Radio Show 3: 2009/03/19: THE LANGUAGE OF LOAN MODIFICATIONS!

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This show focuses on key questions such as How this all works? what does this all mean?  Even if you’ve done many loans, many of you don’t know the inner workings and therefore may not understand why your loan modification may seem to be impossible.  It isn’t, but listen to this show, and you can use the below transcript of the show to read along.

Good Afternoon!  This is Connie Saunders with the Foreclosure Freedom Network Show.  If you haven’t tuned in yet, I work all over the Country with people in trouble on their home mortgages to help them get loan modifications or refinances and every week I have a half hour show to keep you updated on what is happening in this industry and how to pull yourselves up by your own bootstraps and get out of any trouble you are in on your home loan!

Keep in mind that these shows are all stored on Pod casts on the KCAA Radio website which you can listen to anytime or you can download these and keep them on your computer for further study or share them with your friends! Rather than taking questions directly on the show, please email them to me and I’ll try to cover these in the next show or even have you on as a guest if you like!  My email address is connie@foreclosurefreedomnetwork.com.  You can also go to www.kcaaradio.com , where the icon pointing to our website is on their main page or you can select the Thursday Show Schedule and find our library of Pod casts.

Today’s show is covering questions that have come in so far.  I know this subject is a new one for many of you and I’ll try to back up and answer these questions when they come up.

Question I. Many people don’t understand why their loan isn’t qualifying for the current workout plan.

The first people targeted for Home Modification Plans are homeowners.  But unless Fannie Mae or Freddie Mac or other Government Sponsored Enterprise agency owns your home loans, you may not qualify for the latest plan.   Also the homeowner must be living in this home.  This represents possibly 25-35% of the home loans out there.

How it works today is Your Apparent lender gives you money, gets a note signed for it by you and records a mortgage on public county records.  Then they pool these loans together and sell the notes or securities backed up by the notes to Fannie Mae and Freddie Mac both GSE’s, or to a multitude of other investors, get the cash back and loan it to another.  It helps the world go round by making what’s a long term investment more liquid.  In this century though many other big time investors got into the investor picture, and like a GSE bought loans back from Apparent Lenders, allowing them to have the cash back in hand to give more home loans out. These Non GSE Investors don’t currently have a standard workout package and therefore if your loan is owned by them a workout could be a bit arbitrary and is definitely a changing scene.  Things that effect workouts are the solvency of the investor or note owner.  If the note owner/investor really is a pool of people governed by a servicing agreement and whether this service agreement can be modified to allow changes in the terms of the notes involved.

You have to call your lender in most cases to find out what investor owns your note.  It is your right to know this information but most homeowners don’t think to ask and don’t know they can.   Non GSE loans can still get workouts, it’s just a longer process generally and somewhat arbitrary and is also a changing picture based on the solvency of the investor and the terms of the loan pool your mortgage is in.  Were I you, I would not only want to know who owns my note but I would also want to know what exact pool of loans it is in and I would want a copy of the “pooling and servicing agreement” on that pool of loans.  With this you can actually find out what special terms there are connected with the servicing of your loan.

Question II. One of the biggest questions we get is “How do I write a Hardship Letter?”

We work with lenders every day and I think its best to help you look at this from their viewpoint.

HMP is the acronym now used for ‘Home Affordable Modification Program’ or the new Obama Plan.  Early in March a package of new documents and rules were released for this program that the Lender/Servicers must comply with when modifying loans.  With this is a new Hardship Affidavit form, which is fast becoming the standard.  Keep in mind that any hardship communicated must be real and must be able to be proven with documents or other evidence.  If it is later disproved it most likely will lead to the lender disapproving or reversing any workout done, so please don’t invent hardships.  Not everyone has a hardship and therefore not everyone will qualify for the assistance that is out there. Here are the points listed on this Affidavit:

1.  I lost my job and now am unemployed.
2.  My employer reduced my pay.  Overtime eliminated, regular hours or base pay reduced.
3.  I am underemployed.  I lost my job, but my new job pays less than my old job.
4.  A Borrower or primary wage earner in the household has died.
5.  I am self-employed and have endured a decline in business earnings.
6.  My spouse, domestic partner, or co-Borrower has been incarcerated in jail.
7.  I have suffered a permanent or short term disability.
8.  A serious illness has impacted a household member.
9.  I am now divorced.
10.  I am now separated.
11.  My employer has suffered a natural or man-made disaster impacting my income (such as wildfires, floods, hurricanes, etc.)
12.  I or a family member has suffered a disability or illness that results in an increase in uninsured major medical expenses.
13.  My house has been damaged by a natural or man-made disaster.
14.  I had to incur a significant expense to maintain the habitability or safety of my house or otherwise prevent a significant deterioration in its value if the house was not repaired.
15.  I am overextended on all of my credit because I have been using credit cards, home equity loans, or other credit to pay my monthly Mortgage payments, medical obligations, food expenses or utility bills.
16.  I am not working or receiving any income.
17.  Other (please explain), ______________________________________________________________________

___________________________________________________________________________________________

_______________________________________________________________________________________________

I will execute the Acknowledgement on the following page.
Borrower Acknowledgement
I hereby represent to the Lender that the identified Event has occurred and is the cause of my inability to pay my mortgage.  Further, I understand and acknowledge that the Lender may investigate the accuracy of the identified Event(s), such as by requiring me to provide supporting documentation.  I understand that if I misstake or misrepresent the nature or occurence of the Event(s) or fail to provide any required documentation

xxxxxxx

Now I’m going to break for a minute but I’ll be back right after this announcement for the second half of this show.

Hi!  I’m back again!  This is Connie Saunders with the second half of this weeks’ Foreclosure Freedom Network Show covering questions you‘ve asked so far.

Part of the Loan Modification process is to substantiate the hardship and the income claimed; with evidence.  If the borrower is salaried:

• The borrower must provide copies of the two most recent pay stubs indicating year-to-date

earnings; a signed copy of the most recently filed federal income tax return, including all

schedules and forms, and a signed IRS Form 4506-T (Request for Transcript of Tax Return).

If the borrower is self-employed, he or she must provide the most recent quarterly or year to date profit and loss statement for each self employed borrower in place of pay stubs but the rest of the package is the same:

• For additional income such as bonuses, commissions, fees, housing allowances, tips and

overtime, the servicer must obtain a letter from the employer stating that the income will in all

probability continue.  The servicer must average the last two years of bonus income to

determine the amount to be used for qualifying.

If the borrower has other income such as social security; disability or death benefits; pension;

Public assistance or unemployment they must also provide:

• Acceptable documentation includes letters, a disability policy or benefits statement

from the provider that states the amount, frequency and duration of the benefit.  The servicer

must determine that the income will continue for at least three years.

• The servicer must obtain copies of signed federal income tax returns, IRS W-2 forms, and

copies of the two most recent bank statements.

If the borrower has rental income, acceptable documentation includes:

• Copies of all pages from the borrower’s most recent two years of signed federal income tax

returns and Scheduled E - Supplemental Income and Loss.  The monthly net rental income to

be calculated for HMP purposes must equal 75 percent of the gross rent, with the remaining

25 percent being considered vacancy loss and maintenance expense.

A servicer must confirm that the property securing the mortgage loan is the borrower’s primary

residence as evidenced by the most recent signed federal income tax return or a credit report or

other documents such as utility bills.

A servicer is not required to modify a mortgage  loan if there is reasonable evidence indicating

the borrower submitted false or misleading information or otherwise engaged in fraud in

connection with the modification.

Question III. Another question I frequently get is “What am I supposed to put on my Financial Statement?  What do the lenders want to see?”

The answer to this question is very simple but may take a more complex explanation for you to see the simple truth.  Lenders WANT TO SEE THE TRUTH and want to have confidence that this information is complete and accurate, this is the simple truth.  I know those who are self employed particularly can doctor profit and loss statements one way or the other to modify profits - so if you have a choice in this - choose reality.  Choose to place figures onto these forms that can be backed up with proof.  If a category varies in monthly fees, put a yearly or quarterly average and have and keep an itemized list of what you averaged, should it later be needed.  Wherever possible back this itemized list up with time of expense, bank or credit account the expense was taken from and if a cash expense keep receipts in your package to prove each line item.  You don’t want to later have this be challenged without each item claimed being able to be substantiated further with detailed proof.  Many of you have a moving picture, one month never the same as the next.  But like a movie you can hit the pause button.  Just concentrate on substantiating proof of what you have claimed on each line item.  If you have a moving picture your workout will no doubt be harder to get approved just because it will be more difficult to prove your economic situation is sustainable. What I’ve seen is the tougher it is to document your form initially, generally the servicer will come back and ask that it be done again - later on - when in ‘review’.  If you formulate a good system now to document your income and expense items and stick with the same system later it will go far in making you credible to your lender/servicer.

IV.  What help can I get if I am current on my mortgage but want to get better loan terms and my home has decreased in value?

Those of you who have stayed current but are unable to refinance to lower your interest rates or improve your loan terms may be able to refinance with a 30 year fixed rate loan if you have Fannie or Freddie owned loans.  These refinances haven’t begun yet because the mortgage documents haven’t all been produced, but this is just around the corner.  Others may be able to get loan modifications with better or fixed rates.

If a home is upside down, meaning the home loan is higher than the home value, there are many holes in all current planning.  If something isn’t done soon to facilitate people’s need to move because of work, finance, family, health or other circumstances, the loans which are upside down will have to either go into default, undergo a short sale (which is a short pay off of the loan mortgage when the property is sold to another for less than the amount of the mortgage) or the properties will end up in foreclosure; unless the homeowner is lucky enough to have a good loan to begin with, be able to get a renter to pay down the mortgage or is lucky enough to be able to just keep on making the payments no matter what there is unfortunately currently trouble on the horizon because all the scenarios aren’t covered!

Also half the properties are investor owned properties.  These are not covered or managed now with any standard plan.  Right now it’s caveat emptor, buyer beware or I’m sorry if your in trouble on this loan but you took the risk to begin with so ‘live with it’ attitude.    Unless handled with a smooth negotiator it could be difficult to get agreement for a sustainable workout today on these loans.   So if you are having trouble with getting a loan modification and it isn’t making sense because Foreclosure would be a worse deal for the Investor/Servicer than allowing you to get into better loan terms, you can give us a call or find another trusted Negotiator.  There are solutions to everything when you focus on optimal survival for all.

Keep in mind that Article IV of our Constitution guarantees all of us protection from unreasonable search and seizure of our homes.  Home seizures are unreasonable if they are seized for worse terms than those proposed by the current owner who is in trouble on the current loan unless these better terms are approved and the investors’ servicer would otherwise get using foreclosure.  It’s a mouthful, I know, but you can go back and listen to this again and again, it is a very important concept!!

I hope this has helped you today!  Please tune in next week for more current information on how loan modifications are working!  Again this is Connie Saunders, with Foreclosure Freedom Network! Encouraging you to keep your noses clean and pull yourselves up by your bootstraps!   And remember to create blue skies and a shining sun for your future!