09.28.

Bank of America has new ‘forgiveness’ program to help homeowners cut principal balances

The Palm Beach Post
March 24, 2010
By Kimberly Miller

A new Bank of America plan to limit foreclosures and stymie strategic defaults will cut
principal balances on some troubled home loans, allowing up to a 30 percent decrease in
what borrowers owe.

The program, announced today, was virtually unthinkable just months ago.

But sinking real estate values has made it more attractive for borrowers to just walk away
from homes. Bank officials said more people have been rejecting loan modifications that
reduce monthly payments but not principal amounts in favor of foreclosure.

About 48 percent of Florida mortgages were underwater — meaning the owner owes more
on the loan than the home is worth — as of the end of December, according to analysts at
First American CoreLogic.

In Palm Beach County, 45 percent of loans were underwater. About 56 percent of Treasure
Coast loans were underwater.

The new program will be available beginning in May to homeowners who are 60 or more
days late on their payments, can prove financial hardship, and whose loan balance is at least
120 percent of the estimated home value.
Bank of America officials believe it will help about 45,000 homeowners, saving them $3
billion.

"The centerpiece of these enhancements is a program of earned principal forgiveness that
addresses severely underwater mortgages with some of the highest rates of delinquency —
specifically subprime loans, option adjustable rate mortgages, and prime two-year hybrid
adjustable rate mortgages," said Barbara Desoer, president of Bank of America Home
Loans.

Under the plan, the maximum decrease in principal will be 30 percent, and borrowers will
earn the lower balances over a five-year period as long as they stay current on their
payments.

Bank of America became one of the nation's largest lenders when it took over Countrywide
Financial in 2008. It now has more than 1.5 million delinquent home loans.

Supporters of the plan say they hope more banks offer similar options.

"What they are trying to do is very, very positive," said Coral Gables real estate attorney
Rashmi Airan-Pace. "I think we'll start seeing some movement from other banks."

 

09.28.

Many are rejecting loan modifications

The Miami Herald
Friday, January 22, 2010

By Kimberly Miller

Homeowners are opting to flee rather than accept loan modifications that might
still leave them underwater on their mortgages. 

Desperate homeowners scrambling to get a loan modification through federal foreclosure relief programs
are beginning to shun the offer, opting for a strictly business approach to the dilemma — walking away.

Because the majority of modifications don’t reduce the principal payment on loans made during the overpriced
boom years, underwater mortgages could still be drowning 10 years out.

The better option for those borrowers, some say, is to take the hit now and attempt a short sale, deed in lieu, or
even allow their home to go into foreclosure.

“What motivation is there for a homeowner to pay a mortgage that is three times more than the property is worth?”
said real estate attorney Rashmi Airan-Pace, whose Coral Gables firm Airan2, Airan-Pace and Crosa specializes in
foreclosure defense.

Recently, Airan-Pace secured a modification for a Miami Beach client that shrank his monthly payment from
$3,700 to $1,600. But it was only a reduction in interest rate — allowed by the Home Affordable Modification
Program to go as low as 2 percent.

“I called him in and he said, ‘I’m not signing this,’ ” Airan-Pace recalled.

He owed $470,000 on a property worth less than half that.

“Many homeowners feel that if they take a modification now, a decade down the road, they’ll still be coming to the
closing table with money,” Airan-Pace said.

Lenders’ reluctance to reduce principal amounts on loans made during the overpriced boom years is a problem for
the Obama administration’s $75 billion program to protect homeowners from foreclosure.

The Treasury Department’s December report on the program, released Friday, showed that just 17,280, or 26 percent,
of permanent modifications awarded nationwide included either a reduction in principal or, more likely, a temporary
reduction that is tacked on at the end of the life of the loan.

Through December, 66,465 permanent modifications had been awarded and accepted by the borrower through the program.
But that’s still just 2 percent of the total number of eligible loans that are 60 days or more in default.

Just 8,405 loans in Florida received a permanent modification.

Even if the numbers improve, some real estate experts aren’t optimistic that Making Home Affordable will save troubled
borrowers or the economy, especially in such hard-hit states as Florida where home values took epic plummets.

With 46 percent of mortgages in Palm Beach, Broward and Miami-Dade counties upside down in the third quarter of 2009,
according to analysts at Zillow.com, Airan-Pace predicts more homeowners will snub modification plans that don’t cut
principal payments.

 

 

06.20.

Short sales are the new foreclosure

A new federal program could help those who are destined to lose their homes to at least avoid foreclosure — and
the repercussions of that drastic step.

By Sally Heriqstad
MSN Money

Steve and Debbie Martin are losing their home. That’s for sure.
The only question is whether it will be in a short sale or a foreclosure. They’ve
found a buyer, who is offering less than what they owe. The Martins just have to
get the bank to accept the offer.

In the past, that’s been a tall order. Since the housing meltdown began, shortsale
offers have often taken months to get a response from overwhelmed
lenders. Even then, there have been no clear guidelines about what kinds of
offers are acceptable or about how to handle second mortgages that could easily
derail the process.

Industry experts estimate that less than half of short-sale offers have been
accepted, and many real-estate agents have avoided showing these properties
altogether. Ultimately, most of the homes go into foreclosure.

But if the Martins can hold on until April, a new federal program might help.

Starting April 5, lenders in the Home Affordable Modification Program must offer
borrowers the option of a short sale, including the minimum amount needed for
an acceptable offer, if their mortgage doesn’t qualify for a modification.

Once a homeowner applies to list his home as a short sale, lenders must
respond to offers within 10 days. The program also offers $1,500 to homeowners
to help them move, $1,000 to loan servicers to cover the cost of paperwork and
up to $3,000 in incentives to secondary lenders who might otherwise reject an
offer.

How you lose your home matters

The Martins bought their home in 2003, when they needed a larger house for
themselves, their three grown children and one grandchild. Steve and Debbie
made the down payment, and all five adults signed on the loan. Everyone
chipped in on the mortgage payments.

The Martins figured that when their kids moved away, they would sell the house
and all would share the profits. Then property values in the Pacific Northwest
plummeted. As the nest emptied, Steve and Debbie started having trouble paying
the mortgage.

Now the Martins can no longer sell the house even for the amount they owe on it.
But they don’t want to just walk away. They feel a moral obligation to try to pay
back their loan, and they don’t want to trash their and their children’s credit
scores.

The Martins tried everything before asking the bank to accept a short sale. Steve
started taking one of his pensions early in an effort to make ends meet, but it
wasn’t enough.

“We tried to refinance,” he said. “We tried that with three institutions, and they all
said no because there were too many people on the mortgage. We tried loan
modification and had the same issue.”

Millions of people like the Martins are finding it hard to hang on to their homes as
the Great Recession squeezes both household income and housing values. And
many others who owe a lot more than their houses are worth may just want out.
Walking away, however, is a terrible choice — one you could regret for years.
Here’s why:

You could get hit with a deficiency judgment. It’s common to assume that if you
walk away from your home, the bank can’t come after you for more money,
because the loan was attached to the house.

But that’s not always true. In some states, lenders can obtain a deficiency
judgment for the difference between what you owed and what they got from
selling your house.

Florida is one of those states. “No homeowner should walk away,” says Rashmi
Airan-Pace, a Florida attorney who specializes in mortgage modifications and
foreclosure defense. “Deficiency judgments are very damaging.”
Airan-Pace points out that lenders, for example, can seek to garnish wages or
place liens on other properties.

Other states, including California and Arizona, are nonrecourse states, which
means that laws there prohibit such judgments. You still have to be careful,
though; some lenders get borrowers to sign papers obligating them to pay
deficiencies anyway.

Foreclosure can ruin your credit scores for up to 10 years.
When it comes to the effect on your credit scores, having a few late bills is to foreclosure what
having a leaky faucet is to burning down the house.

“When a foreclosure is filed against a property owner, that person’s credit will go
down 100 points,” Airan-Pace says. “At the foreclosure sale, it goes down
another 100.”

She estimates that a short sale would do about one-quarter as much damage to
your scores. And though you can start pulling up your credit scores substantially
from a short sale or a spate of late payments within a couple of years, a
foreclosure can affect your credit history for a decade.

First, do all you can to keep the house
Before you think about letting your home go, make sure you’ve exhausted every
other possibility.

If you can save your home by working extra hours, staying on a strict budget or
taking money out of savings, you should consider it. (In general, don’t touch your
retirement accounts, however.) If you just want out because the value is down,
remember that a house is still a place to live, regardless of what the market says
it’s worth.

You would also be wise to consult a credit counseling organization, such as the
National Foundation for Credit Counseling, or hire an attorney. According to the
nonpartisan Urban Institute, borrowers facing foreclosure are 60% more likely to
hold on to their homes if they receive counseling.

When you hit trouble, the first step is to see whether you qualify for federal
programs that help you refinance your home at a lower rate or reduce your
mortgage balance. Be patient. And be prepared for lots of paperwork. The
Martins say they have faxed more than 80 pages at a time to their lender.
Sam Hussain of ClearPoint Credit Counseling Solutions in Modesto, Calif., says
that people often get frustrated when they have to fax the same paperwork more
than once. “That’s reality,” he says. “Ask for the mailing address, and use
certified mail.”

Hussain also recommends you use a notebook to make a conversation log
through the process. Write down the name of every person you talk to, the date
you spoke and what was said.

It should go without saying that getting your legal advice from scam outfits that
advertise in spam e-mails or on utility poles is a bad strategy. As Lee Jones, a
spokesman for the Department of Housing and Urban Development in the
Northwest, says: “They fold up in the night like a lawn chair and take your money
with them.”

It’s also good practice to steer clear of well-intentioned people who are out of
their field. Taking advice from friends, relatives and even your real-estate agent
can be a costly mistake.

A credit counselor or attorney can be helpful if saving your home proves
impossible and you seek to complete a short sale or deed in lieu of foreclosure.
Keep in mind that banks will want to know that you tried every other avenue first.

How to get help losing your home the right way

A new federal program, Home Affordable Foreclosure Alternatives, encourages
banks to accept short sales by offering them financial incentives to do so. It offers
sellers incentives, too.

Homeowners win because:
• They won’t get stuck with a deficiency judgment. Under the program,
homeowners are released from all obligations.
• They can receive $3,000 in relocation expenses.
• They can’t be charged any fees to participate.

Creditors win, too, because they don’t inherit a vacant home to maintain. As big
as the losses in short sales can be, the losses from foreclosure can be even
bigger — by some estimates, as much as 60% of what’s owed on the mortgage.
Secondary lenders, who often stand to get nothing in foreclosures, can receive
up to $6,000.

You may qualify for the foreclosure-alternatives program if:
• You have tried unsuccessfully to get a mortgage modification through the
Home Affordable Modification Program.
• The property is your principal residence.
• You got your first mortgage loan before Jan.1, 2009, and it is guaranteed
by Fannie Mae or Freddie Mac.
• You are behind on your mortgage or will be in the foreseeable future.
• You owe no more than $729,750.
• Your total monthly mortgage payment is more than 31% of your income
before taxes.

The foreclosure-alternatives program is set to expire Dec. 31, 2012. Some critics
predict that it will be as disappointing as the loan-modification program, which
was launched in March 2009. Out of millions of distressed homeowners, just
170,000 had received permanent modifications as of the end of February,
according to the Department of the Treasury and HUD. (Many more
modifications are being offered or are in the trial phases.) The median decline in
monthly mortgage payment was about $500.

Will the new program be any better?

“It’s half right,” says Mary Tootikian, the author of “Stunned in America: Sub-
Crime Mortgage Crisis.” “The intent of it is good.”

She worries, however, that the new program’s application process will allow
lenders to find out borrowers’ incomes and assets. “After they go through this
fact-finding mission and they find out you have assets to go after, they don’t have
to let you do a short sale,” she says.

Arian-Pace, the Florida attorney, is more optimistic. “The frustration of short sales
is the timing of it all, getting banks to approve it,” she says. “You often lose the
buyer in the process. I’m hoping it’s a step in the right direction. Really, it’s going
to come down to how the banks implement it.”