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Unable To Refinance? I Have Two Words For You...

By Marie Wright

Mortgage and Lending with Florida Energy and Air Services

November 03, 2007 04:10 AM

If you are currently in an adjustable rate mortgage that is going to adjust in the next 16 months then you may be a candidate for loan modification. Loan modification is being used increasingly by lenders to help people stay in their homes. Believe it or not lenders do not want to take your home from you. There are whole areas of the country blighted by the foreclosures happening in their neighborhoods affecting values and the ability of people to relocate, upgrade or downsize their home.

Loan modification accomplishes several things for the homeowner and the lender at the same time. For the homeowner the cost of refinancing no longer is in the picture, which saves from adding to the balance of the mortgage. The homeowner doesn't have to worry about qualifying in today's tougher standards and additionally the homeowner doesn't have to worry about getting an even higher interest rate than they currently have. For the lender the obvious is they are no longer in the homeownership arena. And secondly they get to continue the relationship with the homeowner which keeps the loan preforming and keeps the board and shareholders of the lender happy.

There are certain criteria you must qualify for to know if loan modification is right for you. The lender will ask for paystubs, bank statements, reason behind the modification and affirmation from the homeowner that they can and will continue paying the mortgage. The reason for these items are for the lender to make sure your financial situation has not drastically changed and you do have the ability to continue paying.

First, what is loan modification?

A loan modification can accomplish changing the terms of the original Loan agreement (mortgage or note) by either extending the term of the loan and/or reducing the interest rate whereby the monthly payments go down.

You are eligible for mortgage modification if you are currently in an adjustable rate mortgage that will soon have it's first adjustment and you have either little to no equity and therefore are not eligible to refinance. In this case a fixed rate at a lower interest rate would be requested of the lender for the modification.

You are also eligible for a mortgage modification if you are currently in an adjustable rate mortgage and you are currently late, usually running 30 day lates, and are unable to refinance due to the mortgage lates.

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Art Blanchet

On the Outside Lookin' In - Sebastian, FL

Stranger in a Warm Land

Marie - Great point! My question - and one for future radio shows - how many lenders (specifics would be nice, even if one or two - are promoting and encouraging this practice?

Other than your blog and professional knowledge, how is the word getting out? Is this gaining in popularity or application?

I'd like to learn more - info@yourhome-yourmoney.com is OK to use for responding - or here if you'd like.

Thank you.

Art

Nov 03, 2007 04:24 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

Thanks Art,

Actually, this is a rumbling I have been hearing on the mortgage boards and I have now seen it in action. It goes together with mortgage foreclosure work out plans. I have a realtor I do business with that had some deals fall apart due to apprasial issues and was slowly falling behind on his mortgage, both his primary and non owner occ. I had been discussing with him that he needed to get on the phone with loss mitigation as his adjustable is about to reset in January.

Now he is the proactive type so he did this himself, others that are not this inclined can usually find a professional whether it be a realtor or mortgage broker and get it done. The loan he has his primary with is being serviced by Litton Loan Servicng. They are a huge servicer of loans. He was already 30 days down when he called. He agreed to make the one payment that was past due, they inturn moved his payment date to the end of the month and took the second payment that was due and divided it up over the next twelve months. He was informed that he should call back two weeks later, when it is November, and they will finish this process by modifiying the loan so that he does not have to worry about refinancing or the rate adjusting.

I also have clients that have contacted me that I know the value is not there to refinance so I will be helping them with the modification. I will let you know how it goes. These loans are set to reset in December and Januray.

Nov 03, 2007 04:39 AM

Kate Bourland

Marketing with Kate - Redding, CA

Onlilne Marketing Mobile Marketing

Marie, advise your client to be very wary of Litton Loan Services, they have a history of doing bad stuff. I hope that it works out for your client but advise him to put everything in writing to this company.

It's unfortunate that a client has to be 30 days down to apply for a loan modification - in some ways the system is broken. Forbearance is another way to bring back payments current if the client can keep paying the mortgage payment.

Art, from my end, I don't know if there is a record of the investors who are actually completing loan modifications. I read an article a week or so ago that discussed this issue. It was titled the "dirty little secret of the industry." My understanding is that the general rule in the industry is that only 5% of a investors portfolio can be modified. This would suggest that not a whole lot of loans are being modified.

I've heard that while banks talk a big talk for the media, the reality is that not too many loans actually get modified. It would be interesting to find some statistics. I might just nose around over the next week or so and see if I can find any.

Nov 03, 2007 05:43 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

Kate, While it is true that 2-3 years ago Litton was very difficult to deal with in relationship to subordinations and the like. I have found them as of late to be wanting a workout relationship with the clients. I felt that the fact that they were willing at this time to move his payment date and show him current was a huge benefit to him. Forebearance agreements can only do so much for the client and they show on the credit report as behind and making partial payments.

If the lenders are willing and able to move payment dates and stretch a missed payment over months and not show the client as a continual 30 day late just one 30 day late that benefits everyone.

I would be interested in what you find in relation to the 5% being allowed for modifications. As far as economics and keeping shareholders happy that just doesn't seem a likely number. Why would the banks opt for REO's that they now have to bundle into huge packages and sell on the market for .50 cents on the dollar when they can continue with the revenue stream from the client and not have these huge writeoffs. The ceo of Merrill Lynch and probably now the CEO of Citi can attest to this. In addition CW is now making a concerted effort to contact their clients in pay option arms and put modification plans into effect.

I am seeing on many lenders websites areas dedicated to modification and workout plans. It makes sense it will help to stop the blood shed going on in the streets.

Nov 03, 2007 06:15 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

And I'm sorry just to clarify yes everything must always be put in writing. For the lenders benefit and the clients. The lender will require the necessary documentation for the modification, including the hardship letter. And the client will need a recording of the modification for their specific county/state.

Nov 03, 2007 06:49 AM

Kate Bourland

Marketing with Kate - Redding, CA

Onlilne Marketing Mobile Marketing

Marie, it's good to hear that Litton has finally come around. They have a bad reputation.

I agree with you regarding it not making sense that investors not be willing to save the investment. I'll search my e-mail for the link to the article and post it if I find it. The gist of the article was that in many instances investors would rather have the cash from the quick sale of foreclosed properties due to decreased cash flow from late payments over all. It was just one piece of the information swirling around the mortgage world at the moment.

Nov 03, 2007 08:05 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

Kate, I definitely agree with you that there will be lenders that are not willing to modify. One that comes to mind is World/Wachovia. I have seen them refuse to modify, but then again they have always been lower with their appraisals, hold all their loans and generally very good at deciding which loans they will take on.

I think were the modification will be successful is when the loan has a servicer. The servicer obviously has a vested interest in keeping the cash flow going form the payments obviously a huge influx of REO's would cripple a servicer. Ocwen is one I can think of since they were one of the servicers of last resort. They usually took on the loans that weren't perfomimg well or were anticipated to not perform well.

I'd be interested in that email as well. Let me know.

Thanks

Nov 04, 2007 04:04 AM

Bill Baptista

Columbus, OH

Marie,

Thanks for the very informative blog. I have applied what you've recommended and have been able to help clients do a payment modification with Litton Loan Servicing and Specialized Loan Servicing specifically. Both REP's from these lenders said they want to hear from people in trouble with their payments to know that they are still living there for one thing and want to stay and work out a plan that all parties are happy with. They do not want to be in the business of REO properties and end up getting 50-60% of they value if and when it sells 6-12 months from now when they can keep the clients in their home and keep another loan from going bad. This keeps the foreclosure rate down, the prices in many subdivisions from tanking due to low priced foreclosure sales and everyone is happy.

Now, we as agents need to get this word out to clients and help them stay in their homes for their sake and ours as this is a great way for referrals down the road for us too.

Thanks Marie

Nov 05, 2007 02:56 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

Thanks Bill,

I'm glad to see you put it to action for your clients. I think sometimes we in the real estate world don't see the bigger picture. It's not about the commission now or the refinance. It's about providing a service for the benefit of the client and retaining them as life clients.

Glad to here Litton again and I have not heard of Specialized loan service. Let me know if you get any more willing to modifiy.

Nov 05, 2007 03:03 AM

Andrew Poletto

RealMortgageTraining.com - Englewood, FL

Great posts and responses. One thing I have to disagree on is the World/Wachovia modification. Let me take that back, I can't speak about Wachovia, but World has done quite a bit of modifications in the last year or so, including my own personal mortgage. I know World and Wachovia are the same now, but a few months back, they were still operating separately and World was a breeze to work with.

Yes, their appraisals may be a bit different than most others, but that's another issue all together. Their modification choices were extremely fair and easy to understand. The only thing was they tacked on 1 extra year for the pre-pay feature. If you were staying in your home or had it rented out, this was a total no brainer, IMHO.

Now, Wachovia? Ummmm, no comment. From what I know, they are taking what World Savings had built a strong portfolio with and tearing it apart. I've worked with sever Wach Mortgage folks and, product knowlege wise, it was not impressive what so ever. Again, that's a whole other story.

Nov 06, 2007 04:24 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

Andrew,

Thanks for your comments. Good to know about World I am getting ready to contact them about modifiying for a client. When I had tried a few months ago they were not very forthcoming.

More people need to get on this and stop these foreclosures and get these people to stay in their homes, this market will turn sooner if the bleeding stops. Homeowners need to be educated and get educated on ALL the avenues they have to staying in their homes.

As for Wachovia, I defintely agree it's a revolving door.

Nov 06, 2007 04:42 AM

Andrew Poletto

RealMortgageTraining.com - Englewood, FL

Don't be so sure World can help you now. They are under the Wach-rule now. Wachovia calls ALL the shots with World stuff now. I wish you the best and I'll cross my fingers for you.

Nov 06, 2007 07:49 AM

Bill Baptista

Columbus, OH

Yes Marie, let me know how you make out with your World client. If it goes well for you maybe I'll refer to you a client I have with them.

Nov 06, 2007 11:16 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

Andrew - thanks for your comments. I'll let you know how it goes with World.

Bill - thank you to you as well and definitely I will let you know what happens with World. It is important to help our clients now to keep their homes. This is just a small part of the equation that will help this market.

Nov 06, 2007 11:23 AM

Marie Wright

Florida Energy and Air Services - Clearwater, FL

Just giving an update on World and my client. I spoke with World this morning about my client who is currently behind 60 days on his HELOC line of credit. They will do the following for the client. They will not make any accomodations for the second loan as they do not at all modify or mitigate on second loans but they will if the client brings this loan current give him relief on his first mortgage which he has with them.

It is called the skip a pay program and it is for one months payment. They will require that the client call and due a short interview over the phone and then it will be approved his payment is November 12th on his 1st mortgage so it will happen immediately. He will get to skip this payment. If he needs more than one payment it will need to go to review where he may be approved for relief of 1-2 more payments. This is a huge relief for my client and he will be participating in this.

Thanks

Nov 09, 2007 02:16 AM

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