“My sense is that it’s having an impact,” … but “there is obviously still distress in the mortgage market” Bair said in answering questions after a speech to the Chicago Federal Reserve Bank’s annual bank structure conference.

According to Bair, most mortgage holders will continue making their monthly payments if they are brought down to the affordable level, regardless of whether they are in the upside-down mortgage scenario or not. Upside-down mortgage refers to a condition when a home value is lower than the mortgage owed on the property.

Loan workouts are traditionally more difficult to pursue if the credit distress is driven by a life event, such as loss of a job or disability, when compared to the workouts as a result of a structural problems with the loan itself.

Sheila Bair said she would like to see the secondary mortgage market “come back in the right way” with “the right incentive structure” after being a casualty of the financial crisis that started in 2007.

Bair said the agency had added 1,000 staff in the past and is still hiring, commenting on the FDIC’s workload during the recent spate of bank failures.

Federal Deposit Insurance Corporation (FDIC) official Loan Modification Guidelines.

FDIC “Loan Mod in a Box” additional Loan Modification Tools

Background

Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow (around 4 percent of seriously delinquent loans each month). It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures.

Modifications should be provided using a systematic and sustainable process. The FDIC has initiated a systematic loan modification program at IndyMac Federal Bank to reduce first lien mortgage payments to as low as 31% of monthly income. Modifications are based on interest rate reductions, extension of term, and principal forbearance. A loss share guarantee on redefaults of modified mortgages can provide the necessary incentive to modify mortgages on a sufficient scale, while leveraging available government funds to affect more mortgages than outright purchases or specific incentives for every modification. The FDIC would be prepared to serve as contractor for Treasury and already has extensive experience in the IndyMac modification process.

Basic Structure and Scope of Proposal
This proposal is designed to promote wider adoption of such a systematic loan modification program:

1. by paying servicers $1,000 to cover expenses for each loan modified according to the required standards; and
2. sharing up to 50% of losses incurred if a modified loan should subsequently re-default

We envision that the program can be applied to the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009. Of this total of approximately 4.4 million problem loans, we expect that about half can be modified, resulting in some 2.2 million loan modifications under the plan.

Details on Program Design

• Eligible Borrowers: The program will be limited to loans secured by owner-occupied properties.

• Exclusion for Early Payment Default: To promote sustainable mortgages, government loss sharing would be available only after the borrower has made six payments on the modified mortgage.

• Standard NPV Test: In order to promote consistency and simplicity in implementation and audit, a standard test comparing the expected net present value (NPV) of modifying past due loans compared to the strategy of foreclosing on them will be applied. Under this NPV test, standard assumptions will be used to ensure that a consistent standard for affordability is provided based on a 31% borrower mortgage debt-to-income ratio.

• Systematic Loan Review by Participating Servicers: Participating servicers would be required to undertake a systematic review of all of the loans under their management, to subject each loan to a standard NPV test to determine whether it is a suitable candidate for modification, and to modify all loans that pass this test. The penalty for failing to undertake such a systematic review and to carry out modifications where they are justified would be disqualification from further participation in the program until such a systematic program was introduced.

• Reduced Loss Share Percentage for “Underwater Loans”: For LTVs above 100%, the government loss share will be progressively reduced from 50% to 20% as the current LTV rises.¹ If the LTV for the first lien exceeds 150%, no loss sharing would be provided.

• Simplified Loss Share Calculation: In order to ensure the administrative efficiency of this program, the calculation of loss share basis would be as simple as possible. In general terms, the calculation would be based on the difference between the net present value of the modified loan and the amount of recoveries obtained in a disposition by refinancing, short sale or REO sale, net of disposal costs as estimated according to industry standards. Interim modifications would be allowed.

• De minimis Test: To lower administrative costs, a de minimis test excludes from loss sharing any modification that did not lower the monthly payment at least 10 percent.

• Eight-year Limit on Loss Sharing Payments: The loss sharing guarantee ends eight years of the modification.

There are many blog posts and news reports out there describing the plan, usually riddled with technical terms and formulas that are hard to follow. In reality the rules of the Obama Loan Modification are fairly simple. You can qualify if:

• Your total monthly housing costs (mortgage, taxes, insurance, Homeowners Association fees etc…) are greater than 31% of your average gross monthly income.

Example of calculation:

Gross Monthly Income: $2000

Combined Housing Costs: $800

Your Percentage: 800/2000*100 = 40%

If your housing costs are over 38% of your monthly income, the mortgage company is partially compensated by the government to reduce that ratio to at least 38% by whatever means available. Such means include increase of the loan term, decrease of the interest rate as well as others. The important thing to remember here is that the lender participation is voluntary.

• You have not originated your loan after January 1, 2009 – Simple enough: they want to make sure you didn’t close your loan after the January 1st deadline. Any date before that is acceptable.

• The property has no more than 4 units. 5-unit or larger properties are excluded from the Obama Loan Modification plan

• You must occupy the property. Rental and investment properties are excluded to ensure the plan helps those who need it most.

• You must be experiencing financial hardship. What this means is that you have to be able to explain the reason you can no longer afford you monthly payments. These reason can range from dramatic increase in monthly expenses to loss or reduction of income.

• Your current loan balance must be under $729,750 as of the 1st day of 2009

The Obama Loan modification plan at the very least has given guidance to an industry that truly needs it. At its best — millions of homeowners will once again be able to afford their houses and our economy will start to bounce back over time with a new confidence in the housing market and our nation.

This is where things can get confusing: a loan remodification is doing the same as mentioned above after you have already successfully went through the process the first time. The problems begin when the modification is accepted just because it’s better than what someone may have now, but it’s not good enough long-term for that homeowners overall situation. Most banks don’t make it easy for homeowners to modify the first time around, that’s why so many people are turning to companies with experience, such as a non-profit or a law firm. The second time is even harder: a loan remodification means it didn’t work the first time. Why go through the effort again for no reason, can be the bank’s rationale.

This in my opinion is why a certifed representative working on your behalf, can be so valuable. If you are in a situation where you have already modified your loan and it doesn’t look like it’s going to work, contact your lender or someone who can work on your behalf with them. If you are going to have a chance in making your loan remodification work, the best bet is to do it before you become delinquent again.

Typically these type of loans have a cap built in to protect borrowers from getting stuck with an unreasonable payment amount however the downward spiraling of home values has pushed the loans to their cap sooner than expected. The cap allows the principal to accrue to a percentage of a homes value, in many cases this is 120%. Due to the current dip in home values the balances on these loans have already reached the max, forcing homeowners to pay the principal & interest payments they weren’t expecting to pay for years – payments which many cannot afford to make.

As we are all too aware job losses are still on the rise and there is no clear sign that the vicious cycle is coming to an end any time soon. As part of the new efforts put forth by the Obama administration new opportunities are available for homeowners who find themselves in this situation. Borrowers who wanted to refinance in the past but could not qualify because their properties have lost value may be able to get a new more affordable rate meaning a lower payment.

There are a few indicators to consider when determining if you are eligible for this type of loan re-modification. First, is your loan held or guaranteed by Fannie Mae or Freddie Mac? Second, is your property a primary residence? Third, is your first loan amount equal to or less than 105% of your current property value? If you can answer yes to all 3 of these indicators then you are one step closer to getting off the track of foreclosure.

Re-negotiating your loan directly with the bank can be a daunting task at best. Imagine how much the bank does NOT want to loose money and then combine that fact with the reality that they are the ones that “set the rules” for what rate they will offer in the re-negotiation. You are clearly the underdog in this match.

Reportedly more and more homeowners contact non-profit loan modification companies after hitting the wall trying to negotiate with banks directly. Contacting a non-profit company to assist with the negotiations has proven to be a benefit to thousands of borrowers to date. The non-profit already has a relationship with the banks and experience re-negotiating loans for struggling homeowners. They know how low the bank can go and what rate other struggling homeowners in similar scenarios have received. Non-profit companies also know the logistics of the new government plans, matching plans with struggling homeowners even if you don’t know what plan you want to utilize, if one is available.

The “Home Affordable Refinance” program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the “Home Affordable Refinance” program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.

GSE lenders and servicers already have much of the borrower’s information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.

The Home Affordable Modification program will help up to 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the
banking and credit union regulators, the FHA, the VA, the USDA and the Federal Housing Finance Agency, the Treasury Department today announced program guidelines
that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded
and improved Hope for Homeowners program.

With the information now available, servicers can begin immediately to modify eligible mortgages under the Modification program so that at-risk borrowers can better afford
their payments. The detailed guidelines (separate document) provide information on the following:

Eligibility and Verification

• Loans originated on or before January 1, 2009.
• First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.
• All borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship.
• Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
• Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
• Modifications can start from now until December 31, 2012; loans can be modified only once under the program.

Loan Modification Terms and Procedures

• Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.
• Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive – meaning that the net present value of expected cash flow is greater in the modification scenario – the servicer must modify absent fraud or a contract prohibition.
• Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and redefault rate assumptions.
• Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
• The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
• The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
• Servicers must enter into the program agreements with Treasury’s financial agent on or before December 31, 2009.

Payments to Servicers, Lenders, and Responsible Borrowers

• The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.
• Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus “pay for success” fees on still-performing loans of $1,000 per year.
• Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.
• The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.
• The program will include incentives for extinguishing second liens on loans modified under this program.
• No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury’s financial agent.
• Similar incentives will be paid for Hope for Homeowner refinances.

Transparency and Accountability

• Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.
• Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.
• Freddie Mac will audit compliance.

Of course we realize that this is a lot of information to digest. Feel free to give us a call at 1-866-236-8896 if you are unsure if the plan applies to you. Our dedicated staff will go over your personal scenario and will help figure out the best option to if you qualify for the loan modification or remodification.

A foreclosure refinance is where you get your loan refinanced while you are in the middle of a foreclosure process. Luckily, laws allow for homeowners to seek that option of foreclosure financing in order to help save their home. A foreclosure refinance is not going to be cheap though and there is probably going to be some up front money that will be needed to close the loan. Also keep in mind that your interest rates are not going to be all that great when doing a foreclosure refinance.

How To Get It Done

The best thing to do is to start calling around in order to see who can help you with a foreclosure refinance and what it is going to cost you out of pocket. Once that is said and done make sure that you are comparing interest rates that are being offered to you. Keep in mind that because of the hits on your credit for non-payment, you are not going to be offered the best rates out there but you still can be careful with what you sign for. A foreclosure refinance does not mean that you have to be taken advantage of.

And when you finally decide it is time to start looking for a foreclosure refinance you need to make sure what time limit you have. Depending on the state your home is in is going to determine how much time you truly have. A foreclosure refinance could take a little bit of time so you have to make sure that you have that time to spare. You certainly do not want to go through all of this just to have the house taken away at a foreclosure sale and you went through all of that time and trouble for nothing.

If you found yourself in this situation, feel free to give us a call (1-866-236-8896) or apply online.  We will personally review your scenario and let you know if we can help.  There are a number of government mortgage modification, also known as the mortgage relief programs currently available that may or may not apply in your particular case.  We may be able to help you reduce your mortgage payment and adjust your mortgage to the current value of your home.

Foreclosure is a very common problem, as many people go into the home buying process thinking that they will be fine, only to find out one they are actually in it that they have so many other bills or bought a house that was too expensive and they are simply unable to make their mortgage payments.  The problem is exaggerated further by the current economic crisis, plunging home values and rising unemployment rates.

Of course no one wants to have their home taken away from them, not only for sentimental reasons but also because you will be in a lot of financial trouble and have to go to the effort of finding a new home…so many problems, which is why it is important that you make sure you do not have foreclosure put onto you.

Tips

There are a few tips in particular that will help you avoid foreclosure on your home. For one, you always need to budget. It is best to write out the amount that you and your partner are making each month, as well as the total amount of all your bills.

Set your bills in order of priority, making your mortgage one of the most important of course, so that you can see where your money is going and make sure that it is getting to the right places first. For instance you may have bills that you are paying which could be held off for a bit or even eliminated altogether.

Your mortgage is crucial and you need to make sure that you make all of your payments in a timely manner, in order to avoid having your home taken away from you.

Don’t ignore the problem. If you do end up getting letters saying that you are in trouble you should not just throw them out thinking that you can avoid it for a while.  Some homeowners, for instance, may even able to contact their lender directly and in certain (though rare) cases negotiate their way out of the situation.  Currently a number of government mortgage relief programs are being implemented to help homeowners in trouble.  It is important to find a right company to help you navigate among these programs and negotiate a mortgage relief on your behalf.  In some instances you may be able to lower your mortgage payments to an affordable level while adjusting your mortgage to be on par with the current home value.

Mortgage Modification Programs

Struggling homeowners cannot refinance due to plunging property values resulting in upside down mortgages, and even when they find a buyer for their property there is the challenge of not be able to sell for enough to repay the outstanding balance.

According to the data from the Mortgage Bankers Association (MBA) 11% of the nation’s home mortgages were delinquent by at least one payment, already in foreclosure or entering foreclosure. 7% of mortgage were at least 1 month past due and 3% of the nation’s mortgages are currently in the foreclosure process. MBA estimated that a total of 2.2 million homes went into foreclosure in 2008, a number the group expects will grow significantly in 2009 as unemployment rises while the home values continue to plunge.

The quarterly survey published by the Federal Reserve, called the Flow of Funds Report, shows the movement of funds between households, businesses, the government, and financial institutions. It also shows whether debt levels increased or decreased and what the savings rate is. According to the report, the total value of all home mortgages in the U.S. was $11.2 trillion through the third quarter of 2008, which ended in September. Theses figures in combination with other hardships American’s are facing paint an uncertain picture with a continually shrinking list of options.

There are several plans already underway lead by Federal Housing agencies & the Treasury, which may be expanded. Two plans that are receiving a lot of attention are being presented by the Federal Housing Administration (FHA) and the Federal Deposit Insurance Corporation (FDIC).

The largest plan, known as “Hope for Homeowners” offered by the Federal Housing Administration (FHA) allows lenders to refinance borrowers into an FHA-insured fixed rate mortgage, if the lender writes down the existing mortgage balance and pays an up-front insurance premium. Borrowers participating in the plan must share any future appreciation of the home’s value with the federal government. The biggest challenge to face this plan is the resistance of banks and current mortgage holders to agree to write down a mortgage’s principal thus reducing the value of the loan.

The plan run by the Federal Deposit Insurance Corporation (FDIC) and used during that agency’s conservatorship of IndyMac last year, lets individual borrowers and lenders re-work a mortgage themselves, but commits the government to share in 50 percent of the losses, should the borrower re-default. This plan has not received as much attention as the FDA plan, and it seems that every week that goes by another plan is introduced to a sour reception.

The Mortgage Bankers Association’s most recent report shows delinquency and foreclosure statistics are likely less than market reality. It appears that some larger banks have halted all foreclosures while other banks have stopped keeping track of how far behind borrowers are while they work with those borrowers on modifying their mortgages.

In fact, according to MBA, almost every state had an increase in mortgages that were more than 90 days past due but were not in foreclosure. Normally, a mortgage that is more than 90 days past due is foreclosed on.

Any proposed plan faces a daunting task, given the massive numbers of mortgages in foreclosure and the staggering value of the mortgage market itself however there is hope. Working with your lender to find a mutually acceptable agreement to modify your mortgage seems to be the next step in approaching the end of this painful market normalization.