Who's Gonna Bailout the Homeowner?

Who's Gonna Bailout the Homeowner?
Bailout after Bailout
Earlier this month, I was hopeful that the bailout legislation would be revised to directly help homeowners and not just banks. Didn't happen. The bailout as it was passed will not stop foreclosures, and as you can tell, I do not have much faith in our government's ability to fix things overnight. In fact, Bush himself says that will take some time to figure out how to resolve our credit crisis. Unfortunately, for most delinquent homeowners, there is not much time left. After missing one mortgage payment, it takes only 6 months for a lender to foreclose on a home.

SO WHAT NOW?

For homeowners, there is "hope" as it is sold. There's the HOPE for homeowners program. There's the Hope hotline or HOPE Now Alliance. Countrywide has a Hope Department for deliquent borrowers. Is it real hope or just a government campaign to boost confidence in times of dire straits? Honestly, I think it's a little bit of both. Obviously, the government does not want you to give up hope so you'll continue paying on your mortgages, but there are very promising programs either in effect or being discussed by lenders now that will make your payments more affordable. In this article, I'll make an attempt to explain what can be done sooner rather than later, for the delinquent and/or upside-down homeowner, based on loss mitigation programs offered by these lenders.

FHA Bailout a.k.a HOPE for Homeowner's Program

I've reviewed this in depth in my previous FHA bailout update, but in short, it gives seriously delinquent homeowners a chance to refinance at a reduced loan balance, equal to present market value minus another 10%. The idea is to give homeowners, who are near foreclosure, real incentive to stay in their homes by lowering their payments and giving them back some lost equity. The catch is that 1) the current lender MUST AGREE to the write-down at their option only; 2) all subordinate liens (2nds or 3rds) on the subject property must be non-existent; 3) you must own only ONE home; 4) you cannot make too much money but still enough to make the new loan payment; 5) you must agree to share equity with the government if you later sell or refinance; and 6) you must not have intentionally gone late to qualify for the program. I receive an unbelievable number of calls about this program, and as of 10/07/2008, it is still not available on the wholesale mortgage level. As with any new programs, it may take yet another several weeks for banks to train loan staff, program automated systems, and release underwriting guidelines. More importantly, no one lender wants to be the first to offer such a risky loan product, in terms of the complexity involved with this short refinance transaction. Official information on the HOPE for Homeowners program can be found at FHA.gov. Even there, you'll see that FHA has not yet published a list of participating lenders, although the program was effective October 1st. If you think you qualify for this program, please email me directly at randymiguel@gmail.com, and I'll reply once it becomes available. If I already have your email address, you can expect to receive a follow-up announcement the same day I receive the broker alert to begin submitting applications.

Remember, the primary take away here is that your lender MUST AGREE to accept less than what they are presently owed. And if you have a 2nd equityline of credit or equity loan, that lender MUST ALSO AGREE to completely forgive that debt. Very soon, I'll be directly negotiating with lenders to convince them that taking the write down makes more financial sense than foreclosure. However, you must understand that as of right now, there is no incentive for banks to accept this lesser amount other than the tax write off and to cut their losses short. Like I've mentioned before, short sales are no different in net payoff to the lender, besides the fact that the borrower remains in the home. So it should be a no brainer to the lender then, that they should accept FHA bailout loans in any case where the borrower qualifies. Unfortunately, they [lenders] haven't learned to put 2 and 2 together, and it's my job to teach them how to add.

One possible draw back to the $700B bailout of banks, is that the Feds are now offering to buy up a significant amount of bad debt. Considering delinquent mortgages are classified as bad debt, why would banks agree to a balance write down if they can sell your loan to the Feds instead? Will the Feds then modify your loan? Quite possibly. In fact, I read verbage in the bailout plan that stated the government's ability to modify the acquired loans. Perhaps they [the Feds] will then approve you for the FHA bailout program after acquiring the debt from your bank. It will be interesting to find out what the impact of the $700B bailout will have on the FHA bailout, and banks' willingness to accept short payoffs through the HOPE for Homeowners program. Because there is presently little incentive for banks to participate, likely candidates will be homeowners who are in clear and imminent danger of foreclosure if the lender decides to do nothing. In the near future, I'll make certain to keep you posted with my successes and failures in negotiating these loans. Again, I'd be happy to assess your situation if you think you might be a strong candidate.

Countrywide (Bank of America) Bailout

Yesterday 10/06/2008, Bank of America announced their "Home Ownership Retention Program for Countrywide Customers." This plan was actually forced as a settlement to predatory lending lawsuits filed against Countrywide. Even if you do not have a Countrywide loan, please continue reading as this may set a precendent for other banks with severely delinquent loans in their portfolios - which is pretty much all of them. The program allocates $8.7 billion for nationwide relief, where $3.5 billion is slated for California alone. 400,000 loans will be examined across the nation, assuming all eligible borrowers participate for possible relief. Bank of America has acknowledged that they may also require the cooperation of investors, who own the loans through mortgage securities. This creates a problem, since Bank of America may not be the sole decision maker on the workout. All troubled homeowners with Countrywide mortgages should inquire with the lender or seek professional assistance for negotiation. Program highlights include complete suspension of foreclosure, reduced rates as low as 2.5%, and principal balance reductions for certain borrowers. How do you become one of the select borrowers to receive a balance reduction over a reduced rate? You may want to take a proactive approach rather than passively wait for a letter in the mail. As with the pending FHA bailout, I'll soon be negotiating terms for this Bank of America bailout as well. Please contact me if you would like to be informed as soon as this program becomes available.

IndyMac Bailout

The Federal Deposit Insurance Corp. is now renegotiating loans that were acquired from the now defunct IndyMac Bank. Likewise, it has announced a similar program to modify loans that were originated by the failed lender. When entering into negotiations with IndyMac, FDIC will ultimately make a decision on your loan modification claim. IndyMac customers have an advantage in negotiation, as their loans are not owned by investors with an eye towards profits. Although the federal government will also make money on its loans, it may be more likely to produce a favorable workout since it secured its loan portfolio for pennies on the dollar. Make certain that your loan modification package is prepared by someone who thoroughly understands your situation and who has the ability to effectively communicate your situation to the FDIC.

Washington Mutual (JPMorgan Chase) Bailout

Be aware of ongoing bank mergers and takeovers. Troubled Washington Mutual customers can expect that JPMorgan will soon address their newly acquired mortgage holdings. In fact, the company expects to write down more than $30 billion in loans. Existing WAMU borrowers should hang tight, in anticipation that more favorable workout solutions will be made available in the coming weeks.

Wachovia (Citi or Wells?) Bailout

Yesterday 10/06/2008, Citigroup sued Wells Fargo over its recent merger agreement with Wachovia. No matter the result, Wachovia (and ex-World Savings) customers can expect similar workout programs to be enacted by the new owning bank. If you presently hold a Wachovia loan, and are now in default, you will want to make contact with the lender to prevent your home from foreclosure, but maybe not be so quick to demand a loan modification. Once the acquisition is complete, it will not be long before a real modification program is put in place. Due to the pending merger, you can expect interim workouts to offer little homeowner benefit, as there is limited authority to modify the loan in the borrower's favor. Bottom-line, present Wachovia management has little say so when approving a loss. If you can, wait for the real decision makers to settle your loan. Ultimately, the new Wachovia owner may follow Bank of America's lead in writing down loan balances rather than offering temporary payment relief.

Direct Lender Negotiation

If your loan is held by another lender that was not mentioned here, or if it is managed by an unknown servicing company, you may indirectly benefit by the aggressive actions of the government and other major banks, because this is a "follow-me" industry. Financial institutions know what needs to be done to fix our housing crisis, but no lender wants to go first. Banks do not want to see their investors flee as they become known for settling on their bad debt. Even worse, they do not want to be sued by their investors for settling on their bad debt. Sadly, it took class action lawsuits to persuade Countrywide to take an aggresive action in loan workouts. Very soon, you'll hear about balance write-down modifications that were previously not considered for Countrywide customers. These write downs will echo throughout the industry. And hopefully, banks that are now standing on the sidelines for short refinances and write-downs will soon follow suit as they become the acceptable norm. In the meantime, enter into loan modification negotiations with your lender if you can present a clear and imminent threat of foreclosure, AND if you can prove that threat will be extinguished if a modification agreement is reached. But do so with caution, because you might accept a temporary workout agreement in haste, when a more favorable resolution may be right around the corner.

As always, feel free to email me with questions or concerns about your specific situation. I'd be glad to help.
-Randy Miguel