Short Sale Steps
As of November 2008, nearly 1.6 million borrowers were at risk of losing their homes according to economist Mark Zandi of Moody’s Economy.com. Lots of mortgage modification counselors are stepping in to try and help borrowers save their homes-for a price.
The consensus among the government, industry experts, economists and Realtors is that one of the major steps to economic recovery is for lenders to find a way to modify a borrower’s home mortgage to make it affordable so that they will not risk losing their home to foreclosure.
According to the Office of Comptroller of the Currency, 36% of borrowers who had their loans modified in the first two quarters of 2008 re-defaulted after just 3 months. After 6 months, the redefault rate was roughly 56% and after 8 months, 58% of borrowers re-defaulted. Default is considered more than 30 days past due on the monthly payment date. Clearly lenders and legislators need to do more to make mortgage modifications have a lasting affect for borrowers and the economy.
Sheila Bair, Chair of the Federal Deposit Insurance Corporation emphasized that regulators need to make the housing crisis a top priority by …”Using a combination of interest rate reductions – capped at a prime, conforming rate -– amortization extensions and, in some cases, principal deferment produces modifications that will last and, we believe, dramatically lower the re-default rate”.
Federal Reserve Chairman Ben Bernanke said on Tuesday January 13, 2009, that he felt a fiscal stimulus alone would not be enough to for a lasting U.S. economic recovery. According to Mr. Bernanke: …” More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets. Mr. Bernanke is hopeful that the latter part or 2009 we will begin to see some stabilization in the economy. Although Mr. Bernanke said “It takes awhile though for labor markets to recover.”
Meanwhile in the House, the Financial Services Committee has scheduled a hearing on advance legislation offered by Committee Chairman Barney Frank, D-Mass with regard to the President’s request to release the balance of the $350 billion from the troubled Asset Relief Program that would place tough new restrictions on recipients of the money and require spending to reduce mortgage foreclosures.
Homeowners Beware
I am sure you have heard and read all over the news ads for mortgage modifications. There are hundreds of for-profit foreclosure counselors and companies springing up competing for the mortgage modification business and charging a fee. One of the main criticisms of for-profit foreclosure counselors is that they are not regulated, with laws varying state by state. As a result, some questionable characters have been drawn to the industry, who use high-pressure sales tactics and play on consumer’s fear. Consumers should be careful who they use.
Florida enacted legislation last year to protect consumers since there are so many distressed properties in Florida and upside down homeowners. Governor Crist signed into law on May 28, 2008, which became effective as of October 1, 2007, Statute 501.1377 (HB 643/SB 992) called Anti-Fraud Legislation, to protect homeowners against unlawful foreclosure consultant acts. Under the Statute, foreclosure consultants may not:
1. “Engage in or initiate foreclosure-related rescue services without first executing a written agreement with the homeowner for foreclosure-related rescue services; or 2. Solicit, charge, receive, or attempt to collect or secure payment, directly or indirectly, for foreclosure-related rescue services before completing or performing all services contained in the agreement for foreclosure-related rescue services. ”
There are a few other states that have enacted similar legislation. You should consult with your attorney to find out more information about the laws in your area. Since you are already feeling financial stress there is no point in making matters worse by getting taken advantage by unscrupulous business practices.
There are many non-profit counselors who are certified by HUD that can help you free of charge. I suggest using a reputable mortgage broker, a certified HUD counselor, call your lender directly, hire a knowledgeable attorney or get a referral from your Realtor instead of hiring someone that you are not sure about. Kurt Eggert, a law professor at the Chapman University School of Law commented in a recent CNN Money article that “Loan modification is a growth industry, with too few rules governing those selling loan mod services”.
