Archive for February 2009

Keep My House Founder and Author, Ralph R. Roberts, Appears on CNN

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In case you missed it, Ralph R. Roberts, founder and primary author of this blog, appeared on CNN over the weekend to answer a series of hard-hitting questions from struggling homeowners facing the prospect of losing their home in foreclosure.

As you can see from the two video segments pasted in below, Roberts, an award-winning author and REALTOR®, shared numerous insights from one of his latest books, Foreclosure Self-Defense For Dummies:

Part Two:

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Understanding the Short Refi

refinance now
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Here’s a question I received from a homeowner who watched my Saturday afternoon interview on CNN. By sharing the response here — as opposed to just by email between myself and the person who sent me this great question — I hope everyone benefits:

Question: I refinanced in October of 2007 (at that time my home appraised for about $650,000). I received a mortgage for about $525,000 at an interest rate of 7.75 percent fixed for 3 years. I have one more year to go, however, my home is now only worth about $480,000.

My lender says I cannot refinance for a lower rate because I do not have any equity in the home. I have never been late on my mortgage payments and my credit score is 735. It has been very difficult working 2 and sometimes 3 jobs; I cannot maintain much longer. How can I refinance to get a lower rate or do I need to get a loan modification? Please help?

Answer: There is a home retention option known as a “short refi”. I don’t know if you’ve heard of it, but it works like this:

If your lender will short refinance you it means your lender will refinance your existing home for the present market value of the house (i.e. $480,000). Your lender will forebear the amount in excess of that amount (i.e. $45,000). Your lender won’t forgive the excess amount as some wish they would, but they will essentially postpone that amount. How this is beneficial is that the new mortgage payments are calculated on the $480,000 principal balance and not the $525,000 amount. This can have a dramatic affect on your monthly payment. Let’s say your lender doesn’t change the interest rate at all but only converts you to a 30-year fixed rate at 7.75 percent. That still amounts to an over $300 a month savings by not including the 45K into your payment calculation. When the market rebounds or you go to sell the house, you’ll still owe and have to pay the $45,000 amount, it’s just not used to calculate the current payment. Approach your lender with the idea of a short refinance and see what happens.

If your lender won’t consider it, ask about what other programs are available. You should be prepared to encounter some resistance because you’re not delinquent. Lenders have been slow to warm up to the concept of modifying payments before the borrower has missed payments. Ask anyway. You sound very committed to keeping your house, so your lender might be a little more willing to work with you.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

Are Bank-Owned Loans Better Candidates for Loan Modification?

National Copper Bank, Salt Lake City 1911
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There are two kinds of mortgage loans in this world — bank owned and investor owned — and the type you have often determines the level of difficulty you face in obtaining a loan modification. A bank-owned mortgage is one that the bank services and owns (the bank is also the investor). An investor-owned mortgage is one that has been repackaged as a mortgage-backed security (MBS) and sold to Wall Street investors or sold on the secondary market as a pool or package of whole loans. A servicer collects and processes the payments, but the servicer does not own the mortgage and can make only limited decisions regarding it.

Modifying a bank-owned mortgage loan is sort of like working out a deal with your local bank in the good old days. Because the bank owns your loan instead of merely servicing it, the bank owners can make a decision without having to consult investors, because they are the investor. While the bank may have a list of eligibility requirements and guidelines regarding standard concessions it’s willing to make, it is more able and apt to make exceptions based on extenuating circumstances. The bank owner can make a case-by-case determination faster than when the servicer must consult a third-party investor.

Modifying an investor-owned loan is more complex, because another layer exists between the mortgagee (the lender) and the mortgagor (the borrower). Instead of the mortgagor dealing directly with the mortgagee, both parties negotiate through an intermediary — typically the servicer representing the mortgagee’s interests. As a result, the servicer has very limited decision-making power. The mortgagee sets the decision-making parameters for the servicer. If the decision falls within what the investor allows, then the servicer can make the decision. But if what’s being requested is outside the pre-established parameters, then the servicer must contact the investor for permission. As you might guess, this can further complicate the process.

Larger banks/servicers are likely to have several loan modification departments or divisions, each of which specializes in a particular third-party investor’s decision-making parameters. This enables them to process applications more quickly and efficiently.

Knowing the party that owns your mortgage loan can give you a strategic advantage in assessing your situation and evaluating your options. Certain investors and their insurers (including FDIC, Fannie Mae, Freddie Mac, FHA, and HUD) are taking a proactive approach to working out non-performing loans and keeping people in their homes. If you are able to determine that your loan is with one of these investors you can gain a better sense of available programs and options available for your situation. For example if your loan is with IndyMac (taken over by the FDIC), you have a greater chance of obtaining a principal forbearance (assuming you’re eligible).

Principal Forbearance

If your home is worth considerably less than the unpaid balance [UPB] (the amount you owe on it), a principal forbearance may be an attractive option. Monthly payments are recalculated on the estimated market value of the property rather than on the UPB, which can significantly reduce the monthly payment. You still must pay back the UPB in full, but you don’t have to pay the difference between the UPB and your home’s current market value until you sell the home or refinance.

As another example, suppose you’re dealing with a lender that’s notorious for presenting terrible loan modification offers. You then know that negotiations are likely to be complicated and you may need to have one or more contingency plans in place – for example, refinancing with another lender or selling your home and starting over.

Unfortunately, discovering the true identity of the mortgagee can be extremely difficult. Some investors take great measures to remain anonymous and may even protect their anonymity in their agreement with the servicer. Ask your servicer, who may or may not tell you. You can also call Fannie Mae or Freddie Mac – if they own the note, they may tell you. Do your best to identify the owner of your mortgage, but don’t knock yourself out trying – knowing is useful but not worth knocking yourself out over.

Warning: Don’t make assumptions based on the reputation or track record of a particular lender or investor. You really have no idea what a lender or investor is ultimately willing to agree to until you ask. If you’re committed to keeping your home and believe that you are eligible for a loan modification, submit your application and invest some time and effort in pursuing this option. Knowing the investor, however, may expedite the process or help you prepare for plan B in the event that the lender/investor rejects your application or makes you an offer you cannot accept.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

Reaction to President Obama’s Plan to Slow Foreclosures

President Barack Obama
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After reading about President Obama’s plan to cure the foreclosure epidemic, I wish I could say, “It’s about time!” For far too long, the federal government here in the United States has been focused on bailing out Wall Street rather than Main Street. I was hoping President Obama would reverse the trend. Unfortunately, his plan looks like more of the same.

Obama is setting aside $75 billion… of whose money? According to a treasury official, $50 billion will come from the remaining $350 billion in Troubled Asset Relief Program funds, and $25 billion will come from Fannie Mae and Freddie Mac. This is taxpayers’ money – Main Street money.

And where is that money ultimately ending up? To “subsidize” lenders and investors – that’s Wall Street – for doing what they need to be doing anyway – modifying loans.

The fact is that loan modification is a good business decision for lenders and investors. According to various estimates, lenders stand to lose an average of about $50,000 to $80,000 per foreclosure. A loan modification does not wipe out a lender’s profit. To the contrary, it helps lenders avoid taking a huge loss on foreclosure while at the same time allowing them to keep a performing asset on their books. As a result of a loan modification, the lender keeps collecting interest. The loan remains profitable, albeit less profitable than it would have been had the homeowner been able to afford the originally agreed-upon payments, but still profitable. So why are taxpayers going to subsidize lenders?

Last Sunday (February 15, 2009) 60 Minutes ran a segment entitled “World of Trouble,” in which investigative reporter Scott Pelley interviewed Paul Bishop, a former loan originator for World Savings Bank which, at the time, was the second largest savings and loan. Bishop reported witnessing rampant fraud throughout the organization in the origination and approval of mortgage loan. And as I have been reporting over the past two years, what was going on at World Savings Bank was the rule rather than the exception in the mortgage lending industry. Everyone knew what was going on. The few people who tried to stop it were silenced and either demoted or fired.

Mortgage lenders were well aware that they were approving mortgage loans that never should have been approved in the first place. Loan originators and banks were raking in profits leading up to the mortgage meltdown, and they weren’t exactly spreading the wealth to American taxpayers. Now that the time has come for them to pay the price for irresponsible lending practices, they are calling on the American taxpayer to subsidize their losses? This is absurd.

Don’t get me wrong. I applaud President Obama for focusing efforts on bringing relief to Main Street, but the government shouldn’t be using Main Street money to do it. I think a more prudent move would be in the form of an executive order demanding that banks modify loans to a level of affordability and end foreclosures until they have cleaned up the mess that they themselves have contributed so much to creating.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

Choosing a Loan Modification Company

Questions
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One of the best ways to find a reputable loan modification company or specialist is to obtain referrals from people you already know and trust who’ve hired someone to represent them. Unfortunately, that can leave you with a very shallow pool to draw from. Here are some other suggestions on how to track down reputable, qualified candidates:

  • Contact local real estate brokers. They should know attorneys in the area who are experienced in negotiating with mortgage lenders, including foreclosure, bankruptcy, and loan modification attorneys.
  • Call the local branch of your state Bar Association. They can direct you to an attorney who deals with situations such as the one you’re facing right now.
  • Ask at your bank if you feel comfortable doing so. You may not be comfortable revealing your current financial woes to your friendly neighborhood bank, but if you do, the bank’s manager may be able to offer a valuable reference.
  • Ask the leading foreclosure attorney in your area – the one who forecloses for lenders. Many of these firms are familiar with companies that are negotiating loan modifications with the attorney’s client-lenders. They may or may not give you a name, but it doesn’t hurt to ask.

Once you’ve done your homework, start vetting the three most promising looking prospects. Call the company or individual, tell them you need assistance negotiating a loan modification with your lender, and ask what they can do for you. While it’s okay to talk with a representative to see if you would feel comfortable working with them, don’t give out any sensitive information over the phone, such as your mortgage identification number, social security or driver’s license number, or credit card information, until you are completely comfortable working with the service.

Check back tomorrow, when I’ll be sharing the 10 most important questions to ask a loan modification company or specialist before signing on the dotted line.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

Teaming Up with Your Lender for a Loan Modification

LOS ANGELES, CA - DECEMBER 06:  Employees of E...
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Suppose you’re behind on your house payments. You dial the phone number on your most recent mortgage statement, clear the usual hurdles, and finally reach someone who understands your situation and offers to help. You are one of the lucky homeowners who has a cooperative lender. Now what? What can you do to team up with your lender to optimize the outcome? This blog post reveals ten ways you can expedite the process and negotiate an affordable loan modification that enables you to catch up on any missed payments, lower your monthly mortgage payment, and keep your house.

The following 10 tips apply whether you are working directly with your lender or teaming up with an attorney, law firm, or other professional you hired to represent your interest. If you hired professional representation, team up with your representative and defer all correspondence and phone calls from your lender to your representative – don’t communicate with your lender unless your representative specifically advises you otherwise.

1. Come clean – honesty is the best policy

It can be tempting to bend the truth when you are trying to convince a lender to approve a loan modification. Some homeowners are embarrassed by something they did to place their finances in jeopardy – possibly a gambling addiction of substance abuse. Others try to fudge the numbers to make themselves eligible for a loan modification they cannot otherwise qualify for. Even worse, some homeowners lie to their partners or try to conceal the problem until it is too late to do anything about it.

Only by laying all your cards on the table and disclosing the truth can you begin to attend to the root cause of your financial hardship and then develop and implement solutions that put you back on the path to long-term financial health.

2. Understand your lender’s point of view

Regardless of how you ended up in the situation you’re in, blaming the lender or the mortgage broker or loan officer who placed you in your current mortgage does little good, unless you can prove your point in court. Usually, you have a better chance of resolving the problem by understanding your lender’s point of view, even if you don’t agree with it. So, what is the lender’s point of view?

Lenders lack any emotional attachment to the situation. To them, it all boils down to money. If you can show them that modifying your loan cost them less than a foreclosure and they believe you will honor the terms of the loan modification, they are likely to approve it. If not, then they are likely to reject it.

Keep in mind that some homeowners who don’t need loan modifications are also applying for them. Lenders need to protect their own interests from homeowners who are trying to cheat them out of their profits. As a result, they need to carefully screen out ineligible applicants, which can often make the process much more difficult and frustrating for homeowners who genuinely suffer financial hardship and need a loan modification.

3. Keep a cool head

Understandably, homeowners often become frustrated and angry when seeking assistance from their lender. Unfortunately, anger can result in the following:

  • “Accidental” disconnects: The customer service rep you’re speaking with may put you on hold permanently or hang up “accidentally.”
  • Lost files: Your file may get “lost” or “misplaced.”
  • Rejection: Your lender may decide that you are unreasonable and that foreclosing would be less costly overall.
  • A bad offer: Your lender may offer a workout solution that is worse than what you would get had you been nice about it. Or, you may be so exhausted that you agree with the first offer your lender puts on the table rather than negotiating a better deal rationally.

Tip: If you doubt your own ability to remain calm, cool, and collected during the entire process, consider hiring a professional to represent you.

4. Give them what they need

Prior to applying for a loan modification, call your lender or visit its website to obtain an application packet or a list of items you need to submit with your application. Some lenders allow you to apply online, but you usually have to ship or fax supporting documentation separately.

Find out exactly which forms you need to fill out and which documents your lender needs to process your application, and provide everything to your lender or representative in the manner specified. Label everything clearly and legibly with your name and loan number and provide a checklist of all items you’re submitting in your application packet. Arrange the items in the order listed by your lender, so whoever is processing your application does not have to search for items. Include a cover page that in large print lists your name and loan number as well as an items-included list.

5. Ask for what you want

Before discussing the terms of the loan modification with your lender, you should have a fairly clear idea of what you want and need. Answer the following questions for yourself. This will help you field questions from your lender:

  • How much do you owe in late or missed payments?
  • Can you catch up the missed payments?
  • Do you need additional time to catch up on missed payments?
  • How much can you realistically afford to pay each month?
  • Do you really want to keep your home or would you prefer to sell if you could walk away not owing anything?

State clearly what you want up front. If your lender is unwilling to agree to the terms you need, you’re better off knowing that up front, so you can explore other options. Don’t waffle – it will only lead to misunderstandings and unsatisfactory “solutions.”

6. Let them do their job

While you should track the process of your loan modification application and any negotiations, avoid the temptation to micromanage the process. Knowing the timeline in advance can help you develop realistic expectations of when you will hear back from someone, so you don’t have to keep calling to check progress. Remember, the more time they spend on the phone consoling anxious applicants, the less time they have to review your application and work out a solution.

The lender should have a timeline for just about every step in the process. Your lender can probably even tell you how many days it takes for items you fax in to get to where they need to be. Some lenders have a 4-day delivery period for faxed items. Most timelines are in place because of the volume of requests. Ask how long the steps in the process take. Follow up when timelines near expiration.

7. Get your financial house in order

Most homeowners, even those who can readily afford their monthly house payments, could benefit from reviewing their income and expenses and drawing up a monthly budget. If you don’t have some way of tracking income and expenses with realistic goals in mind, put a tracking system in place today and start developing a budget.

If you have a computer, a personal accounting program, such as Quicken or Microsoft Money can come in very handy. These programs allow you to assign each entry to a specific category, such as groceries, clothing, entertainment, utilities, auto insurance, auto: gas, auto: maintenance; and so on. You can then generate reports showing monthly totals for spending in each category.

If you’re budget challenged, consider hiring an accountant or credit counselor to get you on track. It’s worth the investment.

8. Keep everyone posted of any changes

If anything changes related to your financial situation, be sure to keep your representative or lender (if you’re negotiating the loan modification on your own) in the loop. Withholding information that may affect your eligibility could cause problems.

9. Make sure the lender’s offer is truly affordable

Assuming you qualify for a loan modification, your lender will present you with an offer. Be sure to review the offer carefully and have your attorney look it over – before you sign on the dotted line. Make sure the monthly payment is truly affordable. If the loan modification is unaffordable or makes your budget so tight that you’re only one car repair or medical bill away from defaulting again, head back to the negotiating table to try to work out a better deal. It doesn’t do you or your lender any good to accept an agreement that puts you on the path to repeating this same scenario.

10. Hold up your end of the bargain

By the time you finalize your agreement, you and your lender will have invested a great deal of time and effort in hammering out the details. To ensure long-term success, put some effort into keeping your budget on track. If you are having trouble, consult a credit counselor, who can help hold you accountable for your spending. Budgeting can be tough at first, but it pays huge dividends down the road. Most people who acquire the necessary skills discover that by tweaking their spending priorities they have more than enough to cover their expenses.

The key to success is discipline and commitment. All the effort you spend setting up a plan is of no use if you don’t follow the plan you created. It’s like signing up for a gym membership and then never walking through the doors to work out. Reestablishing your financial health will be work, but the results will be worth the effort. Like that gym membership, you won’t realize results over night, but commitment to the routine will pay off.

Remember, loan modification success is a team effort. Do your part to achieve long-term success.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)

Los Angeles Councilmember Richard Alarcón Says Bank Divestiture can Stop Foreclosure

Los Angeles City Hall.
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A lot of serious solutions are now being offered to help distressed homeowners stay in their homes, and in the process, help the struggling national and global economy. Yesterday, I told you about efforts underway in Washington D.C. by Democrats and Republicans alike to infuse capital into the solution equation. Today, I’m happy to highlight what I think is another fantastic opportunity to quickly and appropriately help solve the housing crisis and keep families in their homes.

Los Angeles City Councilmember Richard Alarcón yesterday introduced a motion aimed at decreasing the devastating affects of foreclosures in Los Angeles, California. The motion, which can be viewed here as a PDF file, instructs the City of Los Angeles to explore the divestiture of its $25 billion portfolio in banking and other financial institutions that fail to cooperate with foreclosure prevention efforts. These efforts, according to Councilmember Alarcón, include:

  • Temporary moratoriums on foreclosures
  • Renegotiation of mortgage principles to reflect current values
  • Good faith negotiations with homeowners

As Alarcón pointed out when he made yesterday’s motion, the foreclosure crisis has hit every corner of the United States, and bold steps are required to reduce the number of foreclosures and stabilize hemorrhaging  neighborhoods. His motion would call for a report exploring which banks are failing to cooperate with families facing foreclosure, and call on the City to remove investments with those banks.

Alarcon, it turns out, is no stranger to divestiture initiatives and has been a leader in combating foreclosures in Los Angeles. Over 10 years ago, in July of 1998, Councilmember Alarcón introduced a motion to have the City of Los Angeles divest all funds from Swiss banks in support of the efforts of the Holocaust victims and their heirs who sought restitution from the Swiss government and banks for money and assets confiscated during WWII. As a result, negotiations involving the banks and the World Jewish Congress ultimately resulted in a settlement of $1.25 billion the following month.

On the foreclosure front, just last Tuesday (January 27), Alarcón introduced a motion instructing the Los Angeles Housing Department, the City’s Community Redevelopment Agency, and other applicable agencies to develop a foreclosure prevention strategy, and to identify $1.5 million in funds to implement the program.

“Banks and financial institutes need to know that if they are not willing to work with homeowners who come to them in good faith to renegotiate their loans, we have no interest in doing business with those banks,” says Alarcón.

In Alarcón’s Council District Seven there are over 1,000 properties facing foreclosure within one month or are currently in foreclosure. And, according  to RealtyTrac, more than 2.3 million American homeowners faced foreclosure proceedings last year, an 81 percent increase from 2007. Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level.

I tip my hat to Councilmember Alarcón for thinking outside the box and applying pressure where it’s most needed.

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Ralph R. Roberts, GRI, CRS
Award-Winning REALTOR® and Author
Loan Modification For Dummies (avail. Summer 2009)