For a couple of weeks now, Keep My House Radio has featured audio clips from a recent episode of The Daily Show. John Stewart, The Daily Show’s host, promoted a week-long “feud of the century” that reached its climax on March 12th — as you’ll see in the three clips below — when CNBC’s “Mad Money” host Jim Cramer appeared on the show. Previously, Cramer had figured heavily in a series of Daily Show segments highlighting CNBC’s poor track record on the financial apocalypse, and Stewart invited him onto The Daily Show to defend his station’s track record and advice.

Check out the entire March 12th episode of The Daily Show here (broken into three bite-size chunks):

Part One of Three

Part Two of Three

Part Three of Three

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

California’s Attorney General, Jerry Brown, yesterday announced the arrest of two real estate fraudsters — Mary Alice Yraceburu and Marianne Curtis — who, according to the Calif. AG’s office “coldly and heartlessly” conned over 160 distressed homeowners out of thousands of dollars for non-existent loan modification services.

In total, the California Attorney General’s Office filed 49 felony charges in Orange County Superior Court against the 45-year-old Yraceburu, of Riverdale, Calif., and the 67-year-old Curtis, of Costa Mesa, Calif. Yraceburu was arrested yesterday in Fresno County, while Curtis was arrested in Orange County on the following charges:

• 24-counts of grand theft
• 25-counts of violations of California’s foreclosure consultant statutes
• One special allegation that the total value of theft was over $65,000
• One special allegation that the total value of theft was over $100,000

Both women are convicted felons who have served time in state and federal prisons.

The two women operated a company called Foreclosure Freedom, which sent hundreds of fliers to Californians promising help in stopping the foreclosure of their homes. The fliers read: “FINAL NOTICE - Respond only to this notice immediately.” This is similar to the “First Gov” scam, which the Attorney General’s Office stopped late last year.

When homeowners called the number on Foreclosure Freedom’s flyer, they were told their mortgages could be renegotiated to a lower monthly payment. Callers who signed up for the service, however, were required to pay thousands of dollars in up-front fees and were instructed not to contact their lenders. Instead, they were assured the company had “private lenders and specialists exclusive to their company who are very experienced in the options and methods used to renegotiate home loans,” yet neither of the women who operated the company had real estate licenses, legal training, or any experience in the home mortgage business.

California investigators found no evidence of any successful loan modifications and most of the victims were either forced into bankruptcy or eventually lost their homes to foreclosure.

If convicted of all charges, Mary Yraceburu and Marianne Curtis face 21-years in prison.

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

As a sad commentary on our times, the winning entry in the World Press Photo of the Year 2008 award is a post-foreclosure eviction image by photographer Anthony Suau that first appeared in Time magazine. In the photo - which I hope to have permission to post here on KeepMyHouse.com within a day or two see below (photo used with permission from World Press Photo) - Detective Robert Kole enters the vacant home, gun drawn, to ensure residents have moved out of their home in Cleveland, Ohio.

As you can see, the vacant home looks like a war zone with furniture, boxes, and papers strewn about the room. It made me realize that as our men and women of the armed forces are fighting wars overseas, citizens are fighting another war at home – a civil yet uncivil war that threatens the foundation of the American Dream.

Anthony Suau’s photo captures the chaos of foreclosure without even having to show the family that fell victim to it – a family that is, no doubt, in disarray, uprooted from their home, separated from their neighbors, and distanced from their community. This one disheveled room also suggests the chaos outside as neighborhoods and communities crumble under the strain of rampant foreclosures.

Foreclosure may not be quite as devastating as war or natural disasters like hurricanes and tornadoes. It is a silent disaster, a silent war that silences its victims, but it is devastating for the families and communities that suffer its consequences. It is a war that we must fight with just as much seriousness and determination as any other war we, as a nation, have fought. Surrender is not an option.

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

The U.S. Department of the Treasury and the Department of Housing and Urban Development (HUD) yesterday launched a new website for distressed homeowners seeking information about the Obama Administration’s Making Home Affordable loan modification and refinancing program.

MakingHomeAffordable.gov offers features including interactive self-assessment tools that seek to empower homeowners to determine if they’re eligible to participate and calculate the monthly mortgage payment reductions they could stand to realize under the Making Home Affordable program. Additional site features include:

• Extensive information about the Administration’s Making Home Affordable plan
• A calculator feature that allows homeowners to estimate the reduction to their monthly mortgage payment that they might stand to realize under the plan
• Resources to find free, HUD-approved counseling services for borrowers who have additional questions
• A handy checklist to ensure homeowners collect all the documents they need before calling their servicers

First announced by President Barack Obama in February, Making Home Affordable is said to offer assistance to as many as nine million homeowners making a good-faith effort to make their mortgage payments, while attempting to prevent the destructive impact of the housing crisis on families and communities.

Since releasing the guidelines to enable servicers to begin modifications of eligible mortgages under Making Home Affordable on March 4th, representatives from Treasury, HUD and other members of a broad interagency task force, have conducted detailed briefings and training sessions for mortgage loan servicers and investors, nonprofit housing counselors and nationwide borrower advocacy groups. Through these early and aggressive efforts to arm those interacting directly with borrowers with information, interagency representatives have briefed more than 2,500 participants on the Administration’s plans in the last two weeks.

A wide array of large banks to small lenders have already agreed to participate in Making Home Affordable, and servicers have undertaken steps to proactively engage borrowers and respond to their inquiries related to the new program. For example, JP Morgan Chase has put several special tools into place and initiated proactive solicitations to eligible borrowers around the Making Home Affordable program, including an online site to provide program details and allow borrowers to download a new financial information package; increased staffing in a dedicated service center that provides simple entry point for all borrowers, including CHASE, heritage Washington Mutual and EMC; a partnership with Fannie Mae to solicit over 125,000 eligible borrowers; and solicitation to an additional 180,000 non-GSE eligible borrowers.

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

Fannie Mae (the Federal National Mortgage Association) issued a statement yesterday morning boasting that home loan refinancing volume jumped to $41 Billion in February (nearly three times the refinancing volume the company experienced during the month of January and the largest refinancing volume in nearly 12 months). The government sponsored enterprise also announced the launch of a new online look-up tool on the company’s Web site (http://loanlookup.fanniemae.com/loanlookup/) that it says allows homeowners to determine if they have a Fannie Mae-held mortgage — a determining factor in whether a homeowner is eligible for the recently announced Obama Administration’s refinancing plan.

More interesting to me though was this juicy nugget of info:

“The company also disclosed that more than 100,000 borrowers had accessed its online mailbox to inquire about their eligibility for refinancing under the Obama Administration’s refinancing plan, and about 50,000 callers have contacted Fannie Mae’s national hotline since the plan was announced.”

If you read last Thursday’s blog entry (”Foreclosure Statistics for February 2009“), you already know that one in every 440 U.S. homes received a foreclosure filing in February (that stat comes courtesy of RealtyTrac’s 2009 U.S. Foreclosure Market Report). So, if 150,000 homeowners have attempted since the 4th of March to determine if they are eligable for the new refinancing plan, that means that an amount equal to approximately 52 percent of the 290,631 homes that received foreclosure filings last month are now actively seeking to refinance their homes in order to possibly avoid or forestall foreclosure.

Given the fact that credit is tight right now, refinancing may not be available to everyone. If you can qualify for a fixed-rate, low-interest loan to pay off a higher interest loan and perhaps even consolidate your debts, refinancing could be one of your best options. However, be careful that you don’t borrow just for a short-term fix, and watch the upfront costs for originating the re-fi. Also, don’t take out a loan if you can’t really afford the payments now or in the future.

Related: Since we now have access to an online look-up tool for determining if you have a Fannie Mae-held mortgage, I’ve updated my March 2nd blog entry, “Who Owns my Mortgage?“.

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

One of the most common strategies lenders use to lower a homeowner’s monthly house payment in a loan modification is to extend the term. For example, a homeowner who has a 30-year mortgage with 25 years remaining may have the term extended to 40 years or maybe even 50 years. Many homeowners simply cannot wrap their brains around the idea of paying on a house for over half their lives, but this can be the savviest strategy for achieving a long-term solution. I almost always advise homeowners to stretch out their mortgage for as long as they possibly can. Here’s why:

• Negotiating for the lowest monthly payment possible protects you in the event of a future financial setback.
• You can pay down the balance whenever you have a surplus to shorten the term.

Back in the 1980’s, many homeowners were refinancing into 15-year mortgages thinking that they would somehow magically reduce the term and cost them significantly less over the life of the loan than a 30-year mortgage. This is certainly true, but many of these same homeowners could accomplish their goal without refinancing simply by making payments equivalent of what they would be paying with a 15-year mortgage on their 30-year mortgage. The only difference is that a 15-year mortgage typically comes with a slightly lower interest rate.

To see how this works, google “mortgage calculator” and crunch the numbers for yourself. Here’s an example:

• With a 15-year $200,000 mortgage at 6% interest, the monthly payment is $1,687.71 and you pay $303,788 over the life of the loan.
• With a 30-year $200,000 mortgage at 6% interest, the monthly payment is $1,199.10 and you pay $431,676 over the life of the loan.
• If you pay $488.61 extra toward the principal every month on your 30-year mortgage, your payments are the same as those required by the 15-year mortgage, and you end up paying off the loan in 15 years for a total of $303,788 over the life of the loan.

In other words, assuming the interest rate is the same and the 30-year mortgage has no early-payment penalty attached to it, you can pay off a 30-year mortgage in 15 years and reap all the benefits of having a 15-year mortgage. The only difference is that the 30-year mortgage provides you with the flexibility to make a lower monthly payment if your financial situation makes it difficult or impossible to make the higher monthly payment. This flexibility can be key to helping you survive a temporary financial setback.

This term-extension strategy is similar to that of pay-option and flex-pay ARMs (adjustable-rate mortgages) but without the risks those products carry. They allowed borrowers to pay interest only, reduced principal and interest, or regular principal and interest. Problems arose because the only payment that proved to be affordable was the interest-only (negative amortization) payments, so borrowers were not paying down the principal. The term-extension strategy does not carry the same risks, because you’re paying down principal and building equity with every payment. You can pay down principal and build equity faster by paying extra toward the principal when you have extra money, but you give yourself a fall-back position in case money gets tight for a time. Essentially, you create your own pay-option loan – one that works in your favor.

Of course, you usually get a slightly lower interest rate with a 15-year mortgage, which can save you a little money each month and a good chunk of money over the life of the loan. For instance, suppose you have the same 15-year $200,000 mortgage at 5.5% instead of 6%. Your monthly payment will be $1,634.17 (about $50 less than the same loan at 6%) and you would save $9,637 over the life of the loan. Personally, I think this is a small price to pay for the flexibility to make a lower house payment.

When negotiating a loan modification, consider extending the term to stretch the payments out for as long as possible. When you can afford to pay extra, pay it, so you can pay down the principal earlier and build equity in your home faster. Just make sure that you clearly specify to your servicer that you want the extra amounts applied to principal, not to interest or escrow, and double-check your monthly statement to make absolutely sure that your servicer is applying the surplus to principal.

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

When applying for a loan modification, your debt-to-income (DTI) ratio is the key to calculating an affordable house payment. President Obama’s foreclosure prevention plan sets the target front-end DTI for the first mortgage at 31 percent. In other words, your house payment or PITIA (principal, interest, taxes, insurance, and homeowner association fees) cannot exceed 31 percent of your gross monthly income. The DTI ratio comes in two flavors:

• Front-end DTI ratio is based on your house payment. (Under the Obama plan, the front-end DTI target of 31 percent accounts only for the first mortgage. If you other loans against your home, such as a second mortgage or home equity line of credit, you account for those separately as part of your back-end DTI.)
• Back-end DTI ratio is based on all monthly debt payments combined, including your house payment, credit card payments, payments on auto loans, and other loan payments.

Calculating Your Front-End DTI Ratio

To calculate your front-end DTI, divide your house payment by your gross monthly household income:

House Payment / Gross Monthly Household Income = Front-End DTI Ratio

This is easy, assuming your monthly house payment includes a monthly amount held in escrow to pay your property taxes, homeowner’s insurance, and any homeowner association fees. Such a payment is often referred to as PITIA (principal, interest, taxes, insurance, and association fees). You simply divide your PITIA amount by your gross monthly household income.

If you pay property taxes, insurance, and homeowner association fees separately, then add them all up, divide by 12 months, and add the result to your monthly house payment (principal and interest). You can then divide the resulting house payment by your gross monthly household income to determine your front-end DTI ratio.

Note: Private mortgage insurance (PMI) payments fall outside this calculation under President Obama’s guidelines.

Calculating Your Back-End DTI Ratio

To calculate your back-end DTI ratio, add up all your monthly debt payments, including:

• House payment or PITIA, as discussed in the previous section
• Any payments on second mortgages, home-equity loans, or home-equity lines of credit
• Credit card payments
• Auto loan or lease payments
• Alimony
• Other payments on credit accounts or loans

Now, divide your total monthly debt payments by your total gross monthly household income:

Monthly Debt Payments / Gross Monthly Household Income = Back-End DTI Ratio

Exploring DTI Ratios Under Obama’s Foreclosure Prevention Plan

The government’s Home Affordable Modification Program accounts for both front-end and back-end DTI ratios. When attempting to reach the 31% Target Front-End DTI, the focus is only on the first mortgage:

• For qualifying homeowners, the lender will have to first reduce payments on the first mortgage to no greater than a 38 percent front-end DTI ratio. Treasury will match further reductions in monthly payments dollar-for-dollar with the lender/investor, down to a 31 percent front-end DTI ratio.
• Borrowers who qualify for a modification but would have a post-modification back-end DTI ratio greater than or equal to 55 percent, will be provided with a letter stating that they are required to work with a HUD-approved counselor. The modification will not take effect until they provide a signed statement indicating that they will obtain counseling.

Keep in mind that only lenders, investors, and servicers who choose to participate in this program are bound by its guidelines and that the guidelines may change over time. Your lender may have its own DTI ratio targets and limitations.

I encourage you to consult with a qualified third-party representative who has experience in loan modifications to assist you in determining what your lender’s DTI-ratio targets and limitations are. Although you can negotiate directly with your lender, you really should have representation of your own to protect your interests.

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