www.youtube.com/watch?v=fvbXl2bqo-Y

It’s still too early to pass final judgment on HAMP. Cleary the program and others like it are struggling in part because of the rising rate of unemployment, which makes it impossible for many people to pay any kind of mortgage, even a more affordable one. No doubt, as critics of the financial industry suggest, many servicers have been slow to train enough staff to do modifications and investors in mortgage-backed securities pose a lingering obstacle.   But new research suggests that the mortgage loan modification effort may also be based on faulty economic assumptions.

According to economists at the Federal Reserve Bank of Boston, the win-win-win concept of mortgage modification understates two of lenders’ strongest incentives to foreclose. The first is that roughly 30% of troubled debtors eventually can pay without a loan modification; thus, for lenders, 30% of the total cost of the loan modification is wasted. And since lenders can’t know in advance which 30% will “self-cure,” they hesitate to offer any mortgage modifications.   The 2nd problem is the risk that homeowners re-default on a modified loan. By the time that happens, the value of the house has declined further, and foreclosure costs the lender even more than it would have earlier. The HAMP program includes $10 billion for partial protection against that risk, but it may not be enough, especially given the sour outlook for employment.

Loan modifications can combine lower interest rates, maturity date extensions, changing from adjustable to fixed interest rates, and the reduction of principle. Of the four, principle reductions are statistically the best way to ensure the long term success of a loan modification. According to LPS reports, loan work-outs that included principle reductions had a 25% lower re-fault rate than those without a reduction. Fitch’s numbers concurred with those numbers, indicating that loan modification plans that included principle reductions saw a 40% to 50% chance of a re-fault. Not surprisingly, Fitch found that loan modifications where loan principle was increased due to missed payments and penalties being added to the backend of the loan had a re-fault rate of 60% to 70%

A new cycle of mortgage bills arising from the high number of home foreclosures in the Inland area and around California is moving through the Legislature, following major initiatives at the state and federal levels in the past year.

The bulk of the new state proposals expand protection for renters living in foreclosed properties, create new rules for reverse mortgages, and impose standards on loan-modification consulting companies, such as banning them from taking advance payments from troubled homeowners.

Some industry groups and lawmakers question the need for more state legislation so soon after Congress and the Legislature approved measures to address the foreclosure problem.  Some of the laws have been on the books for only a relatively short while. 

A 90-day foreclosure moratorium approved as part of the February budget package takes effect Monday.  “It’s premature to add new legislation on top of what we have before we see what the results are,” Dustin Hobbs, of the California Mortgage Bankers Association, said. “We’re not saying more action can’t be taken down the road. But let’s see what happens first.”  But supporters say much remains to be done to address the state’s foreclosure problem, and to prevent it from happening again.

Paul Stein, associate director of the California Reinvestment Coalition, which advocates for low-income residents in the financial sector, said Congress is taking the lead in crafting foreclosure-related fixes. Those include possibly making it easier for bankruptcy judges to modify mortgage payments for struggling borrowers.

There is still a large role for the state to play, he said.  “It’s still the case that … financial institutions are not accountable for the impacts of foreclosures on borrowers and communities. They’re really not obligated to help anybody,” Stein said.

Home Loan Defaults Rise

Foreclosures have been a major burden on the Inland economy. In April, there were almost 5,000 notices of default filed in Riverside County, according to ForeclosureRadar, a tracking service. The notices are the first step in the foreclosure process. The county had the fourth-highest rate of foreclosure sales last month.

San Bernardino County had about 4,000 notices of default and the seventh-highest rate of foreclosure sales in April.  The main state foreclosure law to emerge last year was SB 1137. It requires lenders and loan servicers to talk with borrowers before starting foreclosure proceedings. The aim is to get more loan modifications.  This year, lawmakers introduced more than 30 foreclosure- and mortgage loan modificationj related bills. Nearly all of the authors are members of the Legislature’s Democratic majority.  About 24 measures are still pending, with most facing a Friday deadline to clear the Legislature’s appropriations panels.

Some of the foreclosure prevention bills would put the state in compliance with the federal Secure and Fair Enforcement of Mortgage Licensing Act approved in July 2008.  The law requires mortgage loan originators to be licensed and complete 20 hours of pre-licensing legislation, along with other requirements.  It wasn’t clear whether mortgage lenders and banks would be exempt from this new licensing requirement.

www.youtube.com/watch?v=9m4q2iuBlyo

Loan Modification Tips from Jeff Morris on Negotiating with Mortgage Lenders

There are 4 primary reasons why most people like working with an attorney-backed loan modification company versus a mortgage broker or individual. 

1.    First, make sure the law firm is an AV rated law firm which means it’s ranked the highest in the nation – sort of like a Johnny Cochrane style law firm. 

2.    Secondly, the lead attorney should be ranked in the top 1% in the state of California – which puts him ahead of 99% of the rest of the attorneys statewide. 

3.    Thirdly, choose a law firm that will allows you to break up your payments into 3 or 4 low payments.  This helps significantly when a person is in a financial bind. 

4.    Lastly, 95% of your calls are coming from pop up loan modification companies.  You should contract work from one of the most well respected law firms in all of California that was doing business prior to the turn of the century.

www.youtube.com/watch?v=SoHF-KZlTUw

Watch Federal Foreclosure Options for Struggling Homeowners

Ray Martin considers the two main foreclosure prevention options:

1. Loan Modification

2. Mortgage Refinance

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 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.

The mortgage modification plan could have tremendous importance because Fannie Mae and Freddie Mac own or guarantee nearly 31 million U.S. mortgage loans or nearly 6 of every 10 outstanding. Still, government officials did not have an estimate of how many people would qualify for the new program.  Officials hope the new approach, which goes into effect December. 15., will become a model for loan servicing companies, which collect money for mortgage lenders and then distribute them to investors. These companies have been roundly criticized for being slow to respond to a surge in defaults.

To qualify, borrowers would have to be at least three months behind on their home loans, and would need to owe 90 % or more than the home is currently worth. Investors who do not occupy their homes would be excluded, as would borrowers who have filed for bankruptcy.  Borrowers would get help in several ways: The interest rate would be reduced so that borrowers would not pay more than 38 % of their income on housing expenses. Another option is for loans to be extended from 30 years to 40 years, and for some of the principal amount to be deferred interest-free.  While mortgage lenders have beefed up their efforts to aid borrowers over the past year, their earlier efforts have not kept up with the worst housing recession in decades.

And critics were quick to pour water on the latest plan.  “Instead of a massive foreclosure prevention program, we wait for a homeowner to be in a failing position before doing anything, which often is too late,” said John Taylor, president and CEO of the National Community Reinvestment Coalition.  “It’s been the foreclosures that have been driving the economic downturn and we’ve been saying that for 13 months now. To stop the bleeding is to end foreclosures,” he continued. “But now that so many other sectors in the economy have fallen, I’m not sure if we’re past the point of no return. It’s appalling that they don’t get.”

More than 4 million American homeowners, or 9 % of borrowers with a mortgage were either behind on their mortgage payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association.  According to former WMC mortgage executive, Scott Hess, “The clock is ticking for distressed homeowners who are looking to stop the foreclosure process and it’s about time the government stepped in to provide some much needed mortgage relief.” 

Tuesday’s announcement comes too late for Troy Courtney, a 44-year-old San Francisco police officer.  He moved out of his home in Mill Valley, Calif., at the start of this month — taking his children, three dogs and one cat with him — after failing at several to attempts to get a loan modification, loan work-out or a short sale — where the lender agrees to receive less than the loan is worth.  Courtney worked overtime and tapped into his retirement account to try to catch up with two loans on his home. But in the end he couldn’t convince Countrywide Financial, which managed the loan for Wells Fargo, to modify the loan.  “I feel like I missed the boat,” he said of the new efforts to help more homeowners. “I’m just mad at the whole system.”

One reason the problem has been so tough to solve for borrowers like Courtney is that the vast majority of troubled loans were packaged into complicated investments that have proven extremely difficult to unwind.  Deutsche Bank estimates more than 80 percent of the $1.8 trillion in outstanding troubled loans have been packaged and sold in slices to investors around the world. And it appears the majority of those loans will not be helped by the new plan.  The remaining 20 percent are “whole loans,” which are easier to modify because they have only one owner.   Nevertheless, Tuesday’s announcement coupled with recent and more aggressive strategies from the major retail banks are important steps to correct the foreclosure crisis. After more than a year of slow and weak initiatives, there appears to be a serious effort to get at the heart of the credit crisis: falling U.S. home prices and record foreclosures.

Citigroup announced late Monday it is halting foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments. The New York-based banking giant also said it is also working to expand the program to include mortgages for which the bank collects payments but does not own.  Additionally, over the next six months, Citi plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are on the verge of falling behind. This represents about one-third of all the mortgages that Citigroup owns, the bank said.  Citi Mortgage plans to devote a team of 600 salespeople to assist the targeted borrowers by adjusting their rates, reducing principal or increasing the term of the loan.   

Late last month, Chase expanded its mortgage modification program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The mortgage lending giant has already modified about $40 billion in mortgage loans, helping 250,000 customers since early 2007.  Bank of America recently stated that beginning Dec. 1, it will modify an estimated 400,000 home loans held by newly acquired Countrywide Home Loans as part of an $8.4 billion legal settlement reached with 11 states in early October.