Saturday, April 2, 2011
AVOID FORECLOSURE
First call a FREE HUD Counselor: 1.888.995.4673
http://www.hud.gov/offices/hsg/sfh/hcc/fc/
If you are financially distressed or in danger of getting behind on your mortgage payments, you may be able to obtain free counseling from a HUD approved counseling agency. They offer a basic advisory service to consumers. The counselor will schedule a phone appointment and ask you to assemble your financial and mortgage documents prior to the call. Ask lots of questions and write down their answers. If this person suggests you 'may qualify' this does not mean you are 'approved'. Getting approved can take months. Many months.
What IS Loan Modification?
A loan modification is basically reworking your existing loan with your current bank or ‘servicer’ to new terms you can afford. In many instances, modification may result in a temporary lowering of your interest rate. But first, you must demonstrate financial hardship and an ability to make a lower payment. Lenders have their own rules so your advocate needs to know what they consider acceptable.
Your bank may steer you away from hiring an advocate because, frankly it's in their interest to have you to themselves. However, you may choose to work with a non profit agency, an attorney or licensed loan officer. Any paid loan modification agent must be licensed to practice in the state in which you live.
How Can You Avoid Foreclosure?
There are many strategies you may be advised to consider if you don't qualify for Loan Modification. A Bankruptcy (specialist) Attorney, qualified Short Sale Agent or Accountant may need to be consulted about your best options.
To WHOM Do You Apply for Help?
Your bank (the name on your mortgage statement) is the servicer of your loan. They represent the investor who holds your loan in their portfolio. The servicer is paid by the investor to keep your loan ‘performing’. It is in their interest to explore options to keep you in your home. They really don't want your home back!
An advocate may intervene on your behalf with your lender after assessing your most likely options. In addition to HAMP, HARP and MHA federal programs, many banks have their own private programs.
Advocates Are Proactive Agents Working for YOU!
During the modification process your advocate will need to regularly update your income documents to build your case with your lender. They will petition your lender for an agreement that serves all parties. Your advocate will help explore every option open to you. An experienced advocate will know the lending guidelines and specific concerns of your lender as well as which program to apply to your situation. A consumer has very little ability to navigate this turf on their own.
We Urge You to Apply for Help
For every situation there is a different potential result depending on you and your lender. The key is success is to keep communicating with your lender to find a resolution within your means.
Choosing an Advocate
We know how important your home is to you. By understanding your situation, an expert advocate may help you find a mutually acceptable plan of action. In the State of Washington, besides free HUD counselors, only legitimate Licensed Attorneys or Licensed Loan Officers may represent you for a fee. As your advocate, they represent you to your lender. Our goal is to prevent foreclosure and empower others to avoid financial distress. We offer a free financial review to explore your potential finance options to Washington citizens.
Assessing Your Options:
After your review, if a mortgage solution is not possible, a good lender may refer you to a trusted advocate or attorney who are expert in this arena*.
Get Accurate Information and Develop a Plan!
Read Susan’s posts on rebuilding credit after modification, short sale or foreclosure. http://www.netcredit.blogspot.com/
Don’t Wait Until It’s Too Late!
Don’t wait until you have exhausted your resources before seeking help. You are not required you to miss a payment before you apply for modification. Your lender is not going to be very motivated to help you if you cannot also help yourself.
Help Your Advocate Help You!
Applying for a loan modification involves verifying your actual financial position throughout the application process. The process relies on your full participation. Be patient and consistently support the effort.
To your success! Loannetter
© 2011 susan templeton loannetter
*Loannetter is not a loan modification advocate. Our business is mortgage lending.
Sunday, November 14, 2010
Loan Modification Budget Strategy -DTI Goals!
How lenders interpret the loan modification guidelines and how to develop your modification budget strategy.
The key to a successful loan modification boils down to math. Of course, the banks won't tell you what their guidelines are because they are not out to help you. Different banks also interpret these guidelines differently. The main problem homeowners have in applying themselves is not knowing these rules. So get your budget out and work up your numbers. Drill them into your head and be prepared to deliver supporting documents every month that match your strategy if you expect to succeed.
After the hardship letter
As I have stated in previous posts, the number one qualification to apply for a loan modification must be financial hardship which has impacted your ability to meet your current payments using this Debt to Income test. These factors may be temporary or permanent so the hardship affidavit (letter) is your starting point, followed by your budget analysis.
Regardless of whether you are applying for a HAMP, MHA or HARP or private bank program; they all share one focus: a prescribed level of affordability. The basis is to quantify and verify your debt to income ratios fall into a safe zone of risk.
We use a simple calculation to calculate Debt to Income:
DTI = Monthly Mortgage Payment DIVIDED by Your Gross Monthly Income.
Front end debt to income ratio
Your 'front end ratio' is JUST your housing expenses, including mortgage, insurance and taxes. If you are distressed, your DTI will be between 35% and 60% to basically fall into the danger zone. Most lenders allow 45% for a mortgage. So if you are at 45% DTI now, and have experienced a financial hardship for a mortgage transaction that was completed prior to February 2010, congratulations -- you may qualify for a loan modification.
If it were just that simple. It isn't.
Example: current mortgage payment, including taxes and insurance, is $1,250 divided by monthly income of $4,000 per month = 31.25% DTI.
Most banks use gross monthly income to keep things simple.
It just so happens that according to the affordability indexes of these programs, 31% DTI is the safe zone target. So if this is your current situation, you are already living within your means and will not be considered for a loan modification. Save yourself the trouble, time and anxiety of trying to get help because you will be turned down. A lower number means you are even safer territory. Above 35% and its starting to approach a qualifying level, based on other compensating factors of your case.
Back end debt to income ratio
Next work up your scheduled debt to income ratio-- which includes your mortgage plus all your credit cards, car payments and regularly reported credit. This needs to be under 70% total. In other words if you have more than 70% going out the door every month they will worry how the heck you will survive even with a modification since these debts are not going to be paid down if you can only make your minimum payment.
Example: $1,250 mortgage payment + $300 car payment + $300 minimum credit card payments + $200 Student Loan = $2,050 divided by $4,000 = 51.25% DTI. This is considered a risky DTI. A 70% back end ratio would be considered EXTREMELY risky because when you add your scheduled credit payments, PLUS basic living expenses (all fixed costs which are unlikely to go down) a major car repair or injury could wipe you out.
Sometimes a dual strategy is employed to consolidate your debt--but that is another subject for another day. Depending on the lender, this may be a good thing or a bad thing.
What does DTI establish?
Risk. Essentially, your DTI establishes how much assistance or 'break' will be necessary to get you into a safer risk category. The current front end, current back end and cured front and back end DTI ratios are compared and negotiated once all your facts are established.
Imminent 'risk of default'
Your must basically PROVE you are in danger by showing DTI's currently over 35% and under 70%. Then you must make a case for lowering your front end DTI to 31%.
Example:
Loan amount $250,000 at an interest rate of 7.5% = PITI (principle, interest, taxes and insurance) of $2,008 per month divided by $4000 income = front end DTI of 50.20%. High by any standard.
Now reduce the interest rate to 2.5% = PITI of $1,248 per month = 31.2% DTI. Perfect!
You see where we are headed?
Getting your payment into a safe zone -- even for a few years so you can recover financially is the goal. Officially the HAMP and MHA programs aim for five years relief, but most banks allow to 30 year improved terms. They figure most people move on average every 7 years so they are just protecting their losses by keeping you in your home and paying them something on all their cheap TARP money. You will have to negotiate very strongly if you are representing yourself. Above all, keep your cool and be polite if firm.
The winning strategy:
The goal is to establish what level of risk is acceptable to your bank and head for that zone as your negotiating point. If you are too far over into the danger zone due to high debts or your income is unlikely to qualify (either too high or too low) then you may as well call it quits right now.
If your income is likely to improve, or you are recovering from injury, career change, etc., you may still have a chance to make your case and meet this zone. In some instances I know borrowers who merely stalled during the application process until their income was acceptable. You may just be buying time. It's pretty stressful work to negotiate this yourself while you are attempting to rebuild your business and career. I strongly recommend you hire an advisor.
The winning tactic:
Use an amortization chart and plot in your mortgage loan amount and fiddle with interest rates until you get your PITI payment down to 31% DTI using your current income. If you are short, you can see how much income you will need to qualfiy to get up to 31% DTI. Use 2.0 - 2.5% as a floor interest rate for starters.
Expect to see a rise over a 5-10 year period to say 4.5 - 5.0% and then argue to fix that for the remaining 20-35 years. Yes, they will offer 40 year terms if that's what it takes. In rare cases, if you are way over the save DTI zone, and they really don't want your underwater property, some lenders will set aside a chuck of your loan in an interest free second lien that must be paid when you sell or in a certain balloon time frame. Hey - it's free money!
Budget wizardry
If you are waged, it will be easier to show consistency of income by providing your pay stubs. If your hours are inconsistent, you can average your income over several months and include funds from liquidating any assets or extra cash work you may scrounge up to support your case. After all you are working on financial recovery. Show that!
If you are self employed, you must provide your corporate Profit and Loss and both corporate and personal bank account statements. Now might be a great time to hire a bookkeeper or take some Quick Books training. Naturally you need to show a clean separation between business and personal. If you need to show more of your net income going to yourself to meet the minimums, you can take owner draws. It's a balancing act. Just aim for consistency in your budget from the start. They do check along the way! You will be coughing up reams of account statements, tax returns, pay stubs and profit and loss statements every month. If anything show a little improvement. Going backwards scares the beejezus out of banks.
Did I mention this is not a great time to take a cruise or buy a new car? Any new debt or time off work will absolutely kill your chances of loan modification.
Extra hint!
To support your hardship, you should ideally show very little money left over every month after making all your combined living expense payments. Once your housing expenses and scheduled debt, including food, insurance utilities, clothing, etc are paid each month, you want maybe $100 left over. That's the goal. If you suddenly start stacking up extra money in your savings they could deny you! You lender will verify your bank account balances directly.
What about missed payments and arrears?
Since your bank has every legal right to expect those interest payments you agreed to pay back in your promissory note, any shortfall or 'arrears' will eventually arrive in the form of a higher loan balance or longer term. Normally they forgive any fees associated with late payments. Don't worry -- the goal is to keep you in your home and if your case is well documented and meets both hardship and DTI test, you have a good chance of being offered a loan modification.
What about your home equity?
Even if you think your home value is holding up, it's not a great idea to admit you have much equity when you are applying for a loan modification. You may mention any deferred maintenance and state your value close to or below your loan amount. It concerns me that certain banks have been VERY aggressive toward clients with obvious home equity.
You know you are getting close when
At some point when your application is nearing a decision, the lender will send an appraiser to perform a Broker Price Opinion or BPO and report back to the bank. I know one fellow who parked old junker cards in his yard and let the grass grow up to make it look really scary! By the way, I've had clients report people arriving without notice claiming to be from 'your bank'. It is likely they got your address from the county foreclosure list. A real bank appraiser will offer their card and know who your bank is -- they rarely ask to come inside. You can always refuse that intrusion.
If you decide to negotiate your own loan modification and these tips were useful I would be pleased to hear your results. Otherwise, your professional advisor will employ these or similar strategies on your behalf. You can appreciate their effort is not easy or clear cut.
All the best! equitytalks
© copyright 2010 susan templeton equity talks
Disclaimer: I do not negotiate loan modifications, nor do I charge for an initial consultation. I refer local clients to a licensed colleague or other financial/legal resources as indicated by their circumstances. My business is responsible lending.
The key to a successful loan modification boils down to math. Of course, the banks won't tell you what their guidelines are because they are not out to help you. Different banks also interpret these guidelines differently. The main problem homeowners have in applying themselves is not knowing these rules. So get your budget out and work up your numbers. Drill them into your head and be prepared to deliver supporting documents every month that match your strategy if you expect to succeed.
After the hardship letter
As I have stated in previous posts, the number one qualification to apply for a loan modification must be financial hardship which has impacted your ability to meet your current payments using this Debt to Income test. These factors may be temporary or permanent so the hardship affidavit (letter) is your starting point, followed by your budget analysis.
Regardless of whether you are applying for a HAMP, MHA or HARP or private bank program; they all share one focus: a prescribed level of affordability. The basis is to quantify and verify your debt to income ratios fall into a safe zone of risk.
We use a simple calculation to calculate Debt to Income:
DTI = Monthly Mortgage Payment DIVIDED by Your Gross Monthly Income.
Front end debt to income ratio
Your 'front end ratio' is JUST your housing expenses, including mortgage, insurance and taxes. If you are distressed, your DTI will be between 35% and 60% to basically fall into the danger zone. Most lenders allow 45% for a mortgage. So if you are at 45% DTI now, and have experienced a financial hardship for a mortgage transaction that was completed prior to February 2010, congratulations -- you may qualify for a loan modification.
If it were just that simple. It isn't.
Example: current mortgage payment, including taxes and insurance, is $1,250 divided by monthly income of $4,000 per month = 31.25% DTI.
Most banks use gross monthly income to keep things simple.
It just so happens that according to the affordability indexes of these programs, 31% DTI is the safe zone target. So if this is your current situation, you are already living within your means and will not be considered for a loan modification. Save yourself the trouble, time and anxiety of trying to get help because you will be turned down. A lower number means you are even safer territory. Above 35% and its starting to approach a qualifying level, based on other compensating factors of your case.
Back end debt to income ratio
Next work up your scheduled debt to income ratio-- which includes your mortgage plus all your credit cards, car payments and regularly reported credit. This needs to be under 70% total. In other words if you have more than 70% going out the door every month they will worry how the heck you will survive even with a modification since these debts are not going to be paid down if you can only make your minimum payment.
Example: $1,250 mortgage payment + $300 car payment + $300 minimum credit card payments + $200 Student Loan = $2,050 divided by $4,000 = 51.25% DTI. This is considered a risky DTI. A 70% back end ratio would be considered EXTREMELY risky because when you add your scheduled credit payments, PLUS basic living expenses (all fixed costs which are unlikely to go down) a major car repair or injury could wipe you out.
Sometimes a dual strategy is employed to consolidate your debt--but that is another subject for another day. Depending on the lender, this may be a good thing or a bad thing.
What does DTI establish?
Risk. Essentially, your DTI establishes how much assistance or 'break' will be necessary to get you into a safer risk category. The current front end, current back end and cured front and back end DTI ratios are compared and negotiated once all your facts are established.
Imminent 'risk of default'
Your must basically PROVE you are in danger by showing DTI's currently over 35% and under 70%. Then you must make a case for lowering your front end DTI to 31%.
Example:
Loan amount $250,000 at an interest rate of 7.5% = PITI (principle, interest, taxes and insurance) of $2,008 per month divided by $4000 income = front end DTI of 50.20%. High by any standard.
Now reduce the interest rate to 2.5% = PITI of $1,248 per month = 31.2% DTI. Perfect!
You see where we are headed?
Getting your payment into a safe zone -- even for a few years so you can recover financially is the goal. Officially the HAMP and MHA programs aim for five years relief, but most banks allow to 30 year improved terms. They figure most people move on average every 7 years so they are just protecting their losses by keeping you in your home and paying them something on all their cheap TARP money. You will have to negotiate very strongly if you are representing yourself. Above all, keep your cool and be polite if firm.
The winning strategy:
The goal is to establish what level of risk is acceptable to your bank and head for that zone as your negotiating point. If you are too far over into the danger zone due to high debts or your income is unlikely to qualify (either too high or too low) then you may as well call it quits right now.
If your income is likely to improve, or you are recovering from injury, career change, etc., you may still have a chance to make your case and meet this zone. In some instances I know borrowers who merely stalled during the application process until their income was acceptable. You may just be buying time. It's pretty stressful work to negotiate this yourself while you are attempting to rebuild your business and career. I strongly recommend you hire an advisor.
The winning tactic:
Use an amortization chart and plot in your mortgage loan amount and fiddle with interest rates until you get your PITI payment down to 31% DTI using your current income. If you are short, you can see how much income you will need to qualfiy to get up to 31% DTI. Use 2.0 - 2.5% as a floor interest rate for starters.
Expect to see a rise over a 5-10 year period to say 4.5 - 5.0% and then argue to fix that for the remaining 20-35 years. Yes, they will offer 40 year terms if that's what it takes. In rare cases, if you are way over the save DTI zone, and they really don't want your underwater property, some lenders will set aside a chuck of your loan in an interest free second lien that must be paid when you sell or in a certain balloon time frame. Hey - it's free money!
Budget wizardry
If you are waged, it will be easier to show consistency of income by providing your pay stubs. If your hours are inconsistent, you can average your income over several months and include funds from liquidating any assets or extra cash work you may scrounge up to support your case. After all you are working on financial recovery. Show that!
If you are self employed, you must provide your corporate Profit and Loss and both corporate and personal bank account statements. Now might be a great time to hire a bookkeeper or take some Quick Books training. Naturally you need to show a clean separation between business and personal. If you need to show more of your net income going to yourself to meet the minimums, you can take owner draws. It's a balancing act. Just aim for consistency in your budget from the start. They do check along the way! You will be coughing up reams of account statements, tax returns, pay stubs and profit and loss statements every month. If anything show a little improvement. Going backwards scares the beejezus out of banks.
Did I mention this is not a great time to take a cruise or buy a new car? Any new debt or time off work will absolutely kill your chances of loan modification.
Extra hint!
To support your hardship, you should ideally show very little money left over every month after making all your combined living expense payments. Once your housing expenses and scheduled debt, including food, insurance utilities, clothing, etc are paid each month, you want maybe $100 left over. That's the goal. If you suddenly start stacking up extra money in your savings they could deny you! You lender will verify your bank account balances directly.
What about missed payments and arrears?
Since your bank has every legal right to expect those interest payments you agreed to pay back in your promissory note, any shortfall or 'arrears' will eventually arrive in the form of a higher loan balance or longer term. Normally they forgive any fees associated with late payments. Don't worry -- the goal is to keep you in your home and if your case is well documented and meets both hardship and DTI test, you have a good chance of being offered a loan modification.
What about your home equity?
Even if you think your home value is holding up, it's not a great idea to admit you have much equity when you are applying for a loan modification. You may mention any deferred maintenance and state your value close to or below your loan amount. It concerns me that certain banks have been VERY aggressive toward clients with obvious home equity.
You know you are getting close when
At some point when your application is nearing a decision, the lender will send an appraiser to perform a Broker Price Opinion or BPO and report back to the bank. I know one fellow who parked old junker cards in his yard and let the grass grow up to make it look really scary! By the way, I've had clients report people arriving without notice claiming to be from 'your bank'. It is likely they got your address from the county foreclosure list. A real bank appraiser will offer their card and know who your bank is -- they rarely ask to come inside. You can always refuse that intrusion.
If you decide to negotiate your own loan modification and these tips were useful I would be pleased to hear your results. Otherwise, your professional advisor will employ these or similar strategies on your behalf. You can appreciate their effort is not easy or clear cut.
All the best! equitytalks
© copyright 2010 susan templeton equity talks
Disclaimer: I do not negotiate loan modifications, nor do I charge for an initial consultation. I refer local clients to a licensed colleague or other financial/legal resources as indicated by their circumstances. My business is responsible lending.
Thursday, October 21, 2010
How to Find Out Who Owns Your Mortgage!
If, like many Americans, you are concerned about who actually owns your mortgage, write a letter to your bank and interested parties requesting this information.
Which Bank?
Just because Bank of Arizona is on your mortgage statement that does not mean they actually own your loan. They are the 'servicer'. Which means they collect your monies, take their fee and send the rest to the parties who own it. Since ownership changes the servicer may also change or may just keep track of where to send the money. If Fannie Mae or Freddie Mac are the 'owners' of your loan, well....many people invested a Mutual Fund in Iowa or pension fund in Norway could be 'fractional owners' of your loan.
It is rare these days that your local bank you may have gone to for a loan, actually owns your mortgage. The speed with which loans were packaged and sold on Wall Street into traunches of Mortgage Backed Securities (which were then traded and and retraded) is why ownership of individual home loans is proving hard to unravel. One mistake at any point along the way is like putting cement on the icing of a baked cake, forever freezing any imperfections.
Use this template letter to send to your servicing bank to find out who owns your loan:
Enter your name of all persons on your home title
Address of home and Loan Number
Address the letter to your Servicing Bank
Date
Re: Request for original mortgage note and additional information
To whom it may concern:
This is a Qualified Written Request under Section 6 of the Real Estate Settlement Procedures Act (RESPA). I/we own the property at the address listed above, and your bank services my/our mortgage.
Your company name is shown as the servicer on my monthly mortgage statement.
I am very concerned about recent news articles documenting that some banks have been foreclosing on homes without proof that they own the loan. I understand that in many cases, banks like yours do not even know who owns the loans you service.
I have read reports of bank staff admitting they allegedly falsified mortgage documents to cover up their mistakes while some parties have misrepresented their relationships with both the bank and the trustee assigned to handle the foreclosure.
There have been reports of two banks trying to foreclose on the same home, banks foreclosing on homeowners who were current on their payments, and even of a bank foreclosing on a home where the homeowner had never taken out a mortgage.
As a homeowner and a customer of your bank, I am horrified. I had always believed that if I played by the rules, I would be protected, but now I know that banks like yours think the rules don't apply to them.
To protect myself and my family, I need to know who owns my mortgage. Within sixty days, I would like to know the name, address, and phone number of the bank or investor that owns my mortgage.
Furthermore, in light of the recent allegations of foreclosure fraud, I demand to see the original mortgage note proving ownership over my home loan. If you fail to produce a mortgage note proving that you have a right to collect my mortgage payments, I will be forced to consider all options available to me to protect my interests.
I ask that I receive my response in writing. I understand that under Section 6 of RESPA you are legally required to acknowledge my request within twenty business days and must try to resolve the issue within sixty days.
Thank you for your urgent attention to this matter.
(all parties on title or party to the loan should sign the letter)
NOW GO TELL YOUR FRIENDS!
What the heck, send a copy to your local newspaper Editor and report on your progress. Email this to your friends and family and urge them to do the same. If more people did this -- imagine the response letters banks would have to write much less the research necessary to find out who exactly owns each loan they service.
Keep at it!
If you don't get a response within 20 days to the day, send it again, certified mail, with a cover letter, asking once again for this information relating to your first request on such and such a date and include a copy of the original letter.
This link takes you to a list of the main mortgage servicing banks and how to contact them online using a letter similar to the one above. http://tinyurl.com/26vntht
Frankly I prefer certified mail and a paper trail. If you write a letter yourself, just keep the language clear and to the point, no insults. You want a response!
Copy the letter to your State Attorney General, and your Congressional Representatives http://www.congress.org
You might also copy The The Federal Trade Commission: http://www.ftc.gov/bcp/index.shtml The FTC's Bureau of Consumer Protection is supposed to protect you against deception and fraud, should you feel deceived or defrauded.
If your loan is with a National Bank, send a copy of your letter to the Office of the Comptroller of the Currency. Here's their handy site: http://www.helpwithmybank.gov
Each organization you write to or cc: should ideally see on their copy the other parties you sent your letter to. The more eyes, the better!
Video Expose
Watch this shocking video of a "Robo Signer" who signed documents as a notary for Nationwide Title Clearing: http://tinyurl.com/robosigner
All the best! equitytalks
© copyright 2010 susan templeton equitytalks
Which Bank?
Just because Bank of Arizona is on your mortgage statement that does not mean they actually own your loan. They are the 'servicer'. Which means they collect your monies, take their fee and send the rest to the parties who own it. Since ownership changes the servicer may also change or may just keep track of where to send the money. If Fannie Mae or Freddie Mac are the 'owners' of your loan, well....many people invested a Mutual Fund in Iowa or pension fund in Norway could be 'fractional owners' of your loan.
It is rare these days that your local bank you may have gone to for a loan, actually owns your mortgage. The speed with which loans were packaged and sold on Wall Street into traunches of Mortgage Backed Securities (which were then traded and and retraded) is why ownership of individual home loans is proving hard to unravel. One mistake at any point along the way is like putting cement on the icing of a baked cake, forever freezing any imperfections.
Use this template letter to send to your servicing bank to find out who owns your loan:
Enter your name of all persons on your home title
Address of home and Loan Number
Address the letter to your Servicing Bank
Date
Re: Request for original mortgage note and additional information
To whom it may concern:
This is a Qualified Written Request under Section 6 of the Real Estate Settlement Procedures Act (RESPA). I/we own the property at the address listed above, and your bank services my/our mortgage.
Your company name is shown as the servicer on my monthly mortgage statement.
I am very concerned about recent news articles documenting that some banks have been foreclosing on homes without proof that they own the loan. I understand that in many cases, banks like yours do not even know who owns the loans you service.
I have read reports of bank staff admitting they allegedly falsified mortgage documents to cover up their mistakes while some parties have misrepresented their relationships with both the bank and the trustee assigned to handle the foreclosure.
There have been reports of two banks trying to foreclose on the same home, banks foreclosing on homeowners who were current on their payments, and even of a bank foreclosing on a home where the homeowner had never taken out a mortgage.
As a homeowner and a customer of your bank, I am horrified. I had always believed that if I played by the rules, I would be protected, but now I know that banks like yours think the rules don't apply to them.
To protect myself and my family, I need to know who owns my mortgage. Within sixty days, I would like to know the name, address, and phone number of the bank or investor that owns my mortgage.
Furthermore, in light of the recent allegations of foreclosure fraud, I demand to see the original mortgage note proving ownership over my home loan. If you fail to produce a mortgage note proving that you have a right to collect my mortgage payments, I will be forced to consider all options available to me to protect my interests.
I ask that I receive my response in writing. I understand that under Section 6 of RESPA you are legally required to acknowledge my request within twenty business days and must try to resolve the issue within sixty days.
Thank you for your urgent attention to this matter.
(all parties on title or party to the loan should sign the letter)
NOW GO TELL YOUR FRIENDS!
What the heck, send a copy to your local newspaper Editor and report on your progress. Email this to your friends and family and urge them to do the same. If more people did this -- imagine the response letters banks would have to write much less the research necessary to find out who exactly owns each loan they service.
Keep at it!
If you don't get a response within 20 days to the day, send it again, certified mail, with a cover letter, asking once again for this information relating to your first request on such and such a date and include a copy of the original letter.
This link takes you to a list of the main mortgage servicing banks and how to contact them online using a letter similar to the one above. http://tinyurl.com/26vntht
Frankly I prefer certified mail and a paper trail. If you write a letter yourself, just keep the language clear and to the point, no insults. You want a response!
Copy the letter to your State Attorney General, and your Congressional Representatives http://www.congress.org
You might also copy The The Federal Trade Commission: http://www.ftc.gov/bcp/index.shtml The FTC's Bureau of Consumer Protection is supposed to protect you against deception and fraud, should you feel deceived or defrauded.
If your loan is with a National Bank, send a copy of your letter to the Office of the Comptroller of the Currency. Here's their handy site: http://www.helpwithmybank.gov
Each organization you write to or cc: should ideally see on their copy the other parties you sent your letter to. The more eyes, the better!
Video Expose
Watch this shocking video of a "Robo Signer" who signed documents as a notary for Nationwide Title Clearing: http://tinyurl.com/robosigner
All the best! equitytalks
© copyright 2010 susan templeton equitytalks
Saturday, August 28, 2010
Distressed Homeowners Get HELP!
If you cannot afford your current financial commitments it may be time to get professional help. Below are some guidelines and resources:
The loss of their home's value has caught many people off guard. Even folks with good jobs and modest 80% LTV (loan amount to home value) now find their value may have dropped 20% or more in the last two or three years. As mortgage professionals, we have many resources, but we are not magicians! Fortunately, the same guidelines that lenders apply to mortgage lending (which we must know backwards and forwards) also apply to your new situation, although they are applied differently - you'll see how below. It is extremely and painfully obvious to banks that many homeowners simply would not now qualify for the same loan they now hold. Your mortgage balance represents their interest in your property -- which may now be greater than what the collateral (your home) is worth. So essentially you and your bank are both in trouble.
So what do you do?
Well for starters, (and I know this is boring and insulting), it really helps to sit down with your family budget and look at what you are now spending for basics, including your house, insurance, taxes, maintenance, cars, car insurance, food, health insurance. utilities, food...all the necessities. I can't tell you how many people have returned this form to me completely blank. Many of us live in denial about what our lifestyles are actually costing us. So get this: it's important and the starting point of your financial recovery.
This simple two page form Budget Form is available from the Washington Department of Financial Institutions. This same form is used by the Loan Modification agents and HUD Counseling Agencies to assess your situation. The exercise takes 20 minutes tops. If you find this hard to do perhaps there is something amiss in your relationship with money. Gather the relevant bills and just do it.
After you have completed the form: Divide your Expenses by your Income like so:
Distressed Example: Expenses $3,000 per month divided by Income of $5000 per month
= .60 = Debt to Income Ratio of 60%
At 60% DTI you are well over what is considered a safe lending limit according to the Fannie Mae/Freddie Mac and FHA guidelines. The lending limits today allow DTI of 41-45% depending on the loan type. For some earners with very low expenses and good assets, they may be qualified for up to 55% DTI. The Loan Modification HAMP/MHA guidelines top out around 31% DTI. Translated:
Lending Example: Expenses $3,000 per month divided by Income of $7000 per month
= .428 = Debt to Income Ratio of 42.8% (under 45% limit--this is considered 'safe')
Modification Example: Expenses $3,000 per month divided by Income of $9650 per month
= .31 = Debt to Income Ratio of 31.%
In these examples above I used the same expenses to show how much more income is required to get into the 'safe zone'. In other words, something has to give. Either you make more money, or your expenses must be reduced. Since the largest item on most people's budget is their mortgage, that specific payment may be adjusted or conversely, your income may have to increase to sustain your current lifestyle.
What is possible depends entirely on you and your situation.
If you are over the DTI of 31% as outlined above, then you may be advised apply for a Loan Modification. A hardship situation is required to qualify for the government relief programs, HAMP or MHA. A hardship is defined as any event that has impacted your ability to meet your financial obligations outside your control including: loss of job, divorce, death of spouse, medical event, increased responsibilities (child or elderly care), disability, natural disaster, and a host of other ills that may have befallen your household.
If you find yourself in debt due to your own excess or poor judgement then legal help may be required. A combination approach may be called for if you have more than one cause.
Where to Start:
You will be told by all the public infomercials to call your bank first. Don't waste your breath and time on hold. The fact is not many banks are bothering to do much more than say they will help and stall you for a few months before saying no, sorry we can't help you. All the while you are sinking deeper in debt. Yes --they are supposed to help and no -- they aren't very good at it.
If you are already facing foreclosure you may seek first the Free HUD Counselors in Washington or you may seek professional help. First, share your Budget Form with your accountant or a family friend and put some ideas on the table.
Call a FREE HUD Counselor for starters: 1-888-995-4673.
I will say I have spoken with several HUD counselors and some are well trained and helpful. The only problem with their 'advice' if you can call it that is that once they determine you 'have a case' they will send you back to your lender to fend for yourself. If you are not very far behind, say less than 90 days in your mortgage payments- your bank may be able to help. Just don't count on it.
What you can count on is a long drawn out process. If you are more than 90 days behind on your payments and you have received a Notice of Default, your case has fallen into the 'loss mitigation department'. These are specialists working through a backlog of distressed cases on behalf of the lender. Just remember, they represent the bank and not you. In fact, they really don't want to speak with you at all. They simply cannot handle your angst and get their job done.
If you feel you need outside help, below are some resources:
Home Foreclosure Legal Aid Project: If you cannot afford a lawyer, this project is a partnership with the Washington State Bar and the Northwest Justice Project: 1-877-894-4663
Office of the Comptroller of the Currency http://www.occ.treas.gov/customer.htm
Homeowners may register complaints regarding their national banks here for investigation.
Congressional Representatives Your elected officials need to hear from you and may offer resources and assistance at both state and federal level http://www.congress.org
Washington State Department of Financial Institutions Hotline:
Homeowners may register complaints about state banks and modification agents as well as tips on how to proceed if you are facing foreclosure: http://www.dfi.wa.gov/consumers/homeownership/foreclosure_help.htm
Please note: It is best to seek the services of professionals with a demonstrated track record and expertise in their specific fields. We refer to trusted local colleagues in the areas of debt restructuring, bankruptcy law, accounting, loan modification, short sale negotiation, real estate sales and credit restoration. Our primary business is mortgage financing.
To your future prosperity! equitytalks
(c) copyright 2010 susan templeton equitytalks
The loss of their home's value has caught many people off guard. Even folks with good jobs and modest 80% LTV (loan amount to home value) now find their value may have dropped 20% or more in the last two or three years. As mortgage professionals, we have many resources, but we are not magicians! Fortunately, the same guidelines that lenders apply to mortgage lending (which we must know backwards and forwards) also apply to your new situation, although they are applied differently - you'll see how below. It is extremely and painfully obvious to banks that many homeowners simply would not now qualify for the same loan they now hold. Your mortgage balance represents their interest in your property -- which may now be greater than what the collateral (your home) is worth. So essentially you and your bank are both in trouble.
So what do you do?
Well for starters, (and I know this is boring and insulting), it really helps to sit down with your family budget and look at what you are now spending for basics, including your house, insurance, taxes, maintenance, cars, car insurance, food, health insurance. utilities, food...all the necessities. I can't tell you how many people have returned this form to me completely blank. Many of us live in denial about what our lifestyles are actually costing us. So get this: it's important and the starting point of your financial recovery.
This simple two page form Budget Form is available from the Washington Department of Financial Institutions. This same form is used by the Loan Modification agents and HUD Counseling Agencies to assess your situation. The exercise takes 20 minutes tops. If you find this hard to do perhaps there is something amiss in your relationship with money. Gather the relevant bills and just do it.
After you have completed the form: Divide your Expenses by your Income like so:
Distressed Example: Expenses $3,000 per month divided by Income of $5000 per month
= .60 = Debt to Income Ratio of 60%
At 60% DTI you are well over what is considered a safe lending limit according to the Fannie Mae/Freddie Mac and FHA guidelines. The lending limits today allow DTI of 41-45% depending on the loan type. For some earners with very low expenses and good assets, they may be qualified for up to 55% DTI. The Loan Modification HAMP/MHA guidelines top out around 31% DTI. Translated:
Lending Example: Expenses $3,000 per month divided by Income of $7000 per month
= .428 = Debt to Income Ratio of 42.8% (under 45% limit--this is considered 'safe')
Modification Example: Expenses $3,000 per month divided by Income of $9650 per month
= .31 = Debt to Income Ratio of 31.%
In these examples above I used the same expenses to show how much more income is required to get into the 'safe zone'. In other words, something has to give. Either you make more money, or your expenses must be reduced. Since the largest item on most people's budget is their mortgage, that specific payment may be adjusted or conversely, your income may have to increase to sustain your current lifestyle.
What is possible depends entirely on you and your situation.
If you are over the DTI of 31% as outlined above, then you may be advised apply for a Loan Modification. A hardship situation is required to qualify for the government relief programs, HAMP or MHA. A hardship is defined as any event that has impacted your ability to meet your financial obligations outside your control including: loss of job, divorce, death of spouse, medical event, increased responsibilities (child or elderly care), disability, natural disaster, and a host of other ills that may have befallen your household.
If you find yourself in debt due to your own excess or poor judgement then legal help may be required. A combination approach may be called for if you have more than one cause.
Where to Start:
You will be told by all the public infomercials to call your bank first. Don't waste your breath and time on hold. The fact is not many banks are bothering to do much more than say they will help and stall you for a few months before saying no, sorry we can't help you. All the while you are sinking deeper in debt. Yes --they are supposed to help and no -- they aren't very good at it.
If you are already facing foreclosure you may seek first the Free HUD Counselors in Washington or you may seek professional help. First, share your Budget Form with your accountant or a family friend and put some ideas on the table.
Call a FREE HUD Counselor for starters: 1-888-995-4673.
I will say I have spoken with several HUD counselors and some are well trained and helpful. The only problem with their 'advice' if you can call it that is that once they determine you 'have a case' they will send you back to your lender to fend for yourself. If you are not very far behind, say less than 90 days in your mortgage payments- your bank may be able to help. Just don't count on it.
What you can count on is a long drawn out process. If you are more than 90 days behind on your payments and you have received a Notice of Default, your case has fallen into the 'loss mitigation department'. These are specialists working through a backlog of distressed cases on behalf of the lender. Just remember, they represent the bank and not you. In fact, they really don't want to speak with you at all. They simply cannot handle your angst and get their job done.
If you feel you need outside help, below are some resources:
Home Foreclosure Legal Aid Project: If you cannot afford a lawyer, this project is a partnership with the Washington State Bar and the Northwest Justice Project: 1-877-894-4663
Office of the Comptroller of the Currency http://www.occ.treas.gov/customer.htm
Homeowners may register complaints regarding their national banks here for investigation.
Congressional Representatives Your elected officials need to hear from you and may offer resources and assistance at both state and federal level http://www.congress.org
Washington State Department of Financial Institutions Hotline:
Homeowners may register complaints about state banks and modification agents as well as tips on how to proceed if you are facing foreclosure: http://www.dfi.wa.gov/consumers/homeownership/foreclosure_help.htm
Please note: It is best to seek the services of professionals with a demonstrated track record and expertise in their specific fields. We refer to trusted local colleagues in the areas of debt restructuring, bankruptcy law, accounting, loan modification, short sale negotiation, real estate sales and credit restoration. Our primary business is mortgage financing.
To your future prosperity! equitytalks
(c) copyright 2010 susan templeton equitytalks
Sunday, August 22, 2010
Bouncing Back from Short Sale or Foreclosure
Homeowners who have suffered a Short Sale or Foreclosure are advised to develop a recovery strategy from the day you decide to negotiate your settlement terms with your bank. The fact you have failed on a financial obligation, on the face of it, is an agreement to move forward with you life. Congratulations. Take a deep breath!
You may be able to qualify for an FHA home loan as your fastest track back to homeownership sooner than later. FHA currently has no minimum credit score, although most lenders do have their own underwriting overlays on what they will accept. 620 FICO is the starting point for most.
What about timing?
The clock starts ticking in your favor the day your home title is transferred to a new owner. NOT unfortunately, the date your foreclosure is registered. Since Short Sales keep you on title throughout the process, you could be putting off home ownership however long it takes to settle your sale. If you were able to keep making your payments or miraculously did not have months of ‘late payments’ pile up on your credit you could theoretically apply for a new mortgage right away. How an underwriter views your situation is very much up to your complete presentation and the lending bank’s mood (as always!)
FHA could be your ticket!
FHA Loans, the flagship of HUD (US Housing and Urban Development) are the most lenient with general underwriting compared to conventional lenders largely due to the government insured mortgage insurance paid for by the homeowner.
NOTE page 2 of the below HUD FHA Mortgagee Letter of December 2009. This outlines the ability of a Borrower to apply for an FHA insured Mortgage following a Short Sale of a previous property. (It is likely these standards will be revisited as they often are!)
“Borrowers are considered eligible for a new FHA-insured mortgage if
• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
• the proceeds from the short sale serve as payment in full.”
Both situations above are rare if your short sale lags more than 90 days. More commonly:
“Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.”
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-52ml.pdf
What about Conventional Loans?
Traditionally, Conventional Loans, i.e., those sold to Fannie Mae and Freddie Mac have pretty strict guidelines (now) that you won't really be considered 'fundable' for seven years after a foreclosure. This varies widely in practice!
If you live in a rural area or are a US Military Veteran:
USDA and VA usually defer to the HUD guidelines with some exceptions, usually established by the lending institution on a case by case basis. VA will officially consider a borrower after 2 years from Bankruptcy or Foreclosure and with some exceptions possibly sooner. These organizations are essentially charged with sponsoring home ownership for people needing assitance with no down payment. Search USDA properties: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Don't fall for: "Short Sales have less effect on your credit"
This is a popular real estate myth! For anyone considering enduring months and months waiting for their home to sell as a distressed short sale; please understand: essentially a foreclosure or short sale has very similar effects on your credit. After 120 days the ‘lates’ register on your report with the same effect as a foreclosure. Since on average a short sale takes from 6 to 13 months imagine that month after month your credit continues to tank with each successive late and each late is fresher and fresher. Recent negative impacts have more effect than older ones. Your score can only start recovering when you do and the late payments stop. NOTE: one 120 day 'late' entry for a mortgage payment can have up to 130 -200 pts immediate negative effect on your score. Credit scores go down lke a rock (fast) with any negative impact and up like a feather in recovery mode (slow).
Bank Ratings on the Short Sale Process:
HousingWire magazine recently rated banks for their short sale negotiation timing. Surprisingly, Bank of America was rated at the bottom with 13 months on average. We must give BofA some credit for inheriting the famed Countrywide debacle and all their class action suits to unravel. They certainly had help getting the worst rating. Perhaps even more surprising is that GMAC was rated at the top of quick negotiators at 6 months on average. GMAC was formerly rated as a predatory lender in the United States (I was told this by a Calvert Funds advisor) This turn of events for 'tough banks' becoming quick negotiators may be a direct proportion to the amount of Federal Reserve TARP money they have put to good use rebuilding their staff levels and bottom line.
Build a Credit Recovery Strategy!
More on rebuilding your credit after a Short Sale or Foreclosure on our other blog: http://www.netcredit.blogspot.com/
To your prosperous future! equitytalks
© copyright 2010 susan templeton equitytalks
You may be able to qualify for an FHA home loan as your fastest track back to homeownership sooner than later. FHA currently has no minimum credit score, although most lenders do have their own underwriting overlays on what they will accept. 620 FICO is the starting point for most.
What about timing?
The clock starts ticking in your favor the day your home title is transferred to a new owner. NOT unfortunately, the date your foreclosure is registered. Since Short Sales keep you on title throughout the process, you could be putting off home ownership however long it takes to settle your sale. If you were able to keep making your payments or miraculously did not have months of ‘late payments’ pile up on your credit you could theoretically apply for a new mortgage right away. How an underwriter views your situation is very much up to your complete presentation and the lending bank’s mood (as always!)
FHA could be your ticket!
FHA Loans, the flagship of HUD (US Housing and Urban Development) are the most lenient with general underwriting compared to conventional lenders largely due to the government insured mortgage insurance paid for by the homeowner.
NOTE page 2 of the below HUD FHA Mortgagee Letter of December 2009. This outlines the ability of a Borrower to apply for an FHA insured Mortgage following a Short Sale of a previous property. (It is likely these standards will be revisited as they often are!)
“Borrowers are considered eligible for a new FHA-insured mortgage if
• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
• the proceeds from the short sale serve as payment in full.”
Both situations above are rare if your short sale lags more than 90 days. More commonly:
“Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Lenders may make exceptions to this rule under certain circumstances.”
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-52ml.pdf
What about Conventional Loans?
Traditionally, Conventional Loans, i.e., those sold to Fannie Mae and Freddie Mac have pretty strict guidelines (now) that you won't really be considered 'fundable' for seven years after a foreclosure. This varies widely in practice!
If you live in a rural area or are a US Military Veteran:
USDA and VA usually defer to the HUD guidelines with some exceptions, usually established by the lending institution on a case by case basis. VA will officially consider a borrower after 2 years from Bankruptcy or Foreclosure and with some exceptions possibly sooner. These organizations are essentially charged with sponsoring home ownership for people needing assitance with no down payment. Search USDA properties: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Don't fall for: "Short Sales have less effect on your credit"
This is a popular real estate myth! For anyone considering enduring months and months waiting for their home to sell as a distressed short sale; please understand: essentially a foreclosure or short sale has very similar effects on your credit. After 120 days the ‘lates’ register on your report with the same effect as a foreclosure. Since on average a short sale takes from 6 to 13 months imagine that month after month your credit continues to tank with each successive late and each late is fresher and fresher. Recent negative impacts have more effect than older ones. Your score can only start recovering when you do and the late payments stop. NOTE: one 120 day 'late' entry for a mortgage payment can have up to 130 -200 pts immediate negative effect on your score. Credit scores go down lke a rock (fast) with any negative impact and up like a feather in recovery mode (slow).
Bank Ratings on the Short Sale Process:
HousingWire magazine recently rated banks for their short sale negotiation timing. Surprisingly, Bank of America was rated at the bottom with 13 months on average. We must give BofA some credit for inheriting the famed Countrywide debacle and all their class action suits to unravel. They certainly had help getting the worst rating. Perhaps even more surprising is that GMAC was rated at the top of quick negotiators at 6 months on average. GMAC was formerly rated as a predatory lender in the United States (I was told this by a Calvert Funds advisor) This turn of events for 'tough banks' becoming quick negotiators may be a direct proportion to the amount of Federal Reserve TARP money they have put to good use rebuilding their staff levels and bottom line.
Build a Credit Recovery Strategy!
More on rebuilding your credit after a Short Sale or Foreclosure on our other blog: http://www.netcredit.blogspot.com/
To your prosperous future! equitytalks
© copyright 2010 susan templeton equitytalks
Friday, May 28, 2010
The Future of Distressed Homeowner Programs
Should this home be 'saved'?
I read a wake up article today by a mortgage market advisor Mark Hanson, who suggested that unless foreclosures double from the April 2010 record, the 'shadow inventory' of homes on the market --it will take at least 8-years to clear the sales backlog of homes for sale. Wow.
Which suggests, by deduction, that our national housing markets will be affected by these lower priced distressed homes lagging if not languishing on the market beside new and non distressed homes, affecting their values for years. OK so that's the downside. But for every dark cloud there is a silver lining...right? What is the real effect of foreclosures in your local market? Are people who don't need to sell helping stabilize their local economies by staying put regardless of their paper 'losses' in value?
Mr. Hanson goes on to suggest: "Massive-scale home retention (mortgage mod) programs have truly helped only a small slice but primarily served to slow up the pace at which foreclosures have occurred over the past year. This has created a giant bubble of distressed homeowners in the pipeline that over time will be liquidated. "
Apparently Mr. Hanson feels many of those homes in distress mode will eventually be foreclosed because it is apparent that the buyers were unqualified to buy those homes (or have experienced financial barriers to keeping them). So if that is the case, are banks ready to accept their part in over-lending and start writing off seconds and writing down principal balances willingly? So far the assistance offered has leaned toward banks and not borrowers. Many of us in the front lines would like to see the balance shifted toward a more fair and equitable assistance for homeowners caught in the middle.
Fortunately, some programs on the horizon, notably the new Principle Write-down Program takes effect in June...just three days away. It's too early to tell how investors will apply the new guidelines and if this will actually lower many loan balances. The biggest proponent, Bank of America, is making news about Principle Write-downs as a good thing but what most people don't know is that their losses will be 'asssisted off their books' with more incentives. Paid for by us. A borrower has to make perfect payments for at least five years to qualify for these incentives --so if they suffer other financial setbacks they could still loose.
One just has to ask: who is really being helped here? I am happy to see someone who can't afford their loan get a better deal if it means less pain all around. In effect, keeping someone in their home who can't really afford it is lashing that person to a financial ball and chain. If a bank writes down the balance on an existing loan, this is essentially devaluating that home for that homeowner. Althought the lower loan balance is not immediatly obvious until someone tries to sell that lower liened home and that person can afford to take a lower sale price. Isn't that what foreclosures accomplish just faster? Lowering the property values by flooding the market with cheaper goods? It is confusing to me why taxpayers would be expected to pay for these losses to banks...while quite directly absorbing these losses of our neighbor's foreclosed homes devaluing our own home next door. It's a double whammy for solid citizens to be asked to help our neighbors while also watching our home values decline.
Recently I spoke with a bankruptcy attorney who wondered aloud if homeowners in financial distress realized that loan modification is not a silver bullet. There are no guarantees. Your lender could put you through a trial mod and still reject you at the end if your situation has changed. You see, these programs have a certain life, and an end to the funding programs. Which could mean that months and months of effort might result in those losses still happening via foreclosure, short sale or deed in lieu.
Most people are really concerned about the effects of walking away or suffering a foreclosure when--and I have recently formed this opinion--the effects of a long drawn out short sale may cause as much, if not more damage, to your psyche and your credit score than making an earlier decision to take the loss via foreclosures or deed in lieu. Heresy, I know. Realtors who handle short sales would be spared those sales. Never mind the cost to the borrowers of a year on the market and all that uncertainty and lost sleep. Would it be better to settle up and clear you mind of the financial burden and move to a place you can actually afford? Folks need to weight this up carefully. ('Deed in lieu' by the way is agreeing with your lender to simply hand the keys back and avoid the legal public foreclosure process.)
I am reminded of my photo safari in Kenya: driving across the Masai Mara we came upon a group of baboons migrating in a long line. Following them was a young cheetah and the male baboons were displaying quite an angry 'go away' stance on an anthill to scare him away, beating their chests and screaming at him. According to my driver, the cheetah probably didn't know that picking a fight with a baboon would be a bloody hard fight and at the end of it they don't make a very good meal.
There is a certain tendency of those of us who assist home owners in distress to want to 'fix it' and make the pain go away. Or to fight the fight because people feel so wronged. But some things just can't be fixed. Certainly we have tools at our disposal if a home owner can be assisted within reason. The point of modifying your loan may be to buy time, while accepting that you may eventually need to get out from under this level of debt.There is nothing like being decisive, making a tough decision and not fighting that fight for a bad meal.
I read a wake up article today by a mortgage market advisor Mark Hanson, who suggested that unless foreclosures double from the April 2010 record, the 'shadow inventory' of homes on the market --it will take at least 8-years to clear the sales backlog of homes for sale. Wow.
Which suggests, by deduction, that our national housing markets will be affected by these lower priced distressed homes lagging if not languishing on the market beside new and non distressed homes, affecting their values for years. OK so that's the downside. But for every dark cloud there is a silver lining...right? What is the real effect of foreclosures in your local market? Are people who don't need to sell helping stabilize their local economies by staying put regardless of their paper 'losses' in value?
Mr. Hanson goes on to suggest: "Massive-scale home retention (mortgage mod) programs have truly helped only a small slice but primarily served to slow up the pace at which foreclosures have occurred over the past year. This has created a giant bubble of distressed homeowners in the pipeline that over time will be liquidated. "
Apparently Mr. Hanson feels many of those homes in distress mode will eventually be foreclosed because it is apparent that the buyers were unqualified to buy those homes (or have experienced financial barriers to keeping them). So if that is the case, are banks ready to accept their part in over-lending and start writing off seconds and writing down principal balances willingly? So far the assistance offered has leaned toward banks and not borrowers. Many of us in the front lines would like to see the balance shifted toward a more fair and equitable assistance for homeowners caught in the middle.
Fortunately, some programs on the horizon, notably the new Principle Write-down Program takes effect in June...just three days away. It's too early to tell how investors will apply the new guidelines and if this will actually lower many loan balances. The biggest proponent, Bank of America, is making news about Principle Write-downs as a good thing but what most people don't know is that their losses will be 'asssisted off their books' with more incentives. Paid for by us. A borrower has to make perfect payments for at least five years to qualify for these incentives --so if they suffer other financial setbacks they could still loose.
One just has to ask: who is really being helped here? I am happy to see someone who can't afford their loan get a better deal if it means less pain all around. In effect, keeping someone in their home who can't really afford it is lashing that person to a financial ball and chain. If a bank writes down the balance on an existing loan, this is essentially devaluating that home for that homeowner. Althought the lower loan balance is not immediatly obvious until someone tries to sell that lower liened home and that person can afford to take a lower sale price. Isn't that what foreclosures accomplish just faster? Lowering the property values by flooding the market with cheaper goods? It is confusing to me why taxpayers would be expected to pay for these losses to banks...while quite directly absorbing these losses of our neighbor's foreclosed homes devaluing our own home next door. It's a double whammy for solid citizens to be asked to help our neighbors while also watching our home values decline.
Recently I spoke with a bankruptcy attorney who wondered aloud if homeowners in financial distress realized that loan modification is not a silver bullet. There are no guarantees. Your lender could put you through a trial mod and still reject you at the end if your situation has changed. You see, these programs have a certain life, and an end to the funding programs. Which could mean that months and months of effort might result in those losses still happening via foreclosure, short sale or deed in lieu.
Most people are really concerned about the effects of walking away or suffering a foreclosure when--and I have recently formed this opinion--the effects of a long drawn out short sale may cause as much, if not more damage, to your psyche and your credit score than making an earlier decision to take the loss via foreclosures or deed in lieu. Heresy, I know. Realtors who handle short sales would be spared those sales. Never mind the cost to the borrowers of a year on the market and all that uncertainty and lost sleep. Would it be better to settle up and clear you mind of the financial burden and move to a place you can actually afford? Folks need to weight this up carefully. ('Deed in lieu' by the way is agreeing with your lender to simply hand the keys back and avoid the legal public foreclosure process.)
I am reminded of my photo safari in Kenya: driving across the Masai Mara we came upon a group of baboons migrating in a long line. Following them was a young cheetah and the male baboons were displaying quite an angry 'go away' stance on an anthill to scare him away, beating their chests and screaming at him. According to my driver, the cheetah probably didn't know that picking a fight with a baboon would be a bloody hard fight and at the end of it they don't make a very good meal.
There is a certain tendency of those of us who assist home owners in distress to want to 'fix it' and make the pain go away. Or to fight the fight because people feel so wronged. But some things just can't be fixed. Certainly we have tools at our disposal if a home owner can be assisted within reason. The point of modifying your loan may be to buy time, while accepting that you may eventually need to get out from under this level of debt.There is nothing like being decisive, making a tough decision and not fighting that fight for a bad meal.
Monday, May 10, 2010
Strategic Defaults ESCALATE!
Are you willing to walk away from your mortgage and suffer the damage to your long term credit and future prospects? Weigh the facts!
Watch: 60 Minutes http://tinyurl.com/35wkqj7
You’ve done the math: Your house is worth less than you paid for it. You can afford to stay and keep making your payments. But you feel sick about your home’s depressed value. You feel like a chump for paying too much for your home. What do you do?
Morley Safer explores the new phenomenon of homeowners who are opting for ‘Strategic Default’ and walking away from their homes. These are people who can afford to pay their current mortgage-- people who are frustrated with the devaluation of their homes compared to how much they owe on them. NOT people in financial trouble. Their banks are saying ‘no deal’ to reducing their loan balance. A lot of people are making tough decisions about staying in homes now worth 40% or less than they paid for them. It may be logical to walk.
But is it ethical? After all you did borrow the money to buy your home. The seller is long gone. Where else can you hand something back to the person you borrowed the money from to buy that item? You signed a contractual agreement to pay them back over time. Certainly some of the loan products and contracts were flawed and you do have recourse if you were steered into a predatory or toxic loan. But these folks interviewed in the 60 Minutes Expose are not people who were duped or who can't afford to pay their loans. They feel cheated because their homes have lost value.
Is your home value loss temporary? More than 11 Million homeowners across the country are estimated to be ‘underwater’ and this number could double in 2010. Underwater means you owe more than your home is currently worth. It’s a bit like owning a major stock and watching it’s value drop overnight as many witnessed last week when Dow plunged dramatically in 16 minutes. The next day it regained most of the loss. Imagine those who sold stock at the bottom in panic mode. Having sold and taken a loss, they now have no way to recover that loss.
Why sell or abandon an investment at it’s lowest value point? Isn’t that the time to invest or and bide your time until its value recovers? Not everyone agrees on this point. It’s a good theory for investments: but applying this strategy to your home in which you have invested your life goals is very different from a stock you hoped to profit from. You can’t live in a stock!
The decision to ‘walk’ is not clear cut: Asking for mortgage reduction if you are not in financial trouble elicits a big fat “nice try” from your bank. The programs designed to help homeowners with demonstrable problems and hardships don't apply to you. Let me tell you the people who do get help from their banks seriously earn it. Loan modification is a very humbling experience. These folks have no where to walk to. Do you begrudge those in need being helped? Have we become that self centered?
The pitch to walk: Let’s say you walked away from your home in May 2007 when values first began to plummet. Let's say you had maintained a good rental and credit history for three years. While foreclosure has a very bad effect on your credit score, by demonstrating mortgage worthiness for three years hence, you could qualify for an FHA or VA loan. You could theoretically buy back your own home for the new lower value. Ironic? The nice folks in the 60 minutes episode who help people walk away will help you 'feel better' about defaulting for a modest fee.
At the risk of being seen to promote this comany--which is not my intention-- this calculator is a quick read on the 'financial benefit' of keeping your current home mortgage vs. renting. http://tinyurl.com/cjvtob
Consider the downside: First, I would never recommend you walk away from your home or any financial obligation. You have invested time and money and often sweat equity. Your home is a reflection of your life goals and that commitment to yourself and your family and community. The moral issue for many people has become secondary to the financial decision. If enough people do walk, their banks would be forced into greater losses in their portfolios by the cascading drop in values caused by more foreclosures, eroding the value of entire suburbs and towns. Naturally a foreclosure, short sale or deed in lieu process has an extremely damaging effect on your credit for up to ten years.
Programs designed to stem foreclosures are new. If your home value is underwater by more than 25% of your loan, the new Principal Write-down provisions may be offered. This is new. A few of the largest banks will subscribe to this program starting in July 2010. Naturally they are finding a way to be paid for their trouble via your tax dollars. At some point soon it is becoming apparent that we can't keep paying banks for their losses. At what point do we stop paying banks to help us? When enough people leave their homes? That is a very big question that could spell big trouble for our already fragile economy. The Banks who took so much TARP money should be shouldering at least some of the loss for their mistakes--but so far our congress just keeps forking money over to their side of the table.
I would urge anyone considering walking away from their home to reconsider all these points before jumping on the bandwagon. I imagine that there will be unseen repercussions for those who walk away based on pure economics and not actual hardship. Your neighbors will struggle to maintain their safety and values on a street littered with foreclosure signs. While I can fully understand the desire to be relieved of your financial woes: is it really the right thing to do? Do we want our local economies to fall like a house of cards? These are serious questions. Maybe, just maybe it would help to get some of neighbors together and find out how they are doing. Take a pulse and find out if others are willing to stick it out or take a group stance.
It's true that homeowners who can afford to pay are out of luck. Their banks and the Fannie Maes, Freddie Macs, FHAs and VAs of the world say you have an obligation to pay back the money you borrowed. Homeowners who in trouble are being helped in many instances by the Making Home Affordable and HAMP programs. Is it fair? Life isn’t fair. In case you forgot, the person who is in fear of losing their home and is struggling with foreclosure or loan modification has other real problems like loss of income, family illness, death or other setbacks. They need help just to survive.
The inequities of this situation are not lost on banking and real estate professionals. They don’t want people who can afford to pull their weight to default. A sudden drop in values presents a conundrum to which there is no easy solution. Too much inventory kills demand and the cycle spirals downward quickly. Banks don’t want to go on record about strategic defaults (none agreed to be interviewed on 60 Minutes). Investors are really really nervous. If their GOOD customers walk what will their entire portfolio of mortgages be worth?
Before you decide: why not go on record? Write or call your representatives and tell them your story in order to support stronger consumer protection legislation. It is our both right and our responsibility to speak up and be part of a solution in our democracy. Our lumbering government will only maintain the status quo if we let them. Our elected officials were hired by and are paid by us to officiate for us. Not for big banks. Our representatives are accountable to their constituents. At this stage, the creation of a Consumer Protection Agency with independent legal ability to actually hold banks accountable is a dim hope, struggling in committee.
In fact, I can recall at least three banks in Washington state subjected to criminal fraud proceedings by the State Attorney General: the first was against Household Finance Corp for inflating home values for the purpose of selling predatory loans. More recently Countrywide and Washington Mutual were found guilty of predatory lending and financial damages were levied via several class action suits. These actions have challenged the hubris of large banks to think they can act with impunity toward the borrrowing public.
Be a citizen and speak up. Click this link and plug in your zip code: http://www.congress.org and email, write or call your representatives or the entire financial services committee in the House and Senate. They need to hear from you. Your stories, your concerns, your ideas.
Remember: for every action, there is an equal and opposite reaction. You may feel very relieved if you walk away now and easily forget what you left behind. But rest assured: your city, suburb and most certainly your neighbors will be financially affected if you choose to leave and let your home become another sad statistic on their street. Think about it. The DOW’s slide of 1000 points in an hour may seem like chump change if the entire housing market collapses.
Equitytalks
© copyright 2010 susan templeton equity talks
Watch: 60 Minutes http://tinyurl.com/35wkqj7
You’ve done the math: Your house is worth less than you paid for it. You can afford to stay and keep making your payments. But you feel sick about your home’s depressed value. You feel like a chump for paying too much for your home. What do you do?
Morley Safer explores the new phenomenon of homeowners who are opting for ‘Strategic Default’ and walking away from their homes. These are people who can afford to pay their current mortgage-- people who are frustrated with the devaluation of their homes compared to how much they owe on them. NOT people in financial trouble. Their banks are saying ‘no deal’ to reducing their loan balance. A lot of people are making tough decisions about staying in homes now worth 40% or less than they paid for them. It may be logical to walk.
But is it ethical? After all you did borrow the money to buy your home. The seller is long gone. Where else can you hand something back to the person you borrowed the money from to buy that item? You signed a contractual agreement to pay them back over time. Certainly some of the loan products and contracts were flawed and you do have recourse if you were steered into a predatory or toxic loan. But these folks interviewed in the 60 Minutes Expose are not people who were duped or who can't afford to pay their loans. They feel cheated because their homes have lost value.
Is your home value loss temporary? More than 11 Million homeowners across the country are estimated to be ‘underwater’ and this number could double in 2010. Underwater means you owe more than your home is currently worth. It’s a bit like owning a major stock and watching it’s value drop overnight as many witnessed last week when Dow plunged dramatically in 16 minutes. The next day it regained most of the loss. Imagine those who sold stock at the bottom in panic mode. Having sold and taken a loss, they now have no way to recover that loss.
Why sell or abandon an investment at it’s lowest value point? Isn’t that the time to invest or and bide your time until its value recovers? Not everyone agrees on this point. It’s a good theory for investments: but applying this strategy to your home in which you have invested your life goals is very different from a stock you hoped to profit from. You can’t live in a stock!
The decision to ‘walk’ is not clear cut: Asking for mortgage reduction if you are not in financial trouble elicits a big fat “nice try” from your bank. The programs designed to help homeowners with demonstrable problems and hardships don't apply to you. Let me tell you the people who do get help from their banks seriously earn it. Loan modification is a very humbling experience. These folks have no where to walk to. Do you begrudge those in need being helped? Have we become that self centered?
The pitch to walk: Let’s say you walked away from your home in May 2007 when values first began to plummet. Let's say you had maintained a good rental and credit history for three years. While foreclosure has a very bad effect on your credit score, by demonstrating mortgage worthiness for three years hence, you could qualify for an FHA or VA loan. You could theoretically buy back your own home for the new lower value. Ironic? The nice folks in the 60 minutes episode who help people walk away will help you 'feel better' about defaulting for a modest fee.
At the risk of being seen to promote this comany--which is not my intention-- this calculator is a quick read on the 'financial benefit' of keeping your current home mortgage vs. renting. http://tinyurl.com/cjvtob
Consider the downside: First, I would never recommend you walk away from your home or any financial obligation. You have invested time and money and often sweat equity. Your home is a reflection of your life goals and that commitment to yourself and your family and community. The moral issue for many people has become secondary to the financial decision. If enough people do walk, their banks would be forced into greater losses in their portfolios by the cascading drop in values caused by more foreclosures, eroding the value of entire suburbs and towns. Naturally a foreclosure, short sale or deed in lieu process has an extremely damaging effect on your credit for up to ten years.
Programs designed to stem foreclosures are new. If your home value is underwater by more than 25% of your loan, the new Principal Write-down provisions may be offered. This is new. A few of the largest banks will subscribe to this program starting in July 2010. Naturally they are finding a way to be paid for their trouble via your tax dollars. At some point soon it is becoming apparent that we can't keep paying banks for their losses. At what point do we stop paying banks to help us? When enough people leave their homes? That is a very big question that could spell big trouble for our already fragile economy. The Banks who took so much TARP money should be shouldering at least some of the loss for their mistakes--but so far our congress just keeps forking money over to their side of the table.
I would urge anyone considering walking away from their home to reconsider all these points before jumping on the bandwagon. I imagine that there will be unseen repercussions for those who walk away based on pure economics and not actual hardship. Your neighbors will struggle to maintain their safety and values on a street littered with foreclosure signs. While I can fully understand the desire to be relieved of your financial woes: is it really the right thing to do? Do we want our local economies to fall like a house of cards? These are serious questions. Maybe, just maybe it would help to get some of neighbors together and find out how they are doing. Take a pulse and find out if others are willing to stick it out or take a group stance.
It's true that homeowners who can afford to pay are out of luck. Their banks and the Fannie Maes, Freddie Macs, FHAs and VAs of the world say you have an obligation to pay back the money you borrowed. Homeowners who in trouble are being helped in many instances by the Making Home Affordable and HAMP programs. Is it fair? Life isn’t fair. In case you forgot, the person who is in fear of losing their home and is struggling with foreclosure or loan modification has other real problems like loss of income, family illness, death or other setbacks. They need help just to survive.
The inequities of this situation are not lost on banking and real estate professionals. They don’t want people who can afford to pull their weight to default. A sudden drop in values presents a conundrum to which there is no easy solution. Too much inventory kills demand and the cycle spirals downward quickly. Banks don’t want to go on record about strategic defaults (none agreed to be interviewed on 60 Minutes). Investors are really really nervous. If their GOOD customers walk what will their entire portfolio of mortgages be worth?
Before you decide: why not go on record? Write or call your representatives and tell them your story in order to support stronger consumer protection legislation. It is our both right and our responsibility to speak up and be part of a solution in our democracy. Our lumbering government will only maintain the status quo if we let them. Our elected officials were hired by and are paid by us to officiate for us. Not for big banks. Our representatives are accountable to their constituents. At this stage, the creation of a Consumer Protection Agency with independent legal ability to actually hold banks accountable is a dim hope, struggling in committee.
In fact, I can recall at least three banks in Washington state subjected to criminal fraud proceedings by the State Attorney General: the first was against Household Finance Corp for inflating home values for the purpose of selling predatory loans. More recently Countrywide and Washington Mutual were found guilty of predatory lending and financial damages were levied via several class action suits. These actions have challenged the hubris of large banks to think they can act with impunity toward the borrrowing public.
Be a citizen and speak up. Click this link and plug in your zip code: http://www.congress.org and email, write or call your representatives or the entire financial services committee in the House and Senate. They need to hear from you. Your stories, your concerns, your ideas.
Remember: for every action, there is an equal and opposite reaction. You may feel very relieved if you walk away now and easily forget what you left behind. But rest assured: your city, suburb and most certainly your neighbors will be financially affected if you choose to leave and let your home become another sad statistic on their street. Think about it. The DOW’s slide of 1000 points in an hour may seem like chump change if the entire housing market collapses.
Equitytalks
© copyright 2010 susan templeton equity talks
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