Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when one of the government’s Home Affordable Modification’s is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set [...]]]>

The U.S. government yesterday announced details of new plan aimed at helping distressed homeowners modify second mortgages. The Second Lien Program is slated to work in tandem with first lien modifications offered under the government’s Making Home Affordable Program to deliver a “comprehensive affordability solution for struggling borrowers,” says the U.S. Department of the Treasury.

Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when one of the government’s Home Affordable Modification’s is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by the U.S. Dept. of the Treasury.

Yesterday’s announcement may make it easier for borrowers to modify or refinance their loans under FHA’s Hope for Homeowners program. Here are two examples of how the program could work:

Family A: Amortizing Second Mortgage

• In 2006: Family A took out a 30-year closed-end second mortgage with a balance of $45,000 and an interest rate of 8.6%.
• Today: Family A has an unpaid balance of almost $44,000 on their second mortgage.
• Under the Second Lien Program: The interest rate on Family A’s second mortgage will be reduced to 1% for five years. This will reduce their annual payments by over $2,300.
• After those five years, Family A’s mortgage payment will rise again but to a more moderate level.

Family B: Interest-Only Second Mortgage

• In 2006: Family B took out an interest-only second mortgage with a balance of $60,000, an interest rate of 4.4%, and a term of 15 years.
• Today: Family B has $60,000 remaining on their interest-only second mortgage because none of the principal was paid down.
• Under the Second Lien Program: The interest rate on Family B’s interest-only second mortgage will be reduced to 2% for five years. This will reduce their annual interest payments by $1,440.
• After those five years, Family B’s mortgage payment will adjust back up and the mortgage will amortize over a term equal to the longer of (i) the remaining term of the family’s modified first mortgage (e.g. 27 years if the first mortgage had a 30 year term at origination and was three years old at the time of modification) or (ii) the originally scheduled amortization term of the second mortgage.

Here’s what U.S. Dept. of Treasury Secretary Tim Geithner has to say about the Second Lien Program:

“With these latest program details, we’re offering even more opportunities for borrowers to make their homes more affordable under the Administration’s housing plan. Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind.”

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

According to United Law Group, representatives from Bank of America are telling the law firm’s clients that United has not contacted them and that they have not received any notices and legal demands on their behalf. In response to those claims, United Law Group — a provider of legal foreclosure prevention and foreclosure litigation service — today announced that it filed a complaint in the Superior Court of the State of California County of Orange Central Justice Center against Bank of America and its subsidiary Countrywide Home Loans, Inc. for tortuous interference with contract, defamation (slander) and unfair business practices.

The complaint alleges that as a direct result [...]]]>

A law firm engaged in the practice of helping distressed homeowners negotiate loan modifications has filed a lawsuit alleging that Bank of America and its subsidiary Countrywide Home Loans deliberately and maliciously sought to harm its reputation with its clients in order to stall and mislead clients.

According to United Law Group, representatives from Bank of America are telling the law firm’s clients that United has not contacted them and that they have not received any notices and legal demands on their behalf. In response to those claims, United Law Group — a provider of legal foreclosure prevention and foreclosure litigation service — today announced that it filed a complaint in the Superior Court of the State of California County of Orange Central Justice Center against Bank of America and its subsidiary Countrywide Home Loans, Inc. for tortuous interference with contract, defamation (slander) and unfair business practices.

The complaint alleges that as a direct result of the representations, statements and recommendations made by Bank of America and Countrywide Home Loans directly to United Law Group’s clients, United Law Group’s clients became distraught and confused as to the state of their loan modification applications, the services being performed by United for those clients, and whether such loan modifications were even possible in the first place. In short, United is claiming that Bank of America representatives were aware that their direct communications with United Law Group’s clients would cause a significant crisis in confidence, and intended those consequences when the communications were made.

“Representatives from Bank of America are telling our clients that we have not contacted them and that they have not received our notices and legal demands,” says Richard Stinstrom, Senior Litigator for United Law Group. “This deliberate attempt to mislead our clients is a calculated move designed to shake consumer confidence so that these consumers cancel with United Law Group.”

United is asking the court to help recover actual damages, general damages and punitive damages. The firm is also seeking a preliminary restraining order and preliminary and permanent injunction against Bank of America and its subsidiary Countrywide Home Loans from engaging in any communications directly with the firm’s clients, other than as may be specifically permitted by United Law Group, following receipt of notice of representation by United Law Group.

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

California Senate Bill 94 (SB 94), which looks like it might be days away from being passed by the full California State Senate, would prohibit the charging of advance fees to homeowners in connection with a loan modification, and require anyone who wishes to charge a fee for loan modification services (after performing them) to provide a state mandated notice beforehand regarding the availability of non-fee options for the borrower.

Here’s California State Sen. Ron Calderon (D-Montebello), discussing the measure:

More on yesterday’s development from the California Political Desk at the California Chronicle:

The Senate Judiciary Committee today passed a measure by Sen. Ron Calderon (D-Montebello) that will protect California borrowers who are struggling in today´s troubled housing market.

The bill, SB 94, authored [...]]]> If a group of consumer-minded California State Senators get their way, loan modification companies may soon find themselves out of business or scratching their heads as they consider how to successfully adjust their revenue model.

California Senate Bill 94 (SB 94), which looks like it might be days away from being passed by the full California State Senate, would prohibit the charging of advance fees to homeowners in connection with a loan modification, and require anyone who wishes to charge a fee for loan modification services (after performing them) to provide a state mandated notice beforehand regarding the availability of non-fee options for the borrower.

Here’s California State Sen. Ron Calderon (D-Montebello), discussing the measure:

More on yesterday’s development from the California Political Desk at the California Chronicle:

The Senate Judiciary Committee today passed a measure by Sen. Ron Calderon (D-Montebello) that will protect California borrowers who are struggling in today´s troubled housing market.

The bill, SB 94, authored by Sen. Calderon, will prevent a person or a business from charging an upfront fee to a borrower for helping negotiate a loan modification on that borrower´s behalf. Such services are free of charge from non-profit housing counselors.

“Economic times are difficult enough without homeowners having to worry whether they are being scammed when they want to modify their mortgage loans,” said Senate President pro Tem Darrell Steinberg (D-Sacramento). “The bill is a common sense, consumer measure that will make it clear to struggling homeowners that they can get help with their loan modification needs free-of-charge. I commend Senator Calderon for introducing SB 94.”

Tens of thousands of Californians face default and possible foreclosure if they are unable to negotiate a loan modification with their lender. A cottage industry has sprung up to exploit these borrowers, prey on their fears of foreclosure and their ignorance of the complicated foreclosure process. Loan modification “consultants” charge borrowers fees - often up-front and nonrefundable - for services available elsewhere free-of-charge.

“Fear and desperation create a fertile climate for exploitation,” said Senator Calderon, chairman of the Senate Banking, Finance and Insurance Committee. “Borrowers facing financial ruin are misplacing their trust in these so-called consultants who charge fees for limited services that often leave the borrower worse off than before.”

“The Senate Judiciary Committee heard testimony last month about the increasing number of consumer scams targeting people facing foreclosure,” said Senator Ellen Corbett (D-San Leandro), chair of the Senate Judiciary Committee. “I strongly support these important protections that will help to put an end to unscrupulous scammers who take advantage of trusting homeowners desperately looking for help.”

Unscrupulous loan-modification consultants can be found lurking outside every mortgage fair, trolling for troubled borrowers. Their advertisements flood neighborhoods that have been hardest hit by foreclosure.

Senator Lou Correa (D-Santa Ana), in support of the measure added, “I´ve heard horror stories from my constituents who were facing foreclosure and paid thousands of dollars to heartless individuals offering false hope and unmet promises. This has to be made a crime.”

Sen. Calderon´s measure, SB 94, cracks down on these loan-modification con artists by prohibiting lenders from charging borrowers for loan modification services. Non-lenders can charge a fee for helping arrange a loan modification only after providing promised services and informing customers that similar services are available for free from non-profit housing counselors.

The bill´s next stop is the Senate Appropriations Committee.

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

All things being equal, offering a loan modification to borrowers is usually the best option for lenders, because they avoid the high cost of foreclosure (by some estimates $50,000 to $100,000 per foreclosure) and they continue to collect interest on the loan – at a lower rate of return, but still more than enough to earn a profit.

Unfortunately, in many cases, another factor comes into play – mortgage insurance. If a loan is FHA- or VA-secured or the owners are paying PMI (private mortgage insurance), the lender stands to lose much less from foreclosure, because insurance will make up a portion of the difference. In other words, the lender’s motivation to work out a reasonable deal with [...]]]>

In several blog entries here on KeepMyHouse.com, I point out that loan modification is a no-brainer for lenders. In short, when dealing with distressed homeowners, lenders essentially have the following choices:

• Loan modification
• Foreclosure
• Forbearance
• Deed in lieu
• Short sale

All things being equal, offering a loan modification to borrowers is usually the best option for lenders, because they avoid the high cost of foreclosure (by some estimates $50,000 to $100,000 per foreclosure) and they continue to collect interest on the loan – at a lower rate of return, but still more than enough to earn a profit.

Unfortunately, in many cases, another factor comes into play – mortgage insurance. If a loan is FHA- or VA-secured or the owners are paying PMI (private mortgage insurance), the lender stands to lose much less from foreclosure, because insurance will make up a portion of the difference. In other words, the lender’s motivation to work out a reasonable deal with the homeowner/borrower is undermined by mortgage insurance – often mortgage insurance that the homeowner is paying for!

When foreclosure numbers spiked, so did mortgage insurance claims. This is what contributed to the need for insurance giant AIG to receive bailout money from the government. Without it they could not have paid all the claims being made and still remain in business. AIG going out of business would have jeopardized the stability of millions of loans and caused even greater market insecurity.

If you are wondering why the federal government is willing to subsidize lenders for modifying mortgages and subsidize homeowners for making their monthly mortgage payments, wonder no more. One reason the government wants to bail out homeowners is because it has to. The government stands to lose more if homeowners with government-secured mortgages default on their loans than by paying ten thousand dollars or so to subsidize loan modifications for at-risk loans.

You can also stop wondering why mortgage lenders approved all of those risky mortgage loans in the first place. Risks to the lenders were often reduced by the fact that the loans were insured. They could afford to gamble, because after all, someone else would be there to pick up the tab on any losses.

Having insurance when disaster strikes is usually a good thing, but in the case of the foreclosure crisis, having mortgage insurance can work against you. It’s not like homeowner’s insurance that protects your investment in the case of a natural disaster. It only protects the lender’s investment – leaving you and your family without a roof over your heads. In addition, as a recent visitor here on KeepMyHouse.com pointed out, eliminating PMI for loans that require it could make house payments more affordable, put more money in people’s pockets, and help stimulate the economy.

I am not entirely against having the government secure loans or requiring homeowners to pay PMI on certain mortgage loans. Up to this point, these programs have helped more people achieve the American Dream of Homeownership. However, when these same programs are working against homeowners during an unprecedented economic crisis, I think it’s time to review the real purpose of these programs. Lenders need to start relying less on mortgage insurance and more on loan modification to mitigate their losses and help more Americans keep their homes.

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

Here’s Wall Street Journal blogger Mary Pilon’s take on the site/service:

If a borrower fills out the form and qualifies for free mortgage counseling, Fair Isaac will give applicants a free credit score and credit report. (You’re entitled to your free credit report once a year from each of the three credit reporting agencies at annualcreditreport.com.) But you don’t get a free credit score for just filling out the online form. (Applicants must complete a mortgage counseling session first.)

A handy flowchart explains how the mortgage-assistance process on the site works. However, Shon Dellinger, vice president for Fair Isaac’s consumer division, says “we don’t want to turn this into a site that [...]]]> FICO/Fair Isaac, the company that manages the all-important credit-scoring formula used by lenders when making mortgages, today unveiled Mortgage Relief Online, a new website that supposedly lets you know within seconds whether you qualify for a loan modification or refinancing under the Making Home Affordable Program.

Here’s Wall Street Journal blogger Mary Pilon’s take on the site/service:

If a borrower fills out the form and qualifies for free mortgage counseling, Fair Isaac will give applicants a free credit score and credit report. (You’re entitled to your free credit report once a year from each of the three credit reporting agencies at annualcreditreport.com.) But you don’t get a free credit score for just filling out the online form. (Applicants must complete a mortgage counseling session first.)

A handy flowchart explains how the mortgage-assistance process on the site works. However, Shon Dellinger, vice president for Fair Isaac’s consumer division, says “we don’t want to turn this into a site that people game for fixing their score. We want them to fix their mortgages.”

The Mortgage Risk Analyzer tool aims to identify mortgage holders who may be likely to default. The hope is that consumers can reconfigure mortgages before they become delinquent.

Considering that Fair Isaac also helps financial institutions manage the risk in their mortgage portfolios, it makes sense that they want to identify trouble before foreclosure proceedings begin. There’s also concern about more adjustable-rate mortgages resetting and the questionable effectiveness of mortgage modifications.

The information submitted by consumers is confidential. After borrowers complete the online form and find out what they’re eligible for, then the borrowers decide whether or not to send information on to a mortgage counselor. The mortgage counselor only passes on consumer information to lenders with the borrower’s permission. In other words, your lender won’t know that you used the site unless you let them know.

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

Foreclosure filings were reported on 341,180 properties in March, a 17 percent increase from the previous month and a 46 percent increase from March 2008. The March and Q1 2009 totals were the highest monthly and quarterly totals since RealtyTrac began issuing its report in January 2005 despite a decrease in bank repossessions (REOs), which were down 13 percent from the fourth quarter of 2008 [...]]]> RealtyTrac’s latest foreclosure statistics are now available, and once again the news isn’t very good. According to the U.S. Foreclosure Market Report for the first quarter of 2009, foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 803,489 properties, which sadly translates into a 9 percent increase from the previous quarter and an increase of nearly 24 percent from the same period in 2008. The bottom line: One in every 159 U.S. homes received a foreclosure filing during the months of January, February, and March.

Foreclosure filings were reported on 341,180 properties in March, a 17 percent increase from the previous month and a 46 percent increase from March 2008. The March and Q1 2009 totals were the highest monthly and quarterly totals since RealtyTrac began issuing its report in January 2005 despite a decrease in bank repossessions (REOs), which were down 13 percent from the fourth quarter of 2008 and 3 percent from February totals.

“In the month of March we saw a record level of foreclosure activity — the number of households that received a foreclosure filing was more than 12 percent higher than the next highest month on record. Since much of this activity was in new foreclosure actions, it suggests that many lenders and servicers were holding off on executing foreclosures due to industry moratoria and legislative delays,” said James Saccacio, chief executive officer of RealtyTrac, in a prepared statement. “It’s also likely that the drop in REO activity can be attributed to these processing delays, rather than to any of the foreclosure prevention programs currently in place. It’s very likely that we’ll see the number of REOs increase again now that most of the moratoria have been lifted.”

“On a positive note, it appears that demand is up in some of the harder-hit areas, particularly on bank-owned REO properties that first time homebuyers and investors see as bargains. But it’s unlikely that this increased demand will be enough to offset the growing number of foreclosures in the pipeline, accelerated by rising unemployment rates.”

Nevada, Arizona, California post top state foreclosure rates in first quarter

Nevada continued to document the nation’s highest state foreclosure rate in the first quarter, with one in every 27 housing units receiving a foreclosure filing — more than five times the national average. Foreclosure filings were reported on 41,296 Nevada properties during the quarter, an increase of 19 percent from the previous quarter and an increase of nearly 111 percent from Q1 2008. Bank repossessions in Nevada were down 3 percent from the previous quarter, but defaults increased 27 percent and auction sale notices increased 35 percent.

Arizona posted the nation’s second highest state foreclosure rate for the first quarter, with one in every 54 housing units receiving a foreclosure filing, and California posted the nation’s third highest state foreclosure rate, with one in every 58 housing units receiving a foreclosure filing.

Other states with foreclosure rates ranking among the top 10 in the first quarter were Florida, Illinois, Michigan, Georgia, Idaho, Utah and Oregon.

Five states account for nearly 60 percent of nation’s first quarter total

California, Florida, Arizona, Nevada and Illinois accounted for nearly 60 percent of the nation’s foreclosure activity in the first quarter, with 479,516 properties receiving foreclosure filings in the five states combined.

With 230,915 properties receiving foreclosure filings during the quarter, California accounted for nearly 29 percent of the nation’s total. The state’s foreclosure activity increased 35 percent from the previous quarter and 36 percent from Q1 2008, and the first-quarter total was state’s highest quarterly total since RealtyTrac began issuing its report in the first quarter of 2005.

Despite a 12 percent decrease from the previous quarter, Florida’s first quarter total was still second highest in the nation. Foreclosure filings were reported on 119,220 Florida properties, a 36 percent increase from the first quarter of 2008. The state posted the nation’s fourth highest state foreclosure rate during the quarter, with one in every 73 housing units receiving a foreclosure filing.

Foreclosure filings were reported on 49,119 Arizona properties in the first quarter of 2009, the third highest total among the states, and 41,296 Nevada properties received a foreclosure filing in the first quarter of 2009, the fourth highest total among the states.

Illinois posted the nation’s fifth highest total, with 38,966 properties receiving a foreclosure filing during the first quarter — a 32 percent increase from the previous quarter and a 68 percent increase from the first quarter of 2008. With one in every 135 housing units receiving a foreclosure filing, the state’s foreclosure rate also ranked fifth highest among the states.

Rounding out the states with the 10 highest foreclosure activity totals in Q1 2009 were Michigan, Ohio, Georgia, Texas and Virginia.

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

How long does a loan modification take?

The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative.

Note: The loan modification timeline is not set in stone. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot [...]]]>

Understandably, if you applied for a loan modification and failed to hear from your lender after two to three weeks, you’d tend to get a little antsy and perhaps even annoyed (especially if you continue to receive late payment notices and nasty phone calls from collection agencies). With this in mind, many homeowners ask me, “How long will it be before I hear anything?” and “What should I do while I’m waiting?.” This blog post should help answer those very pressing questions.

How long does a loan modification take?

The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative.

Note: The loan modification timeline is not set in stone. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot of collateral issues can see their loans take longer than what has become the typical 30- to 90-day timeframe.

A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to. Although each borrower’s situation is unique, knowing the measures the lender is willing to take for similarly situated borrowers can be a real time saver.

Whether you are dealing directly with your lender or through a loan modification specialist, ask several questions up front:

• How long is the process likely to take? Find out the best- and worst-case scenarios and then count out the days and mark them on your calendar.
• When can I expect to hear something about my case? Mark this date on your calendar.
• If I don’t hear anything by the specified date, whom should I contact? Get the person’s name, employee identification number (if available), phone number, and any extension you need to dial to reach the person directly.

What should I do while I’m waiting?

Playing the waiting game can be agonizing, particularly when you have no idea of whether your application will be accepted or rejected or what the lender will offer in terms of a workout. It feels like your future hangs in the balance, and you remain in the dark. Knowing the standard timeline for processing a loan modification can certainly help relieve some anxiety.

In addition, you can continue to make progress on your own by doing the following:

• If you hired a loan modification specialist to represent you, do not speak with your lender or lender’s representative. Refer all matters to the professional who is representing you. Anything you say to the lender could confuse things or compromise your representative’s ability to negotiate the best deal on your behalf.
• Log all phone calls and correspondence between you and your lender or representative. Write down the number you called, the person you talked with, what the person said, and what you said – not word for word, just jot down the key points.
• Keep track of important dates. If you do not hear something back on the date promised, call the next day to find out what’s going on. Lenders almost never call you back with updates. If you hired a third party representative, they will (or should) keep you posted, but the lender simply doesn’t have the time to make follow up phone calls. If you’re dealing with your lender directly, you’ll have to be the one making the calls. Mark your calendar and schedule periodic update phone calls. Consistent follow up is paramount to a successful modification.
• Explore other options. If the lender denies your request for a loan modification or presents an offer that you cannot accept, you will need a plan B (and maybe a plan C and a plan D). In addition, other options may be better for you than a loan modification. Consult a real estate agent about listing your home for sale. Talk to a mortgage broker or loan officer about refinancing. Speak with a bankruptcy attorney to find out whether filing bankruptcy would be a better choice.
• Don’t be surprised if you continue to receive delinquency notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. If the lender is able to foreclose in 30 days and a workout takes 60 days, there’s a slight timeline problem. Push to have all default and foreclosure actions put on hold while your workout attempts are underway.

When your fate is in someone else’s hands, 30 to 90 days can seem like an eternity. By doing your part to keep the process on track, remain informed, and explore other options, you not only improve your chances of achieving a positive outcome, but you can also reduce the stress that commonly accompanies the waiting process.

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

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 [...]]]>

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)

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 [...]]]>

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)

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 [...]]]>

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)