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

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/

How Money is Derived from Derivatives Called "Mortgage Backeds"

The Chart above shows how Mortgage Backed Securities "MBS" come into existence.
(Chart author/designer unknown)

Terms used - (Green = $$$):
a. Originator=Lender
b. Arranger=the "putter together" of the mortgages
c. Trust=Holder of the MBS money
d. AAA-Purple=the MBS itself
e. Investors= buyers of the
MBS/I.O.U.s
f. Manager= Loan servicer
g. Houses= collateral for the MBS)

Hopefully, you have some idea of what a "Derivative" is and that a "Credit Default Swap" is really a kind of "Derivative". Further, that "Mortgage Backed Securities" are just sophisticated I.O.Us, where the "Arrangers" of the MBS say to the investors (mutual funds, banks, of just retail investors) that the "Arranger" wants to borrow money and will pledge mortgages as collateral. But, rather than pledging a mortgage at a time, the creators group thousands together and sell them as one big I.O.U. The pieces may be $1,000, $10,000 or $10,ooo,ooo (Think of a large pie sliced into some large and some tiny pieces).

Here is a restatement of the past posts about these topics:

1. Thousands of mortgages are put together.

2. The creator of this pool of mortgages offers to sell the right to receive income from the pool at a pre-determined rate of interest.

3. An investor can buy up to 100% of the pool.

4. The investor will be paid interest on the amount of the pool he/she buys

5. No one actually is buying any of the mortgages that make up the Pool, just the right to receive income from the Pool, based on the average of the interest rate for all of the mortgages in the Pool, after all costs, losses, and profits are deducted

6. The creator of the Pool/Mortgage Backed Security will sell the investor the I.O.U. based not on the actual cash received from mortgage payments, but merely on his/her/its promise to pay. (It's not like all of the money gets collected and someone divides it up into a thousand or two thousand little piles).

7. In case all else fails, IN THEORY, there is collateral for the Creator of the Pool, not the investors. The collateral is the homes that are mortgaged. The Creator of the Pool can liquidate homes that are the collateral for the mortgages that default, and use that money to pay the investors each month.

8. The Creator/Seller of the MBS, is selling the right to receive an I.O.U. which pays interest to the "Buyer" of the I.O.U. (Investor) based on the hopeful profit from the mortgage payments.

THIS NEXT PIECE IS WHERE I MIGHT LOSE YOU (if I haven't already) - IF THAT HAPPENS, READ 1-8 AGAIN PLEASE!

9. The right of the Investor to receive the money for the I.O.U. is DERIVED from the Mortgage Backed Security, which has the right to collect money DERIVED from the underlying Mortgages, which is DERIVED from the Mortgagor's (the original borrower/homeowner) I.O.U. to the Bank/Lender. All of this is based on the sale value of the real estate that has been mortgaged by the Homeowner.

If you are still confused, refer to the chart at the top of the post. If you are still confused, join the ranks of MOST lawyers, accountants, stock brokers, and most of Congress.

The next post will deal with the Administration's first step to getting some of the BAILOUT mortgage money to regular homeowner-type people.

Author's Copyright (Text Only) by Richard I. Isacoff, Esq, April, 2009

rii@isacofflaw.com

http://www.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.

************************************************************

Bloomberg News Article on the Senate Bill

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

************************************************************

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 Rescue Plan: Does It Need a Rescue?

Now we know what the monsters are under the bed: partisan politics, inertia, greed, and despair. The economy keeps getting worse and every program that is announced to help gets roundly criticized by the Press, Pundits, and Politicians. How about injecting some hope into this quagmire?

The latest rant is against the Mortgage Bailout for Homeowners. For the most part, those leading the charge seem to be talking about borrowers who KNEW that they were borrowing more than they could afford to pay back, or the borrowers who got a mortgage loan where the borrower could make minimum payments (interest only or some other lower amount) hoping/expecting the house to rise in value so the borrower could refinance again, or the borrower who lied on his/her mortgage application in order to qualify for the loan without realizing that at the very first rate adjustment, she/he would not be able to afford the payment if it went up, but prayed for a raise/new job/no rate increase/ or divine intervention (or is that intervention by the intelligent designers?).

Below is the content of an e-mail I sent to CNBC's morning business show, SquawkBox, about the call for a financial revolution against the President's plans. You can see the clip where Rick Santelli, a Trader at the Chicago Mercantile Exchange attacks the Homeowner Mortgage Bailout, by going to the web address provided: http://www.cnbc.com/id/29283701

THE E-MAIL

Dear Becky, Joe and Carl (please excuse the use of the familiar but…),

I am a private-practicing sole practitioner attorney in Western Massachusetts. My background is banking, S&L work-outs for the State of Maryland and with FSLIC, Regulator in connection with the S&Ls, and part-time lobbying in the mid-80s for the Mutual Savings Bank industry. I relocated back to Western Mass to run the Berkshire County portion of the ill-fated Bank of New England and ended up working for the Fleet/FDIC workout group, RECOLL Mgt. (Great career move – I resigned as President and CEO of a de novo FSB [federal savings bank] I had started in Ellicott City, MD.).

I take extreme exception to Mr. Santelli’s commentary, his logic, and his outlook.

I represent people, statewide, who are presently losing their homes. Not one has a Lexus or other such luxury car, and if having 1 bathroom with inside plumbing is a luxury, then I guess all of my clients have a luxury.

Just for perspective, the President’s yet fully clarified program will help my clients: the short-form facts of some are as follows:

1. Husband and wife – both working for the same molding company, both laid-off the same day. For the past 18 months, only one has been able to get a job at a time. Husband hired, wife hired, Husband laid-off. Husband gets job, wife gets laid off, etc. Mortgage with Beneficial (which is under a consent decree in Mass. for bad lending practices). Interest rate high; clients “sold” insurance (life, AD&D, disability); loan adjusts up but the disclosures show a downward adjustment by .25% each year “if for a 12 month period all payments made on time” (day due, not 15 day grace period). Repeated calls to Beneficial have yielded no help in a modification

2. Single woman in late 50s. Religious Ed teacher at Catholic High School. Loan from BankUnited, FSB in FL, through a local broker. Initial year’s payments based on 1.7% teaser rate but interest rate, not payments, adjusted month 2 to index (6 mos LIBOR) plus margin (6.75%). Payments increase by 7.5% per year. At end of first year, Orig principal of $159,000 is now $163,000. At month 43 of loan payment is $700+/-. Month 44 –payment is $1,400.30 for rest of loan. Becky will be Pope before this woman will understand the loan she was sold. Oh, by the way, the Broker lied, in writing, and is no longer in business. Closing costs/fees to Broker and Lender - 6% making it a “High Cost Loan”

3. First time home-buyer with 720 FICO. Mortgage Broker puts her in 2/28 LIBOR ARM –tells her the rate will go up and down like prime. Never tells her first adjustment will be 3%. She tries to refi and is told her income is not adequate. House is a two-family but because she rents to family member, Lender will not count the income. She has “banked” payments for the period after the second adjustment, based on the original payment. Money is available to Lender. Lender went to sell at foreclosure. I stopped it, but no response from Lender. All we asked for was original deal – as presented by broker – 30 year fixed 7% - accept monies held by me in escrow, capitalize thew arrears, if any, after recalculating the balance by applying the original rate and actual payments.

4. HFC sells 30 year fixed rate loan. Borrowers have ability to pay with acceptable ratios 32/36 DTI. Loan is billed as a “conventional 30 Year Fixed”. Loan is, in reality a “Simple Interest Loan”, so interest runs every day. There are no 15 day grace periods – pay on the 2nd of the month and get an additional day’s interest charged. Pay on the 16th, which would normally require a 3% of the payment penalty, and pay the penalty PLUS 15 days interest. RESULT: Negative Amortization – off the books – run as a ledger accrual account. $425,000 loan - $22,000 accrued, not paid, interest in 18 months. No payment ever went 30 days – all made by 15th day.

I have a dozen more like these. I have filtered out the guy who has refinanced 13 times since 1985, and now want to get out of the 14th loan – an Option Arm – he can no longer afford. This is the person Santelli should attack. This person kept “cashing out” the equity and is now in a bind due to a 25%-40% drop in prices in the Boston metro area.

One last note – why are people afraid of a judge determining if a loan was made by a lender in bad faith? Misrepresentation goes both ways, and the borrower is the weaker party. Maybe the Lenders should have watched their originators more carefully.

I watch the show every morning from 6-6:45 –get to my office at 7:05 and grab it on CNBC Plus while I go through the e-mails and loan docs. Great show, but how about some better balance. Darwin was right, but to use his theory as a life approach is ignoring basic decency. It is like the “let them eat cake” of the 18th century French elite. Santelli does not sound French.

Richard Isacoff

(end of the e-mail)

It is difficult to convey the details of the President's plan at this point, because thee are none. It is not that the program isn't outlined in detail, but the who qualifies, how does someone apply for help, how do you communicate with your lender, etc, has not been finalized. We are supposed to receive the operational details on or about March 4th. In the meantime the next post will have a summary taken from the Whitehouse Press information, stories in the Wall Street Journal and the New York Times and other publications.

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

e-mail: rii@isacofflaw.com

website: http://www.isacofflaw.com/