HOPE NOW — a two-and-a-half-year-old alliance between HUD approved counseling agents, servicers, investors, and two of the nation’s largest banks — issued a press release last week touting a campaign it feels will make a difference in the lives of distressed homeowners.

The “Reach Out” campaign (that’s what the big announcement refers to) amounts to little more than computer-generated form letters mailed to homeowners who are 90+ days late on their mortgage payment, encouraging them to seek the assistance of a HUD-approved counselor.

Why on Earth HOPE NOW is touting this as a major initiative worthy of a press release is beyond me, and frankly, it gives none of us — especially those of us who understand the impact of the crisis at-hand — very little reason for any hope whatsoever!

Before going any further into what I believe HOPE NOW Alliance members can and should be doing to help distressed homeowners, read the following press release for yourself:

Apr 08, 2009 09:30 ET

HOPE NOW Launches “Reach Out” Campaign to Encourage At-Risk Homeowners to Work With Counselors

Seriously Delinquent Homeowners Urged to Work With HUD-Approved, Free Counseling Agencies

WASHINGTON, DC–(Marketwire - April 8, 2009) - HOPE NOW, the private sector alliance of mortgage servicers, non-profit counselors, and investors that has been working aggressively to prevent foreclosures and keep homeowners in their homes, today announced that it had begun a new initiative to encourage homeowners at serious risk of losing their homes to work with counseling agencies certified by the U.S. Department of Housing and Urban Development to determine options that will best serve their needs.

The “Reach Out” campaign is a targeted state-by-state initiative. The first initial phase of the campaign is an intensive effort targeted at Wisconsin homeowners who are 90+ days delinquent. In collaboration with the Wisconsin Housing and Economic Development Authority (WHEDA), HOPE NOW and 11 of its member servicers have begun to mail letters to homeowners about the HUD-certified, free, legitimate counseling agencies in their area and to urge them to take advantage of the services these agencies provide to get help.

HOPE NOW plans to expand Reach Out to other states with the highest percentage of extremely delinquent borrowers, including New Jersey, Texas, South Carolina and Florida.

Faith Schwartz, HOPE NOW’s executive director, said that working with a HUD-certified counseling agency is the best way a homeowner can be certain that they will actually get help. “HOPE NOW wants to make sure that homeowners are aware of the legitimate housing counseling services available to them in their community,” she said. “Qualified, professional assistance is available at no cost to the homeowner and we want to be sure everyone who needs it actually gets it.”

“We know that hundreds of homeowners are struggling with their mortgage but don’t know where to turn. We hope that by lending our name to this campaign, people will see the importance of contacting their servicer. So far, more than 900 struggling homeowners have received letters from HOPE NOW and WHEDA, and hundreds more will be receiving letters,” said Antonio Riley, executive director of WHEDA. “As the Executive Director of the state’s housing authority, I strongly urge every Wisconsin resident who has received one of these letters to pick up the phone and call for help now.”

Reach Out is an extension of HOPE NOW’s ongoing efforts to contact at-risk homeowners. Since it began in October 2007, HOPE NOW has sent more than 4.1 million letters to borrowers 60+ days delinquent urging them to make contact with their servicer. A significantly higher percentage of homeowners typically respond to the HOPE NOW mailings than similar mailings from individual mortgage servicers.

EMC Mortgage executive director Dana Dillard, who helped design the “Reach Out” campaign for HOPE NOW, said, “The Reach Out Campaign is one more way that HOPE NOW and its members are being proactive with the ultimate goal of keeping as many homeowners in their homes as we can.”

The “Reach Out” campaign is just one part of HOPE NOW’s aggressive five-prong homeowner outreach effort for 2009. In addition to “Reach Out” and the traditional mailing campaign, HOPE NOW is also in the midst of a “Bringing Hope Home” celebrity campaign headlined by Queen Latifah, is planning a phone-a-thon campaign for later this year, and plan to hold more than 30 homeowner outreach events across the country.

The 11 HOPE NOW servicer members participating in the “Reach Out” campaign include:

American Home Mortgage
Bank of America
Carrington Financial
Countrywide Financial
HomEq Servicing
HSBC
Litton Loan Servicing
Ocwen Financial Corporation
Saxon Mortgage Service
Select Portfolio Servicing
SunTrust
Wells Fargo
Wilshire

So let me get this straight…HOPE NOW’s mission is “to help as many homeowners as possible prevent foreclosure and stay in their homes” and they think sending letters to people in Wisconsin and elsewhere who are 90+ days late on their mortgage payments is going to help? Are they delusional?

HOPE NOW’s urging of seriously delinquent homeowners to work with HUD-approved counselors is like a conglomerate of ambulance services and hospitals standing along the side of the road urging seriously injured victims of a chain reaction automobile pileup to seek medical attention. Seriously, don’t you think now’s the time for a little Good Samaritanism?

The type of help Main Street needs right now is not found in an 8.5″ x 11″ sheet of paper encouraging delinquent homeowners to meet with a HUD-approved counselor. Main Street needs its loans modified, and HOPE NOW’s members know this but individually demonstrate little interest in offering real help. Rather than spend valuable taxpayer money on letters and press releases touting said letters, how about stepping up and offering more hard-working American’s the same bailouts some of these companies received from the federal government?

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

Nowadays, everyone wants to know the same thing… How likely are they to get approved for a home loan modification? While no one can answer that question with any level of certainty — after all, everyone’s situation is different from everyone else’s — there are contributing factors and circumstances that both increase and decrease a loan modification’s likelihood.

The following question is one I see a lot. Take a look and see if my response helps you determine how your current financial situation might impact your ability to secure a loan modification:

Question: I am hoping to get my mortgage modified to affordability, refinance my loan, get help in selling my home through a short sale, or secure a payment deferment or forbearance. Can you look over my details and tell me what you think?

Currently, my mortgage payment is $2,226.00 per month, which I am hoping to reduce in half to avoid foreclosure. Unfortunately, I have fallen behind on my monthly payments  due to a divorce. Considering my current monthly income of $3,945.86, I am struggling. I have contacted my lender on numerous occasion but they weren’t able to help. I have even taken a  hard look at my financial situation with a credit counseling services. My home is in San Joaquin county in Northern California, and here are some additional details:

• A single family home
• Owe $416,000.00
• 10 year Arm loan with interest only (since 2005)
• I have PMI on the loan
• $2,226.00 monthly payment
• I pay my own Insurance and taxes

Thanks in advance for your thoughts and advice.

~ Ade A.

Answer: The fact that you sought out credit counseling is a great first step and shows your commitment to honoring your commitments including the commitment to your mortgage.

Based on the rough numbers you gave me it appears that your front end Debt To Income (DTI) ratio for your mortgage is nearly 56% (presuming the income # you gave was gross income) and that’s not including your taxes and insurance. It is no wonder you’re struggling.

My “Ralph’s Rule of Thumb” is that DTI ratio over 30% is a ticking time bomb. I know your ex probably contributed to the household income so the ratio was more in line with that percentage and has just become unmanageable since the divorce.

A divorce can be a qualifying hardship when it comes to qualifying for workout and modification programs with your lender. I know you have not had much luck dealing with your lender, but the rules have somewhat changed since March 4th, 2009; you might now qualify.

If your servicer and investor are participants in the new Making Home Affordable Plan, you might find a more accommodating voice on the servicer end of the telephone. You need to act quickly however so that the foreclosure is adjourned. Most lenders are halting foreclosure while they see if the borrower qualifies for a modification, but you need to make sure yours is one of them.

Here’s how your situation might fit into the Obama Plan, as it’s commonly called.

• You would need to undergo credit counseling because of the high DTI, but you already have, so point for you. You need to have a verifiable hardship, divorce would qualify, another point for you.
• You are delinquent so you’re at risk of losing your home to foreclosure, another point for you (under the plan).
• You own and occupy the home, yet another point.
• The first (and only) loan is under $729,750, add a point.
• You have income and can afford to make a payment, just not this high payment, and you’re in a risky interest only ARM loan, two more points.

Where it becomes tricky is your investor needs to modify your payment down to a 38% DTI, and then partner with the Treasury Department to bring the DTI down to the targeted 31%. This 31% is PITIA (Principal, Interest, Taxes, Insurance, Association fees, but not PMI). This could mean that your loan is more costly to modify than to foreclose. Huge point against you, and really this could be a deal-killer.

Using the numbers you provided and presuming the $3,945.00 is a gross monthly income number, that would mean that you need to get the PITIA payment down to about $1,223.00/month and this payment needs to include PITIA. ($3,945.00 x 31% = $1,223.00) Meaning you need to get your payment of $2,223.00 lowered approximately $1,000.00.

Okay, let’s assess it:

1. The Waterfall Approach starts by reducing the interest rate and fixing it for 5 years (min).
2. The minimum interest rate that can be charged is 2%.
3. Drop you all the way down to 2%, you’ll need it.
4. The next item in the hierarchy is to extend the term out to up to 40 years.
5. Extend your term all the way out to 40 years, you’ll need it.
6. So based on those two changes a $416,000 loan at 2% with a 40 year amortization = $1,259.75 just in P&I.
7. Getting close, but you need to include Taxes, Insurance and Association fees (if any) as well so we need to get the investor to also either forbear or forgive principal.
8. Not knowing what the taxes and insurance costs are for your area, I’m just going to give you a range of numbers that need to come off the principal so you have a payment of $1,223.00 that includes everything (PITIA), and to do that I’m going to set the taxes at $4,000.00 annually and the insurance at $1,000.00. That gives you $416.67 dedicated to T&I each month ($5,000.00/12 = 416.67).
9. Okay, so given that your total payment can only be $1,223.00 to fit within the 31% rule, your monthly P&I payment can’t exceed approximately $810.
10. The Investor would have to forbear or forgive between $150,000 and $155,000 to bring the payments down to a 31% DTI. ($265,000.00 at 2% for 40 years = $803.00/month). $803.00 (P&I) + $417.00 (T&I) = $1,220.00.

Not impossible, but if the Net Present Value (NPV) of cash flows with the modification is less than the NPV of the cash flows without the modification, the modification is purely discretionary. If the Investor denies the modification, under the Plan, alternatives to foreclosure should be sought, but the house will not be staying in your name.

So my final answer is you may qualify (for a loan modification), but if not, you can clearly show that you can’t afford the house and securing a deed in lieu of foreclosure (DIL) or permission to pursue a short sale should not be extremely problematic. There is so much to consider when trying to see if you qualify for the Obama modification, that I suggest homeowners seek out some professional help. The Treasury Dept. tells you that you can do it all yourself and the cost of a modification is FREE. That’s true, but you’re also placing your future in this home into the hands of the same people that placed you in this loan in the first place. I can’t tell you to run out and hire a company to act as your representative, that’s a decision you have to make on your own. What I can tell you is that you should consider what’s at stake and whether the cost of assistance has value.

Note: The numbers used in this example may not be reflective of your true situation and may not accurately qualify or disqualify you for any loss mitigation workout. The numbers exercise above is for example purposes only and is strictly hypothetical.

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

Back on the 17th of March, I published a blog entry that generated a lot of follow-up questions (see “Understanding Debt-To-Income Ratio“). One such question–and its multiple answers–appears below.

Question: Thank you for your article about DTI ratios. I have a couple of follow up questions. My wife and I own a rental property which has a positive cash flow of $100 per month. Both of our names are on the title and on the loan. On our primary residence, we have a first mortgage and an HOEL. On the primary residence, only my name is on the title and on the loans. I want to calculate our DTIs (Front and Back) for the primary residence. Do I use my wife’s income to calculate both ratios or only mine, since she is not on the loans? Do I use the rental income in calculating both ratios? If yes, do I count only 1/2 since the other 1/2 belongs to my wife? For the Front DTI, I do not include HOEL. Correct? To calculate Back DTI what expenses do I include besides HOEL, second mortgages, credit cards, car loans, other loans? Do I need to include car insurance, utilities, etc. When calculating Back DTI do I only use the minimum amount for the HOEL which is only for the interest amount? Is a rental property considered a liquid asset? ~ Andreas Z.

Great questions, all of them. Here’s what I think (and please keep in mind that I am not an attorney or a Certified Public Accountant):

Question Number 1: Do I use my wife’s income to calculate both ratios or only mine, since she is not on the loans?

Answer: Technically you only need to include your income because you are the only borrower obligated on the note. But realistically you should do both calculations and see how the numbers come out. If your income is not enough to sustain payments without a massive reduction in principal and interest (which may jeopardize your eligibility) you may be able to include some or all of your wife’s income to qualify. This may require that your wife become obligated on the note, so you should consider it very carefully. This also raises the question, what income did the lender use to qualify you for the loan in the beginning? Did the lender use only your income only, or did they include your wife’s as well. If the lender included your wife’s income on the loan, but didn’t include your wife as a co-borrower, I’d question the underwriting process and the ethics of the loan originator. If the loan was applied for and originated with only your income; did you really qualify and was your income accurate on the application? If it was and you did qualify alone, what changed…this may be the hardship you need to fulfill another requirement to receive a loan modification. If you didn’t really qualify, again I’d question the underwriting process.

Question number 2: Do I use the rental income in calculating both ratios? If yes, do I count only 1/2 since the other 1/2 belongs to my wife?

Answer: You only include the debt from the rental unit in your back end ratio. Your gross income is from all sources and yes you would use the rental income figure for both front and back end ratios. As for splitting the income, you should be able to split the positive cash flow. It may be a little more complicated than that though because you have repairs and miscellaneous expenses that go along with a rental, so the $100 a month you are getting now might turn into nothing or a negative cash flow when you have to perform repairs, etc…You should probably look at what you declared as the net rental income on your tax returns or financial statements for the last couple years. I am presuming you offset rental income by renal expenses, so your net rental income might not be anything at all or negligible. If you want to make it simple though you can just put the $50 positive rental income that’s coming in now and disclose it on your financial worksheet.

Question number 3: For the Front DTI, I do not include HOEL. Correct?

Answer: The Obama plan words that a little strangely, but yes. Front end looks at the first lien position, back end includes all debt obligations including subordinate mortgage liens.

Question number 4: To calculate Back DTI what expenses do I include besides HOEL, second mortgages, credit cards, car loans, other loans?

Answer: The regulations that came out on March 4, 2009, list the following obligations as needing to be included in the Back-end DTI (debt-to-income) calculation: All Front-end PITIA plus any mortgage insurance premiums, payments on all installment debts, monthly payments on all junior liens, alimony, car lease payments, aggregate negative net rental income, monthly mortgage payments on second homes.

Question number 5: Do I need to include car insurance, utilities, etc.

Answer: No. The DTI looks at your payment obligations on installment debts. Your overall financial budget should consider these items, but for the DTI calculations no. All items included in the DTI calculations will need to be verified, or what you may have heard called “full documentation”.

Question number 6: When calculating Back DTI do I only use the minimum amount for the HOEL which is only for the interest amount?

Answer: You should include the amount you are obligated to pay each month to avoid defaulting. If the payment calls for $100 per month and is an interest only payment, you should put down $100. If you pay more each month toward principal but are not obligated under the terms of the note to do so, you shouldn’t include that amount. The same goes for credit card balances. If you only have to pay $18/month but pay $150 because you want to pay down the balance and avoid some finance charges, the amount you include for the obligation calculation is $18.

Question number 7: Is a rental property considered a liquid asset?

Answer: Only after you sell it and turn it into cash. It’s real property. It should have been on the schedule of real estate owned on your loan application if you owned it at the time you applied for the loan on the primary. Liquid assets are items like cash, money in checking or savings accounts, money market accounts, stocks/bonds/cd’s and the like. Basically cash or cash substitutes, not a rental house.

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

With very little fanfare, something recently changed here on KeepMyHouse.com. If you were paying close attention, you may have noticed on Tuesday, March 31, I removed all advertisements and sponsorship images & links for a California-based law firm called Federal Loan Modification Law Center, LLP (FLM).

As some of you know, I previously agreed to serve as FLM’s national spokesperson. I did so because I believe homeowners facing foreclosure need as much help as possible in saving their homes or getting out from underneath a home loan they no longer can afford, and I had reasonable assurances from FLM that they ran a very responsive operation.

As part of my engagement with FLM, my team and I conducted a detailed programmatic and operational audit of FLM’s business. The resulting 52-page report, which we turned over to FLM’s owners and management team in late December of 2008, contained numerous observations and recommendations for improving operations. Recently, however, it came to my attention that FLM ignored many of my recommendations, and as a result, I decided I could no longer support FLM. Accordingly, on Tuesday, March 31, 2009, I informed FLM of my intention to end our relationship and I removed all references to the company here on KeepMyHouse.com and other websites I manage across the Internet.

Earlier today, the Federal Trade Commission (FTC) filed a “enforcement action” against FLM, claiming among other things that FLM used “deceptive tactics to market their mortgage modification and home foreclosure relief services.” To learn more about the FTC’s actions, read “Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams.”

For my part, I want everyone reading this blog entry to know that I do not endorse FLM and FLM’s owners or staff never influenced any of the content found here on KeepMyHouse.com. KeepMyHouse.com continues to be an unbiased resource you can trust for honest and timely information about loan modifications and more.

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

It’s a sad state of affairs when a renter in good standing gets kicked to the curb because their landlord allowed the apartment or home they live in fall into foreclosure. The American Tenants Association — a national organization dedicated to serving the financial and legal advocacy interests of  residential renters — says either through mismanagement or outright fraud, far too many landlords have diverted tenant funds to other uses and have left residential renters literally out in the cold.

In response to this growing trend — and no, this isn’t an April Fools joke — RealtyTrac (www.realtytrac.com), one of the nation’s leading online marketplaces for foreclosure properties, has launched a new service called RealtyTrac Renter Alerts (www.renters.realtytrac.com) that gives rental tenants advance notice when the property they are renting enters into default or is about to be foreclosed by a lender.

More than 2.3 million U.S. households received a foreclosure notice in 2008 — an 81% increase over the previous year — and foreclosure activity is expected to rise again in 2009. With over 30 percent of these homes not owned by the occupant, hundreds of thousands of renters may be at risk of being evicted, even though many have never missed a rent payment.

RealtyTrac’s Renter Alerts, which provide access to the nearly 1.8 million foreclosure and bank-owned properties in the RealtyTrac database, have been designed to help renters research properties they’re thinking about renting and to monitor properties they’re already renting. The new foreclosure monitoring service sends e-mail alerts to subscribers warning them immediately of any foreclosure activity on a specific property.

There is one catch though… the service isn’t free. RealtyTrac’s Renter Alerts currently costs $24.95 a year.

Learn more at www.renters.realtytrac.com

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