Mortgage & Debt Relief Info

Shorting on Wall Street

2010-05-09T08:23:00.007-04:00

Imagine taking over the payments of a life insurance policy from a senior and also making yourself the beneficiary in the process. After all, your elderly friend doesn't need the policy anymore and he certainly doesn't need the monthly bill.

The benefit to you is that when he dies, and you're sort of betting that he will sooner rather than later, you will collect on his/her policy. This practice is called "life settlements" and is illegal in almost every state in the county. However, the practice is strikingly similar to the kind of betting practiced on Wall Street called "shorting".

Shorting is when an investor's interest in a particular security instrument is in the short term rather than in the long haul. If in the above example, you knew the old guy would live for decades after taking over his policy, you probably would be less attracted to the investment. However, if you had a strong expectation that his time is limited, the promise of that lump sum policy pay-out would perhaps interest you to take a short position on the investment. When he dies, you get paid.

Derivatives as we've heard them called in the news or Credit Default Swaps (CDS) are essentially short positions like in the above example. Derivatives insure questionable securities against default. Typically if a security has an excellent rating, such as AAA+ the expectation that it will perform well into maturity is assumed and the need for the pricey default insurance is not desired. When mortgage-backed securities fail and foreclosure ensues, the investor holding the insuring swap on that risky grade security is made wealthy.

In the recent Securities Exchange Commission (S.E.C.) fraud case against Goldman Sachs, a "short" investor helped select a pool of mortgage-backed-securities that he eyed to fail because he was a beneficiary of sort. Except the S.E.C. argues Goldman didn't tell their investors that this background individual was betting that the pool would fail.

It raises a legal and ethical question about what disclosures should be made to an investor making a securities transaction. Do you as an investor have the right to know that someone is betting against the portfolio being offered to you? In this case, the S.E.C only alleges the proper disclosure information was not made on "marketing material", which seems like a weak case.

What is strikingly odd about the Goldman case, is that their investors who were allegedly fooled, were sophisticated bankers who understood the type of low grade securities they purchased. They also have had to know that those low grade bonds are routinely "shorted" because of their high risk and low expectation of performance.

In fact, the junk bond market, according to the Wall Street Journal the Junk-Bond market is a 30+ billion dollar a month industry. Derivatives are routinely tied to junk bonds more so than the agency conforming paper that performs quite well most of the times.

The ratings on the fund-pool offered to Goldman's investors was BBB which spells "imminent disaster". Goldman's investors obviously gambled on that catastrophic disaster arriving later rather than sooner and the short investor obviously hoped the securities would fail much sooner rather than later. There was no question as to failier, the gamble was on the when.

Conventional wisdom would tell you the opposite of a short position is a long position. But in the Goldman case, it seems every one's expectation was in the short term. No one expected hat these doomed mortgages would perform for their 30 year term. What investors seeking high risk typically do on the so-called "long" side, is that they hold the mortgages for a short period of time and sell them for a profit to another investor willing to take the risk.

A 30+ billion dollar a month junk bond industry strongly suggests that there is no shortage of risk takers and casino-like gambling on Wall Street.

FILING CHAPTER 13 WITHOUT AN ATTORNEY

2010-05-08T19:29:00.000-04:00

FILING CHAPTER 13 WITHOUT AN ATTORNEY

WALL STREET BETTING: IN SHORT & LONG

2010-04-22T11:37:00.009-04:00

The Goldman Sachs so called fraud case filed by the S.E.C. helped bring a very thin layer of understanding to what goes on behind the scenes on Wall Street. It's called betting. At least the average person calls it so, but if your bets are made within Wall Street, the word is hedging.

Hedge funds take high roll casino like chances with billions of dollars that straddle both sides of financial risk taking. If a catastrophe is avoided, money is made and if a catastrophe occurs, money is made. Covering both sides has another word we're coming to hear more of. It's called leveraging.

We've heard words like derivatives and credit default swaps (CDS), which are pseudo-insurance policies that pay billions when borrowers stop paying their mortgage. When the mortgages default, derivatives kick in and someone becomes astronomically wealthy...once again.

Other words like collateralized debt obligations (CDO's), mortgage-backed securities (MBS), and triple-B or triple-A rated bonds are now much more familiar concepts making us even more conversant about these mortgage and financial times.

But perhaps at the core of these casino-like bets is the "short & long" position of risk taking. We know what "long" means. If you ever sat with a financial planner, those mutual bonds they sold you were long because they had the expectation of maturing and performing over the long haul.

But wait a minute. What if you are on the traditional long side and your financial planner still has a reasonable expectation that an adverse event will diminish your investments?

If your financial planner told you, "these bond funds are not the greatest so we have to sell them before they begin to tank". What would you do? Some may say, hold them just long enough to make money but sell them before it's too late. That's exactly what investors do with the less desirables.

This short term expectation changes things. Goldman is more loosely accused of not telling their investors that someone in the background had a more rigidly "short" expectation.

Clearly defining short & long may not be the focus behind Obama's reform push. It's certainly the main ingredient behind the Goldman Sachs controversy.

Goldman's investors had no expectation that they would hold those triple-B (low-grade) securities until maturity. It simply defies logic. The triple-B fund pool was on its face too risky for any appreciable expectation of longevity. The investors knew that it would simply be a matter of time before those triple-B tranches begin to cascade.

In fact, those risky type of securities get sold and resold multiple times and within a relatively short period of time. They're sold on the long side, with the anticipation that there is a not so long window for performance.

It's a game within a game. A game of hot potato within the game of hedging and ultimately someone is caught holding the proverbial bag. There comes a point when those triple-B's can't be sold anymore because the default curve is either too high or simply catastrophic.

If safety and longevity is what those Goldman investors desired, triple-A bonds would be more fitting. But they specifically chose triple-B securities which supports the idea that they also had short expectations.

I doubt we'll even hear the resolution of this case. The SEC's filing of the lawsuit is dramatically symbolic on its own. It resonates with what people perceive and that is that something needs to be done about Wall Street. Exactly what should be done is another question. A dissertation of what's in the SEC lawsuit may not have the populists attention right now.

Both the right and left side of the political spectrum have little sympathy for Wall Street. In fact, House and Senate republicans have recently quailed their health care reform-like opposition to the financial reform push, because of overwhelming public opinion sustained against Wall Street.

WHERE IS THE SEC's CASE AGAINST GOLDMAN SACHS?

2010-04-19T14:54:00.007-04:00

Should Goldman Sachs Really Be Worried? (Find the Link to the SEC's Full Complaint Below!)

The SEC's case against the financial giant Goldman, Sachs & Co. is questionable at best. The SEC complaint does not have the prosecutorial teeth you would come to expect from the U.S Gov't.

The Gov't's case: Goldman failed to disclose that a hedge fund manager, Paulson & Co., bet against the same mortgage securities Goldman had offered to its own investors. It's also alleged that Goldman conceiled that these highly risky securities were essentially cherry-picked for Paulson specifically for their promise to fail.

Failed mortgage securities that are insured by derivatives or (Credit-default swaps) pay highly speculative big money. In this case, Paulson's share was $1 billion.

The problem with the Gov't's case seems two-fold. The securites in question were Triple-B rated, which is the lowest-riskiest-junkiest type of security bond available on Wall Street. There's no controversy over the low-grade nature of the bonds. There's no allegation regarding the performing expectations of these highly risky mortgage securites.

The complaint does not specifically allege that investors should have had better disclosure about the risky nature of the securities themselves. The very triple-B nature of the securities was apparently "buyer beware" enough.

The second problem with the SEC's case is that although the Gov't alleges to have jurisdiction, the dispute solely hinges upon representations Goldman made on "marketing material". Really? Marketing material? Highly skilled and knowledgeable portfolio managers were fooled by brochures?

The SEC does not regulate "marketing material" do they? They regulate the exchange of securities hence their title, and no said securities exchange is expressly alleged in the complaint to have been illegally conceived. Instead the Gov't's emphasis is mainly on the obscurity of this Paulson fellow during the structuring of this massive deal.

Paulson, who purchased the derivative insurance against the fund's default, was not identified to investors as a participant in the fund's selection process. The SEC alludes to the notion that investors may not have participated with the highly risky fund if they knew Paulson had a contradictory short position.

That is highly speculative since investors take short positions on risky mortgage-backed securities all the time. It wouldn't make much sence to short a triple-A security because the derivative profit is in its failure. Agency conforming borrowers have good credit and plenty equity, they fully income qualify for their home loan and their paper performs well most of the times.

There's a much greater probability that the junkiest triple-B securities will fail so it makes more sence to short those. The probability of the AAA good stuff failing, not so much.

http://www.sec.gov/litigation/complaints/2010/comp-pr2010-59.pdf

Connecticut Sues Moody’s, S&P Over Subprime Ratings (Update3) - Bloomberg.com

2010-03-14T18:14:00.000-04:00

Connecticut Sues Moody’s, S&P Over Subprime Ratings (Update3) - Bloomberg.com

DO I NEED AN ATTORNEY TO MODIFY MY LOAN?

2010-01-31T09:38:00.003-05:00

You absolutely do not need an attorney to request a loan modification. In fact you lender would prefer that you don't have one. Why? Your lender is the only party that can voluntarily modify your loan. An attorney can send a modification request to your lender just like you can, except the attorney will charge you a lot of money for doing so.

It may be helpful to hire a document preparation service that can draft the correspondence for you if you have difficulty with the necessary language. A document preparation service (www.DocsToWork.com) will only charge a small fraction of what an attorney will charge to help you. You can expect to pay about $100 dollars for document preparation services in connection with a loan modification request.

The lender does not shake when they see a modification request prepared by an attorney and many lawfirms or "loan modification companies" market their services as an assured bridge between you and a much lower payment. The lender is not going to say "let's settle this one" like the old Jacoby & Meyers commercials that dramatized the moment the insurance company receives a demand letter from the world renown law firm. You lender will honor a scensible request prepared by you, their customer, as long as it is written, well thought out, and demonstrates good faith on your part.

CHAPTER 13/ Federal Debt Consolidation: Out of Reach by Attorney Fees?

2010-01-27T11:02:00.003-05:00

Chapter 13 is the Federal Government's version of debt consolidation. It's filed in Bankruptcy Court and it works by shrinking all your bills into one payment (not just credit cards). Many that need debt relief under Chapter 13 and have discussed their case with an attorney, realize that although federal debt consolidation is widely available, the "up-front" cash needed for attorney fees to prepare and file the plan in Court may not be.

Attorneys can charge an average of $4500 to file a Chpater 13 debt consolidation plan, which raises the question: Do attorneys make Chapter 13 Debt Consolidation out of reach? An inexpensive but yet effective alternative to hiring an attorney, is using a non-attorney bankruptcy preparation service, www.DocsToWork.com.

What an attorney will not confess is that Bankruptcy Court does not require an attorney to approve your new monthly payment plan. Bankruptcy Court will accept your petition made on your own behalf, so long as it is compliant.

MY LOAN WAS SOLD.. WILL THAT AFFECT MY LOAN MODIFICATION?

2010-01-01T10:59:00.006-05:00

Loans being sold is the reality of lending today. This occurs because most lenders actually don't have a vault of money from which to lend you money from. Most lenders simply have "wharehouse credit lines" which are essentially high limit credit cards in the multiple millions. They fund your new loan by charging it to their wharehouse line until the loan is actually sold to a much larger investment banking organization.

The investment buyer, usually Bank of America, Chase, Wells Fargo, or Citicorp, can hold your loan for a much longer period of time because of their robust liquidity. The main reason lenders sell loans off their wharehouse line is because their wharehouse credit line is limited, just like the space on your credit card has a limit. Holding a loan too long limits the average lender's line and eats up their capacity to fund new loans. Selling the loan also gives the investment banker buying the loan a security instrument that can be traded as an investment vehicle on Wall Street.

You should keep this in mind when speaking with your lender who in all likelyhood is really actually not holding your loan at all. The lender's name that appears on your monthly statement is actually called the "servicer" of the loan. They are the ones that report the status of your loan to the credit bureaus, provide customer service, collect and post the payments to the account and let's not forget, handle your loan modification request.

There is actually an unseen investment community receiving the interest benefit of your payments. This investment community is more like a complicated nexus of junior and senior ranking investors, all who are positioned in a food chain of sort to get their share of the revenue that's generated from your monthly payments. It's your lender's (servicer) job to communicate with the investor community to rework your terms. Also keep in mind that they probably have not hired additional staff to do this for you. In fact they may even have laid off a bunch of workers because of the state of the economy.

Remember, after your loan closed, it was packaged up, bundled, pooled and in many instances, sliced up into hundreds of pieces and sold off. Your loan is probably in a thousand different pieces all over the world. This does not mean that you cannot have your loan modified but the details of reworking a product that has already been rationed, distributed and sold is arduous so be patient and know that getting a resoultion can take months. The good news is that lenders have working arrangements with the investor community due to the high volume of loan modification requests.

Do I Need an Attorney to Modify My Loan?

You absolutely do not require an attorney to request a loan modification. In fact you lender would prefer that you don't have one. Why? Your lender is the only party that can voluntarily modify your loan. An attorney can send a modification request to your lender just like you can, except the attorney will charge you a lot of money for doing so. It may be helpful to hire a document preparation service that can draft the correspondence for you if you have difficulty with the necessary language. A document preparation service will only charge a small fraction of what the associated legal costs are. You can expect to pay about $100 dollars for document preparation services in connection with a loan modification.

The lender does not shake when they see a modification request prepared by an attorney and many lawfirms or "loan modification companies" market their services as an assured bridge between you and a much lower payment. The lender is not going to say "let's settle this one" like the old Jacoby & Meyers commercials that dramatized the moment the insurance company receives a demand letter from the world renown law firm. You lender will honor a scensible request prepared by you, their customer, as long as it is written, well thought out, and demonstrates good faith on your part.

SOLUTION TO UNEMPLOYMENT? RAISE INTEREST RATES, NOT GOV'T

2009-12-13T19:57:00.014-05:00

So what's the solution to this recession? Not the technical recession, which according to most economists has ended, due to the small expansion of the GDP and the slowdown in job loss. Ok, I buy the argument that 12 months ago, the question was "great depression"? and today it's "is recovery quick enough"? However, despite the recognition that technically the economy is very slowly making a turn-around, too many people are out of work for that so-called turnaround to make an appreciable difference, especially if you're out of work.

Employers are simply not hiring and small business, who by the way are our biggest employers, are simply not getting the capital they need to expand even in instances when they can demonstrate that they are a great risk. The problem is not that banks don't have capital to lend small businesses, even though 133 banks have went out of business this year alone. The problem is more so the capital itself.. that is the greenback... the dollar. It seems that banks are simply not that turned on by the dollar to take wholesale and categorical lending risks on small businesses. The dollar is in fact attractive to buyers of the American currency, since it's so cheap and can be purchased even cheaper as the US continues it's money printing spree. The dollar is not so sexy for lenders that fear marginal back-end profits due to a poor U.S. currency exchange rate.

The Federal Target Rate, that is the interest rate the Federal Reserve charges banks to borrow its dollar is at almost 0%. 0.25% the be exact. The reason the Feds lowered the bank lending rate was to somehow stimulate the economy. The thought was that if lending were cheap then banks will borrow more and lend more. Makes sence but it hasn't quite played out that way. Yes, lending is cheap but the lending has primarily been pretty active with mortgages. Despite the cries about how it's so hard to get a loan, in today's economy, you can obtain a gov't backed mortgage with a 550 credit score and very little down payment or equity. Even though mortgage debt makes up about 12% of our American consumer debt, the focus on stimulating the economy through home purchases and refinancing hasn't been as fruitful in jumpstarting the economy as the Federal Reserve had intended. We still have a pretty bad unemployment problem, despite the official declaration of the end of the recession.

So what is the solution? It's not very popular but RAISE INTEREST RATES! Raise the Federal Target rate and make it more expensive to borrow American money. I believe that this will in fact adversely affect the mortgage refinance market much more than it will the home purchase market since refinancers are motivated by the lowest possible rate and home buyers really just want a nice home they can afford. Remember, the bank-to-bank lending rate is almost 0% and it's done very little to date for unemployment.

What industry is desperate for capital and will likely pay a higher premium to access that capital? Of course, small businesses. Small business will pay more money to borrow money because frankly, they need it most. Why create more deficite spending for small business initiatives when the problem can be solved in the free market. If the Feds raise the lending rate, it also affects the exchange rate so you get more bang when you buy into the buck. The IMF (International Monetary Fund) does a similar practice with impoverished nations. The IMF has been criticized for adding to a countries misery, by extending poor nations astronomically high interest rate loans. However, the method to the madness is to attract capital into that impoverished country through an influx of currency investors seeking big gains from a high exchange. The influx of capital encourages lending and lending circulates cash.

The reality is that banks would much rather rent you a higher priced dollar than a cheaper one because they make so much more money on the exchange. The problem is finding that consumer that is willing to pay the much higher price to borrow that money and small businesses seem to be a pretty good fit.

Is Credit on Your Mind?

2009-11-14T07:55:00.006-05:00

Credit may be on your mind for a number of different reasons. You may want to raise your credit score, remove damaging credit information, polish up your credit if you're thinking of buying a home, purchase auto insurance, or maybe you've been denied a job because of credit information you weren't aware of. Credit is even a strong consideration for couples thinking of someday getting married and in a peculiar way, is the populist screening tool of choice. If your credit has you on the outside looking in, or if even if you think it's fine, here is some information you should know.

The economic crisis has not only reduced the pool of people that qualify for credit, it has also reduced the availability of credit for people that in fact have excellent credit. How? If you have a tall credit line on a credit card that you keep open just in case you may need it someday, you should check to make sure your tall skyscraper credit line has not become a 5 story walk-up. Banks are abruptly reducing unused portions of your credit limit regardless of your credit history, simply to make funds available in this tight lending market. As more and more banks go bankrupt, over 100 deposit instituions gone in 2009, banks find sources from which to borrow from scarce.

Since credit card companies communicate with one another, as one credit card goes, the others follow. None of them want to be left holding the proverbial bag. If a lender knows that your other cards reduced your credit line, it will do the same because no credit card wants to find itself being your single access to tall credit. So, your excellent FICO score has now become an average FICO score because in reducing your credit limit, the ratio of your balances to credit limit is not as sexy.

The credit bureaus figure your score, in part, by the amount of credit you have available against the amount of credit you actually use. The more credit you use (max-out your card) the lower your credit score will be, regarless if you pay on time. Most people with excellent credit scores above 740, utilize less than 25% of their credit limit month to month.

If you have an outburst of anger and request that they close your card after betraying you, unfortunately this will lower your credit score even more, because you would be removing an open "tradeline" in good standing from the algorithm that the credit bureaus use to score you. Part of the reason your credit (FICO) score was so high was because you received little shiny stars for keeping the account in excellent standing over the years and if you close it, the credit bureaus will essentially strip you of those little shinny stars you earned. So in this instance, you may still have "good credit" from a payment history perspective, but you may no longer have an impressive credit score, which unfortunately would be a result of no fault of your own.

For those of you seeking to repair your credit, you should know that credit repair is free if you do it yourself. You should start by obtaining a free copy of your credit report at http://www.annualcreditreport.com/. They will try to solicite you to obtain your credit (FICO) scores, but I recommend you decline that option because that's not going to help you much and your free report will no longer be so free. There are also a number of different scoring models that are applied so you never know which one a prospective creditor may use. Besides, getting your score is not as important as the information on your credit that creates your score.

If you simply seek to raise your credit score and you already know what your score is, you can start by paying down your credit card balances to below 30% of the limit, if at all possible. You can also open a secured credit card if you need some credit points to qualify for a particular loan program, like an FHA or Ginnie Mae loan. A secured credit card can raise your score 10 to 30 points once the account posts to your credit report, depending on other factors. This may not likely work if you are seeking to bring your score into the high 600's or 700's but if your score is in the 500's, you'll see more movement with a secured card.

Disputing information on your credit for free will involve writting letters to the credit bureaus and your creditors, and being very specific about what you need. Pay close attention to collection accounts, charge-offs, paid balances incorrectly reporting as delinquent, and any other information that you do not recognize. Submitting dispute letters with the bureaus over reported late payments, especially on older accounts, may be fruitful as creditors can often neglect to respond to disputes filed with the credit bureuas. It's also not uncommon that credit information pertaining to someone else gets erroneously plugged onto your credit report, especially if you have a common name like Jose Gonzalez. (Sorry Jose).

Requesting a Loan Modification

2009-11-06T17:30:00.005-05:00

When requesting a loan modification from you lender, you should be very specific about what you are looking for and why your loan should get modified. You should absolutely make your modification request in writing and do not accept any final determination from your lender verbally or over the phone. Calling up your lender and saying "I would like to modify my loan" may not suffice. Keep in mind, modifying your loan is not a profitable venture for your lender so they are not likely to hire a staff to accomodate the increasing number of modification requests. A modification is a loss mitigation practice or damage control and the person that so happended to take your call, may not be incentivised to help you. So the more specific and orderly you can be the better chances you have of floating your request to the proper administrator that can make a decision.

I have heard countless times over, homeowners complain that the lender told them they can't do anything. The most popular reason of declination given verbally over the phone by a lender is "you must be behind on your mortgage before we can help you". It is very true that lenders commonly give homeowners this reason as a basis for a denial, but the reality is that the lender will not issue such a reason for declining a modification in writng. In most instances, that type of a denial is a result of an underpaid and under-experienced employee effectively getting you off the phone. Your modification request should be well thought out, written and delivered to the lender in the mail. They must reply to your correspondence in like fashion.

Specific requests that you can make really depend on your situation. For example, if you are in an adjustable rate mortgage and can no longer afford the mortgage payment because your payment keeps going up, you can ask the lender to permanently fix your interest rate at a rate that you can afford. Take for example, if your interest rate is currenlty 8%, you can request that the lender reduce that rate to 5% and make it fixed. Obviously lowering your interest rate would lower your monthly payment.

If you are seeking a modification because you were laid off and do expect to be working again in a few months, you can request a temporary modification. For example, you can request that your lender modify your payment to interest only for a certain period of time, such as 2 years for example. Depending on the size of your mortgage, converting your payment to interest only can dramatically lower your payment. On a smaller loan balance, an interest only payment would not make much of a difference than your regular principle & interest payment. For example, a 30 year loan of $200,000 at the rate of 8% would have a principle & interest payment of $1467. An interest only payment on the same loan amount of $200,000 would be $1333, which is a difference of only $134. A much larger loan balance, let's say of $400,000 at the rate of 8% has a principle & interest payment of $2935. An interest only payment for that same $400,000 loan at the same rate of 8% would be $2666. That would be a difference of $268.

Another option you can request is a deferred interest option. This simply means that the lender can actually lower your payment to an amount that is even lower than the minimum amount of interest owed for the month. A deferred interest rate could reduce your payment to a payment equivalent to the rate to 3% or even 2%. For example if you have a rate of 8% and defer interest due so that your new payment is equivallent to a loan with a payment with a rate of 3%, you are deferring a portion of the interest due every month. You propose to pay the deferred interest amount as part of the loan balance and once your financial situation changes. The lender will like to hear that you have a solid plan and intend to repay any amount outstanding. A lender may agree to such a payment if there is otherwise no potential for them to currently receive a normal payment from you. In their eyes, a smaller payment is much better than no payment at all especially if it's only for a short period of time. If you can show in good faith that your income will rebounce once again, this may be a very attractive alternative for them to avoid the costly process of a foreclosure.

Pushing delinquent payments to the back is probably the most popular consideration today. The problem with this is that lenders realize it may be too popular and homeowners may be too quick to ask for such an arrangement. Many homeowners that are facing foreclosure ask to "push delinquent payments to the back" to attempt to avoid the sale of their home in foreclosure. The lender may be willing to accomodate you but if there is no evidence that you have the ability to pay the regular monthly payment, why should they even bother? Lenders also like to see a good faith gesture on your part if they are going to consider deferring any number of mortgage payments. If you are seriously behind on the mortgage by more than 3 months, it would be strongly advisable that you attempt to come up with a portion of the delinquent amount owed. Depending on the particular hardship you are having would determin if this is at all possible, but contributing upfront to a delinquent balance does make for a stronger loan modification request.

The benefit of the modification you are requesting should be clear, which means that you should really make it your business to fully understand the loan you currently have. Before asking for a modification, go pull out your loan documents from the last closing you had and get your hands on a document called a Note. Your note spells out all of the particulars and details of your current loan. I can't tell you how many homeowners I've spoken with that do not know what they're interest rate is while they are actually seeking help with their loan. You should be very knowledgeable regarding those loan details and this will greatly help you to to frame out the details of the modification that you are requesting. Most mortgage notes are titled, Mortgage Note, Adjustable Rate Note or Balloon Note.

Let's say for example you already have an interest only payment and you would like to request a modification because you can't afford the payment. If you call up the lender and simply ask for a loan modification to lower your payment, the lender is not likely going to accomodate you because they'll see that you already have a reduced payment. You failed to take the time to fully understand your current loan and did not give them a practical plan. They are not going to think too much for you. There are literally hundreds of thousands of people requesting loan modifications and with the execption of a handful of the much larger banks, they are not hiring extra personnel to handle the increase in modification requests. You should give them as little work as possible.

Imagine how many resumes are forwarded to companies in this employment market where there is an over 10% unemployment rate as of November 1, 2009. The prospective employer is obviously going to be much more selective with the resumes that he/she decides to review. Consider your modification request a resume during a very difficult time of unemployment.
In the above example, taking the time to review your mortgage note and understanding that your interest only payment is already a reduced payment should help you to better lay out a plan. In this example, you would tell them in your written request, "I understand that I already have an interest only payment". Letting them know that you understand that there is less room for them to work will make them more attentive towars you. If you're in a reduced or interest only payment already, you should clearly explain the change since the time of your last closing that caused you to no longer affording the payment. Also, explain what in your future is going to be different that will allow you to afford a normal payment once the temporary relief period you're requsting expires.

Generally speaking, lenders do not like to factor future events into lending decisions that they make today, but loan modifications are a much different type of lending alternative.
Not being able to afford your mortgage payment alone is really not a good reason to modify. No longer able to afford the mortgage payment because your household income has abruptly decreased is much more meritorious. Not being able to afford your mortgage because you have too much credit card debt or too high a car payment is neither a good enough reason to modify. You presumably had those other credit obligations when you closed on the loan, but if you accrued additional debt regardless of whether it was for legitimate reasons or not, the lender is not going to take those other credit expenditures under consideration. They would take the position that you should neglect your credit cards and car payment to maintain your mortgage.

Also, if you have financed an expensive vehicle and have a new monthly car payment after you closed on your mortgage you're now seeking to modify, it may be a hard sell to convince your lender to reduce your mortgage payment so that you can better afford your Cadillac.
If the lender feels that with your regular income you can't afford your current payment which is already reduced to interest only, they will probably determine that you should not have qualified for the loan in the first place. This is a harsh reality caused by the plethora of subprime loans that gave loan options with little consideration to income.

Under no circumstances should you ever threaten a lender with walking away or in some way abandoning the home. It's generally not illegal to make these kinds of threats but the lender will simply not respond and such a threat will not be fruitful for you in getting the asisstance you're looking for. Many homeowners are aware of the complex and costly nature of a foreclosure action an threaten the lenders with foreclosure as to create an incentive for the lender to help. This will not work. Although foreclosure is costly to the lender, they will not be afraid of adding one more foreclosure proceeding to their calender.

WHY WE NEED HEALTHCARE REFORM

2009-08-24T09:32:00.006-04:00

The general fear of those that oppose healthcare reform is that a gov’t option will eventually force everyone into an inefficient gov’t-controlled system. This is interpreted to mean long waiting lists for essential care, delays in seeing a specialist and necessary surgery, rationing of care because of the millions of new patients dumped into the already overloaded and bankrupt system, rationing compensation for healthcare providers, and essentially the elimination of the free market healthcare system which will consequently chase away our competent physicians.

This fear is the mantra for those that oppose healthcare reform or as President Obama states “Health Insurance Reform”. It was actually clever for the President to rename his reform push to reflect the needed changes in the delivery of our current health insurance system and to not confuse the issue with actual provider care. For the most part, everyone is happy with the healthcare they receive. The concern for reform supporters is for the unsustainable delivery of health insurance.

Our health insurance system is primarily employer-based and the system is drowning due in part to losses sustained by medical providers treating the uninsured. Whether the appreciable number of uninsured is 15 million or 46 million, these numbers stumble into the health insurance system causing a staggering inflationary dragon medical providers and insurance companies either are unwilling or unable to tame. Unfortunately, small businesses are the ones absorbing the bite as inflationary costs are simply passed down the chain to employers that buy group insurance policies for their employees.

As a result, employers are forced to take fiscal measures such as lay-off employees, eliminate employer contributions to employee premiums, cutback raises and bonuses, reduce suppliers, or simply go out of business. This inflationary rise in healthcare is dangerously impacting the economy and the need for change does rise to the level of government intervention.

Most people that are happy with their healthcare obviously are not paying the bill for the rising cost of delivering that care. When someone is faced with coming out of pocket to cover the share of the premium their employer is no longer paying, it can be the beginning of a downward financial spiral for that family. Many families decide to go uninsured and manage their own healthcare risks because their employer based health insurance premium is simply unaffordable.

I admit that the opposition's fear to the reform plan are not necessarily outrageous. The thought of a universal gov’t controlled system of healthcare is sobering. However many of those fears seem to take root in those opposing reform because of popular right-wing commentators that are not exactly motivated by truthful facts. There is a marketing component of much of the talk disseminating from right-wing commentators and that is that fear sells.

Despite all, President Obama could have done a better job over the course of this public debate to explain the need for reform. His August 15th town hall meeting in Colorado is an exception. That was the first time he made a compelling pitch for his reform plan. In his silence, much of the talk from conservatives selling their “Obama-hate” platform became increasingly popular alongside the fear for his reform policy.

As a result, there has been a reported drop in President Obama’s popularity from above a 60% approval rating to a below 50% according to some polls. He has seemingly lost the confidence of Independents that he scored during the November election, many Republicans that also voted for him, and much of the elderly, which by some accounts made up 17% of his November 2008 voting base. However, it does seem that those opposing health insurance reform, do not have a grasp on the severity of the current problem. Those opposed to reform seemingly feel incubated from the economic repercussion that the status quo will inevitably bring.

Within 10 years Medicaid will be defunct. This will not be due to gov’t inefficiency but due to Medicaid’s inability to pass on the inflationary costs of health insurance to their customers…the taxpayers. What would be the financial consequences to Blue Cross Blue Shield, Cigna or Aetna, if they did not have employers upon who to pass on the rising costs of health insurance? They too would be defunct even much sooner than Medicaid because the inflationary costs of health insurance for private insurance is said to be double the inflationary costs of Medicaid.

Now, in fairness to health insurance companies, there are fundamental problems with our healthcare system that is not necessarily the fault of insurance companies, so let’s not totally demonize them. Remember, a medical provider is the one who submits the medical bill to the insurance company for payment. How much cost is factored into medical billing for medical malpractice related insurance costs? How much of healthcare cost is actually the normal increase in the market value of healthcare? How much of the billing cushions losses sustained by the medical provider from patients that don’t have insurance and can’t pay?

Medical malpractice claims is a factor of healthcare inflation and perhaps tort reform should also be a part of the President’s reform plan. Malpractice tort reform will limit the amount of money a patient would receive in a malpractice lawsuit. This would potentially bring down malpractice premiums, which would mean lower healthcare costs.

Lastly, in response to the fear that a gov’t option will eradicate competition, we shouldn’t assume that there currently is a true sense of competition amongst health insurance providers. Health insurance companies are pretty well leveraged in the market. Pricing for employer-based group policies is pretty much comparable to one another so there isn’t a robust sense of choice. The small circle of health insurance companies purchase each one another’s publicly offered shares as to balance themselves in the open market. So is there really a true sense competition?

If we provide a public option for people with no coverage, the influx of uninsured draining the healthcare system will eventually reverse itself. Under the public option, the legitimate cost to insure the uninsured will be based upon true market value of healthcare services and not based on marked-up pricing due to medically related financial losses.

A public option, whether it have the structure of a cooperative health exchange or not, will compel healthcare providers to mark their pricing for professional services more accurately which would not reflect ballooning inflationary costs. The public option will also compel insurance companies to absorb their fair share of healthcare inflation and not pass it onto employers. The economy may simply not recover unless we have this reform act.

Are Refinance Fees Worth That Low Rate?

2009-08-13T08:25:00.003-04:00

The costs associated with refinancing your mortgage can be a tricky proposition. You really would like to lower your monthly payment, but you’re wondering whether you should raise your current loan balance and go deeper into debt.

After all you’ve worked hard to pay extra money on the principle to further reduce that balance so there is a natural hesitation to take on added costs. Now, refinancing will in fact raise your current loan balance, but does that necessarily mean that you go deeper into debt?

Is true debt the actual money you currently owe or the total number of dollars you’re on the hook for? It sounds like both can be the same difference but let’s take a closer look.

Remember your mortgage monthly payment is based upon interest that is pre-calculated and pre-determined over the anticipated life of the loan. In many instances this mortgage loan lifespan is 30 years. Extra payments will in fact reduce this total pay back amount but you still end up paying back much more than what you actually owe. This total pay back amount regardless of whether you’ve posted additional payments is in reality your total mortgage bill. So the true question of cost when considering a refinance should be how much are you going to pay back? Or perhaps how much will the new refinance costs impact that total payback amount?

Any homeowner who makes additional payments on their existing mortgage balance is obviously interested in shortening the mortgage debt. However, the key to sharply reducing mortgage debt is not hinged upon your mortgage balance but rather the pace at which interest accrues on your principle. This pace is your interest rate and the quicker the pace, the heavier your total bill. Conversely, a lower rate is a slower pace, which means a smaller total bill. Your total bill is the dollar amount you actually end up paying back.

Interest on your mortgage is like a meter. It’s pesky and accrues daily. The meter will keep running on any unpaid principle. If your interest is ticking at a rapid pace you can take a shortcut by paying extra to get to your destination quicker. The destination obviously is a zero balance.

Your hesitation to absorb the cost of refinancing in a new loan should be balanced against the total cost of not refinancing. How much less will you pay back if your new loan absorbs the costs? This is the true refinance litmus test to determining if it actually does make sense to refinance. You should also ask yourself:

·Will refinancing allow me to reduce my mortgage balance quicker?
·Will I pay back thousands less by refinancing into a the new loan by making the same payment I’m making now?
·Will refinancing cause me to pay less monthly and less years?

If the benefit is marginal, then you simply shouldn’t do it, even if the cost were zero. The new loan should accomplish something tangible that you can’t already accomplish with your current mortgage loan. Make sense?

Stopping Collection Calls With A Federal Debt Consolidation Plan/Chapter 13

2009-07-29T08:42:00.010-04:00

Once you have fallen seriously behind on your payment obligations to a finance creditor, it may be almost impossible to bring yourself current, especially if you have a limited income or are surviving on a single paycheck. One unfortunate event in your life can drastically complicate the money you have available to meet your monthly living expenses. Once this occurs, for many households it can spell irreversible anxiety and an endless financial freefall. Debt consolidation can promise you the traction you seek to bring things back to normal but unless you have good credit, there simply is no such debt consolidation program available for you.

By this time, you are being inundated with phone calls from creditors, which only add to the anxiety. A creditor may have already garnished your paycheck reducing your income to a fraction of what it was when you were barely paying all your bills. But perhaps most humiliating, you’re hiding your car while at work and after you’re home because the finance company has sent a “Repo Man” to repossess the car. If they get the car how will you get to work? That’s not their concern as much it is yours, but you hope you can work something out while you still have your car.

Many in a similar situation are not aware that there is a Federal Repayment & Debt Consolidation Plan that allows you to consolidate your debt and protect you from collection activity such as the iconic “Repo Man”. The Federal Repayment Plan & Debt Consolidation Plan is otherwise known as Chapter 13 and even many that have heard of Chapter 13 may also make the presumption that an attorney is required for the preparation and filing of the plan in Court.

Steep attorney fees may keep someone from seeking protection under the repayment plan since an attorney will likely charge much more for a Chapter 13 filing than for the more common Straight Bankruptcy Chapter 7. The difference in attorney fees between the two bankruptcy “chapters” is probably due to the greater potential for additional work such as discussions with creditors when filing a Chapter 13 plan. In either event, paying an attorney for something that you can effectively do yourself is simply not sensible.

Successfully completing your own repayment plan and filing it in your local Bankruptcy Court will immediately stop your creditor(s) from calling you and attempting to repossess your property. Chapter 13 is a bankruptcy plan specifically designed for people in situations such as described above with an income and regular consumer debt.

Chapter 13 protects your property from all collection activity such as repossession, foreclosure, wage garnishment, collection calls, and any other attempt by creditors to collect a debt against you. If you have a car that has already been repossessed, then filing for protection under Chapter 13 will stop the sale of your car before it is sold at the auction.

Upon filing for protection under Chapter 13, you must agree to repay your creditors in part or in full in Bankruptcy Court with your future earnings. The monthly plan payments are made to a Bankruptcy Court Trustee who ultimately approves your repayment plan over the term of 3 to 5 years.

Chapter 13 is not to be confused with “Straight Bankruptcy” Chapter 7, which is not a plan to repay your creditors and not designed to safeguard your property. Instead Chapter 7 eliminates or discharges all allowable debts but in some rare instances, compels you to liquidate (sell) your assets and property to repay your creditors.

Upon filing for protection under Chapter 13, the bankruptcy Court orders an immediate stop to all collection activity against you. This immediate stop or safeguard is known as an Automatic Stay, which is the legal mechanism that protects your property from repossession and is instantaneously imposed upon your creditors once you file. Your creditors must obey the Automatic Stay and can only dispute it with the Court’s permission. The Automatic Stay means that any one of the following collection activities must immediately stop:

· ATTEMPT TO REPOSSESS YOUR VEHICLE
· FORECLOSURE PROCEEDINGS
· ATTEMPT TO SELL YOUR VEHICLE OR HOME AT AUCTION
· WAGE GARNISHMENT
· FREEZE OF YOUR BANK ACCOUNT
· COLLECTION CALLS FROM CREDITORS
· ANY ATTEMPT TO COLLECT A DEBT FROM YOU

The Automatic Stay will stay in effect as long as you comply with the terms of your payment plan, but if you fail to maintain your agreement the Court may dismiss your case and the creditor can once again freely come after your property. So you may revert to once again hiding your car. If this happens, it will be increasingly difficult to file another Chapter 13 plan approvable by the Court and in fact the new bankruptcy laws otherwise known as BAPCPA, discussed ahead in more detail, do limit the amount of times you can file for bankruptcy protection within a certain period of time. So before you file your plan, you should be certain that the payment you introduce to the Trustee is one that you can show proof of and also one that you can reasonably afford.

If you’ve never heard of the Chapter 13 repayment & debt consolidation plan, it’s probably because “Straight Bankruptcy” Chapter 7 has been the more popular choice for debt relief. It is also a much more marketable debt relief product and debt relief agencies such as bankruptcy attorneys do pump more money into marketing and advertising for Chapter 7 business than they would Chapter 13 perhaps due to the perceived more attractive benefit of debt elimination over debt repayment. However, although you are repaying your creditors in a restructured payment plan, Chapter 13 is still in fact a bankruptcy and should be considered as carefully as Straight Bankruptcy. Any bankruptcy consideration should be a last resort and not an option you take as a matter of convenience. In fact, the Court will require a surcharge payable to your Trustee, which is factored into your plan payment as to discourage a plan filed simply for mere convenience.

FHA: A Cool-In After A Subprime Mortgage Meltdown

2009-07-26T09:24:00.001-04:00

FHA has emerged as the home loan solution of choice after the implosion of a once ballooning sub-prime housing market. Ending with it, in one failed gasp, was the life span of a multitude of mortgage lenders who had almost exclusively sold sub-prime's troubled Adjustable Rate Mortgages (ARMs) and "No Documentation" type loans.

The FHA Gov't Loan Program is no sub-prime, but its common sense approach to home lending promises to help millions of homeowners that due to the tightening of the credit markets, find themselves unable to refinance out of their temporarily fixed-rate sub-prime loan because of less than perfect credit or very little equity.

FHA is a saving grace of sort for homeowners that otherwise cannot qualify for a new fixed mortgage because of stricter credit requirements or low home values. The demise of sub-prime shifted home lending conventions toward traditional "good credit" and "good equity" guidelines. Better credit profile borrowers continued to see the availability of loan programs while the sub-prime borrower witnessed a sobering elimination of better suited and alternate loan programs.

FHA may be as significant in scope today as it was when it was first created in 1934 to remedy housing concerns after The Great Depression. Unlike 75 years ago, this housing crisis is arguably a result of lending practices rather than an uncontrollable economic downturn.

Today's homeowner contends with the stronghold of the Adjustable Rate Mortgage (ARM), the staple product of the gone by the wayside sub-prime movement. ARMs were difficult to resist and easy to sell because of introductory "teaser" type interest rates and low interest only payments that in many instances cured only a fraction of the interest due for the monthly payment. The magnitude of the potential consequence that came with these dangerous loans was a short afterthought for the borrowers and lenders alike.

Adjustable rate mortgages now weigh in heavily on the bottomless free fall of home values across the country due to its ties to foreclosure. Homeowners are unable to stay current on their mortgage payments after the rate increases on their ARMs. In contrast, an FHA Gov't loan is a low-interest 30-year fixed rate loan backed by the strength and credit of the U.S. Government. FHA interest rates can range as low as 4.5%.

So far, FHA does not have a foreclosure program, but it is very promising in curtailing the already exorbitant rate of foreclosure by giving income-qualifying homeowners a realistic grip before foreclosure occurs. In the widespread turbulent waters of America's housing market many homeowners can use the assistance of a life-wrath, if help is to be rendered in time.

Is That You Hiding Your Car From the Repo-Man?

2009-07-24T14:38:00.000-04:00

Ok, so you missed a few car payments and your car finance company has assigned your car to be repossessed. You tried talking to them but all they want is payment for the 3 months you missed plus 3 more future payments to keep you honest. You obviously don't have 6 month of payments and you definitely can't afford to loose your car. How will you get to work right? That's not their problem as much as it is yours, so you hide your car...everyday.

Did you know you can file your own federal repayment plan? It's called Chapter 13. Chapter 13 is not "straight bankruptcy" like the more popular chapter 7. Chapter 13 is a repayment plan that you file in your district bankruptcy court and forces your creditors to accept your payment plan as long as you can afford it. Once you file, the repo-man must leave your car alone. If your car was already repossessed, filing chapter 13 will keep your car from being sold at the auction.

A bankruptcy attorney will charge you a lot of money to file this in court for you, but the court will recognize your chapter 13 petition if you filed it on your own. You must income-qualify for the repayment plan you file. Keep an eye out for a guidebook I'll be posting on this.

Mortgage Payment Woes??

2009-07-23T16:47:00.000-04:00

I spoke to a woman in California today seeking Gov't help with her mortgage. She was in an adjustable rate mortgage (ARM) but her payment had not yet increased. Her interest rate was 5.625% and she was paying interest only.

She complained that her mortgage principle balance had not gone down and that her payment was too high. She wanted the Gov't to lower her payment and she wanted a fair share of her payment to be applied to principle. Her mortgage balance was approximately $325,000 and she earned about $45,000 annually. Mortgage help? Her lender, Bank of America told her that she did not qualify for a loan modification due to her income. I tried to help her see her real dilemna.

She didn't realize that she had an awsome interest rate and a ridiculously low payment. (Interest only). Notwithstanding none of her payment was being applied to principle, but she could voluntarily send extra money to that end. Sending more mortgage payment is not exactly the kind of mortgage relief she sought. She didn't realize that her two complaints were somewhat diametrically opposed to each other. Paying principle & interest with her mortgage payment does not necessari ly equate to a smaller payment.

I did some calculating for her and even if I gave her a rate of 4.5% on a 30 year fixed, her payment would still be higher than what her current payment was. She didn't quite understand. She simply was given the wrong mortgage. Someone qualified her for a mortgage she simply couldn't afford. Unfortunately, she will eventually loose her home.