Loan modification agreements have been “re-defaulting” at an alarming rate.
According to the federal Office of the Comptroller of the Currency, 58% of mortgage loan modifications done in the first quarter of this year have re-defaulted, and fell delinquent within the first eight months of the year. Diana Olick, CNBC’s real estate correspondent, believes the government should let bad credit mortgage loans go into foreclosure instead of implementing mortgage relief.She doesn’t believe that home loan modifications work and her idea is to get good credit borrowers who can afford the properties to purchase up the homes. However, Steve Liesman, CNBC’s senior economics reporter, said widespread mortgage modification is the key to fixing the foreclosure crisis.
As the foreclosure crisis continues to detriment many Americans, even more could now lose their homes due to a phony rescue loan company. Bill Whitaker reports on this mortgage relief scam from Woodland Hills, California.California led the nation in home foreclosures last month and mortgage fraud specialists seem to be setting up shop all over the country to prey on desperate homeowners, reports CBS News correspondent Bill Whitaker.
Alexendria Craig is about to lose her home after taking out a series of high rate mortgage loans that left her deep in debt. She says the home loans “helped balance out what she fell behind on with her delinquent mortgage payments. Her salary as a paralegal for Los Angeles County was not enough to make ends meet. Desperate to hold onto her house, she responded to a slick advertisement that turned out to be too good to be true.Craig agreed to pay $30,000 and to share title on her home to a foreclosure rescue company. The mortgage relief company promised they would use home equity in her house to pay off her high rate debts and that they would make sure that her credit would be repaired. After a year she believed that she would get her property back.
The foreclosure prevention company’s agreement promises that clients have “sufficient equity in your home” for “paying off debt liability,” “repairing your current credit,” and most importantly that they’ll “remain in your home without further concerns or worries.”It’s a classic foreclosure rescue scam, says attorney Debra Zimmerman.“There should be a huge red flag for anybody who offers to do this for money, because there is no reason to pay for help,” said Zimmerman, of Bet Tzedek Legal Services. She said “loan modifications could be done for free,” but Loan Modification Buzz reminds you that “you get what you pay for.”If you seek formal mortgage relief, seek legal advice from an attorney-backed loan modification company.Seek counsel from foreclosure lawyers who understand state laws regarding foreclosure, debt relief and loan workouts.
In the typical scam, the homeowner transfers title to a third party who promises to secure a lower interest rate on the mortgage. But what often happens is the third party cashes out the home’s equity, leaving the homeowner as a renter.“This is the American dream, and they’re losing it. And somebody is coming and they’re going to rescue them,” Zimmerman said.
In California so many people have fallen for these foreclosure prevention scams the attorney general has issued a consumer alert. But that warning came too late for Alexandria Craig. Her house is in foreclosure, and next week she’s facing eviction. Both the foreclosure rescue company and the bank foreclosing on her house deny any wrongdoing.“You feel like you’re drowning and you feel like there’s nobody sending you a life raft,” said Craig, sobbing.Barring a miracle, Craig says she’ll be moving into her car on next week, losing family memories and her American dream.
The current state of the economy has paved the way for mortgage companies and banks to provide loan modifications to mortgagors. Instead of going through expensive foreclosure court proceedings, lenders present another option to help borrowers keep their homes and make the necessary payments at the same time. The mortgage process of loan modification features an overhauling of the terms and conditions stated in the loan. It re-institutes interest rates and eventually leads to lower monthly payments and extended loan term. In a nutshell, it provides hopes of being redeemed to delinquent borrowers sinking closer to the quicksand of foreclosure.
Borrowers who are burdened by subprime mortgages, bad credit, and home value depreciation are eligible for loan modification. Once mortgage lenders are already informed of the borrower’s intention to have his loan modified, necessary papers and documents should be furnished and turned in for the lender’s perusal. One of which is the hardship letter required to get a loan modification agreement. It is simply the borrower’s detailed explanation of his current financial difficulties including the reasons that led to his hardships in terms of money. Pieces of evidence and documents that prove such claims should also be given to the lender. All loan companies who offer loan modification require such letter and only those with valid reasons are granted this service.
So how do you exactly write a convincing hardship letter for your loans to be modified?
1. Exude a professional, sincere and humble tone in writing your letter.
Your lenders have heard every sob story there is and know every trick that borrowers have in mind. Begging for pity in your hardship letter is usually not a way to have them convinced. Lenders are usually very strict and unyielding to borrowers who appear too broke and dramatic about financial difficulties. Chances of being granted with loan modification are going to be slim if you include a farrago of overly stagy and melodramatic stories in your letter.
2. State reasons that include one or more of the following:
oDeath of the family’s bread winner
oMajor medical expenses
oLoss of income of salary deduction
oProperty tax increase
oSerious illness
oChildcare expenses
oUnavoidable home repairs
The aforementioned are usually the ones credited by loan companies as valid reasons for loan modification. You should provide a clear explanation of the circumstances that led to your problem. Likewise include the aftermath that these problems have effected in your financial situation.
3. Your letter must be brief.
Don’t beat around the bush because your mortgage lender already has an idea of why you are initiating contact. Instead of trying to write a flowery letter with loads of adjectives and adverbs, concentrate on explaining your financial situation. That alone will get you far in your quest to having your loans modified.
By: Jen Franco Article Directory: http://www.articledashboard.comJennifer Franco is a creative writer, teacher and freelance language editor. She writes about a wide array of topics including art, culture, entertainment, cars and loan modification.
In a recent article Kelly Media Group president, Jason Cardiff, “The fact the mortgage lenders are willing to provide loan workouts to homeowners that do not qualify for traditional or FHA refinance loans is simply remarkable.”Cardiff continued, “The rate cut by the Federal Reserve clearly signals a monumental step by the U.S. to restore trust in our financial systems that should spur more market recovery globally.”Read the complet article > Mortgage Lending Systems Begin to Reform with Historic Rate Cut by the Fed
The FDIC and many mortgage lenders are focusing their attention on foreclosure prevention remedies through loan modifications, short sales and forbearance.For prime loans at fixed rates, 0.34 % entered foreclosure proceedings in the quarter. For bad credit mortgage loans with adjustable rates, often cited as the catalyst to the financial crisis, 6.47 % of the loans entered foreclosure proceedings.Nevada, Florida, Arizona, California, Michigan, Rhode Island, Illinois, Indiana and Ohio had more foreclosure starts than the national average, the report said.“While 20 states showed declines in the rate of foreclosure starts between the 2nd and 3rd quarters, every state showed an increase in the ninety days or more delinquent category with the exception of Alaska and all of the increases were greater than what we would expect due to normal seasonal factors,” MBA Chief Economist Jay Brinkman said.Read the complete article > Almost 7% of Homeowners Face Foreclosure with Delinquent Home Loans
The big news this weekend was JP Morgan Chase ’s announcement that they would modify mortgage loans on their own balance sheet. Like anyone, I would like to see modifications help borrowers where possible. But while many continue to maintain that mass modifications would help limit foreclosures, there remain substantial reasons to be wary. Three important issues remain to be resolved before any servicer embarks upon widespread mortgage restructuring. Those include how servicers will report modifications and subsequent performance, the underwriting standards to be applied to modifications, and how those standards and reports can be used to distinguish between meaningful loan modifications and abusive or predatory modification.
Servicer reporting is woefully inadequate, both with respect to servicer performance in general and modifications in particular. Servicers, like any other business, face a budget constraint. Servicers are either paid set fees to service large portfolios of mortgages on behalf of investors or they operate as a subsidiary of a mortgage underwriter servicing the underwriter’s own portfolio. Most servicers do both. The point in either case, therefore, is that the interest rate of the loan includes some amount set aside to cover the cost of servicing.
When mortgage loan performance sours, servicing costs rise substantially. Not only do servicers face increased costs arising from the need to contact borrowers via additional mailings, telephone calls, and legal filings to extract payments, but servicers also must pass along payments to investors as if they are made in full until the property is seized in foreclosure and sold. Hence, as I presented in my October 2007 white paper, servicing costs on a typical $144,000 loan can rise from roughly $50 per year to over $1,000 per year while the loan is in delinquency and over $2,000 per year when the loan enters the foreclosure process.
The problem is that as the servicer is forced to spend more servicing delinquent and foreclosed loans, it has less money to spend on servicing performing loans. When servicers do not have sufficient funds to cover the costs of promptly pursuing new delinquencies, those new delinquencies have a greater probability of rolling into foreclosure. When servicers face budget shortfalls, they cannot follow up promptly on contacting borrowers who are late making payments for the first time. Lags of even a few days in such follow-up have been shown to make a big difference in the propensity for the borrower to become more delinquent, rolling from 30-days to 60-days delinquent, and then 90-days and into foreclosure.
Costs increase further because servicers must “advance” delinquent borrower payments to investors “as if” the money was received from those loans and only recovers that money upon foreclosure and sale of the property. Modification expenses add unknown magnitudes to those costs.
A big question on RMBS and mortgage bank investors’ minds these days, therefore, is whether servicers have sufficient cash flow to maintain servicing quality. If RMBS investors judge servicers cannot perform adequately, investors have the right to sell servicing rights to a servicer that does have such resources. As I pointed out in my September 18, 2008 testimony before the Senate Committee on Banking, Housing, and Urban Affairs, investors must make that replacement before a servicer enters bankruptcy, since a bankruptcy laws may not allow replacement of the servicer because servicer rights can be considered part of the debtor’s estate.
But servicers do not routinely and systematically report roll rates, advance rates (the money the servicer has to pay to investors “as if” it had been received from loans in delinquency) or modifications and related costs to either RMBS or mortgage bank investors, nor to regulators. Worse yet, as the crisis had deepened servicers who do produce such reports for their own use have become more reluctant to share their internally-generated reports with outside parties. Hence, investors and regulators alike have almost no means of judging whether modification programs are beneficial to borrowers or lenders. Investors are therefore reluctant to buy new RMBS and have little ability to judge the impact of servicer performance on the value of existing RMBS, while mortgage bank investors and regulators similarly have little means of judging bank safety and soundness and bank performance.
But the situation is worse than that. Monitoring servicer performance requires – at the least – defining what a modification is and the procedural means by which it is to be administered. The first hurdle faced by Hope Now and OCC reporting on modifications was the mere definition of a modification, and that hurdle has still not been overcome. Recall that lenders have already accommodated many borrowers through “repayment programs.” Some observers say that repayment programs are not modifications, while others maintain they are. We still don’t have an answer to that most basic question, nor do we have systematic reporting to track modification activity and subsequent performance.> Read Complete Article by Joseph Mason
In an effort to slow the pace of home foreclosures and stabilize California’s shaky economy, Gov. Arnold Schwarzenegger yesterday unveiled a proposal to help borrowers modify troubled mortgages while making lenders more accountable. The centerpiece of the plan is a 90-day stay of foreclosure for owner-occupied homes that have a first mortgage in default. Schwarzenegger today is expected to call for a special session of the Legislature to consider the strategy, along with other economic issues.Under the proposal, mortgage lenders could exempt themselves from the 90-day stay by providing evidence that they have an aggressive loan modification program in place. An “aggressive” program is broadly defined as one that will keep troubled borrowers in their homes in cases where doing so brings lenders a greater return than simply foreclosing.
Faced with the 90-day freeze on foreclosures, lenders will be more inclined to provide loan work-outs with delinquent borrowers, California Department of Corporations Director Preston DuFauchard said during an afternoon teleconference with reporters. The proposed freeze “is designed to be a stick to get people to have a more aggressive modification program,” DuFauchard said. “ . . . The time value of money creates a real strong incentive to take this modification approach.”
HighlightsForeclosures: Impose a 90-day stay for owner-occupied homes on which a notice of default has been filed. Loan modifications: Exempt lenders from the 90-day stay if they have an “aggressive” program to ease mortgage terms for distressed homeowners.New loans: Implement various steps to prevent lenders from making unsustainable loans in the future. While many lenders already are doing voluntary loan modifications, they aren’t being nearly aggressive enough to resolve the foreclosure problem, said David Crane, the governor’s special adviser for jobs and economic growth. Paul Leonard, director of the California office of the Center for Responsible Lending, noted that an increase in loan modification efforts nationwide began over the summer, when the Federal Deposit Insurance Corp. took over failed lender IndyMac Bancorp. The governor’s plan follows that example. “The goal is to encourage loan servicers to adopt a more streamlined, systematic approach to mortgage loan modifications,” Leonard said. “The governor is trying to use leverage to move servicers in a positive direction.”
Mark Goldman, a real estate finance instructor at San Diego State University, said the 90-day stay may give delinquent borrowers more time to remain in their homes, but ultimately it will place greater financial pressures on lending companies and banks. “The lender is going to just have to wait that much longer to get the collateral, and that may have some negative impacts on the pricing of loans,” Goldman said. A new California law that requires mortgage lenders to work harder to help distressed borrowers led to a steep drop in September default notices in San Diego County, and foreclosures also declined. In many instances, Senate Bill 1137 calls for lenders to try to contact distressed homeowners then wait 30 days before filing a default notice.
A total of 1,206 county homes received notices of default, which mark the beginning of the foreclosure process. That marked a 58 percent decline from August and a 35 percent drop from September 2007. Around the state, mortgage servicers recorded 94,240 notices of default on homes during the third quarter. That was down 23 percent from a record of 121,673 in the second quarter and up 30 percent from third-quarter 2007, according to the MDA DataQuick research firm.
In his proposal to help distressed borrowers, Schwarzenegger suggested that loan modifications be based on a 38 percent monthly housing debt payment-to-income ratio, so that revamped loans are more sustainable. To achieve that, he suggested that lenders temporarily reduce interest rates, increase loan repayment periods, or defer part of the unpaid principal balance to the end of the loan term.
He called for the Department of Real Estate and Department of Corporations to enforce federal laws and regulations, such as the Truth in Lending Act, and discipline real estate licensees who violate such laws and regulations. To avoid future mortgage market meltdowns, lending practices should be reformed to protect borrowers by expanding fiduciary responsibilities for mortgage brokers, Schwarzenegger said. He also called for increasing and standardizing licensing requirements for loan originators. Counseling may be desirable for borrowers entering into risky mortgages, to make sure they understand terms and obligations, he said.
Turning to underwriting, the governor urged the federal government to require loan originators to retain a portion of their loan risks to encourage better practices. Kevin Stein, associate director of the California Reinvestment Coalition, said the success of the plan will depend on the details of implementation. “It is good that the governor is engaged, good that he has called for a special session,” Stein said. “We don’t want it to be another good-sounding program that doesn’t meaningfully help people stop foreclosure.”
