AGGRESSIVE LOAN MODIFICATION Strategies Live Teleconference Recording
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Ryan: Hello, hello. Welcome to the show. This is the 60 Minute Loan Modification Insider Secrets Teleconference Series. We’re here to beat the bank to save your home and help you escape bad debt forever. My name is Ryan Rockwood and as usual I’m joined by my father and business partner, Mike Rockwood, on today’s call.
Mike: Good evening.
Ryan: Today’s clients only call is about street fighting with your bank. How to know how aggressive to be, when it can backfire, and what you must know. But, before we get started, couple of quick announcements. The only place, I believe, where you can email in questions here while we’re live today is the email address questions@60minuteloanmodification.com. Email them in, write them down and email them in as you think about them and we’ll try to get to each and every single one. Later on we’re also going to take some live calls so please mute your phone if at all possible.
Announcement number one. We have many requests to listen to previous call recordings and we’re happy to announce that soon we’ll have a clients only web page where you can listen or download any and all of our past calls. So stay tuned for that coming soon. And that’s a cool thing. You know, whenever I do an online class or whatever I’m really excited about it and they are usually only once a week like ours. We have two calls a week but one of them is for new people. I know that obviously the classes have been going on before I found out about it and to tell you the truth, whenever I enroll in a class like the one you guys are in here I just get it done in the first week. That’s just my personality type. And I’ll go back and basically take the whole course in one week and that just works better for me. So if you’re that kind of type A personality or whatever, now you’re going to have, basically you just sign up and boom. Every week there’s something new but the basics are the same. We’ll deal with new strategies and stuff. So anyway, you can pretty much have a couple months of these calls, the knowledge of them, at all times. Announcement number two. For six or eight weeks we’ve been getting bombarded by B of A / Countrywide horror stories. But there are some people getting good results. We’ve all heard the bad news. But if you’re one of the few getting a good response and a good mod from Countrywide, please give us an email to let us know and we’ll share your story. Mike, what was that call you got yesterday? What bank was that?
Mike: The Texas one. It was Countrywide. There you go. Well, he had been working on the modification for about two months so that’s extraordinarily long. It was a little bit of a challenge. He had some real income challenges but yeah, it was Countrywide. Well, B of A.
Ryan: So what did they say? Was it actually Countrywide or B of A?
Mike: They pretty much rolled everything together when you call it. It’s B of A. It’s all B of A now.
Ryan: What was the–can you tell us what it was?
Mike: Yeah. It was a pretty standard modification. This one was an offer for three years reduced. They did take it all the way down to 2 percent. The guy was just thrilled because he was really afraid they were going to lose this home and they bought it new about three years ago. They just love it. And he was able to keep the home. They cut their payments by almost $1000 and they’re just thrilled. So it’s a three year, 2 percent deal and then it starts to climb up so it’s a very traditional loan mod. It’s one of those that we call A paper. A loan mods. So it’s as good as they get.
Ryan: Two percent is just incredible.
Mike: Isn’t that sweet?
Ryan: Can you imagine that? So that’s your primary residence.
Mike: And his kids, they get to stay in the school and they got a reasonable monthly payment and then, you know, three years from now they’ll start thinking about okay, now what are we going to do about this thing. What are we gong to do about the value.
Ryan: The thing is, a lot of people–of course everyone wants to know the secret, right. And that’s what a lot of people are here for, like tips. And I guess there are tips. There are tricks. There are strategies. And there is just some help from the community of people saying go, go, you can get it done. Don’t give up, that kind of thing. But it’s kind of like, did this guy do anything extraordinary? He didn’t have the hardship letter than would knock anyone’s socks off or anything like that but he just went through the paces. He followed the program, went through the paces.
Mike: Yeah, Ryan, this is a good example of somebody who–and we talk about this all the time. Somebody just picks up the phone and calls the lender and starts working it out and gets rejected. And then contacted us late in the foreclosure process and said listen, is there any hope for me and we started over again. And the truth is this time they went back and with an intelligent application. First time they had just pretty much been a victim of getting caught flatfooted. Not understanding what those questions meant and not understanding how much income you needed to show and to be able to justify the right underwriting criteria so it’s a case where it’s just goes to show that you really have to be prepared before you talk to the bank because once you do get it right–and really, the topic of the call tonight, getting aggressive. When you really have a tough, tough situation and getting aggressive. You have to assume the basics.
It’s like in any sporting team, if you want to get up to the excellent level you have to make sure that you’re doing the blocking and the tackling correctly. It’s the ABCs of having your application dialed in right, your budget all dialed in right, presented in a prequalification fashion so that you get it right down, exactly right. Sending it in correctly and then following up like a crazy person. And you get a good modification. And that’s the thing I wanted to really encourage people with. I wanted to be sure to report that absolutely every day, not a single day goes by that we don’t get either an email or a telephone call thanking us and also sending messages about successful loan mods.
So sometimes in the four to six to eight to twelve weeks that you’re working on your modification, you can kind of lose heart and you can begin to think, is this really happening or am I just caught up on some kind of a hoopla. Well, it really is happening and it’s happening and it’s life changing and it’s happening absolutely everyday. Thousands and thousands of people everyday get loan modifications. But keep in mind, the line is getting longer and longer. There’s 10,000 applications everyday. We heard the other day that Chase gets 40,000 a month just on their own. And what are they, 15 percent of the market? So this is a frenzy and getting super aggressive like we’re going to talk about tonight is absolutely the right thing to do if you’re in a tough situation and we’ll talk about tricks and tips here in a minute.
Ryan: Today’s topic is aggressive strategies for dealing with banks.
Mike: Send in your questions at questions@60minuteloanmodification.com or just write them down and we’ll go to live questions in about 15 minutes. First of all I want to remind you that the basics always apply. You have to have this good application and you have to follow up aggressively. And let’s just review for a minute what a good application is. A good application has absolutely every item that they’ve asked for and it doesn’t miss a thing. Like if they ask you for three months worth of your checking account don’t try to get by with just sending them two. And if it’s not real clear if it’s a checking account or if it’s a money market account or if it’s a combined savings / checking, some kind of hybrid, or a credit card account, then get it clear or make it clear for them.
Assume that everything that can go wrong with your application will go wrong. So wire brush it before you send it in. anything that has a question like, let’s say you have rental income and you think that you should be able to justify using 85 percent even 90 percent of the gross rental receipts. Then take the time to write out a good, logical note and explain why you’ve done that on your financial worksheet. So what I’m saying is a good application is really important. And then let’s just review for a minute how important follow up is because remember, when you submit a good application you know what the outcome is going to be. You know if your hardship is good. You know if your loan is bad and you know if your numbers are dialed in correctly. Now all of you are clients of ours so you all know the mysteries of the budget. You all know the mysteries of debt to income ratio and documentable income and cost of living and how your cash flow is supposed to net at the bottom of your budget. So you all know when you send it in what the right answer is. So there’s really no excuse. Then it’s just a matter of following up and as I’m sure you all have learned by now, follow up is especially important in the first week and late in the process. There is a lag time during which your application just is in the queue and there’s nothing you can do to move it ahead.
But you really want to be all over that follow up procedure that we recommend right after sending it in because so many of them never get entered into the system. They get lost somehow. It’s really not an inconsiderable amount. It’s quite a few. So follow up especially in the first ten days and follow up real strong after about two or three weeks or three and four weeks. All right. So those are kind of the basics and then let me start into special tips that I give to folks that are really, really set to street fight with their lenders and people get this way when they, number one, either don’t really care if they keep the house or not. They just really want a good deal or they don’t want the house.
That’s one reason why they get into what I call a street fight. Another one might be because you at all costs want to keep the house and so you absolutely want to street fight fro a good loan modification. And another one is when you’ve got a really crappy loan. But honestly, that one’s kind of easy because the really crappy loans get modified in a heartbeat. The bank is really interested in getting those off the market. So that one usually doesn’t take as much fight as the other two. But let’s be clear. All of the published rules are for the common man. You know who the common man is. You know, salt of the earth. You know, hard working individuals. You know, like you and me, you know, morons. The rules are for the masses. The rules are for the masses. And the closer you get the more street fighting you do with your lender the more you will realize that the rules can be broken. They can be bent. They can give modifications when the investor does not take modifications. They can give you a modification on a rental property in spite of the fact that they never give modifications on rental property. So the rules change as you play hardball with your lender. Believe that. It really is the truth.
Better mods and breaking the rules, in other words, getting out of line like I always talk about, sometimes that just is necessary. You just have to break the rules to get out of line. Now, the first bit of advice I would give you is you have to get comfortable with the “F” words. The first F word is Foreclosure and the second one is FICO. Now the first F word, foreclosure, is something you have to get comfortable with and this is shocking to a lot of people, but once you get comfortable with it, you realize it’s a paper tiger. It can’t really hurt you.
In fact, a foreclosure process is a consumer protection process. It’s a process that’s set in place to give you plenty of time to work things out with your lender after you’ve gong into default. So you really need to think through, you need to read through, get some of my resources, and read through the workbook and some of the other resources we have for you on foreclosure and get comfortable with the fact that you jus might have to negotiate hard with your lender and get to the point where they give you a notice of default if you’re in a non judicial state like California or when you get to the point where they actually take your butt to court and they actually file suit against you to foreclose.
Ryan: I’ve got to say we should stress, of course, that while rules can be broken that doesn’t mean that you want to, right off the bat, refuse to send in your checking account statements or something like that. You got to pick your battles and while things can be potentially bent and broken and special effort made, you’ve got to get the process going. You’ll need a negotiator. If you don’t have a negotiator, you don’t have anything.
Mike: Well, Ryan, are you kind of reacting to some of the folks that we’ve talked to recently who start fighting from day one? I mean, they don’t even submit the application.
Ryan: That’s what I was thinking of because we’ve had one guy, real nice guy but kind of kooky. He’s in Chicago and he calls me. He keeps on wanting to sue the lender.
Mike: Before he submitted a loan application.
Ryan: I don’t really get it other than he’s really into it. Has a sue happy mentality and wants to help other people sue them. But it’s like first I would try to work it out. That’s just to be friendly and kind to everyone but because life is hard enough and if you really want to go toe to toe with someone–most people when their house is threatened they turn tail and run and pay and send mom’s money, their own money, their 401k, their kid’s bank account. The most common aggressive strategy that I think most people will have to take and it something that most people have to get used to is simply not paying your mortgage. Going late in order to get considered for a loan modification.
Mike: Yeah. It’s a big hurdle. It’s a big first hurdle but it’s the first punch in a street fight.
Ryan: It’s kind of 90 percent of it.
Mike: Psychologically maybe, because once you’ve done that and it doesn’t hurt so much. You recognize that man, that was a paper tiger. That was an excellent adjustment, though. Excellent. And that’s why I started off this session reminding you that the blocking and tackling of getting a good loan modification and shaving some money off your monthly payment and rescuing your finances during your down turn, it’s all about the basics, all about a good application and good follow up. So beyond that I recommend that you get comfortable with the two F words.
Foreclosure is the first one. Don’t let it scare you. And FICO is the second one. And obviously they’re related because once you miss a payment and you start into the street fight, you start threatening to get foreclosure, your FICO score is going to go down. Most clients are really surprised at how little their FICO score goes down. But take four, five, six of those hits and it starts down considerably. Most clients take at least a 100 point hit during the course of a loan modification if they are negotiating seriously and hard with their lender because they miss five or six payments.
All right, so that’s the first thing. Get comfortable with the F words. The second bit of advice I want to pass on to everybody is that second mortgages are toast. And by that I mean that the second mortgage industry knows full well that they are screwed. They are the ones that hold mortgage, they hold deeds, they hold as collateral, vapor. It’s gone. It has vaporized. So I want to encourage all of you when you’re street fighting, when you are fighting really hard to get a good modification and the gloves are off you’ve really got to play hard ball with the second mortgage. A lot of clients are offering settlements in the ten to twenty percent range and some of them are starting to get accepted. That is you offer to buy them out. It’s a good strategy.
Secondly, you may have to let them charge the loan off before you can get them to consider that radical a settlement and by charging them off–I want to be sure you understand what that means. That’s an accounting practice that requires that if a loan, a second mortgage, is over 180 days late they can no longer keep it on their books as a good loan. The obvious implications are if they kept all these bad loans on their books a lot of their investors would be getting ripped off because a lot of those loans aren’t any good. So they have to take them off the books, write them off as bad loans but that doesn’t in anyway give up their lien or give up their ability to collect the loans or to give it to a collection agency to go after you to try to collect it.
But it is just something that you should know in the whole street fighting with the second mortgages. That when you get to that six month point, 180 days, they will threaten to charge it off and they always make it sound like it’s such a big deal. We’re just going to charge this thing off, that’ll teach you. And you go, well, what difference will that make to me? And they can’t answer that because it makes no difference to you. It gets reported on your FICO score, so by that time you’re pretty well FICO insensitive. So second mortgages are toast. The third thing I want to remind you is you really have seven options when you’re arm wrestling with foreclosure or arm wrestling or street fighting with your lenders about your home. Four of the options enable you to keep your home and three of the options do not let you keep the home. Let’s review them.
The three that let you keep your home, they would be loan modification, catch up / pay up, and that involves things like deferments and repayment plans, forbearances, and partial claims. And the third option, foreclosure work out option, is refinance. And for those of you who have equity in your home when you still have a good job and you have good credit rating it really is a good time to refinance. And I just talked to about 100,000 people. There’s about eight million people who don’t fall into that category. The fourth one that let’s you keep your home is bankruptcy protection.
And then there are the three options that don’t let you keep your home and they are the short sale, a deed in lieu, and that always attractive walk away. And here’s what a lot of folks are doing that are really aggressively trying to accomplish their goals. They’re pursuing multiple strategies simultaneously. For instance, a lot of people who I’m advising are taking a short sale process, the loan modification process and an application to turn the home in deed in lieu at the same time. And the beauty of that is there’s a deed in lieu requirement to have the home on the market for 90 days. Well, you might as well start from day one then and you might as well have it on the market as a short sale so that you understand what how that option will work out for you and you might as well be applying for a loan modification at the same time so that you have that option.
Ryan: With the short sale option, what’s really tough for most people because for one thing they’re dealing with the spouse, dealing with kids. The point is not wanting to leave. So in other words most people aren’t pursuing options that they probably should pursue in tandem because it makes you talk and deal with some kind of tough issues on the front end.
Mike: I thought you said we could keep the house.
Ryan: We might be able to but if I put the house on the market and have a sign there, we’ll have people in our house. We’ll have to keep it clean. Everyone is going to know it’s a short sale. It’s easy for us to say that because we help our clients out.
Mike: But you’ve named the right issues. Those are the issues that people struggle with.
Ryan: For the thing is that and this is really tough, the thing is we’re not–most realtors, this just isn’t their gig and people think they’re mostly stupid which is probably true but that doesn’t affect this. The thing here is that realtors get paid selling houses and this just doesn’t fit into this standard rubric of stuff that they teach you down at the local brokerage and so it’s easy for us to say cause we know that if we took a short sale listing we would maybe never show the thing.
Mike: Right. We wouldn’t put a sign up.
Ryan: They wouldn’t get any calls. It’s like most agents don’t–so anyway the bottom line is I want people to know we’re not throwing it out there like go call a realtor, do a short sale, cause most of the realtors you call are idiots in this department. So while this is an option and something you need to pursue there are more extenuating circumstances. The other thing I would encourage people to do is, you mention get okay with foreclosure. Well, in my experience the only way you can do that, if you don’t have a family, who cares, right? But that’s not 99 percent of the people. For 99 percent of the people the lack of money has already created quite a rift in the household. In some cases the wife won’t sit down at the table with myself and the husband because he’s wanting to learn about what are the short sale options. She is indicating that she is dead set against that.
So the solution isn’t to have the agent over and put everyone in that situation. In my mind, all you can do is keep talking about it, never pushing too hard. And I used guys because that’s just my experience but I’m sure the opposite happens with women and men too. Whoever is financially a little more astute. So in my situation, when it worked for me, and if you read my book on credit, you know some of the things I went through. What worked for me is a very low key, low temperature long term discussion asking questions of the other person. So let’s get into a little psychology there. I would really recommend that because lots of people who are trying to convince their wife, this or that, you’re screwed.
If your wife doesn’t want you to short sale and you’re going to short sale, what is the point of saving your credit if your marriage is gone? It’s just not worth it. So the bottom line is better to pretend that your with her and get kicked out of the house. That’s my opinion. So consider that option. I have great success with people who are able to–the question is a lot of times in my situations one party refuses to talk about it but demands a certain standard is met, like the house is kept. The other party is more realistic and is willing to explore other options and so in my advice, I don’t know if anyone would care, but my advice is to throw out, like lob the question out there and continually say, well, I don’t want to short sale the house either. But is there, do you see an alternative? Ask the question.
Can you work more hours? Could you get a better job? Could we take the kids out of private school? You have to really express to your partner that it’s not you fighting them. You are creating a soft landing for your family. So you’ve got to get together on this and if it is taking the kids out of school, I don’t know what it is. But that in my opinion makes it a lot easier to talk. And don’t think it’s going to happen overnight. But given a month of non confrontational conversations I think that you’d be amazed at how the most stubborn person can be suddenly the one pushing for something that’s perhaps better financially for the family.
Mike: That’s powerful stuff, Ryan, and I do get pegged on the person I’m working with and very often, you’re right, they go back and they come back a week later and they say, maybe we’re not going to move quite so fast on this or that and you realize they’ve talked it over with the significant other and there’s a difference of opinion. There always seems to be. But at any rate I love the multiple options simultaneously. I really think it’s a powerful way to keep your options open and to make this thing work out on your terms.
Ryan: One more point about getting okay with foreclosure. There’s this one idea of foreclosure that’s someone taking something from you. That’s the generally held assumption, I think. Your house is going to be foreclosed upon. At some point some demon is going to come in and swoop in and take over. But the truth is you can kind of think about foreclosure as your friend in a really weird way if you think about the foreclosure laws. So here’s the deal. The worst case scenario is you’re going to get six months of free rent to save up for a place for your family for the next place before you get relieved of hundreds of thousands or a million dollars worth of mortgage.
Mike: Finally you’ve said something that is memorable. And the other stuff has been important in terms of relationships and everything but what you’ve just named is a third F word – FICO, foreclosure, friend. Foreclosure can be your friend.
Ryan: Yeah. I don’t know if you have a way to shed a million dollars of bad debt this year that’s not on your house, I suggest that you take it whether it’s a part time job or collecting stamps or whatever it is. If you’ve got a million dollar house all you’ve got is a lump of coal right now. All it’s going is down. So yes, you have to live somewhere. But you don’t have to live somewhere that costs $6,000, $7,000 a month. So a friend is something to get you out of that situation. So anyway, consider it that way. Consider it like it’s a slide. I’ll take that escape hatch.
Mike: Now here’s two more things I want to mention that folks who are really aggressively fighting with their banks to get good modifications to their loans are doing and you’ve got to take this real seriously folks. They’re meeting with a bankruptcy attorney and I don’t mean calling somebody up or getting on a website and asking a question and coming back tomorrow and seeing if it’s answered. Get on a forum or something like that. I mean they’re calling a local bankruptcy specialist, an attorney who just does bankruptcy, and they’re paying him a couple hundred bucks to meet with him, or maybe not even the attorney but a paralegal who works for him, and they pay him $150 and they talk with him for 30 minutes and they get real clear on two things. Number one is, help me to understand bankruptcy for me. And then describe your situation. Number two. You want to be sure that you’re crystal clear. You have clarity on no matter what state you’re living in what are the state laws with regard to recourse and deficiency judgments. Cause you want to be sure you understand if that lender can come back and get money from you if you decide to go down the short sale route. If you decide to walk away from this sucker or if you decide to give it to them deed in lieu.
Ryan: So that’s a good thing. What’s weird to me is that so many people are cheap. We’re all cheap. But if you want some advice, for God’s sakes, pay some one. You just can’t call up the loan modification company and say, can I get a loan modification. You are truly saving a penny, losing a pound, foolish thing. You’ve got to pay someone.
Mike: It’s just so funny when I say to somebody listen, $150, here’s the name of the guy. $150, you understand when I say $150 and you have clarity on this issue. No guessing.
Ryan: Yeah, he’s paid up, it’s over. Bankruptcy attorneys, if you get a good one, they’re happy to tell you if you’re not a good candidate. I suppose there’s lots of sleazy bankruptcy attorneys like anything but the ones that we use they are the really good ones.
Mike: They want to interview you too. Okay, so the last thing is do the same thing with a CPA. With your CPA, with your trusted tax advisor. Go and get clarity on the tax liabilities of what you’re doing. If there’s some forgiven debt involved, if there’s going to be any principal reduction you want to be sure what your tax liabilities are and again you can probably do that for free. But get clarity and get specifics on your deal so you can move forward with confidence.
Ryan: While all that is true and everyone has to do that, let me give you the answers that we want to hear and we want to get to. One is there will be no recourse. This sucker is over, whether it’s foreclosure, a loan modification or a short sale. We work toward that and the other thing is there will be no tax liabilities. So, you keep asking the questions until you get those answers and if you’re not getting those answers you need to double check them because you can email us or call us. But almost everyone we work with has had both those things lined up if they do things properly, like a short sale, for example. So that’s what you’re shooting for that’s entirely realistic to have no tax liabilities and no possibility of recourse.
Mike: Okay, let’s take a few questions.
Caller: Yeah, I just received your modification kit on CD so I haven’t got a chance to go through the whole thing. I’ve been investigating this for a few months now. Of course my hardship is reduced income. I believe I qualify for the affordability program but do they really try to reduce your mortgage down to 31 percent of your monthly gross?
Ryan: Okay, so your primary question is, is there really hope of getting it down that low, is that right?
Caller: Yeah, reading a little bit that I could so far and basically the lender gets down to about 35 percent and then the government pretty much kicks in the balance of that from the Obama program to 31 percent.
Ryan: What else are you wondering about as you begin this process?
Caller: My thing is I’m about to put all this together. I did contact my lender, it’s CHH and they’re over here in Jersey. Not only that I tried to reduce my payment but I also, even though I’m negative right now but I am using my savings to make ends meet at this point. The thing is how much money do they want to say in my checking and banking account that will qualify me or not qualify me for that? I only have about $10,000 that’s probably going to last me about another five or six months before I would have to go into a foreclosure process.
Ryan: And so I take it your current now?
Caller: I’m current now.
Ryan: Okay, great. Let me get another question from someone else.
Caller: I heard you mention a partial claim and I don’t think I’m familiar with what is a partial claim when you’re trying to do catch up.
Ryan: Okay, just to repeat. The first gentleman is just getting started in the process and he’s got a lot of questions just form a real basic perspective. Number one, can he really, can the lender really reduce his monthly payments to be like 35 or 31 percent of his income. And that’s part of the president’s Making Homes Affordable plan. Can that really happen? He also asks how much money does he have to have in assets? Whether it’s checking accounts, how much is too much, how much is too little and then the second caller asked what is a partial claim when it comes to FHA or VA insured loans. And so why don’t you go ahead, Mike?
Mike: Okay. The 31 percent is the targeted amount. That’s the A ++ loan modification is when the lender can, by manipulating the three levers that they have, if they can get your payment down to 31 percent then they hit pay dirt. It’s like a casino and all the bells and whistles start to light and they win. They win big. And here’s the three levers that they can pull. The first is they take your interest rate down to 2 percent and if that doesn’t get that payment down to 38 percent then they take you to 40 years. They extend the loan out to 40 years. If that doesn’t get your monthly payment down to 38 percent of your gross income, then they pull the final lever and that lever is interest only payments.
So if they use those three levers and they can get you down to 38, ding, ding, ding, they win and the government pays them extra money to take your loan payment down to 31 percent of your gross income. Now, keep in mind this is your first mortgage on your primary residence. So that’s the A paper. That’s on your primary residence. It’s your first mortgage only and it’s a percent of your gross income. And that does happen. It happens like all the time. So you can fully expect that that will happen and you’ll nail that if you get that budget right and if you’ve go a solid hardship and you’ve got a bad loan. So that definitely will happen.
And then your question with regards to how much in savings. Nothing in savings is absolutely fine and I just don’t know if I would show if I had a lot in savings. I don’t know that’s it’s any of their business. They certainly don’t have recourse to it unless you’re in a recourse state. That is that you are personally liable for the loan. But honestly they’re not asking a lot of questions about balance sheets. They used to require a balance sheet until about January of this year. All the loan modifications required a balance sheet for you to reveal all of your assets. But they’re not even asking for it now.
Ryan: We’re meeting with a gentleman tonight, actually, that has been told, he called us up after he was told by his bank that he had too many assets. And we’re going to try–we’re in California so we’re going to try to get to the bottom of was that a misunderstanding from the bank? Did someone in a different state operating under a different set of guidelines think they had some recourse to that or do they? So we’re going to meet with him tonight. You do get that.
Mike: So if I had another savings account and another checking account that had very little money in it, that’s the one I would send to them. Remember, they’re looking for an easy way to give you a loan modification and they know that their underwriter is going to require that they see a checking account and they see a savings account. So send them one with reasonable activity in it so that they can do what they want to do and what they get paid to do and what your tax dollars have allowed them to do and that is modify your mortgage.
Let me talk about the partial claim. The partial claim is pretty sweet and a lot of people don’t know about it. If your loan is FHA insured or if it’s VA insured, you have the right to make a partial claim on that insurance and the partial claim goes like this. If you default on the loan your lender suffers no hardship. He gets paid by the insuring company. You can make a partial claim. Here’s how it goes. You can borrow between four and twelve months of payments. Let’s say you get four months in arrears and you now have enough money to qualify for a loan modification but you haven’t got enough money to pay for all the arrears. Let’s say it’s $8,000 or $12,000 in arrears. You haven’t got that money. Well, you can file a partial claim on your insurance and they will lend you that much. Here’s how that works. They lend you four to twelve months worth of your payments. It’s interest free and it’s payment free. It simply is due–it’s a lien on the property and it is due when you sell the home or when you pay off your mortgage. Then it becomes due. So it’s a pretty sweet deal and a couple of my clients have used this in order to get back on track. Like when their employment rebounded and they were able to qualify for a killer modification but didn’t have enough money for the arrears. That’s how they got it.
Ryan: Got some great news, actually from long time listeners Kelly and Lisa. They said they got the package today and they’re stoked and had a question. They said that basically they just got released from Chapter 13. They have about $20k in arrears, mostly lawyer fees, and they want to know should they deal with getting a forbearance on that first or should they deal with a loan modification. And deal with the loan modification second. That’s kind of what she’s leaning toward. But I don’t know a ton about the situation but I would handle it, I would treat it as if you haven’t been paying the mortgage for six months and the arrears have just piled up and the whole deal is all the same.
Mike: Read it again. How does it go? There’s $20, 000 in arrears on the mortgage?
Ryan: Yes.
Mike: Okay, attorney fees on the lender cause they went to trustee sale and they processed paperwork and stuff. Do you know what state they’re in?
Ryan: No. anyway, do you think my point is still valid that this is an ideal time to go for the whole loan modification caboodle? Now you’re probably, they’re probably in a little better shape because they were in bankruptcy. I’m sure, my guess is that they’re 90 days away from a notice of default. I would say go for it and although our book doesn’t specifically address anything like this, I think you could just substitute the lawyer fees for basic arrears.
Mike: Oh, they are. Just expect that the lender will be glad to lump those on the end of the loan.
Ryan: Yeah. I don’t think that’s even debatable.
Mike: They’re in good shape.
Ryan: I would go in under the assumption that that will work. That needs to get wrapped into a loan again and re-amortized and in the meantime you need some temporary relief.
Mike: Yeah. And what they have to focus on now is a lot of other issues have cleared up so now they have to focus on income probably. They have to be sure they’ve got the income nailed before they submit that application.
Ryan: Another client, Larry, has a great loan modification actually that his equity loan offered to bring his loan down to four percent and cut the payments in half for twelve months. That’s pretty killer. But he told them he may not be interested because his first is not playing ball and so he’s not going to start handing out any money to them until he gets this settled with the first. What he says here is that his loan modification was rejected. They said he had too much money. The spreadsheet that I used, he said, reflected a 62 percent DTI. They said it was at 27 percent. They used gross while I used net.
I resubmitted, changed my numbers to reflect my gross and even then I was at 45 percent DTI. So I rewrote my hardship letter. Now he’s missed a couple payments and is saving that money because he knows it’s probably going to be one or two payments he needs to get going to initiate the loan modification. And I think you’re in great shape. One thing that I would question here was that those numbers were off so significantly that I wonder if–I don’t think the gross / net thing nailed it.
Mike: No. think about it. If your gross and net, the difference between those two, is never more than 15 percent or 20 percent. So it could change, it could alter your DTI from 62 down to 52 percent but nothing much more than that.
Ryan: So what I propose may be in the mix here is HTI. What do you think?
Mike: Yeah. Very well could be. That’s a good one. So in fact you may have other properties and they may be bumping him out because in fact his first mortgage is 27 percent of his gross income. Sure. That could very well be.
Ryan: So that’s just a thought. Larry, consider emailing us directly. You get email support so we’d be happy to help you out and figure that out. Just so we know.
Mike: Here’s the thing. A lot of people get turned down for the Making Homes Affordable Program because some of the lenders now have established separate departments and they bump them out and you don’t qualify because of something like this. If we’re right on our guess here. You could have just been rejected by one department and the bank is more than willing to give you a modification. You just don’t qualify for the A paper. So you may still qualify for a modification. You just have to make sure you’re talking to the loss mitigation department.
Ryan: They told him he didn’t get a loan modification would they also say, wouldn’t it make sense for them to say in our department?
Mike: Yes, you would think so, but I’ve got several instances in which they didn’t do that. So I don’t know if it’s a routinely they’re making that mistake or just occasionally do but that’s pretty startling.
Ryan: From a trainee perspective it would be easy to not know another department existed. It might be standard protocol, script to say, but, we encourage you to apply over there. And you just don’t get that. You’re telling accurate information. It was declined.
Mike: Some of the loss mitigation reps, some of them are two weeks off the street. They just hire them, they put them through this crash course and a lot of them don’t really know what they are talking about.
Ryan: Well, I hope that although we didn’t stay exactly on track here, I don’t think people are getting a range of strategies. If they wanted to scale the bank’s walls, we can support you by email. So thanks so much for joining us tonight, guys. We’re obviously the advanced class, the 60 Minute Loan Modification Insider Secrets Teleconference Series.
We’re huge fans of the do it yourself loan modification but that doesn’t mean you should do it alone. We’re here to help and calls like this are a great forum for all of us to share ideas and help each other through these trying times. We do spend most of the day on the phone, so email is the quickest way to get a fast response to any and all questions. Please email us at help@60minuteloanmodification.com. Thanks for joining us tonight and keep fighting the good fight.
Mike: Goodnight everybody.
