Mike Rockwood: Front-end DTI must be over 31%. That’s your gross household income divided into your first mortgage payment fully loaded with homeowners’ association, interest, taxes, insurance, private mortgage insurance, everything, the whole payment. That front-end DTI has to be over 31% or forget it. It has to be under 70% or really forget it. It should be between 35 and 45 or so. Your back-end DTI has to be right. That’s the fourth tip. Back-end DTI, boy, it can’t be higher than 65% or 70%. We still have a lot getting them through at 70% but any higher than that, you got some work to do.
All debts that are on your credit report must be addressed. Now, that doesn’t mean that you have to show the payments. You have to at least address the issues. So, if you have a debt on your credit report that you’re currently not paying like a credit card that you’re in settlement talks on or a mortgage on a property that you’re short selling, leave it off the budget, leave it off the PNL, you know, at least the expense part of it, but then explain it in a note saying, I’m in the middle of short sale. This property will be gone soon or this credit card is being settled. I’m not making payments. I never will make payments on it again. And they accept that.
Now, keep in mind your cash flow that is the very bottom of your monthly budget needs to be very close to zero. That’s kind of current news in the last six months. Well, really, it was like last September. We went from submitting pretty negative cash flows to expecting everyone to be near zero. That’s my advice.
Number seven, you must be late on your payments. If you submit a loan mod application for any program, Making Homes Affordable or any and you’re not late on your payments, it’s kind of wishful thinking. It happens once in a while. It happens sometimes. It never happens in less than four months and honestly, I have plenty of clients who have been waiting for six or eight months.
Number eight, your application must be flawless. And this one could actually be a separate class in itself. But I go to extraordinary lengths to make this application just stand out and sparkle. What I do is I make sure I get clean copies of everything. I number the pages. I write a cover page with index. I actually put an index together and reference what is on what page. It’s kind of a little thesis by the time I get it done and the reason I do that is because it makes it unique. It makes it stand out and it makes it really easy for them to work on and hopefully keep working on so they’re putting down and discuss [phonetic].
Contents with page number, notes wherever needed, use their forms, and I mark through the cells that I’m not using so that it’s clear to them that I saw them and I chose to disregard them. Sign and date the bottom left of every page, all persons on the loan. In the middle of every single page, in bold letters, I put the loan number. And over to the right I put the page number, very large. Okay, get these right and your application is guaranteed to sale through in no time and you’ll get approved for a great modification. Yes, right. No, but I’m telling you at least this increases your odds. These are tough times in the loan modification business, let me tell you.
Today, particularly, I talked with three applicants who are really getting discouraged and I don’t know if it’s just because we’ve done this so long, Ryan, or because it’s our nature or what it is. But we just don’t get discouraged. I mean, they ask us the dumbest questions and they lose files and they lose files and they miss numbers and miss names.
Ryan Rockwood: And they can’t – and they turn down the loan mod.
Mike Rockwood: Yes, and they turn down the loan mod. You just keep trucking. They turn down perfectly good loan mods.
Ryan Rockwood: Yes.
Mike Rockwood: So, honestly there is just – once you have a file that you’re sure is a winner, it might take you a year but you’re going to win. So, you just have to – you have to be ruthless. And sometimes, honestly, I have just pulled these things out of the fire. I mean, they’ve been ultimately rejected at the manager level. Rejected. Why don’t you stop calling us on this one, Mike? And I’ll still find a way because when I’m right, I’m right. I know I’m right, the numbers are right, everything is right, the investor is right.
Sometimes they’re just rejecting you because let’s face it, I mean let’s be blunt, let’s be honest. These people themselves are just fine people but they’re incompetent, let’s face it. They have staffed up way too fast. I mean, whoever put together a 500-person call center in six months and try to train these people. Where do you get these people? And especially because they’re in Omaha and they’re in Clinton and they’re in New Delhi and they’re in Chiang Mai. They’re all over the flipping world. So, forget about it. These people are not just goofed up. They’re incompetent and they’re handling something so dear to you that it’s actually they’re holding keys to whether or not you keep your home.
So, perseverance goes without saying, you got to have perseverance. All right, shall we go to questions? Do you want me to start some or you got some there, Ryan? I’ve got, like, half a dozen. I’m all ready. I was handed these before.
Ryan Rockwood: Let’s see, you know, sometimes I want to try. Okay, is anyone on the call with question, a live question? I don’t even know if anyone tunes into the call anymore now that we have the video broadcast.
Male Speaker: We sure do.
Mike Rockwood: But do you have a question?
Male Speaker: The question is [indiscernible] have turned down options. Say, “Sorry Mike, don’t call me on this one.” If that just said and when you go back to them, look at the file and say you’ve been turned down. I know it’s maybe difficult to ask for general questions. How do you just start the whole thing again? How do you start that [indiscernible] again that’s been turned down?
Mike Rockwood: Yes. That’s a very good question. The question was, if you couldn’t hear it on the video, the question was when you do get a rejection, how do you restart it? I mean, do you just resubmit or what? You know, I usually find gold by asking someone if they wouldn’t mind just taking some time with me helping me to understand how this one got rejected because this homeowner is going to be, you know, suicidal. So, I get them to kind of get on my side of the desk and look at it with me and pick it apart. And then once I’ve gotten them on my side of the desk, then I can ask – then I can kind of say, well, that doesn’t make sense and why would this have happened because this doesn’t make sense.
So, then as they go through it, they very often can’t figure it out. At least half the time they can’t figure it out. And so then I’m in good shape because I can say, well, what do you recommend? It seems like this one has been rejected erroneously. What do you recommend I do? And then they give me the recommendations and then I’ve got an advocate. You know what I mean?
Male Speaker 1: Yes.
Mike Rockwood: So, usually there is. And if I can’t get them to help me, then I usually just tear it apart and figure out what happened. Usually, by reviewing with them, you know I’ll say, “Listen. Go over with me line item by line item because this one is so important.” These guys …
Ryan Rockwood: They’re not always thrilled to do that.
Mike Rockwood: Yes.
Ryan Rockwood: They aren’t really – they’re kind of, you know, they’re hoping because especially if they don’t know.
Male Speaker 1: Driving them nuts [phonetic].
Mike Rockwood: They’re embarrassed, yes.
Ryan Rockwood: Yes, it’s kind of embarrassing to just feel like …
Mike Rockwood: Yes, so I’d say, “Listen, just open up the file and go over the finances with me, will you, because perhaps something was entered wrong.”
Male Speaker 1: But they kind of get down [phonetic] to their checkbooks. How can they, you know, it is so – I’m sorry to interrupt you there, Mike.
Mike Rockwood: No, no, go ahead. Yes, you’re right. How can these people balance their checkbook? I mean, some of these people have had literally just like an hour or two of training. They’re really just phone answerers.
Male Speaker 1: No, it’s the – they live in a, you know, who knows with all due respect. Maybe they live – they have their own home but – I don’t know. Some of them are incompetent, inhumane, dumb ass – excuse me if I start coughing [phonetic] like a maniac. Now, you can mute me but I have no idea where they’re coming from, what the – might as well just ship them off on an island [indiscernible]. They don’t even speak English nowadays.
Mike Rockwood: Yes, I know. You get a bunch of crazies but then every once in a while, 10% to 20% of the time you get this really seasoned veterans who were in this business before the downturn and they understand it. So, once in a while you get those guys and those …
Ryan Rockwood: I think we have some …
Mike Rockwood: We got some crosstalkers.
Ryan Rockwood: Or on feedback. Anyone else have a question on tonight’s call?
Male Speaker 1: Come on, don’t be shy. Let’s go.
Mike Rockwood: Okay, just for – let me take some of these that I got by e-mail before we started.
Ryan Rockwood: Okay, we got to get – let me take this one right here.
Mike Rockwood: Okay.
Ryan Rockwood: We got a question here form Neil. Mike, have you covered any of the Obama program enhancements yet on your webcast or whatever, writing down the principals? No, we haven’t, Neil. And that’s – we’re going to have to – we’ve got a couple of special webcast coming up about that. Specifically next Tuesday, he’s going to be talking more on the FHA. Especially FHA …
Mike Rockwood: And this Making Homes Affordable Program. So, yes Neil. We’ll have some more information for you Tuesday. Kennedy is bringing some of that information.
Ryan Rockwood: And then we hope to have – I think there’s enough content there for probably two additional Tuesdays worth of …
Mike Rockwood: Yes, because you know, that’s going to become the topic, you know, throughout this year as loan modifications wane. And I hope it’s not just because the banks are, you know, never do improve and never do start giving good mods. But as loan mods, as we get some more and more of these first mods, first mortgages settled, we’re going to really start turning our attention to the real evil, which is the second mortgages, the hillocks and the credit card debt.
And the issue is really going to become principal reduction settlement write off, you know, how do we extinguish these mortgages because, you know, we’re all realizing the homes, the mortgages on the homes just don’t fit into the new housing market math. They just don’t fit, you know. If it was a business, you’d say, listen. This business is over encumbered. It needs somebody to buy it and restructure its debt or it needs to be – it needs to declare bankruptcy. So, that’s what happening in all these foreclosures and in the short sales is they’re just being declared as a business bankrupt and the financing for them is being rewritten, right?
All right, I’m going to take Roger’s e-mail from earlier. He says, “I’m in Minnesota and I’ve got nine homes that I hope to modify.” Four of them are two upside down to fight for. How do I show all the homes and how do I deal with the fact that I’ve stopped paying on some of them?” Roger, this is – and I don’t know your specifics about your debt-to-income ratio on your personal budget. But here, you have kind of a good opportunity.
If I’m understanding the question right, you have nine homes that are all rented so you have nine rental checks coming to you every month. You stopped making payments on several of the mortgages because you’ve decided to let them go. So now, your real estate business even in Minnesota where I know – I mean, I’ve never been able to have a profitable rental business. I have homes in Minnesota. I bet you can, on paper, show that you have a profitable business.
So, what I would is, on my business profit and loss statement, I would show all the rental incomes and I would not show all the mortgages because you’re not paying them. Just put a little asterisk there and at the bottom saying this one is the middle of short sale. I am not longer paying it. I will never pay it. And that will work for you. And so that will kind of wash your business PNL so that you can just worry about your ratios on your personal budget. So, hopefully, you have a good income and good ratios outside of your rental business.
But hey, but then Roger, here’s – I forgot, I also want o highlight the fact that what I do in cases like that is I make sure that the home that you are applying for shows prominently in that business PNL, which I used to call a schedule of real estate owned. So, make sure that it shows prominently, in other words that it shows that it is one that is in fact in distress and if they were able to help you, it would significantly add to the profitability of this real estate business. In other words, it becomes one of the five winners in your portfolio instead of continuing to be one of those that you may eventually just lose.
All right Spin [phonetic] says – or Spin [phonetic] asks – and interrupt me if you have some cool questions that are on.
Ryan Rockwood: Okay.
Mike Rockwood: “We have $200,000 in savings account” – wow – “from the sale of a property, part of our liquidation.” I guess this Spin [phonetic] is liquidating their real estate assets, maybe. Now, I’m afraid that it will make us ineligible for a modification that we’re currently applying for. Will it – will the bank know about it?”
Okay, so it says that you’re currently applying for modification. So, I assume you’ve already submitted your paperwork and not divulged this $200,000 in liquid assets. So, here’s the situation. Honestly, for over a year I have not submitted assets on a loan modification application. And there are just a handful of cases where the bank has come back and said, “We really want a list of assets.”
So, first off, I don’t recommend that you fill in those – that part of the application. What I do is I just mark “Not Applicable”. I fill in the amount for the checking account apart from the savings account, a little bit of asset. But if I have a large asset for a client, I just put “Not Applicable”. So, in your case if you told – if you were my client and you told me you had $200,000 in a savings account, I would put “Not Applicable” on the savings account.
And I would – 99% of the time I’m never asked about it because, in fact, it doesn’t matter. You’re not being underwritten for a new loan. In fact, all they’re doing is checking off that all the boxes have been filled out or, at least, dealt with. So, Spin [phonetic], I think you’re absolutely fine. Depending on the state that you’re in, they may have absolutely no recourse to that money anyway. So, assets don’t really matter in 33 of the states.
Next, Keith says, “I had already submitted our application for a Making Homes Affordable modification before I purchased your kit.” And then he still purchased the kit? He’s already applied.
Ryan Rockwood: Well, you know, a lot of people say that and it’s hard and they say I should have bought your product. And I say, well, it’s hard to know because if you feel like you did it right …
Mike Rockwood: Correct, yes.
Ryan Rockwood: But the problem is most people feel like they did it correct and then they get turned down.
Mike Rockwood: Yes.
Ryan Rockwood: So, I don’t know. The trick is – what I tell people is like, hey, there’s a money-back guarantee so you might, you know …
Mike Rockwood: If you don’t buy it [indiscernible].
Ryan Rockwood: If you’ve been listening to us and a lot of times people listen to us and they say, oh, I realize I feel that all wrong.
Mike Rockwood: Yes.
Ryan Rockwood: You know.
Mike Rockwood: Oh, well, yes. Okay, so he says, “I included my wife’s income, although she is not on the loan. Do you think I made a mistake? Is there anything I can do about it now or should I just see what comes at this application and take action if I need to?”
Keith, you may have answered your own question. I think that’s what you should do. However, I wish that you would review your debt-to-income ratio that you submitted. Here’s where I think you may have screwed yourself over. If you submitted an application and your debt-to-income ratio front-end was like 31% or 31.5% or 32% or 33%, you may get a half-ass modification.
It’s always best if you have a real strong need like you’re in the high 30s or low 40s on that front-end. So, if having taking your wife’s income out of there you would have been in the low 40s or something like that, then I think it may make sense for you to get them on the phone and explain the situation. You know what? I wouldn’t even be afraid to just get them on the phone and reveal all these. Say, “Hey, listen. I made a mistake. You don’t have any claim to my wife’s income.” And they’ll say, “Well, if it’s household income, we do.” And then you can just explain, “No, our arrangement is that she pays me in X amount toward household expenses.” And they don’t have any right to her income. So just because you’ve submitted it to them doesn’t mean that you can’t change your mind.
However, with that said, you may be exactly right that in fact you’re going to get – if your ratios were good and solid and your cash flow is right and everything, you might be cruising for a great modification and it won’t matter. So, I didn’t help you a lot, Keith, but at least I gave you some things to think about.
Betsy says, “Thank you for your help with the Wells Fargo VIP services.” Oh, this one I got to explain to you guys. “This rep,” she says, “seems to be pretty motivated to make it work good. Now, she wants our taxes from the past two years.” Okay. She says, “They will reveal all of our properties including ones that I own outright and did not reveal when we had that telecon with the VP. How do you recommend to handle this?”
This is a case – this is something that you guys want to be aware of, those of you with jumbo loans, maybe on our personal residence. This person, Betsy, had a very jumbo – it’s like a $1.8 million first mortgage on her Ocean Front Estate and she needed a modification. She had used it as a piggy bank to buy a bunch of other properties. Does that sound familiar? Does that sound smart two years ago? Does that sound dumb now?
Well, she’s feeling kind of dumb and she did feel pretty smart back then. But at any rate, this is another business that is now over encumbered. And she took a very interesting approach that I think is going to become more common and it’s one that I started recommending recently, and I recommend it to her and that is an escalation process that includes not only political figures like your local representatives but also the CEOs and the divisional presidents, vice presidents, at the lender.
She happens to learn that there was a new divisional vice president at Wells Fargo charge with helping imminent default people who are not yet in default but are very close to default. And this new person in charge of the imminent default department was actually very well qualified, not just a figure head. She got that person’s attention with a very impassioned personal letter FedExed to him and got him to assign a kind of a personal loan modification helper to this friend of mine. And this person is now working very closely with her.
And we hope what that has accomplished has gotten her some special treatment. I will report back to you in a month or so when we find out because technically her loan doesn’t qualify for a lot of assistance, but she does because her income has dramatically declined but it isn’t completely gone away.
Ryan Rockwood: Okay, we’ve got Hima [phonetic] on the line writing in to the e-mail and he says, “How much should I be negative when doing the personal budget?” And like $1,000 et cetera, the budget needs to be close to zero or something like minus 50 to get a good mod. And Hima [phonetic], that’s something that is extremely important. It pretty much has to be zero or maybe even plus $100 or something like that. I really wouldn’t go more than $100 and I wouldn’t go below zero right now. That’s always been moving, well not always, but it has …
Mike Rockwood: The last six months, it has, yes.
Ryan Rockwood: It has moved over the last six months from having to be very negative or being good to be negative to not being good to be negative anymore, all right.
Mike Rockwood: Yes, this is critical.
Ryan Rockwood: So, spend it but just spend it all. Just spend all your money.
Mike Rockwood: Show them that you’re making it but barely.
Ryan Rockwood: Okay, well, I think that’s it for questions.
Mike Rockwood: Oh, no. I got another one here.
Ryan Rockwood: Okay.
Mike Rockwood: Wendy says, “I have followed up like you recommended and have been assigned to a Wells Fargo negotiator after only three weeks.” Wow, that is fast. “I am way ahead of several other people I know who are not getting any action from Wells Fargo.” Hey, so it sounds like maybe she’s got like a loan mod support group. You know what I mean? That means on Wednesday nights and talk to – share their stories.
Ryan Rockwood: Well, as long as all our clients will [indiscernible].
Mike Rockwood: Maybe they stand up in the group and they say, “My name is Wendy and I have – I’m applying for a loan mod.” You don’t think it’s funny?
Ryan Rockwood: Nothing personal [phonetic].
Mike Rockwood: “Now, what kind of questions can I ask the negotiator to get her to respond and keep it moving?” Okay, so Wendy appreciates the tips that I have been giving about how to craft good questions to actually get loss mitigation people to look up, open up your file and respond to you, obviously, at least that’s what I think. And now, when he wants to know, “What kinds of questions can I ask the negotiator?” That’s a good question, Wendy.
The first one always is, is the file complete? Do you need anything else from me? Next one is I am standing by at this cell phone number, ready to respond immediately with any additional information that you might need. Another one is to ask if they noticed this or that or give them a slight change, notify them of a slight change. In fact, your car payment just went down. In fact, you just paid a little bit extra on this credit card and the monthly payment is now reduced, et cetera, et cetera. Anything that they must take action on, contact them and ask them to respond to you to make sure that they got the message.
It’s really rare that you actually get an e-mail address or a phone number for these negotiators. When you do get that, you are really close to getting a response. I mean, like probably within days. So, good luck, Wendy.
Ryan Rockwood: All right, well, we need to wrap it up because we’ve got a call for a client of Wachovia that we’ve got to get on the phone.
Mike Rockwood: Very good.
Ryan Rockwood: All right. Anyway, thank you all so much for joining us tonight. Do I have a little call close here? I don’t want to – I may not have. I could just wing it. Well, anyway everyone, thank you so much for participating tonight, for joining us. Congratulations on getting a little bit closer. And believe me, you are getting a little bit closer even if it seems like it’s just another week.
Mike Rockwood: Just because time’s passing.
Ryan Rockwood: Yes. Congratulations. Keep moving forward and please recommend the website to friends and family. All right, take care.
Mike Rockwood: All right, goodnight everybody.
