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October 2008
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A Loan Modification is term for a mortgage note modification that involves a revision of terms without formally refinancing the home loan. The process involves restructuring the mortgage loan terms with a new interest rate and or a revised amortization schedule. The goal of a loan modification is to modify terms to stop a foreclosure with a mortgage payment the borrowers can afford.

Question: In utilizing the Loan Modification option to bring an asset current, can the mortgagee include all fees and corporate advances?

Answer: Mortgagee Letter 2008-21 states in part: Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance.

Question : May a mortgagee perform an interior inspection of the property if they have concerns about property condition?

Answer: Yes, the mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the mortgagor’s continued ability to support the modified mortgage payment.

Question : Can a mortgagee include late charges in the Loan Modification?

Answer: Mortgagee Letter 2008-21 states that accrued late charges should be waived by the mortgagee at the time of the Loan Modification.

Question : Is there a new basis interest rate which mortgagees may assess when completing a loan modification?

Answer: Yes, Mortgagee Letter 2008-21 states that the new basis interest rate is 200 points above the monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of 10 years.

Question 6: Will HUD subordinate a Partial Claim, should a mortgagor subsequently default and qualify for a Loan Modification?

Answer: If a mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the Partial Claim.

Question 9: Can a mortgagee qualify an asset for the loan modification option when the mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?

Answer: Based upon this scenario, the mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the mortgagee should then consult with their legal counsel to determine if the asset is eligible for a Loan Modification since the spouse is not on the original mortgage. Read Complete HUD Article

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The government is considering a plan that would help around 3 million homeowners avoid foreclosure, sources briefed on the matter said. A final deal had not been reached as of Wednesday afternoon and negotiations could still fall apart, but government agencies were contemplating using around $50 billion from the recently passed bailout of the financial industry to guarantee about $500 billion in mortgages. This new plan could include loan modifications that would lower interest rates for a five-year period, according to two people briefed on the mortgage loan modification plan, who asked not to be identified because details were still being worked out and the plan was not yet public. This foreclosure prevention plan would be the most generous effort yet to limit damages from the U.S. housing recession, which has damaged credit markets globally.

More than four million American homeowners with a home loan were at least one payment behind on their mortgage at the end of June, and 500,000 had started the foreclosure process, according to the most recent data from the Mortgage Bankers Association. The government’s program would be run by the Federal Deposit Insurance Corp. The agency’s chairman, Sheila Bair, said last week she was working “closely and creatively” with the Treasury Department on such a plan, but revealed few details. Andrew Gray, an FDIC spokesman, said it would be “premature to speculate about any final framework or parameters of a potential program.” Treasury Department spokeswoman Jennifer Zuccarelli called details of the loan modification plan “simply inaccurate.” She said the Bush administration “is looking at ways to reduce foreclosures, and that process is ongoing,” but has not decided on a final approach.

Borrowers across the country have expressed anger over the government’s existing loan assistance programs, which critics say have been too slow and small in scope to have much impact on soaring foreclosures. On Wednesday, about 100 demonstrators marched in front of the headquarters of Fannie Mae, and forced a mid-afternoon meeting with the company’s chief executive, Herbert Allison. Some held signs that read “Restructure our mortgage loans now,” “Fannie Mae destroys lives” and “Foreclose on Fannie Mae.” Bruce Marks, chief executive of the Boston-based Neighborhood Assistance Corp. of America, called on Fannie Mae to adopt a program similar to the one the FDIC put in place at failed IndyMac Bank of Pasadena, Calif. Borrowers there are getting interest rates of about three percent for five years.

According to Nationwide Marketing president Bryan Dornan, “Clearly homeowners need a new opportunity to improve their mortgage payment when they do not qualify to refinance their existing home loan.” Dornan continued, “In some cases refinancing just doesn’t helped enough, so loan modification will help the homeowner, while providing a cost-effective solution for the lender because foreclosures are expensive and property values have been declining quickly.”

The nation’s top mortgage lenders will continue their discussions with the government regarding foreclosure prevention. Over the past 10 weeks, Fannie Mae says it has received more than 40,000 defaulting loans and stopped eighty percent of them from going into foreclosure. After meeting with Allison, Marks said the chief executive “understands the issue of making these mortgages affordable over the long term.” Last month, the government seized control Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, with a rescue plan that could require the Treasury Department to inject as much as $100 billion into each to keep them afloat.

It was unclear Wednesday what role Fannie and Freddie would play in the government’s sweeping plan to help millions of American homeowners. But lawmakers on Capitol Hill want the companies to take a more aggressive approach. Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee said in a statement that “federal agencies and financial institutions must do more to modify the mortgages they hold in order to stop foreclosures and help families keep their homes.” By guaranteeing millions of mortgage loans, the government could help restore confidence in the market for securities backed by home loans. That was where the global credit crisis started, leading to this month’s dramatic stock market plunge. As a surprising number of homeowners began defaulting on their loans, investors could no longer put a value on the securities which were backed by pools of mortgages.

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Restructuring Mortgage Loans

28th October 2008

All right here. Since our Loan Modification Company is focused on preserving homeownership. We understand how traumatic the prospect of losing your house can be. We also understand that what you need now are clear answers, alternative solutions, and immediate action. Loan Modification Outlet is here to help you restructure your mortgage so that you can secure a monthly payment that is affordable. If your loan is insured by PMI Mortgage Insurance Company chances are good Loss Mitigation Specialists for most lenders will help you find solutions to avoid foreclosure or reduce its impact. We’re here to help at no charge to you. But the first step is up to you.

o    Learn about the workout options that might be available to you.

o    Complete the financial Information Form so that our Loss Mitigation Specialists can best assess your particular situation and help you faster.

o    Contact your mortgage lender.

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Mortgage lending measures to keep homeowners out of foreclosure have slipped, according to the State Foreclosure Prevention Working Group — a group of state attorneys general and state banking regulators working to prevent home foreclosures. “Too many homeowners are trying to avoid foreclosure without receiving any meaningful assistance by their home loan servicer,” the report concluded, “a reality that is growing worse rather than better, as the number of delinquent mortgage loans, prime and sub-prime, increases.”

The Working Group issued its third “Analysis of Subprime Mortgage Servicing Performance,” based on data collected from subprime mortgage servicers. The recent foreclosure report said nearly 8 out of 10 homeowners that are delinquent on their mortgage payment are not on track for any loan modification or loss mitigation solution that would help them to avoid foreclosure, a higher percentage than this company found in its April report.

The Working Group’s third report concluded: “While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing.” “Servicers appear to have reached the ‘low-hanging fruit’ of non-prime loans facing interest rate hikes, while not developing effective approaches to address the bulk of sub-prime mortgages which are in default before interest rate resets,” the report said. “Based on the rising number of delinquent mortgage loans from borrowers with good credit and projected numbers of payment option ARM loans facing reset over the next two years, we fear that continued reactive approaches will lead to another wave of unnecessary and preventable foreclosures.”

The report says “the number of mortgage loans on track for a loan modification has dropped precipitously” in recent months. “The mortgage industry’s failure to develop a more pragmatic approach to stop foreclosures has only increased  property values to decline even further with more anticipated losses on home loan portfolios,” according to the state officials’ new report.

More and more mortgage lenders are presenting loan modification options to their customers rather than taking on more properties that are worth far less than what they appear to be valued at on paper. “We are troubled that more homeowners are not receiving enough helpful assistance to stop preventable foreclosures,” said Iowa Attorney General, Tom Miller, a founder and leader of the State Foreclosure Prevention Working Group. “While banks and Wall Street firms continue to report record write-downs of mortgage loan portfolios and securities, the losses do not appear to be flowing down to the majority homeowners in the form of affordable loan modifications.” The result has been record levels of unnecessary home loan defaults that have accelerated declines in property values that have affected all of us.”

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In the wake of the recent financial bail-out, federal regulators told Congress that they are working on a plan that would help some of the distressed homeowners prevent foreclosure.  After the mortgage lending debacle became a global financial crisis, Congress called on former Federal Reserve Chairman Alan Greenspan to discuss his role with the foreclosure crisis.  Greenspan quickly warned that it will likely get worse before it gets better.

Greenspan called the banking and housing chaos a “once-in-a-century credit tsunami” that led to a breakdown in how the free market system functions. Accused of contributing to the meltdown, but denying that it was his fault, Greenspan told a House panel the crisis left him — an unabashed free-market advocate — in a “state of shocked disbelief.” The longtime Fed chief acknowledged under questioning that he had made a “mistake” in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions. Greenspan called it “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” His much-anticipated appearance came as committees in both the House and the Senate held competing hearings on the financial crisis. At one such forum, a senior Treasury official said the Bush administration intends to get a program to help struggling homeowners revise mortgages up and running soon.

The U.S. government’s $700 billion financial rescue effort, told the Senate Banking Committee that the new plan could include setting standards for restructuring mortgage loans that makes them affordable to the homeowner while providing a guarantee to banks that follow the foreclosure prevention procedures. According to Neel Kashkari, who is overseeing the government’s $700 billion financial rescue, “We are passionate about doing everything we can to avoid preventable foreclosures,” he said.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the same Senate panel that the government needs to do more to help tens of thousands of home borrowers avert foreclosure, including setting standards for modifying mortgages into more affordable FHA mortgage loans and providing loan guarantees to banks and other mortgage services that meet them. “Loan guarantees could be used as an incentive for servicers to modify loans,” Bair said. “By doing so, unaffordable home loans could be converted into loans that are sustainable over the long term.” Emergency Economic Stabilization Bill provided a new provision for mortgage lenders to help homeowners avoid foreclosure with a mortgage loan modification agreement. FHA continues to promote sensible loans featuring fixed rate terms and flexible credit guidelines that encourage homeowners to refinance rather than lose their homes to foreclosure. The FDIC is working “closely and creatively” with the Treasury Department on such a plan, she said.

Greenspan told the House Oversight Committee he was wrong in believing that banking institutions would be more prudent in their mortgage lending practices because of the need to protect their stockholders. Greenspan, who stepped down in February 2006 after serving as Fed chairman for 18 1/2 years, was asked to explain and elaborate his role regarding the sub-prime mortgage crisis. Some critics have blamed him for contributing to the problem by leaving interest rates too low for too long and for failing to regulate risky banking practices. Committee Chairman Henry Waxman, D-Calif., suggested that Greenspan contributed to “irresponsible lending practices” by rejecting appeals that the Fed intervene to regulate a surging subprime mortgage industry. “The list of regulatory mistakes and misjudgments is long,” Waxman said of oversight by the Fed and other federal regulators. “My question for you is simple,” Waxman told Greenspan. “Were you wrong?” “Well, partially,” Greenspan said. But he went on to assign the blame on soaring home loan foreclosures on overeager investors who did not properly take into account the threats that would be posed once housing sector stopped its unprecedented upward trend. 

Committee members accused existing and former regulators for not doing more to stop abusive predatory and risky lending practices. Christopher Cox, chairman of the Securities and Exchange Commission, acknowledged to the House panel that “somewhere in this terrible mess, laws were broken.” He said the government was doing the best it could to identify and pursue individuals and companies that broke the law.

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Foreclosure Lawyers of California recently announced expansion of their loan modification program for homeowners facing foreclosure for their California homes.  The number of foreclosures in California continues to explode. If you are facing foreclosure, consider the Foreclosure Lawyers of California because they have a record of proven results for homeowners seeking foreclosure prevention, mortgage restructuring and debt settlement.


According to loan modifier, Jeff Morris, “Homeowners need advice and affordable mortgage payments.”  Morris continued, “Borrowers are starting to realize that there are significant benefits that come with working with a law firm that specializes in defending families and their homes.”  Unforntunately, not all loan modification companies are looking out for the best interest of their client’s.  Attorney Matt McCormick added, “When you sign a retainer with a law firm like Foreclosure Lawyers of America you have unlimited foreclosure fighting resources, because we will do what it takes to keep the family in their house.”


The Foreclosure Lawyers’ foreclosure relief department has dedicated a team of loan modification professionals, attorneys and underwriters who boast of significant mortgage industry experience. Their team pledges to work diligently with your lender and/or invoke Federal Court Remedies to facilitate a solution that fits your budget and goals.

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With California impacted more than any other state by the national home foreclosure crisis, Governor Arnold Schwarzenegger worked with loan servicers from Countrywide, GMAC, Litton and HomEq to agree to streamline “fast-track” procedures with loan modification solutions that could help stop foreclosures with sub-prime borrowers.  Together these four enterprises service more than 25 percent of issued subprime mortgage loans.


“With this type of cooperation from loan servicers, we can save tens of thousands of people from being added to the foreclosure lists. This common-sense approach does not involve a government subsidy or bailout,” said Governor Schwarzenegger. “Borrowers need to do their part too.  If these lenders are willing to meet more than halfway, it’s important that consumers don’t run when they reach out. It was a two-way street that got us into this mess and it will be a two-way street that gets us out.”


The agreement the Governor negotiated with lenders builds off a proposal put forward by Federal Deposit Insurance Corporation Chair Sheila Bair that encourages lending agencies to keep subprime mortgage borrowers at their initial interest rate if they are living in their home, making timely payments, but can’t afford the loan “re-set”–or jump to a higher rate. A half million Californians have sub-prime mortgages that will jump to higher rates in the next two years. Bair’s proposal has been endorsed by the newspapers including the Wall Street Journal and New York Times as well as public and community leaders. Governor Schwarzenegger is the first to spur servicers to publicly commit to modifying loans in a streamlined and scalable manner.


Schwarzenegger also announced additional steps the state is taking to help homeowners avoid foreclosure.  Through a statewide outreach campaign, which will include public service announcements, the Governor will help reinforce the importance for consumers to reach out to their lender if they are at risk of foreclosure.  The Governor will also continue to lobby Congress to raise federal loan limits so that more California families can take advantage of these secure products, rather than relying on subprime loans.  “Losing your home in a foreclosure is an emotional crash that can take years to recover from, but we don’t have to sit idly by and watch the American dream turn into the American nightmare. We must take steps at both the state and federal level to make sure future mortgages are on more sound economic footing.  In the meantime, by working together, we can protect the American dream and our economy without hurting the American taxpayer,” said Governor Schwarzenegger.


Seven of the top sixteen metropolitan areas with the highest rates of foreclosures in the nation are in California, according to the latest data from RealtyTrac. In the Stockton, Riverside/San Bernardino, Sacramento, Bakersfield, Oakland, Fresno and San Diego metropolitan areas, there was an average rate of approximately one foreclosure filing for every sixty households in the last quarter. The Governor made his announcement this morning at a meeting with San Joaquin Valley elected, business and community leaders in Fresno, which ranked 13 on the list.


This year, Governor Schwarzenegger signed legislation to increase protections for Californians who own or plan to purchase homes and to expand affordable housing opportunities.  The Governor has also pledged to work with lawmakers in the coming year to take additional steps to protect homebuyers.   Earlier this year, the Governor directed his Cabinet to form the Interdepartmental Task Force on Non-Traditional Mortgages. California was one of the first states in the nation to form a task force to examine the alarming developments in the non-traditional mortgage market.  The task force consists of leadership from two agencies and seven departments responsible for all aspects of this complex issue.

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Governor Arnold Schwarzenegger today announced the launch of the Community Stabilization Home Loan Program, a special program designed to help first-time homebuyers purchase homes in communities hardest hit by the foreclosure crisis.  Under the program, first-time homebuyers will be eligible for below-market interest rate loans to purchase foreclosed homes in ZIP codes with some of the state’s highest foreclosure rates.  ”We have taken a number of actions to help prevent foreclosures, but we also want to address the many already-foreclosed-on homes that sit vacant in our neighborhoods today,” said Governor Schwarzenegger. “This program will not only make it easier for families to purchase their first home, but will also help stabilize neighborhoods that have homes sitting empty.  No one single effort can solve our nationwide housing crisis, but together these measures make an important difference in California’s neighborhoods.”  Mortgage lenders are required to make every effort possible to provide foreclosure prevention solutions with loan modifications.

Run by the California Housing Finance Agency, a state agency that finances safe, affordable loans for first-time homebuyers, the program will be available in ZIP codes identified as the most impacted by foreclosures in California including Riverside, Stanislaus, San Joaquin and Merced counties. Areas in Los Angeles, Contra Costa and Alameda counties are also included.  Several mortgage lenders have agreed to partner in the program and offer sales prices on bank-owned properties at least 12 percent below estimated value in the identified ZIP codes.

The $200 million bond fund allocation is provided by the California Debt Limit Allocation Committee to fund the program at no cost to the state’s General Fund.  “This mortgage relief package will give many first time home buyers the opportunity to attain the American dream while also helping areas of the state that have been hit hardest by the mortgage crisis,” said State Treasurer Bill Lockyer, who chairs the Committee.  “I commend the Governor and CalHFA for their leadership and am pleased to work with them to help address California’s housing crisis.”

California has been impacted more than any other state by the national home foreclosure crisis, and the state has taken aggressive steps to help homeowners facing problems with their mortgages. To help those hit hard by the housing crisis, the Governor has:



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Over 100 million households have learned about where to go for help if they’re experiencing mortgage trouble that might lead to foreclosure through a national public service advertising campaign led by NeighborWorks(R) America in partnership with the Ad Council.  Launching with material financial support from the home loan and financial services industries in June 2007, the television, radio, Internet and outdoor ad campaign is the third most active Ad Council campaign, trailing only the organization’s effort to promote broadcast TV parental controls and the long-running drunk driving prevention campaign.

In all, the mortgage and financial services industry supported public service advertising campaign has generated nearly $74 million in donated ad time.  As a result of this and other outreach efforts by participating non-profit organizations, mortgage lenders and thousands of homeowners who faced possible home foreclosure have contacted non-profit housing counselors around the county and received information regarding loan modifications that can help families avoid foreclosure.

“The advertising campaign continues to show progress and success,” said Kenneth D. Wade, CEO of NeighborWorks America. “With more than 100 million broadcast, Internet and outdoor media impressions since the campaign’s launch a year ago, we know that many people who would have been foreclosed upon have prevented foreclosure and remain in their homes.”

“The current financial crisis has its beginnings in the weakness of the housing market,” explained Wade. “We believe that an important step in reversing the current decline in the housing market involves continued outreach to homeowners with the right information they need to help them save their homes or get into a more sustainable housing situation. That’s why this effort will continue into 2009 and NeighborWorks America is working on additional tactics to help strengthen homeownership and stabilize communities.”

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Millions of people across the nation are facing home loan defaults and ultimately foreclosure.  The foreclosure epidemic has spread throughout every state because of the slumping home sales and mortgage crisis. One popular option that many borrowers are taking to prevent foreclosure is called a loan modification. This refinancing alternative is becoming more realistic for the “average borrower” because mortgage lenders do not want to take on more properties because it has already almost dried up the liquidity of the banking institutions.  The lending companies have come to realize that keeping the homeowners in their residence actually makes the most sense.  Property values have been declining so fast, that the banks will lose more money if they let the foreclosures continue to occur at such a rapid pace.  Foreclosures can be a very costly process for banks and lenders with the average foreclosure costing the bank about $75,000 to sell the home.  Those are costs that are added to the loss from the real estate depreciation.

A loan modification is a revised agreement, in which the lender modifies the current terms and reduces the monthly payment for the borrower.  The primary objective of a loan modification is to restructure the mortgage to a payment that is affordable for the homeowner. Recent state legislation and Congressional initiatives require lenders to make possible every effort to provide loan modifications to homeowners risking foreclosure.

How can a homeowner be sure that they are receiving the full benefit of a loan modification? First of all, borrowers need to learn everything they can about the process of a bank loan modification. Lenders have set up Loss Mitigation Departments specifically to assist borrowers with this option. There are many companies now offering loan modification assistance for a fee. The problem with these companies is they require a large upfront fee with no guarantee of the outcome.  Until recently, mortgage lenders were not proactive in their efforts to help prevent these mounting foreclosures.  The foreclosure epidemic has caused a rift in many families as the divorce rate has increased significantly in the last two years.

Loan Modification Outlet has assembled a team of Christian lawyers and experienced loan modifiers to provide homeowners across the country a better option to foreclosure. Our team strives to to help people retain their homeownership by modifying their mortgage with affordable monthly payments.

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Consumer debt continues to climb each year. Clearly, Americans have a problem spending more money than they have. Debt to income ratios have been increasing significantly with consumers as incomes are declining while outstanding balances increase at a rapid pace. Over the last ten years, homeowners have been able to take out home equity loans and consolidate their credit card debts into a lower more responsible fixed rate payment that they could afford. Back then home values rose annually, so borrowers could refinance their spending problems every few years. When the subprime mortgage debacle turned into a credit crunch, mortgage lenders quickly tightened their loan guidelines. Almost simultaneously, home values began to decline and homeowners were no longer able to refinance and consolidate their debt. People began losing their homes because they were defaulting on their home loans.

Unfortunately a foreclosure epidemic arose and banks began to fail because with increased foreclosures came a serious liquidity problem that significantly limited banks to lend to each other. Even when the Federal Reserve cut interest rate many times, the credit crunch got worse.

Now Americans find themselves with high rate credit card debt and mortgages that are larger than their homes are actually worth. Homeowners aren’t able to refinance for lower payments, debt consolidation or cash out. With home equity loans disappearing, debt settlement has increased dramatically because its legal and gives consumers a true alternative to bankruptcy. Debt settlement provides debt relief because the debt negotiation companies are able to reduce your balances and pay-off your revolving debt that carries the compounding interest.

The other refinancing alternative that has risen in popularity with homeowners has been loan modifications. Mortgage loan modifications are the result of banks restructuring loans for borrowers so they can avoid a foreclosure. The liquidity of banks has eroded in the foreclosure epidemic and now delinquent homeowners seem to have more leverage, because mortgage lenders don’t want your home anymore.

Bryan Dornan is a mortgage industry expert who has published many financial articles online. Mr. Dornan operates several companies like Lead Planet, Loan Modification Outlet and Nationwide Marketing. Dornan recommends the following debt relief websites: debt settlement and Loan Modification. Article Source:

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A new law enacted on July 8, 2008, now requires Lenders of residential loans in the State of California to accept loan modifications in most foreclosure situations.  California Civil Code 2923.6 went into effect on July, 2008, and applies to all residential loans made from January 1, 2003, to December 31, 2007, inclusive, that are secured by residential real property and are for owner-occupied residences.

Practically all residential mortgages have Pooling and Servicing Agreements (“PSA”) since they were transferred to various Mortgage Backed Security Trusts after origination.  These vehicles likewise almost always contain a duty to maximize net present value to its investors and related parties.  Under the new laws, California Civil Code 2823.6 broadens and extends this PSA duty by requiring servicers to accept loan modifications with borrowers.

Essentially, California Civil Code 2923.6(a) states that “a servicer acts in the best interest of all parties if it agrees to or implements a loan modification where the (1) loan is in payment default, and (2) anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.”

Likewise, California Civil Code 2923.6(b) now provides ”that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority.”

So what does all this mean?  Well, lets take an example:

John Martin’s loan is presently in default, or reasonably foreseeable of near default.  The house he previously bought 2 years ago for $800,000 with a $640,000 first and $140,000 second, has now plummeted to $375,000.  While Mr. Martin can no longer afford the $9,000 per month mortgage payment, he is willing, able, and ready to execute a modification of his loan on the following terms:

a) New Loan Amount: $330,000.00

b) New Interest Rate: 4.75% fixed

c) New Loan Length: 30 years

d) New Payment: $1,721.44

While this new loan amount of $330,000 is less than the current fair market value, the costs of foreclosure need to be taken into account.  Foreclosures typically cost the lender $50,000 per foreclosure.  For example, the Joint Economic Committee of Congress estimated in June, 2007, that the average foreclosure results in $77.935.00 in costs to the homeowner, lender, local government, and neighbors. Of the $77,935.00 in foreclosure costs, the Joint Economic Committee of Congress estimates that the lender will suffer $50,000.00 in costs in conducting a non-judicial foreclosure on the property, maintaining, rehabilitating, insuring, and reselling the property to a third party. Freddie Mac places this loss higher at $58,759.00.  

Accordingly, the anticipated recovery through foreclosure on a net present value basis is $325,000.00 or less and the recovery under the proposed loan modification at $330,000.00 exceeds the net present recovery through foreclosure of $325,000.00 by over $5,000.00.  Thus California Civil Code 2923.6 would mandate a loan modification to the new terms.

The homeowner just got a new arrow to add to his foreclosure defense quiver.  Pursuant to California Civil Code 2923.6, the lender is now contractually bound to accept the loan modification as provided above.  Failure to do so should allow the borrower to sue for specific performance or wrongful foreclosure in State Court.   Written by Michael G. Doan

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Mortgage lender Countrywide Financial Corporation has agreed to provide approximately $8 billion in home loan and foreclosure relief to as many as 397,000 homeowners across the country including more than 5,000 in North Carolina, Attorney General Roy Cooper said.  Eleven states including North Carolina reached the agreement late Friday with Charlotte-based Bank of America, which acquired Countrywide in July of 2008. The foreclosure relief agreement is expected to provide $71 million in reduced home loan payments to more than 5,000 North Carolina borrowers.  “Thousands of North Carolinians who are struggling to pay their mortgages and keep their homes will get relief thanks to this agreement,” Cooper said.  “Other mortgage lending companies need to step up to the plate with similar plans to help homeowners facing foreclosure.”

Under the settlement, Countrywide has agreed to modify loans for eligible borrowers so they will be better able to afford to keep their homes.  Home mortgage modifications may include an automatic freeze or reduction in interest rates, conversion to fixed-rate loans, and refinancing or reduction of the principal owed. Under the modifications, first-year payments of principal, interest, taxes and insurance will be targeted to equal 34 percent of the borrower’s income.  Countrywide has also agreed to stop making problematic high-cost mortgages and payment option adjustable rate mortgages.

In addition, Bank of America and Countrywide will pay $150 million to participating states to help consumers who have already lost their homes to foreclosure. Bank of America and Countrywide will also pay up to $70 million for relocation assistance to borrowers unable to stay in their homes, and will waive up to $60 to $80 million in prepayment penalties and default fees.  The settlement resolves allegations that Countrywide used unfair and deceptive tactics in making and servicing mortgage loans. As a result, homeowners were often stuck with unfair loans they couldn’t afford. Countrywide is the largest provider of subprime home loans in the United States.

Countrywide is expected to start the loan modification program by Dec. 1, 2008, and the company has said that it will reach out to eligible customers by that date. Countrywide has also said that it will halt foreclosure proceedings against homeowners who are likely to qualify for loan modifications under the agreement.  North Carolinians who are facing foreclosures and who are not Countrywide borrowers can get free help by calling the HOPE Hotline toll-free at 888-995-HOPE 24 hours a day, seven days a week.  Along with North Carolina, attorneys general in Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, Ohio, Texas and Washington are participating in the agreement with Countrywide.

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More than 120,000 struggling California homeowners could see their monthly mortgage payments lowered after Bank of America Corp. agreed to provide $3.5 billion in loan and foreclosure relief to settle lawsuits it inherited with its takeover of Countrywide Financial Corp. The pact stems from cases filed earlier this year by California and other states, alleging Countrywide, based in Calabasas (Los Angeles County), used misleading advertising and unfair business practices to dupe customers into taking out home loans they couldn’t afford. Bank of America acquired Countrywide, along with its outstanding legal challenges, in July. To settle with all the states involved, BofA said it would provide up to $8.4 billion in interest rate and principal reductions on as many as 400,000 mortgages nationwide plus more than $200 million in aid for those who have suffered or face foreclosure. “Today, I’m announcing the biggest mortgage loan modification in American history,” California Attorney General Jerry Brown said at a press conference Monday morning. “Bank of America settled because their new entity, Countrywide, was guilty of massive irregularities.” His office claimed the agreement represents the largest predatory lending settlement ever, dwarfing a $484 million settlement with Household Finance Corp. in 2002. But the bulk of the settlement consists of loan reductions, not outright payments, and the total figures assume every eligible borrower participates and investors who control the loans cooperate.

‘This is a beginning’

The settlement terms are “not as impressive as Brown’s press release at least indicates,” said Robert Gnaizda, general counsel with the Greenlining Institute, a Berkeley advocacy group that presses businesses to serve low-income communities. “This is a beginning but not an extraordinary settlement.” He said the bank would have performed many of those workouts voluntarily for several reasons, including to qualify for aid under the federal bailout bill passed last week and to take advantage of programs created by the Housing Economic Recovery Act of 2008 in July. BofA, for instance, has said it will try to refinance some customers into fixed-rate FHA mortgage loans under the Hope for Homeowners program included in the latter bill. Through it, banks have to write down existing mortgages to 90 percent of the new appraised value of the home, but the FHA agrees to cover the unpaid balance if the loans go into foreclosure. Gnaizda also criticized BofA for not declaring a moratorium on foreclosures and for not establishing a system for providing borrowers in-home counseling on their modification options. BofA spokesman Dan Frahm defended the settlement. “We think it’s a program that provides more solutions than ever before to assist troubled borrowers and put them on the path to sustained homeownership,” he said. Frahm said the bank won’t initiate or proceed with any foreclosure sales until it determines whether borrowers will qualify for the modification program, which goes into effect Dec. 1. The Association of Community Organizations for Reform Now, another group representing low-income communities and an outspoken proponent of loan modifications for troubled borrowers, lauded Monday’s announcement. “More than any action of Congress, and certainly more than any voluntary industry action promoted by the Bush administration, today’s settlement is a new model for solving the foreclosure crisis by litigating against the predatory products peddled by huge lenders and winning direct relief for borrowers who are struggling with their mortgages,” President Maude Hurd said in a prepared statement.

Some will not qualify

In itself, however, the settlement doesn’t promise significant relief for a real estate sector still awash in foreclosures, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

“Relative to the overall size of the market, (it’s) not that big,” he said. “Fundamentally, it’s not going to change anything.” Frahm and Brown both acknowledged that the deal won’t even allow all of Countrywide’s customers to avoid foreclosure, as some won’t qualify for the workouts. The loan modification program covers subprime and pay-option adjustable rate mortgage loans initiated between Jan. 1, 2004, and Dec. 31, 2007. To qualify, borrowers generally must: be 60 or more days late on their payments or face a loan reset that is likely to make them seriously delinquent, meet certain income requirements based on the size of the mortgage, still owe at least 75 percent of the current value of the home and occupy the property in question. The settlement will affect borrowers differently based on the type of loan they took out: Those with certain types of adjustable rate loans, in which the interest rate and monthly payments jump after a preliminary period, may receive an extension of the introductory rate. Customers with so called pay-option ARMs, which allow borrowers to choose a minimum payment that doesn’t cover interest and thus allows the total owed to grow each month, could have their loan principal reduced to 95 percent of the home’s current value. Borrowers with high interest rate fixed loans may be eligible for rate reductions. Some qualified borrowers’ loans will be adjusted automatically, others will receive notices that they could qualify for a modification beginning 90 days before their loans reset, said Kathrin Sears, California’s supervising deputy attorney general, who helped negotiate the settlement. “We’re trying to address those in the most serious distress first,” she said. Attorneys general in 10 other states are participating in the settlement, including Arizona, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington. Brown’s original lawsuit named Countrywide’s former Chief Executive Officer Angelo Mozilo and former President David Sambol, claiming they had encouraged the loosening of lending standards to allow a surge in issued loans. The executives were not included in the settlement, and Brown plans to continue to prosecute those cases.

Highlights of the BofA settlement

Bank of America agreed to provide up to $8.68 billion of home loan and foreclosure relief to settle loan abuse lawsuits against Countrywide, which it acquired in July. If every eligible borrower and investor participates, the loan modification program will provide Californians with $3.5 billion, as follows:

– $3.4 billion worth of reduced interest payments and principal.

– Waiver of late fees of up to $33.6 million.

– Waiver of prepayment penalties of as much as $25.6 million for those who receive modifications, pay off or refinance their loans.

– $27.9 million for borrowers who are 120 or more days delinquent or whose homes already have been foreclosed.

– Around $25.2 million for borrowers who can’t afford monthly payments under the modification program and eventually lose their homes to foreclosure.

Source: Office of the attorney general, state of California

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07th October 2008

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