Loan Hammer Blog

So it indeed looks as if the Banks actually wrote the new Obama Home Affordable plan that is touted to help millions of distressed Homeowners.

To wit:

A borrower is not guaranteed nor entitled to principle reduction in any loan modification outside the Home Affordable plan or under the plan:

http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf

Page 7 -

Step 6: If the Front-End DTI Target has not been reached, forbear principal. If there is a principal forbearance amount, a balloon payment of that forbearance amount is due on the maturity date, upon sale of the property, or upon payoff of the interest bearing balance.

As Archie Bunker from the old sitcom “All In The Family” said:

“It don’t hurt to be generous, specially when it don’t cost you nuthin.”

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Mortgage Modifications

President Obama has apparently embarked upon a campaign to put all private sector loan modification firms out of business because some are apparently scams.  It’s a curious approach when you consider that there have been and continue to be countless stock market related scams in this country, but I can’t remember a president telling me not to pay my financial advisor as a result.

 Speaking on the subject of his housing rescue plan, which will, once it’s available, offer to modify certain mortgages, the president has said on several occasions: “If you have to pay, walk away.”  So, the fact that they charge a fee makes them a scam?  And here I always thought that it was charging a fee and not delivering a service that was a problem.  Just the fact that a firm charges a fee… well, not so much, right?

 If the president is right about the whole charging a fee issue, then why does the California Department of Real Estate tell homeowners that they should be sure to use a loan modification firm that uses its “Advance Fee Agreement”?  I’m confused.

President Obama has also said that people don’t need to pay a fee to have their loan modified because they can simply call their banks directly.  I was curious about this, so I went to IndyMac Federal’s Website that advertises their new streamlined loan modification service.  Here’s what it says in the first three paragraphs: 

 “The goal of this streamlined loan modification program is to achieve improved value for IndyMac Federal. IndyMac Federal will only make modification offers to borrowers where doing so will achieve an improved value for IndyMac Federal.”

 Unusually forthcoming, if you ask me.  The bank is telling you right up front that they’re happy to negotiate a modification of your mortgage in their best interests, certainly not yours.  And that’s what they should be doing, I suppose.  But as a homeowner, don’t I want someone who knows mortgage modifications to be negotiating on my behalf?  

 Telling me I don’t need to pay an expert to represent me with my bank seems like the police telling me that I don’t need an attorney after I’ve been arrested because I can just ask the District Attorney any legal questions I might have.  Gee, thanks for the advice, but I think I’ll go ahead and call my own lawyer anyway, okay?

 Here’s where our country stands on the issue of mortgage modifications as of today:

 1. President Obama’s Affordability & Stability loan modification and refinancing program is not available today.  The Treasury says that contracts are going out to the banks in April, however, so as soon as that contracting process has been completed and the banks get all of the details into their systems, we’ll see what happens.  

 The government’s current loan modification assistance program, which was funded to the tune of $320 billion last July 30th, has successfully modified ONE mortgage as of April 8, 2009, according to HUD.  Yes, you read that right… one.  They’ve received 865 applications, and modified one mortgage.  Hopefully the program has some money left over, and I’m anxious to hear exactly how much it cost the government to modify that one mortgage, aren’t you?

 2. The president’s plan, by his own admission, will not help millions of homeowners at risk of foreclosure.  FDIC Chair Sheila Bair shares the president’s view.  Speaking to ABC News on February 19, 2009:

 “Bair also said that the (program’s) huge expenditure won’t halt an avalanche of foreclosures, conceding that there are millions of homeowners that are now so far ‘underwater’ – their homes now worth less than their mortgages – that they will inevitably lose their homes.”  

 You see, among other restrictions, the president’s plan only applies to mortgages securitized by Fannie Mae and Freddie Mac, but since 65% of the mortgages originated in 2005 and 2006 were not securitized by either Fannie or Freddie, obviously there will be more than a handful of folks that won’t be able to seek help under the soon to be available government program, which for the moment we’ll assume will work at least somewhat better than its predecessor.  

 What should these people do?  Why call their bank directly, of course.  The president feels certain that your bank will be all too willing to help you out by writing off some of the money you rightfully owe them.  Why wouldn’t they?  They’ve always been so helpful in that regard in the past.

 Why would President Obama believe that individual homeowners who can’t make their mortgage payments would be able to call their banks directly to negotiate a modification of their mortgages?  Wasn’t he an attorney before his rise to fame, fortune and glory?  Well, he asked Treasury about it and Treasury informed him that they had checked with the banks and the banks had assured them that they would be more than willing to help.  

 I’m sure they would prefer to negotiate with John and Jane Homeowner than an attorney or mortgage expert who is representing the homeowner.  In fact, I’m sure they’d much rather negotiate with someone like me than someone who has actually read the documents associated with a mortgage.  Me?  I just signed where they told me to sign like everyone else.

 3. Then there’s the private sector’s Hope Now Alliance, a consortium of lenders (a euphemism for banks) and mortgage servicers (also like banks) that have banded together underr intense pressure from state and federal officials to “help” prevent foreclosures by modifying the mortgages of troubled homeowners.  

 Hope Now says it modified hundreds of thousands of mortgages in 2008, and is on track to double the number in 2009.  The problem is the re-default rate appears to be quite high.  Like 50% high.  The Hope Now Alliance says it’s having trouble estimating the number of homeowners that it has helped that have re-defaulted six months or a year later.  I guess they’re just not good with numbers.

 Luckily, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision have been able to keep track of the re-defaults and it doesn’t look good.  According to the LA Times on December 26, 2008:

 “More than 50% of loans modified this year were delinquent again within six months, according to a joint report Monday from two federal bank regulators, the Comptroller of the Currency, and the Office of Thrift Supervision. There are problems with both industry and government programs. For instance, Hope for Homeowners, run by the Federal Housing Administration, has been criticized as too expensive and onerous to substantially reduce the problem.”

 I see.  So, there are problems when banks negotiate directly with distressed homeowners over loan modifications, are there?  Well, who would have ever thought it?  I can’t even imagine why that would be.  If you’re confused in the least, please refer to point #1, above.

 4. And then there are private sector loan modification companies.  These companies have sprung up over the last 18 months to help the growing problem of people finding themselves unable to make their mortgage payment and being unable to refinance.  Some are licensed by state regulatory agencies, such as California’s Department of Real Estate, and others are law firms.  

 I checked out one such company operating under the law firm model and they showed me their internal reports, which showed that they modified almost 400 mortgages in March of 2009 alone.  They claim that they will modify 600 mortgages in behalf of troubled homeowners in April.  And most interesting to me was their claim that more than 90% of the mortgages they get modified, are paying as agreed one year later.

 Of course, as might have been expected, there are companies that entered the previously unregulated loan modification field with the intention of defrauding homeowners.  The State of California claims to be investigating 250 of these incidences, and the Washington Post recently reported that the FBI is investigating roughly 1600 cases of alleged fraud by loan modification scammers.

 No one would ever defend a company that preys on and defrauds troubled homeowners.  Clearly, they should be brought to justice.  The rest of the industry, however… the legitimate loan modification firms, should not be unfairly maligned by the President of the United States simply because they charge a fee for their highly valued services.  Regulate the industry, don’t throw the baby out with the proverbial bath water.

 The government has failed us at every turn in the housing and foreclosures crises.  They now claim that their new plan will help 7 million to 9 million homeowners, well… sometimes they say 3 million to 4 million… and sometimes they say 5 million to 7 million.  Here’s what ABC News quoted Ms. Bair as saying during her interview of February 19, 2009:

 Sheila Bair also told ABC News that Obama’s plan will “at least help 3 million to 4 million of those borrowers in distress”.  However, Bruce Marks, CEO of the Neighborhood Assistance Corporation of America dismisses Bair’s claims.  Marks told ABCnews.com: “She is absolutely wrong. It will have minimal impact. They have pulled from the sky the 4-5 million mortgages that will be affected. It’s just hype.” 

 Well, that certainly makes it all very clear… sounds like par for the government’s course, to me.  Here’s something for the government’s suggestion box, if such a thing exists.  Since there are unquestionably millions of Americans in need of assistance related to modifying their mortgages, and since the government’s last program was a miserable failure and the new one isn’t yet available… how about we don’t go reducing the options available to homeowners in distress quite yet. Private sector firms that charge a fee to help troubled homeowners are just an example of the free market at work.  These firms represent the homeowner and negotiate with lenders to get the best outcome possible for that homeowner.  That process doesn’t cost the taxpayer a dime.  The homeowner pays the expert, and the bank agrees to modify the loan as a result of negotiations with that paid expert.  Sounds a lot like a normal business practice to me.  

 Of course, I’ve only owned my own home and my own business for twenty years now… so what do I know?

The link below should take you to an article with an interactive web page that explains the rudiments of what to look out for if you are seeking information on how to keep your home from going into foreclosure.

If you have questions or comments please join in!

http://www.msnbc.msn.com/id/30071125/

These notes are not my original thought but they seemed so striking in their simplicity and clarity that I felt the need to pass them on. Especially if you are dealing with a “Deaf Lender”.

You have to persuade yourself that you absolutely don’t care what happens.

If you don’t care, you’ve won.

I absolutely promise you, in every serious negotiation, the man or woman who doesn’t care is going to win.

Do you give the impression that you’re willing to walk away?

Not just give the impression. Walk away. No deal is a must-do deal.

Read all about it! All the nuance of the Homeaffordable and Modification Programs!

http://www.financialstability.gov/

Does Fannie Own My Loan?

http://www.fanniemae.com/homepath/homeaffordable.jhtml

Does Freddie Own My Loan?

http://www.freddiemac.com/corporate/buyown/english/avoiding_foreclosure/avoiding_foreclosure_form.html

Who’s left out of the Obama relief plan?

In a nutshell, unless some changes are made:
Investors and speculators. Those with jumbo mortgages. Those who can’t document their incomes. Those who owe so much more than their houses are worth (over 105%) that a lender would do better by foreclosing.

NO SOUP FOR YOU!!!

Felix Salmon
Portfolio.com
March 5,2009

“Felix” means lucky, in Latin. But this Felix hasn’t had much luck: after investing a whopping 50% downpayment into his $600,000 California dream home, he’s seen the value of his house fall to $270,000, even as the amount outstanding on his mortgage has ballooned to $350,000, putting him among the 8.3 million Americans with negative equity. This is what CNBC calls a “Dollar Dilemma”:

Felix asks, quite sensibly, why he shouldn’t just walk away from his house. California is a non-recourse state, which means that the lender, was fully aware from day one that if the value of the mortgage ever exceeded the value of the house, there would be a strong financial incentive for the borrower to do just that.

The reaction of the CNBC hosts makes it seem as though Felix had asked whether he should sell his grandmother into slavery. “If you agreed and you signed that contract, you have to stick to it,” admonishes Carmen Wong Ulrich. “It’s all about that commitment that you made to the house.”

To the house? How can anybody make a commitment to a house? I can see that Felix signed a contract with a lender, but remember that the lender was writing negative-amortization interest-only mortgages and then turning around and selling them off to an investment bank to securitize, pocketing an up-front profit. Such lenders kept on making this trade until there was no more appetite for such loans any more, at which point they closed their doors, keeping all their old profits and leaving the losses with the investment banks and the banks’ clients.

So I don’t think that Felix has any kind of moral obligation to the lender, nor to the sophisticated financial institutions which ended up buying the lenders’ mortgages and who should have known exactly what they were doing.

I’ve quoted Mark Gimein on this subject in the past, more than once, but he really did write the best single blog entry when it comes to such matters, so I’d urge Felix to listen to Mark rather than to the shills of the financial-services industry on CNBC. Mark explains the morality of the situation very well, and ends with a bit more on how such decisions are likely to play out in practice:

Journalists are mistaken when they imagine that a credit score is a judgment on the character of borrowers. It’s not. It’s a judgment about the likelihood of someone repaying a loan. Bad marks like a foreclosure affect this. But being overextended on credit affects this even more. You might imagine that if you have the magic word “foreclosure” on your record you are automatically a worse risk than someone who doesn’t. That’s just not true. Lenders don’t like to lend money to people who have not paid their debts in the past. But what they like even less is lending money to people who have a mortgage they can’t afford and are likely to stop paying their debts in the future.

Now there might be good reasons for Felix to stay in his home: for one thing, he can happily continue paying interest only and no principal for another year or so, which wouldn’t harm him very much. And, of course, this is his dream house: if he rents somewhere else, he probably won’t be as happy with his home. But his wife is urging him to just walk away, and a happy wife is always a good thing.

The CNBC hosts, however, get unbelievably holier-than-thou with Felix, accusing this man — who, remember, has just lost his entire $300,000 downpayment — of profligacy and of trying to beggar his neighbors by bringing down property values even further.

At the very least, I think that Felix should consider a strategic delinquency, when his interest-only period expires. If the servicer isn’t talking to him now, then they surely will after receiving no mortgage payments for a couple of months. At that point, he can request a large principal reduction and make a credible threat that if he doesn’t get it, he’ll mail in the keys to the house. And if the servicer is sensible, they’ll give him what he’s asking for. They hold no cards at all in this negotation — although they do seem to have done a magnificent job with the CNBC types.

How to use “Produce the Note” in Non-judicial Foreclosure States
March 5, 2009
In some states, a lender can foreclose on your home without going to court. These are called non-judicial foreclosure states. You can still use the “Produce the Note” strategy in these states, but it takes a few more steps on your part.

First, the concept behind “Produce the Note” is this: When a homeowner is faced with a foreclosure suit, “Produce the Note” requires the lender to prove it has the actual authority to foreclose, by requiring it to officially produce the original promissory note in the lawsuit. But if there is no foreclosure lawsuit, what can homeowners do? In these “nonjudicial foreclosure” states, such as California, Texas, or the thirty or more other states with similar procedures, the homeowner has to file a lawsuit against the party trying to foreclose.

Here’s how it generally works:

In a state with nonjudicial foreclosure procedures, a foreclosure sale can be initiated by the lender without using court proceedings.
Homeowners receive a “Notice of Intent” letter informing them that a foreclosure sale will be scheduled unless the overdue debt is paid within a certain amount of time.
If the debt is not paid accordingly, a “Notice of Sale” is then sent informing the homeowner that a foreclosure sale will take place at a particular time and place.
No lawsuit is ever initiated by the lender and the courts are not involved.
Without a lawsuit, you cannot use judicial procedures to require the lender to “produce the note.”
Merely sending a private letter to the lender “demanding” that it produce the original note to the borrower may be met with utter disregard or outright refusal by the lender.
So, here’s what you can do:

In a nonjudicial foreclosure state, in order to protect yourself by demanding that the lender “produce the note,” it will be necessary for you to first actually file your own lawsuit. Even in such nonjudicial foreclosure states, no law prohibits you from instituting your own lawsuit challenging the right of a lender to foreclose on your property. The lawsuit would allege that:
the lender has sent a Notice of Intent to Foreclose;
the homeowner is unsure as to whether the lender still possesses the original debt instrument, upon which the lender claims the right to foreclose;
the homeowner wants proof of such authority; and
the court should intervene and prevent the foreclosure from taking place unless and until such proof is presented.
Initiating litigation to protect your rights is never a simple process. Requirements as to what must be contained in a pleading, how the facts must be plead, who should be named in the pleading, and how the pleading should be officially “served” on the lender, all differ from state to state.
Once a lawsuit is initiated, however, all states have judicial procedures that allow a party to require the other side to produce relevant documents, and the “produce the note” strategy can be used.
Often times, the best way to protect your rights in these situations is to seek professional help from an attorney licensed to practice in your geographical area. Getting involved in a lawsuit by representing yourself, especially if you file the lawsuit yourself, is not easy, but you can do it. Every citizen is able to represent themselves and file a lawsuit on their own. It’s called pro se, which means “on ones own behalf.”

If you can afford a lawyer, then by all means, hire one. There are attorneys who specialize in real estate matters, and either advertise or can be found in the yellow pages. Most areas have bar associations that maintain lists of attorneys willing to help in specific areas of the law.

Finally, there are usually “legal aid” organizations around set up to assist individuals who may have difficulty paying for the services of an attorney. A good place to begin your search is by going to the Legal Services Corporation website.

So, even if you are in a non-judicial foreclosure state, you can use “Produce the Note.” This is your home, and if you want to fight for it, you do have a way

Posted By DIANA GOLOBAY , www.housingwire.com
March 4, 2009 11:06 am
The $75 billion mortgage refinance and modification plan launched Wednesday by the Treasury Department is estimated to reach some 9 million homeowners, according to Treasury estimates. The Making Home Affordable program’s guidelines will offer servicer and borrower incentives and are designed in such a way as to allow for immediate modifications, the Treasury said. “It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets, just as we work to stabilize our financial system, create jobs and help businesses thrive,” Treasury secretary Tim Geithner said in [1] a media statement. “Economic recovery requires action on all three fronts.”
According to guidelines released by the Treasury, the program is made up of two levels of aid — a refinance program effective for an estimated 4 to 5 million homeowners and a modification program estimated to reach between 3 and 4 million homeowners. The refinance program will increase access to refinance options through relaxed standards. The modification program will be effective only or mortgages originated on or before Jan. 1, 2009 on owner-occupied, single-family one- to four-unit properties that serve as a primary residence. Borrowers in bankruptcy are not eligible, but those facing foreclosure will see foreclosure action suspended during a trial period or while borrowers are considered for preventative options.
The Treasury has agreed to partner with servicers and share the costs of payment deductions in order to foster participation in the program. The lender or servicer, after reducing mortgage payments to no greater than 38 percent of the borrower’s debt-to-income, will receive a Treasury match for further reductions in monthly payments on a dollar-for-dollar basis, down to a 31 percent debt-to-income ratio. Servicers will also receive up-front incentives of $1,000 for each modification initiated under the program’s guidelines, as well as a $1,000 payment each year for up to three years for each borrower that remains in the program. Lender/investors of mortgages that enter the program while the borrower is still current on payments — but at risk of falling behind — will receive a one-time incentive of $1,500, while servicers of such mortgages will receive $500. The incentives are designed to help ease the losses that would be incurred by both servicers and investors when mortgage terms are written down.
[2] Read the program guidelines.
A call to 5-year ARMs?
A close look at modification terms reveals an interest rate floor of 2 percent, and a modified interest rate that remains in place for 5 years, after which time it “will be gradually increased 1 percent per year [or less]…until it reaches the interest rate cap” which is either the original contractual rate or the Freddie Mac ([3] FRE: 0.4007 +2.74%) survey rate for 30-year fixed-rate mortgages. The language present in the guidelines suggests these modifications — principle forbearances — are little more than 5-year adjustable-rate mortgages, the low rates of which will increase after the first five years.
The Treasury’s answer to this might just be its initiative to support the GSEs with more funding in the hopes it will muscle down interest rates. The program also attempts to support low mortgage rates by increasing Treasury funding commitment to Fannie Mae ([4] FNM: 0.4038 +6.26%) and Freddie from $100 billion each to $200 billion each. And if the GSE funding initiative doesn’t work, there’s always the incentive in place within the program that allows borrowers whose payments are reduced a minimum 6 percent to accrue up to $1,000 each year for five years — up to $5,000 — based on timely monthly payments. As long as the borrowers don’t fall behind, they’ll enjoy up to $5,000, which will be paid directly to the servicer, who will in turn apply it toward the principal loan balance. So if borrowers’ interest rates begins to inch upward after five years and they find themselves with a chunk of principal forbearance to pay back when it’s all said and done, at least they’ll have a $5,000 contribution toward repayment from Uncle Sam.
The Making Home Affordable program’s guidelines and fact sheet also contain language supporting so-called “cramdown legislation,” which if enacted would allow bankruptcy judges to “reduce the outstanding principal balance of a primary residence home mortgage loan to current fair market value” as a last resort, provided the borrowers were ineligible for either Hope for Homeowners or the new modification and refinance programs. Such legislation has been hotly [5] contested by mortgage industry participants that have suggested allowing so-called cramdowns to take place will likely lead to further significant write-downs in an already battered secondary mortgage market — leaving banks with even larger-than-expected holes on their balance sheets and further contributing to investor doubt in the U.S. banking system.

So, finally! President Obama and The Smartest Guys In The Room have introduced a plan that will fix the problems of millions of people ensnared in the mortgage – real estate melt down! Hoorahhh!

Here are some tasty tidbits that look like they can “unstick” things for many Borrowers and Lenders and save the day!

The plan includes some technical provisions to help untangle the legal morass created by the multitrillion-dollar wave of mortgage securitization at the height of the lending boom. Mortgage servicers have argued that even if they want to modify loans, they fear lawsuits from investors who would have to take less money. Getting those investors to agree on modified terms has been difficult.

GREAT! Yeah Baby! Let’s do it!

To help break that logjam, the Obama plan spells out uniform guidelines for modifying a loan and then protects lenders and servicers from lawsuits. The guidelines include a standard formula for estimating the value of a home in a falling market. Now, each lender and servicer uses its own formula, which offers another opportunity for investors to challenge proposed loan modifications.

Wow! Awesome! What more do we need! Let’s fix this thing!

AND!

While the plan would require lenders accepting government “rescue” funds to use the guidelines, there are no requirements that they modify loans.

HEY! WHAT DID YOU JUST SAY???????????

But, but, but, you said, ……… well hell. Thanks for nuthin! I guess with politicians, lobbyists, and bankers, the devil’s in the details.