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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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The Mortgage crisis is hitting families hard all over the country with the devastating effects of a hurricane, destroying homes, affecting household economies and causing general havoc nationwide. As with all natural and human disasters everybody has a view of how to solve the situation. Some say the current crisis is nothing special, a normal depression after a market bubble where people got greedy and invested badly and that if the market is left to itself it will sort things out.
Others are of the opinion that the government must intervene with taxpayer’s money to bail out desperate homeowners and at the same time jump start the economy. Pretty much everyone disagrees on how the government should do this.

What many agree on is the seriousness of the situation. Recently President Obama said that “The American Dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods.”

One solution the government is investing strongly in is loan modifications. This program provides financial advice and aid to families struggling to pay their monthly mortgage payments. The plan is designed to reduce monthly payments and incentivize regular payments. To enroll in this mortgage plan homeowners must start with a three month trial. If during the three month trial all payments are made on time then they receive a cash bonus that is used to reduce the principal of the loan. After the trial period the government continues to pay an incentive to homeowners that are regular on their payments which can reduce their principal by $5,000 in three years.

This program is offered through Home Affordable Modification Program (HAMP) which is backed by $75 billion to be used to encourage and aid the loan modification program.

What are the results up-to-date?

By now there are 230,000 modifications that have already been started and the goal for November is to reach 270,000. It is interesting to note that in 2008 only 42% of the modifications by the largest servicers lowered homeowner’s monthly payments. However since March 4 with the help of the HAMP program all borrowers that receive a loan modification have seen their monthly payments reduced. This is a nice change, good news among the pages and pages of bad news that inundate our screens.  However it is sometimes good to understand a situation well even thought it might be bad news in order to make the best of the bad situation.

Although Loan Modifications are being presented as the be all and end all of the current Mortgage crisis, the truth is that only a small percentage of homeowners in trouble actually qualify for a loan modification. According to the website LoanModExposed.com  only 2 percent of homeowners qualify under current parameters.

It is therefore important to understand the qualifications and apply properly because a successful loan modification can reduce the principal balance (the amount you borrow and are paying interest on) reduce the interest rate and change the rate from variable to fixed and many other efficient modifications.

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Obama Mortgage Plan, Pays For Paying Your Mortgage
Home mortgage aid plans are hard to design. Because of how the ideologies behind open market and social responsibility are polarized no matter what you do with a mortgage aid plan pretty much half the nation is going to disagree with you.

Obama’s new mortgage plan is not perfect, not even his closest aides will say that. Its strongest opponents will point out that the new mortgage plan does not really cover for homes that have seriously dropped in value in the last months/years. Most of the families in trouble live in homes that have lost serious value, so there is a question mark in how effective this mortgage modification plan is going to be.
However the new plan has managed to incentivize the payment of mortgages and their previous modification so that it is worthwhile for banks and borrowers. This might not be enough to tip the scales on the millions of households that are at risk of losing their home this year but then again, it might.

If anything does help to tip the scales on the current crisis is to make it attractive for homeowners to pay their mortgage as well as reducing it’s principal and making it affordable on a monthly basis. Let’s face it, if your home is under water (it is worth less than what you owe on it) and there is no prospect of prices going up and you are struggling to pay the mortgage you might be inclined to cut your losses, give up and let the home go. Of course if someone is willing to give you some extra incentive to pay your mortgage and make it affordable, you might just give it a try.
What incentives does the Obama Mortgage Plan offer?
There are two main benefits or incentives homeowners that are in the red can take advantage of.
1)    Once their mortgage has been modified and monthly payments begin the Treasury will pay an incentive for every mortgage payment a borrower pays on time that goes to pay the principal balance of the loan(The cash you actually borrowed, not the interest). This is interesting because it will help reduce the length of the loan and the amount of interest paid on it. Over a five year period this “incentive” could help reduce the principal on the loan by $5,000. Reducing the principal of the mortgage has of course even greater repercussions as years go by. If you have a 15 year mortgage and you reduce your principal by $5,000 in the first five years you will be actually saving yourself over $3,000 in interest by the end of your mortgage.
2)    There is a trial period of three months before any modification is permanent. During those three months the homeowner must pay his mortgage on time. If he does he gets $1,000 from the government every year for next three years. If the mortgage isn’t paid on time there is no deal.
These are not huge benefits but they are something and they might just help people start thinking in a different way and help people dig themselves out of financial trouble.

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The new mortgage plan is out there, fresh out the box. The new loan mortgage plan has been designed to help more people dig themselves out the current crisis. There are actually some clever incentives for those who try and work with their mortgage even if it is upside down. So here are the two question we are all asking: What does this “new mortgage plan” offer? And who qualifies?

The mortgage plan has two main objectives:

1) To help people who are going to foreclose on their mortgage because they are late in their mortgage payments. This demographic is the priority of the plan with good reason. The avalanche in home foreclosures is affecting the whole housing and construction industry besides these are the families hardest hit by the housing crisis. The mortgage plan will help these homeowners to modify their mortgages and make them affordable.

2) The second objective is to help with the home mortgages of home owners that can’t refinance their home and take advantage of the current lower interest rates because the value of their home has dropped so much it is worth less than their mortgage. The new mortgage “deal” will help these home mortgage owners to refinance their homes with lower interest rates. Unfortunately the restrictions on this type of home mortgage are so high the number of homeowners that will benefit from it will be significantly lower.

In a nutshell the two-pronged working plan is to save the mortgages or homeowners that are behind in their payments and that would otherwise lose their homes with a mortgage modification that would reduce their monthly payments and make them affordable. The second prong aims to open under water mortgages that are worth more than the value of the home to refinancing with the current lower interest rates.

Who qualifies?

The devil is as usual in the detail but here are the main points homeowners must meet to qualify:

1) The mortgage must have been secured before January the first 2009.

2) The primary mortgage must be less than $729,500. This figure has actually been revise a few times to include the mortgages of homeowners in expensive states and areas.

3) The homeowner must live in the house he is requesting aid for. This mortgage plan is not there to save investments but family homes.

4) The homeowner must sign a financial hardship statement that documents his inability to pay his mortgage.

5) Tax returns and pay stubs must be fully documented.

6) If the homeowner pays over 55% of his income on debts he must sign up for counseling. I think this is probably one of the best ideas this mortgage plan sets out as so much of the debt trouble we get into is due to bad financial habits that can be un-learned with some practical help.

As you will have noticed the requirements on the new deal have been relaxed and more mortgage homeowners should be able to benefit, but will it be enough?

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HOPE produced mixed results in the month of June. On the whole thought it seems like June was a better month for the government foreclosure and debt management counseling service.

HOPE Now program provides counsel for home owners in risk of losing their homes by providing specific advice and debt management workouts to refinance mortgages and arrange loan modifications.

The statistics provided by HOPE NOW itself show a decrease of 5.1% in the overall mortgage modification activity, although, as HOPE itself explains this might be due to the way the statistic is calculated. Apparently for a person to qualify for a loan mod they must undergo a trial period of three months. These pre-loan modification trials do not qualify as loan modifications but are categorized as “trial modification” or “repayment plans” all of which seems to screw the figures a little.

The executive director of HOPE NOW Faith Schwartz  is reported as saying: “I am proud of the continued progress made by HOPE NOW servicers and am confident that they are aggressively and proactively using HAMP, as well as other successful foreclosure prevention programs, to help as many homeowners as possible”.
The positive figures Schwartz is referring to are the 310,000 homeowners that completed home mortgage workouts during the month of June, which signifies a 25% increase from the month of May.

All of this occurs in a context where government  is flexing its muscles to accelerate loan modifications nationwide providing more incentives for banks to accept (and fast) loan modifications and mortgage refinancing.

If you feel you are in danger of losing your home because you are struggling with your monthly payments contact HOPE NOW for a personalized analysis of your situation and practical help to negotiate and work out your loan modification. It is vital to take advantage of this and other mortgage modification counseling services earlier rather than later as it is much easier (and profitable) to negotiate with a lender before you become a delinquent borrower (i.e are behind in your payments) as you have a much stronger hand when settling and negotiating the outstanding debt.
You can get this free service by calling 888-995-HOPE (4673). Make sure you have your basic mortgage documentation close by as you will be asked some questions by the operators in order to assess your situation.

Beware of current scams that ask for payment for this service, HOPE NOW is a free government aid program that does not request any kind of payment.

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What does no-cost loan refinancing cost you?

If you are shopping for a loan modification or home mortgage refinance you have probably heard of no-cost mortgages and loan modification. If you have done some research into loan modifications and mortgage mods you know that they are far from free, in fact a good rule of thumb for loan modifications fees and costs is anything from 3 to 5 percent of the outstanding principal (money you still owe) on your loan.

So how can lenders and banks offer no-cost loan refinance? Well as you probably guessed lenders have their own definition of no cost. In fact the exact definition can change from lender to lender so it is a good idea to ask the salesperson or customer care assistant what they specifically mean by no cost.

In any case you can be confident that lenders don’t mean they are going to waiver all the fees and pay for you to get your loan modification. No-cost mortgages refer to an arrangement between the lender and borrower to avoid paying any up-front fees for the mortgage refinance or loan modification by paying the fees in the future. No cost loans are like icebergs, most of the cost, in fact more than you would ever expect, is hidden. There are two main no cost loan options lenders offer:

No fees but a higher interest.
In this option the lender offers to cover all the expenses related with the mortgage with the condition that the borrower accepts a higher rate of interest. The higher rate of interest will be charged during the whole lifetime of the mortgage. It is important that you ask for detailed estimates of the real costs of this no-cost alternative. This estimate should show the cost of the mortgage fees and how much extra interest you will be paying with the higher rate of interest.

Taking a loan to pay the loan fees.
This option of no-cost loan modification actually involves taking on a loan to pay for a loan, or at least the loan fees. With this option the lender covers the mortgage modification fees but includes the fees as part of the loan. This will mean the borrower will have to pay for the fees with interest as part of their modified mortgage. Again it is important to understand what the real costs of your no-cost mortgage modification will be. Ask for an estimate that details the real cost of your mortgage fees after paying interest on them for the length of the loan.

Lenders will often try to include a prepayment penalty clause in the mortgage or loan contract to discourage borrowers from changing loans in the early years of the modified loan. As far as you can you should try to avoid or reduce this penalty as they will reduce flexibility when trying to find a better deal in the future.

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When is refinancing your mortgage not a good idea?

If you have been watching the financial news you will probably have heard about the millions of people that are trying to get a loan modification that will allow their mortgages to be affordable and save their home from foreclosure and how the Government is bending backwards to make that possible. You will have also heard about the great savings that can be made by re-negotiating your loan at a new interest rate. All this can make loan modifications sound like a win-win deal that just can’t go wrong. Unfortunately that is not true. There are plenty of ways of screwing a loan modification or home mortgage refinance, this article will look into a three reasons that could make your loan mod a bad idea.

1)    You have had your mortgage for too long. If you have been paying your mortgage for a long period of time it might not be a smart idea. Why is that? Because at the beginning of a mortgage you are mostly paying the interest of the entire mortgage and as the years go buy the percentage of the monthly payment that goes to pay the principal of the loan instead of simply paying the interest. To illustrate, in many loans the first five years of a mortgage up to 85% of the monthly payments are used to pay interest while only the 15% goes towards paying off the principal. If you have paid a mortgage for a long time you have already paid most of the interest and if you renegotiate the loan with a modification you will have to start from the beginning again which will mean paying more interest and earning less equity. The ideal mortgages and loans to modify are relatively new mortgages or home loans that had a relatively high interest rate to the current one.

2)    Your prepayment penalty is too high. Banks are clever they don’t want you leaving to the competition the moment interest rates drop so they often build in prepayment penalties in a mortgage. The prepayment penalty also has the effect of generating profit if you decide to pay off the loan early. If you have a high prepayment penalty it could be too expensive for you to modify your loan. The way to go is to ask for a few estimates from different lenders and work out the savings and the cost of paying your mortgage early.

3)    You are planning to move soon. Earning savings from your mortgage modification takes time. It can take up to two to three years to break even with a typical loan modification. If you plan to move home soon you will probably be changing home before you have saved the money you spent on fees and prepayment penalties.

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Amortization is a term associated with mortgage loans and is mainly used in relation to loan repayments. Technically defined, amortization is an accounting method in which expenses are accounted for over the useful life of the asset rather than at the time they are incurred. Amortization is similar to depreciation in that the value of the liability (or asset) is reduced over time. Simplified in terms of a mortgage, amortization is a payment each month that combines both interest and the principal amount and is paid over a specific period of time. The concept of amortization can seem complex and understanding the process is essential to becoming an informed borrower.

The simplest way to explain the difference between amortization and depreciation is understand the type of the financial events that they are associated with. Depreciation is a term used to define an asset (cash or non-cash) that loses value over time. Mortgage amortization is the periodic reduction of the principal balance of a home mortgage that is usually fixed in the terms of the loan.

For the purposes of a home mortgage, amortization is the reduction of the principal or capital on a loan over a specified time and at a specified interest rate. Interest is the fee paid by the borrower to reimburse the lender for the use of credit or currency. At the beginning of the amortization schedule a greater amount of the payment is applied to interest, while more money is applied to principal at the end. In other words, a borrower will start out paying mostly interest and in the end the majority of the monthly payment goes toward cutting down the actual loan amount.

A mortgage is amortized when it is repaid with periodic payments over a defined term. The goal is for the mortgage to be fully amortized, an elaborate way of saying paid off, at the end of the term of the loan. As more and more of the principal is paid down, the interest declines, leading to greater mortgage amortization in the later years of the loan and a subsequent increase in the borrower’s equity in the property.

One thing to consider when taking out a mortgage is the amount of money which will be paid out over the life of the loan. A mortgage calculator which provides an estimate of monthly payments and amortizations can make it easier to see the entire schedule and impact to the borrower. Negative amortization, which can occur in financing instruments like a balloon loan, exists when the monthly mortgage payment is not big enough to cover the full amount of interest due.

The process of amortization is an easy one to understand once you know the basics and get the idea of how it all works. Mortgage amortization, as used in real estate, is when the principal balance on a mortgage is reduced over time as the home owner makes monthly payments. Amortization describes the process of paying off a loan in regular, typically monthly, installments. As a general rule, amortization is desirable, because if a mortgage is not amortizing, it means that the borrower is not making any headway on the loan.

Loads of equity and a good credit score should make a home mortgage refinance a slam dunk.