Many folks still ask me if it is unethical or immoral to either seek a loan modification or walk away from their underwater home. It’s a question close to my heart, because of my own deeply held religious beliefs and the life circumstances I have experienced under which they have been thoroughly tested.

Recently I was pleased to learn about an academic paper published by Law Professor Brent White out of the University of Arizonia. The paper is titled, “Underwater and Not Walking Away: Shame, fear and the Social Management of the Housing Crisis.”

Join us for tonight’s live show – open to everyone – during which I’ll do my best to highlight some of these issues. Prepare to be a little challenged in your way of thinking! And don’t worry, it’s not an academic discussion. It’ll be light and fun as always!

Now: read the transcript!

Mike Rockwood: All right everybody it’s that time of week again.  It’s 6:00 on Tuesday evening, and it is the Foreclosure Doctor.  It’s Mike Rockwood and Ryan Rockwood from the 60-Minute Loan Modification Company and we’re here to talk to you — kind of Open Mic about foreclosure topics anything related to foreclosure not just loan modification, of course, also short sales, just walking away negotiated settlement, deed in lieu, any kind of workout of arrangement you can imagine we’re here to talk about.

Ryan Rockwood: Why don’t we say it again just because these people couldn’t hear?

Mike Rockwood: Okay.  All right, do you think we’re ready to go?

Ryan Rockwood: Yes.  We’re ready to go.

Mike Rockwood: Okay.  Sorry about that everybody.  We had a little bit of technical difficulty as we often do.  We need a new technical director, I think.  But at any rate, it’s Mike Rockwood and Ryan Rockwood and we’re here.  It’s Tuesday evening at 6:00.  That means it’s time for the Foreclosure Doctor Teleconference and videoconference series.  Ryan and I literally pushed ourselves away from the desk working on loan modifications and foreclosure workout to spend the end of our day answering your questions about what we’re learning in the area of foreclosure workouts.  Our lawyer always wants us to start every teleconference by telling you that we are not lawyers.  He is the lawyer and you have to send him money if you want legal advice.  Don’t take our advice as legal advice, it ain’t.  All it is is telling you what we’re hearing on the streets, what we are seeing, what clients — what kind of deals clients are working out, what banks are up to, and how that home negotiation process is going.  We are also not CPAs or tax advisers, but we also do pass on to you all kinds of information about what our clients are finding out in terms of the tax consequences of forgiven amounts and short sales and loan modifications, et cetera, et cetera.  So don’t take our word as tax or legal advice, but believe me you should take our advice.

So we’re here to tell you that as bad as everything sounds in the loan modification game, it continues to go quite well for our clients.  Now, we don’t stay as in touch with all of you as we should or we could but we do take on number of clients where we do the modifications for them.  We’ve always told you that we’re really strong proponents of the Do-It-Yourself Loan Modification effort and really all the foreclosure workout efforts.  We really advocate that people do them themselves for a number of reasons, but we also do loan modifications for clients because plenty of people just can’t do it, won’t do it, that they know they’ll never going to get around to it or they don’t have the right temperament for it so they hire us to do it.  We got to tell you, in spite of all the bad press, we are — we continue to have good success.  Over 95% of our clients get approved.  We had two approvals this morning.  So we’re very pleased to report that a couple of clients who got really wonderful, wonderful loan modifications, shaving for an $800 respectively off of their mortgage.  But you know, those numbers kind of sometimes hide the fact that an even more important thing has taken place.  A lot of folks are going from negative amortizing loans — which one of these was this morning — to a slightly lower payment, a fixed rate fully amortized.  How beautiful is that?  I mean it’s just an about face.  This one client yesterday had already — or earlier today had already accumulated $50,000 in negative deferred credit — debt deferred interest.  So this just turned it around from each month paying about a month short — or about $100 short, so each month they were digging another $100-hole, little $100 deeper in debt.  Well now, they are like full $700 to the positive every month, so it was just extremely beneficial to them.  So a lot of good things are happening in spite of all the bad news but today –

Ryan Rockwood: You know it is true.  You do think that everyone has gotten out of those horrible arms already but that’s not true.  Are you there?

Mike Rockwood: Yes.

Ryan Rockwood: Yes, sit there.

Mike Rockwood: Even some of the neg-ams, you know?

Ryan Rockwood: Yes, that’s one [Indiscernible] [0:05:08] today.  It was 200 neg-ams still, and I said, “How much you’re going negative each month?”  She said, “You know what?  I’d say I don’t even want to know.”

Mike Rockwood: Yes.

Ryan Rockwood: Yes.

Mike Rockwood: Yes.

Ryan Rockwood: Yes.

Mike Rockwood: Oh, that hurts.  All right, so…

Ryan Rockwood: Anyway, for those of you that are new to the show, I want to thank you for coming.  I want to thank for stopping by.  Basically my father, Mike Rockwood, and I put on this show and another one for our personal clients.  We put another show on a Thursday night.  On Wednesday night, we put on a similar webcasting program for people who want to settle their credit card debt, which is often the next step after getting your mortgage handled as you kind of triage your financial life.  But excuse my voice.  I got a bit of a cold.  But basically, my father — this broadcast tonight is designed to answer questions and to provide up-to-date information on loan modification and foreclosure options which, let’s face it, it’s really hard to find some objective, current information on those topics.

Mike Rockwood: Yes.

Ryan Rockwood: Usually you can find someone espousing a loan modification or maybe short sale or something like that.  These are competing voices in the market place and that’s the best you can get.

Mike Rockwood: Usually there are siren song singing you over to their particular solution that, oh yes, also cost you an awful lot of money.

Ryan Rockwood: Yes.  So I mean, what we wanted to do is create an environment where we could try — what we’ll try to do is diagnose a client and try to say okay, is the loan mod the perfect thing?  If not, let’s recommend something else and push you that way, and so on and so forth, all over the country.

Mike Rockwood: So we help you think through the options because there is a right option for you.  There is a way forward and sometimes it doesn’t seem like it but with our experience in all the different foreclosure workout options, we can give you as close to an unbiased opinion as you’re going to get.  But we’re very experienced opinion, and we’ve been down all these paths.  We really got into this business not by great strategy but actually by financial need.  I got forced to pursue loan modifications for myself almost two full years ago now, and the thought — the things that I learned after so many fits and starts and failures and mistakes was that there are an awful lot of tricks to it.  So I wrote the 60–Minute Loan Modification Kit to kind of pass all those tricks along to other people, to show people how, yes, you do need — I recommend you do it yourself just like the government does and just like the banks do, but I don’t recommend you doing it alone.

Everybody on the other side of the table, believe me, they’re on the other side of the table.  You need someone on your side of the table to interpret the questions for you to help you understand the financial criteria that the banks are looking for so that you can see things.  You can level the playing field a little bit so that it’s at least somewhat fair, right?  Bank holds all the cards, but with our help, with the help of somebody who has done now almost 200 modifications, you get insider street smarts about how to make it work and that’s what we like to bring to the table.  But what we always do is start off this teleconferences with some kind of commentary and latest news update and maybe a teaching on a particular part of foreclosure workouts, and tonight I want to talk –

Ryan Rockwood: We should tell everyone before we get started, how they will contact us.

Mike Rockwood: Yes.

Ryan Rockwood: If you’re watching online, you can sign on to the chat that, frankly sometimes work, sometimes doesn’t.  If you have a real burning question, go ahead and email it in to questions@60minuteloanmodification.com.  We’ll try to tackle it live on the air.  Also, if you have to tuned in on the phone, we will try to give our phone callers their due time and switch over there and ask a phone question but that just never goes great because with all the people on the line, all the background noise and that’s not the best way to get your questions.  All right, but you got to do what you got to do.  You got to operate with the resource that you got available to use, so based on whichever one of those options you can select, do it.  Okay.  Now, get back to you.

Mike Rockwood: Okay, so tonight I want to deal for a little bit — I want to dwell for a little bit maybe 10 minutes or so and Ryan, I kind of want to draw you into this conversation because I know you feel passionately about this and I really kind of wanted to be a back and forth, maybe a dialogue between us about why this whole housing mess seems so unfair.  There’s really been something just kind of nagging at me since the whole thing started. As it grew and grew and grew and as we realize that at the core of it was an awful lot of, oh, the securitization of our mortgages, the globalization of our financial markets acted like a big sucking vacuum that just pulled mortgages out of thin air actually created some of them, actually gave them to people, encourage people to take mortgages and encourage property values up, up, up so that we get more mortgages so that we can sell more.  That whole thing collapsed didn’t it?  Now as we all American homeowners are left holding the bag.  I’ve increasingly become angry, frustrated, and just had this gnawing sense that doesn’t everybody else sense how unfair this all it is, and of course you get plenty of people who says, “Yes, those bunch of dummies getting those subprime stated loans, buying more home than they could afford.”  The people that I call smugglers, I called them smugglers now because, gosh, they were so smug sitting on the sidelines in the greatest housing run up of all time, of all time, of all time.  Did I say of all time?  We have just experienced the biggest run up of all time and the biggest collapse of all time in the real estate world in the history of mankind.

So the people who sat on the sidelines smug.  I’m telling you, they did so because they couldn’t afford to get in.  They did so because they didn’t have the nerve to get in or they did so because they didn’t have the brains to get in.  Give me a break, to not have gotten in on the housing boom in the last 15 years.  If you didn’t do it, you simply are what I call a smuggler.  Now, you sit back and you point fingers at people who got caught with all that real estate.  Well, okay.  But –

Ryan Rockwood: Well you know the other thing is that there is a trace amount of — I don’t know how exactly to describe it but we’re so — it seems like here in — I really don’t know if it’s our country but certainly in our society.  We’re so eager to hate ourselves as we hate people who fail.  It’s just like the question is these people who are criticizing you today are just making it.

Mike Rockwood: Yes.

Ryan Rockwood: About to fail — they’re tomorrow’s failure.

Mike Rockwood: Yes.

Ryan Rockwood: You know what I mean?  They just haven’t admitted it yet.  So anyway, what I mean to say by that is all this is basically, I think what you’re doing is setting us up to talk about this article, this academic paper.  They kind of touches on some really powerful topics, right?

Mike Rockwood: Yes.

Ryan Rockwood: Well, I mean basically the whole idea being — I mean, I don’t know anything how we got here.  I don’t know how it happened.  I don’t know who’s to blame.  I don’t know whatever.  But I can sit in this particular situation from right here where I am and say okay, I have a house that won’t return to its value for five years and to hold it for five years is going to cost me, I don’t know $100,000 in holding cost more than it would to rent.  I can say I mean, am I — is there any reality to me being able to carry this housing burden personally, the American — I mean, there are government programs to bail out banks because everyone knows a bank can’t carry it, right.  Everyone knows the bank can’t.

Mike Rockwood: Right.

Ryan Rockwood: Bear the brunt of it.  Everyone knows that insurance companies can bear the brunt of it.  Countries, their treasury bonds can’t bear the brunt of it, whatever, right.  But somehow the American…

Mike Rockwood: Yes.

Ryan Rockwood: Is making 30 grand a year, is supposed to be…

Mike Rockwood: Yes.

Ryan Rockwood: The one that the dog that carries that thing home.

Mike Rockwood: Well, let me start by kind of setting the stage and a little bit of a preamble as to how bad the situation really is because most of us are so optimistic that we really don’t like to look at how bad it is, and I don’t either but let’s just talk about for a minute.  Right now, today, 15 million homeowners are underwater.  That’s about 1/3.  So as you look down your block, about 1 in 3 is underwater.  They owe more on their home and their home’s worth and most experts agree that by this time next year it will be 50%.  Don’t be fooled.  We’re not at the bottom.  Housing prices have not stopped to decline.  The foreclosure rate continues to be strong, so most experts are agreeing we’re going to get to 50% where every other house on the block is upside down.

Now, this kind of hides the fact or kind of masks the fact that in certain states like Florida, Arizona, Nevada, Texas, California, the rates are almost double that and already almost 70% of the homes in Nevada are upside down, 70% are upside down.  So and many — because the homes in a lot of — in the states were so expensive, you know what I mean, these are the states that really climb high by 2005.  So a lot of these homeowners are upside down by more than 3 to 5 times what they earn in a year.  So let that sink in for a minute.  They are upside down more than traditionally we have recommended people even borrow to get a home.  They’re upside down by that much, much less owing that value on the home.  They’re upside down by that much.  Let it sink in.  As you let it sink in, it should freak you out.

Ryan Rockwood: But to the extent that homeownership is no longer — I mean, when we get to 30% and 50% underwater, our perspectives of homeownership has to change so much so that when you meet someone at the park, then say, oh, we own our home, it’s like telling someone that’s bad freaking news.  You know what I mean?  It’s going to be shocking to the extent of, oh God, you own a home.  That’s not necessarily good news.

Mike Rockwood: Right.

Ryan Rockwood: I mean it is news.

Mike Rockwood: Right.  Okay, so — but with such high instance, and remember I said 66% in Nevada.  With such high instances of people being upside down, only 3% are strategically defaulting.  A strategic default — all of you should get familiar with that term because this is going to become really popular — what that means is that people just playing the side not to make their payment for either because they’re going to decide to leave the home or because they’ve decided they need to do that to get to negotiate, to get the lender to negotiate with them in good faith for a short sale or for a loan modification or a deed in lieu or for whatever.  So get a load of that, 50% are going to be upside down yet only 3% are walking away.  Why is that the case?  Well, we can think of several reasons off the top of our head.

Number one is we love our homes.  We really do.  We have a crazy love of home.  Number two, it costs money to move, right?  It’s a hassle.  Number three, Americans are eternal optimists about home values.  After all, it’s been the way.  It’s been this way all of our lives.  Homes have appreciated all of our parent’s lives, all of our lives.  It’s always been a good investment.  We have a hard time starting to realize that things have changed.

Then there are three reasons that maybe you haven’t thought of.  The first one is we’ve never experienced this before, nobody has and we don’t know how we think about it yet.  Then there’s the desire to avoid the shame of foreclosure, and then there’s the exaggerated anxiety about the consequences of foreclosure.  These last two, avoiding the shame of foreclosure and having exaggerated anxiety about the consequences, are the topic of a paper that I really recommend you get and read if this topic is a whole ethical topic of the morals and ethics of the housing downturn if that fascinates you.  The study was done by the University of Arizona Law School, and the study is called Underwater and Not Walking Away: Shame, Fear, and the Social Management of Housing Crisis.  The author says that those two things are really — that the government and the banks unfairly coerce homeowners into shouldering a larger share of the housing crisis burden then they should.

That’s what Ryan’s referring to.  The mortgage contract is real clear.  Homeowner make payments or else bank take home.  The bank rather than just exercise that legal contract, we get into quite at tizzy because of those factors.  They’re socially managing us into shouldering a burden that they’re not willing to shoulder.  In other words, if it’s financially beneficially for them to foreclose on your home, they simply do whether you’re a single mom, whether you’ve lost your job, it doesn’t matter the morals or the ethics of it.  The legally binding contract is as stated and the bank is expected and none of us judge them morally or ethically.  But somehow for individual homeowners, we judge them morally and ethically and we say they’re doing a shameful act or an immoral act or an unethical act.  But the authors identify many current proposals that I wasn’t aware of for handling the crisis.  You’ll get to kick out on some of these Ryan.

Ryan Rockwood: Oh yes?

Mike Rockwood: Then the authors do have their own recommendation which I am going to become the number one proponent.  I’m going to start writing about it.  I’m going to start really becoming an advocate of it.  Okay, so the first one is should the government in fact be sending money to homeowners instead of to the banks?  Would it have been better to have establish or could still be better to establish some kind of fund that would allow — that would either subsidize payments to do the same thing that the banks are doing with homeowners or to actually write down principal, which is something the banks are not doing?  Would that have been smarter than to just give banks money that you know by the way that they have not lent the money to homeowners or small businesses, right?

You know that they haven’t passed that money along.  I mean, just so we’re clear.  That money was used to get a return in 12 months big enough to pay it back and that money was not used for the intention that it was lent out or that it was given out.  So that’s the first proposal.

A second one is that we should empower the bankruptcy courts to cram down just like they do on car loans or other installment loans.  They can cram down and that proposal has come around a couple of times in the legislature, but the banks have successfully lobbied against it.  So that would enable a judge to look like in Chapter 13 and say as they reorganize their debts, I’m going to take that mortgage down from, say, $750,000 on the single family home in Riverside, California down to 85% of today’s current market value, $185,000 in Riverside, California.  So what’s good about that proposal is, I mean, that’s what eventually has to be done.  That’s what happens when the bank forecloses and resells it anyway.  But that would allow the bankruptcy courts a great deal of power.  People would flock the bankruptcy.  The bankruptcy would be overwhelmed and it would also limit the relief to people who can qualify for bankruptcy.  A lot of us cannot because we have a good steady income.

A third proposal is a prepackaged cram down that we could just apply for without going to the bankruptcy, without actually filing bankruptcy.  So you got the same kind of cram down but you just apply for it by zip code.

Ryan Rockwood: Oh, that would be cool.

Mike Rockwood: Yes.  So here’s — the proposal was that if your zip code has declined by more than 20%, your zip code qualifies.  Everybody within the zip code could apply for one of these prepackaged cram downs.  The cram down would require that your lender write down your mortgage to 85% or 80% of market value.  So some of these things are just absolutely powerful and they kind of turn the current.

Ryan Rockwood: But where are these recommendations from?

Mike Rockwood: These are from various academic sources that have…

Ryan Rockwood: Looked at it.

Mike Rockwood: Submitted proposals to congress.

Ryan Rockwood: In his document that we found, they’re presented?

Mike Rockwood: Well, no.  He just references them because he builds up and talks about pros and cons of each of those, but then kind of builds up to a proposal that he thinks is even better.

Ryan Rockwood: Okay.

Mike Rockwood: So this prepackaged cram down one I think is really, really sweet.  But you see what these three have done so far is they kind of turn everything on its ear.  They kind of say, power is no longer only the hands of the banks to make us afraid of our FICO score, to make us afraid of the shame of foreclosure, but it kind of just turns things on its ear.

The fourth one is at least the government should fund a massive educational campaign and a PR campaign to retrain and educate people that it is not morally and ethically wrong to walk away from an upside down mortgage.  See, the author feels like the government is unethically supporting the banks by allowing them to — I mean, they got this big FICO monster that they sick on us.

Ryan Rockwood: Well, that what I feel like too because you get the impression that the President is trying to save the banks.

Mike Rockwood: Yes.

Ryan Rockwood: You know, like I mean, I know he’s trying to save housing through the banks.

Mike Rockwood: Yes.

Ryan Rockwood: But you still get the distinct impression that hurting your bank would be hurting the housing economy.

Mike Rockwood: Right.

Ryan Rockwood: In fact, I heard one lady at NPR say how she came to that thinking that she’s just going to walk away and people wrote in and said is that kind of selfish — she was way underwater.

Mike Rockwood: Yes.

Ryan Rockwood: It was never going to make it back.

Mike Rockwood: Yes.

Ryan Rockwood: She was just going to walk away and no other options.  But that is a good option.

Mike Rockwood: Yes.  The offer goes to great length.  In fact, there’s a whole section of the study that makes it very, very clear that it’s a smart financial decision and it’s best for your family, it’s best for you, and ultimately maybe best for society.

Ryan Rockwood: It can — yes.

Mike Rockwood: Yes.

Ryan Rockwood: In two years he says –

Mike Rockwood: Yes.

Ryan Rockwood: — you can buy another house.

Mike Rockwood: Yes.

Ryan Rockwood: She was kind of like…

Mike Rockwood: Yes.

Ryan Rockwood: What other option is there that doesn’t cost you anything?  There’s no paperwork or –

Mike Rockwood: — or you scoop a quarter of a million dollars.

Ryan Rockwood: Yes.

Mike Rockwood: Yes.

Ryan Rockwood: Also, people wrote in and they said — one guy said is this kind of selfish out for themselves thinking they got us into this kind of mess in the first place.  I thought, well, I mean…

Mike Rockwood: Yes.

Ryan Rockwood: I guess.

Mike Rockwood: But it was.  There are the banks.

Ryan Rockwood: Yes.

Mike Rockwood: Okay.

Ryan Rockwood: So again, we’re asked.  You’re right.

Mike Rockwood: Yes.

Ryan Rockwood: So we’re asked to shoulder the burden there.

Mike Rockwood: Yes.

Ryan Rockwood: These are people that cannot.

Mike Rockwood: Yes.  So you go to green lights to look at the mortgage contracts.  You realize that it really it should be a shared equity kind of situation.  I mean, the equity went away and if you want to, the government — he says, he proposes that the government at least should enter into a very expensive and aggressive educational program to make all of us understand that this is purely a business transaction that you’re in with the bank.  He recommends — his best recommendation for what to do is to level the playing field a little bit by at least preventing precluding the banks, preventing the banks from reporting mortgage lates and defaults and foreclosures to credit bureaus.

Ryan Rockwood: Wow.

Mike Rockwood: Yes.  He says that, at least, or take away this ethical, moral baton that they’re being us with and so then at least homeowners would say, well, we’ll give us some more clear picture on what the implications are in terms of defaulting and walking away from these loans.  I’m telling you, my mind has been in this place for so many months that to read this report is just like — it’s like how when you read some holy word or something and it just exactly says exactly what you’ve been sensing or feeling or knowing deep in your soul.  That’s how I am with this darn study.  It’s just like every page is like yes, yes.  So for those of you who have been laboring under the burden of the shame of foreclosure, the shame of the reality that you’ve been casts into.

Ryan Rockwood: You know, there’s even that resistance to doing the loan mod because…

Mike Rockwood: Yes.

Ryan Rockwood: It’s kind of like I don’t want to be a person who…

Mike Rockwood: Has to [Inaudible] [0:28:17].

Ryan Rockwood: Yes.

Mike Rockwood: Yes.

Ryan Rockwood: I don’t want to that puts me into a category that I’m uncomfortable with.

Mike Rockwood: Yes.

Ryan Rockwood: You know.

Mike Rockwood: Yes.

Ryan Rockwood: They say these 81% of people feel that it’s unethical to somewhere in there to not make a mortgage payment.

Mike Rockwood: Well and here’s –

Ryan Rockwood: You know, I don’t think that — I mean, I think that it’s good and kind of neat that people are challenged by these issues.

Mike Rockwood: Yes.

Ryan Rockwood: You know what I mean?  It’s just that I don’t like — I guess like most religion — you know I don’t like where most of the people come out.

Mike Rockwood: Yes.

Ryan Rockwood: Where most of this flushes out.

Mike Rockwood: Yes.

Ryan Rockwood: I think you kind of fall a little bit short in a way of, I don’t know, mental effort or something like that.  You know what I mean?  You don’t stop thinking about right away.

Mike Rockwood: So anyway, we want to encourage all of you to press on.  Press on with you workouts.  You are about the business of taking care of your finances.  Don’t be dissuaded by the fact that — you know, the paradigm that you’re working in says that there is some shame to default, that there is some shame to foreclosure.  Don’t believe it.  Reject it.  It’s a new paradigm.  It’s a new time.  Think outside the box.  Take care of issues.

Ryan Rockwood: Yes, and not to get to like, I don’t know, like what would be the word?  I don’t know not — the conspiracy theorist or something like that — you know, this is where shame of fear really start to become tools of mind control –

Mike Rockwood: Yes, sure.

Ryan Rockwood: — and of slavery and of oppression.  This is where the radical American, in a sense, really has a possibility of — our minds, I think, can probably cut through a little bit easier than some other society because we’ve said “heave ho” we’re not going to be part of this government anymore.

Mike Rockwood: Yes.

Ryan Rockwood: We’re not going to be part of this tax system anymore.  Those are big bull steps –

Mike Rockwood: No taxation without representation.

Ryan Rockwood: — of redefining our reality.  Lots of people and lots of parts of the world said, oh, this sucks.

Mike Rockwood: Yes, and just go about their lives.

Ryan Rockwood: Yes.  But there is something about American mindset that can overcome this.

Mike Rockwood: Yes.

Ryan Rockwood: Now, there’s the competing issue of the conservative religious whatever we have that’s going through our society.  Not that that’s bad but that is going to be competing, I think, on a level of saying morally this, morally that whatever.  But I think that you really have to — it is your duty of some level that says what I’m feeling is shame.

Mike Rockwood: Yes.

Ryan Rockwood: I am embarrassed to feel to let my life be ruled by shame.  You know what I mean?  I want to stand for it and I see it as what it is and that is a tool of powerful.

Mike Rockwood: Yes.  I can’t tell you how important I think this is because I think this kind of stuff just sets you free to all of a sudden because not only on foreclosure, not only real estate related but Ryan and I are over-freaking-whelmed by the credit card debt that people are carrying.  People that are joining the Credit Card Cure Co-Op, unbelievable.  People who earn and $30,000 and $40,000 a year with $40,000 and $100,000 and $150,000 in credit card debt just finally getting to that point where they can’t make the monthly payment and we’ll say to them, who can’t make the monthly payment, “Goodness, goodness girl.  Look at your situation,” and we’ll run the math for and the light will go on and she will realize that she would not have paid off this debt in 25 years.  Twenty-five years she wouldn’t have paid it off, and it would have been three and four and five times what she had borrowed to buy those things so –

Ryan Rockwood: People are really going to really undervalue their own life.

Mike Rockwood: The craziest of it is that — yes.

Ryan Rockwood: They’re really eager to say –

Mike Rockwood: Oh, I can do that.

Ryan Rockwood: Well, my life could be spent paying off US Bank.

Mike Rockwood: Yes, how noble is that.

Ryan Rockwood: That sucks dude.

Mike Rockwood: It does.

Ryan Rockwood: Yes.  I tell you what if — I mean –

Mike Rockwood: See, we got tricked and all.

Ryan Rockwood: If you love US Bank that much, listen, you made a mistake.

Mike Rockwood: Yes.

Ryan Rockwood: It’s that simple.  I mean –

Mike Rockwood: It is that simple.

Ryan Rockwood: It could have got a different way.

Mike Rockwood: You got duped, man.

Ryan Rockwood: It could have got in a different way.

Mike Rockwood: Yes.

Ryan Rockwood: It didn’t.  We got a mortgage at the wrong time and some stuff happened and you suck it up.  There was this one world famous psychologist I read about is retirement party in New York Times a couple of years ago — New York a couple of years ago — and he swears like a sailor and used the “F” word.  But he said he was just so sick of people.  He said every single person — he’s super famous, right, for like pioneer and all that stuff.  He said every single person at the end of every single session, all you could say — all you have to do is look at him and says, “So you’re F infallible.”  What did you think, you weren’t.  They’re just so distraught.  I made a mistake.  The way I treated my son, my dad, my whatever, you know what I mean?

Mike Rockwood: Yes.

Ryan Rockwood: He says, “So you’re F infallible.”  I’ll tell you what, to everyone in the whole world except you.  That is not a surprise.  You know what I mean?

Mike Rockwood: Yes.

Ryan Rockwood: You better stop.  So move on with it.  I don’t think that trying to buy that three–bedroom, two-and-a-half-bath-home is such a bad thing that you try to do that you need to commit the rest of your life to economics, servitude.  But if you do, I don’t know.  We’ve got to get a membership program to help those people to do.  So at least…

Mike Rockwood: All right, we’ve talked.

Ryan Rockwood: All right, we beat that.

Mike Rockwood: But honestly, this is going to become my kind of sidebar for me.  I’m always going to be talking about this topic because I think three years from now most people are going to be going, well duh.  Why didn’t we see that three years ago?  I honestly think this is kind of getting comfortable with a new paradigm, and I think this particular author helps us to see much more clearly what’s going on and when you can see things clearly, you can take appropriate action when you’re duped, when you’re blinded, and you’re handcuffed, you don’t take appropriate action.  Appropriate action is going to be messy, it’s going to be dirty, it’s going to be painful, but oh man, it’s going to sweet when we get through it.

Let’s go to some questions.  Okay, Mark had asked about how long a short sale will take.  Hey Mark, the truth is you just never know and to some extent is it up to you.  In fact, I just sent off a short sale packet to the bank for a homeowner in Fort Lauderdale, Florida who last — let’s see, today is Tuesday.  It was Friday that he listed the property.  He hired me to short sale it for him.  I listed it with the local representative last Friday, and today we already have an offer and it is into the bank.  So he will probably be out of that property 45 days after he decided to sell it.  I have one closing in Southern California on the 16th of February that will have been two years and two months since that homeowner decided to stop making payments and to sell the home short and everything in between.  So really to a larger extent it is up to you.  You can make it go as fast or as slow as you want.  Some people want it to go very fast because they feel like it’s painful.  Some people want it to go very slow because they want to stay in the home or they want the renter to continue to pay them rent to try to recoup a little bit of their lost downpayment or sweat equity or whatever.  It’s all up to the seller to some extent — the lender — just because the lenders are so swamped.  So that’s the answer to that, Mark.  It goes about as fast as you want it to.

Then Tim asked.  He’s in Florida.  I know who asked this question.  He says, “Is it 100% certain that we’re going to have to accept some of the shortfall in a promissory note or bring money to closing?”  The answer to that Tim is no, it’s not 100%.  Here are the factors.  In states where the values have fallen so dramatically and banks have the right to hold you personally liable for the loan, an awful lot of those, the banks are, especially on second mortgages, asking for some kind of settlement.  In other words, they’re asking the homeowner to take some share in the loss.  Sometimes they ask for you to take as much as 25% or 30% of the loss.  Sometimes it’s much less.  They’ll very often offer you a promissory note at 0% interest spread across many, many years if you want that.  But here are the factors that dictate whether or not you can get away without accepting some of the loss.  First of all, if you have private mortgage insurance, you’re going to find that that was a two-edged sword.  It’s good that the bank had insurance but it’s bad for you because now that insurance company is going to negotiate — I mean, they’re going to negotiate like crazy to not let the bank accept too short a deal and not allow you off without taking some of the burden.  So that insurance company serves them.  It was their policy that you bought for them, so I guess it does what it is intended to do.

Secondly, if you have assets, if you have a large CD or you have great big savings account or you have a lot of real estate wealth other than the home you live in, you could be — it could work against you because the bank knows exactly what your assets are.  Don’t think for a minute you can hide anything from them.  So if you have a lot of assets or if you have a real high income, they’re likely to insist on a promissory note.  So those are the factors that really make you a bad candidate to get away without paying anything.  I currently got a client who in Florida, this one is in Port St. Lucie, who says that’s fine.  I’m on retirement savings which is a retirement income which is protected.  I have only 401K wealth, nothing else that’s protected.  So he actually can’t pay anything other than from his pension.  So the lender can’t get any money out of them and I fully expect him to be able to walk away without taking any kind of promissory note.  So that’s how it works, Tim.  Of course, in states that are completely non-recourse on your primary residence with very, very few exceptions, you cannot be held personally liable.  So like in California, you can walk away from that bad situation and they forgive the amount and they cannot pursue you and hold you personally liable.  That’s the goodness.  Okay, you got some other questions coming through?

Ryan Rockwood: Yes, an interesting one here.  First of all, I want to tell everyone that there are some blue buttons on the video page where you can schedule an appointment and if you need to schedule your free appointment for clients, go ahead and go there and schedule it.  There’s a drop down on the upper left.  Once you go there, then you can select at it.  If you need — if you’ve already done your appointments, still want to talk or you’re thinking about buying a product that you want to talk, you can schedule a half an hour appointment and pay for it right there on the calendar.  It’s like the time slot.  Okay, it’s the best way to talk to us about something complicated.

Anyway, I’ve got this from Richie.  He says that he got a loan mod from B of A, but he’s disappointed because it’s not good enough, he feels.  So he started the short sale process with the realtor.  He still going to try to get a better loan mod and reapply during the process but he’s relying short sale for now.  So I think this is smart.  What this guy is doing here is he’s saying, hey does it cost me anything?  Keep the short sale thing working and up in the air.  So why don’t I do that at the same time?  I’ll pursue whichever is best for me.  He says he owes $150,000 on a house that’s worth $100,000, so that’s a tremendous amount of equity to make up.  Getting rid of something like that, that’s never a bad thing pretty much.  But anyway, so he’s saying, “How do I delay getting Notice of Trustee Sale so I don’t get foreclosed on while I’m in the short sale process?”  They don’t yet know I’ve started the short sale process.  I just told them I got to reapply for a loan mod, seven months delinquent right now.

Mike Rockwood: Whoa.

Ryan Rockwood: Yes.  So what should I do to keep foreclosure from Bank of America? Da-ra-da-da-ra-da-da-ra-da-da-da.

Mike Rockwood: Well, the good news is, it’s Bank of America, right?

Ryan Rockwood: Yes.

Mike Rockwood: Because they are so swamped that they’ve started subcontracting everything in fact.  They even subcontract the analysis of short sales now, but so that’s the good news.  It’s Bank of America, Richie.  They are really, really still very messed up in terms of just being overwhelmed with the work load.

Ryan Rockwood: We’ll say though, with Bank of America, we have had some cases recently where people doing the dual thing, the short sale and loan mod thing that we have — we always suggest the people to do that.  They’ve kind of got the door slammed shut on that, which I think for you is fine.  If — what you’re going to have to do to get this thing as — I mean, you’re going to have to commit to one thing or another.  Probably, right now, the best thing is to ditch that loan mod and tell them you want to short sale it and get them an offer in the next couple of days.  If you say, “Well, how do I get an offer like this?”  Lower it by 10,000 everyday until someone comes in that’s a solid buyer that could complete the transaction, okay.  This is how you do it.

Mike Rockwood: So you know, the key is if you’re going to run a loan mod and short sale at the same time, you don’t — unless for some reason you need to — don’t tell the bank that you’re doing a short sale because you don’t care.  First of all, it’s none of their business.  You own the home, and you don’t care.  You might not get an offer for three months.  So get out there and figure out what the home is going to — what kind of offer you’re going to get from a good buyer.  Ryan’s point is very well made.  The key is a good buyer not a good price.  You got to have a solid buyer and then make the decision.  Once you get the offer, make the decision if you want to cut the cord on the loan mod because Bank of America does make you do that.

Ryan Rockwood: Okay.  So, and that is just for what it is.  I mean if — it all depends — if you’re seven months in, maybe you already had a Notice of Trustee Sale in the past.  Now if so, it’s all a different ball game.  You need to send them an offer tomorrow and tell them you’re doing a short sale.  You can’t screw around, right.  But if you haven’t gotten any of that yet, you could still apply for a little while but really I don’t see the value.  You know, you’re 30% upside down on the house, 35%.  So might as well go to rather the short sale when you have a good offer in on the short sale.

Mike Rockwood: Yes.

Ryan Rockwood: They will wait but not until then.  Like my dad said there’s not even any point in telling them until you have a good offer.

Mike Rockwood: Okay Linda asks how much does a forensic loan audit cost and do you think that’s a good investment?  I do Linda, and in fact, we offer forensic loan audits through our site.  We have a company that we recommend, that we highly recommend and the cost is still just little less than a thousand dollars.  I used to think that was too much and not really a good value but in the last six months or so, I’ve really come to be a real advocate of forensic loan audits because it has become harder and harder to differentiate your application and it’s become more and more and more critical that you do.  So a forensic loan audit, I think is a good investment particularly if you’re looking at saving $500 to $1,000 per month on your modification.

Now, what I do on modifications for people who hire me to do their modification, I always perform my own do-it-yourself loan modification and I identify kind of low hanging fruit and I include that with my loan applications.  So it has become an integral part of my whole modification effort.  But I particularly recommend it to people who have really big mortgages like the big jumbo ones.  Certainly if you have a mortgage of over a million dollars, I mean that’s a jump change compare to what you’re going to be able to save and a lot of times because you’re not going to be in on the Obama administration’s incentivized modifications because your loan is jumbo, you’re going to need that extra power that extra horse power to get your modification done.  So modification — forensic loan audit will cost you like $1,000.  That’s about as cheap as they come to maybe $3,000 max.  But then if you find all kinds of violations, which you very likely will, you’re going to have to pay $3,000 to $5000 for an attorney to handle the modification for you because it’s really — it kind of goes hand and hand.  If you got those big violations, you might as well pull out the big hammer and nail it down, okay.

So then Tim says, “Why are deeds in lieu not working?  Why don’t you talk more about that option for foreclosure workouts?”  Well, the reason that they’re not working very well is because prices have fallen so much that the banks are reticent to accept the home as deed in lieu because then they realize they just have to go through the same process of a short sale or the foreclosure that you have to go through and sell the property on the market, and it’s going to be really difficult and they’re going to incur all the costs that you would incur in the short sale or that they would pay for in a short sale or that they would incur if they take the home back as an REO.  So there really is no financial incentive for them to do it.  The deed in lieu is certainly preferable for you in terms of how it is handled in terms of the lates on your payment and the way it looks on your credit score.  So it certainly, from FICO perspective, advantageous and it gets the whole transaction done quickly.  But primarily because housing prices have fallen so much, it’s not really being accepted very often, and also the bank doesn’t have in — really they don’t have in-house, the expertise to take property directly from homeowners.  What they do is they take you through an REO realtor who has an appraiser and an inspector and there’s a title insurance company there and there’s a realtor insurance policy there.  So there’s a lot of money to buffer because there’s a lot of risk in taking out property, right.  They don’t really have that in place to take deed in lieu in mass like we’re looking at right now.

Lastly, a deed in lieu is also kind of difficult for the lender because it doesn’t strip other liens.  So if you have a mechanics lien, if you have a second mortgage, or home equity loan that is tie to the house, it doesn’t strip off those mortgages so they get the house.  Sometimes through a deed in lieu, they’ll get the house and then they’ll still take it through the foreclosure process just to get rid of the other guys.  So that’s why has it currently is not great or is not being used broadly.  Good solution though.  Good one if you can’t get it, all right.  How are you doing [Indiscernible] [0:49:06]?

Ryan Rockwood: Good, good.  Boy, we got an interesting e-mail here.

Mike Rockwood: We talked a lot.

Ryan Rockwood: I think we talked to this person.  This person — death of a parent who helped pay the bills who’s [Indiscernible] [0:49:17], I remember.

Mike Rockwood: Okay.

Ryan Rockwood: Did we talk to this person on the phone in get together?

Mike Rockwood: I think so.

Ryan Rockwood: Now we’re getting a mail, death of a dad in this case –

Mike Rockwood: Okay.

Ryan Rockwood: — who we talked to, but the problem was she already had a really good loan.  There’s 3.25 arm interest rate only.

Mike Rockwood: Yes.

Ryan Rockwood: Anyway, they cut it down just by calling with some stuff.  They cut it down from 952 to 785 on the phone, no documentation.  That’s pretty cool.

Mike Rockwood: Yes.

Ryan Rockwood: I mean it’s not a ton, right?  But I mean if you did this, the percentage of it or something, you know it’s not bad.

Mike Rockwood: 20%

Ryan Rockwood: Yes.  Then anyway, she’s hoping to get more but anyway I guess I don’t know how to say it.  Well, she’s kind of, “What do you think I should do next?”

Mike Rockwood: What we don’t know is we don’t know what your debt-to-income ratio is and that’s critical.  Number one, if it’s the home that you live in, that’s really good.  Number two, if your debt-to-income ratio is over –

Ryan Rockwood: — or an occupant.

Mike Rockwood: — 31% that’s really good, so do this.  Calculate right now your payment, your 785, as a percent of your total household income.  First of all, you got to make sure that 785 include taxes.  Principal, interest, tax, insurance, and homeowners association dues all rolled into one.  One mortgage:  Principal, interest, tax, insurance, and homeowners association divide that by your household income.  If it is more than 31% then you have a really great chance of getting an even better modification than this one, okay.  So those are the two factors.  You live there, and Ryan says you do. Then it’s your debt-to-income ratio is the next one, and that’s called the front-end DTI, all right?

Ryan Rockwood: All right, maybe we should sign off.

Mike Rockwood: Yes.

Ryan Rockwood: Because I get beat up.

Mike Rockwood: We talked too long I guess.

Ryan Rockwood: Yes.  Well, thank you all for hanging in there with us.  Congratulations on getting a week closer to getting your own housing financial problems out of the way and gone.  My name is Ryan Rockwood, and again I’m here with my father, business partner, Mike Rockwood.  We’re here every Tuesday for everyone.  For clients, we’re here on Wednesday.  Also we’ve had –

Mike Rockwood: No, for clients we’re here on Thursday.

Ryan Rockwood: Thursday.  Also on Wednesday, we have a really exciting class.  We’re teaching people how to get rid of their own credit card debt.  It’s very exciting.  Last week, we had one guy settled $20,000 with Bank of America for $9,000 and instead of getting wrapped up and imbedded with some kind of weird shady debt settlement company, you just talk to us once a week and pay us 20 bucks a month.  So it’s a pretty good deal.  All right, check it out.  It’s at creditcardcure.com and we’ll see you next week.  Thanks a lot.

Mike Rockwood: Good night everybody.

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1. Ethics in Foreclosures Clients struggle with the ethics/morality of asking for a modification...

Here is the transcription of this class. Enjoy!

 Ryan Rockwood:  Hello everyone and welcome.  You know, I really want to start out by saying unfortunately we’re really behind in our correspondence to people. If you’re watching tonight and you’re thinking gosh, I just haven’t got an email back.  I bet I’m five days behind and I’m very sorry about that.  Hopefully, I’m going to catch up this weekend.  So anyway, let’s start off on that note.  Welcome to the members of the Loan Modification Teleseminar.  I’m a little sick so pardon my voice, but I’m here with my father and business partner, Mike Rockwood and of course we do these calls to — and actually we have a third class now each week for out Credit Card Cure and that’s to help you eliminate your own credit card debt.  So really we’re on three days a week now.  This is a form where if you have some questions, you can go ahead and jump on that chat.  You can send your questions to questions@60minuteloanmodification.com or you can use the telephone number, the e-mail, actually call in and we’ll see if we can take some questions tonight.  Hopefully that will work out.  Okay, so welcome to the show tonight.  We’re going to talk about hardship letters and we’re going to take your questions and you know even though it’s hard to know if this is interesting to members or I mean because certainly we’ve got over a million times but a lot of people are maybe new to the call and might be wondering about it.  So if you’re wondering why we’re covering it again.

Mike Rockwood:  Well, the main reason I wanted to get, we need to get to tap into the audio guys.  The main reason that I push to have another session on hardship was because twice in the last week, I’ve had the experience that I related to you guys in the past and that is where you’ll — I was talking with a client about a short sale and happen to talk a little bit about loan modification and they made the statement that well, you know, we really don’t have any hardship.  You have to really have a hardship and have it, and then just pushing a little bit on and probing a little bit, came to realize that they had very significant hardships.  So I think — I asked Ryan that I think it’s time that we remember that we have to keep going back to basics all the time because a lot of people have misconceptions about a lot of the basics about loan modification.  So let’s talk about hardship and what qualifies as a hardship, what qualifies you for a loan modification.

But first of all before we get too far along, we want to be sure that you understand that we provide this information as a service to our clients and that we are not attorneys and that the advice that we provide is just really reporting about what we see and what we hear in the business of doing loan modifications.  We are not tax advisers.  We are not CPAs.  So anything that we say with regards to taxes really is just repeating what we have been told from clients or had experienced on our own.  You should consult a lawyer or a CPA with any specific questions about the legalities or about the tax consequences of your situation.

Now, Ryan and I are realtors in Southern California and we are also fulltime foreclosure experts.  We do seminars and we produce products and we work on loan modifications and we help people with deed in lieu applications.  We do just about every type of foreclosure workout there is.  So we kind of follow the market into really being foreclosure experts here in Southern California and if you’re here with us tonight, it’s because you’ve purchased some product from us so we kind of cut to the chase a little bit and get right into questions and get right into our topic of the evening, okay.

So we’re talking about hardship and what qualifies as a hardship.  First of all, the hardship letter itself used to be really a significant part of the application process and we would go to great lengths to craft nicely worded hardship letters and we would always recommend that clients hand write their hardship letters.  Now we still do, but in the acceleration of things, as things have gotten so crazy busy in the last year with sometimes as many as 10,000 applications in a single day for loan modifications.  All of the lenders have really streamlined the process and they have most of them settled on either a brief explanation — asking for a brief explanation of your hardship and they’re really looking for keywords or they actually give you a checklist and ask you to sign an affidavit that this is indeed your hardship.  So I mean they reveal to you what the 10 acceptable hardships are and they are the things that you would expect, a death in the family, divorce, a reduction in income, lost of hours at work, no more overtime, no bonuses this year, illness, time off work et cetera, et cetera.  So anything that impairs your ability has impaired your ability to make your mortgage payment is a legitimate hardship.

I want to go over some of the more kind of — the ones that are kind of on the fringe because I want to jog your thinking a little bit and help you realize where some of the hardships can come from.  Sometimes I encourage people to think through whether or not their child care expenses have increased or their elder care expenses have increased.  Just last week I had a client.  I have been working for them for quite a while telling me that he forgot to relate to me earlier that he and his wife were spending two weekends a month driving all the way to San Francisco to care for her mother and that all the kids were kind of chipping in and this was their portion of the support.  Well that’s a significant expense just being away from home and traveling as well as the time spent caring for their mother.  You know they really could hire out and pay probably you know $1,500 a weekend for.

So think about whether or not expenses have gone up, whether or not your mortgage has adjusted and gone up, your adjustable rate mortgage whether you’ve had some reduction in your income and that could from a reduction in hours or the loss of one of your jobs.  I can’t believe how many of our clients have two and three jobs.  It’s really amazing how hard all of us are working just to keep up with all these debt loads that we’re caring.  But at any rate, what we want to emphasize to you is that hardship is a real broad category that has become really just a gating factor for a loan modification.  Sometimes indeed after really pushing and pushing and pushing, we just can’t find a hardship.  A person doesn’t have a hardship and in fact you are SOL, you’re out of luck.  You can’t get a loan modification without a hardship but 9 out of 10 times when we interview clients, we can find that hardship because usually what brings people to us is they’re having difficulty paying their mortgage so you kind of peel back the onion ask question after question as to exactly why is that high credit card debt is reduction in your hours at work or just what is it that’s causing you to have trouble making that payment.

So more and more, we’re encouraging people to use those affidavits, and we’re encouraging people when they are asked to craft a hardship letter to be just that brief and just use those keywords.  So Ryan really coaches people on just using, my hardship has to do with income reduction, job loss, reduction in hours, increase expenses.  So just be very, very clear and then we always like to hang a very specific number on it.  So if your income has decline by 20%, we’d like to say that or if an expense had — you’re now encouraging — incurring about a $1,000 month in elder care than say $1,000 or say what a percent that is of your income so that they have some sense of the magnitude.  But realistically, here’s what happens.  When your file shows up, it gets passed to a number of people that are screeners and these are administrative people that really are trained in looking just for one thing.  When it gets to the hardship person, he takes your file and he has a good understanding of this hardship checklist and he will read through your hardship letter to find those keywords and when he finds them, he will check them.  He will take that checklist and include it in your file and pass it outside of his department.  So it’s really that simple.  They’re just looking for keywords and they’re looking for you to attest to the fact that that is true, all right.  All right, I got questions right away.  Do you want me to take mine or have you got some coming in on my email?

Ryan Rockwood:  I do have a few in my e-mail.  Up to you which ever one.

Mike Rockwood:  Right.

Ryan Rockwood:  I want to try to cut tonight a little bit short because I’m a little bit sick but…

Mike Rockwood:  Hey, I don’t know if we told you but send in your questions to questions@60minuteloanmodification.com.  All right, Neil wrote in to just about half hour ago.  “How can I get my second mortgage lender to just settle with me?  If I sell the home short, they will only get about half of what they are owed, so this is the second mortgage.  Why not just settle with me for that much?”  Neil, I think you know you’re applying logic to the whole thing and that’s always dangerous, number one.  Number two, what you’re saying makes a ton of sense and I think if times were different, you might be able to get that kind of a settlement and maybe in a year or so you will when principal reduction and settlements like that are more common.  But right now there are still great deals of resistance to principal reductions.  I know there’s a lot of talk very recently about how principal reductions would help all of us to stay in our homes long term rather than just the short term interest rate reductions.  There’s some movement to spend some of the bailout money doing that but so much more bailout money would be needed if we’re going to really take our program like that.  So here’s — I can’t really say why you, I don’t think you’ll be successful in getting that settlement unless of course your second mortgage is just 10 or $20,000 but if it’s like most of our seconds and it’s $100,000 or $300,000 it’s just not likely to happen because then the bank has to accept that loss and currently what they’re doing is they have it on their books as a full asset for the full asset value and because you’re making monthly payments, they carry it on their books.  So it’s a really big deal for them to write off that much money.  So I just don’t think you’ll be successful.

Tom says, “The fact that this home is now over $100,000 underwater and that this loan is interest only, those are my two hardships.  Nothing has really changed in my finances but I’m just so stressed out about paying so much for something that is now worth so little.  Will Aurora,” his lender, “consider a loan mod in my case?”  Okay so here’s the situation Tom is making a point to us that because his home has declined so much in value and he’s only paying interest only so he’s not even buying the bad asset.  So number one, it’s a bad asset.  Number two, he’s not even buying it.  He’s just basically renting the money that he overpaid on it so he stressed about that and he wonders if that qualifies as a hardship.  Nice try Tom but no, it actually doesn’t.  If nothing has changed in your finances, really the value of your home is really irrelevant in the loan modification application so as much as that seems right, a loan mod is not for you if really, if nothing has changed.  If you’re $100,000 underwater and that’s a significant amount of the home’s value which it’s got to be unless it’s — if it’s a $2 million home then that’s not so bad but if it’s a $300,000 or $400,000 homes like a lot of those in Southern California that are $100,000 underwater, it’s not going to recover during the time that you own it, you’re not going to recover that value so you really should investigate a short sale.  Remember we would love — Tom, remember we would love to do the short sale for you especially if it’s in Southern California, but really in any state that you’re in.

Ryan says, “How can I know if my lender will sue me for the amount left after my short sale?  If they will not then, it seems like a good option.  We owe much more than the home is worth.”  Well, that’s good, clear thinking.  You do have to get clarity on that before you decide on your workout option.  There really are — those two things are absolutely imperative that you did clarity on.  One is are you vulnerable, liable for deficiency judgment and the second is what are your tax liabilities if the bank forgives a major part of your debt?  The beauty of those, both are that you can get absolute clarity, 100% clarity by visiting with an attorney.  Now, I’ll give you just a little bit of my own advice but the absolute — the way to absolutely nail it in your instance is just to dial a local attorney and have him look at your loan papers for you.  Here’s the situation.  You can be held personally liable for debt even if the collateral, the house, even if that has declined in value, you can be held accountable for the shortfall in some states under some circumstances.  Now many, many states, I think it is 33 or 34, are non-recourse states.  So if the loan you’re talking about is the home that you’re living in, then you very likely are not going to be held personally liable.  There are some exceptions on second mortgages particularly if you refinanced a number of times which so many of us have done, use the home like a piggy bank in order to finance other ventures.  So you can really only nail that answer by getting a specific answer from your attorney on your situation.  So that’s what I recommend.

Okay.  Then Jill asks, “Is it always best to say just a little about your hardship?  The book says to be brief and all of the examples are very brief.”  Yes Jill, brevity is best here, number one because they are cranking through so many files.  They’re just looking for keywords.  You might as well just cut to the chase and just use those keywords.  Actually two or three sentences is plenty but most people don’t feel comfortable with that.  They want to give a good explanation of the hardship.  So yes, keep it very brief.  It’s always best.  Honestly in general, in dealing with negotiations, brevity is best because when you’re talking and when you’re giving away information, you’re doing just that.  You’re giving away information and then in negotiation information is power, right?  So in general you want to just apply information that you’re asked for and in every conversation and in every way, be as brief as you can.  Less said is always better when you’re in the negotiations and you are.  Believe me right from the start.  Don’t believe any of the propaganda that you believe about — they’re not trying to make your home affordable one bit.  They’re really trying to mitigate their losses, all right.  I’m going to keep rolling or are you answering on email instead of sharing with our friends?

Ryan Rockwood:  Well, actually I do have a question that I’d like to share.

Mike Rockwood:  All right, go ahead.

Ryan Rockwood:  Teresa wants to know how she can schedule an appointment and the way to do that is to schedule an appointment to talk and in case you don’t know, every kit that we sell comes with a free 20–minute call.  Even if you haven’t done that or purchase the kit or if you want to talk more, you can always go to 60minuteloanmodfication.com/schedule and there’s a drop down arrow at the top left of the screen there.  Actually, it takes a minute to load so be patient.  There’s a drop down thing there on the left and you can select the product whether it’s a free consult or it’s a paid time or something like that.  What will happen there is that it will allow you to select the time and then it will come to us and we’ll either approve it or deny it based on what else we have going on.  Okay, so…

Mike Rockwood:  That’s usually — that’s really a value.  People really like that.  I mean, because you pay a little bit so you don’t feel like you’re asking for more than you bought from us and we don’t feel abused either, and you get to tap in to all of our experience with loan modifications or any foreclosure-related question, whatsoever.  It’s really a pretty darn good value.  I mean, where else can you, for that little bit of money, get — I mean you get professional help but what’s nice about our help is that it is so current and so up-to-date.  I mean, we will literally be turning away from a loan mod application to talk to you.  I mean that’s what we do is the loan modifications all day long.  Okay, here’s a good one.

Ryan Rockwood:  And someone just did it.  So we’ve got a 10:00 am tomorrow.

Mike Rockwood:  Okay.

Ryan Rockwood:  Okay.

Mike Rockwood:  Dan says, “My lender just approved our short payoff application without any cash from us and my brother is trying to get his short sale approval.”  Yes, this is a Florida deal.  This is an interesting one.  Dan and his brother bought homes right next to each other from the builder before they were done and before the builder finish the homes, the builder went bankrupt and stops development.  So Dan says, “My lender just approved our short payoff application without any cash from us.”  Congratulations, Dan.  “But my brother is trying to get his short sale approved right next door same floor plan, same issue but the lender wants him to accept a $50,000 promissory note.”  Now for — and he says why is this and what can he do?  Well that might be shocking to some of you but some of the values in Florida — I mean I know this one was originally like about $650,000 gorgeous home that is now selling for about $145,000.  So I mean this is like an extreme example of the decline in values.  So sometimes when the lender, and sometimes when there’s a private mortgage insurer involved, the negotiations get pretty heated and the lender or the insurer will turn the screws on the owner to accept some portion of the shortfall.

Now, in this case I think it would be about, they’re asking for 50.  I think it’s like 250 so it’s like 20% or so of the shortfall and that’s not unusual at all for them to be asking for 20%.  A lot of times the promissory notes are extended over a 15-year period and there’s no interest so the payments are pretty minimal.  Honestly, Dan, it doesn’t sound so extraordinary and the reason that it happened was because your brother has some assets that you don’t have.  Either he has a high paying job or he has a lot of assets that are not protected by a trust fund or social security or pension funds.  He has some assets and the lender or the private mortgage insurance company can see it.  They have amazing information technology capabilities to find out information about you and so they have decided that they want to, rather than just let the deal go through like yours was allowed to go through, they want to turn the screws on and get some of the money out of him.  They’re probably pretty much prepared.  Very likely, they’re prepared to let the deal fall through because they sort of feel like, “Hey, if we get this deal now, we can get another one in a month or two.”  They’re probably right.  So he might just be stuck.

Honestly, a lot of folks are actually accepting those kinds of deals that and a lot of our Florida short sales come along with the buyer either bringing some money to the close — or the seller bringing some money to the closing or accepting a promissory note.  Remember then that becomes an unsecured note.  It becomes an unsecured loan just like a credit card.  So I got to be honest with you.  Some of our clients are accepting those knowing full well that that’s not collectible, like some of our clients have absolutely no assets that are not protected by a pension, no assets that are not protected by social security or a trust fund.  So they’re really not afraid of an unsecured promissory note and the ability of that bank to be able to collect that from them.

All right, Bob says, “How do I know how to price my home for a short sale if the lender won’t let me know how low they will go?”  We’re getting a lot of short sale questions on our loan modification evening.  Well Bob, you don’t know and the lender will not tell you.  In fact, they usually don’t even want to talk to you in the short sale department until you have an offer.  They don’t know because they don’t know.  They won’t tell you because they don’t know.  They honestly don’t know until you have an offer, a current offer that they can send a local agent out to do a broker price opinion and figure out if that offer is reasonable, and then they begin to run the numbers on whether the implications of accepting it.  So there’s one thing about whether or not it’s reasonable and here’s — maybe this gets to the heart of your question is what’s reasonable. I always say that any offer that’s within 10% market value is reasonable in a short sale.

So here’s what you do.  Ask your realtor to do a broker price opinion themselves or what they might call a CMA, Current Market Analysis, and price the home 10% below that.  If that doesn’t get you an offer within two weeks, then drop it another full 10% because remember the key is to get that offer from a good qualified buyer. Even if it’s an investor who’s just looking for a great deal, the bank may be very interested in doing a deal and may just approve it and after all you don’t care because it’s a short sale after all.  The only one who cares is the bank.  Okay.  Am I going to keep going?

Ryan Rockwood:  Let me jump in with a couple of -

Mike Rockwood:  Okay.

Ryan Rockwood:  – questions.  Let’s see.  Maria B. has a question.  “Six rental properties, I bought three of them as a primary home not an investment.”

Mike Rockwood:  Yes.

Ryan Rockwood:  “How will the mortgage company know if I don’t live there anymore and how like [Indiscernible] [0:25:29] is it what they want proof?”  It’s a likely scenario.  “I am a member and would like to watch previous Thursday night recordings.  Can I do that online?”  Yes, you know where you can get the recordings right now is go to 60minuteloanmodification.com and in the very top in the menu bar is something that says something like Articles.  You click on that and unfortunately you just actually have to go back and go through them.  They are organized.

Mike Rockwood:  It’s in the Articles file?

Ryan Rockwood:  Yes.

Mike Rockwood:  Is it?

Ryan Rockwood:  Yes, everything goes there.  Every blog post, everything.  So it’s like reverse chronological order.  So you can get that there and just when you get down to the bottom of the page, it will be something like view last or view next or something like that.  So go ahead and check that out.  The transcripts are there more and more as well.  So enjoy that.  She needs to schedule of real estate owned.  You know, you can find that in your black belt CD.

Mike Rockwood:  Yes.

Ryan Rockwood:  While we’re talking here, I’ll see if I can just find it on my computer that I have right here and e-mail it to you.  I maybe lost the CD or something.  Then, but the major question is here’s what they want to going to know.  The question here is can you get away with — I think what you’re asking is can I get away with doing multiple primary homes as the investment property thing?  The answer is I’m really not sure.  I don’t know.  Here’s what they’re going to want though.  They’re going to run a utility bill in your name, okay, and you either going to want to sign legal affidavit from you saying that it is your primary home.  So to be honest, it’s totally believable to me that you could get two primary or three primary property HAMP loans even from the same bank and it’s totally believable to me that you can get them from separate banks.  But -

Mike Rockwood:  But that’s going to be your call.

Ryan Rockwood:  Yes.  But I just don’t know.

Mike Rockwood:  Yes.

Ryan Rockwood:  Yes.  Okay, she also asked, “She gave us a formula that we can calculate what you expect from a loan mod.  Take the loan amount multiply it by 0.055 divided by 12, et cetera but my loan is an interest-owned.  How do I calculate that?”

Mike Rockwood:  Yes.

Ryan Rockwood:  “I have six properties.  Three have arm that are interest only rates are 3.25, 3.65 and 5.125.  They adjust annually which I asked for how much of relief should I ask for?”

Mike Rockwood:  Yes.  That’s a good question.  Hey, you know the key though is you’re not going to get significant month-to-month relief, but how much of a relief would it be to have fix mortgages on all of those because we’re coming up on — there is no way that we’re not going to have higher interest rates in the next five years and probably for the next 10 years.  There’s just no way that can ever happen, so try as the government might to suppress that.  It is absolutely coming our way so we’re going to see 10% and 12% mortgages again within five years.  So walking in those adjustable rates is a beautiful thing even if you don’t get any — you don’t get much relief Maria.  So I’d be all about that if I were you.

Ryan Rockwood:  Okay.  So the answer to your question Maria, how can you calculate it?  The truth is that, I mean these are really good rates and these are industrial properties.  So I mean your chance, frankly, aren’t looking too good.  If you — now that’s not just saying don’t try, but I think that the very best you could hope for would be 30–year fully amortized payments around that amount.

Mike Rockwood:  Yes, around 4.7 or 4.8.

Ryan Rockwood:  Yes.

Mike Rockwood:  But you know, I think you’ll accomplish your goal.  If you just have realistic expectations, it will be plenty of work and you will only get a modification to a fixed rate but that’s worth it.  That’s worth doing.

Ryan Rockwood:  Okay.  Now, I’m going to send her something, so why don’t you do it.

Mike Rockwood:  Okay.  Joan says, “We have been waiting for weeks to hear about our mod.  Now, Saxon says they won’t even offer a mod after all this time because the home is rented.  Is there any way around that?”  Yes Joan, there is.  Saxon is one of about three or four lenders that really tries not to do any other than the Making Homes Affordable Loans but they do have an in-house staff.  It’s actually quite considerable and I have personal experience getting around it.  So what I did is I just kept pushing and pushing and asking for an in-house modification expert negotiator.  You might have to escalate it to a supervisor or you might have, I hope that you have gone late on your mortgage because if you haven’t, there’s no way in heck you’re going to get their attention.  But what I did on my own property, I just went late until they would talk to me and late until they would talk to me about modifying a rental property.  So yes, there is a way around it but it’s harder at Saxon.  It’s harder now at IndyMac and it’s harder at AmTrust and a couple of others.

All right, Sheldon says, “How can I get a Deed in Lieu?  From what I’ve read that seems to be the best solution for me and for Wells Fargo.”  Well Sheldon, it is a great solution, a Deed in Lieu of Foreclosure is when you just turn the property over to the lender and they don’t have to take it through the foreclosure process.  You don’t get a foreclosure on credit.  They get the home a lot faster and they save a lot of money.  So it’s faster.  It’s cheaper.  It’s better for your credit.  But it doesn’t work very often for a number of reasons.  Number one is a lot of people have second mortgages or other leans on the property.  If they take it without foreclosure, those leans don’t get stripped away.  So that’s one issue.  Another issue is through the foreclosure process and the real estate owned process, they have all kinds of safeguards in place.  There’s an agent involved and he’s got an insurance policy, and there is an inspector involved and he’s got an insurance policy, there’s an appraiser involved and he’s got an insurance policy so there’s a lot of insurance for them that the property is taken correctly.  They don’t have that infrastructure in place to take property directly from you, so it’s not as safe for them to do so.  So I think that’s another reason Deed in Lieu is not being used very often.  Then the last one of course is that values have fallen so dramatically that the property is usually worth considerably less than it’s owed.  Very often the bank would just assume go through the short sale process to get good appraisals, inspections, et cetera.  Okay?

Then Mel says, “Why do the few percent of loan mod applications that are getting approved,” there’s been a lot of press about that lately, “why do they get approved?  Are there tricks?”  I would say to Mel, you should have listened to us on Tuesday night.  Go back in the archives.  Tuesday night will be posted, right.  Go back and watch Tuesday night.  We talked about eight specific good, good, good tricks, great ones that I recommend for why I think it is that my loan modifications, 96% of mine that I’m working on are getting approved, although I did get just get turned down today, but 96% are getting approved as opposed to 96% getting denied.  So there are tricks and I’ve divulged all of them on Tuesday.  You know what?  I think I posted that too.  So you’ll both be able to see it if you want to or you can just download it and read it.  I posted it as a blog post and I’m sure it was something like something having to do with 96%.  Yes.  Why are 96% — no, it’s about Loan Mod Mercenary and it was posted on Tuesday night after the show.  All right, Mel.

Ryan Rockwood:  All right.  We’ve got a question here from Lizette who says that the lender is not allowing her to — they say no to the loan mod and the reason is because they have not paid in 12 months.  Have you heard of that?

Mike Rockwood:  No.  That’s a phony answer.  There’s another reason why.  They’re just giving you a hard time about not having paid for 12 months, but there’s another reason why you’re not qualified.  If you live in the home and you qualified for the making homes affordable program, I think you can argue your way back out of that one point.  There are some other reasons why they’re rejecting.

Ryan Rockwood:  Yes.  I mean here’s the thing.  You want to make sure that you didn’t just get a collection call from the bank.

Mike Rockwood:  Yes.

Ryan Rockwood:  I mean, they might have just said it.  No, no, this isn’t the load mod.

Mike Rockwood:  Yes.

Ryan Rockwood:  To tell you, you don’t qualify because you haven’t paid, perhaps, a month.  Now, there was something about not being over three months late.

Mike Rockwood:  Yes.

Ryan Rockwood:  Do you remember that?

Mike Rockwood:  Yes.  But honestly, I’ve heard that, read that, but it hasn’t been my experience so -

Ryan Rockwood:  Yes.

Mike Rockwood:  – I just have to discount it.

Ryan Rockwood:  Okay.

Mike Rockwood:  We get plenty of people who — I’ve got several that are almost a year without making a payment and they get a modification.

Ryan Rockwood:  Then, I have had some clients who paid up to get under the three-period or three months and they got denied again.

Mike Rockwood:  Yes.  So Lizette I would just say keep pushing, pushing, pushing.  That answer isn’t good enough, call back.  I always recommend you call back five times, talk to five different operators and just say, “This doesn’t make sense to me.”

Ryan Rockwood:  Yes.

Mike Rockwood:  “I don’t understand it.  Please can you help me?”  Then if that doesn’t work, ask for a supervisor to call you back.  If that doesn’t work, send a Qualified Written Request and then, of course, you have to kind of check your own sanity and think about if you haven’t paid for in a year, you’re playing a high stakes game there.  So I hope you either fully intend to lose this house, or if you fully intend to keep it then what do you care if you are required to because imagine if they refused you for a loan mod, they offer repayment program.  So if you plan to keep the house and you think you’re going to keep the house then you don’t care about, a repayment plan is okay to get you back on track, right.  So if, on the other hand, you are just getting out from underneath this loan and you’ve already gotten a year’s worth of free living, boy, you should count yourself really lucky and start laying plans for a new place to live.

Ryan Rockwood:  Yes.  I mean maybe it’s time for a short sale.

Mike Rockwood:  Yes.

Ryan Rockwood:  And hopefully, yes, you’ve got some money saved up.

Mike Rockwood:  So -

Ryan Rockwood:  Well, let’s wrap it up because I’m melting.

Mike Rockwood:  Okay, you’re dying.

Ryan Rockwood:  Yes, let’s see if we’ve got anyone on the phone here.

Mike Rockwood:  Good.

Ryan Rockwood:  That has a question before we go.  Hi there.

Male Speaker:  Yes.

Ryan Rockwood:  Yes, go ahead.

Male Speaker:  [Indiscernible] [0:37:19].

Ryan Rockwood:  Tell me like if we perform that service for people.  Well, I’ve never actually heard that term.

Mike Rockwood:  Well, you’re using it like a proper noun, like it really is something.  Tell us more.

Ryan Rockwood:  Have you write into it?

[Audio gap]

Ryan Rockwood:  No.

Mike Rockwood:  Who is it?

Ryan Rockwood:  Home rescue.

[Audio gap]

Ryan Rockwood:  Well you know -

Mike Rockwood:  Really?

Ryan Rockwood:  Someone else on the call thinks there are scam home rescue.

Mike Rockwood:  But accelerated -

Ryan Rockwood:  Most people actually — it’s a funny thing to call it because maybe they just branded their process or something.  But most people, when they’re doing short sale, I mean you can do a short sale fast or slow.

Mike Rockwood:  No, he said about loan mod.

Ryan Rockwood:  No, he said short sale.  Did he?

Mike Rockwood:  Oh.

Ryan Rockwood:  Did you say short sale?

Mike Rockwood:  Yes, sorry.

Ryan Rockwood:  Most people don’t want a fast short sale.  What do you think that would benefit you, like less damage on your credit?  Is that your main motivation?

[Audio gap]

Ryan Rockwood:  Sure.  Yes.

Mike Rockwood:  Yes.  When we have a client who tells us that they want the short sale to happen fast, it’s pretty easy to make it happen fast because you know you just accelerate everything.  You just take action right away.  You advertise it right away.  You lower the price dramatically maybe even each day and usually it’s pretty easy to get an offer within a week or two if you’re really aggressive about pricing and advertising.

Male Speaker:  [Indiscernible] [0:39:33].

Mike Rockwood:  Do you get it out?

Male Speaker:  [Indiscernible] [0:39:39]

Mike Rockwood:  Yes.

Male Speaker:  [Indiscernible] [0:39:50] have your heard of them?

Mike Rockwood:  No, we haven’t heard of them but an accelerated short sale is something that you can do.  Here’s the deal.  You can move as fast and get an offer and get your packet submitted as fast as you want but it’s pretty hard to get any lender to approve them in less than 30 days these days.  There is a — now, what was the program we just read about, Ryan about — that’s pre-approved.  That’s something that National Association of Realtors is working on so that’s a waste off.  But see, we have trouble like even if we slam an offer in the same day that we list it, we have a hard time getting it in front of a negotiator for two weeks, and then the negotiator always gets 20 days, 20 working days, before his company demands that he take action before the file turns into a pumpkin or whatever.  So it seems to always take at least a month before we get that settlement offer so -

Ryan Rockwood:  But I guess it really depends on what someone by accelerated, right?

Mike Rockwood:  Yes.

Ryan Rockwood: It is like accelerated less to 8 months.  If you want to -

Mike Rockwood:  Yes, we can do them in less than 60 days if you tell us to.

Ryan Rockwood:  Would you like us to, like we’d like to schedule a time to talk about what your specific situation and see if we got any advice for you.

Male Speaker:  [Indiscernible] [0:41:17]

Ryan Rockwood:  Would you like to schedule a time to talk privately to see if we might have some advice for you?

Male Speaker:  [Indiscernible] [0:41:23].

Mike Rockwood:  Yes, okay.

Male Speaker:  [Indiscernible] [0:41:36].  Have you heard of them or anything?

Ryan Rockwood:  No.

Male Speaker:  It doesn’t matter if you heard [Indiscernible] [0:41:41].

Ryan Rockwood:  Okay.

Male Speaker:  A part of, Barack Obama, what have you done for us?  Nothing.

Ryan Rockwood:  Okay.  Hold on one sec.  Hold on one sec.

Mike Rockwood:  Hey, wait a minute.

Ryan Rockwood:  Okay.  Sorry about that.  It’s hard to hear the callers and also repeat a little bit of it, but this guy is asking have you heard a particular company that has done something that they called accelerated short sale.  We don’t actually get that too often where someone wants to know or wants a short sale done fast.  I can tell you that.

Mike Rockwood:  Yes, more often.

Ryan Rockwood:  Yes.  More often they say, “Hey, I need some time to figure out where the heck I’m going to go from here.”  So that maybe just clever marketing on their perspective or whatever, but you going to do shop around.  What we do is concentrate in getting the short sales done right.  The key thing there is that you have to make sure that the second lean is taken care of and the vast majority of people don’t know what they’re doing.  So they may get that second to release the lean on the home or the first or whatever.  However, they haven’t tied up the end.  So what’s going to happen is these guys could come to you, even in California, and they’ll probably end up selling it to someone else, a collector who will eventually sue you.  So I would prepare for that.  You can talk to — it doesn’t sound like you’re ready to talk now — but if you are ready to talk, you can always send us an e-mail.  My name is ryan@60minuteloanmodification.com and we do short sales nationwide.  Yes, we can do it as quick or as slow as you need.  Of course, we prefer quick because then it’s over.  But -

Mike Rockwood:  Running faster is always better.

Ryan Rockwood:  Yes.  But also short sales don’t cost you anything.  A typical question we get on short sales is, “Should I make that my next tax payment?  Should I make my next HOA payment?  All I can say on that category is we have a lot of success getting the bank to pay those things along with know all costs associated with the sale like realtor and stuff like that.  So anyway, when you’re ready to reach out and talk, we’ll be happy to talk with you.

Okay, so I just want to wrap it up and thank everyone so much for joining us.  Thank you so much for — and congratulations on getting a week closer to getting your loan modified.  Also, be sure to check out our new credit card program, it’s the same thing do-it-yourself.  We’re teaching people how to do-it-yourself settle your credit card debt instead of paying some guy 5,000 bucks and sending him all your credit card payments for the next couple of years.  How about if you just take a couple of months and do it yourself and you’d be done with it?  That’s a pretty cool program.  It costs 20 bucks a month.   So you should check it out.

Right now, you can go to 60minuteloanmodificaiton.com/credit and join that program.  You should definitely do that.  We had one member this week settled $28,000 with Bank of America for $9,000 and this is a client that was in extremely for negotiating situation in regards to who could not get a judgment for personal reasons, could not file bankruptcy.

Mike Rockwood:  What he means is he couldn’t tolerate the judgment so he couldn’t let the creditor take him to court.

Ryan Rockwood:  Yes.

Mike Rockwood:  So he wasn’t in a strong negotiating position and he had high income and he had some assets.

Ryan Rockwood:  Yes.

Mike Rockwood:  That they could see.

Ryan Rockwood:  So anyway, that’s going well, but I invite you all to that.  All right, thank you so much everyone.  Have a great week.

Mike Rockwood:  All right, good night.

Related posts:

1. Loan Modification Limbo & Questions Recorded live: Feb 4, 2010 Ryan Rockwood: Hi everybody and...
2. May 11|Loan Mod Questions and Answers ...

Prefer reading to watching video? Well you are in luck, here is the transcription!

Ryan Rockwood: Hello, everyone! Hello, and welcome to the call everyone. My name is Ryan Rockwood and my dad, Mike Rockwood, is the author of the “60-Minute Loan Modification” kit.If you’re new to the call, welcome. We do these calls for the public, and for all of our clients as well, every Tuesday. Then we have another call on Thursdays for clients only.

Feel free to ask questions during this call. Can you hear me now?

Mike: Yep.

Ryan: OK, good. Just want to make sure the people on the phones can hear. Feel free to ask questions during this call. There is a chat at 60minuteloanmodification.com\live.There is a chat that you can use there, although I have to say it’s a little wonky. The best way to send in a question during this call is questions@60minuteloanmodification.com. That’s questions@60minuteloanmodification.com.

Welcome. If this is your first time joining us, basically this is an online class, a support group, education, and mastermind seminar, all these things, wrapped up into one. We work on loan modifications day in and day out, and we have put together a product that teaches people how to do your own loan modification.

Please note that I sent out a special email today with a couple of special offers down at the bottom. One is a payment plan for the kit. One is a free trial for another thing we have. Basically like this, except for credit cards. Basically, do-it-yourself credit card repair. Check the email that you got. You should have received it in the last half an hour for those links. You need to use those links or those special offers won’t work.

Also, I want to let you know that if something goes wrong with those links, because we’re just trying to catch up on the technology side and offer people payment plans and special offers and stuff, it takes a lot on the backend, order processing.

Mike: It’s not as easy as it looks.

Ryan: Yeah, it isn’t. So, anyway, bear with us. If you see something that doesn’t work, don’t freak out; don’t try it a million times. Just give us a call and we’ll make sure to make it right for you. Hopefully we’ll eliminate a couple more barriers to entry for everyone.Today, our topic is…

Mike: Credit score recovery.

Ryan: Recovery, damage…

Mike: All of you, when thinking about a foreclosure work out, one of the things you have to be concerned about is your FICO score. There are ways to minimize the damages before you go into the foreclosure workout and there are ways to speed your recovery, so we want to talk about that today.Want me to go ahead and jump into it, Ryan?

Ryan: Yeah, please.

Mike: Let’s just remember, for those of you who are new, you can email questions to us at questions@60minuteloanmodification.com. Also, we’ll go live for those of you who are just on the phone and not watching us on the Internet. We’ll also go live for callers in about 10 minutes.I’ll give about a 10-minute teaching where I share ideas that usually come from one of our books. This one comes from “The Credit Card Cure.” It is the FICO management section where we talk about what to do before you start going late and how to speedily recover.

Our FICO score, of course, has become really, really important to us for a lot of reasons, more than just to get credit at low rates. FICO score is used by employers. FICO score is used by insurers.

Actually, in the big housing madness run-up, FICO score was used by all of us at cocktail parties. It actually became a status symbol, just like our SUV, just like our granite countertops, French doors, hardwood floors and manicured lawns.

I know you read the FICO score is one thing that, as you run into trouble, when you lose your job or your mortgage costs increase so much that you can no longer afford it, you’re backed in to a corner. FICO score is one of the early things you may have to sacrifice because you just can’t do it all, can you?

Prior to going late on your mortgage payment or prior to missing some credit card payments at the beginning of a negotiation plan, what you want to do because you’ll appreciate it at the end, is identify the credit sources that you will use to help you speedily recover. You need at least four. It’s best to choose a variety of credit.

Let’s say you’re about to enter into a loan modification negotiation and you determine that you’re so strapped you have to miss a mortgage payment. By the way, that’s good advice, just to get the negotiation on the right footing with the lender. Before you go late, what I want you to do is think through which are the accounts you can use to speedily recover. You’ll want a variety.

In other words, you’ll want a home mortgage, a credit card, a car loan, and maybe an installment loan or a department store card. You’ll want at least four accounts, four to maybe ten accounts. I want you to identify the accounts. The older they are the better. Having credit for a long period of time adds to your FICO score.

In the chapter in my book, “The 60-Minute Loan Modification, ” and in Ryan’s book, “The Credit Card Cure, ” there’s a section that talks specifically about FICO score and how it all is built up. I want to you be sure to review that so you understand what mathematics they use and what factors help you to build strong credit.

The first step in a speedy recovery, after you have had a period of time where you’ve had bad credit, you’ve had to miss some payments. I always advise that you miss them all at once and get it over with. Do all your negotiation over a three- to six-month period. Get all the pain and all the hurt out. Get your bills down to where you can manage them. Then start to recover.

Once you recover, the first step, of course, is to get familiar with the credit report. I advise that you go right away to annualcreditreport.com and get the free credit report from all three agencies that you have coming.

Every year they have to give you a freebie on annualcreditreport.com. I advise you to go ahead and pay for your FICO score from each of those agencies as well. It’s inexpensive. I think it’s $10 each and it really does help quite a bit.

Then you’ll want to familiarize yourself with that credit report. Over the coming months, as you begin your recovery, you’re going to want to watch your progress and watch for things that are going wrong.

The second step is to commit to a periodic review of your progress. I say at least quarterly, if not monthly, you want to get this credit report. You’re going to have to pay for it after the first time. Get that credit report to make sure that you’re on track and recovering your credit score.

If you had a 700 credit score when you started your FICO problems and it drops down to a 500 or so, into the 500 range, which is common when people are going through a loan modification, if it gets protracted five or six months. If you’re going through a short sale work out and you’ve stopped your payments.

It’s not uncommon for people to lose 100 points or some even lose 200 points. If you’re down in the 500 range and you have to work your way back up to the 700 range to be comfortable, that’s probably going to take 12 to 24 months.

With the seven credit repair best practices that I outline in the book, you can certainly make it in a year, but you’ll have to be really diligent about applying them.

I want to stop for a minute and talk about changing habits. Sometimes we take it lightly. We think we’re going to lose weight just on sheer guts. We’re going to stop a particular bad habit or start a particular good habit. With the new year coming, a lot of us are thinking about those kinds of things. I really want to emphasize to you, or remind you, how difficult it is to change habits, to break old habits and to start new habits.

Don’t think that credit habits are any different. Your financial habits are deeply ingrained. In fact, they probably go all the way back to when you saw your parents handling their money. It’s embarrassing for all of us to admit, but 90% of our money management habits came from our parents. It’s probably part of your parents that you didn’t particularly admire, but you picked it up. Changing those habits is really tough.

You have to understand how habits are formed. They’re formed over a long period of time, repeated behaviors, and reinforced with rewards. I want you to think about that. How are you going to change behaviors? What new behaviors are you going to implement? How are you going to get reinforced in their practice? How long are you going to commit to it?

It’s very hard for any of us to commit to anything for longer than 30 days. Scientists tell us that it’s a 30- to 90-day process before we actually change habits. I recommend a 30-day commitment, and then another 30-day commitment, and another 30-day commitment to get you to where you have to be.

Each one of these steps will require you to make short-term commitments and find some way to reinforce those new behaviors. I’m going to really share in depth about the first best practice. The others I will just list for you. You can get more information either by getting the book or in future teleconferences I’ll share more information about some of the other best practices.

Based on the fact that our credit history makes up 35% of our FICO score, the first best practice is, “all accounts, on time, always.” That means that every bill that you have needs to be paid on time forever.

You need to make late payments part of your history and rewrite your history. There is no single step that you can take to fast credit repair or otherwise, that’s more important than just plain never going late again. You have to be honest with yourself about why you made late payments in the first place.

Some of us just have the kind of attitude that we just don’t care. Some of us blame others for being extravagant in their spending, like our spouses or our kids. We blame emergencies because we don’t have an emergency fund. We blame just the cost of living which is really our cost of living, choices we have made.

There are a lot of excuses about why we make late payments and you have to get at the heart about what kind of excuses you accept. Then debunk them. Don’t accept them.

Let’s be honest. People who are less intelligent that you, less disciplined than you, who have less money than you, and who have more bills than you, and more excuses than you, are making their payments on time, every month. A lot of people do. Maybe half of the people in the country do. Make their payments on time.

Think about it. Let that sink in. People do it and you can, too.

In order to begin this new habit, on-time payments on all accounts always, you have to start new behaviors. Don’t expect the old behaviors will get you there. That’s the definition of insanity. Make behavioral changes and make commitments to stick to them for 30 days at a time.

Here are some of the ideas that some of my clients used to help them make their payments on time. The first one is simplify. Get fewer bills by paying off small ones and consolidating others. Stop junk mail and emails. I know that’s an ongoing process. Get less clutter. Simplify. Maybe get a post office box to keep all your US Mail clutter away until you’re ready, like weekly, to deal with it.

The second tip is get organized. Either on paper or online but get your budget items down and your due dates clearly stated in one place. Then identify how you will make those payments each month. Do you make them by mail? Do you make them online? Do you make them by phone? Have those resources available to you in the same place every month.

Number three, use whatever means is effective to you to be reminded of those due dates. Use our own calendar. Try email notifications from accounts. Try online alerts that your bank probably offers. Or services like mint.com that can send emails or tweets to remind you when bills are due.

Another tip is to establish an emergency fund to take away the excuse that you had kid’s health emergency or school emergency or something like that. You have to have an emergency fund. Honestly, it doesn’t have to be a lot of money. You can start it by just stashing away in a place that is difficult for you to get to, like a credit union account or an automatic withdrawal from your paycheck. Just $10 or $15 per paycheck so you’ve got $300 or $400 stashed away for that emergency time when that Nordstrom bill is due and you just haven’t got the money to pay it.

Another tip is to use online budgeting tools like mint.com. Check it out. I think you’ll really be amazed at how far some of these online budgeting tools have come. They’re really very sophisticated, very elegant, and user friendly.

Last thing, automate payments from your checking account or at your creditor. That can be a great help, if you have a predictable enough income, to be able to automate those payments. Man, that can make it really easy.

Get overdraft protection on your checking account.

Lastly, a great idea a couple of my clients have used is they just go out and hire a bookkeeper. They pay for bill payment service. If you have the wherewithal to do that and it’s just a matter of not having been organized or not caring enough about making payments on time, hire somebody to do it for you.

I want you to reinforce this behavior. There really is only one way that I know that’s successful. Go to public confession. That is, I want you to identify three of your friends whose opinion you value and confide in them what you’re trying to do for the next 30 days.

Just tell them, “Listen, I have a little bit of an issue with regards to on time payments. With the new year coming I’m firmly committed to making on time payments. I want you to hold me accountable for the next 30 days to make these accounts, – name the accounts, six credit cards or eight bills, whatever it is – I want to make these accounts on time. I’m going to contact you each Saturday, if it’s all right with you, and tell you whether or not I’ve accomplished that.”

Honestly, pick a coworker, pick a friend, a parent, a child, a neighbor, a relative, somebody that you trust and you care about their opinion. Enter into this agreement with them. They won’t mind one bit and it will hold you accountable. Even if you fail during the month, it will help you get right back on track and get back on that 30-day commitment. That’s my advice for how to deal with that first best practice which is “never make a payment late again.”

The other best practices, there are six others, I’m just going to read them to you now. You can get them in the book or write to me and I’ll send you a copy of this article. There’s also going to be a blog post in the coming weeks.

The next best practice, increase your available credit. You do that in two ways. Number one is pay down your debts. That’s easier said than done, I know. Also, you constantly apply with all your credit lines for higher limits.

After you’ve had a bad FICO event, – like missed several mortgage payments, went 120 days late on a credit cards, that kind of thing – it’s hard to convince your creditors to increase your limit. If you ask them, they’ll tell you very specifically how long the period of time it needs to be that you go without missing a payment, how frequently you need to use credit, how much of the credit you can use, and how much they will increase it.

It’s a pre-programmed formula and they’ll be glad to share it with you. So, pay down those debts, ask for more credit constantly, every month.

Best practice number three is to never close any account. It’s really a mistake to close any account ever. Those older accounts are really your best, and resurrecting them and using them is really in your best interest. It helps in the FICO mathematics.

Number four, use all your credit accounts. Don’t leave any of them dormant. You want to use small amounts frequently.

Number five, open new accounts only after careful evaluation. You really never want to have more than like four credit card accounts and no more than 10 credit lines open at one time, although some people have many more because they have a lot of real estate. Mortgages are OK, but not installment credit cards. More than four is really a little bit of a red flag.

Then best practice number six is make payments twice a month. You get a FICO attaboy for making a payment, and you get a FICO attaboy for making a payment in full. So get both by making a minimal payment and then your payment in full every month.

Number seven is hire a reputable credit repair company. I have one to recommend to you on the website, but here’s what you want to shop for is one that just does credit repair, just disputes your negatives. It should cost you probably $100 to $400, and they should dispute your negatives over a three-to-four-month period.

They will be successful in getting some valid negatives off your credit report. I’m sorry, it’s just the nature of the beast. When they dispute them often enough, the credit bureaus do acquiesce, or the credit bureaus fail to investigate and therefore have to drop the negative, or the creditor themselves fails to argue with you and has to stop reporting. So they will improve your credit score, and they also help clean up those negatives which are in fact erroneous.

So there. I went longer than I was supposed to, Ryan, but at least I got through all seven of them. This is just an extremely critical area because it is so easy to do. It’s easy for people who are going to the mat with the bank, taking it in the shorts with your FICO score. It’s easy to recover within 12 to 24 months.

Ryan: OK, just a couple notices that I just chatted here while we were listening to you, and that is that recently we had one of these classes transcribed, and I wanted to get audience reaction to that. I know that I prefer to read something much more. Well, if it’s live I like to watch it, but if it’s after the fact I very much would prefer to read the transcript rather than watch a video.

Mike: You scan it faster than you can…

Ryan: Yes. I’m a decently fast reader. Anyway, check that out. You can access it by using the link that I’ve put in the chat, or just go to the top of the site. Up at the upper navigation, the second one in is called “Articles.” Click it. The second article down is this transcript that we did on December 17 of a member’s call that was a really good call.Also, if you would, let me know if you like it because we can continue to spend the money on getting that done, maybe make it a regular thing, if folks find it helpful. Who knows if they will or not?

The other thing is that… I just lost my train of thought.

Mike: You’re ready for me to jump into some questions?

Ryan: Yes, but… Shoot, I had something I wanted to tell people. Oh, I know what it was. It’s come back to me. Tonight’s article I think is also the first article on that blog post, so if you want to get a copy of some of the points that Mike made tonight, you can just truck on over to the article section too. Same area, it’s just the most recent post.OK, so check it out, and again, let us know. Also, again I want to point you to a couple of special offers that were in the email, at the very bottom of the email, the most recent one that I sent about a half an hour before this thing started, and be sure to read the note at the bottom that says it’s experimental.

We’ve got some questions. Should I read off one, or…?

Mike: Yes, go ahead. Start us off.

Ryan: Kay Logan says, “My letter told me not to pay the increased amount in my loan that went up last month until my modification is complete. Continue to pay the old required loan payment to the lender. I have been waiting for paperwork for three months so far. Many phone calls, no paperwork yet. What can I do to make them faster? I believe them stalling. My letter told me not to pay the increased amount in my loan that went up last month until my modification is complete.”So you must be having a rate increase, so they said don’t bother with that. Just continue paying your old…

Mike: Yes, I think you’ve got it right, Ryan.

Ryan: “I’ve been waiting for three months for the paperwork.” It depends, Kay Logan, on what paperwork you’re waiting on. If you’re waiting on the paperwork to apply for a loan modification, then I would say…

Mike: You lose.

Ryan: …you’re in big trouble here, and it’s time to reevaluate the whole tactic that you’re taking here. However, hopefully you are just waiting for some sort of final paperwork decision, some sort of loan modification.

Mike: Yes, Kay Logan, because you shouldn’t wait a nanosecond for any paperwork to apply for a modification. It’s all available on every lender’s website, number one, and number two, you don’t actually need their paperwork. You can apply with the Making Homes Affordable paperwork that’s available at mha.gov, or you can apply without any of the correct paperwork, and they’ll send you the specifics of what you need later.So that’s not an issue. I’m sure you’re not waiting for that paperwork. You’re probably waiting for the paperwork to sign off on that loan modification. That’s probably what it is.

Ryan: “But what can I do to make them move faster?”

Mike: Honestly, nothing. Absolutely nothing, and in fact, these holidays are going to slow them down even more because when the regulars come back from vacation next week, they’re going to be swamped with mistakes that these temporaries have made during this week and just the backlog of applications.Remember, there continues to be about 11,000 applications every day, so it’s over-fricking-whelming. So don’t expect it to get better. You have to be street smart enough to navigate the system and make it work. Don’t expect them to speed up at all in their evaluation.

But it is very, very predictable, Kay Logan, in terms of how fast they’ll go. So if you’re surprised, if you’ve got a particular time frame in mind and they’re not meeting it, maybe you’ve got false expectations. Most loan modifications are taking five to seven weeks right now, and those are people who are in default only.

People who are not in default are basically not getting loan modifications, and when they do, it is at least three months, and sometimes five, and sometimes never. Sometimes it’s never before they get a response.

All right, got another question?

Ryan: I do. OK, we’ve got a question here from Daphne. Now Daphne was told that her loan mod app was denied because of NPV. Remember we’ve heard a little bit about that?

Mike: Yes.

Ryan: “That is, based on my income of $4,300, to meet the 31% the payment would have to be $1,320. $1,056 would be taxes and insurance, and $264 would be toward the loan. The service rep says this means that most of the loan balance would be in forbearance. I requested the loan period be extended, however the rep told me the lender was not extending the term beyond 12 months. Is this correct? Do I have any recourse? Is it time for a short sale?”

Mike: Well, it’s up to you in terms of the short sale. We always encourage people to think really soberly about short sales because so many of our clients are fighting to keep houses that are bummers. I just talked with a gal today who was fighting, who had been fighting already for a year, and she can’t wait to keep fighting for a house on which she is $150,000 upside down. It’s not going to come back to that value in her lifetime, but she wants the house.So, Daphne, think through short sale. Think through bankruptcy. Think through all the alternatives, but you’ve got wrong information about your loan modification. You haven’t been rejected because of the net present value calculation. I don’t know if they told you that or if you imagined that, but that’s simply not the case. If this is your home…

Ryan: Why do you say that?

Mike: Well, because just the numbers that you threw out there didn’t include taxes, insurance and homeowner’s association, which they must, and it’s $1, 300. That’s 31% of her $4,300 income, and so, Daphne, you may have gotten declined because you simply aren’t needy enough, that is, declined for the Making Homes Affordable program, if your principal, interest, tax and insurance on your first mortgage on the home you live in is less than 31% percent of your gross household income.Every single day, I work with people to torture those numbers to make sure that they are seeing them correctly and measuring them correctly. Is your gross household income of $4,300, is that your income only? Are you the only person on the note? Is it an average of your last 12 months income, or is it in fact the last three months, less than that? Is it W-2 income versus your own company income?

So there are a lot of variables, and I never, never, never would give up on a loan modification, but I do encourage you to think through the short sale, like you had suggested.

Ryan: I also want to tell you that in reviewing your – I just put your name in the database – it looks like your emails from us have been bouncing.

Mike: No.

Ryan: Yes, it looks like Daphne hasn’t received anything from us since December 22nd, when something bounced, and sometimes your Internet service provider will do that occasionally, but what our system does is then kind of like turns you off. So she’s almost certainly not on this call, she must have sent that in, or maybe she uses an old email to access these calls.But anyway, if you would, go to your Spam folder, see if you can dig us out of there. Anything with “60 Minute Loan Modification.”

Mike: Un-spam us.

Ryan: Approve us, whitelist us, whatever your different thing does, and I just turned you back on in our back office, so hopefully you’ll start to receive some email from us in the future.

Mike: So Daphne, good news, you are now turned on.All right. Nick asked me, “Are second mortgages easier to deal with than first mortgages in loan modifications because they are in a more precarious position with equity?” Nick’s point is that because our housing values have declined and second mortgages, are of course, second behind the first – see how I just figured that out – if they are easier to deal with, because they are in a more precarious equity position.

So, Nick, your observation is absolutely correct. They are easier to work with, they have been, at least for the last year. But I’ve to say in the last two or three moths, for whatever reason, who knows why this happens, they have gotten more and more aggressive.

In fact, I was very surprised this week, to be working on a short sale in which ING Direct is the first mortgage holder, and they like usual, offered $1,000 to the second mortgagor.

And the second mortgagor, Wells Fargo, who normally would just accept that and move on down the road, got to move, got to move, got to move, haven’t got any equity in the house, haven’t got any recourse, because it’s a California purchase money deal, didn’t accept it. They insisted on $8,000. That’s smothering that GMAC would have done. But Wells Fargo did it, that’s surprising. But what’s even more surprising is that ING Direct agreed to it.

So second mortgagors are getting more aggressive, for who knows what reason, but they are certainly easier to work with. And if you are willing to go late on your payments with the seconds, they are putty in your hands. In fact, if you’re willing to let them go quite late, they will accept almost anything you offer, even a token $75 a month, just to keep from having to write the loan off.

They’ll very often, immediately, just on the phone on your first call, cut the payment in half, at least for 18 months to 24 months. So yes, they are easy to deal with. You’ve got to be tough though, and you got to be willing to negotiate in good faith, which honestly, let’s be frank, means sacrificing your FICO score to some extent.

Do you have a question, Rocky?

Ryan: BJ writes in, “My loan is in review. Currently in escrow, department of B&A, for the HAMP loan mod. 90 days past due, owe four payments, notice of default, expired on December 10th. The rep suggests I make one payment or at least part of one payment to improve my chances for final approval. Her point is something that could be used to show the buyer is interested in the property and may prompt the negotiator to make a decision quickly, and something similarly positive. Can you please comment?”

Mike: [blows raspberry]

Ryan: “Should I make a payment? I am so close to a decision with this HAMP thing, that I don’t want to make the wrong step.” With the help of our kit, he has made progress. Also he has enrolled in the Credit Card Cure program and thinking about starting to miss a credit card payment after the loan mod decision.So, a couple of things. BJ, here’s the thing, could some activity be seen positively by someone? Sure, I think so.

Mike: Especially by a supervisor in the collections department. They’ll be real positive about it, because that’s what they’re hired to do and that’s what they’re measured to do every month. But there’s nothing in the Making Homes Affordable program that says that the borrower has to have a good attitude. So, forget that. And nobody cares about your attitude anyways.

Ryan: However, there is something in there that requires the homeowner not too be too late, I think.

Mike: Yes, you’re on to something now.

Ryan: And so, with 90 days past due and owing four payments, he may be getting to the stage where he is a little bit…

Mike: Sure, what state is he in?

Ryan: Doesn’t say.

Mike: BJ, Ryan’s right, here’s the critical thing. You’re flirting with a sheriff’s sale, or a trustee sale, with being 90 days late. Number two, what do you care if you make a payment, if you fully intend to keep the house? You know, what do you care? It really doesn’t matter to you financially, because whatever principle you pay will be paying down the principle on a home you’re going to keep, and whatever interest you pay, you’re due anyways.In the Making Homes Affordable program they will not be allowed to charge you penalties, but they are allowed to charge you interest. So, I say, make the payment, but be sure to get something good out of it, get something for it, get the rep to ask you for it, and acquiesce, as a favor to them. So that seems reasonable. I think you’re being led on by a collection agent instead of a loss mitigation negotiator.

Ryan: I don’t think that they’ll probably accept a partial payment. So if I were you, I would….

Mike: Why? You’re thinking they’ll just hold it? Yes, you may be right.

Ryan: I don’t know, here’s the tough thing. I think that if you have the money, the safest thing to do is to start making that payment, but don’t make up the arrears yet.

Mike: Don’t get current.

Ryan: Yes, don’t get current. That’s the safest thing to do, OK? There is very little risk.

Mike: And he’s prepared financially.

Ryan: Well you know, every one in this situation is hurting though. It’s after the holidays and everyone is overextended. He is loathe to send another $3,000 out, but you know ultimately, either way, it will postpone your foreclosure another 30 days, if that’s the way it ends up going.

Mike: And I think that we’ve given him good advice, with no risk.

Ryan: Yes, and I think what I would do is I would send it in to the collections department and also loss mitigation and I would say “As instructed, I’m sending you this because the rep on the phone told me that this would help my chances.”

Mike: Bingo.

Ryan: “And I’m a huge sucker, and I’m being manipulated by you.” So I think that’s probably the best thing to do. And also you’re welcome to the Credit Card Cure, that’s great that you joined.I saw that you joined and I emailed you an invite to Google Voice, which if people don’t know on the call, Google Voice is a free service that actually that allows you to set up your own existing phone number to screen callers. And it’s great if you’re getting collection calls.

Mike: Well it screens it in that it transcribes your voice mails into emails, which is so sweet. Because then you’ve recorded their phone number, who they are, what company they’re calling from, and then you call them back if you want to.

Ryan: But also there are more sophisticated features too. It can announce people if you want it to, it can say “Who are you?” If it’s an unknown number that’s not in your phone book, they can say, “I’m Bob,” or whatever.

Mike: Bob, the collector.

Ryan: Yes, so anyway, you should have gotten that invite, be sure to accept it, we only have a limited number of those. Don’t misplace that, sign up for that right away. And welcome, we’re excited to have you in the Credit Card Cure Co-op.

Mike: You know, I got to think that right after the holidays you’re going to get an influx of members just because the holiday credit card crunch is over. And people are saying, “You know what? I’m in too deep.” A person loses their job, or they get cut back on hours, or they have other financial issues in their life, and all of a sudden they’re in trouble.

Ryan: We’ve got one here from Kelly M.

Mike: Kelly M?

Ryan: Yes. “What do you do to show income if you’re self-employed and do not receive a regular paycheck? Husband: carpenter.”Oh, I remember these guys. “He doesn’t get a pay stub, so would copies of deposit checks suffice as income verification?”

Let’s just tackle that. He doesn’t get stubs. Here’s the thing. If it’s tricky, you might end up having to show a couple things. Copies of the bank statement with the little circles and arrows drawn to the deposits.

Also copies of the checks themselves, if your bank can provide those or if you have those, like canceled checks, that will work too. A P&L, a profit and loss statement, is something that something that sounds really complicated, but it’s pretty easy to show a little profit and loss statement.

Mike: All three of these things you might have to do along with taxes from last year and things like that. But keep in mind, Kelly M, that in most cases, the lender wants to modify your mortgage and wants to get good information from you. So one thing that the underwriter will without question accept is any of the things that Ryan mentioned that you have signed. Have you and your husband sign it.Let’s say you have last month’s bank statement. You circle three paychecks and say, “This was a paycheck. This was a paycheck. This was a paycheck, ” and at the bottom you say, “These are the three paychecks this month.” Then sign it and date it.

Then you’re on the hook, and the underwriter is off the hook. That’s what they’re looking for is just they’re off the hook. They are responsible because they verified you said this was your income. So it’s actually pretty easy. You’ll do well.

Ryan: Number two: “My home is a two-family home. We receive some rental income. Does that make us less eligible for a modification?”No, I don’t think so. Does it make you less eligible? Maybe. I guess what we have to figure out are debt-to-income ratios with that included and everything like that, so the answer is maybe. But not necessarily, and not across the board.

Mike: It certainly doesn’t disqualify you for the big program, Making Homes Affordable. You’re still OK.

Ryan: Her debt-to-income is in the 67% range. I would imagine that it’s actually less than that if you calculate the income from the other rental.

Mike: Well, that might be her total debt though, Ryan, with car loans and credit cards. That might be her total debt-to-income, and 67% is high, but not too high. Once you get up near 70%, it’s not uncommon to have the lender ask that you agree as a part of the settlement that you will go through a credit management seminar. People tell me they are absolutely wimpy, absolutely easy to do. You can do them online in one evening, so that’s nothing.We’ve seen debt-to-income ratios as high as 78% get approved, but any time I get up near 70%, I go to great lengths to document everything, make sure everything will be really clear on things because you’re getting up in that area.

Ryan: Kelly asks a follow-up. “Is it a problem if you have a poor credit score, missed mortgage payments, second mortgage, credit card payments in the past year?”The answer is no. The loan modification is not based on your credit score, thank God. Hallelujah on that.

Mike: The thing people are often surprised about that and surprised that it has nothing to do with the value of your home. Two items that of course are drilled into us in terms of working with our lenders, but FICO score and the value of your home, don’t even mention them. They won’t.

Ryan: I’ve got one more here from Sean M, “I was told there are some magic ratios that will get you offered a permanent modification for the remainder of your loan. Is this true, and if so, what is that ratio?”That’s on the Thursday night call. Sean, you tried to squeak one in there. I’m just kidding. No, really. Thursday.

Mike: Sean, there aren’t magical formulas, but it’s really clearly evident when we have an applicant that just hits the bulls eye, and it’s pretty easy to predict. It is that you have a real clear hardship that’s easy to articulate, easy to identify, one of the common ones.You have a loan that’s very modifiable, like it’s a high-interest rate if it’s fixed, or it’s an ARM, especially if it’s a negative AM, or one of those pick-a-pay loans, or even an interest-only loan. Those are really modifiable. Everybody wants to modify those.

If the loan was made prior to 2009, and if it’s on your principal residence, and the first payment with PITIA is higher than 31% of your gross household income – I hope you followed all that, because that was a good little summary of what the qualifications are – if all those things are right, you are virtually guaranteed that you’re going to get a Making Homes Affordable modification.

If some of them are not true, then you still have a good shot at a modification. It just won’t be one of the sweet ones. But honestly, an awful lot of people who have adjustable rate mortgages are thrilled to get a $100 a month reduction in their payment, but they’ve switched from an interest-only loan to a fully amortized, 30-year fixed-rate mortgage so they’re happy as can be.

They don’t save a lot month to month, but just that emotional benefit of knowing that you’re not going to get caught up in this rate rise that’s on the horizon in the next three to five years is benefit enough.

Of course, the people that are in negative am loans that are going $1,000 or more in debt every month by making the payment that they agreed to, those people are beside themselves with joy when they get switched to an amortized loan.

OK, Sean. You know, you’re sure getting the questions. I promised these six people I’d get to theirs. How much time do we have?

Ryan: There are a lot tonight, I’ll tell you that.

Mike: You’re getting inundated.

Ryan: Well, I’m getting through all of them, actually, all the questions that were emailed in, questions at 60MinuteLoanModification.com.

Mike: They have a right.

Ryan: Sean, also my records show that you’re not a client yet, and you’ve been with us for a long time, so be sure to check it out.

Mike: You need some of this stuff, Sean. It’s not Sean W, is it?

Ryan: Sean M.

Mike: Oh, Sean M.

Ryan: A lot of these questions are answered in our products and stuff, so if you’re joining us every week, and thinking about this stuff, and worrying about it, we’re going to say make a leap.Anyway, also he asks, “I’m struggling to make my payment, and my first 30-day late will be the first of the year. Are there any guides for how many lates lenders want to see in order to be taken seriously?”

Not really, but you’re not really going to be considered too late until you’re…

Mike: Till February 1.

Ryan: 60 days, 90 days late. Then everyone gets worried, “Am I too late? Will I get foreclosed on?” and all this kind of stuff. Go 90 days late before you even start fretting.”What sort of late profile will lenders want to see on credit cards, and how does a debt-settlement strategy on credit cards affect the loan-mod process?”

What I would say is the debt-settlement strategy can actually help you quite a bit in your loan modification if your ratios are too high and your budget is getting blown out of whack by your minimum payments. If you have engaged in a debt-settlement agreement, plan, whatever, even if it’s just really in your own head, you can explain that and possibly affect your budget.

So it can be a really good thing, but in regards to settling credit card debt, you have to say no more credit card debt, first of all. You can’t continue buying anything on your credit cards, and you have to stop making your payments on credit cards. That’s the starting point.

Sean, I did a free two-week trial in the credit card course, the co-op course that we have in the bottom of the last email today, so check it out. Within two weeks you’re obviously going to know if it’s right for you.

What that is, is it’s designed to basically guide you through the credit card settlement process week by week for about six, seven months as you go. I’m with B&E on the first and Citi on the second.

Mike: My turn?

Ryan: Yes.

Mike: OK. Lee asks, “In a short sale, does the first mortgage negotiate with the second to settle or how does that work?”The way it works is the first will usually make an initial offer to the second, but your short sale negotiator, your realtor, or whoever is running the short sale for you…

By the way, we love to do short sales. We’ve been doing short sales for years. We’ve been the dominate short sale realtor in the South Bay for a couple of years. That’s the South Bay, California, south of Los Angeles, south of LAX.

We do short sales nationwide. We currently have short sales in about six states. What we do is, when we have to go outside of the state, we co-op with a local realtor to actually do the transaction because the Department of Real Estate, all of those departments are state-run.

In the short sale, what will happen is your negotiator, your realtor, will notify both lenders of the short sale proposal with the same package. The package has the offer, your finances, your hardship, and a request for the short payoff. And a very important document which is called the HUD-1 Settlement. That is a government produced document that an escrow or a title officer produces that shows both lenders just how much they will net out of the proposed deal.

In that proposal there is a proposal for settlement for the second that your negotiator, your short sale realtor, has come up with. Typically, it’s a token amount. If the first is going to be shorted, then they’ll usually pay $1,000 to $5,000 to the second as a courtesy. Very often that is just accepted and both lenders issue a statement saying they accept it as payment in full. Then you deal with the recourse issues, etc., in those letters. So that’s how that works, Lee.

Rene asks, “How can I qualify for a Making Homes modification as my first mortgage on my home is only 25% of our household income?”

So he’s asking about an MHA modification, that’s the sweet Making Homes Affordable modification. The “Obama Plan.” Rene is hoping to qualify. However, this first mortgage on his home is only 25% of his household income.

So if that statement is true, Rene, you in fact don’t qualify, can’t qualify, and will not qualify. What I always do when people tell me that is I ask them to take a minute with me on both of those numbers and let’s just dig into them to make sure that you’re looking at them correctly.

In other words, is your household income stated as it needs to be? Is it self-employed income? Then you have a little more flexibility. Is it a W-2 income? Is it from one household member or two? If it’s from two, are both of those on the mortgage and are both of them from W-2 income? Is the monthly calculation based on a twelve year average or the most recent three months or a common three months or seasonally adjusted, et cetera, et cetera, et cetera?

Then you move to the payment. Is that payment fully loaded with principle, interest, tax, insurance, and Home Owners Association dues? If not, then you have a possibility that you can argue, not a possibility, a certainty that you can increase that payment to include all of those things. So that’s kind of a long answer to a short question, but it’s really an important one.

Some people give up too easily. In fact, I’ve had people who, in fact, well qualified who had given up on their own home and were working on other modifications. I said, “Let’s just take a minute to review why you gave up on your principle residence, your primary residence, and getting that modification. ” That’s usually the easiest, simplest, fastest, bestest one to do.

Then Scott asks, “We are now done with Chapter seven bankruptcy. We’re ready to renew our effort to get a loan modification on our own home. If we get a Making Homes Affordable modification, we can afford to keep this home. Right now our entire household gross income goes to the house payment. We actually pay our bills with credit.” He asks for my advice.

Scott, my advice is that you are in deep trouble. You just got out of Chapter seven and you still have to use credit. It’s no news to you that you are in financial pain. Your home somehow was avoided in bankruptcy. You got through bankruptcy and now the stay has been lifted and you can negotiate with your lender about your home.

I wonder why that was. It must not have been an asset. In other words, the judge must not have determined that you had equity in it. That further complicates your situation. I think the question you’re asking is can you apply for a Making Homes Affordable modification betting on the come?

In other words, apply for it based on the fact that you can afford it if you get the modification. The answer is that’s good thinking, but good thinking that’s not being applied. The truth is you have to be able to afford your current situation in order to qualify for getting some assistance.

You’ve got to take some dramatic action. Because you’ve just gone through Chapter seven bankruptcy, I know that you are a tough person, a person able to face difficulty. What you have to do now is continue for a few more months to get this modification. You have to get some professional help from a guy like me to work on that income, to get it up to where it can enable you to qualify for that modification. So, write me, hire me, buy our kit, and let’s work together to get that modification.

You have some serious work to do, but now is the time. The clock’s ticking on you. If you hadn’t already been in the foreclosure process, the bank’s going to pick up right where they left off. If they had already begun the foreclosure process, they’re going to pick right up at the same point now.

Ryan: Neil Fink asks, “Why are interest-only loans more likely to be modified? Because they result in amortizing loans or for other reasons?

Mike: I think, Neil, it’s just because there’s a lot of political pressure to get people out of all the creative financing, some of which made a ton of sense in an appreciating market. There’s a lot of political pressure to get people out of anything that adjusts. You know that’s going to come right back into fashion as soon as the economy stabilizes again in a few years.Some of these products we’ve seen before and we will see again in the future. When you go through a difficult time they fall out of favor and people say, “How did it ever make sense for people to pay interest-only on a declining asset?” Well, nobody ever imagined that real estate was going to be a declining asset or a depreciating asset. It’s just a sign of the times. I guess that’s why.

Ryan: Everyone, I want to thank you so much for joining us. We got through a lot of content tonight. If you’re new, your mind’s probably blown. Don’t be too freaked out.

Mike: Yeah, we were all over the place.

Ryan: Yeah, you’ll be asking a lot of these same questions in a couple months. Just start where you can. The first thing to do, and the easiest thing to do, is to get the kit. Jump online, get the kit, and start your loan modification. Remember it’s 100% guaranteed. If you don’t get your loan modification, for God’s sake, send it back and we’ll refund your money.That’s about as good an offer I think you can get today in terms of low risk. We try to take all the risk out of it for you and enable people to move forward. Really, the only people that are getting helped were originally these people that could fork over $5,000 or $10,000 and have someone work on it for them.

Mike: Have an attorney work on it.

Ryan: Yeah. So, anyway, hopefully this loan modification kit has opened up a lot of doors to a lot of people. It can really make a difference. Please check it out.

Mike: Remember us for short sale service to you around the country, nationwide, and remember us for any loan, foreclosure work out services. We’re available to help. We’re expert in the area. Please recommend us to your relatives and your friends who need assistance during these tough times.2010, there’s just no way it’s not going to be every bit as tough as 2009. Let’s redouble our efforts. Please help us get the word out that we’re here to help. We’re a good, ethical, hard-working, street-fighting, foreclosure-busting company. So let your friends know about us, 60MinuteLoanModification.com. Thanks, everybody.

Do you have anything else to add?

Ryan: No, that’s it.

Mike: All right. Good night.

Ryan: Happy New Year.

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