Read About Santa Rosa, Sonoma County Short Sales To help Avoid Foreclosure
FAQ: Why are lenders waiting until my credit is shot before talking to me about loan modification only to find out I can't modify my loan because my credit is hammered? A: Good question - Loss mitigation departments work differently to what logic says.
Do not follow the logic but always follow the money
AS home foreclosures continue to rise, lenders are intensifying efforts to assist troubled homeowners. But financial advisers warn that borrowers should be vigilant about the type of help they are being offered.
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UPDATE: October, 2009
In October the Obama administration announced its mortgage relief program had helped 500,000 troubled borrowers, a goal it met a month ahead of schedule. The program, which makes mortgages more affordable by lowering monthly payments, ultimately aims to help as many as four million struggling homeowners.
Most of the borrowers helped so far are only in a trial period. Statistics show that as many as 70% of homeowners who are granted loan modifications end up re-defaulting within six to 12 months.
"What we've seen from other modification efforts has led us to temper our expectations," says Mr. Fratantoni, a vice president in research with the Mortgage Bankers Association. "Despite best efforts, in many cases these modifications are not going to succeed."
With U.S. unemployment at a 26-year high of 10.3%, foreclosure counsellors across the country are now deluged with requests for help from long-time homeowners with conservative mortgages. For years, most of these homeowners have paid their mortgages on time each month but are now falling behind because of lost income and other hardships caused by the recession.
The development poses a serious problem for the Obama administration's already struggling US $75-billion effort to prevent Americans from losing their homes to foreclosure. Most of the U.S. government funds and private sector efforts are going toward mortgage modifications so that loans total no more than 31% of a household's income. YOU ARE NOT ALONE and NO REASON FOR SHAME
“The average loan servicer wants to reach a resolution about a loan modification with a single letter or a phone call,” said Steven Horne, the president of Wingspan Portfolio Advisors, which helps clients renegotiate loan terms. But, he said, devising an effective long-term strategy to enable a borrower to avoid foreclosure might take several rounds of communication.
Many borrowers who obtain loan modifications, in fact, soon find themselves in trouble again. According to a government survey, 53 percent of the borrowers who had changes to their loans in first quarter of 2008 began missing payments within six months.
John C. Dugan, the comptroller of the currency, said he was baffled by the results, which were released this month.
But Mr. Horne, a former executive at Fannie Mae, suggested that the new loans had not been structured to best meet borrowers’ financial circumstances, in large part because the loan servicers that collect mortgage payments cannot engage in a lengthy analysis of each borrower’s finances.
It is up to the borrowers, therefore, to be more proactive. Mr. Horne says they can increase the likelihood of securing the right loan if they push for more personal attention, and do a little homework about their own finances.
Borrowers should devise a firm budget and determine what monthly payment they can actually afford. Some help can be found at the Internal Revenue Service’s Web site (IRS.gov). Visitors who type in “Collection Financial Standards” into the search box will be directed to pages (sometimes by state) that offer guidelines, based on consumer surveys, of what they can reasonably expect to pay for food, clothing, housekeeping supplies, out-of-pocket health care, utilities and transportation.
For instance, an average family of four in Manhattan (with no one over age 65) would incur total monthly expenses of about $7,614. That includes $1,370 for food, clothing and other items, $228 for out-of-pocket medical expenses, $652 for public transportation and $5,364 for housing-related expenses.
The latest foreclosure figures suggest that New York, New Jersey and Connecticut are generally doing better than the rest of the nation but that problems are worsening.
According to the Mortgage Bankers Association, the foreclosure rate for so-called prime mortgages with fixed interest rates was twice what it was two years ago. In Connecticut, 0.52 percent of these mortgages were in foreclosure at the end of October, the trade group said. In New York, the figure was 0.71 percent, and in New Jersey, 0.9 percent, just slightly higher than the national average of 0.86 percent.
The picture for subprime adjustable-rate mortgages was bleaker. About 17.7 percent of these loans were in foreclosure at the end of October in Connecticut. In New York, the figure was 24.5 percent, and in New Jersey, 25.6 percent. The national average was 20.65 percent.
At the same point in 2006 — before most subprime ARMs started adjusting upward — Connecticut’s foreclosure rate for these loans reached 4.6 percent. In New York, the failure rate was 5.8 percent, and in New Jersey the figure was 4.7 percent, which was identical to the national average.
Subprime ARMs in the three states total 172,257, 12 percent less than two years ago, according to the mortgage trade association.
