The Obama administration kicked off the “Making Home Affordable” initiative, a $75 billion loan modification program, which runs through 2012. To qualify for this mortgage loan relief program, borrowers will have to provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship”.

 

Homeowners are only allowed to have their home loans modified once, and the program only applies for loans made on Jan. 1 2009 or earlier. Up to 4 million borrowers are expected to qualify. Separately, up to 5 million borrowers who have mortgages held by government controlled mortgage finance giants Fannie Mae and Freddie Mac should be eligible to refinance through June 2010.

 

The legislation that gives bankruptcy judges the power to force lenders to lower mortgage rates or principal balances has been narrowed. Now, judges would have to consider whether a homeowner had been offered a reasonable deal by the bank to rework his or her home loan before seeking help in bankruptcy court. Borrowers also would have a responsibility to prove that they tried to modify their home mortgage loans. The compromise in legislation is expected to come to a vote in the House as early as Thursday.

Harry Smith spoke with Ray Martin about how President Obama’s new mortgage plan will help homeowners in various states of foreclosure. 

 

Watch Federal Foreclosure Options for Struggling Homeowners

 

Ray Martin considers the two main foreclosure prevention options:

1. Loan Modification

2. Mortgage Refinance

Treasury Secretary Henry Paulson, trying to deal with a worsening housing slump, discussed a new initiative aimed at helping homeowners who risk losing their homes.  Struggling homeowners are seeking loan modification programs from their lenders, but the process is taking 4-6 months in many cases.  Mortgage lenders simply have not invested in their loss mitigation departments. Maybe the banks thought this foreclosure crisis would just go away on its own.

 

Watch Paulson Discuss Loan Modifications, Liquidity and the Mortgage Rescue Plan

Some delinquent homeowners are reporting that they can’t get through by phone to their mortgage company’s loss mitigation center.   Many mortgage companies and bank institutions laid off thousands of employees last year, leaving most lenders unprepared for a significant increase rise in mortgage relief requests. That has led to a bottle-neck in processing loan modification applications. Some borrowers are having a hard time getting their lenders on the phone.  

Reuters recently reported that U.S. mortgage companies increased their use of loan modifications in foreclosure prevention efforts to a record level in December, an industry group said on Thursday. 

Mortgage loan modifications, or permanent mortgage changes to lower payments, reached 122,000 in December, compared with the previous high set in October, said Hope Now, a coalition of mortgage service companies, home loan lenders and credit counselors.  Total “workouts,” including negotiated payment plans, increased to a record 239,000 in the month.  Regulators and lawmakers have criticized the industry’s foreclosure prevention efforts as too slow, or not effective, given reports that more than half of the modifications were failing after six months. The Federal Reserve said this week it would make additional measures to limit foreclosures by encouraging servicers to provide loan modification plans for at least $74 billion loans it owns, or has stakes in.

Mortgage Foreclosures Spiked 81% in 2008

More than 2.3 million American homeowners faced foreclosure proceedings last year, an 81% increase from the previous year.  Recent foreclosure reports suggest that one in five of those households in California are presently delinquent on the home mortgage.

 

Hope Now, an industry group that includes major mortgage lenders such as Wells Fargo & Co (WFC.N: Quote, Profile, Research) and subprime loan servicers, said members will likely turn more to re-underwriting new mortgage loans with lower interest rates or principal, over the less draconian practice of setting new payment plans to stretch out costs.  “Hope Now expects that the increasing reliance on loan modifications rather than payment plans will continue as economic conditions warrant,” the group said in a statement.  Data showing more prime borrowers than subprime borrowers were facing foreclosures in December underscored the urgency of foreclosure prevention. Total foreclosure starts rose by 34,000 in December from November, 75 % of which were prime loans, it said.  

In an attempt to boost the weak economy, the Federal Reserve cut interest rates to a record low of less than .25 percent. This is good news for loan modification agreements because lenders are offering lower mortgage rates with more affordable loan workouts.  Federal Reserve cut its key interest rate to below 0.25%.

RealtyTrac reported that 850,000 foreclosed homes are already on the market and real estate experts anticipate that this number will increase by another 1 million homes in 2009, with 2 million more homes entering the foreclosure process during the same period. 

Noted IndyMac Loan Modification Qualifications:

Government agency:  Federal Deposit Insurance Corp., or FDIC.
Call (877) 908-HELP (4357)
Web site: www.imb.com

ü  Inability to afford your current mortgage payments.

ü  Missed home loan payments.

ü  Ability to make modified payments.

ü  May need to prove financial hardship.

Target debt-to-income (DTI) ratio: 38%.

Mortgage Relief Options:

-      Repayment plan

-      Interest-rate reduction

-      Extension of loan term

-      Conditional forbearance

-      Foreclosure stay

-      Principal deferral

-      Short sale

-      Deed in lieu of foreclosure

Hardship Letters: IndyMac sends out “invitations to apply” for a mortgage modification and ready to sign preliminary loan modification offers based on information that’s on file.  IndyMac loan workouts require verification of income and expenses and financial statements must be signed. Borrowers who have missed two payments are more likely to receive a letter.

With its bailouts of Bear Stearns and American International Group, the Federal Reserve took a vast portfolio of mortgages onto its books. Now, it is trying to use its control of billions of dollars worth of home loans to help prevent foreclosures. The Fed will seek to revise negotiated mortgage terms it owns that might otherwise enter foreclosure, Chairman Ben S. Bernanke told congressional leaders in a letter yesterday. The decision won praise from congressional Democrats, who took it as a sign that the central bank’s leaders are cooperating with mortgage relief efforts from the government’s power to try to reduce home foreclosures nationally.

It is unclear how many homeowners stand to benefit. Under the program, the Federal Reserve can provide loan modifications by reducing what a homeowner owes on a mortgage, lower the interest rate, lengthen the term of a loan or take other steps to keep a loan from defaulting, if doing so would offer taxpayers a better long-term payoff than foreclosure. Individual borrowers are unlikely to know whether their mortgage loans are owned by the Fed, but if they qualify for a renegotiation, they would deal only with their mortgage servicer.  The Fed is emphasizing reducing the amount of principal owed by people at risk of foreclosure, particularly those with a mortgage loan balance that is more than 125% of the estimated value of their property. Private lenders have been reluctant to renegotiate mortgage rates that way, as some of the institutions that own those loans, in the form of mortgage-backed securities, stand to lose money and therefore object.  Bernanke has previously advocated principal reductions, saying in a speech in March that they could be an “effective means of avoiding delinquency and foreclosure.” Mortgage modification programs remain the hottest alternative to home refinancing.

This week the House Judiciary Committee approved legislation aimed at helping Americans keep their homes through bankruptcy.  I introduced the Helping Families Save Their Homes In Bankruptcy Act of 2009 to give courts the power to modify mortgages to bring them in line with underlying home values. For families in distress, this is a much-needed home financing reform. And considering the realistic mortgage alternatives, it is fair to all concerned.

I have been working on this bill for nearly two years. I believe it represents one of the most tangible and productive steps we can take to limit the fallout from the real-estate depression that has been sweeping the nation. While it is not the entire answer to the economic crisis, it is a common-sense and practical approach to stopping a downward spiral where foreclosures also depress nearby home values and thereby hurt other homeowners. This spiral is not helping anyone — not homeowners, not lenders, and certainly not communities.

Some argue that we are acting too quickly, and that we should delay my legislation to give homeowners and lenders more time to modify the terms of existing home loans on a voluntary basis outside of bankruptcy. But the evidence shows that such modifications don’t work. For one thing, many of the service companies who control the mortgage loans claim they are not legally permitted to agree to voluntary loan modifications. And even when they are legally permitted to agree, their financial incentives are stacked in the direction of foreclosure.

As a result, the much-vaunted federal “Hope for Homeowners” program launched in October has been only a limited success. The program is supposed to facilitate new mortgages for homeowners if FHA mortgage lenders agree to reduce the amount of money owed on a home to 90% of its assessed value. The FHA loan program went into effect with the goal of helping hundreds of thousands of homeowners. To date, it has processed less than 400 FHA Hope for Homeowners applications. To those who claim that my bill will end up harming consumers by increasing the cost of credit, I would respectfully suggest that they are not taking account of the track record of the modern-day bankruptcy code.

For more than three decades, the bankruptcy code has permitted the very kind of court modification we are considering today, for every other form of secured debt, including loans secured by second homes, investment properties, luxury yachts, and jets. For over twenty years, this very kind of mortgage modification has been available for home mortgages already — if the home is a family farm. There is no indication that this has in any way increased the cost of credit for any of these kinds of home loans.

As for my legislation, we have narrowed it to apply only to existing mortgages. So it will have no effect on new home mortgages and cannot impact their cost. This is one reason why Citigroup is now among the many business and consumer groups that support this proposal. It’s also one reason why the Obama administration supports my bill.  Article Written By JOHN CONYERS JR.  Read the complete article >

Recent mortgage loan delinquency reports indicated that 10% of homeowners in the United States are now in default with their lender. Mortgage loan modification experts forecast that in the next year or two that the number of borrower’s defaulting will double to more than 20 million households, with many others on the verge. This is nearing epidemic proportions, say industry professionals. With the fear of foreclosure and the threat of losing their houses, many homeowners remain discouraged because they have been turned down for mortgage refinancing. In addition, these borrowers are often misinformed about loan modifications and alternative mortgage relief solutions that may be available to prevent foreclosures.  The Loan Modification Buzz reports that consumers are fed up with low rate talk that in most cases is only available to homeowners who have high credit scores and tangible equity in their home.

As seen on CNN Money, homeowners need to demand that their bank show proof of a promissory note, which many banks lose or destroy. Without this evidence your house could be saved from foreclosure.

Loan modification programs continue to invade the mortgage sector, because so many homeowners are turned down by their lender when seeking a refinance loan. In most cases the borrower does not have enough equity, but many homeowners are delinquent on their mortgage and their credit scores are too low for most refinance opportunities.

Chase announced today that it has extended its mortgage modification efforts to their mortgage loans that are owned by investors that it services — about $1.1 trillion of home mortgages — significantly expanding the outreach and effectiveness of the mortgage relief announced previously with their mortgage modification programs. Chase now owns WAMU, so the number of loan modifications possibilities is staggering.  These foreclosure prevention efforts include investor-owned home loans held in securitizations.

 

Based on the company’s review of investor agreements and its experience with investors and trustees to date, Chase has made the decision that they can legally restructure loans with loan modifications of the majority of mortgage loans owned by investors consistent with the relevant investor agreements and the best interests of investors and intends to offer loan modifications where their loss mitigation department deems appropriate. Chase will continue to seek investor approval in the small number of situations where investor agreements contain specific terms that may limit modification actions Chase can take.  “Building on our loan modification efforts for Chase-owned mortgage loans, we have reviewed closely the terms of our investor agreements and have worked with investors, trustees, government officials and other interested parties to fashion an approach to foreclosure prevention efforts that will work for investors and homeowners,” said Charles W. Scharf, Chief Executive Officer for Retail Financial Services at Chase.

 

“When homes are foreclosed, everybody suffers, so working aggressively to modify all home loans -whether owned by Chase or owned by others – on terms that should work for the borrower, makes good sense for everyone,” he said. “Our experience at Chase shows that when home loans are properly modified, using income verification and other appropriate qualifying criteria, they perform very well over time.”  Chase announced enhanced foreclosure prevention efforts on October 31, and the company now has in place the people, programs and tools to help more borrowers remain in their houses.  Since early 2007, Chase has prevented about 330,000 foreclosures, primarily by modifying loan terms. Since its October announcement covering Chase-owned loans, Chase has accomplished the following below:

 

o    Delayed starting foreclosure on over $22 billion of Chase-owned mortgages of more than 80,000 homeowners so that Chase could review those home loans for possible mortgage modification under the enhanced program.

 

o    Implemented the previously-announced, more attractive package of loan workout offers for delinquent homeowners.

 

o    Finalized for mailing in early February proactive mortgage relief offers to borrowers of Chase-owned loans at imminent risk of default.

 

o    Selected locations for 24 Chase Homeownership Centers in areas with a high rate of foreclosures and loan delinquencies where counselors can work face-to-face with struggling homeowners. Two of the centers are now open; 12 are expected to be open by Feb. 28; and the remaining 10 are scheduled to open by mid-March.

 

o    Added 300 new loss mitigation counselors in the last 11 weeks to provide better help to troubled borrowers, bringing the total number of counselors to more than 2,500.

 

o    Initiated an independent review process to ensure each borrower was contacted properly and offered loan modification plans prior to foreclosure, if appropriate.

 

o    Developed a robust financial modeling tool to analyze and compare the net present value of a home in foreclosure to the net present value of a proposed loan modification; use of this tool will allow Chase to determine that it is acting in the best interests of investors when making loan modifications.

 

o    Worked to help establish a non-profit clearinghouse to join Chase and other mortgage lenders who want to donate or discount their owned real estate with the non-profit and government agencies that can use these properties. Chase is continuing to work with individual non-profit and government agencies; to date, Chase has completed five donations and has 47 discounted sales pending.

 

o    Worked with Fannie Mae and Freddie Mac to implement their new Streamlined Modification Program for borrowers at least 90 days delinquent; 19,000 letters were mailed in the last week of 2008.

 

Chase continues to work with Fannie Mae to implement Fannie Mae’s previously announced program to assist distressed homeowners in an effort to minimize loan defaults and foreclosures. Through the initiative, Chase believes it will be able to meaningfully increase the number of homeowners it can help.

According to a recent RealtyTrac report, over than 860,000 properties were actually taken back by mortgage lender in REO’s that more than double the 2007 level.  In another article, Moody’s Economy, a research firm, predicted the number of homes lost to foreclosure will likely to increase by another 18 % this year before tapering off slightly through 2011.  Still, mortgage foreclosures which continue breaking records going back thirty years, according to the Mortgage Bankers Association will most likely continue foreclosing well above standard levels for years to come, and that will continue to keep home sale prices from rebounding.  “Hitting bottom is a lot different than coming off the bottom,” said Christopher Thornberg, a principal with Beacon Economics in Los Angeles.

The annual RealtyTrac foreclosure report announced that 2.3 million American homeowners faced foreclosure proceedings last year, an 81 % increase from 2007, with the worst yet to come as consumers grapple with layoffs, shrinking investment portfolios and falling home prices.  This foreclosure report comes as Democrats, including President-elect Barack Obama, develop plans to use up to $100 billion of the remaining $350 billion in financial bailout money in an attempt to prevent the foreclosure crisis from blazing a fire burning homes across the country.  Loan modification programs have begun to show some positive results as FDIC Chairman, Sheila Bair stepped up to endorse a federal outline for loan workouts after banks like Indy Mac, Bear Stearns and Lehman Brothers started failing.

FDIC Chief: Foreclosure Plan Needed

Thousands of homeowners in Virginia threatened with foreclosure will now be offered some mortgage relief with reduced rate loan modification assistance.  Virginia Attorney General Bob McDonnell says 8,900 homeowners will get some mortgage relief from the $8.4 billion Countrywide Financial settlement, resulting in nearly $213 million in assistance.

Homeowners who were involved in subprime mortgage loans with balloon payments are eligible for relief with lower rate loan modifications. Hundreds of others who have already lost their homes could also get some compensation.  “Everybody that has been that has been affected by, what we’ve alleged, are deceptive practices by failing to disclose all the terms of the increased payments will be afforded some relief under this agreement,” McDonell says.  Countrywide loss mitigation departments, which are owned by Bank of America, promised to contact eligible borrowers with mortgage relief options.

In a recent article written by Michael Forsy, the President-elect Barack Obama says he will use the remaining $350 billion in funds for the Troubled Asset Relief Program to soften the foreclosure crisis and ease credit markets for businesses and families and to help reduce mortgage loan payments for people facing foreclosure, his top economic adviser Larry Summers said.  Loan modification plans remain a focal point for mortgage relief and Obama continues to persuade lenders to provide negotiated loan modifications that provide payment relief.

In a letter to congressional leaders, Summers said the incoming administration will work with Congress to institute tougher accountability standards for the program, work to overhaul bankruptcy laws, and “impose tough and transparent conditions on firms receiving taxpayer assistance.”   Summers pledged that taxpayer money would only be used “when sufficient private capital cannot be attracted.”  Summers is Obama’s incoming head of the National Economic Council.  Read the original article.

In California, mortgage lenders can foreclose on deeds of trusts or mortgages in default using either a judicial or non judicial foreclosure process.  When considering foreclosure prevention with a short sale or modification, it is important to understand California foreclosure laws.  The judicial process of home foreclosure begins with the mortgage lender filing a Notice of Default.  The lender files a lawsuit to get the local court force foreclose, is used when no power of sale is present in the mortgage or deed of trust. However, the State of California has made it clear that lenders and mortgage servicing companies must make every effort to provide a loan workout or mortgage modification prior to the pursuit of the foreclosure process. 

In most cases, if the loan modification process is unsuccessful and the local court concurs with the mortgage lender’s foreclosure request, your property will be auctioned off to the bidder who makes the best offer.   Using this type of foreclosure process, mortgage lenders may seek a deficiency judgment and under certain circumstances, the borrower may have up to one year to redeem the property.

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage note, in which the borrower has authorized the sale of property to pay off the balance on a mortgage in the event that the borrower defaults. In deeds of trust or a deed in lieu of foreclosure, where a power of sale exists, the power given to the mortgage lender to sell the property may be completed by the trustee.

A notice of sale must be: 1) recorded in the county where the property is located at least fourteen (14) days prior to the sale; 2) mailed by certified, return receipt requested, to the borrower at least twenty (20) days before the sale; 3) posted on the property itself at least twenty (20) days before the sale; and 4) posted in one (1) public place in the county where the property is to be sold.   The notice of sale must contain the time and location of the foreclosure sale, as well as the property address, the trustee’s name, address and phone number and a statement that the property will be sold at auction.

The defaulting homeowner has up until 5 days before the foreclosure sale to cure the default and stop the process.  Mortgage lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.

What are the chances of getting a loan modification through a company like Countrywide or WAMU if we are current on our mortgage?

Unfortunately most loan modification firms report better results from clients that were a few months late.  It may be simply that mortgage lenders do not see the need to modify or restructure a loan in which the borrowers are not delinquent.  With the foreclosure crisis moving down Main Street and hitting the prime credit homes, we may see these results change. For now distressed borrowers who are achieving better mortgage relief results because the mortgage lenders and investment banks do not want the deeply depreciated properties that will increase their loss even more.

Do you have to pay thousands of dollars to get a loan modification?

No, most mortgage lenders do not require borrowers to pay for a mortgage loan modification agreement. However, loan modifications can be complicated and most loan work-outs take 3-4 months to complete.  The mortgage companies have not invested the build the staff needed to keep up with the demand of funding loss mitigation departments during this foreclosure crisis.  Paying a law office or loan modification company a few thousand dollars to negotiate a new mortgage with lowered interest rates that potentially could save you hundreds of thousands of dollars is a small price to pay for such a significant financial gain.

Is Loan modification the best solution to losing a home to foreclosure?

Loan modifications have become the most popular choice for loan relief for homeowners.  It is not the only loss mitigation solution however.  Traditional refinancing has typically been rejected before applying for a loan modification. If you have a significant amount of equity left in your home, a foreclosure bailout loan may be an option to get your outstanding balance caught up, but the interest rate are usually high with hard money loans, so it would be more like a band-aid.  Short Sales can be effective if you absolutely can’t afford your home with or without the modification or maybe you believe that you’re home is so far underwater with your mortgage balance being so much greater than the property value that you would rather sell it short and move on. 

Is it lawful to charge homeowners money upfront to assist in negotiating a loan modification with the lenders loss mitigation department?

Foreclosure prevention has evolved into a big business.  With millions of delinquent borrowers facing foreclosure, the demand for negotiating services has escalated into a new type of loan origination.  Attorneys are allowed to charge for their legal advice in advance.  If you are working with a non attorney backed loan modification or real estate broker they are required to hold any money advanced in an escrow account until a loan modification is agreed.  Predatory lending laws are in the process of changes to protect homeowners against abusive practices from unscrupulous mortgage lenders.

If a loan workout is not achieved what are my other options?

Let’s face it; you don’t always get everything you want in the first stages of loss mitigation. Short sale, forbearance, and a deed in Lieu are several popular alternatives if a loan modification is not initially negotiated with the mortgage lender to check out.

At this point, clearly the Bush administration is stalling on following FDIC Chairwoman Sheila Bair’s recommended loan modification plan.  Lawmakers have begun taking matters into their own hands.  Last week, Rep. Maxine Waters, D-California, introduced the first legislation incorporating Bair’s proposal to systematically restructure mortgages and provide a government guarantee against default. The measure is estimated to ultimately save 1.5 million homeowners from foreclosure and would cost $24.4 billion, which Waters would take from the $700 billion financial industry bailout bill.  “The current foreclosure crisis continues to spiral out of control and our current programs for dealing with this crisis are simply not getting the job done,” Waters said.  Waters’ action is one more sign that Democratic lawmakers want more to be done to help minimize the crisis of delinquent homeowners. Rep. Barney Frank, D-Mass., head of the powerful House Financial Services Committee, said Monday that any new proposals involving the bailout funds must include foreclosure prevention programs.  Waters’ bill, however, will likely have to be reintroduced when the new Congress takes office next year unless similar measures are worked into any new bailout proposals. Several banks, and mortgage lending companies Fannie Mae and Freddie Mac, have recently put their own loan modification plans into place. And as part of its federal bailout, Citigroup must start provide loan modifications in accordance with Bair’s guidelines.

                 

Meanwhile, the number of homes falling into foreclosure is rising daily. A record 1.35 million homes are in foreclosure and a historic high 6.99% of borrowers are behind on their payments, the Mortgage Bankers Association reported last week.  Bair has been a vocal advocate for rolling out a systematic mortgage modification plan and she actually put her loan mod plan into action with IndyMac, which the FDIC took over in July.  Reports have indicated that FDIC officials had a role in restructuring over 5,000 home loans as of mid-November.

Foreclosure relief plans, like loan modifications and forbearance continue to be called the best solution to tone down the rising foreclosure crisis.  The government want homeowners to be able to stay in their homes and weather the storms.  Clearly they will need significant participation from the mortgage lenders and investors that hold the mortgage notes. 

Federal Reserve Chairman Ben Bernanke said Thursday that the government must do more to address foreclosures.  Bernanke, speaking at a Fed conference in Washington, D.C., said that beyond just keeping homeowners in their homes, the Fed must continue to focus on foreclosure prevention to help stabilize the housing market and economy as a whole.  “The housing market remains central to the economic and financial challenges that we face,” Bernanke said. “Reducing the number of preventable foreclosures would not only help families stay in their homes, it would confer much wider benefits.”  The Fed chief says a revitalized housing market is key to economic recovery, and that foreclosure prevention deserves increased government attention.

According to Bernanke, about 15% to 20% of borrowers are “underwater” on their mortgage loans, meaning their homes are worth less than they owe. In addition, he said, 20% of sub-prime mortgage loans are seriously delinquent. Bernanke estimated that 2.3 million foreclosures will be initiated in 2008, compared to an average of 1 million before the mortgage meltdown.  Bernanke said the Fed, Treasury Department and Federal Deposit Insurance Corp. have already planned or put in place several measures aimed at stemming foreclosures.   The government has, among other things, cut mortgage rates and announced a plan to buy $500 billion of mortgage loan-backed securities and $100 billion of debt issued by government-sponsored mortgage financers Fannie Mae and Freddie Mac.But Bernanke said more can still be done and outlined several “promising programs.” One was FDIC Chairwoman Sheila Bair’s loan modification plan, which would lower mortgage rates, extend loan terms and offer government insurance against bank losses if borrowers who receive help end up in default anyway.   Another proposal includes strengthening the Federal Housing Administration’s Hope for Homeowners program by reducing the premiums paid by the lender. Bernanke suggested that Congress could give FHA home loans the ability to set premiums on a case-by-case basis rather than an across-the-board approach.

What is Loss and Mitigation? Mortgage loss and mitigation is a legal process where mortgage lenders work with homeowners to create a more affordable home loan scenario. The loss and mitigation process typically produces the following results:

Loan Modification – This is the fastest growing mortgage relief remedy – Let our attorneys negotiate with your mortgage lender to get your 1^st and 2^nd mortgages with lower rates and reduced monthly payments.

Bankruptcy – BK’s can certainly delay foreclosure but once you are actually in bankruptcy, your mortgage lender can actually force a foreclosure if you miss one payment.

Refinance – We have established relationships with very reputable lenders who offer FHA home loans, conforming and jumbo mortgage loans that are in default and risking foreclosure, but there must be significant equity, unless you qualify for FHA Hope for Homeowners loan that requires the lender to lower the mortgage balance to fair market value. 

Deed-in-lieu of Foreclosure – One option that is rarely available is to get your lender to agree to a deed in lieu of foreclosure.

Short Sale – If you decide that don’t want to keep your house, this is great alternative to just walking away.  Our team may be able to negotiate a Short Sale with your mortgage lender. In some cases, the bank may accept less than what you actually owe on the mortgage.  These days many mortgage lenders are accepting a short sale to prevent the high costs of the foreclosure process.

In a recent article, Averett suggested it makes economic sense to foreclose in some cases. What happens to the homeowner who successfully had their loan modified with better terms and lower mortgage rates just ahead of that borrower getting laid off from his or her job?  Does the mortgage lender renegotiate the mortgage rate again to meet that person’s new income level?  Indeed, studies have shown that nearly one-third of borrowers who’ve had their mortgage loans modified are in trouble again after three months. 

And what about the borrower whose loan is now “under water,” the term used to describe a home loan that is now larger than the value of the property on which it was based?  The borrower’s home loan terms could be renegotiated, but they will still have to pay off an outstanding mortgage balance that far exceeds the value their home. If their neighbor throws in the towel to foreclosure, then the home will be resold at its current value and the first homeowner discussed now faces a neighbor whose home loan payments are significantly less than his or hers.  At some point, the first homeowner asks himself why he’s bothering, and he defaults as well.  “The homeowner says, ‘I’m paying a fortune for my mortgage. I’ve got to save for retirement. I’ve got to put my kids through college. I’m getting out too,” she said.  That person might be better off renting a home at half the amount he or she is paying for their mortgage — very plausible in some areas of the country.  The problem is that throwing in the towel leads to more foreclosures, which pushes down the value of homes even more, which leads to more foreclosures and so on…

Michael D. Calhoun, president of the Center for Responsible Lending, recently expressed skepticism that voluntary loan modifications could have a significant impact on the swelling number of foreclosures.  In testimony before Congress Wednesday, Calhoun strongly recommended allowing bankruptcy judges to oversee the modification process, saying it’s the “most efficient and cost effective” solution.  “Judicial loan modifications will provide a strong incentive for servicers and investors to make voluntary programs work, since they will have clear authority to avoid judicial modifications by offering their own workout solutions outside of bankruptcy,” said Calhoun.  “Bankruptcy courts already modify mortgage loans for all manner of other debts, including mortgage loans on vacation homes and investment properties. They should be permitted to do so for a homeowner’s primary residence, which is typically the asset most critical to a family’s financial and physical security,” Calhoun added.  Averett believes the only cure for the rapid rise in foreclosures will be the stabilization of housing market. But she was philosophical about loan modification agreements.  “They will help some people in some instances, but there are just too many forces against the homeowner. There’s a lot of people you simply can’t help,” she said.  Read complete article >

According to a recent Mercury News article, San Jose homeowner Salvador Ruiz paid a foreclosure prevention company $8,950 to negotiate the terms of his home loans with mortgage loan modifications on two properties four months ago, but he says they did nothing and haven’t returned his money. “They tell me everything’s OK, but they haven’t done anything so far,” said Ruiz, who is filing a complaint with the California Department of Real Estate.  With non-profits and banks overwhelmed by the demand for their services from people like Ruiz, an army of consultants has sprung up in San Jose and around the state offering homeowners loan work-out assistance banks to provide home loan modifications for a fee.

Some of these businesses charge as much as $5,000 in advance, and many desperate homeowners facing foreclosure will pay to modify their home mortgages to a more affordable loan payment.  But some customers are complaining that little was done for the money they paid, while some services have turned out to be scams.  “It’s a relatively new phenomenon,” said California Department of Real Estate spokesman Tom Pool. “It’s becoming an issue. As always, people get very clever when they see an opportunity.”  Real estate brokers are required to obtain permission from the DRE to collect fees in advance, but do not need permission if they charge after completion of the work. Pool said the agency has issued “desist-and-refrain” orders to a few unapproved companies that were charging advance fees. The DRE advises consumers to check its website to verify that a loan modification company has any negative marks.  “Some of our clients have paid companies for modifications and not received service,” said Keisha Woods of EPA Can Do, an East Palo Alto non-profit. “We are advising our clients not to pay for any type of modification service.”  EPA Can Do helps low- to medium-income homeowners negotiate loan work-outs for homeowners facing foreclosure or future trouble from a future adjustable interest-rate reset, and helps transition those who do lose their houses, Woods said.

The state Attorney General’s office is prosecuting First Gov, also called Foreclosure Prevention Services, a Los Angeles company that promised to renegotiate loans for $1,500 to $5,000 but instead “ripped them off for thousands of dollars” while their homes went into foreclosure, according to the Attorney General’s office.  “Loan modification scams are becoming more and more prevalent across the country, particularly in California,” Attorney General Jerry Brown said when First Gov officials were arrested earlier this month.

Most major banks have their own loan modification processes, which customers can deal with on their own. And non-profits such as Project Sentinel and Neighborhood Housing Services-Silicon Valley will help clients negotiate with banks for free. But these services are clearly overwhelmed by the demand.   “The reality is, we’re swamped,” said Martin Eichner of Project Sentinel in Sunnyvale. “We’re currently averaging 12 hours of counselor time per case. It’s labor-intensive, so the idea of charging for the work is not unreasonable. The problem is charging fees in advance before accomplishing anything.”  Said Marlene Santiago, a foreclosure intervention counselor with Neighborhood Housing Services: “On Mondays, we have 70 voice mails waiting. It takes me two hours to go through them. We need help, we really do.”  Ruiz, the San Jose property owner, ultimately turned to another private company, Home Resolution and Credit Services, which was opened in July by real estate agent Robert Aldana and broker Martha Lopez-Chubb. It’s one of two San Jose companies registered with the DRE to accept advance fees for mortgage modifications.  “Plain and simple, if there was enough help out there for free, we would not exist,” said Aldana, who does local Spanish-language radio and television broadcasts on real estate.   Read Complete Article

If you are asked to pay in advance, check the Department of Real Estate”s website to see if the loan relief service dealing with has permission to collect advance fees: Ask to see the mortgage company”s “no objection” letter from the Department of Real Estate.  California Foreclosure Lawyers do not have to register with the state as long as they are California attorneys. Real estate and mortgage brokers are allowed to modify mortgage loans as long as their services are fully completed before they are paid.  Loan Modification Outlet is an attorney backed mortgage relief service with partial refund options depending on how far along the individual is in the loan modification process to receive a refund.

• Carefully review the agreement and consider obtaining independent advice before signing it or advancing any fees.
• Compare the services and fees offered by other licensed brokers on the Department of Real Estate”s list.
• Do not pay anyone in advance if you have already received a Notice of Default from your mortgage lender.
• Check with local non-profits that help people modify their home loans without charging money upfront.  See More California DRE tips >

 

A California-based advocacy group that helped start the grassroots foreclosure freeze movement has taken its appeal to help homeowners to Capitol Hill this week.  Robert Gnaizda, general counsel of The Greenlining Institute, told Legal Newsline that he met with FDIC. Chairwoman Sheila Bair on Monday, and that he would meet with Speaker of House Nancy Pelosi, D-Calif., and Chairman of the House Finance Committee Rep. Barney Frank, D-Mass., on Tuesday.  Gnaizda said he is telling these political powerhouses that investor influence could block loan modification efforts and that a 120-day national freeze on foreclosure activity is critical to prevent foreclosures to reach epidemic proportions.  “Legislation is being introduced,” Gnaizda said, “that has the support of the entire Democratic Party, calling for a foreclosure moratorium of 120 days.”  Gnaizda is also here to criticize the $8.68 billion settlement reached by California Attorney General Jerry Brown, Illinois Attorney General Lisa Madigan and Countrywide Financial Corp. over its alleged predatory lending practices.  The attorneys general called the settlement with Bank of America, which bought Countrywide in July, a historic achievement and the largest settlement of its kind.

But Gnaizda said it suffers from a “fatal flaw” in that it favors Wall Street investors over Main Street homeowners.  “We cannot accept the Bank of America settlement as the gold standard,” Gnaizda said he told Bair, “and despite what the California Attorney General says, Bank of America does not have the power to address those loans that are in the hands of the investors.”  Gnaizda said hedge fund investors that bought mortgage loan securities have been outspoken recently against the potential billions in losses that could occur from modifying loans.  But the California attorney general’s office told Legal Newsline on Tuesday these claims mischaracterized the settlement.  “Countywide has represented to us, and it has been documented in the judgment that it has existing authority or it has substantial investor approval to modify mortgage loans,” said Benjamin Diehl, California Deputy Attorney General for Consumer Law. “It’s one of the two, perhaps in some cases even both.”

Gnaizda, along with San Diego City Attorney Mike Aguirre, have argued that the settlement did not contain an admission of fraud by Countrywide. The pair believes that only an admission of fraud would force hedge funds to allow Bank of America to revise loans.  But the admission of fraud is not necessary, according to Diehl.  “We have the investors on board,” Diehl said, “so we have a program that is going to save homes. The dickering over whether there is an admission of fraud misses the point. The program is being lauded nationally and followed by other mortgage lenders as witnessed by recent announcements from JP Morgan Chase and Citibank.”  Aguirre, who like Brown and Madigan is a Democrat, originally called the settlement a “home run,” but has since been critical of it. Despite their party ties, Aguirre and Brown sparred frequently during the course of the Countrywide negotiations.  Aguirre is the only city attorney to have sued Countrywide. He has not yet agreed to settle his lawsuit. Aguirre also sued both Wachovia and Washington Mutual for predatory lending practices.   But Aguirre lost his bid for re-election on Nov. 4 to Republican Jan Goldsmith, who said he would drop all these suits once he assumes the city attorney post.

Diehl said other states that have sued or will soon sue Countrywide will negotiate their own settlements, though he expects most to follow suit with the deal struck by California and Illinois.  “The terms are going to be fairly universal, especially the loan modification program,” Diehl said.  Which is precisely what motivated Gnaizda’s trip to Washington. Gnaizda believes a tougher deal that ensures protection for homeowners that stop foreclosure with a moratorium providing loan modifications is the only way to ensure victims of predatory loans are protected.   He believes that only 20 % of Countrywide homeowners who face foreclosure will be helped by the settlement.  Diehl said the final percentage cannot be determined because the future of the economy remains in doubt.  “I suspect the real number will end up being higher,” he said. “How it works on the exact percentage depends somewhat on what happens with the economy in the next two and half years. Trying to speculate to a percentage is very hard to do.”  Diehl said he believes the Countrywide settlement will serve as an effective model for future protection of homeowners.

“This is a program that at the time we negotiated it with Countrywide and the attorney general of Illinois, we were proud of,” Diehl said.  “We are hopeful and confident that it will help homeowners avoid foreclosures. We’ve seen the influence it has had. On the other hand, we’re always hopeful that lenders can do more. We don’t want to be seen as a ceiling. If anything we want it be seen as a floor that even more can be done in the future, because that will help even more people save their homes.”

According to an article written by Jay Mallin of Bloomberg News, FDIC chairwoman Sheila Bair could have a defined role with Obama administration because of her foreclosure prevention efforts.  Bair continues to push the limits with expanded loan modification programs to prevent foreclosure for distressed homeowners across the country.  Her recent proposal for additional mortgage relief aid puts her at odds with the Bush administration, yet the timing could be right for the next regime that continues to promote change with loan modifications and home loan reform.  Sheila Bair, chairwoman of the Federal Deposit Insurance Corp remains one of the few government officials whose reputation and image may have has been improved during the subprime mortgage meltdown and foreclosure crisis.  The republican woman offers a full arsenal as an author of children’s books, FDIC chairwoman who has aggressively pursued and rallied for the U.S. government to expand their scope and reach out with progressive mortgage restructuring to ease the pain for the millions of struggling homeowners.  According to Mallin she is even winning praise from Democrats who appreciate her non partisan approach to fighting off foreclosure and improving predatory lending laws.

As the Bush administration gallops off into the sunset, she becomes more vocal with a strong advocating for her foreclosure and mortgage relief plan that certainly could help promote the non partisan message that President Elect, Barack Obama looks to install. Bair may just have earned herself a leading role for this new administration.  Just last week she took several more steps that suggest she is on a mission as she publicly criticized the highly touted foreclosure prevention plan that Paulson’s Treasury Department and other agencies were bragging about. She pointed out the loan modification plans deficiencies that she believes fall short of what American homeowners need.  On Friday, Bair released details of better mortgage loan modification plan that require a $24.4-billion injection.  Her program aims to prevent 1.5 million foreclosures — even though Treasury Secretary Henry M. Paulson had told reporters earlier in the week that he had changed his mind and that they would not pay bad mortgage loans. 

                     

“Sheila’s very ambitious, and I think she’s looking for a job promotion in the Obama administration,” said Bert Ely, a banking industry consultant. “Even though she’s a Republican, she’s much more in tune with the Democrats.”Bair’s Republican registration and her Democratic leanings on handling the mortgage crisis could make her an appealing choice for Obama, analysts said. She has been mentioned as a dark-horse candidate for Treasury secretary, having served as assistant secretary for financial institutions in 2001 and 2002. She has also been thought of as a mortgage czar to oversee the various government efforts to stem foreclosures, should Obama create such a position.  “I wouldn’t mind seeing her as Treasury secretary,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. He said Obama would be “foolish” not to find a place for Bair in his administration considering her performance during the financial crisis.  Bush appointed Bair, 54, to a five-year term as chairwoman of the FDIC in 2006. It is an independent agency, similar to the Federal Reserve, so Bair does not have to step down with the change of administration. Her term on the FDIC board extends even longer, until 2013.   But Bair would heed the desire of the new president, said FDIC spokesman Andrew Gray.  “She has said she believes any incoming president should have the power to choose their own economic team. She would respect any decisions made by the president-elect,” Gray said, adding that would include stepping down as FDIC chief or serving in a different capacity.  “She would be open to his decisions on where he may think she can be best utilized,” Gray said.

The FDIC was created during the Great Depression to provide government-backed insurance for bank deposits. But its boss usually works in obscurity, except during severe financial turmoil.  Bair has taken the job to a new level. She was one of the first government officials to recognize the problems of subprime loans. At a conference in October 2007, she told investors: “More needs to be done, and done sooner rather than later,” to restructure mortgages and modify mortgage loans for troubled homeowners.

She took a prominent role in the Bush administration’s response this fall, including successfully pressing for a significant expansion of deposit insurance.  Bair has also made reducing foreclosures one of her priorities. After the FDIC took over failed IndyMac Bank of Pasadena in July, the agency developed a plan to reach out to struggling homeowners and make their mortgage loans more affordable. Consumer advocates marched in accordingly with praise for Bair’s foreclosure prevention efforts.  The homeowners relief plan, which has had mixed results, is the basis for Bair’s $24.4-billion proposal to have the government cover as much as 50% of the losses on modified mortgage loans in hopes of persuading lenders to restructure them. 

Bair’s work has drawn praise from many congressional Democrats. Last month, House Financial Services panel Chairman Barney Frank (D-Mass.) and Rep. Maxine Waters (D-Los Angeles) wrote to Bush urging him to have Bair head a government-wide effort to coordinate operations to help homeowners.  Bush has not created such a position. And his administration has been cool to Bair’s mortgage restructuring plan because it calls for additional spending. Last week, federal officials announced a less ambitious plan to modify several hundred thousand holders of mortgage loans owned or guaranteed by government-run Fannie Mae and Freddie Mac.  But Bair publicly criticized the plan. Then on Friday she formally rolled out her own proposal, even though the administration had said it would not fund it. Gray said the move was designed to give lawmakers and others specifics so they could decide whether the foreclosure prevention plan was worth enacting. “I think she and her staff are more focused on where the Democrats are on this than where the Republicans are,” Ely said. That could pave the way for a new job for Bair after Jan. 20.  “I wouldn’t be surprised if the Obama administration [creates] a mortgage modification czar,” Ely said. “Or in this case, a mortgage modification czarina.”

 

 

 

 

The Bush administration increased its taxpayer bailout of a single Wall Street corporation, AIG, to a colossal $150billion because the initial $85 billion bailout failed. To put that into perspective, $150 billion is more than the entire budget of the state of California.  We also learned the Treasury Department, in the dark of night and without apparent legal authority, secretly changed a little- known tax law in order to give a $140billion windfall to banks at the expense of taxpayers. Meanwhile, thousands of home foreclosures continued to occur and ordinary citizens continued to suffer.  The last eight years provide strong evidence that trickle-down economics is intellectually bankrupt. There is little reason to believe the current administration’s trickle-down solution of showering Wall Street with vast amounts of taxpayer monies is going to fare any better. We need a solution from the ground up, one that helps not just Gordon Gecko the banker, but Joe the homeowner.

The root cause of the financial meltdown is the massive and continuing wave of home foreclosures. In California, we had 101,100 foreclosure filings in August, which equated to about one foreclosure filing every 30 seconds. Many Wall Street firms disintegrated after the mortgage assets they held became toxic and worthless because too many homeowners started defaulting on loans. If we can reduce the number of foreclosures on the ground, we will steady Wall Street, stabilize housing prices, keep families in their homes and start our economic recovery much sooner.  That is why I have authored a bill designed to force Wall Street to help the struggling homeowners on California Street. The bill, known as the California Foreclosure Prevention Act, is a bottoms-up solution that builds upon a recent proposal by Gov. Arnold Schwarzenegger.

The California Foreclosure Prevention Act contains three main points. First, the bill imposes a 120-day foreclosure moratorium on home foreclosures to allow time for the homeowner and the lender to try to work out a solution.  Second, a bank can avoid the foreclosure moratorium if it has a comprehensive loan modification plan based on criteria established by the Federal Deposit Insurance Corp. Part of the criteria includes modifying mortgage loans for borrowers in default so that approximately 38% of the borrower’s debt-to-income ratio goes toward paying the mortgage. Loan-modification solutions can include freezing interest rates, reducing interest rates, reducing principal or extending the term of the loan.  Third, the bill provides strong oversight and accountability provisions. There will be mandated reporting to the state Legislature and consultations with executive and legislative officials. Unlike the Bush administration’s taxpayer bailouts, not a single dime of taxpayer funds will be used to modify home loans. It is Wall Street firms and banks that will be paying for the loan modifications.

The California Foreclosure Prevention Act, if enacted into law, would be the first law in the nation to provide for a foreclosure moratorium unless banks provide a program for comprehensive loan modifications. Because states have virtually sole authority over the foreclosure process, this act would apply to both state- and federally chartered institutions. The hope is that other states will replicate this model to start forcing more loan modifications to occur.

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