LOAN MODIFICATIONS

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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:

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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
Email: dabellard@kraskerlaw.com,

 

Bribery or Business as Usual?

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Editor’s Comment and Analysis:

There is only one way this isn’t an outright bribe that should land the senator in jail — and that is proving that he received nothing of value. Stories abound in the media about haircut rates given to members of government particularly by Countrywide, now owned by Bank of America. Now we see it on the way down where others go through hoops and ladders to get a modification of short-sale but members of Congress get special treatment.

The only way this could be considered nothing of value is if the banks that gave this favor knew that they didn’t lend the money, didn’t purchase the loan and didn’t have a dime in the deal. They can prove it but they won’t because the fallout would be that there are no loans in print and that there are no perfected mortgage loans. The consequence is that there can be no foreclosures. And it would mean that the values carried on the books of these banks are eihter overstated or entirely fictiouos. The general consensus is that capital requirments for the banks should be higher. But what if the capital they are reporting doesn’t exist?

We are seeing practically everyday how Congress is bought off by the Banks and yet we do nothing. How can you expect to be taken seriously by the executive branch and the judicial branch of goveornment charged with enforcing the laws? If you are doing nothing and complaining, it’s time to get off the couch and do something with the Occupy Movement or your own private war with the banks. If you are not complaining, you should be — because this tsunami is about to hit the front door of your house too whether you are making the payments or not.

The power of the new aristocracy in American and European politics is felt around the globe. People are suffering in the U.S., Ireland, France, Spain, Italy, Greece and other places because the smaller banks in all those countries got taken to the cleaners by huge conglomerate Wall Street Banks. Ireland is reporting foreclosures and defaults at record rates. It was fraud with an effect far greater than any other act of domestic or international terrorism. And it isn’t just about money either. Suicides, domestic violence ending in death and mental illness are pandemic. And nobody cares about the little guy because the little guy is just fuel for the endless appetite of Wall Street. 

If Obama rreally wants to galvanize the electorate, he must be proactive on the fierce urgency of NOW! Those were his words when he was a candidate and he owes us action because that urgency was felt in 2008 and is a vice around everyone’s neck now.

JPMorgan Chase & the Senator’s Short Sale:

It’s Hypocritical –But Is It Corrupt?

By Richard (RJ) Eskow

There’s a lot we have yet to learn about the story of Sen. Mike Lee, Tea Party Republican of Utah, and America’s largest bank. But we already know something’s very, very wrong:

Why is it that most Americans can’t get a principal reduction from Chase or any other bank, but JPMorgan Chase was so very flexible with a sitting member of the United States Senate?

The hypocrisy from Sen. Lee and JPMorgan Chase CEO Jamie Dimon overfloweth. But does the Case of the Senator’s Short Sale rise to the level of full-blown corruption? We won’t know until we get some answers.

People should be demanding those answers now.

When Jamie Met Mike

It’s not a pretty picture: In one corner is the Senator who wants to strike down Federal child labor laws and offer American residency to any non-citizen who buys a home with cash. In the other is the bank whose CEO said that the best way to relieve the crushing burden of debt on homeowners is by seizing their homes.

“Giving debt relief to people that really need it,” said Dimon, “that’s what foreclosure is.” That comment is Dickensian in its insensitivity – and Dimon’s bank offered real relief to the Senator from Utah.

The story of the short sale on Sen. Mike Lee’s home broke broke shortly not long after the world learned that JPM lost billions of dollars through trading that might have been illegal, and about which it certainly misled investors.

A Senator who doesn’t believe in child labor laws, and a crime-plagued bank that was just plunged into a trading scandal after losing billions in the London markets.

Why, they were practically made for one another.

Here in the Real World

This was also the week we learned from Zillow, one of the nation’s leading real estate data companies, that there are far more underwater homeowners than previously thought. Zillow collated all the information on home loans, including second mortgages, in order to develop this larger and more accurate number.

The new estimated amount of negative equity – money owed to the banks for non-existent home value – is $1.2 trillion.

Zillow found that nearly 16 million homeowners, representing roughly a third of all homes with a mortgage, were “underwater” (meaning they owe more than the home is now worth). That’s about 50 percent more than had been previously believed. Many of these homeowners are desperate for principal reduction, which would allow them to get back on their feet.

Banks can reduce the amount owed to reflect the current value of the house, which would lower monthly payments for many struggling homeowners. Another option is the “short sale,” in which the bank lets them sell the house for its current value and walk away. That would allow many of them to relocate in search of work.

But the banks, along with their allies in Washington DC, have been fighting principal reduction and resisting any attempts to increase the number of short sales. They remain out of reach for most struggling homeowners.

Mike’s Deal

But Mike Lee didn’t have that problem. Lee was elected to the Senate after buying his luxury home in Alpine, Utah at the height of the real estate boom. JPMorgan Chase agreed to a short sale, and it sold for nearly $400,000 less than the price Lee paid for it four years ago.

Sen. Lee says that he made a down payment on the home, although he hasn’t said how much was involved. But if he paid 15 percent down and put it $150,000, for example, then the Senator from Utah was just allowed to walk away from a quarter of a million dollars in debt obligations to JPMorgan Chase.

Let’s see: A troubled bank gives a sitting member of the United States Senate an advantageous deal worth hundreds of thousands of dollars? You’d think a story like that would get a little more attention than it has so far.

The Right’s Outrageous Hypocrisy

We haven’t seen this much hypocrisy in the real estate world since the Mortgage Bankers Association walked away from loans on its own headquarters even as its CEO, John Courson, was lecturing Americans their “legal obligation” and the terrible “message they would send” by walking away from their mortgages.

Then he did a short sale on the MBA’s headquarters. It sold for a reported $41 million, just three years after the MBA – those captains of real estate – paid $74 million for it.

The MBA calls itself “the voice of the mortgage banking industry.”

The hypocrisy may be even greater in this case. Sen. Mike Lee is a member in good standing of the Tea Party, a movement which began on the floor of Chicago Mercantile Exchange as a protest against the idea that the government might help underwater homeowners, even though many of the angry traders had enriched themselves thanks to government bailouts.

When their ringleader mentioned households struggling with negative equity, these first members of the Tea Party broke into a chant: “Losers! Losers! Losers!”

Mike Lee’s Outrageous Hypocrisy

Which gets us to Mike Lee. Lee accepted a handout of JPMorgan Chase after voting to end unemployment for jobless Americans. Lee also argued against Federal child labor laws, although he did acknowledge that child labor is “reprehensible.”

How big a hypocrite is Mike Lee? His website (which, curiously enough, went down as we wrote these words) says he believes “the federal government’s out-of-control spending has evolved into a major threat to our economic prosperity and job creation” and that he came to Washington to, among other things, “properly manage our finances”. Lee’s website also scolds Congress because, he says, it “cannot live within its means.”

As Ed McMahon used to say, “Write your own joke.”

Needless to say, Lee also advocates drastic cuts to Social Security and Medicare while pushing lower taxes for the wealthy – and plumping for exactly the same kind of deregulation which let bankers to run amok and wreck the economy in 2008 by doing things like … well, like what JPMorgan Chase just did in London.

“Give Me Your Wired, Your Wealthy, Your Upper Classes Yearning to Buy Cheap”

Lee has also co-sponsored a bill with Chuck Schumer, the Democratic Senator from Wall Street New York, that would grant US residency to foreigners who purchase a home worth at least $500,000 – as long as they paid cash.

The Lee/Schumer bill would be a big boon to US banks – banks, in fact, like JPMorgan Chase. If it passes, the Statue of Liberty may need to be reshaped so that Lady Liberty is holding a book of real estate listings in her right hand while wearing a hat that reads “Million Dollar Sellers’ Club.”

Mike Lee’s bill would also have propped up the luxury home market, offering a big financial boost to people who are struggling to hold to the equity they’ve put into high-end homes, people like … well, like Mike Lee.

Jamie Dimon’s Outrageous Hypocrisy

Then there’s Jamie Dimon, who spoke for his fellow bankers during negotiations that led up to the very cushy $25 billion settlement that let banks like his off the hook for widespread lawbreaking in their foreclosure fraud crime wave.

“Yeah,” Dimon said of principal reductions for homeowners like Sen. Lee, “that’s off the table.”

Dimon’s been resisting global solutions to the negative equity problems for years. He said in 2010 that he preferred to make decisions about homeowners on a “loan by loan” basis.

The Rich Are Different – They Have More Mortgage Relief

“The rich are different,” wrote F. Scott Fitzgerald, and (in a quote often misattributed to Ernest Hemingway) literary critic Mary Colum observed that ” the only difference between the rich and other people is that the rich have more money.”

And they apparently find it a lot easier to walk away from their underwater homes.There’s been a dramatic increase in short sales lately, and the evidence suggests that most of the deals have been going to luxury homeowners. Among other things, this trend toward high-end short sales the lie to the popular idea that bankers and their allies don’t want to “reward the underserving,” since hedge fund traders who overestimated next year’s bonus are clearly less deserving than working families who purchased a modest home for themselves.

Nevertheless, that’s where most of the debt relief seems to be going: to the wealthy, and not to the middle class.

Guess that’s what happens when loan officers working for Dimon and other Wall Street CEOs handle these matters on a “loan by loan” basis.

Immoral Logic

While this “loan by loan” approach lacks morality, there’s some financial logic to it. Banks typically have a lot more money at risk in an underwater luxury home than they do in more modest houses. A short sale provides them with a way to clear things up, recoup what they can, and get their books in a little more order than before. That’s why JPMorgan Chase has been offering selected borrowers up to $35,000 to accept short sales. You can bet they’re not offering that deal to middle class families.

There are other reasons to offer short sales to the wealthy: JPM, like all big banks, is pursuing very-high-end banking clients more aggressively than ever. That’s where the profits are. So why alienate a high-value client when they may offer you the opportunity to recoup losses elsewhere?

(“Sorry to interrupt, Mr. Dimon, but it’s London calling.”)

Corruption Or Not: The Questions

Both the bank and the Senator need to answer some questions about this deal. Here’s what the public deserves to know:

Could the writedown on the home’s value be considered an in-kind gift to a sitting Senator?

If so, then we have a very real scandal on our hands. But we don’t know enough to answer that question yet.

What are JPMorgan Chase’s procedures for deciding who receives mortgage relief and who doesn’t?

Dimon may prefer to handle these matters on a “loan by loan” basis, but there must be guidelines that bank officers can follow. And presumably they’ve been written down somewhere. Were they followed in Mike Lee’s case?

Who was involved in the decision to offer this deal to Mike Lee?

Offering mortgage relief to a sitting Senator is, to borrow a phrase, “a big elfin’ deal.” A mid-level bank officer isn’t likely to handle a case like this without taking it up the chain of command. So who made the final decision on Mike Lee’s mortgage?

It wouldn’t be unheard of if a a sensitive matter like this one was escalated to all the way to the company’s most senior executive – especially if that executive has eliminated any checks on his power, much less any independent input from shareholders, by serving as both the Chair(man) of the Board and the CEO.

In this, as in so many of JPM’s scandals, the question must be asked: What did Jamie know, and when did he know it?

Is Mike Lee a “Friend of Jamie”?

Which raises a related question: Is there is a formal or informal list of people for whom JPM employees are directed to give preferential treatment?

Everybody remembers the scandal that surrounded Sen. Chris Dodd when it was learned that his mortgage was given favorable treatment by Countrywide – even though the Senator apparently knew nothing about it at the time. The world soon learned then that Countrywide had a VIP program called “Friends of Angelo,” named for CEO Angelo Mozilo, and those who were on the list got special treatment.

Is there a “Friends of Jamie” list at JPMorgan Chase – and is Mike Lee’s name on it?

Were there any discussions between the bank’s executives and the Senator regarding the foreign home buyer’s bill or any other legislation that affected Wall Street?

Until this question is answered the issue of a possible quid pro quo will hang over both the Senator and JPMorgan Chase.

Seriously, guys – this doesn’t look good.

Was MERS used to evade state taxes and recording requirements on Sen. Lee’s home? 

JPMorgan Chase funded, and was an active participant, in the “MERS” program which was used, among other things, to bypass local taxes and legal requirements for recording titles.

As we wrote when we reviewed hundreds of internal MERS documents, MERS was instrumental in allowing banks to bundle and sell mortgage-backed securities in a way that led directly to the financial crisis of 2008. It also helped bankers artificially inflate real estate prices, encourage homeowners to take out loans at bubble prices, and then leave them holding the note (as underwater homeowners) after the collapse of national real estate values that they had artificially pumped up.

“Today’s Wall Street Corruption Fun Fact”: MERS was operated by the Mortgage Bankers Association – the same group of real estate geniuses who lost $30 million on a single building in three years, then gave a little lecture on morality to the homeowners they’d been so instrumental in shafting.

Q&A

I was also asked some very reasonable questions by a policy advocacy group. Here they are, with my answers:

If this happened to the average American, would they be able to walk away from the mortgage as well?

If by “average American” you mean “most homeowners,” then the answer is: No. Although short sales are on the rise, most underwater homeowners have not been given the option of going through a short sale. Mike Lee was. The question is, why?

Will Mike Lee’s credit rating be adversely affected?

This is a very important question. The credit rating industry serves banks, not consumers, and it operates at their beck and call.

The answer to this question depends on how JPM handled the paperwork. Many (and probably most) homeowners involved in a short sale take a hit to their credit rating. If Lee did not, it smacks of special treatment.

Given the fact that it was JPMorgan who financed the loss, does that mean, indirectly through the bailout, that the taxpayers paid for Lee’s mortgage write-off?

That gets tricky – but in a moral sense, you could certainly say that.

Short Selling Democracy

There’s no question that this deal is hypocritical and ugly, and that it reflects much of what’s still broken about both our politics and Wall Street. Is it a scandal? Without these answers we can’t know. This was either a case of the special treatment that is so often reserved for the wealthy, or it’s something even worse: influence peddling and political corruption.

it’s time for JPMorgan Chase and Sen. Mike Lee to come clean about this deal. If they did nothing wrong, they have nothing to hide. Either way the public’s entitled to some answers.


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