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Loan Modification Process Strained

marcus — Tue, 15 Dec 2009 20:27:49 +0000

The Obama administration and the US Treasury dept are vowing to pressure the mortgage industry to administer more loan modifications as permanently modified mortgages have not kept up with the number of troubled households owning homes. While 14% of homeowners with a mortgage are facing foreclosure, only about 2% of homes applying for modifications have been approved.

The mortgage loan modifications were supposed to reduce the mortgage interest rate thus providing a lower payment for three months. At the same time borrowers were to provide financial documents to include an explanation of hardship. Banking officials are responding that many homes placed in a temporary plan failed to make timely payments for the temporary period or simply failed to provide paperwork. Lights of a recovering real estate market could be dimmed if the foreclosure crisis isn’t contained before another wave of adjustable rate mortgages reset in the new year.

Tips For Avoiding Foreclosure

marcus — Fri, 20 Nov 2009 18:06:01 +0000

As the number of Americans facing foreclosure of their homes, manycould be saved if only they understood the processs more. Here are some tips to protect your home.

1. Don’t ignore your mortgage problem – If you are unable to pay your mortage, dont hide from your lender. Call them and try to work out a plan to keep you current and in the home. If your lender is unwilling to speak work with you then visit a housing counseling agency. Many times these services are offered through your municipality.

2. Know the terms of your mortgage – Oftentimes homeowners are unaware of the type of mortgage they have, let alone the terms. Keep all mortgage closing documents close by when talking with your lender.

3. Know Your Options – When faced with the inability to pay the mortgage, the homeowner has a plethora of options. From selling the home, mortgage modification to taking in a tenant; speaking with a variety of real estate professionals can give you some ideas to as to the plausibilityof your options. Also consider how you can cut back on monthly expense…including having your hazard insurance policy shopped for a cheaper rate and having your home reassess to possibly lower porperty taxes. And if you are considering bankruptcy be sure to speak with a few attorneys before making any final decisions.

4. Beware of foreclosure scams – Negotiating a modified mortgage or short sale while the stress of losing your home looms over your head is not easy. However, don’t fall victim to scam artists that will request up front fees to “fix” your problem. There are some good housing counseling companies that have well serviced their clients, but talk with several referred real estate professionals as well as the various local goverment housing assistance departments and you may save yourself time and money. If you feel you have been preyed upon by a “foreclosure prevention” company, contact you State’s Attorney General’s office and the Federal Trade Commission immediately.

5. Know Your Ability and Live to It – Whatever plan you are able to work with the mortgage company should reflect your input on not what you think the mortgage company wants to hear, but what you can realistically afford and consistently pay. The banks would rather get regular lower payments than a few sporadic larger payments. And by all means, stick to the plan worked with the mortgage company.

Is a Short Refinance an Option for Loan Modification?

marcus — Thu, 25 Jun 2009 04:45:58 +0000

Millions of American homeowners are communicating with their mortgage loan companies for a loan modification. Many homeowners are experiencing varying degrees of success and failure with mortgage re-structuring efforts, but there is a lesser sought-after avenue that provides a win-win situation for the distressed homeowner and mortgage lender from encountering a costly foreclosure called the short refinance.

As most modifications go, the homeowner wants the payments (and probably the principal) reduced to make the home affordable and the lender wants the loan paid on time or in full. According to various non-profit mortgage associations, rarely has the principal been written down on loan modification request. The lender will temporarily reduce the interest rate and even extend loan term to 40 and even 50 years. However, in loan modification cases that fail to reach an affordable level for the homeowner, a short sale is usually recommended to prevent foreclosure. The short sale will sell the home at a discount often comparable to foreclosure levels. The lender accepts the reduced sale price for the home without having the cost of foreclosure to bear and the homeowner avoids a foreclosure auction and possible eviction from the home. However, financial literacy would tell one that if a lender will accept a reduced pay-off for a loan balance through a sale, then why not short refinance the home for the reduced/short sale amount? The affects are the same as a loan modification with the exception of the creation of a new loan made based on a realistic and “corrected” property value. In addition, the homeowner is refinanced into an affordable home with an affordable mortgage.

Investors Slowing Loan Modification Process

marcus — Tue, 23 Jun 2009 20:07:31 +0000

According to Mortgage Bankers Association, over the past two years, 1 in 6 homes in the US have experienced mortgage distress as a result of the nation’s economic crisis, which was spurned by the housing market collapse. President Obama’s newly inaugurated administration made the housing crisis a priority and issued a loan modification program that compensated mortgage banks to modify delinquent mortgage loans. As a result many mortgage lenders have begun to modify delinquent home loans, thus preventing foreclosure and bolstering a saddened economy burdened by increased homelessness statistical reports. However, as the Wall Street Journal pointed out last week, many of these modified loans are rejected by the investors that hold these home loans in their investment bonds.

When mortgage loans are made, the company/bank that lends the money, pools the mortgage with other mortgage loans of similar terms, interest rates and risks. These pools are securitized (in short – packaged in a various dollar denominations and given an investment grade and interest rate) and sold on the bond market. US mortgage backed bonds are popular investment instruments and are purchased around the world by individuals and other countries’ governments as relatively safe investment…until two years ago.

So going back to mortgage loan modifications…when these investors get notice requesting permission to reduce a mortgage loan payment through a loan modification, the notice is essentially saying, would you, the investor, mind reducing your income from a bond and decreasing your investment portfolio substantially? The negative response by many of these bond holders/investors are causing many loan modifications to face rejection and a return to a foreclosure status after homeowners and loan servicers alike believe the loan is modified. Many housing finance experts think these investor actions will cause another flood of foreclosures over the next six months. Coincidently, if the homes go to foreclosure, the likelihood these investors will lose most of their investment is high. US Senator Durbin (D) has been arguing the defeat of the bankruptcy reform that allowed bankruptcy judges the ability to re-write mortgages of petitioners (someone filing bankruptcy) is the necessary teeth needed to motivate banks and investors to modify the very mortgage loans that caused the current economic depression.

Understanding Affordability is a Major Part of Financial Literacy

marcus — Thu, 11 Jun 2009 04:09:38 +0000

I recently got a call from a friend whose grandparents (80 years old) were placed into an expensive “no documentation” residential mortgage loan that is now foreclosing. The grandparents were seeking cash for medical expenses and didn’t qualify for a loan requiring full documentation of income and income sources. However, due to their excellent credit scores, they qualified for a riskier loan product that would forgo the process of verifying financial ability and documentation. Well, the mortgage interest rate adjusted and the medical expenses increased, the grandparents found themselves in an all too familiar situation… unable to afford their home of over 25 years and facing foreclosure. Key point to remember here is that everyone must understand bank loan qualifying standards are set to insure the loan applicant has a clear and certain ability to repay the loan in a timely manner. The mortgage company that determined the grandparents couldn’t afford the mortgage under normal conditions was wrong for suggesting the “no documentation” loan product with an unchanged understanding of the grandparent’s finances. Of course, after managing to maintain stellar credit, the grandparents should have been able to see that the riskier mortgage was more expensive and could reach an unaffordable level. But the thought of receiving an approval by creditors gives a false sense of security that the bank believes the loan requirements were manageable and affordable. In mortgage lending, irresponsibility in one’s fiduciary relationship to the client is inexcusable. The applicants are people… grandparents… who are relying on the guidance of the mortgage professionals and misuse of this trust relationship can lead to heavy fines on the lender. However, when mortgage professional are dealing with the elderly, there are additional laws that prevent and prosecute predatory lenders.
I know it’s not always great to get an unapproved status back on a loan application, but sometimes it for the best. Beware of risky loan products that speak beyond your level of financial literacy and discuss options with unbiased financial professionals (like CPA’s) outside of the transaction. If you feel you or someone else has been illegally advised on a mortgage transaction, contact your state’s attorney general and professional licensing commission arm.

First Time Homebuyer Credit More Accessible

marcus — Tue, 02 Jun 2009 20:54:31 +0000

Buying a home in this market is a no-brainer to anyone that understands financial literacy. Home values are at an all time low, the inventory of empty homes are higher and mortgage interest rates lower than any other time in recent history. However, since the economy is still in the “red” and news reporters are constantly trumpeting the woes of the employment market and the uncertainty of the nation’s financial future, many homebuyers are nervous to invest hard earned funds into a struggling housing industry. A little over half of all homes being purchase are a result of a foreclosure or short sale. Many of the homes may need costly repairs or maintenance that has likely been deferred, especially if the owners were experiencing financial difficulty and if the home was headed to a foreclosure status. The government and mortgage lending banks are making it easier for 1st time homebuyers to obtain the money to satisfy the newly imposed higher down payments and costly mortgage closing costs. Since the onset of the housing market decline, the government created an $8000 tax credit to first time homebuyers to offset the expense of buying a home and to encourage timid and market shy buyers to enter the market. But since tax time is so long from now, there is a new allowance to access the $8000 homeowner tax credit for the purchase of a home prior to completing the purchase. The $8000 1st time homebuyer tax credit cannot be used as a down payment, but it may be used to pay for closing cost. This is a great way to access affordable housing and take advantage of the bargains in the housing market and the homebuyer doesn’t have to wait until next year to realize the benefits.

Home Mortgage Delinquencies Still on the Rise

marcus — Fri, 29 May 2009 06:34:59 +0000

The Mortgage Bankers Association released data today indicating that over 12% of homeowners are experiencing mortgage delinquency. That statistic translates to 1 in every 8 homeowners are one payment (or more payments) behind on their mortgage loan. Since the incoming executive administration, the government and banks have made efforts to stave off foreclosures, but the rate of foreclosed homes has also modestly risen. The foreclosure rate is lower than expected because many mortgage lenders participated in a moratorium on foreclosure activity during the winter holidays and elections leading up to the inauguration. Fewer than 4% of homeowners are beyond the delinquency stage and facing actual foreclosure. Surprisingly, the majority of mortgage delinquency and foreclosures are among prime borrowers with fixed interest rate mortgages instead of the sub-primes borrowing that ignited the housing market decline over two years ago. Prime borrowers are held as the least risky to whom to lend and as a result experience lower mortgage interest rates and more lenient mortgage terms. Borrowers are considered prime because of credit profiles/scores, employment and income security as well as evidence of cash reserves, increased disposable income and equity in their home. Due to the bank’s best customers’ mortgage delinquency, interest rates have increased over the last month and experts expect to continue to see an increase of the 35 year high statistics as the summer approaches and unemployment increases.

Bankruptcy Notes for the Homeowner

marcus — Thu, 28 May 2009 18:38:55 +0000

The decision to file for bankruptcy is a tough one for the homeowner, but a choice millions of Americans are making each day as a result of the collapse of the housing market. While contemplating bankruptcy, the major concern of the homeowner is what happens to the home after filing. However, depending on the choice of filing chapter 7 or 13 bankruptcy, the homeowner can decide the fate of the home. In either situation, consultation with a licensed legal profession is always highly encouraged.

A chapter 13 bankruptcy allows the homeowner to not lose the home. The chapter 13 bankruptcy will reorganize the homeowner’s debt and create a payment plan. The homeowner will be required to provide a financial plan to maintain the home loan, satisfy the court’s payment plan to meet past due balances and any other financial obligations. If a Chapter 7 bankruptcy is chosen, the home will be relinquished to the titled lender and a foreclosure auction will take place after the bankruptcy is discharged. Oftentimes, homeowners file a bankruptcy to stop a foreclosure and allow more time to weigh financial decisions which will decide their home’s fate.

The majority of foreclosed or bankrupt homeowners eventually buy another home after their financial ordeal is long behind them. However, a re-establishment of a financial profile must be planned and properly managed before homeownership is to be re-considered. By rebuilding a credit profile the bankrupt homeowner is evidencing financial responsibility, creditworthiness and increasing the likelihood of purchasing another home sooner rather than later. A substantial savings should be accumulated, as buying a home after bankruptcy may require a larger cash down payment. FHA offers low down-payment mortgage loans and will finance the purchase of a home by a chapter 7 filer in as little as 3 years. In addition, a chapter 13 bankruptcy filer can refinance their existing home out of bankruptcy, as long as there is enough equity in the home to pay the bankruptcy claim. Some private mortgage companies will finance home loans after bankruptcy is filed as long as the borrower can prove to be financially able to afford the mortgage and maintain cash reserves. Anyone considering buying a home after bankruptcy should be mindful that a sizable down payment and higher than market interest rates may be a requirement of the home mortgage.

Bankruptcy can offer the homeowner a way to keep their home when a foreclosure is threatening or allow a homeowner to walk away from their home and gain a fresh financial start. Congress is considering changes to bankruptcy laws to allow the bankruptcy judge to re-write the mortgage terms to meet the present value of the home and the homeowner’s ability to pay for housing. However, the decision to file for bankruptcy should be based on the homeowner’s honest ability to sustain all financial responsibilities and not with the emotional attachment to property.