It has been estimated that over 80% of loans that were obtained between 2001 and 2006 have predatory lending violations. Most of the violations involve TILA (Truth In Lending Act) or RESPA (Real Estate Settlement Protection Act). The Lender or Bank that now owns these loans is now liable for these violations. The penalties vary but in most cases the bank would be responsible to pay legal fees for both parties if they are found to be in violation. That can add up fast.
Any homeowner that is serious about obtaining an aggressive loan modification should start with a Forensic Loan Audit. There are many companies out there willing to do a forensic audit independent of a modification service or in conjunction with their loan modification services. This is not intended to be legal advice, (you will need to consult an attorney) but an experienced attorney can tell you exactly what the consequences are. If you do decide to proceed have your attorney request a restraining order so that no payments or late fees will be required until the situation has been resolved. With the threat of foreclosure and the possible litigation might be enough for your lender to reduce your balance to current market value as well as a possible rate reduction.
If you attempt to do the loan modification your self and don’t have success (remember to be persistent) it may be time to seek the services of an attorney to negotiate on your behalf. When you have an attorney requesting loan documents and fighting for your loan modification the bank is more likely to work with you. They will realize that the threat of being sued to real. You may determine that the $2,000 - $4,000 that you will spend for an attorney will be well worth it if your principal balance and interest rates are reduced.
Friday, January 30, 2009
Thursday, January 29, 2009
Basic Guide For A Loan Modification
Keep in mind that no two lenders are created equal; meaning their steps for modifications will vary. Here are some guidelines to reference.
1 – Don’t pay debt with debt. This will generally lead to bankruptcy. Do not hide from your lender. Communication is key.
2 – Make a list of all of your outstanding debts. See where your money is going. Compare your debts to your income and see how much you have left over at the end of the month. If your debts are higher than your income you need to see where you have to cut back. Always start with all of your expenses and then cut back or adjust where you can. This will help when you contact your lender.
3 - Contact your lender and ask for the loss mitigation department. Make sure they don’t’ direct you to the collections department. That is NOT who you want to speak to. Have them explain to you in detail exactly what they will need to consider your modification. You may be able to persuade them to freeze your loan. This means that won’t assess late fees, credit lates or start foreclosure proceedings until after the modification decision has been made. If you have suffered a hardship this would be the time discuss that. (Job loss, divorce, arm adjustment, etc)
4 – Once the loss mitigation reviews all of your documents and accepts your proposal you did a great job and it’s time to celebrate. Unfortunately it’s rarely that easy. Most times this is where the negotiations start. They wont’ deviate far from the actual numbers that you submitted. Your income, the value of the property and the loss they will take in foreclosure. If you have documented your case correctly you should come out of the negotiation with something you can afford.
5 – If they deny your request for loan modification then unfortunately its time to seek the advice of an attorney or an attorney based loan Modification Company. If you have not already examined your loan documents for TILA or RESPA violation then ask the attorney to research that. If one is found the bank will re-open your request. They would rather modify than be sued.
6 – The bank can’t modify your loan without your notarized signature. Be sure to read the modification agreement closely. Once your loan is modified and you place your signature on the new agreement it’s a done deal. There are no 2nd chances. You may want to have an attorney review the documents prior to signing.
Next post we’ll talk a little about a Forensic Loan Audit…
1 – Don’t pay debt with debt. This will generally lead to bankruptcy. Do not hide from your lender. Communication is key.
2 – Make a list of all of your outstanding debts. See where your money is going. Compare your debts to your income and see how much you have left over at the end of the month. If your debts are higher than your income you need to see where you have to cut back. Always start with all of your expenses and then cut back or adjust where you can. This will help when you contact your lender.
3 - Contact your lender and ask for the loss mitigation department. Make sure they don’t’ direct you to the collections department. That is NOT who you want to speak to. Have them explain to you in detail exactly what they will need to consider your modification. You may be able to persuade them to freeze your loan. This means that won’t assess late fees, credit lates or start foreclosure proceedings until after the modification decision has been made. If you have suffered a hardship this would be the time discuss that. (Job loss, divorce, arm adjustment, etc)
4 – Once the loss mitigation reviews all of your documents and accepts your proposal you did a great job and it’s time to celebrate. Unfortunately it’s rarely that easy. Most times this is where the negotiations start. They wont’ deviate far from the actual numbers that you submitted. Your income, the value of the property and the loss they will take in foreclosure. If you have documented your case correctly you should come out of the negotiation with something you can afford.
5 – If they deny your request for loan modification then unfortunately its time to seek the advice of an attorney or an attorney based loan Modification Company. If you have not already examined your loan documents for TILA or RESPA violation then ask the attorney to research that. If one is found the bank will re-open your request. They would rather modify than be sued.
6 – The bank can’t modify your loan without your notarized signature. Be sure to read the modification agreement closely. Once your loan is modified and you place your signature on the new agreement it’s a done deal. There are no 2nd chances. You may want to have an attorney review the documents prior to signing.
Next post we’ll talk a little about a Forensic Loan Audit…
Wednesday, January 28, 2009
Where To Start
First, you need to find the number for the Loss Mitigation Department for your lender. Most lenders have this information posted on their websites but you can call the number on your statement and just ask.
Once you have requested assistance you will be a assigned an underwriter or a loss mitigation representative. This person will be very instrumental in helping you obtain a satisfactory modification so one of the most important bits of advice I can give you is, “BE NICE”. Remember that they are not the ones that got you into this situation and you are relying on them to help you get out of it. Even if it’s a situation where you don’t deal with just one person they will have detailed notes for all to read in their system so be nice to everyone you speak to.
Loss mitigation departments are quite busy these days so a little bit of understanding goes a long way, be patient. Don’t be afraid to be persistent but at the same time understanding. Call every day if necessary but listen carefully and don’t ignore their advice. Let them know how serious you are about modifying your loan. You just want to keep your home. Next post we’ll highlight the exact steps you should take…
Once you have requested assistance you will be a assigned an underwriter or a loss mitigation representative. This person will be very instrumental in helping you obtain a satisfactory modification so one of the most important bits of advice I can give you is, “BE NICE”. Remember that they are not the ones that got you into this situation and you are relying on them to help you get out of it. Even if it’s a situation where you don’t deal with just one person they will have detailed notes for all to read in their system so be nice to everyone you speak to.
Loss mitigation departments are quite busy these days so a little bit of understanding goes a long way, be patient. Don’t be afraid to be persistent but at the same time understanding. Call every day if necessary but listen carefully and don’t ignore their advice. Let them know how serious you are about modifying your loan. You just want to keep your home. Next post we’ll highlight the exact steps you should take…
Friday, January 23, 2009
Negotiating Your Modification
While a foreclosure is like watching your dream home being flushed down the toilet, it is also scary to the bank to think of the foreclosure process. Always remember, your modification is a negotiation. And hopefully, a negotiation that you and your bank can live with.
Always begin your negotiation with a rate lower than you think you can get. This way you have room to negotiate. When you are explaining to the Lender that when you give them a new estimated value for your property that you back it up. You can contact a local appraiser or realtor to see what the properties in your neighborhood are going for or you try some of these popular sites: www.zillow.com, www.cyberhomes.com, www.comps.com. If the value is less than what you owe then ask for a principal reduction.
Note: Once your loan is modified it’s a done deal. There will be no 2nd chances so be sure the terms are something that you can live with for as long as you plan to stay in the home.
Always begin your negotiation with a rate lower than you think you can get. This way you have room to negotiate. When you are explaining to the Lender that when you give them a new estimated value for your property that you back it up. You can contact a local appraiser or realtor to see what the properties in your neighborhood are going for or you try some of these popular sites: www.zillow.com, www.cyberhomes.com, www.comps.com. If the value is less than what you owe then ask for a principal reduction.
Note: Once your loan is modified it’s a done deal. There will be no 2nd chances so be sure the terms are something that you can live with for as long as you plan to stay in the home.
Wednesday, January 21, 2009
Who Needs A Principal Balance Reduction?
The most common example of someone in need of a loan modification are those that are in soon to adjust ARM’s (adjustable rate mortgages) or even worse scenario is a POA (payment option arm a/k/a negative amortization). Your ARM is about to adjust to a higher interest rate causing your payment to increase $200 or more per month and you just can’t swing it. If you have suffered a job loss, divorce or your property value had dramatically decreased your chances of refinancing into a fixed rate are not very good if not impossible. With this type of hardship your only options are to lose your house or modify the loan. That is what the bank needs to understand. If you were making your payments on time with the payment you had before the rate adjustment the bank is likely to agree to the interest rate reduction or extending the length of your loan to 40 years or more with no problem.
Principal Balance Reductions
Principal balance reductions are not favorable to a bank and rarely do they offer this option. When they do decide to grant a reduction they do it only because the value of the property is much less than the balance you own and there would be no reason for you do anything other than walk away. An important note though is that if they grant a principal balance reduction the bank can issue you a 1009 for the forgiven amount. This is something that you will need to discuss with your tax attorney and decide if you should ask your bank to waive this. This article is in no way meant to be legal advice.
If you have a 1st and a 2nd mortgage your chances of a principal reduction is greater. That’s because in a foreclosure situation the bank holding the 2nd mortgage will likely get nothing. The bank would rather get 20 cents on the dollar than risk getting nothing. If the same bank owns both the 1st and the 2nd mortgages you are in the best possible scenario for a reduction. If they are owned by different banks then it things are a little more challenging. When a bank only owns the 2nd mortgage they will most likely to fight for whatever they can get. If your loans are owned by the same bank they will most likely be more concerned with getting the first into a manageable situation while viewing the 2nd as almost worthless.
Keep in mind that the banks DO NOT want to be in the real estate business. They don’t want to foreclose on a property in a declining market. In today’s market the banks stand to lose $0.35 to $0.80 on the dollar on any foreclosed property. If we were in a booming market the scenario would be more in the banks favor and you would most likely not be reading this post. Any bank would rather collect lower payments than none at all.
Next post we will discuss Negotiations…
Principal Balance Reductions
Principal balance reductions are not favorable to a bank and rarely do they offer this option. When they do decide to grant a reduction they do it only because the value of the property is much less than the balance you own and there would be no reason for you do anything other than walk away. An important note though is that if they grant a principal balance reduction the bank can issue you a 1009 for the forgiven amount. This is something that you will need to discuss with your tax attorney and decide if you should ask your bank to waive this. This article is in no way meant to be legal advice.
If you have a 1st and a 2nd mortgage your chances of a principal reduction is greater. That’s because in a foreclosure situation the bank holding the 2nd mortgage will likely get nothing. The bank would rather get 20 cents on the dollar than risk getting nothing. If the same bank owns both the 1st and the 2nd mortgages you are in the best possible scenario for a reduction. If they are owned by different banks then it things are a little more challenging. When a bank only owns the 2nd mortgage they will most likely to fight for whatever they can get. If your loans are owned by the same bank they will most likely be more concerned with getting the first into a manageable situation while viewing the 2nd as almost worthless.
Keep in mind that the banks DO NOT want to be in the real estate business. They don’t want to foreclose on a property in a declining market. In today’s market the banks stand to lose $0.35 to $0.80 on the dollar on any foreclosed property. If we were in a booming market the scenario would be more in the banks favor and you would most likely not be reading this post. Any bank would rather collect lower payments than none at all.
Next post we will discuss Negotiations…
Monday, January 19, 2009
Modification Options
As discussed in the previous post, if you find yourself unable to make your current mortgage payments your options are foreclosure, deed in lieu of foreclosure, short sale or loan modification. The only option listed above that will allow you to stay in your home is the loan modification. Assuming that is your goal, you will need to be able to document your ability to repay the loan if some modifications to the terms are made. Some options that may be available are a temporary or possibly permanent interest rate reduction, or giving you an interest only payment option, modify your repayment terms from 30 years to 40 years or even 50 years, a principal balance reduction, a forbearance agreement or a combination of any of the above.
The Bank will take your entire budget into consideration including utilities, food, gas, credit card payments & cell phone bills. They don’t want your mortgage payment to consume your entire monthly income. You will need to complete an income vs expenses worksheet provided by your bank. Next post we will talk about principal balance reductions...
The Bank will take your entire budget into consideration including utilities, food, gas, credit card payments & cell phone bills. They don’t want your mortgage payment to consume your entire monthly income. You will need to complete an income vs expenses worksheet provided by your bank. Next post we will talk about principal balance reductions...
Saturday, January 17, 2009
From the Banks Perspective
When Banks are first approached by a homeowner requesting help or a modification they may offer a quick fix that may end up hurting the homeowner in the end. These fixes would include a temporary rate cut (emphasis on “temporary”), a short sale, deed in lieu of foreclosure or a simple forbearance agreement. We will review each of these options as we go along. If you are willing to follow along with us here on this blog I believe you will reject any offer that will not fix your problem permanently.
Do You Refinance or Modify Your Loan?
In today’s economic environment most people do not qualify for a refinance making a loan modification their only option. You may have suffered a job loss and unable to replace the income you were used to making or you may be upside with your mortgage. Meaning, you owe more than the property is worth. Either way a modification is your only option. To be continued...
Do You Refinance or Modify Your Loan?
In today’s economic environment most people do not qualify for a refinance making a loan modification their only option. You may have suffered a job loss and unable to replace the income you were used to making or you may be upside with your mortgage. Meaning, you owe more than the property is worth. Either way a modification is your only option. To be continued...
Friday, January 16, 2009
Understanding Loan Modification
The first thing to note about loan modifications is that unfortunately, homeowners and banks are in disarray. Neither banks nor borrowers have power in this economic environment. The two must work together to not only keep families in their home but to also turn this recession around. When a bank does a modification it could mean an immediate financial loss but the long term losses are minimized verses mass foreclosures.
You can either attempt to work with your financial institution to work out a loan modification yourself or contact a loan modification company to negotiate a work out on your behalf. Be aware of paying large upfront fees. The last thing you need when you are already in a financial bind is to be ripped off!
Next post we will go into the different options for loan modifications. Stay tuned…
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