ILL, ILLITERATE & Seeking Help on Note Modification

WE GOT A MORTAGE ,BECAUSE WE WERE IN A SITUATION THAT WE WERE NEEDING HELP BAD, DUE TO ILLNESS (MY HUSBAND HAD HAS 2 CANCER SURGERIES) . WE DID NOT WANT TO LOOSE OUR HOME WE HAD WORKED SO LONG FOR, SO WE ACCEPTED THE MORTAGE. AT THE TIME, WE WERE SO DESPERATE TO SAVE OUR HOME, WE SIGNED THE PAPERS. NOW WE LEARN THAT 100% OF ALL MONEY PAID IS ON INTEREST ONLY. NONE OF THIS IS APPLYING TO THE PRINCIPAL OF THE LOAN. MY HUSBAND CAN NOT READ OR WRITE VERY WELL, AND THE BANK MANAGER EXPLAINED THE LOAN TO HIM, BUT I SOMEHOW BELIEVE WE ARE BEING MIS LED. PLEASE HELP US, TO SAVE OUR HOME, AND EXPAIN WHAT WE CAN DO TO FIX THIS. WE ARE ON A VERY SMALL INCOME, AND WANT TO KEEP OUR HOME THANK YOU VERY MUCH

Hello,

I am so sorry to hear about your husband's illness. I hope that his surgeries were a success and that he is well again! I am concerned that your husband signed documents without the assistance of a literate advocate. This is something that you may want to share with a professional loss mitigation company (there are thousands of them: google one in your area). Be careful, however, and do not pay anything upfront. Most are working on a success fee now. In other words, they do not get paid unless they successfully negotiate your loan. MAKE SURE TO MENTION THE CIRCUMSTANCES AND THAT YOUR HUSBAND IS ILLITERATE!!!! Lenders are not the bad guys they are made out to be. They will likely assist you in some manner: lower rate, longer repayment terms, both, etc. Review some of the blogs in the past on this site. You may find some helpful insight.

MortgageMaster

Debt Forgiveness For Those With Severe Medical Costs

Hi,

Do mortgage companies ever forgive an entire home loan debt ($102,000.00) because of medical reasons? I ask because of severe health problems in my family and medical bills we can't get on top of, even with our credit card. Mr. Warren Buffet recently paid off our credit card and a home equity loan because of our need. But our house payment is nearly half of our monthly income. (We are living on Social Security Disability). Thanks,

Denise


Dear Denise,

Please forgive my more-than-tardy reply: This e-mail was lost in my e-mail files!

I am really very sorry to hear about your medical issues. I hope everything turns out well. To answer your question, simply: It is up to the lender. The fact is that if you are behind, you have several options for a loan modification: lower rate, longer term, a combo, etc. Lowering the principal is certainly not unheard of, but much less common...even in these crazy times. Given your circumstances and the likelihood of some media attention that you received re: Mr. Buffet's generosity, you may be able to get the lender to help. Even if the lender extended your term and lowered your rate, you would be better off than you are now. Just remember, you get more with honey than you do with vinegar. In other words, the lenders want to help. They do not like to be yelled at or assaulted. This is not advice directed specifically at you, but at all those who are looking for loan modifications. Good luck!

MortgageMaster

I Am Paying Too Much Toward Interest!

Good day,

I have concerns that my financial institution (RBC) has made too much money from the interest off my mortgage (You and me both, brother, you and me both!) and I should be able to negotiate terms in lowering my interest rate or at the very most pay principal only (not likely). You may be able to negotiate terms, but it will likely result only from being delinquency on your part. Unfair, I know, but it is the way things are right now.

I’ve lived at my residence for just over 11 years. I originally borrowed $85,000 to buy it.The home was built in 1901 and has had significant upgrades, but marketable for about $90,000.I have re-mortgaged twice, once in 2002 when the balance I believe was around $77,000 for $104,000 to consolidate debt, go back to school and another time in 2007 for the amount owed then, approx. $89,000.I still owe $87,000 on the house and over the course of 11 years I have given the bank approx. $88,530 total principal and interest. I do know that since I have re-mortgaged a couple times, I would have to “bight the bullet” about the amount of dollars paid.But is there rules a bank must follow in order to not take advantage of a client who has obviously paid into a mortgage enough? I know it sucks, but mortgages are "front-loaded" regarding interest. In other words, the VAST majority of your payments will go to interest for the first many years. It is only in the last ten years that you really clobber the principal! Thus, by refinancing as you have, twice, you keep starting the "interest-clock" ticking! The bank is following rules as allowed and as drawn-up in your mortgage note. Do not feel as though you are a "sucker", your mortgage is not likely any different than all the other mortgages out there. I have 148 months remaining on my term at a monthly payment of $769 equalling an additional $113,812 to the already $88,530 totalling $202,342 for a $90,000 home. I truly don’t see the cost advantage. There is not cost advantage, per say. The advantage is in tax deductions and appreciation of value: I do not know the present value, but it is likely to be substantially higher in 148 months. In the meantime, you are also writing off the interest. Home ownership is still a great investment OVER THE LONG RUN! What can I do? Please help any advice is greatly appreciated. Apply extra toward the principal every month or make an extra payment every year. This will reduce the amount to be paid and the time that you continue to make payments. Good luck!

Thanks kindly, Mark

Mis-applied Check?

MortgageMaster,

My homeowners sent me a check for damages to my home, which I sent to my morgage Bank to endorse and return. This was in Sept. all repairs have been completed, I can not get my morgage company to reimburse me for repairs to my home. I think there is federal regulations ,that a morgage company can only hold your insurance check for a certain lenght of time.Please let me know this ruling from the Federal Government.thanks

Hello,

I am not familiar with the regulation that you are writing about. As far as I know, HOA's are regulated by the state(s) they are located and/or operating in. This is also true of mortgage lenders. Thus, I would contact the appropriate state or federal agency to get the correct answer. Based on your e-mail address and a little "googling" on my part, I think you are in California. It does not sound as though you need help with the HOA, but rather, the lender. Lenders can be regulated by a bevy a different organizations. In California it can be California Department of Corporations, FDIC, California Department of Financial Institutions, California Department of Real Estate, etc.

The first thing I would do is look at your October statement and see if the endorsed check was applied as a payment to your mortgage. If so, ask a supervisor to void the transaction and send you a check (you may need to prove the work has been satisfactorily completed). If not applied to your mortgage, where was the money applied (assuming the check was cashed?: Check with the HOA)? If the check was cashed, you are entitle to know where it was applied. It sounds as though there is more of a lack of communication than something nefarious. If the check was not cashed, you are back in the driver's seat. Good luck!

MortgageMaster

Spousal Abandonment: Who Pays The Mortgage?

Dear MortgageMaster,

My (ex) wife and myself have joint names on mortgage agreements some 3 plus years ago. She has left the marriage with no apparentintent on paying her share of payments. She has departed to the Mid West states (U.S.) Kansas City, MO. Before she left she told me if I was to sell her assets, and property she wanted half of profits. When she departed the mortgage owing was $ 90,000 with total debts ( matrimonial ) over $ 25,000.Are there laws in N.S. concerning abandonment of marriage, especially, concerning debts incurred since marriage.

Dear Sir,

I am sorry to hear about your sad turn of events. Unfortunately, I have absolutely no knowledge of Canadian law. Even in the U.S., the laws from state to state differ regarding mortgage obligations. In California, for example, whoever signs the mortgage paperwork as a borrower is responsible for the mortgage, regardless of changes in marital status. You need to speak to an attorney. Sorry I could not help!

MortgageMaster

Can I Pay 1/2 My Mortgage Payment Twice Per Month?

Dear MortgageMaster,

I have spent the last 6 months splitting my mortage payment in half. I will send half the first week of the month and the second half no later than the 18th of the month. I have explained to them that I am a childcare provider and that I pay them as much as possible as soon as possible. I have asked for my due date to be reset for nine consecutive months to reduce or eliminate the late fees that continue to accrue on my account. They refuse to do so. My question is, is there a regulation that mandates that the mortgage company applies funds as received and re figures interest on the outstanding principle or can they hold the funds unapplied and continue to collect interest as if no effort or money was received? My mortgage company it First Franklin Financial Services

Julie

Dear Julie,

Insofar as a regulation that mandates that a mortgage company accept your 1/2 payments as they are received, I do not know of any. Nor am I familiar with any mortgage company that will accept 1/2 payments twice a month on First Mortgages. Since HELOC's are lines of credit, you can arguably use this payment method as long as both 1/2 payments are received before the "late" date. Macquarie Bank, an Australia-based bank, has a heloc first that can be used in the manner you are talking about (as could any Heloc 1st). Other than a Macquarie First, I do not know of any lenders who are set-up to accept payments in the manner described. Perhaps you can try and put aside one payment over the next few months, put it in a separate checking account, and then when you have enough saved up, send it to the lender. Then you will always be on schedule. Also, given the current markets, you may be able to negotiate a loan modification changing your due date. Lenders are becoming increasingly flexible! Good luck!

MortgageMaster

Kentucky Homeowner

MortgageMaster,

I'm in search of some mortgage regulations for the state of kentucky. My primary question is, how long must i be in a home before i can re-sell it? also, questions relating to that with regards to taxes, etc. if i'm in a house for a year and a half, what willhappen when i sell it? is there any fine/fee/ are any gains taxable?
if yuo have any answers, or a reliable location wherei might find them, i would greatly appreciate it.
Regards,Jeremy

Hi Jeremy,

You need to speak to a CPA. I AM NOT OFFERING THE FOLLOWING AS ADVICE, BUT SIMPLY MY OBSERVATIONS OR KNOWLEDGE. PLEASE CONFIRM WITH A TAX PROFESSIONAL: Generally, there are no taxable gains on a property (if < $250k/individual or <$500k for a couple) as long as you have lived in that property for at least two of the past five years, cumulatively). Thus, it makes sense to me that 1 1/2 years may have create a taxable event (it is less than two years, altogether). I am not sure if Kentucky has anything different from the above.

MortgageMaster

Bi-weekly Payment Plans

Dear MortgageMaster,

I am trying to set up a biweekly payment option on our 30 year fixed mortgage. I am told by my mortgage lender that I must use their outside FNC insurance company to accomplish this which will cost me $375 to set up. Iasked to do it myself through my bill pay option at my financial institution. I was informed I could not. Is it legal for the mortgage co.to demand I use their system and not apply my additional $ paid in the same interest saving manner?

Jon

Dear Jon,

Congratulations on tapping into one of the most powerful and painless methods of paying your mortgage off early...thus, saving thousands and thousands of dollars! Your lender can require you to use their program if you need to use them to set up the bi-weekly program. YOU DON'T!!! Simply take one month's payment and divide it by twelve, and then increase your monthly payment by the 1/12. For example, if your monthly principal and interest payment is $1200, divide it by twelve ($100), and add the $100 to your regular payment ($1200 + $100 = $1300). This achieves the same thing as a bi-weekly payment plan (for reasons I will not explain, it actually works a little faster and better), costs nothing, and is relatively painless. A word of caution, make sure that you note on your payment coupon that you are paying extra and want it applied to principal.

MortgageMaster

Will Bank Lower My Principal?

Dear MortgageMaster,

I was told by someone that couldn't make their payments and were behind on their mortgage that they called the lender and they wiped away a large portion of their debt and reduce their monthly payments by almost $1000. They said the lender was able to do this because of Federal program for first time home buyers. Have you heard anything about this?

Katie

Hi Katie,

Your friend is one of the luckier borrowers I have heard about. I have researched and cannot find a Federal loss mitigation program that is specific to first-time home buyers or that mandates lowering principle on a loan. There is a plan called Hope Now through HUD as well as several other programs designed to help the struggling homeowner. That being said, there are plenty of loan modifications occurring via the lenders and third parties (For-Profit and Non-Profit). Most do not involve cutting the principle loan amount. In fact, very few will lower the loan amount. Most will lower the interest rate, defer payments, lengthen the term of the loan repayment, etc. The facts are if it makes dollars and sense (pardon the pun), the lender will entertain the modification.

MortgageMaster

Does One-Time Lawsuit Settlement Affect Underwriting?

Dear MortgageMaster,

I have received a settlement for a personal injury which is not subject to tax reporting or taxation. It will make my personal income look elevated in comparison to next year. Is this a situation that could be explained by letter to a mortgage broker and other creditors so that my ability to seek credit next year won’t be negatively impacted?

Thanks, Susan

Hi Susan,

I hope you have healed from your ordeal. You said that the settlement "was not subject to tax reporting or taxation". How will it make your personal income look elevated? Perhaps it is reported, but not taxed? I do not know. Let's assume that you did claim the income (regardless of its taxability), a simple letter may be required. This income is like a one-time capital gain; lender's will not count it. Capital gains, however, can be counted if they are consistently earned over a two year period (some lender's may request three years of taxes as proof). Thus, dividends, real estate gains, etc. MAY be counted, if they qualify. A one-time settlement will not effect you, one way or another insofar as income qualifications are concerned. You can use this money and source it as your down payment.

MortgageMaster

Payment Deferral

MortgageMaster:

I am in trouble. I have 2 mortgages on my home. It was last appraised inJan 2007 for $950k. Both mortgages total $840k and I am now out of moneyand work. What should I do? I will begin another job in 90 days and I canmake my payments then. Do I contact my mortgage companies and ask toreduce payments for 90 days? Do I file bankruptcy? I don't want to lose myhome but food on the table is more important.
Thank you, Mike

Dear Mike,

I am sorry to hear about your situation. I doubt you have any equity to sell. Thus, your options are to 1) Short-sell, 2) Walk, or 3) Call the lender. I am absolutely sure that a call to the lender is easier than the former options. Even if it is aggravating, EVERYONE should use this option first. Loss Mitigation Departments are there to try and keep you in the home! More often than not, they will explore opportunities to keep you in the house. Given that you are starting another job in 90 days and assuming that you can cover the payment at that time, I am very sure that the lender can help you. They may do a loan modification,: defer the delinquent payments for later, spread-out the late payments over a given number of months, etc. They have many tools at their disposal...particularly given the current enviroment. PLEASE CALL YOUR LENDER ASAP!

MortgageMaster

Refund of Appraisal

I had a loan going with a loan co. and at the last minute they tried to change me to a higher rate of interest. I paid for a appraisal based on the 5% rate. What can i do to recieve my money back or report this co. I still have not receive my appraisal that i paid for. This co will not return any of my calls or hardly ever answer phones. What can i do to get my money back. Or what should be my next step.

Dear Blogger,

I am sorry to hear about your situation. The key verbiage here is "I paid for the appraisal based on a 5% rate". Actually, to get technical, you paid for the appraisal to get a value on your home. You may have agreed to go forward with the appraisal based on your belief that you had a locked interest rate of 5%. If you believe this to be the case and that your lender/broker "baited and switched" you, you should gather up your supporting documents and fax them to the lender/broker, along with the letter that you are sending to the regulatory agency that oversees them in your state. I will gamble that they will call you.

Either way, if you paid for the appraisal, you should be able to get a copy of it.

MortgageMaster

Tax Question on Option ARM Loans

Dear MortgageMaster,

I have had an option mortgage for seven years and it functioned just as I intended. At our age we never planned on paying off our home. We have a 600K loan on a house valued at $1,250,000. We refied and Homecomings became the lender. Unlike our previous lenders, they do not place all the interest paid on the 1098. They only place the difference between interest and the amount going against principal on the 1098. Since the IRS considers interest deductable whether it is paid or accrued, the difference is huge,18K versus 45K. Is there any way I can make Homecomings show all the interest payments on a 1098?

Dear Blogger,

Thank you for not asking me a tax question! I can only assume that Homecomings is reporting according to what their legal counsel advised them to do. In turn, I am sure that their legal counsel did what the IRS advised them to do. If that is the case (which I am only assuming), you may wish to talk to your CPA about the deferred interest (the negative amortization) and see if, when, and how that can be deducted.

On the other hand, asking Homecomings for a new 1098 may provide you with 1) a new 1098 or 2) reasons they do it the way they do. I suspect that in the reasons why they do it the way they do, you will get the answer(s) you are looking for. Either way, your question is a good one for a tax professional..

MortgageMaster

Transferring Loan To Relative

Hi MortgageMaster,

My father has a mortgage on a house. My brother wishes to live in the house and take over ownership. Is there a way for my dad to transfer the mortgage to my brother and be released of responsibility of the mortgage?
My fear is that my brother may default on payments. If this occurs how would this effect my father?

Thanks, Elaine

Hi Elaine,

The only way for your Dad to remove his liability completely from his home is to sell the property and insure the transaction with a Title policy(ies). Your brother can potentially assume the loan, if allowed and approved by the lender. Assumptions, however, are not guaranteed, are tricky, and can still leave the seller responsible in the case of default. i would contact a real estate attorney to best protect your father. As usual, advice from the MortgageMaster is not to be construed as legal advice but is based on experience. Please seek legal/tax counsel before making any decisions.

Assuming a Mortgage

I am selling my home; and I have a buyer who'd like to assume the mortgage. I understand the risks involved and that is not the issue. I have lived in my house since October 2005, with the original mortgage being through TD Canada Trust. Last June (8months ago), I switched to Servus Credit Union. Last month I did a refinance to consolidate debt incurred from my wedding. My wife and I then made a purchase on a new home; have been approved on the second mortgage with no conditions. Initially, we had a tenant to rent it out. We then decided to sell and we're successful; which leaves us in the current situation. Is there any rules or regulations that prevent and individual from assuming our new refinanced mortgage within 6 months? Or does that rule apply to new mortgage where title has been held for under 6 months? My lender is giving the new buyer grief, and I would like some clarity on this issue. Keep in mind, that my lender has yet to even gather personal information from the new buyer as to whether he is qualified.

Thanks Daniel A.

Hi Daniel,

I have researched it in a million places and received as many answers. Most lenders I have spoken to have said they do not have a specific policy regarding the length of time you must have a mortgage before allowing someone else to assume it. Quite frankly, most have not had the scenario. The main point I hear being emphasized, over and over, is that it is up to them to approve an Assumption. Therefore, your buyer is at their mercy. Given the rapid drop in rates recently, the lender might be more willing to allow someone to assume the loan if it is at a higher rate. Otherwise, the Due-On-Sale Clause that is common on most mortgages (ex-FHA, some ARM's, and VA) pretty much gives your lender the right(s) to negotiate any assumtions and approve or deny them.

I have attached a link and article by Jack Guttentag, Ph.d. While I often disagree with his statements or parts of his writings (Ivory Tower versus real life), this article is excellent:

"When a homebuyer assumes responsibility for a home seller�s existing mortgage, it is called an �assumption�. The buyer assumes all the obligations under the mortgage, just as if the loan had been made to her.

The major driving force behind assumptions is the lower interest rate on the assumed mortgage relative to current market rates. If the home seller has a 5.5 % mortgage, for example, and the best the buyer can get in the current market is 7%, both parties can be better off if the buyer assumes the 5.5% loan. An assumption also avoids the settlement costs on a new mortgage.
For years, we heard little about assumptions because market rates were so low. Now that rates are above their lows, and may rise further, we can expect that assumptions will receive increasing attention.
The value of an assumption depends on the difference in rate, the balance and period remaining on the old loan, the term of the new loan, on how long the buyer expects to have the mortgage, and on the �investment rate� � the rate the buyer could earn on her savings. Assuming that the 5.5% loan has a $100,000 balance with 200 months remaining while the 7% loan would be for 30 years, that the buyer expects to be in the house for 5 years and can earn 4% on investments, the value is about $7,000. A spreadsheet that makes this calculation is available on my web site.
The $7,000 of savings does not include the settlement costs on a new loan. On the other hand, the savings would be reduced if the buyer has to supplement the existing loan balance with a new second mortgage at a higher rate. This could well be the case if the existing loan balance has been paid down appreciably, and/or the house has appreciated since that mortgage was taken out. The buyers who do best on assumptions are those who have the cash to pay the difference between the sale price and the balance of the old loan.
However, buyers should not expect to receive the full value of an assumption. The seller must benefit as well; typically, the parties share the savings. The seller�s share will be in the form of a higher price for the house. Indeed, some economists believe that the full value of the assumption should be reflected in the price of the house, but this is as implausible as the opposite view, that only the buyer benefits.
The benefit to buyer and seller from assuming an old loan comes at the expense of the lender. Instead of having the 5.5% loan repaid, which would allow the lender to convert it into a new 7% loan, the 5.5% loan stays on the books. Back in the 70s and 80s, lenders couldn�t do anything about this. Mortgage notes at that time did not prohibit assumptions, and the courts ruled that lenders could not prevent them.
Following that experience, however, lenders have inserted due-on-sale clauses in their notes. (An exception is FHA and VA mortgages, which do not contain these clauses, as discussed next week). These stipulate that if the property is sold, the loan must be repaid. Even with a due-on-sale clause, the lender may allow an assumption -- keeping the loan on the books avoids the cost of making a new loan � but the interest rate will be raised to the current market rate.
Raising the interest rate to market removes most of the benefit of the assumption to the buyer and seller. In some cases, they attempt to retain the benefit by agreeing to a sale using a wrap-around mortgage, without the knowledge of the lender. The seller takes a mortgage from the buyer, which may be for a larger amount than the balance of the old loan, and continues to pay the old mortgage out of the proceeds of the new one. The new mortgage �wraps� the old one.
This is a dangerous business, particularly to the seller, who has given up ownership of the house but retained liability for the mortgage. The seller is in deep trouble if the buyer fails to pay, or if the lender discovers the sale and demands immediate repayment of the original loan. I wouldn�t do it, even if I were selling the house to my mother.
Instead of prohibiting assumptions, thereby encouraging wrap-arounds, why don't lenders explicitly allow them for a price?
Good question. When interest rates are above their lows and new borrowers are concerned that they could go much higher, some would be willing to pay a premium rate for the right to transfer that rate to a home buyer in the future.
For example, a borrower taking a 6.5% 30-year FRM might be willing to pay 6.875% for the right to allow a home buyer to take it over when he sells his house. The higher rate is akin to an insurance premium. If market rates are above 16% when he sells, as they were in 1981, he will save a bundle.
An assumable mortgage has some resemblance to a portable mortgage. If you sell your home and your mortgage is assumable, it can be transferred to the buyer; if it is portable, it can be transferred to a new property you buy. Portability is of no value if you decide to rent, go to a nursing home, or die, whereas an assumable mortgage retains its value in these situations. On the other hand, some portion of the value of an assumable mortgage must be shared with the purchaser. A mortgage that is both assumable and portable would have enhanced value.
Lenders who offer an assumability option will require that any new borrower meet the lender�s qualification requirements. Borrowers purchasing the option will need to be confident that the lender won�t tighten its requirements when market rates increase. The best assurance would be a commitment to accept approval under one of the automated underwriting systems developed by Fannie Mae or Freddie Mac.
Loans insured by FHA or guaranteed by VA have always been assumable. During periods when borrowers are concerned about future rate increases, this gives them an edge.
FHA loans closed before December 14, 1989, and VA loans closed before March 1, 1988 are assumable by anyone. Buyers who assume these mortgages don�t have to meet any requirements at all, but the seller remains responsible for the mortgage if the buyer doesn�t pay.
Any seller who allows assumption by a buyer without a release of liability is looking for trouble. Even if the buyer pays, and that is a crapshoot, the seller�s ability to obtain another mortgage will be prejudiced by his continued liability on the old one.
WARNING: The release of liability must be in writing, and you must preserve the document. This will protect you in the event that the new borrower defaults and the collection agency comes after you � it knows nothing about your release of liability. This happens!
If an old FHA or VA is attractive to a buyer, the seller can request that the agency underwrite the buyer. If the buyer is approved, the seller will be released from liability. At this point, there can�t be many of these loans left with balances large enough to be attractive to buyers.
Assumption of FHA and VA loans closed after the dates shown above requires approval of the buyer by the agencies. The process is much the same as it would be for a new borrower. Upon approval of the buyer and sale of the property, the seller is relieved of liability. FHA allows lenders to charge a $500 assumption fee and a fee for the credit report. VA allows a $255 processing fee and a $45 closing fee, and the VA itself receives a funding fee of ½ of 1% of the loan balance.
FHA and VA loans that were closed during the low-rate years 2000-2003 will become attractive targets for assumption if interest rates continue to rise. Potential sellers who have one of these loans can use the spreadsheet on my web site to estimate how much the assumption would be worth to a potential buyer.

November 17, 2003

Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

Filing Complaint

Dear MortgageMaster,

I’m trying to find out what agency regulates the mortgage industry. I would like to file a formal complaint about my mortgage company, but am unsure who to file the complaint with.

Thanks, Joyce

Hi Joyce,

Alas, dear Joyce, I cannot answer this question. Nor can anyone else without more information: Who is the lender? Are they a bank, Thrift and Loan, Credit Union, etc. What state are they licensed in? There are many questions that need to be asked and answered to know whom a complaint should be directed. For example, in California, numerous agencies regulate the lenders: California Department of Corporations, FDIC, California Department of Financial Institutions, etc., etc. There is an never-ending list of acronyms that regulate lenders throughout the U.S.A., both State and Federal. Hence, some of the problems we are currently witnessing: "Who oversees whom", "Who regulates, what", "Who has the ultimate power to punish", Etc.

You need to contact your lender or do some research to see who they say they are licensed with. I am sure that it will show on their website. It is usually required. Go to the regulatory agency's website and find the section for filing a complaint or a phone number to do so.

MortgageMaster

Using 401k for Down Payment/Gift From Family Member

Hello MortgageMaster,

This is actually my second question; can you pull your down payment from a 401k, and does it have to be a "family" member giving to you as a "GIFT" for your down payment.

You need to check with your 401k Administrator to see if they will allow you to use proceeds from your 401k for your down payment. Some will allow you to do so and some will not.

Regarding the gift source: It depends. If the down payment is over 30-35% of the purchase price, the lender may not care: they are in a safe "Loan-To-Value" position. In most cases, however, the lender will want the gift funds to come from a family member.

MortgageMaster

Gift Funds

Hello MortgageMaster,

Can you tell me how I obtain funds that are being given to me as a GIFT for a down payment on a home? For instance, my brother-in-law is giving me my down payment for my home as a gift from him. Does it matter WHAT type of WAY he gives it like in a regular "CHECK" from his account or does he have to get a cashiers check to give me?

If you are receiving gift funds, the best thing to do is have your brother take the funds from his account using either a wire or cashier's check. Your lender will most likely want your brother to "source" his funds. In other words, they want to see that he had the funds to begin with, and that he actually provided the funds. If your brother uses either of the above, it will provide a paper-trail showing that the funds came from his account. Also, a personal check, if accepted (very doubtful), may take several days to clear. A word of caution: have your brother provide you the funds through escrow/title. If he writes you a check, you deposit it, and you pay for the down payment through your bank account, your brother will have to provide bank statements showing he had the funds PLUS the proof that the fund were written to you and cleared his account.

MortgageMaster

Complaints Against Aurora Loan Services

Hi MortgageMaster,

"I’m trying to find out what agency regulates the mortgage industry. I would like to file a formal complaint about my mortgage company, but am unsure who to file the complaint with."


Dear Writer:

Unfortunately, this question has more answers than you would like! Depending on who the lender is, what state they are located in, and what type of lender they are (broker, bank, credit union, etc.), you can get a multitude of answers and/or combinations. Who is the lender? What is the complaint about?



Dear MortgageMaster:

"The lender is Aurora Loan Services. They sent me a letter in Sept saying that my adjustable rate mortgage would be going up approximately $400. in January and that if I wouldn’t be able to make the payments to contact them and they could work out a process to keep the interest rate low for a couple of years. I called and left several messages between September and October and never received a response. I even emailed them at their website and still no response. I continued calling and finally got someone on the phone in November. Apparently they changed their phone number for that division but didn’t notify anyone. I filled out the paperwork to be part of the program and faxed it to them. They said they never got it. I faxed it again. They said they never got it. I faxed it a third time and they said they never got it. I verified the fax number each time and was told it was correct. By then it was the end of December. I’m concerned that pay stubs and previous years tax returns including my social security number are floating around somewhere.

In December, I learned that the mortgage payment was going up by approximately another $500. because for the past year they never adjusted the payments for the property tax even though they new what the tax was. This is not unusual: if your loan was a purchase money loan, it is likely that your property value was reassessed and increased. Aurora is following regular protocol insofar as the deficient impound account is concerned. IF I couldn’t afford the $400, I certainly can’t afford almost $900 total increase. I called again. Now I’m told that I can make 3 even payments and then they will re-evaluate the program. I told them this didn’t sound like what we had talked about when I faxed the information previously (this time they took the info over the phone.) He said that it was and that he would send me the information in the mail. That was a few weeks ago and I still haven’t received anything. I’ve tried to make at least some of the payment, but they won’t take a partial payment. I verified this by trying several times online to make the payment on their site, and asked them.

I have tried to make the good faith effort to make payments and work out a program, but I am getting no response from them to do so. Now…because of their lack of response, I am behind in payments.

Who can I go to for help and to file a formal complaint? Who regulates the industry? I’m also wondering if there have been other complaints or even some type of class action suit against them."

Dear Writer,

Your story is all too common. It is a shame that many of the lenders are so ill-prepared to assist the ailing clients whom they once wooed so aggressively! I hope this helps.

After a bit of searching, I found out that Aurora is owned by Lehman Brothers, the powerhouse Wall Street firm. In fact, Aurora Loan Services was in the middle of a name change to Lehman Mortgage Capital when they decided to halt their lending operations in October, 2007. The Federal agency to whom you can complain and get help from is the OFFICE OF THRIFT SUPERVISION, an arm of the Treasury Department. I added a link to this story, www.ots.treas.gov , then go to the "OTS Contacts", then go to your "Regional office" to start the process. This may take a bit of patience.

I, however, think that going directly to the top gets more done.

The CEO of Aurora is Ralph Lenzi. You can reach him by calling 720-945-3000. I recommend calling after hours and using the company's directory. Enter "LENZ" and it will send you to his voicemail. The same logic goes here as with calling Bill Lighten, the CEO of Lehman Brothers, Please see below.

This is really going to the top! The CEO of Lehman Brothers, Bill Lighten, can be reached by calling 210-499-5000. I asked for Bill and was sent to his voicemail. I am not so dense as to think this is really his voicemail, but I GUARANTEE that you will get a call back asap if you leave a message saying that you need help from somebody. Trust me, Bill's office will ask somebody in the Aurora organization "Why do we pay you? Our office is now handling your job?!"

Lastly, I found a concerted effort is being made by a woman who has assembled a lot of data and is trying to stir up a class-action lawsuit. I know nothing about her credibility or how far she will go, but here is the link: http://www.ripoffreport.com/reports/0/150/ripoff0150267.htm

I hope this helps!

MortgageMaster

Deceased Spouse's Obligations

Hello Fellow Bloggers and Readers,

The below correspondance is a tough one for me as it asks for help in several areas I am not qualified to answer. Perhaps some of our readers know something or can add to this via comment, article, straight response through our site, etc. If you are qualified, please send me your qualifications and I will add you to the list of approved authors. Thanks in advance for your service!

Dear MortgageMaster,

"My husband passed away 2 months ago. I received a letter from the credit union (located in New Jersey) where we have a mortgage loan (173,395.00) on our primary residence, which is located in New York. We own another home in New Jersey. There is also a Home Equity Line of Credit (19,661.00) on the New York residence, which I'm sure I never signed for, and a credit card of my husbands (20,971.00). The letter states that "This letter will serve as our formal claim against Mr. ..... ............'s estate for the above mentioned loans. It is incumbent on the Executor/Executrix to attempt to satisfy any and all debts of said estate and therefore we anticipate our claim representing an approximate total of $212,028.84."They also sent me a NON-RESIDENT-DECEDENT AFFIDAVIT OF DOMICILE form to fill out and return.Can the mortgage loan on our home really be due in full because my husband has passed away?"

To Which MortgageMaster responded, in Yellow:

I am very sorry to hear of your recent loss. I am sure your emotions are stirred-up enough without the added aggravation of dealing with the estate. Alas, settling the estate is necessary, however. I need a little clarification:

1) I am assuming all three debts that you mentioned are with the same credit union?

2) You mention a NJ home; Are any leins that you mention attached to this home? What is the purpose of mentioning NJ?

3) Is your name on: NY Primary Mortgage? NY Home Equity Line? Credit Card?

4) Is you and your husband's estate in a living trust?

I would suggest that you call the credit union and get a copies of your loan documents for the mortgages and the credit cards. It may take them several weeks. Please let me know as soon as possible and I will do my best to offer some ideas.

Please remember, I am not an attorney or CPA and I do not offer legal or tax advice. I will tell you what I believe to be correct, but I suggest that you confirm my information with your Estate Attorney for your state (as laws may differ state to state).

Our distressed friend replied:

Dear MortgageMaster,

"Thank you for answering so quickly. I appreciate it. To clarify:

1. all three debts are with the same credit union

2. There are no leins on the home in Jersey and I mentioned it because that form they sent me (NON-RESIDENT-DECEDENT AFFIDAVIT OF DOMICILE), asks where he formerly lived in Jersey (he never did), and if he owns realty or tangible property in New Jersey.

3. my name is on the primary mortgage (and all papers were signed by me) my name may be on the home equity line of credit, but I'm quite sure I never signed for that loan I was an authorized user on the account, but the account was only in my husband's name

4. I don't even know what a living trust is. My husband and I had no will. We owned the 2 houses, had very little in the bank, and a lot of bills. He had some insurance and I'm in the process of trying to decide what to pay off ......in fact, that 174,000.00 mortgage is something I could pay If I had to, but I never thought I would be forced to. I thought I would be able to decide what should be paid off. I will call and ask for copies of the documents. I don't have an Estate Attorney. Would you know of any sites where I could try to check out laws for New York State. Again, thank you.

Dear _____,

I say this with as strong a tone as possible, "You need to find a good Estate and/or Real Estate Attorney before you do anything!". A good attorney will possibly save you thousands of dollars in real costs and will definately save you a heap of aggravation! The cost of the attorney is nominal in comparison to how this all could change your life: savings, cashflow, etc. The attorney knows the laws of your state, can negotiate the perils of talking to the credit union, speed up the life insurance claim, etc. In the meantime, you can grieve and start the rebuilding process. I am not qualified to give you advice other than what my thoughts and observations are.

Other than the advice just given, here is what I can offer:

Given that your husband was a member of a credit union, I am hoping that perhaps it was a public servant's union of some sort. For example, the Police, Fire, etc. If so, his Union may offer legal help, an ombudsman, or counseling. If not, I suggest contacting a good attorney.

To me it sounds as though the credit union wants to make sure that they have all their bases covered, including discovering all your "outside assets" like the NJ home.

If your husband signed any or all of the loans under his name only and if your state requires that his estate pay his obligations after death, it would seem that his estate would be obligated to pay the loans. This is also assuming that your name is not on any of the real estate. In this case, an attorney is really needed.

If, however, all the papers for the first mortgage were signed by you as a borrower (not for your husband as Power of Attorney) or signed by the both of you as co-borrowers, I do not know that your husband's passing would trigger the "acceleration clause", or "due upon death" clause. I am in a different state, but I have NEVER, EVER heard of a mortgage, guarenteed by both the husband and wife, and a subject piece of property, coming due because one of he spouses passed-away. Otherwise, every time a spouse passed, the surviving spouse would be forced to sell or refi. With the sheer number of married homeowners who pass every year, I am positive that I would have seen a gazillion loans that needed to be paid off or refi'd over the past 20 years. I have never had a loan that needed to be refi'd because of the passing of a spuse except for affordability reasons. It would be inconsistant with compassion and with all lenders notions that both spouses are equally and individually responsible for the repayment of the mortgage. In other words, if you are both on the loan, one of you passes away, the surviving spouse still has an obligation to make the payments on the loan....not pay the loan off immediately. As long as you are honoring the note, I do not see how or why the lender would want to make a "Demand" that you pay off the mortgages.

Regarding the second mortgage, it is unlikely that your husband got the loan without your signing the loan paperwork or an acknowlegement that he was borrowing against your home (everything I have written is assuming that you are on the Title of the property). Thus, we revert back to a joint obligation on a jointly held piece of property. I find it hard to believe that the credit union can make a "Demand" that you pay off the mortgages. I do not know about unsecured loans.

I know I have not been particularly helpful, but I am hesitant to delve into law. I would ask around and find a good attorney and CPA. I think you have more options than the credit union would lead you to believe.

Ways to Stop Foreclosure

There are quite a few ways that a homeowner can stop foreclosure. I thought I would list them here with some brief explanations.

Loan Workout- A loan workout is when you negotiate with your lender any kind of plan that will benefit both you and the lender when you are delinquent or in default. This is a broad term used in the industry to cover the different options you may have such as a loan modification, repayment plan, short sale, forbearance plan etc.

Loan Modification- This is when the lender modifies your current mortgage in order to work with you and make your mortgage more affordable. In the past this was only used when a borrower was delinquent but now it is being used before someone is delinquent. This will be the hottest term and way to help people avoid foreclosure.

Forbearance- This is used most of the time, when a Notice of Default has been filed. You are allowed to delay or reduce payments for a short period, with the understanding that another option will be used at the close of that time to bring your account to a current status. Your lender, if in agreement, will then temporarily cease legal actions.

Short Sale - This is used when all negotiations for a loan workout have failed and you are upside down on your mortgage meaning you owe more than it's worth. The lender basically agrees to cooperate in the sale and take a loss. You place the home for sale and any offers are presented to the bank. Unlike a traditional sale when the homeowner decides what offer to take. The bank controls the negotiations and the homeowner has no say in the process. It's a last ditch effort to save someone's credit from a foreclosure filing.

Foreclosure Bail Out Loan - Is a new loan where the defaulted mortgage is paid off. This is usually a hard money mortgage and it is common for interest rates to approach 10-15%. Points can be as high as 5 and terms are usually short. In the 5 year range where a balloon payment will be due for the remaining balance. In order to qualify you must have sufficient equity. Hard money lenders are looking for 65-75% max loan to value and a decent equity cushion. You also have to have ability to repay as in a traditional mortgage.

Deed-in-lieu - is a deed instrument in which a mortgagor (i.e., the borrower) conveys all interest in a real property to the mortgagee (i.e., the lender) to satisfy a loan that is in default and avoid foreclosure proceedings. The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy.In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Generally, the lender will not proceed with a deed in lieu of foreclosure if the current fair market value of the property exceeds the outstanding indebtedness of the borrower.Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. This will enact the parol evidence rule and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.Retrieved from "http://en.wikipedia.org/wiki/Deed_in_lieu_of_foreclosure"

Chapter 13 Bankruptcy - Is primarily used to stop foreclosure of your home. In order to qualify you will have to have a steady income.The bankruptcy petition would need to be filed before the sale date of your property. After filing, you will propose a plan to repay the amount you fell behind on the mortgage. You will also begin to again pay your regular mortgage payments, which under the operation of law must be accepted by your mortgage company. What many lawyers and people do not know is that a forced loan modifcation can be sanctioned by the courts if it is proved that the borrower cannot afford the curent payments.The concept is similar to debt consolidation, but it permits you, the consumer(s), to pay unsecured debt down without accruing interest (student loans are an exception) and without having to deal with those annoying calls from debt collectors. Under a typical plan, you make monthly payments to a court appointed bankruptcy trustee for generally three to five years. The amount of your monthly payment is determined by several factors such as the amount of debt you have, your ability to repay and the extent that you have assets. In exchange for stopping any and all collections activity, one proposes to pay all or, in specific circumstances, a portion of the debt through a Chapter 13 plan. The filing of a Chapter 13 bankruptcy stops ALL collection activity though something called the automatic stay. The automatic stay remains in effect during the life of the case unless the court orders otherwise. You can always refinance or sell your home while under Chapter 13 if you wish to pay off the bankruptcy and move on with your life. The Chapter 13 stops the foreclosure immediately. Often, your only other option would be to refinance, or enter into a repayment agreement with your mortgage company. All too often, they want a double payment each month until you can catch up. If you had that kind of disposable income, you probably wouldn’t be in this situation in the first place.

Moe Bedard
Founder & Homeowner Advocate
The LoanSafe Advocacy Group™
Email Me: Moe @ LoanSafe.org
(951) 736-6796 Direct (800) 734-8819

Great Article Regarding The Mortgage Forgiveness Debt Relief Act of 2007

"Home owners who need mortgage debt relief are not the only ones who will benefit from the recent passage of tax relief for homeowners undergoing foreclosure. The Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) has finally been passed by both chambers of Congress as of December 14, 2007 and has been signed into law by the President. This long awaited bill provides much needed debt relief to thousands of home owners who unfortunately have been caught up in the catch-22 of the sub-prime loan fiasco and are losing their homes through the foreclosure process. Once the adjustable rate loans on those homes "adjust up" the home owner almost always cannot afford the higher payments and the foreclosure tidal wave sweeps them from their homes.
Even worse, if the home owner made arrangements to sell the house for less than the actual mortgage, through what is commonly known as a short sale, the IRS came swooping in and claimed the difference between the actual sale price and the mortgage owed on the property as "earned income". Not only do they lose their home through foreclosure, they also incur an additonal tax bill. Talk about a raw deal.
For example. If Joe and Jane Smith owned their home with an adjustable rate mortgage note of $500,000 and was paying at a low adjustable interest rate of 3% per year their payments would be approximately $1,250 per month. But after a two to three year period the interest rate adjusts to 5.75% on the same amount of $500,000. The payment adjusts to approximately $2,396 per month. Joe and Jane's budget will only allow for payments of $1700 per month maximum. They are in trouble. To add insult to injury the real estate market is spiraling down and property values have taken a nose dive, including Joe and Jane's home. The property's value is now $400,000. Joe and Jane's property value is now upside down. They can't afford to pay the mortgage on the property and they can't sell it even for the amount they owe on it. A "catch-22".
The bank foreclosures because they can't pay the mortgage. Joe and Jane in the meantime receive an offer to purchase the house for $375,000. The bank, because it knows something is better than nothing, agrees to accept the buyer's offer and to release Joe and Jane from the responsibility of the $500,000 mortgage debt, a difference of $125,000. This is forgiveness of debt. To the IRS it's called income. Under the IRS code the IRS could and in many cases has sought to tax the home owner for the debt forgiveness amount. In this case Joe and Jane, as if not already in enough financial trouble, would owe taxes on the $125,000 too. That is until the recent passage of the Mortgage Forgiveness Debt Relief Act of 2007.
This Act amends the Internal Revenue Code to exclude from gross income amounts attributed to a discharge of indebtedness incurred to acquire a principle residence (the one the home owner lives in). The amount of debt forgiveness can be up to $2 Million. This is great relief for all of the Joe and Jane's of the adjustable rate world who just can't keep their homes because the payments are too high and in many instances the property value has also decrease significantly.
THIS IS GREAT NEWS FOR TWO REASONS:
1. The current homeowner is relieved of a staggering and depressive tax obligation possibility, given a way to sell the home for less than owed on it and avoids a foreclosure on the home owner's record.
2. Because the bank has taken the property back in its Real Estate Owned (REO) department it is very motivated to get rid of the property as quick as possible to avoid holding it and suffering a further loss as well as bank regulation demerits that a bank suffers when property is taken back after a mortgage failure. Here's How The First Time Home Buyer Is Helped? It helps the first time home buyer in many ways. The definition of a first time home buyer is anyone who has not owned a home within the last three years prior to obtaining a mortgage on their principle residence.
The Mortgage Forgiveness Debt Relief Act of 2007 will increase short sales of homes that homeowners cannot afford and now know they cannot be held liable for any "debt forgiveness" tax. Sellers who are forced into foreclosure will have more flexibility in negotiating with the mortgage holding bank and the buyer who makes an offer to purchase the property. Since the property value is now very low it is an excellent time for a buyer to buy the property and lock in the interest rate at a fixed amount that the buyer can afford. A 30-40 fixed interest rate should be obtained. There are plenty of them available. The bank is inclined to work with the buyer in order to get rid of the unwanted inventory.
Remember banks are in the lending business, not the real estate business. They cannot make money unless loans are made. Holding property in inventory does not make the bank money. In fact they lose even more money because the home is now vacant, subject to vandalism and the maintenance and upkeep does not stop. The bank also has to hire a property management company to oversee the property. Get the picture. The bank does not want the property. It wants to sell it. This is great for a first time home buyer. He/she can get a great low market buy, locked in with a long term mortgage rate that they know they can afford before going into the loan and best of all when the real estate industry rebounds, which it surely will, the buyer will reap the benefits of increased value appreciation that helps to build a solid estate.
The first time home buyer can also use one or more of several down payment assistance programs that will help with the down payment on the property purchase. This is money that never has to be repaid. There are several local, state and federal programs available. Down payment assistance up to $50,000 or more is possible. Now is the time to Stop Making Your Landlord Rich!! and own your own home. Hope this helps somebody go out and make their dream of home ownership come true.
Roy Landers is the author of "Ultimate Guide To Free Down Payment Money For First Time Home Buyers". He is an attorney and real estate broker with more than 20 years experience. A Free subscription to the Home Buyer Gazette is available at http://www.housingamericans.com. Email: roylanders@housingamericans.com

Article Source: http://EzineArticles.com/?expert=Roy_Landers

Mortgage Forgiveness Debt Relief Act of 2007

The following is Project Vote Smart's highlights for this bill, graciously made available by PVS:

- Excludes the debt forgiven on a qualified principal residence from the definition of gross income subject to income tax (Sec. 2).

- Reduces the income tax breaks on most gains from the sales of non-primary residences using a formula based on the amount of time that the taxpayer actually lived in the property during the five-year period before the sale (Sec. 5).

Congressional Research Service Summary
The following summary is provided by the Congressional Research Service, which is a nonpartisan government entity that serves Congress and is run by the Library of Congress. The summary is taken from the official website THOMAS.

12/20/2007--Public Law.

(This measure has not been amended since it was passed by the Senate on December 14, 2007. The summary of that version is repeated here.)

Mortgage Forgiveness Debt Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2010, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness. Reduces the basis of a principal residence by the amount of discharged indebtedness excluded from gross income. Disallows an exclusion for a discharge of indebtedness on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer. Sets forth rules for determining the allowable amount of the exclusion for taxpayers with nonqualifying indebtedness and taxpayers who are insolvent.
Extends through 2010 the tax deduction for mortgage insurance premiums.
Sets forth alternative tests for qualifying as a cooperative housing corporation for purposes of the tax deduction for payments to such corporations. Qualifies a corporation if: (1) 80% or more of the total square footage of the corporation's property is used or available for use by its tenant-stockholders for residential purposes, or (2) 90% of the corporation's expenditures are for the acquisition, construction, management, maintenance, or care of its property for the benefit of the tenant-stockholders.
Allows members of a qualified volunteer emergency response organization (i.e., an organization that provides firefighting and emergency medical services) an exclusion from gross income for state and local tax benefits and for certain payments for services. Terminates such exclusion after 2010.
Allows certain full-time students who are single parents and their children to live in housing units eligible for the low-income housing tax credit provided that their children are not dependents of another individual (other than a parent of such children).
Allows a surviving spouse to exclude from gross income up to $500,000 of the gain from the sale or exchange of a principal residence owned jointly with a deceased spouse if the sale or exchange occurs within two years of the death of the spouse and other ownership and use requirements have been met.
Increases the penalty for failure to file a partnership tax return and extends from five to 12 the number of months in which such penalty may be imposed. Limits disclosure of tax return information that includes individual taxpayer identify information.
Imposes an additional penalty on S corporations for failure to file required tax returns.
Amends the Tax Increase Prevention and Reconciliation Act of 2005 to increase the estimated tax payment due in the third quarter of 2012 for corporations with assets of at least $1 billion.

THOMAS Home Contact Accessibility Legal FirstGov
To cite this information, we recommend the following:
GovTrack.us. H.R. 3648--110th Congress (2007): Mortgage Forgiveness Debt Relief Act of 2007, GovTrack.us (database of federal legislation) (accessed Jan 18, 2008)
Because the government takes a day or two to post legislative information online, GovTrack is usually one legislative day behind.

How to Lower Mortgage Payment Without Refinancing

Hello Readers and Bloggers,

I received the following e-mail from someone in the mid-west. Please see my comments, in yellow CAPS, throughout the letter.

"hi - a friend forwarded the link to your blog. PLEASE THANK YOUR FRIEND FOR ME. I HOPE THAT I CAN BE OF SERVICE. PLEASE CONTINUE TO PASS ALONG THE GOOD WORD ABOUT THE BLOG!. i am not facing foreclosure, so you may have more urgent questions to respond to - but i'm writing for some advice. THAT IS WHAT I AM HERE FOR! i live in an apartment in chicago. i recently purchased a "second home" in massachusetts, when i inherited enough money to make a good down payment on a small house. (i hope one day to retire there.) Due to a recent increase in my homeowners insurance -- Massachusetts FairPlan, my only option as a Mass. homeowner who is also an out-of-state resident -- my escrow requirements have increased, thus upping my entire monthly bundled mortgage payment. I AM NOT SO SURE THAT YOU ARE REQUIRED TO GO WITH THE MASS. FAIR PLAN. I HAVE OWNED SEVERAL PROPERTIES OUT OF MY STATE AND HAVE FOUND HOMEOWNER'S POLICIES, ALBEIT A BIT MORE EXPENSIVE. YOU MAY CONSIDER CALLING A PROPERTY AND CASUALTY BROKER AFTER CALLING THE NATIONAL COMPANIES (ALLSTATE, FARMERS, STATE FARM, ETC.). IF THE "BIG GUYS" CAN'T HELP, SURELY A GOOD BROKER CAN. YOU MAY FIND THAT YOU CAN GET A CHEAPER POLICY. ALSO, YOU DID NOT MENTION IF YOU ARE RENTING THE PROPERTY OR LEAVING IT EMPTY. IT CAN BE VERY DIFFICULT TO FIND A POLICY FOR AN EMPTY HOUSE...NOT TO MENTION, VERY EXPENSIVE PAYING A MORTGAGE WITHOUT RENTAL INCOME. IF IT IS EMPTY, PERHAPS A GOOD RENTER COULD OFFSET YOUR EXPENSES. A QUALITY PROPERTY MANAGER MAY BE OF ASSISTANCE. i talked with a Countrywide rep and loan officer about this, and after i explained that the new monthly requirement -- $86 more than what i pay currently -- constituted a hardship, they eliminated the$48/month federal "reserve requirement" fee (don't ask me what happened to all the other $48 payments that i've previously paid). IN 19 YEARS, I HAVE NEVER HEARD OF A "RESERVE REQUIREMENT FEE". OF COURSE, I PRACTICE IN CALIFORNIA. I DID, HOWEVER, DO A LITTLE RESEARCH AND AM UNABLE TO FIND ANYTHING ABOUT A RESERVE REQUIREMENT FEE. YOU MIGHT WANT TO CALL AND ASK EXACTLY WHAT THE FEE IS/WAS FOR. I KNOW IT WAS NOT PMI, GIVEN YOUR LARGE DOWN PAYMENT. I KNOW YOU WOULD KNOW IF YOUR PROPERTY TAXES WERE LOWERED. I KNOW THAT YOUR PROPERTY INSURANCE WOULD NOTIFY YOU IF THE PREMIUM WAS LOWERED. WHICH BEGS THE QUESTION, "WHAT DID YOU PAY $48.00/MO. FOR? THE ONLY GUESS I CAN MAKE IS THAT MASS. HAS SOME "SPECIAL' FEE OR THAT YOU DID NOT HAVE ENOUGH IN YOUR ESCROW ACCOUNT AND COUNTRYWIDE WAS PLAYING CATCH-UP UNTIL THE ACCOUNT WAS REPLENISHED. the loan officer then suggested an interest-only loan, but i told him no. when i asked about re-financing options, i was advised that i could theoretically re-negotiate/re-finance at as low as 5.5%, 30year fixed (stated income and assets, since they have all my records from taking over the mortgage), but the closing costs could be ashigh as $5800. he advised against this as not cost-effective, given how long it would take for me to re-coup savings. IT SOUNDS AS THOUGH YOU SPOKE TO A GOOD LOAN OFFICER. i have a "good mortgage" -- a good value-to-loan ratio (i was able tomake a down payment of a little more than 50% of the purchase price);an excellent credit score (no debt except for this mortgage, and ialways pay my bills on time); a job for life (tenured professor --although not a very good salary). i have very little savings, no cushion, except for a very modest retirement fund, which i add to each paycheck, but which i cannot touch for 10 years. i'm afraid that any future increases in homeowners' insurance and/or real estate taxes will make my mortgage unaffordable, since my salary is not keeping pace with the cost of living. should i explore other re-financing options with other banks, e.g.through lending tree? or my own bank, where i've been a customer forover 20 years? or do you think i will run into the same problems as outlined above? BASED ON THE LITTLE KNOWLEDGE I HAVE ABOUT YOUR EXISTING LOAN, I CANNOT DEFINITIVELY ANSWER WHETHER A REFI WOULD HELP. THE LOAN OFFICER THAT YOU SPOKE TO WAS PROBABLY RIGHT, HOWEVER. OTHERWISE, HE WOULD HAVE PUSHED YOU TO REFI. IT WAS AGAINST HIS INTEREST TO TELL YOU TO STAY PUT. TELLING YOU TO REFINANCE MAY HAVE BEEN TO EGREGIOUS TO JUSTIFY, GIVEN THE NUMBERS. AS FAR AS SHOPPING THE LOAN, IT IS ALWAYS GOOD TO SHOP, BUT YOU PROBABLY WILL NOT FIND ANY SUBSTANTIAL DIFFERENCE. should i just bite the bullet for now, and hope for a possible future cut in interest rates, and a better discount on closing costs? thanks *so much* in advance for any help or advice..."

DEPENDING ON HOW LONG YOU HAVE OWNED THE HOUSE, HERE ARE A FEW TIPS TO KEEP THIS HOUSE AFFORDABLE:

1) ASK FOR A TAX RE-ASSESSMENT (IF YOU THINK THE VALUE HAS DROPPED) AND GET YOUR PROPERTY TAXES LOWERED. THE COUNTY TAX ASSESSOR CAN SEND YOU THE FORMS TO HAVE A REASSESSMENT.

2) FIND A NEW, LESS EXPENSIVE, HOMEOWNER'S POLICY. I AM SURE IT CAN BE DONE.

3) IF YOU WANT TO REFI; RATES ARE GREAT RIGHT NOW. IF I KNEW THE FIGURES, I COULD BE OF MORE ASSISTANCE. PERHAPS BUYING THE RATE DOWN (AND THE PAYMENT) AND USING A FEW BUCKS OF THE EQUITY MAY HELP YOU SLEEP BETTER...EVEN IF IT TAKES TIME TO RECOUP THE COSTS. YOU ARE PLANNING ON RETIRING THERE, AFTER ALL. YOU MAY CONSIDER TAKING A LITTLE CASH OUT AND PUTTING IT INTO A "SPECIAL" ACCOUNT JUST FOR COVERING UNEXPECTED EXPENSES RELATED TO THE MASS. HOUSE. IT SOUNDS AS THOUGH YOU ARE ONE CRISIS AWAY FROM TROUBLE (IE-MAJOR LEAK).

4) FIND A RENTER TO OFFSET THE COSTS.

I HOPE THIS HELPS!

MortgageMaster

Q and A Regarding the "Notice of Intent to Foreclose" in California

Dear Readers and Bloggers,

I received an e-mail from a borrower who is currently behind on his payment. I have included our correspondence in this post to insure that you, the reader, can get a clear picture of the questions and processes that a borrower needs to know. Please note that the borrower's correspondence is in yellow.

"I have not made a payment on my mortgage since August. The mortgage company gave us a foreclosure notice September 5, 2007. We called and tried to work things out with them and they said they did not have any programs to help. They were going to send us forms to fill out and they sent nothing. Well it's now January and they have not foreclosed. What are the limits of the first foreclose notice? I herd form a broker, the mortgage company missed the window to file and have to start the foreclosure process over. Is this true??? Thanks for your help"

To which I responded:

I need to get a little bit of info from you:

1) 1st or 2nd mortgage?
2) Who is the mortgage with?
3) Was the foreclosure notice a letter, Notice of Default, or an auction notice?
4) They said they do not have any programs to help, but they were going to send you forms. What were the forms regarding?

To which he answered:

1) 1st or 2nd mortgage? "I have both but only the first has sent a notice of intent to foreclose. "
2) Who is the mortgage with? "The mortgage is with Carrington Mortgages Services, LLC "
3) Was the foreclosure notice a letter, Notice of Default, or an auction notice? "Notice of Intent to Foreclose on September 5, 2007 "
4) They said they do not have any programs to help, but they were going to send you forms. What were the forms regarding? "It was a finance forms package. I started to call them en early August and they stated I needed to miss a payment before they could help us. I missed the payment and then called them and they stated they had no program and to call back in a few weeks. I called in September and they said they would send a package out for us to fill out and send back. It never arrived. I called back two weeks later and they were sending out another package for us to fill out. It never came. I called back, two weeks later, they took all the information over the phone and said they would send out a package to fill out and send back. It never came. CMS called and they took the same information as before and said they would send out the package for us to fill out and it would be there in 3 to 5 days and to call if it does not make it. The package never made it. I called and they took the information again and said another package is on the way. It never came. CMS called again and took all the information again and said they would send out another package and it never came. My last correspondence with CMS was the end of October. I just received, yesterday, the billing statement for December. Please let me know what my options are. Thanks"

Okay. Let's start with the first issue: Since the lender, Carrington, issued the Notice of Intent to Foreclose on September 5, 2007, and they have not done anything since then, do they have to start the whole process over again?

I think your broker friend is a little off or you misunderstood. The Notice of Intent to Foreclose is simply that: a notice letting you know that if you did not mail in the required amount (generally, past due payments, late fees, etc) by September 5, 2007, then the lender would take the next step, filing an NOD, Notice of Default. My friends in the Loss Mitigation world inform me that the Notice of Intent (in CA) is a form with a vague shelf life which can last for several months without clearly defined "expiration". The confusion with your broker may lie in the fact that IF you made a payment that was accepted by the lender SINCE the Notice of Intent was sent, THEN the lender is obliged to resend a new Notice of Intent if you still remain behind on your payments (buying another 30 days until a NOD can be filed). Otherwise, the Notice of Intent continues to be, almost simply, a notice letting you know that the lender intends on filing a Notice of Default should you not cure your mortgage.

The word on "The Street" is that many lenders, including Carrington, are inundated with delinquent mortgages and that they are simply behind on their filings. The Lender's lack of follow-up indicated by the borrower's letter seem to support this assertion. The borrower is living on borrowed time until the lender catches up. Of course, the borrower could try to send in a regular payment and see if they accept it. If they accept the payment, this would obligate the lender to resend a new Notice of Intent which buys the borrower another 30 days until an NOD can be filed. The snag here is that attempted payment may also trigger the lender to realize that our borrower friend has fallen through the cracks and then they will reject the payment and issue a NOD immediately. I, of course, do not offer legal advice and have been known to make mistakes, but I would probably lay low until the inevitable happens.

I would also be interested to know if the borrower is making the payment on the second TD or if they simply have not caught up with him yet?

I am assuming that the "finance forms" that the lender is supposed to have sent (on numerous occasions), are forms to initiate the loss mitigation process. Our borrower is in a tough position: he can call and potentially trigger a NOD or he can wait for the lender to catch up and send it to him. If he believes he can handle the potential loss mitigation package, it may behoove him to contact the lender. He certainly has shown an interest in getting help as evidenced by his numerous calls! If he knows that he is fighting a losing battle, regardless of any reasonable Note Modification, he may want to sit in the house until the NOD arrives. If the borrower chooses the latter, I would advise him to take some of his savings (from not making a mortgage payment) and consult a bankruptcy or real estate attorney. Despite their reputations, attorneys are well worth their cost.

MortgageMaster