Just recently I have noticed this sign cropping up more and more outside of attorneys offices in my area usually on a colorful plastic banner.

It made me question which service are these attorneys really interested in? Most attorneys don't know jack about putting a loan together so how can they disguise their real intent of promoting and charging for bankruptcy services by pretending to even care about modifying someone's loan so they can stay in their home?

After the loan mod fails and the bankruptcy is filed, and the homeowner is eventually evicted by their lender, who will rent to them with a bankruptcy filing on their credit reports?

Their parents will rent the basement to them.

Except in SoCal we have no basements. Lots of unpermitted garage conversions though.

Hey I noticed that when someone files chapter 7 the lenders commonly offer a modification.

Just an FYI.

CAR members received this e-mail today titled "Market Matters Advisory"

The main article in part stated that mortgage modifications failed to slow state foreclosures. The number of California households receiving Notices of Defaults, the first step in the foreclosure process, rose 122% ( 122% is not a typo )between Nov 2008 and Dec 2008, following a 3-month decline, according to Realty Trac.

"Some real estate analysts believe a Califoria law that required mortgage lenders to provide customers with 30 days' notice before filing a default, only postponed the foreclosure but did not resolve the challenges associated with loan defaults."

The House recently approved a bill allowing bankruptcy judges to lower mortgage payments for struggling homeowners. This is certainly good news for the 5.4 million homeowners who were in default by the end of last year. But how can it really benefit struggling borrowers? What change does it really make for you? This guide answers a few basic questions.

What’s the difference?

The biggest difference the bill makes is that home loans are now included in the program. Prior to the bill, bankruptcy judges could only modify student loans and car loans (among others), and mortgage loan modifications were clearly excluded. With the new legislation, you can apply for Chapter 13 bankruptcy and get your loan modified, either with a lower interest rate or a reduction of the principal.

How much can I save with the new plan?

The bill is designed to reduce the debt-to-income ratio (DTI) of borrowers with troubled mortgage loans. The DTI refers to the portion of your income that goes into mortgage expenses, including interest and insurance premiums. The government aims to bring DTIs down to a comfortable rate of 31%, which most defaults have exceeded. If your DTI is over the limit, your lender must first agree to bring it down to 38%, and the government will split the costs to further reduce it to 31%.

What are the limits?

Critics have pointed out that as more people file for bankruptcy, mortgage rates will go up and be more detrimental in the long run. To address the issue, Housing Secretary Shaun Donovan worked out a compromise limiting the bankruptcy option to homeowners who have previously sought other means of assistance. What this means is that you should take the initiative and work out alternative solutions with your lender before resorting to Chapter 13 bankruptcy. And when you come to your lender asking for a bankruptcy loan modification, you’ll have to give them 30 days to draw up an alternative. If your lender’s offer doesn’t bring your DTI to the 31-percent limit, you can still apply for bankruptcy and get a loan modification.

What if you got your current loan without proper paperwork? You can still apply for a bankruptcy loan modification, but the court will require a good-faith statement stating your plan for repaying the loan. You will also need to provide complete documentation. This keeps the option open to people who qualified for their loans without complete documentation, but retains a measure of security for both the courts and the lenders.

But will the lenders participate?

Banks and credit unions can choose whether or not to take part in the program, but the bill is designed to make loan modification and other workouts a more attractive option. For one thing, the government offers incentives for lenders who offer workouts according to the Hope for Homeowners loan modification program. Participating lenders will have their federal insurance increased from $100,000 to $250,000.

I appreciate your post but let me interject and prevent some confusion. DTI (Debt To Income) has 2 calculations. One is a front end ratio and the other is a back end ratio.

This modification reduces the front end ratio to between 31% and 38% as explained. The front end ratio takes only the mortgage portion of your debt into consideration.

Another good part of the bill is when you do the modification and make on time payments you can receive a credit of $1,000 per year as a reward which will be applied directly to the principle balance of your loan each year for up to 5 years.

The lender also can receive the same credit every year for up to 3 years.

There is also an up front regard of $1,000 to the lender for successful completion of the modification.

If the borrower is current a $1,500 bonus will be paid instead of $1,000 and the servicer will also get $500.

It is true just because someone is a lawyer that does not make them a Loan Modification expert. You have to chose a company with a track record of success and a money back guarantee, this will weed out the wannabees.

Some of these lawyers are actually DRE licensed, but for the most part they are just taking advantage of the market and the consumers - tehy don't know anything about loan mods. In all fairness, though, they are not dumb individuals and they can hire a former underwriter or good processor to process loan mods, while representing the client.

Someone said above that Ch. 7 could lead to a mod. This is incorrect, maybe after the discharge. most lenders will not do a loan modification for the clients in foreclosure. After - yes.

It was much easier to do loan mods before government stepped in with their proposed guidelines. The banks were doing a good job before. Now it's just more confusion.


Boris Dorfman
www.savehomeusa.com
www.lendingbeeinc.com