In the meantime, we continue to bring you good stuff to help you get loan mods. Thursday night we will continue our legal parade by interviewing a lawyer from Minnesota. Not exactly the hotbed of foreclosures – but values have dropped over 23% in 24 months and we’ve had a number of short sales and loan mod clients from that great state. They’ve got a 6 month redemption period that follows sheriff sale. Crazy, eh? We’ll get some inside info on how that works and how it’s working out in this downturn on Thursday night. Tune-in at 6 p.m. pst.

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Our guest on this show was CA Real Estate Lawyer and Broker Bruce Stuart. My goal was to separate fact from fiction. I asked top Loan Mod Attorney Bruce Stuart to share 1st hand information regarding loan modification, foreclosure, short sales, deficiency judgments – and all other manners of workout.

Bruce is a guy that can charge folks up to $500/hour for his expertise. Believe me, people are happy to pay. After all, it’s hard to know who to trust at a time where rumours run wild, scam artists thrive and the sky seems to be falling.

Here are just some of the questions I put to Bruce:

• Does anyone really care about predatory lending?
• Are forensic loan audits valuable? A complete ripp-off?
• Can folks really sue their bank AND win?
• Deficiency judgements…who should worry? How can folks know for sure? What about refinances? What about folks who simply spent the money (not spent on remodel, etc)?
• What about 1099s on forgiven debt?
• Who needs a lawyer? And how can you find one?

As you can probably tell, this event was powerful. I hope you can set aside 30-45 minutes for some straight talk on tough issues facing homeowners today.

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Unfortunately, many people assume, wrongly, that mortgage modification programs just aren’t available, either from their lender or because of their own particular circumstances. However, the federal government has entered the arena and begun a special program aimed at assisting those who want to stay in their homes do so. With a lower payment, though, many people are able to make their mortgage payments.

Understand, first of all, that these modifications are basically a way of asking the lender to completely change the terms of the mortgage. For the person holding the mortgage, it’s essential that the new terms are favorable enough to result in a lower monthly payment. Usually, this will mean that the lender is agreeing to write off a portion of the mortgage in order to lower the monthly payment.

Now, most lenders — because they’re in the business of making money — wouldn’t normally agree to do such a thing but they’re staring at huge numbers of possible defaults and foreclosures. Because of that they’re more amenable to a modification than would have been the case just a few years ago. And with the government also helping out, many are more willing to try to work something out as well.

Many lenders have also set up their own private modification programs, which should come as welcome news. If a person holding a mortgage doesn’t qualify for the government version, he might be able to qualify for a private lender version. It might not have as generous a term setup as the government program, but it should still result in a lower payment nonetheless.

Almost without exception, it’s always better to contact the lender whenever financial trouble begins to arise rather than to wait several months when it’s just not possible to do anything about the mortgage because it’s in such bad shape. Doing so might result in more favorable terms up front rather than on the back end, though some lenders would rather wait until the mortgage is past due before taking action.

It should also be understood that no small amount of paperwork is normally involved when it comes to applying for a modification. Even the government will require a hardship letter — in which one lays out why one can’t make the current monthly payment — as well as proof of income sufficient to make the new payment, if the mortgage is modified.

Home mortgage modification should be considered whenever circumstances arise that might prevent a person from making his regular monthly mortgage payments. Remember, though; there needs to be documented income coming in that will cover the new, modified home mortgage and there also needs to be at least a hardship letter submitted with the application.

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Yet the vast majority of applicants who review their application with me prior to submittal make errors in the Income Section of the application. That’s right, they get their own income wrong! Since my advice is to not submit an application with even a zip code error, this one really “gets my goat” (you know that’s a racehorse term, right?).

Here’s my advice about the income section of your mortgage modification application:

1. Include the right household income. That is, you must include the income from the parties singed on the loan. Any other household income need only be included at your discretion. So, even if your spouse, partner, significant other or adult children or parents contribute income, you need only include their income if you decide to.

2. Calculate your income correctly. You may laugh at this but MANY people miscalculate their own income! Common errors are using net instead of gross income, confusing bi-weekly with semi-monthly paydays and using last tax year’s income instead of the most recent past 90-days.

Show your calculations right on the pay-proof. That is, show exactly how you extrapolated and calculated. That way, they understand and, hopefully, agree.

3. Document your Income extensively. I say extensively because I recommend you go beyond what is normal or expected. Think of it as an actual loan application and document it like it’s going straight to underwriting. This includes, notarizing self-employed P&L, including annual award letters AND check stubs for SSI and EDD income, Attestation Statements (signed and notarized) on bank statements when used to show deposits to document cash earnings, etc.

Sure, some of these measures are beyond what the bank requires, but the requirements are met by the hundreds of thousand s of others in line ahead of you. Your application has to stand out and be bullet-proof.

4. Augment your income, if you must. If your income is insufficient to qualify for the modification (if your DTI is just too high, then you have to augment your income or give up. To apply when your ratios are off is a waste of time.

Some ways my clients have augmented their incomes in order to qualify include:

• If self-employed…use your best period!!
  
• Rent a room
  
• Rent a garage
  
• 2^nd job
  
• Kids pay rent
  
• Parents pay for care, driving, room, etc.
  
• Contribution Letter from Others
  
  • Notarize it
    
  • Include proof of funds, income
    

5. Reduce your income, if you must. That’s right, some folks fail to qualify because their mortgage payment is too small a percentage of their household income. They actually have to reduce their income!

Some ways my clients have reduced their incomes in order to qualify include:

• Remove income from any household member not on the loan
  
• Scrutinize untraceable income…like tips
  
• Remove “at risk” income…like bonuses based on company performance    
  
• Scrutinize expense items on self-employed P&L
  

Get the Income section of your mortgage Modification right and you have a solid base on which to build a winning application.

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Under the current government rules, loan modification programs are open to those who are experiencing some sort of financial hardship, but still have enough income to be able to make payments under a new agreement. These new agreements are more affordable, and should help more people stay in their current home.

Because certain qualifications have to be met, you will need to be able to prove that you do, indeed, qualify. Once you have that proof, you will find that the amount you can save during the short-term and long-term can really add up.

You can try to go through the process on your own, and a lot of people do it that way. But, be warned that lenders are still going to do whatevr they can to make as much as they can. That’s why it makes sense to get somebody that knows what they’re doing to help you.

Lawyers, and services set up to help people just like you are the two main options. There are several steps that need to be taken, and they can make it much easier. For example, how many hardship letters have you written in your lifetime? Chances are you haven’t written any. And that’s one of the first steps. Letting somebody that writes such letters for a living write yours, and the odds of you getting the best deal go up by quite a bit.

Some people feel like they are not keeping their word, or somehow less of a person by trying to get their current mortgage redone. At the same time, loan modification programs were created to have a positive impact on the overall economy. To put it another way, there is nothing to be ashamed of. Take advantage of these offers while they are still in force.

Though it may seem like a hassle, you can get help when trying a loan modification program. It is technically possible to do it yourself, but if you can get somebody that knows how to deal with lenders, you could get an additional 1% knocked off of your new deal. While 1% doesn’t seem like all that much, over the course of your new loan, it can add up to tens of thousands of dollars.

Whatever you ultimately decide to do–doing it yourself, or getting someone on your side to help you do even better–make sure you get started as soon as you can. The peace of mind will start right away and you will be well on your way to staying in your home.

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Recorded July 1. Transcript to appear shortly!

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File inertia is a term I coined after observing hundreds of mortgage modification applications (aka “files”) processed by banks. My acute observation and deduction capabilities led me to postulate this breakthrough principle! So, in the spirit of all great “scientific discovery” I will share it with you.

Applications that are in motion tend to stay that way unless acted upon by other forces. Applications that are stopped tend to stay that way. While this discovery may not bring me fame, it has brought my readers lots of mortgage modification success. And, with the acute dissatisfaction with the whole mortgage modification process, that’s a lot.

Here’s how it can help you to win a mortgage modification and improve your family’s budget. There is a force acting upon all modification applications that tends to stop them. It’s called overwhelmed. The banks are still overwhelmed with the sheer number of applications. All systems and processes are strained to the breaking point so it is logical for them to “stop, reject or send back for updates and corrections”, as many files per day as possible. This “rework” gets the file off their desks and onto someone else’s. AND, it becomes your problem, not the bank’s. You can’t let that happen to yours!

For anal retentive types, this will be easy (and, do not read into that statement any insinuation that the whole process has a relationship to excrement). And, for others with less obsession with details, I will make it easy for you. Your application has to be perfect. Not only do you need to provide all the information that is required but you must also organize it and present it in a way that is perfectly understandable to an inexperienced, barely trained loss mitigation agent. Items such as missing documents, unsigned Tax forms, expired form 4506-T and inadequate income documentation make it vulnerable to rework.

I have eight recommendations for you:

1. Document Income correctly and show it clearly. This includes, notarizing self-employed P&L, including annual award letters for SSI and EDD income, showing calculations for monthly gross amounts and explaining precisely how you calculated recent 1099 income.
   
2. Show rental property correctly. This is especially important if you are applying for a HAMP modification on your primary residence.
   
3. Your front-end DTI (Debt-to-Income) must be right. This is the total monthly payment on the 1^st mortgage (PITIA) divided by your gross household income. It must be greater than 31%.
   
4. Your back-end DTI (total indebtedness as percent of gross household income) must be less than 70%. If it is higher, you will get rejected for having too much debt.
   
5. Check your credit report (get a free copy each year at www.annualcreditreport.com) to be sure all debt items are present and accounted for on your application.
   
6. At the end of your budget…after income taxes, debt payments and costs-of-living…you should have about $0 left each month.
   
7. In order to be treated within a reasonable timeframe, you must be late on your payments. Most banks require that you be more than 60 days late before they stop halting your loan mod progress with their “Immanent Default” shenanigans.
   
8. Make it easy to understand. Put it together like you are there presenting it…with a cover letter, a table of contents page, with notes to clarify things, etc
   

Do these eight and you will capture the power of file inertia instead of falling victim to it. It can help you get through the process successfully and in a reasonable timeframe.

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