I must admit that even as a lender, I am woefully lost when it comes to loan mods, why? Truthfully, it seems to be a moving target that fluctuates with the daily political winds with no 'rhyme or reason' except expediency for politicians and bureaucrats. Also, I don't make any money doing them yet want people to know there is a possible solution for their problems. For the moment, here in two parts is the 'latest and greatest' guide to help you or someone you may know.


Loan Modifications Short Guide To Success Part 1 – The Problems

Obama’s loan modification program can be seen as a failure, if you focus on the millions upon millions that are benefiting, or as a modest success with over 650,000 borrowers on trials and 375,000 on the fast track to getting permanent modifications by January 2010.

As reported earlier the government is in the process of sending special task forces to win over, bully or cajole, depending on your point of view, the big lenders that decide how well the loan modification program goes.

The big question is why are loan modifications not working better with all the money, over $75 billion, being thrown at it. This article will look at some of the main problems that are creating the loan modification minefield borrowers are currently suffering.

Problem 1. Lack of information
Government firms like Freddie and Fannie are contracting the services of outside companies to go house to house providing accurate information on how to go about getting a loan modification.

This is a reply to lenders complaining that the main reason loan modifications are slow is that borrowers are really bad at filling in forms and providing the information required. Of course, the media is littered with counterexamples of model borrowers that provided all the information and battled with the conflicting instructions that lenders requested.

Problem 2. There is a lot of people that need Loan Modifications.
Around 7.5 million households in the U.S alone are delinquent on their mortgage payments. 25 percent of all borrowers are underwater in their mortgage, owning a home that is worth less than what the mortgage is worth.

Those figures are huge, to deal just with the paperwork, information and mechanics of dealing with so many people on a subject that so few of us understand is a big job that even if all the players wanted Loan Modifications to work it would be hard to do faster.

Problem 3. Banks are nearly as lost as the rest of us.
The simple truth is that even when lenders want to modify a loan it is not a smooth road because they are not used to dealing with this volume of modifications. Banks are already understaffed due to the recession and their mitigation departments are in no better shape. Add to this under-information about government programs, lost paperwork, changing fax and telephone numbers and you start to see why it is so difficult to process a loan modification.

Problem 4.The NPV test
The NPV test stands for Net present value. This test compares the money a loan is likely to generate if it is modified (and the borrower keeps the house and pays the mortgage at the modified rate) and what it is likely to generate if the modification is not carried out. The logic behind this test is not bad. Making loan modifications a profitable exercise for banks is good news, if you make it profitable your chances of making it happen grow exponentially.

However the actual formula to calculate the Net present value is according to many commentators unrealistic and allows lenders to shelve loans they should modify.

Problem 4. Banks often benefit from delinquency.
Banks often are not the actual lenders behind a loan but take on the job of loan servicers. Loan servicers collect payments and deal with borrowers but don’t own the mortgage. Loan servicers profit from delinquent borrowers and the late fees and higher interest rates they generate.

Many go as far as saying the loan modification trials are simply a trap loan servicers use to get three more monthly payments from borrowers that are beyond help and would not pay otherwise.

The problems that borrowers face when trying to work out their loan modification are pretty scary, our next post will deal on how we can face these problems and increase our chances of loan modification success.

Loan Modifications Short Guide To Success Part 2 – The Guide

Loan Modifications are not providing the help American homeowners need. Of the millions of troubled borrowers only a small percentage qualify for a loan modification trial and most of the lucky ones get stranded in the way.

Before we get into the practicalities of how to find your way through the maze of loan modifications it is worth spending a few words on the top reason why loan modifications are not working: They Don’t Address the Real Problem.

The real problem is unemployment and the Credit Crisis.

The fastest growing demographic for loan modification are prime mortgages. These are good mortgages, bought by borrowers with high credit scores that can’t pay their mortgage because of the increasing rate in unemployment. Unemployed borrowers struggle to get a loan modification because you can only qualify if you can prove you have nine months of unemployment benefits lined up. Most unemployed borrowers are unlikely to fulfill this requirement.

The other big reason loan modifications might not work for you is that your mortgage might be the least of your credit problems, you might be overstretched on your car loan, credit card loan, and other personal loans. Many commentators feel the government is trying to deal with a Mortgage Crisis when what they should be dealing with is the broader Credit Crisis.

First Step. Get the Information You Need.
Visit the government’s official website at www.makinghomeaffordable.gov . There you can find:
1) The current sponsored program the Government is touting.
2) Useful forms to help you compile the information you need to supply to lenders.
3) Find the closest government paid advisor that can provide you with personalized guidance.

Second Step. Decide what you can pay, and be realistic about it.
There is such a thing as a BAD LOAN MODIFICATION. After months of wasted time and resources some borrowers end up with a loan modification they still can’t pay.

You need to figure out what you can truly afford to pay on your mortgage every month. The government guideline is 31% of your monthly income but that might not work for you. Get some real figures together. How much do you spend on housing costs? What is your income, or average income if you’re self employed or work on commission. Put all this on paper, your lender will want a look at it.

Third Step. Tell the lender, giving you a loan modification is worth their effort.

Lenders are not charitable organizations. They lend for a profit not out of kindness. However if you can convince them that giving you a break is in their interest, that you are worth more as a borrower with a modified loan than as a foreclosure you are half way there. Explain the reason you are struggling to pay, illness, untimely death and losing your job are the reasons most likely to work.

Fourth Step. Put it in writing.

Send a written request for a loan modification. Make it short and to the point, one page should be enough, provide all the information you compiled in the earlier steps, why you need the loan modification, why it is a good investment for the bank, etc… Send all correspondence with your lender through certificate mail with return receipt requested, there are too many horror stories of lost forms.

Fifth Step. Call your lender.

Good idea to start with your loan servicer, the place you bought your mortgage from. Write down the name of everyone you talk to. Only talk to people who can help you and make decisions on your mortgage like officers in the mitigation department of your loan servicer. It is a good idea to send you letter with all your information to the person you have talked to over the phone.

Sixth Step. Be patient, follow up.

Unfortunately loan modifications can take as long as nine months (sometimes more) after you file in your application. So make a pain of yourself and follow up on the progress of your modification with calls, emails and faxes. Don’t underestimate the power of persistence, some officers might work faster just not to have to talk to you again on the phone.

Seventh Step. Get Help from the Professionals.

If you are not satisfied with how you are being treated contact the OCC. The OCC regulates all national banks. You can find a complaint form at www.occ.treas.gov/customer.htm

If you are having trouble working through any of the previous steps, like contacting your mitigation department, visit HOPENOW.org or call 888.995.HOPE and they will help you out.

You can also visit www.hug.gov for help in finding free certified housing counselors and www.loansafe.org for troubled borrower’s resources.

More on Credit...

Yessiree! There's more than meets the eye when it comes to loan modifications. A recent article pulls back the curtain just a tad. Check it out. By the way, I'm working with homeowners who are underwater, current and want to do something positive for their balance statement...just ask me!

Loan Modifications and Mortgage Modifications Can They Affect Your Credit Score

Loan Modifications and Mortgage Modifications are being sold like they are going out of fashion and both the Government and private banks are reporting successes in the number of loan modifications and mortgage modifications processed.

If you are desperate to keep your home and you are finding it difficult to pay for your mortgage payments a loan modification might be the option for you. However there is a question you must ask yourself. Is a loan modification or mortgage modification worth my trouble? There are a number of negative consequences that are attached to mortgage modifications.

Among them is the risk of paying more that the mortgage is already costing you in deferred and balloon payments.

Another issue related to mortgage modifications is the possibility your credit score could be affected. It might surprise you but taking a government sponsored loan modification could lower your credit score. The reason for this is that some banks and loan providers report loan modifications as partial payment plans. These plans include programs that reduce the debt of borrowers that can’t afford to pay their loan. FICO, one of the organizations that prepare credit scores from the information financial institutions quantify partial payment plans negatively.

This could make it harder for borrowers that take on a loan modification to buy a home in the future. Of course if you are happy where you live and you just want to save your home this should not be a problem.

First-time Homebuyers Tax Credit

A completely different type of credit that people are concerned about is how the mortgage crisis will affect previous government sponsored first time homebuyers tax credit programs.

These tax credit provide a tax break, a percentage discount or sometimes a dollar to dollar deduction from tax of any mortgage related expenses.

The government is as interested in promoting home purchases as it is to stop foreclosures so these programs have been extended. However the recession is affecting the U.S budget so it is wise to get on the first time homebuyers tax credit bandwagon while there is a wagon to ride. The deadline for applying for a tax credit has been extended so that purchase agreements must be signed before May 1^st and closed by July 1^st.

For more information on this matter visit www.federalhousingtaxcredit.com

The same applies for other tax credit programs like the HOPE scholarship tax credit, a sister program to the HOPE loan modification program. This tax credit program provides dollar for dollar tax breaks on college tuition, fees and course materials. This program will end next year so it pays to apply early. For more information visit www.finaid.org.

Take Caution When Using Debit Cards for Holiday Purchases

Tis' the Season of Joy and Wanton Spending! The following article has some pointers you may want to consider if you are also considering purchasing a house or refinancing an existing loan.

So "Ho...ho...ho! And enjoy it for the '...times, they are a-changin'!'

December 1, 2009—(MCT)—With the holiday shopping season in full swing, when consumers step up to the cash register to pay for their holiday purchases this year, a large percentage will pay with a debit card.

Debit cards have overtaken credit cards and other noncash methods as the payment of choice among consumers. Visa, the global payments technology company, said debit cards passed credit cards last December, representing a fundamental shift in consumer behavior. Gone are the days of cash and checks.

“In general, debit card use has been growing for many years, and we expect that trend to continue for the foreseeable future,” said Bob Whyte, head of consumer debit products, North America, at Visa. There are several reasons for the trend.

“There’s a perfect alignment of the product with the mood of the consumer today,” Whyte said. “There’s a recognition that debit cards provide a great sense of control,” he added. “There’s also a great appreciation for the safety of the product. It’s safer than carrying cash, which can be lost or stolen.”

Other reasons why debit cards have become increasingly popular include:
-Debt-laden consumers are trying to pay off their bills and don’t want to take on more debt. “A lot of consumers are using debit cards as a spending-control mechanism,” said Dennis Simmons, president and chief executive of SWACHA, the Dallas-based regional payments association whose members include financial institutions, businesses, government agencies and professionals. “Virtually all debit card transactions are deducted from someone’s checking account immediately.” In contrast, you typically have some time before you receive your credit card statement and the expenditure hits you in the face.

-Some consumers are using debit cards in a backlash against credit card companies, which have been raising annual percentage rates, slashing credit limits and instituting fees in response to new credit card regulations.

Card similaritiesOne of the main differences between debit and credit cards is that debit cards are linked directly to your bank account, while credit cards enable you to charge purchases against a preapproved credit limit.

But debit cards and credit cards are becoming more similar. Many financial institutions are starting to offer rewards on their debit cards, as they do with credit cards, Whyte said. Another similarity is cardholder liability. Federal regulations require financial institutions to cap your liability at $50 if you notify your financial institution within two business days from the moment you learn that your debit card has been lost or stolen. And many financial institutions have gone beyond federal regulations and adopted zero cardholder liability policies on unauthorized use of debit cards.

Take precautions- Despite the safeguards, debit card users should take certain precautions.-Protect your debit card as you would your credit card.-Pick a PIN or electronic password that can’t be guessed easily. Don’t use your birth date and personal names. Mix numbers and symbols in your PIN.-Memorize your PIN. Never write it on your card or store it with your card, and never let someone else enter your PIN for you.-Don’t disclose information about your card over the telephone.-Check your bank statements immediately to ensure that all payments are yours.-Periodically check your account balance and transactions, either online, by telephone, or by printing interim statements at the ATM.

Beware of overdrafts...a crucial concern for debit card holders is overdrawing their accounts. “Most overdrafts today are caused by debit cards,” said Carol Kaplan, spokeswoman for the American Bankers Association. Overdrafts have been a hot issue. The Federal Reserve recently imposed rules that will make it harder for banks to slap customers with overdraft fees, which one consumer group — the Center for Responsible Lending — said average $34 per transaction. The new rules will take effect July 1.

Consumer groups and lawmakers have chastised banks for using “courtesy overdrafts” to pay transactions even though customers don’t have the money in their accounts to cover them. The banks then charge account holders a high overdraft fee, consumer advocates say. Banks say they’re providing a service. The Fed’s new rules will prohibit banks from charging overdraft fees on automated teller machine and one-time debit card transactions unless the consumer opts in to the overdraft service for those types of transactions. “This new rule addresses the primary concerns that have been raised by consumers and policymakers and will help bring consistency and clarity to overdraft programs,” said Edward Yingling, president of the American Bankers Association.

Keep a cushionYou can avoid overdraft headaches with debit cards simply by keeping track of your transactions and recording them. Keep a cushion of money in your checking account and link your checking account to a savings account, so it covers you if you overdraw your account. If you use an overdraft line of credit, repay it as quickly as possible. Sign up for electronic alerts that automatically notify you when your checking account balance drops below a certain level.
Finally, know your limits. Many financial institutions limit daily withdrawals for your protection.

(c) 2009, The Dallas Morning News.

OK, the holidays are upon us and the deals are ever more attractive. Gotta buy...buy...buy! Without you the economy would fall into the black abyss of...well, nobody knows what. So, if you still have those credit cards and haven't shifted to a cash-based personal economy here are some tips to remember.

Top Tips to Improve your Credit

1. Review your current credit report for accuracy. Everyone is entitled to one free credit report per year from each of the three credit bureaus—Experian, Equifax, and TransUnion. Get a copy of your credit report and look at it for accuracy. First, make sure that the information in your file is about you and only you, not someone who has a similar name or a similar Social Security number. It is very common for your credit reports to have mistakes or incorrect information. At a minimum, make sure that the information you are being evaluated on is current and correct.

2. Repair credit report mistakes. If you find something on your credit report that is incorrect or missing, you should dispute the mistake by contacting the credit bureaus directly. All credit bureaus have their dispute procedures on their website. They are also required by law to investigate any disputed items and these investigations will usually be done within 30 days of your request.

3. Pay your bills on time. Sounds like a no-brainer, right? Payment history accounts for roughly 35% of your credit score. Paying bills on time is the most important thing to do. If you’re struggling to catch up, contact your creditors to work out a payment schedule.

4. Increase the length of your credit history. This accounts for about 15% of your score. Don’t cancel your old card or get a lot of new ones in a short time span because this can hurt your score.

5. Keep credit card balances low. It’s a good idea to keep the balances below 25% of your available credit. Even if you pay off your credit cards every month, a high average balance will impact your score. This accounts for about 30% of your credit score.

6. Keep new credit requests to a minimum. This accounts for 10% of your score. Every time a lender runs your credit, an inquiry is recorded. If you are trying to get a loan, don’t apply for new credit cards first.

7. Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.

8. Pay off debt rather than moving it around. The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.

9. Beware credit-repair scams. By all means, don’t pay someone to wipe away the negative items in your file. If they don’t follow through, the damaging items will reappear in two or three months.

'There's a change in them thar hills...' or so the quote goes. Yes indeed! Congress is passing all sorts of new rescue programs. If you are wondering about HARP and HAMP (I think HEMP is due in short order), read the following:

Loan Modifications Back To Basics

Loan Modifications can seem complicated to many of us. Especially when we are dealing with the stress of losing our home and we are presented with a seemingly endless list of requirements and forms to cope with. It is easy when writing many articles on a specialized subject to assume that everyone knows what you are talking about, that everybody is familiar with what HAMP, TARP, a servicing company, short sales and foreclosures are.

If you are an expert in loan modifications what on earth are you doing reading an article titled Back To Basics, if not this article is for you. This article will explain the big picture loan modifications are currently set in and the basic terms you must be comfortable with.

Who is the owner of your mortgage? Knowing who owns your mortgage is vital. This is not as easy as it sounds. Often the bank or institution you bought your mortgage from is just a handler, a servicing company that sells mortgages and collects payments on behalf of an investor. We will not go into detail with how mortgages are bundled and sold but it is enough to say that it is probably more complicated than you expect so it pays to approach your lender or mortgage servicer with large amounts of patience and an open mind. It is also a good idea to become somewhat of an expert on the subject so you can at least ask the right questions and know when you are being taken for a ride.

The Programs.
Facing mixed feelings and responses from the public the American administration has started many programs and measures to modify loans and make them more affordable for troubled homeowners. There are two main programs, the HARP program (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program).

HARP is for homeowners that are current on their payments but have not been able to take advantage of the current lower interest rates because the value of their home has dropped and they are not able to refinance their mortgage. In order to qualify for HARP applicants must have mortgages owned or insured by Fannie Mae or Freddie Mac.

HAMP is by far the most widely used program. Any servicing company is eligible. The government provides incentives to investors and borrowers if a loan modification is successful. The purpose of HAMP is to bring mortgage payments down to 31% or less of a family’s monthly income. This program requires homeowners to have a job and be able to pay for a reasonable mortgage payment. The first step you must make with HAMP is to qualify for a three month trial loan modification. Once you have gone throught the three months without missing a payment you can qualify for a full loan modification.

HAMP reduces loan payments with three main methods: 1) Reducing interest, 2) Extending the mortgage term up to a maximum of 40 years and 3) Forbearance of principal and allowing for a ballon payment at the end of the mortgage.

Don’t pay for help, it is free!
It is importance not to fall for loan modification scammers no matter how much you hate paperwork. The best advice comes from the government and they have a vested interest in your success. You can call HUD for approved housing counseling at 239 434-2397 or visit www.hud.gov.

More Foreclosures on the Way - Take Advantage

The other day I wrote that more properties were headed to market in the not too distant future. Well, the other day one of the trade rags wrote the following:

Treasury Says Millions More in Foreclosures are Coming; Are You Ready?

RISMEDIA, September 17, 2009—According to recent announcements by the U.S. Treasury Department, another wave of foreclosures is on the way in 2010. For over a year, now, we’ve been digesting foreclosures and distressed properties and it looks like we’ll all be doing it for another year or so. It’s too large a market segment to ignore: in some parts of the country, distressed properties account for about 65% of sales these days.

With more properties coming online, perhaps you should consider how to participate. Broken down to its simplest truth, the foreclosure craze breaks down to this -everyone wants a bargain, and it is a fact that a great many people who rise to the bait of foreclosure properties are simply looking for a bargain. Nothing drives investors like smelling bargains, and there are bargains aplenty in most markets these days.

Government financing continues to be attractive and prices remain low. Give me a call to discuss your ability to purchase a property.

Numbers, numbers everywhere but who to believe?

Just the other day, I heard that wise souls at USD devined there to be almost 7 million houses in default across the country in what has recently be termed 'shadow inventory'. This includes short sales, short sales pending, foreclosures, pre-foreclosures, foreclosures and short sales under contract, and 30-60-90 late payers on loans in addition to whatever the banks have been holding back from the marketplace. That number is 5.5 million more than is being bantered about by banking authorities.

Why such a large discreptancy? That is a tough question and although I don't have the answer I know that as I look around different mediums the reportage of numbers is astonding. Just like the deficit and all of the money being thrown hither and yon, it all just seems to flow with no meter on the open tap. Of course, banks are more than reluctant (see article below) to share numbers or be proactive out of shear fear or greed.

So, you might think that this newly redefined 'shadow inventory' of 7 million is ripe for the picking, and that good deals are 'just around the corner'. Yet, if the recent past is any indicator of the future it is my opinion that the banks will continue to be stingy in settling short sales, providing meaninful loan modifications, and miserly in doling out foreclosed properties to the marketplace because they can!

The following article gives a glimpse into the reason they can...



Creative Ways a Loan Modification Lowers Your Monthly Payments

Creative is probably not the first word that comes to mind when you think about loan modifications. There doesn’t seem to be many new ideas in the loan modification department.
The Government is definitely doing its best to reach the borrowers that need the help, especially those that reach those that can pay affordable mortgage payments. This helps “guarantee” the government is not throwing away good money after bad with borrowers that overstretched themselves and cannot afford any reasonably monthly payment.

However all signs show that these programs are not being as successful as they hoped. But how do loan modifications lower, or attempt to lower your monthly payments. The first and main way is by lowering your interest rate. Actually one of the main purposes of loan modifications is to allow homeowners whose homes have dropped drastically in price to still take advantage of the lower interest rates now available. The problems come when low interest rates are not enough. The government is currently trying to drop interest rates to around 2%. However if this level of interest rate is still too high to make your monthly payments affordable there are still some options open to you. You servicer or lender can still extend your payment term.

This means you will extend the amount of time you take to pay your loan. This idea is pretty intuitive if you owe $1,000 and you have to pay it in 10 months you have to pay around $100 plus interest. If you can pay it in twice the time your payments should be half as much plus interest. Servicers can extend the loan to up to 40 years which can have a drastic effect on your loan payments even though it keeps you in debt well into your eighties.

What if all this is not enough? What if you still can’t afford your monthly payments? Your lender or service provider can actually defer a portion of the principal (original) amount you owe until the maturity of the loan. We call this a principal forbearance. This does not mean the debt or part of it is forgiven just deferred or set aside until you sell your home or the rest of your mortgage has been paid. This option can be very effective in lowering your monthly payment but will create a balloon payment on your mortgage. This means that your payments will be lower monthly but you will have to make a very large payment at the end of the mortgage. This can be beneficial if you are planning to sell your home and cut short your mortgage anyway or if you want a break in your monthly payments now and expect your income to increase in the future.

Another option, not very popular with service providers is to simply forgive the principal owed. This is a long shot to say the least but still worth a try. Service providers are not required to do this so don’t keep your hopes too high.