I found these charts from Jeff B on Active Rain, I thought they were pretty good, I have some earlier posts about the Shadow Inventory that is coming down the pipe. I think that these charts support some of those comments, posts, and tweets about the Pent-up inventory that has been talked about the past couple of weeks. I don't think we need to panic, we just need to adjust the way we do business.
A loan modification is much like a mortgage refinance in that the objective is to find you a more affordable mortgage payment for your financial situation. In fact, it is often called a modified refinance. The primary difference is that instead of looking for a “new” loan you will just simply “modify” the terms of you existing mortgage.
Refinancing your existing mortgage to obtain a more affordable mortgage payment could still be an option. Unfortunately, for an increasing percentage of homeowners it is not. That is precisely what loan modifications are for, the homeowner that has incurred a financial hardship that prevents other mortgage financing or payment options.
In most cases, a loan modification is recommended to homeowners that have a financial hardship that is preventing them from making their monthly mortgage payments. Most how are eligible for these types of mortgage modification programs have already missed one or more payments.
This will vary depending on who services (i.e., who you send your mortgage payment to each month) your mortgage. However, most follow very similar qualification criteria. These are the most common loan modification qualification standards:
Other important factors that can effect your eligibility:
Since many of the programs do vary in how they work, you should contact your lender and advise them of your hardship and get more information.
Ultimately, the only place where you can get a loan modification is with the lender or servicer that current holds your mortgage. Confused as to who this might be? In this mortgage market, where mortgages are bought, sold, and packaged up into securities for Wall Street, this part can be the hardest step in the loan modification process.
The best place to start is your mortgage coupon book or statement–who do you send your mortgage payment to each month?
Each mortgage lender or servicer will have different loan modification programs and processes. In addition, often the staff at these companies have little training to handle a loan modification inquiry.
This is where getting a loan modification can become very challenging. Seeking expertise in streamlining your loan modification process can often save you a lot of frustration and money.
The bank ultimately is in the business to return a profit to their shareholders, just like any other business. Consequently, your objective in presenting your loan modification request is to show that it is in the best interest of the bank to modify your loan.
What might support your modification request? Here are the points that you should be able to show your bank:
Remember your bank is essentially making a new loan to you after taking a loss on the first one. You need to demonstrate to the bank that you are able to pay on the new modified loan terms.
Your loan modification package is going to be the most important part of your mortgage modification efforts. Again, the contents and process for packaging the information for your lender’s consideration will vary, but the critical elements are typically the same. Here is an example of the documents you will probably require:
The principal purpose of the loan modification package is to provide your lender with sufficient documentation to evaluate the risk in modifying your mortgage. The main question your lender is trying to answer is can you pay the new modified mortgage payment, and will you.
Simply because it is in the best interest of the bank. As you attempt to inquire about a loan modification do not confuse this transaction with an altruistic act of kindness. It is fundamentally a transaction that makes more business sense than the alternative–you defaulting on the entire mortgage and costly foreclosure proceedings.
It is also a product of the current economic conditions. There are so many homeowners that have been pinched by the simultaneous collapse of the housing market and the economy. This creates a unique circumstance–modifying your mortgage, to keep you in your home, benefits the bigger economic picture.
As mentioned before, loan modification programs are just becoming mainstream and therefore there is little standardization. The details of loan modification programs that you qualify for will start at your lender or a loan modification counselor that can guide you.
Here are a few of the most prevalent loan modification programs and resources:
The Obama administration, under the guidance of the US Treasury has created one of the most inclusive loan modification programs to date. This mortgage modification program not only helps borrower in current financial stree, but also good paying homeowners that think they may have challenges in the future or have lost significant equity in their homes due to the housing market crisis.
You can learn mor about this program at: FinancialStability.gov-Making Home Affordable
IndyMac Bank was one of the first financial institutions to broadly offer loan modifications to their mortgage customers. When the FDIC took over IndyMac it became the first test bed for an extensive loan modification policy. You are eligible for this loan modification program if IndyMac Federal Bank holds or services your mortgage.
You can learn more about this program at: FDIC Loan Modification Program for Distressed IndyMac Mortgages.
The most recent of the loan modification programs was the one offered by the Federal Housing Finance Agency (FHFA), the supervisory regulator of Fannie Mae and Freddie Mac. This loan modification program applies to any mortgage held or serviced by Fannie Mae or Freddie Mac.
You can learn more about Fannie Mae and Freddie Mac loan modifications in FHFA Director Lockhart’s Statement on Loan Modification Program [PDF]
The largest banks in the US are all offering aggressive loan modification programs and in some cases issuing foreclosure mortatoria. These programs are expected to proactively modify hundreds of thousands of mortgage loans.
You can learn more about Citigroup’s loan modification programs at:
You can learn more about JP Morgan Chase’s loan modification program at:
You can learn more about Bank of America/Countrywide loan modification program at:
Why do banks take so long to approve a short sale?
This question comes up over and over again from Realtors, homeowners and home buyers everywhere I go.
A one sentence answer doesn’t exist for this question. If you truly want to know the
answer to the question, “why” continue reading. This means you will have to take a step back from your particular emotional situation enough to really listen to what’s being said because everyone wants their deal approved NOW.
Banks are under no obligation to approve your short sale. I know what you’re thinking, reader. You’re thinking, “Well if the darn bank would just approve my short sale faster, they wouldn’t be losing so much money!”
Let’s start at the beginning. A homeowner is said to be in a short sale situation when he or she owes more than what the home is currently worth, is in default and must sell. Traditionally, homeowners agreed to pay back the difference between what was owed and the sales price. The short sale seller signed a new, unsecured note at closing and promised to pay back the difference in regular monthly installments. The only case where the debt was “forgiven” was for true financial hardship cases where there was absolutely no way the homeowner could ever repay the difference.
An example would be the untimely death of one of the breadwinners. But that was then.
In today’s politically charged, loan modifications for all, let’s-dump-everything-into-
FHA environment, homeowners in a short sale situation today are receiving debt forgiveness and even temporary tax exemptions on top of that. Don’t worry, the rest of us tax payers will pick that up for you.
The first step in figuring out why your short sale is taking so long to be approved is to inquire about whether the homeowner is asking the bank to forgive the difference or if the homeowner is gainfully employed and able to pay back the difference. This all must be proven and documented to the lender’s satisfaction. If the homeowner is asking for debt forgiveness, the short sale will take longer to approve if the bank does not have all the required documentation.
Thought question: Why would any lender approve a short sale, especially one that requires debt forgiveness, unless there is proof that foreclosure is imminent? Answer: They won’t. Lenders have no motivation to approve a short sale if the homeowner has not yet defaulted on their loan; the bank has little motivation to approve the short sale. Why not wait for a better offer to come along? (Note, homeowners reading this article should always consult with an attorney if you are selling short, in default, or will be in default on your mortgage loan(s).)
All loan servicing departments have processes in place for dealing with short sale approvals. They may not have fancy computer systems so that everything is automated but maybe that’s a good thing. Look where automated underwriting got us.
Next step: Homeowners must prove that they do not have the money to make up the shortfall. This means sending in copies of all bank statements, tax returns, w-2s, and other supporting documents to verify that the homeowners is financially insolvent. Short sales are reserved for people with NO MONEY.
Gentle reminder: The new sale must be an arms-length transaction. Another common problem that lenders must watch for is when the real estate agent on the transaction happens to be the “assigned” buyer on the purchase and sales agreement. The lender is not going to be thrilled in paying a real estate commission on that kind of transaction. Further, there are plenty of foreclosure rescue scams happening nationwide. Lenders scrutinize short sale offers to look for signs of fraud.
Is it the job of the Loss Mitigation Department to care about clearing your local RE market? No. Is it their job to care about keeping your buyer wiggling on the hook long enough to get papers signed? No. Is a short sale supposed to be a painless alternative to foreclosure for anyone involved?
No. There are no painless alternatives. There shouldn’t be. There cannot be.
Next, everyone who is patiently waiting for the bank to approve the short sale must now realize that once the bank says “okay” to the short sale, there very may be a long list of investors who own pieces of this mortgage loan. Each and every investor will have to give their approval for the short sale. We enjoyed many years of growth in the real estate industry and the overall economy thanks to the invention of Residential Mortgage Backed Securities. RMBS made millions of dollars for many people. The downside to securitizing mortgage loans and then selling off slices of each mortgage to different investors is that when it comes time to tell the investor “you’re going to have
to take a haircut” that investor gets to have a say in the matter.
Calling loan servicing and yelling at them over the phone will get you nowhere.
I would like to be first to predict that the next meltdown will be loan servicing. But perhaps my prediction is so obvious as to not be much of a prediction at all. How much longer can they sustain this level of stress and pressure, with their current staffing levels, while the banks are facing enormous losses? Of course when that meltdown happens, I predict our government will step in and mandate harsher regulations on servicers, which will be passed on to the consumer in the form of higher interest rates.
Loan servicing use to offer what it said: “service.” It was treated as a cost center on a bank’s balance sheet. Over the past 15 years, servicing became a “profit center” and the highest expense, namely labor, was cut to achieve profit goals. This is one more lesson in under-pricing. The cost of “good” loan servicing in which phones are answered and files processed smoothly, would have cost us all, way, way, way more on the retail end, than what we paid. Let’s say we could create instant loss mitigation nirvana today. All phones are answered on the first ring, all short sales are approved with no questions asked, no documentation required, no proof of hardship necessary, no proof of financial insolvency needed, and all Realtors receive their full 6% commission. The consequences of not performing due diligence at the loss mitigation stage are disaster for all of us. Compare this to the current nirvana we just left behind: A world where anyone could get a mortgage loan with no verification of ability to repay, with massive fraud still being uncovered. We need to do it right this time, and it takes TIME to do proper short sale loss mitigation.
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