"BAILOUT" is the is word of the day, EVERY DAY. Expect to hear it over and over again into 2009, as the US Government figures out how to solve the now global economic crisis. With yesterday's 800 intra-day fall of the Dow, you've seen real potential for an absolute crash of the stock market. And this happened the day AFTER the president signed the $700B bailout into law. As a quick summary, the pending bailout package gives broad authority to purchase troubled mortgage investments and other distressed assets from financial institutions. But the US treasury has not yet disclosed exactly how it intends to do this. The underlying purpose of this bailout is to make credit available to consumers and businesses, by giving banks the "liquidity" they desperately need to lend - thereby injecting the economy with the money it needs to recover. However, there is absolutely no guarantee that banks will resume lending again. As proof, economists sited global interventions in other countries, where their lenders are opting to hold bailout funds on deposit for less interest, instead of lending it out! Why would it be any different here? Will US banks suddenly see lending as profitable because they were given a little extra money? The global markets await to see the impact (if any) the pending bailout will have on restricted US credit. Today 10/07/2008, the markets continue to sink deeper in the negative at -325pts...

Earlier this month, I was hopeful that the bailout legislation would be revised to directly help homeowners and not just banks. Didn't happen. The bailout as it was passed will not stop foreclosures, and as you can tell, I do not have much faith in our government's ability to fix things overnight. In fact, Bush himself says that will take some time to figure out how to resolve our credit crisis. Unfortunately, for most delinquent homeowners, there is not much time left. After missing one mortgage payment, it takes only 6 months for a lender to foreclose on a home.

SO WHAT NOW?

For homeowners, there is "hope" as it is sold. There's the HOPE for homeowners program. There's the Hope hotline or HOPE Now Alliance. Countrywide has a Hope Department for deliquent borrowers. Is it real hope or just a government campaign to boost confidence in times of dire straits? Honestly, I think it's a little bit of both. Obviously, the government does not want you to give up hope so you'll continue paying on your mortgages, but there are very promising programs either in effect or being discussed by lenders now that will make your payments more affordable. In this article, I'll make an attempt to explain what can be done sooner rather than later, for the delinquent and/or upside-down homeowner, based on loss mitigation programs offered by these lenders.

FHA Bailout a.k.a HOPE for Homeowner's Program

I've reviewed this in depth in my previous FHA bailout update, but in short, it gives seriously delinquent homeowners a chance to refinance at a reduced loan balance, equal to present market value minus another 10%. The idea is to give homeowners, who are near foreclosure, real incentive to stay in their homes by lowering their payments and giving them back some lost equity. The catch is that 1) the current lender MUST AGREE to the write-down at their option only; 2) all subordinate liens (2nds or 3rds) on the subject property must be non-existent; 3) you must own only ONE home; 4) you cannot make too much money but still enough to make the new loan payment; 5) you must agree to share equity with the government if you later sell or refinance; and 6) you must not have intentionally gone late to qualify for the program. I receive an unbelievable number of calls about this program, and as of 10/07/2008, it is still not available on the wholesale mortgage level. As with any new programs, it may take yet another several weeks for banks to train loan staff, program automated systems, and release underwriting guidelines. More importantly, no one lender wants to be the first to offer such a risky loan product, in terms of the complexity involved with this short refinance transaction. Official information on the HOPE for Homeowners program can be found at FHA.gov. Even there, you'll see that FHA has not yet published a list of participating lenders, although the program was effective October 1st. If you think you qualify for this program, please email me directly at randymiguel@gmail.com, and I'll reply once it becomes available. If I already have your email address, you can expect to receive a follow-up announcement the same day I receive the broker alert to begin submitting applications.

Remember, the primary take away here is that your lender MUST AGREE to accept less than what they are presently owed. And if you have a 2nd equityline of credit or equity loan, that lender MUST ALSO AGREE to completely forgive that debt. Very soon, I'll be directly negotiating with lenders to convince them that taking the write down makes more financial sense than foreclosure. However, you must understand that as of right now, there is no incentive for banks to accept this lesser amount other than the tax write off and to cut their losses short. Like I've mentioned before, short sales are no different in net payoff to the lender, besides the fact that the borrower remains in the home. So it should be a no brainer to the lender then, that they should accept FHA bailout loans in any case where the borrower qualifies. Unfortunately, they [lenders] haven't learned to put 2 and 2 together, and it's my job to teach them how to add.

One possible draw back to the $700B bailout of banks, is that the Feds are now offering to buy up a significant amount of bad debt. Considering delinquent mortgages are classified as bad debt, why would banks agree to a balance write down if they can sell your loan to the Feds instead? Will the Feds then modify your loan? Quite possibly. In fact, I read verbage in the bailout plan that stated the government's ability to modify the acquired loans. Perhaps they [the Feds] will then approve you for the FHA bailout program after acquiring the debt from your bank. It will be interesting to find out what the impact of the $700B bailout will have on the FHA bailout, and banks' willingness to accept short payoffs through the HOPE for Homeowners program. Because there is presently little incentive for banks to participate, likely candidates will be homeowners who are in clear and imminent danger of foreclosure if the lender decides to do nothing. In the near future, I'll make certain to keep you posted with my successes and failures in negotiating these loans. Again, I'd be happy to assess your situation if you think you might be a strong candidate.

Countrywide (Bank of America) Bailout

Yesterday 10/06/2008, Bank of America announced their "Home Ownership Retention Program for Countrywide Customers." This plan was actually forced as a settlement to predatory lending lawsuits filed against Countrywide. Even if you do not have a Countrywide loan, please continue reading as this may set a precendent for other banks with severely delinquent loans in their portfolios - which is pretty much all of them. The program allocates $8.7 billion for nationwide relief, where $3.5 billion is slated for California alone. 400,000 loans will be examined across the nation, assuming all eligible borrowers participate for possible relief. Bank of America has acknowledged that they may also require the cooperation of investors, who own the loans through mortgage securities. This creates a problem, since Bank of America may not be the sole decision maker on the workout. All troubled homeowners with Countrywide mortgages should inquire with the lender or seek professional assistance for negotiation. Program highlights include complete suspension of foreclosure, reduced rates as low as 2.5%, and principal balance reductions for certain borrowers. How do you become one of the select borrowers to receive a balance reduction over a reduced rate? You may want to take a proactive approach rather than passively wait for a letter in the mail. As with the pending FHA bailout, I'll soon be negotiating terms for this Bank of America bailout as well. Please contact me if you would like to be informed as soon as this program becomes available.

IndyMac Bailout

The Federal Deposit Insurance Corp. is now renegotiating loans that were acquired from the now defunct IndyMac Bank. Likewise, it has announced a similar program to modify loans that were originated by the failed lender. When entering into negotiations with IndyMac, FDIC will ultimately make a decision on your loan modification claim. IndyMac customers have an advantage in negotiation, as their loans are not owned by investors with an eye towards profits. Although the federal government will also make money on its loans, it may be more likely to produce a favorable workout since it secured its loan portfolio for pennies on the dollar. Make certain that your loan modification package is prepared by someone who thoroughly understands your situation and who has the ability to effectively communicate your situation to the FDIC.

Washington Mutual (JPMorgan Chase) Bailout

Be aware of ongoing bank mergers and takeovers. Troubled Washington Mutual customers can expect that JPMorgan will soon address their newly acquired mortgage holdings. In fact, the company expects to write down more than $30 billion in loans. Existing WAMU borrowers should hang tight, in anticipation that more favorable workout solutions will be made available in the coming weeks.

Wachovia (Citi or Wells?) Bailout

Yesterday 10/06/2008, Citigroup sued Wells Fargo over its recent merger agreement with Wachovia. No matter the result, Wachovia (and ex-World Savings) customers can expect similar workout programs to be enacted by the new owning bank. If you presently hold a Wachovia loan, and are now in default, you will want to make contact with the lender to prevent your home from foreclosure, but maybe not be so quick to demand a loan modification. Once the acquisition is complete, it will not be long before a real modification program is put in place. Due to the pending merger, you can expect interim workouts to offer little homeowner benefit, as there is limited authority to modify the loan in the borrower's favor. Bottom-line, present Wachovia management has little say so when approving a loss. If you can, wait for the real decision makers to settle your loan. Ultimately, the new Wachovia owner may follow Bank of America's lead in writing down loan balances rather than offering temporary payment relief.
 
Direct Lender Negotiation

If your loan is held by another lender that was not mentioned here, or if it is managed by an unknown servicing company, you may indirectly benefit by the aggressive actions of the government and other major banks, because this is a "follow-me" industry. Financial institutions know what needs to be done to fix our housing crisis, but no lender wants to go first. Banks do not want to see their investors flee as they become known for settling on their bad debt. Even worse, they do not want to be sued by their investors for settling on their bad debt. Sadly, it took class action lawsuits to persuade Countrywide to take an aggresive action in loan workouts. Very soon, you'll hear about balance write-down modifications that were previously not considered for Countrywide customers. These write downs will echo throughout the industry. And hopefully, banks that are now standing on the sidelines for short refinances and write-downs will soon follow suit as they become the acceptable norm. In the meantime, enter into loan modification negotiations with your lender if you can present a clear and imminent threat of foreclosure, AND if you can prove that threat will be extinguished if a modification agreement is reached. But do so with caution, because you might accept a temporary workout agreement in haste, when a more favorable resolution may be right around the corner.

As always, feel free to email me with questions or concerns about your specific situation. I'd be glad to help.
-Randy Miguel

 

IMPORTANT UPDATE 09/2008: In the best interest of my clients, I have decided against negotiating short payoffs and loan modifications with lenders AT THIS TIME. Please read on... The financial landscape of our U.S. credit markets will soon change. Due to pending government legislation for the swift bail out of banks from their troubled mortgage debt, lenders may soon take a new stance in helping HOMEOWNERS rather than favoring their stockholders (see Critical News below on Sept 19th). I anticipate it will take at least 3 to 4 weeks until the government releases official details of the largest bail out in American history. At approximately the same time, official loan guidelines for the FHA bail out plan should also be released. If your present situation can wait, I would suggest that you also wait and see if this new fed proposal will benefit you. Thank you for your patience, and please do check back with me again soon for more details. ONCE WE HAVE A SOLID UNDERSTANDING OF THIS NEW PLAN, AND THE GOVERMENT HAS GIVEN THEIR LEGAL STAMP OF APPROVAL, I MAY IMMEDIATELY OPEN UP NEGOTIATIONS. In the meantime, I would be pleased to give you FREE advice. Feel free to share your situation with me, and I'll give you my realistic opinion of possible workouts from your lender. *Randy Miguel is not an attorney, and any and all advice provided is not to be construed as legal advice.


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Clients often inquire, "What is your success rate?" or "What are the chances for a short refinance?" Most people do not want to hear this, but it depends. Loss mitigation is a highly complex process, with the ultimate decision belonging to the lender. Certainly it is not as easy as it was to qualify for your home purchase loan or refinance. In qualifying for a home loan you get a simple yes or no answer. In qualifying for loss mitigation, you will instead get certain degrees of maybe. I am writing this article to help people better understand which homeowners in specific situations may have a greater opportunity for lender aid, and explain why lenders may decide to help - or not.

First of all, everyone's situation is uniquely different, so to try to assess your ability to get a loan mod on an agency's overall "success rate" is probably not the best way to go about it. I've seen other sites boasting 90% success or greater, but if you read between the lines, what they really mean to say is that they have a 90% shot of taking your money. Loss mitigation agencies truly cannot guarantee you any success at all, and neither can I. However, I can help you better understand a lender's reasoning in offering assistance, so you can make the determination on your own as to whether or not a loss mitigation case will be worth your time, effort and money. Every day, I counsel 7 to 10 clients across the United States about the possibility of negotiating relief with their lenders. Of these 7 to 10 people, only 33% actually pre-qualify to open a loss mitigation case. In hopes to help you better classify which statistical group you fall under, let me give you a couple examples of the other 66.666% who DO NOT qualify:

Disqualification Case 1: A person brings home $5000/mo. She owes $500,000 on her mortgage but her home is worth only $250,000. Her adjustable rate mortgage payment is now $3600, including property taxes and insurance. Her personal budget, including food, utilities, and gasoline add up to an additional $2000. She has savings account reserves of $20,000. She has never been late. Up until now, she has made every effort to do the right thing and keep timely on her payments. She is clearly negative $600 per month and most certainly does not like the idea of taking money out of her savings account to cover the difference - especially on a home that is worth 50% less than what she presently owes. She seeks assistance through a short refinance, so she can re-gain equity in her home and make her payment more affordable.

Assessment: Can she do a short refinance? Unfortunately at this time, NO. In order for a short refinance to happen, her lender must agree to accept less than what they are owed. Why will the lender most likely not agree to accept a short payoff? Although it may not be fair, the harsh reality is that lending institutions must first act in the best interests of their investors, where the borrower's financial well being is secondary. Before they would even consider reducing her loan balance and realizing a quarter of a million dollar loss, she would need to prove that the lender will face imminent near-term foreclosure if the lender should decide to do nothing. In her case, if the lender decides not to accept a short payoff, then she will likely continue to make payments until her savings account completely depletes over the next 2.7 years; she will not foreclose in the short term; and her credit will remain unblemished. You might think she can easily walk away from the home at any point in time, thereby making foreclosure quite imminent for the lender. But in this case, at this point in time, the lender will take that chance and hope that she is more concerned about maintaining her good credit than her concerns of paying on her devalued property. In the lender's eyes, she can make the payments for now, and the situation does not YET warrant the lender to take an immediate financial loss .

Disqualification Case 2: A man has been laid off from his job due to the ailing economy. He can no longer make the $2000 mortgage payment on his home that is now worth 25% less than the mortgage balance. After all he has suffered financially, he does not want to lose his home. He seeks assistance from the lender, asking them to reduce the principal balance and interest rate, so he can consider accepting jobs that might pay him less than what he was making before.

Assessment: Sadly, the lender will opt to accelerate foreclosure proceedings, given that he cannot prove to pay the mortgage, even if they are to modify the loan. Although the lender would lose money by foreclosing, it does not makes sense for them to delay what they see is the inevitable.

Disqualification Case 3: A person was sold a negative amortization mortgage he did not understand. 5 months ago, his barely affordable payment ballooned to an amount more than DOUBLE what he paid before. This happens when the mortgage of negam note must "recast", re-amortizing the loan to require principal and interest payments over the remaining 30yr term. Because he purchased the home 7 years ago, he does have *some* equity in it, just not enough to refinance. He seeks relief from the lender, for them to reset the mortgage payment back to the minimum amount prior to the adjustment.

Assessment: A modification of terms would only result in a faster rate of negative amortization and increase the likelihood of foreclosure in the near future. In this situation, the lender would likely foreclose on the property, given that they can be "whole" after selling the home at auction.

In each of these cases, the homeowners do not deserve to lose their homes. It is certainly not the borrowers' fault that they have fallen victim of the housing economy and can no longer afford to keep up. The "right" thing for their lenders to do is to accept loss and do whatever it takes to make their loans more affordable. However, what needs to be learned here is that lending is a FOR-profit business. Lenders will help their borrowers only if there is a real threat of foreclosure AND if they will lose more money through foreclosure. Otherwise, they are more likely to negotiate "catch-up" payments for delinquent borrowers, if anything at all. Hopefully this greedy corporate rationale will change through future legislation and continued housing rescue efforts by the Feds.

After reviewing the 3 cases above, you might think lenders are absolutely unwilling to help in any circumstance. On the contrary, lenders WILL adjust terms and sometimes write down balances if a borrower can prove with documented evidence that it makes more financial sense to do so. Let's make some key changes to the scenarios above and see how these changes shift leverage to the borrowers' favor:

Case 1 Revised: Let's alter the woman's situation slightly to a scenario where she has now become late, due to running out of cash reserves in her savings account. Additionally, her adjustable rate mortgage has now increased her payment to $4000 from $3600/mo. Having no cash on hand to cover the shortage from her pay, she has now had no other choice but to go delinquent. She faces imminent foreclosure, unless her lender takes action to prevent it.

Re-Assessment: Now faced with a decision to foreclose or modify, the lender must determine which choice results in the least degree of loss to their investors. In this case the cost of foreclosure, reconditioning the home for resale, paying commission fees to real estate agents, and the closing costs of sale would net a far less amount to the lender, than accepting a short payoff from a new lender (a.k.a short refinance). So long as she can qualify for a new refinance loan, all the existing lender must consider is the expected net payoff. Now that she has mortgage lates on her credit, unfortunately she cannot qualify for a traditional FHA loan. However, she may be an ideal candidate for a short refinance through the FHA bailout plan, designed to refinance severely delinquent borrowers out of troubled loans. For the lender, accepting a short payoff through FHA would mean that they would have to forgive the difference of their existing balance *plus* an additional 10%. If the outstanding loan balance is $500,000 with a present market value of $250,000, the lender would realize a net loss of roughly $275,000. If the lender chooses to accept a short payoff, they would get $225,000 NOW and could immediately reallocate these funds to guaranteed loans instead. They could possibly get an equivalent amount through foreclosure, but they would have to wait an indefinite period of time before they could resell the home. Once they do the math, it is likely they will see that an FHA short payoff will yield the lowest net loss to their investors. [The whole purpose of negotiation is to mitigate or minimize the loss to the lender, hence the name "loss mitigation."] Notice the decision to accept the short payoff has very little to do with the lender's desire to offer "help."

Case 2 Revised: Now let's revisit the man who was laid off from his job. Consider a situation where he is able to get himself back on his feet with a new employer. He now has slightly less pay but works at a stable full-time job nonetheless. His reduced income will not be enough to support the present mortgage payment on the home, and he has now gone several months behind.

Re-Assessment: Faced with imminent foreclosure, the lender must decide if a loan workout will be more favorable. He can now prove that he is financially capable of making a reduced payment. With the desire to remain in the home, he will commit to making the payment if the lender will either reduce the rate/balance or accept a short payoff - again through the FHA bailout plan. The decision to modify the existing loan with lower payment terms or permitting a short refinance is up to the lender to make. It is not likely the lender would opt to foreclose, due to the significant disparity between the mortgage and the value. Foreclosure would result in a greater net loss to their investors, so a loan workout of some sort makes better business sense. But a good loss mitigation agency should present a strong case for the short refi, as it is in the best financial interests of the borrower.

Case 3 Revised: For the person with the negative amortization note, it is only a matter of time before payments become completely unaffordable. Typically, a negam borrower has 2.5 to 4 years before the recast point is reached. [For World Savings or Wachovia negams, their recast point can be 5-7 years.] Recalling the gentleman who went late *after* his negam payment ballooned, let's assume he seeks help before this happens AND his home is upside down by 50% (meaning the home is worth 50% of his total mortgage balance).

Re-Assessment: People in this situation actually have a strong chance at short refinancing their home, without having to be late on their present mortgage. There are several arguments to support a lender's decision to do this:

• First, the borrower has gone negative due to his inability to afford the interest only or principal and interest payment. If a lender modified this loan without adjusting the balance, it would result in a new payment that is substantially higher than the one he has now. This would solve nothing. Only a modification that results in a balance write down will yield an affordable payment for this borrower. In my experience, I have seen more lenders willing to accept short payoffs than they would be willing to reduce the balance on the existing note.
• Second, it would not be wise for a lender to offer a modification that allowed for a mere extension to his minimum negam payment, due to the fact that his balance will only continue to grow - increasing the likelihood of foreclosure again in the near future.
• Third, if the lender simply opts to do nothing and allows for his loan to recast, then he will most certainly foreclose. This would result in the lender having to wait 6 months before recapturing the property and having to sell it at a price possibly lower than it is today. If the lender accepts a short payoff now, the borrower with untarnished credit can obtain a traditional FHA loan up to 97% of the home's present value, and refinance out of this troublesome loan. Compared to accepting a short payoff under the new FHA bailout terms, the lender would have to lower the payoff amount to the equivalent of 90% of the home's market value. Remember, FHA bailout loans will require that lenders write down the balance to market value PLUS 10%. From a lender's standpoint, the loss will be 7% greater if they wait until the borrower goes delinquent and has no other choice but to take out an FHA bailout loan.

These are only examples but one could easily find herself in one of these situations. Please understand that the expected outcome can vary, depending on the lender's position on how they are handling their troubled loans. One very important thing to remember, is that no matter how compelling one's case may be for a loan modification or balance write down, the lender makes the final decision to change terms. You will for this reason want to take on the services of a loss mitigation agency you can trust, that they will negotiate the best result for you - NOT the lender. In trying to determine your own chances at getting relief from your lender, consider our agency's qualifying guidelines:

“The current Homeowner has to show within 90 days (possibly longer) a documentable unaffordable change in the terms of the mortgage and/or the homeowner has documentable circumstances that indicates an increase in expenses or decrease in income, which without aid, there would be imminent foreclosure."

“The delinquent Homeowner has to show a documentable unaffordable change in the terms of the mortgage and/or an unavoidable circumstances that caused a temporary or permanent increase in expenses or decrease in income, which without aid, there would be imminent foreclosure, and with aid will result in an affordable retention program, which demonstrate continued homeownership or will result in a transition to more affordable housing and avoid foreclosure, through a non-retention program.”

As always, you are welcome to contact me directly to hear my assessment of your own unique situation, and how I think a lender will choose to resolve it. Take good care of your home and family. - randymiguel@gmail.com

By now, everyone has heard of lender loan workouts. Very few however, know anything about how to negotiate them successfully. Many struggling homeowners have tried to contact lenders on their own, to be strung along for months without end, only to be told nothing can be done. Many have opted to take on the services of professional loss mitigation agencies to negotiate their loans, but they are often not informed of the loan modification timeline and how it works. Before entering into an agreement with any loss mitigation agency, you will want to have realistic expectations of the entire process. I am writing this short article to let the general public know what to expect, before relying on a strange 3rd party to save their homes. If anyone you know has concerns about using a loan modification agency, please feel free to pass this information along. I cannot speak for any other firms, but here's what you can expect from my agency, from the moment we first speak on the phone:

Understanding the Loss Mitigation Timeline  Loan Modification Demystified INTERVIEW - DAY 1 During our first conversation, I'll ask you to tell me about your situation. It is important that you explain everything that has led to your mortgage problem and why you are now seeking advice. Based on the information you share with me, I'll make an initial assessment of the possible resolutions with your lender(s). If it sounds like we may have a case, I will ask you to complete a short financial information form, detailing everything regarding your mortgage, credit and personal budget, as well as the amount of money you take home monthly. Ideally, we are looking to prove your financial hardship, while at the same time, prove that this hardship will be cured if the lender agrees to make changes to your loan. ASSESSMENT - DAY 3 Once you email me the completed financial form, I will immediately schedule a time for us to speak again. The goal of our 2nd conversation is for you to clarify the information you've provided and for me to give you my honest opinion of possible outcomes to a mitigation. If we mutually agree that there is real possibility for relief, I will then discuss your scenario with my agency to determine if we can accept your case. [The reason why I must first pre-qualify your case with my team, is because the agency offers a guarantee of resolution. If a favorable resolution is not likely or we are not confident we can negotiate a beneficial result, then unfortunately we will not be able to represent you. However, if it is determined that there is a real possibility for financial relief, then we'll accept you as a client and move things forward swiftly.] CONTRACT & AUTHORIZATION - DAY 5 After we have agreed to take you on as a client, I will forward a soft copy of our "Work & Trust Agreement" along with a 3rd party authorization to negotiate with the lender on your behalf. You will want to carefully review these documents and inquire with me on any clarifying questions. CASE SUPPORT - DAY 7 to 14 Over the following week, I'll be in constant contact with you to collect the required support documentation to substantiate your case. Our negotiations are backed by hard documented evidence of the reasons why your lender(s) should provide relief and do it quickly. Until all of the necessary documentation is successfully received and verified, we cannot engage your lender(s). Requested items include but are not limited to: tax returns, bank statements, credit card and utility bills, W2s, payroll stubs, property tax statements, lease agreements (if any), and a letter of hardship. CASE PREPARATION - DAY 14 to 21 Once you've successfully faxed all of the required case support, my agency will work diligently to prepare your case for submission to the lender. This stage typically takes 5-7 business days to complete. If any inconsistencies or inaccuracies arise during case preparation, you will be informed immediately.  CASE SUBMISSION - DAY 21 Know that your case may be submitted to various governmental relief agencies, your lender(s), as well as the ultimate insurer of your loan (i.e. FHA, Fannie Mae, Freddie Mac) in order to get you the best possible relief. Once your package is verified as received by your lender(s), there will be a waiting period for your loan to be assigned to a negotiator on their side. It is important to know that lenders do have their own way of prioritizing loss mitigation cases for review. *Some lenders now have an automated underwriting process for this. The waiting period will depend on the severity of your situation and the way your specific lender(s) prioritize your case. NEGOTIATION - DAY 21 to 60 After your case has been assigned, negotiations will take place and hopefully a beneficial resolution will be reached. I say hopefully, only because no matter how strongly we negotiate your case, the lender can always resolve to do nothing. Be cautious of a loss mitigation agency that is overly optimistic to win your business. The lender has the ultimate decision making authority to accept a short payoff or modify your loan, and presently there are no laws that require them to do so -unless ordered by a judge in bankruptcy court. With that said, lenders have much more to lose in this housing market when they opt for foreclosure, so they will only exercise that option after evaluating all other remedies. Today, lenders will suffer tremendously if they refuse to modify loans where it makes better business sense to work something out. These are the cases that we accept. TERMS - DAY 30 to 60 Depending on how quickly your case is assigned and negotiated, you may be waiting 30-60 days on average, before modification terms will be reached. If the terms are deemed as fair, I will then connect with you to discuss the details of their offer. RE-NEGOTIATION - DAY 60 to 90 If the terms are determined as unfair, and we feel we can obtain more beneficial terms from the lender, your case will enter a RE-negotiation phase. *By the time I contact you with modification terms, we shall have arrived at the best possible result the lender would accept. MODIFICATION AGREEMENT - DAY 60 to 90 Due to the overwhelming requests for loan modification, the entire loss mitigation process typically takes at least 2-3 months for terms. If all is agreeable, you will then sign the final loan modification agreement as drawn up by your lender and make future payments as agreed. Depending on our negotiation strategy, other remedies can also be reached. For example, if a short refinance was in negotiation, you will then payoff your existing lender with a new FHA loan. If a short sale was in negotiation, you can begin to submit buyer offers for the lender to consider. *It remains your right to turn down any loss mitigation offer from your lender, so long as you are willing to accept the consequences of reverting to your original loan terms or ultimately losing your home. During the loss mitigation process, understand that your lender may attempt to contact you directly. Only a bankruptcy court can temporarily stop foreclosure proceedings or cease calls from their collections department. It is important that you continue to take their calls, but make sure to relay any communications to me. However, it is important to defer any loan negotiations to our agency, as to avoid confusion and potential conflicts with your case. Hopefully this helps make the loss mitigation process a bit more clear, and you now have greater confidence to face your lender. Please feel free to call me about your situation and find out your options.

Why work with Randy? My expertise comes from years of providing financial and mortgage advice. When you enter into negotiations with your lender, you want representation by an expert who truly understands the industry - not someone who simply sees opportunity to earn profits. When pre-qualifying for a loan workout, it is essential to work with a true professional who can assess your present situation and offer real solutions. Otherwise you might just get the runaround, and there is very little time to act when your lender is demanding full payment. Please, there is absolutely no cost for a preliminary phone consultation and no obligation to use my services. And unlike dealing with your mortgage company, at least you already know my real name. I look forward to making things better for you and your family. -Randy Miguel Flat Fee: $2200 in advance, deposited into my broker trust account. No funds will be disbursed until a resolution is obtained from your lender. I guarantee a resolution within 120 days or your advance fee will be returned in full.

 

PREDICTION: 6.5 million U.S. foreclosures by end of 2012.

-Credit Suisse Research Report 04/2008

 

SOLUTION: Federal Bailout to help 400,000 homeowners by Sept 2011.

-U.S. Government

 

Let's assume this prediction is accurate. To put things into clearer perspective, 6.5 million is the equivalent to 12.7 percent of all U.S. homes with mortgages. So let's also assume that this massive federal housing bailout will be the government's last, since there's only so much money they can print. Now let's do some simple math: 400000/6500000=6.15%. This means roughly 6% of the total foreclosure victims in the United States will obtain federal aid once the The Housing and Economic Recovery Act of 2008 takes effect in October of this year.

 

6% of Americans facing foreclosure within the next 3-4 years can *possibly* benefit from this Federal aid, named the "Hope for Homeowners Program." This financial housing assistance will come in the form of a new FHA (Federal Housing Administration) refinance to get delinquent borrowers out of loans they cannot afford and into permanently fixed interest rate loans they CAN AFFORD. Most mortgage brokers refer to this as an FHA "short refinance" because the existing lender will have to accept a short payoff (for less than what is owed) in order to make this work. ALL HOMEOWNERS THAT CAN QUALIFY FOR THIS FEDERAL HOUSING AID SHOULD NOT HESITATE TO APPLY. The benefits far outweigh what you must agree to in exchange.

 

How do you know if you could be one of the lucky 6%? You can narrow down the possibility by finding out how one would even qualify for the Hope for Homeowners Program. Let's take a minute to review some of its key highlights.

 

The Hope for Homeowners Program will give you:

 

• A permanently fixed 30yr FHA loan

• 10% of renewed equity back into your home

• What more can you ask for? It's a fresh start and you can call your home a true investment once again.

 

In order to qualify for the Hope for Homeowners Program you must:

• Live in and own your ONLY HOME. Anyone holding investment property or a 2nd home is automatically disqualified. *If this is you, please read below for alternative relief.

• Be able to prove ON PAPER that you can afford the new principal and interest payment, plus monthly mortgage insurance, property taxes and hazard insurance. *Find out if you can income qualify now.

•  Be late or in danger of foreclosure.

• Be willing to acknowledge that you did not intentionally go late in order to qualify for the program. Otherwise, fines and federal incarceration will apply.

• Be willing to share future equity with the federal government.

 

If you've made it this far, you must be able to convince your lender to:

 

• Write down the principal balance down to market value PLUS an additional 10%, which I would strongly advise against doing on your own. Here you've got only one shot at presenting your situation in such a way, where the lender agrees that a short payoff is better for them in the long run. Know that the pending legislation will in no way require or incentivize your lender to agree to take less money than you originally committed to pay. A professional loss mitigation agency can help you prove that it is in the lender's best interest to accept less. Remember only 400,000 homeowners will be helped and you want the best representation to make sure you are one of them.

 

Still think you can be one of the lucky 6%? Maybe that's why it was strategically called HOPE for Homeowners Program, because that's all it really is? Please don't misunderstand me. I applaud the U.S. government for stepping in to offer help, and in my opinion, this crisis housing situation was collectively brought about by us Americans pursuing the American Dream- to own a home no matter what the price. In retrospect, the government should have stepped in years sooner, but we the people would have despised the feds for interfering with the free market - which would have been very UNAmerican. Without putting the blame on any one group of people, agency, or bank, this is an unfortunate circumstance that must be dealt with. The Hope Program is great, but it's too restrictive and just not enough. Although some goverment assistance is clearly better than none, most of us simply cannot rely on the feds to bail us out. If you cannot qualify for federal assistance but your home will certainly fall victim of foreclosure if nothing is done, please take matters into your own hands and seek professional help.

 

Here are some home retention alternatives that are available today (in order of greatest net benefit to the homeowner):

 

SHORT REFINANCE (GREATEST)

A short refinance is where your existing lender agrees to a short payoff, by reducing your principal balance to market value PLUS enough to cover the new lender's equity requirements AND refinance closing costs. In many ways, this is exactly what the Hope for Homeowners Program offers. However, the key difference here is that successful short refinances now happen in cases where the borrower is NOT late - the reason being, you will not qualify for a traditional FHA refinance if you have been late on your mortgage within the past 12 months. *The exception is FHASecure, where the program grants exceptions to those borrowers who have gone late as a result of an interest rate increase. If you are successful with a short refinance, you will not have to share your equity with the government. In fact, all of the loss mitigation alternatives mentioned here will not require that. Why an FHA refinance and not a conventional or jumbo? FHA guaranteed loans are the only ones that will refinance up to 95% of a home's market value. Otherwise, your existing lender would have to write down enough to give you 10% equity to qualify for a conventional loan PLUS more to cover closing costs- and that's simply not going to happen.

 

SHORT MODIFICATION (GOOD)

A short modification is where your existing lender agrees to write down your principal balance to an amount you can afford and re-sets your loan terms to a 30yr fixed payment. Loss mitigation efforts that result in short modifications most often happen in cases where the borrower is seriously delinquent and cannot qualify for a new refinance loan. An example of a case, where a short modification might be considered, is in satisfying all of the qualifications for the Hope for Homeowners Program EXCEPT the requirement to own only one home. To explain why a short modification may be less desirable than a short refinance, in a short mod the principal balance may not be written all the way down to market value. It is possible that you may not afford a principal and interest payment at your present loan amount, but you could afford it if it were brought down partially lower (but perhaps not as low as market value). On the other hand, in a short modification there are no refinance closing costs due to the fact that your existing lender simply modifies the balance and terms of the original note.

 

TRADITIONAL LOAN MODIFICATION (OK)

A "traditional" loan modification is where your existing lender modifies the terms of the original loan agreement, without writing down the balance. Traditional loan modifications typically stop an interest rate from re-setting, where you could otherwise afford to pay. Traditional loan modifications are permanent solutions, with no future adjustments to the interest rate and payment after the new agreement is in place. This could be considered permanent financing without having to refinance into a new 30yr fixed loan.

 

SHORT-TERM MODIFICATION (ACCEPTABLE)

Now short-term modifications offer the LEAST benefit to the borrower, while giving the GREATEST net benefit to the lender (or their investors). Short-term modifications happen mostly in situations where a borrower attempts to work out a loan modification directly with their bank. This is a temporary solution that makes your payments more affordable until something else can be done. What that something else is, is simply more time. Because banks would rather keep the original loan terms intact, they can offer temporary relief in hopes that the market will recover OR you the borrower will soon make more money. For you this means your home will not foreclose now, but it will instead delay the process until your short-term mod agreement expires. At the time of expiration, your loan usually re-sets to the original terms that put your home in jeopardy in the first place. With all of that said, a short-term modification might be the only option the lender will offer, but you at least avoid foreclosure and remain in your home.

 

If you're like me, you've probably spent countless hours researching loan modification solutions for your home and family, and this is only one of the many articles you've read on the topic. But hopefully, I've been able to introduce some new possibilities here that you haven't yet come across. Remember, the idea of a lender to make a financial sacrifice for a borrower is a completely new concept for them, so it may take time for short refis and short mods to become more widely accepted. As is it now, it doesn't look like lenders have very much collateral to secure their debt. As their collateral continues to fall further and further down, they should start to accept short payoffs by the millions. Just be patient and don't lose HOPE.

 

Pre-Qualify for a Short Refi Now

 

 

by RANDY MIGUEL | Loan Modification Counselor

Equitas Capital, Los Gatos | Associate Broker

Morgan Financial, Granite Bay | Direct FHA Lender

Office. 408.216.7274

Fax. 866.876.8514

http://www.randymiguel.com

 

Right now, we are witnessing first-hand the worst real estate crash in U.S. history. Someday many of us will look back at years 2007-20?? and say, "Yeah, those were the days when we owed more than our houses were worth." But in the present day, in the midst of our housing crisis, we must decide what to do about it. Bottom-line is, nobody wants to lose their home, but most would rather lose that than lose money- and keep on losing it. So do I sell short or walk away? These are two things that come to mind when homeowners think about their equity lost and cutting their losses short. Unfortunately, both of these choices involve moving out of one's home and all of the trauma that goes along with it. There's hardly a bright side to either one, but what if there were another way? Today, I want to give you an alternative option to consider, which may also be for the greater benefit of our national economy: SHORT REFINANCE.

Fed Chairman Ben Bernanke said it best,
"With low or negative equity... a stressed borrower has less ability (because there is no home equity to tap) and less financial incentive to try to remain in the home. In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure."

 

In layman's terms, reduce the loan balance or else the house forecloses. The easiest way for me to explain the way a short refinance works is to draw the analogy between that and a short sale. By now we've all heard or spoke about someone short selling their property, typically because they can no longer afford the payments and cannot sell it at a high enough price to payoff their existing lender. In a short sale, the lender's potential losses- by having to foreclose on a home and incur the costs of re-selling it on the open market- are reduced by accepting a buyer's offer for less than what is owed. Obviously, no bank or investor wants to accept a payoff of less than what they originally lent out, but by not accepting such an offer they run the proven risk of recouping far less than that later. Most importantly, a short sale pays the bank whatever they can get for the home NOW. In finance, we like liquidity and appreciate the time value of money. A bank can use this partial payoff and quickly re-allocate it to less risky borrowers who pay on time, thereby realizing an immediate profit. It takes at least 6 months for a bank to recover a home once a borrower misses their first payment! As bank's must report quarterly profits, 6 months can be an eternity for them to wait their money. [With new CA foreclosure protection bill SB 1137, lenders could expect it to take even longer!] Okay, I think we can all agree that a short sale may be in a bank's best interest if doing nothing can result in greater losses. The concept of short refinancing works in the exact same way, except in a short refi the current homeowner remains the homeowner. Let's compare these two concepts more closely:

• In a short refi, the lender accepts a payoff for less than what is owed, just like a short sale. This is fairly easy to understand, as a full payoff would be considered a straight forward refinance.

• In a short refi, the lender should reduce the principal balance for LESS THAN the true market value of the home. This may not be so simple to comprehend as one might think the bank would be giving up more money than necessary. However, if a lender does not leave some equity in the home, a new lender would not take the risk of refinancing it. Its investors require a little cushion in the event that property values drop further. Presently, the highest loan-to-value ratio loans are being offered by FHA (Federal Housing Administration), which are capped between 95%-97.5% depending on loan amount. Even at these high levels, banks must write-down an additional 2.5-5% in order for an FHA guaranteed loan to come to the rescue and pay them off. 2.5-5% is not too much to ask, considering the bank would pay realtors a 6% commission for short selling the same home (not to mention the added closing costs). The new FHA bailout plan calls for lenders to forgive principal balances down to market value PLUS an additional 10%! *The FHA bailout is targeted towards delinquent borrowers, which is not being discussed here. More on this topic later...

• For a short refi, YOU DO NOT HAVE TO BE LATE, unlike a short sale. *If you are or have been late, ask me about a "short modification." In fact, most refinance options are limited if you have been late on your mortgage. Present underwriting guidelines for FHA loans do not allow mortgage lates, unless those lates happened AFTER an Adjustable Rate Mortgage payment increase (See FHASecure). On the other hand, you may need to prove that there is imminent threat of becoming late if they decide to do nothing. For instance, you have a negative amortization loan that will balloon in payments 2X what you are paying now, and you will certainly default if the future payment is not reduced. Threatening to walk away, simply because there is no equity, may not justify a short refinance.

• To enter into a short refinance negotiation with your lender, you do not have to wait for Congress to pass the FHA bailout plan (a.k.a FHA Housing Stabalization and Homeownership Retention Act of 2008). Short refinancing involves direct negotiation with your lender, at your lender's option, just like a short sale. Laws do not need to be enacted before a lender can agree to accept a lesser sum for payoff. For them, this is purely a business decision. NOTE: Lender participation in the pending FHA bailout is also completely voluntary.

• To enter into a short refinance negotiation with your lender, you should be able to prove financial hardship, just like a short sale. It may be difficult to convince a lender to reduce the total debt owing if you can truly afford to pay it. Remember, a lender may not be willing to accept less money unless they risk losing more by doing nothing. Lenders are aware that many borrowers would rather continue paying on their high cost mortgages instead of sacrificing their good credit. At the same time, you must be able to prove ON PAPER that you can afford principal and interest payments at the reduced loan amount.

• For a short refi, you may want to take on the services of an experienced Loss Mitigation Agency to pre-qualify and negotiate your case. Beware of Loss Mitigation / Loan Modifcation Fraud. Many fly-by-night companies have sprouted to take advantage of homeowners in distress. My partner-agency has been in the business of loss mitigation for over 23 years. The charge for my services is a flat fee of $2200 deposited upfront into my broker trust account, but collected only after I've obtained a resolution from your lender. If I am unable to obtain a resolution within 120 days, your advance fee shall be full refunded.

If they are so similar, why aren't short refis as common as short sales? I think it has a lot to do with banks having to deal with the idea of rewarding their borrowers for not honoring the original terms of their agreements, and the domino effect of having to reduce balances for otherwise "good loans." Things are different now. Banks have greater incentive to workout terms with existing homeowners, since their repos simply aren't selling. Besides, I think we're way past the concern of rewarding speculators and investors who made bad investment decisions. The overall health of the national economy is at stake.

Since early 2007, I have been deeply concerned about how I can assist my clients who have zero or negative equity in their homes. Finally, I can help. It is my strong belief that offering home loan and loss mitigation services now go hand-in-hand, as many home sales and refinances cannot and will not happen unless principal balances are negotiated DOWN. Please stay tuned for my follow-up newsletter on "short modifications." But if you must know now, visit my website at http://www.RandyMiguel.com. Hope you found this information helpful and feel free to pass it along.

RANDY MIGUEL
a California Mortgage Broker
Office. 408.216.7274
Fax. 866.876.8514
http://www.randymiguel.com

 

The other day I picked up a for-sale brochure from a home across the street. It was no surprise to see it listed for $150,000 less than what mine appraised for 2 years ago. Nothing new. This is the same old story that we've heard for the past year and a half. But now it is becoming increasingly common for me to see principal loan balances that are substantially higher than what their collateral properties are worth. Presently, a homeowner in this upside-down dilemma has the following options:

1. Continue making the mortgage payment in hopes that the market will recover.
2. Negotiate with the lender for a work out agreement (a.k.a. loan modification).
3. Sell the home for less than what is owed to the lender (a.k.a. short sale).
4. Walk away.

For the person with an adjustable loan, option #1 may be feasible so long as the fluctuating payment remains affordable. Since it is next to impossible to refinance an upside-down home, option #2 is the next best alternative. But due to a backlog of requests, 90+ day late cases have become the lenders' top priority, which makes loan modifications more difficult to close. To exercise option #3, one must wait for a serious buyer and then negotiate with the lender(s) to settle for less than what is owed. Unfortunately for many Americans, there is very little time and money, so option #4 has been an exceedingly popular choice. I am not writing this blog to tell you how bleak our housing situation is, but rather to give some troubled homeowners a reason to stick things out just a little while longer.

You may have heard of a government rescue plan designed to slow down the rate of foreclosures across the United States. Its short name is the "FHA Housing Stabilization and Homeownership Retention Act of 2008." Essentially, it encourages lenders to REDUCE principal loan balances, which will give homeowners real incentive to continue paying on their homes. Here are some brief bullet points taken from the proposed plan:

• A lender must be willing to forfeit any amount owed above true market value PLUS an additional 10% equity.
• FHA will guarantee the new loan amount, up to 90% of a home's true market value, on a 30yr fixed rate.
• Borrowers must occupy the residence as their primary home AND be able to provide sufficient income documentation that proves they can make the new monthly payments.

What's the catch?

• A borrower must pay an extra insurance premium to FHA for backing the loan.
• Future equity must be shared with the government if the loan is refinanced or the property is sold. The split would be the greater of 3 percent of the new loan amount or 50 percent of the profits on the sale.
  

If I may speak directly to those people who this might benefit: It's not a bad deal at all, especially if you could end up owing substantially less than what you do now. On top of that, you get a fixed rate, a reduced payment, and a real chance to payoff your home in 30 years.

Who stands to benefit?

The Congressional Budget Office estimates that up to 500,000 U.S. homeowners would qualify for the program.

Why are they doing this?

There is very little that the free markets can do to correct our credit and housing problems in our nation. Without immediate government intervention, the rate of foreclosures may rise faster than our fragile economy can handle, which can only lead to further devaluation of U.S. homes and an economic recession.

When is this going to happen?

On May 8th, the House passed this bill on a 266-154 vote. On May 20th, the Senate Banking Committee passed their similar version of the plan by a 19-2 vote. They hope to have this bill up for a full Senate vote and in front of the President before July 4th. If things go as I hope, this bill will become law by October 1st.

How can you participate?

Given that lender participation in this plan will be completely VOLUNTARY, I expect that this will involve intense negotiation through loss mitigation efforts with lenders. Borrowers will need assistance to convince banks that it makes financial sense to write-down the balances on their loans. If you or anyone close to you could benefit by re-gaining some real equity, please email me a quick response. We can get a head start by 1) assessing your qualifications for this program; 2) evaluating the net write-down benefit on your loan; and 3) calculating your new future payment. I look forward to hearing from you.

Hope all is well,

Randy Miguel
Associate Broker, Equitas Capital