Problem: Principal Write-Down or Principle Write-Down?

In late March, there was an analysis and recommendations in the American Banker which comprised the most succinct commentary on the current mortgage/foreclosure Bank-Owned real-estate problem and how to begin to solve it. I went through the Maryland S&L crisis running failed institutions. The last thing I wanted in any of them was more real estate. It's just a messy way to waste resources.

Perhaps the most important portion of the author’s comments is "if mortgage lenders and servicers undertake the challenge of developing teams of highly trained loss-mitigating experts, each able to professionally and sensitively work through an increasingly complex range of loan modification, restructuring, or short sale options with troubled borrowers, then real progress can be made." To this point, not one mortgage company with whom I have dealt, Bank of America, JPMorgan Chase, Wells Fargo, Ally Bank, HSBC/HFC/Beneficial, and the OCWENs, GreenTrees etc has such a unit in place. The Call Centers read from a script and require the patience of a saint to negotiate. There is no Unit of specialists! Mention workout and you get transferred for 30 minutes+

One of the major program additions, as proposed by the most recent housing stimulus is the concept of allowing principal reductions. The issue is not new, nor are the arguments against it. 1 ½ years ago I began researching and discussing the Home Equity Fractional Interest ("HEFI") program as a way to get houses back above water without sacrificing the possibility of recovering what the market won't support today. Kevin Hardin, and his company Equi Debt Solutions (http://www.equidebtsolutions.com) had produced a slide show (http://www.slideshare.net/equidebt/h-option) describing how the program works. Basically, the Mortgage Company agrees to a reduction of the principal balance, but in exchange gets a second mortgage. This allows the mortgage company and the homeowner to share in any appreciation of the property. Once the write down is recovered, due to a sale or maybe (in the distant future) a refinance, the homeowner and the Mortgage Company split the excess 50/50 or by whatever other agreement they reach at the time the transaction originally takes place. Although the program was accepted at the federal level, it withered on the vine and not one of the above-cited entities has ever discussed it with me or anyone else I know.

Banks can maintain their moral high-ground and insist borrowers pay; either with cash or their house. Their bottom line - don’t worry - "we already have a reserve for the loss". Let us agree that we had the perfect storm scenario and no one is to blame. Let's fix the problem not nip at its heels like a Yorkie puppy.

Author's Copyright by Richard I Iaacoff, Esq, April 2012

rii@isacofflaw.com
www.isacofflaw.com

Mortgage Settlement - Not For Everyone

Hooray! We have a Mortgage Settlement - $26B worth but who gets help and where does the rest of the money go? NO ONE KNOWS yet, and no one know who is covered and will get assistance of any kind!

What we do know is that the 5 major servicers, Bank of America, JPMorgan Chase, Ally Financial (the old GMAC), CitiBank/CitiMortgage etc, and Wells Fargo are funding the settlement (there may be others later).

We DO KNOW that if you live in Oklahoma you opted out of the settlement, and if your loan is owned by FannieMae (FNMA) or FreddieMac (FHMC) YOU ARE NOT INCLUDED. Below is a link to the website for the Settlement where you can check to see if your loan is owned by either of these GSEs (Gov't Sponsored Enterprises).

We also know that 1. if your case falls into the included category and you lost your house in what would be deemed an improper foreclosure you may be entitled to $2,000+/-. 2. If your mortgage payments are current but your house is worth less than you owe, you may be eligible for a refinance to a low rate. 3. If you need a modification, you might get a Principal Reduction so you owe less and therefore your payment may be lowered. (No items 2 and 3 ARE NOT reversed - seems like they should be however).

Nothing will be ready for 6-9 months, and most of the programs will be administered through the States' Attorneys General's Offices - the program will be implemented over the next 3 years.

Some perspective on the Settlement amount: 2011 - Bk of Amer earned $17B after loan loss reserves ("net" income $1.4B); JPMorgan "Net" Income $19B; Citi "Net" Income $11B; Wells Fargo $16B. Just these 4 banks had a "Net" Income of $47B for 2011 and that is without stripping reserves for the Settlement that have already been put aside and reduced income.

Last - the official word is "Wait, you will be contacted" or, if you are in the foreclosed category being handled by your State's Attorney General, contact that office through the link provided on the National Mortgage Settlement site.

http://www.nationalmortgagesettlement.com/help

Author's Copyright by Richard I. Isacoff, Esq., February 2012

rii@isacofflaw.com

www.isacofflaw.com

Legacy Assets - Not Much Of An Inheritence

The Wall Street Journal in its February 5-6, 2011 edition had an article by David Benoit, entitled "BofA Sets Mortgage Cleanup Unit". The article about Bank of America was in the middle of the "B" section and drew little attention. In fact, there was no follow-up in the WSJ nor was it reported in the rest of the press. Certainly it did not make the nightly news nor the newscasts on the radio.

Okay, what did the title mean? Was BofA establishing a department of custodians/cleaners, or maybe street sweepers? Nothing that community minded. What BofA did was to establish a Business Unit to "monitor the Bank's 1.3 million delinquent loans". In addition, it will deal with foreclosures and INVESTORS wanting their money back for the bad loans in the Mortgage Backed Securities they purchased. The unit is named the "Legacy Asset Servicing" group.

Legacy, as in an inheritance? - well not really. Legacy as in " this is what we got stuck with when we bought Countrywide and made our own bad loans". A bit of math here - 1.3 million loans, averaging $100,000 each totals $130 BILLION of delinquent loans, and here delinquent does not mean 30 days late, but, rather, seriously late - nearing foreclosure.

There are 55,000 employees in this unit. BofA hopes to reduce the number to 35,000. Sounds great for BofA, but the reduction is only from eliminating redundant operations so BofA profits increase. What's another 20,000 unemployed workers matter? Harsh assessment - yes. But, we now have $130 billion in loans (1.3 million loans) where people may have their homes foreclosed.

Because of these loans, BofA's mortgage groups lost nearly $9 billion in 2010 and had to reserve, put in escrow and promise not to spend, another $4.1 billion. If the investors get their way, and force BofA to buy back the bad loans in the MBS the investors bought, it is reported that BofA could lose another $10 billion. What is staggering is that, while stockholders might not be thrilled and some executives might get fired, the $10 billion will be only inconvenient for the Bank. That should give you an idea of the size of the Bank.

What the article does not state, and what is not being reported, is the tens of thousands of homeowners who will be losing their homes. Do some "deserve" it for not paying the bills because of frivolous spending, or because they used the house as an ATM by constantly refinancing until payments were impossible? SURE! But the majority of homeowners facing foreclosure are victims of job loss, illness, mortgage sales people who outright lied and falsified documents (of that I have first hand knowledge), and the general economic collapse.

If this Legacy Asset Servicing group really takes charge of all of these loans, there is at least some hope that through regulatory oversight, private lawsuits, federal legislation (don't count on that one), and the new Consumer Finance Protection agency, there can be an examination of these loans - maybe to stop foreclosures and force modifications. Nowhere in the story is there even the hint of BofA taking steps to help homeowners with modification; to change its own policy of "if we don't have the documents and recognize that we do, you will lose you home".

The investors want their money back. Why should they get it? The level of sophistication of these "investors" equals that of the Chairman of the Federal Reserve. Many of them packaged the loans and some created the Mortgage Backed Security product. Why should they just demand their money and get it. Yes, they have a contract that protects them - HOMEOWNERS DO NOT!!

Bank of America is only the biggest of the entities taking this kind of action. Every "Bank" with a large mortgage portfolio, or those who sold loans into what became Mortgage-Backed Securities are doing the same. The fear is that all of the investors who lost, or may lose, money (it may just be the income stream from the investments) will demand that the Banks who sold these "toxic" loans repurchase them, ridding the potential losses from the securities, thereby protecting the investors. The irony here is that the Investors created the monster that is now threatening to "gobble them up" in losses.

Is there anything wrong with centralizing the work with defaulted loans. NO! It's the right way to process the work. BUT if this is being done to streamline the foreclosure process, and to mollify investors so they get their money back (why can the rest of us buy an investment that has a guaranty that you can never lose money), the entire SYSTEM must be revamped.

The Greatest Depression? Ask Rep. Neugebauer (R-TX)

Rep Randy Neugebauer, Chairman, House Financial Services Oversight Subcommittee, said it is time for the government to admit its foreclosure prevention efforts are a failure and should be shut down. The Texas Republican said such programs are counterproductive and are preventing the housing market from bottoming out, which is necessary before recovery can begin. (1/24/2011 from the American Banker)

Now, there is a real solution to the foreclosure crisis! Bite the bullet - displace hundreds of thousands of homeowners, let the inventory of bank-owned properties (OREO) sky-rocket, let the housing market drop bottomless and that will allow us to have an economic recovery. The sad part about Rep. Neugebauer's assertion is that he may be right in the long-term, but at what IMMEDIATE & CURRENT COST!

The program is not working - no news there. Why? Because the government regulators and policy makers do not want to to tackle the "investment banks" and the "investors" in mortgage-backed securities ("MBS")to tell them they WILL modify loans. At this time, no one can order a lender, mortgage servicer, investor, Pool Trustee, or any one else that it/she/he MUST modify a loan.

Everything is voluntary and the decision makers are in a position that they cannot lose. even if the market "bottoms out" as the Rep. from TX suggests it should. The Sponsors of the MBSs and the investment banks that put the packages together and sold them have already been paid or are so high up the MBS hierarchy of payees, that unless the value of every mortgage in the pool of mortgages becomes utterly worthless (no value at all to the houses securing the mortgages which comprise the MBS), THEY WILL GET PAID.

From an "economic" point of view (see the 1/13/11 posting), the Rep. makes sense. From a financial point of view it does not. From a human point of view it would be "The Nightmare from Wall Street". Remember "economics" is the study of an economy which is merely a system to deal with supply and demand. The concepts are simple but the implications are not. This is a case where the theory is great and accurate in its long-term view. But, getting from here (where/when we need modifications and for the Government to help all of us struggle through the mess) to there (where the market, the economy can correct itself) is a 20 year span.

Perhaps the Rep. has not taken into account the mass disruption of the pensions which hold funds that hold mortgage-backed securities. Or maybe he has forgotten that if there is no confidence in the value of the MBS, which is really set by its stability and ability to pay the return it's promised, the value will drop to $0 or something close to it. In reality, the houses that would be lost in foreclosure will retain significant value, even if that is only 20% or 30% of the mortgage balance. When the next generation comes along, it will be able to buy a vacant house for 40 cents on the dollar from what was owed on the mortgage. What will it cost the current homeowners on a nationwide basis?

Factor in those who lose houses to foreclosure and then the rest of the homeowners, from low-income to upper-middle class income, who manage to keep a house now worth half (1/2) of what's owed, and you have a "financial" (not economic") crisis. The economy will have way to much supply, and literally no demand for years.

Recession? Nah, the Greatest Depression

Author's Copyright by Richard I. Isacoff, Esq, January, 2011

rii@isacofflaw.com

http://www.isacofflaw.com/

New Homeowner Protection - Neighborhood Stabilization Act

The new Neighborhood Stabilization Act, which was enacted with an Emergency Preamble, became effective, in part, upon signing by Governor Duval Patrick on Thursday, July 29, 2010. The new law gives meaningful additional protections to Homeowners facing foreclosure, and tenants living in houses that have gone to foreclosure sale. We will deal with the Ownership issues in this post and the Tenant issue in the next.)

In order to foreclose on a property in the Commonwealth of Massachusetts a mortgagee/creditor MUST give the homeowner/mortgagor a 150 day Notice To Cure the default giving rise to the foreclosure threat. This "Cure Period" is subject to the following rules:

1. If the lender/servicer certifies that is has "engaged in a good faith effort to negotiate a commercially reasonable alternative to foreclosure..." (defined below) and

2. If this effort "has involved at least one meeting either in person or by telephone, between a creditor's representative and the borrower or borrower's attorney or the borrower's representative..." and

3. "After such meeting the creditor and the borrower were not successful in resolving their dispute, then the creditor may begin foreclosure proceedings after a right to cure period lasting 90 days..."

4. If the borrower does not respond to mail offering to negotiate within 30 days (does not state when the 30 days starts) then the borrower must live with the 90 day period allowed the creditor instead of the 150 days

KEY DEFINITION

"Creditor has made a good faith effort to negotiate and agree upon a commercially reasonable alternative to foreclosure shall mean that the creditor has considered"

a. "an assessment of borrower's current circumstances including without limitation (they can consider more, not less) income, debts, and obligations"

b. "the net present value ("NPV") of receiving payments pursuant to a modified mortgage loan as compared to the net recovery following foreclosure" -(this is a calculation taking into account the following factors to arrive at a value to compare to the value of the modified loan)

1. the current market value
2. the costs of foreclosure
3. foreclosure stigma discount to re-sell the house
4. the total unpaid balance
5. number of months expected before sale
6. taxes and insurance costs
7. the appreciation/depreciation forecast.

The creditor must use the Mass Housing Finance Agency formula, FDIC formula, or Treasury formula.

c. "...The creditor shall provide by first class mail and certified mail or private carrier to the borrower documentation of the good faith effort 10 days prior to meeting, telephone conversation specified..." (in paragraph 2. above)

The importance of this law cannot be overstated. While it grants an extra 60 days to the borrower, sixty days which did not exist until the Commonwealth passed an earlier law in 2009, it REQUIRES the creditor to assess the situation OR wait 150 days to BEGIN a foreclosure process. It is as far as the Commonwealth can go to try to force a creditor / mortgagee to negotiate a modification.

The notice that has to be given to the borrower/mortgagor before the creditor can start the foreclosure process, whether it is a 90 day notice or a notice after the 150 days, MUST contain the following information

1. Nature of the default and the amount of money needed to cure/fix the default
2. The date by which the default must be cured (stating "150 days after the date of this letter" or "90 days after the date of this letter" is not good enough. The creditor must give an actual DATE)
3. That is the borrower/mortgagor does not cure the default (pay the back amount owed) the creditor can take steps to foreclose on the house
4. The name and address of the creditor and the telephone number of a representative whom the borrower/mortgagor can contact if the borrower/mortgagor disagrees with the statements in the notice
5. Name of current and former mortgage broker or mortgage loan originator for the mortgage
6. Statement that the mortgagor/borrower may be eligible for help with the names and telephone number of the agencies
7. That the creditor may sell the property to pay off the mortgage
8. That the borrower/mortgagor may redeem the property anytime PRIOR to the sale by paying all amounts due
9. That the borrower/mortgagor may be evicted after the sale (this does not mean 5 minutes after the sale but after proper eviction proceedings in the Court)

NO PROPER NOTICE, NO FORECLOSURE

The Act gets technical - do not try to navigate it yourself. If you are behind and you receive a Notice to Cure, and you cannot PAY ALL ARREARS, contact a lawyer or Housing Agency immediately
Author's Copyright by Richard I. Isacoff, Esq, August 2010

rii@isacofflaw.com
http://www.isacofflaw.com

"...And Winning, Winning, Winning' "

As a solo practitioner I must acknowledge my work limitations; I cannot compete against the 40th floor Boston or other big-city law firms.

In the Foreclosure Prevention work I have been doing, I have had to bring actions against players like HSBC (and its subsidiaries HFC, Beneficial, Household Finance), America Home Mortgage Servicing Inc ("AHMSI"), Wells Fargo, CitiMortgage, etc. In so doing I lost my ability to do any work other than fighting these lenders, which hire Big Firms, 40th Floor Boston, 50th Floor New York, water-front Rhode Island etc. offices. They have associates, attorneys trying to become partners, being paid to fight anyone who gets in the way of a foreclosure.

The fighting is "civil" - sort of. The filing of a claim brings a ream of paper filled with questions for my client (Interrogatories) meant to elicit the smallest details about the case, and pages of "Request for Production of Documents". These legal tactics are used in reality to flood a small office with paper and consume time. Well I just drowned in the latest flood and there was no one to perform CPR.

Make no mistake - these firms are within their legal rights to protect their clients through any legal means, but are they and their clients acting "morally" or, using the word in the common sense, ethically? In many cases I believe the Lenders/Servicers/Investors are not. They claim not to have any responsibility for the loans they made/service, regardless of how onerous, regardless of "bad faith", "bait and switch", unconscionable, and just plain improper and misleading. What's worse is that by the time the problem hits, most of the laws enacted to protect consumers have run their course - the "Statute of Limitations" has expired - it's too late to argue about the violations.

The Lenders are about taking no losses, granting no relief to someone facing foreclosure, just WINNING! I concur that winning is nice but how about DOING WHAT IS RIGHT?

I have been generally successful in preventing foreclosures and reversing some that have occurred, and in getting modifications. I have been unsuccessful in making a living because I could spend every week, all week, working on foreclosure cases where the BIG FIRMS for the BIG LENDERS know how to kill a case - bury the other "guy" in paper.

The best and most apt summary of what it's like to work against the lenders is from lyrics of one of Don Henley's (formerly of the Eagles) songs

"Today I made and appearance downtown.

I am an expert witness, because I say I am.
And I said, 'Gentleman....and I use that word loosely...I will testify for you; I'm a gun for hire, I'm a saint, I'm a liar - Because there are no facts, no truth, just data to be manipulated.
I can get you any result you like....what's it worth to ya?
Because there is no wrong, there is no right; And I sleep very well at night; No shame, no solution No remorse, no retribution.
Just people selling t-shirts just opportunity to participate in this pathetic little circus

And winning, winning, winning' "

They have won...I have lost! So have my clients!!!!!!

Author's Copyright by Richard I. Isacoff, Esq, July 2010

rii@isacofflaw.com

http://www.isacofflaw.com/

Recession In Real Life

Has anybody stopped to look at real people, and not just to discuss economic theory. The theory states that a "recession occurs when there are two or more consecutive quarters when the gross domestic product ("GDP") falls". GREAT - what does that mean? To most of us NOTHING. It’s just another scorecard for the government and the entities that control the money supply, the interest rates, the federal budget, and the stock market, and of course, it is important for economists.

The problem for the un-wealthy is that this country is "...Of the People, By the People, and For the People...". The key word is "people" - that is opposed to "person". The government, out of necessity, looks only at the TOTAL financial picture of the ENTIRE country. Policy is made for a GRAND SCALE, the people, so that "on average" a stimulus package will work; a foreclosure prevention program will actually abate the crisis of people losing their homes; the unemployment rate starts to decline.

"On average" does not help any individual, just the larger group. By that I mean that there will be a few that do very well, a few that really get hurt, and the vast majority probably survive - but barely!

Look at the results of the Making Home Affordable Program, the parent to the Home Affordability Modification Program ("HAMP"). Foreclosures continue at numbers far exceeding what we have seen in the past, and much of the slow-down in the pace of foreclosures is because mortgage companies just do not want any more inventory.

SOME EXAMPLES OF THE PROBLEM:

1. American Home Mortgage Servicing Inc. ("AHMSI"), the 6th largest servicer in the country, has 124,300+ loans it was handling that are more than 60 days delinquent and program eligible. Just 10,000 (9%) of these were in the first step to a modification, a Trial Modification Program; and only 232 (less than 2/10ths of 1%) had permanent modifications. No wonder - I submitted a package, with ALL of the required documents for a client, and after waiting 3 months, he was offered a Trail Modification that INCREASED his payments by $180/month - 17%. His loan was sold through Predatory practices, a fact of which AHMSI and its attorneys are aware but, so what! ON AVERAGE, when they do a modification, it helps.

2. Wilshire Mortgage (technically Wilshire Credit Corporation) buys and services large blocks of mortgages. My clients fell behind due to a loss of pay - (company closing so $18/hr became $8.10/hr), and because of very bad accident, where husband was out of work, getting grafts etc, for 8 months. I submitted a COMPLETE HAMP package to Wilshire, using their forms and comprised of 40 pages, on August 19, 2009. In early January I called as we had received no response despite many telephone calls to the company. I was told that they had the documents but they were now out of date - please update. I sent a full new package per instructions on 2/2/2010, but the scheduled foreclosure sale for 2/17/2010 would not be postponed. So I filed for protection under Chapter 13 of the Bankruptcy Code THE DAY BEFORE THE SALE, and have filed suit against Wilshire within the week.

3. HSBC/HFC/Household Finance (I & II)/Beneficial (all the same owner - HSBC) had been sent documents over a month ago. I contacted both the foreclosure attorney and HFC’s (et al) primary litigation counsel for help. Literally the day before the sale was to take place I had to file suit to stop the sale. The loan was a "bait and switch" with multiple sets of original documents, with a last minute increase in the interest rate, federally and state required disclosures not given to the borrowers, or or incorrect on the face of the documents. No modification was ever even offered to the borrowers despite their submission of documents.

4. The mortgages I have with JPMorgan Chase, Bank of America and Bank of America Home Mortgage (the old Countywide), Saxon Mortgage, OneWest (formerly IndyMac Bank)and several others, follow the same pattern

"ON AVERAGE":

In ALL of the above cases, my clients can afford their mortgage with a rate reduced to 5%. In all cases, the necessary paperwork was filed timely to prevent a foreclosure sale, but WITH THE SPECIFIC MORTGAGE the lender/servicer was just too busy. ON AVERAGE the claim is that the companies are responsive and adhering to the MHA program guidelines. That may be true but dealing with SPECIFICS, people are losing their homes. I have at least 15 cases just like these with more coming in every day - and most are taken with the hope that the lender will have to pay attorney fees because the clients do not have the money.

MHA, HAMP, HARP, TARP, and the other acronym programs, work "ON AVERAGE" - or in these cases they DO NOT. Even the Government’s grand scale of looking at problems for the mass solution do not make any sense. It’s like looking through binoculars backwards. Everything looks fine until you hit the iceberg.

Author's Copyright by Richard I. Isacoff, Esq, February 2009

rii@isacofflaw.com

http://www.isacofflaw.com/

Keeping Your House

"Making Home Affordable", Loan Modifications, Loss Mitigation, "HAMP", "HARP" "HASP" - all are programs of one type or another to help homeowners from losing their house. They are not working very well as detailed in prior posts. So, WHAT DO YOU DO TO KEEP THE HOUSE?

There is no easy way. Outlined below are steps that should be followed and followed and followed to stop a foreclosure or fend off the possibility of facing a foreclosure.

1. As soon as you believe that you might have a problem making payments, contact the lender's loss mitigation department or the Making Home Affordable ("MHA") department.

2. Get written instructions from the lender/servicer of the steps to follow and documents needed to get a loan modification.

3. Keep in mind that a loan modification ("loan mod") can be a reduction in rate for the balance of the loan, or just a deferral of a few payments. Do not under-sell your problem and if the suggested solution will not work over the long term, ask for a different program.

4. Typically, you will be asked to supply documents including at a minimum: a. Hardship Affidavit (check http://http://www.makinghomeaffordable.gov/ for the form), b. Financial Statement (form lender directs you to retrieve from website), c. one or two years tax returns, d. your two most recent pay stubs, e. proof of homeowners insurance being in-place on the property, f. copy of recent real estate tax bill g. one or two months bank statements. There may be other documents required.

5. PAY ATTENTION. Provide ALL requested/required documents the FIRST TIME you send in your request/plea for a Loan Mod. The biggest reason for denial of help to a homeowner is that no all of the paperwork was sent

6. Make several copies of everything you send to the lender as the first package has a 50/50 chance of being lost

7. Send the package Certified Mail, return receipt requested. You may need proof later that you DID send the documents

8. Begin calling for the status of your Loan Mod 4-5 days after the package was received. Be prepared to spend 45 minutes on the telephone navigating the computer enhanced telephone answering system. DO NOT JUST HANG UP! This is what military folks call "Hurry up and wait". DO IT!

9. Call every 3-4 days, without fail, to check on the progress. Call even if the customer representative says not to call so often. It is your house at stake, not his/hers.

10. If you are told after 10 days that your package was not received, send a new package. Be sure to update the pay stubs. It shouldn't be necessary to re-submit everything, but it is. Just do it!

11. Check the Lender's/servicer's website to see if the is the ability to track your Loan Mod application online.

12. If you have a problem, call the lender as often as is necessary to get your answer - get a live person on the telephone. You might not get the answer you need, but it is a start

13. If it looks like a foreclosure will begin against you, or if one already has, call an attorney who deals with foreclosure prevention. One of the organizations that can help you find a lawyer is the National Association of Consumer Bankruptcy Attorneys at http://www.nacba.org/ ; another is the American Bankruptcy Institute at http://www.abi.org/ (look for the consumer bankruptcy center). Other resources - your local Bar Association. Explain your problem and ask for a referral

14. DO NOT sign up for the "Send us $2,500 and we will fix your problem" companies. Too many of them are scams.

15. DO NOT WAIT UNTIL THE WEEK BEFORE A FORECLOSURE TO START TO TAKE ACTION. You will lose!!

Below are listed the websites for 5 major lenders' Homeowner Assistance programs.

Wells Fargo https://www.wellsfargo.com/mortgage/account/paymenthelp

JPMorgan Chase https://www.chase.com/chf/mortgage/hrm_options

OCWEN https://www.ocwencustomers.com/openFCLSPreventionPlan.action

Bank of America and Countrywide http://homeloanhelp.bankofamerica.com/en/loan-solutions.html

CitiMortgage https://www.citimortgage.com/Mortgage/Home.do?page=homeowner_assistance
Author's Copyright by Richard I. Isacoff, Esq. January 2010

http://www.isacofflaw.com/
rii@isacofflaw.com

Mortgages, Foreclosure, Morality

It is unfortunate but we must deal with the economics of keeping versus "walking away from" your house.

Housing values have fallen dramatically over the past 18 months, to a level that many homeowners owe more than the house is worth. That is not so bad if the owner can make the payments without struggling. But what happens when a foreclosure looms? The choices seem obvious - 1. Let the house, your home, go to a foreclosure sale, and you move; or 2. Scrape and fight and get money any honest way you can to try to keep that house you call home.

Ah, one might say - you are acting immorally by walking away from the home and the debt. Or, someone might think, "Gee, if I give up my house I will never be able to get another one." Better yet is the argument bringing the kids into the equation "Well, I can't move my kids to a different school or a different neighborhood. I MUST keep my house even if it kills me. I will work 20 hours a day if necessary!"

First, there is nothing immoral about making a contract with a bank or other lender that states "We, the BANK, will lend you money to pay for a house, and YOU promise to pay us back, a little each month. IF YOU DO NOT PAY we will take your house away from you and evict you." That is the deal. The contract, mortgage and note" do not mention heaven, hell, purgatory, or even limbo (if it still exists). It does not state that if you do not pay, and you believe in reincarnation, that you will come back as a rock, or a brick that get put into a house destined for foreclosure.

Let's be realistic: which is worse - 1. Kids having to move to a different house (same school through school choice in Mass. at least) and have to make new friends in the new neighborhood [even that doesn't work if they are past grammar school] or 2. Mom/Dad in a foul mood, bickering and fighting as to who is to blame for the money problems. That "discussion" typically goes something like this:"You were paying the bills. You knew we were getting behind. Why didn't you do something about it?" Responding in a louder voice "ME? You are the one who went to work for that sleazy contractor/sales force/outlet store/whatever. Why aren't you back to work yet. I mean why haven't you gotten a second (or third) job? I told you not to get that mortgage" Now, yelling back, "How dare you talk to me like that. I earned $XXXXX - how was I to know that..." Shrieking, the retort is "Is was your job to know! And you should have seen that the mortgage was no good (or that the house would drop in value or whatever).

That is great for kids to hear and feel - feel the tension in the house; understand that Mom/Dad (one or both) are angry, scared, "in a mood", ignoring those kids except to yell at them. And if there are no kids, but a spouse or companion, the battle rages on, neither party stopping to work out a solution - analyze the options. Just move ahead blindly because he/she MUST keep the house!!

There is no shame in finding out that you cannot pay the increased payments, or the regular payments because hours were cut. Do not try to blame yourself by believing "I should have read the papers more closely - even though I did not understand anything" or convinced that, if you are on lay-off, you will be called back to work and you can catch up then.

The mortgage companies had no problem or regrets in selling loans they knew might not be good. These same banks and lenders do not hesitate to let their own investment properties go to foreclosure if there is no value and it would be "good money after bad". They had no difficulty with their collective consciences when the mortgages were packaged and sold to mutual funds that crashed. They do not feel immoral when they refuse to modify loans so you can keep you house, or when they send you paperwork to complete which you send in which they lose so you send it in again, which they don't ever get etc.

I am not advocating just walking away from the debt/house without a full examination of whether there is a solution that will let you keep your home. But, I am pushing you to "do the numbers". Is it realistic to try to keep the house? Is there any equity in it or will you paying on value that was never there or that disappeared? How about the relationship with your partner, family, your kids?

If there is any shame in any of this housing mess, it would be that families are devastated and torn apart - not by having to move, but by trying to hang on to a dream that is not lost, just postponed.

It is just money - Contact an FHA Home Preservation Counselor or an attorney who deals with these issues regularly so that you can at least have all of the facts BEFORE you make a decision. If you are concerned about the Lender coming after you for any deficiency (difference between what you owed and the foreclosure sale price) there are ways to avoid that, legally. Do not despair - there is help available.

Author's Copyright by Richard I. Isacoff, Esq. , January 2010

http://www.isacofflaw.com/

rii@isacofflaw.com

One Bank's Lies, Another's Obfuscation?

The answer to the title question is a qualified MAYBE! (Obfuscate: to muddy the waters so no one has a clue about the real answer or even the question) Based on ever changing figures, the Wall Street Journal reported, in its December 11th edition, that there are nearly 5% of the homeowners in the Making Home Affordable Program ("MHAP")who have "permanent" mortgage modifications. If we go back to the beginning of the MHAP, it was estimated that there were 2,700,000 homeowners eligible. That figure did not include loans that did not fall within modification guidelines, even if they did come within the HARP (Home Affordable REFINANCE Program) structure.

The math on the 2.7 million figure equates to about 1.15% of those eligible have a permanent modification. That is substantially up from the numbers reported only 3 weeks ago but... The reality is that the Banks, including the biggest in the country (Bank of America, CitiBank, JPMorgan Chase) are not making loans or loan modifications without being forced to do so.

In my practice in western Western Massachusetts, I am dealing with a multitude of lenders, in every case, trying to save a home. While I have the occasional client who got into financial trouble of his/her own doing, the vast majority, 90-95%, find themselves facing foreclosure because of job loss, fewer hours available, ill health/death and the related medical bills, or family problems such as divorce, or some combination of these factors. ADDING TO THESE ISSUES IS THERE DEVASTATION OF BAD LOANS AND THE ECONOMIC COLLAPSE.

The only way I can get the attention of some of the lenders is to file suit. That is my last resort - whether the action is in a State court or in U S Bankruptcy Court. There is little interaction with loan workout specialists, now called Loss Mitigation Specialists, before documents, often obtained from the MHA.gov website, are sent to the lender. It is at this critical juncture that lenders or their servicing companies are lying or obfuscating.

All of the current articles quoting lenders as to the reason so few modifications are becoming permanent, cite the lenders as stating that only a small percentage complete all of the required paperwork, and of those, 1 out of 5 default on the "Trial Payment Period" payments. It is my personal experience that fully 50% of the submissions to the MHA program at any specific lender are LOST. I have sent 2,3 and sometimes 4 packages to the MHA department of a mortgagee/servicer before I get a set of documents that are not lost. Seldom will anyone in the servicing side say "I am sorry, we misplaced the documents we need." It is generally a form letter, received by me or my client, that states that the client did not qualify because inadequate information was provided, specifically that the package of forms was never received.

Even at that a new problem arises: after 45-60 days of waiting the documents sent are stale (outdated) or the foreclosure, which had been postponed due to the eligibility and contact under MHA, is re-scheduled. As for the default in payments - if someone receive a notice on Dec 4th that states the beginning payment under the trial period is due Dec. 1st, how can anyone comply? If I am lucky enough to get a lawyer for the lender involved, the process moves much more efficiently, as the lawyer knows the stakes for the lender.

In fairness (a phrase I am getting tired of having to use) to the mortgage folks, they are overwhelmed. No one could prepare for this number of "problem" mortgages. Okay, fine! Why then are modifications being refused by lenders? Has not the Treasury, FDIC, and the Federal Reserve, along with the "Administration" said they want the program to work, and NOW? Yes, but none of these folks tried to assist in getting a bill through the House of Representatives that would have put pressure on the Banks etc. to MAKE Homes affordable.

When the House debated a bill to allow Bankruptcy Judges to modify home mortgages, and it seemed like it would pass, but the Mortgage Backed Security holders and big investors said NO! and the spike in permanent modifications was announced to show that nothing else was needed.
On Monday the bill was defeated and I predict it will be back to business usual - just the endless loop of automated prompts from one department to another and the seemingly coordinated 45 minute wait for a representative.

Author's Copyright by Richard I. Isacoff, Esq, December 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Stopping Foreclosure When the Lender Says "NO!"

(THIS IS A RE-POSTING FROM AUGUST 12, 2009)

Bankruptcy is a good option if you are facing foreclosure and cannot get the lender to accept reasonable terms for a modification; terms that will allow you to either catch up on back payments over time, or which will put the arrearage at the back of the loan.

The filing of any type of Bankruptcy, which is asking for protection from creditors, will stop ALL actions for money, foreclosures, repossessions etc, against you. BUT, for most consumers, only a Chapter 13 will give you the ability to spread out payments for the arrearage over a period of up to 60 months. So, assuming you are 6 months behind in payments of $1,500 each, and there are $3,00 in legal fees because you are in a foreclosure status, and you have $300 in late fees, and the lender has paid $1,200 in taxes for you because your escrow account (where the lender collects money to pay real estate taxes each month as part of the mortgage) is short because you haven't paid in 6 months - you owe the bank $13,500.

Most of us do not have that amount of pocket change, and if you did, you wouldn't be 6 months behind. Spreading that amount of money over 60 months adds only $225 per month to your expenses. Please understand that there is no misunderstanding about a desperate financial situation, but if the arrearage occurred because of a temporary drop in income, for whatever reason, you can get caught up. Too many people give up once they get that far behind because they know they cannot pay $13,000+/- all at once, and once the foreclosure starts, the lender is not inclined to "make a deal".

The Bankruptcy Laws were established so that people could get a "FRESH START". The whole concept is to give people who get into a financial bind a way out, without losing their home, car, retirement accounts etc. Details of the protections a Bankruptcy gives you are on my website www.isacofflaw.com . Once in a Chapter 13 Bankruptcy, the United States Bankruptcy Court controls what a creditor can do. If you make payments on time, including the $225/month in the above example, the lender can only sit by a wait until you finish the Plan of payments. If you make all of them, your loan is put back into "regular" good payment status.

Also, if you miss a payment due to a temporary problem (broken arm with no sick time available from your job or a seasonal drop in hours so the overtime you have been counting on isn't available) the lender CANNOT just foreclose. It must ask the Bankruptcy Court for permission and there will be a hearing on the request. There, your lawyer (don't try a Chapter 13 Bankruptcy on your own) can explain the situation to the Court and usually work some type of compromise with the lender. The Bankruptcy Court is there to protect Debtors, provided the Debtors do what they promise.

Further, if you have equity in your house of $30,000, and your payments are $1,000 per month, the Court normally will not allow a foreclosure even if you are 2 or 3 months behind. While that is not specified in the Bankruptcy Code, the concept, called "adequate protection", is clearly spelled out. In essence it states that if the lender is not at risk of losing anything by waiting and using some of your equity to guaranty the arrearage will be paid, then the Court WILL NOT allow the lender to foreclose. The lender has no risk in waiting so you get a chance to get caught up again.

The Bankruptcy laws are complex, but the concept is not. If you are behind in your mortgage payments, and the lender wants to foreclose, and the lender will not "make a deal" with you, and you do not have a lump sum to pay all of what you owe from payments not made, a Chapter 13 Bankruptcy filing can be used to save your home. You can find a qualified Bankruptcy attorney by going to the website of the National Association of Consumer Bankruptcy Attorneys www.nacba.org , www.abi.org, or by calling my office for a "no charge" referral.

Author's Copyright by Richard I. Isacoff, Esq, August 2009

www.isacofflaw.com

rii@isacofflaw.com

"Making Home Affordable" Program Is Not Working

The Obama administration's Making Home Affordable program, you know the one to stop foreclosures on millions of homes, is missing the mark. As was reported in the New York Times by Peter Goodman in today's edition, "The Congressional Oversight Panel, created last year to keep tabs on taxpayer bailout funds, said the Obama administration’s program would prevent fewer than half of predicted foreclosures." (To read his full story go to http://www.nytimes.com/2009/10/10/business/10modify.html ).

Mr. Goodman's article discusses the overriding problems with the program, but does not deal with the situation from a day-to-day point of view. In reality, the Obama Program, as it is called, (which is really named Making Home Affordable ("MHA"), and has under it two programs - Home Affordability Modification Program "HAMP" and the Home Affordability Refinance Program "HARP") does not accomplish the goal of home preservation.

Basically, if a homeowner is behind now, but was current as of January 1, 2009, and meets other criteria, the homeowner should be eligible for a loan modification. The modification allows the participating lender to set up a 3 month trial period wherein the borrower makes affordable payments based on actual financial information submitted to the lender, after which the lender can decide to modify the loan or not. The terms are dictated by the lender and may not ever become permanent.

The most disturbing part of the situation is that homeowners are going into foreclosure at a record rate, and the programs at best are being outpaced by the foreclosures by 3 or 4 to 1. Elizabeth Warren, head of the TARP Oversight panel, estimates that even when everything is working at full speed, the programs will lose the battle against foreclosure schedules by 2 to 1. The honest homeowner who "bought" a mortgage without really understanding the terms and was sold "a bill of goods", like thinking he/she had a 30 year fixed mortgage when in reality the rate changed after 3 years, has no recourse.

The lenders, Wall Street folks, and investors, who pushed and packaged these loans, and now do not want to take any loss of income, are not being held accountable. They still have no risk of loss. Taxpayers, meaning the homeowners who are in trouble, are the ones paying the entire cost of the programs, YET CANNOT EVEN GET HELP IN MOST CIRCUMSTANCES.

With the jobless rate being reported at near 10%, which means it is probably over15% (people off benefits and not looking anymore are not reported), and layoffs continuing, more and more people will be a situation where foreclosure is inevitable. The MHA could work, but not without the full cooperation from the lenders and mortgage servicers. With no one being in charge to enforce ACTIVE participation in MHA, and there being no regulator with teeth to force compliance, the people who own the loans will not allow the programs to work. They will lose money if modifications become permanent. Guess who wins this battle.

For now, it's the only game in town. If you are facing foreclosure, apply for an MHA program. Once it's determined you are eligible, any foreclosure action is put on hold while your application is considered.

(A correction from 9/28/2009 post: I incorrectly stated that Rep. Barney Frank was from Western MA. He is, of course, from Eastern MA)

Author's Copyright by Richard I. Isacoff, Esq, October 2009

rii@isacofflaw.com
www.isacofflaw.com

More On Modfications - The Borrowers' Hidden Costs

Mortgage Modification, as stated in earlier posts, can mean anything from allowing a late payment without a fee attached to it, or reducing interest and principal substantially. Unfortunately, most are closer to the deferred penalty than a true modification of terms which will allow the borrower to keep their home.

In today's USA Today, there is a brief analysis of the business of mortgage modifications. The article "Many mortgage modifications push payments higher" by Stephanie Armour, recites the history of 2 borrowers, but details the problems with the program. http://www.usatoday.com/money/economy/housing/2009-09-14-mortgage-modifications-not-helping_N.htm?csp=34

The MHA (Obama) program concentrates on lowering payments. This is accomplished by lowering the interest rate, and, if necessary, extending the term of the loan to 40 years, so that the payment of principal, interest, taxes and insurance, is no more than 31% of the borrowers gross income each month. HOWEVER, the amount of principal owed can actually increase substantially in the process. Per USA Today's quote of government studies "Of loans modified from Jan. 1, 2008, through March 31, 2009, monthly payments increased on 27 percent and were left unchanged on an additional 27.5 percent, according to a recent report by banking regulators." Dismal? Yes! The light might be that the new program, MHA, will do better.

For a borrower that has fallen 6 months behind with his/her $1,500/month payment, accumulated interest, penalties, late fees and other costs, such as legal and inspections, all get added to the amount ultimately owed by the homeowner. In this example, that translates to a minimum of $14,000 added to the amount owed. This in turn would normally increase the monthly payments so a balance has to be reached, generally by adjusting the rate.

NOTHING IS FREE as we all know. Many of these mods (common slang now for mortgage loan modifications) are fixed for only 5 years, and can then adjust. The mod itself creates a new Adjustable RateMortgage ("ARM"). Is this just postponing the inevitable foreclosure? Maybe so - but at least there is a chance for the borrower (who can find new/additional employment, and can clean up his/her credit score, and can make every payment on time) to keep the house by a refinance at the 5 year adjustment period.

Other issues with modifications. There are a number of agencies, well-intended, which help borrowers at risk for foreclosure, to get a modification. The thought there is that by postponing the foreclosure at least the borrower has an opportunity to keep the house. One of the problems here is that many of these agencies are ill-equipped to go toe-to-toe with a mortgage company, be it the servicer or the actual lender. To many of the agencies, any modification is better than none - right? MAYBE!! If the agency is funded by getting modifications done, it can turn into a numbers game. A modification completed is one towards the quota for funding. Keep in mind that a modification can be simply delaying 2 or 3 payments until the end of the loan, or even creating a balloon payment at the end of the term of the loan.

Well, some may say, at least the borrower kept the house for a few more years. Well, I say, "SO WHAT"? The modification should give the borrower a real shot at keeping her/his home for as long as she/he wants.

Recapping, we have a federal program that was put into place for loan mods - fixes - to allow homeowners, who are facing imminent foreclosure or who will be falling behind over the next several months because of a job cut or an UPWARD MORTGAGE INTEREST RATE ADJUSTMENT, to keep their homes. The program allows the mortgage industry, company by company to participate or not. There is only one standard program and that is the Making Home Affordable ("MHA") plan.

Lenders can opt to modify any way they would like to, and are doing so, especially to those borrowers who do not qualify for MHA. The modification may be detrimental to the borrower in the long term but who cares? CreditSights, which is a firm that tracks such matters, states that of the more than 1/2 million mods this year, 90% have resulted in higher principal balances. Good? Bad? It would seem that just adding back interest and fees to a delinquent loan is not good. It seems and is counter-intuitive, and counter to success. It is a short term fix - a band-aid.

HERESY but perhaps there are those who would be better-off losing the house that is a constant struggle to pay for, month after month, year after year. Maybe some homeowners would be better-off losing a house, regrouping and getting finances straight, renting for a few years and saving money each month for a down payment on a house that is affordable.

Author's Copyright by Richard I. Isacoff, Esq, September, 2009

rii@isacofflaw.com
http://www.isacofflaw.com/

Mortgage Modificiations To Get More Difficult?

Countrywide, now part of Bank of America was one of the major lenders to sub-prime borrowers (that only means a credit score below 680 (or 640 depending on the day). It also packaged and sold the loans it originated, as Mortgage-Backed Securities ("MBS"). It continued to service the loans (collect money and send bills from and to borrowers) and was paid by the owners of the MBS to do so. The owners were just investors - they bought $xxxxx of a bond, not any different than if they bought a corporate or municipal bond.

When the mortgage/housing crisis hit, in large part due to Adjustable Rate Mortgages ("ARM") there was tremendous pressure on the Servicers, of which Countrywide was one, to MODIFY loans so that they were affordable for the borrowers. Some servicers modified loans, which they may or may not have been permitted to do in their contract, called a Pooling and Servicing Agreement ("PSA"), with the "packager"/"owner" of the bond. Countrywide modified loans and then, ignoring its PSA, refused to re-purchase the loans that had been modified by lowering the interest rates or even putting payments at the back of the loan. In simpler terms, Countrywide altered the amount of interest the owners of the MBS would receive.

A federal court ruled that Countrywide's motion to dismiss the lawsuit brought against it by the investors would not succeed. The Court stated that the case was one which should be brought in State Court, the the modifications were not protected by the recent legislation and Congressional acts to force lenders and servicers to modify loans. Basically, the Court said that if there is a contract, Countrywide must observe it - any quarrels with that belong in a state court on a case by case basis. No "get out of jail card" was given to Countrywide.

WHY DO YOU CARE? Because Servicers, if they aren't protected when they make modification from the investors, who expect a certain percentage return, will refuse to modify citing the Court ruling but relying on the contract they made, and arguing that they cannot breach the contract! This means more difficulty getting Servicers, which are not participating in the Federal program to modify loans, now for fear of a lawsuit.

This issue was brought up months ago and detailed in my posts of 10/25/2008 and 11/9/2008 -
http://finance-for-us.blogspot.com/2008/10/foreclosure-crisis-how-to-stop-it.html and http://finance-for-us.blogspot.com/2008/11/who-is-bailout-helping-right-now.html.

This just points out the disconnect, the lack of communications and an efficient coherent policy to deal with the foreclosures. Maybe Congress would act if it the home of a member!!

Author's Copyright by Richard I. Isacoff, Esq, August 2009
http://www.isacofflaw.com/
rii@isacofflaw.com

Mortgage Modification Mandates

As a follow-up to the last post, several important matters:

1. If you have submitted the application for a loan modification under the "Making Home Affordable" program, any foreclosure proceedings must stop. The exception is if you do not meet the basic criteria (see http://www.makinghomeaffordable.gov/)

2. To see if your lender/servicer MUST participate in the program go to http://www.financialstability.gov/impact/contracts_list.htm - if it is listed, it has to deal with the modifications

If the lender or servicer received any TARP funds or "volunteered" to be part of the Home Afforability Modification Program "HAMP" or the Home Affordability Refinance Program "HARP" it should be on one of the lists

3. If a mortgage company or servicers tells you not to send any money until the paperwork is received or not to send money for any other reason, ask for the person's name or employee number. Also, ask how you be certain that you should not send any payment. Even if you are satisfied that you do not have to send a payment "that" month, DO NOT USE THE MONEY for anything else. Set up a separate savings account and put all of the money for the payment(s) in the account. If the MHA modification doesn't work, and the lender has its own program, you WILL be asked if you have the last "X" payments, since the last one mailed.

4. If you get mail offering to help you get a loan modification, and the solicitations asks you to send in any money, even after you have called the company and spoken with a "counselor" DON'T DO IT, unless it is your lender/servicer and you have an agreement. There are hundreds of scams right now - 15% of my clients have paid money to some company that cannot help, except to help themselves.

Two expressions come to mind: "God helps those who help themselves" and "God help those who help themselves". (Interesting what one "s" can do!)

5. If you have questions, call a bankruptcy attorney or a foreclosure attorney in your area. If you don't know who to call, check http://www.naca.org/ or for a lawyer http://www.nacba.org/ OR send me an e-mail

Author's Copyright by Richard I. Isacoff, Esq, August, 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Making Homes Affordable? It's Not Working!!

In a report released by the "Making Homes Affordable Program", only 9% of those mortgages eligible (estimated) for a modification are in the process. Essentially the lenders, mortgage companies, loan servicers, ARE NOT doing their jobs.

The information through the end of July shows that of an estimated 2.7 million mortgages, all of which are 60 days+ delinquent, only 235,247 (actual) have been offered a modification or are in the process of obtaining one. This does not necessarily mean a change in all terms, but could be nothing more than the lender allowing 3 payments to be moved to the end of the loan term, but as a modification.

The lenders doing the best job are 1. Saxon 2. Aurora (small number of loans) 3. GMAC 4. JP Morgan Chase -all having in process 20% or more of the estimated eligible loans. CitiBank has 15% being worked on. BUT American Home Mortgage Servicing Inc (AHMSI) has done 0%, Wilshire 1%, Wachovia 2%, Select Portfolio 3%, Bank of America 4%, OCWEN 5%, and Wells Fargo and Citizens 6% each.

Who's fault is it - primarily the lenders/servicers. They never got ready for the program and they prefer to try to wait out the bad times, thinking, it seems, that suddenly the housing and finance markets will turn positive.

IT IS CRITICAL TO NOTE that once a borrower has submitted the necessary paperwork for a MHA Loan Modification, and has passed the initial screening (see below) FORECLOSURE PROCESS MUST STOP! - 1. home is your primary residence 2. currently employed or have other regular income 3. default caused by a hardship or there has been a drop in income or increase in expenses 4. your mortgage payment including principal interest, taxes and insurance is more than 31% of your monthly GROSS income, and 4. your loan was current at the start of 2009, you qualify for the full analysis. (Go to http://makinghomeaffordable.gov/modification_eligibility.html

If you meet the basics and have filed for a modification, and you then get a letter stating that the foreclosure process will continue during the evaluation, send a certified return receipt requested letter to the address to which you sent the documents, and state that the law requires them to STOP foreclosure proceedings.

If you are having a problem, call a qualified Bankruptcy attorney in your area (you can find one at www.nacba.org), or, contact your local Bar Association for a referral to an attorney working to stop foreclosures. In Massachusetts for example, you can contact the Massachusetts Fair Housing Center, or any of the local housing authorities for a referral.

The program is a reasonable one. I am having excellent results for my clients, but it requires a great deal of patience. As always, contact my office if you have a problem finding help.

Author's Copyright by Richard I. Isacoff, Esq, August, 2009

rii@isacofflaw.com

http://www.isacofflaw.com/

Who To Trust - Federal Judges or Wall Street

THIS IS A RE-POSTING OF THE MARCH 18TH ENTRY DUE TO THE RECENT SENATE VOTE

The United States Senate has referred the one bill, S. 61, that could break the log jam of mortgages tied up in "TOXIC ASSETS" to "Committee" for review and reconciliation with the House version. The short version of the bill is that it would give Bankruptcy Court judges the power to modify residential home mortgages. The homeowner/debtor would have to prove that the loan was patently unfair, that the lender/broker/originator used Unfair and Deceptive Trade Practices, or that the borrower never received the proper documentation to know what product he/she was buying. The assignment to the committee will assure that there will be a delay in getting the bill to the full Senate for a vote. Keep in mind that the House of Representatives has already voted favorably on giving the judges the powers needed.

Unfairness? Didn't the borrower read the documents before signing them, and if he/she/they did not understand everything fully was the closing attorney asked for information or clarification? Unfortunately, many of the closings were done without any attorney present - representing the lender or the borrower. Just a notary was there to be certain the all of the right places were signed and that there was proof the the person(s) at the closing were in fact the person(s) borrowing the money. These are called "Witness Only Closings" and were commonplace during the boom years from 2004-early 2008.

Real Example: clients came into my office Monday ready to file a Chapter 13 Bankruptcy to save their home. The documents they brought, although unsigned, told the story of how a $1,326 monthly payment grew to nearly $2,300. They had contacted a broker who had helped them, in an earlier transaction, with a major lender. Because of the prior experience, the borrowers trusted that the closing would be okay. The entire transaction took less than 20 minute for a full mortgage refinance, and that was at a local sandwich and ice cream restaurant. Virtually nothing was explained despite questions from the borrowers.

I can state from doing hundreds of closings that an attorney cannot explain all of the documents, including mortgage, mortgage note, HUD-1 Statement, Truth-in Lending, Good Faith Estimate, and all of the other disclosure required by state and federal laws in an hour; not in 20 minutes less the time to be seated. This closing went so fast that no one even ordered a coffee. What is worse is that the loan was not a common loan.

The borrowers were told that they were getting a loan with a fixed payment for 2 years, and that after two years the rate would change periodically. They were not told that the loan was an "Interest Only" loan for the first five (5) years, so that none of the payments made during that time would be applied to principal - the amount borrowed. Further, they were not told nor were the papers explained to them, that the interest rate could move up as much as three percent (3%) at the end of the first two (2) years. It could not go down regardless of the market. Nor did they comprehend that after the first two (2) year period, the rate would be adjusted every six (6) months.

It was only after receiving the first bill from the lender that they found out that there would be a tax escrow in excess of $300 each month. They thought that the taxes were included in the $1,326 amount. Instead of paying $1,326 they paid $1,626. At the end of the two (2) years, though they had been promises that they could refinance as they were getting this great loan, the payments increased to $1,700+ without the $300 tax escrow. They were now paying $674 per month more than they had been led to believe they would pay.

The loan provisions, Fixed Rate for the first two (2) years and then variable/adjustable for the next twenty-eight (28),, is a common product. The interest only feature is rare for middle, middle class borrowers. Combining the 2/28 fixed/adjustable structure and coupling it with a five (5) year interest only provision, and NOT EXPLAINING it to the borrowers is why we have the mess we do.

The above real-life, in my office example, is the reason that the Judges have to be given the power to modify bad loans. They can eliminate the excuse/reason too often given that "it's not allowed in the contract... yeah, the one the Wall street guys made for us.

Author's Copyright by Richard I. Isacoff, Esq., March, 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Mortgage Rescue Plan - What's Missing?

The last post entailed a discussion of the President's basic loan modification plan to help 1 in 9 homeowners. The plan is comprehensive and deals with loans that are owned by a bank, FannieMae (FNMA), FreddieMac (FHMC), or the Federal Housing Administration (F.H.A.). The problem arises, as often stated here, when the mortgage loan is sold into a securitization pool which strips the mortgage loan of its individuality.

It is no longer a "regular" loan; it is part of a large pool of loans, each loan providing a small part of the means to pay interest to the people who buy the pool by buying little pieces of it called bonds (fancy name is Mortgage Backed Securities), and each mortgage itself, giving the collateral to be certain the interest will be paid. After all, home loans are the safest in the world! Right?? Remember, the loan (or mortgage loan) is the I.O.U. that you give to the lender; the mortgage is you giving your house as collateral for the I.O.U.

Currently, the housing market and the loan market are in a downward spiral. Even if there is a loan modification to make a mortgage loan more affordable, by lowering the interest rate, thereby lowering the payments, if the house has decreased in value from $200,000 to $160,000, the Borrower is paying for value that has disappeared. Sure, the Borrower took the money and the evaporation of value is not the Lender's fault. However, Borrowers could probably pay the normal interest rate if the amount of the loan was reduced to the actual market value.

On the other side of the matter of fault, assume that the lender is one of the good ones and has done nothing wrong. The lender is being asked to lose $40,000 (in the example). Who would want to do that and it isn't fair. Life isn't fair. The was no contract at the time of your birth that you, or a parent-type person, signed stating that "LIFE WILL BE FAIR". Not trying to be humorous or cavalier, that is reality.

What is also reality is that a borrower who owes 20% more than a house is worth, is likely to just walk away if the borrower's financial situation gets worse. Why try to save a house that won't have equity for 10.5 years ($200,067 loan principal at 5% interest for 30 years will not pay down to $160,000, the amount of the value of the house for 10.5 years). Yes, there is no appreciation of value in the house calculated so maybe in 9 years the mortgage and house will have the same value.

Reality check: If someone is pushed to the wall because of a loss of income, or increased energy costs, or due to illness/healthcare expenses, WHY WOULD THAT PERSON KEEP A HOUSE THAT IS NOT WORTH THE MONEY HE/SHE OWES??

The current Presidential plans do not address the problem of the Loans that are part of securities ("MBS"). The difficulty is that there are dozens of contract involved in each one. NO ENTITY IN THE CHAIN OF OWNERSHIP HAS THE RIGHT TO MODIFY THE LOANS UNLESS SPECIFICALLY ALLOWED IN ALL OF THE AGREEMENTS.

The House of Representatives has passed a bill that would allow Bankruptcy Judges to modify the loans, essentially changing the contracts. These same judges do this every day on virtually every other kind of contract, including mortgages - just not mortgages on primary residences. Hopefully, the Senate will pass the same bill or once that conveys the same powers to the Courts.

There are no easy answers to the mortgage crisis, especially since it was allowed to get out of hand. Yes, there are bad borrowers who will "milk" the system. But, there are millions of borrowers who were swindled when they got their mortgages, and have been hit hard a second time with prices plummeting.

Links are provided below for further information on the Senate Bill, and the effects of the issues on several homeowners.

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Bloomberg News Article on the Senate Bill

http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=akFgFGFBhDp0

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Reuter's Article on the Effects of the Bill and a Bankruptcy Judge's Opinion

http://www.reuters.com/article/GCA-Housing/idUSTRE5247PZ20090306?pageNumber=1&virtualBrandChannel=10112

Author's Copyright by Richard I. Isacoff, Esq, March 2009

rii@isacofflaw.com http://www.isacofflaw.com/

Mortgages, Mortgages, Everywhere, Yet Not A Drop For Me

We finally have the basics of the Mortgage Bailout for Homeowners -at least for some homeowners. The Administration crafted a plan, touted in the mainstream media as "Plan Could Aid 1 in 9 Homeowners". This program is designed to help people who might face foreclosure, keep their homes. This is great news! With inertia being the strongest force in the universe (at least ours), a step forward is truly a huge one. There is at least one significant gap however. BUT FIRST, the good news -PLAN BASICS:

1. Plan applies ONLY to primary residence
2. Mortgage balances cannot exceed $ 729, 750.00 - (this doesn't affect my clients)
3. You will only qualify if your total monthly mortgage payment (principal, interest, taxes, insurance) is more than 31% of your PRE-TAX monthly income. Example - you (and spouse if married) take home $750 every week, but your wages BEFORE TAXES are $900 every week, Using the BEFORE TAX figure of $900-

a. multiply it by 52 (number of pays in the year), which equals $46,800 (yearly PRE-TAX income;
b. divide that by 12 (months in the year) to get the monthly PRE-TAX income amount, here equaling $3,900;
c. multiply that figure, $3,900 by 31% (.31) = $1,209

If your total monthly mortgage payment is more than $1,209 , you would be eligible for the program. It does not matter if you are current in payments or behind, but you cannot have a large stash of cash in the bank or under the mattress.

Income WILL BE VERIFIED - Borrowers will have to sign a form allowing the Servicer/Lender to get a copy of the Borrower(s)' federal tax transcript (Form 4506-T) AND, if you are employed you will need 2 months of pay stubs; If self-employed then third-party proof of earnings in addition to the tax information. Everyone will be on the lookout for fake income figures and other FRAUD.

The concept behind this approach is to have the Lender reduce the monthly payment to an amount of not more than 38% of BEFORE TAX income, with the Treasury sharing the cost of reducing the payments to not more than 31% of BEFORE TAX monthly income.

Here is the bad news: While Borrowers with loans through FHA, VA or owned by FannieMae (FNMA) or FreddieMac (FHMC), will have no problem if the otherwise qualify (above guidelines), IF YOUR LOAN IS IN A MORTGAGE-BACKED SECURITY, and if there is a Servicer, the modification can be done only if the agreement( called the Pooling and Servicing Agreement or "PSA") among the investors, lenders, servicers, trustees, etc. allows the changes. Keep in mind, that as explained in earlier posts, no one expected this collapse, so most of the PSAs are not written to allow much in the way of modifications. Also, participation is voluntary. The majority of the Adjustable Rate Mortgages made to so-called sub-prime borrowers are in this category.

The full details of the plan, the "HOME AFFORDABLE MODIFICATION PROGRAM GUIDELINES", are available at http://www.financialstability.gov/ which is the official Treasury website. It is 19 pages, most of which gets fairly technical. At the same site there is a Summary of Guidelines called "MAKING HOME AFFORDABLE".

If you are in trouble with your loan, or soon will be, call the company that sends you the monthly statements. If they are of no help, call the "Hope Hotline" at 1-888-995-4673, or contact my office.

Author's Copyright by Richard I. Isacoff, Esq - March, 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Mortgage Modification - Court Ordered

Below is a letter I have written to the U.S. Congressman from my district, outlining the reasons I believe that the measure being taken up by Congress, to give Bankruptcy Judges the right to modify primary residence mortgages, should be approved. If you can, write your Congressman to ask his support, the letter, I believe, is self-explantory

RICHARD I. ISACOFF, P.C.
ATTORNEY AT LAW
100 NORTH STREET
SUITE 405
PITTSFIELD, MASSACHUSETTS 01201
____________
e-mail rii@isacofflaw.com

TELEPHONE (413) 443-8164 TELECOPIER (413) 443-8171

VIA FACSIMILE 202-226-1224

The Hon. John W. Olver
U.S. House of Representatives
111 Longworth HOB
Washington, DC 20515

Dear Congressman Olver

I write not only as a constituent, but also as an attorney who represents distressed homeowners in our area who are trying to save their homes from foreclosure. This is a genuine and urgent crisis that demands immediate and targeted congressional action. As such, I encourage you to support H.R. 200, legislation that would provide relief to these homeowners.

Too many families in this District and throughout the Commonwealth are on the brink of losing their homes to foreclosure. Across the country, it is estimated that 8.1 million homes will be in foreclosure over the next four years if Congress does not act. As devastating as foreclosure is for the individual families whose homes are threatened, the effects of this foreclosure epidemic are felt throughout the economy. Indeed, virtually every economist has recognized that the financial crisis gripping the country can be resolved only by dealing with the root cause –the escalating millions of foreclosures. I will gladly send you detailed and summary materials on this issue.

H.R. 200 would help families save their homes by giving them more flexibility to restructure the mortgages on their primary residences. The bill would fix current law, enacted in 1993, that prevents judicial modification of primary home mortgages, but allows such changes to virtually all other loans. Why shouldn’t Judges be able to correct “bad faith” loans – regardless of which side acted in bad faith?

Sadly, the magnitude of the foreclosure crisis dwarfs the response to date from Washington. The very clear lesson of the last two years is that foreclosures will not be curbed through top-down voluntary efforts on the part of the financial services industry alone, no matter how many incentives are provided. Courts must be empowered to implement economically rational loan modifications where the parties are unwilling to do so on their own. Loan modifications through the bankruptcy courts can be accomplished on a sufficient scale and time frame to have a meaningful impact. The mere threat of judicial modification may, in fact, lead to more meaningful voluntary loan modifications.

OLVER, REP./CON’T
February 21, 2009
Page 2

President Obama recognized Chapter 13 judicial mortgage modification as an effective approach to stemming the foreclosure tide and expressed his support for legislation that would accomplish this. While the Mortgage Backed Securities investors and market-makers might lose some value, getting a modification that pays 80% of the loan with interest, is better than a foreclosure sale yielding 40%-50% of the investment cost.

Please support the Bill – campaign for it. I worked with you in the days of the BNE collapse and RECOLL Mgt.; I would be honored to do so again. If you need additional information, please contact me at my office on (413) 443-8164, my private cell phone (413) xxxxxxxx or by e-mail.


Sincerely,



Richard I. Isacoff, Esq




RII/mpb
cc: Maureen Thompson, NACBA


Website:www.isacofflaw.com

BLOG: http://finance-for-us.blogspot.com