HAMP Loan Modifications - The Truth be Told

Everyone has had the experience of thinking that something just is not right.  Ok, we know that something is wrong.  We know it is rotten.  It may have been the time your teenager was going to a study group on Saturday night or maybe you got passed over for a job even after your boss tells you that everyone is being treated equitably.   We have all been there.

We knew that things were rotten with the Home Affordable Modification Program (“HAMP”).  How many times could the Bank lose the paperwork, pay stubs?  How long could a modification be in underwriting?  The Trial Payment Plan (“TPP”) said it was 3 months, but it had been 12 months.  How could the Bank not have received the Trial Payments when they had received all of the regular monthly payments prior to HAMP?  How could a loan modification be approved and then denied 6 months later? 

Well in the case of Bank of America and BAC Home Loan Servicing, the facts are starting to come to light.  In a Second Amended Consolidated Class Action Complaint filed in Massachusetts, the Plaintiffs allege that Bank of America systematically failed to comply with the terms of HAMP.  It alleges that the Bank had financial incentive to avoid modifying home loans and to continue to keep a mortgage in a state of default or distress and to push loans toward foreclosure.  According the Compliant, this was especially true when the loans were owned by a third party investor and the Bank was merely servicing the loan. 

Recently, a declaration filed in the case by a former Bank of America employee alleges that employees were told  “to lie to customers and claim that Bank of America had not received documents it had requested, and that it had not received trial payment(when in fact it had).  We were told that admitting that the Bank received documents would “open a can of worms” since the Bank was required to underwrite the loan modification within 30 days of receiving those documents, and it did not have sufficient underwriting staff to complete the underwriting in that time.”  In addition, the employee alleges “Employees were rewarded by meeting a quota of placing a specific number of accounts into foreclosure, including accounts in which the borrower fulfilled a HAMP Trial Period Plan.”         

If you applied for a loan modification with Bank of America or any other HAMP servicer and you think you should have been approved, you should complain to the Bank, the California Attorney General and you should try to join a class action lawsuit.  If you are still in the house, apply again for a loan modification and put in the hardship letter all evidence you have that you were wrongly denied before.    

Character counts.  At the end of the day, what we do matters.  If your house is a big deal to you, then act like it is a big deal.  If you should have received a loan modification, you need to speak up.  If you don’t, they win.  

This is a complicated area of the law and I recommend you to seek legal counsel prior to taking any action on a loan modification or proceeding with a short sale or foreclosure.  There may be personal and tax liability. I provide a free 30 minute consultation at all of my offices located in Walnut Creek and Brentwood.       

WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION. © 2013  Joan M. Grimes. (925) 939-1680 Grimesbklaw.com

Principal Reductions on Mortgages

Don’t Miss the Boat

Starting this summer, we have been seeing more loan modifications with principal reductions.  Yes, you read that correctly.  The loan modification that came in this morning was from Wells Fargo Home Mortgage and includes a principal reduction of $295,000 leaving a new principal balance of $290,000 on a primary residence that assessed at $285,000.  This is an immediate principal reduction, no strings attached.  We are also seeing principal forgiveness earned over three years and principal forgiveness on lines of credit.

What is causing the change in heart by the lenders?  It is the National Mortgage Settlement (“Settlement”) which started on March 1, 2012 and continues to September 1, 2016.  Servicers covered by the Settlement are Ally Financial, Inc. GMAC Mortgage, Residential Capital, Bank of America, BAC Home Loans Servicing- f/k/a Countrywide Home Loans Servicing, Citigroup, Citibank, CitiMortgage, JPMorgan Chase and Wells Fargo Bank.  Fannie Mae and Freddie Mac loans serviced by the above lenders are not eligible for benefits under the Settlement.

Under the Settlement, no borrower is “entitled” to a modification.  However, servicers receive “credits” toward the value of the “Consumer Relief” they have committed to provide over 3 ½ years through loan modifications and principal reductions.  The Servicers have committed to credits of over $16 Billion dollars under the Settlement. 

Under the Settlement, “Consumer Relief”  granted between March 1, 2012 and February 28, 2013 will receive a 25% bonus credit, so motivation exists for servicers to move quickly this first year. 

Principal write downs will be more available on lower valued properties that are “more” underwater.  The Borrower is also going to need to have adequate income, but still have a hardship.  The settlement provides for principal reductions by at least 10% to achieve target of 31% of Debt to Income (DTI) and 120%  Loan to Value (LTV). Under the terms of the Settlement, 85% plus of the first lien credits are to be for owner occupied loans within the conforming GSE limits.  Loans are 30 days delinquent/imminent default; pre-modification LTV greater than 100% with post-modification target DTI of 31% and post modification LTV less than or equal to 120%.

If your house is really underwater and you really want to keep the home for the long term, I strongly urge you to apply for a loan modification/ principal reduction.  You have nothing to lose.  It is a huge amount of work, but if you are approved, it will be worth all the effort.

However, prior to accepting any loan modification/principal reduction, seek legal counsel.  Every loan modification/principal reduction has the potential adverse personal liability and tax consequences.  If there is a principal reduction, the lender will be required to issue a 1099c which will be considered ordinary income unless you meet certain limited exceptions. If there is a junior lien on the property, a principal reduction prior to a Chapter 13 filing may prevent you from being able to avoid the lien in bankruptcy.

In conclusion, this is a great opportunity to keep your home.  However, this is a complicated area of the law.  No final paperwork should be signed accepting any modification/ principal reduction without the advice of legal counsel. A real estate or bankruptcy attorney should be able to make to an analysis of your situation quickly which will allow you to decide if the modification is the right decision for you.

I see people for a FREE 30 minute consultation at my offices in Walnut Creek and Brentwood.

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE FOR BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.   (925) 323-7772.           

© 2012 Joan Grimes

Consumer Stress Test - Call To Action

 Everywhere we turn there seems to be a “stress test”.  First, the stress test is performed by my cardiologist to make sure my arteries aren’t clogged.  Thankfully, they aren’t.  My doctor just says that I need to lose 20 pounds, get more exercise and I will hopefully live to be at least 80.  Then, there was the government’s “stress test” for banks.  The “too big to fail” group passed which was not surprising after Congress passed the Troubled Asset Relief Program (“TARP”),which allowed them to borrow money at 0% and then charge borrowers 5%+ for the same money.

So, I decided we need to have a “consumer stress test” since I plan to live to 80 years old and I am not “too big to fail.”  Let’s see if we, as consumers, pass the “consumer stress test”:

1. Do you have credit card debt?  If you do, this is not a good sign.  Credit card lenders are like drug dealers.  Drug dealers give away drugs to get kids hooked and credit card lenders give away money to get consumers hooked.  They will give you money until you stop paying the balance in full each month.  They know it is just a matter of time before you will stop paying off the balance and then it is all over. It is a win-win situation for them every time.  Stop using credit cards, pay off them immediately. “Doctor’s” first piece of advice:  If you can’t pay off the balance in full in the next 12 months, see an attorney for options.

2. Do you have a car loan?  If you do, this is not a good sign.  Cars are depreciating asset.  If you have a car loan with a payment of $400 per month, you need to make $800 per month to just make that payment of $400 because of state, federal, social security and other applicable taxes.  Is that car really worth it?  Probably not.  If you cannot pay off that car loan in the next 2 years, see an attorney for options available to you.  “Doctor’s” second piece of advice: next time you purchase a car, no car loan.  Save until you can buy without a loan.

3. Do you have home loans?  If you have home loans that exceed 2-2 ½ times your gross household income, this is not a good sign.  What we know is that having home loan debt that exceeds 2-2 ½ times your gross household income, makes you “house poor” meaning you are spending too much of your income on shelter. For example: if you make $50,000 a year, your home loan should not exceed $125,000.  If your home loan balances exceed 2-2 ½ times your gross household income, see an attorney for options available to you.

4. Are you putting at least 10% of your gross household into a 401k/IRA/savings each year?  If not, this is probably the worst of sign of all.  We will need money when we can no longer work and want to retire.  If your income has recently been reduced, you can also reduce the amount you put into your 401k or IRA, but don’t stop thinking about tomorrow.

If you don’t take care of your money, no one will.  Everywhere we turn, there is someone trying to get it.  If you did not pass the consumer stress test, seek legal counsel.  The government may not be willing to give us money or let us borrow at 0% interest like they did for the banks, but we do have the Bankruptcy Code which can give us a fresh start.  We must take the time to think about tomorrow.  It will be here sooner than we think.   

WE ARE A DEBT RELIEF AGENCY.  WE HELP PEOPLE FILE BANKRUPTCY.  THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A VOLUNTARY DEFAULT, SHORT SALE, FORECLOSURE OR BANKRUPTCY.  THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.