Mortgage Modifications Just Got Tougher

Jul 6th, 2009
by Doug Jacobs.
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New legislation introduced, allegedly at the request of California Governor, Schwarzenegger, will make it tougher to get a mortgage modification.  This legislation, California Senate Bill 94, includes language that says that attorneys can’t be paid for helping a homeowner apply for a modification until the process is completed!

Frankly, attorneys aren’t used to working that way.  They’re used to being paid for the work they do as it is done; not afterwards.  Most attorneys, facing several hours of work, request a retainer from the client in order to insure that the costs and fees incurred get paid.

A standard modification can take three to six months to complete.  During that time the attorney is working hard on the matter, has to pay his staff, his office rent, his expenses, and his mortgage!  Forcing him to wait until the process is over is asking him to lend money to the client.

Not only is this bad business for the attorney, it immediately creates a conflict with the client.  Now, the attorney is forced to get a modification (else he won’t be paid), rather than give the client his best advice which might be to walk away from the house or file bankruptcy if the lender won’t offer a workable solution.

All in all, if this becomes law, I think you’ll see an immediate drop in the number to attorneys willing to attempt a mortgage modification.

Posted in: News.

Banks lose big when they foreclose

Jul 6th, 2009
by Cathy Moran.
6 comments

Modifications are down in the second quarter of this year, and foreclosures are on the rise, reports New York Times reporter Gretchen Morgenson in a piece entitled So Many Foreclosures, So Little Logic.

My experience in the San Francisco Bay Area is consistent with the theme that modification are few and the degree of change in the troubled mortgage is limited.  Seldom is the principal reduced to reflect today’s value.

But the figure that caught my eye was this:  banks who foreclosed lost  an average of 65% of the loan balance! The figures come from a study by Valparaiso University professor Alan While of some 3.5 million subprime and alt-A home loans managed by Wells Fargo Bank.

You have to ask why those managing these loans think that modifying the loan will incur an unacceptable loss for the note holder.  The loss could hardly be greater than 64%.

Who will hold those making these decisions accountable for the loss imposed on the note holder?  And the cost to the country as  a culture of home ownership is shredded is incalcuable.

Morgenson expects that ultimately the taxpayers will have to pick up the cost, but only after families have lost their homes.

Posted in: Uncategorized.

Behind in Your House Payment? (Part 1)

Jul 5th, 2009
by Doug Jacobs.
3 comments

There are basically four choices for a homeowner who is behind in his mortgage payment.

1.    You can get caught up by paying the arrearage.  Most mortgage companies want you to do this all at once, but if you can’t afford to come up with that much in cash, you can seek bankruptcy protection (typically a Chapter 13 bankruptcy) to spread the amount you are behind over several years.

2.    You can seek, and sometimes receive a mortgage modification. These are pretty hard to get, in spite of the fact that there are federal and state laws to encourage such programs. But the lenders have all sorts of conditions placed on the application process and there is no legal requirement that anyone be granted a modification. Worse, there is no court, judge or administrator to oversee the process.

3.    You can do a short sale.  This requires the mortgage company to reduce their loan so that you can sell your house to someone for its true value in today’s market.

4.     You can walk away and allow the property to be foreclosed.

There are advantages and disadvantages to all of the above, but only 1. and 2. will allow you to keep your home.

Generally if you do want to keep the home, try the mortgage modification program as a first step.  If that works realistically (something that actually reduces your payments so you can afford to stay there and doesn’t just delay the inevitable), great.  If not, you can try 1. – paying off the arrears.

To pay off the arrears, you either need to have a lump sum of money or to file bankruptcy.  I don’t know of any mortgage companies that will allow you to make payments if you’ve gotten behind except under very limited circumstances, and those usually include being completely caught up in 90 days.

By filing a chapter 13 or chapter 11 bankruptcy, you can spread the arrears out over the length of the bankruptcy plan.  Thus, a $10,000 arrearage becomes slightly less than $300 a month for 3 years or $166 a month for 5 years.   That’s usually a lot more doable than coming up with the $10,000 in cash.

Please see Part 2 for a discussion of what you can do if you are willing to leave the house.

Posted in: General.

Refinancing Limits Raised: Happy 4th of July!

Jul 3rd, 2009
by John Mlnarik.
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Remember when you were a kid and the simplest things intrigued you? When you parroted the reaction of those around you because you were learning how to react to something new, something you had never seen or experienced before.

That is how a lot of American’s must have felt when the most recent expansion to the Making Home Affordable Plan was announced on July 1st.  For an explanation of the Home Affordable Refinance Program otherwise known as HARP see my previous post.

Now borrowers, who have loans backed by Fannie Mae and Freddie Mac, can refinance up to 125%  of their home’s value.  Sure this will allow more American’s to qualify for a refinance under the plan, but if you are one of those who now qualify you’ve got to be asking yourself, “Do I really want to do this?”

Well do you? Do you really want to refinance your house when the loan to value ratio is over 105%?  That is what the government would like you to do, and now those who are between 106% and 125% loan to value can do it too!

Forgive me if I feel like a kid again.  Like a kid who just saw fireworks for the first time and can’t figure out if it is great or just, as my grandfather used to tell me, “Like burning money”.

Don’t get me wrong, I like fireworks and fanfare just as much as every other red blooded American.  But who among us enjoys being told something will help when in reality doing that very thing is not in our best interest?  I don’t know about you, but I like it even less when I find out later that those who it is really helping are those among us need help the very least.

So, light your fireworks this 4th of July and burn a little money to celebrat our independence.  But before you exercise your freedom to light the big fat stick of dynamite the government just put in your hands, think about the first time you held a firecrecker too long and how your fingers felt.  Oh and don’t forget to multiply that feeling by 125.

Posted in: News.
Tagged: · · · · · ·

Look! Look! a modification

Jun 30th, 2009
by Cathy Moran.
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I actually met a client yesterday who had negotiated the modification of her loan .  Interest rate reduced to 2% for 2 years; 4% for 2 years; and 6% thereafter.  Arrearages added to principal.

If that’s all you knew you might think that lenders were serious about making modification work.  The remaining fact is that the client now has an $839,000 debt on a house now worth $575,000.

The modification did nothing to make it economically rational to keep paying on this loan.  The house must gain a quarter of a million dollars in value before the house could be sold simply to pay off the mortgage.  The payments go up and, for reasons personal to this client, her income is unlikely to increase at the same rate.

So, in my cynical view, all the lender had done here is postpone the train wreck  for a couple of years, perhaps when the market isn’t so depressed with a flood of foreclosures.  And in the meantime, it can congratulate itself on its “successful” loan modification program.  Or, when this deal craters, it can say that modifications are doomed anyway.

Certainly, superficial loan modifications are doomed.  That I will agree with.

Posted in: Uncategorized.

Waiting for mortgage modification

Jun 29th, 2009
by Cathy Moran.
1 comment

Does the Obama Administration read the New York Times?  Then perhaps today’s paper will point out that voluntary loan modification isn’t working. Papers lost, hours on hold, arbitrary denials, the litany goes on.  The Administration can’t tell us how many loans have been modified.

The mere existence of a “program” such as the Times shows in action gets lenders a pass on the extended period for California foreclosures. Yet you have to think a “program” that can’t even track the applications, much less consider them is only window dressing.

Changes to bankruptcy law to allow the modification of home mortgages through Chapter 13 were defeated in Congress this spring.  Opponents  touted the sanctity of contract.  Banking interests  (who made the crisis possible with rotten lending practices) promised to voluntarily help the “deserving”, with sweeteners from the Obama HAMP and HARP plans.

Economists tell us that the recession won’t end til the housing market stabilizes.  Santa Clara County experiences 67 new foreclosure proceedings a day.

Voluntarism, a marvelous thing in the life of our communities, isn’t cutting it in staunching the torrent of housing loss.  It remains time for judicial mortgage modification.

Posted in: Uncategorized.

New California Law Extends Time Periods For Foreclosures

Jun 16th, 2009
by Doug Jacobs.
1 comment

An additional 90 days has been added, is some cases, to the length of time for a homeowner to cure a default in mortgage payments. The California Foreclosure Prevention Act went into effect on June 15, 2009. This bill extends the current 90 day period between notice of default and notice of sale to 180 days.

Unfortunately, the law is limited in its application to a principal residence occupied by the borrower at the time of the default and only if the loan is the first lien against the residence and was recorded between January 1, 2003 and January 1, 2008.

A mortgage loan servicer can apply to the California Real Estate Commissioner for an exemption to this law (reducing the time period for cure back to 90 days) if they have implemented a loan modification program with specified features. Once the Real Estate Commissioner concludes that the program meets the necessary requirements, the mortgage loan servicer will receive a permanent exemption.

What this means for homeowners is that, under the above circumstances, and if the holder of their first deed of trust hasn’t received an exemption, the homeowner has 6 months from the notice of default to modify the loan, refinance, sell the home or otherwise cure the default.

Posted in: News.

Mortgage Modification: What’s the Hold-Up?

Jun 15th, 2009
by John Mlnarik.
1 comment

Borrowers have reportedly been on the phone for a countless number of hours waiting to talk to someone about refinancing or modifying their home loans.  So, what’s the hold-up?

Have the banks not staffed their modification programs with enough people?  Are they simply using the Obama Administration’s plan as some kind of collection tactic to squeeze homeowners afraid of foreclosure?

While no one knows for sure what is causing the long wait times, experts in the area have come up with logical explanations and the American Bar Association released a free web seminar earlier this month discussing these issues and how the real estate crisis developed.

The 60 minute pod cast features Jamie Lathrop, Marc S. Stern and O. Max Gardner, III who all agree that without a motivating factor banks will continue to drag their feet.  O. Max Gardner, III calls modification in a Chapter 13 bankruptcy the hammer that is missing from the Obama Plan.  Having failed to pass the Senate earlier this year, Max predicts that a bankruptcy modification bill will be before Congress again by September.

The threat of foreclosing and having to write down their balance sheet should motivate banks, but as pointed out in the seminar, servicers have an incentive to allow a troubled property to sit on their balance sheet as it collects penalties and fees.  After all, when the property is foreclosed on, the servicer or a related third party will be paid for liquidating the troubled asset while the investor and the homeowner take the hit.

O. Max Gardner, III compared the securitization of mortgage loans to an expanded mortgage flipping scheme, pointing out that those borrowers with ARM loans are forced, by a scheduled increase in their interest rate, to refinance and again pay fees associated with doing so.

The experts also discussed limitations placed on servicers by the pooling and service agreements they have with investors.  Some of these agreements do not allow for any modifications and others only allow for a handful.

While it may not be entirely clear what is taking so long, it is clear that things are unlikely to change until a new kind of motivation presents itself.

Posted in: Legal issues.
Tagged: · · · · · · ·

Share your loan modification experience

Jun 13th, 2009
by Cathy Moran.
6 comments

Between the Obama plan and the loan modification ads on TV, you’d assume that everyone who need a loan modification can get one.  Is that your experience?

If you’ve tried to get a mortgage modification in the past three months, please share your experience with us.  Were you offered a modification?  What were the terms?  Did it reduce the amount you owed?  Were there conditions on qualifying?  Did you have to pay money in the process?

If you were unsuccessful, what prevented a modification?  Were you facing foreclosure?   Did the foreclosure go forward anyway?  Were you treated politely?  Knowledgeably?

Please report your experiences as a comment to this blog.

Posted in: General.

Mortgage trouble? Call your Congressman

Jun 8th, 2009
by Cathy Moran.
No comments yet

MoneyNews.com reports on the efforts of two member of Congress to help consituents find help with  loan modification.   It’s telling that one representative made no headway until she called the chief executive officers of Wells Fargo and Bank of America.  Homeowners without that Congressional clout languish on hold listening to canned music and are shuffled from department to department.

A majority in the Senate rejected empowering banrkuptcy courts to effect mortgage modification.  Put in the best light, they apparently assume that the banks are motivated and capable of providing voluntary resolution of the mortgage crisis. [The alternative explanation came from Senator Dick Durbin: "The banks own this place (the Senate)".]

Having trouble resolving mortgage troubles with your lender?  Facing forecloure?  Call your representatives in Congress: enlist their help with keeping your home.

Posted in: General.

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