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Loan Modification Outlet offers mortgage modification relief for homeowners that are struggling with an adjustable rate mortgage or an employment issue that caused a loss of income. LMO offer loss mitigation solutions with low rate loan modifications that stop foreclosure!

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August 2019
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Chase has offered more than 900,000 mortgage modifications to struggling homeowners since the beginning of 2009 through a wide range of government and Chase initiatives to address the housing crisis.  “We have worked directly with homeowners as the economy has hit them far deeper and for far longer than they expected,” said Charlie Scharf, head of retail financial services at Chase. “We continue to look for creative and effective ways to help them stay in their homes, whenever possible.

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When a real estate professional says a home is under-water, they are referring to mortgage that is greater than the home’s value.  Americans continue to struggle to make their mortgage payments on time and many homeowners have discovered that their property’s value has declined so significantly that their mortgage loans are under-water.

Under-Water Home Mortgages

Zillow published a recent report that indicated that more than 20% of U.S. mortgage loans are currently underwater.  This is one of the reasons why so many banks are extending loan modification plans in such a great volumes.  The mortgage lenders are focused mostly on modifying mortgages for homes in these distressed states.  Besides, very few of borrowers in Arizona, California, Florida and Nevada qualify for fixed rate mortgage refinancing.

Miami-Fort Lauderdale property values saw a year-over-year decline of 15.2%, while values in Phoenix, Arizona, fell by 11.8 %. Despite the high percentage of negative equity, the 2nd quarter rate 21.5% is actually lower than from the 1st quarter figure of underwater home mortgage loan, which was reported at 23.3 %. However, some areas that benefit from both state and federal tax credits have seen home values increase, the report shows. For example, the state of California saw values rise by 27.8 %, marking five consecutive quarterly increases.

Economists continue to examine the devastation that underwater mortgage loans have influenced.  They like this study because it remains a strong indicator of forecasted home foreclosures. In addition to not being able to afford home loan payments, some homeowners who are unable to modify their mortgages are strategically defaulting on their home loans.  This means that they are walking away from their homes and letting the bank repossess their property.  “It is the paramount challenge facing housing markets,” Zillow’s chief economist Stan Humphries told Reuters. “We already have had record levels of foreclosure and, combined with high unemployment, negative equity is very toxic to the market.”

Though fewer Americans are strategically defaulting on their mortgage loans, foreclosure rates continue to increase with RealtyTrac reporting a first-quarter foreclosure rate of 1.65 million. Analysts project that the number of mortgage defaults, repossessions and scheduled auctions are likely to reach 3 million by the end of the year

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Homeowners continue to report struggles with the loan modification process and with so much mortgage relief talk around the nation many consumers want to know what is going on.  According to former executive, Jeff Morris, “Many homeowners simply do not have enough income to justify the lenders extending a loan modification.”  Morris continued, “If a borrower can’t document their income at all, it is very unlikely that the banks and lending companies will approve them for a loan modification.  Morris made it clear that borrowers do not need to be under the 50% Debt to Income Ratio (D.T.I.) like they do to qualify for refinance-mortgages.  He said that D.T.I. from 70 to 95% is pretty common for loan modification agreements this year.

Alarming Numbers on Foreclosure Crisis

More than 1 million homes expected to be taken over by mortgage lenders in 2010, yet thousands of homeowners report relief from the loan modification that they were approved for. Second mortgage lien stripping has also been a common practice for bankruptcy lawyers. Getting approved for a second mortgage modification has become trickier than many borrowers had hoped.  Another problem many borrowers find is that the investors are usually different for their first and second mortgage.  This makes the second mortgage modification process.

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Mortgage relief was extended from Bank of America, Freddie Mac and Wells Fargo.  These banks agreed to grant borrowers in the Gulf Coast region mortgage relief on their home loan payments because of the gulf crisis. Freddie Mac forbearance policies allow its servicers to suspend a borrower’s loan payments for up to three months or reduce payments for up to six months. Based on the individual circumstances, borrowers can receive a forbearance for up to 12 months.  Senior vice president of default asset management at Freddie Mac said, “We are instructing our servicers to work with borrowers with Freddie Mac-owned mortgages to extend forbearance of mortgage loan payments where appropriate to help them stay in their homes as they navigate through this financial hardship,” said Ingrid Beckles.

BofA is working to develop assistance plans and programs to help its borrowers through the crisis, a spokesperson for BofA said. The bank developed similar loan programs following the hurricanes in 2005 and in other disaster situations in the US. Usually, disasters call for an initial 90-day forbearance of payments for BofA borrowers, and, like Freddie Mac, individuals needing more time will be handled on a case-by-case basis.  BofA is currently analyzing its portfolio of mortgages and loan modifications in the region and assessing the situation to determine what other specific needs may need to be addressed in a disaster assistance program for victims of the Gulf of Mexico oil spill.

According to a statement from Wells Fargo, the bank extended its borrowers affected by the Gulf Coast oil spill a 90-day foreclosure moratorium.  “We encourage customers affected by the Gulf events (loss of job or income) to reach out to us to discuss loan workout possibilities.  They suggest working with their with our home loan consultants on to determine available home refinance and loan modification options for their homeownership and financial needs.”

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Government home loan modification programs are being offered under the HAMP, or Home Affordable Modification Program.  We are told that some borrowers are getting approved for a loan-workout with mortgage rates as low as 2 % for five and even 10 years for qualify homeowners.  Many mortgage lenders are offering 30-year fixed rates at 5% with no points.  No cost mortgage refinancing requires stellar credential though. Both bankers and mortgage counselors agree that if you’re considering home refinancing, do your homework. Check with your current mortgage holder.  We suggest shopping online for the best refinance loan. If you do not qualify then consider a loan modification from an attorney backed loan modification company.

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Thousands of borrowers are losing trial loan modification agreements that were installed recently under the HAMP prrogram. The total of distressed homeowners who drop out of President Obama’s loan modification plan soared in April.  According to federal loan modification statistics released last week, over 122,000 homeowners had their trial mortgage loan modification agreement canceled in April, bringing the total to 277,640 since the HAMP program began about a year ago.

Meanwhile, only 68,000 homeowners were converted from the trial modification phase to a permanent loan modification last month.  Under the program, known as HAMP, eligible troubled borrowers are put into trial home loan modifications to determine whether they can keep up with the reduced mortgage payments and to give loan servicers time to verify income and hardship.  A total of 295,348 people have received permanent long-term help under the loan modification plan, but another 3,744 who were converted to permanent status were later cut from the program anyway.  Mortgage refinancing has not been an option for millions of homeowners who have inadequate credit scores or mortgages that are buried under-water with home values less than the mortgage balance.

The latest modification report does not include home equity loan modification details.  Many industry insiders believe the second mortgage foreclosures and defaults could be stemmed if home equity servicers came up with a good modification plan for home equity credit and second mortgage loans.  Many homeowners have used the loan modification to stop the foreclosure proceedings.

In most cases, loan modification agreements are usually canceled if the borrower fails to make the adjusted payments, or if during the trial period, does not meet the program’s criteria or hand in the required income verification paperwork.  Obama admin officials said they were not surprised to see the number of canceled trial mortgage modifications rise because borrowers had been allowed to enroll in the trial program by simply stating their income. Many homeowners are being dropped from HAMP if they cannot prove the income figures they originally provided.  “As those decisions get made, it’s certainly expected that there would be some that fall out of HAMP,” said Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office.  So far, some 24.6% of trial loan modification options have become permanent, up from 19.8% a month ago.  Some 637,353 troubled borrowers remain in trial mortgage loan modifications, officials said. The pace of people entering the program has slowed as servicers begin implementing new requirements to collect documents at the outset. Read the original article at

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With home foreclosures breaking records every quarter, the Obama administration’s program to attack the housing crisis has been a disappointment mortgage lenders report that they continue to struggle getting the required paperwork, while homeowners and housing counselors say processing the mortgage bottleneck appears to be impossible. The $75 billion program has performed so poorly that some housing advocates say the Obama administration needs to reconsider their entire approach on mortgage relief and loan modifications. Mortgage refinance opportunities continue to narrow so loan workouts may be the last hope to prevent foreclosures for these distressed homeowners.

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Mortgage loan modifications are, for some homeowners, the only hope they have of keeping their home as unemployment and a slow economy still takes its toll.  Big lenders like Bank of America, Wells Fargo, and JP Morgan have the majority of mortgage loans that homeowners are seeking to modify and while the home loan modification numbers for these lenders rose from November to December 2009, many are wondering what will be the story in 2010?  Without home loan modifications, many homeowners’ mortgage loan payment would be too costly as those who, pre-recession, were able to meet payments have seen financial hardships that are causing them to struggle just for the most basic of needs.

However, Bank of America, Wells Fargo, and JP Morgan have done a great many home loan modifications, but there is call for more action and modifications to be moved from a trial phase to a permanent phase. The problems in the program and slowness of the transition in permanent home loan modifications have been traced to both lenders and homeowners.  There are stories from homeowners saying they are ignored and passed over for modifications, while lenders have stories of homeowners not filling out paperwork or following the correct procedure to ensure a permanent loan modification. 

With unemployment the next big issue that must be addressed, big lenders like Bank of America, JP Morgan, and Wells Fargo are in a great position to help homeowners, even if some who are given modifications still fail to make payments down the road.  If multiple modifications are made and even just a handful of homes benefit from the home loan mortgage modification then many people believe it would all have been worth it.  Read the original blog post online

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Is the mortgage loan modification system helping or hindering the real estate recovery?  A recent article in the New York Times sheds light on the theory that by encouraging homeowners to stay in homes that they cannot really afford, Obama’s Making Home Affordable program is actually increasing the agony of homeowners, who pour money down the trap of their home loan rather than recognizing the loss and starting over.  In the meantime, the mortgage refinance and mortgage modification programs disguise the true state of bank balance sheets because modified mortgage loans are not yet non-performing home loans, and slow down the process of recovery.

But I think that the so far lackluster results from MHA do point to something important, which is that we don’t have the kind of mortgage crisis we thought we had when we passed the modification.  This represents not only a shift in our thinking about how to fix the housing markets, but a major shift in our national narrative about the housing bubble.  Six to nine months ago, the major story we told in connection with the financial crisis was the homeowner suckered–by either fraud or greed–into a teaser loan with an artificially low interest rate that was going to turn disastrous when it reset.

We have seen some of that, to be sure, particularly with the “Option ARM” or “negative amortization” loans on which homeowners weren’t even making the full interest payment.  But that hasn’t turned out to be our biggest problem, largely because we are in a very low interest rate environment right now, so many people saw their rates reset downward rather than up.  Instead, we are plagued by negative home equity.  Most mortgage lenders have begun shutting down access to home equity credit lines because of depreciating home values and unemployment.  Look for a proven loan modification program designed to make your bad credit home loan payment more affordable.

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To most distressed homeowners, loan modifications and mortgage relief opportunities seem to be fading.  HOPE NOW recently announced the launch of a new Web portal that will allow the Department of Housing and Urban Development (HUD)-approved housing counseling agencies the ability to submit completed Home Affordable Modification (HAMP) applications for borrowers at-risk of foreclosure.

According to California loan relief guru, Jeff Morris, “Homeowners need to take a deep breath and reevaluate their mortgage relief options, even if they were recently denied by a loan modification company or mortgage lender, because new opportunities have arisen.”  For borrowers with no equity looking to refinance, they should consider the Home Affordable Refinance Program that enables the refinancing of Fannie Mae and Freddie Mac mortgage liens up to 125%.

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Bank of America has provided mortgage relief through concluded and trial loan modifications to more than 600,000 homeowners since January 2008.” A spokesman for Bank of America said they remain focused on providing loss mitigation solutions to help distressed customers maintain homeownership.”  Loan modification strategies remain in the big picture for companies like B of A, Wells Fargo, Citi and Chase.  The loan modification processing centers at these banks is clearly bottle-necked, so you may need to work with an experienced law firm that specializes in foreclosure prevention solutions.  Many of the California loan modification prgrams have been outsourced to processing centers in Arizona, Nevada and Texas.

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Many distressed homeowners have suffered from loan modification fraud.  In an effort to further protect California homeowners from predatory lending and loan modification fraud, CA Bill 764 by led by Pedro Nava of Santa Barbara introduced a new law only allowing individuals or loan modification companies to collect fees only after a mortgage loan modification is successfully obtained. Many lawmakers had warned distressed homeowners against paying advanced fees. Those loan modification fees can be in the thousands of dollars, and often times these companies or individuals will do little or no work after getting their fees. In his veto message of AB 764, Governor Schwarzenegger wrote, “I do not agree with the provision of this bill that will only allow fees to be collected if a mortgage loan modification is successful. This could adversely affect legitimate businesses that provide loan modification services.”

Jeff Morris of the Loan Modification Relief firm in California expressed approval in the Governor’s action. “Even though there is unfortunate fraud happening, it does not mean that you need to attack all loan modification companies.  Morris continued, “If loan modification companies were not allowed to charge fees up-front, there would be no more loan modifications, because the process can take 6 months for successful mortgage relief.  Who in their right mind would work for free for 6 months?”

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Home loan investors say they need further protection from more significant home price depreciation than the US government is presently providing them in return for agreeing to offer loan modification programs on their mortgage portfolios.  Mortgage investors continue to report problems on the secondary market because of re-defaults from loan modifications that still were not affordable enough for these distressed homeowners.

Obama’s mortgage relief czar rolled the Home Affordable Modification Program, which pays incentive fees to loan servicing companies that agree to renegotiate home loan terms, includes extra payments to investors that consent to mortgage loan modifications in dropping real estate markets. FHA refinancing loans have made an attempt to help struggling homeowners get a lower fixed rate, but not enough people qualify.  These loan payments, for as much as $5,000, are meant to compensate the investor for the risk that the borrower will end up re-defaulting again and the home will be forced into a foreclosure and ultimately sold in an even lower property value market.  Hedge fund company, Magnetar Capital LLC has started lobbying the government to provide much greater downside protection for holders of privately owned mortgage-securities and wholesale home loans. Article was written by Kate Berry.

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CNN reported that 360,165 delinquent homeowners received mortgage relief with a loan modification and the US Treasury wants loan servicers extend more options that prevent foreclosures.  The Treasury Department said Wednesday mortgage service companies placed 12% of eligible borrowers into trial period to receive loan modifications under President Obama’s foreclosure prevention plan.

The progress report, the second issued by the government, says that 360,165 homeowners who were at least two months behind in payments received relief through August. A month ago, just 9%, or 235,247 homeowners, were in the process of receiving a loan modification. The Obama administration has come under fire for the program’s rocky start. Officials, who met with servicers in Washington in late July, said they are on track to hit their goal of 500,000 loan modifications under way by November 1. “Our progress in implementing these programs to date has been substantial, but we recognize that much more has to be done to help homeowners,” said Michael Barr, an assistant Treasury secretary.

The $75 billion initiative was announced in February and the first institutions to join began accepting applications in April. The plan, which is projected to help up to 4 million homeowners, calls for servicers to lower the mortgage payments of eligible homeowners to no more than 31% of their pre-tax income.  Some 47 servicers are participating in the Obama program, up from 38 servicers a month ago. Financial institutions, borrowers and home loan investors all receive incentives for participating in the program. By releasing the servicers’ progress reports each month, the administration is hoping to hold institutions responsible for their performance. The updates will allow the public to see which institutions are lagging in implementing the plan.

After the August report came out, servicers acknowledged they needed to improve their performance and promised to do better in the future. Homeowners continue to complain that loan service companies are not responding to their calls for mortgage refinancing and loan modifications applications applications, losing their paperwork or not making decisions. The financial institutions said they are ramping up their staffing and computer systems to handle the crush of applications. Moving quickly is important. The number of people falling behind on their payments continues to mount, especially as unemployment rises.

A record number of foreclosure filings were posted in July, according to RealtyTrac. There were more than 360,000 properties with foreclosure filings — including default notices, scheduled auctions and bank repossessions — an increase of 7% from June and 32% from July 2008

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The California Assembly passed a new bill that claims to protect homeowners from mortgage modification scams who charge fees in advance to satisfying the homeowner with mortgage relief.  But the reality is that the Senate Bill 94 could end up having the unintended consequence of eliminating a homeowner’s ability to retain a loan modification lawyer, or a mortgage relief attorney to help them save their home from foreclosure.  So the bill completely ignores the fact the THOUSANDS of homeowners have had great results from loan modification companies that successfully lowered their mortgage payment while preventing them from losing their home to foreclosure.

The bill, which has an “urgency clause” attached to it, now must pass the State Senate, and if passed, could be signed by the Governor on October 11th, and go into effect immediately thereafter.  SB 94’s author is California State Senator Ron Calderon, the Chair of the Senate Banking Committee, which shouldn’t come as much of a surprise to anyone familiar with the bigger picture.  Sen. Calderon, while acknowledging that fee-for-service providers can provide valuable services to homeowners at risk of foreclosure, authored SB 94 to ensure that providers of these loan modification services are not compensated until the contracted services have been performed.

SB 94 prevents loan modification companies, brokers, individuals… and even lawyers… from receiving fees or any other form of compensation until after the contracted services have been rendered.  What loan modification company in their right mind would go through 120 days of work negotiating a loan modification with their client’s lender only to have the client say, sorry we don’t have the money to pay you for your services.

The loan modification bill will now go to the Democratic controlled Senate where it is expected to pass.  Loan modification executive, Glen Silver said in a recent press conference, “Too bad for genuine loan modification companies, Bush couldn’t get a third term, because he wouldn’t have signed it, but we know everyone’s buddy Obama would sign a national bill as soon as he smells political success.”  Silver continued, “The President would be able tell his buddies on capitol hill that he saved Americans from loan mod scams, but really he is just going to kill the loan mod business and lenders will get their leverage back.  I guarantee the lender lobbyists created this bill.

Watch this Video Proclaiming Salvation from their Short-Sided Loan Modification Bill

Supporters of the loan modification fraud bill say that the state is literally teeming with con artists who take advantage of homeowners desperate to save their homes from foreclosure by charging hefty fees up front and then failing to deliver anything of value in return.  They say that by making it illegal to charge up-front fees, they will be protecting consumers from being scammed.

Yes there have been some shady brokers who committed predatory lending abuses that took advantage of distressed homeowners, but thousands of borrowers benefitted from genuine mortgage relief negotiations from trust-worthy loan modification firms across California. The actual number of loan mod scams remains unclear.  Now that we’ve learned that lenders and servicers have only modified an average of 9% of qualified mortgages under the Obama plan, it’s hard to tell which companies were scamming and which were made to look like scams by the servicers and lenders who failed to live up to their agreement with the federal government.

In fact, ever since it’s come to light that mortgage servicers have been sued hundreds of times, that they continue to violate the HAMP provisions, that they foreclose when they’re not supposed to, charge up-front fees for mortgage loan modification plans, require homeowners to sign waivers, and so much more, who can be sure who the scammers really are.  Let’s consider how the President is cracking down on corruption…Bank of America, received the worst grade of any bank on Obama’s report card listing because they only modified 4% of the home loans from borrower’s who were eligible for mortgage relief since the plan began.  Didn’t the government give Bank of America 200 billion in the bank bail-out of the century?  Bank executives assert that the loss mitigation department is running into obstacles handling the incoming phone calls.

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A new study shows why restructuring mortgages and implementing a loan modification plan that works is harder than it seems.  Even though the foreclosure crisis is awful, there has at least been nationwide agreement on the best solution for foreclosure prevention: Get more mortgage lenders to modify the home loans of more homeowners. Whittling down the principal, interest or both should benefit all concerned: Homeowners get to keep their houses; lenders save the huge cost of repossessing and reselling a distressed homes; and neighborhoods avoid the appearance of dropping property values. It should be a win-win-win — which is why the Bush administration launched an effort to promote loan modifications and the Obama administration continued the expansion of loan workouts.   Even so, none of these loss mitigation programs has quite lived up to its promise. Under the Obama administration’s Home Affordable Modification Program (HAMP), the Treasury Department offered lenders up to $75 billion to help them defray the cost of reducing borrowers’ monthly payments to 31% of their incomes. It also enticed loan servicers with $1,000 for each modification, plus another $1,000 for each modified loan that is still performing after 3 years. The Obama administration estimated that as many as 4 million households would benefit. But after 4 months, only 350,000 borrowers have even been offered new home mortgages, just over half of which have gone into effect, according to the Treasury. . According to RealtyTrac 1,155,299 homes are facing new foreclosure filings from March through June,

FOX Video on Loan Modification for Preventing Foreclosures

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.

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State and federal officials have launched ‘”Operation Loan Lies” — an effort targeting nearly 200 loan modifications firms for a number of alleged illegal practices including promising services they can’t deliver, charging more than $5,000 in advance fees and misrepresenting their affiliations with mortgage servicers.  Former Ditech executive, Jeff Morris said in a recent interview with Loan Modification Buzz, “There is nothing wrong with paying a loan modification company money to renegotiate the terms of your mortgage, but make sure the company actually submits a loan workout request with your lender’s loss mitigation department.”  Morris reminded the news company that not all loan modification firms were bad and that some were actually save families from foreclosure.

Federal and state agencies took 189 actions today against modification and foreclosure-rescue firms, the Federal Trade Commission announced. The coordinated actions were part of a national law-enforcement effort by 2 federal and 23 state agencies to crack down on loan modification scams.  “Operation Loan Lies,” has targeted loan modification firms that allegedly promised to obtain modifications or stop foreclosures, but the companies actually did nothing. Advance fees charged by the loss mitigation firms were equal to one or more mortgage payments, but no loan negotiations ever took place. 

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According to a recent report from Foreclosure Related News, mortgage fraud reports spiked 36% in the United States last year as distressed homeowners and mortgage professionals tried to maintain their standard of living from the boom years, the U.S. Federal Bureau of Investigation said last week, calling fraud rampant and growing.  The State of Maryland recently issued cease-and-desist orders against seventeen loan-modification companies, part of a national effort to go after consultants the Federal Trade Commission alleges are “con artists” preying on homeowners in trouble. 

Here’s what the federal agency says about “Operation Loan Lies”:The FTC charged that the defendants falsely claimed that they would either obtain a mortgage loan modification or stop foreclosure, or both, and that some of the defendants falsely represented that they would give consumers refunds if they failed to do so. After charging consumers the equivalent of one month’s mortgage payment or more in advance, these companies often did little or nothing to help homeowners renegotiate their mortgages or stop foreclosure. After failing to provide the promised services, the defendants that promised refunds did not honor those promises. Several were mortgage broker outfits and several were loan modification companies that were run by attorneys.

The state Department of Labor, Licensing and Regulation offers suggestions for avoiding foreclosure-help scams, including this one: “Beware of any person or organization asking you to pay up-front fees in exchange for providing mortgage counseling services or mortgage modification of a delinquent home loan.”  Remember, HUD-approved nonprofits have counselors who help borrowers navigate their lenders’ loan-modification process, and they do foreclosure-prevention work free of charge. Here’s the list of Maryland housing counseling groups.

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Fitch Ratings published a report recently that examined the performance and effectiveness of foreclosure preventions with loan modification programs in terms of helping prevent a borrower from losing their home in foreclosure. Their report pointed out massive failure rates. Fitch’s foreclosure prevention reports that had come out earlier in year found that 50% of mortgage modifications done in the first half of 2008 had gone back into default by year-end. The recent loan modification study by Fitch estimates that between 65% and 75% of modified subprime mortgages will become 60-days or more delinquent again within a year of  that the loan is modified.

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%

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The state of California announced a new state law imposing a 90-day moratorium on home foreclosures that went into effect for local borrowers who were unable to get access to a loan modification program. Under the program lenders must prove they attempted to offer mortgage loan modifications with delinquent home loans before they begin the home foreclosure process. The moratorium is very similar to the federal mortgage relief program that started last December and ended April 1.

The goal is to ensure loan servicers make legitimate attempts to work with borrowers before foreclosing. Because of the Federal moratorium, most of the big mortgage lenders already have a loan modification program in place. Those companies don’t have to comply with the new state law and can apply for an expemption.

That process however, can take up to a month to complete. During that time mortgage loan servicers can carry on with business as usual, including foreclosing on delinquent accounts. The State announce the California moratorium would go into effect immediately, but will the major mortgage lenders fall into line with it?

California Foreclosure Moratorium Guidelines:

ü The moratorium applies to first mortgages made from 2003 through 2007.

ü The mortgage loan must be for your principal residence.

ü The homeowner must have received a notice of default.

ü The home loan servicer does not have a California loan modification program in place.

ü Because many homeowners are upside down on their mortgages

There is a concern that the 90-day negotiating period will only postpone the inevitable because so far the banks are not reducing the principal. California doesn’t know how many people will actually have their foreclosures put off, nor what banks already have loan modification programs in place. The Department of Corporations does plan to post which institutions apply to be exempt from the moratorium.

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Frank Continues to Make Promises about Housing Rescue & Foreclosure Prevention Act:  Watch Barney Babble about Home Values and Loan Modifications

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Loan modification activity continues to rise as delinquent homeowner look for help. Mortgage loan modification agreements have helped many homeowners salvage their homeownership with lower mortgage payments, but not everyone qualifies. Mortgage modifications and loan workouts are successfully negotiated when the borrower has a job and has the ability to afford the revised loan payment.

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.

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The Treasury Department has expanded its loan modification program and is now offering incentives for short sales and insurance to “partially offset” price declines on loan modifications during the first two years. The “Home Price Declines Protection incentives are designed to address investor concerns that recent home price declines may persist,” according to a Treasury fact sheet. And it provides cash payments based on average local price declines. The incentives accumulate each month the modified loan is current and payments are made at the end of the 1st and 2nd year. “It’s just an additional incentive to participate in the program,” Treasury secretary Timothy Geithner told reporters. For distressed homeowners that are eligible for a Home Affordable Modification but can’t keep up with the payments, Treasury is providing incentives for servicers, investors and homeowners to try a short sale or deed-in-lieu if the property is not sold in 90 days. Secretary Geithner noted 14 servicers have signed up for the modification program and they have made modification offers to 55,000 borrowers so far. “This is just the beginning,” the secretary said. Treasury is prepared to expand and improve the program to “reach as many Americans as we can,” he added. Treasury also reported that Fannie Mae has purchased 2,150 Home Affordable Refinance loans so far. The mortgage giant has received over 51,000 eligible mortgage refinance applications where the loan-to-value ratios are between 80% and 105%. Freddie Mac has purchased 1,500 of these refinanced loans that do not require new mortgage insurance.

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Homeowners continued to fall behind on their monthly mortgage payments in the last quarter of 2008, boosting delinquency rates and adding to the already bulging portfolio of foreclosures nationally, the Mortgage Bankers Association said yesterday. The number of home loans at least 30 days past due stood at 3.6 million, or 7.88 % of the country’s 45.4 million home loans.

The data were announced one day after the Obama administration released details of its Making Home Affordable Program, designed to stem foreclosures by allowing as many as nine million borrowers to either refinance or modify their mortgages.

Mississippi had the fourth quarter’s highest %age of past-due mortgages, 13.11 %, or 33,120 loans out of a total 252,638. It was followed by Nevada (11.12%, 63,027 loans out of 566,795 total) and Florida (11.09 %, 396,903 of 3,578,000 total).

Pennsylvania’s delinquency rate was 8.32 % of all home loans, about 130,000 of the state’s 1.561 million mortgages. Of New Jersey’s 1.275 million mortgages, 7.68 %, or 97,920 loans, were behind on payments.

The delinquency rate excludes loans already in foreclosure. At the 4th quarter’s end, that figure stood at 1.5 million home mortgages, or about 3.30 % of all home loans. “Foreclosure inventory jumped sharply in the fourth quarter, even though the rate at which loans were entering foreclosure remained unchanged,” said the association’s chief economist, Jay Brinkmann. He attributed that primarily to state and local moratoriums on foreclosure sales, as well as the November decision by Fannie Mae and Freddie Mac to halt such sales, loan servicers’ reluctance to proceed with evictions over the December holidays, and overburdened legal processes in some areas.

A flat foreclosure rate does not necessarily mean housing’s downturn has hit bottom. The survey showed that the percentage of loans 90 days past due increased in the fourth quarter, but that foreclosure actions on a large number did not occur as servicers tried to modify loans and deal with investors who own securities of which these mortgage loans are a part. Because loan servicers have been unwilling to talk with homeowners who are not behind in their payments, Brinkmann said, some “borrowers are running their accounts 90 days delinquent in order to qualify for certain modifications.”

A provision of the Obama administration’s plan to help cut the delinquency rate allows borrowers who are current on their mortgages to negotiate with servicers about loan modification options. Gibran Nicholas, chairman of the CMPS Institute, which certifies mortgage bankers and brokers, complained that the plan’s guidelines lack a maximum total-debt ratio. For example, modification might reduce a borrower’s mortgage payment to the plan’s target 31% of monthly income, but his or her total overall debt load, including car loans and credit cards, could be 75%. “If the borrower defaults on the loan modification, taxpayers are on the hook for more money,” Nicholas said.

Farah Jiminez, executive director of Mt. Airy USA, which counsels home buyers as well as borrowers in financial trouble, said she was still seeing first-time home buyers walk in with prequalified mortgage loans that require payments equivalent to 44% to 56% of the buyer’s income. “To really halt foreclosures, we need to stop those entering the revolving door, not just catch those that come out the other end,” she said. “The bailout plan is focused on the latter, but who is focused on the former?” Article was written By Alan J. Heavens.

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