Is A Loan Modification an Option for Me? (Will My Bank Think So Too?)
Loan modifications require a great deal of time and patience and if you don’t know the laws and regulations don’t expect your bank to help you out. For example they may spell out requirements for you to qualify for a modification that may not match the standards set out by the government, and if you don’t know better, tough luck. So, if you try to handle it yourself, you’ll need to know the standards of acceptable practices and all of the details of the ‘Making Home Affordable’ program.
To qualify for a loan modification you must establish: 1) You have a financial hardship which prohibits you from making your current payments; 2) Your hardship isn’t so catastrophic that you can’t even make a slightly reduced payment amount.
What defines a ‘Financial Hardship’?
For the purposes of applying for a loan modification a financial hardship means either: 1) Your income has taken a turn for the worse or 2) your mortgage payment has jumped up an amount higher you can pay – most often caused by an interest rate re-set.
Perhaps you or your spouse has lost a job, you had your hours got cut, your sales are down or something else has happened. Right now (2009), many have lost jobs, and some who have kept their jobs have lost bonuses they used to count on, or overtime, or have even been forced to take a pay cut. A pay cut can happen on short notice and with many people living paycheck to paycheck anyway, even a small change can mean gong underwater.
To the second point, adjustable rate mortgages are re-setting interest rates and pushing monthly payments up. Balloon payments and adjustable interest rates are central actors in the subprime mortgage crisis. Many people have seen (or will see) their interest rates adjust to a level that ruin their ability to make their mortgage payments. Even a couple hundred dollars a month more can be tough.
Can You Make A Reasonable Payment?
A loan modification will be a viable solution for you to the degree that you can make the new, adjusted payments. This means that you must have a good, verifiable income. The fundamental concept with any loan modification is to help those who are not quite making it. If you are missing your monthly budget by thousands of dollars, then a loan modification isn’t going to work. If you are running behind by hundreds of dollars, you are a good candidate.
Get Professional Help
In theory you can contact your bank and get your mortgage modified with a couple phone calls and signing some paperwork. In theory. Practically speaking, your bank is going to look out for its own interests and if your interests coincide with theirs, then great. If not, watch out.
The vast majority of the modifications that are offered by banks currently are for the same principle and involve a change in interest and then an extension the life of the loan (sometimes by a decade or more) as a means of reducing the monthly payment. Don’t expect your bank to tell you that you qualify for the Making Home Affordable reduction in principle program. I have had clients who were told by a bank representative that they did NOT qualify, when in fact they did.
Much of the problem is the sheer number of homeowners who need help. Banks have been adding staff and sorting out how to better serve their customers and will eventually get their acts together. Eventually. Now, however, it’s a mess and most of the bank staff who take calls are newly trained and may not know much more about it than you do!
Even if you don’t ask me to help with your loan modification, please do secure an attorney to get it done. I recommend this because the process is document driven (like the law) the other party is looking out for its own interests, and you want to work with someone who has a history and a good name in your community. Don’t depend on a loan modification company that uses somewhat tacky advertising techniques, hard sell pressure tactics, may have been started just months ago to take advantage of your situation or will disappear when the ‘gold rush’ is over.
New Standards for Loan Modification Companies in California
The state of California could be considered ground zero for the mortgage crisis and as such, there is no shortage of companies claiming they can save your home.
However, with so many people struggling, fraud has been a rampant concern, even for most of our clients! Almost half of our clients spent time and money they couldn’t afford to lose attempting to modify their loans with a loan modification company before seeking our help.
Now, even more than ever, homeowners have to be careful about who they choose to work with. It hasn’t been easy to weed out the illegitimate companies.
Fortunately, as California loan modification company crack downs continue and more information comes to light about the practices of predatory companies, homeowners are finding more protection. Even so, you still have to be extremely careful and do your homework. While there are many things you can do to determine if the company you are working with is legitimate, there is one way that trumps all others. Email or call me and I’ll share it with you!
It seems that state legislators are going one step further with a new law, AB 764. When signed into law it will impose some restraints on those seeking to assist homeowners. It provides more stringent guidelines for how money is collected and more guidelines for services provided to homeowners. I strongly support this legislation and believe it will help weed out those who really do not have any interest in actually helping homeowners.
The Governor is scheduled to sign this new law by October 12, 2009! We will keep you informed.
Think Declaring Bankruptcy Might Help?
6 factors and a warning to consider before filing for bankruptcy:
I was reading a Legal Journal and found valuable information for anyone considering a bankruptcy as a solution to a tight (or impossible) financial situation…
The following are 6 points that you should know about bankruptcy:
Means Test: The Means Test determines your ability to pay your creditors through a complicated calculation which also accounts for the financial demographics in your area. If you qualify, you can file a Chapter 7 Bankruptcy, which wipes away all of your debts. Otherwise, you are allowed what is called a Chapter 13 Bankruptcy and you will be required to repay many of your debts. Call me if you want to run the numbers.
Credit Counseling: Since 2005, everyone is required to undergo credit counseling before they are eligible to file for bankruptcy. Credit counseling must be provided by an agency approved by the U.S. Trustee’s Office and will determine if you are eligible for bankruptcy or if an informal repayment plan could help avoid filing. This is actually a good option if your financial situation isn’t too far under water.
Affect on Co-Signers: Filing Chapter 7 bankruptcy allows creditors to proceed against any co-signers to your debt. However, filing under Chapter 13 protects co-signers if the debt is from personal purchases, the debt was not incurred in business transactions and if the co-signer doesn’t gain anything from the proceeds of the debt. Again, contact me if you have any questions about bankruptcy in California.
Affect on Your Future: Bankruptcy will likely destroy your credit for at least 7-10 years. This is likely to result in the loss of all credit cards and repossession of non-essential possessions (furniture, TV, etc.) that were purchased on credit. And forget about buying a home during this period.
Some Debts Are Not Forgiven: Student loans, DUI judgments, income taxes less than 3 years past due, fraudulent debts like bad checks, overdue child support, spousal support, or other court ordered debts may not be eliminated in a bankruptcy. If most of your debts are non-dischargeable then filing for bankruptcy won’t reduce your debt burden. In this case you are better off renegotiating payments over a longer period.
Creditor’s Rights: Secured debts holders (debts with collateral, such as a car or house) have the highest priority and will likely reclaim the property if you file for bankruptcy. Unsecured debts, such as credit card debt and most bills are the lowest priority. Such creditors may receive little or no payment in bankruptcy. You don’t get to pick and choose who gets paid, the court decides. So don’t plan on keeping the nice car.
Bankruptcy has a lot of ‘gotchas’ so if you are falling behind in payments, find out now what it’s all about now. Don’t just imagine it as an easy exit that you can glide into when things get really rough.
So how is Obama’s Home Affordable Modification Program (HAMP) Doing?
As we have previously discussed, the program is off to a very, very slow start. It is reported that only 200,000 loan modifications are actually in effect, and such modifications are currently in a “trial phase”, which allows homeowners to pay a reduced amount on the current mortgage, while the terms of the modification are “worked out”.
In essence, from our experience, the banks want to make sure that the borrower can actually pay the reduced amount and pay such amount on time! However, there are still thousands of homeowners who need assistance, and the program MUST be granted to way more homeowners, and we are hoping that the Obama Administration and the banks are making the necessary accommodations so the program may reach more homeowners!
Luckily for struggling homeowners, some of the lagging banks, which will go nameless and we have discussed before have been “called out” for their inability and unwillingness to assist struggling homeowners! Now that many banks are on the “hot seat” and with the increased number of foreclosure filings, we are hoping to see more cooperation from all banks.
So to answer the question, the HAMP program has helped many of our clients, and as we mentioned above is assisting over 200,000 Americans, however the Administration MUST take a closer look at the program and ensure that it reaches as many struggling homeowners as possible. Additionally, the banks MUST be more receptive to exercising the program and assisting their borrowers!
We Are Getting a Divorce and the House Has Negative Equity – What Do We Do?
We are getting a divorce and the house has negative equity……what do we do?
Now this is a touchy subject and my general answer is that it depends as much on opinion as it does on the finances of the couple.
When finances have been tight in the marriage (and finances are the most common reason cited for a divorce), there is often no equity to divide even in the best of times. Add to that the loss in home values in 2008 and 2009 and you have a complex situation at best. So it sometimes happens that the couple is forced to remain in the same home until either one of them has the resources to move on!
In these situations the parties will need to weigh the benefit of remaining in the home (children, personal value, family home, etc.) against any risks that may be associated with keeping it.
Meaning the parties must decide: how much is owed on the home versus how much the home is worth according to comparable values AND personal values. Factors include; missed mortgage payments, incomes, length of time in the home, the children and their needs, and more.
If payments are current, then there are more options to consider. But even if payments are falling behind it may be possible to save the home with a loan modification. If neither party can afford the payments then it will be necessary to take fast action and sell the property so that the losses can be stopped.
Loan Modification in California 