Your Guide to a Successful Loan Modification
How-To Loan Mod Kit and Successful Loan Modification Report
You’re Guide to a Successful Loan Modification-
Getting Your Lender to Say “YES”
Provided by Folsom’s HAFA Certified Short Sale Specialist And
Experienced Sacramento Area Short Sale Negotiator
Table of Contents
Section 1- You, Your Family and Your Mortgage
Section 2- Loan Modification Programs
Section 3- Options other than a Loan Modification
Section 4- If You have a 2nd Mortgage
Section 5- Keep An Eye Out For Scams
Section 6- Seven Things NOT TO DO
Section 7- Where To Get Good Information
Section 8- Getting Your Lender To Say “YES”
Section 9- Glossary of Terms
Blank Conversation Log
Section l – You, Your Family and Your Mortgage
lf you are dealing with a mortgage that makes it difficult for you remain current on all of your financial obligations, you know the strain it puts on you and your family. Your family is forced to deal with the uncertainty of not knowing for sure if you will be able to stay in your home, and over time many begin to wonder if they even want to stay in their home. lf you are like most homeowners you quickly come to the realization that-
• This is not about your mortgage
• This is not about your house
• This is about your life
The primary goal of this guide is to provide some help and guidance to those homeowners who are faced with a mortgage they can no longer afford. The weight of a mortgage that is dragging you down can seem overwhelming, and sometimes that first step is a tough one. So, let’s look at how to get started on the road to a solution.
This is a Business Decision Remember: “…It’s Just Business!”
Just as a corporate CEO justifies difficult decisions by claiming his responsibility to act in the interest of his shareholders, you have every right to treat all decisions related to your mortgage as business decisions that must be made to protect your shareholders — your family. Any solution for your mortgage problem, to have real hope for long term success, must be one that truly works for you and your family.
Begin With The End In Mind
What is your goal? What’s the target? What exactly do you want/need in order for you to make it? Take a hard, realistic look at your situation and ask yourself what changes your bank would need to make in order for you to manage your payment. Keep in mind that if you can get the changes you need in the form of an affordable payment, the duration of the payment adjustment must provide you enough time to get back on firm financial footing. Otherwise, you will be right back in a bad situation before you know it. So you must have a goal: what changes do you need and how long do you need them?
Win-Win or No Deal
These decisions and clearly defined expectations of your outcome are not easy to make, but they are necessary. By knowing the minimum modification, the minimum amount of time you will settle for, you can move forward knowing that anything less is a waste of time. When you what you want and need you are on your way towards recovery. Just remember, treat it like a business decision. Be realistic, know what you need, and don’t settle for a solution that is not really a solution.
You are NOT the Villain Here
American families are facing more economic difficulty than at any time in the past 70 years. Not since the Great Depression have there been so many families facing serious many financial obstacles.
A large part of the problem was brought on by the financial market excesses of the first six years of the 21st century (2001 thru 2006). Real estate values reached dizzying levels, leading American families to feel intoxicated by the “wealth effect.” And, everyone wanted in.
As prices went up, the mortgage industry came up with new and creative loan programs that made it possible to buy homes that people really couldn’t afford. Make no mistake, these programs were not designed for the common good, these creative loan products were not driven by the desire to increase homeownership for the benefit of society. No, the loans were originated, packaged, sold, chopped up, repackaged and sold again with one thing in mind — quick and substantial profit.
It’s true, many American families may have made choices that were not as responsible as they should have been. However if the go-go loans had never been created and the call centers and telemarketers pushing the toxic loans never existed, most of those same American families would have continued to live within their means. But instead, the entire mortgage, real estate and banking and investing industries pushed these programs: from loan officers, appraisers, real estate agents and brokers, mortgage bankers, underwriters, Wall Street entrepreneurs and many others all played their parts.
Much of the mortgage mess we are dealing with now is a direct result of a mortgage industry that during those first several years of this century to completely abdicated their responsibility to verify a borrower’s ability to pay when making a mortgage loan.
Traditional mortgage lending, the kind of loans our parents and grandparents got from the local bank, involved a banker working with a borrower to settle on a loan that the borrower could afford. When a borrower wanted to borrow more than they could afford, the local banker would refuse to loan the money. We are now facing a severe mortgage crisis in America. There is plenty of blame to go around. But, you are not the villain here. You have every right to ask your lender for help, and not feel guilty about it.You should not feel uneasy about telling your lender exactly what you and your family need. And, if the lender won’t work with you, consider your options, free of guilt.
Sustainable Homeownership — Slightly Redefined
There is now near universal agreement among policy makers, mortgage industry executives and community leaders that borrowers who cannot afford them should “not be put in an unsustainable loan.” (quote from John Taylor, president and chief executive of National Community Reinvestment Coalition)
…Which begs the question, was it at some point acceptable to extend loans to borrowers who could not afford them?
Let’s look at the real Sustainable Homeownership issue facing America today. What is the best way to help the millions of American families who are in a mortgage they cannot afford? The answer is simple, (not easy, but simple) help those families work with their lender to either adjust the terms of their loan so they can keep their home, or allow them to sell the property through a short sale without putting them through a meat grinder.
Loan modifications work for many borrowers. Loan modification programs, both private programs and government sponsored programs, have allowed well over a million American families to stay in their home. For those borrowers who have identified what they need from their lender in order to manage their housing costs, the right loan modification can be a real blessing.
Unfortunately not all loan modifications are created equal. The failure rate, often described as the “‘re-default rate”, on loan modifications continues to be very high. Depending on what source you want to believe, loan modifications fail somewhere between 30% and 50% of the time. Now, the positive side of that is it does mean that between 50% and 70% of the time an American family is able to save their home. But, the re-default issue should not be ignored.
So, what is our re-definition of ‘Sustainable Homeownership’ for homeowners with a problem mortgage?
lf you decide a loan modification is right for you and your families’ situation, do your homework! Make sure you know what you need and don’t accept a non-solution loan modification from your lender. You need a loan modification that will allow you to sustain the payment and a new agreement that allows you to pay off your home.
ANYTHING LESS IS A WASTE OF TIME AND IS NOT A REAL SOLUTION!
If your lender will not offer a loan modification on terms that are sustainable, ‘Sustainable Homeownership’ means getting out of the bad mortgage you are in with a minimum amount of damage, by way of a short sale, so you can re-enter the housing market as quickly as possible at a price point that is sustainable, and a payment that is comfortable. This new definition of ‘sustainable homeownership’ means you will own a home at a price that will allow you to build wealth, not hold you back.
Section 2 — Loan Modification Programs and Variations
Loan modifications can take several different forms, and the type of loan modification that your lender is willing to offer will go a long way towards determining if it represents a solution or simply has you kicking the bad mortgage can down the road. The key thing to focus on when considering whether or not a particular loan modification program will work for you is realistic affordability — short term and long term? D0 the terms of the loan modification offered get your payment to a level that you and your family can manage, now and into the future?
Let’s take a look at some of the most common types of loan modifications:
Section 3 — Options other than a Loan Modification
You may try to get your lender to modify your loan and find that your lender simply won’t work with you. Or, you may decide from the beginning that you don’t see value in getting a loan modification if you are seriously underwater on your property. However you arrive at the conclusion that a Loan Modification is not the route you will be going, you want to be sure to consider your options so you can get the best possible outcome for you and your family.
So, what are your options if your mortgage is a problem and aren’t going to modify?
Here are some possibilities to consider:
Deed-in-Lieu of Foreclosure In a deed-in-lieu of foreclosure, you simply agree to deed the property back to the lender. While this option sounds simple, it does require that all subordinate liens (2“d mortgages, HELOCs, HOA liens) be settled before the deed-in—lieu can be completed, and normally your lender will look for you to handle that task. If completed, the deed-in-lieu transaction often will involve a relocation payment to the homeowner, typically paid at the time of move-out. Short Refi There are several different programs in the market that allow the homeowner to refinance a property that is worth less than is owed. The program could be offered through your existing lender, in the form of a notification from your lender that they would consider a short payoff of the mortgage if you found a lender willing to provide the loan. FHA offers a program that allows negative equity homeowners to refinance, but the terms are a bit cumbersome. Overall, short refi transactions are rare. But, if you badly want to keep your home, it is an option worth exploring.
Repayment Plan The repayment plan option applies primarily to homeowners who have experienced a temporary hardship and are close to getting filly back on their feet financially. If this is your situation, you will find your lender will likely be very open to a plan that has you arranging to repay delinquent amounts, or possibly adding the delinquent amount to end of the loan. Bankruptcy
Bankruptcy is absolutely not the right choice for every homeowner facing mortgage difficulty. Bankruptcy is, however, an option that should be considered by those homeowners who are having difficulty with their mortgage and with consumer debt. Bankruptcy can also be helpful if you have a 2nd mortgage or a HELOC that is threatening legal action to collect their debt. California is considered to be an anti—deficiency state, and with the new Senate Bill 458 and addition to Civil Code of Procedure 580(e), there can be no judgment or recourse or collection of either a first or second mortgage after a short sale. However, in many cases holders of 2nd mortgages and HELOCs do have the ability to sue for a deficiency after a [foreclosure. Your real estate agent can provide you with information on this subject.
Section 4 — If you have a 2nd Mortgage
If you are trying to find a solution to mortgage payments you can no longer afford, and if you have a 2nd mortgage on your property, you know that what you need to do is reduce you total mortgage related costs to a level you can manage. That means either the payment on the 1st mortgage needs to be reduced to a level that allows you to pay the entire monthly amount due on the 2nd, or you need to get the payments on both loans adjusted to a combined number you can handle every month. Here are some things to consider if you want a loan modification and you have a 2nd mortgage:
l. If both the 1st and the 2nd are with the same lender you may find that the lender has more flexibility in finding a solution that works for you. Clearly, there should be advantages to having both your mortgages handled by the same lender. Now, let’s insert an important piece of information that you should know about your 1st, your 2nd and your lender. The 1st mortgage and the 2nd mortgage in most cases are not owned by your lender. In fact it is likely your lender services, but does not own your 1st mortgage, but does own your 2nd mortgage. In other words your 1st mortgage is not really their money, but the 2nd is their money. And yes, that does represent an inherent conflict of interest.
2. An experienced real estate agent can help arrange a settlement with the 2nd mortgage holder. There have been efforts to address the 2nd mortgage issue, because uncooperative 2nd mortgage holders have stood in the way of loan modification solutions way too often. lf you qualify for a HAMP modification, (and your lender should be able to tell you over the phone whether or not your 1st mortgage is HAMP eligible), there is a specific program to address 2nd mortgages attached to properties that are receiving a HAMP mod on the 1st. The program name is ‘2MP’ and it outlines how a 2nd mortgage is to be modified or, in some cases paid off (called the extinguishment option).
3. You will want to know if your 2nd mortgage is a recourse, or a non-recourse loan. The reason is it may impact the willingness of the lender on your 2″d mortgage to negotiate. If the 2nd is a recourse mortgage the lender may have recourse against you if the 1st mortgage holder forecloses. In other words, the 2nd mortgage lender may feel they are better off taking their chances trying to collect from you later than to agree to modify your 2nd at terms that reduce the value of their loan.
Note: a real estate agent can give you guidance on whether your 2nd mortgage is recourse, or non-recourse.
Section 5 – Keep an Eye Out For Scams
History is littered with examples of how a misguided few in our society identify the misfortune of some as an opportunity to take advantage of those they view as vulnerable. The mortgage crisis has provided a breeding ground for those who do such things. It is wise to keep a lookout for people presenting “solutions” that are nothing more than scams designed to separate you from your money and/or your property.
A great rule of thumb: if it sounds too good to be true, it probably is.
Here are some things to avoid when it comes to your property and your mortgage:
Short Sale Option Agreement
Signing an ‘Option Agreement’ that gives a real estate investor or an unscrupulous agent the “option” to purchase your property is nearly always the first step in a process designed to give an investor the right, but not the obligation, to purchase your property at a below market price. Once you sign the ‘Option Agreement’ you may have given up control of your property.
‘We Buy Houses’ Signs and Advertisements When you see ‘We Buy Houses’ signs along a roadway, or you see flyers that offer to buy houses “in any location or any condition,” it is another effort to convince you to agree to sell your property at a below market price. There is a reason why so many of these signs and ads look alike, it’s because the people that stick the signs in the ground and print the flyers all attended the same get rich quick at the expense of someone else seminars. Common sense suggests that no one will purchase you property and then work with your lender to allow the purchase unless that person stands to make a substantial profit — and that means getting the property at a below market price. There is rarely a win for the property owner when working with a ‘We Buy Houses’ buyer.
Mortgage Assignment or “Subject to” Transaction In a mortgage assignment, or “subject to” transaction, the buyer takes title to your property subject to the existing mortgage — without seeking permission from your lender. It is simply not a good idea to give up control of your property without settling the mortgage for which you are ultimately responsible. Do not be misled by anyone who suggests your problem is solved by removing yourself from title to your property. Your lender made the loan to you, and it is you who will be held responsible if the loan goes unpaid.
Forensic Loan Audit The forensic audit is not necessarily a scam because of the activity itself. The scam comes in when those that perform forensic audits on mortgages charge very large fees and promise an outcome that can rarely be delivered. The concept of a forensic audit of a loan file is not necessarily a bad one. Many mortgage files contain flaws that could provide the homeowner with leverage when negotiating a settlement or a loan modification with their lender, but such files are the exception, not the rule. The problem comes in when a distressed homeowner is required to pay a large upfront fee, often in the thousands of dollars, in the hope of gaining a benefit that can likely not be delivered and then the person or company performing the audit does little actual audit work and delivers no results for the homeowner. What to do if you Spot a Scam If someone presents a “solution” to you that just does not feel right, or if you fear that you have fallen victim to a scam, you can call: The local office of the FBI. The Sacramento FBI field office phone number is (9l 6) 481-9l l0. lf the scam involves a real estate agent contact The California Department of Real Estate. You can go to their website at www.dre.ca.gov, or call the consumer complaint line at (916) 227-0864.
Section 6 — Seven Things Not To D0
Don ’t Deed Your Property to Anyone.
When you deed your property to someone else, you give up virtually all control over the property. Unless the transaction is being handled through proper channels, like your attorney or a title company with a formal escrow, and you have confirmed that ALL of your obligations to your lender are being fully satisfied, do not sign over the deed to your property.
Don’t Abandon Your Property. Unless you have to move out of the property for a good reason (job relocation, family crisis, etc.) do not move out of the property. There are more options available to you when working with your lender if you stay in the house. The possibility of theft or vandalism is very real. And, don’t ever move out of the property for the purpose of surrendering possession to someone else.
Don’t Sign an Agreement with Unfilled Blanks. If you sign a contract all the blank spaces should be filled in. There is no good reason to sign a contract that is not fully filled out. All terms and conditions should be fully spelled out, in writing.
Don’t Sign an Agreement you don’t FULLY Understand. lf you don’t fully understand it, or if it doesn’t feel right, don’t sign it. Get legal advice, from an attorney of your choosing. Don’t Authorize a Buyer to Work Directly with Your Lender. A buyer that is trying to buy your property is looking out for themselves. Do not allow a buyer to speak directly with your lender. You have no control over what is said about you or your situation. Allowing someone with interests that are not aligned with yours, to speak with your lender, could do serious damage to you if they are allowed to speak on your behalf. Don’t Pay Upfront Fees. Do not pay upfront fees to anyone who is offering to help solve your mortgage problem. While paying substantial upfront fees has always been a bad idea — we first posted this advice on this website in 2006, long before it became a big problem — it is now illegal in almost all cases.
Don’t Rely on Verbal “Promises. ” Do not proceed down any path aimed at solving your mortgage issues that is based solely on a verbal “promise.” When it comes to your mortgage and this includes dealings with your lender, until it’s in writing it doesn’t really count.
Section 7 — How to get Good Information
When it comes to making decisions about your mortgage and your home, you want to get it right. Arriving at a solution that you can pursue with confidence is not always easy. There is lots of conflicting information floating around, and then you have the horror stories along with the “that sure sounds too good to be true” stories. What is a confused homeowner to do? Do your research, speak with people you consider to be reliable and knowledgeable, and then listen to yourself — trust your instincts. After you have gotten enough input from reliable sources, sort through the information and the options, then make the decision that is best for you and your family.
So, who might you want to speak with as you go about collecting information? Here are a few suggestions for you to consider:
An Attorney. An attorney can help you identify potential legal issues that should be addressed as you look for the right solution to your mortgage problem. Every homeowner situation is a little different, so it can be dangerous believing you don’t need legal input based on something a friend told you. Youwant the best solution for you and your family; input from an attorney can help you make that choice with confidence. Note: Before you do any of the things we advise you NOT TO DO in Section 6 above, get advice from an attorney of your choosing. Don’t trust an attorney provided by an investor looking to separate you from the deed to your property. A Tax Professional. lt’s wise to check with a qualified tax professional that is familiar with your tax and financial situation to be sure that the solution you chose to pursue does not have any unexpected tax consequences. If the property you are having trouble with is a rental property, consulting with a tax professional before settling on a decision is a must. Your Financial Planner. If you have a financial planner, or if this experience has led you to conclude you need one, they may be a good source of input as you are collecting information. A financial planner will likely provide information that helps you look at your mortgage situation as a piece of your broader financial picture, a perspective that could be important for some. Consumer Credit Counselor. For many homeowners facing mortgage difficulty, the financial problems they face go beyond their mortgage. By looking at not just your mortgage debt, but also at your bigger financial picture, a credit counselor can help you see other trouble spots if they exist. A credit counselor (many would suggest a HUD approved counselor) can help you look at your entire financial situation, so the decision you make can be a real step in the right direction.
Mortgage Help Agencies – Public and Private.
There are a number of non—profit groups that have either been formed to respond to the needs of troubled homeowners or that have grown in prominence as a direct result of the mortgage crisis. Many of these groups accept calls from homeowners looking for help with their mortgage.
Here is a couple that you might find helpful:
HopeNow
You can contact HopeNow either by phone (toll free 888-995—HOPE) or through their website at www.HopeNow.com. The HopeNow Alliance was formed to provide a place for homeowner to go to get reliable help and information regarding their mortgage. Be advised, however, that the HopeNow effort is funded primarily by lenders and mortgage servicers.
Center For Responsible Lending
The Center for Responsible Lending was formed in 2002, well before the mortgage crisis arrived, and has a mission of helping consumers with all types credit and loan related issues. Basically, the Center for Responsible Lending is a watchdog for lending practices that they feel are not fair for consumers. Obviously they have found much to deal with when it comes to mortgages and lender behavior towards borrowers. In California you can reach the Center for Responsible Lending at (510) 379-5500, or go to their website www.responsiblelending.org.
State Assemblyman or Your Congressman. Your state assemblyman and your congressman, along with your senators and state senators, are keenly aware that many of their constituents are being treated badly by their lenders. Do not hesitate to pick up the phone and call them to ask for input and even help.
Section 8 — Getting the Loan Mod you want, Getting Your Lender to say “YES”
OK, you have done all your research and you have spoken with the different professionals (real estate, legal and tax) who could help you understand your situation and the loan modification process, and now you are ready to move forward. lt is a loan modification you want, and you are ready to put forth the effort to get your lender to see the wisdom in modifying your loan and allowing you and your family to stay and continue to pay on the mortgage.
What is the best way to get your lender to YES? Here are some tips:
Tip #1 — Adjust your mindset
Go into the loan modification process with a clear focus on your goal — getting a loan modification that represents a time solution for you and your family. Your mindset needs to be one of a homeowner who l is facing a legitimate hardship, but 2) will be able to follow through and remain current on the mortgage if your lender does agree to modify your loan.
Tip #2 — Give Your Lender a Great Hardship Package
Your lender will expect you to submit a hardship package to demonstrate your hardship and to verify your current ability to pay. In most cases your lender will provide you with a package to complete and return to them. Your lender will also ask you to provide documents like tax returns, bank statements and pay stubs to support your hardship. Send the lender a complete, well organized file, and be sure all the documents you send are legible.
Tip #3 — Write a Good Hardship Letter
Your hardship letter is your opportunity to tell the lender your story, to bring your situation to life. Do not minimize the human angle in this process, but don’t go overboard on the letter either. Your hardship letter should be kept to one page, be typed and easy to read. The letter should contain three parts.
• Part one — an apology: I am sorry to have to ask for help.
• Part two — the situation: information on what has led to your hardship.
• Part three – a firm statement: Your options are exhausted. lf the mod does not work you have no options left but short sale or foreclosure
Tip #4 — Make Contact and Verify Receipt
After sending in your hardship package, follow-up and make contact with your lender to verify they received your package. Do not assume that because you sent it that they received it.
Tip #5 — Stay in Contact
Stay in contact, and this includes the period before you submit your loan modification package. lt won’t be long after you begin having trouble with your mortgage that your lender will be calling you to attempt to find out what is happening. If your lender calls, take the call. lf your lender leaves a message, return it. Making progress with your lender will require communication.
Important Note: In an effort led by the U.S. Treasury Department, rules are being put in place as we go to press with this guide that will require most lenders to provide to each homeowner attempting to resolve a mortgage difficulty, a single point of contact that is to be available to the homeowner throughout the mortgage resolution process. When you make contact with your lender to begin working on your loan medication (or alternate solution) ask your lender to identify exactly who will be your single point of contact. While it is likely that each lender will take a slightly different approach to the single point of contact requirement, the new rule set to take effect in the fall of 2011 requires the single point of contact to provide the homeowner at least two methods of contact (i.e. phone, fax, email etc.)
Tip #6 — Be a Good Listener
When you begin speaking with your lender remain friendly and helpful always, and listen carefully. Getting a loan modification is about a business arrangement, treat it accordingly. Answer the questions you are asked, but avoid the temptation to embellish …. stick to the point.
Careful listening is important for two reasons:
1. By listening you will know what your lender wants from you. Give them what they require in terms of documents and information, but do not send things they don’t ask for. Sending information and documents beyond what your lender asks for probably won’t help, and it could hurt.
2. You may find that your lender is so anxious to avoid a foreclosure that they will offer very attractive terms in a modification agreement. Don’t offer solutions until you learn what your lender has in mind. Ask your lender for an outline of what might be possible and STOP SPEAKING.
Tip #7 — Stay Upbeat
As you work through the process of providing your lender with the documents and information they need, maintain a positive attitude. Your lender will be listening to what you say and how you say it. In the end, someone working for your lender is going to have to recommend the approval of your application for a loan modification. You want that person to believe in your file and to believe in you.
Tip #8 — Take Careful Notes…Lots of Them
Whenever you are speaking with your lender take care to note the details of the conversation. Note the date and time of the call, as well as the name of the person with whom you spoke. lf you can’t keep up with the conversation when taking notes, don’t be afraid to ask the representative to repeat information. Get the details. Your notes should include as many specific points as possible. The more detailed your notes, the more effective you will be recreating the conversation later. Good notes from a previous conversation could give you the leverage you need to get your lender to honor an offer that was made previously.
Tip #9 — Be Nice
Be nice! In most cases you will be working with a representative of your lender who is handling a high volume of loan files — all similar to yours. So, what can you do to get the attention you and your loan modification request need for success? Make yourself easy to work with, be a good project partner. Be nice! And, respond quickly to requests from the lender representative. Sometimes things won’t move forward as quickly as you would like, and your patience may be tested. Before you make an angry call out of frustration, stop and consider the position of the lender representative with whom you are working. They have too many files, not enough time to work them and as a result lots of the folks they talk to are unhappy — and often angry. Don’t get mad, try a different approach. Do your homework and get the representative’s mailing address. Send him or her a nice card or letter to let them know that you appreciate how hard they are working and that you are grateful for their help. How many of those types of cards do you think they receive? Think they might remember you, and be inclined to give you some extra attention?
Tip # 10 — Don’t be Too Nice
Be nice, until it’s time not to be nice. (Note: some of you may recognize the line from an old Patrick Swayze movie ‘Road House’) be pleasant, helpful and cooperative until you feel your lender is turning you into a doormat. At that point, it’s time to escalate. If you are being treated with disrespect, and it goes on for a couple of calls, you need to speak with someone else — and that probably means a supervisor.
Tip #11 — If you Escalate, Have a Plan
Most homeowners seeking a loan modification who reach the point where it is time to ask for help from the lender representative’s supervisor are frustrated and angry. They want to lash out, they want to vent. That impulse is entirely justified, and if all you are looking for is someone to berate your lender representative’s supervisor will be happy to accommodate you. That’s what they expect, that is what they are trained for, and that is exactly what they have a plan for. Don’t go that route. lt will not help you get a loan modification.
Here is a better plan;
A. Do your homework, know your rights. The loan modification process is technically a debt collection activity — your lender is trying to collect money from you. Period. Debt collection activity; or what your lender can do and what your lender can say, is HIGHLY regulated. The Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA) are both very consumer friendly federal laws that significantly restrict what your lender can do when working to collect a debt. FDCPA and FCRA violations are serious business. If your lender is found to have violated either the repercussions for them can be very damaging. This may sound sneaky, but it’s really just being smart. Learn a little about the FDCPA and the FCRA (To access copies of each, just Google ‘FDCPA’ and ‘FCRA’) and listen very carefully to what your lender says, what actions you are threatened with, what assurances you are given, and note each very carefully. If you are threatened with something you know is out of bounds, ask the lender representative to please confirm what they just said.
B. In most cases your conversations with your lender will be recorded by your lender. Knowing that and using that can be a powerful tool to help you get the loan modification you want. By noting all your conversations carefully, and in detail, you gain an advantage when you speak with a supervisor.
In most cases the supervisor is talking to an unprepared borrower, who does not have a plan. That won’t be you, and the supervisor will know that right away. Further, the supervisor will fear that your facts will likely be supported by the recorded version of the conversation. A reminder or two to a supervisor that they might want to go ahead and check the recording will drive that fear home.
C. Take time to collect yourself before you begin talking to the supervisor. If you are angry, ask for a moment to settle yourself down. You will be much more effective and you will be far more likely to aid the cause for your loan modification if you are not about to erupt like a volcano.
D. Stick to the facts when you speak with the supervisor. Don’t turn the conversation into a venting session. Because, as mentioned earlier, the supervisor is prepared for that. Don’t hesitate to mention the parts of the process (if there have been any) that have gone smoothly. You want the supervisor viewing you as a reasonable person prepared to calmly outline your concerns and a person who is fully prepared to support your view with the facts.
E. Be prepared to put it all in writing; and make sure the supervisor is aware of your intention to put it in writing. Say it nicely, but say it firmly and with conviction. There are very few places left for lenders to take cover if they behave badly or fail to deliver when they make a promise to a borrower. It is a fact that lenders have trampled on the rights of borrowers throughout the mortgage crisis, and as much as they don’t like it and seem willing to argue about it, THEY KNOW IT. The last thing a lender wants, and believe me the supervisor knows this, is to have a reasonable, under control, well prepared borrower, with the facts on their side, writing letters. To anyone! Ask for the supervisors address because you want to send a copy directly to them. If the supervisor will not provide an address, ask for the address they recommend for a letter aimed to resolve a dispute.
When you write the letter, keep it as short as possible while still capturing all the facts. You may want to provide your detailed conversation log as an attachment. (By the way, your conversation log should note every attempt you have made to contact your lender that was unsuccessful) Send the letter certified, return receipt requested and copy your state assemblyman, your state senator, your congressman and both senators.
Tip #12 — Don’t Get Frustrated
When faced with the stress and the pressure that a delinquent mortgage can create, it’s easy to get frustrated. No one wants to lose a home to foreclosure, and until you get approval for the loan modification you need, the threat of foreclosure lingers. Getting your loan modification will require patience. The lender representative you will be working with will be processing many files simultaneously. There will be times that it seems your file is not getting the attention it deserves. TAKE A DEEP BREATH, this is the point at which many loans modifications fall apart. A frustrated borrower loses patience and makes a decision at an emotional moment that undermines their entire loan modification effort.
Tip #13 — “Can I get a direct number?”
At times it will be a struggle to get through the automated phone system your lender almost certainly uses. Frequently it’s possible to avoid this aggravation by getting a direct phone number for the lender representative with whom you will be working. A second benefit of getting a direct phone number is that it may make it more likely that you get to work with the same person throughout the process. lt’s no fun recounting your situation, time and again, each time a new person is inserted into the process by your lender.
Tip #14 — Always be Prepared
When you do get on the phone with your lender be prepared, and have a game plan. Know what you want to achieve always be aware of what you are working towards; and once you achieve it shift to your closing plan. Verify the lender has everything they need to move forward on your modification and ask when you can expect to receive formal approval on your loan modification request. But, don’t forget the ‘be prepared’ part. Have your file open and ready to go. If you have to occasionally make calls from your place of employment, have your file with you. Don’t rely on your memory. Have everything written down and ready to go.
Tip #15 — Review the Agreement Carefully
When you do finally receive formal approval for your loan modification, review all the documents that contain loan modification terms carefully. Your lender is handling a very high volume of loan modification transactions, and mistakes can happen.
Pay particular attention to the following parts of the agreement:
l. Interest rate and payment calculation, as well as the amortization schedule.
2. The duration of the agreement and any specific points in time at which the terms of the agreement change.
3. Provisions for the Iender’s recovery of delinquent interest and the calculation of the total amount to be recovered — which could include lender charged fees.
4. Look for penalties that could take effect if you are not able to make all the payments outlined in the loan modification agreement. In some cases the lender may attempt to keep the foreclosure door open, thereby allowing for an accelerated foreclosure if the loan becomes delinquent again.
When reviewing the agreement consult with your notes taken throughout the process to verify the agreement the lender is offering is consistent with what was discussed. lf you see something in the agreement that is not consistent with your understanding give the lender the benefit of the doubt when resolving the “misunderstanding.” lt is likely any discrepancy is a result of miscommunication and this is another case where your careful, detailed notes will come in handy.
Tip #16 — Get Legal Advice
Before signing your loan modification paperwork it is a good idea to get the paperwork reviewed by an attorney. Keep in mind that the agreement is more than just an agreement to modify the terms of your loan, it is also an attempt to collect a debt. The paperwork provided by your lender may ask you to waive certain legal rights to which you would otherwise be entitled. The paperwork could contain other provisions, the consequences of which you may not understand.
Tip #l7 — Know the Terminology
As you go about trying to get your lender to give you the loan modification you need the conversations will sometimes include words and phrases that are unique to the mortgage and/or loan modification process. It helps to understand the meaning of these terms, so for a list of many of the mortgage speak terms you might run into as you pursue your loan modification go to the ‘Glossary of Terms’ section below.
Section 9 – Glossary of Terms- Loan Modification, Short Sale and Foreclosure Terms
Advertising- (or Publishing)
A copy of the Notice of Trustee Sale must be published once a week for three weeks.
Authorization Letter
The letter signed by a homeowner authorizing others to act on their behalf. The letter normally limits what the authorized party can do. Lenders require Authorization Letters before they will speak with an outside party about a mortgage.
Bankruptcy-Chapter 7
Often called a straight bankruptcy-involves the liquidation of all non—exempt by the bankruptcy trustee, who in turn distributes the proceeds to qualified creditors. All dischargeable debts are discharged and the person(s) tiling receive a ‘fresh start’.
Bankruptcy-Chapter 13
Often called a debt reorganization. A Chapter 13 Bankruptcy is generally appropriate for those individuals who have non-exempt property they wish to retain and who have enough income to reasonably pay the reorganized debt after covering reasonable living expenses.
Beneficiary
The beneficiary in a foreclosure context is generally the mortgage lender. Frequently referred to as the ‘Benny’.
Broker Price Opinion
A formal opinion of value prepared by a real estate Broker or agent, typically for a modest fee, on a piece of real estate. BPOs are a commonly used, but marginally reliable, tool utilized by the mortgage industry to establish value on properties that are in default. Much cheaper than an Appraisal.
Credit Counseling
Under the new bankruptcy law which took effect in October of 2005, those wishing to file bankruptcy must complete an approved credit counseling course within the six (6) months prior to filing.
Debt-to—lncome Ratio – DTI
That percentage of a borrower‘s income that is needed to make regular payments to cover debts and certain other expenses. The ‘Front-end Debt Ratio’ is that percentage of a borrowers income that is needed to pay housing expenses — principal, interest, taxes, insurance and association dues, if any.
Deed in Lieu of Foreclosure
The voluntary surrender of property by an owner/borrower to a lien holder that eliminates the need to continue foreclosure action by the lien holder. The lien holder can refuse to accept the Deed in Lieu and file a Notice of Non Acceptance with the County Recorder.
Discounted Payoff
The payoff of a mortgage loan where the lender accepts an amount less than the actual amount owed to payoff the loan.
Equity Deficient
A property is Equity Deficient when, if sold, sales proceeds would not fully pay off existing mortgage debt. Same as “Upside-down” or “Underwater”.
Fair Credit Reporting Act- FCRA
Federal law that regulates they way consumer credit information is collected and reported, enacted to protect consumers from unfair practices by creditors and credit reporting bureaus. Fair Debt Collection Practices Act- FDCPA Federal statute enacted to protect consumers from abusive and/or unreasonable practices by creditors and debt collectors.
Fannie Mae – FNMA
The Federal National Mortgage Association was formed in 1938 as a quasi governmental agency to provide liquidity in mortgage markets by securitizing loans into mortgage backed securities.
Fiduciary Duty
The duty to look out for the interests of a specific party to a transaction, often a principal in a financial transaction. The duty may be based on ethics, or the duty could be established by law.
Forbearance Agreement
An agreement between a mortgage holder and a borrower that lays out a specific loan payment plan and stops foreclosure action so long as the borrower meets the terms of the agreement. The payment plan includes provisions for repayment to the mortgage holder of all delinquent interest and fees and could include extending the life of the mortgage beyond it’s original term. A Forbearance Agreement is a tool that allows the borrower to keep the property.
Freddie Mac – FHLMC
Like Fannie Mae, Freddie Mac (Federal Home Loan Mortgage Corporation) provides mortgage originator with an established channel for the packaging and securitizing of mortgages.
Hardship Package
The package sent to the lender to demonstrate the homeowners hardship.
Home Affordable Foreclosure Alternatives – HAFA
Part of the HAMP program, HAFA was developed by U.S. Treasury to streamline the short sale process. The program targets, but is not necessarily limited to, those borrowers who have attempted a HAMP loan modification and were either declined for a HAMP loan modification or were approved for a loan mod but unable to remain current on the mod.
Home Affordable Modification Program — HAMP
Part of the Obaa administration‘s larger Making Home Affordable program, the HAMP program was announced as to bring uniformity to the loan modification process. When the program was introduced by the U.S. Treasury the goal was to help 3 to 4 million at-risk homeowners by adjusting their payments to sustainable levels.
Judicial Foreclosure
A foreclosure action conducted through the courts instead of through a foreclosure trustee. Judicial Foreclosures are very uncommon in California, particularly on residential properties. California is a Deed of Trust State and a Non Judicial Foreclosure State. However, should a lender elect to pursue a deficiency judgment, it would have to be through a Judicial Foreclosure.
Junior Liens
A lien, usually a mortgage loan, which is subordinate to a Senior Lien; usually a first mortgage. Lien priority is generally established by order of recordation . NOTE: if you refinance a 1st mortgage on a property with a 2nd mortgage already in place the new 1st mortgage holder will require a subordination agreement from Junior Lien holders to legally establish the new mortgage holder as 1st or Senior Position.
LIBOR (London lnterbank Offered Rate)
The interest rate charged among banks for short-term Eurodollars loans – LIBOR is a very common index for adjustable rate mortgages (ARM).
Loan Modification
An adjustment to the terms of a mortgage, generally done to help a homeowner who is having trouble, or expects to have trouble remaining current on the mortgage.
Loss Mitigation
Home mortgage lenders look to limit losses on delinquent mortgages by working out solutions with borrowers through their Loss Mitigation Departments.
Mailing
A copy of the Notice of Trustee’s Sale must be mailed (certified and first class) at least 20 days before the foreclosure sale to the borrower and to anyone who was entitled to receive a copy of the Notice of Default and Secretary of State and IRS, if applicable.
NOD acronym for Notice of Default
An official notice filed and recorded by a designated trustee at the request of a lender indicating lender has commenced foreclosure action.
Notice of Trustee Sale
An official notice that is posted, mailed, published/advertised and recorded by trustee at the direction of lender indicating lenders intention to sell the property at public auction. The notice includes a specific date, time and location.
Posting
A copy of the notice of sale must be posted in a conspicuous place on the property to be sold at least twenty days before the sale. Also, a copy of the notice must be posted at one public place in the city where the property is to be sold at least twenty days before the sale.
Postponement
Trustee Sales may be postponed by the first at the direction of the lien holder. Notice may be given in advance or at the time and location specified for the intended sale.
Private Mortgage Insurance (PMI}
A policy of insurance paid for by the borrower to protect the lender in the event the borrower defaults on the mortgage. Typically PMI is required by the mortgage holder when the down payment is less than 20% of the purchase price.
Qualifying Funds
ln order to bid at a Trustee Sale bidder must have qualifying funds available at the sale. Qualifying funds are cash or a cashier’s check(s) drawn by a State or National Bank, a check(s) drawn by a State or Federal Credit Union or check drawn by a State or Federal Savings and Loan Association, savings association or savings bank specified in section 5102 or the Financial Code and authorized to do business in the State of California.
REO
Short for Real Estate Owned. When a mortgage lender acquires a property, typically through foreclosure, it becomes real estate owned — or REO.
Reinstatement
To bring the loan current. Borrower may reinstate up to five (5) business days before foreclosure sale.
Strategic Default
The decision by a payment capable homeowner to discontinue mortgage payments on a property to gain a financial advantage or get a strategic edge.
1099-C
IRS Form 1099-c is issued by those cancelling all of part of a debt to the person receiving debt relief. Note: The cancelled debt may not need to be reported as income.
Trustee (Foreclosure Trustee)
A Foreclosure Trustee is appointed by the mortgage company when a mortgage reaches the default status for the purpose of processing the foreclosure.
Trustee Deed
The deed given to the highest bidder at auction or the foreclosing lender upon completion of the foreclosure.
Trustee Sale
Conducted by the Trustee. The property is sold at auction to the highest bidder, or taken back by a foreclosing lender.
The Mortgage Assistance Relief Services Act
The Federal Trade Commission has issued a set of rules that apply to those offering to provide assistance to distressed homeowners. The Mortgage Assistance Relief Services act (‘MARS’) prohibits the collection of advance fees by MARS providers and requires that all homeowners receive the following disclosure:
This publisher and/or provider of this guide is not a part of, affiliated with, or endorsed by the government. It is possible that your lender will not agree to provide the mortgage relief you seek. lf you stop making your mortgage payment, you could lose your home and your credit could be damaged.
