With all of the hype of “loan modifications” and “government bailouts” you can’t help but feel that there is a solution somewhere that will save you from loosing your home. I’ve been watching the news, reading everything that comes across my emails and can only say that I get a little sick to my stomach at times.

One must really think about long term when faced with an opportunity to modify an existing loan. It’s such an emotional time, the fact that your going to lose your home is beyond anything I could put into words, believe me I know first hand! The stress seems to go away when you are told that if you just “sign here” you don’t have to move and you get to keep “YOUR HOME!” Wow, those are words that you’ve prayed for.

Here’s the hard reality;what do you do in a few years when you find that your so upside down in the home that you can’t refinance to a lower payment, or worse yet need to move and have no chance of selling unless you do a short sale….and who knows if the lender will be willing then?

As I work with our clients and their lenders on loan modifications, one thing has been consistent. Lenders are not in the mindset to help their current clients. They go off of black and white paperwork, if the borrower fits their criteria they offer up some type of a loan modification. I’ve never seen one, no never, that was an advantage to the borrower. They are a bandage at best!

Lenders are not willing to take into consideration the fact the home is 30 to 50% + upside down. They will usually extend the borrower a lower payment and add all of the “accrued” interest to the end of the loan. We have seen a few lenders discuss the possibility of reducing principal balance 5%, but have not had ONE accepted as of today.

The point here is there is no magic wand, no real fix for the mess of our housing industry. Loan modifications may work for some people, if they are not seriously upside down in their home.

Having lived through the loss of a home, and of course trying anything possible to keep what was “mine”. I look back and realize the blessing of not being given the chance to keep it. Now that the emotions have died down the fact is that if we would have kept that house at it’s upside down equity, I’m not sure if we would have seen it appreciate enough in our life time to have equity….it was nearly $200,000 upside down a year ago…and still dropping.

Those four walls that seemed to mean so much to us now sit empty like hundreds of other homes in the city. I’ve realized that it’s human nature to fight for things that are ours, no one wants to be told they don’t have a choice. Here’s the thing, you do have a choice, you can choose to get out of a bad situation that will most likely get worse before it gets better.

The market is still declining, most loan modifications are going to keep you locked into a home that is going to continue to drop in value. Think about your future.…you can most likely find a wonderful home to live in while real estate continues to drop. Then buy again for half of what you owe on the four walls that you leave behind.

Short Sales were not widely accepted a year ago. In today’s market, your lender is ready to get these bad loans out of their inventory. The President has also realized that people are in need of help and signed into action the mortgage relief act, this relieves home owners of the liability of gains. When your thinking about your “choices” try to step away from the emotions. If it makes financial sense to keep the home, just be very careful to check with your lender before you pay someone to do a loan modification for you. You will be able to talk to your lender/s and find out exactly what terms they will offer.

From the heart of someone who’s been through it…

Note that this does not include principal reduction as a solution. This new plan is limited to: “extending the term, reducing the interest rate, and forbearing interest”
This is intended to help “thousands” (a drop in the bucket unless it is several hundred thousand), and seems to encourage homeowners to stop making payments until they are 90 days late.

Helpful questions and answers:

Q: What is a streamlined modification?
A: A streamlined modification is a modification that requires less documentation and less processing. In this case, the streamlined modification seeks to create a monthly mortgage payment that is sustainable for troubled borrowers by targeting a benchmark ratio of housing payment to monthly gross household income.

Q: What is the benchmark ratio?
A: This is the first time the industry has agreed on an industry standard. The benchmark ratio for calculating the affordable payment is 38 percent of monthly gross household income. Once the affordable payment is determined, there are several steps the servicer can take to create that payment – extending the term, reducing the interest rate, and forbearing interest. In the event that the affordable payment is still beyond the borrower’s means, the borrower’s situation will be reviewed on a case-by-case basis using a cash flow budget.

Q: Why is it necessary?
A: With the rise in serious delinquencies and increasing number of loans in foreclosure, this program will help borrowers who have missed three or more payments, but want to keep their homes. Because the eligibility requirements and process are streamlined and consistent, the program will allow servicers to reach more borrowers more quickly.

Q: Who is eligible?
A: The highest risk borrower, who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed bankruptcy. The loan is a Freddie Mac, Fannie Mae or portfolio loan with participating investors. To qualify for the streamlined modification, the borrower must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification.

Q: Why must the borrower be 90 days delinquent? Why not earlier in the delinquency cycle?
A: This is a streamlined solution targeted to reach the most at risk borrower. For borrowers who do not qualify, other solutions are available. This in no way substitutes for the meaningful efforts by all servicers and investors that are currently in place. The 212,000 workouts reported by HOPE NOIW in September are testimony to that fact. We will continue to see those efforts produce meaningful results.

Q: How many people will this help?
A: While difficult to assess, it is clear delinquencies are predicted to continue well into 2009. Foreclosure estimates are significant. Having a streamlined approach will assist many borrowers who default and more quickly. We estimate this will ultimately help thousands of borrowers.

Q: How do borrowers apply?
A: To be considered for the program, a seriously delinquent borrower should contact his or her servicer and provide the requested information – monthly gross household income, association dues and fees, and a hardship statement.

Q: How do borrowers complete the modification process?
A: Upon receiving the Modification Agreement from the servicer, the borrower signs it and returns it with the 1st payment at the modified terms along with income verification. Once the borrower makes three payments at the modified terms and the account is current as of day 90 of the modified plan, the modification is complete.

Q: When will servicers start offering this program?
A: We expect that by December 15th, servicers will be positioned to work with eligible borrowers.

Sadly…. I am going to tell you about a family that was recently lied to and taken for a lot of money in hopes of keeping the home they were living in by doing a loan modification. The ending on this true story left the family loosing the home to foreclosure, filing for Bankruptcy and if that was not enough, served by the sheriffs department with an unlawful detainer to start eviction from their home.

About 3 months ago Kris and I sat down with Mr. and Mrs. Smith to discuss options regarding their home. You see, the payments had adjusted to nearly double what they were 2 years prior and like most people in the same situation they found themselves unable to refinance due to the home being upside down in equity. In their case, it was a little over $400,000 upside down!

We talked about many things, the couple, that had 2 teenage children wanted desperately to keep the home. After talking with their lender we discovered that the loan modification was not in reach financially for them. The lender would not decrease the principal balance, which was a real factor since the home was truly upside down over $400,000. Kris and I know this to be true because we had just closed escrow on the home across the street just a month earlier.

Mr. and Mrs. Smith decided that they would like to sell the home as a Short Sale and save their credit to buy a new home in a few years when the market was more reasonable.

One afternoon we got a call from Mr. Smith asking us if it was too late to stop the sale of his home, as it was already in escrow and the Short Sale was approved by the lender. Mr. Smith had been approached by a friend that had a friend that told him that he would be able to get him a loan modification, one that was “desirable” and would even be able to help him lower his principal balance.

Needless to say, we cautioned Mr. Smith about the legitimacy of this. Kris and I reminded him of the multiple conversations we had with his lender and the terms that they offered. It’s difficult to think without emotion when your loosing your home, we know this because we’ve experienced it. The last thing you want to hear from anyone is “You have to move” Your ears are always open to anyone…and I mean anyone, that says they can help you “keep your home”.

Well, we gladly helped Mr. and Mrs. Smith cancel their sale with the lender and let them know we would be here to help in anyway we could.

The call came about 2 weeks ago, it was a real estate agent from a well known company asking questions about the home owned by Mr. And Mrs. Smith….The home was sold at Trustee Sale.

Kris called Mr. Smith to make sure all was ok, Mr. Smith told Kris that the “loan modification company” was still working on a loan modification…? Yep, Mr. Smith had paid for services up front to save his home, and unknown to him the home was sold while he trusted this loan modification company to do what they told him they could do….! Mr. Smith called us back later that day and told us the the loan modification company had him file an emergency bankruptcy and not to worry. Again….when your loosing your home…desperation is a very familiar feeling, and Mr. Smith did what most would do, he forked out about $2500 to do the emergency BK Filing.

Less than a week after Mr. Smith filed for Bankruptcy the County Sheriff posted an eviction notice on the home. The home was sold at auction, the BK did not save his home, the loan modification company told him that the lender was unable to offer him anything other than what had been offered several months back……

Please be aware that not all loan modification companies are really helping you, the employees might just be the same group that sold you that screwed up loan a few years ago!

If you follow our blogs, one of my recent posts ” In the business to foreclose…ask Ryan” told of a loan servicing company that declined to order a bpo on a property due to the fact they had done their own appraisal months prior to the offer we had provided them. Please, go back and read the communications between Ryan, employed at American Home Mortgage (servicing company for Option One Mortgage).

I’ve been talking to anyone that will listen about this, I’m just trying to understand how an investor would benefit from taking the home back? Well, needless to say, I’ve been watching the property to find out what the sale price will be once it comes back on the market.

When I looked it up today…I had to look several times at the information, honest, were my eyes really that bad that I can’t make out the print???

The home was sold at auction. Now, let’s go back 30 days...We presented an offer that was all cash offering $264,000. This according to upper management was too low, they would not go back and order a current bpo and they decided to foreclose on the home.

Ready for this, Auctioned for $150,000. Ok, someone, anyone, please tell me what is going on here????

These servicing companies have no vested interest in these loans, Option One was taking a loss, but they now will be writing off $100,000 plus more than if their servicing company, American Home Mortgage (servicing company for Option One Mortgage) would have had half a brain!

Here are the emails that lead to the Auction Price of $150,000!

Hello Ryan,
I am sending a new offer on the property. Escrow is completing the HUD with all of the required changes resulting from our last conversation/offer. I did not send in an updated HUD on that offer due to the buyer backing out. The issue with this property has been the second lien holder, BofA as I explained to Mr. Kellty. They were not willing to release for $1000, which is your policy. We have remedied that. When I called in today, to find out if you had received this new offer I was told it was too low and I would need to counter, With a sale date set for tomorrow I don’t have time to get back to the buyers agent. This home has been discharged in a Chapter 7, we have interest in the property. When I spoke to Mr. Kelly he told me he would work with us to help the ****** family avoid foreclosure. Could I request that you order an interior BPO on this home? The offer that we are providing to you today is in line with recent sales as you will see. The property must be able to appraise for the lender to fund, according to all information, this offer is at the high end.

Hi Ryan,
I am Kim’s partner. We received your email this morning and we understand a business decision.
You mentioned that you had an appraisal done. When was the appraisal completed? The declines in this market are staggering. We are seeing declines of over 6% per month in Rancho Cucamonga.
I would be remiss in not fighting for our clients best interest. We have reviewed the recent listings both “Active” and “Closed” in this gated community. There are no recent sales and 7 active listings in this very small gated community. The average days on market is 46.8 and of the 7, 7 are distressed properties i.e. Bank owned, short sales, or pending Trustee’s.
In today’s climate of declining sales, another home on the market is a “coal on the fire.”
Rancho Cucamonga, while a lovely city, is suffering from a tremendous volume of distress properties. There are currently 761 Homes on the market. 378 are marked as “Distress” sales in MLS. That is over 50% of the homes in Rancho Cucamonga. And that is assuming that the Agent remembered to check the “Distress” category of the listing. My thoughts is that there are many more.
According to Commonwealth Title, The International Title agency, there were 408 Notices of Default and Trustee Sales filed for Rancho Cucamonga from 08/08/2008 – 09/08/2008. That is staggering and this is your competition for resale when you enter the market with another Foreclosure.
These figures, while staggering are simply a sign of the times and according to a Department of Economic Studies at UCLA recent study, they reported that Southern California has a minimum of 2 more years of decline.
Again, we appreciate your companies decision, however, with these staggering declines, your client is more than likely to suffer a great loss over the next 6 months as this property is not sold at Foreclosure and is placed back on the market in 2 months at a lower price than currently listed.
Thank you again for your consideration.
Best,
Kris Darney
714-615-7605

Ryan discussed an appraisal with me that was done at the onset of the filing of the Chapter 7. This would be at minimum a 4 month gap to time of request for the BPO. A few years ago this would not have been so significant. …but this is the Inland Empire….October 2008. Prices are declining monthly!
I’m not sure how a servicing company is paid. It would seem by this transaction that it’s not based on retention. This is one of the most disgusting business practices I’ve ever experienced! The servicing company has most likely spent more money on foreclosure costs than this home will eventually sell for by the time it’s back on market in about 3 months.

I found some great information on a blog post today from the OC Register. The story was focused on the Orange County area, but clearly shows the degree and areas that were hard hit with unsavory loans in the Inland Empire.

The loans that shook the financial world started small.

In 2004, the first year that the Fed’s Home Mortgage Disclosure Act database tracked high-priced subprime loans, subprime was a bit player in the California home market.

But a Register analysis of HMDA data shows that subprime quickly grabbed market share in lower middle-class neighborhoods up and down the state in 2005 and 2006. In 2007, as subprime giants like Orange-based Ameriquest and Irvine-based New Century downsized or shut down, subprime again became a bit player.

These maps show the spread and retreat of subprime loans in Orange County and neighboring counties from 2004 through 2007. Another set of maps below describe a similar pattern statewide.

These maps represent what we’re calling the subprime penetration rate, the percentage of total home loan volume in each census tract that was high-priced. Yellow on the map indicates that subprime accounted for 15 percent or less of total loan volume; green is for 15 percent to 25 percent; light blue for 25 percent to 35 percent; dark blue for more than 35 percent.

A caution: The industry defines subprime using credit scores; the Fed defines high-priced loans as those that cost at least 3 percentage points higher than a Treasury bill of comparable maturity. The two terms don’t match, but the Fed’s high-priced category appears to capture most subprime and some alt-A loans.

In 2004 there are just a few pockets where subprime lenders grabbed more than 15 percent of the market: most notably in central Los Angeles between the I-110 and I-710 freeways, and in the Inland Empire, especially along the I-10 corridor.

In 2005 and 2006, however, the picture changed dramatically. Suddenly the subprime guys and gals were making more than 35 percent of home loan volume in a huge swath of LA and the Inland Empire. They also started doing big business in Orange County, where many of them were headquartered. Look at the I-5 corridor and especially at Anaheim, Garden Grove and Santa Ana.

By 2007, business was cooling down almost everywhere outside central L.A. and portions of San Bernardino County.

For many Southern Californians, the desert and the San Joaquin Valley are windshield territory — places best crossed at high speed on the way to someplace else. But there’s a remarkable economic story to be told here: These regions are adding new residents by the tens and hundreds of thousands, drawn by cheap housing and new jobs.

Subprime lenders played a big role in financing the valley’s and the desert’s growth. The proof is in the maps.

Watch the spreading blue zone — the tracts where subprime accounted for at least 35 percent of total home loan volume. In 2004, it’s isolated to a few patches in the desert and the southwestern corner of Tulare County in the San Joaquin Valley.

By 2005 the entire valley from Bakersfield north to Stockton is blue. The bluest areas are along State Highway 99, which connects the valley’s urban centers. And subprime is now spreading north to Sacramento and to the farm counties above it.

In 2006 the urban parts of the San Joaquin Valley are solid subprime turf. Today cities in this zone including Merced and Stockton have some of the highest foreclosure rates in the nation. Note too how subprime spread to virtually the entire high desert, from Lancaster and Palmdale in northern L.A. County to Victorville in San Bernardino County.

That was subprime’s peak year. In 2007 the map shows far fewer blue areas, though subprime continues to be common in most of the San Joaquin Valley. The largest blue areas, by the way, are lightly populated tracts — the vicinity of Death Valley National Park in Inyo County on the state line, and the Santa Barbara County back-country.

This is for our clients…you have been wonderful to work with! Thanks for letting us share.

Like most of our clients, the ***** family were no longer able to make their mortgage payments. Their home had a sale date set in less than two weeks from them contacting us. It was a little complicated, they were also going through a chapter 7 and the lender had gone to court to get a “relief from stay” allowing the lender to foreclose even though they were protected by chapter 7.

We put the home up for sale immediately and within a few days had several very good offers. The first lender, AHMSI, American Home Mortgage (servicing company for Option One Mortgage) was quick to respond and postponed the sale date.

Three weeks into the negotiations we get a call from Ryan at AHMSI. Ryan requests the second lien holder, in this case, Bank of America accept $1000 to release their lien. Then the sale would be approved.

Unfortunately Bank of America has implemented new criteria for short sale acceptance. The criteria states that Bank of America will accept no less than a 10% payoff of a debt balance being charged off as collectible. Well, you can see the issues with this request. I was able to discuss in detail the chapter 7, and the demand from the primary mortgage holder with a Ms. Kelly, (has the pull to say yes).

Getting to Ms. Kelly and getting the approval for acceptance of $1000 took a little over 2 weeks. So, from the time we took the listing till this point has been about 45 days. Not bad for getting both approvals under the circumstances.

One thing happened along the way, we lost the buyer to the lengthy process, oh and the other few we had as back-up were still around but placed new “lower” offers to meet the declining value of the area.

From this point I will just insert the chain of emails for all to read.

Hello Ryan,
I am sending a new offer on the property. Escrow is completing the HUD with all of the required changes resulting from our last conversation/offer. I did not send in an updated HUD on that offer due to the buyer backing out. The issue with this property has been the second lien holder, BofA as I explained to Mr. Kellty. They were not willing to release for $1000, which is your policy. We have remedied that. When I called in today, to find out if you had received this new offer I was told it was too low and I would need to counter, With a sale date set for tomorrow I don’t have time to get back to the buyers agent. This home has been discharged in a Chapter 7, we have interest in the property. When I spoke to Mr. Kelly he told me he would work with us to help the ****** family avoid foreclosure. Could I request that you order an interior BPO on this home? The offer that we are providing to you today is in line with recent sales as you will see. The property must be able to appraise for the lender to fund, according to all information, this offer is at the high end.

Hi Ryan,
I am Kim’s partner. We received your email this morning and we understand a business decision.
You mentioned that you had an appraisal done. When was the appraisal completed? The declines in this market are staggering. We are seeing declines of over 6% per month in Rancho Cucamonga.
I would be remiss in not fighting for our clients best interest. We have reviewed the recent listings both “Active” and “Closed” in this gated community. There are no recent sales and 7 active listings in this very small gated community. The average days on market is 46.8 and of the 7, 7 are distressed properties i.e. Bank owned, short sales, or pending Trustee’s.
In today’s climate of declining sales, another home on the market is a “coal on the fire.”
Rancho Cucamonga, while a lovely city, is suffering from a tremendous volume of distress properties. There are currently 761 Homes on the market. 378 are marked as “Distress” sales in MLS. That is over 50% of the homes in Rancho Cucamonga. And that is assuming that the Agent remembered to check the “Distress” category of the listing. My thoughts is that there are many more.
According to Commonwealth Title, The International Title agency, there were 408 Notices of Default and Trustee Sales filed for Rancho Cucamonga from 08/08/2008 – 09/08/2008. That is staggering and this is your competition for resale when you enter the market with another Foreclosure.
These figures, while staggering are simply a sign of the times and according to a Department of Economic Studies at UCLA recent study, they reported that Southern California has a minimum of 2 more years of decline.
Again, we appreciate your companies decision, however, with these staggering declines, your client is more than likely to suffer a great loss over the next 6 months as this property is not sold at Foreclosure and is placed back on the market in 2 months at a lower price than currently listed.
Thank you again for your consideration.
Best,
Kris Darney
714-615-7605

Ryan discussed an appraisal with me that was done at the onset of the filing of the Chapter 7. This would be at minimum a 4 month gap to time of request for the BPO. A few years ago this would not have been so significant. …but this is the Inland Empire….October 2008. Prices are declining monthly!
I’m not sure how a servicing company is paid. It would seem by this transaction that it’s not based on retention. This is one of the most disgusting business practices I’ve ever experienced! The servicing company has most likely spent more money on foreclosure costs than this home will eventually sell for by the time it’s back on market in about 3 months.