April 11, 2009 Visalia Times Delta
What you need to know about getting help with your mortgage
Q&A WITH JODI WOODSMITH
foreclosure counselor with Self-Help enterprises You predicted last year that the foreclosure crisis would peak in the second quarter of 2009. Prediction still good? And when do we come out of the woods? As job losses increase, credit gets tightened by the lenders, and consumer spending drops, all national economic indicators point to a continued downturn throughout 2009. On a local level, my personal guess is that the Valley is about half-way through this recession, and we should start to see some economic improvement during the summer of 2010. When will home prices stabilize (stop dropping)? Will home values return to previous levels, or even higher levels? Historically speaking, home prices stop dropping after the economy begins to turn around. Real estate has always been a cyclical market and the Valley's ups and downs tend to be over a 10-year run. I seriously doubt we'll see another extreme run up in home values — the "boom" was a fluke — but I do think that prices will go up gradually. A gradual increase in real estate values is what's normal and healthy. It's unlikely home values in the future will escalate quickly. For those who are upside-down in their values and can ride out the tide by staying put in their homes for a decade or so, it's doubtful they'll still be upside-down with regards to their home's value. Many people have been seriously injured by this current market and I'm hoping the old adage "once bitten, twice shy" makes people stop and think before they buy/sell real estate or sign on the dotted line. I'm having trouble making my payments and I am afraid of defaulting on my mortgage. What are my options? Contact a HUD- approved counseling agency and they will provide you with a list of your choices for free. In Visalia, you can call Self-Help Enterprises' foreclosure hot line at 888-412-0828. At no cost to you, Self-Help's HUD trained foreclosure counselors will analyze your current situation and discuss various options that are available to you. I have been notified that unless I catch up on my payments (I'm six months in arrears), the lender will begin foreclosure proceedings. What are my options? Call Self-Help Enterprises' foreclosure hot line for an explanation of your options. Every situation is unique and there are no standard answers. In a nutshell, your options depend on the type of loan you have (FHA, VA, CHFA, conventional, privately held) and who owns your loan (the investor.) The company who sends a mortgage statement in the mail may not own your loan. If they do, they are the investor. If they don't, they are called the "servicer" and they act as the go-between between you and the investor. I have been able to keep up with my mortgage payments, but I signed an adjustable rate, and I'm afraid the rate will increase and I won't be able to make my payments. What are my options? At this time, most lenders are working with those who are presently delinquent and putting those who are current at the back of the line, so to speak. Being proactive is admirable, but it's sometimes difficult to get any answers while you are current on a loan. Call your lender and discuss your situation. If you aren't getting anywhere, call Self-Help Enterprises' foreclosure hot line for an explanation of options. I refinanced and thought I had a good rate and a pretty good deal. But now I owe more on my mortgage than my house is worth. Other than simply wait for the value of my house to rise again, what are my options? You have a lot of company. Most everyone who purchased or refinanced between 2004 and 2008 is upside-down on their home loan, meaning they owe more than the house is worth. Some people are over $100,000 upside down. Right now, very few investors will reduce the principal balance of the loan. Think about the reason why — when you got the loan, you and the investor agreed on the value of the home and the amount of money they would give you. If your investor reduces the loan balance to the current value (meaning the investor loses money) and the house appreciates in value, they just gave you a gift. Investors are not in the habit of giving out free money. That being said, if you have two loans, there may be an option to reduce the principal balance in bankruptcy, but other than that or having your lender agree to reduce the balance, there are few options. Call a local bankruptcy attorney for more information about bankruptcy law and how it may help you. If your loan is owned by Fannie Mae or Freddie Mac, reducing the balance may be an option. Some investors are slowly starting to agree to put the amount that exceeds the value into a second or third loan, sometimes with or without interest on the amount. Call your mortgage company and ask them if this is an option for you. The Hope for Homeowners Act, started by President Bush, was supposed to resolve this problem but it is a complete failure because it is voluntary on the lenders' part and most lenders refused to reduce the balances. President Obama is looking into ways to increase the effectiveness of this legislation. Is there anything being crafted as legislation to relieve beleaguered homeowners who are encountering a foreclosure issue? President Obama has created the Making Home Affordable program to address this issue. Depending on your situation, if you have a loan owned by Fannie Mae or Freddie Mac, you may qualify for a refinance into a fixed rate, 30-year, low- interest loan. To find out whether your loan is owned by one of these entities, visit www.making homeaffordable.gov and click on "loan lookup", fill out your information, and you'll know immediately whether your loan is owned by Fannie Mae or Freddie Mac. If it is, call your lender and apply for this program directly. There is never a fee to apply. Regardless of who owns your loan, as long as your lender or servicer is participating in the program, you may qualify for a loan modification that will lower your payments to 31 percent of your gross income for a five-year term. There is never a fee to apply for this program. Is the banking industry recognizing the crisis, and is it capable of adjusting their procedures or rates to provide relief? Oh, they recognize the crisis. Just look at how many had to cancel their private plane orders, stop their fancy retreats, or give back their bonuses! They are moving very slowly and there are still more homes foreclosed than modifications offered. In general, when qualifying for a home loan, lenders use someone's "gross" income, meaning their income before any taxes or deductions are taken out, along with the minimums they owe on their revolving debt (student loans, vehicle loans and credit cards.) They don't take into account costs of life — meaning food, gas, insurance, utilities, etc., when qualifying people for a mortgage. For example, if A earns $5,000 a month, before taxes, and has $100 per month in minimum credit card payments, from 2004 to 2008, A would likely have qualified for a $2,400 per month home loan. That means 50% of A's gross income was allowed for debt, even though A never "took home" $5,000 a month. All lenders use varying degrees of qualifying ratios, depending on the loan and the investor guidelines, when qualifying someone for a home loan. This example is for discussion purposes only and everyone's situation will differ. When deciding to offer a modification, most lenders use "net" income, meaning "take-home pay" or the amount received after all deductions. They also factor in costs of food, gas, insurance, utilities, etc., in determining whether they will offer a loan modification. Some factor in credit card and automobile payments, some don't. All lenders allow deductions for wage garnishments. Using net income, if the person is "upside down" on their finances, meaning they have more going out than coming in each month, a modification will likely not be offered. For example, A makes $5,000 gross income but takes home $3,200 per month. If A's house payment is $2,400, all A has left for "life" is $800. In most circumstances, A must demonstrate that A can live on $800 a month to receive a modification. On top of that, most lenders want to see a $100-$200 "cushion" after all expenses are paid. All lenders use varying degrees of qualifying ratios, depending on the loan and the investor guidelines, when determining if someone qualifies for a loan modification. This example is for discussion purposes only and everyone's situation will differ. What initiatives are the lending industry taking? Indymac Bank is offering a loan modification program with a payment of 38 percent of gross income on loans that Indymac owns, if the homeowner qualifies. If you have an Indymac loan, call Self-Help Enterprises. We have a contract with Indymac to help its borrowers easily connect with an Indymac representative to determine if Indymac owns their loan. President Obama's Making Home Affordable loan modification plan offers a payment of 31percent of gross income for qualifying borrowers. If borrowers have a qualifying Countrywide loan, and fall under the attorney general's settlement agreement, Countrywide must offer various modifications to qualifying borrowers. Self-Help Enterprises has a contract with Countrywide to help its borrowers easily connect with a Countrywide representative. Call Countrywide or Self-Help Enterprises for more information. Are any lending institutions giving grace periods or otherwise providing relief to strapped borrowers? In the past, when a borrower was about three months past due, most lenders recorded a "Notice of Default," effectively starting the foreclosure process. Today, lenders typically aren't recording NOD's until borrowers are six to eight months past due. I'm working with a family now who hasn't made a payment in over 18 months and they are still in the home. Most lenders have pretty much stopped their rush to foreclose, but that's no guarantee that they will wait. Every situation is different. How would you go about seeking relief from the holder of a mortgage who is about to foreclose? Assuming the trustee's sale is imminent, there are two choices: One, have the holder of the mortgage agree to stop the foreclosure while you work out something with them. Always make sure to get that agreement in writing and ensure they have told the trustee to postpone the sale. Two, file bankruptcy. A bankruptcy will stall the foreclosure sale, pending the outcome of the bankruptcy, but it may not stop it. It all depends on your circumstances. Call a local bankruptcy attorney to discuss your particular situation and whether bankruptcy is right for you. Call Self-Help Enterprises' foreclosure hot line at 888-412-0828 and talk to a counselor about your specific situation. If somebody is in trouble and comes to me and asks, "What should I do?," what do I tell them? Tell them to call a HUD-approved counseling agency. They can find local HUD-approved counseling agencies in their area on HUD's Web site at www.HUD.gov and clicking on "avoid foreclosure" or they can call Self-Help Enterprises' foreclosure hot line at 888-412-0828 and talk to a counselor. What are the latest scams and frauds prevailing now? A big one that's happening right now in the Valley: A Realtor is telling people that he can stop the foreclosure process by doing a "forensic audit" of loan documents. He has told people that he has gotten people's homes "free and clear" of all liens by doing this. Of course, there's a fee involved. Unless you've hired an attorney directly, whenever there is a fee involved for helping you save your home, please be skeptical. Call a HUD- approved counseling agency for foreclosure counseling, a local attorney to determine your legal rights, or your local District Attorney's Office if you think something is fishy. A second scam that we hear about all the time involves distressed borrowers getting telephone calls or letters from companies claiming to have attorneys working on their staff who can get loan modifications through the "legal process." The fee is typically $2,500 to $4,500. Of course, there are no real attorneys working on their staff — it's just a ruse to get people's money. Distressed people get so caught up with the words "attorney" and "legal process" that it's all they hear and assume it's legitimate. The way to hire an attorney is by calling their office, making an appointment for a consultation, having the consultation, deciding if you want to hire the attorney and signing a retainer agreement with the attorney if you do. What angle are unscrupulous lenders, etc. taking? How can you detect a fraud? Who do you call to evaluate people who offer to help you settle your financial troubles? Another age-old adage fits this situation: "If it seems too good to be true, it probably is." If someone is promising you they will solve all your financial problems or save your home from foreclosure, and a fee is involved, run away. Save your money and call a HUD- approved counseling agency or a local attorney. If you believe you have been the victim of a loan modification scam, call your local District Attorney's Office. If you want to negotiate a payment plan, whom do you negotiate with? Call your lender or servicer — that's the company that sends you the mortgage statement each month. Ask for the "loss mitigation" department and talk to them. What's the process? You will be asked to submit a "workout package," which consists of bank statements, tax returns, a hardship letter, proof of income, and a profit and loss statement if you are self-employed. Once that's sent to the lender, they will evaluate it and let you know what your investor is willing to offer you, if anything. Not all investors are offering loan modifications. Some will just advise you to sell your home. Always ask if they are participating in President Obama's Making Home Affordable plan. If so, this program requires that different paperwork be submitted to the lender. Visit www.selfhelp enterprises.org for more information. Can you do it yourself? Of course you can do this yourself, but it takes a lot of patience and hard work. Many people get very frustrated and give up. Call Self-Help Enterprises' foreclosure hot line, 888-412-0828, for advice if you feel you're giving up or needing help with your lender. Additional Facts FOR FURTHER HELP AND INFORMATION · For more advice addressing your situation, visit www.makinghome affordable.gov or www.self helpenterprises.org for more information, or call Self-Help's foreclosure hot line at 888-412-0828 and talk to one of its counselors. · To find out if your loan is owned by Fannie Mae or Freddie Mac or for information on the Making Homes Affordable program, go to makinghomeaffordable.gov or www.selfhelpenterprises.org, or call Self-Help's hot line at 888-412-0828.
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