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Loan Modifications finally got a boost of media coverage last week when Bank of America unveiled their new loan modification scheme. This scheme promises to forgive up to $3 billion to eligible homeowners with underwater mortgages. Underwater mortgages are loans that have a principal balance larger than the current value of their home.

It seems that overnight Bank of America has gone from villain to hero. From one of the most inefficient loan modification servicers to an innovative leader in the field. Does Bank of America deserve this positive media? Is it all as good as it sounds? This article will expand on our previous post and provide some more details on how the plan will work.

1)      The scheme plans to help around 45,000 underwater borrowers with up to $3 billion in principal balance reduction. Principal balance reductions are the big daddy of loan modifications. The Holy Grail of modifications for borrowers. Up to now most servicers have limited their help to reducing interest rates and extending the term of the loan. However, this is not the whole truth, Wells Fargo reduced up to $2 billion in principal balance reductions for their customers. This  was done with much less fanfare than BofA latest program.

2)      To qualify you must have a LTV ratio (loan to value ratio) of 120% or more. What does this mean? Take this example, if you own a house that is currently worth $100,000, but you still owe $120,000 on it, you have a 120% LTV ratio and qualify for BofA latest modification program. There is no limit to your LTV ratio, although BofA has limited principal reductions up to 30%. Having said that 30% of your loan is a sweet chunk of your mortgage.

3)      This program aims to help those that were worse hit by the financial crisis. It focuses on troubled homeowners that have subprime loans (loans with very high interest rates), payment option mortgages, these are mortgages where the borrower can decide how much to pay every month, which can be even less than the month’s interest fee, and teaser 2 to 1 ARM mortgages that sold cheap interest rates for the first two years, but then switched to adjustable rate mortgages.

4)      The difference with this program is that BofA is claiming to look at principal reductions as the primary method of reducing monthly payments for eligible borrowers. This is a drastic change from the current situation, where principal reduction is the last option banks and servicers will look into to avoid a foreclosure.

5)      This program will reduce principal balance on a staggered 5 year scheme. The bank will take away the principal balance, place it in a 5 years forbearance account ,and calculate monthly payments on the new, modified loan balance. This reduces monthly payments considerably and helps borrowers keep up with their payments. If borrowers keep up with their payments their forbearance account will be reduced after every year. After five years the entire principal balance reduction is permanently forgiven.

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Home sales got a needed boost because of the Obama administration’s $8,000 tax credit for first-time buyers. With the national economy and housing market still fragile, the government recently decided to extend the tax credit through June 2010.

The government also rolled out a new tax credit aimed at existing homeowners. Currently in effect, the $6,500 “move-up” tax credit would apply for eligible homeowners who purchase a new permanent residence in the coming months.

Housing experts hope the two tax credits can help the struggling housing market rebound in 2010.

“The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” Gibran Nicholas, chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers, told CNN after the bill’s passage.

Thousands of Americans have already taken advantage of the first-timers program, which defines “first-time” buyers as those who haven’t purchased a home in three years. There are also income restrictions — individuals who make more than $75,000 and married couples who clear $150,000 are not eligible for the first-timers program.

Meanwhile, existing home buyers who have considered upgrading or downsizing can take advantage of the new $6,500 tax credit. Purchasers need to have owned their current home for a stretch of at least five consecutive years in the last eight.

Individual buyers can’t have an adjusted household income exceeding $125,000; for joint filers, the threshold is $225,000. There are also a few other key components of the new $6,500 tax credit:

• Home price cannot exceed $800,000.
• The home must be the buyer’s primary residence, not an investment property or a second home.
• Buyers can purchase several home types, including single-family, condominiums, manufactured homes and even house boats.
• Those who purchase before Jan. 1 can claim the credit on their 2009 tax return or file an amended return for 2008.
• Military members deployed outside the U.S. have until July 1, 2011, to close on a property. Deployments must have been for at least 90 days between Dec. 31, 2008 and May 1, 2010.

To learn more about the $8,000 first-time home buyers tax credit extension and the new $6,500 tax credit for existing homeowners visit our blog.

Learn more about mortgage loans at Mortgage Loan Place.  We specialize in educating consumers on all types of loans with an emphasis on FHA home loans and FHA refinancing.

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Giving troubled borrowers yet another way to avoid foreclosure, Fannie Mae said on Thursday it would allow eligible homeowners to rent their own homes.

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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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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Last Thursday the big news was Obama’s Loan Modification program, Making Home Affordable. The first target the program set out for itself, reaching 500,000 trial loan modifications by November was reached nearly a month early.

Critics stated that the target was of little importance in the big picture of things with foreclosures continuing to affect more and more homeowners. Mark Zandi, chief economist for Moody’s Economy.com said the help provided by HAMP was a help on the margin. “But it is not going to end the foreclosure crisis”.
So what should we think of Obama’s HAMP? Is it a success or failure story?

The Good.
Reaching the target was no mean feat. The first months were painfully slow in reaping loan modifications and many did not think even this first target would be met. The fact that it was is proof of Obama’s administration skill at cajoling and bullying banks and providers into meeting their expectations.

Whatever we think of the “Big Picture” 500,000 families have lower monthly mortgage payments, that has to be good news, right?
According to Timothy F. Geithner mortgage payments are now being lowered faster than homes are being sold in foreclosure proceedings and 40 percent of eligible homeowners (1.2 million of them) have been helped. Here the figures vary, other put this figure at 16% of eligible homeowners, but that just represents differences on the definition of what an eligible homeowner it.

The Bad.
Economists say the program and its current success will not be enough to prevent many millions from losing their homes before the Great Recession ends.
By Mr. Zandi’s calculations from this year to the next over 4 million households will go through foreclosure or short sales.

The 500,000 loan modifications are only trial loan modifications. If the homeowners fail to pay one of the first 3 months in the trial, the modification is void. Even if the homeowner completes the trial period they then have to supply more paperwork which opens the doors for loans not being modified due to bureaucratic slips.

We don’t know how many of the loan modifications actually modified the principal balance of the loan and how many simply lengthened the loan or reduced the interest rate to reduce mortgage payments. Reducing the principle is an important factor if you want to reduce the rates of re-default on mortgage payments.

The problem HAMP was designed to attack, subprime mortgages that cannot benefit from current low interest rates because the value of the home has dropped is no longer the main type of mortgage going through foreclosure. It is not only subprime mortgage that are suffering now. Prime mortgages with 30 year fixed interest at low interest rates are also defaulting because of the increase in unemployment. Loan modifications cannot help much on good mortgages with owners that cannot afford any payment because they are out of work.

So whatever your view is, this issue is still far from being solved and playing with loans is just not going to fix it. The question is do you try to use tax dollars to bail people out of the mess or just let the economy weed itself out of bad loans?

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Loan Modifications complaints have inundated the web and are starting to become background noise for those that are not involved in trying to get a loan modification. Recent reports from the Treasury department have reported who are the movers and who are the slackers in the loan modification industry.

One of these slackers was Wells and Fargo that pretty much leaded the list of worst mortgage providers when counting the percentage of eligible homeowners that had received a loan modification. The negative report from the Treasury department was not  the only complaint Wells and Fargo received.
KPHO recently reported about Mrs Batchelder. She was one of many viewers that complained about Wells and Fargo after viewing a news report from CBS 5. Mrs. Batchelder family hit financial rocks when her husband lost her job in 2007 and was forced to accept a lower paying one. They then started the slippery path of digging into family savings and selling unnecessary things to pay for the mortgage and meet medical expenses.  Mrs. Batchelder has been trying to reduce her mortgage payments for over a year in a desperate attempt to stay in her home with little success.

These and other negative PR reports have forced Wells and Fargo into action. Wells Fargo Executive Vice President Mary Coffin that works in the Home Mortgage Servicing Division acknowledged that the situation was not acceptable and that customer service in the Phoenix area was not up to scratch. She is reported to have said: “During the past few months we know there have been instances where it’s been unfortunate… where we haven’t appropriately communicated at a time when they’re anxious and they are going through a very difficult time in their life.”  “We want to change that… and get this taken care of and provide the service they deserve”.

A collective hear, hear is probably echoing around Phoenix. The hope is that this is not a matter of just words and mortgage providers get their act together on loan modifications and help home owners to get their lives back in track.

When asked about the terrible record of Wells and Fargo in loan modifications she replied “We’re behind the program. We want to continue see those numbers increase. But while doing that, we have continued to provide other modifications,” said Coffin.

It would be interesting to know what “other” loan modifications she is doing when the government is actually paying them to carry out the loan modifications the Government’s Loan Modification is backing. According the Mrs. Coffin Well Fargo completed 240,000 modifications but only 20,000 were represented in the figures from the Treasury Department.

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Home loan modifications have been presented as the silver bullet that will kill the evil wolf scaring the living daylights out of investors and homeowners. The government does seem to be willing to place its money (or own money) where their collective mouth is. The White House has invested $75 billion of our hard earned bucks into the Making Homes Affordable with the hope that it will prevent 3 to 4 million Americans from losing their home to a bank foreclosure.

Unfortunately the plan is not exactly burning rubber and is off to a slow start. At the moment only 9% of eligible homeowners are taking advantage of the loan mod plan and have modified their loan terms. The government is not happy with these figures and have begun to pressure and arm-twist banks and lending institutions to get their finger out and start modifying. In a recent report the government named and shamed banks that were not pulling their corporate weight behind the mortgage modification program and are not facilitating the modifications borrowers need.

Why is this the case? Why are banks so slow to act?

There are various reasons, most of which we have already discussed in articles here at blownmortgage.com. These include:

1)    Banks are not currently set up for loan modifications. They are set to sell loans and then collect the payments not reduce principals and reduce interest.
2)    The large volume of loan mod applications in such a short period of time.
3)    Lack of information and understanding about the program and how it works.
4)    Mortgage backed securities.

Why mortgage backed securities?

Mortgage backed securities are products like futures and stocks companies can buy or sell. Obviously just like with the purchase of the stocks of a company the purchase of mortgage backed securities provides the owner with a say on how the mortgages are managed.

This is well illustrated by the story of many homeowners that cannot modify their loans because the company that has bought a security backed by their mortgage will not allow them. For instance Wells Fargo may say no to a loan modification you request even though they don’t own your mortgage.

This is caused by ambiguous rules and a rather shady web of interests and ownership. This is rather sad because it means that the group that is more likely to need help, those whose mortgages were sold or used as a security cannot receive the loan modification they need to stabilize their situation.

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