Automatic Loan Mods?

Just Like The Lottery

Believe it or not, one bank has actually started offering automatic loan mods. No more reams of paperwork delving into intimate financial records of borrowers [treated more like beggars], no more waiting for six months, eight months and even more than a year to get an answer from the haughty banks. Finally, one bank, JP Morgan Chase, is automatically writing loan mod contracts for its underwater borrowers.

Chase Bank

Yes, it’s true. Some Chase customers are getting loans mods, offering rate reductions, principal reductions or both–all without having to file the onerous paperwork. In one case cited by CNN Money, Chase surprised a Darrington, Wash. couple, who had tried, without success, to effect a loan mod with the very same bank, with a loan mod reducing their interest rate from 6.5% to 2.8% for five years and then a fixed 3.19% for the remaining 18 years of their loan, saving them $229 a month. For this couple, still suffering with job loss as well as an underwater house, it was just like winning the lottery.

Why Would Chase Offer Automatic Loan Mods?

Bank Trick

Why would Chase be doing this? Is this a trick?

It’s not a trick. In fact, in accordance with the $25-billion mortgage settlement agreed to a few months ago by 49 out of 50 attorneys general, discussed in a previous post, Chase’s share of the payout burden is $4.2 billion.  Because banks get “extra credit” for acting quickly and making their mods during the first year, Chase  bit the bullet and decided to go ahead and make loan mod offers to thousands of underwater borrowers. In the past, contacting all these homeowners has proven difficult if not impossible. Many homeowners are so inundated with financial woes they no longer read their mail or answer the phone. Many underwater homeowners move out, anticipating a foreclosure.

Borrowers who receive the loan mod offers must, of course, sign the new contracts which typically would run for 5 years and then, most important, start making the new payments which are usually hundreds of dollars less than the previous amounts. Between March and June 2012, Chase claims that it has completed 3,086 loan mods,  $359 million’s  worth.

But, Isn’t The Housing Crisis Over By Now?

To understand how deep-seated this problem is despite the good news we’ve been hearing about home prices rising,  look at what Chase, just one of the five major banks involved, says it still has to do: another 11,500 loan mods. I say, “Bravo,” to Chase for undertaking to honor the settlement. It is too bad, though, that the banks had to be forced by litigation to treat their borrowers like human beings. Makes you wonder what else we could get the banks to cough up if the federal government would just hold their feet to the fire just a teensy, weensy bit?

Ultimate Help For Homeowners: Mortgage Litigation

Over the past three years while writing this blog, I have combed every source I came across for avenues that could possibly help homeowners keep their homes, reduce their payments or avoid foreclosure. I have written about loan modifications, federal loan modifications, loan restructuring, short payoffs and forensic loan analysis, trying to see if any of these cold provide a solution to the housing crisis we are facing. In the end, though some of these helped some individuals a bit, nothing has actually made much of a difference.

Ultimately, I have come to believe, banks are not going to help homeowners because it is not in their financial interest. Because of TARP and really for PR purposes, banks have done a few loan mods, helped a few homeowners avoid foreclosure and participated in a few forums to help individual property owners. In the aggregate, though, their efforts have been puny in the face of massive numbers of underwater homes. Their public pronouncements about their interest in remedying the situation have clearly been hypocritical in light of the little they have done.

Banks have become the most hated institutions in America and for good reason.


Quite some time ago, I came to the conclusion that only massive legal force would give homeowners any leverage in dealing with banks. Forensic loan audits seemed for a while to provide this. Legal firms analyzed individual loans uncovering in the process RESPA violations, fraud, and numerous questionable actions in almost every loan done since around 2002. The attorney would then send this information to regulating agencies and to the fraudulent bank, expecting some repentant reaction.
But, when faced by an individual attorney representing an individual homeowners, each bank’s response was, “So what? What do you intend to do about it?” Since lawsuits are very expensive, the banks were aware individuals behind in their mortgage payments were highly unlikely to file suit.

What To Do?

Finally, we may have some recourse. It seems that across the country many attorneys have been filing suit against banks for their fraudulent actions and, little by little, the database of suits has been growing. At this point, more than three years into the crisis, attorneys have banded together to file on behalf of individual homeowners and, if a suit against that individual’s bank already exists, to add him to the list of plaintiffs.
This seems the only way to go. Joining such a suit costs money, of course, and no results can be guaranteed, but to me it seems like the best solution so far.
Here are some of the benefits of mortgage litigation.

  • A lawsuit is filed-a judge decides the merits of a case, not the banks
  • If it goes to trial, banks know that juries now universally favor homeowners
  • This is not a loan modification–the banks do not control the outcome

Possible Outcomes

If the attorney or legal firm accepts the case, the demand is always to completely tear up the note or mortgage on the property. While this is not always the outcome or even usually, the next demand is for the note to be re-written to 70% of current value of the property. Of course, another outcome is always that the homeowner and his attorney might lose the suit. That is possible but highly unlikely.

After December, The Avalanche?

Louis XIV of France, styled the Sun King, famously opined, “Apres moi, le deluge.”  After me, the flood. He was right, of course, for his excesses so infuriated the people that his successor was guillotined and his monarchy overthrown in the French Revolution.

SoCal Plunge In Foreclosure Filings

Something similar seems to be brewing in Southern California and maybe even nationwide as lenders ratchet up their foreclosure filings after the “robo-signing” lull. Though foreclosures dropped dramatically in SoCal this fall, so, too, did all home sales. The reasons seem to be many: the end of the home buyer tax credit, stubbornly high unemployment and the generally still-moribund economy. In fact, sales are down a full 16% from November of 2009. This at the same time foreclosure filings fell 14% from the previous November after a 22% decline in October for a two-month total 36% decline. Nationwide, the filings fell 21%.

December is traditionally a slow month in real estate as consumers focus on retail buying, parties and holiday travel plans. Typically, though, also in December  smart investors are out there snapping up last-minute bargains of the now-extremely motivated sellers still on the market. Competition is almost always much less, to put it mildly, and sellers are determined to close out their books for year’s end.  This year seems to be different as even investors are holding back.

That may be because the huge drop in  foreclosure filings this fall has ominous repercussions for home prices in the new year. With the foreclosure freeze over, informed observers now expect to see the banks ratchet up their foreclosures with a vengeance, restarting filings begun in October and November and barreling ahead with new ones in January. Executives from RealtyTrac, a real estate data collection firm, speculate that the housing recovery could be set back three months, if not more, as the foreclosures pile up. In fact, we can expect ” an avalanche” of foreclosures shortly.

SoCal Home Prices

The most immediate effect of an avalanche of foreclosed properties on the market will be to further depress prices in Southern California which had started a slight upward movement. Los Angeles County home prices had dropped 1.2% over November 2009 to a median of $325,000. Riverside and San Bernardino Counties, the hardest hit by the bursting of the real estate bubble, lost 2.5% and 5.0% respectively to medians of $195,000 and $152,000. But, that is a huge improvement over the 30% and 40% drops of previous years. Other SoCal counties actually gained in value. Orange County eked out a .6% improvement for a $435,000 median home price. San Diego topped the charts with a 3.1% improvement over last year to a median of  $335,000 with Ventura County just behind at 2.7% uptick to a median of $375,000.

Future: More Underwater Homes

These hard-earned gains will soon be lost as the promised avalanche of foreclosures hits the market. Perhaps sales will pick up as buyers and investors are lured back into the game. But, bargain-hunting fun aside,  another price drop for already distressed homeowners will plunge yet more homeowners underwater.  That, in turn, spirals down into more foreclosures and more equity loss in future.

Like Louis XIV, banks see this as well as anyone, yet still refuse to modify loans in any serious way. Like Louis, they see, but, obviously, don’t give a damn as long as they get their bonuses. Short-term is the only term.

The Trouble With Loan Mods

Loan Mods Are Not Working

Despite high hopes and great fanfare, loan mods, it seems, are just not working. Various figures have been bandied about. At the beginning of December, Treasury Department officials determined that about 700,000 mortgage modifications were in process under the federal HAMP [Home Affordable Modification Program], announced in March 2009, but only about 31,000 had actually been made permament.

Those figures are dismal enough, but here’s the kicker–about 25% of homeowners who received mods have already fallen behind on their payments!

Banks Just Don’t Want To Do Loan Mods

Many excuses have been offered for these pathetic figures: paperwork gets lost, homeowners lose patience with the tedious process, the process is so long homeowners’ situations have changed drastically. Some blame the Obama administration. Here’s what I see.

No matter how much the Obama administration admonishes banks to do these mods, the banks are clearly dragging their feet. Good old B of A, for instance, claims 158,000 trial mods, but only 98 have been made permanent. In a year! Then, there’s JP Morgan. It approved 16,000 loan mods in a year, but says it’s a “struggle” to make them permanent  because only half  of those who have completed the 3-month trial program had completed all the paperwork, read financial statements.

Banks Make the Process Tedious

There’s the real issue…Banks require a ton of paperwork, far more and far more complex than most homeowners have either the time or the capacity to supply. It’s a huge job. I know because I have helped many homeowners complete it. As with everything else, the banks take forever to process the paperwork, yes, often losing it and requesting replacements or updates, drawing out the time frame to 6,7, or 9 months before even a 3-month trial period begins. In the meantime, the homeowner who often waited until he was up against it to even apply for the mod is supposed to continue making the regular payment.

Homeowners Must Qualify

Oh, and did I mention, that losing a job or having hours cut back may eliminate the chance to even get a mod.  Why? Because although homeowners focus on the hardship, banks focus on the income. If you want a loan mod, you had better have sufficient income. How much is enough? Good question? The problem is the answer changes from month to month and bank to bank. But, here’s the bottom line: if you have  real financial hardship, you probably won’t get a loan mod.

So far, I haven’t seen any official statistics on what amount of relief the loan mods already processed have actually offered to the homeowners. One survey says $640 a month or 40% reduction. If that’s true, not bad. Unfortunately, I don’t think it’s accurate.  The ones that I have seen offer much less and usually require a several thousand dollar payment to get  into the trial period.

Loan Balance Reduction Is a Dream

What is most significant to the homeowner and why most start this tedious loan mod process is to obtain a loan balance reduction. In my experience, that is completely fanciful.  None that I have seen include a principal reduction, though many I meet claim to know someone else who got one.  I’ve never met one of these mythical creatures.

 Think about it: prices around here have dropped 40% or more in the last 2 years.  How do you feel about paying your $600,000 mortgage when similar homes in your area are now selling for $300,000? Yet, the banks are not offering these homeowners struggling to make their payments any reduction in their principal balance. Extending the loan to 40 years, yes–but no reduction in loan balance.

What’s the answer? Try doing the loan mod if you are willing to put in the time and effort involved. At the same time, though, I recommend attempting a loan restructuring. Next post will explain the process.

Great Short Sale News. You CAN Buy Another House.

Losing sleep over the precipitous drop in the value of your home? Wondering how you can continue to make payments on that $500,000 loan when the home now seems worth at most $300,000? Casting  jealous glances at the newcomers in your area who are getting bargain prices and bargain rates?

Guess what? Now you can short sell your home AND  buy another house at today’s prices and rates.

Over 14 million loans in the U.S. are now either underwater or in some stage of foreclosure. About half the nationwide sales to new buyers are either repossessions or short sales.  It seems to most underwater homeowners that there ought to be some way to connect the two–now there is. You can short sale your home and buy a similar property for half the price.

Lenders are  now coming out with new programs, many insured by FHA, which make it possible for homeowners to short sale their homes and simultaneously buy another property at today’s prices and today’s rates. Many homeowners have allowed their homes to go into foreclosure or waited helplessly for the loan modifications that never came simply because they couldn’t figure out where they were going to live if they left their homes. Some decided to stick out the school year. Others couldn’t bear to leave the neighborhood. Now they don’t have to.

Here are a few of the guidelines that will allow homeowners to short sale their current home and simultaneously purchase another home. First, they must be current on their mortgages. So, owners who have “let the property go” or who were not financially able would not qualify. Finally, here is some reward for those who have steadfastly made their payments in the face of dropping values.

Second, they must be able to qualify for the new mortgage.That means a FICO of at least 640 and income sufficient to pay for the new mortgage.That’s not as hard as it may seem. If a homeowner can pay the $500,000 mortgage at 6% or 7%, no matter with what great difficulty, think how easy it will be to pay the $300,000 with a 5% mortgage for an identical property.

Third, the buyer must have money sufficient to pay the minimum 3.5% FHA down payment and the accompanying  closing costs. The short seller will get no proceeds from the sale of his property. That’s a given. So, where will the money come from for the new property? If  it’s an FHA loan, the minimum down payment is 3.5% and that total amount can be a gift. Also, the short seller is eligible for the federal tax credit which goes up to $6500 for move-up buyers. That may be applied to the down payment or closing costs, but this is not yet determined.

Finally, some programs require that the new loan cannot be more than the previous loan. So, in this case the new loan cannot be more than the $500,000 which the  buyer was paying on the previous home. With the drop in prices today, in most markets, this will be an easy criterion to satisfy.

Impetus to do short sales just got much bigger. If you’ve been dithering about what to do and how to house the family after a short sale, these new loans could certainly aid in the decision-making process and give you peace of mind. Short selling your home and buying another one at today’s much lower values may, in fact, result in a significant improvement in your housing standards…

Mortgage Aid Event in L.A.

Subprime Crisis No Barrier to Affordable Housing
Image by woodleywonderworks via Flickr

Some 30% of all California mortgages appear to be underwater, so loan modification is a term many have come to know. We’ve also come to realize that the process is long, complicated, and in many cases, expensive. The end result is usually not as good as hoped, despite the apochrophal stories we’ve all heard about balance reductions and interest rates of 2%. If true–very rare…

But now–help is at hand–and it’s not going to cost a penny. A five day mortgage aid event, running September 24th through Monday September 28th, brings counselors from Boston-based Neighborhood Assistance Corp of America [NACA] comes to Los Angeles. The $1 million cost of the event is funded by federal grants.

Here, counselors will scan homeowners’ mortgage documentation and send the files to nearly 2,000 on-site servicers and lenders, including representatives from Wells Fargo, Chase and B of A, who will be there to negotiate more affordable loans.

If you are in trouble with our mortgage, what have you got to lose? No more run-around from bank servicers. They will be right there. The Save the Dream Tour, launched in Cleveland, will continue on to Chicago, St Louis as well as Phoenix, la Vegas and San Francisco.

You can register for an appointment as http://www.naca.com or toll-free at 888-499-6222.

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Is the Recession Over? Coulda’ Fooled Me

Lately, we’ve been getting report after report in our media that the “greatest recession since the Depression” is over or almost over or showing signs of weakening…Really?

Here’s a snippet from a March, 2009 N.Y. Times article: “Retail sales are up. Industrial production is up. So are housing starts, non-farm employment, exports and business confidence. Even department store sales in the New York area are finally turning around.  At the same time, inflation, interest rates, new jobless claims and personal debt are all, gratifyingly, down. Is the recession over? Finally, after 19 months, the answer appears to be yes.”

Isn’t this a bit crazy? What  is he  talking about?  Unemployment continues to climb with another 500,000 jobs lost in April and a tsunami of foreclosures predicted for this summer and into next year. So, who’s out of recession? Why the stock market, of course, and why not? They’ve emptied the U.S. Treasury to save the Fat Cats of Wall Street while the rest of us are left with plunging home values and no jobs. The S & P 500 continues to climb and the banks are eager to get out from under the TARP.

Well, whoopee, for them…That same N.Y. Times [different article, of course] notes that 5.4 million homeowners nationwide are now delinquent or in some stage of foreclosure. That’s about 10% of ALL mortgages and that is very scary. I guess several factors are driving these homeowners into foreclosure. The first must be job loss. It’s hard to pay your mortgage with no income. The second must be plunging home prices which ties into job loss as more and more go into foreclosure driving prices down still further.

It really kills me to listen to the suits on TV gabbling about the “end is in sight”  and other equally nauseatingly self-serving opinions. If you are an investment banker on Wall Street, then I guess it’s over for you. The taxpayers bailed you out. If you’re an autoworker, not so much. Or, an auto-dealer. Or, anyone involved in the peripheral auto industry, supplies, parts, repairs. Oops, there goes a good chunk of California as well.

So, why would these bloated opinionators be so determined to call an end to the recession?  Besides bankers, they might be politicians or connected to the new administration or the Democratic party. I’m an Obama supporter, too, but getting increasingly tepid about him. His vaunted plan to save 4 million homes from foreclosure? Well, we’re  3 months into it and so far a mere 100,000 have had their loans modified. That means payments are reduced to manageable levels for 3 to 5 years, but  the principal will not be reduced one iota. That’s what’s really fueling foreclosures and delinquencies: buyers are massively upside down in their home values. It really doesn’t make much sense to keep paying the mortgage, even a “modified” mortgage when you are $100,000 to $200,000 “under water”. The banks don’t want to reduce the principal balances on their loans. No, they want to have the  TARP money from taxpayers and then continue on their merry way. Life will go as before–sweet–for them. Obama and his administration have apparently caved to the banks’ desires and have not asked them to reduce the principal balances owed. underwater borrower

No, Obama & Co.  would prefer to announce the “end is in sight” and ignore the tsunami of foreclosures expected this summer and into next year as the unemployment rate continues to climb, and homeowners’ equity continues to sink. This problem is especially acute here in California. Our unemployment rate is soaring; our state government has crumbled; every state agency, including schools and universities, is taking a huge hit, compromising our future as well as our present; homeowners are losing equity by the minute.

Obama was actually here a few days ago for a massive fundraiser. That’s what California means to politicians–parachute in, grab dough from our fat cats and then high tail it back to D.C. where they proceed to ignore us again….Left coast indeed.