Attorney James Logan interviews Ken Bond; an expert on loan modifications in dealing with the banks.
A. One thing that people don’t realize is, one of the things that normally does not change is the length of time of your mortgage. Sometimes it can, but a majority of the time, the length of time of your mortgage stays the same. What’s it’s really doing is trying to adjust the interest rate to make the payment more affordable for you. A lot of times with this, most people are looking for a loan modification, because they’re already having difficulty with their mortgage and they’ve gone into, what we call arrearages, they’re behind on their mortgage for a certain amount.
Many lenders will work those arrearages by putting those arrearages basically on the back end of the loan. The problem that people have to realize is many times you end up with a balloon payment at the end of the loan which is usually equal to whatever your arrearages are. My advice to most people is if you have a 30-year mortgage, do you really care what that balloon payment is at the end?
A. As soon as you know you’re going to get into trouble with your mortgage payment. If you recently had a reduction in income, either due to a change in job, a loss of job, a loss of a domestic partner, prior to even becoming late on the mortgage. That’s one of the fallacies of loan modifications. There is no requirement that you need to be behind on your mortgage to start the process and one thing you should never do is purposely fall behind on your mortgage in order to try to start the process of a loan modification. In other words, loan modifications are specific to need.
Not everybody gets a loan modification. You might think that you should get a loan modification because your house is not valued as high as it was when you purchased it and maybe your mortgage exceeds the value of your house; that is not a hardship for a loan modification. Hardship has to deal with your economic situation. So one thing I always encourage people to do is start the process early, but don’t force yourself into it. If you can make your mortgage payment at your current income level, then make it.
There are many people that come, that would come to me at my previous office and say to me that they deserved to have a loan modification because, their loan is $400,000 and their house is now worth $300,000. So the bank should reduce the principal by $100,000 and reevaluate or readjust the amortization of the loan. An example is to switch the situation around. If you were to loan somebody $400,000 and 5, 10, 15 years later whatever they used that $400,000 for is no longer worth $400,000 and they would want you to take less of the money back that you loaned them, you’d probably say no!
On the other extreme, if your house happened to increase in value and your house was worth $500,000.00 and you had a mortgage for $400,000.00, if you sold the house for $500,000 and the bank said that they wanted a little piece of that action, you would never give the bank more money than what you owe them, so you really have to look at it in those terms. You owe what you owe, you signed the papers, you signed a note and a deed of trust. It’s unfortunate but a home is also an investment. Every home is an investment. Some investments are good, some are bad.
A. The first thing you need to do is you need to contact your lender and get to the right department. Every major lender has what’s called a loss mitigation department, loss mitigation is the term they use for trying to work out loan modifications with people. The first thing that usually happens is they’ll send you an application. The application process has been streamlined lately. Most lenders are using the same seven to nine-page application.
That application is going to ask you for a lot of information, your income information, income about your debts, income about your assets. Filling out this application is the extremely important part of this process and most important is you are dealing with a mortgage company. You are, in essence, applying for a mortgage again. So you must be open and honest on that application. You can’t hide assets. Basically, it’s mortgage fraud if you try to get a loan modification without disclosing everything that they ask for. So that’s the first part of the process, and that generally is not a difficult part.
Step 1, filling out the application and getting back to the lender gets the ball rolling. The second part of the process is what usually trips people up. Now you have to start getting the documents that the lender requires, and every lender asks for the same thing, the last 2 years of income tax returns, the last 3 months of bank statements, the last 2 to 3 months of paystubs and paystubs for both you and anyone else in the household that is working. They don’t necessarily have to be on the mortgage. For example, if you’re married and your spouse is not on the mortgage, they are looking for, and the application is very specific, it says household income, not your income.
If you have children who are living with you who are contributing to the household, it must be listed. That’s where some of the difficulties start with most people, trying to get the documents to the lender. Unfortunately, even most of the major lenders right now are still using antiquated fax systems to do this and that trips people up.
Some of the big lenders, Bank of America specifically, created this web portal that you can use to upload and not even email, it’s uploading the documents into their system, scanning and uploading. It’s a tracking system, so that’s good. Most people get very frustrated with the process trying to fax the documents. It’s a large set of documents that you have to send over, sometimes it’s 40, 50, 60 pages, and faxes don’t always work well. That’s Step 1 and Step 2 is getting the application complete and getting all the documents to the lender.
A. The web portal was specific only to attorneys that were handling loan modifications, some loan modification companies and obviously the lenders themselves. I believe now that anybody can go onto this web portal and you have to register to use them. I’ve always strongly encouraged people when you’re dealing with the loan modification process, if the bank uses a web-based portal and you have the opportunity to use it, then use it. At least there’s going to be document tracking.
This leads to Step 3. Step 3 is, unfortunately, you have to be available at the lender’s time to answer the phone calls that you’re going to get from the lender. That becomes very frustrating. Most people who are applying for loan modifications work. Sometimes they work more than one job. You can’t always be available, when the lender calls. If the lender calls and you’re not available, you have to contact with the lender again. The lender’s going to call to go over some of the documents with you. If you’re not available, you kind of get sort of pushed to the back of the list of people calling.
The problem is the lenders have specific personnel assigned to your loan modification request, and those people aren’t just handling yours. They’re handling sometimes hundreds of files at the same time. The chances of you getting back by phone to the person that is handling your loan modification ends up becoming slim to none. There are many lenders that have now streamlined the process and made it much easier. Ocwen is a lender/ servicer that has streamlined the process and it’s become much better. They actually schedule times to call you.
A. It depends certainly what state you’re living in, and we’re only going to be talking about the state of Maryland now. Your house going into foreclosure might actually be beneficial to you if you truly are looking for a loan modification. If you’re looking for a loan modification because you want to save your house because there is a reason to save your house, going into foreclosure affords you basically two bites at the apple, so to speak, for getting a loan modification most of the time.
In the state of Maryland, when you have a foreclosure action filed against you, there are two affidavits that get filed by the lender along with your foreclosure. One is called the preliminary loss mitigation affidavit and the other one is the final. When you initially have a foreclosure case filed against you, 90 percent of the time a preliminary loss mitigation affidavit gets filed, and that preliminary loss mitigation affidavit comes with an application for a loan modification. It’s, in essence, an opportunity to file a loan modification application with the lender. The process is still the same, except now it’s a little bit more controlled because it’s going through the law office that has filed the foreclosure action.
So let’s say you get denied for that loan modification through the preliminary loss mitigation affidavit, or let’s say you just don’t participate, you just don’t complete the application, you don’t follow through with it. It’s still okay. Sometimes I counsel people, depending on where they’re at, how long they want to be in the house, what they need to do? Do they just need more time? Skip that process and wait for the second stage of it, which is the final loss mitigation affidavit.
The final loss mitigation affidavit comes with a request for mediation. That’s a good thing. People don’t realize that it’s a good thing. You have to file it. You have 26 days to file your request for mediation once it is mailed to you and it costs $50.00. For $50.00 you just bought yourself anywhere from 6 to 8 weeks in your home. You can’t rent a home for $50.00 for 6 to 8 weeks. That starts the mediation process, where you’re actually going to go to mediation and have a face-to-face mediation. Not truly face to face; it’s telephonic, but there has to be somebody at the mediation, a representative from the lender, on the line who can ask questions and make decisions on the spot. Actually it is very beneficial.
A. It depends what county you’re in. In Baltimore City, Baltimore County, most of the mediations get done in Hunt Valley at the Office of Administrative Hearings. In the counties, each county designates a place to have their mediations. Prince George’s County has two different places for mediation where your mediation is clearly identified on your notice that you get back telling you the date, time and place of your mediation.
A. I will give you a little hierarchy of things. In my opinion and my experience, Ocwen is a servicer that probably more than 90 percent of the time gives a loan modification. I’ve also seen Ocwen significantly reduce and sometimes eliminate second loans or second mortgages. Ocwen being the best and also Ocwen tends to have a little bit more documentation control. You can email things in and they schedule a time to call you. The lender I’ve had the least success with is Wells Fargo. I have no reason why it seems that Wells Fargo doesn’t give that many loan modifications. I don’t know!
They are extremely slow at making decisions, so one of the problems with Wells Fargo is by the time they’re ready to make a decision, they’ll usually send a notice saying your documents, the term they use, are stale. In other words, your documents are out of date, because they want all the documents to be within a 3 month period of time. Silly, because never in my experience, has Wells Fargo ever made a decision in 3 months.
One thing that you have to be careful of is private lenders. There are private lenders out there that never participated in the TARP bailout program, so they have no obligation whatsoever to participate in the HAMP program, the federal loan modification program. One lender that sticks in my mind more than any other is HSBC. HSBC does not participate in loan modifications. If you have an HSBC loan, you’re not going to get a loan modification.
A. There’s not a whole lot you can do. No bank, even if they do participate in the HAMP program and the loan modification program in general have to give you a loan modification. There’s no requirement. They do have to review you for a loan modification and there’s more than one type of loan modification. You may be denied a HAMP loan modification but many lenders have what they call internal loan modification proceedings. Sometimes they’re just as good, if not better than HAMP but people get confused. People think loan modification is a right that you have through the HAMP program.
It is not a right and many times, the lenders will look at it and balance it out. There’s a test that they use. It’s a very complicated test. It’s a very complicated mathematical equation that they use to determine is it beneficial for the lender to do a loan modification? Because don’t forget, the loan modification process not only has to benefit you. It has to be a benefit to the lender as well and so if they’re looking at your loan and they’re looking at your property and things don’t balance out and I personally have looked at the equation that they use, and it’s incomprehensible. It’s a calculus differential equation that goes on for 13 or 14 pages of calculations and it comes out with a pass or fail.
It’s based on many things; the value of the house; the amount of the mortgage; your income; how far behind are you, are they going to recoup benefits out of this; are you going to be able to sustain a loan modification? The best thing is if your loan modification process fails you may have to look into bankruptcy and specifically if you want to save your house.
A Chapter 13 bankruptcy! One of my associates used to say a long time ago, if you don’t want to do it the loan modification way, if you don’t want to look at my application and accept it, you don’t want to do it my way, we’re going to do it Uncle Sam’s way, meaning the federal government’s way. The federal government is the rule maker for bankruptcies. So Bankruptcy may be the best option.
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