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Loan modifications are complex animals not because the concept behind them is complicated but because of all the elements that compose it and the various options and permutations of these options that must be decided. The jargon linked to loan modifications can also make it a challenge to understand the instructions you read in the literature.

This series of articles “Loan Modification Questions” is designed to clarify some of the most important questions you can ask yourself about loan modifications as well as busting some jargon by using plain English to explain what your options are.

Loan Modifications are based on a simple concept to renegotiate a loan or mortgage in order to provide some advantage or benefit to one or both of the parties. The loan modification the government is now backing is designed to allow struggling borrowers that have some form of income and can pay their mortgage if their monthly payments are reduced, their late fees are waivered or some other modification is carried out.

One of the ways this is carried out is to capitalize or include in the loan modification costs or fees the borrower must currently pay on top of his monthly payments.

Can a mortgagee capitalize an escrow advance for Homeowner´s Association fees when using a loan modification option?
The answer is yes. HUD Handbook 4330.1 REV-5, Paragraph 2-1, Section B under Escrow Obligations states: Mortgagees must also escrow fund for those items which, if not paid, would create liens on the property positioned ahead of the FHA insured mortgage.

In other words the FHA insured mortgage must have first rights on the loans security, the house. For this to happen pending fees and costs must be capitalized into the mortgage.

Interest Rates.
One of the reasons the government is pushing for loan modifications is so that homeowners whose homes have dropped in value can benefit from the current lower interest rates. Is there a new basis interest rate which mortgagees may assess when completing a Loan Modification?
The answer is again yes. Mortgage Letter 2008-21 explains that the new basis interest rate is 200 points above the monthly average yield on U.S Treasury Securities adjusted to a constant maturity of 10 years. This links the interest rate applicable to loan modifications to Treasury Securities.
An important issue when applying for a loan modification is that the loan modified is the primary loan. Will HUD subordinate a Partial Claim, if a mortgagor (the borrower) subsequently defaults and qualifies for a loan modification?
Yes, HUD will subordinate a Partial Claim if a mortgagor defaults and qualifies for a Loan Modification.
These are just a few of the questions you are probably dealing with if you are searching for a suitable loan modification. The best advice is to ask for free advice from a government institution and ask what your options are.

Related posts:

1. Loan Modifications Questions: escrow analysis, unemployed homeowners and upfront premiums.
2. Loan Modifications Questions: Fees, Inspections, Late Charges And Other Concerns
3. What To Look For In A Loan Modification

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1. Loan Modifications Questions: escrow analysis, unemployed homeowners and upfront premiums.
2. Loan Modifications Questions: Fees, Inspections, Late Charges And Other Concerns
3. What To Look For In A Loan Modification

Imagine you're a mid-level executive living in Grayling, Mich., the "Canoe Capital of the World."

Most of the mobile homes in the U.S. are located in the south, where land is more plentiful, the weather is warmer, and rural poverty is higher.

1. Chances are good that you'll come across one. During the heyday of no-money-down lending, you were unlikely to have a buyer using a government-insured Federal Housing Administration (FHA) loan, which lets borrowers purchase a home with a down payment of as little as 3.5%. Now FHAs are the only game in town for anyone who can't put down the minimum 10% many banks require to get a conventional loan.

If you are considering taking on a loan modification the chances are this is your first loan modification and you have many questions you need answered. The problem when you are doing something for the first time is that often you don’t even know what are the smart questions to ask. This series of articles on Blown Mortgage is designed to ask the questions you should be asking yourself and provide the simplest possible answers.

Fees.

Loan Modifications have an option to bring an asset current. Can I use this option to include all fees and corporate advances?

This option is designed to consolidate all expenses and fees related to the mortgage in as much as it is reasonable. This means you can include in your loan modification any legal fees and related foreclosure costs for any work that has already been done and is applicable to the current default event. This is great news for homeowners that have accrued significant amounts of money in loan modification costs and fees as these can be capitalized into the modified principal balance of the loan modification and therefore enjoy the benefits this affords in principal reduction and monthly income / payment cap.

Inspections.

Mortgagees are always concerned that their loan is secured and that the collateral on the loan is sufficient. Can mortgagees (banks and mortgage providers) carry out an interior inspection on your property if they are worried about the condition of the property?

As annoying as having an inspector check out your home is the mortgagee may conduct any review it finds necessary in order to verify the physical conditions of the property and make sure the value of the property is still sufficient to support the modified mortgage payment.

This is especially important if the loan modification actually increases the amount a homeowner borrows from the loan provider as the bank must make sure the security (i.e. the home) is still good to cover the principal (plus costs) of the loan.

Late Charges

If you are looking for a loan modification you are probably struggling to pay your mortgage or are already behind in your monthly payments. Late payments accrue late charges which carry hefty interest payments. Can a mortgagee include late charges in the loan modifications?

Mortgage letter 2008-21 clearly indicates that “accrued late charges should be waived by the mortgagee at the time of the loan modification.” The key word here is “should”. As we all know what should happen does not always occur by itself,  it often needs a gentle (or not so gentle) push for it to materialize.

Make sure you ask your bank or mortgage provider for a breakdown of what is included in the modified principal balance. If your late charges are not waived then they could be charged separately from your modified monthly payments.

I hope the answer to these questions were useful. Our next blog in this series will cover escrow advances, partial claims and interest rates.

Related posts:

1. Loan Modification Questions: Escrow advances, Partial Claims and Interest Rates.
2. Loan Modifications Questions: escrow analysis, unemployed homeowners and upfront premiums.
3. Are Loan Modifications Worth the Hassle

Related posts:

1. Loan Modification Questions: Escrow advances, Partial Claims and Interest Rates.
2. Loan Modifications Questions: escrow analysis, unemployed homeowners and upfront premiums.
3. Are Loan Modifications Worth the Hassle

The housing market is still struggling, but D.R. Horton stock is surging.

Thinking about your post-work home? You'll get huge bang for your buck -- plus lots of other perks -- in these towns.

They say that crisis bring out who we really are. If that is so, things are not looking that hot in the financial sector. As the credit crisis deepens banks are acting more and more conservatively when it comes to loan modifications and mortgage refinancing.

Some would say that bailing out homeowners is wrong. We should all be responsible for our decisions and there is nothing wrong in renting. I would have to agree with this. My parents have worked all their life, still rent a humble apartment and are probably the happiest couple I know.
Having said that if the government have decided to provide breaks for families that are struggling to pay their mortgages and are willing to pay mortgage providers for the privilege the least banks and servicers can do is take the cash and help out as much as they can, especially as they have been recently recipients of bailouts themselves.

Instead of showing empathy to the situation of desperate homeowners that are scared of losing their homes they are acting as what they are, profit based organizations. No surprises there, a capitalist economy is based on the assumption that companies are going to do what is best for them, not for the greater good. However that does not mean they should be allowed to break the rules and stall procedures for their own advantage.

Banks that don’t seem to understand the rules of the game.

What is especially scary is when banks don’t seem to understand the requirements for a government sponsored loan modifications. As an example, a recent story was published that involved Citimortgage loan. After an arduous procedure the homeowner in question was able to qualify for a loan modification and enter the 3 month trial. His mortgage was reduced to $1503 from $1727 a great difference for a family with three kids under the age of 5.
Just before final approval was achieved Cit changed the monthly payment to $1817, a $90 increase to cover an increase in the insurance, even though they had not been approved for the loan modification. If they had have been approved for the loan modification there would have been no grounds for increasing the insurance as both the taxes and insurance are included in the reduction of monthly mortgage payments to 31% of the monthly income.

The homeowner then contacted the bank and was told that because he had recently filed bankruptcy he was no longer eligible for a loan modification. However there is not information in the loan modification literature provided by the government on bankruptcy disqualifying a homeowner that can afford the modified payments.

Contacting the government programs and asking for their help and assistance is probably the best way forward in these circumstances when banks are unwilling to budge.

Stalling to the eleventh hour.
Another practice that seems to be popular with mortgage providers is to stall proceeding until the last minute. That was the case with a homeowner whose mortgage was owned by Wells Fargo. Paperwork was lost twice (which seems to be a common happening with loan modifications) and resubmitted by FedEx at the homeowner’s expense. Once the homeowner contacted Wells Fargo they were required to fax further information even though they had been assured that they had all they needed. It does seem disturbing that the homeowner was the one that had to contact the bank to find out they needed to send further information.

After stalling a reply for months and when the mortgage was close to foreclosing the homeowner was told they did not qualify for a loan modification but that they could offer a $11,000 loan. Why a homeowner that is struggling to make payments on his mortgage would want another loan on which to make monthly payments, I don’t know. This does seem to be a bad way to carry business, dangerous to the economy and homeowners.

The only way to fight these abuses or mistakes is to arm yourself with information. Contacting government organizations is the best step. Explain your circumstances and ask what your best options are. In this case free advice is the best money can buy because it is unbiased which is much more than can be said of most loan modification companies.

Related posts:

1. Loan Modifications, Judges Frustrated by Banks Nonchalant Attitude
2. Loan Modifications, Hope, Lies and Misinformation
3. Loan Modifications, 3 Nightmare Stories You Don’t Want To Copy

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1. Loan Modifications, Judges Frustrated by Banks Nonchalant Attitude
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Nationwide Judges are receiving complaints against banks and mortgage providers for dragging their feet and not providing the customer service that is to be reasonably expected. Especially since the government is paying for mortgage providers to deal with loan modifications as fast as possible.

Unfortunately Banks and service providers are not carrying out loan modifications as fast as was expected by the government or hoped by homeowners. I find this hardly surprising. If I had a business and was asked to spend money to reduce the monthly income I receive from a debtor I would make sure I was suitably compensated. The fact is that in some cases banks end up worse off when they modify a loan.

What is not so easy to empathize with is when banks systematically stall procedures, lose paperwork and change their requirements systematically. This has been the story that has been told nationwide and some judges are starting to tire of it all.

One case that has hit the news is that of Bobbi Giguere, initially published on the New York Times. Mrs Giguere submitted her paperwork three times to no avail. Last Thursday an interesting turn of events occurred at Judge Randolph J. Haines courtroom. Judge Haines instructed Mrs Giguere to question a Wells Fargo high ranking executive on the bank’s lack of response towards her loan modification.

Judge Haines explained the irregular procedure as a response to the growing concerns about Wells Fargo’s mortgage modifications practice.
The problem is that this is not an isolated case. Consumers nationwide are complaining (that is certainly not new) about the difficulty of getting a response from their mortgage servicers. This is threatening the success of the Obama Administration’s loan modification plan. While banks and mortgage servicers stall their response many homeowners foreclose on their mortgages and lose their homes which in many cases is good news, or the least of two evils for banks and loan providers.

The questioning of Mr. Ohayon the Wells Fargo executive was carried dramatic enough to be part of any lawyer movie. Mr Ohayon initially stated that Mrs. Giguere had repeatedly failed to provide a financial worksheet, a critical document for the loan modification to be processed.

Then came the fun part, what courtroom dramas are all about. Under cross examination Mrs. Giguere produced the letters Wells Fargo sent requesting the paperwork required for the loan modification. She asked Mr. Ohayon to read the letter and he was forced to concede that the letter did not ask for a financial worksheet.

This irregular procedure in which a Judge requires a large bank corporation like Wells Fargo to place an executive on the witness bench shows the federal frustration on the way loan modifications are being carried out throughout the United States.

Related posts:

1. Loan Modifications: What to Do When Banks Don’t Play Fair
2. Loan Modifications, 3 Nightmare Stories You Don’t Want To Copy
3. Loan Modification: Wells and Fargo VP Vows To Improve Bad Service

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1. Loan Modifications: What to Do When Banks Don’t Play Fair
2. Loan Modifications, 3 Nightmare Stories You Don’t Want To Copy
3. Loan Modification: Wells and Fargo VP Vows To Improve Bad Service

With a growing number of homebuyers depending on government-insured loans, the Obama administration is taking steps to shore up the Federal Housing Administration program.