"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

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