Home Loan Modifications Negotiated by Licensed Attorneys. Real Estate & Mortgage Laws and Guidelines are Complex. Beware of the Banks Loss Mitigation Department. Go To http://RealEstateMarketingThisWeek.com
Part 7 (Excerpt)
Attorney negotiated loan modification process Going thru the Legal Door
We have Dan Havey with us talking about loan modifications. This segment we want to talk about the specifics of the actual mechanics of, how does it actually work for the homeowner? Let me just start it off and if you would then explain the back end of how it works. Our job is to determine where you’re at now, be very specific about where you’re at with your mortgage now, what the rate is, what it’s done, those specifics. How much you make? We have to help the lender with one thing which is to establish a hardship which is crucial to this. You can’t be making half $1 million a year paying $5000 a month in a mortgage, they are not just going to lower your interest rate because you want it. There actually has to be some sort of change, financial change, hardship.
We determined that and then there is a significant amount of paperwork involved, Velocity Financial takes care of that for you. We fill out the paperwork along with your help, review all of the documentation, we then recommend be right loan modification, whether it be an interest rate reduction, or extending the term of your loan, waiving some of the balance that you owe which is very very rare. To make sure that once we’re done with this whole process you can sustain and live in that house and be happy forever.
So the process itself really is not that much different than what people went through when they got their loan in the first place. That is correct and it’s kind of funny, this has to be exactly the reverse. There is paperwork that we need to collect on your mortgages, we check the value of the property to see where you’re at and in most cases youre underwater with the value. We dont do an appraisal though, there is no credit analysis, we do review your finances, and these sorts of things but essentially it’s just like doing a loan. What we’re trying to determine is exactly what is sustainable for you.
So what we do at the modification hotline at Velocity Financial is to put together the entire package, just like we do for a loan package because we basically send this to a underwriter, theyre not known as an underwriter they’re known as a loan modification coordinator but at modification hotline we are the first set of eyes. We work with you directly, getting all the paperwork in, getting it put together because we know exactly what has to be in that file, how it has to be stacked, how it has to be presented, before it goes to the loan modification coordinator who works for the attorney.
Then once it is at the attorneys office with their modification coordinator, they take a look at it, they make sure that everything is in there, they make sure that it is a doable modification. This all happens before it is ever presented to an attorney.
There are a whole lot of steps and there is a lot of paperwork. The process like you said is very similar to a loan with the exception that there are no costs of the title company and all that other stuff. Those dont exist, we dont charge an upfront fee, and we do collect a retainer for the attorney. At some point during our process we make our recommendations and we turn it in. Then the attorney does their due diligence and thats where I really want you to explain what happens, what are these attorneys looking for?
Well this is where it completely goes off track, versus what a homeowner would do if they were doing their own modification, because they would do everything we just talked about, they would fill out the paperwork, get together tax returns, pay stubs, whatever the lender wanted and they would present all of it to the lender. Now they probably wouldn’t know exactly how to stack some of the paperwork, and how to calculate some of the things that we know how to calculate, but they would put all that they work together.
Where the difference comes in is once it gets to the attorney because the attorney ultimately wants to get you a loan modification but they can’t just call up the bank and say hey I want loan modification, because he is going to get the same result you did. So what he has to do is he has to go through the file, and he has to look for things like, I am going to use a bunch of acronyms here, he’s looking for things like TILA, RESPA, HOEPA, HUD violations, all these different guidelines that the lender was required to meet while giving you the loan.
Duration : 0:6:47
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Home Loan Modifications Negotiated by Licensed Attorneys. Real Estate & Mortgage Laws and Guidelines are Complex. Beware of the Banks Loss Mitigation Department. Go To http://RealEstateMarketingThisWeek.com
Part 1 (Excerpt)
Why you should use a licensed attorney to negotiate your loan modification
Dan Havey thanks for taking the time to be with us tonight. Thank you Michael for having me and you are absolutely right 2008 for many people was a very tough year. Tough year for pretty much everybody that I know, how many banks have we lost in 2008? Hopefully the bleeding is gone; hopefully there arent too many more banks to fail. Quite a few banks have picked up some of the slack, but the reality of it is so many people have been faced with such hardships, we have solutions that we are maybe going to talk about today that they can look forward to, to make 2009 a great year.
Definitely that is what we are doing here with your organization at Velocity Financial and with the Modification Hotline and with many of the other things I am working on right now to help people out. When I first got into this business it was back in the late 80s, I moved here from Wisconsin after getting a degree in finance and I started selling repos for Fannie Mae, Countrywide, and the RTC. The Resolution Trust Corporation was responsible for getting rid of all the real estate owned by the over 1,800 S&Ls that failed. So I cut my teeth selling those reposed properties and got to know a lot about the laws and worked with a lot of attorneys and then in the mid 90s I moved into the mortgage business, and I immediately started there working with bankruptcy attorneys for the most part.
I was helping people get out of their bankruptcies, chapter 13 bankruptcies, to avoid bankruptcies, to stop foreclosures and I did that up until the fall of 2007 and at that point the market really changed for me as we know most of the subprime financing went away. Some people might look at me and say, my god you gave people subprime loans, well if you are in a chapter 13 bankruptcy and your payment to the trustee is $1,500 a month and I can get you out of bankruptcy and reduce your total monthly outlay by $1,200, your mortgage payment would go up a little bit, I think this is a really good use of a subprime loan. And I certainly never had any complaints from anyone when I got them out of bankruptcy or I stopped their foreclosure and saved their home.
So late last year I moved out of the mortgage business for a while but I never really left it because it is pretty much what I have done my entire adult life. Over 20-25 years I have been involved with real estate, mortgages and finance and I worked for a while for about 6 months last year on a model for an idea that we came up with of being able to accurately predict the top and bottom of all real estate markets and we perfected it for Arizona and most of California. It worked really well to the point that we could actually predict the bottom of the market 6 months in advance and then after the bottoms hit all across the country we kind of stopped working on it.
It is one of the things I am going to start working on again over the next few months. The title of the book is Real Estates Future and you can go to my website at http://realestatesfuture.com and get a copy of that if you want to, it is not available yet but just put in your information and I am going to give away a whole bunch of free copies of it.
The reason why I went through this entire story is because a few months ago Michael and Velocity Financial came to me and said he was going to do loan modifications and I had been approached by other people and I had seen a bunch of garbage on the internet and the thing that he said to me that sold me was, You know Dan, you have to understand, were using attorneys to negotiate these loan modifications.
And that is, I didnt mean to interrupt but that is the key; that is one of the reasons it took us so long to get in. Even though Velocity Financial was at the very beginning of this mad craze, heck you cant drive down the street without seeing a sign that says loan mod, kind of like back in 2006 in the heyday of the mortgage business where you couldnt drive down the street and see a sign that said, if your mortgage payment is more than 1% you are paying too much. Well now everybody is jumping into the loan modification game and it is dangerous.
And that is exactly it, it is every unemployed loan officer has gotten into the loan modification game and I guess I am guilty of the exact same thing. It is just after having 20 years experience of working with attorneys, I know what they are capable of doing, I know how they can go in and negotiate and the biggest thing is they are there to protect the home owner, to protect the consumer, to protect their client because they have a fiduciary responsibility to that client…
Duration : 0:6:29
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Home Loan Modifications Negotiated by Licensed Attorneys. Real Estate & Mortgage Laws and Guidelines are Complex. Beware of the Banks Loss Mitigation Department. Go To http://RealEstateMarketingThisWeek.com
Part 6 (Excerpt)
Fannie Mae is proposing to give you a 50 year loan with an adjustable rate
The next one is that your loan to value on your house has to be at least 90% of the property value. So in other words everyone under 90% gets foreclosed on? Right, if you only owe 80% of what your home is worth, they can foreclose on you, take your house and they dont lose as much money.
Back when I was working with Fannie Mae selling repos almost 20 years ago now, they always gave us the figure that they lost 20% of the homes value every time they had to foreclose. So they have plenty of room to sell your house if you only owe 80% on it. So if you owe, lets just throw out some numbers here, lets say your house is worth $100,000 and you owe $80,000 on it, well they are going to lose a little bit but they are going to make it back when they sell your house for $100,000.
Yes, they would just as soon kick you out and keep their money. Yes, exactly I am not necessarily going to say that Fannie Mae is going to kick you out of your house, however the reason why they have this guideline is very simple, they are not going to lose money on you if they have to foreclose on you when you are under 90%. They certainly are not going to lose very much money.
If you have subordinate loans it may be left outstanding and will not be considered in the LTV, so lets just give an example here, your house is worth $300,000 and you have a $300,000 1st mortgage and you happen to have a $50,000 second mortgage. They will re-modify your 1st mortgage but leave the 2nd mortgage in place. So people get to stay underwater, or upside down.
Well certainly you would be in that case and it just does not sit right. The best thing I certainly would like to see them do if nothing else in a situation like that is combine it all into one loan at a much lower interest rate. Because you know that 2nd mortgage is probably going to have a high interest rate. So it would just be so much better.
We need verification of income that makes sense. Here is one I dont get, 38% as far as your debt to income ratio. That seems kind of high to me. What do you think Michael?
Well I think that people who have gotten themselves into trouble and they need to do something like a loan modification then 38% is probably on the high side. People need relief, but they need relief that is going to last a long time. Even though this is essentially a trial-period loan modification this particular guideline of 38% really does not set well with me, I personally think it needs to be lower. People need a break; people need to be able to stay in their house.
Well what I was looking at is your average family; I always think probably pays about 30% of their gross income towards taxes, payroll, and things like that, so right off the bat Uncle Sammy takes 30%. Well now that Fannie Mae and Freddie Mac are owned by the government Uncle Sammy is going to get another 38% out of your paycheck which is a total of 68%, that doesnt leave a whole lot of money does it? Especially if you have a car payment, or you have kids to feed, maybe who go to daycare while you go off to work, assuming you still have a job. The unemployment rate is pretty high.
Well in order to qualify for this you do have to have income so you do have to have a job. So moving on to the next one because we are getting a little short on time, what they are going to do is take all of your back interest, escrow advances, costs, fees, everything they are going to add it to the loan amount and have you pay it back over as much as 50 years, if they need to stretch it out that long. Theyre going to give you a 50 year mortgage? I looked at that and thought, why dont you make it interest only because you are never going to pay the thing off anyway.
Lowest acceptable rate that they’ll have is 3%. The real kicker, if they get you a rate of 3% it will be an adjustable rate because it’s below today’s market rate. Your rate will actually increase starting five years from now at 1% per year until it gets up to the market rate. So not only are they getting a 50 year loan that you will never pay off, theyre giving you an adjustable-rate loan on top of it. If they give you 3% today it will begin to adjust up in the five years until it reaches today’s market rate. I think today’s market rate is about 6%, so you may get 3% for a couple years but eventually they go back up to 6%…
Duration : 0:6:35
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Part 2 (Excerpt)
How having the Seller pay your closing costs can quadruple your money
On the other hand if you roll that into the loan it’s going to take you 160 months to break even on that. 160 months which is a little over 13 years, that is the antithesis of the Velocity of Money that we talk about on the show every week, so I am not convinced that its the right deal for the masses, but something that should be considered is what is the opportunity cost of taking the money out of Account X and the type of account you taking it out of has some impact too. If it’s from a brokerage account then you experience the market loss in that account and youre selling at these low price levels, I think the markets are going to turn and the opportunity costs over 160 months, youre talking about a substantial amount of money. And the additional mortgage payment is insignificant.
Obviously no one is going to allow you to pay more than the house is worth, that’s not what were suggesting. What were suggesting is merely to look at instead of simply making a lower offer than you would normally make, I’m suggesting that you consider the closing costs and what the real closing costs are in this example.
Assuming that the house is already attractively priced, one of the things that this buyer in this example should consider instead of making a lowball offer on a house that’s already priced rather attractively in this marketplace, it might make sense to consider exactly what you’re describing now. And that would be take that money or that difference and ask the seller to include those costs as part of the deal to sell the house, versus why lowball offer the house when you already know the house is the right price.
That’s exactly right and one of the other points here is in a lot of cases the closing costs dont need to be quite that high. So there is the opportunity for the home buyer to buy down, for instance, use 1% of the loan amount to buy the interest rate down. I did a calculation here today, the cost of funds changes all the time, in fact we had four price changes today. Four mortgage rate changes today, just in one day. This doesn’t apply in every scenario, but that’s why you use a certified mortgage planner, that’s why they use a FHA certified mortgage firm to do the loan to make sure that it’s the right thing to do but here’s the example of today. 1%, paying 1 point to buy the interest rate down will lower your mortgage payment, on this example of a $300,000 house, would lower your mortgage payment by $118 a month.
It’s not simple it’s not just like going to your local bank and having them give you a quote on the rate, there is so much more to it these days. I think that one of the things you’re pointing out right now is the fact that this type of negotiating exists and should be considered when making this purchase. And I know that you have already espoused that youre not a realtor in that sense, but your realtor should be talking to you about these options. If they are not, you may want to consider finding one who knows about that stuff.
They absolutely do and I’m not suggesting to anyone that they go out and find another realtor because yours is not working out for you. The reality of it is if your realtor doesn’t believe in the concept it may only be that they just don’t understand the concept. Have them give us a call, we can explain it to them. And I have simple illustrations we can share with them, how we would structure it financially, and they can, the realtor can set the price. That’s what their job is, but what our job is to make sure that you use every penny available to you to the best of your ability.
I have a question for you Brett, if you took $9000 and didnt take it out of your savings, 401K, or whatever, what will it turn into with today’s market? What would that be like?
Depending on the way the money is allocated, invested in a fixed income investment, or an interest-bearing account in a bank or whatever, what I can tell you is over the same amount of time, that $9000, over 160 months, youre probably talking about quadrupling the money. I would say that that is relatively easy and I’m not talking about taking on significant stock market risk. What I’m talking about is just compounding interest in some kind of interest-bearing account. I mean it could be a bank CD.
The other thing to do is we have this book called the Short Sale Playbook written by Ron Quinterro that we have available to anyone who is interested in it…
Duration : 0:6:12
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Part 6 (Excerpt)
Foreclosures may be the best purchase option for first time home owners; Interest rates at all time lows
In the last couple of months, 40% of all the total sales in Maricopa County were foreclosures. 40% of the total market was foreclosures and thats not including short sales, and so normally someone is doing a short sale because their bank is not willing to work with them to do the loan modification. So we could be taking 50% maybe 60% of the supply off the market and as soon as we do that we are going to start to see the bottom of this market.
So right now again I think it is a fantastic time to get out there, with government intervention, its a great time to get out there and buy a house. Most people who are out there looking at homes today they have already met with a realtor or they have met with their mortgage planner or both and they are ready to get out there and go. One of the things that is still happening out there is it is still a hot buyers market. The buyer can still go buy a home that fits their needs, their families needs, that they can grow with and the seller in most cases is willing to pretty much do whatever they can as long as they get somewhere close to what they need to yield on the property.
They are willing to pay all of your closing costs in almost every case and if there are some repairs that need to be done then they are willing to do those again in almost every case. It has to be of course within reason and it also has to be repairs that need to be done. For instance, if you want granite countertops because you dont like the Formica, the lender is not going to pay for that. But if there are no countertops then the lender in most cases will do that. It has to be a primary residence. They are not going to do this for investors.
We have had a lot of cases moving past this month. You can get the lowest interest rates weve seen in years and get the seller to pay most of your closing costs, but you do need to get in and get preapproved, not prequalified preapproved, for a loan so you have that check with you when you go out to make an offer. If you are approved we can close that loan in a hurry and you will not have any problems.
One thing especially here in Arizona there are so many people who are upside down in their homes right now. You have the same issues in Florida and California everybody knows the states where they have been really hard hit. It is really difficult for a seller who is $100,000 upside down in their home to put their house on the market and get it sold and be able to give a good deal to a first time home buyer, so thats why I think in this market right now the foreclosures are some of the best deals out there. You have a motivated seller, you have a vacant house and in some cases you even have financing available from the seller of the property. Being a Fannie Mae, FHA or VA who can provide financing, so the foreclosures right now are definitely the hot spot in the market. What we were saying a couple of minutes ago was that theres a potential that coming six months from now these foreclosures could be gone. And that is great for everybody
Yes it is great for everybody and now is the time to get in there and snap them up and I have heard anecdotal stories, just recently my brother picked up a couple of REOs and he is paying somewhere between $30,000 and $50,000 for these properties, two of them were tri-plexes. And I know someone just the other day bought a home for $45,000. It was a three year old house, they had to clean the carpet and moved the tenant in the next day and that was actually someone who worked in your office Michael. Pretty easy to cash flow on a $45,000 house. Its really easy to cash flow on a $45,000 house and the rent on that was probably about $1200. So I dont know, what are they making $500, $600, $700 a month?
But what I am saying is thats the kind of prices you can get. Now I am not saying go buy the $45,000 house, because I dont know what the neighborhood was like. He said it was brand new, but maybe you have to buy the $150,000 house. But the biggest thing is make sure you get pre-qualified first. Dont start looking at foreclosure properties or any other property until you go to Velocity Financial and get yourself pre-qualified…
Duration : 0:5:48
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