Hi Catherine
I’m a home owner in California. My wife and I are trying to refinance our house. Since the housing market has collapse right after we have purchased our home, the value has gone down compared to the other homes in our neighborhood that are the same model. We would like to get a loan mod or something to lower the payment. In addition to this we are having issue with our payment in general. We signed a contract for a payment of $x dollars but now we are up to $x + A LOT of dollars because an issue with the escrow company telling us we have to pay them more. My wife has found Real Estate Settlement Procedures Act and thought it may help. I don’t feel completely confident with the government programs and wasn’t sure if it was legit. I understand you may not deal with this in your business but I have listen to numerous interviews of yours on the radio and internet with Alex Jones, Coast to Coast, etc. We don’t know who we can trust with the issue or who really has the knowledge to help. Can you help us or refer us to someone that can help… We appreciate any help you will offer..
Very Respectfully,
Stumped in California.
I asked our attorney,Carolyn A. Betts, Esq. to respond. Here is what she said:
Dear Stumped in California:
Not knowing who the servicer is or who owns his loan, I can’t speak to available loan modifications. The national foreclosure settlement agreement announced by 49 states’ attorneys general is not available for review, but reports and summaries say that there is a move afoot to require the settling banks (Wells Fargo, Bank of America, Ally (GMAC), JPMorgan Chase and Citigroup) to write down the principal of qualifying homeowners’ loans. Loans owned by Fannie Mae and Freddie Mac, however, are not covered by this settlement. So if you have a loan serviced by one of these companies and it is not owned by Fannie or Freddie, you might hold tight and see if there’s a program coming that would involve write-down of principal.
As for HAMP, if you cannot afford your mortgage payments as the result of a hardship (and they are more than 31% of your income, including taxes and insurance), you may qualify to have the interest written down on your loan under the Home Affordable Mortgage Program (“HAMP”). If you qualify for HAMP and your loan is not an FHA loan or owned by Fannie or Freddie, and your bank got TARP funds (which all major banks did with the possible exception of Deutsche Bank, I think), you should be able to have your interest written down to as much as zero and, in theory, your principal written down to the level where your monthly payments do not exceed 31% of income. Most lenders who do HAMP will extend the term of the loan out to as much as 40 years before writing down any principal. I’ve never seen principal written down on a HAMP loan. Note that you have to go through a three-month trial period and make timely payments of the full amount of the estimated new mortgage payment amount in order to get final approval for a HAMP loan.
If you have an FHA loan (or VA or Rural Housing loan, probably) or one that has been sold to Fannie Mae or Freddie Mac, there are modified HAMP programs that are not quite as favorable as the ones required of private lenders, but you should still be able to get a loan modification. You can check on the internet by loan number to see if your loan has been sold to Fannie Mae. I assume this is true of Freddie Mac loans, too. Do not assume that Fannie Mae and Freddie Mac will be sympathetic to your hardship just because they are in federal government receivership. I have been told by a client that Freddie Mac refused a HAMP loan modification when a timely-made trial period payment was not credited to the borrower’s account due to a servicer error.
If your loan is in a mortgage trust (which most that are not owned by Fannie or Freddie are, because few banks these days hold mortgage loans in portfolio), getting approval from the owner for a loan modification may take some doing due to the existence of some technical requirements in the analysis done to determine if you qualify (which, arguably, give them an out to extending a HAMP loan mod). But if you stick with it, usually you should be able to get a HAMP loan mod approved if your numbers qualify according to the basic formula. You can find the formula online by going to makinghomeaffordable.gov. If you qualify for HAMP, you should never agree to a non-HAMP loan modification, because other loan mod programs are not as favorable (e.g., under HAMP, the lender can’t charge you attorney’s fees in foreclosure or late fees on your loan if it’s in default).
Unfortunately, trust [of the lender] doesn’t really come into play when you are getting a loan modification (as opposed to a refinancing with another bank, which you can’t do if your loan is under water) because you are stuck with your existing lender. The horror stories I could tell you about the five settling banks mentioned above in their resistance to giving people the HAMP loan mods they qualify for would curl your hair. If there’s a way to keep your loan current while negotiating for a HAMP loan, that will avoid a foreclosure and a lot of time and money.
Although some lenders have told borrowers they have to default on their loans in order to qualify for a HAMP loan modification, this is not true. While in their agreements with the government the lenders are not allowed to foreclose on a defaulted home loan while they are evaluating a borrower for HAMP, most of them do it anyway. This is one of the practices (called “dual tracking”) the attorneys general were most upset about. It is common for lenders to foreclose on defaulted borrowers while negotiating loan modifications, telling the borrowers “not to worry” about their foreclosure cases because they will somehow disappear when the loan modification is finalized. DO NOT BELIEVE THAT. I have an employed client who qualified for HAMP following a medical hardship and entered into a HAMP settlement agreement more than 18 months ago. The client’s home is now legally owned by Freddie Mac, even though Freddie Mac stands to lose $100,000 or more if it kicks my client out and tries to sell the home in the current market. If you are sued in foreclosure, you need to answer the complaint. Whether the practice of dual tracking will change as a result of the national settlement is yet to be seen. Also, if you have defaulted on your home loan, be skeptical about what the lender or servicer says about your rights to continue to live in your home. A client of mine moved out of her home after an agent of the lender left a sign declaring it abandoned and saying she had to leave her home within three days. The lender had not even filed a foreclosure action!
I don’t live in a non-judicial foreclosure state, so I can’t speak to that situation. I do know that in non-judicial foreclosure states you have to go to court to get an injunction to prevent a sheriff’s sale if the lender has gone through a few hoops to take your home following a default.
The Hardest Hit Fund is available in some 18 states (including California, Ohio, Michigan and Florida) to provide federal government-funded assistance to people who are unemployed, underemployed or otherwise in trouble on their loans due to a hardship. The Hardest Hit Fund is administered through the state housing finance authorities — in Ohio by the Ohio Housing Finance Agency. In Ohio, qualified borrowers can get up to $15,000 to cover partial payments of their mortgage during periods of unemployment, supplements to pay off the deficiency in a short sale and pay-up of loan default amounts. Here’s a link to an article from last year about California’s program: http://www.inman.com/news/2011/04/6/california-expands-hardest-hit-eligibility-distressed-homeowners. At least in Ohio, the housing finance agency takes a second mortgage in the amount of the assistance, but the second mortgage is forgiven if the homeowner continues to own the home for the required number of years.
RESPA is not a loan modification program — it is a law that requires certain disclosures when you close on a residential home loan. The only relevancy to a borrower in trouble now, to my knowledge, is that if RESPA was violated in the original loan closing, that may be a defense or counterclaim in a foreclosure action by the lender.
