Home Foreclosure Prevention

A slew of struggling homeowners are coming forward with complaints about the way banks are operating under a federal loan modification program announced last year by the Obama administration. Thousands of American homeowners need help mortgage refinancing or qualifying for a loan modification agreement that would lower the interest rate, like a refinance loan.

“You Qualify.”  Those two words, from the mouth of a bank representative last October, triggered a wave of relief for Tracy Davis and her husband James. The couple had been in and out of work for three years and were struggling to pay their home loan on time, so when the Bank of America worker told them they qualified under a federal program to receive a loan modification, they finally saw a path to keeping their house.  “We walked out thinking, great,” Tracy Davis said.  But weeks went by, and nobody contacted them, and they weren’t able to reach anyone — other than representatives at a call center in India. “To this day, we’ve not heard from someone,” she said. “It’s February. This goes back to October 30.”

The Davises, who live in Cincinnati, are among a slew of struggling homeowners coming forward with complaints about the way banks are operating under a federal loan modification program announced last year by the Obama administration. The program, called the Home Affordable Modification Program, aims to keep 3 to 4 million people in their homes. Federal statistics show banks are making plenty of offers, but relatively few of those loan changes are being made permanent of the more than 1 million homeowners who have started the required three-month trial period, only 116,000 have had their new terms made permanent. 

The complaints have a common tune. Homeowners say the banks are giving them the runaround either by pledging to modify loans and then not following through, as with the Davis family, or by signing them up for the trial period and then leaving them in limbo. “This is an epidemic problem,” said Stuart Rossman, director of litigation with the National Consumer Law Center. 

Under the terms of the Treasury Department program, participating banks that offer new loan terms are supposed to put homeowners through a three-month trial period. If the homeowners make timely payments and meet other conditions, the terms are supposed to become permanent.   But a pair of lawsuits filed in U.S. District Court in Boston this past week claimed Bank of America and Wells Fargo were violating those rules. 

In the Massachusetts cases, the lawsuits describe a Kafkaesque scenario in which the banks have been holding up the mortgage loan terms because of missing paperwork that they either won’t identify or never required in the first place. 

For instance, homeowners Odalid and Wilfredo Bosque, according to one suit, entered the trial period from October to December of last year, but after they “timely made each of the payments,” Wells Fargo did not offer a final agreement. The Bosques were told that they did not submit their paperwork, but when they called the bank, agents purportedly told them “there is no paperwork missing.” Meanwhile, they continued to receive calls from the collections agency. 

Wells Fargo issued a statement saying the bank has “diligently” worked with homeowners to complete the loan modifications for customers who meet the loan modification guidelines. “Unfortunately, not all customers who enter a HAMP trial ultimately qualify for the program. In these instances, we work to determine if another foreclosure prevention option is available to them,” the written statement said. Rossman said that his borrowers qualified. 

Under the program, banks get $1,000 for every modification, and then they can receive $1,000 a year for up to three years. Borrowers, too, can get $1,000 a year from the government under the plan, though the incentives don’t kick in until after the three-month trial. The program is meant to reduce monthly mortgage payments to 31 % of income. 

Government statistics from January show Bank of America has offered the modifications to nearly 330,000 homeowners, but it made only 12,761 permanent. Wells Fargo has made 188,749 offers and made 17,652 permanent. There’s a gap between those figures for most banks. J.P. Morgan Chase, for instance, made more than 222,000 offers, but sealed 11,581 of them.

Banks are now required to extend a lot more than a loan modifications. As a result of the federal Protecting Tenants in Foreclosure Act, states across the country are passing similar legislation that makes home lenders obligated to maintain home foreclosures from the time of the judgment of foreclosure through the closing of the sale. “I do believe that we are seeing a number of laws to protect tenants and blighted properties,” said Nanci Weiss gold, a partner with the Washington law firm K&L Gates. “I am seeing these types of laws not only at the state level but also at the local-level. The sheer number of these laws coupled with the potential liability will raise a huge compliance problem for servicers.”

In New York, Gov. David Patterson signed the Mortgage Foreclosure Law which takes effect on April 14th. A spokesman for Foreclosure Lawyers of America said, “The law applies when the property is vacant or if it’s been abandoned by the mortgagor but is rented by a tenant. The law is enforceable by the tenant, any HOA or municipality. If the property is occupied the law states it must also be in a safe and inhabitable condition. This includes the cost of heat.  “Effectively, mortgage lenders are now responsible for the maintenance and repairs,” said Heather Rogers, an attorney with Davidson Fink LLP in Rochester, at the New York State Bar Association’s annual meeting here. “The intent of the statute was clearly to fight blight and properties that were being abandoned and bad for neighborhoods and home values. However, anybody who does home foreclosures should know it can be a very long time between judgment and recording of the deed,” Ms. Rogers told conference attendees. “That’s when a lot of mortgagors decide to pull their head out of the sand and maybe try to do something. Bankruptcy is filed. The process can be very lengthy.”

It’s unclear as to whether the costs of maintenance and repairs can be added to the debt, she added. “It would depend on the mortgage documents, but this is a huge cost and liability for lenders.”  This law has many other areas that impact foreclosures, added Ira Goldenberg with Goldenberg & Selker LLP in White Plains. It creates a hardship for condominiums, he said at the conference.  “There is no way to force a bank to speed up its home foreclosure process. Many times, the condominium is being doubly punished because the unit owner has already stopped paying the common charges and may have abandoned the unit. The bank doesn’t pay those common charges. So, it puts the condominium in a deeper hole.” On top of that, if the unit is unsafe or unclean, the condo board steps in as a common expense to maintain the unit. “This statute makes some change. So, the question is whether the obligation to pay this maintenance is in fact a common charge. I think the answer from the statute is a resounding that it’s not clear.”

Another element of the law requires that all foreclosures are now subject to mandatory settlement conferences effective February 13th, applying to every single home loan. Prior to this statute it was only subprime mortgages that were subject to these. The only “out” is if the property is not owner-occupied, said Ms. Rogers. “But in practice that’s not always true. A lot of the judges are issuing them anyway. Just because the statute says one thing doesn’t mean that’s how we are going to proceed.”

Any foreclosure filed prior to Jan. 14, 2010 that wasn’t already subject to the settlement conference and has not yet reached judgment is subject to a conference at the request of the defendant. The court is required to send a notice to the defendant telling them they have this option.  “There is nothing mentioned about how long you have to wait until you hear back,” she said. “The whole process is a work in progress. The statute does not set forth how these settlement conferences should be held. Every county is different. Some counties have a system put in place and things are going a little more smoothly than others. Other counties are leaving it up to individual judges. Counties are trying to work with the judges to see if they can put forth a streamlined process.”

The state is also requiring 90-day pre-foreclosure notices for bad credit home loans, including the newly added condos and co-ops. This notice, which lists HUD-approved agencies that can assist borrowers, cannot be sent with any other notice. One of these notices must be sent every 12 months if the borrower is not already in foreclosure.  Mortgage lenders are required within three days of sending the notice that they must make an electronic filing with the New York State Banking Department stating the name of the borrower, their address, last known telephone number and the amount due on the mortgage loan.  The banking department has 180 days or “such time as they determine” to put the system in place. “As you can imagine there is no system in place at this time,” Ms. Rogers said.  “The problem is the statute must also contain a further allegation that the lender complied with the statute. I’m not sure if this was an unintended consequence or an intended consequence, but the argument could be made foreclosures will have to cease until the ability to make the filing with the banking department is completed,” she said.  Mimicking the federal Protecting Tenants in Foreclosure Act, a 90-day notice for properties sold at a foreclosure sale must be sent to any tenant telling them of a change in ownership to the property. Here, tenants are informed they may remain in the property for 90 days or their lease term.  Article was written by Jennifer Harmon

Freddie Mac said delinquencies in its mortgage portfolio continued to rise last month, putting further pressure on the mortgage giant.  It and larger sibling Fannie Mae were put into conservatorship in September 2008 by the federal government amid fears of mounting losses at the companies. Home loan modifaction plans continued to flood the mortgage market.  The Home Affordable Refinance Program is reportedly helping homeowners refinance even if they have a mortgage that is higher than their home’s value.

Freddie said December loan delinquencies on single-family residences rose to 3.87% from 3.72% in November and 1.72% a year earlier.   The report also showed that the unpaid principal balance of Freddie’s mortgage-related investments portfolio fell 0.9% during the month to $755.3 billion. The portfolio rose at a 5.7% annualized rate in December.

Meanwhile, refinance loan and home purchase volume rose to $27.3 billion from $19.3 billion a month earlier.   Freddie shares closed at $1.21 and were inactive after-hours. The stock has doubled the past year.

Home foreclosure rates are forecasted to climb through late next year, peaking only after the U.S. unemployment rate reaches 10.2% in the 2nd quarter, the Mortgage Bankers said.  Home foreclosures remain a real problem for the mortgage and housing industries.  “This recession is like a hurricane: You’ve survived the storm and you have a big mess afterwards,” Jay Brinkmann, the chief economist of the Mortgage Bankers Association, said today at the group’s annual conference in San Diego. The effects of the recession, which he said probably ended in July, will linger for “some time” in the form of higher unemployment, fewer mortgage loan originations and lower business development, he said.  Brinkmann forecasts $1.56 trillion in home mortgage originations for 2010, down about 21% from a projected $1.96 trillion for this year.

The delinquency rate on U.S. home loans reached an all-time high in the second quarter, but the pace of growth for the rate slowed, a possible sign the mortgage crisis may be beginning to turn the corner.  Data provided by credit reporting agency Trans Union shows the ratio of mortgage holders who are 60 days or more behind on their payments increased for the 10th straight quarter, to 5.81% nationwide for the three months ended June 30th.  That’s up 65%, from 3.53%, in the 2008 second quarter.  A loan delinquency of 60 days is considered a precursor to foreclosure, because of the difficulty homeowners would have coming up with two back payments to bring themselves current.

While the delinquency rate hit a new high, however, the increase from the 1st quarter to the 2^nd was 11.3%. In the two prior quarters, the delinquency rate spiked almost 16%.  That slowdown may be a good sign, said FJ Guarrera, vice president of Trans Union’s financial services division. “We have reason to be cautiously optimistic,” he said.  While there’s no way to know exactly why the pace of growth is slowing, Guarrera said, it appears that loan modification programs aimed at helping distressed homeowners from both the FHA mortgage and conventional lenders are beginning to help. In addition, he said, consumers are being more careful with their spending. 

For the second quarter, Nevada, Florida, Arizona and California remained the four states with the highest delinquency rates, mirroring the locations where foreclosures are the highest. Nevada’s delinquency rate spiked to 13.8, from 11.6% in the first quarter and 6.63% in the 2008 second quarter.  In Florida, the delinquency rate rose to 12.3%, from 11% in the first quarter, and 6.47% in the 2008 second quarter.  Trans Union culls its database of 27 million consumer records to produce the statistics.  Read the complete article online > Mortgage Delinquency Rate Climbs to All Time High.

Bloomberg News new recently published an article about home foreclosures continuing to soar even three years after this foreclosure crisis began.  Watch this YouTube video with an interview and discussion with Rick Sharga of the Realty Trac. He talks about the 1.5 million record high foreclosure numbers. Are loan modifications helping or just delaying the reality?

Watch Foreclosure Crisis Video

Massachusetts foreclosure petitions in June jumped to 2,835 – more than eight times higher than the 350 petitions in June 2008 and 21.7% higher than the 2,329 filings in May, said the Warren Group, which added that the number of petitions to foreclose in June was the highest it’s been in the previous 13 months.  Foreclose prevention methods with petitions being the 1^st step in the foreclosure process, noted the Warren Group, a Boston firm that tracks real estate data and publishes Banker & Tradesman.

Foreclosure deeds are the final step in the foreclosure process, and in June, Massachusetts foreclosure deeds “plunged 45.1% to 621 from 1,131 in June 2008 but climbed 6.7% from 582 in May,” the Warren Group said.  “June’s foreclosure petitions were close to the historical highs we saw in the early part of 2008,” Warren Group chief executive Timothy M. Warren Jr. said in a statement. “We saw a big drop-off in foreclosure petitions in the middle of last year after the state passed a law requiring mortgage lenders intending to start foreclosure proceedings to give defaulting borrowers 90 days to catch up with missed payments. But in subsequent months, petitions to foreclose mounted.”

The Warren Group also examined foreclosure activity in Massachusetts for the first half of 2009.   Foreclosures in Massachusetts fell 29% during the first half of 2009 compared to a year earlier, the firm said, but petitions to foreclose rose 5.6% during the first six months of 2009 from the same period last year.   “There were 4,737 foreclosure deeds from January through June, a 29.4% drop from 6,707 during the same months in 2008,” the Warren Group said.   “There are many incentives for home loan lenders to complete loan modifications to help homeowners who can’t afford their current mortgage payments. But many finance executives continue to question whether these loan modifications are really sufficient to help homeowners.”

Let’s be honest… There can be no denying the fact that the US government is not in favor of forcing homeowners out of their homes, even when they are in home loan default and facing foreclosure. Legislative bodies in Washington, Fannie Mae and Freddie Mac, have taken action with home loan modifications to stem the foreclosure crisis in an effort to keep more borrowers in their homes.

From the early days of this crisis, the federal government hoped that mortgage lenders would begin to actively modify existing mortgages to meet this goal. While programs advanced by the U.S. Department of Housing and Urban Development (HUD) did not attract the attention of mortgage lenders, changes in the way the industry is approaching this problem—and the high risk of class-action lawsuits against those institutions that do not act—are leading more lenders to consider moving forward with mortgage modification programs.  In the end, mortgage lenders who can effectively modify mortgages for borrowers in default will be in a position to get those borrowers back on track, keep them in their homes and revitalize the income streams from these deals. With housing prices continuing to fall across the country, refinancing these mortgages is often not an option, making loan modifications the most viable strategy. But, there are a number of challenges lenders will face with this plan. 

The first challenge involves attempting to modify the mortgage without giving away too much of the revenue promised by the borrower in the original deal. When lenders were offered the opportunity to refinance troubled borrowers into Federal Housing Administration FHA loans last year, the fact that they would have to agree to accept the proceeds of the new mortgage as payment in full of their preexisting senior loan and release their lien made the offer unappealing for many lenders as that meant that the outstanding principal balance owed would not be fully paid. Unfortunately, loan modification programs will also involve lenders leaving some money on the table. While specific features of the various programs will vary, most lenders will find that they are waiving prepayment and restructuring fees associated with mortgage modifications.

The second challenge lies in finding a way to give borrowers a deal they can still afford. By far, the most significant factor involved in borrowers getting into trouble has been their inability to pay the monthly mortgage loan payment after an adjustable-rate mortgage loan ticked up. In an effort to keep these borrowers on track, some lenders are modifying loans such that the borrowers’ monthly payments (including principal, interest, taxes and insurance) fall between 31% and 38% of gross income. Lenders are doing this by reducing interest rates, extending amortizations, and/or forbearing the principal owed on the mortgage.  Finally, and perhaps most significant to the long-term success of the lender’s modification of a loan, lenders must deal with the fact that many of the loans they will attempt to modify have already been pooled into mortgage-backed securities that have been sold off to investors. This means that it would be prudent for the lender to determine whether investor approval is required for the loan modification. If investor approval is required, then the lender must ensure that it satisfies all of the criteria necessary to obtain approval of the modification. (Note, too, that the approval of junior lien holders may be required to restructure home loans.) For the protection of the lender and the investors in these securities, proper documentation and regulatory disclosures are critical during this process.  There are three essential types of documents that must be part of any loan modification program. They include consumer disclosures, investor-related documents and the loan modification documentation.  Like any mortgage transaction, there are disclosures that must be presented to the borrower at prescribed times. The modification process changes the process somewhat. A new Regulation Z disclosure is ordinarily required when an existing obligation is satisfied and replaced by a new obligation undertaken by the same consumer. However, a workout of a delinquent loan will not require a new Regulation Z disclosure unless the rate is increased or the new amount financed exceeds the unpaid balance plus earned finance charges and certain insurance premiums.

If the mortgage rate is increased based on a variable-rate feature that was not previously disclosed or if a new variable-rate feature is added to the obligation, a new disclosure will be required. The lender will also not have to worry about providing a new notice of right to rescind under Regulation Z for a modification of a closed-end mortgage by the original creditor. However, the right of rescission will apply to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge, and amounts attributed solely to the cost of the transaction.  Home loan lenders subject to state regulation governing mortgage lending will also be required to provide state-specific disclosures. The reality is that, depending on the terms of the loan modification, other disclosure obligations under Regulation Z and applicable state law may be triggered. A lender may want to engage legal counsel to ensure that all required federal and state disclosures necessary to complete a loan modification are provided to the homeowner.  If investor approval of the modification is indeed required, the lender should ensure that any investor-specific documents required to be included in the loan modification are, in fact, provided to the borrower and/or included in the modification package. Finally, the modification must be documented just like any other mortgage transaction. Depending upon the circumstances and applicable law, this may involve modification of both the promissory note and the security instrument. The mortgage modification agreement is generally always recorded.  Mortgage Lenders that can effectively implement a loan modification program will fare better than those that choose to proceed with foreclosure and then take on the responsibility of maintaining properties or try to dispose of them at a loss in a weak housing market. However, before proceeding with a loan modification, lenders must be prepared to meet any documentation and investor-specific requirements for the modification to be a success. — Article written by Don Iannitti 

1.    Unemployment: Celia Chen, an economist at Moody’s Economy.com said, the erosion of the labor market–the unemployment rate recently hit 9.5 percent–is the key factor in the rise of home foreclosures, says “Employers continue to shed jobs, and that makes it difficult for even people with good credit who were doing fine to keep up with their mortgage payment,” Chen says. For example, a recent report issued by federal bank regulators found that mortgage loans to borrowers with solid credit histories were going bad at a rapid clip. “Prime loans, which represented two thirds of all mortgages in the portfolio, experienced the highest %age increase in serious delinquencies, climbing by more than 20 % from the prior quarter to 2.9 % of prime mortgages,” the report stated.

2.    Plunging home values: Nearly three years after its peak, the painful decline in home prices continues. Although the pace of decline moderated slightly from the previous month, home prices in 20 major metro areas dropped 18.1 % in April from a year earlier. Falling home values have dragged more than 20 % of American homeowners “underwater”–meaning they owe more on their mortgages than the property is worth–as of the first quarter. By sucking equity out of homes, the price declines have also evaporated much of a homeowner’s financial incentive for paying their mortgage bill, Chen says. “When somebody doesn’t have equity in their house and they are struggling to pay their mortgage, the likelihood of a foreclosure is much higher,” she says. In addition, home owners with less equity in their homes will have a more difficult time refinancing their mortgage.

3.    End of foreclosure moratoriums: The end of certain foreclosure moratoriums-including those of Fannie Mae and Freddie Mac, which were lifted in late March-also contributed to the rise in foreclosures during the period, Chen says. As these efforts unwound, lenders and servicers put additional properties into their foreclosure pipelines, she says.

4.    Is Obama’s plan working?: A key component of Obama’s housing rescue plan is an effort to restructure–or modify–as many as 4 million troubled loans. So far, about 325,000 modification offers have been made through the program, according to Bloomberg news. Chen says the program is having an impact for certain individual borrowers, but the efforts–at least so far–have not put much of a dent into the national foreclosure epidemic. “The program is making progress. It’s just that there are a large number of distressed borrowers out there,” she says. “It’s so hard to process all of those loans, and then second of all, not all of those borrowers will qualify for the program.” Borrowers have complained of long delays and bureaucratic hurdles in their efforts to modify their mortgages.
Though the administration’s effort includes incentive payments to convince servicers to modify the loans, Newport says some may find it less costly to foreclose on the property. “My understanding is that there is going to be some pressure from the administration to get banks to start renegotiating more loans,” he says. “But if [modification is] not in [the servicer's] self-interest, I don’t think that they are going to do much.”

5.    Mounting political pressure: Mortgage services appear to be facing mounting pressure from Washington to redouble their efforts. “We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” Treasury Secretary Tim Geithner and HUD chief Shaun Donovan said in a recent letter to 25 mortgage servicing
firms. In a hearing last week, Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, expressed his frustration more directly. “Why am I still reading about lost files, understaffed and undertrained servicers, and hours spent on hold on the phone?” Dodd said in a prepared opening statement. “Why are servicers and lenders refusing to accept principal reduction so that homeowners can start building equity and get the housing market moving again?”

6.    Foreclosure outlook: Despite this pressure, Newport expects foreclosure rates to creep higher for the next year or so. “It’s going to keep on getting worse until the unemployment rate peaks, which we think will happen in about the middle of next year,” he says. For her part, Chen argues that a successful mortgage rescue program could expedite a housing recovery. “The hope is that we will be able to push through enough mortgage modifications to prevent home prices from falling too much more,” she said.

Article was written by Luke Mullins, USNews.com

California loan modification requests continue to be reported with increasing volumes.  Many California homeowners need jumbo mortgage refinance loans, but they do not qualify as the jumbo lending has tightened significantly. Governor Schwarzenegger implemented another California foreclosure moratorium to help distressed homeowners in his state, but is it helping?

Many Wall Street analysts covering the home-builder sector remain skeptical of talk of a sustained recovery. “Overall, the California construction companies we met with echoed what we have been hearing throughout the U.S.: that there was clear momentum in sales in the spring, but concerns still remain around the sustainability of the improvement we have seen,” said Barclays Capital analyst Megan McGrath in a note recapping a recent industry conference.   “The availability of credit, to both builders themselves and to borrowers seeking home loans, continues to be challenging,” McGrath wrote. “While it appears that banks and mortgage lenders are willing to do some construction-only loans to builders, land-related financing appears to be relatively non-existent.”  Read the original article California Housing Recovery Slow as Loan Modifications Mount online.

Zions Bank and Keller Williams Real Estate are sponsoring an information session on June 9th to inform people about refinancing and loan modification options with President Barack Obama’s Making Home Affordable program.

According to Mike Barnes, most home owners will qualify for some part of the foreclosure prevention program. He calls it exciting and beneficial. And it’s free.  “In all my experience I’ve never seen anything like this,” he said. Barnes believes many people can benefit from the program because it has two parts. The first is the most accessible one: FHA refinancing.   In order to alleviate the pain of home owners, the federal government has pushed mortgage interest rates down to historically low rates. Unfortunately, many owners who pay on time, live within their means and have done nothing wrong don’t qualify to refinance because the value of their home has dropped in the recession.

If the mortgage loan is 80 to 105% of the value of the home, the government will assist in the refinancing to current low rates, Barnes explained. The second part of the program is harder to qualify for, but will save many people’s homes from foreclosure, he said. It is loan modification. The government will take drastic measures to help qualified participants stay in their home.  There are five criteria: if the home is the primary residence, if the mortgage is for less than $729,000 (not a jumbo loan), was obtained before Jan. 1, 2009, if the owner has experienced financial, setbacks and if the mortgage payment exceeds 31% of their gross income.

The people targeted for this program are those who were victims of loan officers setting up monthly payments way beyond a person’s means and people who obtained a reasonable mortgage but have reduced income because of the recession, Barnes explained. The goal of the mortgage loan modification plan is to reduce a mortgage payment to 31 % of the participant’s gross income and has set strategies for doing so.  “The administration wants it standardized,” he said. “They’ve dictated these terms.”  The first step would be to lower interest rates incrementally, to as low as 2%, until the monthly payment doesn’t exceed 31%. If that doesn’t work, the life of the loan could be extended up to 40 years. If that still doesn’t do it, up to $50,000 can be placed in interest-free forbearance, or a delayed balloon payment. That lower mortgage rate will last for up to five years, after which time it will go up to a regular market rate, but then freezes at that for the life of the loan, he said.  “It costs homeowners nothing to do this,” Barnes said. “It’s against the law to charge for this service.”

Learn more about the federal Making Home Affordable program.  Learn how to take advantage of new federal programs to lower interest rates or modify mortgages with a loan modification.

Article was written by Andrew Kirk.

The mortgage loan modification plan aims to help four million borrowers who are behind in their payments or are at risk of default. That includes those who are those suffering serious hardships, declines in income or increases in expenses; facing an interest rate hike; having high mortgage debt compared to income; owing more than their house is worth, or demonstrating other reasons for being close to default.

The mortgage refinancing plan aims to help five million homeowners who have loans backed by Fannie Mae and Freddie Mac. In order to qualify, borrowers must owe between 80% to 105% of the value of their home. They must also be current on their payments, meaning they haven’t been more than thirty days late on mortgage payments in the last twelve months.

Watch Obama Mortgage Bailout Video

For those who qualify, the government would reduce payments to 31% of the homeowner’s income, as long as it doesn’t reduce the mortgage rate below 2%. After five years, the rate will increase by 1 percentage point a year until it reaches either the original rate or what the prevailing mortgage interest rate was at the time the loan was modified. Whichever is lower will apply. If rate reductions aren’t enough, a mortgage lender can extend the mortgage term up to forty years, or shift part of the principal to the end of the loan at no interest. Servicers also have the option of reducing the loan’s balance.  Borrowers must owe no more than $729,750, excluding interest or other additional costs. The home loan must have been originated before Jan. 1, 2009, and total monthly mortgage payments must be more than 31% of pre-tax household monthly income.

To qualify for the $8,000 tax credit, the purchase must be made between Jan. 1, 2009, and Nov. 30, 2009, and buyers must make less than $75,000 a year (or $150,000 per couple). The credit begins to phase out for people with income levels of up to $95,000 a year (or $190,000 for couples). Buyers may not have owned a home for the past three years to qualify as “first time” buyers. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

A Brentwood family who bought their home at the top of the market gets a loan modification, thanks to a persistent ConsumerWatch volunteer, who helped them through the process.  Carolyn Flanery and her husband Bill bought their dream home in Brentwood back in 2005 for $605,000, when the real estate market was booming.  They put down 20% of the purchase price, and to start, got a 5-year interest only mortgage, with a payment of about $3,300 a month.  Affordable at first, but those mortgage payments became a problem late last year, when Bill, a plumber, was out of work for four months because of a knee problem, and Carolyn’s freelance work dried up. “January, I couldn’t pay the mortgage until the the 25th of the month,” Carolyn said.

To top it off, the value of the Flanery’s home was plunging.  A similar home in their development was listed for $319,000, about half of what the Flanery’s paid. But, one thing went right.  The Flanery’s got in touch with Gerald, a CBS 5 Consumer Watch volunteer, with a background in consumer law.  Gerald called a representative at Citibank, the company that now owns the Flanery’s mortgage, and asked for a home loan modification.   A few weeks later, the bank came back with an offer.  The Flanery’s say Citibank offered to reduce their interest rate to 4.625%, but only for two years. “When you calculate it all out, it was only going to save us $200 a month,”  Carolyn Flanery said. The Flanery’s turned it down.

Next, Gerald went straight to the top. He called Citibank’s corporate headquarters in New York, and laid out the Flanery’s case to a company vice president.  “I told her the reason Citibank had received billions from the federal government was to assist people like this,” he said.

About a week later, Citibank came back with a better offer.  According to the Flanery’s, the new deal reduces their interest rate to 1% for a year, then gradually raises it to 5.1% over five years. All in all, it’s a 40 year deal that covers both principal and interest. This time, the Flanery’s said yes. They’re also saying thanks, to Gerald and ConsumerWatch.  “I don’t think this would have happened without him. It’s great, and I’m so thankful,” said Carolyn Flanery.

So, why did this request for a loan modification work?  Gerald said he presented a clear and factual case to the bank, something homeowners in distress often find difficult because emotions are running high.  Citibank wouldn’t comment on the Flanery’s case, citing privacy concerns.  But the bank did provide a step-by-step guide for distressed homeowners. 

The mortgage relief bill has been finance experts questioning the 75 billion dollar home foreclosure prevention package.  Many people believe these homeowners will likely default even after the loan modification is provided.

NCRC’s John Taylor Discusses 75 Billion Dollar Mortgage Rescue Plan with CNN’s Lou Dobbs

John Taylor, President & CEO of the National Community Reinvestment Coalition (NCRC), appears on CNN to discuss President Obama’s mortgage modification plan.  Many mortgage experts wonder if thie program will work at all. 

Unfortunately with all of the stimulus packages and mortgage relief bills being passed, the number of home foreclosure prevention scams continues to rise.  States like Florida, California, Arizona and New jersey continue to report a spike in complaints against brokers and sales people claiming to help borrowers with foreclosure rescue.

Cynthia Bowers reports that more people in trouble paying their mortgage are being scammed by foreclosure rescue schemes.  Homeowners should make sure they are working with a credible law firm or loan modification company.