MARS' loan modification protections extend to short sales, other foreclosure relief

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MARS news has been focused largely on the cottage industry of private companies offering modification services to consumers, but the rule impacts all mortgage assistance relief services including those offering short sale services and other assistance.

by Broderick Perkins
© 2010 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Rules protecting consumers from being taken by modification services also extend to short sale services and other forms of mortgage assistance, including some assistance offered by real estate agents.


Effective Jan. 31, 2011 modification assistance firms have been banned from collecting fees until a home owner agrees with a written foreclosure or modification plan approved by their lender or loan servicer.

The ban and other related disclosure and regulatory provisions are part of the Federal Trade Commission's (FTC) "Mortgage Assistance Relief Services (MARS) Rule", designed to curb fraud, scams and rip-offs in the distressed mortgage services industry.

While MARS news has been focused largely on the cottage industry of private companies offering modification services to consumers, the rule impacts all mortgage assistance relief services including those offering short sale services and other assistance.

Some real estate agents must comply

Laurie Janik, National Association of Realtors' general counsel, recently reviewed the new rule at a forum during the Realtors 2011 Midyear Legislative Meetings & Trade Expo in Washington, D.C. and put on notice, real estate agents who provide short sale services, according to a recent DSNews report.

"As the leading advocate for homeownership, NAR supports efforts to ensure that mortgage assistance relief services truly benefit consumers. Nevertheless, NAR has some concerns about the rule and its application to real estate professionals involved in short sales transactions," Janik told DSNews.

But it's not just short sales. The official Federal Register Vol. 75, No. 230 rendition of the rule is pretty clear, as federal regulations go.

"The Rule is intended to regulate for-profit providers of mortgage assistance relief services...defined as 'any service, plan, or program, offered or provided to the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer' in negotiating a modification of a dwelling loan…stopping, preventing, or postponing a foreclosure or repossession; or obtaining one of several other types of relief to avoid delinquency or foreclosure... (including) a forbearance or repayment plan; an extension of time to cure default, reinstate a loan, or redeem a property; a waiver of an acceleration clause or balloon payment; and a short sale, deed-in-lieu of foreclosure, or any other disposition of the property except a sale to a third-party that is not the loan holder."

One question is obvious: If a company doesn't charge for mortgage relief services, does the MARS rule apply?

"Most of the local short sale specialists advertise this as a free service to our sellers and understand that the cost of the professional negotiations will be paid out of the hired Realtor's commission," said Julie Larsen Wyss, broker associate, Intero Real Estate Services, Los Gatos, CA.

Janik acknowledged to DSNews that real estate agents who do offer fee-based services must not take upfront fees, as the law requires, but she also voiced concern that other MARS rules could also apply to real estate agents helping with short sales, including rules that touch on disclosures, advertising, communicating with clients, negotiating a short sale or arranging for a short sale negotiation.

"NAR is discussing with the FTC some language in the second and third disclosures as well as some other requirements found in the MARS rule," Janik said, according to DSNews.

"The FTC is considering possible options to help make the rule more applicable to a real estate brokerage…when they are performing traditional real estate functions in a short sale transaction," she added.

A history of fraud

Too many foreclosure rescue and loan modification services became a festering outgrowth of the mortgage market meltdown that left many home owners underwater with a mortgage balance greater than the value of the home.

The operations often promised to be a go-between and negotiate with the lender to obtain a modification, short sale or some other relief from foreclosure. Some also duped home owners into believing they were affiliated with real government assistance programs.

Now, without up front fees, many fly-by-night operations don't have the capital to resume operations.

MARS does allow licensed attorneys to charge advance fees, provided the fees are held in an escrow (trust) account and provided the attorney complies with state laws and regulations related to the federal rule.

MARS rules are disclosure heavy. The rules say mortgage assistance relief services must disclose:

• The proposed cost of the service.

• That consumers have a right to reject any offer from the service or the lender without charge and can stop doing business with the service company at any time.

• That the service is not affiliated or associated with nor approved by any government entity.

• That the lender can reject any change to the home owner's loan.

• That home owners could lose their home and damage their credit rating if they follow a service's advice to stop paying their mortgage.

If services are offered or negotiated in Chinese, Korean, Spanish, Tagalong or Vietnamese, the disclosures must also be provided in the same language.

Foreclosure rescue and loan modification services are also prohibited from making any false or misleading claims about their services, including claims about results, government affiliation; the consumer's financial obligations; refund and cancellation policies; legal representation and the amount of savings a consumer can expect, among others.

Home owners should also check with their state rules for the services. Some states have stronger regulations than the federal MARS rule.

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Most Americans thumbs down on 'strategic defaults'

New postal rates could boost your income tax bill

Even if you are "underwater" -- owing more on your mortgage than your home is worth -- there's rarely a good reason to stop paying your mortgage, according to a majority of Americans.

by Broderick Perkins
© 2010 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - The fallout you can expect from walking away from home ownership could include the ire of your neighbors.

Even if you are 'underwater' -- owing more on your mortgage than your home is worth -- there's rarely a good reason to stop paying your mortgage, according to a majority of Americans.

A new FindLaw.com survey says 60 percent of Americans believe that it is "never OK" for homeowners to simply stop making payments on their mortgages.

Another 34 percent said walking away, called a "strategic default," is OK for homeowners, but only if they aren't able to make the monthly payments.

Only 3 percent said home owners should be able to walk away from mortgages anytime they want.

Tossing the door keys in the circular file and stopping mortgage payments will eventually lead to foreclosure, but that's not all. Unanticipated consequences could include tax problems, contractual issues, damage to your credit and credit scores, damage to your ability to borrow in the future, even a lawsuit.

"Many homeowners are currently facing very difficult and complicated situations involving their home mortgage, in some cases even including the threat of foreclosure," said Stephanie Rahlfs, an attorney and editor for FindLaw.com.

"But before making any major decisions, homeowners should consult with financial and legal professionals, including accountants, real estate attorneys and financial advisers," Rahlfs added.

She also said, "Various government programs and tax changes involving mortgages have been enacted since the beginning of the housing crisis. Combined with private programs and variations in state laws, it creates a complicated web of potential actions available to homeowners."

FindLaw.com advises consumers not to play Ostrich, but, at the first signs of financial trouble, to seek help from counselors, community and social organizations and your lender or servicer. Examine all the alternatives before bailing on homeownership.

They include:

• Refinance. If you qualify, turn your existing mortgage for a new one. If you have a mortgage that is underwater, this could be the toughest option to accomplish. However, federal programs, including the Federal Housing Administration's refinance effort, can be a good bet for those who haven't yet faced hardship and can qualify for a new loan.

• Mortgage modification. A mortgage modification reworks the terms of your existing loan to get the payment down to a more affordable level. To add greater affordability, lenders lower the interest rate, lengthen the term of the loan or reduce the principal -- or do some combination of all three.

• Short sale. A short sale occurs when the bank allows the sale of your home for less than the existing mortgage balance, typically, provided there's a qualified buyer in the wings.

• Deed-in-lieu-of-foreclosure. With this option, you hand over the property to the bank for resale. Some short sales and deed-in-lieu of deals qualify for the government sponsored Home Affordable Foreclosure Alternatives (HAFA) deal -- the lender or servicers can't request any cash from the home owner, require a promissory note or pursue any deficiency judgments.

• Bankruptcy. Bankruptcy is a court-based process that can give you a financial "fresh start" by getting you out from under burdensome debts. Once the bankruptcy process is complete, you typically are released from personal liability for most debts.

• Reinstatement, repayment plans and forbearance plans. These plans help you get current on their mortgage when you have temporary financial problems. Talk with your lender or loan servicer for details.

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Under the DeadlineNews Group umbrella:

Perkins is managing editor of HomeAway.com's Gulf Coast Response Center.

Perkins was the first Examiner to cover three beats for the Examiner.com news service:
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Mortgage modification makers get poor grades

Mortgage servicers get sloppier during the loan modification process than they do during the loan origination process, according to the recently released J.D. Power and Associates study.

by Broderick Perkins
© 2010 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - If you thought it was tough getting up to snuff on the mortgage application process, wait until you get a load of the mortgage modification mine field.

Mortgage servicers get sloppier during the loan modification process than they do during the loan origination process, according to the recently released J.D. Power and Associates' "2010 U.S. Primary Mortgage Servicer Satisfaction Study".

That means you'll need to take the initiative and learn the ins and outs of the mortgage modification process before diving in.

"This will not come as a great surprise to many homeowners who have had to endure the tribulations of loan modification," said Bruce Hahn, president of the American Homeowners Foundation.

A mortgage modification occurs when the lender reworks the terms of an existing home loan, typically to lower payments and make the home more affordable, according to a helpful and inexpensive resource, Silver Spring, MD-based mortgage expert Peter Miller's "The Quick & Dirty Guide To Successful Mortgage Modifications" (Silver Spring Press, $2.99).

To get the payment down, mortgage modification lenders lower the interest rate, extend the loan term, reduce the principal or use any combination of those approaches. Modification are often use as an alternative to foreclosure.

"With more than a million borrowers signed up for mortgage modification programs the overall result is that most are wildly unhappy with their loan servicers," says Miller, whose publication uses an easy-to-understand linear approach that takes the mystery out of the mortgage modification process, a process which apparently stymies even lenders.

According to J.D. Power, compared with the loan origination process, mortgage servicers do worse in mortgage modifications in a host of areas.

• In terms of providing and meeting a time frame for approval.

• In terms of asking for information more than once (in order to be sure to obtain information crucial to the modification).

• When explaining the entire process during application.

• In terms of providing proactive status updates during the process.

The study measured customer satisfaction with five areas of the mortgage servicing experience: fees; the billing and payment process; escrow account administration; website; and phone contact. The study is based on responses from 4,516 homeowners queried May through June 2010.

"While the loan origination process is already a milestone event for most homeowners, the stakes are even higher for those going through the modification process," said David Lo, director of financial services at J.D. Power.

J. D. Power says there are several key service practices that can have a particularly strong positive impact on customer satisfaction:

• Fee transparency. Communicating all fees in a concise way to ensure complete understanding and no surprises.

• Informative account statements. Providing account statements to ensure that the most important information customers need is easily found.

• Billing and payment by preferred method. Ensuring that customers are able to receive account statements and make payments through their preferred method.

• Problem resolution. Ensuring that once a problem is identified, it is resolved quickly and efficiently.

Says Miller, "You can easily understand that clarity is required with the first three items, it’s the fourth which is a problem. "Resolution" may not possible and in cases where a borrower has lost a job there’s nothing the servicer can do to help the homeowner short of offering them employment."


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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Under the DeadlineNews Group umbrella:

Perkins is managing editor of HomeAway.com's Gulf Coast Response Center.

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Most mortgage modifications doomed to failure

Quick! Click my head!

Global rating agency Fitch Ratings recently reported that mortgage modifications are likely to fail 65 percent to 75 percent of the time within 12 months, because other debts owed by the homeowner remain in place and untouched.

by Broderick Perkins
© 2010 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - A mortgage modification doesn't come with a guarantee that it will save your home.

Chances are, the same conditions that make it tough for you to afford your mortgage payment, also force you to stretch to pay other bills.

If that's the case, a mortgage modification alone won't be enough to bail you out of your financial hardship.

That doesn't mean you should forego a modification. It means you should have a full grasp of what you may need to do beyond a mortgage modification to keep your home and your house in order.

Global rating agency Fitch Ratings recently reported that mortgage modifications are likely to fail 65 percent to 75 percent of the time within 12 months, because other debts owed by the homeowner remain in place and untouched.

A mortgage modification occurs when the lender reworks the terms of an existing home loan, typically to lower payments and make the home more affordable. To get the payment down, lenders lower the interest rate, extend the loan term, reduce the principal or use any combination of those approaches.

Since the onset of the Obama Administration's Home Affordable Modification Program (HAMP) approximately 300,000 of a potential 2 million eligible homeowners have received permanent mortgage modifications of the federal program.

A similar amount of modifications have been completed under other programs.

While the HAMP program and others come with a round of mandated counseling that includes budgeting, planning and wise credit use, it does nothing to directly address other debts homeowners may be suffering.

The modifications cut homeowners' monthly mortgage debt by an estimated $550 or more and it reduces housing expenses to 31 percent of net income.

However, because of other debts, including auto loans, credit cards and other household expenses, homeowners spend an estimated 64 percent of their net income before they go food shopping, according to Fitch.

Small emergencies, say, an auto repair bill, medical bill, even a temporary loss of some or all income can sink mortgage modification homeowners who don't have cash reserves.

The Mortgage Bankers Association revealed similar findings over the course of several years -- mortgage modification default rates from 40 percent to 60 percent.

Fitch also reported moratoriums and mandated mediations can help some homeowners prolong the inevitable or get through hard times with homeownership intact.

Federal and local government moratoriums will delay final resolution on many properties until 2012, Fitch said. That means distressed sales will maintain a toehold in the housing market for at least another two years -- more by some estimates.

Homeowners can consider the ever more popular short sale alternative to foreclosures. Foreclosures often follow failed modifications.

Fitch reported half of prime borrowers who lose their homes now do so through short sales -- selling a home for less than the amount owed. Among the short sales are also deed-in-lieu sales, a transaction where the bank repossesses the property and forgives any balance.

Both modifications and short sales can negatively impact a consumers credit standing, but often not as badly as a foreclosures.

The Fitch findings underscore the importance of paying off debt, carrying as little credit as possible and living within one's means.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

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Site to See: PreventLoanScams.com targets mortgage modification fraud

The Loan Modification Scam Prevention Network, led by Fannie Mae, Freddie Mac, the Lawyers' Committee for Civil Rights Under Law, NeighborWorks America and a host of other agencies, recently announced a national campaign to prevent loan modification rip-offs and other scams.

by Broderick Perkins
© 2010 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - Days after a federal economic stability agency said the Obama administration's mortgage assistance program was vulnerable to fraud, a coalition of federal, state and community organizations launched a new campaign to fight that fraud.

The Loan Modification Scam Prevention Network, led by Fannie Mae, Freddie Mac, the Lawyers' Committee for Civil Rights Under Law, NeighborWorks America and a host of other agencies, recently announced a national campaign to prevent loan modification rip-offs and other scams.

The group plans public education, complaint reporting services and coordination with local, state, and federal enforcement agencies to thwart scammers and come-ons that prey on homeowners struggling with mortgages.

Recent changes in the Obama Administration's mortgage assistance program may make it more vulnerable to fraud, according to the special inspector general for the Troubled Asset Relief Program (TARP).

The changes to the Making Home Affordable initiative, announced in March, are intended to make it easier for struggling homeowners to avoid foreclosure. But the administration hasn't done enough to warn the public about fraud, says Neil Barofsky, inspector general of TARP.

TARP, is a federal government program created to purchase assets and equity from financial institutions to strengthen the nation's financial sector, especially area's crushed by the subprime mortgage crisis.

"Criminals feed on borrower confusion, and frequent changes to the programs provide opportunities for experienced criminal elements to prey on desperate homeowners," Barofsky wrote in a quarterly report.

The administration's existing program has already spawned fraudulent schemes, the report said, such as one in which borrowers are tricked by "thieves" into paying upfront for modifications that never materialize.

Under the changes announced in March, the Treasury isn't requiring appraisals to determine a home's value in cases where mortgage principle is reduced to complete a mortgage modification, the report said.

That could make it easier for mortgage lenders to fraudulently qualify for incentive payments.

A mortgage modification, used to make mortgage payments more affordable for struggling homeowners, typically occurs when the lender reworks the terms of an existing home loan by lowering the interest rate and exchanging an adjustable rate for a fixed rate, or extending the term of the loan, or both. Recent changes also include the lender reducing the principal to get the payment down.

The TARP report said the U.S. Treasury should follow the Federal Housing Administration's (FHA) guidelines, which require the use of an FHA-approved appraiser.

The new PreventLoanScams.org is designed to support national, state and local law enforcement efforts as a nationwide clearinghouse for loan modification scam information on complaints filed, laws and regulations, and enforcement actions.

Loan modification scams are schemes in which people take advantage of vulnerable homeowners. Scammers prey on homeowners in distress by guaranteeing to help the homeowner obtain a modification of their mortgage to save their home. Frequently, the borrowers pay money up front but receive no help at all and their home is lost to foreclosure.

The new PreventLoanScams.org website includes:

• An electronic complaint form that can be filled out easily by an individual who has been scammed or by counselors or friends helping a victim of fraud .

• Names of individuals and organizations who have been identified by enforcement agencies to have allegedly committed a loan modification scam.

• Information on how to avoid a loan modification scam.

• State-by-state information about rules, regulations and resources available to struggling homeowners.

• News and information on enforcement efforts.

Homeowners who believe they may have been a victim of a loan modification scam, can also call the Homeowners Hope Hotline at 1-888-995-HOPE to log a complaint and to receive free foreclosure prevention counseling.

"We've joined forces with government agencies and other industry leaders to help fight loan scams across the country," said Jeff Hayward, Senior Vice President, Fannie Mae.

"This effort links homeowners to free, legitimate counseling and helps to put scammers out of business. The goal of this campaign is to educate homeowners and empower those who have fallen victim to scammers to report and prevent future fraud," Hayward added.

A feature of DeadlineNews.Com, "Site To See" reviews are occasional, but timely critiques of content-heavy real estate Web sites deemed unique, consumer-friendly, informative and easy to use.

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You are reading a sample of "News that really hits home!", now available from several beats and published in a growing number of locations.

Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins was the first Examiner to cover three beats for the Examiner.com news service:
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Short sale myths debunked in short order

World's first "green" Hummer

More competent short sale professionals working a greater number of short sal deals are helping bust some of the myths that have surrounded the lesser-used foreclosure alternative.

by Broderick Perkins
© 2010 DeadlineNews.Com



Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - Short sales can be a tall order, but as their numbers increase, better trained professionals working the deal are getting wise to what's needed to make them a success -- in short order.

More competent short sale professionals are also helping bust some of the myths that have surrounded the lesser-used foreclosure alternative, according to Woodland Hills, CA-based Panorex Realty affiliate I Short Sale, Inc.. As it's name implies, I Short Sale, Inc. is a real estate brokerage specializing in short sale transactions.

"If done right, the short sale is a winning proposition for all, including the lender because the costs involved are certainly lower than that of foreclosing," said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

A short sale occurs when the bank allows the sale of a home for less than the existing mortgage balance, typically provided there's a qualified buyer in the wings. Such homes are often held by home owners struggling with "underwater" mortgages -- mortgages with balances larger than the value of the home.

First American Core Logic says more than 11.3 million home owners are underwater on their mortgages.

Mortgage modifications and federally sponsored refinancing programs, to date, have been the go-to tools to help struggling home owners.

All are strategies to avoid foreclosure, but banks have been more likely to refi, modify or foreclose, rather than taking the short sell route.

That's because short sale bids can come in well below the last appraisal and banks don't want to take a loss. After sellers seal the deal, they can be left with a bill that's the difference between the selling price and the mortgage balance. Real estate agents and buyers fear a six month or longer transaction period that could end in a no-sale scenario that comes with the cost of lost time.

"A major reason why a short sale fails is the length of time it takes to get the lender’s approval. Long delays frequently cause the buyer to drop out of escrow and buy another home," said Zdenka Mahan, a short-sale experienced Intero Real Estate agent from Saratoga, CA.

However, as their numbers have grown, more attention is making the deals easier to close.

First American Core Logic's first monthly Distressed Sales Report released in April, reveals January's
short sales nationwide were 8 percent of all resale home sales, up from 7 percent in December and 5 percent a year ago.

Their numbers are much higher in areas hit hardest by the housing bust and account for 20 percent of resale home sales in San Diego (the nation's highest), 19 percent in Sacramento, and 15 percent or more in Oakland, CA Washington D.C. and Tampa, FL, according to First American.

Effective April 5, the Obama Administration rolled out Making Home Affordable's Home Affordable Foreclosure Alternatives (HAFA) streamlined short sale effort to give qualifying home owners up to $3,000 to defray the cost of moving. Servicers can also get $1,500 each for short sale deals that pencil.

With short sales getting more federal support and greater know-how from professionals who work them, myths about short sales are flying out the window, according to I Short Sale, which is "setting the record straight on common short sale myths."

Myths debunked

• You must be default on your mortgage to negotiate a short sale. Short sales are not a function of default status on a mortgage. They are the result of the bank mitigating a potential default situation that, in the long run, will cost more money to the investors. Defaulting is not a short sale requirement under the HAFA plan.

• Short sales are embarrassing. Home owners who "avoid" short sale "embarrassment" could face a foreclosure disaster and much greater heartache. Emoting through tough financial situations won't make the problem go away, says I Short Sale.

• Buyers aren't interested in short sale properties. Perhaps not as many as are interested in foreclosures, but the number of short sales is up, according to First American Core Logic. That's because short sale properties are often available at bargain prices compared to similar homes on the market and given the owner remains until the sale is closed, short sale properties may also be in better shape than abandoned foreclosures.

"Search for a buyer, especially those who have expressed an interest in buying short sale properties. The buyer must be willing to deal with extended deadlines and additional demands made by your lender," said Julie Larsen Wyss, a RealtyU graduate and holder of its new Certified Short-Sale Professional (CSP) designation.

• There's not enough time to negotiate a short sale before foreclosure. Federal mandates that come with paid incentives for lenders demand that lenders consider a short sale before moving to foreclosures, especially if a refinance or mortgage modification hasn't worked out. A good negotiator takes into account the timeline affiliated with a foreclosure. There is always a chance that a short sale can be negotiated. However, the only way to know for sure is to try.

"A real estate agent needs to put together the most comprehensive short sale proposal possible to minimize the back-and-forth delays," said Mahan.

• The bank would rather foreclose than complete a short sale. The bank would rather have the full mortgage paid on time. If a lender can strike a better deal with a short sale than a foreclosure, they'll go for the short sale when possible. It costs the bank money and liability risk to carry foreclosed homes. The sooner a home is off the books for the most amount of money, the better. Wherever possible, banks are seeking other loss mitigation options before foreclosure.

• Short sales are impossible and never get approved. Short sales can be complicated, but again, according to First American, short sales are increasing.

"We negotiate short sale approvals every day," reports I Short Sale.

(More short sale news that really hits home!)

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You are reading a sample of "News that really hits home!", now available from several beats and published in a growing number of locations.

Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins was the first Examiner to cover three beats for the Examiner.com news service:
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Home owners getting paid to sell short

Effective today, April 5, the Obama Administration rolled out Make Home Affordable's Home Affordable Foreclosure Alternatives (HAFA) short sale effort to help home owners avoid foreclosures by giving them up to $3,000.  Servicers can also get $1,500 each for short sale deals that pencil.

by Broderick Perkins
© 2010 DeadlineNews.Com



Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - A short sale alternative to foreclosure, one that pays home owners to sell at a loss, is the latest home owner bailout tool the feds are putting to work.

Effective today, April 5, the Obama Administration rolled out Make Home Affordable's Home Affordable Foreclosure Alternatives (HAFA) short sale effort to help home owners avoid foreclosures by giving them up to $3,000.

Servicers can also get $1,500 each for short sale deals that pencil.

A short sale occurs when the bank allows the sale of a home for less than the existing mortgage balance, typically provided there's a qualified buyer in the wings. Such homes are often held by home owners struggling with "underwater" mortgages -- mortgages with balances larger than the value of the home.

First American Core Logic says more than 11.3 million home owners are underwater on their mortgages.

Mortgage modifications and federally sponsored refinancing programs, to date, have been the go-to tools to help struggling home owners.

All are strategies to avoid foreclosure, but banks have been more likely to refi, modify or foreclose, rather than take the more trying short sell route.

Short sale bids often come in well below the last appraisal and banks don't want to take the hit. After sellers seal the deal they can be left with a bill that's the difference between the selling price and the mortgage balance. Real estate agents and buyers fear a six month or longer transaction period that could end in a no-sale scenario with time-spent costs attached.

HAFA attempts to remove some of those obstacles.

The new HAFA short sale plan, in the works for months, has been retooled to help clear the log jam of homes in limbo.

HAFA short sales are available for principle residences acquired before Jan. 1, 2009 and have mortgage balance no larger than $729,750. Also, the owner's monthly payment must exceed 31 percent of their income and home owners must prove financial hardship.

Eligible home owners also must have been previously considered for other federal foreclosure prevention options, but must be considered for the HAFA short sale before the loan is referred to foreclosure.

The lender can't require a cash contribution from the home owner, nor can the lender require that the owner sign a promissory note at the closing. The lender also cannot go after the borrower for a "deficiency judgment" based on the difference between the selling price and the last mortgage balance.

Home owners in successful short sales can get up to $3,000 to help with moving costs, servicers $1,500 to help cover costs of the deal.

Home owners can get pre-approved for a short sale before the property is listed and the lender will tell the home owner the minimum amount acceptable in a short sale.

If the short sale fails, the program comes with a deed-in-lieu-of-foreclosure option -- the owner hands over the property to the bank and, just as with the short sale, the lender or servicers can't request any cash from the home owner, require a promissory note or pursue any deficiency judgments.


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BofA announces enhanced mortgage modification plan

Even critics of the mortgage-lending industry's efforts to help struggling homeowners keep their homes are lauding Bank of America's reduced-principal approach to mortgage modifications for some 45,000 of its customers.

by Broderick Perkins
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Deadline Newsroom - Beginning in May, BofA will forgive up to 30 percent of the loan principal of homeowners who are severely "underwater," those who owe approximately 20 percent more than their homes are worth and have missed at least two payments.

The plan harkens back to the so-called "Mod in a Box" reduced-principal modification plan the Federal Deposit Insurance Corp., under Chairwoman Sheila Bair, used on many mortgages in the 2008 federal takeover of IndyMac.

Bair has continued to encourage reduced-principal modifications because the federal Home Affordable Modification Program has come up short without them, managing fewer than 200,000 permanent modifications out of a potential 3 million to 4 million eligible homeowners.

Even critics of the mortgage-lending industry's efforts to help struggling homeowners keep their homes are lauding Bank of America's reduced-principal approach to mortgage modifications for some 45,000 of its customers.

The much-encouraged but little-used reduced-principal approach to mortgage modifications has long been championed by federal officials and consumer advocates as the most effective type of modification.

You've got news...news that really hits home!The full story is here: "Praise for BofA's Mortgage Modification Plan"

Also: Struggling home owners awarded another $14 billion

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Struggling home owners awarded another $14 billion

New Making Home Affordable enhancements include refinancing for underwater loans, reduced mortgage payments for unemployed homeowners, and pressure to get more lenders to consider reducing the principal of certain mortgages, among others.

by Broderick Perkins
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Deadline Newsroom - With the federal government's year-old housing relief efforts under fire, the Obama Administration recently announced a new $14 billion round of enhancements to reach a larger share of millions of struggling home owners.

The enhancements under the administration's Making Home Affordable initiative, include refinancing for underwater loans, reduced mortgage payments for unemployed homeowners, and pressure to get more lenders to consider reducing the principal of certain mortgages, among other provisions.

Some critics, however, say the enhancements don't go far enough and actually reward lenders for making bad loans that helped bring down the housing market and the economy.

Since its inception early in 2009, Making Home Affordable's mortgage modification segment, the Home Affordable Modification Program (HAMP) has managed mortgage modifications (including trials and permanent modifications) for only 262,000 home owners out of a potential 3 to 4 million eligible home owners.

A mortgage modification, used to make mortgage payments more affordable for struggling homeowners, typically occurs when the lender reworks the terms of an existing home loan by lowering the interest rate and exchanging an adjustable rate for a fixed rate, or extending the term of the loan, or both. Rarely do lenders also reduce the principal to get the payment down, but, thanks to the enhancements, that could be changing.

The refinance segment, the Home Affordable Refinance Program, has reached fewer than 200,000 of the up to 5 million borrowers federal regulators hoped it would help. A refinance, unlike a modification, pays off the old loan with a brand new loan.

Given the small share of needy homeowners actually helped, the Center For Responsible Lending, a critic of results thus far, welcomed the news of the governments enhanced efforts to help home owners.

"We welcome the Administration’s stronger actions to stabilize the housing market, particularly doing more to lower loan balances on homes worth less than the mortgage. Foreclosures dragged us into the recession, and until we stop them, the economy will not recover and most homeowners will watch their hard-earned home equity drain away," the Center announced.

Under the $14 billion enhancement, using funds already available from the Troubled Asset Relief Program (TARP) , provisions include:

• More pressure and financial incentives for lenders doing HAMP modifications to offer reduced-principal mortgage modifications and workouts, for homeowners who owe more than their home is worth.

The Bank of America announced a similar plan just days before the Obama Administration announced enhanced relief efforts.

"The core reason principal reductions have suddenly gained traction is the growing recognition that many of the loans in such programs would have represented even larger losses had the properties gone to foreclosure," said Peter Miller, Silver Spring, MD mortgage expert and author of the new eBook "The Quick & Dirty Guide To Mortgage Modifications" (Silver Spring Press, $2.99).

First American Core Logic says more than 11.3 million homeowners are underwater on their mortgages.

Reducing the principal is crucial to both making a home more affordable and giving home owners incentive to stay in a home that's no longer worth less than the mortgage.

Miller said, "These new programs should be applauded because they save homes and homeowners. First, they're keeping homes out of foreclosure and that's hugely important for families. Second, they're holding down foreclosure inventories. Home prices will not rise until the supply of distressed properties is reduced by 80 or 90 percent in the hard-hit foreclosure areas such as California, Nevada, Florida and Michigan."

• Likewise financial support to lenders who reduce the principal on first and second mortgages, when first mortgages are refinanced through the Federal Housing Administration (FHA). The support includes the additional incentive of insurance coverage to cover lenders' losses on such principal reductions.

• For unemployed home owners, mortgage payments reduced to 31 percent of their previous household income for up to six months while they look for another job. Once employed, homeowners facing a regular payment that's greater than 31 percent will be consider for a permanent HAMP loan modification.

• Up to $3,000 in moving expense paid to home owners entering short sale -- transaction where the lender accepts less than the loan amount to move the loan off the books. That doubles a previous amount offered. Many homeowners who agree to short sales are stuck with bill for the difference between the selling price and the old loan.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC. says the cash incentives approach benefits lenders more than home owners because the incentives are more than the first mortgage holder would collect if the loan went through a foreclosure process.

"By substantially reducing the required payment on the first mortgage, the program will be creating a situation in which the second mortgage-- which would be worth little or nothing in foreclosure-- will suddenly again hold considerable value. This will be a huge windfall for second mortgage holders. It is worth noting that the major banks have vast portfolios of second mortgages," Baker said.


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Latest mortgage modification speed-up plan finalized

Consumer Reports suspends
Toyota recommendations

Effective June 1, 2010, new mortgage modification provisions are designed to speed up the process of getting struggling home owners into modifications they can afford. It doesn't really change the documents required, just the process.

by Broderick Perkins
© 2010 DeadlineNews.Com



Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - The latest spin on government-sponsored mortgage modifications, demands that home owners provide an initial package of documents before the first phase of a modification can begin.

The newest plan for the ever-evolving Obama Administration's Home Affordable Modification Program (HAMP) also requires lenders (or servicers) to review the documentation and respond with an approval or rejection within 30 days.

The new guidance also details how lenders must convert a trial modification to a permanent one.

Effective June 1, 2010, the new provisions are designed to speed up the process of getting struggling home owners into mortgage modifications they can afford. It doesn't really change the documents required, just the process.

As of December, only about 100,000 of a potential 4 million eligible home owners were enjoying permanent mortgage modifications with average mortgage payment reductions of $500 a month, according to the U.S. Treasury. Another 750,000 home owners have trial modifications with the same average mortgage payment reduction.

A mortgage modification occurs when the lender reworks the terms of an existing home loan, typically to lower payments and make the home more affordable. To get the payment down, lenders lower the interest rate, extend the loan term, reduce the principal or use any combination of those approaches. Reducing the principal is rare, but there is a push afoot to encourage more principal reductions.

While a modification might stain your credit, it's considered a better deal than losing your home and your credit standing to a foreclosure or short sale.

Home owners who sign up for HAMP mortgage modifications begin with a trial modification period of at least three months. Previously, some home owners entered the trial modification with less documentation than is now required.

Now, before obtaining a trial modification, home owners who believe they are qualified must supply three types of documentation:

• A completed "Request for Modification and Affidavit" (RMA) form, which provides information about the property and the home owner's financial situation.

• IRS Form 4506T-EZ, "Short Form Request for Individual Tax Return Transcript" allows the lender to look at a home owner's tax return and not rely upon "stated incomes" -- the bane of many failed mortgages.

• Proof of income. A checklist is available to tell home owners what documents they need for proof if they are a wage earner, self-employed, or receive retirement or receiving other income.

Within 10 days of receiving a home owner's information, the lender must, in writing, acknowledge receipt of the paperwork and describe, with a timeline, the next phase -- the evaluation process.

Within 30 days of receipt of the application, the lender must evaluate the application and request additional information if the application is incomplete. Also within 30 days, if the home owner's information is complete and otherwise meets modification eligibility requirements, and the lender grants a modification, the lender must send the home owner a trial modification plan notice.

If the requirements aren't met, the lender must notify the home owner that he or she is not eligible for a HAMP modification.

For home owners who are not eligible for a HAMP deal, the lender is required to consider the home owner for other loss mitigation options, including refinance, forbearance, non-HAMP modifications, and ultimately short sales or deeds in lieu of foreclosure.

During the 30 days, in order to review the application, the lender has a right to get a copy of a home owner's credit report and to verify the property is the home owner's principal residence.

The lender can also determine the property's value using an onsite appraisal, automated valuation model (AVM) or a real estate broker's price opinion (BPO).

Home owners who achieve a trial modification must make all payments on time to move to a permanent modification. A "permanent" modification isn't necessarily so. Years down the road, the lender can determine to continue or end the modification and revert to the original terms of the mortgage or take other steps.

Throughout the ordeal, lenders must track and maintain records of the process including phoned, written and emailed contacts with the home owner.


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Mortgage modifications with cash payments to homeowners?

Get the full story here!

New Treasury provisions aren't carved in stone, but they could include direct cash assistance to home owners or a grace period allowing home owners to postpone payments.

by Broderick Perkins
© 2010 DeadlineNews.Com



Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - The Treasury Department may be planning to give home owners direct cash assistance or postponed mortgage payments as a way to address lenders' reluctance to reduce the principal during a mortgage modification.

As of December, only about 100,000 of a potential 4 million eligible home owners are enjoying permanent mortgage modifications that have reduced their mortgage payment by an average $500 a month, according to the Treasury. Another 750,000 home owners have trial modifications with the same average mortgage payment reduction.

New Treasury provisions aren't carved in stone, but the New York Times recently reported that they could include direct cash assistance to home owners or a grace period allowing home owners to postpone payments, along with reduced paperwork and faster processing by banks.

"Loan modifications with principal reductions should be the norm. The banks could easily solve the problems and keep stability in family neighborhoods," said Mark K. Hicks, broker/owner of Seabrooke Group in Campbell, CA.

Get the full story here: Mortgage modifications with cash payments to homeowners?



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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
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Turning 'upside down' mortgages right side Up

DeadlineNewsGroup here.

This is the kind of scenario government leaders would like to see played out more often for struggling homeowners, especially when a loan modification without a principal reduction could force them to simply walk away from their homes.

by Broderick Perkins
© 2010 DeadlineNews.Com



Unauthorized use of this story is a copyright violation -- a federal crime


Deadline Newsroom - You've got an "upside down mortgage," owing more than your home is worth. With a 6 percent interest rate on your $400,000 mortgage, the $2,400 monthly payment is brutal. You can barely make ends meet.

The bank agrees to defer $75,000 of the debt, which you'll pay back when you sell your home. The lender also slashes your interest rate to 3.75 percent. The new $1,500 monthly payment on the $325,000 balance puts a $1,000 wad in your pocket every month. You see your mortgage begin to surface, and the headaches disappear.

This is the kind of scenario government leaders would like to see played out more often for struggling homeowners, especially when a loan modification without a principal reduction could force them to simply walk away from their homes.

Get the full story here: Turning 'Upside Down Mortgages' Right Side Up

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
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