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Crow's Guide to Mortgage Modification and Other Delinquency Solutions
The Crowing One
Registered User regular
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Crow's Guide to Mortgage Modification and Other Delinquency Solutions
So, you're a hardworking American who slugs through your 40 hour week, but no matter what you do the economy just keeps on raining on you. You lost your job or had drastic cuts to your income. You went through a messy divorce and now the other half of your income has suddenly gone *poof*. You've run yourself ragged draining your savings or going further into debt just to make your bills on time.
And you own a house. You own a house that is probably worth a hell of a lot less than it used to be. In fact, you may have already tried to sell your home and downsize, but there's no way you can get an offer that would pay off the bank. Perhaps you've now fallen behind on your mortgage and you've tried to "negotiate" a loan modification or anything to lower your payments.
Well, let me try to help a little. My name's Crow and I've worn a lot of hats in the last few years. I've been a "Housing Counselor", a "Foreclosure Prevention Specialist", a "Foreclosure Intervention Counselor", a "Negotiator", and "Legal Assistant". These are all the same job: I help people to work with the banks to obtain relief from mortgage delinquency. I've been doing this for three years, am HUD certified (all over the place) and I have developed, implemented and run two programs which were both adopted in large part as national "Best Practices". I currently work for one of the five major mortgage servicers as a regional representative who provides outreach and guidance to borrowers seeking assistance.
DISCLAIMER: The information contained in this post is for informational purposes only. I'm attempting to provide basic information to individuals who can barely get a word of explanation from big bad banks like Bank of America or Wells Fargo. One of the largest issues in this whole mess is that no one provides education to homeowners, and when you speak to a bank rep their level of understanding is usually only marginally better than your own. In addition, I want to be clear that this information is provided under the assumption that you're looking for relief from an economic hardship. This is not to be used as a means to lower your payment if you don't need it. In fact, if you don't need help, you're most likely not going to get anything.
Now, it is very, very important to remember that every mortgage servicer is different, and that this is an often quickly-changing field. I'll do my best to update this post, but be warned that information can sometimes go out of date very quickly and that just because you read it here doesn't mean that your bank even offers the program/option. We haven't even begun getting into investors yet, either.
THIS IS PERHAPS THE MOST IMPORTANT PART OF THE ENTIRE POST: There are numerous non-profit, no-cost agencies out there who can assist. These range from nationally-spanning, large organizations to small neighborhood agencies. Please contact HUD to find an agency near you. Do it now, like, right now.
http://www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm
What's a Re-Modificationfinanceforbearance?
There are a number of different programs that a loan's servicer may employ in order to provide assistance to a homeowner. These options, together, are generally referred to as "Workouts". The process, itself, is often called a variation of "Loss Mitigation" or "Home Retention". While some are far more common than others, it's important to know exactly what a loan servicer is trying to do to help.
Loan Modification: The bread and butter of any loss mitigation program, a Loan Modification is when a mortgage's terms (interest rate, maturity date, principle balance and therefore payment amount) is changed without doing a full refinance. There are stand-alone agreements that "modify" the original loan documents and are also the most common and effective way of finding a "workout".
Forbearance: This is an option where the mortgage servicer will offer to provide temporary relief from an unaffordable payment through a short term agreement that "defers" a portion of the monthly payment making the payments more affordable for a set period of time (usually 3-6 months). These aren't too common anymore, as they work great for people who know they can go back to their old payment in a few months. In fact, I haven't seen one of these in almost a year.
Refinance: The classic is to simply get a new loan at those great interest rates we have now. Unfortunately, that's far from an option for most people due to poor credit or the home's value being less than the amount owed on the loan.
Reinstatement: This is what the banks what you to do. Fork over everything you owe (with penalties! because we all know that charging people money because they don't have money is a grand idea).
I know what you're thinking, "Woah, Crow! Servicer? Investor? Bank? What's going on here!" Well, there are a lot of people with their hands in the pot, so I'll try to define a few terms/parties involved. Now, in short, when you take out a new mortgage wherever you borrow from will front the cash for the purchase. But, if you think about it, if they just fronted the cash and then waited to have it paid back month by month, they'd run out of money pretty quick. So, in a very complex transaction, the loan is then sold to investors. Investors are a great mystery in my world, and they will remain so. The investor then contracts with a servicing company (usually an arm of one of the big banks like Bank of America or Wells Fargo, etc.) to act as the middle-man. Servicers collect payments and send out letters and are there to answer questions or make demands. They used to be, essentially, big collections and payment processing centers. Now a lot of their work, which they were never prepared for, is helping to facilitate a workout between the homeowner and investor.
What Is the Process?
If there's one piece of advice I can give that makes all the difference, it would be to quote Jerry Durham, Bank of America's VP of Loss Mitigation at an event I attended back in 2009: "Negotiation is a misnomer; there is no negotiation". What this means is that you, as a homeowner, have pretty much minimal say in whatever workout a servicer may offer you. As I like to remind my clients, the only thing that matters is red and green numbers numbers numbers. This is, when it comes down to it, a process that hinges on 1) document submission, and 2) communication. Every bank is different, but the actual process usually looks something like this:
Know your own situation.
It can be immensely helpful to know where you, yourself, stand before speaking to a servicer about a loan modification. Without getting into mortgage calculations or other financial numbers, this means simply pegging down what your income and expenses are, to the best of your knowledge. These are numbers that will be used throughout the entire process, so being consistent is a good idea and will prevent delays.
First sit down and make a monthly budget. Now, this isn't a "everything I spend ever" budget, but a realistic budget that focuses on necessities. I'm not saying under-report yourself, but there are some things that help and others that do not. Generally, you'll want the following at a minimum:
Next you'll want to get a firm handle on your monthly income. There are a few more common pay-schedules with simple formulas to calculate. In almost every case, a servicer will calculate income based off of both 1) your stated income, and 2) your Year-to-Date earnings. In every case, you'll be looking for both your gross income (before taxes) and your net (take home).
It has become increasingly an industry practice to use a borrower's Federal Tax Returns to confirm sources of income. When collecting income proof to be submitted with your workout package, take a moment to go through your most recent Tax Return and look for any sources of income you may miss. For example, line 16 on the 1040 concerns with pension and annuity income. Individuals frequently enough collect small amounts of income through these sources (including dividends, etc.) which must be proven. Save yourself the time and effort and provide these income proofs initially. This goes for anything on the Tax Returns such as K-1 income, 1099 or Schedule C. No matter how small, they'll want to see proof.
For a wage-earner, grab your latest paystub and take a look at the period-end date. You're going to want to find out exactly how far through the year you're at, so I'll work off an example:
As a note, often you're given a gross income year-to-date figure, but not one for net (take home) income. If that's the case, just divide your net income on a single paycheck by the gross to figure out your tax rate which can then be used to multiply by the monthly gross determined by the above method. Example: John shows a gross income of $6,102 on his most recent paycheck, and a net of $5,003. 5003 divided by 6102 equals ~0.82. That means that about 18% of John's paycheck goes toward deductions, and that his monthly gross of $3,906 multiplied by 0.82 equals a rough net income of $3,202.
Now, if you're contract or self-employed you'll need to put together at least a three month "profit and loss" statement and back it up by bank statements. eHow has a pretty simple explanation, and every servicer wants things a little differently, so that's a good place to start.
When this is all said and done, the last thing you want to do is take a look at your budget's surplus/deficit. Quickly speaking, you'll want to avoid relative extremes. Showing a huge surplus won't help and neither will showing a huge deficit. Always remember that despite what flat-tax advocates might say, if you're making $2,000 a month smaller numbers will be extreme as opposed to someone making $10,000 a month. This generally scales to the size of the current mortgage payment.
Call the servicer and get instructions for how to apply for a workout.
Pretty simple. Call your servicer and tell them you want to apply for a loan modification. Be careful about who you talk to. Avoid anyone in a "collections department" (actually, always avoid collections departments) and be certain to always ask what department you're working with. Most likely your servicer will go over your verbal information about income, expenses, liabilities, etc. and will then send out a package of documents you need to fill out and return. Just be certain you're speaking to someone who isn't in collections.
As a general note, the people you speak to will, inevitably, be call-center representatives with little to no training in actual mortgage finance (though sometimes they surprise you!). Take everything you're told with a grain of salt. I often, myself, call back after having a conversation to confirm with another representative what I was told by the previous. While I can smell something fishy, you may not be able to at first. Always err on the side of caution.
Lastly, you should keep a log of your conversations and communications. This is very important, as often you may get conflicting information or be told things that just don't make sense. It can be essential to keep a good narrative of the process for your own records.
How Can I Qualify?
Most servicers aren't going to tell you anything substantial about how to qualify for a loan modification. In general there are three approaches to the process on the servicer-side. Remember that "verbal information" I spoke of above? in many cases a servicer will be able to input your information into a computer system and see if it spits out a "pre-approval" for a program. This is one of the reasons it's necessary to get your own calculations for income and expenses before speaking to the servicer (a specific example is Select Portfolio Servicing, one of my favorite servicers to work with, who can put together a preliminary plan the first time you call in!). Secondly, many servicers simply use the "send your documents and wait" approach, in which they collect your information and make their own calculations. Thirdly, many smaller servicers like credit unions and local banks often want you to just come in and sit down to see what they could do to assist you.
There are many specific programs out there, and knowing a touch about them can be a boon in the process. The most common program, and nearly always the first program a homeowner is reviewed for, is the Home Affordable Modification Program, or HAMP. This is the "Obama plan" that people talk about. It's really a simple process: They take your gross income and calculate 31%. They then work backwards from there to see if they can provide a new mortgage payment, including taxes, insurance and HoA/Condo fees, equal to the number. This takes a bit of financial judo to calculate, but knowing if your current payment is above or below that 31% is good information to have, as being under that 31% makes you simply ineligible for the program. I'll try to update this with more information later, but the program can be found at www.hmpadmin.org.
Secondly, there are what are interchangeably called "in-house" "traditional" or "investor" modifications. These are, generally, for people who do not qualify for HAMP and they are based on 1) affordability, and 2) investor guidelines. In short, they look to see if they can reduce your interest rate in order to give you a payment that leaves you with a budget surplus (remember income and expenses from above?).
An important note is that "Investor Guidelines" are the greased pig of this process. Investors on loans have big books full of what they will and will not allow. Sometimes this is as extreme as "will not allow any modifications, ever", but most commonly they say rather mundane things like "cannot reduce the interest rate lower than 4%" or "will not allow more than 12 months of payments to be capitalized onto the back of the loan". You'll never get to see these, and they govern all programs (including HAMP).
Other specific programs exist (Chase has an "internal" program called "CHAMP" which mirrors the HAMP program), but aside from HAMP their process is a well-guarded secret in most cases.
FHA, VA and USDA loans are different (because they are!)
Please note that FHA, VA and USDA loans are different. I'll add an explanation of FHA if necessary (it's long and tedious!), but for VA and USDA loans contact the agencies directly and early.
How to Work with a Mortgage Servicer
I've touched on a lot of this already, but I'll try to string this all together in this space.
Servicers are messy beasts. Prior to the crash, they were small operations engaging in the infrequent foreclosure or workout, and they had small staffs devoted to the maintaining and general gear-grinding of taking payments and managing the loans under their care.
This all changed. You've probably read about the thousands and thousands hired by these servicers to deal with the immense pressure of unprecedented workout requests. As a result, your chances of speaking to someone who knows what they're doing is a crap-shoot. You'll be speaking, mostly, to call-center reps and, perhaps, a higher level contact. In nearly every case you will never be allowed to or have the opportunity to speak to anyone who makes a decision. Even escalation processes and supervisors more often than not fall flat.
The most important things, in no particular order, are: 1) Always keep your documents up to date. I suggest that on the first of each month you just send in your most recent bank statement and proof of income, regardless of if they ask for it. Generally documents are considered "good" for 30-60 days, so get ahead of the servicer and give them everything they need. This goes for signatures on documents like a Letter of Hardship or the HAMP Request for Modification Affidavit (don't worry, you'll learn what these are!). 2) If you're confused or think there's bad information being given (and there is bad information all the time), call back and confirm with a different representative. 3) Document everything. Ever piece of mail, every call and every document submission.
Aside from that, patience is important. There is no "timeline" for when these things resolve themselves and it can take as little as 30 days to a year and a half, sometimes, to get a final decision. Most delays are caused by document issues. A rep will request your last bank statement on the 2nd, by the time you send it in, it gets reviewed and accepted it may be 2-3 weeks later and then they'll come back looking for recent paystubs. Rinse and repeat. Always keep documents up to date, and if you send in anything it's always a good idea to submit your most recent paystubs (proof of income) and bank statement if you haven't already.
Glossary and Q&A
I've reserved the next two posts for, essentially, Q&A. Please ask questions as this will expand the knowledge-base for all of us!
EDITED 9/21/11 to reflect my current position.
EDITED 7/26/11 to include recent trends of addressing and identifying sources of income via Tax Returns.
So, you're a hardworking American who slugs through your 40 hour week, but no matter what you do the economy just keeps on raining on you. You lost your job or had drastic cuts to your income. You went through a messy divorce and now the other half of your income has suddenly gone *poof*. You've run yourself ragged draining your savings or going further into debt just to make your bills on time.
And you own a house. You own a house that is probably worth a hell of a lot less than it used to be. In fact, you may have already tried to sell your home and downsize, but there's no way you can get an offer that would pay off the bank. Perhaps you've now fallen behind on your mortgage and you've tried to "negotiate" a loan modification or anything to lower your payments.
Well, let me try to help a little. My name's Crow and I've worn a lot of hats in the last few years. I've been a "Housing Counselor", a "Foreclosure Prevention Specialist", a "Foreclosure Intervention Counselor", a "Negotiator", and "Legal Assistant". These are all the same job: I help people to work with the banks to obtain relief from mortgage delinquency. I've been doing this for three years, am HUD certified (all over the place) and I have developed, implemented and run two programs which were both adopted in large part as national "Best Practices". I currently work for one of the five major mortgage servicers as a regional representative who provides outreach and guidance to borrowers seeking assistance.
DISCLAIMER: The information contained in this post is for informational purposes only. I'm attempting to provide basic information to individuals who can barely get a word of explanation from big bad banks like Bank of America or Wells Fargo. One of the largest issues in this whole mess is that no one provides education to homeowners, and when you speak to a bank rep their level of understanding is usually only marginally better than your own. In addition, I want to be clear that this information is provided under the assumption that you're looking for relief from an economic hardship. This is not to be used as a means to lower your payment if you don't need it. In fact, if you don't need help, you're most likely not going to get anything.
Now, it is very, very important to remember that every mortgage servicer is different, and that this is an often quickly-changing field. I'll do my best to update this post, but be warned that information can sometimes go out of date very quickly and that just because you read it here doesn't mean that your bank even offers the program/option. We haven't even begun getting into investors yet, either.
THIS IS PERHAPS THE MOST IMPORTANT PART OF THE ENTIRE POST: There are numerous non-profit, no-cost agencies out there who can assist. These range from nationally-spanning, large organizations to small neighborhood agencies. Please contact HUD to find an agency near you. Do it now, like, right now.
http://www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm
What's a Re-Modificationfinanceforbearance?
There are a number of different programs that a loan's servicer may employ in order to provide assistance to a homeowner. These options, together, are generally referred to as "Workouts". The process, itself, is often called a variation of "Loss Mitigation" or "Home Retention". While some are far more common than others, it's important to know exactly what a loan servicer is trying to do to help.
Loan Modification: The bread and butter of any loss mitigation program, a Loan Modification is when a mortgage's terms (interest rate, maturity date, principle balance and therefore payment amount) is changed without doing a full refinance. There are stand-alone agreements that "modify" the original loan documents and are also the most common and effective way of finding a "workout".
Forbearance: This is an option where the mortgage servicer will offer to provide temporary relief from an unaffordable payment through a short term agreement that "defers" a portion of the monthly payment making the payments more affordable for a set period of time (usually 3-6 months). These aren't too common anymore, as they work great for people who know they can go back to their old payment in a few months. In fact, I haven't seen one of these in almost a year.
Refinance: The classic is to simply get a new loan at those great interest rates we have now. Unfortunately, that's far from an option for most people due to poor credit or the home's value being less than the amount owed on the loan.
Reinstatement: This is what the banks what you to do. Fork over everything you owe (with penalties! because we all know that charging people money because they don't have money is a grand idea).
I know what you're thinking, "Woah, Crow! Servicer? Investor? Bank? What's going on here!" Well, there are a lot of people with their hands in the pot, so I'll try to define a few terms/parties involved. Now, in short, when you take out a new mortgage wherever you borrow from will front the cash for the purchase. But, if you think about it, if they just fronted the cash and then waited to have it paid back month by month, they'd run out of money pretty quick. So, in a very complex transaction, the loan is then sold to investors. Investors are a great mystery in my world, and they will remain so. The investor then contracts with a servicing company (usually an arm of one of the big banks like Bank of America or Wells Fargo, etc.) to act as the middle-man. Servicers collect payments and send out letters and are there to answer questions or make demands. They used to be, essentially, big collections and payment processing centers. Now a lot of their work, which they were never prepared for, is helping to facilitate a workout between the homeowner and investor.
What Is the Process?
If there's one piece of advice I can give that makes all the difference, it would be to quote Jerry Durham, Bank of America's VP of Loss Mitigation at an event I attended back in 2009: "Negotiation is a misnomer; there is no negotiation". What this means is that you, as a homeowner, have pretty much minimal say in whatever workout a servicer may offer you. As I like to remind my clients, the only thing that matters is red and green numbers numbers numbers. This is, when it comes down to it, a process that hinges on 1) document submission, and 2) communication. Every bank is different, but the actual process usually looks something like this:
Know your own situation.
It can be immensely helpful to know where you, yourself, stand before speaking to a servicer about a loan modification. Without getting into mortgage calculations or other financial numbers, this means simply pegging down what your income and expenses are, to the best of your knowledge. These are numbers that will be used throughout the entire process, so being consistent is a good idea and will prevent delays.
First sit down and make a monthly budget. Now, this isn't a "everything I spend ever" budget, but a realistic budget that focuses on necessities. I'm not saying under-report yourself, but there are some things that help and others that do not. Generally, you'll want the following at a minimum:
* Mortgages
* Utilities
* Credit debt/other debt
* Cable/TV/Phones
* Out-of-pocket insurance and medical costs
* Groceries/home supplies
* Child care
* Utilities
* Credit debt/other debt
* Cable/TV/Phones
* Out-of-pocket insurance and medical costs
* Groceries/home supplies
* Child care
Next you'll want to get a firm handle on your monthly income. There are a few more common pay-schedules with simple formulas to calculate. In almost every case, a servicer will calculate income based off of both 1) your stated income, and 2) your Year-to-Date earnings. In every case, you'll be looking for both your gross income (before taxes) and your net (take home).
It has become increasingly an industry practice to use a borrower's Federal Tax Returns to confirm sources of income. When collecting income proof to be submitted with your workout package, take a moment to go through your most recent Tax Return and look for any sources of income you may miss. For example, line 16 on the 1040 concerns with pension and annuity income. Individuals frequently enough collect small amounts of income through these sources (including dividends, etc.) which must be proven. Save yourself the time and effort and provide these income proofs initially. This goes for anything on the Tax Returns such as K-1 income, 1099 or Schedule C. No matter how small, they'll want to see proof.
For a wage-earner, grab your latest paystub and take a look at the period-end date. You're going to want to find out exactly how far through the year you're at, so I'll work off an example:
Calculating Income wrote:John Homeowner is paid bi-weekly, but because he receives commission as a large part of his earnings his paychecks range from small to large. Some months he brings home the bacon, others he has to dip into the savings from previous months to get by. His paycheck from September 12th shows his YTD gross earnings as $32,814.
Now, this number shows payments through the 12th of September, so we have 8 full months of pay plus a partial portion of the month of September. Now, we need to find out exactly what portion of September is included, so we take the paydate of the 12th and divide that by the number of days in the month, 30, to get 0.4.
If you're still following, this means that the YTD gross income is for 8.4 months of the year (January to August is 8 months, plus 0.4 months of September). Now simply divide that YTD number by 8.4 to get $3,906. There's the monthly income.
As a note, often you're given a gross income year-to-date figure, but not one for net (take home) income. If that's the case, just divide your net income on a single paycheck by the gross to figure out your tax rate which can then be used to multiply by the monthly gross determined by the above method. Example: John shows a gross income of $6,102 on his most recent paycheck, and a net of $5,003. 5003 divided by 6102 equals ~0.82. That means that about 18% of John's paycheck goes toward deductions, and that his monthly gross of $3,906 multiplied by 0.82 equals a rough net income of $3,202.
Now, if you're contract or self-employed you'll need to put together at least a three month "profit and loss" statement and back it up by bank statements. eHow has a pretty simple explanation, and every servicer wants things a little differently, so that's a good place to start.
When this is all said and done, the last thing you want to do is take a look at your budget's surplus/deficit. Quickly speaking, you'll want to avoid relative extremes. Showing a huge surplus won't help and neither will showing a huge deficit. Always remember that despite what flat-tax advocates might say, if you're making $2,000 a month smaller numbers will be extreme as opposed to someone making $10,000 a month. This generally scales to the size of the current mortgage payment.
Call the servicer and get instructions for how to apply for a workout.
Pretty simple. Call your servicer and tell them you want to apply for a loan modification. Be careful about who you talk to. Avoid anyone in a "collections department" (actually, always avoid collections departments) and be certain to always ask what department you're working with. Most likely your servicer will go over your verbal information about income, expenses, liabilities, etc. and will then send out a package of documents you need to fill out and return. Just be certain you're speaking to someone who isn't in collections.
As a general note, the people you speak to will, inevitably, be call-center representatives with little to no training in actual mortgage finance (though sometimes they surprise you!). Take everything you're told with a grain of salt. I often, myself, call back after having a conversation to confirm with another representative what I was told by the previous. While I can smell something fishy, you may not be able to at first. Always err on the side of caution.
Lastly, you should keep a log of your conversations and communications. This is very important, as often you may get conflicting information or be told things that just don't make sense. It can be essential to keep a good narrative of the process for your own records.
How Can I Qualify?
Most servicers aren't going to tell you anything substantial about how to qualify for a loan modification. In general there are three approaches to the process on the servicer-side. Remember that "verbal information" I spoke of above? in many cases a servicer will be able to input your information into a computer system and see if it spits out a "pre-approval" for a program. This is one of the reasons it's necessary to get your own calculations for income and expenses before speaking to the servicer (a specific example is Select Portfolio Servicing, one of my favorite servicers to work with, who can put together a preliminary plan the first time you call in!). Secondly, many servicers simply use the "send your documents and wait" approach, in which they collect your information and make their own calculations. Thirdly, many smaller servicers like credit unions and local banks often want you to just come in and sit down to see what they could do to assist you.
There are many specific programs out there, and knowing a touch about them can be a boon in the process. The most common program, and nearly always the first program a homeowner is reviewed for, is the Home Affordable Modification Program, or HAMP. This is the "Obama plan" that people talk about. It's really a simple process: They take your gross income and calculate 31%. They then work backwards from there to see if they can provide a new mortgage payment, including taxes, insurance and HoA/Condo fees, equal to the number. This takes a bit of financial judo to calculate, but knowing if your current payment is above or below that 31% is good information to have, as being under that 31% makes you simply ineligible for the program. I'll try to update this with more information later, but the program can be found at www.hmpadmin.org.
Secondly, there are what are interchangeably called "in-house" "traditional" or "investor" modifications. These are, generally, for people who do not qualify for HAMP and they are based on 1) affordability, and 2) investor guidelines. In short, they look to see if they can reduce your interest rate in order to give you a payment that leaves you with a budget surplus (remember income and expenses from above?).
An important note is that "Investor Guidelines" are the greased pig of this process. Investors on loans have big books full of what they will and will not allow. Sometimes this is as extreme as "will not allow any modifications, ever", but most commonly they say rather mundane things like "cannot reduce the interest rate lower than 4%" or "will not allow more than 12 months of payments to be capitalized onto the back of the loan". You'll never get to see these, and they govern all programs (including HAMP).
Other specific programs exist (Chase has an "internal" program called "CHAMP" which mirrors the HAMP program), but aside from HAMP their process is a well-guarded secret in most cases.
FHA, VA and USDA loans are different (because they are!)
Please note that FHA, VA and USDA loans are different. I'll add an explanation of FHA if necessary (it's long and tedious!), but for VA and USDA loans contact the agencies directly and early.
How to Work with a Mortgage Servicer
I've touched on a lot of this already, but I'll try to string this all together in this space.
Servicers are messy beasts. Prior to the crash, they were small operations engaging in the infrequent foreclosure or workout, and they had small staffs devoted to the maintaining and general gear-grinding of taking payments and managing the loans under their care.
This all changed. You've probably read about the thousands and thousands hired by these servicers to deal with the immense pressure of unprecedented workout requests. As a result, your chances of speaking to someone who knows what they're doing is a crap-shoot. You'll be speaking, mostly, to call-center reps and, perhaps, a higher level contact. In nearly every case you will never be allowed to or have the opportunity to speak to anyone who makes a decision. Even escalation processes and supervisors more often than not fall flat.
The most important things, in no particular order, are: 1) Always keep your documents up to date. I suggest that on the first of each month you just send in your most recent bank statement and proof of income, regardless of if they ask for it. Generally documents are considered "good" for 30-60 days, so get ahead of the servicer and give them everything they need. This goes for signatures on documents like a Letter of Hardship or the HAMP Request for Modification Affidavit (don't worry, you'll learn what these are!). 2) If you're confused or think there's bad information being given (and there is bad information all the time), call back and confirm with a different representative. 3) Document everything. Ever piece of mail, every call and every document submission.
Aside from that, patience is important. There is no "timeline" for when these things resolve themselves and it can take as little as 30 days to a year and a half, sometimes, to get a final decision. Most delays are caused by document issues. A rep will request your last bank statement on the 2nd, by the time you send it in, it gets reviewed and accepted it may be 2-3 weeks later and then they'll come back looking for recent paystubs. Rinse and repeat. Always keep documents up to date, and if you send in anything it's always a good idea to submit your most recent paystubs (proof of income) and bank statement if you haven't already.
Glossary and Q&A
I've reserved the next two posts for, essentially, Q&A. Please ask questions as this will expand the knowledge-base for all of us!
EDITED 9/21/11 to reflect my current position.
EDITED 7/26/11 to include recent trends of addressing and identifying sources of income via Tax Returns.
ceres on
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I'm not worried about making payments, i can do that indefinitely provided nothing happens to me workwise, etc. so a loan modification/refi are probably not options, unless i could potentially get the principal lowered. I assume unless you are already delinquent, no bank would do that. my concern is that i am throwing money into a hole that i wont climb out of for a LONG time.
My current living situation is maintanable for the forseeable future, so i wont need to buy another house if i were to walk away. The more articles i read, the less inclined i am to stick this mortgage out. I want to keep paying it, but not if it's stupid to do so. I don't really see it as being irresponsible to cut my losses on a bad investment, but i'm sure that's how people seeing strategic default.
I'd give you my opinion, but generally your situation isn't the kind of clear-cut, do-or-lose kind of issue. That is, as you make clear, a good thing. This all assumes you have a market-rate mortgage that fully amortizes, and you don't have an interest-only or other "exotic" mortgage product.
You have an underwater investment property. The first thing that comes to mind is that you are throwing 20% of that payment away. If you were in a position to regain equity or if you were able to pocket a bit of a profit, it may be worthwhile to stick with the mortgage. My area isn't market prices, but home values have continued to stagnate and show little interest in increasing to pre-recession levels. With this in mind you have to consider that something has to chance for the investment to be an actual investment. When you add in the dangers like losing the tenant or having to make expensive repairs, there's a decent argument to be made for getting rid of the property.
My best advice is basically to try to address the value/revenue issues before getting rid of the property. You've already made an investment, and if you can make the financial side work then you've moved yourself into a more comfortable and less stressful situation.
Attempt a loan modification. While a somewhat involved process, it doesn't ever hurt for someone in your situation to give it a shot. The goal here would be to try to lower that monthly payment to a place where you can pocket a bit of profit each month (offsetting repairs, etc., if necessary). The chances of having your actual balance reduced is minuscule, but it does happen from time to time. The worst-case scenario is that nothing changes. Even if the property is underwater, a profit coming in can offset the poor value and allow you to pre-pay to work that balance down. This is, any way you pretty much look at it, a long-term operation which begins with modification. Don't worry about being current, just demonstrate financial hardship and submit the information. I've seen plenty of people in your general situation receive modifications.
A liquidation option is generally a better idea than walking away. A Short Sale can let you sell the property for no profit while maintaining your credit and other financial history free of the bad marks for delinquency. Remember: it isn't just homebuying on which bad credit history has a negative effect. Auto loans, credit cards and even sometimes employment can hinge on a clean report. Since you're current and have the ability to pay, you can take all the time in the world to set up the sale.
In any case, it really depends on the cash-flow. I'm always open to PMs if you're interested in sharing details about the loan.
Did some calculations and 10 years from now, i will have 80k in equity, and still be underwater on my house (if the above price is a legit asking price for my place). that's NOT taking into account the 20k i had to shell out in repairs. oy...
Heard back from Realtor, she thinks 160 is a good place to start (which i'm assuming, has no place to go but down)
Aside from the fact that it's impossible to be both underwater and have equity (equity is the difference between present loan value and market-value), I assume you mean that you will have paid down $80k and you will still owe more than current value.
A few things to note is that real estate is a gamble, and you should assume that there will be some sort of increase in value over the next 10 years. While it's a decent assumption, it also fails to solve any issues. At a certain point, there's little difference between being a little underwater and a lot underwater. You're still underwater. From everything you've said, it really just isn't worth it to try. My area isn't really in transactions, but I am fairly convinced that between the hassle/stress and the value issue you're best off, personally, in trying to get away from the situation.
More to the point, this is roughly what will happen in a sale situation: You'll have to contact your servicer and apply for a short sale. These are generally a good deal for a bank (nets them more cash and less costs) so you're going to send in a bunch of info, they'll probably do an internal and external BPO and a bunch of other paper-pushing sort of stuff. At the same time, your Realtor will have to aggressively push the property and also work with the bank to negotiate an amount that will be acceptable.
That's the short version, but the longer version is pretty case-by-case. It's common to see short sales drag on for months even with a committed buyer as so many different entities have to sign off on the settlement. Sometimes a bank will approve a number really, really quickly (Ocwen, for example, tends to calculate and send out short payoff offers as routine course for delinquent borrowers).
The last bit I'll say is that there's a "Plan B" if necessary. If you're on the market for long enough (usually 3-6 months) and can't find a buyer at all, you can apply for what's called a deed-in-lieu. Generally these are for delinquent borrowers facing foreclosure, and can be difficult to obtain with good terms, but it allows you to make an agreement with the bank to simply hand over the property. This is really just a foreclosure without the legal foreclosure, like pleading "no contest" to a charge in court.
Be very careful to read everything and consult an expert in the area, as you need to be certain that the bank won't come after you for a difference (judgement) or have negative marks placed on credit, etc.. Again, I'm not an expert in transactions, so I'd try to find an agency or lawyer able and willing to ensure you don't get screwed.
Of course, this is all the short version, but it's a good place to start.
Man i sure am glad i didn't plunk down a big chunk of change as a deposit, or i'd be even more pissed.
There are services like www.youwalkaway.com, their fees are a bit suspect (It's like a monthly fee, or 1k up front for the service). They apparently support you through the whole process. Are those a scam? i haven't really done any research on them, i might check around today.
My rule of thumb is generally that in this sort of case, the only for-profit agency that can really help you would be an attorney. I don't know of any programs such as you noted which are not scams of one sort or another. If you want to pay someone to help, pay an attorney who specializes in this sort of thing. In many cases, simply have an attorney at all can open a lot of closed doors. I'd see how tough the bank is going to make it before shelling out cash. You're already paying for the sale and such costs.
I'm pretty sure i'm going to have to rip down all the drywall in the whole house ultimately, and see exactly what is fucked up underneath. The guy ran cable really poorly (coax) for one, and if there is any water damage underneath, i'll be able to see it. Probably if i do that i can get all the open permits on my house taken care of (that the seller/builder left open) at least. Word to the wise, stay a Toys R Us kid.
And I feel for you brah, you've had like a (few) terrible year(s).
Been working on it for close to three years now, starting with Chase who politely told me to F-off. They sold us to IBM LBS, who ultimately got us the mod. We sent 5+ copies of the same HMA paperwork, spent hours upon hours on the phone, and probably dinged my credit with a forbearance plan, but we kept paying what we could and eventually worked it out.
So best I can offer is to keep pursuing, be up front with them on what you can pay, always be polite but get answers, and keep good records.
The details haven't made it down to operations-level yet (at least at my company and we're one of the "big five"), and I'd be surprised if that were a quick process. From my understanding of the settlement, it will primarily be focused on the GSE loans (Freddie/Fannie), as private investors have been immensely hesitant to engage in any of the refi programs. If you wanted to PM me your servicer and some basic info on the loan/property I'd be happy to look at it in a bit more detail.
Thanks! I guess my real question was whether there was any timeline for any of that information on that multistate settlement process. Sounds like signs point to no right now
I'll be writing up some info for this thread as soon as I'm given specifics. There are actually a bunch of program updates I need to make to the OP but have been way too busy to tackle.
Even if I got a short sale, how would I get financing for a new home with a ding on my credit? Seems like a no win situation.
There are lots of short sales around my neighborhood, tbh. I don't know the inner workings of one, but i hear banks are getting more agreeable to them, because they are cheaper/more profitable than a foreclosure.
One option is just to walk away, eat the credit hit, and find a house to rent for a while. I've read in places that your credit score doesn't actually take 7 years to recover, even though the foreclosure is on your record for that long.
Before anything else, I want to mention that Zillow pricing is a really crummy way to estimate value. Their spreads are huge, their methodology is spotty, at best, and they tend to highball. That isn't even taking into account the fact that their comps are a very small set of specifically reported sales.
With that said, you're almost certainly underwater. The real question is "how much".
Short sales into new purchase tends to be a bit trickier than a short sale for the sake of getting out of an unaffordable mortgage, but the basic mechanics are the same and, based on your tone, I don't think that the situation is as bad as you may fear.
The biggest moving piece in all of this is your servicer and investor. Some servicers are easier to deal with than others. The real rub is going to be your investor. I have to assume you have a single loan for this. The first step is to really think over the idea of moving. A short sale is something that really doesn't enter into an actual process until after you have listed the property and, to a certain extent, have an actual offer. Essentially what happens in a short sale is that you'll list the property and provide financial information to your servicer in order to go through the "review" process similar to a modification request. The action happens, mostly, when you get an offer at which point there will be a back-and-forth between yourself and the investor (the servicer is, as always, the middle-man) where you make an offer and often are countered by another "offer" from the investor.
This tends to be easiest for loans with Frannie or Freddy (or any GSE such as VA or FHA) as they tend to be able to provide quick and concrete offers based on a black and white BPO appraisal.
There are a few programs out there for short sales. Most tend to be "hardship" programs like the government's HAFA (Home Affordable Foreclosure Alternative).
The biggest issue will be that you can afford the loan and have no intent to miss payments. As an aside: Don't miss payments if you can help it. The fastest way to sidestep the basic requirements is to, when you construct your monthly budget for review, to throw in the kitchen sink and claim "Excessive Financial Obligations" to show that you're in the red.
More to the point, short sales happen for current, non-hardship situations somewhat regularly. Moving for a job or property issues (such as Frenchenstein's - sorry dude) tend to crop up a lot.
The biggest thing I might suggest before looking directly at the short sale route would be to look into a "short refinance". The biggest program is the HARP (Home Affordable Refinance Program) which seeks to lower principle balance and interest rate through a short-payoff into a new loan. This would allow you to place yourself in a better situation as far as value as well as hopefully being able to reduce that interest rate to the 4%ish that we're seeing these days.
As always, if you want to PM me some details (your servicer and investor; specific circumstances, etc.) I'd be happy to speak privately to try to better flesh out some info for you.
It never hurts to call and start trying to figure out what your options are.
[b]"In reviewing your loan modification we have determined that your loan does not qualify. Unfortuately the HAMP program does not permit IndyMac Mortgage services to modify non-deliquent loans governed by a servicing contract that only provides for modification in the case of deliquent loans."[/b]
I do not understand, we have not made our July payment, clearly our income had dropped by 50%. I lost my job of eleven years due to the financial crises caused by the banks yet the bank refuse to help. The acutal loan holder, I have just learned is Deutshe Bank yet they do not take calls or answer letters from actual people.
I thought that we who have lost our jobs due to the finacial crises were given a bit of help through HAMP. Are the banks being illegal here? Is there anywhere anyone can go for help. We are not asking for anything other than a lower interest rate so that we have a chance at staying in our home. Please someone out there give me an honest answer.
Help, please help. We do qualify under all of the guidelines posted here.
Generally speaking, there exists a pretty firm rule that an investor will be unwilling to review for modification unless you're at least two full months behind. This sucks and is very frustrating, but this is based on the statistic that 80% of people who fall behind for 30-60 days catch up on their own. What is really means is that you aren't a risk until you're into that third month. That's when we start to get worried. We're hoping you'll be able to pull out on your own, but if there's a real issue, a servicer will do what they can to help. I'd also note that not paying the month of July as of July 30th is not "behind" technically. As of 8/1 you were behind by 30 days (one month). So, if you can't make another payment, on 9/1 you would be a full 2 months behind. This may not be the case for Deutshe Bank, but generally 2-3 months behind is usually when you can apply.
It's also worth noting that there is nothing personal about this process. What matters are numbers, and your particular situation will never be given any specific consideration. No matter how much your particular situation seems to merit consideration, these programs are not designed and nor could they be, to take individual circumstance into consideration. This is an industry with very hard and black/white rules. That's because we're highly regulated.
The real issue here will be income.
Unemployment or temporary disability income is not "permanent" income and is never used to approve you for a modification. A servicer will need to see that you can afford a monthly payment in order to be approved for a modification. There's nothing illegal, though it is very frustrating. I'd very much encourage you to go to the link in the OP to find a housing counselor in your area who can help explain and facilitate this process. You can always shoot me a PM, as well, if you want to talk about any intimate details.
If there is "permanent income", you want to keep applying. A denial for Imminent Default (being less than 2 months behind) isn't a financial denial and has no effect on a future application.
If there isn't permanent income or there isn't enough permanent income, you want to try for a forbearance, which can be tricky to secure for non-GSE loans (not Fannie/Freddie/FHA/VA/USDA) please see the OP for description of the type of program.
Let me know if you have any questions.
Ironically, beforer we started the process, we learned that we would be ineligible for HAMP because our loan start date is after 1/1/09. So it seems sadististic that they put us throught the process of providing literally 100 pages of documentation to apply for a program that they knew from the start we would be inelible for. This whole process took 5 months because our Customer Service Representive (CSR) was slow and rarely returned my calls. I respoded to all the CSRs's requests for documentation promptly, usually within 24 hours.
This month, we received official notice that we are ineligible for HAMP and initially we were told there were no other options for us other deed in lieu, short sale, or deed for lease. A day or two later we got another request from BOFA to apply for a private modification.
I'm weary and I'm afraid I have the world's most incompetent CSR. We are now going through the same process of her never calling me back and she is apparently unable to comprehend new documentation that I've provided.
So, here is my question, would there be any benefit to requesting a new CSR? I dread the thought of 5 more months of dealing with her incompetence. She returned 6 of my phone calls over 5 monts, and I documented over 120 messages to her and many more attempts to contact her. I don't think her perfomance is going to improve and it seems likely that more months will pass and we'll be in the same situation as we are now.
Also Should we look into the deed for lease option? Prevailing rents for comp homes in our area are $1,000 less than our mortgage. We are really inclined toward this program because our home is old, and will need quite a bit of maintenance over the next 5 years (probably $20k) However I've heard that this program is rarely granted and the rental rates are often not competitive.
Will BOFA really start foreclosure proceeding after only 4 missed payments.
Additionally, I suspect that the appraiser CountryWide used to underwrite our loan, fradulently inflated the value of our home by $50K or more. Do I have legal recourse for this?
Thanks for any advice you can give.
I feel like BOFA has more to lose than us in this situation, I am right about that?
The first thing I'll say is that I'm not intimately familiar with BoA's procedure anymore. A lot has changed since I last worked with them, but I'm going to make a few assumptions based on generally uniform procedures that go across the big five.
From the bottom up, the process of notifying homeowners of a denial for modification is really, really confusing. My company is specifically working out a process to make the information we send much more clear and concise. My guess is that the denial and subsequent statement that liquidation options were all that was left is, as it almost always is, misleading. This is because any fallout (denial) from HAMP immediately triggers a solicitation for HAFA (Home Affordable Foreclosure Alternative - a nice way to say "sell your home"). These are automatic, and they usually don't mean that you're locked out of other options. These notices are often poorly written and they state that sale options are all you have when that just plain isn't the case.
I will say that I, personally, love Fannie to absolute death. While every mortgage servicer interprets programs and guidelines differently, Fannie has, IMHO, the best set of "traditional/private" modifications out there. My usual rule of thumb is that if you have a reasonable amount of income (enough to support a modified payment) they'll have a modification for you. There are a few things that can disqualify you, namely extremely high debt. But usually if there exists reasonable, permanent income there's a modification you can hopefully qualify for. Fannie is good like that.
It is not uncommon for a CSR to be assigned per-review. If you reapply, there's a good chance you'll end up with someone else. I would suggest, regardless, that you contact a HUD-approved Housing Counselor from the link in the OP. Really, please do this.
I'm unfamiliar with the "deed-for-lease" as my company doesn't offer any such program. Is this where you turn over the property and become a renter? programs like that are sketchy. I dunno, but I'd be very, very wary. You'd probably be better off selling short and just getting a rental if you want to go that way.
Yes and no? After 2 missed payments, a servicer will usually send out a "breach letter" providing a timeframe demanding the entirety of what is owed. If that date comes and goes without the account coming current or payments being made, it can be sent to a foreclosure attorney for pre-foreclosure prep. The bottom line is that timeframes for foreclosure depend greatly from state to state. if you shared, I could give a better answer (here or via PM).
You may have recourse for mortgage fraud, but whatever lawyer you hire will probably get stomped by the legal dept. at BoA. I don't want to disabuse you of the notion, but consumers have the deck stacked against them. Such frauds were often perpetrated by non-lender employees (usually mortgage brokers), which further complicates things. Look for any class actions and/or contact your state's AG.
And yes, BoA has a bunch to lose. Fannie has way more. My word of warning is that BoA is so big they never really can stay on top of things. Working with them can be very, very frustrating which is another reason to speak to a counselor.
Do not give up until you've been reviewed for the internal Fannie programs, they're really good. Best in the industry, pretty much.
As always, feel free to ask here or by PM anything else. I'm always willing to look at numbers/specifics via PM if you desire.
You can do a short-sale (which is just a short payoff) to ditch the debt. For some people it really is the best option.
For the sake of simplicity, yes.
It's more complex than that, particularly in terms of state law.
Edit: LTV is not really what I meant. I meant to say you're still on the hook (owe) what you borrowed to buy the house initially, regardless of market conditions.
You'll be hard pressed to find an investor who participates in a principle reduction program. They're rare and, as such, the luck of the draw.
And, especially, if you're making payments there's no issue. It isn't Chase's fault (or VA) that prices have declined a bit.
Modifications and the ilk aren't designed (rightfully) to address market concerns. They're designed, in principle, to address means-based problems. We don't care that you made a potentially bad investment. We care if you can meet your contracted payments or not.
VA and FHA don't reduce principle. I'd myself, love it if I could get free money, but that isn't how any of this works. Sorry for being a touch harsh.