Lets talk about loan modification...

Over the past 3 years, banks have been given trillions of dollars from Congress (otherwise known as the US taxpayers) to motivate them to modify their home loans as the housing bubble collapsed. However, very few people have actually had their loans permanently adjusted, and instead, banks have been pursuing foreclosures at enormous rates.

Our opinion is that when it comes to loan mods, the homeowner who needs to be wary. On the surface, having the ability to lower ones payments an underwater mortgage certainly looks like a great deal, but we also know that the banks are on the edge of collapse due to the fact that the states and the courts are showing many of these entities do not have the proper documentation and ownership to actually foreclose on property.

The issue at hand is ownership of title, and rightful ownership of the actual note. When banks made their original loans to home buyers, they had the simple contract of title and note. However, when they sold the note to investments banks, who then separated the note from the title, and bundled these obligations with hundreds of others to create the RMBS, they simply put the title into a dummy holding company called MERS, and there was no longer a true and legal chain of ownership of the lien.

As time went on, some courts began to realize that the original banks, or the servicing agents who were simply collecting monthly mortgage payments, did not have the legal right or proper paperwork to foreclose on someones property.

So now, as a last ditch effort to compile the proper paperwork to satisfy the courts, banks are now suddenly offering loan modifications so that homeowners will by default, re-affirm the loan and justify a chain of ownership to the banks they did not have at the time of the foreclosure proceedings. Another important back-door trick of the banks is that they offer these "trial" loam mods, requesting all manner of financial documentation. And to get a loan modification, the homeowner needs to show income and assets enough to sustain payment on the lower payment. So most homeowner will go to great lengths to find and disclose and affirm assets and income that the bank may not have known about otherwise. Now, the banks know what assets to go after when they terminate the "trial" modification and foreclose instead.

In an article by Bruce Krasting on one of my favorite blogs, Zerohedge, he makes this assessment of the modification offers to homeowners:

One possible response would be to get all troubled borrowers to reaffirm their debt, the second is to get the trouble borrowers back to paying something on the mortgage, even if it were a fraction of what was formerly owed on a monthly basis. A loan modification would achieve both results. When a borrower signs up for a loan mod they sign new papers. A portion of this process will re-establish any loan balance that is due. The language in the mod could have new foreclosure terms that eliminate the banker’s problem with past tainted documentation. Once a borrower makes a few months of new lowered payments they are, in effect, confirming their acceptance of the new terms.

Most Mods go bust in six months or are cancelled for any number of reasons by the lender. So on the surface it would seem little is accomplished from the lenders perspective. But we think the lenders motivation for doing a loan mod is not to get a borrower to a monthly payment that they could realistically pay, but rather the motivation is to circumvent the foreclosure trap the lenders are in. A mod could legally resolve the problems.

To us, it appears to be a strong possibility that the banks and institutions that desire to foreclose on property are offering these modifications NOT as a means to help homeowners, but rather as a way to create new paperwork that will stand up in court, as well as uncovering assets and income that the banks may not have known existed, allowing the banks to foreclose and move on.

That being said, we have heard of homeowners that have received advantageous, permanent, modifications and are happy, keeping up with their payments, and keeping their home.

As we always recommend, any time your bank want documents from you or wants you to sign anything, contact a well educated and experienced real estate attorney.

You can also call us to discuss your options and the relative benefits/drawback to each...

or call me on my direct line at 561-602-1258

Thanks for reading...Steve

Ocwen rolls out a new loan modification for underwater borrowers

 
Finally a lender gets a brain! Locally based Ocwen recently revealed a plan that incorporates many of the components of a loan mod/refinance that I suggested about 18 months ago: Reduce the loan amount to todays value, write off the ‘underwater portion’ over a number of years if the owners stays current on all mortgage obligation aspects, and if/when the home is sold, Ocwen will recoup some of the regained equity…Brilliant! The other big added benefit to the lender is that they get to draw up new loan documents without all of the defects that are being challenged in court right now…and I wouldn’t be surprised if they slip in some new restrictive language to the now docs too!

For all of you with an underwater Ocwen loan…CALL THEM TODAY to see if you can qualify, then call me and let me know the details of the process/qualification/final terms so I can spread the news.
Below are excerpts from the article that was in the Palm Beach post.

The company is rolling out a new loan modification plan for underwater borrowers that lowers the amount owed on the loan - thus reducing the monthly payment - but asks for a share in the appreciated value when the house is either sold or refinanced.

The kickback to the lender may deter people who can afford to make their payments from defaulting, while giving an incentive to either the lender or investor to modify the loan.

"We think this answers some of the critics who say that by reducing principal, you are rewarding imprudent borrowing behavior," said Ocwen Executive Vice President Paul Koches. "What we see is unprecedented delinquencies, and we're doing our best to resolve them."

Offered in 33 states, including Florida, the plan is available only on loans where it will earn more for either the lender or investor than if the home went into foreclosure.

Called a shared appreciation modification, it's fairly simple on its face. A home's principal amount is reduced to 95 percent of the current market value. That portion is forgiven in equal amounts over a three-year period as long as the owner stays current on the loan.

When the house is later either sold or refinanced, the homeowner must give the lender 25 percent of the appreciated value of the home.

For example, say the principal balance on a loan is $125,000, but the current value of the home is only $100,000. Ocwen's plan would reduce the balance to $95,000, putting $30,000 in a non-interest-bearing account that will be forgiven over a three-year period.

If the house is later sold for $120,000 - marking an appreciation of $20,000 - the homeowner would get to keep $15,000, while $5,000 would go to the lender. If the home doesn't appreciate, then the sale occurs as it normally would.

Ocwen, which has about 245 employees in its West Palm Beach office, estimates about 53,000 home­owners nationwide will be eligible for the principal reduction program.

The company specializes in servicing the nation's riskiest home loans and has a portfolio of about 460,000 loans. Ocwen's recent acquisition of Litton Loan Servicing will add 250,000 loans to its portfolio.
A test of the new loan modification program that was launched last year found that of borrowers offered the plan, 79 percent accepted it. The default rate has been about 2.6 percent.

"You have folks breaking their necks to make payments on a home where there is no hope in their lifetime of it regaining equity," Koches said. "A homeowner in a negative equity situation is one-and-a-half to two times more likely to go into delinquency."

In Palm Beach County, nearly 43 percent of homes with mortgages were underwater during the first quarter of 2011, according to real estate analysis firm CoreLogic.

Most home loan modifications result in an interest rate reduction, which can do little in the long run for homeowners who owe more on their loan than their home is worth, said Kathleen Day, spokeswoman for the Center for Responsible Lending.

"We've felt for a long time that unless you do principal write-downs, you really aren't getting at the problem," Day said. "It's in everyone's best interest to keep a credit worthy person in their home."

Thanks for reading…Steve Jackson

What about a loan modification?

I periodically receive email news bites from a Miami attorney, Don Gonzalez (contact info below)...The most recent one, excerpted below, covers a subject on which I receive many questions...and Don discusses it clearly and succinctly:

Realities of a Loan Modification
On a continuous basis I see clients, as well as Realtors, who are interested in a loan modification. These individuals are clearly behind on their payments for a mortgage which is upside down. Upon falling behind, they are usually contacted by their lender. The client/realtor usually receives notification from their lender expressing interest in working with them through a loan modification. The lender will usually require that proper documentation be submitted, which generally includes bank statements, a hardship letter and tax returns, proof of income, etc. Once this documentation has been submitted, the lender usually responds with an offer to put this person on some kind of trial run, such as a three month payment period or something of a different nature. In order to undergo the so-called modification, one person that I know was required to pay a $20,000 lump sum payment in order to get a deferral on their remaining backlog of late payments. Typically, I have to explain to a client that the loan modification is usually not going meet their expectation if their expectation is a considerable reduction in principle balance...Income is one of the determining factors for a loan modification. Further, many lenders stress government programs to aid in loan modifications (such as the HAMP program). But, as of date, I have yet to see one actually go through.

In conclusion, I want you to understand that the expectation of a loan modification to be anything other than a reduction of interest rate is unrealistic (emphasis mine). This is a drop in the bucket if you are so upside down and behind on your payments and will not be of substantial value to prevent the loss of your home...As always, if you have any questions or need additional information, please feel free to email me.

Until next time,

Don Gonzalez, Esq

Don Gonzalez, P.A. provides the information in this email as a service to its email readers. While the information on this site deals with legal issues, it does not constitute legal advice. If you have questions related to the application of law to your specific circumstance, you are encouraged to consult an attorney who can investigate the particular issues of your situation.
DON GONZALEZ, P.A.
Attorney At Law
1820 N. Corporate Lakes Blvd.
Suite 201
Weston, FL 33326
954-598-0660
http://www.dongonzalezpa.us/
DonGonzalez@aol.com

Working on, or thinking about a loan modification? Read this first.

Working on the inside of this industry, it is easy to see through the smoke and mirrors being used by the TBTF (too big too fail) lenders when it comes to "extend and pretend". They will do what is in THEIR best interests regardless of public statements to the contrary.

I have seen too many borrowers taken advantage of when attempting to negotiate a forebearance or loan mod without professional and legal assistance. The banks are no better than low-life debt collectors that will say anything to get some more money out of someone. But now, people have had enough and it is getting some national press...consumers are suing the banks for not following through on loan mod committments.

Read the full article from today's USA today HERE

If you have ANY questions regarding your loan, please give me a call. I promise that if I don't know the answer or solution right away, I will find out or point you in the direction of the person who does know. My direct line is 561-602-1258.

Thanks for reading