Posted by admin | Home Center | Posted on July 10th, 2010
Feldman Law Center – Loan Modification News by Feldman Law Center — Part of Obama’s plan to overhaul regulation of the mortgage industry, unveiled last week, would create a Consumer Financial Protection Agency to monitor consumer financial products and change the entire process of getting a mortgage. With a stated goal of developing a mortgage process that is as simple as signing up for a retirement plan, the President’s proposal centers on an automatic offering of a “plain vanilla loan” to potential homebuyers. These loans would offer fixed interest rates and 30 year maturities, unless the borrower opts for a loan with riskier terms such as interest only or adjustable rates.
The plan has received vehement opposition from the mortgage and banking industries who say that government-approved mortgages would restrict borrowers’ options, make loans harder to get, and make them potentially more expensive. Powerful trade groups like the American Bankers Association, for example, oppose creating a consumer financial protection agency. Even lobbying groups open to the idea of a consumer-products regulator question whether the government should suggest which mortgages are best for consumers. “We don’t want to stifle innovation, and we don’t want to stifle competition,” said John Courson, president of the Mortgage Bankers Association.
One thing that would definitely be restricted, and one of the main factors behind these groups’ opposition to the plan, will be the potential commissions that mortgage brokers can charge when they sell a mortgage. For example, administration officials want to curb the fees that brokers and lenders receive tied to inflated mortgage rates. Brokers argue the incorporating those fees are a way for borrowers to amortize the costs of a loan without having to come up with thousands of dollars in closing costs. Another aspect of the plan would link compensation to whether the borrower ends up defaulting on the mortgage. “There’s no reason that we should have to assume that risk,” said Marc Savitt, president of the National Association of Mortgage Brokers. The group’s stance is that while a mortgage broker can facilitate a loan, the ultimate approval for the mortgage comes from the lender.
Mortgage brokers’ fees were typically highest on the most creative and dangerous of the mortgage varieties. With those mortgages a thing of the past, volume, commissions, and their share of new business has dwindled. Mortgage brokers’ share of new loans has dropped from a high of 60% to the current 20%, on much lower volume. Fixed rate mortgages have increased from a low of 50% of the total of new loans originated in 2004-05 to 95% today.
As the plan stands now, the newly created agency would approve a set of mortgages including fixed and adjustable rate mortgages. Approval for vanilla mortgages would be similar to the “prime mortgage” approval process. Potential home buyers could still get mortgages outside of the government approved versions but disclosure of risks and dire warnings will accompany them.
Supporters of the new regulatory agency say that it is needed as much to protect borrowers from themselves as from predatory lending practices. Many borrowers went through the process of getting their mortgage without ever taking the time to understand exactly how the loans they were applying for worked and where the risks were. Still, previous Congressional efforts to regulate the mortgage industry have consistently broken down over the years, even on simple issues such paperwork reduction, so the fight could be long, drawn out, and years in the making.
Posted by admin | Home Center | Posted on April 28th, 2010
At the Feldman Law Center, our loan modification attorney team keeps their eye on all mortgage loan modification news in order to properly inform and education every client we work with. Our California loan modification company works hard to provide top notch advice as well as a skilled legal ability to get you the best loan modification agreement possible.
Recently, the federal government has been paying far more attention to the loan modification process than they have in the past. The Federal Deposit Insurance Corporation (FDIC) and the Federal Housing Administration have rolled out plans over the last year to combat the rising foreclosure proceedings. The FDIC loan modification program and the FHA loan modification program have received some heavy criticism from large financial institutions such as Moody’s Investor Services. In a recent Moody’s report, the FDIC loan modification program may eventually reduce cumulative losses for mortgage loans involved in the subprime mortgage crisis. The FDIC loan modification program is designed to help more people get quality loan modifications by creating a streamlined framework with key incentives, including: a loss-sharing arrangement for existing investors; and a thousand dollar stipend for every successful loan modification.
Ultimately however, Moody’s feels that the participation in the FDIC loan modification program might be limited, which weakens the effectiveness of the program. The FDIC loan modification program will have a lesser cumulative impact on the losses suffered by banks, lenders and homeowners.
A California loan modification can be had by utilizing the skills of a California loan modification attorney. At the Feldman Law Center, our loan modification law firm can provide the kind of unique experience and highly sought after knowledge necessary to procure a loan modification. Working with any lender or federal agency involves lots of red tape and bureaucratic road blocks; but with a skilled loan modification attorney, you could overcome those challenges.
Many people are interested in how a loan modification can help them change their financial situation and keep them in their house for the long haul. Throughout California, foreclosure signs are popping up in neighborhoods all over the state, and even in some areas that never thought it would happen to them. Even such neighborhoods as Beverly Hills, Bel Air and Walnut Creek are suffering from the subprime crisis, and everyone in the state is suffering as a result. California unemployment has reached double digits, and it could get much worse.
A loan modification is an agreement between the debtor and the mortgage company to renegotiate the terms of the mortgage loan. This is done so that the borrower can have an affordable, reasonable monthly payment, allowing them to keep making payments over the long haul. A California home loan modification attorney can help the borrower negotiate with the lender, arrange the loan modification application and communicate with the bank or lender. With a loan modification attorney at your side, you can get the best loan modification possible and keep yourself and your family in your home.
Posted by admin | Home Center | Posted on March 8th, 2010
Much has been made of the 2% base rate included in the guidelines for the Obama Administration’s “Making Home Affordable” plan. It’s been well documented that the plan is off to a very slow start with current estimates of approximately 50,000 loan modifications in process. Less talked about, at least so far, is that the 2% headline interest rate of the plan may be unavailable to most homeowners seeking loan modifications that follow the plan’s guidelines.
As the saying goes, “The devil is always in the details” and Making Home Affordable has a detail which goes by the name of the “Net Present Value” test. Many of the mortgages which were originated during the boom in real estate, including those considered to be toxic, were sold to investors on Wall Street, from pension funds, and insurance companies (like AIG). These investors didn’t have the infrastructure or experience to collect payments, prepare statements, etc. so they left the handling of those matters to loan servicers like Saxon Mortgage (now a part of JP Morgan Chase). These servicers interface with the homeowner on all matters, including home loan modifications. For that work, they receive a small percentage off of each of the homeowner’s monthly mortgage checks as their fee.
An unintended consequence of the meltdown in real estate prices and skyrocketing default rates is there is now a conflict of interest between servicers and the investors that employ them. The foundation of that conflict is this; with monthly mortgage payments functioning as the lifeline of the servicers, their priority is to keep those payments going. To that end, granting loan modifications, even with drastic cuts in interest rates, is a much better outcome for the servicer than not receiving payments at all and/or having the home go into foreclosure. Aggressive loan modifications which benefit the servicers often hurt the investors by forcing markdowns on value of loans in their portfolio, hence, the conflict of interest.
Having experienced this conflict prior to the unveiling of Making Home Affordable, investor groups insisted that the net present value test be added to the plan to protect their interests. A net present value (NPV) calculation works this way:
1) Determine the proposed monthly mortgage payment for the life of the modified loan
2) Calculate the total return in dollars over the life of the loan – monthly payment x 12 months x 30 years = total return
3) Estimate the value of what the foreclosed home would sell for at auction
4) The highest number between the total return and the estimated selling price at foreclosure determines what action will be taken.
Motivated to keep properties generating monthly payments and out of foreclosure, servicers will negotiate the highest interest rate possible, within the constraints of the plan and what the homeowner can afford, to generate higher fees and to make sure that the net present value test comes out on the side of loan modification. With higher fees and the net present value test driving the negotiations in a loan modification, granting 2% interest rates becomes a very low priority and in some cases a deal killer for the servicers.
Congress, hearing the cries from their constituencies, has backed the efforts of the mortgage servicers by passing the “Safe Harbor Law” in May. The law protects servicers from lawsuits filed by investors claiming that the servicers are acting in their own best interests in loan modifications, at the expense of the aggrieved investors. It also gives servicers more autonomy in their structuring their home loan modifications.
The net present value test can present formidable challenges to the loan modification process due to many factors that are constantly changing. In New York City, for example, overall property values have remained relatively high but income levels have dropped. Limited by Making Home Affordable guidelines, mortgage payments cannot exceed 31% of the homeowner’s monthly income. The cap on payments can result in a net present value outcome that favors foreclosure on a property. Industry watchers have expressed concerns that the relative resilience in real estate values in the city could actually work against homeowners.
At the opposite end of the spectrum are cities such as Las Vegas and Detroit where property values have dropped as a much as 80%. These are areas where the net present value tests favor loan modifications but homeowners are walking away, forcing the properties back to the investors.
The next issue for investors wishing to foreclose is whether they can actually sell properties at auction. In California, approximately 17,000 out of 111,000 foreclosed properties went up for sale at the most recent auctions. Of the 17,000 properties, banks took back 85% of the properties when bids averaged only 59% of the outstanding loan balances. The lack of foreclosure sales across the country has led to a massive backlog of foreclosed properties that are either being kept off the market, put up repeatedly at auction, or for sale to private parties.
With unfavorable outcomes on either side of the net present value test, it’s apparent that investors are deciding not to decide on either action. The advantage of leaving properties in limbo is that they don’t have to be marked to market until action is taken, a necessary concession from Congress granted to investor groups in March. That way they can carry the properties in their portfolios at values that don’t trigger capital requirements. If it all sounds like a house of cards, well, at least it’s house.