Oregon Foreclosure Help for Financially Challenged Homeowners

By Utilizing the U.S. Dept. Of Treasury’s new ‘Making Home Affordable Plan, Homeowners May Be Able to Prevent or Stop Foreclosure on a Home Mortgage Through Loan Modification or Oregon Refinance.

 By: Grant Yoakum

       Harris Law Firm, PC

       Hillsboro, Oregon

For months, the mainstream media has presented troubling information with respect to national housing prices. Understandably, many have remained skeptical. Evaluating the scope and depth of the present housing crisis is difficult – especially with the wide and diverse geography of our nation. Finally, accurate data is emerging and so the first steps to assessing and repairing the damage can begin. 

On March 19, 2009, witnesses testifying before the U.S. House of Representatives, Financial Services Committee, stated that approximately 8.3 million families were ‘at risk’ of mortgage foreclosure. Those estimates appear reliable.  Translated into rough percentages, perhaps 12% of U.S. homes bearing mortgage loans are touched in this way.  It is now hard to imagine that any person remains untouched by the economic recession that first poked an ugly snout into the news in December 2007.

Unlike most economic cycles where damage is generally restricted to specific regional or demographic segments, this present financial challenge reaches deeply in our society.  The peal of financial distress bells resound from middle America – families are being uprooted and neighborhoods destabilized as home after home is lost to foreclosure and bankruptcy.  Seldom does the middle class segment, representing an enormous, stable (and taxpaying) population present their elected representatives with such a unifying and immediate need.  However, it appears that these alarms are being clearly heard in the gilded and carpeted chambers and halls of our nation’s government.

In his preliminary remarks at the March 19^th  hearing, Representative Stephen F. Lynch (D-Mass.) pointedly stated to the House and Community Ownership that the intent of the new Making Home Affordable Program was in “…reaching homeowners who have, thus far, not qualified for a break under any other program.”    That appears to be a clear signal that our government is deeply concerned and is intent on moving swiftly to provide relief to a group that rarely receives much recognition in the mainstream press. (Indeed, perhaps those political appointees and elected officials are truly fearful that ‘the revolution will NOT be televised!’)  

While rumors throughout the economically frightful winter of 2008-2009 of an enormous new ‘bailout’ program were plentiful, hard data remained scarce until the Department of Treasury revealed detailed plans on March 4, 2009.  Since that time further information has been hurried forth to the general public.  It is apparent that this has been given very high priority by President Obama and his new administration. 

One Solution: The Making Home Affordable Plan

 The Making Home Affordable Plan intends to accomplish national housing price stabilization at the consumer level through two distinct programs, one of mortgage refinance, and the other of mortgage loan modification. Full details are available through online sources, as noted below.  While this is not intended as a complete discussion, these are the general highlights of the programs:

(1)   Home Affordable Refinance Program  (“HARP”) – This program is anticipated to reach an estimated 4-5 million homeowners who are current on mortgages and who have a solid payment history,  but who are in need of a way to obtain a solid (and safer) mortgage instrument due to (1) resetting adjustable rate mortgages (the infamous “ARM’s”) and/or (2) a Loan-To-Value (‘LTV’) ratio that now exceeds the traditional threshold of  80% due to downward-spiraling home prices.

(2)   Home Affordable Modification Program (“HAMP”) Seventy-five billion dollars (that’s $75,000,000,000.00! ) is now available to assist an estimated 3-4 million homeowners in all segments’ to restructure current mortgages that are ‘underwater’ or ‘at-risk’ of default.  The ‘assistance’ provides participating lenders with financial incentives to modify loans in such a way that should provide a challenged homeowner with a reasonable chance to retain a primary residence.

 Known as the ‘waterfall’, the financial bag of tricks to be applied to a homeowner’s current mortgage include - in succession - (1) reduction of interest rate to as low as 2% per year, (2) extension of mortgage term to 40 years, or finally (3) reduction of principal – with balance payable as a balloon at end of term.   The goal is to bring the homeowner’s mortgage payment to 31% of gross income  - known as the debt-to-income (“DTI”) ratio.

By applying a series of tests including a Net-Present-Value (“NPV”) analysis to the information supplied by the homeowner, the participating lenders will be able to determine whether the loan, upon modification, will likely remain intact.  The NPV test is supposed to be an objective tool to show an investor (lender) that it will be better to accept a loan modification than force a homeowner into foreclosure.

Additionally, this program is available to homeowner’s who, despite hardships, have remained current on existing mortgages but for whom risk of foreclosure in the future is reasonably foreseeable.  One important factor to note – a qualifying homeowner must pass a ‘trial’ period of timely payments for three consecutive months, so there must be sufficient household income to reach that threshold

HOW SHOULD YOU GET STARTED?  The first steps are fairly simple.  If you have access to the world wide web, link to  www.makinghomeaffordable.gov – and locate the simple self-assessment tool for concerned homeowners.  Otherwise, contact an Independent Housing Counselor certified by US Dept. of Housing and Urban Development (“HUD”) by phone (such as 1-888-995-HOPE) and they can talk you through the process.

WHAT INFORMATION WILL YOU NEED? Since yesterday (April 15^th) was our national due date for federal income filings, much of the information you will need should be readily available. Here is a quick list of documents you will likely be asked to produce:

1.      Mortgage Statements – past three months

2.      Paystubs – past two pay periods

3.      W2 forms, 1099 forms, and/or tax returns – past two years

4.      Profit and Loss statements – past two years - if self employed

5.      Bank Statements –past two months

6.      Verification of any other income, Benefit Awards letters, Retirement  Statements, Pension Benefit Statements, Annuity Statements, Child Support/Alimony Orders

7.      Schedules of Real Estate owned, Stock and Mutual Fund Portfolio Statements

8.      Information on Home Equity lines of credit, or other credit secured by residence

HOW WILL THAT INFORMATION BE USED?   According to this new legislation, after assembling this information, along with a description of any ‘hardships’ you are presently experiencing, you will be able to submit it to your lender, who will use a ‘clear’ set of objective standards (including the NPV test mentioned previously) to evaluate your particular circumstances.

ARE THE LENDERS READY TO ACCEPT APPLICATIONS FOR LOAN MODIFICATION?   To date, no major lender has publically implemented a conduit through which homeowners can submit these applications.  This should be changing fairly soon.  There is already enormous pressure for them to accept these applications and it is likely to become a tsunami – at least initially.  When pressed by one enthusiastic homeowner to accept an early application, the Loss Mitigation group of a large financial institution finally admitted that they were quietly accepting these requests but to expect a wait of 45-60 days before response.  It is unclear whether they were actually beginning to process such submissions, or were still scrambling to develop internal procedures.  Due to the unusual nature of this problem, one should assume the process is still being invented.

WHAT HAPPENS WHEN YOUR APPLICATION FOR MODIFICATION SUCCEEDS? Assuming you eventually achieve success and are granted a loan modification, the lender will withhold final approval for ‘trial’ period of three months.  and then formalize the modification. At that time, your mortgage payment will reflect the modification steps produced through the ‘waterfall’ factors noted above.

IF YOUR APPLICATION FOR MODIFICATION IS DENIED, WHAT IS YOUR NEXT STEP?  At this time, no appeal or reconsideration process has been articulated.  Buried within hours of congressional testimony, however, was one interesting snippet – it will be quasi-government corporation Freddie Mac’s responsibility to oversee these lenders through audit, compliance and documentation review and on-site visits to lender servicing units.  Precisely how that will work remains unclear, but a well-aimed consumer complaint just might prove to be useful. You will likely need to engage a qualified attorney to assist you in that process.

HOW WILL THIS APPLICATION IMPACT YOUR PERSONAL CREDIT SCORE? This BIG  question also remains unanswered.  While a loan modification appears to have no impact on the scoring process (other than showing a change to interest rate, term and loan amount) delinquent payments prior to implementation of the modification remain the biggest problem for the hard-pressed homeowner.   The trade group representing the interests of the credit reporting industry, Consumer Data Industry Association (“CDIA”) has not provided any information with respect to upcoming changes.   Likely, this will be the subject of further Congressional hearings, as it represents a critical issue in access by consumers to reasonable and affordable credit. 

WHAT HAPPENS IF YOU DON’T QUALIFY FOR LOAN MODIFICATION?  At this point, it is likely you should seek the assistance of a qualified attorney to advise you on your remaining options. There are quite a number of legal defenses and strategies that can be utilized to forestall or prevent losing your home. They might include advice regarding technical and statutory defenses to underlying mortgage instrument,  voluntarily participating in non-judicial foreclosure or utilizing protection of the federal bankruptcy system.  It is important to note that a pending change to chapter 13 of the federal bankruptcy code is awaiting further congressional hearings and it could be a powerful defense for the homeowner.  As anticipated, it is highly political and the final version of this judicial ‘cramdown’ power may well be a mighty pawn in the political and economic chess match playing on our national stage.  Stayed tuned for more developments on that related topic.

CONSULT A REPUTABLE PROFESSIONAL!   If you choose to engage an attorney, you should be prepared to pay a fee for an hour or two of service. Remember, these issues are complex and involve an asset that may be your most valuable possession – your home!  A qualified consumer law attorney or business attorney should be able to methodically review your personal and financial circumstances and then provide you with objective and independent advice as to your choices.  

AVOID SCAMS AND RIP-OFFS!  The purpose of this article is to point out that much of this process can be done for free through federal websites and HUD-sponsored consulting businesses.  One way you can be certain your ‘advisor’ will be truly objective is to ask whether he or she will share in any commission or compensation of any kind in the event you purchase a new loan or other financial product.  .  If the answer to that question is ‘yes’, you may want to reconsider your selection. Read and understand all contracts before you sign.

A PROFESSIONALLY LICENSED ATTORNEY CAN BE YOUR BEST ADVOCATE!   Self-Help and D.I.Y. (“Do It Yourself”) are superb ways to learn new subjects. However, as this article demonstrates, this is an evolving and complex topic and securing professional assistance is worthwhile.   Finally, it is important to understand that attorneys in Oregon are strictly prohibited by professional rules of conduct from engaging in the sale of financial service products to people they are legally representing.  Many other states have similar provisions.  Knowledge of this important consumer safeguard can assist you in evaluating the objectivity of advice you are receiving.

Email: Grant F. Yoakum, Attorney

Harris Law Firm

126 SE 26^th Avenue

Hillsboro, Oregon

Tel.      503-648-4777

 

 

 

 

 

Comments

[lucas law center]

Thanks for the information. I’ve been reading along I will be reading more of your posts in the future. Keep it up!

LLCB