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Finance & Law for Not-So-Dummies (5)

• Mortgage Modificiations To Get More Difficult?

  Posted: August 28th, 2009, 7:00am PDT

  Countrywide, now part of Bank of America was one of the major lenders to sub-prime borrowers (that only means a credit score below 680 (or 640 depending on the day). It also packaged and sold the loans it originated, as Mortgage-Backed Securities ("MBS"). It continued to service the loans (collect money and send bills from and to borrowers) and was paid by the owners of the MBS to do so. The owners were just investors - they bought $xxxxx of a bond, not any different than if they bought a corporate or municipal bond.
  
  When the mortgage/housing crisis hit, in large part due to Adjustable Rate Mortgages ("ARM") there was tremendous pressure on the Servicers, of which Countrywide was one, to MODIFY loans so that they were affordable for the borrowers. Some servicers modified loans, which they may or may not have been permitted to do in their contract, called a Pooling and Servicing Agreement ("PSA"), with the "packager"/"owner" of the bond. Countrywide modified loans and then, ignoring its PSA, refused to re-purchase the loans that had been modified by lowering the interest rates or even putting payments at the back of the loan. In simpler terms, Countrywide altered the amount of interest the owners of the MBS would receive.
  
  A federal court ruled that Countrywide's motion to dismiss the lawsuit brought against it by the investors would not succeed. The Court stated that the case was one which should be brought in State Court, the the modifications were not protected by the recent legislation and Congressional acts to force lenders and servicers to modify loans. Basically, the Court said that if there is a contract, Countrywide must observe it - any quarrels with that belong in a state court on a case by case basis. No "get out of jail card" was given to Countrywide.
  
  WHY DO YOU CARE? Because Servicers, if they aren't protected when they make modification from the investors, who expect a certain percentage return, will refuse to modify citing the Court ruling but relying on the contract they made, and arguing that they cannot breach the contract! This means more difficulty getting Servicers, which are not participating in the Federal program to modify loans, now for fear of a lawsuit.
  
  This issue was brought up months ago and detailed in my posts of 10/25/2008 and 11/9/2008 -
  [finance-for-us.blogspot.com] and [finance-for-us.blogspot.com].
  
  This just points out the disconnect, the lack of communications and an efficient coherent policy to deal with the foreclosures. Maybe Congress would act if it the home of a member!!
  
  Author's Copyright by Richard I. Isacoff, Esq, August 2009
  [www.isacofflaw.com]
  rii@isacofflaw.com
  

• Mortgage Modification Mandates

  Posted: August 18th, 2009, 7:00am PDT

  As a follow-up to the last post, several important matters:
  
  1. If you have submitted the application for a loan modification under the "Making Home Affordable" program, any foreclosure proceedings must stop. The exception is if you do not meet the basic criteria (see [www.makinghomeaffordable.gov])
  
  2. To see if your lender/servicer MUST participate in the program go to [www.financialstability.gov] - if it is listed, it has to deal with the modifications
  
  If the lender or servicer received any TARP funds or "volunteered" to be part of the Home Afforability Modification Program "HAMP" or the Home Affordability Refinance Program "HARP" it should be on one of the lists
  
  3. If a mortgage company or servicers tells you not to send any money until the paperwork is received or not to send money for any other reason, ask for the person's name or employee number. Also, ask how you be certain that you should not send any payment. Even if you are satisfied that you do not have to send a payment "that" month, DO NOT USE THE MONEY for anything else. Set up a separate savings account and put all of the money for the payment(s) in the account. If the MHA modification doesn't work, and the lender has its own program, you WILL be asked if you have the last "X" payments, since the last one mailed.
  
  4. If you get mail offering to help you get a loan modification, and the solicitations asks you to send in any money, even after you have called the company and spoken with a "counselor" DON'T DO IT, unless it is your lender/servicer and you have an agreement. There are hundreds of scams right now - 15% of my clients have paid money to some company that cannot help, except to help themselves.
  
  Two expressions come to mind: "God helps those who help themselves" and "God help those who help themselves". (Interesting what one "s" can do!)
  
  5. If you have questions, call a bankruptcy attorney or a foreclosure attorney in your area. If you don't know who to call, check [www.naca.org] or for a lawyer [www.nacba.org] OR send me an e-mail
  
  Author's Copyright by Richard I. Isacoff, Esq, August, 2009
  
  [www.isacofflaw.com]
  rii@isacofflaw.com

• Making Homes Affordable? It's Not Working!!

  Posted: August 17th, 2009, 7:00am PDT

  In a report released by the "Making Homes Affordable Program", only 9% of those mortgages eligible (estimated) for a modification are in the process. Essentially the lenders, mortgage companies, loan servicers, ARE NOT doing their jobs.
  
  The information through the end of July shows that of an estimated 2.7 million mortgages, all of which are 60 days+ delinquent, only 235,247 (actual) have been offered a modification or are in the process of obtaining one. This does not necessarily mean a change in all terms, but could be nothing more than the lender allowing 3 payments to be moved to the end of the loan term, but as a modification.
  
  The lenders doing the best job are 1. Saxon 2. Aurora (small number of loans) 3. GMAC 4. JP Morgan Chase -all having in process 20% or more of the estimated eligible loans. CitiBank has 15% being worked on. BUT American Home Mortgage Servicing Inc (AHMSI) has done 0%, Wilshire 1%, Wachovia 2%, Select Portfolio 3%, Bank of America 4%, OCWEN 5%, and Wells Fargo and Citizens 6% each.
  
  Who's fault is it - primarily the lenders/servicers. They never got ready for the program and they prefer to try to wait out the bad times, thinking, it seems, that suddenly the housing and finance markets will turn positive.
  
  IT IS CRITICAL TO NOTE that once a borrower has submitted the necessary paperwork for a MHA Loan Modification, and has passed the initial screening (see below) FORECLOSURE PROCESS MUST STOP! - 1. home is your primary residence 2. currently employed or have other regular income 3. default caused by a hardship or there has been a drop in income or increase in expenses 4. your mortgage payment including principal interest, taxes and insurance is more than 31% of your monthly GROSS income, and 4. your loan was current at the start of 2009, you qualify for the full analysis. (Go to [makinghomeaffordable.gov]
  
  If you meet the basics and have filed for a modification, and you then get a letter stating that the foreclosure process will continue during the evaluation, send a certified return receipt requested letter to the address to which you sent the documents, and state that the law requires them to STOP foreclosure proceedings.
  
  If you are having a problem, call a qualified Bankruptcy attorney in your area (you can find one at www.nacba.org), or, contact your local Bar Association for a referral to an attorney working to stop foreclosures. In Massachusetts for example, you can contact the Massachusetts Fair Housing Center, or any of the local housing authorities for a referral.
  
  The program is a reasonable one. I am having excellent results for my clients, but it requires a great deal of patience. As always, contact my office if you have a problem finding help.
  
  Author's Copyright by Richard I. Isacoff, Esq, August, 2009
  
  rii@isacofflaw.com
  
  [www.isacofflaw.com]
  
  

• Legal Aid Crisis - Is there a Free Lawyer in the House?

  Posted: August 16th, 2009, 3:00pm PDT

  Providing legal assistance for those who truly cannot afford to hire an attorney has been taken for granted. We see the "public defenders" on TV, and hear about lawyers working, without financial compensation, for the good of the public - "pro bono".
  
  Nationwide, legal aid programs are being ravaged by budget cuts, and in many states, due to the low interest rates. Massachusetts, like many other states, has a requirement that attorneys place clients money in a segregated account, often called an IOLTA account. If the funds will be held for any length of time, a separate interest bearing account is set up for the client's benefit. But money being held for a few days or even a week is put into the IOLTA account where the interest earned funds a large part of the legal aid programs.
  
  Interest rates have fallen significantly to merely .5% from 5% in just 2 years. In Massachusetts for example, 2007 revenue from these accounts for legal aid was $31.8million. In 2008 it had dropped 50 $15.6 million, and as of July of this year, the interest earned was only $4.1 million - that is on track for a $7 million 2009. Couple this with the monetary cuts due to a drop in federal aid and less taxes being collected, and you have a system that can handle only a fraction of the cases it should. According to Lonnie Powers, the Executive Director of the Mass. Legal Assistance Corporation, there are and will continue to be battered women, people facing foreclosure, tenants being evicted, workers having wages withheld illegally, with NO LEGAL REPRESENTATION. Thoughout the Commonwealth there will be Thousands of people who would normally qualify for legal assistance, who will not! Even criminal cases are now lacking lawyers for defendants, so the cases take longer.
  
  This financial problem is not unique to Mass. It's a nationwide problem and one that has no easy answers. There simply is not enough money to go around. It is like the perfect storm: lower interest rates being paid for deposits, federal money being cut due to the financial crisis, and the creation of probably 25% more work due to foreclosures, an increase in domestic violence caused by money worries, and tenants falling behind in rent with their landlords evicting them (rightfully in most cases but sometimes without following the right procedures).
  
  In my small office alone, I could have an additional 100 foreclosure cases in a month or less if I could afford to work for free (keep in mind that small law offices are just like any other small business, with salaries, rent, insurances, and other expenses to pay).
  
  Unfortunately, there appears to be no answer in the near future;. it is a sign of the times.
  
  Author's Copyright, by Richard I. Isacoff, Esq, August 2009
  
  www.isacofflaw.com
  
  rii@isacofflaw.com
  
  
  
  

• Stopping Foreclosure When the Lender Says "NO!"

  Posted: August 12th, 2009, 6:00am PDT

  (THIS IS A RE-POSTING FROM AUGUST 12, 2009)
  
  Bankruptcy is a good option if you are facing foreclosure and cannot get the lender to accept reasonable terms for a modification; terms that will allow you to either catch up on back payments over time, or which will put the arrearage at the back of the loan.
  The filing of any type of Bankruptcy, which is asking for protection from creditors, will stop ALL actions for money, foreclosures, repossessions etc, against you. BUT, for most consumers, only a Chapter 13 will give you the ability to spread out payments for the arrearage over a period of up to 60 months. So, assuming you are 6 months behind in payments of $1,500 each, and there are $3,00 in legal fees because you are in a foreclosure status, and you have $300 in late fees, and the lender has paid $1,200 in taxes for you because your escrow account (where the lender collects money to pay real estate taxes each month as part of the mortgage) is short because you haven't paid in 6 months - you owe the bank $13,500.
  Most of us do not have that amount of pocket change, and if you did, you wouldn't be 6 months behind. Spreading that amount of money over 60 months adds only $225 per month to your expenses. Please understand that there is no misunderstanding about a desperate financial situation, but if the arrearage occurred because of a temporary drop in income, for whatever reason, you can get caught up. Too many people give up once they get that far behind because they know they cannot pay $13,000+/- all at once, and once the foreclosure starts, the lender is not inclined to "make a deal".
  The Bankruptcy Laws were established so that people could get a "FRESH START". The whole concept is to give people who get into a financial bind a way out, without losing their home, car, retirement accounts etc. Details of the protections a Bankruptcy gives you are on my website www.isacofflaw.com . Once in a Chapter 13 Bankruptcy, the United States Bankruptcy Court controls what a creditor can do. If you make payments on time, including the $225/month in the above example, the lender can only sit by a wait until you finish the Plan of payments. If you make all of them, your loan is put back into "regular" good payment status.
  Also, if you miss a payment due to a temporary problem (broken arm with no sick time available from your job or a seasonal drop in hours so the overtime you have been counting on isn't available) the lender CANNOT just foreclose. It must ask the Bankruptcy Court for permission and there will be a hearing on the request. There, your lawyer (don't try a Chapter 13 Bankruptcy on your own) can explain the situation to the Court and usually work some type of compromise with the lender. The Bankruptcy Court is there to protect Debtors, provided the Debtors do what they promise.
  Further, if you have equity in your house of $30,000, and your payments are $1,000 per month, the Court normally will not allow a foreclosure even if you are 2 or 3 months behind. While that is not specified in the Bankruptcy Code, the concept, called "adequate protection", is clearly spelled out. In essence it states that if the lender is not at risk of losing anything by waiting and using some of your equity to guaranty the arrearage will be paid, then the Court WILL NOT allow the lender to foreclose. The lender has no risk in waiting so you get a chance to get caught up again.
  The Bankruptcy laws are complex, but the concept is not. If you are behind in your mortgage payments, and the lender wants to foreclose, and the lender will not "make a deal" with you, and you do not have a lump sum to pay all of what you owe from payments not made, a Chapter 13 Bankruptcy filing can be used to save your home. You can find a qualified Bankruptcy attorney by going to the website of the National Association of Consumer Bankruptcy Attorneys www.nacba.org , www.abi.org, or by calling my office for a "no charge" referral.
  Author's Copyright by Richard I. Isacoff, Esq, August 2009
  www.isacofflaw.comrii@isacofflaw.com