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If you are considering taking on a loan modification the chances are this is your first loan modification and you have many questions you need answered. The problem when you are doing something for the first time is that often you don’t even know what are the smart questions to ask. This series of articles on Blown Mortgage is designed to ask the questions you should be asking yourself and provide the simplest possible answers.

Fees.

Loan Modifications have an option to bring an asset current. Can I use this option to include all fees and corporate advances?

This option is designed to consolidate all expenses and fees related to the mortgage in as much as it is reasonable. This means you can include in your loan modification any legal fees and related foreclosure costs for any work that has already been done and is applicable to the current default event. This is great news for homeowners that have accrued significant amounts of money in loan modification costs and fees as these can be capitalized into the modified principal balance of the loan modification and therefore enjoy the benefits this affords in principal reduction and monthly income / payment cap.

Inspections.

Mortgagees are always concerned that their loan is secured and that the collateral on the loan is sufficient. Can mortgagees (banks and mortgage providers) carry out an interior inspection on your property if they are worried about the condition of the property?

As annoying as having an inspector check out your home is the mortgagee may conduct any review it finds necessary in order to verify the physical conditions of the property and make sure the value of the property is still sufficient to support the modified mortgage payment.

This is especially important if the loan modification actually increases the amount a homeowner borrows from the loan provider as the bank must make sure the security (i.e. the home) is still good to cover the principal (plus costs) of the loan.

Late Charges

If you are looking for a loan modification you are probably struggling to pay your mortgage or are already behind in your monthly payments. Late payments accrue late charges which carry hefty interest payments. Can a mortgagee include late charges in the loan modifications?

Mortgage letter 2008-21 clearly indicates that “accrued late charges should be waived by the mortgagee at the time of the loan modification.” The key word here is “should”. As we all know what should happen does not always occur by itself,  it often needs a gentle (or not so gentle) push for it to materialize.

Make sure you ask your bank or mortgage provider for a breakdown of what is included in the modified principal balance. If your late charges are not waived then they could be charged separately from your modified monthly payments.

I hope the answer to these questions were useful. Our next blog in this series will cover escrow advances, partial claims and interest rates.

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They say that crisis bring out who we really are. If that is so, things are not looking that hot in the financial sector. As the credit crisis deepens banks are acting more and more conservatively when it comes to loan modifications and mortgage refinancing.

Some would say that bailing out homeowners is wrong. We should all be responsible for our decisions and there is nothing wrong in renting. I would have to agree with this. My parents have worked all their life, still rent a humble apartment and are probably the happiest couple I know.
Having said that if the government have decided to provide breaks for families that are struggling to pay their mortgages and are willing to pay mortgage providers for the privilege the least banks and servicers can do is take the cash and help out as much as they can, especially as they have been recently recipients of bailouts themselves.

Instead of showing empathy to the situation of desperate homeowners that are scared of losing their homes they are acting as what they are, profit based organizations. No surprises there, a capitalist economy is based on the assumption that companies are going to do what is best for them, not for the greater good. However that does not mean they should be allowed to break the rules and stall procedures for their own advantage.

Banks that don’t seem to understand the rules of the game.

What is especially scary is when banks don’t seem to understand the requirements for a government sponsored loan modifications. As an example, a recent story was published that involved Citimortgage loan. After an arduous procedure the homeowner in question was able to qualify for a loan modification and enter the 3 month trial. His mortgage was reduced to $1503 from $1727 a great difference for a family with three kids under the age of 5.
Just before final approval was achieved Cit changed the monthly payment to $1817, a $90 increase to cover an increase in the insurance, even though they had not been approved for the loan modification. If they had have been approved for the loan modification there would have been no grounds for increasing the insurance as both the taxes and insurance are included in the reduction of monthly mortgage payments to 31% of the monthly income.

The homeowner then contacted the bank and was told that because he had recently filed bankruptcy he was no longer eligible for a loan modification. However there is not information in the loan modification literature provided by the government on bankruptcy disqualifying a homeowner that can afford the modified payments.

Contacting the government programs and asking for their help and assistance is probably the best way forward in these circumstances when banks are unwilling to budge.

Stalling to the eleventh hour.
Another practice that seems to be popular with mortgage providers is to stall proceeding until the last minute. That was the case with a homeowner whose mortgage was owned by Wells Fargo. Paperwork was lost twice (which seems to be a common happening with loan modifications) and resubmitted by FedEx at the homeowner’s expense. Once the homeowner contacted Wells Fargo they were required to fax further information even though they had been assured that they had all they needed. It does seem disturbing that the homeowner was the one that had to contact the bank to find out they needed to send further information.

After stalling a reply for months and when the mortgage was close to foreclosing the homeowner was told they did not qualify for a loan modification but that they could offer a $11,000 loan. Why a homeowner that is struggling to make payments on his mortgage would want another loan on which to make monthly payments, I don’t know. This does seem to be a bad way to carry business, dangerous to the economy and homeowners.

The only way to fight these abuses or mistakes is to arm yourself with information. Contacting government organizations is the best step. Explain your circumstances and ask what your best options are. In this case free advice is the best money can buy because it is unbiased which is much more than can be said of most loan modification companies.

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Nationwide Judges are receiving complaints against banks and mortgage providers for dragging their feet and not providing the customer service that is to be reasonably expected. Especially since the government is paying for mortgage providers to deal with loan modifications as fast as possible.

Unfortunately Banks and service providers are not carrying out loan modifications as fast as was expected by the government or hoped by homeowners. I find this hardly surprising. If I had a business and was asked to spend money to reduce the monthly income I receive from a debtor I would make sure I was suitably compensated. The fact is that in some cases banks end up worse off when they modify a loan.

What is not so easy to empathize with is when banks systematically stall procedures, lose paperwork and change their requirements systematically. This has been the story that has been told nationwide and some judges are starting to tire of it all.

One case that has hit the news is that of Bobbi Giguere, initially published on the New York Times. Mrs Giguere submitted her paperwork three times to no avail. Last Thursday an interesting turn of events occurred at Judge Randolph J. Haines courtroom. Judge Haines instructed Mrs Giguere to question a Wells Fargo high ranking executive on the bank’s lack of response towards her loan modification.

Judge Haines explained the irregular procedure as a response to the growing concerns about Wells Fargo’s mortgage modifications practice.
The problem is that this is not an isolated case. Consumers nationwide are complaining (that is certainly not new) about the difficulty of getting a response from their mortgage servicers. This is threatening the success of the Obama Administration’s loan modification plan. While banks and mortgage servicers stall their response many homeowners foreclose on their mortgages and lose their homes which in many cases is good news, or the least of two evils for banks and loan providers.

The questioning of Mr. Ohayon the Wells Fargo executive was carried dramatic enough to be part of any lawyer movie. Mr Ohayon initially stated that Mrs. Giguere had repeatedly failed to provide a financial worksheet, a critical document for the loan modification to be processed.

Then came the fun part, what courtroom dramas are all about. Under cross examination Mrs. Giguere produced the letters Wells Fargo sent requesting the paperwork required for the loan modification. She asked Mr. Ohayon to read the letter and he was forced to concede that the letter did not ask for a financial worksheet.

This irregular procedure in which a Judge requires a large bank corporation like Wells Fargo to place an executive on the witness bench shows the federal frustration on the way loan modifications are being carried out throughout the United States.

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Loan Modifications are the way forward in the opinion of the Obama Administration. A number of federal programs have been placed and are ready to welcome droves of homeowners that need to modify their loans.

However many question the wisdom of loan modifications and if they are the real solution to the increasing number of foreclosures and unemployment. Some have compared the goals and resources of the loan modification program with bailing out water from the Titanic with a cup. It is understood that the task is so great the administration and the measures in place to control the situation will be completely overwhelmed.

The truth is that the goals the loan modification program has set itself are titanic in themselves. The administration is aiming to save three to four million homeowners from losing their homes through foreclosure. If this occurs it will be an amazing feat for many reasons. Not least is the fact that banks and mortgage servicers are not geared to modify loans. Their business up to now has been to set up the loans and collect the payments. The millions of homeowners that now seek a loan modification is challenging the banks to reinvent their work system, sometimes to their own detriment.

In order to make this possible the government has provided generous incentives to homeowners and mortgage providers. The idea is to provide bonuses and incentives to servicers and homeowners when loan modifications are made and honoured by borrowers. The loan modifications must be sustainable and fair for the homeowners to qualify. Homeowners on their part must be regular on their payments in order to qualify for the bonuses and receive the loan modification.

The sad part is that even if the government is successful in delivering the three to four million loan modifications there will still be about 4.6 million people or families that will nevertheless lose their homes by next year. This would be bring the grand total of foreclosed homes to 9 million homes by 2011.

So what can the government and homeowners do to minimize the effect of this crisis and increase the number of saved homes.

Information seems to be, as always, a key player. Many homeowners seem to let loan modifications go because they don’t understand the documents they must sign. Clear language and skilled counsel are key if this program is to have even the most modest success.

Another issue is that homeowners do not make it throught the three month trial period into the final loan modification. Of those that do, many will become delinquent later on in the loan tenure, nullifying the benefits of the loan modification with all the expense it involved.

Mortgage servicers themselves can be an obstacle. Many servicers are continuing to take foreclosure steps with homeowners that are participating in the program, undergoing the three month trial. The government is trying to motivate servicers to help homeowners to achieve the loan modification wherever this is possible.

One factor that could make the whole matter moot is the rising level of unemployment. The loan modifications the government is proposing are not designed for people who can’t afford any substantial mortgage payment due to unemployment. It is designed for homeowners that are not able to take advantage of the current lower interest rates and whose homes have dropped in value and are struggling to pay their mortgage.
If unemployment rates continue to rise the number of homeowners that don’t qualify for loan modification aid will rise increasing the number of foreclosures.

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Loan Modifications are the way forward in the opinion of the Obama Administration. A number of federal programs have been placed and are ready to welcome droves of homeowners that need to modify their loans.

However many question the wisdom of loan modifications and if they are the real solution to the increasing number of foreclosures and unemployment. Some have compared the goals and resources of the loan modification program with bailing out water from the Titanic with a cup. It is understood that the task is so great the administration and the measures in place to control the situation will be completely overwhelmed.

The truth is that the goals the loan modification program has set itself are titanic in themselves. The administration is aiming to save three to four million homeowners from losing their homes through foreclosure. If this occurs it will be an amazing feat for many reasons. Not least is the fact that banks and mortgage servicers are not geared to modify loans. Their business up to now has been to set up the loans and collect the payments. The millions of homeowners that now seek a loan modification is challenging the banks to reinvent their work system, sometimes to their own detriment.

In order to make this possible the government has provided generous incentives to homeowners and mortgage providers. The idea is to provide bonuses and incentives to servicers and homeowners when loan modifications are made and honoured by borrowers. The loan modifications must be sustainable and fair for the homeowners to qualify. Homeowners on their part must be regular on their payments in order to qualify for the bonuses and receive the loan modification.

The sad part is that even if the government is successful in delivering the three to four million loan modifications there will still be about 4.6 million people or families that will nevertheless lose their homes by next year. This would be bring the grand total of foreclosed homes to 9 million homes by 2011.

So what can the government and homeowners do to minimize the effect of this crisis and increase the number of saved homes.

Information seems to be, as always, a key player. Many homeowners seem to let loan modifications go because they don’t understand the documents they must sign. Clear language and skilled counsel are key if this program is to have even the most modest success.

Another issue is that homeowners do not make it throught the three month trial period into the final loan modification. Of those that do, many will become delinquent later on in the loan tenure, nullifying the benefits of the loan modification with all the expense it involved.

Mortgage servicers themselves can be an obstacle. Many servicers are continuing to take foreclosure steps with homeowners that are participating in the program, undergoing the three month trial. The government is trying to motivate servicers to help homeowners to achieve the loan modification wherever this is possible.

One factor that could make the whole matter moot is the rising level of unemployment. The loan modifications the government is proposing are not designed for people who can’t afford any substantial mortgage payment due to unemployment. It is designed for homeowners that are not able to take advantage of the current lower interest rates and whose homes have dropped in value and are struggling to pay their mortgage.

If unemployment rates continue to rise the number of homeowners that don’t qualify for loan modification aid will rise increasing the number of foreclosures.

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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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Loan Modifications has been the flavor of the month in the finance news sections for some time now and August was no exception. We started the month with the government’s report on mortgage services participating in the government’s loan modification program. The administration reported how unsatisfied it was with the progress and that mortgage providers had been inconsistent in their efforts to modify loans which is a polite way of saying they were doing a rubbish job.
The Treasury department also reported the number of loan modifications and trial modifications that were being carried out. The picture was not great but it is very likely that the real picture is far worse.

The Treasury department prepared its figures by comparing the number of trial modifications each bank or service provider had started with the number of loans eligible for the loan modification program. All is clear up to there. The glitch occurs when you realize that only borrowers that are 60 days or more behind in their payments are included as “eligible borrowers”. The real number of borrowers in desperate need of a loan modification is much larger.
Is this a small discrepancy with the real story, just a different way of describing the situation? Hardly.

The Making Home Affordable program included in its data homeowners that had already defaulted or will likely default “imminently” which includes those that have not missed a payment yet. This is very different when compared with what the Treasury department did and the discrepancy is by no means small. For instance in the first quarter of this year 8.8 percent of mortgages were 60 days or more delinquent but there was an additional 3.25 percent between 30 and 60 days according to the Mortgage Bankers Association National Delinquency Survey. If we counted those that were just on the edge of becoming delinquent the picture just gets worse and worse.

The Treasury Department reported that 9 percent of the eligible borrowers were being helped by the loan modification program. However the real figure is really between 5.9 percent and 7.8 percent if we use the Making Homes Affordable figures.
The change in accounting methods is caused by what the Treasury Department wanted to highlight; the number of desperate homeowners that are already  in trouble that are being helped. Up to now over 235,000 homeowners are involved in a three month trial modification and the goal is to reach 500,000 by November.

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If Mortgage providers cannot be coaxed into action maybe they can be shamed into action. That seems the line the Obama administration is taking with banks that are dragging their feet and digging their heels while the administration is flexing every muscle to push forward its Mortgage Modification program to help millions of Americans avoid foreclosure.

Naming and shaming has been a popular business tool to “encourage” people and companies to do what they don’t want but know they must. Banks realize they must help homeowners to save their homes just as banks were rescued with the recent bailout on banks. They understand that in the long run a healthy housing industry will mean larger profits for banks. However getting lenders to reduce loans and provide breaks that limit their profit or cost money to provide is never going to be an easy task.

So how did banks do in the shaming and naming game?
The leader of the pack in loan modification turnover (now that is a performance figure that wasn’t used before) is Saxon Mortgage Services a subsidiary of Morgan Stanley with a 25 percent of its loans in trial modifications. It is not only the smaller banks that have shown willingness to work with the administration. Larger banks like JPMorgan Chase with 20 percent and Citigroup with 15 percent are showing how it’s done even when you have to maneuver a behemoth of a company to reorganize the services you provide.

Unfortunately it is not all good news for banks. Wells Fargo parent of Wachovia showed a puny 6 percent of delinquent mortgages in trial modifications while Bank of America bottomed the list with 4 percent.

The Obama administration has responded to this with a clear target for banks to meet a cumulative magic number of 500,000 trial modifications by November the first. These trial modifications are part of the Mortgage Plan set by the Obama administration. The idea is that before a borrower is allowed to qualify for a final modification he or she must undergo a three month trial where he must pay every payment on time. If he or she does just that there is an incentive in cash that is deducted from the borrower’s principal. The incentives don’t stop there, for every year payments are made the government will pay cash to reduce the principal of the loan up to $3,000 which means larger sums when interest is calculated.

Why are banks so slow in responding to the mortgage plan?
There are various reasons, mainly two, banks are not geared to providing loan modifications and there are not always in the best interest of the bank. Let’s have a look at these two factors.

1)    Loan Modifications as a new bank service.
Up to recently banks tended to simply lend, collect and process mortgage payments. They of course have their fingers in all kinds of investments but in the retail mortgage sector lending and collecting is pretty much what a bank did. Other debt relief companies would specialize in providing debt consolidation loans and similar services. Now the government wants banks to become loan modification machines and FAST.
This is not as easy as it seems. It includes training staff, setting protocols and guidelines, a new type of management that can make fast and effective decisions on a relatively new product. In other words, changes, changes and changes. Something big banks are not that used to making.

2)    It just isn’t always that profitable.
Banks are profit organizations not charities. The decisions they make are based on profit analysis not a generous spirit and you could argue that is the only way our current economy model is going to work. Loan Modifications are simply not always profitable for companies. In some cases they are a win win  operation as they help borrowers make smaller monthly payments and increase the overall interest the bank makes on their investment. However on many occasions loan modifications simply cost the bank more money for no measurable benefit.

Encouraging banks to do that is not an easy task, which is probably why they are trying to shame them into doing it.

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Mortgage modification and mortgage refinance are at the top of Obama’s administration priorities in domestic finance. Washington wants Banks to do their bit for the economy and provide reasonable loan modifications for the hardest hit families and is willing to pay them for the favor.
However banks don’t seem to be moving fast enough. The programs are in place but not enough people are benefiting from them. Home owners desperate for help are calling their mortgage providers and are being stonewalled by “overwhelmed” lenders that can’t seem to cope with the volume of customers in need of help.
This situation has angered many because it is these same banks that don’t seem to be pulling their weight that were very happy to accept tax money in the bailout provided during the recent financial crisis.

There has been a lot of ink spilled on the issue of why banks seem to be dragging their feet on the issue of mortgages modification when it would seem that loan modifications are a win-win situation.

Some have suggested that only a specific group of troubled borrowers are actually profitable for banks when providing loan and mortgage modifications. The Obama Mortgage Plan administrators have obviously looked into the matter and published a list of the movers and slackers (they didn’t actually call it that) as part of a press release from the Treasury Department.

So what are the results?

Among the big boys the results in loan modification have been rather uneven.

JPMorgan Chase and GMAC are at the top of the class having started modifications on 20% of the eligible mortgages since the program started in March. The slackers among the top dogs of banking are Wells Fargo and the Bank of America with pathetic percentages of 6% and 4%. Obviously the instant picture these statistics show is oversimplified but it does seem clear that more can be done by big banks to pull their weight in the current crisis with the same “gusto” with which they accepted government handouts when their “house” was at risk of foreclosing.

To be fare JPMorgan Chase has since paid back his loans, but the same can’t be said for the rest. Other banks have fared even worse as is the case with Wachovia that only has a measly 2% of eligible mortgage modifications in processing.

So what can the government to promote loan modification by banks that seem to be dragging their heels? That may be one of the big questions that the Obama administration has yet to answer in order to dig out millions of families out of foreclosure.

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Keep Your Finances Afloat With Suitable Loan Modifications

You don’t start worrying when you hit the iceberg; you make sure you are working hard to avoid foreclosure or financial duress as soon as you hear the radio signals warning you of danger. Just as Titanic was prey of bad planning, pride and reckless behavior many of us fall prey to foreclosure and financial difficulties when there is really no need for it.

This is not rocket science, we all start saving on non-vital aspects of our monthly spending when we our income is reduced or we fear we might lose our job. However we often think of our mortgage as a fixed expense that cannot be modified or fine-tuned. The reality is completely different. Mortgage providers like banks and other lending institutions know too well that many borrowers and their families are struggling and they appreciate responsible clients that are willing to make sensible modification or changes to their mortgage than simply foreclose or claim bankruptcy. Here are some basic steps to keeping your family finances afloat by fine-tuning your mortgage.

1) Be sensible in the percentage of your income that is used to pay your mortgage. A conservative rule of thumb is to not spend more than 30% of your total income on your mortgage. The origin of this guideline is quite interesting. Apparently it began when railway companies started to spread over the continent and supply housing for their workers, they would charge a week from every month of their wages for housing. Situations have changed completely and this rule is obviously not set in stone but if you are spending much more than 30% on your house you are probably spending too much and not leaving yourself with much room for maneuvering in case of financial difficulties.

2) Don’t remortgage to “invest” in your home. Too many have fallen in the trap to remortgage their home to invest in house improvements. If you need the house improvements and you can afford them I would recommend saving for them or if you really must borrowing for them , but don’t view them as an investment that elicits large lumps of cash. In the current market you are very unlikely to get your investment back and quite likely to pay dearly for the loan increase.

3) Talk to your bank as soon as possible if you see trouble.  Banks appreciate customers who will be candid and realistic about their situation and are much more willing to renegotiate when you are not in the red yet. If you are expecting a large payment or your income is seasonal you might be able to renegotiate a payment holiday for a certain amount of time. Remember that banks are likely to make money or loan modifications like this instead of losing a lot of cash when a client forecloses their mortgage.

4) Don’t panic. Talk to an experienced financial advisor or to a trusted and knowledgeable friend. Bad situations can often  be averted or fixed if caught in time.

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