Hot Mortgage Deals

Several banks are gearing up to do a whole lot more mortgage lending in the future.

Several banks are gearing up to do a whole lot more mortgage lending in the future.

Most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months, according to a report

The last three years have seen an amazing growth in the number of schemes designed to help homeowners keep their homes and help them avoid foreclosure. However, this is becoming increasingly difficult as the issue homeowners are having with their mortgages is not so much the interest rate and loan tenures, but with the fact they have lost their jobs, and cannot afford any kind of mortgage payments.

The fact that homeowners cannot afford their mortgages due to unemployment makes it very hard for governments to design the right loan modification or aid that will work for lenders and borrowers. The truth is that in many cases banks will profit more, or lose less, from foreclosures than loan modifications.

A new type of aid has been put forward to respond to the increasing percentage of prime loans that are heading towards foreclosure due to unemployment. These mortgages have little to be improved on; they generally have low interest rates and reasonable payment conditions. However, job loss has made it impossible for borrowers to continue making payments. The new solution is to provide temporary aid to the homeowner until he or she finds a job. This is an easier pill to swallow for lenders than making principal balance reductions or permanent loan modifications. It also sidesteps the long and slow road of loan modification trials.

However the question is what type of temporary aid should be provided. There are a variety of proposals. One is to simply pay the loans for unemployed homeowners that cannot afford their mortgage for a set number of months. This type of aid is already in place in various states.

Another option is to provide these borrowers with loans, the payment of which is deferred to a further date. This option does seem like giving people more rope with which to hang themselves, but it might be good is some circumstances. A third option some banks like Citibank have already started to use is to simply defer payments on a mortgage for a few months. The above mentioned bank has offered in some qualified cases 6 month deferment on mortgage payments to allow the borrower to get back on his or her feet.

This is a great option for the right borrowers because a) it does not cost the mortgage that much, b) does not have to go through such a strict and long selection process and c) actually deals with the problem of unemployed homeowners that do not qualify for loan modifications.

Needless to say many banks are wary of rescheduling payments that may never be made and putting off a foreclosure process that may already be inevitable. This is why the Government should look into the possibility of adding this measure to their flagship HAMP program and think of alternative measures that will deal with the increase in unemployment instead of just focusing on reducing interest rates. Many feel that the government is simply fighting the wrong war, (we are still talking about mortgages by the way) this measure might realign efforts in a direction that might be more productive. However a good selection process will be needed to assure that those that qualify really have the potential to find a job that will allow them to make realistic payments on their mortgage.

Related posts:

1. Loan Modification Alternative: Is Renting Your Home a Good Option
2. Loan Modification Alternative by CitiGroup: Refinancing 30 Year Fixed Rate Mortgages
3. Loan Modifications Take Back Seat Due To Unemployment

Related posts:

1. Loan Modification Alternative: Is Renting Your Home a Good Option
2. Loan Modification Alternative by CitiGroup: Refinancing 30 Year Fixed Rate Mortgages
3. Loan Modifications Take Back Seat Due To Unemployment

Loan modifications are often presented to us as a murky, obscure and scary financial world of shadows where normal people like you and me should not even dare to tread without the faithful advice of an expert, or preferably two, for fear of being swallowed up by an ARM, or something worse, hiding behind the bushes. Fortunately, although there is some truth in the previous depiction, we can understand the mechanics behind loan modifications and work with along with a trusted expert without playing the part of the helpless victim.

Lenders, like most predators, are simple creatures; they just use complicated jargon and scary formulas as a smoke screen. Lenders are only interested in two things: your hardship and your income, which when you really think about it, is the same thing.

This is one of the dirty secrets of loan modifications, unfortunately there are many, but this is a big one. Lenders are only interested in what you can afford to pay. If you can’t afford to pay any reasonably priced mortgage they are not interested in you as a client and will foreclose or short sale your home before you can say Jack Robinson.

Therefore, it doesn’t take a rocket scientist to realize that it is of vital importance to present yourself to your lender in the right financial light to stand a chance of success. This is tricky. You need to be able to prove there is no way you can afford the current mortgage payments while establishing without a shadow of a doubt that you are a perfect candidate to a modified loan with lower monthly payments. Get that right, and you have just increased your chances of success beyond recognition.

How do you get it right?

The key is to understand your enemy – I mean your lender. You must see through his eyes and understand how a lender calculates your income. The way lenders calculate your income when assessing your loan modification application is different to the methods used for traditional home loans. Surprisingly, this is good of thing, because guidelines are set in your favor.

The first step is to write a hardship letter deserving of a Pulitzer Prize, more on that later. Second, you must prove you do have the income to pay for your modified loan. The first step disqualifies you from your present loan, while the second is designed to qualify you for your new one.

When you calculate your income for a loan modification you can use any income, that you can prove, of course. And I mean any, it doesn’t even have to be completely legal, as long as you can prove it. For instance you can include income from a second job you get paid for… let’s call it informally, without a problem. You can include your grandparent’s SSI, or your spouse’s income, even if they aren’t on the mortgage, just as long as you can prove it.

Proof must be provided in the form of bank statements, 1099 forms or in some other documentable form. The specific guidelines change and will be detailed in your submission paperwork. All this evidence of your income is the backbone of your loan modification application, get it right!  You will need it to write an effective hardship letter and to pass the NPV test, both of which you need to do to qualify for a loan modification.

Related posts:

1. What Is A Loan Modification? The Three Keys To Loan Modification Success
2. Short Sales as Loan Modification Alternatives, Can They Work
3. NPV Test, Your Personal Loan Modification Sword of Damocles

Related posts:

1. What Is A Loan Modification? The Three Keys To Loan Modification Success
2. Short Sales as Loan Modification Alternatives, Can They Work
3. NPV Test, Your Personal Loan Modification Sword of Damocles

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.

Related posts:

1. Loan Modification Low Numbers, Why?
2. Loan Modifications and Mortgage Modifications Can They Affect Your Credit Score
3. Loan Modifications, Servicers and Who Is Profiting From the Credit Crisis

Related posts:

1. Loan Modification Low Numbers, Why?
2. Loan Modifications and Mortgage Modifications Can They Affect Your Credit Score
3. Loan Modifications, Servicers and Who Is Profiting From the Credit Crisis

The Obama administration and all the agencies at its disposal are working around the clock to save troubled loans but it is simply not good or fast enough.

In the third quarter there was a 6.2% rise of all seriously delinquent (i.e. 60 days or more past due) and 3.2% increase of all loans in the process of foreclosure.

What is even scarier is that even prime mortgages, those loans with the best interest rates and conditions also rose heavily.

However banks and loan servicers do seem to have stepped on the gas a little and supported the government’s efforts through the HAMP program, or Home Affordable Modification Program. Out of every 6 troubled homeowner one received a permanent or trial loan modification. Unfortunately the homeowners that get a trial but don’t get a permanent modification make up most of that figure. The bad news is that even those who do get a permanent loan modification (31,000 out of 750,000 in the last count) half tend to re-default with 6 months. The good news is that that loan mods done in the second quarter show a lower initial re-default rate. This could be because lenders are making more generous loan modification and reducing monthly payments more aggressively to make payments more likely.

So how are mortgages performing? Badly seems to be the sad consensus. 87 percent of all US home loans are listed as performing, which obviously means 13% aren’t. Government backed mortgages are not faring much better, in some cases worse. Only 83% of the Veterans Benefits Administration loans are “performing”. Fannie and Freddie mortgages (with government backing) are not celebrating with 8% of their mortgages “not performing.

It is not all bad news. The housing market with low interest rates and a large portfolio of “cheap” homes is attracting buyers. This large inventory is likely to stay with us for a while as banks continue to try to unload their distressed properties and troubled homeowners continue to agree to “short sales”.

According to First American CoreLogic one in four home loans is still “under water” or has a mortgage that is worth more than its current value.

What is the government doing to fight this situation?

Two main strategies: 1) Keep the housing market stable by keeping the interest rates low.

2) Loan Modifications.

The first strategy does seem to be helping by encouraging buyers to invest in a new home. Loan modifications are not meeting with the expectations but the latest figures do show that re-defaulting has dropped with the latest more generous mods.

Related posts:

1. Despite Loan Modifications, Foreclosures Will Continue To Rise Through 2010
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

Related posts:

1. Despite Loan Modifications, Foreclosures Will Continue To Rise Through 2010
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modifications No Match For Rising US Foreclosures.

Loan Modifications have been sold as the way out of this credit mortgage crisis. However delinquencies and repossessed homes are breaking records and are at their highest level since 1972, which is when the Mortgage Bankers Association started to keep records.

This is scary, at the beginning of the year 1 in 10 of American loans was past due or going through a foreclosure. Regardless of the efforts to stop this trend the rates just continue to increase. This surge in delinquencies indicates that a recovery in the housing market could be thwarted by the worsening employing rates and the drying up of the easy-money lending coffers.

On a more positive note, we had to find something; the median home prices do seem to be recuperating. Areas like California, which were hardest hit by the crisis, do seem to inching their way up. Some predict a rise of 9% in California by the end of next year. One reader quite rightly commented I must be crazy to report that. I don’t expect such a rise either but that is what some are forecasting based on current trends. Unfortunately it is likely this is just a local anomaly caused by the special circumstances of California that it many cases can be considered an country on its own, it would after all be the fourth economy in the world if it was separated from the U.S.

All other indicators remain very negative, in the third quarter of this year 14.4% of U.S home loans were foreclosing or 30 days past due, that is 1 in 7, a steep rise from the beginning of the year.

Jay Brinkmann, the mortgage group’s chief economist, is reported by the Los Angeles Times to predict delinquencies will continue to rise after unemployment tops, which according to him will occur in the first or second quarter of 2010. The rule book predicts that foreclosures will continue to rise for two quarters after unemployment peaks, but we don’t get drops in housing prices like those we have experienced in the last year every decade so the rule book will probably be useless. In other words expect foreclosures to continue into the fourth quarter of 2010 and beyond.

What is probably the scariest statistic and we have had plenty of them, is that prime loans, the best loans with the lowest interest rates, represent 33% of all foreclosures. Prime loans mean prime clients with good jobs (or former jobs) and good credit scores (i.e. reliable, conservative clients). When the best clients struggle where does that leave the rest?

Related posts:

1. Loan Modifications No Match For Rising US Foreclosures.
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modification Program Struggles Under Soaring Prime Loans.

Related posts:

1. Loan Modifications No Match For Rising US Foreclosures.
2. Loan Modifications No Match For Rising US Foreclosures.
3. Loan Modification Program Struggles Under Soaring Prime Loans.

If you have been watching the business or economy sections of newspapers, news or blogs you will have got your fair share of loan modification horror stories. At the same time banks are increasing their capacity for loan modifications and seem to be keeping up with government targets, at least for now. So who is to blame?

Are borrowers complaints valid or simple self pity for a situation banks cannot be blamed for? Or, are banks dragging their feet and ignoring the plight of borrowers despite the government being happy to pay the cost for loan modifications.
The Sun Sentinel reported this week on the plight of Kraig and Ana Weiss. The Weisses first agreed to a loan mofication with Bank of America only to have the bank take the offer off the table. Now Bank of America is moving towards foreclosure even though the Weisses are making their mortgage payments.
The  strange thing is that federal reports show that banks are restructuring home loans for troubled borrowers, but stories like that of the Weisses are heard all over the country. Where does blame lay, do banks not care or are they doing the best to deal with bad clients that are struggling with unemployment and a worldwide credit crisis.

Counties like Broward and Palm Beach show how hard things are getting with 14,000 homes in risk of foreclosure in August. However banks and service providers claim to be doing their best to deal with the millions of foreclosures requiring a loan modification.
So far the Treasury Department announced they are on target to provide the projected 4 million loan modifications by 2012 after hitting their first goal of 500,000 trial loan modifications a month early.

However this apparent success might cover the fact that only 16 percent of eligible home loans have been modified so work has only begun. The Congressional Oversight Panel for one does not seem too optimistic of the loan modification program performance. Last week the Panel reported that the federal program may not reach the long term goal and encouraged the Treasury to improve their HAMP program or to create new programs to meet the expected rise in foreclosures due to the rise of unemployment.

This rise of foreclosures is fed by a change in the market since the HAMP program started. At the beginning of the year the big trouble were subprime mortgages with high interest rates and devalued price tags that did not allow borrowers to improve their interest rates. However the rise of unemployment has now caused borrowers that have prime mortgages and that would normally be within their means to be at risk.

This means that loan modifications’ main weapon to make mortgage payments affordable, lower interest rates will not be a significant help for prime mortgages that already enjoy low interest rates.

Related posts:

1. Loan Delinquencies Fall As Banks Get Serious With Loan Modifications
2. HAMP, Way Out For Delinquent Borrowers And Those Without Fannie
3. U.S Loan Modifications Hit Obama’s target Early But Nobody’s Impressed

Related posts:

1. Loan Delinquencies Fall As Banks Get Serious With Loan Modifications
2. HAMP, Way Out For Delinquent Borrowers And Those Without Fannie
3. U.S Loan Modifications Hit Obama’s target Early But Nobody’s Impressed

When HAMP started functioning just a few months ago everybody said it was working too slow that it would never come close to Its ambitious goals. Last Thursday nearly a month before the deadline self imposed by the administration HAMP has enrolled 50,000 troubled home loans for trial loan modifications. Whatever your view on the credit crisis and the angle the Government is dealing with it you have to grant that they have really given this scheme all they have.

After a slow start where few banks were even pretending to try to provide loan modifications and trial loans modifications were trickling few Obama’s Administration got tough on mortgage providers and banks. This was carried out through the friendly diplomacy Obama is becoming famous for and some good old fashioned leaking to the press the dismal figures of the worst service providers at providing loan modifications.

The question now is if the initial success at least in numbers of the loan modification is enough to allow for optimism. Let’s have a brief look at what loan modification programs have done and compare it with what is needed.

An estimated 16 percent of troubled borrowers, which is someone that is 60 days behind in his payments, have been placed into trial modifications. Trial modifications are a three month period where the homeowner is expected to keep up with his payments without a glitch. If the borrower is regular in his payments he can keep the loan modification for the term of the loan with some extra bonuses thrown in. All HAMP loan modifications must provide affordable monthly payments to homeowners. By affordable we mean monthly mortgage payments must be below 31 percent of their monthly income.

HAMP and other loan modification programs were designed to help homeowners locked into subprime mortgages with high interests they couldn’t get out of or modify because the value of their homes had fallen drastically taking away all leverage for a possible change of loan or modification.

That was the situation 6 months ago when loan modification programs were starting. According to economists the issue now is not so much that borrowers are locked in subprime mortgages and are defaulting on their payments. It is prime mortgages that are defaulting and prime borrowers that are becoming delinquent on their payments. The loan modification programs now in place provide little help for borrowers that can’t pay their mortgage payments but have excellent interest rates. The only real aid these programs can afford is if the service providers are willing to defer or forgive some of the principal. The former option leads to balloon payments, not always a great deal for the borrower and the latter is unlikely to say the least.

If this analysis is correct we would be dealing with a set of loan modification programs that might or might not be good at what they were set out to do but are no longer needed or at least the main problems cannot be addressed with them. This is unfortunate considering how many billions of dollars are being thrown at them. A lot of this cash is not even going towards the borrowers which could be seen as a way to inject cash into the economy  directly to the families that need it but is paid to corporate banks as compensation for rewiring their business to speed up loan modifications.

Obama’s administration response to this argument is that loan modifications is only one of the ways they are fighting the credit crisis and that it is doing the job is was set out for and is on target to help up to 4 million troubled loans.

Related posts:

1. 500,0000 Loan Modifications: Nobel Prize Not The Only Target Obama Hits Early
2. Loan Delinquencies Fall As Banks Get Serious With Loan Modifications
3. Loan Modifications, Story Of Struggle For Banks And Borrowers Alike

Related posts:

1. 500,0000 Loan Modifications: Nobel Prize Not The Only Target Obama Hits Early
2. Loan Delinquencies Fall As Banks Get Serious With Loan Modifications
3. Loan Modifications, Story Of Struggle For Banks And Borrowers Alike