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HAMP’s loan modification program seems to be finally speeding up its conversion rate from trial loan modifications to converted modifications. However, the 4 million troubled homeowners targeted by the program are not even close to receiving the help they need.

The debate continues on exactly how much responsibility the Government has towards troubled homeowners. Should they simply shoulder their responsibility, lose their home and start from scratch?

One, obviously upset, commentator had this to say about the issue:

How many people seeking home loan modifications used their home as their own personal ATM’S? How many people who are seeking loan modifications bought homes using an interest only ARM, and purchased a home they could not afford? How many people “fudged” their mortgage apps in order to qualify? I have no sympathy for them. I do feel sorry for those who were really victims of poor mortgages, and job loss. I think more people made poor personal choices and want others to bear the responsibility for their poor financial choices.(Quoted from a comment on the RGJ.com, Reno Gazette Journal online edition 31/1/2010)

This opinion is by no means unique. Many, especially those that didn’t buy a home because they felt they couldn’t afford it, feel people are being unfairly shielded from their own bad financial decisions.

However , the distress and misery the current credit crisis has created does make most of us feel the Government has some responsibility to stabilize the situation just as it did when the banks were the ones that needed bailing out.

Sadly, even those that do receive some kind of “financial help” on their mortgage are often just taken advantage of. The media is full of cases of troubled homeowners that qualify for a loan modification just to see their monthly mortgage payments are more expensive and they are deeper in debt and deeper underwater on their mortgage.

The Government has issued some new guidelines that put more pressure on servicers and lenders to reduce monthly payments by extending the loan term to 30 years and dropping the interest rate to current low levels of 2%-3% for a fixed 30 year loan. Unfortunately, servicers were often simply picking up the months the borrowers were behind on and loading them on the mortgage, without actually modifying the loans in any useful way for the homeowner.

The lessons we can learn from these situations are important although often of little value for the homeowners that are suffering the consequences of poor financial judgment and unfair lenders.

Lesson 1.) Do not spend your life savings paying a loan modification company to manage your application. If you do decide to hire such a company check their credentials and find out their history.

Lesson 2.) Never pay for any services before they have been carried out. This is not only illegal in most states it is also rather stupid. Would you pay a day worker on a farm before he started?

Lesson 3.) Contact the HAMP free counseling services before you are committed to a loan. Even if you later decide to go a different route you will at least have one opinion you can use as a benchmark. Contact a lawyer and ask him what your options are. Is there any way to fight the legality of the loan? Do you have any leverage on your bank?

Lesson 4.) Loan Modifications are not the holy grail of mortgage woes, they are not for everyone and they don’t always improve your mortgage payments all that much. Even though it will severely affect your credit score foreclosures and short sales are often a way to have a fresh start and are sometimes more practical than hanging on to a sinking mortgage. They are, obviously, not an ideal option but sometimes they are best of two evils.

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The home-equity line of credit fueled thousands of extreme kitchen makeovers during the real estate boom. But the housing bust and the credit crisis stopped the HELOC party with a vengeance: Tens of thousands of homeowners had their lines cut or frozen, and most lenders stopped issuing new ones altogether.

Loan Modifications are not providing the help American homeowners need. Of the millions of troubled borrowers only a small percentage qualify for a loan modification trial and most of the lucky ones get stranded in the way.

This article will provide you with a list of simple steps that will increase your chances of getting a permanent loan modification.

The number  one reason why loan modifications don’t work.

Before we get into the practicalities of how to find your way through the maze of loan modifications it is worth spending a few words on the top reason why loan modifications are not working: They Don’t Address the Real Problem.

The real problem is unemployment and the Credit Crisis.

The fastest growing demographic for loan modification are prime mortgages. These are good mortgages, bought by borrowers with high credit scores that can’t pay their mortgage because of the increasing rate in unemployment. Unemployed borrowers struggle to get a loan modification because you can only qualify if you can prove you have nine months of unemployment benefits lined up. Most unemployed borrowers are unlikely to fulfill this requirement.

The other big reason loan modifications might not work for you is that your mortgage might be the least of your credit problems, you might be overstretched on your car loan, credit card loan, and other personal loans. Many commentators feel the government is trying to deal with a Mortgage Crisis when what they should be dealing with is the broader Credit Crisis.

First Step. Get the Information You Need.

Visit the government’s official website at www.makinghomeaffordable.gov . There you can find:

1)      The current sponsored program the Government is touting.

2)      Useful forms to help you compile the information you need to supply to lenders.

3)      Find the closest government paid advisor that can provide you with personalized guidance.

Second Step. Decide what you can pay, and be realistic about it.

There is such a thing as a BAD LOAN MODIFICATION. After months of wasted time and resources some borrowers end up with a loan modification they still can’t pay.

You need to figure out what you can truly afford to pay on your mortgage every month. The government guideline is 31% of your monthly income but that might not work for you. Get some real figures together. How much do you spend on housing costs? What is your income, or average income if you’re self employed or work on commission. Put all this on paper, your lender will want a look at it.

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When looking at a crisis it often pays to see what got you there if you are to learn anything from it. The current mortgage and credit crisis was either unavoidable or a surprise depending who you ask. Loan Modifications are now being sold as the solution to the crisis as if changing the interest rate, tenure or principal of loans were the heart of the problem. But what is at the heart of this worldwide crisis?

History tells us that depressions, recessions and crisis are as part of the free market economy as free trade and private enterprise. Take this example; in 1908 a financial crisis spread panic “in every part of the globe. It was as if a volcano had burst forth in New York, causing a tidal wave that swept with disastrous power over every nation on the globe”, as reported in the The Wall Street Journal.

In 1929 there was a Great Depression, earlier there was the Long Depression (1873), a Panic in 1837 which has been described as “an American financial crisis, built on a speculative real estate market.

Any of that sound familiar? If it didn’t it soon will. But how did the current mortgage crisis occur? To answer that we need to go back a little over a quarter of a century.

Since the Reagan Administration in 1980 America has been pioneered globalization of free trade. This opened the U.S market to new products and investment unparalleled in any other economy. America’s entrepreneurial spirit combined with political freedom and a trend of economic deregulation fuelled a rapid expansion in new types of investments that also spurred an increase in international finance and commerce.

Unfortunately America’s growth came to rely on debt. The economy needed more consumers that could only buy on credit. The largest debt and purchase for many was their own home. Credit was easily available so buying wasn’t a problem; this fueled home prices in particular.The result was a housing boom that created the feeling that prices could only rise.

In 2007, as we know, the housing boom finally collapsed showing the fragile structure that had held it up behind the glossy veneer. Loans had been provided to families that couldn’t afford them, especially if the economy weakened. Most had purchased homes they couldn’t really afford. As housing prices fell, homeowners could no longer sell their homes to pay their mortgages. These bad loans were the foundation of an international web of speculation on mortgage securities and financial contracts which were toppled by the housing collapse.

The catastrophe revealed weaknesses in the U.S economy. Savings had been outpaced by spending and reckless consumption. Financial regulators underestimated the risk and fell into a dangerous state of complacency that led them to forget the lessons learnt from previous crisis.

So will loan modifications solve the problem of millions of households that risk losing their home? Some might take advantage for them but most will have to look for alternative solutions. Ultimately we will all have to relearn the lesson that we need to save more than we spend to keep our head above water.

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The housing and credit crisis of 2007 showed the weaknesses of our banking system. In fact a whole international market of mortgage securities was based on bad loans that homeowners could simply not pay. Banks among other players had invested heavily in mortgage securities and other financial contracts. This hit banks hard, very hard. The U.S government reacted with financial measures that were unprecedented. First by taking control of two of the largest home mortgage firms, bailing out leading banks and a major, some would say “the major”, insurance company and that was only the beginning.

The bailout then consisted of an initial $600 billion and then $12.8 trillion pledged for loans, loan purchases and credit guarantees in an effort of stopping the freefall the economy was going through.

Even a bailout of this magnitude was not enough to help banks like Wachovia that were by now too underwater with bad loans and mortgage securities to survive. Wachovia was by no means alone in this problem various large banks were bought out.

Wachovia was bought by Wells Fargo & Co a regional bank happy to pay for the nationwide network Wachovia had.

Wells Fargo & Co. did look like a promising company as a regional bank with plenty of room to grow. However now finance commentators feel Wells Fargo & Co shares look expensive in the light mounting losses in the large pool of troubled loans it took from the Wachovia Corp takeover.

It is hard to explain why Wells Fargo & Co trades at 2.2 times its tangible book value when other top banks like JPMorgan, often considered the best, and Bank of America Corp trade at 1.9 and 1.3 times respectively.

Before the Wachovia takeover there might have been logic in adding value to Wells Fargo because of the great potential of growth it had, but it is hard to see this potential now it has the nationwide presence and is saddled with billions of dollars in bad loans both in mortgages and commercial real estate. Losses in bad loans are mounting and the question is how long can Wells Fargo absorb these losses before being toppled by them.

Analysts estimate the inherited impaired mortgages from Wachovia at $38 billion that could bring another $2.3 billion in losses and that is only one category of the bad loans Wells Fargo holds. The worst news for Wells Fargo is that they are not specially capitalized to deal with these huge losses. The ratio of tangible common equity to tangible assets is below 4 percent. Other similar banks like JPMorgan and Bank of America range from 4.5 to 4.8 percent.

It is true that hard initial losses due to bad mortgages and the cost of loan modifications are to be expected especially when Wells Fargo marked down many of Wachovia’s assets to reflect expected lifetime losses. Other banks are taking these same losses over time which you would make them look their capital levels look a little healthier.

The jury is hanging, like it is over millions of troubled homeowners, on if the current mortgage and housing crisis will be the end of Wells Fargo long climb or a bold move that grasped an opportunity in difficult times.

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The Mortgage Crisis or Credit Crisis as many are more accurately describing it has left millions of Americans (and Earthlings worldwide for that matter) in or at the brink of foreclosure. Banks and Government have launched an ongoing set of increasingly aggressive programs to solve this terrible problem.

Not all the help is coming from the Government either. One association of banks which call themselves the Hope Now Alliance assures they have helped keep over 2 million troubled borrowers in their homes by changing the terms of their loans.

Similarly the Government is proud to say they have surpassed their short term goal of 500,000 trial loan modifications nearly a month before schedule. If you hear the sales spiel for these loan modifications it sounds like mortgage paradise; reduced interest rates to zero, whole chunks of the principal balance wiped out and it goes on and on. To be fair some borrowers have enjoyed these excellent deals . What is also true is that many loan modifications simply moved payments to the end of the loan which provided a kick the can down the road solution. Regulators report that half of these loan modifications are defaulting six months later.

The trouble with loan modifications is that it is not easy to qualify to them. The paperwork is enough to drive you crazy and the red tape is so slow you want to scream, especially when foreclosure proceedings continue despite your loan modification is being in process.

Why are loan modifications so slow?

Well there are many answers to this question. We are going to look at three basic answers to this question.

1)    Mortgages are not always owned by the bank or institution you bought them from. Banks often simply work as middle men, servicing mortgages for investors. They sell the product, collect payments and answer any questions. IndyMac for instance manages 650,000 loans but only owns 7% of them. The other 93% is owned by a variety of investors ranging from private individuals to pension funds.

This means that when banks don’t own a loan they must ask the investors that own them if they are willing to modify the loan. It is easy to imagine how much paperwork and time dealing with the borrower, getting their details, studying each specific case, then finding the real owner of the loan and asking them if they mind losing some money on their loan is going to take.

2)    Banks aren’t designed to modify loans but to sell them. Banks make money by selling loans and mortgages. Modifying them is, as we mentioned above, a slow and time consuming process that doesn’t make money. The government has started to fund the loan modification process which has helped to speed things up, but banks still have to redesign themselves to deal appropriately with the millions of borrowers in trouble.

3)    Foreclosures are often a better deal for the lenders. Loan modifications are a hard bullet to bite for lenders. You are asking them to accept a certain loss if they modify the loan by reducing interest rates or “forgiving” a chunk of the balance when they can also take their chances with a foreclosure which might actually make them a profit. In some cases loan modifications are profitable for both the lender and the borrower and in those cases paperwork does seem to go faster.

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One of my latest articles suggested that the best advice you can get on loan modifications is free and supplied by  the Government and that the Government has a vested interest in loan modifications to work, that is to stop families from losing their homes. This elicited an anonymous comment that I feel can be helpful as I believe it touches on many of the issues people are thinking about. The comment is copied in full even though some of the sentiments expressed may have hurt my fragile ego. The readers’ comments are in italics.

“The best advice comes from the government and they have a vested interest in your success.” Really?  The best advice comes from the government????  Based on the terrible advice that you are giving I can believe that you may actually believe this but that does not make it true. 

Yes, I agree Obama wouldn’t lose sleep over me foreclosing on my home, but I do think he wants this credit crisis to be behind him, to get re-elected and because most people like to do well in a job, few of us like to fail miserably. This does not mean I think he will succeed. I personally believe the whole problem we have now is not so much a mortgage issue, as a credit culture crisis. In many cases mortgage payments are one of the smaller loans borrowers have to worry about. Think credit cards, car loans, refinance mortgages, etc…

The government is not littered with the sharpest minds in America.  It is a bunch of people who are trying to get re-elected. Do you really think they are looking out for my best interest?  Did you ever stop to think that the banking lobby has the politicians in their back pocket?    When you call HUD all they do is give you the number at the bank to call and answer some basic questions.  Wow, what a great service they provide. 

Again I would have to agree that not all government employees have a Mensa membership card in their wallets. And yes, I am sure the banking lobby has plenty of leverage on this government, just look at how quickly the Government bailed them out when they needed it.

However HUD does provide more information than your banks number. Foreclosure prevention counseling services are provided free of charge by nonprofit housing counseling agencies working in partnership with the Federal Government. These agencies are funded, in part, by HUD and NeighborWorks® America. There is no need to pay a private company for these services. http://www.hud.gov/offices/hsg/sfh/hcc/fc/

However if you feel it is all a big conspiracy and that all these counseling agencies are out to get you and don’t want to help you with your mortgage then it might be a good idea to get your own loan modification “guru”. You know what though? Not all of them are the brightest minds of America either.

Politicians tell people not to use loan mod companies because the banks don’t want people to help them out.  Wouldn’t it be great if the person that was suing you for something was representing them self and you had a great attorney to help you out?? 

Have you ever spent 6 months getting the run around from the bank while you stress out over the possibility of losing your home?  Who has the time or mental energy or mortgage knowledge to negotiate with the banks?  Do people know how to calculate their DTI or surplus/deficit?  Did you know that most lenders have guidelines that are based on the monthly surplus/deficit and if you give them numbers that fall outside of those guidelines at any time during the 3-6 month negotiations or during the 3-6 month trial modification you will be DENIED?   

Can you imagine how somebody would feel if they went through hell for 6 months and then when they went through the final financial review after the trial mod they got denied because they got a bonus check or saw their income dip or had an unexpected expense pop up?  Who is going to counsel them on how to manage their finances throughout this process and hold their hand in a great time of need… the government….yeah right.  At least they have your great articles to fall back on.  If you truly want to help people please educate yourself on what you are writing about before you start writing.  Which bank do you work for?

I think the key of the issue is that our friend feels (for completely altruistic reasons I’m sure) that loan modification agents are the way to go. We are too ignorant to work it all out ourselves, and the Government is not to be trusted. That is a feeling many share, which is why they will pay thousands of dollars to a loan modification agency to do the work for them.

It is true that for many of us the paperwork required is just too much to deal with when we have work, family and a hundred other things on our mind, but just because you pay for that help doesn’t mean it is going to be better.

The truth is that nobody can really guarantee you anything. Loan modification agencies can’t guarantee success, although they do have vested interests in delivering the goods, because it is the bank that approves or drops the loan modification application.

You need to decide if loan modifications are worth the trouble at all, some just see them as a trick banks play to get 3 extra months out borrowers.

You also need to decide if paying for a loan modification agency or using a free government issued counselor is the smart thing for you.

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The numbers of loan modifications, foreclosures and bankruptcies we are dealing with in this credit crisis are so large they are too often hard to understand and digest. A good solution is often to downsize and see if more sense can be put into smaller models. A good model for the United States is California, the fourth economy in the world and one of the hardest hit states in the United States credit crisis. House prices have free fallen but mortgages remain the same. This has eaten up most of people’s equity leaving  homeowners owing more on their homes than they are worth. Not exactly an incentive to pay your mortgage.

The sad thing is that while only 16% of eligible homeowners have received a trial loan and the vast majority of troubled homeowners are desperately trying to save their homes unscrupulous people try their best to make a profit from other people´s misery.

This is illustrated by the 1,340 open investigations into loan modification scams while last year there were only 10 in August 2008. It is quite depressing that people are willing to make a business from robbing borrowers from their last reserves of relocation cash.

This growth in loan modification investigations has caused 330 desist and refrain orders just in the past year, up from the average 80 to 100 orders last year. As depressing and upsetting as these numbers are it is not surprising that when 225,000 homes foreclosed in the State of California last year budding entrepreneurs with varying sense of morals and business ethics show their ugly faces.

For many of these scam artists, orders of desist and refrain are simply an inconvenience that they must endure in order to do business. Current economy projections estimate this situation will continue for at least 2 years, time during which homeowners will continue to be victimized.

One of the reasons for this is that real estate agents are struggling to find work and many are reinventing their career by offering loan modification services. Last year 185,000 people took the real estate licence exams in California alone while this year 25,000 are projected to apply. That is still one real estate agent for every 54 adults in California. Such a concentration of real estate agents is bound to create a pretty competitive work environment where agents are willing to bend and break rules.

The good news is that states like California are projected to make a comeback soon. In fact estimates predict that Orange County houses will increase in value by 9.5% by next year.

The only solution when the economic atmosphere is so charged and there are such an abundance of con artists is to get smart and learn how to avoid getting cheated by unscrupulous loan modification agents.
The best advice is always to contact the government and apply for personalized (and free ) advice on the best course of action for you and your family.

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The news is full of loan modification horror stories describing how homeowners have struggled for months with lost documents, changing standards, unreasonable loan modification agents and the slow tides of bureaucracy. Bad news does always seem to travel faster and further so you don’t hear half as much about the hundreds of thousands of loans that have been successfully modified.

However the question still remains why loan modifications are moving so slowly if the government is willing to pay the bill for the expenses mortgage servicers and investors have to incur when modifying a loan. Recent studies seem to indicate the reason is that the incentives and handouts the government is making through HAMP and TARP just don’t cover the real cost of modifying the fast increasing volume of loan modification applications.

How can this be so when TARP and HOPE have deep pockets of over 75 billion dollars? The answer seems to lay in the mortgage servicers, the companies that collect monthly mortgage payments and then distribute them to the investors that lent the money in the first place. Mortgage servicers have found it is often cheaper to foreclose on homes than to offer a loan modification even though a loan modification would benefit both the borrower and the investor.

The key is not only the rate of return when managing loans and loan modifications but the expenses related to the operations. The assumptions we generally have as consumers is that foreclosures are a bad deal for everyone. Numbers that are thrown around for example are losses of 10 to 20 percent for lenders on short sales while lenders have to face 20 to 30 cents to the dollar when dealing with foreclosures.

These figures only tell part of the story, mortgage servicers have other ways of measuring profit and often have different priorities. A recent report examined foreclosures between 1995 and 2009 and found that loan servicers made more money by offering forbearance (a period of time where the borrower does not have to make payments so he can consolidate his finances) than by cutting principal or reducing rates of interest, which is what loan modifications do.

This means that when deciding between foreclosure and loan modification loan servicers have to choose between certain loss with loan modifications and potential profit if they foreclose the loan. What would you do? Exactly. This is why loan servicers have been dragging their proverbial feet with loan modifications. Of course there are also other issues to consider like public opinion and bad publicity. The government has tried to use this weapon by publishing loan modification leagues that encourage banks to reorganize their systems to increase loan modifications.

So what is the solution? No easy fixes obviously or they would have already been implemented. However the administration could enforce stricter rules that regulate foreclosure and make loan modifications more attractive like regulating loan originations, mandate loan modifications before foreclosure or have third party loan modification mediation programs that control what mortgage providers do.
The best thing you can do now if you are at risk of foreclosure or behind in your payments is to contact the HOPE program by visiting their website or calling 1-888-995-HOPE.

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Loan Modifications have become loaded words politically and economically and as things get worse they get much more personal. Nationwide efforts have been made to educate homeowners in their search for the right loan modification for their home before they fall into foreclosure. Unfortunately only a small percentage 16% to around 25% of eligible homeowners (depending who you talk to) get a loan modification trial and even that represents a small percentage of the number of those that actually wanted or needed a loan modification but weren’t eligible.

The fear and anger of losing their home to foreclosure seems to have led 5 homeowners to torture, kidnap and beat two loan modifiers. Weston and Parmelee, two of the five to be arraigned, were, according to prosecutors, undergoing foreclosure on their home when they sought assistance from the victims. They were not happy with the results the loan modifiers were getting and asked for their money back. Weston, Pamelee, Gonzales, Canez and Parker arranged a meeting with the loan modification agents. It seems to be at that meeting that Daniel Weston and Gustavo Canez robbed and tortured the loan modification agents while the other three accused watched, according to prosecutors.

This unfortunate case underlines the desperate situation many find themselves when their home is going through foreclosure.
However this case seems to be a little more complicated. According to, again, the prosecutors, Gonzales, Parker and Parmelee had a standing business arrangement where they would send customers from their real estate business which adds a few question marks to any complaints the assailants might have against the loan modification agents.

We will have to wait for the official hearing but what does seem safe to state is that this case will only highlight more the credit crisis and the loan modification “solution” in general, as well as showing once more the potential for evil humans have.

Another lesson to learn from this case is that you are best dealing with a government paid, that means free for you, agent when you are looking for information and help on your loan modification. Free help is the best help in this case. This is a rather counterintuitive notion for those of us that are used to paying for quality information however in this case paid agents are more likely to be biased and charge us for things we can do ourselves (or with free help) for nothing.

The reason for this is that the government does not want an avalanche of foreclosures on their hands. Unfortunately due to a rise in unemployment this seems to be what the government is going to have to face. However they are willing to spend over 75 billion dollars to avoid to the best of their ability this situation. If you qualify for the loan modification they want you in. Your bank might not want to give you the loan modification because in some cases it really doesn’t seem to make financial sense to them.

So before you torture your local loan modification agent contact the making homes affordable program (HAMP) and see what they can do for you.

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