Posts Tagged ‘Modification’
How & Where to Seek Help For Mortgage Loan Modification?
Mortgage loan is the loan taken from the money lender or bank by keeping the property as mortgage for securing the loan amount. This property is usually a house or a land. For the person to get the mortgage loan, the basic condition is that he/she should possess a house on his/her name. Demands of people are increasing and hence number of mortgage companies has emerged for satisfying these people demands. The mortgage loan calculator tools are available online or provided by the loan providers to calculate the loan amount and monthly payment on your loan. Using these loan calculator tools, you can easily evaluate the loan calculations considering various affordable interest rates.
The mortgage loan basically works on the repayment of loan amount with some interest rate every month. If any borrower finds it difficult to repay the loan amount after some initial repayments, the mortgage companies have provided them with the option to modify their mortgage loan. This is mostly required when the borrower become bankrupt or unable to make monthly repayments. In this case the loan agreement between lender and borrower is restructured with modified terms and interest rates. Loan modification is often better option for loan foreclosure.
When can you modify your mortgage loan?
Mortgage loan cannot be modified for every borrower. The borrower has to fulfill the basic criterion for the loan modification. Lender will evaluate the entire qualifying factor and approve your mortgage loan modification request. Some of the basic qualifying criterions are as follows:
- You must have missed your three consecutive mortgage payments
- The secured mortgaged property is your primary residence
- You are ready to have alternate payment option
- You haven’t filed bankruptcy to clear your debts
- You are going through financial hardships like job loss, sudden medical expenses, etc.
Apart from these details, the lender will evaluate the financial status and equity of the secured property of the borrower and approve the loan modification request.
Merits of Mortgage Loan Modification:
- Interest rate on the mortgage loan is reduced. As a result, your monthly repayment amount will also be reduced
- You will become current on your mortgage
- The mortgage loan term period can be extended for repaying the loan amount
- Your modified mortgage loan may or may not include your past due payments
Getting your Mortgage Loan Approved:
In order to get your loan modified, you must convince your lender to approve your mortgage. You can do this by
- Describing your financial hardships and providing the hardship letter
- Expressing your desire to repay the loan amount
- Describing your last employment status and explaining to the lender how it will help you to make the repayments of the revised loan
- Explaining to the lender how he will benefit if you make the loan repayment
- Explaining your monthly budget and how you are planning to cut down your expenses to make the loan repayment
If required, you can contact the lawyer to negotiate with the lender for modifying your loan terms and interest rates. You can also directly contact your loan provider and consult him about the situation so that they can find a way out.
Who Qualifies For a Loan Modification?
During these trying times when mortgages, real estate prices and other financial arrangements are completely unstable, many homeowners are asking how they can qualify for a loan modification. Both the FDIC and the federal treasury are strongly supporting loan modifications as a way to keep people in their homes. Lenders don’t want to take back anyone’s home, homeowners obviously want to stay in their homes and the federal government wants what the people and lenders want.
Many people who are trying to keep their homes are asking questions such as: who qualifies for a loan modification? Homeowners throughout California who are trying to stay in their homes are interested in the loan modification process and want to learn more about California loan modifications.
Below are some basic tips on how to recognize whether or not you are eligible for a California loan modification (or loan modification in another state).
Borrowers (those with a mortgage) struggling to stay current on their mortgage payments may be eligible for a loan modification if their income is not sufficient to continue to make their mortgate payments and they are at risk of imminent default. California homeowners may be eligible for a loan modification even if they are not currently behind on payments. Several factors may cause this scenario: loss of income; significant increase in expenses; or an interest rate that will resent to an unaffordable level.
Here are three ways to know if you qualify for a California or federal loan modification:
1).You occupy your house as your primary residence
2).Your monthly mortgage payment is greater than 31% of your monthly gross income
3).Your loan (mortgate) is not large enough to exceed current Fannie Mae and Freddie Mac limits
Loan Modification
A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford. You may be seeking a California or federal loan modification if you are having trouble paying your mortgage. The key is to find a qualified loan modification attorney who understands loan modification law.
Loan modification attorneys will tell you that there are only three possible outcomes when a homeowner cannot make the payments on their mortgage:
1.The property goes back to the lender through a foreclosure or a “deed-in-lieu” and the property goes back out on the market.
2.The homeowner sells the home in a conventional sale or a “short sale” and the home goes back onto the market.
3.The lender (bank or mortgage company) modifies the loan so that the homeowner can make the payments and the home does not go back onto the market.
The loan modification option is the best solution, by far, for the lender, homeowner and country in almost all situations. The loan modification process does not require any appraisals, credit reports or title reports because a loan modification is simply a renegotiation of the terms of an existing note. A loan modification can consist of a reduction in the interest rate, a change from a fully amortized to interest only payments for a period of time, an extension of the loan term, a reduction of the principal balance of the loan and/or a resolution of any arrearages.
Loan Modifications are the best overall solution for the following reasons:
1.Families are kept in their homes through the loan modification process
2.Los modifications ease the financial pressure that causes stress in families
3.Loan Modifications have the least cost solution to the lenders, which is why many lenders are willing to do them
4.Loan modifications keep the house off of the market and therefore each loan modification represents a step closer to the solution to the current economic crisis.
5.Loan modifications are a market solution, meaning they aren’t taking taxpayer dollars.
6.Loan Modifications can be done quickly if you have an experienced loan modification attorney.
Loan Modification, Foreclosure Assistance, & Foreclosure Help by The Feldman Law Center
Loan modification is the focus on our website, however; we do provide our clients with proper legal advice and share expertise in the areas of real estate transactions, mortgage negotiations, loan modifications and debt settlement. The Feldman Law Center, a Loan Modification Attorney, was founded by Steven C. Feldman who has been licensed by the State Bar of California for over 25 years. We are consumer and homeowner advocates that will protect you from home foreclosure with our detailed loan modification program. The Law Offices were established to focus on real estate matters that include debt negotiation, predatory lending violations, settlements and loan modification. We are here to help stop foreclosure, and fight mortgage fraud.
Credit Default Swaps Incentivize Loan Servicers to Deny Loan Modification Requests
The Credit Default Swap market exploded over the past decade to more than $62 trillion just before the height of the recent financial crisis, according to the International Swaps and Derivatives Association. This is roughly twice the size of the U.S. stock market, which was valued at about $22 billion at the end of 2007, and it far exceeds the $7.1 trillion mortgage market.
What is a credit default swap?
In its simplest form, a credit default swap (CDS) is an insurance-like contract that promises to cover losses on certain securities in the event of a default. A CDS is supposed to operate just like a wind or casualty insurance policy, which protects against losses from high winds and other casualties.
Specifically, CDSs are privately negotiated, bilateral agreements that typically reference debt obligations such as a specific debt security (a “single named product”), a group or index of debt securities (a “basket product”), collateralized loan agreements, collateralized debt obligations or related indexes.
A Typical CDS Transaction
In a CDS transaction, a party, or “protection buyer,” seeks protection against some sort of credit risk. The protection buyer normally makes periodic payments – known as “spreads” – to a counter-party, or “protection seller,” with reference to a specific underlying credit asset (often known as the “reference obligation”). The issuer is known as the “reference entity,” which is often, but not invariably, owned by the protection buyer.
The protection seller typically:
(i) Delivers a payment to the protection buyer upon the occurrence of a default or credit event (often a triggering event that adversely affects the value of the reference obligation and/or the financial health and credit-rating of the “reference entity” or “reference obligor”), and
(ii) Provides collateral to the protection buyer to ensure the protection seller’s performance.
Most CDSs are in the $10-$20 million range with maturities between one and 10 years, according to the Federal Reserve Bank of Atlanta.
If a default or credit event occurs or the value of collateral provided to the protection buyer by the protection seller is deemed insufficient by the calculation agent (typically the protection buyer), the protection seller must make payments to, or increase the collateral held by, the protection buyer.
Alternatively, in the event that the reference entity defaults on its obligations related to the reference asset, the protection buyer may require the protection seller to purchase the reference asset for face value, or some percentage of face value agreed upon in the CDS agreement, less the market value of the security.
RMBS Servicers & Affiliates Buy CDS
CDSs not only impacted the securitization market on Wall Street and financial centers around the world, but also homeowners across the country that have been contemplating or seeking to obtain a loan modification. Before exploring the impact that CDSs may have on homeowners or their ability or inability to obtain a loan modification, as the case may be, this article shall first discuss the major players involved in the CDS market. This is important as most of the CDS market participants are also directly or indirectly involved with servicing of securitized residential mortgage backed securities (RMBS).
Major League CDS Players
Only a handful of the biggest and most elite financial institutions in our global financial village are engaged in the credit default swaps market. Federal law limits those who may participate in the CDS market to “eligible contract participants,” which are defined as and include institutional investors, financial institutions, insurance companies, registered investment companies, corporations, partnerships, trusts and other similar entities with assets exceeding $1 million, or individuals with total assets exceeding $10 million.
It should come as no surprise then that commercial banks are among the most active in the CDS market, with the top 25 banks holding more than $13 trillion in CDSs. According to the Office of the Comptroller of the Currency (OCC), these banks acted as either the insured or insurer at the end of the third quarter of 2007. JP Morgan Chase, Citibank, Bank of America and Wachovia were ranked among the top four most active commercial banks.
These banks also, directly or indirectly, serve in the capacity as mortgage loan servicers of residential loans, which are charged with the responsibility of collecting, monitoring and reporting loan payments, handling property tax, insurance escrows and late payments, foreclosing on defaulted loans and remitting payments.
Pooling and Servicing Agreements Restrict RMBS Servicers from Offering Loan Modification Agreements
The RMBS servicer’s ability to negotiate a workout is subject to a number of constraints, most notably the pooling and servicing agreement (PSA). Some PSAs impose a flat prohibition on loan modifications. Numerous other PSAs do permit loan modifications, but only when they are in the best interest of investors. In such cases, the RMBS servicer’s latitude to negotiate a loan modification depends on the PSA. Some PSAs permit modification of all loans in the loan pool, while others limit modifications to five percent (5%) of the loan pool (either in term of number of loans or aggregate gross loan amount).
PSAs often include various and sundry restrictions on loan modifications, including, for example, mandatory modification trial periods, specific resolution procedures, caps on interest rate reductions, restrictions on the types of eligible loans and limits on the number of modifications in any year.
The PSA is not the only limitation on the loan servicer’s ability to enter into a “workout.” For instance, sometimes the servicer needs to get permission for the workout of a delinquent loan from a multitude of parties, including the trustee for the securitized trust, the bond insurers, the rating agencies who originally rated the bond offering, and possibly the investors themselves (“Barclay’s Capital Research” 11). Thus, when the servicer of a pool of RMBS requires authorization to exceed the limits on its loan modification discretion, according to the PSA, the modification is generally neither cost-effective nor practically possible for the servicer to obtain the myriad of needed consents, especially for one loan amidst a huge pool of securitized loans. As a result, the request for a loan modification is summarily denied without even considering the factual underpinnings of the request or the dire circumstances the borrower’s are currently fighting to survive. This is shameful.
Other Impediments to Loan Modifications: The CDS Profit Motive
As discussed above, a loan servicer might rebuff loan workout attempts because the applicable PSA forbids workouts. In addition, when a borrower becomes delinquent on his/her mortgage payments, the loan servicer may have to advance all the missed payments to investors — in excess of its spread account. This is not a savory solution to the servicer.
Further, a loan modification might trigger “recourse obligations” by the lender where the servicer is an affiliate of that lender. The loan servicer may not be able to recoup the added, labor intensive costs of negotiating a loan modification (either because the loan size is too small or the servicer is paid on a fixed-fee schedule). Finally, the servicer may deny a borrower’s request for a loan modification simply because it bought CDS protection against a default and would probably only profit from the CDS if foreclosure proceedings were filed. (See, e.g., Credit Suisse (2007); FitchRatings (2007a, p. 3); International Monetary Fund (2007, p. 47); J.P. Morgan Securities Inc. (2007, pp. 3-4)).
RMBS Servicers Hit Pay Dirt When Foreclosure Proceedings Commence
Although seldom reported, RMBS loan servicers have and will continue to strategically employ CDSs to protect against loan defaults, usually to the detriment of borrowers seeking loan modifications. In some cases, the RMBS loan servicer bets against itself or the pool of loans they are servicing by purchasing a credit default swap on the pool of RMBS that it services. These CDSs only pay off when the servicer files a foreclosure complaint. (See Patricia A. McCoy & Elizabeth Renuart, The Legal Infrastructure of Subprime and Nontraditional Home Mortgages 36 (2008), available at http://www.jchs.harvard.edu/publications/finance/understanding_consumer_credit.) As a result, loan servicers, blinded by their desire to bolster their returns by cashing in on their CDSs, fail to hear the pleas of distressed homeowners who desperately request loan modifications, even when loss mitigation strategies, such as refinancing the loan, selling the home or accepting a deed in lieu of foreclosure, are economically viable.
Given these and many other impediments, it is no surprise that few loan modifications are actually offered, let alone accepted. This helps explain why the Special Inspector General for the Troubled Asset Relief Program called HAMP’s failures “devastating” in its report.
Conclusion
Until servicers face large and significant costs for failing to make loan modifications or until they are actually at risk of losing money if they fail to make modifications, no incentive to make modifications will work. What is lacking in the system is not a carrot; what is lacking is a stick, according to a statement by Russ Feingold, Member, Senate Committee on the Judiciary during a Hearing Before the S. Comm. on the Judiciary, 110th Cong., 2nd Sess. (Nov. 19, 2008). Senator Feinggold said “One thing that I think is not well understood is that because of the complex structure of these securitized mortgages that are at the root of the financial calamity the nation finds itself in, voluntary programs to readjust mortgages may simply be doomed to failure.”