What Is It?

Foreclosure is what happens when a bank repossesses your home due to mortgage payments not being made. Essentially, banks have the right to take possession of a property they aren’t being paid back for after having loaned the money. It is a public process that goes through the courts.

Foreclosure Numbers Soar

Since the housing market tanked, foreclosures have been seemingly out of control all over the country. With home values plummeting, unemployment sky-rocketing and and economy doing poorly, people have found it very difficult to pay off mortgages that once seemed reasonable.

What is Being Done?

Government initiatives such as the Making Home Affordable Plan are geared toward improving this situation and keeping homeowners from losing their homes.

Moratoriums have been issued on foreclosure activity to make sure the banks work in good faith to achieve any result possible before deciding on foreclosure.

Many homeowners are now able to stay in their home for months on end without getting foreclosed on as banks try to work through the mountainous piles of delinquent borrowers in need of financial assistance.

Factors for Qualifying

With programs like Making Home Affordable, the process is getting more streamlined and there are a few things we can look at to make a very good preliminary determination with regards to someone’s eligibility.

• Proof of hardship: Being able to show some kind of financial hardship is vital to your loan modification case. Lenders want to know that extenuating circumstances caused you to miss payments or have trouble affording your mortgage as it currently stands.
• Ability to pay back the modified amount. No lender will give you a modification if the numbers suggest you still can’t afford a reduced payment. Your financial worksheet that details your income and expenses tells a very important story.
• High debt to income on your mortgage payment. What you pay on your mortgage every month including taxes and insurance typically needs to exceed the level of 31% of your gross income.
• Late Payments. Like it or not, someone who has missed a payment often gets the attention of the lender first. However, it is never advised that you miss a payment on purpose.

Lenders will have their own set of guidelines as well as a few others imposed by the Making Home Affordable plan. Talk to someone knowledgeable about loan modifications and see what your options are. It can be complicated but it’s not impossible with the right amount of help.

Since that time, the Federal Trade Commission has stepped in, working tirelessly to shut down these businesses.

After that first wave of chaos, what remains for those who still find themselves struggling to hold on to their property? Should individuals attempt to ‘go it alone’ with their current lender to try to work out a modification plan that will keep them in their homes?

The answer to that question can be tricky. While there are certain individuals who may be comfortable with real estate laws and familiar with the recent changes to loan modification programs, that scenario is certainly few and far between.

So, what’s a homeowner in need of loan modification assistance to do? Here are several tips that will help you steer clear of the scams and give you a quick summary of what’s available to you.

The Red Flags

After listening to countless stories from individuals who were taken advantage of, here is the common thread that can quickly alert you of a fraudulent company:

• Fraudulent loan modification companies are not licensed practicing attorneys or members of the State Bar, so they really have nothing to lose. They’ve set up shop on completely false pretenses. Checking credentials is the first step to a smart choice.

• Up-front fees. Large up-front fees have ranged anywhere from $500 to well over $3,500, just to get the paperwork started. Use common sense. Everyone is in business to make money and support their own families, but paying large sums of money before any work has even begun is a huge red flag.

• Telemarketing type calls. There have been numerous reports of telemarketing pools cold-calling potential clients. They find the names of individuals in pre-foreclosure and repeatedly call, making promises of reduced payments and saving your home.  Many, in desperate situations, afraid of losing their home have fallen for these scams. The truth is that no one can promise to lower your payments before all of your income information has been presented and your mortgage lender has been contacted. Any company making these blanket promises should be avoided.

As with any type of purchase or financial decision, caution and common sense should be used. There are shady used car salesmen and there are dishonest, self-proclaimed loan modification “experts.” But don’t allow a fear of fraudulent companies keep you away from the government programs and loan modifications that are available to you.

The Real Deal

Now is the best time to obtain representation and work out a plan of action with a legitimate loan modification company. The Making Home Affordable Program, part of the Obama Administration’s strategy to get the economy and the housing market back on track offers refinancing through the Home Affordable Refinance Program (HARP), and there are numerous mortgage modification scenarios available through the Home Affordable Modification Program (HAMP).

Each program has state specific qualifications and rules, which include income, time of home purchase, total home price, etc. By acting now, you can benefit from a reduced interest rate, an extended loan period, debt forgiveness, or a combination of these and other loan modification methods.

However, they, like other lenders, have been increasing their output as more effort is made to increase system efficiency.

Recently, we saw a great result from Bank of America under the government program.

This particular homeowner had a fairly typical experience with for those that obtain a loan modification. Her offer came within just under four months. While this may seem like a long time, it’s probably a little faster than most.

Her patience was recently rewarded with a significant monthly savings. With an original payment of $2,700 and an interest rate at 8.99%, there was some fear of not being able to keep up even though she had not yet missed a payment.

As of this morning, she is now saving $804.57 per month on her new payment of $1,539.98. Like all Making Home Affordable modifications, she will have to make that payment for three months on a trial basis before the modification will become permanent.

We’re very happy for her and her family and hopeful that this significant savings gives them the right amount of financial relief in these turbulent times.

The Home Affordable Modification Program continues to help homeowners in need.

Unlike previous “bailouts” aimed at offering relief to large banking institutions, this one directly targets homeowners (or what the media has dubbed “Main Street”).

At the core of the economy’s struggles is the housing downturn. Millions of people have faced foreclosure and there are millions still to come. In order to stabilize the market, the Obama Administration introduced their Making Home Affordable Plan and backed it up with $75 billion in funding. All told, they expect to assist 3-4 million homeowners with modifications and another 3-4 million with a refinance program.

Incentivising the Banks to Modify

Loan modifications were being done before the government got involved, but the banks needed extra incentive to pick up production. With the government’s money, the banks are now more willing to approve a modification that they may have otherwise denied.

The program has been an evolutionary process as government officials and lenders continue to tweak it to maximize results. Already, some incredible results with this program have been seen, so it is working as reports show hundreds of thousands of people have already been helped.

What happens when you are approved on the Home Affordable Modification Program?

The plan is streamlined and follows a basic guideline. Every borrower that qualifies will have to make three consecutive on-time payments for the modified amount. This is traditionally called a “stip-to-mod.” If the homeowner meets this criteria, the modification becomes permanent. Ultimately, a homeowner can expect a modified mortgage payment somewhere between 31 and 38 percent of their monthly gross income. The lender is required to offer a payment no more than 38% for qualified clients. The government then kicks in additional money to lower the payment to as little as 31% of monthly gross income.

Additionally, there are cash incentives for both the homeowner and lender. Lenders are eligible to receive up to $4,000 over a three year period while clients can get up to $5,000 reduced from their principal balance over a five year period.

New lenders modifying loans through Making Home Affordable:

• Allstate Mortgage Loans & Investments, Inc.
• AMS Servicing, LLC
• Central Florida Educators Federal Credit Union
• Central Jersey Federal Credit Union
• CUC Mortgage Corporation
• EMC Mortgage Corporation
• Franklin Credit Management Corporation
• Glass City Federal Credit Union
• HomEq Servicing
• Horicon Bank
• IBM Southeast Employees Federal CU
• Lake City Bank
• Metropolitan National Bank
• Mortgage Center, LLC
• Oakland Municipal Credit Union
• OneWest Bank
• ORNL Federal Credit Union
• PennyMac Loan Services, LLC
• Schools Financial Credit Union
• SEFCU
• Servis One Inc.,dba BSI Financial Services, Inc
• Stanford Federal Credit Union
• U.S. Bank National Association
• Vantium Capital, Inc.
• Yadkin Valley Bank

Some great results have been seen with GMAC and the Making Home Affordable plan and at a quicker pace than with many other lenders.

We recently highlighted three cases on our GMAC loan modification profile page. The longest of them took three months. If that seems like a lot, you haven’t seen the results of other lenders. One recent mod was approved after 12 months and multiple rejections. Hard work from your mitigation team and patience is a requirement with most lenders, but GMAC’s performance has been impressive.

The three highlighted cases, which you can read about by clicking the link above, saved clients an average of $679.96 per month on their monthly mortgage payment. The reductions ranged from 17% to 36% of the previous total mortgage payment.

The results are ultimately based on a number of factors pertaining to your personal situation. A result cannot be guaranteed, but a reasonable idea of success can be determined through the qualification process.

Are you doing anything to secure the future of your home?

Obviously, no one wants to be apart of the six million homeowners that may face foreclosure, but are you doing anything about it? The government has set up the Home Affordable Modification Program to help, but only 12% of homeowners eligible for the government’s loan modification assistance program have actually had their mortgages reworked.

This means there is a lot of government money on the table right now dedicated to modifying loans that hasn’t been used. Millions of people can still qualify for lower monthly payments.

The simple truth, though, is most homeowners need help to get a modification. So many people unsuccessfully try it on their own and then end up contacting a company for help. The lenders can make the process overly confusing and it becomes very easy to make critical mistakes that ultimately get you declined.

The big one though, is the behemoth servicing company, American Home Mortgage Servicing, Inc. (AHMSI). As one of the largest servicers in the country, this is a big addition to the Making Home Affordable plan. Prior to joining the program, the company was already actively engaged in loan modification activity for its clients. Now, as apart of the Home Affordable Mortgage Program (HAMP), which is the modification arm of the Making Home Affordable plan, we expect to see even better results from this company.

To see a list of all lenders currently participating in the program, please visit our participating lenders page. More information about AHMSI can be found at our AHMSI loan modification resource page.

• Loan modifications accounted for 47 percent of all completed foreclosure prevention actions in May 2009.
• Completed short sales saw an uptick of 3 percent to 3,700 in May. This is three times the reported volume a year earlier.
• Delinquency continued to shoot up. An additional 80,100 went 60 days late or more in May. That was a 7 percent increase in and brings the number to over 1.3 million.
• Income loss continues to be the number one cause of delinquency as it grew from 34 percent to 40 percent in May.

Many of the numbers for the program are trending down. Completed repayment plans dropped as did completed loan modifications. It is explained by the report that the falling numbers are due to the fact the program was discontinued and resources had been shifted to the newer Home Affordable Modification Program that is apart of the Making Home Affordable plan.

Completed loan modifications declined for the second straight month.