Loan Modification Attorney or Loan Modification Lawyer?

There are several reasons to choose a loan modification attorney rather than attempting to negotiate a modification with your bank alone. Attorneys have legal pressure that they can use against the banks, ensuring that the banks respond in a timely matter to the attorneys requests. Handling a loan modification on your own and not having the experience is very trying, difficult, and will more than likely result in a denial. Would you represent yourself in court or have an attorney who has experience and knowledge of the law? Of course, the reply is the attorney. The same goes with an IRS audit; would you represent yourself or have your CPA there to handle the situation?

One of the main reasons to choose a loan modification attorney or loan modification lawyer it that they have a bar license to practice law and the likelihood of them going out of business or not practicing law is very slim. Many homeowners are afraid to hire an attorney because of all the scam loan modification companies out there, but simple calls to the Department of Justice and your states bar can help you find out if an attorney is legitimate. Attorneys have spent years and thousands of dollars for college, law school and taking the bar exam. Most will not throw all that away to scam a homeowner.

Attorneys also have an ethical responsibility to their clients. It is easy for the homeowner to contact the Department of Justice and complain about the attorney which could result in the investigation of the attorney.

The experienced loan modification attorneys are not very expensive and are less expensive than the cost of a refinance. In many cases, the loan modification terms end up better then the refinance terms and there is a possibility of a principal reduction, which is not possible with a refinance.

With the New California Senate Bill 94, implemented October 11, 2009, attorneys can no longer charge a retainer fee that would usually be held in the attorneys trust account. Instead, the attorneys are charging their fees as each step of the work is completed based on the attorney agreement with the client.

Handling a loan modification can be done by a homeowner if they want to try the process, but most find that it is frustrating and that they do not have the knowledge to question the right questions or even fill out the paperwork correctly. The general language of loan terms and modifications work is confusing especially when it comes to how thehomeowners credit report it impacted.

If you try the modification yourself, just remember that the bank is working for the bank and they are not working for or representing you. This is the opposite of what the attorney is doing, as you are paying them to get you the best results possible.

The loan modification business is changing on a daily basis just like lending, so that means new programs and new guidelines as well as some going away. This makes it even more difficult for a homeowner to be successful with their modification. If you do try it yourself and find that you are denied by your bank, dont give up, keep trying. If you find that you are frustrated, call an attorney firm to handle it for you.

The reputable attorney firms will prequalify you up front before they begin work or begin charging you. The attorneys are not in the business of taking on a client that they cannot successfully help. Their goal is to do the best that they can for you.

If you need further information on how to handle a loan modification or need additional help from an attorney, please contact us at www.CallALMS.com.

Private Mortgage Insurance and Foreclosure

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In several blog entries here on KeepMyHouse.com, I point out that loan modification is a no-

• Loan modification
• Foreclosure
• Forbearance
• Deed in lieu
• Short sale

All things being equal, offering a loan modification to borrowers is usually the best option for lenders, because they avoid the high cost of foreclosure (by some estimates $50,000 to $100,000 per foreclosure) and they continue to collect interest on the loan at a lower rate of return, but still more than enough to earn a profit.

Unfortunately, in many cases, another factor comes into play mortgage insurance. If a loan is FHA- or VA-secured or the owners are paying PMI (private mortgage insurance), the lender stands to lose much less from foreclosure, because insurance will make up a portion of the difference. In other words, the lenders motivation to work out a reasonable deal with the homeowner/borrower is undermined by mortgage insurance often mortgage insurance that the homeowner is paying for!

When foreclosure numbers spiked, so did mortgage insurance claims. This is what contributed to the need for insurance giant AIG to receive bailout money from the government. Without it they could not have paid all the claims being made and still remain in business. AIG going out of business would have jeopardized the stability of millions of loans and caused even greater market insecurity.

If you are wondering why the federal government is willing to subsidize lenders for modifying mortgages and subsidize homeowners for making their monthly mortgage payments, wonder no more. One reason the government wants to bail out homeowners is because it has to. The government stands to lose more if homeowners with government-secured mortgages default on their loans than by paying ten thousand dollars or so to subsidize loan modifications for at-risk loans.

You can also stop wondering why mortgage lenders approved all of those risky mortgage loans in the first place. Risks to the lenders were often reduced by the fact that the loans were insured. They could afford to gamble, because after all, someone else would be there to pick up the tab on any losses.

Having insurance when disaster strikes is usually a good thing, but in the case of the foreclosure crisis, having mortgage insurance can work against you. Its not like homeowners insurance that protects your investment in the case of a natural disaster. It only protects the lenders investment leaving you and your family without a roof over your heads. Inaddition, as a recent visitor here on KeepMyHouse.com pointed out, eliminating PMI for loans that require it could make house payments more affordable, put more money in peoples pockets, and help stimulate the economy.

I am not entirely against having the government secure loans or requiring homeowners to pay PMI on certain mortgage loans. Up to this point, these programs have helped more people achieve the American Dream of Homeownership. However, when these same programs are working against homeowners during an unprecedented economic crisis, I think it’s time to review the real purpose of these programs. Lenders need to start relying less on mortgage insurance and more on loan modification to mitigate their losses and help more Americans keep their homes.

Understanding How Long it Takes to get a Loan Modification

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Understandably, if you applied for a loan modification and failed to hear from your lender after two to three weeks, you’d tend to get a little antsy and perhaps even annoyed (especially if you continue to receive late payment notices and nasty phone calls from collection agencies). With this in mind, many homeowners question me, How long will it be before I hear anything? and What should I do while Im waiting?. This blog post should help reply those very pressing questions.

How long does a loan modification take?

The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative.

Note: The loan modification timeline is not set in stone. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot of collateral issues can see their loans take longer than what has become the typical 30- to 90-day timeframe.

A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to. Although each borrowers situation is unique, knowing the measures the lender is willing to take for similarly situated borrowers can be a real time saver.

Whether you are dealing directly with your lender or through a loan modification specialist, question several questions up front:

• How long is the process likely to take? Find out the best- and worst-case scenarios and then count out the days and mark them on your calendar.
• When can I expect to hear something about my case? Mark this date on your calendar.
• If I dont hear anything by the specified date, whom should I contact? Get the persons name, employee identification number (if available), phone number, and any extension you need to dial to reach the person directly.

What should I do while Im waiting?

Playing the waiting game can be agonizing, particularly when you have no idea of whether your application will be accepted or rejected or what the lender will offer in terms of a workout. It feels like your future hangs in the balance, and you remain in the dark. Knowing the standard timeline for processing a loan modification can certainly help relieve some anxiety.

In addition, you can continue to make progress on your own by doing the following:

• If you hired a loan modification specialist to represent you, do not speak with your lender or lenders representative. Refer all matters to the professional who is representing you. Anything you say to the lender could confuse things or compromise your representatives ability to negotiate the best deal on your behalf.
• Log all phone calls and correspondence between you and your lender or representative. Write down the number you called, the person you talked with, what the person said, and what you said not word for word, just jot down the key points.
• Keep track of important dates. If you do not hear something back on the date promised, call the next day to find out whats going on. Lenders almost never call you back with updates. If you hired a third party representative, they will (or should) keep you posted, but the lender simply doesnt have the time to make follow up phone calls. If youre dealing with your lender directly, youll have to be the one making the calls. Mark your calendar and schedule periodic update phone calls. Consistent follow up is paramount to a successful modification.
• Explore other options. If the lender denies your request for a loan modification or presents an offer that you cannot accept, you will need a plan B (and maybe a plan C and a plan D). In addition, other options may be better for you than a loan modification. Consult a real estate agent about listing your home for sale. Talk to a mortgage
• Dont be surprised if you continue to receive delinquency notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should question your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. If the lender is able to foreclose in 30 days and a workout takes 60 days, theres a slight timeline problem. Push to have all default and foreclosure actions put on hold while your workout attempts are underway.

When your fate is in someone elses hands, 30 to 90 days can seem like an eternity. By doing your part to keep the process on track, remain informed, and explore other options, you not only improve your chances of achieving a positive outcome, but you can also reduce the stress that commonly accompanies the waiting process.

Questions About Loan Modifications

Many people are confused about the loan modification process. Because different banks all have their own procedures and qualifications, this is understandable. When adding in the guidelines provided by the Making Homes Affordable (MHA) program and the Home Affordable Modification Program (HAMP), figuring out how to go about negotiating a successful loan modification can be a nightmare. As a result, many homeowners turn to third party Attorneys to help them with their loan modification.

Below are a few questions many homeowners may have about loan modifications and the loan modification process. It is important to keep in mind that while the Attorney is there to help their client, certain laws and regulations on the loan modification business prevent them from predicting or estimating the loan modification results. Additionally, Attorneys will generally shy away from advising their clients on when to make their payments or whether they should make them at all.

The information below is intended as general information to help homeowners get a feel for the process. It is not intended to be legal or financial advice. Since everyones situation is unique I advise borrowers to contact an attorney personally for information specific to their situations.

1. If I am trying to get a loan modification and I am already behind on my mortgage payments and I just received a Notice of Intent to Accelerate, should I make a payment? (I have a first and second on my home and I am behind on both)

If the first mortgage is the one that has produced a Notice of Intent to Accelerate (the first step to foreclosure, generally after you are 60+ days late on payments), then any payment you chose to make should be towards your first. Making a payment will not affect the probability of being approved for a loan modification, although the bank may still count you late on payments as they may use your payment towards late fees and penalties before it is ever counted towards your payments.

2. How long do I have before my house is sold at a foreclosure sale/auction?

This differs depending on state law, but in California after 60 days late the Lender will issue a Notice of Intent to Accelerate. This notice gives the borrower 30 days to come current on the loan or additional steps will be taken. After the NoI, the Lender will file the Notice of Default. In California, the Lender must wait 3 months after the NoD filing before filing a Notice of Trustee Sale (NTUS). After the NTUS is filed, the sale date of the property can take place no sooner than 14 days after the NTUS filing date. Basically, in California you have around 4 months after receiving the Notice of Intent to work something out with your Lender.

3. Should my loan modification be declined, will my Lender allow me to cure the default right up to the foreclosure sale date?

As it is with any mortgage default, you have the opportunity to cure the default by paying, in full, the total of all delinquent payments, late fees, penalties, recording & other legal fees, escrow advances, etc. , in one lump sum, no later than 5 business days prior to the auction date. Even if you begin making your regular payments again, it is possible the Lender will proceed with the foreclosure as they have incurred additional expenses throughthe foreclosure process.

4. Will my Lender accept late payments from me and move all late fees, past payments and penalties to the back end of my loan?

Your Lender will only move missed payments and additional charges to the back of your loan through a loan modification. Once the Notice of Default has been recorded the Lender has incurred additional expenses to start the foreclosure process and will expect to be paid back for these expenses.It is very important for the borrower to keep track of all correspondence with the bank. They will usually send out notices every step of the way along the foreclosure process and the notices will contain what needs to be done to foreclosure process even if the borrower is trying to negotiate a loan modification. An Attorney can help stop this process while the loan modification is being negotiated.

Answering Questions about Front and Back DTI Calculations

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Back on the 17th of March, I published a blog entry that generated a lot of follow-up questions (see “Understanding Debt-To-Income Ratio“). One such question–and its multiple answers–appears below.

Question: Thank you for your article about DTI ratios. I have a couple of follow up questions. My wife and I own a rental property which has a positive cash flow of $100 per month. Both of our names are on the title and on the loan. On our primary residence, we have a first mortgage and an HOEL. On the primary residence, only my name is on the title and on the loans. I want to calculate our DTIs (Front and Back) for the primary residence. Do I use my wife’s income to calculate both ratios or only mine, since she is not on the loans? Do I use the rental income in calculating both ratios? If yes, do I count only 1/2 since the other 1/2 belongs to my wife? For the Front DTI, I do not include HOEL. Correct? To calculate Back DTI what expenses do I include besides HOEL, second mortgages, credit cards, car loans, other loans? Do I need to include car insurance, utilities, etc. When calculating Back DTI do I only use the minimum amount for the HOEL which is only for the interest amount? Is a rental property considered a liquid asset? ~ Andreas Z.

Great questions, all of them. Here’s what I think (and please keep in mind that I am not an attorney or a Certified Public Accountant):

Question Number 1: Do I use my wife’s income to calculate both ratios or only mine, since she is not on the loans?

Answer: Technically you only need to include your income because you are the only borrower obligated on the note. But realistically you should do both calculations and see how the numbers come out. If your income is not enough to sustain payments without a massive reduction in principal and interest (which may jeopardize your eligibility) you may be able to include some or all of your wifes income to qualify. This may require that your wife become obligated on the note, so you should consider it very carefully. This also raises the question, what income did the lender use to qualify you for the loan in the beginning? Did the lender use only your income only, or did they include your wifes as well. If the lender included your wifes income on the loan, but didnt include your wife as a co-borrower, Id question the underwriting process and the ethics of the loan originator. If the loan was applied for and originated with only your income; did you really qualify and was your income accurate on the application? If it was and you did qualify alone, what changedthis may be the hardship you need to fulfill another requirement to receive a loan modification. If you didnt really qualify, again Id question the underwriting process.

Question number 2: Do I use the rental income in calculating both ratios? If yes, do I count only 1/2 since the other 1/2 belongs to my wife?

Answer: You only include the debt from the rental unit in your back end ratio. Your gross income is from all sources and yes you would use the rental income figure for both front and back end ratios. As for splitting the income, you should be able to split the positive cash flow. It may be a little more complicated than that though because you have repairs and miscellaneous expenses that go along with a rental, so the $100 a month you are getting now might turn into nothing or a negative cash flow when you have to perform repairs, etcYou should probably look at what you declared as the net rental income on your tax returns or financial statements for the last couple years. I am presuming you offset rental income by renal expenses, so your net rental income might not be anything at all or negligible. If you want to make it simple though you can just put the $50 positive rental income thats coming in now and disclose it on your financial worksheet.

Question number 3: For the Front DTI, I do not include HOEL. Correct?

Answer: The Obama plan words that a little strangely, but yes. Front end looks at the first lien position, back end includes all debt obligations including subordinate mortgage liens.

Question number 4: To calculate Back DTI what expenses do I include besides HOEL, second mortgages, credit cards, car loans, other loans?

Answer: The regulations that came out on March 4, 2009, list the following obligations as needing to be included in the Back-end DTI (debt-to-income) calculation: All Front-end PITIA plus any mortgage insurance premiums, payments on all installment debts, monthly payments on all junior liens, alimony, car lease payments, aggregate negative net rental income, monthly mortgage payments on second homes.

Question number 5: Do I need to include car insurance, utilities, etc.

Answer: No. The DTI looks at your payment obligations on installment debts. Your overall financial budget should consider these items, but for the DTI calculations no. All items included in the DTI calculations will need to be verified, or what you may have heard called full documentation.

Question number 6: When calculating Back DTI do I only use the minimum amount for the HOEL which is only for the interest amount?

Answer: You should include the amount you are obligated to pay each month to avoid defaulting. If the payment calls for $100 per month and is an interest only payment, you should put down $100. If you pay more each month toward principal but are not obligated under the terms of the note to do so, you shouldnt include that amount. The same goes for credit card balances. If you only have to pay $18/month but pay $150 because you want to pay down the balance and avoid some finance charges, the amount you include for the obligation calculation is $18.

Question number 7: Is a rental property considered a liquid asset?

Answer: Only after you sell it and turn it into cash. Its real property. It should have been on the schedule of real estate owned on your loan application if you owned it at the time you applied for the loan on the primary. Liquid assets are items like cash, money in checking or savings accounts, money market accounts, stocks/bonds/cds and the like. Basically cash or cash substitutes, not a rental house.

A Simple Explanation Of The Federal Reserve Statement (December 16, 2009 Edition)

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that the U.S. economy “has continued to pick up”, that the jobs markets is getting better, and that housing market has shown “some signs of improvement” lately.

It’s the fourth straight statement in which the Fed speaks optimistically about the U.S. economy – a signal that the worst of the recession is likely behind us.

The economy isn’t without threats, however, and the Fed identified several, including:

1. Tight credit conditions for consumers
   
2. Reluctancy of businesses to hire new workers
   
3. Lower overall housing wealth

The message’s overall tone remained positive, however and inflation appears to be held in check.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.  That plan — due to expire at the end of March 2010 –  should be noted by today’s homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.

Mortgage market reaction to the Fed press release is negative.  Mortgage rates are rising this afternoon.

The FOMC’s next scheduled meeting is January 26-27, 2010.

Understanding Comparison Rates

Comparison Rates are a good starting point to help you compare home loans by cost. Learn how they are calculated, how you can use them and understand some of their limitations.

Keeping on top of your home loan repayments

You’ve just bough your first home or up-sized into a bigger or better one. It’s an exciting time and there’s a lot to look forward to. One thing you don’t want to look forward to is finding yourself in financial difficulty or severe financial stress. Your home loan is probably the biggest financial commitment you’ll ever make and if its not managed properly can become the biggest financial headache you’ll ever have – with potential long term consequences.

So here are my tips for keeping on top of your repayments with a particular focus on those of you who may be a potential or new borrower:

1. From the start, borrow only as much as you can reasonably afford– don’t overstretch your budget. My article What sized mortgage can you really afford? provides some helpful insights and tips on home loan affordability.
2. Build an interest rate buffer of between 1% and 2% into your repayment calculations to make sure you can afford to meet your repayments if rates rise
3. Be careful with your spending (particularly during the first five years if you’re a new borrower). Watch your pennies, prepare and stick to your budget.
4. Try and make extra or lump sum payments off your loan so you can build up equity and establish a buffer in case things go wrong. Just make sure there are no financial penalties for making extra payments. If rates move down, think about keeping your payments at the higher amount thereby reducing your principal more quickly.Use mortgage calculators to run what-if scenarios to see how much you can save in time and interest cost by making extra payments. You’ll be surprised how much you can save by paying off as little as $10 extra a week.
5. Keep your other debt in check – especially your credit card. Don’t fund your lifestyle on credit – this is a sure fire way to get into financial difficulty. Check out my video Blog Good debt Bad debt for tips on how to identify and get rid of evil debt.

My tip:

The most important thing is to not over-commit yourself from the start. Remember, there is a big difference between what a lender says you can afford and what you known you can afford. You know what you can really afford.