The Four Road Blocks That Are Slowing Loan Modifications

Published by: Feldman Law Center

Hope and optimism emanating from the announcement of the Obama Administration's "Making Home Affordable" plan have been replaced by the cold reality that the program has gotten off to start deemed by industry watchers as "anemic". After almost four months since President Obama first announced the $75 billion mortgage rescue effort, the administration continues to tweak the program in an attempt to reach its originally stated objective of saving up to 5 million homeowners from foreclosure. Standing between the anemic start and lofty goals of the program are four roadblocks:

1) Overloaded loan modification processors – While the specifics of the plan were released in the first week of March, lenders couldn't start handling applications until systems were re-programmed and processors were brought up to speed, which took an additional four to six weeks. Processors were immediately buried with stacks of applications that had been accumulating during the conversion to the new guidelines. Participants in the process report that servicers are still digging out from the initial rush as applications continue to flood their desks. Troubled borrowers, many backed up against the possibility of foreclosure, have become increasingly frustrated to the point where they have abandoned the process to retain their own legal assistance. JP Morgan Chase spokesman Tom Kelly recently said of the ramp-up, "It's an enormous task. We're moving quickly, although not as quickly as an individual might wish."

2) Investors – The massive sums of money that supported the real estate/mortgage boom came from investors on Wall Street, pensions, and other institutions. Servicers say those investors are now balking at some of the terms being presented when a loan needs to be modified. The net present value test, a little known aspect of the plan, allows for a calculation to determine whether the greater return for investors will be achieved via modification or foreclosure. In the modification versus foreclosure decision, investors have been threatening lawsuits against servicers when the servicers are deemed to not be acting in the best interests of their investors. The threatened legal action adds another layer to the home loan modification process and can draw out the approval process even more. The "safe harbor" bill recently passed by Congress was intended to alleviate that logjam by protecting servicers from investor lawsuits but it's likely that lawsuits will arrive on the servicers doorsteps anyway, safe harbor or not.

3) Lenders – Lenders are caught in a three sided bind between the above mentioned borrowers/investors and their own capital structure. No longer required to mark their loans to market, they can carry the value of the loans in their own portfolios at values they can rationalize, whether factual or not. Loan modifications could generate reviews of portfolio values, and nobody wants to go there in the current environment.

4) Unemployment - According to John Taylor, head of the National Community Reinvestment Coalition, "Unemployment is becoming a bigger factor than almost anything." When sub-prime mortgages started blowing up it was attributed to the risks inherent in lending to lower quality borrowers. Increasing unemployment, in addition to taking down the lower quality borrowers, is now hitting prime mortgages. In fact, primes are now going into default at a much faster rate than sub-primes as previously solid borrowers are now being affected by the contracting economy.

Of the four roadblocks, the toughest barrier is unemployment due to the fact that, regardless of credit scores, if a homeowner doesn't have a job a loan modification isn't going to help. Short sales, cash for keys, or foreclosure become the next options. At that point every side of the three sided bind ends up on the losing end.

ref:  sooperarticles.com/finance-articles/mortgage-articles/four-road-blocks-slowing-loan-modifications-9472.html

Loan Modification Companies - Scammers or Saviors?

By: Harry J. Andersohn

Okay let's cut right to the chase. This new vehicle that promises to help homeowners who are in financial trouble avoid foreclosure and save their homes -- known as loan modification -- sound like it might be the real deal.

And it makes sense. It basically plays off the fact that the banks are completely desperate to avoid foreclosing on properties, and they're willing to work with people who are having trouble, or may have trouble in the near future, meeting their mortgage obligation.

It makes sense for the banks, it makes sense for the homeowner, and it makes sense for the economy.

So if loan modification makes sense, why is everybody going out and having success doing it?

Now I don't know for sure, but I think that one of the reasons is probably because a lot of homeowners are trying to do this on their own with out the help of a professional -- someone who knows what they're doing.

And I think this is because a lot of people have been scared off of hiring a lone modification specialist, because if you morons in the news media have gotten the story all wrong. Here's what I mean...

Back before the economy totally hit bottom, a few people tried loan modification with their bank. Now, because things weren't nearly as bad then as they are now, the banks were far less willing to work with people and to really substantially lower their rate.

So what did you get? You got people who said they were successful in getting a loan modification, but who in reality only got a very very slight reduction on their payment. So of course it wasn't going to help them very much.

In recent months, lots of loan modification companies have sprung up. And this is sparked all new round of controversy. The problem is, that a lot of these companies are simply rehashed mortgage hacks looking to replace their lost income since no one is looking for a new mortgage anymore.

And these know nothings are giving the legitimate companies in the industry a bad name. Here's what I look for when choosing a loan modification company. You're free to do what you want but these are the criteria I would hold anyone I hired to:

Make sure they do loan modifications and only loan modifications. You want someone who specializes in this day in and day out. Who knows how to negotiate with the banks and who knows how to get you a true reduction. Don't hire a divorce lawyer to do a loan modification.

Make sure they're a lawyer. I mentioned tired old mortgage hacks above. Don't hire the same guys that got us in this mess to get you out. It's like asking the fox to guard the henhouse. Enough said.

Get a guarantee. Anyone who does business, no matter what that business is, will offer a guarantee if they stand behind their product or service at all. If the loan modification company you're talking with doesn't offer a guarantee, go with someone else.

Get proof. Again, anyone who's been successful in getting loan modifications for their clients will have a paper trail. Ask to see it. Not only should they show it to you, they should offer to show it to you before you even ask. This is the mark of someone who is not afraid for you to look at the results they've already gotten.

I hope all this helps.

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