Mortgage Mods - Where Did The Money Go?

My mortgage modification clients often ask about the class actions or Attorney Generals actions against mortgage companies, lenders, and servicers, when the newspapers/Internet proclaims "XYZ Bank settles with Massachusetts for $XXX Million". The biggest single question is "Where did the money go?" Unfortunately, the answer I give is "I don't know except that there was no fund set up for modifications". Then I get the BLANK STARES from my clients.

"How can that be?" they query, to which I reply, "I do not know - probably to offset the cost of the suit and to establish a new unit to investigate mortgage fraud AND to help balance the budget." To this date I have never received notification that the Commonwealth of MA is setting up a fund to help borrowers avoid foreclosures, or even to set up an agency to help homeowners apply for a loan modification.

At this juncture, homeowners are being cast adrift. The 50 States +/- CA & MA (depends on the day) have been arguing with the biggest lenders/servicers over a settlement for all of these institutions evil-doings; and they were indeed evil! The proposals are at $26Billion or $26,000,000,000 but no one is offering to pay. Instead the Banks et al want to promise they won't do it again and that they will make it easier for homeowners to get a modification. Making it more difficult would be to say "NO, WE WON'T DO MODS ANYMORE". No money will go to individual homeowners. No funds will be set up to help a borrower get caught up. As the title of the movie proclaimed "GONE IN 60 SECONDS" (so where is Nicholas Cage when we need him?).

Even if there is money made available, the selection/application process will be as difficult as getting the modification as evidenced by the recent Federal "EHLP" (Emergency Home Loan Program) program that only gave out 1/2 of the $1Billion allocated for it.

In fairness, because of the structure of the mortgages, now part of giant pools of loans called "Mortgage-Backed Securities" or "MBS" for short, no Bank owns the loan(s). They are collateral for a Bond, typically a fixed income security, pieces of which are bought and sold as part of mutual funds, retirement funds, and corporate investments. It's like GE borrowing money by issuing a bond - this means that GE is stating to the world that if it receives up to $XXXMillion from investors, GE will pay them interest at "X"% for "Y" years, and GE puts up its assets as collateral. With MBS, the underlying assets of the fund, home mortgages, are the collateral.

The refrain often heard when one is trying to get a modification is "The Investors do not allow modifications" or "This requested modification is outside investor guidelines". When the investor is the Federal Nation Mortgage Association (FannieMae) or the Federal Home Mortgage Corporation (FreddieMac) or the Federal Housing Administration (FHA) the formula used to determine "Yes" or "No" is at least obtainable. And, because these are either Government Agencies or quasi-government agencies, they do participate in the HAMP program. But, you deal not with Fannie or Freddie or the FHA but with the loan SERVICER. This is the company picked to run the pool of loans - to collect payments and send out bills, and to start foreclosures and to actually WORK ON MODIFICATIONS.

There is no rhyme or reason to the process. Each servicer has slightly different requirements, all allowed by the Making Home Affordable program which created HAMP. Paperwork must be submitted and often resubmitted again and again. This is the period that most borrowers give up or taking time from work to put documents together again and again, in the hope of getting an affordable payment now that there is no more overtime or even one less job for the borrower(s) to count-on for the money to meet the payments.

I often sit at my desk working on one project, while on hold different times with a servicer for an hour or sometimes two. I can keep working on my computer and have at least one other phone in use while I work with a servicer. So far, my results are good but my client has no money to pay for all of that time, even when I only count the time I am actually doing calculations and filling out forms or talking to a servicer's representative. Because, in addition, there are the hours spent with the client who has no money to pay for the time and the results.

The most frustrating part of this process is when I ask my client, "Okay, you are now 4 months behind because the payment went up. How much have you saved? Certainly if the payment was $700 per month and now it's $850, you have the $700 put aside for each of the four months the Bank returned your money!", and the client answers "Nothing - I paid other bills". At which point I ask "Well, how are you going to pay if you get a modification if you can't even save the money you had been paying?". Occasionally the client will say "I don't know". Most often I hear "Well, when I have the modification, I will be able to make the payments somehow". With trepidation I ask "How, if you can't make the payments now?".

This conversation takes place in my office or on my telephone at least twice every week and sometimes twice a day.

RULES FOR GETTING A MODIFICATION:

1. Call the Servicer and ask for modification or HAMP documents or go on their website and print them

2. Put all required documents together - fill them out completely and DATE THEM ALL and send them to the address stated on the website or the forms. Often they MUST be faxed.

3. Remember, if you are working with an attorney or any other third-party, that person/entity is going to have to have written permission from you to deal with the servicer/lender

4. Documents expire in 60 days. That means if you send in only some of the documents required, and then send in more, and then send in more because the servicer wants them, the first docs you submitted may be "stale dated" - just like bread - and need to be updated and resubmitted. This is where the process breaks down for most Homeowners.

5. Put aside the mortgage payment you were making or that you hope to be making. If you cannot save the money, you cannot save your home. Put simply, If a borrower is not disciplined enough to save the money to pay the mortgage, then there is no ability to pay the modified payment - so what is the point of going through all of the aggravation. Sometimes Life Is Not Fair.

6. If you get a package sent to you from the lender/servicer open it immediately. If documents are due on Wednesday of next week Make sure they get there by then. A day late and you are disqualified. Fair? Probably not but read the last sentence of Item 5 above.

The people with whom you will speak are not bad people. They are doing a job, trying to avoid losing their house and are jsut asking the questions they must to avoid being fired. Don't rant at them - that assures NO COOPERATION. Remember that the folks at the top of the MBS pyramid are the folks "calling the shots" and they can't lose.

Author's Copyright by Richard I Isacoff, Esq October 2011

rii@isacofflaw.com

http://www.isacofflaw.com

Reverse Mortgages - The What's and Why's

Reverse Mortgage - a mortgage that goes backwards? In a real sense YES! Instead of building equity by paying back what you owe, a lender determines how much equity you have in your home and gives you cash for a part of that equity. BUT each month that passes you lose a month's worth of equity. It truly is a mortgage in reverse. The key is that you do not pay it back. BEWARE! NOTHING IS FREE!


OVERVIEW
In exchange for taking a payment for part of the equity in your house, you give the lender the right to own you house at the time of your death, or at such other time as you no longer live there (think assisted living etc.). Having a second home is fine. Living 6 months in your primary home, the one with the reverse mortgage, and 6 months in some far away place, is okay. It is only when you move out for good that the lender can take your house and sell it. The idea is that the Lender will have calculated accurately enough to be able to sell the house and get all of the money it "loaned" to you back, along with interest.

DETAILS
1. The amount of the loan is based on the value of the house minus any loans and other liens against it at the time of the transaction, or more succinctly, the EQUITY. That's it? Just call and get money? Well almost but the "devil is in the details" (that expression should be the topic of its own posting).

2. You or your spouse/partner/whoever owns the house jointly with you, must be at least 62 years old. Why? Because that was they rule that was made, and it's a rule that the Federal Housing Administration (FHA) has dictated. The theory is that at 62 you may be near retirement, there is a greater likelihood of serious illness, etc - basically income may drop more frequently than in the younger population. The older you are, the higher the percentage of equity you get. Why? Because you will die sooner (at least that's the way it works on paper).

3. The lender in a Reverse Mortgage acts more like a life insurance company. The Lender takes the age of the borrower and looks up the life expectancy to estimate "how soon will the old bugger die"! Obviously, the sooner the lender gets the house back the faster it can be sold, and the more the lender makes.

This is where it gets complicated. Why does a lender make more? When the loan is made, the lender considers how soon the person will die or move, and therefore determines how much to pay. Remember, interest builds each month.

The other element is the "time value of money". For example: If I lend you $100,000 and you give me a mortgage on your house, which is worth $166,666, and make no payments to me by agreement, but the interest is just accruing, or accumulating waiting to be paid, I have to take into account the interest I could be getting on my money if I bought bonds where I get interest every month.

Let's say that I assume you will live, per the "tables", another 12 years and that for those 12 years, I would earn an average of 6.333% per year with the bonds. I can do some math and figure out how much I need to get back at the end of the REVERSE MORTGAGE to be sure I get back at least what I loaned to you, ($100,000) and the amount I would have earned if I had bought those bonds in the example, instead of loaning you the money - $75,996, for a total of $175,996. If the house sells for at least this much I get all of my money and its earnings back. If it sells for less, I lose profit.

In theory, if you were to die after 3 years, and I sold the house for the $166,666 it was worth at the time of the mortgage, I make a large profit. THERE IS A BUILT-IN SAFEGUARD. A family member can always pay me back what I loaned PLUS the interest that was deferred - earned by me but not collected. If the payback is less than the house is worth, then the family would want to pay off the mortgage.

4. The program is regulated by the FHA and they also insure it. The insurance protects the borrower in case the borrower is getting monthly payments (instead of taking a lump sum at the time of the closing) and the Lender goes out of business; FHA pays the monthly payments for the duration. There is a hefty fee for the insurance that gets paid to FHA at the time the mortgage is closed (put into effect), but it's well worth the cost to know that you will get paid.

5. Let's say that in the above example the homeowner lives 10 years longer than expected and the house goes down in value. The lender in this situation takes a big loss. BUT that loss is NOT a debt of the homeowner's estate. The lender takes the loss. NEITHER YOUR CHILDREN NOR ANYONE ELSE has to pay anything to the lender.

REVERSE MORTGAGES SOUND GREAT BUT THEY ARE NOT FOR EVERYONE! There is a mandatory counseling session with a trained financial expert who will explain the reverse mortgage concept and apply it to the prospective borrower's situation. Further, the fees that the broker can take are regulated/set by FHA.

A Reverse Mortgage can make life easier for someone who has equity in his/her home, a mortgage payment that is preventing the person from retiring, or worse, causing a foreclosure due to lower income at retirement, by lending a big portion of the home's equity to the homeowner. There are NO monthly payments. There is no credit check. It is all by formula; Amount of equity, the homeowner's/borrower's age ( minimum of 62) and then the amount of the maximum reverse mortgage payment can be calculated. If it's enough to payoff the exising mortgage you get to live in your home without making another mortgage payment, and if there's enough so that money is left over, it can be paid to you in a lump sum or in monthly installment.

Who would have thought: a mortgage that pays you!

Author's Copyright by Richard I. Isacoff, Esq., Septmeber, 2010
rii@isacofflaw.com
http://www.isacofflaw.com/