Alabama Consumer Credit Lawyer Judson E. Crump discusses how dumb mortgage servicers can be.
You can do something about it. You must take action as soon as you can if you think that you or someone you love has been ripped off by a loan mod scams. You have rights that you may not even know about.
These scams are all over the place. I’ve seen at least three separate outfits that have tried to screw my clients. Most of them seem to be located in Florida, for some reason, but if they’re doing business here, we can absolutely take them to court here.
Even if they have “successfully” obtained a loan modification for you, they still may be breaking the law and harming you (without your knowledge) by committing bank fraud on your behalf. This is serious stuff. If you’re currently paying monthly fees to a “loan mod specialist” who hasn’t obtained a loan modification for you yet, then you need to stop paying them ASAP and ask for a full and immediate refund.
See, they’re not allowed to charge you a dime up front. And they’re also not allowed to instruct you to quit paying your mortgage.
Please don’t fall for these guys! Some examples I’ve seen that break the MARS rule:
- Ocean Legal Group
- Fresh Start “law firm”
- Pinepoint law group
Notice a pattern? They all pretend to be lawyers, when they’re not.
Answer: Most of them are scams. Here’s how you know: 1) They promise legal advice, or pseudo-legal advice. “Forensic audits” are a big keyword they like to use.
2) They promise to stop a foreclosure without bankruptcy, unless they’re very experienced lawyers located in your county. Why? You can’t stop a foreclosure without a bankruptcy or TRO in Alabama.
3) Up Front fees. Or advising you to quit paying your mortgage company and start paying them instead. Use common sense. Call a real lawyer.
No. Every mortgage company has its own program for administering requests for mortgage modification or hardship assistance, and most mortgages are serviced by a company that participates in the Making Home Affordable Program that was executed by the Obama administration (but actually created by Congress and George W. Bush just before Bush left office). The process is designed to be completely achievable by ordinary people. You just need a bit of time, persistence, and proof of your income and residency.
Of course, if you search Google for ‘professional’ help with loan modification, you’ll see about a hundred different companies that claim to be able to lower your payment, stop foreclosures, reduce your principal balance if you’re underwater, and all sorts of things that they utterly cannot guarantee. You know what those companies can do that you can’t? Absolutely nothing. They aren’t attorneys and they cannot really represent you in any sort of legal or administrative proceeding. All they do is fill out the paperwork that anyone can download from the HAMP website or the mortgage servicer’s own site and get the documents from you and make a few phone calls to the mortgage servicer.
Now don’t get me wrong: I’m all for helping out homeowners who don’t understand the paperwork. And some of these outfits do provide a service. But they charge you wayyy too much for it. Some of them charge as much as $3,000 or $4,000, and they’ll even tell you to pay them instead of your mortgage company.
You could get a real attorney to help you for half that price. Generally, in the initial application stage, there isn’t much an attorney can do for you that you can’t. Having an attorney becomes useful when things go wrong. If, for instance, they say that you make too much money when in fact you sent them a tax return showing that your mortgage payment was over 1/3 of your gross income. Or if you complete all three of your trial period plan payments on time and they still don’t give you a loan modification. Or if they foreclose on you before reviewing your application for loss mitigation options. Or when the mortgage company claims that they “didn’t receive” the required documentation when you know that you’ve sent it to them. These are the things that at attorney can help you with.
The HAMP Program says this about itself:
“The Making Home Affordable Program was announced by the U.S. Department of the Treasury in February 2009 in an effort to help stabilize the housing market and provide relief for struggling homeowners.”
OK, that’s real nice, but how, exactly does it work?
There is a 212 page handbook published by the Treasury that you can download here:
If you don’t have time to read 212 pages of government legalese, here are the basics:
1. If you can’t afford to make your monthly payments (or if you think you’re going to start getting behind on them soon), you send in an application for a loan modification, along with other documents relating to your income, your loan, and the property. The basic application is called an “RMA” (short for “Request for Mortgage Assistance”). And you can download a copy of it here: https://www.hmpadmin.com/portal/programs/docs/hamp_borrower/rma_english.pdf
2. Then the mortgage servicer (the people who collect your payments and send you statements – not necessarily the people who made you the loan or who own your mortgage note) analyzes your application to see if you meet the basic qualifications. The qualifications can vary depending on the policies of the mortgage note owners (usually pools of investors with names like “Ameriquest Mortgage Securities Trust 2006-R7”), but the most prominent program (HAMP Tier 1) requires that you live in the property, that the mortgage payment be more than 31% of your documented gross income, and that you have a stated hardship or expected hardship.
3. If you qualify, then they have to run some math calculations to see how they can reduce your payment to less than 31% of your previous payment amount. This is how the calculation works:
Step 1: Capitalize the bullshit. This is all the random charges like property inspection fees, attorney fees, corporate advances, force-placed insurance premiums, etc. that your mortgage servicer has tacked onto your loan since they got a hold of it. A very large amount of these charges are bogus or excessive, and you should scrutinize every single one of them. The modification process assumes that all outstanding charges are valid and re-capitalizes them. In other words, if you owe $85,000 in principal on your mortgage and they say you owe $10,000 in random crap, then the modification process will basically ‘refinance’ your loan with a new $95,000 principal balance. This is a huge handout to the mortgage servicers because all of their bogus charges and fees magically become legitimate when you agree to the modification.
Step 2. Reduce the interest rate. This step is good for borrowers. The calculation lowers your interest rate point by point until it either a) reaches the target debt-to-income ratio (usually 31%), or b) bottoms out at about 2%. The reduced rate will apply for the first 5 years, then the rate will rise to “market rate” based on the market at the time you get the loan modification. Today, that means about 5%. Pretty good, really.
Step 3. Stretch the loan out a few more years. If reducing the interest rate doesn’t get your payment low enough, then the servicer can extend the term of the loan for up to 40 years. So basically, you’re turning your 30 year mortgage note into a 40+ year mortgage note. This ultimately is a pro-bank provision, because they get to collect more interest. But it still is a good deal for you if its the only way you can afford your home.
Step 4. Defer Principal. This is a consumer-friendly part. If, after going through steps 1, 2, and 3, your payment is still more than 31% DTI (or whatever the target ratio is in your case), they start reducing the amount of principal that gathers interest until they get to the target payment amount. So if your balance is $95,000 and even after reducing the interest to market rate and stretching the loan out to 40 years, they’d have to take interest on only $80,000 of the balance in order to get your payment low enough, then that’s what they do. What about the rest? It gets “deferred” – which basically means that you owe it at the end of the loan – either as a balloon payment (if you live long enough to pay it all off) or it has to be paid whenever you sell or refinance the property.
Step 5. NPV Test. Once they’ve figured out what it would take to get your payment to the required level, they do a “Net Present Value” test – a test that determines if the bank will make more money by giving you the loan mod or just foreclosing. This test takes into account your credit score (the likelihood of you paying back the loan), the property value, and other things to help the servicer figure out if modifying your loan is a winning or losing proposition. If you are “NPV positive” – meaning that giving you a loan mod will make you more money – then they have to offer you a modification.
Step 6. Trial Period Plan. Once the computers have decided that you qualify, then they offer you a trial period plan – basically they give you 3 months during which you can make your modified payment, rather than your previous payment. If you make all three of these payments on time, they have to give you a permanent modification. Yes, they have to. If they don’t, give me a call, and we’ll fix it.
Step 7. Permanent Modification. Once completed your trial payments, they offer you a permanent modification, which you can either accept or reject. If its a better deal for you, take it. If not, reject it.
Long story short, you can get a really good deal through the HAMP program, but it isn’t all about helping homeowners. The banks not only are protected from unwanted losses, but they also get direct cash payments from the government for offering you a successful modification.