foreclosure
Top Consumer Debt Radio Podcasts
Below are some of our favorite podcasts we have recorded over the past year.
Saturday July 17, 2010 – Alternatives to loan modifications
Saturday July 3, 2010 – Liability from 4th of July Parites
Saturday June 12, 2010 – Identify Theft
Saturday May 29, 2010 – Why Loan Modifications are failing
Saturday May 22, 2010 – How to handle Medical Bills
Saturday May 1, 2010 – Truth about the Obama Refi Program
Saturday April 24, 2010 – Fraudulent and deceptive lending practices
Saturday March 27, 2010 – How to fix your credit report
Saturday March 20, 2010 – Non discharable debts
Saturday March 13, 2010 – Income tax issues
Saturday Janaury 2, 2010 – Bankruptcy Myths and facts
Saturday January 16, 2010 – Social Security Protection
Saturday January 23, 2010 – issues small business owners face
Saturday February 6, 2010 – Issues facing the unemployed
Saturday February 13, 2010 – Protecting your job and employment status
Saturday February 20, 2010 – The History of Fico Score
Saturday February 27, 2010 – Debt settlement vs. Bankrutpcy
How to track the ownership of your mortgage
I recently came across this very interesting chart created by Dan Edstrom, of DTC Systems, demonstrating how convoluted the ownership of a mortgage can be these days. The scary thing is that the mortgage tracked in the chart below is proportedly a normal home loan that any of us might have. I might expect a high risk “B-loan” to follow such a ridiculous track, but how scary is it to see what the banks and investors have done. It is no wounder there are so many issues these days with improper foreclosures.
Debt settlement companies may mislead you
Recently, I have heard many Creditor rights and debt settlement companies making statements about bankruptcy that are at best inaccurate, and at worst an attempt to dissuade Debtors from filing bankruptcy in lieu of loosing their home and entering into long-term pay back plans with Creditors that are not in a Debtor’s best interest. For example, I read one blog article, What No One Tells You About Bankruptcy, Foreclosure and Your Credit, that suggests filing bankruptcy will not always stop a foreclosure, or that your credit score will be harmed beyond repair for a decade by filing a Chapter 13 case.With all due respect to these positions on bankruptcy and its effect on credit, I would suggest that most homeowners facing foreclosure are already at the bottom of the credit score spectrum. Additionally, the only way to guarantee that a foreclosure is stopped is by filing a bankruptcy. Pursuant to section 362(a) of Title 11, once a bankruptcy case is filed, the foreclosure MUST be stopped, and the only way a creditor can continue is by filing a motion for relief from the automatic stay. In order for a creditor to do this, the homeowner must fail to make there subsequent payments.
I will grant you that many Chapter 13 cases do fail, but the reason for that are unrealistic plans, and underestimating a Debtor’s expenses on schedule J, or an artificially inflated income on schedule I based upon untrue revenues from self employment.
What I have found in my practice is that a Debtor needs to take a hard look at there situation and determine if their house is (1) worth saving, and (2) if the homeowner has enough income to stay current and pay back their missed armaments over a 5 year period.
With respect to the contention that one’s credit score will decrease with the filing of a bankruptcy and be harmed for up to 10 years, that is a very dangerous statement to make. In fact, it is actually possible for your FICO score to increase after your bankruptcy discharge. The reason for this is very simple, approximately 35% of your credit score is based upon the amount of debt. If you discharge thousands of dollars in debt, then that part of the calculation can only increase. Another approximately 35% of the FICO score is based upon your payment history. If by filing a bankruptcy, you no longer have debts to be in arrears on, then again you can only go up, over time as you make your chapter 13 plan payments. This is not to say that filing of a bankruptcy does not take a negative toll on your credit score, but it is balanced by the positives. In many situations, Debtors, especially those with a mortgage can rebuild their credit with in 24 – 30 months to the point of obtaining new secured debt loans. I do however, caution my clients to be careful not to fall into their old bad habits which created the need for the bankruptcy filing.
The bottom lines is that if you are facing a foreclosure or have a significant amount of unsecured debt, it is always a good idea to talk to a bankruptcy attorney or consumer debt advocate in your area before making any decision. Most of these attorneys such as me do not charge a consultation fee for the initial meeting and can provide you with a great deal of insight.
This post was originally published on the blog of Goldstein and Clegg, LLC
Home Affordability Modification Program: How does it work?
Everyone knows about President Obama’s program known as the Home Affordability Modification Program (“HAMP”). Many have wondered if the program can help them save their home, but how does it work? In brief, the HAMP was designed to save your home if you are struggling to pay your mortgage. It was also designed for consumers to be able to work through the process on their own without the need of an attorney or a consultant.
The HAMP process is not really that difficult. A consumer should review the mortgage company’s web site for all required documentation which is needed in order to be considered for the HAMP. Once all the required documents are submitted the company will put the consumer’s request for review under the HAMP into a pool of thousands of other like consumers.
It sounds simple right? Well, there are many problems hidden within this simply process. A consumer should keep in mind that the mortgage company in the HAMP is trying everything not to get the consumer into the review of the program. What I mean by this is that the mortgage company is likely to reject a consumer’s request for not having all documents requested even though you’ve submitted them. Also, the mortgage company is not going to stop foreclosure proceeding while the consumer’s request sits in the pool of thousands of request. The biggest issue with this process is time. The HAMP process is likely to take 3 to 12 months.
How to ensure that this process works for you? You really will need to either make a commitment to setting aside at least two hours a week to follow up with the mortgage company for updates and to ensure that the mortgage company continues to review your request. Alternatively, you could hire a professional like an attorney to ensure that the mortgage company continues to review your request and to ensure that the process is documented.
Overall HAMP is a simple process, but be prepared to dedicate the required time to prepare the documents and also for the long review process.
Home Affordable Mortgage Program Calculation
Many Consumer’s have heard of the Home Affordable Modification Program (“HAMP”). This is the Federal loan modification program. However, what most consumers do not realize is that the calculation of a new mortgage payment is very guideline specific. The following is a detailed explanation of how the program calculates the new or modified payment under HAMP.
The goal for borrowers, as they seek a HAMP Modification, is a Front-End Debt-to-Income of 31%. In plain English this ratio measures the percentage of monthly gross income that is consumed by debt and housing payments. This rate considers the value of consumer expenses compared to the borrower’s gross monthly income. This calculation begins with the reduction of mortgage payments by the investor to no more than 38%. The subsequent reductions by the lender, to get to the target of 31%, rest on the reduction of the borrower’s interest. If, however, the reduction reaches the floor of 2% without reaching 31%, the borrower may need to account for the difference with annual increases of the interest rate.
Once the lender reduces mortgage payments to no more than 38% Front-End Debt-to-Income ratio, the Federal Government will match further reductions in monthly payments down to 31% Front-End Debt-to-Income ratio for the borrower. At this point, lenders may capitalize arrearage.
The target Front-End Debt-to-Income (DTI) is 31%. The Standard Waterfall step that results in a Front-End DTI closest to 31% without going below 31% will satisfy the Front-End DTI Target. Front-End DTI is the ratio of PITIA to Monthly Gross Income.
- Gross Monthly Income—the amount before any payroll deductions.
- The total first mortgage debt and monthly payments (PITIA). This includes principal, interest, taxes, insurance, and homeowners association and/or condominium fees.
The calculation to reduce the interest rate to reach the Front-End DTI Target is subject to a floor of 2%. The interest rate reduction shall be made in increments of 0.125%, with the goal of bringing the monthly payment as close as possible to the Front-End DTI, without going below 31%.
If the modified interest rate is at or above the highest interest rate allowed by the original mortgage note, the modified interest rate will be the new note rate for the remaining loan term. If, however, the modified interest rate is below the maximum allowed rate in the note, the modified interest rate will be in effect for the first five years, followed by annual increases, until the interest rate reaches the interest rate cap, of up to 1% per year. The interest rate will be fixed once the interest rate reaches the interest rate cap. If the Front-End Debt to Income target has not been reached, the term of the loan shall be extended up to 40 years
It should be noted that there is no requirement to use principal reduction under HAMP, but servicers may forgive principal to achieve the Front-End Debt-to-Income target. Consumers should recall that the goal is to reduce Front-End DTI to 31%. By forgiving principal, monthly payments (as part of the PITIA calculation) are drastically reduced, thus reducing to overall ratio.
Foreclosure or Bankruptcy – Which Is the Lesser of Two Evils?
In the past, “bankruptcy” and “foreclosure” were dirty words. But in today’s economy, they’re realistic solutions to financial black holes brought on by job joss, medical catastrophe, or predatory mortgage lenders and credit card companies. If you’re a homeowner struggling with financial disasters, you probably know that you need to decide whether a foreclosure or a bankruptcy is the lesser of two financial evils.
If you choose bankruptcy, you may be able to eliminate credit card debt, medical bills, court-ordered judgments, and even debts for overdue utilities. With a discharge of these overwhelming debts, you can often keep up with the mortgage, thus saving the family home.
In contrast, choosing foreclosure means you’ll lose the house… but the house may not be worth saving if its value is less than the remaining mortgage. Homeowners who’ve worked with us have chosen to rent, or sometimes they own investment properties that they can move into, such as a multi-family house.
But neither bankruptcy nor foreclosure is an easy, one-size-fits-all, solution. For example, a bankruptcy stays on your credit report for 10 years, while a foreclosure is there for 8 years. Because a foreclosure drops off a credit report 2 years earlier than a bankruptcy, many homeowners believe it’s a “better” solution. But many reputable credit counselors report that a foreclosure has twice the negative impact on a credit score as a bankruptcy. It’s extremely difficult to get a new mortgage after losing a property to foreclosure. And some individuals who’ve gone through foreclosure report that they haven’t qualified for apartments they wanted, even though they’re able to afford the rent after the mortgage is gone.
On the other hand, we’ve seen that individuals who’ve gone through bankruptcies are better candidates for future financing, and often receive it earlier than individuals who’ve gone through foreclosures. The reason is simple: bankruptcy erases debt. After a bankruptcy, you don’t owe anything to anyone. Your income is yours again. And creditors also know that you can’t file for bankruptcy for another 8 years, so you can’t walk away from any new debt that you incur.
In some cases, a homeowner may be so far behind on the mortgage that a foreclosure is inevitable. There are two typical solutions. First, the homeowner could file for bankruptcy right before the foreclosure. If the mortgage lender sells the property for less than the mortgage owed, the difference between the foreclosure price and the mortgage (which the homeowner would ordinarily have repay to the lender) is discharged through the bankruptcy. Second, mortgage lenders know very well that homeowners can discharge this difference in bankruptcy instead of paying it back. So they’ll often wait to foreclose, which gives the homeowner an option to do a short sale (to be discussed in an upcoming blog).
In short, if you’re a homeowner struggling with debt, you have a lot of options. If you’re facing a financial crisis that may end in either foreclosure or bankruptcy, talk to an experienced attorney who can help you determine your best option. The right decision can save you years of financial trouble.
Short Sales
If your home is in jeopardy of foreclosure and a loan modification is not an option to save the home, a short sale may be the next option. A short sale is simply the sale of a home for less than the value of the mortgage owed on the property. It is no secret that most home values have declined below their original purchase value. Short Sales are a good option if the homeowner simply does not want to save their home and needs to get out from underneath the debt of the mortgage. The best part of a Short Sale for the homeowner is that if the home sells for less then the value owed to the bank, the homeowner is released from liability coupled with a release of tax liability pursuant to the 2007 mortgage forgiveness relief act.
More specifically, a short sale, also called a distress sale has significant benefit for the lender because the lender avoids the expenses and hassle of seizing a delinquent customer’s property. In addition, lenders realize that they could lose money if the borrower’s home is auctioned in a foreclosure proceeding.
To decide whether or not to accept a short sale, lenders look at various factors. Those factors are:
- Whether the seller truly has a hardship limiting his or her ability to pay the mortgage.
- Whether it would be cheaper to simply repossess and sell.
- How many other properties the lender has in default.
- Whether there are cosigners on the mortgage who can be held responsible for the balance covered on the mortgage.
Even when borrowers engage in a legitimate short sale, there is no guarantee of success. It’s difficult to have an agreement where the interests of all parties are satisfied. One has to take into account the interests of the lender, homeowner, agent, buyer and investor who held the mortgage. Also, if the husband and wife were divorcing, then both would have to agree to have a short sale. With regard to managing a short sale, it’s important that sellers review loan documents with an attorney to make an informed decision. Also, is recommended to that you hire a law firm specializing in loss mitigation to help get you through the process.
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.”
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/
