Loan Modification category archives

Federal bank regulators have just reported that 75% of the loan modifications lenders made in April, May and June of this year reduced borrowers’ monthly payments. Smaller monthly payments are obviously great for borrowers. But they’re also good for lenders, because borrowers with lower payments are less likely to re-default, according to the U.S. Office of the Comptroller of the Currency and the Office of Thrift Supervision .

The report also revealed lenders are much more willing to engage in short sales than they were 12 months ago. In a short sale, the proceeds fall short of the balance owed on the mortgage, but the lender agrees to accept this as full payment because of a borrower’s financial hardship. Short sales are another way to reduce the number of foreclosures.

It was encouraging to see that from April to June, new loan modifications and repayment plans were up 74.8% over last year, easily outnumbering newly-initiated foreclosures.

Under the government’s Making Home Affordable program, borrowers must show they can make their modified payments for a short trial period before receiving a permanent loan modification. From April to June, both trial and permanent loan modifications made up 58% of all actions taken by lenders to help people retain their homes. People with mortgage issues can get free assistance at MortgageReliefOnline.

Despite signs of an improving housing market, homeowners continue to be under financial stress.  According to Reuters, the 30-day mortgage delinquency rate increased again in August, reaching a new all-time high.

The chart above shows significant year-over-year increases in the delinquency rate.  The August ‘09 rate of 7.58% increased 55% versus the August ‘08 rate of 4.89%.  Month-to-month, the rate increased 3.6% versus the July ‘09 rate, which was 7.32%.

This delinquency rate is an important number to watch, as it is a leading indicator of home foreclosures and personal bankruptcies.

Looks like we’re not out of the woods yet.

I have been in mortgage lending since 1993, and until recently, I had never actually had a short sale close successfully.

One of the real estate agents I work with regularly, Rachel Hillman of Realty Executives, introduced me to Mike Ouellette of Loss Mitigation Specialist Group ( LMSG). For those that have followed me on Zillow, I am a bit of a skeptic when it comes to these types of things.
Rachel called me about a deal she had that was falling apart and she was hoping that I could pull the deal back together.

Basically, the way this company works is that they sign an agreement with the current owner of the home to essentially buy the home in a short sale. The current owner gives them permission to deal with the current lien holders. While they are negotiating with the current lien holders the property is being marketed. In most cases the property is listed and marketed by the agent that has introduced the seller to LMSG.

Unlike most short sales with this company LMSG actually buys the property after negotiating the short sale, then turns around and sells the property to a third party — the best offer that the listing agent is able to find.

The reason that Rachel called me in on this transaction is that many lenders have adopted the FHA anti flipping rule and are requiring 90-day title seasoning.

Reducing the length of time they need to hold the property increases the profit margin but also allows them to list and market the property at a more competitive price generating more interest and multiple offers.

Nobody works for free and I don’t begrudge anyone for making a living. Many lenders shy away from these transactions, some will even say that Fannie Mae and Freddie Mac have the same title seasoning requirements that FHA have.

Currently that is not the case. The concern is fraud and you can read Fannie Mae’s guideline on these transactions here and Freddie Mac’s here

Essentially both agencies have the same concern that the sales price is over inflated. It is critical that the underwriter and the loan file support the sales price from LMSG to the end buyer.

It is no secret that is costs the banks real money to foreclose on a property.t is also no secret that the property value is…. what it is! The bank has no guarantee, that if they foreclose on the property, that they will be able to sell the property for its current value.

If you know what you are doing you can essentially cut a deal with the bank for an amount less than the property is worth and likely a little more than what the bank estimates it will cost to foreclose on the home.

If the bank agreed to a short sale, before they foreclosed, and sold it for $195,000 rather than the $250,000 they would reduce their losses by $5,000 and eliminate the risk of the property value decreasing further and increasing the banks losses. For this to work you have to know what it costs the bank to foreclose, I just told you so that’s not such a big deal.

The real trick is knowing who to call and how to negotiate the short sale or you end up in lender limbo waiting for a response that you may or may not ever get! All the while stressing about what is going on!

I have closed 2 of these transactions and it almost seems too good to be true! These are the real numbers….

Property One: Purchased for $207,000 Appraised for: $225,000
Property Two: Purchased for $220,000 Appraised for: $255,000

Both appraisals were done post-HVCC so I know if anything, these appraisals are on the low side.

How many transactions have you seen recently that are appraising 15-20 thousand more than the sales price?

If you want more info on short sales you can read Mike’s Blog. Mike works with Realtors, Lenders, Attorneys, and Sellers.

If you have an FHA mortgage and are having trouble making the payments, you may now be able to get help from the government. FHA stands for the Federal Housing Administration, part of the Department of Housing and Urban Development (HUD). FHA provides mortgage insurance on loans made by FHA-approved lenders for home purchases with low down payments. As of August 15, 2009 HUD has made FHA mortgages eligible for their Making Home Affordable program.

It’s called the FHA-Home Affordable Modification Plan (or FHA-HAMP) and it’s designed to permanently reduce monthly payments. HUD Secretary Shaun Donovan announced, “We’re bringing another important tool to the table to help struggling families who are desperate to keep their homes. Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the administration’s Making Home Affordable program.”

There was a startling article in the New Yorker last week titled, “Not Home Yet.” It’s why banks are slow to help people who need to do a loan modification.

One only needs to look at the accompanying graphic (left) as a metaphor for what’s happening. A fireman steps on the fire hose, preventing water from extinguishing the house fire. It can be interpreted as, “A lender blocks funds, preventing money from going to desperate homeowners who need to do a loan modification.”

Why would banks deliberately slow down funds, or not even help their borrowers? Two reasons, according to a recent paper by economists at the Boston Fed:

• 30% of delinquent borrowers “self cure,” which means they get back on track themselves.
• Between 30-40% who do get loan mods usually default anyway.

So, now what? The idea of direct aid was floated (have government make low-interest loans or grants to hurting homeowners), but how fair is that to everyone else? However, if homes continue to foreclose at a high rate, you might just want your neighbor to get that deal so your home’s value isn’t dragged down, too.

None of it is pretty.

Take this loan modification quiz:

“Do You Qualify for a Loan Modification? You might. Take the quiz to see if you might qualify for a loan modification. Or, if you have a Web site or a blog, add the loan qualification widget to your site. It’s free and a fun little quiz to keep your visitors engaged. Plus, you get free co-branding.

(Illustration by New Yorker)

Just 9% of delinquent borrowers are getting help so far in the Making Home Affordable loan modification program that was announced in February, according to a Treasury Department report earlier this week. Called the Home Affordable Modification Program (HAMP), the program’s goal is to help between 3-4 million people over the next three years.

Critics say banks need to step it up and start helping borrowers more than they have. To put pressure on lenders, the Obama Administration released a report, showing which servicers are modifying mortgages.

Do you like to watch sports on TV?

Isn’t it amazing how much money the “jocks” who play sports generate in terms of revenue and as a result get paid to just be a jock?

What if I told you that the real jocks in the world who generate the real revenue and make the real money weren’t named Kobe, Tiger, Lebron or LaDanian?

The real jocks who are responsible for generating trillions of dollars are the Quant Jocks.

Quant as in Quantitative. As in numbers. As in the smartest-guys-in-the-room-who-wear-glasses-and-part-their-hair-on-the-side who are hired to come up with the financial models that the big banks base their entire business around.

These Quant Jocks are the guys who came up with those wonderful things called CDO’s (mortgage speak for Collateralized Debt Obligation), CDS’s (Credit Default Swaps, more mortgage speak) and a handful of other three lettered acronyms that have given the country a severe case of the financial hiccups these last few years.

Attention Quant Jocks: I have an idea, but we are going to need your help flexing your spreadsheet muscles to let us know if this big idea will work or not.

Let’s see if we can attack the Foreclosure Crisis from a different angle and solve it.

Are loan modifications working?

Not really - in fact, the highest levels of government are pushing for more loan modifications to get done soon.

Are short sales working?

Kind of, but not really. I still hear it takes way, way too long to get a short sale done.

Foreclosures?

Still happening — and from the data that I can gather, more strategic defaults are happening more as more people are simply choosing to “let their home go”. The number one problem cited in the decision in strategic defaults is the amount of negative equity in a property.

In many areas of the “sand states” it isn’t uncommon to see a homeowner be 50% or more upside-down in his home — which means that house he bought 3 years ago for $200,000 is now worth $100,000.

And right or wrong, when property values plummet in the high double-digits in  entire zip codes, the end result appears to be mass default.

Here Is A BIG Idea:

If a homeowner has a LTV higher than 125%, write the current loan down to 90% of the appraised value of the home and create an equity-sharing agreement with the homeowner that you will split any equity gained in the home if they refinance or sell the home.

2 Benefits To The BIG Idea:

1. The smartest guys in the room will quickly figure out how to turn the resulting “IOU 50% of my equity” into some kind of security that can be traded/sold if an institution doesn’t want to hold it. You might be surprised to learn how many banks have written down the value of these mortgages to 90% (or less) of the current appraised value already.
2. Homeowners will have a lower (”more affordable”) mortgage payment - and - have no reason to become another strategic default statistic. Low interest rate + equity in home = the best chance for a homeowner to make their mortgage payment or simply sell the home and try to get the most money possible rather than short sell it for the least amount the bank is willing to take.

Will it work?

Let’s put it this way: I’ll bet you a can of Diet Pepsi that if implemented, it will work better than the FHA Secure and the FHA Hope for Homeowners Program - combined.

I wonder what the Quant Jocks will have to say about it.

Last year, the Secure and Fair Enforcement (S.A.F.E.) Mortgage Licensing Act of 2008 was signed into law as part of the Housing and Economic Recovery Act. This law outlines procedures, requirements, education, testing, and standards for mortgage loan originators. 

Part of the law includes mandatory registration and state licensing of loan originators through the Nationwide Mortgage Licensing System in order to give consumers easy access to a loan originator’s employment history, and any disciplinary or enforcement actions taken against him or her.  This is great news for consumers, since a national registry will help stop fraud, giving regulators the ability to more efficiently track bad actors.

The registry was begun in January 2008 with a handful of states, and to date, 26 states are actively participating, tracking 66,469 individual originators and 11,459 mortgage brokers and lender companies.  An additional 20 states will register by the end of this year.  Three states — California, Pennsylvania and Massachusetts — have not yet passed bills but have legislation pending, and Minnesota is expected to address the issue in 2010.

The law defines a mortgage loan originator as someone who takes an application and negotiates the terms. What hasn’t been decided yet is whether that definition should include servicers and loan modification officers.

The Obama administration met yesterday with mortgage companies who are participating in the Making Home Affordable loan modification program to identify ways to improve and accelerate the program.  They set a goal of initiating 500,000 loan modifications by November 1, 2009.  To date, roughly 200,000 borrowers have been enrolled in three-month trial loan modifications, out of about 370,000 who were offered modifications by mortgage companies.

To help reach this goal, the administration plans to:

1. Publicly report the number of trial modification offers each servicer has extended, the number of trial plans that are underway, and the number of final modifications. The first report is expected to be released by August 4th.
2. Set more specific metrics to measure the performance of the program, such as average borrower wait time for inbound borrower inquiries, the completeness and accuracy of information provided applicants, document handling, and response time for completed applications.
3. Have Freddie Mac audit a sample of MHA modification applications that have been declined, with the goal of addressing weaknesses in the program.

These plans seem to rely on publicly disclosing servicers who are making progress in this program and then comparing them to those who are not.  It will be interesting to see if this type of incentive works to significantly move the needle.

I just caught an Inman News story on the wire where author Matt Carter referenced a Southern California Loan Modification Company alleged to have used “high-pressure, cash-up-front” telephone sales business tactics to target distressed homeowners.

This is amazing, though I shouldn’t be surprised.  Folks are desperate out there right now, and to make matters worse - there’s a legitimate predatory risk of gran proportion lying in wait for unwary homeowners who are simply trying to do the right thing by staying in their homes and maintaining mortgage loan payments in the most responsible manner they possibly can.

I remember watching the movie Boiler Room, where a former back room gambling runner enters into, succeeds with, and subsequently exposes a high-pressure stock trading firm who used the same high-pressure, over-promising practices we see in some of these loan modification companies.

Boiler Room Meets Loan Modification Company

The story of  H.E. Servicing, the California Loan Modification in question, an individual who was shut down as a loan modification company owner by the State of California.  He then went out, found a fresh out of school attorney via Craigslist (they have to be loving this attention by the way), and started all over again. The hubris alone here is staggering.

Official Loan Modification Resource

Folks, there’s really only one place to go should you find yourselves in need of loan modification services, and that’s the official Making Home Affordable website.  There, you’ll find information designed to inform and educate you about the mortgage modification process.  Some key facts you’ll learn there include the following:

• There is never a fee to get assistance or information about Making Home Affordable from your lender or a HUD-approved housing counselor.
• Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay – walk away!
• Beware of anyone who says they can “save” your home if you sign or transfer over the deed to your house. Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company to forgive your debt.
• Never submit your mortgage payments to anyone other than your mortgage company without their approval.

Have You Fallen Victim to Fraudulent Home Loan Modification Practices?  We Want to Know…

Have you or someone you know fallen victim to a loan modification organization who promised to save your home, only to have cost you thousands?  Drop a line here to let us know.

The more we talk about these back alley boiler room operations, the better informed the general public will be.