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There is a proposal for new guidelines in the way lenders and servicers deal with borrowers throughout the foreclosure process. These new guidelines are designed to improve communication between lenders and borrowers to improve the rate of troubled borrowers receive a loan modification for their mortgage.

One of the issues that leave many homeowners without a home is time and awareness. Troubled homeowners that are behind on their mortgage often do not realize the details of what will happen to their home and when.

This proposal suggests that lender and loan servicers, which are the companies that actually manage mortgage payments, should be required to provide homeowners with at least 30 days to reply when their loan modification has been denied under the HAMP program. These 30 days would give the borrower time to appeal, time during which the lender would not be allowed to continue with the foreclosure procedure.

The new guidelines would also put the responsibility on lenders and servicers to contact borrowers that are 60 days or more behind on their mortgage payments and fill the basic requirements for a HAMP loan modification. The guidelines are very specific in the nature of the notifications lenders must make before a foreclosure can proceed. There must be at least 4 telephone calls, two notices in writing, one of them which must be by certified mail. If these guidelines are approved it will mean a drastic increase in the work required for lenders to carry out a foreclosure. Extra staff will have to be brought in to fulfill these requirements.

However, these guidelines would also provide lenders with the right of denying a loan modification application that was filed within 6 days of a foreclosure sale. Loan Modifications can be lengthy processes and include a large investment in time and resources for lenders and servicers. Nevertheless, lenders will have to inform borrowers of the foreclosure schedule, and the deadline they must meet so that their application can be considered.

These are part of a list of requirements and guidelines the US Treasury is considering in their efforts of improving the rate of loan modification trial conversion and the number of troubled homeowners that apply for a loan modification. The idea is to screen those that actually qualify for the HAMP program and would benefit from the aid it provides.

Unfortunately the HAMP program is only designed to help troubled homeowners that still have a regular income and whose home has not dropped in value too drastically. For instance, if your mortgage is worth over 150% of your current home value, you might struggle to pass the NPV test required for a loan modification.

These proposals are working in line with others that are also being prepared for California and four other states that have suffered from a severe drop in house prices. The Obama Administration announced last week that these states will receive 1.5 billion dollar to be used at the discretion of each state to provide flexibility when considering borrowers for aid and loan modifications.

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If you do not qualify for a loan modification, and foreclosure seems unavoidable, there are steps you can take to make the most of a bad situation. One of these options is arranging with your lender for a Deed in Lieu of Foreclosure.

What does this mean?

It means you hand over the deed, or ownership, of your house to the lender in exchange of clearing your debt. The homeowner loses his home but is left without a debt while the lender takes immediate control of the house.

What advantages does this option have?

In certain circumstances a Deed in Lieu of Foreclosure can have significant advantages for both the lender and the buyer.

1)     The lender can take immediate control over the property. A much more efficient method than foreclosure proceedings that can take years to finish.

2)     The borrower foregoes his home but is left without any debt.

3)     Lenders can save themselves a lot of money in court expenses, time and other complications if they avoid a typical repossession procedure.

4)     Borrowers that avoid a foreclosure will remove the stain on their record and in some cases avoid bankruptcy.

What are the requirements for a Deed in Lieu of Foreclosure to be carried out?

1) The market value of the home must be less than the current balance of the mortgage.

2) There must be no third party credits secured by the home, like a second mortgage or a secured car loan.

Although it might seem counterintuitive for a homeowner to let his home, probably his largest investment, go without anything to show for it, it can be a much better alternative than a long and painful foreclosure. Borrowers don’t have to see their credit score hurt and can start again elsewhere, while lenders can cut their losses and try to make the most of a bad loan without having to continue spending money and resources.

In what circumstances should a homeowner think about handing a Deed in Lieu of Foreclosure?

Obviously, homeowners that are going through financial difficulties and cannot afford their monthly mortgage payments. However if they still have some sort of income then they may well qualify for a home modification or some other option. This path is more suited for homeowners that either cannot afford any kind of loan modification or feel that their home is too underwater, worth less than the mortgage balance, to be worth saving.

How is it done?

Both parties must agree to sign an Agreement in Lieu of Foreclosure. This document transfers ownership to the lender. In some cases the homeowner might pay a certain amount of money to reduce the loan and make sure her credit score is not affected. Once the document is signed the lender will issue a waiver to deficiency judgment, which will be used if the sale of the house is below the value of the mortgage. After this an escrow service executes the agreement; releasing both the lender and the borrower from their mortgage contract.

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2. What Is A Foreclosure?
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The sad reality is that an estimated 4 million households will lose their home to a foreclosure this year. Of course most of them will not go without a fight and will try to reduce their monthly payments with a loan modification.

Unfortunately loan modifications are not easy to come by and only a small percentage of troubled borrowers get a loan modification trial and an even smaller percentage get a permanent loan mod. This has created a practically brand new industry overnight, loan modification companies or consultants. This industry is not regulated allowing practically anybody to hang up a sign and start “working” as a loan modification consultant. This has caused many loan modification scams to crop up. This article aims at helping you avoid the scams and take the right steps to maximize your chances of loan modification success.

Step 1.

Contact your Bank or Lender first as soon as you realize you are going to struggle to make mortgage payments. It is always better to start planning for the worse before you are delinquent on your mortgage. You will need to contact your bank’s or lender’s loss mitigation department and explain your situation.

Step 2.

Be patient. Loan modifications take time and are difficult to get because a) they require plenty of paperwork and b) banks are not overjoyed with the prospect of losing money. However pressure is mounting on banks to stop dragging their feet and some lenders are increasing their loan modification completion rates substantially.

Step 3.

Contact HOPE’s hotline at 1-888-895-HOPE you will receive free help from trained counselors in multiple languages 24 hours a day. Although loan modification companies will tell you that these counselors are not good and that you need to pay to get a good service that has your interest at heart I recommend you give them a try. They are getting paid (obviously) just by the government instead of you.

You should also contact your local HUD approved counseling agency. You can find out where your closest office is by asking at the same hotline number detailed above. It is a good idea to visit a couple of counseling agencies and comparing the counsel they provide. The truth is that loan modifications are not THAT complicated, once you understand the basics and get down to the messy paperwork most people get ahead just fine. Getting approved, well that is just another thing altogether.

Step 4

Beware of loan modification scams. Here are some signals that give them away:

1)      Avoid ANYBODY (lawyers, companies or consultants) that asks for a prior fee for ANY loan modification service. Besides being a bad idea for obvious reasons it is illegal in many states.

2)      Avoid companies, lawyers or consultants that GUARANTEE your loan modification will be accepted or that they can stop a foreclosure. At best this is wishful thinking of a naïve consultant, most likely there are lies, in any case avoid like the plague.

3)      Avoid companies that tell you to stop making payments on your mortgage and pay them instead, this is the litmus test of fraudulent loan modification agencies.

Step 5

If you see evidence of a loan modification scam, or of bad practice with a loan modification company, do us all a favor and report them to 1-888-995-HOPE (4673). Loan modification scams are spreading fast but the Government is working hard to put them out of business. Many District Attorneys’ are making it their mission to put these companies out of business.

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1. Avoid Foreclosure: 7 steps to save your home.
2. Loan Modification Company Scams How to Avoid Them
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Loan Modifications sponsored by Obama’s administration HAMP (Home Affordable Modification Program) program does not a have a very long history but Wachovia has lagged at the bottom of it from the very beginning.

Wachovia has over 82,000 borrowers with home loans, the economy is doing pretty bad which has caused a large percentage of those borrowers struggle to make their payments. However Wachovia has only provided loan modifications for 3% of their struggling borrowers, those 60 days or more behind their payments and that includes borrowers that are still fighting through a loan modification trial. To give you an idea of how many borrowers get through the trial loan modification to date over 750,000 loan modification trials have been filed but under 40,000 have qualified for permanent loan modifications.

Wachovia is not the only large lender and servicer that has poor a poor loan modification conversion but it 3% is bad even at the bottom of the loan modification conversion league.

The reasons for low conversion numbers are complex. Pointing fingers at servicers and banks is easy and the fact that some banks are doing much better than 3% shows that Wachovia and other servicers can do more, however there are many other factors. Loan Modifications do involve paperwork and depend on Net Present Value tests. Borrowers are not always as good at filling and filing paperwork as they would like and the sad truth is that many people don’t qualify for loan modifications under the current rules. For instance banks are only required to approve a loan modification if the Net Present Value test shows that it would be profitable for the bank to grant the loan modification instead of simply continuing with the foreclosure.

Are Wachovia Loan Modifications damaging your credit score?

Another issue with loan modifications is how they affect your credit rating. As most of the borrowers that qualify for loan modifications can a) afford a modified loan payment, b) have a mortgage that is not terribly “underwater” and c) the will and stamina to endure the painful ordeal of a loan modification it is likely they care about their credit rating after having their loan modification approved.

Various horror stories from the “lucky” 3% of Wachovia’s borrowers that qualified for a loan modification have mentioned how Wachovia guaranteed there would be no negative information reported to their credit file to later realize Wachovia had reported them as undergoing Paying Partial Payment Agreement which is actually way worse than being reported for a loan modification program under the current HAMP program.

It is possible that these cases are isolated to “private” agreements between the borrower and Wachovia without falling under the HAMP program, which does not approve of this kind of reporting. This does not change the fact that it is a straight lie and measures should be taken to stop this if it has become a matter of course with Wachovia. Borrowers can easily destroy their credit by becoming delinquent on their loan quite easily on their own without any servicers “help” in the form of a paying partial payment agreement.

It seems that one of the reasons for these complaints is that when Wachovia was bought out by Wells Fargo loan modification terms were changed and that included credit rating report procedures.

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The incentives mortgage servicers receive for managing a home loan are a significant obstacle to loan modification that would help financially troubled borrowers avoid foreclosure, according to a new report from the National Consumer Law Center.

Sometimes the things that scare us the most are the subjects we know less about, death, darkness, losing someone we love and foreclosure are just a few examples. There is a reason we know little about the things we fear, not knowing is often worse; we always imagine things are worse than they really are. Learning about our fears and finding ways to deal with them is the best policy. This article will aim to shed some light on the issue of foreclosures and what they really are, that way we will hopefully fear them less and learn how to avoid them.

Foreclosure is a legal term to describe the termination of a mortgage or loan. Foreclosure occurs when the mortgagee (the lender) gets a court order that terminates the mortgage and allows the mortgagee or lender to redeem the mortgage’s security, nearly always the home itself. This occurs when the borrower fails to pay the mortgage principal and interest payments; the lender has then the right to force the borrower to either pay the payments he is behind in plus costs or sell the house or some other asset to meet his responsibility of paying the mortgage. When the borrower sells the property and uses the proceeding to pay the lender it is said that he has foreclosed the mortgage.

This rather dry definition we worked through provides some interesting points.

1) A foreclosure is a legal process that must be approved by the courts of equity. 2) Losing the house is not the only way to deal with the situation. The government is trying its best to avoid foreclosures and is willing to help most people that are willing to work hard to find a way around a foreclosure through loan modification and other types of financial aid. Do your homework and make it your job to jump through the necessary hoops to save our home.

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Avoid Foreclosure With A Personalized Home Loan Modification

Foreclosure has turned from being a four letter word so taboo it was barely mentioned to a common feature of life we have nearly got used to. Can we avoid foreclosure? Or is the common household doomed to foreclose and buy again depending on the economic climate?
Well although economic pressures can sometimes cause irreversible damage to a family’s income and resources making foreclosure the only way out this does not have to be the general rule. There are steps we can make at every stage of economic hardship to try to avoid the “f word”.

The first fact that we must understand is that nobody likes a foreclosure, banks don’t like them, the government hates them and you and I certainly don’t want anything to do with it. All this begs the question; if everyone hates a foreclosure why have them? The same question could be applied to wars, famine, violence and the answer may be similar. Often one or more of the parties involved simply don’t have the will to continue working towards a positive outcome.

Well, enough generalities and poetic comparisons what can a real family or individual do to avoid foreclosure.

Step 1. Don’t buy a house outside of your means. Obviously if you already own the house this advice comes a little late but for any new home buyers it is great advice to not be swallowed up by the temptation of paying more than you can afford for a house. A good rule of thumb is to not pay more than  30% of your income on your home. This gives you a little bit of a safety net if things go bad and the opportunity of saving a portion of your income for a rainy day.

Step 2. Control spending. Be ruthless. If income and expenditure are not tallying take control of your budget and keep to it.

Step 3. Talk to your bank as soon as possible. Banks hate foreclosures because they more often than not lose money and it is not what they prefer to be doing. They are not estate agents they are banks that want to be making money by lending and investing not sweating the details with a bad house sale. If you approach them before your credit is in the dirt and you provide them with a plan they will try and work with you.
Options open to your bank you might apply for are payment holidays for a determined amount of time if you have evidence that your income situation will change in the future, or a full on loan modification. Remember these modification actually make more money for your bank. What do you think they will prefer, foreclosure or a making more money on your mortgage?

Loan modifications come in a large variety of colors and shades. You can modify your loan to last longer which will make your monthly payments lower. Imagine you owe your bank $1,000 and you need to pay it in three months, $333 and you can’t afford it, so you ask the bank if you can pay the same amount in ten months making it a much more affordable monthly payment of $100. The only glitch with this option is that you end up paying more interest. Another option is to change your mortgage provider to one that is willing to charge you a lower interest. This is a great option that is often combined with a larger mortgage (not a good idea in most cases) and a lengthening of the loan’s tenure (also expensive in interest), the only problem is that changing mortgage providers or even just changing interest rates if your bank is willing to renegotiate terms is often a lengthy process.
The thing to remember is that there are options, the ones we have discussed are just a sample. Talk to your bank or even with a financial adviser and study what options you have, just don’t give up.

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Fighting Foreclosure, What Are Your Home Loan Refinancing Options?

Have you heard of the caught in the headlights syndrome? It is a serious problem for wildlife in areas that are crossed by highways. Many animals like cats, dogs and deer will stay complete still if caught in the beam of a car’s headlight while crossing the road, transfixed by the glare. As you would imagine this causes a lot of accidents, often fatal for both animals and humans.

Something similar happens to all of us when we are hit by a serious financial blow like the risk of foreclosure of our mortgage, we panic. Instead of using that energy to find ways to get out of the whole we are in, we suffer the headlight syndrome and do nothing believing (more often than not erroneously) that there is nothing one can do anyway. The truth is that there is nearly always a way out for those who are willing to look hard enough.

This article provides a list of some of the steps you can take to fix things when you are at risk to foreclosure.

1) Talk to your bank and negotiate a solution. Foreclosure is really a lose – lose situation where nobody makes a buck. It is a last and desperate measure by banks to get some money back from a bad debt but not their preferred option.  If a client really wants to pay his debts and keep his home banks will try their best to re-negotiate. It can actually be good for your bank as they can make more money on your mortgage if they extend the term of your mortgage.

2) Take on a loan to pay up the months you are behind. It is often cheaper to simply get a small loan to pay back the money you owe your bank. Borrow from your family, friends or another bank. Just make sure you pay back, you could break important friendships and relationships or destroy your credit rating, both very painful with life changing consequences.

3) Refinance with another bank. Some banks will not renegotiate bad debts but if your credit is still good you can find another bank to renegotiate the mortgage and salvage the foreclosure situation. This is not the best situation in which to ask for a refinancing of your mortgage as you have little leverage when desperate for financial aid but it could get you out of the pickle you got yourself in.

4) Sell the house. This is called short selling the house, which means selling it fast, very likely well below the actual value. The issue with this option is that it is not fast, it could take various months.

As you can see there are options when threatened with foreclosure, don’t panic, look for the option that works best for you and get out the way before you are hit.

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An increasingly  popular alternative to foreclosure is the loan modification, an agreement where the bank and borrowers reduce the cost of the loan for a period of time to allow payments to be made on time.  A loan modification is much like a mortgage refinance in that the objective is to find you a more affordable mortgage payment for your financial situation.  Refinancing your existing mortgage to obtain a more affordable mortgage payment could still be an option.  However loan modification is often the best solution for the homeowner that has incurred a financial hardship that prevents other mortgage financing or payment options. The purpose of a loan modification is to help make the loan more affordable to the borrower.

A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.  Loan modification is a relatively new term for most people, but with the current market conditions and mortgage crisis, it is becoming increasingly popular.  When possible, loan modification is a preferable alternative to bankruptcy.  Additionally, loan modification is a more fiscally  attractive solution for any lender.

Loan modification programs are typically designed for homeowners who are having difficulty making their mortgage payment, but who can’t qualify to refinance their mortgage.  Loan modification may include reducing the interest rate, extending the term of the loan from 30 to 40 years, or adding missed payments to loan balance.  Loan modifications are not the same as debt consolidations, refinancing loans, or even forbearances.  Loan modifications stop foreclosure proceedings and instead reinstate the loans as they are being modified.

The lenders motivation in modifying a loan is that this is a better alternative to foreclosure.  However, homeowners today are under the false impression that they cannot apply for a home loan modification if they are not in foreclosure.  A loan modification allows the lender to transform a non-performing asset into a performing one and avoid the cost of foreclosure.  The bottom line is that a loan modification is intended to reduce the payments for the borrower, make it more affordable, and reduce the risk that the homeowner will default on the loan.

So here again, loan modification is preferable, in that a renegotiated loan agreement allows you to keep paying down your monthly mortgage while maintaining your credit rating.  Whether it’s reducing the borrower’s note rate or monthly payment, or extending the maturity date, a loan modification is a possible option for a borrower in default.

Understanding the plight facing homeowners today and the very real threat of foreclosure,  assistance during the process of applying for a loan modification is essential. It is important to make the lender work with the homeowner to provide the best possible solution before it is too late.  In the final analysis, loan modification is usually preferable to filing for bankruptcy and is a fundamentally sounder strategy than defaulting on the entire mortgage and creating costly foreclosure proceedings.

Home Loan Refinancing Anti-Foreclosure Effort Results Disclosed

 
A lot has been said of the efforts of the Obama administration to curve the drop in the credit and real estate sector. You can love it or hate it but you can’t argue that an effort is being made. Our previous blogs discussed the changes in the eligibility requirements to include more borrowers but have they been enough?

 What are the results of this broad effort to alleviate those hit the hardest by the crises and that are in risk of losing their homes?
The quick answer is that we don’t really know. The White House guesstimates that  “over 50,000” at risk loans have been refinanced so that homeowners can keep their homes. The exact number is not available because a tracking system for refinanced mortgages is still to be set up.

This has not stopped the Treasury from “predicting” that 20,000 bad loans will be “saved” ever y week by September. That sounds great and will be a great help for many families. However if analysts’ predictions are correct seven million homes will foreclose this year and next year. Of these foreclosures 4.5 million are expected to be distress sales. If this were to really happen it would further drag the Real Estate sector, dropping prices and increasing inflation. When you are talking about 7 million foreclosures a year, 20,000 “rescues” a week (c. million a year) does not sound that great, especially when a lot of the worst cases will not be covered by the current plan.

The demand for mortgage refinancing relief has been so great that banks claim to struggle to meet demand. However there is no real incentive for Banks to go out of their way to speed up things. Current incentives measures provide up to $75 billion to banks to refinance mortgages without any penalty if loans are not modified. The mortgage modifications have focused on monthly payments reduction decreasing the monthly cost of a mortgage but making it a much more expensive product. Banks are lapping it up as these loans are also backed by Fannie and Freddie making it a win-win market for them.

These monthly payment reduction schemes sound great in principal but do not tackle the issue of home equity. As monthly payments drop the mortgage principal (amount borrowed) increases reducing further the equity (difference between the value of the home and the money owed on it). This reduces incentives to keep up to date with payments as the chance of being able to sell at a profit drop.

A potentially more useful measure would be to help reduce the principal of mortgages for borrowers in trouble to encourage monthly payments and avoiding foreclosure. If the current rise in foreclosures is not stopped it will create it’s own domino effect dragging prices down and further increasing inflation.

The effort to stop the crisis and impending doom some analysts predict this have been huge, the big question is have they or will they be enough to actually stop it from happening.

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