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.
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!
Mortgage Problems Are Walloping Americans’ Credit Scores
By Kenneth R. Harney Reporting from Washington –
When you do a short sale of a house, or modify the mortgage, is there much of an effect on your credit score? What if you walk away from the mortgage altogether?
A scoring company created by the three national credit bureaus — Equifax, Experian and TransUnion — has some eye-opening numbers. VantageScore Solutions, whose risk-prediction scores are now being used by some of the largest mortgage companies and banks, has found that the way consumers handle their mortgage problems can have profound effects on their credit scores.
For example, loan modifications that roll late payments and penalties into the principal debt owed on the house can actually increase borrowers’ scores modestly. Refinancings of underwater, negative-equity mortgages — which the Obama administration’s Making Home Affordable program offers through government-controlled Fannie Mae and Freddie Mac — may have little or no negative effect on scores, even though the homeowners might have been tottering on the edge of serious delinquency before refinancing.
The Vantage credit score, the primary competitor to the long-dominant FICO credit score, rates borrowers on a scale range of 501 (subprime, the highest risk) to 990 (super-prime, the lowest risk). Unlike Fair Isaac Corp.’s FICO scoring system, whose scores can vary by 50 to 100 points based on which bureau supplied the underlying credit data, Vantage scores are about the same for each consumer.
When homeowners negotiate a short sale with lenders, they sometimes assume that there will be relatively little effect on their scores. After all, the loan was successfully paid off, there was no foreclosure, and the lender voluntarily agreed to accept a lower balance than was owed.
But according to VantageScore researchers, short sales can trigger big drops in credit scores. Sarah Davies, senior vice president of analytics, said a homeowner with an excellent score of 862 might plummet 120 to 130 points after a short sale.
Although it’s true the lender may lose less money through a short sale compared with a foreclosure, “it’s still a derogatory event,” Davies said. The full debt was not repaid and the lender lost money.
What happens when borrowers walk away from their mortgage debts altogether — the so-called strategic defaults that have become commonplace in some large markets such as in California? They should expect 140- to 150-point hits to their scores, plus negative marks on their credit bureau files for as long as seven years.
People who file for bankruptcy protection covering all their debts (mortgage, credit cards, auto loans, etc.) will get hit with an average 355- to 365-point drop in their scores. Bankruptcies remain on borrowers’ credit bureau files for 10 years.
With all the mortgage delinquencies, short sales and foreclosures experienced by U.S. consumers in the last couple of years, has there been a deterioration of average scores across the board? Absolutely.
For example, roughly 36.6 million of the 213 million consumers tracked by the three national credit bureaus in the first quarter of 2008 had Vantage scores above 900 — the super-prime credit rung. That select group represented 17.2% of the country’s consumers.But by the end of the second quarter of this year, just 15.4% — 33.3 million out of 216.9 million individuals’ files — were left among the elite. By credit industry standards, that’s huge.
More Americans’ scores are slipping into the worst credit category as well. In the third quarter of 2006, 34.4 million consumers were in the lowest segment — 16.6% of 206.9 million individuals. But by the second quarter of this year, 18.3% of all files were in that category — 39.8 million consumers out of 216.9 million.
Most of these changes — fewer people with excellent credit, more people in the lowest brackets — have been caused by late payments on home mortgages, serious delinquencies, short sales and foreclosures, according to VantageScore researchers.
But the bottom-line good news about scores is that homeowners facing financial stress can experience minimal dings to their credit if they contact their loan servicer or lender early in the game — when they first discover that they may have trouble making their monthly payments — and take the first steps toward a loan modification or refinancing.
“Start that conversation early,” said Barrett Burns, a former lender and now chief executive of VantageScore. If you wait and fall several payments behind before seeking a modification, “you can lose 240 points on your score” and damage your ability to obtain credit for years.
But as a lot of us know…you have to fall behind in order to get assistance!
Will Banks Ramp Up to Deliver Loan Modifications In Time?
After our discussion last week…I thought this Los Angeles Times Article would interest you. A lot of you expressed your frustration with both banks so MAYBE just MAYBE things will now turn around for us all!
The sluggish $75-billion federal mortgage relief program got a boost from Wells Fargo & Co. and Bank of America Corp., both of which stepped up their efforts last month to modify home loans.
The two banks, which took a total of $70 billion in taxpayer bailout funds to shore up their finances, have been roundly criticized on Capitol Hill for not moving quickly to help distressed homeowners.
Last month, Bank of America more than doubled the number of home loan modifications it started, to 59,891, over its July numbers, while Wells Fargo increased its modifications 64% to 33,172. That helped pump up the industry’s response to the slow-starting federal program 53% to more than 360,000 modifications, according to figures released Wednesday by the banks and in the Treasury Department’s now monthly report.
Still, the Obama administration’s Making Home Affordable program isn’t getting to struggling homeowners quickly enough, some argue. The administration itself set a target of modifying 500,000 mortgages by Nov. 1.
“I am disappointed at the pace of this program,” said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Kevin Stein, associate director of the California Reinvestment Coalition, a homeowner advocacy group, said, “These numbers still aren’t where they should be.”
Even the Treasury Department acknowledged that the pace of modifications had to pick up. “There are signs the plan is working,” Michael Barr, assistant Treasury secretary for financial institutions, told the House committee Wednesday. “But we can do better.”
The department’s monthly report, its second since the program was launched in March, should get some credit for giving the program a boost, Stein said. “For the first time, last month we were able to see data on which companies were helping families avoid foreclosure and which companies were not,” he said. That exposure for July’s activity, he said, shamed especially Bank of America and Wells Fargo, which had turned in embarrassingly low numbers in July.
Also, although 85% of the mortgages nationwide are held by institutions voluntarily participating in the program, Stein suggested that banks and other lenders would be moving faster if participation were mandatory.
Up to 4 million homeowners have mortgages that qualify for adjustment under the administration’s program.
Bank of America, Wells Fargo and other loan servicers said slowdowns were caused by the need to increase staffing in loan-servicing departments and by government delays in distributing information about the program. Wells Fargo said it was well on its way to modifying more than its share of eligible loans.
Overall, about 1 in 5 eligible homeowners, or nearly 19%, have had their mortgages changed through the program, the report said. In July, that number was about 9%.
In some cases, loan servicers are using the plan’s rules to keep homeowners from taking part, which results in homes heading to foreclosure anyway, said Bruce Dorpalen, director of housing counseling for the Assn. of Community Organizations for Reform Now, or ACORN.
“We need stronger enforcement,” Dorpalen said. “We’re still finding foreclosure sales going through with no review to see if homeowners are eligible for loan modifications.”
ACORN is calling for the federal government to impose a one-year freeze on foreclosures to allow homeowners more time to figure out whether they are eligible for loan changes under the program.
Article By: Nathan Olivarezgiles
Let’s keep our fingers crossed!
Loan Modification in California 