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A growing recognition that the Obama Administrationâ??s Home Affordability and Stability Program (HASP) is not working in its current design has fingers pointed all over Washington D.C. trying to place blame on mortgage servicers, investors and the administration itself. At hearings this week in Washington, comments ranged from encouraging to total frustration as expressed by Senator Jeff Merkley (D-Ore.) who said, â??Itâ??s just hard to explain to the working families in America how it is we could move so fast with extraordinarily complicated deals with the huge financial institutions, and we are moving so incredibly slowly, mired in paperwork, in rules, in talking to banks back home.â?

With predictions for 3.5 million foreclosures by the end of this year and 9 million by the end of 2012, the fact that the program has initiated less than 150,000 loan modifications as it enters its fifth month has industry experts trying to figure out what went wrong and what can done to fix it. While there isnâ??t yet a full spectrum solution to the issue, the problems of the program have become well defined. They include:  

1)    When the program was announced in February, there was little to motivate lenders and servicers to hire staff, provide training to processors in the nuances of the programâ??s guidelines, and build infrastructure to support the flood of requests. While itâ??s true that the plan provides incentive payments to lenders and servicers, at $1,000 per year for a successful loan modification, the incentives arenâ??t enough to offset the costs of implementing a full scale department which, in effect, generates only losses.

2)    Executing loan modifications results in recordable losses for lenders and investors. In the Spring Congress, hearing the pleas from the mortgage industry, ended the long standing requirement that mortgages be marked to market periodically to reflect losses on the books of lenders and investors. If loan modifications were being handled quickly and efficiently the resulting losses would leave many in the industry short on capital requirements and/or struggling for survival.

3)    Investors, even with the passage of the safe harbor bill, can still stand in the way of modifications. Congress passed the bill in May to give servicers more freedom in choosing the concessions they grant in a loan modification and to protect them from lawsuits served by the investors that actually own the mortgages. The problem is that the pooling and stripping of mortgages by insurance companies, pensions and Wall Street institutions can make determining who owns what a job in itself. Even when ownership is clearly defined, servicers and their investors are trying to avoid adversarial relationships as much as possible so getting a sign off on loan modifications can either bog down the process or result in non-approval of the loan modification.

4)    The defeat of the cramdown provision in the administrationâ??s foreclosure initiative, which would have allowed judges in bankruptcy court to decide on principle reductions, gives lenders and investors the last word on a modification. Had the provision passed, the threat of having principle balances reduced by an uninterested third party would encourage more approvals and greater concessions in loan modifications. â??You have got to have some leverage, something to hold peopleâ??s feet to the fire,â? said Center for Responsible Lending spokeswoman Kathleen Day. â??If you tell the industry this [judge] can do the loan mod if you donâ??t, that is going to get their attention.â? Defeated in the Senate, revisiting cramdowns is seen as a political nonstarter but other actions like the threat of the repeal of certain tax advantages could prove to be a motivator for getting loan modifications done.

5)     The program is now being criticized for being too complex and for not strongly emphasizing principal reductions. There is talk now of abandoning the original guidelines and replacing them with blanket programs intended for any one that originated a mortgage that they clearly couldnâ??t afford between 2005 and 2008. The simplified plan would focus on principle reductions to bring home values closer to the principle balances of the mortgages on the properties. Despite its simplification, the tentative design of that plan has its own issues as well. The first is that statistics are already showing that buyers that clearly couldnâ??t afford their homes have already been foreclosed. The second is that a massive round of write-downs on properties and mortgages would devastate the financial industry.

6)    The program is fighting the wrong battle. According to Nicolas Retsinas, director of Harvard Universityâ??s Joint Center for Housing Studies, the original plan was well designed for the issues that started crisis but the cause behind most foreclosures has now changed. The original targets of the program including stated income, negative amortization, and other loans that buried homeowners have largely run their course while growing unemployment is now the fuel behind foreclosures occurring on prime, jumbo prime, and fixed interest loans. â??The issues have changed, and in some ways the solutions havenâ??t kept up with the problems,â? Retsinas summarized. â??The most effective intervention would be to put people back to work.â?

Another mistake made by the administration was the dismissal of private efforts by law firms that negotiate loan modifications on behalf of homeowners. By encouraging homeowners to take on the labor intensive and complex task of doing home loan modifications on their own the administration put thousands of people in a position where they were negotiating terms on mortgages that they didnâ??t understand in the first place. With untrained and overworked processors on the other end of the phone itâ??s no wonder many loan modifications never got off the ground.

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While investigating loan modifications, odds are you will find all sorts of information on the Internet (whether on company websites, blogs, news sites or other sources) that give you all sorts of information.  Some of that information may be contradictory.  While itâ??s all well and good for different companies to produce different viewpoints, you probably need the type of information that will help you keep your home.

The truth is that a loan modification could be the help you need to avoid foreclosure and/or get your mortgage payments under control.  A loan modification is a renegotiation of the terms of your loan to lower your monthly payments.  By lowering your monthly mortgage payment, you can reach some financial stability and stay in your home long term.

Mortgage loan modifications are a better option than bankruptcy for many people, especially if you are trying to declare bankruptcy just to avoid foreclosure.  Bankruptcy has a negative impact on your credit, and that negative impact lasts up to a decade.  Itâ??s sort of like dropping a bomb to kill a fly.  A loan modification can help you stay in your home without having a major mark against you for years and years.  A loan modification attorney can use the law to your advantage, and get a quicker response from your lender.  Itâ??s a complex process, so having a loan modification attorney with you is a major advantage.  

Bankruptcies also affect other areas of your life, including lines of credit, car loans, jobs and even renting apartments.  A bankruptcy seriously scares off creditors, and if you do get a loan or line of credit your interest rate will be through the roof.  Bankruptcies are also not a sure fire way to avoid foreclosure, because it may not have the desired effect.  

People are desperate to avoid foreclosure however, which is why many turn to bankruptcy.  Foreclosure proceedings take a few months usually, and at the end you are not only going to lose your home, but you still may be on the hook for any debt owed on the house.  Thatâ??s a double whammy, and a crippling set of financial circumstances for most people.  Foreclosure is a scary situation for many, but a loan modification could be the answer to the situation.  A California loan modification could keep you in your home for much longer, in part because it incorporates the lender into the process.  A loan modification engages with the lender, negotiating new loan terms to lower the monthly payment.  

Many people ask why a loan modification attorney is necessary for the process.  There are actually a few reasons, all of which are beneficial to the homeowner.  Loan modification attorneys can negotiate with the lender on your behalf, utilizing their experience and knowledge to get the best deal possible.  Loan modification attorneys can use the law to get the best possible results, and to get a quicker response from the lender.  Loan modification attorneys are really a great resource, and have helped countless Californians stay in their homes.

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As the Treasury and the Department of Housing and Urban Development meet with loan servicers to discuss how to quicken the pace of loan relief in the form of loan modifications the reasons/excuses for their slow rollout are being presented by industry watchers and economists. Faced with increasing frustration on all fronts, the aim of the administration is to motivate lenders and servicers above and beyond the billions of dollars in incentives already promised to modify home loans.

According to some of the reports, government initiatives to step in front of the country’s mounting foreclosure issues are being bogged down because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes to foreclosures than to modify their current mortgages. While policymakers cater to the needs of their constituencies and continue to push for more and faster home loan modifications, some researchers are saying that foreclosure can be more profitable and is a primary reason for the slow pace of loan modifications as the administration’s Home Affordability and Stability Plan (HASP) enters its sixth month.
The argument being advanced by these researchers is that of three types of homeowners that become delinquent on their payments, only one of the homeowner categories is profitable to banks considering loan modifications. The categories are roughly divided equally into thirds and describe homeowners in very different sets of circumstances:

1) The first group is the one that researchers believe that executing loan modifications actually makes sense. These are borrowers with consistent income and employment where mortgage payments have moved out of reach due to interest resets or recasts in payments. Lowering the payments back to a level that fits the borrowers’ budget via a loan modification provides a workable solution for both the lender and the homeowner. This category of borrower works best for the lenders because the concessions required to fix the issues facing the homeowner are relatively small.

2) The second category includes those that are likely to become delinquent again after the completion of a loan modification. These homeowners may have job related issues such as major cutbacks in work hours or commission based positions that are no longer paying what they were when the loan was originated. Other issues may be related to the structure of the mortgage or a home that has lost so much value that there is little motivation for the owners to stay in the home. Researchers say that lenders are reluctant to help these borrowers because delaying foreclosure can make the process more expensive.

3) Members of the third group are those that have become delinquent but then catch up by finding new work, selling other assets, borrowing the money from friends and family, or through sacrifice. Like the second category, lenders are reluctant to work out loan modifications with this group but for a completely different reason; if the homeowners can work their way out of the situation on their own, it makes little sense to reduce their payments even it’s for a short while. “These are the people who will get a second job, borrow from their family to keep up,” explained Paul S. Willen, a senior economist at the Federal Reserve Bank of Boston and an author of its report. “. . . From a cold-blooded profit-maximizing standpoint, these are the people the banks will help the least.”

The report from the Federal Reserve Bank of Boston has received attention from all quarters due to its negative assessment on the prospects for widespread home loan modifications. A deeper look at the data presented in the report provides an explanation, in part, for its dismal findings. One of the biggest problems with the loan modifications included in the study is that only three percent of them lowered the monthly payments of delinquent borrowers, those who had missed at least two payments. Lenders passed on granting modification to those that fell outside the “sweet spot” of hardship, either likely to re-default because of too much hardship or fix the problem themselves because they weren’t experiencing enough of it.
The time frame of the Boston Fed report could have a lot to do with the negative perception of loan modifications. Conducted in 2007 and 2008, the economic conditions were just beginning to contract, possibly lulling lenders into an attitude that the economy would right itself in short order. The Bush Administration, bankers, and industry watchers were in agreement that the mortgage meltdown would be contained to the riskiest of the subprime borrowers and that any economic contraction would be short lived. After all, housing had never led the economy into a prolonged recession before. The reluctance to grant modifications to those that could fix the problems themselves was based on the belief that the economy would turn back to normal and provide ample opportunities to those who had fallen behind. The longevity and depth of the current recession was being underestimated at the time of the report and it’s a virtual certainty that in today’s environment the number of those homeowners that can get re-hired, sell assets, or borrow money to catch up has shrunk considerably.

Another aspect of the recent research reports which was true two years ago but doesn’t apply now is that the selling of foreclosed properties at auction was a foregone conclusion. With 1.5 million foreclosure filings recorded in the first half of the year and another 2 million expected by yearend, the supply of foreclosures goes way beyond the level of demand for them. Whether due to the sheer number of foreclosures or the reluctance to take properties back into inventory, the normal timeline for foreclosures of three months has now been extended out to the point where homeowners have received notices of default but continue living in their homes for months on end in a situation known as “foreclosure limbo”. Regardless of what lenders are saying about their proclivity toward foreclosure, they’re certainly not acting on it.

Another aspect that is striking about the Boston Fed report is that the quality of the loan modifications in the study appears to be extremely poor. If 97% of the modifications did not lower the monthly payments of struggling homeowners, it’s no wonder that the re-default rates were so high. If homeowners were having problems making their payments, keeping them at the same level can hardly be considered assistance. When the Federal Deposit Insurance Corp. took over the failed bank Indy Mac last year, the FDIC began modifying troubled mortgages held or serviced by the company. Richard Brown, the FDIC’s chief economist, said “the agency expects up to 40 percent of those borrowers to re-default.” Even at that rate, he said, the modification program is more profitable than doing nothing. “The idea that 30 to 40 percent re-default is a failure to a program is false,” Brown said.

Mr. Willen, of the Boston Fed, has continued to defend their study’s findings saying “… the government program could boost several-fold the number of seriously delinquent borrowers receiving modifications. But so few people had been getting their loans modified that even a dramatic increase in the percentage would still touch only a small fraction of troubled borrowers. We’re still not talking about a program that will stop a large number of foreclosures,” he said. “We’re talking about a program that, at the margins, will assist more people. It is unlikely we will see a sea change.”
The chasm between the two sides of the argument appears to be based on what kind of concessions are put into the modifications being studied. In the case of the Boston Fed, a tiny slice of the executed modifications lowered payments and a high percentage of them failed. In the case of the FDIC and others, modifications that lowered payments significantly and included principal reductions have had solid success rates. What the numbers of successful modification point out is that principle reductions can play a significant role in keeping families in their homes.

What is needed is an honest appraisal of what is working and what isn’t. Pulling out the worst of the modifications and saying they don’t work looks more like a negotiating ploy by the banks to get more government incentives than anything else. While the banks and the administration waits to see who blinks first, homeowners are losing their homes, spectators of a parlor game that is ruining millions of lives.

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While investigating loan modifications, odds are you will find all sorts of information on the Internet (whether on company websites, blogs, news sites or other sources) that give you all sorts of information.  Some of that information may be contradictory.  While it’s all well and good for different companies to produce different viewpoints, you probably need the type of information that will help you keep your home.

The truth is that a loan modification could be the help you need to avoid foreclosure and/or get your mortgage payments under control.  A loan modification is a renegotiation of the terms of your loan to lower your monthly payments.  By lowering your monthly mortgage payment, you can reach some financial stability and stay in your home long term.

Mortgage loan modifications are a better option than bankruptcy for many people, especially if you are trying to declare bankruptcy just to avoid foreclosure.  Bankruptcy has a negative impact on your credit, and that negative impact lasts up to a decade.  It’s sort of like dropping a bomb to kill a fly.  A loan modification can help you stay in your home without having a major mark against you for years and years.  A loan modification attorney can use the law to your advantage, and get a quicker response from your lender.  It’s a complex process, so having a loan modification attorney with you is a major advantage.  

Bankruptcies also affect other areas of your life, including lines of credit, car loans, jobs and even renting apartments.  A bankruptcy seriously scares off creditors, and if you do get a loan or line of credit your interest rate will be through the roof.  Bankruptcies are also not a sure fire way to avoid foreclosure, because it may not have the desired effect.  

People are desperate to avoid foreclosure however, which is why many turn to bankruptcy.  Foreclosure proceedings take a few months usually, and at the end you are not only going to lose your home, but you still may be on the hook for any debt owed on the house.  That’s a double whammy, and a crippling set of financial circumstances for most people.  Foreclosure is a scary situation for many, but a loan modification could be the answer to the situation.  A California loan modification could keep you in your home for much longer, in part because it incorporates the lender into the process.  A loan modification engages with the lender, negotiating new loan terms to lower the monthly payment.  

Many people ask why a loan modification attorney is necessary for the process.  There are actually a few reasons, all of which are beneficial to the homeowner.  Loan modification attorneys can negotiate with the lender on your behalf, utilizing their experience and knowledge to get the best deal possible.  Loan modification attorneys can use the law to get the best possible results, and to get a quicker response from the lender.  Loan modification attorneys are really a great resource, and have helped countless Californians stay in their homes.

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Homeowners hoping to get a loan modification with Countrywide may want to rethink their options. Countrywide Financial, best known for excessive lending practices that led to widespread defaults, now has so many bad debts on its books that it may have to tighten up its loan modification service.

Home Loan Modification allows defaulting borrowers to work out new terms with Countrywide, so that they can avoid foreclosure and stay on track. Countrywide began offering the service through their Home Retention Department at the height of last year’s real estate bubble. However, due to the volume of requests coming in, many cases were delayed and resulted in foreclosure. The company hit an all-time low in 2008 and was recently bought out by the Bank of America.

In line with the change, the Loan Modification Department of the Law Offices of Marc R. Tow is also taking measures to protect its clients. The firm, one of the leading loan modification services in the country, will only negotiate modifications with Countrywide for clients with viable cases and those who are in serious financial trouble.

Changes are also expected in national Loan Modification policies. While loan modification is still open to borrowers not in default, new laws may soon limit the service only to those in bankruptcy or serious delinquency. This will allow lenders and loan modification companies to focus their attention to clients who are most in need.

The firm will continue to help clients with loans serviced by other companies. Besides loan modification, the Law Offices of Marc R. Tow also offers assistance with loss mitigation alternatives such as short sales.

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A Home Loan Modification can help you stop foreclosure and stay in your home. But if you’re like most homeowners, you’re probably wondering how it will affect your credit, and whether in a good or bad way. Unfortunately, there’s no single answer—it all depends on how far behind you are and the kind of mortgage loan modification you’ll be granted.

Best-case scenarios

Technically, since you’re not borrowing any money, a home loan modification won’t hurt your credit score. If you’re paying less in interest, you have a smaller debt burden. And since most lenders prefer an interest rate reduction, there’s a pretty good chance that a Home loan modification will improve your credit score.

The implications are even better if your lender forgives part of the principal, although this is less common. If they write off $50,000 from your loan amount, it will show up on your report as a smaller loan, which can increase your credit score.

The lender factor

Unfortunately, it doesn’t always happen that way. It also depends on how your lender reports the home loan modification to the credit bureaus. Many of them will consider it paid for less than the original amount owed, which will count against your score. If you’re already in foreclosure, the impact on your credit can be substantial. Of course, compared to a short sale or a foreclosure, a Mortgage Loan Modification is still the best way to maintain your credit standing.

Tax implications

One of the early problems with Loan modification is that the amount forgiven is usually taxable. That means if your debt is reduced by $50,000, the IRS views it as income and imposes the corresponding tax. This can catch homeowners off guard during tax season, as many of them don’t know the tax implications at the time of the modification.

To avoid such incidents, the IRS announced in 2007 that Loan modification would no longer be classified as “prohibited transactions.” This applied to all loans originated from January 2004 to July 2007, the peak of the sub-prime boom, and those due to adjust from January 2009 to July 2012. If your mortgage falls under these categories, you won’t have to file a 1099 declaring the change as taxable.

A loan modification is much like going to court: you can save your money and get a court-appointed lawyer, or you can invest in professional representation and get the best mortgage assistance. Your loss mitigation won’t happen overnight, but if with a capable Loan Modification Attorney, you can be sure you’re in good hands.

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