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A loan modification is a loan modification, right? If it helps you avoid a foreclosure on your home it is good news, right? Not necessarily. It is a little more complicated than all that.

HAMP is a Government sponsored loan modification program. This might not give you much peace of mind but the truth is that mortgagees that are part of this program must follow certain requirements in order to receive the incentives the Government offers for loss mitigation actions, another name for loan modifications.

These requirements have been recently (Nov. 23^rd 2009) updated and include:

1)      Mortgagees must reduce the interest rate of a loan modification to the market rate. Market rate is defined by the Government as the most recent Freddie Mac Weekly Primary Mortgage Survey Rate for a 30 year fixed-rate conforming mortgage.

2)      The Mortgagee must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment of the modified loan. This is code for: the bank has to offer you a 30 year fixed-rate loan at the market rate.

However, if you go for an in-house loan modification or even for a mortgage refinance your mortgagee is not required to follow these rules. This doesn’t mean the in-house mortgage modification will be bad or any worse than the HAMP loan modification. You might find your mortgage provider is really generous and wants to improve the Government’s deal out of the goodness of his heart. No? You don’t think that is likely?

The problem is that even the relatively good terms HAMP loan modifications offer are no guarantee you will get approved or that you will even get a decision on your loan modification before your mortgage forecloses. Lenders use this fact to push borrowers into choosing a bad loan modification in the belief that a bad loan mod in the hand is worth two in the bush. Is that true?

The alternative to the HAMP loan modification or in-house mortgage modification is to simply walk away from your mortgage, but that is another story.

In conclusion, only you can decide if a loan modification is the right move for you, but if you do decide to go for a loan modification it is most likely you will get a better deal if you go with a HAMP loan modification. Unfortunately many banks are using the fact that HAMP loan modifications are slow and hard to get to push their own in-house subprime loan modifications.

Related posts:

1. HAMP, Way Out For Delinquent Borrowers And Those Without Fannie
2. Credit Crisis: Are Loan Modifications The Answer
3. Loan Modifications Are Going To Be Simpler, What Do You Need Now?

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1. HAMP, Way Out For Delinquent Borrowers And Those Without Fannie
2. Credit Crisis: Are Loan Modifications The Answer
3. Loan Modifications Are Going To Be Simpler, What Do You Need Now?

The million dollar question millions of Americans are asking themselves is “should I walk away from my underwater mortgage?

The situation is so dire that according to Moody’s Economy.com 17.4 million homes will be underwater by the end of 2010.

That is worth reading again: By the end of 2010 17.4 million homes might be worth less than the value of their mortgage.

This presents homeowners with a dilemma. Should they continue making big monthly payments on a home that might never be worth what is was bought for, especially when there are cheaper rentals in the same area?

The answer to that question is not easy; there are many factors to take into consideration before deciding if a “strategic default” makes economic sense.

However many homeowners don’t even consider it an option out of fear and guilt. The moral argument is that when you signed your mortgage you gave your word you would pay for it, so it is your responsibility to stick to your word. Banks like that argument, and most of us can see the logic in wanting to keep your word, that your yes mean yes. However a mortgage is a business agreement and it is not as simple as all that.

When you sign a mortgage agreement you are not accepting charity, a display of trust or blind faith from your loving bank manager. You are entering a business agreement where you agree to pay back the money you borrow with interest. The agreement you sign clearly states that if you don’t pay your mortgage the lender will receive the loan’s collateral in compensation. The bank is required by law to carry out due diligence when assessing the price of the house is fair and that you are capable of paying the mortgage payments.

So when you walk away from your mortgage you are not lying you are simply using an option included in the mortgage, an option you feel is more financially sound.

However, others don’t walk away from a mortgage not because of morals but out of fear the bank will go for their other assets, like a car, a second home or their savings, in an effort to cover the losses of the underwater mortgage.

This is a legitimate concern, but it depends in which State you live in. If you are fortunate enough to live in a no-recourse state like California or North Caroline you have nothing to worry about. Banks cannot claw at your other assets to cover the whole you left in their real estate portfolio. However if you live in a State that has recourses there is a higher risk.

However, lawsuits are rare because they are so expensive and judges tend to empathize with the troubled homeowner before shedding tears for multibillion corporations.

Nevertheless, if you are considering walking away from your underwater mortgage one of the first things you want to find out is if you live in a recourse or no-recourse State.

Related posts:

1. Loan Modifications Are They Worth It – An Overview In Simple English
2. Loan Modification Horror Stories, What Are The Lessons?
3. Loan Modification Alternative by CitiGroup: Refinancing 30 Year Fixed Rate Mortgages

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1. Loan Modifications Are They Worth It – An Overview In Simple English
2. Loan Modification Horror Stories, What Are The Lessons?
3. Loan Modification Alternative by CitiGroup: Refinancing 30 Year Fixed Rate Mortgages

Under fire for the low number of people receiving long-term mortgage help, the Treasury Department on Thursday announced new guidelines that will require applicants to provide all paperwork before getting a trial modification.

Loan Modifications do seem to have finally got moving. Trial loan modifications are heading towards their first million, there has been over a 100,000 completed loan modifications and even Bank of America, the sleeping giant of loan modifications has hit the 200,000 trial modifications line.

However, what is not clear is if loan modifications are actually a good thing for homeowners. Reports published in this website have shown that loan modifications may be pushing homeowners deeper underwater instead of lending them a helping hand, pun intended.

This is because many banks are simply cashing in the Government’s incentives while capitalizing the late payments and interest charges onto the loan modification without reducing interest rates or extending the loan term, reducing the principal balance of the loan is, of course, very rarely even mentioned.

So is it worth going for a loan modification? It depends on:

1)      How good a deal you can get on your loan modification.

2)      How underwater your home is and

3)      How much you care about your home

Let’s analyze these three questions to see if loan modifications are worth it in your particular scenario.

1)      You are getting a good deal on your loan modification if the lender reduces your interest rates and your monthly payments are significantly cheaper. Unfortunately, in the recent past banks have got away with providing loan modifications that simply put borrowers further into debt. However, Government guidelines effective from the 23^rd of November 2009 clearly state that loan modifications under the HAMP program, which provides incentives to lenders, must reduce the interest rate to the current market rate.

This is the pertinent paragraph in the Mortgagee letter 2009-35 from the Government to all approved mortgage providers:

The Mortgagee shall reduce the loan modification note rate to the current Market Rate.  For purposes of this requirement, the Department shall consider Market Rate to be no more than 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date the Modification Agreement is executed.

What does this mean in practice?

The next paragraph in Mortgage letter 2009-35 gives the answer with an example (italics and underlining are ours):

The Mortgagee approves a Loan Modification that is executed by the borrower 35 days after the date of this Mortgagee Letter.  The current note rate is 7 percent and the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed rate conforming mortgages (US average) as of the Modification date is 5.04 percent.  To be eligible for payment of a mortgagee incentive and costs for a title search and/or recording fees on the Loan Modification, the fixed note rate on the modified loan may not exceed 5.50 percent (The Freddie Mac US average rate of 5.04 percent rounded to the nearest eight of a percent plus 50 basis points).

If your mortgage provider reduces your interest rate by nearly 1.5% you are likely and extends the mortgage for 30 years you are likely to see a very significant reduction in your monthly payments. However, don’t forget to check what the term extension will translate to in extra interest and make sure you can live with it.

2)      If your mortgage is so underwater there are little chances it will ever be worth what you bought it for and you just started paying for it, you need to decide if it is even worth trying to save it. Walking away, taking the hit on your credit and starting fresh might be the best option for you.

3)      Of course this depends how much you have emotionally invested in your home. If you can’t find another home in the area and you don’t want to change your children’s school, or you need to live near your parents the financial value of your home might only be one of the factors you have to consider.

Related posts:

1. HAMP Loan Modifications and “In-house” Modifications, What Is The Difference?
2. Are Loan Modifications Worth your time
3. Loan Modifications, Loss Mitigation Incentives and Other Greedy Games

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1. HAMP Loan Modifications and “In-house” Modifications, What Is The Difference?
2. Are Loan Modifications Worth your time
3. Loan Modifications, Loss Mitigation Incentives and Other Greedy Games

Have you ever heard about having your cake and eating it? That’s what many mortgage providers are trying to do with loan modifications. How so? As it is well known the Government offers lenders incentives for processing loss mitigation actions. Loss mitigation action is code for loan modifications. What has been the result of the Government’s loan modification incentive program?

Banks, lenders and servicer have of course gladly accepted these “incentives” for processing loan modifications. But what has been the result for borrowers?

Mortgage Letter 2009-35 sent to all Government approved mortgagees on September 23^rd 2009 provides a surprisingly honest picture. This letter is quite interesting as an exercise in stating the obvious and calling mortgagee providers thieves to their greedy faces.

The second paragraph of Mortgage Letter 2009-35 is priceless:

The recent economic slow-down has increased demand for loss mitigation actions, including but not limited to, loan modifications.  Recent industry studies of these loan modifications revealed that borrowers who experienced an increased mortgage payment on a modified loan had a significantly higher re-default rate than borrowers whose loan modification provided a lower payment.

If you thought loan modification research studies were a waste of time, think again. The Government has come up with a breakthrough. Borrowers in financial trouble are more likely to re-default on their mortgages when their monthly mortgages are increased! Shocking.

I’m sure David H. Stevens, Assistant Secretary for Housing, the author of the letter, knew he was stating the obvious because the in the very next paragraph he hits the mortgage industry with a brutal honesty that is refreshing to say the least:

FHA reviewed its recent insured loan modifications and found that, generally, they resulted in higher payments to the borrower. The higher payment was the result of not lowering the interest rate to the current market rate and/or not extending the term to the maximum of thirty years authorized under 24 CFR 203.616.  Generally, the loan modifications simply capitalized the past due amounts and allowable charges and did not extend the term of the loan.

May I personally congratulate Mr Stevens, or whoever writes his letters, on the construction of that paragraph. There is nothing we didn’t know there but it is nice when a Government official simply goes out on a limb and says it.

So this is the picture: Banks provide loan modifications to troubled home owners which generally don’t reduce their monthly payments and simply add on the late charges and interest to the mortgage without even extending the loan term and get an incentive from the Government for their troubles.

The above mentioned letter set out that these practices were to stop in a 30 day period from the date of the letter, that was the end of November 2009, and that any loan modifications where the interest rate was not reduced would not apply for a loan modification incentive. I guess it is a start.

Related posts:

1. Loan Modifications Are They Worth It – An Overview In Simple English
2. HAMP Loan Modifications and “In-house” Modifications, What Is The Difference?
3. Loan Modifications With Principal Cuts Attract Lenders Attention

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1. Loan Modifications Are They Worth It – An Overview In Simple English
2. HAMP Loan Modifications and “In-house” Modifications, What Is The Difference?
3. Loan Modifications With Principal Cuts Attract Lenders Attention

Cities in the so-called Sand States dominated the foreclosure rankings in 2009, with the 20 worst-hit metro areas residing in Nevada, Florida, California and Arizona.

The debate in the last months has centered on how the Government and lenders were not doing enough to get troubled borrowers into a loan modification. However, a recent report might indicate that this has actually a good thing for borrowers!

A report released last week by the State Foreclosure Prevention Working Group disclosed that about 72 percent of the loan modifications carried out in October ended up owing more. This is because lenders will add missed mortgage payments with interest to the modified loan. Therefore, although loan modifications may reduce monthly payments they sink borrowers further into debt.

This does seem an oxymoron, to help troubled borrowers by increasing the size of their loan. Supporters of the scheme say that this is necessary evil for lenders to be able to afford the modifications and allow borrowers to afford their mortgage payments and keep their homes.  But is this even true?

Reports show that the number of borrower that foreclose after completing a mortgage modification is much higher when their mortgage balance was increased or left unchanged. This is because borrowers have little incentive in staying with a house that is worth less than their mortgage. If this is the case they will often simply walk away from their mortgage with means considerable costs for lenders.

This is called the underwater effect. Borrowers that own homes that are worth less than their mortgages have little hope to regain equity and are seen by their owners as a liability instead of an investment. Studies show that the best way to reduce foreclosure rates, a nuisance for both borrower and lenders is to reduce, even if only a little, the principal balance of the loan.

But is it the government’s job to force lenders reduce the principal of loans?

This is of course the big debate. On one side you will have those that feel most borrowers had it coming. “I knew I couldn’t afford it, so I kept on renting. Why should they get bailed out for borrowing irresponsibly?” seems to be a common opinion. The logic of the argument is hard to fault.

On the other hand there is the moral argument that the Government has a responsibility towards troubled families that could end on the street, which from a pragmatic point of view might even cost society more in handouts.

The other question is why even try and stop foreclosures? Many view them as a natural outcome of a financial crisis and that the market will normalize itself after going through the “normal” post crisis period.

Many feel that the best move underwater borrowers can make is to simply walk away from their mortgages. When asked about the morality of breaking the mortgage contract most will say banks had it coming when they started lending irresponsibly.

If your mortgage is underwater this is a good question to ask yourself. Is it really worth it for you to stay with your mortgage? Or would it make more sense to simply walk away, take the hit on your credit score and carry on with your life? The answer will depend on how much you have invested in your home, financially and emotionally.

Related posts:

1. Foreclosure Re-default Drops by 26.5 When Loan Modifications Reduce Loan Balance
2. Loan Modifications With Principal Cuts Attract Lenders Attention
3. Loan Modifications, A Loose, Lose Story With No Winners

Related posts:

1. Foreclosure Re-default Drops by 26.5 When Loan Modifications Reduce Loan Balance
2. Loan Modifications With Principal Cuts Attract Lenders Attention
3. Loan Modifications, A Loose, Lose Story With No Winners

New home sales plunged to a 9-month low in December, according to a government report issued Wednesday.

Don't say we didn't warn you.

One roadblock slowing Obama's foreclosure prevention program seems to be clearing up. Bank of America, the nation's largest mortgage lender, announced Tuesday that it was the first lender to sign an agreement to lower or eliminate payments on second mortgages.