Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

There have been several newspaper articles in the past month criticizing the HAMP mortgage modification program. I read an article stating that only twenty five percent of HAMP applicants achieve permanent mortgage modifications. Some politicians have expressed that HAMP should be terminated nationally. To be fair, some people have greatly benefitted from a HAMP mortgage modification.

One couple I know achieved a significant permanent modification of their mortgage with a large mortgage bank. About a year after the initial modification, the bank sent them an unsolicited letter inviting them to apply for a second modification. The bank said that the decrease in household income the couple experienced after the first modification might qualify them for more modifications. They applied, and it worked.

The second mortgage modification included a further reduction in the monthly payment and a seventy five thousand dollar principal reduction. If the couple made timely payments of their mortgage payments for three years the bank would permanently write off $75,000 from their mortgage. The reduced mortgage payment would be less than this couples original purchase mortgage. What the bank was doing was eliminating all the deferred interest, fees, and cost which had been added to the mortgage principal because of late payments and the initial modification plan.

Have hope. Mortgage modification is very difficult, but it is possible.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Many homeowners with upside down mortgages have told me they are seeking a mortgage modification in order to lower their monthly mortgage payments. Under the government’s HAMP program, mortgage modification usually involves lowering the interest rate to 2 % intially and adding deferred interest and past-due payments to the loan principal.  

I find that most people do not comprehend the practical reality of a mortgage modification. If you continue to live in a currently upside down house with a modified mortgage payment you are essentially renting the property from the lender. You are renting because it is unlikely you will see any profit when the house is sold unless there is an explosive recovery in real estate value. Even if real estate values were to inflate at a 10% annual rate very few people will break even on their modified mortgage because the deferred interest and arrearage is continuously increasing the mortgage balance.

“Renting” through a modification still makes business sense for homeowner and lender. If the homeowner did not modify the mortgage payment and could not afford to pay the mortgage the homeowner would face foreclosure, and after foreclosure the owner would have to rent an apartment or rent someone else’s home. It will take several years before the homeowner will qualify for a new home mortgage. From the lender’s standpoint, permitting the current homeowner to remain in the property in what is effectively a rental status is better than taking back the property in today’s real estate market.

To be clear, I am not criticizing mortgage modifications. If you like your home and want to live in your home then you should modify the mortgage payment to something you can afford. Just be aware the for practical purposes you are on the same position as a tenant because you it is very unlikely that you will retain any  home equity.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

To date, mortgage modification when available involved lowering interest rates and deferring arrearage in order to lower monthly payments but without any reduction of principal toward current market value. Soon, many homeowners will find their mortgage lenders willing to reduce principal balance as part of mortgage modification. The government’s mortgage modification program known as HAMP (Home Affordable Modification Program) issued a Supplemental Directive 10-5 which encourages lenders to offer principal reduction to underwater homeowners. The Directive is effective October, 2010.

Supplemental Directive 10-5 states theat mortgage lenders must evaluate any loans being considered for mortgage modification using an alternative analysis which reduces unpaid principal to a level that helps the homeowner achieve the target monthly payment of 31% of gross monthly income. Principal can be reduced until the loan balance is 115% of current market value.

Mortgage lenders must consider modification of loans on primary residences for people 60 days delinquent in mortgage payments. It helps to understand the guidelines before discussing mortgage modification with your mortgage lender. The HAMP program rules are available on the internet. If you cannot understand the HAMP guidelines you should get help from someone in the real estate business who does understand.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

One of my asset protection client introduced me to an attorney in Tampa, named Mike, who has a very large and successful practice defending mortgage foreclosures and negotiating mortgage modification. I spoke with Mike and asked him about his client’s experiences during court-ordered mediation with their mortgage lender during foreclosure litigation.

Mike said that mediation in state court proceedings is usually a waste of time for his clients. He listed several reasons why foreclosure mediation infrequently results in successful mortgage modification and foreclosure forbearance. For example, he said that there are so many foreclosure mediation that lenders usually send a foreclosure "clerk" with minimal authority to offer anything other than the lenders "in-the-box" standard modification packages for which, he said, few clients qualify. He said that the lender’s attorney see mediation as a temporary hurdle in their march toward foreclosure judgment and possession of the property. There are so many different state court judges with their own procedures that there is little uniformity how trial court’s treat mediation.

Mike said he is having success in mediation ordered by the appellate court. When an appeal is filed our appellate court (the Fifth District Court) orders almost all foreclosure cases to mediation. No briefs are due until mediation is completed. The attorney says lenders send more senior representatives to appellate mediation and they take more seriously mortgage mediation ordered by an appellate court. Appellate mediation is uniform because there is just one appellate court in our district.

The challenge is getting a foreclosure case to the appellate level. Mike lays the groundwork for appeal in response to lenders’ motions for summary judgment. He says that most trial courts ignore technical defects in lenders’ summary judgment motions because the trial judge wants to move his large foreclosure docket and get cases to their inevitable conclusion of a foreclosure judgment. Trial judges do not scrutinize foreclosure summary judgments as closely as they do in a typical civil case, according to Mike. Mike says that he uses technical summary judgment defenses which he anticipates may be overlooked by the trial court judge, but these technical defenses if ignored are the basis for an appeal. His clients can file and appeal and get to appellate mediation for a relatively small investment in legal fees.

I posted a blog article earlier this week about prospective bankruptcy court mediation in Chapter 13 cases. It will be interesting to see if bankruptcy mediation is, like appellate mediation, a better forum to negotiate mortgage modifications.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Why won't my mortgage company offer me a reasonable mortgage modification? Why would they choose to foreclose when with just a little help I can pay the mortgage. These are questions I hear all the time from clients concerned about deficiency liability following a prospective mortgage foreclosure.

I usually advise the questioners that their mortgage lender will not agree to a workable mortgage modification (despite Washington's modification program) because the mortgage service company is not able to provide a reasonable modification or its not in their self-interest to modify.
I saw a blog post from bankruptcy attorney Craig Andresen that sheds some light on the modification problem. He writes:

None of the sources referred to here discussed what could be the real reason for the astonishingly small number of modified mortgages: most mortgages owed on the homes of American consumers are owned by securitized trusts. The trustees of these trusts may lack the authority to compromise on the amounts due under the terms of the mortgages. Having no authority to modify these mortgages, none are being modified. Instead, meaningless "trial modifications" are being offered as window dressing. Thankfully, the real story is beginning to emerge

This make sense. Borrowers should keep in mind that the mortgage industry build a very complicated "house of cards." A result of the complicated financial structure is that is difficult for the lenders to focus on one mortgage at a time and make unique settlement modifications based on the facts of each borrower's circumstances. I've been told by attorneys representing the lenders in foreclosure suits that their biggest frustration is finding people working for their own clients with authority to approve settlements. Mr Andresen's blog post is consistent with my clients' experiences.

• Email This
• Print
• Comments
• Share Link