Forensic audits are a fantastic tool, as are Qualified Written Requests. Many of the banks did not follow the rules, and did not keep track of the documents needed to prove they have the right to foreclose and in those instances the lack of standards can be used by a negotiator as leverage to get a really good deal for the homeowner.
Too often realtors are quick to recommend a short sale, we have to be very careful here, remember, our fiduciary duty is to do what is best for the homeowner, not for ourselves. And while it is true what you say about unscrupulous operators, we owe it to our clients to help then review their options dispassionately and to assist them in finding the best solution for their individual situation whether or not it gets us a listing.
Loan modifications can help - but many times they either they can not be applied because the borrower does not qualify or they fail to keep the homeowner from defaulting in the future.
The truth is that while these are possible solutions for distressed homebuyers, these possible solutions do not allways save the day. I will inculde a link to a webinar that we did addressing this issue.
First Weber Group
Certified Distressed Property Expert
There are several things a home owner can do who may be facing a financial hardship/ foreclosure.
If that person were truly put into a loan they could not afford when it adjusted and the homeowner did not know about it they may be able to look thru their loan docs and find violations. The problem is can the home owner 1) afford to go thru with the lawsuit, 2) have enough equity to make the loan whole if it were recinded. the homeowner has 3 years from the date of the closing to find any violations and could possibly recind. However they then have to be able to refi and give the lender back the case they received. Not possible for the most part.
What a audit may be able to help with is getting a loan mod approved. If the home owner got a loan they could not possibly afford and the loan is "unconsionable" you have to have an attorney help get the loan modified. Some forensic auditing places charge upfront for the audit then tell you you have to get an attorney. I had a potential client try to do this but didnt want to pay for the help he needed.
As an attorneys office when doing a loan mod and sending in proof the client should never have gotten the loan we have been successful in getting a fixed interest rate the client could afford sometimes a principal reduction but not always.
The home owner does have the responsibility of know they can or can not afford a payment however the loan officer and realtor have the fiduciary duty not to put that owner in a home they cant afford.
Loan modifications do work, a lot!! Most of the time the borrower is listening to friends who give them bad advice. dont make your payment or tell the lender your debts are higher than they really are. They need to understand that even though they are not having their credit score looked at the payment still needs to be affordable.
With all of the programs available the lender can 1) reduce interest rate to as low as 3% for freddie, fannie FHA. 2% for conventional making home affordable mods.
Then they can extend the term of the loan to 40 years. Freddie Fannie and FHA do not do principal reductions. HOwever on other mods a principal reduction or forebearance may be necessary to get the payment to 31% of the gross.
Modifications do happen, it is critical for the homeowner to submit a correct financial hardship in the first place.
If the mortgage payment is more than 31% of the borrowers gross income,
they obtained their mortgage before 1/1/09
they live in the residence
and the loan is below $729,000 they may qualify for the Making Home Affordable Mod which does not require a cash contribution by the borrower.
However I have done mods for people who owe more than $729,000 and have equity. It can and does happen.
I do belive that a homeowner should first try a modification then if not approved consider a short sale.
Some people are led to belive that mods dont happen, they do. If the homeowner submits paperwork correctly they have a much better chance.
You also need to call the lender at least once per week to find out the status.
Best of Luck
Volo Law Group
925 699 5041
I am a real estate attorney who has taken on the defense for some foreclsoure cases. My first contacts with borrowers in mortgage trouble around late 2007. I've litigated cases where the property has been sold at trustee's sales. While you may have some leverage in litigating this type of dispute with lenders, but it's EXTREMELY difficult to get a loan modification once you've lost title because of issues invovling securtization where the investors themselves won't budge.
I have had better luck helping clients getting their loans modified (if they marginally qualify) before the property has been sold at the trustee's sale.
To answer your question more specifically.
If a homeowner has a job and steady income they may be able to qualify for a loan mod. Even without a job they may now qualify for a new program.
It is important to keep up with all of the new programs. I do believe if you want to keep your home and can afford the new reduced payment you do have a good chance of getting modified.
Lenders have several different options.
The first and most well know is the Making Home Affordable however that is not the only mod available.
It is very important to do the income correctly. I just assisted homeowners who, when they initially submitted their income added it incorrectly and were just over the 31% limit. He included overtime as gross income and that is not correct. any way when I added up the income they seemed to qualify. Overtime does not go on the line item as gross income and does not need to be added if it is not guaranteed. I spent a lot of time on the phone with underwriters trying to figure out qualifications.
Also, I do know that a large reason homeowners get denied is lost paperwork. If the lender does not get all documents and updated ever 60 - 90 days they will not progress the file. Some people get denied not because they didnt qualify but one lost document!!!
There are so many programs available I get about 75% of my clients approved.
When a home is severly underwater and the lender will get more money from a short sale then a loan mod it may be time to consider a short sale.
I always include a fully documented file with info the underwriter also looks at so I know it the owner will be approved before we submit.
I have gotten files to the Advocacy department and had them approved after first being denied. Basically if they have income, if we can then reduce the interest rate to 1 - 2 % extend the term to 40 years and possibly a principal reduction or set aside if the homeowner can afford it after modified and possibly settle credit cards or underwater seconds they may qualify for a loan mod.
They may then decide the payment doesnt make sense and the home is too underwater. However I feel that the tax write off and eventual appreciation may be worth it.
If the home owner has toomuch income they may then be denied. Then it is not really trying to save their home but more of a financial decision.
When you remove a second loan and additional credit card debt and save $1,000 on your first most home owners are actually ok with their mod.
That may be more of a direct answer.