Decisions Archives – Refinance – Mortgage Refinancing Rates And Information

Short Sales as Loan Modification Alternatives, Can They Work

February 22nd, 2010 No comments

If loan modifications are not an option and you want to avoid foreclosure or bankruptcy a short sale of your home might be a good option. The key when you are undergoing a bad financial situation is like with every emergency and try to think clearly without letting raw emotions take over. You must analyze the situation and work out what is the best option for you. Although it is a good idea to hire an experienced lawyer in real estate issues, nobody can do all the thinking for you, you have a unique understanding of your situation and more importantly you will be the one that will suffer or enjoy the consequences of your decisions.

A short sale is the sale of your home at a price lower than the purchasing price. It is an option to be considered if you do not qualify for a loan modification, due to a lack of income or when you own a home that is worth less than what you owe on the mortgage.

Obviously the key player in a short sale is the lender. The lender is, after all, the party that may have to take any losses that occur by short selling the house. However, in some short sale agreements the buyer can be made responsible for the difference between the price of the short sale and the balance of the mortgage. Needless to say that is not the ideal type of mortgage for you, the homeowner.

There are three possible outcomes a lender may agree to when negotiating a short sale. The key concept you negotiate in a short sale is what will happen with the deficiency balance or the difference between price of the short sale and the pending balance on the loan.

The first option a lender may try for is to lay the deficiency balance on the lap of the homeowner once the short sale has been carried out. Needless to say homeowners do not often profit all that much from this kind of short sale.

A second option is for the homeowner to sign a promissory note to the lender for the deficiency balance. This means that the homeowner will have to pay whatever agreed in the promissory note if the there is a deficiency balance after the short sale. However if the deficiency balance is larger than what the homeowner agreed to pay in the promissory note the lender will absorb the difference.

The third option is the one you need to aim for if you are the homeowner. In this case the lender agrees to cancel the entire deficiency balance, or difference between the short sale and the pending balance on the mortgage. As you probably guessed lenders are not waiting in line to offer this kind of deal, you will have to work hard for it.

The most important part of negotiating a short sale is to convince the lender that it is in their best interest to accept a short sale. To do this you must a) prove you cannot afford the mortgage due to a valid hardship and do not have the assets to pay for the mortgage and b) present your home as a business opportunity for the bank.

In order to do all that, you are going to have to submit a whole lot of paperwork to your lender. This will include:

A) A hardship letter that explains why you are in financial trouble and explains how you do not have the income or savings to pay for the mortgage.

B) Proof for all the claims you make in your hardship letter. This will include proof of unemployment or of your current pay if you are still working. You will also need to prove what income you have through bank statements and tax returns. The lender will no doubt ask you if you have access to pension funds, stocks or some other type of investment. You will have to provide a written statement that answers these questions and explains why they are not accessible.

C) You need to provide an up-to-date valuation on your home. This you can carry out with a broker’s appraisal and by providing analysis of closed deals or active listings of similar properties in your neighborhood.

D) Authorization to the lender to release information on you and the property.

It is a good idea to prepare this paperwork with care and hire a good real estate attorney. The good news is that if you play it well you can include the price of the lawyer in the proceedings costs covered by the lender.

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Categories: Economy, Interest Rates, loan modification, Mortgage's, Refinance Tags: Bankruptcy, Consequences, Decisions, Financial Situation, First Option, foreclosure, Lawyer, loan modification, Losses, mortgage, Promissory Note, Raw Emotions, Real Estate, Selling House

Loan Modifications Short Guide To Success Part 3 – The Endgame

December 13th, 2009 No comments

This is our last week in the Short Guide to Loan Modification series. Look out for the links to official websites and resource packages at the end of the article.

Third Step. Tell the lender, giving you a loan modification is worth their effort.

Lenders are not charitable organizations. They lend for a profit not out of kindness. However if you can convince them that giving you a break is in their interest, that you are worth more as a borrower with a modified loan than as a foreclosure you are half way there. Explain the reason you are struggling to pay, illness, untimely death and losing your job are the reasons most likely to work.

Fourth Step. Put it in writing.

Send a written request for a loan modification. Make it short and to the point, one page should be enough, provide all the information you compiled in the earlier steps, why you need the loan modification, why it is a good investment for the bank, etc… Send all correspondence with your lender through certificate mail with return receipt requested, there are too many horror stories of lost forms.

Fifth Step. Call your lender.

Good idea to start with your loan servicer, the place you bought your mortgage from. Write down the name of everyone you talk to. Only talk to people who can help you and make decisions on your mortgage like officers in the mitigation department of your loan servicer. It is a good idea to send you letter with all your information to the person you have talked to over the phone.

Sixth Step. Be patient, follow up.

Unfortunately loan modifications can take as long as nine months (sometimes more) after you file in your application. So make a pain of yourself and follow up on the progress of your modification with calls, emails and faxes. Don’t underestimate the power of persistence, some officers might work faster just not to have to talk to you again on the phone.

Seventh Step. Get Help from the Professionals.

If you are not satisfied with how you are being treated contact the OCC. The OCC regulates all national banks. You can find a complaint form at www.occ.treas.gov/customer.htm

If you are having trouble working through any of the previous steps, like contacting your mitigation department, visit HOPENOW.org or call 888.995.HOPE and they will help you out.

You can also visit www.hug.gov for help in finding free certified housing counselors and www.loansafe.org for troubled borrower’s resources.

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Loan Modifications: Why Is Citigroup Optimistic About Future Loan Delinquencies

October 19th, 2009 No comments

Loan modifications seem like a pretty simple concept. You can’t pay your mortgage so the government “encourages” your mortgage provider to give you a break. The break can come in the form of lower interest rates, a longer tenure, deferring a part of your loan or even “forgiving” a chunk of your loan (that doesn’t happen all that often).

The key word of the above paragraph is “seems”. The truth is not even close to simple. Banks are businesses and like all businesses, successful ones anyway, they need to know where they are going, what the future will look like in order to decide what decisions to make today.
Investors and business analysts also want to know what the future of business looks like. Mortgage and securities analysts have a difficult job on their hands because the future is so difficult (read impossible) to predict accurately.

Loan modifications depend on how the future looks to analysts because mortgage providers decide what interest rates, conditions and how generous (how much they can afford to call a loss) they are going to be depending on how good or how bad things look.
Analysts look at how big companies prepare themselves for the future as a way of checking their own predictions. How can an analyst see how a big company like a bank or mortgage provider is preparing for the future?

One way is to see how much they are setting aside for bad loans and delinquent payments. If a bank predicts the economic future is looking bleak they will set aside larger amounts of cash in case their customers (borrowers) fail to pay. Of course even this is not as simple as all that. If a company wishes to boost their profit or improve how their accounting looks they can play with these figures.

Nevertheless, alarm bells ring in analysts ears when big companies, like Citigroup, reduce their contingency reserves and they can’t figure out why. This is what happened this week and analysts are still asking why.

Normally when banks stock away less cash to cover for loan losses it can be interpreted as a sign of improving credit conditions, but when analysts looked at the rest of Citigroup’s earnings report there was little if any proof of borrower difficulties easing off. What analysts have noticed is that non-performing loans has gone up by 16%, 7% and in the last quarter by 5% which would indicate an improvement in borrowers’ ability to pay but seems to be more of a reaction to the loan modification effort by the government that is improving underlying credit quality.

So is Citigroup being too optimistic or do they believe that the government’s programs have a chance to control the credit crisis? One thing is for sure in business, time will tell.

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Loan Modifications: 6 Ways Not To Become A Statistic

September 29th, 2009 No comments

Loan Modifications have been put forward as the great savior of the current credit crisis. Whether this is true or not is a matter of debate. I personally feel that dealing with a credit crisis by trying to fix mortgage issues is not going to deal with the big picture.

Nevertheless it is a fact that many are benefiting from the taxpayer subsidized loan modifications that are being grudgingly supplied by banks and other mortgage providers.

However many are not benefiting at all from this service, what is worse many have considerably worse off because they tried to get a loan modification and bumped into a scam artist or organization that duped him out of the little money he had left. Nobody wants to become a statistic, especially when it is the number of borrowers that are conned out of their homes by dishonest “loan modification consultants”.

What can you do? Here are 6 easy steps:

1) Know the beast. Understanding what your options are and who qualifies for aid is vital. Reading www.blownmortgage.com and other mortgage help articles will provide you with inside information about loan modifications and mortgages. Other websites that should be on your list are: WWW.hud.gov www.makinghomeaffordable.gov and www.financialstability.gov . In fact wherever you go for help make sure it is free. The best help out there on loan modifications is, believe it or not, is free.

2) Beware and be alert. If you are struggling with your mortgage you are a prime target for scams, recognize and avoid common scams.

3) Avoid fast loan modifications. Companies who want you to sign papers immediately or who claim they can save your home if you sign of the deeds of your house to them are scam artist. Nobody can save your home except you and your mortgage provider. Organizations and individuals can provide valuable information but they can’t guarantee anything because they don’t make the decisions.

4) Again, DO NOT sign the deed of your house to anybody unless you are working directly with the mortgage company to forgive your debt. In other words only sign off the deed of your house if you are selling it back to the bank.

5) Only make mortgage payments to your bank. A common scam is for a “consultant” or loan modification company to ask you to pay them so they can deal directly with your mortgagee and make the payments for you. As you probably guessed this payments stay in the pockets of the scam artists while you get deeper in debt.

6) Don’t pay anybody for advice on your loan modification or for counseling services on a delinquent loan. This is not to say they are all scam artists but even the kosher variety or not as good as the organizations that provide free counseling as a public service.

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Loan Modifications: What to Do When Banks Don’t Play Fair

September 19th, 2009 No comments

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.

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