Loan Modifications for Home Foreclosure Prevention

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.

The Associated Press reported that the Obama administration rolled out a new loan modification program Wednesday designed to help up to 9 million borrowers stay in their homes through mortgage refinancing or mortgage loan modification plans to lower mortgage payments each month for the remainder of their loan terms.  Borrowers, however, are being advised to be patient in their efforts to get help, because loan modification companies are likely to be buried with phone calls. 

Government officials, launched the “Making Home Affordable” program, also acknowledge that the initiatives are only a partial fix for a massive problem that has significantly contributed to the worst recession in decades for the U.S. economy. As a matter of fact, thousands of distressed homeowners facing foreclosure in the most devastated housing markets concentrated in California, Florida, Nevada and Arizona will not be eligible for the two plans.  “It’s not intended to prevent every foreclosure or to help every homeowner,” a senior Treasury Department official told reporters. “It’s really targeted at responsible homeowners.” Many home foreclosure experts working on achieving more affordable home loan payments for the struggling homeowners are hopeful that the stimulus package and the Obama mortgage relief bill can make a difference.  The foreclosure crisis has played a major role in the recession and the deflated home values.

Many mortgage brokers, however, are critical. They argue that the fees imposed by Fannie and Freddie over the past year make it difficult for borrowers to afford mortgage refinancing. The two companies, which are now government-controlled, have yet to detail how they will implement the plan, or whether any fees will be rolled back.

More than 11% of Maryland Home Loans Delinquent

Problems first seen in subprime mortgages are spreading to prime loans

The number of Maryland borrowers who face foreclosure or have missed mortgage payments topped 100,000 for the first time at the end of last year  a record 11.1% of home loans in the state, the Mortgage Bankers Association said yesterday.

Rising joblessness is adding to a worsening housing crisis that has sent foreclosures and delinquencies to record levels, economists said yesterday. Problems for borrowers with subprime home loans are now spreading into more conventional home mortgages. Nationally, 12 % of borrowers were behind on their mortgage payments at the end of December.  The federal loan modification programs should help some of these issues fueling the foreclosure and housing crisis.

“Employment is the issue,” Jay Brinkmann, MBA’s chief economist, said during a conference call. “It’s not an issue with changes in payment structure or payment resets. As jobs disappear, first you see this type of home refinance features show up in subprime and bad credit mortgage programs. Eventually it migrates towards the prime home loans that lenders and underwriters deem less of a risk.

In Maryland, the share of borrowers who missed payments rose to a high of 8.5 % during the fourth quarter, the bankers group reported in its delinquency survey, which it has been conducting for thirty-years.  

About 91,160 home loans, out of just over 1 million mortgages in the state, were delinquent by at least one month but were not in the process of foreclosure.  The number of loans in the foreclosure process spiked 115 % in the state, compared with the fourth quarter of 2007, the survey showed. Those loans more than 28,000 represented more than 2.6 % of loans in the state and set a record for percentage of home mortgages in jeopardy of foreclosure.  “We had a housing market bubble that blew up,” said John McClain, a senior fellow at the Center for Regional Analysis at George Mason University. “Then the overall economy started down. You have people who knew they were in a potentially ‘upside-down’ situation [owing more than their home is worth]. Some have had salaries frozen or been furloughed or laid off.”

One in five U.S. mortgage borrowers owes more than their house is worth as of Dec. 31, First American CoreLogic said in a report released this week. In the Baltimore region, 12% of borrowers were “under water” as of December, the report said.  Maryland’s delinquency rate was higher than the nation’s overall 7.9%, which was adjusted for seasonal variations.

Still, Maryland has been cushioned somewhat from problems in states such as California, Nevada, Arizona and Florida, which had the biggest run-up in housing prices and now have the highest delinquency numbers, the bankers group said.  Maryland ranked 17th in the U.S. in delinquencies and 11th in the number of foreclosures started. New foreclosures during the quarter rose in Maryland to about 1% of all the loans surveyed by the bankers.  The number of mortgage loans on which lenders have started foreclosure has remained largely steady during the past three quarters, MBA statistics showed.

Brinkmann said problems with subprime loans are diminishing because the industry has stopped approving those loans and many of the subprime adjustable rate mortgage loans already have reset to higher rates. “The recovery will depend on when the jobs come back,” he said.

Experts and housing advocates said they felt hopeful about an Obama administration foreclosure-prevention plan unveiled Wednesday. The plan would expand mortgage relief to borrowers who have not missed payments and to others who have homes worth less than the current mortgage.  Also, the House approved a major change to bankruptcy law yesterday, giving judges new powers to modify home mortgages in an attempt to ease the foreclosure crisis.

The mortgage bankers survey represents up to 85% of the mortgage market. Officials cautioned that delinquency rates typically spike at the end of the year. As more foreclosure properties flood an already depressed housing market, prices get pushed down further.

Article Written By Lorraine Mirabella.

The Associated Press reported that the Obama administration rolled out a new loan modification program Wednesday designed to help up to 9 million borrowers stay in their homes through mortgage refinancing or mortgage loan modification plans to lower mortgage payments each month for the remainder of their loan terms.  Borrowers, however, are being advised to be patient in their efforts to get help, because loan modification companies are likely to be buried with phone calls. 

Government officials, launched the “Making Home Affordable” program, also acknowledge that the initiatives are only a partial fix for a massive problem that has significantly contributed to the worst recession in decades for the U.S. economy. As a matter of fact, thousands of distressed homeowners facing foreclosure in the most devastated housing markets concentrated in California, Florida, Nevada and Arizona will not be eligible for the two plans.  “It’s not intended to prevent every foreclosure or to help every homeowner,” a senior Treasury Department official told reporters. “It’s really targeted at responsible homeowners.” Many home foreclosure experts working on achieving more affordable home loan payments for the struggling homeowners are hopeful that the stimulus package and the Obama mortgage relief bill can make a difference.  The foreclosure crisis has played a major role in the recession and the deflated home values.

Many mortgage brokers, however, are critical. They argue that the fees imposed by Fannie and Freddie over the past year make it difficult for borrowers to afford mortgage refinancing. The two companies, which are now government-controlled, have yet to detail how they will implement the plan, or whether any fees will be rolled back.

The number of people who were late making their mortgage payments shot up 53 % in the fourth quarter of 2008 from the same period in 2007, according to data provided by TransUnion LLC. The credit reporting agency said its database shows delinquencies — or the %age of mortgage holders at least 60 days behind on payments, considered a precursor to foreclosure rose to 4.58 % nationally, from 2.99 % for the 2007 fourth quarter.

That was 16 % above the 3.96 % rate seen in the third quarter, TransUnion said, and marked the eighth straight quarter that deliquency rates rose. “It’s about what we were expecting,” said Keith Carson, senior consultant in TransUnion’s financial services group. But while not unexpected, the huge jump from last year was still “alarming,” Carson said.  TransUnion, best known for its consumer credit rating data, projects delinquency rates could reach as high as 8% by the end of the year. The company isn’t predicting that the climate will improve until the middle of 2010.

The states that have shown the highest home loan delinquency and foreclosure rates remain the same. Florida is on top, with a 9.52 % rate for the fourth quarter, while Nevada is second with 9.01%. Arizona came in at 6.93% and California right behind at 6.88%. Carson said there is a glut of homes in those states, which is combining with increasing economic woes and declining home values to keep the rates high.  North Dakota, at 1.21%, remains the state with the lowest delinquency rate.  The figures are culled from TransUnion Trend Data, which consists of 27 million consumer records randomly sampled each month from the credit reporting agency’s national consumer credit database.

While the government has launched efforts to stem foreclosures, those moves are not yet reflected in data, Carson said. Banks are also trying to work with consumers to reduce problematic mortgages, but falling home prices are feeding the problem, he said. “We do know from everything we’ve found out in the last year is that the primary driver on mortgage defaults is negative equity,” he said. When homeowners owe more on their mortgages than the houses are worth, data show a higher likelihood that consumers will simply walk away, he said.

California is the state with the highest average mortgage debt per borrower, at $356,421. West Virginia has the lowest, at $96,243.  Mortgage lenders are trying to address some negative equity issues with refinancing, but Carson said data shows the rate of re-default on loan modifications “has been very high, primarily because of negative equity.”

In a recent Bloomberg article, Dawn Kopecki wrote about Fannie Mae and Freddie Mac need to relax rules for a loan-modification program that promised to cut mortgage interest rates and lengthen amortization schedules for troubled borrowers, the chief economist for the companies’ regulator said.  Fannie Mae and Freddie Mac have sent 90,000 letters to borrowers who have missed at least three payments, inviting them to participate in the so-called streamlined loan modification program, since the plan was announced in November.  “Early indications are that several of the program guidelines should be liberalized to reach a broader population and to create a lower, more affordable payment,” Patrick Lawler, the chief economist of the Federal Housing Finance Agency, said in written testimony today in Washington to a House Financial Services Committee panel on housing.

The foreclosure prevention program is separate from an initiative proposed by President Barack Obama last week to have Fannie and Freddie refinance or modify more home loans.  The existing loan modification program is designed to reduce a borrower’s monthly payment to 38% of salary by reducing interest rates, extending repayment terms and, in some cases, reducing the outstanding principal. Joseph Evers, deputy comptroller at the Office of the Comptroller of the Currency, told lawmakers today that roughly 57% of Fannie and Freddie’s mortgage modifications made in the first quarter of last year defaulted again within six months of the home loan modification.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac own or guarantee about $5.3 trillion of the $12 trillion in U.S. residential mortgage debt. The government seized control of the companies in September after their losses threatened to further disrupt the housing market, and regulators then began pushing them to step up efforts to stem home foreclosures.

Representative Maxine Waters of California, a Democrat and chairwoman of the housing subcommittee, said companies that collect payments, deal with delinquencies and provide other services for overseeing loans aren’t working hard enough to prevent foreclosures.  “I have experienced firsthand the challenges faced by borrowers who want to stay in their homes and who want to get current on their mortgages, but they either can’t get their servicer to pick up the phone or they get wrong, misleading or unapproved information,” Waters said.

Mortgage executives from JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. also testified.  Molly Sheehan, a senior vice president for JPMorgan’s home lending business told the panel that the unit has averted 330,000 foreclosures through loan modifications, repayment plans and other means. The business has hired 300 new loan counselors, opened 13 homeownership centers in regions with high default rates, and expects to prevent a total of 650,000 foreclosures on $110 billion of loans by the end of 2010, she said.  Read the complete article>

We have all heard about the new mortgage relief program…

What does it really mean to you? Dennis Stearns of the Stearns Financial Group joined us on the GMS to help us break it down.

Here are the highlights:

Who Benefits and How Do I get In On It? One of the biggest groups the plan will help are those whose home loans are owned or guaranteed by Freddie Mac or Fannie Mae. But what if you aren’t one of those? Stearns says most mortgage lenders will mail out letters to homeowners within several weeks of the March 4th start date. If you haven’t heard anything within two weeks of that date, contact your lender.

What About the Government Subsidies? The plan will use government subsidies to cut monthly mortgage payments to no more than 31% of a homeowner’s income. The government will actually write the check for the subsidy to the homeowner’s mortgage lending company or bank.

Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments.

Borrowers who are paying interest only or who have a low introductory rate, but will increase in the future, may not see their current payment go down if they refinance at a fixed rate.

Is The Plan For Those Who Are Paying Their Bills Or Those Who Are Behind?

Both. If you have entered foreclosure proceedings your lender may have stopped the process until the White House Plan details are released on March 4th.

Read the original article. 

First American Core Logic based its findings on a database of 42 million properties where there’s a first and or second mortgage. Being delinquent on your home loan doesn’t always mean a foreclosure.  Lenders continue to approve mortgage modification plans in great volumes.

During the housing boom, Arizona, California and Nevada were among the fastest growing in terms of price appreciation. Michigan and Ohio (where 22% of mortgaged homes have negative equity) have been hard hit by the decline in the U.S. auto industry.  Mortgage industry executives appear to be more confident in 2009 that loan modifications will help reduce foreclosures and be a significant contributor to getting the housing sector back on track. Stay up to speed on mortgage relief, the foreclosure crisis and the latest loan modification programs from the major lenders online at Loan Modification Buzz.  Read the complete article at 18% of Home Loans Underwater with Negative Equity.

Do not let yourself get pressured into signing up for a loan modification plan if you aren’t ready to commit to remaining in your home.  Have your attorney review any documents or loan modification contracts before signing them.   Ask questions until you fully understand anything you find confusing or out of the ordinary.  Ask the same question in different ways and on multiple occasions – the answer shouldn’t change unless your situation has.

The prospect of losing one’s home is very scary. In addition, if the lender took advantage of the homeowner, he or she may be suspicious of others in the industry. This can compromise the representative’s ability to function effectively. Encourage your client to be as cooperative as possible with his or her representative and to keep the lines of communication open. Your clients need to know that loan modification takes time – their representative may be hard at work, but the mortgage lender could be dragging its feet.   The best approach is for your clients to remain patient. Calling every day or becoming upset when they have not heard back from their loan modification representative for several days or even a week is counterproductive. On the other hand, they should not be afraid to call their representative about pressing issues, especially if they haven’t heard from him or her in a few weeks.

Follow up with your clients to find out which loan modification company they used, what the company was able to do for them, and how satisfied they are with the service they received. If they had a great experience, encourage them to tell others about it.  You can do your part, too. Let your other clients know about reputable loan modification companies who deliver quality service – whenever you have dealt with someone who is reputable, did what they said they would, and achieved results, you should let the world know that this is a good company.

The Associated Press reported that the Indiana legislators say they are trying to fix a situation where landlords facing foreclosure on their rental properties sometimes give tenants little or no notice that they need to find a new place to live.   Lawmakers want to give renters a heads up before they are kicked out of their homes. So the Indiana Senate passed a bill 48-2 Tuesday that requires landlords to notify renters within 10 days of the judgment of foreclosure.

Republican Sen. Teresa Lubbers of Indianapolis says the legislation would allow renters to sue landlords for relocation expenses if they do not give proper notice. The proposed bill would also provide tenants the ability to end rental agreements without penalties.  The proposal now moves to the Indiana House for consideration.

The bill to save homes from foreclosure by letting bankruptcy judges alter mortgage terms moved closer to a House vote on Tuesday. The mortgage lending industry has worked unsuccessfully to stop the bill.  The House Judiciary Committee voted 21-15 to send the measure to the full House. Committee Chairman John Conyers, D-Mich., amended the original bill so it would apply only to mortgages that exist before the bill becomes law.  Conyers said the amendment would address complaints from the lending industry that the risk of altered mortgage terms would force lenders to raise costs for borrowers. The risk would be eliminated for new borrowing under the amendment.

Republicans opposed the bill, saying it still would increase lending costs and encourage borrowers to file for bankruptcy and overwhelm the courts.  Conyers said the bill “represents one of the most tangible steps we can take to limit the fallout from the real estate depression sweeping the nation.  After stalling in Congress last year, Loan Modification Buzz reported that the new legislation gained momentum in recent weeks due to the shift in power in Washington and the growing perception that mortgage service companies have not reached out enough to aid troubled borrowers.