Loan Mod Myth
This whole loan-modification thing is getting out of hand.
Are we really so easy to manipulate, or are desperate people just clutching at anything to keep from falling?
So many homeowners on the verge of losing their homes will do anything, listen to anyone, take any advice, as long as it’s authoritative and the answer satisfies their wants. Why? Because even a flicker of hope can renew the enthusiasm of a condemned man. Problem is, loan mods, for the masses, are a Band-Aid on cancer.
But the voice of reason is drowned out by the shouts for rescue.
I’m all for hope, but it has be accompanied by action and a dose of reality. Homeowners in distress hope for miraculous results — a loan mod that reduces the amount they owe and cuts the interest rate to below-market levels. Reality is, if you don’t have a job, do you really think the bank is going to let you keep the house? Urban myths perpetuate the misplaced optimism. (“My uncle’s accountant’s niece found a non-profit that is ‘getting good results’ on loan mods.”) And so, merrily they go, off to slaughter.
Sure, a precious few who fit the narrow guidelines and have their flawlessly completed applications fall on the right person’s desk on the right day will reap rewards. It’s happened for a little over 300,000 people. But the vast majority of applicants who are granted 3-month or 6-month trial modifications will never see permanent loan mods. Many shouldn’t even be put through the trial programs. When their debt-to-income ratio with the trial payment is well above 50 percent? When they’re unemployed? When they’re drowning in unsecured debt and can barely afford to keep food on the table the lights on? I’ve talked to people who got the go-ahead for trial modifications with payments at nearly 90 percent of their take-home pay. That’s frickin’ ridiculous.
Less than 1 in 4 people who make it through trial payment programs actually get a permanent mod. And then 75% of those end up defaulting again within a year. Why? Because changing someone’s payment doesn’t change their habits. And the banks know it. But they can keep on collecting payments from those desperate souls who cling to the dream that they will be among the lucky few. And those homeowners will keep right on paying, even go farther into debt or worse to keep up their end of the bargain. Only to be crushed by a one-page letter summarily denying their application and requiring them to make up the back payments.
Here’s the kicker: While these mod programs are running their course, so is the foreclosure. And so many times, riding shotgun with the modification denial is a notice of trustee sale. At that point, it’s game over. Too late to attempt the other options, which were more likely to succeed, given the time. Options that were the most pragmatic, given the facts.
People who could have done a short sale, for instance, lose their home to a foreclosure, preventing them from buying another home for 5-7 years — at the bottom of the market — and gutting them emotionally. The banks actually lose more money than they would have had the property been liquidated in a short sale. The neighbors on the block suffer from a blighted home and further-reduced property values.
And everyone wonders what went wrong?
The voices are wrong. We have to make better decisions, based on facts and experience and the guidance of those with proven success. Not on the Pollyanna-ish opinions of those who don’t have a stake in the decision. Don’t buy in to the misguided claims of lawmakers who just want to keep their jobs. Don’t listen to scamming companies who take an upfront payment to process your loan modification when your gut is telling you it isn’t going to fly. Don’t blindly follow the suggestions of your friends and neighbors. And don’t let anyone keep you from doing what you know is the right thing in the long run. There’s too much at risk.
We’re adults and we have to start acting like it.
Foreclosure
TOP 10 QUESTIONS TO ASK THE SHORT SALE LISTING AGENT BEFORE MAKING AN OFFER
HOW TO EVALUATE A LISTING AGENT IF YOU ARE REPRESENTING A BUYER
1. What is your experience representing sellers in short sales? Dealing with a knowledgeable and experienced agent who has successfully closed many short sales is the sine qua non for a successful short sale. Thousands of agents are now taking short sale certification programs and presenting themselves as short sale specialists. Many of these agents have never closed a short sale in their lives. In fact many of the people teaching certification classes have themselves never closed a short sale. Knowing the mechanics of a short sale is not enough. Lots of agents now have this information from taking one of the many certification classes now prevalent. It will not get the job done. Ask the agent how many short sales they have closed representing sellers in the last year. I would also ask them if they have closed any representing a seller with the particular loan servicer who is the third party approver(s). (Representation of buyers in a short sale counts for nothing in terms of short sale experience since all the approval action goes on with the listing side.) The listing agent needs to know how to escalate a deal to get an approval. Some loan servicers – BOA immediately comes to mind – reflexively decline short sales and, I believe, manufacture values, notwithstanding what their appraisal or BPO says, hoping to extract the maximum dollars from the buyer and agents. (Understandable perhaps, but if they really wanted to get the most money from the short sale, they should provide a target number up front, not spend months jerking buyers and sellers around). The agent needs to know how to get to management to get an approval with Servicers like this. In fact the listing agent needs to know how to do this just as reflexively as the servicer who is going to reflexively decline the deal. Negotiating price prior to getting to the Management level is going to prolong the process, not shorten it. But the listing agent has to know how to get around the lower level negotiators.
2. How many liens are there on the property? First or first and second or HELOC, HOA, Condo, Special Assessment, Tax? Second lien holders and HELOC holders can be extremely difficult and are very adept at killing deals and cutting commissions.
3. Who is/are the servicer(s)? BOA, for example is extremely difficult to deal with. Much more so than Wells Fargo. So unless you just get lucky it will take a much more experienced and savvy agent to get an approval from BOA than WF.
4. Who is the investor or insurer on the loan? Fannie Mae, Freddie Mac, FHA or VA or Conventional or PMI Conventional loans are the Wild West for servicers since they can approve or deny anything they want. Fannie Mae loans frequently have PMI which means, nothing is happening without the PMI companies approval, so even if there is only one lien, there may be two approvals required. FHA has a proscribed process which allows servicers little latitude for game playing.
5. Is the listing agent going to have one contract signed and submitted or do they say they are going to submit the offers to the servicer to decide which one they want? I would personally advise my buyers to run away from any deal where the agent says they are going to submit multiple offers to a servicer. That tells me the listing agent is clueless. Why would you send multiple offers to a loan servicer who takes months to approve one deal? If the agent can’t figure out which is the best deal in a multiple offer situation, they should get out of this business completely.
6. Has the servicer previously approved a deal which the buyer walked away from or has the servicer disclosed an acceptable price? This may shorten the process, but not necessarily. Some servicers will force the agent to start all over from square one again with a new buyer, including ordering a new appraisal.
7. Does the agent have any financial modeling program to determine whether the offer is going to yield more cash to the investor than foreclosing? This is how the lenders ultimately decide whether or not to approve a deal. Absence of this is means you are pretty much throwing darts with a blindfold on.
8. Has the property been priced appropriately? I still see short sale listings where it is obvious the property is priced at a number which would pay off all of the liens. Ridiculous. Don’t even think about showing your buyers this property.
9. Do the agent comments say something like “commission paid on net sales price” or “50% to selling agent of approved commission”? Either this agent is clueless or they don’t know how to handle commission negotiations with the lender. This is a run away, don’t walk situation.
10. Does the agent purport to be an expert? I would be very, very wary of anyone who purports to be an expert. The only experts I am aware of are the guys sworn in as such in court rooms. We have 10 to 15 short sales in various stages of approval all the time and I see new twists on servicer tactics and processes every day – and there are dozens of servicer representing hundreds if not thousands of different investors. And don’t forget HAMP or HAFA. Bonus Question:
11. Will an Attorney get you a better deal on a Short Sale? Think about it. Until this year, most attorneys would have turned their noses up at dealing with loan servicers on short sales. Suddenly, they’re experts in short sales.
Foreclosure
Short Sale Benefits
Here are a few benefits for doing a short sale that may not have occurred to you:
- You are in control of the sale, not the bank.
- You may sleep better at night knowing who is buying your home.
- You will spare yourself the social stigma of the “F” word, foreclosure.
- Contrary to popular belief, you can be current on your payments and still effect a short sale.
- Your home sale will be handled like any other home sale.
Buying Again After a Short Sale
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for an FHA loan is 3 years.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.
Buying Again After a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
Affects on Credit After a Short Sale
A short sale is not a derogatory mark on your credit because credit bureaus do not show the word “short sale” on your credit report. It may say “pay as agreed” or “paid as less than agreed,” among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.
The point drop is typically due to being in default, that is behind on your payments.
Affects on Credit After a Foreclosure
A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years.
Credit Reports After a Short Sale
All lenders report short sales differently and some do not report them to the credit bureaus at all.
Credit Reports After a Foreclosure
If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.
Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.
Deficiency Judgments After a Foreclosure
Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee’s sale.
Loan Application Questions After a Short Sale
Loan applications do not ask questions about a short sale. You may report that you sold your home.
Loan Application Questions After a Foreclosure
You are required to answer the question: “Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years.” If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud.
Length of Time to Move After a Short Sale
If you’ve had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer.
Length of Time to Move After a Foreclosure
Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.
Taxation After a Short Sale
A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.
Taxation After a Foreclosure
Same as with a short sale. Except some lenders immediately send out 1099s, even if the owner is exempt.
In closing, always obtain legal and tax advice before making a decision between a short sale or a foreclosure.
Contact for tax advice 1-866-411-2002 and be sure to mention my name
Justine Clark
Foreclosure
Foreclosure
Welcome, my friend
Mortgage Tip of the Day:
Homeowners facing foreclosure often have the option of selecting a short sale or a deed-in-lieu of foreclosure as a possible solution to their financial difficulties. But are they? Which is the best choice? Like most alternatives, both have their upsides and their downsides. Understanding these options is the only way to make a truly informed decision.
In a short sale, your lender takes the loss
When you decide to use a short sale to prevent foreclosure, you should understand that the sale must have the lender’s approval and that lenders don’t always agree. What the lender is doing when he accepts, is permitting you to sell your home for less than you owe him and taking the loss himself. If he does go along with the short sale, it will relieve you of the burden (arrearages) as well as the cost, emotional strain and embarrassment of a messy foreclosure procedure. On the upside, a short sale is far less destructive to your credit rating than a foreclosure, as it is supposed to be listed as a “settled debt” on your credit report. However, it is still harmful to your credit score and can reduce it by 200 points or more.
On the downside, the lender could always go after you to collect the difference between the short sale price and what you owed him by getting a deficiency judgment against you. However, more often than not, this doesn’t happen simply because he knows that there is no money to recover and that he will have to pay all the costs of the legal action.
deed-in-lieu may be your fastest way out
A deed-in-lieu of foreclosure is when you give your home back to your lender, take your losses and thereby prevent the foreclosure. Lenders will frequently accept this because it is a less expensive and time consuming process for him than a full foreclosure action. The upside is that a deed-in- lieu is a faster solution than a short sale and that it is more likely to be acceptable to the lender. The ramifications to your credit score are about the same as the short sale.
On the downside, if the lender eventually sells the home for a price that doesn’t pay off the original mortgage amount, he can get a deficiency judgment and try to collect it from you. Once again, however, he knows that you can’t get blood out of a stone and probably won’t proceed if there doesn’t appear to be any money to recover.
Select either Short Sale or Deed-in-Lieu as early on as possible
The sooner you act on either a short sale or a deed-in-lieu the better. Once the foreclosure process is activated, you will not be in a strong position to negotiate with your lender because payment arrearages, interest and penalties have piled up. He can hold you financially responsible for his losses and seek a deficiency judgment that will appear on your credit report even if you don’t have the money to pay it. In either case, however, avoiding foreclosure is always a better choice in terms of the effect on your credit.
Answer: It is fact. 1 in every 2000 babies are born with a tooth.
Thanks for Reading.
Justine Clark
Real-Estate-Acquisition-Firm.com
Office: 740 922-2387
Foreclosure
Real Estate Acquisition Firm
STOP Your Foreclosure Now!
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