Unlike a foreclosure which is a forced transfer, a DIL is a voluntary transfer of the title to the property from the lender.  This saves the lender time and money. And it can allow space and communication for negotiations.  If a loan modification or a short sale is not possible, the DIL allows the debtor to get rid of the property while avoiding the deficiency judgment risk and credit damage of a foreclosure.  Here’s how it works:

In late 2009, FNMA started what it calls a “Deed for Lease Program” which combines a DIL with a Lease-back to the occupant for up to 12 months.  The program is targeted for qualifying homeowners who are facing foreclosure but do not qualify for a loan modification.  As stated by FNMA:  “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”

The basic qualifying requirements are :

1.  It must be a first loan on a 1-4 unit property. The loan cannot be government guaranteed (FHA, VA, HUD, Rural Dev.); Any junior liens must subordinate;

2.  It must be the borrower’s primary residence or their tenant’s primary residence;

3.  The occupant must meet income and payment guidelines (similar to HAMP) and cannot be in bankruptcy or litigation involving the property or the loan.

If the occupant meets the qualifications, FNMA will Lease the property back to the occupant for up to 12 months after completion of the DIL at a market rent not to exceed 31% of the occupant’s monthly gross income.  What is very significant here is that the Lease-back can apply to tenants in the borrower’s rental property.  While we’ve not seen any other lenders offer a similar Deed for Lease program, a request for lease-back could be part of any DIL negotiations.

To learn more about the FNMA Deed for Lease Program, click on these links:

http://www.fanniemae.com/newsreleases/2009/4844.jhtml

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0933.pdf

https://www.efanniemae.com/sf/servicing/d4l/pdf/d4lfaqs.pdf

Short Sale Blog search terms:

• chase second mortgage
• foreclosure lease back from lender
• foreclosure leaseback program
• foreclosure rent from Lender
• Is there a program for short sale homes for rent?

What should you do with the upside down property?
You only have three real options: Keep It, Sell It, or Lose It. Everyone’s personal situation is different so what works for your neighbor may not work for you. And to make the best decision, you need to know how each option affects you, particularly your risk of a lender suing you if they’re not paid in full. This Guide will introduce you to the various issues to be considered and how they relate. For most people, Modification will be an unavailable and frustrating experience. Yet 5% will get them. For another 5%, foreclosure may be the best path. And for about 90%, selling through a short sale will provide the safest resolution and help ease the moral anguish everyone feels when they find themselves in a financial place where they never thought they would be. Coming later this month will be a detailed update on lender litigation, strategies to defeat or resolve it. This will be very important in understanding what’s going on at BofA and Chase and with collection agencies

Short Sale Blog search terms:

• mortgage blog short sale

During the growth of the real estate bubble from 2000-2008, lenders regularly sold the loans to get money to make more loans. This involved assigning the Note and Deed of Trust to the new owner and recording the assignment of the Deed of Trust.  This process was costing lenders millions of dollars in recording fees. Their solution to avoid this was the creation of a separate entity, MERS, which would be assigned the Deed of Trust but note the Note.  Then, if there was a default, whoever then held the Note would tell MERS to foreclose.  The legal question this raised was whether MERS had any real rights to enforce the loan default terms or were they merely an agent of the actual owner of the loan, ie: the holder of the Note.  This is very important because if MERS is only an agent, they have no legal right (“standing”) to take any action… only the holder of the Note can.  In States where foreclosure can only be done through a legal action (such as Ohio, Florida, and others), foreclosure actions by MERS started getting thrown out of Court when they could not prove that they also owned the Note.

These early successes gave birth to law firms promoting that they would stop foreclosures by finding the disconnect between MERS and the Note holder.  However, it also started legal argument nationwide on whether this ownership of both the Note and Deed of Trust was required.  In May 2010, the US Bankruptcy Court in California ruled that if MERS did not own the Note, they could not foreclose on the debt (Case of Rickie Walker).  However, that did not settle the dispute.  As reported in DSNews.com , Courts around the country have continued to differ. Last week, a New York judge ruled that MERS cannot foreclose unless they own the Note.  But within days, judges in Kansas and Mass. ruled that ownership was not required. Other Courts, particularly the Minnesota Supreme Court, ruled that MERS could foreclose. On February 18, 2011, California Court of Appeals (4th Dist) ruled that MERS could foreclose (Gomes v Countrywide Home Loans). In that case, MERS was actually named in the Deed of Trust signed by the borrower and had authority to foreclose.  Different facts might bring a different result.

Only rulings by a State’s Supreme Court are binding on all lower courts in a State so it is likely that the dispute will continue.  However, consensus appears to be growing in the Courts around the nation that MERS does not need to own the Note to foreclose on the security.  Perhaps, although not stated, this reflects a judicial attitude that since the borrower has actually defaulted in repaying the debt, they should not be able to use the MERS technicality to avoid the consequences.

Time will tell how this dispute eventually plays out. In the meantime, we advise that you do not get lured in by advertisements promising they’ll stop foreclosures because MERS doesn’t own the Note.

Short Sale Blog search terms:

• if lender can prove he owns mortage note
• who own the note CALIFORNIA MERS 1/24/2012
• short sale blog ca
• owning a mortgage
• mortgage loan default terms california

1.   Properties are Undervalued – As reported in DSNews.com,  based on the latest Case-Shiller home price index, a study by Capital Economics shows that in the fourth quarter of 2010, housing was 21 percent undervalued when compared with disposable income per capital. Looking at data included in the index published by the Federal Housing Finance Agency (FHFA), the firm found that housing in Q4 was 15 percent undervalued as measured against individuals’ disposable income. Capital Economics says its results illustrate “housing is exceptionally undervalued,” and the gap is getting bigger. In its third quarter 2010 report, the research firm pegged the Case-Shiller index readings as 19 percent undervalued and the FHFA index as 14 percent below what would constitute a balanced housing value in relation to income.  This downward pressure on prices will continue as the foreclosures clear out, opening the gap even further.

2.  Financing Remains Very Affordable – On top of low prices, mortgage rates have fallen back a bit in recent weeks, leaving them even further below the 20-year average of 7 percent. Last week marked the third consecutive week that rates have continued to decline. A national survey conducted by Freddie Mac shows that the average 30-year fixed-rate has dropped to 4.87 percent, while the 15-year fixed-rate has slipped to 4.15 percent. When you wrap declining home prices and historically low mortgage rates together, Capital Economics says, “The incredibly favorable affordability and valuation environment is the housing market’s one big positive.”

3.   Government Financial Support May be Ending – As my readers know, the future of FNMA and Freddie Mac is in jeopardy. These Government Sponsored Enterprises (GSE’s) were originally created to provide a funding source for socially desirable but higher risk loans. When started, GSE’s provided funds for 30% of all loans. Today, that number is 90% and steps are being taken in Congress to get government out of the lending business or at least scale it back.  Last week, Freddie Mac published a Memo that starting June 1st, they will no longer purchase loans with loan-to-value ratios of less than 5%.  As these GSE’s retract from the marketplace, interest rates and down-payment requirements are likely to rise making home ownership less achievable.

4.  Buy to Own or Invest, not to Flip – While there will always be opportunities for the knowledgeable and diligent to make money flipping properties, declining prices and increasing loan costs will shrink the profit margins available as flippers find it harder to re-sell.  In contrast, those who buy for their home or for rental investment will benefit from 1) locking in the profit margin between current prices and actual value; and 2) potentially higher rental values as the ranks of renters swell with people who cannot obtain a loan to buy their own home.

All of the above factors indicate that right now may be the ideal time to buy real estate, not for quick profit but for the long-term stability and financial growth that real estate has historically provided as a part of your overall financial plans.

Short Sale Blog search terms:

• best time to buy a short sale
• best time to buy short sales
• top short sale blogs
• when is the best time to buy a short sale home?

involved in the real estate industry is aware of the processing problems at Bank of America.  Applicants for loan modification get pushed from trial mod to trial mod before being rejected and borrowers in default are often going two years without paying while no foreclosure is started.  Perhaps that will now be changing.

As reported in DSNews.com

Bank of America announced last week that it has set up a new operational division to deal with problem loans and resolve investors’

mortgage repurchase claims. The newly formed unit, which the company has labeled Legacy Asset Servicing, will service all defaulted loans and discontinued residential mortgage products. It will be led by Terry Laughlin. Laughlin will oversee the bank’s mortgage modification and foreclosure programs, in addition to his existing duties of resolving residential mortgage representation and warranties repurchase claims.  In addition, Laughlin is charged with leading BofA’s borrower outreach program to include more than 400 housing rescue fairs in 2011, building additional homeowner assistance centers in communities across the country, and expanding partnerships with nonprofits.

The decision to establish a new, separate division to handle the company’s problem loans came out of the North Carolina bank’s very recent, and very public, robo-signing quandary, which prompted reviews of hundreds of thousands of case files and a nationwide suspension of all Bank of America foreclosures and REO sales. The bank said in a statement that the issues that came to light in September and October of last year led the company to initiate a “self-assessment of default servicing.”  While the review of the foreclosure process found that the underlying grounds for foreclosure decisions has been accurate, Bank of America implemented a series of improvements – including staffing, customer impact, and quality controls,” the company said.

Barbara Desoer, Bank of America Home Loans president, will continue to oversee the servicing of the company’s more than 12 million mortgage customers who remain current on their accounts, as well as the mortgage origination side of the business.  “This alignment allows two strong executives and their teams to continue to lead the strongest home loans business in the industry, while providing greater focus on resolving legacy mortgage issues,” said Brian Moynihan, BofA’s president and CEO. “We believe this will best serve customers – both those seeking homeownership and those who face mortgage challenges – as well as our shareholders and the communities we serve.”

Bank of America also said Friday that it is exiting the reverse mortgage origination business, citing “competing demands and priorities that require investments and resources be focused on other key areas of our business.”  Bank of America Home Loans will continue to serve the needs of existing reverse mortgage customers and those with loans in process.

Whether any or all of these changes will bring any certainty or predictability to BofA’s handling of loan modifications, short sales, and foreclosures is unclear at this time.  BofA has reported an increase of permanent modifications from November to December yet during that same period people in trial modifications declined.  Until we see any clear guidelines on what to expect when dealing with BofA, we encourage you to act early, connect with a Realtor, and know your options.

Short Sale Blog search terms:

• bank of america short sale 2011
• short sale bank of america 2011
• bank of america short sales 2011
• bank of america short sale process 2011
• bank of america and short sales 2011

HAMP was created in 2009 as a part of President Obama’s plan to stabilize the housing market and help struggling homeowners get relief and avoid foreclosure.  Yet for 2010, HAMP modifcations declined compared to lender’s own proprietary modifications.

Meanwhile, these have been dwarfed by foreclosures, 2.6 million foreclosures started and 1 million completed.  In a report to Congress published the first week of February, Neil Barofsky described the drawbacks and potential problems the bank bailout had created in regard to companies deemed “too-big-to-fail.”

His report also covered controversial issues surrounding the Home Affordable Modification Program (HAMP), designed by Treasury as a foreclosure prevention effort.  Barofsky is the special inspector general for the Troubled Asset Relief Program (TARP). The HAMP initiative, including incentive payouts to servicers, borrowers, and investors, is funded with TARP dollars. 

HAMP, Barofsky says in the report, “continues to fall dramatically short of any meaningful standard of success.”  According to Barofsky, the program was doomed from the beginning, because it was inefficiently designed with inconsistent rules that have been revised too frequently. He calls the 522,000 permanent modifications the program provided in 2010 “anemic,” and calls attention to the more than 792,000 trial and permanent modifications that have been canceled and more than 152,000 that are still in limbo. 

In December, the Congressional Oversight Panel estimated that at this rate, HAMP will generate anywhere from 700,000 to 800,000 permanent modifications, a far cry from the 3 to 4 million modifications predicted by Treasury.

Not only does Barofsky assert that HAMP is not working because of poor design and implementation, but he also says another issue is the participation and administration of the program by servicers.

Servicers, he says, have been compounding the problems of the program with unnecessary delays, by failing to follow program standards, and even by misplacing borrower paperwork. Treasury’s reaction to these issues has been lenient because of a fear that enforcing the program rules will encourage servicers to discontinue use of HAMP all together.

“Without meaningful servicer accountability,” Barofsky writes, “the program will continue to flounder. Treasury needs to recognize the failings of HAMP and be willing to risk offending servicers. And if getting tough means risking servicer flight, so be it; the results could hardly be much worse.” 

In response to the Barofsky Report, three congressmen on the Oversight and Government Reform Committe have proposed a bill to end the program.  “HAMP is a colossal failure,” said Rep. Jim Jordan (R-Ohio), who is chair of the Oversight subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending.

He continued, “In many cases, it has hurt the very people it promised to help. It’s one more example of why government interference in the private sector doesn’t work and that’s why it should be repealed.” 

Rep. Patrick T. McHenry (R- North Carolina), , who chairs the Oversight subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs, thinks enough is enough.

“The number of homeowners kicked out of HAMP – and arguably left worse off by participating in the program- exceeds the number actually helped by hundreds of thousands,” he said. 

What the future holds for HAMP and how this will impact the millions of financially-strapped borrowers trying to save their homes is unknown.

Don’t expect any improvement from the government. As frustrating as the present system is, it is the only path to modification.  Don’t quit trying but don’t put yourself in a deeper hole in the process.

Get good, qualified information early and watch for changes.

Short Sale Blog search terms:

• Hamp program problems
• making homes affordable problems
• home affordable modification program problems
• bank of america hamp modification problems
• making home affordable problems program

One area we have seen often is lenders breaking the merger by selling off the second loan after a default occurs.  Although there has not been much action by these second lenders to pursue a deficiency, we have raised the defense that the buyer of such a loan really had nothing to lose since there was no real value in the security for the loan and therefore they should not be able to sue the borrower for any unpaid amount on the second loan following a foreclosure by the first.

We expect to see a lot of such lawsuits over the next few years brought by collection companies and others who may pay pennies on the dollar and then sue for the full dollar.

Today we encountered a change to that typical sell-off strategy. In this case, Chase held both the first and second loans and was demanding recourse which the borrower could not pay.  The borrower had some leverage because of the merger and had some defenses if Chase sold the second to another creditor. 

But Chase flipped this on its head. 

Instead, Chase assigned the first loan to Bank of America which immediately filed a Notice of Default to start foreclosure, a foreclosure which will wipe out the security for the Chase second loan. The assignment broke the merger but it did not create a defense against Chase filing a lawsuit on the second because Chase already owned the second loan.

We already know that Chase more than any other lender is playing hardball in the short sale and foreclosure process.  This unique strategy change is no doubt intended to improve their odds of recovering from a borrower that may have some assets…. assets that Chase would have learned about through the Short Sale Hardship application. 

This approach, coupled with Chase’s common unwillingness (not)  to approve short sales, suggests that they view the short sale process not as loss mitigation but rather as a means of gathering information on the borrower that they can use to sue the borrower and get more money. 

In our initial discussions of this strategy, we think there are a number of other defenses to such a strategy that seeks to run around the established legal policy that a lender must look to its security first.  This “gaming the system” may not be endorsed by the coutrs but it is too ealy to tell. 

If you or your clients are dealing with Chase loans in a short sale, be wary especially where two loans are involved.  Let us know what your experiences are so together we can develop the best response to not only defeat this strategy but to convince Chase to cooperate with the short sale.

Short Sale Blog search terms:

• chase short sale 2011
• chase short sales 2011
• investing real estate 2011
• chase short sale process 2011
• chase mortgage SHORT SALE

First the Good News – 2011 should see some improvement in the general economy as the damage from the real estate and financial market collapse begins to resolve.  We’re already witnessing climbing values in the stock market and record prices for commodities such as gold and silver.  This may not mean confidence but at least people with money to invest aren’t keeping their money under their pillow.  Interest rates are edging up but are still historically low. Retailers have reported strong sales during the Christmas season and, in general, despite all of the political battles between Republicans and Democrats, consumers are feeling somewhat upbeat.  They’re still in pain but most can feel the healing taking place.

Now the Bad News -  This recession will not be over in 2011, particularly as it affects real estate.  While the economy may be slowly improving, businesses are being slow to expand and so unemployment remains very high.  Without greater certainty of stable employment, people are hesitant about making major purchases such as homes.  This uncertainty is causing economists to predict that California could be looking at another 10-11% drop in housing prices during this year fueled both by high unemployment and enormous State budget deficits. Millions of homeowners still face possible foreclosure as loan modifications remain unavailable to most. Further, the impact of the real estate bubble collapse is expanding:

1) Subprime Loan Borrowers - This was the first phase of damage from the recession. Although most of these sub-prime loans have by now been foreclosed or short-sold, 2011 will see another wave of defaults on those 2006-7 loans with 5 year adjustments.  As these move from interest-only to fully amortized, borrowers could see their loan payments double removing any capacity to pay;

2) Economy Impacted Borrowers - This is the second phase of the recession and it’s where we are today and will likely be for at least another year.  The tough part about a collapsing bubble is that it also causes “collateral damage” to those with good loans.  Millions have lost their jobs, or had cut backs or government furloughs that leave them unable to pay their loans. And with California’s record budget deficits, no-one has any confidence that State spending will improve.  Significantly, many economy-impacted borrowers may have other assets that they could spend to cover their loan deficiencies, but with no end in sight and further value losses predicted, many are finding it wise to “strategically default” rather than disclose their other assets to their lenders as part of a loan modification or short sale application.  For these borrowers, letting a foreclosure occur may make more financial sense.

3) Commercial Borrowers – This is the third phase and the one with the largest economic consequences.  One doesn’t have to look far to see empty store fronts of businesses that have closed terminating their jobs in the process.  Each of these also means a loss of income for the owner of the property and, added together, can cause the property owner to default resulting in a possible loss of all businesses. 2010 saw foreclosures nationwide of shopping centers and office complexes and large manufacturing companies.  Unlike home foreclosures, the failure of commercial loans often involves tens of millions of dollars in debt, loss of hundred or even thousands of jobs, and the loss of tax dollars for communities.  These problems together could bankrupt the lenders and even the communities where the businesses are located.  As a result, we’re now seeing commercial loan workout programs coming together with owners, lenders, accountants, community leaders, and others seeking to find a way to prevent the wide-spread losses that failure would bring.  We’ll likely be working on this area through 2014 and this will be the key in finally turning the corner from recession to real recovery in the real estate market.

Meanwhile, lenders are picking up the pace of foreclosures and filing lawsuits to recover loan deficiencies. In response, borrowers and governments are fighting back.  I’ll cover this in more depth in my next posting along with how you can protect yourself.

Short Sale Blog search terms:

• real estate outlook 2011
• 2011 real estate forecast
• 2011 short sales
• housing outlook 2011
• housing outlook for 2011

Here is their detailed account from the homeowners perspective:

TWO and a half years ago, Robert and Amy Ahleman, a construction contractor and a financial services employee, were mired in a mortgage nightmare. After missing just one loan payment on their modest, well-kept bungalow in Bensalem, Pa., the couple began receiving notices from their lender. Default fees and eviction threats followed.

As the amounts they owed ballooned because of mounting late fees and other dubious charges, their lender refused to take their payments, claiming they were insufficient — which put the Ahlemans even further behind.

The couple soon realized that filing for bankruptcy was the only way to save their home. At the time, the Ahlemans had two mortgages, one for just under $200,000 and a second for $50,000, and the debt was smothering them.

Today, however, the Ahlemans have a happier story to tell. Not only did they survive their harrowing experience with their home intact, but they say they have emerged happier and thriftier for it.

“Given how much we love the house and our neighborhood, being able to go through that and get out of it makes you look at life totally different,” says Ms. Ahleman, 33. “We can wake up every morning now and not worry about our house being ripped out from underneath us.”

Back in July 2008, when the Ahlemans’ troubles were first detailed in a front-page article in The New York Times, their experience was less common than it is today. Since then, of course, millions of average Americans have been sucked into a foreclosure maelstrom that is ruining their finances and their lives.

This disaster has been accompanied by a still-unsettled debate about how best to stem the foreclosure crisis. When the federal government first stepped in to shore up the economy in 2008, it chose to buttress Wall Street and the banking system with hundreds of billions of dollars in taxpayer bailouts while largely leaving homeowners on their own.

Now that the foreclosure mess continues to hamstring the economy and has upset political expectations, policy makers have focused more closely on it. But a divide remains: Should homeowners simply be foreclosed upon en masse, or should banks work with them to modify mortgages and reduce the loans to levels that homeowners can manage?

The Ahlemans can attest to the fact that a modification, when properly engineered, can offer a less financially painful solution for everyone involved in a potential foreclosure. Yet while the couple’s default survival tale is uplifting, it’s hardly the norm. The terms they received on their loan modification are rarely offered to troubled borrowers today, and so their journey — and their escape from the possible consequences of a foreclosure — remain unusual.

Some analysts and leading economists have cited a failure by banks to provide loan modifications as a signal reason that the foreclosure crisis continues to drag on so ruinously, years after it began. Each month, roughly 250,000 new foreclosures are started, while 100,000 are completed, according to a recent report by the Congressional Oversight Panel, which was created in 2008 to monitor financial markets and those who regulate them.

Figures like these have a huge effect on almost everyone in the country, experts say. Foreclosures blight neighborhoods, put financial pressure on families and drive down local real estate values. Investors who hold the loans in securitization trusts are also hurt by foreclosures, because recoveries on these properties are low. And consumers, made more cautious by a crippled housing market, spend less freely, curbing the economy’s growth.

SOME are prospering from foreclosures, particularly loan servicers that administer mortgages for banks and investors who own the underlying properties. As the report from the Congressional Oversight Panel noted, loan servicers can profit significantly by pushing borrowers into foreclosure. It gives the servicers more opportunities to keep charging lucrative fees and little incentive to seek a modification.

Another obstacle to loan modifications arises if imperiled borrowers have second liens, like home equity loans, on their properties. These liens are often held by lenders who are also servicers on the first mortgage. They, too, have little interest in seeing any modification because it would harm the value of their holdings and reduce their income from fees.

Because of these realities, the Home Affordable Modification Program of the Treasury has been largely ineffective when it comes to helping borrowers get loan modifications from their banks, according to the Congressional panel.

As of mid-December, HAMP had processed almost 520,000 permanent loan modifications. The panel estimated that by the time the program is finished, it will have prevented only 700,000 foreclosures over all — quite a contrast to the three million to four million modifications that the Treasury anticipated when it rolled out its plan. Up to 13 million foreclosures are expected to have occurred by 2012, the panel said.

Tim Massad, acting assistant Treasury secretary for financial stability, attributed the program’s results to three things: “The eligibility pool is smaller than we originally thought, and it has been much more difficult to contact borrowers,” he said. “Third, the banks have not executed these programs very well.”

Kurt Eggert, a professor at Chapman University School of Law in Orange, Calif., said: “I think it’s clear that while HAMP was well-intentioned, it hasn’t delivered nearly enough. I think a big part of the problem is that nobody is effectively holding servicers’ feet to the fire to say, ‘Where are the loan mods that you should be delivering that help both borrowers and investors?’ ”

IN late 2008, a little more than a year after they filed for bankruptcy to protect their home, the Ahlemans received a letter notifying them that their loan was being transferred to a new lender and loan servicer. The company that they would now be dealing with was Litton Loan Servicing, a unit of Goldman Sachs.

Ms. Ahleman said she immediately began pestering Litton for a loan modification.

“I harassed and harassed Litton,” she recalls. “We had to submit the paperwork right when our loan was transferred. We didn’t hear anything through January and February. I would call them hysterical, crying.”

After months of no progress, in the spring of 2009, a reporter called Litton to ask why the Ahlemans’ loan modification was stalled. Litton responded quickly and later made the couple a compelling offer: It said it would cut the interest rate on their first mortgage from a variable rate of 9.3 percent to a fixed rate of 4.59 percent. Litton also offered to waive $38,332 in arrears on their loan, which included late fees and legal costs that had accumulated while the loan was in default.

Separately, Banco Popular, the bank that owned the $50,000 second mortgage on the Ahlemans’ property — which carried a whopping interest rate of 12 percent — wrote it off entirely. This eliminated the couple’s obligation to pay the debt, which had grown to $62,000, including fees and other charges. (The couple paid taxes on the forgiven mortgage.)

Under the terms of the new loan, the Ahlemans’ mortgage obligations dropped from almost $250,000 to roughly $198,000. Their monthly payment fell from $1,959 to $1,376.

The Ahlemans say their loan deal gave them a life-changing second chance. Since they received it in June 2009, they have made their payments on time; they emerged from bankruptcy a year ago.

With work busy for both of them, they have been able to put money away in case they hit another rough spot.

“We like to have one or two mortgage payments in a savings account so that money is there to fall back on if we do have a bad month,” Ms. Ahleman says. “From going through that whole experience, we became very frugal. Every now and then, we’ll go out to dinner, but we don’t splurge or go on shopping sprees.”

The Ahlemans hold no credit cards, except for the one that Mr. Ahleman, 36, uses for his contracting business. They cut up their credit cards back in 2008, when they filed for bankruptcy, paying them off under a court-approved plan.

“If we can’t pay cash for it, we don’t buy it,” Ms. Ahleman says. “That’s one thing we learned. Credit cards will get you in trouble. I will never allow myself to get in that position again, regardless of what I have to do.”

For policy makers interested in designing loan modification programs that actually work, the Ahlemans’ story may be instructive. Because most banks refuse to provide principal write-downs on troubled loans, the kind of modification the couple received is the exception rather than the rule across America today.

Most loan modifications, if they can be wrangled out of lenders at all, reduce the interest rate only slightly and tack onto the mortgage all the late fees, legal fees and other questionable costs that have accrued in the foreclosure process — simply adding to the debt that borrowers must repay.

“While focusing on the safety and soundness of banking institutions, regulators have focused too little on protecting borrowers from abusive practices,” says Mr. Eggert, the law professor.

The Congressional Oversight Panel noted the possibility that conflicts of interest among loan servicers were preventing loan modifications from being struck. Representative Brad Miller, a Democrat from North Carolina, is advocating that loan servicers be separated from the institutions that hold a borrower’s loan, in order to eliminate such potential conflicts. He is also urging regulators to create strict criteria that loan servicers will have to follow when working on modifications.

Mr. Miller is circulating a letter among his colleagues that outlines his suggestions. It is addressed to top officials at six federal agencies or regulators: the Federal Reserve, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the United States Treasury.

For the loan modification criteria, Mr. Miller pointed to the rules set out by Farmer Mac, a government-sponsored enterprise that finances farm loans. Those rules include requirements about who qualifies for a change in the terms of their mortgage, and a calculation of the likely loss that a foreclosure might create.

“The criteria are designed to lead to a sensible modification that the farmer can sustain,” Mr. Miller says, “and it protects the investor as well by getting people into mortgages rather than undergoing the horrific expense of foreclosure.”

Mr. Miller also aims to end affiliations between servicers and banks, which he said were proving to be a genuine impediment to loan modifications.

“Having a servicer be affiliated with a big bank does not really have any offsetting advantage,” he says. “It creates conflicts of interest, it puts the servicer in the position of controlling information and allows it to protect itself at the expense of homeowners and investors.”

THE F.D.I.C. has proposed a set of loan servicer requirements that, among other things, would try to eliminate conflicts of interest.

Under its proposal, a servicer would have to disclose an ownership interest that it or an affiliate had in a loan secured by the same property on which another mortgage was outstanding. The servicer would also have to establish a process to address any second lien that it might own where the first mortgage is seriously delinquent.

Mr. Eggert said a national set of servicing standards would be a crucial step toward putting consumers and investors onto a level playing field with loan servicers.

“At the recent Senate testimony where all the federal agencies came forward and testified about servicer problems, it was telling that they didn’t talk about what they have already done about it,” he says. “Instead, they talked about the investigations they are conducting that they hoped would inform them on what to do next. How many years are we into this crisis? We are long past the point of where we should be investigating to see what’s happening.”

For the Ahlemans, at least, their flirtation with financial disaster — and the modification that helped them survive — has made them appreciate life more.

“We’re just really, really happy all the time,” says Ms. Ahleman. “I used to say to myself, ‘When I wake up in the morning, I just want to feel how people who are comfortable in life feel.’ And now we have the ability to do that. It can be done.”

Mortgage Nightmare

Short Sale Blog search terms:

• any successful permamnet lhome equity oan modifications with wells fargo
• short sale while loan modification
• short sale with banco popular
• short sales and banco popular
• succesful loan modifications on second lien

Troubled Mortgage Predicitons for 2011

In the third quarter 2010 One in Four single family homes had negative equity, this according to Zillow.  This is an HUGE number that could potentially lead to issues in the housing market in 2011.  If homeowners realize the housing market is continuing to decline, the impact could be severe.  We could be looking at an increase in foreclosures which increases housing inventory and that will lead to a decrease in housing prices.  With a decrease of more than $1.7 trillion  in home values nationwide in 2010 it will be interesting to see what 2011 holds

Another potential issue is more bank related.  Loss severity is on the rise.  This number is the difference between the mortgage loan amount and what the bank can turn the house for through either a short sale or foreclosure.  This is the amount of cash the bank will actually take from the real estate transaction in the end.

Indexes and Monitoring the Real Estate Markets-

With all that’s going on in the Real Estate arena we have to look at the idea of the bottom of the market.  The variables that attach themselves to this concept are virtually endless but in an article discussing homebuilders market we still have a ways to go to reach the February 2007 highs.  A more precise indicator, well at least in my eyes, is the S&P/Case-Shiller Index.  This index is a 20 city index that measures single home values which people watch to better understand the housing market trends nationwide.  The index has been decreasing due to expiring tax incentives and increasing foreclosures nationwide.

2011 Foreclosure Prediction

Foreclosures have been stalled for several months as banks try to work through the government sponsored programs and the foreclosure scandle that rocked banks over the past few months.  A large influx of foreclosed homes or REO properties will be hitting the market in 2011 causing downward pressure on home prices due to the increase in inventory.

In the end we will need to watch how banks handle their REO inventory and how the handle short sales to determine where housing prices will go.  Per usual pricing will be determined on where you live more than the index itself.  Hopefully banks will slowly push out their foreclosures instead of dumping a large volume of homes onto the market.

Short Sale Blog search terms:

• mortgage after short sale 2011
• 2011 foreclosure predictions
• foreclosure predictions for 2011
• 2011 Foreclosure Prediction
• mortgage after short sale in 2011