Bank of America-Principal Reduction Programs

Mike Rockwood: Hello there everybody. It is Thursday evening. It’s 6:00 and it’s time for 60-Minute Loan Modification Teleconference Series.

Ryan Rockwood: Welcome, everyone.

Mike Rockwood: Hi, everybody. Ryan and I are forcing ourselves to get away – get off the phones, get away from our desks, take a little bit of time to debrief and give you guys some information about what’s going on with loan modifications and what’s just going on in the general foreclosure workout business, latest news and latest tips. It’s time for the insiders only, the members-only conference call.

Ryan Rockwood: All right, welcome everyone to the 60-Minute Loan Modification Insider Secrets Teleconference Series. We’re here to beat the bank, to save your home and help you escape bad debt forever. My name is Ryan Rockwood. As usual I’m joined by my father and business partner Mike Rockwood.

Mike Rockwood: Hello.

Ryan Rockwood: On today’s call. Before we get started, a couple of quick announcements. Bank of America is all the buzz today. And I’m sure you’ve heard what – surely there are going to be some very good news all over the radio, all over the Internet. Basically, they announced a Principal Reduction Program that may be great news for thousands of homeowners. So, all of our clients who are upside down in their first mortgage by at least 20% or more may qualify. More to come.

So, of course, these are Bank of America clients. But if so, you know, we’ll have to send out a special e-mail because we’ll have to have a special webinar on this topic, particularly because it’s just, man, you just don’t hear great news like that all the time, okay. We continue to get a great response on our call for applicants for the Homeowners Mortgage Restructuring Program.

Mike Rockwood: That’s president Obama’s program. Nice try. He can’t steal that from [indiscernible]. Ours is the homeowners.

Ryan Rockwood: Okay, anyway. That’s the principal reducing – that’s the program that reduces the principal on your home that you’re responsible for in a situation of negative equity like the situation that Bank of America is talking about, okay. And that’s not just for Bank of America. Now, it is available in more states now including Hawaii, California, Arizona, Nevada, Utah, Oregon, Washington, so fantastic news all around.

We’re so overwhelmed with the response in the Credit Card Cure site as well that, really, we’re caught a little bit with our pants down a little bit because we need to ramp up some technology and other things so that it’s a little bit easier to use and we’re working on that. The new sites coming along, it’s going to look really good and it’s going to be really, really simple to use. And, we’re recording all new classes and material.

Now, as an additional Credit Card Cure book that’s coming up, it is fantastic, it is updated with at least, I think, 100 new pages, and it’s just clearly going to be the very best resource out there for walking you through debt settlement step by step, credit card debt settlement or any unsecured debt settlement.

Anyway, check it out. All of our members will get a copy free. It’s going to be sold for about $99.00. And Mia’s Home: My Children’s Book on the topic of foreclosure and housing issues and the bad economy and the housing crisis and all that kind of stuff. That’s available now in Spanish and English. You can pick up a copy on Amazon.com.

Mike Rockwood: We got to show you. You got to brag about that Ryan.

Ryan Rockwood: It’s very cool besides English, besides Spanish. So, if you happen to be a grant [phonetic] writer out there and …

Mike Rockwood: There you go.

Ryan Rockwood: You think you can help me put this in the hands of more people than the people that we meet, give me a call. All right, let’s get to the call. Today’s call is all about questions.

Mike Rockwood: Okay, Ryan. But because we did get a flurry of questions about the Bank of America situation, I just wanted to take a minute to review what we know about it at this point.

Ryan Rockwood: Right.

Mike Rockwood: Before we jump in to questions because, like, six of them, they were handed to me before the call or about this. So, it’s a good thing we did. All right, so what we know about the program is – and by the way Wells Fargo’s announced a similar program without all the fan fair that Bank of America did. I think Bank of America needs the PR more than Wells Fargo does.

Ryan Rockwood: When did they do that?

Mike Rockwood: Also today.

Ryan Rockwood: Oh.

Mike Rockwood: Yes. So, there are similar programs going on and they are very similar in their structure to the third party programs that we’ve been telling you about for a couple of weeks now. So, between the third party programs between these two large banks announcing Principal Reduction Programs we kind of feel like this is the beginning of principal reductions. Remember, you know, we’ve been talking about it now for about 14 or 16 months talking about the fact that we really have to face the housing meltdown with some serious medicine, principal reduction and that the interest rate reduction. Well, sure, that will keep some of us in our homes but we need this principal reduction, so it kind of feels like we’re on the verge of a very, very big movement.

Unfortunately, it may just swamp the housing market and it just may swamp some of the banks and it may require many, many billions of additional bailout money. That’s good news, bad news. On the one hand it’s kind of good. It’s good that we’re getting around to it but watch out. In other words for all my clients, for all of our clients, we’re getting them to the front of the line to try to get these principal reductions as soon as possible.

Here’s what we know about it. The program really targets three products that were primarily distributed by Countrywide early on. They were sub-prime loans, payment option s mortgages especially with negative amortization features when you could pick a payment that was actually less than the interest payment and two-in-one adjustables that offered teaser interest rates for the first two years and then convert it into loans that could adjust every year. So, there really are three products that are targeted. Hundreds of thousands of them out there and the amount of money that B of A has committed to the program really is enough – at least all the bloggers seem to think having run the math –that it’s enough to probably meet the needs of about 50,000 borrowers.

Now, that sounds like a lot but in the scheme of things, it’s really not a lot because, you know, as we all know there’s about 4 million of us that need significant help. Heck, there’s 2.5 million underwater homeowners in California alone. So, as part of its ongoing loan modification efforts, Bank of America will look to earn or phased in principal forgiveness as a first step toward keeping an underwater borrower out of foreclosure. So, previously the bank, like the whole industry, has just done interest rate reductions.

Well, here’s how this is going to work. Say your mortgage balance today is $250,000 but your home is only worth $200,000. If you meet certain eligibility requirements, the new program could reduce your balance by $50,000 and your new payment will be based on the lowered principal amount. However, it’s likely to be a phased-in or an earned equity reduction, so that during the first year, if you made all of your payments on time, you would receive $10,000 worth of the reduction. If in the second year you made all your payments on time, you would receive the second $10,000 reduction, et cetera until you got to the full $50,000 reduction.

So, honestly it kind of seems [phonetic] like an initial step to a very targeted amount with a very – I mean, even though $3 billion sounds like a lot of money it’s …

Ryan Rockwood: So, how would that word in terms of – is it like – is it going to be – does it [indiscernible] have to the danger being similar to the trial modification and kind of being, kind of bull [phonetic]. You know what I mean?

Mike Rockwood: Yes.

Ryan Rockwood: What are the payments like? Do you have any idea or is there, I mean, what are the payments that you need to make to qualify?

Mike Rockwood: Well, the interest, it’s just going to be calculated based on your new mortgage at today’s interest rate. So, it could be a significant reduction for some people. However, it does sound like they’re going to be cautious with it at first. Of course, they’ve got to be. So, I’m not so sure that, you know, it’s not going to take 6 or 12 months before we realize that even this program is a little bit too tepid. But at least it’s an initial effort on the part of the banks to belly up to the bar and admit that they have lost equity and they wouldn’t mind sharing some of that loss with the homeowners instead of just throwing everybody out of their homes and then taking the loss and getting a new homeowner in there.

So, it’s a start. So, we’re alerting all of our clients and those who we have on loan modification applications now who are Bank of America customers or Wells customers who may qualify, we’re putting in applications immediately for them or advising them to do so posthaste. So, that’s the latest. We’ll continue to give you updates as we learn about how the program is being rolled out.

All right, shall we go to questions? Why don’t you have your laptop here? Have you got somebody getting questions for you?

Ryan Rockwood: No, I’m going to have to run over there.

Mike Rockwood: Okay, all right. All right, I got a half of dozen of them. Mike says, “My lender says that I’m not a good candidate for a modification because of all my credit card debt. They say that my debt service ratio is too high. I have run those cards up so high trying to stay current on this huge mortgage. Isn’t there some way for me to get some relief”

All right, so Mike’s situation is not all that uncommon. I imagine there are probably dozens of viewers who are in a similar situation. They’ve struggled, they’ve cashed in, even cashed in 401ks. They’ve used up their savings trying to do what we all like to do and that is doing what we promised and paying our mortgage on time and keeping our credit score good. But unfortunately, Mike, like a lot of us has kind of gotten back into a corner, he’s used credit card too much. And now I imagine, Mike, your credit card companies have jacked your rates up to 29% or so, so those payments really are oppressive.

“So, isn’t there some way for me to get relief?” If you mean with regards to a loan modification there may be, Mike. Some people are giving up on their credit cards. Some people who have lost a job or who are just playing have no other option and are really considering bankruptcy are just stopping payments and beginning a debt settlement negotiations with their lenders. And then during that time, they don’t make credit card payments and on their loan mod applications, they include none of those payments.

Now, you might say, well, what happens when their loan mod application gets to underwriting? Well, the underwriter accepts a written statement from them saying that they are in negotiations to terminate those – settle those credit cards and that they no longer make payments. And so your debt-to-income ratio may be really significantly improved. So, Mike that’s kind of a crossroads you may be at. And if you are, the information that’s available through the Credit Card Cure may be of great help to you. But at any rate, good luck. You are in a really tough situation and you’re fighting for your financial life.

Okay, Rob asks, “Will this new thing that BAC announced today only be available to people ho are behind on their payments?” That’s a good question and one that the bloggers picked up on right away because, you know, there is kind of a smug resentment toward those people who have strategically defaulted and now may qualify for that program. Because indeed, Rob, as the program was announced, it is only available to people who are quite significantly behind and who are significantly upside down. So, that kind of favors those folks who strategically defaulted.

Now, in some circles, strategic default is a bad word. It is definitely not a bad word here. In fact, we admire those of you who have the nerve to strategically default. So, Rob, it is in fact – the program that was announced today by BAC, Bank of America, is only available to homeowners who have defaulted.

René asks. Here’s another B of A question. “How will the B of A program determine how much principal to reduce on each deal?” It’s my understanding René, that they will go by an appraisal or maybe – they said appraisal but maybe they mean a broker price opinion. But there will be some method that I bet the bank will pay for to get current market value and then figure the adjustment from there. Now, the problem with that is – well until the most recent six months, current market value has been a moving target. We have kind of stabilized and everybody expects us to stay somewhat stable through about this end of the summer.

But, you know, whether or not – I’m not sure that I would rush into one of these programs quite yet because, number one, I feel like they’re not strong enough yet, and number two, I personally think we have ways to go in terms of price reductions in the housing market. So, I’m not sure that I want to re-do my mortgage at this point.

Yvonne says, “My lender is stuck on the fact that I own three rental homes. So, my income is so high and my DTI is low. How can I get them to see that that income is gross rental income? They should be using net.” Yvonne, you are correct and this has been a problem for over a year that we’ve really struggled with where – here, I’ll tell you how I handle it. I don’t really know why I’m so successful doing this but I really have gotten to the point where I really have no trouble like this anymore and I used to periodically.

So, what I do when I prepare a loan modification is – for anybody who has more than probably two homes – I always break it off into a separate schedule of real estate owned, and I build that schedule of real state owned up into a separate business profit and loss statement. And then I enter the loss invariably these days. Everybody seems to be losing money on their rentals. So, I bring that loss over to the personal budget as one-line item in costs of living, not in debt but in costs of living, and the line item simply says loss on business owned. And then in parenthesis I say, See Attached.

And I’m very successful with that, I think, because I don’t mention real estate and so the negotiator and all the processors before the negotiator pass it right along to the underwriter. And then when it gets to the underwriter, then they have the good sense to, you know, sift the good stuff from the bad stuff and they can come to understand the reality of the situation which is, you know what I mean, that your gross income in fact shouldn’t be impacted by your gross rents.

So, that’s how I do it and I’ve been successful at it. Certainly, I don’t talk on the phone about the fact that this business that we own is a real estate business. But when it gets to the underwriter, of course, it’s obvious.

All right, Marie says, “Will banks ever approve short sales ahead of time so that we advertise the lowest price acceptable and move it more quickly?” And Marie, the answer I think, unfortunately is no. That certainly would be sweet if they would tell you how low they would go. But, I mean, why would they do that? They’re just any other seller. They would like to get the very best offer they can. And so they really hope that you and your realtor, and they trust that your realtor will, you know, do everything in her power or his power to get the very best price and then, of course, they send out their broker to determine if it is a fair price. So, I don’t really think that that’s in the cards although it would certainly speed things up, wouldn’t it?

I want to let everybody know that about six weeks ago, Bank of America started – well, they had kind of a false start with subcontracting some of their short sales out to a second subcontractor and they subbed hundreds and thousands of them out and it didn’t work very well. So, there was a whole batch of short sales. They got significantly delayed like 60 days. And now, they have incorporated this new software program from REOTrans called Equator. And honestly, we have had great success with short sales that we have gotten into the equator system. We have gotten approvals on them in as little as two weeks which is like half the time that we normally do. So, I am very much encouraged by the performance, at least, of Bank of America in terms of the short sale performance. So, for those of you, who are lingering in short sale hell, just hang on. If you’re at Bank of America, I think that things are going to be getting better in the coming months.

Ryan, just feel free to interrupt me if you get some of those Internet ones or the questions online.

Ryan Rockwood: Okay, will do.

Mike Rockwood: Remember to e-mail your questions to Ryan at questions@60minuteloanmodification.com.

Ryan Rockwood: You know what? Someone just pointed out though that we’re not receiving the e-mails. Something is going wrong.

Mike Rockwood: Right now?

Ryan Rockwood: Yes. So, you know, but we’re on Google server, so it’s a must be a bigger problem than just us. So, bear with us, although I don’t think – if you do get something back, if you do send some, then you probably won’t get an answer on this call.

Mike Rockwood: Okay, all right. Then I’ll just keep cranking with these. Marty says, “I am living away from my home renting while I finish graduate school. I need to get my modification on my home approved because I have a lousy loan and it is set to start adjusting in 2011. Can I qualify for a Making Homes Affordable mod even though I am living elsewhere for two years?”

And Marty, the answer to that is yes. Without a doubt, you can qualify. It is your primary residence and so you should go ahead and apply. You will have a little bit of complexity with a couple of items. One is your own rent, you know, is going to be – I guess the point is your ratios need to be in line, so your rent as an expense, as a cost of living expense will be a bit of a problem, I bet.

And then also the rental income, if you rent your home out, that’s going to be, you know, that’s going to impact your rent. So, the key is going to be just watching your ratios but do not, you know, you need not be cautious about going after a Making Homes Affordable modification just because you don’t live in the home. If it’s your primary residence, you deserve it.

Linda, she says, “Mike, how can I use just a portion of my husband’s income? He’s not on the loan on the house but my own income is too low to qualify for a modification.” Okay, so you guys are probably familiar with her situation. She doesn’t make enough money to qualify for a loan modification. Her husband makes enough money, but if you combine the two of them, their income is a little bit to high for the modification. In other words, their front-end debt-to-income ratio falls below the 31%.

Because her husband is not on the loan because he didn’t sign on the loan, then she can go ahead and include in the budget submitted for the loan application any portion of his income that you need to, to qualify. So, what I’d recommend you do, Linda, is first calculate your budget and then calculate your front-end and back-end DTI and then deliver just as much of your husband’s income to the income line as you need.

So, in other words if he makes $5,000 a month and you only need $2,000 to make your front-end debt-to-income ratio over 31% and your back-end under 70%, then that’s what I would put in there. And the way that you do it is you just put that in your budget and you substantiate it with a contribution letter. And contribution letters go like this. They’re merely a written statement of about three or four sentences that your husband will write and just say I – whatever his name is – am able to help my wife with household income to the tune of $2,400 a month or whatever the figure is. I will get this money from my income. Copy attached.

And then what I like to do is actually go down and get the signature on that notarized and then what I’d do is put a contact number on it, you know, with any further questions, if you need anymore information about my ability or commitment to make this contribution, here’s how you’ll reach me. So, that’s how you do it, Linda. It’s easy and it’s actually quite common. I bet we do that in 20% of our modifications.

Chris asks, “In these principal reduction agreements,” like this homeowner mortgage restructuring product that we’ve been offering now for a couple of weeks, “How is the current market value of the home figured? Also, do you have to accept the deal once you apply?” Good question there, Chris. The current market value in the case of the product that we offer is determined by an appraisal from an appraiser, a certified licensed appraiser. And there is a fee to begin the process.

When you begin the process, if your application is accepted and then you get to the end of the process and you determine you don’t want to take the deal as offered, you do lose that initial deposit which can be expensive. It’s like $795 for your first mortgage, $575 additional for a second mortgage. So, that is a bit of a risk. You get it 100% refunded if after taking your application, our principal determines that they cannot – that they will not be successful getting yours restructured. So, there is a risk that after you go into the pool that, you know, the deal will come back and you won’t get – you won’t want to accept it and then you would lose that deposit.

All right, I’ve burned through my initial questions, Ryan. Do you have a couple more there or no?

Ryan Rockwood: Yes, I do. And I wanted to ask, I want to add everyone on the call that I’m not getting any e-mails at help or questions@60minuteloanmodification, neither of them.

Mike Rockwood: Holy cow.

Ryan Rockwood: Yes, that’s probably why I’ve been so blissfully at peace these last couple of days. But it does at, like, ryan@60minuteloanmodification is working. So, send everything. In the past couple of days anything that you sent and haven’t gotten a response, send it to ryan@60minuteloanmodification.com and I will – I do want to jump on to a question here sent to questions@60minuteloanmodification.com. Oh, this is so weird.

Mike Rockwood: Oh, weird.

Ryan Rockwood: Yes.

Mike Rockwood: Well here, let me go ahead and take a couple of these that I got earlier on.

Ryan Rockwood: Okay.

Mike Rockwood: Okay, Rob says, “I’m unemployed now. Can I still qualify for a loan modification?” Yes, you can Rob. There are no limitations as long as you’re getting income. But, I mean, you still would have the same ratio requirements. So, let’s say your income went from, you know, $5,000 or $6,000 a month down to $2,500 or $2,700 a month from unemployment, you just use your award letter and paychecks, you know, your monthly checks or biweekly checks to confirm the amount that you get paid. But your ratio requirement is the same. So, you may have to go out and get a contribution letter. You may to use your spouse’s income on the loan modification, et cetera. But there’s no, you know, just because you’re unemployed does not preclude you from a loan modification.

Now, today, we have the dubious distinction of awarding one of our clients an award for having been with us the longest. We don’t like to have people be with us a long time because we like to get them loan modifications, you know, in record time. But today, actually, we gave an award to a client who has been with us almost seven months. Unfortunately, we have not gotten that personal loan modification yet. We continue to fight, fight, fight, but there are a number of reasons why this one got started and restarted.

But I’m happy to report that most of our loan modifications are getting approved in less than eight weeks. That’s still significantly longer than most people wish it would, of course, but the times have gotten longer and longer and longer. But even really good ones for Making Homes Affordable, actually, we got a real nagging caller coming in there.

Even the really good modifications from Making Homes Affordable where the homeowner is in default, they seem to even be taking eight weeks these days. So, it’s just a function of the busyness.

Ryan Rockwood: Okay, “Does B of A principal reductions apply to the investment property?”

Mike Rockwood: You know what? I’m absolutely, positively, 100% certain that it won’t, although I didn’t read that.

Ryan Rockwood: Yes.

Mike Rockwood: But you got to think that it won’t.

Ryan Rockwood: They got to put their money where it’s going to be most publicly salable. Also, “Does Wells Fargo principal reductions apply to the property not qualified for HAM program?” Maybe a typo.

Mike Rockwood: Oh, yes. So, they’re saying that if you don’t qualify for the HAMP program, might you still qualify for the – yes, I think that could be the case because they’re really targeting bad loan products, which really is quite smart on their part.

Ryan Rockwood: Interesting question here that he calls it up to say, “Maybe, they could make me qualify for HAMP by getting my loan balance down.”

Mike Rockwood: Yes, yes. That’s very, very good thinking.

Ryan Rockwood: Even though that’s not going to apply because doesn’t HAMP only work for you? Will HAMP work for you? Okay, will that – principal reduction might not change the date that the mortgage was issued on, right? Would that make any sense?

Mike Rockwood: Yes, I bet not. I see where you’re going. The HAMP program requires that the loan be initiated prior to January 1, 2009. But I bet you’re right, Ryan. It wouldn’t be reset because it’s not going to be a rewrite of the loan, I bet. No, certainly not. It’s just going to be a modification.

Ryan Rockwood: Cool.

Mike Rockwood: All right. Do you have any other hot questions, Ryan, or should we wrap it up for the night?

Ryan Rockwood: Yes, I got one.

Mike Rockwood: Okay. I hope people on the video can hear you all right, Ryan. Be sure to speak loud.

Ryan Rockwood: Yes. Bob in Las Vegas asks, you know he says he’s got a loan of 485 values 285 and wants to know if the Homeowners Mortgage Restructuring Program [phonetic]. Are we in Vegas?

Mike Rockwood: Yes.

Ryan Rockwood: Does that work for – it does?

Mike Rockwood: At first blush, I would say that you do qualify. Now, is that the first mortgage, does he say, or his only mortgage? Only mortgage is 40?

Ryan Rockwood: I don’t know.

Mike Rockwood: So, the key is we have to remember on the program that we’re offering, you have to be 20% upside down on your first mortgage. So, if your home is valued at 285, then that means you have to be at 345. If your first mortgage is at least $345,000, then you would qualify. So then, we should talk because we would love – we’re just loving to put applicants into this product. It really seems to be a good one. The more we work with them, the more comfortable we feel with them. So, let’s apply.

Ryan Rockwood: Okay, and we’ve got a long one from Machiko [phonetic] but I didn’t read it in advance, so there’s no way how we’ll be able to get through it to help people.

Mike Rockwood: Okay. Well, you be sure you can respond to Machiko offline then.

Ryan Rockwood: Yes. Okay, that’s it then. Let’s wrap it up.

Mike Rockwood: All right, everybody. This has been the 60-Minute Loan Modification Insider Secrets Teleconference Series. Most people with bad mortgages are just sitting on the couch feeling sorry for themselves waiting for the Obama administration to call them up and invite them to tea and do something to help them. But you, instead, are taking some actions. So, we congratulate you for that. Good for you. We’re inspired by you and really you are the reason that we’re here doing this.

As you can imagine, Ryan and I spend most of the day on the phone. So, e-mail is the quickest way to get a fast response from us. Although as any of you know being our past clients, we’re not particularly fast on e-mail either. But I’m afraid the current staffing levels at our team is above what we can afford. So, we’re cooking as fast as we can. We’re doing the best we can and you have to just bear with us until we can kind of pull out of this crunch of business. But we love it and we would encourage you please to tell your friends and relatives about our services.

Thanks and goodnight.