Save Money: Don’t Pay the Mortgage

Sounds awful, doesn’t it? Contrary to the frugal rules your parents taught you or maybe your grandparents. Well, the Great Depression was a long time ago and we’ve come a long way, baby. No more do trivial items like mortgage contracts bother us because, well, the other partner in the contract, the banks, are showing how little they care for us.

I’ve discussed loan mods ad nauseam in this blog. The fact is for most borrowers either the bank refuses to offer one for a variety of reasons [too much income, not enough income, current in payments] or the loan mod proffered after months of paper-pushing is too draconian for the homeowners who soon fall into arrears again.

What’s the solution?

As mentioned in a recent NY Times article, in practice passive resistance rules . Homeowners simply stop paying on their underwater mortgages. Now, living “rent-free”, they take  whatever money they have and pay down bills, eke out an existence, put it away for the post- foreclosure rent deposit  or do whatever they have to do to make ends meet.

What about the foreclosure?

Don’t the banks swoop down and grab the house throwing its occupants into the streets? That’s what most of us think of when we think foreclosure, but the simple fact is the banks are swamped. In fact, today,  the average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

In my travels I’ve met plenty of homeowners who manage to stay in their homes rent free for months, even years. Not so long ago I talked to a man whose home in the Hollywood Hills had been in foreclosure for 24 months before the bank even threatened to evict him. He also had a guest house and had been collecting rent for the entire time. By law, his tenant was allowed to stay for another 60 to 90 days, though not rent-free.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier. In California, a non-judicial foreclosure state, the process can be fairly rapid, 3 months and 21 days from start to finish. That’s theoretically and legally possible, except, again, it rarely happens. In California, the average is now 415 days and lengthening every month. The reason is the overwhelming number of defaulting mortgages.

Even in short sales, the banks seem to be in no rush to consummate the transaction as borrowers forced to wait for 3 to 6 months have discovered. In the meantime, the homeowner lives rent free or collects rent from tenants Everyone lives in a kind of limbo knowing the ax will fall sometime and some would much rather just move out and get on with their lives and reconstructing their credit reports. For  many, it may not be  much, but it is some small revenge again the behemoth banks who took all that bailout money and turned a tidy profit while the nation’s homeowners bore the brunt. Yes, a small but satisfying revenge.

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.

Realtors’ Mortgage Protection Plan

SOUTH SAN FRANCISCO, CA - MAY 04:  A sold sign...
Image by Getty Images via Daylife

You’ve probably seen the ads on TV from Hyundai and other auto makers offering to make your payment if you buy a new car and then lose your job…That seems like a pretty good deal.  Now,  California Realtors are making you an even better offer: buy a home in California using a Realtor, of course, and you’ll be eligible to receive up to $1500 per month for 6 months if you lose your job…

What’s not to like? With Obama’s incentives for first-time buyers and various city and country programs available, it seems crazy NOT  to buy a home in 2009.

Here’s how the California Association of Realtors’  [CAR] plan works. CAR membership dues pay into the Housing Affordibilty Fund which will support the program.  CAR estimates the program will have $1,000,000 and will help 3000 families. Through this program, first-time home buyers who lose their jobs due to layoffs may be eligible to receive the payout. And, the program also supports coverage fro accidental disability and a $10,000 death benefit.

To be eligible for ths program, here’s how you qualify: ·

  • Be a first-time home buyer – someone who has not owned a home in the last three years.
  • Open escrow April 2, 2009, or later, and close on or beforeDec. 31, 2009
  • Use a California REALTOR® in the transaction
  • Purchase the property in California
  • Be a W-2 employee (cannot be self-employed)

For more information about the program or to get an application, call Diane at 626-641-0346…

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Loan Modifications: Obama’s Plan

Called the Home Ownership Stability Initiative the heart of Obama’s plan really is the loan modification. As we have all heard, some homeowners are facing payments jumping thousands of dollars a month as adjustable loans readjust. Many homeowners are paying 50% or 60% or more of their income in mortgage payments while the value of their proerties is tumbling.

This plan aims to modify loans for those who qualify at 31% of income. Notice, that just like refinances, modifications require income. That’s the first qualification: income sufficient to pay the modified mortgage.

Until now, banks have been reluctant to offer loan modifications to homeowners who, whatever struggles they were having, remained current on their mortgages. Most banks refused outright to help such borrowers. This plan changes that and makes loan mods available to those who are current in their home loans as well as those who are behind in their payments.

This is important because it allows those who have not missed a payment to maintain their credit. As we all know, often a few dings on the credit and a missed mortgage payment is a major ding, have a cascade effect. Credit card companies find out and jump up rates on credit card debt. It becomes much harder to get any credit at a decent rate, etc.

Let’s say, for instance, that the borrower is paying 43% of his income for his mortgage. He applies for a loan mod and the lender brings the payment down to 38% of his income. Then, the government [Freddie and Fannie] and the lender bring the loan down by equal contributions [3.5% and 3.5%] to 31% of the borrower’s income. That mod stays in place for 5 years. At the end of that time, the rate would be gradually increased to the rate at the time of the loan mod.

Also, and this is important, the government would reinburse the lenders who agree to bring down the principal. Bringing down the principal: all underwater borrowers’ dream and their lenders’ nightmare. Until now, it’s been the rare lender who would touch that principal.

Now, lenders have incentives. If they modify a current loan,servicers receive $500 and lenders [investors] $1500. Borrowers have incentives, too. Every year a borrower stays current in the new mod, he receives $1,000 for up to 5 years. This is clear incentive to help those “good” borrowers who have made tremendous efforts to pay their mortgages during this current crisis and by dint of great sacrifice maintain their credit. Obama’s plan clearly tries to help these people while at least partially answering the persistent critique that responsible homeowners received no help while the irresponsible were being bailed out. Obama’s plan specifically says speculators or flippers cannot particpate.

This, of course, brings up another issue: small investors who own rental properties, especially single family homes or condos, are suffering, too, but seem to be eliminated from this program. Apparently, that is the case except for rental property that was originally a principal residence. So, if you are renting out the condo or 2-bedroom house you bought as your first home before you bought your current residence, then you may be able to participate.

Final details of this plan are supposed to be released this week. The Treasury Department says it will issue clear guidelines for all lenders to follow in doing loan modifications. That would be a relief. At the moment, it’s a free-for-all out there. Some lenders are very cooperative; others refuse to do anything. There’s no doubt we need to do something even if it means helping those who have not, shall we say, been the most prudent in their financial choices. If we don’t the fallout is just too terrible to contemplate.

How Does A Foreclosure Work in California?

Foreclosure is a legal procedure which must follow a pre-determined order of events and time-line. The shortest possible foreclosure in California takes about 121 days, but often takes much longer.

First, California is a non-judicial state, meaning that a court and a judge is not involved. Actually, the procedure for California, a non-judicial state, is fairly straightforward. To simplify, it works like this:

After the homeowner has stopped making payments, the lender, either of the primary loan or any secondary loan, may begin the foreclosure process.

These days, many lenders are waiting months to begin the process; however, some lenders always start the moment it is legally possible after just one missed payment. If a homeowner is to miss a mortgage payment it is ALWAYS advisable to call the lender to try and negotiate forbearance or a different loan. NEVER just miss payments saying nothing to the lender.

The first legal notice is the Notice of Default [NOD], sent to the borrower and recorded on the title of the property with the County Recorder. Now, the NOD makes the situation of the homeowner public knowledge. In this day of electronic data-gathering, many individuals and entities are collecting and acting upon this information. As mentioned in a previous post, Losing Your Home? Avoid These Scams, scam artists are everywhere. Be careful. Seek out the counsel of a reliable real estate professional or an attorney.

Following the legal procedure, now the lender must wait for 90 days. This 90-day period is known as the Redemption Period because the homeowner can bring his payments current or “redeem” his loan at any time.

After the Redemption Period, comes the Publication Period, which lasts for 21 days begins. During this time, the lender advertises the coming sale in various newspapers following set rules. At the end of this period, the Trustee’s Sale is held. If no one bids over what is owed the lender, then the lender “takes back” or repossesses, “repos” the property.

At this point, the homeowner should have vacated the property. Those who fail to leave will then face  eviction, another legal procedure which can result in the Sheriff appearing at the homeowner’s door and forcing the occupants to move while removing all personal possessions to the curb. This is not pleasant.

It’s interesting and vital knowledge for homeowners that this is the fastest possible scenario for a foreclosure in California. Frequently, though,  the procedure is held up, delayed, or postponed for many reasons. The main reason a sale is delayed or put off occurs because the home has a “short sale” offer and the lender wants to consider it. Should that offer fail to please the lender or if the buyer fails to follow through, then the lender can proceed to sale. Other reasons might include possible negotiations with the delinquent homeowner. These days many lenders delay as a matter of course simply because they are overwhelmed by the sheer numbers.

Losing Your Home? Avoid These Scams

Let’s say you’re behind in your payments and the bank has just issued a Notice of Default [NOD], discussed in a previous post. Now, armed with this public information, just watch as the scammers head straight for you.

Here are some tricks to watch out for. A stranger approaches and offers to “save” your credit, your house or both. All you have to do is put your house in his name or pay mortgage payments to him or pay a fee and let him “take care” of the “problem”. Is that going to help? Most likely, no…

How about getting a second on the property if it doesn’t already have one? If the property has an NOD on it, probably the only lender willing to do it would be a crook, so there’s half the answer. The next part is, assuming you do get a second, you now owe more than you did before! If you couldn’t pay before, how are you going to pay now?

That doesn’t mean there are no reliable ways to attack your problem. The first thing to do when you realize you may not be able to make your payments is to IMMEDIATELY talk to your mortgage lender. Don’t wait until you’ve piled up several months of partial or no payments, IMMEDIATELY speak to your lender. If you are hesitant, call in a professional real estate broker whom you trust. Like me, for example [626-641-0346] or anyone you know, especially someone who has been in business at least 5 years and preferably 10.

Your lender may well work out a deal with you, especially these days. But, it’s true–some lenders really are not too smart or perhaps too untrusting, so you may have to bring in a professional or miss some payments. But, whatever you do–don’t let some stranger who comes to your house talk you into signing any papers. Speak to an attorney first. For anyone claiming to be a real estate agent or broker, you can look up any licensed person on the CA Department of Real Estate webpage to check. There you can find out if the person has a license and if there are complaints filed against the licensee.

If you believe you have been scammed, here are some useful resources to try:

L.A. County Department of Consumer Affairs
Real Estate Fraud & Information

800-973-3370

Federal Trade Commission (FTC)

File a complaint — https://rn.ftc.gov/pls/dod/wsolcq$.startup?Z_ORG_CODE=PU01

Federal Bureau of Investigation (FBI)

Read about mortgage fraud — http://www.fbi.gov/pub .. … 5.htm#d1
Locations of FBI’s Field Offices — http://www.fbi.gov/con .. … o/fo.htm
File a complaint — https://tips.fbi.gov/

Mortgage Bankers Association (MBA)

State-by-state list of resources — http://mbafightsfraud. .. … aud.html