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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Saturday, January 23, 2010

We Listened To A Lender Go From Making Homes Affordable To Making Modifications Impossible

Strategic Default
I would not have believed this if I did not hear it for myself. I listened while a banks’ “home retention” representative refused to let a homeowner pre-qualify for the federal government program, Making Homes Affordable aka Home Affordable Modification Plan aka HAMP. THE LENDER’S REASON for the refusal: The home owner was “contesting” the foreclosure action started by the same lender. They would not accept his HAMP pre-qualification app over the phone. Mind you, the HAMP program let’s homeowners enter into a temporary 3 month lower payment trial period. During the trial period the homeowner sends the lender the required financial documentation in order to get a permanent modification. The application and approval for the 3 month lower payment trial period usually happens over the phone. The approval is given within minutes after a homeowner provides the lender with his or her income and expense info over the phone. Basically the lender’s “home retention” rep enters the income and expense info into a computer program…then POOF!!!...the home owner can be approved on the spot. However, in this case, the lender refused to let a homeowner apply over the phone because the homeowner hired a lawyer to defend the lender’s foreclosure case.

At times, people will ask me to conference in during phone calls with their lenders. In this case, Paul (name changed for privacy) asked me to assist him with a loan modification, so we called the lender together. It was America's Servicing Company, a division of Wells Fargo Home Mortgage. The “home retention" rep went through the standard verification procedures: name, social security, property address, & phone no#. Paul explained to the rep that he was in foreclosure. Paul told the rep that he was advised by his lawyer to call the lender for a loan modification. Paul then asked the rep about the HAMP program. The lender’s rep said “Yes, we provide modifications under HAMP, however you cannot apply over the phone because we were advised that you are contesting the foreclosure action.” Paul and I were totally stunned. I then asked “are you telling Paul that he can’t apply for the HAMP program and get an immediate 3 month pre-trial modification JUST BECAUSE he is defending himself in court” Initially, the rep said the software program would not allow Paul to apply. Then the rep got hung up on the word “contesting”. The rep tried to raise a distinction between “contesting” a foreclosure and “defending” a foreclosure. The rep implied that Paul was trying to claim he “should not be in foreclosure” that’s why Paul is “contesting” the foreclosure. The rep kept asking “Are you trying to say ‘you should not be in foreclosure’”...

Now let’s cut to the chase. It is clear that the lender’s “home retention” rep didn’t truly understand what was going on. Why would the lender deny Paul this option for a loan modification? Why would the lender’s be advised about defending a foreclosure case? What does it mean to “contest” a foreclosure and why does it affect Paul’s ability to apply for HAMP over the phone?

These are my thoughts: The lender wanted to discourage Paul from aggressively defending the foreclosure. It always benefits a homeowner to defend a foreclosure case, even though they owe the lender money. When a homeowner defends a foreclosure case, they invariably gain some leverage and extra time. There are more courts requiring mandatory settlement conferences between homeowners and lenders thus this creates pressures for settlement. It becomes a time consuming, costly affair for the lender. It comes to mind that phone conversations are recorded, so perhaps these recordings can be admissible in foreclosure cases? What if Paul said to the rep “I am not contesting the foreclosure” or “Yes, I should be in foreclosure, I owe you the money”.

If Paul were approved over the phone for the 3 month pre-trial modification, then the foreclosure action would be stalled. Most important, Paul could tell the judge he received a 3 month pre-approval and he expects to receive a permanent modification. This flies in the face of the abysmal record regarding lenders and HAMP. Beginning March 2009 up to including December 2009, there were 787,231 homeowners in a pre-trial period and only 66,465 homeowners with a completed permanent modification. Hmmm let’s see, what if the lenders collect monthly payments during the trial period and the homeowners ends up not receiving a permanent modification. What’s 787,231 homeowners times $1400 per month mortgage payment? That’s about $1.1 billion a month. Now let's multiply that by 10 months. You do the math and read between the lines.

I wonder how lenders treat homeowners who DON'T defend themselves in foreclosure. Are lender's denying the 3 month pre-trial mods to these homeowners? Hmmm.

I want to add that the “home retention” rep was respectful to Paul. In fact, I believe that this rep believed that his employers’ policy was wrong. He was sympathetic and supportive, however he had to do what he is ordered to do…he had to do his job.

At the end, Paul was unable to get the 3 month pre-approval, so Paul will bring it to the judge.

Now you know so take control.

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Wednesday, December 03, 2008

Don't Forget: There Is A 3 Year Moratorium On Tax Liability For Debt Forgiveness

The Mortgage Forgiveness Debt Relief Act of 2007On December 27, 2007, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) into law.

This law established a 3 year moratorium that prevents any debt forgiven by a lender from being counted as income by the Internal Revenue Service (IRS). Basically, if a homeowner negotiates a short sale or any other type of debt forgiveness with a lender, the homeowner will not be liable for any taxes on the forgiven debt.

For example, if a homeowner in foreclosure gets a bank to agree to take $400,000 for an original loan amount of $500,000, then the homeowner will not have to pay any taxes on the forgiven $100,000 ($500,000 minus the $400,000).

The Mortgage Debt Relief act also extends the private mortgage insurance deductions through 2010. The deduction for private mortgage insurance allows families with an adjusted gross income of $109,000 or less to deduct all or some of their premium payments.

As it stands, the Mortgage Forgiveness Debt Relief Act only applies to a primary residence. So second homes and investment properties are out. Still, even with a second home or an investment property you may not have to pay any tax on the forgiven debt, so long as you can prove to the IRS that you were insolvent at the time. Which may or may not be tough to do.

With the Mortgage Forgiveness Debt Relief Act of 2007, as long as it’s your primary residence, you don’t have to prove anything to the IRS.

If a short sale is the best option, then this is the time to negotiate one.

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Friday, November 28, 2008

This Is A “Fill In The Blanks” Financial Crisis. Now It’s Time To Fill In Your Blanks.

The Great BailoutIn the following article, we invite you to just fill in the blanks where you see parentheses. Fill in each blank with any old Bank and see what you get:


Banks Have Their Backs Covered. Who’s Got Yours?

On [just pick a date], the Federal Reserve, the US Treasury, the US President, and Congress agreed to give [Big Name Bank] 300 [Billions or Trillions, take your pick] Dollars in tax payer money, so [Big Name Bank] could buy [Bank About to Fail] for 1 Billion. For those who didn’t know, [Bank About to Fail], one of Wall Streets largest and best known investment bank was bankrupt. [Bank About to Fail] owed more debt than it had in value. Sounds familiar. Kinda' sounds like many people in Foreclosure. Actually, it also sounds like many homeowners not in foreclosure, who have a mortgage loan greater than the value of their home. Just like many ordinary people who have more debt than cash. But I digress. [Bank About to Fail] was in financial trouble because they were worth nothing on paper. So we heard in the news “[Bank About to Fail] must be saved.” Why? “Because if [Bank About to Fail] went under than the whole financial system could have fallen apart. “COULD HAVE”. The stock market “would have” plunged. Big investors “would have” lost lot’s of money. There “would have” been a world crises.

Now let’s think about their bailout logic, one more time. This is my take:

First: [Bank About to Fail] was about to file for bankruptcy because…THEY WERE REALLY BANKRUPT!!.

Second: The Federal Reserve, the US Treasury, the US President, and Congress determined that if [Bank About to Fail] does fail we will have a World Wide Financial Crises.

Third: The Federal Reserve, the US Treasury, the US President, and Congress “saves the day” by essentially GIVING [Big Name Bank] [Billions or Trillions, take your pick] of DOLLARS OF TAXPAYER MONEY so [Big Name Bank] could buy [Bank about to Fail] for 1 BILLION.

Fourth: The Federal Reserve, the US Treasury, the US President, Congress, [Big Name Bank], [Bank About to Fail] and All the Kings Men shake hands, hug, pat each other on the back, exclaim “JOB WELL DONE” b/c the WORLD DID NOT DESCEND INTO FINANCIAL CHAOS.

Do you see what just happened? What does it mean?

No# 1 : There are certain people and businesses TOO IMPORTANT to let go Bankrupt even WHEN BANKRUPT.

No# 2 : The Federal Reserve, the US Treasury, the US President, and Congress DO NOT NEED YOUR PERMISSION to give taxpayer money away to a BANKRUPT BUSINESS.

No# 3 : The Threat of a World Wide Financial Crises is a REALLY GOOD EXCUSE.

No# 4 : It doesn’t take a genius to figure out WHO GOT ALL THE MONEY.

No# 5 : The employees of [Bank about to Fail], who saw the value of their IRA’s or pensions drop because their [Bank about to Fail’s] stock tanked, WATCHED their MONEY they PAY IN TAXES given to…Well let’s say it WAS not given to them to SAVE THEIR IRA’s or PENSIONS.

Truth be told, it is entirely possible that had [Bank about to Fail] actually failed, there would have been a financial crises. It is equally true that if [Bank about to Fail] actually failed, there would NOT have been a financial crises. As is everything in life that could have been, WE WILL NEVER KNOW.

So the rules are made and when things get BAD there is only one Sheriff in town and that Sheriff has friends to protect.

This is history repeating itself over and over. DO FOR YOUR FRIENDS AS YOU WOULD DO FOR YOURSELF. There are those who claim that the bail out of [Bank about to Fail] created a “moral hazard” because [EVERY SINGLE BANK] will take even more risks and ask for even more bailouts because the Federal Reserve, the US Treasury, the US President, and Congress will cover their behind.

And cover their behind they have. For the first time in history, the Federal Reserve allowed Wall Street Investment banks to borrow money from the Fed at a discount (window). For the first time in history, investment banks can become commercial banks. For the first time in history, the Federal Reserve, the US Treasury, the US President, and Congress can hand out TRILLIONS OF DOLLARS of YOUR MONEY without telling YOU where it is going.

It doesn’t end there, the Federal Reserve, the US Treasury, the US President, and Congress gave [Big Name Banks] Treasury Bills (your money) in exchange for [Big Name Banks] worthless collateralized paper. YOUR MONEY FOR BAD PAPER. The paper that consists of collateral debt obligations, sub-prime mortgage backed securities, alt-a mortgage backed securities, credit card backed securities, auto loan backed securities…and the BAD PAPER list goes on and on and on…..

It all boils down to one thing. When it all hits the fan, the BIG NAME BANKS’ Peoples get together, handle their business and do what is necessary to keep their stuff together.

The question for you is “Will Your Peoples Come together, When it starts to get BAD”. It’s time to fill in your blanks.

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