The VA guaranteed nearly 360,000 loans last year, a 14-percent increase from FY10. Since FY07, the number of VA loan guaranties has surged an astounding 168 percent. At the same time, these no-down payment loans have been the safest mortgage products on the market for the better part of three years, according to data from the Mortgage Bankers Association.

“The continued strong performance and high volume of VA loans are a testament to the importance of VA’s home loan program and a tribute to the skilled VA professionals who help homeowners in financial trouble keep their homes,” said Secretary of Veterans Affairs Eric K. Shinseki.

Significant Gains

The sustained growth of VA loans comes as lenders have tightened requirements in the wake of the subprime mortgage meltdown. The program features more flexible credit and underwriting criteria than other loan programs. But far and away the most attractive benefit is 100-percent financing. About 9 in 10 VA borrowers purchase a home with no money down, and sellers often pick up most or all of the veteran’s closing costs.

For VA borrowers, who on average have less than $7,000 in assets, that kind of financial boost is tough to find anywhere else. While FHA loans continue to dominate the overall mortgage environment, even that program’s minimum 3.5-percent down payment can prove challenging for veterans and active service members.

Surprising Security

What’s perhaps even more surprising is the VA loan program’s track record in terms of foreclosure and delinquency. Talk of borrowers needing more “skin in the game” has ebbed some recently, but it’s still a common refrain in industry and legislative circles. Granted, VA loans constitute a small slice of the mortgage market, but these no-down payment loans are turning the “skin in the game” argument on its ear.

The VA’s rates for foreclosure and serious delinquency have been the lowest of all loan types, including prime loans, for the last 14 quarters and 11 quarters, respectively, according to the delinquency survey conducted by the Mortgage Bankers Association.

Much of that success stems from the agency’s commitment to keeping veterans in their homes. The VA incentivizes lenders and servicers to work with borrowers to avoid foreclosure and provides individualized help and assistance to homeowners on the edge. The VA also uses some credit and underwriting standards, in particular its residual income requirement, that help lenders assess an applicant’s true ability to handle the financial burden.

But VA borrowers themselves deserve part of the credit, too.

With interest rates still hovering near record lows, not to mention thousands of soldiers set to return home from Iraq and Afghanistan, the VA loan program is likely to see continued growth through FY12 and beyond.

___________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, from Lenderama and Bigger Pockets to the Huffington Post and Motley Fool. A former newspaper and magazine writer, he is also content director for a leading VA lender.

VA Loan Volume Surges, Remains Safest Mortgage Option is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The fee helps fund the VA Loan Guaranty program and ensures this long-cherished lending mechanism remains outside any Congressional appropriations process. Confusion took root this fall when the long-time rates were set to decrease at the end of September.

After weeks of political wrangling, President Obama signed a bill Monday that included a provision to retain the familiar (and higher) funding fees through September 2016.

Continuing to apply those fee levels will ensure the VA loan program remains fiscally independent and can continue to provide home loan guarantees for America’s military borrowers. The agency backed more than 357,000 loans in fiscal year 2011, a 14-percent increase from last fiscal year.

Uncertainty regarding the Funding Fee proved especially confusing for homebuyers waiting to close these last few weeks. The VA issued several circulars and provided some final clarity Tuesday, a day after the bill’s signing.

VA borrowers who closed from Nov. 18-21 will pay the lower Funding Fees. But neither lenders nor borrowers will be on the hook for the difference now that the former, higher fees are back in place.

Moving forward, all VA loans will revert back to the familiar Funding Fee levels, at least through the fall of 2016. Prospective homebuyers with service-connected disabilities are exempt from paying the fee. Most VA homeowners choose to roll the fee into their overall loan amount, adding a few extra dollars to each month’s mortgage payment.

___________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

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The last few years have proved a mixed bag for home buyers and homeowners alike.

Borrowers who qualify have reaped the benefits of government-sponsored tax credit programs and record-low interest rates. At the same time, the subprime mortgage meltdown and ensuing financial crisis created a restrictive credit environment and made it significantly tougher for some to purchase homes or refinance.

That relatively grim storyline isn’t exactly the same for military members.

VA loan volume has soared 135 percent since 2007. Falling home prices and a watertight credit market have brought new attention to the long-cherished VA home loan program.

Veterans and active duty service members don’t need to hit strict credit or income guidelines to participate. These loans also come with significant financial benefits. Veterans routinely point to the program’s signature benefit as its most powerful: Qualified borrowers can purchase a home with no money down.

Given the current lending environment, it’s almost difficult to believe anyone can buy a house today without shelling out money up front. But it’s true, it’s incredibly powerful and it’s a benefit that only one other loan product — USDA Rural Development loans — can still provide.

Nearly 90 percent of the VA loans issued in fiscal year 2010 came with no down payment.

“Most people don’t realize, especially younger people and first time-homebuyers, what a benefit it is,” said Scott Dow, of Charleston, S.C., a former Coast Guard officer and Reservist who has purchased two homes using his VA benefit. “I would not have been able to purchase a home without a VA loan.”

The VA loan and military borrowers have also proved resilient in the face of foreclosure.

VA loans have the lowest rate of foreclosure of any product on the market. Part of that success is due to the loan counseling experts at the VA who work tirelessly to keep veterans and their families from losing their homes. But committed military homeowners deserve much of the credit as well.

Despite their wide-ranging benefits, VA loans have been utilized by only a fraction of the nation’s 24 million veterans. Fewer than 13 percent have taken advantage of the program to purchase or refinance a home, according to VA benefit breakdowns.

What’s worse is nearly 20 percent of veterans are not even aware of the program’s existence, according to a 2004 report from the VA.

To be sure, a VA loan isn’t a perfect fit for every military borrower. Veterans with sizable down payments or sterling credit may find better loan terms elsewhere. But this crucial program has served as a springboard to homeownership for more than 18 million veterans since 1944.

Today, as a new era of mortgage lending takes root, the VA Loan Guaranty program is more important than ever for those who have served our country.

___________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

Why VA Loans Are More Important Than Ever is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The VA loan program has helped more than 18 million service members achieve the dream of homeownership since 1944.

Today, these flexible loans remain the safest and most powerful lending option on the market for military borrowers and their families.  Qualified veterans can purchase a home without having to spend money on a down payment, private mortgage insurance and in some cases even closing costs.

In fact, scores of our borrowers purchase a home without spending a dime up front.

But millions of veterans and active duty personnel are missing out.

Unused Benefits

Fewer than 13 percent of the country’s 25 million veterans have utilized their VA loan benefits, according to an agency study released in 2009. Many service members don’t think they qualify for a VA loan or aren’t sure how to pursue one.

But a whopping 20 percent of veterans didn’t even know there was was a VA home loan benefit, according to a 2004 survey. That’s a shocking statistic, and it underscores the need for greater education and awareness regarding the important benefits available to those who served our country.

This loan program was create to honor their service and sacrifice. VA loans continue to make homeownership possible for thousands of veterans who might otherwise struggle to secure financing. About 80 percent of VA borrowers could not qualify for a conventional loan.

Spread the Word

The VA purchase and VA refinance benefits provided by the VA Loan Guaranty Program are becoming increasingly crucial in the current lending environment. Lenders have tightened credit and underwriting requirements in the wake of the subprime mortgage meltdown. It’s getting tougher for some prospective borrowers to obtain financing.

That’s where VA loans can become a lifeline. These government-backed loans help level the playing field and keep homeownership possible for veterans and active duty personnel who might not have sterling credit or the resources for a sizable down payment.

The key is to make sure military members and their families are aware of the benefits available. In some cases, a VA loan isn’t always going to be the best solution for a particular borrower. But it should always be an option.

It’s a benefit our veterans and active duty service members have earned through their commitment and dedication to our country.

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Uncle Sam is hiring civilian employees — and when the federal government hires it offers both good pay and great benefits. There are full and part-time jobs as well as jobs for entry-level workers and for experienced professionals. Oh, and to make things better, the application process is quick and easy, there’s no charge or fee and you can locate jobs online.

Living as I do outside Washington, I see people everyday who work for the government. The range of jobs is remarkable, from doctors (research at the FDA) and lawyers (pick any federal agency) to letter carriers and Park Service employees at the Antietam National Battlefield. There are jobs available from New York to California and everything in between — and the pay scale runs well into six figures for those with experience and training. In addition, of course, the benefits package is among the best available.

The great beauty of government jobs is this: The government has entered the modern era. You can post a resume online, search for a job online and even get a job which allows telecommuting.

How To Apply For A Government Job

“Many Federal agencies fill their jobs like private industry by allowing applicants to contact the agency directly for job information and application processing,”  says the Office of Personnel Management. “But, while the process is similar, there are significant differences due to the many laws, executive orders, and regulations that govern Federal employment.

“Many years ago, applicants who passed the civil service test were placed on standing registers of eligibles maintained by the Office of Personnel Management (OPM). In addition, applicants had to complete a standard Federal employment application form, the SF-171, to apply for all jobs.

Now, however, the OPM no longer maintains registers of eligible job candidates.

• Applicants can mail, fax their resume, or apply online using their resume.
• An optional application for Federal Employment, the OF-612, is available for those who do not have a resume.
• Job seekers do not need a rating from OPM to enable them to apply for non-clerical vacancies.
• Only a few positions require a written test.
• The old SF-171 is obsolete.

Post A Government Resume

So how does the system work? In basic terms there are two steps required to get a government job interview.

First, you post your resume online. In fact, you can post up to five different resumes online, each oriented toward a different skill or job field. To post your resume you must first create an online account. This is done by going toUSAJobs.gov.

Once on the page you will see that creating an account is a two-minute job — name, address, citizenship and veteran’s status, if any.

Search Federal Job Listings

Second, the government has an online jobs search engine. In just a few minutes you can get search by agency, occupation and location; see featured jobs and employers; and find out which jobs are in demand.

To search for a federal job go to this link at USAJobs.gov. You can search by keyword, location, job category and salary range.

Types of Federal Jobs Online

There are two classes of jobs in the Federal Government:

Competitive Service jobs are under OPM’s jurisdiction. These jobs are subject to the civil service laws passed by Congress. These laws ensure that applicants and employees receive fair and equal treatment in the hiring process. They give selecting officials broad authority to review more than one applicant source before determining the best-qualified candidate based on job-related criteria. A basic principle of Federal employment is that all candidates must meet the qualification requirements for the position for which they receive an appointment.

Excepted Service agencies set their own qualification requirements. These agencies are not subject to the appointment, pay, and classification rules in Title 5, United States Code. However, they are subject to veterans’ preference. Some Federal agencies, such as the Federal Bureau of Investigations (FBI) and the Central Intelligence Agency (CIA), have only excepted service positions. Other agencies, may have some divisions or even specific jobs that may be excepted from civil service procedures. Positions may be in the excepted service by law, by executive order, or by action of OPM.

How Government Job Candidates Are Selected

In filling competitive service jobs, agencies can generally choose from among three groups of candidates:

1. A competitive list of eligibles. This record lists the applicants (in rank order) who meet the qualification requirements for a specific vacancy announcement.

2. A list of eligibles who have civil service status. This list consists of applicants who are eligible for noncompetitive movement within the competitive service. These individuals presently or previously served under career-type appointments in the competitive service. They are selected under agency merit promotion procedures and can receive an appointment by promotion, reassignment, transfer, or reinstatement.

3. A list of eligibles who qualify for a special noncompetitive appointing authority established by law or executive order. Examples of special noncompetitive appointing authorities include the Veterans’ Readjustment Appointment (VRA), the special authority for 30% or more disabled veterans, and the Peace Corps.

Agencies in the competitive service are required by law and OPM regulation to post vacancies with OPM whenever they are seeking candidates from outside their own workforce for positions lasting more than 120 days. (Agency, in this context, means the parent agency — i.e., Treasury, not the Internal Revenue Service.) These vacancies are posted on OPM’s USAJOBS and in America’s Job Bank (AJB). Excepted agencies are not required to post their job announcements in USAJOBS. To learn about their job opportunities you must go to their websites.

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It

Military families ask: what’s a VA mortgage entitlement? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Fannie Mae and some of the country’s top mortgage lenders have agreed to establish special forbearance procedures for Armed Forces members. Service members injured on active duty can have their mortgage payments reduced or eliminated for up to six months. The same measure will be in place for the families of service members who are killed in action.

The goal will be to help service members and their families find a long-term solution.

“There are a lot of people in this company who have a real passion to do something for soldiers,– Jeff Hayward, senior vice president of Fannie Mae’s National Servicing Organization. “No family impacted by a death or injury in the line of duty should have to face the additional burden of foreclosure as a result of the hardship. We want to do all that we can to provide support to these families at a time of need as we honor their sacrifices and service to our country.”

Fannie Mae also plans to suspend negative reporting to credit bureaus during the forbearance period, a move that would help service members avoid taking a potentially major hit to their credit scores.

Forbearance opportunities are not limited to borrowers with VA loans.

Among the mortgage lenders joining Fannie Mae are Citi-Mortgage, USAA, Wells Fargo, Bank of America, JP Morgan/Chase, Luxury Mortgage Corp. and First Citizens Bank. A government-sponsored enterprise based in Washington, D.C., Fannie Mae is the largest purchaser and backer of mortgages in the nation.

The company has also created a special hotline for military families struggling to make their mortgage payments. Service members and their families can call the Fannie Mae Military Support Hotline at 1-877-MIL-4566. They can also visit KnowYourOptions.com for more information.

“We who serve alongside our military recognize the great sacrifice they and their families make each day,– Katherine Hammack, assistant secretary of the Army (Installations and Environment). “The initiative between Fannie Mae and the lending community recognizes their sacrifice and demonstrates our gratitude for those who face economic hardships as a result of their service. We are profoundly grateful for this heartwarming response from the lending community as they become partners in designing and implementing this initiative.”

____________________________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

Military Families To Get Mortgage Relief is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: Fannie Mae, loan, mortgage, relief, VA, veterans

Ten states accounted for more than 70 percent of the 322,920 filings last month. California alone accounted for more than 22 percent of that total. In all, foreclosure filings nationwide fell 3 percent compared to April and were up just less than 1 percent from May 2009.

Foreclosure rates have vacillated in previous months. Amid the economic uncertainty, there’s been a lone constant — the continuing safety of VA loans.

These flexible, powerful loans have weathered the subprime collapse and its devastating wake, outperforming all other major loan types, according to the Mortgage Bankers Association. Here’s the MBA breakdown of foreclosure rates for the four major loan types as of Q4 2009:

• Subprime loan foreclosures: 15.58%
• FHA loan foreclosures: 3.57%
• Prime loan foreclosures: 3.31%
• VA loan foreclosures: 2.46%

The Department of Veterans Affairs has long utilized a strict yet realistic underwriting process that puts a premium on the health, safety and financial security of the veteran. VA loans are typically easier for veterans to obtain than conventional loans. In fact, about 80 percent of VA borrowers could not have obtained a loan with conventional financing, according to agency studies.

That isn’t to say that the wave of home foreclosures has skipped VA loans entirely. But the VA has taken steps to minimize the impact and help veterans who are facing foreclosure. Veterans whose VA loans are in jeopardy have access to supplemental servicing to help stave off default. VA borrowers can connect with a loan specialist by calling 877-827-3702.

The VA has no legal authority to intervene on behalf of veterans without an agency-approved loan. But the VA has urged veterans facing default to immediately contact their lenders to discuss potential solutions, which can include loan forbearance, loan modification and new payment regimens.

There are also cases where veterans may be able to seek protection under provisions of the Servicemembers Civil Relief Act, or SCRA. This legislation provides qualified veterans with the ability to get a lower interest rate for a period of 12 months. Recently discharged service members can also use SCRA provisions to push back evictions or foreclosures for up to nine months.

The VA has also pointed veterans to a national nonprofit group that’s working to help underwater homeowners. The group, called the HOPE NOW Alliance, offers counseling and assistance to homeowners in need. Veterans can contact the agency by calling 1-888-995-4673 or by visiting www.hopenow.com.

____________________________________

About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.

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Technorati Tags: conventional, financing, foreclosure, loan, mortgage, underwriting, VA, veterans, Veterans Affairs, vets

But when you look at the forms, deductions, exceptions, alternatives, and deadlines you have to wonder: Why are we asking military people to pay taxes at all?

Conservatives often believe that taxes should be reduced because cash is the fuel which permits government expansion — cut tax revenues and you also cut the size of the government. As well, many conservatives believe that since the rich pay most of the taxes, they should benefit most from reductions, reductions which will fuel economic growth in general. Liberals routinely argue that tax cuts are fine as long as they are “revenue neutral” and benefit the poor and middle classes, the folks with the fewest economic choices.

If there is an itch to cut taxes and enjoy the wonders of growing deficits, why not please both conservatives and liberals and do something which actually makes sense: End the taxation of military incomes.

We don’t pay much to members of the military in terms of cash salaries and that’s absurd — leading officials at Freddie Mac, Fannie Mae, Enron, Wall Street “analysts,” and trial attorneys have been far-better compensated and look how much they have helped the country. It seems terribly short-sighted to believe that we can combine an all-volunteer military with a minimum wage and continue to attract an ongoing stream of qualified personnel to do the country’s important and dangerous work.

So why not make all military wages go further? Increase military pay now, today, by simply making it tax free. No forms, no deductions, no deadline, no accountants, no exceptions and no paperwork. The value of military salaries would automatically rise, making service more attractive. And for those who favor fewer dollars for government, a tax cut for service personnel in the armed forces would do just that.

Tax-free military incomes would make federal service more attractive and lift many military families out of poverty — a national disgrace. In terms of real estate, combine a tax-free income with VA mortgages and members of the military could afford bigger mortgages and better housing — results which benefit us all. And while we’re at it, let’s gut home sale regulations which unfairly tax members of the military stationed overseas for lengthy periods.

So write your nearby representative or senator and see what they have to say — it will be interesting to see who opposes an idea which is no more than a decent thing to do and in the country’s best interest.

————————
Published originally by Realty Times on April 22, 2003 and posted with permission.

Should We Tax Our Vets? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

Technorati Tags: IRS, loan, mortgage, tax, VA, veterans, vets

For much of human history mortgage lenders have been vehemently opposed to loan modifications — except when it’s to their advantage. Now, however, a nationwide foreclosure glut is forcing lenders to re-think the issue and for the first time do-it-yourself mortgage modifications are possible.

Not likely. Not guaranteed. But possible.

What we commonly call a “mortgage” is really a contract between a borrower and a lender. The borrower gets cash up-front and in exchange the lender gets a promise of full repayment with interest over time. Importantly, a mortgage is secured by the property — if the borrower doesn’t pay, the lender has the right to sell the property to get back its money.

The paragraph above pretty-much describes the traditional lending system. A local lender — say a bank, savings and loan association or a credit union — made a loan to a local homeowner. The lender made sure the borrower was qualified for the loan and that the property value was sufficient to repay the debt if something went wrong. Why? The lender kept the loan for as long as it was outstanding. The lender’s profit was in the cashflow from the loan — the difference between the interest being paid each month by the borrower and the lender’s cost of funds.

In other words, mortgages were traditionally made by so-called “spread” lenders, companies that had a vested interest in getting loans right. Such lenders wanted fully-documented loans, careful property appraisals and sizeable downpayments because they were prepared to hold the loan for many years. What they didn’t want were foreclosures because foreclosures mean losses. Examples of spread lenders today include community banks, credit unions, Hudson City Bancorp and ING DIRECT USA.

Lenders Without Cash

In recent years the system has changed. Now we have lots of companies that look like “lenders” and who make loans to local borrowers. The catch is that such “lenders” either don’t have any cash to fund mortgages or they have the money but don’t want to keep the loan.

Huh? How can companies without money make loans? They sell the mortgage in an electronic arena called the secondary market. Money from the sale of the mortgage on the secondary market funds the loan.

The benefit of this system is that by selling a loan the lender now has more dollars to lend. More loans, in turn, mean more fees, charges and profits. No less important, the secondary system means that local lenders will not run out of money. If a lender has $5,00,000 and makes 10 loans for $500,000 each then it might seem as though the lender could not fund any more mortgages. However, by selling the loans in the secondary market the lender gets fresh cash and therefore can make new loans.

Now the loan — most-likely your loan — is owned by an investor, not a lender. That investor paid a given amount for your loan under the assumption that your loan would generate a certain interest rate. No less important, you probably don’t know the investor that owns your loan. Instead, your payments are likely being collected by a servicer.

Fannie & Freddie

We now know that your mortgage most probably is not owned by the company that sold you the loan. If that’s the case then who does own it?

Remember we said the loan was sold in the secondary market to an investor. Buyers on the secondary market include pension funds, insurance companies and investors worldwide. However, the two biggest buyers of local loans are Fannie Mae and Freddie Mac.

To understand the importance of Fannie Mae and Freddie Mac consider some numbers. First, it’s generally estimated that there are about 50 million homes which have been financed with a mortgage. Second, Fannie Mae and Freddie Mac own more than 30 million of those loans.

Because Fannie Mae and Freddie Mac own so many mortgages other mortgage investors — but not all — have generally adopted their standards. If you want to know how the loan system generally works it’s good to keep your eyes on Fannie Mae and Freddie Mac.

No Modifications, Not Now, Not Ever

The mortgage system generally worked well until the past few years. There surely were foreclosures in the past, but typically there were very few foreclosures and most were related to such issues as the loss of a job, the death of a spouse, medical bills and divorce.

In the last few years the situation has changed. As the federal government reported in late 2008, “delinquencies on mortgages have tripled, not just for subprime and Alt-A, but also for prime mortgages. Foreclosures have increased almost 150% from two years ago.” Figures from the foreclosure listing site, RealtyTrac.com, show that during the months of March, April and May 2009 there were more than 1,00,000 foreclosure filings nationwide –more filings than in all of 2005.

Despite new and higher foreclosure levels, investors — the folks who own loans — have generally refused to modify mortgages. Their reasoning goes like this:

First, a contract is a contract. You got the money we promised and you should pay the money you promised.

Second, if loan terms are modified we’ll get a lower rate of return.

Third, if we have an asset with a lower rate of return it’s worth less and we will have made a bad investment.

In fact, investors have a pretty good argument except for one looming problem: Foreclosure rates are high and climbing — and the loss from a foreclosure according to a Congressional report is typically $40,000 to $80,000 per property. Given the lousy choice of foreclosure or the less-lousy choice of a loan modification, investors are beginning to consider modifications.

Workouts

When lenders talk about loan workouts what they typically mean are two options:

• Modifications. A situation where the debt is restructured. For example, the loan term might be increased from 30 years to 40 years, thus reducing the monthly payment.
• Payment Plans. Loans where there’s a change in contract terms. For instance, the interest rate is reduced 1 percent for the next 12 months or penalties and fees are forgiven.

Notice that with workouts there’s one option lenders typically do not offer: A principal reduction. Notice also that in some cases monthly payments can actually rise with new mortgage terms.

Claim Advances

If you have mortgage insurance (MI), if you’re facing foreclosure and if you’re having a tough time that’s temporary then you may be able to get help from your mortgage insurance company with a claim advance.

If the property is foreclosed then the mortgage insurance company can owe big money to the lender. Instead, if your situation is short term, the mortgage insurance company may be willing to lend you money to bring the mortgage current, typically with little interest and very soft terms. Ask your lender and your mortgage insurance company about such help.

The New Deal

In November 2008 the Bush Administration announced that Fannie Mae and Freddie Mac would now offer a streamlined modification program (SMP) so that borrowers could more easily obtain loan modifications.

However, a look at the SMP standards suggests that meaningful modifications — if any — were enormously difficult to get under the program.

• SMP targets borrowers who have missed three payments or more, own and occupy their property as a primary residence and have not filed for bankruptcy.
• SMP creates a standard definition of an “affordable mortgage payment” — no more than 38 percent of a household’s monthly gross income.
• Servicers will have flexibility in modifying loans, including reducing the mortgage interest rate, extending the life of the loan or even deferring payment on part of the principal. The servicer receives an $800 payment for each modification.

The SMP standards are ridiculously impractical. Here’s why:

First, they require borrowers to miss three or more monthly payments, meaning that homeowners who participate must have lousy credit.

Some lenders counsel borrowers to purposely miss payments so they can qualify for the SMP. The view here is that such advice is terribly harmful because there’s no guarantee that the borrower will, in fact, get SMP relief and also because whether or not an SMP arrangement is possible the borrower will now have terrible credit, meaning that a new loan on sane terms from other sources will be virtually impossible.

Second, the SMP applies only to owner-occupants. This means the SMP effort is useless when an investment owner is in trouble. This anti-investor approach may seem somehow warranted because investors are supposed to face more risks than owner-occupants, but if you think about the consequences of this policy you can see that it’s misguided: If a property down the street is foreclosed and the value of YOUR home declines, no one cares if the foreclosed property was owned by an investor or an owner-occupant. All anyone sees is that there was a foreclosure and therefore a lower price shows when buyers look at local sales.

Third, the SMP says borrowers must devote at least 38 percent of their gross, pre-tax income to housing costs. In comparison, the usual qualification standard for a conventional loan is that 28 percent of the borrower’s income can be devoted to principal, interest, property taxes and insurance, what is known as “PITI” to lenders. In effect, borrowers who qualify for the SMP are required to spend vastly more money on housing than baseline conventional borrowers. The better idea is to lower monthly housing costs for troubled borrowers so their homes are not foreclosed.

Fourth, if you have declared bankruptcy you do not qualify for a loan modification under SMP — the very modification which may prevent the loss of all your assets.

Early Workouts

In December 2008, Fannie Mae — which held 18 million mortgages at the start of 2008 — said it would offer an “early workout” program as an alternative to the SMP.

How does the early workout program differ from the SMP?

• Early workouts, says the company, are “a separate Fannie Mae effort to assist a wider spectrum of distressed borrowers in various stages of delinquency, including those who are current on their loan payments but facing imminent default.” Translation: The new program can apply to borrowers who are current. You don’t have to miss mortgage payments to qualify, you don’t have to lose your credit standing.
• The early workout program has two phases, a trial period and then a modification. During the trial period a non-delinquent borrower must complete four timely, consecutive monthly payments at the new level. A delinquent borrower must make at least three consecutive monthly payments. Translation: Make certain you make all trial-period payments in full and on time. In fact, be smart — pay early.
• “Preforeclosure sales, acceptance of deeds-in-lieu of foreclosure, and short payoffs (accepting a payoff for less than the amount owed), will not be permitted loss mitigation alternatives for use with borrowers whose loans are current but are determined to be in imminent default,” says Fannie Mae. Translation: If you’re not in default why not try to save both the home and the mortgage?

While the early workout program has started with Fannie Mae it will logically be expanded to other lenders and investors. Since investor programs can differ, it’s important to know who or what actually owns your loan. Most probably, the people you identify as your “lender” are actually loan “servicers” and not the loan owners. The ability of servicers to make modification decisions may be limited — or non-existent — depending on the arrangement they have with the loan owner, something usually called a “pooling-and-servicing” (PAS) agreement.

The Obama Plan

In February 2009 the Obama Administration came out with a $75 billion foreclosure prevention plan which combines the best approaches from Fannie Mae and the FDIC.

The program is complex, but in basic terms it has two elements:

First, if you’re facing foreclosure and your loan is one of the 30 million owned by Fannie Mae and Freddie Mac, you may be able to refinance if the value of the property is not more than 25 percent greater than the remaining mortgage balance (originally the government limited refinancing to a 5 percent shortfall). In other words, the program does not require borrowers to have any equity in the property, but it does limit the amount of risk which the government is willing to take.

As the government explains: “The unpaid principal balance of the first lien mortgage does not exceed 125 percent of the current market value of the property. (For example, if the property is worth $200,000, the borrower must owe $250,000 or less on that first lien mortgage).”

Second, imagine that you’re not facing foreclosure but have a toxic loan. Payments have risen rapidly or about to rise. You’re not in trouble yet, you’re making all your payments, but you could be in hot water within the next few months.

In this case, hopefully, the lender will try to reduce your interest rate so that no more than 38 percent of your gross (pre-tax) income is set aside for housing. The government will then subsidize your loan to bring the monthly housing cost down to 31 percent. Note that not all lenders are participating in the Obama plan as of this writing.

In other words, this is the Fannie Mae early workout program supported, finally, with government funds.

The Obama plan, for the first time, uses federal dollars for real people with real mortgage problems, not just bankers and Wall Street insiders.

It’s estimated that as many as 7 to 9 million borrowers will be helped by the Obama program, however the program will not protect everyone against foreclosure. If the value of your home is too low, if you do not earn enough income or if you have a rental property that’s in trouble, you won’t be eligible for help. Unfortunately, for millions of people who have bought in recent years with little or no money down, or have bought with loans that negatively amortize, or who have lost their jobs, the Obama program will not work for them. For a list of specific limitations and exclusions, press here.

The Obama plan if successful could substantially reduce the inventory of unsold homes in many areas and thus bring a halt to home-price declines — assuming job losses can be contained. We should get some sense of the program’s success or failure by mid- to late-summer, 2009.

For additional information, try:

• http://www.financialstability.gov/makinghomeaffordable/
• http://www.freddiemac.com/avoidforeclosure/
• http://www.fanniemae.com/homeowners/index.html

Steps To Take

As you look at loan modification options you can see that loan owners logically do not want to make such arrangements if they can be avoided and they are not required to modify loans. Thus, if you want a loan modification, if you want to avoid foreclosure, you must make the first move.

What should you do? The first step is to analyze your financial situation,

1. What percentage of your gross income (your income before tax deductions) is now devoted to housing costs, meaning mortgage principal, interest, taxes and insurance — PITI.
2. How much could you pay each month if PITI was limited to 38 percent of your gross income?
3. How much could you pay each month if PITI was limited to 31 percent of your gross income? This is an important question because the FDIC has been using a 31-percent benchmark when modifying loans made by IndyMac, the lender taken over by the FDIC in 2008. The 31-percent standard has now spread to other programs.
4. What are your assets? Include such items as savings accounts, IRAs, other retirement accounts, certificates of deposit, stock, bonds, vehicles, other real estate. Be sure to include account numbers, the date when valued, contact information for the account holder such as a brokerage or bank, balances and required payments.
5. What is the value of your home? Local real estate brokers may be willing to help provide a general valuation on a pro bono basis with a comparative market analysis (CMA) or a broker’s price opinion (BPO)– it’s good PR for the broker and you could be a future source of referrals and business.
6. What are your debts? Include credit cards with account numbers, account information, total debt and required monthly payments. Also, student debts, auto loans, other mortgages, etc. Again, show account numbers, balances, required payments and contact information.
7. What are your typical monthly expenses for utilities, condo fees, gasoline, health insurance, child care, alimony, etc.
8. Have in hand your tax returns for the past three years and payment stubs for the last three payment periods.
9. Make sure your information is accurate and current. Have receipts and documents to support your statements.
10. No matter how enticing, do NOT sell your home with a quitclaim deed, especially if the property is being sold “subject to” the mortgage without FIRST speaking with a real estate attorney or legal clinic of your choice or to your state attorney general.
11. No matter how enticing, do NOT sell your home by making a payment to someone else. Remember, when you sell a home buyers pay YOU — not the other way around. Again, for specifics FIRST speak with a real estate attorney or legal clinic of your choice or to your state attorney general.

Once you’ve gathered baseline information arrange your data with a spreadsheet so it’s easy to follow — income, assets, debts, etc. Then review your numbers and write out a one-page letter explaining why your need for a modification is compelling.

One useful approach is to download and complete the free loan modification forms used under the Obama Administration’s Make Homes Affordable loan modification program.

1. Request Form (Request for Modification and Affidavit)
2. The Help Guide you can use to complete the Request Form (Request for Modification and Affidavit)
3. Tax Authorization (IRS 4506T-EZ Form)
4. Proof of Income
5. Proof of Income Checklist
6. Get contact information for major mortgage servicers that are participating in the program.

Your goal is to convince the loan owner that a modification is in HIS best interest. This is a business matter, it must reflect cold hard facts and it must be documented. Make sure your letter is properly written, properly spelled and grammatically correct. Write and re-write your letter until it discusses only the need for a modification and the probable consequences to the lender if you cannot modify the loan.

To see an example, go to LoanSafe.org and read their model hardship letter and related information.

Contacting The Lender

Take a look at your loan document. What is the loan number?

Who do you contact regarding mortgage payments? This will be the lender or the loan servicer, most likely there is an 800-number on your monthly bill. Check and see if there’s a specific number for the “loss mitigation” department or something similar.

As you communicate with the lender take these steps.

• Always write down the name of the person with whom you are speaking, the date and the time. Get their direct phone number if possible. Keep notes in a file of each and every phone call you make, with whom you spoke, the date and time, the number you called and what was said.
• Never yell at the person on the other end of the line. Their goal in life is not to make things hard for you. They may have instructions from the loan owner which makes it difficult or impossible for them to help in your situation. Always assume they’re trying their best. Remember the old saying, you catch more flies with honey than with vinegar. Treat lender representatives with respect and dignity.
• Ask for the name and number of people who actually make modification decisions. This usually means someone in the loss mitigation department. If you can’t get such information by phone, search around the lender’s website or search Google for the lender and the term “loss mitigation.”

Once you get to speak with a loss mitigator offer all the data you’ve put together. Make certain to send your materials by certified mail with a return receipt requested — this way you will have proof showing when the material was mailed, that it was received and when it was received.

Once the lender has your materials the real question then becomes will he make the modification? If yes, what changes will be made and how long will they last?

Be persistent. You must follow-up because there is no chance that a modification can be done with one letter or one phone call. Always ask what you can do to make the matter easier and faster for the loan owner — and then do it.

In the end what is your goal, what would you like from the lender? The best possible result would be a smaller and more-affordable monthly mortgage payment which has been created by a lower interest rate, a longer loan term, or both. In addition, getting the lender to waive accumulated fees, penalties and charges is also a benefit.

Once you have a lower payment then you must keep your end of the bargain — every payment, without exception, must be made in full and on time. This is not only fair to the lender, it will also help build your credit standing.

Getting Help

If you have mortgage problems there are plenty of people who are willing to help you — for a fee. Unfortunately, while there are experienced individuals and organizations who can provide assistance, there are others who simply want your money.

You are vastly more-likely to get a loan modification if you have assistance. Good sources of such assistance include:

• Local attorneys and legal clinics that specialize in real estate.
• Local law schools with pro bono or low-cost programs to assist members of the community.
• Local bar associations with pro bono programs. In Maryland, for example, the Washington Post reports that more than 600 lawyers have volunteered to help homeowners with mortgage problems.
• HUD has a list of foreclosure avoidance counselors at: http://www.hud.gov/offices/hsg/sfh/hcc/fc/.
• Your state attorney general. State attorneys general often have existing contacts with lenders. Contact your state attorney general directly for help and assistance.
• Community housing organizations — they often have contacts with local attorneys.
• Legal Services Corporation — Funds 900 offices around the country to help the poor obtain legal services.
• National Consumer Law Center — An excellent source of legal information for the public.
• LoanSafe.org has online tools and information and has been featured in the New York Times.
• The Neighborhood Assistance Corporation of America has been a forceful and effective advocate for those facing foreclosure.

Homeowners Assistance Program (HAP) For Military & Civilian Personnel

The government has established a Homeowners Assistance Program (HAP) to “assist eligible homeowners who face financial loss when selling their primary residence homes in areas where real estate values have declined because of a base closure or realignment announcement.” Translation: It’s a program to help those who may be forced to have a short sale or foreclosure because a local base has closed or contracted.

HAP offers significant benefits — if you have any association with the military please go to the HAP site to see who qualifies and what benefits are available.

Making Home Affordable

Be certain to check the government’s loan modification web site, MakingHomeAffordable.com. This site is entirely-free and contains the latest information regarding loan modifications under the Obama program.

To Check The Stats

To see how lenders are doing, look for the latest Making Home Affordable Program Reports issued by the Treasury Department.

To Contact Lenders

The government maintains an extensive list of individual lender foreclosure and modification contacts including names, addresses, websites, phone numbers and fax numbers. Be sure to press the show all servicers link if you cannot find a lender in the search box.

Help for Lenders

If you’re a lender and want additional information, information, policies and news regarding the Making Home Affordable program, please see HUD’s special site for lenders at www.hmpadmin.com.

How To Get A Successful Loan Modification (With Obama Update) is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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