Archive for Loan Modification

Combine a Loan Modification and Debt Settlement to Lower Bills

As credit card companies continue to increase rates and violate their customers, debt settlement or debt management is becoming more popular. Debt settlement is the procedure of eliminating a portion of the debt and entering into a repayment plan that will get you out of debt in just a matter of months or years. Most credit card debt could take nearly a lifetime to pay off, so seeing relief in just a few months or years is a huge relief for most people.

©Images_of_Money - flickr

©Images_of_Money – flickr

But debt settlement is usually only for unsecured accounts. Other debts, such as {car loans or first mortgages are not included. This is because these types of loans have collateral to back them up. If you do not pay, the bank will simply take away the collateral with a repossession, or the home, with a foreclosure. One choice to eliminate these debts or to pay them back on a more affordable schedule is bankruptcy. The main problem with bankruptcy is the amount of time it remaindstays on your credit. In most cases, debt settlement combined with a mortgage modification would be considered more appropriate than bankruptcy.

A mortgage modification is comparable to debt settlement in that a portion of the mortgage debt may be eliminated and new repayment terms are structured to make the payment more affordable. This can be done by lengthening the term of the loan or decreasing the interest rate. A mortgage modification is considered one of the best alternatives to foreclosure if you want to remain in possession of your home. It will make your property affordable again and has very little effect on your credit. In fact, it should begin to build your credit, assuming you have not done anything else to lower your score.

To qualify for a mortgage modification, you will need to prove that you have experienced a hardship and that a modification would make your mortgage payments affordable for the remaining life of the loan. Many lenders will want you to be behind on payments before allowing a loan modification, but that is not required. Even if you are current, if you can show that the payment is not affordable, an effective negotiator should be able to get you qualified.

A mortgage modification should be requested for at the same time as debt settlement. Ideally you want to show all your creditors improving your payment terms. Asking all your creditors to improve a small amount, is easier than asking one of them to reduce their payment a large amount.

In any situation, your credit will be effected to some degree, but when you are no longer able to make your payments, or if you have already missed payments, then you wont be approved for new credit anyway. Most people only use their credit once every 4 years, so this will give you plenty of time to improve your credit and become debt free. This is much better than a bankruptcy that can stay on your credit for 10 years.

Information to Get You Started on Modifying Your Mortgage

When you are looking at a possible foreclosure, the last thing you want is another disingenuous plan of action that results in little to no monetary help for your situation. Luckily, loan modification options do not fall into this category. Before you delve too far into the process of altering your home mortgage, you surely want to grasp as much information about the concept as you can.

©cheesecurls62 - flickr

©cheesecurls62 – flickr

What a loan modification is exactly is a permanent alteration to a term or several terms in your home loan agreement. It allows a loan to be reinstated, resulting in a smaller monthly payment you might be able to afford. Obviously, with this basic definition, it is possible to use loan modification to save you from foreclosure in a number of different ways.

The United States government is very aware of all the financial hardships of the country (after all, it caused many of them via the use of the Federal Reserve system). For this reason, they have laid out plans for government programs to help you acquire a loan modification under certain circumstances. Seventy-five billion dollars have been set aside to disburse to subsidized lenders who are willing to Coordinate with borrowers to modify their loans.

This program was designed to give banks a financial incentive to help you stop foreclosure before the home is listed for auction. Also, if you pay your newly modified payments in a timely manner, you will be qualified to earn up to $5000 in credit toward the loan balance.

To find out if you are qualified for a mortgage modification, the first thing your bank will consider is your ability to make a modified payment currently as well as in the future. You must have proof of income and supply financial statements with details elaborating on your income to expense ratio, establishing your monetary incapability of making your current loan payments. A hardship statement explaining your financial hardship is also required.

This statement proves your need for a modification and hopefully your capacity for paying the modified sum should you be granted your request. You do not have to already be behind on your payments to qualify, as part of the purpose of the government plans is to help owners before they fall behind. Previously, most lenders would not negotiate with borrowers until they had fallen delinquent by several months.

Getting started and working out the details concerning your possible loan modification option is not always easy, but can be done by almost any owner. What you need is the correct important information to help you end foreclosure, and getting over a foreclosure without losing your home is a great start to get you down the road to financial liberty.

Decrease Your Bills, Then Modify Your Loan

©Financial injection - flickr

©Financial injection – flickr

When you are facing foreclosure, a great help to your unstable financial situation is the possibility of obtaining a mortgage modification. This is when the original terms of the mortgage on your property are altered so you can make more affordable payments on time. Naturally, for this to become a reality, both you and the lender must agree on the new modified conditions before they can go into effect.

Before you even get enveloped in the mortgage modification process, see what you can do in your own life to better your financial situation. The more money you have to offer the lender on a regular basis, the better chance a modification will be accepted. Do what you can to bring more money in each month and cut unnecessary expenses. There are non-profit counseling services to guide you in these endeavors.

If you determine that you can make no further cuts in your budget and you still cannot make your mortgage payments, you need to meet with your lender to negotiate terms. The fact that you have attempted to reduce your bills to the bare minimum may help to influence the bank that you are serious about saving your house. Talk with them directly to discuss their specific mortgage modification requirements and whether you can qualify.

Inform them truthfully and completely about your predicament and ask what may be Done to help you in your tough situation. The more information the bank or servicing company has, the more likely it will be able to understand your situation and present a reasonable solution. Banks would much rather help you reach more affordable circumstances and still get some money from you than foreclose your home and be done with it.

There are many requests you can make of your lender. You might ask them to hold your payments until you get on your financial feet again. This is most likely to be accepted to if you had unanticipated expenses like medical bills that will pass and be over with in the coming months. Other examples may be making partial payments for a while, or putting the missed payments on the back end of the loan.

If your current mortgage is an adjustable rate mortgage, or ARM, and it currently has higher monthly payments than fixed rate mortgages, request that your contract be altered and your loan switched to the plan with a lower rate. To be accepted, you must show your ability to pay the newly changed amount. Many of the current foreclosures were initiated by resetting ARM payments, and lenders have been willing to reduce interest rates to more affordable levels for proper loan modification applicants.

The most important thing to remember is that a lender will not go through the trouble of changing terms if you will still be unable to make timely payments. However, with a little bit of work, you can reduce your monthly expenses and then get to work lowering your payment so you can hold onto your house for the long term. Soon, with proper communication and negotiation skills, you will be out of your problem and back on more fixed financial grounds.

How to Negotiate for a Mortgage Modification to Save Your Home

During a time when national foreclosure rates are through the roof, you may be looking for ways to halt foreclosure so you can keep that roof over your head. Usually, the process of foreclosure does not begin until you have incurred three periods of nonpayment on your mortgage. If you see this becoming a reality in your current financial state, now is the time to act.

©Cool1723 - flickr

©Cool1723 – flickr

Remaining in denial about your inability to make payments, assuring yourself next month will be better, is not the way to stop foreclosure before it occurs. Too many homeowners begin in this type of wishful thinking, only to be rewarded with a hardship longer than expected and further threats from lenders.Calculating your future monthly expenses and discerning whether you will likely be able to make payments is the first step.

Immediately after you establish that you will likely have trouble making your next two months’ premium payments on your loan, set up a meeting with your lender. Lack of communication never helped anyone solve their financial problems. Set your pride aside and arrange a meeting with the intent of discussing possible modifications that may be made to the terms of your loan, also known as a mortgage modification.

BanksLenders are usually not out to harm you and do not want to you to lose your home. What they would prefer is to initiate a loan modification to make your payments possible, or help you in saving your home through some other option such as a short sale. Your lender should be willing to work with you to stop foreclosure before more time elapses, and the sooner you speak with them, the more time they will give you.

When it comes to talking with your lender, you need to be able to negotiate to reach conditions both parties can be satisfied with. It is necessary to keep in mind that the lender also wants to protect its financial position and take as little loss on the mortgage as possible. This process can be improved on your end if you can hire someone to manage you and provide aid in your case.

Financial experts and lawyers are great people to turn to for help and advice. These informed and practiced individuals know what lenders are looking for, so they can help you put together the proper documentation to help you get an approval on a loan modification or other agreement to help avoid foreclosure. Even if you know what you want and can negotiate for it, it may still make sense to pay a professional to help you get through the lines and phone calls necessary to work with the lender.

You can always choose to go through the process on your own, but having an expert who has saved hundreds of homes belonging to other financially troubled people is a great boost for your confidence. The last thing you want when facing foreclosure is another thing to stress out about. Work with someone who will contact your lender immediately, not badger you over the phone or sit on their time until it is too late.

Issues to Consider Before Getting a Mortgage Modification

Obtaining a loan modification is the latest magical solution to foreclosure. One new government program after another has been released to help borrowers modify the terms of their mortgages to make them more affordable, and thousands of private companies have begun to offer assistance in qualifying for a loan mod. Obviously, if everyone who can make a payment was given such a program, the foreclosure crisis would have been solved before it began.

©loaexperts2012 - flickr

©loaexperts2012 – flickr

Unfortunately, though, the real world has foiled many of the designs of the mortgage industry central planners and regulators. All of the government programs have failed for a variety of reasons, including voluntary participation, lack of clearly defined rules for compliance by the lenders, and unaccountability. Even for the few mandatory participants, the same problems keep creeping up.

Homeowners should expect to run into at least three major issues when attempting to qualify for a loan modification. These problems should be considered before the borrowers decide whether to apply for a modification or not, as they may not apply to other solutions to foreclosure. Of course, some of them will apply to alternative plans to save the house.

First, homeowners will have to deal with unresponsive mortgage lenders and servicing companies. Loss mitigation departments of these large financial institutions have not dedicated the resources necessary to assist all of the borrowers attempting to apply for various solutions. This means that collection departments may call owners tens times a day, but any call made back to the loss mitigation department will not be answered in a timely fashion, if at all. Faxes containing personal financial information and application documents are routinely lost, as well.

Second, the documents governing the securitization process for the mortgage may restrict the number of loan modifications that can be offered. The pooling and servicing agreements (PSAs) may only allow a certain percentage of loans in a pool to be modified. Even if the borrowers can show financial ability to pay a modification plan, they may have to be turned down by the servicing company, unless the loan is moved out of the securitization pool.

A final consideration homeowners should make before applying for a mortgage modification is if they would require a principal reduction. Many loan mods would not be affordable for the long term without decreasing the amount the borrowers owe in total. However, any reduction of principal may be considered by the IRS as taxable income to the owners. This may result in a large, unaffordable tax bill that will cause the modification to fail is the borrowers can not make the monthly mortgage payment and pay the taxes for the forgiven debt.

While loan mods can be a great way for homeowners to modify their mortgages so they are more in line with the borrowers’ current financial situations and market conditions, there are also a number of drawbacks. If the servicer takes too long to respond, the foreclosure will proceed anyway. If the PSA does not allow for any more modifications, qualified borrowers may be turned away. And if there is a large tax bill due to the modification, it may be impossible to pay the mortgage and the taxes.

How Lenders Help Sabotage Government Loan Modifications

The government’s programs to help stop the foreclosure crisis were probably started with the best of intention. Good intentions, however, can not cover for economic ignorance and an unwillingness to face the facts of the housing market. Prices are declining and more people are facing foreclosure due to the poor lending decisions created by cheap easy money and the erosion of lending standards.

©Loan Leaders of America Inc. - flickr

©Loan Leaders of America Inc. – flickr

As well, many of the government’s programs suffer from the same problems. Unfortunately, with each failure, the programs are not canceled. Instead, they are further funded, grow bigger, change names, or a similar plan with only superficial changes is layered on top of the old one. The old plan loses steam, while the next one, almost identical to all previous ones, is announced with far greater optimism than is deserved.

But the problems are never solved. Voluntary participation, unaccountability, lack of responsibility to do anything by the lenders or servicing companies, lack of penalties for not complying with the regulations, and all the power given to the banks are just a few of these problems. They have been the same complaints from consumer advocates and homeowners from the very first plan put in place by the government.

Servicing companies and lenders, for instance, have almost all of the negotiating power that borrowers do not have. When lenders are given the choice of participating in the voluntary government programs, compliance is often lacking and few resources are dedicated to meaningful loss mitigation efforts. The lender decides how much to participate in the plan and has all of the financial power.

The government programs, mandatory or voluntary, also impose few rules for compliance. While servicers have some responsibilities to negotiate with homeowners, the level of participation is often very lacking. Borrowers who have ever tried to communicate with a bank know how frustrating it is when the bank loses faxes numerous times and never returns phone calls, all to be turned down at the last second.

Even if the bank does absolutely nothing to help the borrowers, whether required to or not, how can the lender be held accountable? Unfortunately, it is only in the courts that the consumers can state their claims, and many borrowers try to negotiate for a loan modification or other solution in order to avoid going to court. Especially in nonjudicial states, going to court to enforce a potential negotiation plan may not make sense.

Court-mandated negotiations have also failed to materialize as a widespread solution to foreclosure, as the banks have been able to block legislation that would allow bankruptcy judges to modify the terms of first mortgages or reduce balances. Some states and certain courts, however, have begun to scrutinize foreclosure cases more carefully, which may work out in homeowners’ favor more often.

Unfortunately, the problems associated with the government’s programs to avoid foreclosure have far outweighed any benefits to the small number of borrowers who have received assistance. Three hundred billion dollars to help one borrower, as was the case with the Hope for Homeowners program, probably helped create more foreclosures than the one it fixed. The only real question is if more regulation and legislation is what is needed to fix the programs.

A Few Ideas to Get Foreclosure Help from Your Lender

Homeowners should keep in mind that the bank or mortgage servicer they are dealing with is 100% able to stop the foreclosure whenever they want. Especially if the borrowers are in a judicial foreclosure state, where it is required the bank begin a lawsuit to take the home back, if the lender/individual drops the case, the foreclosure will stop immediately.

©Bilal Iqbal - flickr

©Bilal Iqbal – flickr

Before doing anything at all, though, homeowners need to decide if the home is worth keeping. Many people today are fighting to save houses they can not afford in the long run. If borrowers are fighting for such a home, they are ultimately going to lose anyway. It may be better to cut their losses and move on. This is the same for those homeowners who are fighting to save a home that is worth less than the mortgage. Just negotiate a short sale or deed in lieu and move on with life.

If you have decided to keep your home, then keep reading.

Since you are dealing with an individual, you need to to come to an agreement with him or her that will allow you to repay the arrears and get caught up on your payments. If you were with a traditional lender, a loan modification would be your best option to save the home. But there are no rules/laws forcing anyone to grant you a modification.

Your very first option should be to try and come up with the amount you are behind. In many cases, you can raise this money with odd jobs, personal loans from relatives, and by selling unused items. I would start by getting donations from relatives, church, and social groups and having a garage sale to sell as much stuff as possible. Don’t worry about your personal belongings, as you can replace them once you are back on your feet again.

You should also be cutting your expenses to a minimum. Get rid of cable TV and stop shopping for anything. Wear old clothes if necessary and eat the food in your house, rather than going out to eat or buying new stuff at the grocery store. Just keep the necessities that are required to keep your family healthy and don’t do anything that would cost you your job.

During this time, you need to be negotiating with the mortgage holder to stop the foreclosure. You will need to negotiate a repayment plan that is more favorable than him taking the home away. Another good idea is to find out the current value of the home. There is a very good chance that you are currently paying more than the home is worth. If they realize this, it may be an incentive to keep you in the home. You ideally want to arrange a repayment plan that allows you to make your normal mortgage payment, along with extra to pay off the arrears.

If you can not afford this right now, you need to have a plan that will allow you to make these payments in the very near future. My guess is that you have had issues making payments on time in the past and this is why they are unwilling to help you now. I only say this because most lenders do not want to take a home away. It a huge expense and a lot of work for the average lender. They must have a good reason for wanting to take the home back. Regardless of the reason, you need to convince them that you will make all your future payments on time. Showing them proof of this, such as a second job, would help them believe you.

If you fail to raise the money and the lender is unwilling to cooperate, then you need to take a more drastic step. This will involve getting an attorney and using the threat of legal action to force them into a repayment plan. This action could also be used to buy enough time to raise the money needed to pay the arrears.

To start, you will need to gather as much information about the case as possible, such as the original loan docs and the appraisal. Some people hang on to these records or you may have to contact the broker and appraiser who worked on the case originally. No one is required to turn these documents over to you, so you’ll have to be nice and use a little social engineering to get what you want. You will be trying to prove that you are a victim of predatory lending, so don’t expect your current lender to hand over any evidence.

A “forensic loan audit” might be a good thing to pay for at this time. They cost about $250 and will reveal any problems when you originally got your loan. Once you are armed with this information, you can go to the lender and use the threat of a lawsuit as a negotiating tactic. Showing proof that you are, in fact, a victim should be enough for them to want to keep the case out of court.

If the lender still refuses to negotiate with you, your last hope would be to take the case to court. I would highly recommend hiring an attorney for this, but it is possible to do it on your own. Once you get this far in the process, you’ll need more info to continue, so either ask for more help or get an attorney who specializes in lender fraud.

Loan Modifications – More Rare than Advertised

For mortgage lenders, there is every incentive to negotiate with homeowners for a mortgage modification or other solution that will prevent foreclosure. Thus, the very few number of borrowers who end up receiving any help should surprise everyone. If banks and servicers have so many reasons to offer loss mitigation options to homeowners, why do so few of them end up with a reasonable plan to save their homes?

In many cases, the pooling and servicing agreements (PSA) that cover mortgage securities and the servicing of payments require companies administering loans to engage in loss mitigation. Furthermore, the negotiations have to be meaningful, as foreclosure of the property should only be used as a last resort and should be avoided unless there really are no other options. But servicers often engage in entirely worthless negotiations.

©Philip Taylor PT - flickr

©Philip Taylor PT – flickr

In fact, a large and increasing number of loans are covered by such requirements to engage in meaningful negotiations with borrowers in default. The following is a list of mortgages that should be mitigated: FHA loans; Fannie Mae and Freddie Mac loans; loans where mitigation is required under the PSA; lenders which took bailout money under the Financial Stability Act.

The fact that so few homeowners end up with any reasonable solution to repay their loans, even when they are financial able to do so, indicates that servicing companies are either negligent or malicious in continuing to pursue foreclosure in some cases.

Banks and servicing companies also change the guidelines for a completed loss mitigation package from week to week, it seems. There is always someone else who has to be sent the paperwork, a new fax number for the loss mitigation department, a lawyer who has to be contacted for updated numbers, and so on. What homeowners go through just to ensure their package of personal financial documents has been received by the lender is often an exercise in patience and frustration.

It is not just homeowners that become frustrated at the process. Even judges and regulatory authorities are hearing more often about cases in which banks drag their feet, never return phone calls, refuse to offer solutions, and simply proceed with the foreclosure. This is despite many security or servicing agreements requiring loss mitigation, and banks receiving money from the government to do modifications.

With all of the money that has gone to the banks, supposedly to provide foreclosure help and stabilize markets, it is astounding that there is such a high level of incompetence in working with borrowers. If the problem all along has been a weak housing market and too many foreclosures, the simple act of providing loan modification plans to borrowers who can pay back their loans should be relatively easy to accomplish.

Of course, not every homeowner will qualify for a modification, repayment plan, short sale, or other reasonable solution, but every homeowner should be given the opportunity to explore options. If foreclosure is considered a last resort to satisfy a mortgage loan, and servicers are required to negotiate with borrowers, then the cases of lost paperwork or confusing guidelines should be far fewer.

The Federal Home Affordable Modification Program

©loaexperts2012 - flickr

©loaexperts2012 – flickr

In 2009, the Congress and the Obama administration revealed their newest plan to help families save their homes from foreclosure by encouraging mortgage modifications. This plan, called the Home Affordable Modification Program (HAMP) was designed to create broad guidelines for the mortgage industry on modifying loans, as well as provide incentives to lenders and services to offer modifications.

Participation in the HAMP plan, as with most of the other federal foreclosure help programs, is voluntary for most servicing companies and lenders. Many of the largest servicers, though, have signed agreements to engage in the program. Companies that received funds from the government under the Financial Stability Plan are also required to participate in the program, along with Fannie Mae and Freddie Mac.

One of the main benefits of the program to homeowners is that it essentially requires participating mortgage servicing companies to review the eligibility of homeowners for a loan modification before being able to conduct a sheriff sale. In fact, servicers participating in the HAMP plan should not even begin the process of foreclosure until the review has been complete and the borrowers have been determined to be ineligible for a modification.

Loss mitigation efforts are required under the plan, and the guidelines for loss mitigation are similar to those required for FHA loans. In cases of default of an FHA loan, the servicer is supposed to negotiate with borrowers for an alternative to losing the home. The same is true with the new HAMP program, as both plans are designed to help homeowners remain in their properties at affordable rates.

Due to this program, there are a few new defenses to foreclosure that homeowners may raise due to a lender or servicing company’s failure to comply with the requirements of the program.

For instance, if a servicing company participates in the Home Affordable Modification Program but does not review a borrower’s financial material to determine whether a modification will make sense for the investor and the homeowners, the foreclosure should not be allowed to move ahead. The failure to comply with the guidelines of HAMP before foreclosing may mean that the homeowners are not even in default of the mortgage contract.

Also, the Congress, in the regulation itself, has declared the HAMP guidelines to be “standard industry practice for purposes of all Federal and State laws.” This means that a lender’s failure to comply with standard industry practice should create a defense to foreclosure that homeowners can raise in court. Unless prohibited by the pooling and servicing agreement itself, lenders are now required to follow HAMP guidelines.

Thus, because of the new regulation that the Obama administration has put into effect for the residential mortgage servicing industry, homeowners may have additional opportunities to qualify for a loan modification or defend their property from foreclosure. Although many of the government foreclosure assistance programs have failed to deliver so far, it is possible that borrowers can use these laws in self-defense, if not actually to qualify for workout solutions to save their homes.

Attorneys Engaging in Loan Modification and Foreclosure Scams

©attorney74136 - flickr

©attorney74136 – flickr

There is an amazing story in the August 2009 issue of the California Bar Journal about the growing number of complaints against lawyers and law firms offering mortgage help to homeowners. From investigating nine such complaints for all of 2008, the California State Bar is now investigating 391 complaints against 140 attorneys. What is causing this huge increase in the number of borrowers complaining about attorneys?

With the rise in the foreclosure rate over the past few years, it seems that many lawyers have gone into the foreclosure assistance business. Even in states like California, where loan mitigation companies are no longer allowed to charge an up-front fee from borrowers, attorneys can still charge a multiple-thousand dollar retainer fee before any work is done for a homeowner. This makes the foreclosure business very lucrative, and very attractive for the corrupt.

Also, what happened to all of the lawyers providing mortgage services during the boom for lenders, title companies, and home buyers? Many states require that borrowers and sellers both have an attorney at closing to represent them. With the falloff in new closings and refinances, these attorneys may have decided to enter the other side of the business — helping homeowners escape the predatory loans the lawyers should have warned about in the first place.

Many homeowners were given loans that were either misrepresented to them or were simply not explained at all. Too many lawyers hired to make sure the borrowers understood the terms of the contracts did very little other than collect several hundred dollars at the closing table. The law requiring legal counsel before a real estate closing had more to do with injecting unnecessary legal fees into the housing market than creating educated borrowers.

Some of the complaints against these lawyers now providing loan modification services are the same ones homeowners routinely file against loss mitigation companies. Some of the complaints involve no service being provided, up-front fees that are collected but no work is done, no refunds even though no work is done, instructing homeowners to stop contacting their lenders, even attempting to transfer money directly out of a borrower’s bank account.

This indicates that some lawyers have entered the loan modification business essentially just to steal money from desperate homeowners. Too many companies or law firms take payments from borrowers and then never provide any work — it is one of the most common foreclosure scams around, and one that homeowners keep becoming victims of as they try to save their homes.

But none of this really explains the shocking rise in complaints against attorneys offering foreclosure help. From nine in 2008 to close to 400 in the first seven months of 2009, it seems that more factors than just legal industry corruption are involved. Or, have attorneys in large numbers made the move from other less lucrative practices into the foreclosure business, where they can prey off the huge numbers of people struggling to keep their properties?