Get Loan Modification Blog

At the heart of the President Barack Obama’s ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that’s a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months. But supporters argue that mortgage modifications need to be properly engineered to work—and many early ones weren’t. To that end, the Obama administration on Wednesday unveiled fresh details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven things you need to know about Obama’s loan modification program.

1. Payments, not prices: The plan centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. “Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans),” Buffett wrote. “Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay.”

2. Thirty-one percent: To that end, the administration’s plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower’s gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower’s monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that’s not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that’s still not enough, the servicer would forebear loan principal at no interest. The plan does not, however, require servicers to reduce mortgage principal, which Richard Green, the director of the Lusk Center for Real Estate at USC, considers a shortcoming. “For underwater loans, if you don’t write down the balance to be less than the value of the house, people still have an incentive to default,” Green says. “Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me.”

3. Cash incentives: To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.

4. Financial hardship: The Obama administration is pitching its plan as an effort to help responsible homeowners ensnared in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower’s credit report. In addition, the program is designed to target homeowners who are undergoing “serious hardships”—such as a loss of income—which have put them at risk of default. To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. “If we would have had such stringent verification over the last four or five years, we probably wouldn’t be in as bad a position as we are in,” says Richard Moody, the chief economist at Mission Residential. But while Moody has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. “It’s going to be a very time-consuming process,” he says. Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration’s plan is out, lenders are free to begin modifying loans.

5. Net present value: To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn’t. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan. Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this component of the plan “clever,” arguing that it would work to ensure broad participation. “When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify,” Glaser says. “The federal subsidy for the payment on the modification…tips the scale toward modification as a better deal for the investor.”

6. Second liens: The Obama plan also addresses the issue of second liens—such as home equity loans or home equity lines of credit—by offering incentives to extinguish them. But key details on this component of the plan remained unclear. “Distinguishing the second lien is really important,” Green says. “[But] exactly how they are going to convince the second lien holder to do this is not clear to me at all.”

7. Will it work? Moody argues that while the plan may reduce foreclosures for primary residences, it could lead to a spike in defaults for another group of homeowners. Although he supports the administration’s efforts to focus the initiative on primary residences, Moody notes that “it could be the case that a lot of [real estate speculators] have been just hanging on waiting to see exactly what the details are of this [plan],” Moody says. Now that it’s clear the Obama plan leaves speculators out, “we could actually see a spike in foreclosures or at least mortgage defaults among this group.”

Glaser, meanwhile, worries that lenders may soon be overwhelmed by inquiries from homeowners looking to participate. “Starting today, millions of borrowers are going to start to call their lenders to see whether or not they are eligible,” he said. “And I’m not sure that the financial services industry has the capacity to handle these inquiries.”

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Loan Modification companies

SAN FRANCISCO (CBS 5) ―
There are thousands of homeowners facing foreclosure in California who are desperately trying to hold on to their homes. Many loan modification companies are now advertising that they can help those homeowners.

But CBS 5 Investigates finds some consumers who signed up with those companies, paying thousands of dollars, say they received minimal help if any and say their money was wasted.

The ads are everywhere on the Internet and on the radio, such as the one from Saving California that tells listeners the company is “Saving California, one home at a time.”

Marta Mendez heard an ad like that one in Spanish. “I thought it was a non-profit that will help you,” she said.

She needed help because she and her husband faced foreclosure on their Watsonville bungalow. “For me the house represents the whole thing, the family, my husband, everything,” said Mendez.

Mendez said she met with a representative from Saving California. “He told us the way they work is they work with the bank to lower our payments,” she said. She said the company acted as middlemen for a fee, to negotiate a loan modification. “He said that as soon as I bring the money they can start working with the bank.”

The Mendez’s signed up, paying $3,500 to Saving California’s parent company, Whitfield Financial, run by Ray Jeter. But after two months with no word, she called her bank to see if they’d received the modification request.

“They said no, nothing, nothing is here. We don’t have no paperwork here for you,” she said.

She said she wound up negotiating the loan modification herself.

Her opinion now of Saving California? “They ask you for some money and they don’t do anything for her,” Mendez said.

Then there’s Keith and Millie Dixon. They signed up with a San Diego company called People’s First Financial after getting a phone pitch.

“He just kind of said, you know, I am with this company and we do loan modifications and I was just desperate to go with something and so I just said wow, okay,” said Millie Dixon.

In hopes of saving their home, they paid $3,000. Keith Dixon said, “I went online, checked the BBB (Better Business Bureau). It just sounded like a dream come true and, I believed it.”

When the company told them in an email that their loan modification had been “approved”, Millie Dixon said, “then I am like, oh my God, we finally got some hope here. We’re going to save the house, we’re going to. After that…I never heard from (the company’s representative) again.”

The day before Thanksgiving, they say the phone rang and a representative from People’s First Financial informed them they would lose their home.

Millie Dixon said, “I was devastated. That was really bad! I was really upset.”

They were forced to move out this month. “I really trusted that these people were going to get this done,” said Keith Dixon.

The State of California has now taken action against both companies. The Department of Real Estate accuses Saving California and People’s First Financial of taking money upfront without the agreements necessary to protect consumers, and in desist and refrain orders, has ordered them to stop those practices. But the state says those two cases represent just the tip of the iceberg.

“It’s getting worse and worse every day,” said California Department of Real Estate Commissioner Jeff Davi.

“There’s been a huge ramp up of these loan modification companies promising people a solution, and a bailout and some kind of salvation here. And really many of them aren’t even licensed, they don’t have an advance fee agreement and they are really not doing anything. All they are doing is taking the money and moving on to the next person in trouble”, Davi said.

CBS 5 Investigates wanted to know what those companies had to say. People’s First Financial claims it has helped lots of people and said it’s still trying to help the Dixons, but won’t be refunding their $3,000.

And Saving California? CBS 5 Investigates caught up with owner Ray Jeter at his office. Regarding the state’s allegations against him, he said, “I’ve been profiled. As a black man I have been profiled. Are you profiling me further?”

He said to “take it to (California Attorney General) Jerry Brown”, but did not further explain his comment. But when asked again for any response he might have to the Department of Real Estate’s allegations, Jeter said he was “set up.”

Jeter told CBS 5, “Because the state has to target people from time to time and figure out where they need to be breaking the law. I didn’t break the law on any of those cases there.”

CBS 5 Investigates asked him about customers such as Marta Mendez who say his company took money upfront and Jeter denies taking any money upfront.

Jeter further said, “Stop saying that I took their money because I didn’t take any money. All funds are in escrow.”

Jeter said if customers request a cancellation, “they can all get their money back” because the money is in escrow.

However, California Real Estate Commissioner Davi said the state’s investigation of Saving California showed otherwise.

“We found that they did not put the money in a trust fund, they did not have an advance fee agreement, they allowed access to the trust fund from non-bonded or non-licensed individuals, which meant the money wasn’t protected and they were not complying with the law”, Davi said.

Specifically in regard to the accounts he says he put the money in, Jeter now says: “If that is wrong, I apologize. I apologize to all of those who think I did something wrong.

The Department of Real Estate is currently working on more than 253 investigations involving loan modification companies.

To check if a company is licensed go to http://www2.dre.ca.gov/PublicASP/pplinfo.asp. If there is a “comment” at the bottom of the filing, consumers need to call and find out what it’s about. It usually indicates a government action against the company.

To check if a loan modification company has an approved “Advanced Fee Agreement,” go to http://www.dre.ca.gov/mlb_adv_fees_list.html.

The non-profit alliance HOPE is a good resource for people who are trying to modify their loans, at http://www.995hope.org/.

Get a Do it Yourself Loan Modification Manual

One of the items your lender or servicer will ask for during the loan workout or loan modification process is a hardship letter. A hardship letter is a written explanation as to what “event” has caused you to fall behind on your mortgage and it vital in helping you stop foreclosure.

This letter acts much like an outline or biography of your current “life” issues that are affecting your ability to meet your financial obligations.

Please keep in mind that your are composing the hardship letter for your lender or servicer and because of the foreclosure crisis, they are extremely busy and back logged. So, with that in mind, do not write a book because most likely it will not get the attention of an over worked, $12 an hour loss mitigation employee. Keep it short and to the point. Usually 1 or at maximum 2 pages is more than enough to get your point across.

Here is an example list of hardships that lenders consider during the loan workout process:

• Adjustable Rate Mortgage Reset- Payment S**** (uncommon, but we will see more lenders accept this in the future)
• Illness
• Loss of Job
• Reduced Income
• Failed Business
• Job Relocation
• Death of Spouse or C0-Borrower
• Death
• Incarceration
• Divorce
• Marital Separation
• Military Duty
• Reduced Income
• Medical Bills
• Damage to Property (natural disaster or unnatural)
• Other (Please Specify)

Now that you understand what your lender or servicer is looking for, it’s time to sit down and write a hardship letter. I made it easy for you by giving you a couple templates below that you can use as a boiler plate for your own letter. Make sure you make it unique to your situation.

Remember that your hardship letter is only one piece of the loan workout process, but key in helping you avoid foreclosure. You will still need to jump a few hurdles with your lender before they will approve you any kind of work out plan.

Example Hardship Letter:

Name: (Your Name)
Address: (Your Address)
Lender Name: (Your Lender)
Loan #: (your Loan #)

To Whom It May Concern:

I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider working with us to modify our loan. Our number one goal is to keep our home and we would really appreciate the opportunity to do that.

The main reason that caused us to be late is (insert reason here and don’t be too lengthy and long winded) Soon after being late and our income not being nearly enough, we had fallen further and further behind. Now, it’s to the point where we cannot afford to pay what is owed to (lender). It is our full intention to pay what we owe. But at this time we have exhausted all of our income and resources so we are turning to you for help.

(The approximate date of hardship and we believe that our situation is Temporary or will be Permanent.)

Our situation has got better because (reason here) and we feel that a loan modification would benefit us both. We would appreciate if you can work with us to lower or delinquent amount owed and or payment so we can keep our home and also afford to make amends with your firm.

We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.

Sincerely and Respectfully,

Borrower’s Signature
Date
Co-Borrower’s Signature
Date

Hardship Letter Contributed by LoanSafe.org Forum Member September 7, 2007

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Loan Modifications on Your Own

Lenders and servicers will, in general, look for one thing when you
submit a loan modification request. They look for a documentable
hardship of course, but at the end of the day if they decide to grant
your request for a loan modification all they really want to know is if
you can afford the new payment(s). This is the big secret behind
getting a loan modification approved.

There is, however, an art to making loan modifications work. You
must disqualify yourself from your old payments and at the same time
qualify yourself on a new payment structure. It sounds complicated and
it is at first but you will quickly learn important strategies for
effectively processing loan modifications.

To understand what the lender or servicer considers qualified, you
have to know how lenders calculate your income. The income you can use
to qualify for a modification is different from traditional income
calculations used to qualify for traditional loans. Moreover, the
difference in the qualification guidelines is typically in your favor.

For a loan modification, you can qualify based on your
documentable total household income. As such, you can count income from
almost any source: Grandma’s SSI, income from child day care services,
from a second job paid under the table, etc. so long as it can be
proved. Proof must be in the form of bank statements, 1099’s or in some
other documentable form as outlined in the submission paperwork you
will provide the lender. In addition, if only one of two spouses was on
the original loan, the other spouse’s income can count so long as it is
documentable. Once you calculate all documentable monthly income from
all household sources you then have what you can present to the lender
as the new qualifying income.

To calculate a qualifying monthly mortgage payment, use the
benchmark fully amortizing 5.00% rate on whatever the new balance might
be, counting arrearages if they are added back into the loan. WARNING:
this is only for a general qualifying exercise only; do not expect this
rate or payment! If the payment at 5.00% is just too high, then you may
not be an appropriate candidate for a modification. However, you can
still request help with other services such as a deed in lieu of
foreclosure, a short sale or postponing as long as possible a notice of
trustee’s sale in an effort to help you transition to more affordable
housing.

To Find out if you are qualified click here

Loan Modification FAQs

Q. How much does it cost?
A. The cost to modify a standard mortgage is $1695. When there are 2 mortgages on the property the modification fee is $1995.

Q. Is the service guaranteed?
A. We guarantee the modification Attorney will work directly for you during the modification process. The modification process is changing everyday. It would be irresponsible to give a guarantee, however The Loan Modification Group will not take a client that does not qualify for a modification. This means our clients get the service that they pay for.

Q. What States are eligible?
A. All 50 States.

Q. What Lenders and Servicers work best for loan modifications?
A. All lending banks have loss mitigation departments that are modifying home loans. We have worked with most mortgage lenders in the US.

Q. What if I need help explaining the process to my borrower?
A. The Loan Modification Group will assist you with any questions the borrower might have. We can schedule a conference call with you and your client anytime to help with the sales call. We are at your service.

Q. What happens after the client agrees to modify their loan(s)?
A. After the documents are signed and faxed, the file is sent to our office for final approval. Upon completion of the fee transaction, you will be mailed a $400 check as a referral fee. Then the file is sent to the attorney’s office and the client will receive a call within 24 hours from a paralegal to start the process.

Q. What kind of Borrower qualifies?
A. All Mortgage holders qualify, regardless of current LTV, credit, self-employment, and mortgage lates. When you are a client of the Loan Modification Group the Attorney’s office will put together a modification package that is right for your client. This includes Financial Statements (monthly summary), hardship letter, mortgage statements or any other documents the lending bank needs to do the loan modification.

Q. What is a good example of a modifiable loan?
A. Our “Text Book” file is a mortgage holder that has an ARM and is having trouble making payments after the adjustment or foresees a problem after the adjustment happens. With that being said we have modified loans of all types; We specialize in Adjustable Rate Mortgages, as well as neg am loans, interest only loans, investment or commercial property.

Q. What are examples of past modification results?
A. We have modified all types of loans. Some of our past results include Changing an ARM at a 9.6% to a fixed rate loan at 5.8%. We have put the Arrears (late payments) back into a loan and made the loan current. We have changed high fixed rate loans into lower interest rate loans.

More Loan Modifications Are Being Done Than Mortgages! If you have tons of clients who are unable to refinance their mortgages. You can make a ton of money! Change the terms of your clients current mortgage without closing costs, points, or appraisal fees!

http://www.get-loan-modification.com