Some realities of life hit hard even when we know that they're inevitable …
Loyalty to a bank, a brand or the image of a smiling teller is crazy.
First, you are nothing but a number to a financial institution; your worth measured in proportion to the amount of profit you generate.
Second, no matter how friendly the image, all financial institutions are both ruthless and relentless in pursuing their own goals.
If you should benefit from their services, so much the better. But if you fall behind in your payments, they will seize your collateral in a heartbeat and instead of helping you meet your obligations, they will often raise your interest rate and add additional costs and fees to the balance– thus compounding injury with insult.
Why most loan modifications fail …
The borrower does not have sufficient cash flow to support even reduced payments.
The appraised value of the property falls below the loan-to-value ratio needed to refinance the loan to more favorable terms.
The financial institution uses computer models to determine whether it is more profitable for them to modify your loan or let you fall into foreclosure, and you come out on the wrong side of the calculation.
The government, whose legislative actions enabled the current mortgage meltdown and whose regulatory agencies looked the other way when they encountered massive fraud, will be of little or no help. No matter what President Obama or members of his Administration say about government loan modification initiatives – they are all voluntary! No real pressure is exerted on financial institutions to actually modify your loans.
Types of loan modifications …
There are only a few options that can be applied to your loan modification effort.
A reduction in the interest rate. Which means little or nothing since almost all of your monthly payment goes towards paying interest on your loan before the remainder is applied to your principal balance.
An extension of your loan’s maturity. Stretching out your loan payments over a period of time which has the result of slightly reducing your monthly payment.
A moratorium on your payment schedule, often with the interest still being accrued for later payment.
A forgiveness of payment defaults and any associated penalties and fees. This is a common action taken by lenders who believe that the borrower's problems were of a temporary and non-reoccuring nature. However, many lenders are not of a forgiving nature and simply add these amounts to the new loan balance when they adjust the loan's maturity.
A conversion in loan type. This is often a conversion of of an adjustible rate mortgage to a fixed rate mortgage to remove a scheduled reset to a higher interest rate at the next adjustment period or to remove any uncertainty about future interest rate resets.
A cancellation or modification in subordinate lien loans. Should you have a second and third mortgage, these loans are mostly worthless in a bankruptcy or loan modification. Unfortunately, in many cases, the holder of the subordinate lien is not the primary lender and has little or no ability to modify or cancel these loans. However, in all practicality the primary noteholder may be able to settle these loans for pennies on the dollar to achieve a clear title or have them canceled during legal proceedings. Therefore, should you be able to raise some cash, these loans may be settled at advantageous rates. You should remember that a HELOC, Home Equity Line of Credit, or a Home Equity Loan is just another subordinate obligation and lien against the property. Should you have a credit card to access a HELOC, destroy the card and do not keep using it -- even if it is still active.
A reduction in principal balance. This is viewed by most financial institutions as the modification of last resort – coincidently it is also one of the most effective in resolving the problem of keeping you out of foreclosure. For many negatively-amortizing loans, where missed or short payments result in the underpayment or non-payment is added back into your principal loan balance, lenders are sometimes willing to reset the principal balance to the original loan amount and forgive the difference created by the negative amortization.
If your financial institution was willing to reduce your principal balance to approximately the appraised value of your property and re-compute your payments at a reduced interest rate and using a longer maturity – this would be the best of all worlds. Unfortunately, this creates a loss on the institution’s books which impacts their stock price and executive bonuses.
Adding a government sweetener … using the taxpayer’s money, the government is often willing to guarantee your loan – to the benefit of the financial institution. Sometimes this produces results provided you meet the government’s criteria. Of course, all of the above financial maneuvers assume you have a job, do not have onerous healthcare bills and can muster the cash flow to pay your monthly bills.
The ultimate scam …
The financial institutions make it as hard as possible for you to obtain mortgage modification. From dealing with stupid people, endless telephone calls to numerous document requests, nothing is made easy.
The truth is that you may get more attention using an attorney … but not always.
First, most loan modification attorneys are playing a numbers game. To get the most people in the door. To use paralegals to fill-out and submit modification forms. To make a few telephone calls if necessary. If they do not produce results, sorry Jack and Jill – we tried. We told you up front, when we collected our fees, that there were no guarantees. Look at the form you signed – it says so on that line right there. We feel bad for you, but that’s life. Hoping you will not be hanging about in the parking lot when they pop into their foreign cars, heading home to their gated communities.
Second, most loan modification attorneys only sound tough. Unless they file a formal lawsuit or complaint, they are just as stymied by the procedural folderol that a normal borrower may encounter. In most cases, there are no special telephone numbers or secret deals. If the deal does not make sense to the financial institution or the borrower cannot refinance or pay a reduced monthly amount, there is little or nothing that can be done.
Third, many attorneys are not mortgage loan experts and rely on others to actually do the heavy lifting. Attorneys who have entered the mortgage modification business often find that they are on the wrong side of the law. In fact, a case could be made that every attorney who simply fills out mortgage modification forms may be committing malpractice if they do not analyze the documents and further investigate the possibilities for loan rescission.
Considering the number of attorneys being investigated and sanctioned for problematical mortgage modification activities is growing, one needs to be wary of any firm which appears to have one attorney supervising a group of salesmen and processing clerks.
Loan Rescission: the holy grail that is a sucker play …
According to federal law, you may have three years to bring an action against a lender for improperly preparing your loan documents; an inaccurate APR (Annual Percentage Rate), inadequate disclosures of terms, conditions, warranties and representations. In order to pursue a loan recession, you may require a forensic loan audit – something that may be both time-consuming and costly. And if deficiencies are uncovered, you may require an attorney to file suit against the lender. Those who think that waving a forensic loan audit in front of a financial institution will produce instant results are sadly mistaken. Add your paperwork to the pile and wait in line. Yes, a lawsuit may get their attention, but that too takes time.
Filing a lawsuit or bankruptcy to prevent or forestall a foreclosure may often be a bone-headed move.
One, you have to file a complaint in a timely manner as some problems, such as a violation of TILA (Truth In Lending Act), have a statute of limitations which extends back three years.
Two, you need to be able to pay, usually up-front, for the forensic audit, attorney fees and court costs.
And three, winning the lawsuit merely gives you the right to re-purchase the loan from the lender – that is, provided you have enough money or financing.
Let us assume everything works correctly … your forensic loan audit has revealed document deficiencies, inadequate disclosures and bad calculations. You have filed suit and your case is before the courts. Unfortunately, the likely outcome of a judge ordering a rescission is that your financial institution will pay back all of your closing costs and finance charges, possibly with interest and reimbursement for your costs. However, and here is the rub, you must in essence re-purchase your loan from the lender for the amount of money that was advanced on your behalf. If you cannot refinance a new loan or obtain an affordable mortgage modification, you are, in technical terms: screwed! Especially if the appraised value of the property remains significantly under the new loan’s principal balance.
Strange as it seems, no one really knows what may happen to the borrower if a court orders a rescission and the borrower can not find financing – as the matter is almost always settled with a loan modification prior to any judgement.
Assuming the worst, that the lender was engaged in a systematic fleecing of borrowers using practices which are held by the court to be predatory, you still may be out of luck. Often it is the attorneys who reap the rewards – with borrowers getting a pittance compared to the damage that was actually done. In many cases, lenders fight against so-called class action lawsuits claiming that the circumstances of each loan is considered to be unique and representative of a single transaction.
The two-edged sword …
Although lenders may be complicit in wrongdoing, some borrowers flat-out lied about their income, monthly expenses or knowingly accepted a over-valued appraisal – sometimes arranged by a real estate agent to close the deal. If it can be proven that the borrower made false and misleading statements on their loan application, they have committed a federal crime and should be prepared to face the consequences.
Bottom line …
If you do you do not have the cash flow to rent a similar property or pay your monthly payments – you may be wasting both your money and your time pursuing unproductive loan modifications and/or forensic audits. Perhaps the smartest thing is to walk away and start anew --using the money you would have spent on forensic audits and legal fees on your new life.
Remember, attorneys are first and foremost businessmen and that while they can see value in pursuing your case, it might be a fool’s errand if you cannot benefit from the time, effort and costs of pursuing a legal remedy. Also remember that a forensic audit is not a magic wand which will force a lender to acknowledge or responding to any allegations of wrongdoing.
You should always differentiate between the servicer who may be collecting the payments and processing the foreclosure papers and the actual holder of your obligation. Servicers act upon the note holders instructions and may have little lattitude or willingness to pursue a loan modification on your behalf with the lender (unless they are receiving a government bonus for performing this service) and any actual loan modification requires the permission of the actual note holder.
Seek wise counsel and avoid repeating mistakes. Good luck and remember, this time around, shop for the best terms and conditions: financial institutions are not and will not be loyal to you, so get the best deal you can.
Be well, be safe and take care of yourself and your family first.
-- steve
The most common mortgage modifications are listed below:
lowering the mortgage interest rate
reducing the mortgage principal balance
fixing adjustable interest rates within the mortgage
increasing the loan term throughout the mortgage
forgiveness of payment defaults and fees
or any combination of the above
Check out this public service site: http://mortgagemodificationinfo.org
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Warning: As with all sites purporting to be public service sites, this site may be sponsored by those deriving revenue from advertising or may be operated by those who are generating leads for mortgage modification services or lenders. It is best not to provide personal information or loan details to websites which do not clearly indentify their ownership and/or hide behind "private" web registration companies. We are allowing this comment to be published -- with this caveat: beware of numerous internet loan modification scams and attempts by unregistered evildoers to provide loan modification services. Should you have any questions about loan modification services, check with your state attorney general, your state banking commission, your state real estate licensing board and the Better Business Bureau. Due to the rising amount of attorney malfeasance, checking references is a necessary part of preserving what little money you may still have. -- steve
Posted by: mortgage modification | October 29, 2009 at 10:24 AM