January 17, 2020

What Type of Mortgages are Most Likely to be Modified?

prepare for mortgage modificationYour success at modifying your mortgage depends primarily on how much leverage you have in your negotiations with your lender.  If you can convince your lender that it has no realistic chance at recovering full payment from you, or that pursuing you for payment will be expensive and time consuming, you greatly improve your odds.

Banks and mortgage lending institutions are in business to make money.  If you miss payments or pay late, your banker will not be personally offended.  This does not mean that your lender will not employ psychology in its collection efforts.  Representatives from the bank or mortgage company will call you and attempt to make you feel guilty about not paying.  They will suggest that you have a moral and a financial obligation to pay your mortgage obligation.

No doubt you would like to pay your mortgage in full and on time.  However, if your financial circumstances do not allow for this, there is no shame in seeking a modification with your mortgage lender.   Always treat mortgage modification negotiations as business transactions – money, not morality is the only relevant issue.

How, then, do you gain leverage in your negotiations?   Here are some suggestions for a negotiation strategy: [Read More…]

Bank of America to Reduce Mortgage Balances

In an attempt to save struggling borrowers from loosing their homes to foreclosure, Bank of America will be forgiving some mortgage debt. In response to the Obama administration pressuring banks to confront the issues that push millions of homeowners to foreclosure, Bank of America began a program to offer more assistance for delinquent borrowers by reducing their mortgage balances, testing the idea that modifications are better than foreclosure.

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The practice of banks reducing loan balances is not completely new; it has been a growing strategy as a way to tackle the housing crisis. The amount of loan modifications which included some sort of principal reduction has increased from 3.1% to 13.2% in the first nine months of last year. Banks are increasingly willing to experience some short term losses if it would avoid much larger losses in the future if the housing crisis does not improve.

The Bank of America program is for borrowers who received high-risk loans from Countrywide Financial, which was bought in 2008 by Bank of America. At the time of the housing boom, Countrywide was one of the largest and most aggressive lenders. According to Bank of America, the new program will begin with helping around 45,000 Countrywide borrowers. This is a small number considering the 1.2 million delinquent homeowners with Bank of America at this time.

Bank of America does not want to be mistaken for giving delinquent borrowers an easy way out, and it aims to only help homeowners who truly can not afford their mortgages. The program will only help borrowers whose mortgage balance was at least 20 percent greater than the value of the house and also have great financial hardship such as a recent job loss.

It’s promising to see banks finally responding to the housing crises by taking action to help homeowners from facing foreclosure. The action of banks reducing mortgage payments is not without some controversy, but it will be interesting to see if this method will successfully save struggling borrowers and keep them from foreclosure. With Bank of America at the forefront and signs that the housing market may worsen, it’s possible other large banks may begin to offer help for delinquent borrowers as well.

Government announces that help is on the way for underwater or unemployed borrowers

In the last post, we discussed underwater mortgages – the term used to indicate that a homeowner owes more money on the mortgage than the home is actually worth. As the article indicated, these are the number one cause of foreclosures, but fortunately, it looks like there may be hope on the horizon for those people who find themselves in underwater mortgages; If your home is severely underwater or you’re an unemployed homeowner, the government has announced that they will be offering additional options for struggling homeowners.

If your home is underwater and you’re borrowing money, there are two options. If you are making payments on time you may be eligible for a refinance with an FHA loan (a federal assistance loan). If you’re late on payments 60 days or more, however, you must apply for assistance through the Home Affordable Modification Program. Under HAMP, lenders, including many of the major ones, are offering principal reductions.

If you have made your mortgage payments but your loan is underwater, the refinance will be done through an FHA guaranteed loan. Your mortgage debt must be over 115% of the current market value and you must meet all guidelines in order to be eligible for an FHA guaranteed loan and a principal reduction. Your principal could be written down so that your total mortgage debt is less than 115% of the home’s market value.

If you own a home and are unemployed, you can receive a temporary reduction in mortgage loan payments for at least three months (maybe even up to six months), and in certain instances you may be able to skip payments altogether. To be eligible for payment reduction, you must be receiving unemployment checks, and the payment will be set at 31% of income based on your unemployment check. Other factors determining eligibility include that your home is your main residence, you have a mortgage balance less than $729,750, you owe mortgage payments that are not larger than 31% of your income, and you can prove financial hardship.

It’s possible that some borrowers still cannot afford the loan even after the reductions because they own more than they can afford. Lenders will be given incentives by the government to write down loans, including alternatives for short sales and deed-in-lieu of foreclosure. Lenders did not used to be required to try alternatives of principal reductions with a loan modification, but now must look at both a principal reduction and a reduction in interest rate.

“Underwater” Mortgages Down, But Many Foreclosures Still in Sight

Numbers have shown that the amount of underwater mortgages has decreased. A mortgage is called “underwater” when the homeowner owes more money than the home is actually worth. While the numbers of these types mortgage foreclosures are dropping, some experts caution that the amount of foreclosures in general will remain high.

A residential real estate report from Zillow.com illustrated that the number of underwater mortgages of single-family homeowners has dropped to 21% from 23%. This may seem like a small change but it’s a step in the right direction.

Underwater mortgages are the number one cause of foreclosures, and when homeowners have an underwater mortgage, it increases the probability that they will lose their home to foreclosure. This decrease in underwater mortgages makes people hopeful that there will be a drop in foreclosures as well. However, there is a possible downside to the decrease too. The decrease may be attributed to the fact that so many homeowners have already lost their homes to foreclosure that the number of underwater mortgages has decreased because the homes are already lost.

A report by CNN says that there are 1.2 to 1.5 million mortgages that are seriously delinquent, which means that payments are at least 90 days late. History shows that it’s rare for seriously delinquent homeowners to catch up on payments. These numbers show that even though underwater mortgages are down, many foreclosures are probably still in sight.

The number of foreclosures may rise even more in result of adjustable rate mortgages. Borrowers in these ARM mortgages can make minimal payments on their mortgages which don’t even cover the interest on the loan. In result, many borrowers will not be able to afford the payments which may lead to more foreclosures.

Borrowers in these cases were for a time allowed to make minimal payments on their mortgages. In the meantime, however, these payments did not even cover the interest of the loan, and when the mortgages reset borrowers will be required to start paying down the principal. Many people will not be able to afford these payments, and more foreclosures are likely to follow.

NACA Mortgage-Modification Seminars Help Homeowners Avoid Foreclosure

As pay cuts continue to take place and homeowners are faced with multiple other financial burdens, more and more people are having difficulty making mortgage payments. With so many problems coming together quickly, thousands of homeowners are attending mortgage-modification seminars organized by the Neighborhood Assistance Corp. of America (NACA) which matches borrowers with lenders.

Last week in Palm Beach, a five-day mortgage-modification seminar called “Save the Dream Tour” took place, intending to match borrowers nationwide with loan counselors and lenders in an attempt to discuss affordable mortgage terms and avoid foreclosure. Many homeowners owe more on the mortgage then their home is even worth. This is true for over half of all Florida homeowners. Loans by Neighborhood Assistance Corp. of America (NACA) are made based on how much the borrower can afford to pay rather than what the value of their home is.

Some homeowners were able to get their mortgages modified instantly after negotiating with representatives from Bank of America, IndyMac, Litton, GMAC, Wells Fargo and other lenders that attended the event. NACA had negotiated agreements with most these major lenders to offer modified mortgages with interest rates as low as 2 percent. If the modified loan also includes a deferral of principal, which means that part of the loan balance is not paid, then the borrower is not responsible to repay the balance unless the home is sold for a profit.

Florida, with the highest statewide home mortgage foreclosure rate in the country, has 13.4 percent of its homeowners in foreclosure. The event was valuable as it allowed lenders and loan counselors to see the faces behind the dismal statistics and sad stories of layoffs, reduced hours, tough loan terms, and difficult times.

NACA has been working hard to prevent foreclosure by holding similar events nationwide for almost two years. NACA is also one of the largest housing counseling agencies, whose counseling services are funded by the federal Department of Housing and Urban Development.

Another Mortage Loan Scam Brought to Public’s Attention

Last week California Attorney General Jerry Brown cautioned homeowners of a new scam involving fraudulent “forensic audits” of mortgage loans. The forensic loan audits are the latest loan modification scam which takes advantage of desperate people suffering financial troubles amidst a national economic crisis.

Every homeowner is at risk of being taken advantage of. In 2009, the California Department of Real Estate investigated over 2,000 cases of loan modification scam, 350 of which were ordered to terminate their illegal activity. Brown joined the California Department of Real Estate and the State Bar of California to warn homeowners who face the danger of foreclosure to avoid scams such as the “forensic audit,” as they offer no help towards saving their home.

In this particular “forensic audit” scam, which is advertised in newspapers, television and radio, homeowners are led to believe that errors or illegal activity can be found in the way the mortgage was created or within the loan itself. These falsities will supposedly give homeowners adequate leverage to fight the lender in the home loan-modification process and receive help in keeping their residence, all for just an upfront fee. In reality, the audits are of no benefit and have no effect on saving a home from foreclosure. In October of 2009 California made the practice of prepaying for mortgage loan modification illegal, but obviously the practice still continues. As long as there are people suffering financial troubles, criminals will try finding a way to take advantage of it.

According to Jerry Brown’s website, forensic loan audits are not backed by any evidence or statistical data which support the claims that they will help homeowners in any foreclosure relief, even if performed by a licensed, legitimate and trained auditor, mortgage professional, or lawyer.

If you come across a foreclosure-relief service that is quick to offer promises but are short on results, or charge an upfront fee, be wary.

Mortgage Loan Modifications: Quick Facts

Who is eligible for mortgage loan modifications and how are the mortgage payments lowered?


Homeowners struggling to make mortgage payments have two mortgage loan modification programs available. If you are behind on your mortgage payments, you are eligible to apply for the “loan modification” program. If you have not yet missed a mortgage payment, but your mortgage payments are over 31% of your monthly income, you are eligible to apply for the “refinance” program.

Home buyers that bought investment properties, multimillion dollar homes, or put false information on their mortgage documents will not qualify for the loan modification programs. Applicants are only eligible if they prove that they:

  • have endured serious hardship; declines in income; increases in expenses; and/or high mortgage debt compared to income
  • are facing an interest rate hike
  • owe more than their house is worth


If you are eligible for one of these programs, your mortgage payments will be lowered to no more than 31% of your monthly income through lowered interest rates and government support.

The interest rate on the loan must be lowered to meet this requirement, but it cannot fall below 2 percent. If the mortgage payment cannot be lowered enough by reducing the interest rate, then lenders can extend the term up to 40 years. The new interest rate on your loan will be in place for five years and will then increase by 1% every year after until it is back to the original rate.

Loan servicers must only reduce the total amount of your mortgage payment to 38% of your monthly income and then the government will subsidize loans so you only pay 31% of your monthly income.

If you are interested in mortgage loan modification and would like advice regarding your particular case, we welcome you to contact us.

More home loans falling into foreclosure are actually conventional loans (not bad credit loans)

It is natural to think that bad credit loans are to blame for housing foreclosures, but according to the State Foreclosure Prevention Working Group, more home loans falling into foreclosure today are actually conventional loans.

The stereotypes of homeowners who are facing foreclosures suggest that they have bad credit histories, are struggling to pay their mortgage payments, and have a history of not paying their bills on time. However, the reality today is that prime loans are regularly the loans falling into foreclosure. Prime loans are loans given to consumers with strong credit and a history of paying their bills on time. In the current shaky economy, an increase of responsible borrowers are losing their jobs or facing pay cuts, leaving all types of borrowers facing foreclosure.

While mortgage loan modification programs have received substantial press, they have had little impact on the number of housing foreclosures in the country. Studies have shown that a reduction in principal balance over 10 percent often results in homeowners not falling into foreclosure. Unfortunately, only 9 percent of mortgage loan modifications in October of 2009 met this reduction.

Many homeowners argue that the lenders are the true source of the problem, as they relay horror stories of having no progress in the modification programs. At the same time there are homeowners, at a smaller number, who have success stories backed up by data on the Making Home Affordable Program that shows lenders are making progress.

This new face of foreclosures leaves me questioning how legislators and lenders will address the problem, as bad credit loans aren’t the chief cause anymore. Can mortgage lenders and the federal government work together to encourage more loan modifications? Foreclosures may continue to increase long after the recession is officially over, due to the impact of the economy on people’s personal financial situations. While there is no quick fix to the housing crisis, hopefully the number of foreclosures can be stemmed.

The FTC proposes to better regulate fraudulent mortgage modification firms

In response to the rise of fraudulent companies taking advantage of struggling homeowners, the Federal Trade Commission (FTC) is seeking limits on mortgage modification firms.

Due to reasons we all know – the high levels of consumer debt, increases in layoffs, and the extraordinary downturn in the housing and mortgage markets – there have been extremely high rates of mortgage loan delinquencies and foreclosures. This mortgage crisis has attracted an entire industry of companies that claim, for a fee, to obtain mortgage loan modifications or other types of relief for consumers that are facing foreclosure. The problem is these companies don’t deliver.

The FTC has proposed a regulation that would prohibit companies that promote foreclosure and mortgage modification programs from charging up-front fees. Rather, these companies can only be paid after providing the promised services. This would prevent the fraudulent companies from engaging in a “take the money and run” strategy since they could not be paid until they had a documented offer from a mortgage lender or servicer.

The proposed rule would also disallow providers from telling consumers to stop communicating with their lenders or mortgage servicers, and from misleading them on important information such as the probability of getting the results they want, the duration of time it will take, payment policies, etc. Providers must also disclose that they are for-profit businesses that cannot guarantee results, and that they are not approved by the government and the consumer’s lender.

The FTC has brought 28 cases forward, on top of the hundreds that state and federal law agencies have brought. These companies have been charged for not providing the services that they promised, and for misrepresenting an affiliation with government housing assistance programs.

It is important that homeowners facing foreclosure or struggling to make mortgage payments should not have to deal with fraudulent companies. Under an already difficult and taxing time, homeowners should be able to trust the companies that claim to look out for their best interests.

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