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March 2019
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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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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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I received another inquiry about a mortgage relief through a law firm.  A loan workout is a negotiation with your attorney and lender with the goal of modifying your mortgage terms to something you can afford.  The process is very strategic and requires a significant amount of legal maneuvering to achieve the best results for you.  The attorney that represents you means “everything” to your case.  That is why you should feel comfortable working with a law firm to negotiate a reduced payment achieved through a loan modification.

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.


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Most home financing experts like Jason Cardiff believe that “we have not hit the bottom of the market and lending companies have lost so much that they can’t afford to repossess more homes in this foreclosure crisis.

Mortgage executive Scott Hess sat down with Loan Modification Buzz recently and discussed the mortgage relief movement by lenders who simply do not want to take over more properties from foreclosure. Hess said, “Many properties in California owe significantly more than their home could be sold for.”

Watch Video of Loan Modification Buzz Interview with Scott Hess

More than 12% of homeowners in one Solano County ZIP code are more than 90 days late making their mortgage payments, according to an online data base.

According to the First American CoreLogic database, as of November, the 94589 ZIP code -- the part of Vallejo north of Redwood Street and West of Interstate 80 -- had the area’s highest rate of late payments, at 12.48%. That’s about three times the previous year’s rate. Homeowners in this region of California have been targeted for loan modification plans by many of the mortgage lenders that funded most of the mortgage loans between 2005 and 2006.

First American CoreLogic is a firm that collects national, state and local real estate sales-related data. Homeowners in the 94533 ZIP code had the second-highest late payment rate at 9.56%. In that area -- which covers most of Fairfield proper -- only just over 4% of homeowners were in that position in November 2007. Vallejo’s 94590 ZIP code, which incorporates most of central Vallejo, is right behind at 9.32% of homeowners more than 90 days late.

Foreclosure rates in Vallejo-Fairfield increased during December over the same period last year, as well, CoreLogic found. According to its most recent data, the foreclosure rate for the area was 2.20% for December, an increase of 0.40 %age points over last year’s 1.90% rate. That’s higher than the national foreclosure rate of 1.7% for December. The home loan delinquency rate in the Vallejo-Fairfield area increased to nearly 9% in December from 5.50% in the same period in 2007, CoreLogic reports.

In the 94558 ZIP code, Napa’s Spanish Flat area at the tip of Solano County, only 2.42% of the homeowners are behind 90 days or more on their mortgage payments, according to CoreLogic. But though that is the area’s lowest late rate, it is a significant jump from .73% from last year.

Homes in Vallejo’s 94591 ZIP code, the area east of I-80 and includes Hiddenbrooke, seem to be selling best, Collins said. A high percentage of homeowners at least 90 days late paying their mortgage would ordinarily mean a correspondingly high percentage of new foreclosure proceedings, said Alan Schwartzman of Benicia’s Advance Mortgage. But these aren’t ordinary times. Some mortgage lenders are in the middle of a foreclosure moratorium and distressed home owners may get some mortgage relief from the national stimulus package, he said. Read the complete article online written by Rachel Raskin-Zrihen of the Herald Times.

You can visit them online at Loan Modification Leads or Live Transfer Leads online. LMB provides premium mortgage modification leads for many of the most respected law offices and top producing loss mitigation companies nationally.

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


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

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

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

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

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