Saturday, April 2, 2011


First call a FREE HUD Counselor: 1.888.995.4673

If you are financially distressed or in danger of getting behind on your mortgage payments, you may be able to obtain free counseling from a HUD approved counseling agency. They offer a basic advisory service to consumers. The counselor will schedule a phone appointment and ask you to assemble your financial and mortgage documents prior to the call. Ask lots of questions and write down their answers. If this person suggests you 'may qualify' this does not mean you are 'approved'. Getting approved can take many months.

What IS Loan Modification?
A loan modification is basically reworking your existing loan with your current bank or ‘servicer’ to new terms you can afford. In many instances, modification may result in a temporary lowering of your interest rate. But first, you must demonstrate financial hardship and an ability to make a lower payment. Lenders have their own rules so your advocate needs to know what they consider acceptable.

Your bank may steer you away from hiring an advocate because, frankly it's in their interest to have you to themselves. However, you may choose to work with a non profit agency, an attorney or licensed loan officer. Any paid modification agent should be licensed to practice in your home state.

How Can You Avoid Foreclosure?
There are many strategies you may be advised to consider if you don't qualify for Loan Modification. A Bankruptcy Attorney, qualified Short Sale Agent or Accountant may need to be consulted about your best options.

To WHOM Do You Apply for Help?
Your bank (the name on your mortgage statement) is the servicer of your loan. They represent the investor who holds your loan in their portfolio. The servicer is paid by the investor to keep your loan ‘performing’. It is in their interest to explore options to keep you in your home. They really don't want your home back. They want a performing loan.

An advocate may intervene on your behalf with your lender after assessing your most likely options. In addition to HAMP, HARP and MHA federal programs, many banks have their own private programs.

Advocate Agents
During the modification process if you hire an advocate, they need you to regularly update your income documents to build your case with your lender. They will petition your lender for an agreement that serves all parties. They will help explore every option open to you. An experienced advocate will know the lending guidelines and specific concerns of your lender as well as which program to apply to your situation. Unfortunately, your average consumer has very little ability to navigate this turf on their own.

Apply for Help
For every situation there is a different potential result depending on you and your lender. The key is success is to keep communicating with your lender to find a resolution within your means.

Choosing an Advocate
We know how important your home is to you. By understanding your situation, an expert advocate may help you find a mutually acceptable plan of action. In the State of Washington, besides free HUD counselors, only legitimate Licensed Attorneys or Licensed Loan Officers may represent you for a fee. They represent your case to your lender. The goal is to prevent foreclosure and empower you to avoid financial distress.

Most lenders offer free financial review to explore your potential finance options. Lenders are not always the best advocates, so do your homework.
Assessing Your Options:
After your review, if a mortgage solution is not possible, a good lender may refer you to a trusted advocate or attorney who are expert in this arena*.

Get Accurate Information and Develop a Plan Going In:
Read our posts on rebuilding credit after modification, short sale or foreclosure.

Don’t Wait Until It’s Too Late!
Don’t wait until you have exhausted your resources before seeking help. You are not required you to miss a payment before you apply for modification. Your lender is not going to be very motivated to help you if you cannot also help yourself.

Help Your Advocate Help You!
It will be difficult to succeed if you are unable to participate. Applyng for a loan modification involves verifying your actual financial position throughout the application process. The process relies on your full participation. Be patient and consistently support the effort.

To your success!

© 2011 susan templeton
Susan Templeton is not a loan modification advocate

Sunday, November 14, 2010

Loan Modification Budget Strategy -DTI Goals!

How lenders interpret the loan modification guidelines and how to develop your modification budget strategy.

The key to a successful loan modification boils down to math. Different banks also interpret these guidelines differently. The main problem homeowners have in applying themselves is not knowing these rules. So get your budget out and work up your numbers. Drill them into your head and be prepared to deliver supporting documents every month that match your strategy if you expect to succeed.

After the hardship letter
As I have stated in previous posts, the number one qualification to apply for a loan modification must be financial hardship which has impacted your ability to meet your current payments using this Debt to Income test. These factors may be temporary or permanent so the hardship affidavit (letter) is your starting point, followed by your budget analysis.

Regardless of whether you are applying for a HAMP, MHA or HARP or private  bank program;  they all share one focus: a prescribed level of affordability. The basis is to quantify and verify your debt to income ratios fall into a safe zone of risk.

We use a simple calculation to calculate Debt to Income:

DTI = Monthly Mortgage Payment DIVIDED by Your Gross Monthly Income.

Front end debt to income ratio
Your 'front end ratio' is JUST your housing expenses, including mortgage, insurance and taxes. If you are distressed, your DTI will be between 35% and 60% to basically fall into the danger zone. Most lenders allow 45% for a mortgage. So if you are at 45% DTI now, and have experienced a financial hardship for a mortgage transaction that was completed prior to February 2010, congratulations -- you may qualify for a loan modification.

If it were just that simple. It isn't.

Example: current mortgage payment, including taxes and insurance, is $1,250 divided by monthly income of $4,000 per month  = 31.25% DTI.

Most banks use gross monthly income to keep things simple.

It just so happens that according to the affordability indexes of these programs, 31% DTI is the safe zone target. So if this is your current situation, you are already living within your means and will not be considered for a loan modification. Save yourself the trouble, time and anxiety of trying to get help because you will be turned down. A lower number means you are even safer territory. Above 35% and its starting to approach a qualifying level, based on other compensating factors of your case.

Back end debt to income ratio
Next work up your scheduled debt to income ratio-- which includes your mortgage plus all your credit cards, car payments and regularly reported credit. This needs to be under 70% total. In other words if you have more than 70% going out the door every month they will worry how the heck you will survive even with a modification since these debts are not going to be paid down if you can only make your minimum payment.

Example: $1,250 mortgage payment + $300 car payment + $300 minimum credit card payments + $200 Student Loan = $2,050 divided by $4,000 = 51.25% DTI. This is considered a risky DTI. A 70% back end ratio would be considered  EXTREMELY risky because when you add your scheduled credit payments, PLUS basic living expenses (all fixed costs which are unlikely to go down) a major car repair or injury could wipe you out.

Sometimes a dual strategy is employed to consolidate your debt--but that is another subject for another day. Depending on the lender, this may be a good thing or a bad thing.

What does DTI establish?
Risk. Essentially, your DTI establishes how much assistance or 'break' will be necessary to get you into a safer risk category. The current front end, current back end and cured front and back end DTI ratios are compared and negotiated once all your facts are established.

Imminent 'risk of default'
Your must basically PROVE you are in danger by showing DTI's currently over 35% and under 70%. Then you must make a case for lowering your front end DTI to 31%.

Loan amount $250,000 at an interest rate of 7.5% = PITI (principle, interest, taxes and insurance) of $2,008 per month divided by $4000 income =  front end DTI of 50.20%. High by any standard.

Now reduce the interest rate to 2.5% = PITI of $1,248 per month = 31.2% DTI. Perfect!

You see where we are headed?
Getting your payment into a safe zone -- even for a few years so you can recover financially is the goal. Officially the HAMP and MHA programs aim for five years relief, but most banks allow to 30 year improved terms. They figure most people move on average every 7 years so they are just protecting their losses by keeping you in your home and paying them something on all their cheap TARP money. You will have to negotiate very strongly if you are representing yourself. Above all, keep your cool and be polite if firm.

The winning strategy:
The goal is to establish what level of risk is acceptable to your bank and head for that zone as your negotiating point. If you are too far over into the danger zone due to high debts or your income is unlikely to qualify (either too high or too low) then you may as well call it quits right now.

If your income is likely to improve, or you are recovering from injury, career change, etc., you may still have a chance to make your case and meet this zone. In some instances I know borrowers who merely stalled during the application process until their income was acceptable. You may just be buying time. It's pretty stressful work to negotiate this yourself while you are attempting to rebuild your business and career. I strongly recommend you hire an advisor.

The winning tactic:
Use an amortization chart and plot in your mortgage loan amount and fiddle with interest rates until you get your PITI payment down to 31% DTI using your current income. If you are short, you can see how much income you will need to qualfiy to get up to 31% DTI. Use 2.0 - 2.5% as a floor interest rate for starters.

Expect to see a rise over a 5-10 year period to say 4.5 - 5.0% and then argue to fix that for the remaining 20-35 years. Yes, they will offer 40 year terms if that's what it takes. In rare cases, if you are way over the save DTI zone, and they really don't want your underwater property, some lenders will set aside a chuck of your loan in an interest free second lien that must be paid when you sell or in a certain balloon time frame. Hey - it's free money!

Budget wizardry
If you are waged, it will be easier to show consistency of income by providing your pay stubs. If your hours are inconsistent, you can average your income over several months and include funds from liquidating any assets or extra cash work you may scrounge up to support your case. After all you are working on financial recovery. Show recovery and stability.

If you are self employed, you must provide your corporate Profit and Loss and both corporate and personal bank account statements. Now might be a great time to hire a bookkeeper or take some Quick Books training. Naturally you need to show a clean separation between business and personal. If you need to show more of your net income going to yourself to meet the minimums, you can take owner draws. It's a balancing act. Just aim for consistency in your budget from the start. They do check along the way! You will be coughing up reams of account statements, tax returns, pay stubs and profit and loss statements every month. If anything show a little improvement. Going backwards scares the beejezus out of banks.

Did I mention this is not a great time to take a cruise or buy a new car? Any new debt or time off work will absolutely kill your chances of loan modification.

Extra hint:
To support your hardship, you should ideally show very little money left over every month after making all your combined living expense payments.  Once your housing expenses and scheduled debt, including food, insurance utilities, clothing, etc are paid each month, you want maybe $100 left over. If you suddenly start stacking up extra money in your savings this may indicate you no longer need help. You lender will verify your bank account balances directly.

What about missed payments and arrears?
Since your bank has every legal right to expect those interest payments you agreed to pay back in your promissory note, any shortfall or 'arrears' will eventually arrive in the form of a higher loan balance or longer term. Normally they forgive any fees associated with late payments. Don't worry -- the goal is to keep you in your home and if your case is well documented and meets both hardship and DTI test, you have a good chance of being offered a loan modification.

What about your home equity?
Even if you think your home value is holding up, it's not a great idea to admit you have much equity when you are applying for a loan modification. You may mention any deferred maintenance and state your value close to or below your loan amount. It concerns me that certain banks have been VERY aggressive toward clients with obvious home equity.

You know you are getting close when
At some point when your application is nearing a decision, the lender will send an appraiser to perform a Broker Price Opinion or BPO and report back to the bank. I know one fellow who parked old junker cards in his yard and let the grass grow. By the way, I've had clients report people arriving without notice claiming to be from 'your bank'. It is likely they got your address from the county foreclosure list. A real bank appraiser will offer their card and know who your bank is -- they rarely ask to come inside. Refuse intrusion.

If you decide to negotiate your own loan modification and these tips were useful I would be pleased to hear your results. Otherwise, your professional adviser will employ these or similar strategies on your behalf. You can appreciate their effort is not easy or clear cut.

All the best! equitytalks

© 201 susan templeton
*Susan Templeton is not a loan modification advocate

Thursday, October 21, 2010

How to Find Out Who Owns Your Mortgage!

If, like many Americans, you would like to know who actually owns your mortgage, write a letter to your bank and interested parties requesting this information.

Which Bank?
Just because Bank X is on your mortgage statement that does not mean they actually own your loan. They are the 'servicer'. Which means they collect your monies, take their fee and send the rest to the parties who own it. Since ownership changes the servicer may also change or may just keep track of where to send the money. If Fannie Mae or Freddie Mac are the 'owners' of your loan, it is possible that a Mutual Fund or pension fund in Norway could be 'fractional owners' of your loan. One investor usually holds the note.

It is rare these days that your local bank you may have gone to for a loan, actually owns your mortgage. The speed with which loans were packaged and sold on Wall Street into traunches of Mortgage Backed Securities (which were then traded and and retraded) is why ownership of individual home loans is proving hard to unravel. One mistake at any point along the way is like putting cement on the icing of a baked cake, forever freezing any imperfections.

Use this template letter to send to your servicing bank to find out who owns your loan:

List the names of all persons on your home title
Address of home
Loan Number

Address the letter to your Servicing Bank


Re: Request for original mortgage note and additional information

To whom it may concern:

This is a Qualified Written Request under Section 6 of the Real Estate Settlement Procedures Act (RESPA). I/we own the property at the address listed above, and your bank services my/our mortgage.

 company name is shown as the servicer on my/our monthly mortgage statement.

I/we am very concerned about recent news articles documenting investors foreclosing on homeowners without due legal process. To protect myself and my family, I/we need to know who owns my/our mortgage. Within sixty days, I/we would like to know the name, address, and phone number of the bank or investor that owns my/our mortgage.

Furthermore, in light of the recent allegations of foreclosure fraud, I/we demand to see the original mortgage note proving ownership over my/our home loan. If you fail to produce a mortgage note proving that you have a right to collect my/our mortgage payments, I/we will be forced to consider all options available to me/us to protect my/our interests.

I ask that I receive my response in writing. I understand that under Section 6 of RESPA you are legally required to acknowledge my request within twenty business days and must try to resolve the issue within sixty days.

Thank you for your urgent attention to this matter.

Sincerely yours,

(all parties on title or party to the loan should sign the letter)

If you don't get a response within 20 days to the day, send it again, certified mail, with a cover letter, asking once again for this information relating to your first request on such and such a date and include a copy of the original letter.

This link takes you to a list of the main mortgage servicing banks and how to contact them online using a letter similar to the one above.
Frankly I prefer certified mail and a paper trail. If you write a letter yourself, just keep the language clear and to the point, no insults. You want a response, that's all.

Contact your Congressional Representatives if you have problems since they are writing rules around these issues every day.

You may also contact The Federal Trade Commission if you run into trouble: The FTC's Bureau of Consumer Protection is supposed to protect you against deception and fraud.

If your loan is with a national servicing lender you may wish to cc: your letter to the Office of the Comptroller of the Currency:

Just a note: Each organization you write to or copy, should ideally see on their copy the other parties you sent your letter to. The more eyes, the better. Hopefully your bank or servicer will promptly reply and you can rest better knowing who owns your home loan.

All the best! 

© 2010 susan templeton
*Susan Templeton is not a loan modification advocate

Saturday, August 28, 2010

Distressed Homeowners Get HELP!

If you cannot afford your current financial commitments it may be time to get professional help. Below are some guidelines and resources: 

The loss of their home's value has caught many people off guard. Even folks with good jobs and modest 80% LTV (loan amount to home value) now find their value may have dropped 20% or more in the last two or three years. As mortgage professionals, we have many resources, but we are not magicians! Fortunately, the same guidelines that lenders apply to mortgage lending (which we must know backwards and forwards) also apply to your new situation, although they are applied differently - you'll see how below. It is extremely and painfully obvious to banks that many homeowners simply would not now qualify for the same loan they now hold. Your mortgage balance represents their interest in your property -- which may now be greater than what the collateral (your home) is worth. So essentially you and your bank are both in trouble.

So what do you do?
Well for starters, (and I know this is boring and insulting), it really helps to sit down with your family budget and look at what you are now spending for basics, including your house, insurance, taxes, maintenance, cars, car insurance, food, health insurance. utilities, food...all the necessities.  I can't tell you how many people have returned this form to me completely blank. Many of us live in denial about what our lifestyles are actually costing us. So get this: it's important and the starting point of your financial recovery.

This simple two page form Budget Form is available from the Washington Department of Financial Institutions. This same form is used by the Loan Modification agents and HUD Counseling Agencies to assess your situation. The exercise takes 20 minutes tops. If you find this hard to do perhaps there is something amiss in your relationship with money. Gather the relevant bills and just do it.

After you have completed the form: Divide your Expenses by your Income like so:

Distressed Example: Expenses $3,000 per month divided by Income of $5000 per month
             = .60 = Debt to Income Ratio of 60%

At 60% DTI you are well over what is considered a safe lending limit according to the Fannie Mae/Freddie Mac and FHA guidelines. The lending limits today allow DTI of 41-45% depending on the loan type. For some earners with very low expenses and good assets, they may be qualified for up to 55% DTI. The Loan Modification HAMP/MHA guidelines top out around 31% DTI. Translated:

Lending Example: Expenses $3,000 per month divided by Income of $7000 per month
             = .428 = Debt to Income Ratio of 42.8% (under 45% limit--this is considered 'safe')

Modification Example: Expenses $3,000 per month divided by Income of $9650 per month
            = .31 = Debt to Income Ratio of 31.%

In these examples above I used the same expenses to show how much more income is required to get into the 'safe zone'. In other words, something has to give. Either you make more money, or your expenses must be reduced. Since the largest item on most people's budget is their mortgage, that specific payment may be adjusted or conversely, your income may have to increase to sustain your current lifestyle.

What is possible depends entirely on you and your situation.
If you are over the DTI of 31% as outlined above, then you may be advised apply for a Loan Modification. A hardship situation is required to qualify for the government relief programs, HAMP or MHA. A hardship is defined as any event that has impacted your ability to meet your financial obligations outside your control including: loss of job, divorce, death of spouse, medical event, increased responsibilities (child or elderly care), disability, natural disaster, and a host of other ills that may have befallen your household.

If you find yourself in debt due to your own excess or poor judgement then legal help may be required. A combination approach may be called for if you have more than one cause.

Where to Start:
You will be told by all the public infomercials to call your bank first. Don't waste your breath and time on hold. The fact is not many banks are bothering to do much more than say they will help and stall you for a few months before saying no, sorry we can't help you. All the while you are sinking deeper in debt. Yes --they are supposed to help and no -- they aren't very good at it.

If you are already facing foreclosure you may seek first the Free HUD Counselors in Washington or you may seek professional help. First, share your Budget Form with your accountant or a family friend and put some ideas on the table.

Call a FREE HUD Counselor for starters: 1-888-995-4673.

I will say I have spoken with several HUD counselors and some are well trained and helpful. The only problem with their 'advice' if you can call it that is that once they determine you 'have a case' they will send you back to your lender to fend for yourself. If you are not very far behind, say less than 90 days in your mortgage payments- your bank may be able to help. Just don't count on it.

What you can count on is a long drawn out process. If you are more than 90 days behind on your payments and you have received a Notice of Default, your case has fallen into the 'loss mitigation department'. These are specialists working through a backlog of distressed cases on behalf of the lender. Just remember, they represent the bank and not you. In fact, they really don't want to speak with you at all. They simply cannot handle your angst and get their job done.

If you feel you need outside help, below are some resources:

Home Foreclosure Legal Aid Project: If you cannot afford a lawyer, this project is a partnership with the Washington State Bar and the Northwest Justice Project: 1-877-894-4663

Office of the Comptroller of the Currency
Homeowners may register complaints regarding their national banks here for investigation. 

Congressional Representatives Your elected officials need to hear from you and may offer resources and assistance at both state and federal level

Washington State Department of Financial Institutions Hotline:
Homeowners may register complaints about state banks and modification agents as well as tips on how to proceed if you are facing foreclosure:

Please note: It is best to seek the services of professionals with a demonstrated track record and expertise in their specific fields. We refer to trusted local colleagues in the areas of debt restructuring, bankruptcy law, accounting, loan modification, short sale negotiation, real estate sales and credit restoration. Our primary business is mortgage financing.

To your future prosperity!

© 2010 susan templeton
*Susan Templeton is not a loan modification advocate

Sunday, August 22, 2010

Bouncing Back from Short Sale or Foreclosure

Homeowners who have suffered a Short Sale or Foreclosure are advised to develop a recovery strategy from the day you decide to negotiate your settlement terms with your bank. The fact you have failed on a financial obligation, on the face of it, is an agreement to move forward with you life. Congratulations. Take a deep breath!

You may be able to qualify for an FHA home loan as your fastest track back to homeownership sooner than later. FHA currently has no minimum credit score, although most lenders do have their own underwriting overlays on what they will accept. 620 FICO is the starting point for most.

What about timing?
The clock starts ticking in your favor the day your home title is transferred to a new owner. NOT unfortunately, the date your foreclosure is registered. Since Short Sales keep you on title throughout the process, you could be putting off home ownership however long it takes to settle your sale. If you were able to keep making your payments or miraculously did not have months of ‘late payments’ pile up on your credit you could theoretically apply for a new mortgage right away. How an underwriter views your situation is very much up to your complete presentation and their investor's particular requirements.
FHA could be your ticket!
FHA Loans, the flagship of HUD (US Housing and Urban Development) are the most lenient with general underwriting compared to conventional lenders largely due to the government insured mortgage insurance paid for by the homeowner.

NOTE page 2 of the below HUD FHA Mortgagee Letter of December 2009. This outlines the ability of a Borrower to apply for an FHA insured Mortgage following a Short Sale of a previous property. (It is likely these standards will be revisited as they often are!)

“Borrowers are considered eligible for a new FHA-insured mortgage if
• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
• the proceeds from the short sale serve as payment in full.”

Both situations above are rare if your short sale lags more than 90 days. More commonly:
“Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.”  

What about Conventional Loans?
Traditionally, Conventional Loans, i.e., those sold to Fannie Mae and Freddie Mac have pretty strict guidelines (now) that you won't really be considered 'fundable' for seven years after a foreclosure. This varies widely in practice!

If you live in a rural area or are a US Military Veteran:
USDA and VA usually defer to the HUD guidelines with some exceptions, usually established by the lending institution on a case by case basis. VA will officially consider a borrower after 2 years  from Bankruptcy or Foreclosure and with some exceptions possibly sooner. These organizations are essentially charged with sponsoring home ownership for people needing assitance with no down payment. Search USDA properties:  

Don't fall for: "Short Sales have less effect on your credit"
This is a popular real estate myth! For anyone considering enduring months and months waiting for their home to sell as a distressed short sale; please understand: essentially a foreclosure or short sale has very similar effects on your credit. After 120 days the ‘lates’ register on your report with the same effect as a foreclosure. Since on average a short sale takes from 6 to 13 months imagine that month after month your credit continues to tank with each successive late and each late is fresher and fresher. Recent negative impacts have more effect than older ones. Your score can only start recovering when you do and the late payments stop. NOTE: one 120 day 'late' entry for a mortgage payment can have up to 130 -200 pts immediate negative effect on your score. Credit scores go down lke a rock (fast) with any negative impact and up like a feather in recovery mode (slow).

Bank Ratings on the Short Sale Process:
HousingWire magazine recently rated banks for their short sale negotiation timing. Surprisingly, some banks took over 13 months on average. Of course many of the larger banks inherited their bad porfolios so they had help getting the worst rating. Another bank rated at the top of quick negotiators at 6 months on average was previoulsy rated as a predatory lender. This turn of events for 'tough banks' becoming quick negotiators may be a direct proportion to the amount of Federal Reserve TARP money they have put to good use rebuilding their staff levels and bottom line.

Build a Credit Recovery Strategy!
More on rebuilding your credit after a Short Sale or Foreclosure on our other blog:

To your prosperous future! equitytalks

© 2010 susan templeton
*Susan Templeton is not a loan modification advocate

Friday, May 28, 2010

The Future of Distressed Homeowner Programs

Should this home be 'saved'?
I read a wake up article today by a mortgage market advisor  Mark Hanson, who suggested that unless foreclosures double from the April 2010 record, the 'shadow inventory' of homes on the market --it will take at least 8-10 years to clear the sales backlog of homes for sale. Wow.

Which suggests, by deduction, that our national housing markets will be affected by these lower priced distressed homes lagging if not languishing on the market beside new and non distressed homes, affecting their values for years. OK so that's the downside. But for every dark cloud there is a silver lining...right? What is the real effect of foreclosures in your local market? Are people who don't need to sell helping stabilize their local economies by staying put regardless of their paper 'losses' in value?

Mr. Hanson goes on to suggest:  "Massive-scale home retention (mortgage mod) programs have truly helped only a small slice but primarily served to slow up the pace at which foreclosures have occurred over the past year. This has created a giant bubble of distressed homeowners in the pipeline that over time will be liquidated. "

Apparently Mr. Hanson feels many of those homes in distress mode will eventually be foreclosed because it is apparent that the buyers were unqualified to buy those homes (or have experienced financial barriers to keeping them). So if that is the case, are banks ready to accept their part in over-lending and start writing off seconds and writing down principal balances willingly? So far the assistance offered has leaned toward banks and not borrowers. Many of us in the front lines would like to see the balance shifted toward a more fair and equitable assistance for homeowners caught in the middle.

Fortunately, some programs on the horizon, notably the new Principle Write-down Program takes effect in June...just three days away. It's too early to tell how investors will apply the new guidelines and if this will actually lower many loan balances. The biggest proponents are making news about Principle Write-downs as a good thing but what most people don't know is that their losses will be 'asssisted off their books' with more incentives. Paid for by tax dollars. A borrower has to make perfect payments for at least five years to qualify for these incentives --so if they suffer other financial setbacks they could still loose.

I am happy to see someone who can't afford their loan get a better deal if it means less pain all around. In effect, keeping someone in their home who can't really afford may be lashing that person to a financial ball and chain. If a bank writes down the balance on an existing loan, this is essentially devaluating that home for that homeowner. Althought the lower loan balance is not immediately obvious until someone tries to sell that lower liened home and that person can afford to take a lower sale price. Isn't that what foreclosures accomplish just faster? Lowering the property values by flooding the market with cheaper goods? It is confusing to me why taxpayers would be expected to pay for these losses to banks...while quite directly absorbing these losses of our neighbor's foreclosed homes devaluing our own home next door. It's a double whammy for solid citizens to be asked to help our neighbors while also watching our home values decline.

Recently I spoke with a bankruptcy attorney who wondered aloud if homeowners in financial distress realized that loan modification is not a silver bullet. There are no guarantees. Your lender could put you through a trial mod and still reject you at the end if your situation has changed. You see, these programs have a certain life, and an end to the funding programs. Which could mean that months and months of effort might result in those losses still happening via foreclosure, short sale or deed in lieu.

Most people are really concerned about the effects of walking away or suffering a foreclosure when--and I have recently formed this opinion--the effects of a long drawn out short sale may cause as much, if not more damage, to your psyche and your credit score than making an earlier decision to take the loss via foreclosures or deed in lieu.  Heresy, I know. Realtors who handle short sales would be spared those sales. Never mind the cost to the borrowers of a year on the market and all that uncertainty and lost sleep. Would it be better to settle up and clear you mind of the financial burden and move to a place you can actually afford? Folks need to weight this up carefully. ('Deed in lieu' by the way is agreeing with your lender to simply hand the keys back and avoid the legal public foreclosure process.)

I am reminded of my photo safari in Kenya: driving across the Masai Mara we came upon a group of baboons migrating in a long line. Following them was a young cheetah and the male baboons were displaying quite an angry 'go away' stance on an anthill to scare him away, beating their chests and screaming at him. According to my driver, the cheetah probably didn't know that picking a fight with a baboon would be a bloody hard fight and at the end of it they don't make a very good meal.

There is a certain tendency of pros who assist home owners in distress to want to 'fix it' and make the pain go away. Or to fight the fight because people feel so wronged. But some things just can't be fixed. Certainly there are tools to assist a home owner-within reason. The point of modifying your loan may be to buy time, while accepting that you may eventually need to get out from under this level of debt.There is nothing like being decisive, making a tough decision and not fighting that fight for a bad meal.

To each their own decisions. All the best with yours.

© 2011 susan templeton
*Susan Templeton is not a loan modification advocate

Monday, April 12, 2010

Making Homes REALLY Affordable?

Principal Writedowns + Help for Unemployed Homeowners:

HAMP and Making Home Affordable Guidelines updated today are sounding pretty progressive: The much touted PR on Principal Write downs is being implemented by the first subscribers to this. If the idea of lowering your loan balance has any goodguy points be aware that citizens will be paying for this via more bailout funds or taxes. Supporting the collective good is after all what our democracy stands for.

Which Banks? Unfortunately, the major banks still standing have inherited many bad loans: Pay Option ARMS, and assorted Sub Prime loans i.e., loans famous for exploding one's principal balance or rate and payment when they adjust. Many of these loans were sold to people who simply did not understand ther terms or qualify for the full principal and interest payments. To the embarassment of some brokers and banks, these loans financed a rash of predictable defaults. So what is a lender holding so many bad loans to do?

The new MHA guidelines seek to expand the use of principal write-downs during the modification process. As one option. There are many. The stipulations are equally tight --so we are not cheering just yet. The approach will include incentive payments for each dollar of principal write-down, earned on a 'pay for successs' basis. Naturally lenders who are in danger of losing all via foreclosure might well breathe a collective sigh of relief. It's also good for 2nd Lienholders if the 1st Lien is brought in line to 80% of value rather than 120% thereby insuring they have a decent chance of collecting on the second. Eventually.

Unemployed Borrower Boon: The best news in this release is the consideration of reduced repayment terms for unemployed people while they are in job seeking mode. Up to 6 months break is being bandied about. So you could theoretically qualify for this using your unemployment insurance. If you find a job making less, the permanent terms would use HAMP guidelines to determine your new payment. Perhaps also lowering the principal in line with what you can now afford if your value has also dropped. 

Another HAMP initiative suggests of this annoucement promise 'clear performance timeframes" when a borrower is in the modification period. Indeed this is good news. We have seen some clients still struggling for help one year or more into their modification process.

HAMP may now apply to FHA loans. Hint: any FHA lender who is worth their salt is already applying HAMP  to their troubled assets.

Other help includes financial assistance (up to $3,000) to move to more affordable  housing and extinguishment of subordinate liens (2nd and 3rd lines and loans). Several such programs already exist (notably Cash for Keys) but this release suggests more will be done to prevent foreclosures. Bankruptcy attorneys are often involved in these actions when it is clear the borrower cannot afford the loan, nor does the home value support additional liens.

Perhaps now more than ever, it's important that homeowners in financial distress seek a trusted advisor to help them understand which programs may be of assitance. Seek out a bankruptcy attorney. Get your CPA on board. Ask your mortgage professional who is handling these programs. Speak with your State Attorney General, and HUD counselors.. The implications for individuals of which path they choose may have lasting effects on their financial future.

Download this document:

Please continue to write your congressional representatives and express your views and news about people in your locale:   

All the best to you.

© 2010 susan templeton
*Susan Templeton is not a loan modification advocate