FreeDIYkits Loan Modification Blog

The Obama administration is facing increasing pressure from lawmakers and housing advocates to retool its troubled mortgage relief program a year after its debut as the housing crisis continues to deepen and spreads to more creditworthy borrowers.

The $75 billion program pays lenders to modify the mortgages of troubled borrowers, typically lowering their payments by about $500 a month.

But so far, fewer than 200,000 borrowers have received a permanent change to their loans, according to Treasury Department data released Wednesday, a small fraction of the 3 to 4 million borrowers who government regulators initially said the program could help before it expires in 2012. That may not bode well for efforts to stabilize the housing market. Credit Suisse has estimated that 3.2 million foreclosures would have to be prevented this year for home prices to rise modestly.

“Clearly the numbers that were discussed by the administration set up an expectation that just don’t deal with the reality we’re in,” said John Courson, president of the Mortgage Bankers Association.

Administration officials have acknowledged that the program, known as Making Home Affordable, got off to a slow start and has yet to reach its full potential. Many lenders didn’t begin enrolling borrowers until last summer, months after the program was launched. By then, the primary cause of foreclosures had shifted from the risky mortgages that helped spur the financial crisis to rising unemployment. The latter is tougher to address because jobless borrowers often have little money with which to pay any type of home loan.

Through January, nearly a million borrowers had gotten at least some reduction in their mortgage payments as part of the program, but more than three-quarters have yet to win a permanent modification and must still prove they qualify, according to Treasury data. The program “is doing the job it was designed to do, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said in a statement. “Struggling families are receiving payment relief and the housing market is showing signs of stabilization.”

The Mortgage Bankers Association proposed a forbearance program Wednesday aimed at helping the unemployed pay their mortgages for up to nine months.

Under the proposal, loan servicers would reduce eligible borrowers’ monthly payments to no more than 31% of their household income for up to nine months. Unlike a modification, however, the arrears would be tacked onto the end of the mortgage.

As part of the proposal, the association has asked the Treasury Department to provide loans to some servicers to cover payments to the mortgages’ investors. Treasury officials, who met with the group last week, have not made yet a determination, a spokeswoman said.

The trade group’s goal is to address the growing number of people who are falling behind on their mortgages because they’ve lost their jobs.

“Borrowers with such a precipitous drop in income can’t qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job,” said John Courson, the association’s chief executive.

Once borrowers find new employment, they will be considered for a long-term modification under the Obama administration’s foreclosure prevention program.

Most consumer advocates, however, do not think forbearance plans are an answer to the foreclosure crisis. Most delinquent borrowers need more help than just a temporary reduction of their payments.

Also, it’s unlikely that borrowers will find new jobs in nine months in this tough economy, said Kathleen Engel, a law professor at Suffolk University in Boston who specializes in foreclosures. She said the program would need to last at least two to three years to be effective.

The Obama Loan Modification or Homeowner Affordability and Stability Plan offers protection and hope to billions of homeowners. Before you apply for a mortgage modification make sure you understand what protection is offered.

Full Disclosure:
When either just describing or encouraging loan modification, the servicer shall give the debtor information that will aid them in understanding the terms of the modification and the process of modification, and debtors should also be given written information about the costs, terms, and risks of modification that is clear and concise. This should be given in a timely manner as to allow debtors to make an informed decision.

Fair Lending:
Modifications under the plan must abide by the Equal Credit Opportunity Act and the Fair Housing Act, both of which do not allow discrimination on a prohibited basis connecting to mortgage transactions. Loan modification plans are subject to fair lending laws, and both servicers and lenders should make sure debtors are being treated equally when it comes to mortgage modification.

Consumer Complaints and Questions:
Servicers should have a system to answer complaints and questions regarding loan modification timely and appropriately, and that every question and complaint is taken seriously and answered appropriately.
This protection will ensure that you and your family are not treated unfairly and can receive the full benefits a mortgage modification.

Many homeowners are finding themselves with an underwater mortgage and are having trouble meeting their mortgage payments on a home with a value less than what the homeowner owes. This obviously causes frustration for homeowners seeing as how no one wants to owe more on a home than it’s worth.

However, despite homeowners who are walking away from their underwater mortgage, many are just looking for help in their monthly mortgage payment. Homeowners feel that the value of their home is bound to rise again, so if they could just make their home mortgage payment more affordable at the present time the underwater status of their home wouldn’t be so bad.

The trouble with having an underwater mortgage is there are few refinancing options as banks are unwilling to refinance a home whose value is less than what is owed in the original mortgage. Refinancing may be an option for a select few homeowners with an underwater mortgage in certain circumstances, but most homeowners will need to look into a home loan modification.

They gathered to say goodbye at the bucolic Redwood City retreat Mrs. Bagnarol had created — a compound of three homes cascading down a steep hillside where she raised chickens. Some of her children and grandchildren live on the grounds.

But that night an unwanted visitor arrived: a process server delivered papers that ordered Mrs. Bagnarol and her family to get out. The bank had foreclosed on their property, and they were all being evicted.

Emotions exploded. Not now, the family cursed. A sheriff’s deputy was called to keep the peace. Mrs. Bagnarol died a day later.

But the unfortunate timing of the official visit was not the only source of the anger. More troubling were the financial deals that led to the visit — and the decision by lenders to sign Mrs. Bagnarol up for one exotic mortgage after another.

“It’s definitely elder abuse,” said Carolina Bagnarol, her daughter. “There’s predatory lending here.”

Ms. Bagnarol has filed a lawsuit against a lengthy list of lenders she said took advantage of her mother. The loans plunged her mother deeper into debt with each mortgage payment, to the point of financial ruin. The lawsuit contends that Mrs. Bagnarol was pursued and persuaded — twice over — to take out ultimately disastrous loans on the family’s property.

In recent years, 70 percent of the elderly have been solicited to take out new mortgages, according to a survey by AARP.

“Older people seem to be targeted in part because they own their houses and have owned them for a long time and have equity in their houses,” said Jean Constantine-Davis, senior lawyer for the AARP Foundation.

Mrs. Bagnarol was in her late 70s and suffered from the onset of dementia when she signed the loans, family members said.

“This is one of the most egregious cases I’ve ever seen,” said Michael Rooney, the San Francisco lawyer representing the family in the lawsuit. “The terms were so horrible — negative amortization and adjustable rate — no one would believe this loan was good for her.”

First Phase of Project In the Phoenix Suburbs Hits New Financing Snag
CityNorth, the ballyhooed retail project planned in northern Phoenix’s affluent suburbs by Related Cos. and Thomas J. Klutznick Co., is the target of a foreclosure filing by lender Capmark Financial Group Inc.

Capmark filed last week in Maricopa County Court to foreclose on the first phase of the CityNorth project due to default on a $290.5 million loan. Other lenders that provided the loan include Deutsche Hypothekenbank and CSE Mortgage LLC.

Related, Klutznick and a third partner, J.E. Robert Cos., couldn’t refinance the loan when it came due, according to the companies. Those companies will continue to manage the project.

“The foreclosure will result in a restructuring of equity interests … to enable fresh capital to be injected,” Klutznick principal John Klutznick said in a statement. “Day-to-day operations will continue as usual.”

A group of billionaires, hedge-fund managers and ex-Goldman Sachs executives are building a banking empire in California—with assistance from Uncle Sam.

Exactly a year ago these investors acquired the assets of collapsed mortgage lender IndyMac Bank from the federal government for about $1.5 billion and renamed it OneWest Bank. Earlier this month, OneWest purchased First Federal Bank of California, a failed Los Angeles-based lender.

With the purchase, Pasadena, Calif.-based OneWest more than doubled its branches to 72 and increased its total assets by a third to $24 billion, making it the largest bank based in Southern California.

The OneWest ownership roster reads like an excerpt of the Forbes 400. It includes J.C. Flowers & Co., an investment firm run by former Goldman Sachs Group Inc. banker J. Christopher Flowers; Paulson & Co., the large hedge fund; MSD Capital, which invests the fortune of computer mogul Michael Dell; and a fund controlled by famed speculator George Soros.

How successful OneWest’s owners are with the venture—both financially and in the public eye—will influence whether the government welcomes more private capital into the banking system.

Federal regulators, struggling with a rash of failures, can save money by lining up a ready buyer when a bank fails. But the Federal Deposit Insurance Corp. has been wary of private-equity investors, given their reputation for loading companies with debt and selling businesses quickly.

Of the 140 banks closed by the government this year, private investors have acquired only two outright—IndyMac and Florida’s BankUnited. Private equity investors argue that they should play a bigger role, as their funds’ billions in unspent capital could bolster the banking system.

Cuyahoga County is placing a six month moratorium on foreclosures due to tax delinquency as part of the effort to help struggling homeowners stay in their homes. Ideastream’s Rick Jackson has the details.

Cuyahoga County Treasurer Jim Rokakis says he’s seeing a growing number of people either abandoning or being put out of their homes because they don’t have money to pay property taxes.

To slow the increase, Rokakis’ office is initiating a six-month foreclosures stop on single-family, owner-occupied structures whose owners’ tax bills are past due.

JIM ROKAKIS: “We’re now past the stage where it’s just the sub-prime folks who are in trouble. We’re seeing a lot of prime rate borrowers struggle and we’re seeing a lot of people who’ve paid their property taxes struggle.”

It is NOT amnesty – taxes are still owed, and penalties and interest will continue to accrue. But it’s hoped that that keeping people in their homes longer will give them time to get back on their feet, and stop the slide in neighborhoods property values that occurs when homes are empty.

Going through the home loan modification process is something that can greatly help you lower your monthly mortgage payment and avoid foreclosure. One of the companies that has done a good job of getting borrowers into a trial period for mortgage modifications is CitiMortgage. At the present time CitiMorgage has approximately 40% of the qualifying mortgages in the trial period.

If you are finding it very difficult to make ends meet financially and you can not make your monthly mortgage payment that a home loan modification might be right for you. Make sure to access the making home affordable website to find out much more information. There is quite a bit of information on this website so make sure to devote a significant amount of time.

There are several mortgage lenders that are having great difficulty getting home loans into modification. You will have to be very persistent with your lender and make sure you have all your documentation available and ready. One of the reasons the borrowers are finding it difficult to get mortgages modified is that they are not providing the proper documentation at the proper time.