Category Archives: Loan Modification

Future of Real Estate Marketing guest blogger this week – Marty Boardman

I have a lot to celebrate this week.  On Friday, I’ll be catching up with my classmates at our 20 year high school reunion.  Sunday is my 12th wedding anniversary.    

I’m also incredibly honored to be chosen the Future of Real Estate Marketing (FOREM) guest blogger for the week. FOREM and Inman.com are two of my favorite real-estate related websites.  Here’s a sneak peak at what I’ll be writing about:

  • Tuesday, 10/5 – 3 Steps to Writing a Better Blog
  • Wednesday, 10/6 – Facts Tell, Pictures Sell
  • Friday, 10/8 – The Man Who Mentored a Billionaire

 Your feedback is always appreciated.  I could also use a few suggestions on an anniversary gift for my wife.

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Filed under Business Development, Finance, Homeownership, Investing, Loan Modification

You Have the Right to Remain Broke – Reading Your Housing ‘Miranda’ Rights

“You have the right to remain broke.  If you stop making your mortgage payment anything you say can and will be used against you by your lender to make you feel guilty, irresponsible, immoral, shameful and stupid.  You have the right to an attorney that may charge you outrageous fees to negotiate a loan modification with your lender, but you’re better off just walking away from your house.  If you cannot afford an attorney we don’t care because you are a deadbeat.  We will foreclose on you anyway.  Do you understand these rights?”

I love sayings.  One of my favorites came from Lyndon B. Johnson, the 36th President of the United States.  He was once asked why he didn’t fire J. Edgar Hoover, at the time the very powerful director of the FBI.  Johnson’s reply, “I’d rather have him on the inside of the tent pissing out then on the outside of the tent pissing in.”  My Dad has some classic sayings too.  Many of them would be inappropriate for this post.  But, one is worth repeating and it goes like this, “never throw good money after bad.”

If you are ‘upside down’ on your mortgage, in other words you owe more than your home is worth; it’s time to walk away.  Experts call this a strategic default.  I call it a wise business decision.  If you are inclined to believe that your home is an investment (it’s really not, but that is a topic for another day) then this should be a simple choice.  But, as Brent T. White, an associate law professor at the University of Arizona, recently pointed out in a recent Wall Street Journal article titled, ‘It’s Okay to Walk Away’, “a failure to grasp the true economics of the situation is holding back many Americans whose home values have dropped far below the amount they owe and who would be better off renting.”

Let’s do the math…if you owe $50,000 more than your home is worth it will be 8 years before the balance on your mortgage and value are the same again (that’s using the historical 6% average annual appreciation rate.)  Unfortunately, you may be in a market where values are still going down so it could take even longer for you to catch up.

And then, of course, there is your FICO credit score to worry about, or as Dave Ramsey, the popular financial planner from Fox Business News calls it, your debt score.  Only in America do we reward those who stay in debt with a high score…it’s like some sort of twisted video game for adults.  How negatively does a short sale or foreclosure affect your credit score?  No one knows for sure.  Experts will tell you it’s usually around 80-120 points.  So what would you rather hold on to, the cash you have on hand and will continue to earn or a sparkling credit score (that most likely got you into this situation in the first place?)

By now you are probably saying, “Sure, you advocate this but you would never do it yourself!”  Actually, I did.  In April of this year I did a short sale on my own home.  I was more than $30,000 upside down.  But, that wasn’t the real reason behind my decision to walk away.  My monthly costs were almost $3,500.  I could rent a similar home for in the area for half the price and after my house sold that is exactly what I did.  After 11 years of homeownership I’m a tenant again and saving $1,200 per month on housing costs.

Bob Hunt wrote about this recently in his article for Realty Times called, ‘Is it Morally Wrong to Default on a Mortgage?’  In it he states, “Mortgages are secured notes. They are not like borrowing from your grandmother. If you willingly default to her, shame on you. She has no recourse. But, if you default to the bank, they can take your property. That is the deal they made. The property may not be worth what they lent you, but whose fault is that? They are big boys and girls. They made a business decision, and in today’s market, they lost.”

This brings me to final point.  It is financial suicide to spend every penny you earn and every penny you have ever saved to make your mortgage payment.  Even if you can afford your payment it still makes no economic sense to stay put if you owe $50,000 or more than your home is worth.  Your moral obligation is to secure a financial future for your family, not to “throw good money after bad,” as my Dad once said.

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Filed under Homeownership, Loan Modification

Loan Modification Should Include a Principal Balance Reduction

principal balance reductionDale Carnegie once said that “the only way to get the best of an argument is to avoid it.”  This is easier said than done if you’re currently attempting to get a loan modification from your bank.  Whether you are going it alone or paying for a loan modification no doubt you will experience some frustration.

 This may be because lenders don’t really want to modify your loan.  In an article from the Boston Globe yesterday titled ‘Lenders avoid redoing loans, Fed concludes’ economist Paul S. Willen said “loan modification is not profitable for lenders, if it were profitable they would go out and hire staff.”

 Now this isn’t entirely accurate.  The lenders are hiring staff and they are modifying loans.  How do I know this?  I recently interviewed for a position in the loan workout department of a very large lender that accepted billions in TARP money.  During my interview I was told that they are reducing interest rates AND principal balances. 

 My theory is that the banks are slowly starting to recognize that a loan modification should include a principal balance reduction.  Without one the borrower will inevitably fail.  A few weeks ago I was asked to speak at my church about loan modification.  I met a woman there who was able to successfully negotiate a loan modification on her own with Wachovia Bank.  This loan modification included a change in interest rate from 6.6% to 5.87%.  That’s obviously not enough to make her payment significantly more affordable.  The real help came with the $60,818 principal balance reduction she received.

 The reason the statistics on modified loan failures are high is because they don’t include a principal balance reduction.   Borrowers eventually realize that while their payment is more affordable the mortgage they have could take a decade or more to pay off.  Once this reality sets in they just walk away.  For example, it would take 8 years for a homeowner with a mortgage of $150,000 and a home value of $100,000 to be at break even.  And that’s at a 6% annual appreciation rate.

 My advice to colleagues, clients, friends and you is to fight hard for a loan modification which includes a principal balance reduction that is more in line with the market value of your home.  Without one you are likely to become another statistic.

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Why the Mainstream Media Hates Loan Modification Companies

mainstream media hates loan modification companiesYour lenders are prepared to negotiate’, a column today in the Arizona Republic penned by Rick DeBruhl, a consumer reporter for 12 News, the NBC affiliate in Phoenix, advises you to “Avoid loan-modification companies. While there might be a few good ones, I hear from too many people who have lost money with no result. Better yet, find a certified counselor for free. You can even try it on your own. Just don’t give up.”

 Virtually every story I have read about loan modification companies, written or broadcast, by the mainstream media comes with the same disclaimer, which usually goes like this, “there might be a few good ones…”, or “legitimate loan modification companies do exist, but…”  In the very next sentence they then proceed to blast an entire industry.  Whatever happened to objective news reporting? 

 If these legitimate companies exist then why don’t the mainstream media interview the company’s principals?  Better yet, how about actually interviewing the people these for-profit loan modification companies have helped?  The mainstream media has no trouble researching, finding and publicly humiliating the bad guys (this is deserved most of the time).  Why don’t they put the same time and effort into profiling the good guys? 

 This is why…because every story needs a villain and right now for-profit loan modification companies fit the bill perfectly.  Admittedly, the industry as a whole has done little to boost its public image.  The illegal roadside signs and the poorly produced radio and TV commercials by personal injury law firms now doing loan modifications paint a very sleazy picture of the loan modification industry.  Couple that with the fact that the industry does not have a unified voice and you get a perfect target for the mainstream media.  After all, if the good guys don’t collectively yell and scream every time a column like Mr. DeBruhl’s is published or broadcast then they must be corrupt, right?

 It is a fact that far more consumers have been scammed or ripped off by financial advisors, accountants, attorneys, realtors and doctors than have by loan modification companies.  Don’t believe me?  Research your local bar association, real estate licensing division, or board of medicine website and read through the laundry list of complaints that exist against their members. 

 The mainstream media shies away from reporting these individual complaints because they recognize, as the general public does, that one bad apple doesn’t spoil the whole bunch.  More importantly, the mainstream media refrains from unilaterally dismissing any of these industries as a scam because they will feel the wrath of powerful organizations like the American Medical Association or the National Board of Realtors. 

 Until there is regulation and a unified voice for loan modification companies these attacks will continue.  And the loser in all of this, as always, is the homeowner.  Contrary to what Mr. DeBruhl wrote in his column today, most lenders are not ready to negotiate.  Most of my clients have done exactly what he suggests and have gotten absolutely nowhere.  The certified, “free” counselors are inexperienced and overworked.  And going it alone?  I just spoke with a prospective client on Friday who has sent his loan modification package to his lender three times and they still can’t find it.

 The bottom line is if you pay an attorney to write a will and trust for you, an accountant to do your taxes, a realtor to buy your home and a mortgage broker to secure a loan for that home, wouldn’t you also want a professional to modify your home loan?  Use the same criteria you did to select your attorney, CPA, accountant, realtor and mortgage broker to choose a loan modification company.

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When to Pay for a Loan Modification

don't pay for a loan modificationThe experts say you shouldn’t pay for a loan modification because you can do it yourself.  That got me thinking about all of the things that I can do myself.  I can change the oil in my car, do my own taxes and buy or sell my own house.  But, I chose not to because I would rather have a professional mechanic, CPA or real estate agent handle the job for me.

Before you decide to pay for a loan modification here’s a checklist of what you should do first:

  1. Contact your lender at least three times.  Have you ever called the customer service department at a major corporation?  I recently called DirecTV for help setting up a new receiver.  It wasn’t getting a signal so I called for support.  The first person I talked to told me I would have to schedule a service call for $50.  I didn’t like that answer so I called back the next day.  This time I was told I needed a special adaptor and that they would mail it to me for free.  The adaptor fixed the problem.  The lesson learned here is not to expect the person on the other end of the phone to be fully trained or aware of all of the loan modification options available to you.
  2. Contact a mortgage broker or lender about refinancing.  You may qualify for a refinance that will lower your payment.
  3. Visit the Making Home Affordable website to see if you qualify for a government incentivized loan modification program.
  4. Consider selling your home.  If you don’t want to move because you have kids in school, family in the area or a job close by then this isn’t an option.  But, if you have no strong emotional ties to the neighborhood, put the home on the market even if you owe more than your home is worth.  Your lender will be open to a short sale even if you are current on the mortgage payment.

 If you’re like me and tried all of these options without success it’s time to start shopping for a loan modification company.  I chose my loan modification company the same way I chose my daughter’s preschool:

  1. I got a referral from a family friend.
  2. I reviewed proof of performance information.
  3. I checked for complaints.
  4. I toured their place of business.

 This worked for me and I’m very satisfied with the results so far.  Admittedly, my loan modification is not complete.  It usually takes 3-4 months to get a file completed and I’m only about 2 months into the process.  However, they have kept me up to date and are moving forward as promised.

loan modifications take timeKeep in mind that it can take up to 100 hours to complete a loan modification yourself.  If you have 2-3 hours per day for the next 3-4 months then the odds are in your favor.  If you don’t believe that this is true then check out this story from ABC News, called ‘The Runaround’, that aired last month.

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The Loan Modification Mess

the loan modification messEveryone seems to have an opinion about loan modification.  If you ask a politician, government official, or member of the media most of them will tell you that obtaining a loan modification from your lender is as easy as picking up the phone.  In the very next breath they will tell you that all loan modification companies are scams and if you pay an upfront fee you will get ripped off.  Unfortunately, for millions of distressed homeowners across the country neither of these statements is completely accurate.  This is a story from an April 17th investigative report on ABC News:

Maxine Waters, a California Congresswoman, recently attempted to help a few of her constituents get a hold of their banks in order to re-negotiate the terms of their loan. What she thought would be a simple telephone call turned in to hours of being placed on hold and speaking mainly to automated voices.  After hours of trying to help Congresswoman Waters said, “The average American trying to negotiate a loan modification will not be able to get it done.”  While the federal government and banks say they’re trying to help homeowners avoid foreclosure through various help lines and more, an ABC News investigation has found that the process of reaching out for help can be disorganized and frustrating, hardly consumer friendly, even when a prominent member of Congress is on the line.

I went through a very similar situation with my own home.  When I fell behind Indy Mac Bank said because of the type of loan I had all I could qualify for was a repayment plan. I was told I would have to make a $3,200 payment for six months.  This was twice the amount of my original mortgage payment.

That’s when I decided to take a calculated risk.  Even though the Arizona Attorney General’s Office, the Arizona Department of Financial Institutions, and the federal Making Home Affordable websites all told me not to pay an upfront fee to a company to keep my home from going into foreclosure and modifying my loan, I did it anyway.  Why?  Because everything they told me I was supposed to do (attempt to refinance, call my lender, and apply for the Making Home Affordable Plan) wasn’t working.  I figured I may as well take the opposite approach.

But, I didn’t just run out and pay the first loan modification company I found (they are easy to find these days – you’ve probably seen all the billboards, the annoying little roadside signs or heard the radio ads or seen the TV commercials – its no wonder the industry gets such a bad rap).  No, I did what every smart consumer should do before making a buying decision:

  1. I got a referral from someone I trusted.
  2. I reviewed the business’s proof of performance information (i.e. approval letters from lenders).
  3. I checked for complaints.
  4. I toured their place of business.
  5. I talked to their employees.

 The company checked out.  And guess what happened with my loan?  They stopped my foreclosure, obtained a more favorable repayment plan for me and are now modifying my loan. 

As for all of the warnings from the government…remember what Thomas Jefferson said, “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

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