It was only a short time ago that the government announced that it was going ahead with a $700 billion bailout of the financial service industry and banks.  The bailout was in response to the frozen credit markets and toxic loans scattered across the books of hundreds, if not thousands of banks.  Securities, created from these loans were causing problems for financial service companies and mutual funds.

Foreclosure: a reality

At the very foundation of the crisis are the millions of subprime and adjustable rate mortgages that are causing problems for homeowners across the country.  The problem has had a ripple effect, causing consumers as well as large financial conglomerates to seek a solution.  With record numbers of foreclosures occurring daily and projections for record numbers in the coming years, strong medicine is needed immediately.

Foreclosure prevention has become the central focus of an effort to keep homeowners in their homes and remedy a faltering economy.  In states where the foreclosure process exists outside the courtroom (such as in California), the notice the homeowner receives from the lender makes the mortgage crisis a startling, personal reality.  The dire message from the newspaper headlines is suddenly there in letter form in front of the homeowner.  Unfortunately, the postal delivery person is not also delivering a government bailout check to offset the bad news.

Foreclosure is a dirty word

Foreclosure is an eleven-letter word.  It is a vile word, although it comes along with the territory for mortgage lenders.  It is a business necessity for lenders who need to consider their balance sheets, but it is a catastrophe for a homeowner who loves their home and connects a sense of security and ownership with same.  The two interests are colliding in ever increasing numbers as the government and private sector try to satisfy both components in the equation.

Banks are hurting

In a recent article in the Wall Street Journal, it was reported that record numbers of credit card users are defaulting, making the losses to banks even greater.  With the banks bottom line numbers looking more beat up than ever, this may be the time that banks will listen to requests for modifying existing home loans.  Experts in loan modification can converse with the bank’s loan department in the esoteric language that they both share to head off foreclosure.

Mortgages are in the news, and not for the right reasons. It is estimated that 4 to 5 million homeowners could enter foreclosure by the end of 2009. Some sources estimate that 8 million homeowners will be in foreclosure in the next four years. The ramifications of such a wave of foreclosures would be enormously detrimental to the U.S. economy. What’s more important, the implication this holds for homeowners is chilling.

The government has been scrambling to find a solution and private companies are poised to help homeowners with reworking their loans. A declining home market and adjusting ARM rates have combined to put large numbers of homeowners in peril. There is no benefit to seeing people vacate their homes and the government and private sector both realize this fact.

Loan Modification

For this reason, loan modification has become a central focus as a solution to a staggering problem. A loan modification retains your current mortgage, but changes the terms to make the payment more affordable. The modification can be either to the interest rate or loan balance. Even the delinquent fees or the term of loan can be altered.

A loan modification provides several benefits. It keeps a homeowner in their home. Any equity built up will not be lost. It maintains the credit of the homeowner, unlike foreclosure. Beyond the benefits to the homeowner, it saves the lender money in the long run and prevents one more foreclosure that brings surrounding home prices down.

Loan modification professionals have specialized expertise

Loan modification is best left up to the pros. Homeowners are not skilled enough in loss-mitigation techniques to affect a proper outcome. This is a specialized profession just like medicine or law. There is an esoteric language that the loan modification people speak and the lenders speak and it streamlines the process when all parties understand that language.

Another consideration for homeowners facing foreclosure is that the lenders are inundated with requests from desperate homeowners currently. Getting through to the right person and getting their attention is not an easy task. Those who specialize in loan modification are often more successful at communicating with lenders. Some homeowners are foreclosed on while they are trying to reach right person at the lender.

The information above does not constitute legal or tax advice. For legal or tax advice, please consult with a tax attorney or CPA regarding your specific situation.

A recent visitor found our site by asking the question, “How late can you be to do a loan modification?” It seems like a good topic to discuss as more and more people are falling behind on their loans and not realizing that there is still time to get things fixed.

The quick answer to the question is that it doesn’t really matter. You can be 30 days, 60 days, even 90 days late on your mortgage and there’s still time to get a loan modification. Too often, someone gets behind and thinks they are completely out of options. It doesn’t help that there are companies telling these people to simply walk away as if nothing can be done.

What you can do

Get ahold of a loss mitigation consultant immediately. An experienced mitigator can get a lender to listen up and begin negotiating immediately, no matter how late you are.

Obviously, we prefer that you come to us as early as possible. For every day that goes by, our ability to successfully negotiate your loan modification declines. If you’re 60 days late, don’t wait for day 61.

One of the questions we frequently get asked is “How long will it take for me to get my loan modified?” While there is no one answer that is universally true, there is a general timeline that can be followed. Let’s look at the process step-by-step.

1. Securing help. The first thing you need to do is entirely in your own hands. You need to pick up the phone or submit an application online and get someone working on your behalf. There’s no time constraint on this other than you taking a moment to initiate the process.

Time it Takes: Immediately, but it’s up to you

2. Getting a full loan modification package submitted. We have a set of forms you can access once you speak with an AMG loss mitigation specialist. These must be filled out and returned to us in a timely manner. We’ll help you anywhere you need it, but it’s largely up to you to make sure this gets done quickly. The most frustrating aspect of loss mitigation for us is when a borrower that we know we can help drags his or her feet on getting the information to us. Time is not on anyone’s side and any delays can end up costing you a successful loan modification.

Time it Takes: 1- 2 days if you are proactive about getting everything done quickly.

3. Internal auditing and underwriting of the file. Once your complete package is in, we will do an internal review to make sure everything is in and documented. We will not submit your package unless our mitigators are confident we have built a solid case.

Time it Takes: 24 hours

4. Submit file to be assigned to a mitigation specialist with your lender. Following our internal review, the package is submitted to your lender for assignment with one of their loss mitigation specialists. Depending on the lender, this can take up to a couple weeks so be prepared to for a waiting period.

Time it Takes: 3-14 days depending on the lender

5. Mitigation process and getting a decision back. This is widely variable. Depending on your lender, you may receive a decision within less than a month or it could take up to 60 days. The lenders that are properly staffed will deal with your loan modification request in a timely manner, while those that can’t handle the volume of requests will take longer.

Note: One of the biggest mistakes people make is trying to deal directly with their lender. We hear stories from people about trying for 3-4 months to get a decision and nothing ever happens. It doesn’t need to take that long and if it does, you need representation. Many lenders treat us differently than they do a borrower. The reason is that they know we are going to give them exactly what is needed and they can trust us to only bring clients that are solid candidates for a loan modification. A lender knows up front when they deal with us that they will spend less time working the account.

Time it Takes: Typically 30 - 60 days, but it depends on the lender and can take longer or shorter than the typical time.

6. Making the newly modified loan official. Once the decision is returned from the lender, you’ll have a clear set of new terms that you can either choose to accept or decline. Typically, the lender will give you your new rate, balance, monthly payment and date that the loan will be completed. Additionally, they give you a date you must sign and return the agreement by. If you fail to return the agreement on time, it may cancel your right to a loan modification so do not delay.

Time it Takes: 1-7 days depending on how quickly you return your signed agreement.

An article in the Arizona Republic today had some good advice for those struggling to pay the mortgage. A lot of it reiterates what we recommend as a company and you’ll find similar advice throughout our site. It never hurts to see it from another source. Here are the four main points the article makes and our comment for each.

Don’t do nothing at all.

The double negative aside, we can’t emphasize this point enough. We’ve said it in other posts and content on our site that being on top of the issue is vital. The people that get their situation fixed are the ones proactive enough to meet the problem head on.

Ask your lender to help

There’s nothing wrong with this, but we’d take it a step further and suggest using a company like AMG to handle the negotiation for you. Lenders, while willing to work out a solution, can be difficult to deal with and getting in touch with the right people can be tricky.

Approach lenders with a plan

This goes back to using a third party to handle the negotiations. You can’t just tell the lender you want a loan modification and have it magically happen. There is a right way and a wrong way to make it happen. If you do it the wrong way, you’re likely to get denied.

Seek outside assistance

By now, you know our opinion on this matter. Personally, we don’t cut our own hair or diagnose our health issues. Your mortgage is a serious matter and it deserves serious attention from a qualified professional. You can try to go it alone, but it’s a risk.

The full article that is referenced above is available at azcentral.com

You’re paying your mortgage every month and you have yet to receive a harassing phone call. Why then, should you consult a loan modification specialist about options?

You have an impending rate hike on your ARM

You may not be feeling the trouble yet, but you could. If your adjustable rate mortgage is scheduled to reset, it could be at a higher interest rate that makes your home unaffordable with the current mortgage. It’s wise to prepare for this and have options ready if it gets to a point where you can’t afford the loan payment.

You’ve tried to refinance and can’t

A lot of homeowners in this market are finding that lenders aren’t willing to approve a refinance of their current loan. The result is you are stuck with a loan that you either can’t afford or won’t be able to in the near future if an ARM resets to a higher rate. Loan modification is a strong alternative to refinancing that allows you to change the terms of the existing loan without having to refinance

You’re just barely getting by

Perhaps you’re managing to pay the mortgage, but are having to skip other bill payments. Your mortgage could potentially be modified to give you relief and allow you to get back on track.

The best way to approach a loan modification is to get started on the process early. You should have a conversation with a specialist that can advise you what course of action to take. The people that have the easiest time getting help are the ones being proactive.