Beware of Foreclosure and Loan Modification Rescue Scams - Help Is Free!
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AS home foreclosures continue to rise, lenders are intensifying efforts to assist troubled homeowners. But financial advisers warn that borrowers should be vigilant about the type of help they are being offered. This is serious and we do not take this lightly.

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UPDATE: November 19, 2009

The MBA reports that in Q3 the seasonally adjusted delinquency rate rose to 9.64 percent of all loans outstanding, up 40 basis points from Q2.  Loans in the foreclosure process rose to 4.47 percent, up 17 basis points from Q2.  Add it up and 14.41% of all loans in the U.S. are either delinquent or in foreclosures. That's a new record.

Now for a few caveats. Many the loans that are in the modification trial period under HAMP (which is supposed to be three months) are listed in the 90-day+ delinquency bucket, so it's quite possible that those loans will not go into foreclosure.  However, the increase in the overall delinquency rate was driven by prime, fixed-rate loans, and those are loans that are far harder to modify.  Why? Because they're not delinquent due to some reset or faulty loan product or bad underwriting, they're going bad because the borrower has lost his/her job and has no income.  The bank can try to wait it out a few months to see if the job situation changes, but it's likely that loan is going to fail, period.

UPDATE: October, 2009

In October the Obama administration announced its mortgage relief program had helped 500,000 troubled borrowers, a goal it met a month ahead of schedule. The program, which makes mortgages more affordable by lowering monthly payments, ultimately aims to help as many as four million struggling homeowners.

Most of the borrowers helped so far are only in a trial period.  Statistics show that as many as 70% of homeowners who are granted loan modifications end up re-defaulting within six to 12 months.

"What we've seen from other modification efforts has led us to temper our expectations," says Mr. Fratantoni, a vice president in research with the Mortgage Bankers Association.  "Despite best efforts, in many cases these modifications are not going to succeed."

With U.S. unemployment at a 26-year high of 10.3%, foreclosure counsellors across the country are now deluged with requests for help from long-time homeowners with conservative mortgages. For years, most of these homeowners have paid their mortgages on time each month but are now falling behind because of lost income and other hardships caused by the recession.

The development poses a serious problem for the Obama administration's already struggling US $75-billion effort to prevent Americans from losing their homes to foreclosure.  Most of the U.S. government funds and private sector efforts are going toward mortgage modifications so that loans total no more than 31% of a household's income. YOU ARE NOT ALONE and NO REASON FOR SHAME

UPDATE: July 14th, 2009

DETROIT, MI - The Obama administration continues to push loan modifications as the best way to address the nation's growing housing crisis.  Many so called financial "experts' though, disagree with this focus. It's interesting to note that the administration recently announced that due to disappointing numbers for its Home Affordable Refinance Plan (HARP), the program was being expanded to allow refinances to 125% of a homeowner's property value, up from 105%.  To be eligible for this program though, homeowners must be current on their mortgage and qualify with required FICO credit scores, income and assets.   The disappointing numbers for HARP are a sign that many homeowners don't qualify for it because they're either too far upside in their homes or they're behind on their mortgage payments.  This makes loan modifications their only option - hence the administration's focus on loan mods.   So, what about all the nays ayers against loan modifications?   Well, they all quote studies that seem to "support" their claims that modifications aren't working due to the high number of homeowners that default on their loan modifications. One of these studies was done by the Federal Reserve Bank of Boston, published July 6, 2009.  The study had some valid points: 

• 1. Lenders are reluctant to modify mortgages. Only 3% of seriously delinquent loans have had modifications.
• 2. Percentage-wise, lenders are modifying FNMA/FHLMC and mortgages held on their books the same.
• 3. 30% of delinquent loans become current with no intervention by the lender.
• 4. Most modifications result in an increased loan balance as back payments are rolled into the loan amount.
• 5. More and more modifications are being done and resulting in lower homeowner payments.
• 6. 26% of modified loans in the 4th quarter of 2008 resulted in lower payments.
• 7. Payment decreases before the 3rd quarter of 2008 ranged from 10-14%.
• 8. Payment decreases in the 4th quarter 2008 averaged 22%.
• 9. 30-45% of modified mortgages re defaulted within 6 months of a modification. 

These are all interesting statistics.  The financial "experts' all seem to focus on the fact that 30-45% of modified mortgages re default, while ignoring one important fact - only 26% of the loans modified resulted in a lower payment! Why would a lender expect a homeowner that's already defaulted on their current payment, to be able to afford that same payment or a higher one?  Anyone citing this report's re default rate without taking that point into consideration should stop calling themselves an "expert".  END UPDATE

“The average loan service wants to reach a resolution about a loan modification with a single letter or a phone call,” said Steven Horne, the president of Wingspan Portfolio Advisors, which helps clients renegotiate loan terms. But, he said, devising an effective long-term strategy to enable a borrower to avoid foreclosure might take several rounds of communication.

Many borrowers who obtain loan modifications, in fact, soon find themselves in trouble again. According to a government survey, 53 percent of the borrowers who had changes to their loans in first quarter of 2008 began missing payments within six months.

John C. Dugan, the comptroller of the currency, said he was baffled by the results, which were released this month.

But Mr. Horne, a former executive at Fannie Mae, suggested that the new loans had not been structured to best meet borrowers’ financial circumstances, in large part because the loan servicers that collect mortgage payments cannot engage in a lengthy analysis of each borrower’s finances.

It is up to the borrowers, therefore, to be more proactive. Mr. Horne says they can increase the likelihood of securing the right loan if they push for more personal attention, and do a little homework about their own finances.

Borrowers should devise a firm budget and determine what monthly payment they can actually afford. Some help can be found at the Internal Revenue Service’s Web site (IRS.gov). Visitors who type in “Collection Financial Standards” into the search box will be directed to pages (sometimes by state) that offer guidelines, based on consumer surveys, of what they can reasonably expect to pay for food, clothing, housekeeping supplies, out-of-pocket health care, utilities and transportation.

For instance, an average family of four in Manhattan (with no one over age 65) would incur total monthly expenses of about $7,614. That includes $1,370 for food, clothing and other items, $228 for out-of-pocket medical expenses, $652 for public transportation and $5,364 for housing-related expenses.

The latest foreclosure figures suggest that New York, New Jersey and Connecticut are generally doing better than the rest of the nation but that problems are worsening.

According to the Mortgage Bankers Association, the foreclosure rate for so-called prime mortgages with fixed interest rates was twice what it was two years ago. In Connecticut, 0.52 percent of these mortgages were in foreclosure at the end of October, the trade group said. In New York, the figure was 0.71 percent, and in New Jersey, 0.9 percent, just slightly higher than the national average of 0.86 percent.

The picture for subprime adjustable-rate mortgages was bleaker. About 17.7 percent of these loans were in foreclosure at the end of October in Connecticut. In New York, the figure was 24.5 percent, and in New Jersey, 25.6 percent. The national average was 20.65 percent.

At the same point in 2006 — before most sub prime ARMs started adjusting upward — Connecticut’s foreclosure rate for these loans reached 4.6 percent. In New York, the failure rate was 5.8 percent, and in New Jersey the figure was 4.7 percent, which was identical to the national average.

Sub prime ARMs in the three states total 172,257, 12 percent less than two years ago, according to the mortgage trade association.