Blown Mortgage

Loan Modifications, How To Find Out If You Are Eligible Online

Andrew — Sat, 20 Mar 2010 13:27:45 +0000

Loan Modifications can be a way to save your home from an imminent foreclosure. It will also affect your credit score, and this could affect your chances of getting another loan or when applying for a job. This makes many people think twice before applying for a loan modification. The truth is that you could end up without being accepted for a loan modification but still suffer a drop on your credit score. There is also the time wasted applying and waiting for a response. Some troubled homeowners automatically assume they are not eligible for such a modification. A good way to make sure you are even eligible for a loan modification under the HAMP program is to visit http://makinghomeaffordable.gov/modification_eligibility.html and see if you pass the program’s requirements. This will help you save time and your credit rating without asking for an outright modification. The requirements are straightforward and will give you a clear understanding of your position. This questionnaire will also help you get used to the kind of question you will be asked if you go ahead with the modification. Use it as a trial run that has no negative consequences on your record. The questionnaire is set as a test that tells you if you are eligible for a HAMP modification based on the information you provide. What questions are asked? There are only 5 questions that determine your eligibility. 1) Is your home your primary residence? 2) How big is your mortgage? The key question here is if it is below the $729,750 mark, the maximum mortgage size to fall in the HAMP program. 3) Are you struggling with making payments toward your mortgage? You guessed! If you say no here you will not qualify. I tried! 4) Was your mortgage contracted before 2009? This is also a key question as all loans after this date do not qualify. 5) The final question relates to your debt to income ratio. That is how much money you owe in relation to how much you make. The key question is if it is higher than 31%. If your debt to income ratio is not higher than 31% HAMP cannot help you. You will have to find some other kind of alternative. Put simply you must answer yes to all five questions to be eligible. If you knew anything about the HAMP program you probably did not get much out of that questionnaire. However, after you determine if you are eligible for a loan modification you can download an RMA form at http://makinghomeaffordable.gov/docs/RMA%20Interactive%20-%20Updated%2011.10.09.pdf . This form will help you collect the information you need to apply for a modification. You can then contact a free counselor and ask for advice on your particular case. Unfortunately qualifying for a HAMP loan modification is the easy part. The hard part is getting your lender or servicer to approve it. There are also grey areas when applying for a loan modification, which makes the questionnaire we looked at above a little bit of an oversimplification. However, it is a great place to start. As you can see the process is not that difficult, you can do it yourself and save yourself a small fortune instead of spending your last dime on a foreclosure rescue company. Nevertheless, you must accept that applying for a loan mod is going to be complicated and require a lot of your time and patience. If you do not have either you might still want to use a paid company.

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Loan Modifications Can Drop Your Credit Score by More Than 100 Points

Andrew — Sat, 20 Mar 2010 12:36:23 +0000

Troubled homeowners are so worried about losing their home they will do anything to save it. This generally ends up including a loan modification. Loan modifications are a way of reducing monthly payments by a) reducing interest rates, b) extending the tenure of the loan, and c) in some rare cases even by reducing the principal balance of a mortgage.

However, many home owners are starting to realize that interest rates and mortgage payments are not the only things that are being lowered. The credit score of homeowners is being reduced by up to 100 points just for entering a loan modification program. 100 points in a scale that generally goes from 300 to 850 points is a significant blow to a homeowner that has taken good care to protect his credit rating.

The big question is: is it fair? Should it be done?

The main argument housing counselors are putting forward against this practice is the lack of transparency. Most of the times troubled homeowners that ask for a loan modification feel like they are doing the right thing by trying their best to pay for their mortgage despite financial problems. When they realize that there credit score has been hit despite their efforts the sometimes feel cheated.

Are they justified? It seems reasonable to me that lenders and mortgage servicers provide clear information on the consequences of taking on a loan modification. But would a troubled homeowner applying for a loan mod change his mind just because he realizes his credit will be affected? If they do, it probably means they did not really need it to start with.

Why should a loan modification affect your credit rating?

Credit scores and rating are in place to do one thing, help banks and lenders know how reliable a borrower you are. Reliability in this industry is proven by your credit history that is how good you have been at paying your debts, your income and your commitment to the security of the loan, in this case your home.

A credit score is a numeric value assigned to you that qualifies your credit history and how desirable you are as a lender. Now, let us try and detach the emotional aspect of being a troubled homeowner and think about the consequences of a loan modification. A loan modification will in the vast majority of cases mean a reduction in interest, principal balance, or both. This means the bank is losing money. Losing money the borrower agreed to pay. By applying for a loan modification the borrower is stating he or she is struggling to make the payments they agreed to make. Shouldn’t that affect their credit rating, their reliability as a borrower?

Even though applying for a modification will take a chunk from your credit rating it is probably going to shade into insignificance compared to the effect falling behind in your mortgage payments and God forbid, foreclosing on your home. These actions can leave your credit score in tatters for years, and fade into insignificance when compared with a 100 point hit.

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HAMPs Loan Modification Has Finally Got Moving

Andrew — Wed, 17 Mar 2010 16:00:27 +0000

The HAMP program has finally started to get some momentum and provide a substantial amount of troubled homeowners with a way out of foreclosure. Unfortunately, this help seems to be too little, too slow, and too late. However, one must accept that steps are being made and that although not all targets have been met, significant progress is finally occurring.

Let’s look at the hard data.

- After over a year since the program started 168,000 households now have permanently modified mortgage. This represents an increase of over 50,000 from January 2010 and 100,000 from December.

- There 92,000 trial modifications in the final stages before a permanent modification. According to Treasury the average saving for each homeowner is around $500.

This is good news, and it is certainly a help to those that have been fortunate enough to benefit from it. However, the truth is that it is a drop in the bucket when compared to the 6 million + troubled homeowners that are behind in their payments and are at risk of foreclosing on their mortgages.

When the program started it was hailed as the most aggressive plan the Government was enacting to control the housing crisis. Over a year later only a million people have entered the program, a far cry from the four million households the program set out to help.

A words batter has started over these claims. The Treasury is now claiming the goal was to provide help to 4 million homeowners not make sure they actually got it. If you accept this interpretation, HAMP is between 35 to 45 percent of the way to achieving its goal. Of course, critics claim that the Treasury is simply moving the goalposts.

What is even more worrying is how the borrowers that enter the program are being treated. Valparaiso University School of Law carried out some interesting research on the HAMP program and discovered that although 66% of all borrowers in the trial stage made all their payments, less than 25% have received a permanent modification to their mortgage. The reason for this is lack of paperwork and the loan modification limbo created by the complex and lengthy red tape.

Nevertheless, the Government remains confident, and a Treasury Department spokeswoman has claimed the rate of loan modification completions will rise in the next few months.

Another scary fact is that the number of people entering the program is actually slowing down. In February 73,000 signed up, which represents only half the number of homeowners that did so in October and November.

In conclusion, although the Government is starting to make a substantial dent in the number of homeowners it is offering help to; it is a far cry from the objectives the program set out to meet.

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Loan Modifications and Mortgage Audits Why Don’t They Help

Andrew — Wed, 17 Mar 2010 14:57:47 +0000

Homeowners are so desperate to find solutions to their mortgage problems they will try anything. Some lawyers and consultants have encouraged homeowners to carry out mortgage audits to assess if any irregularities were committed. In this blog we have previously pointed out how over 90% of mortgages have some kind of irregularities that could make them void.

Although it is possible to sue your bank for an illegal mortgage it is not as easy to be successful as some might want you to believe. Lawyers and loan modification agents have often included a mortgage audit in their loan modification process as a way of intimidating the lender, often through an aggressive letter sent to the servicer or lender of the mortgage. However consultants and lawyers are reporting that these letters are not having the results hoped for. Put bluntly banks are more often than not ignoring them.

Another factor that must be taken into account is the cost of litigation. Even if you have a valid case, the question is if you can afford to see it through. If you are trying to get a loan modification, the chances are you do not have money to throw around. And if there is something litigation is, is expensive. It pays to calculate the cost before you enter a David and Goliath battle with a large corporation that has dozens of lawyers at their beck and call.

Lawsuits are long and expensive endeavors that are often won by the party with more resources. Loan modification companies and private homeowners do carry out this strategy but are advised to do so only when it makes sense, they have a solid case and have the assets to see it through.

We must be careful when contracting the services of a so called expert. Many lawyers and real estate agents are simply going to a weekend seminars and calling themselves experts in foreclosures or mortgage audits. This is a very sensitive area of expertise where your home and financial security are at stake. It pays to make sure you are dealing with professionals with a proven record of success.

A good way of knowing if you are dealing with a real professional is by the kind of advice they provide and the promises they make. We must be careful when dealing with any lawyer or Loan Modification Company that makes lofty promises and 100% success guarantees. The truth is that nobody, no matter how good they are can provide these ironclad guarantees. They are often used to reel in naïve and desperate customers and steal them from their dwindling resources.

In conclusion, although mortgage audits and loan modifications can be useful tools when trying to find a way out from a mortgage foreclosure, they are paths that must be taken carefully. Litigation is costly, takes a long time to complete and is not fun. It is important to do our research and make sure we only hire experts with real experience in the field. Unfortunately the foreclosure crisis that is hitting the U.S has no quick fix and in some cases no fix at all.

Loan Modifications and Mortgage Audits Why Don’t They Help

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Loan Modification Scams And The Law, A Brief Overview

Andrew — Thu, 11 Mar 2010 18:31:36 +0000

Last week was National Consumer Protection Week and the Government wanted to make the most of the heightened awareness to publish some general guidelines and advice. One of these releases was made by Florida Attorney General, Bill McCollum, on the issue of loan modification scams. This issue is right at the top of the list of complaints made to his office. The Attorney General pointed out how the desperation with which many homeowners are protecting their homes will continue to breed con artists that want to make the most of this desperation.

Not all loan modification companies are scams and some can provide specialized counsel in the somewhat complex world of loan modifications. However, there are some tell tale signs that we should keep alert to if we are dealing with loan modification companies. The Attorney General warned people from dealing with companies that ask for up-front fees on foreclosure rescue services. This is actually illegal and only carried out by loan modification agents of dubious reputation.

The Florida Attorney General advised listeners to contact their lenders before contacting third party companies or agents and to never pay up front for a loan modification. The Attorney General office is busy in Florida with over 90 companies being investigated and 20 open lawsuits.

The public statement echoes the words of advice shared by many experts. These guidelines highlight the main issues borrowers must be aware about when dealing with loan modification companies in order to avoid scams.

These tips include:

1) Keep well away from companies that “guarantee” they can save your home from foreclosure. This is like car salesman guaranteeing that if you buy a certain model you will get a date with the hottest girl in the class. It might help, but ultimately the decision is out of the salesman’s hands.

Only the lender can decide if a loan modification is granted or not. It is simply not true that any loan modification application method can assure your success.

2) If your loan modification agency tells you to not contact your lender, lawyers or financial counselors, RUN! This is like the kidnapper asking the parents not to contact the police. The reason why scammers ask you not to contact anybody is just as obvious.

3) Finally, if a business asks you to make payments directly to them and to stop paying your lender, you can be sure you are dealing with criminals. Run to your nearest police station and sue the crooks.

The fact is that the government has subsidized the creating of hundreds of counseling offices around the country to provide help to homeowners that are struggling with their mortgages. You are well advised to visit these free counseling agencies.

However, if you do not trust these agencies, still cannot tell the difference between an NPV test and a hardship letter, but still need a loan modification, make sure you find a reputable company that is not simply trying to take advantage of your situation.

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Unemployment Home Loans, Are They A Real Alternative To Loan Modifications

Andrew — Thu, 11 Mar 2010 18:07:10 +0000

The last three years have seen an amazing growth in the number of schemes designed to help homeowners keep their homes and help them avoid foreclosure. However, this is becoming increasingly difficult as the issue homeowners are having with their mortgages is not so much the interest rate and loan tenures, but with the fact they have lost their jobs, and cannot afford any kind of mortgage payments.

The fact that homeowners cannot afford their mortgages due to unemployment makes it very hard for governments to design the right loan modification or aid that will work for lenders and borrowers. The truth is that in many cases banks will profit more, or lose less, from foreclosures than loan modifications.

A new type of aid has been put forward to respond to the increasing percentage of prime loans that are heading towards foreclosure due to unemployment. These mortgages have little to be improved on; they generally have low interest rates and reasonable payment conditions. However, job loss has made it impossible for borrowers to continue making payments. The new solution is to provide temporary aid to the homeowner until he or she finds a job. This is an easier pill to swallow for lenders than making principal balance reductions or permanent loan modifications. It also sidesteps the long and slow road of loan modification trials.

However the question is what type of temporary aid should be provided. There are a variety of proposals. One is to simply pay the loans for unemployed homeowners that cannot afford their mortgage for a set number of months. This type of aid is already in place in various states.

Another option is to provide these borrowers with loans, the payment of which is deferred to a further date. This option does seem like giving people more rope with which to hang themselves, but it might be good is some circumstances. A third option some banks like Citibank have already started to use is to simply defer payments on a mortgage for a few months. The above mentioned bank has offered in some qualified cases 6 month deferment on mortgage payments to allow the borrower to get back on his or her feet.

This is a great option for the right borrowers because a) it does not cost the mortgage that much, b) does not have to go through such a strict and long selection process and c) actually deals with the problem of unemployed homeowners that do not qualify for loan modifications.

Needless to say many banks are wary of rescheduling payments that may never be made and putting off a foreclosure process that may already be inevitable. This is why the Government should look into the possibility of adding this measure to their flagship HAMP program and think of alternative measures that will deal with the increase in unemployment instead of just focusing on reducing interest rates. Many feel that the government is simply fighting the wrong war, (we are still talking about mortgages by the way) this measure might realign efforts in a direction that might be more productive. However a good selection process will be needed to assure that those that qualify really have the potential to find a job that will allow them to make realistic payments on their mortgage.

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Coming FHA Changes

Blaughridge — Thu, 11 Mar 2010 16:47:50 +0000

For borrowers, Federal Housing Administration changes are on the horizon. Some of the new policies are effective next month, and are all part of a plan to bolster FHA’s reserves.

Last year, FHA insured one-third of all approved mortgages. The capital-reserve ratio is no longer at the Congress-mandated 2 percent threshold. FHA Commissioner David Stevens even voiced his intention to hire a chief risk officer, a position the administration has never had since its 1934 inception.

“To be clear, the fund’s reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action,” Stevens said in a September press release.

In efforts to avoid a bailout, the FHA will make a series of policy changes:

• The up-front mortgage insurance premium (MIP) will increase to 2.25 percent from 1.75 percent. This change is effective starting April 5.
• To qualify for the FHA’s 3.5 percent down payment program, borrowers must have a credit score of at least 580. Those with a sub-580 score have to put down at least 10 percent.
• Seller concessions will be reduced to 3 percent from 6 percent, meaning buyers will not be able to inflate a home’s appraised value in efforts to pay off their closing costs.
• The FHA will implement an array of enforcements on FHA lenders, such as publicly reporting lender rankings and seeking legislative action that would make mortgagees for loans they give and underwrite.

“When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history,” Stevens said in a January press release.

In addition to upping the MIP, the FHA is requesting legislative action to increase the maximum annual MIP. Should such legislation pass, the FHA plans to shift some of the up-front MIP to annual MIP, allowing borrowers to pay off the increase in monthly payments.

With less than a month before the MIP jump is effective, the other policy changes have no definite start date, but the FHA plans to implement all changes by this summer.

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The Good Side of Loan Modification’s Failure, A Buoyant Foreclosure Market

Andrew — Tue, 09 Mar 2010 18:45:41 +0000

Despite the Government’s best efforts and greatest intentions the wave of foreclosures continues to increase. The borrowers that are now defaulting on their mortgages and not qualifying for loan modifications are no longer people with subprime loans and bad credit rating. The fastest growing demographic in foreclosures are prime borrowers with prime loans that have lost their jobs and cannot afford any kind of deal on their mortgage.

This is a tragedy for the millions of families that face losing their homes. However there is a flip side to the crisis in the housing market. The flip side is that the foreclosure market is doing great. More and more buyers with cash in their pockets are looking for bargains among the millions of homes that are going through a foreclosure.

Many have the idea that the only homes that are on the foreclosure market are located in crime-ridden areas and are run down shacks. This is simply not true, during economic crisis like the one we are now going through all kinds of homes can be found, from beachfront luxury homes to shacks in the ghetto.

There is another myth a serious buyer must forget about as soon as possible. You are not going to find a great property selling at pennies on the dollar. Sometimes you can find amazing deals but this is probably because there are other circumstances that reduce the value of the home besides being on the foreclosure market.

However, you can get some great deals and discounts. A typical discount is probably around 5% less than the market value, although you can sometimes pay up to 30% or 40% less.

If you are savvy enough, this could only be the beginning of your savings. If you buy the property from the lender you could ask/demand for some of the buying costs to be waivered. If you ask nicely you might even get a discount on the interest rate or a break on the down payment.

Buying a home, whether on the foreclosure market or not, is a huge investment for most of us. It is therefore worth us spending some time doing our research and due diligence before we spend tens or even hundreds of thousands of dollars.

The foreclosure ball begins to roll when a borrowers falls behind on mortgage payments. A homeowner that loves his home will try his best to keep his home, making some payments, looking for a loan modification, or any other measure he can. However, if the home still forecloses the chances are that maintenance has not been carried out for some time on the home. Include the costs of bring maintenance up-to-date in your investment research.

What this might include will depend on the property. Some just need some gentle manicuring, while others have underlying structural damage that is prohibitively expensive to fix. It is true that homes in need of some tender lover and care will come at a discount, but it is important to make sure you can afford the cost of providing it.

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My Loan Modification Failed, How Soon Can I Buy A New Home After A Foreclosure

Andrew — Tue, 09 Mar 2010 18:31:31 +0000

The sad truth is that most troubled homeowners do not qualify for a trial loan modification. Of these, only a small percentage will receive a permanent modification. Analysts estimate that over 5 million households have underwater mortgages and are struggling with their payments. This represents nearly 20% of all American households. Many of these homeowners are going to lose their houses. The question is how soon can borrowers that foreclose on their homes buy a new home. The answer depends on the type of foreclosure and the extenuating circumstances of your particular case.

Who decides how soon you can get a new home loan?

The answer is the lender and their insurer. Although there is not one central body that sets fixed rules on this issue, there are clear guidelines set by Fannie Mae. Fannie Mae is America’s largest mortgage buyer. You might not even know that Fannie owns your mortgage because “she” does this on the secondary mortgage market. Because this corporation buys such a large percentage of mortgages, lenders will often follow in line with its guidelines.

What are the guidelines?

They can be found in Fannie Mae’s website and documentation. Below I detail the current guidelines, but these can change quite regularly so I encourage you to see them as a ballpark figure and then check for yourself.

How long you must wait after a foreclosure?

The quick answer is 5 to 7 years. However if there are extenuating circumstances the waiting period can be reduced from 3 to 7 years.

What about when you carry out a Deed-in-Lieu of Foreclosure?

It is actually worse; you should expect to wait between 4 to 7 years. However, if there are extenuating circumstances this might be a good option for troubled borrowers that want to buy a new home quickly, as the waiting time is reduced from 2 to 7 years.

What about short sales?

The current waiting period is two years. However, and this is an important point, if you are current on your monthly payments you can purchase a new home immediately. This is a powerful reason to stay up-to-date with your payments if you possibly can.

What are extenuating circumstances?

This refers to the reasons (or excuses) you provide to explain why you cannot pay your mortgage. There are many extenuating circumstances but your bank is only going to accept those you can prove, with documentation, are beyond your control and fall within their list of acceptable extenuating circumstances.

Fannie May will consider death (of a close relative, or partner), illness, job transfer, serious injuries from an accident, and other mitigating factors that dramatically affect your ability to pay your loan and are outside of your control. Unfortunately not being able to afford your payments because the interest rate on your variable interest loan has increased is not considered a mitigating circumstance.

These guidelines can help you make better decisions when trying to find the best choice when foreclosing on your home. Make sure you can prove the financial hardship you are going through and try to work with your lender with an option that will give the best chances of getting a clean start as soon as possible.

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Underwater Mortgages and the Science of the Perfect Loan Modification

Andrew — Thu, 04 Mar 2010 19:18:08 +0000

Loan Modifications have taken over the financial news in the last year. This is not at all surprising, with over 11.3 million people, nearly 25 per cent of all homes, with underwater mortgages; this is an issue that has the nation’s attention.

This makes any research into the issue of loan modifications and their effect on foreclosure of great interest to borrowers, banks, and the government.

One professor whose research has received a lot of attention is Sanjiv Ranjan Das, from the University of Santa Clara in California. Last year Das attacked the underwater issue, this refers to borrowers whose mortgage balances are larger than the market value of their homes. The underwater issue is one of the big problems the United States housing market has to deal with.

Professor Sanjiv Ranjan Das had a large and interested audience to his research; one big fan was his namesake Sanjiv Das, a top executive at CitiMortgage, the fourth biggest bank in the US, lender and servicer of over seven hundred billion dollars in mortgages.

Interestingly, these two men, one a professor and the other a banker, share more than just a name. Not least among the things they have in common is an education at the Indian Institute of Management.

Now they are working together on research that seeks to explain the behavior of borrowers that are stuck with underwater homes, unemployment and mortgage payments they cannot afford.

Interestingly the partnership between the two Das, began when the professor started receiving emails meant for the CitiMortgage Das. However, the accidental emails were great for the research of Santa Clara’s professor.

According to Das’ research the perfect or optimal loan modification includes an element of forgiving some of the balance in the loan. This is not easy for bankers to accept. Reducing the balance of the loan increases the speed at which the bank must accept losses and there is the added fear that it will create a counterproductive culture among borrowers.

However research has shown that re-defaulting on mortgages is much higher among borrowers that do not receive a reduction of their mortgage balance. This is because having an underwater home, a house with negative equity, makes many homeowners feel there is no financial sense in keeping their homes. However, when a principal reduction is carried out, even if only a modest one, re-defaulting on mortgages is sharply reduced.

Nevertheless lenders still shy away from this radical loan modification method and prefer using interest rate reductions and term extensions to reduce the monthly payments of troubled homeowners.

The good news is that the research carried out is getting the attention of the right people. The more is studied about the effects of income shock, or wealth shock, on troubled borrowers the more effective loan modifications and debt management as whole will be.

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