If you have visited the site MakingHomeAffordable.gov you’ve probably even seen the slogan- “don’t pay, walk away..” and to “..beware of loan mod scams…”

With all the disinformation out there it’s hard to know who to trust.  Well some would say trust the government, what agenda could they possibly have other than helping homeowners keep their homes.  Well lets look at the data and revisit that question.

Approximately 9% of eligible borrowers have received trial modifications under the Obama administration’s ambitious effort to help struggling homeowners, according to data released by the Treasury Department at the end of August 09′.

Participating mortgage servicers, which receive hefty government payments for modifying loans, have had “uneven” success at rescuing borrowers, Treasury acknowledged, as a wave of foreclosures continues to pummel the U.S. housing market.

Bank of America Corp. and Wells Fargo Bank have started trial modifications for only 4% and 6%, respectively, of the eligible mortgages in their servicing portfolios, Treasury reported. Meanwhile, J.P. Morgan Chase & Co. has started trial modifications for 20% of eligible loans.

“I think it’s safe to say we’re disappointed in the performance of some of the servicers,” Treasury’s Assistant Secretary for Financial Institutions Michael Barr said in a conference call with reporters. He insisted, however, that Treasury was encouraged by the program’s overall results.

Mr. Barr declined to comment on any particular institution’s performance, but said Treasury was pushing servicers to step up modifications. “We expect them to do more,” he said.

When you take a look at the above statements on their face, you could assume it’s the result of another failed government program trying to fix a problem in the market.

But if you dig deeper and follow the money you may see a different picture. I’ve referenced in other posts and in some articles the money connection between politicians like Chris Dodd and Barney Frank and the banking lobby.  It’s easy to trace the money and gives more evidence that the govt solutions really are window dressing.

Add to this the government crackdown, both on the federal and state level of loan modification businesses that are actually providing a real service to consumers but are lumped in with all the bad apples out there.

Make no mistake about it. The banking lobby has Washington, and directly associated to this the media, in their pocket.

Do a search for loan modification stories in the press.  Approx. 90% of the stories I’ve researched over the last few months have been negative stories about loan mod scams. Most media stories tell  you the only legitimate help will come from either the government or government funded non-profits.

The latest article I just read in the Baltimore Sun, admonished loan mod firms “posing” as pseudo govt agencies and claimed the only reason homeowners contact private firms is they get impatient waiting for non-profits to get a modification done while they slip further and further behind.

If the homeowner was educated properly they would know the typical mod takes from 90-120 days and that the foreclosure process doesn’t stop since the lender is hedging their bets if it doesn’t work out.

Unfortunately there was no mention of legitimate mod firms saving homes and getting results for their clients.  We just had a GMAC  2nd modified from 14% to 5% and we’re waiting for the 1st mortgage lender to settle on terms.

My message to you is make sure what ever you decide, get the facts before you act. Be sure your decision is based on good info, not fear based on misinformation from suspect sources.

First, lenders now have all of the info on the Obama housing plan and how it will affect them.

Second, is that to date, there have been NO takers for the public (94%)/private (6%) partnership to buy $1 trillion of toxic assets to get them off the lenders books.

What this translates into is  that while there will be approximately  4  million foreclosures this year, there will be very slow implementation of Obama plan guidelines for modification and refinance.  This is happening at the same time many lender moratoriums on foreclosure have been lifted.

In addition the government has extended the subsidies (bonuses to lenders to modify loans) to second mortgages as well.  Lenders are woefully understaffed and my optimistic side tells me the subsidies are an incentive to hire more staff.

Granted, 2nd mortgages are normally wiped after the first mortgage holder forecloses, which renders them essentially worthless. A subsidy,  some argue,  will artificially inflate the value of a property since nature (the market) isn’t taking it’s course.

I tend to agree, and throwing more money at the lenders to do what should be in their best interest anyway, equates to more waste and profit for lenders that made bad choices.

But I hope they use the subsidy to bring on more people to deal with this enormous problem/ choke point.

Two lenders- Chase and Ocwen have tested a phone program to attempt to automate the modification process. This may help to speed things up but many homeowners will continue to slip through the cracks.

The problem w/ the “toxic asset” plan seems to be that lenders will only guarantee investors (taxpayers/ private investors) that they will get their money back , but not necessarily a profit.

Therein lies the problem. Even w/ only 6% exposure, private money is still skittish. No one has yet to figure out how to value the assets properly, since this problem is so deep on so many different levels.

So far, approx. 100 money managers have expressed interest but no one has stepped up. Again I think they are waiting for someone to be the guinea pig. There is no market for the sheer volume of these assets and the government is trying to “make a market”.

I get the concept.  We’ve done this on a much smaller scale in our real estate development business, when going into a “transitional” neighborhood with the goal of turning it around and attracting buyers where there were none present.

The hardest sale is the first one.  After that, you can set your own comps, establish your “floor”, and build from there.

The two problems here are- no one seems to be able to value the assets properly, and the sheer size of the assets requires a lot of money to be thrown at the problem (again 94% taxpayer/ 6% private).

The good thing is that if it were all government/ taxpayer money the assets probably would have been overpriced when purchased, and we would be stuck w/ the bill.

Even with only 6% skin in the game, private money is forcing the market to price these assets properly.  Meanwhile the lenders have been holding out to see if they could rid themselves of their problem debt.

Since they are not seeing that materialize very quickly, I believe we will see more lenders get tired of waiting for assets to be taken off their balance sheets.

How this comes full circle back to loan mods is that I believe we will see more principal balance reductions by lenders whose alternative is to foreclose on a massive amount of homes that are upside down.

I was just on the phone w/ a client in NV yesterday. He is the perfect case study for this scenario unfolding. He said, rightly so, “…why should I keep basically paying “rent” on a house that will probably never recover in value for many years (possibly a decade or more)”.

There is a subdivision nearby his home, where only 10% of houses have been built, and the project has stalled with no sign of life for several months.

He also has several vacant houses in his neighborhood, and despite raising his kids there and not wanting to pull them out of the good school district they are in, he may have no choice but to give the keys back to the bank.

Play that scenario out across the country. About 18% of homes nationwide are now “upside down,” according to a report from First American CoreLogic .

Almost two-thirds of those homes are in just seven states: Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio.

In Mountain House, Calif., an unincorporated planned housing community located in the foothills of the Diablo mountain range, the housing crisis right now has nearly 90% of the homeowners owing more on their houses than they are worth – the highest percentage in the country, The New York Times reported on Nov. 10. The average homeowner is underwater by $122,000, the newspaper said.

A bright spot/ quick case study is a recent modification done by Wachovia, which in our experience has been difficult to deal with. They recently agreed to 4 principal balance reductions as part of their modification for  4 different clients.

This particular modification was a balance reduction from $540k to $370 ($170k reduction) at 6% int. only with a 40yr term.

Due to Wachovia’s previous unwillingness to agree to balance reductions, this may be an indication of things to come. Only time will tell.

Until next week…

If my memory serves me, Mozilo’s reply was that no one was complaining when investors were flipping properties and making tens of thousands of dollars for holding a property for a matter of months, and no one was complaining when the homeownership rate rose steadily and opened up the opportunity for many more people, etc, etc….

I also remember him saying Countrywide as done more to expand homeownership, blah, blah…..

Well as the story unfolds, here are the facts. Senator Christopher Dodd received a sweetheart mortgage (points waived on first and 2nd mortgage) and he was on a “vip’ list of favored Countrywide customers.

Dodd is also chairman of the Senate Banking Committee and received just shy of $5mil in campaign donations in 07-08 from financial services firms.

Countrywide was sued in July 08 by the Attorney General of CA on behalf of constituents for deceptive lending practices-  Case: LC081846.

B of A recently settled this claim for over $8.7 billion dollars. With that kind of baggage a name change is the least they can do to bury the problem.

It’s going to take a lot more than a name change and aggressive marketing to bury all the damage Countrywide was allowed to perpetrate on homeowners.

How it applies to you is that you are now armed with a growing body of case law to fight back against your lender. This case law combined with a forensic audit (if needed) can give you the leverage you need to help modify your loan and keep your home.

Lenders hoping to see some movement on the “toxic asset” plan to entice private investors to jump in w/ private equity to help move some of the bad debt off their books has produced little results.

What this translates into is that lenders are still sitting on capital and continuing to shore up their balance sheets, until they get more toxic assets off their books.

There is one, albeit small, bright spot.  Some lenders are now accepting that the public/private plan (mostly public, i.e. taxpayer) to buy toxic assets will probably not be the savior they intended it to be.

So they are slowly coming around to accept that principal balance reductions will have to be a reality, if they are to start making any measurable difference in stabilizing their non-performing loans. It’s akin to the ice cap melting in that it’s a slow process.

The hope is that as they see no other options, and bailout money dries up, they will have to take their lumps with balance reductions. The alternative is to face many more foreclosures as strapped homeowners realize they are better off giving the keys back than to keep paying on a home which is worth, in some cases, half of what they owe on their mortgage.

We’re advising clients that they always have the ability to go back to the lender later as trends change to request a principal balance reduction. This will have to be an integral piece of the long term solution since it will take many years for the economy, and with it real estate values, to recover to levels a few years ago.

The “cramdown” provision that would allow bankruptcy judges to force lenders to modify loans and accept principal balance reductions for homeowners going through bankruptcy, has stalled in the Senate and I’m guessing banking industry lobbyists are working overtime to keep this from becoming reality.

Lenders have hinted at the possibility of legal action to prevent this provision to taking hold.  Just my two cents, but the chickens have come home to roost.  Lenders may just have to take their lumps and eat those writedowns or face a lot of keys on their doorstep.

If it was possible, the issue of collecting upfront fees  for loan modifications is attracting more scrutiny due to the unscrupulous operators taking those fees and disappearing. Unfortunately in an economic downturn the wolves come out to prey.

From what we’ve seen, attorneys don’t need to use an advance fee agreement but non-attorney based loan mod firms should be using them to stay out of trouble.

If you are working with a mod firm that collects a fee, make sure their agreement has the fee broken down into parts that basically lays out the work performed. After the work is completed a portion of the fee is released to the firm.

This arrangement usually works the best to benefit both the client and the loan mod firm so they are not waiting several months to receive the bulk of their fee since most can’t run a business with receivables running 90-120 days or longer.

As usualy make sure you check out who you are working with and if a firm wants to charge a fee without even looking at your situation, you may want to reconsider working with them.

Until next  week…

We had two more clients that came to us last week (one with Wells Fargo, the other with Indy Mac) that tried to do a loan modification themselves. Wells Fargo threatened to start the foreclosure process on April 20 after repeated attempts by the homeowner to work out a loan modification on their own.

Indy Mac refused the other client’s hardship, they can’t refinance, and were forced to list the property for a short sale.

These are just two more examples of the real truth where the rubber meets the road with lenders. As more lenders are forced to deal with homeowners, the more their dirty tricks will be brought to the public light.

The latest trick is for many lenders to compare the original loan application to the current financial position of the homeowner and if they don’t match up, the lender is turning this information over the FBI in an effort to prosecute homeowners for bank fraud.

This should be interesting to watch as it unfolds. I have a friend that has a high level security clearance and worked w/ the FBI. I can’t go into what he worked on, but suffice it to say unless there is over $50,000 in damage to a consumer due to identity theft, the FBI doesn’t have the resources to even investigate.

Identity theft is one of the fastest growing crimes, not to mention threats of terrorism, money laundering, drug trafficking, and a whole host of other serious threats to our country and security.

I’ll bet dollars to donuts that the lenders’ attempts to use the FBI as their own personal Gestapo to get homeowners to back off will fail miserably.

Time will only tell if my prediction is right on this one.

Enjoy!

Some lenders have experimented with online data forms to input homeowner financials for modification and here are the results of that test.  Several  of the files submitted by our underwriters and by homeowners resulted in lenders never receiving the financial package. Beside the time delay to find out the package was never received, the entire package had to be submitted again by fax, which further delayed the process.

This experience is still unfortunately the daily reality of mortgage modifications with most lenders.  With no clear direction from Washington, lenders are still doing modifications under a system that is severely backlogged, inefficient and bursting at the seams.

Our experience has been that lenders are still taking up to 60 days just to assign a negotiator, once a full  modification package has been received.

The general consensus is Freddie and Fannie loans will potentially be the beneficiaries of the govt plan, approx. 58% of all home loans.  This leaves out the other 42%. And of those in foreclosure the government refinance plan won’t  help.

It also won’t help those upside down more than 105% of their property value.  If your home is worth $100,000 and you owe $106,000 you don’t qualify.

The Geithner “toxic asset” plan still has no clear indication of what will actually be bought (paper, loans, REO’s)  by the public/private “partnership”.

And there is no clear indication of what will be done with whatever they buy. Will they be modified, principal balances reduced, foreclosed and sold in wholesale lots (like the RTC of early 90′s) ?

One thing is for sure. With the govt (i.e. taxpayers) providing 94% of funding and private investors the other 6%, there will huge upside and little downside for the private sector.  The prediction is that lenders and investors will collude to cover their risk, so we’ll be watching this one very closely.

HUD is considering a proposal for 30% principal balance reduction on FHA loans that are grossly upside down. The proposal is designed to provide incentive for owners to stay put and stabilize neighborhoods.

FHA would pay a partial claim to the lender for the loss. In return, the borrower will probably be on the hook for the forgivemess.  If Hope 4 Homeowners is an indication (an abysmal failure) this proposal probably won’t go anywhere.

Wells Fargo indicated in Feb that it would start including principal balance reductions to stabilize mortgages but the reality is that only around 5% of loans are in this group.

This is one of the best indicators to watch with lenders because homeowners are getting wiser every day.  They’re asking “..why should I stay in my home worth $300,000 when I owe $450,000 ? It could take years to just get even again after the years it takes for the market to recover….”

That’s a great question, and in the wake of more financial scandals, government corruption scandals (follow money trail to Chris Dodd) and lost jobs, homeowners are collectively asking that question more frequently.

Two final events that we will watch that may give an indication of where lenders are going with regard to modifications.

The sale of IndyMac to One West is the first sale of a government owned entity sold to a private investor. Watch them closely because it could give an indication of how other private investors approach the current market reality and how they deal with capital issues, toxic assets, foreclosure and modification policies.

The second lender to watch is Countrywide. Just yesterday they approved a principal balance reduction on a file from $425k  to approx. $220k.

Keep an eye on these two lenders as movement from the private sector is the best indicator of how the coming chapters in the housing crisis will unfold.

Only time will tell how effective the Obama plan is in helping homeowners keep their homes. In the interim a house goes into foreclosure every 12 seconds.

Until next week….

One client, a female, is an acquaintance of one of my business partners. She works in a professional field, is educated, has children, etc.

We’re waiting on one final document to submit her modification package to her lender, but she doesn’t seem to be able to get it to us. The fee is not the issue, since we’ve already received it. Most times the doc package and fee arrive at the same time.

Psychologically, it’s a big commitment to make, especially with all the negative media about “loan mod scams”. To be fair, there are some “boiler room” operations out there and you need to watch out, which is why we created the free report of questions to ask before you hire a mod firm.

But, we’re beginning to see the psychological fallout of the housing crisis.

This particular client works a lot of hours, but surely she can find the 10 min to return one document to get the process started with their lender, especially with a looming foreclosure date about to be set.

She seems to be a bit frozen with fear of the unknown, and unable to take the final steps to solve her problem.

Another client (also a friend) is having difficulty just getting out to find a job. This is someone who is skilled,  has an excellent work ethic, always paid his bills and has never had a problem finding work.

I spoke to him at length about my own financial crisis after Katrina wiped out our business, hoping that the shared experience would remind him that his self image is not tied to his ability to pay his bills.

The most we can do for him right now is help with a forbearance agreement (a temp. solution)  while he finds a job to justify a loan modification with his lender.

But, the job layoff he experienced has been a devastating blow to his ego and is evidenced by his self sabotaging behavior and inability to do what it takes to find other work.

This is the human face of this crisis and I don’t see the psychological impact talked about very often in the media.

Since I’m in this business every day, I’m always looking for ways to reach more people, help them make a decision faster, and get their lives back in order by helping them save their home.

Once saving their home is off their plate, they can focus on the other financial aspects they need to take care of.

Because of my speed based/ solution oriented approach to reaching more people before it’s too late,  I sometimes forget the emotional trauma they are experiencing.

But, it doesn’t take long to remember back when I was in the same position. I remember the letters from lenders. Those  judgmental, callous bank representatives that had no regard for our lives being turned upside down by a natural disaster.

Not to mention the inability to collect on insurance claims quickly, to repair the properties before we started paying on them again.

So, as I remember back to what we went through, and how we were treated as second class citizens,  I remind myself that we’re not only offering a service to keep your home.

I can also  empathize with what our clients are going through and to afford them the dignity needed to remind themselves they are not their bills, period.

Remember, this is a national crisis and what’s important is to take a balanced approach to getting yourself out of this problem.

I don’t prescribe to the “victim” mentality, and neither should you.  I also will not allow any lenders to browbeat me into feeling less worthy as a human being because I might have run into difficulty.

I won’ t even get into the fraudelent mortgages sold by many of these lenders, but if you add that to the mix, there’s no reason to allow the inability to pay your mortgage cripple you psychologically.

One last thing to remember. We, as Americans have it pretty good. I’ve traveled overseas and have seen refugee camps.

Some people this very minute are just looking for basic necessities like food and water.

When you put your housing crisis into that context I hope you can separate your worth as a human being to yourself, friends, family, loved ones, etc. and remember you are not your bills.

Now, go out there and deal with this problem head on, until it’s behind you and you will restore your confidence in dealing with any other financial issues you may be experiencing.

This quick update is to give you a snapshot of what is going on right now in the lending community with regard to loan modifications.

Since the new Obama plan was unveiled, many lenders have been sitting on their hands waiting to see what additional guidelines are coming out of the White House.

And since the program is voluntary, no lender wants to agree to something that may set a precedent and put themselves at a disadvantage with other lenders. They’re basically waiting for some guidance or for someone to blink.

Some lenders are continuing to do modifications and I  believe those same lenders will be ahead of the curve when the economy turns around.

Keep in mind lenders have their own interests at heart here.  One thing we do know is that lenders use a test called  “net present value” when making determination for a loan mod.

For you finance folks, you know what net present value is.  For the rest of us, what it basically means is that modifying your loan has to be more profitable to the lender than not modifying the loan.  It’s a harsh but true reality.

Modifying a loan is strictly a business decision for lenders. Don’t kid yourself that lenders are doing modifications out of the goodness of their hearts or to save the economy.

Nor should they be. I have no problem with lenders making a decision that effects their bottom line positively. Being a business owner myself,  I fully understand that with “no margin, there is no mission”.

With that said, what I do have a problem with is the gross incompetence and bad bets the banks made, that came back to bite them which led to this collapse.

When they take taxpayer dollars to save themselves, then for me the rules change, because they’re not on the same playing field as everyone else following free market rules- i.e. you’re on your own, and if you make it great.

If not, your business ceases to exist, because a smarter company served the customer better, and didn’t make reckless bets knowing the gov’t would bail them out if those bets didn’t work out.

Unfortunately they are still looking out for their interests, even after taking billions of taxpayer dollars to prop up the bad loans they made in the first place.

So, the landscape is changing and will continue to change until lenders eventually figure out what to do with all the non-performing assets they hold.

I’m not sure if Geithner will be around much longer. When you hear the words “..I have full confidence in so and so’s ability to perform their job…” coming from the president,  that usually means they are about to lose their job.

If that happens, there will be even more delay on the part of some lenders, while a replacement is found that can figure out how to untangle the mess.

A quick example is HomeEq. Approx. a month ago they were doing loan mods. They suddenly stopped due to staffing issues. Unfortunately a day later I got a call from a woman with a HomeEq. mortgage.

It was terrible to tell her we couldn’t help, but I’ll stay in touch and if things change we’ll see what we can do.

Another example is Wachovia. They were doing mods until Wells Fargo took them over. Wells has their own problems to sort out first, so Wachovia stopped doing loan mods.

Multiply this by more than a hundred different lenders, servicers, etc. and you can see it’s a full time job just keeping up with lender guidelines for modification, changing criteria, and who’s doing them and who’s not.

Hopefully next week I’ll have a more clear picture of the govt guidelines that lenders can use to make the determination of doing a modification or not.

Unfortunately with the layers of bureauacracy, not to mention financial industry lobbyists and corrupt politicians jockeying behind the scenes,  combined with the AIG bonus scandal, I don’t expect to have any clear answers that we can all count on moving forward.

Each loan modification we take on will be on a case by case basis to determine if we can help.  Unfortunately, a recent CNN Money article pointed out that a forclosure now starts every 13 seconds in America.

You would think with a sobering statistic like that, politicians and the lenders would fast track firm guidelines, make policy decisions and clean up this mess as fast as possible.

Until next time, keep your head up. We will eventually get through this mess.

After scanning the loan mod industry both online and offline and seeing all the “mod shops” that have popped up in the last 6-9 months I decided to put together the top questions to ask before you consider hiring a professional modification firm.

These questions are based on my own experience and the experience of others that have gotten a successful loan modification through the use of a reputable firm.

Download the report, share it with others that may be in a similar situation and if you found it helpful post your comments and let us know what you think.

A few words or sentences would be great. The more feedback we get the better we will be able to offer relevant content homeowners are looking for to help survive this unprecedented housing crisis.