Loan Mods: What’s the Situation Now?

It’s been about a year now since the Obama administration introduced its loan mod program, HAMP, so what’s happened?
What have American homeowners been getting for our government’s $7 billion?

Loan Mods One Year Later

Aw, come on, you know the answer–not much. As usual, the big banks don’t want to play. Always ready for a handout, they pretend to go along, but never really deliver. At this point, one year later, we now have about 299,000 permanent loan mods as of April 2010, according to the US Treasury. That’s about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month.

Terrible Loan Mod Results Compared to the Problem

Placed in its proper context and you will see how measly that is. We’ve already had more than 3 million foreclosures. Estimates are that about 7.5 million mortgages are in the 90-day-late situation, meaning they are most likely heading into foreclosure. So, that 299,000 doesn’t seem like much, does it, for a whole year?
But wait, it gets worse. The number of people who failed to get loan mods rose dramatically in April, up 79%, in fact. About 270,000 or 23% dropped out at some phase of the process.

Why would this be happening?

I’m sure that banks would like to point the finger at deadbeat homeowners, but that would be a lie, a big, fat lie. Having been involved in a few of these mods and receiving many calls from anxious homeowners, I can say categorically it is not the fault of homeowners. It is the fault of the big banks who make the task so tedious and so long and drawn out that anybody would get frustrated and quit.
Here are just a few of the comments I’ve heard lately..One that particularly galls me is Maria who cannot get CitiBank to give her the time of day. Why would that be? Why, she’s current in her payments, so unless there’s already a fire, this company has no interest in preventative maintenance. Then, there’s Monica who owns several investment single-family homes she was hoping would help provide her retirement. They’re all upside down now and the bank will not even talk to her because she’s also current.

Only Solution Now: Short Sale

Talk to Mike. AMHSI told him point-blank it had no interest in doing loan mods. So, he stopped making his payments and put it on the market as a short sale. Is that a better solution? Folks, that’s about the only solution left. We can all stop dreaming now that the banks will actually do these “workouts” whether they have support from the government or not. They will pretend to do them, but make the process as onerous as possible. Then, too, many who actually produce all the paperwork and wait the 3 to 6 months of processing time are refused a loan mod anyway. Why? Well, if you’re unemployed and really need one, you can’t get one because there’s no income to pay it. If you’re employed, you, like Goldilocks, need to make just the right amount of money or you’ll make either too much or too little and you won’t qualify…

I don’t think I want to write about loan mods anymore. They are a complete crock.

Popular Myths About Loan Modifications

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Times are tough right now. There’s no denying this. The unemployment rate is sky-high. Incomes are down. Home values are down [35% in one year in L.A. County].  There is no doubt that especially here in Southern California probably around 50% of homeowners are upside down in their mortgages. Many of these are struggling to make the mortgage payments on loans that are far more than the value of the house.

If you have missed a payment or may be likely to in the near future, maybe a loan modification is for you. Don’t let the following “myths about loan modifications” stop you from at least making an attempt to get your loan modified.

MYTH #1: The bank wants my house.

. Banks and other lending institutions do not want to foreclose. They earn more money if you can make your payments. When they foreclose, they not only lose your monthly payments, but they also have the expense of foreclosing (attorney fees), rehabbing the home, and then selling it (agent commissions). It’s estimated it costs the bank about 50% of the loan’s value to foreclose. And when they own the house, then what? The bank has to maintain it, meaning pay someone to do the maintenance, and keep the utilities on.  This is all good news for you – it means the bank is highly motivated to make a deal with you.

MYTH #2: My credit score is bad so I won’t qualify.

Guess what? In doing a loan mod, the bank doesn’t even consider your credit score. As mentioned about, it’s to the bank’s benefit to at least try to work it out with you.  A loan mod simply adjusts the loan in rate or term or balance or combination thereof. You still have the same loan and the same loan number.

MYTH #3 I am not late on my mortgage payments so I won’t qualify. I have to miss a payment to be eligible

Early on, this was true. In fact, some early eligibility requirements stated that you had to be 61 days delinquent in order to qualify. In other words, you would have had to have missed two full payments. The truth is that the eligibility requirements are constantly changing and differ among lenders. Many lenders are now working out loan modifications with borrowers who are up to date on their payments. It’s difficult to determine whether you qualify until you actually discuss your situation with the lender or with someone such as myself is knowledgeable and experienced in loan modifications.

MYTH #4: I would be better off walking away or declaring bankruptcy than modifying my loan.

Walking away from the home and filing for bankruptcy are certainly two options, but they are rarely the best options when you are facing foreclosure. If you simply walk away, the lender is unlikely to pursue legal action against you, but in some jurisdictions, the lender can pursue a deficiency judgment against you to collect the difference between what the lender receives for your home at auction and what you currently owe on the balance of the mortgage. Plus, that foreclosure will prevent you from buying a house for five years. Plus, there may be tax consequences.

Filing for bankruptcy may be better than just walking away, but it stays on your credit report for seven years, making it difficult to borrow money in the future. A successful loan modification is almost always a more prudent choice.

MYTH #5: It’s too late. I have already received a foreclosure notice.

As long as you still reside in the home – that is, you didn’t voluntarily abandon it, and the home hasn’t been sold at a foreclosure auction – you may still have time to work out a loan modification with your lender. The sooner you take action, the more options you have available and the more time you have to pursue the best option, but you can still negotiate late into the process. Even if you have received a Notice of Default [NOD], in California you will have a minimum of 111 days before the bank can foreclose. It often takes much longer.  By contacting the lender or, better yet, having your negotiator contact the lender on your behalf, you demonstrate a good faith effort and can often buy yourself extra time to work out a loan modification.

Myth #6 I already did a loan mod and was unable to keep up the payments. I know I can’t get another one.

Earth to homeowner: you may be able to get another loan modification that you can live with in your current situation. In fact, as your economic state changes, you can ask for forebearance or another modification. After all, interest rates change all the time, don’t they? Remember: it’s always better to try. Never just give up. Never assume you know what the bank will say.

Finally, I want you to know if you want to do a loan modification, I am happy to help you. Just give me a call at 626-641-0346.