Monday – more pressure on lenders?
Long awaited pressure on lenders seems to be forthcoming. It was announced on Friday that on Monday the Treasury will announce a new program to pressure banks into freeing-up the bail-out money and getting those modifications rolling. We are told that banks that are not complying will be “outed”. That will be fun!
The foreclosure rate continues to climb to record level – now nine consecutive quarters. The trial modification bubble of July-September was thought to be an encouraging sign that the money was getting to the needy instead of sticking with the greedy. However, shortly after achieving the govt’s targeted 500,000 trial mods the banks slammed on the brakes and returned to their delay tactics.
Let’s hope that the Obama administration hits a home run this time. Let’s give them more than three strikes!!! After all, we WANT them to win!
Ethics in Foreclosures
Clients struggle with the ethics/morality of asking for a modification if they actually still have some savings left, or of selling short when their 401K has enough to cover the shortfall, and with the right/wrong of simply walking away from a home that is $250,000 underwater. I even had one client tell me last week that she felt it morally wrong to miss a monthly payment in order to get the lender to negotiate in good faith to lower the monthly payments on her home. She said that her moral voice was speaking to her…I asked her to check to see if it wasn’t really her pride talking! I have become hardened, no doubt….but, GROW-UP!
Bob Hunt said it well in a September 29 article in RealtyTimes. “Those with a moral sense know that, on the face of it, it is morally wrong to break one’s promise. But conditions, most would agree, have a bearing on that judgment. Promise-keeping is not the highest moral value. If I promised to lend you my gun, and you are now in a clearly dangerous psychotic stage, breaking my promise would be the right thing to do, not a wrong.
Here, the duty to keep a promise is outweighed by the duty not to put others – perhaps even one’s self – in preventable danger.”
And, “Beyond the observation that promise-keeping is not the highest moral value, it is also important to remember that a mortgage note is not like a typical promise. To be sure, almost all notes contain the phrase “I promise to pay…” Still, with a mortgage, the borrower and the bank make a deal. The deal is: “if I don’t pay, you can have the property.”
Mortgages are secured notes. They are not like borrowing from your grandmother. If you willingly default to her, shame on you. She has no recourse. But, if you default to the bank, they can take your property. That is the deal they made. The property may not be worth what they lent you, but whose fault is that? They are big boys and girls. They made a business decision, and in today’s market, they lost.”
Moral considerations are one of the chief barriers to strategic defaults. They probably exert more weight than they should. The lender made a deal. If you don’t pay, he gets the property. So now, in 2009, he gets the property; and he doesn’t like it. That is regrettable; but a deal is a deal.”
This is a new times that require action on your part to steady your financial ship. If you use old paradigms to guide your actions, you will be left behind. Rather, use your moral compass to deal effectively with this new reality.
Wow, that sounded a whole lot more philosophical than I meant it to be! Maybe a re-write is in order?
Get “out-of-line”- Now Call Him!
Beyond writing to them, I recommend you actually phone the CEO of the lender you are negotiating with. Many of the CEO’s have disseminated press releases with all manner of blah blah about how much they care about homeowners. With this method, you give them the chance to show it.
This strategy is not for the naive…so, if you are thinking that these fellows (they are all men) really care, forget it. They care about their own success so craft your interaction with them accordingly. They’d love to help you if it shows they can make their organization hum, or that they can “feel” what the common man feels. But, do not present them with bombshells that middle managers and directors will snuff-out.
Here’s what to do: Once you have crafted your strong argument for assistance and mailed same to the CEO (via certified mail…as described in my last post to this blog), dial the bloke! That’s right, call him up! Find the phone number for corporate headquarters and say: “Please transfer me to the office of Mr. _____”. Once you reach the staff assistant, secretary or office operator, say “Hello, my name is ________. I’m one of your customers, and I would like to speak to Mr._______ because I’m really having trouble getting a problem resolved, and I know that he doesn’t want me to feel that way. In fact, I read where he says “_____________________________”.
There is absolutely no chance you will speak with the man, but you will be treated cordially and a return call will be promised. A staff person will return you call – then, say exactly this…”Thank you for returning my call! I am so hopeful that Mr. ___ can help me. I sent a letter to his office recently, by certified mail. Do you know if he has read it yet? I need assistance because I don’t know where else to turn.
NOW TELL YOUR STORY VERY BRIEFLY…no more than two points of frustration and 30 seconds!
NOW ASK FOR SPECIFIC HELP…such as 1) could Mr. ____please ask the lawyers to re-evaluate my assertion that _________________, and _____________________…or 2) could Mr. ___please ask loss mitigation if they understand my husband is disabled or… 3) would Mr. _____ please clarify to the customer service person that we DO qualify for the President’s Program.
I will publish some of the succinct and effective scripts we’ve written with clients.
Get “out-of-line”- Write the CEO
As things get more heated in the pursuit of good loan mods, I advise that you get “out-of-line” by pursuing unconventional methods to get your mod approved.
One approach is to appeal to the CEO of the lender/servicer. This method will get you nowhere if your case is not strong – but, if your application is solid, your hardship is real and you have the income to get the loan back-on-track with a modification, this approach may be effective for you. Here’s an example of such a letter, sent via certified mail. I changed the names to protect the innocent.
November 15, 2009
XXXXXXXX
XXXXXXXX
XXXXXXXXXXX
Mr. XXX, CEO
XXXXXXXXX
1XXXXXXXXXXX
XXXXXXXXXXX
RE: Our loan #XXXXX
Dear XXX,
I want so badly to believe what I read about you. We need someone in your company to try to help us. We have been trying to get help for over 7 months but no one seems to care enough to help us. I don’t even know what are the right questions to ask you people any more. We just need help so that we will not lose our home of 25 years, just when we are getting ready to retire!
We are hard-working, penny-wise people who aren’t asking for a lot, but we do need some help. For months I have been unable to get any of your employees to stick with our case long enough to help us.
We feel so much anxiety over the situation because we were only three years from paying off our home mortgage when a family emergency caused us to take out a loan through Ameriquest in 2002. Luckily, you company offered us the opportunity to get out of that bad loan two years later, although your company charges us over 8% interest and took high fees.
Health problems have caused me to rely on disability income only. Thank God my husband’s job is secure for now. Our health problems in the past 2 years have caused such a financial burden that we struggle to make our payments. But, with credit cards and our savings (we have now depleted our 401K retirement accounts) and XXXXXXXXXXXXXXXXXXXXXXXXXX we were able to mostly keep up until last spring.
Last spring we could not make the full payment to your company on our mortgage XXXXXXXXXXXXXXXXXXXr
(List what actions you took, how often you would call, how many agencies and departments you worked with, etc. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
On (fill in date), (fill in what happened, with whom you spoke with, contact information for that person and any other information.)
(Repeat until you have finished the time line.)
Aren’t we exactly the type of family that the bailout funds were given to your company to help…struggling to make payments on high interest loans on the home we live in? We are able and willing to resume reasonable payments immediately…but cannot get your company to help us do so.
Please ask your managers to review our situation again and offer us a reasonable payment. I don’t know where else to turn for help. I am sleepless at night from anxiety over losing this home at this point in our lives.
You can contact me at XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Sincerely,
JP from Hawaii says:
Avoid Foreclosure Scams – Duh!
O.K., so there are thousands of scammers out there. I’ve always maintained that it’s pretty easy to spot them. However, even a number of my own relatives have fallen prey to scammers. So here are some tips to avoid the sharks.
Here are some examples of scams related to mortgage modification and foreclosure avoidance.
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Foreclosure rescue and refinance fraud. The scammer offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. This, in itself is not illegal or unethical…or even a bad idea…BUT, if you are told to make mortgage payments to the scammer directly — or to pay significant, up-front fees — and trust that that the scammer will forward the payments to your lender – run! In reality, the scammer will pocket your money and leave you in worse shape on your loan. The scammer also may tell you to stop making payments or stop communicating with your lender. Make those decisions for yourself.
Your mortgage servicer can be a good starting point for information about programs available to you…but, do not mistake them for an ally. You will eventually be dealing with them “across the table”, in negotiations…to workout a solution best for you. Do not fall for their siren song of benevolence. They are your adversary and they hold all the cards…you can deal with them effectively, but do not be naïve.
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Fake government modification programs. Unscrupulous scammers may pose as being affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scammers’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs.
The scammer’s name or Web site may be very similar to those of government agencies. The scammer may use such terms as “federal,” “TARP,” or other words or acronyms related to official U.S. government programs. These tactics are designed to fool you into thinking the scammer is somehow approved by, or affiliated with, the government.
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Leaseback/rent-to-buy schemes – run if you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. If you do not comply with the terms of the rent-to-buy agreement, you will lose your money and face eviction. The agreement may be very hard to comply with, because it may require, for instance, high up-front and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. They simply want your home and your money.
Remember that transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home. If payments are not made on the mortgage, your lender has the right to foreclose, and the foreclosure and any other problems will appear on your credit report.
- Bankruptcy scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.
- Debt-elimination schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.
Always proceed with caution when dealing with anyone offering to help you modify your mortgage or avoid foreclosure.
- Make all mortgage payments directly to your lender or to the mortgage servicer. Do not trust anyone to make mortgage payments for you, and do not stop making your payments.
- Avoid paying up-front fees. While some legitimate housing counselors will charge small fees for their services, do not pay fees to anyone before receiving any services. Make sure you are dealing with a legitimate organization.
- Know what you are signing. Read and understand every document you sign. Do not rely on an oral explanation of a document you are signing — make sure that you read and understand what the document actually says.
- Do not sign over your deed without consulting a lawyer you select. By signing over your deed, you lose the rights to your home and any equity built up in the home — and you are still obligated to pay the mortgage.
- Get promises in writing. Oral promises and agreements relating to your home are usually not legally binding. Protect your rights with a written document or contract signed by the person making the promise. Keep copies of all contracts that you sign.
Seven Sure-fire Ways to Delay Foreclosure
Often homeowners need more time and seek to delay the foreclosure process – to get more time to settle on a Workout Plan that suits them. These are the Top 7 ways to buy more time.
Constant communications with lender – That’s right, good faith communications about your plans and actions to resolve your situation and reach a resolution to the foreclosure will go a long way toward getting more time. Simply ask for more time. Most struggling homeowners do the exact opposite and avoid contact.
“Produce the Note”
– During the lending boom, most mortgages were flipped and sold to another lender or bundled and sold to investors as securities on Wall Street. In the hurry to turn these over as fast as possible to make the most money, many of the new owners did not get the proper paperwork to show they own the note. Producing the note can take up to several months…buying more time for the homeowner. In several instances in 2009, the lender has not been able to produce it at all!
This strategy of delay has been highly publicized but has not been widely successful in CA because, in non-judicial foreclosure states a homeowner must initiate a lawsuit claiming the foreclosing party (lender) may not have the right to foreclose and requesting that the court order the party to “produce the note”.
Bankruptcy – for some people in some circumstances this may be a good option. Some couples “Double-Down” and file consecutively to extend the delay even further. Bankruptcy is powerful medicine, though, so be sure you have a big ailment…bigger than just foreclosure delay.
Contesting the foreclosure in court will produce significant delays. You will need the services of an attorney and a strong case against the foreclosing party…such as violation of CA foreclosure procedures, violation of the Real Estate Settlement Procedures Act RESPA or Truth in Lending Act (TILA), or other. These violations are common – up to 75% of loans made in the go-go years (2003-2007) have violations.
In order to find the violations, you may need to order a Forensic Loan Audit. In order to effectively use the outcome you MAY need to hire an attorney. Oftentimes, though, simply citing the results of the audit can persuade your lender to accept the workout option that YOU prefer.
Short Sale – Your lender will likely postpone the scheduling of the Trustee Sale if you are proactively pursuing the sale of the home. You/your agent will need to be in routine contact with the lender to keep them apprised of the prospects for sale. Remember, if foreclosure proceeds and the lender takes ownership, they must try to sell the home several months later with even steeper losses. So, they are usually willing to postpone to enable you to sell it.
Selling the home short is WAY better for your FICO health than BK or foreclosure. Plus, short sales are painless and free (the lender pays all the costs).
Deed-in-lieu applications, Reapyment Programs, Forbearance, Deferments… and other legitimate workout options show the lender that you are being proactive. These can get you additional time to craft your best foreclosure outcome.
To learn more about managing your foreclosure – to get the outcome that YOU want – go to www.RockysMLS.com/NOD.
Fannie Renter
Earlier this week we got the news that Fannie Mae has instituted the “Deed for Lease” Program. This is a great innovation that may make the “transition” from homeownership to rentership easier for families.
The Program allows borrowers to transfer their property back to the lender in a Deed-in-Lieu, then lease back the house at market rate. The lease period is for up to 12 months, with possible month-to-month contract extensions after that period. The program is designed for borrowers who do not qualify for or have not been able to obtain other loan-workout solutions, such as a loan modification.
The Program carries over some of the MHA stipulations that it be your primary residence and that the rental payments will be no more than 31% of your household gross income. Tenants of borrowers in this circumstance also may be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31 percent of their gross income.
Let’s see, I’m upside-down with an $725K mortgage… even with a low rate, here in Torrance rent is about $2,300 and payments are about $4,900. There’s likely no appreciation on the horizon. I’m lookin’ into this one!
Tax Credit extended until next spring
Last week the administration extended the homebuyer tax credit. The tax credit, which was set to expire Nov. 30, has been extended through April 30, 2010 with a 60-day extension if a binding contract is in place prior to deadline. It also was expanded to include existing homeowners who have lived in their primary residences for five consecutive years out of the last eight years. This is nothing but good news for the housing market.