For years when Homebanc sent a loan package to a closing attorney they also sent the check to fund the loan. So last week when loan packages and checks were sent to closing attorneys it was somewhat business as usual with the exception that the attorney’s knew that Homebanc was not going to originate anymore loans. Closings took place, sellers loans were paid off, funds were dispersed to all applicable parties and then the fun begins. The checks to fund these closings were not honored, or in other words they bounced. Then all of a sudden Homebanc files for bankruptcy protection, leaving the closing attorney’s holding the bag, an empty bag in this situation, of funding loans that Homebanc originated. Homebanc has indicated that they intend to service the loans in their portfolio. Since Homebanc did not fund these particular loans, wouldn’t it make sense to allow the closing attorney’s that are effected the opportunity to service the loans that they ended up funding?
Fortunately not all closing attorney’s in Metro Atlanta got hit with this not too pleasant surprise. However, the ramifications for anyone buying and selling real estate may be felt for years to come. This situation lends itself as a catalyst for creating changes in the way closing attorney’s do business. They may very well only accept wire transfers or certified funds from lenders, buyers and sellers.
I guess it should not be a surprise, with all the other news about Homebanc this week, but according to the Atlanta Business Cronicle Homebanc Mortgage has filed for bankruptcy protection. Can there be anything else happening with Homebanc, I hope not. There were alot of very nice people that worked there and are now looking for work in a depressed industry. I wish them all well.
The first area checked for escrow account questions was the RESPA (Real Estate Settlement and Procedures Act) FAQ section of the Department of Housing and Developement website. Section 10 deals with escrow accounts. What we find here is the recommendation that if taxes and insurance are not paid by your lender, the government suggests that you hire an attorney.
Contact was made with Rick Tangum of The Georgia Department of Banking and Finance. While he did not think that there was reason to be overly concerned Mr. Tangum did offer a suggestion. If you are concerned about your lender paying your taxes and insurance you can request that the escrow account be cancelled and assume the responsibility yourself. This would be a viable alternative provided that you have met the proper equity percentage required by FHA, Fannie Mae or Freedie Mac; depending on which entity regulated your mortgage to start with.
What we can deduct from all of this is that your escrow account is not insured no matter how solvent or insolvent your mortgage company is.
It was announced by the Atlanta Journal and Constitution that as of Tuesday Homebanc Mortgage would no longer originate loans due to not being able to fund the loans by drawing on their line of credit. Homebanc is to continue servicing the current portfolio of existing mortgages with Countrywide Home Loans taking over new business.
With Homebanc continuing to service it’s existing loans this question comes to mind; Is there any guarantee, like FDIC, for escrow accounts that pay the taxes and insurance for the homeowners with these Homebanc Mortgages? I guess some research is going to have to be done. As soon as information can be obtained it will be posted here in a follow up article.
Congress has passed legislation allowing mortgage insurance to be tax deductable for the 2007 calender year. This can have a very positive effect on home buying power, especially for first time and lower income buyers. Originator Times has an excellent write up about this new law.