We have finally seen our first few loan modifications under the National Mortgage Settlement entered into between the Attorney Generals of the various states and the “Big Five”: Chase, Citi, Bank of America, Wells Fargo, and Ally. So far we have only seen Bank of America modifications emanating from their acquisition of Countrywide. The ones that we have seen are good, very good. We are talking about principal reductions in excess of 50%.
We are trying to do some detective work and, apparently, Bank of America has outsourced these particular modifications to a company in Houston, Texas called Home Retention Group, Inc. That is all that we found out so far. We are also trying to figure out how one qualifies for one of these “unicorns.” In a press release put out a couple of weeks ago, Bank of America outlined the following criteria:
1. The loan has to be upside-down.
2. As of January 31, 2012, it must be in default for at least 2 months.
3. Monthly housing payments, which would include principal and interest on the existing loan, property taxes, hazard insurance, and homeowner’s or condo fees must total more than 25% of the gross household income.
4. Owned by Bank of America, or if not owned by Bank of America, serviced by them under contractual terms which would permit “modification.”
No Fannie Mae, Freddie Mac, FHA or VA loans are authorized to participate in this principal reduction program. What else is new?
We are looking into when the other members of the “Big Five” will be offering modifications and what type of criteria they will use. We will report on that when we have information that is reliable.
In the interim, if you have a loan serviced by Bank of America, which meets the above criteria, we strongly suggest that you contact Bank of America and specifically request to apply for a “Modification Under the U.S. Department of Justice and State Attorney General Global Settlement Agreement.” Put it in writing. I would even try sending it via certified mail so that you can prove you requested it for whatever that might be worth in the future. I would also try calling Bank of America’s toll free number 1-(800)-669-6650, but I would still put the request in writing and very specifically ask for that modification and a principal reduction.
How can you tell if your loan is upside-down? We use the national database operated by Zillow; http://www.zillow.com/. It's free and should give you a pretty good idea of what the actual current value of the property is.
I would also use the same technique and make a written request to the other four servicers; Chase, Citi, Wells Fargo, and Ally. Seems to me that you have nothing to lose.
According to the information on the Settlement, there are billions of dollars available for these types of modifications, but billions of dollars will be used up quickly. I strongly suggest that you get in line as soon as possible. We will report further in this Blog once we get additional information, however there is no excuse for not asking for something that you may be entitled to. Do it early and do it in writing.
Wednesday, August 15, 2012
Wednesday, August 1, 2012
WHAT THE LORD GIVETH, THE LORD TAKETH AWAY. HURRY UP AND TRY FOR A LOAN MODIFICATION!
The often repeated Bible passage from Job 1:21 of the King James version is particularly applicable to the situation that is now facing distressed homeowners, severely underwater with mortgage balances far exceeding the property’s value and trying to get relief. After 4 years of dealing with the freefall in the value of people’s homes, at first it would appear as if we have finally gotten to the point where the various actions of governmental agencies and the mortgage industry are beginning to come together and generate a climate where relief for these underwater homeowners may be readily at hand.
First, we had the Obama Plan Tier I (HAMP), a realization by the various mortgage companies and servicers that they are better off modifying loans to keep people in their homes and making payments. Then there was the $25 billion massive Attorney General’s settlement ironed out between the individual State’s Attorney General and the big mortgage servicers, which supposedly made $10 billion available to go to assisting homeowners with principal reductions in their loan modifications. The way ahead seemed to be rational loan modifications with significant principal reductions to make those who are suffering from the economic downturn able to keep their homes and make their mortgage payments. Finally, there was the recent (June 1, 2012) HAMP Tier II Program which radically increased actual cash incentives for lenders to give principal reductions.
But, just like the game of chicken that the two political parties played with their refusal to increase the national debt ceiling until the very last moment, threatening default, and singlehandedly causing a reduction in America’s credit rating; on a smaller scale, the political deadlock between the donkeys and elephants now threatens to derail the progress of homeowners seeking rational loan modifications.
Specifically, in 2007, the Congress passed The Mortgage Forgiveness Debt Relief Act, which simply stated, authorizes an individual taxpayer to ignore the tax consequences of debt forgiveness when there is a principal reduction in their home mortgage. Normally, under our tax code, if a lawful debt is forgiven, such as in the case where the principal balance on an outstanding mortgage is reduced, the reduction constitutes income within the year that the debt is forgiven. Under the Act, as long as the amount forgiven is on a mortgage on their principal residence, there is no tax consequence. (The mortgage cannot exceed $2 million or $1 million for a married person filing a separate return.) This provision of the Internal Revenue Code is due to expire December 31, 2012. It was anticipated that the extension of this benefit would be readily approved, however, the handicappers are no longer sanguine regarding its extension. (This means that the experts are not sure that Congress can get itself together to agree on this provision which has universal support among 99% of the population.) Thus, there is a very real prospect that, once again, democracy in action will shoot itself in the foot.
Don't get me wrong, I like democracy. In fact, I like it better than any other system of government (other than that system which allows me to make all the decisions). Be that as it may, if you can read, or if you can understand what is broadcast over and over again within the last 4 years on what we euphemistically call the news, and you have not been living underground, one must realize that the likelihood of our national legislature agreeing upon anything, no matter how popular, is these days, certainly less than 50%.
All this means is: now is the time to pursue a loan modification. The banks are inclined; they have supposedly $10 billion to utilize under the Attorney General’s Settlement for a reduction of principal balances. Mortgage interest rates are at an all time low. Real estate values are scraping the bottom. The banks have been further incentivized by the Obama HAMP Tier II Program to propose principal reductions and to tax free consequences of any debt forgiveness would still be effective, at least until the end of the year. The process is not smooth, and it's often lengthy. The lesson to be learned here is that anyone thinking about trying to get a loan modification should stop thinking and start doing. Go to your mortgage servicer’s website, download the materials, hire a lawyer if you like, or proceed on your own. But whatever you do, if you think you are qualified for a principal reduction on your mortgage due to significant reduced value and financial hardship, you would be a fool not to try.
First, we had the Obama Plan Tier I (HAMP), a realization by the various mortgage companies and servicers that they are better off modifying loans to keep people in their homes and making payments. Then there was the $25 billion massive Attorney General’s settlement ironed out between the individual State’s Attorney General and the big mortgage servicers, which supposedly made $10 billion available to go to assisting homeowners with principal reductions in their loan modifications. The way ahead seemed to be rational loan modifications with significant principal reductions to make those who are suffering from the economic downturn able to keep their homes and make their mortgage payments. Finally, there was the recent (June 1, 2012) HAMP Tier II Program which radically increased actual cash incentives for lenders to give principal reductions.
But, just like the game of chicken that the two political parties played with their refusal to increase the national debt ceiling until the very last moment, threatening default, and singlehandedly causing a reduction in America’s credit rating; on a smaller scale, the political deadlock between the donkeys and elephants now threatens to derail the progress of homeowners seeking rational loan modifications.
Specifically, in 2007, the Congress passed The Mortgage Forgiveness Debt Relief Act, which simply stated, authorizes an individual taxpayer to ignore the tax consequences of debt forgiveness when there is a principal reduction in their home mortgage. Normally, under our tax code, if a lawful debt is forgiven, such as in the case where the principal balance on an outstanding mortgage is reduced, the reduction constitutes income within the year that the debt is forgiven. Under the Act, as long as the amount forgiven is on a mortgage on their principal residence, there is no tax consequence. (The mortgage cannot exceed $2 million or $1 million for a married person filing a separate return.) This provision of the Internal Revenue Code is due to expire December 31, 2012. It was anticipated that the extension of this benefit would be readily approved, however, the handicappers are no longer sanguine regarding its extension. (This means that the experts are not sure that Congress can get itself together to agree on this provision which has universal support among 99% of the population.) Thus, there is a very real prospect that, once again, democracy in action will shoot itself in the foot.
Don't get me wrong, I like democracy. In fact, I like it better than any other system of government (other than that system which allows me to make all the decisions). Be that as it may, if you can read, or if you can understand what is broadcast over and over again within the last 4 years on what we euphemistically call the news, and you have not been living underground, one must realize that the likelihood of our national legislature agreeing upon anything, no matter how popular, is these days, certainly less than 50%.
All this means is: now is the time to pursue a loan modification. The banks are inclined; they have supposedly $10 billion to utilize under the Attorney General’s Settlement for a reduction of principal balances. Mortgage interest rates are at an all time low. Real estate values are scraping the bottom. The banks have been further incentivized by the Obama HAMP Tier II Program to propose principal reductions and to tax free consequences of any debt forgiveness would still be effective, at least until the end of the year. The process is not smooth, and it's often lengthy. The lesson to be learned here is that anyone thinking about trying to get a loan modification should stop thinking and start doing. Go to your mortgage servicer’s website, download the materials, hire a lawyer if you like, or proceed on your own. But whatever you do, if you think you are qualified for a principal reduction on your mortgage due to significant reduced value and financial hardship, you would be a fool not to try.
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