Archive for November, 2009
How the HAMP loan modifications affect your credit score
For many consumers, their existing home mortgage obligation has outpaced their ability to pay it back. Many homeowners have suffered some form of a hardship, be it from the loss of a job, an illness, a divorce, or other similar type of situation. For those in such a situation, many have turned to President Obama’s loan modification program called the HAMP program. This is a great program because it allows a reduction in mortgage payments for 5 years. However, what many Consumers need to understand is how this program may or may not affect their credit score.
Many mortgage companies are reporting the modified mortgages to the credit bureaus as a “rolling 30-day late” while the modification are in its 90-day trial period. Homeowners are deemed “delinquent” during the trial period because the modified payment amount is less than the original mortgage payment amount, but the homeowner is not yet officially in the modification program.
THIS IS NOT HOW A LOAN MODIFICATION SHOULD BE REPORTED
Homeowners who are current on their mortgage when they enter into the trial modification period should not be reported as late, according to servicer guidelines for Fannie Mae, Freddie Mac, as well as other loans (”non-GSE loans”) being modified by HAMP-participating servicers.
Homeowners who were delinquent when they entered the modification trial period, however, will continue to be reported as delinquent during the trial period. See below for more detail.
If your loan is owned or guaranteed by Fannie Mae, see page 12 of Fannie Mae Servicing Guide Announcement 09-05R for information about credit reporting for HAMP-modified Fannie Mae loans. It says:
“If a borrower is current when they enter the Trial Period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the last business day of each Trial Period month at the modified amount during the Trial Period. If a borrower is delinquent when they enter the Trial Period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards. In both cases the servicer should report the modification when it becomes final.”
“Borrowers, who are current when they enter into the Trial Period and make payments by the 30th day of each month, report as current, but on a modified payment. Borrowers, who are delinquent when they enter into the Trial Period or do not make payments by the 30th of each month, report according to borrower’s delinquency and workout status. Notify when borrowers have completed the modification.”
If your loan is NOT owned or guaranteed by Fannie Mae or Freddie Mac, see page 22 of “HAMP Servicer Supplemental Directive 09-01? for information about credit reporting guidelines for modified non-GSE loans. It specifies the following:
“The servicer should continue to report a “full-file” status report to the four major credit repositories for each loan under the HAMP … on the basis of the following: (i) for borrowers who are current when they enter the trial period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the 30th day of each trial period month at the modified amount during the trial period, as well as report the modification when completed, and (ii) for borrowers who are delinquent when they enter the trial period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards, as well as report the modification when completed. More detailed guidance on these reporting requirements will be published by the CDIA.”
Understanding the new credit card laws
Credit cards, if used properly, can be useful and convenient tool, and can even help build a strong credit score that will assist you with future borrowing. However, owning a credit card makes it easy to spend money you don’t have and when the interest is taken into account, consumers can build massive debt. According to The Nilson Report, April 2009, In the average American owed $10,637 in credit card debt. The U.S. Census Bureau reported that credit card debt is growing and predicted that about 181 million Americans would owe credit card debt by 2010. That figure is up from 163 million Americans in 2008. As a nation we have become a plastic society, using our credit cards instead of actual money in our pockets.
The Credit card companies understand the temptation that has been provided to their clients and in the past have made it extremely easy for consumers to obtain credit cards. Recently, these same credit card companies have significantly increased interest rates, decreased spending limits and targeted young consumers with little experience managing their own finances. In order to combat this practice, the Federal Government has recently passed the Credit Card Accountability, Responsibility and Disclosure Act which will take effect in February 2010.
There are many sweeping changes to the way credit card companies conduct business. the following are some of the key changes including restrictions on raising interest rates permanently on borrowers who are delinquent 60 or more days. If the Consumer pays on time for 6 straight months, the credit card interest rate must be reinstated to the original lower rate.
The new law also requires that the advertised low interest rates must have a minimum 6 month period of time and prohibits increased rates in the first year a cardholder has a new account. This is important because it limits the Consumer’s liability on initial purchases.
The law also addresses late fees and penalties for paying your bill by phone, mail, or online and makes it unlawful to access additional fees to accept payments in this way. In the past, if a consumer wanted to pay at the last minute by phone, they would have to pay an extra fee, which is not lawful any longer.
Finally, the law also includes several measures aimed at protecting young consumers and college students, who until now have been blindsided with offers of easy credit. The law requires that consumers under the age of 21 will now be required to have co-signers, such as parents or other adults over the age of 21, who will take on joint liability for any card debts that are incurred. This will essentially end the marketing campaigns on college campuses. “Young people thrown on college campuses can be extremely vulnerable to these practices,” says Brad Lazarus, principal at Omega Advisors, a Chicago financial planning firm. Some credit card companies offer students nominal gifts, free food or free T-shirts just for applying. But the Credit Card Accountability, Responsibility and Disclosure Act makes this practice unlawful at application sites on or near college campuses. As an additional protection of the most vulnerable consumers under the new law, credit reporting agencies can’t provide the credit reports of under-21 year old consumers to credit card companies unless the consumer specifically requests that they do so.
Deed for Lease Program
Even if you don’t qualify for a loan modification through the HAMP or some other loan workout program, you may be able to qualify for the Deed for Lease Program by Fannie Mae (“D4L”). This is a new option for qualified borrowers or tenants of borrowers, who have Fannie Mae loans, who are facing foreclosure. According to Fannie Mae, the program will allow the homeowner or tenant to remain in their home by surrendering the deed to their home to Fannie Mae and in return be allowed to sign a lease through a deed-in-lieu of foreclosure transaction. Fannie Mae executives were quoted in an MSNBC report stating, “the rental program is designed to help delinquent homeowners who don’t qualify for a loan modification, but still want to stay in their homes”
The program is intended to keep families in their homes even after a possible foreclosure or transfer of ownership of their property back to the bank by executing a lease of up to 12 months. Investment properties that are tenant-occupied may also be considered as long as the borrower is cooperative in providing information from the tenant to facilitate the transfer of ownership.
A CNN report quoted Jay Ryan, a Fannie Mae vice president, “The program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities”.
As stated in the November 5, 2009 announcement by Fannie Mae, In order to qualify for the Deed for Lease Program, the occupant of the property must have the ability to pay rent at the value the market bears, which can not be more then 31% of his or her monthly gross income. The home must also be the primary residence of either the homeowner or the tenant who will continue to occupy the property. The homeowner must not be more then 12 months behind on their mortgage payments and most importantly, the person responsible for paying the rent, will have verifiable income. In addition, Fannie Mae will inspect the property to confirm that the occupants have been keeping the property in good condition. The occupants will need to agree to be responsible for regular maintenance, to keep the property in good condition, and to permit marketing of the property for sale. Finally, the occupants signing the lease must agree to a credit review and all occupants over the age of 18 must have an acceptable background check.
At the conclusion of the 12 month lease term, there is the potential for a month-to-month extensions of the lease. There is also the potential to buy back the property from Fannie Mae at the end of the lease period if the homeowner can obtain the proper funding. The obvious benefit here is that the buy back price would be at current market value and not at the original mortgage value. If the value of the home has decreased too much, it is also possible the Lender will want to continue to rent the property to the occupant in order to continue to generate cash flow.
To find out if your loan is with Fannie Mae go to:
http://loanlookup.fanniemae.com/loanlookup/
Produce the Note (or mortgage)
I recently came across a great article drafted by a former paralegal of our firm, Rick D. Misitano regarding foreclosure defense. Below are the pertinent parts of that article. When a lender can’t produce the original note, allowing a foreclosure to proceed puts the homeowner at risk of owing that debt again to another party in the future.
So, what happens when the lender tells the Court it can’t produce the original note, because it is lost? Let’s start with the basics. If a lender wants to foreclose on a property, it has to be able to show that it is, in fact, the appropriate person to whom the money is owed. That right to foreclose belongs only to the person who has legitimate possession of the original note, not a copy, not an electronic entry, but the original note itself with the original signature of the person(s) who allegedly owes the money along with appropriate raised notary seal and signature. So, if you are faced with a foreclosure, you have every right to demand that the person or entity trying to take your property, first prove to the Court that they have the legal right do to so in the first place by proving they have legal possession of the original promissory note.
Pursuant to Federal and Massachusetts law, a Lender Must affirmativly prove:
1. The person or entity has to swear and attest that it no longer has the original note;
2. The person or entity has to prove that it was properly in possession of the note and was entitled to enforce it WHEN it lost possession of the note;
3. The person or entity has to prove it didn’t “lose” possession simply because it transferred the note to someone else (i.e., it’s not really lost); and
4. The person or entity has to prove that it cannot produce the original note because the instrument was destroyed or its whereabouts cannot be determined or it was stolen by someone who had no right to it.
All of these matters have to be definitively proven by the person or entity trying to foreclose on the property. It is not the obligation of the borrower to prove or disprove any of this. The borrower can challenge the right of the person or entity trying to foreclose and demand proof.
How to Remove a Judgment Lien from your property
Many homeowners have found themselves in the position of owing money on a debt which they simply can not pay back, or have been sued by someone and failed to respond to the law suit. When this happens, the Plaintiff often will attempt to collect on their judgment by putting a lien on the homeowner’s property. Many of my bankruptcy client’s have come to me with just such a situation. This becomes an issue after a consumer’s unsecured debts have been discharged in bankruptcy. The reason is simple; the homeowner has a lien against their house post bankruptcy and they do not owe any money to the lien holder.
After a Chapter 7 discharge, a debtor may avoid a judicial lien by motion to the Court. To the extent lien impairs an exemption to which the debtor otherwise would have been entitled under the Bankruptcy laws. As a result, the bankruptcy court will grant a Chapter 7 debtor’s motion seeking to avoid a judicial lien if debtor’s equity in the property is less than the amount protected under the Massachusetts Homestead Act, which currently stands at $500,000 in value for the land and building, M.G.L. c. 188 § 1, and when the creditor’s lien fully impaired the debtor’s equity in the property. In re Lyons, 355 B.R. 287 (2006).
So what is the gist of all of this legal speak? When the collateral has no value, the creditor has no claim against it because it will be treated as unsecured, and thus the debtor may discharge that lien.
