Modifications are like a dirty word in the marketplace. Frustration, chicanery, luring borrowers into default, and crating modifications that are bound to fail so that the banks can get that ever precious foreclosure sale. But there is another side to it, as our guest writer David Abellard points out below.
And while I think the entire mortgage foreclosure thing is a complete sham, it is nonetheless true that homeowners want a a modification far more often than just getting a “free home.” Most of us understand that litigation is about preventing the banks from getting a “free home” — which is to say not just any home, but the home that a family resides in.
Litigation also provides the homeowner with presenting a credible threat, especially if they are after discovery on the money trail. So it is impossible to say how much litigation is necessary to get the best terms, or even if the homeowner SHOULD litigate, because much of that has more to do with personal decisions than the likelihood of success in litigation.
There is also a point I want to make to people who are not sophisticated in finance. An interest rate that is far under market rates IS the equivalent of a principal reduction. If you want to learn more about this, Google “present value” and “future value.” If you stay in the home for the duration of the loan, the impact gets larger and larger. But if you are staying in the home for only a short while then reducing the interest rate won’t do much without an actual principal reduction. As pointed out in prior broadcasts and articles here on livinglies, make sure whoever you are talking to about modification, short-sale or any other settlement is aware of two things:
- There are hidden programs throughout the country that provide direct financial assistance to those who want to bring their loan current or who need a reduction in principal. The “expert” you are hiring had better know about them or you might turn down a deal that would otherwise be acceptable.
- Get a court order approving the modification as a settlement. Submit an agreed order that expressly refers tot he legal description of the property, the fact that the homeowner is the owner in fee simple absolute — by name — and that the holder of the mortgage and note is identified by name. The order should approve the settlement even if the the settlement agreement is confidential and even if the settlement agreement is not attached to the order.
- Snatch and Grab: Many of the banks are still secretly scripting their customer service people to lure you into a default with the promise of a modification, even accepting trial payments, and then foreclosing anyway. The courts are not amused and they are getting banged by this practice — but only where the homeowner brings it up loudly.
- People ask me “should I stop paying?” The answer is universally that you don’t want to put yourself in a worse position than the one in which you are already stuck. Voluntary nonpayment is only for those who are pursuing strategies based upon strategic default. If the bank tells you to fall behind by 90 days, don’t believe it — it’s a trap. At best they are trying to steer you into an in house modification where the interest rates and payments are higher than in HAMP, HARP or other programs that do NOT require you to be i default for modification, no matter what anyone tells you.
But modifying the mortgage is a legitimate way of ending your problem as long as you take the necessary steps to protect your title. Thus I am inviting people to write in about modification. David Abellard sketches the modification process below:
Loan Modification Information
Most homeowners have lost faith in loan modifications. Lenders have been alleged to routinely used the process to trick unsuspected homeowners into agreeing to consent judgment in pending foreclosure cases. The skepticism of some is understandable. However, the foreclosure landscape has shifted a bit in favor of the homeowners. The new Consumer Financial Protection Bureau recently promulgated rules that make loan modification more effective.
Lenders and their servicers could face serious penalty for not complying with the federal regulations that went into effect January 10, 2014. If a loan is modified, the new payment will be based on the household income; which is generally 31% of the household monthly gross income. Loans on a primary residence as well as non-owner residence can be modified. There are several loan modification programs. The Home Affordable Modification Program (“HAMP”) is a government program that has been extended until 12/31/15. If a homeowner does not qualify for HAMP, or the investor doesn’t participate in the HAMP program, banks and servicers also offer internal private modification programs as an alternative. Loan modifications are primarily designed to create an affordable payment plan for the homeowner based on their current income; it does not create equity by reducing the principle balance of a loan based on current property value.
There are mainly three ways a loan can be modified to create an affordable payment:
1) reduction of interest rate;
2) extension of loan term;
3) waiver or deferment of principle balance.
Regardless of what someone may tell you, applying for a loan modification does not guarantee that you will receive one, nor can anyone guarantee specific results.
Normally, the homeowner will have to complete a trial period which usually last 3 months before the modification becomes final. Applying for a loan modification under certain circumstances may stop the court from entering a final judgment or selling the property while the modification application is being reviewed. The application process can be daunting and intimidating. There are some law firms which concentrate on loan modification. They can become a very effective interface between the lender and the borrower and facilitate the process.
David Abellard at The Law Office of Paul A. Krasker, P.A.
Office: 561.328.2268, or 877-332-1965 ext 194
Filed under: CORRUPTION, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MODIFICATION, Mortgage, Pleading, Servicer, TRUST BENEFICIARIES, trustee Tagged: | Abellard, home loans, interest rate reduction, Krasker, modification, mortgage modification, princnipal reduction