Archive for the ‘“Making Home Affordable”’ Category

A Scary Thought

Friday, May 28th, 2010

Today I heard a couple of frank words from a “negotiator” at a major lender that made gave me chills.  I’ll get to them in a moment, but it’s definitely got me thinking and worried about the future for homeowners that are facing foreclosure.

A little back-story: I help homeowners for free, the ones diligent enough to pick up the phone and call me, usually devoting 2-3 hours of my day to answer questions, and walk homeowners through what can be the tough, arduous process of saving a home.  Every conversation typically begins with the same series of questions; and following the same algorithm I’ve been able to help hundreds of homeowners modify for free.

The same question keeps coming up though; loan modifications that fit inside of the HAMP box, approved for a “trial modification” and then kicked out after three months payments, the homeowners with no money to move into a new place, and no permanent solution.

The bottom line is lenders simply will not modify if financially, they believe they can make more money selling the home as a foreclosure; guidelines and government incentives, Christian charity and homeowner plight are absolutely meaningless when stacked up against a big red bottom line.

(I’ll get to the really scary part in a second)

I’ve helped a good deal of homeowners modify that were kicked out of Making Home Affordable (HAMP, or “The Obama Loan Modification” as some like to call it) by putting together NPV (Net Positive Value Tests) to better understand the lender’s position.  In truth, I use the “Net Present Value Worksheet” here: , using the “Test Scenario” tab, accounting for re-default rate with an educated guess, the Freddie weekly indexed rate (located at and under “Primary Mortgage Market Survey”), and the homeowner’s information.

This test paints a clear picture of what the bank would lose or gain by modifying vs. foreclosing.

So I’m on the phone with a positively delightful retiree and I’ve “threeway’ed” in her lender, and we start doing the whole song and dance:

Me – “Mrs. _____ is facing foreclosure, she was approved for a loan modification under HAMP that she does in fact qualify for, I’m curious why she was not approved for a permanent modification?”

Negotiator – “Well, at this time she simply doesn’t qualify.”

Me – “Really, according to whose guidelines?  Is there an investor holding the loan that does not participate in HAMP?  Please help me to understand!”

Negotiator – “Well, I really can’t say at this point in time; as far as I can tell she just doesn’t qualify…”

Me – “Alrighty, well I’m sure you won’t mind if we just run through all of her financials, hardship; I’m happy to illustrate that she qualifies at 4.875% on a 30 year fixed term through HAMP, actually above Freddie’s Surveyed rate for this week, she’s net cashflowing approximately $-300 prior to modification, $250 positive after modification…”  I continue, explaining in detail, covering every base, HAMP, net cashflow, even the silly hamp questionaire in conjunction with her hardship letter..  And the “negotiator” has no response, still isn’t budging.

Here’s what she said two hours later:

“Sir, I understand ya’lls predicament.  I’m going to be honest with you.  We purchased the loan at less than 30 cents on the dollar.  So while from your point of view it seems like, well, she owes about $500,000, the homes worth $250,000 give or take, so we’d lose $250k and we want to modify.  We can’t.  I’m sorry.”

As my brain automatically did the math, my jaw hit the ground.  — They bought the loan for something in the neighborhood of $150,000; they unload the property at $200,000 in a week, $50k undermarket, they still make $50k.

Thinking quickly, I countered as best as a could, but I knew at that moment I had lost –

“Umm.. What about time on market, maintenance fees for six months at least getting it to sell, REALTOR’s fees, attorneys fees..”  I know this is bad tact but I can’t think of anything.  Out of desperation I say, “C’mon, she’s retired, she can afford this and she won’t be late.  Please just do it.”

“The truth is, we don’t know that.  We’d rather lend the money to a prime borrower at 6% interest”.

And then I got scared.

*** Afterthoughts ***

I connected the lady with (what I hope) is a good REALTOR® in her area to help her with a short-sale (I really gotta connect with more real estate professionals).  I could tell she was devastated, but probably other than the last few sentences didn’t really comprehend what I or the “negotiator” were saying for most of the conversation.

I’d like to think I’m damn good at loss mitigation; I’ve helped a lot of people, but this shook me to the core.  It’s tantamount to a lender not modifying simply because they don’t want to.. And apparently they get away with it, day, after day, after day.
Just before I say goodbye, I remember thinking, man that negotiator should lose her job.  Mulling it over I’ve kind of changed my mind; the poor woman is probably underpaid, had to listen to me yell at her for 3 hours, and through it all had the integrity to actually be honest, even though it could possibly cost her her job.

I’m still not sure what to think.  I hope this helps anyone out there looking at modifying their loan on their own, and doesn’t discourage.  Things have to change eventually; there’s only so long that Americans will stand for being kicked around by the banks.

HAFA comes into play on the 5th of next month, and, to tell you the truth I haven’t finished getting up to snuff on it; guidelines are here: , and I’ll try to break it down next week for homeowners as best as I can.

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