11 Essential Loan-Modification Tips
If you’re taking into account ways to lower your monthly mortgage payments, here’s what you need to know to get the help you need and avoid scammers.
By Christopher Solomon of [...]
Obama’s Loan Modification Plan: 7 Things You Need to Know
Obama’s Loan Modification Plot: 7 Things You Need to Know
The White House releases fresh details on its plot to save the housing market
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By LUKE MULLINS, US News & World Report
Posted: March 4, 2009
At the heart of the President Barack Obama’s ambitious plot to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that’s a huge bet—especially taking into account that a top banking regulator said last December that nearly 53 percent of loans modified in the first split up of 2008 went terrible again within six months. But supporters argue that mortgage modifications need to be by the book engineered to work—and many early ones weren’t. To that end, the Obama administration on Wednesday unveiled fresh details on its plot to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven things you need to know about Obama’s loan modification program.
1. Payments, not prices: The plot centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. “Commentary about the contemporary housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans),” Buffett wrote. “Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay.”
2. Thirty-one percent: To that end, the administration’s plot requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower’s yucky monthly income. The government would then chip in to bring payments down additional, to no more than 31 percent of the borrower’s monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that’s not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that’s still not enough, the servicer would forebear loan principal at no interest. The plot does not, but, require servicers to reduce mortgage principal, which Richard Green, the boss of the Lusk Center for Real Estate at USC, considers a shortcoming. “For underwater loans, if you don’t write down the balance to be less than the value of the house, people still have an incentive to default,” Green says. “Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me.”
3. Cash incentives: To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.
4. Financial hardship: The Obama administration is pitching its plot as an effort to help responsible homeowners attentive in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower’s credit report. In addition, the program is calculated to target homeowners who are undergoing “serious hardships”—such as a loss of income—which have place them at risk of default. To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. “If we would have had such stringent verification over the last four or five years, we probably wouldn’t be in as terrible a position as we are in,” says Richard Temperamental, the chief economist at Mission Residential. But while Temperamental has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. “It’s going to be a very time-consuming process,” he says. Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration’s plot is out, lenders are free to start modifying loans.
5. Net present value: To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn’t. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan. Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this element of the plot “clever,” in conflict that it would work to ensure broad participation. “When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify,” Glaser says. “The federal subsidy for the payment on the modification…tips the scale toward modification as a better deal for the investor.”
6. Second liens: The Obama plot also addresses the issue of second liens—such as home equity loans or home equity lines of credit—by offering incentives to extinguish them. But key details on this element of the plot remained unclear. “Distinguishing the second lien is really vital,” Green says. “[But] exactly how they are going to convince the second lien holder to do this is not clear to me at all.”
7. Will it work? Temperamental argues that while the plot may reduce foreclosures for primary residences, it could lead to a spike in defaults for another group of homeowners. Although he supports the administration’s efforts to focus the initiative on primary residences, Temperamental notes that “it could be the case that a lot of [real estate speculators] have been just hanging on waiting to see exactly what the details are of this [plot],” Temperamental says. Now that it’s clear the Obama plot leaves speculators out, “we could really see a spike in foreclosures or at least mortgage defaults among this group.”
Glaser, meanwhile, worries that lenders may soon be overwhelmed by inquiries from homeowners looking to participate. “Starting today, millions of borrowers are going to start to call their lenders to see whether or not they are eligible,” he said. “And I’m not sure that the financial services industry has the capacity to handle these inquiries.”
Loan Modification Documents You Will Need
Render down 101: Preparing for your loan modification
12:56 p.m. July 15, 2009
Homeowners worried about missing mortgage payments and entering foreclosure may have another option: a loan modification.
Despite some signs of stability in the housing market, foreclosures remain a major obstacle to a consequential recovery. And more borrowers in excellent standing are likely to miss their mortgage payments as the recession claims more jobs.
That’s why some people have gone for a loan modification – a stable change in a mortgage that results in more affordable payments for the borrower.
Efforts to modify home loans have been easily outpaced by the number of new delinquencies, according to a Treasury Department report released in late June. In the first split up, loan companies modified 185,156 mortgages, up 55 percent from the previous split up, while the number of foreclosures in process increased to 844,389, up 22 percent.
Still, modification has been an option for many troubled homeowners. Lenders have been overwhelmed by calls from people seeking to modify their home loan, leading to reports of frustration and delays, according to mortgage finance giant Freddie Mac, which recently released an Internet video discussing this topic.
In the face of these delays, it’s vital to start the loan modification process fully prepared. That means having the right paperwork handy before mission or meeting with a loan servicer or housing counselor.
Here are some questions and answers about what you should have on hand.
Q: What are some basic documents to gather ahead of a loan modification meeting?
A: First, the servicer will want to quickly find the file in question, so have the monthly mortgage statement in hand.
Next, find the most recent statement for any homeowners’ or condominium association fees. Some borrowers have seen association fees increase in light of more home vacancies brought on by foreclosures, stressing monthly budgets – so you’ll want evidence of what you’ve been paying each month.
Also, borrowers who took out home equity lines of credit, and second or third mortgages, should have paperwork for those loans handy.
All of these documents go a long way in showing a troubled borrower’s financial circumstances and determining their eligibility for a loan modification. Borrowers should also enter the process with a budget plot that includes how much they can really afford to pay in monthly housing expenses, including insurance and taxes.
Q: How about tax documents?
A: In addition to recent job payroll stubs, borrowers should have their W-2 and their 2008 tax return handy. Property taxes can’t be unseen when taking into account monthly and yearly housing costs, so borrowers should have their property tax bill as well.
If a borrower is self-employed, he or she should have a profit-and-loss statement to allusion.
Retrieve copies of past tax returns and W2s previously filed with IRS
Q: Are there any documents not specifically correlated to the home that should be nearby during the meeting with the loan servicer?
A: Sure. Bring along statements showing balances and smallest monthly payments on active credit cards, car loans, student loans and other debts or obligations, Freddie Mac says.
These documents give the servicer a sense of the borrower’s monthly expenses outside of home-correlated expenditures, to come up with a manageable monthly mortgage payment that will be sustainable.
Q: Is that all?
A: Really, no. Freddie Mac recommends that homeowners write a statement that discusses the financial problems that are or could be leading to foreclosure.
This should be an honest account – the writer should set pride aside and give the servicer a sense of how terrible the circumstances really is.
Loan modification can be a complicated process, involving complex contracts and agreements. Borrowers might want to have a lawyer guide them through the process to work through any workings and make sure the lender is taking the right steps.
Q: What are some dangers to watch for in the loan modification process?
A: A significant problem is mortgage-reduction scams, in which consultants market their services directly to the consumer and question for an upfront fee, often with a promise to rescue the borrower from foreclosure by negotiating with the lender on the borrower’s behalf. These fees can be in the hundreds or thousands of dollars.
Sometimes, but, the work is never done, and the fee is not returned.
Government agencies have been cracking down. On Wednesday, state and federal prosecutors said they filed 189 lawsuits as part of a nationally sweep targeting loan modification consultants accused of bilking homeowners.
The federal government has outlined some fraud warning signs: For starters, borrowers should be wary of aggressive marketing tactics, requests for upfront fees and guarantees of foreclosure rescue. Patrons also should not sign any documents lacking conception them wisely.
Other things to watch out for, according to the Treasury Department: offers to buy the house and then rent it back to the homeowner, instructions to the homeowner not to contact the lender and fake claims of government affiliation.
Do you be eligible for a loan modification? Find out how on this website that offers a “No upfront fee loan modification program”. No Up Front Fee Loan Modification Program. Pay ONLY If We Get Results. Find Out If You Be eligible: Click Here
No Up Front Fee Loan Modification in California
Last October 19, 2009 Governor Arnold Schwarzenegger signed legislation that will prevent homeowners from being scammed by home loan modification practices. The governor signed Senate Bill 94, which became effective immediately. This new law prohibits any person from charging advance fees to homeowners in connection with home loan modification services. Fees for the services may be exciting only after the services have been performed and only after providing a specified notice to borrowers a propos other options available to the borrower. This law is aimed to give consumer protection to California homeowners who have been negatively impacted by the economic downturn and are facing doable foreclosure
This law was enacted due to a widespread abuse involving the collection of advance fees in connection with loan modifications. The California Department of Real estate is currently investigating over one thousand four hundred loan modification complaints; and, has already issued hundreds of desist and refrain orders against individual respondents for illegally collecting advance fees. These schemes usually involve advance fees paid by homeowners in exchange for promises by scammers to work on their loan modifications. Once these advance fees are paid small or nothing is done to get the borrower’s loans modified.
This new law now prohibits any person, including real estate licensees and attorneys, from asking for an advance fee payment in exchange for a promise to work on a home loan modification. This law applies to residential properties with four or fewer dwelling units. This new law applies to anyone in California performing loan modification services. It also applies to those outside of California who offer these services to California homeowners.
There was, of course, some opposition to this bill before it was signed into law. Homeowners who are in financial hardship should have the right to modify the terms of their loans specially when faced with foreclosure. There were arguments against this Bill mainly due to the fact that banks do not automatically have the best interest of the homeowners in mind. By prohibiting advance fee payments, lawyers will have a huge disincentive in accepting cases of homeowners who need help with loan modifications and are in danger of foreclosure. The result is that these homeowners are left on their own lacking legal representation. Banks, on the other hand, are not volunteering to modify mortgages of homeowners who are in financial hardship. Banks do, but, have armies of lawyers who can work on foreclosure of properties. Many banks are making it hard for homeowners to be eligible on these loan modification programs and may just instead find it simpler to just shut out on the properties.
The purpose of this law, which is to prevent scammers from victimizing homeowners, is indeed worthy. The side effect, but, is that this law now practically eliminates all legitimate service providers too. The result is that homeowners who do need representation may no longer be able to find help or representation when they need it the most. Homeowners, who may or may not be qualified, are left to negotiate with banks on their own. In this process banks will hold all the trump cards as they can simply refuse loan modifications and/or just offer homeowners a “take it or leave it” loan modification which may not be in the homeowners best interest (but would certainly protect the bank’s interest).
In any case, it is now the law in California. The new law requires service providers who are still offering home loan modification services to give the following notice to homeowners:
“It is not necessary to pay a third party to arrange for a loan modification or other form of leniency from your mortgage lender or servicer. You may call your lender directly to question for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower help free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov.”
Thus, homeowners are encouraged by this new law to do their own legwork. Homeowners can start with information given by HUD. Then they will have to make their own calls to their lender, which, from my encounter, is not simple and is certainly very time-consuming. Homeowners are also encouraged, under this new law, to negotiate on their own the new terms and conditions of the proposed modification with their lenders. We can only wish “excellent luck” to California homeowners who need loan modification relief from their lenders.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as qualified advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a qualified corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: www.tancinco.com. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
Oversight on SBA loan Program Is In Question
A government report stated the Small Business Administration, aka SBA, is getting a failing grade for adequately monitoring lenders. The SBA has a estimated $91 billion loan program and each year the SBA guarantees more than 50K loans made by thousands of lenders.
The report mentioned the SBA hasn’t followed common industry standards in assessing and evaluating lenders who are most likely to make risky loans said the Government Accountability Office. 
Highlights of the Report:
- Despite improvements to the SBA’s off-site monitoring of lenders, the
agency does not independently assess the validity of the off-site
monitoring, the report said, nor does it effectively conduct on-site
reviews of lenders.
- The report found that the SBA does not use its off-site monitoring to
target lenders that require on-sight reviews. Rather, they review
lenders with the largest SBA-guaranteed loan portfolio, causing 97
percent of the lenders that the SBA’s off-site monitoring detected as
high risk to escape on-site review.
- The GAO recommended that the SBA use an independent party to validate
its off-site monitoring, revise its on-site review policies and
develop a strategy for on-site reviews that relies more on its lender
risk ratings. In response, the SBA said they agree with these
recommendations and has outlined steps to right them.
On the other hand, the Obama is talking about shifting funds from Wall Street bailouts and throw a lifeline to small companies and is zooming in on tax cuts for small businesses hiring and investing as a means to spark job creation.
The controversial lip service from Obama about the tax incentives for small business to hire, has left small businesses on the details how to apply the thought.
For those who can be eligible for a SBA, the fees have been temporally waived and the guaranteed potion of the loans could be has much as 90%. But the funding pool ran out two weeks ago and pending transactions are still waiting for funding. So where does that leave you? On a waiting list I guess, for now because the House and Senate have each talk about extending the funding, but of course haven’t yet come to agreement.
Most SBA loans have a personal Guarantor. There a required actions when a SBA loan is in default. So if you are affected by the economy or your consumer needs have changed you need make a action plot how to get back on track. If you are prepared, and there is no other way to avoid the inevitable default, then call your lender, present your plot and see if they will work with you. They might surprise you one way or the other. Make sure you also have a excellent Stage 11 attorney in your pocket, your last resort.
If you have any questions about SBA loans please don’t hesitate to call our SBA veteran of 15 years, Mr. Sanchez at 480-214-2310. SBA Loan Modifications is a option.
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