Loan Mods After 3 Years...and Counting!

Another good piece from Blown Mortgage. Note how the Administration is offering certain states, including California, monies to help those underwater or suffering from the 'bubble' with their mortgages. Interestingly enough, although said sums might be designated for us there is nobody 'at home' to manage the distribution.

California (as with several other states) is in the throes of a budgetary disaster requiring that state workers be furlowed, retired or fired. And, just because there are Federal dollars to be disbursed doesn't mean these needed workers will be brought back online since the cost is to be borne by the state.

'Another fine mess you've gotten us into, Ollie!' as Laurel was fond of telling Hardy.

Loan Modifications, What Is The Situation 3 Years After The Housing Bubble Burst

It is hard to believe that three years have gone by since the housing market took a dive drowning with it millions of American homeowners. So what is the situation now? Have we hit rock bottom? Are the Administration’s measures starting to work?

Let us start with the good news. There are now over one million homeowners benefiting from temporary or final loan modifications. Admittedly, most of them are still in the trial period, but nevertheless, the Administration has made an effort to ‘encourage’ lenders and servicers to make an effort, sometimes by using a carrot and other times by brandishing a big stick. Another good newsbyte is that the rate of troubled homeowners, people behind on their payments, is dropping.

Also, new measures are being carried out as we speak. Just a few days ago Obama announced another program to avoid foreclosures. The program included offering $1.5 billion to housing agencies in California and four other states. These states have been especially hit by a fall in house prices making loan modifications harder to qualify for. This new program aims to provide these hard hit states with extra flexibility that will allow them to provide the help troubled homeowners need.

Unfortunately the good news is over. The bad news is that nearly 3 million homes are going through foreclosure and 4.5 million will do so this year according to conservative estimates. Another problem is that the figures we have may not even be telling the full story. Experts say that lenders have an estimate of 1.7 to 7 million homes in a shadow list of foreclosed home they are yet to put for sale. This fudges our foreclosure figures.

High foreclosure rates do not only affect the owners, it also lowers the price of homes in the neighborhood and cripples the economy as a whole. The question many are asking and we have discussed widely in this blog is how much should the government help. It is a fact that many borrowers overstretched their budgets to breaking point; these cannot and should not be bailed out. However, the fact remains that loan modification trial and completed number should be higher.

Another problem is the high re-default rates. These rates show some of the inadequacies of the current loan modification system. Studies show that re-defaulting rates are lower when the principal balance of the loan is trimmed or reduced. Unfortunately most loan modifications simply extend the term of the loan or reduce the interest rate.

What can the government do? Extra incentives for lenders and servicers might just make them weight for the next best deal, instead of focusing on providing fast loan modifications now. An idea that has been thrown around that seems promising is to give bankruptcy judges the power to write down mortgages like they can write down other kinds of debt. It is very likely that this would increase the interest rates of new loans to reflect the increased risk of loan balance reduction. However, it would provide a good incentive for lenders to negotiate reasonable loan modifications before a judge tells them to.

How to Deal with New Credit Card Law

The newest changes to the law regarding credit card companies and how they are to deal with consumers is out. Supposedly, the changes in the law are meant to protect consumers, and if the past is any predictor of the future, but is probably just an illusion.

Holding Your Bank to New Credit Card Law

Today’s a big day for anyone with a credit card. A host of changes passed by Congress in the Credit Card Accountability Responsibility and Disclosure (CARD) Act in the wake of the financial meltdown go into effect today.

You’ve probably already heard quite a bit about the major changes, such as protections against unexpected rate hikes and the end of so-called double-cycle billing, which charges cardholders for interest based on the previous two billing cycles.

But what do you do if you think your bank isn’t living up to the new rules? In fact, when it comes to consumer recourse, credit card experts say that despite the new policies, consumers’ options remain little changed.

And of course, the moves by your bank that might upset you the most may not fall afoul of the CARD Act at all. As the new rules have cut off some old practices, banks have been trotting out new policies and fees that allow them to take additional money from consumers. And those consumers may not have any new legal avenues to pursue.

“Consumers are not the winners in this system very often,” says Linda Sherry, a spokeswoman for Consumer Action, a consumer-advocate organization. So we went to credit industry and consumer experts and asked them what are the key steps to take if they believe their banks aren’t living up to the new regulations.

Prepare for your conversation with the bank

When a credit-card issuer violates the new rules, consumers should first contact the company's customer service department. (That phone number is on the back of most credit cards or on the web site of the card issuer.) Just make sure you’re familiar with the provisions of the new law – and its many loopholes – and be ready to show proof that the lender has violated them.

“Consumers would have to be familiar with the law and they would have to have some sort of evidence of what had happened to them and clear understanding of what is legal,” says Sherry.
Assuming the law is on your side, the customer service department may undo the error while you’re on the phone – or there may be an ongoing back-and-forth. Conversely, the credit-card issuer could dismiss your complaint and say that it’s acting within its rights.

Complain to the bank’s regulator

The next line of defense for the consumer is the bank’s regulator. Nationally-chartered banks are regulated by the Office of the Comptroller of the Currency (OCC). Consumers can call this office at 800-613-6743 to speak with a customer service representative. Then, the OCC may reach out to the bank to investigate the complaint. The time it takes for complaints to be addressed varies. In 2009, the OCC received 70,000 complaints that involved investigations and each took 60 days to resolve on average, says Dean DeBuck, an OCC spokesman.

Consumers should be aware that the OCC has drawn some criticism as a regulator because it has a financial incentive to hold banks under their national charter. The OCC is candid about its relationship with banks but maintains its regulatory role isn’t compromised.

State-chartered banks are regulated by a state regulatory body. And American Express (AXP: 38.93, -0.13, -0.33%) is regulated by the Federal Deposit Insurance Corporation (FDIC).
Consumers who aren’t sure who regulates their bank can ask their bank’s customer service department or a local consumer advocate.

When a regulator finds a bank has violated a rule, it can assess penalties, including monetary payments or poor examination reviews that could result in a bank being shut down.

Call your state attorney general

A consumer should also complain to their state attorney general, especially if the bank is state-chartered. If the office receives multiple complaints, it could launch an investigation into the bank.

Even if the bank is nationally-chartered, having a complaint on file with the state attorney could still be helpful down the road, Chi Chi Wu, staff attorney at the National Consumer Law Center, says.

Go to court

If a consumer hasn’t gotten results by reaching out to the bank or its regulator, he can consider taking the bank to court.

Most consumer protection laws, including the CARD Act, have fee provisions mandating that if the consumer wins, the bank will have to pay their legal fees, and if the bank wins, they won’t have to pay either. The key is to find an attorney who will take the case on contingency (meaning that they only charge fees if they win) and who adhere to the consumer fee provisions in case of a loss. (To find such an attorney, contact the National Association of Consumer Advocates.)

Some attorneys will be on the lookout for similar consumer cases against particular banks, which can lead to a class action. If a consumer is successful in suing the bank, the consumer gets damages based on the amount he was overcharged, plus statutory damages.

Settle in arbitration

Many consumers may never get to court because they get stuck in arbitration, a third-party justice system that is contracted by the banks. In many cases, consumers who have credit cards are contractually bound to settle disputes in these forums, and the consumer must pay the costs, says Sherry. (Such a clause can be included in the agreement a consumer signs before he starts using a credit card.)

Here's a quick note in passing about the present foreclosure rate in the country, note again that just because someone is underwater doesn't make them eligible for loan modification:

The Congressional Oversight Panel overseeing the $700 billion Troubled Asset Relief Program (TARP) issued a report in December concluding that the Obama administration's Home Affordable Modification Program (HAMP), which is funded largely by TARP, will prevent only a fraction of the projected 8 million to 13 million foreclosures anticipated in the next four or more years.

The report concluded that the HAMP program is not designed to address foreclosures caused by unemployment or to significantly reduce homeowners' negative equity, and that the Treasury Department expects 40 percent of borrowers who are offered permanent HAMP loan modifications to redefault over the next five years.

The scare is in the Media at the moment. And, like many such moments there is a lack of perspective. Since there are two sides to each story, here is the other side of the 'looming flood of foreclosures' from Ric Edelmen:

Does Another Wave of Foreclosures Loom?

Not likely, but you won't hear that from the media

Just as the media hyped the real estate bubble, reporters and pundits are now riding an alarmist wave of foreclosure news. Case in point: A recent newspaper headline warned, “Another Wave of Foreclosures Looms — Ballooning Payments Put Mortgages at Risk, Posing New Setback to Market.”

The concern at the heart of the article: An estimated 70% of Option ARMs will reset by 2011. Option ARMs are adjustable-rate mortgages that give the borrower choices regarding how much to pay each month.

At first glance, that statistic sounds scary — it represents $189 billion worth of loans. But is it really all that bad? Let’s find out.

There are 75.6 million owner-occupied homes in the U.S., according to the Census Bureau. Of those homeowners, 61% have a mortgage.

The article states that Option ARMs make up 1.3% of all mortgages. In other words, we’re talking about a little more than 600,000 mortgages. If 70% of those loans reset, the figure is about 422,000 mortgages. And don’t assume that those homeowners are going to default merely because their loans reset. “Reset” means the interest rate will adjust to new rates — and rates are now lower than they were three years ago when these loans were obtained, not higher. That means many of these homeowners might enjoy lower payments, not higher ones. Say half of the resetting loans prove unaffordable. Even that doesn’t mean the homeowners will necessarily default. Many, after all, will be able to figure out a way to keep making their payments.

But suppose half of them actually do go into default. In that case, we’re talking about 211,000 loans defaulting — spread over the next two years. That’s about 100,000 loans defaulting next year — out of 75.6 million homeowners.

That’s 0.14% of all homes. And that is supposed to support a headline that reads, “Another Wave of Foreclosures Looms — Ballooning Payments Put Mortgages at Risk, Posing New Setback to Market.” Either the writer of that article is deliberately attempting to scare readers needlessly, or the writer fails to understand the true nature of the situation. Incompetent or irresponsible? Either way, you shouldn’t draw incorrect conclusions from this story — and stories like this one are all too common.

How to Start the Loan Mod Process

Here is a pretty good article for anyone looking to negotiate a loan modification, it gives some good starting points and tips. It comes from AOL Real Estate:


If you're a homeowner on the brink of foreclosure, refinancing your loan at a lower interest rate could be your last chance to keep your home. But for millions of homeowners refinancing may seem impossible because they are "underwater' - the value of their home is now less than their mortgage.

Nearly one-in-four people with home loans have this problem, according to First American Core Logic. But the federal government's Home Affordable Program may be able to help.

Underwater but still employed
The Home Affordable Refinance Program (HARP) lets qualified borrowers refinance a first home mortgage even if the size of that mortgage is as much as 125 percent of a home's value.

The program aims "to provide access to low-cost refinancing for responsible homeowners suffering from falling home prices," according to President Barack Obama. It's designed to lower the interest rate and payments on your home loan. It could also help you replace an adjustable rate mortgage with a more stable fixed rate mortgage.

However, potential borrowers must show that they are employed and will be able to make their payments. There's no minimum credit score to participate though a low score could effect your interest rate. Applicants are immediately disqualified if they have been more than 30 days late on any home loan payments in the past 12 months.

The structure of the current loan also makes a big difference. For example, the loan has to be owned or guaranteed by Fannie Mae or Freddie Mac to benefit from this program. Don't panic - there's a good chance that your banker sold your loan to one of these two mortgage giants after they made the loan to you. Find out here for Fannie Mae or here for Freddie Mac.

Contact your lender or loan servicer to apply for the program - you should find the phone number on your monthly mortgage statement. You should have the numbers on your current income and expenses ready before you call. Here's a list of the documents you'll need.

You may also be able to work with a new mortgage company to refinance a Fannie Mae loan, provided the new lender is capable of making a Fannie Mae Desk Underwriter Refi Plus loan.

Difficulty making your payments
If your loan is bigger than the value of your house and you've already missed or made late payments on that mortgage, you may still qualify for the federal Home Affordable Modification Program (HAMP) available through mortgage lenders.

It's not a refinance program - instead the original mortgage is left in place while the terms of that loans are changed to lower the contract terms.

Once again, you will work with your mortgage company. Your monthly payments may be lowered to a rate you can now afford for as long as five years. Starting in year six, the interest rate on the loan, and the amount of your payments, may begin to increase by up to one percent until the rate reaches "the market rate at the time the modification agreement is prepared," according to the program Web site.

Your lender may also lower your payments by spreading them over a longer period, for example extending a 30-year loan term to 40 years. It could even forgive part of your debt.

Applicants will have to demonstrate financial hardship that puts your mortgage in imminent danger of default - your current monthly mortgage payment must be more than 31 percent of your current gross income and you must demonstrate that you are having difficulty making the payments. Also, you can't live in a mansion - the mortgage must be for an amount less than $729,750. Also, just like HARP, your loan must be owned by Fannie Mae or Freddie Mac.

Call your lender or loan servicer to find out of it is participating in the program - most are. You can find the number to call on your monthly mortgage statement.

Other options
If you don't qualify for either of the governments Home Affordable programs, you may still be able to negotiate a loan modification with your lender. Remember, if the lender seizes your house in a foreclosure, it is unlikely to be able to sell the house for the full value of the home mortgage in an auction.

Ask about the possibility of a short sale, in which you would sell your house at market value even though the price is likely to be less than the amount of the mortgage. In a short sale, the left over loan balance is forgiven. The mortgage company loses money on the deal, but usually not as much money as it would lose in a typical foreclosure and both you and the mortgage company are spared the expense and damage of the foreclosure process.

Someone to Talk You Though It
You probably still have questions, and it might help to talk to an expert. Here is a list of counselors who have been approved by the government who may by able to answer your questions for free.

Loan Mods Get Easier...Supposedly!

With so much rancor around loan modifications, it appears the government is finally giving the 'push' so very much needed since day one of the program. Again, loan mods are not for everyone and the NPV factor still remains (see earlier post), but for many in our area a modification might prove worth the effort to apply.

Below is a snippet from Blown Mortgage you might find useful:

HAMP, the Government’s Loan Modification Program is changing their tune about the paperwork required to apply for a loan modification. Homeowners applying for a loan modification must now include their paperwork before even entering the trial stage.

Previously troubled homeowners could apply for a loan modification trial by simply providing proof of income over the phone. The problems arose when some troubled homeowners either took too long to send the paperwork or could not prove the claims they had made. The Treasury and many servicers claim that this is the cause that the conversion of trials to completed modifications has been so slow.

The Treasury’s response has been to simplify the paperwork required for HAMP conforming loan modifications and require that it is provided before a trial can start. The goal is to accelerate the process and help homeowners to start paying lower mortgage payments sooner.

What are the requirements?

Homeowners that want to apply for a HAMP mortgage modification must provide:

- Two pay stubs. If they have a job.

- A completed form that gives permission to the servicer to pull up a tax return.

- A modification request with a hardship letter included. Hardship letters are documents that explain why you need a modification for your mortgage. The hardship letter must explain what has changed in your circumstances so as to no longer afford your mortgage payments.

When will these changes occur?

The first of June is the official starting date but servicers are allowed to start sooner if they want to. If you are going to apply for a modification you will need the documentation detailed above.

The Benefits.

The plan is that these changes will increase the conversion rate of homeowners on trial modifications to those on completed modifications.

This has been a bone of contention between servicers and homeowners. Servicers complaining at how bad homeowners were at providing the required paperwork and homeowners claiming it was only an excuse.

It must be said that banks that required paperwork for the trial process to start, like GMAC, had much better trial to modification conversion rates. Herb Allison, assistant secretary at Treasury believes that these changes will help all servicers to speed up the whole process.

Let us hope these changes work because HAMP has a long way to go to fulfill its goal of helping 4 million homeowners with affordable mortgages by 2012. Up to date the program has more than 90,000 homeowners on trials and 66,000 homeowners have signed their mortgage modification papers with average savings of around $500 a month.

Although the simplified paperwork requirements will in all likelihood help speed up the process it does seem like speed is the least of HAMP’s troubles, helping the 3,800,000+ troubled homeowners that are neither on trials or have completed modifications does seem to be more of an issue.