How far loan modification programs have been helpful for homeowners

June 2nd, 2010, 10:12 am

It is known to everyone that many homeowners have defaulted on their mortgage loans due to the economic downturn in the recent past (2007-2009). The homeowners had not been able to get loan modification help from their lenders. So, the Government has introduced Home loan modification Program (HAMP) taking help of which the homeowners can avoid foreclosure and get current on their mortgage loans by making affordable monthly payments. The lenders participating in the program are also eligible to get financial incentives if they modify the loans. However, recent reports reveal that there have been only 300,000 permanent modifications till April 2010, which is only a 50% success rate.According to researches, more than 673,000 households are presently in the trial face of the program. During this trail phase, homeowners need to make their mortgage payments consistently. It has been noticed that many homeowners cannot continue making payments for the entire period till the new loan is secured. There have been about 278,000 failed trials, which indicate that, the number of successful and failed trails is more or less the same. So, the administration has asked the loan servicers to verify the income of households in the beginning of the trial instead of verifying it at the end.

According to Mortgage Bankers Association, about 10% homeowners have missed at least one payment during January-March period in 2010. It is a record high as it shows one-month delinquency is up by about 9.1% as compared to the same period a year back. However, more number of homeowners just starting to experience trouble has lessened. Till March 2010, about 3.5% homeowners have missed one month of home loan payment. It is down from 3.8% as compared to the same period a year back. As per industry experts, about 4.3 million homeowners (about 8% US citizens with a mortgage) are presently at risk of losing their home. These mortgage borrowers have either missed 3 mortgage payments or are in foreclosure. So, if loan modification programs fail to help them, then their homes would be foreclosed or short sale would happen. To help these homeowners, the Government has introduced another program, HAFA (Home Affordable Foreclosure Alternatives) program that complements HAMP by providing a viable alternative to the homeowners, who’re eligible for HAMP but is not able to keep their homes. The program has come into effect on April 5, 2010.

However, the homeowners who’re not able to take advantage of HAFA or want to keep their properties may take help of Chapter 13 bankruptcy. However, you need to qualify the Means Test and satisfy the eligibility criteria to file a Chapter 13.

This article was written by Samantha Taylor, who is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like ‘Mortgage that you can afford’ , ‘ Mobile Home Loan with Bad Credit’ , and ‘ How much mortgage can I borrow”?

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Loan Modifications are not the only option

May 27th, 2010, 10:18 am

The term loan modification is not a new one, but it has picked up a lot of speed over the past year. In the past, homeowners and lenders have been able to workout deals to change the essential terms of a mortgage through private negations. However, in March of 2009, the United States government released their Home Affordable Modification Program (“HAMP”) and all of a sudden it was the new craze. The problem is now that the Government is involved at least to some extent, consumers seem to believe that banks have an obligation to “modify” or change a loan. When in reality, the government has no teeth to force the banks to do anything. A loan modification or credit workout is purely an optional program.With that said, many consumers and frankly even Consumer Debt Advocates have been taken advantage of by the banks who have at the very least given the appearance of acting in a deceptive manor with respect to these loan modifications. Many homeowners were accepted into a loan modification trial program, in order to prove that they could make modified payments. The homeowners has made these payments for several months and after they have been faithfully making good on that agreement are kicked out for no reason, or even fraudulent or deceptive reasons and are facing foreclosure.

Many of use know the deal; the bank requests a bunch of documentation to review. They claim that they have not had a chance to review it and so ask for updated information. They do this while arrears are building up, and then finally offer a trial plan. Once the homeowner is in the trial plan for what is represented to them as 3 months, they soon learn that it can become two to three times as long, all the while the homeowner faithfully performs their obligations under a new agreement and pays sometimes tens of thousands of dollars to the bank, instead of investing that money in other avenues that my be more effective, such as filing for a chapter 13 bankruptcy, or challenging the standing of the banks.

It has been suggested by many on the interest though various blogs and chat rooms that this loan modification is nothing more then the banking industry’s “well-thought-out scam where the lender, knowing full well they ultimately intend to foreclose string the homeowner along to collect a few additional payments.

What many people do not seem to realize, is that there are other opportunities to save your home, or in the alternative, cut your losses before they arrears get too great to manage. The key to remember is that should you want to walk away from your home, if the home is sold for less then you owe, you may be liable for the debt. In order to avoid this, a simple Chapter 7 bankruptcy can eliminate that risk. Additionally, you can file a Chapter 13 case and pay back the missed payments over 5 years interest free. Perhaps more importantly, when you file a bankruptcy, the bank must stop any foreclosure or collection attempts for past due amounts. It may provide you with the time you need to go into court whether it be through the bankruptcy court, the land court or even superior court to challenge the standing of the bank.

The lender must prove that they even have a right to foreclose and in order to do this, they must have a copy of your original mortgage and note. If they can not produce that note, then a judge may indefinitely stay their foreclosure. If they file a claim for past due amounts, the bankruptcy court may hear this as evidence of a challenge to the proof of claim. You also may request a copy of your loan application and find out that there are many untrue statements that bank used to issue the loan. If this is the case, you may even be able to strengthen your position and negotiate a “real modification” where you have now come full circle.

Additionally, should you have a second mortgage that is not supported by any equity, you may be able to strip the lien entirely though a Chapter 13. In the event that the home is not your primary home, but rather an investment, you may even be able to cram down the principal to its current fair market value and a reasonable interest rate through a court order.

The bottom line is this, do not trust that you will obtain a loan modification even if you have been put into a trial period. You have several options, and should contact a qualified consumer debt attorney to learn what options are at your disposal.

Filed under Debt Negotiation, Bankruptcy, Foreclosure, Automatic Stay, Loan Modification · 4 Comments

You don’t have to be in arrears to modify your mortgage

May 10th, 2010, 4:31 pm

     The general rule of thumb is that no one is going to renegotiate a contact of any sort unless it is advantageous to them. What I mean by this is that if it is not in your bank’s interest to modify your loan, then why should they? As a result of this theory, many people who do not truly understand how the Federal loan modification programs work or how many of the private mortgage workouts are set up, will tell you that you need to miss at least a few mortgage payments before anyone will even consider you for a modification.    

    This is simply not true. If you can avoid falling behind on your payments, without causing any undue suffering for your family, such as not being able to pay your utility or grocery bills, your best bet is to keep your mortgage payments current. As soon as your start missing payments by more then thirty “30” days, your credit score will start to decline. For this very reason, the government has added the specific language of “immanent default” to those homeowners who could be helped by a loan modification. More importantly, the investor is looking at a situation of not simply have you already stopped paying your mortgage, but if nothing changes will you be able to continue paying your mortgage. Additionally, there are actually incentives to the banks that choose to modify home owners who are current, by providing a financial contribution from the government. For more information on incentives, check out the Making home affordable press release.

     The key to a successful loan modification is not necessarily to be delinquent, but rather to be proactive. Talk to your lender before you get to the situation where you have already missed several payments and may not be able to catch up without help.

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Consumer Attorney sticking up for Creditors Counsel

April 27th, 2010, 2:14 pm

Let me preface this blog by stating that I am a consumer debt attorney.  I typically represent homeowners or small business owners in negotiations with banks and other creditors, or in protecting consumer rights though use of the Bankrutpcy code.  Now with that said, I am going to do somthing for my brothers and sisters, stick up for the “Dark side”.

 Last week the highest court in the land rendered a decision relative to the Fair Debt Collection Practices Act that will greatly empower home owners to negotiate with their mortgage companies.  More importantly, the ruling in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, limits a lawyer’s ability to deceive a homeowner and claim it was a “bona fide error”.  Should Creditors counsel advise their client to take certain steps where there is conflicting case law regarding the Fair Debt Collection Practices Act, and if a court rules that the route taken by the lawyer was not the proper interpretation, then the court may access personal liability against Creditors Counsel.

The ruling stemmed from a case where a law firm representing a mortgage company sought to foreclose on a home. It sent a letter to the debtor that said the debt would be considered valid unless the debtor disputed the claim in writing, even though the Fair Debt Act does not require a written dispute. The mortgage company acknowledged that the debtor had already paid the debt in full, and the firm withdrew the foreclosure suit.

In my opinion, this is a very scary ruling.  Even though, I represent consumers and Debtors in these types of actions and almost always find myself on the other side of the fence from Creditors Counsel, it is hard to agree with a ruling that limits any attorneys ability to interpreter law.  I mean, isn’t that what we have been trained to do from the first day of Law School to studying for the bar exam and now in practice.  More importantly, isn’t our entire judicial system built on the adversarial concept of two parties arguing different points of view over the same issue?  This seems like an awfully slippery slope to me.

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Home owners are protected from deceptive banks

April 8th, 2010, 12:20 pm

The Massachusetts Consumer Protection Act is a law which allows consumers to take legal action against unfair or deceptive business activity. M.G.L c. 93A is the Massachusetts statute which is used in order to deal with such matters. Violation of the regulation gives the individual litigant an opportunity to obtain actual damages and equitable relief, the Attorney General may obtain injunctive relief, and a civil penalty may be imposed. United Cos. Lending Corp. v. Sargeant, 20 F. Supp. 2d 192, 204 (D. Mass. 1998)

In relation to banks and their lending practices to prospective homebuyers or consumers the Massachusetts Consumer Protection Act is a useful tool in order to protect those subject to the unfair and fraudulent practices used by banks and lender services. One way courts determine whether a bank or lender has violated this particular statute is if the conduct was done so with the intent to deceive or fraudulently induce a purchase.

With respect to banks offering loans to homeowners, sub-prime loans tend to be the most common loans involved within consumer protection cases. Sub-prime loans are defined as “…loans offered by banks to borrowers who generally would not qualify for traditional loans offered at the generally prevailing rate of interest for conventional mortgages” Commonwealth v. Freemont 452 Mass. 733, 734 (Mass. 2008).

There are times were banks and lending institutions will use various tactics in order to avoid their duties or responsibilities which the court has deemed unfair and deceptive according to the Massachusetts Consumer Protection Act. For example, in one case,the lender breached their agreement when they made the borrower believe certain procedures needed to be followed in order to obtain loans but the lender never followed through with these procedures. The court found this behavior to be unfair and a violation of the Consumer Protection Act. Zuker v. GE Capital Corp., 20 F. Supp. 2d 254, 263 (D. Mass. 1998).  In another example,extremely high brokerage fees were charged to the borrower. The court ruled that charging such high fees was unfair and deceptive according to the Consumer Protection Act because the lender substantially deviated from industry-wide practice United Cos. Lending corp. v. Sargeanty, 20 F. Supp. 2d 192, 209 (D. Mass. 1998).

For those who may find themselves subjected to the tactics and unfair behavior of banks and lending institutions be mindful that the Massachusetts Consumer Protection Act will prevent those banks and lending institutions from allowing their acts to go unpunished.

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How the HAMP loan modifications effect your credit score

November 19th, 2009, 7:39 pm

This post discusses (1) how they are being reported, (2) how they should be reported, (3) what you can do to get your HAMP-modified mortgage reported correctly, and (4) possible effects even the “correct” reporting might have on your credit score.

How HAMP-modified loans are being reported now

Many servicers are reporting the modified mortgages to the credit bureaus as a “rolling 30-day late”  while the modification is in its trial period.

(The “trial period” is generally a three month period during which the homeowner must make all payments on time under a proposed modification plan. If the homeowner does so, he or she will be offered a modification under HAMP.)

Homeowners are deemed “delinquent” during the trial period because the modified payment amount is less than the original mortgage payment amount, but the homeowner is not yet officially in the modification program.

So, the credit reporting system interprets this as the homeowner’s making a partial mortgage payment each month.  Consequently, a new 30-day late is reported each month during the trial period.

Some servicers have told homeowners they are required by the Treasury Department to report the modified mortgages this way.   Other servicers have told homeowners Treasury instructed them to report the mortgages as “late” in order to weed out people who could afford to pay the original amount of their mortgage.

How HAMP-modified loans SHOULD be reported during the trial period

But, borrowers who are current on their mortgage when they enter into the trial modification period should NOT be reported as late, according to servicer guidelines for Fannie Mae, Freddie Mac, as well as other loans (”non-GSE loans”) being modified by HAMP-participating servicers.

Homeowners who were delinquent when they entered the modification trial period, however, will continue to be reported as delinquent during the trial period.  See below for more detail.

Information to forward to your servicer if it’s reporting incorrectly

If your loan is owned or guaranteed by Fannie Mae, see page 12 of Fannie Mae Servicing Guide Announcement 09-05R for information about credit reporting for HAMP-modified Fannie Mae loans. It says:

“If a borrower is current when they enter the Trial Period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the last business day of each Trial Period month at the modified amount during the Trial Period. If a borrower is delinquent when they enter the Trial Period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards.  In both cases the servicer should report the modification when it becomes final.”

If your loan is owned or guaranteed by Freddie Mac, see page 5 of Freddie Mac Publication 800 for servicer instructions re:  credit reporting of modified loans.  It says:

“Borrowers who are current when they enter into the Trial Period and make payments by the 30th day of each month, report as current, but on a modified payment.  Borrowers who are delinquent when they enter into the Trial Period or do not make payments by the 30th of each month, report according to borrower’s delinquency and workout status. Notify when borrowers have completed the modification.”

If your loan is NOT owned or guaranteed by Fannie Mae or Freddie Mac, see page 22 of  “HAMP Servicer Supplemental Directive 09-01″ for information about credit reporting guidelines for modified non-GSE loans.  It specifies the following:

 

“The servicer should continue to report a “full-file” status report to the four major credit repositories for each loan under the HAMP … on the basis of the following: (i) for borrowers who are current when they enter the trial period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the 30th day of each trial period month at the modified amount during the trial period, as well as report the modification when completed, and (ii) for borrowers who are delinquent when they enter the trial period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards, as well as report the modification when completed. More detailed guidance on these reporting requirements will be published by the CDIA.”

What does this mean for homeowners who are thinking about applying for a modification?

To help minimize damage to your credit report and score, you should apply and try to get into a trial period while you are still current on your mortgage.

You do not have to be behind on your mortgage to apply for a HAMP modification.

What does this mean for homeowners who have recently applied for a modification?

Verify that your lender or servicer understands how it should be reporting your modified loan.  Do this before starting your modification program, if possible.

Several homeowners have told our office they had to send a copy of the relevant HAMP credit reporting guidelines to the servicers, who were apparently unaware the guidelines existed.

Remember, you can review all the HAMP and HARP mortgage servicer guidelines at this link.

Will the reporting of  “current, but on a modified amount” hurt my credit?

It is impossible to say for sure because FICO does not publish its scoring model.

But, “current, but on modified amount” might ding your score a little.  This reporting is telling the credit bureau you are currently paying as agreed, but less than the original amount you contracted to pay.

The FICO scoring model may not give you full credit for paying as agreed.  But, this will not be nearly as damaging as rolling 30-day lates.

What if my modification is not through HAMP?

The credit reporting guidelines above apply only to HAMP-modified loans.  If you have arranged a non-HAMP modification with your lender or you have modified your loan through another mortgage relief program, these credit reporting guidelines will not apply.

Be sure to negotiate the credit reporting with your serivcer as part of your overall modification package.  Even if the servicer insists on reporting your loan negatively, at least you can make an informed decision as to whether a particular modification package will work for you.

This post was originally posted on Karen Ware

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Attorney Michael Goldstein inteviewed on Money Matters

August 19th, 2009, 10:21 pm

Michael Goldstein, a Bankrutpcy Attorney for the Law Office of Goldstein and Clegg was recently interviewed along with Jill Phillips, owner of Legal Administrative Answers on the popular financial radio talk show.  You can view the first part of the interview by going to: http://www.youtube.com/watch?v=9Gp6l3UtOUQ

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Press Release on the HAMP Program

July 26th, 2009, 7:23 am

The United States Treasury Deptartment published a press release in March of this year that details the new Home Affordable Modification Program (”HAMP”).  I have written many blog posts with respect to this program and have personally been able to use this program to help many clients.  I thought it would be a good idea to post the link on the Massachusetts Bankruptcy Blog to this Press Release: http://www.treas.gov/press/releases/reports/modification_program_guidelines.pdf

 If you have any questions, you can always contact a bankrutpcy attorney in your area to discuss HAMP.

Filed under Debt Negotiation, Foreclosure, Loan Modification · 2 Comments

Loan Modifications can be done even inside a bankruptcy

May 29th, 2009, 7:54 am

For Debtor’s in Massachusetts, a new standing order of the Bankruptcy court may provide for significant mortgage relief even when the automatic stay is in place.  The benefit f mortgage workouts or loan modifications as they are commonly referred to has not been an option for many Debtors who have filed for protection under the bankruptcy laws.  More specifically, Section 362 of the bankruptcy code makes it illegal for a Creditor and Debtor to negotiate a change to the terms of their mortgage or any other contract for that matter pursuant to the Automatic Stay.  Now a standing order by the court may provide some relief.

Standing Order 09.03, reads in pertinent part, “To the extent that the Automatic Stay Pursuant to 11 U.S.C. s. 362(a) may be applicable to a Debtor or property of the estate and has not been terminated or lifted, relief from the automatic stay shall be deemed granted, without a hearing or further order … in order to enable a Secured Creditor … to discuss and or negotiate with a Debtor a proposed modification of the terms of any secured indebtedness including without limitation, a home mortgage… Further, nothing herein shall authorize a Debtor or Creditor to enter into a loan modification without Court authority.”

What the foregoing would seem to say is that it is now permissible to file a chapter 7 or 13 bankruptcy in order to discharge unsecured debt and while inside that bankruptcy, conduct a loan modification.  Once a proposal has been put forth by the Creditor and accepted on principal by the Debtor, the Parties only then need to obtain court approval for such a transaction.

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What is the Home Affordable Modification Program?

April 26th, 2009, 7:29 pm

As many homeowners have found it increasingly difficult to make ends meat and afford their home mortgage payments, mortgage defaults and foreclosure proceedings have risen.  These homeowners have several options that may put them in a position to bring their accounts current and allow them to make their subsequent mortgage payments.  One such option if a homeowner qualifies is to take part in the United States Treasury Department’s Home Affordable Modification Program.

This program is a shared debt reduction program between your lender and the government.   The first step is for your lender to reduce your monthly mortgage payments including (principal, interest, taxes, insurance and condo fees) to reflect no more then 38% of your gross income.  Gross income is defined as your total salary, tips, dividends and other income prior to taxes.  Once the lender or bank reduced your payments to 38% of your monthly gross income, the Treasury Department will then step in and match dollar for dollar any additional reduction that the lender provides down to 31% of your gross monthly income for up to five years. 

The benefit to a homeowner is rather obvious, in many cases a very large reduction in monthly mortgage payments.  Additionally, should the monthly payment be reduced by 6% or more, homeowners are eligible to receive $1,000 per year for up to five (5) years, payment that goes straight towards reducing the principal balance on the mortgage loan as long as the homeowner is current on their monthly payments.  

In order to  encourage lenders and banks to take part in the program, the lender also receives various significant financial benefits.  First and foremost is their ability to avoid foreclosing on another house that likely has no equity.  The lender shares the financial burden with the Treasury Department; additionally the lender or bank receives compensation from the Government in the amount of $1,000 for each loan modified pursuant to the program.  The lender will also receive up to $1,000 per year for each year the homeowner remains in the program and stays current on their new mortgage obligation.  Should the homeowner be current when entering into the modification, an additional benefit is a one-time incentive payments of $1,500 to lender will be provided.

Granted, this program sounds like a fantastic win-win situation for both a homeowner in financial distress and a lender uncertain as to the borrower’s ability to stay current on their mortgage obligation.  What are the requirements to take part in this program?

Homeowners:

First and foremost, the homeowners, mortgage itself must qualify.  In order to qualify, the loan must have commenced prior to January 1, 2009. 

  • The home must be your primary residence and a single family dwelling of no more then 4 units.  More specially, the home may not be investor owned, it may not be vacant.  The homeowner will need to prove they live in home though a tax return or a utility bill.
  • The payoff on the primary mortgage must not exceed: 1 Unit: $729,750, 2 Units: $934,200, 3 Units: $1,129,250, or 4 Units: $1,403,400
  • A homeowner must have a current or imminent financial hardship.
  • Loans can only be modified once under this program, as such, if you have modified once, you will not be able to go back to the well a second time.
  • The home must have an appraised or assessed value not older then 60 days.
  • The borrower will need to verify their income by submitting an IRS form that allows the lender to request taxes directly from the IRS.  Additionally, the borrower will be required to submit the two most recent pay stubs.
  • Borrowers must also represent to the lender that they do not have enough money in the bank to stay current.
  • If a homeowner’s overall debt is greater then 55% of their gross monthly income, you will need to first take part in a credit counseling session with an HUD- approved counselor and receive a certificate of compliance.

Lenders:
Participating lenders are required to consider all eligible loans under the program guidelines unless there is a pre-existing agreement which expressly states otherwise.  For any modification request originating from a homeowner in default, a net present value of cash flow test will be applied.  This test essentially looks at whether a modification will increase the homeowner’s cash flow should a modification be granted.

How does the Process work?
The process starts by providing your lender with all the required documentation and information.  This is a step that can be very time consuming and is a prime reason to work with a licensed attorney in your area.  Once the bank or lender has confirmed they have received your full package, and has reviewed the package, a loan negotiator will be assigned to the case.  The lender then must start by determining if there are any missed loan payments in.  If so, the lender may capitalize the late payments.

The next step is for the lender to determine 31% of the homeowner’s gross income.  Once this income level is determined, the lender must follow a 3 step process to reduce the monthly payment to that 31% amount. 

  • Reduce the interest rate as low as 2%.   
  • If the rate reduction does not bring the mortgage payments down to the 31% mark, then the lender is to extend the duration of the loan to 40 years from the date of the modification.  It should be noted that a full 40 year extension may not be required, but the lender only needs to extend to the point where the payment reaches the 31% watermark.
  • The next step is for the lender to forbear principal.  Should interest forbearance be used, no interest will accrue on the forbearance amount.  If there is a principal forbearance amount, a balloon payment of that forbearance amount will due on the maturity date, upon sale of the property, or upon payoff of the interest bearing balance.
  • If a homeowner has a junior lien (second mortgage, equity line, etc) and the first or primary mortgage is modified through the program, then and only then can the junior lien be modified.  The Government is offering certain incentives to modify junior liens in this timeline.

The Loan Modification Approval Process

The first step in the approval process is for the homeowner to take part in a 90-day trial period based upon the new loan modification monthly payment.   The borrower must remain current for the first three (3) months or 90-day period.

If the borrower’s total monthly debt exceeds 55% of their gross income, the lender or bank must notify the borrower in writing of HUD approved credit counselors.  The borrower must complete a credit counseling program and obtain a certificate.  If the homeowner’s debt does not rise to the 55% level, the forgoing is not required.

The lender must waive any late fees upon completion of the 90-day trial period.

The investor may not require the borrower to contribute cash

What about homes in foreclosure?

Subsequent to a modification agreement being entered into by the homeowner and the lender, any foreclosure action will be temporarily suspended during the 90-day trial period, In the event that the Home Affordable Modification or alternative foreclosure prevention options fail, the foreclosure action may be resumed.  However, pursuant to the Affordable Home Modification Program, should the modification fail, banks and lenders are required to consider other programs before foreclosure including but not limited to short sales and deed in lieu of debt.

If you found this article helpful but would like to work directly with an attorney who handles these matters, you may want to contact a local bankruptcy or debt relief law firm, such as the author of this article, The Law Office of Goldstein and Clegg, LLC, Loan Modification Attorneys.

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