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.

Under new law banks compelled to work with homeowners in trouble and create California loan nodification Agreements. The California Foreclosure Prevention Act states that banks have to try and modifiy loan before foreclosure.

“Finally there is good news for California homeowners and help them avoid foreclosure. The new
The California Foreclosure Prevention Act, signed by Gov. Schwarzenegger in February, adds 90-days between the time a homeowner defaults on a loan and when banks can initiate foreclosure proceedings,” states Art Franklin, V.P. AboutCaliforniaLoanModification.com.

AboutCaliforniaLoanModification.com attorneys help homeowner obtain loan modification agreements. These agreements make monthly mortgage payments more affordable.

Assemblyman Ted Lieu, D-Torrance, who wrote the bill states “The goal is to compel banks to do systematic California loan modifications that will reduce the foreclosure rate. California has the highest foreclosure rate in the nation. Until we slow that down, the state’s economy cannot recover.”

Nearly a year ago, the Obama administration trumpeted a loan-modification program that was supposed to save millions of mortgage borrowers from foreclosure. That plan–involving monetary incentives for banks and an occasional poke in the eye when they don’t seem sufficiently motivated—isn’t proving a miracle cure. So look for lots of proposals in the months ahead on how to take loan mods to the next level, and the next one after that.

Here’s an idea being pushed by John Taylor, chief executive of the National Community Reinvestment Coalition, which represents local organizations that promote affordable housing and community development. Mr. Taylor wants the U.S. Treasury to buy large numbers of troubled mortgages at a discount to face value and then ease the terms to make them affordable for the borrowers, including in many cases by reducing the principal to something nearer the current value of the home. After it reworks the mortgages into “sustainable” form, the Treasury could then package and sell them to investors, Mr. Taylor says.

He figures the Treasury could start such a program with only a few hundred million dollars and that it should be profitable. Some private firms, such as PennyMac Mortgage Investment Trust, already have similar mortgage-purchase and modification programs, of course. Mr. Taylor says that’s fine but Uncle Sam should get a cut of this action, especially since the government is propping up the entire housing and mortgage market, making it possible for firms like PennyMac to operate.

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.”

The Obama refinance plan was created to help home owners lock into a low mortgage interest rate. The Making Home Affordable plan is designed to help homeowners stay in their home and avoid foreclosure. An easy way to lower your monthly mortgage payment is to refinance your current home loan to a lower mortgage interest rate. This could save you several hundred dollars a month.
If you have a decent credit score and you have equity in your home then there is a good chance that you can refinance to a much lower mortgage interest rate. It is extremely important that you have some equity in your home. Many people have tried to refinance and they have found that their home value is much lower than they expected. This is causing it to be very difficult to get through the refinance appraisal step.

It is also extremely important that you have a credit score of 680 or better to get a very low mortgage interest rate. If you have bad credit and little equity in your home then you might want to consider the home loan modification process because it is not likely you can refinance to the advertised low mortgage rates. For more information on the home loan modification option make sure to check out the Making Home Affordable website.

HOPE NOW announced Thursday the initial launch of its HOPE LoanPort, a new web portal that will give HUD-approved housing counseling agencies the ability to submit completed Home Affordable Modification Program (HAMP) applications for borrowers facing foreclosure. The nationwide launch of the HOPE LoanPort is expected in early 2010.

“This is the highway system that will help more people get HAMP modifications, more quickly. It is a neutral and accessible site that will provide real-time aggregate reporting and status updates,” said Faith Schwartz, HOPE NOW executive director. “While we will initially roll it out with certified housing counselors, our goal in the upcoming year is take it directly to consumers.”

The intention of the new HOPE LoanPort is to streamline the HAMP application process by leveraging HUD counseling agencies that provide free services to at-risk borrowers. Housing counselors in nine key markets will assist troubled homeowners in collecting all required documents for a loan modification under the Making Home Affordable program.

WASHINGTON – The U.S. Department of the Treasury and Department of Housing and Urban Development (HUD) today kick off a nationwide campaign to help borrowers who are currently in the trial phase of their modified mortgages under the Obama Administration’s Home Affordable Modification Program (HAMP) convert to permanent modifications. The modification program, which has helped over 650,000 borrowers, is part of the Administration’s broader commitment to stabilize housing markets and to provide relief to struggling homeowners and is a primary focus of financial stability efforts moving forward. Roughly 375,000 of the borrowers who have begun trial modifications since the start of the program are scheduled to convert to permanent modifications by the end of the year. Through the efforts being announced today, Treasury and HUD will implement new outreach tools and borrower resources to help convert as many trial modifications as possible to permanent ones.

The Obama plan includes tools to modify existing bad loans, reports Bill Plante, but economist Mark Zandi tells Harry Smith there may not be enough money to end foreclosures.