it is still a step in the right direction.

The question now becomes whether retiring Countrywide will finally put the firm’s terrible image to rest, and whether consumers will be willing to put at least some measure of trust in Bank of America Home Loans. The “Clarity” statement along with other efforts aim to help potential homeowners take advantage of historically low rates while projecting the image of a responsible lender out to create homeowners that can..well…stay in their homes. What do you think? Are we willing to accept Bank of America is a reformed, responsible lender?

It's time to empty the mailbox and post some reader comments.

Make sure you understand the pros and cons of buying municipal bonds before taking the plunge.

Depreciation recapture on the sale of real property can be offset by capital losses.

Even if it's a family member who ruined your credit, you may have to claim fraud to help yourself.

The FraudBlogger Index climbed to 1427 during the first quarter of 2009, double what it was in the first quarter last year. Already in April a federal grand jury has indicted four individuals as part of a massive “Dream Homes” mortgage fraud scheme and 24 individuals in a Racketeering Influenced and Corrupt Organizations Act (RICO) conspiracy in a mortgage fraud scheme based in San Diego, CA.  At the same time, Congress is looking to extend federal fraud laws to cover mortgage businesses and increase funding for mortgage fraud investigations.

Looking back at the quarter that was

The bad news is that is double the amount of fraud activity seen during the first quarter of 2008, according to MortgageDaily.com. The good news is that fraud activity actually declined by nearly half (49 percent) compared to the previous quarter. More than $1.5 billion in mortgage fraud cases were tracked at some point during the first three months of 2009.

Around $300 million in open fraud activity helped push Utah’s state index higher than any other state in the nation during the quarter. Rounding out the top five were Texas, Florida, Pennsylvania and Minnesota. Utah also led the nation by dollar amount of mortgage fraud   followed by Florida, Utah, Minnesota, Pennsylvania and New York.

Among the notable fraud cases brought during the first quarter were:

• A California mortgage broker who originated $1 billion in fraudulent loans throughout six states. When he was caught at the Canadian border, he had $70,000 stuffed into his boots.
• Another California broker allegedly use the social security numbers of 25 children.
• In Maryland, one mortgage broker us the proceeds from more than $30 million in fraudulent loans to pay for her $800,000 wedding.
• A bank vice president in Minnesota pled guilty to forging her husband’s name on a $200,000 mortgage.
• In Texas, a woman was sentenced to 99 years in prison for her role leading a $3 million scheme. Other family members including he husband, sister and daughter have also been indicted.
• A city councilman in Pennsylvania pled guilty to helping his daughter commit fraud.
• An executive of the Federal Deposit Insurance Corporation (FDIC) recently testified that one straw buyer was given a suitcase containing $10,000 cash in exchange for closing on an IndyMac loan.

A new quarter begins

Although the number of fraud cases declined during the start of 2009, this does not mean   law enforcement and investigators are not vigorously pursuing mortgage fraud cases. In fact, the U.S. Department of the Treasury, the U.S. Department of Justice, the Department of Housing and Urban Development, the Federal Trade Commission (FTC) and the Attorney General of Illinois announced a new multi-agency crackdown on mortgage loan modification fraud and foreclosure rescue scams in early April. The new effort will align responses from federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities and the private sector to protect homeowners from predatory schemes and criminal fraud.

“The Criminal Division and the U.S. Attorney’s Offices are jointly committed to redoubling our efforts to uncover and prosecute fraud and abuse in all facets of the housing market – a market upon which so many American families have pinned their hopes and their futures for so many years,” said Lanny A. Breuer, Assistant Attorney General of the  Criminal Division. “I want to assure the American public that we will not rest until the tide of this criminal activity is turned.”

Within days of the announcement, 24 individuals were charged in San Diego with racketeering for allegedly participating in a mortgage fraud scheme that involved 220 properties with a total sales price exceeding $100 million. The indictment alleges that the defendants devised a scheme to defraud mortgage lenders and to obtain money and property by false and fraudulent means. Darnell Bell, the alleged leader of the group, is said to have received at least $9 million from the scheme while Stanley Gentry, a licensed real estate broker who facilitated the fraudulent purchase of property in exchange for a monthly payment of $10,000. Several real estate businesses, including the Ivy House, Inc., the Real Estate Center of Southern California, and the Real Estate Center of La Mesa, were allegedly used by the group to purchase real estate between January 2005 and April 2008 or even more recently.

“This indictment represents the largest mortgage fraud case ever prosecuted in the history of the Southern District of California,” said U.S. Attorney Karen P. Hewitt. “Although this case marks an important milestone for the U.S. Attorney’s Office, the FBI and the IRS, we have much additional investigative work ahead of us to hold accountable those individuals who engaged in similar mortgage fraud schemes throughout San Diego and Imperial counties.”

More recently, on April 22, four individuals were indicted and information was filed against a fifth person for their part in a purported mortgage payment program called the “Dream Homes Program.” According to the indictment, from 2005 to 2007 more than 1,000 investors invested approximately $70 million  with the defendants under such corporate names are “Metropolitan Grapevine LLC”, “Metro Dream Homes” and “POS DH LLC”. The indictment also seeks forfeiture of the fraud proceeds, including the $70 million. The prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C. and Northern Virginia.

“The indictment alleges that the defendant used slick marketing to conceal empty promises,” explained U.S. Attorney Rod J. Rosenstein. “They convinced many victims to invest at least $50,000 by refinancing their existing homes or buying new homes at inflated prices, while claiming that Metro Dream Homes would repay the mortgages with revenue from profitable businesses. The indictment alleges that there was no revenue to pay the mortgage payments. Instead, the conspirators used some of the investors’ money to repay earlier investors in the Ponzi scheme and spent the remainder on themselves.”

It should be noted that indictments are not findings of guilt. All defendants in these cases are innocent until proven guilty in a court of law.

‘The individuals charges in this indictment have one thing in common: greed,” said FBI Special Agent-in-Charge Keith Slotter, regarding the San Diego case. “They represent precisely those who have undermined our country’s financial system perpetuating such egregarious schemes. The FBI and our law enforcement partners remain vigilant and will pursue those who engage in this type of criminal activity. The extent to which this groups of people went to defraud lenders should also serve as a warning to the public. We urge people to come forward with information of suspicious activities they may encounter when engaged in real estate and mortgage transactions.”

Funding future investigations and prosecutions

Reuters reports that the U.S. Senate is closer to extending federal fraud laws to cover mortgage lending businesses and provide more funding to federal agencies pursuing mortgage fraud investigations. The Senate bill would also create an independent commission charged with investigating the cause or causes of the current economic crisis. There is a similar bill pending in the U.S. House. To become law both houses of Congress must agree on a final version of the bill which is then presented to the president for his signature.

Senator Charles Schumer (D-NY) is also calling on the federal government to help  district attorneys across the country fight mortgage fraud. The New York Times reports Sen. Schumer is seeking federal grants totaling approximately $100 million and earmarked for the investigation and prosecution of mortgage fraud at the local level. The grants would help district attorney offices demonstrating a need for increased resources to combat mortgage scams hire specialized staff including investigators, forensic accountants and attorneys. The fighting Real Estate Fraud Act of 2009 would also create Real Estate Fraud Units that would focus exclusively on real estate crimes.

“Housing scams are a nationwide solution,” Sen. Schumer said. “Homeowners in New York and across the country have suffered for too long because of scam artists who feel they can take advantage of people without any repercussions. These fraud units will help protect homeowners from these criminals and ensure that rather than walking away from their crimes, they are prosecuted to the fullest extent of the law.”

The costs associated with buying down a loan may put the brakes on a mortgage refinance.